-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S23BMZM6pDBJJE/w3pgIz1p3I9GPlIUxz48ZaC8BTf/WV9eaV3LP+IZ168Zy90Bx zf4XWEnVWRkghEqgk6sgLg== 0000950124-98-001088.txt : 19980306 0000950124-98-001088.hdr.sgml : 19980306 ACCESSION NUMBER: 0000950124-98-001088 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980217 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980304 DATE AS OF CHANGE: 19980305 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OSMONICS INC CENTRAL INDEX KEY: 0000075049 STANDARD INDUSTRIAL CLASSIFICATION: 3569 IRS NUMBER: 410955759 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12714 FILM NUMBER: 98557670 BUSINESS ADDRESS: STREET 1: 5951 CLEARWATER DR CITY: MINNETONKA STATE: MN ZIP: 55343 BUSINESS PHONE: 6129332277 MAIL ADDRESS: STREET 1: 5951 CLEARWATER DRIVE CITY: MINNETONKA STATE: MN ZIP: 55343 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): February 17, 1998 OSMONICS, INC. -------------- (Exact name of Registrant as specified in its charter) Minnesota 1-12714 41-0955759 (State or other jurisdiction (Commission (IRS Employer of incorporation) File No.) Identification No.) 5951 Clearwater Drive, Minnetonka, Minnesota 55343-8995 (Address of principal executive offices) (Zip Code) Registrants telephone number, including area code: (612) 933-2277 Exhibit Index appears on Page 5. 2 FORM 8-K ITEM 2. ACQUISITION OF ASSETS. On February 17, 1998, Osmonics, Inc. (the "Company") completed the acquisition of all of the shares (the "Acquired Shares") of Micron Separations, Inc., a New York corporation ("MSI"). MSI, located in Westborough, Massachusetts, is a developer, manufacturer and marketer of microfilter membrane products for laboratory, diagnostic, and industrial use. MSI revenues were less than $15 million in each of the last three years. MSI filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Massachusetts on April 9, 1997, Case No. 97-42342-JFQ. On December 15, 1997, pursuant to Chapter 11 of the Bankruptcy Code, MSI and the Company submitted a Joint Plan of Reorganization (the "Plan"). The Plan was confirmed by the United States Bankruptcy Court on January 28, 1998. Pursuant to Article VII of the Plan, MSI's existing equity securities were canceled and Osmonics received the Acquired Shares. The Acquired Shares consist of 1,000 shares of common stock of the reorganized MSI, which represents 100% of the outstanding voting securities of MSI. Under the Plan, Osmonics will provide up to $28 million (in addition to MSI's cash),for the payment in full of all MSI's creditors and payment to holders of MSI's equity securities. The aggregate consideration to be paid to holders of MSI's equity securities will not exceed $15,200,000 which amount will be adjusted based upon the final amount of claims of MSI's creditors under Section 1.16 of the Plan and, pursuant to Section 3.5 of the Plan, is subject to set-off rights and a hold back of 10% of the consideration finally determined to be payable to such holders. In addition, pursuant to Section 3.5(c) of the Plan holders of MSI's equity securities are entitled to receive the amount, if any, of any recovery in a certain lawsuit, less expenses. On February 17, 1998, the Company pursuant to the Plan paid James S. Johnson and John Greenwood, both founders and significant shareholders, and certain other shareholders (the "Sellers") $13,633,500 in cash in consideration for the Acquired Shares. The Company will pay up to $1,515,350 in cash to the Sellers one year from the acquisition date subject to certain adjustments and set off rights under the Plan as described above. The Company also made a capital contribution of $10,000,000 in cash to MSI on February 17, 1998 pursuant to the Plan to facilitate MSI's payment of various creditors pursuant to the Plan. Finally, James S. Johnson and John Greenwood were paid a total of $300,000 pursuant to consulting and non-competition agreements executed in connection with the transaction. FINANCING FOR THE ACQUISITION The Company financed the acquisition (approximately $25,000,000) through expanded interim financing arrangements in the form of a revolving line of credit from a commercial bank. DESCRIPTION OF ACQUIRED BUSINESS Micron Separations, Inc. is a prominent developer, manufacturer, and marketer of microfilter membrane products for laboratory, diagnostic, and industrial use. MSI provides a full line of microfiltration (MF) membranes to complement the Company's existing complete line of ultrafiltration (UF), NF and RO membranes. This includes nylon membranes 6,6 and 4,6 which are among the most hydrophilic microfiltration membranes available, and are widely used in food, beverage and biotech filtration. The acquisition positions the Company as a more significant player in the laboratory and diagnostics market, while significantly expanding its capabilities in the pleated membrane cartridge business. 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. It is impracticable to provide the required financial statements at this time. Such financial statements will be filed as soon as practicable, but not later than 60 days after March 4, 1998, the latest date on which this Form 8-K may be filed. (B) PRO FORMA FINANCIAL INFORMATION. It is impracticable to provide pro forma financial information at this time. Such information will be filed as soon as practicable, but not later than 60 days after March 4, 1998, the latest date on which this Form 8-K may be filed. (C) EXHIBITS. The following documents are filed as an exhibit to this Form 8-K and are incorporated herein by reference: EXHIBIT NO. DESCRIPTION 2.1 First Amended Disclosure Statement to Joint Plan of reorganization Submitted by Micron Separations, Inc. and Osmonics, Inc. 2.2 Joint Plan of Reorganization submitted by Micron Separations, Inc. and Osmonics, Inc., dated December 15, 1997 with Exhibit C. Certain related transaction documents and exhibits (the "Exhibits") to the First Amended Disclosure Statement are not being filed herewith. The Registrant undertakes to furnish a copy of any omitted Exhibit to the Commission upon request. Pursuant to Item 601(b)(2) of Regulation S-K, the following is a list of the omitted Exhibits and Schedules. Exhibit A - Liquidation Analysis Certain related transaction documents and exhibits (the "Exhibits") to the Joint Plan are not being filed herewith. The Registrant undertakes to furnish a copy of any omitted Exhibit to the Commission upon request. Pursuant to Item 601(b)(2) of Regulation S-K, the following is a list of the omitted Exhibits and Schedules. Exhibit A - Form of Micron Separations, Inc. Equity Interests Trust Agreement. Exhibit B - Form of Settlement Agreement between Pall Corporation and Micron Separations, Inc. Exhibit D - List of Assumed Leases filed with the Bankruptcy Court 4 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OSMONICS, INC. Date: March 4, 1998 By: /s/ D. Dean Spatz ------------------- D. Dean Spatz President 5 EXHIBIT INDEX The following is a list of Exhibits filed herewith. The page reference is to the location of the Exhibits under the sequential numbering system of the original executed copy of this report on Form 8-K where the Exhibits can be located. EXHIBIT NO. DESCRIPTION OF EXHIBITS Page 2.1 First Amended Disclosure Statement to Joint Plan of reorganization Submitted by Micron Separations, Inc. and Osmonics, Inc. 2.2 Joint Plan of Reorganization submitted by Micron Separations, Inc. and Osmonics, Inc., dated December 15, 1997 with Exhibit C. EX-2.1 2 EXHIBIT-2.1 1 EXHIBIT 2.1 UNITED STATES BANKRUPTCY COURT DISTRICT OF MASSACHUSETTS WESTERN DIVISION ) IN RE: ) ) Chapter 11 MICRON SEPARATIONS, INC. ) Case No. 97-42342-JFQ ) Debtor. ) ) DISCLOSURE STATEMENT TO JOINT PLAN OF REORGANIZATION SUBMITTED BY MICRON SEPARATIONS, INC. AND OSMONICS, INC. (DECEMBER 15, 1997) Micron Separations, Inc. ("MSI"), a New York corporation with a usual place of business in Westborough, Massachusetts, filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. ss.101-1330 as amended (the "Bankruptcy Code"), in the United States Bankruptcy Court for the District of Massachusetts (the "Bankruptcy Court") on April 9, 1997, commencing the above-captioned Chapter 11 case. MSI's Chapter 11 case has been pending before the Honorable James F. Queenan, Jr., United States Bankruptcy Judge, as case number 97-42342-JFQ. MSI, without interruption, has operated its business and managed its property as debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code since the commencement of its Chapter 11 case. This Disclosure Statement is provided pursuant to Section 1125 of the Bankruptcy Code to all known holders of claims against and interests in MSI (the "Debtor") whose claims and 1 2 interests are impaired under the Debtor's Joint Plan of Reorganization (the "Joint Plan") and other parties in interest in connection with the solicitation of acceptance of the Joint Plan. The purpose of this Disclosure Statement is to provide such information as would enable a hypothetical, reasonable investor typical of the holders of such claims and/or interests to make an informed judgment exercising its, his or her right to vote to either accept or reject the Joint Plan. After hearing on notice, the Bankruptcy Court approved this Disclosure Statement, as containing information of a kind, and in sufficient detail, adequate to enable a hypothetical, reasonable investor typical of the classes being solicited to make an informed judgment about the Joint Plan. The factual information concerning the past and present activities of the Debtor have been derived from the books and records of the Debtor. The financial information contained in this Disclosure Statement (including the attached exhibits) has been prepared by the Debtor's management and accountants unless specifically stated to be from other sources. No representations, other than those set forth herein, concerning the Debtor are authorized by the Debtor. YOU ARE URGED TO READ CAREFULLY THE CONTENTS OF THIS DISCLOSURE STATEMENT, INCLUDING THE JOINT PLAN AND OTHER EXHIBITS, BEFORE MAKING YOUR DECISION TO ACCEPT OR REJECT THE 2 3 JOINT PLAN. Particular attention should be directed to the provisions of the Joint Plan affecting or impairing your rights as they presently exist. The description of the Joint Plan in this Disclosure Statement is a summary only and is qualified by reference to the actual terms and conditions of the Joint Plan itself. The terms used herein have the same meaning as in the Joint Plan, unless the content thereof requires otherwise. Great effort has been made by the Debtor to be accurate in all material respects, but the Debtor is unable to warrant or represent that all the information contained herein is without inaccuracy. While the Debtor believes the contents of this Disclosure Statement to be accurate and complete, the Bankruptcy Court has not passed upon the factual accuracy of the information contained herein. NO REPRESENTATIONS CONCERNING THE DEBTOR, INCLUDING, WITHOUT LIMITATION, FUTURE BUSINESS OPERATIONS, THE VALUE OF THE ASSETS, OR THE AGGREGATE DOLLAR AND AMOUNT OF CLAIMS WHICH MAY BE ALLOWED OR FINALLY DETERMINED, ARE AUTHORIZED OTHER THAN AS ARE SET FORTH IN THIS DISCLOSURE STATEMENT. Any representations or inducements made to secure acceptance or rejection of the Joint Plan by creditors or shareholders which are other than as contained in this Disclosure Statement should not be relied upon in voting on the Joint Plan. 3 4 THE DEBTOR RECOMMENDS THAT YOU VOTE TO ACCEPT THE JOINT PLAN. IT IS IMPORTANT THAT YOU VOTE. Subject to certain objections, in order to obtain confirmation of the Joint Plan by the Bankruptcy Court, the Joint Plan must be accepted by holders of claims in Class Four WHO ACTUALLY VOTE on the Joint Plan who hold at least a majority in number and two-thirds in amount, and Equity Interests in Class Five WHO ACTUALLY VOTE on the Joint Plan who hold at least two-thirds in amount. In addition, the Bankruptcy Court must make various findings required by Section 1129 of the Bankruptcy Code, including, among others, that confirmation of the Joint Plan is not likely to be followed by liquidation or further financial reorganization. These requirements are more fully discussed in Section XXVII hereof. I. DESCRIPTION OF THE DEBTOR The Debtor is a New York corporation formed in 1981. Initially, its marketing and administration were located in Honeyoye Falls, N.Y., but in 1987, marketing, administration and manufacturing were consolidated in Westborough, Massachusetts. The company was formed to develop, manufacture and market microporous membranes and filters for sale to pharmaceutical, food and beverage, electronic, OEM and research concerns. These membranes and filters, classified as "microfiltration" 4 5 products, remove sub-micron sized particles (from 0.05 to 20.0 microns) suspended in liquids or gases. At the time of the filing of the petition, the Debtor was operating its manufacturing and distribution operations at three adjacent buildings in Westborough, Massachusetts. Those locations are 125, 131 and 135 Flanders Road. The company currently has approximately seventy-one employees. MSI currently operates out of approximately 50,000 square feet of space, of which 3,000 square feet are devoted to research, development, and a model shop, 3,000 square feet are devoted to office activities, and the remainder is used for manufacturing and warehousing. MSI is privately held. Approximately 35% of the stock is owned by Edward Ackley, John Greenwood and James Johnson, collectively, who were the original founders. II. HISTORY OF THE BUSINESS MSI was founded in 1981 by Edward Ackley, John Greenwood and James Johnson. MSI began its development work on membranes in 1982 and in that year introduced its first membrane, which was made of a mixture of nitrocellulose and cellulose acetate polymers. In 1984 MSI introduced its first nylon microporous membrane made of nylon 66 polymer. MSI sells over 2,000 microfiltration products, 97% of which the company develops and manufactures in its own facilities, and the remainder manufactured by others and sold 5 6 under the MSI private label. The manufacturing of microfiltration products entails both production of the membrane itself and conversion of this material into products useable in the marketplace. MSI's microfiltration products can be separated into those that serve the laboratory market (small scale applications) and those that are directed towards the large scale, high value industrial process filtration market. Laboratory products consists of sheets (membranes) cut in rectangular or circular form with areas from one square centimeter to 1,500 square centimeters. In addition, MSI produces filtration devices which are largely used by companies in the medical and health care industries. The devices include syringe filters, filter funnels, vacuum filter units, monitors and centrifuge filters. MSI also produces a wide range of process filtration products. These consist of cartridges and capsules. All of these products are available with various membrane filter types, including: nylon filters, cellulosic filters, PVDF (polyvinylidene diflouride), PTFE (polytetrafluoroethlylene), polysulfone and polycarbonate. MSI uses distributors to sell to the laboratory market and uses its own direct sales force, distributors, and manufacturer's representatives to sell to the industrial 6 7 process market; MSI exports approximately 33% of its products worldwide. III. EVENTS LEADING TO THE CHAPTER 11 FILING On May 7, 1986, Pall Corporation (hereinafter "Pall") of Glen Cove, New York, filed suit against MSI for infringement of a patent Pall held on a narrow class of alcohol-insoluble, hydrophilic polyamide membrane filtered media and product. That case bears docket number 86-1426-WGY (United Stated District Court for the District of Massachusetts). On June 24, 1991, after a trial on the merits, the Court entered a judgment and awarded damages to Pall for MSI's patent infringement through that date. These pre-June 20, 1991 damages totaled $4,434,291. Both Pall and MSI appealed the judgment. On September 26, 1995, the U.S. Court of Appeals for the Federal Circuit affirmed the judgment of infringement, reversed the judgment as to willful infringement, increased the measure of damages and remanded the case for recalculation of damages. On November 25, 1995, the Court entered a Separate and Final Judgment of $12,250,364 together with interest from November 1, 1995 at 8.75%. On December 31, 1995, MSI filed a Petition for Certiorari with the United States Supreme Court. The Petition was denied on March 17, 1997. In the same case, on October 3, 1996, the Court entered a separate and final judgment of $4,085,033, together with 7 8 interest thereon for infringement from September 24, 1991 to September 24, 1996. MSI sought a stay of execution on the October 3, 1996 judgment, but that was denied. MSI then sought to appeal the denial of the stay in the United States Court of Appeals for the Federal Circuit and filed an emergency motion for an injunction pending the appeal. On April 18, 1997, the emergency motion was denied. Pall obtained an execution on the October 3, 1996 judgment and on April 9, 1997, sought to execute on the assets of MSI. MSI immediately filed the Chapter 11 proceeding. IV. BRIEF SUMMARY OF ASSETS AND LIABILITIES AND OTHER FINANCIAL INFORMATION AT THE TIME OF FILING MSI's Bankruptcy Schedules and Statement of Financial Affairs, filed with the Bankruptcy Court on May 8, 1997, indicated that MSI owed no secured debt and nearly $12,000,000 of unsecured debt. Pall Corporation accounted for approximately $10,750,000 of the unsecured debt and the balance was owed to 143 other trade and general unsecured creditors. In its Schedules, MSI included cash of approximately $2,775,000, trade accounts receivable of approximately $1,700,000, a tax refund of $1,500,000, various patents worth approximately $500,000, machinery and equipment worth approximately $275,000 and inventory worth approximately $750,000. 8 9 V. STOCK OPTIONS, BONUSES, AND ERISA As of the Filing Date there were 127,621 common stock options and warrants, outstanding and exercisable at various prices. These options and warrants were issued pursuant to: 1983 - Employee Options Plan 1991 - Option Plan for Directors 1991 - Options Granted with Employment Agreements 1991 - Incentive Stock Option Furthermore, there is an employee incentive stock option plan and an employee bonus plan for 1997. The stock option plan for fiscal year 1997 (October 27, 1996 to October 26, 1997) provides for the distribution of stock options among a pool of 27 employees based on their salaries. The plan is based on sales growth where a specific amount of shares will be reserved and then later allocated to eligible employees. The threshold is 15% of growth in sales. Once the threshold is reached, MSI will reserve 1,000 shares of stock for each percent of sales growth in excess of last year's sales. For instance, if sales increase 18% over last fiscal year, then 18,000 shares will be the pool from which options will be issued. The 1997 incentive bonus plan (fiscal year 1997) provides for a bonus computed as a percentage of wages earned if total sales grow to certain thresholds. This plan is available to 25 employees. 9 10 Bonus as a Percentage Total Sales Growth of Wages Earned - - ------------------ --------------- Less than 5% 0% 5% or greater, but less than 7.5% 1% 7.5% or greater, but less than 10% 2% 10% or greater, but less than 12.5% 3% 12.5% or greater, but less than 15% 4% 15% or greater 5% In addition, seven sales personnel would be entitled to this incentive bonus computed, however, on the percentage increase in their territory. The Debtor also has a 401(K) Savings Plan for employees. For fiscal year 1996 the Debtor matched 50% of the employees' first 5% of earnings and 25% on the employees' second 5% of earnings. For fiscal year 1997, the Board of Directors has matched contributions as in Fiscal Year 1996, and payments are current. VI. PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES MSI has rights to certain trademarks, including but not limited to: 1+PAC MagnaNT NitroPure Acetate Plus MicroFuge PolyPure Calyx MicronKlear PreSep Cameo MicronSep PVDF-Plus 10 11 Graviseal MagnaCharge MSI Savur Analytical MagnaGraph MagnaLift Nitrobind Funnel Magna Nylon NitroClear Savur Vacuum Magna SH NitroME TefSep Filtration Unit NitroPB UltraFuge NitroPlus UltraSep MSI also holds five (5) patents: 1. Patent No. 4,894,157 covers a process and product where fine support cloth is used as an internal support for cellulose polymer filters. The patent was issued on January 16, 1990. The abstract states the following: A continuous process for producing a microporous cellulosic membranes supported with an integral non-woven polymer web by preparing a casting lacquer comprising at least one cellulosic polymer, at least one solvent, and at least one non-solvent wherein the casting lacquer is at the point of incipient gelation. 2. Patent No. 5,215,662 covers nylon 46 products. This patent was issued on June 1, 1993. The abstract states the following: Microporous nylon materials which retain near constant time to hydrosaturation during and after heating to temperatures necessary for sealing together a plurality of surfaces, and the synthesis thereof. Nylon 46 dissolved into a mixture of liquid nylon 46 solvents and nonsolvents is dispersed on a fabric substrate, then precipitated to form a laminate, from which a wash removes the nonsolvents and forms the microporous material. 11 12 3. Patent No. 5,411,663 covers type 8 nylon product and process. The patent was issued on May 2, 1995. The abstract states the following: Alcohol-insoluble polyamide (nylon) microporous separation membranes are prepared from alcohol-soluble polyamide (nylon) polymers. The membranes are hydrophilic and contain cross-linked amide groups of the structure: --N--(CH2)d--N-- | | C==O C==O wherein d is an integer of about 1 to 3. 4. Patent No. 5,693,231 was issued on December 2, 1997. It is directed to nylon membranes prepared from aromatic nylon polymers. 5. Patent No. 5,695,639 was issued on December 9, 1997. It is directed to a novel vacuum filter funnel. VII. TRANSACTIONS WITH INSIDERS There are no loans from the Debtor to insiders. Certain insiders do have options to purchase shares of common stock of the Debtor: 1. Edward J. Ackley is a director. Mr. Ackley has (i) a warrant to purchase 5,000 shares issued on March 29, 1989 with an original exercise price of $8.00/share, (ii) an option to purchase 5,000 shares issued January 30, 1992 with an original exercise price of $8.00 share and (iii) an option to purchase 5,000 shares issued on January 31, 1995, with an original 12 13 exercise price of $9.00/share, the exercise price of each of which was repriced to $3.00/share by action of the directors dated November 11, 1996. 2. John M. Greenwood is a director. Mr. Greenwood holds (i) an option to purchase 10,000 shares issued on November 11, 1996 with an exercise price of $3.00/share, and (ii) an option to purchase 18,000 shares issued on November 11, 1992 with an exercise price of $1.87/share. 3. James S. Johnson is a director and officer. Mr. Johnson holds (i) an option to purchase 10,000 shares issued on November 11, 1996, with an exercise price of $3.00/share and (ii) an option to purchase 18,000 shares issued on November 11, 1992 with an exercise price of $1.87/share. 4. Bernard Kozel is a director. Mr. Kozel holds (i) a warrant to purchase 5,000 shares issued on January 27, 1986 with an exercise price of $7.00/share, (ii) a warrant to purchase 5,000 shares issued on March 29, 1989 with an original exercise price of $8.00/share, (iii) an option to purchase 5,000 shares issued on January 30, 1992 with an original exercise price of $8.00/share, and (iv) an option to purchase 5,000 shares issued on January 31, 1995 with an original exercise price of $9.00/share, the exercise price of each of which was repriced to $3.00/share by action of the directors dated November 11, 1996. He also holds warrants to 13 14 purchase 9,000 shares issued on January 25, 1983, with an exercise price of $2.50/share. 5. Wayne Miller is an officer. Mr. Miller holds an option to purchase 10,000 shares issued on October 1, 1993 with an original exercise price of $8.00/share which was repriced to $3.00/share by action of the directors on August 7, 1996. 6. J. William Reeves is an officer and a director. Mr. Reeves holds (i) a warrant to purchase 5,000 shares issued on January 27, 1986 with an original exercise price of $7.00/share, (ii) a warrant to purchase 5,000 shares issued on March 29, 1989, with an original exercise price of $8.00/share, (iii) a warrant to purchase 5,000 shares, issued on January 21, 1992, with an original exercise price of $8.00/share (iv) an option to purchase 5,000 shares issued on January 31, 1995 with an original exercise price of $9.00/share, the exercise price of each of which was repriced to $3.00/share by action of the directors dated November 11, 1996. He also holds a warrant to purchase 5,000 shares with an exercise price of $2.50/share, dated January 25, 1983. VIII. REAL PROPERTY AND LEASEHOLDS The Debtor does not own and never has owned any interest in any real property other than a leasehold interest. The Debtor leases three pieces of non-residential real estate. 14 15 It leases 131 Flanders Road, Westborough, Massachusetts from 129 Flanders Office Associates, L.P. This lease covers 7350 square feet at $4.50 per square foot. The property is leased until March 31, 1998. The extension option on this property lapsed on March 31, 1997. There is a prepetition rent arrearage on 131 Flanders Road in the amount of $6,428.21. The Debtor leases 24,400 square feet at 135 Flanders Road, Westborough, Massachusetts from 129 Flanders Office Associates, L.P. The lease is presently at $5.40 per square foot which will rise to $5.50 per square foot on May 1, 1998. The lease expires on April 30, 1999, but the Debtor holds an extension option which must be exercised by April 30, 1998. The rental during any extended term would be 95% of the fair market rental. There is a prepetition rent arrearage of $10,821.04 on 135 Flanders Road. The Debtor offered to pay the $17,249.25 of combined rent arrearage to 129 Flanders Office Associates, L.P. in return for a reinstatement of the extension option on 131 Flanders Road to September 22, 1997. This was opposed by the Committee and Pall Corporation. On September 2, 1997, the Bankruptcy Court denied Debtor's motion to pay the prepetition indebtedness to 129 Flanders Office Associates. Although Debtor successfully extended its time to assume or reject the 15 16 leases, it does not hold an option to renew its lease on 131 Flanders Road, Westborough, Massachusetts. The Debtor also leases units 13, 15, and 16 at 125 Flanders Road, Westborough, Massachusetts from 125 Flanders Associates. This lease covers approximately 15,000 square feet and the lease expires on January 31, 1999. The present lease is $7,812.50 per month or approximately $6.25 per square foot. Debtor has the right to renew this lease for an additional period of three (3) years by notice by July 31, 1998. The new lease rate for the additional period would be at market. IX. OPERATION OF BUSINESS DURING CHAPTER 11 During Chapter 11, the Debtor's sales have continued to increase, and the Debtor has been profitable despite extraordinary legal expenses. KPMG has prepared the following income statement for the Chapter 11 period: 16 17 Income Statement for Period (4/14/97-10/26/97) (000's)
ACTUAL Net Revenue (Income) $ 5,643 Cost of Goods Sold (2,563) ------- Gross Profit $ 3,080 Operating Expenses: Selling and Marketing $ 800 General and Administrative $ 395 Miscellaneous 5 R & D 414 ------- Total Operating Expenses $ 1,615 Income Before Interest, Depreciation, Taxes, or Extraordinary 1,465 ------- Expenses Extraordinary Income (Expense)1 (1,062) ------- Net Income (Loss) Before Taxes $ 403 =======
X. ITIGATION AND SETTLEMENT (1) all Corporation v. Micron Separations, Inc., Civil Action No. 86-1427-WGY. Complaint. Pall commenced this patent infringement action against MSI on May 7, 1986. Pall sought a judgment that MSI willfully infringed its patent covering the process for preparing hydrophilic polyamide membrane filtered media and product. Pall also sought damages for past infringement as well as an injunction against future infringement. ___________________________ Includes legal and Professional Fees, reversal of accruals and other miscellaneous adjustments. 17 18 Initial Judgment. On June 24, 1991, after trial on the merits, the United States District Court for the District of Massachusetts ("the District Court") entered a judgment and awarded damages to Pall for MSI's patent infringement through that date. These pre-June 20, 1991 damages, including lost profits, royalty damages, willfulness damages and interest and attorneys' fees, totaled $4,434,291 (the "Initial Judgment"). The District Court entered a stay of the judgment as it related to nylon 46. Both Pall and MSI appealed the judgment. MSI's First Chapter 11. In order to avoid execution upon the Initial Judgment, MSI filed a voluntary petition under Chapter 11 on July 22, 1991. On December 18, 1991, Pall and MSI entered into an agreement which provided that during the pending appeal of the Initial Judgment MSI would escrow certain monies and Pall, subject to certain terms and conditions, would forbear from executing on a judgment so long as MSI complied with the provisions of the agreement. The agreement was approved by the Bankruptcy Court and, as part of the Agreement, MSI dismissed its Chapter 11 case. The case was dismissed and closed on December 30, 1991. 18 19 Appellate Review of Initial Judgment. On September 26, 1995, the United States Court of Appeals for the Federal Circuit affirmed the judgment of infringement, reversed the judgment as to willful infringement, increased the measure of damages and remanded the case for recalculation of damages, and vacated the stay of the injunction as to nylon 46 membrane. $12 Million Judgment. On November 24, 1995, in accordance with the decision of the United States Court of Appeals, the District Court entered a Separate and Final Judgment of $12,250,364, together with interest from November 1, 1995 through date of Judgment of 8.75% per annum, post judgment interest at the prime rate of interest as promulgated by Citibank, N.A., and reiterated the injunction against MSI and those in concert with MSI from infringing upon Pall's patent by virtue of the sale, use, or manufacture of nylon 46 or nylon 66. Certiorari Denied. On December 31, 1995, MSI filed a Petition for Certiorari with the United States Supreme Court seeking review of the United States Court of Appeals decision. The Petition was denied on March 17, 1997. 19 20 $4 Million Judgment. On October 3, 1996, the District Court entered a separate and final judgment of $4,085,033 for infringement from June 24, 1991 to June 24, 1996, together with interest thereon from September 24, 1996 through the date of judgment at $923 per day and post-judgment interest at the statutory rate specified in 28 U.S.C. ss.1961. Appeal from $4 Million Judgment. MSI filed an appeal in the United States Court of Appeals for the Federal Circuit (Appeal 97-1141) from the $4 Million Judgment on the grounds that the form of judgment was incorrect: that the judgment should not be a separate judgment but should be a modification of the November 24, 1995 judgment. The matter is fully briefed and the Bankruptcy Court has lifted the stay. MSI sought a stay of execution and in connection therewith, claimed that the $4 million Judgment was subject to the December 18, 1991 agreement between Pall and MSI. On April 3, 1997, the District Court ruled that the "agreement between the parties had no effect on the judgment of this Court." Following the ruling, MSI sought an emergency stay of execution, which was denied. Immediately prior to the commencement of its second chapter 11 proceeding, MSI filed a further appeal from the denial of the stay to the United States Court of Appeals for the Federal Circuit (Appeal 97-1298) and an emergency motion for an injunction pending 20 21 appeal. On April 18, 1997, the emergency motion was denied. The Bankruptcy Court has lifted the stay nunc pro tunc to April 9, 1997. Appeal 97-1298 has been dismissed. (2) Micron Separations, Inc. v. Pall Corporation, Civil Action No. 94-11377-WGY. Complaint. MSI commenced this declaratory judgment action against Pall on July 8, 1994 seeking a declaration of patent non-infringement and the invalidity of Pall's patent. The Complaint seeks damages as well as injunctive relief. Pall answered the Complaint on July 12, 1994 denying the allegations therein. On July 12, 1994, the District Court issued a preliminary injunction against MSI and those acting in concert with it enjoining the manufacture, use and sale of membrane products made of type 8 nylon. Pall also filed a Counterclaim against MSI alleging patent infringement by MSI subsequent to the decision in Pall Corporation v. Micron Separations, Inc., Civil Action No. 86-1427-WGY. MSI responded to the Counterclaim on September 8, 1994 by denying the allegations therein. Procedural History. On September 2, 1994, Pall moved for Partial Summary Judgment on issue preclusion. MSI opposed the Motion on September 20, 1994 and also filed a Motion for 21 22 Summary Judgment of non-infringement and issue preclusion. Pall opposed MSI's Motion on October 6, 1994, and also filed a Cross-Motion for Summary Judgment. On November 16, 1994, the Court allowed in part and denied in part Pall's Motion for Partial Summary Judgment. Bench Trial. A bench trial commenced on January 26, 1995, and continued on January 27, 30, 31, February 1, 2, 3, 6, 7, 8, 13, 14 and 15, 1995. (3) Pall Corporation v. Micron Separations, Inc., District Court, Civil Action No. 95-12731-WGY. Complaint. Pall commenced this patent infringement action against MSI on December 18, 1995. Pall seeks damages for MSI's continuing infringement of its patent covering the process for preparing hydrophilic polyamide filter media and product as well as an injunction against future infringement. MSI answered the Complaint by denying the allegations therein. Consolidation. This action was consolidated by Judge Young with C.A. No. 95-12473. 22 23 (4) Pall Corporation v. Fisher Scientific Company, Inc., District Court, Civil Action No. 95-12473-WGY. Complaint. On November 13, 1995, Pall commenced this action against Fisher Scientific Company, Inc. ("Fisher") alleging that Fisher, as an agent for MSI and/or as an independent distributor, sold nylon 46 membrane made by MSI after the Court of Appeals vacated the stay of the injunction. Pall is seeking damages for past infringement as well as injunctive relief. Fisher answered the Complaint and denied the allegations therein. Fisher also filed a Counterclaim against Pall seeking damages for breach of contract and filed a Third-Party Complaint against MSI for indemnification. MSI has answered the Third-Party Complaint and denied the allegations therein. MSI also filed a Third-Party Complaint against Pall alleging that Pall is in violation of the December 18, 1991 Agreement. MSI amended its Answer and Third-Party Complaint on February 6, 1996 adding claims against Pall for unfair competition and commercial disparagement in violation of the Lanham Act and tortious interference with advantageous business relationships. Consolidated and Amended Complaint. On July 2, 1996, Pall filed an Amended Complaint in the consolidated action 23 24 including claims against both Fisher and MSI. The Amended Complaint includes claims against Fisher for patent infringement, tortious interference with contractual relations and violation of injunction, and claims against MSI for patent infringement, breach of contract and violation of injunction. In addition, the Amended Complaint includes a charge of civil conspiracy by and between Fisher and MSI. Administrative Closure. By order of the District Court, and in accordance with the Settlement Agreement (defined below), this case was administratively closed, subject to reopening in the event that: (a) the Settlement Agreement is not approved by the Bankruptcy Court; (b) the Joint Plan is not confirmed; or (c) Pall is not paid in accordance with the Settlement Agreement. (5) Micron Separations, Inc. v. Pall Corporation, U.S. Bankruptcy Court for the District of Massachusetts, Adversary Proceeding No. 97-4161-JFQ. On April 17, 1997, the Debtor commenced an adversary proceeding against Pall Corporation seeking a Declaration of Debtor's payment obligations to Pall under their December 18, 1991 Agreement ("1991 Agreement"). The 1991 Agreement obligated Debtor to pay Pall two-thirds of Debtor's net after-tax profits, 24 25 subject to certain adjustments, all as determined by KPMG Peat Marwick. Debtor contended that the November 24, 1995 judgment in the amount of $12,250,364.00 (the "1995 Judgment") and the other dated October 3, 1996 in the sum of $4,085,033.00 (the "1996 Judgment") were covered by the 1991 Agreement and, so long as the Debtor complied with the Agreement, Pall could not execute on those judgments against the Debtor. The Bankruptcy Court tried the case on September 22 and September 23, 1997. On September 30, 1997, Judge Queenan issued the Court's Judgment, stating, among other things, that Debtor had not breached the 1991 Agreement and that the 1991 Agreement governs MSI's payment obligations under the 1995 and 1996 Judgments. The Court further found that Debtor is entitled to a credit of $3,726,429.00 on its payment obligations to Pall. Finally, the Court enjoined Pall from taking any action to collect on the 1996 or 1995 Judgments. The September 30, 1997 Judgment was entered contingent upon MSI's assumption of the 1991 Agreement pursuant to Court approval. (6) Settlement. Subsequent to the September 30, 1997 decision by the Bankruptcy Court, Pall and MSI negotiated a settlement of all of the outstanding litigation and issues between the parties. On November 20, 1997 (effective as of November 18, 1997), MSI and Pall entered into a Settlement Agreement ("Settlement Agreement") which provides, among 25 26 other things, that upon Pall's receipt of $13.5 million, it will: a) Dismiss all pending litigation against MSI and Fisher Scientific Company (86-1427-WGY; 94-11377-WGY; 95-12731-WGY; 95-12473-WGY) b) Release MSI and its customers from any alleged patent infringements occurring prior to approval of the Settlement Agreement with regard to Pall's Patents No. 4,340,479; 4,340,480; and 5,543,047; and c) Agree not to sue Osmonics, MSI, or MSI's customers for alleged infringement of patents 4,340,479 and 4,340,480 through the remaining term of those patents; and for a one year period from the date of confirmation, not to sue MSI, MSI's customers, or Osmonics on any alleged infringement of Patent No. 5,543,047. MSI will: a) Release Pall; b) Dismiss all pending litigation against Pall (94-11377-WGY; 95-12473-WGY; 97-4161-JFQ); and c) Agree that one year after confirmation, it will have a limited inventory with respect to goods similar to MSI's glass over nylon clayx cartridges if it wishes to be covered by Pall's agreement not to sue with regard to those products. That Settlement Agreement has been presented to the Bankruptcy Court for its approval and is attached to the Joint Plan as an exhibit. The description of the Settlement Agreement is summary only and is qualified by reference to the actual terms and conditions of the Settlement Agreement itself. 26 27 XI. SUMMARY OF THE PROVISIONS OF THE PLAN A summary of the principal provisions of the Joint Plan is set forth below. All defined terms used in this Section have the meaning assigned to such terms in Article I of the Plan unless otherwise defined herein. THIS DESCRIPTION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN WHICH IS ATTACHED AS EXHIBIT A, WHICH EXHIBIT SHOULD BE REFERRED TO FOR A FULL AND COMPLETE DESCRIPTION OF THE RELEVANT PROVISIONS. By way of summary, the Joint Plan provides for the cancellation of all existing equity interests of the Debtor and the issuance of capital stock to Osmonics, Inc. in consideration of Osmonics paying $28 million. Funding for the monies distributed under the Joint Plan shall be provided from the acquisition funds to be deposited by Osmonics and up to $3,200,000 of the cash held by the Debtor at the Effective Date. Cash on hand up to $3,200,000 on the Effective Date and the said $28 million will be used to pay all Allowed Administrative Claims, tax claims, and all Class Three and Four unsecured claims, which, pursuant to the Joint Plan, will be paid in full; Class Three claims will receive interest at 8 1/2% per annum from April 9, 1997 to the date of payment; Class 4 Claims will be paid in accordance with the Settlement Agreement; and shareholders will receive approximately $15.2 million in satisfaction of their claims and interests. 27 28 Shareholders will, on the Effective Date, receive $13,680,000, but from that amount, $100,000 will be set aside to pay expenses in the Kenyon & Kenyon litigation, $317,025 will go to the Disputed Claims Reserve for the Kenyon & Kenyon claim, and $60,000 will go to the Disputed Claims Reserve to pay interest on the Kenyon & Kenyon claim, if it is ever allowed. Thus, only $13,213,000 will be distributed to shareholders. Ten (10%) percent of the shareholders' distribution (approximately $1,520,000) will be held back and will be subject to certain representations and warranties of the Debtor contained in Exhibit B to the Plan. As part of their employment contracts, Osmonics will pay James Johnson $200,000 and John Greenwood $100,000, which payment does not come from the Funded Amount or the Debtor's cash. The Plan and Settlement Agreement end all of the outstanding litigation between MSI and Pall Corporation. XII. POST-PETITION PAYMENTS MADE TO UNSECURED PRIORITY CREDITORS On April 9, 1997, the Debtor filed a motion requesting the Court to enter an order permitting the Debtor to pay certain wage claims of its hourly and salaried employees and certain commissions of its salesmen, totaling $69,760. All such claims were due to employees for wages, vacation and commissions, none of which were incurred more than sixty (60) 28 29 days prior to the Chapter 11 filing. The Debtor believes that all such payments were entitled to priority pursuant to ss.507 of the Bankruptcy Code. No individual employee was paid more than the statutory maximum of $4,000 per employee. The request to pay these pre-petition claims was made on an emergency basis after the Debtor gave notice to the twenty (20) largest creditors of the estate, the U.S. Trustee and any other party who had filed an appearance and request to receive pleadings filed with the Bankruptcy Court. On August 7, 1997, the Debtor filed a motion requesting the Court to enter an order permitting the Debtor to pay its landlord at 131 and 135 Flanders Road in Westborough, Massachusetts, $17,249.25 in pre-petition rent. The Debtor believed that it would seek to assume its real estate leases and payment of all pre-petition arrearages if necessary in order to assume such leases, the proposed plan will provide for a 100% dividend, and the landlord agreed to extend the option (which had expired pre-petition) to renew the lease until September 22, 1997, in exchange for the payment. The Creditors' Committee and Pall Corporation opposed the drop dead date. On September 2, 1997, after hearing, Judge Queenan denied the Debtor's motion to pay the landlord hearing $17,249.25 in pre-petition rent. 29 30 XIII. GENERAL DESCRIPTION OF OSMONICS, INC. Osmonics, Inc. and its wholly-owned subsidiaries design, manufacture and market machines, systems and components used in the processing and handling of fluids. The company was founded in 1969, and manufactures replaceable, semi-permeable membranes and other filter media for use in fluid separation and filtration. The company's processing equipment employs crossflow filtration (including reverse osmosis, nanofiltration, ultrafiltration and particle filtration), coalescing filtration, ion exchange, clarification, chromatography, ozonation and distillation. The Company's fluid handling equipment includes centrifugal, diaphragm and bellows pumps; electronic controllers to operate precision valves for water conditioning; flow control and measuring devices and instrumentation; and specialty holders and devices for retaining its membranes and filter media. The company's processing products are used in fractionation, preferential separation, conditioning and purification in connection with such processes as purification of water and industrial solutions, dewatering and recycling of commercial and industrial fluids, pollution control and sea water desalting. The company's principal domestic and international markets, from which it derives 30 31 more than 50% of its sales, include the electronics, potable water, health care, biotechnology, food and beverage, chemical processing, and power generation industries. XIV. SELECTED FINANCIAL INFORMATION The results of Osmonics recent operations are reflected in the following publicly available documents: 1. Securities and Exchange Commission Form 10-K for the fiscal year ended December 31, 1996 on file with the Securities and Exchange Commission. 2. Securities and Exchange Commission Forms 10-Q for the quarters ending March 31, 1997, June 30, 1997, and September 30, 1997, on file with the Securities and Exchange Commission. Copies of Osmonics Forms 10-K and 10-Q are on file with the Bankruptcy Court clerk's office as part of the appendix to this Disclosure Statement, and copies may be obtained upon written request directed to: Larry A. Koch, Esq. Maslon, Edelman, Borman & Brand 3300 Norwest Center Minneapolis MN 55402 31 32 Further information regarding Osmonics is available on the world-wide web at www.osmonics.com. By way of brief summary, the following table outlines Osmonics' consolidated operating results for the fiscal years ended December 31, 1996, and December 31, 1995. 32 33 Consolidated Statements of Income (In Thousands, Except Share Data)
- - ----------------------------------------------------------------------- -------------------- -------------------- INCOME STATEMENT DATE 1996 1995 ---- ---- (YEAR ENDING DECEMBER 31.) - - ----------------------------------------------------------------------- -------------------- -------------------- SALES $155,946 $130,783 - - ----------------------------------------------------------------------- -------------------- -------------------- COST OF SALES $92,523 $74,670 - - ----------------------------------------------------------------------- -------------------- -------------------- GROSS PROFIT $63,423 $56,113 - - ----------------------------------------------------------------------- -------------------- -------------------- OPERATING EXPENSES $46,016 $40,776 - - ----------------------------------------------------------------------- -------------------- -------------------- SELLING, GENERAL AND ADMINISTRATIVE $35,079 $31,377 - - ----------------------------------------------------------------------- -------------------- -------------------- RESEARCH, DEVELOPMENT AND ENGINEERING $10,937 $9,399 - - ----------------------------------------------------------------------- -------------------- -------------------- INCOME FROM OPERATIONS $17,407 $15,337 - - ----------------------------------------------------------------------- -------------------- -------------------- OTHER INCOME (EXPENSE), NET $2,501 $1,496 - - ----------------------------------------------------------------------- -------------------- -------------------- INCOME BEFORE INCOME TAXES $19,908 $16,833 - - ----------------------------------------------------------------------- -------------------- -------------------- INCOME TAXES $6,441 $4,954 - - ----------------------------------------------------------------------- -------------------- -------------------- NET INCOME $13,467 $11,879 - - ----------------------------------------------------------------------- -------------------- -------------------- NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $.93 $.83 - - ----------------------------------------------------------------------- -------------------- --------------------
33 34 Executive Officers and Directors of Osmonics, Inc. D. Dean Spatz President Chairman of the Board Ruth Carol Spatz Secretary Director Howard R. Dicke Vice President, Human Resources and Corporate Development Treasurer L. Lee Runzheimer Chief Financial Officer James J. Carbonari Vice President, Sales and Marketing Kenneth E. Jondahl Vice President, International Andrew T. Rensink Vice President, Technology Michael L. Snow Director Ralph E. Crump Director Verity C. Smith Director Charles W. Palmer Director 34 35 XV. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS The Joint Plan divides all existing claims and interests into the classes as indicated in the following paragraphs. Although each class is defined generally, specific reference to the Joint Plan should be made to understand the classification of your claim: (i.) Class One -- Administrative and Priority Claims Administrative Claims are all claims for goods and services incurred by the Debtor subsequent to the filing of its Chapter 11 petition on 4/9/97. These claims (other than for professional services by attorneys, accountants and other professionals, and such other administrative expense claims that require Bankruptcy Court approval) shall be paid in full in accordance with their terms as they come due in the ordinary course of the continuation of the Debtor's business after the Effective Date. If any dispute should arise concerning any claim for such expenses, such dispute shall be resolved by the Bankruptcy Court and the Allowed Claim paid as provided below. 35 36 Administrative Claims for professional services, i.e., those of attorneys or accountants, require Bankruptcy Court approval. Those claims will be paid, in full, only after entry of orders by the court allowing these claims in full or in part after notice and hearing. The estimated final fee requests for such professionals are as follows: Estimated Final Fees and Expenses (including amounts previously approved and/or paid)
Professionals Jager, Smith & Stetler, P.C. (Bankruptcy Counsel to MSI) $300,000 Testa, Hurwitz & Thibeault (Patent Litigation Counsel to MSI) $425,000 Law Offices of Bruce Jacobs (Special Patent Counsel to MSI) $55,000 Boylan, Brown, Code, Fowler, Vigdor & Wilson, L.L.P. (Corporate Counsel to MSI) $20,000 KPMG Peat Marwick (Certified Public Accountants to MSI) $147,000 Choate, Hall & Stewart (Counsel to the Creditors' Committee) $40,000 Goodwin, Procter & Hoar(2) (Counsel to Fisher Scientific) $607,000
Jager, Smith & Stetler, as bankruptcy counsel to the Debtor, received a retainer at the inception of the Debtor's chapter 11 case in the amount of $95,012.00. The (2) This claim may not require Bankruptcy Court approval. The Goodwin, Proctor bill involves $246,000 pre-petition, $240,000 post-petition, and $121,000 of post-petition expert expenses. 36 37 Debtor also has paid Creditors' Committee counsel a $25,000 retainer, pursuant to Orders entered by the Court. Testa, Hurwitz & Thibeault had a retainer from the Debtor in the amount of $50,000, and the Law Offices of Bruce Jacobs had a retainer from the Debtor in the amount of $30,000. Priority Claims are those claims which are entitled to priority, pursuant to Section 507(a) of the Bankruptcy Code. They include certain claims for wages (including vacation, severance and sick leave pay under Section 507(a)(3) and Section 507(a)(4)). Taxes, which are also a priority under Section 507(a)(8), are separately classified in Class Two. Upon the commencement of the Debtor's Chapter 11 case, the Debtor listed no such claims. To the extent that any priority claims are subsequently filed, the holders shall be paid in full within ten (10) days of the Effective Date or, if disputed, when allowed by the Bankruptcy Court, whichever is later. (ii.) Class Two -- Tax Claims Tax claims are entitled to priority under Section 507(a)(8) of the Bankruptcy Code. Upon the commencement of the Debtor's chapter 11 case, the Debtor listed no such claims. The Commonwealth of Massachusetts Department of Revenue has filed a Proof of Claim in the amount of 37 38 $31,124.00. The Internal Revenue Service has filed a proof of claim for $327,222.34 for income tax liability for the year ending October 30, 1995. This amount was set-off against a refund of $1,292,935.00. The net amount was refunded to the Debtor. In addition, the Debtor owes the United States Internal Revenue Service at least $14,216.31 in interest on its 1993 and 1994 1120DF. Such tax priority claims will be paid in full within (10) days of the Effective Date or, if disputed, when allowed by the Bankruptcy Court, whichever is later. (iii) Class Three - General Unsecured Creditors' Claims Class Three consists of all general unsecured claims, except those of Pall Corporation, but including any persons or entities asserting damages by reason of the Debtor's rejection of any executory contract or unexpired lease under the terms of the Joint Plan or any motion hereafter filed by the Debtor. The Debtor's Schedules list aggregate undisputed Class Three claims in the amount of $667,584.60. The Bankruptcy Court set August 11, 1997, as the last day for filing Proofs of Claim in this case (other than claims resulting from the subsequent rejection of executory contracts or unexpired leases.) The Proofs of Claim, as filed, increased undisputed Class Three claims (without 38 39 regard to the Pall Claims) by $140,240.32. The landlord, 129 Flanders Associates, did file a $311,249.44 Proof of Claim, which would only have validity if the leases were rejected. The Debtor is not rejecting the leases. The undisputed claims now total $807,824.92. The Debtor does not presently intend to object to any proofs of claim other than the 129 Flanders and Kenyon & Kenyon claims. The disputed claims of 129 Flanders and Kenyon & Kenyon bring the total Class 3 claims to $1,436,099.30. Holders of Class Three Claims shall be paid in full with interest at the rate of 8 1/2% per annum within ten (10) days of the Effective Date or, if disputed, when allowed by the Bankruptcy Court, whichever is later. Interest will be paid for the period from April 9, 1997 to payment. (iv) Class Four - Claims of Pall Corporation Pall Corporation and the Debtor have entered into a Settlement Agreement dated November 18, 1997, which has been approved by the Bankruptcy Court on December 15, 1997. The Settlement Agreement provides for a $13,500,000 payment to Pall. The Settlement is more fully discussed in Article X. (v) Class Five - Common Stock 39 40 Under the Joint Plan, holders of Equity Interests in the Debtor as of the Confirmation Date will receive a pro rata share of $13,213,000 within ten (10) days after the Effective Date. The Equity Interests Trustee will have set aside $100,000 for the costs and expenses of the Kenyon & Kenyon litigation and paid to the Disputed Claims Reserve $317,025 for the Kenyon & Kenyon claim and $60,000 for interest thereon. This amount is subject to dilution if the amount of administrative claims or unsecured claims exceeds the amounts presently anticipated. Holders of Equity Interests shall, on the first anniversary of the Effective Date, receive a pro rata share of $1,520,000, less any permitted setoffs above the amount of $100,000. The Debtor has made a series of representations and warranties concerning its assets, financial condition and status. If there is a material variance from these representations and warranties which reduces the value of Debtor to Osmonics, then Osmonics has a right of set off against the 10% held back for shareholders. Those representations and warranties are contained in Exhibit B to the Plan on file with the Court and are also available, upon request from Bruce F. Smith, Counsel to the Debtor at the following address: Jager, Smith & Stetler, P.C. One Financial Center Boston, MA 02111 40 41 or from Larry A. Koch, Esq., Counsel to Osmonics at the following address: Maslon, Edelman, Borman & Brand 3300 Norwest Center Minneapolis, MN 55402, Shareholders will also receive a pro rata share of the malpractice claim the debtor is presently prosecuting against Kenyon & Kenyon. Kenyon & Kenyon is the law firm which initially represented the Debtor in its patent litigation with Pall. That action is pending in Worcester (Massachusetts) Superior Court under Docket No. 94-0504. Osmonics will fund $100,000 towards fees and expenses of that litigation and Shareholders will fund $100,000 from the Equity Consideration towards fees and expenses in that litigation. XVI. RIGHTS OF SHAREHOLDERS All shares of stock and options and warrants to purchase shares of stock in MSI will be canceled at Confirmation. New shares of stock in MSI will be issued to Osmonics. 41 42 XVII. PROPOSED DIRECTORS AND OFFICERS AND THEIR EXPECTED COMPENSATION D. Dean Spatz Director L. Lee Runzheimer Director James S. Johnson Director D. Dean Spatz Chief Executive Officer James S. Johnson Chief Operating Officer and President L. Lee Runzheimer Treasurer Ruth Carol Spatz Secretary Neither Mr. Spatz nor Mr. Runzheimer will not receive any compensation from the reorganized Debtor. Mr. Johnson's compensation will be $192,000/annum. XVIII. PREFERENCES, FRAUDULENT TRANSFERS AND OTHER CAUSES OF ACTION After examining the books and records, the Debtor has been unable to identify any claims concerning preferences pursuant to Section 547 of the Bankruptcy Code. Similarly, the Debtor has been unable to identify any fraudulent transfer claims pursuant to Sections 544 and 548 of the Bankruptcy Code. To the extent, however, that such claims exist, they are irrelevant in light of the 100% distribution to creditors. 42 43 XIX. TAX CONSEQUENCES TO CREDITORS A creditor who receives cash or property in satisfaction of its Allowed Claim will recognize ordinary income to the extent that the amount received is allocable to interest that accrued while the claim was in its hands. In addition, such creditor will recognize gain or loss on the exchange equal to the difference between the creditor's basis in the Allowed Claim and the amount of consideration received that is not allocable to interest. The character of any recognized gain or loss will depend upon the status of the creditor, the nature of the claim in its hands and its holding period. XX. MEANS FOR EXECUTION OF THE JOINT PLAN 1. Revesting of property of the estate. On the Confirmation Date, reorganized MSI shall be revested with the property that was formerly the property of the estate (including any claims belonging to the Debtor or the estate) and reorganized MSI will continue its business in the ordinary course as it existed prior to the Petition Date. Except as specifically provided herein the property of reorganized MSI will be free and clear of all claims, interest, liens, and encumbrances. The Kenyon & Kenyon malpractice and breach of contract action will vest in the Equity Interests Trustee. 43 44 2. Distributions. The Disbursing Agent (Debtor's Counsel) will make the distributions under the Joint Plan to Classes 1-4. The Equity Interests Trust will distribute the Equity Consideration to Class 5. There shall be paid to the holder of any option or warrant a distribution in the same proportion as if such option holder were a shareholder on the Confirmation Date. The option holder shall pay the exercise price separately to the reorganized Debtor. The Equity Consideration will be paid to the Equity Interests Trust with its own trustee. That Equity Interests Trustee will have the power and authority to contest any asserted hold backs by Osmonics. That Equity Interests Trust will make the distributions of the hold back amounts at the appropriate time for distribution. The Equity Interests Trust will hold the cause of action and direct the malpractice and breach of contract litigation between MSI and Kenyon & Kenyon and will distribute the proceeds, when and if recovered. 3. Reserve for Disputed Claims. A. On the Effective Date, the distributions reserved for the holders of disputed claims shall be delivered to the Disbursing Agent (Debtor's Counsel) but shall be held 44 45 in a segregated, interest-bearing account (the "Disputed Claims Reserve") for the benefit of holders of disputed claims entitled thereto under the Joint Plan. There will be deposited into the Disputed Claims Reserve an amount of cash which would have been distributed on account of the disputed claims if all disputed claims were allowed in the full amount claimed by the holders thereof with interest. At the same time as a Disputed Claim becomes an Allowed Claim, the] distribution which would have been disbursed had the Disputed Claim been an Allowed Claim on the Effective Date shall be released from the Disputed Claims Reserve and delivered to the holder of such Allowed Claim with ten (10) days. XXI. FULL AND FINAL SATISFACTION Except as otherwise provided in Section 1141 of the Bankruptcy Code or in the Joint Plan, including by reference, the Settlement Agreement, the payments and distributions made pursuant to the Plan will be in full and final satisfaction, settlement, release and discharge, as against the Debtor, of any and all claims against, and interests in, the Debtor, as defined in the Bankruptcy Code, including, without limitation, any claim or equity interest accrued or incurred on or before the Confirmation 45 46 Date, whether or not (i) a Proof of Claim or Interest is filed or deemed filed under Section 501 of the Bankruptcy Code, (ii) such claim or equity interest is allowed under Section 501 of the Bankruptcy Code, or (iii) the holder of such claim or equity interest has accepted the Plan. XXII. EFFECT OF CONFIRMATION Except as otherwise provided in the Joint Plan, including by reference, the Settlement Agreement, all creditors and Equity Interest Holders shall be precluded after the Confirmation Date from asserting against the Debtor or the reorganized Debtor, or any of its assets or properties, any other or further claims or interests based upon any act or omission, transaction or other activity of any kind or nature that occurred prior to the Confirmation Date, the Confirmation Order being deemed to permanently enjoin such creditors and interest holders, their successors and assigns, from enforcing or seeking to enforce any such claims or interests. The Confirmation Order shall provide that, on the Effective Date, the duties, obligations, and responsibilities of the Creditors' Committee, their agents, their representatives and counsel shall come to an end, and the Committee and its counsel, shall be discharged from 46 47 their duties, obligations, and responsibilities herein, and the Committee shall cease to exist. To the extent permitted by applicable law, its counsel may seek compensation and reimbursement of expenses. Members of the Committee may seek reimbursement of their actual, reasonable and necessary expenses. XXIII. EXECUTORY CONTRACTS AND UNEXPIRED LEASES Pursuant to the Joint Plan, the Debtor in Possession will file a list of executory contracts and unexpired leases to be assumed and assigned under the Joint Plan at least ten (10) days prior to the hearing on confirmation of the Joint Plan with "cure" payments, if any, to be made by Debtor. Each other executory contract or unexpired lease that either (i) has expired by its own terms prior to the Effective Date and was not rejected during the chapter 11 case, or (ii) has not expired by its own terms prior to the effective date, was not rejected during the chapter 11 case, and is not subject to a pending motion to assume as of the Effective Date or does not appear in the above-referenced list of executory contracts and unexpired leases to be assumed will be deemed rejected as of the Effective Date. The 1991 Agreement will be rejected on the Effective Date. Any claim for damages arising from the rejection of 47 48 any executory contract or unexpired lease not rejected prior to Confirmation must be filed with the Bankruptcy Court within twenty (20) days following the Effective Date or be forever barred from receiving any distribution of the Plan. Debtor will have 30 days from date of filing of claim to file any objection. Any such claim for rejection, as and to the extent allowed by final order of the Bankruptcy Court, will be a Class Three claim under the Plan. XXIV. CONFIRMATION REQUIREMENTS In order for the Joint Plan to be confirmed, the Bankruptcy Code requires, among other things, that the Joint Plan be proposed in good faith, that the Debtor disclose specified information concerning payments made or promised to insiders, and that the Joint Plan comply with the applicable provisions of chapter 11 of the Bankruptcy Code. Section 1129(a) of the Bankruptcy Code also requires that at least one class of claims has accepted the Joint Plan, that confirmation of the Joint Plan is not likely to be followed by the need for further financial reorganization, and that the Joint Plan be fair and equitable with respect to each class of claims or equity interest which is impaired under the Joint Plan. The Bankruptcy Court can confirm the Joint Plan if it finds 48 49 that all of the requirements of 1129(a) of the Bankruptcy Code have been met. Even if a plan is rejected by a class, the plan may still be confirmed under the "cram-down" provisions of Section 1129(b), discussed in Article XXVII. THE DEBTOR BELIEVES THAT THE JOINT PLAN SATISFIES ALL OF THE REQUIREMENTS FOR CONFIRMATION. XXV. BEST INTERESTS OF CREDITORS TEST Under the best-interest test, the Plan is confirmable if, with respect to each impaired Class of Claims or Interests, each holder of an Allowed Claim or an Allowed Interest in such Class has either (i) accepted the Plan or (ii) receives or retains under the Plan, on account of its Claim or Interest, property of a value, as of the Effective Date, that is not less than the amount such holder would receive or retain if the Debtor were to be liquidated under Chapter 7 of the Bankruptcy Code. To determine what the holders of each class of claims or interest would receive if the Debtor were to be liquidated, the Bankruptcy Court must determine the dollar amount that would be generated from the liquidation of the Debtor's assets in a Chapter 7 liquidation case. The amount that would be available for satisfaction of the 49 50 Allowed Claims and Allowed Interests of the Debtor would consist of the proceeds resulting from the disposition of the assets of the Debtor augmented by the cash held by the Debtor at the time of the commencement of the Chapter 7 case. Such amounts would be reduced by the costs and expenses of the liquidation and by such additional Administrative Priority Claims and Other Priority Claims that might result from the termination of the Debtor's business and the Chapter 7 case. The costs of liquidation under Chapter 7 would include the fees payable to the Trustee appointed in the Chapter 7 case as well as those that might be payable to other professional persons employed by the Trustee. Priority Claims in the liquidation case would also include any unpaid expenses incurred by the Debtor in the Chapter 11 case, such as compensation for attorneys, financial advisors, and accountants, as well as costs and expenses of members of the Committee appointed in the Chapter 11 case. In addition, Priority Claims may arise by reason of the breach or rejection of obligations incurred in Executory Contracts entered into by the Debtor during the pendency of the Chapter 11 case. 50 51 To determine if the plan that is proposed is in the best interest of creditors and interest holders, the present value of the distributions likely to be made to each class in a liquidating case are compared with the present value of the distribution to such impaired class provided for by the Plan. Exhibit "A" attached to this Disclosure Statement provides a detailed analysis of the most likely outcome of an orderly liquidation of the Debtor conducted by a Chapter 7 trustee and the net distribution after payment of expenses to each class. It concludes that in a liquidation creditors could expect a return in the 32-45% range. Equity interests would receive nothing. In applying the best-interest test, it is possible that claims in a Chapter 7 case may not be classified in the same manner as provided for by the Plan. Priority and orders of distribution of estate assets are established by the applicable provisions of Chapter 7. Under those provisions, each class of claims is paid in a descending order of priority. No junior classes of claims are paid until all senior classes have received payment in full. In the event that available assets are insufficient to pay all members of such class in full, then each member of that class shares on a pro rata basis. The Debtor believes that in the event of liquidation under the auspices of a chapter 51 52 7 Trustee, Priority Claims would be paid, some portion of the unsecured claims would be paid, and existing equity interests would receive no distribution with respect to their interest. In contrast, under the Joint Plan, all Priority Claims would be paid the full amount of their Allowed Claims, General Unsecured Claims will be paid the full amount of their Allowed Claims, and Holders of Equity Interests will be paid approximately $15.2 million, less any potential setoffs, dilution due to any larger claims of creditors, the amount necessary to satisfy the Kenyon & Kenyon claim and the amount necessary to fund the Kenyon & Kenyon claim. THUS, THE DEBTOR BELIEVES THAT THE JOINT PLAN IS IN THE BEST INTEREST OF ALL CLAIM HOLDERS. XXVI. FEASIBILITY OF THE PLAN Bankruptcy law provides that a plan may be confirmed only if the Bankruptcy Court finds that it will not lead to the need for further reorganization or liquidation. In other words, the Plan must be feasible. Since the Plan provides for MSI to continue in business, the Court must be satisfied that MSI will not only be able to make the payments due on the Effective Date of the Plan, but will also be able to meet its obligations thereafter, whether 52 53 arising under the Plan or incurred under the operation of MSI's business. Since all the creditors will be paid in full on the Effective Date or when a Final Order is entered by the Court, there is no issue of feasibility. XXVII. ACCEPTANCE AND CONFIRMATION OF THE PLAN Bankruptcy law provides for a plan of reorganization to group various claims and stock interests into classes, each consisting of parties having similar legal rights in relationship to the Debtor. Each class may then be treated as either "impaired" or "unimpaired" under a plan of reorganization. There are three (3) ways in which a plan may leave a claim or interest "unimpaired": first, the plan may not propose to alter the legal, equitable or contractual rights of the holder of the claim or interest; second, all defaults may be cured and the original terms of the obligation reinstated; third, a plan of reorganization may provide for payment in full of the obligation to the holder of the claim or interest. If a class is unimpaired, it is presumed to vote in favor of the Plan. An impaired class that would receive nothing under a proposed plan is presumed to have rejected the plan. An impaired class that is proposed to receive any distribution (whether in cash, securities, or other property) has the 53 54 right to vote, as a class, to accept or reject the plan. A class of creditors accepts the plan if more than one-half (1/2) of the ballots that are timely received from members of the class representing at least two-thirds (2/3) of the dollar amount of the claims for which ballots are timely received, vote in favor of the plan. A plan under which any class of claims is impaired may be confirmed by the Court only if it has been accepted by at least one such class. A plan that is rejected by any class may be confirmed under the "cram-down" provisions of the bankruptcy law if the Court finds that the plan is fair and equitable to, and does not discriminate unfairly against, the rejecting class. In general terms, a plan is fair and equitable to a class if (i) unsecured claims are either paid in full or no junior class (such as any class of stockholders) will retain anything under the plan; (ii) preferred stockholders if a liquidation preference will be paid in full or if no junior class will retain anything under the plan; (3) common stockholders if they are paid the full value of their stock (if any). In this context, payment in full means either immediate payment or else payments over time having a present value equivalent to immediate payment. 54 55 The Plan divides creditor claims and equity holder interests into five classes. Classes One and Two are unimpaired and thus deemed to accept the Plan. Classes Three, Four, and Five are impaired and may vote to accept or reject the Plan. The Debtor and Osmonics believe that the Plan meets all the prerequisites of confirmation. XXVIII. MANNER OF VOTING All persons entitled to vote on a plan may cast their vote for or against such Plan by completing, dating, and signing the Ballot for Accepting or Rejecting Plan (the "Ballot") accompanying this Disclosure Statement and returning it in the enclosed envelope addressed to: Bruce F. Smith, Esq. Jager, Smith & Stetler One Financial Center Boston, MA 02111 (617)951-0500 IN ORDER TO BE COUNTED, ALL BALLOTS MUST BE RECEIVED AND FILED WITH THE COURT AT OR BEFORE 4:00 PM (EASTERN STANDARD TIME) ON __________________. A TELECOPY OF YOUR 55 56 BALLOT OR A TELEGRAM REFERRING TO YOUR BALLOT WILL NOT BE SUFFICIENT. The holders of Allowed Claims or Interests which are deemed impaired under a particular plan are entitled to vote to accept or reject such plan. The Code provides that votes will be counted only if submitted by a Claimant or Interest holder whose Claim or Interest is scheduled by the Debtor as undisputed, noncontingent and liquidated, whose Claim or Interest is scheduled and otherwise of record as of _______ (the last date for filing Ballots), and who, prior to August 11, 1997, Bar Date has filed with the court a Proof of Claim or Proof of Interest which is not disputed and has not been disallowed, disqualified or suspended prior to computation of the vote on the applicable plan. A Claim or Interest to which an objection has been filed is not an Allowed Claim or an Allowed Interest unless and until the Court rules on the objection. Further, the Code provides that the Court may estimate or temporarily allow a disputed Claim or Interest for purposes of voting on the applicable Plan. As a Claimant or Equity Interest holder entitled to vote on a Plan, your vote is important. In order for the Plan to be accepted and thereafter confirmed by the Court, acceptance of such plan is required by each class entitled to vote on same. A class of claimants has accepted a plan when holders of one-half (1/2) in number and two-thirds (2/3) in amount in that class has voted to accept such plan. A class of Equity Interest holders has accepted a plan when holders of two-thirds (2/3) in amount in that class has voted to accept such plan. In each instance, whether the requisite votes have been cast to accept a plan is determined solely by reference to the dollar amount in the total number of Claims or Interest held by those of the class that actually voted to accept or reject a plan. XXIX. CONFIRMATION HEARING The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a confirmation hearing on the Joint Plan. An objection to confirmation may be filed in accordance with the provisions herein. The confirmation hearing on the Joint Plan has been scheduled for __________ 1998 at _______ AM before Judge James F. Queenan, Jr., of the United States Bankruptcy Court for the District of Massachusetts, Donohue Building, 595 Main Street, Worcester, MA 01608. The confirmation hearing may be adjourned from time to time by the Bankruptcy Court without further notice, except for an 56 57 announcement made at the confirmation hearing to those in attendance. However, the dates of any adjournment may be obtained from counsel to the Debtor or counsel to the Creditors' Committee. Any objection to confirmation must be made in writing, setting forth in detail the basis of the objection, and filed with the Clerk of the Bankruptcy Court, and served upon the following: Bruce F. Smith, Esq. Jager, Smith & Stetler One Financial Center Boston, MA 02111 Counsel to Debtor Paul Moore, Esq. Choate, Hall & Stewart Exchange Place 53 State Street Boston, MA 02109 Counsel to Creditors' Committee XXX. ALTERNATIVES TO THE PLAN The Debtor believes that the Joint Plan provides its creditors and equity security holders with the greatest possible value that could be realized on their respective Claims and Interests. The alternatives to confirmation of the Plan are (i) confirmation of an alternative plan of reorganization submitted by the Debtor or by another party in interest or (ii) liquidation of the Debtor under Chapter 7 of the Code. Since the Filing Date, the Debtor has been engaged in extensive negotiations with numerous parties 58 58 having interests in the Chapter 11 reorganization proceedings. The Debtor has no reason to believe that any further negotiations regarding the plan of reorganization with any of the parties having an interest in the Chapter 11 reorganization proceedings would lead to an alternative plan of reorganization or plan of liquidation that could be confirmed within a reasonable period of time without protracted litigation. Under Section 1121 of the Code, a Debtor has the exclusive right to file a plan of reorganization during the first one hundred twenty (120) days after the commencement of its Chapter 11 case and to obtain acceptance thereof during the period of sixty (60)days thereafter. The court has entered an order extending the Debtor's exclusive right to file a plan of reorganization up to and including December 15, 1997. Alternatively, a liquidation of the Debtor could be carried out with the results described above (Best Interests of Creditors and Shareholders). For the reasons described, the Debtor believes that the distribution to each impaired class under the Joint Plan will be greater and earlier than distributions that might be received after liquidation of the Debtor. The Debtor believes that 59 59 confirmation of the Joint Plan is preferable to the alternatives described above because the Joint Plan provides for an equitable, early distribution to all classes of the Debtor's creditors and preserves value for equity security holders; any alternative to confirmation of the Joint Plan would result in significant delays in and probable diminution of recoveries. XXXI. RETENTION OF JURISDICTION The Bankruptcy Court shall retain jurisdiction with respect to the Debtor's case pursuant to the provisions of Chapter 11 of the Bankruptcy Code until all Claims and Equity Interests affected by this Plan are Finally Determined, and with respect to the following matters: A. To enable the Debtor to commence, prosecute, settle, compromise, abandon or consummate any and all claims of the Debtor against any person or entity, except as otherwise provided in the Joint Plan; B. To adjudicate all controversies concerning the classification of any Claims or Equity Interests; 60 60 C. To hear and determine all Claims arising from the rejection of any executory contract or unexpired lease and to consummate the rejection thereof; D. Except as otherwise provided by the Plan, to adjudicate all Claims to a security or ownership interest in any Properties of the Debtor or in any proceeds thereof. E. To liquidate damages or estimate Claims in connection with any disputed, contingent or unliquidated Claims; F. To hear and determine all controversies, suits and disputes that may arise in connection with the interpretation, consummation or performance of this Plan as well as all controversies, suits and disputes that may be pending before the Bankruptcy Court on or before the Confirmation Date. G. To determine and allow all expenses of administration incurred prior to or on the Confirmation Date, including all requests for compensation of fees and expenses by Debtor's counsel, including special counsel and counsel to the Creditor's Committee and, to the extent permitted by applicable law and approved by the Bankruptcy 61 61 Court, reimbursement of reasonable expenses of members of the Committee; H. To recover all assets and properties of the Debtor, wherever located. I. To interpret, construe or enforce the Joint Plan or any order previously entered herein; J. Except as otherwise provided in the Plan, to hear, determine and enforce any and all causes of action that the Debtor may have brought, or the Debtor may bring, to set aside liens or encumbrances to recover any transfers, assets or damages to which the estate may be entitled, or to subordinate or disallow, in whole or in part, any Claim herein, under applicable provisions of the Bankruptcy Code and other Federal, State or local law, and to determine allowance of fees and disbursements of counsel in connection therewith; K. To insure that the purpose and intent of the Joint Plan are effectuated; L. To hear and determine all issues with regard to the administration and operation of the Equity Interests Trust. 62 62 M. To adjudicate all claims and controversies between Osmonics, Inc. and the Equity Interests Trust. N. To make such orders as are necessary or appropriate to carry out the provisions and intent of the Joint Plan. Respectfully submitted, MICRON SEPARATIONS, INC. By: ------------------------------ Dated: December 15, 1997 63 63 TABLE OF CONTENTS I. DESCRIPTION OF THE DEBTOR....................................................................4 II. HISTORY OF THE BUSINESS......................................................................5 III. EVENTS LEADING TO THE CHAPTER 11 FILING......................................................7 IV. BRIEF SUMMARY OF ASSETS AND LIABILITIES AND OTHER FINANCIAL INFORMATION AT THE TIME OF FILING..................................................8 V. STOCK OPTIONS, BONUSES, AND ERISA............................................................9 VI. PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES................................................10 VII. TRANSACTIONS WITH INSIDERS..................................................................12 VIII. REAL PROPERTY AND LEASEHOLDS................................................................14 IX. OPERATION OF BUSINESS DURING CHAPTER 11.....................................................16 X. LITIGATION AND SETTLEMENT...................................................................17 XI. SUMMARY OF THE PROVISIONS OF THE PLAN.......................................................27 XII. POST-PETITION PAYMENTS MADE TO UNSECURED PRIORITY ............................................ CREDITORS...................................................................................28 XIII. GENERAL DESCRIPTION OF OSMONICS, INC........................................................30 XIV. SELECTED FINANCIAL INFORMATION..............................................................31 XV. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS........................................35 XVI. RIGHTS OF SHAREHOLDERS......................................................................41 XVII. PROPOSED DIRECTORS AND OFFICERS AND THEIR EXPECTED COMPENSATION................................................................................42 XVIII. PREFERENCES, FRAUDULENT TRANSFERS AND OTHER CAUSES OF ACTION......................................................................................42 XIX. TAX CONSEQUENCES TO CREDITORS...............................................................43 XX. MEANS FOR EXECUTION OF THE JOINT PLAN.......................................................43 XXI. FULL AND FINAL SATISFACTION.................................................................45 XXII. EFFECT OF CONFIRMATION......................................................................46 XXIII. EXECUTORY CONTRACTS AND UNEXPIRED LEASES....................................................47
64 64 XXIV. CONFIRMATION REQUIREMENTS...................................................................48 XXV. BEST INTERESTS OF CREDITORS TEST............................................................49 XXVI. FEASIBILITY OF THE PLAN.....................................................................52 XXVII. ACCEPTANCE AND CONFIRMATION OF THE PLAN.....................................................53 XXVIII. MANNER OF VOTING............................................................................55 XXIX. CONFIRMATION HEARING........................................................................57 XXX. ALTERNATIVES TO THE PLAN....................................................................58 XXXI. RETENTION OF JURISDICTION...................................................................60
65 EX-2.2 3 EXHIBIT-2.2 1 EXHIBIT 2.2 UNITED STATES BANKRUPTCY COURT DISTRICT OF MASSACHUSETTS WESTERN DIVISION - - ---------------------------- ) IN RE: ) ) Chapter 11 MICRON SEPARATIONS, INC. ) Case No. 97-42342-JFQ ) Debtor-in-Possession. ) ) - - ---------------------------- JOINT PLAN OF REORGANIZATION SUBMITTED BY MICRON SEPARATIONS, INC AND OSMONICS, INC. (DECEMBER 15, 1997) INTRODUCTION Micron Separations, Inc. ("MSI"), a New York Corporation ("Debtor"), and Osmonics, Inc. ("Osmonics"), a Minnesota corporation hereby jointly propose the following plan of reorganization (the "Plan"). Capitalized words not specifically defined herein shall have the meaning ascribed to them under the Bankruptcy Code. The Plan provides for the cancellation of all existing equity interests of the Debtor and the issuance of capital stock to Osmonics, in consideration of funding by Osmonics of $28,000,000 under the Plan which cannot be funded from the Debtor's cash. Up to $3,200,000 of the Debtor's cash on the Effective Date will also be applied to the payment of claims. In addition to the full payment of claims with interest at 8 1/2% per annum from the Filing Date of all the Debtor's unsecured -1- 2 creditors other than Pall Corporation, which will receive a fixed payment and a release pursuant to a certain Settlement Agreement, the Plan provides for substantial payments to holders of the Debtor's equity interests. Osmonics has provided a $2,500,000 stand-by letter of credit to secure its obligations under the Plan. ARTICLE I - DEFINITIONS As used in this Plan, the following capitalized terms shall have the meanings specified below unless the context requires otherwise: 1.1 Administrative Claims: Allowed Claims under Section 507(a)(1) of the Code, and all fees and charges assessed against the Debtor's estate under chapter 123 of title 28, United States Code. 1.2 Allowed Claim: A claim which meets both of the following tests: (i) with respect to which a proof of claim was timely filed with the court or which was scheduled in the list of creditors which was filed with the Court by the Debtor and not listed as disputed, contingent, or unliquidated as to amount, and (ii) as to which no objection to allowance thereto has been interposed or any such objection has been withdrawn, overruled, or resolved by a Final Order. 1.3 Assets: With respect to the Debtor, all of the right, -2- 3 title, and interest in and to property of whatsoever type or nature, of the Debtor as of the Effective Date, together with assets subsequently acquired or leased by such Debtor, and including, but not limited to, property as defined in Section 541 of the Bankruptcy Code (an identified item of property being sometimes referred to as an Asset). 1.4 Bankruptcy Code: Title 11 of the United States Code. 1.5 Bar Date: The deadline determined by the Bankruptcy Court for the filing of Claims. Except as provided herein with respect to Administrative Claims and except for Claims arising from the rejection of leases or executory contracts, all Claims were required to be filed by August 11, 1997, in order to receive any distributions under the Plan. 1.6 Chapter 11: Chapter 11 of the Bankruptcy Code. 1.7 Claim: Any right to payment from the Debtor existing as of the Petition Date, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured; any right to an equitable remedy for breach of performance existing as of the Filing Date, if such breach gives rise to a right of payment from the Debtor, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or -3- 4 unsecured. 1.8 Committee: The Official Unsecured Creditors' Committee, appointed in this case by the U.S. Trustee. 1.9 Confirmation Date: The date the Confirmation Order confirming this Plan is entered. 1.10 Confirmation Order: The written order entered by the Court confirming the Plan pursuant to Section 1129 of the Bankruptcy Code. 1.11 Court: The United States Bankruptcy Court for the District of Massachusetts. 1.12 Debtor: Micron Separations, Inc., a New York Corporation, the petitioner herein. 1.13 Disclosure Statement: That document filed in this case by the Debtor pursuant to Section 1125(b) of the Code as it may be amended, modified, and, as approved by the Court, supplemented by the Debtor, and approved by the Court. 1.14 Disputed Claim Reserve: A segregated account holding the cash for any disputed claims and interest thereon. 1.15 Effective Date: The first business day following entry of the Court's Confirmation Order for this Plan or such other date as Debtor in its sole discretion shall choose. -4- 5 1.16 Equity Consideration: Debtor's available cash at the Effective Date (not to exceed $3,200,000), plus the Funded Amount, less any amount paid to fund Allowed Claims (including the Pall settlement) and Administrative Claims (at Confirmation or thereafter), and less any amounts held in the Disputed Claims Reserve and less any amounts held in the Disputed Claims Reserve other than the amounts held for the disputed Kenyon & Kenyon claim, but in no event shall the Equity Consideration be more than $15,200,000. 1.17 Equity Interest: Any per share equity interest in the Debtor outstanding as of the Effective Date including, without limitation, issued and outstanding shares of the Common Stock, Preferred Stock, and outstanding Options and warrants. 1.18 Equity Interests Trust: A trust, a copy of the agreement of trust, which is appended to the Plan as Exhibit A for the benefit of Equity Interests to hold and distribute the Equity Consideration and the litigation denominated MSI v. Kenyon & Kenyon, and to represent the interests of its beneficiaries with respect to those assets. 1.19 Estate: The estate created in this case under Section 541 of the Bankruptcy Code. 1.20 Existing Common Stock: Debtor's authorized Common Stock, $.01 par value of share. -5- 6 1.21 Filing Date: April 9, 1997. 1.22 Final Order: An order or judgment of the Court as entered on its docket that has not been reversed, stayed pursuant to Bankruptcy Rule 8005, modified, or amended, and as to which the time to appeal, petition for certiorari, or seek reargument or rehearing has expired, and as to which no notice of appeal, petition for certiorari, or motion for reargument or rehearing was timely filed, or as to which any right to appeal, petition for certiorari or motion for reargument or rehearing has been waived in writing in a manner satisfactory to the Debtor, or if a notice of appeal, petition for certiorari or petition for reargument or rehearing was timely filed, the order or judgment of the Court has been affirmed by the highest court to which the order or judgment was appealed or from which the reargument or rehearing was sought, or certiorari has been denied, and the time to file any further appeal or to petition for certiorari or to seek further reargument or rehearing has expired. 1.23 Finally Determined: The date on which the allowed amount of a Claim is determined by a Final Order. 1.24 Funded Amount: The $28,000,000 to be paid by Osmonics pursuant to the Plan. 1.25 General Unsecured Claims: All unsecured pre-chapter 11 Claims (which arose pre-petition or which are deemed by law or -6- 7 order of the Court to have arisen pre-petition) which are classified in Class 3. 1.26 New Common Stock: 1,000 shares of Common Stock of the reorganized Debtor to be issued to Osmonics on the Effective Date. 1.27 Options: All options, warrants and other rights to purchase shares of existing Common Stock or Preferred Stock from the Debtor, all of which being fully vested as of the date of filing of the Plan for purposes of determining the number of Equity Interests covered thereby. 1.28 Osmonics: Osmonics, Inc., a Minnesota corporation, with a principal place of business at 5951 Clearwater Drive, Minnetonka, Minnesota. 1.29 Pall Claims: All claims of Pall Corporation described in that certain Settlement Agreement dated as of November 18, 1997, by and between MSI and Pall Corporation ("Settlement Agreement"), a copy of which is attached hereto as Exhibit B and made a part hereof. 1.30 Preferred Stock: Debtor's authorized Series A Preferred Stock, $1.00 par value per share. 1.31 Priority Claim: Any Claim which, if allowed, would be entitled to priority under Section 507(a) of the Code, other -7- 8 than an Administrative Claim or a Tax Claim. 1.32 Proponents: The Debtor and Osmonics. 1.33 Tax Claims: Claims of any person for the payment of Taxes (a) accorded a priority pursuant to Section 507(a)(1) and (8) of the Bankruptcy Code, but excluding all Claims for post-petition interest and pre-petition and post-petition penalties, all of which interest and penalties shall be (i) deemed disallowed and (ii) discharged on the Confirmation Date, or (b) those secured by valid liens on assets of the Debtor on the Confirmation Date, but excluding all Claims for post-petition interest and pre-petition and post-petition penalties, all of which interest and penalties shall be (i) deemed disallowed and (ii) discharged on the Confirmation Date, and, additionally, all Liens shall be deemed and legally treated as released, voided and discharged on the Confirmation Date. ARTICLE II - CLASSIFICATION OF CLAIMS AND INTERESTS 2.1 The Claims of the Creditors and the holders Equity Interests are divided into the classes described below: Class 1: Administrative and Priority Claims Class 2: Tax Claims Class 3: All Unsecured Claims (excluding the Pall claims), including, but not limited to, all Allowed Claims by persons or -8- 9 entities resulting from the Debtor's rejection of any executory contract or unexpired leases. Class 4: Pall Claims. Class 5: All Claims of holders of Equity Interests. 2.2 Any holder of a Claim or Equity Interest that fails to object in writing to the classifications provided in this Plan by the date set by the Bankruptcy Court for objections to Confirmation to the Plan shall be deemed to have accepted such classifications and be bound thereby. ARTICLE III - TREATMENT OF CLAIMS AND EQUITY INTERESTS BY CLASSES Each Class shall be provided the treatment set forth below.The parties in interest should review both the Plan and the Disclosure Statement to determine their rights. Any discrepancies between the Plan and the Disclosure Statement shall be controlled by the language of the Plan. 3.1 Class 1 - Administrative and Priority Claims a. Operating expenses incurred in the conduct of the business of the Debtor since the Petition Date, to the extent not paid by the Debtor in the ordinary course of business through the Effective Date, shall be paid by the reorganized Debtor as such expenses come due in the ordinary course of business. b. Other Administrative Claims, including without limitation professional fees and expenses and expenses of members of the -9- 10 Creditors' Committee, shall be paid in cash within ten (10) business days after the later of the (i) the Effective Date or (ii) a Final Order allowing such expenses. 3.2 Class 2 - Tax Claims Each Class 2 Tax Claim shall be paid in full in cash within ten (10) business days after the later of (a) the Effective Date or (b)the date such claim is Finally Determined unless the holder of a Class 3 Claim shall agree in writing with the Debtor to a less favorable treatment. 3.3 Class 3 - General Unsecured Claims In full satisfaction of each Class 3 General Unsecured Claim, the Disbursing Agent shall pay each holder of an allowed general unsecured claim in cash with interest at 8 1/2% per annum from April 9, 1997, within ten (10) business days after the later of (a) the Effective Date or (b) the date such claim is Finally Determined. 3.4 Class 4 - Pall Claims Pall Corporation shall receive the treatment as set forth in the Settlement Agreement, including, without limitation, the payment of $13,500,000 in cash by the Disbursing Agent. 3.5 Class 5 - Equity Interests -10- 11 (a) Holders of Equity Interests shall receive within ten (10) days of the Effective Date an amount in cash equal to ninety percent (90%) of the Equity Consideration. Each holder of Equity Interests shall receive with respect to each Equity Interest a Pro-Rata Portion of the Equity Consideration. In the case of an Equity Interest that is a Preferred Stock, it will be treated as if it had been converted to the same number of Common Shares. In the case of an Equity Interest that is an Option, the Equity Holder shall pay the option exercise price separately to the reorganized Debtor, prior to Debtor's payment of the Equity Consideration therefor. "Pro-rata Portion" means the per share number of Equity Interests held by a holder of Equity Interests divided by the total number of Equity Interests held by all holders of Equity Interests. For purposes of determining a holder's Pro-rata Portion, each Option shall be considered fully vested and exercisable notwithstanding anything to the contrary set forth in any written agreement between the Debtor and the holder of the Option (an "Option Agreement") with respect to vesting of such Option. (b) On or before the first anniversary of the Effective Date, Osmonics shall pay to the Equity Interests Trust, for distribution to the holders of Equity Interests in accordance with their Pro-rata Portion of said payment, an amount equal to the sum of (i) ten (10%) percent of the Equity Consideration minus (ii) the amount of any Set-off Right (as defined below) -11- 12 properly taken by Osmonics plus (iii) interest on the amount paid at the rate of 8 1/2% per annum from the Effective Date to the date of payment. (c) Osmonics shall pay to the Equity Interests Trust $100,000 towards the costs and expenses of the MSI v. Kenyon & Kenyon litigation (the "K & K litigation"), which shall be reimbursed first from any recovery in such litigation. The Holders of Equity Interests shall also advance $100,000 to the Equity Interests Trust for the costs and expenses involved in prosecuting the K & K Litigation. Such $100,000 shall be taken from the Equity Consideration and held by the trustee for use in the K & K litigation. Each holder of Equity Interests shall receive its Pro-rata Portion of the net amount of any recovery as a result of the K & K litigation after payment of any costs and expenses involved in the K & K litigation, reimbursement of the $100,000 advance by Osmonics, the fees and expenses of the trustee, and payment or provision for taxes resulting from such recovery. (d) (1) Osmonics will have the right to set-off ("Set-off Right") against the unpaid Equity Consideration any actual damages suffered or expenses reasonably incurred by it as a result of any breaches of representations and warranties by Debtor set forth in Exhibit C to this Plan to the extent that such damages and expenses exceed $100,000. Neither the Equity -12- 13 Interests Trust nor any holder of an Equity Interest shall have any obligation to return any portion of the Equity Consideration received by the holder or the Equity Interests Trust or any liability to Osmonics and/or reorganized Debtor beyond Osmonics's Set-Off Right in accordance with this section, except for liability arising out of any fraud or intentional misrepresentations by the Debtor. (2) Within thirty (30) days after the end of each calendar quarter following the Effective Date, Osmonics shall give the Equity Interests Trustee written notice describing in detail any Set-Off Right that Osmonics intends to exercise and with respect to which a notice has not previously been given. Osmonics agrees that in the event it becomes consciously aware of any claims or conditions that would give rise to a Set-off Right, both the Debtor and Osmonics will act in a commercially reasonable manner (as determined without regard to Osmonics's Set-off Right) in resolving such claims or responding to such conditions. (e) Termination of Equity Interests. Upon the Effective Date, all Equity Interests shall automatically be canceled. 3.6 Disputed Claims Reserve. Ten (10) days after the Effective Date, the distributions -13- 14 reserved for the holders of disputed claims shall be delivered to the Disbursing Agent (Debtor's Counsel) but shall be held in a segregated, interest bearing account (the "Disputed Claims Reserve") for the benefit of holders of disputed claims entitled thereto under the Plan. At the option of the reorganized Debtor, any claim not previously settled may be objected by filing a written objection within forty (40) days of the Effective Date. Any claim not objected to by that time will be deemed allowed. There will be deposited into the Disputed Claims Reserve an amount of cash which would have been distributed on account of the disputed claims if all disputed claims were allowed in the full amount claimed by the holders thereof, plus an amount of interest estimated by the Disbursing Agent as adequate to pay the claim, if allowed in full, plus accrued interest. ARTICLE IV - IDENTIFICATION OF CLASSES IMPAIRED UNDER THIS PLAN Claims in Classes 1 and 2 are not impaired under the Plan. Claims in Classes 3 and 4 and Interests in Class 5 are impaired under the Plan. -14- 15 ARTICLE V - MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN 5.1 Osmonics (a) Osmonics agrees that by signing the Plan, it will fully support the Plan and, subject to the Confirmation order, it will proceed and carry out all of its obligations under the Plan and each and every one of its and MSI's obligations under the Settlement Agreement. (b) Osmonics, at the time the Plan is filed, has delivered to counsel for Debtor its stand-by irrevocable letter of credit payable to Debtor in an amount of $2,500,000 payable upon withdrawal of support for the plan by Osmonics or failure of Osmonics to fulfill its obligations under the Plan, as confirmed. If Osmonics elects to pay the said $2,500,000, the said Letter of Credit shall be returned to it. (c) Osmonics agrees, on and after the Effective Date, to pay to the Disbursing Agent (Debtor's Counsel) all amounts necessary to pay all allowed and disputed Class 1, 2, 3, and 4 Claims (other than the Kenyon & Kenyon disputed claim), including the amounts due to Pall pursuant to the Settlement Agreement, less any deposit paid to date, in any event not to exceed the Funded Amount, and to pay to the Equity Interests Trust on behalf of the Equity Interests in Class 5 an amount equal to ninety -15- 16 (90%) percent of the Equity Consideration. In any event, the aggregate payments by Osmonics under the Plan shall not exceed the Funded Amount. 5.2 Use of Debtor's Cash Debtor's cash (up to a maximum of $3,200,000), on the Effective Date will be surrendered to Disbursing Agent for the payment of Class 1-4 Claims, including the amounts due to Pall pursuant to the Settlement Agreement, but excluding the Kenyon & Kenyon disputed claim and 90% of the Equity Consideration to the Equity Interests Trust. 5.3 Equity Interests Trust On or before Confirmation, the Debtor will seek to appoint Debtor's counsel as the Equity Interests Trustee subject to approval of the Bankruptcy Court. The Equity Interests Trustee shall (a) receive and direct the litigation denominated MSI v. Kenyon & Kenyon, (b) represent the holders of Equity Interests should Osmonics, Inc. hold back or set-off against the 10% Equity Consideration, (c) distribute the net proceeds of the 10% Equity Consideration and the K & K litigation when received, (d) distribute the net proceeds of the ninety (90%) percent Equity Consideration, (e) pay to the Disbursing Agent the amount of the Kenyon & Kenyon claim plus an amount necessary to pay the claim with interest, for deposit in the Disputed Claim Reserve, and (f) -16- 17 perform such other duties as the Court may direct. 5.4 Issuance of Shares to Osmonics. Upon the Effective Date, the New Common Stock shall be issued to Osmonics, which shares shall then be the only outstanding capital stock of reorganized Debtor. 5.5 Resignations/Elections. Upon the Effective Date, all officers and directors of Debtor immediately prior to the Effective Date shall be deemed to have resigned, and the following officers and directors shall be elected: D. Dean Spatz Director L. Lee Runzheimer Director James S. Johnson Director D. Dean Spatz Chief Executive Officer James S. Johnson President and Chief Operating Officer L. Lee Runzheimer Treasurer Ruth Carol Spatz Secretary 5.6 Corporate Authority. Upon the Effective Date, any officer of Osmonics or, with Osmonics' approval, of the reorganized Debtor, shall have the authority and power to execute any document and to take any other action on behalf of the reorganized Debtor to otherwise effectuate the provisions of this Plan. -17- 18 ARTICLE VI - TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES 6.1 Upon the Effective Date, each of the leases and executory contracts set forth on Exhibit C as specifically approved by Osmonics and attached hereto shall be automatically assumed. If any party to a lease or contract objects to assumption thereof or asserts that a payment must be made as a condition of assumption, such objection and/or assertion must be set forth in writing filed with the Bankruptcy Court by the date set for the filing of objections to Confirmation and served in the same manner as objections to Confirmation. Cure payments and assurance of future performance shall be the responsibility of Osmonics, Inc.. 6.2 The Debtor reserves the right on behalf of Osmonics to amend Exhibit C at any time prior to the Effective Date, and the listing of any lease or executory contract on Exhibit D shall not constitute an assumption of any such lease or contract prior to the Effective Date. Any party to a lease or contract which is affected by an amendment to Exhibit C shall be provided written notice of such amendment and shall have 30 days after the mailing of such notice to object or make a claim or assertion in connection with such amendment. 6.3 Every executory contract and unexpired lease which was not rejected or assumed during the Debtor's Chapter 11 -18- 19 proceedings and is not listed on Exhibit C (in its final form as of the Effective Date) shall be deemed rejected as of the Effective Date including, without limitation, the agreement dated December 18, 1991, between MSI and Pall Corporation. Any entity with a claim arising from such rejection shall be deemed to hold a Class 3 Claim and shall file a proof of claim within 30 days after the Effective Date or be forever barred from asserting any claim. The Debtor reserves the right to apply to the Bankruptcy Court prior to the Effective Date to assume or reject any executory contract or unexpired lease. ARTICLE VII - ACCEPTANCE OR REJECTION OF THE PLAN 7.1 Holders of Class 5 Equity Interests and Class 3 and 4 Claims shall be requested to vote to accept or reject this Plan. 7.2 Class 5 (Equity Interests) shall have accepted the Plan if two-thirds in amount of the Equity Interests who vote on the Plan have accepted the Plan. Holders of record on the Bar Date shall be the holders requested to vote on Class 5 Equity Interests. Class 3 and 4 shall have accepted the Plan if two-thirds in number and a majority in amount of those who actually vote on the Plan have accepted the Plan. 7.4 In the event that any impaired class shall fail to accept the Plan, the Debtor may request that the Bankruptcy Court confirm the Plan in accordance with Section 1129(b) of the -19- 20 Bankruptcy Code. ARTICLE VIII - VESTING OF ASSETS 8.1 Upon the Effective Date, all of the Debtor's Assets except those Assets that are abandoned or expressly transferred to the Equity Interests Trust shall vest in the reorganized Debtor, free and clear of all claims and interests of any kind. The cause of action against Kenyon & Kenyon shall vest in the Equity Interests Trust. ARTICLE IX - MODIFICATION OR WITHDRAWAL OF PLAN 9.1 The Plan may be modified in accordance with the provisions of Bankruptcy Code. If all parties adversely affected by any modification consent to such modification, (i) the Disclosure Statement previously submitted in connection herewith shall be deemed adequate to all parties, (ii) no further modifications or additions to such Disclosure Statement shall be required, and (iii) no further notice shall be given. In addition, after Confirmation, the reorganized Debtor may, subject to approval of the Bankruptcy Court, remedy any defect or omission, reconcile any inconsistencies in the Plan or in the Bankruptcy Court's Order confirming the Plan, and execute and deliver such documents and agreements as may be necessary, in the judgment of the Debtor, to carry out the purpose and intent of the Plan. -20- 21 9.2 If the Plan is not confirmed by February 27, 1998, it shall be deemed to be withdrawn. ARTICLE X - RELEASE Except as otherwise expressly provided in the Joint Plan, on the Effective Date, the reorganized Debtor, the Committee, and all creditors and parties in interest (i) who have held or hold claims, or (ii) who have held or hold Equity Interests, in consideration of the promises and obligations undertaken under the Joint Plan will be deemed to have forever waived, released and discharged all rights or claims, or obligations whether based upon tort, fraud, contract or otherwise, which they heretofore, now or hereafter, possess or may possess against Debtor, its officers, directors, agents, shareholders, and employees. ARTICLE XI - RETENTION OF JURISDICTION The Bankruptcy Court shall retain jurisdiction with respect to the Debtor's case pursuant to the provisions of Chapter 11 of the Bankruptcy Code until all Claims and Equity Interests affected by this Plan are Finally Determined, and with respect to the following matters: 10.1 To enable the Debtor to commence, prosecute, settle, compromise, abandon or consummate any and all claims of the Debtor against any person or entity, except as -21- 22 otherwise provided in the Joint Plan; 10.2 To adjudicate all controversies concerning the classification of any Claims or Equity Interests; 10.3 To hear and determine all Claims arising from the rejection of any executory contract or unexpired lease and to consummate the rejection thereof; 10.4 Except as otherwise provided by the Plan, to adjudicate all Claims to a security or ownership interest in any Properties of the Debtor or in any proceeds thereof. 10.5 To liquidate damages or estimate Claims in connection with any disputed, contingent or unliquidated Claims; 10.6 To hear and determine all controversies, suits and disputes that may arise in connection with the interpretation, consummation or performance of this Plan as well as all controversies, suits and disputes that may be pending before the Bankruptcy Court on or before the Confirmation Date. 10.7 To determine and allow all expenses of -22- 23 administration incurred prior to or on the Confirmation Date, including all requests for compensation of fees and expenses by Debtor's counsel, including special counsel and counsel to the Creditor's Committee and, to the extent permitted by applicable law and approved by the Bankruptcy Court, reimbursement of reasonable expenses of members of the Committee; 10.8 To recover all assets and properties of the Debtor, wherever located. 10.7 To interpret, construe or enforce the Joint Plan or any order previously entered herein; 10.8 Except as otherwise provided in the Plan, to hear, determine and enforce any and all causes of action that the Debtor may have brought, or the Debtor may bring, to set aside liens or encumbrances, to recover any transfers, assets or damages to which the estate may be entitled, or to subordinate or disallow, in whole or in part, any Claim herein, under applicable provisions of the Bankruptcy Code and other Federal, State or local law, and to determine allowance of fees and disbursements of counsel in connection therewith; -23- 24 10.9 To insure that the purpose and intent of the Joint Plan are effectuated; 10.10 To hear and determine all issues with regard to the administration and operation of the Equity Interests Trust. 10.11 To adjudicate all claims and controversies between Osmonics, Inc. and the Equity Interests Trust. 10.12 To make such orders as are necessary or appropriate to carry out the provisions and intent of the Joint Plan. -24- 25 MICRON SEPARATIONS, INC. By: /s/ James [Illegible] ------------------------- President OSMONICS, INC. By: /s/ Dean Spootz ------------------------- President Dated: December 15, 1997 -25- 26 TABLE OF CONTENTS ARTICLE I - DEFINITIONS 2 ARTICLE II - CLASSIFICATION OF CLAIMS AND INTERESTS 9 ARTICLE III - TREATMENT OF CLAIMS AND EQUITY INTERESTS BY CLASSES 9 ARTICLE IV - IDENTIFICATION OF CLASSES IMPAIRED UNDER THIS PLAN 15 ARTICLE V - MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN 15 ARTICLE VI - TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES 18 ARTICLE VII - ACCEPTANCE OR REJECTION OF THE PLAN 20 ARTICLE VIII - VESTING OF ASSETS 20 ARTICLE IX - MODIFICATION OR WITHDRAWAL OF PLAN 21 ARTICLE X - RELEASE 21 ARTICLE XI - RETENTION OF JURISDICTION 22 27 Exhibits to the Joint Plan Exhibit A: Equity Interests Trust Exhibit B: Settlement Agreement Exhibit C: Reps and Warranties Exhibit D: Leases and Executory Contracts Exhibits to the Disclosure Statement Exhibit A: Liquidation Analysis (done by KPMG) 28 EXHIBIT C TO JOINT PLAN OF REORGANIZATION In consideration of Osmonics becoming a joint proponent of the Plan, and except as set forth in the Disclosure Statement filed with the Joint Plan or a schedule hereto, the Debtor hereby, represents, warrants and covenants to Osmonics as follows: 1.1 Corporate Existence and Power. The Debtor is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of New York, without taking into account the effect of the application of the U.S. Bankruptcy Code, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. The Debtor is duly qualified to do business as a foreign corporation and is in good standing in the Commonwealth of Massachusetts and in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary, except for those jurisdictions where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on the condition (financial or otherwise), business, assets, results of operations or prospects of the Debtor and the Subsidiaries (as defined in Section 1.3), taken as a whole (a "Material Adverse Effect"). The Debtor has heretofore delivered to the Osmonics true and complete copies of the Debtor's articles of incorporation and bylaws (collectively, the "Organizational Documents") as currently in effect. 1.2 Governmental Authorization. The execution, delivery and performance by the Debtor of this Agreement and the consummation of the Acquisition by the Debtor require no action by or in respect of, or filing with, any governmental body, agency, official or authority other than the approval of the U.S. Bankruptcy Court for the Western Division of the District of Massachusetts and possible application of Hart- Scott-Rodino if Debtor's total assets exceed $10,000,000 at the Effective Date. 1.3 Subsidiaries. 1.3.1 "Subsidiary" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are directly or indirectly owned by the Debtor. 1.3.2 Each Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities make such qualification necessary, except for those jurisdictions where failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect. 1.3.3 Except as set forth on SCHEDULE 1.3, all of the outstanding capital stock of, or other ownership interests in, each Subsidiary, is owned by the Debtor, directly or indirectly, free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests). 1.3.4 There are no outstanding: 1.3.4.1 Securities (as such term is applied in interpreting the securities laws of the United States) of the Debtor, or any Subsidiary, which are convertible into or exchangeable for shares of capital stock or other voting securities or ownership interests in any Subsidiary; and 29 1.3.4.2 Options or other rights to acquire from the Debtor or any Subsidiary, and no other obligation of the Debtor or any Subsidiary to issue, any capital stock, voting securities or other ownership interests in, or any securities convertible into or exchangeable for any capital stock, voting securities or ownership interests in, any Subsidiary (the items in Sections 1.3.4.1 and 1.3.4.2 being referred to collectively as the "Subsidiary Securities"). There are no outstanding obligations of the Debtor or any Subsidiary to repurchase, redeem or otherwise acquire any outstanding Subsidiary Securities. 1.4 Financial Statements. 1.4.1 Except as set forth on SCHEDULE 1.4, the audited consolidated financial statements for the year ending on October 27, 1996, and each of the immediately two preceding fiscal years of the Debtor (including the notes thereto) and the unaudited financial statements of the Debtor for the period ending on OCTOBER 26, 1997, a true copy of which has been provided to Osmonics (collectively, the "Financial Statements"), were prepared in accordance with the books and records of the Debtor, and fairly present, in conformity with generally accepted accounting principles consistently applied throughout the periods indicated, except as otherwise indicated in the notes to the Financial Statements, except for disclosure of earnings per share and weighted average common and common equivalent share amounts in the statement of income ("GAAP"), the consolidated financial position of the Debtor and the Subsidiaries as of the dates thereof and the results of operations, shareholders' equity and cash flows for the periods then ended subject, in the case of the unaudited balance sheet, for the month ended OCTOBER 26, 1997, to year-end adjustments and items customarily disclosed in notes to financial statements. "Balance Sheet" means the OCTOBER 26, 1997, unaudited balance sheet of the Debtor and the Subsidiaries prepared in accordance with this Section and "Balance Sheet Date" means OCTOBER 26, 1997. 1.4.2 All account and note receivables reflected on the Balance Sheet and additional receivables thereafter acquired by the Debtor and the Subsidiaries prior to the Effective Date have, except as provided in SCHEDULE 1.4, arisen in the ordinary course of business. 1.4.3 All reports filed with the U.S. Bankruptcy Trustee ("Reports to Trustee") are true, correct and complete in all material respects. 1.5 Financial Status of Debtor. The Debtor has as of October 26, 1997, and will have as of the moment prior to the date of Confirmation: 1.5.1 a shareholder's equity of not less than -$37,000, excluding from such calculations (1) all legal and accounting expense incurred in fiscal year 1997 and 1998, up to the date of Confirmation, (2) any increases in reserves for non-collectible accounts receivable from the present reserve of $57,400, such changes not to exceed $13,000 in the aggregate, (3) any increases in the reserve for obsolete, defective or non-saleable inventory from the present reserve of $283,669, due to Pall or other litigation, such changes not to exceed $400,000 in the aggregate, (4) changes in pre-petition claims and interest thereon including, but not limited to, the increase in Pall Corporation's claim arising out of the Settlement and Joint Plan (i.e., $13.5 million v. $10.75 million), such changes not to exceed $2,900,000 in the aggregate; and (5) reduction in the amount of the Company's expected tax refunds, pursuant to the conclusion of the Federal and State tax audits, not to exceed $25,000 in changes. 1.5.2 average gross profit margins for the preceding twelve (12) months of not less than fifty percent (50%); 2 30 1.5.3 annualized net sales of not less than $8.8 million based on actual net sales from November 1, 1996 through September 30, 1997; and 1.5.4 annualized operating income (exclusive of taxes, interest and litigation costs and interest) of not less than $1.4 million for the fiscal year ended October 26, 1997. 1.6 Disclosure Documents. 1.6.1 None of the information set forth in the Schedules will, (i) at the time the Plan is filed, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) at any time prior to the Effective Date, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, except as may result solely from the operation of the business in the ordinary course or the passage of time which the Debtor and the Subsidiaries shall use its best efforts to disclose to the Osmonics prior to the Effective Date. 1.7 Absence of Certain Changes. Except for the filing under the U.S. Bankruptcy Code and except as set forth in SCHEDULE 1.7 or the Balance Statement or reflected in the Financial Statements, since December 31, 1996, the Debtor and each Subsidiary has conducted its business in the ordinary course consistent with past practice and there has not been: 1.7.1 any material adverse change in the business, assets, condition (financial or otherwise), or results of operations or prospects of the Debtor or any Subsidiary taken as a whole (a "Material Adverse Change") or, to Debtor's knowledge, any event, occurrence or development of a state of circumstances or facts which could reasonably be expected to result in a Material Adverse Change; 1.7.2 any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Debtor or any Subsidiary, or any repurchase, redemption or other acquisition by the Debtor or any Subsidiary of any outstanding shares of capital stock or other securities of, or other ownership interests in, the Debtor or any Subsidiary; 1.7.3 any incurrence, assumption or guarantee by the Debtor or any Subsidiary of any indebtedness for borrowed money other than in the ordinary course of business; 1.7.4 any creation or assumption by the Debtor or any Subsidiary of any Lien on any asset other than in the ordinary course of business consistent with past practices; 1.7.5 any making of any loan, advance or capital contributions to or investment in any person other than loans, advances or capital contributions to or investments in wholly-owned Subsidiaries made in the ordinary course of business consistent with past practices; 1.7.6 any damage, destruction or other casualty loss affecting the Business or the Assets of the Debtor or any Subsidiary which, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect on the Debtor or any Subsidiary; 1.7.7 any transaction or commitment made, or any contract or agreement entered into, by the Debtor or any Subsidiary relating to its assets or business (including the acquisition or disposition of any assets) or any relinquishment by the Debtor or any Subsidiary of any contract or other right, other than the Pall Settlement and transactions and commitments in the ordinary course of business consistent with past practices; 1.7.8 any change in any method of accounting or accounting practice by the Debtor or any Subsidiary, except for any such change required by reason of a concurrent required change 3 31 in generally accepted accounting principles as set forth in any note included in the Financial Statements; 1.7.9 any (i) grant of any severance or termination pay to any director, officer or employee of the Debtor or any Subsidiary, (ii) entering into of any employment, deferred compensation or other similar agreement (or any amendment to any such existing agreement) with any director, officer or employee of the Debtor or any Subsidiary, (iii) any increase in benefits payable under any existing severance or termination pay policies or employment agreements, or (iv) any increase in compensation, bonus or other benefits payable to directors, officers or employees of the Debtor or any Subsidiary after October 27, 1996, except as disclosed on SCHEDULE 1.7 or the Disclosure Statement; 1.7.10 any labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative thereof to organize any employees of the Debtor or any Subsidiary, which employees were not subject to a collective bargaining agreement at the Balance Sheet Date, or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees; or 1.7.11 any unaccrued pay for any unused vacation for any employee. 1.8 Real Property and Leaseholds. 1.8.1 There is listed on SCHEDULE 1.8 or in the Disclosure Statement: 1.8.1.1 The Debtor owns no Real Property; 1.8.1.2 A description of each lease, sublease, or other license, use or occupancy agreement pertaining to any Real Property to which the Debtor or any Subsidiary is a party (collectively, the "Leases"), true and complete copies of which have been provided to the Osmonics; and 1.8.1.3 A description of any option or right to purchase or lease any parcel of real property. The Debtor has delivered to Osmonics true, correct and complete copies of the Leases. 1.8.2 Except as indicated in SCHEDULE 1.8: 1.8.2.1 The Debtor does not own and never has owned any interest in any real property other than a leasehold interest. The Debtor has valid leasehold interests in all of the Real Property. All of the Leases are in full force and effect and are valid, binding and enforceable in accordance with their respective terms and there does not exist under any of the Leases any event which with notice or lapse of time or both would constitute a default by the Debtor; 1.8.2.2 To the Debtor's knowledge, all of the plants, buildings, structures and other improvements (including, without limitation, all of the electrical, plumbing, heating, HVAC and other building systems located therein) that are situated on the Real Property are in good operating condition and repair and have been reasonably maintained consistent with standards generally followed in the industry (ordinary wear and tear excepted), are suitable for their present uses and, in the case of plants, buildings and other structures (including without limitation, the roofs thereof), are structurally sound; 1.8.2.3 To the Debtor's knowledge, there is legal access to the Real Property via public roads or valid easements over private streets or private property for such 4 32 ingress to and egress from the Real Property as is necessary for the conduct of the business of the Debtor; 1.8.2.4 All of the Real Property is serviced by all utilities as are necessary for the conduct of the Business and, to the Debtor's knowledge, there are no threatened curtailment or reduction of any such utilities; 1.8.2.5 To the Debtor's knowledge, there are no developments affecting any of the Real Property pending or, threatened, which might interfere with any present or intended use of such property by the Debtor. 1.9 Environmental Matters. Except as disclosed on SCHEDULE 1.9: 1.9.1 There is no Environmental Claim (as herein defined) pending, or to the best knowledge of the Debtor, threatened, against the Debtor or any Subsidiary or with respect to any of their respective properties or assets; 1.9.2 There are no events or incidents caused by the Debtor or its Subsidiaries or to the knowledge of the Debtor caused by any other party, including, without limitation, the release, emission, discharge, storage, generation, treatment or disposal of any Hazardous Substance (as herein defined), that could form the basis of any valid Environmental Claim against the Debtor, or with respect to any of its properties or assets. To the knowledge of the Debtor, no property or facility now or previously owned or leased by the Debtor or any Subsidiary is listed or proposed for listing by a state or federal government, as a site requiring investigation or clean-up under any Environmental Law; 1.9.3 The Debtor and each Subsidiary has not transported or arranged for the transportation (directly or indirectly) of any Hazardous Substance to any location which is, to the knowledge of the Debtor, listed or proposed for listing under CERCLA or any other similar Environmental Law, or which is, to the Debtor's knowledge, the subject of federal, state, local or foreign enforcement actions or other investigation which may lead to claims against the Debtor or any Subsidiary for clean-up costs, remedial work or damages to natural resources or for personal injury claims. 1.9.4 There have been no written documents or reports regarding environmental investigations, studies, audits, tests, reviews or other analyses conducted by or which are known to or in the possession of the Debtor or any Subsidiary, and there have been no Orders, known to or in possession of the Debtor, in relation to any property or facility now or previously owned or leased by the Debtor or any Subsidiary which have not been delivered to the Osmonics prior to the date hereof. 1.9.5 No Hazardous Substance has been generated, treated, stored, released, disposed or otherwise placed on or deposited by the Debtor in the Real Property or any real property previously owned, leased or used by the Debtor or any Subsidiary during or prior to the ownership, or during the lease or use, of such real property by the Debtor or any Subsidiary in an amount which would require cleanup or other remedial action under Environmental Laws. 1.9.6 No above ground or underground tanks are or have ever been located under, in or about the Real Property or any real property previously owned, leased or used by the Debtor, which tanks were located on such real property during or prior to the ownership, lease or use of such real property by the Debtor. 1.9.7 No Real Property or any real property previously owned, leased or used by the Debtor or any Subsidiary is listed or, to the best knowledge of the Debtor, is proposed for listing, 5 33 on the National Priorities List promulgated pursuant to CERCLA, or any other similar Environmental Laws, and to the Debtor's knowledge, no real estate previously owned, leased or used by the Debtor is listed or proposed for listing on National Priorities List or any other similar Environmental Law. 1.9.8 The following terms shall have the meanings set forth below: 1.9.8.1 "Environmental Claim" shall mean any notice alleging liability by the Debtor or any Subsidiary (including, without limitation, liability for investigatory costs, clean-up costs, monitoring costs, governmental response costs, natural resources damages, property damages, liability for nuisance or damage to property values, personal injuries or penalties) arising out of, based on or resulting from: (a) noncompliance with Environmental Laws by the Debtor, any Subsidiary, or by any of their respective Affiliates; their employees or agents, (b) the environmental condition of any real or personal property owned or leased by the Debtor or any Subsidiary, or (c) the release into the environment of any Hazardous Substance by the Debtor, any Subsidiary, any of their respective Affiliates, their employees or agents. 1.9.8.2 "Environmental Laws" shall mean all applicable Laws, Orders or Permits relating to: (a) pollution or protection of the environment, including natural resources; (b) exposure of any individual, including employees of the Debtor and the Subsidiaries, to any Hazardous Substance or other products, materials or chemicals; (c) protection of human health or welfare from the effects of products, by-products, wastes, emissions, discharges or releases of chemical or other substances from industrial or commercial activities; (d) regulation for the protection of the environment relating to the manufacture, use or introduction into commerce of substances, including, without limitation, use of or rights with respect to their manufacture, formulation, packaging, labeling, distribution, transportation, handling, storage and disposal; and (e) regulation generally of the use of the environment, including, without limitation, ambient air, surface water, ground water, and surface or subsurface strata. For purposes of this definition, the term "Environmental Laws" shall include, without limitation, the following statutes: (a) the Clean Air Act, as amended, 42 U.S.C. Sections 7401 et seq.; (b) the Federal Water Pollution Control Act, as amended, 33 U.S.C. Sections 1251 et seq.; (c) the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Sections 6901 et seq. ("RCRA"); (d) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections 9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"); (e) the Toxic Substances Control Act, as amended, 15 U.S.C. Sections 2601 et seq.; (f) the Occupational Safety and Health Act, as amended, 29 U.S.C. Section 651; (g) the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Sections 801 et seq. ("Right-to-Know-Act"); (h) the Mine Safety and Health Act of 1977, as amended, 30 U.S.C. Sections 801 et seq.; (i) the Safe Drinking Water Act, 42 U.S.C. Sections 3008 et seq.; and (j) all applicable United States, state, local and foreign laws, statutes, rules regulations, judgments, orders decrees, stipulations or charges for the protection of the environment. 6 34 1.9.8.3 "Hazardous Substance" shall mean: (a) any "hazardous substance" as defined in CERCLA, 42 U.S.C. Section 9601(14); (b) any "pollutant or contaminant" as defined in CERCLA, 42 U.S.C. Section 9601(33); (c) any "hazardous waste" as defined in RCRA, 42 U.S.C. Section 6903(5); (d) any asbestos, dioxins, polychlorinated biphenyls, uranium, radioactive isotopes and other nuclear by-products, toxic substances or petroleum products, by-products or derivatives; (e) any substance, whether liquid, solid or gas that is recognized as presenting a significant risk or an adverse or harmful effect upon human health, upon animals or upon air, water, land, natural resources or any other aspects of the environment; and (f) any other substance classified as hazardous, dangerous or otherwise regulated under any Environmental Law. 1.9.8.4 "Person" shall mean any individual, corporation, partnership, firm, joint venture, association, joint stock Debtor, trust, unincorporated organization, governmental or regulatory body or other entity. 1.9.9 SCHEDULE 1.9 includes a list of (a) any Hazardous Substance which the Debtor or any Subsidiary produces or uses which is required to be listed and reported or disclosed by the Debtor to state or federal regulatory agencies under any applicable Environmental Law, and (b) any reporting or disclosure requirements, permits or registrations relating thereto, including the actual permit or registration number. 1.10 Tangible Personal Property. 1.10.1 There is listed on SCHEDULE 1.10: 1.10.1.1 a description of each item of tangible personal property (the "Tangible Personal Property") owned by the Debtor or any Subsidiary having on the date hereof either an original cost in excess of $1,000.00 or not owned by the Debtor or any Subsidiary but in the possession of or used in the business of the Debtor or any Subsidiary and having rental payments therefor in excess of $100.00 per month or $1,200.00 per year; 1.10.1.2 a description of the owner of, and any agreement relating to the use of, each such item of Tangible Personal Property not owned by the Debtor or any Subsidiary; and 1.10.1.3 a list of all Tangible Personal Property not located on the business premises of the Debtor or any Subsidiary as of the date shown on SCHEDULE 1.10, including the location of such personal property by street address, the cost of such Tangible Personal Property, and the name of the entity which is in possession or control of such personal property. 1.10.2 Except as indicated in SCHEDULE 1.10: 1.10.2.1 except as provided in Section 1.10.1.2, the Debtor or the relevant Subsidiary, as the case may be, has sole and exclusive good and marketable title to each item of its Tangible Personal Property listed pursuant to Section 1.10.1 free and clear of all Liens, except for Liens, if any, for personal property taxes not due; 1.10.2.2 each item of Tangible Personal Property listed on SCHEDULE 1.10 leased by the Debtor or any Subsidiary is in such condition as of the date hereof that upon the return of such property to its owner in its present condition at the end 7 35 of the relevant lease term or as otherwise contemplated by the applicable agreement between the Debtor or the relevant Subsidiary and the owner or lessor thereof, the obligations of the Debtor or the relevant Subsidiary to such owner or lessor will be discharged; 1.10.2.3 the Tangible Personal Property listed in SCHEDULE 1.10 taken as a whole is in good operating condition and repair, is fit for its intended purposes, is free of any defects, all of the machinery is utilized by the Debtor in its ordinary course of business, is adequate for existing levels of production, has been maintained in a reasonable commercial manner, and does not require any major repair or overhaul; 1.10.2.4 except as provided in Section 1.10.1.2, the Debtor or the relevant Subsidiary owns or otherwise has the right to use all of the Tangible Personal Property now used by it in the operation of the Business; and 1.10.2.5 the quantity of all inventory, including but not limited to work-in-process, raw materials, and finished goods inventory, wrapping, packaging materials and supplies and similar items of Debtor utilized in, related to or arising from, the Business, in each case wherever the same may be located (the "Inventory"), represented in the Financial Statements are correct as of the date of the respective Financial Statements. The Inventory is free from all material defects; the finished goods Inventory is saleable in the ordinary course of business without additional cost or expense; the values at which the Inventories held for sale in the normal course of business are shown in the Balance Sheet at the lower of cost or market; and, the amount of reserves on the Balance Sheet for Inventory that is excessive, defective, obsolete or otherwise unsaleable in the ordinary course of the Business is adequate. 1.11 Intellectual Property. 1.11.1 For purposes of this Exhibit C, the term "Intellectual Property" means all intangible property rights of every kind and nature, owned, used or held for use by the Debtor or any Subsidiary. 1.11.2 SCHEDULE 1.11 or the Disclosure Statement contains a list of the following Intellectual Property Rights: 1.11.2.1 all inventions which are the subject of issued letters patent or an application therefor; 1.11.2.2 all trade and service marks, logos, and slogans indicating which have been registered or for which an application for registration is pending; 1.11.2.3 all writings including but not limited to computer software for which a claim for copyright by the Debtor exists; 1.11.2.4 all manufacturing and testing processes, procedures, designs, specifications and formulae for the production or testing of any past, current, or proposed (to the extent they exist) Products; 1.11.2.5 all designs, specifications, blue prints and operating procedures and manuals for all equipment used in the manufacture and testing of past, current, or proposed Products; and 1.11.2.6 all computer software used by the Debtor. 8 36 1.11.3 SCHEDULE 1.11 sets forth as to each such Intellectual Property Right, as applicable: 1.11.3.1 The nature of such Intellectual Property Right; 1.11.3.2 The owner of such Intellectual Property Right; 1.11.3.3 The jurisdictions by or in which such Intellectual Property Right has been issued or registered or in which an application for such issuance or registration has been filed, including the respective registration or application numbers; 1.11.3.4 The date such Intellectual Property Right was issued or registered; 1.11.3.5 The date any registration of such Intellectual Property Right expires; 1.11.3.6 The location of any documents containing or embodying such Intellectual Property Rights; and 1.11.3.7 Licenses, sublicenses and other agreements as to which the Debtor or any Subsidiary is a party and pursuant to which the Debtor, any Subsidiary or any other person is authorized to use any Intellectual Property Right, including the identity of all parties thereto, subject matter thereof, true and complete copies of which have been provided to the Osmonics. 1.11.4 Except as set forth in SCHEDULE 1.11, or in the Disclosure Statement, the Debtor or a Subsidiary, as the case may be, is the sole and exclusive owner of, with all right, title and interest in and to, the Intellectual Property Rights (free and clear of any Lien) and has sole and exclusive rights (without being contractually obligated to pay any compensation to any third party in respect thereof) for the use thereof or the covered thereby in connection with the services or products in respect of which they are being used and the consummation of the Acquisition will not have an adverse effect on the Debtor's right to use such Intellectual Property Rights and the Debtor has not sold, conveyed, licensed or otherwise granted any interest in the Intellectual Property Rights. 1.11.5 Except as set forth in SCHEDULE 1.11, or in the Disclosure Statement, (i) none of the Intellectual Property Rights that are owned by the Debtor or used by the Debtor unlawfully infringe upon the intellectual property rights of any other person or entity and (ii) except as set forth in the Disclosure Statement, neither the Debtor nor any Subsidiary, has been sued or charged with or been a defendant in any claim, suit, action or proceeding relating to its business and which involves a claim of infringement of any intellectual property rights. Except as set forth in SCHEDULE 1.11, or in the Disclosure Statement, there are no claims of infringements of intellectual property rights made by the Debtor or any Subsidiary and to the Debtor's knowledge, there are no infringements by any other person of any Intellectual Property Rights. Except as set forth in SCHEDULE 1.11, or in the Disclosure Statement, no Intellectual Property Right is subject to any outstanding Order or agreement restricting the use thereof by the Debtor or any Subsidiary or restricting the licensing thereof by the Debtor or any Subsidiary to any person. Except as set forth in SCHEDULE 1.11, or in the Disclosure Statement, normal and customary implied warranties under the Uniform Commercial Code, or normal and customary warranties contained in purchase orders, neither the Debtor nor any Subsidiary has entered into any agreement to indemnify any other person against any charge of infringement of any patent, trademark, service mark, trade secret or copyright, 9 37 which agreement is currently in effect or has not expired or terminated, except as provided in customer purchase contracts entered into the ordinary course of business. 1.11.6 Except as set forth in SCHEDULE 1.11, and except for issued patents, trademarks copyrights, none of the Intellectual Property Rights of the Debtor or any Subsidiary, the value of which to the Debtor or such Subsidiary is contingent upon maintenance of the confidentiality thereof, has been disclosed by the Debtor or any Subsidiary to any person other than to employees, representatives and agents of the Debtor or the Subsidiaries, the Osmonics and its representatives, technical consultants, and parts and suppliers in the normal course of the Debtor's business, all of whom are subject to enforceable confidentiality agreements with the Debtor or the relevant Subsidiary. The Debtor has taken reasonable efforts consistent with the operation of its business to protect the confidentiality of its Intellectual Property Rights and has informed its officers, directors and employees of the Debtor's intention to protect the confidentiality of the Debtor's Intellectual Property Rights consistent with the operation of its business. 1.11.7 SCHEDULE 1.11 is a true and complete list of all employees of the Debtor or any Subsidiary indicating which employees have not executed confidentiality agreements for the benefit of the Debtor and its Subsidiaries; 1.11.8 All confidentiality agreements executed by employees or other persons or entities, are enforceable by the Debtor and its Subsidiaries, except to the extent limited by legal and equitable limitations on the availability of specific performance and other forms of relief. The Debtor has provided the Osmonics with copies of all such confidentiality agreements. 1.11.9 Except as set forth in SCHEDULE 1.11, the Debtor's computer systems are fully operational and, the Debtor believes, perform according to their specifications and all computer software programs ("Software") used in the Business are functional on the applicable Debtor's computers or adequate to do the business. Except as identified in SCHEDULE 1.11, the Debtor's computer systems include adequate manuals for the operation of all of the Debtor's computer equipment and computer programs. Except as identified in SCHEDULE 1.11, the Debtor either owns all rights in all Software used by it or has a valid and enforceable license (copies of which have been provided to the Osmonics) to use such software and, no such Software is being used in violation of any terms of such license. The consummation of the transactions contemplated hereby will not require any consent or payment of fees in order for the Debtor to continue to use the Software after the Acquisition. 1.11.10 Except as disclosed in SCHEDULE 1.11, the Debtor's Products sold during the prior two (2) years are listed in its catalog, which is distributed to its customers in the ordinary course of its business. A copy of the Debtor's current catalog, product bulletins, product data sheets, brochures and other literature (collectively, the "Literature") pertaining to the Debtor's Products has been furnished to the Osmonics. Except as disclosed in SCHEDULE 1.11, all artwork and photos necessary to reproduce the Literature is owned by the Debtor, is available and located on the Real Property. Except as disclosed in SCHEDULE 1.11, none of the Literature contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein not misleading. 1.11.11 SCHEDULE 1.11 includes a description of each and every "web site" or other electronic interface with other parties which is owned, used or maintained by the Debtor. 0.0. SCHEDULE 1.12 sets forth all licenses, franchises, permits, governmental authorizations ("Permits") held or used by the Debtor or any Subsidiary. Except as indicated on SCHEDULE 1.12, 10 38 the specified Permits held or used by the Debtor are valid, and the Debtor has not received any notice that any governmental authority or other party intends to cancel, terminate or not renew any such Permit and the Debtor has provided the Osmonics with a true and complete copy of all documents relating to the Permits. Without taking into account the effect of the application of the U.S. Bankruptcy Court, the Permits consist of all such Permits required to conduct the Business of the Debtor and each Subsidiary as presently conducted and all Permits are in full force and effect. Except as set forth in SCHEDULE 1.12, the completion of the transactions contemplated by this Agreement will not adversely affect the continued effectiveness of any such Permits. There have not been any actions or other judicial or adversary proceedings involving the Debtor concerning any such Permits, nor to the knowledge of the Debtor, is any such action or proceeding threatened nor is the Debtor aware of any facts or circumstances which may reasonably be expected to give rise to such an action or proceeding. Except as disclosed in SCHEDULE 1.12, none of the Permits will be terminated or be required to be renewed or a fee paid or any consent or notice given as a result of the Acquisition in order for those Permits to remain in effect after the Acquisition. 1.12 No Undisclosed Liability. Except as otherwise specifically set forth in SCHEDULE 1.13, there are no liabilities of the Debtor or any Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances, known to the Debtor, which could reasonably be expected to result in such a liability including but not limited to any liability for product warranty expense covered by the Debtor's warranty policies, if any, other than: 1.12.1 liabilities disclosed or provided for in the Balance Sheet or in the notes to the Financial Statements, including liability for product warranty expense or sales covered by the Debtor's warranty policy; 1.12.2 liabilities and expenses incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date other than costs and expenses incurred in connection with the Pall litigation and the bankruptcy proceedings, which individually or in the aggregate are not materially different in character and do not exceed the amount of the liabilities reflected on the Financial Statements of the Debtor by more than five percent (5%); 1.12.3 liabilities represented by proofs of claim filed with the U.S. Bankruptcy Court, copies of which the Debtor has provided to the Osmonics; 1.12.4 any liabilities of the Debtor for breach of the representations contained herein. 1.13 Litigation. Except as set forth in SCHEDULE 1.14 or the Disclosure Statement, there is no action, suit, investigation or proceeding (or any basis therefor) pending against, or to the knowledge of the Debtor, threatened against or affecting, the Debtor or any Subsidiary or any of their properties before any court or arbitrator or any governmental body, agency or official. 1.14 Taxes. 1.14.1 Except as set forth in SCHEDULE 1.15: 1.14.1.1 the Debtor and each Subsidiary has timely filed, and prior to the Effective Date, will timely file all returns, declarations and reports and information returns and statements required to be filed prior to the Effective Date relating to any Taxes (as defined below) (collectively, the "Returns"); 1.14.1.2 as of the time of filing, the Returns: (1) correctly reflected (and, as to any Returns not filed as of the date hereof, will correctly reflect) the facts regarding the 11 39 income, business, assets, operations, activities and status of the Debtor and any other information required to be shown therein; (2) constitute (and, as to any Returns not filed as of the date hereof, will constitute) complete and accurate representations of the Tax liabilities for the periods covered; and (3) accurately set forth all items (to the extent required to be included or reflected in the Returns) relevant to future Tax liabilities, including the Tax bases of properties and assets; 1.14.1.3 the Debtor and each Subsidiary has timely paid or made provision for all Taxes that have been shown as due and payable on the Returns that have been filed; 1.14.1.4 the Debtor and each Subsidiary has made or will make provision for all Taxes payable for any periods that end before the Effective Date for which no Returns have yet been filed and for any periods that begin before the Effective Date and end after the Effective Date to the extent such Taxes are attributable to the portion of any such period ending at the Effective Date; 1.14.1.5 the charges, accruals and reserves for Taxes reflected on the Financial Statements are adequate to cover the Tax liabilities accruing or payable by the Debtor and the Subsidiaries in respect of periods prior to the date hereof; 1.14.1.6 neither the Debtor nor any Subsidiary is delinquent in the payment of any Taxes or has requested any extension of time within which to file or send any Return, which Return has not since been filed or sent or will not be filed or sent; 1.14.1.7 no unpaid deficiency for any Taxes has been proposed, asserted or assessed against the Debtor or any Subsidiary or any member of any affiliated or combined group of which the Debtor or any Subsidiary is or has been a member for which either the Debtor or any Subsidiary could be liable; 1.14.1.8 neither the Debtor nor any Subsidiary has granted any extension of the limitation period applicable to any Tax claims and has not waived any such limitation period; 1.14.1.9 neither the Debtor nor any Subsidiary is a party to any tax sharing agreement with any corporation; and 1.14.1.10 neither the Debtor nor any Subsidiary has made any election under Section 341(f) of the Code. 1.14.2 "Tax" (and with the corresponding meaning "Taxes" and "Taxable") shall include (i) any net income, gross income, gross receipts, sales, use, ad valorem, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property or windfall profit tax, custom duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest and any penalty, addition to tax or additional amount imposed by any taxing authority (domestic or foreign) and (ii) any liability for the payment of any amount of the type described in clause (i) as a result of being a member of an affiliated or combined group. 1.15 Contracts. 12 40 1.15.1 Except for agreements, contracts, plans, leases, arrangements or commitments disclosed in SCHEDULE 1.16, or the Disclosure Statement, or any other schedule to this Exhibit A, copies of which have been provided to the Osmonics, (which Schedule has been updated to a date which is within five (5) business days prior to the date of the Disclosure Statement is submitted to the Bankruptcy Court), the Debtor and each Subsidiary is not a party to or subject to: 1.15.1.1 any lease providing for annual rentals of $2,500.00 or more or any lease arrangements not in the ordinary course of business; 1.15.1.2 any contract for the purchase of materials, supplies, goods, services, equipment or other-assets providing for (a) annual payments by the Debtor or any Subsidiary of $3,000.00 or more, or (b) payments of $10,000.00 or more in the aggregate over the term of any contract; provided, however, the list of purchase orders entered into in the ordinary course of business contained in SCHEDULE 1.16 may be updated to a date which is thirty (30) days prior to the date of the Joint Plan; 1.15.1.3 any agency, representative, dealer, sales, distribution or other similar agreement providing for the sale by the Debtor of materials, supplies, goods, services, equipment or other assets (said SCHEDULE 1.16 shall include the (a) names of the parties to each such agreement, (b) whether or not it is an exclusive agreement, and (c) the term of each such agreement); 1.15.1.4 any partnership, joint venture, or other similar contract arrangement or agreement; 1.15.1.5 any contract relating to indebtedness for borrowed money or the deferred purchase price of property (whether incurred, assumed, guaranteed or secured by any asset), except contracts relating to indebtedness incurred in the ordinary course of business in an amount not exceeding $2,000.00 individually or $10,000.00 in the aggregate; 1.15.1.6 any license agreements, franchise agreements or agreements in respect of similar rights granted to or held by the Debtor or any Subsidiary; 1.15.1.7 any contract or other document that substantially limits the freedom of the Debtor or any Subsidiary to compete in any line of business or with any person or in any area or which would so limit the freedom of the Debtor or any Subsidiary after the Effective Date, excluding agreements disclosed on SCHEDULE 1.16, or the Disclosure Statement; 1.15.1.8 employment, severance, deferred compensation, noncompetition and nondisclosure agreements not otherwise disclosed in a schedule to this Agreement; 1.15.1.9 foreign exchange, hedging or similar contracts; or 1.15.1.10 any other contract or commitment not made in the ordinary course of business which is individually or in the aggregate material to the Debtor or any Subsidiary. 1.15.2 Except as disclosed in SCHEDULE 1.16, or the Disclosure Statement, all agreements, contracts, plans, leases, arrangements and commitments disclosed pursuant to Section 1.16 (the "Contracts") are valid and binding agreements of the parties thereto, are in full force and effect, and neither the Debtor or any Subsidiary or, to the knowledge of the Debtor, any other party thereto is in default under the material terms of any such Contract. 13 41 1.16 Insurance Coverage. SCHEDULE 1.17 contains a list of all insurance policies and fidelity bonds (the "Policies") covering the assets, business, equipment, properties, operations, employees, officers and directors of the Debtor or the Subsidiary, and the Debtor has made available true and complete copies of such Polices to the Osmonics. Except as set forth on SCHEDULE 1.17, there is no claim by the Debtor or any Subsidiary pending under any of such Policies as to which coverage has been questioned, denied or disputed by the underwriters of such Policies. All premiums payable under all such Policies have been paid and the Debtor and each Subsidiary is otherwise in full compliance with the terms and conditions of all such Policies. Except as set forth on SCHEDULE 1.17, the Policies (or other policies and bonds providing substantially similar insurance coverage) have been in effect at all times during the five (5) year period ending on the date hereof and remain in full force and effect. Other than as set forth in SCHEDULE 1.17, the Debtor does not know of any threatened termination of, or premium increase with respect to, any of such Policies. SCHEDULE 1.17 also sets forth a list of all claims or payments in excess of $1,000.00 made under all Policies during the three (3) year period ending on the date hereof. The Policies are of the type and in amounts required by applicable law or agreement to be carried by the Debtor and its Subsidiaries. 1.17 Compliance with Laws. Except as specifically described in SCHEDULES 1.9, 1.15, OR 1.20, the conduct of Debtor's business, the Debtor's assets and their ownership, use, condition and maintenance by the Debtor or any Subsidiary, and the Products and their production and sale has not violated and does not violate any and complies with all Laws, Orders, or/and Permits or other similar items, including, but not limited to, any of the foregoing pertaining to (a) the Real Property, or (b) relating to employment matters, discrimination, payment of wages, employment practices, terms and conditions of employment, hours, immigration, discrimination, child labor, occupational health and safety, collective bargaining and the payment and withholding of Taxes and other sums required by governmental authorities, or (c) to the best of the Debtor's knowledge, zoning, or (d) city planning, or (e) Environmental Laws (as defined in Section 1.9), including but not limited to all the requirements of the Right-to-Know Act (including requirements for employee training meetings up-to-date employee manual references including Material Safety Data Handling sheets for all products requiring such sheets and copies of evidence thereof and all MSDH sheets have been provided to the Osmonics), or (f) foreign corrupt practices or money laundering. 1.18 Employment Matters. Except as set forth in SCHEDULES 1.13, 1.14, 1.16, 1.19, OR 1.20,: 1.18.1 the Debtor has paid in full, or fully accrued for in the Financial Statements, all wages, salaries, commissions, bonuses, severance payments, vacation payments, holiday pay, sick pay, pay in lieu of compensatory time and other compensation due or to become due to all current employees of the Debtor for all services performed by any of them as of the date of each such Financial Statement; 1.18.2 there have not been and there are no labor strikes, disputes, slowdowns, sympathy strikes, lockouts or other forms of work stoppage pending or, to the Debtor's knowledge, threatened against or involving the Debtor or Subsidiary and there have not been and there are no recognitional picketing at any of the Debtor's locations; 1.18.3 no collective bargaining agreement is currently being negotiated by the Debtor; 14 42 1.18.4 during the five (5) year period ending on the date of the filing of the Joint Plan, to the knowledge of the Debtor, there have been no attempts to organize any of the Debtor's employees; and 1.18.5 no key employee of the Debtor has informed the Debtor that he or she is considering terminating his or her employment, and the Debtor has no information to believe that such action may be considered. 1.19 ERISA. 1.19.1 The Disclosure Statement lists all employee welfare benefit plans and all employee pension benefit plans within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") maintained or contributed to by the Debtor or any Subsidiary, and no trust funds are so maintained in connection with any employee welfare benefit plan. The Debtor has delivered or made available to the Osmonics a true, correct and complete copy of each employee benefit plan identified in the Disclosure Statement. As to each such employee benefit plan that is funded, the Debtor has delivered or made available to the Osmonics a true, correct and complete copy of the most recent annual financial report with respect to such plan, and any subsequent interim report. Each such financial report and interim report is an accurate description of the financial status of the subject employee benefit plan, and there have been no adverse changes in the financial status of any such employee benefit plan since the date of the most recent report provided with respect thereto. 1.19.2 SCHEDULE 1.20 specifically identifies each employee benefit plan which is represented to be a qualified plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). With respect to each employee benefit plan so identified, the following are true: (i) the plan, in form and operation, currently satisfies, and for all years subsequent to the establishment of, such plan has satisfied, the qualification requirements of Section 401(a) or 403(a) of the Code, as applicable; and (ii) except as identified on SCHEDULE 1.20, the Internal Revenue Service (the "IRS") has issued a favorable letter of determination with respect to the plan as amended to date, and all amendments required by the Code to be adopted prior to the Effective Time as a condition of retention of such qualified status as of the date hereof have been or will be adopted within time limits required to maintain such status. Each plan is and has been operating in compliance with all amendments required by the Tax Reform Act of 1986 and subsequent legislation and regulations. The Debtor has delivered or will deliver a true, correct and complete copy of all letters of determination with respect to all such plans as amended to date. 1.19.3 Except as set forth in the Disclosure Statement, the Debtor and each Subsidiary does not maintain or contribute to, nor, has it at any time maintained or contributed to, any employee benefit plan which is subject to Title IV of ERISA. Except as set forth in SCHEDULE 1.20 or in the Financial Statements, all contributions payable to any employee benefit plan for any plan year ending prior to the date hereof have been paid in full on a timely basis and no accumulated funding deficiency (as defined in Section 302(a)(2) of ERISA) has been incurred, all contributions payable to any employee benefit plan for any plan year including the Effective Time have been paid or accrued on the Financial Statements, and the present value of all benefits (vested and non-vested) payable under the plans is less than or equal to the present value of all of the assets of such plan. 1.19.4 The Debtor and each Subsidiary has not engaged in, nor entered into any arrangement pursuant to which any person or entity is contractually bound to enter into, any transaction which could result in imposition upon either the Debtor or any Subsidiary or Osmonics 15 43 of any excise tax under Sections 4971 through 4980B, inclusive, and Section 5000 of the Code or civil liability under Section 502(i) or 502(l) of ERISA or otherwise incurred a liability for any excise tax, other than excise taxes which have heretofore been paid or have been accrued, and, in either case are fully reflected in the Debtor's Balance Sheet. 1.19.5 Except as set forth in SCHEDULE 1.20, the Debtor and each Subsidiary has (i) filed or will cause to be filed on a timely basis each and every return, report, statement, notice, declaration and other document required to be filed prior to the Effective Time with any governmental agency, federal, state and local (including, without limitation, the IRS, the Department of Labor, the Pension Benefit Guaranty Corporation and SEC) with respect to each employee benefit plan sponsored or maintained by the Debtor or any Subsidiary, and the Debtor delivered or made available to the Osmonics all records with respect to such plans as are required for their proper administration and proper continued reporting and disclosure; (ii) timely complied with all applicable participant disclosure requirements of ERISA; and (iii) has maintained in full force and effect any bond required under ERISA in connection with such plans. 1.19.6 The Debtor and each Subsidiary is not and has never been a member of a controlled group of corporations, an unincorporated trade or business under common control, or a member of an affiliated service group (as such terms are defined in Sections 414(b), 414(c) and 414(m) of the Code), involving any other entity, except as reflected in the Financial Statements. 1.19.7 Except as described in SCHEDULE 1.20, there are no "leased employees" (as defined in Section 414(n) of the Code) who performed services for the Debtor or any Subsidiary, nor are there any persons who are anticipated to become leased employees with the passage of time. 1.19.8 Except as described on SCHEDULE 1.20, the Debtor and the each Subsidiary does not maintain any employee benefit plan providing benefits to former employees. 1.19.9 The Debtor has complied in all respects with the "COBRA" requirements of Section 4980B of the Code. 1.19.10 There are no actions, suits or claims pending or, to the best knowledge of the Debtor, threatened with respect to any plan listed on SCHEDULE 1.20 other than routine claims for benefits. 1.20 Products. Except as set forth in SCHEDULE 1.21, each of the products produced or sold by the Debtor is, and at all relevant times has been, fit for the ordinary purposes for which such product is intended to be used and conforms to any warranties made on the container or label or literature for such products or in connection with its sale. There is no material design defect with respect to any of the products of the Debtor, and each of such products contains adequate warnings and labels in accordance with applicable Laws and current industry practice. Except as disclosed on SCHEDULE 1.10, the current inventory of all finished products conforms with published and internal performance specifications for such products. 1.21 Customers and Suppliers. 1.21.1 The Debtor is not engaged in any material disputes with their respective customers or suppliers, including claims for product warranty. To the knowledge of the Debtor, no such customer or supplier is considering termination, non-renewal or any adverse modification of its arrangements with the Debtor. 1.21.2 Except as set forth in SCHEDULE 1.22, at no time during the five (5) fiscal years of the Debtor prior to the date of filing the Joint Plan have the sales, manufacturing or other business operations of the Debtor or any Subsidiary been adversely affected by shortages or 16 44 unavailability of products or raw materials necessary to sell or manufacture the products presently sold by the Debtor. 1.22 Indebtedness to and from Officers, Directors and Shareholders. Except as set forth on SCHEDULE 1.23, the Debtor is not indebted, directly or indirectly, to any person who is an officer, director or shareholder of any of the foregoing or any affiliate of any such person in any amount whatsoever, other than for salaries for services rendered or reimbursable business expenses incurred in the ordinary course of business, nor is any such officer, director, shareholder or affiliate indebted to the Debtor except for advances made to employees of the Debtor in the ordinary course of business consistent with past practice to meet reimbursable business expenses anticipated to be incurred by such obligor. 1.23 Banking Facilities. SCHEDULE 1.24 contains a true and complete list of: 1.23.1 each bank, savings and loan, trust Debtor or similar financial institution in which the Debtor has an account or safety deposit box and the numbers of the accounts or safety deposit boxes maintained by the Debtor thereat; and 1.23.2 the names of all persons authorized to draw on each such account, to sign checks on each account, to have access to any such safety deposit box facility or to authorize borrowings by the Debtor from a financial institution, together with a description of the authority (and conditions thereof, if any) of each such person with respect thereto. 1.23.3 Vendor Certificate. The Debtor will deliver to Osmonics a certificate from each vendor of the Debtor and requested by the Osmonics at least twenty (20) business days prior to the Effective Time, which vendor certificate shall be substantially in the form attached hereto as SCHEDULE 1.24. 1.23.4 Section 1445 Certificate. The Debtor will deliver to Osmonics a certificate from Debtor pursuant to Treasury Regs. Section 1.897-2(h) and Section 1.1445-2(e)(3), and attached hereto as SCHEDULE 1.24 to the effect that no share of Debtor Stock is a "U.S. Real Property Interest" as defined in Section 1445 of the United States Internal Revenue Code (the "Code"). 17 -----END PRIVACY-ENHANCED MESSAGE-----