<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A-1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended June 30, 1998
Commission file number 0-1388
WATERS INSTRUMENTS, INC.
(d/b/a Waters Corporation)
State of Incorporation: Minnesota
IRS Employer Identification No. 41-0832194
2411 Seventh Street, NW.
Rochester, Minnesota 55901
(507)288-7777
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 Par Value Per Share
Check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the
past 90 days.
Yes [X]No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this
form, and no disclosure will be contained, to the best of
Company's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB/A-1. [X]
The net sales for the Company for the Fiscal Year ended
June 30, 1998 were $15,785,000.
The aggregate market value of the voting stock held by non-
affiliates of the Company on August 31, 1998 was
$4,455,598. The number of shares outstanding of the
Company's Common Stock on August 31, 1998 was 1,467,448.
DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to General Instructions E3), the responses to
items 9, 10, 11 and 12 of Part III of this report are
incorporated herein by reference to certain information
contained in the Company's definitive proxy statement for
its 1998 Annual Meeting of Shareholders to be filed with
the Securities and Exchange Commission on or before
September 25, 1998.
Transitional Small Business Disclosure Format (Check One)
Yes No [X]
PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
See Exhibit Index following the signature page of this
report on Form 10-KSB/A-1.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company
during the fourth quarter of Fiscal Year 1998.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly
caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in Rochester,
Minnesota, on October 22, 1998.
WATERS INSTRUMENTS, INC.
/s/ Jerry W. Grabowski
By Jerry W. Grabowski
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed by the following
persons on behalf of the Company in the capacities and on
the dates indicated.
POWER OF ATTORNEY
Each person whose signature appears below constitutes and
appoints Jerry W. Grabowski and Gregory J. Anshus as his
true and lawful attorneys-in-fact and agents, each acting
alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Annual
Report on Form 10-KSB/A-1 and to file the same, with all
exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, acting
alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby
ratifying and confirming said attorneys-in-fact and agents,
acting alone, or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
<TABLE>
<S> <C>
<C>
Signature Title
Date
/s/ Jerry W. Grabowski
Jerry W. Grabowski President, Chief Executive Officer,
(Principal Executive Officer) and
Director 10/22/98
/s/ Gregory J. Anshus
Gregory J. Anshus Chief Financial Officer
(Principal Financial Officer) 10/22/98
/s/ William R. Franta
William R. Franta Director 10/22/98
/s/ John A. Grimstad
John A. Grimstad Director and Secretary 10/22/98
/s/ Charles G. Schiefelbein
Charles G. Schiefelbein Director 10/22/98
</TABLE>
Exhibit Index for Form 10-KSB (for the Fiscal Year ended June 30, 1998)
<TABLE>
<S> <C> <C>
Page Number
3.1 Restated Articles of Incorporation, as amended to date,
incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1989. *
3.2 Restated Bylaws, as amended to date, incorporated by
reference to the description of such amendment set forth
under the caption "Amendment to Bylaws" of the Company's
definitive proxy statement for its 1988 Annual Meeting of
Shareholders. *
10.1 Management Incentive Compensation Plan, incorporated by
reference to the description of such Plan set forth under
the caption "Compensation Plans" of the Company's definitive
proxy statement for its 1989 Annual Meeting of Shareholders.(1)*
10.2 1985 Incentive Stock Option Plan and Form of Stock Option
Agreement, incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1985. *
10.3 1985 Nonqualified Stock Option Plan and Form of Stock
Option Agreement, incorporated by reference to Exhibit 10.5
to the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1986. *
10.4 Employment agreement dated July 28, 1993 between the Company
and Gerald W. Grabowski incorporated by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1993. (1) *
10.5 1995 Stock Option Plan incorporated by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1996. *
10.6 Settlement Agreement with Wedge-Loc providing for the $240,000,
incorporated by reference to Exhibit 10.6 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1996. *
10.7 1997 Associates Stock Purchase Plan 5
10.8 Amendment No. 1 to Waters Instruments, Inc.
1995 Stock Option Plan 13
23.1 Independent Auditor's Consent 14
24.1 Power of Attorney for Jerry W. Grabowski, Gregory J. Anshus,
William R. Franta, John A. Grimstad and Charles G. Schiefelbein
(included in the signature page of this Form 10-KSB/A-1.
</TABLE>
[FN]
27**Financial Data Schedule (filed in electronic formal only)
(1) Indicates a management compensatory plan.
*Incorporated by reference; SEC File No. 0-1388.
**Previously filed with original Form 10-KSB for year ended December
31, 1997.
</FN>
Exhibit 10.7
WATERS INSTRUMENTS, INC.
1997 ASSOCIATES STOCK PURCHASE PLAN
ARTICLE I - ESTABLISHMENT OF PLAN
1.01 Adoption by Board of Directors. By action of the
Board of Directors of Waters Instruments, Inc. (the
"Company") on December 6, 1996, subject to approval by its
shareholders, the Company has adopted an associate stock
purchase plan pursuant to which eligible associates of the
Company and certain of its Subsidiaries may be offered the
opportunity to purchase shares of Stock of the Company.
The terms and conditions of this Plan are set forth in this
plan document, as amended from time to time as provided in
this Plan. The Company intends that the Plan shall qualify
as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended from time to
time, (the "Code") and shall be construed in a manner
consistent with the requirements of Code Section 423 and
the regulations thereunder.
1.02 Shareholder Approval and Term. This Plan shall become
effective upon its adoption by the Board of Directors and
shall terminate December 31, 2006; provided, however, that
the Plan shall be subject to approval by the shareholders
of the Company within twelve (12) months after the Plan is
adopted by the Board in the manner provided under Code
Section 423 and the regulations thereunder; and provided,
further that the Board of Directors may extend the term of
the Plan for such period as the Board, in its sole
discretion, deems advisable. In the event the shareholders
fail to approve the Plan within twelve (12) months after
the Plan is adopted by the Board, this Plan shall not
become effective and shall have no force and effect,
participation in the Plan shall immediately cease and all
outstanding options shall immediately be cancelled. No
shares of stock shall be issued to any Participant for any
Phase unless and until the shareholders approve the Plan
within such twelve-month period.
ARTICLE II - PURPOSE
2.01 Purpose. The primary purpose of the Plan is to
provide an opportunity for Eligible Associates of the
Company to become shareholders of the Company, thereby
providing them with an incentive to remain in the Company's
employ, to improve operations, to increase profits and to
contribute more significantly to the Company's success.
ARTICLE III - DEFINITIONS
3.01 "Administrator" means the Board of Directors or such
Committee appointed by the Board of Directors to administer
the Plan. The Board or the Committee may, in its sole
discretion, authorize the officers of the Company to carry
out the day-to-day operation of the Plan. In its sole
discretion, the Board may take such actions as may be taken
by the Administrator, in addition to those powers expressly
reserved to the Board under this Plan.
3.02 "Board of Directors" or "Board" means the Board of
Directors of Waters Instruments, Inc.
3.03 "Compensation" means the Participant's base
compensation, overtime, bonuses and any other taxable
compensation.
3.04 "Company" means Waters Instruments, Inc., a Minnesota
corporation.
3.05 "Eligible Associate" means any associate who, as
determined on or immediately prior to an Enrollment Period,
is (i) a United States employee of the Company or one of
its Subsidiaries, (ii) is regularly scheduled to work more
than 20 hours per week, and (iii) has been employed by the
Company or the Subsidiary at least six (6) consecutive
months prior to the commencement date of a phase.
3.06 "Enrollment Period" means the period determined by the
Administrator for purposes of accepting elections to
participate during a Phase from Eligible Associates.
3.07 "Fiscal Year" means the fiscal year of the Company,
which is the twelve-month period beginning January 1 and
ending December 31 each year.
3.08 "Participant" means an Eligible Associate who has been
granted an option and is participating during a Phase
through payroll deductions, but shall exclude those
associates subject to the limitations described in Section
9.03.
3.09 "Phase" means the period beginning on the date that
the option was granted, otherwise referred to as the
commencement date of the Phase, and ending on the date that
the option was exercised, otherwise referred to as the
termination date of the Phase.
3.10 "Plan" means the Waters Instruments, Inc. 1997
Associate Stock Purchase Plan.
3.11 "Stock" means the voting common stock of the Company.
3.12 "Section(s)" means one or more of the numbered
paragraphs of this Plan unless the context expressly
provides otherwise.
3.13 "Subsidiary" means any corporation defined as a
subsidiary of the Company in Code Section 424(f) as of the
effective date of the Plan, and such other corporations
that qualify as subsidiaries of the Company under Code
Section 424(f) as the Board approves to participate in this
Plan from time to time.
ARTICLE IV - ADMINISTRATION
4.01 Administration. Except for those matters expressly
reserved to the Board pursuant to any provisions of the
Plan, the Administrator shall have full responsibility for
administration of the Plan, which responsibility shall
include, but shall not be limited to, the following:
(a) The Administrator shall, subject to the provisions of
the Plan, establish, adopt and revise such rules and
procedures for administering the Plan, and shall make all
other determinations as it may deem necessary or advisable
for the administration of the Plan;
(b) The Administrator shall, subject to the provisions of
the Plan, determine all terms and conditions that shall
apply to the grant and exercise of options under this Plan,
including, but not limited to, the number of shares of
Stock that may be granted, the date of grant, the exercise
price and the manner of exercise of an option. The
Administrator may, in its discretion, consider the
recommendations of the management of the Company when
determining such terms and conditions;
(c) The Administrator shall have the exclusive authority to
interpret the provisions of the Plan, and each such
interpretation or determination shall be conclusive and
binding for all purposes and on all persons, including, but
not limited to, the Company and its Subsidiaries, the
shareholders of the Company and its Subsidiaries, the
Administrator, the directors, officers and associates of
the Company and its Subsidiaries, and the Participants and
the respective successors-in-interest of all of the
foregoing; and
(d) The Administrator shall keep minutes of its meetings or
other written records of its decisions regarding the Plan
and shall, upon requests, provide copies to the Board.
ARTICLE V - PHASES OF THE PLAN
5.01 Phases. The Plan shall be carried out in one or more
Phases of twelve (12) months each. Unless otherwise
determined by the Administrator, in its discretion, Phases
shall commence on January 1 of each fiscal year during the
term of the Plan, with the first Phase commencing January
1, 1997. No two Phases shall run concurrently.
5.02 Limitations. The Administrator may, in its
discretion, limit the number of shares available for option
grants during any Phase as it deems appropriate. Without
limiting the foregoing, in the event all of the shares of
Stock reserved for the grant of options under Section 12.01
is issued pursuant to the terms hereof prior to the
commencement of one or more Phases or the number of shares
of Stock remaining is so small, in the opinion of the
Administrator, as to render administration of any
succeeding Phase impracticable, such Phase or Phases may be
cancelled or the number of shares of Stock limited as
provided in this Plan. In addition, if, based on the
payroll deductions authorized by Participants at the
beginning of a Phase, the Administrator determines that the
number of shares of Stock which would be purchased at the
end of a Phase exceeds the number of shares of Stock
remaining reserved under Section 12.01 for issuance under
the Plan, or if the number of shares of Stock for which
options are to be granted exceeds the number of shares
designated for option grants by the Administrator for such
Phase, then the Administrator shall make a pro rata
allocation of the shares of Stock remaining available in as
nearly uniform and equitable a manner as the Administrator
shall consider practicable as of the commencement date of
the Phase or, if the Administrator so elects, as of the
termination date of the Phase. In the event such
allocation is made as of the commencement date of a Phase,
the payroll deductions which otherwise would have been made
on behalf of Participants shall be reduced accordingly.
ARTICLE VI - ELIGIBILITY
6.01 Eligibility. Each associate who is an Eligible
Associate on or immediately prior to the commencement of a
Phase shall be eligible to participate in such Phase.
ARTICLE VII - PARTICIPATION
7.01 Participation. Participation in the Plan is
voluntary. An Eligible Associate who desires to
participate in any Phase of the Plan must complete the Plan
enrollment form provided by the Administrator and deliver
such form to the Administrator or its designated
representative during the Enrollment Period established by
the Administrator prior to the commencement date of the
Phase.
7.02 Subsequent Phases. An Eligible Associate who elects
to participate in a Phase of a fiscal year shall be deemed
to have elected to participate in each subsequent Phase
during that fiscal year and all subsequent fiscal years
unless such Participant elects to discontinue payroll
deductions during a Phase or exercises his or her right to
withdraw amounts previously withheld, as provided under
Article 10 hereof. In such event, such Participant must
complete a change of election form or a new Plan enrollment
form and file such form with the Administrator during the
Enrollment Period prior to the next Phase with respect to
which the Eligible Associate wishes to participate.
ARTICLE VIII - PAYMENT: PAYROLL DEDUCTIONS
8.01 Enrollment. Each Eligible Associate electing to
participate shall complete a Plan enrollment form and
designate a percentage of such Participant's Compensation
to be withheld during the Phase. Such percentage shall be
at least one percent (1%) but not more than ten percent
(10%) of such participant's Compensation to be paid during
such Phase, or such other maximum percentage as the
Administrator may establish from time to time; provided,
however, that the payroll deduction authorized by the
Participant must equal or exceed $10 per paycheck. In
order to be effective, such Plan enrollment form must be
properly completed and received by the Administrator by the
due date indicated on such form, or by such other date
established by the Administrator.
8.02 Payroll Deductions. Payroll deductions for a
Participant shall commence on the first paycheck issued
immediately after the commencement date of the Phase and
shall terminate on the last paycheck issued immediately
prior to the termination date of that Phase, unless the
Participant elects to discontinue payroll deductions or
exercises his or her right to withdraw all accumulated
payroll deductions previously withheld during the Phase as
provided in Article 10 hereof. The authorized payroll
deductions shall be made over the pay periods of such Phase
by deducting from the Participant's Compensation for each
such pay period that percentage specified by the
Participant in the Plan enrollment form.
Unless the Participant elected to discontinue payroll
deductions or exercised his or her right to withdraw all
accumulated payroll deductions withheld during the
preceding Phase (in which event the Participant must
complete a change of election form or a new Plan enrollment
form, as the case may be, to continue participation for any
subsequent Phase), the Company shall continue to withhold
from such Participant's Compensation the same designated
percentage specified by the Participant in the most recent
Plan enrollment form previously completed by the
Participant for all subsequent Phases; provided, however,
that the Participant may, if he or she so chooses,
increase, decrease or discontinue payroll deductions for
any or all such subsequent Phases by properly completing a
new enrollment form during the Enrollment Period for such
subsequent Phase and delivering such form to the
Administrator by the due date for the receipt of such forms
for that Phase.
8.03 Increases or Decreases During a Phase. In addition to
the right to discontinue or withdraw payroll deductions
during a Phase as provided in Article 10 and the right to
increase or decrease or discontinue payroll deductions for
subsequent Phases as provided in Section 8.02, a
Participant may increase or decrease the percentage of
Compensation designated to be deducted during a Phase by
completing a change of election form and filing such form
with the Administrator on or before the date that is
fifteen (15) days prior to the date of the last paycheck
during that Phase, or on or before such other date
established by the Administrator; provided, however, that
the Participant may exercise the right to increase or
decrease his or her payroll deductions only once during
each Phase.
8.04 Change in Compensation During a Phase. In the event
that the Participant's Compensation is increased or
decreased during a Phase for any reason so that the amount
actually withheld on behalf of the Participant as of the
termination date of the Phase is different from the amount
anticipated to be withheld as determined on the
commencement date of the Phase, then the extent to which
the Participant may exercise his or her option shall be
based on the amounts actually withheld on his or her
behalf, subject to the limitations in Article IX. In the
event of a change in the pay period of any Participant,
such as from biweekly to monthly, an appropriate adjustment
shall be made to the deduction in each new pay period so as
to insure the deduction of the proper amount authorized by
the Participant.
ARTICLE IX - OPTIONS
9.01 Grant of Option. Subject to Article 10, a Participant
who has elected to participate in the manner described in
Article VIII and who is employed by the Company or a
Subsidiary as of the commencement date of a Phase shall be
granted an option as of such date to purchase that number
of whole shares of Stock determined by dividing the total
amount to be credited to the Participant's account by the
option price per share set forth in Section 9.02(a);
provided, however, that the Participant shall not be
entitled to purchase more than 2,000 shares in any Phase,
or such other maximum number of shares as the Administrator
may establish from time to time. The option price per
share for such Stock shall be determined under Section
9.02, and the number of shares exercisable shall be
determined under Section 9.03.
9.02 Option Price. Subject to the limitations hereinbelow,
the option price for such Stock shall be the lower of the
amounts determined under paragraphs (a) and (b) below:
(a) Eighty-five percent (85%) of the closing price for a
share of the Company's Stock as reported on The Nasdaq
Stock Market or on an established securities exchange as of
the commencement date of the Phase; or
(b) Eighty-five percent (85%) of the closing price for a
share of the Company's Stock as reported on The Nasdaq
Stock Market or on an established securities exchange as of
the termination date of the Phase.
In the event that the commencement or termination date of a
Phase is a Saturday, Sunday or holiday, the amounts
determined under the foregoing subsections shall be
determined using the price as of the last preceding trading
day.
If the Company's Stock is not so reported in The Nasdaq
Stock Market or upon an established securities exchange,
the option price shall equal the lesser of (i) eighty-five
percent (85%) of the average of the closing "bid" and
"asked" prices quoted by a recognized specialist in the
Company's Stock as of the commencement date of the Phase,
or if there are no such quoted "bid" and "asked" prices on
such date, on the next preceding date for which there are
quotes, and (ii) eighty-five percent (85%) of the average
of the closing "bid" and "asked" prices quoted by a
recognized specialist in the Company's Stock as of the
termination date of the phase, or if there are no such
quoted "bid" and "asked" prices on such date, on the next
preceding date for which there are such quotes.
If the Company's Stock is not publicly traded, then the
option price shall equal the lesser of (i) eighty-five
percent (85%) of the fair market value of a share of the
Company's Stock as of the commencement date of the Phase,
and (ii) eighty-five percent (85%) of the fair market value
of such stock as of the termination date of the Phase.
Such "fair market value" shall be determined by the Board.
9.03 Limitations. No associate shall be granted an option
hereunder:
(a) Which permits his or her rights to purchase Stock under
all associate stock purchase plans of the Company or its
Subsidiaries to accrue at a rate which exceeds Twenty-Five
Thousand Dollars ($25,000) of fair market value of such
Stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at
any time;
(b) If such associate would own and/or hold, immediately
after the grant of the option, Stock possessing five
percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company or of any
Subsidiary. For purposes of determining stock ownership
under this paragraph, the rules of Code Section 424(d)
shall apply.
(c) Which, if exercised, would cause the limits established
by the Administrator under Section 5.02 to be exceeded.
9.04 Exercise of Option. Subject to a Participant's right
to withdraw in the manner provided in Section 10.01, a
Participant's option for the purchase of shares of Stock
shall be exercised automatically on the termination date of
that Phase. However, in no event shall a Participant be
allowed to exercise an option for more shares of Stock than
can be purchased with the payroll deductions accumulated by
the Participant in his or her bookkeeping account during
such Phase, whether or not the accumulated payroll
deductions are less than the full percentage amount that
such Participant anticipated he or she would contribute at
the beginning of such Phase.
9.05 Delivery of Shares. Subject to the shareholder
approval requirements set forth in Section 1.02, as
promptly as practicable after the termination of any Phase,
the Company's transfer agent or other authorized
representative shall deliver to each Participant in this
Plan certificates for that number of whole shares of Stock
purchased upon the exercise of the Participant's option.
Any accumulated payroll deductions remaining after the
exercise of the Participant's option pursuant to Section
9.04 shall remain credited to the Participant's bookkeeping
account and applied to the purchase of shares of Stock in
the next succeeding Phase, unless the Participant requests
a withdrawal of such amount pursuant to Section 10.01.
The shares of the Company's common stock to be delivered to
a Participant pursuant to the exercise of an option under
Section 9.04 shall be registered in the name of the
Participant or, if the Participant so directs by written
notice to the Administrator prior to the termination date
of the Phase, in the names of the Participant and one other
person the Participant may designate as his joint tenant
with rights of survivorship, to the extent permitted by
law.
ARTICLE X - WITHDRAWAL OR
DISCONTINUATION OF PAYROLL WITHHOLDINGS
10.01 Withdrawal. A Participant may request a withdrawal
of all accumulated payroll deductions then credited to the
Participant's bookkeeping account by completing a change of
election form and filing such form with the Administrator.
The Participant's request shall be effective as of the
beginning of the next payroll period immediately following
the date that the Administrator receives the Participant's
properly completed change of election form. As soon as
administratively feasible after the end of that Phase, all
payroll deductions credited to a bookkeeping account for
the Participant shall be paid to such Participant and no
further payroll deductions shall be made during that Phase
or any future Phase unless the Participant completes a new
Plan enrollment form as provided in Section 8.02. If the
Participant requests a withdrawal, the option granted to
the Participant under that Phase of the Plan shall
immediately lapse and shall not be exercisable. Partial
withdrawals of payroll deductions are not permitted.
Notwithstanding the foregoing, in order to be effective for
a particular Phase, the Participant's request for
withdrawal must be properly completed and received by the
Administrator on or before the date that is fifteen (15)
days before the date of the last paycheck during the Phase,
or on or before such other date established by the
Administrator. Requests for withdrawal that are received
after that due date shall not be effective and no
withdrawal shall be made, unless otherwise determined by
the Administrator.
10.02 Discontinuation. A Participant may also request that
the Administrator discontinue any further payroll
deductions that would otherwise be made during the
remainder of the Phase by completing a change of election
form and filing such form with the Administrator on or
before the date that is fifteen (15) days before the date
of the last paycheck during the phase, or on or before such
other date established by the Administrator. The
Participant's request shall be effective as of the
beginning of the next payroll period immediately following
the date that the Administrator receives the Participant's
properly completed change of election form. Upon the
effective date of the Participant's request, the Company
shall discontinue making payroll deductions for such
Participant for that Phase, and all future Phases, unless
the Participant completes another change of election form
as provided above.
ARTICLE XI - TERMINATION OF EMPLOYMENT
11.01 If, on or before the termination date of any Phase, a
Participant's employment terminates with the Company for
any reason, voluntarily or involuntarily, including by
reason of retirement or death, the payroll deductions
credited to such Participant's bookkeeping account for such
Phase, if any, shall be returned to the Participant and any
options granted to such Participant under the Plan shall
immediately lapse and shall not be exercisable. The return
of such payroll deductions shall be made to the Participant
as soon as administratively practicable following the end
of the Phase in which the Participant's termination
occurred. In the event that such termination occurs near
the end of a Phase and the Company is unable to discontinue
payroll deductions for such Participant for his or her
final paycheck(s), such deductions shall still be made but
shall be returned to the Participant as provided in this
Plan. In no event shall the accumulated payroll deductions
be used to purchase any shares of Stock.
If the option lapses as a result of the Participant's
death, any accumulated payroll deductions credited to the
Participant's bookkeeping account shall be paid to the
Participant's estate. In the event a Participant dies
after exercise of the Participant's option but prior to
delivery of the Stock to be transferred pursuant to the
exercise of the option under Section 9.04, any such Stock
and/or accumulated payroll deductions remaining after such
exercise shall be paid by the Company to the Participant's
estate.
The Company shall not be responsible for or be required to
give effect to the disposition of any cash or Stock or the
exercise of any option in accordance with any shall or
other testamentary disposition made by such Participant or
in accordance with the provisions of any law concerning
intestacy, or otherwise. No person shall, prior to the
death of a Participant, acquire any interest in any Stock,
in any option or in the cash credited to the Participant's
bookkeeping account during any Phase of the Plan.
11.02 In the event that any Subsidiary ceases to be a
Subsidiary of the Company, the associates of such
Subsidiary shall be considered to have terminated their
employment for purposes of Section 11.01 as of the date the
Subsidiary ceased to be a Subsidiary of the Company.
ARTICLE XII - STOCK RESERVED FOR OPTIONS
12.01 Two Hundred Thousand (200,000) shares of Stock, which
may be authorized but unissued shares of the Company (or
the number and kind of securities to which said 200,000
shares may be adjusted in accordance with Section 14.01)
are reserved for issuance upon the exercise of options to
be granted under the Plan. Shares subject to the
unexercised portion of any lapsed or expired option may
again be subject to option under the Plan.
12.02 The Participant (or a joint tenant named pursuant to
Section 9.05) shall have no rights as a shareholder with
respect to any shares of Stock subject to the Participant's
option until the date of the issuance of a stock
certificate evidencing such shares as provided in Section
9.05. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other
property), distributions or other rights for which the
record date is prior to the date such stock certificate is
actually issued, except as otherwise provided in Section
14.01.
ARTICLE XIII - ACCOUNTING AND USE OF FUNDS
13.01 Payroll deductions for Participants shall be credited
to bookkeeping accounts, established by the Company for
each such Participant under the Plan. A Participant may
not make any cash payments into such account. Such account
shall be solely for bookkeeping purposes and shall not
require the Company to establish any separate fund or trust
hereunder. All funds from payroll deductions received or
held by the Company under the Plan may be used, without
limitation, for any corporate purpose by the Company, which
shall not be obligated to segregate such funds from its
other funds.
ARTICLE XIV - ADJUSTMENT PROVISION
14.01 Subject to any required action by the shareholders of
the Company, in the event of an increase or decrease in the
number of outstanding shares of Stock or in the event the
Stock is changed into or exchanged for a different number
or kind of shares of stock or other securities of the
Company or another corporation by reason of a
reorganization, merger, consolidation, divestiture
(including a spin-off), liquidation, recapitalization,
reclassification, stock dividend, stock split, combination
of shares, rights offering or any other change in the
corporate structure or shares of the Company, the Board
(or, if the Company is not the surviving corporation in any
such transaction, the board of directors of the surviving
corporation), in its sole discretion, shall adjust the
number and kind of securities subject to and reserved under
the Plan and, to prevent the dilution or enlargement of
rights of those Eligible Associates to whom options have
been granted, shall adjust the number and kind of
securities subject to such outstanding options and, where
applicable, the exercise price per share for such
securities.
In the event of sale by the Company of substantially all of
its assets and the consequent discontinuance of its
business, or in the event of a merger, exchange,
consolidation, reorganization, divestiture (including a
spin-off), liquidation, reclassification or extraordinary
dividend (collectively referred to as a "transaction"),
after which the Company is not the surviving corporation,
the Board may, in its sole discretion, at the time of
adoption of the plan for such transaction, may provide for
one or more of the following:
(a) The acceleration of the exercisability of outstanding
options granted at the commencement of the Phase then in
effect, to the extent of the accumulated payroll deductions
made as of the date of such acceleration pursuant to
Article 8 hereof;
(b) The complete termination of this Plan and a refund of
amounts credited to the Participants' bookkeeping accounts
hereunder; or
(c) The continuance of the Plan only with respect to
completion of the then current Phase and the exercise of
options thereunder. In the event of such continuance,
Participants shall have the right to exercise their options
as to an equivalent number of shares of stock of the
corporation succeeding the Company by reason of such
transaction.
In the event of a transaction where the Company survives,
then the Plan shall continue in effect, unless the Board
takes one or more of the actions set forth above. The
grant of an option pursuant to the Plan shall not limit in
any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes
in its capital or business structure or to merge, exchange
or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
ARTICLE XV - NONTRANSFERABILITY OF OPTIONS
15.01 Options granted under any Phase of the Plan shall not
be transferable and shall be exercisable only by the
Participant during the Participant's lifetime.
15.02 Neither payroll deductions granted to a Participant's
account, nor any rights with regard to the exercise of an
option or to receive Stock under any Phase of the Plan may
be assigned, transferred, pledged or otherwise disposed of
in any way by the Participant. Any such attempted
assignment, transfer, pledge or other disposition shall be
null and void and without effect, except that the Company
may, at its option, treat such act as an election to
withdraw in accordance with Section 10.01.
ARTICLE XVI - AMENDMENT AND TERMINATION
16.01 The Plan may be terminated at any time by the Board
of Directors, provided that, except as permitted in Section
14.01, no such termination shall take effect with respect
to any options then outstanding. The Board may, from time
to time, amend the Plan as it may deem proper and in the
best interests of the Company or as may be necessary to
comply with Code Section 423, as amended, and the
regulations thereunder, or other applicable laws or
regulations; provided, however, no such amendment shall,
without the consent of a Participant, materially adversely
affect or impair the right of a Participant with respect to
any outstanding option; and provided, further, that no such
amendment shall:
(a) increase the total number of shares for which options
may be granted under the Plan (except as provided in
Section 14.01);
(b) modify the group of Subsidiaries whose associates may
be eligible to participate in the Plan or materially modify
any other requirements as to eligibility for participation
in the Plan; or
(c) materially increase the benefits accruing to
Participants under the Plan; without the approval of the
Company's shareholders, if such approval is required for
compliance with Code Section 423, as amended, and the
regulations thereunder, or other applicable laws or
regulations.
ARTICLE XVII - NOTICES
17.01 All notices, forms, elections or other communications
in connection with the Plan or any Phase thereof shall be
in such form as specified by the Company or the
Administrator from time to time, and shall be deemed to
have been duly given when received by the Participant or
his or her personal representative or by the Company or its
designated representative, as the case may be.
Exhibit 10.8
Amendment No. 1 to
Waters Instruments, Inc.
1995 Stock Option Plan
1. Section 1(h) of the Plan is hereby amended in its
entirety to read as follows:
"(h)"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.
2. Section 7 of the Plan is hereby amended by adding the
following new paragraph at the end thereof:
"With respect to payment in the form of Common Stock of the
Company, the Board or Committee, as the case may be, 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."
3. The last sentence of Section 9(c) of the Plan is hereby
amended to read as follows:
"Such election shall be approved by the Board or the
Committee, as the case may be, and otherwise comply with
such rules as the Board or the Committee 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."
4. Section 14 of the Plan is hereby amended in its entirety
to read as follows:
"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 11, 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 11 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."
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (No. 33-64937) and (No.
333-42415) of the Waters Instruments, Inc. 1995 Stock
Option Plan and 1997 Associates Stock Purchase Plan,
respectively, of our report dated August 7, 1998, on the
financial statements of Waters Instruments, Inc., which
report, appears in the Annual Report on Form 10-KSB for the
year ended June 30, 1998.
Rochester, Minnesota
September 25, 1998
/s/ McGladrey & Pullen, LLP
MCGLADREY & PULLEN, LLP
