UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement
Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Soliciting Material Pursuant to §240.14a-12
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Appliance
Recycling Centers of America, Inc.
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APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
7400 Excelsior
Boulevard
Minneapolis, Minnesota 55426
__________________________
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE
HELD MAY 10, 2007
__________________________
TO OUR
SHAREHOLDERS:
The
annual meeting of the shareholders of Appliance Recycling Centers of America,
Inc. will be held on Thursday, May 10, 2007 at 3:30 p.m., at the Appliance
Recycling Centers of America, Inc. corporate offices located at 7400 Excelsior
Boulevard, Minneapolis, Minnesota 55426.
At the meeting, shareholders will act on the following matters:
· Proposal One: The election of four directors to serve for a
term of one year expiring at the 2008 annual meeting of shareholders.
· To
transact such other business as may properly come before the annual meeting or
any adjournment or postponement of the meeting.
Only
shareholders of record at the close of business on March 16, 2007 are entitled
to notice of and to vote at the annual meeting and any adjournment or
postponement of the meeting.
Each of
you is invited and urged to attend the annual meeting in person if
possible. Whether or not you are able to
attend in person, you are requested to date, sign and return promptly the
enclosed proxy in the envelope enclosed for your convenience or vote your proxy
by using our internet voting service at “http://www.eproxy.com/arci/.”
By Order of the Board of Directors
Denis E. Grande, Secretary
April 6, 2007
TABLE OF
CONTENTS
APPLIANCE
RECYCLING CENTERS OF AMERICA, INC.
7400 Excelsior
Boulevard
Minneapolis, Minnesota 55426
PROXY STATEMENT
SOLICITATION
OF PROXIES
This proxy
statement contains information relating to the annual meeting of shareholders
of Appliance Recycling Centers of America, Inc. (the “Company”) to be held on
Thursday, May 10, 2007, beginning at 3:30 p.m., at the corporate offices of the
Company, located at 7400 Excelsior Boulevard, Minneapolis, Minnesota
55426. The enclosed proxy is solicited
on behalf of the Board of Directors of the Company for use at the 2007 annual
meeting of shareholders and any adjournment or postponement of the
meeting. The approximate date on which
this proxy statement and form of proxy will first be sent or given to
shareholders is April 6, 2007.
ABOUT THE
MEETING
What is the purpose of the annual meeting?
At the Company’s
annual meeting, shareholders will act upon the matters described in the
accompanying notice of annual meeting of shareholders. This includes the election of four directors. In addition, the Company’s management will
report on the performance of the Company during the 2006 Fiscal Year and
respond to questions from shareholders.
Who is entitled to vote?
Only shareholders
of record of outstanding common stock of the Company at the close of business
on the record date, March 16, 2007, are entitled to receive notice of and to
vote at the meeting, or any postponement or adjournment of the meeting. Each outstanding share of common stock
entitles its holder to cast one vote on each matter to be voted upon.
Who can attend the meeting?
All shareholders
as of the record date, or their duly appointed proxies, may attend the meeting.
What constitutes a quorum?
The presence at
the meeting, in person or by proxy, of the holders of a majority of the shares
of the common stock of the Company outstanding on the record date will
constitute a quorum. A quorum is
required for business to be conducted at the meeting. As of the record date, 4,341,277 shares of
common stock of the Company were outstanding.
If you submit a properly executed proxy card or vote your proxy by using
the internet voting service, even if you abstain from voting, you will be
considered part of the quorum.
1
How do I vote?
Sign and date each
proxy card you receive and return it in the prepaid envelope or vote using our
internet voting service. If you return
your signed proxy card or vote using our internet voting service but do not
mark the boxes showing how you wish to vote, your shares will be voted FOR all nominees in Proposal 1.
Can I change my vote after I return my proxy
card or my internet vote?
Yes. Even after you have submitted your proxy or
voted by internet, you may change your vote at any time before the proxy is
exercised at the meeting. You may change
it by:
1) Returning a
later-dated signed proxy card or re-accessing the internet voting site listed
on your proxy card;
2) Delivering a written
notice of revocation to the Company’s Secretary at the Company’s principal
executive office at 7400 Excelsior Boulevard, Minneapolis, Minnesota 55426; or
3) Attending the
meeting and voting in person at the meeting (although attendance at the meeting
without voting at the meeting will not, in and of itself, constitute a
revocation of your proxy).
What are the Board’s recommendations?
The Board’s
recommendations are set forth after the description of the proposal in this
proxy statement. In summary, the Board
recommends a vote:
· FOR the election of each of the nominated directors (see
Proposal 1 on page 5).
If you submit your
proxy card or vote by internet, then unless you give other instructions on your
proxy card or your internet vote, the persons named as proxy holders on the
proxy card will vote in accordance with the recommendations of the Board.
With respect to any other
matter that properly comes before the meeting, the proxy holders will vote as
recommended by the Board or, if no recommendation is given, in their own
discretion.
What vote is required to approve each
Proposal?
For Proposal 1,
the election of directors, each shareholder will be entitled to vote for four
nominees and the four nominees with the greatest number of votes will be
elected.
With respect to
any other matter that properly comes before the meeting, the affirmative vote
of the holders of a majority of the shares of common stock represented in
person or by proxy and entitled to vote on the proposal will be required for
approval. A properly executed proxy
marked “ABSTAIN” with respect to any proposal will not be voted, although it
will be counted for purposes of determining whether there is a quorum. Accordingly, an abstention will have the
effect of a negative vote.
If you hold your
shares in “street name” through a broker or other nominee, your broker or
nominee may not be permitted to exercise voting discretion with respect to the
proposal to be acted upon. Thus, if you
do not give your broker or nominee specific instructions, your shares may not
be voted on
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the proposal and will not
be counted in determining the number of shares necessary for approval of the
proposal. Shares represented by such “broker
non-votes” will, however, be counted in determining whether there is a quorum.
Who will count the vote?
An Inspector of
Elections will be appointed for the annual meeting and will work with a
representative of Wells Fargo Shareowner Services, our independent stock
transfer agent, to count the votes.
What does it mean if I receive more than one
proxy card?
If your shares are
registered differently and are in more than one account, you will receive more
than one proxy card. To ensure that all
your shares are voted, sign and return all proxy cards or use the internet
voting service for each proxy card. We
encourage you to have all accounts registered in the same name and address
(whenever possible). You can accomplish
this by contacting our stock transfer agent, Wells Fargo Shareowner Services,
at 1-800-468-9716.
How will voting on any other business be
conducted?
Although we do not
know of any business to be considered at the 2007 annual meeting other than the
proposals described in this proxy statement, if any other business is presented
at the annual meeting, your proxy gives authority to Edward R. Cameron and
Denis E. Grande to vote on such matters at their discretion.
When are shareholder proposals for the 2008
annual meeting of shareholders due?
To be considered
for inclusion in the Company’s proxy statement for the Company’s annual meeting
to be held in 2008, shareholder proposals must be received at the Company’s
offices no later than November 30, 2007.
Proposals must be in compliance with Rule 14a-8 under the Securities
Exchange Act of 1934, and must be submitted in writing and delivered or mailed
to the Company’s Secretary, at Appliance Recycling Centers of America, Inc.,
7400 Excelsior Boulevard, Minneapolis, Minnesota 55426.
Under Rule 14a-4(c)(1),
any shareholder who wishes to have a proposal considered at the 2008 annual
meeting of shareholders, but not submitted for inclusion in the Company’s proxy
statement, must set forth such proposal in writing and file it with the
Secretary of the Company no later than February 13, 2008. Failure to notify the Company by that date
would allow the Company’s proxy holders to use their discretionary voting
authority (to vote for or against the proposal) when the proposal is raised at
the annual meeting without any discussion of the matter being included in the
Company’s proxy statement.
Who pays for the cost of this proxy
solicitation?
The expense of the
solicitation of proxies for this annual meeting, including the cost of mailing,
has been or will be borne by the Company.
Arrangements will be made with brokerage houses and other custodian
nominees and fiduciaries to send proxies and proxy materials to their
principals and the Company will reimburse them for their expense in so
doing. In addition to solicitation by
mail, proxies may be solicited by telephone, telegraph or personally by certain
of the Company’s directors, officers and regular employees, without additional
compensation. No proxy solicitors have
been hired in connection with the annual meeting.
3
COMMON
STOCK OWNERSHIP
Beneficial Ownership of Common Stock
The
following table sets forth as of March 16, 2007 the beneficial ownership (which
includes shares which may be acquired in the next 60 days through the exercise
of options or warrants) of common stock by each of the Company’s directors,
including director nominees, each of the executive officers named in the
Summary Compensation Table on page 12 (the “Named Executive Officers”), and all
directors and executive officers of the Company as a group, as well as
information about beneficial owners of 5% or more of the Company’s common
stock. Unless otherwise noted, each
person or group identified has sole voting and investment power with respect to
the shares shown.
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Beneficial Owner
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Position with Company
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Number of Shares
Beneficially Owned (1)
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Percent of
Outstanding (2)
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Directors
and executive officers:
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Edward R. Cameron (3)
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Chairman
of the Board,
President and Chief
Executive Officer
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375,689
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8.6
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%
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Duane S. Carlson (4)
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Director
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61,875
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1.4
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%
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W. William Bednarczyk (4) (5)
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Director
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278,750
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6.4
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%
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Albin S. Dubiak (4)
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Director
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8,750
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0.2
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%
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All executive officers and directors as a group (5
persons) (4)
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727,213
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16.3
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%
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Other
5% shareholders:
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Perkins Capital Mgmt. Inc. (6)
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796,250
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18.3
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%
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Medallion Capital, Inc. (7)
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516,000
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11.9
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%
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White Pine
Capital, LLC (8)
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470,130
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10.8
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%
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(1) Unless otherwise
noted, each person or group identified possesses sole voting and investment
power with respect to such shares.
(2) Applicable
percentage of ownership is based on 4,341,277 shares of common stock
outstanding as of March 16, 2007 plus, for each shareholder, all shares that
such shareholder could purchase within 60 days upon the exercise of existing
stock options.
(3) Includes 50,000
shares which could be purchased within 60 days upon the exercise of existing
stock options. These options were
granted to Mr. Cameron under the Company’s stock option plan in 2005 in
consideration of his performance for the Company. The address for Mr. Cameron is 7400 Excelsior
Blvd., Minneapolis, Minnesota 55426.
(4) Includes shares
which could be purchased within 60 days upon the exercise of existing stock
options or warrants, as follows:
Mr. Carlson, 57,500 shares; Mr. Bednarczyk, 8,750 shares; Mr.
Dubiak, 8,750 shares; and all directors and executive officers as a group,
127,000 shares.
(5) The address for Mr.
Bednarczyk is 6566 France Ave. South, #1004, Edina, Minnesota 55435.
(6) According to a
Schedule 13G filed January 12, 2007, Perkins Capital Management, Inc. (“Perkins
Capital”) beneficially owned 796,250 shares of common stock as a result of
serving as investment advisor to various clients. Perkins Capital has sole dispositive power as
to all 796,250 shares and sole voting power as to 628,350 shares. The address for Perkins Capital is 730 East
Lake Street, Wayzata, Minnesota 55391.
(7) According to
information provided to the Company, Medallion Capital, Inc. (“Medallion”) has
sole dispositive power and sole voting power as to all 516,000 shares. The address for Medallion is 3000 West County
Road 42, Suite 301, Burnsville, Minnesota 55337.
4
(8) According to a
Schedule 13G filed February 9, 2007, White Pine Capital, LLC (“White Pine”)
beneficially owned 470,130 shares of common stock as a result of serving as
investment advisor to various clients.
White Pine has sole dispositive power and sole voting power as to all
470,130 shares. The address for White
Pine is 60 South 6th Street, Suite 2530, Minneapolis, Minnesota 55402.
Section 16(a) Beneficial Ownership Reporting
Compliance
The Company’s directors, its executive
officers and any persons holding more than 10% of outstanding common stock are
required to file reports concerning their initial ownership of common stock and
subsequent changes in that ownership.
The Company believes that the filing requirements for the last fiscal
year were satisfied, except that Medallion has not filed a Form 4 reporting a
change in its ownership of the Company’s common stock.
In making the above disclosure, the Company
has relied on the written representations of its directors, executive officers
and beneficial owners of more than 10% of common stock and copies of the
reports that they have filed with the Securities and Exchange Commission.
PROPOSAL
ONE — ELECTION OF DIRECTORS
General Information
The
property, affairs and business of the Company are managed under the direction
of the Board of Directors. A board of
four directors is to be elected at the meeting.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for management’s four nominees named below. The term of office for each person elected as
a director will continue until the next annual meeting of shareholders and
until a successor has been elected and qualified, or until such director is
removed or resigns.
All of
the nominees named below are presently directors of the Company and have served
continuously since the year indicated.
All nominees have indicated a willingness to serve if elected. The Company knows of no arrangements or
understandings between a nominee and any other person pursuant to which the
nominee has been selected as a director.
All shares represented by proxies which have
been properly executed and returned or properly voted using the internet voting
service will be voted for the election of all of the nominees named below,
unless other instructions are indicated thereon. In the event any one or more of such nominees
should for any reason not be able to serve as a director, the proxies will be
voted for such other person or persons as may be designated by the Board.
The Board
recommends a vote FOR all of the nominees.
5
Nominees
The names of the nominees, all of whom are
currently serving as directors of the Company, are set forth in the table
below. Following the table is certain
information for at least the last five years regarding each nominee.
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Name
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Position with Company
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DirectorSince
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Age
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Edward R.
Cameron
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Chairman of the Board, Director,
President and Chief Executive Officer
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1976
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66
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Duane S. Carlson
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Director
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1990
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71
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W. William
Bednarczyk
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Director
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2005
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62
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Albin S. Dubiak
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Director
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2005
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66
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Edward R. Cameron is
the founder and has been the President of the Company since its inception in
1976. He has been a director and
Chairman of the Board of the Company since 1989 and prior to 1989 was a
director of a predecessor of the Company.
Prior to founding the Company, Mr. Cameron served as a district
product manager and an account manager for Burroughs Corporation (a predecessor
of Unisys Corporation) and served in executive positions for several small
businesses. Mr. Cameron has a Bachelor
of Science degree in business administration from Montana State University.
Duane S. Carlson has
been a director of the Company since 1990.
Mr. Carlson is currently a self-employed business consultant, as he was
from 1988 to 1991. From 1991 to 1997,
Mr. Carlson was executive vice president and chief financial officer of
NetStar, Inc., a company engaged in the development, manufacturing and
marketing of high-speed computer communications equipment. He was a founder of NetStar, Inc. and was a
member of its board of directors.
NetStar, Inc. became a wholly-owned subsidiary of Ascend Communications,
Inc. on August 15, 1996 and is now part of Lucent Technologies, which acquired
Ascend. He was a founder of Lee Data
Corporation and from 1979 to 1988 was employed by Lee Data Corporation (which
became Carleton Corporation and is now part of Oracle, Inc.) in various
capacities, most recently as chief financial officer and executive vice
president, and was also a member of the board of directors. Mr. Carlson also currently serves as a
director of several privately held companies.
W. William Bednarczyk has been a director of the Company since
June 2005. Mr. Bednarczyk is currently
an independent management consultant specializing in personal investment
portfolios and venture capital activities.
He formerly held the position of vice president, human resources and
administration with Gelco Corporation and was director of employee/labor
relations with The Toro Company. In
addition, he was a partner in a Cost Cutter franchise, with salons in
Wisconsin, Florida and Kansas. He served
as a park commissioner and as treasurer for the City of Minneapolis. Mr. Bednarczyk holds a B.A. from the
University of St. Thomas and an M.A. in industrial relations from the
University of Minnesota.
Albin S. Dubiak has been a director of the Company since June
2005. Since 2000, Mr. Dubiak has been a
member of the investment committee of Sisters of Charity of Leavenworth Health
System, and since 2003 has been chair of the committee. From 1993 until retiring in 2001, he was
employed by First Asset Management, where he served as director of investment
research and manager of the First American Small Cap Value Fund. Prior to that, he held management positions
with First Bank System in investor relations and financial and strategic
planning, and also served as treasurer.
Mr. Dubiak earned a B.S. in business administration from Indiana
University and an M.B.A. from the University of Arizona.
6
Director Independence
There are no
family relationships between any of the nominees, directors or executive
officers of the Company. In addition,
Duane S. Carlson, W. William Bednarczyk and Albin S. Dubiak, the non-management
directors of the Board, are “independent” directors as defined under The NASDAQ Stock Market (NASDAQ) rules. Harry
W. Spell, a director since 1991 who did not stand for reelection at last year’s
annual meeting and whose term expired as of May 4, 2006, was also an “independent”
director as defined under NASDAQ rules.
Actions and Committees of the Board of
Directors
In 2006, the Board
of Directors met five times. The Board
of Directors has two standing committees, the Audit Committee and the
Compensation and Benefits Committee. In
2006, the Audit Committee met five times and the Compensation and Benefits
Committee met two times. The full Board
serves as a nominating committee, and met once in that capacity in 2006. The Board currently has no other standing
committees and has no current plans to establish additional committees. Each director attended at least 75% of the
total number of meetings of the Board of Directors and of the committees on
which the director served. It is the
Company’s policy that all Directors should attend the annual meeting of
shareholders. All directors attended the
annual meeting of shareholders
held on May 4, 2006.
Compensation and Benefits Committee
The
Compensation and Benefits Committee of the Board of Directors (the “Compensation
Committee”) is composed entirely of non-employee directors Mr. Carlson, Mr. Bednarczyk (Chairman) and
Mr. Dubiak, who are also “independent” directors as defined under NASDAQ rules. The Compensation Committee is
responsible for review and approval of officer salaries and other compensation
and benefit programs and determination of officer bonuses. The Compensation Committee may administer and
make grants under the Company’s stock option plans.
The
Compensation Committee does not operate under a written charter. In the performance of its duties, the
Compensation Committee may select independent compensation consultants to
advise the committee when appropriate.
In addition, the Compensation Committee may delegate authority to
subcommittees where appropriate.
The Compensation
Committee may separately meet with management if deemed necessary and
appropriate. Annual compensation for the
Company’s executive officers, other than the CEO, is recommended by the CEO and
approved by the Compensation Committee.
The annual compensation for the CEO is recommended by the Compensation
Committee and formally approved by the full Board of Directors.
Review, Approval or Ratification of
Transactions with Related Persons
The Audit Committee, comprised of Messrs.
Carlson (Chair), Dubiak and Bednarczyk, is responsible for the review and
approval of all related-party transactions between the Company and any
executive officer, director or director nominee of the Company, or any
immediate family member of any such person.
In addition, all related-party transactions that come within the
disclosures required by Item 404 of the SEC’s Regulation S-K must also be
approved by the Audit Committee. The
policies and procedures regarding the approval of all such related-party
transactions have been approved at a meeting of the Audit Committee and are
evidenced in the corporate records of the Company.
7
Board Practice Related to Nominations of
Directors
Due to the Board’s relatively small size, the Board as a whole performs
functions equivalent to that of a nominating committee. In that capacity, the Board has no written charter. Duane S. Carlson, W. William Bednarczyk and
Albin S. Dubiak, the non-management directors of the Board, are “independent”
directors as defined under NASDAQ
rules.
The Board will consider director candidates recommended by
shareholders. The criteria applied by
the Board in the selection of director candidates is the same whether the
candidate was recommended by a Board member, an executive officer, a
shareholder, or a third party, and accordingly, the Board has not deemed it
necessary to adopt a formal policy regarding consideration of candidates
recommended by shareholders.
Shareholders wishing to recommend candidates for Board membership should
submit the recommendations in writing to the Secretary of the Company.
The Board identifies director candidates
primarily by considering recommendations made by directors, management, and
shareholders. The Board also has the
authority to retain third parties to identify and evaluate director candidates
and to approve any associated fees or expenses.
The Board did not retain any such third party with respect to the
director candidates described in this Proxy Statement. Board candidates are evaluated on the basis
of a number of factors, including the candidate’s background, skills, judgment,
diversity, experience with companies of comparable complexity and size, the
interplay of the candidate’s experience with the experience of other Board
members, the candidate’s independence or lack of independence, and the
candidate’s qualifications for committee membership. The Board does not assign any particular
weighting or priority to any of these factors, and considers each director
candidate in the context of the current needs of the Board as a whole. Director candidates recommended by
shareholders are evaluated in the same manner as candidates recommended by
other persons.
Board Contact Information
If you would like to contact the Board or any
committee of the Board, you can send an email to board@arcainc.com, or write to
the Company, c/o Secretary, 7400 Excelsior Boulevard, Minneapolis, Minnesota
55426. All communications will be
compiled by the Secretary of the Company and submitted to the Board or the
applicable committee or director on a periodic basis.
INFORMATION CONCERNING OFFICERS AND KEY EMPLOYEES
WHO ARE NOT DIRECTORS
Bruce J. Wall, 52,
is the Vice President of Resource Efficiency Programs, a position he has held
since October 2000. Mr. Wall is
responsible for expanding the scope of services offered to utility companies
and developing programs to provide resource efficiency benefits. Previously, Mr. Wall was employed by the
Company as a National Account Manager from 1993 to 1997. From 1997 until rejoining the Company in
2000, Mr. Wall worked for Northeast Energy Efficiency Partnerships, Inc., where
he facilitated and managed groups to develop, implement and evaluate regional
market transformation strategies.
Patrick J. Winters, 35, is the Controller, a position he has
held since January 2005. Mr. Winters
directs the Company’s financial and accounting compliance, compiles and
analyzes the Company’s financial statements and manages all of the company’s
day-to-day accounting operations, including billing, collections and accounts
payable. From 1998 to 2005, Winters held
the positions of Accounting Manager, General Accounting Supervisor, and
Accountant for the Company.
8
Bradley S. Bremer,
38, is the Vice President of Retail Operations, a position he has held since
February 2007. Mr. Bremer is responsible
for directing all aspects of the Company’s retail division, including the
management of sales, marketing and operations for the Company’s ApplianceSmart
stores. He also oversees the planning
and development of new ApplianceSmart stores, programs and services. From 2000 to 2007, Mr. Bremer held the
position of Retail Operations Manager for the Company.
COMPENSATION DISCUSSION AND ANALYSIS (“CD&A”)
The Compensation and Benefits Committee of
the Board of Directors (the “Compensation Committee”) is composed entirely of
non-employee directors Mr. Carlson, Mr. Bednarczyk (Chairman) and Mr. Dubiak, who are also “independent”
directors as defined under NASDAQ rules. The
Compensation Committee is responsible for review and approval of officer
salaries and other compensation and benefit programs and determination of officer
bonuses. Either the Compensation
Committee or the entire Board may administer and make grants under the Company’s
2006 Stock Option Plan.
Role of Management
Annual compensation for the Company’s executive officers, other than
the CEO, is recommended by the CEO and approved by the Compensation
Committee. The individual salary
recommendations may vary based on the CEO’s assessment of the value of that
position to the Company, the executive’s individual performance and the CEO’s
views as to comparative compensation for like positions at other
companies. The annual compensation for
the CEO is recommended by the Compensation Committee, which is comprised of all
non-employee directors, and formally approved by the full Board of Directors.
Compensation Philosophy
The Company believes that compensation of the Company’s key executives
should be sufficient to attract and retain highly-qualified personnel and
should also provide meaningful incentives for superior performance. The Company seeks to reward achievement of
long-term and short-term performance goals, including the development of new
customers, increasing sales volume, meeting or exceeding financial targets and
other factors.
Executive Compensation Programs
Compensation of the Company’s executives generally consists of a
base salary, a cash bonus and long-term incentive compensation in the form of
stock options. The Company does not
utilize a formulaic approach to executive base compensation. The Company currently provides no retirement
benefits to its executive officers except for the Company’s 401(k) Plan.
Cash Compensation. In principle, the Company’s executive
compensation approach is to place each officer’s base salary in the midrange of
executive compensation levels for companies of a similar size. Salaries for certain officers of the Company
were increased by 3.5% for 2006.
The amount of any incentive compensation
awarded under the Company’s incentive compensation plan for all officers is
based on the successful and timely achievement of Company goals, including
financial performance and positioning for future results.
Incentive awards of approximately 10% of
annual base salary were granted to officers for 2006, payable in April
2007. General Managers receive an award
based on a formula, which considers both
9
profit at their center and individual merit. Incentive awards between 4% and 8% of annual
base salary were granted to general managers for 2006, payable in April 2007.
Long-Term Incentive Compensation. Stock options are awarded to provide
incentives to the officers to promote improved long-term performance of the
Company. Option grants for all officers
other than the CEO are recommended by the CEO.
No options were granted to officers in 2006.
Chief Executive Officer Compensation. The compensation for Edward R. Cameron, the
Company’s President and Chief Executive Officer, is determined by using a
process and philosophy similar to that used for all other officers. The Compensation Committee, which consists of
all non-employee directors, considers its members’ views as to comparative
compensation for like positions at other companies together with its own
assessment of Mr. Cameron’s performance and contributions to the Company, then
recommends and approves a salary, bonus and stock options which is formally
approved by the full Board. There is no
specific formulaic tie between the Company’s goals and performance and the
Compensation Committee’s recommendation; instead, the Compensation Committee’s
judgment and discretion is used in its recommendations to the Board of
Directors.
Severance Arrangements
The Chief Executive Officer does not have an
employment agreement with the Company.
In addition, options provide for the forfeiture of any nonexercisable
portion if the executive ceases to be an employee of the Company for any
reason. The exercisable portion may be
exercised for a period of three months after termination (or one year in the
case of death, disability or normal retirement).
Perquisites
The Company does not provide perquisites to
its Named Executive Officers that are not generally available to all employees
on a non-discriminatory basis.
Stock Option Grants
The
Company does not provide an annual grant of options to its executive officers,
and considers the grant of options to executive officers on a case-by-case
basis without regard to the timing of the release of material information. Therefore, grants of options to executive
officers are infrequent. The stock
options granted to the Named Executive Officers and other employees generally
vest in equal installments on the first and second anniversaries of the grant
date and expire seven years from the grant date. The 2006 Stock Option Plan provides for an
automatic grant to independent directors of an option to purchase 7,500 shares
of common stock on the date of the Company’s annual meeting. In addition, the 2006 Stock Option Plan
provides for an automatic one-time grant of options to purchase 7,500 shares of
common stock on the date of initial election of any new director. The stock options granted to the Directors
generally vest six months from the date of grant and expire ten years from the
date of grant.
The
Company’s options are granted at fair market value on a fixed date or event,
with all required approvals obtained in advance or on the actual grant
date. The directors and executive
officers are awarded stock options with an exercise price equal to the closing
market price of the Company’s common stock on the date of grant. Accordingly, stock options have value for the
directors and executive officers only if the price of the Company’s stock
appreciates in value from the date of grant.
10
Tax Deductibility of Pay
The
Compensation Committee has reviewed the provisions of Internal Revenue Code
Section 162(m) relating to the deductibility of annual executive compensation
in excess of $1,000,000. The
Compensation Committee currently does not have a policy with respect to Section
162(m) because it is unlikely that such limit will apply to compensation paid
by the Company to any of the Company’s executive officers in the near future.
COMPENSATION COMMITTEE REPORT
The Compensation
Committee has reviewed and discussed with management the Compensation
Discussion and Analysis (“CD&A”) set forth above. Based on the review and discussions, the
Compensation Committee recommended that the Board of Directors include the
CD&A in this proxy statement.
|
March 19, 2007
|
The Compensation and Benefits Committee
|
|
|
|
|
|
Duane S. Carlson
|
|
|
Albin S. Dubiak
|
|
|
W. William
Bednarczyk
|
The
information set forth above in the Compensation Committee Report is not to be
considered “filed” with the SEC for any purpose or “incorporated by reference”
into any Securities Act or Exchange Act document of the Company for any
purpose.
COMPENSATION OF NON-EMPLOYEE DIRECTORS
The Company uses a combination of cash and
stock-based incentive compensation to attract and retain qualified candidates
to serve on the Board of Directors. In
setting director compensation, the Company considers the significant amount of
time that directors expend in fulfilling their duties to the Company as well as
the skill-level required by the Company of members of the Board.
The Company had four directors in 2006, one
of whom (Mr. Cameron) is an executive officer of the Company and does not
receive any additional compensation for serving as a director of the
Company. Non-employee directors of the
Company receive an annual fee of $15,000 for their service as directors. The Chairman of the Audit Committee receives
an additional annual fee of $3,000 and the Chairman of the Compensation and
Benefits Committee receives an additional annual fee of $1,500. All of our directors are reimbursed for
reasonable travel expenses incurred in attending our meetings. Employee
directors are not compensated for their services as directors.
Non-employee directors also receive stock
options under the 2006 Stock Option Plan.
The 2006 Stock Option Plan provides for an automatic grant to
independent directors of an option to purchase 7,500 shares of common stock on
the date of the Company’s annual meeting.
In addition, the 2006 Stock Option Plan provides for an automatic
one-time grant of options to purchase 7,500 shares of common stock on the date
of initial election of any new director.
All such options become exercisable in full six months after the date of
grant and expire ten years from the date of grant. The table below presents cash and non-cash
compensation paid to non-employee directors for during the last fiscal year.
11
Non-Management Director Compensation for Fiscal-Year Ended
December 30, 2006
|
Name
|
|
Fees Earned or
Paid in Cash ($)
|
|
Option
Awards ($)
|
|
All Other
Compensation ($)
|
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duane S. Carlson
|
|
$
|
17,083
|
|
$
|
25,500
|
(1)
|
$
|
—
|
|
$
|
42,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Albin S. Dubiak
|
|
15,000
|
|
25,500
|
(1)
|
—
|
|
40,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W. William
Bednarczyk
|
|
16,000
|
|
25,500
|
(1)
|
—
|
|
41,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harry W. Spell (2)
|
|
3,208
|
|
—
|
|
—
|
|
3,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The grant date fair value of each option award
computed in accordance with FAS 123R was $25,500. See Note 1 to the Company’s financial
statements in the 2006 Annual Report on Form 10-K mailed with this proxy
statement for discussion of the assumptions made in the valuation of option
grants. At fiscal-year-end,
Mr. Carlson held options to purchase 57,500 shares of common stock;
Mr. Dubiak held options to purchase 12,500 shares of common stock; and
Mr. Bednarczyk held options to purchase 12,500 shares of common
stock. Mr. Spell held no options at fiscal
year-end.
(2) Harry
W. Spell, who was a director since 1991, did not stand for reelection at last
year’s annual meeting and his term expired as of May 4, 2006.
EXECUTIVE COMPENSATION
The following
table sets forth the cash and non-cash compensation earned by the Chief
Executive Officer and the Chief Financial Officer for the last fiscal
year. Linda Koenig served as the Company’s
Chief Financial Officer until July 2006 and cash and non-cash compensation
information for Ms. Koenig is provided for that period. No other officer of the Company received salary
and bonus for any such year in excess of $100,000. For a discussion of the amount of salary and
bonus in proportion to total compensation, as well as other material factors
related to summary compensation, please see the CD&A on pages 9-11 of this proxy
statement.
Summary Compensation Table for Fiscal Year Ended December 30, 2006
|
Name and Principal Position
|
|
Year
|
|
Salary ($)
|
|
Bonus ($)
|
|
All Other
Compensation ($)
|
|
Total ($)
|
|
|
Edward R.
Cameron
Chairman of the Board, President
and Chief Executive Officer
|
|
2006
|
|
$
|
214,615
|
|
|
$
|
—
|
|
|
|
$
|
15,000
|
(1)
|
|
$
|
229,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Linda Koenig (2)
Chief Financial Officer
|
|
2006
|
|
57,266
|
|
|
6,100
|
|
|
|
—
|
|
|
63,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes
premiums paid by the Company for life insurance for which the Company is the
beneficiary.
(2) Ms.
Koenig served as the Company’s Chief Financial Officer until July 2006.
Stock Options Granted in Last Fiscal Year
The Company did
not grant any stock options to the Chief Executive Officer of Chief Financial
Officer during the last fiscal year.
12
Outstanding Equity Awards at December 30, 2006
|
|
|
Option Awards
|
|
|
|
|
Number of
Securities
Underlying
Unexercised Options
|
|
Number of
Securities
Underlying
Unexercised Options
|
|
Equity Incentive Plan
Awards: Number of
Securities Underlying
Unexercised Unearned
|
|
Option
Exercise
|
|
Option
|
|
|
|
|
(#)
|
|
(#)
|
|
Options
|
|
Price
|
|
Expiration
|
|
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
(#)
|
|
($)
|
|
Date
|
|
|
Edward R. Cameron
Chairman of the Board, President and Chief
Executive Officer
|
|
|
25,000
|
|
|
|
25,000
|
(1)
|
|
|
—
|
|
|
|
$
|
3.08
|
|
|
05/05/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The
option was granted under the Company’s Restated 1997 Stock Option Plan on May
5, 2005 and became exercisable with respect to 25,000 of the shares of common
stock subject to the option on May 5, 2006, the one-year anniversary of the
grant date. On May 5, 2007, the two-year
anniversary of the grant date, the option will be exercisable with respect to
all 50,000 shares of common stock subject to the option.
Option Exercises for
Fiscal-Year Ended December 30, 2006
|
|
|
Option Awards
|
|
|
Name
|
|
Number of Shares
Acquired on Exercise (#)
|
|
Value Realized
on Exercise ($)
|
|
|
Edward R. Cameron
Chairman of the Board,
President and Chief
Executive Officer
|
|
—
|
|
$
|
—
|
|
|
Linda Koenig (1)
Chief Financial Officer
|
|
2,000
|
|
4,175
|
|
|
|
|
|
|
|
|
(1) Ms.
Koenig served as the Company’s Chief Financial Officer until July 2006.
Stock Option Plans
The Company’s 2006 Stock Option Plan (the “2006 Plan”) was adopted by
the Board of Directors in March 2006 and approved by the shareholders at the
2006 annual meeting of shareholders. The
2006 Plan may be administered by the Compensation Committee or the full Board
of Directors acting as the Committee.
Under the 2006 Plan, the Company has reserved an aggregate of 600,000
shares of its common stock for option grants.
The Company’s Restated 1997 Stock Option Plan (the “1997 Plan”), which
was adopted by the Board of Directors on March 1997 and approved by the
shareholders at the 1997 annual meeting of shareholders, expired on March 6,
2007. As of March 16, 2007, options to
purchase an aggregate of 261,500 shares were outstanding under the 1997 Plan,
including options to purchase an aggregate of 76,500 shares held by employees
and options to purchase an aggregate of 185,000 shares held by the Company’s
non-employee directors. Under the 1997
Plan, 208,750 options have been exercised.
Options outstanding under the expired 1997 Plan continue to be
exercisable in accordance with their terms.
Under the 2006 Plan, each non-employee director is automatically
granted stock options for 7,500 shares upon his or her initial election as a
director and upon each re-election by the shareholders. Each option to a non-employee director
becomes exercisable six months after the date of grant, provides for the
forfeiture of any nonexercisable portion if an optionee ceases to be a director
for certain reasons, provides
13
that the exercisable portion may be exercised for a
period of 10 years from the date of grant, and expires on the tenth anniversary
of the date of grant. The exercise price
of an option is the fair market value of the common stock on the date the
option is granted.
Employees of the Company, including employee directors, are eligible to
receive awards of options to purchase common stock pursuant to the 2006
Plan. The Committee has the discretion
to select eligible employees to whom awards will be granted and establish the
type, price, amount, size and terms of awards, subject in all cases to the
provisions of the 2006 Plan and the applicable provisions of the Internal
Revenue Code.
The exercise price
of an incentive stock option cannot be less than 100% of the fair market value
of the common stock on the date the option is granted, except that if the
optionee owns 10% or more of the voting rights of all of the Company’s stock (“10%
Holder”), the exercise price of an incentive stock option cannot be less than
110% of the fair market value of the common stock on the date the option is
granted.
Options granted to
employees cannot be exercised prior to a set period after their date of grant,
which cannot be less than one year during which time the optionee must remain
employed by the Company. Each option
specifies the expiration date, which may not exceed 10 years from the date the
option is granted, provided, however, that if the optionee is a 10% Holder, the
exercise period with respect to incentive stock options may not exceed five
years.
Unless otherwise
specifically provided in an optionee’s agreement, options cannot be exercised
prior to the first anniversary of the date of grant and provide for the forfeiture
of any nonexercisable portion if an optionee ceases to be an employee of the
Company for any reason and that the exercisable portion may be exercised for a
period of three months after termination (or one year in the case of death,
disability or normal retirement).
14
AUDIT
COMMITTEE REPORT
The
Audit Committee is responsible for relations with the Company’s independent
auditors, for review of internal auditing functions (whether formal or
informal) and internal controls, and for review of financial reporting policies
to assure full disclosure of financial condition. The Audit Committee adopted, and the Board of
Directors approved, a revised written charter for the Audit Committee which was
attached as an appendix to last year’s proxy statement for the annual meeting
of shareholders held on May 4, 2006. Mr.
Carlson (Chairman), Mr. Dubiak and W. William Bednarczyk, the Company’s
non-employee directors, serve on the Audit Committee. Each member of the Audit Committee is “independent,”
as independence for audit committee members is defined by NASDAQ rules, and
otherwise satisfies NASDAQ requirements for audit committee membership. The
Board has determined that Duane Carlson is an “audit committee financial expert”
under the Sarbanes-Oxley Act of 2002.
The Audit
Committee reviewed the audited financial statements in the Annual Report with
management, including a discussion of the reasonableness of significant
judgments and accounting principles.
The
Audit Committee reviewed with the independent auditors, who are responsible for
expressing an opinion on the conformity of those audited financial statements
with standards of the Public Company Accounting Oversight Board (United
States), their judgments as to the Company’s accounting principles and such
other matters as are required to be discussed with the committee under
standards of the Public Company Accounting Oversight Board (United
States). In addition, the Audit
Committee has discussed with the independent auditors the auditor’s
independence from management and the Company, including the matters in the
written disclosures required by the Independence Standards Board.
The
Audit Committee discussed with the Company’s independent auditors the overall
scope and plans for their audit. The
committee meets with the independent auditors, with and without management
present, to discuss the results of their examinations, their evaluations of the
Company’s internal controls, and the overall quality of the Company’s financial
reporting. The committee held five meetings during 2006, four with the independent auditors and
one without the auditors present. In
addition, at the end of each quarter the chairman of the Audit Committee
discussed with the independent auditors their findings and procedures relative
to the auditor’s quarterly reviews and year end audit.
In
reliance on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 30, 2006 for filing with the Securities and Exchange
Commission.
|
March 19, 2007
|
The Audit Committee
|
|
|
|
|
|
Duane S. Carlson
|
|
|
Albin S. Dubiak
|
|
|
W. William
Bednarczyk
|
The
information set forth above in the Audit Committee Report is not to be
considered “filed” with the SEC for any purpose or “incorporated by reference”
into any Securities Act or Exchange Act document of the Company for any
purpose.
15
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
This section should be read in conjunction with the Audit Committee
Report on page 15.
The Audit Committee appointed Virchow Krause & Company LLP
(VK) as the independent registered public accounting firm for the fiscal year
that began January 1, 2006. The
Company will ask shareholders to ratify the appointment of VK as the
independent registered public accounting firm at the meeting. Representatives of VK are expected to be
present at the meeting. They will have
the opportunity to make a statement if they desire to do so and are expected to
be available to respond to appropriate questions.
Virchow Krause & Company, LLP independent certified public
accountants, served as the independent registered public accounting firm for
the Company for fiscal 2005 and fiscal 2006.
McGladrey & Pullen, LLP, independent certified public accountants,
served as the independent registered public accounting firm for the Company for
fiscal 2004. A representative of Virchow
Krause & Company, LLP is expected to be present at the annual meeting, will
have an opportunity to make a statement if he or she desires to do so and will
be available to respond to appropriate questions.
Fees Paid to Auditors by the Company During
Most Recent Fiscal Years
Effective April 1, 2005, Virchow
Krause & Company, LLP replaced McGladrey & Pullen, LLP as the Company’s
independent registered public accounting firm for the audit of fiscal year
2005.
During the periods covering the fiscal years ended December 30, 2006
and December 31, 2005, Virchow Krause & Company, LLP (VK) and McGladrey
& Pullen, LLP and RSM McGladrey, Inc. (McG) performed the following
professional services:
|
|
|
December 31, 2005
|
|
December 30, 2006
|
|
|
Description
|
|
VK
|
|
McG
|
|
VK
|
|
McG
|
|
|
Audit fees (1)
|
|
$
|
132,800
|
|
$
|
—
|
|
$
|
143,190
|
|
$
|
28,335
|
|
|
Audit-related
fees (2)
|
|
800
|
|
37,000
|
|
10,100
|
|
—
|
|
|
Tax fees (3)
|
|
2,950
|
|
28,000
|
|
21,130
|
|
—
|
|
|
All other fees
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Audit fees consist
of fees for professional services rendered in connection with the audit
of the Company’s year-end financial statements, quarterly reviews of financial
statements included in the Company’s quarterly reports, services rendered relative to
regulatory filings, and attendance at Audit Committee meetings.
(2) Audit-related fees
are fees principally for professional services rendered for the audit of the
Company’s 401(k) employee benefit plan and technical accounting consulting and
research. Audit-related fees in 2005
from Virchow Krause & Company, LLP related to a filing of a registration
statement in 2005. Audit-related fees in
2005 from McGladrey & Pullen, LLP related to the audit of the Company’s
401(k) employee benefit plan and the filing of two registration statements in
2005.
(3) Tax fees consist
of compliance fees for the preparation of income tax returns and preparation of
refund claims, tax estimates and extensions.
The Audit Committee of the Board of Directors has considered whether
the provision of the services described above was and is compatible with
maintaining the independence of Virchow Krause & Company, LLP.
16
The Audit Committee pre-approves all audit
and permissible non-audit services provided by the independent auditors. All the fees for 2005 and 2006 were approved
by the Audit Committee.
OTHER
MATTERS
At the date of this proxy statement the Company’s
management knows of no other matters which may come before the annual
meeting. However, if any other matters
properly come before the meeting, it is the intention of the persons named in
the enclosed proxy form to vote such proxies received by the Company in
accordance with their judgment on such matters.
A copy of
the Company’s 2006 Annual Report to Shareholders is being mailed to you with
this proxy statement. The Annual Report
includes, among other things, the consolidated balance sheet of the Company as
of December 30, 2006 and December 31, 2005 and the related consolidated
statements of operations, shareholders’ equity and cash flows for the three
years ended December 30, 2006. If you
desire an additional copy of the Annual Report or a copy of our Form 10-K filed
with the SEC, you may obtain one (excluding exhibits) without charge by
addressing a request to Investor Relations, Appliance Recycling Centers of
America, Inc., 7400 Excelsior Boulevard, Minneapolis, Minnesota 55426. You may also access a copy of our Form 10-K
on the SEC’s website at www.sec.gov.
By Order of the Board of Directors
Denis E. Grande, Secretary
April 6, 2007
17
APPLIANCE
RECYCLING CENTERS OF
AMERICA, INC.
PROXY
SOLICITED BY BOARD OF DIRECTORS
For
Annual Meeting of Shareholders
May 10,
2007
3:30
p.m.
APPLIANCE
RECYCLING CENTERS OF AMERICA, INC.
7400
Excelsior Blvd.
Minneapolis, MN 55426
|
Appliance Recycling Centers of
America, Inc.
|
|
7400 Excelsior Blvd., Minneapolis,
MN 55426
|
proxy
|
The undersigned, revoking all prior proxies, hereby
appoints Edward R. Cameron and Denis E. Grande, or either of them, as Proxy or
Proxies, with full power of substitution and revocation, to vote all shares of
stock of Appliance Recycling Centers of America, Inc. standing of record in the
name of the undersigned at the close of business on March 16, 2007 at the
Annual Meeting of Shareholders to be held on May 10, 2007, or at any adjournment
or postponement of the meeting.
The undersigned hereby acknowledges receipt of the
Notice of the Annual Meeting of Shareholders of Appliance Recycling Centers of
America, Inc. and the proxy statement dated April 6, 2007 furnished with the
Notice.
See
reverse for voting instructions.
VOTE BY INTERNET —
http://www.eproxy.com/arci/ — QUICK 
EASY IMMEDIATE
• Use the
Internet to vote your proxy 24 hours a day, 7 days a week, until 12:00 p.m.
(CT) on May 9, 2007.
• Please have
your proxy card and the last four digits of the U.S. Social Security Number
available. Follow the instructions to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in
the postage-paid envelope we’ve provided or return it to Appliance Recycling Centers of America, Inc.,
c/o Shareowner ServicesTM,
P.O. Box 64873, St. Paul, MN 55164-0873.
Note: Your Internet vote authorizes the Named Proxies
to vote your shares in the same manner as if you marked, signed and returned
your proxy card.
If
you vote by Internet, please do not mail your Proxy Card.
|
|
 Please
detach here
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The
Board of Directors Recommends a Vote FOR Proposal 1.
|
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1. Election of the following
|
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01 Edward R. Cameron
|
|
03 W. William Bednarczyk
|
o
|
Vote FOR
|
o
|
Vote WITHHELD
|
|
|
|
nominees as directors:
|
|
02 Duane S. Carlson
|
|
04 Albin S. Dubiak
|
|
all nominees
|
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from all nominees
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(Instructions:
To withhold authority to vote for any indicated nominee,
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write the
number(s) of the nominee(s) in the box provided to the right.)
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In their discretion the
Proxies are authorized to vote upon such other matters as may properly come
before the meeting or any adjournment or postponement thereof.
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THIS PROXY
WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF ALL NOMINEES FOR DIRECTOR ON PROPOSAL 1.
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Address Change? Mark Box
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Date
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Indicate changes below:
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o
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Signature(s) in Box
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Please sign your name
exactly as it appears at left. In the case of shares owned in joint tenancy or as tenants in common, all should sign. Fiduciaries should
indicate their title and
authority.
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