SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. ____)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
WINLAND ELECTRONICS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
WINLAND ELECTRONICS, INC.
-----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held
May 17, 2000
-----------------------
TO THE SHAREHOLDERS OF WINLAND ELECTRONICS, INC.:
The 2000 Annual Meeting of Shareholders of Winland Electronics, Inc.
will be held at the Company's corporate offices located at 1950 Excel Drive,
Mankato, Minnesota, at 7:00 p.m. on Wednesday, May 17, 2000, for the following
purposes:
1. To set the number of members of the Board of Directors at
seven (7).
2. To elect members of the Board of Directors.
3. To increase the number of shares under the Company's 1997
Stock Option Plan from 300,000 to 600,000 shares.
4. To take action on any other business that may properly come
before the meeting or any adjournment thereof.
Accompanying this Notice of Annual Meeting is a Proxy Statement, form
of Proxy and the Company's 1999 Annual Report to Shareholders.
Only shareholders of record as shown on the books of the Company at the
close of business on March 24, 2000 will be entitled to vote at the 2000 Annual
Meeting or any adjournment thereof. Each shareholder is entitled to one vote per
share on all matters to be voted on at the meeting.
You are cordially invited to attend the 2000 Annual Meeting. Whether or
not you plan to attend the 2000 Annual Meeting, please sign, date and mail the
enclosed form of Proxy in the return envelope provided as soon as possible. The
Proxy is revocable and will not affect your right to vote in person in the event
you attend the meeting. The prompt return of proxies will help your Company
avoid the unnecessary expense of further requests for proxies.
BY ORDER OF THE BOARD OF DIRECTORS,
W. Kirk Hankins
Chairman and Chief Executive Officer
Dated: April 10, 2000
Mankato, Minnesota
<PAGE>
WINLAND ELECTRONICS, INC.
-----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held
May 17, 2000
-----------------------
The accompanying Proxy is solicited by the Board of Directors of
Winland Electronics, Inc. (the "Company") for use at the 2000 Annual Meeting of
Shareholders of the Company to be held on Wednesday, May 17, 2000, at the
location and for the purposes set forth in the Notice of Annual Meeting, and at
any adjournment thereof.
The cost of soliciting proxies, including the preparation, assembly and
mailing of the proxies and soliciting material, as well as the cost of
forwarding such material to the beneficial owners of stock, will be borne by the
Company. Directors, officers and regular employees of the Company may, without
compensation other than their regular remuneration, solicit proxies personally
or by telephone.
Any shareholder giving a Proxy may revoke it any time prior to its use
at the 2000 Annual Meeting by giving written notice of such revocation to the
Secretary or any other officer of the Company or by filing a later dated written
Proxy with an officer of the Company. Personal attendance at the 2000 Annual
Meeting is not, by itself, sufficient to revoke a Proxy unless written notice of
the revocation or a later dated Proxy is delivered to an officer before the
revoked or superseded Proxy is used at the 2000 Annual Meeting. Proxies will be
voted as directed therein. Proxies which are signed by shareholders but which
lack specific instruction with respect to any proposal will be voted in favor of
such proposal as set forth in the Notice of Meeting or, with respect to the
election of directors, in favor of the number and slate of directors proposed by
the Board of Directors and listed herein.
The presence at the Annual Meeting in person or by proxy of the holders
of a majority of the outstanding shares of the Company's Common Stock entitled
to vote shall constitute a quorum for the transaction of business. If a broker
returns a "non-vote" proxy, indicating a lack of voting instructions by the
beneficial holder of the shares and a lack of discretionary authority on the
part of the broker to vote on a particular matter, then the shares covered by
such non-vote shall be deemed present at the meeting for purposes of determining
a quorum but shall not be deemed to be represented at the meeting for purposes
of calculating the vote required for approval of such matter. If a shareholder
abstains from voting as to any matter, then the shares held by such shareholder
shall be deemed present at the meeting for purposes of determining a quorum and
for purposes of calculating the vote with respect to such matter, but shall not
be deemed to have been voted in favor of such matter. An abstention as to any
proposal will therefore have the same effect as a vote against the proposal.
The mailing address of the principal executive office of the Company is
1950 Excel Drive, Mankato, Minnesota 56001. The Company expects that this Proxy
Statement, the related Proxy and Notice of Meeting will first be mailed to
shareholders on or about April 10, 2000.
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed March 24, 2000 as the
record date for determining shareholders entitled to vote at the 2000 Annual
Meeting. Persons who were not shareholders on such date will not be allowed to
vote at the 2000 Annual Meeting. At the close of business on March 24, 2000,
there were 2,901,620 shares of the Company's Common Stock, par value $.01 per
share, issued and outstanding. The Common Stock is the only outstanding class of
capital stock of the Company. Each share of Common Stock is entitled to one vote
on each matter to be voted upon at the 2000 Annual Meeting. Holders of Common
Stock are not entitled to cumulative voting rights.
<PAGE>
PRINCIPAL SHAREHOLDERS AND MANAGEMENT SHAREHOLDINGS
The following table provides information as of March 24, 2000
concerning the beneficial ownership of the Company's Common Stock by (i) the
persons known by the Company to own more than 5% of the Company's outstanding
Common Stock, (ii) each director and nominee of the Company, (iii) the named
executive officers in the Summary Compensation Table and (iv) all current
executive officers and directors as a group. Except as otherwise indicated, the
persons named in the table have sole voting and investment power with respect to
all shares of Common Stock owned by them.
Name (and Address of 5% Number of Shares Percent
Owner) or Identity of Group Beneficially Owned(1) of Class (1)
--------------------------- --------------------- ------------
W. Kirk Hankins 303,943 (2) 10.3%
1950 Excel Drive
Mankato, MN 56001
Lorin E. Krueger 256,723 (3) 8.7%
1950 Excel Drive
Mankato, MN 56001
Kirk P. Hankins 57,000 (4) 1.9%
S. Robert Dessalet 20,000 (5) *
Thomas J. dePetra 13,000 (6) *
David L. Ewert 6,000 (6) *
James P. Legus -- *
Dyna Technology, Inc. 147,500 (7) 5.1%
225 South Cordova Avenue
LeCenter, MN 56057
All Current Executive Officers 830,802 (8) 26.5%
and Directors as a Group
(9 Individuals)
- ---------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Under the rules of the SEC, shares not actually outstanding are deemed
to be beneficially owned by an individual if such individual has the
right to acquire the shares within 60 days. Pursuant to such SEC Rules,
shares deemed beneficially owned by virtue of an individual's right to
acquire them are also treated as outstanding when calculating the
percent of the class owned by such individual and when determining the
percent owned by any group in which the individual is included.
(2) Includes 69,842 shares held by Mr. Hankins's spouse, which shares Mr.
Hankins disclaims beneficial ownership of, and 42,000 shares which may
be purchased by Mr. Hankins upon exercise of currently exercisable
options.
(3) Includes 800 shares held by Mr. Krueger's spouse and 42,000 shares
which may be purchased by Mr. Krueger upon exercise of currently
exercisable options.
(4) Includes 32,000 shares which may be purchased by Mr. Hankins upon
exercise of currently exercisable options.
(5) Includes 7,000 shares owned jointly by Mr. Dessalet and his spouse and
13,000 shares which may be purchased by Mr. Dessalet upon exercise of
currently exercisable options.
<PAGE>
(6) Represents shares which may be purchased upon exercise of currently
exercisable options.
(7) Represents shares held by Dyna Technology, Inc., of which Ralph and
Nola Call are the sole shareholders. The Company has relied on
information provided in Schedule 13G dated as of December 23, 1999
filed with the Securities and Exchange Commission.
(8) Includes 80,001 shares held by family members of officers and
directors, and 234,350 shares which may be purchased upon exercise of
currently exercisable options.
ELECTION OF DIRECTORS
(Proposals #1 and #2)
The Bylaws of the Company provide that the number of directors shall be
the number set by the shareholders, which shall be not less than one. The Board
of Directors unanimously recommends that the number of directors be set at seven
and that seven directors be elected. Unless otherwise instructed, the Proxies
will be so voted.
Under applicable Minnesota law, approval of the proposal to set the
number of directors at seven and the election of the nominees to the Board of
Directors require the affirmative vote of the holders of the greater of (i) a
majority of the voting power of the shares represented in person or by proxy at
the Annual Meeting with authority to vote on such matter or (ii) a majority of
the voting power of the minimum number of shares that would constitute a quorum
for the transaction of business at the Annual Meeting.
In the absence of other instruction, the Proxies will be voted for each
of the individuals listed below. If elected, such individuals shall serve until
the next annual meeting of shareholders and until their successors shall be duly
elected and shall qualify. Peter D. Jones, who was initially elected as a
director in May 1998, resigned from the Board in February 2000. All of the
nominees, except James P. Legus, are members of the present Board of Directors.
If, prior to the 2000 Annual Meeting of Shareholders, it should become known
that any one of the following individuals will be unable to serve as a director
after the 2000 Annual Meeting by reason of death, incapacity or other unexpected
occurrence, the Proxies will be voted for such substitute nominee(s) as is
selected by the Board of Directors. Alternatively, the Proxies may, at the
Board's discretion, be voted for such fewer number of nominees as results from
such death, incapacity or other unexpected occurrence. The Board of Directors
has no reason to believe that any of the following nominees will be unable to
serve.
<PAGE>
Name and Age of Current Position Director
Director/Nominee Age with the Company Since
- ------------------ --- ---------------------------------- --------
W. Kirk Hankins 72 Chairman of the Board, 1983
Chief Executive Officer and
Chief Financial Officer
Lorin E Krueger 44 President, Chief Operating Officer, 1978
Secretary and Director
Kirk P. Hankins 38 Vice President of Marketing 1990
and Director
S. Robert Dessalet 67 Director 1985
Thomas J. de Petra 53 Director 1994
David L. Ewert 49 Director 1998
James P. Legus 59 Director Nominee N/A
W. Kirk Hankins has served as Chairman of the Board, Chief Executive
Officer and Chief Financial Officer of the Company since December 1983. Mr.
Hankins also served as President of the Company from April 1985 until January
1999. Mr. Hankins served as President, Chairman and Chief Financial Officer of
Playtronics Corporation from 1985 until March 1990, when Playtronics merged into
the Company. He was Associate Professor of Accounting at Mankato State
University and owner and operator of a management consulting firm from 1976 to
1984. W. Kirk Hankins is the father of Kirk P. Hankins, a director and Vice
President of Marketing, and Kimberley E. Kleinow, Vice President of Procurement
and Materials.
Lorin E. Krueger has served as President and Chief Operating Officer of
the Company since January 1999 and as Secretary of the Company since 1983. Mr.
Krueger served as Senior Vice President of Operations of the Company from March
1987 until January 1999. Mr. Krueger has been an employee of the Company since
1976 and served as its Vice President from January 1977 to March 1987.
Kirk P. Hankins has served as Vice President of Marketing of the
Company since April 1989. Mr. Hankins served as Secretary of Playtronics from
October 1985 until March 1990, when Playtronics merged into the Company, and as
Vice President of Playtronics from October 1985 until April 1989. From 1984 to
1985, Mr. Hankins was the Marketing Manager of the Company. Kirk P. Hankins is
the son of W. Kirk Hankins, Chairman, Chief Executive Officer and Chief
Financial Officer, and the brother of Kimberley E. Kleinow, Vice President of
Procurement and Materials.
S. Robert Dessalet has served as Director of Marketing of RJ Morse
Enterprises, Inc., a precision machining company, since November 1999. Mr.
Dessalet was self-employed as a management consultant January 1997 to November
1999. From September 1996 to January 1997, he served as Vice President-Finance
and Administration of Rimage Corporation, a manufacturer of computer software
duplication and finishing systems. He served as Vice President-Finance and
Administration of Dunhill Software Services, Inc., a software duplication
company, from May 1994 to September 1995. Mr. Dessalet was a consultant for
Dessalet & Associates, a business consulting firm, from January 1993 to May
1994. He was employed by National Poly Products, Inc., a producer of
polyethylene packaging film in Mankato, Minnesota, from June 1968 to January
1993 in various capacities including Chief Financial Officer.
Thomas J. de Petra has been self-employed as a management consultant
since June 1999. From August 1998 to June 1999, he served as Chief Operating
Officer of International Concept Development, Inc., a restaurant and hotel
developer. From October 1997 to August 1998, Mr. de Petra served as Chief
Operating Officer of Illuminated Media Inc., an advertising company. From
February 1996 to June 1997, Mr. de Petra served as Chief Executive Officer of
Nortech Forest Technologies, Inc., continuing to provide services as a
consultant until October 1997. Mr. de Petra was a management consultant from
June 1993 to February 1996, and he was Chief Information Officer of IDC
Holdings, Ltd. from June 1993 to November 1994. Mr. de Petra was President and
owner of DePetra & Associates, Inc., a financial communications firm, formerly
known as First Financial Investor Relations, Inc., from August 1986 to October
1993.
David L. Ewert has served as President of Jones Metal Products, Inc.
since April 1997, prior to which he served in various capacities, including Vice
President, Treasurer and Controller, since he joined Jones Metal Products in
August 1973. Mr. Ewert has also served as Accounting Manager for Katolight
Corporation since 1991. From 1972 to December 1973, Mr. Ewert was a Staff
Accountant with Frentz, Lieske and Rogers, a public accounting firm.
James P. Legus has served as Chief Executive Officer of CommonLine,
Inc., an e-commerce company in Minneapolis, Minnesota since March 1, 2000. From
1995 to 1999, Mr. Legus served as Chief Executive Officer and Chairman of
PeopleNet Communications Corporation, a wireless mobile communications firm
which he founded. Mr. Legus served as Chief Executive Officer and Chairman of
Solutronix, an electronic repair company, from 1993 to 1994 and as Chief
Executive Officer and Chairman of Magnetic Data Inc., a disc drive manufacturing
service company which he founded, from 1982 to 1992. Prior to 1982, Mr. Legus
served in various positions of the Magnetic Media Division of Control Data
Corporation.
BOARD AND COMMITTEE MEETINGS
During fiscal 1999, the Board of Directors held five meetings. Each
director attended 100% of the meetings of the Board and the committees on which
such director served during 1999.
The Company's Board of Directors has three standing committees, the
Audit Committee, Compensation Committee and Stock Option Committee. The Company
does not have a nominating committee.
The Audit Committee was comprised of S. Robert Dessalet, Thomas J. de
Petra, David L. Ewert and Peter D. Jones during fiscal 1999, with Mr. Jones
resigning from the Board in February 2000. This committee reviews the selection
and work of the Company's independent auditors and the adequacy of internal
controls for compliance with corporate policies and directives. During 1999, the
Audit Committee met twice.
The Compensation Committee was comprised of S. Robert Dessalet, Thomas
J. de Petra, David L. Ewert and Peter D. Jones during fiscal 1999, with Mr.
Jones resigning from the Board in February 2000. This committee recommends to
the Board of Directors from time to time the salaries to be paid to executive
officers of the Company and any plan for additional compensation it deems
appropriate. During 1999, the Compensation Committee met once.
The Stock Option Committee was comprised of S. Robert Dessalet, Thomas
J. de Petra, David L. Ewert and Peter D. Jones during fiscal 1999, with Mr.
Jones resigning from the Board in February 2000. This committee is vested with
the same authority as the Board of Directors with respect to the granting of
options and the administration of the Company's Stock Option Plans. The Stock
Option Committee did not meet during 1999, but took action by unanimous written
consent twice.
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The name and ages of all of the Company's executive officers and the
positions held by them are listed below.
Name Age Position
----------------- --- ---------------
W. Kirk Hankins 72 Chairman of the Board, Chief
Executive Officer and Chief
Financial Officer
Lorin E. Krueger 44 President, Chief Operating Officer,
Secretary and Director
Kirk P. Hankins 38 Vice President of Marketing and Director
Terry E. Treanor 37 Vice President of Manufacturing
Kimberley E. Kleinow 32 Vice President of Procurement and
Materials
Steven W. Vogel 43 Vice President of Engineering
The business experience of W. Kirk Hankins, Lorin E. Krueger and Kirk
P. Hankins is set forth in the section of this Proxy Statement entitled Election
of Directors.
Terry E. Treanor joined the Company in July 1994 and was elected as
Vice President of Manufacturing on June 28, 1996, prior to which he served in
various capacities, including Quality Assurance Manager and Operations Manager.
Mr. Treanor was employed by Onan Corp., a power generation company, from January
1985 until July 1994, serving most recently as Supplier Quality Engineer.
Kimberley E. Kleinow joined the Company in October 1991 and was elected
as Vice President of Procurement and Materials on December 22, 1997, prior to
which she served as Director of Materials from November 1996 to December 1997
and as Purchasing Manager from October 1991 to November 1996. Kimberley Kleinow
is the daughter of W. Kirk Hankins and the sister of Kirk P. Hankins, both of
whom are officers and directors of the Company.
Steven W. Vogel joined the Company in May 1994 and was elected to Vice
President of Engineering on September 7, 1998, prior to which he served as
Manager of Engineering from April 1996 to September 1998 and as Design Engineer
from May 1994 to April 1996. From April 1988 to May 1994, Mr. Vogel served as
Design Engineer for Micro-Trak Systems, Inc., a Minnesota-based agricultural
electronics company.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding
compensation paid or accrued during each of the Company's last three fiscal
years to the Chief Executive Officer and to the only other executive officer
whose total annual salary and bonus earned or accrued exceeded $100,000 during
fiscal year 1999.
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
----------------------------------- ------------------------------------
Restricted LTIP All Other
Name and Principal Fiscal Stock Payouts Compensation
Position Year Salary ($) Bonus ($) Other ($) Awards ($) Options ($) ($)(1)
- ------------------------- ----- ---------- --------- --------- ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. Kirk Hankins, 1999 142,000 15,787 -- -- 10,000 -- 3,333
Chief Executive 1998 135,000 126,582 -- -- 32,000(2) -- 3,261
Officer and Chief 1997 122,472 75,521 -- -- -- -- 3,167
Financial Officer
Lorin E. Krueger, 1999 120,000 15,787 -- -- 10,000 -- 3,333
President, Chief 1998 102,000 109,591 -- -- 32,000(2) -- 3,261
Operating Officer and 1997 90,979 63,098 -- -- -- -- 3,167
Secretary
- ----------------
</TABLE>
(1) Represents contribution to the Company's 401(k) Plan for executive
officer's benefit.
(2) Includes options to purchase 22,000 shares of the Company's Common
Stock which were previously granted in 1995 but were repriced in 1998.
Option Grants During 1999 Fiscal Year
The following table provides information regarding stock options
granted during fiscal 1999 to the named executive officers in the Summary
Compensation Table. The Company has not granted any stock appreciation rights.
<TABLE>
<CAPTION>
Percent of Total Options
Options Granted to Employees Exercise or Base
Name Granted in Fiscal Year Price Per Share* Expiration Date
---- ------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
W. Kirk Hankins 10,000(1) 17.9% $2.475 12/31/04
Lorin E. Krueger 10,000(1) 17.9% $2.25 12/31/04
- ------------------
</TABLE>
(1) Options became exercisable on December 31, 1999, the date of grant. The
option granted to Mr. Krueger is at fair market value on the date of
grant, and the option granted to Mr. Hankins is at 110% of fair market
value on the date of grant.
Option Exercises During 1999 Fiscal Year and Fiscal Year-End Option Values
The following table provides information as to options exercised by the
named executive officers in the Summary Compensation Table during fiscal 1999
and the number and value of options at December 31, 1999. The Company does not
have any outstanding stock appreciation rights.
<PAGE>
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired Value December 31, 1999 December 31, 1999
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ------------------ ----------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
W. Kirk Hankins -- -- 42,000 exercisable $7,150 exercisable
0 unexercisable $0 unexercisable
Lorin E. Krueger -- -- 42,000 exercisable $11,000 exercisable
0 unexercisable $0 unexercisable
- ------------------
</TABLE>
(1) Value is calculated on the basis of the difference between the option
exercise price and $2.25, the closing sale price for the Company's
Common Stock on December 31, 1999 as quoted by the Nasdaq SmallCap
Market, multiplied by the number of shares of Common Stock underlying
the option.
Compensation to Directors
The outside directors are paid $500 for attendance at each Board
meeting and $300 for each committee meeting, plus expenses. In addition, the
Company's 1997 Stock Option Plan provides for automatic option grants to each
director who is not an employee of the Company (a "Non-Employee Director"). Each
Non-Employee Director who is elected for the first time as a director is granted
a nonqualified option to purchase 3,000 shares of Common Stock. Each
Non-Employee Director who is re-elected as a director of the Company or whose
term of office continues after a meeting of shareholders at which directors are
elected shall, as of the date of such re-election or shareholder meeting,
automatically be granted a nonqualified option to purchase 3,000 shares of
Common Stock. No director shall receive more than one option pursuant to the
formula plan in any one fiscal year. All options granted pursuant to these
provisions are granted at a per share exercise price equal to 100% of the fair
market value of the Common Stock on the date of grant, and they are immediately
exercisable and expire on the earlier of (i) three months after the optionee
ceases to be a director (except by death) and (ii) five (5) years after the date
of grant. In the event of the death of a Non-Employee Director, any option
granted to such Non-Employee Director pursuant to this formula plan may be
exercised at any time within six (6) months of the death of such Non-Employee
Director or until the date on which the option, by its terms, expires, whichever
is earlier. In addition, Mr. de Petra received approximately $6,000 for
consulting services he provided to the Company.
Employment Agreements and Termination of Employment Arrangements
The Company entered into an Employment Agreement effective January 1,
1999 with W. Kirk Hankins, Chief Executive Officer and Chief Financial Officer,
which agreement's initial term expires December 31, 2003, with additional
one-year terms thereafter, unless either party gives notice to the other party
60 days prior to the end of such term that such party wishes to terminate the
agreement. The agreement provides for an annual base salary in an amount
determined by the Compensation Committee, which amount has been determined to be
$146,300 for 2000. Mr. Hankins is entitled to receive an annual bonus consisting
of stock options and/or a cash payment at the sole discretion of the
Compensation Committee. If Mr. Hankins terminates his employment for good reason
during the two years following a change in control of the Company, he is
entitled to an amount equal to the salary and bonus paid to him for the two
fiscal years preceding such termination, which amount shall be paid in 24 equal
monthly installments. Mr. Hankins has agreed that, during the two-year period
following the termination of his employment, except following a change of
control as hereinbefore described, he will not (i) compete with the Company,
(ii) solicit or communicate with the Company's customers or (iii) solicit any of
the Company's employees to leave the Company.
<PAGE>
The Company also entered into an Employment Agreement effective January
1, 1999 with Lorin E. Krueger, President and Chief Operating Officer, which
agreement is identical to the terms of the agreement with W. Kirk Hankins
described above. The Compensation Committee has determined that the base salary
for 2000 for Mr. Krueger is $123,600.
Certain Transactions
As one of the Company's customers, PeopleNet Communications Corp.
purchased products and services from the Company in the amounts of $2.4 million
and $4.3 million during the Company's 1998 and 1999 fiscal years, respectively.
The Company hopes to continue a similar business relationship with PeopleNet
during the current fiscal year. James Legus, a director nominee, served as Chief
Executive Officer and Chairman of PeopleNet from 1995 through 1999.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Executive officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
the Company believes that, during fiscal year 1999, all executive officers,
directors and greater than ten-percent beneficial owners complied with the
applicable filing requirements, except that one transaction by Steve Vogel was
reported late and an option exercise by each of S. Robert Dessalet and Kimberley
Kleinow was reported late on a Form 5.
APPROVAL OF AN INCREASE IN THE NUMBER OF SHARES
RESERVED UNDER THE COMPANY'S 1997 STOCK OPTION PLAN
(Proposal #3)
General
On February 17, 2000, the Board of Directors amended the Company's 1997
Stock Option Plan (the "1997 Plan") to increase the shares reserved for issuance
from 300,000 to 600,000 shares. There are currently options to purchase 276,000
shares at exercise prices ranging from $1.75 to @.938 per share. No options
granted under the 1997 Plan have been exercised. There are also options
outstanding under the 1989 Plan to purchase 205,000 shares at exercise prices
ranging from $1.75 to $1.925.
Summary of 1997 Stock Option Plan
A general description of the basic features of the 1997 Plan is
presented below, but such description is qualified in its entirety by reference
to the full text of the 1997 Plan, a copy of which may be obtained without
charge upon written request to Lorin E. Krueger, the Company's President.
Purpose. The purpose of the 1997 Plan is to promote the success of the
Company by facilitating the employment and retention of competent personnel and
by furnishing incentive to directors, officers and employees of the Company and
consultants and advisors to the Company, upon whose efforts the success of the
Company will depend to a large degree.
Term. Incentive stock options may be granted pursuant to the 1997 Plan
during a period of ten (10) years from the date the 1997 Plan was adopted by the
Board of Directors (until January 21, 2007), and nonqualified stock options may
be granted until the 1997 Plan is discontinued or terminated by the Board of
Directors.
<PAGE>
Administration. With the exception of the stock options automatically
issued to Non-Employee Directors as described below, the 1997 Plan is
administered by the Board of Directors or the Stock Option Committee of the
Board of Directors, all of the members of which are "non-employee directors"
under Rule 16b-3 of the Securities Exchange Act of 1934 (collectively referred
to as the "Administrator"). The 1997 Plan gives broad powers to the
Administrator to administer and interpret the 1997 Plan, including the authority
to select the individuals to be granted options and to prescribe the particular
form and conditions of each option granted.
Eligibility. All employees of the Company or any subsidiary are
eligible to receive incentive stock options pursuant to the 1997 Plan. All
employees, officers and directors of and consultants and advisors to the Company
or any subsidiary are eligible to receive nonqualified stock options. As of
March 24, 2000, the Company had approximately 123 employees, of which six are
officers, and three directors who are not employees.
Options. When an option is granted under the 1997 Plan, the
Administrator, at its discretion, specifies the option price and the number of
shares of Common Stock which may be purchased upon exercise of the option. The
exercise price of an incentive stock option set by the Administrator may not be
less than 100% of the fair market value of the Company's Common Stock, as that
term is defined in the 1997 Plan. Unless otherwise determined by the
Administrator, the exercise price of a nonqualified stock option may not be less
than 100% of the fair market value on the date of grant; provided, however, that
the exercise price may not be less than 85% of the fair market value on the date
of grant. The period during which an option may be exercised and whether the
option will be exercisable immediately, in stages, or otherwise is set by the
Administrator. Generally, an incentive stock option may not be exercisable more
than ten (10) years from the date of grant. Optionees may pay for shares upon
exercise of options with cash, certified check or Common Stock of the Company
valued at the stock's then "fair market value" as defined in the 1997 Plan. Each
option granted under the 1997 Plan is generally nontransferable during the
lifetime of the optionee; however, the Administrator may, in its sole
discretion, permit the transfer of a nonqualified stock option to immediate
family members or to certain family trusts or family partnerships.
Generally, under the form of option agreement which the Administrator
is currently using for options granted under the 1997 Plan, if the optionee's
affiliation with the Company terminates before expiration of the option for
reasons other than death, the optionee has a right to exercise the option for
three months after termination of such affiliation or until the option's
original expiration date, whichever is earlier. If the termination is because of
death, the option typically is exercisable until its original stated expiration
or until the 6-month anniversary of the optionee's death, whichever is earlier.
The Administrator may impose additional or alternative conditions and
restrictions on the incentive or nonqualified stock options granted under the
1997 Plan; however, each incentive option must contain such limitations and
restrictions upon its exercise as are necessary to ensure that the option will
be an incentive stock option as defined under the Internal Revenue Code.
Grants to Non-Employee Directors. The 1997 Plan will provide for
automatic option grants to each director who is not an employee of the Company
(a "Non-Employee Director"). Each Non-Employee Director who is first elected as
a director on or after the date the 1997 Plan is approved by the shareholders
shall automatically be granted a nonqualified option to purchase 3,000 shares of
the Company's Common Stock. Each Non-Employee Director who is re-elected as a
director of the Company or whose term of office continues after a meeting of
shareholders at which directors are elected shall, as of the date of such
re-election or shareholder meeting, automatically be granted a nonqualified
option to purchase 3,000 shares of the Company's Common Stock. No director shall
receive more than one option pursuant to the formula plan in any one fiscal
year. All options granted pursuant to these provisions have a per share exercise
price equal to 100% of the fair market value of the Company's Common Stock on
the date of grant are immediately exercisable and expire on the earlier of (i)
three months after the Optionee ceases to be a director (except by death) and
(ii) five (5) years after the date of grant. In the event of the death of a
Non-Employee Director, any option granted to such Non-Employee Director pursuant
to this formula plan may be exercised until the option's original expiration
date or until the six-month anniversary of the Non-Employee Director's death,
whichever is earlier.
<PAGE>
In addition to the automatic grants of nonqualified options, the
Non-Employee Directors are eligible to receive additional nonqualified stock
options pursuant to the 1997 Plan in the sole discretion of the Administrator.
Amendment. The Board of Directors may from time to time suspend or
discontinue the 1997 Plan or revise or amend it in any respect; provided,
however, that no such revision or amendment may impair the terms and conditions
of any outstanding option to the material detriment of the optionee without the
consent of the optionee, except as authorized in the event of a sale, merger,
consolidation or liquidation of the Company. The 1997 Plan may not be amended in
any manner that will cause incentive stock options to fail to meet the
requirements of Code Section 422, and may not be amended in any manner that
will: (i) materially increase the number of shares subject to the 1997 Plan
except as provided in the case of stock splits, consolidations, stock dividends
or similar events; (ii) change the designation of the class of employees
eligible to receive options; (iii) decrease the price at which options will be
granted; or (iv) materially increase the benefits accruing to optionees under
the 1997 Plan, without the approval of the shareholders, if such approval is
required to comply with Code Section 422 or the requirements of Section 16(b) of
the Act.
The Board of Directors will equitably adjust the maximum number of
shares of Common Stock reserved for issuance under the 1997 Plan, the number of
shares covered by each outstanding option and the option price per share in the
event of stock splits or consolidations, stock dividends or other transactions
in which the Company receives no consideration. Generally, the Board of
Directors may also provide for the protection of optionees in the event of a
merger, liquidation or reorganization of the Company.
Federal Income Tax Consequences of the 1997 Plan. Under present law, an
optionee will not realize any taxable income on the date a nonqualified stock
option is granted to the optionee pursuant to the 1997 Plan. Upon exercise of
the nonqualified stock option, however, the optionee will realize, in the year
of exercise, ordinary income to the extent of the difference between the option
price and the fair market value of the Company's Common Stock on the date of
exercise. Upon the sale of the shares, any resulting gain or loss will be
treated as capital gain or loss. The Company will be entitled to a tax deduction
in its fiscal year in which nonqualified stock options are exercised, equal to
the amount of compensation required to be included as ordinary income by those
optionees exercising such options.
Incentive stock options granted pursuant to the 1997 Plan are intended
to qualify for favorable tax treatment to the optionee under Code Section 422.
Under Code Section 422, an employee realizes no taxable income when the
incentive stock option is granted. If the employee has been an employee of the
Company or any subsidiary at all times from the date of grant until three months
before the date of exercise, the employee will realize no taxable income when
the option is exercised. If the employee does not dispose of shares acquired
upon exercise for a period of two years from the granting of the incentive stock
option and one year after receipt of the shares, the employee may sell the
shares and report any gain as capital gain. The Company will not be entitled to
a tax deduction in connection with either the grant or exercise of an incentive
stock option. If the employee should dispose of the shares prior to the
expiration of the two-year or one-year periods described above, the employee
will be deemed to have received compensation taxable as ordinary income in the
year of the early sale in an amount equal to the lesser of (i) the difference
between the fair market value of the Company's Common Stock on the date of
exercise and the option price of the shares, or (ii) the difference between the
sale price of the shares and the option price of shares. In the event of such an
early sale, the Company will be entitled to a tax deduction equal to the amount
recognized by the employee as ordinary income. The foregoing discussion ignores
the impact of the alternative minimum tax, which may particularly be applicable
to the year in which an incentive stock option is exercised.
Plan Benefits. Except for the automatic grants to Non-Employee
Directors, future grants of stock options are subject to the discretion of the
Administrator. Therefore, the future benefits under the 1997 Plan cannot be
<PAGE>
determined at this time. The table below shows the total number of shares
underlying stock options that have been granted under the 1997 Plan as of March
24, 2000 to the named executive officers and the groups set forth.
Shares of Common Stock
Name and Position/Group Underlying Options Received
--------------------------------------- ---------------------------
W. K. Hankins 20,000
Chief Executive Officer and Chairman
Lorin E. Krueger 20,000
President, Chief Operating Officer and
Secretary
Current Executive Officers 87,000
as a group (6 persons)
Current Directors who are not Executive 24,000
Officers as a group (3 persons)
Current Employees who are not 159,000
Executive Officers or Directors
as a group (123 persons)
Vote Required. The Board of Directors recommends that the shareholders
approve the increase of shares under the 1997 Plan from 300,000 to 600,000.
Under applicable Minnesota law, approval of the increase of shares under the
1997 Plan requires the affirmative vote of the holders of the greater of (i) a
majority of the voting power of the shares represented in person or by proxy at
the Annual Meeting with authority to vote on such matter, or (ii) a majority of
the voting power of the minimum number of shares that would constitute a quorum
for the transaction of business at the Annual Meeting.
INDEPENDENT PUBLIC ACCOUNTANT
On May 1, 1998, Ahern Montag & Vogler, Ltd. ("Ahern") resigned as the
independent public accountants of the Company, and the Company selected
McGladrey & Pullen, LLP ("McGladrey") to serve as its independent public
accountants, which selection was approved by the Board of Directors. In
connection with the audits of the two years ended December 31, 1997, and the
subsequent interim period preceding the selection of McGladrey, there were no
disagreements with Ahern on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements if not resolved to their satisfaction would have caused them to
make reference in connection with their opinion to the subject matter of the
disagreement. The audit reports of Ahern on the financial statements of the
Company as of and for the years ended December 31, 1997 and December 31, 1996
did not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or accounting principles.
Representatives of McGladrey are expected to be present at the Annual
Meeting, will be given an opportunity to make a statement regarding financial
and accounting matters of the Company if they so desire, and will be available
to respond to appropriate questions from the Company's shareholders.
OTHER BUSINESS
Management knows of no other matters to be presented at the 2000 Annual
Meeting. If any other matter properly comes before the 2000 Annual Meeting, the
appointees named in the proxies will vote the proxies in accordance with their
best judgment.
<PAGE>
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 2001 Annual Meeting must be received by the
Company by December 11, 2000 to be included in the Company's proxy statement and
related proxy for the 2001 Annual Meeting. Shareholder proposals intended to be
presented at the next Annual Meeting but not included in the proxy materials
will be considered timely if received by the Company on or before February 24,
2001.
ANNUAL REPORT
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 1999, including financial statements, accompanies this
Notice of Annual Meeting and Proxy Statement. No portion of the Annual Report is
incorporated herein or is to be considered proxy soliciting material.
FORM 10-KSB
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS
BEING SOLICITED, UPON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31,
1999, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE
FINANCIAL STATEMENTS AND A LIST OF EXHIBITS TO SUCH FORM 10-KSB. THE COMPANY
WILL FURNISH TO ANY SUCH PERSON ANY EXHIBIT DESCRIBED IN THE LIST ACCOMPANYING
THE FORM 10-KSB UPON THE ADVANCE PAYMENT OF REASONABLE FEES. REQUESTS FOR A COPY
OF THE FORM 10-KSB AND/OR ANY EXHIBIT(S) SHOULD BE DIRECTED TO THE PRESIDENT OF
WINLAND ELECTRONICS, INC., 1950 EXCEL DRIVE, MANKATO, MINNESOTA 56001. YOUR
REQUEST MUST CONTAIN A REPRESENTATION THAT, AS OF MARCH 24, 2000, YOU WERE A
BENEFICIAL OWNER OF SHARES ENTITLED TO VOTE AT THE 2000 ANNUAL MEETING OF
SHAREHOLDERS.
BY ORDER OF THE BOARD OF DIRECTORS
W. Kirk Hankins
Dated: April 10, 2000 Chairman and Chief Executive Officer
<PAGE>
WINLAND ELECTRONICS, INC.
------------------
PROXY
for Annual Meeting to be held May 17, 2000
------------------
The undersigned hereby appoints W. KIRK HANKINS and LORIN E. KRUEGER, and each
of them, with full power of substitution, his or her Proxies to represent and
vote, as designated below, all shares of the Common Stock of Winland
Electronics, Inc. registered in the name of the undersigned at the 2000 Annual
Meeting of Shareholders of the Company to be held at the Company's corporate
offices located at 1950 Excel Drive, Mankato, Minnesota at 7:00 p.m., on
Wednesday, May 17, 2000, and at any adjournment thereof. The undersigned hereby
revokes all proxies previously granted with respect to such Annual Meeting.
The Board of Directors recommends that you vote "FOR" each proposal.
1. Set the number of directors at seven (7).
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Elect Directors. Nominees: W. Kirk Hankins Kirk P. Hankins
Lorin E. Krueger Thomas J. de Petra
S. Robert Dessalet David L. Ewert
James P. Legus
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY to
(except those whose names have vote for all nominees
been written on the line below) listed above.
________________________________________________
3. Approve an increase of shares under 1997 Stock Option Plan from 300,000
to 600,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Other Matters. In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the Annual
Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL SPECIFICALLY IDENTIFIED ABOVE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Date:______________________________, 2000
___________________________________________
___________________________________________
PLEASE DATE AND SIGN ABOVE exactly as name
appears at the left, indicating, where
proper, official position or representative
capacity. For stock held in joint tenancy,
each joint owner should sign.
<PAGE>
WINLAND ELECTRONICS, INC.
1997 STOCK OPTION PLAN
(AS AMENDED FEBRUARY 17, 2000)
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Committee" shall mean a Committee of two or more directors who
shall be appointed by and serve at the pleasure of the Board. As long
as the Company's securities are registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, then, to the extent
necessary for compliance with Rule 16b-3, or any successor provision,
each of the members of the Committee shall be a "Non-Employee
Director." For purposes of this Section 1(a) "Non-Employee Director"
shall have the same meaning as set forth in Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(b) The "Company" shall mean Winland Electronics, Inc., a Minnesota
corporation.
(c) "Fair Market Value" of stock as of any date shall have the
following meanings: (i) if such stock is reported by the Nasdaq
National Market or Nasdaq SmallCap Market or is listed upon an
established stock exchange or exchanges, the reported closing price of
such stock by the Nasdaq National Market, Nasdaq SmallCap Market or on
such stock exchange or exchanges on such date or, if no sale of such
stock shall have occurred on that date, on the next preceding day on
which there was a sale of stock; (ii) if such stock is not reported by
the Nasdaq National Market, Nasdaq SmallCap Market or listed upon an
established stock exchange, the average of the closing "bid" and
"asked" prices quoted by the National Quotation Bureau, Inc. (or any
comparable reporting service) on such date, or if there are no quoted
"bid" and "asked" prices on such date, on the next preceding date for
which there are such quotes; or (iii) if such stock is not publicly
traded as of such date, the per share value as determined by the Board,
or the Committee, in its sole discretion by applying principles of
valuation with respect to all such options.
(d) The "Internal Revenue Code" is the Internal Revenue Code of 1986,
as amended from time to time.
(e) "Non-Employee Director" shall mean members of the Board who are not
employees of the Company or any subsidiary.
(f) "Option Stock" shall mean Common Stock of the Company (subject to
adjustment as described in Section 13) reserved for options pursuant to
this Plan.
(g) The "Optionee" means an employee of the Company or any Subsidiary
to whom an incentive stock option has been granted pursuant to Section
9; a consultant or advisor to or director (including a Non-Employee
<PAGE>
Director), employee or officer of the Company or any Subsidiary to whom
a nonqualified stock option has been granted pursuant to Section 10; or
a Non-Employee Director to whom a nonqualified stock option has been
granted pursuant to Section 11.
(h) "Parent" shall mean any corporation which owns, directly or
indirectly in an unbroken chain, fifty percent (50%) or more of the
total voting power of the Company's outstanding stock.
(i) The "Plan" means the Winland Electronics, Inc. 1997 Stock Option
Plan, as amended hereafter from time to time, including the form of
Option Agreements as they may be modified by the Board from time to
time.
(j) A "Subsidiary" shall mean any corporation of which fifty percent
(50%) or more of the total voting power of outstanding stock is owned,
directly or indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and
its Subsidiaries by facilitating the retention of competent personnel and by
furnishing incentive to officers, directors, employees, consultants, and
advisors upon whose efforts the success of the Company and its Subsidiaries will
depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Section 422 of the Internal Revenue Code, or any successor
provision, pursuant to Section 9 of this Plan, and through the granting of
"nonqualified stock options" pursuant to Sections 10 and 11 of this Plan.
Adoption of this Plan shall be and is expressly subject to the condition of
approval by the shareholders of the Company within twelve (12) months before or
after the adoption of the Plan by the Board of Directors. Any incentive stock
options granted after adoption of the Plan by the Board of Directors shall be
treated as nonqualified stock options if shareholder approval is not obtained
within such twelve-month period.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date of adoption by the Board of
Directors, subject to approval by the shareholders of the Company as required in
Section 2.
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(hereinafter referred to as the "Board") or by a Committee which may be
appointed by the Board from time to time (collectively referred to as the
<PAGE>
"Administrator"). The Administrator shall have all of the powers vested in it
under the provisions of the Plan, including but not limited to exclusive
authority (where applicable and within the limitations described herein) to
determine, in its sole discretion, whether an incentive stock option or
nonqualified stock option shall be granted, the individuals to whom, and the
time or times at which, options shall be granted, the number of shares subject
to each option and the option price and terms and conditions of each option. The
Administrator shall have full power and authority to administer and interpret
the Plan, to make and amend rules, regulations and guidelines for administering
the Plan, to prescribe the form and conditions of the respective stock option
agreements (which may vary from Optionee to Optionee) evidencing each option and
to make all other determinations necessary or advisable for the administration
of the Plan. The Administrator's interpretation of the Plan, and all actions
taken and determinations made by the Administrator pursuant to the power vested
in it hereunder, shall be conclusive and binding on all parties concerned.
No member of the Board or the Committee shall be liable for any action
taken or determination made in good faith in connection with the administration
of the Plan. In the event the Board appoints a Committee as provided hereunder,
any action of the Committee with respect to the administration of the Plan shall
be taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Administrator shall from time to time, at its discretion and
without approval of the shareholders, designate those employees, officers,
directors (including Non-Employee Directors), consultants, and advisors of the
Company or of any Subsidiary to whom nonqualified stock options shall be granted
pursuant to Section 10 of the Plan; provided, however, that consultants or
advisors shall not be eligible to receive stock options hereunder unless such
consultant or advisor renders bona fide services to the Company or Subsidiary
and such services are not in connection with the offer or sale of securities in
a capital raising transaction; and, provided further, that Non-Employee
Directors will be granted nonqualified stock options pursuant to Section 11 of
the Plan without any further action by the Administrator. The Administrator
shall, from time to time, at its discretion and without approval of the
shareholders, designate those employees of the Company or any Subsidiary to whom
incentive stock options shall be granted pursuant to Section 9 of the Plan. The
Administrator may grant additional incentive stock options or nonqualified stock
options under this Plan to some or all participants then holding options or may
grant options solely or partially to new participants. In designating
participants, the Administrator shall also determine the number of shares to be
optioned to each such participant. The Board may from time to time designate
individuals as being ineligible to participate in the Plan.
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized
but unissued shares of Option Stock. Six Hundred Thousand (600,000) shares of
Option Stock shall be reserved and available for options under the Plan;
provided, however, that the total number of shares of Option Stock reserved for
<PAGE>
options under this Plan shall be subject to adjustment as provided in Section 13
of the Plan. In the event that any outstanding option under the Plan for any
reason expires or is terminated prior to the exercise thereof, the shares of
Option Stock allocable to the unexercised portion of such option shall continue
to be reserved for options under the Plan and may be optioned hereunder.
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan from time
to time during a period of ten (10) years from the effective date as defined in
Section 3. Nonqualified stock options may be granted pursuant to the Plan from
time to time after the effective date of the Plan and until the Plan is
discontinued or terminated by the Board. Any incentive stock option granted
during such ten-year period and any nonqualified stock option granted prior to
the termination of the Plan by the Board shall remain in full force and effect
until the expiration of the option as specified in the written stock option
agreement and shall remain subject to the terms and conditions of this Plan.
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant
to this Plan with cash, personal check, certified check or, if approved by the
Administrator in its sole discretion, Common Stock of the Company valued at such
stock's then Fair Market Value, or such other form of payment as may be
authorized by the Administrator. The Administrator may, in its sole discretion,
limit the forms of payment available to the Optionee and may exercise such
discretion any time prior to the termination of the option granted to the
Optionee or upon any exercise of the option by the Optionee.
With respect to payment in the form of Common Stock of the Company, the
Administrator may require advance approval or adopt such rules as it deems
necessary to assure compliance with Rule 16b-3, or any successor provision, as
then in effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to this Section 9 shall be
evidenced by a written stock option agreement (the "Option Agreement"). The
Option Agreement shall be in such form as may be approved from time to time by
the Administrator and may vary from Optionee to Optionee; provided, however,
that each Optionee and each Option Agreement shall comply with and be subject to
the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement shall state
the total number of shares covered by the incentive stock option. To
the extent required to qualify the Option as an incentive stock option
under Section 422 of the Internal Revenue Code, or any successor
<PAGE>
provision, the option price per share shall not be less than one
hundred percent (100%) of the Fair Market Value of the Common Stock per
share on the date the Administrator grants the option; provided,
however, that if an Optionee owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company or of its parent or any Subsidiary, the option
price per share of an incentive stock option granted to such Optionee
shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the Common Stock per share on the date of the grant of
the option. The Administrator shall have full authority and discretion
in establishing the option price and shall be fully protected in so
doing.
(b) Term and Exercisability of Incentive Stock Option. The term during
which any incentive stock option granted under the Plan may be
exercised shall be established in each case by the Administrator. To
the extent required to qualify the Option as an incentive stock option
under Section 422 of the Internal Revenue Code, or any successor
provision, in no event shall any incentive stock option be exercisable
during a term of more than ten (10) years after the date on which it is
granted; provided, however, that if an Optionee owns stock possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of its parent or any Subsidiary, the
incentive stock option granted to such Optionee shall be exercisable
during a term of not more than five (5) years after the date on which
it is granted.
The Option Agreement shall state when the incentive stock option
becomes exercisable and shall also state the maximum term during which
the option may be exercised. In the event an incentive stock option is
exercisable immediately, the manner of exercise of the option in the
event it is not exercised in full immediately shall be specified in the
Option Agreement. The Administrator may accelerate the exercisability
of any incentive stock option granted hereunder which is not
immediately exercisable as of the date of grant.
(c) Other Provisions. The Option Agreement authorized under this
Section 9 shall contain such other provisions as the Administrator
shall deem advisable. Any such Option Agreement shall contain such
limitations and restrictions upon the exercise of the option as shall
be necessary to ensure that such option will be considered an
"incentive stock option" as defined in Section 422 of the Internal
Revenue Code or to conform to any change therein.
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to this Section 10
shall be evidenced by a written Option Agreement. The Option Agreement shall be
in such form as may be approved from time to time by the Administrator and may
vary from Optionee to Optionee; provided, however, that each Optionee and each
Option Agreement shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares and Option Price. The Option Agreement shall state
the total number of shares covered by the nonqualified stock option.
Unless otherwise determined by the Administrator, the option price per
share shall be one hundred percent (100%) of the Fair Market Value of
the Common Stock per share on the date the Administrator grants the
option; provided, however, that the option price may not be less than
eighty-five percent (85%) of the Fair Market Value of the Common Stock
per share on the date of grant.
<PAGE>
(b) Term and Exercisability of Nonqualified Stock Option. The term
during which any nonqualified stock option granted under the Plan may
be exercised shall be established in each case by the Administrator.
The Option Agreement shall state when the nonqualified stock option
becomes exercisable and shall also state the maximum term during which
the option may be exercised. In the event a nonqualified stock option
is exercisable immediately, the manner of exercise of the option in the
event it is not exercised in full immediately shall be specified in the
stock option agreement. The Administrator may accelerate the
exercisability of any nonqualified stock option granted hereunder which
is not immediately exercisable as of the date of grant.
(c) Withholding. The Company or its Subsidiary shall be entitled to
withhold and deduct from future wages of the Optionee all legally
required amounts necessary to satisfy any and all withholding and
employment-related taxes attributable to the Optionee's exercise of a
nonqualified stock option. In the event the Optionee is required under
the Option Agreement to pay the Company, or make arrangements
satisfactory to the Company respecting payment of, such withholding and
employment-related taxes, the Administrator may, in its discretion and
pursuant to such rules as it may adopt, permit the Optionee to satisfy
such obligation, in whole or in part, by electing to have the Company
withhold shares of Common Stock otherwise issuable to the Optionee as a
result of the option's exercise equal to the amount required to be
withheld for tax purposes. Any stock elected to be withheld shall be
valued at its Fair Market Value, as of the date the amount of tax to be
withheld is determined under applicable tax law. The Optionee's
election to have shares withheld for this purpose shall be made on or
before the date the option is exercised or, if later, the date that the
amount of tax to be withheld is determined under applicable tax law.
Such election shall be approved by the Administrator and otherwise
comply with such rules as the Administrator may adopt to assure
compliance with Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.
(d) Other Provisions. The Option Agreement authorized under this
Section 10 shall contain such other provisions as the Administrator
shall deem advisable.
SECTION 11.
GRANTING OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Upon Joining Board. Each Non-Employee Director of the Company whose
initial election or appointment to the Board of Directors occurs on or
after the date this Plan is approved by the Company's shareholders
shall, as of the date of such election, automatically be granted an
option to purchase 3,000 shares of Common Stock at an option price per
share equal to 100% of the Fair Market Value of the Common Stock on
such date. Options granted pursuant to this subsection (a) shall be
immediately exercisable upon grant.
(b) Upon Re-election to Board. Each Non-Employee Director who, on and
after the date this Plan is approved by the Company's shareholders, is
re-elected as a director of the Company or whose term of office
continues after a meeting of shareholders at which directors are
elected shall, as of the date of such re-election or shareholder
meeting, automatically be granted an option to purchase 3,000 shares of
the Common Stock at an option price per share equal to 100% of the Fair
<PAGE>
Market Value of the Common Stock on the date of such re-election or
shareholder meeting. Options granted pursuant to this subsection (b)
shall be immediately exercisable in full.
(c) General. No director shall receive more than one option to purchase
3,000 shares pursuant to this Section 11 in any one fiscal year. All
options granted pursuant to this Section 11 shall be designated as
nonqualified options and shall be subject to the same terms and
provisions as are then in effect with respect to granting of
nonqualified options to officers and employees of the Company, except
that the option shall expire on the earlier of (i) three months after
the Optionee ceases to be a director for any reason other than death
and (ii) five (5) years after the date of grant. In the event of the
death of the Non-Employee Director, the option shall expire on the
earlier of (A) six months after the death of the Non-Employee Director
and (B) five (5) years after the date of grant. Nothwithstanding the
foregoing, if the Optionee ceases to be a director because of a "change
of control transaction" which is treated as a "pooling of interests"
under generally accepted accounting principles under applicable legal
and accounting principles, the option shall completely terminate on the
later of (1) the close of business on the three-month anniversary date
of the termination of such directorship and (2) the close of business
on the date that is 60 days after the date on which affiliates are no
longer restricted from selling, transferring or otherwise disposing of
the shares of stock received in the change of control transaction.
SECTION 12.
TRANSFER OF OPTION
No incentive stock option shall be transferable, in whole or in part,
by the Optionee other than by will or by the laws of descent and distribution
and, during the Optionee's lifetime, the option may be exercised only by the
Optionee. If the Optionee shall attempt any transfer of any incentive stock
option granted under the Plan during the Optionee's lifetime, such transfer
shall be void and the incentive stock option, to the extent not fully exercised,
shall terminate.
The Administrator may, in its sole discretion, permit the Optionee to
transfer any or all nonqualified stock options to any member of the Optionee's
"immediate family" as such term is defined in Rule 16a-1(e) promulgated under
the Securities Exchange Act of 1934, or any successor provision, or to one or
more trusts whose beneficiaries are members of such Optionee's "immediate
family" or partnerships in which such family members are the only partners;
provided, however, that the Optionee receives no consideration for the transfer
and such transferred nonqualified stock option shall continue to be subject to
the same terms and conditions as were applicable to such nonqualified stock
option immediately prior to its transfer.
SECTION 13.
RECAPITALIZATION, SALE, MERGER, EXCHANGE
OR LIQUIDATION
In the event of an increase or decrease in the number of shares of
Common Stock resulting from a subdivision or consolidation of shares or the
payment of a stock dividend or any other increase or decrease in the number of
shares of Common Stock effected without receipt of consideration by the Company,
the number of shares of Option Stock reserved under Section 6 hereof and the
number of shares of Option Stock covered by each outstanding option and the
<PAGE>
price per share thereof shall be adjusted by the Board to reflect such change.
Additional shares which may be credited pursuant to such adjustment shall be
subject to the same restrictions as are applicable to the shares with respect to
which the adjustment relates.
Unless otherwise provided in the stock option agreement, in the event
of an acquisition of the Company through the sale of substantially all of the
Company's assets and the consequent discontinuance of its business or through a
merger, consolidation, exchange, reorganization, reclassification, extraordinary
dividend, divestiture or liquidation of the Company (collectively referred to as
a "transaction"), all outstanding options shall become immediately exercisable,
whether or not such options had become exercisable prior to the transaction;
provided, however, that if the acquiring party seeks to have the transaction
accounted for on a "pooling of interests" basis and, in the opinion of the
Company's independent certified public accountants, accelerating the
exercisability of such options would preclude a pooling of interests under
generally accepted accounting principles, the exercisability of such options
shall not accelerate. In addition to the foregoing, in the event of such a
transaction, the Board may provide for one or more of the following:
(a) the complete termination of this Plan and cancellation of
outstanding options not exercised prior to a date specified by the
Board (which date shall give Optionees a reasonable period of time in
which to exercise the options prior to the effectiveness of such
transaction);
(b) that Optionees holding outstanding incentive or nonqualified
options shall receive, with respect to each share of Option Stock
subject to such options, as of the effective date of any such
transaction, cash in an amount equal to the excess of the Fair Market
Value of such Option Stock on the date immediately preceding the
effective date of such transaction over the option price per share of
such options; provided that the Board may, in lieu of such cash
payment, distribute to such Optionees shares of stock of the Company or
shares of stock of any corporation succeeding the Company by reason of
such transaction, such shares having a value equal to the cash payment
herein; or
(c) the continuance of the Plan with respect to the exercise of options
which were outstanding as of the date of adoption by the Board of such
plan for such transaction and provide to Optionees holding such options
the right to exercise their respective options as to an equivalent
number of shares of stock of the corporation succeeding the Company by
reason of such transaction.
The Board may restrict the rights of or the applicability of this Section 13 to
the extent necessary to comply with Section 16(b) of the Securities Exchange Act
of 1934, the Internal Revenue Code or any other applicable law or regulation.
The grant of an option pursuant to the Plan shall not limit in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge, exchange or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
<PAGE>
SECTION 14.
SECURITIES LAW COMPLIANCE
No shares of Common Stock shall be issued pursuant to the Plan unless
and until there has been compliance, in the opinion of Company's counsel, with
all applicable legal requirements, including without limitation, those relating
to securities laws and stock exchange listing requirements. As a condition to
the issuance of Option Stock to Optionee, the Administrator may require Optionee
to (a) represent that the shares of Option Stock are being acquired for
investment and not resale and to make such other representations as the
Administrator shall deem necessary or appropriate to qualify the issuance of the
shares as exempt from the Securities Act of 1933 and any other applicable
securities laws, and (b) represent that Optionee shall not dispose of the shares
of Option Stock in violation of the Securities Act of 1933 or any other
applicable securities laws.
As a further condition to the grant of any incentive or nonqualified
stock option or the issuance of Option Stock to Optionee, Optionee agrees to the
following:
(a) In the event the Company advises Optionee that it plans an
underwritten public offering of its Common Stock in compliance with the
Securities Act of 1933, as amended, and the underwriter(s) seek to
impose restrictions under which certain shareholders may not sell or
contract to sell or grant any option to buy or otherwise dispose of
part or all of their stock purchase rights of the underlying Common
Stock, Optionee will not, for a period not to exceed 180 days from the
prospectus, sell or contract to sell or grant an option to buy or
otherwise dispose of any incentive or nonqualified stock option granted
to Optionee pursuant to the Plan or any of the underlying shares of
Common Stock without the prior written consent of the underwriter(s) or
its representative(s).
(b) In the event the Company makes any public offering of its
securities and determines in its sole discretion that it is necessary
to reduce the number of issued but unexercised stock purchase rights so
as to comply with any states securities or Blue Sky law limitations
with respect thereto, the Board of Directors of the Company shall have
the right (i) to accelerate the exercisability of any incentive or
nonqualified stock option and the date on which such option must be
exercised, provided that the Company gives Optionee prior written
notice of such acceleration, and (ii) to cancel any options or portions
thereof which Optionee does not exercise prior to or contemporaneously
with such public offering.
(c) In the event of a transaction (as defined in Section 13 of the
Plan) which is treated as a "pooling of interests" under generally
accepted accounting principles, Optionee will comply with Rule 145 of
the Securities Act of 1933 and any other restrictions imposed under
other applicable legal or accounting principles if Optionee is an
"affiliate" (as defined in such applicable legal and accounting
principles) at the time of the transaction, and Optionee will execute
any documents necessary to ensure compliance with such rules.
The Company reserves the right to place a legend on any stock certificate issued
upon exercise of an option granted pursuant to the Plan to assure compliance
with this Section 14.
<PAGE>
SECTION 15.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an option until
the date of the issuance of a stock certificate evidencing such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 13 of the Plan).
SECTION 16.
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend
or discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment, except as is authorized in Section 13, shall
impair the terms and conditions of any option which is outstanding on the date
of such revision or amendment to the material detriment of the Optionee without
the consent of the Optionee. Notwithstanding the foregoing, no such revision or
amendment shall (i) materially increase the number of shares subject to the Plan
except as provided in Section 13 hereof, (ii) change the designation of the
class of employees eligible to receive options, (iii) decrease the price at
which options may be granted, or (iv) materially increase the benefits accruing
to Optionees under the Plan without the approval of the shareholders of the
Company if such approval is required for compliance with the requirements of any
applicable law or regulation. Furthermore, the Plan may not, without the
approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal
Revenue Code.
SECTION 17.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee
to exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the Optionee
in its employ for any period.
