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 ________________.
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<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
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