UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM
10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1995. Commission file number 0-1388:
WATERS INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter.)
Minnesota 41-0832194
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification
No.)
2411 Seventh Street NW
Rochester, Minnesota 55901
(Address of principal executive offices)
(507) 288-7777
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1)
has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90
days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practical date:
Common Stock, $.10 Par Value - 1,462,271 shares
outstanding as of November 13, 1995.
Transitional Small Business Disclosure Format (check
one) : Yes [ ] No [ X ]
<PAGE>
<TABLE>
PART I FINANCIAL
INFORMATION WATERS INSTRUMENTS,
INC. Statement of Operations
(Thousands, except per share
data)
<CAPTION>
For the Three Months
Ended September 30,
1995 1994
(Unaudited)
(Unaudited)
<S> <C> <C>
NET SALES $ 3,476
$3,353
COST OF GOODS SOLD 2,470
2,407
GROSS PROFIT 1,006 946
OPERATING EXPENSES
Administrative 351 352
Selling 407 399
Research and Development 89 77
Total Operating Expenses 847 828
OPERATING INCOME 159 118
OTHER INCOME (EXPENSE)
Net Interest Income (Expense) 11
4 Net Other Income (Expense) -3
-1
INCOME BEFORE INCOME TAX 167
121
INCOME TAX PROVISION 63 45
NET INCOME 104 76
EARNINGS PER
COMMON SHARE $ 0.07
$0.05
Weighted Average Number of 1,462,271
1,462,271
Shares Outstanding
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
WATERS INSTRUMENTS, INC.
Balance Sheet
(Thousands)
<CAPTION>
September 30,
June30, 1995
1995
(Unaudited)
(Unaudited)
<S>
<C> <C>
Current Assets
Cash & Cash Equivalents$ 1,037 $
1,241
Net Trade Receivables 1,627 2,150
Inventories 2,179 1,741
Prepaid Exp. & Deferred Items 327 317
Total Current Assets 5,170 5,449
Fixed Assets
Property, Plant & Equipment 4,176 4,065
Less Accumulated Depreciation -2,676 -
2,605
Net Fixed Assets 1,500 1,460
Other Assets 3 4
Goodwill 111 115
TOTAL ASSETS $ 6,784 $ 7,028
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
<S> <C>
<C>
Current Liabilities
Current Maturities of Long-term Debt $ 81 $ 101
Accounts Payable 760 1,166
Accrued Salaries, Wages
and Other Compensation 552 464
Product Warranties 305 305
Accrued Other Expenses 272 279
Total Current Liabilities 1,970
2,315
Long-term Debt, Less Current Maturities 14
17
Deferred Income Taxes 30
30
TOTAL LIABILITIES 2,014
2,362
Stockholders' Equity
Common Stock 146
146
Additional Paid-in Capital 1,246
1,246
Retained Earnings 3,378
3,274
TOTAL STOCKHOLDERS' EQUITY 4,770
4,666
TOTAL LIABILITIES & EQUITY $ 6,784 $
7,028
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
WATERS INSTRUMENTS, INC.
Statement of Cash Flows
(Thousands) FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1995 AND 1994 <CAPTION>
1995
1994
(Unaudited)
(Unaudited)
<S> <C>
<C>
CASH FLOWS FROM OPERATIONS
Cash received from customers $ 3,996 $
3,510
Interest received 14 9
Cash provided from operations 4,010
3,519
Cash paid to suppliers and employees 4,009
3,198
Taxes paid 69 117
Interest paid 3
5
Cash disbursed from operations 4,081
3,320
Net cash provided (used) for operations -71 199
CASH FLOWS FROM INVESTING
Net aquisition of fixed assets -111 -34
Net cash used for investing -111 -34
CASH FLOWS FROM FINANCING
Reduction of Long-Term Debt -22 -
22
Net cash used for financing -22 -
22
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS -204
143 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
1,241 965 CASH AND CASH EQUIVALENTS - END OF PERIOD $
1,037 $1,108 RECONCILIATION OF NET INCOME TO
NET CASH FROM (USED FOR) OPERATIONS:
Net Income $ 104
$76
Depreciation and Amortization 75
73
Provisions For Losses On Accounts Receivable 3 3
CHANGES IN ASSETS AND LIABILITIES:
Accounts Receivable 520 154
Inventories -438 135
Prepaid Expenses -10 -23
Accounts Payable and Accrued Expenses -325 -
219
NET CASH FROM (USED FOR) OPERATIONS $-71
199
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (continued) WATERS
INSTRUMENTS, INC.
Note to Financial Statements
September 30, 1995
The financial statements have been prepared by Waters
Instruments, Inc., without audit, pursuant to the rules
and regulations of the Securities and Exchange
Commission. The information furnished in the financial
statements includes normal recurring adjustments and
reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of such
financial statements.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and
regulations, although the Company believes that the
disclosures are adequate to make the information
presented not misleading. It is suggested that these
condensed financial statements be read in conjunction
with the financial statements and the accompanying notes
included in the Company's latest Annual Report.
The marketable securities included as cash equivalents
on the balance sheet and cash flow statements meet the
definition of cash equivalents set forth in paragraph 8
and 9 of SFAS95. Inventories consisted of the following:
September 30, 1995 June 30,
1995 Raw Material $1,562,000 $1,261,000
Work-In-Process 354,000 267,000
Finished Goods 263,000 213,000
Total Inventories $2,179,000 $1,741,000
Item 2. Management's Discussion and Analysis or Plan of
Operation
Liquidity and Capital Requirements
The Company's working capital position at September 30,
1995 was $3,200,000, a 2% increase from the $3,134,000
amount at June 30, 1995. The cash balance for the
Company was $1,037,000 at September 30, 1995 compared to
the cash balance of $1,241,000 at June 30, 1995.
In February 1995, the Company renewed a $750,000 line of
credit with its bank. The line of credit carries an
interest rate of 0.75% over the bank's base (prime)
rate.
In September 1995, the Company's bank offered to
increase the line of credit from $750,000 to $1,000,000.
The bank's offered line of credit charges interest at
the bank's base (prime) rate. Management intends to
accept the bank's loan commitment and extend it to
November 30, 1996. To date, there has been no borrowing
against the line of credit. The prime rate was 8.75% at
September 30, 1995.
The Company believes that its existing funds, cash
generated from operations and ability to borrow on a
shortterm basis under the Company's line of credit will
be adequate to meet Fiscal Year 1996 operating
activities and outlays for
capital expenditures.
Capital expenditures were $111,000 for the quarter ended
September 30, 1995. The Company estimates that capital
expenditures for the remaining three quarters of the
current Fiscal Year will approach $275,000 in total.
The Company anticipates continued improvements in its
manufacturing processes, lower unit costs, and improved
gross margins as a result of these capital expenditures.
On October 19, 1995, at a regularly scheduled meeting of
the Company's Board of Directors, the Board voted to
make a cash dividend payment. A dividend of $.04 per
share of the Company's common stock will be paid on or
about December 15, 1995 to shareholders of record on
November 15, 1995, which will result in an aggregate
cash payment of approximately $58,490.84.
Results of Operations
Net sales for the quarter ended September 30, 1995 were
$3,476,000. This represents an increase of 4% when
comparing to the comparable quarter of the prior year.
Waters Medical Systems had net sales of $574,000 for the
quarter ended September 30, 1995, a decrease of 17%
when comparing to the comparable quarter of the prior
year. The decrease in net sales is primarily due to the
ending of Thermal Dilution Cardiac Output Computer sales
to Argon Medical, which occurred in the quarter ended
March 31, 1995.
Net sales for American FarmWorks for the quarter ended
September 30, 1995 were $2,442,000. This represents a
4% increase when comparing to the comparable quarter of
the
prior year.
Waters Technical Systems had net sales of $418,000 for
the quarter ended September 30, 1995, an increase of
37% when comparing to the comparable quarter of the
prior year. This is a result of the Company continuing
to invest in sales and marketing to provide longterm
sales growth in this business unit.
During Fiscal Year 1995, Waters Network Systems began
manufacturing and marketing a wide range of connectivity
products for Token-Ring and Ethernet LANs, designed
specifically for school systems. The products offer the
ability to network computers throughout school systems.
Waters Network Systems' sales for first quarter of
Fiscal Year 1996 were $42,000.
Net income for the quarter ended September 30, 1995 was
a profit of $104,000. This represents an increase of
37% for the quarter ended September 30, 1995 when
comparing to the comparable period of the prior year.
<PAGE>
PART-II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10.7 Employment agreement dated July 1, 1995
between the Company and Gerald W. Grabowski
included in this Form 10-QSB.
27 Financial Data Schedule (submitted only in
electronic format).
(B) No report on Form 8-K has been filed
during the period covered by this report.
<PAGE>
WATERS INSTRUMENTS, INC.
SINGATURES
Pursuant to the requirement of the Securities Exchange
Act of 1934, the Comany has duly caused this report to
be signed on its behalf by the undersigned thereunto
duly authroized.
WATERS INSTRUMENTS,
INC. Company
November 13, 1995 Jerry W. Grabowski
Date Jerry W. Grabowski
President
Chief Executive
Officer Chief
Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1995
<CASH> 1,037
<SECURITIES> 0
<RECEIVABLES> 1,660
<ALLOWANCES> 33
<INVENTORY> 2,179
<CURRENT-ASSETS> 5,170
<PP&E> 4,176
<DEPRECIATION> 2,676
<TOTAL-ASSETS> 6,784
<CURRENT-LIABILITIES> 1,970
<BONDS> 14
<COMMON> 146
0
0
<OTHER-SE>4,624
<TOTAL-LIABILITY-AND-EQUITY> 6,784
<SALES> 3,476
<TOTAL-REVENUES> 3,476
<CGS> 2,470
<TOTAL-COSTS> 2,470
<OTHER-EXPENSES>0
<LOSS-PROVISION>3
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 167
<INCOME-TAX> 63
<INCOME-CONTINUING> 104
<DISCONTINUED>0
<EXTRAORDINARY>0
<CHANGES>0
<NET-INCOME> 104
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
WATERS INSTRUMENTS, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective July 1,
1995, by and between WATERS
INSTRUMENTS, INC. (the "Company"), a Minnesota
corporation, and GERALD W.
GRABOWSKI (the "Executive"), an individual;
WITNESSETH:
WHEREAS, the Company believes that Executive
is valuable to the future
growth of the Company and its business and,
accordingly, the Company and
Executive mutually wish the Company to employ
Executive upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, the Company and Executive agree
as follows:
1. Employment. The Company employs
Executive and Executive accepts
employment as the President and chief executive
officer of the Company (the
"Position") upon the terms and conditions set out in
this Agreement. Executive
will perform service in the Position with all of the
rights, duties, powers and
fiduciary obligations implied by the titles
associated with the Position.
Executive will also have and perform such other
powers, responsibilities and
duties as are commensurate with the Position and as may
be assigned to Executive
by the Board of Directors of the Company (the
"Board") from time to time.
Executive will diligently and conscientiously devote
Executive's substantially
full time to the performance of Executive's services in
the Position.
The Company will include Executive on the
slate of directors that will
be submitted by the Company to the shareholders at
each annual meeting of the
shareholders during the Term (defined below). If
elected as a member of the
Company's Board, Executive agrees to serve as a
director without additional
compensation.
2. Annual Compensation. For Executive's
services in the Position,
Executive will receive an annual base salary (the "Base
Salary") at the rate of
One Hundred Forty Thousand Dollars ($140,000) per
year during the period
commencing on July 1, 1995, and ending upon the
termination
of the Term. On each
July 1 after June 30, 1996, during the Term,
Executive's Base Salary for the
succeeding twelve (12) month period will be increased by
the average percentage
change in the Consumer Price Index-Seasonally Adjusted
U.S. City Average For All
Items For All Urban Consumers published monthly in the
"Monthly Labor Review" of
the Bureau of Labor Statistics of the United
States Department of Labor
("CPI-U"), or similar report, for the twelve (12)
month period ending in the
month of May most recently ended, but in no event will
the Base Salary be less
than the Base Salary payable during the preceding twelve
(12) month period. The
Base Salary will be payable in bi-weekly or more
frequent installments.
<PAGE>
3. Incentive Compensation. Executive will
accrue incentive compensation
("Incentive Compensation") in amounts as determined
in accordance with this
Section. For each fiscal year of the Company during
the Term, Executive will
prepare and submit to the Board, in good faith
consultation with the Board, a
proposed operating plan or budget which will include
a projected amount of
income before income taxes and extraordinary item(s)
that Executive anticipates
the Company will generate during such fiscal year (the
"Performance Period").
In good faith consultation with Executive,
the Board will approve an
operating plan or budget (the "Approved Budget") which
will include a projected
amount of income before income taxes and extraordinary
item(s) that the Board
anticipates the Company will generate during such
Performance Period (the
"Planned Operating Income"). In the absence of an
express determination
referring to this Section of this Agreement, the
Planned Operating income will
be the amount of income before income taxes and
extraordinary item(s) set out in
the first budget for a Performance Period that is
approved by the Board.
Contemporaneous with the Board's adoption of
an Approved Budget for a
Performance Period, the Board will in good faith
consultation with Executive
develop and adopt an incentive compensation plan
applicable to such Performance
Period pursuant to which Executive may earn up to
fifty percent (50%) of the
Base Salary then in effect for such Performance
Period. The Company and
Executive anticipate that the incentive compensation
plans are intended to
reward Executive for the Company achieving or exceeding,
to the extent possible,
the Planned Operating Income for the applicable
Performance Period. The
incentive compensation plan for the Company's fiscal
year ending June 30, 1996,
is attached to this Agreement.
Incentive Compensation that accrues, if any,
pursuant to this Section
will be paid, subject to other provisions of this
Agreement, in a lump sum each
August 31 during the Term and the first August 31
following the last Performance
Period if the Term ends. Interest will not accrue on
any accrued but unpaid
Incentive Compensation.
4. Benefits, Incentive Compensation and
Vacation. During the Term,
Executive will be eligible to participate in and to
be covered by, each life
insurance plan, 401(k) plan, disability plan,
health/medical insurance plan,
incentive compensation plan or other plan effective
with respect to executives
and officers of the Company in accordance with then
current policies of the
Company and the terms of any such plan. To the extent
there are any waiting or
qualification periods during which Executive may not
receive benefits under any
disability plan or health/medical insurance plan, the
costs of substantially
equivalent health/medical insurance benefits will be
borne by the Company.
The Company and Executive understand that the
Company will bear all of
the costs of health/medical insurance for Executive
and Executive's immediate
family. An appropriate upward adjustment to
Executive's payroll compensation
will be made if the Company's health/medical plans
require Executive to pay a
portion of the costs of health/medical insurance
benefits.
<PAGE>
Executive will be entitled to such other
benefits and/or perquisites as
the Board may determine from time to time. During the
Term, Executive will be
entitled to such vacations as the Board and Executive
may determine from time to
time. Executive will accrue credited absence hours
("CASH") at the rate of one
hundred ninety-two (192) hours per year,
commencing August 1, 1993 and
thereafter as allowed under the Company's Associate
Absence Policy.
If no part of the incentive stock option
has been exercised, the
Executive and Company may separately agree to cancel
the Incentive Stock Option
Agreement dated August 18, 1993, between Executive
and Company under which
Executive may purchase fifty thousand (50,000)
shares of Common Stock of the
Company. Upon such cancellation, the Company agrees
to grant to Executive an
incentive stock option to purchase fifty thousand
(50,000) shares of Common
Stock of the Company pursuant to the planned Waters
Instruments, Inc. 1995 Stock
Option Plan at an option price to be determined under
the Plan.
5. Business Expenses. During the Term, the
Company will reimburse
Executive for all ordinary and necessary business
expenses incurred by Executive
in connection with the business of the Company,
including business expenses
incurred in connection with Executive's automobile.
Payment or reimbursement to
Executive will be made upon submission by Executive
of vouchers, receipts or
other evidence of such expenses in a form reasonably
satisfactory to the Company
and in compliance with applicable requirements of the
taxing authorities. The
Company and Executive agree Executive's home is
located in metropolitan
Minneapolis and Executive is away from home when he
leaves such metropolitan
area.
6. Term; Termination; Compensation Upon
Termination.
(a) The term (the "Term") of
Executive's employment under this
Agreement will begin on July 1, 1995, and
will continue until the Term
is terminated by the termination of
Executive's employment only as
permitted by this Agreement (the "Termination
Date").
(b) Executive's employment under this
Agreement will terminate:
(1) Upon Executive's death;
(2) Upon Executive's resignation;
or (3) Upon notice by the Company
to
Executive of termination.
<PAGE>
(c) If Executive's employment under
this Agreement terminates
pursuant to Section 6(b)(1) upon Executive's
death, then the Company
will have no further obligation under this
Agreement or under any
applicable incentive compensation plan,
provided, however, that
Executive will be entitled to receive on
August 31, in the year
immediately following the Performance Period
in which Executive's death
occurred, Incentive Compensation under Section
3 determined as follows:
the Incentive Compensation that Executive
would have earned had
Executive's death not occurred will be
determined under Section 3 using
the Company's actual income before income
taxes and extraordinary
item(s) (the "Actual Operating Income") for
the Performance Period in
which such death occurred, the result will be
divided by the number of
months in the Performance Period and then
multiplied by the portion of
the Performance Period, expressed in
months, prior to Executive's
death.
(d) If Executive's employment under
this Agreement terminates
pursuant to Section 6(b)(2) upon
Executive's resignation, then the
Company will have no further obligation
under this Agreement or any
applicable incentive compensation plan,
including no obligation to pay
any accrued but unpaid Incentive
Compensation under Section 3 at any
time.
(e) If Executive's employment under
this Agreement terminates
pursuant to Section 6(b)(3) upon notice by the
Company, the Company's
only obligation under this Agreement and
any applicable incentive
compensation plan will be to pay Executive an
amount equal to the Base
Salary then in effect for one (1) year in
twenty-six (26) equal
bi-weekly installments beginning on the next
day on which the Company
makes its regular payroll payments, and
continue to pay for the twelve
(12) month period during which such
installments are payable, the cost
of all existing health/medical and other
benefit plans enjoyed by
Executive on the effective date of termination
(subject to the terms of
the plans) or provide substantially the same
benefits if the terms of a
plan exclude non-employees. Executive will
also be entitled to receive
on August 31, in the year immediately
following the Performance Period
in which a termination occurred under this
Subsection, Incentive
Compensation under Section 3 determined as
follows: the Incentive
Compensation that Executive would have
earned had Executive's
employment not been terminated under this
Subsection will be determined
under Section 3 using the Actual Operating
Income for the Performance
Period in which such termination occurred,
the result will be divided
by the number of months in the Performance
Period and then multiplied
by the portion of the Performance Period,
expressed in months, that
Executive was employed by the Company prior to
such termination.
If Executive desires to resign his employment,
Executive will give the
Company thirty (30) days prior written notice of the
date
of termination of the
Term.
7. Change in Control. A "Change in Control"
will be deemed to have
occurred when one person or several persons acting in
concert, who on July 1,
1995, did not beneficially own more than five percent
(5%) of the Company's
common stock, become the beneficial owners, directly
or indirectly through
affiliates, of fifty-one percent (51%) or more of the
Company's voting common
stock in a transaction or series of transactions.
<PAGE>
A Change in Control will not include a
reorganization, recapitalization
or similar restructuring of the Company initiated by the
Company and approved by
the Board of Directors of the Company which involves a
change in the Company's
organizational form and not a substantive change in the
ownership of the Company
as it existed prior to such reorganization,
restructuring or recapitalization.
If Executive's employment under this Agreement
terminates pursuant to
Section 6(b)(3), within one (1) year of a Change in
Control, then upon such
termination in addition to the Company's obligation
under Section 6(e), the
Company will pay Executive an additional amount equal to
the Base Salary then in
effect for one (1) year in twenty-six (26) equal
biweekly installments
beginning on the next day on which the Company
makes its regular payroll
payments.
8. Confidentiality. Executive acknowledges that
during the term of this
Agreement, Executive may acquire knowledge of
certain of the Company's
confidential information, including without
limitation, information not
generally or publicly known and proprietary to the
Company about the Company's
operations, processes and products, and other
information from whatever source
that the Company is obligated to retain in confidence
or that is identified by
the Company as "confidential" or "trade secrets"
("Confidential Information").
Executive agrees that the Confidential Information is
of substantial value in
the Company s business and agrees (i) to keep the same
confidential, (ii) to not
disclose the Confidential Information to any person
or entity during or after
the term of this Agreement (iii) to not use any
Confidential Information in any
manner after the end of the Term for whatever reason,
and (iv) to return all
records of the Confidential Information to the Company
upon the end of the Term.
Executive's obligation of non-disclosure pursuant to
this Section does not apply
to information that is in the public domain through no
fault of Executive.
9. Inventions and Copyrightable Works.
Executive
acknowledges that
during the term of this Agreement, Executive may make
discoveries, improvements
or conceive of ideas, whether patentable or not,
relating directly or indirectly
to any of the Company's present or future operations,
processes and products, or
relating to work performed pursuant to Executive's
employment with the Company,
or involving the use of any time, material or
facility of the Company
("Inventions"). Executive further acknowledges that
during the Term, Executive
may create subject matter that is copyrightable
relating to the Company's
business ("Copyrightable Works").
(a) Inventions and Copyrightable Works are
the property of the Company
if made or conceived by Executive either solely or
jointly with others (i)
during the Term whether or not during normal
working hours and whether on
or off the Company s premises; or (ii) within one
year after the end of the
Term if the Inventions or Copyrightable Works
relate to products or
processes worked upon by Executive during the Term.
(b) Executive agrees to and hereby does
assign to the Company all of
Executive's rights to those Inventions and
Copyrightable Works (including
renewal rights to Copyrightable Works) described
in Section 9(a) which the
Company may feel are valuable in its present
or
future operations,
including copyrights (original or renewal) patent
applications and patents
together with all foreign counterparts,
divisions, continuations or
continuations-in-part applications and any
reissues or extensions thereof
(pursuant to any international conventions,
treaties or otherwise).
(c) Executive agrees to promptly and fully
disclose and describe to
the Company those Inventions described in Section
9(a).
(d) Executive agrees to acknowledge and
deliver promptly to the
Company all information and documents that may be
required to obtain and
maintain domestic or foreign Letters Patent and/or
copyrights for those
Inventions and Copyrightable Works described in
Section 9(a).
<PAGE>
(e) Executive agrees not to assert any
rights in Inventions or
Copyrightable Works through claims of having made or
acquired them prior to
the date of this Agreement, if the Company
supported such Inventions or
Copyrightable Works with its funds, either
directly or indirectly.
(f) Executive agrees to return all records
of those Inventions and
Copyrightable Works described in Section 9(a) to
the Company upon the end
of the Term.
10. Agreement Not to Compete.
(a) During the Noncompetition Period
(defined below), unless
the Company waives its rights under this
Section in a writing
authorized by the Board, Executive will not,
directly or indirectly,
either for himself or as an owner, partner,
shareholder, director,
officer, employee, agent or consultant of
another, render services or
advice to any person or entity who is "in
competition with the Company"
anywhere in the United States. During the
Noncompetition Period neither
Executive or any business with whom Executive
may become associated
will recruit or solicit for employment any
person who is an employee of
the Company.
If the Term ends because of
Executive's resignation, then
"Noncompetition Period" will mean the Term
plus a period of twelve
(12) months after the end of the Term. If
the Term ends because of
notice by the Company to Executive
of termination, then
"Noncompetition Period" will mean the Term
plus a period of six (6)
months after the end of the Term.
A person or entity will be "in
competition with the Company"
only if such person or entity sells products
or services that actually
compete with the products or services of the
Company currently being
sold to the Company's then existing customers
at the time the Term ends
or, as to new products or services known of
by Executive during the
Term, will be first offered for sale to
existing or new customers
within six (6) months of the end of the Term.
Notwithstanding the foregoing,
Executive will not be
prohibited from being employed by a person or
entity "in competition
with the Company" if Executive's duties
with such person or entity
during the Noncompetition Period are
restricted so that they do not
involve in any respect products or services
that actually compete with
the products or services of the Company
currently being sold to the
Company's then existing customers at the time
the Term ends or, as to
new products or services known of by Executive
during the Term, will be
first offered for sale to existing or new
customers within six (6)
months of the end of the Term.
A person or entity will not be
"in competition with the
Company" if Executive's only involvement with
such person or entity is
the purchasing, acquiring or holding of not
more than a total of five
percent (5%) of the outstanding securities
of any publicly held
corporation.
(b) The Company will advise
Executive of its decision not to
waive the rights created under Section 10(a)
within ten (10) days after
receipt by the Company of written notice from
Executive of his intent
to voluntarily terminate his employment or at
the time his employment
is terminated by the Company or the Term ends
for any other reason. To
compensate Executive in the event of economic
hardship resulting from
the restriction on competition contained in
Section 10(a) the Company
will, subject to the satisfaction of the
conditions stated below, make
bi-monthly payments to Executive equal to one
twenty-sixth (1/26th) of
Executive's Base Salary, beginning with the
first month following the
end of the Term and continuing until the
end of the Noncompetition
Period or the restriction on competition is
expressly waived in writing
by the Company or one of the conditions
described below is no longer
met. The bi-weekly payments will be reduced by
any bi-weekly amounts of
compensation (exclusive of Incentive
Compensation) paid to Executive as
part of compensation on termination under
Section 6.
If the Company waives the rights
created under Section 10(a)
after written notice from Executive, as
contemplated in the preceding
paragraph, such waiver will not affect the
Company's obligations to pay
Executive compensation on termination under
Section 6.
<PAGE>
(c) The foregoing compensation
obligation of the Company is
expressly conditioned on the occurrence of
each of the following:
(1) Executive must have
offered a position of
employment that
would involve a violation of
the restriction
against competition stated
in the first
sentence of Section 10(a) and
pay more than any
employment available to
him that would not
involve a violation of
such restriction,
and Executive must have
given the Company
written notice and
reasonable evidence
of those facts, and the
Company must have
continued to refuse to
waive the
restriction;
(2) Executive must
have
aggressively sought
employment
consistent with his education,
abilities, and
experience that would not
involve violation of
the restriction against
competition stated
in the first sentence of
Section 10(a) and
those efforts must have
been unsuccessful
or must have resulted in
his obtaining
employment paying him less
than his Base
Salary;
(3) Executive must have
provided the Company with
a written report of
his aggressive efforts to
find employment and
the result of those
efforts; and
(4) Executive must have
informed any prospective
employer, prior to
accepting employment, of
the existence of
this Agreement and provided
such prospective
employer with a copy.
11. Accounting, Remedies, etc.
(a) If Executive is found, in
a final judgment or
determination of any court of law having
jurisdiction, to have violated
any of his covenants or agreements under
Section 10, the Company will
be entitled to an accounting and repayment
of all compensation,
remuneration or other benefits Executive
received pursuant to Section
10(b) in addition to any injunctive relief or
other rights, remedies or
damages which the Company is or may be entitled
to at law, in equity or
under this Agreement.
(b) Executive and the Company agree
that if any provision of
Section 10 is held in a final judgment or
determination of any court of
law or administrative agency of competent
jurisdiction to be overbroad
or otherwise unenforceable in any respect,
such provision will be
deemed to be amended, and will be binding upon
Executive to the maximum
extent deemed reasonable and
enforceable
by such court or
administrative agency.
<PAGE>
(c) The Company will be entitled
to injunctive relief
(temporary restraining order, preliminary
injunction and permanent
injunction) in the event of any actual or
threatened breach of Section
10(a) by Executive and the Company will not be
required to show actual
damages prior to obtaining such relief.
(d) If the Company sues Executive to
enforce claimed rights
under Section 10 and it is finally determined
by a non-appealable order
that Executive has not breached Section
10(a), the Company agrees to
pay the reasonable attorneys fees and other
costs and expenses incurred
by Executive in defending himself against the
Company's claims with
respect to such breach.
12. Limitation on Actions. Neither the
Company or Executive may
commence any action to enforce any rights arising under
this Agreement more than
one (1) year after the transaction or occurrence which
gave rise to the cause of
action.
13. Indemnity. If they desire to do so,
Executive and the Company will
enter into an Officers and Directors Indemnification
Agreement acceptable in
form and substance to both parties.
14. Notices. All notices required or
permitted under this Agreement
must be in writing and will be deemed to have been duly
given upon receipt and
will be delivered by hand or sent by registered or
certified mail, return
receipt requested, postage and fees prepaid and
addressed to the Company at its
principal office in Rochester, Minnesota and with
respect to Executive to such
address as appears on the books and records of the
Company. The Company and
Executive may change their addresses by a notice in
writing which will be
effective when actually received by the addressee.
15. Entire Understanding. This Agreement
constitutes the entire
understanding and agreement between the Company and
Executive with regard to the
terms of Executive's employment and there are no other
agreements, conditions or
representations, oral or written, express or
implied, with regard to such
employment. This Agreement may be amended only in
writing executed by both the
Company and Executive. A parties rights under this
Agreement may be waived only
in a writing executed by the waiving party and such
waiver will be effective
only with respect to the matters identified in such
writing.
16. Binding Effect. Executive may not assign
Executive's rights or
obligations under this Agreement. The provisions of
this Agreement are binding
upon and inure to the benefit of Executive's heirs,
legal representatives or
administrators. The obligations of Executive with
respect to confidential
information (Section 8) and Inventions and
Copyrightable Works (Section 9) will
survive and continue after termination of the Term.
17. Governing Law. This Agreement will be
construed and enforced in
accordance with the laws of the State of Minnesota.
<PAGE>
IN WITNESS WHEREOF, the Company and
Executive have executed this
Agreement in the manner appropriate for each as of the
date on the first page of
this Agreement.
WATERS
INSTRUMENTS, INC.
By
Its
Chairman of the Board
of
Directors
GERALD
W. GRABOWSKI
