tm2027041-1_def14a - none - 2.8301868s
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
Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐
Check the appropriate box:

Preliminary Proxy Statement

Confidential, For Use of the Commission Only (as permitted by 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional materials

Soliciting Material Pursuant to § 240.14a-12
SUPERCONDUCTOR TECHNOLOGIES INC.
(Name of Registrant as Specified in Its Charter)
Payment of filing fee (Check the appropriate box):

No fee required.

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)
Title of each class of securities to which transaction applies:
   
(2)
Aggregate number of securities to which transaction applies:
   
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
   
(4)
Proposed maximum aggregate value of transaction:
   
(5)
Total fee paid:
   

Fee paid previously with preliminary materials:

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
(1)
Amount previously paid:
   
(2)
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 2, 2020
To Our Stockholders:
The Annual Meeting of Stockholders (our “Annual Meeting”) of Superconductor Technologies Inc. will be held on Wednesday, September 2, 2020, at 9:00 a.m., local time, at the Hill Country Galleria, 12600 Hill Country Blvd, Suite R-275, Bee Cave, Texas 78738, for the following purposes, as more fully described in the accompanying Proxy Statement:
1.
To elect one (1) Class 1 directors to hold office until our 2023 Annual Meeting of Stockholders or until his or her successor is elected and qualified;
2.
To ratify the appointment of Marcum LLP as our independent registered public accounting firm for 2020;
3.
To approve an amendment to our restated certificate of incorporation, as amended, to authorize the Board of Directors (the “Board”) of the Company to effect a reverse stock split of our common stock by a ratio of not less than 1-for-5 and not more than 1-for-25 with a reduction in the number of authorized shares of our common stock by a corresponding ratio, with the Board having the discretion as to whether or not the reverse split is to be effected at any time prior to the first anniversary date of this meeting of stockholders, and with the exact ratio of any reverse split to be set at a whole number within the above range as determined by the Board its discretion (the “Reverse Stock Split Proposal”);
4.
To approve any adjournments of our Annual Meeting to another time or place, if necessary, for the purpose of soliciting additional proxies in favor of Proposal 3, the Reverse Stock Split Proposal; and
5.
To transact such other business as may properly come before our Annual Meeting or any adjournment(s) or postponement(s) thereof.
Only stockholders of record at the close of business on August 7, 2020 are entitled to notice of and to vote at our Annual Meeting. A list of stockholders as of this date will be available during normal business hours for examination at our offices by any stockholder for any purpose relevant to our Annual Meeting for a period of ten days prior to the Annual Meeting.
All stockholders are urged to attend our Annual Meeting in person or vote by proxy. YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND OUR ANNUAL MEETING IN PERSON, PLEASE SIGN AND SUBMIT YOUR PROXY AS SOON AS POSSIBLE SO THAT YOUR SHARES CAN BE VOTED AT OUR ANNUAL MEETING IN ACCORDANCE WITH YOUR INSTRUCTIONS. The proxy is revocable at any time prior to its exercise and will not affect your right to vote at the meeting in the event you attend our Annual Meeting in person.
We intend to hold our Annual Meeting in person. However, we are actively monitoring the situation with coronavirus (COVID-19) including the related public health and travel concerns and requirements that federal, state, and local governments may impose. In the event we determine it is not possible or advisable to hold our Annual Meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable via a press release and posting details on our website which information will also be filed with the SEC as additional proxy materials. This may involve holding the meeting solely by means of remote communication. Please monitor the “Investors” tab on our corporate website at http:// www.suptech.com for any updates for our Annual Meeting. As always, we encourage you to vote your shares prior to our Annual Meeting.
 

 
By Order of the Board of Directors,
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JEFFREY A. QUIRAM
President and Chief Executive Officer
Austin, Texas
August 10, 2020
Important Notice Regarding Availability of Proxy Materials for the 2020 Annual Meeting of Stockholders to be held on September 2, 2020
Our Proxy Statement, Annual Report on Form 10-K, as amended, and proxy card are available on the Internet at http://www.proxyvote.com and at the “SEC Filings” section under the “Investors” tab on our corporate website at http:// www.suptech.com.
 

 
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15511 W State Hwy 71
Suite 110-105
Austin, Texas 78738
(512) 650-7775
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON SEPTEMBER 2, 2020
INTRODUCTION
This Proxy Statement contains information related to the solicitation of proxies by and on behalf of the Board of Directors (our “Board”) of Superconductor Technologies Inc. (the “Company,” “STI,” “we,” “our” and “us”) for use in connection with our Annual Meeting of Stockholders to be held on Wednesday, September 2, 2020, beginning at 9:00 a.m., local time and at any and all adjournments or postponements thereof (our “Annual Meeting”), at the Hill Country Galleria, 12600 Hill Country Blvd, Suite R-275, Bee Cave, Texas 78738. At our Annual Meeting, stockholders will be asked to consider and vote upon the following proposals: (i) the election of one (1) Class 1 director to hold office until our 2023 Annual Meeting of Stockholders or until his or her successor is elected and qualified; (ii) to ratify the appointment of Marcum LLP as our independent registered public accounting firm for 2020; (iii) approval to authorize our Board to amend our restated certificate of incorporation, as amended, to effect a reverse stock split of our common stock at a ratio determined by our board of directors within a specified range, with a reduction in the number of authorized shares of our common stock by a corresponding ratio, with the Board having the discretion as to whether or not the reverse split is to be effected at any time prior to the first anniversary date of this Annual Meeting (the “Reverse Stock Split Proposal”); (iv) to approve any adjournments of our Annual Meeting to another time or place, if necessary, for the purpose of soliciting additional proxies in favor of Proposal Three, the Reverse Stock Split Proposal; and (v) to transact such other business as may properly come before our Annual Meeting. This Proxy Statement and the accompanying proxy card are being mailed on or about August 10, 2020 to stockholders of record as of the Record Date.
INFORMATION CONCERNING SOLICITATION AND VOTING
Record Date
Only holders of record of our common stock at the close of business on August 7, 2020 (the “Record Date”) are entitled to notice of our Annual Meeting and to vote at our Annual Meeting. As of the Record Date, we had 31,517,833 shares of our common stock issued and outstanding.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its use by delivering to our Secretary, at or before the taking of the vote at our Annual Meeting, a written notice of revocation or a duly executed proxy bearing a later date or by attending our Annual Meeting in person and voting at the such meeting. If not revoked, the proxy will be voted at the Annual Meeting in accordance with the stockholder’s instructions indicated on the proxy card
Voting and Solicitation
Each share of our common stock is entitled to one vote on all matters presented at our 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 unrevoked proxies will be voted: (i) FOR the election of the
 
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nominee in this Proxy Statement for Class 1 director, (ii) FOR the ratification of the selection of Marcum LLP as our independent registered public accounting firm for 2020, (iii) FOR approval to authorize our Board to amend our restated certificate of incorporation, as amended, to effect a reverse stock split of our common stock at a ratio determined by our board of directors within a specified range, with a reduction in the number of authorized shares of our common stock by a corresponding ratio, with the Board having the discretion as to whether or not the reverse split is to be effected at any time prior to the first anniversary date of this Annual Meeting (the “Reverse Stock Split Proposal”) and (iv) FOR any adjournment of our Annual Meeting to solicit additional proxies in favor of Proposal Three, the Reserve Stock Split Proposal. No other business is expected to come before our Annual Meeting. Should any other matter requiring a vote of stockholders properly arise, the persons named in the enclosed proxy card will vote such proxy in accordance with their best judgement (including the recommendation of our Board).
If you will not be able to attend our Annual Meeting to vote in person at the meeting, please 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. To vote by Internet, go to www.proxyvote.com. To vote by telephone, call 1-800-690-6903, and follow the instructions to cast your vote. For voting by Internet or telephone, you will need to have your 12-digit control number located on your proxy card. Please do not return the enclosed paper ballot if you are voting by Internet or telephone.
We intend to solicit proxies primarily by mail. However, directors, officers, agents and employees may communicate with stockholders, banks, brokerage houses and others by telephone, e-mail, in person or otherwise to solicit proxies. We may hire a proxy solicitation firm at standard industry rates to assist in the solicitation of proxies. All expenses incurred in connection with this solicitation will be borne by us. We request that brokerage houses, nominees, custodians, fiduciaries and other like parties forward the soliciting materials to the underlying beneficial owners of our common stock. We will reimburse reasonable charges and expenses in doing so.
Quorum; Abstentions; Broker Non-Votes
Quorum.   The required quorum for the transaction of business at our Annual Meeting is the holders of a majority of the stock issued and outstanding on the Record Date and entitled to vote at our Annual Meeting, present in person or by proxy. 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 our Annual Meeting with respect to such matter. Abstentions and broker non-votes will count toward the presence of a quorum. An abstention is the voluntary act of not voting by a stockholder who is present at a meeting and entitled to vote. Below is a discussion of the effect of abstentions and broker non-votes on the results of each proposal.
Under Delaware law and our Amended and Restated Bylaws, as amended (our “Bylaws”), any meeting of stockholders, whether or not a quorum is present or has been established, may be adjourned by the affirmative vote of the stockholders represented at the meeting, in person or by proxy. Under Proposal Four, we may determine that an adjournment of the meeting is appropriate for the purpose of soliciting additional proxies in favor of Proposal Three, the Reserve Stock Split Proposal.
Voting Requirements to Approve Proposals.   Under Proposal One, the election of a Class 1 director, the director is elected by a “plurality” of the shares voted (meaning that the nominee with the largest number of votes is elected, up to the maximum number of directors to be chosen (in this case, one director). The approval of Proposal Two: the ratification of the independent registered public accounting firm and Proposal Four: adjournment of our Annual Meeting for the purpose of soliciting additional proxies in favor of Proposal Three, the Reserve Stock Split Proposal, requires the affirmative vote of a majority of the votes properly cast at our Annual Meeting. As a result, abstentions and broker non-votes will have no effect on the result of Proposal Two or Proposal Four. The approval of Proposal Three, the Reverse Stock Split Proposal, requires the affirmative vote of a majority of the shares of common stock outstanding on the Record Date. As a result, abstentions and broker non-votes will have the same effect as a vote “AGAINST” Proposal Three.
 
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Broker Non-votes.   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.
Shares held in “Street Name.”   If your shares of common stock are held by a bank, broker or other nominee, please follow the instructions you receive from your bank, broker or other nominee to have your shares of common stock voted.
Broker Discretionary Voting.   If your shares are held by a broker, the broker will ask you how you want your shares to be voted. If you give the broker instructions, then your shares will be voted as you direct. If you do not give instructions, then we expect that your broker will have the discretion to vote your shares for Proposal Two, Proposal Three and Proposal Four with each qualifying as a “routine matter” under such applicable rules, but for the election of directors the broker may not be entitled to vote your shares at all.
Possibility of a Virtual Meeting
We intend to hold our Annual Meeting in person. However, we are actively monitoring the situation with coronavirus (COVID-19) including the related public health and travel concerns and requirements that federal, state, and local governments may impose. In the event we determine it is not possible or advisable to hold our Annual Meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable via a press release and posting details on our website which information will also be filed with the SEC as additional proxy materials. This may involve holding the meeting solely by means of remote communication. Please monitor the “Investors” tab on our corporate website at http:// www.suptech.com for any updates for our Annual Meeting. As always, we encourage you to vote your shares prior to our Annual Meeting.
Deadline for Receipt of Stockholder Proposals for 2021 Annual Meeting of Stockholders
Pursuant to Rule 14a-8 of the Securities and Exchange Commission (“SEC”), proposals by eligible stockholders that are intended to be presented at our 2021 Annual Meeting of Stockholders must be received by our Corporate Secretary at Superconductor Technologies Inc., 15511 W Hwy 71, Suite 110-105, Austin, Texas 78738 not later than April 12, 2021 before such meeting in order to be considered for inclusion in our proxy materials.
Stockholders intending to present a proposal at our 2021 Annual Meeting of Stockholders must comply with the requirements and provide the information set forth in our amended and restated bylaws. Under our amended and restated bylaws, a stockholder’s proposal must be timely received, which means that a proposal must be delivered to or mailed to our Secretary not less than 90 days prior to the meeting; provided that if less than 100 days’ notice or prior public disclosure of the meeting is given to stockholders, then notice by a stockholder, to be timely received, must be received by our Secretary not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made.
Merger Agreement and Private Placement with Clearday
Clearday Merger Agreement.   On February 26, 2020, the Company, AIU Special Merger Company, Inc., a Delaware corporation and wholly-owned subsidiary of STI (“Merger Sub”), and Allied Integral United, Inc., a Delaware corporation (“Clearday”), entered into an Agreement and Plan of Merger (as amended on May 12, 2020, the “Merger Agreement”), pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Clearday, with Clearday continuing as a wholly-owned subsidiary of STI (the “Merger”), and the Company would amend its certificate of incorporation to effect a reverse stock split of our common stock and change our name to Clearday, Inc.
In connection with the proposed Merger, we agreed to prepare and file with the U.S. Securities and Exchange Commission (“SEC”) a registration statement on Form S-4 that will contain a proxy statement/prospectus/ information statement, and will seek the approval of our stockholders with respect to certain
 
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actions relating to the proposed Merger and the Merger Agreement and the related transactions. The Annual Meeting, this proxy statement and the proposals contained herein are separate from, and not part of, the proposed Merger or stockholder approvals of the proposed Merger. As set forth below under “Important Additional Information Will be Filed with the SEC Relating to the Proposed Merger,” any stockholder approval in connection with the proposed Merger and Merger Agreement would be requested through additional action of the stockholders through a separate proxy statement/prospectus/ information statement. This proxy statement does not contain or summarize any of the material terms and conditions of such proposed Merger and the Merger Agreement.
Clearday Private Placement.   As previously disclosed, on June 30, 2020, STI and a wholly-owned subsidiary of Clearday (“Clearday Sub”) entered into a Securities Purchase Agreement (the “Purchase Agreement”), which was consummated on July 6, 2020, pursuant to which we issued in a private placement pursuant to Section 4(a)(2) under the Securities Act of 1933, as amended, four million (4,000,000) shares of our common stock (without any warrants) in exchange for a preferred equity interest in a single-asset holding company holding real estate with an implied purchase price of $0.40 per share of our common stock. Please refer to our filing on Form 8-K on July 6, 2020 for a description of this transaction and related agreements with Clearday.
Clearday has indicated to us its intent to vote such shares of our common stock in favor of each Proposal.
Important Additional Information Will be Filed with the SEC Relating to the Proposed Merger.   In connection with the proposed Merger, we intend to file relevant materials with the SEC, including a registration statement on Form S-4 that will contain a proxy statement/prospectus/information statement. INVESTORS AND STOCKHOLDERS OF STI ARE URGED TO READ THESE MATERIALS CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT STI, THE PROPOSED MERGER AND RELATED MATTERS. Investors and stockholders will be able to obtain free copies of the proxy statement, prospectus and other documents filed by STI with the SEC (when they become available) through the website maintained by the SEC at www.sec.gov. In addition, investors and stockholders will be able to obtain free copies of the proxy statement, prospectus and other documents filed by STI with the SEC by contacting STI by mail at Superconductor Technologies Inc., 15511 W. State Hwy 71, Suite 110-105 Austin, TX 78738, (512) 650-7775, Attention: Corporate Secretary. Investors and stockholders are urged to read the proxy statement, prospectus and the other relevant materials when they become available before making any voting or investment decision with respect to the proposed Merger.
No Offer or Solicitation.   This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
Participants in the Merger Solicitation.   STI and its directors and executive officers and Clearday and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of STI in connection with the proposed Merger. Information regarding the special interests of these directors and executive officers in the proposed Merger will be included in the proxy statement/prospectus/information statement referred to above. Additional information about STI’s directors and executive officers is included in this definitive proxy statement. These documents are available free of charge at the SEC website (www.sec.gov) and from the Corporate Secretary of STI at the address above. This proxy statement is not a solicitation for the Merger.
 
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PROPOSAL ONE
ELECTION OF CLASS 1 DIRECTOR
Our Board currently consists of four directors divided into three classes — Class 1 (Mr. Quiram), Class 2 (Mr. Davis and Ms. Johnson) and Class 3 (Mr. Vellequette) — 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. Mr. Quiram’s term expires at the Annual Meeting. Accordingly, one Class 1 director will be elected at the Annual Meeting. The nominee for election as the Class 1 director is Mr. Quiram. The Class 1 director will serve until our 2023 Annual Meeting of Stockholders and until his successor is elected and qualified. Assuming the nominee is elected, we will have four directors serving as follows:
Class 1 directors : Jeffrey A. Quiram Term expires at our 2023 annual meeting of stockholders.
Class 2 director : Lynn J. Davis and Julia S. Johnson
Terms expire at our 2021 annual meeting of stockholders.
Class 3 director : David W. Vellequette Term expires at our 2022 annual meeting of stockholders.
The accompanying proxy card grants the proxy holder the power to vote the proxy for a substitute nominee in the event that the nominee becomes unavailable to serve as a Class 1 director. Management presently has no knowledge that the 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, one director). 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 of director. Abstentions and broker non-votes also will not have any effect on the outcome of the election of the director.
Board Recommendation
Our Board Recommends a Vote “For” Mr. Quiram.
 
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CORPORATE GOVERNANCE AND BOARD MEETINGS AND COMMITTEES
Corporate Governance Policies and Practices
The following is a summary of our corporate governance policies and practices:

Our Board has determined that all of our directors, other than Mr. Quiram, are independent as defined by the rules of the SEC and The NASDAQ Stock Market (“NASDAQ”). Our Audit Committee, Compensation Committee and Governance and Nominating Committee each consists entirely of independent directors under the rules of the SEC and NASDAQ.

We have a Code of Business Conduct and Ethics for all of our employees, including our Chief Executive Officer and Chief Financial Officer. If we amend any provision of our Code of Business Conduct and Ethics that applies to our Chief Executive Officer or Chief Financial Officer (or any persons performing similar functions), or if we grant any waiver (including an implicit waiver) from any provision of our Code of Business Conduct and Ethics to our Chief Executive Officer or Chief Financial Officer (or any persons performing similar functions), we will disclose those amendments or waivers on our website at www.suptech.com/Investors/Corporate Governance/Amendments and Waivers to the Code of Conduct within four business days following the date of the amendment or waiver.

Our Audit Committee reviews and approves all related-party transactions.

As part of our Code of Business Conduct and Ethics, we have made a “whistleblower” hotline available to all employees for anonymous reporting of financial or other concerns. Our Audit Committee receives directly, without management participation, all hotline activity reports concerning accounting, internal controls or auditing matters.
Board Leadership Structure and Role in Risk Oversight
Our Board’s current policy is to separate the role of Chairman of our Board and Chief Executive Officer. Our Board believes that this structure combines accountability with effective oversight. This structure also allows us to benefit from the experience and knowledge of our Chairman, who has been on our Board since 2002, while reflecting the responsibilities and contributions of our Chief Executive Officer. In addition, we believe that the independence of our Chairman provides additional oversight over the decisions of our management and places additional control in the hands of our independent directors.
Our Board is actively involved in overseeing our risk management through our Audit Committee. Under its charter, our Audit Committee is responsible for inquiring of management and our independent auditors about significant areas of risk or exposure and assessing the steps management has taken to minimize such risks. Our Board’s role in risk oversight has not affected our Board’s determination that the separation of roles of Chairman and Chief Executive Officer is most appropriate for our company.
Stockholder Communications with Directors
Stockholders who want to communicate with our Board or with a particular director or committee may send a letter to our Secretary at Superconductor Technologies Inc., 15511 W Hwy 71, Suite 110-105, Austin, Texas 78738. 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 our Board or just certain specified individual directors or a specified committee. 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.
Attendance at Annual Meetings of Stockholders
We generally expect that all of our Board members attend our annual meetings of stockholders in the absence of a showing of good cause for failure to do so. All of the members of our Board attended our 2019 annual meeting of stockholders in person or by telephone.
 
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Board Meetings and Committees
During 2019, each of our directors attended at least 75% of the aggregate of (i) the total number of Board meetings and (ii) the total number of meetings of the committees on which the director served.
Board of Directors
Our Board held a total of nine meetings during 2019. Our Board has three standing committees — an Audit Committee established in accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934 (our “Audit Committee”), a Compensation Committee (our “Compensation Committee”) and a Governance and Nominating Committee (our “Nominating Committee”). Our Audit Committee, Compensation Committee and Nominating Committee each have a charter, which is available at the “Corporate Governance” section under the “Investors” tab on our website at www.suptech.com.
Audit Committee
The principal functions of our Audit Committee are to hire our independent public auditors, to review the scope and results of the year-end audit with management and the independent auditors, to review our accounting principles and our system of internal accounting controls and to review our annual and quarterly reports before filing them with the SEC. Our Audit Committee met six times during 2019. The current members of our Audit Committee are Messrs. Vellequette (Chairman), Davis and Ms. Johnson.
Our Board has determined that all members of our Audit Committee are “independent” as defined under the rules of the SEC and the listing standards of NASDAQ. Our Board has determined that Mr. Vellequette is an “audit committee financial expert.”
Compensation Committee
Our Compensation Committee reviews and approves salaries, bonuses and other benefits payable to our executive officers and administers our management incentive plan. Our Compensation Committee makes all compensation decisions with respect to our Chief Executive Officer and makes recommendations to our Board regarding non-equity compensation and equity awards to our other named executive officers (set forth below under “Executive Compensation — Summary Compensation Table”) and all other elected officers. In doing so, with respect to named executive officers other than the Chief Executive Officer, our Compensation Committee generally receives a recommendation from our Chief Executive Officer and other officers as appropriate. Our Chief Executive Officer also generally recommends the number of options or other equity awards to be granted to executive officers, within a range associated with the individual executive’s salary level, and presents this to our Compensation Committee for its review and approval.
Our Compensation Committee uses available data to review and compare our compensation levels to market compensation levels, taking into consideration the other companies’ size, the industry, and the individual executive’s level of responsibility, as well as anecdotal data regarding the compensation practices of other employers. We do not annually benchmark our executive compensation against a defined peer group, since we believe that defining such a group is difficult and would not materially affect our decisions. Our Compensation Committee does not generally hire an outside consulting firm to assist with compensation, as we believe that the value of doing so is exceeded by the costs. No compensation consultant was engaged to provide advice or recommendations on our executive or director compensation for 2019.
Our Compensation Committee also reviews the compensation of directors and recommends to our Board the amounts and types of cash to be paid and equity awards to be granted to our directors.
Our Compensation Committee met two times during 2019. The current members of our Compensation Committee are Messrs. Davis (Chairman), Vellequette and Ms. Johnson. Our Board has determined that all members of our Compensation Committee are “independent” as defined under the rules of the SEC and the listing standards of NASDAQ. Our Compensation Committee will only delegate its authority to the extent consistent with our certificate of incorporation and bylaws and applicable laws, regulations and listing standards.
 
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Our Compensation Committee created the Stock Option Committee (our “Stock Option Committee”) consisting of two members — our Compensation Committee Chairman and the Chief Executive Officer. The purpose of our Stock Option Committee is to facilitate the timely granting of stock options in connection with hiring, promotions and other special situations, and therefore our Stock Option Committee meets only periodically as certain events occur. Our Stock Option Committee is empowered to grant options to non-executive employees up to a preset annual aggregate limit. The Stock Option Committee did not meet during 2019. Our Compensation Committee supervises these grants and retains exclusive authority for all executive officer grants and the annual employee grants. The current members of our Stock Option Committee are Messrs. Davis (Chairman) and Quiram.
Governance and Nominating Committee
Our Nominating Committee is responsible for overseeing and, as appropriate, making recommendations to our Board regarding, membership and constitution of our Board and its role in overseeing our affairs. Our 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. Our Nominating Committee is also responsible for the corporate governance practices and policies of our Board and its committees. The current members of our Nominating Committee are Messrs. Davis, Vellequette and Ms. Johnson. Our Nominating Committee met two times in 2019. Our Board has determined that all members of our Nominating Committee are “independent” as defined under the rules of the SEC and the listing standards of NASDAQ.
Our 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 our Board, the current makeup of our Board, the results of the evaluations, and the wishes of our Board members to be re-nominated, our Nominating Committee recommends to our Board whether those individuals should be re-nominated.
Our Nominating Committee periodically reviews with our Board whether it believes our Board would benefit from adding a new member(s), and if so, the appropriate skills and characteristics required for the new member(s). If our Board determines that a new member would be beneficial, our Nominating Committee solicits and receives recommendations for candidates and manages the process for evaluating candidates. All potential candidates, regardless of their source (including candidates recommended by security holders), are reviewed under the same process. Our Nominating Committee (or its chair) screens the available information about the potential candidates. Based on the results of the initial screening, interviews with viable candidates are scheduled with Nominating Committee members, other members of our Board and senior members of management. Upon completion of these interviews and other due diligence, our Nominating Committee may recommend to our 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 us. Our stockholders may also recommend candidates by sending the candidate’s name and resume to our Nominating Committee under the provisions set forth above for communication with our Board. No such suggestions from our stockholders were received in time for our Annual Meeting.
Our Nominating Committee has no predefined minimum criteria for selecting Board nominees, although it believes that (i) all directors should share qualities such as: an ability to make meaningful contributions to our board; independence; strong communication and analytical skills; and a reputation for honesty and ethical conduct; and (ii) independent directors should share qualities such as: experience at the corporate, rather than divisional level, in multi-national organizations as large as or larger than us; and relevant, non-competitive experience. Our Nominating Committee does not have a formal policy with respect to diversity. However, our Nominating Committee and our Board believe that it is important that we have Board members whose diversity of skills, experience and background are complementary to those of our other Board members. In considering candidates for our Board, our Nominating Committee considers the entirety of each candidate’s credentials. In any given search, our Nominating Committee may also define particular characteristics for candidates to balance the overall skills and characteristics of our Board and our perceived needs. However, during any search, our Nominating Committee reserves the right to modify its stated search criteria for exceptional candidates.
 
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and significant stockholders (defined by statute as stockholders beneficially owning more than 10% of our common stock) to file with the SEC initial reports of beneficial ownership, and reports of changes in beneficial ownership, of our common stock. Directors, executive officers and significant stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of Forms 3, 4 and 5 (and amendments thereto) filed with the SEC and submitted to us, and on written representations by certain directors and executive officers received by us, we believe that all of our executive officers, directors and significant stockholders complied with all applicable filing requirements under Section 16(a) during 2019.
 
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NON-EMPLOYEE DIRECTOR COMPENSATION
Summary of Compensation
Our directors who are also employees do not receive additional compensation for their service on our Board. Our Board maintains a written compensation policy for our non-employee directors. Each director other than our Chairman of the Board receives an annual cash retainer of $20,000, and our Chairman of the Board receives an annual cash retainer of $40,000. The annual cash retainer is paid bi-annually and requires that the director attend at least 75% of our Board meetings. Each director receives a $5,000 annual retainer for service as a member of our three standing committees. In 2019, each director (including our Chairman of the Board) received an equity grant of 2,500 shares of our common stock. The grants vest in two equal installments, on each anniversary of the grant date. Our Board provides an additional $15,000 annual retainer (which is paid bi-annually) as compensation for service as chairman of our Audit Committee and an additional $10,000 annual retainer for service as chairman of each of our Compensation Committee and Nominating Committee.
Non-employee directors do not receive compensation from us other than as a director or as committee member. There are no family relationships among our directors and executive officers.
Non-employee Director Compensation Table
The following table summarizes the compensation paid to our non-employee directors for 2019:
Name
Fees earned or
paid in cash
($)
Stock
Awards
($)(1)
Option
Awards
($)(1)
Total
($)
Martin A. Kaplan
35,669 35,669
Lynn J. Davis
40,000 40,000
David W. Vellequette
45,000 45,000
Julia S. Johnson(2)
37,500 37,500
(1)
The amounts in this column represent the aggregate grant date fair value of the options to purchase common stock calculated in accordance with Accounting Standards Codification (“ASC”) 718, under the assumptions included in Note 5 to our audited financial statements for the year ended December 31, 2019 included in this Annual Report on Form 10-K. As of December 31, 2019: (i) Mr. Kaplan had no options to purchase common stock and no unvested shares of restricted common stock; (ii) Mr. Davis had 2,934 options to purchase common stock and 333 unvested shares of restricted common stock; (iii) Mr. Vellequette had 2,500 options to purchase common stock and no unvested shares of restricted common stock; (vi) Ms. Johnson had 2,500 options to purchase common stock and no unvested shares of restricted common stock.
(2)
Mr. Kaplan, our former Chairman of the Board, died August 3, 2019, and received a prorata cash payment.
 
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DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding those individuals currently serving as our directors (or nominated to serve as a director) and executive officers as of August 7, 2020:
Name
Age
Position
Lynn J. Davis(1)(2)(3)(4)
73
Director
David W. Vellequette(1)(2)(3)
64
Director
Julia S. Johnson(1)(2)(3)
54
Director
Jeffrey A. Quiram(4)
59
President, Chief Executive Officer and Director
William J. Buchanan
72
Chief Financial Officer (Principal Financial and Accounting Officer)
Adam L. Shelton
53
Vice President, Product Management and Marketing
(1)
Member of our Audit Committee.
(2)
Member of our Compensation Committee.
(3)
Member of our Governance and Nominating Committee.
(4)
Member of our Stock Option Committee.
Each of our directors, including our current nominee, was nominated based on the assessment of our Nominating Committee and our Board that he has demonstrated: an ability to make meaningful contributions to our Board; independence; strong communication and analytical skills; and a reputation for honesty and ethical conduct. Our Board consists of, and seeks to continue to include, persons whose diversity of skills, experience and background are complementary to those of our other directors.
Lynn J. Davis has served on our Board since 2005. He served as President, Chief Operating Officer and director of August Technology, a manufacturer of inspection equipment for the semiconductor fabrication industry from 2005 to 2006. From 2002 to 2004, he was a partner at Tate Capital Partners Fund, LLC, a private investment firm he co-founded. Prior to Tate, Mr. Davis was an employee of ADC Telecommunications for 28 years, serving in 14 management positions, including Corporate President, Group President and Chief Operating Officer. In December 2016, he retired as Chairman of the Board of Directors of Flexsteel Industries Inc., a furniture manufacturer. Mr. Davis holds a B.S. in electrical engineering from Iowa State University and an M.B.A. from the University of Minnesota. Our Board has determined that Mr. Davis is qualified to serve as a director because he has extensive knowledge in various management roles in the telecommunications industry, including manufacturing, sales and marketing. In addition, as a venture capitalist, Mr. Davis has worked with smaller companies and brings a valuable entrepreneurial approach to management and compensation issues.
David W. Vellequette rejoined our Board in December 2017. Mr. Vellequette previously served on our Board from January 2007 until March 2014. Mr. Vellequette most recently served as senior vice president of finance of Avaya, a global provider of business collaboration and communications solutions, which emerged in December 2017 from a nearly year-long financial restructuring under Chapter 11. Previously, Mr. Vellequette served as Avaya’s senior vice president and chief financial officer from October 1, 2012 through October 23, 2017. From 2005 to 2012, he was chief financial officer of JDS Uniphase, Inc., a telecommunications equipment company. He joined JDS Uniphase as vice president and operations controller in 2004. From 2002 to 2004, Mr. Vellequette served as vice president of Worldwide Sales and Service Operations at Openwave Systems, Inc., an independent provider of software solutions for the mobile communications and media industries. Mr. Vellequette began his finance career as an auditor with Ernst & Young. He holds a B.S. in Accounting from the University of California, Berkeley, and is a CPA. Our Board has determined that Mr. Vellequette is qualified to serve as a director because he has extensive knowledge about public and financial accounting matters.
Julia S. Johnson has served on our Board since October 2018. She is also a board member of Lumentum Inc. (NASDAQ: LITE). Ms. Johnson has been a global technology business leader for 29 years, creating growth and value in product lines and new market segments for the consumer electronics, enterprise, and
 
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Fintech/payment markets. Ms. Johnson is currently Vice President of Product Management, Enterprise Mobile Devices at Zebra Technologies. Ms. Johnson was the Senior Vice President Product Management and Marketing at Verifone, a global provider of technology that enables electronic payment transactions. Prior to Verifone, Ms. Johnson was Corporate Vice President Product Management at Lenovo, Corporate Vice President Product Management at Google, and Vice President of Product Management at Motorola. She holds a M.S. in Business Administration and a M.S. in Materials Science & Engineering from the Massachusetts Institute of Technology. She also has a B.S. in Math and Physics from Albion College.
Jeffrey A. Quiram has served on our Board, and has been our President and Chief Executive Officer, since 2005. From 1991 to 2004, Mr. Quiram served ADC Telecommunications in a variety of management roles, including Vice President of its wireless business unit. Mr. Quiram has a B.S. in Quantitative Methods and Computer Science from College of St. Thomas, and an M.B.A. from University of Minnesota. Our Board has determined that Mr. Quiram is qualified to serve as a director because he has extensive knowledge about product development, business planning, and complex manufacturing. In addition, he has extensive knowledge about our corporate operations and market activities from serving as our Chief Executive Officer.
William J. Buchanan has been our Chief Financial Officer since May 2010. Mr. Buchanan joined us in 1998 and served as our Controller from 2000 to May 2010. For 16 years prior to joining us, 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.
Adam L. Shelton has been our Vice President, Product Management and Marketing since 2006. From 2005 to 2006, Mr. Shelton was the Senior Director of Marketing for Motorola. From 2003 to 2005, he was the Senior Director of Marketing for Advanced Fibre Communications (AFC), now Tellabs. Mr. Shelton also held various management and executive management positions with Mahi Networks, ATU Communications and Bell Canada. Mr. Shelton graduated with dean’s honors as a Civil Engineering Technologist from Seneca College in Toronto, Canada.
 
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VOTING SECURITIES OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our common stock as of August 7, 2020 by (i) each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, (ii) each of our directors, (iii) each of our executive officers named in the table under “Executive Compensation — Summary Compensation Table,” and (iv) all of our directors and executive officers as a group. Except as otherwise indicated in the footnotes to the table, (i) 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, and (ii) the address of each person is c/o Superconductor Technologies Inc., 15511 W Hwy 71, Suite 110-105, Austin, Texas 78738.
Name
Number of
Shares(1)
Percentage
Ownership
Allied Integral United a/k/a Clearday(2)
4,000,000 12.7%
8800 Village Drive
San Antonio, TX 78217
Jeffrey A. Quiram
20,017 *
William J. Buchanan
10,916 *
Adam L. Shelton
11,309 *
Lynn J. Davis
3,111 *
David W. Vellequette
1,250 *
Julia S. Johnson
1,250 *
All executive officers and directors as a group (6 persons)
47,853 *
*
Less than 1%.
(1)
Includes shares issuable upon the exercise of stock options that are exercisable within 60 days of August 7, 2020 as follows: Mr. Quiram, 18,297 shares; Mr. Buchanan 10,117 shares; Mr. Shelton, 10,327 shares; Mr. Davis, 1,683 shares; Mr. Vellequette, 1,250 shares; and Ms. Johnson, 1,250 shares; and all executive officers and directors as a group, 42,924 shares.
(2)
These shares were acquired by Clearday in a private placement of our common stock that closed on July 6, 2020. We are also party to an Agreement and Plan of Merger with Clearday which was entered into on February 26, 2020 and amended on May 12, 2020 (the “Merger Agreement”). Pursuant to the Merger Agreement, and subject to the satisfaction or waiver of the conditions set forth in such agreement, a wholly-owned subsidiary of STI will merge with and into Clearday, with Clearday continuing as a wholly-owned subsidiary of STI. The conditions to the proposed Merger have not been satisfied as of the date hereof and such transaction remains pending. See “Merger Agreement and Private Placement with Clearday” for more information on the private placement transaction and the proposed Merger. Neither Clearday nor any of its officers or director have any position, office, contractual relationship, or other understanding with us (other than as set forth in the Merger Agreement) regarding the management or control of the Company.
 
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth for 2019, 2018 and 2017 the base salary and other compensation of our (i) President and Chief Executive Officer and (ii) our other two most highly compensated officers for 2019 (our “named executive officers”):
Name and Principal Position
Year
Salary
($)
Stock
Awards
($)(1)
Option
Awards
($)(1)
Non-equity
Incentive Plan
Compensation
($)
All Other
Compensation
($)(2)
Total
($)
Jeffrey A. Quiram
President, Chief Executive Officer, Director
2019 324,450 35,153 359,603
2018 324,450 43,431 45,461 413,342
2017 324,450 39,003 363,453
Robert L. Johnson
Senior Vice President, Operations
2019 242,462 66,114 308,576
2018 242,462 24,611 57,046 324,119
2017 242,462 49,755 292,217
Adam L. Shelton
Vice President Product Management and Marketing
2019 247,200 6,975 254,175
2018 247,200 24,611 6,375 278,186
2017 247,200 6,315 253,515
(1)
The Option Awards and Stock Awards amounts represent the aggregate grant date fair value of the options to purchase common stock or shares of restricted common stock (as applicable) calculated in accordance with ASC 718, under the assumptions included in Note 5 to our audited financial statements for the year ended December 31, 2019 included in our Annual Report on Form 10-K.
(2)
The All Other Compensation amounts shown reflect the value attributable to term life insurance premiums, certain tax payments and company 401(k) matching for each named executive officer, if applicable, as well as other perquisites described below. Each named executive officer is responsible for paying income tax on such amounts. Pursuant to the terms of his employment agreement, Mr. Quiram received $29,413, $39,721 and $33,313 in 2019, 2018 and 2017, respectively, for travel expenses from his home in Minnesota, temporary housing near our Santa Barbara and Austin facilities, the use of an automobile, and special indemnity payments to cover the taxes resulting from the payment or reimbursement of such travel and housing expenses.
Narrative Disclosure to Summary Compensation Table
Employment Agreement
We entered into an employment agreement with Mr. Quiram in 2005, which was amended in 2007. The employment agreement provides for the following:

Appointment as our President, Chief Executive Officer and a member of our Board;

A base salary, which was $315,000 per year for 2008-2009 and increased to $324,450 during 2010;

A bonus of up to 100% of his base salary based upon achievement of annual performance goals to be developed by our Compensation Committee and Mr. Quiram;

Accelerated vesting of all his equity grants in the event of an “Involuntary Termination” or “Change of Control” (both as defined in his employment agreement);

A severance payment equal to one year’s salary and continued benefits for one year in the event of “Involuntary Termination”;

In the event of a “Change of Control,” 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, and (iii) accelerated vesting of all of his outstanding equity grants;
 
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Payment or reimbursement of travel expenses from his present home in Minnesota and the lease of an apartment for Mr. Quiram near our Santa Barbara headquarters; and a special indemnity payment for any taxes resulting from the payment or reimbursement of such expenses; and

Lease of an automobile.
Change of Control Agreements
We also have “change of control” agreements with Mr. Shelton. The change of control agreement generally provides that, if the employee’s employment is terminated within twenty-four months of a “Change of Control” (as defined in the change of control agreements) either (i) by us for any reason other than death, “Cause” or “Disability” (as both terms are defined in the change of control agreements) or (ii) by the employee for “Good Reason” (as defined in the change of control agreements), then the terminated employee will be entitled to severance benefits salary continuation payments and continuation of health/life insurance benefits for 18 months and accelerated vesting for all outstanding unvested stock options and other equity securities held by the employee. Any payments or distributions made to or for the benefit of the named employees under these change of 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.
Merger Agreement
The Merger Agreement contemplates that material changes will be made to the change of control benefits to Mr. Quiram and all other beneficiaries of Change of Control Agreements, subject to their agreeing to such modifications. See “Merger Agreement and Private Placement with Clearday” for more information on the proposed Merger. The following terms are subject to change until all parties have agreed, but the following represents the Company’s current expectations. Generally, in exchange for waivers of their existing entitlements, valued at approximately $2.3 million in cash if there were a change of control and (except for Mr. Quiram) certain terminations of employment, Mr. Quiram and such other beneficiaries are expected to agree that they will instead receive “Stock Consideration” and contingent “Warrant Consideration,” as described below.
“Executive Percentage” means the amount a given officer would receive under his employment or change of control agreement at the Effective Time of the proposed Merger (“Individual CiC Amount”), divided by the Gross CiC Payments.
“Executive Pool” means a number of shares of the Company’s common stock, rounded down to the nearest whole share, determined by dividing $1 million by the official simple average of the closing price of the Company’s common stock on the Nasdaq Capital Market for the three (3) Nasdaq trading days ending immediately prior to the Effective Date (as defined in the Merger Agreement).
“Gross CiC Payments” means the sum of a given Individual CiC Amount plus the amount of Other CiC Amounts.
“Other CiC Amounts” means that amount that the Listed Executives (as defined in the Merger Agreement) other than any given Individual CiC Amount, would be entitled to receive under their individual employment or change in control agreements with the Company as in effect on the date hereof, assuming (if applicable) that they are each terminated without cause at the Effective Time.
“Stock Consideration” means a number of new shares of the Company’s common stock, that are fully vested and not subject to any repurchase or forfeiture rights, determined by multiplying the Executive Percentage (as defined below) by Executive Pool (as defined below), rounded down to the nearest whole share.
“Warrant Consideration” means an amount of cash equal to the Executive Percentage multiplied by 50% multiplied by the Warrant Proceeds.
“Warrant Proceeds” means (a) the gross amount of cash the Company actually receives or received from the proper exercise of any Company warrant to purchase common stock of the Company exercised between February 26, 2020 and the Effective Date, inclusive minus (b) the amount the Board of Directors of the Company, as in effect prior to the Effective Date, sets aside as necessary to pay expenses in order to
 
15

 
both satisfy any conditions to closing to the Merger Agreement and pay such other expenses that the Board deems to be prudent or appropriate, in its sole discretion (“Company Expenses”).
Non-Equity Incentive Compensation
We maintain a bonus plan for executive officers and selected other members of senior management. Under the plan, our Compensation Committee establishes financial and other pertinent objectives for the period and assigns each executive officer an annual target bonus amount based on a percentage of his or her base salary, which ranges from 20% to 100%. Our Compensation Committee also retains the authority to award discretionary bonuses for performance in other aspects of the business not covered by the established goals. In December 2017, our Compensation Committee decided, based on then-current economic conditions, to not establish financial performance targets under this plan for 2019 and to not award cash bonuses based on financial objectives in 2019. Our Compensation Committee did reserve its right to award discretionary bonuses if appropriate; however no bonuses were awarded for 2019.
Equity Grants
For 2019, we made the no grants of restricted stock awards and options to our named executive officers. See “Merger Agreement” above.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information with respect to outstanding options and unvested shares of restricted stock on December 31, 2019:
Option Awards
Stock Awards
Name
Number of
Securities
Underlying
Unexercised
Options(#)
Exercisable(1)
Number of
Securities
Underlying
Unexercised
Options(#)
Unexercisable
Option
Exercise
Price ($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock That
Have Not
Vested
Market Value
of Shares or
Units of
Stock That
Have Not
Vested ($)
Jeffrey A Quiram
59 2,844.00 1/25/2021
25 2628.00 2/9/2022
62 378.00 3/7/2023
1,800 318.00 12/5/2023
1,333 33.00 11/9/2025
15,000 15,000 1.92 10/16/2028
Robert L Johnson
33 2,844.00 1/25/2021
14 2628.00 2/9/2022
35 378.00 3/7/2023
1,000 318.00 12/5/2023
733 33.00 11/9/2025
8,500 8,500 1.92 10/16/2028
Adam L Shelton
33 2,844.00 1/25/2021
14 2628.00 2/9/2022
35 378.00 3/7/2023
1,000 318.00 12/5/2023
733 33.00 11/9/2025
8,500 8,500 1.92 10/16/2028
(1)
These options are fully vested.
 
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PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee has selected Marcum LLP, an independent registered public accounting firm, to audit our financial statements for 2020. Our Audit Committee is submitting its selection to our stockholders for ratification. Marcum LLP has served as our auditor since October 2010 and has no financial interest of any kind in us except the professional relationship between auditor and client. A representative of Marcum LLP is not expected to attend our Annual Meeting in person, but if such a representative attends, he or she will be afforded an opportunity to make a statement if he or she desires to do so, and in such case will be available to respond to appropriate questions by stockholders.
Required Vote
This proposal 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 count as a vote against and broker non-votes will not have any effect on the outcome of this proposal. In the event the stockholders do not approve this proposal, our Audit Committee will reconsider the appointment of Marcum LLP as our independent registered public accounting firm.
Board Recommendation
Our Board Recommends a Vote “For” the Ratification of the Appointment of our Independent Registered Public Accounting Firm.
 
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PROPOSAL THREE
TO AUTHORIZE OUR BOARD OF DIRECTORS TO AMEND OUR RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED, TO EFFECT A REVERSE STOCK SPLIT OF OUR COMMON STOCK
Introduction
Our Board has unanimously approved and recommended to our stockholders the approval of an amendment to our Restated Certificate of Incorporation, as amended (“Certificate of Incorporation”), to effect a reverse stock split (the “Reverse Stock Split”) by a ratio of not less than one-for-five (1:5) and not greater than one-for-twenty-five (1:25), with the exact ratio to be set as a whole number within this range determined by our Board, with a reduction in the number of authorized shares of our common stock by a corresponding ratio (the “Authorized Share Reduction”). If this Proposal is approved, our Board may (but is not required to) in its discretion to effect the Reverse Stock Split and Authorized Share Reduction at any time prior to the first anniversary date of this Annual Meeting without further stockholder approval. Even if this Proposal is approved, our Board may decide not to effect the Reverse Stock Split and the Authorized Share Reduction if it determines that the Reverse Stock Split is not an effective course of action to achieve corporate objectives. The Board will not effect the Reverse Stock Split without also effecting the Authorized Share Reduction, and vice versa.
The Reverse Stock Split and the Authorized Share Reduction will have no effect on the par value of our common stock but will have the effect of reducing the number of outstanding shares of common stock and the number of authorized shares of common stock by the ratio determined by our Board within the approved range. The Company will pay cash in lieu of any fractional shares resulting from the Reverse Stock Split. The proposed form of amendment to our Certificate of Incorporation to implement the Reverse Stock Split is attached to this proxy statement as Annex A (the “Certificate of Amendment”).
Reasons for the Reverse Stock Split
Compliance with NASDAQ Stock Market Rules.   Our common stock is listed on The NASDAQ Capital Market which has a continued listing requirement of $1.00 per share. On July 9, 2019, we received a letter from the Listing Qualifications Department of The NASDAQ Stock Market notifying the Company that the minimum bid price per share for the common stock fell below $1.00 for a period of 30 consecutive business days and that therefore the Company did not meet the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”). Since such letter, the Company has been subject to compliance periods including following a hearing with the Nasdaq Hearings Panel for which the Company put forth a compliance plan. The Company remains out of compliance with the Bid Price Requirement. Pursuant to a NASDAQ rule filing that tolled the extension period for companies through June 30, 2020, the Company’s deadline to evidence its compliance with the Bid Price Requirement is September 18, 2020. Compliance with the Bid Price Requirement requires the bid price of our common stock to close at $1.00 per share or more for a minimum of ten (10) consecutive trading days before the September 18, 2020 deadline. Absent such compliance or additional relief being granted by The NASDAQ Stock Market, the failure to regain and evidence compliance with the Bid Price Requirement in a timely manner will result in the delisting of the common stock from the NASDAQ Capital Market. We believe that a delisting would be adverse to the Company, our stock price and the trading of our common stock. We value our listing on The NASDAQ Stock Market and the Board believes that it is in the best interests of the Company and its stockholders to take action to regain compliance. A primary purpose of the Proposal is that if the Company is unable to otherwise timely regain compliance the Reverse Stock Split could be implemented by the Board as a means to assist with regaining compliance with the Bid Price Requirement and thereby to avoid a delisting of the common stock on such basis.
Separately, on December 2, 2019, the Company received a notice from the Listing Qualifications Department of the NASDAQ Stock Market indicating that the Company did not meet the minimum of $2,500,000 in stockholders’ equity required by Listing Rule 5550(b)(1) for continued listing (the “Stockholders’ Equity Requirement). Following completion of the July 6, 2020 private placement with Clearday (see “See “Merger Agreement and Private Placement with Clearday” for more information on the private placement
 
18

 
transaction and also the proposed Merger), the Company regained compliance with the Stockholders’ Equity Requirement and, on July 22, 2020, such compliance was confirmed by the Nasdaq Hearings Panel.
Additional Considerations for the Reverse Stock Split.   In addition to gaining compliance with the rules of the NASDAQ Stock Market, we also believe that there are additional advantages for the Company completing the Reverse Stock Split which stockholders should consider in connection with this Proposal. The low market price of our common stock impairs its acceptability to important segments of the financial community and the investing public. Many investors look upon low-priced stock as unduly speculative in nature and, as a matter of policy, avoid investment in such stocks. We believe that the low market price of our 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. 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, we are submitting this proposal with a range of Reverse Stock Split ratios of not less than one-for-five (1:5) and not greater than one-for-twenty-five (1:25). The need for the broad range is due to the volatility of our stock price which ranged from a high of $0.95 to a low of $0.12 during the twelve months prior to August 10, 2020.
We believe that enabling our Board to set the ratio within the stated range will provide us with the flexibility to implement the Reverse Stock Split and the Authorized Share Reduction in a manner designed to maximize the anticipated benefits for our stockholders. In determining whether to implement the Reverse Stock Split and selecting the applicable ratio, our Board will consider factors such as:

The status of the common stock listing on The NASDAQ Capital Market and the listing standards of other stock exchanges;

The historical trading price and trading volume of our common stock;

The then prevailing trading price and trading volume for our common stock;

The anticipated impact of the Reverse Stock Split on the trading price of and market for our common stock; and

Prevailing general market and economic conditions.
Reducing the number of outstanding shares of our common stock through a reverse stock split is intended, absent other factors, to increase the per share market price of our common stock. However, other factors, such as our financial results, market conditions and the market perception of our business may adversely affect the market price of our common stock. As a result, there can be no assurance that the Reverse Stock Split and the Authorized Share Reduction, if completed, will result in the intended benefits described above, that the market price of our common stock will increase following the Reverse Stock Split and the Authorized Share Reduction or that the market price of our common stock will not decrease in the future. Additionally, we cannot assure you that the market price per share of our common stock after a reverse stock split will increase in proportion to the reduction in the number of shares of our common stock outstanding before the Reverse Stock Split and the Authorized Share Reduction. Accordingly, the total market capitalization of our common stock after the Reverse Stock Split may be lower than the total market capitalization before the Reverse Stock Split and the Authorized Share Reduction.
Merger Agreement with Clearday.   This Proposal is not being submitted to our stockholders for purposes of the proposed Merger and the Merger Agreement with Clearday. See “Merger Agreement and Private Placement with Clearday” for more information on the proposed Merger.
Our Board will have sole discretion as to the exact timing and precise ratio of the Reverse Stock Split and the Authorized Share Reduction within the range of ratios specified in this Proposal at any time prior to the first anniversary date of this Annual Meeting. Our Board may also determine that the Reverse Stock Split and the Authorized Share Reduction is no longer in the best interests of the Company and its
 
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stockholders and decide to abandon the Reverse Stock Split and the Authorized Share Reduction, at any time before, during or after the meeting and prior to its effectiveness, without further action by the stockholders.
Effect of the Reverse Stock Split on Our Common Stock
Depending on the ratio for the Reverse Stock Split and the Authorized Share Reduction determined by our Board, a minimum of five (5) and a maximum of twenty-five (25) shares of existing common stock will be combined into one new share of common stock. The table below shows, as of July 31, 2020, the approximate number of outstanding shares of common stock (excluding Treasury shares) that would result from the listed hypothetical reverse stock split ratios (without giving effect to the treatment of fractional shares) based on the 31,509,549 shares of common stock issued and outstanding as of such date:
Reverse Stock Split Ratio
Approximate Number of
Outstanding Shares of
Common Stock Following
the Reverse Stock Split
Number of Shares of
Common Stock Reserved
for Future Issuance Following
the Reverse Stock Split and
the Authorized Share Reduction
Number of Shares of
Common Stock Authorized
but Not Outstanding or
Reserved Following the
Reverse Stock Split and
the Authorized Share Reduction
1-for-5
6,301,909 1,311,875 42,386,216
1-for-6
5,251,591 1,093,230 35,321,846
1-for-7
4,501,364 937,054 30,275,867
1-for-8
3,938,693 819,922 26,491,385
1-for-9
3,501,061 728,820 23,547,896
1-for-10
3,150,954 655,938 21,193,108
1-for-11
2,864,504 596,307 19,266,461
1-for-12
2,625,795 546,615 17,660,923
1-for-13
2,423,811 504,567 16,302,391
1-for-14
2,250,682 468,527 15,137,934
1-for-15
2,100,636 437,292 14,128,738
1-for-16
1,969,347 409,961 13,245,692
1-for-17
1,853,503 385,846 12,466,534
1-for-18
1,750,531 364,410 11,773,949
1-for-19
1,658,397 345,230 11,154,267
1-for-20
1,575,477 327,969 10,596,554
1-for-21
1,500,455 312,351 10,091,956
1-for-22
1,432,252 298,154 9,633,231
1-for-23
1,369,980 285,190 9,214,395
1-for-24
1,312,898 273,307 8,830,461
1-for-25
1,260,382 262,375 8,477,243
The actual number of shares issued after giving effect to the Reverse Stock Split, if implemented, will depend on the Reverse Stock Split ratio that is ultimately determined within the approved range by our Board and on the actual number of outstanding shares of common stock at the time we implement the Reverse Stock Split and the Authorized Share Reduction.
The Reverse Stock Split will affect all holders of our common stock uniformly and will not affect any stockholder’s percentage ownership interest in us, except that, as described below in “— Fractional Shares,” record holders of common stock otherwise entitled to a fractional share as a result of the Reverse Stock Split will receive cash in lieu of such fractional share. In addition, the Reverse Stock Split will not affect any stockholder’s proportionate voting power (subject to the treatment of fractional shares). For example, a holder of 3% of the voting power of the outstanding shares of our common stock immediately prior to the effectiveness of the Reverse Stock Split will generally continue to hold 3% (assuming there is no impact as
 
20

 
a result of the payment of cash in lieu of issuing fractional shares) of the voting power of the outstanding shares of our common stock after the Reverse Stock Split.
The Reverse Stock Split may result in some stockholders owning “odd lots” of less than 100 shares of common stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares. Nonetheless, our Board believes that these potential effects are outweighed by the benefits of the Reverse Stock Split.
Authorized but unissued shares of our common stock and preferred stock are available for future issuance as may be determined by our board of directors without further action by our stockholders, unless stockholder approval is required by applicable law or securities exchange listing requirements in connection with a particular transaction. These shares may be issued in the future for a variety of corporate purposes including, but not limited to, raising additional capital, corporate acquisitions and equity incentive plans. Except for a stock split or stock dividend, future issuances of common shares will dilute the voting power and ownership of our existing stockholders and, depending on the amount of consideration received in connection with the issuance, could also reduce stockholders’ equity on a per share basis.
No Going Private Transaction
Notwithstanding the decrease in the number of outstanding shares following the proposed Reverse Stock Split, our board of directors does not intend for this transaction to be the first step in a “going private transaction”: within the meaning of Rule 13e-3 of the Exchange Act.
Procedure for Implementing the Reverse Stock Split
The Reverse Stock Split and the Authorized Share Reduction, if approved by our stockholders, would become effective following the filing of the Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware as of the time or filing or such other time set forth in the Certificate of Amendment (the “Effective Time”). The Effective Time of the Reverse Stock Split and the Authorized Share Reduction will be determined by our Board based on its evaluation as to when such action will be the most advantageous to us and our stockholders. In addition, our Board reserves the right, notwithstanding stockholder approval and without further action by the stockholders, to elect not to proceed with the Reverse Stock Split and the Authorized Share Reduction if, at any time prior to filing the amendment to our Certificate of Incorporation, our Board, in its sole discretion, determines that it is no longer in our best interest and the best interests of our stockholders to proceed with the Reverse Stock Split and the Authorized Share Reduction. If a certificate of amendment effecting the Reverse Stock Split and the Authorized Share Reduction has not been filed with the Secretary of State of the State of Delaware by the close of business on the first anniversary of the Annual Meeting, our Board will abandon the Reverse Stock Split and the Authorized Share Reduction.
After the Effective Time, our common stock will have a new Committee on Uniform Securities Identification Procedures (“CUSIP”) number, which is a number used to identify our equity securities, and stock certificates with the older CUSIP number will need to be exchanged for stock certificates with the new CUSIP number by following the procedures described below.
Beneficial Holders of Common Stock (i.e., stockholders who hold in street name)
Upon the implementation of the Reverse Stock Split, we intend to treat shares held by stockholders through a bank, broker, custodian or other nominee in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers, custodians or other nominees will be instructed to effect the Reverse Stock Split for their beneficial holders holding our common stock in street name. However, these banks, brokers, custodians or other nominees may have different procedures than registered stockholders for processing the Reverse Stock Split. Stockholders who hold shares of our common stock with a bank, broker, custodian or other nominee and who have any questions in this regard are encouraged to contact their banks, brokers, custodians or other nominees.
 
21

 
Registered “Book-Entry” Holders of Common Stock (i.e., stockholders that are registered on the transfer agent’s books and records but do not hold stock certificates)
Certain of our registered holders of common stock may hold some or all of their shares electronically in book-entry form with the transfer agent. These stockholders do not have stock certificates evidencing their ownership of the common stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts.
Stockholders who hold shares electronically in book-entry form with the transfer agent will not need to take action (the exchange will be automatic) to receive whole shares of post-Reverse Stock Split common stock, subject to adjustment for treatment of fractional shares.
Exchange of Stock Certificates and Elimination of Fractional Share Interests
As soon as practicable after filing the Certificate of Amendment to our Certificate of Incorporation 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 effect 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 our 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 destroy any stock certificates or submit their stock certificates now. You should submit 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 establishes to our 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.
Fractional Shares
We do not currently intend to issue fractional shares in connection with the Reverse Stock Split. Therefore, we will not issue certificates representing fractional shares. In lieu of issuing fractions of shares, we intend to pay cash as follows:

If a stockholder’s shares are held in street name, payment for the fractional shares will be deposited directly into the stockholder’s account with the organization holding the stockholder’s shares.

If the stockholder’s shares are registered directly in the stockholder’s name, payment for the fractional shares will be made by check, sent to the stockholder directly from our transfer agent upon receipt of the properly completed and executed transmittal letter and original stock certificates.

The amount of cash to be paid for fractional shares will be equal to the product obtained by multiplying:

The average closing price of our common stock as reported by The NASDAQ Capital Market for the five trading days immediately preceding the date of the Reverse Stock Split, or if our common stock is not at such time traded on The NASDAQ Capital Market, then as reported on the primary trading market for our common stock;

The amount of the fractional share.
Those stockholders who hold less than the number of shares set forth in the Reverse Stock Split ratio would be eliminated as a result of the payment of fractional shares in lieu of any fractional share interest in
 
22

 
connection with the Reverse Stock Split. The Board reserves the right to aggregate all fractional shares for cash and arrange for their sale, with the aggregate proceeds from such sale being distributed to the holders of fractional shares on a pro rata basis.
Effect of the Reverse Stock Split on Employee Plans, Options, Restricted Stock Awards and Units, Warrants, Preferred Stock and other Convertible or Exchangeable Securities
Based upon the reverse stock split ratio determined by our Board, proportionate adjustments are generally required to be made to the per share exercise price and the number of shares issuable upon the exercise or conversion of all outstanding options, warrants, convertible or exchangeable securities entitling the holders to purchase, exchange for, or convert into, shares of common stock. This would include proportionate adjustments to the applicable common stock conversion price of the outstanding shares of our Series A Convertible Preferred Stock. This would result in approximately the same aggregate price being required to be paid under such options, warrants, preferred stock and other convertible or exchangeable securities upon exercise, and approximately the same value of shares of common stock being delivered upon such exercise, exchange or conversion, immediately following the Reverse Stock Split as was the case immediately preceding the Reverse Stock Split. The number of shares deliverable upon settlement or vesting of restricted stock awards will be similarly adjusted, subject to our treatment of fractional shares. The number of shares reserved for issuance pursuant to these securities will be proportionately based upon the reverse stock split ratio determined by the Board, subject to our treatment of fractional shares.
Accounting Matters
This proposed amendment to our Certificate of Incorporation will not affect the par value of our common stock per share, which will remain $0.001 par value per share. As a result, as of the Effective Time, the stated capital attributable to common stock and the additional paid-in capital account on our balance sheet will not change due to the Reverse Stock Split. Reported per share net income or loss will be higher because there will be fewer shares of common stock outstanding.
Certain Federal Income Tax Consequences
The following summary describes certain material U.S. federal income tax consequences of the Reverse Stock Split to holders of our common stock.
Unless otherwise specifically indicated herein, this summary addresses the tax consequences only to a beneficial owner of our common stock that is a citizen or individual resident of the United States, a corporation organized in or under the laws of the United States or any state thereof or the District of Columbia or otherwise subject to U.S. federal income taxation on a net income basis in respect of our common stock (a “U.S. holder”). A trust may also be a U.S. holder if (1) a U.S. court is able to exercise primary supervision over administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person. An estate whose income is subject to U.S. federal income taxation regardless of its source may also be a U.S. holder.
This summary does not address all of the tax consequences that may be relevant to any particular investor, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of taxpayers or that are generally assumed to be known by investors. This summary also does not address the tax consequences to (i) persons that may be subject to special treatment under U.S. federal income tax law, such as banks, insurance companies, thrift institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, U.S. expatriates, persons subject to the alternative minimum tax, traders in securities that elect to mark to market and dealers in securities or currencies, (ii) persons that hold our common stock as part of a position in a “straddle” or as part of a “hedging,” “conversion” or other integrated investment transaction for federal income tax purposes, or (iii) persons that do not hold our common stock as “capital assets” (generally, property held for investment). If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our common stock, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. Partnerships that hold our common
 
23

 
stock, and partners in such partnerships, should consult their own tax advisors regarding the U.S. federal income tax consequences of the Reverse Stock Split.
This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, U.S. Treasury regulations, administrative rulings and judicial authority, all as in effect as of the date of this proxy statement. Subsequent developments in U.S. federal income tax law, including changes in law or differing interpretations, which may be applied retroactively, could have a material effect on the U.S. federal income tax consequences of the Reverse Stock Split.
PLEASE CONSULT YOUR OWN TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL REVENUE CODE AND THE LAWS OF ANY OTHER TAXING JURISDICTION.
The Reverse Stock Split should be treated as a recapitalization for U.S. federal income tax purposes. Therefore, a stockholder generally will not recognize gain or loss on the Reverse Stock Split, except to the extent of cash, if any, received in lieu of a fractional share interest in the post-Reverse Stock Split shares. The aggregate tax basis of the post-split shares received will be equal to the aggregate tax basis of the pre-split shares exchanged therefore (excluding any portion of the holder’s basis allocated to fractional shares), and the holding period of the post-split shares received will include the holding period of the pre-split shares exchanged.
A holder of the pre-split shares who receives cash will generally recognize gain or loss equal to the difference between the portion of the tax basis of the pre-split shares allocated to the fractional share interest and the cash received. Such gain or loss will be a capital gain or loss and will be short term if the pre-split shares were held for one year or less and long term if held more than one year.
No gain or loss will be recognized by us as a result of the Reverse Stock Split.
No Appraisal Rights
Stockholders have no rights under Delaware law or under our charter documents to exercise dissenters’ rights of appraisal with respect to the Reverse Stock Split.
Interest of Certain Persons in Matters to be Acted Upon
No officer or director has any substantial interest, direct or indirect, by security holdings or otherwise, in the Reverse Stock Split and the Authorized Share Reduction that is not shared by all of our other stockholders.
Vote Required
This Proposal requires the affirmative vote of a majority of the outstanding shares of our 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 same effect as a vote “against” this Proposal. The proxy holders will vote your shares in accordance with your instructions. If you have not given specific instructions to the contrary, your shares will be voted “FOR” the approval of this Proposal.
Board Recommendation
Our Board Recommends a Vote “For” Amendment of our Restated Certificate of Incorporation, as Amended, to Effect a Reverse Stock Split and the Authorized Share Reduction as Described in this Proposal Three.
 
24

 
PROPOSAL FOUR
ADJOURNMENT OF THE MEETING, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES
Our stockholders are being asked to consider and vote upon an adjournment of our Annual Meeting, if necessary, to solicit additional proxies if there are insufficient votes in favor of approval of the proposed amendment to our Restated Certificate of Incorporation to effectuate the Reverse Stock Split and the corresponding Authorized Share Reduction as described in Proposal Three.
Under Delaware law, the affirmative vote of a majority of the votes present in person or represented by proxy at the Annual Meeting is required to approve the adjournment proposal. Under our Bylaws, no new notice need be given of the date, time or place of the adjourned meeting if such date, time or place is announced at the meeting before adjournment, unless the meeting is adjourned to a date more than 30 days after the date fixed for the original meeting. If we determine that an adjournment of the meeting is appropriate for the purpose of soliciting additional proxies in favor of any proposal being submitted by us at the meeting, such adjournment will be submitted for a stockholder vote under this Proposal Four.
Approval of the adjournment of our Annual Meeting requires an affirmative vote of a majority of the votes cast at the Annual Meeting. Abstentions and broker non-votes will not be counted towards, and will have no effect on, the vote total for this Proposal Four. Proxies solicited by the Board will be voted in favor of the adjournment unless a stockholder has indicated otherwise in their proxy.
Board Recommendation
Our Board Recommends a Vote “For” the Adjournment of our Annual Meeting, if necessary, to Solicit Additional Proxies if there are Insufficient Votes to Approve Proposal Three.
 
25

 
AUDIT COMMITTEE REPORT
The information contained in this Audit Committee Report shall not be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing (except to the extent that we specifically incorporate this information by reference) and shall not otherwise be deemed “soliciting material” or “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934 (except to the extent that we specifically request that this information be treated as soliciting material or specifically incorporate this information by reference).
Our Audit Committee reviews our financial reporting process on behalf of our Board. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls. Our Audit Committee has reviewed and discussed the audited financial statements with management. In addition, our Audit Committee has discussed with our independent registered public accounting firm the matters required to be discussed by Statements on Public Company Accounting Oversight Board Auditing Standard No. 16 “Communications with Audit Committees”.
Our Audit Committee has also received the written disclosures and the letter from our independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding their communications with the audit committee concerning independence, and has discussed with them their independence, including whether their provision of other non-audit services to us is compatible with maintaining their independence.
Our Audit Committee discussed with our independent registered public accounting firm the overall scope and plans for the audit. Our Audit Committee meets with them, with and without management present to discuss the results of their examinations, the evaluation of our internal controls and the overall quality of our reporting.
Based upon the review and discussions referred to in the foregoing paragraphs, our Audit Committee recommended to our Board that the audited financial statements be included in our Annual Report on Form 10-K for 2019 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
David W. Vellequette (Chairman)
Lynn J. Davis
Julia S. Johnson
 
26

 
FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee regularly reviews and determines whether specific non-audit projects or expenditures with our independent registered public accounting firm, Marcum LLP, potentially affects its independence. Our Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by Marcum LLP. Pre-approval is generally provided by our Audit Committee for up to one year, as detailed as to the particular service or category of services to be rendered, and is generally subject to a specific budget. Our Audit Committee may also pre-approve additional services of specific engagements on a case-by-case basis.
The following table sets forth the aggregate fees billed to us by Marcum LLP for 2019 and 2018, all of which were pre-approved by our Audit Committee:
Year Ended December 31,
2019
2018
Audit fees(1)
$ 175,000 $ 199,000
All other fees(2)
55,000 62,000
Total
$ 230,000 $ 261,000
(1)
Includes fees for professional services rendered for the audit of our annual consolidated financial statements and review of our annual report on Form 10-K and for reviews of the condensed consolidated financial statements included in our quarterly reports on Form 10-Q for the first three quarters of 2019 and 2018.
(2)
These fees related to services rendered for our registration statements.
 
27

 
TRANSACTIONS WITH RELATED PERSONS
None.
 
28

 
ANNUAL REPORT TO STOCKHOLDERS
Our Annual Report on Form 10-K for the year ended December 31, 2019 is being mailed to our stockholders along with this Proxy Statement.
 
29

 
OTHER MATTERS
We know of no other matters to be submitted at our 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 our Board may recommend.
By Order of the Board of Directors,
[MISSING IMAGE: sg_jeffreyaquiram-bw.jpg]
JEFFREY A. QUIRAM
President and Chief Executive Officer
Austin, Texas
August 10, 2020
 
30

 
ANNEX A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
SUPERCONDUCTOR TECHNOLOGIES INC.
Superconductor Technologies Inc., a corporation organized and existing under the laws of the State of Delaware (the “Company”), hereby certifies as follows:
1.
That Article IV. of the Restated Certificate of Incorporation of the Company is hereby amended to add Section 4 as follows:
Section 4. Effective as of  [•], 20[•], 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 non-assessable share of Common Stock of this corporation (the “Reverse Stock Split”), with a reduction in the number of authorized shares of our common stock by a corresponding ratio. 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 the amount of cash to be distributed shall be based upon the average closing price of a share of Common Stock on The NASDAQ Capital Market for the five trading days immediately preceding the effective date of the Amendment.”
2.
That the foregoing amendment has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, by approval of the Board of Directors of the Company and by the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock of the Company entitled to vote thereon at a meeting held on September [•], 2020.
3.
The effective time of the amendment herein certified shall be [•] on [•], 20[•].
IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment of Restated Certificate of Incorporation to be duly executed by its authorized officer this day of  [•], 20[•].
Superconductor Technologies Inc.
By:
[name, title]
 

 
DETACH HERE
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SUPERCONDUCTOR TECHNOLOGIES INC.
ANNUAL MEETING OF STOCKHOLDERS
September 2, 2020
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 August 10, 2020, and hereby appoints each of Jeffrey A. Quiram and William J. Buchanan, or either of them, as proxy and attorney-in-fact with full power of substitution and revocation, 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 Wednesday, September 2, 2020 at 9:00 a.m., local time at the Hill Country Galleria, 12600 Hill Country Blvd, Suite R-275, Bee Cave, Texas 78738 or, at the Company’s election, virtually as described in the proxy statement, 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.
[SEE REVERSE SIDE] CONTINUED AND TO BE SIGNED ON REVERSE SIDE [SEE REVERSE SIDE]
[BACK OF PROXY]
DETACH HERE
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

Please mark votes as in this example
1. TO ELECT ONE CLASS 1 DIRECTOR
Nominee: (1) Jeffrey A. Quiram
☐ FOR NOMINEE
☐ WITHHOLD NOMINEE
2. RATIFICATION OF THE SELECTION OF MARCUM LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF SUPERCONDUCTOR TECHNOLOGIES INC. FOR 2020.
FOR
AGAINST
ABSTAIN
3. PROPOSAL TO APPROVE AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED, OF THE COMPANY TO EFFECT A REVERSE STOCK SPLIT AND CORRESPONDING AUTHORIZED SHARE REDUCTION.
FOR
AGAINST
ABSTAIN
4. TO APPROVE ANY ADJOURNMENTS OF OUR ANNUAL MEETING TO ANOTHER TIME OR PLACE, IF NECESSARY, FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES IN FAVOR OF PROPOSAL THREE, THE REVERSE STOCK SPLIT PROPOSAL.
FOR
AGAINST
ABSTAIN
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.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT RIGHT.
PLEASE CHECK HERE IF YOU PLAN TO ATTEND THE MEETING.
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as his or her name appears hereon, and returned promptly in the enclosed envelope. Persons signing in a fiduciary capacity should so indicate. If shares are held by joint tenants or as community property, both must sign.)
 

 
Signature:
Date:
Signature:
Date:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED (I) FOR THE ELECTION OF THE CLASS 1 DIRECTOR NOMINEE, (II) FOR THE APPOINTMENT OF MARCUM LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF SUPERCONDUCTOR TECHNOLOGIES INC. FOR 2020, (III) FOR AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED, OF THE COMPANY TO EFFECT THE REVERSE STOCK SPLIT AND (IV) FOR ANY ADJOURNMENTS OF OUR ANNUAL MEETING TO ANOTHER TIME OR PLACE, IF NECESSARY, FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES IN FAVOR OF PROPOSAL THREE, THE REVERSE STOCK SPLIT PROPOSAL. THIS PROXY ALSO CONFERS DISCRETIONARY AUTHORITY ON THE PROXY HOLDERS TO VOTE AS TO ANY OTHER MATTERS THAT MAY BE PROPERLY BROUGHT BEFORE THE ANNUAL MEETING.