**EXHIBIT 10 (c)**

 

**OSMONICS, INC.**

 

**CHANGE IN CONTROL AGREEMENT**

 

THIS AGREEMENT is made by and between **OSMONICS, INC.**, a Minnesotacorporation  (the “Company”), and D.Dean Spatz (the “Employee”), as of the 26th day of April, 2001 (the “EffectiveDate”).

 

RECITALS

 

A.                                                      The Board ofDirectors of the Company (the “Board”) recognizes that the Employee’scontribution to the growth and success of the Company and its subsidiaries willbe substantial.

 

B.                                 The Company mayengage in discussions concerning the possible acquisition of the Company’ssecurities by another company or companies, and the possible merger of theCompany with or into another company or companies.

 

C.                                 Suchdiscussions and the attendant uncertainties caused by such discussions may havean unsettling effect on key management employees.

 

D.                                It is in thebest interests of the Company that such key management employees, includingEmployee, continue to be employed by the Company, whether or not an acquisitionor merger of the Company occurs.

 

E.                                  On or aboutAugust, 1999, the Board determined that it was and is appropriate and in thebest interests of the Company and its stockholders to reinforce and encouragethe continued attention and dedication of members of the Company’s management,including the Employee, to their assigned duties.

 

F.                                  The Board ofDirectors subsequently determined that it would be in the best interests of theCompany to preclude key employees from competing with the Company should theybe required to leave the Company after a Change in Control (as defined herein).

 

G.                                 This Agreementsets forth the severance compensation which the Company agrees it will pay tothe Employee if the Employee’s employment with the Company terminates under oneof the circumstances described herein following a Change in Control (as definedherein).

 

H.                                This Agreementalso includes certain restrictive covenants by which Employee agrees to refrainfor a certain time from competition with the Company, from disclosure of

 

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confidential information he possesses concerning the Company, and fromany interference with relationships between the Company and other employees andpersons and organizations doing business with the Company.

 

I.                                     Suchrestrictive covenants and the availability to the Company of the services ofEmployee after the date hereof are important considerations in the Company’sdecision to provide the severance benefits under this Agreement, and theCompany is unwilling to provide the benefits set forth below to Employee unlessEmployee executes and delivers this Agreement to the Company.

 

NOW THEREFORE, in consideration of the mutual covenants and conditionsherein contained and in further consideration of services performed and to beperformed by the Employee for the Company, the parties hereto agree as follows:

 

AGREEMENT

 

1.                     CertainDefinitions.  For purposes of thisAgreement, the following terms have the meanings indicated:

 

1.1              ApplicablePeriod.  For purposes of thisAgreement, the Applicable Period shall equal to the number of months equal tothe product of (i) twelve and (ii) the Factor (defined below).

 

1.2              Annual CashCompensation.  For purposes of thisAgreement, the Employee’s  Annual CashCompensation shall mean the sum of (i) the Employee’s annual base salary(determined as of the time of the Change in Control of the Company or, ifhigher, immediately prior to the date the Notice of Termination is given) plus(ii) an amount equal to the greater of the Employee’s annual incentive targetbonus for the fiscal year in which the Date of Termination occurs or the annualincentive bonus the Employee received for the fiscal year prior to the Changein Control of the Company. Notwithstanding the foregoing, Annual Cash Compensation shall notinclude any stock option received from the Company nor any cash received orincome reported by the Employee as a result of stock options received from theCompany.

 

1.3              Cause.

 

1.3.1     For purpose of thisAgreement “Cause” shall mean:

 

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1.3.1.1  the willful and continuedfailure by the Employee to substantially perform his material duties hereunder(other than any such failure resulting from the Employee’s incapacity due tophysical or mental illness or any such actual or anticipated failure after theissuance of a Notice of Termination by the Employee for Good Reason), afterreceipt by the Employee of written demand for substantial performance of hismaterial duties is delivered by the Company that specifically identifies themanner in which the Company believes the Employee has not substantiallyperformed his material duties and which notice gives the Employee not less thanforty-five (45) days to remedy any such failure to substantially perform hismaterial duties, or

 

1.3.1.2  the willful engaging bythe Employee in misconduct which is materially injurious to the Company,monetarily or otherwise.

 

1.3.2            No act, or failureto act, on the Employee’s part shall be considered “willful” unless done, oromitted to be done, by him not in good faith and without reasonable belief thathis action or omission was in the best interest of the Company.

 

1.3.3            Notwithstanding theforegoing, the Employee shall not be deemed to have been terminated for Causewithout (i) reasonable notice to the Employee setting forth the reasons for theCompany’s intention to terminate for Cause, and (ii) delivery to the Employeeof a Notice of Termination from the Board finding that in the good faithopinion of the Board the Employee was guilty of conduct set forth above inclause 1.3.1.1 or 1.3.1.2 hereof, and specifying the particulars thereof indetail.

 

1.4          Change in Control.  A “Change in Control” of the Company shalloccur if:

 

1.4.1            any person (asdefined in Sections 3(a)(9) and 13(d)(3) of the ‘34 Act) becomes the“beneficial owner” (as defined in Rule 13d-3 promulgated pursuant to the ‘34Act), directly or indirectly, of 35% or more of combined voting power of theCompany’s then outstanding securities; provided, however, that if any such personis now the beneficial owner of 35% or more of such voting power as of the dateof execution of this Agreement, the present existence of such ownership shallnot constitute a “Change in Control” unless such person changes in identity orcomposition or the same person becomes the beneficial owner, directly orindirectly, of 50% of such voting power;

 

1.4.2            the occurrencewithin any twelve (12)-month period during the term of the Agreement of achange in the Board with the result that the Incumbent Members do notconstitute a majority of the Board;

 

1.4.3            the shareholders ofthe Company approve an agreement to merge or consolidate with or into anothercorporation, but only if such transaction results in an immediate change in theBoard as described in clause 1.4.2; and, if the Board does not so

 

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change, the resulting entity shall be deemed a Successor and shallthereafter be liable for all of the Company’s obligations hereunder; or

 

1.4.4            an agreement tosell or otherwise dispose of all or substantially all of the Company’s assets(including a plan of liquidation).

 

1.5        Code.     “Code” shall mean the Internal Revenue Codeof 1986, as amended (or any successor provision) and any Treasury Regulationsissued thereunder.

 

1.6        Date of Termination.  “Date of Termination” shall mean:

 

1.6.1            if the Employee’semployment is terminated by the Company for Disability, thirty (30) days afterNotice of Termination is given to the Employee (provided that the Employeeshall not have returned to the performance of the Employee’s duties on afull-time basis during such thirty (30)-day period); or

 

1.6.2            if the Employee’semployment is terminated by the Company for any other reason, the date on whicha Notice of Termination is delivered to the Employee; provided that if withinthirty (30) days after any Notice of Termination is delivered to the Employeeby the Company the Employee notifies the Company that a dispute existsconcerning the termination, the Date of Termination shall be the date thedispute is finally determined, whether by mutual agreement by the parties, byone or more qualified medical doctors in the case of Disability, or upon finaljudgment, order or decree of a court of competent jurisdiction (the time forappeal therefrom having expired and no appeal having been perfected).  Nothing contained in this paragraph shall beconstrued to give the Employee any right to continued employment, salary orbenefits during any period such dispute is being decided.

 

1.7        Disability. “Disability”shall mean the Employee’s inability to substantially perform his materialduties on a full-time basis for twelve (12) consecutive months due to physicalor mental illness, if within thirty (30) days after Notice of Termination isthereafter given by the Company the Employee shall not have returned to thefull-time performance of the Employee’s duties; provided, however, that ifEmployee shall not agree with a determination to terminate him because ofDisability, the question of Employee’s ability shall be subject to thecertification of a qualified medical doctor agreed to by the Company and theEmployee or, in the event of the Employee’s incapacity to designate a doctor,the Employee’s legal representative.  Inthe absence of agreement between the Company and the Employee, each party shallnominate a qualified medical doctor and the two doctors shall select a thirddoctor, who shall make the determination as to Dis­ability.

 

1.8        Factor.  For purposes of this Agreement, the Factorshall be 3.

 

1.9        Good Reason.  Termination for “Good Reason” shall mean oneor more of the following:

 

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1.9.1            a demeaning or amaterial adverse involuntary change in Employee’s duties, status, title orposition as an Employee or officer of the Company, such as the removal of theEmployee as an officer, manager, etc. which position the Employee held at thetime of the Change of Control.  Forpurposes of this section, the fact that the Company is a subsidiary of anacquirer or a division of an acquirer shall not in and of itself be considereda material change to the Employee’s duties, status, titles or position and anychange in titles to make such title consistent with those of an acquirer shallnot in and of itself be considered a material change to the Employee’s duties,status, titles or position, duties, responsibilities; or

 

1.9.2            a reduction by theCompany in the Employee’s base salary as in effect on the date hereof or as thesame may be increased from time to time during the term of this Agreement orthe Company’s failure to increase (within twelve (12) months of the Employee’slast increase in base salary) the Employee’s base salary after a Change inControl of the Company in the amount which at least equals, on a percentagebasis, the average percentage increase in base salary for all similarlysituated Employees of the Company effected in the preceding twelve (12) monthsor a change in the eligibility requirements or performance criteria under anyPlan under which Employee is covered as of the Effective Date, which adverselyaffects Employee and is not substantially cured as provided in Section 1.9.3;or

 

1.9.3            any failure by theCompany to continue in effect any benefit plan or arrangement (including,without limitation, the Company’s Profit Sharing Plan, group life insuranceplan, and medical, dental, accident and disability plans) in which the Employeeis participating at the time of a Change in Control of the Company (or anyother plans providing the Employee with substantially similar benefits)(hereinafter referred to as “Benefit Plans”), or the taking of any action bythe Company which would adversely affect the Employee’s participation in ormaterially reduce, in the aggregate, the Employee’s benefits under any suchBenefit Plan or deprive the Employee of any material fringe benefit enjoyed bythe Employee at the time of a Change in Control of the Company (unless theCompany or the acquirer provide substantially similar benefits  to the Employee under other plans, orprovides benefits (including cash payments) which are in the aggregate  comparable financially to the aggregatebenefits provided under the Benefit Plans on an after tax basis; or

 

1.9.4            any failure by theCompany to continue in effect any incentive plan or arrangement (including,without limitation, the [Company’s Senior Management Incentive Plan], bonus andcontingent bonus arrangements and credits and the right to receive performanceawards and similar incentive compensation benefits) in which the Employee isparticipating at the time of a Change in Control of the Company (or any otherplans or arrangements providing him with substantially similar benefits)(hereinafter referred to as “Incentive Plans”) or the taking of any action bythe Company which would adversely affect the Employee’s participation in anysuch Incentive Plan or reduce in the aggregate the Employee’s benefits underany such Incentive Plan (unless the Company or the acquirer providesubstantially similar benefits to the Employee under other plans); or

 

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1.9.5            any failure by theCompany to continue in effect any plan or arrangement to receive securities ofthe Company (including, without limitation, the Company’s 1993 Stock Option Planand any other plan or arrangement to receive and exercise stock options, stockappreciation rights, restricted stock or grants thereof) in which the Employeeis participating at the time of a Change in Control of the Company (or plans orarrangements providing him with substantially similar benefits) (hereinafterreferred to as “Securities Plans”) or the taking of any action by the Companywhich would adversely affect the Employee’s participation in or materiallyreduce the Employee’s benefits under any such Securities Plan; or change in theplan which would or could have a material adverse affect on the amount, timingand condition of benefits which the Employee may receive under the Plan (unlessthe Company or the acquirer provide substantially similar benefits  to the Employee under other plans); or

 

1.9.6            a transfer of theEmployee’s place of work to a location which is more than fifty miles from theEmployee’s place of work at the time of the Change of Control; or

 

1.9.7            the Employerrequires the Executive to travel on Employer business 20% in excess of theaverage number of days per month the Executive was required to travel duringthe 180-day period prior to the Change of Control of the Company exclusive oftravel necessitated primarily by the Change of Control; or

 

1.9.8            any failure by theCompany to provide the Employee with the number of paid personal paid leavedays or vacation or sick days to which the Employee is entitled at the time ofa Change in Control of the Company; or

 

1.9..9           any material breachby the Company of any provision of this Agreement; or

 

1.9.10          any failure by theCompany to obtain the assumption of this Agreement by any successor or assignof the Company; or

 

1.9.11          any purportedtermination of the Employee’s employment which is not effected pursuant to aNotice of Termination and for purposes of this Agreement, no such purportedtermination shall be effective.

 

1.10      Incumbent Members.  “Incumbent Members” in respect of any twelve(12)-month period, shall mean the members of the Board on the date immediatelypreceding the commencement of such twelve (12)-month period, provided that anyperson becoming a Director during such twelve (12)-month period whose electionor nomination for election was supported by a majority of the Directors who, onthe date of such election or nomination for election, comprised the IncumbentMembers shall be considered one of the Incumbent Members in respect of suchtwelve (12)-month period.

 

1.11      Notice of Termination.  A “Notice of Termination” shall mean awritten notice which shall indicate those specific termination provisions inthis Agreement relied upon and which sets forth in reasonable detail the factsand circumstances claimed to provide a basis for termination of

 

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the Employee.  Any and allterminations by the Company shall be communicated by a Notice of Termination.

 

1.12      ‘34 Act.  “ ‘34 Act” shall mean the SecuritiesExchange Act of 1934, as amended (or any successor provision).

 

2.             Term.   This Agreement shall commence on theEffective Date first above written and shall continue in effect untilterminated as provided below.

 

2.1        Both parties mayterminate this Agreement by mutual consent.

 

2.2        The Company may terminatethis Agreement on not less than thirty (30) days prior written notice, providedhowever, that this Agreement shall not terminate earlier than the date which isninety (90) days after the Effective Date.

 

3.             Severance Compensation upon aChange of Control and Termination of Employment.

 

3.1        If (a) a Change inControl of the Company shall have occurred while the Employee is an employee ofthe Company, and (b) within the two (2)-year period beginning on the date ofsuch Change in Control (i) the Company shall terminate the Employee’semployment other than for death, Disability, or Cause (it being understood thata purported termination for Disability or for Cause which is finally determinednot to have been proper shall not be a termination for Disability or forCause), or (ii) the Employee shall terminate his employment for Good Reason,the Company shall provide the Employee with the payments and benefits set forthbelow.

 

3.2        If (a) the Companyterminates the Employee’s employment within three (3) months before the earlierof (i) public notice of a transaction that, if consummated, would constitute aChange of Control or a Change of Control occurs within two (2) years of such anannouncement, (ii) a letter of intent regarding a transaction that, ifconsummated, would be a Change of Control or a Change of Control occurs withintwo (2) years of such letter of intent, or (iii) a definitive agreementregarding a transaction that, if consummated, would be a Change of Control or aChange of Control occurs within two (2) years of such a definitive agreement,and (b) such termination occurred for any reason other than for death,Disability, or Cause (it being understood that a purported termination forDisability or for Cause which is finally determined not to have been propershall not be a termination for Disability or for Cause), the Company shallprovide the Employee with the payments and benefits set forth below.

 

3.3        If the Employee shallhave terminated his employment for Good Reason three (3) months before theearlier of (i) public notice of a transaction that, if consummated, wouldconstitute a Change of Control or a Change of Control occurs within two (2)years of such an announcement, (ii) a letter of intent regarding a transactionthat, if consummated, would be a Change of Control or a Change of Controloccurs within two (2) years of such letter of intent, or (iii) a definitiveagreement regarding a transaction that, if consummated, would be a Change ofControl or a Change of Control

 

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occurs within two (2) years of such a definitive agreement, the Companyshall provide the Employee with the payments and benefits set forth below

 

3.4        The Company shall pay theEmployee any earned and accrued but unpaid installment of base salary throughthe Date of Termination at the rate in effect at the time Notice of Terminationis given and all other unpaid amounts to which the Employee is entitled as ofthe Date of Termination under any compensation plan or program of the Company,including, without limitation, all accrued vacation time; such payments to bemade in a lump sum on or before the fifth (5th) day following theDate of Termination;

 

3.5        In lieu of any furthersalary payments to the Employee for periods subsequent to the Date ofTermination and in exchange for the non-compete and other covenants by theEmployee set forth below, the Company shall pay to the Employee an amount equalto [(A)] the product of (i) the sum of the Employee’s Annual Cash Compensationand (ii) the Factor [less, (B) One Dollar]; such amount shall be paid in equalmonthly installments over the Applicable Period with the first such payment dueon or before the fifth calendar day following the Date of Termination or theChange of Control, whichever is later, with all subsequent payments due on theapplicable anniversary of the first such payment.

 

3.6        During the ApplicablePeriod, the Company will reimburse the Employee for all reasonable expensesincurred by him (but not including any arrangement by which the Employee prepaysexpenses for a period of greater than thirty (30) days) in seeking employmentwith another Company including the fees of a reputable outplacementorganization, not to exceed the greater of $10,000.00 or 10% of the Employee’sAnnual Cash Compensation.  The Company’sobligation hereunder shall terminate after the Employee employment by anotheremployer.

 

3.7        During the ApplicablePeriod (or such greater period of time as may be required by law), the Companyshall maintain in full force for the continued benefit of the Employee andeffect and shall pay the entire cost of providing benefits to the Employee andhis family, all employee welfare benefit plans and perquisite programs in whichthe Employee was entitled to participate immediately prior to the Date ofTermination provided that the Employee’s continued participation is possibleunder the general terms and provisions of such plans and programs.  In the event that the Employee’sparticipation in any such plan or program is barred, the Company shall, at itssole cost and expense, arrange to provide at the Company’s cost, the Employeewith benefits substantially similar to those which the Employee would otherwisehave been entitled to receive under such plans and programs from which hiscontinued participation is barred.  TheCompany’s obligations hereunder shall be offset by any benefits the Employeereceives from a new employer.

 

3.8        Except as provided below,the Company shall vest and make immediately exercisable all stock optionsgranted by the Company to the Employee for the acquisition of the Company’sstock, or at the Employee’s option, pay to the Employee an amount equal to theamount (less the exercise price, if any, for such stock subject to the options)which the Employee would have been entitled to receive had such options beenimmediately vested and exercisable plus the amount, if any, which would put theEmployee in the net after tax position if the options were immediately vested

 

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and exercised and the Employee had exercised such options; and theCompany shall cause all stock issuable pursuant to such options to beimmediately tradeable upon the applicable stock exchange upon receipt by theEmployee.  Notwithstanding theforegoing, no such vesting or payment shall be required as and to the extentsuch vesting or payment would prevent Apooling@ accounting as provided inSection 8.6.

 

3.9        The Company shall fullyvest and make distributable all accrued benefits of the Employee under allemployee pension benefit plans (401(k) and profit sharing plan) in which theEmployee was entitled to participate immediately prior to the Date ofTermination.  In the event that suchvesting is not permitted by applicable law, the Company shall, at its sole costand expense, arrange to provide at the Company’s cost, the benefitssubstantially similar to those which the Employee would otherwise have beenentitled to receive under such plans and programs if such benefits were fullyvested and distributable.

 

4.             Mitigation: NoEffect on Other Contractual Rights.

 

4.1        The Employee shall usereasonable efforts to find comparable employment in terms of location, status,duties, position, salary and incentive compensation, benefits and plans.

 

4.2        Except as provided above,the Employee shall not be required to mitigate damages or the amount of anypayment provided for under this Agreement by seeking other employment orotherwise, nor shall the amount of any payment provided for under Sections 3.1,3.2 or 3.3 of this Agreement be reduced by any compensation earned by theEmployee as the result of employment by another Company after the Date ofTermination, or otherwise.

 

4.3        If the Employee isengaged by the Company or an affiliate as a consultant upon the Date ofTermination, the amounts payable under this Agreement shall be adjusted basedupon the amount paid to the Employee as a consultant by the Company in thefollowing manner, the amount payable under Section 3.5 shall be multiplied by afraction the numerator of which is the Employee’s Annual Cash Compensation asdefined herein multiplied by the Factor minus the aggregate amount which theCompany unconditionally agrees to pay to the Employee as a Consultant duringthe Applicable Period and the numerator of which is the Annual CashCompensation as defined herein multiplied by the Factor. 

 

4.4        Except as expresslyprovided herein, the provisions of this Agreement, and any payment provided forhereunder, shall not reduce any amounts otherwise payable, or in any waydiminish the Employee’s existing rights, or rights which would accrue solely asa result of the passage of time, under any Benefit Plan, Incentive Plan orSecurities Plan, employment agreement or other contract, plan or arrangement.

 

5.             Assumption bySuccessor to the Company.

 

5.1        The Company will requireany successor or assign (whether direct or indirect, by purchase, merger,consolidation or otherwise) to all or substantially all of the business and/orassets

 

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of the Company, by agreement in form and substance satisfactory to theEmployee, expressly, absolutely and unconditionally to assume and agree toperform this Agreement in the same manner and to the same extent that theCompany would be required to perform it if no such succession or assignment hadtaken place.  Any failure of the Companyto obtain such agreement prior to the effectiveness of any such succession orassignment shall be a material breach of this Agreement and shall entitle theEmployee to terminate the Employee’s employment for Good Reason. As used inthis Agreement, “Company” shall mean the Company as hereinbefore defined andany successor or assign to its business and/or assets as aforesaid whichexecutes and delivers the agreement provided for in this Section 5 or whichotherwise becomes bound by all the terms and provisions of this Agreement byoperation of law.  If at any time duringthe term of this Agreement the Employee is employed by any corporation amajority of the voting securities of which is then owned by the Company,“Company” as used in this Agreement shall in addition include suchCompany.  In such event, the Companyagrees that it shall pay or shall cause such Company to pay any amounts owed tothe Employee pursuant to Section 3 hereof.

 

5.2        This Agreement shallinure to the benefit of and be enforceable by the Employee’s personal and legalrepresentatives, executors, administrators, successors, heirs, distributees,devisees and legatees.  If the Employeeshould die while any amounts are still payable to him hereunder, all suchamounts, unless otherwise provided herein, shall be paid in accordance with theterms of this Agreement to the Employee’s devisee, legatee, or other designeeor, if there be no such designee, to the Employee’s estate.

 

6.             Company’s Right toTerminate Employment. Notwithstanding anything contained in this Agreement to the contrary,except to the extent that the Employee has a written employment agreement withthe Company, the Company may terminate the Employee’s employment at any time,for any reason or no reason, and no provision contained herein shall affect theCompany’s ability to terminate the Employee’s employment at any time, with orwithout Cause. Nothing in this Agreement shall in any way require the Companyto provide any of the benefits specified in this Agreement prior to a Change inControl, nor shall this Agreement be construed in any way to establish anypolicies or other benefits for the Employee or any other employee of theCompany whose employment with the Company is terminated prior to a Change inControl.

 

7.             Documents,Confidentially, Non–Compete

 

7.1        Definition.  For purposes of this Section 7 the term“Company” shall include Osmonics and any and all subsidiaries of the foregoingand any entities related through common controlling ownership to Osmonics.

 

7.2        Documents.  Employee shall not (except in theperformance of his duties hereunder) at any time or in any manner, make orcause to be made any copies, pictures, duplicates, facsimiles or otherreproductions or recordings or any abstracts or summaries of any reports,studies, memoranda, correspondence, manuals, records, plans or other written,printed or otherwise recorded materials of any kind whatever belonging to or inthe possession of Company or of any affiliate of Company or any customer orclient of Company.  Employee shall haveno right, title or interest in

 

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any such material, and Employee agrees that (except in the performance ofhis duties under this Agreement) he will not, without the prior written consentof Company, remove any material from the premises of Company or any affiliateof Company and that he will surrender all such material to Company immediatelyupon the termination of his employment or at any time prior thereto upon therequest of Company.

 

7.3        ProprietaryInformation, Confidentiality. Without the prior written consent of Company(which may be withheld with or without reason), Employee shall not at any time(after the date hereof, whether during or after his employment with Company),directly or indirectly, use for his own benefit or purposes or for the benefitor purposes of any other person, firm, partnership, association, corporation orbusiness organization, entity or enterprise, or disclose (except in theperformance of his duties hereunder) in any manner to any person, firm,partnership, association, corporation or business organization, entity orenterprise, any trade secrets, information, data, know–how or knowledge(including, but not limited to, that relating to costs, products, equipment,merchandising and marketing methods, suppliers, customers, personnel trainingprograms, business expansion plans or financing) which is proprietary toCompany or any affiliate of Company or any client or customer of Company. ThisSection 7.3 shall not apply to any such data, information, know–how orknowledge which (a) is publicly known or which hereafter becomes publicly knownthrough no fault of Employee; or (b) the disclosure of which is legallycompelled.  Employee acknowledges thatCompany intends any and all information referred to above to be proprietaryunless a policy to the contrary is adopted by Company’s Board of Directors.

 

7.4        Improvements andInventions.

 

7.4.1              Notificationand Disclosure.  Employee shallpromptly notify Company in writing of the existence and nature of, and shallpromptly and fully disclose to Company, any and all ideas, improvements andinventions, whether or not they are believed to be patentable (all of which arehereinafter sometimes referred to as “Inventions”), which Employee hasconceived or first actually reduced to practice and/or may conceive or firstactually reduce to practice during the period of Employee’s employment or whichEmployee may conceive or reduce to practice within one (1) year aftertermination of employment, if such Inventions relate to a product or processupon which Employee worked during his last three (3) years of employment byCompany.  An Invention for which no equipment,supplies, facility or trade secret information of Company was used and whichwas developed entirely on Employee’s own time, and which does not relate to thebusiness of Company or to Company’s actual or demonstrably anticipated researchor development, or which does not result from any work performed by Employeefor Company is not considered to be the property of Company.

 

7.4.2              Ownership ofInventions and Work Product.  Allsuch Inventions and all right, title, and interest of every kind and nature,whether now known or unknown, in and to any intellectual property, including,but not limited to, any computer software programs, trademarks, service marks,copyrights, films, scripts, ideas, creations, and properties invented, created,written, developed, furnished, produced, or disclosed by Employee, in thecourse of rendering services to Company under and pursuant to this Agreement(hereinafter

 

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“Work Product”) shall be the sole and exclusive property of Company orits nominee, and during the term of his employment and thereafter, wheneverrequested to do so by Company, Employee shall execute and assign any and allapplications, assignments and other instruments which Company shall deemnecessary or convenient in order to apply for and obtain Letters Patent orCopyright Registration of the United States and/or of any foreign countries forsuch Inventions and/or Work Product and in order to assign and convey toCompany or its nominee the sole and exclusive right, title and interest in andto such inventions, and Employee will render reasonable aid and assistance inany interference or litigation pertaining thereto, all expenses reasonablyincurred by Employee at the request of Company to be borne by Company, providedsuch aid assistance does not unreasonably interfere with Employee’s thencurrent employment.  In this connection,as to work which requires Employee’s time after termination of his employment,Employee shall be entitled to compensation for the time requested by Company atan hourly rate equal to the pro rata hourly rate at which Employee is beingpaid for a normal pay period immediately prior to the request forservices.  All Inventions and Work Productresulting from Employee’s employment by Company shall be considered “work forhire” for purposes of the United States copyright laws.

 

7.5        Covenant Not toCompete.

 

7.5.1              Employee herebyagrees that, during the Applicable Period, the Employee shall not, withoutCompany’s prior written consent (which may be withheld with or without reason),“engage or be interested, directly or indirectly” (as hereinafter defined),whether alone or together with or on behalf of or through any “other entity”(as hereinafter defined), whether as sole proprietor, partner, investor,stockholder, or any type of principal whatever, or as agent, officer, director,employee, technical advisor (except as he is employed by Company), lender,trustee, beneficiary, or otherwise, in any phase of the Restricted Business (ashereinafter defined) with any “customer” in the States where Company engages inits businesses in the United States or any other country in which Company hasconducted its Restricted Business at any time during the three (3) year periodprior to Date of Termination (hereinafter the “Reference Period”).

 

7.5.2              The termARestricted Business@ as used herein means any business any part of whichconsists of (a) manufacturing, sale or distribution of any productsubstantially similar to or otherwise competitive with a product manufactured,sold or distributed by any subsidiary, division or business unit of the Companyduring the Reference Period, and (b) any business of a kind in whole or in partsimilar to and competitive with that engaged in by Company during the ReferencePeriod.

 

7.5.3              The term “OtherEntity” as used herein means any person, firm, partnership, association, trust,venture, corporation or business organization, entity or enterprise, or anycombination thereof.

 

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7.5.4              The term “engageor be interested, directly or indirectly” as used herein shall include, withoutlimitation, giving advice or technical or financial assistance by loan,guarantees, stock transactions or in any other manner or to any other entitydoing or about to do such restricted business in the area covered by thisAgreement; but shall not by itself include the ownership of less than onepercent (1%) of the outstanding stock of a corporation the shares of which arepublicly traded.

 

7.5.5              The duration ofthe foregoing covenant shall be extended beyond the time period set forththerein for a period equal to the duration of any breach or default of suchcovenant by Employee.

 

7.5.6              Notwithstandingthe forgoing, upon request, which request shall not be unreasonably denied,Employee may enter the employment of another who was a customer of Companyduring the Reference Period, provided that such customer is not engaged in therestricted business in a manner competitive with the Company, and provided,that the position would not involve the design or construction of productswhich would be competitive to the products designed and manufactured by theCompany.

 

7.6        Business Relationships.   Employee hereby agrees that, during theApplicable  Period, the Employee shallnot, without prior written consent of Company (which may be withheld with orwithout reason):

 

7.6.1              request, induce,advise or encourage any customer or supplier, or any other entity havingbusiness dealings with Company, to the extent such business dealings are inconnection with the restricted business, to withdraw, curtail or cancel suchbusiness dealings; or

 

7.6.2              hire as employeeor independent contractor, or request, induce, advise or encourage atermination of employment by, any other employee of Company, whether actingdirectly or indirectly and whether acting alone or together with or on behalfof or through any other entity.

 

8.             Miscellaneous.

 

8.1             Notice.            For purposes of this Agreement,notices and all other communications provided for in the Agreement shall be inwriting and shall be deemed to have been duly given when delivered or mailed byUnited States registered mail, return receipt requested, postage prepaid, asfollows:

 

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If to the Company:

 

Osmonics, Inc.

5951 Clearwater Drive

Minnetonka, Minnesota 55343

Attn: D. Dean Spatz

 

With a copy to:

 

Maslon Edelman Borman & Brand,

a Professional Limited Liability Partnership

3300 Norwest Center

Minneapolis, Minnesota 55402-4140

Attn: Larry A. Koch

 

If to the Employee, at the most recent address provided by the Employeeto the Company or such other address as either party may have furnished to theother in writing in accordance herewith, except that notices of change of addressshall be effective only upon receipt.

 

8.2             Waiver,Modification.  No provisions of thisAgreement may be modified, waived or discharged unless such waiver,modification or discharge is agreed to in writing signed by the Employee andsuch officer of the Company as may be specifically designated by theBoard.  No waiver by either party heretoat any time of any breach by the other party hereto of, or in compliance with,any condition or provision of this Agreement to be performed by such otherparty shall be deemed a waiver of similar or dissimilar provision or conditionsat the same or at any prior or subsequent time.  No agreements or representations, oral or otherwise, express orimplied, with respect to the subject matter hereof have been made by eitherparty which are not set forth expressly in this Agree­ment.  This Agreement shall be governed by andconstrued in accordance with the laws of the State of Minnesota.

 

8.3             Severability.  The invalidity or unenforceability of anyprovisions of this Agreement shall not affect the validity or enforceability ofany other provision of this Agreement, which shall remain in full force andeffect.

 

8.4             Counterparts.  This Agreement may be executed in one ormore counterparts, each of which shall be deemed to be an original but all ofwhich together will constitute one and the same instrument.

 

8.5             Arbitration.  Except as provided herein for injunctiverelief, in the event of any dispute concerning or arising out of thisAgreement, such dispute shall be submitted by the parties to arbitration.  Arbitration proceedings may be commenced byeither party giving the other party written notice thereof and proceedingthereafter in accordance with the rules and procedures of the AmericanArbitration Association.  Any such arbitrationshall take place before a single arbitrator in

 

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the city nearest the Employees last place of employment with theCompany.  Any such arbitration shall begoverned by and subject to the applicable laws of the State of Minnesota(including the discovery provisions of Minnesota and the Minnesota Code ofCivil Procedure), and the then prevailing rules of the American ArbitrationAssociation.  The arbitrator’s award inany such arbitration shall be final and binding, and a judgment upon such awardmay be enforced by any court of competent jurisdiction. Except as providedabove and in the following sentence, one–half (2) of the cost ofarbitration shall be paid by each party, except that each party shall be liablefor its own attorneys’ fees and other expenses incurred directly by it.  However, the arbitrator may, in his or herdiscretion, award expenses and attorneys’ fees to the prevailing party asdetermined by the arbitrator.

 

8.6             Pooling.  No provision of this Agreement shall beenforceable to the extent such provision prevents “pooling” accounting inconnection with any “Change of Control” with respect to which the Company’sBoard of Directors determines that “pooling” accounting should be used, unlesssuch provision is affirmed by action of the Company’s Board of Directors.

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of theEffective Date and year first above written.

 
|   | OSMONICS, INC. |
|--------|----------------|
|   |           |
|   |           |
|   |           |
|   | By             | /s/ D. Dean Spatz |   |
|   | Its            | CEO |

 

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Schedule of Executives / Officers with substantially identical change incontrol agreements and their applicable period:

 
| **Executives / Officers** |   | **Applicable  Period** |
|---------------------------|--------|------------------------|
| Edward J. Fierko          |   | 3                      |
| Keith B. Robinson         |   | 3                      |
| Roger S. Miller           |   | 2                      |
| Curtis D. Weitnauer       |   | 2                      |
| Richard F. Elliott        |   | 2                      |
| L. Lee Runzheimer         |   | 1                      |

 

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