<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1996
REGISTRATION NO. 333-13743
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------------
OSMONICS, INC.
(Exact name of registrant as specified in its charter)
-------------------------
41-0955759
(I.R.S. employer identification number)
MINNESOTA
(State or other jurisdiction of incorporation or organization)
5951 CLEARWATER DRIVE
MINNETONKA, MINNESOTA 55343
(612) 933-2277
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office)
D. DEAN SPATZ, CHIEF EXECUTIVE OFFICER
OSMONICS, INC.
5951 CLEARWATER DRIVE
MINNETONKA, MINNESOTA 55343
(612) 933-2277
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------
With copies to:
<TABLE>
<S> <C>
RUSSELL F. LEDERMAN, ESQ. JAMES M. BEDORE, ESQ.
MASLON EDELMAN BORMAN & BRAND, REINHART, BOERNER, VAN DEUREN,
A PROFESSIONAL LIMITED LIABILITY PARTNERSHIP NORRIS & RIESELBACH, S.C.
3300 NORWEST CENTER 1000 NORTH WATER STREET, SUITE 2100
MINNEAPOLIS, MINNESOTA 55402-4140 MILWAUKEE, WISCONSIN 53202
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as is practicable after the effective date of this Registration
Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------------
THIS REGISTRATION STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH THE PROVISIONS OF SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
482,806 SHARES
OSMONICS LOGO
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by certain
shareholders (the "Selling Shareholders") of Osmonics, Inc. (the "Company"). The
Company will not receive any of the proceeds from the sale of shares by the
Selling Shareholders. See "Principal and Selling Shareholders." The Common Stock
is listed on the New York Stock Exchange under the symbol "OSM." On November 19,
1996, the last sale price for the Common Stock as reported on the New York Stock
Exchange Composite Tape was $21 1/2.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) SHAREHOLDERS(2)
<S> <C> <C> <C>
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Per Share......................... $21.50 $0.90 $20.60
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Total(3).......................... $10,380,329.00 $434,525.40 $9,945,803.60
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</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of this Offering estimated at $75,000, $50,000 of
which will be paid by the Selling Shareholders. Expenses in excess of
$50,000 shall be paid by the Company.
(3) Certain of the Selling Shareholders have granted to the Underwriter an
option for 30 days to purchase up to an additional 72,420 shares of Common
Stock solely to cover over-allotments, if any, on the same terms and
conditions as set forth above. If the option is exercised in full, the total
Price to Public, total Underwriting Discount and total Proceeds to Selling
Shareholders will be $11,937,359.00, $499,703.40, and $11,437,655.60,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriter when, as and if
delivered to and accepted by the Underwriter and subject to various conditions,
including its right to reject orders in whole or in part. It is expected that
the shares of Common Stock will be ready for delivery on or about November 25,
1996.
------------------------
CLEARY GULL REILAND & MCDEVITT INC.
The date of this Prospectus is November 20, 1996.
<PAGE> 3
[OSMONICS LOGO] Providing advanced solutions for
water purification and fluid filtration
PRODUCTS AND
TECHNOLOGIES FOR
WATER PURIFICATION
AND FILTRATION
Replaceable Products
In many water purification and filtration applications, replaceable filters and
membrane elements are the key components, capable of performing extremely
precise separations. Replaceable products account for 52% of Osmonics sales.
[PHOTO]
Osmonics manufactures more than 40 types of replaceable cartridge filters,
which selectively remove elements ranging from dirt to bacteria and submicron
particles.
[PHOTO]
Osmonics is one of the top three worldwide manufacturers of replaceable
membrane elements for reverse osmosis, nanofiltration and ultrafiltration.
Equipment and Components
Osmonics is the world's most extensively integrated manufacturer and marketer
of high technology water purification and fluid separation equipment.
[PHOTO]
This newly developed Osmonics commercial/industrial controller automatically
regulates ion-exchange water-softening equipment.
[PHOTO]
Ozone generators disinfect water without chemicals; ozonators are 100 times
more effective than chlorine in killing cryptosporidium and other pathogens.
[PHOTO]
The SOLO single-patient reverse osmosis system creates pure water for kidney
dialysis.
[PHOTO]
Osmonics provides total reverse osmosis systems for ultrapure water production
for industrial applications.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere or incorporated by reference in this Prospectus. Unless
otherwise indicated, information in this Prospectus relating to share data
reflects three-for-two stock splits paid in the form of stock dividends to
shareholders of record on April 22, 1991 and March 4, 1994 and assumes the
Underwriter's over-allotment option is not exercised. This Prospectus contains
and incorporates by reference forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed under the
heading "Risk Factors", which prospective investors should carefully consider.
THE COMPANY
Osmonics, Inc. (the "Company") is a leading provider of water purification
and filtration equipment and components to industrial and commercial end-users
in the expanding, multi-billion dollar, global water purification and filtration
market. The Company believes it is the world's most extensively integrated
manufacturer and marketer of high technology water purification and fluid
separation products. Through strategic acquisitions and internal product
developments, the Company has expanded horizontally and developed one of the
broadest lines of products for the purification of fluids with the ability to
meet customer's most elementary to most sophisticated purification and
filtration needs. The Company's products are used extensively in pharmaceutical,
biotechnology and healthcare applications, drinking water, food and beverage
production, semiconductor manufacture, power generation and various industrial
processing applications.
The Company estimates that the global market for water purification and
filtration products is between $18 billion and $25 billion for 1996. The Company
believes that the specific markets in which it competes total nearly $3.3
billion and are growing at a rate of approximately 10% per year.
The water purification and filtration industry has developed into a
multi-billion dollar market primarily due to global population growth, economic
expansion, increasing need for high quality water and fluid filtration by
manufacturers and other commercial entities and the limited supply of usable
water. As a result, pure water has become an increasingly valuable and scarce
resource. In addition to the need for potable water, industrial and commercial
companies require purified water for most manufactured products, whether as an
ingredient in the finished product or as part of the manufacturing process.
Furthermore, government regulations mandate safer drinking water and require
that most industrial and commercial companies and municipalities treat their
outgoing wastewater. As a result, many companies require increasingly
sophisticated solutions to their water purification and wastewater treatment
needs. The move by manufacturers toward fewer "strategic partner" suppliers to
service their global needs also creates competitive advantages for manufacturers
such as the Company with a broad range of technologically sophisticated products
and international marketing, manufacturing and service capabilities.
STRATEGY
The Company intends to build on its position as a leader in the water
purification and filtration industry and achieve continuous sales and earnings
growth by utilizing the following strategy:
- Expand into growing international markets.
- Continue to internally develop new and innovative products and
technologies.
- Utilize its recently expanded sales and marketing force to expand its
market share.
- Pursue strategic acquisitions.
To meet the growing international demand for water purification and
filtration equipment, the Company has positioned itself in the three major
market regions of the world, Asia/Pacific, Euro/Africa and the Americas, through
strategic acquisitions and alliances that provide it with local manufacturing,
sales and service capabilities.
3
<PAGE> 5
The Company has pioneered the commercial development of (i) reverse
osmosis, nanofiltration, and ultrafiltration, (ii) the first non-metallic
controllers for ion exchange, (iii) ozone generation equipment, (iv) multi-stage
centrifugal pumps for membrane applications, and (v) industrial water recycling
and waste minimization using membranes. In the past, the Company has invested $7
of every $100 of sales in research and new product development in order to
develop these innovative products. The Company intends to remain one of the
leaders in developing new products and applications.
In 1994 and 1995, the Company invested significantly in growing its sales
and marketing personnel. The number of sales personnel increased by 24% and 26%
in 1994 and 1995, respectively. As a result of the Company's acquisitions, the
Company inherited a number of separate sales forces selling individual products.
In 1996, the Company reorganized and centralized its sales groups to focus
responsibility for customer relationships for all products through expanded
local sales offices and to provide technical sales support from the appropriate
product manufacturing site. The Company believes that these changes will enhance
customer service, reduce administrative expenses and increase market penetration
in the future.
The Company's acquisition strategy is calculated to (i) enhance the market
share of existing products, (ii) expand its distribution system, (iii) obtain
technology complementary to the Company's current and planned future products,
and (iv) further develop its vertically integrated manufacturing capabilities.
The following table summarizes the Company's growth through acquisitions since
1990:
<TABLE>
<CAPTION>
YEAR
ACQUIRED COMPANY TECHNOLOGY/STRATEGIC BENEFIT ACQUIRED
- ----------------------------------------- ----------------------------------------- --------
<S> <C> <C>
Desalination Systems, Inc. Reverse Osmosis (RO), Ultrafiltration 1996
(UF), Nanofiltration (NF); membrane and
spiral membrane elements
Western Filter Company Physical water treatment and increased 1995
penetration of beverage market
Lakewood Instruments, Inc. Instruments for pH, conductivity and 1994
control of fluid systems
Poretics Corporation Microfiltration (MF) membranes 1994
Autotrol Corporation Controls and valves for ion exchange 1993
products
Fastek Division of Eastman Kodak Company Disposable RO membranes and membrane 1990
elements and filter cartridges
</TABLE>
MARKETING
The Company's worldwide customer base includes a broad range of major
pharmaceutical, industrial and commercial companies such as: Merck, Genentech,
Baxter, IBM, General Electric, Mercedes, Coca-Cola, Pepsi and Seaworld. The
Company believes it provides its customers with cost effective solutions to
their filtration and purification needs through a combination of its wide range
of products and services, its breadth of technology and its global network of
sales and support facilities.
The Company focuses the marketing of its products primarily to three groups
of customers:
1. Original equipment manufacturers (OEMs) and system integrators;
2. Distributors selling components and products to end-users; and
3. Large equipment and systems sales directly to major industrial
end-users.
The Company uses two discrete sales channels, each of which is supported by
application sales engineers and market support personnel. The Company markets
its custom machines and components through its direct sales force. Some sales
are made directly to certain of the Company's largest customers and to other
manufacturers of filtration equipment and systems. The Company's standard
products are marketed to a network of independent distributors and OEMs by its
district managers. These distributors and OEMs provide worldwide installation
service and stock a wide range of the Company's standard products.
4
<PAGE> 6
The Company often participates actively with its customers in designing and
planning the systems in which its products are to be used. In some cases, the
sale of a system designed for a particular customer may result from an
engineering and service relationship that has extended over several years.
PRODUCTS
The Company's products include:
- Crossflow Membranes and Membrane Elements which are typically polymer
based products designed to separate a fluid's components using pressure.
The processes normally associated with crossflow membrane technology are
RO, NF and UF. Membranes and elements are used in many applications
including bioengineering processes, seawater desalting, food processing,
residential and municipal water production, semiconductor manufacturing,
chemical processing, waste minimization and water recycling.
- Normal Flow Membrane and Filter Cartridges which are used to sterilize
pharmaceutical solutions, remove contaminants from air and gas lines,
remove parasites from potable water, de-water solvents and jet fuel, and
purify polymer solutions for fiber manufacturing.
- Ion Exchange Equipment which uses polymer beads to adsorb ionized
material from a fluid stream. Ion exchange is used for softening and
deionizing water for residential, commercial and industrial users.
- Distillation Equipment which is used primarily for the production of
"U.S.P. Water For Injection" in the pharmaceutical industry and the
research laboratory.
- Ozonation Equipment which generates ozone used to replace chlorine in the
disinfection of water, to de-color water, to bleach pulp and textiles and
to purify solvent-contaminated groundwater.
- Pumps, Valves and Flow Control Devices which are used in the electronics,
potable water, pharmaceutical and chemical industries and as integral
components of crossflow membrane, normal filtration and ion exchange
equipment.
- Instruments and Monitoring Devices, used to measure pH, conductivity,
selected ions and flow rate for cooling towers and boilers, as well as
controllers for crossflow membrane, ion exchange, and ozone generation
equipment.
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<PAGE> 7
KEY MARKETS AND PRODUCT APPLICATIONS
KEY MARKETS
<TABLE>
<CAPTION>
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HEALTH CARE ELECTRONICS FOOD & BEVERAGE
<S> <C> <C>
Laboratory Semiconductor Mfg. Food Processing
Medical Printed Circuit Board Mfg. Dairy Processing
Pharmaceutical Beverage
Biotechnology
<CAPTION>
POTABLE WATER INDUSTRIAL & POWER
<S> <C>
Drinking Water Automotive & Metal Finishing
Desalted Water Chemical Processing
Laundry & Car Wash Photo & Printing Process
Aquariums, Pools & Spas Pulp & Paper
Textiles, Inks & Dyes
Petroleum, Gas & Mining
Power Generation
</TABLE>
PRODUCT APPLICATIONS
<TABLE>
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<S> <C> <C>
- Lab scale fluid purification - Ultrapure rinse water - Pure water for soft drinks, tea,
- Pure water for kidney dialysis - Ultrapure gas filtration juices, and bottled water
- Separations & cell harvesting - Waste minimization - High fructose corn syrups
- USP water for injection - Components for ultrapure corrosive - Recycling of bottle & can rinse
- Purification of drugs chemical handling water
- Integrated circuit etching - Dairy protein fractionation
- Direct filtration for source water
- Whey separation
- Process control instrumentation
<CAPTION>
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<S> <C>
- Drinking water - Filtration/separation of fine
- Seawater desalting chemicals
- Water softening - Chemical synthesis
- Spot-free rinse water - Boiler feedwater purification
- Commercial & residential water - Cooling tower/boiler electronic
control valves controllers
- Chemical-free (ozone) disinfection - Piping disinfection
for pools, aquariums, and spas - Bleaching pulp & paper
- Instruments and monitors for - Recovery of chemical and water
compliance with Safe Drinking Water waste
Act - Purification of water-based paints
</TABLE>
6
<PAGE> 8
THE FILTRATION SPECTRUM
The Company can configure purification and filtration systems utilizing
reverse osmosis, nano-, ultra-, micro-, and particle filtration to meet a
customer's needs across the filtration spectrum.
<TABLE>
<S><C>
|_________|_________________|____________________|_______________________|____________|____________|____________|______
|-ST MICROSCOPE -SCANNING ELECTRON MICROSCOPE - OPTICAL MICROSCOPE - VISIBLE TO NAKED EYE
|_________|_________________|____________________|_______________________|____________|____________|____________|______
MICROMETERS |
| IONIC RANGE MOLECULAR RANGE MACROMOLECULAR RANGE MICRO PARTICLE RANGE MACRO PARTICLE RANGE
(LOG SCALE) |______________________________________________________________________________________________________________________
| | | | | | | |
| 0.001 0.01 0.1 1.0 10 100 1000
_____________|_________|_________________|____________________|_______________________|____________|____________|____________|______
ANGSTROM | 10 100 1000 10(4) 10(5) 10(6) 10(7)
UNITS |2 3 5 8 | 20 30 50 80 | 200 300 500 800 | 2000 3000 5000 8000 | 2 3 5 8 | 2 3 5 8 | 2 3 5 8 | 2
(LOG SCALE) || |||||||| | | | | || ||| | | | | |||| | | | | || | ||| | || || ||| | || |||||| | |||||||| |
_____________|_________|_________________|____________________|_______________________|____________|____________|____________|____|_
APPROX. | | | | | | | |
MOLECULAR WT.| | | | | | | |
(SACCHARIDE | 100 200 1000 10,000 20,000 100,000 | 500,000 | | | |
TYPE-NO | | | | | | | |
SCALE) | | | | | | | |
_____________|_________|_________________|____________________|_______________________|____________|____________|____________|______
| | | | | | | |
| | | | | GIARDIA | |
| | | | | CRYP- CYST | |
| | | | | COSPOR- | | |
| AQUEOUS SALT | CARBON BLACK | | IDIUM | ---POLLEN----- |
| | | | | | | |
| | ----ENDOTOXIN/PYROGEN--- | ---------------------BACTERIA--------- |-----BEACH SAND----
| | | | | | PIN | |
RELATIVE | | -------VIRUS----------------- | ---YEAST CELL-- POINT| |
|ATOMIC SUGAR | | | | | ION EX. |
SIZE |RADIUS | ---ALBUMIN PROTEIN-- | ----------|--A.C. FINE TEST DUST----| RESIN |
| | | | | | | BEAD |
OF | | | ------------TOBACCO SMOKE-------------- | -----MILLED FLOUR--------- |
| METAL | | | | | | |
COMMON | ION | ------|---------------------------------LATEX/EMULSION--------------------- | |
| | | | | | | |
MATERIALS | HERBICIDE | | | | | |
| | ----COLLOIDAL SILICA --- | --------PAINT PIGMENT----- | HUMAN HAIR |
| | | | | | |
| | | ------------ASBESTOS------- | ------COAL DUST---------| |
| PESTICIDE | | | | | |
| | | | | RED | | GRANULAR
| | | | | BLOOD| | ACTIVATED
| | ----------------GELATIN--------- BLUE INDIGO DYE CELL | MIST CARBON
_____________|_________|_________________|____________________|_______________________|____________|____________|____________|______
| | | | | | | |
| REVERSE| | | | | | |
PROCESS | OSMOSIS| -----ULTRAFILTRATION----------------- | -------------PARTICLE FILTRATION------------
| (HYPERFILT- | | | | | |
FOR | RATION)| | | | | | |
| | | | | | | |
SEPARATION | NANOFILTRATION | ------MICROFILTRATION---------------- | | |
_____________|_________|_________________|____________________|_______________________|____________|____________|____________|______
Note: 1 Micron (1 x 10(-6) Meters) = 4 x 10(-5) Inches (0.00004 Inches)
1 Angstrom Unit = 10-(10) Meters = 10(-4) Micrometers (Microns)
</TABLE>
7
<PAGE> 9
RECENT DEVELOPMENTS
On July 24, 1996, the Company completed the acquisition of Desalination
Systems, Inc. ("Desal") in a stock transaction valued at approximately $30
million. The transaction was accounted for as a pooling of interests. The
Company expects synergies from the merger due to an expansion of membrane
product offerings and economies of scale in the distribution and marketing of
the Company's products. Management believes the acquisition makes the Company
one of the top three worldwide manufacturers of crossflow membrane elements with
approximately 16% market share. The market for crossflow membrane filtration is
growing at one of the highest rates of any of the filtration technologies due to
its ability to remove the smallest impurities and related technological advances
which have lowered manufacturing costs and provided increased value to
customers. In addition, the Company believes the replacement element business
should continue to grow as the installed base of RO/NF/UF equipment grows
worldwide. After the acquisition of Desal, approximately 51% of the Company's
sales are derived from its replacement products with the balance attributable to
equipment sales.
The Company is a Minnesota corporation with its corporate offices at 5951
Clearwater Drive, Minnetonka, Minnesota 55343-8995; telephone (612) 933-2277.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by Selling Stockholders............ 482,806 shares
Common Stock to be Outstanding after the Offering....... 14,187,131 shares(1)
Use of Proceeds......................................... The Company will not receive any of
the proceeds of the Offering.
New York Stock Exchange Symbol.......................... OSM
</TABLE>
- -------------------------
(1) Does not include 502,201 shares issuable upon exercise of stock options.
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The consolidated financial data for all periods presented includes the
operations of Desal which was merged with the Company in July of 1996 and was
accounted for as a pooling of interests.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- -------------------
1992 1993 1994 1995 1995 1996
------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales............................. $99,992 $108,212 $112,908 $130,783 $94,829 $115,271
Gross profit...................... 43,773 48,327 50,405 56,113 40,965 47,495
Operating income.................. 7,591 12,092 13,449 15,337 11,040 13,901
Other income (expense)............ (126) 738 813 1,496 1,228 912
Income taxes...................... 2,983 3,536 3,808 4,954 3,808 4,803
Income from continuing
operations...................... 4,482 9,294 10,454 11,879 8,460 10,010
Net income........................ 2,676 9,294 10,454 11,879 8,460 10,010
Net income per common and common
equivalent shares outstanding... $0.19 $0.66 $0.74 $0.83 $0.59 $0.69
Weighted average number of common
and common equivalent shares
outstanding..................... 14,036 14,075 14,206 14,365 14,274 14,442
</TABLE>
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<PAGE> 10
RISK FACTORS
Prospective investors should carefully consider the factors set forth
below, as well as other information included elsewhere herein or incorporated
herein by reference, prior to purchasing the shares of Common Stock offered
hereby.
NEW PRODUCT DEVELOPMENT AND ACQUISITIONS
The water purification and filtration industry is characterized by ongoing
technological developments and changing customer requirements. As a result, the
Company's success and continued growth depend, in part, on its ability in a
timely manner to develop or acquire rights to, and successfully introduce into
the marketplace, enhancements of existing products or new products that
incorporate technological advances, meet customer requirements and respond to
products developed by the Company's competition. There can be no assurance that
the Company will be successful in developing or acquiring such rights to
products on a timely basis or that such products will adequately address the
changing needs of the marketplace.
CYCLICALITY OF CAPITAL EQUIPMENT SALES
The sale of capital equipment within the water purification and filtration
industry is cyclical and influenced by various economic factors including
interest rates and general fluctuations of the business cycle. The Company's
revenues from capital equipment sales were 48% of total revenues for the year
ended December 31, 1995 and 49% of total revenues for the nine months ended
September 30, 1996. While the Company sells capital equipment to customers in
diverse industries and in domestic and international markets, cyclicality of
capital equipment sales and general economic conditions could have an adverse
effect on the Company's revenues and profitability.
TECHNOLOGICAL AND REGULATORY CHANGE
The water purification and filtration industry is characterized by changing
technology, competitively imposed process standards and regulatory requirements,
each of which influences the demand for the Company's products and services.
Changes in legislative, regulatory or industrial requirements may render certain
of the Company's purification and filtration products and processes obsolete.
Acceptance of new products may also be affected by the adoption of new
government regulations requiring stricter standards. The Company's ability to
anticipate changes in technology and regulatory standards and to develop and
introduce new and enhanced products successfully on a timely basis will be a
significant factor in the Company's ability to grow and to remain competitive.
There can be no assurance that the Company will be able to achieve the
technological advances that may be necessary for it to remain competitive or
that certain of its products will not become obsolete. In addition, the Company
is subject to the risks generally associated with new product introductions and
applications, including lack of market acceptance, delays in development or
failure of products to operate properly.
COMPETITION
The Company experiences competition from a variety of sources with respect
to virtually all of its products, although the Company does not know of any
single entity that competes with it across the full range of products and
systems. Competition in the markets served by the Company is based on a number
of factors, including price, technology, applications experience, availability
of financing, reputation, product warranties, reliability, service and
distribution. Certain of the Company's competitors have financial and other
resources greater than those of the Company.
AVAILABILITY OF RAW MATERIALS
The principal raw materials used by the Company are various plastic,
ceramic and glass materials, stainless steel, brass, titanium, silver and
various synthetic materials, all of which are normally available from sources
within the continental United States. Most raw materials used by the Company are
available from multiple sources of supply. A limited number of materials are
proprietary products of major chemical
9
<PAGE> 11
companies which, if not available, would have a material adverse effect on the
Company. The Company believes it could find substitutes for these materials if
they should become unavailable, but there can be no assurance that such
substitutes would perform as well or be priced as favorably.
DEPENDENCE ON KEY PERSONNEL
The Company has been and is presently dependent upon the continued efforts
of senior management, particularly, D. Dean Spatz, the Company's Chief Executive
Officer. The loss of the services of Mr. Spatz could have a substantial adverse
effect on the Company's ability to achieve its objectives.
COMMON STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
After the Offering, the Company's officers, directors, principal
shareholders and their affiliates will beneficially own approximately 29% of the
Company's outstanding Common Stock, all of which shares are eligible for sale
under Securities and Exchange Commission Rule 144 under the Securities Act of
1933. See "Principal and Selling Shareholders." As a result, these shareholders,
if they were to act in concert, would have the ability to influence
significantly most matters requiring approval by shareholders of the Company,
including the election of a majority of the directors. In addition, the Board of
Directors has the authority to issue up to 500,000 shares of undesignated
preferred stock and to determine the rights, preferences, privileges and
restrictions, including voting rights, of such shares without any future vote or
action by the shareholders. The voting power of these principal shareholders,
officers and directors or the issuance of preferred stock under certain
circumstances could have the effect of delaying or preventing a change in
control of the Company. Minnesota corporate law and the Company's Articles of
Incorporation contain provisions that may discourage takeover bids for the
Company that have not been negotiated with the Board of Directors. Such
provisions could limit the price that investors might be willing to pay in the
future for shares of the Common Stock. In addition, sales of substantial amounts
of such shares in the public market could adversely affect the market price of
the Common Stock and the Company's ability to raise additional capital at a
price favorable to the Company. Agreements with the Selling Shareholders and the
Company's other executive officers and directors not to offer or otherwise
dispose of Common Stock without the consent of Cleary Gull Reiland & McDevitt
Inc. will expire 90 days after the date of this Prospectus.
10
<PAGE> 12
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares
offered hereby by the Selling Shareholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock has been listed and traded on the New York Stock Exchange
under the symbol "OSM" since January 11, 1994. The following table sets forth,
for the periods indicated, the high and low sale prices per share of the Common
Stock as reported on the New York Stock Exchange:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994
First Quarter.................................................... 16 1/8 13 1/2
Second Quarter................................................... 16 5/8 14 1/2
Third Quarter.................................................... 15 1/2 13 3/4
Fourth Quarter................................................... 15 1/4 13 1/2
1995
First Quarter.................................................... 16 5/8 13 1/4
Second Quarter................................................... 18 1/4 15 1/2
Third Quarter.................................................... 17 7/8 15 1/2
Fourth Quarter................................................... 21 1/4 16 5/8
1996
First Quarter.................................................... 20 3/8 18 1/4
Second Quarter................................................... 24 7/8 18 1/2
Third Quarter.................................................... 22 3/4 18 1/4
Fourth Quarter (through November 19, 1996)....................... 21 7/8 18 5/8
</TABLE>
On November 19, 1996, the last reported sale price on the New York Stock
Exchange for the Common Stock was $21 1/2 per share. As of September 30, 1996,
the Company had approximately 2,238 shareholders of record which the Company
believes represents a total of approximately 4,900 beneficial owners.
The Company has not paid cash dividends on its Common Stock. The Board of
Directors currently intends to retain its earnings for the expansion of the
Company's business. The Company's borrowing agreements contain covenants that
limit the Company's ability to pay cash dividends.
11
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated financial data for all periods presented includes the
operations of Desal which was merged with the Company in July of 1996 and was
accounted for as a pooling of interests.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- -------------------
1992 1993 1994 1995 1995 1996
------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME DATA
Sales............................. $99,992 $108,212 $112,908 $130,783 $94,829 $115,271
Cost of goods sold................ 56,219 59,885 62,503 74,670 53,864 67,776
Gross profit...................... 43,773 48,327 50,405 56,113 40,965 47,495
Operating expenses................ 36,182 36,235 36,956 40,776 29,925 33,594
Operating income.................. 7,591 12,092 13,449 15,337 11,040 13,901
Other income (expense)............ (126) 738 813 1,496 1,228 912
Income taxes...................... 2,983 3,536 3,808 4,954 3,808 4,803
Income from continuing
operations...................... 4,482 9,294 10,454 11,879 8,460 10,010
Net income........................ 2,676 9,294 10,454 11,879 8,460 10,010
Net income per common and common
equivalent share outstanding.... $ 0.19 $ 0.66 $ 0.74 $ 0.83 $ 0.59 $ 0.69
Weighted average number of common
and common equivalent shares
outstanding..................... 14,036 14,075 14,206 14,365 14,274 14,442
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA
Cash and marketable securities..................................... $ 31,036 $ 23,581
Total assets....................................................... 144,683 148,749
Working capital.................................................... 55,958 55,970
Long-term debt..................................................... 20,919 16,205
Shareholders' equity............................................... 84,273 94,896
</TABLE>
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes incorporated by reference in this
Prospectus and the other financial information included herein.
GENERAL
Since its formation in 1969, the Company has been a leader in the
development of water purification and filtration technologies. Starting in the
mid-80s, the Company transformed itself to compete in today's marketplace as a
broad-based products manufacturer that could sell through a variety of channels
to a variety of customers in response to changing market demands. As a
single-source of components and equipment to end-users such as system
integrators, OEM's and service companies, the Company has developed competitive
strengths. The Company's products are used extensively in pharmaceutical,
biotechnology and health care applications, drinking water, food and beverage
production, semi-conductor manufacture, power generation and various industrial
processing applications.
In 1995, the Company expanded and reconfigured its Minnetonka headquarters,
doubling its manufacturing capacity at that facility. The Company currently has
eleven manufacturing facilities in the U.S. and one in France.
The Company's marketing priority is to get its products into distribution
as soon as possible. In 1994 and 1995, the Company invested significantly in
growing its sales and marketing personnel. The number of sales personnel
increased by 24% and 26% in 1994 and 1995, respectively. As a result of the
Company's acquisitions, the Company inherited a number of separate sales forces
selling individual products. In 1996, the Company reorganized and centralized
its sales groups to focus responsibility for customer relationships for all
products through expanded local sales offices and to provide technical sales
support from the appropriate product manufacturing site. The Company believes
that these changes will enhance customer service, reduce administrative expenses
and increase market penetration in the future.
RESULTS OF OPERATIONS
In July 1996, the Company merged with Desalination Systems, Inc. ("Desal")
in a transaction accounted for as a pooling of interests. Accordingly, the
historical consolidated financial data for all periods presented here are
restated to include the operations of Desal.
The following table sets forth certain statement of operations data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDING ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ----------------
1994 1995 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net Sales................................. 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold...................... 55.4 57.1 56.8 58.8
Gross Profit.............................. 44.6 42.9 43.2 41.2
SG&A.................................... 24.7 24.0 24.1 22.3
RD&E.................................... 8.0 7.2 7.5 6.9
Operating Profit.......................... 11.9 11.7 11.6 12.0
Other Income............................ 0.8 1.2 1.3 0.8
Income Taxes............................ 3.4 3.8 4.0 4.2
Net Income................................ 9.3 9.1 8.9 8.6
</TABLE>
13
<PAGE> 15
Comparison of Nine Months Ended September 30, 1996 and Nine Months Ended
September 30, 1995
Net Sales for the nine months ended September 30, 1996, increased $20.4
million or 21.6% to $115.3 million as compared to net sales of $94.8 million for
the nine months ended September 30, 1995. The sales increase was realized across
nearly all product lines, and for both domestic and international markets.
Gross Profit increased $6.5 million or 15.9% to $47.5 million in the nine
months ended September 30, 1996, compared to $41.0 million in the nine months
ended September 30, 1995. As a percentage of net sales, gross profit decreased
to 41.2% from 43.2%. The reduction in gross profit was due to a less favorable
sales mix, more aggressive pricing in certain product lines, and some effect of
higher material costs. Sales in 1996 included some order backlog acquired from
Western Filter in October 1995, which was at lower gross margins than other of
the Company's products.
Selling, General and Administrative Expenses increased $2.8 million or
12.4% to $25.7 million in the nine months ended September 30, 1996, compared to
$22.8 million in the nine months ended September 30, 1995. As a percentage of
sales, SG&A expense decreased to 22.3% from 24.1%, primarily reflecting improved
productivity of both sales and administrative personnel.
Research, Development and Engineering Expenses increased $0.8 million to
$7.9 million in the nine months ended September 30, 1996, from $7.1 million in
the nine months ended September 30, 1995. As a percentage of sales, these
expenses were 6.9% of sales in the nine months ended September 30, 1996,
compared to 7.5% in the nine months ended September 30, 1995. The Company
believes the current level of funding is adequate to support its product
development program.
The effective tax rate for each of the nine months ended September 30, 1996
and 1995 were 32.4% and 31.0%, respectively. The increase in the tax rate is
primarily due to the reduced availability of tax loss carryforwards and credits
from Autotrol and its subsidiaries.
Net Earnings increased $1.6 million or 18.3% to $10.0 million or $0.69 per
share for the nine months ended September 30, 1996, compared to $8.5 million or
$0.59 per share for the nine months ended September 30, 1995. As a percentage of
net sales, net earnings were 8.6% in the nine months ended September 30, 1996,
compared to 8.9% in the nine months ended September 30, 1995.
Comparison of Years Ended December 31, 1995 and December 31, 1994
Net Sales for 1995 increased $17.9 million or 15.9% to $130.8 million from
$112.9 million for 1994. International sales increased at approximately the same
rate as domestic sales in 1995 due to improved marketing and selling efforts in
the Asia/Pacific and Americas areas. The 1995 sales growth also benefited from
the October 1995 acquisition of Western Filter and the November 1994 acquisition
of Lakewood Instruments.
Gross Profit increased $5.7 million or 11.3% to $56.1 million in 1995
compared to $50.4 million in 1994. As a percentage of net sales, gross profit
decreased to 42.9% in 1995, compared to 44.6% in 1994. The decrease was due to
an increased mix of sales of lower margin products, increased material costs and
more aggressive pricing.
Selling, General and Administrative Expenses increased $3.4 million or
12.1% to $31.4 million in 1995 compared to $28.0 million in 1994. As a
percentage of net sales, these expenses were 24.0% in 1995, compared to 24.7% in
1994. The increase in spending was attributable to increased marketing programs
and expanded domestic and international selling efforts, offset by the continued
cost savings in administrative expenses as recent acquisitions were assimilated.
Research, Development and Engineering Expenses increased $0.4 million or
4.4% to $9.4 million in 1995 compared to $9.0 million in 1994. As a percentage
of net sales, these expenses were 7.2% in 1995, compared to 8.0% in 1994.
14
<PAGE> 16
The Company's effective tax rate for 1995 was 29.4% compared to 26.7% in
1994. The increase in the tax rate was primarily due to the reduced availability
of tax loss carryforwards and credits from Autotrol and its subsidiaries.
Net Earnings increased $1.4 million or 13.3% to $11.9 million or $0.83 per
share in 1995 compared to $10.5 million or $0.74 per share in 1994. As a
percentage of net sales, net earnings were 9.1% in 1995, compared to 9.3% in
1994.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had cash and marketable securities of
$23.6 million as compared to $31.0 million at December 31, 1995. The reduction
in cash and marketable securities was primarily the result of investments of
$12.2 million in facilities and equipment during the first nine months of 1996.
Cash provided by operating activities was $1.4 million, $8.4 million, and
$10.1 million for the nine month period ended September 30, 1996, and the years
ending December 31, 1995 and 1994 respectively. The decrease in cash provided by
operating activities in 1996 and 1995 was principally due to increased working
capital requirements to support the Company's sales growth.
Capital expenditures for the nine months ended September 30, 1996, and the
years ending December 31, 1995, and 1994 were $12.2 million, $20.8 million, $4.2
million, respectively. During 1995, the Company purchased its previously leased
Milwaukee facility for $3.1 million and invested $4.6 million in the expansion
of its Minnetonka facility. For the year ending December 31, 1996, capital
expenditures are expected to be $15.0 million. The level of capital expenditures
in 1997 is expected to be less than the levels of 1996 and 1995.
The Company has negotiated a new $7 million unsecured revolving line of
credit for working capital needs. The revolving line of credit is for two years
with an annual interest rate of LIBOR plus 50 basis points. This revolving line
of credit replaces a $1 million line of credit. At September 30, 1996, the
Company had $6.7 million available under the revolving line of credit.
The Company's operating cash requirements consist principally of working
capital requirements, capital expenditures and scheduled payments of principal
on outstanding indebtedness. The Company believes that its cash and marketable
securities, cash flow from operating activities and borrowings under its bank
facility will be adequate to meet the Company's liquidity and capital investment
requirements in the foreseeable future.
15
<PAGE> 17
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ------------------------------------------------
<S> <C> <C>
D. Dean Spatz...................... 52 Chief Executive Officer and Chairman of the
Board
Ruth Carol Spatz................... 52 Secretary and Director
Ralph E. Crump..................... 72 Director
Charles W. Palmer.................. 59 Director
Verity C. Smith.................... 73 Director
Michael L. Snow.................... 45 Director
L. Lee Runzheimer.................. 54 Chief Financial Officer
James J. Carbonari................. 54 Vice President Sales and Marketing
James W. Detert.................... 37 Vice President Operations
Howard W. Dicke.................... 59 Vice President Human Resources and Corporate
Development and Treasurer
Kenneth E. Jondahl................. 40 Vice President International
Andrew T. Rensink.................. 40 Vice President Technology
</TABLE>
D. DEAN SPATZ, Chief Executive Officer and Chairman of the Board of
Directors of the Company, has held his current position since founding the
Company in 1969. He has a B.A. from Dartmouth College and a Master of
Engineering degree from the Thayer School of Engineering, Dartmouth College. Mr.
Spatz is also a director of SI Technologies Inc. and Sigma Aldrich Corp., both
of which are traded on NASDAQ. Mr. Spatz and Ruth Carol Spatz are husband and
wife.
RUTH CAROL SPATZ, Secretary and Director of the Company, was a founder of
the Company in 1969 and has held her current position since its inception. She
is a graduate of the University of Vermont with a degree in Chemistry.
RALPH E. CRUMP was an initial investor in the Company and has been a
director since 1969. He founded Frigitronics, Inc., a manufacturer of ophthalmic
goods and medical instruments, in 1963 and was its President and Chairman of the
Board until December 1986. He is a graduate of the United States Merchant Marine
Academy and has a degree in Engineering from UCLA. Mr. Crump is also a director
of SI Technologies, Inc., Mity-Lite, Inc., and Imtec, Inc., all of which are
traded on NASDAQ.
CHARLES W. PALMER has been a director of the Company since 1993. Previously
he had been the Chairman and Chief Executive Officer of Autotrol Corporation,
Mr. Palmer is a graduate of Yale University with an A.B. in American studies and
earned an M.B.A. at Northwestern University.
VERITY C. SMITH has been a director of the Company since 1987. Mr. Smith is
the President of Vaponics Ltd. (UK) and Veritec Consultants. Mr. Smith was a
founder of Vaponics, Inc. and held the position of Chief Executive Officer from
its inception in 1967 until it was acquired by the Company in July 1987. He was
elected a director of the Company in August 1987. He has a B.S. in Chemical
Engineering from Massachusetts Institute of Technology and is a fellow of the
American Institute of Chemical Engineers.
MICHAEL L. SNOW is Of Counsel to the law firm of Maslon Edelman Borman &
Brand, a Professional Limited Liability Partnership, and has been a director of
the Company since 1989. Mr. Snow received a Bachelor of Arts degree and Juris
Doctor from the University of Michigan.
L. LEE RUNZHEIMER, Chief Financial Officer, has been an officer of the
Company since joining the Company in 1988. Mr. Runzheimer had previous financial
and operating experience with several other companies. He received his B.B.A. in
Accounting from the University of Wisconsin and his M.B.A. from the Harvard
Business School.
16
<PAGE> 18
JAMES J. CARBONARI is the Vice President Sales and Marketing. Mr. Carbonari
has been an officer of the Company since 1989. Mr. Carbonari has also held sales
and marketing management positions in industrial manufacturing companies, and
received his B.S. in Chemical Engineering from Illinois Institute of Technology
and an M.B.A. from Northwestern University.
JAMES W. DETERT is the Vice President Operations for the Company. Mr.
Detert has been an officer of the Company since 1990. Prior to joining the
Company, Mr. Detert worked in various engineering and manufacturing capacities
at General Electric. Mr. Detert received a B.S. in Mechanical Engineering and
B.A. in Psychology from Tufts University and earned an M.B.A. from Amos Tuck
School of Business at Dartmouth College.
HOWARD W. DICKE, CPA, Vice President Human Resources and Corporate
Development and Treasurer, has been an officer of the Company since 1978. Mr.
Dicke received his B.S. in Industrial Administration from Iowa State University
and an M.B.A. from the University of Washington.
KENNETH E. JONDAHL is Vice President International, and has been an officer
of the Company since 1991. Mr. Jondahl received his M.S. in Chemical Engineering
from the Institute of Technology at the University of Minnesota.
ANDREW T. RENSINK is Vice President Technology. Mr. Rensink has been an
officer of the Company since 1991. Prior to joining the Company, Mr. Rensink
held various manufacturing and engineering management positions for General
Electric. Mr. Rensink received his B.S. in Mechanical Engineering from the
University of Wisconsin.
17
<PAGE> 19
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of the date hereof by (i)
each director of the Company, (ii) each executive officer of the Company, (iii)
all directors and executive officers of the Company as a group, (iv) each
Selling Shareholder, and (v) each person or entity known by the Company to own
beneficially more than five percent of the Company's Common Stock. The address
of each director and executive officer of the Company is 5951 Clearwater Drive,
Minnetonka, Minnesota 55343.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING NUMBER AFTER THE OFFERING
------------------------- OF SHARES --------------------
NUMBER OFFERED NUMBER
BENEFICIAL OWNER OF SHARES PERCENT HEREBY OF SHARES PERCENT
- -------------------------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
State Farm Mutual Automobile Insurance
Company(1).......................... 1,388,812(2) 9.8 -- 1,388,812 9.8
D. Dean Spatz......................... 1,144,914(3)(4) 8.1 25,000(5) 1,119,914 8.0
Ruth Carol Spatz...................... 1,122,133(3)(4) 7.9 --(5) 1,097,133 7.8
Ralph E. Crump........................ 439,417(6) 3.1 75,362(7) 364,055 2.6
Marjorie L. Crump..................... 436,417(8) 3.1 75,362(7) 361,055 2.5
Charles W. Palmer..................... 965,662(9) 6.8 -- 965,662 6.8
Verity C. Smith....................... 5,196(4) * -- 5,196 *
Michael L. Snow....................... 35,400(10) * -- 35,400 *
James J. Carbonari.................... 20,874 * -- 20,874 *
James W. Detert....................... 52,875 * -- 52,875 *
Howard W. Dicke....................... 46,380 * -- 46,380 *
Kenneth E. Jondahl.................... 31,676 * -- 31,676 *
Andrew T. Rensink..................... 7,500 * -- 7,500 *
L. Lee Runzheimer..................... 44,688 * -- 44,688 *
Donald T. Bray........................ 860,946(11) 5.9 150,000 710,946 4.9
Julianne L. Bray...................... 157,107(12) 1.1 20,000 137,107 *
Nancy A. Bray......................... 132,545 * 117,082 15,463 *
Martha F. Bray........................ 136,867 * 10,000 126,867 *
Kenneth A. Hub........................ 100,850 * 5,000 95,850 *
Mary S. Hub........................... 84,282 * 5,000 79,282 *
All directors and executive officers
as a group (12 persons)............. 4,353,132(13) 30.6 175,724(14) 4,177,408 29.4
</TABLE>
- -------------------------
* Less than one percent.
(1) The address of State Farm Mutual Automobile Insurance Company is One State
Farm Place, Bloomington, Illinois 61701.
(2) Based upon the most recent Schedule 13G on file with the Securities and
Exchange Commission.
(3) Mr. and Mrs. Spatz possess sole voting and investment power with respect to
574,464 and 551,683, respectively, of such shares and they possess shared
voting and investment power with respect to 567,450 of such shares.
(4) Includes 3,000 shares issuable upon exercise of director stock options.
(5) Mr. and Mrs. Spatz possess shared voting and investment power with respect
to such shares. Does not include 49,810 shares that are subject to the
Underwriter's over-allotment option.
(6) Does not include 438,417 shares held by his spouse. Mr. Crump disclaims
beneficial ownership of these shares. See footnote 8. Includes 3,000 shares
issuable upon exercise of director stock options.
(7) Does not include 11,305 shares that are subject to the Underwriter's
over-allotment option.
(8) Does not include 441,417 shares held by her spouse. Mrs. Crump disclaims
beneficial ownership of these shares. See footnote 6.
18
<PAGE> 20
(9) Includes 3,000 shares issuable upon exercise of director stock options and
7,882 shares held by his spouse.
(10) Includes 25,500 shares issuable upon exercise of director stock options.
(11) Includes 314,214 shares issuable upon exercise of stock options. Does not
include 157,107 shares beneficially owned by Julianne L. Bray, Mr. Bray's
spouse.
(12) Does not include 860,946 shares beneficially owned by Donald T. Bray, Mrs.
Bray's spouse. See footnote 12.
(13) Includes options to purchase 40,500 shares of Common Stock that are
currently exercisable. Includes 438,417 shares owned by Marjorie L. Crump,
spouse of Ralph E. Crump, a director and 7,882 by Alice Palmer, spouse of
Charles W. Palmer, a director.
(14) Does not include an aggregate of 72,420 shares that are subject to the
Underwriter's over-allotment option.
19
<PAGE> 21
UNDERWRITING
Cleary Gull Reiland & McDevitt Inc. (the "Underwriter") has agreed, subject
to the terms and conditions contained in the Underwriting Agreement, to purchase
from the Selling Shareholders 482,806 shares of Common Stock (assuming the
Underwriter's over-allotment option is not exercised).
The Underwriting Agreement provides that the obligation of the Underwriter
to purchase shares of Common Stock is subject to the approval of certain legal
matters by counsel and to certain conditions. The Underwriting Agreement
provides that all of the Common Stock being offered, excluding shares covered by
the over-allotment option granted to the Underwriter, must be purchased if any
are purchased.
The Company has been advised that the Underwriter proposes to offer the
Common Stock to the public at the public offering price set forth on the cover
page of this Prospectus and may offer to selected dealers at such price less a
concession of not more than $0.45 per share; that the Underwriter may allow and
such dealers may reallow a concession of $0.10 per share on sales to certain
other dealers; and that the public offering price and concessions and
reallowances to dealers may be changed by the Underwriter.
Certain of the Selling Shareholders have granted to the Underwriter an
option, exercisable within 30 days after the date of this Prospectus, to
purchase up to an additional 72,420 shares of Common Stock to cover
over-allotments, at the same price per share being paid by the Underwriter for
the other shares offered hereby. The Underwriter may purchase such shares only
to cover over-allotments, if any, made in connection with the Offering made
hereby.
The Company and its present executive officers and directors and the
Selling Shareholders have agreed with the Underwriter that they will not offer
or sell any shares of Common Stock for 90 days from the effective date of the
Registration Statement without the prior written consent of the Underwriter.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriter against certain liabilities,
including civil liabilities under the Securities Act of 1933, as amended (the
"Securities Act"), or will contribute to payments the Underwriter may be
required to make in respect thereof.
20
<PAGE> 22
LEGAL MATTERS
Certain legal matters in connection with the validity of the securities
offered hereby will be passed upon for the Company and the Selling Shareholders
by Maslon Edelman Borman & Brand, a Professional Limited Liability Partnership,
Minneapolis, Minnesota ("Maslon"). Michael L. Snow, a director of the Company,
is Of Counsel at Maslon. Mr. Snow beneficially owns 35,400 shares of Common
Stock, which includes currently exercisable options to acquire 25,500 shares. A
Partner of Maslon beneficially owns 113,906 shares of Common Stock as trustee of
an Irrevocable Trust. This Partner has disclaimed any beneficial ownership of
such shares. Certain legal matters will be passed upon for the Underwriter by
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, S.C., Milwaukee, Wisconsin.
EXPERTS
The consolidated financial statements and the related financial statement
schedules of Osmonics, Inc. as of December 31, 1995 and 1994 and for each of the
three years in the period ended December 31, 1995 incorporated in this
prospectus by reference from the Osmonics, Inc. Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1996 have been audited by Deloitte &
Touche, LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Desalination Systems, Inc. for the year ended
December 31, 1995 incorporated in this prospectus by reference from the current
report on Form 8-K of Osmonics, Inc. filed on August 8, 1996 have been audited
by Deloitte & Touche, LLP, independent auditors, as stated in their report which
is incorporated herein by reference and has been so incorporated in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
ADDITIONAL INFORMATION
This Prospectus is part of a Registration Statement on Form S-3 (together
with all amendments and exhibits thereto, the "Registration Statement") which
has been filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act, relating to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to herein are
not necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information statements
and other information filed by the Company as well as the Registration Statement
and Exhibits may be inspected and copied at the public reference facilities of
the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
DC 20549, as well as at the following Regional Offices: 7 World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street -- Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained from the Commission by mail at prescribed rates. Requests should be
directed to the Commission's Public Reference Section, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549. In addition, the Commission
maintains a Web site that contains reports, proxy and information regarding
registrants, such as the Company, that file electronically with the Commission.
The address of this Web site is: http://www.sec.gov. Copies of the foregoing can
also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, NY 10005.
21
<PAGE> 23
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company filed with the Commission are
incorporated herein by reference:
(i) Annual Report on Form 10-K for the fiscal year ended December 31,
1995, as amended.
(ii) Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996.
(iii) Current Report on Form 8-K filed on August 8, 1996.
(iv) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed on December 23, 1993.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act, subsequent to the date of this
Prospectus and prior to the termination of the offering described herein shall
be deemed to be incorporated by reference in this Prospectus from the respective
dates those documents are filed. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written request of such person, a copy of any
or all of the documents incorporated by reference in this Prospectus (not
including certain exhibits to such documents). Written requests for such copies
should be directed to Ruth Carol Spatz, Osmonics, Inc., 5951 Clearwater Drive,
Minnetonka, Minnesota 55343, telephone number (612) 933-2277.
22
<PAGE> 24
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY OF THE SELLING SHAREHOLDERS OR THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
Use of Proceeds....................... 11
Price Range of Common Stock and
Dividend Policy..................... 11
Selected Consolidated Financial
Data................................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 13
Management............................ 16
Principal and Selling Shareholders.... 18
Underwriting.......................... 20
Legal Matters......................... 21
Experts............................... 21
Additional Information................ 21
Incorporation of Certain Documents by
Reference........................... 22
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
482,806 SHARES
OSMONICS LOGO
-----------------
PROSPECTUS
-----------------
CLEARY GULL REILAND & MCDEVITT INC.
NOVEMBER 20, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 25
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities registered hereby, other than underwriting discounts and fees,
are set forth in the following table:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 4,414.49
NASD filing fee................................................... 1,956.78
Legal fees and expenses........................................... 25,000.00
Printing and engraving expense.................................... 10,000.00
Transfer agent fees and expenses.................................. 5,000.00
Accounting fees and expenses...................................... 15,000.00
Miscellaneous..................................................... 13,628.73
----------
Total........................................................ $75,000.00
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is governed by Minnesota Statutes Chapter 302A. Minnesota
Statutes Section 302A.521 provides that a corporation shall indemnify any person
made or threatened to be made a party to any proceeding by reason of the former
or present official capacity of such person against judgments, penalties, fines,
including, without limitation, excise taxes assessed against such person with
respect to an employee benefit plan, settlements, and reasonable expenses,
including attorney's fees and disbursements, incurred by such person in
connection with the proceeding, if, with respect to the acts or omissions of
such person complained of in the proceeding, such person has not been
indemnified by another organization or employee benefit plan for the same
expenses with respect to the same acts or omissions; acted in good faith;
received no improper personal benefit and Section 302A.255, if applicable, has
been satisfied; in the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful; and in the case of acts or omissions by
persons in their official capacity for the corporation, reasonably believed that
the conduct was in the best interests of the corporation, or in the case of acts
or omissions by persons in their capacity for other organizations, reasonably
believed that the conduct was not opposed to the best interests of the
corporation.
As permitted by Section 302A.251 of the Minnesota Statutes, the Articles of
Incorporation and Bylaws of the Registrant provides that a director shall have
no personal liability to the Registrant and its shareholders for breach of his
fiduciary duty as a director, to the fullest extent permitted by law.
The Underwriting Agreement contains provisions under which the Registrant
and the Selling Shareholders, on the one hand, and the Underwriters, on the
other hand, have agreed to indemnify each other (including officers and
directors of the Registrant and the Underwriters and any person who may be
deemed to control the Registrant or the Underwriters) against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
II-1
<PAGE> 26
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement*
5 Opinion of Maslon Edelman Borman & Brand, a Professional Limited Liability
Partnership re: legality.*
23(1) Consent of Deloitte & Touche LLP.*
23(2) Consent of Deloitte & Touche LLP.*
23(3) Consent of Maslon Edelman Borman & Brand, a Professional Limited Liability
Partnership (included in Exhibit 5).
24 Power of Attorney.*
</TABLE>
- -------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
A. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
B. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
C. For purposes of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filling of
any employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Minnetonka, State of Minnesota, on November 19, 1996.
OSMONICS, INC.
Registrant
By: /s/ D. DEAN SPATZ
------------------------------------
D. Dean Spatz
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 19th day of November 1996 by
the following persons in the capacities indicated:
<TABLE>
<CAPTION>
NAME TITLE
- --------------------------------------------- ------------------------------------
<C> <S>
/s/ D. DEAN SPATZ Chief Executive Officer and Director
- --------------------------------------------- (Principal Executive Officer)
D. Dean Spatz
* Director
- ---------------------------------------------
Ralph E. Crump
* Secretary and Director
- ---------------------------------------------
Ruth Carol Spatz
* Director
- ---------------------------------------------
Michael L. Snow
Director
- ---------------------------------------------
Verity C. Smith
* Director
- ---------------------------------------------
Charles W. Palmer
* Chief Financial Officer (Principal
- --------------------------------------------- Financial and Accounting Officer)
L. Lee Runzheimer
*By: /s/ D. DEAN SPATZ
- ---------------------------------------------
D. Dean Spatz
Attorney-in-Fact
</TABLE>
II-3
