**Exhibit 10**

 

**OSMONICS, INC.**

 

**CHANGE IN CONTROL AGREEMENT**

 

THIS AGREEMENTis made by and between **OSMONICS, INC.,**a Minnesota corporation  (the“Company”), and D. Dean Spatz (the “Employee”), as of the 5th day of June, 2002(the “Effective Date”).

 

RECITALS

 

A.         The Board of Directorsof the Company (the “Board”) recognizes that the Employee’s contribution to thegrowth and success of the Company and its subsidiaries will be substantial.

 

B.         The Company may engage in discussionsconcerning the possible acquisition of the Company’s securities by anothercompany or companies, and the possible merger of the Company with or intoanother company or companies.

 

C.         Such discussions and the attendantuncertainties caused by such discussions may have an unsettling effect on keymanagement employees.

 

D.         It is in the best interests of theCompany that such key management employees, including Employee, continue to beemployed by the Company, whether or not an acquisition or merger of the Companyoccurs.

 

E.          On or about August, 1999, the Boarddetermined that it was and is appropriate and in the best interests of theCompany and its stockholders to reinforce and encourage the continued attentionand dedication of members of the Company’s management, including the Employee, totheir assigned duties.

 

F.          The Board of Directors subsequentlydetermined that it would be in the best interests of the Company to precludekey employees from competing with the Company should they be required to leavethe Company after a Change in Control (as defined herein).

 

G.         This Agreement sets forth the severancecompensation which the Company agrees it will pay to the Employee if theEmployee’s employment with the Company terminates under one of thecircumstances described herein in connection with a Change in Control (asdefined herein).

 

H.         This Agreement also includes certainrestrictive covenants by which Employee agrees to refrain for a certain timefrom competition with the Company, from disclosure of confidential informationhe possesses concerning the Company, and from any interference withrelationships between the Company and other employees and persons andorganizations doing business with the Company.

 

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I.           Such restrictive covenants and theavailability to the Company of the services of Employee after the date hereofare important considerations in the Company’s decision to provide the severancebenefits under this Agreement, and the Company is unwilling to provide thebenefits set forth below to Employee unless Employee executes and delivers thisAgreement to the Company.

 

NOW THEREFORE,in consideration of the mutual covenants and conditions herein contained and infurther consideration of services performed and to be performed by the Employeefor the Company, the parties hereto agree as follows:

 

AGREEMENT

 

1.  Certain Definitions.  For purposes of this Agreement, thefollowing terms have the meanings indicated:

 

1.1  Applicable Period.For purposes of this Agreement, the Applicable Period shall equal the number ofmonths equal to the product of (i) twelve and (ii) the Factor (defined below).

 

1.2  Annual Cash Compensation.  For purposes of this Agreement, theEmployee’s Annual Cash Compensation shall mean the sum of (i) the Employee’sAnnual Base Compensation plus (ii) an amount equal to the Employee’s AnnualBonus Compensation.

 

1.3  Annual Base Compensation.  For purposes of this Agreement, theEmployee’s Annual Base Compensation shall mean the Employee’s annual basesalary 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.  Notwithstanding the foregoing, Annual BaseCompensation shall not include any stock option received by the Employee fromthe Company nor any cash received or income reported by the Employee as aresult of stock options received from the Company.

 

1.4  Annual BonusCompensation.  For purposes of thisAgreement, Annual Bonus Compensation means an amount equal to the greater of(i) the Employee’s annual incentive target bonus for the fiscal year in whichthe Date of Termination occurs, (ii) the Employee’s annual incentive targetbonus for the fiscal year in which the Change in Control occurs, (iii) theannual incentive bonus the Employee received for the fiscal year prior to theChange in Control of the Company, or (iv) the annual incentive bonus theEmployee received for the fiscal year prior to the Date of Termination.  Notwithstanding the foregoing, Annual BonusCompensation shall not include any stock option received by the Employee fromthe Company nor any cash received or income reported by the Employee as aresult of stock options received from the Company.

 

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1.5  Cause.

 

1.5.1  For purpose of thisAgreement “Cause” shall mean:

 

1.5.1.1  the willful andcontinued failure by the Employee to substantially perform his material dutieshereunder (other than any such failure resulting from the Employee’s incapacitydue to physical or mental illness or any such actual or anticipated failureafter the issuance of a Notice of Termination by the Employee for Good Reason),after receipt by the Employee of written demand for substantial performance ofhis material 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

 

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

 

1.5.2  No act, or failure to act,on the Employee’s part shall be considered “willful” unless done, or omitted tobe done, by him not in good faith and without reasonable belief that his actionor omission was in the best interest of the Company.

 

1.5.3  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 1.5.1 or 1.5.2 hereof, and specifying the particulars thereof in detail.

 

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

 

1.6.1  any person (as defined inSections 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 ‘34 Act), directly orindirectly, of thirty-five percent (35%) or more of combined voting power ofthe Company’s then outstanding securities; provided, however, that if any suchperson is now the beneficial owner of thirty-five (35%) or more of such votingpower as of the date of execution of this Agreement, the present existence ofsuch ownership shall not constitute a “Change in Control” unless such personchanges in identity or composition or the same person becomes the beneficialowner, directly or indirectly, of fifty (50%) of such voting power. For thispurpose, a “person” does not include any Company employee benefit plan, anycompany the shares of which are held by the

 

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Company’sshareholders in substantially the same proportion as they held the Company’sstock, or any testamentary trust or estate;

 

1.6.2  the occurrence within anytwelve (12)-month period during the term of the Agreement of a change in theBoard with the result that the Incumbent Members do not constitute a majorityof the Board;

 

1.6.3  the occurrence of  any merger, consolidation, amalgamation,plan or arrangement, reorganization or similar transaction involving theCompany, other than, in the case of any of the foregoing, a transaction inwhich the shareholders of the Company immediately prior to the transaction holdimmediately thereafter, in the same proportion as immediately prior to thetransaction, more than fifty percent (50%) of the combined voting power of thethen outstanding securities of the resulting entity; or

 

1.6.4   the occurrence of the saleor other disposition of all or substantially all of the Company’s assets(including a plan of liquidation).

 

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

 

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

 

1.8.1  if the Employee’s employmentis terminated by the Company for Disability, thirty (30) days after Notice ofTermination is given to the Employee (provided that the Employee shall not havereturned to the performance of the Employee’s duties on a full-time basisduring such thirty (30)-day period); or

 

1.8.2  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).

 

1.9  Disability.“Disability” shall mean the Employee’s inability to substantially perform hismaterial duties on a full-time basis for twelve (12) consecutive months due tophysical or mental illness, if within thirty (30) days after Notice ofTermination is thereafter given by the Company the Employee shall not havereturned to the full-time performance of the Employee’s duties; provided,however, that if Employee shall not agree with a determination to terminate himbecause of Disability, the question of Employee’s ability shall be subject tothe certification of a qualified medical doctor agreed to by the Company andthe Employee or, in the event of the Employee’s

 

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incapacity todesignate a doctor, the Employee’s legal representative.  In the absence of agreement between theCompany and the Employee, each party shall nominate a qualified medical doctorand the two doctors shall select a third doctor, who shall make thedetermination as to Disability.

 

1.10         Factor.  For purposes of this Agreement, the Factorshall be three.

 

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

 

1.11.1  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 in 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, title 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

 

1.11.2  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 percentage basis,the average percentage increase in base salary for all similarly situatedEmployees of the Company effected in the preceding twelve (12) months or achange in the eligibility requirements or performance criteria under any Planunder which Employee is covered as of the Effective Date, which adverselyaffects Employee and is not substantially cured as provided in Section 1.11.3;or

 

1.11.3  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 such BenefitPlan or deprive the Employee of any material fringe benefit enjoyed by theEmployee at the time of a Change in Control of the Company (unless the Companyor the acquirer provide substantially similar benefits  to the Employee under other plans, or providesbenefits (including cash payments) which are in the

 

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aggregate  comparable financially to the aggregatebenefits provided under the Benefit Plans on an after tax basis); or

 

1.11.4  any failure by theCompany to continue in effect any incentive plan or arrangement (including,without limitation, bonus and contingent bonus arrangements and credits and theright to receive performance awards and similar incentive compensationbenefits) in which the Employee is participating at the time of a Change inControl of the Company (or any other plans or arrangements providing him withsubstantially similar benefits) (hereinafter referred to as “Incentive Plans”)or the taking of any action by the Company which would adversely affect theEmployee’s participation in any such Incentive Plan or reduce in the aggregatethe Employee’s benefits under any such Incentive Plan (unless the Company orthe acquirer provide substantially similar benefits to the Employee under otherplans); or

 

1.11.5  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 OptionPlan and any other plan or arrangement to receive and exercise stock options,stock appreciation rights, restricted stock or grants thereof) in which theEmployee is participating at the time of a Change in Control of the Company (orplans or arrangements 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

 

1.11.6  a transfer of theEmployee’s place of work to a location which is more than fifty (50) miles fromthe Employee’s place of work at the time of the Change in Control; or

 

1.11.7  the Employer requiresthe Executive to travel on Employer business twenty percent (20%) in excess ofthe average number of days per month the Executive was required to travelduring the one hundred eighty (180)-day period prior to the Change in Controlof the Company exclusive of travel necessitated primarily by the Change in Control;or

 

1.11.8  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

 

1.11.9  any material breach bythe Company of any provision of this Agreement; or

 

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1.11.10  any failure by theCompany to obtain the assumption of this Agreement by any successor or assignof the Company as required under Section 7.1; or

 

1.11.11  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.

 

1.12         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 approved 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.

 

1.13         Notice ofTermination.  A “Notice ofTermination” shall mean a written notice which shall indicate those specifictermination provisions in this Agreement relied upon and which sets forth inreasonable detail the facts and circumstances claimed to provide a basis fortermination of the Employee.  Any andall terminations by the Company shall be communicated by a Notice ofTermination.

 

1.14         ‘34 Act.  “ ‘34 Act” shall mean the SecuritiesExchange Act of 1934, as amended (or any successor provision).

 

2.  Term.  This Agreement shall commence on the Effective Date first abovewritten and shall continue in effect until terminated as provided below.

 

2.1  Both parties may terminatethis Agreement by mutual consent.

 

2.2  The Company may terminatethis Agreement on not less than twelve (12) months prior written notice,provided, however, that this Agreement shall not terminate earlier than thedate which is twenty-four (24) months after the Effective Date and providedfurther that if a Change in Control occurs during the term of this Agreement,the Agreement shall not terminate before the date which is two (2) years afterthe date of such Change in Control or the end of the Applicable Periodwhichever is later.

 

3.  Severance Compensation upon a Change inControl and Termination of Employment.

 

3.1  If (a) a Change in Controlof the Company shall have occurred while the Employee is an employee of theCompany, and (b) within the two (2)-year period beginning on the date of suchChange in Control either (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

 

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provide theEmployee with the payments and benefits set forth below in consideration of theEmployee’s continued employment with the Company and the additional effortwhich may be required of the Employee as a result of or in connection with theChange in Control.

 

3.2  If (a) the Companyterminates the Employee’s employment during the period beginning three (3)months and ending two (2) years after the earlier of (i) public notice of atransaction that, if consummated, would constitute a Change in Control, (ii) aletter of intent regarding a transaction that, if consummated, would be aChange in Control, or (iii) a definitive agreement regarding a transactionthat, if consummated, would be a Change in, (b) a Change in Control occursduring such two (2) year period, and (c) such termination occurred for anyreason other than for death, Disability, or Cause (it being understood that apurported termination for Disability or for Cause which is finally determinednot to have been proper shall not be a termination for Disability or forCause), the Company shall provide the Employee with the payments and benefitsset forth below in consideration of the Employee’s continued employment withthe Company and the additional effort which the Employee may be required of theEmployee as a result of or in connection with the Change in Control.

 

3.3  If (a) the Employee shallhave terminated his employment for Good Reason during the period beginning three (3) months and ending two (2) yearsafter the earlier of (i) public notice of a transaction that, if consummated,would constitute a Change in Control, (ii) a letter of intent regarding atransaction that, if consummated, would be a Change in Control, or (iii) adefinitive agreement regarding a transaction that, if consummated, would be aChange in Control,and (b) a Change in Control occurs during such two (2) yearperiod, the Company shall provide the Employee with the payments and benefitsset forth below in consideration of the Employee’s continued employment withthe Company and the additional effort which may be required of the Employee as aresult of or in connection with the Change in Control.

 

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, the Company shall pay to the Employee an amount equal to theproduct of (i) the Employee’s Annual Bonus Compensation and (ii) theFactor.  Such amount shall be paid inequal monthly installments over the Applicable Period with the first suchpayment due on or before the fifth (5th) calendar day following theDate of Termination or the Change in Control, whichever is later, with allsubsequent payments due on the same day of the month as the first such payment(or if such date does not exist, the last date of such month which is not aweekend or federal holiday).

 

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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 Employeeprepays expenses for a period of greater than thirty (30) days) in seekingemployment with another Company including the fees of a reputable outplacementorganization, not to exceed the greater of Ten Thousand Dollars ($10,000.00) orten percent (10%) of the Employee’s Annual Cash Compensation.  The Company’s obligation hereunder shallterminate after the Employee employment by another employer.

 

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  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.  Vesting of Stock Options on a Change inControl.  Except as provided below,upon the occurrence of a Change in Control, the Company shall vest and makeimmediately exercisable all stock options granted by the Company to theEmployee for the acquisition of the Company’s stock, or at the Employee’soption, pay to the Employee an amount equal to the amount (less the exerciseprice, if any, for such stock subject to the options) which the Employee wouldhave been entitled to receive had such options been immediately vested andexercisable and the Employee had exercised such options; and the Company shallcause all stock issuable pursuant to such options to be immediately tradableupon the applicable stock exchange upon receipt by the Employee.

 

5.  Limitation on Benefits.Notwithstanding the foregoing, in the event it shall be determined that anybenefit, payment or distribution by the Company to or for the benefit of theEmployee (whether payable or distributable pursuant to the terms of thisAgreement or otherwise) (a “Payment”) would, if paid, be subject to the excisetax imposed by Section 4999 of

 

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the Code (the “Excise Tax”) thePayment shall be reduced to the extent necessary to eliminate such Excise Taxprovided however, that such reduction shall not apply to the extent that thePayments to the Employee’s net of any taxes, including but not limited to, theexcise tax under Section 4999, are, after applying the foregoing reduction, greater than the amount of thePayments net of tax if the foregoing reduction is not applied.  The Employee may, to the extent permitted bylaw, elect which Payment(s) will be reduced.

 

6.  Mitigation: No Effect on Other ContractualRights.

 

6.1  The Employee shall not berequired to mitigate damages or the amount of any payment provided for underthis Agreement by seeking other employment or otherwise, nor shall the amountof any payment provided for under Section 3 or 4 of this Agreement be reducedby any compensation earned by the Employee as the result of employment byanother Company after the Date of Termination, or otherwise.

 

6.2  If the Employee is engagedby the Company or an affiliate as a consultant upon the Date of Termination,the amount payable under Section 3 of this Agreement shall be reduced by theamount paid to the Employee as a consultant by the Company during theApplicable Period.

 

6.3  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.

 

7.  Assumption by Successor to the Company.

 

7.1  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 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.  As used in this Agreement,“Company” shall mean the Company as hereinbefore defined and any successor orassign to its business and/or assets as aforesaid which executes and deliversthe agreement provided for in this Section 7 or which otherwise becomes boundby all the terms and provisions of this Agreement by operation of law.  If at any time during the term of thisAgreement the Employee is employed by any corporation a majority of the votingsecurities of which is then owned by the Company, “Company” as used in thisAgreement shall in addition include such Company.  In such event, the Company agrees that it shall pay or shallcause such Company to pay any amounts owed to the Employee pursuant to Section3 hereof.

 

7.2  This Agreement shall inureto the benefit of and be enforceable by the Employee’s personal and legal 

representatives, executors, administrators, successors,

 

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heirs,distributees, devisees and legatees.  Ifthe Employee should die while any amounts are still payable to him hereunder,all such amounts, unless otherwise provided herein, shall be paid in accordancewith the terms of this Agreement to the Employee’s devisee, legatee, or otherdesignee or, if there be no such designee, to the Employee’s estate.

 

8.  Company’s Right to Terminate Employment.  Notwithstanding anything contained in thisAgreement to the contrary, except to the extent that the Employee has a writtenemployment agreement with the Company, the Company may terminate the Employee’semployment at any time, for any reason or no reason, and no provision containedherein shall affect the Company’s ability to terminate the Employee’semployment at any time, with or without Cause. Except as otherwise expressly provided herein, nothing herein shall inany way require the Company to provide any of the benefits specified in thisAgreement prior to a Change in Control, nor shall this Agreement be construedin any way to establish any policies or other benefits for the Employee or anyother employee of the Company whose employment with the Company is terminatedprior to a Change in Control.

 

9.  Covenant Payments: Documents,Confidentially, Non-Compete Covenants

 

9.1  Covenant Payment.  In consideration of the Employee’sobligations under this Section 9, the Company shall pay to the Employee eachmonth during the Applicable Period an amount equal to one-twelfth (1/12) of theEmployee’s Annual Base Compensation, increased as provided below.  The first such payment shall be due on orbefore the fifth (5th) calendar day following the Date ofTermination or the Change in Control, whichever is later, with all subsequentpayments due on the same day of the month as the first such payment.  During the Applicable Period, such monthlypayments shall be increased on each anniversary of the commencement of suchpayments by the increase in the Consumer Price Index (as published by the U.S.Department of Commerce for the metropolitan area in which the Employee was lastemployed by the Company) during the preceding twelve (12) consecutive months.

 

9.2  Definition.  For purposes of this Section 9 the term“Company” shall include Osmonics and any and all subsidiaries of the foregoingand any entities related through common controlling ownership to Osmonicsimmediately prior to the date of the Change in Control.

 

9.3  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 any such material, and Employee agrees that(except in the performance of his duties under this Agreement) he will not,without the prior written consent of Company, remove any material from thepremises of Company or any affiliate of Company and that he will surrender allsuch

 

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material to Company immediately upon the termination of his employmentor at any time prior thereto upon the request of Company.

 

9.4  Proprietary Information,Confidentiality. Without the prior written consent of Company (which may bewithheld with or without reason), Employee shall not at any time (after thedate hereof, whether during or after his employment with Company), directly orindirectly, use for his own benefit or purposes or for the benefit or purposesof any other person, firm, partnership, association, corporation or businessorganization, entity or enterprise, or disclose (except in the performance ofhis duties hereunder) in any manner to any person, firm, partnership,association, corporation or business organization, entity or enterprise, anytrade secrets, information, data, know-how or knowledge (including, but notlimited to, that relating to costs, products, equipment, merchandising andmarketing methods, suppliers, customers, personnel training programs, businessexpansion plans or financing) which is proprietary to Company or any affiliateof Company or any client or customer of Company. This Section 9.4 shall notapply to any such data, information, know-how or knowledge which (a) ispublicly known or which hereafter becomes publicly known through no fault ofEmployee; or (b) the disclosure of which is legally compelled.  Employee acknowledges that Company intendsany and all information referred to above to be proprietary unless a policy tothe contrary is adopted by Company’s Board of Directors.

 

9.5  Improvements andInventions.

 

9.5.1  Notification andDisclosure.  Employee shall promptlynotify Company in writing of the existence and nature of, and shall promptlyand fully disclose to Company, any and all ideas, improvements and inventions,whether or not they are believed to be patentable (all of which are hereinaftersometimes referred to as “Inventions”), which Employee has conceived or firstactually reduced to practice and/or may conceive or first actually reduce topractice during the period of Employee’s employment or which Employee mayconceive or reduce to practice within one (1) year after termination ofemployment, if such Inventions relate to a product or process upon whichEmployee worked during his last three (3) years of employment by Company.  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.

 

9.5.2  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

 

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services toCompany under and pursuant to this Agreement (hereinafter “Work Product”) shallbe the sole and exclusive property of Company or its nominee, and during theterm of his employment and thereafter, whenever requested to do so by Company,Employee shall execute and assign any and all applications, assignments andother instruments which Company shall deem necessary or convenient in order toapply for and obtain Letters Patent or Copyright Registration of the UnitedStates and/or of any foreign countries for such Inventions and/or Work Productand in order to assign and convey to Company or its nominee the sole andexclusive right, title and interest in and to such inventions, and Employeewill render reasonable aid and assistance in any interference or litigationpertaining thereto, all expenses reasonably incurred by Employee at the requestof Company to be borne by Company, provided such aid assistance does notunreasonably interfere with Employee’s then current employment.  In this connection, as to work whichrequires Employee’s time after termination of his employment, Employee shall beentitled to compensation for the time requested by Company at an hourly rateequal to the pro rata hourly rate at which Employee is being paid for a normalpay period immediately prior to the request for services.  All Inventions and Work Product resultingfrom Employee’s employment by Company shall be considered “work for hire” forpurposes of the United States copyright laws.

 

9.6  Covenant Not to Compete.

 

9.6.1  Employee hereby agreesthat, during the Applicable Period, the Employee shall not, without Company’sprior written consent (which may be withheld with or without reason), “engageor be interested, directly or indirectly” (as hereinafter defined), whetheralone or together with or on behalf of or through any “other entity” (ashereinafter 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 the Change in Control (hereinafter the “Reference Period”).

 

9.6.2  The term “RestrictedBusiness” as used herein means any business any part of which consists of (a)manufacturing, sale or distribution of any product substantially similar to orotherwise competitive with a product manufactured, sold or distributed by anysubsidiary, division or business unit of the Company during the ReferencePeriod, and (b) any business of a kind in whole or in part similar to andcompetitive with that engaged in by Company during the Reference Period.

 

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9.6.3  The term “Other Entity” asused herein means any person, firm, partnership, association, trust, venture,corporation or business organization, entity or enterprise, or any combinationthereof.

 

9.6.4  The term “engage or beinterested, 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.

 

9.6.5  The duration of theforegoing covenant shall be extended beyond the time period set forth thereinfor a period equal to the duration of any breach or default of such covenant byEmployee.

 

9.6.6  Notwithstanding the foregoing,upon request, which request shall not be unreasonably denied, Employee mayenter the employment of another who was a customer of Company during theReference Period, provided that such customer is not engaged in the RestrictedBusiness in a manner competitive with the Company, and provided that theposition would not involve the design or construction of products which wouldbe competitive to the products designed and manufactured by the Company.

 

9.7  Business Relationships.   Employee hereby agrees that, during theApplicable Period, the Employee shall not, without prior written consent ofCompany (which may be withheld with or without reason):

 

9.7.1  request, induce, advise orencourage any customer or supplier, or any other entity having businessdealings with Company, to the extent such business dealings are in connectionwith the Restricted Business, to withdraw, curtail or cancel such businessdealings; or

 

9.7.2  hire as employee orindependent contractor, or request, induce, advise or encourage a terminationof employment by, any other employee of Company, whether acting directly orindirectly and whether acting alone or together with or on behalf of or throughany other entity.

 

10.  Miscellaneous.

 

10.1                            Notice.  For purposes of this Agreement, notices andall other communications provided for in the Agreement shall be in writing andshall be deemed to have been duly given when delivered or mailed by UnitedStates registered mail, return receipt requested, postage prepaid, as follows:

 

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If to theCompany:

 

Osmonics, Inc.

5951Clearwater Drive

Minnetonka,Minnesota 55343

Attn: D. DeanSpatz

 

With a copyto:

 

Maslon EdelmanBorman & Brand LLP

3300 WellsFargo Center

Minneapolis,Minnesota 55402-4140

Attn: Larry A.Koch

 

If to the Employee, to the last known address furnished to the Companyby the Employee, or such other address as either party may have furnished tothe other in writing in accordance herewith, except that notices of change ofaddress shall be effective only upon receipt.

 

10.2         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 is not set forth expressly in this Agreement. This Agreement shallbe governed by and construed in accordance with the laws of the State ofMinnesota.

 

10.3         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.

 

10.4         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.

 

10.5         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 the city nearest the Employee’slast place of employment with the Company. Any such arbitration shall be governed by and subject to

 

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the applicable laws of the State of Minnesota (including the discoveryprovisions of Minnesota and the Minnesota Code of Civil Procedure), and thethen prevailing rules of the American Arbitration Association.  The arbitrator’s award in any sucharbitration shall be final and binding, and a judgment upon such award may beenforced by any court of competent jurisdiction.  Except as provided above and in the following sentence, one-half(1⁄2) of the cost of arbitration shall be paid by each party, except that eachparty shall be liable for its own attorneys’ fees and other expenses incurreddirectly by it.  However, the arbitratormay, in his or her discretion, award expenses and attorneys’ fees to theprevailing party as determined by the arbitrator.

 

IN WITNESSWHEREOF, the parties have executed this Agreement as of the Effective Date andyear first above written.

 
|   | OSMONICS,  INC |
|--------|----------------|
|   |           |
|   |           |
|   | By             | D. Dean  Spatz |   |
|   | It’s CEO  |

 

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Schedule of Executives /Officers with substantially identical change in control agreements and theirapplicable 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                     |

 

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