UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
Filed
by
the Registrant x
Filed
by
a Party other than the Registrant o
Check
the
appropriate box:
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Preliminary
Proxy Statement
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o
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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x
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Definitive
Proxy Statement
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o
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Definitive
Additional Materials
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o
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Soliciting
Material Pursuant to (S)240.14a-12
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APA
ENTERPRISES, INC.
(Name
of
Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
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x
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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1)
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Title
of each class of securities to which transaction applies:
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2)
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Aggregate
number of securities to which transaction applies:
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3)
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is
calculated and state how it was determined):
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4)
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Proposed
maximum aggregate value of transaction:
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5)
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Total
Fee Paid:
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Fee
paid previously with preliminary materials.
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box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee
was paid
previously. Identify the previous filing by registration statement
number,
or the Form or Schedule and the date of its filing.
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1)
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Previously Paid:
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Schedule or Registration Statement No.:
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Party:
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Date
Filed:
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APA
ENTERPRISES, INC.
2950
N.E. 84th
Lane
Blaine,
Minnesota 55449
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TO
OUR
SHAREHOLDERS:
The
2006
Annual Meeting of the shareholders of APA Enterprises, Inc., a Minnesota
corporation (the “Company”), will be held at the Four Points Sheraton, 1330
Industrial Boulevard, Minneapolis, Minnesota 55431, on August 17, 2006, at
3:30
p.m., Central Daylight Time, to consider and vote upon the following
matters:
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1.
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Election
of four directors.
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2.
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Adoption
of the 2007 Stock Compensation
Plan.
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3.
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Such
other business as may properly come before the meeting or any adjournment
or adjournments thereof.
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We
have
fixed the close of business on July 5, 2006, as the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting. Our transfer books will not be closed.
Whether
or not you expect to be present personally at the Annual Meeting, please
complete, date, sign, and return the accompanying proxy in the enclosed,
self-addressed envelope at your earliest convenience. This will insure your
participation in the decisions to be made by the shareholders. We sincerely
hope
that all shareholders who can attend the Annual Meeting will do so.
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BY
ORDER OF THE BOARD OF DIRECTORS
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Janna
R. Severance
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Secretary
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July
10,
2006
TABLE
OF CONTENTS
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Page
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3
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13
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17
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APA
ENTERPRISES, INC.
2950
N.E. 84th
Lane
Blaine,
Minnesota 55449
PROXY
STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
AUGUST
17, 2006
SOLICITATION
AND REVOCATION OF PROXIES
The
accompanying proxy is solicited by the Board of Directors of APA Enterprises,
Inc. (the “Company”) in connection with the 2006 Annual Meeting of the
Shareholders of the Company, to be held on August 17, 2006, at 3:30 p.m.
Minneapolis time, at the Four Points Sheraton, 1330 Industrial Boulevard,
Minneapolis, Minnesota 55431 and any adjournments thereof. This Proxy Statement
is first being mailed to shareholders on or about July 10, 2006.
How
to Vote
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·
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By
signing and returning the enclosed proxy card, you will be giving
your
proxy to our Board of Directors and authorizing them to vote your
shares.
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How
Your Proxy Will be Voted; Board Recommendations
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·
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Unless
revoked, 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 as follows, in accordance with the recommendations
of
the Board: FOR all nominees for director and FOR adoption of the
2007
Stock Compensation Plan. 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 in accordance with their
discretion.
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How
to Revoke Your Proxy
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·
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You
have the power to revoke your proxy at any time before the convening
of
the Annual Meeting. Revocations of proxy will be honored if received
by
us, at the Company, addressed to the attention of Anil K. Jain, before
the
meeting on August 17, 2006. 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
room.
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Abstentions
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If
you abstain from voting as to any matter, your shares 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.
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Broker
Non-Votes
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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 will be considered
present at the meeting for purposes of determining a quorum but will
not
be considered to be represented at the meeting for purposes of calculating
the vote required for approval of such
matter.
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Cost
of Solicitation
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We
will pay all expenses in connection with the solicitation of proxies.
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 us for
such solicitation. We 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.
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VOTING
RIGHTS
Only
shareholders of record at the close of business on July 5, 2006, are entitled
to
notice of and to vote at the meeting or any adjournment thereof. As of that
date, we had issued and outstanding 11,872,331 shares of common stock. Each
holder of record of our common stock 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 shows as of July 5, 2006, the stock ownership of (i) all persons
known by us to be beneficial owners of more than five percent of our outstanding
shares of common stock, (ii) each director and each nominee for election as
a
director, (iii) the Named Executive Officers (as defined below under the caption
“Executive Compensation”), and (iv) all current directors and executive officers
as a group:
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Name
and Address of Beneficial Owner
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Number
of Shares Beneficially
Owned
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Percentage
of Outstanding
Shares
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Anil
K. Jain
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1,670,502
(l)
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14.1
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2950
N.E. 84th
Lane
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Blaine,
Minnesota 55449
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Cheri
Podzimek
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-0-
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*
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5480
Nathan Lane
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Plymouth,
Minnesota 55442
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Herman
Lee
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761,700
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6.4
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20152
Highway 9N
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Borup,
Minnesota 56519
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John
G. Reddan
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21,000
(2)
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*
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2950
N.E. 84th
Lane
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Blaine,
Minnesota 55449
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Ronald
G. Roth
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344,800
(2)
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2.9
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2950
N.E. 84th
Lane
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Blaine,
Minnesota 55449
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Stephen
L. Zuckerman, M.D.
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33,000
(2)
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*
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2950
N.E. 84th
Lane
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Blaine,
Minnesota 55449
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All
current directors and
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2,054,302
(3)
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17.3
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executive
officers as a group
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(5 persons)
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*
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Less
than 1%.
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(1)
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Includes
5,250 shares held by Dr. Jain as custodian for minor relatives. Dr.
Jain
disclaims beneficial ownership of such
shares.
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(2)
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Includes
10,000 shares that may be acquired upon exercise of options that
are or
will become exercisable within sixty days of the record
date.
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(3)
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Includes
30,000 shares that may be acquired upon exercise of options that
are or
will become exercisable within sixty days of the record
date.
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PROPOSAL
1: ELECTION OF DIRECTORS
Our
Nominating Committee has named 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. All of the nominees are currently directors.
Unless
instructed not to vote for the election of directors or not to vote for any
specific nominee, your proxy will be voted to elect the listed nominees. If
any
nominee withdraws as a candidate or is otherwise unavailable to stand for
election at the meeting, the named proxies will vote for such other persons
as
they may determine, in their discretion. We do not anticipate that any candidate
will withdraw.
The
following information is provided with respect to the nominees for
directors:
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Name
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Age
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Director
Since
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Anil
K. Jain
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60
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1979
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Ronald
G. Roth
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61
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2002
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Stephen
L. Zuckerman, M.D.
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64
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2002
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John
G. (Jack) Reddan
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75
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2002
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Dr.
Anil
K. Jain has been president of the Company since 1979, Chairman of the Board
since 1987, and chief executive officer since 1988. He also served as chief
financial officer and treasurer until August 2000 and has also served in those
roles since 2003. Dr. Jain is a past director and former chairman of Minnesota
Project Innovation, Inc., a nonprofit corporation.
Ronald
G.
Roth was Chairman of the Board and Chief Executive Officer of Waste Systems
Corp., a privately held waste hauling and disposal company, for 25 years prior
to its sale to a national sold waste management company in 1995. From 1995
to
2001, he was Chairman of the Board of Access Cash International L.L.C., a North
American provider of ATMs and related processing and financial services until
its sale to a national payment and technology solutions company. Since 1990
he
has been an owner of, and has served in various capacities, including director
and officer, with Phillips Recycling Systems, a privately held regional
recycling service provider in Minnesota. Mr. Roth graduated with a B.A. in
Marketing from Michigan State University.
Dr.
Stephen L. Zuckerman served as a director of the Company from January 1986
through August 1991 and was reappointed to the Board in February 2002. Dr.
Zuckerman is Chief of Internal Medicine at Aspen Medical Group East Lake Street
Clinic, and in addition, has been actively involved for many years with
developing companies in the high tech area. He served as chairman of the board
of ProtaTek International Inc., a biotechnology company manufacturing for the
human and veterinary marketplace (1984 to 1987), as co-founder and chairman
of
the board of Hypertension Diagnostic Inc., also a biotechnology company that
has
developed a methodology for early detection of blood vessel disorders (1988
to
1991), and as a member of the board of Biosensor Inc. (1989 to 1991) and
Micromedics Inc. (1986 to 1991 and February 2002 to present). From 1982 to
1995
Dr. Zuckerman was president of M-T Venture Capital Fund, Inc., a Minnesota
corporation created to invest in early-stage biotechnology and medical
technology companies. Since 1976, Dr. Zuckerman has consulted in the health
care
delivery field, focusing his efforts on the regionalization of health care
services. He was the designer, founder and director of the University of
Minnesota Hospitals’ Outreach Program from 1976 to 1984. Besides his internal
medicine practice, Dr. Zuckerman presently is chairman of the board of The
Foundation for Rural Health Care, a nonprofit organization that owns and manages
three rural nursing homes, and a member of the board of Micromedics, Inc. He
is
also president of M-T Venture Capital Fund II, Inc. and chairman of the board
of
The University Film Society, Minneapolis, Minnesota (2000 to
present).
John
G.
(Jack) Reddan joined the Board of Directors in November 2002. Mr. Reddan,
retired, has worked as a volunteer with the Presbytery of the Twin Cities Area
(Presbyterian Church USA) in computer application, hardware and software
support, and accounting and finance. From 1992 to 1994, immediately following
his retirement for Unisys Corp., he worked as a volunteer with the Presbyterian
Border Ministries in McAllen, Texas in multiple capacities, including accounting
consulting, which he continued until 1999. His last position at Unisys (1986
until retirement in 1991) was as Program Manager - Communication Systems, where
he was responsible for budgets, procurement, and administration of hardware
and
software development. During his career with Unisys (then known as Sperry
Univac) he served as General Manager of its division in Brazil (1970-1973)
and
as European regional manager for sales to the U.S. government and military
in
Frankfurt, Germany (1967-1969).
Board
Meetings.
The
Board of Directors held 4 meetings during fiscal 2006. All directors attended
at
least 75% of the meetings of the Board of Directors and of each committee on
which they served.
Committees
The
Company has an audit committee, a compensation committee, and a nominating
committee, each of which is comprised of all non-employees (outside directors).
The members of these committees during fiscal 2006 were as follows:
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Audit
Committee
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Compensation
Committee
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Nominating
Committee
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Ronald
Roth
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Ronald
Roth, Chairman
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Ronald
Roth, Chairman
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Stephen
Zuckerman
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Stephen
Zuckerman
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Stephen
Zuckerman
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Jack
Reddan, Chairman
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Jack
Reddan
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Jack
Reddan
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Audit
Committee.
The
audit committee has sole authority to appoint, review and discharge our
independent public accountants. The committee also reviews and approves in
advance the services provided by the independent public accountants and reviews
our internal accounting controls. The audit committee operates under a written
charter adopted by the Board of Directors. All members of the Audit Committee
are “independent” under the current NASDAQ stock market listing standards. The
Board has identified John G. Reddan as the current member of our Audit Committee
who meets the definition of an “Audit Committee Financial Expert” under rules of
the Securities and Exchange Commission. During fiscal 2006, the Audit Committee
held 4 meetings. See “RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS - Report
of Audit Committee” below, and the Audit Committee Charter filed as Appendix
A
to this
Proxy Statement.
Compensation
Committee.
The
compensation committee develops general compensation policies and establishes
compensation plans and specific compensation levels for executive officers.
The
compensation committee met once during fiscal 2006 to consider the compensation
of the executive officers. See “EXECUTIVE COMPENSATION - Report of Compensation
Committee” below.
Nominating
Committee.
The
nominating committee selects nominees for election as directors of the Company.
In fiscal 2006, the nominating committee met once, at which time it selected
nominees for election at the upcoming annual meeting. The nominating committee
will consider qualified director nominees recommended by shareholders for
election in 2006 and beyond. Our process for receiving and evaluating Board
member nominations from our shareholders is described below under the caption
“Nominations.”
Compensation
of Directors.
Each
director who is not also an employee of the Company receives an annual
director’s fee of $5,000. We paid a total of $15,000 in directors’ fees for
services rendered during fiscal 2006.
In
addition, under the terms of our 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 the option equals 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 2006, options
to purchase 15,000 shares at $1.41 per share were awarded to nonemployee
directors pursuant to this Plan.
Code
of Ethics
The
Company has adopted a code of ethics applicable to its chief executive officer
and senior financial officer. The code is available at no charge by request
to
the Company in writing, to the attention of the Comptroller. Additionally,
the
code is filed with the Securities and Exchange Commission as an exhibit to
the
Company’s Report on Form 10-KSB for the fiscal year ended March 31, 2004 and is
available on our website (www.apaenterprises.com).
Nomination
of Director Candidates
Effective
May 27, 2005, the Board of Directors appointed a standing nominating committee
for selection of nominees for election to the Board of Directors. The
committee’s charter is available on our website (www.apaenterprises.com)
or by
request in writing to the Company (Attn: Comptroller).
The
nominating committee determines the required selection criteria and
qualifications of director nominees based upon the needs of the Company at
the
time nominees are considered. In general, at a minimum, a candidate must possess
the ability to apply good business judgment and must be in a position to
properly exercise his or her duties of loyalty and care. In addition, the
committee evaluates candidates based on financial literacy, knowledge of the
Company’s industry or other background relevant to the Company’s needs, status
as a shareholder in the Company, “independence” for purposes of compliance with
the rules of the SEC and NASDAQ, and willingness, ability, and availability
for
service. Candidates will be preferred who hold an established executive level
position in business, finance, law, education, research or government. When
current Board members are considered for nomination for reelection, the
nominating committee also takes into consideration their prior APA Board
contributions, performance and meeting attendance records.
The
nominating committee has not utilized the services of any third party search
firm to assist in the identification or evaluation of Board member candidates.
However, the committee may engage a third party to provide such services in
the
future, as it deems necessary or appropriate at the time in
question.
The
nominating committee will consider qualified candidates for possible nomination
that are submitted by our shareholders. Shareholders who wish to make such
a
submission may do so by sending the following information to the nominating
committee c/o APA Enterprises, Inc., Attn: Comptroller: (1) name of the
candidate and a brief biographical sketch and resumé; (2) contact information
for the candidate and a document evidencing the candidate’s willingness to serve
as a director if elected; (3) a signed statement as to the submitting
shareholder’s current status as an owner and the number of shares currently
held. Nominations are further subject to the requirements of Section 2.14-a
of
the Company’s Bylaws. Our Bylaws are available on our website (www.apaenterprises.com)
or by
request in writing to the Company (Attn: Comptroller).
This
information will be evaluated against the criteria established by the committee
and the specific needs of the Company at that time. Based upon such preliminary
assessment, candidate(s) who appear best suited to meet the needs of the Company
may be invited to participate in a series of interviews, which are used as
a
further means of evaluating potential candidates. On the basis of information
learned during this process, the committee will determine which nominee(s)
to
propose for election at the next annual meeting. The committee will use the
same
process for evaluating all nominees, regardless of the source of the
nomination.
No
candidates for director nominations were submitted to the committee by any
shareholders in connection with the 2006 Annual Meeting. Any shareholders
desiring to present a nomination for consideration by the committee prior to
our
2007 annual meeting must do so at least 90 days prior to the one year
anniversary of this year’s Annual Meeting (i.e. 90 days prior to August 17,
2007), as required by Section 2.14-a of our Bylaws.
Shareholder
Communication with the Board
We
do not
have a formal procedure for shareholder communication with our Board of
Directors. In general, our officers are easily accessible by telephone or mail.
Any matter intended for the Board, or for any individual member or members
of
the Board, should be directed to our Comptroller at the Company address with
a
request to forward the same to the intended recipient. All such communications
will be forwarded unopened.
We
encourage all incumbent directors, as well as all nominees for election as
director, to attend the annual meeting of shareholders. All incumbent directors
and nominees attended the annual meeting in August 2005.
PROPOSAL
2: ADOPTION OF 2007 STOCK COMPENSATION PLAN
The
2007
Stock Compensation Plan (the "2007 Plan") was adopted by the Board of Directors
in June 2006, primarily to provide a method of attracting, retaining and
rewarding employees.
The
2007
Plan is intended to replace the Company's 1997 Stock Compensation Plan (the
"1997 Plan"). No further incentive stock grants may be granted under the 1997
Plan after March 4, 2007. The Board of Directors has voted to terminate the
1997
Plan, effective August 18, 2006, assuming approval of the 2007 Plan at the
Annual Meeting. Upon termination of the 1997 Plan, all shares reserved for
the
1997 Plan in excess of options which remain outstanding under the 1997 Plan
will
be transferred to the reserve for the 2007 Plan. As of June 16, 2006, options
to
purchase 218,980 shares of common stock are outstanding under the 1997 Plan,
leaving 531,020 of the 750,000 shares reserved for the 1997 Plan available
for
transfer to the 2007 Plan. If options expire under the 1997 Plan without
exercise, the shares reserved for such options will not be transferred to the
2007 Plan, but will be released to authorized, unissued capital stock which
is
available for issuance for general purposes.
Description
of Plan.
The
2007 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 June 2016, the 2007 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 2007
Plan.
Shares
Subject to the 2007 Plan.
A total
of 750,000 shares of common stock have been reserved for issuance under the
2007
Plan (including excess shares to be transferred from the 1997 Stock Compensation
Plan). The 2007 Plan provides for appropriate adjustment in the number of shares
subject to the 2007 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 June 16, 2006 the closing price for the common stock on
the
NASDAQ Capital Market was $1.29 per share.
Administration.
The
Plan will be administered by the Board or a committee appointed by the Board.
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 2007 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.
All
employees of the Company and its subsidiaries are eligible to receive grants
under the 2007 Plan. As of July 1, 2006, 149 persons were eligible to
participate in the 2007 Plan. No options have been granted under the 2007 Plan.
Stock
Options.
Options
granted under the 2007 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 the fair
market value of the common stock on the date of grant. 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 2007 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 2007 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
2007
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 2007 Plan) any award granted
under the 2007 Plan will become fully exercisable and vested. For purposes
of
the 2007 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
2007
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).
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.
Plan
Benefits.
Grants
of options and awards under the 2007 Plan are discretionary. Accordingly, it
is
not possible for us to identify the recipients or specify the amounts to be
received by any recipient. In general, the Board or the committee administering
the 2007 Plan will seek recommendations from management (as to non-executive
employees) concerning the recipients of grants and awards, the appropriate
amounts and types of awards, and the term of the exercise. Grants and awards
may
be made annually, or more frequently in the case of new hires, promotions,
or
other special circumstances. In general, the Committee's compensation policy
includes stock incentives for executive management as a significant component
of
total compensation.
A
copy of
2007 Plan is included in this proxy statement as Appendix
B.
Equity
Compensation Plan Information.
The
Company currently has two compensation plans: its 1993 Directors Plan and its
1997 Stock Compensation Plan, both of which have been approved by the
shareholders of the Company. In addition, the Company has issued warrants to
its
directors and certain service providers. These awards have not been presented
to
or approved by the shareholders. The following table presents information as
of
March 31, 2006 about these plans and awards.
|
Plan
Category
|
(a)
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
(b)
Weighted-average
exercise price of outstanding options, warrants and rights
|
(c)
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|||
|
Equity
compensation plans approved by shareholders
|
276,470
|
$2.80
|
673,530
|
|||
|
Equity
compensation plans not approved by shareholders
|
357,310
|
$3.08
|
Not
applicable*
|
|||
|
Total
|
633,780
|
$2.96
|
673,530
|
*
These
securities are comprised solely of warrants that were not issued pursuant to
any
formal plan with an authorized number of securities available for
issuance.
Accounting
Treatment.
In
December 2004, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 123 (revised 2004), Share-Based Payment, which is a revision
of
FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement
123(R) supersedes ABP Opinion No. 25, Account for Stock Issued to Employees,
and
amends FASB No. 95, Statement of Cash Flows. Generally the approach in Statement
123(R) is similar to the approach described in Statement 123. However, Statement
123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on their
fair values. Pro forma disclosure will no longer be an alternative. The
provisions in Statement 123(R) are effective for all stock options or other
equity-based awards to employees or directors that vest or become exercisable
in
the Company's first quarter of fiscal 2007. The Company will report its first
fiscal quarter of 2007 in accordance with the new standard. For fiscal year
2007, the Company estimates the expense to be approximately
$103,000.
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 2007 Plan.
The
Board
of Directors recommends that you vote FOR the approval of the 2007 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 our last three fiscal years to our chief executive officer and
our other executive officers whose total annual compensation in fiscal 2006
(based on salary and bonus) exceeded $100,000 (the “Named Executive
Officers”).
|
Name
and
|
Fiscal
|
Annual Compensation
|
All
Other
|
||||||||||
|
Principal Positions
|
Year
|
Salary
|
Bonus
|
Compensation
|
|||||||||
|
Anil
K. Jain
|
2006
|
$
|
188,896
|
0
|
$
|
9,112(2)
|
|
||||||
|
President
and Chief Executive
|
2005
|
$
|
183,600
|
0
|
$
|
9,125(2)
|
|
||||||
|
Officer
|
2004
|
$
|
183,600
|
0
|
$
|
8,084(2)
|
|
||||||
|
Cheri
Podzimek, (1)
|
2006
|
$
|
115,699
|
$
|
43,047
|
$
|
3,791(3)
|
|
|||||
|
President,
APACN
|
2005
|
$
|
108,160
|
$
|
43,200
|
$
|
3,667(3)
|
|
|||||
|
2004
|
$
|
78,208(1
|
)
|
0
|
$
|
711(3)
|
|
||||||
|
(1)
|
Ms.
Podzimek joined the Company on June 27, 2003. Information in the
table
reflects compensation for the period from June 27, 2003 through March
31,
2004.
|
|
(2)
|
Consists
of taxable fringe benefits and Company contribution on Mr. Jain’s behalf
to 401(k) plan.
|
|
(3)
|
Consists
of Company contribution on Ms. Podzimek’s behalf to 401(k)
plan.
|
Change
of Control Arrangement.
We have
an agreement with Anil K. Jain providing for certain benefits in the event
of a
change in control of the Company. If, following a change in control (as defined
in the agreement), Dr. Jain’s employment is terminated within 36 months other
than for “cause” (as defined) or as a result of his retirement, disability, or
death, or if Dr. Jain terminates his employment for “good reason” (as
defined), he is to receive a lump sum payment equal to two and one-half times
his annualized includable compensation for the base period (as defined in
Section 280G(d) of the Internal Revenue Code of 1986, as amended). “Good reason”
includes certain changes in Dr. Jain’s duties, responsibilities, status, salary,
benefits, and other similar terms of his employment made without his consent.
A
“change in control” for purposes of the agreement includes a consolidation or
merger of the Company in which the Company is not the continuing or surviving
corporation, any sale, lease, exchange, or transfer of all or substantially
all
of the assets of the Company, approval by the shareholders of any plan or
proposal for liquidation or dissolution of the Company, the acquisition by
any
person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended) of beneficial ownership of 30% or more of
the
Company’s outstanding common stock, or a change in the board of directors of the
Company during any period of two consecutive years such that individuals who
at
the beginning of such period constituted the entire Board of Directors cease
for
any reason to constitute a majority (with certain exceptions).
In
addition, we have an agreement with Dr. Jain providing that upon the occurrence
of a change in control, in conjunction with a change in Dr. Jain’s current
position, other than by voluntary resignation, Dr. Jain will have the option
to
request the Company to purchase from him a number of shares of his common stock
equal to up to 4% of the shares of common stock outstanding immediately prior
to
the change in control at a price per share equal to the highest per share price
paid in connection with the change in control event or the highest price paid
in
the public market within the twelve months preceding Dr. Jain’s exercise of the
option. This option is effective for a period of twelve months after the change
in control.
Option
Grants in Last Fiscal Year
The
following table contains information concerning individual grants to the Named
Executive Officers in fiscal year 2006:
|
Individual
Grants
|
Grant
Date Value
|
||||
|
Name
|
Number
of Securities Underlying Options/SARs Granted (#)
|
Percent
of Total Options/ SARs Granted to Employees in Fiscal Year
|
Exercise
of Base Price ($/Sh)
|
Expiration
Date
|
Grant
Date Present Value $
|
|
Cheri
B. Podzimek
|
10,000
|
15%
|
1.30
|
8/18/2011
|
$8,310
(1)
|
(1)
Based
upon the Black Scholes valuation method. Assumptions used include an expected
term of 5 years, risk-free interest rate of 4.1%, dividend yield of zero, and
historical volatility of 75%.
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The
following table provides information relating to option exercises during fiscal
2006 and the number and value of shares of common stock subject to options
held
by the Named Executive Officers as of March 31, 2006.
|
Number
of Shares Underlying Unexercised Options at Fiscal
Year-End
|
Value
of Unexercised In-the-Money Options at Fiscal Year-End
|
||||||||||||||||||
|
Name
|
Shares
Acquired on Exercise
|
Value
Realized
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
|||||||||||||
|
Anil
K. Jain
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|||||||||||||
|
Cheri
B. Podzimek
|
-0-
|
-0-
|
11,000
|
34,000
|
____
|
____
|
|||||||||||||
Report
of the Compensation Committee
Compensation
Policy.
In
determining the Company’s executive compensation policy and levels, the
compensation committee seeks to attract and retain qualified executive officers,
motivate executive officers to improve the Company’s performance, and reward
executive officers for individual contributions to the achievement of the
Company’s business objectives. The committee attempts to achieve these goals by
combining annual base salaries with bonuses based on corporate performance
and
on the achievement of specified performance objectives. The compensation
committee believes that cash compensation in the form of salary and bonus
provides executives with short-term rewards for success in operations. The
compensation committee also believes that long-term compensation through the
award of stock options encourages growth in management stock ownership which
leads to expansion of management’s stake in the long-term performance and
success of the Company.
Base
Salary. In
determining the base salary of each of the executive officers, the Company
relies on information regarding salaries paid to executive officers with
comparable responsibilities employed by companies with comparable businesses.
In
fiscal year 2006, the base salary of the executive officers was increased by
an
average of 5%.
Bonuses. Annual
incentives for the Chief Executive Officer and the other executive officers
are
intended to reward the attainment of annually established goals in various
areas
over which the individual officer has significant influence or control,
including product development, product manufacturing, sales levels and others.
For fiscal year 2006, the Board, upon recommendation of the compensation
committee, approved a bonus of $30,000 for Dr. Jain and a bonus of $18,850
for
Ms. Podzimek. These bonuses were paid in fiscal year 2007. Since the criteria
for award of bonuses under the Company’s cash bonus plan for these executives
were not satisfied, these bonuses constitute discretionary awards. In addition
in fiscal year 2006, Ms. Podzimek was paid $31,045 in bonuses earned in fiscal
year 2005 and $12,000 in bonuses earned in fiscal year 2006.
Stock
Options. To
date,
because the Chief Executive Officer owns a significant percentage of the
Company’s outstanding common stock, he has not been awarded options. Options
have been awarded to other management employees.
Compensation
of Chief Executive Officer.
The
compensation committee believes that the compensation of the Chief Executive
Officer should reflect the Company’s performance. In fiscal 2006, the annual
base salary of the Company’s Chief Executive Officer was increased approximately
3% to $189,100. No bonus was paid to the Chief Executive Officer for fiscal
2005
and a bonus of $30,000 was paid for fiscal year 2006 in fiscal year
2007.
Section
162 Limitation.
The
compensation committee has considered whether any revisions to the Company’s
executive compensation policy may be necessary due to provisions of Section
162
of the Internal Revenue Code, which limits to $1,000,000 the deductibility
of
compensation paid to certain executives. It is the current policy of the
compensation committee to maximize, to the extent reasonably possible, the
Company’s ability to obtain a corporate tax deduction for compensation paid to
executive officers of the Company to the extent consistent with the best
interest of the Company and its shareholders.
|
Ronald
G. Roth, Chairman
|
John
G. Reddan
|
Stephen
L. Zuckerman, M.D.
|
Members
of the Compensation Committee
Stock
Performance Graph
The
following performance graph compares the cumulative total returns for the
Company’s common stock, The NASDAQ Stock Market (U.S.) Index and The NASDAQ
Non-Financial Index for the period from March 31, 2000 through March 31, 2006.
The comparison assumes $100 was invested in the Company’s common stock and in
each index at the beginning of the period and reinvestment of
dividends.
Cumulative
Total Return
|
Base
Line
|
||||||||||||
|
3/01
|
3/02
|
3/03
|
3/04
|
3/05
|
3/06
|
|||||||
|
APA
Enterprises, Inc.
|
100.00
|
30.75
|
15.09
|
28.26
|
16.00
|
22.13
|
||||||
|
NASDAQ
Stock Market (U.S.)
|
100.00
|
103.30
|
76.98
|
113.28
|
113.71
|
134.68
|
||||||
|
NASDAQ
Non-Financial
|
100.00
|
71.22
|
33.82
|
53.11
|
56.36
|
68.60
|
CERTAIN
RELATIONSHIPS AND TRANSACTIONS
Lease
for Company Facility.
We have
leased our principal executive office and manufacturing facility in Blaine,
Minnesota since December 1, 1984 from Jain-Olsen Properties, a partnership
consisting of Anil K. Jain and Kenneth A. Olsen (Mr. Olsen is a former officer
of and director of the company). Certain terms of the lease are set forth in
Note O of Notes to Financial Statements included in our 2006 Form 10-K, which
is
being distributed with this proxy statement. The lease expires on November
30,
2009 and provides options to extend through November 30, 2019. We made rent
and
tax payments under the lease of $160,206 and $155,047 to Jain-Olsen Properties
during fiscal 2006 and 2005, respectively, and we are obligated to make payments
in fiscal 2007 of $125,496 in rent, plus taxes. We believe the current lease
terms and the proposed amended lease terms are at least as favorable to us
as
terms we could have negotiated with an unrelated third party.
India
Facility.
We
currently retain Kul B. Jain as a director of our APA Optronics (India) Private
Limited subsidiary that was established in fiscal 2005. Mr. Jain is a brother
of
Anil K. Jain, President of APA Enterprises, Inc. Kul B. Jain is paid
approximately $250 per month in this position. He is not an employee of APA
Optronics (India) or APA Enterprises, Inc.
Key
Man Insurance.
We
maintain key man insurance in the amount of $2,000,000 on the life of Anil
K.
Jain. Up to $500,000 of the proceeds is intended to be used to purchase shares
of our 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
will be the fair market value of the common stock as of the date of the event
triggering the repurchase.
Split
Dollar Insurance.
In
November 1989, we adopted a split dollar life insurance plan (the “1989 Plan”)
for the benefit of Anil K. Jain. Under the terms of the 1989 Plan, we pay the
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 us and income is imputed to Dr. Jain in an amount
equal to the term rate for his insurance as established by the insurer. No
premium payments have been made since January 1996. The Policy is owned by
the
Jain Children’s Irrevocable Trust dated November 28, 1989 (the “Trust”). The
1989 Plan is designed so that we will recover all premium payments and advances
made by us on account of the Policy held by the Trust. Our interest in the
premium payments and advances is secured by a collateral assignment of the
Policy. Upon the death of the last to die of Dr. Jain and his spouse, we will
be
reimbursed from the insurance proceeds paid to the Trust in an amount equal
to
the total premiums and advances made by us. In the event the trustee of the
Trust surrenders the Policy for its cash surrender value at some date in the
future, we will be reimbursed for the premiums 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.
RELATIONSHIP
WITH INDEPENDENT PUBLIC
ACCOUNTANTS
Report
of Audit Committee
The
Audit
Committee of the Board of Directors is comprised of three non-employee
directors. All members are independent as defined under the rules of The NASDAQ
Stock Market.
The
Audit
Committee held 4 meetings during fiscal 2006. The meetings were designed to
facilitate and encourage communication between the Audit Committee and the
Company’s independent public accountants, Grant Thornton LLP.
During
these meetings, the Audit Committee reviewed and discussed the quarterly and
audited financial statements with management and Grant Thornton
LLP.
The
discussions with Grant Thornton LLP also included the matters required by
Statement on Auditing Standards No. 61 (Communication with Audit Committees).
Grant Thornton LLP also provided to the Audit Committee the written disclosures
and the letter regarding their independence as required by the Independence
Standards Board Standard No. 1. This information was discussed with Grant
Thornton LLP.
Based
on
these discussions, the Audit Committee recommended to the Board of Directors
that the audited financial statements for the fiscal year ended March 31, 2006
be included in the Company’s annual report on Form 10-K.
|
Ronald
G. Roth
|
John
G. Reddan
|
Stephen
L. Zuckerman, M.D.
|
Members
of the Audit Committee
Independent
Public Accountants’ Fees
The
firm
of Grant Thornton LLP, independent public accountants, audited our financial
statements for the years ending March 31, 2006, 2005 and 2004. Our audit
committee has appointed them to serve as our auditors for the fiscal year ending
March 31, 2007. Representatives of Grant Thornton LLP are expected to attend
the
annual meeting to answer any questions and will have the opportunity to make
a
statement if they wish.
The
following table presents fees for professional services rendered for the two
most recent fiscal years.
|
2006
|
2005
|
||||||
|
Audit
fees (1)
|
$
|
78,630
|
$
|
75,325
|
|||
|
Audit-related
fees (2)
|
10,000
|
22,246
|
|||||
|
Tax
fees
|
|||||||
|
Tax
compliance
|
18,000
|
16,043
|
|||||
|
Other
tax (3)
|
-
|
4,706
|
|||||
|
$
|
106,630
|
$
|
118,320
|
||||
|
(1)
|
Audit
fees include fees billed for 2005, fees billed and expected to be
billed
for 2006 for professional services rendered for the audit of our
annual
financial statements, the review of our financial statements included
in
our reports on Form 10-Q, services in connection with registration
statements filed with the SEC, and accounting consultations necessary
for
the rendering of an opinion on our financial
statements.
|
|
(2)
|
Audit-related
services include due diligence, acquisition-related services and
audit
expenses of our 401(k) plan.
|
|
(3)
|
Other
tax services include acquisition-related tax structuring, tax planning,
state tax planning and other tax
consultation.
|
Our
Audit
Committee must pre-approve all audit services, engagement fees and terms, and
all permitted non-audit engagements, subject to the de minimus exceptions
permitted pursuant to the Securities Exchange Act of 1934. Pursuant to its
pre-approval policy, the Audit Committee has authorized management to engage
Grant Thornton for tax planning and preparation and filing of the Company’s tax
returns.
OTHER
MATTERS
We
are
not aware that any matter other than those described in the Notice of Meeting
will be presented for action at the meeting. If, however, other matters do
properly come before the meeting, it is the intention of Messrs. Jain and Goettl
(the persons named as proxies) to vote the proxied shares in accordance with
their best judgment on such matters.
SHAREHOLDER
PROPOSALS FOR 2007 ANNUAL MEETING
The
Company’s 2007 Annual Meeting of Shareholders is expected to be held on or about
August 16, 2007, and proxy materials in connection with that meeting are
expected to be mailed on or about July 9, 2007. In order to be included in
the
Company’s proxy materials for the 2006 Annual Meeting, shareholder proposals
prepared in accordance with the proxy rules must be received by the Company
on
or before March 15, 2007.
In
addition, pursuant to the Company’s Bylaws, a shareholder must give notice to
the Company prior to May 19, 2007 of any nominations for director or any
proposal which such shareholder intends to raise at the 2007 Annual Meeting.
If
the Company receives notice of such nomination or proposal on or after May
19,
2007, such nomination or proposal will not be considered at the annual
meeting.
Additionally,
if the Company receives notice of a shareholder proposal after May 27, 2007,
it
will be considered untimely pursuant to SEC Rules 14a-4 and 14a-5(e), and the
persons named in the proxies solicited by the Board of Directors for the 2007
Annual Meeting may exercise discretionary voting power with respect to the
proposal.
ADDITIONAL
INFORMATION
A
copy of
the Company’s Report to Shareholders for the fiscal year ended March 31, 2006,
accompanies this Notice of Annual Meeting and Proxy Statement.
THE
COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM 10-K
(EXCLUSIVE OF EXHIBITS) FOR THE FISCAL YEAR ENDED MARCH 31, 2006, TO EACH
PERSON WHO IS A SHAREHOLDER OF THE COMPANY, UPON RECEIPT OF A WRITTEN REQUEST
FOR SUCH REPORT. SUCH REQUESTS SHOULD BE SENT TO:
APA
ENTERPRISES, INC.
Attention:
Comptroller
2950
N.E.
84th
Lane
Blaine,
Minnesota 55449
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|
By
Order of the Board of Directors
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|
|
Janna
R. Severance
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|
|
Secretary
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July
10,
2006
APPENDIX
A
APA
ENTERPRISES, INC.
AUDIT
COMMITTEE CHARTER
Objective
The
audit
committee of the board of directors of APA shall use its best efforts to ensure
the independence of the company’s independent accountants, the integrity of
management, and the adequacy of disclosure to the company’s shareholders,
potential shareholders, and the investment community.
Members
The
audit
committee shall be appointed annually by the board of directors, with its
chairman (if any) to be selected by the committee. The committee shall have
at
least three members. Each member must also be a member of the board of
directors. All of the committee members shall be “independent” and no member
shall own or control 20% or more of the company’s securities. A director is
“independent” if he/she is an “independent director” as defined in the rules of
the NASDAQ Stock Market, Inc., and any other exchange on which the company’s
securities are listed.
In
selecting members of the audit committee, the board shall give consideration
to
each nominee’s capacity to serve, business experience, knowledge of APA
operations, finance, accounting, and auditing, facility in obtaining information
by inquiry, and commitment and available time.
Each
member shall have the ability to read and understand fundamental financial
statements, and at least one member shall be an “audit committee financial
expert” as defined in the rules of the Securities and Exchange
Commission.
The
committee shall annually elect one of its members as chairperson. The
chairperson shall schedule meetings, preside over meetings, and report to the
board.
Vacancies
on the committee shall be filled by the board of directors.
Meetings
The
committee shall meet a minimum of 4 times per year and as scheduled by the
committee chairman. A majority of members (at least 2 of 3) shall constitute
a
quorum. Each member shall be entitled to one vote. At the request of the
committee, meetings may be held with members of management or the company’s
internal accounting staff or representatives of the company’s independent
accountants or consultants. The committee shall prepare and preserve written
minutes of its meetings. The committee may appoint a committee member or a
non-committee member as secretary. The committee may take action by conference
telephone call, which shall constitute a meeting, or by written action signed
by
all members.
The
activities and findings of the committee and minutes of committee meetings
shall
be made available to each member of the board.
Authority
The
committee shall have unrestricted access to the company’s personnel and records
and will be given the resources to discharge its duties. The committee shall
have the authority to engage independent counsel and other advisors, as it
deems
necessary, to carry out its duties. The committee may conduct investigations
into significant matters brought to its attention during the conduct of its
duties and may retain persons having special competence as necessary. The
committee shall have the sole authority and responsibility to select, evaluate,
and, where appropriate, replace the outside auditors. The committee also has
the
sole authority and responsibility to approve any significant non-audit
relationship with the independent auditors.
Responsibility
While
the
fundamental responsibility for the company’s financial statements and
disclosures rests with management and the independent auditor, the audit
committee must review:
|
·
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major
issues regarding accounting principles and financial statement
presentations, including any significant changes in the company’s
selection or application of accounting principles, and major issues
as to
the adequacy of the company’s internal controls and any special audit
steps adopted in light of material control deficiencies;
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|
·
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analyses
prepared by management and/or the independent auditor setting forth
significant financial reporting issues and judgments made in connection
with the preparation of the financial statements, including analyses
of
the effects of alternative GAAP methods on the financial statements;
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|
·
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the
effect of regulatory and accounting initiatives, as well as off-balance
sheet structures, on the financial statements of the company; and
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|
·
|
earnings
press releases (paying particular attention to any use of “pro forma,” or
“adjusted” non-GAAP, information), as well as financial information and
earnings guidance provided to analysts and rating
agencies.
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|
·
|
establish
procedures for (1) the receipt, retention, and treatment of
complaints received by the company regarding accounting, internal
accounting controls, or auditing matters; and (2) the confidential,
anonymous submission by employees of the company of concerns regarding
questionable accounting or auditing
matters.
|
The
audit
committee shall have such other responsibilities as may be designated to it
from
time to time by the board of directors. In addition, the audit committee shall
annually review and assess the adequacy of its Charter and recommend to the
board of directors any modifications in its duties and
responsibilities.
Operations
The
audit
committee shall:
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·
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Assist
board oversight of (1) the integrity of the company’s financial
statements, (2) the company’s compliance with legal and regulatory
requirements, (3) the independent auditor’s qualifications and
independence, and (4) the performance of the company’s independent
auditors.
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|
·
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Prepare
the report that SEC rules require be included in the company’s annual
proxy statement.
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·
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Retain
and terminate the company’s independent auditors (subject, if applicable,
to shareholder ratification).
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|
·
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At
least annually, obtain and review a report by the independent auditor
describing: such firm’s internal quality-control procedures; any material
issues raised by the most recent internal quality-control review,
or peer
review, of the firm, or by any inquiry or investigation by governmental
or
professional authorities, within the preceding five years, respecting
one
or more independent audits carried out by the firm, and any steps
taken to
deal with any such issues; and (to assess the auditor’s independence) all
relationships between the independent auditor and the company. The
audit
committee should present its conclusions with respect to the independent
auditor to the full board
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|
·
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Discuss
the annual audited financial statements and quarterly financial statements
with management and the independent auditor, including the company’s
disclosures under “Management’s Discussion and Analysis of Financial
Condition and Results of
Operations.”
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|
·
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Discuss
earnings press releases, as well as financial information and earnings
guidance provided to analysts and rating agencies. The audit committee’s
responsibility to discuss earnings releases as well as financial
information and earnings guidance may be done generally (i.e., discussion
of the types of information to be disclosed and the type of presentation
to be made). The audit committee need not discuss in advance each
earnings
release or each instance in which the company may provide earnings
guidance.
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|
·
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As
appropriate, obtain advice and assistance from outside legal, accounting
or other advisors.
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·
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Discuss
policies with respect to risk assessment and risk management. The
audit
committee should analyze the company’s major financial risk exposures and
discuss with management the steps management has taken to monitor
and
control such exposures. The audit committee is not required to be
the sole
body responsible for risk assessment and
management.
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·
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Periodically
meet separately with management, with personnel responsible for the
internal preparation of financial reports and records, and with
independent auditors.
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|
·
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Review
with the independent auditor any audit problems or difficulties and
management’s response. Among the items the audit committee may want to
review with the auditor are: any accounting adjustments that were
noted or
proposed by the auditor but were “passed” (as immaterial or otherwise);
any communications between the audit team and the audit firm’s national
office respecting auditing or accounting issues presented by the
engagement; and any “management” or “internal control” letter issued, or
proposed to be issued, by the audit firm to the company. The review
should
also include discussion of the responsibilities, budget and staffing
of
the company’s internal financial
functions.
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|
·
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Set
clear hiring policies for employees or former employees of the independent
auditors which shall comply in all respects with the rules of the
Securities and Exchange Commission concerning independence of auditors
and
similar rules of any stock exchange on which the company’s securities are
listed.
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|
·
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Report
regularly to the board of directors. The audit committee should review
with the full board any issues that arise with respect to the quality
or
integrity of the company’s financial statements, the company’s compliance
with legal or regulatory requirements, the performance and independence
of
the company’s independent auditors, or the performance of the internal
financial accounting.
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|
·
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Annually
evaluate the performance of the audit
committee.
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·
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Review,
discuss and report to the board of directors concerning changes,
if any,
made or proposed by the government, accounting profession, or the
company
relating to accounting principles and their applications that could
materially affect the company.
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|
·
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Review,
discuss and report to the board of directors concerning significant
issues
reviewed by legal counsel concerning litigation, contingencies, claims,
or
assessments.
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|
·
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Review,
discuss and report to the board of directors concerning significant
adjustments proposed by the independent
accountants.
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·
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Inquire
of the independent accountants as to whether there have been any
disagreements with management which, if not satisfactorily resolved,
would
have caused them to issue a nonstandard report on the company’s financial
statements.
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·
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Review
unusual reporting issues prior to the issuance of any press release
on
financial results.
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·
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Advise
the independent accountants and members of the internal accounting
staff
that they may communicate directly with any member of the committee
on a
confidential basis.
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Internal
Accounting Controls
The
committee shall undertake such review as it deems necessary to ensure that
there
exists an effective system of internal accounting controls. Without limitation
and as it deems appropriate, the committee shall:
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·
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Meet
privately with the independent accountants and appropriate members
of the
company’s financial staff to discuss pertinent
matters.
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·
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Review
with the chief financial officer the activities, organizational structure,
and qualifications of the internal financial
staff.
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·
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Inquire
of the chief financial officer and independent accountants the extent
to
which their planned audit scope can be relied on to detect material
weaknesses in internal controls or the occurrence of fraudulent financial
reporting.
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Corporate
Compliance
The
committee shall conduct such review as it deems necessary to ensure that the
company is maintaining effective controls against employee conflict of interest
and fraud and is in reasonable compliance with related laws. Without limitation
and as it deems appropriate, the committee shall:
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·
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Review
management’s program to monitor compliance with the company’s code of
conduct and the Foreign Corrupt Practices
Act.
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·
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Review
significant related party
transactions.
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·
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Review
the policies and procedures in effect for the review of officer expenses
and purchases.
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·
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Review
periodically the impact of significant accounting or reporting
developments that may affect the
company.
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·
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Review
any legal matters that could have a significant impact on the company’s
financial statements.
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·
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If
necessary, institute special investigations and, if appropriate,
hire
special counsel or experts to
assist.
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Qualified
Legal Compliance Committee
The
committee shall be the company’s “qualified legal compliance committee” as
defined in the rules of the Securities and Exchange Commission. In this
capacity, the committee shall:
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·
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Adopt
written procedures for the confidential receipt, retention and
consideration of any report of a material violation of federal securities
laws, breach of fiduciary duty or similar violations by the company
or any
officer, director, employee or agent of the
company.
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|
·
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Inform
the company’s chief legal officer and chief executive officer of any
report of evidence of a material
violation.
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|
·
|
Determine
whether an investigation is necessary regarding any report of evidence
of
a material violation by the company, its officers, directors, employees
or
agents and, if it determines an investigation is necessary or
appropriate:
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|
o
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Notify
the full board of directors;
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|
o
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Initiate
an investigation, which may be conducted either by the chief legal
officer
(or the equivalent thereof) or by outside attorneys;
and
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|
o
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Retain
such additional expert personnel as the committee deems
necessary.
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|
·
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At
the conclusion of any such
investigation:
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|
o
|
Recommend,
by majority vote, that the company implement an appropriate response
to
evidence of a material violation;
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|
o
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Inform
the chief legal officer and the chief executive officer (or the
equivalents thereof) and the board of directors of the results of
any such
investigation and the appropriate remedial measures to be adopted;
and
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o
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Acting
by majority vote, take all other appropriate action, including the
notification of the Securities and Exchange Commission in the event
that
the company fails in any material respect to implement an appropriate
response that the qualified legal compliance committee has
recommended.
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Miscellaneous
As
to
other related matters, without limitation and as it deems appropriate, the
committee shall:
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·
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Discuss
with the independent accountants the quality of the company’s financial
and accounting personnel and any relevant recommendations that the
independent accountants may have, including those in their “Report to
Management.”
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·
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Review
the extent of nonaudit services provided by the independent accountants
in
relation to the objectivity needed in the
audit.
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·
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Evaluate
the cooperation received by the independent accountants during their
audit
examination, including the access to all requested records, data,
and
information and elicit the comments of management regarding the
responsiveness of the independent accountants to the company’s
needs.
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·
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Request
from outside auditors a formal written statement regarding all
relationships between the outside auditors and the
company.
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·
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Maintain
an active dialogue with the outside auditors regarding any undisclosed
relations or services that could affect the objectivity and independence
of the outside auditors.
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·
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Take,
or recommend that the board of directors take, appropriate action
to
oversee the outside auditors’
independence.
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APPENDIX
B
APA
ENTERPRISES, INC.
2007
STOCK COMPENSATION PLAN
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1.
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Purpose;
Definitions.
|
The
purpose of the APA Enterprises, Inc. 2007 Stock Compensation Plan (the "Plan")
is to enable APA Enterprises, 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 2007 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 2007 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 2007 Plan. If at any time
no
Committee shall be in office, then the functions of the Committee specified
in
the 2007 Plan shall be exercised by the Board. Where the Board has retained
administrative authority with respect to the 2007 Plan, references herein to
the
"Committee" shall refer to the Board.
(g) "Company"
means APA Enterprises, 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 in
the
over-the-counter market or, if the Stock is then traded on NASDAQ or a national
or regional securities exchange, the closing price of the Stock on NASDAQ 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
2007 Plan.
(p) "Plan"
means this APA Enterprises, Inc. 2007 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.
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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 2007 Plan shall be exercised by
the
Board, if and to the extent that no Committee exists that has the authority
to
so administer the 2007 Plan, or to the extent that the Board retains authority
to administer the 2007 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 2007 Plan and subject to such orders or resolutions not inconsistent with
the provisions of the 2007 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
2007
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 2007 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 2007 Plan; and
(i)
to
make
any other determination and take any other action that the Committee deems
necessary or desirable for administration of the 2007 Plan.
Members
of the Board and of the Committee acting under the 2007 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
2007
Plan shall be 750,000 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 750,000. 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 2007 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 2007 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 2007 Plan, in the number and option
price
of shares subject to outstanding options granted under the 2007 Plan, and in
the
number of shares subject to other outstanding Awards granted under the 2007
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.
|
Employees
of the Company and any Subsidiary, Parent, or Affiliate are eligible to be
granted Awards under the 2007 Plan.
|
5.
|
Stock
Options.
|
Stock
Options may be granted alone, in addition to, or in tandem with other Awards
granted under the 2007 Plan. Any Stock Option granted under the 2007 Plan shall
be in such form as the Committee may from time to time approve.
Stock
Options granted under the 2007 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 2007 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 2007 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 100% 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 2007 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
2007 Plan be exercised, so as to disqualify the 2007 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 2007 Plan shall be deemed to provide as
follows:
(i) Incentive
Stock Options may be granted only to employees of the Company or any Parent
or
Subsidiary of the Company.
(ii) 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) 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).
(iv) 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.
(v) 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.
(vi) 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 2007 Plan.
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6.
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Stock
Appreciation Rights.
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(a) Grant
and
Exercise. Stock Appreciation Rights may be granted either alone ("Freestanding
SAR") or in addition to other Awards granted under the 2007 Plan and may, but
need not, relate to all or part of any Stock Option granted under the 2007
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 2007 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 2007
Plan on the number of shares of Stock to be issued under the 2007
Plan.
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7.
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Other
Stock-Based Awards.
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(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 2007 Plan.
Subject
to the provisions of the 2007 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.
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8.
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Change
in Control Provisions.
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(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, and
shall terminate 60 days thereafter, unless otherwise determined by the Board
of
Directors prior to the "Change of Control."
(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.
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9.
|
Amendments
and Termination.
|
The
Board
may amend, alter, discontinue, or terminate the 2007 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 2007 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 2007 Plan;
or
(f) extend
the maximum option period under Section 5(i) of the 2007 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
2007
Plan to take into account changes in applicable securities and tax laws and
accounting rules, as well as other developments.
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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 2007 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 2007 Plan.
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11.
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General
Provisions.
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(a) The
Committee may require each person purchasing shares pursuant to a Stock Option
or receiving shares pursuant to any other Award under the 2007 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 2007
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 2007 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 2007 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 2007 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.
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12.
|
Effective
Date of Plan.
|
The
Plan
shall be effective as of June 8, 2006 subject to the approval of the 2007 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 2007 Plan.
Any
grants made under the 2007 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 2007 Plan by such shareholders.
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13.
|
Term
of Plan.
|
No
Incentive Stock Option shall be granted pursuant to the 2007 Plan on or after
the tenth anniversary of the date of adoption of the 2007 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 2007 Plan.
Approved
and adopted by the Board of Directors of APA Enterprises, Inc. as of June 8,
2006 and approved by the shareholders on August 17, 2006.
APA
ENTERPRISES, INC.
PROXY
ANNUAL
MEETING OF SHAREHOLDERS - AUGUST 17, 2006
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints Anil K. Jain and Chris Goettl (Controller), or
either of them, proxies or proxy, with full power of substitution, to vote
all
shares of common stock of APA Enterprises, Inc. (the “Company”) which the
undersigned is entitled to vote at the 2006 Annual Meeting of Shareholders
to be
held at the Four Points Sheraton, 1330 Industrial Boulevard, Minneapolis,
Minnesota 55431, August 17, 2006, 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 o
|
||
|
the
contrary below) o
|
Anil
K.
Jain, John G. Reddan, Ronald G. Roth and Stephen L. Zuckerman
(INSTRUCTION:
To withhold authority for any
individual nominee, write that nominee’s name in the space provided
below.)
2.
ADOPTION
OF 2007 STOCK COMPENSATION PLAN.
|
o
FOR
|
o
AGAINST
|
o
ABSTAIN
|
3.
UPON
SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
|
o
GRANTED
|
o
WITHHELD
|
The
power
to vote granted by this Proxy may be exercised by Anil K. Jain and Chris Goettl,
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 SHAREHOLDER’S INSTRUCTIONS. IF THE
SHAREHOLDER EXECUTES THIS PROXY BUT DOES NOT PROVIDE INSTRUCTIONS, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF THE PROPOSED DIRECTORS, FOR THE ADOPTION
OF
THE 2007 COMPENSATION PLAN, AND IN THE DISCRETION OF THE PROXY HOLDER ON SUCH
OTHER MATTERS AS MAY COME BEFORE THE MEETING.
It
is
urgent that each shareholder complete, date, sign, and mail this Proxy as soon
as possible. Your vote is important!
|
|
Dated
and Signed ________________, 2006
|
|
|
|
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 provide the name of the entity on whose behalf
you are signing and your title.
PLEASE
DO NOT FORGET TO DATE THIS PROXY.
2