(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant X
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement - Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
X Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Osmonics, Inc.
Payment of filing fee (Check the appropriate box):
X No fee required
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials.
U.S. Securities and Exchange Commission
EDGARLink Electronic Filing System
Check box if any part of fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Indentify the previous filing by registration
statement number, or the form or schedule and the date of its filing:
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
Notice of Annual Meeting of Shareholders
May 13, 1998
To The Shareholders of Osmonics, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Shareholders of Osmonics, Inc. ("Osmonics") will be held at
the Minneapolis Club, 729 Second Avenue South, Minneapolis,
Minnesota 55402 on May 13, 1998 at 11:00 a.m., and at any
adjournments thereof, to consider and act upon the following
matters:
1. To elect three directors to serve a term of three years.
2. To approve the amendment of the Company's 1993 Employee
Stock Option and Compensation Plan to increase by
500,000 the number of shares reserved under the plan.
3. To transact such other business as may properly come
before the meeting or any adjournments thereof.
The Board of Directors has fixed the close of business
on March 20, 1998 as the record date for the determination
of shareholders entitled to notice of, and to vote at, the
meeting or any adjournments thereof. The accompanying Proxy
Statement forms a part of this Notice.
You are cordially invited to attend the meeting. Even
if you plan to attend the meeting, we urge you to sign, date
and return the proxy, which is solicited by the Board of
Directors, at once in the enclosed envelope.
By Order of the Board of
Directors
Ruth Carol Spatz,
Secretary
April 6, 1998
Proxy Statement for
Annual Meeting of Shareholders
May 13, 1998
General Matters<PAGE>
This Proxy Statement is furnished to shareholders in
conjunction with the solicitation by the Board of Directors
of Osmonics, Inc. of proxies for use at the Annual Meeting
of Shareholders to be held on May 13, 1998.
The record date for the determination of shareholders
entitled to notice of and to vote at the meeting is the
close of business on March 20, 1998. On that date there
were 13,954,978 Common shares outstanding. Each share is
entitled to one vote.
If a proxy in the accompanying form is duly executed and
returned, the shares represented thereby will be voted.
Where a specification is made on the proxy, the shares will
be voted in accordance with such specification. When no
specification is made on the proxy, the proxy will be voted
for the election as directors of the nominees named herein.
A proxy may be revoked by the shareholder at any time prior
to its being voted by giving written notice of revocation to
the Secretary of the Company, in open meeting, or by casting
a written ballot at the meeting. Attendance at the meeting
by a shareholder will not by itself be considered revocation
of the shareholder's proxy.
The cost of soliciting proxies will be borne by the
Company. In addition to solicitation by mail, officers and
regular employees may solicit proxies by telephone,
telegraph or in person. On request, the Company will
reimburse banks, brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by
them in sending soliciting material to the owners of the
shares.
This Proxy Statement and the accompanying materials are
first being sent to shareholders on or about April 6, 1998.
ELECTION OF DIRECTORS
The present Board of Directors of Osmonics is composed
of seven members. Directors are elected for a term of three
years with positions staggered so that approximately
one-third of the directors are elected at each annual
meeting of shareholders. It is intended that the proxies
received will be voted, unless authority is withheld, FOR
the election of the nominees listed below, namely William
Eykamp, Michael L. Snow, and Ruth Carol Spatz to serve until
the 2001 Meeting of Shareholders. The affirmative vote of
the holders of the greater of (a) a majority of the
outstanding shares of Common Stock of the Company present
and entitled to vote on the election of directors or (b) a
majority of the voting power of the minimum number of shares
entitled to vote that would constitute a quorum for
transaction of business at the meeting, is required for<PAGE>
election to the Board of each of the three nominees named
below. A shareholder who abstains with respect to the
election of directors is considered to be present and
entitled to vote on the election of directors at the
meeting, and is in effect casting a negative vote, but a
shareholder (including a broker) who does not give authority
to a Proxy to vote, or withholds authority to vote, on the
election of directors shall not be considered present and
entitled to vote on the election of directors. The nominees
are currently serving as directors and have consented, if
elected, to serve for a new term.
The following table sets forth information with respect
to each nominee for election as director and each other
person whose term of office as a director will continue
after the meeting.
Nominees for election for a term of three years:
William Eykamp, age 61, was appointed to the Board of
Directors in October 1997. He is currently a management
consultant and an adjunct professor of Chemical Engineering
at Tufts University. He served as president and director of
Koch Membrane Systems Inc., formerly Abcor Inc., from 1981
to 1988. Mr. Eykamp holds a Ph.D. in Chemical Engineering
from Massachusetts Institute of Technology and a Bachelor of
Science degree from Purdue University.
Michael L. Snow, age 47, of Counsel in the law firm of
Maslon Edelman Borman & Brand, a Limited Liability
Partnership, has been a director of Osmonics since 1989.
Maslon Edelman Borman & Brand, a Limited Liability
Partnership, has rendered legal services to Osmonics during
the last fiscal year. Mr. Snow received a Bachelor of Arts
degree and Juris Doctor from the University of Michigan.
Ruth Carol Spatz, age 53, Secretary and Director of
Osmonics, was a founder of Osmonics 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.
Directors whose terms expire in 1999:
Ralph E. Crump, age 74, was an initial investor in
Osmonics in 1969. He founded Frigitronics, Inc., a
manufacturer of ophthalmic 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., Imtec, Inc., and Stratasys, Inc., all
of which are traded on NASDAQ.
Charles W. Palmer, age 61, is currently a private
investor. He had been the Chairman and Chief Executive<PAGE>
Officer of Autotrol Corporation from 1989 through October
1993, when Autotrol was merged into the Company. He was the
Chairman and Chief Executive Officer of The Palmer Group
Ltd., a Midwestern real estate development firm from 1980
through 1996. Mr. Palmer is a graduate of Yale University
with an A.B. in American studies and earned an M.B.A. at
Northwestern University.
Directors whose terms expire in 2000:
Verity C. Smith, age 75, Director, Vaponics Ltd. (UK),
President, Veritec Consultants, was a founder of Vaponics,
Inc. and held the position of Chief Executive Officer from
its inception in 1967 until it was acquired by Osmonics in
July 1987. He was elected a director of Osmonics 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.
D. Dean Spatz, age 54, President and Chairman of the
Board of Directors of Osmonics, has held his current
position since founding Osmonics 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.
Board of Directors and Committees
The Board of Directors of Osmonics held four meetings
during 1997. Osmonics has an Audit Committee, a
Compensation Committee, and a Stock Option Committee, but
does not have a Nominating Committee.
Osmonics' Audit Committee, which consists of Messrs.
Ralph E. Crump and Michael L. Snow, met once during 1997.
The Audit Committee recommends to the full Board the
engagement of the independent accountants, reviews the audit
plan and results of the audit engagement, reviews the
independence of the auditors, and reviews the adequacy of
Osmonics' system of internal accounting controls.
Osmonics' Compensation Committee, which consists of
Messrs. Ralph E. Crump and Michael L. Snow, met once during
1997. The Compensation Committee reviews and recommends to
the full Board executive compensation.
Osmonics' Stock Option Committee, which consists of
Messrs. Ralph E. Crump, D. Dean Spatz and Mrs. Ruth Carol
Spatz, met four times during 1997. The committee proposes
and recommends to the full Board stock option grants to
executives and other key personnel under the existing Stock
Option Plan. <PAGE>
PROPOSAL TO INCREASE THE NUMBER OF SHARES
OF COMMON STOCK RESERVED FOR ISSUANCE
UNDER OSMONICS' 1993 STOCK OPTION AND COMPENSATION PLAN
Subject to the approval of the shareholders, on December
1, 1997 the Board of Directors amended the Osmonics 1993
Stock Option and Compensation Plan (the "Employee Stock
Option Plan") to increase the number of shares of Common
Stock reserved for issuance pursuant to the Employee Stock
Option Plan by 500,000 shares. On March 17, 1998, the Board
of Directors amended the Employee Stock Option Plan to
reflect recent revisions made in federal securities law.
The brief summary of the Employee Stock Option Plan which
follows is qualified in its entirety by reference to the
complete text, a copy of which is attached to this Proxy
Statement as Annex A.
General
The purpose of the Employee Stock Option Plan is to
increase shareholder value and to advance the interests of
Osmonics by furnishing a variety of economic incentives
("Incentives") designed to attract, retain and motivate
employees of Osmonics.
The Employee Stock Option Plan provides that a committee
composed of at least two members of the Board of Directors
of Osmonics (the "Stock Option Committee") who have not
received Incentives under the Employee Stock Option Plan may
grant Incentives to employees in the following forms: (a)
stock options; (b) stock appreciation rights; (c) stock
awards; (d) restricted stock; (e) performance shares; and
(f) cash awards. Incentives may be granted only to
employees of Osmonics (including officers and directors of
Osmonics, but excluding directors of Osmonics who are not
also employees of or consultants to Osmonics) selected from
time to time by the Stock Option Committee.
The number of shares of Common Stock which may be issued
under the Employee Stock Option Plan if this amendment is
approved may not exceed 800,000 shares, subject to
adjustment in the event of a merger, recapitalization or
other corporate restructuring. This represents
approximately 5.7% of the outstanding shares of Common Stock
on March 20, 1998. On March 20, 1998, the last sale price
of the Common Stock as reported on the New York Stock
Exchange was $16.25 per share.
Stock Options
Under the Employee Stock Option Plan, the Stock Option
Committee may grant non-qualified and incentive stock
options to eligible employees to purchase shares of Common
Stock from Osmonics. The Employee Stock Option Plan confers
on the Stock Option Committee discretion, with respect to<PAGE>
any such stock option, to determine the number and purchase
price of the shares subject to the option, the term of each
option and the time or times during its term when the option
becomes exercisable. The purchase price for incentive stock
options may not be less than the fair market value of the
shares subject to the option on the date of grant. The
number of shares subject to an option will be reduced
proportionately to the extent that the optionee exercises a
related Stock Appreciation Right ("SAR"). The term of a
non-qualified option may not exceed 10 years and one day
from the date of grant and the term of an incentive stock
option may not exceed 10 years from the date of grant. Any
option shall become immediately exercisable in the event of
specified changes in corporate ownership or control. The
Stock Option Committee may accelerate the exercisability of
any option or may determine to cancel stock options in order
to make a participant eligible for the grant of an option at
a lower price. The Stock Option Committee may approve the
purchase by Osmonics of an unexercised stock option for the
difference between the exercise price and the fair market
value of the shares covered by such option.
The option price may be paid in cash, check, bank draft
or by delivery of shares of Common Stock valued at their
fair market value at the time of purchase or by withholding
shares from the shares issuable upon exercise of such
options valued at their fair market value or as otherwise
authorized by the Stock Option Committee.
In the event that an optionee ceases to be an employee
of Osmonics for any reason, including death, any stock
option or unexercised portion thereof which was otherwise
exercisable on the date of termination of employment shall
expire at the time or times established by the Stock Option
Committee.
Stock Appreciation Rights
A stock appreciation right or SAR is a right to receive,
without payment to Osmonics, a number of shares, cash or any
combination thereof, the amount of which is determined
pursuant to the formula described below. A SAR may be
granted with respect to any stock option granted under the
Employee Stock Option Plan, or alone, without reference to
any stock option. A SAR granted with respect to any stock
option may be granted concurrently with the grant of such
option or at such later time as determined by the Stock
Option Committee and as to all or any portion of the shares
subject to the option.
Restricted Stock
Restricted stock consists of the sale or transfer by
Osmonics to an eligible employee of one or more shares of
Common Stock which are subject to restrictions on their sale<PAGE>
or other transfer by the employee. The price at which
restricted stock will be sold will be determined by the
Stock Option Committee, and it may vary from time to time
and among employees and may be less than the fair market
value of the shares at the date of sale. All shares of
restricted stock will be subject to such restrictions as the
Stock Option Committee may determine. Subject to these
restrictions and the other requirements of the Employee
Stock Option Plan, a participant receiving restricted stock
shall have all of the rights of a shareholder as to those
shares.
Stock Awards
Stock awards consist of the transfer by Osmonics to an
eligible employee of shares of Common Stock, without
payment, as additional compensation for services to
Osmonics. The number of shares transferred pursuant to any
stock award will be determined by the Stock Option
Committee.
Performance Shares
Performance shares consist of the grant by Osmonics to
an eligible employee of a contingent right to receive cash
or payment of shares of Common Stock. The performance
shares shall be paid in shares of Common Stock to the extent
performance objectives set forth in the grant are achieved.
The number of shares granted and the performance criteria
will be determined by the Stock Option Committee.
Cash Awards
A cash award consists of a monetary payment made by
Osmonics to an eligible employee as additional compensation
for his services to Osmonics. Payment may depend on the
achievement of specified performance objectives. The amount
of any monetary payment constituting a cash award shall be
determined by the Stock Option Committee.
Non-transferability of Most Incentives
No stock option, SAR, performance share or restricted
stock granted under the Employee Stock Option Plan will be
transferable by its holder, except in the event of the
holder's death, by will or the laws of descent and
distribution. During an employee's lifetime, an Incentive
may be exercised only by him or her or by his or her
guardian or legal representative.
Amendment of the Employee Stock Option Plan
The Board of Directors may amend or discontinue the
Employee Stock Option Plan at any time. However, no such
amendment or discontinuance may, subject to adjustment in<PAGE>
the event of a merger, recapitalization, or other corporate
restructuring, (a) change or impair, without the consent of
the recipient thereof, an Incentive previously granted, (b)
materially increase the maximum number of shares of Common
Stock which may be issued to all employees under the
Employee Stock Option Plan, (c) materially change or expand
the types of Incentives that may be granted under the
Employee Stock Option Plan, (d) materially modify the
requirements as to eligibility for participation in the
Employee Stock Option Plan, or (e) materially increase the
benefits accruing to participants. Certain Employee Stock
Option Plan amendments require shareholder approval,
including amendments which would materially increase
benefits accruing to participants, increase the number of
securities issuable under the Employee Stock Option Plan, or
change the requirements for eligibility under the Employee
Stock Option Plan.
Federal Income Tax Consequences
The following discussion sets forth certain United
States income tax considerations in connection with the
ownership of Common Stock. These tax considerations are
stated in general terms and are based on the Code. This
discussion does not address state or local tax
considerations with respect to the ownership of Common
Stock. Moreover, the tax considerations relevant to
ownership of the Common Stock may vary depending on a
holder's particular status.
Under existing Federal income tax provisions, an
employee who receives a stock option or performance shares
or a SAR under the Employee Stock Option Plan or who
purchases or receives shares of restricted stock under the
Employee Stock Option Plan which are subject to restrictions
which create a "substantial risk of forfeiture" (within the
meaning of section 83 of the Code) will not normally realize
any income, nor will Osmonics normally receive any deduction
for federal income tax purposes in the year such Incentive
is granted. An employee who receives a stock award under
the Employee Stock Option Plan consisting of shares of
Common Stock will realize ordinary income in the year of the
award in an amount equal to the fair market value of the
shares of Common Stock covered by the award on the date it
is made, and Osmonics will be entitled to a deduction equal
to the amount the employee is required to treat as ordinary
income. An employee who receives a cash award will realize
ordinary income in the year the award is paid equal to the
amount thereof, and the amount of the cash will be
deductible by Osmonics.
When a non-qualified stock option granted pursuant to
the Employee Stock Option Plan is exercised, the employee
will realize ordinary income measured by the difference
between the aggregate purchase price of the shares of Common<PAGE>
Stock as to which the option is exercised and the aggregate
fair market value of shares of the Common Stock on the
exercise date, and Osmonics will be entitled to a deduction
in the year the option is exercised equal to the amount the
employee is required to treat as ordinary income.
Options which qualify as incentive stock options are
entitled to special tax treatment. Under existing federal
income tax law, if shares purchased pursuant to the exercise
of such an option are not disposed of by the optionee within
two years from the date of granting of the option or within
one year after the transfer of the shares to the optionee,
whichever is longer, then (i) no income will be recognized
to the optionee upon the exercise of the option; (ii) any
gain or loss will be recognized to the optionee only upon
ultimate disposition of the shares and, assuming the shares
constitute capital assets in the optionee's hands, will be
treated as long-term capital gain or loss; (iii) the
optionee's basis in the shares purchased will be equal to
the amount of cash paid for such shares; and (iv) Osmonics
will not be entitled to a federal income tax deduction in
connection with the exercise of the option. Osmonics
understands that the difference between the option price and
the fair market value of the shares acquired upon exercise
of an incentive stock option will be treated as an "item of
tax preference" for purposes of the alternative minimum tax.
In addition, incentive stock options exercised more than
three months after retirement are treated as non-qualified
options.
Osmonics further understands that if the optionee
disposes of the shares acquired by exercise of an incentive
stock option before the expiration of the holding period
described above, the optionee must treat as ordinary income
in the year of that disposition an amount equal to the
difference between the optionee's basis in the shares and
the lesser of the fair market value of the shares on the
date of exercise or the selling price. In addition,
Osmonics will be entitled to a deduction equal to the amount
the employee is required to treat as ordinary income.
If the exercise price of an option is paid by surrender
of previously owned shares, the basis of the shares received
in replacement of the previously owned shares is carried
over. If the option is a nonstatutory option, the gain
recognized on exercise is added to the basis. If the option
is an incentive stock option, the optionee will recognize
gain if the shares surrendered were acquired through the
exercise of an incentive stock option and have not been held
for the applicable holding period. This gain will be added
to the basis of the shares received in replacement of the
previously owned shares.
Proxies and Voting<PAGE>
The affirmative vote of the holders of the greater of
(a) a majority of the outstanding shares of Common Stock of
Osmonics present and entitled to vote on the proposed
Employee Stock Option Plan amendment or (b) a majority of
the voting power of the minimum number of shares entitled to
vote that would constitute a quorum for transaction of
business at the meeting, is required to approve the proposal
to increase the number of shares of Common stock reserved
for issuance under the Employee Stock Option Plan. A
shareholder who abstains with respect to the proposed
Employee Stock Option Plan amendment is considered to be
present and entitled to vote at the meeting, and is in
effect casting a negative vote, but a shareholder (including
a broker) who does not give authority to a Proxy to vote on
the proposed Employee Stock Option Plan amendment shall not
be considered present and entitled to vote on the proposed
amendment. All shares represented by proxies will be voted
for approval of the proposed Employee Stock Option Plan
amendment unless a contrary choice is specified.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND
MANAGEMENT
The following table provides information as to the
beneficial ownership of the Company's Common Stock, as of
March 20, 1998, by (i) each person known by the Company to
be the beneficial owner of more than 5% of such Common
Stock, (ii) each nominee and continuing director of the
Company, (iii) the Company's Chief Executive Officer and
four other most highly compensated executive officers for
fiscal year 1997 and (iv) the directors and executive
officers as a group (13 persons). Beneficial ownership has
been determined for this purpose in accordance with Rule
13d-3 of the Securities and Exchange Commission under which
a person is deemed to be the beneficial owner of securities
if he or she has or shares voting power or dispositive power
with respect to such securities or has the right to acquire
beneficial ownership of such securities within 60 days by
exercise of an option or otherwise. The persons named in
the table have sole voting and dispositive powers with
respect to all shares of Common Stock unless otherwise noted
in the notes following the table.
Name of Beneficial Amount and Nature
Owner Including of Beneficial
Address of Owners Ownership of Percent of
for More than 5% Common Stock Common Stock
State Farm Mutual
Automobile Insurance
Company
One State Farm Place 1,388,812(1) 9.7<PAGE>
Name of Beneficial Amount and Nature
Owner Including of Beneficial
Address of Owners Ownership of Percent of
for More than 5% Common Stock Common Stock
Bloomington, IL 61701
Fleet Financial Group
One Federal Street
Boston, MA 02110 971,310(2) 7.0
Donald T. Bray, Trustee
of the Donald T. Bray
Trust
Dated April 8, 1992
4281 Weise Road 796,077(3) 5.5
Carson City, NV 89702
Heartland Advisors Inc.
790 North Milwaukee
Street 734,600(4) 5.3
Milwaukee, WI 53202
Ralph E. Crump(6) 689,900(5) 4.8
James J. Carbonari 22,124(7) *
Kenneth E. Jondahl 33,676(7) *
William Eykamp 1,001 *
Charles W. Palmer(9) 921,632(8) 6.4
Andrew T. Rensink 8,720(7) *
L. Lee Runzheimer 45,938(7) *
Verity C. Smith 13,196(10) *
Michael L. Snow 63,900(11) *
D. Dean Spatz(6) 1,076,104(12) 7.5
Ruth Carol Spatz(6) 1,053,323(12) 7.3
All directors and
executive officers as a 3,489,034(13) 24.3
group (13 persons)
_____________
* Less than 1%
(1) Beneficial ownership is as of March 20, 1998. Based
upon the most recent schedule 13G on file with the
Securities and Exchange Commission, State Farm Mutual
Automobile Insurance Company's affiliated corporations
have sole voting and investment power with respect to
421,875 shares, 438,750 shares and 528,187 shares,
respectively.
(2) Beneficial ownership is based on a Schedule 13G filed
February 13, 1998. Includes 869,000 shares held by
Columbia Special Fund Inc., a subsidiary of Fleet
Financial Group.<PAGE>
(3) Based upon the most recent Schedule 13D on file with
the Securities and Exchange Commission, Donald T. Bray,
Trustee of the Donald T. Bray Trust dated April 8, 1992
has sole voting and investment power with respect to
658,970 shares, which includes 314,214 shares
exercisable within 60 days of the above date. He has
shared voting and investment power with respect to
126,633 shares.
(4) Beneficial ownership is based upon a Schedule 13G filed
February 2, 1998.
(5) Includes 340,450 shares held by his spouse. Mr. Crump
disclaims beneficial ownership of these shares.
Includes 9,000 shares exercisable within 60 days of the
above date.
(6) The address of such person is 5951 Clearwater Drive,
Minnetonka, MN 55343.
(7) Includes 1,250 shares exercisable within 60 days of the
above date.
(8) Includes 9,000 shares exercisable within 60 days of the
above date and 7,882 shares held by his spouse.
(9) Mr. Palmer's address is 5951 Clearwater Drive.,
Minnetonka, Minnesota 55343.
(10) Includes options to purchase 9,000 shares exercisable
within 60 days of the above date.
(11) Includes options to purchase 54,000 shares within 60
days of the above date.
(12) Mr. and Mrs. Spatz possess sole voting and investment
power with respect to 580,464 and 557,683,
respectively, of such shares and they possess shared
voting and investment power with respect to 492,640 of
such shares. Includes options to purchase 9,000 shares
exercisable within 60 days of the above date for each
person.
(13) Includes options to purchase 110,250 shares of Osmonics
Common stock exercisable within 60 days of the above
date. Includes 340,450 shares owned by Marjorie L.
Crump, spouse of Ralph E. Crump, a director and 7,882
owned by Alice Palmer, spouse of Charles W. Palmer, a
director.
EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash
compensation for each of the last three fiscal years awarded
to or earned by the Chief Executive Officer of the Company<PAGE>
and each of the four other most highly compensated executive
officers of the Company whose salary and bonus exceeded
$100,000 during the 1997 fiscal year.
Name and Annual Compensation All Other
Principal Position Year Salary( Bonus Compensation
1) (2)
D. Dean Spatz 1997 $292,767 $94,000 $ 7,893
Chairman 1996 270,140 280,000 10,269
Chief Executive 1995 281,767 260,000 10,061
Officer
L. Lee Runzheimer 1997 $129,134 $ 8,000 $ 7,493
Chief Financial 1996 129,057 26,000 11,674
Officer 1995 135,868 40,000 11,594
James J. Carbonari 1997 $119,054 $10,000 $ 7,893
Vice President 1996 118,825 46,000 11,674
Sales & 1995 104,693 54,000 11,184
Marketing
Andrew T. Rensink 1997 $108,283 $ 8,000 $ 6,403
Vice President 1996 104,031 30,000 10,385
Technology 1995 94,831 35,000 9,672
Kenneth E. Jondahl 1997 $ 98,476 $15,000 $5,065
Vice President 1996 101,171 15,000 7,703
International 1995 84,798 9,500 6,170
(1) Includes cash compensation deferred at the election of
the executive under the terms of Osmonics' 401(k) Plan.
(2) Includes $150 per year of matching funds from Osmonics
in the 401(k) Savings Plan and contributions by
Osmonics to the Profit Sharing Retirement Plan of
$7,743 for Mr. Spatz, $7,743 for Mr. Carbonari, $7,343
for Mr. Runzheimer, $6,403 for Mr. Rensink and $4,915
for Mr. Jondahl for 1997.
Stock Option Exercises in 1997 and Value at End of 1997
The following table summarizes information with respect
to options held by the Chief Executive Officer and the
executive officers named in the Summary Compensation Table,
and the value of the options held by such persons at the end
of fiscal year 1997.
Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year-End Option Values<PAGE>
Number of Value of
securities unexercised
underlying in-the-money
unexercised options at
Shares options at fiscal year-end
Acquired Value fiscal year-end (2) (3)
On exer- Real- Exer- Unexer- Exer- Unexer-
Name cise (#) ized(1) cisable cisable cisable cisable
D. Dean - - 6,000 3,000 - 1,312
Spatz
James J. - - 0 5,000 - -
Carbonari
L. Lee - - 0 5,000 - -
Runzheimer
Andrew T. - - 0 5,000 - -
Rensink
Kenneth E. - - 0 5,000 - -
Jondahl
(1) Value realized is the aggregate market value, on the
date of exercise, of the shares acquired less the
aggregate exercise price paid for such shares.
(2) Value of unexercised options is the difference between
the aggregate market value of the underlying shares
(based on the closing price on December 31, 1997, which
was $15.8125 per share) and the aggregate exercise price
for such shares.
(3) All options granted to the named Officers were at a
price greater than the closing price on December 31,
1997, with the exception of a non-exercisable option
granted to D. Dean Spatz, through the 1995 Director
Stock Option Plan.
Compensation Committee Interlocks and Insider Participation
Osmonics' Compensation Committee consists of Messrs.
Ralph E. Crump and Michael L. Snow. Mr. Snow is of Counsel
in the law firm of Maslon Edelman Borman & Brand, a Limited
Liability Partnership, which rendered legal services to
Osmonics during the last fiscal year.
Director Compensation
Since 1995, the Company has maintained a Director Stock
Option Plan (the "Director Plan"). A total of 250,000
shares of Common Stock are reserved for issuance under the
Director Plan. Each director of the Company is eligible to
participate in the Director Plan, including directors who<PAGE>
are employees of the Company. Under the Director Plan, each
director automatically is granted an option to purchase
3,000 shares at the time of each annual meeting of the
Company's shareholders. All options granted under the
Director Plan have an exercise price equal to the fair
market value of the Company's Common Stock on the date of
grant and become exercisable one year after the date of
grant. The Company will receive no consideration upon the
grant of options under the 1995 Director Plan. The exercise
price of an option must be paid in full upon exercise.
Payment may be made in cash, check or, in whole or in part,
in Common Stock of the Company owned by the person
exercising the option, valued at fair market value. All
directors of Osmonics are reimbursed for expenses of
attending meetings of the Board of Directors.
Report of the Compensation Committee of the Board of
Directors on Executive Compensation
Osmonics' Compensation Committee consists of Messrs.
Ralph E. Crump and Michael L. Snow. Mr. Snow is of Counsel
in the law firm of Maslon Edelman Borman & Brand, a Limited
Liability Partnership, which rendered legal services to the
Osmonics during the last fiscal year.
Decisions on compensation of Osmonics' executives
generally have been made by the Compensation Committee (the
"Compensation Committee") of the Board, except that
decisions regarding the granting of stock options have been
and will be made by the Stock Option Committee. Each member
of the Compensation Committee is a non-employee director.
Members of the Stock Option Committee are not eligible to
receive stock options under the Osmonics stock option plans.
All decisions by the Compensation Committee relating to the
compensation of Osmonics' executive officers are reviewed by
the full Board. Pursuant to recently adopted rules designed
to enhance disclosure of Osmonics' policies toward executive
compensation, set forth below is a report prepared by the
Board of Directors addressing Osmonics', and its
subsidiaries', compensation policies for the year ended
December 31, 1997 as they affected Osmonics' executive
officers.
The Compensation Committee's executive compensation
policies are designed to provide competitive levels of
compensation that integrate pay with Osmonics' annual
objectives and long-term goals, reward above average
corporate performance, recognize individual initiative and
achievements, and assist Osmonics in attracting and
retaining qualified executives. Targeted levels of
executive compensation are set at levels that the
Compensation Committee believes to be consistent with others
in Osmonics' industry and other manufacturing companies in
the Twin Cities metropolitan area.<PAGE>
There are three elements in Osmonics' executive
compensation program, all determined by individual and
corporate performance.
- Base salary compensation
- Annual incentive compensation
- Stock options
Total compensation opportunities are competitive with
those offered by employers of comparable size, growth and
profitability in our industry.
Base salary compensation is determined by the potential
impact the individual has on Osmonics, the skills and
experiences required by the job, and the performance and
potential of the incumbent in the job.
Annual incentive compensation for executives of Osmonics
and its subsidiaries is based primarily on corporate
operating earnings and sales growth but also includes an
overall assessment by the Board of Directors of executive
management's performance, as well as market conditions.
Awards of stock options under the Stock Option Plan are
designed to promote the identity of long-term interests
between Osmonics' executives and its shareholders and assist
in the retention of executives. The Stock Option Plan also
permits the Committee to grant stock options to key
personnel. The Compensation Committee makes recommendations
to the Stock Option Committee regarding the granting of
stock options to executives and key personnel. These
recommendations may result in the granting of such options.
Options become exercisable based upon criteria established
by Osmonics.
The Compensation Committee surveys employee stock option
programs of companies with similar capitalization to
Osmonics prior to recommending to grant options to the
executives. While the value realizable from exercisable
options is dependent upon the extent of which Osmonics'
performance is reflected in the market price of Osmonics'
Common Stock at any particular point in time, the decision
as to whether such value will be realized in any particular
year is primarily determined by each individual executive
and not by the Compensation Committee. Accordingly, when
the Committee recommends that an option be granted to an
executive, that recommendation does not take into account
any gains realized that year by that executive as a result
of his or her individual decision to exercise an option
granted in a previous year.
The 1997 cash compensation paid to Mr. Spatz was
$386,767 which represents a 42% decrease from his 1996 cash<PAGE>
compensation. Although his base compensation increased 8%
from 1996 to reflect the growth of the Company and the extra
effort involved in recent acquisitions, the Committee
advised a decrease of 66% in his bonus in response to the
sales performance and the lower earnings per share in 1997.
Ralph E. Crump
Michael L. Snow
Stock Performance Graph
The Securities and Exchange Commission requires that
Osmonics include in this Proxy Statement a line-graph
presentation comparing cumulative, five-year return to
Osmonics' shareholders (based on appreciation of the market
price of Osmonics' Common Stock) on an indexed basis with
(i) a broad equity market index and (ii) an appropriate
published industry or line-of-business index, or peer group
index constructed by Osmonics. The following presentation
compares Osmonics' Common Stock price in the five-year
period from December 31, 1992 to December 31, 1997, to the
S&P 500 Stock Index and to a peer group index created by
Osmonics over the same period. The peer group index
consists of the common stock of Calgon Carbon Corporation,
Cuno, Inc., Hach Co., Ionics, Inc., Millipore Corp., Pall
Corp., Sybron Chemical, U.S. Filter Corp., and Waterlink,
Inc. Goulds Pump and Gelman Sciences, previously included
in the peer group, were acquired by ITT Industries and Pall
Corp., respectively, in 1997 and are no longer included.
Cuno Inc. was divested from Commercial Intertech Corp. and
replaces Commercial Intertech Corp. in the peer group. Hach
Co. and Waterlink, Inc. were not previously included in the
peer group. All peer group corporations are involved in
various aspects of the water treatment or liquid separations
businesses and associated product lines. The presentation
assumes that the value of an investment in each of Osmonics'
Common Stock, the S&P 500 Index, and the peer group index
was $100 on December 31, 1992, and that any dividend paid
(none have been paid by Osmonics) were re-invested in the
same security. <PAGE>
End of 1992 1993 1994 1995 1996 1997
fiscal:
Osmonics, $100.00 $109.15 $108.84$149.08$160.97 $115.69
Inc.
S&P 500 $100.00 $110.08 $111.53$153.45$188.68 $251.63
Peer Group $100.00 $ 92.06 $ 96.84$144.14$156.52 $140.34
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires Osmonics' officers and directors, and persons who
own more than ten percent of a registered class of Osmonics'
equity securities, to file reports of ownership and changes
in ownership with the Securities and Exchange Commission and
the New York Stock Exchange. Officers, directors and
greater-than-ten-percent shareholders are required by SEC
regulation to furnish Osmonics with copies of all Section
16(a) forms they file. Based solely on review of the copies
of such forms furnished to Osmonics, or written
representations that no Forms 5 were required, Osmonics
believes that during the year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its
officers, directors and greater-than-ten-percent beneficial
owners were complied with.
INDEPENDENT AUDITORS
Deloitte & Touche LLP has served as independent auditors
for the Company since August 27, 1987. A representative of
Deloitte & Touche LLP is expected to attend this year's
Annual Meeting of Shareholders and have an opportunity to
make a statement and/or respond to appropriate questions
from shareholders. Shareholder approval is not required for
the appointment of independent auditors, since the Board of
Directors has the responsibility for selecting auditors.
PROCEDURE FOR SUBMITTING SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act,
shareholders may present proper proposals for inclusion in
Osmonics' proxy statement and for consideration at the next
annual meeting of its shareholders by submitting their<PAGE>
proposals to Osmonics in a timely manner. Any proposal by a
shareholder to be presented at the next Annual Meeting of
Osmonics must be received at Osmonics' principal executive
offices, 5951 Clearwater Drive, Minnetonka, Minnesota 55343-
8995, no later than November 30, 1998, and otherwise have
complied with the requirements of Rule 14a-8.
The Board of Directors does not intend to present to the
meeting any other matters not referred to above and does not
presently know of any matters that may be presented to the
meeting by others. However, if other matters come before
the meeting, it is the intention of the persons named in the
enclosed form of proxy to vote the proxy in accordance with
their best judgment.
By Order of the Board of
Directors of Osmonics, Inc.
D. Dean Spatz
Chairman of the Board and
Chief Executive Officer
ANNEX A
OSMONICS, INC.
1993 STOCK OPTION AND
COMPENSATION PLAN
(as amended)
1. Purpose. The purpose of the 1993 Stock Option and
Compensation Plan (the "Plan") of Osmonics, Inc.
("Osmonics") is to increase shareholder value and to advance
the interests of Osmonics by furnishing a variety of
economic incentives ("Incentives") designed to attract,
retain and motivate employees. Incentives may consist of
opportunities to purchase or receive shares of Common Stock,
$0.01 par value, of Osmonics ("Common Stock"), monetary
payments or both on terms determined under this Plan.
2. Administration. The Plan shall be administered by
the stock option committee (the "Committee") of the board of
directors of Osmonics. The Committee shall consist of not
less than two directors of Osmonics and shall be appointed
from time to time by the board of directors of Osmonics.
The board of directors of Osmonics may from time to time
appoint members of the Committee in substitution for, or in
addition to, members previously appointed, and may fill
vacancies, however caused, in the Committee. The Committee
shall select one of its members as its chairman and shall
hold its meetings at such times and places as it shall deem
advisable. A majority of the Committee's members shall
constitute a quorum. All action of the Committee shall be<PAGE>
taken by the majority of its members. Any action may be
taken by a written instrument signed by majority of the
members and actions so taken shall be fully effective as if
it had been made by a majority vote at a meeting duly called
and held. The Committee may appoint a secretary, shall keep
minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it shall deem
advisable. The Committee shall have complete authority to
award Incentives under the Plan, to interpret the Plan, and
to make any other determination which it believes necessary
and advisable for the proper administration of the Plan.
The Committee's decisions and matters relating to the Plan
shall be final and conclusive on Osmonics and its
participants.
3. Eligible Employees. Employees of Osmonics or its
subsidiaries or affiliates (including officers and
directors, but excluding directors who are not also
employees of or consultants to Osmonics or its subsidiaries
or affiliates), shall become eligible to receive Incentives
under the Plan when designated by the Committee. Employees
may be designated individually or by groups or categories
(for example, by pay grade) as the Committee deems
appropriate. Participation by officers of Osmonics or its
subsidiaries or affiliates and any performance objectives
relating to such officers must be approved by the Committee.
Participation by others and any performance objectives
relating to others may be approved by groups or categories
(for example, by pay grade) and authority to designate
participants who are not officers and to set or modify such
targets may be delegated.
4. Types of Incentives. Incentives under the Plan
may be granted in any one or a combination of the following
forms: (a) incentive stock options and non-statutory stock
options (section 6); (b) stock appreciation rights ("SARs")
(section 7); (c) stock awards (section 8); (d) restricted
stock (section 8); and (e) performance shares (section 9).
5. Shares Subject to the Plan.
5.1. Number of Shares. Subject to adjustment as
provided in Section 10.6, the number of shares of
Common Stock which may be issued under the Plan shall
not exceed 800,000 shares of Common Stock.
5.2. Cancellation. To the extent that cash in
lieu of shares of Common Stock is delivered upon the
exercise of an SAR pursuant to Section 7.4, Osmonics
shall be deemed, for purposes of applying the
limitation on the number of shares, to have issued the
greater of the number of shares of Common Stock which
it was entitled to issue upon such exercise or on the
exercise of any related option. In the event that a
stock option or SAR granted hereunder expires or is<PAGE>
terminated or cancelled unexercised as to any shares of
Common Stock, such shares may again be issued under the
Plan either pursuant to stock options, SARs or
otherwise. In the event that shares of Common Stock
are issued as restricted stock or pursuant to a stock
award and thereafter are forfeited or reacquired by
Osmonics pursuant to rights reserved upon issuance
thereof, such forfeited and reacquired shares may again
be issued under the Plan, either as restricted stock,
pursuant to stock awards or otherwise.
5.3. Type of Common Stock. Common Stock issued
under the Plan in connection with stock options, SARS,
performance shares, restricted stock or stock awards,
may be authorized and unissued shares.
6. Stock Options. A stock option is a right to
purchase shares of Common Stock from Osmonics. Each stock
option granted by the Committee under this Plan shall be
subject to the following terms and conditions:
6.1. Price. The option price per share shall be
determined by the Committee, subject to adjustment
under Section 10.6.
6.2. Number. The number of shares of Common Stock
subject to the option shall be determined by the
Committee, subject to adjustment as provided in Section
10.6. The number of shares of Common Stock subject to a
stock option shall be reduced in the same proportion
that the holder thereof exercises an SAR if any SAR is
granted in conjunction with or related to the stock
option.
6.3. Duration and Time for Exercise. Subject to
earlier termination as provided in Section 10.4, the
term of each stock option shall be determined by the
Committee but shall not exceed ten years and one day
from the date of grant. Each stock option shall become
exercisable at such time or times during its term as
shall be determined by the Committee at the time of
grant. The Committee may accelerate the exercisability
of any stock option. Subject to the foregoing and with
the approval of the Committee, all or any part of the
shares of Common Stock with respect to which the right
to purchase has accrued may be purchased by Osmonics at
the time of such accrual or at any time or times
thereafter during the term of the option.
6.4. Manner of Exercise. A stock option may be
exercised, in whole or in part, by giving written
notice to Osmonics, specifying the number of shares of
Common Stock to be purchased and accompanied by the
full purchase price for such shares. The option price
shall be payable in United States dollars upon exercise<PAGE>
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
option price, which shares shall be valued for this
purpose at the Fair Market Value on the date such
option is exercised; by instructing Osmonics to
withhold from the shares of Common Stock issuable upon
exercise of the stock option shares of Common Stock in
payment of all or any part of the option price, which
shares shall be valued for this purpose at the Fair
Market Value or in such other manner as may be
authorized from time to time by the Committee. Prior to
the issuance of shares of Common Stock upon the
exercise of a stock option, a participant shall have no
rights as a shareholder.
6.5. Incentive Stock Options. Notwithstanding
anything in the Plan to the contrary, the following
additional provisions shall apply to the grant of stock
options which are intended to qualify as Incentive
Stock Options (as such term is defined in Section 422A
of the Internal Revenue Code of 1986, as amended):
(a) The aggregate Fair Market Value
(determined as of the time the option is granted)
of the shares of Common Stock with respect to
which Incentive Stock Options are exercisable for
the first time by any participant during any
calendar year (under all of Osmonics' plans) shall
not exceed $100,000.
(b) Any Incentive Stock Option certificate
authorized under the Plan shall contain such other
provisions as the Committee shall deem advisable,
but shall in all events be consistent with and
contain all provisions required in order to
qualify the options as Incentive Stock Options.
(c) All Incentive Stock Options must be
granted within ten years from the earlier of the
date on which this Plan was adopted by board of
directors or the date this Plan was approved by
the shareholders.
(d) Unless sooner exercised, all Incentive
Stock Options shall expire no later than 10 years
after the date of grant.
(e) The option price for Incentive Stock
Options shall be not less than the Fair Market
Value of the Common Stock subject to the option on
the date of grant.
(f) No Incentive Stock Options shall be
granted to any participant who, at the time such<PAGE>
option is granted, would own (within the meaning
of Section 422A of the Code) stock possessing more
than 10% of the total combined voting power of all
classes of stock of the employer corporation or of
its parent or subsidiary corporation.
7. Stock Appreciation Rights. An SAR is a right to
receive, without payment to Osmonics, a number of shares of
Common Stock, cash or any combination thereof, the amount of
which is determined pursuant to the formula set forth in
Section 7.4. An SAR may be granted (a) with respect to any
stock option granted under this Plan, either concurrently
with the grant of such stock option or at such later time as
determined by the Committee (as to all or any portion of the
shares of Common Stock subject to the stock option), or (b)
alone, without reference to any related stock option. Each
SAR granted by the Committee under this Plan shall be
subject to the following terms and conditions:
7.1. Number. Each SAR granted to any participant
shall relate to such number of shares of Common Stock
as shall be determined by the Committee, subject to
adjustment as provided in Section 10.6. In the case of
an SAR granted with respect to a stock option. the
number of shares of Common Stock to which the SAR
pertains shall be reduced in the same proportion that
the holder of the option exercises the related stock
option.
7.2. Duration. Subject to earlier termination as
provided in Section 10.4, the term of each SAR shall be
determined by the Committee but shall not exceed ten
years and one day from the date of grant. Unless
otherwise provided by the Committee, each SAR shall
become exercisable at such time or times, to such
extent and upon such conditions as the stock option, if
any, to which it relates is exercisable. The Committee
may in its discretion accelerate the exercisability of
any SAR.
7.3. Exercise. An SAR may be exercised, in whole
or in part, by giving written notice to Osmonics,
specifying the number of SARs which the holder wishes
to exercise. Upon receipt of such written notice,
Osmonics shall, within 90 days thereafter, deliver to
the exercising holder certificates for the shares of
Common Stock or cash or both, as determined by the
Committee, to which the holder is entitled pursuant to
Section 7.4.
7.4. Payment. Subject to the right of the
Committee to deliver cash in lieu of shares of Common
Stock (which, as it pertains to officers and directors
of Osmonics, shall comply with all requirements of the
1934 Act), the number of shares of Common Stock which<PAGE>
shall be issuable upon the exercise of an SAR shall be
determined by dividing:
(a) the number of shares of Common Stock as
to which the SAR is exercised multiplied by the
amount of the appreciation in such shares (for
this purpose, the "appreciation" shall be the
amount by which the Fair Market Value of the
shares of Common Stock subject to the SAR on the
exercise date exceeds (1) in the case of an SAR
related to a stock option, the purchase price of
the shares of Common Stock under the stock option
or (2) in the case of an SAR granted alone,
without reference to a related stock option, an
amount which shall be determined by the Committee
at the time of grant, subject to adjustment under
Section 10.6); by
(b) the Fair Market Value of a share of
Common Stock on the exercise date.
In lieu of issuing shares of Common Stock
upon the exercise of an SAR, the Committee may
elect to pay the holder of the SAR cash equal to
the Fair Market Value on the exercise date of any
or all of the shares which would otherwise be
issuable. No fractional shares of Common Stock
shall be issued upon the exercise of an SAR;
instead, the holder of the SAR shall be entitled
to receive a cash adjustment equal to the same
fraction of the Fair Market Value of a share of
Common Stock on the exercise date or to purchase
the portion necessary to make a whole share at its
Fair Market Value on the date of exercise.
8. Stock Awards and Restricted Stock. A stock award
consists of the transfer by Osmonics to a participant of
shares of Common Stock, without other payment therefor, as
additional compensation for services to Osmonics. A share
of restricted stock consists of shares of Common Stock which
are sold or transferred by Osmonics to a participant at a
price determined by the Committee (which price shall be at
least equal to the minimum price required by applicable law
for the issuance of a share of Common Stock) and subject to
restrictions on their sale or other transfer by the
participant. The transfer of Common Stock pursuant to stock
awards and the transfer and sale of restricted stock shall
be subject to the following terms and conditions:
8.1. Number of Shares. The number of shares to be
transferred or sold by Osmonics to a participant
pursuant to a stock award or as restricted stock shall
be determined by the Committee.<PAGE>
8.2. Sale Price. The Committee shall determine
the price, if any, at which shares of restricted stock
shall be sold to a participant, which may vary from
time to time and among participants and which may be
below the Fair Market Value of such shares of Common
Stock at the date of sale.
8.3. Restrictions. All shares of restricted stock
transferred or sold hereunder shall be subject to such
restrictions as the Committee may determine, including,
without limitation any or all of the following:
(a) a prohibition against the sale,
transfer, pledge or other encumbrance of the
shares of restricted stock, such prohibition to
lapse at such time or times as the Committee shall
determine (whether in annual or more frequent
installments, at the time of the death, disability
or retirement of the holder of such shares, or
otherwise);
(b) a requirement that the holder of shares
of restricted stock forfeit, or (in the case of
shares sold to a participant) resell back to
Osmonics at his or her cost, all or a part of such
shares in the event of termination of his or her
employment during any period in which such shares
are subject to restrictions;
(c) such other conditions or restrictions as
the Committee may deem advisable.
8.4. Escrow. In order to enforce the restrictions
imposed by the Committee pursuant to Section 8.3, the
participant receiving restricted stock shall enter into
an agreement with Osmonics setting forth the conditions
of the grant. Shares of restricted stock shall be
registered in the name of the participant and
deposited, together with a stock power endorsed in
blank, with Osmonics. Each such certificate shall bear
a legend in substantially the following form:
The transferability of this certificate
and the shares of Common Stock
represented by it are subject to the
terms and conditions (including
conditions of forfeiture) contained in
the 1993 Stock Option and Compensation
Plan of Osmonics, Inc., and an agreement
entered into between the registered
owner and Osmonics, Inc. A copy of the
Plan and the agreement is on file in the
office of the secretary of Osmonics,
Inc.<PAGE>
8.5. End of Restrictions. Subject to Section
10.5, at the end of any time period during which the
shares of restricted stock are subject to forfeiture
and restrictions on transfer, such shares will be
delivered free of all restrictions to the participant
or to the participant's legal representative,
beneficiary or heir.
8.6. Shareholder. Subject to the terms and
conditions of the Plan, each participant receiving
restricted stock shall have all the rights of a
shareholder with respect to shares of stock during any
period in which such shares are subject to forfeiture
and restrictions on transfer, including without
limitation, the right to vote such shares. Dividends
paid in cash or property other than Common Stock with
respect to shares of restricted stock shall be paid to
the participant currently.
9. Performance Shares. A performance share consists
of an award which shall be paid in shares of Common Stock,
as described below. The grant of performance share shall be
subject to such terms and conditions as the Committee deems
appropriate, including the following:
9.1. Performance Objectives. Each performance
share will be subject to performance objectives for
Osmonics or one of its operating units to be achieved
by the end of a specified period. The number of
performance shares granted shall be determined by the
Committee and may be subject to such terms and
conditions, as the Committee shall determine. If the
performance objectives are achieved, each participant
will be paid in shares of Common Stock or cash. If
such objectives are not met, each grant of performance
shares may provide for lesser payments in accordance
with formulas established in the award.
9.2. Not Shareholder. The grant of performance
shares to a participant shall not create any rights in
such participant as a shareholder of Osmonics, until
the payment of shares of Common Stock with respect to
an award.
9.3. No Adjustments. No adjustment shall be made
in performance shares granted on account of cash
dividends which may be paid or other rights which may
be issued to the holders of Common Stock prior to the
end of any period for which performance objectives were
established.
9.4. Expiration of Performance Share. If any
participant's employment with Osmonics is terminated
for any reason other than normal retirement, death or
disability prior to the achievement of the<PAGE>
participant's stated performance objectives, all the
participants rights on the performance shares shall
expire and terminate unless otherwise determined by the
Committee. In the event of termination of employment
by reason of death, disability, or normal retirement,
the Committee, in its own discretion may determine what
portions, if any, of the performance shares should be
paid to the participant.
10. General.
10.1. Effective Date. The Plan shall take
effect on the date of adoption of the Plan by the Board
of Directors, subject to the condition that the Plan is
approved by the affirmative vote of the holders of a
majority of the voting stock of Osmonics at the first
annual meeting of shareholders held after the date
hereof. If such shareholder approval is not obtained,
all options granted under the Plan shall be void.
Options may be granted under the Plan at any time after
adoption of the Plan by the Board of Directors.
10.2. Duration. The Plan shall remain in
effect until all Incentives granted under the Plan have
either been satisfied by the issuance of shares of
Common Stock or the payment of cash or have been
terminated under the terms of the Plan and all
restrictions imposed on shares of Common Stock in
connection with their issuance under the Plan have
lapsed. No Incentives may be granted under the Plan
after the tenth anniversary of the date on which this
Plan was adopted by board of directors, or the date of
approval by the shareholders, whichever is earlier.
10.3. Non-transferability of Incentives. No
stock option, SAR, restricted stock or performance
award may be transferred, pledged or assigned by the
holder thereof except, in the event of the holder's
death, by will or the laws of descent and distribution
or pursuant to a qualified domestic relations order as
defined by the Internal Revenue Code of 1986, as
amended, or Title I of the Employee Retirement Income
Security Act, or the rules thereunder, and Osmonics
shall not be required to recognize any attempted
assignment of such rights by any participant. During a
participant's lifetime, an Incentive may be exercised
only by him or her, or by his or her guardian or legal
representative.
10.4. Effect of Termination of Employment or
Death. In the event that a participant ceases to be an
employee of Osmonics for any reason, including death,
any Incentives may be exercised or shall expire at such
times as may be determined by the Committee.<PAGE>
10.5. Additional Condition. Notwithstanding
anything in this Plan to the contrary:
(a) Osmonics may, if it shall determine it
necessary or desirable for any reason, at the time
of award of any Incentive or the issuance of any
shares of Common Stock pursuant to any Incentive,
require the recipient of the Incentive, as a
condition to the receipt thereof or to the receipt
of shares of Common Stock issued pursuant thereto,
to deliver to Osmonics a written representation of
present intention to acquire the Incentive or the
shares of Common Stock issued pursuant thereto for
his or her own account for investment and not for
distribution; and (b) if at any time Osmonics
further determines, in its sole discretion, that
the listing, registration or qualification (or any
updating of any such document) of any Incentive or
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 award of any Incentive, the issuance of shares
of Common Stock pursuant thereto, or the removal
of any restrictions imposed on such shares, such
Incentive shall not be awarded or 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 Osmonics.
10.6. Adjustment. In the event of any merger,
consolidation or reorganization of Osmonics with any
other corporation or corporations, there shall be
substituted for each of the shares of Common Stock then
subject to the Plan, including shares subject to
restrictions, options, or achievement of performance
share objectives, 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
other change in the Common Stock, the number of shares
of Common Stock then subject to the Plan, including
shares subject to restrictions, options or achievements
of performance shares, 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 any option, the performance objectives of any
Incentive, and the shares of Common Stock issuable
pursuant to any Incentive shall be adjusted as and to<PAGE>
the extent appropriate, in the discretion of the
Committee, to provide participants with the same
relative rights before and after such adjustment.
10.7. Incentive Plans and Agreements. Except
in the case of stock awards, the terms of each
Incentive shall be stated in a plan or agreement
approved by the Committee. The Committee may also
determine to enter into agreements with holders of
options to reclassify or convert certain outstanding
options, within the terms of the Plan, as Incentive
Stock Options or as non-statutory stock options and in
order to eliminate SARs with respect to all or part of
such options and any other previously issued options.
10.8. Withholding.
(a) Osmonics shall have the right to
withhold from any payments made under the Plan or
to collect as a condition of payment, any taxes
required by law to be withheld. At any time when
a participant is required to pay to Osmonics 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 or
SAR, the participant may satisfy this obligation
in whole or in part by electing (the "Election")
to have Osmonics 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 Committee may disapprove of any
Election, may suspend or terminate the right to
make Elections, or may provide with respect to any
Incentive that the right to make Elections shall
not apply to such Incentive. An Election is
irrevocable.
(c) If a participant is an officer or
director of Osmonics within the meaning of Section
16 of the 1934 Act, then an Election must comply
with all of the requirements of the 1934 Act.
10.9. No Continued Employment or Right to
Corporate Assets. No participant under the Plan shall
have any right, because of his or her participation, to
continue in the employ of Osmonics for any period of
time or to any right to continue his or her present or
any other rate of compensation. Nothing contained in
the Plan shall be construed as giving an employee, the<PAGE>
employee's beneficiaries or any other person any equity
or interests of any kind in the assets of Osmonics or
creating a trust of any kind or a fiduciary
relationship of any kind between Osmonics and any such
person.
10.10. Deferral Permitted. Payment of cash or
distribution of any shares of Common Stock to which a
participant is entitled under any Incentive shall be
made as provided in the Incentive. Payment may be
deferred at the option of the participant if provided
in the Incentive.
10.11. Amendment of the Plan. The Board may
amend or discontinue the Plan at any time. However, no
such amendment or discontinuance shall, subject to
adjustment under Section 10.6, (a) change or impair,
without the consent of the recipient, an Incentive
previously granted, (b) materially increase the maximum
number of shares of Common Stock which may be issued to
all participants under the Plan, (c) materially
increase the benefits that may be granted under the
Plan, (d) materially modify the requirements as to
eligibility for participation in the Plan, or (e)
materially increase the benefits accruing to
participants under the Plan.
10.12. Immediate Acceleration of Incentives.
Notwithstanding any provision in this Plan or in any
Incentive to the contrary, (a) the restrictions on all
shares of restricted stock award shall lapse
immediately, (b) all outstanding options and SARs will
become exercisable immediately, and (c) all performance
shares shall be deemed to be met and payment made
immediately, if subsequent to the date that the Plan is
approved by the Board of Directors of Osmonics, 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 30% or more of any equity
security of Osmonics entitled to vote for the
election of directors;
(b) a majority of the members of the board
of directors of Osmonics is replaced within the
period of less than two years by directors not
nominated and approved by the board of directors;
or<PAGE>
(c) the shareholders of Osmonics 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
Osmonics' assets (including a plan of
liquidation).
For purposes of this Section 10.12, 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 30% of an
equity security may be established by any reasonable
method, but shall be presumed 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 provision (1), the
limitations of this Plan shall not become applicable
again should the person cease to own 30% or more of any
equity security of Osmonics.
For purposes of this Section 10.12, "Continuing
Directors" are directors (a) who were in office prior
to the time any of provisions (1), (2) or (3) occurred
or any person publicly announced an intention to
acquire 20% or more of any equity security of Osmonics,
(b) directors in office for a period of more than two
years, and (c) directors nominated and approved by the
Continuing Directors.
10.13. Definition of Fair Market Value.
Whenever "Fair Market Value" of Common Stock shall be
determined for purposes of this Plan, 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 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.<PAGE>
