SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999 Commission File No.: 0-18393
WINLAND ELECTRONICS, INC.
(Name of small business issuer in its charter)
Minnesota 41-0992135
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1950 Excel Drive, Mankato, Minnesota 56001
(Address of principal executive offices)
(507) 625-7231
(Issuer's telephone number)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
------------------------
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Issuer was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes X No_______
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for fiscal year ended December 31, 1999: $ 19,863,703.
The aggregate market value of the Common Stock held by non-affiliates as of
March 10, 2000 was approximately $7,348,876 based on the closing sale price of
the Issuer's Common Stock on such date.
There were 2,901,620 shares of Common Stock, $.01 par value, outstanding as of
March 10, 2000.
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DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference pursuant to Rule 12b-23: Portions of the
Company's Proxy Statement for its 2000 Annual Meeting are incorporated by
reference into Items 9, 10, 11 and 12 of Part III.
Transitional Small Business Disclosure Format (check one) Yes No X
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Winland Electronics, Inc. (the "Company") was incorporated as a Minnesota
corporation in October 1972. The Company positions itself as a full service
provider of custom electronic controls and assemblies. The design and
manufacturing of custom controls and assemblies for OEM customers provided over
87% of the Company's total revenue in 1999. The Company now provides controls
and assemblies to several OEM customers who market their products to a wide
variety of industries. The Company continues to maintain its presence in the
security/industrial markets with the sales of its own line of proprietary
products.
PRODUCTS
The Company operates in one business segment, designing, producing and
distributing products in two product categories defined as "Electronic Controls
and Assemblies for OEM Customers" and "Proprietary Products and Services",
primarily for the Security/Industrial markets.
Electronic Controls and Assemblies for OEM Customers The Company designs and
manufactures custom electronic controls and assemblies for several OEM
customers. The Company responds to OEM customer needs by providing a mix of
value added services that it believes go beyond traditional contract
manufacturing. The services provided include product design, value engineering,
manufacturing engineering, testing, out-of-warranty repair, shipping, and
warehousing. These services help to differentiate the Company from the
competition and help increase customer satisfaction, confidence, and loyalty. A
partial listing of the several current OEM customers includes companies such as
Select Comfort Corporation, Johnson Worldwide Associates, CIC Systems, Inc.,
Scotsman Industries, Inc., and PeopleNet Communications Corporation. The Company
has in place several firm purchase agreements with OEM customers which are
scheduled to be fulfilled in 2000. There is no assurance that the Company will
continue to be engaged by any of these customers. Sales to OEM customers
accounted for 87% and 89% of the Company's total sales during 1999 and 1998,
respectively.
Proprietary Security/Industrial Products The Company is a supplier of simple and
sophisticated microprocessor and mechanically controlled sensors and alarms.
These products monitor and detect environmental changes, such as changes in
temperature or humidity, water leakage and power failures. The Company's "ALERT"
series of products may be hooked up to many burglar or fire alarm panels to
monitor and report unfavorable environmental conditions. In 1999, the Company
launched two new proprietary product groups, a line of custom direct current
motor controllers, and a global positioning systems antenna product line.
Security/industrial product sales accounted for 13% and 11% of the Company's
total sales for 1999 and 1998, respectively.
Marketing and Distribution
The Company markets its design and manufacturing services to prospective OEM
customers primarily through in-house sales and marketing efforts and referrals
from existing customers and suppliers. One of the Company's key marketing
objectives is to form long-term business relationships with OEM customers by
working to develop a degree of technological interdependence between itself and
the customer. With this in mind, the Company has worked to profile and seek out
new OEM customers that need a more complete solution to their manufacturing
needs. The Company plans to achieve continued growth in OEM sales by staying
focused on what it does best responding to customer needs with exceptional
service, technical expertise, and continuing to deliver quality, cost-effective
controls and assemblies to its OEM customers.
<PAGE>
The Company markets its proprietary security/industrial products through dealers
and wholesalers, in-house direct marketing and sales efforts, instrumentation
catalogs, and national and regional trade expositions. Currently, the Company
sells these products through a distribution network of over 350 locations in the
United States, Canada, Mexico, and Europe.
Source of Materials
Raw material components and some subassemblies are purchased from outside
vendors, and they are qualified through a vendor qualification process and
inspected in accordance with Company inspection policies before being
incorporated into our products. Certain purchased components and subassemblies
are manufactured to design specifications furnished by the Company, while others
are standard off-the-shelf items. The Company utilizes multiple sources for the
off-the-shelf components, but generally maintains only one source for the items
manufactured to design specifications. If the Company were to lose one or more
of its major components suppliers, or would need to seek alternative suppliers,
some delay and possible additional costs may be incurred while obtaining
alternative sources.
In addition to manufacturing its own products, the Company has contracted with
companies in the United States and foreign countries to provide both finished
goods assemblies and component assemblies designed to the Company's
specifications. Although alternative sources for such items may be found, if the
Company were to lose one or more of these suppliers, some delay and additional
costs may be incurred while obtaining alternative sources.
Patents, Trademarks and Licenses
The Company holds federal trademark registrations for marks used in the
Company's business as follows: WATERBUG , TEMP ALERT and ENVIRONMENTAL SECURITY
.
Seasonality and Working Capital
Due to the diversity of the Company's customer mix, seasonality is no longer a
contributing factor in the need for working capital in any one quarter or
season. Changes in the types of products produced for the OEM Customer portion
of the Company's business could materially affect the seasonality of the
Company's business in subsequent years.
Significant Customers
The Company has worked to develop long-term relationships with its OEM customers
that are mutually beneficial. Due to the nature of this portion of the business,
there is a significant degree of dependence between these customers and the
Company. As a group, customers whose individual revenues equaled or exceeded 10%
of the Company's net sales revenues were responsible for net sales of
$14,624,207, or 74% of total net sales, in 1999 and net sales of $13,455,328, or
74% of total net sales, in 1998.
Select Comfort Corporation has been one of the Company's most significant
customers during both 1999 and 1998, with sales of 36% and 47% of the Company's
net sales in 1999 and 1998, respectively. Select Comfort is a Plymouth,
Minnesota based air-sleep system manufacturer in the bedding industry. The
design and manufacturing services provided to Johnson Worldwide Associates
accounted for 16% and 13% of the Company's net sales during 1999 and 1998,
respectively. Johnson Worldwide Associates is a Racine, Wisconsin based
manufacturer of recreational products. The design and manufacture services
provided to PeopleNet Communication Corporation accounted for 22% and 14% of the
Company's net sales during 1999 and 1998, respectively. PeopleNet Communication
Corporation is a Chaska, Minnesota based manufacturer of The "Intouch System", a
locating and mobile communications system for the long-haul trucking industry.
<PAGE>
Competition
The Company's business includes the design and manufacturing of electronic
controls and assemblies for OEM customers and the development and marketing of
proprietary security/industrial products. Among the security/industrial
products, competition has increased in the last two years as additional
companies have introduced competing products. The Company believes, however,
that its products offer desirable features at competitive prices.
The competition for the contract design and manufacturing services offered by
the Company has increased substantially, both domestically and internationally.
To enhance its ability to compete effectively, the Company has continued to
invest in the development of its work force and technically advanced design
production and test equipment. The Company has been working to position itself
as a full service solution to its contract design and manufacture customers.
Research and Development
Throughout 1999, the Company has continued to position itself as a full-service
solution to its OEM customers by offering varied design technologies including,
wireless communications, GPS (global positioning systems), and embedded software
design for control systems. The Company has a strong research and development
department that has the ability to service most of the customers' engineering
requirements, including complete new product design, value engineering, and
redesign of existing products. The Company has continued to expand its
engineering staff and equipment with advances in wireless communication design
and expansion of its software development and advanced test system design staff.
The Company spent $835,577 or 4.2% of net sales for research and development
expenses for the year ended December 31, 1999, compared to $694,421 or 3.8% of
net sales for 1998.
Effect on Environmental Regulations
To the extent that the Company's management can determine, there are no federal,
state, or local provisions regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment with
which compliance by the Company has had, or is expected to have, a material
effect upon the capital expenditures, earnings, or competitive position of the
Company.
Foreign Operations and Export Sales
In 1999 and 1998 the Company derived over 3% of its revenues from sales outside
the United States, primarily derived from New Zealand for both years.
Personnel
At December 31, 1999, the Company had 127employees (126 full-time and one
part-time). The Company also extensively uses temporary labor services for peak
production purposes. The Company is not subject to a collective bargaining
agreement, and it considers its relations with its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns its office and manufacturing facility located in Mankato,
Minnesota. The 58,000 square foot building consists of 15,500 square feet of
office space, 32,500 square feet of manufacturing space and 10,000 square feet
of warehouse space, all of which is used by the Company. The original funding of
this facility, site and site improvements was acquired through a $1,700,000
building loan from the City of Mankato, a $500,000 state small cities loan, a
$50,000 city Norwest Bank Mortgage also payable to the City of Mankato, and
$270,000 from the City of Mankato in the form of tax increment financing.
<PAGE>
The original mortgage is payable in equal monthly installments of approximately
$16,200 for both loans until January 1, 2005, at which time it may be necessary
for the Company to renew the financing of the building. As of December 31, 1999,
the outstanding principle balance was $1,689,682. Financing for an addition to
the facility completed in 1999, consists of a $150,000 loan from the Minnesota
Investment Fund and a $530,053 mortgage from Norwest Bank Minnesota South N.A.
("Norwest"). The loan through the Minnesota Investment Fund is payable to the
City of Mankato in equal monthly installments of approximately $1,700 until
November 1, 2009. As of December 31, 1999 the outstanding principle balance was
$150,000. The loan through Norwest is payable to Norwest in equal monthly
installments of approximately $5,200 until September 30, 2004. As of December
31, 1999 the outstanding principle balance was $525,527. Management believes
that with the completion of the 5000 square foot addition in mid-year 1999, the
facility will adequately support the company's present and near future
operations. Management believes its property is adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Effective January 27, 2000, the Company's Common Stock was listed on the
American Stock Exchange ("AMEX") under the symbol WEX. Prior to being listed on
AMEX, the Company's Common Stock was traded on the Nasdaq SmallCap Market under
the symbol WLET. The following table sets forth the high and the low bid
quotations, as reported by the Nasdaq SmallCap Market. The bid quotations
represent interdealer prices and do not include retail markets mark-ups,
mark-downs or commissions and may not necessarily represent actual transactions.
Fiscal Year Ended
December 31, 1999 Low High
------------------ --- ----
First Quarter 2 5/16 3 3/32
Second Quarter 2 1/8 4
Third Quarter 2 3/32 2 7/8
Fourth Quarter 1 7/8 2 1/2
Fiscal Year Ended
December 31, 1998 Low High
----------------- --- ----
First Quarter 2 1/4 2 7/8
Second Quarter 2 1/8 3 1/4
Third Quarter 1 5/8 3 1/32
Fourth Quarter 1 3/4 3 1/2
On March 10, 2000, the fair market value of the Company's Common Stock was
$3.188, based on the closing sale price quoted by AMEX on that date. As of
December 31, 1999, the Company had approximately 492 shareholders of record.
The Company has never paid cash dividends on its Common Stock. The Board of
Directors presently intends to retain earnings for use in the Company's business
and does not anticipate paying cash dividends on Common Stock in the foreseeable
future. Any future determinations as to the payment of dividends will depend on
the financial condition of the Company and such other factors as are deemed
relevant by the Board of Directors.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations - 1999 vs. 1998
Net Sales: Net sales increased 9.3% to $19,863,703 for the year ended December
31, 1999, compared to sales of $18,175,509 for 1998. The growth in net sales is
attributed to both increased sales to new and existing OEM customers as well as
increased sales of existing security/industrial products for 1999 over 1998.
Major OEM customers have given the Company firm purchase commitments for
delivery in 2000, having an aggregate value of $11.2 million. These purchase
commitments are at various stages of completion. The Company also has several
smaller agreements with various OEM customers to be fulfilled in 2000.
The Company has continued to position itself as a full service designer and
manufacturer of custom controls and assemblies for OEM customers. The loss of
any major OEM customer would likely have an adverse effect on the Company's
short-term and, potentially long-term, results.
Gross Profits: Gross profit was $3,885,982 or 19.6% of net sales for the year
ended December 31, 1999, compared to $3,920,360 or 21.6% of net sales for the
same period in 1998. As a percentage of net sales, gross profits declined 2% for
the year ended December 31, 1999 compared to 1998. The decline in gross profit
is primarily attributed to the sales mix and sales levels during 1999, as they
relate to the fixed manufacturing costs. Some of the increased fixed costs
relate to indirect costs incurred for Y2K readiness, additional staffing in the
manufacturing area needed to support increased production levels, as well as
additional costs associated with the purchase of manufacturing and test
equipment to increase speed and reliability of in-process and final product
testing; as well as direct and indirect costs associated with ISO 9001
registration achieved in 1999. To a lessor degree, the Company also experienced
some loss of efficiencies due to the introduction of new people and new
processes related to new customer products.
Operating Expenses: General and administrative expense was $1,344,714 or 6.8% of
net sales for the year ended December 31, 1999, compared to $1,449,376 or 8.0%
of net sales for the same period in 1998. The decline in general and
administrative expense as a percentage of net sales is primarily attributed to
reduced bonus allowances, reduced bad debt expense and public relations expense,
offset in part by increased costs associated with Y2K readiness, additional
expenses associated with completion of a 5,000 square foot addition to the
current facility, increased professional fees, increased staff expenses needed
to support the growth of the organization, and to aid in ISO 9001 registration
and continued monitoring to ensure compliance with certification requirements.
Marketing and customer relations expense was $405,914 or 2.0% of net sales for
the year ended December 31, 1999, compared to $297,964 or 1.6% of net sales for
the same period in 1998. The increase in marketing and customer relations
expense for 1999 was primarily due to the addition of sales and customer
relations personnel and other marketing expenses necessary to introduce two new
proprietary product lines. The two new product lines have not yet advanced to
the stage of full-scale production. The costs associated with Y2K readiness and
ISO 9001 registration also had an impact on the marketing and customer relations
expense during 1999.
The new product lines include a line of direct current (DC) motor controls and a
line of global positioning system (GPS) antennas. In addition to the
introduction of the new proprietary product lines, and continued marketing
efforts to promote its other proprietary security/industrial products, the
Company continues to work to develop long-term business partnerships with OEM
customers.
<PAGE>
The Company continues to upgrade its website in order to aid in the achievement
of marketing efforts worldwide. The Company plans to add e-commerce capabilities
to the website in 2000.
Research and development expense was $835,577 or 4.2% of net sales for the year
ended December 31, 1999, compared to $694,421 or 3.8% of net sales for 1998. The
increase in research and development expense was primarily attributed to
increases related to the addition of technical staff needed to maintain and
expand its engineering capabilities, as well as the addition of test and
development equipment, which resulted in increased depreciation expense. The
costs associated with Y2K readiness and ISO 9001 registration also had an impact
on the research and development expense during 1999.
Interest Expense: Interest expense was $413,216 or 2.1% of net sales for the
year ended December 31, 1999, compared to $534,127 or 2.9% of net sales for
1998. The reduction in interest is primarily attributed to reduced levels of
debt outstanding on the working capital line of credit for 1999 compared to
1998. The interest rate on the line of credit was reduced from 1/2 of a percent
over the prime rate to the prime rate in late 1998, which had an impact on the
interest expense as well.
Net Income: The Company reported net income of $680,919 or $0.23 per diluted
share for the year ended December 31, 1999, compared to net income of $855,595
or $0.29 per diluted share for 1998. In 1998, the Company used its remaining net
operating loss tax credit carry forwards, and as a result, incurred
substantially more income tax expense for 1999 compared to 1998. Other
contributing factors to the decline in net income for 1999 are a reduction of
gross profits, offset in part by a decline in other income and expense compared
to 1998.
Results of Operations - 1998 vs. 1997
Net Sales: Net sales increased 46.8% to $18,175,509 for the year ended December
31, 1998, compared to $12,383,878 for 1997. The growth in net sales is primarily
attributed to increased sales to OEM customers during 1998 over 1997. In 1998
and 1997, sales to OEM customers represented 89% and 85% of total net sales. The
Company currently has purchase agreements with Select Comfort Corporation to
ship approximately $8.4 million of product during 1999. The Company also has
purchase agreementswith PeopleNet Communications Corporation to ship
approximately $3.8 million in product in 1999. In addition to the above
mentioned agreements, the Company also has several smaller agreements with
various OEM customers to be fulfilled in 1999.
<PAGE>
The Company has continued to position itself as a full service designer and
manufacturer of custom controls and assemblies for OEM customers. The loss of
any OEM customer would likely have an adverse effect on the Company's short-term
and, potentially long-term, results. The Company's marketing research indicates
that a large potential market exists for electronic design and manufacturing
services and that this market continues to grow rapidly.
Gross Profits: Gross profit was $3,920,360 or 21.6%of net sales for the year
ended December 31, 1998, compared to $2,729,315 or 22% of net sales for 1997. As
a percentage of net sales, gross profit remained relatively constant.
Operating Expenses: General and administrative expense was $1,449,376 or 8.0% of
net sales for the year ended December 31, 1998, compared to $1,043,788 or 8.4%
of net sales for 1997. The decline as a percentage of net sales in such expenses
is primarily attributed to administrative efficiencies the Company realized. The
actual general and administrative expense increased $405,588 for 1998 over 1997
due to the administrative support needed for the increased sales.
Marketing and customer relations expense was $297,964 or 1.6% of net sales for
the year ended December 31, 1998, compared to $245,708 or 2.0% of net sales for
1997. The increase in marketing and customer relations expense as compared to
1997, arose in part to the Company's efforts to secure new, long-term OEM
customer relationships to design and manufacture custom controls and assemblies.
The actual marketing expense increased $52,256 for 1998 over 1997. In late 1998,
to enable the Company to continue to offer exceptional service to its OEM and
security/industrial customers, the marketing and customer relations department
expanded its support personnel.
Research and development expense was $694,421 or 3.8% of net sales for the year
ended December 31, 1998, compared to $471,357 or 3.8% of net sales for 1997.
Although as a percentage of net sales the research and development expense
remained constant for 1998 compared to 1997, the actual research and development
expense increased $223,064 in 1998 over 1997. The increased research and
development expense was needed to support the Company's efforts to expand its
engineering capabilities with the addition of technical staff and the
acquisition of additional test and development equipment, which resulted in
increased depreciation expense being recognized.
Interest Expense: Interest expense was $534,127 or 2.9% of net sales for the
year ended December 31, 1998, compared to $445,158 or 3.6% of net sales for
1997. The increase in actual expense is primarily associated with additional
short-term borrowing and borrowing through capital lease agreements on equipment
needed to support the increased sales. The Company believes the additions of
capital equipment will likely positively affect quality and efficiencies in
current and future periods.
Net Income: The Company reported net income of $855,595 or $0.29 per diluted
share for the year ended December 31, 1998, compared to net income of $566,687
or $0.20 per diluted share for 1997. In 1998, the Company used its remaining net
operating loss and tax credit carry forwards and as a result has incurred a
substantial income tax expense for 1998, compared to 1997. Even with the
increased income tax expense, the net income for 1998 increased 51% over 1997.
The Company's increased profitability resulted primarily from increased sales,
and increased efficiencies, combined with careful budgeting and cost control.
The Company believes inflation has not significantly affected its results of
operations.
Liquidity and Capital Resources: Cash provided by operating activities was
$1,497,408 in 1999, compared to $1,013,656 in 1998. Cash provided by operations
was primarily used to purchase additional property and capital equipment, to
reduce debt on the revolving line of credit and on long term borrowing,
including capital leases, off set in part by additional long term borrowing to
finance an addition to the current facility.
<PAGE>
The current ratio on December 31, 1999 was 1.7 to 1, compared to 1.6 to 1 on
December 31, 1998. Working capital equaled $2,501,493 on December 31, 1999,
compared to $2,448,966 on December 31, 1998. The increase in working capital
primarily reflects reductions in the revolving line of credit balances, accounts
payable, and income taxes payable, offset in part by increases in the current
portion of long term debt, and decreases in inventory levels.
The Company has a revolving credit agreement with the Norwest Bank Minnesota
South N.A. ("Norwest"), with a maximum loan limit of $3,500,000, subject to
additional limitations set forth in the credit agreement. The interest rate is
calculated at prime rate. At December 31, 1999, an outstanding balance of
$1,518,501 existed under the line of credit. The agreement expires in August of
2000, at which time the Company anticipates that it will renew its working
capital line of credit on terms similar to its existing line. The Company's
management believes that the capital available through the current credit
agreement, together with cash flows from operations, will be sufficient to meet
the Company's capital needs at least through 2000.
The Company is currently indebted to the City of Mankato for a $1,700,000
building loan and a $500,000 state small cities loan, both of which are secured
by a mortgage on the Company facility. These loans are payable in equal monthly
installment payments of approximately $16,200 until January 2005, at which time
it may be necessary for the Company to renew the financing of the building. The
Company also has two other mortgage loans entered into in 1999 for an addition
to the current facility. The loans are as follows; a $150,000 loan through the
Minnesota Initiative Fund with monthly installment payments of approximately
$1700, and a loan from Norwest of $530,053 with monthly installment payments of
approximately $5,200. Both loans are securred by a mortgage on the Company
facility.
Cautionary Statements: As provided for under the Private Securities Litigation
Reform Act of 1995, the Company wishes to caution investors that the following
important factors, among others, in some cases have affected and in the future
could affect the Company's actual results of operations and cause such results
to differ materially from those anticipated in forward-looking statements made
in this document and elsewhere by or on behalf of the Company.
The Company derives a significant portion of its revenues from a small number of
major OEM customers which are not subject to any long-term contracts with the
Company. If any major customer should for any reason stop doing business with
the Company, the Company's business would be adversely affected. Some of the
Company's key customers are not large well-established companies, and the
business of each customer is subject to various risks such as market acceptance
of new products and continuing availability of financing. To the extent that the
Company's customers encounter difficulties, or the Company is unable to meet the
demands of its OEM customers, the Company could be adversely affected.
The Company's ability to sustain continued increases in revenues and profits is
dependent upon its ability to retain existing customers and obtain new
customers. The Company competes for new customers with numerous independent
contract design and manufacturing firms in the United States and abroad, many of
whom have greater financial resources and a more established reputation. The
Company's ability to compete successfully in this industry depends, in part,
upon the price at which the Company is willing to manufacture a proposed product
and the quality of the Company's design and manufacturing services. There is no
assurance that the Company will be able to continue to obtain contracts from
existing and new customers on financially advantageous terms, and the failure to
do so could prevent the Company from achieving the growth it anticipates.
The operations and success of the Company depend, in part, upon the experience
and knowledge of W. Kirk Hankins, the Company's Chief Executive Officer, and
Chief Financial Officer and Lorin E. Krueger, the Company's President and Chief
Operating Officer. The loss of either Mr. Hankins or Mr. Krueger would have a
material adverse effect on the Company.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Page
The following financial statements are at the pages set forth below:
Independent Auditors Report dated January 26, 2000 for Years ended
December 31, 1999 and 1998 10
Balance Sheets as of December 31, 1999 and 1998 11
Statements of Income for Years Ended December 31, 1999 and 1998 13
Statements of Changes in Stockholders Equity for Years Ended December
31, 1999 and 1998 14
Statements of Cash Flows for Years Ended December 31, 1999 and 1998 15
Notes to Financial Statements 16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Winland Electronics, Inc.
Mankato, Minnesota
We have audited the accompanying balance sheets of Winland Electronics, Inc., as
of December 31, 1999 and 1998, and the related statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Winland Electronics, Inc., as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
Minneapolis, Minnesota
January 26, 2000
<PAGE>
WINLAND ELECTRONICS, INC.
BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS (Note 3) 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 40,017 $ 20,656
Accounts receivable, less allowance for doubtful accounts of
$4,000 in 1999; $155,000 in 1998 (Note 10) 2,530,765 2,482,507
Other receivables 1,107 47,454
Income tax receivable (Note 6) 19,000 --
Inventories (Note 2) 3,453,778 3,763,939
Prepaid expenses 58,591 62,882
Deferred taxes (Note 6) 112,800 124,000
----------- -----------
Total current assets 6,216,058 6,501,438
----------- -----------
Other Assets
Patents and trademarks, net of accumulated amortization of
$30,269 in 1999; $28,735 in 1998 3,971 5,505
----------- -----------
3,971 5,505
----------- -----------
Property and Equipment, at cost (Note 4)
Land and land improvements 272,901 270,009
Building 2,980,268 2,497,067
Machinery and equipment 3,234,166 3,001,256
Data processing equipment 1,305,425 842,352
Office furniture and equipment 367,898 267,472
----------- -----------
8,160,658 6,878,156
Less accumulated depreciation 2,522,088 1,754,500
----------- -----------
5,638,570 5,123,656
----------- -----------
$11,858,599 $11,630,599
=========== ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- --------------------------------------------------------------------------------------------------
Current Liabilities
<S> <C> <C>
Note payable to bank (Note 3) $ 1,518,501 $ 1,629,227
Current maturities of long-term debt 656,671 573,183
Accounts payable 1,091,964 1,263,326
Accrued expenses:
Compensation 337,846 310,136
Other 109,583 47,757
Income taxes payable -- 228,843
----------- -----------
Total current liabilities 3,714,565 4,052,472
----------- -----------
Deferred Revenue (Note 5) 202,161 209,084
----------- -----------
Long-Term Debt, less current maturities (Notes 3 and 4) 3,238,995 3,429,975
----------- -----------
Deferred Taxes (Note 6) 166,000 111,000
----------- -----------
Commitments and Contingencies (Note 4)
Stockholders' Equity (Notes 7 and 9)
Common stock, par value $0.01 per share; 20,000,000 shares
authorized; issued and outstanding 2,901,620 shares in 1999,
2,886,786 shares in 1998 29,016 28,867
Additional paid-in capital 2,169,750 2,142,008
Retained earnings 2,338,112 1,657,193
----------- -----------
4,536,878 3,828,068
----------- -----------
$11,858,599 $11,630,599
=========== ===========
</TABLE>
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENTS OF INCOME
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales (Note 10) $ 19,863,703 $ 18,175,509
Cost of sales 15,977,721 14,255,149
------------ ------------
Gross profit 3,885,982 3,920,360
------------ ------------
Operating expenses:
General and administrative 1,344,714 1,449,376
Research and development 835,577 694,421
Marketing 405,914 297,964
------------ ------------
2,586,205 2,441,761
------------ ------------
Operating income 1,299,777 1,478,599
------------ ------------
Other income (expenses):
Interest expense (413,216) (534,127)
Interest income 77,983 151,428
Other 44,375 (305)
------------ ------------
(290,858) (383,004)
------------ ------------
Income before income taxes 1,008,919 1,095,595
Income taxes (Note 6) 328,000 240,000
------------ ------------
Net income $ 680,919 $ 855,595
============ ============
Earnings per share data:
Basic $ 0.24 $ 0.30
Diluted 0.23 0.29
Weighted-average number of common shares outstanding (Note 8):
Basic 2,894,219 2,837,466
Diluted 3,001,247 2,935,058
</TABLE>
See Notes to Financial Statements.
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance on December 31, 1997 2,808,039 $ 28,080 $ 2,079,001 $ 801,598 $ 2,908,679
Issuance of common stock in accordance with
employee stock option and purchase plans
(Notes 7 and 9) 78,747 787 63,007 - 63,794
Net income - - - 855,595 855,595
-----------------------------------------------------------------------------------
Balance on December 31, 1998 2,886,786 28,867 2,142,008 1,657,193 3,828,068
Issuance of common stock in accordance with
employee stock option and purchase plans
(Notes 7 and 9) 14,834 149 27,742 - 27,891
Net income - - - 680,919 680,919
-----------------------------------------------------------------------------------
Balance on December 31, 1999 2,901,620 $ 29,016 $ 2,169,750 $ 2,338,112 $ 4,536,878
===================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
WINLAND ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 680,919 $ 855,595
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 774,340 647,435
Loss on disposal of equipment -- 28,644
Deferred taxes 66,200 4,741
Changes in assets and liabilities:
Accounts receivable (48,258) (901,139)
Other receivables 46,347 (47,454)
Income tax receivable (19,000) --
Inventories 310,161 (17,943)
Prepaid expenses 4,291 53,778
Accounts payable (171,362) 63,149
Accrued expenses, including deferred revenue 82,613 102,421
Income taxes payable (228,843) 224,429
----------- -----------
Net cash provided by operating activities 1,497,408 1,013,656
----------- -----------
Cash Flows From Investing Activities
Purchases of property and equipment (1,060,971) (533,708)
----------- -----------
Net cash used in investing activities (1,060,971) (533,708)
----------- -----------
Cash Flows From Financing Activities
Net payments on revolving credit agreement (110,726) (104,000)
Proceeds from long-term borrowings 513,726 115,000
Principal payments on long-term borrowings, including capital lease obligations (847,966) (557,628)
Proceeds from issuance of common stock 27,890 63,794
----------- -----------
Net cash used in financing activities (417,076) (482,834)
----------- -----------
Net increase (decrease) in cash 19,361 (2,886)
Cash
Beginning of year 20,656 23,542
----------- -----------
End of year $ 40,017 $ 20,656
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 423,166 $ 535,293
Income taxes 510,241 10,571
=========== ===========
Supplemental Schedule of Noncash Investing and Financing Activities
Capital lease obligations incurred for the purchase of equipment $ 226,785 $ 407,718
=========== ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
Winland Electronics, Inc.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Significant Accounting Policies
Nature of business: The Company operates in one business segment, which includes
the design and manufacture of electronic control devices. Sales are to customers
located primarily in the upper Midwest, and credit is granted based upon the
credit policies of the Company.
A summary of the Company's significant accounting policies follows:
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from such estimates and
assumptions.
Revenue recognition: Revenue from product sales is recognized when shipped.
Cash: The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Patents and trademarks: Patents and trademarks are stated at cost and are being
amortized using the straight-line method over their economic useful lives.
Depreciation: It is the Company's policy to include depreciation expense on
assets acquired under capital leases with depreciation expense on owned assets.
Depreciation is computed using the straight-line method based on the estimated
useful lives of the various assets, as follows:
Years
- --------------------------------------------------------------------------------
Land improvements 17-20
Building 39-40
Machinery and equipment 5-7
Data processing equipment 3-7
Office furniture and equipment 3-7
Long-lived assets: The Company reviews its long-lived assets and intangibles
periodically to determine potential impairment by comparing the carrying value
of the long-lived assets with the estimated future cash flows expected to result
from the use of the assets, including cash flows from disposition. Should the
sum of the expected future cash flows be less than the carrying value, the
Company would recognize an impairment loss. An impairment loss would be measured
by comparing the amount by which the carrying value exceeds the fair value of
the long-lived assets and intangibles. To date, management has determined that
no impairment of long-lived assets exists.
<PAGE>
Note 1. Significant Accounting Policies (Continued)
Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards, and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax basis.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Investment tax credits, research and development credits, and job credits are
accounted for by the flow-through method whereby they reduce income taxes
currently payable and the provision for income taxes in the period the assets
giving rise to the credits are placed in service. To the extent such credits are
not currently utilized on the Company's tax return, deferred tax assets, subject
to considerations about the need for a valuation allowance, are recognized for
the carryforward amount.
Fair value of financial instruments: In accordance with the requirements of
Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures About
Fair Value of Financial Instruments, management estimates that the carrying
value of long-term debt approximates fair value due to the variable-interest
feature of the debt. The carrying value of all other financial instruments
approximates fair value due to the short-term nature of the instruments.
Earnings per share: Basic earnings per share is computed by dividing net
earnings by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share is computed by dividing net earnings by the
weighted-average number of common shares outstanding during the period,
including potentially dilutive shares under the treasury stock method.
Research and development expense: The Company expenses research and development
costs as incurred. Research and development expenses of $835,577 and $694,421
were charged to operations during the years ended December 31, 1999 and 1998,
respectively.
Note 2. Inventories
The components of inventory at December 31, 1999 and 1998, are as follows:
December 31
-------------------------------
1999 1998
- -----------------------------------------------------------------------------
Raw materials $ 2,713,671 $ 2,676,738
Work in progress 358,956 565,229
Finished goods 421,289 521,972
Obsolescence reserve (40,138) --
----------- -----------
Total $ 3,453,778 $ 3,763,939
=========== ===========
<PAGE>
Note 3. Financing Arrangement and Long-Term Debt
Financing arrangement: The Company has a $3,500,000 revolving line-of-credit
agreement through August 2000. Interest on advances is at the bank's reference
rate (8.50 percent at December 31, 1999) and is due monthly. Advances are due on
demand, are secured by substantially all assets of the Company, and are subject
to a defined borrowing base equal to 80 percent of qualified accounts receivable
and 60 percent of inventories. In addition, the agreement contains certain
reporting and operating covenants. Advances outstanding on the revolving
line-of-credit agreement at December 31, 1999 and 1998, were $1,518,501 and
$1,629,227, respectively.
Long-term debt: The following is a summary of long-term debt:
<TABLE>
<CAPTION>
December 31
--------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
6.941% note payable due in monthly installments of $15,221,
including interest, to January 1, 2005, when the remaining
balance is payable, secured by property and equipment $ 1,321,914 $ 1,522,723
4% note payable due in monthly installments of $3,698, including
interest, to January 1, 2005, when the remaining balance is
payable, secured by property and equipment 367,768 430,761
Note payable in monthly installments of $8,334, plus interest at prime
plus 0.75%, to October 2001, secured by accounts
receivable 183,308 283,316
8.25% note payable, due in monthly installments of $5,150,
including interest, to September 2004, secured by equipment 525,527 --
6% note payable due in monthly installments of $1,665,
including interest, to November 2009, secured by building 150,000 --
8.75% note payable -- 167,660
Capitalized lease obligations, due in various monthly installments, with
interest ranging from 8.95% to 9.5%, to
October 2000, secured by equipment 21,813 130,584
Capitalized lease obligations, due in various monthly installments, with
interest ranging from 8.5% to 9.96%, to
August 2001, secured by equipment 223,871 342,219
Capitalized lease obligations, due in various monthly installments, with
interest ranging from 7.24% to 10.04%, to
October 2002, secured by equipment 432,400 342,389
Capitalized lease obligations, due in various monthly installments, with
interest ranging from 8.5% to 9.3%, to April
2003, secured by equipment 193,497 235,804
Capitalized lease obligation, due in monthly installments of $9,399, with
interest at 8.97%, to November 2004, secured by
equipment 475,568 547,702
--------- ---------
3,895,666 4,003,158
Less current maturities 656,671 573,183
--------- ---------
Total long-term debt $ 3,238,995 $ 3,429,975
========= =========
</TABLE>
<PAGE>
Note 3. Financing Arrangement and Long-Term Debt (Continued)
Approximate maturities of long-term debt for years subsequent to December 31,
1999, are as follows:
2000 $ 657,000
2001 661,000
2002 413,000
2003 327,000
2004 347,000
Thereafter 1,491,000
------------
Total $ 3,896,000
============
Note 4. Commitments and Contingencies
Capital leases: The Company is leasing certain equipment under capital leases.
The cost and accumulated depreciation of assets acquired under capital leases at
December 31, 1999 and 1998, are as follows:
1999 1998
- -------------------------------------------------------------------------------
Cost $ 2,489,281 $ 2,450,678
Accumulated amortization 1,084,803 709,274
--------------------------
Net leased property under capital leases $ 1,404,478 $ 1,741,404
==========================
The future minimum lease payments under capital leases and the aggregate present
value of the net minimum lease payments at December 31, 1999, are as follow:
2000 $ 522,000
2001 469,000
2002 262,000
2003 150,000
2004 157,000
------------
Total minimum lease payments 1,560,000
Less amount representing interest 213,000
------------
$ 1,347,000
============
The capital lease obligations are included in long-term debt.
Operating leases: The Company leases certain equipment and vehicles under
noncancelable operating leases through 2002. The Company is responsible for all
repairs and maintenance, insurance, and other related expenses in connection
with these leases.
Rental and other related expenses for the above leases for the years ended
December 31, 1999 and 1998, were approximately $126,000 and $113,000,
respectively.
<PAGE>
Note 4. Commitments and Contingencies (Continued)
Approximate minimum future annual lease payments under these leases as of
December 31, 1999, are as follows:
Years ending December 31:
2000 $ 68,000
2001 41,000
2002 2,000
-----------
$ 111,000
===========
Note 5. Deferred Revenue
During 1994, the Company and the city of Mankato entered into a tax increment
financing agreement for the construction of the Company's operating facility. In
connection with this agreement, the city donated land and land improvements with
a fair value of $270,009. The fair value of land and land improvements donated
was accounted for as deferred revenue and is being amortized over 39 years,
which is the life of the building.
Note 6. Income Taxes
Components of the provision for income taxes are as follows:
December 31
-----------------------
1999 1998
- -----------------------------------------------------------------
Currently payable $ 261,800 $ 235,000
Deferred 66,200 5,000
-----------------------
$ 328,000 $ 240,000
=======================
During 1998 the Company also received a tax benefit from the carryforward of net
operating losses and tax credits totaling approximately $137,000.
The statutory income tax rate reconciliation to effective rate is as follows:
December 31
---------------------------
1999 1998
- ------------------------------------------------------------------------------
Statutory U.S. income tax rate 35% 35%
State taxes, net of federal tax benefit 3% 2%
Tax benefit of NOL and credit carryforwards - (11%)
Research and development tax credit (2%) (3%)
Other (3%) (1%)
----------------------------
Effective income tax rate 33% 22%
============================
<PAGE>
Note 6. Income Taxes (Continued)
Net deferred taxes consist of the following components as of December 31, 1999
and 1998:
December 31
----------------------
1999 1998
- -------------------------------------------------------------------------
Deferred tax assets:
Inventory $ 55,000 $ 43,000
Allowance for doubtful accounts 1,000 57,000
Other 56,800 24,000
Deferred tax assets 112,800 124,000
Deferred tax liabilities:
Property and equipment 166,000 111,000
----------------------
Net deferred tax assets (liabilities) $ (53,200) $ 13,000
======================
The components giving rise to the net deferred tax asset described above have
been included in the accompanying balance sheets at December 31, 1999 and 1998,
as follows:
December 31
---------------------------
1999 1998
- -------------------------------------------------------------------------
Current assets $ 112,800 $ 124,000
Noncurrent liabilities 166,000 111,000
Note 7. Stock-Based Compensation Plans
Stock option plan: The Company has reserved 750,000 common shares for issuance
under qualified and nonqualified stock options for its key employees and
directors. Option prices are the market value of the stock at the time the
option was granted. Options become exercisable as determined at the date of
grant by a committee of the Board of Directors. Options expire over the term of
the options, generally five years after the date of grant, unless an earlier
expiration date is set at the time of grant.
<PAGE>
Note 7. Stock-Based Compensation Plans (Continued)
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation.
Accordingly, no compensation cost has been recognized for the stock option plan.
Had compensation cost for the Company's stock option plan been determined based
on the fair value at the grant date for awards consistent with the provisions of
SFAS No. 123, the Company's earnings and earnings per share would have changed
to the pro forma amounts indicated below:
December 31
----------------------
1999 1998
- ------------------------------------------------------------------------------
Net income--as reported $ 680,919 $ 855,595
Net income--pro forma 582,672 750,147
Net income per share, basic--as reported 0.24 0.30
Net income per share, diluted--as reported 0.23 0.29
Net income per share, basic--pro forma 0.20 0.26
Net income per share, diluted--pro forma 0.19 0.25
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999 and 1998:
December 31
----------------------------
1999 1998
- ---------------------------------------------------------------------------
Expected life of options 3 years 3 years
Expected dividend yield 0.0% 0.0%
Expected stock price volatility 63.8% 65.2%
Risk-free interest rate 6.2% 5.7%
The pro forma effect on earnings in 1999 and 1998 is not representative of the
pro forma effect in future years because it does not take into consideration pro
forma compensation expense related to grants made prior to 1995.
<PAGE>
Note 7. Stock-Based Compensation Plans (Continued)
Additional information relating to all outstanding options as of December 31,
1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of
year 370,000 $ 1.89 345,000 $ 2.25
Options exercised (9,000) 1.78 (69,400) 0.63
Options expired (2,000) 1.75 (17,600) 2.50
Options granted 68,000 2.46 112,000 2.11
------- ----- -------- -----
Options outstanding, end of year 427,000 $ 1.98 370,000 $ 1.89
Weighted-average fair value of
options granted during the year $ 1.20 $ 0.93
======= ===== ======== =====
</TABLE>
The following table summarizes information about stock options and warrants
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- --------------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices of Shares Life (Years) Price of Shares Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.75 247,000 2.20 $ 1.75 149,600 $ 1.75
$1.875 to $1.925 78,000 2.10 1.92 65,250 1.93
$2.344 to $2.938 102,000 4.70 2.61 72,000 2.68
---------- ----------------------------------------------
427,000 $ 1.99 286,850 $ 2.02
========== ==============================================
</TABLE>
At December 31, 1998, there were 204,400 options exercisable at a
weighted-average exercise price of $1.99.
The Company also has outstanding warrants to purchase 37,000 shares of common
stock. These warrants are exercisable at $2.20 per share through March 2000.
<PAGE>
Note 8. Earnings Per Share
The following table reflects the calculation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Earnings per share--basic:
Income available for common shareholders $ 680,919 $ 855,595
=================================
Weighted-average shares outstanding 2,894,219 2,837,466
Earnings per share--basic $ 0.24 $ 0.30
=================================
Earnings per share--diluted:
Income available to common shareholders $ 680,919 $ 855,595
=================================
Weighted-average shares outstanding 2,894,219 2,837,466
Dilutive impact of options outstanding 101,671 93,320
Dilutive impact of warrants outstanding 5,357 4,272
---------------------------------
Weighted-average shares and potential dilutive shares
outstanding 3,001,247 2,935,058
=================================
Earnings per share--diluted $ 0.23 $ 0.29
=================================
</TABLE>
Options to purchase 102,000 and 40,000 shares of common stock at December 31,
1999 and 1998, respectively, were not included in the computation of diluted
earnings per share because the option exercise prices were greater than the
average market price of common shares.
Note 9. Employee Benefit Plans
Pension plan: The Company has a qualified defined contribution 401(k)
profit-sharing plan for its employees who meet certain age and service
requirements. Employees are allowed to make contributions up to 15 percent of
their eligible compensation. The plan also provides for a company-sponsored
match to be determined each year by the Board of Directors. The Company
contributed approximately $80,600 and $66,200 to the plan for the years ended
December 31, 1999 and 1998, respectively. In addition, the Company may make
additional discretionary contributions to the plan to the extent authorized by
the Board of Directors. There were no discretionary contributions to the plan
for the years ended December 31, 1999 and 1998.
<PAGE>
Note 9. Employee Benefit Plans (Continued)
Stock purchase plan: The Company has adopted an employee stock purchase plan to
provide substantially all employees an opportunity to purchase shares of its
common stock through payroll deductions, up to 15 percent of eligible
compensation. The plan is carried out in two annual six-month phases beginning
January 1 and July 1, the grant dates. On June 30 and December 31, the exercise
dates, participant account balances are used to purchase shares of stock at the
lesser of 85 percent of the fair value of shares on the grant date or the
exercise date. The employee stock purchase plan expires December 31, 2002. A
total of 100,000 shares were originally available for purchase under the plan.
There were 5,834 and 9,347 shares purchased under the plan for the years ended
December 31, 1999 and 1998, respectively.
Note 10. Major Customers, International Sales, and Enterprisewide Disclosures
Major customers: The Company has customers which accounted for more than 10
percent of net sales for the years ended December 31, 1999 and 1998, as follows:
1999 1998
- ------------------------------------------------------------------------
Sales percentage:
Customer A 36% 47%
Customer B 22% 14%
Customer C 16% 13%
Accounts receivable percentage at December 31:
Customer A 38% 30%
Customer B 17% 34%
Customer C 15% 10%
International sales: Export sales to international customers for 1999 and 1998
were approximately $613,000 and $827,000, respectively. Accounts receivable from
international customers were approximately $50,000 and $20,000 at December 31,
1999 and 1998, respectively.
Enterprisewide disclosures: The following table presents revenue from external
customers for each of the Company's groups of products and services:
1999 1998
- --------------------------------------------------------------------------------
Proprietary microprocessor and mechanically controlled
sensors and alarms $ 2,576,600 $ 1,943,000
Electronic controls and assemblies for OEM customers 17,287,100 16,232,500
-------------------------
$ 19,863,700 $ 18,175,500
=========================
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On May 1, 1998, Ahern Montag & Vogler, resigned as the Company's independent
public accountants and McGladrey & Pullen, LLP was appointed as the Company's
independent accountants. The change in accountants was reported in the Company's
current Report on Form 8-K dated May 1, 1998.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by Item 9 concerning the directors and executive
officers of the Company is incorporated by reference to the Company's definitive
proxy statement for its 2000 Annual Meeting of Shareholders under the captions
"Election of Directors" and "Executive Officers of the Company."
The information required by Item 9 concerning compliance with Section 16(a) of
the Exchange Act is incorporated by reference to the Company's definitive proxy
statement for its 2000 Annual Meeting of Shareholders under the caption
"Compliance with Section 16(a) of the Exchange Act."
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated by reference to the
Company's definitive proxy statement for its 2000 Annual Meeting of Shareholders
under the caption "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated by reference to the
Company's definitive proxy statement for its 2000 Annual Meeting of Shareholders
under the caption "Principal Shareholders and Management Shareholdings."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is incorporated by reference to the
Company's definitive proxy statement for its 2000 Annual Meeting of Shareholders
under the caption "Certain Transactions."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following Exhibits are included in this report: See
"Exhibit Index" immediately following the signature page of this Form 10-KSB.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WINLAND ELECTRONICS, INC.
Dated: March 29, 2000 /s/ W. Kirk Hankins
W. Kirk Hankins, Chief Executive Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons on behalf of the Company, in the
capacities, and on the dates, indicated.
(Power of Attorney)
Each person whose signature appears below constitutes and appoints W. Kirk
Hankins and Lorin E. Krueger as his true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this Annual Report on Form 10-KSB and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
<PAGE>
Signature and Title Date
/s/ W. Kirk Hankins March 29, 2000
W. Kirk Hankins, Chief Executive Officer, Chief
Financial Officer and Director
(Principal Executive Officer and Principal Financial and
Accounting Officer)
/s/ Lorin E. Krueger March 29, 2000
Lorin E. Krueger, President, Chief Operating Officer and
Director
/s/ Kirk P. Hankins March 29, 2000
Kirk P. Hankins, Vice President of Marketing
and Director
/s/ S. Robert Dessalet March 29, 2000
S. Robert Dessalet, Director
/s/ Thomas J. de Petra March 29, 2000
Thomas J. de Petra, Director
/s/ David L. Ewert March 29, 2000
David L. Ewert, Director
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBIT INDEX TO FORM 10-KSB
For the fiscal year ended Commission File No. 0-18393
December 31, 1999
--------------------------
WINLAND ELECTRONICS, INC.
--------------------------
Exhibit
Number Item
3.1 Restated Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 3.1 to Form 10-KSB for the fiscal year ended
December 31, 1994)
3.2 Restated Bylaws (Incorporated by reference to Exhibit 3.2 to
Registration Statement on Form S-4, SEC File No. 33-31246)
4.1 Specimen of Common Stock certificate (Incorporated by reference to
Exhibit 4 to Registration Statement on Form S-4, SEC File No. 33-31246)
10.1 Winland Electronics, Inc. 1989 Stock Option Plan (Incorporated by
reference to Exhibit 10.6 to Registration Statement on Form S-4, SEC
File No. 33-31246)**
10.2 Amendment to Winland Electronics, Inc. 1989 Stock Option Plan
(Incorporated by reference to Exhibit 10.4 to Form 10-KSB for the
fiscal year ended December 31, 1993)**
10.3 Form of Incentive Stock Option Agreement for use under the 1989 Stock
Option Plan (Incorporated by reference to Exhibit 10.7 to Registration
Statement on Form S-4, SEC File No. 33-31246)**
10.4 Amendment to Winland Electronics, Inc. 1989 Stock Option Plan dated
December 22, 1994 (Incorporated by reference to Exhibit 10.4 to Form
10-KSB for the fiscal year ended December 31, 1994)**
10.5 Form of Nonqualified Stock Option Agreement for use under the 1989
Stock Option Plan (Incorporated by reference to Exhibit 10.8 to
Registration Statement on Form S-4, SEC File No. 33-31246)**
10.6 Promissory Note of the Company in the principal amount of $500,000
dated October 6, 1994 in favor of The City of Mankato, Minnesota
(Incorporated by reference to Exhibit 10.14 to Form 10-KSB for the
fiscal year ended December 31, 1994)
10.7 Employment Agreement dated January 1, 1999 between the Company and W.
Kirk Hankins (Incorporated by reference to Exhibit 10.13 to Form 10-KSB
for the fiscal year ended December 31, 1998)**
10.8 Employment Agreement dated January 1, 1999 between the Company and
Lorin E. Krueger(Incorporated by reference to Exhibit 10.14 to Form
10-KSB for the fiscal year ended December 31, 1998)**
10.9 Employment Agreement dated January 1, 1999 between the Company and Kirk
P. Hankins(Incorporated by reference to Exhibit 10.15 to Form 10-KSB
for the fiscal year ended December 31, 1998)**
10.10 Employment Agreement dated January 1, 1999 between the Company and
Kimberly E. Kleinow(Incorporated by reference to Exhibit 10.16 to Form
10-KSB for the fiscal year ended December 31, 1998)**
10.11 Winland Electronics, Inc. 1997 Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 10.1 to Form 10-QSB for the
quarter ended June 30, 1997)**
<PAGE>
10.12 Winland Electronics, Inc. 1997 Stock Option Plan (Incorporated by
reference to Exhibit 10.2 to Form 10-QSB for the quarter ended June 30,
1997)**
10.13 Form of Incentive Stock Option Plan under 1997 Stock Option Plan
(Incorporated by reference to Exhibit 10.3 to Form 10-QSB for the
quarter ended June 30, 1997)**
10.14 Form of Nonqualified Stock Option Plan under 1997 Stock Option Plan
(Incorporated by reference to Exhibit 10.4 to Form 10-QSB for the
quarter ended June 30, 1997)**
10.15 1999 Bonus Plan (Incorporated by reference to Exhibit 10.25 to Form
10-KSB for the fiscal year ended December 31, 1998)**
10.16* Term Loan and Credit Agreement dated as of July 31, 1998 between the
Company and Norwest Bank Minnesota South, National Association, First
Amendment dated October 23, 1998 and Second Amendment dated September
29, 1999
10.17* Revolving Note dated September 29, 1999 in the principal amount of
$3,500,000 in favor of Norwest Bank Minnesota South, National
Association
10.18* Term Note dated September 29, 1999 in the principal amount of
$530,052.64 in favor of Norwest Bank Minnesota South, National
Association
10.19* Mortgage in the amount of $57,725 dated May 7, 1996 between the Company
and Norwest Bank Minnesota South, National Association and Note and
Mortgage Modification Agreement dated July 31, 1998 and Mortgage
Modification Agreement dated September 29, 1999
10.20* Mortgage Loan Agreement dated October 6, 1999 between the Company and
the City of Mankato
10.21* Promissory Note dated October 6, 1999 in the principal amount of
$150,000 in favor of the City of Mankato
10.22* Agreement for Loan of Minnesota Investment Fund dated October 6, 1999
between the Company and the City of Mankato
10.23* Agreement for Loan of Small Cities Development Program Funds dated
December 14, 1999 between the Company and the City of Mankato
10.24* Promissory Note dated December 14, 1999 in the principal amount of
$1,321,913.59 in favor of the City of Mankato
23.1* Consent of McGladrey & Pullen, LLP.
24.1* Power of Attorney for W. Kirk Hankins, Lorin E. Krueger, S. Dessalet,
Kirk P. Hankins, Thomas J. de Petra and David L. Ewert (included on
signature page of this form 10-KSB)
27* Financial Data Schedule (included in electronic filing only)
* Filed herewith.
** Management agreement or compensatory plan or arrangement.
NORWEST BANK MINNESOTA SOUTH,
NATIONAL ASSOCIATION
TERM LOAN AND CREDIT AGREEMENT
THIS TERM LOAN AND CREDIT AGREEMENT (the "Agreement") dated as of July 31, 1998
(the "Effective Date") is between Norwest Bank Minnesota South, National
Association (the "Bank") and Winland Electronics, Incorporated (the "Borrower").
BACKGROUND
The Borrower and the Bank entered into a Credit Agreement dated as of January
31, 1995 pursuant to which the Bank extended to the Borrower, among other
things, a conditional revolving line of credit (the "Line"), which Credit
Agreement was amended by First Amendment dated October 21, 1996, by Second
Amendment dated July 7, 1997 and by Third Amendment dated September 18, 1997 (as
amended, the "Agreement"). The Borrower's obligation to the Bank under the Line
is currently evidenced by a Revolving Note dated September 18, 1997 (the "1997
Revolving Note").
The Borrower has asked the Bank to renew the Line in the amount of
$3,500,000.00, and has asked the Bank to loan it an additional $115,000.00 as an
advance on its existing Term Loan dated April 29, 1996 in the original amount of
$57,725.00 (the "Term Loan").
The Bank is agreeable to meeting the Borrower's requests, provided that the
Borrower agrees to the terms and conditions of this Agreement.
For purposes of this Agreement, all promissory notes that evidence indebtedness
of the Borrower to the Bank and which are documented under this Agreement and
defined below shall collectively be referred to as the "Notes."
The Notes, this Agreement, and all "Security Documents" described in Exhibit B,
and any modifications, amendment or replacement to such promissory notes or
agreements shall be referred to collectively as the "Documents."
In consideration of the above premises, the Bank and the Borrower agree as
follows:
1. LINE OF CREDIT
1.1 Line of Credit Amount. During the Line Availability Period defined
below, the Bank agrees to provide a conditional revolving line of
credit (the "Line") to the Borrower. Outstanding amounts under the Line
shall not, at any one time, exceed the lesser of the Borrowing Base or
Three Million Five Hundred Thousand and 00/100 Dollars ($3,500,000.00).
The Borrowing Base is defined in Exhibit A-1 to this Agreement. This is
a conditional revolving line of credit and each advance under the Line,
if made, shall be at the sole discretion of the Bank.
1.2 Line of Availability Period. The "Line Availability Period" shall mean
the period of time from the Effective Date or the date on which all
conditions precedent described in this Agreement have been met,
whichever is later, to the Line Expiration Date of June 30, 1999.
1.3 The Revolving Note. The Borrower's obligation to repay advances under
the Line shall be evidenced by a single promissory note (the "Revolving
Note") dated as of the Effective Date, and in form and content
acceptable to the Bank, which shall replace, but not be deemed to
satisfy the 1997 Revolving Note. The initial balance of the Revolving
Note shall be the balance of the 1997 Revolving Note as of the date of
this Agreement. Reference is made to the Revolving Note for interest
rate and repayment terms.
1.4 Mandatory Prepayment. If at any time the principal outstanding under
the Revolving Note exceeds the lessor of the Borrowing Base or
$3,500,000.00, the Borrower must immediately prepay the Revolving Note
in an amount sufficient to eliminate the excess.
2. TERM LOAN
2.1 Term Loan Amount. The Bank and the Borrower entered into a term loan
agreement dated April 29, 1996, pursuant to which the Bank extended a
$57,725.00 term loan to the Borrower (the "Term Loan"), which is
evidenced by a term note of the same date in the amount (the "1996 Term
Note"). The Bank agrees to advance the Borrower the additional sum of
One Hundred Fifteen Thousand and 00/100 Dollars ($115,000.00) under the
Term Loan facility, provided that all conditions precedent described in
this Agreement have been met and that the Borrower is not otherwise in
default as of the date of disbursement. The Bank and the Borrower agree
that the unpaid principal amount of the Term Loan, following the
referenced advance, is $168,368.75.
2.2 Disbursements. The additional advance of loan proceeds under the Term
Loan is available in one disbursement on the Effective Date.
2.3 The Term Note. The Borrower will replace the 1996 Term Note by
executing and delivery to the Bank a new promissory note in form and
content acceptable to the Bank (the "Term Note"), which shall be dated
as of the Effective Date, and which shall replace, but not be deemed to
satisfy, the 1996 Term Note. The Term Note shall evidence the unpaid
amount due to the Bank under the 1996 Term Note as of the date of this
Agreement, plus the $115,000.00 advance provided for in this Agreement.
Reference is made to the Term Note for terms relating to interest rate,
repayment and other terms governing the Term Loan.
3. FEES AND EXPENSES
3.1 Documentation Expense. The Borrower agrees to reimburse the Bank for
its reasonable expenses relating to the preparation of the Documents
and any possible future amendments to the Documents, which
reimbursement may include, but shall not be limited to, reimbursement
of reasonable attorneys' fees, including the allocated costs of the
Bank's in-house counsel. Despite such reimbursement the Borrower
acknowledges that the Bank's counsel is engaged solely to represent the
Bank and does not represent the Borrower.
3.2 Collection Expenses. In the event the Borrower fails to comply with any
covenant or condition of this Agreement or the Documents, or fails to
pay the Bank any amounts due under this Agreement or under the
Documents, the Borrower shall pay all costs of workout and collection,
including reasonable attorneys' fees and legal expenses incurred by the
Bank.
3.3 Miscellaneous Expense. The Borrower agrees to reimburse the Bank for
its expenses incurred in perfecting any security interest in property
granted by the Borrower to the Bank.
4. PAYMENTS
4.1 Payments. All principal, interest and fees due under the Documents
shall be paid in immediately available funds as contracted in this
Agreement, and no later than the payment due date set forth in the
statement mailed to the Borrower by the Bank. If a due date does not
fail on a day on which the Bank is open for substantially all of its
business (a "Banking Day", except as otherwise provided), the Bank
shall debit the account on the next Banking Day, and interest shall
continue to accrue during the extended period. If there are
insufficient funds in the amount on the day the Bank enters any debit
authorized by this Agreement, the debit will be reversed and the
payment shall be due immediately without necessity of demand by direct
remittance of immediately available funds. For amounts bearing interest
at the LIBOR Rate (if any), a Banking Day is a day on which the Bank is
open for business and on which dealings in U.S. dollar deposits are
carried on in the London Interbank Market.
4.2 Performance Based Interest Rate Pricing. Following its review of the
Borrower's Interim financial statements, the Bank shall change the
margin applicable under the Revolving Note to the Base Rate based on
the following performance criteria:
(a) For each calendar quarter in which the Borrower's Debt Service Coverage
Ratio, as defined in Section 8.2, is determined by the Bank to be 3.50
to 1.0 or higher, the interest rate applicable to the Revolving Note
shall automatically be changed, as of the date set forth in Subsection
4.3, to a rate equal to the Bank's Base Rate as defined in the
Revolving Note plus a margin of 1.00%, floating.
(b) For each calendar quarter in which the Borrower's Debt Service Coverage
Ratio is determined by the Bank to be between 3.00 to 1.0 and 3.49 to
1.0, the interest rate applicable to the Revolving Note shall
automatically be changed, as of the date set forth in Subsection 4.3,
to a rate equal to the Bank's Base Rate as defined in the Revolving
Note plus a margin of 0.75%, floating.
(c) For each calendar quarter in which the Borrower's Debt Service Coverage
Ratio is determined by the Bank to be between 2.75 to 1.0 and 2.99 to
1.0, the interest rate applicable to the Revolving Note shall
automatically be changed, as of the date set forth in Subsection 4.3,
to a rate equal to the Bank's Base Rate as defined in the Revolving
Note plus a margin of 0.50%, floating.
(d) For each calendar quarter in which the Borrower's Debt Service Coverage
Ratio is determined by the Bank to be between 2.25 to 1.00 and 2.74 to
1.0, the Interest rate applicable to the Revolving Note shall
automatically be changed, as of the date set forth in Subsection 4.3,
to a rate equal to the Bank's Base Rate as defined in the Revolving
Note plus a margin of 0.25%, floating.
(e) For each calendar quarter in which the Borrower's Debt Service Coverage
Ratio, as defined in Section 8.2, is determined by the Bank to be less
than 2.25 to 1.0, the interest rate applicable to the Revolving Note
shall automatically be changed, as of the date set forth in Subsection
4.3, to a rate equal to the Bank's Base Rate as defined in the
Revolving Note, floating.
4.3 Effective Date of Performance Based Pricing Changes. Any margin change
described above shall become effective on the first day of the month
following the month of the Bank's receipt of the Borrower's March,
June, September and December interim financial statements, as provided
in Section 9.1(a) and (b) of this Agreement. Following any event of
default defined described in Section 0 of this Agreement, and
regardless of whether or not the Revolving Note has been accelerated,
the Revolving Note shall accrue interest at the rate described in
Section 4.2(a) above.
5. SECURITY
During the time period that credit is available under this Agreement,
and afterward until all amounts due under the Documents are paid in
full, unless the Bank shall otherwise agree in Writing all amounts due
under this Agreement and the Documents shall be secured at all times as
provided in Exhibit B. The Borrower also hereby grants the Bank a
security interest (independent of the Bank's right of set-off) in its
deposit accounts at the Bank and in any other debt obligations of the
Bank to the Borrower.
6. CONDITIONS PRECEDENT
The Borrower must deliver to the Bank the documents described in
Exhibit B, properly executed and in form and content acceptable to the
Bank, prior to the Bank's initial advance or disbursement under this
Agreement. The Borrower must also deliver to the Bank, prior to the
initial advance and any subsequent line advances under this Agreement,
a Borrowing Base Certificate in the form of Exhibit A-2, at the
intervals provided in Section 8.
7. REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, the Borrower, to the
best of its knowledge and upon due inquiry, makes the representations
and warranties contained in Exhibit C. Each request for an advance or a
disbursement under this Agreement following the Effective Date
constitutes a reaffirmation of these representations and warranties.
8. COVENANTS
8.1 Financial Information and Reporting
Except as otherwise stated in this Agreement, all financial information
provided to the Bank shall be compiled using generally accepted
accounting principles consistently applied.
During the time period that credit is available under this Agreement,
and afterward until all amounts due under the Documents are paid in
full, unless the Bank shall otherwise agree in writing, the Borrower
agrees to:
(a) Annual Financial Statements. Provide the Bank within 120 days of the
Borrower's fiscal year end, the Borrower's annual financial statements.
The statements must be audited with an unqualified opinion by a
certified public accountant acceptable to the Bank.
(b) Interim Financial Statements. Provide the Bank within 45 days of each
month end, the Borrower's interim financial statements for the interim
period then ending. The statements must be current through the end of
that period and must be certified as correct by an officer of the
Borrower in form acceptable to the Bank.
(c) Borrowing Base Certificate. Provide the Bank within 30 days of each
month end, a Borrowing Base Certificate in the form of Exhibit A-2,
current through the end of that period and certified as correct by an
officer of the Borrower acceptable to the Bank.
At the time of each request for an advance under this Agreement
following the Effective Date, the Borrower shall deliver to the Bank a
new Borrowing Base Certificate, unless the Bank is in possession of a
Borrowing Base Certificate current within 30 days of the requested
advance.
(d) Accounts Receivable Aging. Provide the Bank within 45 days of each
quarter end, an accounts receivable aging report in form acceptable to
the Bank and certified as correct by an officer of the Borrower
acceptable to the Bank.
(e) Notices. Provide the Bank prompt written notice of (1) any event of
default or any event which would, after the lapse of time or the giving
of notice, or both, constitute an event of default under the Agreement
or any of the Documents; or (2) any future event that would cause the
representations and warranties contained in this Agreement to be untrue
when applied to the Borrower's circumstances as of the date of such
event.
(f) Additional Information. Provide the Bank with such other information as
it may reasonably request, and permit the Bank to visit and inspect its
properties and examine its books and records.
8.2 Financial Covenants
During the time period that credit is available under this Agreement, and
afterward until all amounts due under the Documents are paid in full, unless the
Bank shall otherwise agree in writing, the Borrower agrees to comply with the
financial covenants described below, which shall be calculated using generally
accepted accounting principles consistently applied, except as they may be
otherwise modified by the following capitalized definitions:
"Current Assets" means current assets less receivables and investments in or
other amounts due from any shareholder, director, officer, employee or any
person or entity related to or affiliated with the Borrower.
"Current Liabilities" means current liabilities less any portion of such current
liabilities that constitute Subordinated Debt.
"Current Maturities or Long Term Debt" means that portion of the Borrower's long
term debt and capital leases payable within 12 months of the determination date.
"Tangible Net Worth" means total assets less total liabilities and less the
following types of assets: (1) leasehold improvements; (2) receivables and other
investments in or amounts due from any shareholder, director, officer, employee
or other person or entity related to or affiliated with the Borrower; and (3)
goodwill, patents, copyrights, mailing lists, trade names, trademarks, servicing
rights, organizational and franchise costs, bond underwriting costs and other
like assets property classified as intangible.
"Traditional Cash Flow" means the aggregate amount of the following: (1) net
income after taxes; (2) amortization expense; (3) depreciation and depletion
expenses; (4) deferred tax expense; and (5) similar non-cash charges against
income which the Bank determines in its discretion to be appropriate
"add-backs".
(a) Debt Service Coverage Ratio. Maintain a ratio of Traditional Cash Flow
to Current Maturities of Long Term Debt of a least 1.2 to 1.0 as of the
fiscal year ending December 31, 1998.
(b) Tangible Net Worth. Maintain a minimum Tangible Net Worth of at least
$2,800,000.00 as of the fiscal year ending December 31, 1998.
(c) Total Liabilities to Tangible Net Worth Ratio. Maintain a ration of
total liabilities to Tangible Net Worth of less than 3.0 to 1.0 as of
the end of fiscal year ending December 31, 1998.
(d) Current Ratio. Maintain a ratio of Current Assets to Current
Liabilities of at least 1.2 to 1.0 as of the end of the fiscal year
ending December 31, 1998.
8.3 Other Covenants
During the time period that credit is available under this Agreement,
and afterward until all amounts due under the Documents are paid in
full, unless the Bank shall otherwise agree in writing, the Borrower
agrees to:
(a) Additional Borrowing. Refrain from incurring any indebtedness except:
(1) Trade credit incurred in the ordinary course of business.
(2) Indebtedness expressly subordinated to the Bank in a writing
acceptable to the Bank.
(3) Indebtedness in existence on the date of this Agreement and
disclosed in advance to the Bank in writing.
(4) Purchase money indebtedness (including capitalized leases) for
the acquisition of fixed assets, provided that the total
principal amount outstanding at any one time does not exceed
$30,000.00
(b) Other Liens. Refrain from allowing any security interest on property it
owns now or in the future, except:
(1) Liens in favor of the Bank,
(2) Liens for taxes not delinquent or which the Borrower is
contesting in good faith.
(3) Liens outstanding on the date of this Agreement and disclosed
in advance to the Bank in writing.
(4) Liens which secure purchase money indebtedness allowed under
this Agreement.
(c) Insurance. Cause its properties to be adequately insured by a reputable
insurance company against loss or damage and to carry such other
insurance (including business interruption, flood, or environmental
risk insurance) as is usually carried by persons engaged in the same or
similar business. Such insurance must, with respect to the Bank's
collateral security, include a lender's loss payable endorsement in
favor of and in form acceptable to the Bank.
(d) Nature of Business. Refrain from engaging in any line of business
materially different from that presently engaged in by the Borrower.
(e) Deposit Accounts. Maintain its principal deposit accounts with the
Bank.
(f) Form of Organization and Mergers. Refrain from changing the legal form
of organization, or consolidating, merging, pooling, syndicating or
otherwise combining with any other entity.
(g) Maintenance of Properties. Make all repairs, renewals or replacements
necessary to keep its plant, properties and equipment in good working
condition.
(h) Books and Records. Maintain adequate books and records, refrain from
making any material changes in its accounting procedures for tax or
other purposes, and permit the Bank to inspect same upon reasonable
notice.
(i) Compliance with Laws. Comply in all material respects with all laws
applicable to its form of organization, business, and the ownership of
its property.
(j) Preservation of Rights. Maintain and preserve all permits, licenses,
rights, privileges, charters and franchises that it now owns.
These covenants were negotiated by the Bank and Borrower based on
information provided to the Bank by the Borrower. A breach of a
covenant is an indication that the risk of the transaction has
increased. As consideration for any waiver or modification of these
covenants, the Bank may require: additional collateral, guaranties or
other credit support; higher fees or interest rates; and possible
modifications to the Documents and the monitoring of the Agreement. The
waiver or modification of any covenant that has been violated by the
Borrower shall be made at the sole discretion of the Bank. These
options do not limit the Bank's right to exercise its rights under
Section 9 of this Agreement.
9. EVENTS OF DEFAULT AND REMEDIES
9.1 Default
The Revolving Line is a conditional line of credit, which means that
the Bank is not obligated to make advances under the Line even if the
Borrower is in compliance with the terms of this Agreement, and the
Revolving Note evidencing borrowings under the Line shall be payable by
the Borrower upon demand by the Bank. Despite this reservation of
rights, upon the occurrence of any one or more of the following events
of default, or at any time afterward unless the default has been cured,
the Bank may declare the Line to be terminated and in its discretion
accelerate and declare the unpaid principal, accrued interest and all
other amounts payable under the Notes and the Documents to be
immediately due and payable:
(a) Failure by the Borrower to make any payment of principal or interest
due under any of the Notes which continues for ten (10) days after its
due date.
(b) Default by the Borrower in the observance or performance of any
covenant or agreement contained in this Agreement, and continuance for
more than fifteen (15) days.
(c) Default by the Borrower in the observance or performance of any
covenant or agreement contained in any of the Documents (excepting
defaults under this Agreement, which are addressed in the preceding
paragraph), after giving effect to applicable grace periods, if any.
(d) Default by the Borrower with respect to any indebtedness or obligation
owed to the Bank, which is unrelated to any loan or facility subject to
the terms of this Agreement, or to any third party creditor, which
would allow the maturity of any such indebtedness or obligation to be
accelerated.
(e) Any representation or warranty made by the Borrower to the Bank in this
Agreement, or any financial statement or report submitted to the Bank
by or on behalf of the Borrower before or after the Effective Date is
untrue or misleading in any material respect.
(f) A garnishment, levy or writ of attachment, or any local, state, or
federal notice of tax lien or levy is made or issues against the
Borrower, or any post judgment process or procedure is commenced or any
supplementary remedy for the enforcement of a judgment is employed
against the Borrower or the Borrower's property.
(g) A material adverse change occurs in the Borrower's financial condition
or ability to repay its obligations to the Bank.
9.2 Immediate Default
If, with or without the Borrower's consent, a custodian, trustee or
receiver is appointed for any of the Borrower's properties, or if a
petition is filed by or against the Borrower under the United States
Bankruptcy Code, or the Borrower is dissolved, liquidated, or winds up
its business then the Line shall immediately terminate without notice,
and the unpaid principal, accrued interest, and all other amounts
payable under the Notes and the Documents shall become immediately due
and payable without notice or demand.
9.3 Supplementary Cross Default of Other Promissory Notes
The Borrower agrees that each promissory note evidencing indebtedness
of the Borrower to the Bank which is not otherwise documented in this
Agreement, and regardless of whether delivered before or after the
Effective Date, shall hereby be amended on a supplementary basis to
provide that each such promissory note may be accelerated by the Bank
in its discretion following the occurrence of any event of default
described in Section 9, or shall be accelerated and become immediately
due and payable without notice by the Bank following the occurrence of
any event of default described in Section 9, which events of default
and rights of acceleration are in addition to, and not exclusive of,
any events of default and rights of acceleration agreed to in the
promissory note itself.
10. MISCELLANEOUS
(a) No Waiver; Cumulative Remedies. No failure or delay by the Bank in
exercising any rights under this Agreement shall be deemed a waiver of
those rights. The remedies provided for in this Agreement and the
Documents are cumulative and not exclusive of any remedies provided by
law.
(b) Amendments or Modifications. Any amendment or modification of this
Agreement must be in writing and signed by the Bank and Borrower. Any
waiver of any provision in this Agreement must be in writing and signed
by the Bank.
(c) Binding Effect Assignment. This Agreement and the Documents are binding
on the successors and assigns of the Borrower and Bank. The Borrower
may not assign its rights under this Agreement and the Documents
without the Bank's prior written consent. The Bank may sell
participations in or assign this Agreement and the Documents and
exchange financial information about the Borrower with actual or
potential participants or assignees.
(d) Minnesota Law. This Agreement and the Documents shall be governed by
the substantive laws (other than conflict of laws) of the State of
Minnesota, and the Bank and Borrower consent to the personal
jurisdiction of the state and federal courts located in the State of
Minnesota.
(e) Severability of Provisions. If any part of this Agreement or the
Documents are unenforceable, the rest of this Agreement or the
Documents may still be enforced.
(f) Integration. This Agreement and the Documents describe the entire
understanding and agreement of the parties and supersedes all prior
agreements between the Bank and the Borrower relating to each credit
facility subject to this Agreement, whether verbal or in writing, and
may be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument. In the event of any inconsistency between the Agreement and
the Documents, inconsistent terms shall, where possible, be construed
as conferring cumulative rights and remedies upon the Bank, and, to the
extent that such construction is not possible, the terms of this
Agreement shall govern.
Address for notices to Bank: Address for notices to Borrower:
Norwest Bank Minnesota South, Winland Electronics, Incorporated
National Association 1950 Excel Drive
Second and Hickory Street Mankato, Minnesota 56001
Mankato, MN 56002-0168 Attention: W. Kirk Hankins, Sr.,
Attention: Scott A. Ordahl, President
Vice President
NORWEST BANK MINNESOTA SOUTH, WINLAND ELECTRONICS, INCORPORATED
NATIONAL ASSOCIATION
By: /s/ Scott Ordahl By: /s/ W. K. Hankins
Its: Vice President Its: President
<PAGE>
EXHIBIT A-1
BORROWING BASE DEFINITION
"Borrowing Base" means the sum of 80% of Eligible Accounts Receivable (as
defined below) plus 60% of Eligible Inventory (as defined below).
Eligible Accounts Receivable means all accounts receivable except those which
are:
1) Greater than 90 days past the invoice date.
2) Due from an account debtor, 10% or more of whose accounts owed to
the Borrower are more than 90 days past the invoice date.
3) Subject to offset or dispute.
4) Due from an account debtor who is subject to any bankruptcy
proceeding.
5) Owed by a shareholder, subsidiary, affiliate, officer or employee of
the Borrower.
6) Not subject to a perfected first lien security interest in favor of
the Bank.
7) Due from an account debtor located outside the United States and not
supported by a standby letter of credit acceptable to the Bank.
8) Due from a unit of government, whether foreign or domestic.
9) Otherwise deemed ineligible by the Bank in its reasonable
discretion.
Eligible Inventory means all inventory of the Borrower, at the lower of cost or
market as determined by generally accepted accounting principals, except
inventory which is:
1) In transit; or located at any warehouse not approved by the Bank.
2) Covered by a warehouse receipt, bill of lading or other document of
title.
3) On consignment to or from any other person or subject to any
bailment.
4) Damaged, obsolete or not salable in the Borrower's ordinary course
of business.
5) Subject to a perfected first lien security interest in favor of any
third party.
6) Supplies or parts inventory.
7) Otherwise deemed ineligible by the Bank in its reasonable
discretion.
<PAGE>
EXHIBIT B
CONDITIONS PRECEDENT AND SECURITY
Please Note: This Exhibit describes each Note, Security Document,
Authorizations, Organizational Documents, and all miscellaneous documents,
reports, certificates and other information required as a condition to each
advance or disbursement under the Agreement, whether or not they have previously
been delivered to the Bank. Please refer to the Closing Checklist for a complete
description of which of the following documents remain to be delivered to the
Bank.
Note
The Revolving Note
The Term Note
Security Documents
Each Security Document described below must continue in full force and effect at
all times in accordance with its terms during the time period that credit is
available under this Agreement, and afterward until all amounts due under the
Documents are paid in full. The failure of any Security Document to meet these
requirements may result in an event of default under the Agreement and the
acceleration of all of the Borrower's obligations to the Bank evidenced by the
Documents.
Security Agreement of Winland Electronics, Incorporated. A Security Agreement
dated January 31, 1996 signed by the Borrower, granting the Bank a first lien
security interest in the Borrower's accounts, inventory, equipment and general
intangibles, described in that Agreement, together with one or more UCC-1
Financing Statements sufficient to perfect the security interest granted to the
Bank in each jurisdiction where such property is located.
Mortgage of Winland Electronics, Incorporated. A Mortgage dated May 7, 1996,
signed by the Borrower as mortgagor, granting the Bank a second lien on certain
real property owned by the mortgagor and located in Blue Earth, Minnesota in the
sum of $57,725.00.
Mortgage Modification Agreement of Winland Electronics, Incorporated. A Mortgage
Modification Agreement in favor of the Bank signed by the Borrower, as
mortgagor, modifying the above-described mortgage to secure the additional
$115,000.00 advance of the Term Loan proceeds to the Borrower.
Authorization
Certificate of Authority of Borrower. A Certificate of Authority executed by
such person or persons authorized by the Borrower's organizational documents
and/or agreements to do so, certifying the incumbency and signatures of the
officers or other persons authorized to execute the Documents, and authorizing
the execution of the Documents and performance in accordance with their terms.
Organization
Articles of Incorporation and By-Laws. A recently certified copy of the
Borrower's Articles of Incorporation and By-laws, and any amendments, if
applicable.
Certificate of Good Standing. A recently certified copy of the Borrower's
Certificate of Good Standing.
Other
Arbitration Agreement. The Bank's standard form of Arbitration Agreement dated
January 31, 1996, signed by the Bank and Borrower, subjecting potential
controversies between them to binding arbitration, including but not limited to
those relating to the Documents and this Agreement.
Flood Hazard Determination Form. A Flood Hazard Determination for each parcel of
real property subject to a mortgage given to the Bank under the Agreement,
confirming whether or not the parcel is in a flood hazard area and whether or
not flood insurance must be obtained.
Evidence of Insurance. Evidence that the Borrower has obtained all insurance
coverage required by this Agreement, and that the Bank has been named as the
beneficiary of such policy or policies of insurance.
Agreement to Provide Property/Flood Insurance. An Agreement to Provide
Property/Flood Insurance signed by the Borrower, pursuant to which the Borrower
agrees to purchase and maintain property and/or flood insurance coverage on any
real property given as security under this Agreement.
<PAGE>
EXHIBIT C
REPRESENTATIONS AND WARRANTIES
Organizational Status. The Borrower is a duly formed and in good standing under
the laws of the State of Minnesota.
Authorization. The execution and delivery of the Documents is within the
Borrower's powers, has been duly authorized by the Borrower and does not
conflict with any of the Borrower's organizational documents or any other
agreement by which the Borrower is bound, and has been signed by all persons
authorized and required to do so under its organizational documents.
Financial Reports. The Borrower has provided the Bank with its annual audited
financial statement dated December 31, 1997 and its unaudited interim financial
statement dated June 30, 1998, and these statements fairly represent the
financial condition of the Borrower as of their respective dates and were
prepared in accordance with generally accepted accounting principles
consistently applied.
Litigation. There is no litigation or governmental proceeding pending or
threatened against the Borrower which could have a material adverse effect on
the Borrower's financial condition or business.
Taxes. The Borrower has paid when due all federal, state and local taxes.
No Default. There is no event which is, or with notice or the lapse of time or
would be, an event of default under this Agreement.
ERISA. The Borrower is in compliance in all material respects with the Employee
Retirement Income Security Act of 1974, as amended, and has received no notice
to the contrary from the Internal Revenue Service, the Department of Labor, the
Pension Benefit Guaranty Corporation or any other government entity or notice of
any claims or pending claims under ERISA.
Environmental Matters. 1) The Borrower is in compliance in all material respects
with all health and environmental laws applicable to the Borrower and its
operations and knows of no conditions or circumstances that could interfere with
such compliance in the future; 2) the Borrower has obtained all environmental
permits and approvals required by law for the operation of its business; and 3)
the Borrower has not identified any "recognized environmental conditions", as
that term is defined by the American Society for Testing and Materials in its
standards for environmental due diligence, which could subject the Borrower to
enforcement action if brought to the attention of appropriate governmental
authorities.
<PAGE>
NORWEST BANK MINNESOTA SOUTH,
NATIONAL ASSOCIATION
FIRST AMENDMENT
This First Amendment (the "First Amendment") dated as of October 23, 1998 is
between Norwest Bank Minnesota South, National Association (the "Bank") and
Winland Electronics, Incorporated (the "Borrower").
BACKGROUND
The Borrower and the Bank entered into a term loan and credit agreement (the
"Agreement") dated as of July 31, 1998, pursuant to which the Bank extended to
the Borrower 1) a $3,500,000.00 revolving line of credit (the "Line") and 2) a
$168,368.75 term loan (the "Term Loan"). Borrowings under the Line are evidenced
by a revolving note (the "July 31, 1998 Revolving Note") dated the same date as
the Agreement. The Borrower's obligation to the Bank under the Term Loan is
evidenced by a Term Note dated the same date as the Agreement.
Following the Bank's review of the Borrower's interim financial statements, the
Borrower has requested that the Bank change the margin applicable under the July
31, 1998 Revolving Note. The Bank is willing to grant this request subject to
the terms and conditions of this First Amendment. Capitalized terms not
otherwise defined in this First Amendment shall have the meaning given them in
the Agreement.
In consideration of the premises, the Bank and the Borrower agree that the
Agreement is hereby amended as follows:
1. Sections 4.2 and 4.3 of the Agreement are hereby deleted in their
entirety.
2. Simultaneously with the execution of this First Amendment, the
Borrower shall execute and deliver to the Bank a revolving note the "Revolving
Note") in form and content acceptable to the Bank, which shall replace, but not
be deemed to satisfy, the July 31, 1998 Revolving Note. The initial balance of
the Revolving Note shall be the balance of the July 31, 1998 Revolving Note as
of the date of this First Amendment. Each reference in the Agreement to the
Revolving Note shall be deemed to refer to the Revolving Note dated as of the
date of this First Amendment.
3. The Borrower hereby represents and warrants to the Bank as follows:
A. The Agreement as amended by this First Amendment remains in
full force and effect.
B. The Borrower has no knowledge of any default under the
terms of the Agreement or any note evidencing any of the obligations of
the Borrower that are documented in the Agreement, or of any event that
with notice or the lapse of time or both would constitute a default
under the Agreement or any such notes.
C. The execution, delivery and performance of this First
Amendment and the Revolving Note are within its corporate powers, have
been duly authorized and are not in contravention of law or the terms
of the Borrower's articles of incorporation or by-laws, or of any
undertaking to which the Borrower is a party or by which it is bound.
D. The resolutions set forth in the Corporate Certificate of
Authority dated March 26, 1997, and delivered by the Borrower to the
Bank have not been amended or rescinded, and remain in full force and
effect.
4. Except as modified by this First Amendment, the Agreement remains
unchanged and in full force and effect.
IN WITNESS WHEREOF, the Bank and Borrower have executed this First Amendment as
of the date and year first above written.
NORWEST BANK MINNESOTA SOUTH, WINLAND ELECTRONICS,
NATIONAL ASSOCIATION INCORPORATED
By: /s/ Scott Ordahl By: /s/ W. K. Hankins
Its: Vice President Its: President
<PAGE>
NORWEST BANK MINNESOTA SOUTH,
NATIONAL ASSOCIATION
SECOND AMENDMENT
THIS SECOND AMENDMENT (the "Second Amendment") dated to be effective as of
September 29, 1999 is between Norwest Bank Minnesota South, National Association
(the "Bank") and Winland Electronics, Incorporated (the "Borrower").
BACKGROUND
The Borrower and the Bank entered into a Term Loan and Credit Agreement dated as
of July 31, 1998, which agreement was amended by First Amendment dated October
23, 1998 (as amended, the "Agreement"), pursuant to which the Bank extended to
the Borrower 1) a $3,500,000.00 revolving line of credit (the "Line") and 2) a
$168,368.75 term loan (the "Term Loan"). Borrowings under the Line are currently
evidenced by a revolving note dated October 23, 1998 (the "1998 Revolving
Note"). The Borrower's obligation to the Bank under the Term Loan is evidenced
by a Term Note dated July 31, 1998 (the "1998 Term Note").
The Borrower has requested that the Bank extend the Line Expiration Date to
August 31, 2000 and has further requested that the Bank loan it an additional
$363,726.00 on a term loan basis. The Bank is willing to grant these requests
subject to the terms and conditions of this Second Amendment. Capitalized terms
not otherwise defined in this Second Amendment shall have the meaning given them
in the Agreement.
In consideration of the above premises, the Bank and the Borrower agree that the
Agreement is hereby amended as of the date of this Second Amendment as follows:
1. Section 1.2 of the Agreement is hereby deleted in its entirety and restated
as follows:
"1.2 Line Availability Period. The "Line Availability Period" will
mean the period of time from the Effective Date or the date on
which all conditions precedent described in this Agreement
have been met, whichever is later, to the Line Expiration Date
of August 31, 2000."
2. Section 2.1 of the Agreement is hereby deleted in its entirety and restated
as follows:
"2.1 Term Loan Amount. In addition to the Term Loan as defined
above, the Bank agrees to advance to the Borrower the
additional sum of Three Hundred Sixty-Three Thousand Seven
Hundred Twenty-Six and 00/100 Dollars ($363,726.00) under the
Term Loan facility, provided that all conditions precedent in
this Agreement have been met and that the Borrower is not
otherwise in default as of the date of disbursement. The Bank
and the Borrower agree that the unpaid principal amount of the
Term Loan, following the additional advance, is $530,052.64."
3. To reflect the changes to the Line, the Borrower will replace the existing
promissory note by executing and delivering to the Bank a new promissory note in
form and content acceptable to the Bank (the "Revolving Note"), which shall
replace, but not be deemed to satisfy, the 1998 Revolving Note, and which shall
further reflect the same unpaid loan amount as the 1998 Revolving Note as of the
date of this Second Amendment. Each reference in the Agreement to the Revolving
Note shall be deemed to refer to the Revolving Note dated as of the date of this
Second Amendment.
4. To reflect the changes to the Term Loan and Mortgage, the Borrower will
execute a note and mortgage modification agreement which shall: (1) reflect the
same unpaid loan amount as the 1998 Term Note as of the date of this Second
Amendment, plus the $363,726.00 advance provided for in this Agreement; and (b)
modify the mortgage granting the Bank a second lien on real property owned by
the mortgagor and located in Blue Earth, Minnesota, to secure the additional
$363,726.00 advance of the Term Loan proceeds to the Borrower. Each reference in
the Agreement to the Term Note shall be deemed to refer to the 1998 Term Note as
modified by the Note and Mortgage Modification Agreement as of the date of this
Second Amendment.
5. Section 2.3 of the Agreement is hereby amended to reflect the additional
advance of $363,726.00 under the Term Loan facility.
6. Sections 8.2(b), 8.2(c), and 8.2(d) are hereby deleted and restated as
follows:
"(b) Tangible Net Worth. Maintain a minimum Tangible Net Worth of
at least $3,800,000.00 as of the end of fiscal year ending
December 31, 1999.
(c) Total Liabilities to Tangible Net Worth Ratio. Maintain a
ratio of total liabilities to Tangible Net Worth of less than
2.75 to 1.0 as of the end of fiscal year ending December 31,
1999.
(d) Current Ratio. Maintain a ratio of Current Assets to Current
Liabilities of at least 1.2 to 1.0 as of the end of fiscal
year ending December 31, 1999."
7. The Borrower hereby represents and warrants to the Bank as follows:
A. The Agreement as amended by this Second Amendment remains
in full force and effect.
B. The Borrower has no knowledge of any default under the
terms of the Agreement or any note evidencing any of the obligations of
the Borrower that are documented in the Agreement, or of any event that
with notice or the lapse of time or both would constitute a default
under the Agreement or any such notes.
C. The execution, delivery and performance of this Second
Amendment and all related documentation described in this Second
Amendment are within its corporate powers, have been duly authorized
and are not in contravention of law or the terms of the Borrower's
articles of incorporation or by-laws, or of any undertaking to which
the Borrower is a party or by which it is bound.
D. The resolutions set forth in the Corporate Certificate of
Authority dated March 26, 1997and delivered by the Borrower to the Bank
have not been amended or rescinded, and remain in full force and
effect.
8. Except as modified by this Second Amendment, the Agreement remains unchanged
and in full force and effect.
IN WITNESS WHEREOF, the Bank and Borrower have executed this Second Amendment as
of the date and year first above written.
NORWEST BANK MINNESOTA SOUTH, WINLAND ELECTRONICS,
NATIONAL ASSOCIATION INCORPORATED
By: /s/ Scott Ordahl By: /s/ W. K. Hankins
Its: VP Its: CEO
NORWEST BANK MINNESOTA SOUTH,
NATIONAL ASSOCIATION REVOLVING NOTE
$3,500,000.00 September 29, 1999
FOR VALUE RECEIVED, Winland Electronics, Incorporated (the "Borrower") promises
to pay to the order of Norwest Bank Minnesota South, National Association (the
"Bank"), at its principal office or such other address as the Bank or holder may
designate from time to time, the principal sum of THREE MILLION FIVE HUNDRED
THOUSAND AND 00/100 DOLLARS ($3,500,000.00) or the amount shown on the Bank's
records to be outstanding, plus interest (calculated on the basis of actual days
elapsed in a 360-day year) accruing on the unpaid balance at the annual interest
rate defined below. Absent manifest error the Bank's records will be conclusive
evidence of the principal and accrued interest owing hereunder.
INTEREST RATE. The principal balance outstanding under this Revolving Note will
bear interest at an annual rate equal to the Base Rate, floating. The Base Rate
is the "base" or "prime" rate of interest established by the Bank from time to
time at its principal office in Minneapolis, Minnesota.
INTEREST AFTER MATURITY. The unpaid principal balance and interest due under
this Revolving Note after maturity (whether this Revolving Note matures by
demand, acceleration or lapse of time) shall bear interest until paid at the
Base Rate plus 1.00%, floating.
REPAYMENT TERMS
Interest. Interest will be payable on the first day of each month, beginning
November 1, 1999.
Principal. Principal and any unpaid interest, shall be payable in a single
payment due on August 31, 2000.
ADDITIONAL TERMS AND CONDITIONS. This Revolving Note is issued pursuant to a
Second Amendment of even date amending a Term Loan and Credit Agreement between
the Bank and the Borrower dated July 31, 1998 (as amended, the "Agreement"), and
shall replace but not be deemed to satisfy the 1998 Revolving Note as defined in
the Agreement. The Agreement, and any amendments or substitutions, contains
additional terms and conditions, including default and acceleration provisions,
which are incorporated into this Revolving Note by reference. Capitalized terms
not expressly defined herein shall have the meanings given them in the
Agreement. The Borrower agrees to pay all costs of collection, including
reasonable attorneys' fees and legal expenses incurred by the Bank if this
Revolving Note is not paid as provided above. This Revolving Note shall be
governed by the substantive laws of the State of Minnesota.
WAIVER OF PRESENTMENT AND NOTICE OF DISHONOR. Borrower and any other person who
signs, guarantees or endorses this Revolving Note, to the extent allowed by law,
hereby waives presentment, demand for payment, notice of dishonor, protest, and
any notice relating to the acceleration of the maturity of this Revolving Note.
WINLAND ELECTRONICS, INCORPORATED
By: /s/ W. K. Hankins
Its: CEO & CFO
NORWEST BANK MINNESOTA SOUTH,
NATIONAL ASSOCIATION TERM NOTE
$530,052.64 September 29, 1999
FOR VALUE RECEIVED, Winland Electronics, Incorporated (the "Borrower") promises
to pay to the order of Norwest Bank Minnesota South, National Association (the
"Bank"), at its principal office or such other address as the Bank or holder may
designate from time to time, the principal sum of Five Hundred Thirty Thousand
Fifty Two and 64/100 Dollars ($530.052.64), or the amount shown on the Bank's
records to be outstanding, plus interest (calculated on the basis of actual days
elapsed in a 360-day year) accruing each day on the unpaid principal balance at
the annual interest rate defined below. Absent manifest error, the Bank's
records shall be conclusive evidence of the principal and accrued interest owing
hereunder.
INTEREST RATE. The principal balance outstanding under this Term Note shall bear
interest at an annual rate equal to 8.25%.
REPAYMENT TERMS
Principal and Interest. Principal and interest shall be payable in successive
monthly installments of Five Thousand One Hundred Fifty and 00/100 Dollars
($5,150.00), beginning on November 1, 1999 and on the first day of each month
thereafter. The remaining principal balance, plus any accrued interest, shall be
fully due and payable on September 30, 2004.
PREPAYMENT. The Borrower may prepay this Term Note in full or in part at any
time. Each prepayment may be applied in inverse order of maturity or as the Bank
in its sole discretion may deem appropriate. Such prepayment shall not excuse
the Borrower from making subsequent payments each month until the indebtedness
is paid in full.
ADDITIONAL TERMS AND CONDITIONS. This Term Note is issued pursuant to Second
Amendment to Term Loan and Credit Agreement of even date between the Bank and
the Borrower (as amended, the "Agreement"), and is given as a replacement for,
and not in satisfaction of, the 1998 Term Note as described in the Agreement,
and is secured by a mortgage dated May 7, 1996, which was filed for record on
May 15, 1996 in the Registrar of Titles as Document #6041, and in the office of
the County Recorder as Document #52580, as modified. The Agreement, and any
amendments or substitutions, contains additional terms and conditions, including
default and acceleration provisions, which are incorporated into this Term Note
by reference. Capitalized terms not expressly defined herein shall have the
meanings given them in the Agreement. The Borrower agrees to pay all costs of
collection, including reasonable attorneys' fees and legal expenses incurred by
the Bank if this Term Note is not paid as provided above. This Term Note shall
be governed by the substantive laws of the State of Minnesota.
WAIVER OF PRESENTMENT AND NOTICE OF DISHONOR. Borrower and any other person who
signs, guarantees or endorses this Term Note, to the extent allowed by law,
hereby waives presentment, demand for payment, notice of dishonor, protest, and
any notice relating to the acceleration of the maturity of this Term Note.
WINLAND ELECTRONICS, INCORPORATED
By: /s/ W. K. Hankins
Its: CEO & CFO
MORTGAGE
This Mortgage is made this 7th day of May, 1996, between Winland
Electronics Incorporated, a Minnesota Corporation (herein called the
"Mortgagor"), and Norwest Bank Minnesota South, National Association (herein
called "Mortgagee").
WITNESSETH, THAT, in consideration of the sum of Fifty Seven Thousand
Seven Hundred Twenty Five Dollars and 00/100 Dollars ($57,725.00), to him in
hand paid by the Mortgagee, the receipt whereof is hereby acknowledged, the
Mortgagor does hereby mortgage, grant, bargain, sell and convey unto the
Mortgagee, forever, all the tract(s) or parcel(s) of land (hereinafter called
the "Land"), located in the County of Blue Earth, and State of Minnesota
described as follows:
Lots Four (4) and Five (5), Block Three (3), EXCEPT that part of Lot 5
lying southerly of a line parallel with and distance 201.90 feet south
of the North line of said Lot 5, Eastwood Industrial Centre, the 5
perimeter corners of which subdivision are marked with Judicial
Landmarks.
SUBJECT TO: Easements of Record AND
A Mortgage/SSA/FFS Filed for record as document
no. 49093 on August 12, 1994 in favor of the City
of Mankato in the amount of $1,935,000.00 and
Amendment to Mortgage dated 12/28/94 noting
additional $264,620.00 and filed as document no.
49815.
TOGETHER With all the buildings and improvements now or hereafter
erected thereon, and all lighting, heating, ventilating, air-conditioning,
sprinkling and plumbing fixtures, water and power systems, engines and
machinery, boilers, ranges, ovens, dishwashers, carpeting, mirrors and mantels,
furnaces, oil burners, elevators and motors, refrigeration plants or units,
communication systems, dynamos, transformers, electrical equipment, storm and
screen windows, doors, awnings and shades and all other fixtures of every
description now or hereafter found or used upon the property above described or
appurtenant thereto, all of which, together with replacements and additions
thereto, shall be deemed fixtures and subject to the lien hereof, and together
with all hereditaments, easements, appurtenances, rents, issues, profits,
royalties and mineral, oil and gas rights now and hereafter pertaining to the
Land (all of the foregoing, together with said Land, are hereinafter referred to
as the "Mortgaged Property").
TO HAVE AND TO HOLD The Mortgaged Property unto the Mortgagee forever.
PROVIDED, NEVERTHELESS, That if the Mortgagor (i) shall pay to the
Mortgagee the sum of Fifty Seven Thousand Seven Hundred Twenty Five and 00/100
Dollars ($57,725.00), together with interest, in accordance with the terms of
that certain promissory note of Mortgagor, of even date herewith, payable to the
Mortgagee, which note matures on May 31, 2001, and any extensions or renewals
thereof (such note and any such extension or renewal herein called the "Note"),
which Note is [X] a single or multiple advance note, the proceeds which may not
be readvanced following payment; or [ ] a revolving credit note under which
advances, payments and readvances may be made from time to time, and (ii) shall
also pay all other sums, with interest thereon, as may be advanced by the
Mortgagee in accordance with this Mortgage or the payment of which may now or
hereafter be secured by this Mortgage (the indebtedness evidenced by the Note
and all other such sums are hereinafter collectively referred to as the
"Indebtedness"), and (iii) shall also keep and perform all and singular the
covenants herein contained on the part of the Mortgagor to be kept and
performed, then, this Mortgage shall be null and void; otherwise this Mortgage
shall be and remain in full force and effect. The maximum principal amount which
at any one time may be outstanding on the Note, and secured by the Mortgage is
$57,725.00. This mortgage [ ] is [X] is not a purchase money mortgage.
The Mortgagor covenants that the Mortgagor is lawfully seized of the
Mortgaged Property in fee simple and has the right to convey the Mortgaged
Property; that the Mortgaged Property is free from all liens and encumbrances
except as otherwise listed herein; that the Mortgagee shall quietly enjoy and
possess the Mortgaged Property; that the Mortgagor will warrant and defend the
title to the Mortgaged Property against all claims, whether now existing or
hereafter arising, not hereinbefore expressly excepted; and that al buildings
and improvements now or hereafter located on the Land are, or will be, located
entirely within the boundaries of the Land. The covenants and warranties of this
paragraph shall survive foreclosure of this Mortgage, and shall run with the
Land.
The Mortgagor further covenants and agrees as follows:
1. PAYMENT OF PRINCIPAL AND INTEREST AND COMPLIANCE WITH OTHER AGREEMENTS.
The Mortgagor shall promptly pay when due the principal of and interest
on the Note, prepayment charges, if any, provided in the Note, and all
other indebtedness. The Mortgagor shall promptly and faithfully observe
all of its obligations under the following agreements:
and all of its obligations under any other agreement now in effect or
hereafter made between the Mortgagor and Mortgagee.
2. FUNDS FOR TAXES AND INSURANCE. If requested at any time or from time to
time by the Mortgagee, the Mortgagor shall pay to the Mortgagee on the
day monthly installments of principal and interest are payable under
the Note, until the Note is paid in full, a sum (hereinafter called
"Funds") equal to one-twelfth of the yearly taxes and assessments
levied against the Mortgaged Property, plus one-twelfth of yearly
premium installments on insurance required under paragraph 8 hereof,
all as estimated initially and from time to time by the Mortgagee, to
be applied by the Mortgagee to pay said taxes, assessments and
insurance premiums. No earnings or interest shall be payable to the
Mortgagor on the Funds. Such Funds shall not be, nor be deemed to be,
trust funds, and the Mortgagee shall have the right to hold the Funds
in any manner the Mortgagee elects and may comingle the Funds with
other moneys held by the Mortgagee.
If the amount of the Funds held by the Mortgagee shall exceed
at any time the amount deemed necessary by the Mortgagee to provide for
the payment of taxes, assessments and insurance premiums as they fall
due, such excess shall, at the option of the Mortgagee, either be
promptly repaid to the Mortgagor or be credited to the Mortgagor on
monthly installments of Funds subsequently payable. If the amount of
the Funds held by the Mortgagee shall not be sufficient at any time to
pay taxes, assessments and insurance premiums as they fall due, the
Mortgagor shall pay to the Mortgagee any amount necessary to make up
the deficiency upon notice from the Mortgagee to the Mortgagor
requesting payment thereof, and the Mortgagee may apply such amounts in
such order of application as the Mortgagee may determine. Upon the
occurrence of any Event of Default, as defined in paragraph 16 hereof,
the Mortgagee may apply on the Indebtedness secured hereby, in such
order of application as the Mortgagee may determine, any Funds then in
the Mortgagee's possession.
Upon payment in full of all Indebtedness secured by this
Mortgage, the Mortgagee shall promptly remit to the Mortgagor any Funds
held by the Mortgagee.
If, under paragraph 16 hereof, the Mortgaged Property is sold
or the Mortgaged Property is otherwise acquired by the Mortgagee, the
Mortgagee may apply any funds then held by the Mortgagee as a credit
against any taxes or insurance premiums then due or against the
Indebtedness secured by this Mortgage, in such order of application as
the Mortgagee may determine.
3. PAYMENT OF CHARGES AGAINST THE PREMISES. The Mortgagor also agrees to
pay, before a penalty might attach for nonpayment thereof, all taxes
and assessment and all other charges whatsoever levied upon or assessed
or placed against the Mortgaged Property, by making payment directly to
the payee thereof, or, if the Mortgagee so designates, by making
payment in accordance with paragraph 2 hereof, and the Mortgagor will
promptly deliver to the Mortgagee any official receipts received by the
Mortgagor; to likewise pay all taxes, assessments and other charges,
levied upon or assessed, placed or made against, or measured by, this
Mortgage, or the recordation hereof, or the Indebtedness secured
hereby, provided that the Mortgagor shall not be obligated to pay any
such tax, assessment or charge if such payment would be contrary to law
or would result in the payment of an unlawful rate of interest on the
Indebtedness secured hereto. The Mortgagor shall promptly furnish to
the Mortgagee all notices received by the Mortgagor of amounts due
under this paragraph. In the event of the passage after the date of
this Mortgage of any applicable law, creating or providing for any tax,
assessment or charge which may not be lawfully paid by the Mortgagor,
the Indebtedness secured hereby, together with interest due thereon,
shall, at the option of the Mortgagee, become immediately due and
payable.
4. APPLICATION OF PAYMENTS. All payments received by the Mortgagee under
the Note of this Mortgage shall be applied by the Mortgagee in such
order of application as the Mortgagee may determine.
5. LIENS. The Mortgagor shall keep the Mortgaged property free from all
liens, whether prior or subordinate to this Mortgage, other than the
lien of current real estate taxes and installments of official
assessments with respect to which no penalty is yet payable; provided,
that the Mortgagor shall not be required to discharge any lien so long
as the Mortgagor shall agree to the payment of the obligations secured
by such lien in a manner acceptable to the Mortgagee, or shall, in good
faith, contest such lien by appropriate legal proceedings which shall
operate to prevent the enforcement of the lien of forfeiture of the
Mortgaged Property or any part thereof, and shall also give such
reasonable security to Mortgagee as may be demanded by Mortgagee to
insure compliance therewith.
6. HAZARD INSURANCE. The Mortgagor shall keep the buildings and other
improvements now existing or hereafter erected on the Land insured by
insurance carriers satisfactory to the Mortgagee against loss by fire,
hazards included in the term "extended coverage", and such other
hazards, casualties and contingencies, including war damage insurance,
as may be required by the Mortgagee, for the full replacement cost
thereof and for such periods as may be required by the Mortgagee. The
policy of such insurance shall be in a form acceptable to Mortgagee and
shall not contain a defense based on coinsurance, and shall contain the
standard provision that no act of the Mortgagor or of his agents or
representatives will render the policy void as to the Mortgagee or
affect the Mortgagee's right to recover in case of loss, and the policy
or policies of insurance shall have loss payable provisions in favor of
and in form acceptable to the Mortgagee. The Mortgagor shall pay all
premiums on such insurance by making payment, when due, directly to the
insurance carriers, or if the Mortgagee so designates, by making
payment in accordance with paragraph 2 hereof. The mortgagee shall have
the right to hold the policies and renewals thereof, and the Mortgagor
shall promptly furnish to the Mortgagee all renewal notices and all
paid premium receipts received by him. In no event shall the Mortgagee
be held responsible for failure to pay for any insurance written or for
any loss or damage growing out of a defect in any policy or growing out
of any failure of any insurance company to pay for any loss or damage
insured against or for failure by the Mortgagee to effect the insurance
required hereunder. In the event of loss, the Mortgagor shall give
prompt notice by mail to the insurance carrier and the Mortgagee, and
the Mortgagee may make proof of loss if not made promptly by the
Mortgagor. The Mortgagor and Mortgagee shall jointly adjust the
insurance; provided, however, that it is not paid within 45 days
following the damage or destruction it may be adjusted by the Mortgagee
alone at any time after said 45 day period if, but only if, an Event of
Default exists at the time of adjustment. The Mortgagee is authorized
and empowered to collect and receive insurance proceeds, and to apply
the insurance proceeds or any part thereof, at the sole discretion of
the Mortgagee, to the restoration or repair of the Mortgaged Property
damaged or to the reduction of the Indebtedness secured hereby, in such
order of application as the Mortgagee may determine. Any such
application to the principal of the Note shall not extend or postpone
the due date of the monthly installments referred to in the Note or
change the amount of such installments. All policies of insurance and
any and all refunds of unearned premiums are hereby assigned to the
Mortgagee as additional security for the payment of the Indebtedness
secured hereby. In event of foreclosure of this Mortgage, all right,
title and interest of the Mortgagor in and to any insurance policies
then in force shall pass to the purchaser at the foreclosure sale. The
Mortgagor shall not maintain or permit to be maintained any insurance
of the type referred to in this paragraph 6 with respect to the
Mortgaged Property other than the insurance required under this
paragraph 6. Notwithstanding anything contained in this paragraph to
the contrary, if this Mortgage is on a condominium or a town house and
if there is a master insurance policy in force covering the common
areas and facilities and all condominiums and town houses located in
that development, then, until otherwise notified in writing by the
Mortgagee, the Mortgagor shall have no obligation to maintain the
insurance required hereunder. Whenever such insurance is in force
(regardless of whether requested by the Mortgagee or not) the Mortgagor
hereby authorizes the Mortgagee to cancel such insurance whenever the
Mortgagee determines that such insurance does not adequately protect
the Mortgagee's interest.
7. PRESERVATION AND MAINTENANCE OF MORTGAGED PROPERTY. The Mortgagor shall
keep the buildings and other improvements now or hereafter erected on
the Land in good repair and condition, ordinary depreciation excepted,
and shall provide all utility services necessary for the operation and
preservation of the Mortgaged Property. The Mortgagor shall commit or
permit no waste and unless the Mortgaged Property primarily consists of
a single family dwelling or a duplex or other similar residential
dwelling designed to be inhabited by no more than one or two families,
shall not alter the design or structural character of any building now
or hereafter erected on the Land without the prior written consent of
the Mortgagee and in no event shall the Mortgagor do any act or thing
which would unduly impair or depreciate the value of the Mortgaged
Property. The Mortgagor shall not abandon the Mortgaged Property. The
Mortgagor shall comply with all present and future laws, ordinances,
regulations and requirements of any governmental body applicable to the
Mortgaged Property and to the occupancy and operation thereof. If this
Mortgage is on a condominium, the Mortgagor shall perform all of the
Mortgagor's obligations under the Apartment Ownership Act of the State
of Minnesota, the declaration of condominium, the by-laws and the
regulations, if any, issued in accordance with the declaration or
by-laws, or both. If this Mortgage is on a town house, the Mortgagor
shall perform all of the Mortgagor's obligations under any and all
applicable restrictions, articles of incorporation, by-laws and other
documents pertaining to the town house development.
8. INSPECTION. The Mortgagee, or its agents, shall have the right at all
reasonable times to enter upon the Mortgaged Property for the purposes
of inspection without thereby becoming liable to the Mortgagor or any
person in possession holding under the Mortgagor.
9. PROTECTION OF MORTGAGEE'S SECURITY. If the Mortgagor fails to perform
any of the covenants and agreements contained in this Mortgage or if
any action or proceeding is commenced which does or may adversely
affect the Mortgaged Property or the interest of the Mortgagor or
Mortgagee therein, or the title of the Mortgagor thereto, then the
Mortgagee, at the Mortgagee's option, may perform such covenants and
agreements, defend against and/or investigate such action or
proceeding, and take such other action as the Mortgagee deems necessary
to protect the Mortgagee's interest. The Mortgagee shall be the sole
judge of the legality, validity and priority of any claims, liens,
encumbrances, taxes, assessments, charges and premiums paid by it and
of the amount necessary to be paid in satisfaction thereof. In the
event that, after damage to or destruction of the Mortgaged Property or
condemnation of a portion of the Mortgaged Property or a sale under
threat thereof, the Mortgagee elects to restore the Mortgaged Property,
and the insurance, sale or condemnation proceeds, as the case may be,
which are paid to the Mortgagee are not sufficient to pay for such
restoration, the Mortgagee may effect the restoration in such manner as
it determines, and the cost thereof in excess of such proceeds,
together with interest thereon from the date of disbursement at the
rate provided in the Note (unless payment of interest at such rate
would be contrary to applicable law, in which event such amounts shall
bear interest at the highest rate permitted by applicable law) shall
become an additional amount secured hereunder, and shall be immediately
due and payable. Any amounts disbursed or incurred by the Mortgagee
pursuant to this paragraph 9, including, but not limited to, reasonable
attorney's fees, with interest thereon, shall become additional
Indebtedness of the Mortgagor secured by this Mortgage. The Mortgagee
is hereby given the irrevocable power of attorney (which power is
coupled with an interest and given for security and is irrevocable) to
enter upon the Mortgaged Property as the Mortgagor's agent and in the
Mortgagor's name to perform any and all covenants and agreements to be
performed by the Mortgagor as herein provided. All amounts disbursed or
incurred by the Mortgagee pursuant to this paragraph 9 shall be payable
upon demand, and shall bear interest from the date of disbursement or
the date incurred at the rate stated in the Note, unless payment of
interest at such rate would be contrary to applicable law, in which
event such amounts shall bear interest at the highest rate permitted by
applicable law. The Mortgagee shall, at its option be subrogated to any
encumbrance, lien, claim or demand, and to all the rights and
securities for payment thereof, paid or discharged with the principal
sum secured hereby or by the Mortgagee under the provisions hereof, and
any such subrogation rights shall be additional and cumulative security
for this Mortgage. Nothing contained in this paragraph 9 shall require
the Mortgagee to incur any expense or do any act hereunder, and the
Mortgagee shall not be liable to the Mortgagor for any damages or
claims arising out of action taken by the Mortgagee pursuant to this
paragraph 9.
10. CONTAMINANTS. Mortgagor warrants and represents that there are not now,
nor, to the best of Mortgagor's knowledge after reasonable
investigation, have there ever been and, without the Mortgagor
obtaining Mortgagee's consent and all requisite permits and approvals,
there will not in the future be Contaminants stored, handled, or
disposed of on the Property which would require cleanup, removal or
other remedial action under any environmental laws. Contaminants shall
mean materials, substances and compounds prohibited or regulated under
any environmental laws. Mortgagor will immediately notify the
Mortgagee, in writing, of any, (i) investigation, inquiry, claim or
action by any governmental authority or other party, against the
Mortgagor regarding any environmental laws, (ii) Contaminants on the
Property which would require cleanup, removal or other remedial action
under any environmental laws. Upon the Mortgagee's request, Mortgagor
will periodically provide environmental assessments or compliance
audits and agrees to permit environmental inspections and testing of
the Property by the Mortgagee or its agents, at the Mortgagor's
expense. If the Property is used for residential purposes, the
preceding shall not apply to the presence, use, or storage on the
Property of small quantities of Contaminants that are generally
recognized to be appropriate to normal residential uses and to
maintenance of the Property.
11. CONDEMNATION. The Mortgagor hereby irrevocably assigns to the Mortgagee
any award or payment which becomes payable by reason of any taking of
the Mortgaged Property, or any part thereof, either temporarily or
permanently, in or by condemnation or other eminent domain proceedings
or by reason of sale under threat thereof, or in anticipation of the
exercise of the right of condemnation or other eminent domain
proceedings. The Mortgagor will not enter into any agreement permitting
or consenting to the taking of the Mortgaged Property or any part
thereof or providing for the conveyance thereof in lieu of
condemnation, with anyone authorized to acquire the same in
condemnation or by eminent domain unless the Mortgagee shall have first
consented thereto in writing. In the event of any such taking, any
awards shall be adjusted jointly by the Mortgagor and the Mortgagee;
provided, however, any award not adjusted or paid within 30 days after
such taking may be adjusted solely by the Mortgagee at any time after
said 30 day period if, and only if, an Event of Default exists at the
time of adjustment. The Mortgagor will file or prosecute in good faith
and with due diligence what would otherwise be its claim in any such
award or payment and cause the same to be collected and paid over to
the Mortgagee, and the Mortgagor irrevocably authorizes and empowers
the Mortgagee (which power is coupled with an interest and given for
security and is irrevocable), in the name of the Mortgagor or
otherwise, to file and prosecute any such claim and to collect, receipt
for and retain the same. The proceeds of the award or payment may,
after deducting all reasonable costs and expenses which may have been
incurred by the Mortgagee in the collection thereof, at the sole
discretion of the Mortgagee, be released to the Mortgagor, applied to
restoration of the Mortgaged Property or applied to the payment of the
Indebtedness secured hereby, in such order of application as the
Mortgagee may determine. Any such application to principal of the Note
shall not extend or postpone the due date of the monthly installments
referred to in the Note or change the amount of such installments.
12. FORBEARANCE BY MORTGAGEE NOT A WAIVER. Any delay by the Mortgagee in
exercising any right or remedy hereunder or otherwise afforded by law
or equity shall not be a waiver of or preclude the exercise of such
right or remedy of any other right or remedy hereunder or at law or
equity. The failure of the Mortgagee to exercise any option to
accelerate maturity of the Indebtedness secured by this Mortgage, the
forbearance by the Mortgagee before or after the exercise of such
option, or the withdrawal or abandonment of proceedings provided for by
this Mortgage shall not be a waiver of the right to exercise such
option or to accelerate the maturity of such Indebtedness by reason of
any past, present or future event which would permit acceleration under
paragraph 16 hereof. The procurement of insurance or the payment of
taxes or other liens or charges by the Mortgagee shall not be a waiver
of the Mortgagee's right to accelerate the maturity of the Indebtedness
hereby secured. The Mortgagee's receipt of any awards, proceeds or
damages under paragraphs 6 and 10 hereof shall not operate to cure or
waive default by the Mortgagor under paragraph 16 hereof.
13. MORTGAGEE'S REMEDIES CUMULATIVE. All remedies of the Mortgagee are
distinct and cumulative to any other right or remedy under this
Mortgagee or afforded by law or equity, and may be exercised
concurrently or independently, and as often as the occasion therefor
arises.
14. SUCCESSORS AND ASSIGNS BOUND; NUMBER; GENDER; JOINT AND SEVERAL
LIABILITY; CAPTIONS. The covenants and agreements herein contained
shall bind, and the rights hereunder shall inure to, the respective
heirs, legal representatives, successors and assigns of the Mortgagee
and the Mortgagor. Wherever used, the singular number shall include the
plural, the plural the singular, and the use of any gender shall be
applicable to all genders. All covenants and agreements of the
Mortgagor shall be joint and several; provided, however, that nothing
contained in this Mortgage shall in any way obligate Mortgagor's spouse
to pay the Note or the other indebtedness unless such spouse also signs
the Note. The captions and headings of the paragraphs of this Mortgage
are for convenience only and are not to be used to interpret or define
the provisions hereof.
15. NOTICE. Any notice from the Mortgagee to the Mortgagor under this
Mortgage shall be deemed to have been given by the Mortgagee and
received by the Mortgagor, when mailed by certified mail by the
Mortgagee to the Mortgagor at the Mortgaged Property or at such other
address as the Mortgagor may designate to the Mortgagee. Any notice
from the Mortgagor to the Mortgagee under this Mortgage shall be deemed
to have been given by the Mortgagor and received by the Mortgagee when
received by the Mortgagee at the Mortgagee's address stated above, or
at such other address as the Mortgagee may designate to the Mortgagor.
16. GOVERNING LAW; SEVERABILITY. This Mortgage shall be governed by the
laws of the State of Minnesota. In the event that any provision or
clause of this Mortgage conflicts with applicable law, such conflict
shall not affect other provisions of the Mortgage which can be given
effect without the conflicting provisions, and to this end the
provisions of the Mortgage are declared to be severable. In the event
that any applicable law in effect on the date hereof limiting the
amount of interest or other item which may be lawfully charged against
the Mortgagor is interpreted in a manner such that any payment provided
for in this Mortgage or in the Note, whether considered separately or
together with other payments that are considered a part of this
Mortgage and Note transaction, violates such law, and Mortgagor is
entitled to the benefit of such law, such payment is hereby reduced to
the extent necessary to eliminate such violation.
17. DEFAULT; ACCELERATION AND FORECLOSURE. Each of the following
occurrences shall constitute an event of default hereunder (herein
called an "Event of Default"):
(a) The Mortgagor shall fail to pay when due any amount payable
under the Note or any other Indebtedness secured by this
Mortgage and the continuance thereof for 10 calendar days;
(b) The Mortgagor shall fail duly to perform or observe any of the
other covenants contained in this Mortgage or in the Note and
the continuance thereof for 10 calendar days;
(c) The Mortgagor shall be dissolved or its corporate existence
shall be terminated, or it shall become insolvent (however
evidenced) or commit any act of bankruptcy or make a general
assignment for the benefit of creditors, or if any proceeding
is instituted by or against the Mortgagor for any relief under
any bankruptcy or insolvency laws, or if a receiver is
appointed of or a writ or order of attachment or garnishment
is made or issued, or if any proceeding or procedure is
commenced or any remedy supplementary to or in enforcement of
a judgment is employed against, or with respect to any
property of, the Mortgagor;
(d) Any representation or warranty made by the Mortgagor herein is
untrue or misleading in any material respect; or
(e) The Mortgagor shall sell or transfer, or agree to sell or
transfer all or any part of the Mortgaged Property or interest
therein.
Upon the occurrence of an Event of Default or at any time thereafter
until such Event of Default is cured to the satisfaction of the
Mortgagee, the Mortgagee may, at its option, exercise either or both of
the following rights and remedies (and any other rights and remedies
available to it):
(a) The Mortgagee may declare immediately due and payable all
Indebtedness secured by this Mortgage, and the same shall
thereupon be immediately due and payable without presentment
or other demand, protest, notice of dishonor or any other
notice of any kind, all of which are hereby expressly waived.
Receipt of partial payment of the Indebtedness after the
Mortgagee has exercised its right under this subsection 16(a)
shall not operate as a waiver of such right.
(b) The Mortgagor hereby authorizes and empowers the Mortgagee to
foreclose this Mortgage by action or advertisement, pursuant
to the statutes of Minnesota in such case made and provided,
power being herein expressly granted to sell the Mortgaged
Property at public auction and to convey the same to the
purchaser, and out of the proceeds arising from such sale, to
pay all Indebtedness secured hereby with interest, and all
legal costs and charges of such foreclosure and the maximum
attorney's fees permitted by law, which costs, charges and
fees the Mortgagor herein agrees to pay.
18. MISCELLANEOUS RIGHTS OF MORTGAGEE. The Mortgagee may at any time and
from time to time, without notice, release any person liable for
payment of any Indebtedness secured hereby, extend the time or agree to
alter the terms of payment of any of the Indebtedness, accept
additional security of any kind, release any property securing the
Indebtedness, consent to the making of any plat or map of the Mortgaged
Property or the creation of any easement thereon or any covenants
restricting use of occupancy thereof, or alter or amend the terms of
this Mortgage in any way. No such release, modification, addition or
change shall affect the liability of any person other than the person
so released for payment of any Indebtedness secured hereby, nor affect
the priority and first lien status of this Mortgage upon any property
not so released. Any personal property remaining upon the Mortgaged
Property, after such Mortgaged Property has been possessed or occupied
by the Mortgagee or its agent following foreclosure of this Mortgage or
under any deed in lieu of foreclosure, shall be conclusively presumed
to have been abandoned by the Mortgagor or any other former owner
thereof; and the Mortgagee shall not in any way incur any liability or
obligation to said Mortgagor of former owner by reason of any action
which the Mortgagee in its sole discretion chooses to take with respect
to said personal property; provided, however, that in no event shall
the Mortgagee be required to take any affirmative action in preserving,
protecting or otherwise overseeing the deployment or storage of said
personal property, nor shall the Mortgagee incur any liability to the
Mortgagor or former owner of said personal property because of failure
to take any such affirmative action with respect to said personal
property.
19. ADDITIONAL LOANS AND MODIFICATIONS. In addition to the payment of the
Indebtedness secured hereby, this Mortgage shall also secure the
payment of all other advances heretofore or at any time hereafter made
to the Mortgagor by the Mortgagee and the payment of all other
Indebtedness of every type and description now or hereafter owing by
the Mortgagor to the Mortgagee, unless (in the case of such advance of
Indebtedness) the Mortgagee agrees otherwise in writing. Nothing herein
contained shall imply any obligation on the part of any holder of the
Note to make any such additional loan. All those claiming by, through
or under Mortgagor consent to any extensions or increases in the
interest rate or principal amount of this Mortgage Indebtedness agreed
to by the Mortgagee and Mortgagor, their successors and assigns.
20. ADDITIONAL COVENANTS. The Mortgagor further covenants and agrees as
follows:
21. Mortgagor waives all right of homestead exemption in the Land.
IN WITNESS WHEREOF, The Mortgagor has duly executed this Mortgage as of
the day and year first-above written:
Winland Electronics Incorporated
/s/ W. K. Hankins
President
This instrument was drafted by: Tax statements for the real property described
in this instrument should be sent to:
Norwest Bank Minnesota South,
National Association Winland Electronics Incorporated
Bank name Name
P.O. Box 168 1950 Excel Drive
Bank address Address
Mankato, MN 56002-0168 Mankato, MN 56001
City, State and Zip City, State and Zip
41-0992135
Tax Identification No.
STATE OF MINNESOTA
SS.
COUNTY OF
The foregoing instrument was acknowledged before me this _____ day of
____________, _____, by _______________________
Notary Public, _____________
County _________
My Commission expires: ____________, ____
STATE OF MINNESOTA
SS.
COUNTY OF Blue Earth
The foregoing instrument was acknowledged before me this 7th day of
May, 1996, by and W. Kirk Hankins, the President and of Winland Electronics,
Inc., a Minnesota corporation, on behalf of the corporation.
Christine M. Mallak
Notary Public, Blue Earth County Minnesota
My Commission expires: January 31 , 2000
OFFICE OF REGISTER OF DEEDS, STATE OF MINNESOTA _____________, _____ No. ____
County of Registration tax hereon of
I hereby certify that the within Mortgage ___________________ Dollars paid.
was filed in this office for record on
the ____ day of _________, ______, _______________________________
at _________ o'clock _____ M., and County Treasurer
was duly recorded in Book _____ By___________________________ Deputy
of Mortgages, page ____.
Countersigned:
________________________________ _________________________________
Registrar of Deeds County Auditor
By ______________________ _____ Deputy By_______ __________________ Deputy
<PAGE>
(The above space is reserved for recording purposes only)
MORTGAGE MODIFICATION AGREEMENT
(Amending Mortgage of May 7, 1996)
THIS AGREEMENT is made as of July 31, 1998, between Norwest Bank
Minnesota South, National Association, having its office at Second and Hickory
Streets, Mankato, Minnesota 56002 (the "Mortgage"), and Winland Electronics,
Incorporated, a Minnesota corporation, having its office at 1950 Excel Drive,
Mankato, Minnesota 56001 (the "Mortgagor").
RECITALS
A. The Mortgagee is the holder of the promissory note dated April 29,
1996, made by the Mortgagor and payable to the order of the Mortgagee in the
original principal amount of $57,725.00 (the "1996 Term Note"). The 1996 Term
Note provides for principal and interest to be payable together in installments
with the last installment due and payable on May 31, 2001.
B. As of the date hereof, the unpaid principal balance of the Note is
$53,368.75.
C. To secure payment of the 1996 Term Note, the Mortgagor executed and
delivered a mortgage to the Mortgagee, dated May 7, 1996, subjecting to the lien
thereof certain real estate located in Blue Earth County, Minnesota (the
"Mortgage"), more particularly described in the Mortgage. Capitalized terms not
otherwise defined herein shall have the meaning given them in the Mortgage.
D. The Mortgage was filed for record on May 15, 1996, in the office of
the Registrar of Titles of the above-named county as Document Number 6041, and
in the office of the County Recorder of the above-named county as Document
Number 52580.
E. The Mortgagor has now asked the Mortgagee to increase the amount of
the 1996 Term Note to $168,368.75, and to extend the maturity date to July 31,
2003. This proposed change is acceptable to the Mortgagor and the Mortgagee. The
Mortgagor acknowledges that the Note and Mortgage are the legal and binding
obligations of the Mortgagor, free of any claim, defense or offset.
Accordingly, in consideration of the premises and other good and
valuable consideration, each paid to the other, the parties hereto agree as
follows:
1. The Note, as described in the Mortgage, shall be amended to refer to
the promissory note of even date given by the Mortgagor to the Mortgagee in the
principal amount of $168,368.75, which is given as replacement for, and not in
satisfaction of, the 1996 Term Note, and all replacements, refinancings and
renewals thereof, which Note shall have a maturity date of July 31, 2003.
2. Except as expressly amended herein, the Mortgage shall remain in
full force and effect in accordance with their original terms.
3. The Mortgage hereby restates and reaffirms all of the
representations and covenants set forth in the Mortgage as if said
representations and covenants were fully set forth herein.
4. The Mortgagor hereby agrees to execute such other further
agreements, documents and instruments as are deemed necessary or advisable by
the Mortgagee from time to time in order to effectuate the purpose of the
foregoing.
IN WITNESS WHEREOF, the Mortgagor and the Mortgagee have executed this
Agreement this 31st day of July, 1998.
NORWEST BANK MINNESOTA SOUTH,
NATIONAL ASSOCIATION
By: /s/ Scott Ordahl
Its: ______________________
WINLAND ELECTRONICS INCORPORATED,
a Minnesota corporation
By: /s/ W. K. Hankins
Its: ______________________
<PAGE>
(The above space is reserved for recording purposes only)
===============================================================================
NOTE AND MORTGAGE
MODIFICATION AGREEMENT
(Amending Mortgage of May 7, 1996
THIS NOTE AND MORTGAGE MODIFICATION (the "Agreement") is made as of
September 29, 1999, between Norwest Bank Minnesota South, National Association
(the "Mortgage"), having its office at Second and Hickory Streets, Mankato,
Minnesota 56002, and Winland Electronics Incorporated, a Minnesota corporation,
having its office at 1950 Excel Drive, Mankato, Minnesota 56001 (the
"Mortgagor").
RECITALS
A. The Mortgage has previously loaned the Mortgagor the sum $168,368.75
(the "Term Loan"), which Term Loan is evidenced by a promissory note dated July
31, 1998, made by the Mortgagor and payable to the order of the Mortgagee in the
original principal amount of $168,368.75 ("Note"). The Note provides for
principal and interest to be payable together in installments with the last
installment due and payable on July 31, 2003.
B. Immediately prior to the execution of this Agreement, the unpaid
principal balance of the Note was $166,326.64.
C. To secure payment of the Note, the Mortgagor previously delivered a
mortgage to the Mortgagee, dated May 7, 1996, subjecting to the lien thereof
certain real estate located in Blue earth County, Minnesota (the "Mortgage"),
more particularly described in the Mortgage.
D. The Mortgage was filed for record on May 15, 1996, in the office of
the Registrar of Titles of the above-named county as Document Number 6041, and
in the office of the County Recorder of the above-named county as Document
Number 52580.
E. The Mortgagor has now asked the Mortgagee to increase the Term Loan
by lending it an additional $363,726.00, which obligation continues to be
evidenced by the Note.
Accordingly, in consideration of the premises and other good and
valuable consideration, each paid to the other, the parties hereto agree as
follows:
1. The Mortgagee shall, simultaneously with the execution of this
Agreement, loan and deliver to the Mortgagor, the sum of $363,726.00, and the
principal amount of the Note, following the increase of the Term Loan, shall be
amended to reflect a total principal obligation of $530,052.64, with accrued
interest of $1,131.87.
2. The Note is hereby amended to reflect that, effective as of the date
of this Agreement, the unpaid principal balance of the Note shall bear interest
at an annual fixed rate of 8.25%, calculated on actual days elapsed in a year of
360 days.
3. The Mortgage is hereby amended to reflect the above-described
amendment to the Note.
4. Except as expressly amended herein, the Note and Mortgage shall
remain in full force and effect in accordance with their original terms.
5. The Mortgagor hereby restates and reaffirms all of the
representations and covenants set forth in the Note and Mortgage as if said
representations and covenants were fully set forth herein.
6. The Mortgagor hereby agrees to execute such other further
agreements, documents and instruments as are deemed necessary or advisable by
the Bank from time to time in order to effectuate the purposes of the foregoing.
IN WITNESS WHEREOF, the Mortgagor and the Mortgagee have executed this
Agreement this 29th day of September, 1999.
WINLAND ELECTRONICS,
INCORPORATED NORWEST BANK MINNESOTA SOUTH,
a Minnesota corporation NATIONAL ASSOCIATION
By: /s/ W. K. Hankins By: /s/ Scott Ordall
Its: CEO & CFO Its: Vice President
City of Mankato
Mortgage Loan Agreement
THIS INDENTURE, made this 6th day of October, 1999, between W. Kirk
Hankins, d/b/a Winland Electronics Inc., (hereinafter referred to as Mortgagor),
and the City of Mankato, Mortgagee.
WITNESSETH, that the Mortgagor, in consideration of the sum of ONE
HUNDRED FIFTY THOUSAND and 0/100 DOLLARS ($150,000.00), the Mortgagor in hand
paid by the Mortgagee, the receipt whereof is hereby acknowledged, does hereby
convey unto the Mortgagee, Forever, all of the land located in the County of
Blue Earth, and State of Minnesota, described as follows:
Property Location:
1950 Excel Drive
Mankato, MN
Legal Description:
Eastwood Industrial Centre
Lot 4 & N201.9'
together with all hereditaments and appurtenances belonging thereto (the
property).
TO HAVE AND TO HOLD THE SAME, to the Mortgagee forever. The Mortgagor
covenants with Mortgagee as follows: That Mortgagor is lawfully seized of the
Property and has good right to convey the same; that the Property is free from
all encumbrances except as follows:
1. First mortgages secured by commercial lenders in financing this
project.
PROVIDED, NEVERTHELESS, That if the Mortgagor shall pay to the
Mortgagee the sum of ONE HUNDRED AND FIFTY THOUSAND and 0/100 ($150,000.00)
DOLLARS, according to the terms of the promissory note of even date herewith
(the Note), the final payment being due and payable November 1, 2009, with
interest at the rate of 6.0% percent per annum, and shall repay to the Mortgagee
at the times and with interest as specified, all sums advanced in protecting the
lien of this Mortgage, in payment of taxes of the Property, insurance premiums
covering buildings thereon, principal or interest on any prior liens, expenses
and attorney's fees herein provided for and sums advanced for any other purpose
authorized herein, and shall keep and perform all the covenants and agreements
herein contained, then this Mortgage shall be null and void, and shall be
released at the Mortgagor's expense.
AND THE MORTGAGOR covenants with the Mortgagee as follows:
1. To pay the principal sum of money and interest as specified in
the Note;
2. To pay all taxes and assessments now due or that may
hereinafter become liens against the Property before penalty
attaches thereto;
3. To keep all buildings, improvements and fixtures now or later
located on or a part of the Property insured against loss by
fire, extended coverage perils, vandalism, malicious mischief
and, if applicable, steam boiler explosion, for at least the
amount of full and insurable value at all times while any
amount remains unpaid under this Mortgage. If any of the
buildings, improvements or fixtures are located in a federally
designated flood zone, and if flood insurance is available for
that area, Mortgagor shall procure and maintain flood
insurance in amounts reasonably satisfactory to the Mortgagee.
Each insurance policy shall contain a loss payable clause in
favor of the Mortgagee affording all rights and privileges
customarily provided under the so-called standard mortgage
clause. In the event of damage to the Property by fire or
other casualty, the Mortgagor shall promptly give notice of
such damage to the Mortgagee and the insurance company. The
insurance shall be issued by an insurance company or companies
licensed to do business in the State of Minnesota and
acceptable to the Mortgagee. The insurance policies shall
provide for not less than ten days written notice to the
Mortgagee before cancellation, non-renewal, termination, or
change in coverage, and the Mortgagor shall deliver to the
Mortgagee a duplicate original or certificate of such
insurance policies;
4. To pay, when due, both principal and interest of all prior
liens or encumbrances;
5. To commit or permit no waste on the Property and to keep it in
good repair;
6. To complete forthwith any improvements which may hereafter be
under course of construction on the Property; and
7. To pay any other expenses and attorney's fees incurred by the
Mortgagee by reason of litigation with any third party for the
protection of the lien of this Mortgage.
In case of failure to pay said taxes and assessments, prior liens or
encumbrances, expenses and attorney's fees as above specified, or to insure said
buildings, improvements, and fixtures and deliver the policies as aforesaid, the
Mortgagee may pay such taxes, assessments, prior liens, expenses and attorney's
fees and interest thereon, or obtain such insurance, and the sums so paid shall
bear interest from the date of such payment at the same rate set forth in the
Note, and shall be impressed as an additional lien upon the Property and be
immediately due and payable from the Mortgagor to the Mortgagee and this
Mortgage shall from date thereof secure the repayment of such advances with
interest.
In case of default in any of the foregoing covenants, the Mortgagor
confers upon the Mortgagee the option of declaring the unpaid balance of the
Note and the interest accrued thereon, together with all sums advanced
hereunder, immediately due and payable without notice, and hereby authorizes and
empowers the Mortgagee to foreclose this Mortgage by judicial proceedings or to
sell the Property at public auction and convey the same to the purchaser in fee
simple in accordance with the statute, and out of the moneys arising from such
sale to retain all sums secured hereby, with interest and all legal costs and
charges of such foreclosure and the maximum attorney's fee permitted by law,
which costs, charges and fees the Mortgagor herein agrees to Pay.
The Mortgagor and the Mortgagee further covenant and agree as follows:
1. Mortgagor shall be furnished a conformed copy of the Note and
of this Mortgage at the time of execution or after recordation
hereof.
2. Upon default of any covenant or agreement by Mortgagor under
the terms of the Note or this Mortgage, Mortgagee prior to
foreclosure shall mail notice to Mortgagor as provided herein
specifying: (a) the nature of the default by the Mortgagor;
(b) the action required to cure such default; (c) a date, not
less than thirty (30) days from the date the notice is mailed
to Mortgagor by which such default must be cured; and (d) that
failure to cure such default on or before the date specified
in the notice may result in acceleration of the sums secured
by this Mortgage and sale of the Property. The notice shall
further inform Mortgagor of the right to reinstate after
acceleration and the right to bring a court action to assert
the non-existence of a default or any other defense of the
Mortgagor to acceleration and sale.
3. In addition to any notice required under applicable law to be
given in another manner, (a) any notice to the Mortgagor
provided for in this Mortgage shall be given by mailing such
notice by certified mail addressed to the Mortgagor at the
Property address or at such other address as the Mortgagor may
designate by notice in writing to the Mortgagee as provided
herein, and (b) any notice to the Mortgagee shall be given by
certified mail, return receipt requested, to Mortgagee at the
following address: City of Mankato, 10 Civic Center Plaza,
Mankato, MN 56002 or to such other address as Mortgagee may
designate by notice in writing to the Mortgagor as provided
herein. Any notice provided for in this Mortgage shall be
deemed to have been given to Mortgagor or Mortgagee when given
in the manner designated herein.
The terms of this Mortgage shall run with the Property and bind the parties
hereto and their successors in interest.
IN TESTIMONY WHEREOF, the Mortgagor has hereunto set their hand the day and year
first above written.
Mortgagor(s)
/s/ W. K. Hankins 10-5-99
Date
- ------------------------------ ----------------------
Date
STATE OF Minnesota )
)ss.
COUNTY OF Blue Earth )
The foregoing instrument was acknowledged before me this 5th day of
October, 1999, by W. Kirk Hankins.
/s/ Jodi Tuchek
NOTARIAL STAMP OR SEAL (OR OTHER TITLE OR RANK)
STATE OF Minnesota )
)ss.
COUNTY OF Blue Earth )
The foregoing instrument was acknowledged before me this ___ day of
_________, 1998, by
-------------------------------.
NOTARIAL STAMP OR SEAL (OR OTHER TITLE OR RANK)
This document was drafted by:
City of Mankato Legal Department
10 Civic Center Plaza
Mankato, MN 56002
City of Mankato
PROMISSORY NOTE
1. In return for a loan from the City of Mankato, a municipal corporation
under the laws of the City of Mankato(Lender), W. Kirk Hankins
(Borrower) promises to pay the principal sum of One Hundred and Fifty
Thousand Dollars ($150,000.00), plus interest, to the order of the
Lender, at the rate of six percent (6.0%) per year until the full
amount of the principal has been paid.
2. Borrowers promise to pay is secured by a mortgage that is dated October
6, 1999.
3. Borrower shall make a payment of principal and interest to lender on
the first day of each month beginning on December 1, 1999. Any
principal and interest remaining on the first day of November 1, 2009,
will be due on that date, which is called the maturity date.
4. Payment shall be made at City Hall, City of Mankato, 10 Civic Center
Plaza, P.O. Box 3368, Mankato, MN 56002-3368, or at such place as
Lender may designate in writing by notice to the Borrower.
5. Each monthly payment of principal and interest will be in the amount of
$1,665.31.
6. Borrower has the right to pay the debt evidenced by this Note in whole
or in part, without charge or penalty on the first day of any month.
Lender shall accept prepayment on other days provided that the Borrower
pays interest on the amount prepaid for the remainder of the month to
the extent required by the Lender and permitted by regulations of the
Secretary. If Borrower makes a partial prepayment, there will be no
changes in the due date or in the amount of the monthly payment unless
Lender agrees in writing to those changes.
7. If Lender has not received the full monthly payment required by the
Mortgage described in paragraph 2 of this Note, by the end of fifteen
calendar days after the payment is due, Lender may collect a late
charge in the amount of four percent (4%) of the overdue amount of each
payment.
8. If Borrower defaults by failing to pay in full any monthly payment,
then Lender may require immediate payment of the full principal balance
remaining due and all accrued interest. Lender may choose not to
exercise this option without waiving its rights in the event of any
subsequent default.
9. If Lender has required immediate payment in full, as described above,
Lender may require Borrower to pay costs and expenses including
reasonable and customary attorney's fees for enforcing this Note to the
extent not prohibited by applicable law. Such fees and costs shall bear
interest from the date of disbursement at the same rate as the
principal of this Note.
10. Borrower and any other person who has obligations under this Note waive
the rights of presentment and notice of dishonor. "Presentment" means
the right to require Lender to demand payment of amounts due. "Notice
of Dishonor" means the right to require Lender to give notice to other
persons that amounts due have not been paid.
11. Any notice that must be given under this Note will be given by
delivering it or by mailing it by first class mail to Borrower at the
property address above or at a different address if the Borrower has
given Lender notice of Borrower's different address. Any notice that
must be given to Lender under this Note will be given by first class
mail at the address stated in Paragraph 4 of this Note or at a
different address if Borrower is given a notice of that different
address.
BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants
contained in this Note.
/s/ W. K. Hankins
(signature of mortgagor)
Dated this 6th day of October, 1999
AGREEMENT FOR LOAN OF MINNESOTA INVESTMENT FUND
THIS AGREEMENT is made and entered into as the 6th day of October, 1999, by and
between the City of Mankato, hereinafter called "City", and Winland Electronics,
Inc., hereinafter called "Developer";
WITNESS TO:
WHEREAS, the City has applied to the Minnesota Department of Trade and Economic
Development for a Minnesota Investment Fund Grant (MIF) and received preliminary
approval for said grant; and
WHEREAS, a Grant Agreement, hereinafter called "Grant Agreement," between the
Minnesota Department of Trade and Economic Development and the City has been
executed and which Grant Agreement requires that the Developer, Winland
Electronics, Inc., provide financing to complete the project and agree to loan
terms with the City for Minnesota Investment Funds used to assist in financing
the project; and
WHEREAS, all parties to this agreement agree to incorporate into this agreement
by reference said MIF Grant Agreement, Grant Number CDAP-99-0013-HFY99, as is
fully set forth herein word for word;
NOW, THEREFORE, it is agreed by and between the parties hereto as follows:
ARTICLE 1
Definitions
Section 1.1, Definitions. In this Agreement, unless a different meaning clearly
appears from the context:
"City" means the City of Mankato
"Developer" means Winland Electronics, Inc.
"Bank" means Norwest Bank Minnesota South., Mankato office.
"Development Property" means the real property described as Eastwood Industrial
Centre, Lot 4 & N201.9'.
"Grantor Agency" means Minnesota Department of Trade and Economic Development.
"State" means the State of Minnesota.
"Grantor Agreement" means Minnesota Department of Trade and Economic Development
Grant Agreement # CDAP-99-0013-H-FY99.
"MIF" means Minnesota Investment Fund.
"Collateral" means a second mortgage on the development property specified in
Section 4.3.
"Leverage Funds* means the funds provided by or for the account of the Developer
pursuant to Section 2.1.
"Project" means ________________________________________________ thereof, as
generally discussed in the application for MIF funding which resulted in the
Grant Agreement.
ARTICLE 2
Financing for Projects
Section 2.1, Project Financing. The Developer shall secure from Norwest Bank
Minnesota South, financing necessary to complete the project.
Section 2.2, Developer's Equity and other Financing. The Developer shall commit
to $363,726 of other financing plus $100,000 of equity to be used for the
completion of the project development.
Section 2.3, MIF Loan. The Grantor Agency of the State has granted to the City
and the City shall loan to the Developer, MIF funds of an amount up to $150,000
according to the terms described in ARTICLE 3.
ARTICLE 3
MIF Loan Terms and Conditions
Section 3.1, Basic Loan Terms. The principle amount of the loan of MIF funds by
the City to the Developer shall not exceed $150,000. The loan shall bear
interest at a rate of six (6%) percent per annum for ten (10) years. The loan
terms may not be modified without prior written approval from the Grantor
Agency.
Section 3.2, Prepayment. Prepayment of the loan may occur at any time during the
loan without penalty.
Section 3.3, Assignment. The Developer will not sell the property or assign its
rights or interests or any party therein or its right or interest in this Loan
Agreement, or any part thereof. In the event the Developer sells, conveys,
transfers, further mortgages or encumbers or disposes of the property, or any
part thereof, or any interest therein, or agrees so to do, the Developer shall
immediately pay on the Loan an amount equal to same. This shall be in addition
to any other remedies at law or equity available to the city.
Section 3.4, Termination. This agreement shall automatically terminate without
any notice to Developer (1) if the loan proceeds have not been disbursed to the
Developer prior to December 31, 1999; or if a petition is filed against the
Developer under the U.S. Bankruptcy Code, or if voluntary, such a petition is
not dismissed within sixty (60) business days following such petition.
ARTICLE 4
Default and Collateral
Section 4.1, Default. The Developer shall b e in default under this agreement
upon the happening of any of the following events:
(a) nonpayment, when due, of any amount payable on MIF loan or failure
to observe or perform any terms thereof; provided such nonpayment is not
remedied within ten (10) business days after written notice thereof by either
the Developer or the City,
(b) if Developer is in breach of any material respect of any obligation
or agreement of the Developer under this agreement, provided Developer remains
in breach in any material respect for thirty (30) business days after written
notice thereof to the Developer by the City; provided, however, that if such
breach shall reasonably be incapable of being cured within such thirty (30)
business days after notice, and if Developer commences and diligently prosecutes
the appropriate steps to cure such breach, no default shall exist so long as
Developer is proceeding to cure such breach;
(c) if any material covenant, warranty or representation of Developer
shall prove to be untrue in any material respect, provided such covenant,
warranty or representation of Developer remains untrue in any material respect
for thirty (30) business days after written notice thereof to the Developer the
City; provided, however, that if such untruth shall reasonably be incapable of
being corrected within such thirty (30) business days after notice, and if
Developer commences and diligently prosecutes the appropriate steps to correct
such untruth, no default shall exist so long as Developer is so proceeding to
correct such untruth;
(d) if the Developer becomes insolvent or generally unable to pay debts
as they mature or makes an assignment for the benefit of creditors, provided
such insolvency or general inability to pay is not remedied within sixty (60)
business days after written notice thereof by either Developer or the City;
(e) entry of a final judgment against Developer where such judgment the
City reasonably deems will have a material, adverse impact on Developer's
ability to comply with its obligations under this agreement;
(f) transfer by the Developer, of any part of the Collateral to any
entity other than a wholly-owned subsidiary of Developer provided such is not
approved in writing by the City, which approval will not be unreasonably
withheld;
(g) merger or consolidation where such merger or consolidation is not
approved in writing by the City, which approval will not be unreasonably
withheld; or
(h) loss, theft, substantial damage, destruction or encumbrance of any
of the Collateral, provided that such is not remedied within sixty (60) business
days after written notice thereof by either Developer of the City (including,
without limitation, by a pledge of insurance proceeds or by substitute
Collateral satisfactory to the City);
Section 4.2, Remedies Upon Default.
(a) In the event of a default and the failure to cure it in the time
allotted therefor to commence and diligently proceed to cure such default if
reasonably incapable of being cured within the time allotted therefor), the City
shall have the right as its option and without demand or notice, to declare all
or part of the loan (as described in Section 3.1) immediately due and payable,
and in addition to the rights and remedies granted hereby, the City shall have
all of the rights and remedies under the Uniform Commercial Code or any
applicable law.
(b) Developer agrees in the event of a default and the failure to cure
it in the time allotted therefor, to make the Collateral available to the City.
In the event of any lawsuit under this agreement reasonable attorney's fees and
costs will be awarded to the prevailing party. If any notice of sale,
disposition or other intended action by the City is required by law to be given
to Developer, such notice shall be deemed reasonably and properly given if
mailed to Developer at the Development Property or at such other address of
Developer as may be shown on the City's records, at least fifteen (15) days
before such sale, disposition or other intended action. Waiver of and default
hereunder by the City shall not be waived of any other default, or of the same
default, on a later occasion. No delays or failure by the City to exercise any
right or remedy shall be a waiver of such right or remedy shall preclude other
or further exercise thereof of the exercise of any other right or remedy at any
other time.
Section 4.3, Collateral. The Developer shall grant to the City a second mortgage
on the development property.
ARTICLE 5
Loan Disbursement Provisions
Section 5.1, Payment Requisition Documentation and Format. Loan disbursements
shall be for the construction of the addition to the existing building and in
the amount of $150,000. The loan funds may be disbursed to the Developer only
after the City has received from the Developer invoices for construction costs
and only on a cost-sharing ratio of 30% loan funds to 70% other funds.
Section 5.2, Provision for Evidentiary materials. No disbursements of loan funds
shall be made until all evidentiary materials required by the Grantor Agency
have been submitted and approved by the Grantor Agency.
Section 5.3, Project Time Frame (Schedule). The time frame outlined in the MIF
application pertaining to the Project shall be met by the Developer.
Section 5.4, Permanent Loan Terms. The permanent MIF loan of $150,000 shall be
for a term of ten (10) years, commencing not later than ___________, 19____. The
interest rate shall be six (6) percent per annum for the 120 months of the Loan
period. Monthly installments will be made in the amount of $1665.31 for 120
months. In the event that less than $150,000 of loan funds are not drawn down by
December 31, 1999 a revised amortization schedule shall be prepared to reflect
the lower monthly payments.
Section 5.5, Leverage Funds. The leveraged funds described in the MIF
application must be used for the same purposes and under the same terms, rates,
and conditions as specified unless prior written consent is received from the
Grantor Agency.
ARTICLE 6
Provision Of Evidentiary Materials
Section 6.1, Provision of Evidentiary Materials. The Developer shall agree to
provide to the City all evidentiary materials according to the format and
timetable cited in the Grant Agreement. The City will forward said materials to
the Grantor Agency and assist in expediting reviews leading to a release of MIF
funds.
Section 6.2, Documentation of Use of Funds. The Developer must provide the City
with necessary documentation that the MIF loan proceeds and leveraged funds have
been used for the items and purposes stated in the MIF application, prior to
submitting the final progress report and requesting grant closeout from the
Grantor Agency.
ARTICLE 7
Nondiscrimination
Section 7.1, Employment objective. The Developer agrees to take affirmative
action to ensure that 23 new permanent jobs will be created by the Project all
paying $8.00 and more hourly (excluding benefits). The Developer agrees to pay
benefits of $.75 per hour and more for the positions created. If those jobs are
not created by the Grantee's target date of June 30, 2001, the Developer will be
required to return to the City all or a proportional share of the grant funds
provided for job creation.
Section 7.2, Minnesota Statute 116J.991. Minnesota Statute 116J.991 requires
that a business receiving state assistance for economic development or job
growth purposes must create a net increase in jobs in Minnesota within two years
of receiving the assistance. The law also requires that the government agency
providing the assistance must establish wage level and job creation goals to be
met by the business receiving the assistance. If Winland Electronics, Inc. fails
to meet the wage level and job creation goals as set forth in Special Condition
10 of the Agreement, the business must repay the assistance to the Grantee.
Section 7.3, Employment Documentation. The Developer shall complete and provide
to the City notification of employment semiannually of hiring each new employee.
This notification requirement will not be necessary after June 30, 2001 provided
the employment objective set forth in Section 7.1 has been met.
Section 7.4, Job Creation Documentation. The Grantee must include job creation
information in each semi-annual progress report. This information shall be
provided by the Developer and must include:
(a) permanent full-time equivalent jobs created;
(b) job title per job,
(c) date employees hired,
(d) hourly value of wages paid,
(e) value of benefits paid; and
(f) type of benefits provided (i.e. life, dental, health insurance
and retirement).
ARTICLE 8
Provision of Monitoring information Related To Project Progress
Section 8.1, Provisions of Progress Information. The developer shall agree to
provide to the City information for incorporation into progress reports, as
required by the Grantor Agency and as needed by the City, to monitor project
implementation for compliance with grantor and local guidelines.
ARTICLE 9
Nondiscrimination
Section 9.1, Nondiscrimination. The provisions of Minnesota Statutes, Section
181.59, which relate to civil rights and discrimination, shall be considered a
part of this Agreement as though wholly set forth herein.
ARTICLE 10
Developer's Acknowledgments, Representation, and Warrants
Section 10.1, Acknowledgments. The Developer acknowledges that the City, in
order to obtain funds for part of the City's activities in connection with the
Project, has applied for a Minnesota investment Fund Grant (MIF) (the "Grant")
to the Commissioner of the Minnesota Department of Trade and Economic
Development (the "Commissioner") under the Minnesota Investment Fund Program,
Business and Community Development Division, and the City will be entering into
the Grant Agreement with the Commissioner setting forth the terms, conditions,
and requirements as to the Grant. The Developer further acknowledges that the
Developer has made certain representations and statements as to those activities
of the Project to be carried out and completed by the Developer which were
contained in and made part of the application for the Grant and that the
Developer is designated and identified under the Grant Agreement.
A copy of the Grant Agreement shall be on file in the office of the Deputy City
Manager, City of Mankato. In the event any provision of this Agreement relating
to the Developer's obligations hereunder shall be inconsistent with the
provisions of the Grant Agreement relating to the Developer's activities
thereunder, the provisions of the Grant Agreement shall prevail.
The Developer acknowledges that nothing contained in the Grant Agreement of this
Agreement, nor any act of the Commissioner or the City shall be deemed or
construed to create any relationship or third-party beneficiary, principal and
agent, limited or general partnership, or joint venture, or of any association
or relationship involving the commissioner.
Section 10.2, Representations and warranties. Developer warrants and represents,
in connection with the Grant and for the benefit of the Commissioner and the
City, that:
(a) Representations, statements, and other matters provided by the
Developer relating to those activities of the Project to be Completed by the
Developer, which were contained in the application for the Grant, were true and
complete in all material respects as of the date of submission to the City and
that such representations, statements, and other matters are true as of the date
of this Agreement and there are no adverse material changes in the financial
condition of the business or its shareholders.
(b) To the best of the Developer's knowledge, no member, officer, or
employee of the City or its designers or agents, no consultant, member of the
governing body of the City, and no other public official of the City, who
exercises or has exercised any functions or responsibilities with respect to the
Project during his or her tenure shall have any interest, direct or indirect, in
any contract or subcontract, or the proceeds thereof, for work to be performed
in connection with the Project or in any activity, or benefit therefrom, which
is part of this Project.
(c) The Developer acknowledges that the Commissioner, in selecting the
city as recipient of the Grant, relied in material part upon the assured
completion of the Project to be carried out by the Developer, and the Developer
assures the City that said Project will be carried out by the Developer.
(d) The Developer warrants that to the best of its knowledge, it has
obtained all federal, state, and local governmental approvals, reviews, and
permits required by law to be obtained in connection with the Project.
(e) The Developer warrants that it shall keep and maintain books,
records, and other documents relating directly to the leveraged funds and that
any duly authorized representative of the Commissioner shall, at all reasonable
times, have access to and the right to inspect, copy , audit, and examine all
such books, records, and other documents of the Developer until the completion
of all closeout procedures respecting the MIF grant and the final settlement and
conclusion of all issues arising out of the grant.
(f) The Developer warrant that no transfer of MIF loan proceeds by the
City to the Developer shall be or be deemed an assignment of the loan proceeds
and the Developer shall neither succeed to any rights, benefits, or advantages
of the City under the Grant Agreement, nor attain any right, privileges,
authorities, or interest in or under the Grant Agreement.
(g) The Developer warrant that it has fully complied with all
applicable state and federal laws pertaining to its business and will continue
said compliance throughout the terms of this Agreement. If at any time notice of
noncompliance is received by the Developer, he agrees to take any necessary
action to comply with the State or Federal law in question.
ARTICLE 11
Other Special Conditions
Section 11.1, Antitrust. Developer hereby assigns to the State of Minnesota any
and all claims for overcharges as to goods and/or services provided in
connection with this contract resulting from antitrust violations which arise
under the antitrust laws of the United States and the antitrust laws of the
State of Minnesota.
Section 11.2, Workers Compensation Insurance. The Developer has obtained
worker's compensation insurance as required by Minnesota Statutes, 1982, Section
176.181, Subd. 2. Developer's workers' compensation insurance information is as
follows:
(a) Company Name: ________________________
(b) Policy Number: ________________________
(c) Local Agent: ________________________
Section 11.3, The Developer must comply with Minnesota Statues, Section
290.9705 by either;
(a) Depositing with the State, eight percent of every payment made to
non-Minnesota construction contractors, where the contract exceeds $100, 000;
or,
(b) Receiving a waiver from this requirement from the Minnesota
Department of Revenue.
Section 11.4, Prevailing Wage Rate. Minnesota Statutes, Section 116J.871 applies
to this project. This statute requires of recipients of state assistance to pay
the prevailing wage rate to laborers and mechanics at the project site. The
recipient or person benefiting from the financial assistance must certify to the
Commissioner of Labor and Industry that laborers and mechanics assigned
prevailing wage rate is a misdemeanor and is punishable by a fine of not more
than $700, or imprisonment for not more than 90 days or both. Each day a
violation of this subdivision continues is a separate offense. If a subrecipient
is in noncompliance with prevailing wage rate requirements, the Grantee must
withhold payment of grant/loan funds to subrecipient until the Minnesota
Commission of Labor and Industry indicates that the subrecipient is in
compliance with the prevailing wage requirements.
Section 11.5, Business with the State of Minnesota-State Tax Laws. Notice to
Developer. You are required by Minnesota Statutes, 1982, Section 2790.66, to
provide your Minnesota tax identification number if you do business with the
State of Minnesota. This information may be used in the enforcement of Federal
and State tax laws. Supplying these numbers could result in an action to require
you to file State tax returns and pay delinquent State tax liabilities. This
contract will not be approved unless these numbers are provided. These numbers
will be available to Federal and State tax authorities and State personnel
involved in the payment of State obligations.
Winland Electronics, Inc.
Minnesota Tax ID: 8023649
Federal Employer ID: 41-6005344
IN WITNESS WHEREOF, the City has caused this Agreement to be duly executed in
its name and behalf and the Developer and Formative has caused this Agreement to
be duly executed in its name and behalf as of the date first above written.
Subscribed and sworn to before City of Mankato
/s/ Jodi Tuchek
me, a Notary Public, on this
5th day of October, By /s/ illegible
1999, My Commission expires
on 1-31-2005 Position Deputy City Manager
Subscribed and sworn to before DEVELOPER W. K. Hankins
me, a Notary Public, on this
5th day of October, By /s/ W. K. Hankins
1999, My Commission expires on
1-31-2005 Position CEO & Chairman
AGREEMENT FOR LOAN OF
SMALL CITIES DEVELOPMENT PROGRAM FUNDS
PARTIES
THIS AGREEMENT is made and entered into the 5th day of October, 1994,
and renewed this 14th day of December 1999 by and between the CITY OF MANKATO
(hereinafter called "City") and WINLAND ELECTRONICS, INC. (hereinafter called
"Developer");
BACKGROUND
City has applied to the Minnesota Department of Trade and Economic
Development for a Small Cities Development Program Grant and has received
approval for said grant;
A Grant Agreement (hereinafter called "Grant Agreement") between the
Minnesota Department of Trade and Economic Development and the City has been
executed which Grant Agreement requires that the Developer secure sufficient
private financing and agree to loan terms with the City for Small Cities
Development Grant funds used to assist in financing the Project;
All parties to this Agreement agree to incorporate into this Agreement
by reference said SCDP Grant Agreement, Grant No. CDAP 94-0105-H-FY95, as is
fully set forth herein word for word;
AGREEMENT
It is agreed by and between the parties hereto as follows:
ARTICLE I
Definitions
In this Agreement, unless a different meaning clearly appears from the
context:
"City" means City of Mankato.
"Collateral" means a mortgage on the Development Property.
"Developer" means Winland Electronics, Inc.
"Development Property" means the real property described as Lots 4 and
5, Block 3, Eastwood Industrial Centre, except that part of Lot 5, Block Three,
Eastwood Industrial Centre, according to the plat thereof on file and of record
with the Blue Earth County Recorder, lying southerly of a line parallel with the
distant 201.90 fee south of the north line of said Lot 5, Blue Earth County,
Minnesota.
"Grantor Agency" means Minnesota Department of Trade and Economic
Development.
"Grant Agreement" means Minnesota Department of Trade and Economic
Development Grant Agreement No. CDAP 94-0105-H-FY95.
"Lender" means the City of Mankato, which has made a separate loan to
the Developer in the amount of $1,699,620.00.
"Leverage Funds" means the funds provided by or for the account of the
Developer pursuant to Article 2.
"Project" means the loan of SCDP grant funds to Developer to assist in
the construction of a 52,800 square foot commercial building in the City of
Mankato's Eastwood Industrial Centre.
"State" means the State of Minnesota.
"SCDP" means Minnesota Small Cities Development Program.
ARTICLE 2
Financing for Project
Developer has secured from City a commitment for funds, which, when
added to the funds to be provided under the SCDP, will enable Developer to
complete the Project. Specifically, Developer estimates that the completion of
the Project, including furniture, equipment, land acquisition, engineering, and
all contingencies, will cost $3,060,893.00. This sum shall come from the
following sources:
(1) SCDP grant to City, which City will loan to Developer, in the
sum of $500,000.00.
(2) A loan directly from the City to Developer in the sum of
$1,699,620.00.
(3) Southeastern Minnesota Initiative Fund loan in the sum of
$100,000.00.
(4) Tax Increment Financing in the sum of $235,380.00
(5) Developer Funds or Bank Financing in the sum of $525,893.00.
ARTICLE 3
SCDP Loan Terms and Conditions
1. Original Loan Terms. The principal amount of the loan of SCDP funds
by the City to the Developer shall not exceed $500,000.00. The loan shall bear
interest at a rate of four (4) percent per annum. Payments shall be monthly and
shall be in a sum that would result in amortization of the loan over a period of
twenty years. A balloon payment of all amounts then owing, however, will be due
and payable at the end of five years. The loan terms may not be modified without
prior written approval from the Grantor Agency.
2. Prepayment. Prepayment of the loan may occur at any time during the
loan without penalty.
3. Assignment. The Developer will not sell the property or assign its
rights or interests therein or its interest in this Loan Agreement, or any part
thereof In the event the Developer sells, conveys, transfers, further mortgages
or encumbers or disposes of the property, or any part thereof, or any interest
therein, or agrees so to do, the Developer shall immediately pay all outstanding
principal and accrued interest. This shall be in addition to any other remedies
at law or equity available to the City.
4. Termination. This Agreement shall automatically terminate without
any notice to Developer (1) if the loan proceeds have not been disbursed to the
Developer prior to December 31, 1994, or such later date as may be agreed upon
between and among Borrower, Lender and Contractor; or (2) if a petition is filed
by or against the Developer under the U.S. Bankruptcy Code, or if voluntary,
such a petition is not dismissed within sixty (60) business days following such
petition.
5. Davis-Bacon. The $500,000 loan is for construction. A wage decision
must be requested from the Grantor, as Davis-Bacon Labor Standards provisions
would apply. If any of the equipment items financed in whole or in part with
SCDP funds require more than an incidental amount of installation work, a wage
decision must be requested from the Grantor, as Davis-Bacon Labor Standards
provisions would apply to the total project. The following factors should be
considered in determining whether the amount of the installation activity is
more than incidental:
(a) the cost of the equipment itself, compared to the cost of
its installation;
(b) the existence of a high absolute cost of installation
(even if the equipment costs much more);
(c) the necessity for structural modification to house the
equipment or widening of entrances to accommodate its installation; and
(d) the necessity for upgrading electrical wiring, etc.
6. Non-Minnesota Construction Contracts. The Developer must comply with
Minnesota Statute, 1989, ss.290.9705, by either:
(a) depositing with the State eight (8) percent of every
payment made to non-Minnesota construction contractors where the
contract exceeds $100,000; or
(b) receiving an exemption from this requirement from the
Minnesota Department of Revenue.
7. Lobbying. The Developer must not use SCDP funds to pay any person
for influencing or attempting to influence an officer or employee of a federal
agency, a member of Congress, an officer or employee of Congress, or any
employee of a member of Congress in connection with the awarding of any federal
contract, the making of a federal grant, the making of a federal loan, the
entering into of any cooperative agreement, and the extension, continuation,
renewal, amendment, or modification of any federal contract, grant, loan, or
cooperative agreement. If the grantee uses non-federal funds to conduct any of
the aforementioned activities, the grantee must complete and submit Standard
Form LLL, "Disclosure Form to Report Lobbying."
ARTICLE 4
Default and Collateral
1. Default. The Developer shall be in default under this Agreement upon
the happening of any of the following events:
(a) nonpayment, when due, of any amount payable on SCDP loan
or failure to observe, or perform any terms thereof-, provided such
nonpayment is not remedied within ten (10) business days after written
notice thereof by either the Developer or the City;
(b) if Developer is in breach of any material respect of any
obligation or agreement of the Developer under this Agreement, provided
Developer remains in breach in any material respect for thirty (30)
business days after written notice thereof to the Developer by the
City; provided, however, that if such breach shall reasonably be
incapable of being cured within such thirty (30) business days after
notice, and if Developer commences and diligently prosecutes the
appropriate steps to cure such breach, no default shall exist so long
as Developer is proceeding to cure such breach;
(c) if any material covenant, warranty or representation of
Developer shall prove to be untrue in any material respect, provided
such covenant, warranty or representation of Developer remains untrue
in any material respect for thirty (30) business days after written
notice thereof to the Developer by the City; provided, however, that if
such untruth shall reasonable be incapable of being corrected within
such thirty (30) business days after notice, and if Developer commences
and diligently prosecutes the appropriate steps to correct such
untruth, no default shall exist so long as Developer is so proceeding
to correct such untruth;
(d) if the Developer becomes insolvent or generally unable to
pay debts as they mature or makes an assignment for the benefit of
creditors, provided such insolvency or general inability to pay is not
remedied within sixty (60) business days after written notice thereof
by either Developer or the City;
(e) entry of a final judgment against Developer which such
judgment the City reasonably deems will have a material, adverse impact
on Developer's ability to comply with its obligations under this
Agreement;
(f) transfer by the Developer of any part of the Collateral to
any entity other than a wholly-owned subsidiary of Developer provided
such is not approved in writing by the City;
(g) merger or consolidation where such merger or consolidation
is not approved in writing by the City, which approval will not be
unreasonably withheld; or
(h) loss, theft, substantial damage, destruction or
encumbrance of any of the Collateral, provided that such is not
remedied within sixty (60) business days after written notice thereof
by either Developer or the City (including, without limitation, by a
pledge of insurance proceeds or by substitute Collateral satisfactory
to the City).
2. Remedies Upon Default.
(a) In the event of a default and the failure to cure it in
the time allotted thereof (or to commence and diligently proceed to
cure such default if reasonable incapable of being cured within the
time allotted thereof), the City shall have the right at its option and
without demand or notice, to declare all or any part of the loan
immediately due and payable, and in addition to the rights and remedies
granted hereby, the City shall have all of the rights and remedies
under the Uniform Commercial Code or any applicable law.
(b) Developer agrees in the event of a default and the failure
to cure it in the time allotted therefor, to make the Collateral
available to the City. In the event of any lawsuit under this
Agreement, reasonable attorney's fees and costs will be awarded to the
prevailing party. If any notice of sale, disposition or other intended
action by the City is required by law to be given to Developer at the
it shall be given not less than fifteen (15) days before such sale,
disposition or other intended action. Waiver of and default hereunder
by the City shall not be a waiver of any other default or of the same
default on a later occasion. No delays or failure by the City to
exercise any right or remedy shall be a waiver of such right or remedy
and no single or partial exercise by the City of any right or remedy
shall preclude other or further exercise thereof of the exercise of any
other right or remedy at any other time.
3. Collateral. The Developer shall grant to the City a mortgage on the
Development Property according to the terms of the mortgage instrument between
the Developer and the City.
ARTICLE 5
Loan Disbursement Provisions
1. Payment Requisition Documentation and Format. Loan disbursements
shall be for construction costs in the amount of $500,000.00 from SCDP funds.
The loan funds for construction may be disbursed to the Developer only after the
City has received from the Developer invoices for construction costs and only on
a cost-sharing ration of 16.34% loan funds to 83.66% other funds.
2. Provision of Evidentiary Materials. No disbursements of loan funds
shall be made until all evidentiary materials required by the Grantor Agency
have been submitted and approved by the Grantor Agency.
3. Project Time Frame (Schedule). The time frame outlined in the SCDP
application pertaining to the Project shall be met by the Developer.
4. Permanent Loan Terms. The permanent SCDP loan of $500,000.00 shall
be for a term of ten (10) years, but with payments in a sum that would amortize
the loan over fifteen (15) years, with a balloon payment due at the end of ten
(10) years, commencing not later than January 1, 1995. The interest rate shall
be four (4) percent per annum for the 120 months of the loan period.
5. Loan Repayment Schedule. Repayment of the principal sum together
with accrued interest, shall be made in monthly installments, commencing January
1, 1995, in the amount of $3,029.90, and shall continue to be made in the amount
of $3,029.90 on the first day of each month thereafter until February 1, 2000,
when the payment shall increase to $3,698.44 on the first day of each month
beginning in February 2000, and continuing until January 1, 2005, at which time
the entire outstanding principal balance, along with interest accrued thereon
until the date of payment shall become due and payable in full. Developer
understands that this will be a balloon payment. The total monthly payment
amount due from Developer to Lender will include the amount necessary to
amortize the additional loan amount being provided by Lender of $1,699,620.00
and renegotiated at an outstanding principal balance of $1,321,913.59.
6. Leveraged Funds. The leveraged funds described in the SCDP
application must be used for the same purposes and under the same terms, rates,
and conditions as specified unless prior written consent is received from the
Grantor Agency.
ARTICLE 6
Provision of Evidentiary Material Requirement
1. Provision of Evidentiary Materials. The Developer shall agree to
provide to the City all evidentiary materials according to the format and
timetable cited in the Grant Agreement. The City will for-ward said materials to
the Grantor Agency and assist in expediting reviews leading to a release of SCDP
funds.
2. Documentation of Use of Funds. The Developer must provide the City
with necessary documentation that the SCDP loan proceeds and leveraged funds
have been used for the items and purposes stated in the SCDP application, prior
to submitting the final progress report and requesting grant closeout from the
Grantor Agency.
3. The Developer must document that equipment items purchased with SCDP
loan funds are of reasonable cost, in accordance with OMB Circular A-87.
ARTICLE 7
Provision of New Permanent Jobs
1. Employment Objective. The Developer agrees to take affirmative
action to ensure that 85 new permanent jobs will be created by the Project, of
which, at a minimum, 51% shall be held by low and moderate income individuals.
The Developer agrees that the above job requirements shall be completed December
31, 1996. These requirements were completed as of the December 14 , 1999,
renegotiation.
2. Employment Documentation. The Developer shall complete and provide
to the City notification of employment semi-annually of hiring each new
employee. This notification requirement will not be necessary after December 31,
1996, provided the employment objective set forth above has been met. In
addition, the Developer agrees to provide verification that jobs are available
to persons of low and moderate income by documenting that once the jobs are
filled, at least 51% of the persons hired are of low and moderate income
families, as per Section 8 income guidelines.
3. Job Creation Documentation. The grantee must include job creation
information in each semi-annual progress report. This information shall be
provided by the Developer and must include:
(a) jobs created
(b) job title per job
(c) date employees hired
4. First Source Employment Referral Agreement. Developer agrees to list
any vacant or new positions with the job services of the Commissioner of Job
Services or a local service unit operated by a county or counties operating
under a joint powers agreement, one or more cities of the first class operating
under a joint powers agreement, or a city of the first class.
ARTICLE 8
Provision of Monitoring Information Related to Project Progress
The Developer shall agree to provide to the City information for
incorporation into progress reports, as required by the Grantor Agency and as
needed by the City, to monitor Project implementation for compliance with
grantor and local guidelines.
ARTICLE 9
Nondiscrimination
The provisions of Minnesota Statutes, Section 181.59, which relate to
civil rights and discrimination, shall be considered a part of this Agreement as
though wholly set forth herein.
ARTICLE 10
Developer's Acknowledgments, Representations, and Warrants
1. Acknowledgements. The Developer acknowledges that the City, in order
to obtain funds for part of the City's activities in connection with the
Project, has applied for a Small Cities Development Program Grant (the "Grant")
to the Commissioner of the Minnesota Department of Trade and Economic
Development (the "Commissioner") under the Small Cities Development Program,
Community Development Division, and that the City will be entering into the
Grant Agreement with the Commissioner setting forth the terms, conditions, and
requirements as to the Grant.
The Developer further acknowledges that the Developer has made certain
representations and statements as to those activities of the Project to be
carried out and completed by the Developer which were contained in and made part
of the application for the Grant and that the Developer is designated and
identified under the Grant Agreement.
A copy of the Grant Agreement shall be on file in the offices of the
City's Community Development Department. In the event any provision of this
Agreement relating to the Developer's obligations hereunder shall be
inconsistent with the provisions of the Grant Agreement relating to the
Developer's activities thereunder, the provisions of the Grant Agreement shall
prevail.
The Developer acknowledges that nothing contained in the Grant
Agreement or this Agreement, nor any act of the Commissioner or the City shall
be deemed or construed to create any relationship or third-party beneficiary,
principal and agent, limited or general partnership, or joint venture, or of any
association or relationship involving the Commissioner.
2. Representations and Warranties. Developer warrants and represents,
in connection with the Grant and for the benefit of the Commissioner and the
City, that:
(a) The representations, statements, and other matters
provided by the Developer relating to those activities of the Project
to be completed by the Developer, which were contained in the
application for the Grant, were true and complete in all material
respects as of the date of submission to the City and that such
representations, statements, and other matters are true as of the date
of this Agreement.
(b) To the best of the Developer's knowledge, no member,
officer, or employee of the City or its designees or agents, no
consultant, member of the governing body of the City, and no other
public official of the City, who exercises or has exercised any
functions or responsibilities with respect to the Project during his or
her tenure shall have any interest, direct or indirect, in any contract
or subcontract, or the proceeds thereof, for work to be performed in
connection with the Project or in any activity, or benefit therefrom,
which is part of this Project.
(c) The Developer acknowledges that the Commissioner, in
selecting the City as recipient of the Grant, relied in material part
upon the assured completion of the Project to be carried out by the
Developer, and the Developer assures the City that said Project will be
carried out by the Developer.
(d) The Developer warrants that to the best of its knowledge,
it has obtained all federal, state, and local governmental approvals,
reviews, and permits required by law to be obtained in connection with
the Project.
(e) The Developer warrants that it shall keep and maintain
books, records, and other documents relating directly to the receipt
and disbursements of SCDP loan proceeds and that any duly authorized
representative of the Commissioner shall, at all reasonable times, have
access to and the right to inspect, copy, audit, and examine all such
books, records, and other documents of the Developer until the
completion of all closeout procedures respecting the SCDP loan and the
final settlement and conclusion of all issues arising out of this loan.
(f) The Developer warrants that no transfer of SCDP loan
proceeds by the City to the Developer shall be or be deemed an
assignment of the loan proceeds and the Developer shall neither succeed
to any rights, benefits, or advantages of the City under the Grant
Agreement, nor attain any right, privileges, authorities, or interests
in or under the Grant Agreement.
(g) The Developer warrants that it has fully complied with all
applicable state and federal laws pertaining to its business and will
continue said compliance throughout the terms of this Agreement. If, at
any time, notice of noncompliance is received by the Developer, it
agrees to take any necessary action to comply with the State or Federal
law in question.
ARTICLE 11
Other Special Conditions
1. Antitrust. Developer hereby assigns to the State of Minnesota any
and all claims for overcharges as to goods and/or services provided in
connection with this contract resulting from antitrust violations which arise
under the antitrust laws of the United States and the antitrust laws of the
State of Minnesota.
2. Workers' Compensation Insurance. Developer has obtained workers'
compensation insurance as required by Minnesota Statutes, 1982, Section 176.181,
Subd. 2. Developer's workers' compensation insurance information is as follows:
(a) Company Name: State Fund Mutual
(b) Policy Number: 002789.209
(c) Local Agency: Jack Hero, 7500 Flying Cloud Drive, #835,
Eden Prairie, MN 55344
3. Business With the State of Minnesota/State Tax Laws. Notice to
Developer. You are required by Minnesota Statutes, 1982, Section 270.66, to
provide your Minnesota tax identification number if you do business with the
State of Minnesota. This information may be used in the enforcement of Federal
and State tax laws. Supplying these numbers could result in an action to require
you to file State tax returns and pay delinquent State tax liabilities. This
contract will not be approved unless these numbers are provided. These numbers
will be available to Federal and State tax authorities and State personnel
involved in the payment of State obligations.
Minnesota Tax ID: 6997761
Federal Employer ID: 41-0992135
IN WITNESS WHEREOF, the City has caused this Agreement to be duly
executed in its name and behalf and the Developer has caused this Agreement to
be duly executed in its name and behalf as of the date first above written.
Subscribed and sworn to before me CITY OF MANKATO, MINNESOTA, this 14th day of
December, 1999.
/s/ Ranae Distad By: /s/
Notary Public Its City Manager
Subscribed and sworn to before me WINLAND ELECTRONICS, INC. this 14th day of
December, 1999.
/s/ Jodi Tuchek By: /s/ W. K. Hankins
Notary Public Its Chairman and CEO
PROMISSORY NOTE
$1,321,913.59 December 14, 1999
Mankato, Minnesota
FOR VALUE RECEIVED, the undersigned, WINLAND ELECTRONICS, INC., a
Minnesota corporation (the "Maker"), promises to pay to the order of THE CITY OF
MANKATO, MINNESOTA, at 10 Civic Center Plaza, P.O. Box 3368, Mankato, Minnesota,
56002, or its assigns (the "Holder"), or at such other place as the Holder of
this Note may from time to time designate, the principal sum of ONE MILLION
THREE HUNDRED TWENTY-ONE THOUSAND NINE HUNDRED THIRTEEN AND 59/100 DOLLARS
($1,321,913.59), with interest on the unpaid balance from time to time
outstanding at the rate of 6.941% per annum.
Accrued, but unpaid, interest on amounts disbursed to Maker the first
day of the month next following the date hereof and on the first day of each
month thereafter. Commencing on February 1, 2000, and on the first day of each
month thereafter, until fully paid, principal and interest shall be due and
payable in equal monthly installments of Fifteen Thousand Two Hundred Twenty and
66/100 Dollars ($15,220.66) each. In any event, the entire unpaid principal
balance hereof together with all accrued and unpaid interest thereon shall be
due and payable on January 1, 2005.
The undersigned reserves the right to prepay the Note, in whole or in
part, without penalty or premium. All payments will be applied first to accrued
interest and the remainder, if any, to principal in the inverse order of
maturity and -such prepayment shall not reduce or delay any installment due
hereunder. Interest shall be computed on a 360 day year for the actual number of
days in any period for which such computation is made.
At the option of the holder of this Note, the entire unpaid principal
balance and all accrued but unpaid interest thereon shall become immediately due
and payable, subject to the notice and cure provisions herein contained, upon
occurrence of any of the following:
1. The failure to make any payment of principal or interest when
due;
2. The failure to perform any covenant or obligation of the
undersigned in a mortgage securing payment of this Note.
In addition to any notice required under applicable law to be given in
another manner, (a) any notice to the undersigned provided for in this Note
shall be given by mailing such notice by certified mail addressed to the
undersigned, 1950 Excel Drive, P.O. Box 473, Mankato, Minnesota, 56002-0473, or
such other address as Maker may designate by notice in writing to the Holder;
and (b) any notice to the Holder shall be given by certified mail, return
receipt requested, to the Holder at the following address: 10 Civic Center
Plaza, P.O. Box 3368, Mankato, Minnesota, 56002-3368, or to such other address
as the Holder may designate by notice in writing to the undersigned as provided
herein. Any notice provided for in this Note shall be deemed to have been given
to the undersigned or the holder when given in the manner designated herein.
The undersigned agrees to pay all costs of collection, including
reasonable attorney fees, incurred in collection of this Note, including costs
incurred in connection with the protection or realization of the collateral
securing this Note or enforcement of any guaranty.
The undersigned hereby waives: (a) presentment, protest and demand; and
(b) notice of protest, demand, dishonor and nonpayment of this Note.
WINLAND ELECTRONICS, INC.
By: /s/ W. K. Hankins
Its: CEO
Exhibit 23.1
Consent of Independent Accountant
We hereby consent tot he incorporation by reference of our report, dated January
26, 2000, with respect to the financial statements of Winland Electronics, Inc.
(the "Company") included in this Form 10-KSB into the Company's previously filed
Registration Statements on Form S-3, no. 333-723, and on Form S-8, No. 33-467,
No. 33-81880, No. 33-73328, No. 333-27727, and No. 333-27729.
/s/ McGladrey & Pullen, LLP
Minneapolis, Minnesota
March 29, 2000
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