FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: June 30, 1997
Commission File Number: 0-18393
WINLAND ELECTRONICS, INC.
(Exact name of small business issuer as specified in its charter)
Minnesota 41-0992135
(state or other juris- (I.R.S. Employer
diction of incorporation) Identification No.)
1950 Excel Drive, Mankato, Minnesota 56001
(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code:
(507) 625-7231
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of July 31, 1997, the
Registrant had 2,803,881 shares of Common Stock, $.01 par value, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No x
1
<PAGE>
PART I-FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
WINLAND ELECTRONICS, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1997 1996
---------- ----------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 44,612 $ 19,499
Accounts Receivable, Net 1,528,442 1,327,386
Inventories 3,414,210 2,969,677
Prepaid Items 125,749 63,633
---------- ----------
Total Current Assets 5,113,013 4,380,195
Property and Equipment, Net 3,124,334 3,128,588
Property Under Capital Lease, Net 1,097,877 721,066
OTHER ASSETS:
Intangibles 7,799 8,564
Deferred Income Taxes 52,535 52,535
---------- ----------
TOTAL ASSETS $9,395,558 $8,290,948
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable $1,930,227 $1,580,227
Accounts Payable 955,008 683,406
Payroll Taxes Payable 19,924 34,891
Wages and Commissions Payable 41,055 41,815
Other Accruals 98,730 120,382
Obligations Under Capital Lease 229,110 163,636
Deferred Revenue 27,001 27,001
Income Taxes Payable 22,416 336
Current Maturities 168,506 161,267
---------- ----------
Total Current Liabilities 3,491,977 2,812,961
LONG TERM LIABILITIES:
Long Term Maturities 2,375,121 2,459,644
Obligations Under Capital Lease
Less: Current Portion 786,511 492,120
---------- ----------
TOTAL LONG TERM LIABILITIES 3,161,632 2,951,764
OTHER LIABILITIES:
Deferred Revenue
Less: Current Portion 202,507 216,007
TOTAL LIABILITIES 6,856,116 5,980,732
SHAREHOLDERS' EQUITY:
Common Stock 28,039 27,511
Additional Paid-In Capital 2,068,920 2,047,794
Retained Earnings 442,483 234,911
---------- ----------
Total Shareholders' Equity 2,539,442 2,310,216
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $9,395,558 $8,290,948
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
NET SALES: $ 2,983,529 $ 1,562,655
Less, Cost of Goods Sold 2,408,351 1,252,011
----------- -----------
Gross Profit on Sales 575,178 310,644
OPERATING EXPENSES:
General and Administrative 288,144 186,575
Marketing 58,115 42,264
Research and Development 108,043 74,262
----------- -----------
Total Operating Expenses 454,302 303,101
INCOME BEFORE OTHER INCOME
AND EXPENSE 120,876 7,543
----------- -----------
MISCELLANEOUS INCOME 15,976 18,936
MISCELLANEOUS EXPENSE, PROVISION
FOR BAD DEBT -- --
INTEREST EXPENSE (57,034) (36,176)
----------- -----------
TOTAL OTHER INCOME & EXPENSE (41,058) (17,240)
----------- -----------
NET INCOME BEFORE TAXES 79,818 (9,697)
----------- -----------
PROVISION FOR INCOME TAXES 584 1,000
----------- -----------
NET INCOME $ 79,234 $ (10,697)
NET INCOME PER COMMON SHARE $ 0.028 $ (0.004)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING AS OF JUNE 30, 1997 & 1996 2,798,634 2,587,833
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
NET SALES: $ 5,805,624 $ 3,315,707
Less, Cost of Goods Sold 4,564,503 2,612,641
----------- -----------
Gross Profit on Sales 1,241,121 703,066
OPERATING EXPENSES:
General and Administrative 552,149 390,730
Marketing 124,921 94,724
Research and Development 208,216 134,592
----------- -----------
Total Operating Expenses 885,286 620,046
INCOME BEFORE OTHER INCOME
AND EXPENSE 355,835 83,020
----------- -----------
MISCELLANEOUS INCOME 24,839 48,811
MISCELLANEOUS EXPENSE, PROVISION
FOR BAD DEBT (43,000) --
INTEREST EXPENSE (106,519) (69,958)
----------- -----------
TOTAL OTHER INCOME & EXPENSE (124,680) (21,147)
----------- -----------
NET INCOME BEFORE TAXES 231,155 61,873
----------- -----------
PROVISION FOR INCOME TAXES 23,584 1,000
----------- -----------
NET INCOME $ 207,571 $ 60,873
NET INCOME PER COMMON SHARE $ 0.074 $ 0.022
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING AS OF JUNE 30, 1997 & 1996 2,788,343 2,585,584
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
---------------- ----------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Cash Received from Customers $ 5,561,568 $ 3,653,821
Interest Received 11,323 22,171
Other Miscellaneous Operating Receipts -- 13,293
Cash Paid to Suppliers and Employees (5,427,642) (3,950,303)
Interest Paid (198,523) (152,250)
Income Taxes Paid (1,168) (1,000)
----------- -----------
Net Cash (Used) by Operating Activities (54,442) (414,268)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of Property and Equipment (97,804) (204,084)
Cash Proceeds From Sales of Equipment -- --
----------- -----------
Net Cash (Used) by Investing Activities (97,804) (204,084)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Advances on Credit Line 350,000 659,775
Proceeds from Debt -- 57,725
Payments on Debt (77,284) (30,350)
Payments on Capital Lease Obligations (117,011) (56,206)
Sale of Common Stock 21,654 1,376
----------- -----------
Net Cash Provided by Financing Activities 177,359 632,320
----------- -----------
NET INCREASE IN CASH 25,113 13,968
CASH - BEGINNING OF YEAR 19,499 2,839
----------- -----------
CASH - END OF PERIOD $ 44,612 $ 16,807
----------- -----------
RECONCILIATION OF NET INCOME TO NET CASH (USED)
BY OPERATING ACTIVITIES
Net Income (Loss) $ 207,571 $ 60,873
Adjustments:
Disposition of Assets 15 155
Depreciation & Amortization 202,904 126,333
(Increase) Decrease in Accounts Receivable (201,056) 337,154
(Increase) Decrease in Inventory (444,533) (576,703)
(Increase) Decrease in Prepaid Items (62,116) 10,804
(Decrease) Increase in Accounts Payable 271,602 (354,650)
(Decrease) Increase in Wages Payable (760) 4,078
(Decrease) Increase in Accrued Payroll Taxes (14,967) 2,207
(Decrease) Increase in Other Accruals (21,652) (11,019)
(Decrease) Increase in Deferred Revenue (13,530) (13,500)
(Decrease) Increase in Income Taxes Payable 22,080 --
----------- -----------
Net Cash (Used) by Operating Activities $ (54,442) $ (414,268)
----------- -----------
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by the
Company in accordance with generally accepted accounting principles, pursuant to
the rules and regulations of the Securities and Exchange Commission. In
management's opinion all adjustments necessary to a fair presentation of the
results for the interim period have been reflected in the interim financial
statements. The results of operations for any interim period are not necessarily
indicative of the results for a full year. Except for those described in note B
below, all other adjustments are of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements
have been condensed or omitted. Such disclosures are those that would
substantially duplicate information contained in the most recent audited
financial statements of the Company, such as significant accounting policies,
net operating loss carry-overs, lease and license commitments and stock options.
Management presumes that users of the interim statements have read or have
access to the audited financial statements included in the Company's most recent
annual report on Form 10-KSB.
NOTE B - ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains an allowance for doubtful accounts based on the aging of
accounts receivable. The balance of the allowance for doubtful accounts is
$46,921 at June 30, 1997 and $4,455 at December 31, 1996. The following
allowance for doubtful accounts was increased by $43,000 in the first quarter of
1997. The Company was informed that a customer had filed for chapter eleven
bankruptcy, which required a significant increase to the allowance.
NOTE C - INVENTORY
Major Components of inventory at June 30, 1997 and December 31, 1996 are as
follows:
June 30, December 31,
1997 1996
---------- ----------
Raw Materials $2,201,958 $1,695,764
Work In Process 494,619 554,090
Finished Goods 708,515 709,860
Manufacturing, Shipping, and Office Supplies 9,118 9,963
---------- ----------
Total $3,414,210 $2,969,677
---------- ----------
NOTE D - PROPERTY AND EQUIPMENT
Property and Equipment not under capital leases consists of the following at
June 30, 1997 and December 31, 1996:
June 30, December 31,
1997 1996
---------- ----------
Building $ 2,361,016 $ 2,343,275
Land 192,640 192,640
Office Equipment 159,424 341,658
Computer & Telephone Equipment 339,917 --
Research & Development 109,369 143,941
Marketing and Display Equipment 18,152 31,413
Factory Equipment 520,705 549,567
Land Improvements 77,369 77,369
Accumulated Deprecation (654,258) (551,275)
----------- -----------
Net Book Value $ 3,124,334 $ 3,128,588
----------- -----------
6
<PAGE>
WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE D - CONTINUED
Property and Equipment under capital leases consists of the following at June
30, 1997 and at December 31, 1996:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ----------
<S> <C> <C>
Factory Equipment $ 1,269,214 $ 863,472
Office Equipment 60,408 95,754
Computer & Telephone Equipment 110,640 --
Research & Development 4,401 4,401
Accumulated Amortization (346,786) (242,561)
---------- ----------
Total Leased Property and Equipment, Net of
Accumulated Amortization $ 1,097,877 $ 721,066
---------- ----------
Capital Leases are summarized as follows:
Lease on factory equipment with lease period expiring
May of 2002, at an interest rate of 10.04% $ 63,354 $ --
Lease on factory equipment with lease period expiring
June of 2002, at an interest rate of 10.04% 78,939 --
Lease on factory equipment with lease period expiring
March of 2002, at an interest rate of 9.94% 60,920 --
Lease on factory equipment with lease period expiring
March of 2002, at an interest rate of 8.88% 204,652 --
Lease on computer and telephone equipment with lease
period expiring February of 2000, at an interest rate of 9.01% 36,989 --
Lease on factory equipment with lease period expiring
August of 2001, at an interest rate of 9.49% 222,134 242,293
Lease on factory equipment with lease period expiring
July of 2001, at an interest rate of 9.96% 104,810 113,809
Lease on factory, office, and R&D equipment with lease
period expiring July of 1997, at an interest rate of 8.0% 902 6,195
Lease on factory and office equipment with lease period
expiring January of 2000, at interest of 1% over prime 207,693 248,826
Lease on factory equipment with lease period expiring
October of 1998 at an interest rate of 9.23% 18,731 25,641
Lease on office equipment with lease period expiring
March of 2000 at an interest rate of 9% 16,497 18,992
---------- ----------
Total $ 1,015,621 $ 655,756
Less Current Portion (229110) (163636)
---------- ----------
Long Term Obligation Under Capital Leases $ 786511 $ 492120
---------- ----------
</TABLE>
NOTE E - SHORT TERM BORROWING
Short term borrowing consists of the following at June 30, 1997 and December 31,
1996 balance sheet:
June 30, December 31,
Norwest Bank - Revolving Credit Line 1997 1996
---------- ----------
Balance $1,930,227 $1,580,227
Stated Interest Rate per Annum 9.25% 9.0%*
Maximum Amount Outstanding During the Quarter $2,050,227 $1,995,227
Average Amount Outstanding During the Quarter $1,986,894 $1,626,398
Unused Credit Available $ 881,723 $1,204,081
* The stated interest rate per annum is equal to 3/4 of a percent over prime
rate
7
<PAGE>
WINLAND ELECTRONICS, INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
The interest on the revolving loan was $57,034 for the three months ended June
30, 1997 and $106,519 for the first six months of 1997. Additional interest
expense was reported related to the leased capital equipment and other term
borrowing. The interest expense on leased equipment was $24,662 and $47,819 for
the three and six months ended June 30, 1997. Interest expense on other long
term borrowing was $22,907 and $56,815 for the three and six months ended June
30, 1997.
NOTE F - STOCK OPTIONS AND WARRANTS
As of June 30, 1997, options to purchase an aggregate of 307,000 shares of the
Company's common stock were granted and outstanding under the Company's 1989
Stock Option Plan(the "1989 Plan"). As of June 30, 1997, options to purchase
143,600 shares granted under the 1989 Plan were exercisable. The exercise prices
of all outstanding options under the 1989 Plan range from $0.06 to $3.64 per
share. Options to purchase 6,000 shares were granted and outstanding under the
1997 Stock Option Plan, all of which were exercisable at June 30, 1997. The
exercise price of such options was $3.125.
As of June 30, 1997, warrants to purchase an aggregate of 37,000 shares of the
Company's Common Stock at $2.20 per share were granted and outstanding, all of
which warrants are exercisable.
8
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Three and six months ended June 30 1997 v.
Three and six months ended June 30 1996
Net Sales:
The Company recorded net sales of $2,983,529 for the three months ended June 30,
1997, an increase of 91% from net sales of $1,562,655 for the same period in
1996. Net sales of $5,805,624 were recorded for the first six months of 1997,
compared to $3,315,707 for the same period in 1996, a 75% increase. The increase
in sales for the second quarter and first six months of 1997 compared to the
same period in 1996 was primarily attributed to sales to Select Comfort
Corporation pursuant to a $6.9 million dollar purchase order, which was
increased from $5.6 million dollars in July of 1997. The current Select Comfort
Corporation purchase order was approximately 56% complete at June 30, 1997.
Sales of security/industrial products were off slightly for the three months
ended June 30, 1997 compared to the same period in 1996, and experienced a
slight increase for the first six months of 1997 compared to the same period in
1996.
The Company has continued to identify and secure new contract design and
manufacturing customers, as well as to actively market its security/industrial
products. The loss of any contract customer could have an adverse effect on the
Company's short term results. The management of the Company believes that the
contract design and manufacturing portion of its business has potential for
growth and is actively promoting this portion of the business.
Gross Profits:
Gross profit was $575,178 or 19.3% of net sales for the three months ended June
30, 1997, compared to $310,644 or 19.9% of net sales for the same period in
1996. For the first six months of 1997, gross profit was $1,241,121 or 21.4% of
net sales, compared to $703,066 or 21.2% of net sales for the same period in
1996. Although sales increased significantly for the three months and six months
ended June 30, 1997, the gross profit, as a percentage of sales, declined
slightly for the three month period compared to the same period in 1996. Factors
that contributed to the lower than anticipated gross profits were: 1) startup
costs associated with a significant new OEM customer's product line; 2) an
engineering change of a security product, which resulted in the reworking of
existing stock, and; 3) greater than expected costs associated with the design
and manufacture of a new product line for an existing OEM customer.
Operating Expenses:
General and administrative expense was $288,144 or 9.7% of net sales for the
three months ended June 30 1997, compared to $186,575 or 11.9% of net sales for
the same period in 1996. General and administrative expense was $552,149 or 9.5%
for the first six months of 1997, compared to $390,730 or 11.8% of net sales for
the same period in 1996. As a percentage of net sales, general and
administrative expenses declined for the three months and six months ended June
30, 1997, compared to the same periods in 1996 due to the increase in sales. The
increase in actual general and administrative expenses of $101,569 for the
quarter and $161,419 for the first six months of 1997, compared to the same
periods in 1996, are associated with additional costs necessary to support an
increased level of business.
Marketing expense was $58,115 or 1.9% of net sales for the quarter ended June
30, 1997, compared to $42,264 or 2.7% for the same period in 1996. The marketing
expenses for the first six months of 1997 were $124,921 or 2.2% of net sales,
compared to $94,724 or 2.9% of net sales for the same period in 1996. As a
percentage of net sales, the marketing expenses declined for second quarter and
first six months of 1997, compared to the same periods in 1996. The actual
marketing expenses increased for the second quarter and first six months of
1997, but at a slower rate than the increase in net sales.
<PAGE>
Research and development expense was $108,043 or 3.6% of net sales for the three
months ended June 30, 1997, compared to $74,262 or 4.8% of net sales for the
same period in 1996. Research and development expenses were $208,216 or 3.6% of
net sales for the first six months of 1997, compared to $134,592 or 4.2% of net
sales for the same period in 1996. While research and development expenses, as a
percentage of net sales, declined for both the second quarter and first six
months of 1997, the actual expenses increased $33,781 for the second quarter and
$73,624 for the first six months 1997 compared to the same periods in 1996. The
increases are attributed to the addition of technical staff and equipment needed
to better serve our customers' growing requirements for design and support
services.
Interest Expense:
Interest expense on the revolving line of credit was $57,034 or 1.9% of net
sales for the three months ended June 30, 1997, compared to $36,176 or 2.3% of
net sales for the same period in 1996. Interest expense for the first six months
of 1997 on the revolving line of credit was $106,519 or 1.8% of net sales
compared to $69,958 or 2.1% of net sales for the same period in 1996. The
increase in interest expense reflected additional short term borrowing needed to
support increased sales, as well as increases in interest rates compared to
1996.
Net Earnings:
The Company reported net income of $79,234 or $0.028 per share for the three
months ended June 30, 1997, compared to a net loss of $10,697 or $0.004 per
share for the same period in 1996. For the six months ended June 30, 1997, the
Company reported net income of $207,571 or $0.074 per share, compared to net
income of $60,873 or $0.022 per share for the same period in 1996.
The Company believes inflation has not significantly affected its results of
operations.
Liquidity and Capital Resources
The current ratio on June 30, 1997 was 1.46 to 1, compared to 1.56 to 1 on
December 31, 1996. Working capital on June 30, 1997 was $1,621,036 compared to
$1,567,234 on December 31, 1996. The increase in working capital is primarily
attributed to increases in inventory, accounts receivable, and prepaid items
that are offset by additional short term borrowing needed to support the
increased sales during the first six months of 1997. The Company has no material
commitments for the capital expenditures as of this date here of.
The Company has a revolving credit agreement with the Norwest Bank Minnesota
South N.A.("Norwest"), with a maximum loan limit of $3,500,000, subject to
additional limitations set forth in the credit agreement. The interest rate is
calculated at 3/4% over the prime interest rate. At June 30, 1997, there was an
outstanding balance of $1,930,227 under the line of credit. The Company's
management believes that capital available through the current credit agreement,
together with cash flows from operations will be sufficient to meet the
Company's capital needs in the near future.
10
<PAGE>
PART II-OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting on May 6, 1997.
(b) Proxies for the annual meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934. There was no
solicitation in opposition to management's nominees as listed in the
proxy statement, and all of such nominees were elected.
The shareholders set the number of directors at five (5) by a vote of
2,347,384 shares in favor, with 9,635 shares voted against and 15,090
shares abstaining. The following persons were elected to serve as
directors of the Company until the next annual meeting of the
shareholders with the following votes:
Number of Number of
Nominee Votes For Votes Withheld
W. Kirk Hankins 2,346,709 25,400
Lorin E. Krueger 2,346,709 25,400
Kirk P. Hankins 2,324,734 47,375
S. Robert Dessalet 2,349,009 23,100
Thomas J. de Petra 2,328,259 43,850
The shareholders approved the Company's 1997 Employee Stock Purchase
Plan by a vote of 1,601,742 shares in favor, with 63,474 shares voted
against, 26,825 shares abstaining and 680,468 shares present for
determining the quorum but which lacked authority to vote on this
matter (broker non-votes).
The shareholders approved the Company's 1997 Stock Option Plan by a
vote of 1,569,912 shares in favor, with 83,954 shares voted against,
32,865 shares abstaining and 685,378 shares present for determining a
quorum but which lacked authority to vote on this matter (broker
non-votes).
The shareholders ratified the appointment of Ahern Montag & Vogler,
Ltd. as independent Auditors for the Company for the year ending
December 31, 1997 by a vote of 2,352,944 shares in favor, with 6,250
shares voted against and 12,915 shares abstaining.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index following the signature page.
(b) There are no reports on Form 8-K for the quarter ended June 30,
1997.
11
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WINLAND ELECTRONICS, INC.
Dated: August 1, 1997 By: /s/ W. K. Hankins
William K. Hankins, President,
Chief Executive Officer and
Chief Financial Officer
(Principal Executive Officer
and Principal Financial and
Accounting Officer)
12
<PAGE>
WINLAND ELECTRONICS, INC.
EXHIBIT INDEX TO FORM 10-QSB
For The Quarter Ended
June 30, 1997
Exhibit
Number Item
10.1 Winland Electronics Inc. 1997 Employee Stock Purchase Plan
10.2 Winland Electronics Inc. 1997 Stock Option Plan
10.3 Form of Incentive Stock Option Agreement under 1997 Stock Option Plan
10.4 Form of Nonqualified Stock Option Agreement under 1997 Stock Option
Plan
11 Statement Re: Computation of per share earnings.
27 Financial Data Schedule (filed only with electronic version).
13
WINLAND ELECTRONICS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I - ESTABLISHMENT OF PLAN
1.01 Adoption by Board of Directors. By action of the Board of Directors of
Winland Electronics, Inc. (the "Corporation") on December 16, 1996,
subject to approval by its shareholders, the Corporation has adopted an
employee stock purchase plan pursuant to which eligible employees of
the Corporation and certain of its Subsidiaries may be offered the
opportunity to purchase shares of Stock of the Corporation. The terms
and conditions of this Plan are set forth in this plan document, as
amended from time to time as provided herein. The Corporation intends
that the Plan shall qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended from time
to time, (the "Code") and shall be construed in a manner consistent
with the requirements of Code Section 423 and the regulations
thereunder.
1.02 Shareholder Approval and Term. This Plan shall become effective upon
its adoption by the Board of Directors and shall terminate December 31,
2002; provided, however, that the Plan shall be subject to approval by
the shareholders of the Corporation within twelve (12) months after the
Plan is adopted by the Board in the manner provided under Code Section
423 and the regulations thereunder; and provided, further that the
Board of Directors may extend the term of the Plan for such period as
the Board, in its sole discretion, deems advisable. In the event the
shareholders fail to approve the Plan within twelve (12) months after
the Plan is adopted by the Board, this Plan shall not become effective
and shall have no force and effect, participation in the Plan shall
immediately cease and all outstanding options shall immediately be
cancelled. No shares of stock shall be issued to any Participant for
any Phase unless and until the shareholders approve the Plan within
such twelve-month period.
ARTICLE II - PURPOSE
2.01 Purpose. The primary purpose of the Plan is to provide an opportunity
for Eligible Employees of the Corporation to become shareholders of the
Corporation, thereby providing them with an incentive to remain in the
Corporation's employ, to improve operations, to increase profits and to
contribute more significantly to the Corporation's success.
ARTICLE III - DEFINITIONS
3.01 "Administrator" means the Board of Directors or such Committee
appointed by the Board of Directors to administer the Plan. The Board
or the Committee may, in its sole discretion, authorize the officers of
the Corporation to carry out the day-to-day operation of the Plan. In
its sole discretion, the Board may take such actions as may be taken by
the Administrator, in addition to those powers expressly reserved to
the Board under this Plan.
<PAGE>
3.02 "Board of Directors" or "Board" means the Board of Directors of Winland
Electronics, Inc.
3.03 "Compensation" means the Participant's base compensation, excluding
commissions, overtime and all bonuses.
3.04 "Corporation" means Winland Electronics, Inc., a Minnesota corporation.
3.05 "Eligible Employee" means any employee who, as determined on or
immediately prior to an Enrollment Period, is a United States full-time
or part-time employee of the Corporation or one of its Subsidiaries.
3.06 "Enrollment Period" means the period determined by the Administrator
for purposes of accepting elections to participate during a Phase from
Eligible Employees.
3.07 "Fiscal Year" means the fiscal year of the Corporation, which is the
twelve-month period beginning January 1 and ending December 31 each
year.
3.08 "Participant" means an Eligible Employee who has been granted an option
and is participating during a Phase through payroll deductions, but
shall exclude those employees subject to the limitations described in
Section 9.03 below.
3.09 "Phase" means the period beginning on the date that the option was
granted, otherwise referred to as the commencement date of the Phase,
and ending on the date that the option was exercised, otherwise
referred to as the termination date of the Phase.
3.10 "Plan" means the Winland Electronics, Inc. 1997 Employee Stock Purchase
Plan.
3.11 "Stock" means the voting common stock of the Corporation.
3.12 "Subsidiary" means any corporation defined as a subsidiary of the
Corporation in Code Section 424(f) as of the effective date of the
Plan, and such other corporations that qualify as subsidiaries of the
Corporation under Code Section 424(f) as the Board approves to
participate in this Plan from time to time.
ARTICLE IV - ADMINISTRATION
4.01 Administration. Except for those matters expressly reserved to the
Board pursuant to any provisions of the Plan, the Administrator shall
have full responsibility for administration of the Plan, which
responsibility shall include, but shall not be limited to, the
following:
(a) The Administrator shall, subject to the provisions of the
Plan, establish, adopt and revise such rules and procedures
for administering the Plan, and shall make all other
determinations as it may deem necessary or advisable for the
administration of the Plan;
<PAGE>
(b) The Administrator shall, subject to the provisions of the
Plan, determine all terms and conditions that shall apply to
the grant and exercise of options under this Plan, including,
but not limited to, the number of shares of Stock that may be
granted, the date of grant, the exercise price and the manner
of exercise of an option. The Administrator may, in its
discretion, consider the recommendations of the management of
the Corporation when determining such terms and conditions;
(c) The Administrator shall have the exclusive authority to
interpret the provisions of the Plan, and each such
interpretation or determination shall be conclusive and
binding for all purposes and on all persons, including, but
not limited to, the Corporation and its Subsidiaries, the
shareholders of the Corporation and its Subsidiaries, the
Administrator, the directors, officers and employees of the
Corporation and its Subsidiaries, and the Participants and the
respective successors-in-interest of all of the foregoing; and
(d) The Administrator shall keep minutes of its meetings or other
written records of its decisions regarding the Plan and shall,
upon requests, provide copies to the Board.
ARTICLE V - PHASES OF THE PLAN
5.01 Phases. The Plan shall be carried out in one or more Phases of six (6)
months each. Unless otherwise determined by the Administrator, in its
discretion, Phases shall commence on January 1 and July 1 of each
fiscal year during the term of the Plan, with the first phase
commencing on January 1, 1997 and ending on June 30, 1997. No two
Phases shall run concurrently.
5.02 Limitations. The Administrator may, in its discretion, limit the number
of shares available for option grants during any Phase as it deems
appropriate. Without limiting the foregoing, in the event all of the
shares of Stock reserved for the grant of options under Section 12.01
is issued pursuant to the terms hereof prior to the commencement of one
or more Phases or the number of shares of Stock remaining is so small,
in the opinion of the Administrator, as to render administration of any
succeeding Phase impracticable, such Phase or Phases may be cancelled
or the number of shares of Stock limited as provided herein. In
addition, if, based on the payroll deductions authorized by
Participants at the beginning of a Phase, the Administrator determines
that the number of shares of Stock which would be purchased at the end
of a Phase exceeds the number of shares of Stock remaining reserved
under Section 12.01 hereof for issuance under the Plan, or if the
number of shares of Stock for which options are to be granted exceeds
the number of shares designated for option grants by the Administrator
for such Phase, then the Administrator shall make a pro rata allocation
of the shares of Stock remaining available in as nearly uniform and
equitable a manner as the Administrator shall consider practicable as
of the commencement date of the Phase or, if the Administrator so
elects, as of the termination date of the Phase. In the event such
allocation is made as of the commencement date of a Phase, the payroll
deductions which otherwise would have been made on behalf of
Participants shall be reduced accordingly.
<PAGE>
ARTICLE VI - ELIGIBILITY
6.01 Eligibility. Each employee who is an Eligible Employee on or
immediately prior to the commencement of a Phase shall be eligible to
participate in such Phase.
ARTICLE VII - PARTICIPATION
7.01 Participation. Participation in the Plan is voluntary. An Eligible
Employee who desires to participate in any Phase of the Plan must
complete the Plan enrollment form provided by the Administrator and
deliver such form to the Administrator or its designated representative
during the Enrollment Period established by the Administrator prior to
the commencement date of the Phase.
7.02 Subsequent Phases. An Eligible Employee who elects to participate in a
Phase of a fiscal year shall be deemed to have elected to participate
in each subsequent Phase during that fiscal year and all subsequent
fiscal years unless such Participant elects to discontinue payroll
deductions during a Phase or exercises his or her right to withdraw
amounts previously withheld, as provided under Article 10 hereof. In
such event, such Participant must complete a change of election form or
a new Plan enrollment form and file such form with the Administrator
during the Enrollment Period prior to the next Phase with respect to
which the Eligible Employee wishes to participate.
ARTICLE VIII - PAYMENT: PAYROLL DEDUCTIONS
8.01 Enrollment. Each Eligible Employee electing to participate shall
indicate such election on the Plan enrollment form and designate
therein a dollar amount to be deducted from such Participant's
Compensation during each pay period during the Phase; provided,
however, that the payroll deduction authorized by the Participant must
equal or exceed $10 per paycheck. The payroll deductions during a Phase
shall not equal more than fifteen percent (15%) of such Participant's
Compensation to be paid during such Phase, or such other maximum
percentage as the Administrator may establish from time to time. In
order to be effective, such Plan enrollment form must be properly
completed and received by the Administrator by the due date indicated
on such form, or by such other date established by the Administrator.
<PAGE>
8.02 Payroll Deductions. Payroll deductions for a Participant shall commence
with the paycheck issued for the first payroll period that begins
immediately after the commencement date of the Phase and shall
terminate with the paycheck issued for the last payroll period that
begins immediately prior to the termination date of that Phase, unless
the Participant elects to discontinue payroll deductions or exercises
his or her right to withdraw all accumulated payroll deductions
previously withheld during the Phase as provided in Article 10 hereof.
The authorized payroll deductions shall be made over the pay periods of
such Phase by deducting from the Participant's Compensation for each
such pay period that dollar amount specified by the Participant in the
Plan enrollment form.
Unless the Participant elected to discontinue payroll deductions or
exercised his or her right to withdraw all accumulated payroll
deductions previously withheld during the preceding Phase (in which
event the Participant must complete a change of election form or a new
Plan enrollment form, as the case may be, to continue participation for
any subsequent Phase), the Corporation shall continue to withhold from
such Participant's Compensation the same designated dollar amount
specified by the Participant in the most recent Plan enrollment form
previously completed by the Participant for all subsequent Phases;
provided, however, that the Participant may, if he or she so chooses,
discontinue payroll deductions for any or all such subsequent Phases by
properly completing a new enrollment form during the Enrollment Period
for such subsequent Phase and delivering such form to the Administrator
by the due date for receipt of such forms for that Phase.
8.03 Change in Compensation During a Phase. In the event that the
Participant's Compensation is increased or decreased during a Phase for
any reason so that the amount actually withheld on behalf of the
Participant as of the termination date of the Phase is different from
the amount anticipated to be withheld as determined on the commencement
date of the Phase, then the extent to which the Participant may
exercise his or her option shall be based on the amounts actually
withheld on his or her behalf, subject to the limitations in Article
IX. In the event of a change in the pay period of any Participant, such
as from biweekly to monthly, an appropriate adjustment shall be made to
the deduction in each new pay period so as to insure the deduction of
the proper amount authorized by the Participant.
ARTICLE IX - OPTIONS
9.01 Grant of Option. Subject to Article 10, a Participant who has elected
to participate in the manner described in Article VIII and who is
employed by the Corporation or a Subsidiary as of the commencement date
of a Phase shall be granted an option as of such date to purchase that
number of whole shares of Stock determined by dividing the total amount
to be credited to the Participant's account by the option price per
share set forth in Section 9.02(a) below. The option price per share
for such Stock shall be determined under Section 9.02 hereof, and the
number of shares exercisable shall be determined under Section 9.03
hereof.
9.02 Option Price. Subject to the limitations hereinbelow, the option price
for such Stock shall be the lower of the amounts determined under
paragraphs (a) and (b) below:
<PAGE>
(a) Eighty-five percent (85%) of the closing price for a share
of the Corporation's Stock as reported on the NASDAQ National
Market, NASDAQ SmallCap Market or on an established securities
exchange as of the commencement date of the Phase; or
(b) Eighty-five percent (85%) of the closing price for a share
of the Corporation's Stock as reported on the NASDAQ National
Market, NASDAQ SmallCap Market or on an established securities
exchange as of the termination date of the Phase.
In the event that the commencement or termination date of a Phase is a
Saturday, Sunday or holiday, the amounts determined under the foregoing
subsections shall be determined using the price as of the last
preceding trading day.
If the Corporation's Stock is not so reported in the NASDAQ National
Market, NASDAQ SmallCap Market or upon an established securities
exchange, the option price shall equal the lesser of (i) eighty-five
percent (85%) of the average of the closing "bid" and "asked" prices
quoted on the National Quotation Bureau, Inc. (or any comparable
reporting service) as of the commencement date of the Phase, or if
there are no such quoted "bid" and "asked" prices on such date, on the
next preceding date for which there are quotes, and (ii) eighty-five
percent (85%) of the average of the closing "bid" and "asked" prices
quoted on the National Quotation Bureau, Inc. (or any comparable
reporting service) as of the termination date of the phase, or if there
are no such quoted "bid" and "asked" prices on such date, on the next
preceding date for which there are such quotes.
If the Corporation's Stock is not reported on an established securities
exchange, the NASDAQ National Market, the NASDAQ SmallCap Market or the
National Quotation Bureau, Inc. (or any comparable reporting service),
then the option price shall equal the lesser of (i) eighty-five percent
(85%) of the fair market value of a share of the Corporation's Stock as
of the commencement date of the Phase, and (ii) eighty-five percent
(85%) of the fair market value of such stock as of the termination date
of the Phase. Such "fair market value" shall be determined by the
Board.
9.03 Limitations. No employee shall be granted an option hereunder:
(a) Which permits his or her rights to purchase Stock under all
employee stock purchase plans of the Corporation or its Subsidiaries to
accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000)
of fair market value of such Stock (determined at the time such option
is granted) for each calendar year in which such option is outstanding
at any time;
(b) If such employee would own and/or hold, immediately after the grant
of the option, Stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the
Corporation or of any Subsidiary. For purposes of determining stock
ownership under this paragraph, the rules of Section 424(d) of the Code
shall apply.
<PAGE>
(c) Which, if exercised, would cause the limits established by the
Administrator under Section 5.02 to be exceeded.
9.04 Exercise of Option. Subject to a Participant's right to withdraw in the
manner provided in Section 10.01, a Participant's option for the
purchase of shares of Stock will be exercised automatically on the
termination date of that Phase. However, in no event shall a
Participant be allowed to exercise an option for more shares of Stock
than can be purchased with the payroll deductions accumulated by the
Participant in his or her bookkeeping account during such Phase.
9.05 Delivery of Shares. As promptly as practicable after the termination of
any Phase, the Corporation's transfer agent or other authorized
representative shall deliver to each Participant herein certificates
for that number of whole shares of Stock purchased upon the exercise of
the Participant's option. Any accumulated payroll deductions remaining
after the exercise of the Participant's option pursuant to Section 9.04
above shall remain credited to the Participant's bookkeeping account
and applied to the purchase of shares of Stock in the next succeeding
Phase, unless the Participant requests a withdrawal of such amount
pursuant to Section 10.01. The shares of the Corporation's common stock
to be delivered to a Participant pursuant to the exercise of an option
under Section 9.04 of the Plan will be registered in the name of the
Participant.
ARTICLE X - WITHDRAWAL OR
DISCONTINUATION OF PAYROLL WITHHOLDINGS
10.01 Withdrawal. A Participant may request a withdrawal of all accumulated
payroll deductions then credited to the Participant's bookkeeping
account by completing a change of election form and filing such form
with the Administrator. The Participant's request shall be effective as
of the beginning of the next payroll period immediately following the
date that the Administrator receives the Participant's properly
completed change of election form. As soon as administratively feasible
after the end of that Phase, all payroll deductions credited to a
bookkeeping account for the Participant will be paid to such
Participant and no further payroll deductions will be made during that
Phase or any future Phase unless the Participant completes a new Plan
enrollment form as provided in Section 8.02 above. If the Participant
requests a withdrawal, the option granted to the Participant under that
Phase of the Plan shall immediately lapse and shall not be exercisable.
Partial withdrawals of payroll deductions are not permitted.
Notwithstanding the foregoing, in order to be effective for a
particular Phase, the Participant's request for withdrawal must be
properly completed and received by the Administrator on or before the
date that is fifteen (15) days before the date of the last paycheck
during the Phase, or on or before such other date established by the
Administrator. Requests for withdrawal that are received after that due
date shall not be effective and no withdrawal shall be made, unless
otherwise determined by the Administrator.
<PAGE>
10.02 Discontinuation. A Participant may also request that the Administrator
discontinue any further payroll deductions that would otherwise be made
during the remainder of the Phase by completing a change of election
form and filing such form with the Administrator on or before the date
that is fifteen (15) days before the date of the last paycheck during
the phase, or on or before such other date established by the
Administrator. The Participant's request shall be effective as of the
beginning of the next payroll period immediately following the date
that the Administrator receives the Participant's properly completed
change of election form. Upon the effective date of the Participant's
request, the Corporation will discontinue making payroll deductions for
such Participant for that Phase, and all future Phases, unless the
Participant completes another change of election form as provided
above.
ARTICLE XI - TERMINATION OF EMPLOYMENT
11.01 Termination. If, on or before the termination date of any Phase, a
Participant's employment terminates with the Corporation for any
reason, voluntarily or involuntarily, including by reason of retirement
or death, the payroll deductions credited to such Participant's
bookkeeping account for such Phase, if any, will be returned to the
Participant and any options granted to such Participant under the Plan
shall immediately lapse and shall not be exercisable. The return of
such payroll deductions shall be made to the Participant as soon as
administratively practicable following the end of the Phase in which
the Participant's termination occurred. In the event that such
termination occurs near the end of a Phase and the Corporation is
unable to discontinue payroll deductions for such Participant for his
or her final paycheck(s), such deductions shall still be made but shall
be returned to the Participant as provided herein. In no event shall
the accumulated payroll deductions be used to purchase any shares of
Stock.
If the option lapses as a result of the Participant's death, any
accumulated payroll deductions credited to the Participant's
bookkeeping account will be paid to the Participant's estate. In the
event a Participant dies after exercise of the Participant's option but
prior to delivery of the Stock to be transferred pursuant to the
exercise of the option under Section 9.04 above, any such Stock and/or
accumulated payroll deductions remaining after such exercise shall be
paid by the Corporation to the Participant's estate.
The Corporation will not be responsible for or be required to give
effect to the disposition of any cash or Stock or the exercise of any
option in accordance with any will or other testamentary disposition
made by such Participant or in accordance with the provisions of any
law concerning intestacy, or otherwise. No person shall, prior to the
death of a Participant, acquire any interest in any Stock, in any
option or in the cash credited to the Participant's bookkeeping account
during any Phase of the Plan.
11.02 Subsidiaries. In the event that any Subsidiary ceases to be a
Subsidiary of the Corporation, the employees of such Subsidiary shall
be considered to have terminated their employment for purposes of
Section 11.01 hereof as of the date the Subsidiary ceased to be a
Subsidiary of the Corporation.
<PAGE>
ARTICLE XII - STOCK RESERVED FOR OPTIONS
12.01 Shares Reserved. One Hundred Thousand (100,000) shares of Stock, which
may be authorized but unissued shares of the Corporation (or the number
and kind of securities to which said 100,000 shares may be adjusted in
accordance with Section 14.01 hereof) are reserved for issuance upon
the exercise of options to be granted under the Plan. Shares subject to
the unexercised portion of any lapsed or expired option may again be
subject to option under the Plan.
12.02 Rights as Shareholder. The Participant shall have no rights as a
shareholder with respect to any shares of Stock subject to the
Participant's option until the date of the issuance of a stock
certificate evidencing such shares as provided in Section 9.05. No
adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property), distributions or other
rights for which the record date is prior to the date such stock
certificate is actually issued, except as otherwise provided in Section
14.01 hereof.
ARTICLE XIII - ACCOUNTING AND USE OF FUNDS
13.01 Bookkeeping Account. Payroll deductions for Participants shall be
credited to bookkeeping accounts, established by the Corporation for
each such Participant under the Plan. A Participant may not make any
cash payments into such account. Such account shall be solely for
bookkeeping purposes and shall not require the Corporation to establish
any separate fund or trust hereunder. All funds from payroll deductions
received or held by the Corporation under the Plan may be used, without
limitation, for any corporate purpose by the Corporation, which shall
not be obligated to segregate such funds from its other funds.
ARTICLE XIV - ADJUSTMENT PROVISION
14.01 General. Subject to any required action by the shareholders of the
Corporation, in the event of an increase or decrease in the number of
outstanding shares of Stock or in the event the Stock is changed into
or exchanged for a different number or kind of shares of stock or other
securities of the Corporation or another corporation by reason of a
reorganization, merger, consolidation, divestiture (including a
spin-off), liquidation, recapitalization, reclassification, stock
dividend, stock split, combination of shares, rights offering or any
other change in the corporate structure or shares of the Corporation,
the Board (or, if the Corporation is not the surviving corporation in
any such transaction, the board of directors of the surviving
corporation), in its sole discretion, shall adjust the number and kind
of securities subject to and reserved under the Plan and, to prevent
the dilution or enlargement of rights of those Eligible Employees to
whom options have been granted, shall adjust the number and kind of
securities subject to such outstanding options and, where applicable,
the exercise price per share for such securities.
<PAGE>
In the event of sale by the Corporation of substantially all of its
assets and the consequent discontinuance of its business, or in the
event of a merger, exchange, consolidation, reorganization, divestiture
(including a spin-off), liquidation, reclassification or extraordinary
dividend (collectively referred to as a "transaction"), after which the
Corporation is not the surviving corporation, the Board may, in its
sole discretion, at the time of adoption of the plan for such
transaction, may provide for one or more of the following:
(a) The acceleration of the exercisability of outstanding
options granted at the commencement of the Phase then
in effect, to the extent of the accumulated payroll
deductions made as of the date of such acceleration
pursuant to Article 8 hereof;
(b) The complete termination of this Plan and a refund of
amounts credited to the Participants' bookkeeping
accounts hereunder; or
(c) The continuance of the Plan only with respect to
completion of the then current Phase and the exercise
of options thereunder. In the event of such
continuance, Participants shall have the right to
exercise their options as to an equivalent number of
shares of stock of the corporation succeeding the
Corporation by reason of such transaction.
In the event of a transaction where the Corporation survives, then the
Plan shall continue in effect, unless the Board takes one or more of
the actions set forth above. The grant of an option pursuant to the
Plan shall not limit in any way the right or power of the Corporation
to make adjustments, reclassifications, reorganizations or changes in
its capital or business structure or to merge, exchange or consolidate
or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
ARTICLE XV - NONTRANSFERABILITY OF OPTIONS
15.01 Nontransferability. Options granted under any Phase of the Plan shall
not be transferable and shall be exercisable only by the Participant
during the Participant's lifetime.
15.02 Nonalienation. Neither payroll deductions granted to a Participant's
account, nor any rights with regard to the exercise of an option or to
receive Stock under any Phase of the Plan may be assigned, transferred,
pledged or otherwise disposed of in any way by the Participant. Any
such attempted assignment, transfer, pledge or other disposition shall
be null and void and without effect, except that the Corporation may,
at its option, treat such act as an election to withdraw in accordance
with Section 10.01.
<PAGE>
ARTICLE XVI - AMENDMENT AND TERMINATION
16.01 General. The Plan may be terminated at any time by the Board of
Directors, provided that, except as permitted in Section 14.01 hereof,
no such termination shall take effect with respect to any options then
outstanding. The Board may, from time to time, amend the Plan as it may
deem proper and in the best interests of the Corporation or as may be
necessary to comply with Code Section 423, as amended, and the
regulations thereunder, or other applicable laws or regulations;
provided, however, no such amendment shall, without the consent of a
Participant, materially adversely affect or impair the right of a
Participant with respect to any outstanding option; and provided,
further, that no such amendment shall:
(a) increase the total number of shares for which options
may be granted under the Plan (except as provided in
Section 14.01 herein);
(b) modify the group of Subsidiaries whose employees may
be eligible to participate in the Plan or materially
modify any other requirements as to eligibility for
participation in the Plan; or
(c) materially increase the benefits accruing to
Participants under the Plan;
without the approval of the Corporation's shareholders, if such
approval is required for compliance with Code Section 423, as amended,
and the regulations thereunder, or other applicable laws or
regulations.
ARTICLE XVII - NOTICES
17.01 General. All notices, forms, elections or other communications in
connection with the Plan or any Phase thereof shall be in such form as
specified by the Corporation or the Administrator from time to time,
and shall be deemed to have been duly given when received by the
Participant or his or her personal representative or by the Corporation
or its designated representative, as the case may be.
WINLAND ELECTRONICS, INC.
1997 STOCK OPTION PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Committee" shall mean a Committee of two or more directors who
shall be appointed by and serve at the pleasure of the Board. As long
as the Company's securities are registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, then, to the extent
necessary for compliance with Rule 16b-3, or any successor provision,
each of the members of the Committee shall be a "Non-Employee
Director." For purposes of this Section 1(a) "Non-Employee Director"
shall have the same meaning as set forth in Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(b) The "Company" shall mean Winland Electronics, Inc., a Minnesota
corporation.
(c) "Fair Market Value" of stock as of any date shall have the
following meanings: (i) if such stock is reported by the Nasdaq
National Market or Nasdaq SmallCap Market or is listed upon an
established stock exchange or exchanges, the reported closing price of
such stock by the Nasdaq National Market, Nasdaq SmallCap Market or on
such stock exchange or exchanges on such date or, if no sale of such
stock shall have occurred on that date, on the next preceding day on
which there was a sale of stock; (ii) if such stock is not reported by
the Nasdaq National Market, Nasdaq SmallCap Market or listed upon an
established stock exchange, the average of the closing "bid" and
"asked" prices quoted by the National Quotation Bureau, Inc. (or any
comparable reporting service) on such date, or if there are no quoted
"bid" and "asked" prices on such date, on the next preceding date for
which there are such quotes; or (iii) if such stock is not publicly
traded as of such date, the per share value as determined by the Board,
or the Committee, in its sole discretion by applying principles of
valuation with respect to all such options.
(d) The "Internal Revenue Code" is the Internal Revenue Code of 1986,
as amended from time to time.
(e) "Non-Employee Director" shall mean members of the Board who are not
employees of the Company or any subsidiary.
(f) "Option Stock" shall mean Common Stock of the Company (subject to
adjustment as described in Section 13) reserved for options pursuant to
this Plan.
(g) The "Optionee" means an employee of the Company or any Subsidiary
to whom an incentive stock option has been granted pursuant to Section
9; a consultant or advisor to or director (including a Non-Employee
Director), employee or officer of the Company or any Subsidiary to whom
a nonqualified stock option has been granted pursuant to Section 10; or
a Non-Employee Director to whom a nonqualified stock option has been
granted pursuant to Section 11.
<PAGE>
(h) "Parent" shall mean any corporation which owns, directly or
indirectly in an unbroken chain, fifty percent (50%) or more of the
total voting power of the Company's outstanding stock.
(i) The "Plan" means the Winland Electronics, Inc. 1997 Stock Option
Plan, as amended hereafter from time to time, including the form of
Option Agreements as they may be modified by the Board from time to
time.
(j) A "Subsidiary" shall mean any corporation of which fifty percent
(50%) or more of the total voting power of outstanding stock is owned,
directly or indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and
its Subsidiaries by facilitating the retention of competent personnel and by
furnishing incentive to officers, directors, employees, consultants, and
advisors upon whose efforts the success of the Company and its Subsidiaries will
depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Section 422 of the Internal Revenue Code, or any successor
provision, pursuant to Section 9 of this Plan, and through the granting of
"nonqualified stock options" pursuant to Sections 10 and 11 of this Plan.
Adoption of this Plan shall be and is expressly subject to the condition of
approval by the shareholders of the Company within twelve (12) months before or
after the adoption of the Plan by the Board of Directors. Any incentive stock
options granted after adoption of the Plan by the Board of Directors shall be
treated as nonqualified stock options if shareholder approval is not obtained
within such twelve-month period.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date of adoption by the Board of
Directors, subject to approval by the shareholders of the Company as required in
Section 2.
<PAGE>
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(hereinafter referred to as the "Board") or by a Committee which may be
appointed by the Board from time to time (collectively referred to as the
"Administrator"). The Administrator shall have all of the powers vested in it
under the provisions of the Plan, including but not limited to exclusive
authority (where applicable and within the limitations described herein) to
determine, in its sole discretion, whether an incentive stock option or
nonqualified stock option shall be granted, the individuals to whom, and the
time or times at which, options shall be granted, the number of shares subject
to each option and the option price and terms and conditions of each option. The
Administrator shall have full power and authority to administer and interpret
the Plan, to make and amend rules, regulations and guidelines for administering
the Plan, to prescribe the form and conditions of the respective stock option
agreements (which may vary from Optionee to Optionee) evidencing each option and
to make all other determinations necessary or advisable for the administration
of the Plan. The Administrator's interpretation of the Plan, and all actions
taken and determinations made by the Administrator pursuant to the power vested
in it hereunder, shall be conclusive and binding on all parties concerned.
No member of the Board or the Committee shall be liable for any action
taken or determination made in good faith in connection with the administration
of the Plan. In the event the Board appoints a Committee as provided hereunder,
any action of the Committee with respect to the administration of the Plan shall
be taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Administrator shall from time to time, at its discretion and
without approval of the shareholders, designate those employees, officers,
directors (including Non-Employee Directors), consultants, and advisors of the
Company or of any Subsidiary to whom nonqualified stock options shall be granted
pursuant to Section 10 of the Plan; provided, however, that consultants or
advisors shall not be eligible to receive stock options hereunder unless such
consultant or advisor renders bona fide services to the Company or Subsidiary
and such services are not in connection with the offer or sale of securities in
a capital raising transaction; and, provided further, that Non-Employee
Directors will be granted nonqualified stock options pursuant to Section 11 of
the Plan without any further action by the Administrator. The Administrator
shall, from time to time, at its discretion and without approval of the
shareholders, designate those employees of the Company or any Subsidiary to whom
incentive stock options shall be granted pursuant to Section 9 of the Plan. The
Administrator may grant additional incentive stock options or nonqualified stock
options under this Plan to some or all participants then holding options or may
grant options solely or partially to new participants. In designating
participants, the Administrator shall also determine the number of shares to be
optioned to each such participant. The Board may from time to time designate
individuals as being ineligible to participate in the Plan.
<PAGE>
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized
but unissued shares of Option Stock. Three Hundred Thousand (300,000) shares of
Option Stock shall be reserved and available for options under the Plan;
provided, however, that the total number of shares of Option Stock reserved for
options under this Plan shall be subject to adjustment as provided in Section 13
of the Plan. In the event that any outstanding option under the Plan for any
reason expires or is terminated prior to the exercise thereof, the shares of
Option Stock allocable to the unexercised portion of such option shall continue
to be reserved for options under the Plan and may be optioned hereunder.
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan from time
to time during a period of ten (10) years from the effective date as defined in
Section 3. Nonqualified stock options may be granted pursuant to the Plan from
time to time after the effective date of the Plan and until the Plan is
discontinued or terminated by the Board. Any incentive stock option granted
during such ten-year period and any nonqualified stock option granted prior to
the termination of the Plan by the Board shall remain in full force and effect
until the expiration of the option as specified in the written stock option
agreement and shall remain subject to the terms and conditions of this Plan.
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant
to this Plan with cash, personal check, certified check or, if approved by the
Administrator in its sole discretion, Common Stock of the Company valued at such
stock's then Fair Market Value, or such other form of payment as may be
authorized by the Administrator. The Administrator may, in its sole discretion,
limit the forms of payment available to the Optionee and may exercise such
discretion any time prior to the termination of the option granted to the
Optionee or upon any exercise of the option by the Optionee.
With respect to payment in the form of Common Stock of the Company, the
Administrator may require advance approval or adopt such rules as it deems
necessary to assure compliance with Rule 16b-3, or any successor provision, as
then in effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to this Section 9 shall be
evidenced by a written stock option agreement (the "Option Agreement"). The
Option Agreement shall be in such form as may be approved from time to time by
the Administrator and may vary from Optionee to Optionee; provided, however,
that each Optionee and each Option Agreement shall comply with and be subject to
the following terms and conditions:
<PAGE>
(a) Number of Shares and Option Price. The Option Agreement shall state
the total number of shares covered by the incentive stock option. To
the extent required to qualify the Option as an incentive stock option
under Section 422 of the Internal Revenue Code, or any successor
provision, the option price per share shall not be less than one
hundred percent (100%) of the Fair Market Value of the Common Stock per
share on the date the Administrator grants the option; provided,
however, that if an Optionee owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company or of its parent or any Subsidiary, the option
price per share of an incentive stock option granted to such Optionee
shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the Common Stock per share on the date of the grant of
the option. The Administrator shall have full authority and discretion
in establishing the option price and shall be fully protected in so
doing.
(b) Term and Exercisability of Incentive Stock Option. The term during
which any incentive stock option granted under the Plan may be
exercised shall be established in each case by the Administrator. To
the extent required to qualify the Option as an incentive stock option
under Section 422 of the Internal Revenue Code, or any successor
provision, in no event shall any incentive stock option be exercisable
during a term of more than ten (10) years after the date on which it is
granted; provided, however, that if an Optionee owns stock possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of its parent or any Subsidiary, the
incentive stock option granted to such Optionee shall be exercisable
during a term of not more than five (5) years after the date on which
it is granted.
The Option Agreement shall state when the incentive stock option
becomes exercisable and shall also state the maximum term during which
the option may be exercised. In the event an incentive stock option is
exercisable immediately, the manner of exercise of the option in the
event it is not exercised in full immediately shall be specified in the
Option Agreement. The Administrator may accelerate the exercisability
of any incentive stock option granted hereunder which is not
immediately exercisable as of the date of grant.
(c) Other Provisions. The Option Agreement authorized under this
Section 9 shall contain such other provisions as the Administrator
shall deem advisable. Any such Option Agreement shall contain such
limitations and restrictions upon the exercise of the option as shall
be necessary to ensure that such option will be considered an
"incentive stock option" as defined in Section 422 of the Internal
Revenue Code or to conform to any change therein.
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to this Section 10
shall be evidenced by a written Option Agreement. The Option Agreement shall be
in such form as may be approved from time to time by the Administrator and may
vary from Optionee to Optionee; provided, however, that each Optionee and each
Option Agreement shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares and Option Price. The Option Agreement shall state
the total number of shares covered by the nonqualified stock option.
Unless otherwise determined by the Administrator, the option price per
share shall be one hundred percent (100%) of the Fair Market Value of
the Common Stock per share on the date the Administrator grants the
option; provided, however, that the option price may not be less than
eighty-five percent (85%) of the Fair Market Value of the Common Stock
per share on the date of grant.
<PAGE>
(b) Term and Exercisability of Nonqualified Stock Option. The term
during which any nonqualified stock option granted under the Plan may
be exercised shall be established in each case by the Administrator.
The Option Agreement shall state when the nonqualified stock option
becomes exercisable and shall also state the maximum term during which
the option may be exercised. In the event a nonqualified stock option
is exercisable immediately, the manner of exercise of the option in the
event it is not exercised in full immediately shall be specified in the
stock option agreement. The Administrator may accelerate the
exercisability of any nonqualified stock option granted hereunder which
is not immediately exercisable as of the date of grant.
(c) Withholding. The Company or its Subsidiary shall be entitled to
withhold and deduct from future wages of the Optionee all legally
required amounts necessary to satisfy any and all withholding and
employment-related taxes attributable to the Optionee's exercise of a
nonqualified stock option. In the event the Optionee is required under
the Option Agreement to pay the Company, or make arrangements
satisfactory to the Company respecting payment of, such withholding and
employment-related taxes, the Administrator may, in its discretion and
pursuant to such rules as it may adopt, permit the Optionee to satisfy
such obligation, in whole or in part, by electing to have the Company
withhold shares of Common Stock otherwise issuable to the Optionee as a
result of the option's exercise equal to the amount required to be
withheld for tax purposes. Any stock elected to be withheld shall be
valued at its Fair Market Value, as of the date the amount of tax to be
withheld is determined under applicable tax law. The Optionee's
election to have shares withheld for this purpose shall be made on or
before the date the option is exercised or, if later, the date that the
amount of tax to be withheld is determined under applicable tax law.
Such election shall be approved by the Administrator and otherwise
comply with such rules as the Administrator may adopt to assure
compliance with Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.
(d) Other Provisions. The Option Agreement authorized under this
Section 10 shall contain such other provisions as the Administrator
shall deem advisable.
SECTION 11.
GRANTING OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Upon Joining Board. Each Non-Employee Director of the Company whose
initial election or appointment to the Board of Directors occurs on or
after the date this Plan is approved by the Company's shareholders
shall, as of the date of such election, automatically be granted an
option to 100% of the Fair Market Value of the Common Stock on such
date. Options granted pursuant to this subsection (a) shall be
immediately exercisable upon grant.
<PAGE>
(b) Upon Re-election to Board. Each Non-Employee Director who, on and
after the date this Plan is approved by the Company's shareholders, is
re-elected as a director of the Company or whose term of office
continues after a meeting of shareholders at which directors are
elected shall, as of the date of such re-election or shareholder
meeting, automatically be granted an option to purchase 3,000 shares of
the Common Stock at an option price per share equal to 100% of the Fair
Market Value of the Common Stock on the date of such re-election or
shareholder meeting. Options granted pursuant to this subsection (b)
shall be immediately exercisable in full.
(c) General. No director shall receive more than one option to purchase
3,000 shares pursuant to this Section 11 in any one fiscal year. All
options granted pursuant to this Section 11 shall be designated as
nonqualified options and shall be subject to the same terms and
provisions as are then in effect with respect to granting of
nonqualified options to officers and employees of the Company, except
that the option shall expire on the earlier of (i) three months after
the Optionee ceases to be a director for any reason other than death
and (ii) five (5) years after the date of grant. In the event of the
death of the Non-Employee Director, the option shall expire on the
earlier of (A) six months after the death of the Non-Employee Director
and (B) five (5) years after the date of grant. Nothwithstanding the
foregoing, if the Optionee ceases to be a director because of a "change
of control transaction" which is treated as a "pooling of interests"
under generally accepted accounting principles under applicable legal
and accounting principles, the option shall completely terminate on the
later of (1) the close of business on the three-month anniversary date
of the termination of such directorship and (2) the close of business
on the date that is 60 days after the date on which affiliates are no
longer restricted from selling, transferring or otherwise disposing of
the shares of stock received in the change of control transaction.
SECTION 12.
TRANSFER OF OPTION
No incentive stock option shall be transferable, in whole or in part,
by the Optionee other than by will or by the laws of descent and distribution
and, during the Optionee's lifetime, the option may be exercised only by the
Optionee. If the Optionee shall attempt any transfer of any incentive stock
option granted under the Plan during the Optionee's lifetime, such transfer
shall be void and the incentive stock option, to the extent not fully exercised,
shall terminate.
The Administrator may, in its sole discretion, permit the Optionee to
transfer any or all nonqualified stock options to any member of the Optionee's
"immediate family" as such term is defined in Rule 16a-1(e) promulgated under
the Securities Exchange Act of 1934, or any successor provision, or to one or
more trusts whose beneficiaries are members of such Optionee's "immediate
family" or partnerships in which such family members are the only partners;
provided, however, that the Optionee receives no consideration for the transfer
and such transferred nonqualified stock option shall continue to be subject to
the same terms and conditions as were applicable to such nonqualified stock
option immediately prior to its transfer.
<PAGE>
SECTION 13.
RECAPITALIZATION, SALE, MERGER, EXCHANGE
OR LIQUIDATION
In the event of an increase or decrease in the number of shares of
Common Stock resulting from a subdivision or consolidation of shares or the
payment of a stock dividend or any other increase or decrease in the number of
shares of Common Stock effected without receipt of consideration by the Company,
the number of shares of Option Stock reserved under Section 6 hereof and the
number of shares of Option Stock covered by each outstanding option and the
price per share thereof shall be adjusted by the Board to reflect such change.
Additional shares which may be credited pursuant to such adjustment shall be
subject to the same restrictions as are applicable to the shares with respect to
which the adjustment relates.
Unless otherwise provided in the stock option agreement, in the event
of an acquisition of the Company through the sale of substantially all of the
Company's assets and the consequent discontinuance of its business or through a
merger, consolidation, exchange, reorganization, reclassification, extraordinary
dividend, divestiture or liquidation of the Company (collectively referred to as
a "transaction"), all outstanding options shall become immediately exercisable,
whether or not such options had become exercisable prior to the transaction;
provided, however, that if the acquiring party seeks to have the transaction
accounted for on a "pooling of interests" basis and, in the opinion of the
Company's independent certified public accountants, accelerating the
exercisability of such options would preclude a pooling of interests under
generally accepted accounting principles, the exercisability of such options
shall not accelerate. In addition to the foregoing, in the event of such a
transaction, the Board may provide for one or more of the following:
(a) the complete termination of this Plan and cancellation of
outstanding options not exercised prior to a date specified by the
Board (which date shall give Optionees a reasonable period of time in
which to exercise the options prior to the effectiveness of such
transaction);
(b) that Optionees holding outstanding incentive or nonqualified
options shall receive, with respect to each share of Option Stock
subject to such options, as of the effective date of any such
transaction, cash in an amount equal to the excess of the Fair Market
Value of such Option Stock on the date immediately preceding the
effective date of such transaction over the option price per share of
such options; provided that the Board may, in lieu of such cash
payment, distribute to such Optionees shares of stock of the Company or
shares of stock of any corporation succeeding the Company by reason of
such transaction, such shares having a value equal to the cash payment
herein; or
(c) the continuance of the Plan with respect to the exercise of options
which were outstanding as of the date of adoption by the Board of such
plan for such transaction and provide to Optionees holding such options
the right to exercise their respective options as to an equivalent
number of shares of stock of the corporation succeeding the Company by
reason of such transaction.
The Board may restrict the rights of or the applicability of this Section 13 to
the extent necessary to comply with Section 16(b) of the Securities Exchange Act
of 1934, the Internal Revenue Code or any other applicable law or regulation.
The grant of an option pursuant to the Plan shall not limit in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge, exchange or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
<PAGE>
SECTION 14.
SECURITIES LAW COMPLIANCE
No shares of Common Stock shall be issued pursuant to the Plan unless
and until there has been compliance, in the opinion of Company's counsel, with
all applicable legal requirements, including without limitation, those relating
to securities laws and stock exchange listing requirements. As a condition to
the issuance of Option Stock to Optionee, the Administrator may require Optionee
to (a) represent that the shares of Option Stock are being acquired for
investment and not resale and to make such other representations as the
Administrator shall deem necessary or appropriate to qualify the issuance of the
shares as exempt from the Securities Act of 1933 and any other applicable
securities laws, and (b) represent that Optionee shall not dispose of the shares
of Option Stock in violation of the Securities Act of 1933 or any other
applicable securities laws.
As a further condition to the grant of any incentive or nonqualified
stock option or the issuance of Option Stock to Optionee, Optionee agrees to the
following:
(a) In the event the Company advises Optionee that it plans an
underwritten public offering of its Common Stock in compliance with the
Securities Act of 1933, as amended, and the underwriter(s) seek to
impose restrictions under which certain shareholders may not sell or
contract to sell or grant any option to buy or otherwise dispose of
part or all of their stock purchase rights of the underlying Common
Stock, Optionee will not, for a period not to exceed 180 days from the
prospectus, sell or contract to sell or grant an option to buy or
otherwise dispose of any incentive or nonqualified stock option granted
to Optionee pursuant to the Plan or any of the underlying shares of
Common Stock without the prior written consent of the underwriter(s) or
its representative(s).
(b) In the event the Company makes any public offering of its
securities and determines in its sole discretion that it is necessary
to reduce the number of issued but unexercised stock purchase rights so
as to comply with any states securities or Blue Sky law limitations
with respect thereto, the Board of Directors of the Company shall have
the right (i) to accelerate the exercisability of any incentive or
nonqualified stock option and the date on which such option must be
exercised, provided that the Company gives Optionee prior written
notice of such acceleration, and (ii) to cancel any options or portions
thereof which Optionee does not exercise prior to or contemporaneously
with such public offering.
(c) In the event of a transaction (as defined in Section 13 of the
Plan) which is treated as a "pooling of interests" under generally
accepted accounting principles, Optionee will comply with Rule 145 of
the Securities Act of 1933 and any other restrictions imposed under
other applicable legal or accounting principles if Optionee is an
"affiliate" (as defined in such applicable legal and accounting
principles) at the time of the transaction, and Optionee will execute
any documents necessary to ensure compliance with such rules.
The Company reserves the right to place a legend on any stock certificate issued
upon exercise of an option granted pursuant to the Plan to assure compliance
with this Section 14.
<PAGE>
SECTION 15.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an option until
the date of the issuance of a stock certificate evidencing such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 13 of the Plan).
SECTION 16.
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend
or discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment, except as is authorized in Section 13, shall
impair the terms and conditions of any option which is outstanding on the date
of such revision or amendment to the material detriment of the Optionee without
the consent of the Optionee. Notwithstanding the foregoing, no such revision or
amendment shall (i) materially increase the number of shares subject to the Plan
except as provided in Section 13 hereof, (ii) change the designation of the
class of employees eligible to receive options, (iii) decrease the price at
which options may be granted, or (iv) materially increase the benefits accruing
to Optionees under the Plan without the approval of the shareholders of the
Company if such approval is required for compliance with the requirements of any
applicable law or regulation. Furthermore, the Plan may not, without the
approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal
Revenue Code.
SECTION 17.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee
to exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the Optionee
in its employ for any period.
WINLAND ELECTRONICS, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made effective as of this _____ day of ___________,
199__, by and between Winland Electronics, Inc., a Minnesota corporation (the
"Company"), and ("Optionee").
W I T N E S S E T H:
WHEREAS, Optionee on the date hereof is a key employee of the Company
or one of its Subsidiaries; and
WHEREAS, the Company wishes to grant an incentive stock option to
Optionee to purchase shares of the Company's Common Stock pursuant to the
Company's 1997 Stock Option Plan (the "Plan"); and
WHEREAS, the Administrator of the Plan has authorized the grant of an
incentive stock option to Optionee and has determined that, as of the effective
date of this Agreement, the fair market value of the Company's Common Stock is
$_______ per share;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Optionee on the date
set forth above (the "Date of Grant"), the right and option (the "Option") to
purchase all or portions of an aggregate of _____________ (_______) shares of
Common Stock at a per share price of $_________ on the terms and conditions set
forth herein, subject to adjustment pursuant to Section 13 of the Plan. Except
as otherwise provided in Paragraph 2(c), this Option is intended to be an
incentive stock option within the meaning of Section 422, or any successor
provision, of the Internal Revenue Code of 1986, as amended (the "Code"), and
the regulations thereunder.
2. Duration and Exercisability.
a. The term during which this Option may be exercised shall
terminate on _____________, _____, except as otherwise provided in Paragraphs
2(b) through 2(e) below. This Option shall become exercisable according to the
following schedule:
Percentage/Number
Vesting Date of Shares
<PAGE>
Once the Option becomes exercisable to the extent of one hundred percent (100%)
of the aggregate number of shares specified in Paragraph 1, Optionee may
continue to exercise this Option under the terms and conditions of this
Agreement until the termination of the Option as provided herein. If Optionee
does not purchase upon an exercise of this Option the full number of shares
which Optionee is then entitled to purchase, Optionee may purchase upon any
subsequent exercise prior to this Option's termination such previously
unpurchased shares in addition to those Optionee is otherwise entitled to
purchase.
b. Termination of Employment (other than Change of Control,
Disability or Death). If Optionee's employment with the Company or any
Subsidiary is terminated for any reason other than because of a "change of
control transaction" as described in Paragraph 2(c) or because of disability or
death, this Option shall completely terminate on the earlier of (i) the close of
business on the three-month anniversary date of such termination of employment,
and (ii) the expiration date of this Option stated in Paragraph 2 above.
In such period following the termination of Optionee's employment, this
Option shall be exercisable only to the extent the Option was exercisable on the
vesting date immediately preceding such termination of employment but had not
previously been exercised. To the extent this Option was not exercisable upon
such termination of employment or if Optionee does not exercise the Option
within the time specified in this Paragraph 2(b), all rights of Optionee under
this Option shall be forfeited.
c. Change of Control. If Optionee's employment with the
Company or any Subsidiary is terminated because of a "change of control
transaction," this Option shall completely terminate on the earlier of (i) the
close of business on the three-month anniversary date of such termination of
employment and (ii) the expiration date of this Option stated in Paragraph 2(a)
above; provided, however, that if (a) such transaction is treated as a "pooling
of interests" under generally accepted accounting principles and (b) Optionee is
an "affiliate" of the Company or Subsidiary under applicable legal and
accounting principles, this Option shall completely terminate on the later of
(A) the close of business on the three-month anniversary date of such
termination of employment or (B) the close of business on the date that is sixty
(60) days after the date on which affiliates are no longer restricted from
selling, transferring or otherwise disposing of the shares of stock received in
the change of control transaction.
In such period following the termination of Optionee's employment upon
a change of control transaction, this Option shall be fully exercisable unless
the acceleration of the exercisability of this Option has been prevented as
provided in Section 13 of the Plan, in which case, this Option shall be
exercisable only to the extent the Option was exercisable on the vesting date
immediately preceding such termination of employment, but had not previously
been exercised. To the extent this Option was not exercisable upon such
termination of employment or if Optionee does not exercise the Option within the
time specified in this Paragraph 2(c), all rights of Optionee under this Option
shall be forfeited. If Optionee exercises this Option on a date that is after
the three-month anniversary date of the termination of Optionee's employment or
on a date that is more than ten years (or five years, if applicable) after the
Date of Grant, this Option shall not be treated as an incentive stock option
within the meaning of Code Section 422.
<PAGE>
For purposes of this Paragraph 2(c), a "change of control transaction"
means an acquisition of the Company through the sale of substantially all of the
Company's assets and the consequent discontinuance of its business or through a
merger, consolidation, exchange, reorganization, reclassification, extraordinary
dividend, divestiture (including a spin-off) or liquidation of the Company.
d. Disability. If Optionee ceases to be an employee of the
Company or any Subsidiary due to disability (as such term is defined in Code
Section 22(e)(3), or any successor provision), this Option shall completely
terminate on the earlier of (i) the close of business on the twelve-month
anniversary date of such termination of employment, and (ii) the expiration date
under this Option stated in Paragraph 2(a) above. In such period following such
termination of employment, this Option shall be exercisable only to the extent
the Option was exercisable on the vesting date immediately preceding the date of
Optionee's termination of employment. If Optionee does not exercise the Option
within the time specified in this Paragraph 2(d), all rights of Optionee under
this Option shall be forfeited.
e. Death. In the event of Optionee's death, this Option shall
terminate on the earlier of (i) the close of business on the twelve-month
anniversary date of the date of Optionee's death, and (ii) the expiration date
of this Option stated in Paragraph 2(a) above. In such period following
Optionee's death, this Option shall be exercisable by the person or persons to
whom Optionee's rights under this Option shall have passed by Optionee's will or
by the laws of descent and distribution only to the extent the Option was
exercisable on the vesting date immediately preceding the date of Optionee's
death. If such person or persons do not exercise this Option within the time
specified in this Paragraph 2(e), all rights under this Option shall be
forfeited.
3. Manner of Exercise.
a. General. The Option may be exercised only by Optionee (or
other proper party in the event of death or incapacity), subject to the
conditions of the Plan and subject to such other administrative rules as the
Administrator may deem advisable, by delivering within the Option Period written
notice of exercise to the Company at its principal office. The notice shall
state the number of shares as to which the Option is being exercised and shall
be accompanied by payment in full of the Option price for all shares designated
in the notice. The exercise of the Option shall be deemed effective upon receipt
of such notice by the Company and upon payment that complies with the terms of
the Plan and this Agreement. The Option may be exercised with respect to any
number or all of the shares as to which it can then be exercised and, if
partially exercised, may be so exercised as to the unexercised shares any number
of times during the Option period as provided herein.
b. Form of Payment. Payment of the Option price by Optionee
shall be in the form of cash, personal check, certified check or previously
acquired shares of Common Stock of the Company, or any combination thereof. Any
stock so tendered as part of such payment shall be valued at its Fair Market
Value (as defined in the Plan) on the date of exercise of the Option. For
purposes of this Agreement, "previously acquired shares of Common Stock" shall
include shares of Common Stock that are already owned by Optionee at the time of
exercise.
<PAGE>
c. Stock Transfer Records. As soon as practicable after the
effective exercise of all or any part of the Option, Optionee shall be recorded
on the stock transfer books of the Company as the owner of the shares purchased,
and the Company shall deliver to Optionee one or more duly issued stock
certificates evidencing such ownership. All requisite original issue or transfer
documentary stamp taxes shall be paid by the Company.
4. Miscellaneous.
a. Employment; Rights as Shareholder. This Agreement shall not
confer on Optionee any right with respect to continuance of employment by the
Company or any of its Subsidiaries, nor will it interfere in any way with the
right of the Company to terminate such employment. Optionee shall have no rights
as a shareholder with respect to shares subject to this Option until such shares
have been issued to Optionee upon exercise of this Option. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property), distributions or other rights for which the record date is
prior to the date such shares are issued, except as provided in Section 13 of
the Plan.
b. Securities Law Compliance. The exercise of all or any parts
of this Option shall only be effective at such time as counsel to the Company
shall have determined that the issuance and delivery of Common Stock pursuant to
such exercise will not violate any state or federal securities or other laws.
Optionee may be required by the Company, as a condition of the effectiveness of
any exercise of this Option, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held, until such time that such
Common Stock is registered and freely tradable under applicable state and
federal securities laws, for Optionee's own account without a view to any
further distribution thereof, that the certificates for such shares shall bear
an appropriate legend to that effect and that such shares will not be
transferred or disposed of except in compliance with applicable state and
federal securities laws.
c. Mergers, Recapitalizations, Stock Splits, Etc. Pursuant and
subject to Section 13 of the Plan, certain changes in the number or character of
the Common Stock of the Company (through sale, merger, consolidation, exchange,
reorganization, divestiture (including a spin-off), liquidation,
recapitalization, stock split, stock dividend or otherwise) shall result in an
adjustment, reduction or enlargement, as appropriate, in Optionee's rights with
respect to any unexercised portion of the Option (i.e., Optionee shall have such
"anti-dilution" rights under the Option with respect to such events, but shall
not have "preemptive" rights).
d. Withholding Taxes on Disqualifying Disposition. In the
event of a disqualifying disposition of the shares acquired through the exercise
of this Option, Optionee hereby agrees to inform the Company of such
disposition. Upon notice of a disqualifying disposition, the Company may take
such action as it deems appropriate to insure that, if necessary to comply with
all applicable federal or state income tax laws or regulations, all applicable
federal and state payroll, income or other taxes are withheld from any amounts
payable by the Company to Optionee. If the Company is unable to withhold such
federal and state taxes, for whatever reason, Optionee hereby agrees to pay to
the Company an amount equal to the amount the Company would otherwise be
required to withhold under federal or state law. Optionee may, subject to the
approval and discretion of the Administrator or such administrative rules it may
deem advisable, elect to have all or a portion of such tax withholding
obligations satisfied by delivering shares of the Company's Common Stock having
a fair market value equal to such obligations.
<PAGE>
e. Nontransferability. During the lifetime of Optionee, the
accrued Option shall be exercisable only by Optionee or by the Optionee's
guardian or other legal representative, and shall not be assignable or
transferable by Optionee, in whole or in part, other than by will or by the laws
of descent and distribution.
f. 1997 Stock Option Plan. The Option evidenced by this
Agreement is granted pursuant to the Plan, a copy of which Plan has been made
available to Optionee and is hereby incorporated into this Agreement. This
Agreement is subject to and in all respects limited and conditioned as provided
in the Plan. The Plan governs this Option and, in the event of any questions as
to the construction of this Agreement or in the event of a conflict between the
Plan and this Agreement, the Plan shall govern, except as the Plan otherwise
provides.
g. Lockup Period Limitation. Optionee agrees that in the event
the Company advises Optionee that it plans an underwritten public offering of
its Common Stock in compliance with the Securities Act of 1933, as amended, and
that the underwriter(s) seek to impose restrictions under which certain
shareholders may not sell or contract to sell or grant any option to buy or
otherwise dispose of part or all of their stock purchase rights of the
underlying Common Stock, Optionee hereby agrees that for a period not to exceed
180 days from the date of the prospectus, Optionee will not sell or contract to
sell or grant an option to buy or otherwise dispose of this option or any of the
underlying shares of Common Stock without the prior written consent of the
underwriter(s) or its representative(s).
h. Blue Sky Limitation. Notwithstanding anything in this
Agreement to the contrary, in the event the Company makes any public offering of
its securities and determines in its sole discretion that it is necessary to
reduce the number of issued but unexercised stock purchase rights so as to
comply with any state securities or Blue Sky law limitations with respect
thereto, the Board of Directors of the Company shall have the right (i) to
accelerate the exercisability of this Option and the date on which this Option
must be exercised, provided that the Company gives Optionee 15 days' prior
written notice of such acceleration, and (ii) to cancel any portion of this
Option or any other option granted to Optionee pursuant to the Plan which is not
exercised prior to or contemporaneously with such public offering. Notice shall
be deemed given when delivered personally or when deposited in the United States
mail, first class postage prepaid and addressed to Optionee at the address of
Optionee on file with the Company.
i. Accounting Compliance. Optionee agrees that, in the event a
"change of control transaction" (as defined in Paragraph 2(c) above) is treated
as a "pooling of interests" under generally accepted accounting principles and
Optionee is an "affiliate" of the Company or any Subsidiary (as defined in
applicable legal and accounting principles) at the time of such change of
control transaction, Optionee will comply with all requirements of Rule 145 of
the Securities Act of 1933, as amended, and the requirements of such other legal
or accounting principles, and will execute any documents necessary to ensure
such compliance.
<PAGE>
j. Stock Legend. If applicable, the Company may put
an appropriate legend on the certificates for any shares of Common Stock
purchased by Optionee (or, in the case of death, Optionee's successors) to
reflect the restrictions of Paragraphs 4(b), 4(g), 4(h) and 4(i) of this
Agreement.
k. Scope of Agreement. This Agreement shall bind and inure
to the benefit of the Company and its successors and assigns and Optionee and
any successor or successors of Optionee permitted by Paragraph 4(e) above.
l. Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this Agreement,
including claims of fraud in the inducement, shall be discussed between the
disputing parties in a good faith effort to arrive at a mutual settlement of any
such controversy. If, notwithstanding, such dispute cannot be resolved, such
dispute shall be settled by binding arbitration. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator shall be a retired state or federal judge or an attorney
who has practiced securities or business litigation for at least ten years. If
the parties cannot agree on an arbitrator within 20 days, any party may request
that the chief judge of the District Court for Hennepin County, Minnesota,
select an arbitrator. Arbitration will be conducted pursuant to the provisions
of this Agreement, and the commercial arbitration rules of the American
Arbitration Association, unless such rules are inconsistent with the provisions
of this Agreement. Limited civil discovery shall be permitted for the production
of documents and taking of depositions. Unresolved discovery disputes may be
brought to the attention of the arbitrator who may dispose of such dispute. The
arbitrator shall have the authority to award any remedy or relief that a court
of this state could order or grant; provided, however, that punitive or
exemplary damages shall not be awarded. The arbitrator may award to the
prevailing party, if any, as determined by the arbitrator, all of its costs and
fees, including the arbitrator's fees, administrative fees, travel expenses,
out-of-pocket expenses and reasonable attorneys' fees. Unless otherwise agreed
by the parties, the place of any arbitration proceedings shall be Hennepin
County, Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
WINLAND ELECTRONICS, INC.
By:______________________________________
Its:____________________________________
COMPANY
_________________________________________
OPTIONEE
WINLAND ELECTRONICS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, made effective as of this _____ day of ____________,
19___, by and between Winland Electronics, Inc., a Minnesota corporation (the
"Company"), and ________________ ("Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee on the date hereof is a key employee, officer,
director, consultant or advisor of the Company or one of its Subsidiaries; and
WHEREAS, the Company wishes to grant a nonqualified stock option to
Optionee to purchase shares of the Company's Common Stock pursuant to the
Company's 1997 Stock Option Plan (the "Plan"); and
WHEREAS, the Administrator has authorized the grant of a nonqualified
stock option to Optionee and has determined that, as of the effective date of
this Agreement, the fair market value of the Company's Common Stock is $______
per share;
WHEREAS, the Administrator has authorized the grant of a nonqualified
stock option to Optionee and has determined that, as of the effective date of
this Agreement, the fair market value of the Company's Common Stock is $ per
share;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Optionee on the date
set forth above (the "Date of Grant"), the right and option (the "Option") to
purchase all or portions of an aggregate of ____________________________
(______) shares of Common Stock at a per share price of $_______ on the terms
and conditions set forth herein, subject to adjustment pursuant to Section 13 of
the Plan. This Option is a nonqualified stock option and will not be treated as
an incentive stock option, as defined under Section 422, or any successor
provision, of the Internal Revenue Code of 1986, as amended (the "Code"), and
the regulations thereunder.
2. Duration and Exercisability.
a. The term during which this Option may be exercised shall terminate
on ____________________, ______, except as otherwise provided in Paragraphs 2(b)
through 2(e) below. This Option shall become exercisable according to the
following schedule:
Percentage/Number
Vesting Date of Shares
<PAGE>
Once the Option becomes exercisable to the extent of one hundred percent (100%)
of the aggregate number of shares specified in Paragraph 1, Optionee may
continue to exercise this Option under the terms and conditions of this
Agreement until the termination of the Option as provided herein. If Optionee
does not purchase upon an exercise of this Option the full number of shares
which Optionee is then entitled to purchase, Optionee may purchase upon any
subsequent exercise prior to this Option's termination such previously
unpurchased shares in addition to those Optionee is otherwise entitled to
purchase.
b. Termination of Relationship (other than Change of Control,
Disability or Death). If Optionee ceases to be an employee, director, consultant
or an advisor of the Company or any Subsidiary for any reason other than because
of a "change of control transaction" as described in Paragraph 2(c) or because
of disability or death, this Option shall completely terminate on the earlier of
(i) the close of business on the three-month anniversary date of the termination
of all such relationships, and (ii) the expiration date of this Option stated in
Paragraph 2(a) above. In such period following such termination, this Option
shall be exercisable only to the extent the Option was exercisable on the
vesting date immediately preceding the date on which all of Optionee's
relationships with the Company or Subsidiary have terminated, but had not
previously been exercised. To the extent this Option was not exercisable upon
the termination of such relationship, or if Optionee does not exercise the
Option within the time specified in this Paragraph 2(b), all rights of Optionee
under this Option shall be forfeited.
c. Change of Control. If (i) Optionee ceases to be an
employee, director, consultant or advisor of the Company or any Subsidiary
because of a "change of control transaction," this Option shall completely
terminate on the earlier of (i) the close of business on the three-month
anniversary date of such termination of relationship with the Company and (ii)
the expiration date of this Option stated in Paragraph 2(a) above; provided,
however, that if (a) such transaction is treated as a "pooling of interests"
under generally accepted accounting principles and (b) Optionee is an
"affiliate" of the Company or Subsidiary under applicable legal and accounting
principles, this Option shall completely terminate on the later of (A) the close
of business on the three-month anniversary date of the termination of all such
relationships with the Company or any Subsidiary, and (B) the close of business
on the date that is 60 days after the date on which affiliates are no longer
restricted from selling, transferring or otherwise disposing of the shares of
stock received in the change of control transaction.
In such period following termination of Optionee's relationship with
the Company upon a change of control transaction, this Option shall be fully
exercisable unless the acceleration of the exercisability of this Option has
been prevented as provided in Section 13 of the Plan, in which case, this Option
shall be exercisable only to the extent the Option was exercisable on the
vesting date immediately preceding such termination of all of Optionee's
relationships with the Company, but had not previously been exercised. To the
extent this Option was not exercisable upon such termination of such
relationships, or if Optionee does not exercise the Option within the time
period specified in this Paragraph 2(c), all rights of Optionee under this
Option shall be forfeited.
<PAGE>
For purposes of this Paragraph 2(c), a "change of control transaction"
means an acquisition of the Company through the sale of substantially all of the
Company's assets and the consequent discontinuance of its business or through a
merger, consolidation, exchange, reorganization, reclassification, extraordinary
dividend, divestiture or liquidation of the Company.
d. Disability. If Optionee ceases to be an employee, director,
consultant or advisor of the Company or any Subsidiary because of disability (as
such term is defined in Code Section 22(e)(3), or any successor provision), this
Option shall completely terminate on the earlier of (i) the close of business on
the twelve-month anniversary date of the termination of all such relationships
with the Company or any Subsidiary, and (ii) the expiration date under this
Option stated in Paragraph 2(a) above. In such period following such
termination, this Option shall be exercisable only to the extent the Option was
exercisable on the vesting date immediately preceding the termination of all of
Optionee's relationships. If Optionee does not exercise the Option within the
time specified in this Paragraph 2(d), all rights of Optionee under this Option
shall be forfeited.
e. Death. In the event of Optionee's death, this Option shall
terminate on the earlier of (i) the close of business on the twelve-month
anniversary date of the date of Optionee's death, and (ii) the expiration date
of this Option stated in Paragraph 2(a) above. In such period following
Optionee's death, this Option may be exercised by the person or persons to whom
Optionee's rights under this Option shall have passed by Optionee's will or by
the laws of descent and distribution only to the extent the Option was
exercisable on the vesting date immediately preceding the date of Optionee's
death. If such person or persons fail to exercise this Option within the time
specified in this Paragraph 2(e), all rights under this Option shall be
forfeited.
3. Manner of Exercise.
a. General. The Option may be exercised only by Optionee (or
other proper party in the event of death or incapacity), subject to the
conditions of the Plan and subject to such other administrative rules as the
Administrator may deem advisable, by delivering within the option period written
notice of exercise to the Company at its principal office. The notice shall
state the number of shares as to which the Option is being exercised and shall
be accompanied by payment in full of the option price for all shares designated
in the notice. The exercise of the Option shall be deemed effective upon receipt
of such notice by the Company and upon payment that complies with the terms of
the Plan and this Agreement. The Option may be exercised with respect to any
number or all of the shares as to which it can then be exercised and, if
partially exercised, may be exercised as to the unexercised shares any number of
times during the option period as provided herein.
b. Form of Payment. Payment of the option price by Optionee
shall be in the form of cash, personal check, certified check or previously
acquired shares of Common Stock of the Company, or any combination thereof. Any
stock so tendered as part of such payment shall be valued at its Fair Market
Value as provided in the Plan. For purposes of this Agreement, "previously
acquired shares of Common Stock" shall include shares of Common Stock that are
already owned by Optionee at the time of exercise.
<PAGE>
c. Stock Transfer Records. As soon as practicable after the
effective exercise of all or any part of the Option, Optionee shall be recorded
on the stock transfer books of the Company as the owner of the shares purchased,
and the Company shall deliver to Optionee one or more duly issued stock
certificates evidencing such ownership. All requisite original issue or transfer
documentary stamp taxes shall be paid by the Company.
4. Miscellaneous.
a. Rights as Shareholder. This Agreement shall not confer on
Optionee any right with respect to the continuance of any relationship with the
Company or any of its Subsidiaries, nor will it interfere in any way with the
right of the Company to terminate any such relationship. Optionee shall have no
rights as a shareholder with respect to shares subject to this Option until such
shares have been issued to Optionee upon exercise of this Option. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property), distributions or other rights for which the
record date is prior to the date such shares are issued, except as provided in
Section 13 of the Plan.
b. Securities Law Compliance. The exercise of all or any parts
of this Option shall only be effective at such time as counsel to the Company
shall have determined that the issuance and delivery of Common Stock pursuant to
such exercise will not violate any state or federal securities or other laws.
Optionee may be required by the Company, as a condition of the effectiveness of
any exercise of this Option, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held, until such time that such
Common Stock is registered and freely tradable under applicable state and
federal securities laws, for Optionee's own account without a view to any
further distribution thereof and that such shares will be not transferred or
disposed of except in compliance with applicable state and federal securities
laws.
c. Mergers, Recapitalizations, Stock Splits, Etc. Pursuant and
subject to Section 13 of the Plan, certain changes in the number or character of
the Common Stock of the Company (through sale, merger, consolidation, exchange,
reorganization, divestiture (including a spin-off), liquidation,
recapitalization, stock split, stock dividend or otherwise) shall result in an
adjustment, reduction or enlargement, as appropriate, in Optionee's rights with
respect to any unexercised portion of the Option (i.e., Optionee shall have such
"anti-dilution" rights under the Option with respect to such events, but shall
not have "preemptive" rights).
d. Withholding Taxes. In order to permit the Company to comply
with all applicable federal or state income tax laws or regulations, the Company
may take such action as it deems appropriate to insure that, if necessary, all
applicable federal or state payroll, income or other taxes are withheld from any
amounts payable by the Company to Optionee. If the Company is unable to withhold
such federal and state taxes, for whatever reason, Optionee hereby agrees to pay
to the Company an amount equal to the amount the Company would otherwise be
required to withhold under federal or state law. Optionee may, subject to the
approval and discretion of the Administrator or such administrative rules it may
deem advisable, elect to have all or a portion of such tax withholding
obligations satisfied by delivering shares of the Company's Common Stock having
a fair market value equal to such obligations.
<PAGE>
e. Nontransferability. During the lifetime of Optionee,
the accrued Option shall be exercisable only by Optionee or by the Optionee's
guardian or other legal representative, and shall not be assignable or
transferable by Optionee, in whole or in part, other than by will or by the laws
of descent and distribution.
f. 1997 Stock Option Plan. The Option evidenced by this
Agreement is granted pursuant to the Plan, a copy of which Plan has been made
available to Optionee and is hereby incorporated into this Agreement. This
Agreement is subject to and in all respects limited and conditioned as provided
in the Plan. The Plan governs this Option and, in the event of any questions as
to the construction of this Agreement or in the event of a conflict between the
Plan and this Agreement, the Plan shall govern, except as the Plan otherwise
provides.
g. Lockup Period Limitation. Optionee agrees that in the event
the Company advises Optionee that it plans an underwritten public offering of
its Common Stock in compliance with the Securities Act of 1933, as amended, and
that the underwriter(s) seek to impose restrictions under which certain
shareholders may not sell or contract to sell or grant any option to buy or
otherwise dispose of part or all of their stock purchase rights of the
underlying Common Stock, Optionee hereby agrees that for a period not to exceed
180 days from the date of prospectus, Optionee will not sell or contract to sell
or grant an option to buy or otherwise dispose of this option or any of the
underlying shares of Common Stock without the prior written consent of the
underwriter(s) or its representative(s).
h. Blue Sky Limitation. Notwithstanding anything in this
Agreement to the contrary, in the event the Company makes any public offering of
its securities and determines in its sole discretion that it is necessary to
reduce the number of issued but unexercised stock purchase rights so as to
comply with any state securities or Blue Sky law limitations with respect
thereto, the Board of Directors of the Company shall have the right (i) to
accelerate the exercisability of this Option and the date on which this Option
must be exercised, provided that the Company gives Optionee 15 days' prior
written notice of such acceleration, and (ii) to cancel any portion of this
Option or any other option granted to Optionee pursuant to the Plan which is not
exercised prior to or contemporaneously with such public offering. Notice shall
be deemed given when delivered personally or when deposited in the United States
mail, first class postage prepaid and addressed to Optionee at the address of
Optionee on file with the Company.
i. Accounting Compliance. Optionee agrees that, in the event a
"change of control transaction" (as defined in Paragraph 2(c) above) is treated
as a "pooling of interests" under generally accepted accounting principles and
Optionee is an "affiliate" of the Company or any Subsidiary (as defined in
applicable legal and accounting principles) at the time of such change of
control transaction, Optionee will comply with all requirements of Rule 145 of
the Securities Act of 1933, as amended, and the requirements of such other legal
or accounting principles, and will execute any documents necessary to ensure
such compliance.
<PAGE>
j. Stock Legend. If applicable, the Company may put an
appropriate legend on the certificates for any shares of Common Stock purchased
by Optionee (or, in the case of death, Optionee's successors) to reflect the
restrictions of Paragraphs 4(b), 4(g), 4(h) and 4(i) of this Agreement.
k. Scope of Agreement. This Agreement shall bind and inure
to the benefit of the Company and its successors and assigns and Optionee and
any successor or successors of Optionee permitted by Paragraph 2(b) above.
l. Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this Agreement,
including claims of fraud in the inducement, shall be discussed between the
disputing parties in a good faith effort to arrive at a mutual settlement of any
such controversy. If, notwithstanding, such dispute cannot be resolved, such
dispute shall be settled by binding arbitration. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator shall be a retired state or federal judge or an attorney
who has practiced securities or business litigation for at least ten years. If
the parties cannot agree on an arbitrator within 20 days, any party may request
that the chief judge of the District Court for Hennepin County, Minnesota,
select an arbitrator. Arbitration will be conducted pursuant to the provisions
of this Agreement, and the commercial arbitration rules of the American
Arbitration Association, unless such rules are inconsistent with the provisions
of this Agreement. Limited civil discovery shall be permitted for the production
of documents and taking of depositions. Unresolved discovery disputes may be
brought to the attention of the arbitrator who may dispose of such dispute. The
arbitrator shall have the authority to award any remedy or relief that a court
of this state could order or grant; provided, however, that punitive or
exemplary damages shall not be awarded. The arbitrator may award to the
prevailing party, if any, as determined by the arbitrator, all of its costs and
fees, including the arbitrator's fees, administrative fees, travel expenses,
out-of-pocket expenses and reasonable attorneys' fees. Unless otherwise agreed
by the parties, the place of any arbitration proceedings shall be Hennepin
County, Minnesota.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
WINLAND ELECTRONICS, INC.
By:_____________________________________
Its:___________________________________
COMPANY
________________________________________
OPTIONEE
EXHIBIT 11
WINLAND ELECTRONICS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Earning:
Net Income(Loss): $ 79,234 $ (10,697) $207,571 $ 60,873
- -----------------------------------------------------------------------------------------------------------------------
Primary Earnings(Loss)Per Share $ 0.028 $ (0.004) $ 0.074 $ 0.024
- -----------------------------------------------------------------------------------------------------------------------
Shares:
Weighted average number of
common shares outstanding 2,798,634 2,587,833 2,788,343 2,585,584
Assuming exercise of options
and warrants reduced by the
number of shares which could
have been purchased with the
proceeds from exercise of
options and warrants (treasury
stock method) using average
market price, except if
anti-dilutive. 61,815 231,201 61,815 231,201
Weighted average number of
common and common equivalent
shares outstanding 2,860,449 2,819,034 2,850,158 2,816,785
- -----------------------------------------------------------------------------------------------------------------------
Fully Diluted Earnings(Loss)
Per Share $ 0.028 $ 0.004 $ 0.073 $ 0.022
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 44,612
<SECURITIES> 0
<RECEIVABLES> 1,575,363
<ALLOWANCES> 46,921
<INVENTORY> 3,414,210
<CURRENT-ASSETS> 5,113,013
<PP&E> 5,223,255
<DEPRECIATION> 1,001,044
<TOTAL-ASSETS> 9,395,558
<CURRENT-LIABILITIES> 3,491,977
<BONDS> 2,054,753
28,039
0
<COMMON> 0
<OTHER-SE> 2,511,403
<TOTAL-LIABILITY-AND-EQUITY> 9,395,558
<SALES> 5,805,624
<TOTAL-REVENUES> 5,830,463
<CGS> 4,564,503
<TOTAL-COSTS> 5,449,789
<OTHER-EXPENSES> 149,519
<LOSS-PROVISION> 43,000
<INTEREST-EXPENSE> 106,519
<INCOME-PRETAX> 355,835
<INCOME-TAX> 23,584
<INCOME-CONTINUING> 207,571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 207,571
<EPS-PRIMARY> 0.074
<EPS-DILUTED> 0.073
</TABLE>
