PERSONAL AND CONFIDENTIAL









EXHIBIT

10 (a)




 




Certain portions have




been omitted and




filed separately pursuant




to Rule 24b-2 of the 




Securities Exchange




Act of 1934.




 




MLS, LLC




3300

Wells Fargo Center




90

South Seventh Street




Minneapolis,

MN   55402




(612)

672-8351




 




PERSONAL AND CONFIDENTIAL




 




May 15, 2001




[TERMINATED BY LETTER DATED AUGUST 13, 2001]




[RESCINDED

WITH NO FURTHER OBLIGATIONS BY LETTER APRIL 1, 2002]




Mr. D. Dean Spatz




Chairman & Chief Executive Officer




Osmonics, Inc.




5951 Clearwater Drive




Minnetonka, Minnesota 

55343-8995




 




Dear Mr. Spatz:




 




This letter is to confirm the arrangements under which MLS, LLC (“MLS”)

is exclusively engaged by Osmonics, Inc. (the “Company”) as advisor to assist

the Company with the possible sale of all or a portion of the equity or the

assets of the Company.




 




Services. 

MLS will advise the Company in regard to the possible sale of more than

50% of the equity of the Company or substantially all of the assets of the

Company and will provide the following services:




 




Review and analyze the

business operations of the Company and the industry and market which it serves.




 




Assist in the preparation

of a written report describing the Company, its history, the nature of its

business operations, its management structure, including such financial

information as may be appropriate to reflect past performance and projected

growth and future earnings capacity, and such other information as is deemed

necessary or appropriate.  The Company

and its personnel will provide initial and working drafts of the data and

descriptions necessary for the report.




 




Counsel the Company as to

strategy and tactics for negotiating with prospective purchasers and

participate in such negotiations.




 




Assist the Company in

negotiating and preparing an agreement in principle, if appropriate, and a

definitive sales agreement.




 




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Assist the Company in any

proceedings relating to board or regulatory approvals required for the Sale

Transaction.




 




Coordinate the efforts of

legal counsel, auditors, real estate advisors and other professionals retained

by the Company toward an efficient closing of the Sale Transaction.




 




Render such other

financial, advisory and investment banking services as may from time to time be

agreed.




 




MLS will not and is not required to provide any appraisal, valuation

reports or fairness opinions in connection with the services to be provided

herein and the Company understands that such appraisals, valuation reports or

fairness opinions will more than likely be required.




 




It is the intent of the parties that Snow individually performs the

bulk of the services called for hereunder. 

MLS agrees to utilize the services of Michael L. Snow (“Snow”) absent

his death or incapacity. 

Notwithstanding Snow’s death or incapacity, the Company shall continue

to use MLS.




 




The terms of any sale will be subject to the approval of the Company,

in its sole discretion, and MLS is not authorized to make any agreement or

commitment for or on behalf of the Company. 

The Company shall not have any obligation to accept any offer regardless

of the amount or terms.




 




Fee. The fees for our engagement will depend on the

outcome of this sale assignment.  If the

purchase of 50% or more of the outstanding common stock or the assets (based on

the book value thereof) of the Company is accomplished in one or a series of

transactions, including, but not limited to, private or open market purchases

of stock, a tender offer, a merger or a sale by the Company of its stock or

assets, we will receive from the Company a transaction fee of 1% of the

aggregate consideration paid in such transactions.  Except as provided herein, a transaction fee will be paid to us

in cash upon consummation of each transaction.




 




The aggregate consideration for purposes of calculating a transaction fee

shall be:




 




(i)                     in the case of the sale, exchange or purchase of the

Company’s equity securities, the total consideration paid for such securities

(including amounts paid to holders of options, warrants and convertible

securities), plus the principal amount of all indebtedness for borrowed money

as set forth on the most recent consolidated balance sheet of the Company prior

to the consummation of such sale, exchange or purchase, and




 




(ii)                  in the case of a sale or disposition by the Company of

assets, the total consideration paid for such assets, plus the net value of any

current assets not sold by the Company and the principal amount of all

indebtedness for borrowed money assumed by the purchaser.




 




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Amounts paid into escrow and contingent payments in connection with any

transaction will be included as part of the aggregate consideration.  Fees on amounts paid into escrow will be

payable upon the establishment of such escrow. 

If the consideration in connection with any transaction may be increased

by payments related to future events, the portion of our fee relating to such

contingent payments will be calculated and paid if and when such contingent

payments are made.  Aggregate

consideration also shall include the aggregate amount of any (i) dividends or

other distributions declared by the Company with respect to its stock after the

date hereof, other than normal recurring cash dividends in amounts not

materially greater than currently paid, and (ii) amounts paid by the Company to

repurchase any securities of the Company outstanding on the date hereof.




 




In connection with a sale of 50% or more of the outstanding common

stock of the Company, the transaction fee will be payable and calculated under

the definition of aggregate consideration set forth above as though 100% of the

outstanding common stock on a fully diluted basis had been acquired for the

same per share amount paid in the transaction in which 50% or more of the

Company’s outstanding common stock is acquired by a purchaser or group of

affiliated purchasers.




 




If any portion of the aggregate consideration is paid in the form of

securities, the value of such securities, for purposes of calculating the

transaction fee, will be determined by the average of the last sales prices for

such securities on the five trading days ending five trading days prior to the

date of the consummation of the transaction. 

If such securities do not have an existing public trading market, the

value of the securities shall be the mutually agreed upon fair market value on

the day prior to the consummation of the transaction.




 




In the event that the Company rejects a bona fide offer or offers at a

price meeting or exceeding [$                

][omitted pursuant to Rule 24b-2] per share of Company stock on a fully

diluted basis (“Minimum Consideration”), MLS will be deemed to have discharged

all of the services required hereunder and the Company shall pay a fee of One

Percent (1%) of such offer, provided, however, that (i) the bona fide offer

must be incorporated in a written agreement setting forth all material terms of

transaction, including, with reasonable specification, the representations,

warranties and covenants required of the Company, and (ii) the consideration,

except for liabilities assumed by the buyer, must be all cash or marketable

securities, or, if not all cash or marketable securities, the present value of

all such consideration (calculated with a mutually agreed to discount rate),

must equal an amount substantially equivalent to the Minimum Consideration; and

(iii) the proposed purchaser must have a demonstrated credit capacity to

finance and consummate the transaction without material variance, unless due to

a default by the Company.




 




In order to coordinate most effectively our efforts together to effect

a transaction satisfactory to you during the term of our engagement, the

Company and its management will promptly inform MLS of any inquiry they may

receive concerning the availability of all or a portion of the stock or assets

of the Company for purchase.  Also,

during the period of our engagement, neither the 




 




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Company nor its management will initiate any discussions looking toward

the sale of all or a portion of the stock or assets of the Company without

first consulting with MLS.




 




General.




 




In addition to any fees payable as provided above, you also agree to

reimburse MLS periodically, upon request, and upon consummation of the

transaction or transactions contemplated hereby or upon termination of our

services pursuant to this agreement, for our reasonable out-of-pocket expenses

including the fees and disbursements of our attorneys, plus any sales, use or

similar taxes (including additions to such taxes, if any) arising in connection

with any matter referred to in this letter.




 




Please note that any written or oral opinion or advice provided by MLS

in connection with our engagement is exclusively for the information of the

Board of Directors and senior management of the Company, and may not be

disclosed to any third party or circulated or referred to publicly without our

prior written consent.




 




The Company agrees to the provisions with respect to our indemnity and

other matters set forth in Annex A which is incorporated by reference into this

letter.




 




You or MLS may terminate our services at any time, with or without

cause, effective upon receipt of written notice to that effect.  However, we will be entitled to the

applicable transaction fee set forth above in the event that at any time prior

to the later of (i) the expiration of one year after such termination or (ii)

July 31, 2002 an agreement is entered into with respect to a sale of all or a

portion of the stock or assets of the Company which is eventually consummated.  The Company’s obligations set forth above

shall survive the death or incapacity of any of the principals of MLS or Snow.




 




The Company recognizes that in providing our services pursuant to this

letter, we will rely upon and assume the accuracy and completeness of all of

the financial and other information discussed with or reviewed by MLS for such

purposes, and we do not assume responsibility for the accuracy or completeness

thereof.  We will have no obligation to

conduct any independent evaluation or appraisal of the assets or liabilities of

the Company or any other party or to advise or opine on any related solvency

issues or fairness of the transaction to the Company’s shareholders.  The Company acknowledges that it will likely

need to hire a firm to provide such evaluation, appraisal and/or opinion.  It is understood and agreed that we will act

under this letter as an independent contractor with duties solely to the

Company and nothing in this letter or the nature of our services shall be

deemed to create a fiduciary or agency relationship between us and the Company

or its stockholders.  Except as set

forth in Annex A hereto, nothing in this letter is intended to confer upon any

other person (including stockholders, employees or creditors of the Company)

any rights or remedies hereunder or by reason hereof.




 




We do not provide accounting, tax or legal advice.  The Company is authorized, subject to

applicable law, to disclose any and all aspects of this potential transaction

that are necessary to 




 




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support any U.S. federal income tax benefits expected to be claimed

with respect to such transaction, without our imposing any limitation of any

kind.




 




Please confirm that the foregoing is in accordance with your

understanding by signing and returning to us the enclosed copy of this letter,

which shall become a binding agreement upon our receipt.  We are delighted to accept this engagement

and look forward to working with you on this assignment.




 




	

  Very truly yours,


  	

  Agreed to and accepted by


  
	

   


  	

   


  
	

   


  	

   


  
	

   


  	

   


  
	

  MLS, LLC


  	

  OSMONICS, Inc.


  
	

   


  	

   


  
	

   


  	

   


  
	

   


  	

   


  
	

  By:


  	

  /s/ Michael L. Snow


  	

   


  	

  By:


  	

  /s/ D. Dean Spatz


  	

   


  
	

   


  	

  Michael L. Snow, Manager


  	

   


  	

  D. Dean Spatz, CEO


  
	

   


  	

   


  	

   


  
	

  Date:


  	

  15 May 2001


  	

   


  	

  Date:


  	

  16 May 2001


  	

   


  
										





 




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Annex A




 




In the event that we become involved

in any capacity in any action, proceeding or investigation brought by or

against any person, including stockholders of the Company, in connection with

or as a result of either our engagement or any matter referred to in this

letter, the Company periodically will reimburse MLS for our legal and other

expenses (including the cost of any investigation and preparation) incurred in

connection therewith.  The Company also

will indemnify and hold MLS harmless against any and all losses, claims,

damages or liabilities to any such person in connection with or as a result of

either our engagement or any matter referred to in this letter, except to the

extent that any such loss, claim, damage or liability results from our gross

negligence or bad faith in performing the services that are the subject of this

letter.  If for any reason the foregoing

indemnification is unavailable to MLS or insufficient to hold MLS harmless, then

the Company shall contribute to the amount paid or payable by MLS as a result

of such loss, claim, damage or liability in such proportion as is appropriate

to reflect the relative economic interests of the Company and its stockholders

on the one hand and MLS on the other hand in the matters contemplated by this

letter as well as the relative fault of the Company and MLS with respect to

such loss, claim, damage or liability and any other relevant equitable

considerations.  The reimbursement,

indemnity and contribution obligations of the Company under this paragraph

shall be in addition to any liability which the Company may otherwise have,

shall extend upon the same terms and conditions to any of our affiliates and

our partners, members, directors, governors, managers, officers, agents, employees

and controlling persons (if any), as the case may be and any such affiliate,

and shall be binding upon and inure to the benefit of any successors, assigns,

heirs and personal representatives of the Company, MLS, any such affiliate and

any such person.  The Company also

agrees that neither we nor any of such affiliates, partners, members,

directors, governors, managers, officers, agents, employees or controlling

persons shall have any liability to the Company or any person asserting claims

on behalf of or in right of the Company in connection with or as a result of

either our engagement or any matter referred to in this letter except to the

extent that any losses, claims, damages, liabilities or expenses incurred by

the Company result from our gross negligence or bad faith in performing the

services that are the subject of this letter. 

Prior to entering into any agreement or arrangement with respect to, or

effecting, any proposed sale, exchange, dividend or other distribution or

liquidation of all or a significant portion of its assets in one or a series of

transactions or any significant recapitalization or reclassification of its

outstanding securities that does not directly or indirectly provide for the

assumption of the obligations of the Company set forth in this Annex A, the

Company will notify MLS in writing thereof (if not previously so notified) and,

if requested by MLS, shall arrange in connection therewith alternative means of

providing for the obligations of the Company set forth in this paragraph,

including the assumption of such obligations by another party, insurance,

surety bonds or the creation of an escrow, in each case in an amount and upon

terms and conditions satisfactory to MLS. 

Any right to trial by jury with

respect to any action or proceeding arising in connection with or as a result

of either our engagement or any matter referred to in this letter is hereby

waived by the parties hereto. The provisions of this Annex A shall survive any

termination or completion of 




 




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the engagement

provided by this letter, and this letter shall be governed by and construed in

accordance with the laws of the State of Minnesota without regard to principles

of conflicts of laws.




 




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