SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. ____)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
WINLAND ELECTRONICS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
WINLAND ELECTRONICS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held
May 6, 1997
TO THE SHAREHOLDERS OF WINLAND ELECTRONICS, INC.:
The 1997 Annual Meeting of Shareholders of Winland Electronics, Inc.
will be held at the Company's corporate offices located at 1950 Excel Drive,
Mankato, Minnesota, at 7:00 p.m. on Tuesday, May 6, 1997, for the following
purposes:
1. To set the number of members of the Board of Directors at five
(5).
2. To elect members of the Board of Directors.
3. To approve the 1997 Employee Stock Purchase Plan.
4. To approve the 1997 Stock Option Plan.
5. To ratify the appointment of the Company's independent
auditors for the year ending December 31, 1997.
6. To take action on any other business that may properly come
before the meeting or any adjournment thereof.
Accompanying this Notice of Annual Meeting is a Proxy Statement, form
of Proxy and the Company's 1996 Annual Report to Shareholders.
Only shareholders of record as shown on the books of the Company at the
close of business on March 17, 1997 will be entitled to vote at the 1997 Annual
Meeting or any adjournment thereof. Each shareholder is entitled to one vote per
share on all matters to be voted on at the meeting.
You are cordially invited to attend the 1997 Annual Meeting. Whether or
not you plan to attend the 1997 Annual Meeting, please sign, date and mail the
enclosed form of Proxy in the return envelope provided as soon as possible. The
Proxy is revocable and will not affect your right to vote in person in the event
you attend the meeting. The prompt return of proxies will help your Company
avoid the unnecessary expense of further requests for proxies.
BY ORDER OF THE BOARD OF DIRECTORS,
W. Kirk Hankins, President
Dated: March 28, 1997
Mankato, Minnesota
<PAGE>
WINLAND ELECTRONICS, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
to be held
May 6, 1997
The accompanying Proxy is solicited by the Board of Directors of
Winland Electronics, Inc. (the "Company") for use at the 1997 Annual Meeting of
Shareholders of the Company to be held on Tuesday, May 6, 1997, at the location
and for the purposes set forth in the Notice of Annual Meeting, and at any
adjournment thereof.
The cost of soliciting proxies, including the preparation, assembly,
and mailing of the proxies and soliciting material, as well as the cost of
forwarding such material to the beneficial owners of stock, will be borne by the
Company. Directors, officers and regular employees of the Company may, without
compensation other than their regular remuneration, solicit proxies personally
or by telephone.
Any shareholder giving a Proxy may revoke it any time prior to its use
at the 1997 Annual Meeting by giving written notice of such revocation to the
Secretary or any other officer of the Company or by filing a later dated written
Proxy with an officer of the Company. Personal attendance at the 1997 Annual
Meeting is not, by itself, sufficient to revoke a Proxy unless written notice of
the revocation or a later dated Proxy is delivered to an officer before the
revoked or superseded Proxy is used at the 1997 Annual Meeting. Proxies will be
voted as directed therein. Proxies which are signed by shareholders but which
lack specific instruction with respect to any proposal will be voted in favor of
such proposal as set forth in the Notice of Meeting or, with respect to the
election of directors, in favor of the number and slate of directors proposed by
the Board of Directors and listed herein.
The presence at the Annual Meeting in person or by proxy of the holders
of a majority of the outstanding shares of the Company's Common Stock entitled
to vote shall constitute a quorum for the transaction of business. If a broker
returns a "non-vote" proxy, indicating a lack of voting instructions by the
beneficial holder of the shares and a lack of discretionary authority on the
part of the broker to vote on a particular matter, then the shares covered by
such non-vote shall be deemed present at the meeting for purposes of determining
a quorum but shall not be deemed to be represented at the meeting for purposes
of calculating the vote required for approval of such matter. If a shareholder
abstains from voting as to any matter, then the shares held by such shareholder
shall be deemed present at the meeting for purposes of determining a quorum and
for purposes of calculating the vote with respect to such matter, but shall not
be deemed to have been voted in favor of such matter. An abstention as to any
proposal will therefore have the same effect as a vote against the proposal.
The mailing address of the principal executive office of the Company is
1950 Excel Drive, Mankato, Minnesota 56001. The Company expects that this Proxy
Statement, the related Proxy and Notice of Meeting will first be mailed to
shareholders on or about March 28, 1997.
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OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed March 17, 1997 as the
record date for determining shareholders entitled to vote at the 1997 Annual
Meeting. Persons who were not shareholders on such date will not be allowed to
vote at the 1997 Annual Meeting. At the close of business on March 17, 1997,
there were 2,795,011 shares of the Company's Common Stock, par value $.01 per
share, issued and outstanding. The Common Stock is the only outstanding class of
capital stock of the Company. Each share of Common Stock is entitled to one vote
on each matter to be voted upon at the 1997 Annual Meeting. Holders of Common
Stock are not entitled to cumulative voting rights.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT SHAREHOLDINGS
The following table provides information as of March 17, 1997
concerning the beneficial ownership of the Company's Common Stock by (i) the
persons known by the Company to own more than 5% of the Company's outstanding
Common Stock, (ii) each director of the Company, (iii) the named executive
officers in the Summary Compensation Table, and (iv) all directors and executive
officers as a group. Except as otherwise indicated, the persons named in the
table have sole voting and investment power with respect to all shares of Common
Stock owned by them.
Name (and Address of 5% Number of Shares Percent
Owner) or Identity of Group Beneficially Owned(1) of Class (1)
W. Kirk Hankins (2) 296,443 (3) 10.5%
1950 Excel Drive
Mankato, MN 56001
Lorin E. Krueger 234,223 (4) 8.3%
1950 Excel Drive
Mankato, MN 56001
Kirk P. Hankins (2) 54,500 (5) 1.9%
S. Robert Dessalet 24,950 (6) *
Thomas J. de Petra 6,000 (7) *
Viola R. Farland 189,946 (8) 6.8%
R.R. 5, Box 100
Mankato, MN 56001
Steven N. Bronson 298,920 (9) 10.6%
201 S. Biscayne Blvd., #2950
Miami, FL 33131
All Executive Officers 645,516 (10) 22.4%
and Directors as a Group
(7 Individuals)
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* Less than 1% of the outstanding shares of Common Stock.
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<PAGE>
(1) Under the rules of the SEC, shares not actually outstanding are deemed
to be beneficially owned by an individual if such individual has the
right to acquire the shares within 60 days. Pursuant to such SEC Rules,
shares deemed beneficially owned by virtue of an individual's right to
acquire them are also treated as outstanding when calculating the
percent of the class owned by such individual and when determining the
percent owned by any group in which the individual is included.
(2) W. Kirk Hankins is the father of Kirk P. Hankins. W. Kirk Hankins and
Kirk P. Hankins disclaim any beneficial ownership of shares owned by
each other.
(3) Includes 69,842 shares held by Mr. Hankins's spouse, which shares Mr.
Hankins disclaims beneficial ownership of, and 19,500 shares which may
be purchased by Mr. Hankins upon exercise of currently exercisable
options.
(4) Includes 800 shares held by Mr. Krueger's spouse and 19,500 shares
which may be purchased by Mr. Krueger upon exercise of currently
exercisable options.
(5) Includes 5,500 shares which may be purchased by Mr. Hankins upon
exercise of currently exercisable options.
(6) Includes 850 shares owned jointly by Mr. Dessalet and his spouse and
9,500 shares which may be purchased by Mr. Dessalet upon exercise of
currently exercisable options.
(7) Includes 6,000 shares which may be purchased by Mr. de Petra upon
exercise of currently exercisable options.
(8) Includes 184,946 shares held by Ms. Farland as Personal Representative
of the Estate of Swen E. Farland and 5,000 shares held by Ms. Farland
as trustee of a trust for her benefit.
(9) Includes 28,212 shares which may be purchased by Mr. Bronson upon
exercise of a currently exercisable warrant.
(10) Includes 70,642 shares held by spouses of officers and directors, 850
shares held jointly with spouse of director, and 89,400 shares which
may be purchased upon exercise of currently exercisable options.
ELECTION OF DIRECTORS
(Proposals #1 and #2)
The Bylaws of the Company provide that the number of directors shall be
the number set by the shareholders, which shall be not less than one. The Board
of Directors unanimously recommends that the number of directors be set at five
and that five directors be elected. Unless otherwise instructed, the Proxies
will be so voted.
Under applicable Minnesota law, approval of the proposal to set the
number of directors at five and the election of the nominees to the Board of
Directors require the affirmative vote of the holders of the greater of (i) a
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majority of the voting power of the shares represented in person or by proxy at
the Annual Meeting with authority to vote on such matter, or (ii) a majority of
the voting power of the minimum number of shares that would constitute a quorum
for the transaction of business at the Annual Meeting.
In the absence of other instruction, the Proxies will be voted for each
of the individuals listed below. If elected, such individuals shall serve until
the next annual meeting of shareholders and until their successors shall be duly
elected and shall qualify. All of the nominees are members of the present Board
of Directors. If, prior to the 1997 Annual Meeting of Shareholders, it should
become known that any one of the following individuals will be unable to serve
as a director after the 1997 Annual Meeting by reason of death, incapacity or
other unexpected occurrence, the Proxies will be voted for such substitute
nominee(s) as is selected by the Board of Directors. Alternatively, the Proxies
may, at the Board's discretion, be voted for such fewer number of nominees as
results from such death, incapacity or other unexpected occurrence. The Board of
Directors has no reason to believe that any of the following nominees will be
unable to serve.
Name and Age Current Position Director
of Director Age with the Company Since
W. Kirk Hankins 69 Chairman of the Board, 1983
President, Chief Executive
Officer and Chief Financial
Officer
Lorin E Krueger 41 Senior Vice President of 1978
Operations and Director
Kirk P. Hankins 35 Vice President of Marketing 1990
and Director
S. Robert Dessalet 64 Director 1985
Thomas J. de Petra 50 Director 1994
W. Kirk Hankins has served as Chairman of the Board, Chief Executive
Officer and Chief Financial Officer of the Company since December 1983 and as
President of the Company since April 1985. Mr. Hankins served as President,
Chairman and Chief Financial Officer of Playtronics Corporation from 1985 until
March 1990, when Playtronics merged into the Company. He was Associate Professor
of Accounting at Mankato State University and owner and operator of a management
consulting firm from 1976 to 1984. W. Kirk Hankins is the father of Kirk P.
Hankins.
Lorin E. Krueger has served as Senior Vice President of Operations of
the Company since March 1987 and as Secretary of the Company since 1983. Mr.
Krueger has been an employee of the Company since 1976 and served as its Vice
President from January 1977 to March 1987.
Kirk P. Hankins has served as Vice President of Marketing of the
Company since April 1989. Mr. Hankins served as Secretary of Playtronics from
October 1985 until March 1990, when Playtronics merged into the Company, and as
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Vice President of Playtronics from October 1985 until April 1989. From 1984 to
1985, Mr. Hankins was the Marketing Manager of the Company. Kirk P. Hankins is
the son of W. Kirk Hankins.
S. Robert Dessalet has been self-employed as a management consultant
since January 1997. From September 1996 to January 1997, he served as Vice
President Finance and Administration of Rimage Corporation, a manufacturer of
computer software duplication and finishing systems. He served as Vice President
Finance and Administration of Dunhill Software Services, Inc., a software
duplication company, from May 1994 to September 1995. Mr. Dessalet was a
consultant for Dessalet & Associates, a business consulting firm, from January
1993 to May 1994. He was employed by National Poly Products, Inc., a producer of
polyethylene packaging film in Mankato, Minnesota, from June 1968 to January
1993 in various capacities including Chief Financial Officer.
Thomas J. de Petra has served as Chief Executive Officer and as a
director of Nortech Forest Technologies, Inc., a manufacturer of animal
repellents, since February 1996. Mr. de Petra was a management consultant to
Minnesota-based manufacturing companies from June 1993 to February 1996, and he
was Chief Information Officer of IDC Holdings, Ltd. from June 1993 to November
1994. Mr. de Petra was President and owner of DePetra & Associates, Inc., a
financial communications firm, formerly known as First Financial Investor
Relations, Inc., from August 1986 to October 1993.
BOARD AND COMMITTEE MEETINGS
During fiscal 1996, the Board of Directors held three formal meetings.
In addition, the Board took action by unanimous written consent twice during
1996. Each director attended 100% of the meetings of the Board and the
committees on which such director served during 1996.
The Company's Board of Directors has three standing committees, the
Audit Committee, Compensation Committee and Stock Option Committee. The Company
does not have a nominating committee.
The Audit Committee members are S. Robert Dessalet and Thomas J. de
Petra. This committee reviews the selection and work of the Company's
independent auditors and the adequacy of internal controls for compliance with
corporate policies and directives. During 1996, the Audit Committee met once by
telephone conference.
The Compensation Committee members are S. Robert Dessalet and Thomas J.
de Petra. Swen E. Farland also served on the Compensation Committee until his
death in July 1996. This committee recommends to the Board of Directors from
time to time the salaries to be paid to executive officers of the Company and
any plan for additional compensation it deems appropriate. The Compensation
Committee did not meet during 1996.
The Stock Option Committee members are S. Robert Dessalet and Thomas J.
de Petra. Swen E. Farland also served on the Stock Option Committee until his
death in July 1996. This committee is vested with the same authority as the
Board of Directors with respect to the granting of options and the
administration of the Company's Stock Option Plans. The Stock Option Committee
did not meet during 1996, but it took action by unanimous written consent twice.
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<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The name and ages of all of the Company's executive officers and the
positions held by them are listed below.
Name Age Position
W. Kirk Hankins 69 Chairman of the Board, President,
Chief Executive Officer and Chief
Financial Officer
Lorin E. Krueger 41 Senior Vice President of
Operations and Secretary
Kirk P. Hankins 35 Vice President of Marketing
Thomas E. Brockman 40 Vice President of Engineering
Terry E. Treanor 34 Vice President of Manufacturing
The business experience of W. Kirk Hankins, Lorin E. Krueger and Kirk
P. Hankins is set forth in the section of this Proxy Statement entitled Election
of Directors.
Thomas E. Brockman joined the Company in September 1993 as Manager of
Engineering and was elected as Vice President of Engineering on May 23, 1994.
From August 1989 to September 1993, Mr. Brockman served as Manager of
Electronics for Hiniker Company, a Mankato based agricultural equipment
manufacturer. Prior to 1989, Mr. Brockman served as Manager of Test and
Development for Continental Machines Inc., a manufacturer of power tools and
equipment.
Terry E. Treanor joined the Company in July 1994 and was elected as
Vice President of Manufacturing on June 28, 1996, prior to which he served in
various capacities, including Quality Assurance Manager and Operations Manager.
Mr. Treanor was employed by Onan Corp., a power generation company, from January
1985 until July 1994, serving most recently as Supplier Quality Engineer.
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding
compensation paid or accrued during each of the Company's last three fiscal
years to the Chief Executive Officer and to the only other executive officer
whose total annual salary and bonus earned or accrued exceeded $100,000 during
fiscal year 1996.
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------
Awards Payouts
-----------------------------------
Restricted LTIP All Other
Name and Principal Fiscal Stock Payouts Compen-
Position Year Annual Compensation Awards ($) Options ($) sation ($)
- ---------------------- ----- ---------------------------------- ---------- ------- ----- ----------
Salary ($) Bonus ($) Other ($)
---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. Kirk Hankins, 1996 113,000 49,105 -- -- -- -- 3,021(1)
Chief Executive 1995 105,000 -- -- -- 22,000 -- 2,829(1)
Officer, President, 1994 95,000 46,000 -- -- -- -- 2,273(1)
and Chief Financial
Officer
Lorin E. Krueger, 1996 84,240 40,405 -- -- -- -- 1,868(1)
Senior Vice President 1995 78,000 -- -- -- 22,000 -- 1,469(1)
of Operations and 1994 67,000 46,000 -- -- -- -- 1,467(1)
Secretary
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</TABLE>
(1) Represents contribution to the Company's 401(k) Plan for executive
officer's benefit.
Option Grants During 1996 Fiscal Year
No stock options were granted during fiscal 1996 to the named executive
officers in the Summary Compensation Table. The Company has not granted any
stock appreciation rights.
Option Exercises During 1996 Fiscal Year and Fiscal Year-End Option Values
The following table provides information as to options exercised by the named
executive officers in the Summary Compensation Table during fiscal 1996 and the
number and value of options at December 31, 1996. The Company does not have any
outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares December 31, 1996 December 31, 1996
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable(1)
<S> <C> <C> <C> <C>
W. Kirk Hankins 45,360 $172,595 17,000 exercisable $13,855 exercisable
5,000 unexercisable $2,875 unexercisable
Lorin E. Krueger 4,800 $18,264 42,440 exercisable $115,394 exercisable
5,000 unexercisable $4,375 unexercisable
</TABLE>
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<PAGE>
(1) Value is calculated on the basis of the difference between the option
exercise price and $3.875, the closing sale price for the Company's
Common Stock at December 31, 1996 as quoted by the Nasdaq SmallCap
Market, multiplied by the number of shares of Common Stock underlying
the option.
Compensation to Directors
During 1996, other than reimbursement for expenses, the outside
directors did not receive fees for their service on the Board. The Board has
determined that, beginning in 1997, the outside directors will be paid $500 for
attendance at each Board meeting and $250 for each committee meeting, plus
expenses.
The 1989 Stock Option Plan provides for automatic option grants to each
director who is not an employee of the Company (a "Non-Employee Director"). Each
Non-Employee Director who was serving on the Board on December 22, 1994, the
date the 1989 Stock Option Plan was amended to provide for automatic options, or
who was elected for the first time as a director on or after December 22, 1994
was granted a nonqualified option to purchase 2,000 shares of Common Stock. Each
Non-Employee Director who 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 a nonqualified option to purchase 2,000 shares of
Common Stock. No director shall receive more than one option pursuant to the
formula plan in any one fiscal year. All options granted pursuant to these
provisions are granted at a per share exercise price equal to 100% of the fair
market value of the Common Stock on the date of grant, and they are immediately
exercisable and expire on the earlier of (i) three months after the optionee
ceases to be a director (except by death) and (ii) five (5) years after the date
of grant. In the event of the death of a Non-Employee Director, any option
granted to such Non-Employee Director pursuant to this formula plan may be
exercised at any time within six months of the death of such Non-Employee
Director or until the date on which the option, by its terms, expires, whichever
is earlier.
On January 21, 1997, the Board adopted the 1997 Stock Option Plan,
subject to shareholder approval, which plan provides for the automatic grant of
options to purchase 3,000 shares pursuant to the same terms as the 1989 Stock
Option Plan set forth above (see Grants to Non-Employee Directors in Proposal
#4).
Employment Agreements and Termination of Employment Arrangements
The Company entered into an Employment Agreement dated May 15, 1995
with W. Kirk Hankins, President, Chief Executive Officer and Chief Financial
Officer, which agreement has an initial term which expires December 31, 1997 and
additional one-year terms thereafter, unless either party gives notice to the
other party 60 days prior to the end of such term that such party wishes to
terminate the agreement. The agreement provides for an annual base salary of
$113,400 for 1996 and $122,472 for 1997. Mr. Hankins is entitled to receive an
annual bonus consisting of stock options and/or a cash payment at the sole
discretion of the Compensation Committee. If Mr. Hankins terminates his
employment for good reason during the two years following a change in control of
the Company, he is entitled to an amount equal to the salary and bonus paid to
him for the two fiscal years preceding such termination, which amount shall be
paid in 24 equal monthly installments. Mr. Hankins has agreed that, during the
two-year period following the termination of his employment, except following a
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change of control as hereinbefore described, he will not (i) compete with the
Company, (ii) solicit or communicate with the Company's customers or (iii)
solicit any of the Company's employees to leave the Company.
The Company entered into an Employment Agreement dated May 15, 1995
with Lorin E. Krueger, Senior Vice President of Operations. The agreement
provides for an annual base salary of $84,240 for 1996 and $90,979 for 1997. All
other terms of the agreement with Mr. Krueger are identical to the terms of the
agreement with W. Kirk Hankins described above.
The Company entered into an Employment Agreement dated July 15, 1995
with Kirk P. Hankins, Vice President of Marketing. The agreement provides for an
annual base salary of $65,880 for 1996 and $71,150 for 1997. All other terms of
the agreement with Mr. Hankins are identical to the terms of the agreement with
W. Kirk Hankins described above.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than tenpercent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
the Company believes that, during fiscal year 1996, all officers, directors and
greater than ten-percent beneficial owners complied with the applicable filing
requirements.
APPROVAL OF 1997 EMPLOYEE STOCK PURCHASE PLAN
(Proposal #3)
General
On December 13, 1996, the Board of Directors adopted, subject to
shareholder approval, the Company's 1997 Employee Stock Purchase Plan (the
"Stock Purchase Plan"). A general description of the basic features of the Stock
Purchase Plan is presented below, but such description is qualified in its
entirety by reference to the full text of the Stock Purchase Plan, a copy of
which may be obtained without charge upon written request to W. K. Hankins, the
Company's President.
Description of the 1997 Employee Stock Purchase Plan
Purpose. The purpose of the Stock Purchase Plan is to encourage stock
ownership by the Company's employees and in so doing to provide an incentive to
remain in the Company's employ, to improve operations, to increase profits and
to contribute more significantly to the Company's success.
Eligibility; Term. The Stock Purchase Plan permits employees to
purchase stock of the Company at a favorable price and possibly with favorable
tax consequences to the employees. All regular employees (including officers) of
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the Company (or of those subsidiaries authorized by the Board from time to time)
who are full-time or part-time employees are eligible to participate in any of
the ten phases of the Stock Purchase Plan. However, any employee who would own
(as determined under the Internal Revenue Code), immediately after the grant of
an option, stock possessing 5% or more of the total combined voting power or
value of all classes of the stock of the Company cannot purchase stock through
the Stock Purchase Plan. Currently, this limitation excludes W. Kirk Hankins,
Lorin Krueger and Kirk P. Hankins, officers of the Company, from participating
in the Stock Purchase Plan. As of March 4, 1997, the Company had 78 full-time
employees eligible to participate.
Administration. The Stock Purchase Plan will be administered by the
Board of Directors or a Committee appointed by the Board. The Stock Purchase
Plan gives broad powers to the Board or the Committee to administer and
interpret the Stock Purchase Plan, including the authority to limit the number
of shares that may be optioned under the Stock Purchase Plan during a phase.
Options. Phases of the Stock Purchase Plan will commence on January 1
and July 1 of each calendar year or the first day of such other months as the
Board may determine, with the first phase having commenced on January 1, 1997.
Before the commencement date of the phase, each participating employee must
elect to have a certain dollar amount deducted from his or her compensation
during each pay period in such phase; provided, however, that the payroll
deduction must equal or exceed $10 per paycheck and the payroll deductions
during a phase must not exceed 15% of the participant's base compensation. The
designated amount may not be increased or decreased during a phase, but it may
be withdrawn entirely. If the employee dies or terminates employment for any
reason before the end of the phase, the employee's payroll deductions will be
refunded, without interest, after the end of the phase. Based on the amount of
salary withheld at the end of the phase, shares will be purchased by each
employee at the termination date of such phase (generally six months after the
commencement date). In no event, however, may a participant receive a grant of
shares which would cause the employee to own 5% or more of the Common Stock of
the Company. The purchase price to be paid by the employees will be the lower of
the amount determined under Paragraphs A and B below:
A. 85% of the closing price of the Company's Common Stock quoted
by the Nasdaq SmallCap Market as of the commencement date of
the phase; or
B. 85% of the closing price of the Company's Common Stock quoted
by the Nasdaq SmallCap Market as of the termination date of
the phase.
The closing price of one share of the Company's Common Stock on March
4, 1997 was $2.625 per share.
As required by tax law, an employee may not, during any calendar year,
receive options under the Stock Purchase Plan for shares which have a total fair
market value in excess of $25,000 determined at the time such options are
granted. Any funds not used to purchase shares will be returned to the employee.
No interest is paid by the Company on funds withheld, and such funds are used by
the Company for general operating purposes.
Amendment. The Board of Directors may, from time to time, revise or
amend the Stock Purchase Plan as of the Board may deem proper and in the best
interest of the Company or as may be necessary to comply with Section 423 of the
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Internal Revenue Code (the "Code"); provided, that no such revision or amendment
may (i) increase the total number of shares for which options may be granted
under the Stock Purchase Plan except as provided in the case of stock splits,
consolidations, stock dividends or similar events, (ii) modify requirements as
to eligibility for participation in the Stock Purchase Plan, or (iii) materially
increase the benefits accruing to participants under the Stock Purchase Plan,
without prior approval of the Company's stockholders, if such approval is
required to comply with Code Section 423 or the requirements of Section 16(b) of
the Securities Exchange Act of 1934 (the "Act").
Shares Reserved. Under the Stock Purchase Plan, 100,000 shares of the
Company's Common Stock are reserved for issuance during the five-year duration
of the Stock Purchase Plan. The Board of Directors shall equitably adjust the
number of shares remaining reserved for grant, the number of shares of stock
subject to outstanding options and the price per share of stock subject to an
option in the event of certain increases or decreases in the number of
outstanding shares of Common Stock of the Company effected as a result of stock
splits or consolidations, stock dividends or other transactions in which the
Company receives no consideration.
Federal Income Tax Consequences of the Stock Purchase Plan. Options
granted under the Stock Purchase Plan are intended to qualify for favorable tax
treatment to the employees under Code Sections 421 and 423. Employee
contributions are made on an after-tax basis. Under existing federal income tax
provisions, no income is taxable to the optionee upon the grant or exercise of
an option if the optionee remains an employee of the Company or one of its
subsidiaries at all times from the date of grant until three months before the
date of exercise. In addition, certain favorable tax consequences may be
available to the optionee if shares purchased pursuant to the Stock Purchase
Plan are not disposed of by the optionee within two years after the date the
option was granted nor within one year after the date of transfer of purchased
shares to the optionee. The Company generally will not receive an income tax
deduction upon either the grant or exercise of the option.
Plan Benefits. Because participation in the Stock Purchase Plan is
voluntary, the future benefits that may be received by participating individuals
or groups under the Stock Purchase Plan cannot be determined at this time.
Vote Required
The Board of Directors recommends that the stockholders approve the
1997 Employee Stock Purchase Plan. Approval of the Stock Purchase Plan requires
the affirmative vote of the greater of (i) a majority of the shares represented
at the meeting with authority to vote on such matter or (ii) a majority of the
voting power of the minimum number of shares that would constitute a quorum for
the transaction of business at the meeting.
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<PAGE>
APPROVAL OF THE COMPANY'S 1997 STOCK OPTION PLAN
(Proposal #4)
General
On January 21, 1997, the Board of Directors adopted the Winland
Electronics, Inc. 1997 Stock Option Plan (the "1997 Plan") subject to
shareholder approval, and reserved 300,000 shares of Common Stock for issuance
pursuant to the 1997 Plan. The Board has determined that no additional options
shall be granted under the Company's 1989 Stock Option Plan (the "1989 Plan")
upon shareholder approval of the 1997 Plan. There are currently options to
purchase 309,000 shares at exercise prices ranging from $.06 to $3.30 per share
outstanding under the 1989 Plan.
Summary of 1997 Stock Option Plan
A general description of the basic features of the 1997 Plan is
presented below, but such description is qualified in its entirety by reference
to the full text of the 1997 Plan, a copy of which may be obtained without
charge upon written request to W. Kirk Hankins, the Company's President.
Purpose. The purpose of the 1997 Plan is to promote the success of the
Company by facilitating the employment and retention of competent personnel and
by furnishing incentive to directors, officers and employees of the Company and
consultants and advisors to the Company, upon whose efforts the success of the
Company will depend to a large degree.
Term. Incentive stock options may be granted pursuant to the 1997 Plan
during a period of ten (10) years from the date the 1997 Plan was adopted by the
Board of Directors (until January 21, 2007), and nonqualified stock options may
be granted until the 1997 Plan is discontinued or terminated by the Board of
Directors.
Administration. With the exception of the stock options automatically
issued to NonEmployee Directors as described below, the 1997 Plan is
administered by the Board of Directors or the Stock Option Committee of the
Board of Directors, all of the members of which are "non-employee directors"
under Rule 16b-3 of the Securities Exchange Act of 1934 (collectively referred
to as the "Administrator"). The 1997 Plan gives broad powers to the
Administrator to administer and interpret the 1997 Plan, including the authority
to select the individuals to be granted options and to prescribe the particular
form and conditions of each option granted.
Eligibility. All employees of the Company or any subsidiary are
eligible to receive incentive stock options pursuant to the 1997 Plan. All
employees, officers and directors of and consultants and advisors to the Company
or any subsidiary are eligible to receive nonqualified stock options. As of
February 18, 1997, the Company had approximately 78 employees, of which five are
officers, and two directors who are not employees.
Options. When an option is granted under the 1997 Plan, the
Administrator, at its discretion, specifies the option price and the number of
shares of Common Stock which may be purchased upon exercise of the option. The
exercise price of an incentive stock option set by the Administrator may not be
less than 100% of the fair market value of the Company's Common Stock, as that
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<PAGE>
term is defined in the 1997 Plan. Unless otherwise determined by the
Administrator, the exercise price of a nonqualified stock option may not be less
than 100% of the fair market value on the date of grant; provided, however, that
the exercise price may not be less than 85% of the fair market value on the date
of grant. The period during which an option may be exercised and whether the
option will be exercisable immediately, in stages, or otherwise is set by the
Administrator. Generally, an incentive stock option may not be exercisable more
than ten (10) years from the date of grant. Optionees may pay for shares upon
exercise of options with cash, certified check or Common Stock of the Company
valued at the stock's then "fair market value" as defined in the 1997 Plan. Each
option granted under the 1997 Plan is generally nontransferable during the
lifetime of the optionee; however, the Administrator may, in its sole
discretion, permit the transfer of a nonqualified stock option to immediate
family members or to certain family trusts or family partnerships.
Generally, under the form of option agreement which the Administrator
is currently using for options granted under the 1997 Plan, if the optionee's
affiliation with the Company terminates before expiration of the option for
reasons other than death, the optionee has a right to exercise the option for
three months after termination of such affiliation or until the option's
original expiration date, whichever is earlier. If the termination is because of
death, the option typically is exercisable until its original stated expiration
or until the 6-month anniversary of the optionee's death, whichever is earlier.
The Administrator may impose additional or alternative conditions and
restrictions on the incentive or nonqualified stock options granted under the
1997 Plan; however, each incentive option must contain such limitations and
restrictions upon its exercise as are necessary to ensure that the option will
be an incentive stock option as defined under the Internal Revenue Code.
Grants to Non-Employee Directors. The 1997 Plan will provide for
automatic option grants to each director who is not an employee of the Company
(a "Non-Employee Director"). Each Non-Employee Director who is first elected as
a director on or after the date the 1997 Plan is approved by the shareholders
shall automatically be granted a nonqualified option to purchase 3,000 shares of
the Company's Common Stock. Each Non-Employee Director who 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 a nonqualified
option to purchase 3,000 shares of the Company's Common Stock. No director shall
receive more than one option pursuant to the formula plan in any one fiscal
year. All options granted pursuant to these provisions have a per share exercise
price equal to 100% of the fair market value of the Company's Common Stock on
the date of grant are immediately exercisable and expire on the earlier of (i)
three months after the Optionee ceases to be a director (except by death) and
(ii) five (5) years after the date of grant. In the event of the death of a
Non-Employee Director, any option granted to such Non-Employee Director pursuant
to this formula plan may be exercised until the option's original expiration
date or until the six-month anniversary of the NonEmployee Director's death,
whichever is earlier.
In addition to the automatic grants of nonqualified options, the
Non-Employee Directors are eligible to receive additional nonqualified stock
options pursuant to the 1997 Plan in the sole discretion of the Administrator.
Amendment. The Board of Directors may from time to time suspend or
discontinue the 1997 Plan or revise or amend it in any respect; provided,
however, that no such revision or amendment may impair the terms and conditions
of any outstanding option to the material detriment of the optionee without the
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<PAGE>
consent of the optionee, except as authorized in the event of a sale, merger,
consolidation or liquidation of the Company. The 1997 Plan may not be amended in
any manner that will cause incentive stock options to fail to meet the
requirements of Code Section 422, and may not be amended in any manner that
will: (i) materially increase the number of shares subject to the 1997 Plan
except as provided in the case of stock splits, consolidations, stock dividends
or similar events; (ii) change the designation of the class of employees
eligible to receive options; (iii) decrease the price at which options will be
granted; or (iv) materially increase the benefits accruing to optionees under
the 1997 Plan, without the approval of the shareholders, if such approval is
required to comply with Code Section 422 or the requirements of Section 16(b) of
the Act.
The Board of Directors will equitably adjust the maximum number of
shares of Common Stock reserved for issuance under the 1997 Plan, the number of
shares covered by each outstanding option and the option price per share in the
event of stock splits or consolidations, stock dividends or other transactions
in which the Company receives no consideration. Generally, the Board of
Directors may also provide for the protection of optionees in the event of a
merger, liquidation or reorganization of the Company.
Federal Income Tax Consequences of the 1997 Plan. Under present law, an
optionee will not realize any taxable income on the date a nonqualified stock
option is granted to the optionee pursuant to the 1997 Plan. Upon exercise of
the nonqualified stock option, however, the optionee will realize, in the year
of exercise, ordinary income to the extent of the difference between the option
price and the fair market value of the Company's Common Stock on the date of
exercise. Upon the sale of the shares, any resulting gain or loss will be
treated as capital gain or loss. The Company will be entitled to a tax deduction
in its fiscal year in which nonqualified stock options are exercised, equal to
the amount of compensation required to be included as ordinary income by those
optionees exercising such options.
Incentive stock options granted pursuant to the 1997 Plan are intended
to qualify for favorable tax treatment to the optionee under Code Section 422.
Under Code Section 422, an employee realizes no taxable income when the
incentive stock option is granted. If the employee has been an employee of the
Company or any subsidiary at all times from the date of grant until three months
before the date of exercise, the employee will realize no taxable income when
the option is exercised. If the employee does not dispose of shares acquired
upon exercise for a period of two years from the granting of the incentive stock
option and one year after receipt of the shares, the employee may sell the
shares and report any gain as capital gain. The Company will not be entitled to
a tax deduction in connection with either the grant or exercise of an incentive
stock option. If the employee should dispose of the shares prior to the
expiration of the two-year or one-year periods described above, the employee
will be deemed to have received compensation taxable as ordinary income in the
year of the early sale in an amount equal to the lesser of (i) the difference
between the fair market value of the Company's Common Stock on the date of
exercise and the option price of the shares, or (ii) the difference between the
sale price of the shares and the option price of shares. In the event of such an
early sale, the Company will be entitled to a tax deduction equal to the amount
recognized by the employee as ordinary income. The foregoing discussion ignores
the impact of the alternative minimum tax, which may particularly be applicable
to the year in which an incentive stock option is exercised.
Plan Benefits. Except for the automatic grants to Non-Employee
Directors, future grants of stock options are subject to the discretion of the
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<PAGE>
Administrator. Therefore, the future benefits under the 1997 Plan cannot be
determined at this time. No options have been granted pursuant to the 1997 Plan.
Vote Required. The Board of Directors recommends that the shareholders
approve the 1997 Plan. Under applicable Minnesota law, approval of the 1997 Plan
requires the affirmative vote of the holders of the greater of (i) a majority of
the voting power of the shares represented in person or by proxy at the Annual
Meeting with authority to vote on such matter, or (ii) a majority of the voting
power of the minimum number of shares that would constitute a quorum for the
transaction of business at the Annual Meeting.
INDEPENDENT PUBLIC ACCOUNTANT
(Proposal #5)
Ahern Montag & Vogler, Ltd. has served as the Company's independent
auditors since September 1991, when William B. Montag, the Company's independent
auditor from 1983 until that date, joined Ahern Montag & Vogler, Ltd. Mr.
Montag, or another representative of Ahern Montag & Vogler, Ltd., is expected to
be present at the 1997 Annual Meeting and will be given an opportunity to make a
statement regarding financial and accounting matters of the Company, if he so
desires, and will be available to respond to appropriate questions from the
Company's shareholders.
The Board of Directors recommends that the shareholders ratify the
appointment of Ahern Montag & Vogler, Ltd. as the Company's independent public
accountants for the Company for the year ended December 31, 1997. The
ratification of Ahern Montag & Vogler, Ltd. as independent accountants for the
Company requires the affirmative vote of a majority of the shares represented in
person or by proxy at the Annual Meeting.
OTHER BUSINESS
Management knows of no other matters to be presented at the 1997 Annual
Meeting. If any other matter properly comes before the 1997 Annual Meeting, the
appointees named in the proxies will vote the proxies in accordance with their
best judgment.
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 1998 Annual Meeting must be received by the
Company by November 20, 1997 to be included in the Company's proxy statement and
related proxy for the 1997 Annual Meeting.
ANNUAL REPORT
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 1996, including financial statements, accompanies this
Notice of Annual Meeting and Proxy Statement. No portion of the Annual Report is
incorporated herein or is to be considered proxy soliciting material.
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<PAGE>
FORM 10-KSB
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS
BEING SOLICITED, UPON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31,
1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE
FINANCIAL STATEMENTS AND A LIST OF EXHIBITS TO SUCH FORM 10-KSB. THE COMPANY
WILL FURNISH TO ANY SUCH PERSON ANY EXHIBIT DESCRIBED IN THE LIST ACCOMPANYING
THE FORM 10-KSB UPON THE ADVANCE PAYMENT OF REASONABLE FEES. REQUESTS FOR A COPY
OF THE FORM 10-KSB AND/OR ANY EXHIBIT(S) SHOULD BE DIRECTED TO THE PRESIDENT OF
WINLAND ELECTRONICS, INC., 1950 EXCEL DRIVE, MANKATO, MINNESOTA 56001. YOUR
REQUEST MUST CONTAIN A REPRESENTATION THAT, AS OF MARCH 17, 1997, YOU WERE A
BENEFICIAL OWNER OF SHARES ENTITLED TO VOTE AT THE 1996 ANNUAL MEETING OF
SHAREHOLDERS.
BY ORDER OF THE BOARD OF DIRECTORS
W. Kirk Hankins, President
Dated: March 28, 1997
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<PAGE>
WINLAND ELECTRONICS, INC.
PROXY
for Annual Meeting to be held May 6, 1997
The undersigned hereby appoints W. KIRK HANKINS and LORIN E. KRUEGER, and each
of them, with full power of substitution, his or her Proxies to represent and
vote, as designated below, all shares of the Common Stock of Winland
Electronics, Inc. registered in the name of the undersigned at the 1997 Annual
Meeting of Shareholders of the Company to be held at the Company's corporate
offices located at 1950 Excel Drive, Mankato, Minnesota at 7:00 p.m., on
Tuesday, May 6, 1997, and at any adjournment thereof. The undersigned hereby
revokes all proxies previously granted with respect to such Annual Meeting.
The Board of Directors recommends that you vote "FOR" each proposal.
1. Set the number of directors at five (5).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Elect Directors. Nominees: W. Kirk Hankins, Lorin E. Krueger, Kirk P.
Hankins, S. Robert Dessalet, Thomas J. de Petra
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY to
(except those whose names have vote for all nominees
been written on the line below) listed above.
3. Approve the 1997 Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approve the 1997 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Ratify the appointment of Ahern Montag & Vogler, Ltd. as the Company's
independent auditors for the year ending December 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. Other Matters. In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the Annual Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL SPECIFICALLY IDENTIFIED ABOVE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Date: , 1997
----------------------------
----------------------------------------
----------------------------------------
PLEASE DATE AND SIGN ABOVE exactly as name
appears at the left, indicating, where
proper, official position or representative
capacity. For stock held in joint tenancy,
each joint owner should sign.
<PAGE>
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
<PAGE>
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.
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.
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<PAGE>
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;
(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.
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<PAGE>
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.
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
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<PAGE>
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.
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
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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:
(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
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<PAGE>
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.
(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
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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.
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
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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.
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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
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securities subject to such outstanding options and, where applicable,
the exercise price per share for such securities.
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
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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.
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.
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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.
<PAGE>
(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.
(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.
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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.
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<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
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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:
(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
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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.
(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
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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.
(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.
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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.
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:
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(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.
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:
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(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.
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).
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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.
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