2
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant x
Filed by a party other
than the registrant
Check the appropriate box:
Preliminary proxy statement
x Definitive proxy statement
Definitive additional materials
Soliciting material pursuant to Rule
14a-11(c) or Rule 14a-12
APA OPTICS, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of filing fees (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:
________________________________________________________________
____________________
(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 filing.
(1) Amount previously paid:
________________________________________________________________
____________________
(2) Form, Schedule or Registration Statement No.:
________________________________________________________________
____________________
(3) Filing Party:
________________________________________________________________
____________________
(4) Date Filed:
________________________________________________________________
____________________
-2-
APA OPTICS, INC.
2950 N.E. 84th Lane
Blaine, Minnesota 55449
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD AUGUST 20, 1997
SOLICITATION AND REVOCATION OF PROXIES
The accompanying Proxy is solicited by the Board of Directors
of APA Optics, Inc. (the "Company") in connection with the 1997
Annual Meeting of the Shareholders of the Company, to be held on
August 20, 1997, at 3:30 p.m. Minneapolis time, at the Sheraton
Minneapolis Metrodome, 1300 Industrial Boulevard, Minneapolis,
Minnesota 55431 and any adjournments thereof. This Proxy
Statement is first being mailed to shareholders on or about July
18, 1997.
A person giving the enclosed Proxy has the power to revoke it
at any time before the convening of the Annual Meeting.
Revocations of proxy will be honored if received at the offices
of the Company, addressed to the attention of Anil K. Jain, on or
before August 19, 1997. In addition, on the day of the meeting,
prior to the convening thereof, revocations may be delivered to
the tellers who will be seated at the door of the meeting hall.
Unless revoked in the manner set forth above, all properly
executed Proxies will be voted as specified. Proxies that are
signed but that lack any specification will, subject to the
following, be voted FOR all nominees for director as listed
herein and FOR Item 2. If any other matters properly come before
the Annual Meeting, or if any of the persons named to serve as
directors should decline or be unable to serve, the persons named
in the Proxy will vote the same in accordance with their
discretion. If a shareholder abstains from voting as to any
matter, then the shares held by such shareholder shall be deemed
present at the meeting for purposes of determining a quorum and
for purposes of calculating the vote with respect to such matter,
but shall not be deemed to have been voted in favor of such
matter. Abstentions, therefore, as to any proposal will have the
same effect as votes against such proposal. If a broker turns in
a "non-vote" Proxy, indicating a lack of voting instruction by
the beneficial holder of the shares and a lack of discretionary
authority on the part of the broker to vote on a particular
matter, then the shares covered by such non-vote Proxy shall be
deemed present at the meeting for purposes of determining a
quorum but shall not be deemed to be represented at the meeting
for purposes of calculating the vote required for approval of
such matter.
Expenses in connection with the solicitation of proxies will
be paid by the Company. Proxies are being solicited primarily by
mail, but officers, directors, and other employees of the Company
may also solicit proxies by telephone, telegraph, or personal
calls. No extra compensation will be paid by the Company for
such solicitation. The Company may reimburse brokers, banks, and
other nominees holding shares for others for the cost of
forwarding proxy materials to, and obtaining proxies from, their
principals.
VOTING RIGHTS
Only shareholders of record at the close of business on July
1, 1997, are entitled to notice of and to vote at the meeting or
any adjournment thereof. As of that date, there were issued and
outstanding 8,307,124 shares of Common Stock of the Company, the
only class of securities of the Company entitled to vote at the
meeting. Each shareholder of record is entitled to one vote for
each share registered in the shareholder's name as of the record
date. The Articles of Incorporation of the Company do not grant
the shareholders the right to vote cumulatively for the election
of directors. No shareholder will have appraisal rights or
similar dissenter's rights as a result of any matters expected to
be voted on at the meeting. The presence in person or by proxy
of holders of a majority of the shares of Common Stock entitled
to vote at the Annual Meeting will constitute a quorum for the
transaction of business.
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of
July 1, 1997, with respect to the stock ownership of all persons
known by the Company to be beneficial owners of more than five
percent of its outstanding shares of Common Stock, each director,
the Named Executive Officers, and all officers and directors of
the Company as a group:
Name and Address of Number of Shares Percent of
Beneficial Owner Beneficially Outstanding
Owned Shares
Anil K. Jain 1,664,002(l 20.0%
2950 N.E. 84th Lane )
Blaine, Minnesota
55449
Kenneth A. Olsen 839,332(2) 10.1%
2950 N.E. 84th Lane
Blaine, Minnesota
55449
Herman Lee 788,800(3) 9.4%
Route 1, Box 55
Borup, Minnesota 56519
Lincoln Hudson 22,500(4) *
Gregory J. Von Wald - 0 - --
M. Asif Khan - 0 - --
All officers and
directors
as a group (7 2,527,834(l 30.4%
persons) )(2)(4)
* Less than 1%.
(1)Includes 5,250 shares held by Dr. Jain as custodian for minor
relatives. Dr. Jain disclaims beneficial ownership of such
shares.
(2)Includes 19,332 shares held in trusts for Anil K. Jain's
children, of which Mr. Olsen serves as trustee. Mr. Olsen
disclaims beneficial ownership of such shares.
(3)Includes 105,000 shares Mr. Lee may acquire upon exercise of
currently exercisable warrants.
(4)Includes 10,000 shares Mr. Hudson may acquire upon exercise
of currently exercisable options and options that become
exercisable within sixty days of the record date.
ITEM NO. 1
ELECTION OF DIRECTORS
Management has nominated the individuals listed below for
election as directors, each to serve until the next Annual
Meeting of the Shareholders and until his successor is elected
and qualified or until his earlier resignation or removal.
Unless instructed not to vote for the election of directors
or not to vote for any specific nominee, the proxies will vote to
elect the listed nominees. If any of the nominees are not
candidates for election at the meeting, which is not currently
anticipated, the proxies may vote for such other persons as they,
in their discretion, may determine.
The following information is provided with respect to the
nominees for directors:
Name Age Director Since
Anil K. Jain 51 1979
Kenneth A. Olsen 53 1980
Lincoln Hudson 73 1988
Gregory J. Von Wald 47 1997
Anil K. Jain has been president and treasurer of the Company
since 1979, Chairman of the Board since 1987, and chief executive
officer since 1988. Dr. Jain is a past director and former
chairman of Minnesota Project Innovation, Inc., a nonprofit
corporation.
Kenneth A. Olsen has been secretary of the Company since 1983
and vice president since July 1, 1992. Mr. Olsen manages the
Company's optics fabrication operations. Prior to joining the
Company in 1979, Mr. Olsen had been employed at 3M since 1966.
Lincoln Hudson currently provides management consultant
services. He served as a consultant to the Company for planning,
engineering, and marketing from June 1987 to July 1992. Prior to
his retirement in 1987, Mr. Hudson had served in several
management positions for various divisions of Honeywell, Inc.,
Minneapolis, Minnesota.
Gregory J. Von Wald was appointed as a director in April
1997. He is serving as a representative of the Aberdeen
Development Council, one of the funding sources for the Company's
Aberdeen, South Dakota, manufacturing facility. Since 1992, Mr.
Von Wald has served as General Manager of Tel Serv
Telecommunications, Inc., Aberdeen, South Dakota, a firm
providing telecommunications equipment and related services. Mr.
Von Wald retired from the U.S. Marine Corps in 1991 as a
Lieutenant Colonel.
Board Meetings. The Board of Directors held six meetings
during fiscal 1997, all of which were attended by all directors
then serving.
Committees. The Company has no audit or nominating
committee. Those functions are performed by the Board with
certain directors abstaining where a potential conflict of
interest exists. The compensation committee, which consists of
Messrs. Hudson and Olsen, met once during fiscal 1997 to consider
the compensation of the chief executive officer.
Compensation of Directors. Each of the directors who is not
also an employee of the Company is paid a quarterly director's
fee of $400 and reasonable expenses for attending Board meetings.
The Company paid a total of $1,600 in directors' fees for
services rendered during fiscal 1997.
Under the terms of the Company's Stock Option Plan for
Nonemployee Directors, each director who is not otherwise an
employee of the Company receives annually on the first business
day following the annual shareholders' meeting or, if earlier, on
September 1, an option to purchase 5,000 shares of Common Stock.
The exercise price for such option is based on the fair market
value of the stock on the date of grant. Each option becomes
exercisable on the earlier of the date of the next annual
shareholders' meeting or one year from the date of grant and is
exercisable for a period of four years thereafter. During fiscal
1997, one option to purchase 5,000 shares at $5.65 per share was
awarded pursuant to the plan. During fiscal 1997, one director
exercised options to purchase 4,000 shares, realizing aggregate
net value (market value less exercise price) of approximately
$6,750.
ITEM NO. 2
APPROVAL OF 1997 STOCK COMPENSATION PLAN
The 1997 Stock Compensation Plan (the "Plan") was adopted by
the Board of Directors in March 1997, primarily to provide a
method of attracting, retaining and rewarding individuals who
serve as managers of the Company's facility in Aberdeen, South
Dakota.
Description of Plan. The Plan provides for grants of both
incentive stock options, intended to qualify as such under
Section 422 of the Internal Revenue Code of 1986 (the "Code"),
and nonstatutory stock options, stock appreciation rights, and
other stock-based awards. Except for the authority to grant
incentive stock options, which expires in 2007, the Plan has no
expiration date but may be terminated by the Board of Directors
at any time, subject to the rights of the holders of options or
other awards previously granted under the Plan.
Shares Subject to the Plan. A total of 500,000 shares of
Common Stock have been reserved for issuance under the Plan. The
shares of Common Stock that may be issued or transferred to
grantees under the Plan may be authorized but unissued shares or
treasury shares. The Plan provides for appropriate adjustment in
the number of shares subject to the Plan and to the grants
previously made if there is a stock split, stock dividend,
reorganization or other relevant change affecting the Company's
corporate structure or its equity securities. If shares subject
to an award are not issued to the extent permitted prior to
expiration of the award or an award is otherwise forfeited, such
shares will become available for inclusion in future grants. On
July 1, 1997, the closing price for the Common Stock on The
Nasdaq Small-Cap Market was $5.875 per share.
Administration. The Plan will be administered by the Board
or a committee composed of "non-employee" directors (as defined
in Rule 16b-3 promulgated under Section 16 of the Securities
Exchange Act of 1934 (the "Exchange Act")). The Board or
committee will determine the participants, grant stock options,
with or without stock appreciation rights, and other awards,
establish rules and regulations for the operation of the Plan,
and determine the price, term, vesting schedule, number of shares
and other terms of options and other awards. The Board or
committee may delegate its powers and duties to members of the
Company's administration with respect to participants who are not
subject to Section 16.
Eligible Participants. Employees eligible to receive grants
under the Plan are officers and certain other key employees of
the Company who are employed in the Company's Aberdeen facility.
The number of grantees could vary from year to year as the
Company increases the number of employees at the Aberdeen
facility. As of July 1, 1997, four persons were employed in
Aberdeen, of which two persons were eligible to participate in
the Plan. In fiscal 1997, options to purchase 70,000 shares were
granted to one employee.
Stock Options. Options granted under the Plan may be in the
form of either options that qualify as "incentive stock options"
under Section 422 of the Code ("ISOs") or those that do not
qualify as such ("NQSOs"). The term of an option will be fixed
by the Board or committee, but no option may have a term of more
than ten years from the date of grant. Options will be
exercisable at such times as determined by the Board or
committee. The option exercise price will be determined by the
Board or committee at the time of grant but will not be less than
85% of the fair market value of the Common Stock on the date of
grant (100% of the fair market value for ISOs). The grantee may
pay the option price in cash or, if permitted by the Board or
committee, by delivering to the Company shares of Common Stock
already owned by the grantee that have a fair market value equal
to the option exercise price. The Code also places the following
additional restrictions on the award of ISOs. If an ISO is
granted to a participant who owns, at the date of grant, in
excess of 10% of the Company's outstanding Common Stock, the
exercise price must be at least 110% of the fair market value on
the date of grant and the term of the ISO may be no more than
five years from the date of grant. The total fair market value
of shares subject to ISOs which are exercisable for the first
time by any participant in any given calendar year cannot exceed
$100,000 (valued as of the date of grant).
Stock Appreciation Rights. The Board or committee may grant
stock appreciation rights ("SARs") in connection with a stock
option granted under the Plan. If a grantee exercises a SAR, the
grantee will receive an amount equal to the excess of the fair
market value of the shares with respect to which the SAR is being
exercised over the option exercise price of the shares. If a SAR
is exercised in whole or in part, the right under the related
option to purchase shares with respect to which the SAR has been
exercised will terminate to the same extent. If a stock option
is exercised, any SAR related to the shares purchased will
terminate.
Other Stock-Based Awards. The Board or committee, in its
discretion, may grant other awards that are valued in whole or in
part by reference to, or otherwise based on, the Common Stock,
including, without limitation, performance shares, convertible
preferred stock, convertible debentures, or exchangeable
securities. Such awards may be granted in addition to or in
tandem with stock options or stock appreciation rights granted
under the Plan. The Board or committee may set such terms with
regard to the vesting of such awards as it deems reasonable.
Termination of Employment. Unless otherwise provided in the
related award agreement, awards granted under the Plan are
generally not transferable other than by the laws of descent and
distribution or pursuant to a Qualified Domestic Relations Order
as defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules and regulations thereunder.
Following the death of an optionee, any option held may be
exercised, to the extent such option was exercisable at the time
of death or on such accelerated basis as the Board or committee
may determine at or after grant, by the legal representative of
the optionee's estate or by any person who acquired the option by
will or the laws of descent and distribution for a period of one
year (or such other period as the Board or committee may specify
at grant) from the date of such death or until the expiration of
the stated term of the option, whichever period is shorter. If a
participant's employment by the Company is terminated by reason
of disability, any option held by such participant may thereafter
be exercised, to the extent it was exercisable at the time of
termination or on such accelerated basis as the Board or
committee may determine at or after grant until the expiration of
the stated term of such option (unless otherwise specified by the
Board or committee at the time of grant). If the optionee dies
prior to the expiration of any unexercised option, the option may
thereafter be exercised to the extent it was exercisable at the
time of death for a period of one year from the date of death or
until the expiration of the stated term of the option, whichever
period is shorter. If any optionee's employment by the Company
is terminated for any other reason, the option may be exercised,
to the extent otherwise then exercisable, for the lesser of three
months from the date of termination of employment or the balance
of the term of the option. Terms for awards other than stock
options and stock appreciation rights may be set by the Board or
committee at the time of the granting of the award.
Change of Control. In the event of a "Change in Control"
(as defined in the Plan) any award granted under the Plan will
become fully exercisable and vested. For purposes of the Plan, a
"Change in Control" occurs when (i) the majority of the directors
of the Company are persons other than persons whose election has
been solicited by the Board of Directors or have been appointed
by the Board to fill vacancies created by death, resignation, or
a new position, (ii) any person or group of persons (as defined
in Section 13(d) of the Exchange Act and the rules thereunder)
acquires 30% or more of the outstanding voting stock of the
Company, or (iii) the shareholders of the Company approve a
merger or consolidation (other than a merger or consolidation
with a subsidiary of the Company or in which the Company is the
surviving corporation and the shareholders of the Company
immediately prior to the merger own more than 70% of the
outstanding voting stock of the surviving corporation or its
parent corporation), exchange of shares, sale or other
disposition of all or substantially all of the Company's assets,
or liquidation or dissolution of the Company.
Tax Rules. The following is a brief summary of the federal
income tax rules currently applicable to stock options and other
awards that may be granted under the Plan.
The grant of a NQSO will have no immediate tax consequences
to the grantee or to the Company. Upon the exercise of a NQSO,
the grantee will recognize ordinary income (and the Company will
generally be entitled to a compensation deduction) in an amount
equal to the excess of the fair market value of the shares of
Common Stock on the date of the exercise of the option over the
option exercise price. The grantee's tax basis in the shares
will be the exercise price plus the amount of ordinary income
recognized by the grantee, and the grantee's holding period will
commence on the date the shares are transferred. Special rules
apply in the event all or a portion of the exercise price is paid
in the form of stock. Other special rules may also apply to a
grantee who is subject to Section 16 of the Exchange Act.
Upon a subsequent sale of shares of Common Stock acquired
pursuant to the exercise of an NQSO, any difference between the
grantee's tax basis in the shares and the amount realized on the
sale is treated as long-term or short-term capital gain or loss,
depending on the holding period of the shares.
The grant of an ISO will have no immediate tax consequences
to the grantee or to the Company. The exercise of an ISO by the
payment of cash to the Company will generally have no immediate
tax consequences to the grantee (except to the extent it is an
adjustment in computing alternative minimum taxable income) or to
the Company. If a grantee holds the shares acquired pursuant to
the exercise of an ISO for the required holding period, the
grantee generally will realize long-term capital gain or long-
term capital loss upon a subsequent sale of the shares in the
amount of the difference between the amount realized upon the
sale and the purchase price of the shares (i.e., the exercise
price). In such a case, no compensation deduction will be
allowable to the Company in connection with the grant or exercise
of the ISO or the sale of shares of Common Stock acquired
pursuant to such exercise.
If, however, a grantee disposes of the shares prior to the
expiration of the required holding period (a "disqualifying
disposition"), the grantee will recognize ordinary income (and
the Company will generally be entitled to a compensation
deduction) equal to the excess of the fair market value of the
shares of Common Stock on the date of exercise (or the proceeds
of the disposition, if less) over the exercise price. Special
rules apply in the event all or a portion of the exercise price
is paid in the form of stock.
No income will be realized by a participant and the Company
is not entitled to a compensation deduction in connection with a
grant of a SAR. When the SAR is exercised, the participant will
generally be required to include as taxable ordinary income in
the year of exercise an amount equal to the amount of cash and
the fair market value of any shares of Common Stock received.
The Company will be entitled to a compensation deduction at the
time and in the amount included in the participant's income by
reason of the exercise. If the participant receives Common Stock
upon exercise of a SAR, the post-exercise appreciation or
depreciation will be treated in the same manner as discussed
above regarding the tax treatment of NQSOs.
The federal income tax treatment of other stock-based awards
will depend on the nature of any such award and the restrictions
applicable to such award. Such an award may, depending upon the
conditions applicable to the award, be taxable as an option or as
an award of restricted or deferred stock. In certain instances,
a participant may be entitled to defer recognition of income on
the value of a grant of stock if the stock is subject to
substantial risk of forfeiture. The participant will be subject
to tax at ordinary income rates on the fair market value of the
stock on the date that income is recognized. The Company
generally will be entitled to a compensation deduction equal to
the amount that is taxable as ordinary income to the participant
in the year that such income is taxable. With respect to the
subsequent sale of stock received, the holding period to
determine whether a participant will recognize long-term or short-
term capital gain or loss will generally begin when any
restriction period expires (or the date on which the participant
recognizes income), and the tax basis for such shares will
generally be the fair market value of the shares on that date.
Certain limitations apply to the Company's deduction of
compensation payable to the person serving as its chief executive
officer or to any of its four other most highly compensated
executives in office as of the end of the year in which such
compensation would otherwise be deductible. In general, the
Company may not deduct compensation, other than "performance-
based" compensation, payable to such an executive in excess of $1
million for any year.
The affirmative vote of a majority of the shares of Common
Stock present and voting on such matter is necessary for the
approval of the 1997 Stock Compensation Plan.
The Board of Directors recommends that you vote FOR the
approval of the 1997 Stock Compensation Plan. Your Proxy will be
so voted unless you specify otherwise.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth
certain information regarding compensation paid during each of
the Company's last three fiscal years to the Company's chief
executive officer and to the only other executive officer whose
total annual compensation in fiscal 1996 (based on salary and
bonus) exceeded $100,000 (the "Named Executive Officers").
Name and Fiscal Annual Compensat All Other
ion
Principal Positions Year Salary Compensation
Anil K. Jain 1997 $126,371 -0-
President and 1996 120,464 $39,965
Chief
Executive Officer 1995 116,023 30,690
M. Asif Khan 1997 $102,948 -0-
Vice President 1996 98,256 -0-
of 1995 94,248 -0-
Optoelectronics(1)
(1) Mr. Khan terminated his employment with the Company prior to
the end of the 1997 fiscal year.
Stock Options. No options were granted to or exercised by
the Named Executive Officers in fiscal 1997, and no options were
outstanding at the close of fiscal 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Sublease for Company Facility. Effective December 1, 1984,
the Company entered into a sublease for its office and
manufacturing space with Jain-Olsen Properties, a partnership
consisting of Anil K. Jain and Kenneth A. Olsen, who are
officers, directors, and principal shareholders of the Company.
The sublease expired in fiscal 1995, and the Company exercised
the option to extend the sublease for an additional five years.
Certain terms of this lease are set forth in Note 10 of Notes to
Financial Statements included in the 1997 Annual Report, which is
being distributed with this Proxy Statement. The Company made
lease payments of $118,000 and $117,000 to Jain-Olsen Properties
during fiscal 1997 and 1996, respectively, and is obligated to
make payments in fiscal 1998 of $121,000. The Company believes
the lease terms to be at least as favorable to the Company as
could have been received from an unrelated third party.
Key Man Insurance. The Company maintains key man insurance
in the amount of $2,000,000 on the life of Anil K. Jain and in
the amount of $500,000 on the life of Kenneth A. Olsen, both of
whom are directors and officers of the Company. Up to $500,000
of the proceeds of each policy is intended to be used to purchase
shares of the Company's Common Stock owned by the insured at the
request of the personal representative of the insured's estate.
The per share price for the repurchase of the Company's Common
Stock will be the fair market value of the Common Stock, based on
the average of the bid and ask prices as of the date of the event
triggering the repurchase.
Split Dollar Insurance. In November 1989, the Company
adopted a split dollar life insurance plan (the "1989 Plan") for
the benefit of its president, Anil K. Jain. Under the terms of
the 1989 Plan the Company pays the annual premiums on a $5
million insurance policy (the "Policy") on the lives of Dr. Jain
and his spouse. The Policy is a whole life, joint and survivor
policy, on which all premiums are paid by the Company and income
is imputed to Dr. Jain in an amount equal to the term rate for
his insurance as established by the insurer.
The Policy is owned by the Jain Children's Irrevocable Trust
dated November 28, 1989 (the "Trust"). The 1989 Plan is designed
so that the Company will recover all premium payments and
advances made by it on account of the Policy held by the Trust.
The Company's interest in the premium payments and advances made
with respect to the Policy is secured by a collateral assignment
of the Policy. Upon the death of the last to die of Dr. Jain and
his spouse, the Company will be reimbursed from the insurance
proceeds paid to the Trust in an amount equal to the total
premiums and advances made by the Company with respect to the
Policy. In the event the trustee of the Trust surrenders the
Policy for its cash surrender value at some date in the future,
the Company will be reimbursed for the premiums it has paid on
the Policy.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5 and amendments
thereto furnished to the Company and any written representations
that no Forms 5 were required, the Company believes that all
reports required to be filed by its officers, directors, and
greater than 10% beneficial shareholders under Section 16(a) of
the Exchange Act were timely filed, except that a report on Form
4 with regard to a sale by M. Asif Khan in July 1996 was not
filed and a report on Form 3 with regard to the initial ownership
of Jamshid Pooladdij was not timely filed. The Form 3 was filed
in May 1997.
MISCELLANEOUS
The Board of Directors is not aware that any matter, other
than those described in the Notice, will be presented for action
at the Meeting. If, however, other matters do properly come
before the Meeting, it is the intention of the persons named in
the Proxy to vote the proxied shares in accordance with their
best judgment on such matters.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Ernst & Young LLP, independent auditors, audited the
financial statements of the Company for the fiscal year ended
March 31, 1997. The Company anticipates that Ernst & Young LLP
will be retained as the Company's independent auditors for fiscal
1998. Representatives of Ernst & Young LLP are expected to be
present at the Annual Meeting and will have the opportunity to
make a statement, if they desire to do so, and would be available
to respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
All shareholder proposals intended to be presented at the
1998 Annual Shareholders' Meeting must be received by the Company
at its offices on or before March 20, 1997.
ADDITIONAL INFORMATION
A copy of the Company's Report to Shareholders for the fiscal
year ended March 31, 1997, accompanies this Notice of Annual
Meeting and Proxy Statement.
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL
REPORT ON FORM 10-KSB (EXCLUSIVE OF EXHIBITS) FOR THE FISCAL YEAR
ENDED MARCH 31, 1997, TO EACH PERSON WHO IS A SHAREHOLDER OF THE
COMPANY AS OF JULY 1, 1997, UPON RECEIPT OF A WRITTEN REQUEST FOR
SUCH REPORT. SUCH REQUESTS SHOULD BE SENT TO:
APA OPTICS, INC.
Attention: Secretary
2950 N.E. 84th Lane
Blaine, Minnesota 55449
By Order of the Board of
Directors
Kenneth A. Olsen
Secretary
July 18, 1997
APA OPTICS, INC.
PROXY
ANNUAL MEETING OF SHAREHOLDERS - AUGUST 20, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Anil K. Jain and Kenneth A.
Olsen, or either of them, proxies or proxy, with full power of
substitution, to vote all shares of Common Stock of APA Optics,
Inc. (the "Company") which the undersigned is entitled to vote at
the 1997 Annual Meeting of Shareholders to be held at Sheraton
Minneapolis Metrodome, 1300 Industrial Boulevard, Minneapolis,
Minnesota 55431, August 20, 1997, at 3:30 p.m., Central Daylight
Time, and at any adjournment thereof, as directed below with
respect to the proposals set forth below, all as more fully
described in the Proxy Statement, and upon any other matter that
may properly come before the meeting or any adjournment thereof.
1. ELECTION OF DIRECTORS:
FOR all nominees listed WITHHOLD AUTHORITY to vote for
below (except as marked to all
nominees listed below
the contrary below)
Anil K. Jain, Kenneth A. Olsen, Lincoln Hudson and
Gregory J. Von Wald
(INSTRUCTION: To withhold authority for any individual
nominee, write that nominee's name in the space provided
below.)
________________________________________________________
____________
2. APPROVAL OF the 1997 Stock Compensation Plan
FOR AGAINST ABSTAIN
________________________________________________________
____________
3. Upon such other matters as may properly come before the
meeting.
The power to vote granted by this Proxy may be exercised by Anil
K. Jain and Kenneth A. Olsen, jointly or singly, or their
substitute(s), who are present and acting at said Annual Meeting
or any adjournment of said Annual Meeting. The undersigned
hereby revokes any and all prior proxies given by the undersigned
to vote at this Annual Meeting.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SHAREHOLDERS'
INSTRUCTIONS. IF THE SHAREHOLDER(S) WHO EXECUTE THIS PROXY DO
NOT WITHHOLD THEIR VOTES FOR THE ELECTION OF DIRECTORS OR VOTE
AGAINST OR ABSTAIN FROM VOTING ON ITEM NO. 2, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF THE PROPOSED DIRECTORS AND FOR ITEM 2.
It is urgent that each shareholder complete, date, sign, and mail
this Proxy as soon as possible. Your vote is important!
Dated and Signed
________________, 1997
______________________________
_______
Signature of Shareholder(s)
______________________________
_______
Signature of Shareholder(s)
Please sign as your name(s) appears above. When signing as
attorney, executor, administrator, trustee, guardian,
authorized officer of a corporation, or partner of a
partnership, please give your title as such.
PLEASE DO NOT FORGET TO DATE THIS PROXY.
APA OPTICS, INC.
2950 N.E. 84th Lane
Blaine, Minnesota 55449
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO OUR SHAREHOLDERS:
Please take notice that the 1997 Annual Meeting of the
Shareholders of APA Optics, Inc., a Minnesota corporation (the
"Company"), will be held at the Sheraton Minneapolis Metrodome,
1300 Industrial Boulevard, Minneapolis, Minnesota 55431, on
August 20, 1997, at 3:30 p.m., Central Daylight Time, to consider
and vote upon the following matters:
1. Election of directors of the Company.
2. Approval of the 1997 Stock Compensation Plan.
3. Such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors of the Company has fixed the close of
business on July 1, 1997, as the record date for the
determination of shareholders entitled to notice of and to vote
at the Annual Meeting. The transfer books of the Company will
not be closed.
Shareholders who do not expect to be present personally at
the Annual Meeting are urged to complete, date, sign, and return
the accompanying Proxy in the enclosed, self-addressed envelope.
The Board of Directors of the Company sincerely hopes, however,
that all shareholders who can attend the Annual Meeting will do
so.
It is important that your shares be represented and voted at
the Annual Meeting. You should, therefore, return your Proxy at
your earliest convenience.
BY ORDER OF THE BOARD OF DIRECTORS
Kenneth A. Olsen
Secretary
July 18, 1997
APA OPTICS, INC.
1997 STOCK COMPENSATION PLAN
Table of Contents
ITEM DESCRIPTION PAGE
SECTION 1 Purpose; Definitions 1
SECTION 2 Administration 3
SECTION 3 Stock Subject to Plan 4
SECTION 4 Eligibility 5
SECTION 5 Stock Options 5
SECTION 6 Stock Appreciation Rights 8
SECTION 7 Other Stock-Based Awards 10
SECTION 8 Change in Control Provisions 11
SECTION 9 Amendments and Termination 13
SECTION 10 Unfunded Status of Plan 14
SECTION 11 General Provisions 14
SECTION 12 Effective Date of Plan 16
SECTION 13 Term of Plan 16
APA OPTICS, INC.
1997 STOCK COMPENSATION PLAN
1. Purpose; Definitions.
The purpose of the APA Optics, Inc. 1997 Stock
Compensation Plan (the "Plan") is to enable APA Optics,
Inc. (the "Company"), and its Parents, Subsidiaries, and
Affiliates, to attract, retain, and reward employees and to
strengthen the mutuality of interests between such
employees and the Company's shareholders, by offering such
employees stock options and/or other equity-based
incentives.
In addition to definitions that may be contained
elsewhere in this Plan, for purposes of the Plan, the
following terms shall be defined as set forth below:
(a) "Affiliate" means any entity other than the
Company and its Parents and Subsidiaries that is
designated by the Board as a participating employer
under the Plan, provided that the Company directly or
indirectly owns at least 20% of the combined voting
power of all classes of stock of such entity or at
least 20% of the ownership interests in such entity.
(b) "Award" means any Option, Stock Appreciation
Right, or Other Stock-Based Award, or any other right,
interest, or option relating to Stock or other
securities of the Company granted pursuant to the
provisions of this Plan.
(c) "Award Agreement" means any written
agreement, contract or other instrument or document
evidencing any Award granted by the Committee
hereunder and signed by both the Company and the
Participant.
(d) "Board" means the Board of Directors of the
Company.
(e) "Code" means the Internal Revenue Code of
1986, as amended from time to time, and any successor
thereto.
(f) "Committee" means the Committee referred to
in Section 2 of the Plan. If at any time no Committee
shall be in office, then the functions of the
Committee specified in the Plan shall be exercised by
the Board. Where the Board has retained
administrative authority with respect to the Plan,
references herein to the "Committee" shall refer to
the Board.
(g) "Company" means APA Optics, Inc., a
corporation organized under the laws of the State of
Minnesota, or any successor corporation.
(h) "Disability" means disability as determined
under procedures established by the Committee for
purposes of this Plan or, as applied to Incentive
Stock Options, as defined in Section 22(e)(3) of the
Code.
(i) "Exchange Act" means the Securities Exchange
Act of 1934, as amended from time to time.
(j) "Fair Market Value" means as of any given
date, unless otherwise determined by the Committee in
good faith, the closing bid price of the Stock as
reported on The Nasdaq Small-Cap Market or, if the
Stock is then traded on The Nasdaq National Market or
a national or regional securities exchange, the
closing price of the Stock on The Nasdaq National
Market or such exchange.
(k) "Incentive Stock Option" means any Stock
Option intended to be and designated as an "Incentive
Stock Option" within the meaning of Section 422 of the
Code.
(l) "Nonqualified Stock Option" means any Stock
Option that is not an Incentive Stock Option.
(m) "Other Stock-Based Award" means an Award
under Section 7 below that is valued in whole or in
part by reference to, or is otherwise based on, Stock.
(n) "Parent" means any corporation (other than
the Company) in an unbroken chain of corporations
ending with the Company if, at the time of granting of
an Award, each of the corporations other than the
Company owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one
of the other corporations in the chain.
(o) "Participant" means any person who is
selected by the Committee to receive an Award under
the Plan.
(p) "Plan" means this APA Optics, Inc. 1997
Stock Compensation Plan, as hereafter amended from
time to time.
(q) "Stock" means the Common Stock, $.01 par
value per share, of the Company.
(r) Stock Appreciation Right" or "SAR" means the
right to receive a payment in cash or Stock as
determined by the Committee.
(s) "Stock Option" or "Option" means any option
to purchase shares of Stock granted pursuant to
Section 5 below.
(t) "Subsidiary" means any corporation (other
than the Company) in an unbroken chain of corporations
beginning with the Company if, at the time of the
granting of an Award, each of the corporations other
than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the
other corporations in the chain.
In addition, the term "Change in Control" shall have
the meaning set forth in Section 8(b) below.
2. Administration.
The Plan shall be administered by a Committee of not
fewer than two members of the Board, who shall be appointed
by the Board and serve at the pleasure of the Board. The
functions of the Committee specified in the Plan shall be
exercised by the Board, if and to the extent that no
Committee exists that has the authority to so administer
the Plan, or to the extent that the Board retains authority
to administer the Plan under specified circumstances. As
to the selection of and grants of Awards to persons who are
not subject to Sections 16(a) and 16(b) of the Exchange
Act, the Committee may delegate any or all of its
responsibilities to members of the Company's
administration. The grants of Awards and determination of
the terms thereof to persons who are subject to Sections
16(a) and 16(b) of the Exchange Act shall be made in a
manner that satisfies the requirements of Rule 16b-3 under
the Exchange Act, or any successor rule.
The Committee shall have full power and authority,
consistent with the provisions of the Plan and subject to
such orders or resolutions not inconsistent with the
provisions of the Plan as may be adopted by the Board:
(a) to select the employees of the Company and
any Parent, Subsidiary, or Affiliate to whom Awards
may from time to time be granted hereunder;
(b) to determine the type or types of Awards to
be granted to employees hereunder;
(c) to determine the number of shares of Stock
to be covered by each Award granted hereunder:
(d) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Award
granted hereunder;
(e) to determine whether, to what extent, and
under what circumstances an Award may be settled in
cash, Stock or other property or canceled or
suspended;
(f) to determine whether, to what extent, and
under what circumstances cash, Stock, and other
property and other amounts payable with respect to an
Award shall be deferred either automatically or at the
election of the Participant;
(g) to interpret and administer the Plan and any
instrument or agreement entered into thereunder;
(h) to establish such rules and regulations and
appoint such agents as it shall deem appropriate for
proper administration of the Plan; and
(i) to make any other determination and take any
other action that the Committee deems necessary or
desirable for administration of the Plan.
Members of the Board and of the Committee acting under
the Plan shall be fully protected in relying in good faith
upon the advice of counsel and shall incur no liability
except for gross negligence or willful misconduct in the
performance of their duties.
Decisions of the Committee shall be made in the
Committee's sole discretion and shall be final, conclusive,
and binding on all persons, including the Company, any
Participant, any shareholder, and any employee of the
Company or any Parent, Subsidiary, or Affiliate.
3. Stock Subject to Plan.
The total number of shares of Stock reserved and
available for distribution under the Plan shall be 500,000
shares of Stock. Such shares may consist, in whole or in
part, of authorized and unissued shares or treasury shares.
Subject to the possible adjustments described in the
last paragraph of this Section 3, the total number of
shares of Stock reserved and authorized for issuance upon
exercise of Incentive Stock Options shall be 500,000. To
the extent that such shares are not used for Incentive
Stock Options, they shall be available for other Awards to
be granted under the Plan.
If any shares of Stock subject to an Award are not
issued to a Participant because an Option or SAR is not
exercised or an Award is otherwise forfeited or any such
Award otherwise terminates without a payment being made to
the Participant in the form of Stock, such shares shall
again be available for distribution in connection with
future Awards under the Plan.
In the event of any merger, reorganization,
consolidation, recapitalization, Stock dividend, Stock
split, or other change in corporate structure affecting the
Stock, such substitution or adjustment shall be made in the
aggregate number of shares reserved for issuance under the
Plan, in the number and option price of shares subject to
outstanding Options granted under the Plan, and in the
number of shares subject to other outstanding Awards
granted under the Plan as may be determined to be
appropriate by the Board, in its sole discretion, provided
that the number of shares subject to any Award shall always
be a whole number. Any such adjusted option price shall
also be used to determine the amount payable by the Company
upon the exercise of any Stock Appreciation Right
associated with any Stock Option.
4. Eligibility.
Officers, management, or highly compensated employees
of the Company and any Subsidiary, Parent, or Affiliate who
are employed at the Company's Aberdeen, South Dakota,
facility are eligible to be granted Awards under the Plan.
The Committee shall have the exclusive authority to
determine what constitutes management or a "highly
compensated employee" and in making such a determination
shall take into consideration guidelines established by the
Department of Labor and court decisions as to what
constitutes a "select group of management or highly
compensated employees."
5. Stock Options.
Stock Options may be granted alone, in addition to, or
in tandem with other Awards granted under the Plan. Any
Stock Option granted under the Plan shall be in such form
as the Committee may from time to time approve.
Stock Options granted under the Plan may be of two
types: (i) Incentive Stock Options and (ii) Nonqualified
Stock Options. Options may be issued with or without Stock
Appreciation Rights.
Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the
terms of the Plan, as the Committee shall deem desirable:
(a) Exercise Price. Except as provided in
Section 5(i), the exercise price per share of Stock
purchasable under a Stock Option shall be determined
by the Committee at the time of grant but shall be not
less than 85% of the Fair Market Value of the Stock on
the date of grant.
(b) Option Term. Except as provided in Section
5(i) hereof, the term of each Stock Option shall be
fixed by the Committee.
(c) Exercisability. Stock Options shall be
exercisable at such time or times and subject to such
terms and conditions as shall be determined by the
Committee at or after grant; provided, however, that,
except as provided in Sections 5(f), (g), and (h) and
Section 8, unless otherwise determined by the
Committee at or after grant, no Stock Option shall be
exercisable prior to the first anniversary date of the
granting of the Option. If the Committee provides, in
its sole discretion, that any Stock Option is
exercisable only in installments, the Committee may
waive such installment exercise provisions at any time
at or after grant in whole or in part, based on such
factors as the Committee shall determine, in its sole
discretion.
(d) Method of Exercise. Subject to whatever
installment exercise provisions apply under Section
5(c), Stock Options may be exercised in whole or in
part at any time during the option period.
Payment of the exercise price may be made by
check, note (if approved by the Board), or such other
instrument or method as the Committee may accept. If
so provided in the related Award Agreement, payment in
full or in part may also be made by delivery of Stock
owned by the optionee for at least six months prior to
the exercise of the Option (based on the Fair Market
Value of the Stock on the date the Option is
exercised, as determined by the Committee). Payment
of the exercise price may be made through exercise of
either Tandem SARs or Freestanding SARs held by the
optionee.
No shares of Stock shall be issued until full
payment therefor has been made. An optionee shall
generally have the rights to dividends or other rights
of a shareholder with respect to shares subject to the
Option after the optionee has given written notice of
exercise, has paid in full for such Stock, and, if
requested, has given the representation described in
Section 11(a).
(e) Nontransferability of Options. Subject to
Section 5(i) hereof, unless otherwise provided in the
related Award Agreement, no Stock Option shall be
transferable by the optionee otherwise than by will or
by the laws of descent and distribution or pursuant to
a qualified domestic relations order as defined by the
Code or Title I of the Employee Retirement Income
Security Act, or the rules and regulations thereunder,
and all Stock Options shall be exercisable during the
optionee's lifetime only by the optionee.
(f) Termination by Death. Subject to Section
5(i), if an optionee's employment by the Company or
any Subsidiary, Parent, or Affiliate terminates by
reason of death, any Stock Option held by such
optionee may thereafter be exercised, to the extent
such Option was exercisable at the time of death or on
such accelerated basis as the Committee may determine
at or after grant (or as may be determined in
accordance with procedures established by the
Committee), by the legal representative of the
optionee's estate or by any person who acquired the
Option by will or the laws of descent and
distribution, for a period of one year (or such other
period as the Committee may specify at grant) from the
date of such death or until the expiration of the
stated term of such Stock Option, whichever period is
the shorter.
(g) Termination by Reason of Disability.
Subject to Section 5(i), if an optionee's employment
by the Company or any Subsidiary, Parent, or Affiliate
terminates by reason of Disability, any Stock Option
held by such optionee may thereafter be exercised by
the optionee, to the extent it was exercisable at the
time of termination or on such accelerated basis as
the Committee may determine at or after grant (or as
may be determined in accordance with procedures
established by the Committee), until the expiration of
the stated term of such Stock Option (unless otherwise
specified by the Committee at the time of grant);
provided, however, that, if the optionee dies prior to
such expiration (or within such other period as the
Committee shall specify at grant), any unexercised
Stock Option held by such optionee shall thereafter be
exercisable to the extent to which it was exercisable
at the time of death for a period of one year from the
date of such death or until the expiration of the
stated term of such Stock Option, whichever period is
the shorter.
(h) Other Termination. Subject to Section 5(i),
unless otherwise determined by the Committee (or
pursuant to procedures established by the Committee)
at or after grant, if an optionee's employment by the
Company or any Subsidiary, Parent, or Affiliate
terminates for any reason other than death or
Disability, the Stock Option shall be exercisable, to
the extent otherwise then exercisable, for the lesser
of three months from the date of termination of
employment or the balance of such Stock Option's term.
(i) Incentive Stock Options. Anything in the
Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be
interpreted, amended, or altered, nor shall any
discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section
422 of the Code or, without the consent of the
optionee(s) affected, to disqualify any Incentive
Stock Option under such Section 422.
To the extent required for "incentive stock
option" status under Section 422 of the Code (taking
into account applicable Internal Revenue Service
regulations and pronouncements and court decisions),
the Plan shall be deemed to provide:
(i) that Incentive Stock Options may be
granted only to employees of the Company or any
Parent or Subsidiary of the Company;
(ii) that the exercise price of any
Incentive Stock Option shall not be less than
100% of the Fair Market Value of the Stock as of
the date of grant (110% for an optionee who owns
stock possessing more than 10% of the voting
power of all classes of stock of the Company or
of a Parent or Subsidiary);
(iii) that the maximum term of exercise
for any Incentive Stock Option shall not exceed
ten years (five years in the case of an optionee
who owns stock possessing more than 10% of the
voting power of all classes of stock of the
Company or of a Parent or Subsidiary); and
(iv) that Incentive Stock Options shall
not be transferable by the optionee otherwise
than by will or the laws of descent and
distribution and shall be exercisable, during the
optionee's lifetime, only by the optionee.
To the extent permitted under Section 422 of the
Code or applicable regulations thereunder or any
applicable Internal Revenue Service pronouncements:
(i) if a Participant's employment is
terminated by reason of death or Disability and
the portion of any Incentive Stock Option that
becomes exercisable during the post-termination
period specified in Section 5(f) or (g) hereof
exceeds the $100,000 limitation contained in
Section 422(d) of the Code, such excess shall be
treated as a Nonqualified Stock Option; and
(ii) if the exercise of an Incentive
Stock Option is accelerated by reason of a Change
in Control, any portion of such Option that
exceeds the $100,000 limitation contained in
Section 422(d) of the Code shall be treated as a
Nonqualified Stock Option.
(j) No Tandem Options. Options consisting of
both an Incentive Stock Option and a Nonqualified
Stock Option shall not be granted under the Plan.
6. Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation
Rights may be granted either alone ("Freestanding
SAR") or in addition to other Awards granted under the
Plan and may, but need not, relate to all or part of
any Stock Option granted under the Plan ("Tandem
SAR"). In the case of a Nonqualified Stock Option, a
Tandem SAR may be granted either at or after the time
of the grant of such Stock Option. In the case of an
Incentive Stock Option, a Tandem SAR may be granted
only at the time of the grant of such Stock Option.
A Tandem SAR shall terminate and no longer be
exercisable upon the termination or exercise of the
related Stock Option, subject to such provisions as
the Committee may specify at grant where a Tandem SAR
is granted with respect to less than the full number
of shares covered by a related Stock Option. Stock
Options relating to exercised Tandem SARs shall no
longer be exercisable to the extent that the related
Tandem SARs have been exercised.
A Stock Appreciation Right may be exercised,
subject to Section 6(b), in accordance with the
procedures established by the Committee for such
purpose and as set forth in the related Award
Agreement. Upon such exercise, the optionee shall be
entitled to receive an amount determined in the manner
prescribed in Section 6(b).
(b) Terms and Conditions. Stock Appreciation
Rights shall be subject to such terms and conditions,
not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the
Committee, including the following:
(i) The exercise price of a Tandem SAR
shall be the exercise price of the related
Option. The exercise price of a Freestanding SAR
shall be not less than 100% of the Fair Market
Value of the Stock on the date of grant of the
Freestanding SAR. Notwithstanding the foregoing,
the Committee may unilaterally limit the
appreciation in value of Stock attributable to an
SAR at any time prior to its exercise.
(ii) Stock Appreciation Rights shall be
exercisable only at such time or times and to the
extent provided in the related Award Agreement;
provided, however, that the exercise provisions
of an SAR granted in tandem with an Incentive
Stock Option shall be the same as the related
Option.
(iii) Upon the exercise of a Stock
Appreciation Right, the holder shall be entitled
to receive an amount in cash or shares of Stock
equal in value to the excess of the Fair Market
Value of one share of Stock on the date of
exercise, or such other date as the Committee
shall specify in the Award Agreement, over the
exercise price per share specified in the related
Award Agreement multiplied by the number of
shares in respect of which the Stock Appreciation
Right shall have been exercised, with the
Committee having the right to determine the form
of payment. When payment is to be made in Stock,
the number of shares to be paid shall be
calculated on the basis of the Fair Market Value
of the Stock on the date of exercise.
(iv) Unless otherwise provided in the
related Award Agreement, Stock Appreciation
Rights shall not be transferable except under the
laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder, and
shall be exercisable during the lifetime of the
Participant only by the Participant.
(v) Upon the exercise of a Stock
Appreciation Right, any related Stock Option or
part thereof to which such Stock Appreciation
Right is related shall be deemed to have been
exercised for the purpose of the limitation set
forth in Section 3 of the Plan on the number of
shares of Stock to be issued under the Plan.
7. Other Stock-Based Awards.
(a) Administration. Other Awards of Stock or
that are valued in whole or in part by reference to,
or are otherwise based on, Stock ("Other Stock-Based
Awards"), including, without limitation, performance
shares, convertible preferred stock, convertible
debentures, or exchangeable securities, may be granted
either alone or in addition to or in tandem with Stock
Options or Stock Appreciation Rights granted under the
Plan.
Subject to the provisions of the Plan, the
Committee shall have authority to determine the
persons to whom and the time or times at which such
Awards shall be made, the number of shares of Stock to
be awarded pursuant to such Awards, and all other
conditions of the Awards. The Committee may also
provide for the grant of Stock upon the completion of
a specified performance period.
The provisions of Other Stock-Based Awards need
not be the same with respect to each recipient.
(b) Terms and Conditions. Unless otherwise
provided in the related Award Agreement, Stock subject
to Awards made under this Section 7 may not be sold,
assigned, transferred, pledged, or otherwise
encumbered prior to the date on which the Stock is
issued or, if later, the date on which any applicable
restriction, performance, or deferral period lapses.
The Participant shall be entitled to receive,
currently or on a deferred basis, interest or
dividends or interest or dividend equivalents with
respect to the Stock covered by the Award, as
determined at the time of the Award by the Committee,
in its sole discretion, and the Committee may provide
that such amounts (if any) shall be deemed to have
been reinvested in additional Stock or otherwise
reinvested.
Any Award under Section 7 and any Stock covered
by any such Award shall vest or be forfeited to the
extent so provided in the Award Agreement, as
determined by the Committee, in its sole discretion.
In the event of the Participant's retirement,
Disability, or death, or in cases of special
circumstances, the Committee may, in its sole
discretion, waive in whole or in part any or all of
the remaining limitations imposed with respect to any
or all of an Award under this Section 7.
Each Award under this Section 7 shall be
confirmed by, and subject to the terms of, an Award
Agreement or other instrument entered into by the
Company and the Participant.
Stock (including securities convertible into
Stock) issued on a bonus basis under this Section 7
may be issued for no cash consideration. The purchase
price of any Stock (including securities convertible
into Stock) subject to a purchase right awarded under
this Section 7 shall be at least 85% of the Fair
Market Value of the Stock on the date of grant.
8. Change in Control Provisions.
(a) Impact of Event. In the event of a "Change
in Control" as defined in Section 8(b), any Award
granted under this Plan shall become fully exercisable
and vested.
(b) Definition of "Change in Control." For
purposes of Section 8(a), a "Change in Control" means
the happening of any of the following:
(i) A majority of the directors of the
Company shall be persons other than persons
(A) For whose election
proxies shall have been solicited by the
Board, or
(B) Who are then serving as
directors appointed by the Board to fill
vacancies on the Board caused by death or
resignation (but not by removal) or to fill
newly-created directorships,
(ii) 30% or more of the
outstanding voting stock of the Company is
acquired or beneficially owned (as defined in
Rule 13d-3 under the Exchange Act or any
successor rule thereto) by any person (other than
the Company or a subsidiary of the Company) or
group of persons acting in concert (other than
the acquisition and beneficial ownership by a
parent corporation or its wholly-owned
subsidiaries, as long as they remain wholly-owned
subsidiaries, of 100% of the outstanding voting
stock of the Company as a result of a merger
which complies with paragraph (iii)(A)(2) hereof
in all respects), or
(iii) The shareholders of the
Company approve a definitive agreement or plan to
(A) Merge or consolidate the
Company with or into another corporation
other than
(1) a merger or
consolidation with a subsidiary of the
Company or
(2) a merger in which
(a) the
Company is the surviving
corporation,
(b) no
outstanding voting stock of the
Company (other than fractional
shares) held by shareholders
immediately prior to the merger is
converted into cash, securities,
or other property (except (i)
voting stock of a parent
corporation owning directly, or
indirectly through wholly owned
subsidiaries, both beneficially
and of record 100% of the voting
stock of the Company immediately
after the merger and (ii) cash
upon the exercise by holders of
voting stock of the Company of
statutory dissenters' rights),
(c) the
persons who were the beneficial
owners, respectively, of the
outstanding common stock and
outstanding voting stock of the
Company immediately prior to such
merger beneficially own, directly
or indirectly, immediately after
the merger, more than 70% of,
respectively, the then outstanding
common stock and the then
outstanding voting stock of the
surviving corporation or its
parent corporation, and
(d) if
voting stock of the parent
corporation is exchanged for
voting stock of the Company in the
merger, all holders of any class
or series of voting stock of the
Company immediately prior to the
merger have the right to receive
substantially the same per share
consideration in exchange for
their voting stock of the Company
as all other holders of such class
or series,
(B) exchange, pursuant to a statutory
exchange of shares of voting stock of the
Company held by shareholders of the Company
immediately prior to the exchange, shares of
one or more classes or series of voting
stock of the Company for cash, securities,
or other property,
(C) sell or otherwise dispose of all
or substantially all of the assets of the
Company (in one transaction or a series of
transactions), or
(D) liquidate or dissolve the Company.
9. Amendments and Termination.
The Board may amend, alter, discontinue, or terminate
the Plan, or any portion thereof, but no amendment,
alteration, or discontinuation shall be made which would
impair the vested rights of a Participant under any Award
theretofore granted without the Participant's consent or
which, without the approval of the Company's shareholders,
would:
(a) except as expressly provided in this Plan,
increase the total number of shares reserved for the
purpose of the Plan;
(b) authorize an increase in the total number of
shares reserved for issuance upon exercise of
Incentive Stock Options;
(c) decrease the option price of any Incentive
Stock Option to less than 100% of the Fair Market
Value on the date of grant;
(d) permit the issuance of Stock prior to
payment in full therefor;
(e) change the employees or class of employees
eligible to participate in the Plan; or
(f) extend the maximum option period under
Section 5(i) of the Plan.
The Committee may amend the terms of any Award
theretofore granted, prospectively or retroactively, but,
subject to Section 3 above, no such amendment shall impair
the vested rights of any holder without the holder's
consent. The Committee may also substitute new Stock
Options for previously granted Stock Options (on a one-for-
one or other basis), including previously granted Stock
Options having higher option exercise prices.
Subject to the above provisions, the Board shall have
broad authority to amend the Plan to take into account
changes in applicable securities and tax laws and
accounting rules, as well as other developments.
10. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan
for incentive and deferred compensation. With respect to
any payments not yet made to a Participant by the Company,
nothing contained herein shall give any such Participant
any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the
Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan
to deliver Stock or payments in lieu of or with respect to
Awards hereunder; provided, however, that, unless the
Committee otherwise determines with the consent of the
affected Participant, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of
the Plan.
11. General Provisions.
(a) The Committee may require each person
purchasing shares pursuant to a Stock Option or
receiving shares pursuant to any other Award under the
Plan to represent to and agree with the Company in
writing that the Participant is acquiring the shares
without a view to distribution thereof. The
certificates for such shares may include any legend
which the Committee deems appropriate to reflect any
restrictions on transfer.
All certificates for shares of Stock or other
securities delivered under the Plan shall be subject
to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities
and Exchange Commission, any over-the-counter market
on which the Stock is quoted, any stock exchange upon
which the Stock is then listed, and any applicable
federal or state securities law, and the Committee may
cause a legend or legends to be put on any such
certificates to make appropriate reference to such
restrictions.
(b) The Committee may at any time offer to buy
out for a payment in cash or Stock an Award previously
granted, based on such terms and conditions as the
Committee shall establish and communicate to the
Participant at the time that such offer is made.
(c) Nothing contained in this Plan shall prevent
the Board from adopting other or additional
compensation arrangements, subject to shareholder
approval if such approval is required; and such
arrangements may be either generally applicable or
applicable only in specific cases.
(d) Neither the adoption of this Plan nor the
grant of any Award hereunder shall confer upon any
employee of the Company or any Subsidiary, Parent, or
Affiliate any right to continued employment with the
Company or a Subsidiary, Parent, or Affiliate, as the
case may be, or interfere in any way with the right of
the Company or a Subsidiary, Parent, or Affiliate to
terminate the employment of any of its employees at
any time.
(e) No later than the date as of which an amount
first becomes includable in the gross income of the
Participant for federal income tax purposes with
respect to any Award under the Plan, the Participant
shall pay to the Company, or make arrangements
satisfactory to the Committee regarding the payment
of, any federal, state, or local taxes of any kind
required by law to be withheld with respect to such
amount. The obligations of the Company under the Plan
shall be conditional on such payment or arrangements,
and the Company and any Subsidiary, Parent, or
Affiliate shall, to the extent permitted by law, have
the right to deduct any such taxes from any payment of
any kind otherwise due to the Participant. If so
provided in the related Award Agreement, a Participant
may authorize the withholding of shares of Stock
otherwise deliverable upon exercise of an Option or
the grant or vesting of an Award to satisfy any tax
obligations arising from such exercise, grant, or
vesting.
(f) The actual or deemed reinvestment of
dividends or dividend equivalents in additional Stock
at the time of any dividend payment shall only be
permissible if sufficient shares of Stock are
available under Section 3 for such reinvestment
(taking into account then outstanding Stock Options
and other Plan Awards).
(g) To the extent that federal laws (such as the
Code, the Exchange Act, or the Employee Retirement
Income Security Act of 1974) do not otherwise control,
this Plan and all Awards made and actions taken
hereunder shall be governed by and construed in
accordance with the laws of the State of Minnesota.
(h) Unless otherwise provided in the related
Award Agreement, no rights granted hereunder may be
assigned, transferred, pledged, or hypothecated
(whether by operation of law or otherwise) or be
subject to execution, attachment, or similar process,
and any attempted assignment, transfer, pledge,
hypothecation, or other disposition or levy of
attachment or similar process upon any such right will
be null and void and without effect.
(i) If any term, provision, or portion of this
Plan or any Award granted hereunder shall be deemed
unenforceable or in violation of applicable law, such
term, provision, or portion of the Plan or the Award
shall be deemed severable from all other terms,
provisions, or portions of this Plan or the Award or
any other Awards granted hereunder, which shall
otherwise continue in full force and effect.
12. Effective Date of Plan.
The Plan shall be effective as of March 4,1997,
subject to the approval of the Plan by a majority of the
votes cast by the holders of the Company's Common Stock at
the annual shareholders' meeting next following adoption of
the Plan. Any grants made under the Plan prior to such
approval shall be effective when made (unless otherwise
specified by the Committee at the time of grant), but shall
be conditioned on, and subject to, such approval of the
Plan by such shareholders.
13. Term of Plan.
No Incentive Stock Option shall be granted pursuant to
the Plan on or after the tenth anniversary of the date of
adoption of the Plan, but Incentive Stock Options granted
prior to such tenth anniversary may extend beyond that
date. All other Awards may be granted at any time and for
any period unless otherwise provided by the Plan.
_________________________________________
Approved and adopted by the Board of Directors of APA
Optics, Inc. as of March 4, 1997, and approved by the
shareholders on ________________.
