-----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, Rjx1dH0lwwP4Y6/nn9RmXQM7eDWQeUhOMIiPwqWZG32mukn41g14iVt4AIqpJhx3 hg6dtu4ZzMFkxIpvG9yZKg== 0000950124-96-004405.txt : 19961018 0000950124-96-004405.hdr.sgml : 19961018 ACCESSION NUMBER: 0000950124-96-004405 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19961017 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: GELMAN SCIENCES INC CENTRAL INDEX KEY: 0000310252 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY APPARATUS & FURNITURE [3821] IRS NUMBER: 381614806 STATE OF INCORPORATION: MI FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07828 FILM NUMBER: 96644582 BUSINESS ADDRESS: STREET 1: 600 SOUTH WAGNER RD CITY: ANN ARBOR STATE: MI ZIP: 48103-9019 BUSINESS PHONE: 3136650651 MAIL ADDRESS: STREET 1: 600 S WAGNER RD STREET 2: 600 S WAGNER RD CITY: ANN ARBOR STATE: MI ZIP: 48103-9019 FORMER COMPANY: FORMER CONFORMED NAME: GELMAN INSTRUMENT CO DATE OF NAME CHANGE: 19600201 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended July 31, 1996 Commission File Number-I7828 GELMAN SCIENCES INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) MICHIGAN 38-1614806 - ---------------------------------------- ---------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 600 SOUTH WAGNER ROAD ANN ARBOR, MICHIGAN 48103-9019 - ---------------------------------------- ---------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (313) 665-0651 Securities Registered Pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered - ---------------------------------------- ---------------------------------- COMMON STOCK, PAR VALUE $.10 PER SHARE AMERICAN STOCK EXCHANGE Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ____X____ No__________ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ________ The aggregate market value of the registrant's voting stock (Common Stock, $.10 Par Value) held by non-affiliates of the registrant as of September 24, 1996 was $199,553,598. The number of outstanding shares of the registrant's Common Stock, as of September 24, 1996 was 7,947,080 shares. DOCUMENTS INCORPORATED BY REFERENCE None Exhibit Index at Page 41 Number of Pages 113. 1 2 PART I ITEM 1. BUSINESS. (A) GENERAL DEVELOPMENT OF BUSINESS Gelman Sciences Inc. ("Gelman" or the "Company") was incorporated in Michigan in 1959. Unless the context indicates otherwise, the term "Gelman" or the "Company" includes Gelman Sciences Inc. and its subsidiaries. Gelman designs, manufactures and markets a broad line of specialty microfiltration products for the separation and purification of liquids and gases. Gelman's core technologies are the manufacturing of microporous membranes which serve as a barrier, filter or separator of microscopic particles and the packaging and sealing of these membranes into microfiltration products. Gelman believes that it offers a greater variety of membranes and microfiltration products in its markets than any other manufacturer and that it has built significant brand recognition, particularly in scientific and industrial laboratories. Nearly all of Gelman's microfiltration products are disposable, and many are used in high volume applications requiring regular replacement. Gelman's products are marketed worldwide for scientific and industrial applications. The Company has increased its focus on international business and has opened or expanded subsidiaries or sales offices in Europe and Asia. As a result of these efforts, non-U.S. sales have grown from 30% of total sales for fiscal 1991 to 40% of total sales for fiscal 1996. On August 30, 1996, Gelman entered into a merger agreement with Memtec Limited ("Memtec"), a corporation organized under the laws of New South Wales, Australia, and GSI Acquisition Corporation, a Michigan corporation and a wholly-owned, direct subsidiary of Memtec ("GSI") pursuant to which GSI will be merged (the "Merger") with and into Gelman and Gelman will become a wholly-owned subsidiary of Memtec. In the Merger, each outstanding share of Gelman Common Stock will be converted into and represent the right to receive 1.05 Memtec American Depositary Shares ("Memtec ADSs"). The Merger Agreement will be submitted for approval and adoption by the stockholders of Gelman and the issuance of the Memtec Ordinary Shares underlying the Memtec ADSs will be submitted for approval by the Memtec shareholders. (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS For information related to net sales, operating income and identifiable assets and other information about industry segments, see Note L included in the Financial Statements of the Company on Pages F-12 to F-14 of this report on Form 10-K. (C) NARRATIVE DESCRIPTION OF BUSINESS HEALTH PRODUCTS GROUP The Health Products Group supplies a variety of specialized medical disposable filter devices. The products are sold to biotechnology, pharmaceutical and healthcare companies for use in the research, development and manufacturing of new drugs and vaccines and their administration to patients. The products are sold by the Company's sales personnel and a network of distributors as either standard catalog items or as original equipment manufacturer ("OEM") products. The OEM products consist of intravenous fluid in-line filters, transducer protectors and standard small volume filtration disposable medical filters. 2 3 The Health Products Group also provides other products for the healthcare industry such as membranes, equipment and reagents for clinical diagnostic testing by electrophoresis. Microporous membrane media, used in a variety of medical applications, are provided by the Health Products Group in bulk roll stock for use in products of OEMs. Medical device sales have accounted for 34%, 34% and 31% of consolidated sales for the fiscal years ended July 31, 1996, 1995 and 1994, respectively. CUSTOMERS No customer of the Health Products Group accounted for more than 10% of consolidated sales in fiscal 1996. The Company believes that the loss of any customer would not have a material adverse effect on the Health Products Group. BACKLOG AND RAW MATERIALS Backlog for the Health Products Group was $7,289,000 and $8,215,000 at September 24, 1996, and October 21, 1995, respectively. It is anticipated that the current backlog will be shipped prior to July 31, 1997. No unusual sources of supply are required to meet the Company's manufacturing requirements. COMPETITION Competition in the Health Products Group comes from a variety of competitors, the two most important of which are Millipore Corporation ("Millipore") and Pall Corporation ("Pall"). Both competitors are significantly larger than the Company. Gelman competes with other manufacturers based on a variety of factors, including product innovation and performance, quality, breadth of product offering, price and customer service. FILTRATION PRODUCTS GROUP The Filtration Products Group supplies various configurations of microfiltration media and hardware to the industrial and scientific communities. Small diameter filter media and hardware are utilized in research and industrial laboratories for clarification and purification of waters and chemicals. The sales of laboratory filters and hardware have accounted for 39%. 40% and 44% of total sales for years ended July 31, 1996, 1995 and 1994, respectively. In the industrial process filtration area, products are utilized in both large diameter filters and high surface area cartridges for clarification and separation of gases, liquids and chemicals. Typical industrial customers are in the pharmaceutical, electronics, and beverage industries. These products are sold in the United States and internationally by Company sales personnel and a network of distributors. Cartridge sales have accounted for 25%, 24% and 22% of consolidated sales for the years ended July 31, 1996, 1995 and 1994, respectively. CUSTOMERS Gelman believes that no end-user of any of its filtration products accounts for more than 5% of sales. Sales by Gelman of laboratory products to its two largest U.S. distributors, Fisher Scientific International Inc. ("Fisher") and VWR Corporation, accounted for 25% of total sales in fiscal 1996. The loss of either of these distributors could have an adverse effect on Gelman. Management believes the loss of either of these distributors is unlikely due to Gelman's long-term relationship with these distributors and the investments made by these distributors in inventory, promotional programs and training of their sales forces. 3 4 Fisher recently entered into a non-exclusive distribution agreement with Millipore, one of Gelman's competitors in the laboratory market, pursuant to which Fisher will distribute certain of Millipore's branded laboratory products in the United States, Canada and Puerto Rico. Gelman does not believe that this agreement will have an adverse impact on domestic sales due to Gelman's strong relationships with Fisher and its end-use customers and other distributors who have successfully competed against Millipore in the past. In addition, Gelman is strengthening its relationship with Fisher's International Division as Gelman continues to expand its international market presence. BACKLOG AND RAW MATERIALS Backlog for the Filtration Products Group was $7,529,000 and $5,922,000 at September 24, 1996, and October 21, 1995, respectively. It is anticipated that the current backlog will be shipped prior to July 31, 1997. No unusual sources of supply are required to meet the Company's manufacturing requirements. COMPETITION In the Filtration Products Group, the Company's primary competitors are Millipore, Pall and, to a lesser extent, Sartorius Membranfilter GmbH (in Europe), with whom the Company has entered into a partnership agreement to supply microfiltration media at prices which are competitive with those paid by other customers of the Filtration Products Group. Competition in this market is to a high degree based on product innovation and performance, quality, breadth of product offering, and other technical services. GENERAL BUSINESS PATENTS, TRADEMARKS, LICENSES AND TECHNOLOGICAL CAPABILITY The Company has 145 active patents and 114 registered and 40 unregistered trademarks throughout the world. The Company does not consider any one of these patents or trademarks to be materially important to its business. The Company relies to a great extent on its technological skills and product development achievements to compete effectively. RESEARCH AND DEVELOPMENT The Company maintains a strong commitment to applied research and development. Gelman's product development efforts are focused on the enhancement of existing product lines and development of new products based on Gelman's existing technologies and production capabilities. Research and development expenditures were $6.3 million, $5.5 million and $4.9 million in fiscal 1996, 1995 and 1994, respectively. ENVIRONMENTAL REGULATIONS Until May 1986, the Company used 1,4-dioxane, an organic chemical, in its manufacturing processes at its main facility in Ann Arbor, Michigan. Over the years, various storage and waste water disposal methods have been permitted by the responsible governmental agencies. In January 1986, 1,4-dioxane was identified in wells near the manufacturing plant. Pursuant to a consent decree agreed to in October 1992 and amended in September 1996, which resolved litigation with the Michigan Department of Natural Resources, the Company is remediating this contamination without admitting wrongdoing. 4 5 For a description of the environmental litigation and remediation in which the Company has been involved, see "Legal Proceedings," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Note J - Pollution-Related Expenses" included in the Financial Statements of the Company, on page F-12 of this report of Form 10-K. EMPLOYEES Gelman employs 773 persons in the United States and 128 persons in non-U.S. operations. The Company relies to a great extent, both domestically and internationally, on a network of distributors. In the United States, the Company employs 27 sales representatives to work with distributors, make sales calls in conjunction with the distributors' representatives and coordinate technical support needs. (D) FINANCIAL INFORMATION REGARDING GEOGRAPHIC AREAS For information related to net sales, operating earnings and identifiable assets of the Company's foreign and domestic operations, see Notes L and M included in the Financial Statements of the Company on pages F-12 to F-14 of this report on Form 10-K. ITEM 2. PROPERTIES. The Company owns its principal office and manufacturing facilities located in Ann Arbor, Michigan, which contains approximately 180,000 square feet of floor space. The Company was granted an Industrial Development Bond in July 1989, the proceeds of which were utilized to purchase land in Pensacola, Florida and build a 58,000 square foot manufacturing facility which was completed in fiscal 1990. The amount outstanding at July 31, 1996, under the Industrial Revenue Bond, which has been redeemed and reissued twice and currently matures in July 2004, was $4.4 million. The Company also leases buildings in Ann Arbor and Pleasanton, California containing approximately 58,000 square feet which are used primarily for office space and manufacturing. The Company's Australian, British, Canadian, German, Irish, French, Italian and Japanese subsidiaries lease office and warehouse facilities. The Company also maintains regional product application testing laboratories in the British and Japanese facilities. Substantially all of the existing facilities are used in connection with the Company's Health and Filtration Product Groups. ITEM 3. LEGAL PROCEEDINGS. The Company, in the normal course of business, is involved in incidental, routine litigation, which, in the opinion of management, will not have a material impact on the financial condition of the Company. In addition, during fiscal 1996 the Company was a party to various legal actions arising under statutes regulating the discharge of materials into the environment or otherwise protecting the environment. Those legal actions involving environmental issues are described below. (See also, "Environmental Regulations" in Item 1, above.) 5 6 Kelly v. Gelman Sciences Inc. (Circuit Court for Washtenaw County, Michigan, Case No. 88-34734-CE). On February 26, 1988, the Attorney General for the State of Michigan, on behalf of the Michigan Natural Resources Commission, the Michigan Water Resources Commission and the Michigan Department of Natural Resources, filed suit against the Company, alleging that contamination near the Company's Ann Arbor facility was caused by the Company in disposing of waste water from its manufacturing processes. On October 23, 1992, the parties entered into a settlement agreement. Under the terms of the settlement, the Company is to purge, treat and dispose of environmental contamination near the Company's main facility. On October 26, 1992, the Court entered an order of settlement of this case based upon the agreement reached by the parties. In September 1996, the parties entered into an amendment of the settlement agreement, modifying the levels of cleanup the Company must perform so as to bring those levels into compliance with current statutory requirements. On September 23, 1996, the Court approved the amendment. Scarbrough, et al. v. Gelman Sciences Inc., et al. (Circuit Court for Washtenaw County, Michigan, Case No. 88-35594-CE). By Complaint filed August 8, 1988, and amended September 15, 1988, 27 residents of the Westover subdivision located near the Ann Arbor facility of the Company sued the Company and eight other defendants for damages associated with alleged contamination of residential water supplies and for the cost of court-supervised medical surveillance. The total demand was $3,095,000. On March 9, 1990, plaintiffs settled with seven of the eight other defendants for $100,000. (The suit against the remaining other defendant was subsequently dismissed by the Court.) Thereafter, 15 plaintiffs settled with the Company for a total of $175,535. Twelve plaintiffs refused to settle. On November 30, 1990, a jury returned a verdict in favor of the 12 plaintiffs, awarding damages totaling $119,756. After adjustment for the March 9, 1990, settlement between plaintiffs and seven other defendants, the net jury verdict against the Company was $62,250, plus interest. On December 11, 1991, the Court awarded the Company costs totaling $87,529.38, plus interest. The 12 plaintiffs who went to trial appealed the outcome of the case. On July 27, 1994, the Court of Appeals affirmed the jury verdict. On September 21, 1994, the Court of Appeals denied plaintiffs' Motion for Rehearing. Plaintiffs filed an Application for Leave to Appeal with the Michigan Supreme Court. On June 30, 1995, the Supreme Court denied the Application. Plaintiffs filed a Motion for Reconsideration, which was denied on October 31, 1995. Dawson, et ano v. Gelman Sciences Inc., et al. (Circuit Court for Washtenaw County, Michigan, Case No. 92-43975-CE). On November 3, 1992, two residents in the Evergreen subdivision located near the Ann Arbor facility of the Company filed a Complaint against the Company, the Chairman of the Company, and eight other defendants for damages associated with alleged contamination of residential water supplies. On January 7, 1993, the Company and its Chairman filed their Answers denying liability and cross-claiming against the co-defendants. On October 27, 1993, the Court granted the motion of the Company and its Chairman for summary judgment. An Order dismissing this case was entered on December 15, 1993. Plaintiffs appealed, and, on November 7, 1995, the Michigan Court of Appeals affirmed the dismissal. 6 7 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS. The Company's common stock trades on the American Stock Exchange. The ticker symbol is "GSC". No cash dividends were paid by the Company during each of the two fiscal years ended July 31, 1996. There were 1,145 shareholders of record of the Company on September 24, 1996. The Company's debt agreements limit the amount available for cash dividends to 50% of the Company's net income. However, no cash dividends are expected to be paid by the Company in the foreseeable future. The following table sets forth, for the two fiscal years ended July 31, 1996, the high and low sales prices per share as reported on the American Stock Exchange for the periods indicated.
- --------------------------------------------------------------------------- FISCAL YEAR 1996 1995 - --------------------------------------------------------------------------- HIGH LOW High Low First Quarter $22 3/8 $18 3/4 $15 1/4 $12 1/2 Second Quarter 25 1/4 20 1/2 15 7/8 11 5/8 Third Quarter 27 1/4 22 3/4 17 3/8 12 Fourth Quarter 29 3/4 19 19 7/8 17 3/4 - ---------------------------------------------------------------------------
On September 24, 1996, the closing sale price of the Company's common stock was $28 1/2 per share. ITEM 6. SELECTED FINANCIAL DATA.
- ---------------------------------------------------------------------------------------------------- Dollars in thousands, except per share data - ---------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------- OPERATING DATA FOR THE YEARS ENDED JULY 31, Net sales $112,057 $103,503 $94,963 $86,209 $81,460 Gross margin 55,193 53,433 47,710 42,545 38,499 Pollution-related expense 2,800 - - 543 4,988 Interest expense 607 1,314 1,689 2,006 2,590 Income taxes (credit) 1,547 3,365 2,600 2.030 (212) Net earnings (loss) 4,336 6,622 4,754 2.702 (1,211) Net earnings (loss) per share .53 .92 .75 .47 (21) Return on average stockholders' equity 7.0% 14.8% 18.0% 12.9% N.A. BALANCE SHEET DATA AS OF JULY 31, Cash and cash equivalents $ 9,590 $ 3,010 $ 1,525 $ 1,142 $ 867 Working capital 39,759 33,653 25,404 20,882 8,547 Total assets 88,220 81,781 71,687 63,495 61,530 Long-term debt including current maturities 7,867 7,385 25,198 25,269 25,624 Total liabilities 23,532 23,008 41,252 41,239 41,879 Stockholders' equity 64,688 58,773 30,435 22,256 19.651 Stockholders' equity per share 8.15 7.54 4.96 3.81 3.45 - ----------------------------------------------------------------------------------------------------
7 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995 Net sales for fiscal 1996 increased $8.6 million or 8% to $112.1 million compared to $103.5 million for fiscal 1995. The sales growth was principally in the European and Asia-Pacific regions where sales grew 22% and 12%, respectively. Asia-Pacific's sales growth was negatively impacted by the change in Japanese exchange rates. The Asia-Pacific sales growth denominated in local currencies was 19%. Sales in the Americas increased approximately 3% despite a 3% reduction in domestic laboratory sales caused by the consolidation of two major laboratory distributors. Worldwide sales of medical devices increased 12% reflecting strong international growth for intravenous therapy devices. Sales of process filtration products increased 16% compared to fiscal 1995 as a result of continued growth in demand from the microelectronics, chemical and beverage industries. Laboratory sales increased 3% and were negatively impacted primarily by domestic distributor inventory reductions during mid-fiscal 1996. Membrane sales increased 7% as compared to fiscal 1995, reflecting the Company's continued focus on membrane sales. Net sales for the fourth quarter of fiscal year 1996 of $28.1 million were substantially identical to net sales of $28.4 million for the fourth quarter of fiscal 1995. Sales in the fourth quarter of fiscal 1996 were negatively impacted by a number of factors including the effect of the stronger dollar relative to other currencies, which decreased fourth quarter sales by 2.5%, and the initial uncertainty among the Company's employees, distributors and customers created by the announcement of the Company's planned merger with Memtec. An additional factor contributing to the lack of fourth quarter net sales growth was $2.5 million of sales credits compared to $1.4 million of sales credits in the fourth quarter of 1995. The significant increase in the amount of sales credits was due to a transition in the Company's policy for granting sales credits to customers, changes in its process for tracking sales credits and one-time product returns from several large customers in exchange for long-term purchase and other commitments. Gross profit, as a percentage of sales, was 49.3% in fiscal 1996 compared to 51.6% in fiscal 1995. The lower gross profit margin was primarily attributable to fourth quarter items including negative inventory costing adjustments, increased inventory obsolescence expense, an increase in the amount of sales credits, the impact of foreign exchange rates as the dollar strengthened relative to other currency, lower than anticipated fourth quarter sales, and the impact of product mix. The effect on gross profit margin of product mix was the result of the strong growth in the sales of process filtration products and medical devices, which carry lower margins, and the slower growth in laboratory products, which carry higher margins. Selling and administration expense increased by $3.1 million or 8% to $40.1 million for fiscal 1996 compared to $37.0 million for fiscal 1995, primarily due to the Company's drive to increase market share consistent with the overall growth strategy. 8 9 Research and development expenses increased approximately $800,000 as a result of expanded development efforts in the Company's core membrane technology. Interest expense decreased approximately $700,000 due to repayment of outstanding indebtedness in the third quarter of fiscal 1995 with the proceeds from a public offering of the Company's common stock. The Company's effective tax rate for fiscal 1996 was 26% versus a tax rate of 34% in fiscal 1995 reflecting the result of a research and development expense review undertaken during the third quarter of fiscal 1996 for the purpose of reflecting a research and development tax credit consistent with actual business activities, a greater tax benefit from the Company's foreign sales corporation and the benefit from the utilization of foreign net operating loss carryforwards and adjustment of related valuation reserves. During the fourth quarter of fiscal 1996 the Company increased its reserve for environmental remediation by $2.8 million. The increase in the amount of the environmental remediation reserve was made as a result of a comprehensive review of operating expenses associated with the revised work plan for groundwater cleanup at the Company's Ann Arbor facility. The work plan was developed in connection with the amended consent decree signed with the Michigan Department of Natural Resources in September 1996. (See Note J - Pollution Related Expenses.) The ultimate costs incurred by the Company as a result of the groundwater contamination will depend on the efficacy and duration of the remediation plan. Net earnings decreased $2.3 million to $4.3 million or $0.53 per share in fiscal 1996 compared to $6.6 million or $.92 per share in fiscal 1995. The weighted average shares for fiscal 1996 and 1995 were 8.3 million and 7.2 million, respectively, which includes the effect of a public offering of 1,437,500 shares of the Company's common stock in the third quarter of fiscal 1995. FISCAL YEAR 1995 COMPARED WITH FISCAL YEAR 1994 Net sales for fiscal 1995 increased $8.5 million or 9% to $103.5 million compared to $95.0 million for fiscal 1994, which included non-recurring sales of $4.4 million related to divested Australian non-core product lines. International sales for fiscal 1995 were favorably affected by the weakened US dollar which increased reported sales by $2.1 million. The Company's sales growth, adjusted for these items, was 12%. Worldwide sales of medical devices increased 27% reflecting sales growth for intravenous therapy devices. Sales of process filtration products increased 21% compared to fiscal 1994 reflecting growth in the European and Asia/Pacific markets. Laboratory sales increased 9% and membrane sales were level compared to fiscal 1994. Net sales to customers in the Americas increased 11% over fiscal 1994 primarily due to a 31% increase in sales of medical devices. Sales to customers in Europe increased 14% primarily due to a 29% increase in sales of process filtration products. Sales to customers in the Asia/Pacific region declined 6% due to the divestiture of Australian non-core product lines in late fiscal 1994. Without the effect of this divestiture, sales in this region would have increased 43%. The increase was primarily attributable to increases in sales of process filtration products in Japan and Korea. 9 10 Gross profit, as a percentage of sales, was 51.6% in fiscal 1995 compared to 50.2% in fiscal 1994. The improvement in gross profit was primarily attributable to improved operating efficiencies and the divestiture of non-core product lines. Selling and administration expense increased $3.3 million or 9.6% to $37.0 million in fiscal 1995 compared to $33.8 million in fiscal 1994, primarily due to the Company's drive to increase market share consistent with the overall growth strategy. Other income (net) includes gains on foreign currency transactions and rental income related to the divestiture of non-core product lines. Interest expense decreased $375,000 due to repayment of outstanding indebtedness and overall reduction in interest rates in the fourth quarter. The Company's effective tax rate for fiscal 1995 and fiscal 1994 was 34%. Net earnings increased $1.9 million or 39% to $6.6 million or $.92 per share in fiscal 1995 compared to $4.8 million or $.75 per share in fiscal 1994. Net earnings for fiscal 1994 included an extraordinary charge of $.03 per share related to the refinancing of industrial revenue bonds. The weighted average shares for fiscal 1995 and 1994 were 7.2 million and 6.3 million, respectively, which includes the effect of a public offering of 1,437,500 shares of the Company's common stock in the third quarter of fiscal 1995. INFLATION Although the Company cannot determine the precise effects of inflation, management believes that inflation does have an influence on the cost of materials, salaries and benefits, utilities and outside services. The Company attempts to minimize the effects of inflation, to the extent possible, through increased sales volume, new product introductions, product redesigns, capital expenditure and other programs to improve productivity and other cost efficiencies, alternative sourcing of material and products and other cost control measures. The Company's ability to pass on cost increases to its customers is limited because of customer contracts and competitive pressure. LIQUIDITY AND CAPITAL RESOURCES During fiscal 1996, the Company generated cash from operating activities of $11.2 million compared to $6.0 million during fiscal 1995. The Company invested $6.2 million in capital expenditures in fiscal 1996. The remaining cash was invested in cash equivalents for funding future capital investments and business projects. At July 31, 1996, $7.5 million in cash equivalents were held in short-term money market instruments as compared to $1.2 million at July 31, 1995. The Company has various credit facilities which are used for cash management, foreign exchange management and future growth. The Company's long-term credit facilities total $15 million and there were no borrowings outstanding at July 31, 1996. Working capital at July 31, 1996 and 1995 was $39.8 million and $33.7 million, respectively. The increased working capital was attributed mainly to the increase in cash equivalents described above. 10 11 Although there are no material capital expenditure commitments outstanding as of July 31, 1996, the Company expects to invest in capital projects at a rate at least equal to depreciation. The Company believes that its balances of cash and cash equivalents, together with funds generated from operations and existing borrowing capabilities, will be sufficient to meet its operating cash requirements and fund the environmental cleanup and required capital expenditures in the foreseeable future. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Reference is made to the Report of Independent Auditors, Consolidated Balance Sheet, Consolidated Statements of Cash Flow, Consolidated Statement of Shareholders' Equity, Notes to Consolidated Financial Statements and Financial Statement Schedules on pages F-1 to F-16 of this report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth the names and ages of the directors and executive officers of the Company, together with all positions and offices held by such persons. Executive officers are elected annually by, and serve at the pleasure of, the Board of Directors. The number of shares of the Company's common stock beneficially owned by each such person is shown below under the caption "Security Ownership of Certain Beneficial Owners and Management".
NAME POSITION APPOINTED AGE - ---- --------------------------------------------------------- --------- --- Robert M. Collins Director 1994 65 John A. Geishecker, Jr. Director 1978 59 Saul H. Hymans Director 1980 59 Nina I. McClelland Director 1989 67 Charles Newman Director 1992 55 Charles Gelman Chairman of the Board and Chief Executive Officer 1974 64 Kim A. Davis President, Chief Operating Officer and a Director 1993 45 Anthony P. Kelly Vice President 1995 48 Edward J. Levitt Secretary and Corporate Counsel 1991 52 Karen A. Radtke Treasurer 1995 43 Charles J. Robrecht Vice President 1991 61 Mark A. Sutter Vice President 1992 35 George Uveges Chief Financial Officer and Vice President-Administration 1996 48
Robert M. Collins has been an Independent Consultant since April 1991. From 1990 to April 1991, he was President of Cobe Laboratories Inc. (a manufacturer of medical devices). Mr. Collins has been a director of Cobe Laboratories Inc. for more than five years and a director of QualiCenters, Inc. since 1992. 11 12 John A. Geishecker, Jr., has been Managing Director of Phillips Screw Company since August 1993. Since March 1996, he has been Managing Director of Hawk Resorts International, L.P. (a resort). Mr. Geishecker has been Managing Director of KREW Team, Inc. since 1978 and Managing Director of SAGE Advisors, Inc. (a business advisory service company) since mid-1995. From 1978 to 1996, Mr. Geishecker was a Vice President and a Director of Rule Industries, Inc. (a diversified manufacturer). Saul H. Hymans has been a Professor of Economics and Statistics at the University of Michigan since 1977 and Director, Research Seminar in Quantitative Economics at the University of Michigan since 1981. Nina I. McClelland has been the President of Nina I. McClelland, LLC (consulting services) since May 1995, and has been a consultant to the Company since May 1996. Since May 1995, Dr. McClelland has been Chairman Emeritus of NSF International, Ann Arbor, Michigan. From January 1995 to May 1995, Dr. McClelland was the Chairman of NSF International; and, for more than five years previous thereto, she was the Chairman of the Board of Directors, President and Chief Executive Officer of the National Sanitation Foundation, Ann Arbor, Michigan. She has been an Adjunct Professor at the School of Public Health, University of Michigan, since 1986. Dr. McClelland was a director of First of America Bank, Ann Arbor, Michigan, from 1981 to August 1994. Charles Newman has been the Chief Executive Officer of ReCellular Inc. (a remanufacturer of cellular phones) since 1989. From 1989 until 1996 he was also the President, and thereafter has been the Chairman, of ReCellular Inc. Mr. Newman was President of Demand Publishing Inc. (a publishing services business) from 1992 to 1994. In 1996, Mr. Newman became a director of the Bank of Ann Arbor, Ann Arbor, Michigan. Charles Gelman founded the Company in 1959. He was the Company's President from 1974 to 1988 and from 1990 to 1993. He has been the Company's Chairman and Chief Executive Officer and a Director since 1974. In 1996, Mr. Gelman became a director of ReCellular Inc. and of Sleeping Bear Press (a printing company). Kim A. Davis has been the President and Chief Operating Officer of the Company since May 1993, and a Director of the Company since March 1995. From January 1991 until May 1993, he was Chief Operating Officer of Promega Corporation (a biotechnology company). Anthony P. Kelly has been Vice President, Worldwide Sales, of the Company since August 1995. From May 1994 to January 1996, he was the Vice President, Sales Asia/Pacific, and, from January 1996 to date, he has been the Vice President, Worldwide Sales, for Gelman Sciences International, Inc., a subsidiary of the Company engaged in non-US sales and distribution. For more than the last five years, Mr. Kelly has served as the Managing Director and Chief Operating Officer of Gelman Sciences Pty. Ltd., the Company's Australian subsidiary. Since July 1994, Mr. Kelly has served as the Managing Director of The Kelly Company Pty Ltd. (a diversified manufacturer), an Australian company privately owned and operated by Mr. Kelly and his family. 12 13 Edward J. Levitt has been the Secretary for the Company since March 1994. He was Assistant Vice President - Legal from December 1991 to March 1994. Mr. Levitt was hired in April 1989 as Corporate Counsel and continues to serve in that capacity. Karen A. Radtke has been Treasurer of the Company since June 1995 and an executive officer since September 20, 1995. She was Treasurer and Tax Director of Hayes Wheels, Inc. (an automotive components manufacturer) from July 1993 to May 1995. Ms. Radtke served on the General Motors International Tax Staff from 1988 to 1993. Charles J. Robrecht was appointed Vice President and General Manager of the Fluids group in July 1995. For the previous four years, he held various positions with the Company, including Vice President - Asia Pacific Ventures, Vice President - Distribution, and Vice President - International. Mark A. Sutter was appointed Vice President and General Manager of the Healthcare group in July 1995. From May 1992 to July 1995, he was Vice President - Research and Development. Previously, Mr. Sutter served as Director of Membrane Research and Development and Cartridge Capsule Development and in various marketing functions for the Company since January 1986. George Uveges was appointed Chief Financial Officer and Vice President - Administration in June 1996. He served as the Chief Financial Officer and Vice President of Administration for G.I. Plastek (a manufacturer of plastic parts) from September 1995 through March 1996. From April 1991 until September 1995, Mr. Uveges served as the Chief Financial Officer and Vice President of Administration for Industrial General Corporation (a holding company with business in plastic molding and subfractional electrical motors). There are and during the past five years there have been no legal proceedings material to an evaluation of the ability of any director or executive officer of the Company to act in such capacity or of his or her integrity. Based solely on a review of the copies of such forms furnished to the Company and written representations from the Company's executive officers and directors, the Company believes that during the last fiscal year all Section 16(a) filing requirements applicable to its executive officers, directors and greater than ten percent beneficial owners were complied with, except as follows: - - Mr. Gelman filed one Form 4, pertaining to one sale transaction, late. - - Ms. Radtke, who became an executive officer of the Company on September 20, 1995, filed her Form 3 late. - - Mr. Kelly, who became an executive officer of the Company on September 20, 1995, filed an amendment of his Form 3 late and his Form 5, pertaining to one sale transaction and one option grant, late. 13 14 ITEM 11. EXECUTIVE COMPENSATION. SUMMARY COMPENSATION TABLE The following table sets forth information concerning the compensation for services in all capacities for each of the three fiscal years ended July 31, 1996 of those persons who were the chief executive officer at August 1, 1996, and the other four most highly compensated executive officers of the Company for the fiscal year ended July 31, 1996 (the "Five Named Officers").
Long-Term Compensation Annual Compensation Awards/Securities Name and Fiscal ------------------- Underlying All Other Principal Position Year Salary Bonus(1) Options(#) Compensation(2) - ------------------------ ------ ---------- ---------- ---------- --------------- Charles Gelman 1996 $350,000 - - $10,817 Chairman of the 1995 350,012 $150,000 50,000 157,179 Board and 1994 328,000 120,000 56,250 46,637 Chief Executive Officer Kim A. Davis 1996 $325,000 - - $25,686 President and 1995 233,870 $150,000 50,000 11,551 Chief Operating Officer 1994 186,000 120,000 56,250 2,419 Anthony P. Kelly 1996 $144,469 $ 3,700 27,500 $ 299 Vice President 1995 112,550 33,000 - 462 1994 97,111 10,000 3,750 726 Mark A. Sutter 1996 $120,000 - - $ 8,551 Vice President 1995 106,923 $ 31,760 5,000 6,751 1994 100,000 30,000 - 7,869 Charles J. Robrecht 1996 $110,000 - 750 $ 6,965 Vice President 1995 105,000 $ 17,000 7,500 7,872 1994 105,000 18,900 - 8,112
(1) Bonuses are shown in the fiscal year earned, but payment is deferred until the subsequent fiscal year. (2) "All Other Compensation" includes the following payments by the Company during the fiscal year ended July 31, 1996: (a) Employee Stock Ownership Plan: Mr. Gelman, $1,013; Mr. Davis, $1,013; Mr. Robrecht $857; and Mr. Sutter, $1,013. (b) Deferred Compensation Thrift Plan (401(k)): Mr. Gelman, $4,806; Mr. Davis, $4,748; Mr. Robrecht, $3,423; and Mr. Sutter, $7,034. (c) Group Term and other Life Insurance: Mr. Gelman, $4,699; Mr. Davis, $510; Mr. Robrecht $2,386; and Mr. Sutter, $205. (d) Profit Sharing: Mr. Gelman, Mr. Davis, Mr. Kelly, Mr. Robrecht, and Mr. Sutter each were paid $299. (e) Mr. Davis' auto allowance of $19,116. The following table sets forth additional information concerning stock option grants made during fiscal 1996 to the Five Named Officers. These grants are also reflected in the Summary Compensation Table. In addition, in accordance with the rules of the Securities and Exchange Commission ("SEC"), the hypothetical gain or "option spread" for each option grant is shown based on compound annual rate of stock price appreciation of 5% and 10% from the date of grant to the expiration date. The 14 15 assumed rates of growth are prescribed by the SEC and are for illustration purposes only; they are not intended to predict future stock prices. The Company has not granted any stock appreciation rights. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR INDIVIDUAL GRANTS (1) OPTION TERM --------------------------------------------------- --------------------- NUMBER OF SECURITIES % OF TOTAL OPTIONS UNDERLYING GRANTED TO OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION NAME GRANTED (#) FISCAL YEAR BASE PRICE ($/SH.) DATE 5% ($) 10% ($) - ------------------- ----------- ------------------ ------------------ -------------------- -------- -------- Charles Gelman - - - - - - Kim A. Davis - - - - - - Anthony P. Kelly 27,500 39.3% $22.570 9/20/05 and 12/14/05 $390,300 $989,000 Charles J. Robrecht 750 1.1% 26.125 4/2/06 12,300 31,200 Mark Sutter - - - - - -
(1) The Company's 1988 Stock Option Plan, as amended, (the "1988 Plan") generally provides for granting of incentive stock options, non-qualified stock options and stock appreciation rights. The Company has not granted any stock appreciation rights. The 1988 Plan is administered by a committee of the Board of Directors. Subject to the limitations imposed by the 1988 Plan, the committee selects participants, determines the size of the grant, the option exercise price and the period of vesting. Pursuant to the 1988 Plan, the exercise price of an incentive stock option must be no less than the market price of a share of the Company's common stock on the date of the grant. The options granted become exercisable one-fourth each year on and after the anniversary of the grant date. The exercise price must be paid in cash or, with the consent of the Board of Directors, in whole or in part in the Company's common stock or other property. The following table provides information concerning the exercise of stock options during fiscal 1996 by the Five Named Officers and the fiscal year-end value of unexercised options on an aggregate basis. AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR END OPTION VALUES
Number of Value of Securities Underlying Unexercised Unexercised In-the-Money Options at Options at July 31, 1996 July 31, 1996 Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized($)(1) Unexercisable Unexercisable(2) - ------------------- --------------- -------------- --------------------- -------------------- Charles Gelman - - 31,250/37,500 $442,125/$351,563 Kim A. Davis - - 125,000 /37,500 2,323,144/ 393,750 Anthony P. Kelly - - 24,887/30,313 554,988/ 215,708 Charles J. Robrecht 20,999 $354,437 563/9,188 13,998/ 143,488 Mark Sutter 2,000 44,422 11,311/8,250 259,362/ 158,288
(1) Aggregate market value of the shares of Common Stock covered by the options on date of exercise less the exercise price of such options. (2) Options are "in-the-money" if, on July 31, 1996, the market price of the Common Stock ($28 1/4) exceeded the exercise price of such option. 15 16 DIRECTORS COMPENSATION FOR FISCAL 1996 The following table sets forth information concerning the compensation for fiscal 1996 paid to each non-management director of the Company.
Cash Compensation Number of Shares ---------------------------------------- Underlying Annual Meeting Consulting Options Name Retainer Fee Fees Fees Granted (2) - ---- ------------------- ------- ---------- ---------------- Robert M. Collins $4,000 $17,000 $4,000 - John A. Geishecker, Jr. 4,000 20,000 - - Hajime Kimura (1) 4,000 - - - Saul H. Hymans 4,000 19,000 - 1,000 Nina I. McClelland 4,000 19,000 $5,000 1,000 Charles Newman 4,000 19,000 - -
(1) Dr. Kimura resigned from the Board of Directors effective June 30, 1996. (2) Pursuant to the Company's non-employee director stock plan, Dr. Hymans and Dr. McClelland were each granted a stock option on July 31, 1996, to acquire 1,000 shares of the Company's common stock at an exercise price of $27.75 per share. EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS Charles Gelman. Pursuant to an employment agreement, Charles Gelman is employed as Chairman and Chief Executive Officer of the Company for a three-year term at an annual minimum salary of $350,000 plus bonus, as determined by the Board of Directors. The agreement provides for the use of an automobile by Mr. Gelman at no cost to him, and gives Mr. Gelman the right to participate in medical, disability, retirement and other benefit programs on the same terms and conditions as other executive employees of the Company. The active employment period under the agreement commenced August 1, 1995, and is automatically extended each year on August 1 for one additional year unless notice of termination is given. (No such notice was given on August 1, 1996.) Employment terminates upon Mr. Gelman's death or disability. It also may be terminated by the Company with or without cause and/or by Mr. Gelman. Should there have been no change in control of the Company, upon termination by the Company without cause of Mr. Gelman's employment, Mr. Gelman is to receive termination compensation equal to his annual salary plus bonus in the year of termination, if the Company is then achieving or exceeding its projected performance plan, or an amount equal to his annual salary only, if the Company is not then achieving its projected performance plan, payable annually for the greater of the remaining balance of the agreement or two years. If there has been a change in control and Mr. Gelman resigns within one year of such a change or his employment is terminated by the Company without cause, Mr. Gelman is to receive termination compensation equal to his annual salary plus bonus in the year of termination, if the Company is then achieving or exceeding its projected performance plan, or an amount equal to his annual salary only, if the Company is not then achieving its projected performance plan, payable annually for the remaining balance of the agreement plus two years, the immediate vesting of all stock options and awards granted to him, the immediate payment of all incentive awards earned, and for the unexpired term of the agreement, the use of an automobile and fringe benefits. The amount paid to Mr. Gelman in fiscal 1996 is set forth in the compensation table, above. Mr. Gelman's current annual salary is $350,000. As used in the agreement, "change in control" means acquisition of beneficial ownership of a majority of the outstanding voting shares of the Company, a tender offer consummated for at least thirty-three percent 16 17 (33%) of the Company's common stock or acquisition of beneficial ownership of more than fifty-one percent (51%) of the total fair market value of the Company's assets by any person or entity (or more than one person or entity acting as a group), or replacement of a majority of the members of the Company's Board of Directors within a one year period. The Company and Mr. Gelman have agreed to amend Mr. Gelman's employment agreement contingent upon the closing of the merger with Memtec. Under the agreement, Mr. Gelman has agreed, in exchange for cash payments totaling $2,352,709 payable on January 2, 1997, to terminate all provisions of his Employment Agreement as of the effective date of the Merger, other than those relating to the vesting of stock options. In addition, the Company and Mr. Gelman will enter into a consulting agreement under which Mr. Gelman will act as a consultant for a period of five years and will receive for three years a fee of $50,000 annually and the use of an office, clerical and staff support, and certain insurance and similar benefits. After the initial three-year period, Mr. Gelman will have access to an office and secretarial help for an additional two-year period. Kim A. Davis. Pursuant to an employment agreement, Kim A. Davis is employed as President and Chief Operating Officer of the Company for a three-year term at an annual minimum salary of $325,000 plus bonus, as determined by the Board of Directors. The agreement provides for the use of an automobile by Mr. Davis at no cost to him and for whole life insurance benefits in the amount of $1,000,000 with premiums payable by the Company, and gives Mr. Davis the right to participate in medical, disability, retirement and other benefit programs on the same terms and conditions as other executive employees of the Company. The active employment period under the agreement commenced August 1, 1995, and is automatically extended each year on August 1 for one additional year unless notice of termination is given by the Company. (No such notice was given on August 1, 1996.) Employment terminates upon Mr. Davis' death or disability. Further, it may be terminated by the Company with or without cause or by Mr. Davis. Should there have been no change in control of the Company, upon termination by the Company without cause of Mr. Davis' employment, Mr. Davis is to receive termination compensation equal to his annual salary plus bonus in the year of termination, if the Company is then achieving or exceeding its projected performance plan, or an amount equal to his annual salary only, if the Company is not then achieving its projected performance plan, payable annually for the greater of the remaining balance of the agreement or two years. If there has been a change in control and Mr. Davis resigns within one year of such a change or his employment is terminated by the Company without cause, Mr. Davis is to receive termination compensation equal to his annual salary plus bonus in the year of termination, if the Company is then achieving or exceeding its projected performance plan, or an amount equal to his annual salary only, if the Company is not then achieving its projected performance plan, payable annually for the remaining balance of the agreement plus two years, the immediate vesting of all stock options and awards granted to him, the immediate payment of all incentive awards earned, and for the unexpired term of the agreement the use of an automobile, continued payment on the one million dollar whole life insurance policy and fringe benefits. The amount paid to Mr. Davis in fiscal 1996 is set forth in the compensation table, above. Mr. Davis' current annual salary is $325,000. As used in the agreement, "change in control" means acquisition of beneficial ownership of a majority of the outstanding voting shares of the Company, a tender offer consummated for at least thirty-three percent (33%) of the Company's common stock or acquisition of beneficial ownership of more than fifty-one percent (51%) of the total fair market value of the Company's assets by any person or entity (or more than one person or entity acting as a group), or replacement of a majority of the members of the Company's Board of Directors within a one year period. The Company and Mr. Davis have agreed to amend Mr. Davis' employment agreement, contingent upon the closing of the merger with Memtec. Under the agreement, Mr. Davis has 17 18 agreed, in exchange for cash payments totaling $924,386 payable on January 2, 1997, to amend his employment agreement so as to limit the maximum termination benefit to three years' compensation. Anthony P. Kelly. Pursuant to a service agreement, Mr. Kelly, the Company's Vice President, Worldwide Sales, is employed by Gelman's Australian subsidiary as its Managing Director and Chief Operating Officer through the fiscal year ending July 31, 1998, at a salary to be reviewed and increased each January and July 1 by the percentage increase in the Consumer Price Index for Sydney, Australia, since the previous review date. In the fiscal year ended July 31, 1996, Mr. Kelly's annual salary was $144,469. Under the agreement, on each salary review date, Mr. Kelly is also entitled to receive an amount equal to 5% of the first A$500,000 of pre-tax profits and 2.5% of pre-tax profits over A$500,000 of the Australian subsidiary since the previous review date. Further, pursuant to the agreement, the Australian subsidiary pays A$7,500 per year to the Kelly Superannuation Fund on a date specified by Mr. Kelly. The agreement also provides for the use of an automobile by Mr. Kelly at no cost to him. Mr. Kelly's employment may be terminated at any time for any reason. If his employment is terminated, Mr. Kelly is to receive an amount from the Australian subsidiary equal to his then current annual salary plus an amount equal to 5% of the pre-tax profits of less than A$500,000 and 2.5% of the amount over A$500,000 earned by the Australian subsidiary for the preceding twelve months; provided, if his employment is terminated within six months after a change in control of the Company or the Australian subsidiary, Mr. Kelly is to receive twice the amount he would otherwise receive upon termination. Charles J. Robrecht. Pursuant to a termination benefit agreement, upon termination of his employment for any reason other than due to the commission of an illegal act, Mr. Robrecht, a Vice President of the Company, will be paid an amount equivalent to six months of his annual salary. Based on current annual salary, severance payments for Mr. Robrecht would be $55,000. In addition, in the event of termination, Mr. Robrecht will receive reimbursement of his costs to obtain job placement services, not to exceed $7,500, and medical and health insurance coverage for a period ending on the earlier of the date which is twelve months from the date of his termination or the date he commences new employment. Mark A. Sutter. Pursuant to a termination benefit agreement, upon termination of his employment for any reason other than due to the commission of an illegal act, Mr. Sutter, a Vice President of the Company, will be paid an amount equivalent to six months of his annual salary. Based on his current annual salary, severance payments for Mr. Sutter would be $60,000. In addition, in the event of termination, Mr. Sutter will receive reimbursement of his costs to obtain job placement services, not to exceed $7,500, and medical and health insurance coverage for a period ending on the earlier of the date which is twelve months from the date of his termination or the date he commences new employment. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. Collins, Mr. Geishecker and Dr. McClelland served as members of the Compensation Committee in fiscal 1996. No member of the Compensation Committee has an interlocking or insider participation that would affect compensation determination. 18 19 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. PRINCIPAL SHAREHOLDERS The following table sets forth the beneficial ownership of the Company's common stock of each person known to the Company to be the beneficial owner of more than five percent (5%) of the total shares issued and outstanding on September 24, 1996. Under rules and regulations promulgated by the SEC, a person is deemed to be the "beneficial owner" of all the shares with respect to which he has or shares voting power or investment power, regardless of whether he is entitled to receive any economic benefit from his interest in the shares. Except as otherwise indicated, ownership is direct. As used herein, the term "voting power" means the power to vote or to direct the voting of shares and "investment power" means the power to dispose of or to direct the disposition of shares.
Name and Address of Shares Percent of Beneficial Owner Beneficially Owned Class - ------------------------------------------ ------------------ ---------- Charles Gelman 954,692 (a) 12.01% 600 South Wagner Road Ann Arbor, MI 48103-9019 RCM Capital Management 702,500 (b) 8.84% 4 Embarcadero Centre San Francisco, CA 94111-4189 Prudential Insurance Company of America 461,300 (c) 5.80% Prudential Plaza 751 Broad Street Newark, NJ 07102-3777 T. Rowe Price Associates, Inc. 451,200 (d) 5.68% 100 East Pratt Street Baltimore, MD 21202 Mentor Partners, L.P. 434,400 (e) 5.47% 500 Park Avenue New York, NY 10022 Schroder Wertheim Investment Services Inc. 411,600 (f) 5.18% Equitable Center 787 Seventh Avenue New York, NY 10019-6016
- -------- (a) Mr. Gelman's beneficial ownership includes 7,697 shares allocated to him under the Company's employee benefit plans. The total does not include 250,916 shares held by the Employee Stock Ownership Plan with respect to which he has voting and investment power as a trustees. (b) Based upon information contained in a Schedule 13G filed by RCM Capital Management and certain affiliated accounts with the SEC on February 6, 1996. Consists of 597,500 shares over which the reporting persons have sole voting power, 696,500 shares over which they have sole dispositive power and 7,000 shares over which they have shared dispositive power. 19 20 (c) Based upon information contained in a Schedule 13G filed by Prudential Insurance Company of American with the SEC on February 14, 1996. Consists of 461,300 shares over which Prudential Insurance Company of America has sole voting and sole dispositive power. (d) Based upon information contained in a Schedule 13G filed by T. Rowe Price Associates, Inc. and certain affiliated accounts with the SEC on February 13, 1996. Consists of 3,900 shares over which T. Rowe Price Associates, Inc. has sole voting power and 451,200 shares over which T. Rowe Price Associates, Inc. has sole dispositive power, and 447,300 shares over which T. Rowe Price New Horizon Fund, Inc. has sole voting power. (e) Based on information contained in Schedule 13D filed by Mentor Partners, L.P. with the SEC on September 20, 1996. Consists of 434,400 shares over which Mentor Partners, L.P. has sole voting and sole dispositive power. (f) Based upon information contained in a Schedule 13G filed by Schroder Wertheim Investment Services Inc. with the SEC on February 9, 1996. Consists of 411,600 shares over which Schroder Wertheim Investment Services Inc. has sole voting and sole dispositive power. SECURITY OWNERSHIP OF MANAGEMENT The following table provides certain information regarding the beneficial ownership of the Company's common stock, as of September 24, 1996, by its directors, the Five Named Officers and all directors and executive officers of the Company as a group. Except as otherwise indicated, ownership is direct.
Stock Beneficially Owned Including Options Percent Name and Warrants (a) of Class - ---- ------------------------ -------- Robert M. Collins 9,000 * John A. Geishecker, Jr. 44,100 * Saul H. Hymans 5,110 * Nina I. McClelland 9,000 * Charles Newman 14,962 * Charles Gelman 954,692 (b) 12.0% Kim A. Davis 125,984 1.56% Anthony P. Kelly 29,227 * Charles J. Robrecht 5,779 * Mark A. Sutter 15,686 * All directors and executive officers as a group (13 persons) 1,225,498 14.9%
- -------- *Less than 1% of outstanding shares of the Company's Common Stock. (a) The number of unexercised option and warrant shares which are exercisable within 60 days after September 24, 1996, were: Robert M. Collins, 9,000; John A. Geishecker, Jr., 44,100; Saul H. Hymans, 4,500; Nina I. McClelland, 8,550; Charles Newman, 9,000; Charles Gelman, 31,250; Kim A. Davis, 125,000; Anthony P. Kelly, 28,012; Charles J. Robrecht 563; Mark Sutter, 12,999; and all executive officers and directors as a group (13 persons) 280,299. In addition, 140,000 shares under option will become immediately exercisable as a result of the Merger. (b) See note (a) to the table above setting forth the security ownership of principal shareholders. 20 21 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. During fiscal 1996, Mr. Collins provided strategic planning consulting services to the Company in exchange for which Mr. Collins is paid a retainer of $1,000 per quarter plus $1,000 per day for services in excess of one day per quarter. At July 31, 1996, the Company had accrued $4,000 for the services provided. During fiscal 1996, KREW Team, Inc. provided financial services to the Company. Mr. Geishecker, a Director of the Company, is Managing Director of KREW Team, Inc. At July 31, 1996, the Company had accrued $30,000 plus expenses for the services provided. During fiscal 1996, the Company paid $5,000 to Dr. McClelland, a Director of the Company, for consulting services and provided her with office space and support services. The Company has an additional commitment for $20,000 of consulting services from Dr. McClelland for the fiscal year ending July 31, 1997. During fiscal 1994, the Company divested certain non-core product lines manufactured by its Australian subsidiary. These product lines were sold to The Kelly Company Pty. Ltd., which is owned by Mr. Kelly, a Vice President of the Company, and his family, for $726,000. The purchase was funded by a note to the Company. As of July 31, 1996, $653,000 was due on the note which bears interest at prime as published in the Wall Street Journal on the first business day of each month. The note, as amended, is a balloon note which provides for 36 monthly installments plus accrued interest, with the outstanding balance due in August 1999. 21 22 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) Financial Statements (A) Consolidated Statements of Income - Years ended July 31, 1996, 1995 and 1994. (B) Consolidated Statements of Stockholders' Equity - Years ended July 31, 1996, 1995, and 1994. (C) Consolidated Balance Sheets - July 31, 1996 and 1995. (D) Consolidated Statements of Cash Flows - Years ended July 31, 1996, 1995, and 1994. (E) Notes to Consolidated Financial Statements. (F) Report of Independent Accountants. (a)(2) Financial Statement Schedules II -- Valuation and Qualifying Accounts - Years ended July 31, 1996, 1995, and 1994. All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable, and therefore have been omitted. (a)(3) Exhibits See Exhibit index at page number 41 of this Report on Form 10-K. (b) Reports on Form 8-K None. 22 23
CONSOLIDATED STATEMENTS OF INCOME Gelman Sciences Inc. and Subsidiaries Dollars in thousands, except per share data - ---------------------------------------------------------------------------------------------------- Years Ended July 31 1996 1995 1994 - ---------------------------------------------------------------------------------------------------- Net sales $ 112,057 $ 103,503 $ 94,963 Cost of products sold 56,864 50,070 47,253 - ---------------------------------------------------------------------------------------------------- Gross profit 55,193 53,433 47,710 Selling and administration 40,130 37,043 33,785 Research and development 6,258 5,498 4,877 - ---------------------------------------------------------------------------------------------------- Operating earnings 8,805 10,892 9,048 Pollution-related expense 2,800 - - Interest expense 607 1,314 1,689 Other income - net (485) (409) (178) - ---------------------------------------------------------------------------------------------------- Earnings before income taxes and extraordinary item 5,883 9,987 7,537 Income taxes 1,547 3,365 2,600 - ---------------------------------------------------------------------------------------------------- Net earnings before extraordinary item 4,336 6,622 4,937 Extraordinary item - - 183 - ---------------------------------------------------------------------------------------------------- Net earnings $ 4,336 $ 6,622 $ 4,754 - ---------------------------------------------------------------------------------------------------- Primary earnings per share before extraordinary item $ 0.53 $ 0.92 $ 0.78 - ---------------------------------------------------------------------------------------------------- Primary earnings per share $ 0.53 $ 0.92 $ 0.75 - ---------------------------------------------------------------------------------------------------- See notes to consolidated financial statements.
F - 1 24
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Gelman Sciences Inc. and Subsidiaries Dollars in thousands - ------------------------------------------------------------------------------------------------------------------------ Common Additional Retained Stock Capital Earnings - ------------------------------------------------------------------------------------------------------------------------ Balances at July 31, 1993 $260 $12,508 $12,345 - ------------------------------------------------------------------------------------------------------------------------ Net earnings for 1994 4,754 Stock issued under employee plans - 161,270 shares 16 1,276 ESOP loan payment Three for two common stock splits 337 (337) (7) Tax benefit from exercise of stock options 608 Currency translation adjustment Officer loan repayment - ------------------------------------------------------------------------------------------------------------------------ Balances at July 31, 1994 613 14,055 17,092 - ------------------------------------------------------------------------------------------------------------------------ Net earnings for 1995 6,622 Stock issued: Employee plans - 221,730 shares 22 1,181 Public offering - 1,437,500 shares 144 19,278 ESOP loan payment Tax benefit from exercise of non-qualified stock options 631 Currency translation adjustment - ------------------------------------------------------------------------------------------------------------------------ Balances at July 31, 1995 779 35,145 23,714 - ------------------------------------------------------------------------------------------------------------------------ NET EARNINGS FOR 1996 4,336 STOCK ISSUED UNDER EMPLOYEE PLANS - 150,710 SHARES 15 1,033 WARRANTS SOLD 57 ESOP LOAN PAYMENT TAX BENEFIT FROM EXERCISE OF NON-QUALIFIED STOCK OPTIONS 600 CURRENCY TRANSLATION ADJUSTMENT - ------------------------------------------------------------------------------------------------------------------------ BALANCES AT JULY 31, 1996 $794 $36,835 $28,050 - ------------------------------------------------------------------------------------------------------------------------ Dollars in thousands -------------------- Foreign Notes Currency Receivable Translation Common Adjustments Stock - -------------------------------------------------------------------------------------------------------- Balances at July 31, 1993 $(1,265) $(1,592) - -------------------------------------------------------------------------------------------------------- Net earnings for 1994 Stock issued under employee plans - 161,270 shares ESOP loan payment 150 Three for two common stock splits Tax benefit from exercise of stock options Currency translation adjustment 390 Officer loan repayment 992 - -------------------------------------------------------------------------------------------------------- Balances at July 31, 1994 (875) (450) - -------------------------------------------------------------------------------------------------------- Net earnings for 1995 Stock issued: Employee plans - 221,730 shares Public offering - 1,437,500 shares ESOP loan payment 150 Tax benefit from exercise of non-qualified stock options Currency translation adjustment 310 - -------------------------------------------------------------------------------------------------------- Balances at July 31, 1995 (565) (300) - -------------------------------------------------------------------------------------------------------- NET EARNINGS FOR 1996 STOCK ISSUED UNDER EMPLOYEE PLANS - 150,710 SHARES 15 WARRANTS SOLD ESOP LOAN PAYMENT 150 TAX BENEFIT FROM EXERCISE OF NON-QUALIFIED STOCK OPTIONS CURRENCY TRANSLATION ADJUSTMENT (276) - ------------------------------------------------------------------------------------------------------- BALANCES AT JULY 31, 1996 $ (841) $ (150) - -------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. F - 2 25
CONSOLIDATED BALANCE SHEETS Gelman Sciences Inc. and Subsidiaries Dollars in thousands, except per share data - ------------------------------------------------------------------------------------------------------------------------- July 31 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 9,590 $ 3,010 Accounts receivable less allowances (1996-$1,828; 1995-$1,310) 26,442 23,985 Inventories 11,751 14,944 Other current assets 4,205 5,363 - ------------------------------------------------------------------------------------------------------------------------- Total Current Assets 51,988 47,302 PROPERTY, PLANT AND EQUIPMENT, NET 34,124 32,584 INTANGIBLES AND OTHER ASSETS 2,108 1,895 - ------------------------------------------------------------------------------------------------------------------------- Total Assets $88,220 $81,781 ========================================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 4,989 $ 3,813 Accrued expenses 7,077 9,312 Current maturities of long-term debt 163 524 - ------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 12,229 13,649 LONG-TERM DEBT, EXCLUSIVE OF CURRENT MATURITIES 7,704 6,861 OTHER LONG-TERM LIABILITIES 3,599 2,498 STOCKHOLDERS' EQUITY Preferred stock, par value $1.00 per share-authorized 500,000 shares, none outstanding - - Common stock, par value $.10 per share issued 7,940,000 shares in 1996 and 7,790,000 shares in 1995. 794 779 Additional capital 36,835 35,145 Retained earnings 28,050 23,714 Foreign currency translation adjustments (841) (565) Notes receivable-common stock (150) (300) ----------------------------- Total Stockholders' Equity 64,688 58,773 - ------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $88,220 $81,781 =========================================================================================================================
See notes to consolidated financial statements. F - 3 26
CONSOLIDATED STATEMENTS OF CASH FLOW Gelman Sciences Inc. and Subsidiaries Dollars in thousands - ------------------------------------------------------------------------------------------------------------ Years Ended July 31 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net earnings $ 4,336 $ 6,622 $ 4,754 Extraordinary loss related to early extinguishment of debt, before tax benefit - - 295 Depreciation and amortization 4,734 4,495 4,396 (Decrease) increase in deferred income taxes (458) 144 627 Loss (gain) on sale of property, plant and equipment 51 54 (196) Stock issued for employee service 265 389 360 Contribution to employee stock ownership plan 150 150 150 Decrease (increase) in inventories 2,947 (615) (1,431) Increase in accounts receivable (2,738) (3,071) (3,391) Decrease (increase) in other current assets 870 (1,100) (276) (Decrease) increase in current liabilities (1,648) (686) 382 Increase (decrease) in liabilities for environmental activities 2,217 (597) (1,154) Increase (decrease) in other long term liabilities 345 179 (25) - ------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 11,071 5,964 4,491 FINANCING ACTIVITIES Long-term debt borrowings 2,360 25,425 33,125 Principal payments on long-term debt (1,613) (43,070) (33,196) Net proceeds from secondary stock offering - 19,422 - Proceeds from exercised stock options and warrants 840 818 924 Tax benefit from exercised stock options 600 631 608 Fees paid on early retirement of debt - - (52) Payment received - note receivable common stock - - 992 - ------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 2,187 3,226 2,401 INVESTING ACTIVITIES Capital expenditures (6,230) (7,825) (6,682) Proceeds from sale of property, plant and equipment 8 43 537 Increase in intangibles and other assets (329) (47) (347) - ------------------------------------------------------------------------------------------------------------ NET CASH USED IN INVESTING ACTIVITIES (6,551) (7,829) (6,492) EFFECTS OF EXCHANGE RATE CHANGES ON CASH (127) 124 (17) - ------------------------------------------------------------------------------------------------------------ NET CHANGE IN CASH AND CASH EQUIVALENTS 6,580 1,485 383 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,010 1,525 1,142 - ------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,590 $ 3,010 $ 1,525 ============================================================================================================ See notes to consolidated financial statements.
F - 4 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Gelman Sciences Inc. and Subsidiaries NOTE A-SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of all subsidiaries of the Company and are prepared in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from these estimates. All significant intercompany transactions are eliminated. The financial data of foreign subsidiaries is translated using current exchange rates at the end of the year for balance sheet accounts and average exchange rates for operations. Translation gains and losses are reflected in stockholders' equity, while transaction gains and losses are reflected in the statements of operations. Foreign exchange transaction gains (losses) of ($27,000), $233,000, and $77,000 were recognized in fiscal years 1996, 1995, and 1994, respectively. Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the presentation used for the year ended July 31, 1996. Revenue Recognition: The Company recognizes revenue from product sales when goods are shipped to the customer and provides a reserve for estimated returns and allowances. Inventories: Inventories are stated at the lower of cost or market. Cost was determined by the last-in, first-out (LIFO) method at the U.S. locations, representing approximately 69% and 77% of the July 31, 1996 and 1995 inventories, respectively, and by the first-in, first-out (FIFO) method for the foreign locations. The current cost of inventories exceeded their LIFO carrying amount by approximately $2,824,000 and $2,961,000 at July 31, 1996 and 1995, respectively. During fiscal 1996, inventory quantities were reduced, which resulted in a liquidation of LIFO inventory layers carried at lower costs which prevailed in prior years. The effect of the liquidation was to decrease cost of products sold by $137,000 and to increase net earnings by $90,400 or $.01 per share. Properties and Depreciation: Properties are stated at cost. Depreciation is computed using the straight-line method based on the estimated useful life of the related asset. Intangibles and Other Assets: Intangibles and Other Assets consist principally of the excess of cost over net assets of acquired companies, amortized over 30 years, the cost of patents, amortized over 10 years, and a note receivable related to the 1994 sale of non-core product lines in Australia. Earnings Per Share: Primary earnings per share for fiscal 1996, 1995, and 1994 are based on the weighted average of common and common equivalent shares of 8,254,993, 7,235,273, and 6,307,388, respectively. Common share equivalents included in the computation represent shares issuable upon assumed exercise of stock options and warrants which would have a dilutive effect. Full dilution had no material effect on earnings per share in fiscal 1996, 1995 and 1994. Fiscal 1995 weighted average shares includes the effect of the March 1995 public offering of 1,437,500 shares of the Company's common stock. F - 5 28 NOTE A-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Financial Instruments: The Company enters into certain financial agreements to reduce exposure to fluctuating foreign currency exchange rates and interest rates. Realized and unrealized gains and losses on forward exchange contracts are recorded as other expense (income) in the period in which exchange rate movement occurs. The Company enters into interest rate financial agreements to manage exposure to interest rate fluctuations. The differences to be paid or received on interest rate agreements are included in interest expense currently. Gains and losses realized upon settlement of these agreements are deferred and amortized to interest expense over a period relevant to the agreement if the underlying hedged instrument remains outstanding or immediately if the underlying hedged instrument is terminated. The fee paid on an interest rate cap agreement is amortized over the life of the agreement. Concentration of Credit Risk: The Company invests its excess cash in both deposits with major banks throughout the world and other high quality short-term liquid money market instruments (commercial paper, government treasury bills, etc.) These cash equivalents mature within three months and the Company has not incurred any related losses. The carrying amount of cash equivalents approximates fair value. At July 31, 1996, $7,466,000 in cash equivalents were held. The Company sells a broad range of products in most countries of the world. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. Ongoing credit evaluations of customers' financial condition are performed and, generally, no collateral is required. The Company maintains reserves for potential credit losses and such losses, in the aggregate, have not exceeded management's expectations. Income Taxes: The Company uses the liability method in measuring the provision for income taxes and recognizing deferred tax assets and liabilities in the balance sheet. The liability method requires that deferred income taxes reflect the tax consequences of currently enacted rates for differences between the tax and financial reporting bases of assets and liabilities. The Company intends to continue to reinvest its undistributed earnings to expand its international operations; therefore, no tax has been provided to cover the repatriation of such undistributed earnings. At July 31, 1996, the cumulative amount of undistributed international earnings was approximately $5.6 million. NOTE B-INVENTORIES - ----------------------------------------------------------------------------- Inventories consist of the following as of July 31 (in thousands):
1996 1995 - ----------------------------------------------------------------------------- Finished products $ 6,061 $ 6,320 Work in process 1,027 1,572 Raw materials and purchased parts 4,663 7,052 - ----------------------------------------------------------------------------- $11,751 $14,944 - -----------------------------------------------------------------------------
F - 6 29 NOTE C-PROPERTY, PLANT AND EQUIPMENT - ---------------------------------------------------------------------------- Property, plant and equipment consist of the following as of July 31 (in thousands):
1996 1995 - ---------------------------------------------------------------------------- Land $ 1,441 $ 1,438 Buildings and leasehold improvements 19,956 19,302 Equipment 53,870 49,102 - ---------------------------------------------------------------------------- 75,267 69,842 Less: allowance for depreciation 41,143 37,258 - ---------------------------------------------------------------------------- $34,124 $32,584 - ----------------------------------------------------------------------------
NOTE D-CURRENT LIABILITIES - --------------------------------------------------------------------------- Accrued expenses consist of the following as of July 31 (in thousands):
1996 1995 - --------------------------------------------------------------------------- Accrued salaries and wages $3,507 $5,310 Environmental reserve 1,000 250 Income taxes currently payable 329 1,332 Other accrued expenses 2,241 2,420 - -------------------------------------------------------------------------- $7,077 $9,312 - --------------------------------------------------------------------------
NOTE E-FINANCING Financing consisted of the following obligations as of July 31 (in thousands):
- ----------------------------------------------------------------------------------------------- 1996 1995 - ----------------------------------------------------------------------------------------------- Industrial Development Revenue Bonds $4,415 $4,697 Note payable, State of Michigan, bearing interest at 7.5%, through January 6, 2002 638 744 Notes payable to banks 2,211 1,368 Other 603 576 - ----------------------------------------------------------------------------------------------- Total debt 7,867 7,385 Less: current maturities and short-term debt 163 524 - ----------------------------------------------------------------------------------------------- Long-term debt $7,704 $6,861 - -----------------------------------------------------------------------------------------------
During fiscal 1996, the Company refinanced the 1994 Industrial Development Revenue bonds to reduce future interest costs. The refinanced bonds are payable in full on July 1, 2004, and bear a floating market interest rate. A renewable bank letter of credit expiring May 15, 2001 supports the creditworthiness of the bonds. The Company entered into an interest rate swap agreement with a major financial institution which fixes the floating interest rate to 5.89% through July 1, 2004. Covenants and default provisions of the letter of credit and the bond indenture are tied to the Company's unsecured revolving credit agreement. Other notes payable to banks of $2,211,000 are borrowings under separate foreign subsidiaries' local currency credit lines and supported by a parent company guarantee. Borrowings under these facilities are classified as long-term debt because the Company's other long-term debt credit agreements can be used to refinance the notes payable. F - 7 30 NOTE E-FINANCING (CONTINUED) The Company has available an unsecured revolving credit agreement for $15 million expiring June 2000 to support overall working capital needs. The agreement contains various market rate borrowing options. Financial covenants limit the Company's borrowing capacity, require a minimum net worth, and restrict dividend payments. The Company estimates the fair value of its long-term debt at July 31, 1996 approximates its carrying value because the debt bears interest at or near market rates for similar issues. Maturities of long-term debt, including the current portion, for the five years following July 31, 1996 are as follows: $163,000 in 1997; $167,000 in 1998; $189,000 in 1999; $2,720,000 in 2000; $107,000 in 2001 and $4,521,000 thereafter. Interest paid during the years ended July 31, 1996, 1995 and 1994 was $607,000, $1,629,000, and $1,433,000, respectively. NOTE F-INCOME TAXES The components of earnings before income taxes and extraordinary items consisted of the following (in thousands):
- -------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------- U.S. $3,867 $7,860 $6,132 Foreign 2,016 2,127 1,405 - -------------------------------------------------------- $5,883 $9,987 $7,537 - --------------------------------------------------------
The provision (benefit) for income taxes is as follows (in thousands):
- ------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------ Currently payable: U.S. $ 948 $1,957 $1,469 State 118 110 88 Foreign 976 1,011 489 Deferred (credit): U.S. (486) 418 556 Foreign (9) (131) (2) - ------------------------------------------------------------ $1,547 $3,365 $2,600 - ------------------------------------------------------------
Income tax benefit attributable to the extraordinary item in fiscal year 1994 was to $112,000. A reconciliation between the provision for income taxes and the amount computed through the application of the U.S. statutory tax rate (34%) to earnings before income taxes and extraordinary items is as follows (in thousands): F - 8 31 NOTE F-INCOME TAXES (CONTINUED)
- ----------------------------------------------------------------------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------------------------- Income taxes at statutory rate $2,000 $3,396 $2,563 Add (deduct): Effect of foreign losses that had no tax benefit 109 53 47 Foreign rates in excess of U.S. statutory rate 251 89 104 Non-deductible travel and entertainment 47 59 34 Net operating loss carryforward utilization (113) (38) (161) Reduction in valuation allowance (177) (210) -- State income taxes, net of federal income tax benefit 78 73 58 Foreign sales corporation benefit (254) (89) (26) Research and development tax credit (439) (167) (56) Other items 45 199 37 - ----------------------------------------------------------------------------------------------- $1,547 $3,365 $2,600 - -----------------------------------------------------------------------------------------------
During fiscal 1996, the Company implemented a research and development tax credit study for the purpose of identifying activities and costs which qualify as research and experimentation under the Internal Revenue Code for the current and open prior years. The study concluded there were eligible unclaimed research and development tax credits for prior fiscal years 1992 through 1994 which resulted in filing tax refund claims for these years. Deferred income taxes for 1996 and 1995 reflect the impact of "temporary differences" between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities are as follows at July 31 (in thousands):
- -------------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------------- Deferred tax assets Allowance for doubtful accounts $ 146 $ 131 Inventory-related transactions 728 729 Selling and administrative expenses not currently deductible 661 781 Environmental accrual 1,229 511 Foreign operating loss carryforwards 401 420 - -------------------------------------------------------------------------------------- 3,165 2,572 Less excess tax over book depreciation and amortization 2,102 1,823 - -------------------------------------------------------------------------------------- Gross deferred tax asset 1,063 749 Valuation allowance (127) (210) - -------------------------------------------------------------------------------------- Net deferred tax asset 936 539 - -------------------------------------------------------------------------------------- Current deferred tax asset $2,185 $1,972 Non-current deferred tax liability $1,249 $1,433 - --------------------------------------------------------------------------------------
The Company has reduced its valuation allowance on foreign operating loss carryforwards, to reflect the utilization of certain subsidiary losses against future earnings on a more likely than not basis. Net current deferred tax assets of $2,185,000 and $1,972,000 for fiscal 1996 and 1995, respectively, are included in other current assets and net non-current deferred tax liabilities of $1,249,000 and $1,433,000 for fiscal 1996 and 1995, respectively, are included in F - 9 32 NOTE F-INCOME TAXES (CONTINUED) other long-term liabilities based on their relationship to assets and liabilities that generated the temporary difference. Income taxes paid during the years ended July 31, 1996, 1995, and 1994 were $917,000, $1,571,000, and $1,210,000, respectively. Taxes paid in 1996, 1995 and 1994 reflect the benefit received from the exercise of stock options under the Company's non-qualified stock option plan. NOTE G-SAVINGS AND RETIREMENT PLANS The Company has a Savings Plan and an Employee Stock Ownership Plan (ESOP) covering substantially all U.S. employees. The Company contributes $.85 to the Savings Plan for every dollar contributed by employees up to 6% of their compensation, with one quarter of the Company's contribution in the Company's common stock. Company contributions charged to operations under these plans were $1,049,000, $875,000, and $861,000 for the years ended July 31, 1996, 1995, and 1994, respectively. NOTE H-STOCKHOLDERS' EQUITY During fiscal 1995, the shareholders approved an increase in the number of authorized shares of common stock from 8 million to 15 million. Also, the Company issued 1,437,500 shares of common stock at a price of $14.625 per share in an underwritten public offering. The net proceeds of $19.4 million were used to repay a term note payable to NBD Bank N.A. and to reduce outstanding indebtedness under the Company's Credit Agreement. In fiscal 1994, the Company declared two, three-for-two stock splits. A total of 3,372,523 shares of common stock were issued in connection with the two splits. The stated par value per share of common stock remained at $.10 and the value of the shares at par of $337,252 was transferred from additional capital to common stock. In September 1990, the Company issued 128,000 shares (pre-split) of its common stock to an officer of the Company at fair market value in exchange for a $992,000 promissory note and cancellation of 128,000 stock options outstanding. During fiscal 1994, this note was repaid in full plus accrued interest on the note. In October 1982, the Trust under the Company's Employee Stock Ownership Plan acquired 200,000 shares (pre-split) of the Company's common stock. The purchase price of $2,250,000 was financed by a loan from the Company to the Trust, repayable over a 15 year period at a 13.5% interest rate. The Company is making annual contributions to the Trust of $150,000 to cover the principal payments plus additional contributions to cover interest. The Company is entitled to a tax deduction for income tax purposes of the amount that an employee reports as ordinary income from the exercise of non-qualified stock options. Since the Company recognizes no compensation expense from the exercise of the options, the tax benefit received is recorded as a reduction to income taxes payable and an increase to additional capital. F - 10 33 NOTE I-STOCK OPTIONS AND WARRANTS The Company has granted options under the Company's stock option plans to certain key employees to purchase the Company's common stock at fair market value on the date of grant. The options generally become exercisable cumulatively, in equal installments over a period of four or five years commencing one year from the date of grant and expiring ten years after the date of grant. Changes in the number of shares available under outstanding options during the three fiscal years ended July 31, 1996 were as follows: Number of Shares Exercise Price - -------------------------------------------------------------------------------------------------------------------------------- Outstanding at August 1, 1993 342,950 $6.75 to $16.00 Granted 110,300 14.25 to 18.38 Exercised (144,149) 4.50 to 10.00 Canceled (5,141) 5.08 to 10.25 Adjustment for Stock Splits 369,398 3.00 to 12.25 - -------------------------------------------------------------------------------------------------------------------------------- Outstanding at July 31, 1994 673,358 $3.00 to $12.25 Granted 189,000 13.50 to 18.88 Exercised (181,689) 3.00 to 12.25 Canceled (38,738) 3.39 to 12.25 - -------------------------------------------------------------------------------------------------------------------------------- OUTSTANDING AT JULY 31, 1995 641,931 $3.39 TO $18.88 GRANTED 69,900 21.00 TO 27.00 EXERCISED (111,046) 3.39 TO 15.00 CANCELED (24,403) 3.39 TO 18.875 - -------------------------------------------------------------------------------------------------------------------------------- OUTSTANDING AT JULY 31, 1996 576,382 $3.39 TO $27.00 - --------------------------------------------------------------------------------------------------------------------------------
At July 31, 1996, 1995, and 1994, options for 337,219, 305,823 and 259,252 shares, respectively were exercisable. An additional 86,625 shares vest on a change of control of the Company. Options for 35,499 shares are available for future grants under the plan. Changes in the number of shares available under outstanding warrants during the three fiscal years ended July 31, 1996 were as follows:
Number of Shares Exercise Price - ------------------------------------------------------------------------------------------------------------------- Outstanding at August 1, 1993 52,600 $3.33 to $10.92 Granted 18,000 16.38 Adjustment for Stock Splits 74,500 3.33 to 10.92 Exercised (200) 10.00 - ------------------------------------------------------------------------------------------------------------------- Outstanding at July 31, 1994 144,900 3.33 to 10.92 Granted 9,000 14.25 Exercised (40,000) 3.78 to 8.11 - ------------------------------------------------------------------------------------------------------------------- OUTSTANDING AT JULY 31, 1995 113,900 3.33 TO 14.25 SOLD 20,000 22.65 EXERCISED (29,750) 8.11 - ------------------------------------------------------------------------------------------------------------------- OUTSTANDING AT JULY 31, 1996 104,150 $3.33 TO $22.65 - -------------------------------------------------------------------------------------------------------------------
The Company has granted warrants to acquire shares of the Company's common stock to members of its Board of Directors, which are exercisable six months after the date of grant at the fair value at the date of grant. Additionally, in fiscal 1996, the Company sold 20,000 warrants for $2.83 per warrant. Each warrant represents a right to purchase one share of the Company's common stock for $22.65 (which is 120% of the market value of the Company's common stock at the date of the warrant agreement). The warrants become exercisable over a three-year period (7,000 warrants per year in each of the first two years, and 6,000 warrants in the third year). The warrants expire in June 2000. Of the 104,150 warrants outstanding at July 31, 1996, 13,000 are unvested. F - 11 34 NOTE J - POLLUTION-RELATED EXPENSES The Company has settled several lawsuits related to groundwater contamination and has begun remediation activities. The remediation plan requires the Company to treat the groundwater to the extent necessary to reduce the contaminants to statutory levels. The following table shows pollution-related balance sheet activity (in thousands):
- ------------------------------------------------------------------------------------------------------------------- Reserve for Remediation Cost Long-term Debt - ------------------------------------------------------------------------------------------------------------------- Balance as of August 1, 1993 $ 2,881 $1,375 Remediation costs charged to accrued liability (1,258) - Settlement with chemical companies, cost recovery 750 - Payments related to settlements (561) (250) Defense cost of settlement (312) - - ------------------------------------------------------------------------------------------------------------------- Balance as of July 31, 1994 1,500 1,125 Remediation costs charged to accrued liability (567) - Payments related to settlements (180) (381) - ------------------------------------------------------------------------------------------------------------------- Balance as of July 31, 1995 753 744 Remediation costs charged to accrued liability (583) - Payments related to settlements - (106) Increase in reserve for remediation cost 2,800 - - ------------------------------------------------------------------------------------------------------------------- Balance as of July 31, 1996 $ 2,970 $638 - -------------------------------------------------------------------------------------------------------------------
At July 31, 1996, $1 million of the reserve for remediation cost is included in accrued liabilities and the remaining $1,970,000 is included in Other long-term liabilities. The $637,500 of long-term debt is due to the State of Michigan and is included in Long-term debt (see Note E). Total costs to the Company of pollution-related activities will be dependent upon the efficacy and duration of the remediation plan. The estimated future remediation cost is based on an expected treatment period of ten years and anticipated discharge methods for treated ground water. The ultimate costs to be incurred could exceed the amount provided for at July 31, 1996. However, it is the opinion of management that these additional costs, if any, will not have a material adverse effect on the Company's operations because the cash outflows would be spread over many future years. NOTE K-OTHER INCOME
Other income consists of the following as of July 31 (in thousands): 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------- Interest income $438 $ 211 $ 87 Rental income of Australian property 54 91 - Foreign exchange gain (loss) (27) 233 77 Gain on sale of Australian assets related to Laminar Air Flow products - - 108 Other, net 20 (126) (94) - ------------------------------------------------------------------------------------------------------------- $485 $ 409 $178 - -------------------------------------------------------------------------------------------------------------
NOTE L-OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA The principal products of the Company are grouped into two segments: the Filtration Products Group and the Health Products Group. Filtration Products are primarily comprised of laboratory products, certain membranes and process filtration products for the biotechnology, pharmaceutical, environmental and industrial markets. Health Products are primarily comprised of products for the medical and health industries, including custom-manufactured disposable filters and certain membranes for original equipment manufacturers in the healthcare field. In both of the segments, sales and distribution of the Company's products both F - 12 35 NOTE L-OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (CONTINUED) domestically and internationally are through Company salespeople and a network of distributors. Geographic area data is based on the point of sale not the location of the customer.
Dollars in thousands - ------------------------------------------------------------------------------------------- Net Operating Identifiable Depreciation Capital Sales Earnings Assets Expense Expenditures - ------------------------------------------------------------------------------------------- INDUSTRY SEGMENTS YEAR ENDED JULY 31, 1996 FILTRATION PRODUCTS GROUP $ 72,195 $10,063 $59,017 $3,228 $3,765 HEALTH PRODUCTS GROUP 38,128 5,605 28,419 1,413 2,408 OTHER 1,734 134 705 20 57 - ------------------------------------------------------------------------------------------- TOTALS $112,057 $15,802 $88,141 $4,661 $6,230 - ------------------------------------------------------------------------------------------- Year Ended July 31, 1995 Filtration Products Group $ 66,355 $11,036 $54,975 $3,042 $3,400 Health Products Group 34,807 6,295 25,626 1,278 4,259 Other 2,341 160 1,096 31 166 - ------------------------------------------------------------------------------------------- Totals $103,503 $17,491 $81,697 $4,351 $7,825 - ------------------------------------------------------------------------------------------- Year Ended July 31, 1994 Filtration Products Group $ 62,916 $ 9,749 $49,431 $3,039 $4,223 Health Products Group 29,461 4,833 20,918 1,325 2,338 Other 2,586 115 1,245 41 121 - ------------------------------------------------------------------------------------------- Totals $ 94,963 $14,697 $71,594 $4,405 $6,682 - -------------------------------------------------------------------------------------------
Dollars in Thousands - ------------------------------------------------------------------------------------------- Net Operating Identifiable Sales Earnings Assets Liabilities - ------------------------------------------------------------------------------------------- GEOGRAPHIC AREA DATA YEAR ENDED JULY 31, 1996 U.S. OPERATIONS $ 95,937 $13,883 $67,961 $18,311 EUROPE 20,263 877 11,899 2,563 ASIA/PACIFIC 8,590 743 7,036 2,516 OTHER 3,794 299 1,245 142 ELIMINATION - INTER-AREA SALES (16,527) - - - - ------------------------------------------------------------------------------------------- TOTALS $112,057 $15,802 $88,141 $23,532 - ------------------------------------------------------------------------------------------- Year Ended July 31, 1995 U.S. Operations $ 87,952 $15,521 $62,805 $18,423 Europe 16,514 995 10,775 1,965 Asia/Pacific 8,088 872 7,012 2,523 Other 3,297 103 1,105 97 Elimination - Inter-area sales (12,348) - - - - ------------------------------------------------------------------------------------------- Totals $103,503 $17,491 $81,697 $23,008 - ------------------------------------------------------------------------------------------- Year Ended July 31, 1994 U.S. Operations $ 80,147 $13,477 $56,685 $37,026 Europe 13,631 809 7,579 1,428 Asia/Pacific 9,300 328 6,264 2,649 Other 3,095 83 1,066 149 Elimination - Inter-area sales (11,210) - - - - ------------------------------------------------------------------------------------------- Totals $ 94,963 $14,697 $71,594 $41,252 - -------------------------------------------------------------------------------------------
F - 13 36 NOTE L-OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (CONTINUED) Operating earnings are total revenues less operating expenses excluding other expense (income) and corporate expenses of: 1996 - $9,825,406; 1995 - $6,599,000; 1994 - $5,649,000. Corporate expenses include an allocated share of administrative costs and pollution-related expenses. Identifiable assets by industry segment include both assets directly identified with those operations and an allocated share of jointly used assets. Corporate assets consist of an allocated share of the buildings, furniture and fixtures, and equipment. Asia/Pacific operations are represented by subsidiaries located in Japan and Australia. European operations are represented by subsidiaries located in the United Kingdom, Ireland, France, Germany and Italy. Export sales to unaffiliated customers were: 1996 - $12,154,220; 1995 - $9,667,000; 1994 - $9,239,000. Net sales to two major customers who distribute the Company's products, including sales to distributors who the two customers acquired during fiscal 1996, were $27.7 million, $29.6 million and $28.6 million in fiscal 1996, 1995 and 1994, respectively. NOTE M-FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Company uses various financial instruments as part of an overall strategy to manage exposure to market risk associated with interest and foreign exchange rate fluctuations. At July 31, 1996 the Company had foreign exchange contracts outstanding to exchange foreign currencies for U.S. dollars denominated in British pounds, Japanese yen, French francs, German deutschemarks and Italian lire, maturing at various dates. Maximum market risk is limited to the difference between the spot rate on the date of delivery and the contract price. At July 31, 1996, the Company had outstanding a 7.5% interest rate cap on $5 million notional amount effective May 1, 1995 through May 1, 1998. The interest rate cap agreement has been entered into with a major financial institution which is expected to fully perform under the terms of the agreement. During fiscal 1996, the Company entered into an interest rate swap agreement in connection with refinancing its Industrial Revenue Bonds. The agreement with a major financial institution fixes the floating interest rate at 5.89% through July 1, 2004, on a notional amount of $4,415,000. The financial institution which is party to the agreement is expected to fully perform under the terms of the agreement. The fair value of these instruments is estimated using year-end quoted market rates or settlement values as if such instruments had been terminated at year end. The carrying amounts and estimated fair value of the Company's financial instruments at July 31, 1996 and 1995 are as follows:
1996 1995 ---------------------------- --------------------------- Carrying Amount Fair Value Carrying Amount Fair Value --------------- ----------- --------------- ---------- Foreign currency contracts $4,304,000 $4,304,000 $3,328,000 $3,328,000 Interest rate cap 62,412 7,100 98,076 34,000 Interest rate swap - (75,000) - -
F - 14 37 NOTE N-EXTRAORDINARY ITEM During the year ended July 31, 1994, the Company redeemed the 7.98% Industrial Development Revenue Bonds issued in 1989. The Company recorded a charge of $295,000 net of $112,000 tax benefit or $.03 per share to write-off deferred finance charges and record a redemption premium and fees related to the 1989 Bonds. NOTE O-SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Summarized quarterly financial information for fiscal years ended July 31, 1996 and July 31, 1995 is presented below:
1996 QUARTER ENDED 1995 Quarter Ended - ------------------------------------------------------------------------------------------------------------ OCT 31 JAN 31 APR 30 JULY 31 Oct 31 Jan 31 Apr 30 July 31 - ------------------------------------------------------------------------------------------------------------ Net sales $27,335 $27,124 $29,502 $28,096 $24,167 $24,018 $26,893 $28,425 Gross profit 13,842 13,803 15,359 12,189 12,157 12,445 14,068 14,763 Research and development 1,491 1,464 1,643 1,660 1,308 1,316 1,366 1,508 Earnings (loss) before income taxes 2,910 2,813 3,309 (3,149) 1,909 1,989 3,104 2,985 Income taxes 988 957 676 (1,074) 678 733 1,133 821 Net earnings (loss) 1,922 1,856 2,633 (2,075) 1,231 1,256 1,971 2,164 Net earnings (loss) per share $ .24 $ .23 $ .32 ($.25) $ .19 $ .19 $ .26 $ .27 - ------------------------------------------------------------------------------------------------------------
The net loss for the fourth quarter of fiscal 1996 includes the effects of revisions of estimates made in prior periods and of certain non-recurring charges. Due to the nature of certain of these fourth quarter adjustments, it is not practicable to determine the effects, if any, on prior periods. These adjustments amounted to $5 million pre-tax and $3.3 million ($.40 per share) after tax. On a pre-tax basis, these adjustments consisted of $1,050,000 from inventory costing adjustments and a higher-than-normal provision for inventory obsolescence; $2.8 million increase in the reserve for environmental remediation, and $2.8 million of sales credits and bad debt expense in the fourth quarter of fiscal 1996 compared to $1.5 million of sales credits and bad debt expense in the fourth quarter of fiscal 1995. F - 15 38 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Stockholders Gelman Sciences Inc. Ann Arbor, Michigan We have audited the consolidated financial statements and the financial statement schedule of Gelman Sciences Inc. and Subsidiaries listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Gelman Sciences Inc. and Subsidiaries as of July 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended July 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Detroit, Michigan September 30, 1996 F-16 39 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS GELMAN SCIENCES INC. AND SUBSIDIARIES
Additions ------------------------------ Balance at Charged to Balance at beginning cost and Charged to end of Description of period expenses other accounts (1) Deductions (2) period - --------------------------------------------------------------------------------------------------------- YEAR ENDED JULY 31, 1996 $1,310,000 $870,000 $(8,000) $344,000 $1,828,000 Deducted from Asset Accounts- Accounts Receivable Allowance YEAR ENDED JULY 31, 1995 $ 790,000 $564,000 $(14,000) $ 30,000 $1,310,000 Deducted from Asset Accounts- Accounts Receivable Allowance YEAR ENDED JULY 31, 1994 $ 927,000 $296,000 $8,000 $441,000 $ 790,000 Deducted from Asset Accounts- Accounts Receivable Allowance - ---------------------------------------------------------------------------------------------------------
(1) Change is due to the effect of exchange rate changes on translating the allowance for accounts receivable account of foreign subsidiaries in accordance with FASB Statement No. 52, "Foreign Currency Translation." (2) Uncollectable accounts charged off, net of recoveries. 40 SIGNATURES Pursuant to the requirements of Section 13 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. By: /s/ Charles Gelman --------------------------------------- GELMAN SCIENCES INC. Charles Gelman, Chairman of the Board and Chief Executive Officer Dated: October 7, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on October 7, 1996. /s/ Charles Gelman ----------------------------------------------------- Chairman of the Board and Chief Executive Officer and Director /s/ Kim A. Davis ----------------------------------------------------- President and Chief Operating Officer /s/ George Uveges ----------------------------------------------------- Chief Financial Officer and Vice President - Administration /s/ Robert M. Collins ----------------------------------------------------- Director /s/ John A. Geishecker, Jr. ----------------------------------------------------- Director /s/ Saul H. Hymans ----------------------------------------------------- Director /s/ Nina I. McClelland ----------------------------------------------------- Director /s/ Charles Newman ----------------------------------------------------- Director 41 GELMAN SCIENCES INC. Report on Form 10-K for the fiscal year ended July 31, 1996. EXHIBIT INDEX
- ------------------------------------------------------------------------------------------------ OFFICIAL SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. - ------------------------------------------------------------------------------------------------ 2 Agreement and Plan of Reorganization and Merger By and Among Memtec Limited, GSI Acquisition Corporation and the Company, incorporated by reference to the Form F-4 Registration Statement filed with the Securities and Exchange Commission by Memtec Limited on or about October 17, 1996. 3(i) Restated Articles of Incorporation, incorporated by reference to Exhibit (3)(1) to the Company's Form 10-Q for the quarterly period ended January 31, 1995. 3(ii) Bylaws, as amended December 14, 1995, by the Board of Directors. 4.1 Pursuant to 17 CFR 229.601(b)(4)(iii), instruments with respect to long-term debt issues have been omitted where the amount of securities authorized under each such instrument does not exceed 10% of the total consolidated assets of the Company. The Company hereby agrees to furnish a copy of each such instrument to the Commission upon its request. 10.1 1978 Employee Stock Option Plan, as amended, incorporated by reference to Exhibit 10(2) to the Company's Form 10-K for the year ended July 31, 1987. 10.2 1988 Stock Plan, incorporated by reference to Exhibit 10(6) to the Company's Form 10-K for the year ended July 31, 1988. 10.3 Warrant Agreement, dated December 16, 1987, with John A. Geishecker, incorporated by reference to Exhibit 28.4 to the Company's Form S-8 Registration Statement No. 33-37235 filed with the Securities and Exchange Commission on October 9, 1990.
42
- ------------------------------------------------------------------------------------------------ OFFICIAL SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. - ------------------------------------------------------------------------------------------------ 10.4 Warrant and Stock Appreciation Rights Agreement, dated January 12, 1989, with John A. Geishecker, incorporated by reference to Exhibits 28.7 to the Company's Form S-8 Registration Statement No. 33-37235 filed with the Securities and Exchange Commission on October 9, 1990. 10.5 Warrant Agreement, dated January 12, 1989, with Nina I. McClelland, incorporated by reference to Exhibit 28.10 to the Company's Form S-8 Registration Statement No. 33-37235 filed with the Securities and Exchange Commission on October 9, 1990. 10.6 Warrant Agreement, dated September 2, 1992, with Charles Newman, incorporated by reference to Exhibit 10(14) to the Company's Form 10-K for year ended July 31, 1993. 10.7 Consent Judgment in Kelley v. Gelman Sciences Inc. entered October 26, 1992, incorporated by reference to Exhibit 10(15) to the Company's Form 10-K for year ended July 31, 1993. 10.8 Amendment entered September 23, 1996, to the Consent Judgment in Kelley v. Gelman Sciences Inc. entered October 26, 1992. 10.9 Consent Judgment in State of Michigan v. Gelman Sciences Inc. entered October 26, 1992, incorporated by reference to Exhibit 10(16) to the Company's Form 10-K for year ended July 31, 1993. 10.10 Warrant Agreement, dated June 17, 1994, with Robert Collins, incorporated by reference to Exhibit 10(16) to the Company's Form 10-K for the year ended July 31, 1994. 10.11 Warrant Agreement, dated June 17, 1994, with John Geishecker, Jr., incorporated by reference to Exhibit 10(17) to the Company's Form 10-K for the year ended July 31, 1994. 10.12 Warrant Agreement, dated June 17, 1994, with Saul Hymans, incorporated by reference to Exhibit 10(18) to the Company's Form 10-K for the year ended July 31, 1994. 10.13 Warrant Agreement, dated June 17, 1994, with Nina McClelland, incorporated by reference to Exhibit 10(19) to the Company's Form 10-K for the year ended July 31, 1994.
43
- ------------------------------------------------------------------------------------------------ OFFICIAL SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. - ------------------------------------------------------------------------------------------------ 10.14 Warrant Agreement, dated June 17, 1994, with Charles Newman, incorporated by reference to Exhibit 10(20) to the Company's Form 10-K for the year ended July 31, 1994. 10.15 Confidentiality, Anti-Competition and Termination Benefits Agreement between Mark A. Sutter and the Company, incorporated by reference to Exhibit 10(21) to the Company's Form 10-K for the year ended July 31, 1994. 10.16 Confidentiality, Anti-Competition and Termination Benefits Agreement between Edward J. Levitt and the Company, incorporated by reference to Exhibit 10(22) to the Company's Form 10-K for the year ended July 31, 1994. 10.17 Employment Agreement dated August 1, 1995, between the Company and Kim A. Davis, incorporated by reference to Exhibit 10(21) to the Company's Form 10-K/A (Amendment No. 1 for the fiscal year ended July 31, 1995), filed August 5, 1996. 10.18 First Amendment dated May 1, 1996, to Employment Agreement dated August 1, 1995, between the Company and Kim A. Davis. 10.19 Employment Agreement dated August 1, 1995, between the Company and Charles Gelman, incorporated by reference to Exhibit 10(22) to the Company's Form 10-K/A (Amendment No. 1 for the fiscal year ended July 31, 1995), filed with the Securities and Exchange Commission August 5, 1996. 10.20 First Amendment dated May 1, 1996, to Employment Agreement dated August 1, 1995, between the Company and Charles Gelman. 10.21 Waiver and Release dated May 1, 1996, by Kim A. Davis and Charles Gelman in favor of each other and in favor of the Company. 10.22 Service Agreement dated June 19, 1984, between Anthony Paul Kelly, the Company and Gelman Sciences Pty. Ltd. 10.23 Letter Agreement dated February 28, 1993, between Anthony Paul Kelly, the Company and Gelman Sciences Pty. Ltd., amending the Service Agreement dated June 19, 1984, between Anthony Paul Kelly, the Company and Gelman Sciences Pty. Ltd.
44
- ------------------------------------------------------------------------------------------------ OFFICIAL SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. - ------------------------------------------------------------------------------------------------ 10.24 Letter Agreement dated September 21, 1995, between Anthony Paul Kelly, the Company and Gelman Sciences Pty. Ltd., amending the Service Agreement dated June 19, 1984, between Anthony Paul Kelly, the Company and Gelman Sciences Pty. Ltd. (Exhibit 10.18), as amended by the Letter Agreement dated February 28, 1993, between Anthony Paul Kelly, the Company and Gelman Sciences Pty. Ltd. 10.25 Promissory Note dated July 29, 1994, by Kelly Company Pty. Ltd. to Gelman Sciences Pty. Ltd. 10.26 Amendment dated August 1, 1996, of Promissory Note dated July 29, 1994, by Kelly Company Pty. Ltd. to Gelman Sciences Pty. Ltd. 10.27 Non-Employee Director Stock Plan ratified and approved by shareholder resolution at the Annual Meeting of Shareholders of the Company held on December 15, 1996. 10.28 Executive Stock Ownership Plan ratified and approved by shareholder resolution at the Annual Meeting of Shareholders of the Company held on December 15, 1996. 10.29 Employment Agreement dated June 3, 1996, between George Uveges and the Company. 10.30 Non-Qualified Stock Option Agreement dated August 21, 1996, with George Uveges. 10.31 Non-Qualified Stock Option Agreement dated August 21, 1996, with Kim A. Davis. 11 Statement re computation of per share earnings for years ended July 31, 1996, 1995 and 1994. 21 Subsidiaries of the Registrant. 27 Financial Data Schedules
EX-3.(II) 2 BYLAWS 1 EXHIBIT 3(ii) BYLAWS OF GELMAN SCIENCES INC. A MICHIGAN CORPORATION Revised as of December 14, 1995 2 BYLAWS OF GELMAN SCIENCES INC. A MICHIGAN CORPORATION TABLE OF CONTENTS PAGE ---- ARTICLE I - OFFICES 1.1 Registered Office 1 1.2 Other Offices 1 ARTICLE II - MEETINGS OF SHAREHOLDERS 2.1 Time and Place 1 2.2 Annual Meetings 1 2.3 Special Meetings 1 2.4 Notice of Meetings 1 2.5 List of Shareholders 2 2.6 Quorum; Adjournment 2 2.7 Voting 2 2.8 [RESERVED] 2 2.9 Inspectors of Election 2 2.10 [RESERVED] 3 ARTICLE III - DIRECTORS 3.1 Number and Residence 3 3.2 Election and Term 3 3.3 Resignation 3 3.4 Removal 3 3.5 Nominations for Director 3 3.6 Vacancies 4 3.7 Place of Meetings 4 3.8 [RESERVED] 4 3.9 Regular Meetings 5 3.10 Special Meetings 5 3.11 Quorum 5 3.12 Voting 5 3.13 Telephonic Participation 5 3.14 Action by Written Consent 5 3.15 Committees 5 3.16 Compensation 6 i 3 PAGE ---- ARTICLE IV - OFFICERS 4.1 Officers and Agents 6 4.2 Compensation 6 4.3 Term 6 4.4 Removal 7 4.5 Resignation 7 4.6 Vacancies 7 4.7 Chairman of the Board 7 4.8 President 7 4.9 Executive Vice Presidents and Vice Presidents 7 4.10 Secretary 7 4.11 Treasurer 8 4.12 Assistant Vice Presidents, Secretaries and Treasurers 8 4.13 Execution of Contracts and Instruments 8 4.14 Voting of Shares and Securities of Other Corporations and Entities 8 ARTICLE V - NOTICES AND WAIVERS OF NOTICE 5.1 Delivery of Notices 9 5.2 Waiver of Notice 9 ARTICLE VI - SHARE CERTIFICATES AND SHAREHOLDERS OF RECORD 6.1 Certificates for Shares 9 6.2 Lost or Destroyed Certificates 9 6.3 Transfer of Shares 10 6.4 Record Date 10 6.5 Registered Shareholders 10 ARTICLE VII - INDEMNIFICATION 10 ARTICLES VIII - GENERAL PROVISIONS 8.1 Checks and Funds 11 8.2 Fiscal Year 11 8.3 Corporate Seal 11 8.4 Books and Records 11 8.5 Financial Statements 11 ARTICLE IX - AMENDMENTS 11 ARTICLE X - CONTROL SHARE ACQUISITIONS 12 ARTICLE XI - SCOPE OF BYLAWS 12 ii 4 GELMAN SCIENCES INC. ARTICLE I OFFICES 1.1 Registered Office. The registered office of the Corporation shall be located at such place in Michigan as the Board of Directors from time to time determines. 1.2 Other Offices. The Corporation may also have offices or branches at such other places as the Board of Directors from time to time determines or the business of the Corporation requires. ARTICLE II MEETINGS OF SHAREHOLDERS 2.1 Time and Place. All meetings of the shareholders shall be held at such place and time as the Board of Directors determines. 2.2 Annual Meetings. An annual meeting of shareholders shall be held on a date, not later than 180 days after the end of the immediately preceding fiscal year, to be determined by the Board of Directors. At the annual meeting, the shareholders shall elect directors and transact such other business as is properly brought before the meeting and described in the notice of meeting. If the annual meeting is not held on its designated date, the Board of Directors shall cause it to be held as soon thereafter as convenient. Failure to hold an annual meeting at the designated date shall not invalidate any otherwise valid corporate acts. A proposal, other than a nomination of persons for election to the Board of Directors complying with the provisions of Section 3.5 of these Bylaws, by one or more shareholders shall not be properly brought before an annual meeting if made and received by the Corporation less than 120 days in advance of the date, disregarding the year, of the proxy for the previous annual meeting. Any proposal by one or more shareholders shall be deemed to be made for consideration at the next annual meeting of shareholders only. 2.3 Special Meetings. Special meetings of the shareholders, for any purpose, (a) may be called by the Chairman of the Board or the Board of Directors, and (b) shall be called by the President or Secretary upon written request (stating the purpose for which the meeting is to be called) of the holders of a majority of all the shares entitled to vote at the meeting. 2.4 Notice of Meetings. Written notice of each shareholders' meeting, stating the place, date and time of the meeting and the purposes for which the meeting is called, shall be given (in the manner described in Section 5.1 below) not less than 10 nor more than 60 days before the date of the meeting to each shareholder of record entitled to vote at the meeting. Notice of adjourned meetings is governed by Section 2.6 below. 1 5 2.5 List of Shareholders. The officer or agent who has charge of the stock ledger or stock transfer books for shares of the Corporation shall make and certify a complete list of the shareholders entitled to vote at a shareholders' meeting or any adjournment of the meeting. The list shall be arranged alphabetically within each class and series and shall show the address of, and the number of shares held by, each shareholder. The list shall be produced at the meeting and may be inspected by any shareholders at any time during the meeting. The list shall be prima facie evidence as to the shareholders entitled to examine it or vote at the meeting. 2.6 Quorum; Adjournment. At all shareholders' meetings, the shareholders present in person or represented by proxy who, as of the record date for the meeting, were holders of a majority of the outstanding shares of the Corporation entitled to vote at the meeting, shall constitute a quorum. Once a quorum is present at a meeting, all shareholders present in person or represented by proxy at the meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Regardless of whether a quorum is initially present, a shareholders' meeting may be adjourned to another time and place by a vote of the shares present in person or by proxy without notice other than announcement at the meeting; provided, that (a) only such business may be transacted at the adjourned meeting as might have been transacted at the original meeting; and (b) if the adjournment is for more than 60 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting must be given to each shareholder of record entitled to vote at the meeting. 2.7 Voting. Each shareholder shall at every meeting of the shareholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such shareholder except as otherwise expressly required in the Articles of Incorporation. A vote may be cast either orally or in writing. When an action, other than the election of directors, is to be taken by a vote of the shareholders, it shall be authorized by a majority of the votes cast by the holders of shares entitled to vote thereon, unless a greater plurality is required by the Articles of Incorporation or applicable law. Except as otherwise provided by the Articles of Incorporation, directors shall be elected by a plurality of the votes cast at an election. Each proxy shall be in writing and signed by the shareholder or the shareholder's authorized agent or representative. A proxy is not valid after the expiration of six months after its date unless otherwise provided in the proxy. All questions regarding the qualification of voters, the validity of proxies and the acceptance or rejection of votes shall be decided by the presiding officer of the meeting. 2.8 [RESERVED] 2.9 Inspectors of Election. The Board of Directors, in advance of a shareholders' meeting, may appoint one or more inspectors (who may be employees of the Corporation) to act at the meeting or any adjournment of the meeting. If inspectors are not so appointed, the officer presiding at the shareholders' meeting may, and on request of a shareholder entitled to vote at the meeting shall, appoint one or more inspectors. If an appointed inspector fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors before the meeting or at the meeting by the presiding officer. If appointed, the inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies; receive votes, ballots or consents; hear and determine challenges and questions arising in 2 6 connection with the right to vote; count and tabulate votes, ballots or consents; determine the result of the election or vote; and do such acts as are proper to conduct the election or vote with fairness to all shareholders. In the absence of an inspector, all of the determinations and actions described in the preceding sentence shall be made and taken by the officer presiding at the meeting. On request of the officer presiding at the meeting or a shareholder entitled to vote at the meeting, the inspectors shall make and execute a written report to the presiding officer of any of the facts found by them and matters determined by them. The report is prima facie evidence of the facts stated and the vote as certified by the inspectors. 2.10 [RESERVED] ARTICLE III DIRECTORS 3.1 Number and Residence. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not less than three nor more than eleven members. The number of Directors shall be determined from time to time solely by a resolution adopted by an affirmative vote of a majority of the entire Board of Directors. The Directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of Directors constituting the entire Board of Directors. At the 1985 Annual Meeting of Shareholders, Class I Directors were elected for a one-year term, Class II Directors for a two-year term and Class III Directors for a three-year term. At each succeeding annual meeting of shareholders, commencing in 1986, successors to the class of Directors whose term expires at that annual meeting shall be elected for a three-year term. Directors need not be Michigan residents or shareholders of the Corporation. 3.2 Election and Term. Except as provided in Section 3.6 below, Directors shall be elected at the annual shareholders' meeting. Each Director elected shall hold office for the term for which he or she is elected and until his or her successor is elected and qualified or until his or her death, resignation, retirement, disqualification or removal. 3.3 Resignation. A Director may resign by written notice to the Corporation. A Director's resignation is effective upon its receipt by the Corporation or a later time set forth in the notice of resignation. 3.4 Removal. A Director or the entire Board may be removed only for cause. 3.5 Nominations for Director. Only persons who are nominated in accordance with the procedures set forth in this Section 3.5 shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at the annual meeting of shareholders by or at the direction of the Board of Directors or by any shareholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 3.5. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than 60 days nor 3 7 more than 90 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a Director, (1) the name, age, business address and residence address of such person, (2) the principal occupation or employment of such person, (3) the class and number of shares of the Corporation which are beneficially owned by such person and (4) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including each such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (b) as to the shareholder giving the notice (1) the name and address, as they appear on the Corporation's books, of such shareholder and (2) the class and number of shares of the Corporation which are beneficially owned by such shareholder. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if the Chairman should so determine, the Chairman shall so declare to the meeting and the defective nominations shall be disregarded. 3.6 Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of Directors may be filled by the affirmative vote of a majority of the remaining Directors (even if less than a quorum) or by a sole remaining Director. Each Director so chosen shall hold office until the next election of the class for which such Director shall be chosen and until his or her successor is duly elected and qualified, or until his or her resignation or removal. Directors elected to fill vacancies shall be in the same class as the Director they replaced. If the number of Directors is changed, any increase or decrease shall be apportioned among the classes of Directors so as to maintain the number of Directors in each class as nearly equal as possible, but in no case will a decrease in the number of Directors shorten the term of any incumbent Director 3.7 Place of Meetings. The Board of Directors may hold meetings at any location. The location of annual and regular Board of Directors' meetings shall be determined by the Board and the location of special meetings shall be determined by the Chairman of the Board. 3.8 [RESERVED] 3.9 Regular Meetings. Regular meetings of the Board of Directors or Board committees may be held without notice at such places and times as the Board or committee determines at least 30 days before the date of the meeting. 3.10 Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or President, and shall be called by the President or Secretary upon the written request of two Directors, on two days notice to each Director or committee member by mail or 24 hours notice either personally, by telephone, telegram, or telex. The notice must specify the place of the special meeting, but need not specify the business to be transacted or 4 8 the purpose of the meeting. Special meetings of Board committees may be called by the Chairman of the committee or a majority of committee members pursuant to this Section 3.10. 3.11 Quorum. At all meetings of the Board or a Board committee, a majority of the Directors then in office or members of such committee shall constitute a quorum for the transaction of business. If a quorum is not present at any Board or Board committee meeting, a majority of the Directors present at the meeting may adjourn the meeting to another time and place without notice other than announcement at the meeting. Any business may be transacted at the adjourned meeting which might have been transacted at the original meeting, provided a quorum is present. 3.12 Voting. The vote of a majority of the members at any Board of Board committee meeting at which there is a quorum shall be the act of the Board of Directors or the committee, unless a higher vote is otherwise required. 3.13 Telephonic Participation. Members of the Board of Directors or any Board committee may participate in a Board or Board committee meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Section 3.13 shall constitute presence in person at such meeting. 3.14 Action by Written Consent. Any action required or permitted to be taken at any Board or Board committee meeting may be taken without a meeting, if, before or after the action, all members of the Board or committee consent in writing to the action. Such consents shall be filed with the minutes of proceedings of the Board or committee and shall have the same effect as a vote of the Board or committee for all purposes. 3.15 Committees. (a) Executive Committee. There shall be an Executive Committee consisting of not less than two members of the Board of Directors with the members thereof designated by the Board of Directors. During the intervals between meetings of the Board of Directors and subject to such limitations as provided by law or by resolution of the Board of Directors, the Executive Committee shall possess and may exercise all powers and authority of the Board of Directors in the management and direction of the affairs of the Corporation. (b) Audit Committee. There shall be an Audit Committee consisting of not less than two members of the Board of Directors with the members thereof designated by the Board of Directors. The Audit Committee shall nominate the Corporation's independent auditors for approval by the Board of Directors; review with the independent auditors the scope, cost and results of the auditing engagement; review and approve fees for audit services provided by the independent auditors; review the fees for nonaudit professional services provided by the independent auditors; review the reports submitted by the independent auditors; and review the adequacy of the Corporation's system of internal accounting controls. The Audit Committee shall perform such other duties as the Board of Directors may prescribe. (c) Compensation Committee. There shall be a Compensation Committee consisting of not less than two members of the Board of Directors with the members thereof designated by the Board of Directors. The Compensation Committee shall recommend to the 5 9 Board of Directors compensation arrangements for senior management and directors; recommend to the Board of Directors compensation plans in which officers and directors are eligible to participate; and administer those employee benefit plans as designated by the Board of Directors. The Compensation Committee shall perform such other duties as the Board of Directors may prescribe. (d) Committee Vacancies; Quorum, Voting and Procedures. Each committee and its members shall serve at the pleasure of the Board of Directors, which may at any time change the members and powers of, or discharge, the committee. Each committee shall keep regular minutes of its meetings and report them to the Board of Directors when required. A majority of all members of a committee shall constitute a quorum, and the affirmative vote of a majority of all the members of a committee shall constitute the action of the committee. Each committee shall determine its own rules of procedure and shall meet as provided by such rules, or by resolution of the Board of Directors. (e) Other Committees. From time to time, the Board of Directors may constitute and appoint any other committee or committees which the Board may deem necessary or proper for the conduct of the Corporation's business. Any such committee created by the Board of Directors shall have such duties, powers and authority as shall be specified in the resolution constituting such committee. 3.16 Compensation. The Board, by affirmative vote of a majority of Directors in office and irrespective of any personal interest of any of them, may establish reasonable compensation of Directors for services to the Corporation as directors, officers or members of a Board committee. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation for such service. ARTICLE IV OFFICERS 4.1 Officers and Agents. The Board of Directors shall elect a Chairman of the Board, a President, a Secretary and a Treasurer, and may also elect a Vice Chairman of the Board and one or more Executive Vice Presidents, Vice Presidents, Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers. The Board of Directors may also from time to time appoint such other officers and agents as it deems advisable. Any number of offices may be held by the same person, but no officer shall execute, acknowledge or verify an instrument in more than one capacity. The officers shall have such powers and duties as may be prescribed by the Board of Directors and, to the extent not so prescribed, as set forth in this Article IV and as generally pertain to their offices, subject to the control of the Board of Directors. 4.2 Compensation. The compensation of all officers of the Corporation shall be fixed by the Board of Directors. 4.3 Term. Each officer of the Corporation shall hold office for the term for which he or she is elected or appointed and until his or her successor is elected or appointed and qualified, or until his or her resignation or removal. The election or appointment of an officer does not, by itself, create any contract rights. 6 10 4.4 Removal. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board with or without cause. 4.5 Resignation. An officer may resign by written notice to the Corporation. The resignation is effective upon its receipt by the Corporation or at a later time specified in the notice of resignation. 4.6 Vacancies. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. 4.7 Chairman of the Board. The Chairman of the Board, if such office is filled, shall be the chief executive officer of the Corporation and a Director, and shall preside at all shareholders' and Board of Directors' meetings. The Chairman of the Board shall have the general powers of supervision and management of the business and affairs of the Corporation usually vested in the chief executive officer of a corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chairman of the Board may delegate to the other officers such of his or her authority and duties at such time and in such manner as he or she deems advisable. 4.8 President. In the absence or non-election of a Chairman of the Board, the President shall preside at all shareholders' and Board of Directors' meetings, and shall perform the duties and execute the authority of the Chairman of the Board. If the office of Chairman of the Board is filled, the President shall be the chief operating officer of the Corporation and shall assist the Chairman of the Board in the supervision and management of the business and affairs of the Corporation. The President may delegate to the officers other than the Chairman of the Board such of his or her authority and duties at such time and in such manner as he or she deems appropriate. 4.9 Executive Vice Presidents and Vice Presidents. The Executive Vice Presidents and Vice Presidents shall assist and act under the direction of the Chairman of the Board and President. The Board of Directors may designate one or more Executive Vice Presidents and may grant other Vice Presidents titles which describe their functions or specify their order of seniority. In the absence or disability of the President, the authority of the President shall descend to the Executive Vice Presidents or, if there are none, to the Vice Presidents in the order of seniority indicated by their titles or otherwise specified by the Board. If not specified by their titles or the Board, the authority of the President shall descend to the Executive Vice Presidents or, if there are none, to the Vice Presidents, in the order of their seniority in such office. 4.10 Secretary. The Secretary shall act under the direction of the Chairman of the Board and President. The Secretary shall attend all shareholders' and Board of Directors' meetings, record minutes of the proceedings and maintain the minutes and all documents evidencing corporate action taken by written consent of the shareholders and Board of Directors in the Corporation's minute book. The Secretary shall perform these duties for Board committees when required. The Secretary shall see to it that all notices of shareholders' meetings and special Board of Directors' meetings are duly given in accordance with applicable law, the Articles of Incorporation and these Bylaws. The Secretary shall have custody of the 7 11 Corporation's seal and, when authorized by the Chairman of the Board, President or the Board of Directors, shall affix the seal to any instrument requiring it and attest such instrument. 4.11 Treasurer. The Treasurer shall act under the direction of the Chairman of the Board and President. The Treasurer shall have custody of the corporate funds and securities and shall keep full and accurate accounts of the Corporation's assets, liabilities, receipts and disbursements in books belonging to the Corporation. The Treasurer shall deposit all moneys and other valuables in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Chairman of the Board, the President or the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board, the President and the Board of Directors (at its regular meetings or whenever they request it) an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond for the faithful discharge of his or her duties in such amount and with such surety as the Board prescribes. 4.12 Assistant Vice Presidents, Secretaries and Treasurers. The Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, if any, shall act under the direction of the Chairman of the Board, the President and the officer they assist. In the order of their seniority, the Assistant Secretaries shall, in the absence or disability of the Secretary, perform the duties and exercise the authority of the Secretary. The Assistant Treasurers, in the order of their seniority, shall, in the absence or disability of the Treasurer, perform the duties and exercise the authority of the Treasurer. 4.13 Execution of Contracts and Instruments. The Board of Directors may designate an officer or agent with authority to execute any contract or other instrument on the Corporation's behalf; the Board may also ratify or confirm any such execution. If the Board authorizes, ratifies or confirms the execution of a contract or instrument without specifying the authorized executing officer or agent, the Chairman of the Board, the President or any Executive Vice President or Vice President may execute the contract or instrument in the name and on behalf of the Corporation and may affix the corporate seal to such document or instrument. 4.14 Voting Shares and Securities of Other Corporations and Entities. Unless the Board of Directors otherwise directs, the Chairman of the Board shall be entitled to vote or designate a proxy to vote all shares and other securities which the Corporation owns in any other corporation or entity. 8 12 ARTICLE V NOTICES AND WAIVERS OF NOTICE 5.1 Delivery of Notices. All written notices to shareholders, Directors and Board committee members shall be delivered personally or by mail (registered, certified or other first class mail, with postage pre-paid), addressed to such person at his or her address as it appears on the Corporation's records or, with respect to a Director, at his or her office on the Corporation's premises. Written notices to Directors or Board committee members may also be delivered by telegram, telex, radiogram, cablegram, facsimile, computer transmission or similar form of communication, addressed to either address referred to in the preceding sentence. Notices delivered pursuant to this Section 5.1 shall be deemed to be given at the time when mailed or otherwise dispatched. The Corporation shall have no duty to change the written address of any Director, Board committee member or shareholder unless the Secretary receives written notice of such address change. 5.2 Waiver of Notice. Any required notice may be waived in writing (signed by the person entitled to the notice or his or her duly authorized attorney or legal representative), either before or after the event requiring notice, or in such other manner as permitted by statute. Neither the business to be transacted at, nor the purpose of, the meeting need be specified in the written waiver of notice. Attendance at any shareholders' meeting (in person or by proxy) or any Board or Board committee meeting constitutes a waiver of notice of the meeting except if the person attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE VI SHARE CERTIFICATES AND SHAREHOLDERS OF RECORD 6.1 Certificates for Shares. The shares of the Corporation shall be represented by certificates signed by the Chairman or Vice Chairman of the Board, President, Executive Vice President or Vice President and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary. The officers' signatures may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation or its employee. If any officer who has signed or whose facsimile signature has been placed upon a certificate ceases to be such officer before the certificate is issued, it may be issued by the Corporation with the same effect as if the person were such officer at the date of issue. 6.2 Lost or Destroyed Certificates. The Board of Directors may direct or authorize an officer to direct that a new certificate for shares be issued in place of any certificate alleged to have been lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors or officer may, in its discretion and as a condition precedent to the issuance thereof, require the owner (or the owner's legal representative) of such lost or destroyed certificate to give the Corporation an affidavit claiming that the certificate is lost or destroyed or a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to such certificate or both. 9 13 6.3 Transfer of Shares. Shares of the Corporation are transferable only on the Corporation's stock transfer books upon surrender to the Corporation or its transfer agent of a certificate for the shares, duly endorsed for transfer, and the presentation of such evidence of ownership and validity of the transfer as the Corporation requires. 6.4 Record Date. The Board of Directors may fix, in advance, a date as the record date for determining shareholders for any purpose, including determining shareholders entitled to (a) notice of, and to vote at, any shareholders' meeting or any adjournment of such meeting; (b) express consent or dissent from a proposal without a meeting; or (c) receive payment of any dividend or other distribution or allotment of any rights. The record date shall not be more than 60 nor less than 10 days before the date of the meeting, nor more than 60 days before any other action. If a record date is not fixed: (a) the record date for determining the shareholders entitled to notice of, or to vote at, a shareholders' meeting shall be the close of business on the day next preceding the day on which notice of the meeting is given, or, if notice is not given, the close of business on the day next preceding the day on which the meeting is held; and (b) the record date for determining shareholders for any other purpose shall be the close of business on the day on which the Board of Directors adopts the resolution relating to the action. A determination of shareholders of record entitled to notice of, or to vote at, a shareholders' meeting shall apply to any adjournment of the meeting except that the Board of Directors may fix a new record date for the adjourned meeting. Only shareholders of record on the record date shall be entitled to notice of, or to participate in, the action relating to the record date, notwithstanding any transfer of shares on the Corporation's books after the record date. This Section 6.4 shall not affect the rights of a shareholder and the shareholder's transferor or transferee as between themselves. 6.5 Registered Shareholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of a share for all purposes, including notices, voting, consents, dividends and distributions, and shall not be bound to recognize any other person's equitable or other claim to interest in such share, regardless of whether it has actual or constructive notice of such claim or interest. ARTICLE VII INDEMNIFICATION The Corporation shall indemnify to the fullest extent authorized or permitted by the Michigan Business Corporation Act any person, and his heirs, executors, administrators and legal representatives, who is made or threatened to be made a party to an action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that such person is or was a director or officer of the Corporation or serves or served, at the request of the 10 14 Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, and may provide such other indemnification to directors, officers, employees and agents by insurance, contract or otherwise as is permitted by law and authorized by the Board of Directors. ARTICLE VIII GENERAL PROVISIONS 8.1 Checks and Funds. All checks, drafts or demands for money and notes of the Corporation must be signed by such officer or officers or such other person or persons as the Board of Directors from time to time designates. All funds of the Corporation not otherwise employed shall be deposited or used as the Board of Directors from time to time designates. 8.2 Fiscal Year. The fiscal year of the Corporation shall end on July 31 or such other date as the Board of Directors from time to time determines. 8.3 Corporate Seal. The Board of Directors may adopt a corporate seal for the Corporation. The corporate seal, if adopted, shall be circular and contain the name of the Corporation and the words "Corporate Seal Michigan". The seal may be used by causing it or a facsimile of it to be impressed, affixed, reproduced or otherwise. 8.4 Books and Records. The Corporation shall keep within or outside of Michigan books and records of account and minutes of the proceedings of its shareholders, Board of Directors and Board committees, if any. The Corporation shall keep at its registered office or at the office of its transfer agent within or outside of Michigan records containing the names and addresses of all shareholders, the number, class and series of shares held by each and the dates when they respectively became recordholders of shares. Any of such books, records or minutes may be in written form or in any other form capable of being converted into written form within a reasonable time. 8.5 Financial Statements. The Corporation shall deliver to its shareholders, within four months after the beginning of each fiscal year, a financial report (including a statement of income, year-end balance sheet, and, if prepared by the Corporation, its statement of sources and application of funds) covering the preceding fiscal year of the Corporation. ARTICLE IX AMENDMENTS These Bylaws may be amended or repealed, or new Bylaws may be adopted, by action of either the shareholders or a majority of the Board of Directors then in office. The shareholders may from time to time specify particular provisions of the Bylaws which may not be altered or repealed by the Board of Directors. 11 15 ARTICLE X CONTROL SHARE ACQUISITIONS Section 1. Control shares acquired in a control share acquisition, with respect to which no acquiring person statement has been filed with the Corporation, may, at any time during the period ending 60 days after the last acquisition of control shares or the power to direct the exercise of voting power of control shares by the acquiring person, be redeemed by the Corporation at the fair value of the shares. Section 2. After an acquiring person statement has been filed and after the meeting at which the voting rights of the control shares acquired in a control share acquisition are submitted to the shareholders, the shares are subject to redemption by the Corporation at the fair value of the shares unless the shares are accorded full voting rights by the shareholders as provided in Section 798 of the Michigan Business Corporation Act. Section 3. A redemption of shares by the Corporation pursuant to Sections 1 or 2 shall be made upon election by the Board of Directors. Written notice of the election shall be sent to the acquiring person within seven days after the election is made. The determination of the Board of Directors as to fair value shall be conclusive. Payment shall be made for the control shares subject to redemption within 30 days after the election to redeem is made at a date and place selected by the Board of Directors. The Board of Directors may adopt additional procedures to accomplish a redemption. Section 4. This Article X is adopted pursuant to Section 799 of the Michigan Business Corporation Act, and the terms used in this section shall have the meanings of the terms in Section 799. ARTICLE XI SCOPE OF BYLAWS These Bylaws govern the regulation and management of the affairs of the Corporation to the extent that they are consistent with applicable law and the Articles of Incorporation. Rev.:121495 12 EX-10.8 3 AMENDMENT TO CONSENT JUDGEMENT 1 EXHIBIT 10.8 STATE OF MICHIGAN IN THE CIRCUIT COURT FOR THE COUNTY OF WASHTENAW FRANK J. KELLEY, Attorney General for the State of Michigan, ex rel, MICHIGAN NATURAL RESOURCES COMMISSION, MICHIGAN WATER RESOURCES COMMISSION, and MICHIGAN DEPARTMENT OF NATURAL RESOURCES, Plaintiffs, File No. 88-34734-CE v Honorable Melinda Morris GELMAN SCIENCES, INC., a Michigan corporation, Defendant. ________________________________________________________________________________ Robert P. Reichel (P31878) David H. Fink (P28235) Assistant Attorney General Alan D. Wasserman (P39509) Natural Resources Division Cooper, Fink & Zausmer, P.C. Knapps Office Centre 31700 Middlebelt Road 300 South Washington Suite 150 Suite 530 Farmington Hills, MI 48018 Lansing, MI 48913 Telephone: (313) 851-4111 Telephone: (517) 335-1488 Attorneys for Defendant Attorney for Plaintiffs ________________________________________________________________________________ AMENDMENT TO CONSENT JUDGMENT 2 A Consent Judgment was entered in this case on October 26, 1992. The Consent Judgment requires Defendant, Gelman Sciences, Inc., to implement various remedial actions to address environmental contamination in the vicinity of Defendant's property in Scio Township, subject to the approval of the Michigan Department of Natural Resources ("MDNR"). Since the entry of the Consent Judgment, Executive Order 1995-18 reorganized the MDNR and transferred the MDNR functions relevant to this action to a new Michigan Department of Environmental Quality ("MDEQ"). Since the entry of the Consent Judgment, state environmental laws relevant to this action, including the former Michigan Environmental Response Act, 1982 PA 307, as amended, have been recodified and amended as Part 201 of the Natural Resources and Environmental Protection Act ("NREPA"), 1994 PA 451, as amended, MCL 324.20101 et. seq. Those amendments have changed cleanup criteria, MCL 324.20120a, and, in MCL 324.20102a, required the MDEQ to approve requests by persons implementing response activities to change plans for such response activity to be consistent with the new cleanup criteria. Defendant has requested the MDEQ to approve changes in the Remedial Action Plan attached to the Consent Judgment. The MDEQ has agreed that certain changes to the Remedial Action Plan are appropriate. The Parties have agreed that it is appropriate to establish schedules for submittal and completion of certain remaining response activities at the site. 1 3 THEREFORE, the Parties agree to this Amendment to the Consent Judgment ("Amendment") and such Amendment is ordered, adjudged, and decreed as follows: FIRST, modify Sections III.G,H, and N to read as follows: G. "Groundwater Contamination" or "Groundwater Contaminant" shall mean 1,4-dioxane in groundwater at a concentration in excess of 77 micrograms per liter ("ug/1") as determined by the sampling and analytical method(s) described in Attachment B. H. "MDEQ" shall mean the Michigan Department of Environmental Quality, the successor to the Michigan Department of Natural Resources ("MDNR") and to the Water Resources Commission. All references to the "MDNR" or to the "Water Resources Commission" in this Consent Judgment shall be deemed to refer to the MDEQ. N. "Soil Contamination" or "Soil Contaminant" shall mean 1,4-dioxane in soil at a concentration in excess of 1500 ug/kg as determined by the sampling and analytical method(s) described in Attachment C or other higher concentration limit derived by means consistent with Mich Admin Code R 299.5711(2) or MCL 324.20120a. 2 4 SECOND, modify Section V.A.5 to read as follows: 5. Treatment and Disposal. Groundwater extracted by the purge wells(s) in the Evergreen System shall be treated as necessary using ultraviolet light and oxidizing agents or such other method as approved by the MDEQ and disposed of in accordance with the Evergreen System design approved by the MDNR or MDEQ. The options for such disposal are the following: THIRD, insert new Section V.A.7 to read as follows: 7. On August 15, 1996, Defendant submitted to the MDEQ a written report based upon groundwater monitoring data and modeling, evaluating whether the existing Evergreen System is intercepting and containing the leading edge of the plume of groundwater contamination in the vicinity of the Evergreen Subdivision area. Unless that report demonstrates to the MDEQ's satisfaction that the existing Evergreen System is meeting that objective, Defendant shall, at MDEQ's written request, install additional monitoring and/or purge wells as needed to ensure that the objectives of the Evergreen System are achieved. FOURTH, modify Section V.B.1 to read as follows: 1. Objectives. For purposes of the Consent Judgment, the "Core Area" means that portion of the Unit C(3) aquifer containing 1,4-dioxane in a concentration exceeding 500 ug/1. The objectives of the Core System are to intercept and contain the migration of groundwater from the Core Area and remove contaminated 3 5 groundwater from the Core Area until the termination criterion for the Core System in Section V.D.1 is satisfied. FIFTH, modify the last clause of Section V.B.2 to read as follows: (c) the discharge level for 1,4-dioxane in groundwater to be reinjected in the Core Area shall be established based upon performance of further tests by Defendant on the treatment technology and shall, in any event, be less than 77 ug/1. SIXTH, modify Section V.B.4 to read as follows: 4. Surface Water Discharge Alternative. Defendant shall, not later than September 30, 1996, submit to MDEQ for review and approval Defendant's design for the Core System, a schedule for implementing the design, an operation and maintenance plan for the System, and an effectiveness monitoring plan for the System. The Core System shall include groundwater purge wells as necessary to meet the objectives described in Section V.B.1. The design shall include, at a minimum, three purge wells. Purged groundwater form the Core Area System shall be treated with ultraviolet light and oxidizing agent(s) or such other method approved by the MDEQ to reduce 1,4-dioxane concentrations to the level as required by NPDES Permit No. MI-008453, as amended or reissued. Discharge to the Honey Creek tributary shall be in accordance with NPDES Permit No. MI-008453, as amended or reissued. 4 6 SEVENTH, modify Section V.B.5 to read as follows: 5. Implementation of Program. Upon approval by the MDEQ, Defendant shall install the Core System according to the approved schedule and thereafter continuously operate and maintain the System according to the approved plans until Defendant is authorized to terminate operation pursuant to Section V.D. Defendant may thereafter, and at its option, continue purge operations as provided in this Section. In any event, Defendant shall, beginning not later than December 28, 1996, continuously operate groundwater purge wells in the Core Area System at the rate of at least 65 gallons per minute until termination is authorized pursuant to this Judgment. This initial, minimum purging rate requirement is intended solely as a means of assuring progress toward remediation of the Core Area by a date certain and shall not be construed as an indication that the rate is sufficient to meet the objectives of the Core System. EIGHTH, add a new Section V.B.7 to read as follows: 7. Modification of Program. Defendant may, at its option, propose to MDEQ for review and approval modification(s) to the Core System, provided such modification(s) will satisfy the objectives of the Consent Judgment as defined in Section V.B.1. Any proposed modification involving groundwater reinjection shall satisfy the requirements of Section V.B.3. If approved by the MDEQ, the modification(s) shall be implemented according to MDEQ approval plan(s) and schedule(s). 5 7 NINTH, modify Section V.C.3 to read as follows: 3. Remedial Investigation. No later than April 28, 1997, Defendant shall submit to the MDEQ for its review and approval a revised work plan for remedial investigation and design of the Western System and a schedule for implementing the revised work plan. The revised work plan shall include plans for installation of a series of test/purge wells, conduct of an aquifer performance test(s), groundwater monitoring, an operations and maintenance plan, and system design. TENTH, modify Section V.D.1 as follows: Change 3 ug/1 to 77 ug/1 and change 60 ug/1 to 77 ug/1. ELEVENTH, modify Section V.E.1 to read as follows: 1. For systems with a termination criterion of 77 ug/1, for a period of five (5) years after cessation of operation of any purge well, Defendant shall continue monitoring the purge well and/or associated monitoring wells, in accordance with the approved monitoring plan, to verify that the concentration of 1,4-dioxane in the groundwater does not exceed the termination criterion. If such post-termination monitoring reveals the presence of 1,4-dioxane in excess of the termination criterion, Defendant shall immediately notify MDEQ and shall collect a second sample within fourteen (14) days of such finding. If the second sample confirms the presence of 1,4-dioxane in excess of the termination criterion, Defendant shall restart the associated purge well system. 6 8 TWELFTH, add a new Section V.F to read as follows: F. Minimum Monitoring. In the event that any groundwater system provided for in Section V is not operating for any reason other than compliance with the termination criteria of Section V.D, Defendant shall, not later than November 30, 1996, and at least semi-annually thereafter, collect and analyze for 1,4-dioxane samples from groundwater monitoring wells designated MW-15D, MW-16, MW-21, MW-28, MW-40S, MW-40D, MW-41S, MW-41D, and MW-43, and report the results to MDEQ. Such minimum monitoring shall not obligate Defendant to duplicate monitoring required under any MDEQ-approved monitoring plan for a groundwater system. THIRTEENTH, modify the first paragraph of Section VI to read as follows: Defendant shall design, install, operate, and maintain the systems described below to control, remove, and treat (as required) soil contamination at the GSI Property. The overall objective of these systems shall be to: (a) prevent the migration of 1,4-dioxane from contaminated soils into any aquifer in concentrations that cause groundwater contamination; (b) prevent venting of groundwater contamination into Honey Creek Tributary of 1,4-dioxane in quantities which cause the concentration of 1,4-dioxane at the groundwater-surface water interface of the Tributary to exceed 2000 ug/l; and (c) prevent venting of groundwater contamination to Third Sister Lake in quantities which cause the concentration of 1,4-dioxane at the groundwater-surface water interface of the Lake to exceed 2000 ug/l. Defendant also shall implement a monitoring plan to verify the effectiveness of these systems. 7 9 FOURTEENTH, modify Section VI.A.1 to read as follows: 1. Objectives. The objectives of this System are to: (a) remove contaminated groundwater from the Marshy Area located north of former Ponds I and II; (b) reduce the migration of contaminated groundwater from the Marshy Area into other aquifers; and (c) prevent the discharge of contaminated groundwater from the Marshy Area into the Honey Creek Tributary in quantities which cause the concentration of 1,4-dioxane at the groundwater-surface water interface of the Tributary to exceed 2000 ug/l. FIFTEENTH, modify Sections VI.A.2 and VI.A.4 to read as follows: 2. Pilot Test and Design. No later than December 28, 1996, Defendant shall begin the Extended Pilot Test according to the plan conditionally approved by MDEQ on July 26, 1995. No later than March 1, 1998, Defendant shall submit to MDEQ for review and approval the Pilot Test Report, final design, and effectiveness monitoring plan. No later than June 13, 1998, Defendant shall submit to MDEQ for review and approval the operation and maintenance plan. 4. Installation and Operation. Upon approval of the final design by MDEQ and in any event not later than September 27, 1998, Defendant shall complete installation of the system according to the approved design and begin operation. Defendant shall thereafter continuously operate the system according to the approved plans until it is authorized to shut down the system pursuant to Section VI.D of the Consent Judgment. 8 10 SIXTEENTH, modify Section VI.B.1 to read as follows: 1. Objectives. The objectives of this program shall be to meet the overall objective of Section VI upon completion of the program and to prevent the discharge of groundwater contamination into Third Sister Lake in quantities which cause the concentration of 1,4-dioxane at the groundwater-surface water interface of Third Sister Lake to exceed 2000 ug/l. SEVENTEENTH, modify Section VI.B.3 by striking the paragraph. EIGHTEENTH, modify Section VI.C.2 to read as follows: 2. Defendant shall, no later than November 30, 1996, submit to MDEQ for review and approval a revised soils remediation plan for addressing identified areas of soil contamination. The areas to be addressed include the burn pit; the former Pond I area; the former Pond II area; the form Lift Station area; and Pond III. The plan submitted by Defendant shall be consistent with cleanup criteria as provided in MCL 324.20120a. The Defendant's proposal must attain the overall objectives of Section VI. NINETEENTH, modify Section VI.D.1.a to read as follows: (a) Except as otherwise provided pursuant to Section VI.D.3, Defendant shall continue to operate the Marshy Area System until six (6) consecutive monthly tests of samples from the purge well(s) and associated monitoring well(s) fail to detect the 9 11 presence of 1,4-dioxane in groundwater at a concentration at or above 500 ug/l. This System shall also be subject to the same post-shutdown monitoring and restart requirements as those Systems described in Section V.E. TWENTIETH, modify Section VI.D.1.b by deleting the paragraph. TWENTY-FIRST, modify the last clause of Section VI.D.2 to read as follows: 2. ...that the concentration of 1,4-dioxane in soils in the area in question does not exceed 1500 ug/kg or other higher concentration derived by means consistent with Mich Admin Code R 299.5711(2) or MCL 324.20120a. TWENTY-SECOND, modify Section IX.B as follows: Modify the third sentence to read: "For purposes of this Paragraph, 'best efforts' includes, but is not limited to, seeking judicial assistance to secure such access pursuant to MCL 324.20135a." Delete the remainder of this subsection. The Parties to the Amendment agree that no changes in the Consent Judgment other than those specified above are intended by this Amendment, that all provisions of the Consent Judgment remain in force to the extent they are not specifically and affirmatively altered by this Amendment, and that -- unless expressly stated otherwise -- all provisions of the Consent Judgment not altered by this Amendment apply to it. 10 12 IT IS SO STIPULATED AND AGREED: PLAINTIFFS /s/ Russell J. Harding Dated: 9/17/96 - ----------------------------------- ---------------------------- Russell J. Harding Director Michigan Department of Environmental Quality /s/ Robert P. Reichel Dated: 8/30/96 - ----------------------------------- ---------------------------- A. Michael Leffler (P24254) Robert P. Reichel (P31878) Assistant Attorneys General Natural Resources Division Knapps Office Centre 300 South Washington Suite 530 Lansing, MI 48913 Telephone: (517) 335-1488 Attorneys for Plaintiffs 11 13 DEFENDANT /s/ Charles Gelman - ------------------------------------- GELMAN SCIENCES, INC. Approved as to form: Cooper, Fink & Zausmer, P.C. Attorneys for Defendant Gelman Sciences, Inc. /s/ David H. Fink Dated: September 3, 1996 - ------------------------------------- --------------------------- David H. Fink (P28235) Alan D. Wasserman (P39509) 31700 Middlebelt Road Suite 150 Farmington Hills, MI 48018 Telephone: (313) 851-4111 IT IS SO ORDERED AND ADJUDGED this 23 day of September, 1996. -- --------- /s/ Melinda Morris -------------------------------- HONORABLE MELINDA MORRIS Circuit Court Judge 12 EX-10.18 4 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.18 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT DATED AUGUST 1, 1995 BY AND BETWEEN GELMAN SCIENCES, INC. AND KIM A. DAVIS This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT made as of May 1, 1996, by and between GELMAN SCIENCES, INC. ("Employer") and KIM A. DAVIS ("Employee"). WHEREAS, the Employer and Employee entered into an Employment Agreement dated August 1, 1995 (the "Employment Agreement") which they now wish to amend; and WHEREAS, the Employer and Employee have entered into this First Amendment to Employment Agreement with the purposes and intents of amending the Employment Agreement effective as of the date hereof; NOW, THEREFORE, in consideration of the mutual covenants and promises set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Employer and Employee hereby agree as follows: 1. The "period" at the end of Paragraph 3.B(6) shall be deleted and in lieu thereof a semicolon and the word "or" shall be inserted. 2. A new Paragraph 3.B(7) shall be inserted which shall read as follows: "(7) Upon Employee's resignation at any time for the reason that the working relationship between Employee and the Employer's CEO has become impracticable and inconsistent with the best interests of the Employer, with the concurrence of the Employer's Board of Directors in its sole discretion, in which event Employee shall become eligible for termination compensation in the amounts determined in Paragraph 4.C below." 3. In the second line of Paragraph 4.C immediately following the phrase "3.B(5)" and immediately preceding the phrase ", Employee" the phrase "or 3.B(7)" shall be inserted. 4. At the end of Subparagraph 4.C(1)(b) the word "and" shall be inserted following the semicolon. 5. In both Paragraphs 4.C(1) and 4.C(2), a new subparagraph (c) shall be added which shall read as follows: 2 "(c) the termination is pursuant to Paragraph 3.B(7), an additional amount equal to the base compensation the Employee would have received in the year of termination, contingent upon delivery of a duly executed broad form of waiver and release releasing the Employer and Charles Gelman from any and all debts, dues, liabilities and damages accrued or suffered by Employee through the effective date of Employee's termination (exclusive of the Employer's continuing obligations to Employee under this Agreement), in form and substance acceptable to Employer" and followed by a period in Paragraph 4.C(1) and a semicolon in Paragraph 4.C(2). 6. Subparagraph 4.C(2)(c) of the Agreement shall be redesignated subparagraph "(d)." 7. Subparagraph 4.C(2)(d) of the Agreement shall be redesignated subparagraph "(e)", the period at the end of said subparagraph shall be deleted, and the phrase ", and" shall be inserted at the end of said subparagraph. 8. A new Subparagraph 4.C(2)(f) shall be added which shall read as follows: "(f) all benefits described in Paragraphs 5.B, 6.A, 6.B and 6.D hereof shall be continued for the remainder of the unexpired term hereof as in effect on the effective date of such termination." 9. As of the date hereof, the Board has authorized the grant of nonqualified stock options to Employee to acquire 45,000 shares of Employer's common stock subject to the vesting and other terms and conditions established by the Board in its resolutions on the date hereof regarding the grant of such stock options. In the event of a change in control of Employer (as defined in Paragraph 4.C of the Employment Agreement), if Employer is unable or unwilling to grant or permit the exercise of such options on such terms, Employer shall pay Employee cash compensation in an amount equal to the excess of the fair market value of the shares which would otherwise have been acquired upon the exercise of such options in the change in control transaction over the aggregate exercise price of such options. 10. All capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Employment Agreement. 2 3 11. The Employment Agreement, as amended hereby, shall continue in full force and effect. IN WITNESS WHEREOF, the parties have signed this First Amendment to Employment Agreement as of the date first written above. WITNESSES: GELMAN SCIENCES, INC. /s/ John A. Geishecker, Jr. By: /s/ Charles Gelman - -------------------------------- -------------------------------- Its Chairman - -------------------------------- -------------------------------- 600 South Wagner Road Ann Arbor, MI 48106-1448 /s/ Kim A. Davis -------------------------------- KIM A. DAVIS 5366 Hidden Pines Ct. Brighton, MI 48116-7729 3 EX-10.20 5 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.20 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT DATED AUGUST 1, 1995 BY AND BETWEEN GELMAN SCIENCES, INC. AND CHARLES GELMAN This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT made as of May 1, 1996, by and between Gelman Sciences, Inc. ("Employer") and CHARLES GELMAN ("Employee"). WHEREAS, the Employer and Employee entered into an Employment Agreement dated August 1, 1995 which they now wish to amend; and WHEREAS, the Employer and Employee have entered into this First Amendment to Employment Agreement with the purposes and intents of amending the Employment Agreement effective as of the date hereof; NOW, THEREFORE, in consideration of the mutual covenants and promises set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Employer and Employee hereby agree as follows: 1. The phrase "and," at the end of Section 4.C.(2)(c) shall be deleted, the period at the end of Section 4.C.(2)(d) shall be deleted and in lieu thereof the phrase "; and" shall be inserted, and a new Section 4.C.(2)(e) shall be inserted to read as follows: "(e) all benefits described in Sections 5.B, 6.A and 6.C hereof shall be continued for the remainder of the unexpired term hereof as in effect on the effective date of such termination." 2. The Employment Agreement, as amended hereby, shall hereafter continue in full force and effect. 2 IN WITNESS WHEREOF, the parties have signed this First Amendment to Employment Agreement as of the date first written above. WITNESSES: GELMAN SCIENCES, INC. /s/ Heather A. Gray By /s/ Edward Levitt - -------------------------- --------------------------- Its Secretary - -------------------------- -------------------------- 600 South Wagner Road Ann Arbor, MI 48106-1448 /s/ Charles Gelman ----------------------------- CHARLES GELMAN [home address] EX-10.21 6 WAIVER AND RELEASE 1 EXHIBIT 10.21 WAIVER AND RELEASE The undersigned, CHARLES GELMAN and KIM A. DAVIS, with the intent of binding themselves and their representatives, successors and assigns, execute this Waiver and Release in favor of each other and Gelman Sciences, Inc. ("Company"). In consideration for amendments dated as of May 1, 1996 to their respective employment agreements dated August 1, 1995 and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the undersigned, CHARLES GELMAN and KIM A. DAVIS, each, on behalf of themselves and their respective successors and assigns, hereby waive, release and forever discharge each other, their respective successors and assigns, the Company, and all of its officers, directors, employees, successors and assigns from any and all claims, charges, debts, dues, liabilities and damages which either of them may have against any of such parties arising prior to May 1, 1996, excluding only the liabilities and obligations which the Company owes to each of the undersigned under their respective employment agreements dated August 1, 1995, as amended. The undersigned have read this Waiver and Release, understand all of its terms, and execute it voluntarily and with full knowledge of its significance. IN WITNESS WHEREOF, the undersigned execute this Release at Ann Arbor, Michigan on May 1, 1996. WITNESSES: John A. Geishecker, Jr. /s/ Charles Gelman - -------------------------- ------------------------- /s/ Charles Gelman /s/ Kim A. Davis - -------------------------- ------------------------- Kim A. Davis 4 EX-10.22 7 SERVICE AGREEMENT 1 EXHIBIT 10.22 SERVICE AGREEMENT THIS AGREEMENT is made the 19th day of June 1984 BETWEEN GELMAN SCIENCES INC. a corporation organized and existing under the laws of the state of Delaware U.S.A., of 600 South Wagner Road, Ann Arbor Michigan, U.S.A. (hereinafter called "Gelman Inc.") of the first part AND GELMAN SCIENCES PTY. LTD. of 27 Sirius Road, Lane Cove, 2066 (hereinafter called "Gelman Australia") of the second part AND ANTHONY PAUL KELLY of 7 Tokanue Place, St. Ives Chase, 2075 (hereinafter called "Mr. Kelly") of the third part WHEREAS A.______ Mr. Kelly is employed by Gelman Australia as Managing Director and Chief Operating Officer, Australia, New Zealand and South East Asia. B.______ Gelman Australia is a wholly owned subsidiary of Gelman Inc. C.______ The parties are desirous of setting forth their understanding of the terms upon which Mr. Kelly will continue to be so employed. 2 - 2 - NOW IT IS AGREED between the parties as follows:- 1. Appointment and Term of Employment Gelman Australia shall employ Mr. Kelly and Mr. Kelly shall serve Gelman Australia as Managing Director and Chief Operating Officer, Australia, New Zealand and South East Asia for the term of 3 years from 1 March 1984. The predominant location of the employment shall be Sydney. At the conclusion of the said term of 3 years, the parties will renegotiate a renewal of Mr. Kelly's appointment. 2. Remuneration By way of remuneration for his services Mr. Kelly shall be paid by Gelman Australia:- (a) a salary of $80,000 per annum which salary shall be deemed to accrue from day to day and shall be paid in instalments on the 15th day of each month. Provided however that the amount of the salary payable to Mr. Kelly shall be reviewed by the Company each 1 July and 1 January during the term of this Agreement (hereinafter called "the review dates"). On each review date the salary shall be increased in accordance with the following formula:- b x = a x - c where x is the adjusted salary; 3 - 3 - a is the salary applying immediately prior to adjustment; b is the Index as at the applicable review date; c is the Index as at the immediately previous review date, or, in the case of the first review, the Index as at the date of this Agreement. For the purposes of this paragraph:- (i) "Index" means the all groups Consumer Price Index for Sydney published by the Office of the Commonwealth Statistician of the Australian Government. If publication of that Index is suspended or discontinued or the method of calculation is materially changed, the expression "Index" shall be defined by an appropriately qualified statistician acceptable to all parties acting as an expert and with due regard to the intention of the parties expressed herein. (ii) References to the Index as at a particular date shall be references to the last Index published on or before any such date. Should the Index at the applicable review date be less than the Index as at the immediately previous review date, no adjustment shall be made to the salary. 4 - 4 - (b) An amount equivalent to 5% of that amount of before-tax profits of less than $500,000 and 2-1/2% of that amount of before-tax profits over $500,000 of Gelman Australia for the 6 months prior to each review date, such payment to be made within 30 days after each review date. (c) Such further amounts as made be agreed upon between the parties. 3. Contribution to Superannuation Gelman Australia shall pay $7,500 each year to the Kelly Superannuation Fund, such payment to be made on a date specified by Mr. Kelly. 4. Expenses Gelman Australia will reimburse Mr. Kelly for all reasonable travelling, entertainment, legal and without limitation, all other expenses incurred by him in connection with the business of Gelman Australia or Gelman Inc. 5. Vehicle (a) Gelman Australia will provide to Mr. Kelly a motor vehicle of a type commensurate with the position of Managing Director which is not more than 4 years old. The vehicle shall be for the exclusive use of Mr. Kelly and Gelman Australia shall pay all maintenance registration repair and running costs and other expenses incurred in connection with the vehicle and shall maintain the vehicle. 5 - 5 - (b) Alternatively should Mr. Kelly indicate at any time that he has his own vehicle for company use, Gelman Australia shall pay Mr. Kelly a fee per kilometer sufficient to reimburse him on the same basis as set out in paragraph 5 (a). 6. Termination (a) Upon termination of Mr. Kelly's employment for any reason Gelman Australia shall pay Mr. Kelly 12 months remuneration as described in clause 2 hereof. (b) Notwithstanding paragraph 6 (a) should Mr. Kelly's employment be terminated for any reason within 6 months after a change of effective control of Gelman Inc. or Gelman Australia, Gelman Australia shall pay Mr. Kelly twice the award specified in paragraph 6 (a), that amount to be paid on the date and in the manner requested by Mr. Kelly. (c) If Mr. Kelly voluntarily terminates his employment he will not be employed by a known and recognized competitor of Gelman Australia or Gelman Inc. for a period of 1 year after such termination. 7. Governing Law This Agreement shall be governed by and interpreted in all respects in accordance with the laws of the State of New South Wales. 6 - 6 - IN WITNESS WHEREOF the parties have signed this Agreement on the date first hereinbefore written. SIGNED for and on behalf of ) GELMAN SCIENCES INC. ) ) by CHARLES GELMAN ) ) /s/ Charles Gelman a director of that company ) in the presence of:- ) ) ) ) [ SIG. ] ) SIGNED for and on behalf of ) GELMAN SCIENCES PTY. LTD. ) ) by BASIL HOLLOWAY ) ) /s/ Basil Holloway a director of that company ) in the presence of:- ) ) ) ) [ SIG. ] ) SIGNED by the said ) ANTHONY PAUL KELLY ) in the presence of:- ) ) /s/ Anthony Paul Kelly ) ) [ SIG. ] ) 7 DATED 1996 ------------------------------ BETWEEN GELMAN SCIENCES INC. of the first part AND GELMAN SCIENCES PTY. LTD. of the second part AND ANTHONY PAUL KELLY of the third part ----------------------------------- SERVICE AGREEMENT ----------------------------------- Laurence & Laurence, Solicitors, 182 George Street, SYDNEY. N.S.W. 2000 DX: 115, Sydney Telex: AA73800 Ph: 20550 (AGRE3.JC:KC) EX-10.23 8 LETTER AGREEMENT 1 EXHIBIT 10.23 February 23, 1993 Mr Charles Gelman and Gelman Sciences Pty Ltd Chairman & CEO 27 Sirius Road Gelman Sciences Inc. LANE COVE NSW 2066 600 South Wagner Road Ann Arbor MI 48166-1448 UNITED STATES OF AMERICA Dear Sir, RE: SERVICE AGREEMENT This is to confirm our recent agreement to extend the term of my engagement as Managing Director and Chief Operating Officer of Gelman Sciences Pty. Ltd. The terms of my service will continue to be governed by the Service Agreement dated June 19, 1984, with the exception that the term of the appointment provided for in Clause 1 shall be 3 years commencing on March 1, 1993. Would you please indicate your agreement to this by signing at the foot of this letter where indicated and returning the original to me. Yours faithfully, A.P. Kelly A.P. Kelly Agreed: /s/ Charles Gelman Agreed: /s/ B. L. Holloway ------------------------- ------------------------- Gelman Sciences Inc. Gelman Sciences Pty. Ltd. Per: Charles Gelman Per: B. L. Holloway Chairman & CEO Director Dated: 2-23-93 Dated: 29/3/93 ------------------------- ------------------------- EX-10.24 9 LETTER AGREEMENT 1 EXHIBIT 10.24 September 21, 1995 Mr. Kim A. Davis and Gelman Sciences Pty. Ltd. President and COO 2 Lincoln Street Gelman Sciences Inc. Lane Cove NSW 2066 600 South Wagner Road Ann Arbor, MI 48103-9019 United States of America Re: Service Agreement Dear Sir: This is to confirm our recent agreement to modify my salary and to extend the term of my engagement as Vice President, Worldwide Sales, of Gelman Sciences Inc. and Managing Director and Chief Operating Officer of Gelman Sciences Pty. Ltd. The terms of my service will continue to be governed by the Service Agreements dated June 19, 1984, as amended by letter agreement dated February 28, 1993, with the exceptions that: (1) effective August 1, 1995, my service also includes my engagement as Vice President, Worldwide Sales, of Gelman Sciences Inc.; (2) the term of the appointment provided for in Clause 1 shall be extended through July 31, 1998, and (3) my salary effective August 1, 1995, will be US$140,000 per annum. Would you please indicate your agreement to this by signing at the foot of this letter where indicated and returning the original to me. Yours faithfully, /s/ A.P. Kelly - -------------------------------- A.P. Kelly Agreed: /s/ Kim A. Davis Agreed: /s/ Nigel M. Mainwaring -------------------------------- ----------------------------- Gelman Sciences Inc. Gelman Sciences Pty. Ltd. Per: Kim A. Davis Per: Nigel M. Mainwaring President & COO Director Dated: 9/21/95 16.1.96 -------------------------------- ------------------------------------ EX-10.25 10 PROMISSORY NOTE 1 EXHIBIT 10.25 PROMISSORY NOTE Australian Dollars $1,044,209.75 July 29, 1994 FOR VALUE RECEIVED - the undersigned ("Maker") promises to pay on the dates set forth hereafter, to the order of Gelman Sciences Pty Ltd ("Payee"), or of any permitted subsequent holder hereof, the principal sum set forth below together with interest onset principal at the rate set forth below, interest accruing on the principal on and after August 1, 1994. The principal amount shall be the sum of the assets and inventory as at July 29, 1994 of the Vilair Air Filtration, Bug Killer, Ultra-Violet, and Air Sampler businesses, totalling A$1,044,209.75. Interest on the said principal shall be calculated on the reducing balance and shall be at the rate of Gelman Sciences Inc's average borrowing rate on its credit facilities plus one percent (1%). During the first year of the five (5) year term of the Note, interest only shall be paid, in arrears, monthly by the fifteenth (15th) day of the month commencing August 15, 1994. During year two (2) and the subsequent four (4) years the principal sum of this Note shall be paid by the Payee in forty eight (48) equal monthly instalments together with accrued interest calculated at the rate and basis as set out above, in arrears, by the fifteenth (15th) day of each month commencing September 15, 1995. Any payment made by Maker against the outstanding balance including principal and interest, of this note shall be first applied against accrued interest and then against principal outstanding. This Note maybe prepaid in part or in full at any time without penalty. All payments of the Note are payable to Payee at 2 Lincoln Street, Lane Cove, Sydney, New South Wales, 2066, Australia or such other place as maybe designated in writing. All payments are to be made by cheque, wire transfer of funds, or otherwise, as designated by the Holder. This Note may not be assigned or transferred by Payee without the prior written consent of Maker, which consent shall not be unreasonably withheld. The Maker grants to the Payee an equitable mortgage over the assets of the Kelly Company Pty Ltd and such equitable mortgage will be in a registrable form. In addition to this the Maker agrees to pledge as additional security forty percent (40%) of all unexercised options that the Anthony Paul Kelly holds in Gelman Sciences Inc. and forty percent (40%) of all future options that the Maker maybe granted through to the date of final payment of this Note. Page 1 of 2 2 In the event that the Maker sells any of the assets purchased from the Payee the Maker will use such funds to pay down the Note. The Maker will provide the Payee, on a quarterly basis, with asset valuation and stock valuation as recorded on the balance sheet of the Kelly Company. At the request of the Payee the Maker will have this information verified by an independent firm of accountants. If one or more of the following events occurs and remains unremedied for a period of forty five (45) days, the entire balance of unpaid principal and accrued interest hereunder shall, at the option of the holder of the Note, be due and payable in full immediately without demand or notice: a. Maker defaults in the payment of any amount when due hereunder. b. Maker admits in writing its inability to pay its debt as they mature. The undersigned waives presentment, demand for payment, notice of dishonour, and any and all other notices and demands in connection with the delivery, acceptance, performance, default, or enforcement of this Note; waives any right to be released by reason of any extension of time or changes in terms of payments and agrees to pay reasonable attorneys' fees if, after default hereunder an attorney is retained by the holder of this Note to secure collection hereof. This Note is to be construed in accordance with the laws of the State of New South Wales, Australia. No delay or omission by the holder in exercising any right hereunder shall operate as a waiver of such right or of any other right of the holder. A waiver on one occasion shall not be construed as a bar to a waiver of any right in the future. None of the provisions hereof and none of the rights of the holder of this Note shall be deemed to have been waived by acceptance of any past due amount or by any other indulgence granted to Maker. If any provision of this Note shall be found invalid or unenforceable, all other provisions shall remain in full force and effect to the maximum extent permitted by law. AGREED MAKER: KELLY COMPANY PTY LTD ACN 001 729 693 /s/ Anthony Paul Kelly By: /s/ A. P. Kelly - ---------------------------- ------------------------------- Anthony Paul Kelly A. P. Kelly Director Page 2 of 2 EX-10.26 11 AMENDMENT TO PROMISSORY NOTE 1 EXHIBIT 10.26 AMENDMENT OF PROMISSORY NOTE This Amendment of Promissory Note is made as of August 1, 1996, by Kelly Company Pty Ltd ("Kelly") and Gelman Sciences Pty Ltd ("Gelman"). WHEREAS, Kelly issued a Promissory Note to the order of Gelman in the principal amount of A$1,044,209.75 on July 29, 1994 (the "Note"); WHEREAS, Gelman continues to retain the Note and has not assigned or otherwise transferred all or any part of its interest therein as of the date hereof; WHEREAS the principal amount of the Note outstanding as of this date is A$844,172.18, and WHEREAS, Kelly desires to amend certain of the terms of the Note and Gelman is willing to accept said amendment, NOW, THEREFORE, the Note is amended as follows: 1. The third (3rd) and fourth (4th) and fifth (5th) paragraphs of the Note are deleted in the entirety and the following is substituted in lieu thereof: "Interest on the said principal shall be calculated on the reducing balance and shall be at the rate of Gelman Sciences Inc. average borrowing rate on its credit facilities plus one percent (1%) through July 15, 1996, and thereafter at the prime rate as listed in the Wall Street Journal on the first business day of each month. Commencing on August 15, 1994, and by the fifteenth (15th) day of each of the next twelve (12) months following immediately thereafter, interest only shall be paid, in arrears, monthly. "Commencing on September 15, 1995, and by the fifteenth (15th) day of each of the next ten (10) months following immediately thereafter, Maker shall pay a monthly installment against the original principal sum set forth above equal to the original principal sum set forth above divided by forty-eight (48) together with accrued interest calculated at the rate and basis as set out above, in arrears. Commencing on August 15, 1996, and by the fifteenth day of each month following thereafter until August 15, 1999, Maker shall pay a monthly installment of A$8,793.46 against the August 1, 1996, principal sum set forth above together with accrued interest calculated at the rate and basis as set out above, in arrears. On August 15, 1999, Maker shall pay an installment against the principal sum set forth above in the remaining amount due together with accrued interest calculated at the rate and basis as set out above, in arrears." 1 2 2. Except as stated above, the Note is not otherwise amended and all other terms and provisions thereof remain in full force and effect. 3. The amendment of the Note set forth above shall be fully effective on and at all times after July 16, 1996, unless and until the Note is further amended to the contrary. The effectiveness of the note is contingent upon Anthony Paul Kelly agreeing to it and Gelman Sciences Pty Ltd signing in the space provided below in acceptance of the amendment. MAKER: KELLY COMPANY PTY LTD ACN 001 729 693 By: /s/ A. P. Kelly ------------------------ A. P. Kelly Director Agreed: /s/ Anthony Paul Kelly - ------------------------- Anthony Paul Kelly Accepted: GELMAN SCIENCES PTY LTD By: /s/ Anthony Paul Kelly and By: /s/Charles Gelman ---------------------- ----------------------- A.P. Kelly Charles Gelman Managing Director A Director 2 EX-10.27 12 NON-EMPLOYEE DIRECTOR STOCK PLAN 1 EXHIBIT 10.27 GELMAN SCIENCES INC. NON-EMPLOYEE DIRECTOR STOCK PLAN NAME AND GENERAL PURPOSE OF PLAN. The name of the plan is the Gelman Sciences Inc. Non-Employee Director Stock Plan (the "Plan"). The Plan was adopted by the Board of Directors (the "Board") of Gelman Sciences Inc. (the "Company") on September 20, 1995, subject to shareholder approval and ratification. The purpose of the Plan is to provide non-employee directors of the Company an opportunity to participate in future appreciation in the share value of the Company's stock, further aligning the interests of non-employee directors with the interests of shareholders of the Company, with the goal of maximizing return on shareholder investment. The opportunity to participate in Company stock appreciation is intended to enable the Company to attract and retain superior Board members. The Plan consists of two components: (1) stock options and (2) receipt of all or part of a non-employee director's fees in Company stock, in lieu of cash compensation, at the election of the non-employee director. 1. OPTIONS ISSUABLE UNDER PLAN. During each fiscal year, the Non-Employee Director Stock Plan Committee (the "Committee") will issue options, in accordance with Section 2, below, to purchase shares of the common stock of the Company ("Shares"). The maximum number of Shares with respect to which options may be granted under the Plan in any fiscal year of the Company is 40,000, subject to adjustment pursuant to Section 4, below (the "Plan Limit"). The Shares issued upon exercise of an option may be treasury shares or authorized but unissued shares or a combination thereof. 2. OPTION PARTICIPANTS AND GRANTS. Upon initial election to office, each Participant will be granted an option to purchase 9,000 Shares and, on each July 31st following reelection to office, an option to purchase 1,000 Shares. Each such option will become first exercisable six months after the date of the grant, provided that the option recipient's status as a non-employee director of the Company has not changed and the Plan then remains in effect. Successive options may be granted to the same person, whether or not any option previously granted to such person remains unexercised. Each option granted pursuant to the Plan is referred to hereinafter as an "Option," and each non-employee director of the Company is referred to hereinafter as a "Participant." 3. OPTION PRICE. The exercise price per share underlying each Option will be the closing price per share of Common Stock on the American Stock Exchange on the last trading day immediately preceding the date of grant. The Option exercise price will be payable in whole or in part, at the election of the Participant, (i) in cash or (ii) in shares of Common Stock valued at the closing 1 2 price for Common Stock on the American Stock Exchange on the last trading day immediately preceding the date of exercise, to the extent permitted by all applicable laws and regulations, unless the Committee determines that the application of any Financial Accounting Standard Board rule affecting the tender of shares would be detrimental to the best interests of the Company. 4. ADJUSTMENTS. The Committee will provide for such adjustments in the exercise price per share with respect to each outstanding Option and in the number of shares covered by each outstanding Option as is equitably required to prevent dilution or enlargement of the rights of any Participant that would otherwise result from (a) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, (b) any merger, consolidation, separation, reorganization or partial or complete liquidation or (c) any transaction or event having an effect similar to any of the foregoing. 5. EXPIRATION; TRANSFER; EXERCISE; RELOAD OPTIONS. Each Option granted under the Plan will expire on the date that is ten (10) years from the date of grant. No Option will be transferable to a Participant otherwise than by will or the laws of descent and distribution. A Participant may exercise an Option upon receipt by the Company of such forms as the Company may require in advance of exercise and the required payment. A stock certificate may be issued as soon as practical after exercise and payment. An Option is exercisable during the Participant's lifetime only by the Participant, except that in case of incompetence or disability of a Participant, an Option may be exercised on behalf of the Participant by his or her guardian or legal representative. The Company will assist any Participant in effecting a "cashless exercise" of any Option; that is, if, immediately following an Option exercise, the Participant decides to sell all or any of the shares underlying the Option, the Participant will receive (in lieu of a certificate evidencing such shares) the amount by which the sale price of such shares exceeds the exercise price, after deducting applicable taxes and brokerage fees, but without deduction for interest that might otherwise be paid on any advance of monies to the Participant between the exercise and settlement dates. Each Participant will receive an automatic grant of an additional Option (a "reload option") upon the exercise of an Option through the delivery of shares of Common Stock, in the manner set forth in the Stock Option Agreement (defined in Section 6, below). The number of Shares with respect to which reload options are granted will be counted against the Plan Limit as of the date of grant. 6. STOCK OPTION AGREEMENT; CANCELLATION. The granting of any Option shall be evidenced by a stock option agreement ("Stock Option Agreement"). Such Stock Option Agreement may, with the concurrence of the affected Participant (and subject to the limitations set forth in Section 9, below), be amended by the Committee, provided that the terms of each such amendment are not inconsistent with the terms of the Plan. The Committee may, with the 2 3 concurrence of the affected Participant, cancel any Option granted under the Plan or any warrant for the purchase of the Company's common stock granted to any non-employee director of the Company pursuant to one or more warrant agreements entered into prior to September 20, 1995. In the event of any cancellation of an outstanding Option, the Company may authorize the granting of one or more new Options under the Plan in such manner, at such price and subject to similar terms and conditions as would have been applicable had the cancelled Option not been granted. In the event of any cancellation of an outstanding warrant, the Committee may authorize the granting of one or more Options under the Plan for the same number of shares at the same exercise price and upon the terms set forth in the warrant, or, at the election of the Participant, providing for exercise in such manner, at such price and subject to similar terms and conditions as would be been applicable had the cancelled warrant not been granted. 7. STOCK IN LIEU OF DIRECTORS' FEES. Each Participant may elect to receive shares of Common Stock in an amount equal to, and in lieu of, all or part of the fees that otherwise would be paid by the Company to such Participant as compensation for serving on the Board. For purposes of such payment in stock, a share of Common Stock will be valued at the closing price on the American Stock Exchange on the last trading day of the fixed quarter prior to the scheduled date for payment of such fees. The value of any fractional share amount will be paid in cash. Such election may be made by written notice to the Company's Secretary prior to the start of each fiscal year. 8. ADMINISTRATION. The Plan will be administered by the Committee, comprised initially of three or more persons, none of whom may be a Participant, but each of whom may be (but need not be) an employee or employee-director of the Company. A majority of Committee members will constitute a quorum, and the action of a majority of the members of the Committee present at any meeting at which a quorum is present, or the unanimous written action of the Committee, will be considered the action of the Committee. 9. PLAN AMENDMENT; TERMINATION. This Plan is subject to initial ratification and approval of the Company's shareholders, but may be terminated or amended thereafter from time to time by the Committee. However, no such amendment by the Committee shall (a) increase the maximum number of shares of Common Stock that may be issued under this Plan, subject to adjustments pursuant to Section 4 above, (b) change the designation in Section 2 of the persons eligible to be granted Option or (c) cause Rule 16b-3 (or any successor rule) promulgated by the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934 to cease to be applicable to this Plan without further approval of the shareholders of the Company. Neither the Plan, nor any Stock Option Agreement, may be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the 3 4 Employee Retirement Security Act, or the rules thereunder, or rules promulgated by the Commission. 10. GOVERNING RULES. This Plan is intended to comply with and be subject to Rule 16b-3 as in effect prior to May 1, 1991. The Committee may at any time elect that this Plan shall be subject to Rule 16b-3 (or its successor) as in effect on or at any time after May 1, 1991 and, without shareholder approval, make any and all amendments to this Plan that are necessary to comply with the provisions of the Rule as then in effect or make any other amendments that do not require shareholder approval under applicable rules and regulations then in effect. 4 EX-10.28 13 EXECUTIVE STOCK PLAN 1 EXHIBIT 10.28 GELMAN SCIENCES INC. EXECUTIVE STOCK OWNERSHIP PLAN 1. PURPOSE The Gelman Sciences Inc. Executive Stock Ownership Plan (the "Plan") is intended to foster and promote the long-term growth and performance of Gelman Sciences Inc. (the "Company") by requiring and enabling the acquisition of a significant personal equity interest in the Company by those Company executives upon whose judgment and efforts the Company is largely dependent for the successful conduct of its business. As equity holders, Company executives will participate in future appreciation in the share value of the Company's stock, thus further aligning their interests with the interests of other shareholders of the Company, with the goal of maximizing return on shareholder investment. The opportunity to participate in Company stock appreciation should enable the Company to attract and retain key executives critical to the long-term success of the Company. The Plan was adopted by the Company's Board of Directors on September 20, 1995, with an effective date of August 1, 1995, subject to shareholder approval and ratification. 2. BACKGROUND The Plan is a feature of the Company's Executive Compensation Plan, also adopted by the Board on September 20, 1995, with an effective date of August 1, 1995. Pursuant to the Executive Compensation Plan, the Board or its Compensation Committee (the "Committee") will make an annual determination as to the dollar amount of a bonus pool to be allocated among the Company's executive officers and other employees. It is the goal of the Company that each executive officer acquire and retain of no fewer than that number of shares of the Company's common stock ("Common Stock") with a value equal to fifty percent (50%) of such officer's annual base salary (the "Equity Value Requirement"), as adjusted from time to time. Consistent with that goal, the annual bonus paid to each executive officer will be paid in the form of a specified amount of Common Stock, and the remainder of the bonus will be paid in cash. As of each July 31st during the period in which the Plan is in effect, the value of each executive officer's beneficial ownership of Common Stock will be calculated, using the closing price on the principal stock exchange on which the Common Stock is then traded for such day, or, if it is not a trading day, then on the last trading day immediately preceding such day. If the Equity Value Requirement is not met by an executive officer as of any July 31st, the annual bonus received by that officer for that year will have a stock component. The size of the stock component will be sufficient to satisfy the 1 2 Equity Value Requirement, subject to the limitation that the value of the stock component paid to an executive officer with respect to any year will not exceed the lesser of thirty percent (30%) of that officer's annual bonus or ten percent (10%) of such officer's annual base salary for that year. 3. ADMINISTRATION The Plan will be administered by a committee ("Committee"), comprised of three or more disinterested members of the Board, none of whom will be an employee of the Company or a participant in the Plan. A majority of Committee members will constitute a quorum, and the action of a majority of the members of the Committee present at any meeting at which a quorum is present, or the unanimous written action of the Committee, will be considered the action of the Committee. Except for the terms and conditions explicitly set forth in the Plan, the Committee will have the authority, in its discretion, to determine all matters relating to awards under the Plan. All decisions made by the Committee pursuant to the provisions of the Plan and related orders or resolutions of the Board shall be final and conclusive. 4. PARTICIPANTS The Chief Executive Officer, the Chief Operating Officer and all other executive officers of the Company will participate in the Plan. 5. STOCK SUBJECT TO THE PLAN; ADJUSTMENTS The stock awarded under the Plan will be shares of Common Stock and may be authorized and unissued shares or shares now held or subsequently acquired by the Company or a combination thereof, as the Board may from time to time determine. The aggregate number of shares to be awarded under the Plan will not exceed 100,000, subject to adjustment for any increase or decrease in the number of issued shares of Common Stock resulting from any reorganization, capitalization, stock split, stock dividend or similar corporate transaction. 6. STOCK AWARDS Stock awards under the Plan will be determined pursuant to the provisions of Section 2, above. 7. WITHHOLDING TAXES The Company will have the right to deduct from any award made under the Plan an amount sufficient to cover withholding required by law for any federal, state or local taxes or to take such other action as may be necessary to satisfy any such withholding obligations, including the withholding from any other cash amounts 2 3 due or to become due from the Company to the participant an amount equal to such taxes. 8. TERM OF THE PLAN The Plan is effective as of August 1, 1995, and shall remain in full force and effect until all the Common Stock subject to it shall have been issued pursuant to the provisions hereof, unless sooner terminated by the Board. 9. PLAN AMENDMENT; TERMINATION This Plan is subject to initial ratification and approval by the Company's shareholders, but may be terminated or suspended or amended thereafter from time to time by the Committee or the Board; provided, however, no amendment by the Committee or the Board shall (a) increase the maximum number of shares of Common Stock that may be issued under the Plan, subject to adjustments pursuant to Section 5 above, (b) change the designation in Section 4 of the Plan participants or (c) cause Rule 16b-3 (or any successor rule) promulgated by the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934 (the "Exchange Act") to cease to be applicable to this Plan, without further approval of the shareholders of the Company. The Plan may not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder, or rules promulgated by the Commission. 10. INDEMNIFICATION Each person who is or shall have been a member of the Committee shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which any such person may be entitled under the Company's Articles of Incorporation or By-laws, as a matter of law, or otherwise, or any power that the Company may have to indemnify or hold such person harmless. 3 4 11. REQUIREMENTS OF LAW The issuance of Common Stock under the Plan will be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. The Plan, and all agreements hereunder, shall be construed in accordance with and be governed by the laws of the State of Michigan. It is the intention of the Company that the Plan will comply in all respects with Rule 16b-3, including any successor provision to Rule 16b-3, and, if any Plan provision is later found not to be in compliance with Section 16 of the Exchange Act, that provision will be deemed null and void, and in all events the Plan will be construed in favor of its meeting the requirements of Rule 16b-3. Specifically, the Plan is intended to comply with and be subject to Rule 16b-3 as in effect prior to May 1, 1991. The Committee may at any time elect that this Plan shall be subject to a successor to this rule and, without shareholder approval, make any and all amendments to this Plan that are necessary to comply with the provisions of the Rule as then in effect or make any other amendments that do not require shareholder approval under applicable rules and regulations then in effect. Notwithstanding anything in the Plan to the contrary, the Board, in its absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan to participants who are subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other participants, if any. 4 EX-10.29 14 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.29 EMPLOYMENT AGREEMENT Agreement made this 3rd day of June, 1996, by and between GELMAN SCIENCES INC. ("Employer") and GEORGE UVEGES ("Employee"). 1. Employment. A. Employer hereby offers to Employee and Employee hereby accepts employment by Employer on the conditions set forth herein. 2. Duties. A. Employee has been appointed and shall serve Employer as Chief Financial Officer and Vice President of Administration, reporting in such capacity directly to the Chief Operating Officer of Employer ("COO"). B. Employee's duties and powers in such capacity shall be as determined, from time to time, by COO. 3. Term. A. The term of this Agreement shall be three (3) years beginning June 3, 1996, which term shall be automatically extended one (1) year on June 3, 1997 and on June 3 of each year thereafter, unless Employer shall have given: (1) not less than six (6) months written notice of termination of the Employment Agreement to Employee where there has been no Change in Control (as defined in Paragraph 4.C) of Employer; or (2) where there has been a Change in Control of Employer, not less than twelve (12) months written notice of termination of the Employment Agreement to Employee. B. This Agreement shall be automatically earlier terminated and the earlier termination shall supersede the later effective date of an Employer written notice of termination of Agreement provided for in Paragraph 3.A, only in the following manner: (1) Upon the death of Employee; or (2) Upon Employee's resignation, at any time (other than as set forth in Paragraph 3.B(5)), after ninety (90) calendar days written notice to Employer where there has been no Change in Control of Employer, in which event Employee 2 shall not be entitled to any additional compensation or benefits; or (3) Upon Employee's disability whereby Employee is unable to perform the essential duties of his assigned position for a period exceeding one hundred eighty (180) calendar days within a one (1) year period; or (4) Upon Employer's termination of Employee, without cause, at any time, after Employer has given ninety (90) calendar days written notice of termination to Employee, in which event Employee shall become eligible for termination compensation as set forth in Paragraph 4.C below; or (5) Upon Employee's resignation within one (1) year of a Change in Control of Employer, after ninety (90) calendar days written notice to Employer, in which event Employee shall become eligible for termination compensation in the amount as determined in Paragraph 4.C below; or (6) Upon Employer's termination of Employee for violating any of the provisions of Paragraph 7 below, in which event Employee shall not be entitled to any additional compensation or benefits, provided that Employer has given Employee ninety (90) calendar days written notice of any violations of Paragraph 7 prior to termination and further provided that Employer has given Employee an opportunity to correct any violations prior to termination. 4. Compensation. A. Employer shall pay, and Employee shall accept, as base compensation for all services rendered, One Hundred Fifty Thousand Dollars ($150,000) per annum effective as of June 3, 1996 less appropriate payroll taxes ("salary"), payable in equal installments in accordance with Employer's normal payroll periods, with annual reviews and adjustments, if any, at the discretion of COO, as approved by the Employer's Board of Directors ("Board"). B. Employee shall be eligible to receive an incentive bonus, established at the discretion of the Board, for the Employer's 1997 fiscal year and each fiscal year thereafter, which bonus shall consist of an amount of up to thirty percent (30%) of the Employee's annual salary for such fiscal year upon the achievement of certain corporate and personal goals. In addition, for the last two (2) months of Employer's 1996 fiscal year, Employer shall pay to Employee an incentive bonus which shall consist of an amount equal to one-sixth (1/6) of the 2 3 average incentive bonuses actually paid to other similarly situated executives of Employer for fiscal year 1996. C. (1) If this Agreement is earlier terminated pursuant to Paragraph 3.B(4), where there has been no Change in Control of Employer, Employee shall become eligible to receive severance pay in an amount equal to twelve months of base compensation and the incentive bonus the Employee would have received in the year of termination. (2) If this Agreement is earlier terminated pursuant to Paragraph 3.B(4) or 3.B(5), where there has been a Change in Control of Employer, Employee shall become eligible to receive: (a) severance pay in an amount equal to twelve months of base compensation and the incentive bonus the Employee would have received in the year of termination; (b) immediate vesting of all stock options and awards; (c) immediate payment of all incentive awards earned; and (d) all benefits described in Paragraphs 5.B and 6.A hereof shall be continued for the remainder of the unexpired term hereof as in effect on the effective date of such termination. To the extent the termination compensation and any other amounts received as a result of termination are subject to the excise tax of Internal Revenue Code Section 4999 (or any successor statute), the severance amount shall be increased by a one (1) time calculation (without a pyramid effect) of the product derived by multiplying the "excess parachute payments" (as defined in Code Section 4999) as initially calculated by the applicable excise tax rate (currently twenty percent (20%)). Change in Control of the Employer means: i) the acquisition of beneficial ownership by any person or entity (or more than one (1) person or entity acting as a group) of a majority of the outstanding voting shares of Employer; or ii) a tender offer made and consummated for at least thirty-three percent (33%) of Employer's common stock; or 3 4 iii) the acquisition of beneficial ownership by any person or entity (or more than one (1) person or entity acting as a group) of more than fifty-one percent (51%) of the total fair market value of the Employer's assets; or iv) a majority of the members of the Board are replaced within a one (1) year period. The severance amount shall be payable in equal installments to the Employee, made at the same frequency as Employee's salary, less appropriate payroll taxes, commencing with the first payroll period following Employee's termination, conditioned on Employee's execution of a release agreement acknowledging that Employee is entitled to no other compensation and benefits, except as provided in this Agreement, and effectively waiving any and all claims against Employer, its officers, directors, employees, affiliates, subsidiaries, successors and assigns arising out of Employee's employment or separation from employment with Employer. Employer shall have the right, at its option and without penalty, to accelerate payments owed to Employee. 5. Expenses. Employer shall reimburse Employee, upon presentation of proper documentation, for reasonable expenses incurred by Employee in the performance of his assigned duties. 6. Benefits. A. Employee shall be eligible to participate in the Flexible Employee Benefits Program, including health, dental, vision, life, short and long-term disability plans, for so long as such program is made available to Employer's other executive employees. B. Employee shall be eligible for up to two (2) weeks paid vacation annually, scheduled by mutual agreement between Employee and COO. Employee's annual paid vacation shall be increased in accordance with the policy for other executive employees. 7. Undertakings of Employee. A. The parties acknowledge that Employer is engaged in the business of manufacturing, distributing and selling microporous membranes, filters and microfiltration products, worldwide. Employee, because of his position with Employer, will obtain, or have access to, highly confidential, proprietary information and trade secrets and, as a result, Employee agrees that: 4 5 (1) Employee will execute, and at all times honor and comply with all of the conditions set forth in, the Confidentiality and Patent Protection Agreement attached hereto and made a part hereof as Exhibit A; and (2) At all times during Employee's employment, and for three (3) years following the termination of Employee's employment, Employee will not, directly or indirectly, without the express written consent of Employer's Board, perform service for, aid, assist, own, operate, have any financial interest in, or serve as employee, officer, director, agent, partner, consultant, part-owner, shareholder, or engage in, any microporous filter business which is competitive with Employer, or with microporous products provided by Employer, and among the remedies set forth in the above-referenced Confidentiality and Patent Protection Agreement. B. Employer relies upon Employee's representation that Employee will: (1) competently perform all assigned duties; (2) carry out all policies, directives and decisions of Employer's Board, Chief Executive Officer ("CEO") and COO; (3) not withhold from Employer's Board, CEO or COO, and will promptly report to COO, any information which may affect Employer's business; (4) refrain from any conduct which is illegal, dishonest, fraudulent, or detrimental to Employer's business, as determined by Employer's Board; and (5) devote his entire time, attention and energies to the operations of Employer and shall not, during the term of this Agreement, without consent of the Board, be engaged in any other business activity requiring any amount of his business time, whether or not such business activity is pursued for gain, profit or pecuniary advantage. 8. Effect of Change in Control. On May 28, 1996, Employee was granted nonqualified stock options (the "Employer Options") to acquire 20,000 shares of Employer's common stock at an exercise price of $22 7/8 per share, subject to vesting and other terms and conditions. In the event of a Change in Control of Employer, if Employer is unable or unwilling to grant or permit the exercise of the Employer Options on such 5 6 terms and conditions, Employer shall pay Employee cash compensation in an amount equal to the excess of the fair market value of the shares which would otherwise have been acquired upon the exercise of the Employer Options in the Change in Control transaction over the aggregate exercise price of the Employer Options. Notwithstanding the foregoing, if in a Change in Control transaction, Employee receives new options, or is entitled to convert the Employer Options into new options, the terms and conditions of which are at least as favorable as the Employer Options, the cash compensation otherwise payable to Employee under this Paragraph 8 shall be reduced to the extent appropriate to reflect the grant of such new options. 9. Entire Agreement. This Agreement supersedes and cancels all prior agreements, whether verbal or written, between Employer and Employee and constitutes the entire Agreement between the parties; provided, however, that notwithstanding the foregoing, the provisions regarding relocation assistance set forth in that certain Letter Agreement dated May 21, 1996 between Employer and Employee shall remain in full force and effect. Any amendment or agreement supplemental hereto shall not be binding upon either party unless executed in writing by Employer and the Employee. 10. Miscellaneous. A. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, successors, personal representatives and assigns. B. This Agreement shall be interpreted in accordance with and governed by the laws of the State of Michigan. C. Any and all notices or any other communication provided for herein shall be given in writing by certified mail, return receipt requested, which shall be addressed to the addresses shown immediately below each party's signature unless notice of a change of address is furnished to the other parties in the manner provided in this paragraph. D. This Agreement will be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original but all of which shall constitute one (1) and the same instrument and agreement. E. Each paragraph of this Agreement or portion thereof shall be treated as severable, to the end that if any paragraph or portion thereof shall be declared illegal, invalid or unenforce- 6 7 able, this Agreement shall be interpreted so that part only is invalid, without invalidating the remainder of this Agreement, which shall remain in full force and effect as though such paragraph or portion thereof had never been contained in this Agreement, and the affected part shall be interpreted, consistent with the law, to carry out the intent of the parties. IN WITNESS WHEREOF, the parties have signed this Employment Agreement as of the date first above written. WITNESSES: GELMAN SCIENCES INC. [SIG] By: /s/ Charles Gelman - -------------------- --------------------------- Charles Gelman, Chairman and [SIG] Chief Executive Officer - -------------------- /s/ George Uveges ---------------------------------- George Uveges 26042 Tallwood Drive North Olmsted, OH 44070 7 EX-10.30 15 STOCK OPTION AGREEMENT 1 EXHIBIT 10.30 [GELMAN SCIENCES LOGO] NON-QUALIFIED STOCK OPTION AGREEMENT TO: George Uveges FROM: Charles Gelman DATE: August 21, 1996 The Board of Directors, the Corporation hereby grants you an option (the "Option") to purchase 20,000 shares of the Common Stock, $.10 par value, of the Corporation (the "Shares") at $22.875 per share, upon the terms and conditions contained in this Agreement. 1. The Option is intended to be an option which does not qualify as an incentive stock option within the meaning of the Internal Revenue Code of 1986, as amended. 2. The Option may not be transferred by you otherwise than by will or by the laws of descent and distribution and, during your lifetime, the Option is exercisable only by you. 3. Subject to the terms contained in this Agreement, you may exercise the Option in accordance with the following schedule: 5,000 shares will be exercisable on August 21, 1997 5,000 shares will be exercisable on August 21, 1998 5,000 shares will be exercisable on August 21, 1999 5,000 shares will be exercisable on August 21, 2000 4. In the event of a change in control of the Corporation, the right to exercise all options shall vest immediately upon such change. For purposes of this provision, "change in control" means any of the following: (1) the acquisition of beneficial ownership by any person or entity (or more than one (1) person or entity acting as a group) of a majority of the outstanding voting shares of the Corporation; (2) a tender offer made and consummated for at least thirty-three percent (33%) of Corporation's common stock; (3) the acquisition or beneficial ownership by any person or entity (or more than one (1) person or entity acting as a group) of more than fifty-one percent (51%) of the total fair market value of the Corporation's assets; or (4) a majority of the members of the Board are replaced within a one (1) year period. 5. This Option will expire (to the extent not previously exercised) on the tenth anniversary of the date of this Agreement, unless terminated earlier upon your termination of employment with the Corporation or any subsidiary or your death, which are governed by Paragraphs 5 and 6 of this Agreement, respectively. 6. If your employment with the Corporation or any subsidiary of the Corporation terminates for any reason other than your death, you have the right for a period of 90 days following such termination, but in no event subsequent to the expiration date of the Option, to 2 exercise that portion of the Option, if any, which is exercisable by you on the date of termination of your employment. 7. If your employment with the Corporation or any subsidiary of the Corporation terminates by reason of your death, the Option, to the extent it is exercisable on the date of your death, may be exercised for a period of 180 days following your death, but in no event subsequent to the expiration date of the Option, by your legal representative or by the person or persons to whom your rights shall pass by will or by the laws of descent and distribution. 8. The Option shall be exercised by giving a written notice to the Secretary of the Corporation. Such notice shall specify the number of Shares to be purchased, the name in which you desire to have the shares registered, your address and your social security number and shall be accompanied by payment in full in cash, or, with the consent of the Corporation's Board of Directors, in Common Stock of the Corporation, of the aggregate option price for the number of Shares purchased. Such exercise shall be effective only upon the actual receipt of such written notice and no rights or privileges of a shareholder of the Corporation in respect of any of the Shares issuable upon exercise of any part of the Option shall inure to you or any other person who is entitled to exercise the Option unless and until certificates representing such Shares shall have been issued. 9. Nothing contained in this Agreement, nor any action taken by the Corporation, shall confer upon you any right with respect to continuation of your employment by the Corporation or any subsidiary of the Corporation. 10. If, upon or as a result of your exercise of the Option, there shall be payable by the Corporation any amount for income tax withholding, you will pay such amount to the Corporation to reimburse the Corporation for such income tax withholding. 11. By agreeing to and accepting this agreement, you agree that the option previously granted to you on June 13, 1996, by the Compensation Committee of the Board of Directors of the Corporation, is hereby rescinded and cancelled, and the option spoken of in this agreement is in lieu thereof. Sincerely yours, GELMAN SCIENCES INC. /s/ Charles Gelman Charles Gelman Chairman of the Board The above is agreed to and accepted: /s/ George Uveges - -------------------------------- Dated: August 21, 1996 -------------------------- EX-10.31 16 STOCK OPTION AGREEMENT 1 EXHIBIT 10.31 [GELMAN SCIENCES LOGO] NON-QUALIFIED STOCK OPTION AGREEMENT TO: Kim A. Davis FROM: Charles Gelman DATE: August 21, 1996 The Board of Directors, the Corporation hereby grants you an option (the "Option") to purchase 45,000 shares of the Common Stock, $.10 par value, of the Corporation (the "Shares") at $27.000 per share, upon the terms and conditions contained in this Agreement. 1. The Option is intended to be an option which does not qualify as an incentive stock option within the meaning of the Internal Revenue Code of 1986, as amended. 2. The Option may not be transferred by you otherwise than by will or by the laws of descent and distribution and, during your lifetime, the Option is exercisable only by you. 3. Subject to the terms contained in this Agreement, you may exercise the Option in accordance with the following schedule: 5,000 shares will be exercisable on May 1, 1997 10,000 shares will be exercisable on May 1, 1998 15,000 shares will be exercisable on May 1, 1999 10,000 shares will be exercisable on May 1, 2000 5,000 shares will be exercisable on May 1, 2001 4. In the event of a change in control of the Corporation, the right to exercise all options shall vest immediately upon such change. For purposes of this provision, "change in control" means any of the following: (1) the acquisition of beneficial ownership by any person or entity (or more than one (1) person or entity acting as a group) of a majority of the outstanding voting shares of the Corporation; (2) a tender offer made and consummated for at least thirty-three percent (33%) of Corporation's common stock; (3) the acquisition or beneficial ownership by any person or entity (or more than one (1) person or entity acting as a group) of more than fifty-one percent (51%) of the total fair market value of the Corporation's assets; or (4) a majority of the members of the Board are replaced within a one (1) year period. 5. This Option will expire (to the extent not previously exercised) on the tenth anniversary of the date of this Agreement, unless terminated earlier upon your termination of employment with the Corporation or any subsidiary or your death, which are governed by Paragraphs 5 and 6 of this Agreement, respectively. 6. If your employment with the Corporation or any subsidiary of the Corporation terminates for any reason other than your death, you have the right for a period of 90 days following such termination, but in no event subsequent to the expiration date of the Option, to 2 exercise that portion of the Option, if any, which is exercisable by you on the date of termination of your employment. 7. If your employment with the Corporation or any subsidiary of the Corporation terminates by reason of your death, the Option, to the extent it is exercisable on the date of your death, may be exercised for a period of 180 days following your death, but in no event subsequent to the expiration date of the Option, by your legal representative or by the person or persons to whom your rights shall pass by will or by the laws of descent and distribution. 8. The Option shall be exercised by giving a written notice to the Secretary of the Corporation. Such notice shall specify the number of Shares to be purchased, the name in which you desire to have the shares registered, your address and your social security number and shall be accompanied by payment in full in cash, or, with the consent of the Corporation's Board of Directors, in Common Stock of the Corporation, of the aggregate option price for the number of Shares purchased. Such exercise shall be effective only upon the actual receipt of such written notice and no rights or privileges of a shareholder of the Corporation in respect of any of the Shares issuable upon exercise of any part of the Option shall inure to you or any other person who is entitled to exercise the Option unless and until certificates representing such Shares shall have been issued. 9. Nothing contained in this Agreement, nor any action taken by the Corporation, shall confer upon you any right with respect to continuation of your employment by the Corporation or any subsidiary of the Corporation. 10. If, upon or as a result of your exercise of the Option, there shall be payable by the Corporation any amount for income tax withholding, you will pay such amount to the Corporation to reimburse the Corporation for such income tax withholding. 11. By agreeing to and accepting this agreement, you agree that the option previously granted to you on May 1, 1996, by the Compensation Committee of the Board of Directors of the Corporation, is hereby rescinded and cancelled, and the option spoken of in this agreement is in lieu thereof. Sincerely yours, GELMAN SCIENCES INC. /s/ Charles Gelman --------------------- Charles Gelman Chairman of the Board The above is agreed to and accepted: /s/ Kim A. Davis - ------------------------- Dated: August 21, 1996 ------------------ EX-11 17 COMPUTATION OF EARNINGS 1 Exhibit 11 COMPUTATION OF EARNINGS PER COMMON SHARE PRIMARY AND FULLY DILUTED - ---------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 ---------- ---------- ---------- Net income for computing primary and fully diluted earnings per common share $4,336,000 $6,622,000 $4,754,000 PRIMARY SHARES Weighted average number of common shares outstanding 7,885,206 6,828,809 5,787,236 Additions from assumed exercise of stock options and warrants 369,787 406,464 520,652 ---------- ---------- ---------- Weighted average of common and common equivalent shares 8,254,993 7,235,273 6,307,888 ========== ========= ========= FULLY DILUTED SHARES Weighted average number of common shares outstanding 7,885,206 6,828,809 5,787,236 Additions from assumed exercise of stock options and warrants 403,490 420,925 548,640 ---------- ---------- ---------- Weighted average of common and common equivalent shares 8,288,696 7,249,734 6,335,876 ========== ========= ========= NET INCOME PER COMMON SHARE Primary $ 0.53 $ 0.92 $ 0.75 ========== ========= ========= Fully diluted $ 0.53 $ 0.92 $ 0.75 ========== ========= =========
Primary additions from assumed exercise of stock options and warrants are net of assumed purchase of common shares at the average market price during the fiscal year. Fully diluted earnings per share was determined in the same manner except that the year-end stock price was used. The average and year-end stock prices were as follows: fiscal 1996 - $23.25 and $28.25, fiscal 1995 - $15.53 and $19.875, fiscal 1994 - $10.07 and $13.50, respectively. 29 EX-21 18 SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT NAME OF THE SUBSIDIARY INCORPORATION - ---------------------- ------------- Gelman Sciences Ltd. England Gelman Sciences Pty. Ltd. Australia Gelman Sciences Inc. Canada Gelman Ltd. Ireland Gelman International Ltd. Ireland Gelman Sciences Technology, Ltd. Israel Gelman Research and Development, Ltd. Israel Gelman Italy S.r.I. Italy Gelman Sciences Japan, Ltd. Japan Gelman Sciences GmbH Germany Gelman Sciences S.A. France Microbe One Inc. Michigan Gelman Sciences International, Inc. Michigan Micro Technologies Inc. Michigan Gelman Sciences Foreign Sales Corporation U.S. Virgin Islands EX-27 19 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from (a) Gelman Sciences Inc. Statement of Income and Consolidated Statement of Cash Flows for the twelve months ended July 31, 1996 and the Consolidated Balance Sheet as of July 31, 1996 and is qualified in its entirety by reference to such (b) Form 10-K for the fiscal year ended July 31, 1996. 0000310252 GELMAN SCIENCES INC. 12-MOS JUL-31-1996 JUL-31-1996 9,590 0 28,270 1,828 11,751 51,988 75,267 41,143 88,220 12,229 11,303 0 0 794 63,894 88,220 112,057 112,057 56,864 56,864 48,225 478 607 5,883 1,547 4,336 0 0 0 4,336 0.53 0.53
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