SPECIAL NOTICE & INVITATION
ANNUAL MEETING OF SHAREHOLDERS
To Be Held On October 22, 1998
WATERS INSTRUMENTS, INC.
(d/b/a WATERS CORPORATION)
2411 Seventh Street, NW
Rochester, MN 55901
<PAGE>
Your Personal Invitation. . . .
September 25, 1998
Dear Shareholder:
We are pleased to notify you that the Annual Meeting of Shareholders of WATERS
INSTRUMENTS, INC. (the Company) (d/b/a Waters Corporation) will be held on
Thursday, October 22, 1998, at 3:00 p.m., local time, at Waters Corporation,
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, 1998 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,
/s/ Jerry W. Grabowski
Jerry W. Grabowski
President & CEO
<PAGE>
ANNUAL MEETING OF SHAREHOLDERS
October 22, 1998
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) (d/b/a Waters
Corporation) of proxies to be voted at the Annual Meeting of Shareholders of
the Company to be held on October 22, 1998. Holders of Common Stock of
record at the close of business on August 31, 1998 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, 1998 there were 1,467,448 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. However, such non-vote will
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. However, the vote
abstained 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 25, 1998.
<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
<TABLE>
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 and each is proposing to stand for election as a nominee at the
Annual Meeting of Shareholders on October 22, 1998:
<S> <C> <C> <C>
Year In
Which First
Name Age Position with the Company and Principal Became a
Occupation Director
William R.
Franta 56 Director. Business Development &
Technology Consultant in Minneapolis,
Minnesota. 1997
Jerry W.
Grabowski 46 President, Chief Executive Officer and
Director of the Company. 1993
John A.
Grimstad 48 Secretary and General Counsel of the Company.
Vice President of Fredrikson & Byron, P. A.
in Minneapolis, Minnesota 1996
Charles G.
Schiefelbein 59 Director. President of Capital Growth
Services of Minneapolis, Minnesota. 1986
</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. Franta has been a Business Development & Technology Consultant since April
1996. From January 1987 to April 1996 he served as Senior Vice President of
Network Systems Corporation. He is a Director of HEI, Inc. in Victoria,
Minnesota.
Mr. Grabowski has been President and Chief Executive Officer and a member of
the Board of Directors of the Company since August 1993.
He additionally served as Chief Financial Officer, Secretary, and
Treasurer from December 1994 until October 1996.
From 1988 until joining the Company, he was employed as General Manager of
Onan Power/Electronics Division.
Mr. Schiefelbein, from September 1996 to the present, is President of Capital
Growth Services, a consulting and investment company, based in Minneapolis,
Minnesota. 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. 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 six meetings during fiscal year 1998. Each Director whose
reelection is proposed and who served as a member of the Board during fiscal
year 1998 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 Company does not have a nominating committee.
The Audit Committee, consisting of Mr. Franta, Mr. Schiefelbein, and
Mr. Grimstad for fiscal year 1998, 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 oversees 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 1998, 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.
Mr. Franta, Mr. Schiefelbein, and Mr. Grimstad will serve on the Audit
Committee for fiscal year 1999.
<PAGE>
The Compensation Committee, which for fiscal year 1999 will consist of
Mr. Franta, Mr. Grimstad, and Mr. Schiefelbein, 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 1998, the Compensation Committee met
twice and each Committee member (Mr. Grimstad, Mr. Schiefelbein, and
Mr. Siebens) was present at both meetings.
Until November 1996, the Stock Option Committee consisted of two or more
members of the Board of Directors or other persons who were appointed by and
served at the pleasure of the Board. {Other persons are those who are
"disinterested" persons and, among other things, have not been (at any time
within one year prior to such person's appointment to the Committee) and will
not be (while serving on such Committee) granted or awarded options under the
1995 Stock Option Plan (the "Plan").} During fiscal years 1996 and 1997,
the Board delegated to its Compensation Committee all of the authority of the
Board under the Plan.
For Fiscal Year 1998, the Board transferred all such duties and
responsibilities under the Plan to the full Board.
For Fiscal Year 1999, the Board anticipates again assigning the duties of
the Stock Option Committee to the full Board of Directors.
PRINCIPAL SHAREHOLDERS
<TABLE>
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, 1998:
<S> <C> <C>
Name and Address of Beneficial Owner Number of Shares
Beneficially Owned Percent of Class
Charles G. Schiefelbein
2920 Norwest Center, Minneapolis, MN
55402 197,953(1) 13.5%
Woodland Investment Company
3007 Skyway Circle North, Irving, TX
75038 172,000(2) 11.7%
Kohl Gift Trust
3007 Skyway Circle North, Irving, TX
75038 90,000(3) 6.1%
</TABLE>
[FN]
(1) Includes 70,000 shares of stock held in the name of Peace Shalom
Foundation, of which Mr. Schiefelbein is a Director and Vice President, as
well as 3,350 shares which may be purchased pursuant to options held by
Mr. Schiefelbein which are or will become exercisable within 60 days of
August 31, 1998.
(2) 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, each of whom are thereby deemed to be beneficial owners
of such shares.
<PAGE>
(3) 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>
MANAGEMENT SHAREHOLDINGS
<TABLE>
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, 1998.
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.
<S> <C> <C>
Name of Director or Number of Number of Shares Percent
Persons in Group Beneficially Owned(1) of Class
Charles G. Schiefelbein 197,953(2) 13.5%
Jerry W. Grabowski 62,250(3) 4.1%
John A. Grimstad 15,050(4) 1.0%
William R. Franta 3,350(5) 0.2%
Officers and Directors as a Group __________ ______
(5 persons) 281,853(6) 18.6%
</TABLE>
[FN]
(1) 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, 1998 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.
(2) Includes 70,000 shares of stock held in the name of Peace Shalom
Foundation, of which Mr. Schiefelbein is a Director and Vice President,
as well as 3,350 shares which may be purchased pursuant to options held
by Mr. Schiefelbein which are or will become exercisable within 60 days of
August 31, 1998.
(3) Includes 53,250 shares which may be purchased pursuant to options held
by Mr. Grabowski which are or will become exercisable within 60 days of
August 31, 1998.
(4) Includes 3,350 shares which may be purchased pursuant to options held
by Mr. Grimstad which are or will become exercisable within
60 days of August 31, 1998.
(5) Includes 3,350 shares which may be purchased pursuant to options held by
Mr. Franta which are or will become exercisable within 60 days of
August 31, 1998.
(6) Includes 66,550 shares which may be purchased pursuant to options held by
Officers and Directors which are or will become exercisable within 60 days of
August 31, 1998.
</FN>
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth annual compensation, as well as certain other
compensation, paid to the named executive officer:
<TABLE>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Compensation
Annual Compensation Awards Payouts
Name & Restricted All Other
Principal Fiscal Salary Incentive Other Stock Securities LTIP Compensa-
Position Year $ Comp $ (1) $ Awards $ Underlying Payouts tion $(2)
Granted
Jerry W.
Grabowski 1998 158,524 35,278 - - 3,250 - 3,783
President &
CEO 1997 143,780 61,000 - - - - 4,632
1996 139,521 13,446 - - - 4,420
</TABLE>
[FN]
(1) Represents incentive compensation payment.
(2) Represents insurance premiums and 401(k) match paid by the Company.
</FN>
OPTION GRANTS DURING FISCAL YEAR 1998
There were 3,250 shares of the Company's common stock granted in options under
the Company's 1995 Stock Option Plan during fiscal year 1998 to the named
executive officer in the Summary Compensation Table. The Company has not
granted any stock appreciation rights.
<TABLE>
<S> <C> <C> <C> <C> <C>
Number of Percent of Exercise or Expiration Grant
Securities Options Granted Base Price Date Date
Underlying to Employees ($/Share) Fair
Options in Fiscal Year Value
Name (#) (1)
Jerry W.
Grabowski 3,250 8.5% 5.75 2/5/2008 10,823
</TABLE>
[FN]
(l) The grant date fair value has been estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions;
dividend rate of .70%, price volatility of 43.1%, risk free interest rate of
5.71%, and an expected life of 10 years.
</FN>
<PAGE>
OPTION EXERCISES DURING FISCAL YEAR 1998 AND FISCAL YEAR-END OPTION VALUES
The named executive officer in the Summary Compensation Table did not
exercise any options during fiscal year 1998.
<TABLE>
<S> <C> <C> <C> <C>
Shares Value Number of Unexercised Value of Unexercised
Acquired Realized Options at FY-End (#) in-the-money options
on Exercise ($) Exercisable/ at FY-End ($)
(#) Unexercisable Exercisable/
Name Unexercisable (1)
Jerry W.
Grabowski 0 0 53,250/0 156,150/0
</TABLE>
[FN]
(1) 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, 1998 of $5.25 as quoted on the NASDAQ National Market System,
multiplied by the number of shares of Common Stock underlying the option.
</FN>
COMPENSATION OF DIRECTORS
Each non-employee, non-officer Director receives an:
annual retainer fee of $4,000,
$350 for each attended quarterly meeting of the Board,
$50 for each breakfast ordinner 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.
Such Directors also receive a monthly stipend of $50 to cover
miscellaneous travel, telephone, and meal expenses associated with Board
responsibilities.
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" (most recently ended
fiscal year)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.
<PAGE>
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 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.)
1997 ASSOCIATES STOCK PURCHASE PLAN
In December 1996, the Company's Board adopted, and shareholders subsequently
approved in October 1997, the Company's 1997 Associates Stock Purchase Plan
and reserved 200,000 shares of its Common Stock (or the number and kind of
securities to which said 200,000 shares may be adjusted by any future
action by the shareholders of the Company), which may be
authorized but unissued shares of the Company, for issuance upon the
exercise of options to be granted under the Associates Stock Purchase Plan.
Shares subject to the unexercised portion of any
lapsed or expired option may again be subject to option under the
Associates Stock Purchase Plan.
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, 1997 through June 30, 1998, 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,
1998. 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, 1999. 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.
SHAREHOLDERS' PROPOSALS FOR 1999 ANNUAL MEETING
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the next Annual Meeting in October 1999 must be
received by the Company by June 25, 1999 to be includable in the Company's
proxy statement and related proxy for the October 1999 Meeting.
<PAGE>
ANNUAL REPORT & FORM 10-KSB
A copy of the Company's Annual Report to shareholders for the fiscal year
ended June 30, 1998 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, 1998 will be
sent to those shareholders who request a copy by sending a letter
addressed to Roni Henry, Assistant Secretary, Waters Corporation,
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 1997 or 1998
or currently has any material interest, direct or indirect, in any transaction
in which the Company was involved.
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 W. Grabowski
Jerry Grabowski
President & Chief Executive Officer
September 25, 1998
<PAGE>
PROXY
This PROXY is solicited on behalf of the Board of Directors. The undersigned
hereby appoints JERRY W. GRABOWSKI and GREGORY J. ANSHUS, with full power of
substitution, as proxy 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. (d/b/a Waters Corporation), called to be held at
3:00 PM, Thursday, October 22, 1998, 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: William R. Franta, Jerry W. Grabowski, John A. Grimstad,
Charles G. Schiefelbein
__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 , 1998
Signature, if held jointly
Date , 1998
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.
POSTAGE WILL BE PAID BY ADDRESSEE
Roni E. Henry
Assistant Secretary
WATERS CORPORATION
PO Box 6117
Rochester, MN 55903-9990
