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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
IKONICS CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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):
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5) Total fee paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
IKONICS CORPORATION
4832 GRAND AVENUE
DULUTH, MINNESOTA 55807
(218) 628-2217
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to
be held at The Kitchi Gammi Club, 831 E. Superior Street, Duluth, Minnesota, at
1:00 p.m., Central Time, on April 26, 2007.
The Secretary's Notice of Annual Meeting and the Proxy Statement which
follow describe the matters to come before the meeting. During the meeting, we
will also review the activities of the past year and items of general interest
about the Company.
We hope that you will be able to attend the meeting in person and we look
forward to seeing you. Please mark, date and sign the enclosed proxy and return
it in the accompanying envelope as quickly as possible, even if you plan to
attend the Annual Meeting. You may revoke the proxy and vote in person at that
time if you so desire.
Sincerely,
/s/ William C. Ulland
----------------------------------------
William C. Ulland
Chairman of the Board
March 23, 2007
IKONICS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 26, 2007
The Annual Meeting of Shareholders of IKONICS Corporation will be held at
The Kitchi Gammi Club, 831 E. Superior Street, Duluth, Minnesota, at 1:00 p.m.,
Central Time, on April 26, 2007 for the following purposes:
1. To elect six directors for a one-year term.
2. To ratify the selection of McGladrey & Pullen, LLP as IKONICS
Corporation's independent registered public accounting firm for the
year ending December 31, 2007.
3. To transact such other business as may properly be brought before the
meeting.
The Board of Directors has fixed March 8, 2007 as the record date for the
meeting, and only shareholders of record at the close of business on that date
are entitled to receive notice of and vote at the meeting.
YOUR PROXY IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING. EVEN IF YOU OWN
ONLY A FEW SHARES, AND WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING,
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING
POSTAGE-PAID REPLY ENVELOPE AS QUICKLY AS POSSIBLE. YOU MAY REVOKE YOUR PROXY AT
ANY TIME PRIOR TO ITS EXERCISE AND RETURNING YOUR PROXY WILL NOT AFFECT YOUR
RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING AND REVOKE THE PROXY.
By Order of the Board of Directors,
/s/ Jon Gerlach
----------------------------------------
Jon Gerlach
Secretary
Duluth, Minnesota
March 23, 2007
PROXY STATEMENT
GENERAL INFORMATION
The enclosed proxy is being solicited by the Board of Directors of IKONICS
Corporation, a Minnesota corporation ("IKONICS" or the "Company"), for use in
connection with the Annual Meeting of Shareholders to be held on April 26, 2007
at The Kitchi Gammi Club, 831 E. Superior Street, Duluth, Minnesota, at 1:00
p.m., Central Time, and at any adjournments thereof. Only shareholders of record
at the close of business on March 8, 2007 will be entitled to vote at such
meeting or adjournment. Proxies in the accompanying form which are properly
signed, duly returned to the Company and not revoked will be voted in the manner
specified. A shareholder executing a proxy retains the right to revoke it at any
time before it is exercised by notice in writing to the Secretary of the Company
of termination of the proxy's authority or a properly signed and duly returned
proxy bearing a later date.
The address of the principal executive office of the Company is 4832 Grand
Avenue, Duluth, Minnesota 55807 and the telephone number is (612) 628-2217. The
mailing of this Proxy Statement and the Board of Directors' form of proxy to
shareholders will commence on or about March 23, 2007.
The Company will pay the cost of soliciting proxies in the accompanying
form. In addition to solicitation by the use of the mails, certain directors,
officers and employees of the Company may solicit proxies by telephone, regular
or electronic mail, or personal contact, and have requested brokerage firms and
custodians, nominees and other record holders to forward soliciting materials to
the beneficial owners of stock of the Company and will reimburse them for their
reasonable out-of-pocket expenses in so forwarding such materials.
The Common Stock of the Company, par value $.10 per share, is the only
authorized and issued voting security of the Company. At the close of business
on March 8, 2007 there were 2,013,036 shares of Common Stock issued and
outstanding, each of which is entitled to one vote. Holders of Common Stock are
not entitled to cumulate their votes for the election of directors.
A plurality of the votes cast is required for election of the director
nominees listed under "Election of Directors" in this Proxy Statement. The
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock present in person or represented by proxy at the meeting and
entitled to vote is required to ratify the selection of the Company's
independent registered public accounting firm. A shareholder voting through a
proxy who abstains with respect to any matter is considered to be present and
entitled to vote on such matter at the meeting and is in effect a negative vote
with respect to the proposal relating to ratification of the Company's
independent registered public accounting firm. However, a shareholder (including
a broker) who does not give authority to vote, or withholds authority to vote,
on any proposal shall not be considered present and entitled to vote on such
proposal.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of February 28, 2007, the number of
shares of Common Stock beneficially owned by each person who is a beneficial
owner of more than 5% of the Common Stock issued and outstanding, by each
executive officer named in the Summary Compensation Table, by each director, and
by all officers and directors as a group. All persons have sole voting and
dispositive power over such shares unless otherwise indicated.
NUMBER PERCENTAGE OF
OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES SHARES
--------------------------------------- ------- -------------
Directors and executive officers:
William C. Ulland 234,825(2) 11.57%
Charles H. Andresen 26,289(3) 1.30
Gerald W. Simonson 112,973(4) 5.59
David O. Harris 89,592(5) 4.43
Rondi Erickson 11,513(6) *
Leigh Severance 175,079(7) 8.66
Claude P. Piguet 21,675(8) 1.07
Jon Gerlach 11,250(9) *
Toshifumi Komatsu 5,742(10) *
Robert D. Banks 7,950(11) *
All directors and executive officers
(11 persons, including those named
above) 698,886(12) 33.66
Additional Beneficial Owners > 5%
Joseph R. Nerges 207,236(13) 10.27
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* Less than one percent.
(1) The address for each of the persons listed below is 4832 Grand Avenue,
Duluth, Minnesota 55807, except for Mr. Nerges, whose address is 1726 Bundy
Street, Scranton, Pennsylvania 18508.
(2) Includes options to purchase 12,000 shares of Common Stock exercisable
within 60 days of February 28, 2007.
(3) Includes options to purchase 2,175 shares of Common Stock exercisable
within 60 days of February 28, 2007.
(4) Includes options to purchase 4,350 shares of Common Stock exercisable
within 60 days of February 28, 2007.
(5) Includes options to purchase 4,350 shares of Common Stock exercisable
within 60 days of February 28, 2007.
(6) Includes options to purchase 4,350 shares of Common Stock exercisable
within 60 days of February 28, 2007.
(7) Includes options to purchase 4,350 shares of Common Stock exercisable
within 60 days of February 28, 2007.
(8) Includes options to purchase 6,000 shares of Common Stock exercisable
within 60 days of February 28, 2007.
(9) Includes options to purchase 11,250 shares of Common Stock exercisable
within 60 days of February 28, 2007.
(10) Includes options to purchase 5,000 shares of Common Stock exercisable
within 60 days of February 28, 2007.
(11) Includes options to purchase 3,000 shares of Common Stock exercisable
within 60 days of February 28, 2007.
(12) Includes options to purchase 60,969 shares of Common Stock exercisable
within 60 days of February 28, 2007.
(13) Based solely on information contained in filings made by Mr. Nerges with
the Securities and Exchange Commission on or prior to February 28, 2007.
2
ELECTION OF DIRECTORS
The business of the Company is managed under the direction of a Board of
Directors, with the number of directors fixed from time to time by the Board of
Directors. The Board of Directors has fixed at six the number of directors to be
elected to the Board at the 2007 Annual Meeting of Shareholders and has
nominated the six persons named below for election as directors, each to serve
for a one-year term. Proxies solicited by the Board of Directors will, unless
otherwise directed, be voted to elect the six nominees named below.
Each of the nominees is a current director of the Company and each has
indicated a willingness to serve as a director for the one-year term. In case
any nominee is not a candidate for any reason, the proxies named in the enclosed
form of proxy may vote for a substitute nominee in their discretion.
All nominees for director, except for Mr. Ulland, meet the independence
requirements of The Nasdaq Stock Market, the stock exchange on which the
Company's shares trade.
Following is certain information regarding the nominees for the office of
director:
William C. Ulland, age 66
Mr. Ulland is Chairman, President and Chief Executive Officer of the
Company. He was named IKONICS' Chief Executive Officer in February of 2000 and
President in December of 2000. He has been a member of the Company's Board of
Directors since 1972 and has served as its Chairman since 1976. Mr. Ulland
earned a degree in Geophysical Engineering from the Colorado School of Mines in
1963 and a Master of Science degree in Industrial Administration from Purdue
University in 1965. Prior to becoming the Company's Chief Executive Officer, he
was involved in mineral development and evaluation as Managing Partner of the
American Shield Company and President of Geomines Inc.
Charles H. Andresen, age 66
Mr. Andresen was elected as a director of the Company in 1979. Mr. Andresen
has been a shareholder in the law firm of Andresen & Butterworth, P.A., in
Duluth, Minnesota for the past three years. Prior to being a shareholder in
Andresen & Butterworth, P.A., Mr. Andresen was a shareholder in the law firm of
Andresen, Haag, Paciotti, & Butterworth, P.A. in Duluth, Minnesota.
Gerald W. Simonson, age 76
Mr. Simonson was elected as a director of the Company in 1978. He has been
the President of Omnetics Connector Corporation, a manufacturer of
microminiature connectors for the electronics industry located in Minneapolis,
Minnesota, for more than the past five years.
3
David O. Harris, age 72
Mr. Harris was elected a director of the Company in 1965. He has been
President of David O. Harris, Inc., a manufacturer's representative firm in
Minneapolis, Minnesota, for more than the past five years.
Rondi Erickson, age 59
Ms. Erickson was elected as a director of the Company in 2000. She is the
co-owner of Nokomis Restaurant & Bar in Duluth, Minnesota. From October 1999 to
February 2006, she was the Chief Executive Officer and a director of Apprise
Technologies Inc., a company that develops and sells optical and
electronic-based sensor technologies. Prior to joining Apprise, in 1995, Ms.
Erickson founded American Science Corporation, a registered FDA manufacturing
establishment that provided contract manufacturing and research and development
support for a dental pharmaceutical company. Prior to founding American Science,
Ms. Erickson founded Bay West, Inc., an environmental services firm, in 1974 and
served as its Chief Executive Officer.
H. Leigh Severance, age 67
Mr. Severance was elected as a director of the Company in 2000. Mr.
Severance has over forty years investment experience as a portfolio manager and
security analyst with advisory organizations and a mutual fund, including his
own firm, Severance Capital Management, which was founded in 1984 to specialize
in micro and small capitalization companies and quantitative portfolio
management strategies. He also co-founded Jefferson Capital Management, a large
capitalization quantitative investment management company. Prior to 1984, Mr.
Severance was a portfolio manager with Cambiar Investors, H.L.Severance, Inc.,
Founders Asset Management, and J.M. Hartwell & Company. Mr. Severance received a
Masters in Business Administration from the University of Chicago in 1963. He
also serves on the Board of Directors of Lifeline Therapeutics, Inc. and two
private companies.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE
The Board of Directors met five times during fiscal 2006. All incumbent
directors attended at least 75% of the meetings of the Board and of the
committees on which they served held during the periods for which they served as
a director. The Company currently has an Audit Committee and a Compensation
Committee.
The Board does not have a Nominating Committee, or any committee performing
such function. The Board believes that it is appropriate not to have such a
committee because of the role of all of the independent directors in evaluating
nominations of director candidates, and in light of the policy adopted by the
Board regarding nomination of director candidates. Each independent director
participates in the consideration of director nominees.
4
The following is a description of the functions performed by each of the
Committees:
Audit Committee
The Company's Audit Committee presently consists of Messrs. Simonson
(Chairman), Andresen, Harris, Severance and Ms. Erickson. All of the members of
the Audit Committee are "independent" as that term is defined in the applicable
listing standards of The Nasdaq Stock Market. In addition, the Board of
Directors has determined that Mr. Simonson is an "audit committee financial
expert" as defined by applicable regulations of the Securities and Exchange
Commission. The Audit Committee provides assistance to the Board of Directors in
fulfilling their duties relating to corporate accounting, reporting practices of
the Company and the quality and integrity of the Company's financial reports.
Among other things, the Audit Committee selects and appoints the Company's
independent registered public accounting firm, meets with the independent
registered public accounting firm and financial management to review the scope
of the audit and the audit procedures and reviews annually the responsibilities
of the Audit Committee and recommends to the Board of Directors any changes to
these responsibilities. The responsibilities of the Audit Committee are set
forth in the Audit Committee Charter, adopted by the Company's Board of
Directors on February 23, 2004. A copy the Audit Committee Charter was included
as Exhibit A to the Proxy Statement for the 2007 Annual Meeting of Shareholders.
The Audit Committee met four times during fiscal 2006.
Compensation Committee
The Company's Compensation Committee presently consists of Messrs. Andresen
(Chairman), Simonson, Harris, and Severance. All of the members of the
Compensation Committee are "independent" as that term is defined in the
applicable listing standards of The Nasdaq Stock Market. The Compensation
Committee annually reviews and acts upon a compensation package for the Chief
Executive Officer and the Company's other executive officers, and sets
compensation policy for the other employees of the Company. In addition, the
Compensation Committee acts upon management recommendations concerning employee
stock options, bonuses and other compensation and benefit plans. The
Compensation Committee also administers the IKONICS Corporation 1995 Stock
Incentive Plan. The responsibilities of the Compensation Committee are set forth
in the Compensation Committee Charter, adopted by the Company's Board of
Directors on February 23, 2004. Pursuant to the Compensation Committee Charter,
the Committee has authority to delegate any of its responsibilities to
subcommittees as the Committee may deem appropriate, provided that the
subcommittees are composed entirely of independent directors. A copy of the
Compensation Committee Charter was included as Exhibit B to the Proxy Statement
for the 2007 Annual Meeting of Shareholders. The Compensation Committee met
three times during fiscal 2006.
5
Director Compensation
Each non-employee director of the Company receives a quarterly retainer of
$1,500, plus per meeting fees of $1,000 for each meeting of the Board of
Directors attended in person, $450 for each meeting of the Board of Directors
attended by telephone, $450 for each committee meeting attended in person and
$200 for each committee meeting attended by telephone. From time to time, the
Company's non-employee directors have been awarded options to purchase the
Company's Common Stock under the 1995 Stock Incentive Plan and Mr. Ulland has
been awarded stock options under such plan in connection with his position as
Chairman of the Board of Directors. No such grants of stock options have been
made since 2003. The following table sets forth the total compensation paid to
each director for fiscal 2006.
DIRECTOR COMPENSATION
NAME FEES EARNED OR PAID IN CASH TOTAL
---- --------------------------- -------
Charles H. Andresen $10,450 $10,450
Gerald W. Simonson $10,450 $10,450
David O. Harris $10,450 $10,450
Rondi Erickson $10,450 $10,450
H. Leigh Severance $8,900 $ 8,900
SHAREHOLDER COMMUNICATION WITH THE BOARD OF DIRECTORS AND DIRECTOR ATTENDANCE AT
ANNUAL MEETINGS
The Board provides a process for shareholders to send communications to the
Board or any of the directors. Shareholders may send written communications to
the Board of Directors or specified individual directors by addressing their
communication to Chief Financial Officer, IKONICS Corporation, 4832 Grand
Avenue, Duluth, Minnesota 55807, by U.S. mail. The communications will be
collected by the Chief Financial Officer and delivered, in the form received, to
the Board or, if so addressed, to a specified director.
The Company does not have a formal policy regarding attendance by members
of the Board of Directors at the Company's Annual Meetings of Shareholders. The
Company has always encouraged its directors to attend its annual meeting of
shareholders and expects to continue this policy. In 2006, five Company
directors attended the Company's Annual Meeting of Shareholders.
PROCEDURES REGARDING DIRECTOR CANDIDATES RECOMMENDED BY SHAREHOLDERS
Nominations of director candidates are made by all of the independent
directors, and the Board has adopted a policy that contemplates shareholders
recommending director candidates. The independent directors are responsible for
reviewing, on an annual basis, the requisite skills and characteristics of
individual Board members, as well as the composition of the Board as a whole, in
6
the context of the needs of the Company. The independent directors will review
all nominees for director and select those nominees whose attributes they
believe would be most beneficial to the Company. This assessment will include
such issues as experience, integrity, competence, diversity, skills, and
dedication in the context of the needs of the Board.
The independent directors will consider director candidates recommended by
shareholders in the same manner that they consider all director candidates.
Director candidates must meet certain minimum qualifications established by the
independent directors from time to time, and the independent directors will
assess the various director traits discussed above. Shareholders who wish to
suggest qualified candidates should write to the Office of the Corporate
Secretary of IKONICS Corporation, at 4832 Grand Avenue, Duluth, Minnesota 55807,
stating in detail the candidate's qualifications for consideration by the
independent directors.
REPORT OF THE AUDIT COMMITTEE
The role of the Company's Audit Committee, which is composed of five
independent non-employee directors, is one of oversight of the Company's
management and the Company's outside auditors in regard to the Company's
financial reporting and the Company's controls with respect to accounting and
financial reporting. In performing its oversight function, the Audit Committee
relied upon advice and information received in its discussions with the
Company's management and independent registered public accounting firm.
At the Annual Meeting of Shareholders of IKONICS Corporation on April 27,
2006, the shareholders ratified the selection of McGladrey & Pullen, LLP as the
Company's independent registered public accounting firm as proposed by the Audit
Committee and full Board of Directors. The Audit Committee has (i) reviewed and
discussed the Company's audited financial statements for the fiscal year ended
December 31, 2006 with the Company's management; (ii) discussed with the
Company's independent registered public accounting firm the matters required to
be discussed by Statement on Auditing Standards No. 61 regarding communication
with audit committees (Codification of Statements on Auditing Standards, AU sec.
380); (iii) received the written disclosures and the letter from the Company's
independent registered public accounting firm required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees); and (iv)
discussed with the Company's independent registered public accounting firm the
independent registered public accounting firm's independence.
Based on the review and discussions with management and the Company's
independent registered public accounting firm referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2006 for filing with the Securities and Exchange
Commission.
AUDIT COMMITTEE
Gerald W. Simonson, Chairman
Charles H. Andresen
David O. Harris
Rondi Erickson
Leigh Severance
7
PRINCIPAL ACCOUNTING FIRM FEES
The following table presents fees for professional audit services rendered
by McGladrey & Pullen, LLP for the audit of the Company's annual financial
statements for 2006, and fees billed for other services rendered by McGladrey &
Pullen, LLP and RSM McGladrey, Inc.
2006 2005
------- -------
Audit Fees(1) $65,500 $59,500
Audit-Related Fees 7,400 5,050
Tax Fees(2) 20,180 21,122
All Other Fees 0 0
------- -------
Total $93,080 $85,672
======= =======
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(1) Audit Fees in 2006 and 2005 consist of fees for professional services
rendered for the audit of the Company's financial statements and review of
financial statements included in the Company's quarterly reports and fees
for professional services rendered relative to the filing of a Registration
Statement on Form S-8 to register additional shares of stock under the
Company's 1995 Stock Incentive Plan and accounting assistance throughout
the year.
(2) Tax Fees consist of compliance fees for the preparation of original and
amended tax returns. In addition, 2006 and 2005 tax fees include $9,300 and
$9,300, respectively, of tax consulting related to state and local tax
issues.
The Audit Committee's current practice on pre-approval of services
performed by the independent registered public accounting firm is to approve
annually all audit services and, on a case-by-case basis, all permitted
non-audit services to be provided by the independent registered public
accounting firm during the fiscal year. The Audit Committee reviews each
non-audit service to be provided and assesses the impact of the service on the
auditor's independence. In addition, the Audit Committee may pre-approve other
non-audit services during the year on a case-by-case basis.
8
EXECUTIVE OFFICERS
Following is certain information regarding the current executive officers
of the Company other than William C. Ulland:
Claude P. Piguet, age 49
Mr. Piguet was named Executive Vice President on December 19, 2000.
Previously, he was the Company's Vice President of Operations beginning in May
1994. He was the Company's Director of Operations from January 1992 to May 1994.
Mr. Piguet joined the Company in 1990 and holds a diploma of Engineer ETS/HTL
from the Ecole D'Ingenieurs de l'Etat de Vaud in Switzerland.
Jon Gerlach, age 40
Mr. Gerlach was named Chief Financial Officer on August 5, 2003. Previously
he served as the Finance Manager for Sappi Limited - Cloquet. Prior to working
for Sappi, Mr. Gerlach served in various positions with Potlatch's Minnesota
Pulp and Paper Division from 1994 to 2002. His most recent position at Potlatch
was the Division Manager of Business Planning. Mr. Gerlach has also worked as a
Financial Analyst with Maurices Incorporated and with Ernst & Young LLP in their
audit department. Mr. Gerlach earned a Masters in Business Administration from
the University of Minnesota - Duluth in 2001 and a Bachelors in Accounting from
St. John's University in 1989.
Toshifumi Komatsu, age 52
Mr. Komatsu has been the Company's Vice President of Technology since
September 1993. Previously, he served as the Company's Director of Research and
Development for two years. Mr. Komatsu has been with the Company's Research and
Development Department for over 15 years. His prior experience includes
positions in research and development at Alberta Gas Chemicals, a manufacturer
of organic acids. He received a B.S. in Chemistry and Mathematics from the
College of Saint Scholastica in 1980.
Robert D. Banks, Jr., age 55
Mr. Banks has been the Company's Vice President of International Sales
since February 1997. Previously, he was the Company's Director of International
Sales and Marketing from 1989 to 1997. His prior experience includes positions
with Marshall and Ilsley Bank, H & H Exports and the Boy Scouts of America. He
received a B.A. in both Economics and Environmental Studies from Northland
College in 1976.
Parnell Thill, age 42
Mr. Thill has been the Company's Vice President of Marketing since January
2005. Previously, he served as the Company's Marketing Director beginning in
2001. Prior to joining IKONICS, Mr. Thill worked as a marketing executive at The
Stanley Works in the Industrial Tools Division. Mr. Thill earned a Masters in
Business Administration from St. Thomas University in 2001, a Bachelors in
Education from the University of Minnesota - Duluth in 1991, and a Bachelors in
English from St. John's University in 1987.
9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
for the fiscal years ended December 31, 2006, provided to the Chief Executive
Officer and the four other most highly compensated executive officers who
received remuneration exceeding $100,000 during fiscal 2006 (the "Named
Executive Officers").
NON-EQUITY
INCENTIVE PLAN ALL OTHER
SALARY COMPENSATION COMPENSATION TOTAL
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
--------------------------- ---- -------- -------------- ------------ ---------
William C. Ulland 2006 $180,000 $22,370 $10,119 $212,489
Chairman, President and
Chief Executive Officer
Claude P. Piguet 2006 $113,000 $14,913 $ 6,396 $134,309
Executive Vice
President
Jon Gerlach 2006 $102,000 $ 7,457 $ 5,473 $114,930
Chief Financial Officer
and Vice President Finance
Toshifumi Komatsu 2006 $101,000 $ 7,457 $ 5,423 $113,880
Vice President
Technology
Robert D. Banks 2006 $101,000 $ 7,457 $ 5,423 $113,880
Vice President
International Sales
The Company has not entered into employment agreements with any of the
Named Executive Officers. The amounts portrayed in the table above under "All
Other Compensation" represent the Company's contribution to its salary deferral
plan adopted under Section 401(k) of the Internal Revenue Code. The Company's
executive officers are eligible to participate in our 401(k) contributory
defined contribution plan. In any plan year, the Company will contribute to each
participant 5% of the participant's compensation into the 401(k) plan. All of
the Named Executive Officers participated in the 401(k) plan during fiscal 2006
and received contributions.
Amounts shown in the "Non-Equity Incentive Plan Compensation" column
represent payments pursuant to the Company's bonus program for fiscal 2006.
Under the program, executive officers were eligible to receive cash bonuses
equal to a percentage of the fiscal 2006 bonus pool. The fiscal 2006 bonus pool
was set at 10% of the amount by which net income before income taxes (as
adjusted for unusual items of income or expense) ("EBT") for fiscal 2006
exceeded the EBT target. Mr. Ulland was eligible to receive a bonus equal to 30%
of the pool, and Mr. Piguet, the Company's Executive Vice President, was
eligible to receive a bonus equal to 20% of the pool. Each of the
10
Company's other executive officers was eligible to receive bonuses equal to 10%
of the pool. The Committee did not allocate 10% of the pool.
The Company did not make any grants of stock options to the Named Executive
Officers during fiscal 2006.
OUTSTANDING EQUITY AWARDS
AT FISCAL YEAR-END
The purpose of the following table is to provide information concerning
unexercised options and equity incentive plan awards outstanding as of the end
of fiscal 2006 for each Named Executive Officer.
OPTION AWARDS
----------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
NAME OPTIONS (#) EXERCISABLE OPTION EXERCISE PRICE ($) OPTION EXPIRATION DATE
---- ----------------------- ------------------------- ----------------------
William C. Ulland 6,000 $2.29 6/3/2007
6,000 2.93 4/24/2008
Claude P. Piguet 3,000 $2.08 6/3/2007
3,000 2.67 4/24/2008
Jon Gerlach 11,250 $3.36 8/5/2008
Toshifumi Komatsu 2,000 $2.08 6/3/2007
3,000 2.67 4/24/2008
Robert D. Banks 3,000 $2.08 6/3/2007
11
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information with respect to the Company's
Common Stock that may be issued under its 1995 Stock Incentive Plan as of
December 31, 2006. The 1995 Stock Incentive Plan is the only equity compensation
plan of the Company in existence as of December 31, 2006 and has been approved
by the Company's shareholders.
NUMBER OF SECURITIES REMAINING
NUMBER OF SECURITIES TO BE AVAILABLE FOR FUTURE ISSUANCE
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE UNDER EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, PRICE OF OUTSTANDING (EXCLUDING SECURITIES REFLECTED
PLAN CATEGORY WARRANTS AND RIGHTS OPTIONS, WARRANTS AND RIGHTS IN COLUMN 1)
------------- -------------------------- ---------------------------- -------------------------------
Equity compensation plans
approved by shareholders 88,222 $3.33 55,673
Equity compensation plans
not approved by
shareholders -- -- --
------ ----- ------
Total 88,222 $3.33 55,673
====== ===== ======
EMPLOYMENT CONTRACTS; TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company does not have any employment or non-competition agreements with
any members of its executive management team, but has entered into
confidentiality and non-solicitation agreements with such persons. Such
agreements provide that the executive will not solicit any other employee of the
Company to leave the Company during the executive's employment with the Company
and for one year following such employment, will not compete with the Company
during the executive's employment and will protect the proprietary information
of the Company during and following such executive's employment.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's directors, executive officers and
persons who own more than ten percent of the Company's Common Stock file initial
reports of ownership of the Company's Common Stock and changes in such ownership
with the Securities and Exchange Commission. To the Company's knowledge based
solely on a review of copies of forms submitted to the Company during and with
respect to fiscal 2006 and on written representations from the Company's
directors and executive officers, all required reports were filed on a timely
basis during fiscal 2006.
12
RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected McGladrey & Pullen, LLP to serve as the
Company's independent registered public accounting firm for the fiscal year
ending December 31, 2007. It is the judgment of the Audit Committee that
McGladrey & Pullen, LLP has and will conduct its affairs in an appropriate
manner and warranted selection as the Company's independent registered public
accounting firm. While it is not required to do so, the Board of Directors is
submitting the selection of McGladrey & Pullen, LLP for ratification in order to
ascertain the views of the Company's shareholders on this selection. If the
selection is not ratified, the Audit Committee will reconsider its selection.
A representative of McGladrey & Pullen, LLP will be present at the Annual
Meeting of Shareholders and will be afforded an opportunity to make a statement
if such representative so desires and will be available to respond to
appropriate questions during the meeting.
ADDITIONAL MATTERS
The Annual Report of the Company for the year ended December 31, 2006,
including financial statements, is being mailed with this Proxy Statement.
Shareholder proposals intended to be presented at the 2008 Annual Meeting
of Shareholders must be received by the Company at its principal executive
office no later than December 1, 2007 for inclusion in the Proxy Statement for
that meeting. Any other shareholder proposal must be received by the Company at
its principal executive office no later than January 31, 2008 in order to be
presented at the 2008 Annual Meeting of Shareholders.
As of the date of this Proxy Statement, management knows of no matters that
will be presented for determination at the meeting other than those referred to
herein. If any other matters properly come before the Annual Meeting calling for
a vote of shareholders, it is intended that the shares of Common Stock
represented by the proxies solicited by the Board of Directors will be voted by
the persons named therein in accordance with their best judgment.
By Order of the Board of Directors,
/s/ Jon Gerlach
----------------------------------------
Jon Gerlach
Secretary
Dated: March 23, 2007
13
EXHIBIT A
IKONICS CORPORATION
AUDIT COMMITTEE CHARTER
(AS OF FEBRUARY 23, 2004)
PURPOSE
There shall be an Audit Committee of the Board of Directors (the "Board")
of IKONICS Corporation (the "Company").
The Audit Committee's purpose is to oversee accounting and financial
reporting processes of the Company and the audits of the financial statements of
the Company. The Committee also has oversight of the independent auditor's
qualifications and independence and the performance of the Company's internal
audit function and independent auditor.
ORGANIZATION
The Audit Committee shall consist of at least three directors. The members
of the Audit Committee and the Chair of the Audit Committee shall be appointed
by the Board. Each director appointed to the Audit Committee shall:
1. satisfy the requirements of The Nasdaq Stock Market, Inc. ("Nasdaq")
rules relating to Audit Committee members, including (a) the applicable
independence requirements in effect from time to time, (b) the requirement that
Audit Committee members not have participated in the preparation of the
financial statements of the Company or any current subsidiary of the Company at
any time during the past three years and (c) the requirement that the Audit
Committee members be able to read and understand financial statements, including
the Company's balance sheet, income statement and cash flow statement; and
2. satisfy, as applicable, the independence requirements of Section
10A(m)(3) of the Securities Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations of the Securities and Exchange Commission (the "SEC").
At least one member of the Audit Committee must have accounting or
financial management expertise as required by the Nasdaq rules. In addition, the
Audit Committee shall endeavor to have at all times on the Audit Committee at
least one member who satisfies the definition of an "audit committee financial
expert" as defined by the SEC.
Compliance with the foregoing requirements shall be determined by the Board
in its business judgment and in accordance with applicable rules, regulations
and standards in effect from time to time.
A-1
RESPONSIBILITIES
The Audit Committee recognizes that the preparation of the Company's
financial statements and other financial information is the responsibility of
the Company's management and that auditing, or conducting reviews of, those
financial statements and other financial information is the responsibility of
the Company's independent auditor. The Audit Committee's responsibility is to
oversee the management and the outside auditors in regard to the accounting and
financial reporting processes of the Company and the audits of the financial
statements of the Company.
The Company's management, and its independent auditor, in the exercise of
their responsibilities, acquire greater knowledge and more detailed information
about the Company and its financial affairs than members of the Audit Committee.
Consequently, the Audit Committee is not responsible for providing any expert or
special assurance as to the Company's financial statements and other financial
information or any professional certification as to the independent auditor's
work, including without limitation its reports on and reviews of the Company's
financial statements and other financial information.
Oversight of Independent Auditor
1. The Audit Committee shall be directly responsible for the appointment,
retention, compensation, evaluation, termination and oversight of the work of
the independent auditor (including resolution of disagreements between
management and the independent auditor regarding financial reporting) for the
purpose of preparing or issuing an audit report or related work. The Audit
Committee shall have sole authority to approve all audit engagement fees and
terms and any non-audit engagements of the independent auditor, subject to the
Audit Committee's right to delegate such authority as provided below and to the
provisions of any policy regarding pre-approval of services established by the
Audit Committee as provided below. The independent auditor shall report directly
to the Audit Committee. The Company shall provide appropriate funding, as
determined by the Audit Committee, for payment of compensation to any accounting
firm engaged for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the Company.
2. The Audit Committee shall pre-approve all auditing services and
permitted non-audit services (including the fees and terms thereof) to be
performed for the Company by its independent auditor, subject to the de minimis
exceptions for non-audit services described in Section 10A(i)(1)(B) of the
Exchange Act and Rule 2-01(c)(7) of Regulation S-X. The Audit Committee may
delegate authority to one or more members of the Audit Committee, who are
independent directors, the authority to grant pre-approvals of audit and
permitted non-audit services, provided that decisions of such member(s) shall be
presented to the full Audit Committee at its next scheduled meeting. The Audit
Committee may establish policies and procedures regarding the engagement of the
independent auditor to render services to the Company, provided that the
policies and procedures are detailed as to the particular service, the Audit
Committee is informed of each service and the pre-approval policies and
procedures do not include the delegation of the Audit Committee responsibilities
to management. If pre-approval policies and procedures are adopted, the Company
may engage the independent auditor to perform services consistent with the
policies and procedures. When pre-approving non-audit services, the Audit
A-2
Committee should consider whether the provision of the non-audit services by the
independent auditor is compatible with maintaining the independent auditor's
independence.
Authority to Engage Independent Advisors
The Audit Committee shall have the authority to retain independent counsel and
other legal, accounting or other advisors as it determines necessary to carry
out its duties. The Company shall provide appropriate funding, as determined by
the Audit Committee, for payment of compensation to any advisors employed by the
Audit Committee.
Other Responsibilities
The Audit Committee, to the extent it deems necessary or appropriate or to the
extent required by the Exchange Act, the rules and regulations of the SEC or the
rules of the Nasdaq, shall:
1. Responsibility for Financial Statement and Disclosure Matters
(a) Review and discuss with management and the independent auditor the
Company's annual audited financial statements, including disclosures made in
management's discussion and analysis, and recommend to the Board whether the
audited financial statements should be included in the Company's Form 10-K.
(b) Review the Company's quarterly financial statements, including
disclosures made in management's discussion and analysis, prior to the filing of
its Form 10-Q, including the results of the independent auditor's review of the
quarterly financial statements. The review and discussion should include any
matters identified by the independent auditor pursuant to Statement on Auditing
Standards No. 71 regarding the Company's interim financial statements.
(c) Discuss with management and the independent auditor significant
financial reporting issues and judgments made in connection with the preparation
of the Company's financial statements, including any significant changes in the
Company's selection or application of accounting principles, any major issues as
to the adequacy of the Company's internal controls and any special steps adopted
in light of material control deficiencies.
(d) Review and discuss any quarterly reports from the independent auditor
on:
(i) all critical accounting policies and practices to be used,
(ii) all alternative treatments of financial information within
generally accepted accounting principles that have been discussed
with management, ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by the
independent auditor, and
(iii) other material written communications between the independent
auditor and management, such as any management letter or schedule
of unadjusted differences.
A-3
(e) Discuss with management and the independent auditor the effect of
regulatory and accounting initiatives as well as off-balance sheet structures on
the Company's financial statements.
(f) Review and consider the matters required to be discussed by Statement
on Auditing Standards No. 61 with the independent auditor and management
relating to the conduct of the audit, including any difficulties encountered in
the course of the audit work, any restrictions on the scope of activities or
access to requested information, and any significant disagreements with
management.
(g) Receive information from the Company's management about any significant
deficiencies or material weaknesses in the design or operation of internal
controls that could adversely affect the Company's ability to record, process,
summarize and report financial data and any fraud, whether or not material, that
involves management or other employees who have a significant role in the
Company's internal controls.
2. Oversight of the Company's Relationship with the Independent Auditor
(a) Review and evaluate the lead partner of the independent audit team.
(b) Obtain and review a report from the independent auditor at least
annually regarding:
(i) the independent auditor's internal quality-control procedures,
(ii) any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any
inquiry or investigation by governmental or professional
authorities within the preceding five years respecting one or
more independent audits carried out by the firm,
(iii) any steps taken to deal with any such issues, and
(iv) all relationships between the independent auditor and the Company
consistent with Independence Standards Board Standard No. 1.
Actively engage in a dialogue with the independent auditor regarding any
disclosed relationships or services that may impact the objectivity and
independence of the independent auditor. Evaluate the qualifications,
performance and independence of the independent auditor, including considering
whether the auditor's quality controls are adequate and the provision of
permitted non-audit services is compatible with maintaining the auditor's
independence, taking into account the opinions of management and internal
auditors. Present its conclusions with respect to the independent auditor to the
Board.
(c) Ensure the rotation of the audit partner, lead partner and concurring
partner of the independent auditor as required by law.
A-4
(d) Recommend to the Board policies for the Company's hiring of employees
or former employees of the independent auditor who participated in any capacity
in the audit of the Company in order to ensure the independence of the
independent auditor under the SEC rules.
(e) Confirm that none of the audit partners earn or receive compensation
based on procuring engagements with the Company for providing products or
services, other than audit, review or attest services.
(f) Discuss with the national office of the independent auditor issues on
which they were consulted by the Company's audit team and matters of audit
quality and consistency.
(g) Meet with the independent auditor prior to the audit to discuss the
planning and staffing of the audit.
3. Oversight of the Company's Internal Audit Function
(a) Review the appointment and replacement of the senior internal auditing
executive, if any.
(b) Review the significant reports to management prepared by the internal
auditing function, if any, and management's responses.
(c) Discuss with the independent auditor and management the
responsibilities, budget and staffing of the internal audit function, if any,
and any recommended changes in the planned scope of the internal audit.
4. Compliance Oversight
(a) Obtain from the independent auditor assurance that the audit was
conducted in a manner consistent with Section 10A(b) of the Exchange Act.
(b) Administer and oversee, to the extent directed by the Board, any codes
of ethics or business conduct adopted by the Company.
(c) Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous submission by
employees of concerns regarding questionable accounting or auditing matters.
(d) Discuss with management and the independent auditor any correspondence
with regulators or governmental agencies and any published reports which raise
material issues regarding the Company's financial statements or accounting
policies.
(e) Review and evaluate related party transactions required to be disclosed
by Item 404 of SEC Regulation S-K for potential conflict of interest situations
on an ongoing basis.
A-5
(f) Prepare an audit committee report as required by the rules of the SEC
to be included in the Company's annual proxy statement.
(g) Review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval.
MEETINGS
The Audit Committee shall meet as often as it determines, but not less
frequently than quarterly. The Audit Committee shall meet periodically with
management, the internal auditors and the independent auditor in separate
executive sessions. The Audit Committee may request any officer or employee of
the Company or the Company's outside counsel or independent auditor to attend a
meeting of the Audit Committee or to meet with any members of, or consultants
to, the Audit Committee. The Audit Committee shall report regularly to the Board
through presentations at Board meetings or by submission of the minutes of the
Audit Committee meetings to the Board. In addition to funding for the specific
purposes described above, the Company shall provide appropriate funding, as
determined by the Audit Committee, for ordinary administrative expenses that are
necessary for the Audit Committee to carry out its duties.
A-6
EXHIBIT B
IKONICS CORPORATION
COMPENSATION COMMITTEE CHARTER
(AS OF FEBRUARY 23, 2004)
PURPOSE
The Compensation Committee is appointed by the Board of Directors to discharge
the Board's responsibilities relating to compensation of the Company's
executives.
COMMITTEE MEMBERSHIP
The Committee will be composed of at least three directors, all of whom satisfy
the definition of "independent" under the applicable listing standards of the
Nasdaq Stock Market, Inc. All Committee members shall also be "non-employee
directors" as defined by Rule 16b-3 under the Securities Exchange Act of 1934
and "outside directors" as defined by Section 162(m) of the Internal Revenue
Code. The Committee members will be appointed by the Board and may be removed by
the Board in its discretion. The Committee shall have the authority to delegate
any of its responsibilities to subcommittees as the Committee may deem
appropriate, provided the subcommittees are composed entirely of independent
directors.
MEETINGS
The Committee shall meet as often as its members deem necessary to perform the
Committee's responsibilities.
COMMITTEE AUTHORITY AND RESPONSIBILITIES
The Committee will have the authority, to the extent it deems necessary or
appropriate, to retain a compensation consultant to assist in the evaluation of
director, Chief Executive Officer (CEO) or senior executive compensation. The
Committee shall have sole authority to retain and terminate any such consulting
firm, including sole authority to approve the firm's fees and other retention
terms. The Committee shall also have authority, to the extent it deems necessary
or appropriate, to retain other advisors. The Company will provide for
appropriate funding, as determined by the Committee, for payment of compensation
to any consulting firm or other advisors employed by the Committee.
The Committee will make regular reports to the Board and will propose any
necessary action to the Board. The Committee will review and reassess the
adequacy of this charter annually and recommend any proposed changes to the
Board for approval. The Committee will annually evaluate the Committee's own
performance.
B-1
The Committee, to the extent it deems necessary or appropriate, will:
- Review and approve the Company's goals and objectives relevant to CEO
compensation, evaluate the CEO's performance in light of those goals and
objectives, and determine and approve the CEO's compensation level based on
this evaluation.
- Consider the Company's performance and relative shareholder return, the
value of similar incentive awards to CEOs at comparable companies, and the
awards given to the Company's CEO in past years when determining the
long-term component of the CEO's compensation.
- Approve non-CEO executive officer compensation (the Company's CEO may be
present at the meeting deliberations on this subject, but may not vote).
- Approve, or make recommendations to the Board, with respect to non-CEO
compensation, incentive-compensation plans and equity-based plans.
- Produce a compensation committee report as required by the rules of the SEC
to be included in the Company's proxy statement.
B-2
IKONICS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, APRIL 26, 2007
1:00 P.M., LOCAL TIME
THE KITCHI GAMMI CLUB
831 E. SUPERIOR STREET
DULUTH, MINNESOTA
IKONICS CORPORATION
4832 GRAND AVENUE, DULUTH, MN 55807 PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON APRIL 26, 2007.
The shares of stock you hold in your account will be voted as you specify on the
reverse side.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1 AND 2.
By signing the proxy, you revoke all prior proxies and appoint William C. Ulland
and Jon Gerlach, and each of them, with full power of substitution, to vote your
shares on the matter shown on the reverse side and any other matters which may
come before the Annual Meeting and all adjournments.
See reverse for voting instructions.
HOW TO VOTE YOUR PROXY
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to IKONICS Corporation, c/o Shareowner Services(SM),
P.O. Box 64873, St. Paul, MN 55164-0873.
- Please detach here -
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
1. Election of directors: 01 Charles H. Andresen 04 William C. Ulland [ ] Vote FOR [ ] Vote WITHHELD
02 David O. Harris 05 Rondi C. Erickson all nominees from all nominees
03 Gerald W. Simonson 06 H. Leigh Severance (except as marked)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, [ ]
WRITE THE NUMBER(s) OF THE NOMINEE(s) IN THE BOX PROVIDED TO THE RIGHT.)
2. Ratification of the selection of McGladrey & Pullen, LLP as IKONICS [ ] For [ ] Against [ ] Abstain
Corporation's independent registered public accounting firm for the
year ending December 31, 2007.
3. In their discretion, the proxies are authorized to vote on any other business that may properly come before the Meeting, or any
adjournments or postponements thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box [ ] Indicate changes below: Date _____________________________________, 2007
[ ]
Signature(s) in Box
(If there are co-owners, each must sign.)
Please sign exactly as your name(s) appear on Proxy.
If held in joint tenancy, all persons must sign.
Trustees, administrators, etc., should include title
and authority. Corporations should provide full name
of corporation and title of authorized officer
signing the proxy.