SPECIAL NOTICE & INVITATION
ANNUAL MEETING OF SHAREHOLDERS
To Be Held On October 17, 1996
Waters Instruments, Inc.
2411 Seventh Street, NW
Rochester, MN 55901
<PAGE>
Your Personal Invitation
September 27, 1996
Dear Shareholder:
We are pleased to notify you that the Annual
Meeting of Shareholders of WATERS INSTRUMENTS,
INC. (the Company) will be held on Thursday,
October 17, 1996,
at 3:00 p.m., local time, at Waters Instruments, Inc.,
Team Room, 2411 Seventh Street, Northwest, Rochester,
Minnesota for the following purposes:
1. To set the number of directors at four (4).
2. To elect directors for the ensuing year.
3. To transact such other business as may properly
come before the meeting.
The Board of Directors has fixed the close of business
on August 31, 1996 as the record date for
determination of shareholders entitled to notice of
and to vote at such Annual Meeting.
Our Board of Directors and I cordially invite you to
attend this meeting. Whether or not you plan to be
personally present at the meeting, however, please
complete, date and sign the enclosed postage-paid
proxy postcard and return it promptly. If you later
decide to revoke your proxy, you may do so at any time
before it is exercised.
Sincerely,
Jerry Grabowski
President and Chief Executive Officer
<PAGE>
ANNUAL MEETING OF SHAREHOLDERS
October 17, 1996
PROXY STATEMENT
OUTSTANDING SHARES, VOTING RIGHTS, AND GENERAL
MATTERS
This Proxy Statement is furnished in connection with
the solicitation by the Board of Directors of Waters
Instruments, Inc. (the Company) of proxies to be
voted at the Annual Meeting of Shareholders of the
Company to be held on October 17, 1996. Holders of
Common Stock of record at the close of business on
August 31, 1996 will be entitled to vote at the
Meeting. Each share of Common Stock entitles the
holder to one vote; shareholders are not entitled to
cumulate their votes in the election of directors. As
of August 31, 1996 there were 1,462,271 shares of
Common Stock issued and outstanding and entitled to
vote at the Meeting.
If the enclosed proxy is properly executed and
returned to the Company, all shares represented
thereby will be voted as directed, if no direction is
made, the proxy will be voted in favor of the
proposals set forth in the Notice of Annual Meeting
and in favor of the number and slate of directors
proposed by the Board of Directors. Any shareholder
giving a proxy may revoke it at any time prior to its
use at the Meeting by giving written notice of such
revocation to the Secretary or other Officer of the
Company or by filing a new written proxy with an
Officer of the Company. Personal attendance at the
Meeting is not, by itself, sufficient to revoke a
proxy unless written notice of the revocation or a
subsequent proxy is delivered to an Officer before the
revoked or superseded proxy is used at the Meeting.
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 lack of authority to vote on such 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 with respect to such matter. If a
shareholder abstains from voting as to any matter,
then the shares held by such shareholder shall be
deemed to be 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.
Proxies which are signed but which lack any such
specification will be voted in favor of the proposals
set forth in the Notice of Meeting and in favor of the
slate of directors proposed by the Board of Directors
and listed herein.
The mailing address of the principal executive offices
of the Company is: PO Box 6117, Rochester, MN 55903-
6117. The Company expects that this Proxy Statement
and the related Proxy and Notice of Meeting will first
be mailed to shareholders on or about September 27,
1996.
<PAGE>
ELECTION OF DIRECTORS (Proposals #1 and #2)
The Bylaws of the Company provide that the number of
directors shall be determined by the shareholders at
each Annual Meeting provided that the number shall be
not less than three nor more than eleven. The Board
of Directors recommends the election of four directors
at this Annual Meeting. Under applicable Minnesota
law, approval of the proposal to set the number of
directors at four requires the affirmative vote of the
holders of the greater of (1) 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 (2) 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. Each proxy will be voted for or against such
number or not voted at all as directed by the
shareholder.
Each proxy will be voted for the nominees specified
below unless the proxy withholds a vote for one or
more of such nominees. So far as is known to the
Board, each of such nominees intends to serve if
elected. In the presently unforeseen circumstance
that a nominee is unable or unwilling to serve,
proxies will be voted for such substitute nominee (if
any) as may be determined by the Board of Directors
prior to the Meeting. Directors hold office from the
date of their election or reelection until the next
Annual Meeting and until their successors are elected.
Nominees to the Board of Directors are elected by a
majority of the votes cast for the election of
Directors at the Annual Meeting.
NOMINEES FOR DIRECTORS
The following table provides certain information with
respect to the nominees for Directors of the Company.
All of the Directors listed are presently serving as
Directors of the Company, and all were elected by the
shareholders at the last Annual Meeting, except Mr.
Grimstad who the Board is proposing at the Annual
Meeting of Shareholders on October 17, 1996, as a
nominee to stand for election:
<TABLE>
<S> <C> <C> <C>
Name Age Position with Year in Which
the Company and First Became a Director
Principal Occupation
Jerry W.
Grabowski 44 President and Chief
Executive Officer,
Chief Financial Officer,
and Treasurer and Director
of the Company. 1993
Charles G.
Schiefelbein 57 Director. Independent
Investor and Consultant
in St. Paul, Minnesota. 1986
Stewart D.
Siebens 50 Chairman of the Board
of Directors of the
Company. President
of SDS Enterprises, Inc.
in Irving, Texas. 1986
John A.
Grimstad 46 Secretary and General
Counsel of the Company.
Vice President of
Fredrikson & Byron, P. A.
in Minneapolis, Minnesota New
Nominee
</TABLE>
<PAGE>
BUSINESS EXPERIENCE OF NOMINEES:
The following information is presented as to each
nominee's business experience during the past five
years and his directorships of other publicly held
corporations:
Mr. Grabowski has been President and Chief Executive
Officer and a member of the Board of Directors of the
Company since August 1993. He was additionally
elected to serve as Chief Financial Officer,
Secretary, and Treasurer in December 1994. From 1988
until joining the Company, he was employed as General
Manager of Onan Power/Electronics Division.
Mr. Schiefelbein actively involved in consulting and
investment projects through Capitol Growth Services,
Inc., a corporation wholly-owned by Mr. Schiefelbein.
From 1979 until August 1996, Mr. Schiefelbein was
Chairman of Computer Petroleum Corporation (CPC), a
public company that provides electronic energy price
and news information. From 1979, when he founded CPC,
to 1991, Mr. Schiefelbein served as Chairman and Chief
Executive Officer. He is also currently a director of
Research, Inc.
Mr. Siebens was named Chairman of the Board of the
Company on October 24, 1990. He has been President of
SDS Enterprises, Inc. in Irving, Texas since 1987.
Mr. Grimstad has been, since 1984, a Vice President
and shareholder of Fredrikson & Byron, P.A., the
Company's counsel, and serves as a Director and
Secretary or Assistant Secretary of several closely-
held manufacturing companies.
BOARD AND COMMITTEE MEETINGS
The Board held five meetings during fiscal year 1996.
Each Director whose reelection is proposed and who
served as a member of the Board during fiscal year
1996 attended 100% of the aggregate number of meetings
of the Board and of the Committees of which he is a
member.
The Company's Board of Directors has formally
designated three Committees: an Audit Committee, a
Compensation Committee, and a Stock Option Committee.
The Audit Committee, consisting of Messrs.
Schiefelbein and Siebens for fiscal year 1996,
generally engages in oversight of the structure of the
Company's internal controls, reviews the selection of
the independent auditors, reviews the annual audit
plan, and engages in oversight of the Company's
financial reporting. However, the responsibility to
review and approve internal accounting and controls,
quarterly financials, registration statements, reports
to the SEC, financial press releases, cost of conduct,
and any legal/ethics audit except as these matters
have a direct bearing on the duties stated above,
remain the responsibility of the full Board of
Directors. During fiscal year 1996, the Audit
Committee met twice, and the full Board of Directors
met once with the Company's independent auditors to
review the Company's financial statements, accounting
policies, and practices. Each Committee member was
present at the meetings.
The Compensation Committee, which consisted of Messrs.
Schiefelbein and Siebens for fiscal year 1996,
generally assists the Board of Directors in exercising
its authority and discharging its responsibilities
concerning the hiring, compensation, and termination
of employment of the officers and senior managers of
the Company. During fiscal year 1996, the
Compensation Committee met twice and each Committee
member was present.
<PAGE>
The Stock Option Committee consists of two or more
members of the Board of Directors or other persons who
are appointed by and serve at the pleasure of the
Board and who are "disinterested" persons {a person
who, among other things, has not been, at any time
within one year prior to such person's appointment to
the Committee, and who will not be, while serving on
such Committee, granted or awarded options under the
1995 Stock Option Plan (the "Plan").} During fiscal
year 1996, the Board delegated to its Compensation
Committee all of the authority of the Board under the
Plan under certain circumstances.
PRINCIPAL SHAREHOLDERS
The following table provides information concerning
the only persons known to the Company to be the
beneficial owners of more than 5% of the Company's
outstanding Common Stock as of August 31, 1996:
<TABLE>
<S> <C> <C>
Name and Address of Shares Percent
Beneficial Owner Beneficially Owned of Class
Charles G. Schiefelbein
5075 Norwest Center,
Minneapolis, MN 55402 194,603 13.3%
Woodland Investment Company
3007 Skyway Circle North,
Irving, TX 75038 172,000 (1) 11.8%
Kohl Gift Trust
3007 Skyway Circle North,
Irving, TX 75038 90,000 (2) 6.2%
Stewart D. Siebens
3007 Skyway Circle North,
Irving, TX 75038 73,800 5.0%
<FN>
<F1>
According to the most current Schedule 13D filed by
Woodland Investment Company and information provided
by it, the power to vote and dispose (or to direct the
vote or disposition) of such shares is shared with
Atlee M. Kohl and Nicole F. Kohl who are each thereby
deemed to be beneficial owners of such shares.
<F2>
According to the most current Schedule 13D filed by
Kohl Gift Trust, the power to vote and dispose (or to
direct the vote or disposition) of such shares is
shared with Atlee M. Kohl who is deemed to be a
beneficial owner of such shares.
</FN>
</TABLE>
MANAGEMENT SHAREHOLDINGS
The following table sets forth the beneficial
ownership of the Company's Common Stock by (i) each
Director and nominee of the Company, (ii) the named
executive officer in the Summary Compensation Table,
and (iii) all Directors and Executive Officers as a
group, as of August 31, 1996. 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.
<PAGE>
<TABLE>
<S> <C> <C>
Name of Director or No. of Shares Percent
Number of Persons in Beneficially Owned of Class
Group (1) (1)
Charles G. Schiefelbein 194,603 13.3%
Stewart D. Siebens 73,800 5.0%
Jerry W. Grabowski 59,000 (2) 4.0%
John A. Grimstad 0 0%
Officers and Directors
as a Group (4 persons) 327,403 (2) 22.4%
<FN>
<F1>
Under rules of the Securities and Exchange Commission,
an individual is also deemed to beneficially own
shares which are not outstanding but which the
individual has the right to acquire as of August 31,
1996 or within 60 days of such date. Such shares not
outstanding but so deemed beneficially owned are
treated as outstanding when determining the percent of
the class owned by the particular individual and when
determining the percent owned by the group.
<F2>
Includes 50,000 shares which may be purchased pursuant
to options held by Mr. Grabowski which are or will
become exercisable within 60 days of August 31, 1996.
</FN>
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation
paid or to be paid by the Company, as well as certain
other compensation paid or accrued, during fiscal year
1996 to the named executive officer as of June 30,
1996:
<TABLE>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term
Compensation
Annual Compensation Awards Payouts
Name &
Principal Fiscal
Position Year Salary $ Bonus $ (2) Other $ (3)
Restricted Stock Awards $ # Options Granted (1)
LTIP Payouts All Other Compensation $ (4)
Jerry W. Grabowski 1996 139,521 13,446 - - - -
2,869
President & CEO 1995 119,414 48,912 15,400 -
50,000 (1) - 2,776
<FN>
<F1>
Mr. Grabowski was granted an Incentive Stock Option in
1993 in conjunction with the Company's 1985 Incentive
Stock Option Plan to purchase 50,000 shares of Waters
Instruments, Inc. common stock. Such option was
terminated in 1995 and a new option to purchase 50,000
shares was granted under the 1995 Stock Option Plan
which was approved by shareholders in October 1995.
See "Report on Repricing of Options."
<F2>
Represents incentive compensation payments for the
performance periods ending June 30, 1996 and June 30,
1995.
<F3>
Represents temporary living expenses paid by the
Company.
<F4>
Represents insurance premiums paid by the Company.
</FN>
</TABLE>
<PAGE>
OPTION GRANTS DURING FISCAL YEAR 1996
There were no stock options granted during fiscal year
1996 to the named executive officer in the Summary
Compensation Table.
OPTION EXERCISES DURING FISCAL YEAR 1996 AND FISCAL YEAR-
END OPTION VALUES
The named executive officer in the Summary
Compensation Table did not exercise any options during
fiscal year 1996.
<TABLE>
<S> <C> <C> <C> <C>
Name Shares Acquired on Exercise Value Realized
# of Unexercised Oprions at June 30, 1996
Exercisable/Unexercisable Value of Unexercised
Options at June 30, 1996 Exercisable/Unexrcisable(1)
0 $ 0 50,000 exercisable $93,625 exercisable
Jerry W. Grabowski 0 $ 0 0 unexercisable $ 0
unexercisable
<FN>
<F1>
Value is calculated on the basis of the difference
between the option exercise price and the closing sale
price for the Company's Common Stock at June 30, 1996
as quoted on the NASDAQ National Market System,
multiplied by the number of shares of Common Stock
underlying the option.
</FN>
</TABLE>
<PAGE>
COMPENSATION OF DIRECTORS
Each non-employee Director receives an annual retainer
fee of $4,000, $350 for each attended quarterly
meeting of the Board, $50 for each breakfast or dinner
meeting of the Board, $150 for each attended meeting
of a Committee on which he serves and a fee of $500
for each time he provides additional services as a
special consultant to the Company, plus, in each case,
reimbursement of travel expenses. Directors also
receive a monthly stipend of $50 to cover
miscellaneous travel, telephone, and meal expenses
associated with Board responsibilities. The Chairman
of the Board of the Company receives an additional
annual retainer of $12,000, paid in monthly
installments, for the capacity in which he serves.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
ARRANGEMENTS
The Company has entered into an employment agreement
with Jerry W. Grabowski, which provides for
compensation in the event Mr. Grabowski's employment
with the Company is terminated under certain
circumstances. Upon termination of employment
initiated by the Company's Board of Directors, Mr.
Grabowski will have the right to receive an amount
equal to twelve-months' base salary and the cost of
all existing health/medical and other benefit plans
enjoyed by Mr. Grabowski on the effective date of
termination (subject to the terms of the plans) or
substantially the same benefits if the terms of a plan
exclude non-employees. Mr. Grabowski will also be
entitled to receive on August 31, in the year
immediately following the Performance Period in which
a termination occurred, the incentive compensation he
would have earned had his employment not been
terminated, in an amount proportionate to the number
of months that he was employed by the Company prior to
such termination. In the event Mr. Grabowski's
employment with the Company is terminated within one
year of a change in control, then upon such
termination in addition to the Company's obligation
stated above, the Company will pay Mr. Grabowski an
additional amount equal to the base salary, then in
effect, for one year.
1995 STOCK OPTION PLAN
In May 1995, the Company's Board adopted, and
shareholders subsequently approved in October 1995,
the Company's 1995 Stock Option Plan (the "Plan") and
reserved 150,000 shares of its Common Stock for
issuance upon the exercise of options to be granted
pursuant to the terms of the Plan. The 1995 Plan
replaces the Incentive Stock Option Plan and
Nonqualified Stock Option Plan adopted in 1985, both
of which expired in 1995. Incentive Stock Options
granted under the 1995 Plan are intended to qualify
under Section 422 of the Internal Revenue Code (or any
successor provision it relates to as "incentive" stock
options which can provide favorable tax treatment to
the optionees.)
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's officers and directors, and
persons who own more than ten percent (10%) of the
registered class of the Company's equity securities,
to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (the SEC).
Officers, directors, and greater than 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 the
period from July 1, 1995 through June 30, 1996, all
filing requirements applicable to its officers,
directors, and greater than ten-percent beneficial
owners were complied with.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of McGladrey & Pullen, LLP, Certified Public
Accountants, served as the Company's independent
accountants for the fiscal year ended June 30, 1996.
Such firm is expected to be designated by the Board of
Directors of the Company to audit the Company's
accounts for the new fiscal year to end June 30, 1997.
Such action is customarily taken at the Annual Meeting
of the Board preceding the Annual Meeting of
Shareholders.
Representatives of McGladrey & Pullen, LLP will be
present at the Annual Meeting of Shareholders and will
be afforded the opportunity to make a statement, if
they desire to do so, and will be available to respond
to appropriate questions.
<PAGE>
SHAREHOLDERS' PROPOSALS FOR 1997 ANNUAL MEETING
Any appropriate proposal submitted by a shareholder of
the Company and intended to be presented at the next
Annual Meeting in October 1997 must be received by the
Company by May 16, 1997 to be includable in the
Company's proxy statement and related proxy for the
October 1997 Meeting.
ANNUAL REPORT & FORM 10-KSB
A copy of the Company's Annual Report to shareholders
for the fiscal year ended June 30, 1996 accompanies
this Proxy Statement. No portion of the Annual Report
is incorporated herein and no portion is to be
considered proxy soliciting material. A copy of the
Company's Annual Report to the Securities and Exchange
Commission on form 10-KSB, including the financial
statements and the schedules thereto, for the Fiscal
Year ended June 30, 1996 will be sent to those
shareholders who request a copy by sending a letter
addressed to Roni Henry, Assistant Secretary, Waters
Instruments, Inc., PO Box 6117, Rochester, MN 55903-
6117.
OTHER BUSINESS
The Board of Directors does not know of any matters to
be brought before the Meeting other than those
described above. If, however, any other matters
properly come before the Meeting, it is the intention
of the persons named in the enclosed proxy to vote
such proxy in accordance with their judgment on such
matters.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To management's knowledge, no Director, Director
Nominee, Officer, or ten percent Shareholder or any
affiliates of such persons had in 1995 or 1996 or
currently has any material interest, direct or
indirect, in any transaction in which the Company was
involved.
<PAGE>
SOLICITATION
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 and such solicitation will be
effected solely by mail, provided that it is expected
that banks, brokerage houses and other custodians,
nominees and fiduciaries will be requested to forward
soliciting material to their principals and to obtain
authorization for the execution of proxies and will be
reimbursed for their reasonable expenses incurred in
connection therewith. If it should become necessary,
Directors, Officers, or regular employees of the
Company may, without compensation other than their
regular compensation, solicit proxies personally or by
telephone.
BY ORDER OF THE BOARD OF DIRECTORS,
___________/S/___________
Jerry Grabowski
President & Chief Executive Officer
September 27, 1996
<PAGE>
WATERS INSTRUMENTS, INC.
Corporate Offices
2411 Seventh Street, NW., PO Box 6117, Rochester MN
55903
PROXY
This PROXY is solicited on behalf of the Board of
Directors. The undersigned hereby appoints JERRY W.
GRABOWSKI and STEWART D. SIEBENS, or either of them,
with full power of substitution, as proxies to vote
for me and in my name with like effect as if I were
personally present and voting at the Annual Meeting of
Shareholders of Waters Instruments, Inc., called to be
held at 3:00 PM, Thursday, October 17, 1996, local
time, at Waters Instruments, Inc., Team Room, 2411
Seventh Street, Northwest, Rochester, Minnesota and at
all adjournments thereof, hereby revoking any proxy or
proxies heretofore given:
The Board of Directors recommends that you vote "FOR"
each proposal. Check One Box Only for each Proposal
1. NUMBER OF DIRECTORS. Proposal to establish the
number of directors at four (4)
FOR AGAINST ABSTAIN
2. ELECTION OF DIRECTORS.
Nominees: Jerry W. Grabowski, John A. Grimstad,
Charles G. Schiefelbein, Stewart D. Siebens FOR all
nominees except those written in this box.
WITHHOLD AUTHORITY to vote for all nominees
3. OTHER MATTERS. Upon such other business as may
properly come before the Meeting. FOR AGAINST
ABSTAIN
This proxy when properly executed will be voted in
the manner directed herein by the undersigned
shareholder. If no direction is made as to a
particular proposal, this proxy will be voted for
such proposal.
Please sign exactly as your name appears above.
Executors, administrators, trustees, guardians, etc.
so indicate when signing. For stock held in Joint
Tenancy, each joint owner should sign.
Signature Date , 1996
Signature, if held jointly Date , 1996
PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY
PROMPTLY.
YOU MAY FAX YOUR PROXY TO: 1-800-962-2880, Ext. 700.
Please check here if you plan on attending the annual meeting.
Please check here if you would like to receive a copy of the Form 10-KSB.
