def14a
UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
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
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Filed by the Registrant þ |
Filed by a Party other than the Registrant o |
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Check the appropriate box: |
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Preliminary Proxy Statement |
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Confidential, For Use of the Commission Only (as permitted by 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional materials |
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Soliciting Material Pursuant To Rule 14a-11(c) or Rule 14a-12 |
SUPERCONDUCTOR TECHNOLOGIES INC.
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(Name of Registrant as Specified in Its Charter) |
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(Name of Person(s) Filing Proxy Statement if other than the Registrant) |
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Payment of filing fee (Check the appropriate box): |
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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Title of each class of securities to which transaction applies:
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Aggregate number of securities to which transaction applies:
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Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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Proposed maximum aggregate value of transaction:
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Total fee paid:
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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. |
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Amount previously paid:
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Form, schedule or registration statement no.:
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Filing party:
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Date filed:
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 25, 2005
To Our Stockholders:
The Annual Meeting of Stockholders of Superconductor
Technologies Inc. will be held on Wednesday, May 25, 2005,
at 11:00 a.m., Pacific Time, at 460 Ward Drive,
Santa Barbara, California, the offices of the Company, for
the following purposes:
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1. To elect two Class 1 Directors to hold office until
the year 2008 Annual Meeting or until their successors are
elected and qualified; |
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2. To approve an amendment to the Certificate of
Incorporation increasing the shares of the Companys
authorized common stock from one hundred twenty-five million
(125,000,000) common shares to two hundred fifty million
(250,000,000) common shares; |
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3. To approve a reverse stock split in a range of 1-for-2
to 1-for-10; |
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4. To approve amendments to the 2003 Equity Incentive Plan; |
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5. To ratify the selection of PricewaterhouseCoopers LLP as
independent auditors for the year ending December 31,
2005; and |
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6. To transact such other business as may properly come
before the meeting or any adjournment(s) thereof. |
Only stockholders of record at the close of business on
April 20, 2005 are entitled to notice of and to vote at the
Annual Meeting. A list of shareholders as of this date will be
available during normal business hours for examination by any
stockholder for any purpose germane to the Annual Meeting for a
period of ten days prior to meeting at the offices of the
Company.
All stockholders are urged to attend the Annual Meeting in
person or by proxy. YOUR VOTE IS IMPORTANT. WHETHER OR NOT
YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE SIGN
AND SUBMIT YOUR PROXY AS SOON AS POSSIBLE SO THAT YOUR SHARES
CAN BE VOTED AT THE ANNUAL MEETING IN ACCORDANCE WITH YOUR
INSTRUCTIONS. The proxy is revocable and will not affect
your right to vote in person in the event you attend the Annual
Meeting.
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By Order of the Board of Directors |
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Martin S. McDermut
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Senior Vice President, |
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Chief Financial Officer and Secretary |
Santa Barbara, California
April 20, 2005
Table of Contents
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A-1 |
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B-1 |
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C-1 |
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i
PROXY STATEMENT
ANNUAL MEETING TO BE HELD ON MAY 25, 2005
460 Ward Drive
Santa Barbara, California 93111-2310
(805) 690-4500
This Proxy Statement contains information related to the
solicitation of proxies by and on behalf of the Board of
Directors of Superconductor Technologies Inc. (the
Company) for use in connection with the
Annual Meeting of Stockholders to be held on Wednesday,
May 25, 2005, beginning at 11:00 a.m., Pacific Time,
at the offices of Superconductor located at 460 Ward Drive,
Santa Barbara, California 93111, and at any and all
adjournments or postponements thereof. This Proxy Statement and
the accompanying proxy are being mailed to stockholders on or
about April 20, 2005.
INFORMATION CONCERNING SOLICITATION AND VOTING
Record Date
Only holders of record of voting stock at the close of business
on April 20, 2005 (the Record Date) are
entitled to notice of the Annual Meeting and to vote at the
Annual Meeting. On that date, the Company had outstanding
107,711,026 shares of voting common 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 share of common stock is entitled to one vote 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 Companys nominees for the Class 1
directors, (ii) FOR an increase in the Companys
shares of authorized common stock, (iii) FOR approval of a
reverse stock split, (iv) FOR amendments to the
Companys 2003 Equity Incentive Plan and (v) FOR the
ratification of the selection of PricewaterhouseCoopers LLP as
independent auditors of the Company for the year ending
December 31, 2005. 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.
If you will not be able to attend the Annual Meeting to vote in
person, you may vote your shares by completing and returning the
accompanying proxy card or by voting electronically via the
Internet or by
telephone. To vote by mail, please mark, sign and date the
accompanying proxy card and return it promptly in the enclosed
postage paid envelope.
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. 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. The
Company has engaged InvestorCom, Inc. to assist in soliciting
proxies. We expect to pay InvestorCom approximately $40,000 for
these services.
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 with
respect to such matter.
The Company believes that abstentions should be counted for
purposes of determining both the presence and absence of a
quorum for the transaction of business and 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 a proposal (other than the election of directors).
Broker non-votes are shares held in street name for which a
broker returns a proxy card but indicates that instructions have
not been received from the beneficial owners or other persons
entitled to vote and for which the broker does not have
discretionary voting authority. In a 1988 Delaware case,
Berlin v. Emerald Partners, the Delaware Supreme
Court held that, while broker non-votes should be counted for
the purposes 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
requiring solely a majority of shares voted but will have the
impact of a vote against for Proposals 2 and 3 which
require the vote of a majority of outstanding shares.
Deadline for Receipt of Stockholder Proposals
Any stockholder who intends to present a proposal at the 2006
Annual Meeting of Stockholders must ensure that the proposal is
received by the Corporate Secretary at Superconductor
Technologies Inc., 460 Ward Avenue, Santa Barbara,
California 93111 not later than December 1, 2005 in order
to be considered for inclusion in our proxy materials for that
meeting.
2
PROPOSAL ONE
ELECTION OF CLASS 1 DIRECTORS
The Board of Directors currently consists of seven directors
divided into three classes Class 1
(Dr. Caren and Mr. Kaplan), Class 2
(Mr. Horowitz, Mr. Lockton and Mr. Shalvoy) and
Class 3 (Mr. Carlson and Mr. Quiram)
with the directors in each class holding office for staggered
terms of three years each or until their successors have been
duly elected and qualified.
M. Peter Thomas, our Chief Executive Officer and a director
for nearly eight years, retired in March 2005 and was succeeded
in both positions by Jeffrey A. Quiram. Dr. Caren, another
long time director, also recently announced his intention to
retire from the Board of Directors effective as of the date of
the Annual Meeting. After consulting with the Governance and
Nominating Committee, the Board of Directors decided to reduce
the number of directors from its current seven members to six
members and to reclassify the directors in accordance with the
bylaws to maintain equal class sizing. All of these actions take
effect as of the date of the Annual Meeting.
The Class 1 Directors will be elected at this years
Annual Meeting or any adjournments or postponements thereof. The
nominees for election as the Class 1 Directors are
Mr. Quiram and Mr. Shalvoy. The Class 1 Directors
will serve until the year 2008 Annual Meeting or until their
successors are elected and qualified. Assuming the nominees are
elected, the Company will have six directors serving as follows:
Class 1: Jeffrey Quiram,
Charles Shalvoy
Class 2: Dennis Horowitz,
Martin Kaplan
Class 3: John Carlson, John
Lockton
The accompanying proxy grants to the holder the power to vote
the proxy for substitute nominees in the event that any nominee
becomes unavailable to serve as a Class 1 Director.
Management presently has no knowledge that any nominee will
refuse or be unable to serve as a Class 1 Director for the
prescribed term.
Required Vote
Directors are elected by a plurality of the shares
voted. Plurality means that the nominee with the largest number
of votes is elected, up to the maximum number of directors to be
chosen (in this case, two directors). Stockholders can either
vote for the nominee or withhold authority to vote
for the nominee. However, shares that are withheld will have no
effect on the outcome of the election for directors. Broker
non-votes also will not have any effect on the outcome of the
election of the directors.
Board Recommendation
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
MR. QUIRAM AND MR. SHALVOY.
Corporate Governance Policies and Practices
The following is a summary of our corporate governance policies
and practices:
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A majority of the members of the Board are independent
directors, as defined by NASDAQ. The Board has determined that
all of our directors are independent, other than
Messrs. Quiram and Shalvoy. Independent directors do not
receive consulting, legal or other fees from Superconductor
other than Board and Committee compensation. |
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All of our employees, officers and directors are subject to our
Code of Business Conduct and Ethics Policy, which is available
on the Companys website at www.suptech.com. The ethics
policy meets the requirements of NASDAQ, as well as the code of
ethics requirements of the SEC. If any material provisions of
our Code of Business Conduct and Ethics Policy are waived for
our Chief Executive Officer or senior financial officers, or if
any substantive changes are made to our policy, as they relate to |
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any director or executive officer, we will disclose that fact on
our website within five (5) business days. In addition, any
other material amendment our code will be so disclosed. |
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The Boards current policy is to separate the roles of
Chairman of the Board and Chief Executive Officer. |
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The Audit, Compensation and Governance and Nominating Committees
consist entirely of independent directors. |
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The Board reviews at least annually the Companys business
initiatives, capital projects and budget matters. |
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The Audit Committee reviews and approves all related-party
transactions. |
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As part of our Code of Business Conduct and Ethics Policy, we
have made a whistleblower hotline available to all
employees for anonymous reporting of financial or other
concerns. The Audit Committee receives directly, without
management participation, all hotline activity reports,
including complaints on accounting, internal controls or
auditing matters. |
Stockholder Communications with Directors
Stockholders who want to communicate with the board or with a
particular director may send a letter to the Secretary of the
Company at Superconductor Technologies Inc., 460 Ward Avenue,
Santa Barbara, California 93111. The mailing envelope
should contain a clear notation indicating that the enclosed
letter is a Board Communication or Director
Communication. All such letters should state whether the
intended recipients are all members of the board or just certain
specified individual directors. The Secretary will circulate the
communications (with the exception of commercial solicitations)
to the appropriate director or directors. Communications marked
Confidential will be forwarded unopened.
Board Meetings and Committees
The Board of Directors held a total of 16 meetings during the
year ended December 31, 2004. The Board of Directors has
three standing committees an Audit Committee, a
Compensation Committee, and a Governance and Nominating
Committee. Current committee members are listed below, new
committee members will be appointed at the Board of Directors
meeting immediately following the Annual Meeting of
Stockholders. Each committee has a charter which is available on
the Companys website at www.suptech.com. The Audit
Committee revised its charter in May 2004, and a copy of its
current charter is attached as Annex A.
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, to review the
Companys accounting principles and its system of internal
accounting controls and to review the Companys annual and
quarterly reports before filing with the Securities and Exchange
Commission. The Audit Committee met 13 times during 2004. The
current members of the Audit Committee are Robert P.
Caren, Ph.D., John F. Carlson, Dennis J. Horowitz
(Chairman), and John D. Lockton. The Board of Directors has
determined that all members of the Audit Committee are
independent directors under the rules of the SEC and the listing
standards of NASDAQ. The Board of Directors has determined that
John F. Carlson is a financial expert who is
independent of management in accordance with the applicable
regulations.
The Compensation Committee reviews and approves salaries,
bonuses and other benefits payable to the executive officers and
administers the 2003 Equity Incentive Plan. The Compensation
Committee is specifically responsible for determining the
compensation of the Chief Executive Officer. The Compensation
Committee met 7 times during 2004. The current members of the
Compensation Committee are Robert P. Caren, Ph.D, John F.
Carlson (Chairman), Dennis J. Horowitz and Martin A. Kaplan. The
Board of Directors has determined that all members of the
Compensation Committee are independent directors under the rules
of the SEC and the listing standards of NASDAQ.
4
The Governance and Nominating Committee is responsible for
proposing a slate of directors for election by the stockholders
at each annual meeting and for proposing candidates to fill any
vacancies. The current members of the Nominating Committee are
Martin A. Kaplan (Chairman), John F. Carlson and John D.
Lockton. The Governance and Nominating Committee met four times
in 2004.
The Governance and Nominating Committee manages the process for
evaluating current Board members at the time they are considered
for re-nomination. After considering the appropriate skills and
characteristics required on the Board, the current makeup of the
Board, the results of the evaluations, and the wishes of the
Board members to be re-nominated, the Nominating Committee
recommends to the Board whether those individuals should be
re-nominated.
On at least an annual basis, the Governance and Nominating
Committee reviews with the Board whether it believes the Board
would benefit from adding a new member(s), and if so, the
appropriate skills and characteristics required for the new
member(s). If the Board determines that a new member would be
beneficial, the Governance and Nominating Committee solicits and
receives recommendations for candidates and manages the process
for evaluating candidates. All potential candidates, regardless
of their source, are reviewed under the same process. The
Governance and Nominating Committee (or its chairman) screens
the available information about the potential candidates. Based
on the results of the initial screening, interviews with viable
candidates are scheduled with Governance and Nominating
Committee members, other members of the Board and senior members
of management. Upon completion of these interviews and other due
diligence, the Governance and Nominating Committee may recommend
to the Board the election or nomination of a candidate.
Candidates for independent Board members have typically been
found through recommendations from directors or others
associated with the Company. Stockholders may also recommend
candidates by sending the candidates name and resume to
the Governance and Nominating Committee under the provisions set
forth above for communication with the Board. The deadline to
submit recommendations for nominees for election to the Board at
the Companys 2006 Annual Meeting of Stockholders is
December 1, 2005.
The Governance and Nominating Committee has no predefined
minimum criteria for selecting Board nominees, although it
believes that all independent directors should share qualities
such as, independence; experience at the corporate, rather than
divisional level, in multi-national organizations larger than
the Company; relevant, non-competitive experience; and strong
communication and analytical skills. In any given search, the
Committee may also define particular characteristics for
candidates to balance the overall skills and characteristics of
the Board and the perceived needs of the Company. In recent
years, for example, The Company has sought a nominee with
significant financial expertise and a nominee with significant
relevant operating experience. The Governance and Nominating
Committee believes that it is necessary for at least one
independent Board member to possess each of these skills.
However, during any search the Governance and Nominating
Committee reserves the right to modify its stated search
criteria for exceptional candidates.
No incumbent director attended fewer than seventy-five percent
(75%) of the aggregate of (i) the total number of meetings
of the Board of Directors held during 2004, and (ii) the
total number of meetings held by all committees of the Board of
Directors during 2004 on which such person served.
Non-Employee Director Compensation
The Board of Directors maintains a written compensation policy
for its non-employee directors. The following summarizes the
compensation policy for board service:
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Annual Retainer(1) | |
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Meeting Fees(2) | |
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Cash | |
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Options(3) | |
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Chairman of the Board
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$ |
20,000 |
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20,000 |
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4,000 |
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0 |
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Other Non-Employee Directors
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$ |
10,000 |
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15,000 |
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$ |
2,000 |
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0 |
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New Director (First Year)(4)
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NA |
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25,000 |
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NA |
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NA |
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The annual retainer is paid quarterly and requires the director
attend at least 75% of the board meetings. |
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Meeting fees are paid per meeting attended. |
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Directors receive annual stock option grants on the date of each
annual meeting. These options vest in two equal annual
installments on each anniversary of the grant date. |
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New directors receive an initial stock option grant for
25,000 shares of common stock on the date they join the
Board. The option vests in four equal annual installments on
each anniversary of the grant date. |
The Board of Directors provides additional compensation for
service on its standing committees Audit Committee,
Compensation Committee and Governance and Nominating Committee.
These committees consist entirely of independent, non-employee
directors. The following summarizes the compensation policy for
committee service:
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Annual Retainer(1) | |
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Meeting Fees(2) | |
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Cash | |
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Options | |
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Options(3) | |
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Audit Committee Chairman
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$ |
5,000 |
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0 |
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$ |
0 |
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4,000 |
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Compensation Committee Chairman
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$ |
3,000 |
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0 |
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$ |
0 |
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4,000 |
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Governance and Nominating Committee Chairman
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$ |
3,000 |
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0 |
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$ |
0 |
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4,000 |
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Other Committee Members
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$ |
0 |
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0 |
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$ |
0 |
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2,000 |
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The annual retainer is paid quarterly. |
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Meeting fees are paid per committee meeting attended. |
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Options are granted on the date of each committee meeting. These
options vest in two equal annual installments on each
anniversary of the grant date. |
Non-employee directors do not receive compensation from the
Company other than as a director or as committee member. There
are no family relationships between directors and executive
officers of the Company.
PROPOSAL TWO
AMENDMENT TO THE COMPANYS CERTIFICATE OF
INCORPORATION
INCREASING THE AUTHORIZED COMMON STOCK OF THE COMPANY
The Board of Directors has adopted, subject to stockholder
approval, an amendment to the Companys Certificate of
Incorporation (Certificate) to increase the number
of authorized shares of common stock of the Company to a total
of two hundred fifty million (250,000,000) shares (the
Amendment). The authorized common stock of the
Company, prior to the approval of the Amendment, consisted of
one hundred twenty-five million (125,000,000) shares. The
authorized preferred stock of the Company consists of two
million (2,000,000) shares and will not be affected by the
Amendment. As of March, 16, 2005, the Company had
107,711,026 shares of common stock outstanding and
16,295,806 shares reserved for issuance upon exercise of
outstanding option and warrants. Therefore, the Company had only
111,874 shares available for issuance as of that date.
The proposed additional shares may be used in connection with
possible stock splits or dividends, acquisitions, equity
financings, management incentive and employee benefit plans,
investments and for other purposes. At this time, the Board has
not decided whether or when to undertake a stock split or the
number of shares it would issue with respect to each outstanding
share if it undertakes a split, and the Company has no present
plans, understandings, or agreements for the issuance or use of
the proposed additional shares of common stock in acquisitions
or otherwise, but expects to explore potential acquisitions from
time to time as opportunities arise. The Board of Directors
believes that the proposed increase is desirable so that, as the
need arises, the Company will be able to issue the shares of
common stock without the expense and delay of a special
stockholders meeting.
6
Authorized but unissued shares of the Companys common
stock may be issued at such times, for such purposes and for
such consideration as the Board of Directors may determine to be
appropriate without further authority from the Companys
stockholders, except as otherwise required by Delaware law or
the rules of the Nasdaq Stock Market.
If Proposal 2 is adopted, it will become effective upon
filing of a Certificate of Amendment to the Companys
Certificate of Incorporation.
Vote Required
Proposal 2 requires the affirmative vote of a majority of
the outstanding common stock. Stockholders may vote
for or against the proposal, or they may
abstain from voting on the proposal. Abstentions and broker
non-votes will have the effect of voting against the
proposal to increase the authorized common stock.
Board Recommendation
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THIS PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION.
PROPOSAL THREE
AMENDMENT TO THE COMPANYS CERTIFICATE OF
INCORPORATION TO ACCOMPLISH A REVERSE STOCK SPLIT
Introduction
The Board of Directors has unanimously approved and recommended
to the stockholders an amendment to the Companys
Certificate of Incorporation to effect a reverse stock split
ranging from a one-for-two (1:2) to one-for-ten (1:10) stock
exchange, with the exact ratio to be determined within this
range by the board of directors if and when it elects to effect
a reverse stock split. If this Proposal 3 is approved, the
board of directors may effect the reverse stock split within one
year of the date of the meeting without further stockholder
approval. However, even if this Proposal 3 is approved, the
Board of Directors may decide not to effect a reverse stock
split at all if it determines that a reverse stock split is not
an effective course of action to achieve corporate objectives.
This proposal is independent of the increase in authorized stock
described in Proposal 2. The reverse stock split will be
effected by reducing the number of outstanding shares of common
stock by the chosen ratio, but will not increase the par value
of the common stock and will not reduce the number of authorized
shares of common stock. The Company will pay cash in lieu of any
fractional shares resulting from the reverse stock split. The
proposed form of amendment to the Certificate to implement the
reverse stock split is attached to this proxy statement as
Annex B.
Reasons for the Reverse Stock Split
The Companys common stock is listed on The NASDAQ National
Market which has a continued listing requirement of
$1.00 per share. The common stock is currently trading
significantly below $1.00 per share. The Company recently
received a de-listing notice from the NASDAQ Stock Market
because its common stock traded at less than $1.00 for more than
30 consecutive trading days. The Company has 180 calendar days
(October 3, 2005) to regain compliance with the $1.00 minimum
price requirement. The Company can regain compliance if the bid
price of the common stock closes at $1.00 per share or more
for a minimum of 10 consecutive trading days before the end of
the 180-day grace period. The reverse stock split is one method
for achieving this goal. The Company values its listing on The
NASDAQ National Market and would most likely implement the
reverse split if necessary to maintain its listing.
The Company also believes that the low market price of the
common stock impairs its acceptability to important segments of
the financial community and the investing public. Theoretically,
the number of shares outstanding should not, by itself, affect
the marketability of the stock, the type of investor who
acquires it, or the reputation of a company in the financial
community. However, in practice, this is not necessarily the
case,
7
as many investors look upon low-priced stock as unduly
speculative in nature and, as a matter of policy, avoid
investment in such stocks. Certain states also impose additional
regulations or restrictions on stocks trading at less than
certain prices, typically $2.00 to $5.00.
The Company believes that the low market price of the common
stock has reduced the effective marketability of those shares
because of the reluctance of many leading brokerage firms to
recommend low-priced stock to their clients. Further, a variety
of brokerage house policies and practices tend to discourage
individual brokers within those firms from dealing in low-priced
stocks. Some of those policies and practices pertain to the
payment of brokers commissions and to time-consuming
procedures that function to make the handling of low-priced
stocks unattractive to brokers from an economic standpoint. In
addition, the structure of trading commissions also tends to
have an adverse impact upon holders of low-priced stock because
the brokerage commission on a sale of low-priced stock generally
represents a higher percentage of the sales price than the
commission on a relatively higher-priced issue. Finally, the
internal guidelines of many institutional investors prohibit the
purchase of stock trading below certain minimum prices,
typically $1.00 to $5.00.
In order to provide maximum flexibility, the Company is
submitting this proposal with a range of exchange ratios. The
need for the broad range is due to the volatility of the stock
price which ranged from a high of $1.67 to a low of $0.75 during
the last six months of 2004.
Although there can be no assurance that the per share price of
the common stock after the reverse stock split will actually
increase in an amount proportionate to the decrease in the
number of outstanding shares, the reverse stock split is
intended to result in a price level that will increase investor
interest and eliminate the resistance of certain brokerage firms
and institutional investors. In determining whether to implement
the reverse stock split and selecting the exchange ratio, the
Companys Board of Directors will consider factors such as:
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The status of the common stock listing on The NASDAQ National
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The then prevailing trading price and trading volume for the
common stock; |
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The anticipated impact of the reverse stock split on the trading
price of the common stock; and |
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Prevailing general market and economic conditions. |
The Board of Directors will have sole discretion as to the exact
timing and precise exchange ratio of the reverse stock split for
one year following the date of the annual meeting and within the
range of ratios specified in this Proposal 3. The Board of
Directors may also determine that the reverse stock split is no
longer in the best interests of the Company and decide to
abandon the reverse stock split, at any time before, during or
after the meeting and prior to its effectiveness, without
further action by the stockholders.
Principal Effects
As of March 16, 2005, the Company had
107,711,026 shares of common stock issued and outstanding.
Immediately following the completion of the reverse stock split,
and, for illustrative purposes only, assuming a one-for-five
reverse stock split, the Company would have
21,542,206 shares of common stock issued and outstanding
(without giving effect to the elimination of any fractional
shares). The actual number of shares outstanding will depend on
the ratio set for the reverse stock split. The reverse stock
split will not affect any stockholders proportionate
equity interest in the Company, subject to the provisions for
the elimination of fractional shares.
As of March 16, 2005, the Company had reserved
6,441,398 shares of common stock for the exercise of
outstanding warrants. All of the outstanding warrants include
provisions for adjustments in the number of shares covered
thereby, and the exercise price thereof, in the event of a
reverse stock split. Based on the number of shares of common
stock currently reserved for issuance upon exercise of all
outstanding warrants,
8
immediately following the completion of the reverse stock split,
and, for illustrative purposes only, assuming a one-for-five
reverse stock split, the Company would have
1,288,280 shares of common stock reserved for issuance upon
exercise of outstanding warrants (without giving effect to the
elimination of any fractional shares). Each of the outstanding
warrants would thereafter evidence the right to purchase twenty
percent of the shares previously covered thereby, and the
exercise price per share would be five times the previous
exercise price.
As of March 16, 2005, the Company had reserved
10,315,168 shares of common stock for outstanding options
and future grants under its stock option plans. For illustrative
purposes, if a one-for-five reverse stock split is approved and
affected, the terms of the outstanding options and shares of
common stock remaining available for grant of stock options will
be equitably adjusted such that there would be reserved for
outstanding options and future grants a total of
2,063,034 shares of common stock. In addition, the exercise
price per share for each outstanding option would be increased
to five times the previous exercise price, so that the aggregate
exercise price payable by the optionee to the Company would
remain the same. In addition, the number of shares of common
stock which remain available for issuance under the
Companys stock option plans will be reduced by the same
ratio as the reverse stock split.
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Effect on Authorized Shares |
The reverse stock split will not affect the number of authorized
shares of capital stock, and, therefore, will have the effect of
an increase in the number of authorized but unissued shares of
common stock. The effect of an increase in the authorized shares
of common stock is discussed under Proposal 2.
Exchange of Stock Certificates and Elimination of Fractional
Share Interests
As soon as practicable after filing the Certificate of Amendment
effecting a reverse stock split with the Secretary of State of
Delaware, stockholders will receive instructions for the
exchange of their common stock certificates for new certificates
representing the appropriate number of shares of common stock
after the reverse stock split. However, if permitted, the
Company may elect to affect the exchange in the ordinary course
of trading as certificates are returned for transfer. In either
event, each current certificate representing shares of common
stock will until so exchanged be deemed for all corporate
purposes after the filing date to evidence ownership of common
stock in the proportionately reduced number. An exchange agent
may be appointed to act for stockholders in effecting the
exchange of their certificates. Stockholders should NOT
send their stock certificates now. You should send them only
after you receive instructions from us or our exchange agent.
No service charges, brokerage commissions or transfer taxes will
be payable by any stockholder, except that if any new stock
certificates are to be issued in a name other than that in which
the surrendered certificate(s) are registered it will be a
condition of such issuance that (1) the person requesting
such issuance pays all applicable transfer taxes resulting from
the transfer (or prior to transfer of such certificate, if any)
or establish to the Companys satisfaction that such taxes
have been paid or are not payable, (2) the transfer
complies with all applicable federal and state securities laws,
and (3) the surrendered certificate is properly endorsed
and otherwise in proper form for transfer.
Stockholders will not be entitled to receive fractional shares
in connection with the reverse stock split. In lieu of
fractional shares, stockholders will receive, upon surrender of
the relevant stock certificate(s), the value of the fractional
interest to which such stockholder is entitled, based upon the
fair market value of the common stock on the date the
Certificate of Amendment is filed.
Federal Income Tax Consequences
The following discussion is a summary of certain federal income
tax consequences of the reverse stock split to the company
effecting the split and to holders of common stock that hold
such stock as a capital asset for federal income tax purposes.
This discussion is based on laws, regulations, rulings and
decisions in effect on
9
the date hereof, all of which are subject to change (possibly
with retroactive effect) and to differing interpretations. This
discussion applies only to holders that are U.S. persons
and does not address all aspects of federal income taxation that
may be relevant to holders in light of their particular
circumstances or to holders who may be subject to special tax
treatment under the Internal Revenue Code, including, without
limitation, holders of preferred stock or warrants, holders who
are dealers in securities or foreign currency, foreign persons,
insurance companies, tax-exempt organizations, banks, financial
institutions, broker-dealers, holders who hold common stock as
part of a hedge, straddle, conversion or other risk reduction
transaction, or who acquired our stock pursuant to the exercise
of compensatory stock options or otherwise as compensation.
The Company has not sought, and will not seek, an opinion of
counsel or a ruling from the Internal Revenue Service regarding
the federal income tax consequences of the reverse stock split.
The following summary does not address the tax consequences of
the reverse stock split under foreign, state, or local tax laws.
Accordingly, each stockholder should consult his, her or its
tax advisor with respect to the particular tax consequences of
the reverse stock split to such holder.
The federal income tax consequences for a stockholder pursuant
to the reverse stock split will be as follows:
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The stockholder should not recognize any gain or loss for
federal income tax purposes (except for cash, if any, received
in lieu of a fractional share of common stock); |
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The stockholders aggregate tax basis of the common stock
received pursuant to the reverse stock split, including any
fractional share of the common stock not actually received,
should be equal to the aggregate tax basis of such holders
common stock surrendered in the exchange; |
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The stockholders holding period for the common stock
received pursuant to the reverse stock split should include such
holders holding period for the common stock surrendered in
the exchange; |
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Cash payments received by the stockholder for a fractional share
of common stock generally should be treated as if such
fractional share had been issued pursuant to the reverse stock
split and then redeemed by us, and such holder generally should
recognize capital gain or loss with respect to such payment,
measured by the difference between the amount of cash received
and such holders tax basis in such fractional
share; and |
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The company declaring the split should not recognize gain or
loss as a result of the reverse stock split. |
No Appraisal Rights
Stockholders have no rights under Delaware law or under the
Companys charter documents to exercise dissenters
rights of appraisal with respect to the reverse stock split.
Vote Required
Proposal 3 requires the affirmative vote of a majority of
the outstanding common stock. Stockholders may vote
for or against the proposal, or they may
abstain from voting on the proposal. Abstentions and broker
non-votes will have the effect of voting against the
proposal for a reverse stock split.
Board Recommendation
THE BOARD OF DIRECTOR RECOMMENDS A VOTE FOR
APPROVAL OF THE REVERSE STOCK SPLIT.
PROPOSAL FOUR
APPROVAL OF AMENDMENTS TO THE 2003 EQUITY INCENTIVE PLAN
The Company believes that officers and other key employees
should have a significant stake in the Companys stock
price performance under programs which link compensation to
shareholder return. As a
10
result, stock option grants and other equity incentives are an
integral part of the Companys compensation program. The
Company presently has a single plan for granting equity
incentives the 2003 Equity Incentive Plan. The plan
has an aggregate limit of 6,000,000 million shares of
common stock for all awards and related sublimits on awards to a
single person and on certain types of equity awards.
As of March 16, 2005, the Company had less than
112,000 shares of common stock remaining under the plan for
future equity grants. Therefore, the Company is requesting that
the stockholders authorize an increase in the total shares
available for grants under the 2003 Equity Plan from
6,000,000 shares of common stock to 12,000,000 shares
of common stock. The Company is also requesting a corresponding
increase in the related sublimits under the plan. There were
approximately 69 million shares outstanding when the
shareholders originally approved the 2003 Equity Plan. There are
currently in excess of 107 million shares
outstanding an increase of approximately 55%. This
increase has dramatically reduced the effective limit and
related sublimits of the plan as a percentage of the outstanding
shares.
The Board of Directors adopted amendments to the 2003 Equity
Incentive Plan on March 23, 2005 to increase the aggregate
limit and related sublimits. The amendments are subject to
approval of the stockholders at the Annual Meeting. The
following table summarizes the proposed changes to the 2003
Equity Plan:
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Current Limit | |
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Proposed Limit | |
Plan Limit or Sublimit |
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Maximum number of shares available for issuance of all awards to
all participants (Section 4.1.1)
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6,000,000 |
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12,000,000 |
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Maximum number of shares available for awards of restricted
stock, performance units and performance shares
(Section 4.1.2)
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1,800,000 |
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3,600,000 |
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Maximum number of shares available for options and SARs to a
single participant in one year (Section 4.1.3):
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First year of service
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1,200,000 |
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2,400,000 |
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Subsequent years of service
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600,000 |
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1,200,000 |
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Maximum number of shares available for all types of awards to a
single participant in one year (Section 4.1.4):
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First year of service
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1,200,000 |
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2,400,000 |
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Subsequent years of service
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600,000 |
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1,200,000 |
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Interests of Certain Persons in this Proposal
The Company signed an employment agreement in March 2005 with
Jeffrey A. Quiram, its new President and Chief Executive Officer
and a member of the Board of Directors. Under the terms of the
employment agreement, the Company immediately granted
Mr. Quiram a stock option to
purchase 1,200,000 shares of common stock
the current maximum annual limit under Sections 4.1.3 and
4.1.4 of the 2003 Equity Incentive Plan for a new employee in
his first year of service. The Company is obligated to grant
Mr. Quiram an additional stock option for another
1,200,000 shares of common stock on the date of the Annual
Meeting for a total option package of 2,400,000 shares of
common stock the proposed new maximum annual limit
for a new employee in his first year of service. The Company
signed an employment agreement with Terry White its new Vice
President of Worldwide Sales in April 2005. The Company is
obligated to grant Mr. White an option for 1,000,000 shares
on the date of the Annual Meeting.
If the stockholders decline to approve the proposed increases in
the plan limits, the Company will grant options to
Mr. Quiram and Mr. White (priced with a per share
exercise price equal to the fair market value of the common
stock on the date of the Annual Meeting) as and when additional
options become available under the plan as a result of the
expiration and forfeiture of other stock options outstanding
under the plan until is has fulfilled its obligations to
Mr. Quiram under their respective employment agreements.
Under those circumstances, the Company will not be permitted to
grant stock options to any other person until it has fulfilled
its obligations to Mr. Quiram and Mr. White.
11
Proposal 4 also impacts the Board of Directors. If
Proposal 4 is not approved, the terms of
Mr. Quirams and Mr. Whites employment
agreements (described above) would prevent the Company from
making its annual stock option grants to the non-employee
directors on the date of the 2005 Annual Meeting. Under its
compensation policy for non-employee directors, the Company
grants options annually for 20,000 shares to the Chairman
of the Board and 15,000 shares to each of the other
non-employee directors. If Proposal 4 is approved, the
Company would proceed with the 2005 annual options to the
non-employee directors. The 2005 annual director grants will
consist of options covering an aggregate of 80,000 shares
of common stock.
Description of the 2003 Equity Incentive Plan
The following summarizes the essential features of the 2003
Equity Incentive Plan as amended (the Plan). The
summary is qualified in its entirety by reference to the full
text of the amended plan which is attached to this Proxy
Statement as Annex C.
The Plan provides for the granting of stock options, stock
appreciation rights (SARs), restricted stock awards,
performance unit awards and performance share awards
(collectively, Awards) to key employees, directors
and consultants of the Company and its subsidiaries. As of
March 18, 2005, there were approximately 130 employees,
directors and consultants eligible to receive awards under the
Plan.
The purpose of the Plan is to promote the success, and enhance
the value, of the Company by linking the personal interests of
participating employees, directors and consultants to those of
the Companys stockholders and by providing such employees
and consultants with an incentive for outstanding performance.
The 2003 Plan is further intended to provide flexibility to the
Company in its ability to motivate, attract and retain the
services of participating employees and consultants upon whose
judgment, interest and special efforts the Company is largely
dependent for the successful conduct of its operations.
The 2003 Plan is administered by the Compensation Committee of
the Board of Directors of the Company (the
Committee).
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Available Shares; Limitations on Awards |
Subject to adjustments described below, no more than twelve
million (12,000,000) shares of Common Stock may be issued in the
aggregate under the Plan. No further awards will be made under
any old option plans. If awards are granted under the Plan and
subsequently expire or are forfeited to the Company, the shares
of Common Stock underlying those awards will be available for
reissuance. No plan participant may be awarded more than on
million two hundred thousand (1,200,000) options and
appreciation rights, in the aggregate, under the Plan during any
calendar year, except that during a participants initial
year of service, such maximum shall be two million four hundred
thousand (2,400,000). No participant may receive non-option
awards of more than one million two hundred thousand (1,200,000)
shares during any calendar year, except that during a
participants initial year of service, such maximum shall
be two million four hundred thousand (2,400,000).
Plan participants may receive options to purchase shares of
common stock for an exercise price fixed on the date of the
grant. The exercise price may not be less than the fair market
value of the common stock on the date of the grant. Grants of
option rights under the Plan may be incentive stock options or
non-qualified stock options. An incentive stock option is an
option that is intended to qualify as an incentive stock
option under Section 422 of the Internal Revenue
Code. A plan participant may pay the exercise price of an option
in cash, by check, or by the transfer of shares of unrestricted
common stock owned for a period of time
12
acceptable to the plan committee and having a value at the time
of exercise equal to the exercise price, by any other
consideration the plan committee may deem appropriate, or by a
combination thereof. The Committee shall determine the vesting
schedule and requirements for continuous service associated with
each grant of options and may provide for earlier vesting under
specified circumstances. The vesting or exercise of option
rights may be subject to the optionee or the Company achieving
management objectives. No incentive options shall be exercisable
more than 10 years after the date of grant.
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Stock Appreciation Rights |
The Plan permits the grant of three types of SARs: Affiliated
SARs, Freestanding SARs, Tandem SARs, or any combination
thereof. An Affiliated SAR is an SAR that is granted in
connection with a related option and which will be deemed to
automatically be exercised simultaneously with the exercise of
the related option. A Freestanding SAR is an SAR that is granted
independently of any options. A Tandem SAR is an SAR that is
granted in connection with a related option, the exercise of
which requires a forfeiture of the right to purchase a share
under the related option (and when a share is purchased under
the option, the SAR is similarly cancelled).
The Committee has complete discretion to determine the number of
SARs granted to any optionee or recipient and the terms and
conditions pertaining to such SARs. However, the grant price
must be at least equal to the fair market value of a share of
the Companys common stock on the date of grant in the case
of a Freestanding SAR and equal to the option price of the
related option in the case of an Affiliated or Tandem SAR.
The Plan permits the grant of restricted stock awards which are
restricted Common Stock bonuses that vest in accordance with
terms established by the Committee. The Committee may impose
restrictions and conditions on the shares, including, without
limitation, restrictions based upon the achievement of specific
performance goals (Company-wide, divisional and/or individual),
and/or restrictions under applicable federal or state securities
laws. The Committee may accelerate the time at which any
restrictions lapse, and/or remove any restrictions.
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Performance Unit/ Share Awards |
The Plan permits the grant of performance unit and performance
share awards which are bonuses credited to an account
established for the recipient and payable in cash, Common Stock,
or a combination thereof. Each performance unit has an initial
value that is established by the Committee at the time of its
grant. Each performance share has an initial value equal to the
fair market value of a share of the Companys Common Stock
on the date of its grant. The number and/or value of performance
unit/shares that will be paid out to recipients will depend upon
the extent to which performance goals established by the
Committee are satisfied. After a performance unit/share award
has vested, the recipient will be entitled to receive a payout
of the number of performance unit/shares earned by the
recipient, to be determined as a function of the extent to which
the corresponding performance goals have been achieved. The
Committee also may waive the achievement of any performance
goals for such performance units/shares. Subject to the
applicable award agreement, performance units/shares awarded to
recipients will be forfeited to the Company upon the earlier of
the recipients termination of employment or the date set
forth in the award agreement.
No grants of incentive stock options may be made under the Plan
after March 20, 2013. All awards made under the Plan that
remain outstanding subsequent to that date shall continue to be
governed by the terms of the Plan.
13
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Nontransferability of Awards |
Awards granted under the Plan may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the applicable laws of descent and
distribution. However, an optionee or recipient may designate
one or more beneficiaries to receive any exercisable or vested
awards following his or her death.
As the grant of awards under the Plan is discretionary, it is
impossible to determine the amount and terms of such future
grants under the Plan.
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Prohibition on Repricings |
The Committee may not lower the exercise price of outstanding
option rights without the approval of the Companys
stockholders.
The maximum number of shares of common stock which may be
awarded under the Plan, and the number of shares and price per
share applicable to any outstanding award, are subject to
adjustment in the event of stock dividends, stock splits,
combinations of shares, recapitalizations, mergers,
consolidations or other reorganizations of the Company.
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Market Value of Underlying Securities |
Common Stock underlies all of the options and rights to be
awarded under the Plan. The market value of the common stock at
the close of trading on March 18, 2005 was $0.69 per
share.
The following is a summary of certain federal income tax
consequences relating to awards under the Plan, based on federal
income tax laws currently in effect. This summary is not
intended to and does not describe all of the possible tax
consequences that could result from the acquisition, holding,
exercise or disposition of an option right or shares of common
stock purchased or granted pursuant to, or any other award
granted under, the Plan and does not describe any state, local
or foreign tax consequences.
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Tax Consequences to Participants |
Incentive Stock Options. A plan participant will not
recognize income upon the grant of an option intended to be an
incentive stock option. Furthermore, a plan participant will not
recognize ordinary income upon the exercise of an incentive
stock option if he or she satisfies certain employment and
holding period requirements although the exercise may be subject
to alternative minimum tax. To satisfy the employment
requirement, a plan participant must exercise the option not
later than three (3) months after he or she ceases to be an
employee of the Company and its subsidiaries (one (1) year
if he or she is disabled). To satisfy the holding period
requirement, a plan participant must hold the shares acquired
upon exercise of the incentive stock option for more than two
(2) years from the grant of the option and more than one
(1) year after the shares are transferred to him or her. If
these requirements are satisfied, the plan participant will be
taxed on the difference between his or her basis in the shares
and the net proceeds of the sale at capital gain rates on the
sale of the shares.
If a plan participant disposes of shares of Common Stock
acquired upon the exercise of an incentive stock option without
satisfying the holding period requirement, the plan participant
will usually recognize ordinary income at the time of
disposition equal to the amount of the difference between the
fair market value of the stock on the date the option is
exercised and the exercise price of the option.
14
Non-Qualified Stock Options. In general, a plan
participant will not recognize income at the time an option is
granted. At the time of exercise of the option, he or she will
recognize ordinary income if the shares are not subject to a
substantial risk of forfeiture (as defined in Section 83 of
the Internal Revenue Code). The amount of such income will be
equal to the difference between the option exercise price and
the fair market value of the shares of Common Stock on the date
of exercise. At the time of the sale of the shares of Common
Stock acquired pursuant to the exercise of an option,
appreciation in value of the shares after the date of exercise
will be treated as either short-term or long-term capital gain,
and depreciation in value will be treated as short-term or
long-term capital loss, depending on how long the shares have
been held. Long-term capital gains may be eligible for reduced
rates if the participant has satisfied applicable holding period
requirements.
Stock Appreciation Rights. A plan participant will not
recognize income upon the grant of a stock appreciation right.
In general, a participant will recognize ordinary income at the
time he or she receives payment on a stock appreciation right in
the amount of the payment.
Restricted Shares. In general, a plan participant will
not recognize ordinary income upon receipt of restricted shares.
The plan participant will recognize ordinary income when the
shares are transferable by the plan participant or are no longer
subject to a substantial risk of forfeiture, whichever occurs
first. At such time, the plan participant will recognize
ordinary income in an amount equal to the current fair market
value of the shares. A plan participant may, however, elect to
recognize ordinary income when the restricted shares are granted
in an amount equal to the fair market value of the shares at
that time, determined without regard to the restrictions. Any
appreciation in the value of the shares after the date the
shares become transferable or are no longer subject to
substantial risk of forfeiture, or after the participant has
made the election referred to in the preceding sentence, if
applicable, will be treated as either short-term or long-term
capital gain, and any depreciation in value will be treated as
either short-term or long-term capital loss, depending upon how
long the shares have been held.
Performance Units. A plan participant will not recognize
income upon the grant of performance units. In general, a plan
participant will recognize ordinary income at the time he or she
receives payment with respect to performance units in the amount
of the payment.
|
|
|
Tax Consequences to the Company |
To the extent that a plan participant recognizes ordinary income
as described above, the Company, or its subsidiary for which the
plan participant performs services, will be entitled to a
corresponding deduction provided that, among other things, the
income meets the test of reasonableness, is an ordinary and
necessary business expense, is not an excess parachute
payment within the meaning of Section 280G of the
Internal Revenue Code and is not disallowed by the $1,000,000
limitation on certain executive compensation under
Section 162(m) of the Internal Revenue Code.
Vote Required
Proposal 4 requires the affirmative vote of a majority of
the votes cast on the proposal. Stockholders may vote
for or against the proposal, or they may
abstain from voting on the proposal. Abstentions will have
effect of voting against the proposal, but broker
non-votes will not have any effect on the outcome of this
proposal.
Board Recommendation
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THE AMENDMENTS TO THE 2003 EQUITY INCENTIVE PLAN.
15
PROPOSAL FIVE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has selected
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, to audit the financial statements of the
Company for the year ending December 31, 2005. The Audit
Committee is submitting its selection to the shareholders for
ratification. PricewaterhouseCoopers has served as the
Companys auditor since 1997 and has no financial interest
of any kind in the Company except the professional relationship
between auditor and client. A representative of
PricewaterhouseCoopers LLP is expected to attend the meeting,
will be afforded an opportunity to make a statement if he or she
desires to do so, and will be available to respond to
appropriate questions by stockholders.
Required Vote
Proposal 5 requires the affirmative vote of a majority of
the votes cast on the proposal. Stockholders may vote
for or against the proposal, or they may
abstain from voting on the proposal. Abstentions will have
effect of voting against the proposal, but broker
non-votes will not have any effect on the outcome of this
proposal. In the event the stockholders do not approve this
proposal, the Audit Committee will reconsider the appointment of
PricewaterhouseCoopers LLP as the independent auditors.
Board Recommendation
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THIS PROPOSAL.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding
those individuals currently serving as the directors (or
nominated to serve as a director) and executive officers of the
Company:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Principal Occupation |
|
|
| |
|
|
John D. Lockton(1)(3)
|
|
|
67 |
|
|
Chairman of the Board of the Company, Managing Director of
IPWireless, Inc. |
Robert P. Caren, Ph.D.(1)(2)
|
|
|
72 |
|
|
Retired Corporate Vice President, Science and Engineering,
Lockheed Corporation |
John F. Carlson(1)(2)(3)
|
|
|
66 |
|
|
Retired Chairman and Chief Executive Officer, Cray Research, Inc. |
Dennis J. Horowitz(1)(2)
|
|
|
58 |
|
|
Chairman, President, Chief Executive Officer and Director of
Wolverine Tube, Inc. |
Martin A. Kaplan(2)(3)
|
|
|
67 |
|
|
Chairman of the Board of JDS Uniphase, Inc., retired Executive
Vice President Pacific Telesis Group |
Charles E. Shalvoy
|
|
|
56 |
|
|
Chairman, Chief Executive Officer of Canesta, Inc. |
Jeffrey A. Quiram
|
|
|
44 |
|
|
President, Chief Executive Officer and Director |
William J. Buchanan
|
|
|
56 |
|
|
Controller, Chief Accounting Officer |
Robert B. Hammond, Ph.D.
|
|
|
56 |
|
|
Senior Vice President, Chief Technology Officer |
Robert L. Johnson
|
|
|
54 |
|
|
Senior Vice President, Operations |
Henry A. Macchio
|
|
|
65 |
|
|
Vice President Sales and Marketing |
Martin S. McDermut
|
|
|
54 |
|
|
Senior Vice President, Chief Financial Officer, and Secretary |
Terry A. White
|
|
|
53 |
|
|
Vice President, Worldwide Sales |
|
|
(1) |
Member of the Audit Committee. |
16
|
|
(2) |
Member of the Compensation Committee. |
|
(3) |
Member of Governance and Nominating Committee |
John Lockton joined our Board of Directors in December
1997 and was named Chairman of the Board effective
January 1, 2001. Mr. Lockton is a founder, initial
chairman and is now managing director of IPWireless, Inc., a
wireless internet access and IP telephony service provider of 3G
technology. 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 and from March 1998 until June 1998 he served IWC as
Vice-Chairman and a director. 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 that companys Board of Directors until
December 1994. From 1983 to 1987 Mr. Lockton was Executive
Vice President of Pacific Bell (now part of SBC Communications).
From 1980 to 1983 he was President of Warner Amex (now Time
Warner) Cable Television, Inc. From 1968 to 1980
Mr. Lockton held various senior positions 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), Harvard Law School, and holds an Executive M.B.A.
from Columbia University.
Robert P. Caren, Ph.D., has served on both our Board of
Directors and our Technical Advisory Board since January 1988.
Dr. Caren served as Corporate Vice President, Sciences and
Engineering, for Lockheed Martin Corporation from 1988 to 1995,
when he retired. He 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
also a member of the National Academy of Engineering, a member
of the California Council on Science and Technology, and past
Chairman of the Research Division of the Defense Preparedness
Association. Dr. Caren holds a Ph.D., M.S. and B.S. in
physics from Ohio State University. He is a member of the Board
of Directors of Litex Inc. and Hawkeye Enterprises.
John F. Carlson joined the Companys Board in
January 2004. Mr. Carlson served as Chairman and Chief
Executive Office of Cray Research, Inc. from 1993 to 1995. From
1991 to 1993 he served as Crays President and Chief
Operating Officer and from 1982 to 1991 he served as Executive
Vice President and Chief Financial Officer. Mr. Carlson
joined Cray in 1976. From 1964 to 1976, he was with the
accounting and consulting firm of KPMG Peat Marwick LLP.
Mr. Carlson serves as a director of World Heart
Corporation. Mr. Carlson is a Certified Public Accountant,
and holds a B.S. in Business Administration from
St. Marys College.
Dennis J. Horowitz has served on our Board of Directors
since June 1990. Mr. Horowitz is currently Chairman,
President, Chief Executive Officer and Director of Wolverine
Tube, Inc., a manufacturer and distributor of copper and copper
alloy tube. From September 1994 to April 1997, he served as
Corporate Vice President and President of the Americas of 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, he 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 was involved in the general
administration of North American Philips Corporation.
Mr. Horowitz holds an M.B.A and a B.A. in economics from
St. Johns University.
Martin A. Kaplan was appointed to the Companys
Board in December 2002 concurrent with the Conductus merger.
Mr. Kaplan served as a director of Conductus from 1996 to
the closing of the merger transaction. Since May 2000,
Mr. Kaplan has served as Chairman of the Board of JDS
Uniphase, Inc., a telecommunications equipment company.
Mr. Kaplan also serves as a director of Tekelec and Redback
Networks Inc. In a career spanning forty years, Mr. Kaplan
served as Executive Vice-President of Pacific Telesis Group,
which became a subsidiary of SBC Communications in 1997, from
1986 until May 2000, as President, Network Services Group of
Pacific Bell, and its successor, Pacific Telesis, and in various
other
17
senior management positions. Mr. Kaplan earned a B.S. in
engineering from California Institute of Technology.
Charles E. Shalvoy has served as a member of the Board of
Directors since the closing of the Conductus transaction in
December 2002. He is now Chairman and Chief Executive Officer of
Canesta, Inc. He has served as a consultant to the Company since
May 2003. He was President, Chief Executive Officer and Director
of Conductus from June 1994 to May 2003. From 1988 to 1994, he
was President and Chief Operating Officer of Therma-Wave, Inc.,
a manufacturer of semiconductor production equipment. Prior to
that he was employed by Aehr Test Systems, Emerson Electric
Corp. and Raychem Corporation in a variety of senior management
positions. Mr. Shalvoy holds a B.S. in Mechanical
Engineering from the University of Notre Dame and an M.B.A. from
Stanford University.
Jeffrey A. Quiram was appointed as director, President
and Chief Executive Officer effective March 15, 2005.
Mr. Quiram joined us for a transition period which began
February 17, 2005. Mr. Quiram was most recently Vice
President of the business wireless unit of ADC
Telecommunications. Mr. Quiram was at ADC from 1991-2004 in
a variety of management roles. Mr. Quiram has a BS in
Quantitative Methods and Computer Science from College of St.
Thomas, and an MBA from University of Minnesota.
William J. Buchanan has served as Controller since June
2000. Mr. Buchanan joined the company in January 1998 and
has served in various accounting positions prior to becoming the
Controller. For 16 years prior to joining the company, he
was a self-employed private investor and investment advisor. For
the nine years prior to that, he served in various executive and
accounting positions with Applied Magnetics Corp and Raytheon
Co. Mr. Buchanan holds a B.A. in Economics from California
State University, Fresno.
Robert B. Hammond, Ph.D., has served as Senior Vice
President and Chief Technical Officer since December 1992.
Dr. Hammond served as Vice President of Technology, and
Chief Technical Officer, until August 1990. He has also served
as Secretary from October 1999 to 2002. From May 1991 to
December 1991, and July 1992 to December 1992, he served as
Acting Chief Operating Officer. From December 1987 to August
1990, he served as Program Manager. Dr. Hammond also serves
on our Technical Advisory Board. For over eleven years prior to
joining us, he was at Los Alamos National Laboratory, most
recently as Deputy Group Leader of Electronics Research and
Development a group that performs research,
development, and pilot production of solid-state electronics and
optics. Dr. Hammond received his Ph.D. and M.S. in applied
physics and his B.S. in physics from the California Institute of
Technology.
Robert L. Johnson is Senior Vice President, Operations.
Mr. Johnson joined the Company in April 2000 as Vice
President of Wireless Manufacturing. From 1996 to early 2000,
Mr. Johnson was the Director and General Manager of
Schlumberger ATE. From 1990 to 1996, he served as Vice President
and General Manager of Harman International Industries.
Mr. Johnson majored in industrial engineering at Arizona
State University.
Henry A. Macchio was appointed Vice President Sales and
Marketing in January 2005. Mr. Macchio has served as a
marketing consultant to the Company since July 2004.
Mr. Macchio is President and founder of Trilogy Enterprises
LLC, a firm formed in April 2003 to focus on Mergers and
Acquisitions, Business Development, and Intellectual Property
Licensing opportunities in the wireless communication field. For
the five years prior to forming Trilogy, Mr. Macchio was
CEO of Wi-LAN Technologies Inc., and Chief Sales and Marketing
Officer of Wi-LAN Inc. of Calgary Alberta. Wi-LAN Technologies
designed and marketed broadband wireless Internet access
products. Mr. Macchio joined the company as President and
CEO in 1998, when the company was privately held and known as
Utilicom, and participated in the sale of Utilicom to Wi-LAN in
2001. For the prior twenty years, Mr. Macchio has been a
senior executive in the telecommunications industry holding such
positions as VPGM ComStream Satellite Networks, VP Engineering
at Hughes Network Systems and VP Marketing at ITT Telecom.
Mr. Macchio has Bachelors and Masters Degrees in
Electronics Engineering from Manhattan College and New York
University, and has completed extensive pre-Doctoral work in
Operations Research, also at New York University.
Martin S. McDermut is Senior Vice President, Chief
Financial Officer and Secretary. Mr. McDermut joined the
Company in February 2000 as Chief Financial Officer, Vice
President of Finance and Administra-
18
tion. From September 1996 to February 2000, Mr. McDermut
was Vice President of Finance and Administration, Secretary, and
Chief Financial Officer of International Remote Imaging
Systems, Inc. a medical technology firm. From 1994
to August 1996, he held similar positions in other start-up and
early-stage entities. From 1975 to 1993, he was with the
accounting and consulting firm of Coopers & Lybrand
L.L.P., becoming a partner in 1988. From 1990 to 1993,
Mr. McDermut practiced in the firms Los Angeles
Entrepreneurial Advisory Services Group and was named its head
in 1992. Mr. McDermut is a Certified Public Accountant, and
holds an M.B.A. in Finance and Accounting from the University of
Chicago, and a B.A. in Economics from the University of Southern
California.
Terry A. White was appointed Vice President Worldwide
Sales in April 2005. From August 2003 to March 2005,
Mr. White was Vice President of Worldwide Sales for Mahi
Networks, a telecom company. From March 2002 to June 2003,
Mr. White was Vice President of Global Sales at Turnstone
Systems. Prior to that position and from February 1992 to
December 2001, he held various positions at ADC
Telecommunications. His most recent position at ADC was Senior
Vice President of BIA Sales. Mr. White has been employed in
sales management for more than 20 years. Mr. White
holds a Bachelor of Arts degree from Kennesaw College.
VOTING SECURITIES OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the
Companys common stock as of March 30, 2005, by
(i) each person known by the Company to be the beneficial
owner of more than five percent (5%) of the Companys
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.
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
Name |
|
Shares | |
|
Percentage Ownership | |
|
|
| |
|
| |
Kopp Investment Advisors, LLC
|
|
|
6,536,400 |
(1) |
|
|
6.1 |
% |
|
7701 France Avenue South, #500
|
|
|
|
|
|
|
|
|
|
Edina, MN 55435
|
|
|
|
|
|
|
|
|
Jeffrey A. Quiram
|
|
|
0 |
|
|
|
* |
|
Charles E. Shalvoy
|
|
|
535,539 |
(2) |
|
|
* |
|
Robert L. Johnson
|
|
|
535,474 |
(3) |
|
|
* |
|
Martin S. McDermut
|
|
|
382,942 |
(4) |
|
|
* |
|
Robert B. Hammond
|
|
|
403,176 |
(5) |
|
|
* |
|
Dennis J. Horowitz
|
|
|
145,921 |
(6) |
|
|
* |
|
Robert P. Caren
|
|
|
180,321 |
(7) |
|
|
* |
|
John D. Lockton
|
|
|
135,971 |
(8) |
|
|
* |
|
Martin A. Kaplan
|
|
|
52,530 |
(9) |
|
|
* |
|
John F. Carlson
|
|
|
11,250 |
(8) |
|
|
* |
|
Henry A. Macchio
|
|
|
65,000 |
(10) |
|
|
* |
|
Richard Conlon
|
|
|
1,500 |
|
|
|
* |
|
M. Peter Thomas
|
|
|
1,803,558 |
(11) |
|
|
1.7 |
% |
Terry A. White
|
|
|
0 |
|
|
|
* |
|
All executive officers and directors as a group (13 persons)(12)
|
|
|
2,492,996 |
|
|
|
2.3 |
% |
19
|
|
|
|
(1) |
Based on information reported in a Schedule 13G filed by
Kopp Investment Advisors, LLC, on behalf of Kopp Investment
Advisors, LLC, Kopp Holding Company, LLC, Kopp Holding Company
and Leroy C. Kopp. Kopp Investment Advisers is an investment
adviser registered under the Investment Advisers Act of 1940. It
is wholly-owned by Kopp Holding Company, LLC which is controlled
by Mr. Kopp through Kopp Holding Company. Of the
6,536,400 shares 5,461,400 are held in a fiduciary or
representative capacity. Accordingly, persons other than the
listed persons have the right to receive, or the power to direct
the receipt of, dividends from, or the proceeds from the sale
of, such sales. No person individually has an interest that
relates to more than five percent of the Companys common
stock. |
|
|
(2) |
Includes 73,333 shares issuable upon the exercise of stock
options that are exercisable within 60 days of
March 30, 2005 and 7,560 shares held in trust for
minor children. |
|
|
(3) |
Includes 460,474 shares issuable upon the exercise of stock
options that are exercisable within 60 days of
March 30, 2005. |
|
|
(4) |
Includes 378,942 shares issuable upon the exercise of stock
options that are exercisable within 60 days of
March 30, 2005. |
|
|
(5) |
Includes 309,426 shares issuable upon the exercise of stock
options that are exercisable within 60 days of
March 30, 2005. |
|
|
(6) |
Includes 141,971 shares issuable upon the exercise of stock
options that are exercisable within 60 days of
March 30, 2005. |
|
|
(7) |
Includes 132,971 shares issuable upon the exercise of stock
options that are exercisable within 60 days of
March 30, 2005. |
|
|
(8) |
All shares are issuable upon exercise of stock options. |
|
|
(9) |
Includes 1,500 shares held in trust for minor children,
1,200 shares held by his spouse and 21,000 shares
issuable upon the exercise of stock options that are exercisable
within 60 days of March 30, 2005. |
|
|
(10) |
Includes 50,000 shares issuable upon the exercise of stock
options that are exercisable within 60 days of
March 30, 2005 and 15,000 shares held in a trust for
the benefit of Mr. Macchios family. |
|
(11) |
Includes 1,773,500 shares issuable upon the exercise of
stock options that are exercisable within 60 days of
March 30, 2005. |
|
(12) |
See footnotes (2)-(11). Includes 1,775,890 shares issuable
upon exercise of stock options held by executive officers and
directors that are exercisable within 60 days of
March 30, 2005. |
20
EXECUTIVE OFFICER COMPENSATION
Summary Compensation Table
The following table sets forth summary information concerning
compensation paid by or accrued for services rendered to the
Company in all capacities during the past three fiscal years to
the Companys Chief Executive Officer and to the four other
most highly compensated executive officers who were serving as
executive officers at December 31, 2004 and whose total
annual salary and bonus exceeded $100,000 (the Named
Executive Officers).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term | |
|
|
|
|
|
|
Annual Compensation | |
|
Compensation | |
|
|
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
Other Annual | |
|
Securities | |
|
All Other | |
|
|
|
|
Salary | |
|
Bonus | |
|
Compensation | |
|
Underlying Options | |
|
Compensation | |
Name and Principal Position |
|
Year | |
|
($) | |
|
($) | |
|
($)(1) | |
|
(#) | |
|
($)(2) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
M. Peter Thomas
|
|
|
2004 |
|
|
|
337,827 |
|
|
|
|
|
|
|
|
|
|
|
575,000 |
|
|
|
1,980 |
|
|
President and Chief
|
|
|
2003 |
|
|
|
325,681 |
|
|
|
92,038 |
|
|
|
|
|
|
|
600,000 |
|
|
|
1,980 |
|
|
Executive Officer(3)
|
|
|
2002 |
|
|
|
303,854 |
|
|
|
|
|
|
|
|
|
|
|
125,000 |
|
|
|
1,980 |
|
Robert B. Hammond
|
|
|
2004 |
|
|
|
229,706 |
|
|
|
|
|
|
|
|
|
|
|
182,500 |
|
|
|
1,290 |
|
|
Senior Vice President,
|
|
|
2003 |
|
|
|
223,565 |
|
|
|
50,548 |
|
|
|
|
|
|
|
193,750 |
|
|
|
1290 |
|
|
Chief Technical Officer
|
|
|
2002 |
|
|
|
208,394 |
|
|
|
|
|
|
|
|
|
|
|
57,750 |
|
|
|
690 |
|
Robert L. Johnson
|
|
|
2004 |
|
|
|
206,611 |
|
|
|
|
|
|
|
|
|
|
|
270,000 |
|
|
|
690 |
|
|
President, STI Wireless
|
|
|
2003 |
|
|
|
202,598 |
|
|
|
40,760 |
|
|
|
|
|
|
|
266,000 |
|
|
|
690 |
|
|
Systems, North America
|
|
|
2002 |
|
|
|
186,267 |
|
|
|
|
|
|
|
|
|
|
|
66,000 |
|
|
|
690 |
|
Martin S. McDermut
|
|
|
2004 |
|
|
|
214,363 |
|
|
|
|
|
|
|
|
|
|
|
162,500 |
|
|
|
690 |
|
|
Senior Vice President,
|
|
|
2003 |
|
|
|
210,962 |
|
|
|
42,428 |
|
|
|
|
|
|
|
207,750 |
|
|
|
690 |
|
|
Chief Financial Officer
|
|
|
2002 |
|
|
|
194,961 |
|
|
|
|
|
|
|
|
|
|
|
43,750 |
|
|
|
690 |
|
|
and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry A. Macchio
|
|
|
2004 |
|
|
|
100,002 |
|
|
|
30,000 |
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
Vice President, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard Conlon
|
|
|
2004 |
|
|
|
226,314 |
|
|
|
|
|
|
|
|
|
|
|
137,500 |
|
|
|
1,538 |
|
|
Vice President, |
|
|
2003 |
|
|
|
190,493 |
|
|
|
43,085 |
|
|
|
|
|
|
|
193,750 |
|
|
|
690 |
|
|
Sales and Marketing(5)
|
|
|
2002 |
|
|
|
177,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
690 |
|
|
|
(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 retired on March 15, 2005. |
|
(4) |
Mr. Macchio joined the Company in 2004 as Acting Vice
President of Product Marketing (a non-executive officer
position) and was promoted to Vice President, Sales and
Marketing in 2005. Mr. Macchio was not an executive officer
at the end of 2004, but his compensation is voluntarily included
in the table for completeness of disclosure. |
|
(5) |
Mr. Conlon left the Company in January 2005. |
Employment Agreements
M. Peter Thomas
M. Peter Thomas, the Companys former President, Chief
Executive Officer and a director, retired in March 2005. The
Company had an existing employment agreement with
Mr. Thomas which was supplemented with a retirement
agreement in March 2005. The Retirement Agreement with
Mr. Thomas provides for the following:
|
|
|
|
|
Mr. Thomas will retire upon completion and filing of the
Companys 2004 Annual Report on Form 10-K; |
21
|
|
|
|
|
He will receive his cash bonus for services rendered during 2004
in an amount to be determined by the Compensation Committee in
the normal course of its work in the awarding of bonuses to the
executive officers; |
|
|
|
His stock options (a) will immediately vest and become
fully exercisable and (b) remain exercisable until the
earlier of the fifth (5th) anniversary of the retirement date or
the normal expiration date of the relevant option; |
|
|
|
The Company will forgive a $150,000 loan in accordance with the
existing terms of the Promissory Note which were in effect prior
to the adoption of the Sarbanes-Oxley Act of 2002; |
|
|
|
He will provide consulting services to the Company for one year
following retirement; |
|
|
|
The Company will pay Mr. Thomas at a rate equal to his
current base salary ($350,155 per year) during the one-year
consulting term; |
|
|
|
The Company will also continue health and other benefits for
Mr. Thomas and his family during the consulting term; |
|
|
|
The Company will continue to provide Mr. Thomas with an
automobile during the consulting term; and |
|
|
|
The parties gave mutual releases of any claims. |
Jeffrey A. Quiram
Jeffrey A. Quiram became President, Chief Executive Officer and
a director effective upon the retirement of Mr. Thomas in
March 2005. The Company entered into an employment agreement
with Mr. Quiram. The Employment Agreement provides for the
following:
|
|
|
|
|
Appointment as President, Chief Executive Officer and a member
of the Board of Directors upon the retirement of Mr. Thomas; |
|
|
|
A base salary of $300,000 per year; |
|
|
|
A bonus of up to 100% of his base salary based upon achievement
of annual performance goals to be developed by the Compensation
Committee and Mr. Quiram; |
|
|
|
A stock option for 1,200,000 shares of stock granted in
connection with the signing of the Employment Agreement; |
|
|
|
A stock option for an additional 1,200,000 shares of stock
to be granted after shareholder approval of an increase in the
shares authorized for grants under the 2003 Equity Incentive
Plan; |
|
|
|
Accelerated vesting of his stock options in the event of an
Involuntary Termination or a Change of Control (both as defined
in the Employment Agreement); |
|
|
|
A severance payment equal to one years salary and
continued benefits for one year in the event of involuntary
termination; |
|
|
|
Payment or reimbursement of travel expenses from his present
home in Minnesota, along with a special indemnity payment for
any taxes resulting from the payment or reimbursement of such
expenses; and |
|
|
|
Lease of an automobile. |
Henry A. Macchio
Henry A. Macchio joined the Company in 2004 as Acting Vice
President of Product Marketing and was promoted in 2005 to Vice
President of Sales and Marketing. In 2004, the Company entered
into a marking agreement with Mr. Macchios
wholly-owned consulting firm, Trilogy Enterprises LLC, to secure
his consulting services on product marketing matters. The
Company extended the agreement in 2005 in connection with the
promotion of Mr. Macchio. The Company pays Trilogy for
Mr. Macchios services at the
22
rate of $200,000 per year plus an incentive payment of 30%
based on the achievement of performance goals. The Company also
granted options for 50,000 shares of common stock, and
these options were vested in connection with the extension to
the marketing agreement.
Terry A. White
Terry A. White was appointed Vice President Worldwide Sales in
April 2005. The Company entered into an employment agreement
with Mr. White. The Employment Agreement provides for the
following:
|
|
|
|
|
Appointment as Vice President Worldwide Sales; |
|
|
|
A base salary of $220,000 per year; |
|
|
|
An annual sales bonus; |
The sales incentive bonus for 2005 shall be based on a mutually
acceptable revenue plan for net commercial product sales as
follows:
|
|
|
Net Commercial |
|
Bonus Formula |
Product Sales (% of Plan) |
|
(Percentage of Base Salary) |
|
|
|
Less than 70%
|
|
0% |
70% to 100%
|
|
10% to 30% (linear scale) |
Over 100%
|
|
2.0% of the amount by which net
commercial product sales exceed plan |
The sales targets and bonus payments are for the full year 2005
and will be pro rated based on Mr. Whites April 2005
start date. The bonus structure for future years is to be
mutually agreed upon.
|
|
|
|
|
A stock option for 1,000,000 shares of stock to be granted after
shareholder approval of an increase in the shares authorized for
grants under the 2003 Equity Incentive Plan; |
|
|
|
A severance payment equal to six months salary and continued
benefits for six months in the event of involuntary termination;
and |
|
|
|
Accelerated vesting of his stock options in the event of an
Involuntary Termination or a Change of Control (both as defined
in the Employment Agreement). |
Change of Control Agreements
Jeffrey A. Quiram, the Companys new President and Chief
Executive Officer, has a change of control provision in his
employment agreement. The employment agreement provides that in
the event of a change of control (as defined in his employment
agreement), whether or not he is terminated, Mr. Quiram is
entitled to (i) payment of two times his annual base
salary, (ii) 24 months of benefits coverage,
(iii) accelerated vesting of 50% of his options upon the
change in control and (iv) accelerated vesting of his
remaining options if he does not resign from the Company for six
months after the change in control.
Mr. White, the Vice President of Worldwide Sales also has a
change of control provision in his employment agreement which
provides that in the event of a change of control, whether or
not he is terminated, he shall receive (i) accelerated
vesting of 50% of his options and (ii) accelerated vesting
of his remaining options if he does not resign from the Company
for six months after the change in control. In addition, if his
employment is terminated following a change in control, then he
shall be entitled to a lump sum payment of one year of salary.
The Company also has change in control agreements
with all of its vice presidents except Mr. Macchio. The
change in control agreements provide severance benefits if there
is a qualifying termination of employment. The agreements
generally provide that, if the employees employment is
terminated within thirty-six months of a change in control (as
defined in the change in control agreements) by the Company for
any reason other than death, Cause or
Disability (as both terms are defined in the change
in control agreements) or by the employee for Good
Reason, then the terminated employee will be entitled to a
23
severance benefits. Good Reason generally means that
the employee has sustained a material reduction in authority or
responsibility, or incurred a reduction greater than 10% in
total compensation (other than reductions which apply equally to
all executive officers), or been notified that his principal
place of work will be relocated by 50 miles or more.
The severance benefits include salary continuation payments,
full accelerated vesting for all outstanding unvested stock
options and similar equity securities held by the employee and
continuation of health/life insurance benefits. The salary
continuation payments shall be made on a monthly basis to the
former employee for a specified number of months. The aggregate
amount of the salary continuation payments for each individual
is a multiple of the employees annual salary. The
multiplier is 1.5 for Messrs. McDermut, Hammond, and
Johnson. Subject to earlier cessation under certain
circumstances, the post-termination of employment health/life
insurance coverage shall be provided for 18 months for
Messrs. McDermut, Hammond, and Johnson. Any payments or
distributions made to or for the benefit of the named employees
under these change in control agreements will be reduced, if
necessary, to an amount that would result in no excise taxes
being imposed under Internal Revenue Code section 4999.
Stock Option Plans
The Company presently has a single plan for the granting of
equity incentives to directors, employees and
consultants the 2003 Equity Incentive Plan. The
Compensation Committee administers the 2003 Equity Plan,
including the granting of awards under the plan. The plan was
adopted by the board and approved by the stockholders in 2003.
The purpose of the plan is to promote the success, and enhance
the value, of the Company by aligning the interests of
participants with those of the Companys shareholders. It
also provides participants with an incentive for outstanding
performance. The plan authorizes the granting of stock options,
restricted stock, stock appreciation rights, performance units
and performance shares. Historically, the Company has granted
stock options, typically with a 10-year term and a 4-year
vesting provision.
During the year ended December 31, 2004, the Company
granted options to purchase a total of 3,126,159 shares of
common stock. After deducting 1,114,455 shares for options
forfeited, the result was net option grants of 2,011,704. Net
option grants during the year represented 1.9% of our total
outstanding common shares of 107,711,026 as of December 31,
2004. The following table summarizes the net stock option grants
to our employees, directors and executive officers during the
last three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended | |
|
|
| |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Net grants (forfeitures) during the period as a % of total
outstanding common shares
|
|
|
1.9 |
% |
|
|
4 |
% |
|
|
1 |
% |
Grants to executive officers during the period as a % of total
options granted during the period
|
|
|
45 |
% |
|
|
56 |
% |
|
|
56 |
% |
Grants to executive officers during the period as a % of total
outstanding common shares
|
|
|
1.3 |
% |
|
|
2 |
% |
|
|
1 |
% |
Cumulative options held by executive officers as a % of total
options outstanding
|
|
|
50.6 |
% |
|
|
45 |
% |
|
|
39 |
% |
Options outstanding and issuable as a % of total outstanding
common shares
|
|
|
8.8 |
% |
|
|
16 |
% |
|
|
9 |
% |
At December 31, 2004, a total of 1,097,825 options were
available for grant under all of our option plans.
24
The following table summarizes outstanding stock options that
are in-the-money and out-of the-money as
of December 31, 2004. For purposes of this table,
in-the-money stock options are those options with an exercise
price less than $1.39 per share (the closing price of the
common stock on December 31, 2004) and out-of-the-money
stock options are stock options with an exercise price greater
than or equal to $1.39 per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable | |
|
Unexercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
Options | |
|
Price | |
|
Options | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
In the money
|
|
|
356,661 |
|
|
|
1.22 |
|
|
|
1,925,680 |
|
|
|
1.24 |
|
Out of the money
|
|
|
4,644,528 |
|
|
|
7.90 |
|
|
|
2,540,379 |
|
|
|
8.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total options
|
|
|
5,001,189 |
|
|
|
|
|
|
|
4,466,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Grants in 2004
The following table sets forth certain information regarding
stock options granted during the year ended December 31,
2004 to each of the Named Executive Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants | |
|
|
|
|
| |
|
Potential Realizable | |
|
|
|
|
% of Total | |
|
|
|
Value at Assumed | |
|
|
Number of | |
|
Options | |
|
|
|
Annual Rates of Stock | |
|
|
Securities | |
|
Granted to | |
|
|
|
Price Appreciation for | |
|
|
Underlying | |
|
Employees | |
|
Exercise | |
|
|
|
Option Term(3) | |
|
|
Options | |
|
in Fiscal | |
|
Price | |
|
Expiration | |
|
| |
Name |
|
Granted(1) | |
|
Year(2) | |
|
($/Sh) | |
|
Date | |
|
5%($) | |
|
10%($) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
M. Peter Thomas
|
|
|
325,000 |
|
|
|
12 |
% |
|
|
6.64 |
|
|
|
2014 |
|
|
|
1,357,155 |
|
|
|
3,439,296 |
|
M. Peter Thomas
|
|
|
250,000 |
|
|
|
10 |
% |
|
|
1.00 |
|
|
|
2014 |
|
|
|
157,224 |
|
|
|
398,436 |
|
Robert B. Hammond
|
|
|
85,000 |
|
|
|
3 |
% |
|
|
6.64 |
|
|
|
2014 |
|
|
|
354,948 |
|
|
|
899,508 |
|
Robert B. Hammond
|
|
|
97,500 |
|
|
|
4 |
% |
|
|
1.00 |
|
|
|
2014 |
|
|
|
61,317 |
|
|
|
155,390 |
|
Robert L. Johnson
|
|
|
120,000 |
|
|
|
5 |
% |
|
|
6.64 |
|
|
|
2014 |
|
|
|
501,103 |
|
|
|
1,269,894 |
|
Robert L. Johnson
|
|
|
150,000 |
|
|
|
6 |
% |
|
|
1.00 |
|
|
|
2014 |
|
|
|
94,334 |
|
|
|
239,061 |
|
Martin S. McDermut
|
|
|
65,000 |
|
|
|
2 |
% |
|
|
6.64 |
|
|
|
2014 |
|
|
|
271,431 |
|
|
|
687,859 |
|
Martin S. McDermut
|
|
|
97,500 |
|
|
|
4 |
% |
|
|
1.00 |
|
|
|
2014 |
|
|
|
61,317 |
|
|
|
155,390 |
|
Richard Conlon
|
|
|
100,000 |
|
|
|
4 |
% |
|
|
6.64 |
|
|
|
2014 |
|
|
|
417,586 |
|
|
|
1,058,245 |
|
Richard Conlon
|
|
|
37,500 |
|
|
|
1 |
% |
|
|
1.00 |
|
|
|
2014 |
|
|
|
23,584 |
|
|
|
59,765 |
|
Henry A. Macchio
|
|
|
50,000 |
|
|
|
2 |
% |
|
|
0.92 |
|
|
|
2014 |
|
|
|
28,929 |
|
|
|
73,312 |
|
Total 2004 options
|
|
|
2,629,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 optionees
employment with the Company has not terminated. |
|
(2) |
Total number of shares subject to options granted to employees
in 2004 was 2,629,159, which number includes options granted to
employee directors, but excludes options granted to non-employee
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 2004, assuming that the
stock appreciates in value from the date of grant until the end
of the option term at the compounded 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 Companys
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 |
25
|
|
|
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. |
Aggregated Option Exercises In 2004 and 2004 Year-End
Option Values
The following table sets forth certain information concerning
the exercise of stock options during 2004 and the value of
unexercised options as of December 31, 2004 for each of the
Named Executive Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares | |
|
|
|
|
|
|
|
|
|
|
|
|
Acquired | |
|
Value | |
|
|
|
|
|
|
|
|
|
|
on | |
|
Realized | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
Name |
|
Exercise | |
|
($) | |
|
(#) | |
|
(#) | |
|
(1)($) | |
|
(1)($) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
M. Peter Thomas
|
|
|
0 |
|
|
|
0 |
|
|
|
608,917.00 |
|
|
|
1,164,583.00 |
|
|
|
47,666.32 |
|
|
|
306,333.68 |
|
Robert B. Hammond
|
|
|
0 |
|
|
|
0 |
|
|
|
202,527.00 |
|
|
|
296,914.00 |
|
|
|
20,854.08 |
|
|
|
122,145.92 |
|
Robert L. Johnson
|
|
|
0 |
|
|
|
0 |
|
|
|
313,425.20 |
|
|
|
426,924.80 |
|
|
|
31,460.00 |
|
|
|
187,180.00 |
|
Martin S. McDermut
|
|
|
0 |
|
|
|
0 |
|
|
|
276,208.57 |
|
|
|
281,541.43 |
|
|
|
27,527.76 |
|
|
|
130,032.24 |
|
Richard Conlon
|
|
|
0 |
|
|
|
0 |
|
|
|
207,552.00 |
|
|
|
273,698.00 |
|
|
|
20,854.08 |
|
|
|
62,145.92 |
|
Henry Macchio
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
50,000.00 |
|
|
|
0 |
|
|
|
46,000.00 |
|
|
|
(1) |
Market value of underlying securities based on the $1.39 closing
price of the common stock on December 31, 2004 (the last
market trading day in 2004), minus the exercise price. |
Equity Compensation Plan Information
The following table gives information about common stock that
may be issued upon the exercise of stock options outstanding as
of December 31, 2004 under our current equity compensation
plan (the 2003 Equity Incentive Plan) and our old equity
compensation plans (the 1992 Stock Option Plan, the Nonstatutory
1992 Directors Option Plan, the 1998 Stock Option Plan and
the 1999 Stock Option Plan).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plan Information(1) | |
|
|
| |
|
|
|
|
Number of Securities | |
|
|
|
|
Remaining Available | |
|
|
Number of | |
|
|
|
for Future Issuance | |
|
|
Securities to Be | |
|
|
|
Under Equity | |
|
|
Issued Upon | |
|
Weighted Average | |
|
Compensation Plans | |
|
|
Exercise of | |
|
Exercise Price of | |
|
(Excluding | |
|
|
Outstanding Options | |
|
Outstanding Options | |
|
Securities Reflected | |
|
|
and Rights | |
|
and Rights | |
|
in Column (a)) | |
Plan Category |
|
(a) | |
|
(b) | |
|
(c) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holders
|
|
|
8,015,944 |
|
|
|
5.26 |
|
|
|
1,097,825 |
|
Equity compensation plans not approved by security holders(2)
|
|
|
132,521 |
|
|
|
5.25 |
|
|
|
-0- |
|
|
Total
|
|
|
8,148,465 |
|
|
|
5.26 |
|
|
|
1,097,825 |
|
|
|
(1) |
The information presented in this table excludes options assumed
by the Company in connection with the acquisition of Conductus.
As of December 31, 2004, 1,318,783 shares of our
common stock were issuable upon the exercise of these assumed
options at a weighted average exercise price of $7.14 per
share. |
|
(2) |
Consists of options that are outstanding under our 1998 Stock
Option Plan. Stockholder approval was not required for the 1998
Stock Option Plan pursuant to an exemption under Nasdaq rules in
effect at the time of adoption. No further options can be issued
under this plan. |
|
(3) |
See Proposal 4 which includes an increase in shares
issuable under the 2003 Equity Incentive Plan. |
Material Features of the 1998 Stock Option Plan
The Superconductor Technologies 1998 Nonstatutory Stock Option
Plan was adopted by the Board of the Company on July 22,
l998. The l998 Plan authorized issuance of options to issue up
to 250,000 shares of
26
the Companys common stock. The 1998 Plan has terminated
except for the 132,521 of outstanding options already issued
thereunder. The l998 Plan is administered by the Compensation
Committee.
Section 16(a) Beneficial Ownership Reporting
Compliance
Under Section 16(a) of the Securities Exchange Act of 1934,
the Companys directors and officers and its significant
stockholders (defined by statute as stockholders beneficially
owning more than ten percent (10%) of the common stock) are
required to file with the Securities and Exchange Commission and
the Company reports of ownership, and changes in ownership, of
common stock. Based solely on a review of the reports received
by it, the Company believes that, during the year ended
December 31, 2004, all of its officers, directors and
significant stockholders complied with all applicable filing
requirements under Section 16(a) except as follows:
Mr. Shalvoy was late filing Form 4 reports for six
stock option grants, and Mr. Buchanan was late filing a
Form 4 report for one stock option grant.
Compensation Committee Interlocks and Insider
Participation
The Compensation Committee of the Board of Directors is composed
of four non-employee directors John D. Carlson,
Robert P. Caren, Ph.D., Dennis J. Horowitz and Martin A.
Kaplan. No interlocking relationship exists between the
Companys 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 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 Compensation Committee is to insure
the compensation practices of the Company are sufficient to
attract and retain the necessary talent.
The Chief Executive Officers compensation is determined
based on comparable salaries of chief executive officers in
similar technology companies. The Compensation Committee does
not limit this comparison to the superconductivity industry,
which is relatively small. The Compensation Committee primarily
uses the telecommunications and semiconductor manufacturers for
comparable measures. These types of companies are targeting
similar markets and engaged in similar manufacturing techniques
and design challenges. The Compensation Committee targets the
50th percentile for the base salary of the Chief Executive
Officer and used as its guideline the Radford Total Compensation
Survey for companies reporting less than $50 million in
annual revenue.
The individual performance of the CEO is based on a set of
yearly goals including market share, organizational development,
product development, fund raising and progress towards positive
cash flow. The Compensation Committee establishes these goals
early in the year through negotiations with the CEO and the
Board.
For the compensation of the other executive officers, the
Compensation Committee meets with the Chief Executive Officer at
the beginning of the year to review the yearly objectives of the
other executive officers and at year-end to analyze the
performance of the executive officers toward meeting or
exceeding these objectives. These individual objectives are
aligned to the overall company goals, which are the basis of the
CEOs objectives. In determining individual salaries for
officers, consideration is given to individual factors, such as
personal development, performance and responsibilities within
the Company, as well as Radford Survey data as discussed
previously.
The Compensation Committee also administers the Companys
Stock Option Program, which is made available to all employees.
In addition to the executive officers, the Compensation
Committee also reviews stock option grants to all employees. The
overall framework guide on stock options at all salary levels is
based on Radford Survey information on all the salary grade
levels within the Company. Within this framework, the size of
the individual stock option awards is based on the
employees responsibility within the Company, the
27
employees performance and past awards to the employee. The
Compensation Committee believes the stock option program is
crucial to the retention and motivation of all employees. The
Compensation Committee also believes it is essential to insure
all employees have a stake in the company.
The Compensation Committee supervises a subcommittee called the
Stock Option Committee. The purpose of the Stock Option
Committee is to facilitate the timely granting of stock options
in connection with the hiring, promotion and other special
situations (e.g. attempts by competitors to hire away valuable
employees) of employees below the level of Senior Executive
(defined for these purposes as any Vice President or other
corporate officer that reports directly to the Chief Executive
Officer). The Stock Option Committee previously consisted of
Messrs. Caren and Thomas. Mr. Thomas retired in March
2005, and Dr. Caren will retire after the 2005 Annual
Meeting. The Board will name successors to the Stock Option
Committee after the 2005 Annual Meeting. The Compensation
Committee reviews all of the subcommittees awards and
places limits on the aggregate number of options awarded during
specified periods.
The Compensation Committee also administers the Executive
Incentive Compensation Plan, which includes employees down to
Vice President level. The Plan is predicated on awarding an
incentive payment based on achievement of an individuals
objectives and goals, presuming the Company achieves an
acceptable performance for the year as determined by the Board
of Directors. The Compensation Committee believes this incentive
plan is important to the motivation and retention of senior
management by providing additional incentives for executive
personnel who influence the profitability of the Company.
$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 Compensation 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 Compensation Committee believes that its primary
responsibility is to provide a compensation program that will
attract, retain and reward the executive talent necessary to the
Companys success. Consequently, the Compensation Committee
recognizes that the loss of a tax deduction may be necessary in
some circumstances.
|
|
|
John F. Carlson (Chairman) |
|
Robert P. Caren, Ph.D. |
|
Dennis J. Horowitz |
|
Martin A. Kaplan |
FEES PAID TO INDEPENDENT AUDITORS
The Audit Committee regularly reviews and determines whether
specific non-audit projects or expenditures with our independent
auditors, PricewaterhouseCoopers, LLP, potentially affect their
independence. The Audit Committees policy is to
pre-approve all audit and permissible non-audit services
provided by PricewaterhouseCoopers. Pre-approval is generally
provided by the Audit Committee for up to one year, as detailed
as to the particular service or category of services to be
rendered, as is generally subject to a specific budget. The
Audit Committee may also pre-approve additional services of
specific engagements on a case-by-case basis.
28
The following table sets forth the aggregate fees billed to us
by PricewaterhouseCoopers for the years ended December 31,
2003 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Audit Fees(1)
|
|
$ |
629,091 |
|
|
$ |
211,247 |
|
Audit-related fees(2)
|
|
$ |
216,193 |
|
|
$ |
25,750 |
|
Tax fees
|
|
|
|
|
|
|
|
|
All other fees
|
|
$ |
3,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
849,163 |
|
|
$ |
236,997 |
|
|
|
|
|
|
|
|
|
|
(1) |
Included fees for professional services rendered for the audit
of the Companys annual financial statements and review of
our annual report on Form 10-K and for reviews of the
financial statements included in our quarterly reports on
Form 10-Q for the first three quarters of the years ended
December 31, 2004 and 2003. Includes $33,050 of fees for
professional services rendered in the years ended
December 31, 2003 and $97,715 in the year ended
December 31, 2004, in connection with SEC registration
statements. |
|
(2) |
Includes fees for professional services rendered in connection
with our evaluation of internal controls. |
REPORT OF THE AUDIT COMMITTEE
The Audit Committee reviews the Companys financial
reporting process on behalf of the Board of Directors.
Management has the primary responsibility for the financial
statements and the reporting process, including the system of
internal controls. The Audit Committee has reviewed and
discussed the audited financial statements with management. In
addition, the Audit Committee has discussed with the independent
auditors the matters required to be discussed by Statements on
Auditing Standards No. 90.
The Audit Committee has also received the written disclosures
and the letter from the independent accountants required by
Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and
has discussed with PricewaterhouseCoopers its independence,
[including whether their provision of other non-audit services
to the Company is compatible with maintaining its independence.
The Committee discussed with the Companys independent
auditors the overall scope and plans for the respective audits.
The Committee meets with the independent auditors, with and
without management present to discuss the results of their
examinations, the evaluation of the Companys internal
controls and the overall quality of the Companys reporting.
Based upon the review and discussions referred to in the
foregoing paragraph, the Audit Committee recommended to the
Board of Directors that the audited financial statements be
included in the Companys Annual Report on Form 10-K
for the last year for filing with the Commission. The Audit
Committee and the Board also have recommended, subject to
shareholder approval, the selection of the Companys
independent auditors.
No portion of this Audit Committee Report shall be deemed to be
incorporated by reference into any filing under the Securities
Act of 1933, as amended (the Securities Act), or the
Exchange Act, through any general statement incorporating by
reference in its entirety the Proxy Statement in which this
report appears, except to the extent that the Company
specifically incorporates this report or a portion of it by
reference. In addition, this report shall not be deemed to be
filed under either the Securities Act or the Exchange Act.
|
|
|
Dennis J. Horowitz (Chairman) |
|
Robert P. Caren, Ph.D. |
|
John F. Carlson |
|
John D. Lockton |
29
CERTAIN TRANSACTIONS
The Company had an outstanding 5-year, interest-free loan of
$150,000 to Mr. Thomas, its former Chief Executive Officer,
in connection with Mr. Thomas compensation during
2001. The loan was secured by shares of the Companys
common stock and options to purchase shares of the
Companys common stock. Mr. Thomas retired effective
March 15, 2005 and executed a retirement agreement which
provided for continuing payment of salary and benefits. In
accordance with the terms of the note (which was in existence
prior to the adoption of the Sarbanes-Oxley Act of 2002), the
loan was forgiven by the Company when Mr. Thomas retired in
March 2005.
Prior to its acquisition by the Company, Conductus made two
loans to Mr. Shalvoy, its then President and Chief
Executive Officer, in connection with his compensation during
2002 and 2001. The aggregate outstanding principal balance of
both loans is $820,244 plus accrued interest. One loan is due in
December 2005, and the other loan is due August 2006. However,
the loans become due immediately upon termination of employment.
Mr. Shalvoy is currently a director and part-time employee
of the Company.
Mr. Shalvoy had a change in control agreement with our
Conductus subsidiary that provides that following a change of
control (our purchase of Conductus), he would receive a
retention payment equal to 1.5 times his annual salary, if he
remained a full-time employee of Conductus through May 2003. In
May 2003, Mr. Shalvoy was an employee of Conductus and
became entitled to a retention payment of $442,500. The
retention payment was paid out ratably until December 2003 when
at the election of Mr. Shalvoy the remainder was paid in a
lump sum. Pursuant to his change in control agreement,
Mr. Shalvoy continues as a part-time employee with annual
compensation ranging from $5,000 to $20,000. The Company paid
Mr. Shalvoy $5,000 for services as a part-time employee in
2004.
During 2004, the Company entered into a consulting agreement
with Mr. Shalvoy, a director. Under the agreement, the
Company may retain his services from time to time as a
consultant on strategic planning matters at the rate of
$3,000 per day plus reasonable out-of-pocket and travel
expenses. As additional consideration, the Company agreed to
continue his health benefits and grant him an option to
purchase 100,000 shares of common stock.
Mr. Shalvoy was not paid for these consulting services in
2004.
30
STOCK PRICE PERFORMANCE GRAPH
The graph and table below compare the cumulative total
stockholders return on the Companys common stock
since December 31, 1999 with the Nasdaq-U.S. Composite
Index, Nasdaq Telecommunications Index, and the
Hambrecht & Quist Technology Index over the same period
(assuming the investment of $100 in the Companys common
stock and in the four other indices, and reinvestment of all
dividends). The Hambrecht & Quist Technology Index was
discontinued in 2001 and has been replaced with the Nasdaq
Telecommunications Index.
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12/31/99 |
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12/29/00 |
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12/31/01 |
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12/31/02 |
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12/31/03 |
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12/31/04 |
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Superconductor Technologies
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|
$ |
100.00 |
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|
$ |
116.00 |
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|
$ |
208.00 |
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|
$ |
30.08 |
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$ |
177.92 |
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$ |
44.48 |
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Nasdaq-U.S. Composite
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100.00 |
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157.62 |
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125.03 |
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86.44 |
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129.24 |
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140.64 |
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Nasdaq-Telecommuni
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cations |
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100.00 1 |
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25.62 8 |
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3.59 38 |
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.48 63. |
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98 68.25 |
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Hambrecht & Quist Technology
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100.00 |
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233.77 |
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31
FORM 10-K
Investor Information
All reports filed by the Company with the SEC are available free
of charge via EDGAR through the SEC website at www.sec.gov. In
addition, the public may read and copy materials filed by the
Company with the SEC at the SECs public reference room
located at 450 Fifth St., N.W., Washington, D.C.,
20549. You can obtain information about the operation of the
SECs Public Reference Room by calling the SEC at
1-800-SEC-0330. The Company also provides copies of its
Forms 8-K, 10-K, 10-Q, Proxy, Annual Report and press
releases at no charge to investors upon request and makes
electronic copies of such reports and press releases available
through its website at www.suptech.com as soon as reasonable
practicable after filing such material with the SEC. Requests
should be sent to the Company, attention: Martin S. McDermut,
Secretary.
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.
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By Order of the Board of Directors |
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Martin S. McDermut
|
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Senior Vice President, CFO and Secretary |
Santa Barbara, California
April 20, 2005
32
ANNEX A
SUPERCONDUCTOR TECHNOLOGIES INC.
AUDIT COMMITTEE CHARTER
Statement of Policy.
The Audit Committee of the Board of Directors shall assist the
directors in fulfilling their oversight responsibilities. The
Audit Committee will review the financial reporting process, the
system if internal controls, the audit process and the
Companys process for monitoring compliance with laws and
regulations. In performing its duties, the Audit Committee will
maintain free and open communication between the directors, the
independent auditors and the financial management of the
Company. The Audit Committee is intended to provide an
independent and, as appropriate, confidential forum in which
interested parties can freely discus information and concerns.
Organization.
Independence: The Audit Committee shall be comprised of
at least three directors who are independent of the management
and the Company. Members of the Audit Committee shall be
considered independent if they meet the then current
standards of the Nasdaq Stock Market, Inc. (NASDAQ), the SEC and
Section 10A(m)(3) of the Securities Exchange Act of 1934.
An independent director cannot have any relationship which, in
the opinion of the Board of Directors, would interfere with the
exercise of independent judgment in carrying out the
responsibilities of a director. In addition,
Section 10A(m)(3) prohibits any director serving on the
Audit Committee from receiving any consulting, advisory or other
compensatory fee from the company or any parent or subsidiary of
the company, other than compensation for board or board
committee service. Section 10A(m)(3) also prohibits any
person affiliated with the company or any parent or subsidiary
from serving on the Audit Committee. If future SEC or NASD rules
require a more limited definition of independent,
then this charter will be deemed amended when so required to
conform with any additional limitations. The Audit
Committees chairperson shall be designated by the full
Board or, if it does not do so, the Audit Committee members
shall elect a chairperson by vote of a majority of the Audit
Committee.
Knowledge and Experience: All Audit Committee members
will have the ability to read and understand fundamental
financial statements, including a balance sheet, income
statement and cash flow statement. Additionally, the Audit
Committee shall have at least one member who qualifies as a
financial expert under NASD Rule 4350(d)(2)(A)(i). Under
that rule, the Audit Committee must have at least one member
who has past employment experience in finance or
accounting, requisite professional certification in accounting,
or any other comparable experience or background which results
in the individuals financial sophistication, including
being or having been a chief executive officer, chief financial
officer or other senior officer with financial oversight
responsibilities. The Audit Committee will also endeavor,
wherever practicable, to secure as a member a financial expert
that also meets the definition of audit committee
financial expert adopted by the SEC in Rule 401(h) of
Regulation S-K.
Meetings: The Audit Committee will meet in an executive
session at least quarterly, or more frequently as circumstances
dictate. In connection with each meeting, the Committee will
provide an opportunity for the independent auditors and
management to meet separately with the Audit Committee, without
members of the other group present.
Compensation: Audit Committee members may not receive any
director or indirect compensation from Superconductor, other
than as a director and/or as a member of any committee of the
board.
Responsibilities.
In carrying out its responsibilities, the Audit Committee
believes its policies and procedures should remain flexible in
order to be able to best react to changing conditions, and to
ensure that the corporate
A-1
accounting and reporting practices of the Company are in
accordance with all requirements and are of the highest quality.
In carrying out these responsibilities, the Audit Committee will:
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Obtain the approval of the full Board of Directors of the
Charter, and review and reassess this Charter at least annually
or as conditions dictate. |
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Hire the independent auditors to be selected to audit the
financial statements of the Company and its divisions and
subsidiaries. |
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Review and approve all related party transactions. |
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Approve all fees and engagement terms. |
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Have a clear understanding with the independent auditors that
the auditors are ultimately accountable to the Audit Committee,
as the shareholders representatives, who have the ultimate
authority in deciding to engage, evaluate and, if appropriate,
terminate their services. |
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Pre-approve all audit and non-audit services performed by
Superconductors auditors, subject to a de-minimis
exception for expenditures for non-audit services. The
preapproval requirement is waived with respect to the provision
of non-audit services if (i) the aggregate amount of all
such non-audit services constitutes not more than 5% of the
total fees paid by Superconductor to its auditors during the
fiscal year, (ii) such services were not recognized by the
company at the time of engagement to be non-audit services and
(iii) such services are promptly brought to the attention
of the Audit Committee and approved prior to completion of the
audit by the Audit Committee or by one or more members of the
Audit Committee who has been authorized by the Audit Committee
to grant such approvals. In reviewing non-audit services, the
Audit Committee will consider whether the provision of non-audit
services, if any, by the independent auditors is compatible with
maintaining the independent auditors independence. The Audit
Committee will not approve any of the Prohibited Services listed
on Appendix A to the charter, and in making a business
judgment about particular non-audit services, the Audit
Committee will consider the guidelines contained in
Appendix A to the charter. The Audit Committee may delegate
to one or more of its members the authority to grant any
required preapprovals of audit or non-audit services. The
granting of such approval by the designated member(s) shall be
reported to the full Audit Committee at its next regularly
scheduled meeting. |
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Meet with the independent auditors and financial management of
the Company to review the scope of the proposed audit, including
the timing of the audit, the procedures to be utilized and the
adequacy of the independent auditors compensation, and at
the conclusion of the audit process, review with the independent
auditors their findings. |
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Review with the independent auditors the adequacy and
effectiveness of the accounting and financial controls of the
Company. Elicit any recommendations for the improvement of such
internal controls or particular areas where new or more detailed
controls or procedures are desirable. |
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Review communications received by the Company from regulators
and other legal and regulatory matters that may have a material
effect on the financial statements or on the Companys
compliance policies. |
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Inquire of management and the independent auditors about
significant areas of risk or exposure and assess the steps
management has taken to minimize such risks. |
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Review the financial statements contained in the annual report
to shareholders and other SEC filings with management and the
independent auditors to determine that the independent auditors
are satisfied with the disclosure and content of the financial
statements to be presented to the shareholders. Review with
financial management and the independent auditors the results of
their analysis of significant financial reporting issues and
practices, including changes in or adoptions of accounting
principles and disclosure practices, review significant
period-end adjustments and discuss any other matters required to
be communicated to the Committee by the auditors. Also review
with financial |
A-2
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management and the independent auditors their judgment about the
quality, not just acceptability, of accounting principles and
the clarity of the financial disclosure practices used or
proposed to be used and particularly, the degree of
aggressiveness or conservatism of the Companys accounting
principles and underlying estimates and other significant
decisions made in preparing the financial statements. |
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Meet with the independent auditors without members of management
present. Among the items to be discussed in these meeting are
the independent auditors evaluation of the Companys
financial, accounting and auditing personnel and the cooperation
that the independent auditors received during the course of the
audit. |
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Review with financial management any quarterly, annual or other
press releases containing historical or forwardlooking
financial information before the press release is issued to the
general public or filed with the SEC. In the case of
forward-looking financial information, the Audit Committee may
consult with the full board as and when deemed appropriate by
the Audit Committee. |
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Report the results of the annual audit to the Board of Directors
and, if requested by the Board, invite the independent auditors
to attend the full Board of Directors meeting to assist in
reporting the results of the annual audit or to answer the
directors questions. |
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On an annual basis, obtain form the independent auditors a
written communication delineating all their relationships and
professional services, as required by Independence Standards
Board Standard No. 1, Independence Discussion with Audit
Committees. In addition, review with the independent auditors
the nature and scope of any disclosed relationships or
professional services and take, appropriate action to ensure the
continuing independence of the auditors. |
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Submit the minutes of all meeting of the Audit Committee to, or
discuss the matters discussed at each committee meeting with,
the Board of Directors. |
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Investigate any matter brought to its attention within the scope
of its duties with the power to retain outside counsel,
accountants, or others for this purpose if, in its judgment,
that is appropriate. |
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Confirm in writing to the NASD annually or with respect to any
changes on the Audit Committee regarding independence, financial
capabilities and the annual review and reassessment of the Audit
Committee Charter. |
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Disclose on the Companys Proxy Statement the Audit
Committee Charter. The Charter will be including in the Proxy
Statement every three years or when significant amendments are
made to it. |
Procedures for Responding to Concerns.
Every employee of or consultant to the Company who has, or who
hears expressed by another person, any concerns about the manner
in which the Companys financial statements or public
reports are prepared, the sufficiency of its internal financial
controls, the honesty or competence of its financial management
or independent auditors or any other matter within the purview
of the Audit Committee is directed and strongly encouraged to
report the matter promptly to any member of the Audit Committee.
The Audit Committee will attempt to keep the name of the person
reporting the potential issue confidential to the extent
requested by that person and not inconsistent with the best
interests of the Company. The Audit Committee will not
tolerate retaliation against any person who reports potential
issues to the Audit Committee in good faith.
Any member of the Audit Committee who receives such a complaint
or inquiry shall notify the Chair of the Audit Committee, who
shall then notify the other members of the Audit Committee. The
Audit Committee will then promptly decide on an appropriate
methodology to investigate, understand and resolve the potential
issue in a timely fashion. To do so, the Audit Committee has the
power to retain outside counsel, accountants and other
professionals to assist in responding to and investigating any
issue. After review and discussion in an executive session and
(as the Audit Committee deems necessary) with the full Board of
Directors and with outside counsel or other outside advisors,
the Audit Committee shall seek to promptly
A-3
address the concerns and respond privately or publicly, as
appropriate, to address the matter. The decision of the Audit
Committee in any such matter will be final and binding on the
Company without further action of the Board of Directors.
Approved by the Board of Directors and the Audit Committee as of
May 25, 2004.
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/s/ Dennis J. Horowitz |
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Dennis J. Horowitz
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Chairman, Audit Committee |
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/s/ John D. Lockton |
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John D. Lockton
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Chairman of the Board of Directors |
A-4
APPENDIX A TO AUDIT COMMITTEE CHARTER
To help maintain internal audit controls, the following
non-audit services shall not be performed by
Superconductors independent auditors (Prohibited
Services):
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Bookkeeping or other services related to the Companys
accounting records; |
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Financial information systems design and implementation; |
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Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports; |
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Actuarial services; |
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Internal audit outsourcing services; |
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Management functions or human resources; |
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Broker, dealer, investment adviser, or investment banking
services; |
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Legal services and expert services unrelated to the
audit; and |
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Any other service the SEC or the NASDAQ determines, by
regulations is not permitted. |
Some factors which may be considered by the Audit Committee when
deciding whether to approve audit and non-audit services, which
are not Prohibited Services, include:
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1. Whether the service facilitates the performance of the
audit, improves the Companys financial reporting process,
or is otherwise in the interest of the Company and its
shareholders. |
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2. Whether the service is being performed principally for
the Audit Committee. |
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3. The effects of the service, if any, on audit
effectiveness or on the quality and timeliness of the
Companys financial reporting process. |
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4. Whether the service would be performed by specialists
who ordinarily also provide recurring audit support. |
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5. Whether the service would be performed by audit
personnel and, if so, whether it will enhance their knowledge of
the Companys business and operations. |
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6. Whether the role of those performing the service would
be inconsistent with the auditors role. |
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7. Whether the audit firms personnel would be
assuming a management role or creating a mutuality of interest
with management. |
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8. Whether the auditors, in effect, would be auditing their
own numbers. |
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9. Whether the project must be started and completed very
quickly. |
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10. The size of the fee(s) for the non-audit service(s). |
A-5
ANNEX B
PROPOSED AMENDMENT TO ARTICLE IV OF THE
RESTATED CERTIFICATE OF INCORPORATION OF
SUPERCONDUCTOR TECHNOLOGIES INC.
TO EFFECT A REVERSE STOCK SPLIT
The following resolutions would amend Article IV of the
Restated Certificate of Incorporation of Superconductor
Technologies Inc. by adding a new Section 2 (set forth
below) effecting a reverse stock split. Section 2 would
become effective only upon affirmative action by the Board of
Directors on or prior to May 25, 2006, setting a split
ratio between one-for-two (1:2) and one-for-ten (1:10). The
Board of Directors has the authority to abandon the proposed
amendment to the Restated Certificate of Incorporation and not
effect the reverse stock split.
RESOLVED, that Article IV of the Companys Restated
Certificate be amended to add a new Section 2 as follows:
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Section 2. Immediately
upon the filing of this Certificate of Amendment with the
Secretary of State of the State of Delaware, each
[*] shares of the issued and outstanding shares of Common
Stock of this corporation shall thereby and thereupon
automatically be combined into one (1) validly issued,
fully paid and nonassessable share of Common Stock of this
corporation (the Reverse Stock Split). No scrip or
fractional shares will be issued by reason of the Reverse Stock
Split. In lieu thereof, cash shall be distributed to each
stockholder of the Company who would otherwise have been
entitled to receipt of a fractional share and that the amount of
cash to be distributed shall be based upon the closing price of
a share of Common Stock on the Nasdaq National Market on the
effective date of this Certificate of Amendment. |
RESOLVED FURTHER, that, at any time prior to the effectiveness
of the foregoing amendment, the Board of Directors may abandon
such proposed amendment without further action by the
stockholders.
* By approving this amendment, Superconductor stockholders
will approve the combination of any whole number of shares of
Common Stock between and including two and ten (including
numbers consisting of whole shares and tenths of shares) into
one share. The certificate of amendment filed with the Delaware
Secretary of State will include only that number determined by
Superconductors Board of Directors to be in the best
interests of the corporation and its stockholders. In accordance
with these resolutions, the Board of Directors will not
implement any amendment providing for a different split ratio.
B-1
ANNEX C
Superconductor
Technologies Inc.
2003 Equity Incentive
Plan
Superconductor Technologies Inc. hereby adopts the 2003 Equity
Incentive Plan, effective as of March 20, 2003, as follows:
SECTION 1
BACKGROUND, PURPOSE AND DURATION
1.1 Background and Effective
Date. The Plan provides for the granting of Nonqualified
Stock Options, Incentive Stock Options, Stock Appreciation
Rights (or SARs), Restricted Stock, Performance Units, and
Performance Shares. The Plan is adopted and effective as of
March 20, 2003, subject to approval by the stockholders of
the Company within twelve (12) months. The Company will
seek stockholder approval in the manner and to the degree
required under Applicable Laws. Awards may be granted prior to
the receipt of stockholder approval, but such grants shall be
null and void if such approval is not in fact received within
twelve (12) months.
1.2 Purpose of the Plan. The
purpose of the Plan is to promote the success, and enhance the
value, of the Company by aligning the interests of Participants
with those of the Companys shareholders, and by providing
Participants with an incentive for outstanding performance. The
Plan is further intended to provide flexibility to the Company
in its ability to motivate, attract, and retain the services of
outstanding individuals, upon whose judgment, interest, and
special effort the success of the Company largely is dependent.
1.3 Duration of the Plan.
The Plan shall commence on the date specified in
Section 1.1 and subject to SECTION 12 (concerning the
Boards right to amend or terminate the Plan), shall remain
in effect thereafter. However, without further stockholder
approval, no Incentive Stock Option may be granted under the
Plan on or after March 20, 2013.
1.4 Termination of Old
Plans. The Companys four existing stock option plans
(the 1992 Stock Option Plan, the Nonstatutory
1992 Directors Stock Option Plan, the 1998 Stock Option
Plan and the 1999 Stock Option Plan) shall terminate effective
upon stockholder approval of this Plan, and no further grants of
awards shall be made under those plans after the date of such
approval. The termination of those plans will not affect the
rights of holders of options previously granted and outstanding
under those plans.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following
meanings unless a different meaning is plainly required by the
context:
2.1 1934 Act
means the Securities Exchange Act of 1934, as amended.
Reference to a specific section of the Exchange Act or
regulation thereunder shall include such section or regulation,
any valid regulation promulgated under such section, and any
comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or
regulation.
2.2 Affiliate
means any corporation or any other entity (including, but not
limited to, partnerships and joint ventures) controlling,
controlled by, or under common control with the Company.
2.3 Affiliated
SAR means an SAR that is granted in connection with a
related Option, and which automatically will be deemed to be
exercised at the same time that the related Option is exercised.
2.4 Applicable
Laws means the requirements relating to the
administration of equity plans under U.S. state corporate
laws, U.S. federal and state securities laws, the Code, any
stock exchange or quotation
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system on which the Shares are is listed or quoted and the
applicable laws of any foreign country or jurisdiction where
Awards are, or will be, granted under the Plan.
2.5 Award means,
individually or collectively, a grant under the Plan of
Nonqualified Stock Options, Incentive Stock Options, SARs,
Restricted Stock, Performance Units, or Performance Shares.
2.6 Award
Agreement means the written agreement setting forth
the terms and provisions applicable to each Award granted under
the Plan.
2.7 Board or
Board of Directors means the Board of Directors
of the Company.
2.8 Change in
Control is defined in Section 15.4.
2.9 Code means
the Internal Revenue Code of 1986, as amended. Reference to a
specific section of the Code or regulation thereunder shall
include such section or regulation, any valid regulation
promulgated under such section, and any comparable provision of
any future legislation or regulation amending, supplementing or
superseding such section or regulation.
2.10 Committee
means the committee appointed by the Board to administer the
Plan pursuant to Section 3.1.
2.11 Company
means Superconductor Technologies Inc., a Delaware
corporation, or any successor thereto.
2.12 Consultant
means an individual who provides significant services to the
Company and/or an Affiliate, including a Director who is not an
Employee.
2.13 Director
means any individual who is a member of the Board of Directors
of the Company.
2.14 Disability
means a permanent and total disability within the meaning of
Code Section 22(e)(3).
2.15 Employee
means an employee of the Company or of an Affiliate, whether
such employee is so employed at the time the Plan is adopted or
becomes so employed subsequent to the adoption of the Plan.
2.16 ERISA means
the Employee Retirement Income Security Act of 1974, as amended.
Reference to a specific section of ERISA shall include such
section, any valid regulation promulgated thereunder, and any
comparable provision of any future legislation amending,
supplementing or superseding such section.
2.17 Fair Market
Value means as of any date, the value of a Share
determined as follows:
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(a) If the Shares are listed on any established stock
exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap
Market of The Nasdaq Stock Market, its Fair Market Value shall
be the closing sales price for such Share (or the closing bid,
if no sales were reported) as quoted on such exchange or system
on the day of, or the last market trading day prior to, the day
of determination, as reported in The Wall Street Journal or such
other source as the Committee deems reliable; |
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(b) If the Shares are regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair
Market Value of the Share shall be the mean between the high bid
and low asked prices for the Shares on the day of, or the last
market trading day prior to, the day of determination, as
reported in The Wall Street Journal or such other source as the
Committee deems reliable; or |
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(c) In the absence of an established market for the Shares,
the Fair Market Value shall be determined in good faith by the
Committee. |
2.18 Freestanding
SAR means a SAR that is granted independently of any
Option.
2.19 Incentive Stock
Option or ISO means an option to purchase
Shares, which is designated as an Incentive Stock Option and is
intended to meet the requirements of Section 422 of the
Code.
2.20 Nonqualified Stock
Option means an option to purchase Shares which is not
intended to be an Incentive Stock Option.
C-2
2.21 Option
means an Incentive Stock Option or a Nonqualified Stock
Option.
2.22 Option
Price means the price at which a Share may be
purchased pursuant to an Option.
2.23 Participant
means an Employee, Consultant or Director who has an outstanding
Award.
2.24 Performance
Share means an Award granted to an Employee pursuant
to SECTION 8 having an initial value equal to the Fair
Market Value of a Share on the date of grant.
2.25 Performance
Unit means an Award granted to an Employee pursuant to
SECTION 8 having an initial value (other than the Fair
Market Value of a Share) that is established by the Committee at
the time of grant.
2.26 Period of
Restriction means the period during which the transfer
of Shares of Restricted Stock are subject to restrictions.
2.27 Plan means
the Superconductor Technologies Inc. 2003 Equity Incentive Plan,
as set forth in this instrument and as hereafter amended from
time to time.
2.28 Restricted
Stock means an Award granted to a Participant pursuant
to SECTION 7.
2.29 Retirement
means, in the case of an Employee, a Termination of Employment
by reason of the Employees retirement at or after
age 62.
2.30 Rule 16b-3
means Rule 16b-3 promulgated under the 1934 Act, and
any future regulation amending, supplementing or superseding
such regulation.
2.31 Section 16
Person means a person who, with respect to the Shares,
is subject to Section 16 of the 1934 Act.
2.32 Shares
means the shares of common stock, $0.001 par value, of
the Company.
2.33 Stock Appreciation
Right or SAR means an Award, granted alone
or in connection with a related Option, that pursuant to the
terms of SECTION 7 is designated as an SAR.
2.34 Subsidiary
means any subsidiary corporation (other than the
Company) as defined in Code Section 424(f).
2.35 Tandem SAR
means an SAR that is granted in connection with a related
Option, the exercise of which shall require forfeiture of the
right to purchase an equal number of Shares under the related
Option (and when a Share is purchased under the Option, the SAR
shall be canceled to the same extent).
2.36 Termination of
Employment means a cessation of the employee-employer
or director or other service arrangement relationship between an
Employee, Consultant or Director and the Company or an Affiliate
for any reason, including, but not by way of limitation, a
termination by resignation, discharge, death, Disability,
Retirement, or the disaffiliation of an Affiliate, but excluding
any such termination where there is a simultaneous reemployment
or re-engagement by the Company or an Affiliate.
SECTION 3
ADMINISTRATION
3.1 The Committee. The Plan
shall be administered by a committee of the Board that meets the
requirements of this Section 3.1 (hereinafter referred to
as the Committee). The Committee shall
consist of not less than two (2) Directors. The members of
the Committee shall be appointed from time to time by, and shall
serve at the pleasure of, the Board of Directors. The Committee
shall be comprised solely of Directors who are both
outside directors under Rule 16b-3 and
independent directors under the requirements of any
national securities exchange or system upon which the Shares are
then listed and/or traded.
3.2 Authority of the
Committee. The Committee shall have all powers and
discretion necessary or appropriate to administer the Plan and
to control its operation, including, but not limited to, the
power (a) to
C-3
determine which Employees, Consultants and Directors shall be
granted Awards, (b) to prescribe the terms and conditions
of such Awards, (c) to interpret the Plan and the Awards,
(d) to adopt rules for the administration, interpretation
and application of the Plan as are consistent therewith, and
(e) to interpret, amend or revoke any such rules.
The Committee, in its sole discretion and on such terms and
conditions as it may provide, may delegate all or any part of
its authority and powers under the Plan to one or more directors
and/or officers of the Company; provided, however, that the
Committee may not delegate its authority and powers with respect
to Section 16 Persons.
3.3 Decisions Binding. All
determinations and decisions made by the Committee shall be
final, conclusive, and binding on all persons, and shall be
given the maximum deference permitted by law.
SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 Shares Available.
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4.1.1 Maximum Shares Available
under Plan. The aggregate number of Shares available for
issuance under the Plan may not exceed twelve million
(12,000,000) Shares. Such shares may be authorized but unissued
shares or treasury shares. |
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4.1.2 Limitation on Restricted
Stock, Performance Units and Performance Shares. The
aggregate number of Shares available for issuance pursuant to
Awards of Restricted Stock, Performance Units and Performance
Shares may not exceed three million six hundred thousand
(3,600,000) Shares. |
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4.1.3 Limitation on Incentive
Stock Options and Stock Appreciation Rights. No Participant
may receive Options and SARs for more than one million two
hundred thousand (1,200,000) Shares in the aggregate in any
single calendar year; provided, however, that a
Participant may receive Options and SARs for up two million four
hundred thousand (2,400,000) Shares in the Participants
initial year of service to the Company. |
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4.1.4 General Award
Limitation. No Participant may receive Awards under the
Plan, the value of which Awards is based solely on an increase
in the value of Shares after the date of grant of such Awards,
for more than one million two hundred thousand (1,200,000)
Shares in the aggregate in any single calendar year;
provided, however, that a Participant may receive Options
and SARs for up two million four hundred thousand (2,400,000)
Shares in the Participants initial year of service to the
Company. The foregoing annual limitation specifically includes
the grant of any Awards representing qualified
performance-based compensation within the meaning of
Section 162(m) of the Code. |
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4.1.5 Adjustments. All Share
numbers in this Section 4.1 are subject to adjustment as
provided in SECTION 15. |
4.2 Number of Shares. The
following rules will apply for purposes of the determination of
the number of Shares available for grant under the Plan:
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(a) While an Award is outstanding, it shall be counted
against the authorized pool of Shares, regardless of its vested
status. |
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(b) The grant of an Option or Restricted Stock shall reduce
the Shares available for grant under the Plan by the number of
Shares subject to such Award. |
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(c) The grant of a Tandem SAR shall reduce the number of
Shares available for grant by the number of Shares subject to
the related Option (i.e., there is no double counting of Options
and their related Tandem SARs); provided, however, that,
upon the exercise of such Tandem SAR, the authorized Share pool
shall be credited with the appropriate number of Shares
representing the number of shares reserved for such Tandem SAR
less the number of Shares actually delivered upon exercise
thereof or the number of Shares having a Fair Market Value equal
to the cash payment made upon such exercise. |
C-4
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(d) The grant of an Affiliated SAR shall reduce the number
of Shares available for grant by the number of Shares subject to
the SAR, in addition to the number of Shares subject to the
related Option; provided, however, that, upon the exercise of
such Affiliated SAR, the authorized Share pool shall be credited
with the appropriate number of Shares representing the number of
shares reserved for such Affiliated SAR less the number of
Shares actually delivered upon exercise thereof or the number of
Shares having a Fair Market Value equal to the cash payment made
upon such exercise. |
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(e) The grant of a Freestanding SAR shall reduce the number
of Shares available for grant by the number of Freestanding SARs
granted; provided, however, that, upon the exercise of
such Freestanding SAR, the authorized Share pool shall be
credited with the appropriate number of Shares representing the
number of shares reserved for such Freestanding SAR less the
number of Shares actually delivered upon exercise thereof or the
number of Shares having a Fair Market Value equal to the cash
payment made upon such exercise. |
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(f) The Committee shall in each case determine the
appropriate number of Shares to deduct from the authorized pool
in connection with the grant of Performance Units and/or
Performance Shares. |
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(g) To the extent that an Award is settled in cash rather
than in Shares, the authorized Share pool shall be credited with
the appropriate number of Shares having a Fair Market Value
equal to the cash settlement of the Award. |
4.3 Lapsed Awards. If an
Award is cancelled, terminates, expires, or lapses for any
reason (with the exception of the termination of a Tandem SAR
upon exercise of the related Option, or the termination of a
related Option upon exercise of the corresponding Tandem SAR),
any Shares subject to such Award again shall be available to be
the subject of an Award.
SECTION 5
STOCK OPTIONS
5.1 Grant of Options.
Options may be granted to Employees, Consultants and Directors
at any time and from time to time, as determined by the
Committee in its sole discretion. The Committee, in its sole
discretion, shall determine the number of Shares subject to
Options granted to each Participant. The Committee may grant
ISOs, NQSOs, or a combination thereof.
5.2 Award Agreement. Each
Option shall be evidenced by an Award Agreement that shall
specify the Option Price, the expiration date of the Option, the
number of Shares to which the Option pertains, any conditions to
exercise of the Option, and such other terms and conditions as
the Committee, in its discretion, shall determine. The Award
Agreement also shall specify whether the Option is intended to
be an ISO or a NQSO.
5.3 Option Price. Subject to
the provisions of this Section 5.3, the Option Price for
each Option shall be determined by the Committee in its sole
discretion.
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5.3.1 Nonqualified Stock
Options. In the case of a Nonqualified Stock Option, the
Option Price shall be not less than one hundred percent (100%)
of the Fair Market Value of a Share on the date that the Option
is granted. |
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5.3.2 Incentive Stock
Options. In the case of an Incentive Stock Option, the
Option Price shall be not less than one hundred percent (100%)
of the Fair Market Value of a Share on the date that the Option
is granted; provided, however, that if at the time that
the Option is granted, the Employee (together with persons whose
stock ownership is attributed to the Employee pursuant to
Section 424(d) of the Code) owns stock possessing more than
10% of the total combined voting power of all classes of stock
of the Company or any of its Subsidiaries, the Option Price
shall be not less than one hundred and ten percent (110%) of the
Fair Market Value of a Share on the date that the Option is
granted. |
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5.3.3 Substitute Options.
Notwithstanding the provisions of Sections 5.3.1 and 5.3.2,
in the event that the Company or an Affiliate consummates a
transaction described in Section 424(a) of the Code |
C-5
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(e.g., the acquisition of property or stock from an unrelated
corporation), persons who become Employees, Consultants or
Directors on account of such transaction may be granted Options
in substitution for options granted by their former employer. If
such substitute Options are granted, the Committee, in its sole
discretion, may determine that such substitute Options shall
have an exercise price less than 100% of the Fair Market Value
of the Shares on the date the Option is granted. |
5.4 Expiration of Options.
Unless the applicable stock option agreement provides otherwise,
each Option shall terminate upon the first to occur of the
events listed in Section 5.4.1, subject to
Section 5.4.2.
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(a) The date for termination of the Option set forth in the
Award Agreement; |
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(b) The expiration of ten years from the date the Option
was granted, or |
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(c) The expiration of three months from the date of the
Participants Termination of Employment for a reason other
than the Participants death, Disability or
Retirement, or |
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(d) The expiration of twelve months from the date of the
Participants Termination of Employment by reason of
Disability, or |
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(e) The expiration of twelve months from the date of the
Participants death, if such death occurs while the
Participant is in the employ or service of the Company or an
Affiliate. |
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5.4.2 Committee Discretion.
The Committee shall provide, in the terms of each individual
Option, when such Option expires and becomes unexercisable.
After the Option is granted, the Committee, in its sole
discretion may extend the maximum term of such Option. The
foregoing discretionary authority is subject to the limitations
and restrictions on Incentive Stock Options set forth in
Section 5.8. |
5.5 Exercise of Options.
Options granted under the Plan shall be exercisable at such
times, and subject to such restrictions and conditions, as the
Committee shall determine in its sole discretion. After an
Option is granted, the Committee, in its sole discretion, may
accelerate the exercisability of the Option.
5.6 Payment. The Committee
shall determine the acceptable form of consideration for
exercising an Option, including the method of payment. In the
case of an Incentive Stock Option, the Committee shall determine
the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
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(a) cash; |
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(b) check; |
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(c) promissory note; |
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(d) other Shares which (i) in the case of Shares
acquired upon exercise of an Option, have been owned by the
Participant for more than six (6) months on the date of
surrender, and (ii) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised; |
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(e) consideration received by the Company from a licensed
broker under a cashless exercise program implemented by the
Company to facilitate same day exercises and sales
of Options; |
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(f) a reduction in the amount of any Company liability to
the Participant, including any liability attributable to the
Participants participation in any Company-sponsored
deferred compensation program or arrangement; |
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(g) any combination of the foregoing methods of
payment; or |
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(h) such other consideration and method of payment for the
issuance of Shares to the extent permitted by applicable laws. |
C-6
5.7 Restrictions on Share
Transferability. The Committee may impose such restrictions
on any Shares acquired pursuant to the exercise of an Option, as
it may deem advisable, including, but not limited to,
restrictions related to Federal securities laws, the
requirements of any national securities exchange or system upon
which such Shares are then listed and/or traded, and/or any blue
sky or state securities laws.
5.8 Certain Additional
Provisions for Incentive Stock Options.
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5.8.1 Exercisability. The
aggregate Fair Market Value (determined at the time the Option
is granted) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by any Employee
during any calendar year (under all plans of the Company and its
Subsidiaries) shall not exceed $100,000. |
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5.8.2 Termination of
Employment. No Incentive Stock Option may be exercised more
than three months after the Participants termination of
employment for any reason other than Disability or death, unless
(a) the Participant dies during such three-month period,
and (b) the Award Agreement and/or the Committee permits
later exercise. No Incentive Stock Option may be exercised more
than one year after the Participants termination of
employment on account of Disability, unless (a) the
Participant dies during such one-year period, and (b) the
Award Agreement and/or the Committee permit later exercise. |
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5.8.3 Company and Subsidiaries
Only. Incentive Stock Options may be granted only to persons
who are Employees of the Company and/or a Subsidiary at the time
of grant. |
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5.8.4 Expiration. No
Incentive Stock Option may be exercised after the expiration of
10 years from the date such Option was granted;
provided, however, that if the Option is granted to an
Employee who, together with persons whose stock ownership is
attributed to the Employee pursuant to Section 424(d) of
the Code, owns stock possessing more than 10% of the total
combined voting power of all classes of the stock of the Company
or any of its Subsidiaries, the Option may not be exercised
after the expiration of 5 years from the date that it was
granted. |
5.9 Nontransferability of
Options. No Option granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will, the laws of descent and
distribution, or as provided under SECTION 9. All Options
granted to a Participant under the Plan shall be exercisable
during his or her lifetime only by such Participant.
SECTION 6
STOCK APPRECIATION RIGHTS
6.1 Grant of SARs. An SAR
may be granted to an Employee, Consultant or Director at any
time and from time to time as determined by the Committee, in
its sole discretion. The Committee may grant Affiliated SARs,
Freestanding SARs, Tandem SARs, or any combination thereof. The
Committee shall have complete discretion to determine the number
of SARs granted to any Participant, and consistent with the
provisions of the Plan, the terms and conditions pertaining to
such SARs. However, the grant price of a Freestanding SAR shall
be at least equal to the Fair Market Value of a Share on the
date of grant. The grant price of Tandem or Affiliated SARs
shall equal the Option Price of the related Option.
6.2 Exercise of Tandem SARs.
Tandem SARs may be exercised for all or part of the Shares
subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem
SAR may be exercised only with respect to the Shares for which
its related Option is then exercisable.
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6.2.1 ISOs. Notwithstanding
any contrary provision of the Plan, with respect to a Tandem SAR
granted in connection with an ISO: (i) the Tandem SAR shall
expire no later than the expiration of the underlying ISO;
(ii) the value of the payout with respect to the Tandem SAR
shall be for no more than one hundred percent (100%) of the
difference between the Option Price of the underlying ISO and
the Fair Market Value of the Shares subject to the underlying
ISO at the time the Tandem SAR is exercised; |
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and (iii) the Tandem SAR shall be exercisable only when the
Fair Market Value of the Shares subject to the ISO exceeds the
Option Price of the ISO. |
6.3 Exercise of Affiliated
SARs. An Affiliated SAR shall be deemed to be exercised upon
the exercise of the related Option. The deemed exercise of an
Affiliated SAR shall not necessitate a reduction in the number
of Shares subject to the related Option.
6.4 Exercise of Freestanding
SARs. Freestanding SARs shall be exercisable on such terms
and conditions as the Committee, in its sole discretion, shall
determine.
6.5 SAR Agreement. Each SAR
shall be evidenced by an Award Agreement that shall specify the
grant price, the term of the SAR, the conditions of exercise,
and such other terms and conditions as the Committee, in its
sole discretion, shall determine.
6.6 Expiration of SARs. An
SAR granted under the Plan shall expire upon the date determined
by the Committee, in its sole discretion, and set forth in the
Award Agreement. Notwithstanding the foregoing, the rules of
Section 5.4 (pertaining to Options) also shall apply to
SARs.
6.7 Payment of SAR Amount.
Upon exercise of an SAR, a Participant shall be entitled to
receive payment from the Company in an amount determined by
multiplying:
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(a) The difference between the Fair Market Value of a Share
on the date of exercise over the grant price; times |
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(b) The number of Shares with respect to which the SAR is
exercised. |
At the discretion of the Committee, the payment upon SAR
exercise may be in cash, in Shares of equivalent value, or in
some combination thereof.
6.8 Nontransferability of
SARs. No SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will, the laws of descent and
distribution, or as permitted under SECTION 9. An SAR
granted to a Participant shall be exercisable during the
Participants lifetime only by such Participant.
SECTION 7
RESTRICTED STOCK
7.1 Grant of Restricted
Stock. Subject to the terms and provisions of the Plan, the
Committee, at any time and from time to time, may grant Shares
of Restricted Stock to Employees, Consultants or Directors in
such amounts as the Committee, in its sole discretion, shall
determine.
7.2 Restricted Stock
Agreement. Each Award of Restricted Stock shall be evidenced
by an Award Agreement that shall specify the Period of
Restriction, the number of Shares granted, and such other terms
and conditions as the Committee, in its sole discretion, shall
determine. Unless the Committee determines otherwise, shares of
Restricted Stock shall be held by the Company as escrow agent
until the restrictions on such Shares have lapsed.
7.3 Transferability. Except
as provided in this SECTION 7, Shares of Restricted Stock
may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated until the end of the applicable Period
of Restriction. All rights with respect to the Restricted Stock
granted to a Participant under the Plan shall be available
during his or her lifetime only to such Participant.
7.4 Other Restrictions. The
Committee, in its sole discretion, may impose such other
restrictions on any Shares of Restricted Stock as it may deem
advisable including, without limitation, restrictions based upon
the achievement of specific performance goals (Company-wide,
divisional, and/or individual), and/or restrictions under
applicable Federal or state securities laws; and may legend the
certificates representing
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Restricted Stock to give appropriate notice of such
restrictions. For example, the Committee may determine that some
or all certificates representing Shares of Restricted Stock
shall bear the following legend:
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The sale or other transfer of the shares of stock
represented by this certificate, whether voluntary, involuntary,
or by operation of law, is subject to certain restrictions on
transfer as set forth in the Superconductor Technologies Inc.
2003 Equity Incentive Plan, and in a Restricted Stock Agreement.
A copy of the Plan and such Restricted Stock Agreement may be
obtained from the Secretary of Superconductor Technologies
Inc. |
7.5 Removal of Restrictions.
Except as otherwise provided in this SECTION 7, Shares of
Restricted Stock covered by each Restricted Stock grant made
under the Plan shall be released from escrow as soon as
practicable after the last day of the Period of Restriction. The
Committee, in its discretion, may accelerate the time at which
any restrictions shall lapse, and/or remove any restrictions.
After the restrictions have lapsed, the Participant shall be
entitled to have any legend or legends under Section 7.4
removed from his or her Share certificate, and the Shares shall
be freely transferable by the Participant.
7.6 Voting Rights. During
the Period of Restriction, Participants holding Shares of
Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares, unless the Committee
determines otherwise.
7.7 Dividends and Other
Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock shall be
entitled to receive all dividends and other distributions paid
with respect to such Shares, unless otherwise provided in the
Award Agreement. If any such dividends or distributions are paid
in Shares, the Shares shall be subject to the same restrictions
on transferability and forfeitability as the Shares of
Restricted Stock with respect to which they were paid.
7.8 Return of Restricted Stock
to Company. Subject to the applicable Award Agreement and
Section 7.5, upon the earlier of (a) the
Participants Termination of Employment, or (b) the
date set forth in the Award Agreement, the Restricted Stock for
which restrictions have not lapsed shall revert to the Company
and, subject to Section 4.3, again shall become available
for grant under the Plan.
7.9 Repurchase Option.
Unless the Committee determines otherwise, the Restricted Stock
Purchase Agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the
Participants service with the Company for any reason
(including death or Disability). The purchase price for Shares
repurchased pursuant to the Restricted Stock Purchase Agreement
shall be the original price paid by the Participant and may be
paid by cancellation of any indebtedness of the Participant to
the Company. The repurchase option shall lapse at a rate
determined by the Committee.
SECTION 8
PERFORMANCE UNITS AND PERFORMANCE SHARES
8.1 Grant of Performance Units/
Shares. Performance Units and Performance Shares may be
granted to Employees, Consultants or Directors at any time and
from time to time, as shall be determined by the Committee, in
its sole discretion. The Committee shall have complete
discretion in determining the number of Performance Units and
Performance Shares granted to each Participant.
8.2 Value of Performance Units/
Shares. Each Performance Unit shall have an initial value
that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair
Market Value of a Share on the date of grant. The Committee
shall set performance goals in its discretion which, depending
on the extent to which they are met, will determine the number
and/or value of Performance Units/ Shares that will be paid out
to the Participants. The time period during which the
performance goals must be met shall be called the
Performance Period.
8.3 Earning of Performance
Units/ Shares. After the applicable Performance Period has
ended, the holder of Performance Units/ Shares shall be entitled
to receive a payout of the number of Performance Units/ Shares
earned by the Participant over the Performance Period, to be
determined as a function of the
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extent to which the corresponding performance goals have been
achieved. After the grant of a Performance Unit/ Share, the
Committee, in its sole discretion, may adjust and/or waive the
achievement of any performance goals for such Performance Unit/
Share.
8.4 Form and Timing of Payment
of Performance Units/ Shares. Payment of earned Performance
Units/ Shares shall be made as soon as practicable after the
expiration of the applicable Performance Period. The Committee,
in its sole discretion, may pay earned Performance Units/ Shares
in the form of cash, in Shares (which have an aggregate Fair
Market Value equal to the value of the earned Performance Units/
Shares at the close of the applicable Performance Period) or in
a combination thereof.
8.5 Cancellation of Performance
Units/ Shares. Subject to the applicable Award Agreement,
upon the earlier of (a) the Participants Termination
of Employment, or (b) the date set forth in the Award
Agreement, all remaining Performance Units/ Shares shall be
forfeited by the Participant to the Company, and subject to
Section 4.3, the Shares subject thereto shall again be
available for grant under the Plan.
8.6 Nontransferability.
Performance Units/ Shares may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by
will, the laws of descent and distribution, or as permitted
under SECTION 9. A Participants rights under the Plan
shall be exercisable during the Participants lifetime only
by the Participant or the Participants legal
representative.
SECTION 9
BENEFICIARY DESIGNATION
If permitted by the Committee, a Participant may name a
beneficiary or beneficiaries to whom any unpaid vested Award
shall be paid in event of the Participants death. Each
such designation shall revoke all prior designations by the same
Participant and shall be effective only if given in a form and
manner acceptable to the Committee. In the absence of any such
designation, benefits remaining unpaid at the Participants
death shall be paid to the Participants estate and,
subject to the terms of the Plan, any unexercised vested Award
may be exercised by the Committee or executor of the
Participants estate.
SECTION 10
DEFERRALS
The Committee, in its sole discretion, may permit a Participant
to defer receipt of the payment of cash or the delivery of
Shares that would otherwise be due to such Participant under an
Award. Any such deferral elections shall be subject to such
rules and procedures as shall be determined by the Committee in
its sole discretion.
SECTION 11
RIGHTS OF EMPLOYEES AND CONSULTANTS
11.1 No Effect on Employment or
Service. Nothing in the Plan shall interfere with or limit
in any way the right of the Company to terminate any
Participants employment or service at any time, with or
without cause.
11.2 Participation. No
Employee, Consultant or Director shall have the right to be
selected to receive an Award under this Plan, or, having been so
selected, to be selected to receive a future Award.
SECTION 12
AMENDMENT, SUSPENSION, OR TERMINATION
The Board, in its sole discretion, may alter, amend or terminate
the Plan, or any part thereof, at any time and for any reason.
However, as required by Applicable Laws, no alteration or
amendment shall be effective
C-10
without further stockholder approval. Neither the amendment,
suspension, nor termination of the Plan shall, without the
consent of the Participant, alter or impair any rights or
obligations under any Award theretofore granted. No Award may be
granted during any period of suspension nor after termination of
the Plan.
SECTION 13
TAX WITHHOLDING
13.1 Withholding
Requirements. Prior to the delivery of any Shares or cash
pursuant to an Award, the Company shall have the power and the
right to deduct or withhold, or require a Participant to remit
to the Company, an amount sufficient to satisfy Federal, state,
and local taxes required to be withheld with respect to such
Award.
13.2 Shares Withholding. The
Committee, in its sole discretion and pursuant to such
procedures as it may specify from time to time, may permit a
Participant to satisfy the minimum statutory tax withholding
obligation, in whole or in part, by delivering to the Company
Shares already owned for more than six (6) months having a
value equal to the amount required to be withheld. The value of
the Shares to be delivered will be based on their Fair Market
Value on the date of delivery.
SECTION 14
INDEMNIFICATION
Each person who is or shall have been a member of the Committee,
or of the Board, shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by him or her in
connection with or resulting from any claim, notion, suit, or
proceeding to which he or she may be a party or in which he or
she may be involved by reason of any action taken or failure to
act under the Plan or any Award Agreement and against and from
any and all amounts paid by him or her in settlement thereof,
with the Companys approval, or paid by him or her in
settlement thereof, with the Companys approval, or paid by
him or her in satisfaction of any judgment in any such action,
suit, or proceeding against him or her, provided he or she shall
give the Company an opportunity, at its own expense, to handle
and defend the same before he or she undertakes to handle and
defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the
Companys Certificate of Incorporation or Bylaws, as a
matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
SECTION 15
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
MERGER OR ASSET SALE
15.1 Changes in Capitalization;
No Award Repricing. Subject to any required action by the
shareholders of the Company, the number of Shares covered by
each outstanding Award, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Awards
have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Award, as well as the
price per Share covered by each such outstanding Award, shall be
proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of
the Shares, or any other increase or decrease in the number of
issued Shares effected without receipt of consideration by the
Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to
have been effected without receipt of consideration.
Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by
reason thereof shall be made with respect to, the number or
price of Shares subject to an Award. Further, except for the
C-11
adjustments provided herein, no Award may be amended to reduce
its initial exercise price, and no Award may be cancelled and
replaced with an Award with a lower price.
15.2 Dissolution or
Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Committee shall notify each
Participant as soon as practicable prior to the effective date
of such proposed transaction. The Committee in its discretion
may provide for a Participant to have the right to exercise his
or her Award until ten (10) days prior to such transaction
as to all of the Shares covered thereby, including Shares as to
which the Award would not otherwise be exercisable. In addition,
the Committee may provide that any Company repurchase option
applicable to any Shares purchased upon exercise of an Award
shall lapse as to all such Shares, provided the proposed
dissolution or liquidation takes place at the time and in the
manner contemplated. To the extent it has not been previously
exercised, an Award will terminate immediately prior to the
consummation of such proposed action.
15.3 Merger or Asset Sale.
In the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of
the Company, each outstanding Award shall be assumed or an
equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor
corporation. In the event that the successor corporation refuses
to assume or substitute for the Award, the Participant shall
fully vest in and have the right to exercise the Award as to all
of the Shares as to which it would not otherwise be vested or
exercisable. If an Award becomes fully vested and exercisable in
lieu of assumption or substitution in the event of a merger or
sale of assets, the Committee shall notify the Participant in
writing or electronically that the Award shall be fully vested
and exercisable for a period of fifteen (15) days from the
date of such notice, and the Award shall terminate upon the
expiration of such period. For the purposes of this paragraph,
the Award shall be considered assumed if, following the merger
or sale of assets, the option or right confers the right to
purchase or receive, for each Share subject to the Award
immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of
Shares for each Share held on the effective date of the
transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders
of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger
or sale of assets is not solely common stock of the successor
corporation or its Parent, the Committee may, with the consent
of the successor corporation, provide for the consideration to
be received upon the exercise of the Award, for each Share
subject to the Award, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per
share consideration received by holders of Shares in the merger
or sale of assets.
15.4 Change in Control. In
the event of a Change of Control (as defined below), except as
otherwise determined by the Board, the Participant shall fully
vest in and have the right to exercise the Awards as to all of
the Shares, including Shares as to which it would not otherwise
be vested or exercisable. If an Award becomes fully vested and
exercisable as the result of a Change of Control, the Committee
shall notify the Participant in writing or electronically prior
to the Change of Control that the Award shall be fully vested
and exercisable for a period of fifteen (15) days from the
date of such notice, and the Award shall terminate upon the
expiration of such period. For purposes of this Agreement, a
Change of Control means the happening of any of the
following events:
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(a) When any person, as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than
the Company, a Subsidiary 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 under the Exchange Act), directly or indirectly,
of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Companys then
outstanding securities entitled to vote generally in the
election of directors; or |
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(b) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which 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)
more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such
surviving entity |
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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
the Companys assets; or |
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(c) 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. Incumbent
Directors shall mean 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 the Incumbent
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). |
SECTION 16
CONDITIONS UPON ISSUANCE OF SHARES
16.1 Legal Compliance.
Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery
of Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect
to such compliance.
16.2 Investment
Representations. As a condition to the exercise of an Award,
the Company may require the person exercising such Award to
represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is
required.
SECTION 17
INABILITY TO OBTAIN AUTHORITY
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed
by the Companys counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the
Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not
have been obtained.
SECTION 18
RESERVATION OF SHARES
The Company, during the term of this Plan, will at all times
reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
SECTION 19
LEGAL CONSTRUCTION
19.1 Gender and Number.
Except where otherwise indicated by the context, any masculine
term used herein also shall include the feminine; the plural
shall include the singular and the singular shall include the
plural.
19.2 Severability. In the
event any provision of the Plan shall be held illegal or invalid
for any reason, such illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed
and enforced as if the illegal or invalid provision had not been
included.
19.3 Requirements of Law.
The granting of Awards and the issuance of Shares under the Plan
shall be subject to all Applicable Laws.
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19.4 Securities Law
Compliance. With respect to Section 16 Persons,
transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3. To the extent any
provision of the Plan, Award Agreement or action by the
Committee fails to so comply, it shall be deemed null and void,
to the extent permitted by law and deemed advisable by the
Committee.
19.5 Governing Law. The Plan
and all Award Agreements shall be construed in accordance with
and governed by the laws of the State of Delaware.
19.6 Captions. Captions are
provided herein for convenience only, and shall not serve as a
basis for interpretation or construction of the Plan.
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DETACH HERE
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SUPERCONDUCTOR TECHNOLOGIES INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 2005
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 20, 2005, and hereby appoints Martin S. McDermut proxy and attorney-in-fact with
full power 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
May 25, 2005 at 11:00 a.m., local time, at the offices of Superconductor Technologies Inc, located
at 460 Ward Drive, Santa Barbara, California and at any adjournment or adjournments thereof, and to
vote all shares of capital stock that the undersigned would be entitled to vote if then and there
personally present, on the matters set forth on the reverse side.
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[SEE REVERSE SIDE]
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CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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[SEE REVERSE SIDE] |
[BACK OF PROXY]
DETACH HERE
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Please mark votes as in this example |
1. TO ELECT TWO CLASS 1 DIRECTORS.
Nominees: Jeffrey A. Quiram and Charles E. Shalvoy
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o FOR ALL NOMINEES
(except listed to the contrary below)
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o WITHHELD FROM ALL
NOMINEES
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o EXCEPTIONS |
(INSTRUCTION: To withhold authority to vote for any individual nominee, mark the Exceptions box
and write that nominees name in the space provided above.)
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2. TO APPROVE AN INCREASE IN THE SHARES OF
THE COMPANYS AUTHORIZED COMMON STOCK FROM
ONE HUNDRED TWENTY-FIVE MILLION (125,000,000)
SHARES TO TWO HUNDRED FIFTY MILLION
(250,000,000) SHARES.
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FOR
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AGAINST
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ABSTAIN o |
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3. TO APPROVE A REVERSE SPLIT RANGING
FROM ONE-FOR-TWO TO ONE-FOR-TEN.
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FOR
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AGAINST
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ABSTAIN o |
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4. TO APPROVE AMENDMENTS TO THE
COMPANYS 2003 EQUITY INCENTIVE PLAN.
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FOR
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AGAINST
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ABSTAIN o |
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5. PROPOSAL TO RATIFY THE SELECTION OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
AUDITORS OF THE COMPANY FOR THE YEAR ENDING
DECEMBER 31, 2005.
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FOR
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AGAINST
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ABSTAIN o |
As to any other matters that may properly come before the meeting or any adjournments thereof, the
proxy holders are authorized to vote in accordance with their best judgment.
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MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
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PLEASE CHECK HERE IF YOU PLAN TO ATTEND THE MEETING
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(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.)
THIS PROXY WILL BE VOTED
AS DIRECTED, OR IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE INCREASE IN AUTHORIZED SHARES,
FOR THE REVERSE SPLIT, FOR THE AMENDMENTS TO THE 2003 EQUITY INCENTIVE PLAN AND
FOR THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS OF
THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 2005, AND AS THE PROXY HOLDERS DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.