Document:

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[RESCINDED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.

 

1

 

 

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.

 

2

 

 

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 

 

3

 

 

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 

 

4

 

 

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

  	

   

  
										

 

5

 

 

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 

 

6

 

 

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.

 

7OPTION AGREEMENT

EXHIBIT 10 (b)

 

OPTION AGREEMENT

 

OPTION AGREEMENT made

effective as of March 15, 1999, between Osmonics, Inc., a Minnesota corporation

(the “Company”) , and Michael L. Snow (“Director”).

 

BACKGROUND

 

A.           Director has been elected to serve as a member of the

Board of Directors of the Company.

 

B.           The Company desires to reward Director for his significant

service to the Company and to provide incentive for future exceptional service.

 

NOW, THEREFORE, the parties

hereto agree as follows:

 

1.            Grant of Option. 

The Company hereby irrevocably grants to Director, subject to approval

by the Board of Directors of the Company (the Director did not participate in

the discussion or consideration of such matter), the right and option (the

“Option”), to purchase all or any part of an aggregate of Forty-five Thousand

(45,000) shares of the common stock, $0.01 par value per share, of the Company

(the “Common Stock”) (such number being subject to adjustment as provided in

Section 8 hereof) subject to the terms and conditions herein set forth.

 

2.            Purchase Price. 

The purchase price of the shares of Common Stock covered by the option

shall be $7.9375 per share.

 

3.            Exercise and Vesting of Option.  Subject to the provisions of Section 12 of

this Agreement, the Option shall be exercisable only to the extent that all, or

any portion thereof, has vested in the Director.  The Option shall vest in the Director in Four (4) equal

installments of Eleven

 

1

 

Thousand

Two Hundred Fifty (11,250) shares each beginning on the first anniversary of

this Agreement and continuing on each of the next three subsequent anniversary

dates (hereinafter referred to singularly as a “Vesting Date” and collectively

as “Vesting Dates”) until the Option is fully vested.

 

In the event that the

Director is terminated as a Director for cause, or voluntarily resigns or

refuses to stand for reelection to be a director of the Company, prior to any

Vesting Date, that part of the Option scheduled to vest on such Vesting Date,

and all parts of the Option scheduled to vest in the future, shall not vest and

all of Director’s rights to and under such non-vested parts of the Option shall

terminate.

 

4.            Term of Option. 

To the extent vested, and except as otherwise provided in this

Agreement, the Option shall be exercisable for ten (10) years from the date of

this Agreement; provided, however, that in the event that Director is

terminated as a Director for cause, or voluntarily resigns or refuses to stand

for reelection, the Director or his legal representative shall have six (6)

months from the date of such termination of his position as a director to

exercise any part of the Option vested pursuant to Section 3 of this

Agreement.  Upon the expiration of such

six (6) month period, or, if earlier, upon the expiration date of the Option as

set forth above, the option to the extent not then exercised shall terminate

and become null and void.

 

5.            Manner of Exercise.  The Option may be exercised, in whole or in part, by giving

written notice to the Company, specifying the number of shares of Common Stock

to be purchased and accompanied by the full purchase price for such

shares.  The purchase price shall be

payable in United States dollars upon exercise of the Option and may be paid by

cash; uncertified or certified check; bank draft; by delivery of shares of

Common Stock in payment of all or any part of the

 

2

 

purchase price, which shares shall be valued for this purpose at the

Fair Market Value (as herein defined) on the date such option is exercised; by

instructing the Company to withhold from the shares of Common Stock issuable

upon exercise of the option, shares of Common Stock, in payment of all or any

part of the purchase price, which shares shall be valued for this purpose at

their then Fair Market Value or in such other manner as may be authorized from

time to time by the Company.

 

6.            Rights of Option Holder.  Director, as holder of the Option, shall not have any of the

rights of a shareholder with respect to the shares covered by the Option except

to the extent that one or more certificates for such shares shall be delivered

to him upon the due exercise of all or any part of the option.

 

7.            Non-Transferability.  The option shall not be transferable otherwise than by will or

the laws of descent and distribution, and the option may be exercised, during

the lifetime of Director, only by Director. 

The Option may not be assigned, transferred (except as provided above),

pledged, or hypothecated in any way, shall not be assignable by operation of

law, and shall not be subject to execution, attachment, or similar

process.  Any attempted assignment,

transfer, pledge, hypothecation, or other disposition of the Option contrary to

the provisions hereof, and the levy of any execution, attachment, or similar

process upon the Option shall be null and void and without effect.

 

8.            Adjustment. 

In the event of any merger, consolidation or reorganization of the

Company with any other corporation or corporations, there shall be substituted

for each of the shares of Common Stock then, subject to the Option, the number

and kind of shares of stock or other securities to which the holders of the

shares of Common Stock will be entitled pursuant to the transaction.  In the event of any recapitalization, stock

dividend, stock split, combination of shares or

 

3

 

other

change in the Common Stock, the number of shares of Common Stock then subject

to the Option, shall be adjusted in proportion to the change in outstanding

shares of Common Stock.  In the event of

any such adjustments, the purchase price of the option and the shares of Common

Stock issuable pursuant thereto shall be adjusted as and to the extent appropriate,

in the reasonable discretion of the Board of Directors of the Company, to

provide Director with the same relative rights before and after such

adjustment.

 

9.            Additional Condition.  Notwithstanding anything in this Agreement to the contrary: (a) the

Company may, if it shall determine it necessary or desirable for any reason, at

the time of the issuance of any shares of Common Stock pursuant to the Option

require the Director, as a condition to the receipt of shares of Common Stock

issued pursuant thereto, to deliver to the Company a written representation of

present intention to acquire the shares of Common Stock issued pursuant thereto

for his own account for investment and not for distribution; and (b) if at any

time the Company further determines, in its sole discretion, that the listing,

registration or qualification (or any updating of any such document) of the

shares of Common Stock issuable pursuant thereto is necessary on any securities

exchange or under any federal or state securities or blue sky law, or that the

consent or approval of any governmental regulatory body is necessary or

desirable as a condition of, or in connection with the issuance of shares of

Common Stock pursuant thereto, or the removal of any restrictions imposed on

such shares, such shares of Common Stock shall not be issued or such

restrictions shall not be removed, as the case may be, in whole or in part,

unless such listing, registration, qualification, consent or approval shall

have been effected or obtained free of any conditions not acceptable to the

Company.

 

4

 

10.          Withholding.

 

(a)           The Company shall have the right to

withhold from any payments made under this Agreement, or to collect as a

condition of payment, any taxes required by law to be withheld.  At any time when Director is required to pay

to the Company an amount required to be withheld under applicable income tax

laws in connection with a distribution of Common Stock or upon exercise of an

option, Director may satisfy this obligation in whole or in part by electing

(the “Election”) to have the Company withhold from the distribution shares of

Common Stock having a value up to the amount required to be withheld.  The value of the shares to be withheld shall

be based on the Fair Market Value of the Common Stock on the date that the

amount of tax to be withheld shall be determined (“Tax Date”).

 

(b)           Each Election must be made prior to

the Tax Date.  The Company may

disapprove of any Election or may suspend or terminate the right to make

Elections.  An Election once made is

irrevocable.

 

(c)           An Election must comply with all of

the requirements of the Securities Exchange Act of 1934 (the “1934 Act”).

 

11.          Definition of Fair Market Value.  Whenever “Fair Market Value” of Common Stock

shall be determined for purposes of this Agreement, it shall be determined by

reference to the last sale price of a share of Common Stock on the principal

United States Securities Exchange registered under the 1934 Act on which the

Common Stock is listed (the “Exchange”) , or, on the National

 

5

 

Association of Securities Dealers, Inc.  Automatic Quotation System (including the National Market System)

(“NASDAQ”) on the applicable date.  If

the Exchange or NASDAQ is closed for trading on such date, or if the Common

Stock does not trade on such date, then the last sale price used shall be the

one on the date the Common Stock last traded on the Exchange or NASDAQ.

 

12.          Immediate Acceleration of the Option.  Notwithstanding any provision in this

Agreement to the contrary, all of the shares of Common Stock subject to the

option will become exercisable immediately, if, subsequent to the date that

this Agreement is approved by the Board of Directors of the Company, any of the

following events occur unless otherwise determined by the board of directors

and a majority of the Continuing Directors (as defined below):

 

(a)           any person or group of persons

becomes the beneficial owner of 25% or more of any equity security of the

Company entitled to vote for the election of directors;

 

(b)           a majority of the members of the

board of directors of the company is replaced within the period of less than

two years by directors not nominated and approved by the board of directors; or

 

(c)           the stockholders of the Company

approve an agreement to merge or consolidate with or into another corporation

or an agreement to sell or otherwise dispose of all or substantially all of the

Company’s assets (including a plan of liquidation).

 

For purposes of this Section

12, beneficial ownership by a person or group of persons shall be determined in

accordance with Regulation 13D (or any similar successor regulation)

promulgated by the Securities and Exchange Commission pursuant to the 1934

Act.  Beneficial ownership of more than

25% of an equity security may be established by any reasonable method, but

shall be presumed

 

6

 

conclusively as to any person who files a Schedule 13D report with the

Securities and Exchange Commission reporting such ownership.  If the restrictions and forfeitability

periods are eliminated by reason of subsection 12(a), the limitations of this

Agreement shall not become applicable again should the person cease to own 25%

or more of any equity security of the Company.

 

For purposes of this Section

12, “Continuing Directors” are directors (1) who were in office prior to the

time any of provisions subsections 12(a), (b) or (c) occurred or any person

publicly announced an intention to acquire 20% or more of any equity security

of the Company, (2) directors in office for a period of more than two years,

and (3) directors nominated and approved by the Continuing Directors.

 

13.          General.  The

Company shall at all times during the term of the Option reserve and keep

available such number of shares of Common Stock as will be sufficient to

satisfy the requirements of this Option Agreement.

 

IN WITNESS WHEREOF, the

undersigned have executed this Agreement effective as of the date first written

above.

 

	

   

  	

  OSMONICS,

  INC.

  
	

   

  	

   

  
	

   

  	

  By

  
	

   

  	

   

  	

  Name:

  	

  /s/

  D. Dean Spatz

  	

   

  
	

   

  	

   

  	

  Title:

  	

  CEO

  
	

   

  	

   

  
	

   

  	

   

  	

  /s/

  Michael L. Snow

  	

   

  
	

   

  	

   

  	

  Michael

  L. Snow

  

 

7

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