-----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, TUpmDa2ghFP0ftU/fajTVuMw8KPAiYQk2m02kLx8D4aOrNVFOoyob7g7eH6S6LYr CWCntRbMtG+vHHWUdACYNg== 0000950124-95-003459.txt : 19951031 0000950124-95-003459.hdr.sgml : 19951031 ACCESSION NUMBER: 0000950124-95-003459 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19951030 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: 95585460 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 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, 1995 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 nonaffiliates of the registrant as of October 24, 1995 was $147,116,304. The number of outstanding shares of the registrant's Common Stock, as of October 24, 1995 was 7,821,762 shares, $.10 Par Value. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the fiscal year ended July 31, 1995, are incorporated by reference into Parts I and II of this report. Portions of the proxy statement for the 1995 Annual Meeting of Shareholders are incorporated by reference into Part III of this report. Portions of the Form 10-Q for the quarterly period ended January 31, 1995, are incorporated by reference into Part IV of this report. Exhibit Index at Page 18. Number of Pages 74. 2 PART I ITEM 1. BUSINESS. (A) GENERAL DEVELOPMENT OF BUSINESS Gelman Sciences Inc. (the "Company") was incorporated in 1959. Unless the context indicates otherwise, the term "Company" includes Gelman Sciences Inc. and its subsidiaries. The Company is a global corporation with its major area of business being the servicing of the industrial, scientific and medical communities with its expertise in polymeric membranes. The Company provides the means of separation and purification of various liquids and gases through the utilization of these membranes. These separation technologies are applied to various types of filtration, fluid and analysis, medical and clinical diagnostic devices. Product engineering support of this technology is the second area of business for the Company. This includes the development and manufacture of membranes, filtration equipment and hardware and disposable filtration devices. (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The information set forth under Note I to the financial statements "Operations by Industry Segment and Geographic Area" on pages 23 and 24 of the Company's 1995 Annual Report to Shareholders is hereby incorporated herein by reference. (C) NARRATIVE DESCRIPTION OF BUSINESS HEALTH PRODUCTS GROUP The Health Products Group manufactures a variety of specialized medical disposable filter devices. These products are used in the medical and health care markets both domestically and internationally. These products are sold through sales outlets as either standard catalog items or as original equipment manufacturer ("OEM") products. These OEM products consist of intravenous fluid in-line filters, transducer protectors and standard small volume filtration disposable medical filters. Medical device sales have accounted for 34%, 31% and 31% of total sales for the years ended July 31, 1995, 1994 and 1993, respectively. The Health Products Group also provides other products for the health care industry such as membranes, equipment and reagents for clinical diagnostic testing by electrophoresis. These products, both in domestic and international markets, are sold by Company sales personnel and a network of distributors. 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. 2 3 BACKLOG AND RAW MATERIALS Backlog for the Health Products Group amounted to $8,215,000 and $8,536,000 at October 21, 1995 and 1994, respectively. It is anticipated that the current backlog will be completed prior to July 31, 1996. No unusual sources of supply are required to meet manufacturing requirements. COMPETITION Competition in the Health Products Group comes from a variety of competitors, the two most important of which are Millipore Corporation and Pall Corporation. Both competitors are significantly larger than the Company. 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 of solutions, microbiological analysis of water, and sterilization of substances such as tissue culture media. The sales of laboratory filters and hardware have accounted for 40%, 44%, and 45% of total sales for years ended July 31, 1995, 1994, and 1993, respectively. In the industrial process filtration area, products utilized are in both large diameter filters and high surface area cartridges for clarification and sterilization of gases, liquids and chemicals. Typical industrial customers are in the pharmaceutical, electronics, and beverage industries. These products are sold both domestically and internationally by Company sales personnel and a network of distributors. The cartridge and capsule sales have accounted for 24%, 22% and 21% of total sales for the years ended July 31, 1995, 1994 and 1993, respectively. BACKLOG AND RAW MATERIALS Backlog for the Filtration Products Group amounted to $5,922,000 and $5,892,000 at October 21, 1995 and 1994, respectively. It is anticipated that the current backlog will be completed prior to July 31, 1996. No unusual sources of supply are required to meet manufacturing requirements. COMPETITION In the Filtration Products Group, the Company's primary competitors are Millipore Corporation, Pall Corporation and Sartorious Membranfilter GmbH (in Europe), with whom the Company has entered into a partnership agreement to supply microfiltration media. The Company's prices for such items are competitive. In addition, competition in this market area is to a high degree based on product quality and other technical services. 3 4 GENERAL BUSINESS EMPLOYEES Gelman Sciences Inc. employs 720 persons in the United States and 109 persons in non-U.S. operations. The Company relies to a great extent, both domestically and internationally, on a network of distributors. Domestically the Company employs 34 sales representatives to work with distributors, make sales calls in conjunction with their representatives, and handle any technical support needs that might arise. PATENTS, TRADEMARKS, LICENSES AND TECHNOLOGICAL CAPABILITY The Company owns a number of patents and trademarks but does not consider them 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. ENVIRONMENTAL REGULATIONS Until May 1986, the Company used 1,4-dioxane, an organic chemical, in 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. Under a consent judgment agreed to in October 1992 resolving litigation with the State of Michigan, the Company is remediating this contamination without admitting wrongdoing. For a description of the environmental litigation in which the Company is presently involved, see "Legal Proceedings" Item 3 below, "Management's Discussion and Analysis of Financial Condition and Results of Operations," at pages 12 and 13 of the Company's 1995 Annual Report to Shareholders and "Note G - - Pollution-Related Expenses" to the Company's Consolidated Financial Statements, at page 22 of the Company's 1995 Annual Report to Shareholders. 4 5 RESEARCH AND DEVELOPMENT Product development and research activities of the Company are carried out on location primarily at its Ann Arbor and Pensacola facilities. Such activities are concentrated primarily on new products and applications. The Company expended $5,498,000, $4,877,000, and $4,139,000 in fiscal 1995, 1994 and 1993, respectively, for product development and research activities. (D) FINANCIAL INFORMATION REGARDING GEOGRAPHIC AREAS The information set forth under Note I to the financial statements "Operations by Industry Segment and Geographic Area" on pages 23 and 24 of the Company's 1995 Annual Report to Shareholders, is hereby incorporated herein by reference. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names and ages of the executive officers of the Company, together with all positions and offices held by such executive officers. Executive officers are elected annually by, and serve at the pleasure of, the Board of Directors.
First Elected Officer of Name Age Office Held the Company - ------------------------------ ------ --------------------------------- ------------------- Charles Gelman 63 Chairman of the Board and 1974 Chief Executive Officer Kim A. Davis 44 President and Chief Operating Officer 1993 James C. Marshall 52 Senior Vice President 1976 Anthony P. Kelly 47 Vice President, Worldwide Sales 1995 Karen A. Radtke 42 Treasurer 1995 Mark A. Sutter 34 Vice President, Research & Development 1992 Edward J. Levitt 51 Secretary and Corporate Counsel 1991
Charles Gelman founded Gelman Sciences Inc. in 1959. He was the Company's President from 1974 to April 1988 and from October 1990 to May 1993. He has been the Company's Chairman and Chief Executive Officer since 1974. Kim A. Davis was elected President and Chief Operating Officer of the Company, effective May 4, 1993, and elected a Director of the Company, effective March 18, 1995. Mr. Davis is responsible for worldwide operations including sales, marketing and manufacturing. From January 1991, Mr. Davis was chief operating officer of Promega Corporation, a Wisconsin-based biotechnology company. Prior to joining Gelman Sciences and Promega, Mr. Davis was president and chief executive officer of a privately-held engineering graphics software company from November 1989. 5 6 James C. Marshall is the Senior Vice President responsible for manufacturing operations in Pensacola, Florida. Prior to that, he was responsible for Ann Arbor Operations, and has worked in the manufacturing function for the Company for over 30 years. Anthony P. Kelly was appointed Vice President, Worldwide Sales, effective September 20, 1995. Mr. Kelly is responsible for selling activities throughout the world. Mr. Kelly remains Vice President, Sales Asia/Pacific for Gelman Sciences International, Inc., and a Director and President of Gelman Sciences Pty. Ltd., the Company's Australian subsidiary. Karen A. Radtke was appointed Treasurer effective June 5, 1995. Previously, Ms. Radtke was Treasurer and Tax Director of Hayes Wheels, Inc., a $500 million international automotive component manufacturer from July 93 to May 1995. Prior to joining Hayes Wheels, Ms. Radtke served on the General Motors International Tax Staff since 1988. Mark A. Sutter was appointed as Vice President, Research & Development, in May 1992, becoming responsible for all Research & Development activities. Previously, Mr. Sutter served as Director of Membrane Research & Development and Cartridge Capsule Product Development and in various marketing functions for the Company since his hire date of January 1986. Edward J. Levitt was appointed as Secretary for the Company on March 24, 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. ITEM 2. PROPERTIES. The Company owns office and manufacturing facilities located in Ann Arbor, Michigan containing 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. During fiscal 1994, the 1989 Industrial Development Bond was redeemed The redemption was funded by the issuance of a 1994 Industrial Development Bond. The amount outstanding under the 1994 Industrial Revenue Bond at July 31, 1995, was $4,697,000. The Company owns 50 acres of vacant land near the Ann Arbor facility. This is held for resale as part of an out-of-court settlement related to an environmental lawsuit. 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 facilities. The Australian subsidiary also owns a building containing approximately 43,000 square feet used for manufacturing. This manufacturing facility is now being leased to a purchaser of several non-core product lines divested in fiscal 1994. The future commitments for all non-cancellable facility leases represent $5,732,000. Substantially all of the existing facilities are used in connection with the Company's Health and Filtration Product Groups. 6 7 ITEM 3. LEGAL PROCEEDINGS. The Company, in the normal course of business, is involved in incidental, routine litigation. In addition, the Company is currently 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 "Environmental Regulations" in Item 1, above.) 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 main facility of the Company sued the Company and 8 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 7 of the 8 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 totalling $119,756. After adjustment for the March 9, 1990, settlement between plaintiffs and 7 other defendants, the net jury verdict against the Company was $62,250, plus interest. On December 11, 1991, the Court awarded the Company costs totalling $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 plaintiff's 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 have filed a Motion for Reconsideration, which is pending. Campbell, et al. v. Gelman Sciences Inc. (Circuit Court for Washtenaw County, Michigan, Case No. 91-41524-CE). On July 30, 1991, a complaint was filed against the Company by 5 individuals in the Westover residential subdivision located near the main facility of the Company for damages for anticipated expenses for future medical monitoring asserted to be necessary because plaintiffs claim they are subject to increased risk of contracting serious latent diseases as a result of exposure to air and groundwater contamination allegedly caused by the Company. The plaintiffs are the children of some individuals who had sued the Company previously in Scarbrough, et al. v. Gelman Sciences Inc., et al., discussed above. On August 26, 1991, the Company filed its answer, denying liability and asking the Court to dismiss this lawsuit. On October 23, 1992, the Court entered an Order granting summary judgment to the Company. The case was dismissed by Order dated December 11, 1992. The plaintiffs appealed, and, on February 8, 1995, the Michigan Court of Appeals affirmed the dismissal. 7 8 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 main 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 have filed an appeal of this dismissal. The appeal is pending. Laird, et ano v. Gelman Sciences Inc., et ano. (Circuit Court for Washtenaw County, Michigan, Case No. 93-623 CZ). On May 12, 1993, the two owners of a business located near the main facility of the Company filed a Complaint against the Company and its Chairman for damages associated with alleged contamination of the groundwater supply of that business. On November 8, 1993, the Company and its Chairman filed their Answers denying liability. On December 1, 1994, the parties agreed to a settlement upon payment by the Company of $30,000 to the plaintiffs. Payment was made and, on stipulation of the parties, the case was dismissed on January 3, 1995. "Thermo Chem" Superfund Site, Muskegon, Michigan. By correspondence dated January 2, 1992, the United States Environmental Protection Agency ("USEPA") identified the Company as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") for past and future response costs in connection with the Thermo Chem Superfund site, a waste chemical reclamation and disposal site. The USEPA issued an Administrative Order mandating remediation of the site to a number of generator PRPs. On July 22, 1994, the Company and the USEPA entered into a settlement agreement under which the Company agreed to pay $124,100. A USEPA administrative consent order based on that agreement became effective February 8, 1995, and the Company paid March 10, 1995. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None 8 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDERS MATTERS. The information required by this item is set forth under the caption "Stock Prices" on page 10 of the Company's 1995 Annual Report to the Shareholders, and is hereby incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. The information required by this item is set forth under the caption "Selected Financial Data" on page 11 of the Company's 1995 Annual Report to Shareholders, and is hereby incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this item is set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 12 and 13 of the Company's 1995 Annual Report to Shareholders, and is hereby incorporated herein by reference. The Company does not believe that inflation has had a material impact on its results of operations over the past three years. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item is set forth on pages 14 through 24 of the Company's 1995 Annual Report to Shareholders, and is hereby incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 9 10 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item with respect to the Company's directors is set forth under the caption "Election of Directors" of the Company's proxy statement for the 1995 Annual Meeting of Shareholders, and is hereby incorporated herein by reference. Information called for by this item with respect to the Company's executive officers is set forth under "Executive Officers of the Registrant" in Part I of this report. 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. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is set forth under the captions "Election of Directors" and "Compensation of Executive Officers" of the Company's proxy statement for the 1995 Annual Meeting of Shareholders, and is hereby incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is set forth under the captions "Principal Shareholders" and "Election of Directors" of the Company's proxy statement for the 1995 Annual Meeting of Shareholders, and is hereby incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is set forth under the caption "Compensation of Executive Officers - Certain Relationships and Related Transactions" of the Company's proxy statement for the 1995 Annual Meeting of Shareholders, and is hereby incorporated herein by reference. 10 11 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) Financial Statements The following financial statements and supplementary data are incorporated by reference from pages 14 through 25 of the Company's 1995 Annual Report to Shareholders: (A) Consolidated Statements of Operations - Years Ended July 31, 1995, 1994 and 1993. (B) Consolidated Statements of Stockholders' Equity - Years ended July 31, 1995, 1994 and 1993. (C) Consolidated Balance Sheets - July 31, 1995 and 1994. (D) Consolidated Statements of Cash Flows - Years ended July 31, 1995, 1994 and 1993. (E) Notes to Consolidated Financial Statements. (F) Report of Independent Auditors. (G) Summary of Quarterly Results of Operations - Years ended July 31, 1995 and 1994 (a)(2) Financial Statement Schedules The following financial statement schedules are submitted in accordance with Item 14.(d) and are set forth on pages 16 and 17 of this report: Report of Independent Auditors II -- Valuation and Qualifying Accounts - Years ended July 31, 1995, 1994 and 1993. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 11 12 (a)(3) Exhibits (3) Articles of Incorporation and Bylaws (1) Restated Articles of Incorporation, incorporated by reference from Exhibit (3)(1) to the Company's Form 10-Q for the quarterly period ended January 31, 1995. (2) Restated Bylaws (4) Instruments Defining Rights of Security Holders (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) Material Contracts (1) Deferred Compensation Agreement between the Company and James C. Marshall, incorporated by reference from Exhibit 10(3) to the Company's Form 10-K for the year ended July 31, 1988. (2) Employment Agreement between the Company and James C. Marshall, incorporated by reference from Exhibit 10(4) to the Company's Form 10-K for the year ended July 31, 1989. (3) 1978 Employee Stock Option Plan, as amended, incorporated by reference from Exhibit 10(2) to the Company's Form 10-K for the year ended July 31, 1987. (4) 1988 Stock Plan, incorporated by reference from Exhibit 10(6) to the Company's Form 10-K for the year ended July 31, 1988. (5) Warrant Agreement, dated December 16, 1987, with John A. Geishecker, incorporated by reference to Exhibits 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. (6) Warrant and Stock Appreciation Rights Agreements, dated January 12, 1989, with John A. Geishecker and Saul Hymans, incorporated by reference to Exhibits 28.7 and 28.8 to the Company's Form S-8 Registration Statement No. 33-37235 filed with the Securities and Exchange Commission on October 9, 1990. (7) 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. (8) Confidentiality, Anti-Competition and Termination Benefits Agreement between Robert L. Buker and the Company, incorporated by reference from Exhibit 10(11) to the Company's Form 10-K for year ended July 31, 1993. 12 13 (9) Confidentiality, Anti-Competition and Termination Benefits Agreement between Eric Gelman and the Company, incorporated by reference from Exhibit 10(12) to the Company's Form 10-K for year ended July 31, 1993. (10) Warrant Agreement, dated September 2, 1992, with Charles Newman, incorporated by reference from Exhibit 10(14) to the Company's Form 10-K for year ended July 31, 1993. (11) Consent Judgment in Kelley v. Gelman Sciences Inc. entered October 26, 1992, incorporated by reference from Exhibit 10(15) to the Company's Form 10-K for year ended July 31, 1993. (12) Consent Judgment in State of Michigan v. Gelman Sciences Inc. entered October 26, 1992, incorporated by reference from Exhibit 10(16) to the Company's Form 10-K for year ended July 31, 1993. (13) Warrant Agreement, dated June 17, 1994, with Robert Collins, incorporated by reference from Exhibit 10(16) to the Company's Form 10-K for the year ended July 31, 1994. (14) Warrant Agreement, dated June 17, 1994, with John Geishecker, Jr, incorporated by reference from Exhibit 10(17) to the Company's Form 10-K for the year ended July 31, 1994 (15) Warrant Agreement, dated June 17, 1994, with Saul Hymans, incorporated by reference from Exhibit 10(18) to the Company's Form 10-K for the year ended July 31, 1994. (16) Warrant Agreement, dated June 17, 1994, with Nina McClelland, incorporated by reference from Exhibit 10(19) to the Company's Form 10-K for the year ended July 31, 1994. (17) Warrant Agreement, dated June 17, 1994, with Charles Newman, incorporated by reference from Exhibit 10(20) to the Company's Form 10-K for the year ended July 31, 1994. (18) Confidentiality, Anti-Competition and Termination Benefits Agreement between Mark A. Sutter and the Company, incorporated by reference from Exhibit 10(21) to the Company's Form 10-K for the year ended July 31, 1994. (19) Confidentiality, Anti-Competition and Termination Benefits Agreement between Edward J. Levitt and the Company, incorporated by reference from Exhibit 10(22) to the Company's Form 10-K for the year ended July 31, 1994. (20) Warrant Agreement, dated September 2, 1994, with Dr. Hajime Kimura, incorporated by reference from Exhibit 10(1) to the Company's Form 10-Q for the quarterly period ended January 31, 1995. (21) Employment Agreement dated August 1, 1995, between the Company and Kim A. Davis. (22) Employment Agreement dated August 1, 1995, between the Company and Charles Gelman. 13 14 (11) Statement re computation of per share earnings for years ended July 31, 1995, 1994 and 1993. (13) Annual Report to Shareholders for the year ended July 31, 1995. (21) Subsidiaries of the Registrant. (27) Financial Data Schedules (b) Reports on Form 8-K None 14 15 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: Charles Gelman -------------------------------------- GELMAN SCIENCES INC. Charles Gelman, Chairman of the Board and Chief Executive Officer Dated: October 25, 1995 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 25, 1995. Charles Gelman ------------------------------------------------------------ Chairman of the Board and Chief Executive Officer and Director Kim A. Davis ------------------------------------------------------------ President and Chief Operating Officer Karen A. Radtke ------------------------------------------------------------ Treasurer David J. DiMaggio ------------------------------------------------------------ Controller Robert M. Collins ------------------------------------------------------------ Director John A. Geishecker, Jr. ------------------------------------------------------------ Director Saul H. Hymans ------------------------------------------------------------ Director Hajime Kimura, M.D., Ph.D. ------------------------------------------------------------ Director Nina I. McClelland ------------------------------------------------------------ Director Charles Newman ------------------------------------------------------------ Director 15 16 Coopers & Lybrand Coopers & Lybrand L.L.P. a professional services firm To the Board of Directors and Stockholders of Gelman Sciences Inc.: Our report on the consolidated financial statements of Gelman Sciences Inc. and subsidiaries has been incorporated by reference in this Form 10-K from page 25 of the 1995 Annual Report to Shareholders of Gelman Sciences Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Part IV, Item 14 on page 17 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. Detroit, Michigan September 8, 1995 16 17 SCHEDULE II -- VALUATION AND GELMAN SCIENCES INC. AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E COL. F Additions ------------------------------------- Charged to Balance at Charged to other Balance at beginning cost and accounts Deductions- end of Description of period expenses describe (1) describe (2) period - -------------------------------------------------------------------------------------------------------------------------------- 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 YEAR ENDED JULY 31, 1993 $749,000 $493,000 ($19,000) $296,000 $927,000 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. 17 18 GELMAN SCIENCES INC. FORM 10-K INDEX TO EXHIBITS (3) Articles of Incorporation and Bylaws (2) Restated Bylaws (10) Material Contracts (21) Employment Agreement dated August 1, 1995, between the Company and Kim A. Davis. (22) Employment Agreement dated August 1, 1995, between the Company and Charles Gelman. (11) Statement re computation of per share earnings for years ended July 31, 1995, 1994 and 1993 (13) Annual Report to Shareholders for the year ended July 31, 1995 (21) Subsidiaries of the Registrant (27) Financial Data Schedules 18 EX-3 2 EX-3 1 EXHIBIT 3 BYLAWS OF GELMAN SCIENCES INC. A MICHIGAN CORPORATION 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 1 2.6 Quorum; Adjournment 2 2.7 Voting 2 2.8 Telephonic Attendance 2 2.9 Inspectors of Election 2 2.10 Action By Written Consent 2 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 Annual Meeting 4 3.9 Regular Meetings 4 3.10 Special Meetings 4 3.11 Quorum 4 3.12 Voting 4 3.13 Telephonic Participation 4 3.14 Action by Written Consent 5 3.15 Committees 5 3.16 Compensation 5 i 3 PAGE ---- ARTICLE IV - OFFICERS 4.1 Officers and Agents 5 4.2 Compensation 6 4.3 Term 6 4.4 Removal 6 4.5 Resignation 6 4.6 Vacancies 6 4.7 Chairman of the Board 6 4.8 President 6 4.9 Executive Vice Presidents and Vice Presidents 6 4.10 Secretary 6 4.11 Treasurer 7 4.12 Assistant Vice Presidents, Secretaries and Treasurers 7 4.13 Execution of Contracts and Instruments 7 4.14 Voting of Shares and Securities of Other Corporations and Entities 7 ARTICLE V - NOTICES AND WAIVERS OF NOTICE 5.1 Delivery of Notices 7 5.2 Waiver of Notice 8 ARTICLE VI - SHARE CERTIFICATES AND SHAREHOLDERS OF RECORD 6.1 Certificates for Shares 8 6.2 Lost or Destroyed Certificates 8 6.3 Transfer of Shares 8 6.4 Record Date 8 6.5 Registered Shareholders 9 ARTICLE VII - INDEMNIFICATION 9 ARTICLES VIII - GENERAL PROVISIONS 8.1 Checks and Funds 9 8.2 Fiscal Year 9 8.3 Corporate Seal 9 8.4 Books and Records 9 8.5 Financial Statements 10 ARTICLE IX - AMENDMENTS 10 ARTICLE X - CONTROL SHARE ACQUISITIONS 10 ARTICLE XI - SCOPE OF BYLAWS 10 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. 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. 1 5 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 Telephonic Attendance. When authorized by the Board of Directors, shareholders may participate in any shareholders' meeting by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other if all participants are advised of the communications equipment and the names of all participants in the conference. 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 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 Action by Written Consent. To the extent permitted by the Articles of Incorporation, any action required or permitted to be taken at any shareholders' meeting may be taken without a meeting, prior notice and a vote, by written consent of shareholders. 2 6 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 a 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 or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days before the meeting; provided, that if less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was 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. At the request of the Board of Directors any person nominated by the Board of Directors for election as a Director shall furnish to the Secretary that information required to be set forth in a shareholder's notice of nomination which pertains to the nominee. The Chairman of the meeting shall, if the facts warrant, 3 7 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 annual election of Directors by the shareholders and until his or her successor is duly elected and qualified, or until his or her resignation or removal. Thereafter, such Director shall hold office until the expiration of the term of the class into which such Director was elected. 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. When the number of Directors is increased by the Board of Directors and any newly created directorships are filled by the Board, there shall be no classification of the additional Directors until the next annual meeting of shareholders. 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 Annual Meeting. Each newly elected Board of Directors shall meet promptly after the annual shareholders' meeting for the purposes of electing officers and transacting such other business as may properly come before the meeting. No notice of the annual Directors' meeting shall be necessary to the newly elected Directors in order to legally constitute the meeting, provided a quorum is present. 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 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. 4 8 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. The Board of Directors may, by resolution passed by a majority of the entire Board, designate one or more committees, each consisting of one or more Directors. The Board may designate one or more Directors as alternate members of any committee to replace any absent or disqualified member at any committee meeting. Any committee, to the extent provided in the resolution of the Board, may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, except a committee shall not have the power or authority to: (a) Amend the Articles of Incorporation. (b) Adopt an agreement of merger or consolidation. (c) Recommend to shareholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets. (d) Recommend to shareholders a dissolution of the Corporation or a revocation of a dissolution. (e) Amend the Bylaws of the Corporation. (f) Fill vacancies in the Board. (g) Fix compensation of the Directors for serving on the Board or on a committee. (h) Declare a dividend. (i) Authorize the issuance of stock. Each committee and its members shall serve at the pleasure of the Board, 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. 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, at its first meeting after each annual meeting of shareholders, shall elect a President, a Secretary and a Treasurer, and may also elect a Chairman of the Board, 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 5 9 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. 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 6 10 accordance with applicable law, the Articles of Incorporation and these Bylaws. The Secretary shall have custody of the 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. 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. 7 11 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. 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. 8 12 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 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. 9 13 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. 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. 10 EX-10.21 3 EX-10.21 1 EXHIBIT 10.21 EMPLOYMENT AGREEMENT Agreement made this 1st day of August, 1995, by and between GELMAN SCIENCES, INC. ("Employer") and KIM A. DAVIS ("Employee"). 1. EMPLOYMENT. A. Employer hereby offers to Employee and Employee hereby accepts continued employment by Employer on the conditions set forth herein. 2. DUTIES. A. Employee has been appointed and shall continue to serve Employer as President and Chief Operating Officer, reporting in such capacity directly to the Chief Executive Officer of Employer ("CEO"). B. Employee's duties and powers in such capacity shall be as determined, from time to time, by CEO. 3. TERM. A. The term of this Agreement shall be three (3) years beginning August 1, 1995, which term shall be automatically extended one (1) year on August 1, 1996 and on August 1 of each year thereafter, unless Employer shall have given: (1) not less than six (6) months written notice of termination to Employee where there has been no change in control of Employer; or (2) where there has been a change in control of Employer, not less than twelve (12) months written notice of termination 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, after ninety (90) calendar days written notice to Employer where there has been no change in control of Employer, in which event Employee shall not be entitled to any additional compensation or benefits; or 2 (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. 4. COMPENSATION. A. Employer shall pay, and Employee shall accept, as base compensation for all services rendered, not less than the amount received per annum effective as of August 1, 1995, 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 CEO, as approved by the Employer's Board of Directors ("Board"). B. Employee shall, following the conclusion of each full Employer fiscal year of active employment, become eligible for an incentive bonus, established at the discretion of the Board, which incentive bonus effective for the Employer's 1996 fiscal year and the fiscal years thereafter, shall consist of an amount equal to: (1) Fifty percent (50%) of the Employee's current annual salary for achieving the corporate goals, established at the discretion of Board; or (2) Seventy-five percent (75%) of the Employee's current annual salary for exceeding the corporate stretch goals, established at the discretion of the Board. Incentive bonus, if any, shall be payable to Employee on or before the seventieth (70th) calendar day after the Employer's fiscal year end. C. If this Agreement is earlier terminated pursuant to Paragraph 3.B.(4) or 3.B.(5), Employee shall become eligible for termination compensation as follows: -2- 3 (1) Where there has been no change in control of Employer, and: (a) the Employer is achieving or exceeding the projected performance plan as approved by the Board, a severance amount equal to the amount of base compensation and incentive bonus the Employee would have received in the year of termination, for the greater of the remaining balance of the contract or two (2) years; (b) the Employer is not achieving the projected performance plan as approved by the Board, a severance amount equal to the amount of base compensation the Employee would have received in the year of termination, for the greater of the remaining balance of the contract or two (2) years; (2) Where there has been a change in control of Employer, and: (a) the Employer is achieving or exceeding the projected performance plan as approved by the Board, a severance amount equal to the amount of base compensation and incentive bonus the Employee would have received in the year of termination, for the remaining balance of the contract plus two (2) years; (b) the Employer is not achieving the projected performance plan as approved by the Board, a severance amount equal to the amount of base compensation the Employee would have received in the year of termination, for the remaining balance of the contract plus two (2) years; (c) immediate vesting of all stock options and awards; and, (d) immediate payment of all incentive awards earned. 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: -3- 4 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, accomplished without consent of the Board; or ii) a tender offer made and consummated for at least thirty-three percent (33%) of Employer's common stock, accomplished without consent of the Board; or 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, accomplished without the consent of the Board; or iv) a majority of the members of the Board are replaced within a one (1) year period, by persons whose appointment or election is not endorsed by a majority of the Board prior to the date of the appointment or election. The severance amount shall be payable in equal annual installments to the Employee, which annual installments shall be further divided into equal payments 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. The Employer shall have the right, at its option and without penalty, to accelerate payments owed to the Employee. 5. EXPENSES. A. Employer shall reimburse Employee, upon presentation of proper documentation, for reasonable expenses incurred by Employee in the performance of his assigned duties. B. Employer shall provide Employee with an automobile befitting Employee's status among other executive employees as President and Chief Operating Officer, by which to perform his assigned duties, at no cost to the Employee. 6. BENEFITS. A. Employee shall be eligible to participate in all benefit programs that Employer makes available, from time to time, to executive employees, including such -4- 5 benefit programs as medical, dental, life, long-term disability, 401(k), and others, on the same terms and conditions as other executive employees. B. (1) Employee shall be covered by an additional, separate, whole life insurance policy in the amount of One Million Dollars ($1,000,000) designed to be, and premiums paid annually for a paid up policy in ten (10) years, the face value of which shall be payable to the Employee's designated beneficiary upon the Employee's death, except for the events described in Paragraph 6.B.(2) below (excluding Employee's death) in which case only the vested portion of the policy (as defined in Paragraph 6.B.(3) below) shall be payable to Employee's designated beneficiary; (1) The premiums for the whole life insurance policy shall continue to be paid by the Employer during Employee's employment with Employer and after Employee's separation from employment with Employer while Employer is making payments to Employee pursuant to Paragraph 4.C, unless the Employee resigns employment under Paragraph 3.B.(2), 4.B.(2) above, or the Employee is terminated from employment under Paragraph 3.B.(6) above, or this Agreement is terminated pursuant to Paragraph 3.A above, or the Employee dies, or Employee violates a covenant set forth in Exhibit A, in which event the Employer's obligations to continue paying the whole life insurance policy premiums shall cease; (2) The whole life insurance policy and its cash value shall become incrementally vested to the Employee at the rate of ten percent (10%) of the whole life insurance policy's face and cash value for each full year after August 1, 1995 the Employer is obligated to continue paying the premiums on the whole life insurance policy as provided in Paragraph 6.B.(2) above; (3) At such time as the Employer is no longer obligated to make payments pursuant to Paragraph 4.C, the Employer shall transfer ownership of said policy to Employee. C. Employee shall be eligible for up to six (6) weeks paid vacation annually, scheduled by mutual agreement between Employee and CEO. D. Employer shall, during the term of this Agreement, pay the dues and assessments required for Employee to maintain full membership privileges at Travis Pointe Country Club. 7. UNDERTAKINGS OF EMPLOYEE. -5- 6 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: (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, 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 and CEO; (3) not withhold from Employer's Board or CEO, and will promptly report to CEO, 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. ENTIRE AGREEMENT. -6- 7 This Agreement supersedes and cancels all prior agreements, whether verbal or written, between Employer and Employee and constitutes the entire Agreement between the parties. Any amendment or agreement supplemental hereto shall not be binding upon either party unless executed in writing by Employer and the Employee. 9. 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 unenforceable, 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. By - ---------------------------------- ------------------------------- Its - ---------------------------------- ------------------------------- 600 South Wagner Road Ann Arbor, MI 48106-1448 -7- 8 ------------------------------- KIM A. DAVIS [home address] -8- 9 EXHIBIT A CONFIDENTIALITY AND PATENT PROTECTION AGREEMENT This Agreement entered into as of the date last hereinafter written by and between the undersigned employee (hereinafter "Employee") and GELMAN SCIENCES, INC., a Michigan corporation (herein "Employer"), pertaining to the employment of the Employee by the Employer: WHEREAS, the Employer requires that all employees, as a condition of their employment, covenant and agree with the Employer to hold its Trade Secrets in utmost respect and confidence and not to use or disclose such information in any way in conflict with the Employer's interest. NOW, THEREFORE, in consideration of the premises upon which this Agreement is based and of the engagement of the Employee as an employee of the Employer, the Employee hereby expressly covenants and agrees as follows: 10. The Employer is engaged in the manufacture, distribution and sale of microporous membranes, textiles and microfiltration products, worldwide. In conducting such business, the Employer has developed, collected, compiled, organized, analyzed and/or systematized certain information including (but not necessarily limited to) customer information, market studies and research, marketing methods and techniques, operating and pricing policies, product formulae, product designs and technologies, operating and pricing policies, product formulae, product designs and technologies, manufacturing processes and technologies, innovative research and development, and certain computer software, which information is used by the Employer in conducting its said business, gives the Employer an advantage or the opportunity to gain an advantage over its competitors and potential competitors who do not know or use it, and is not public information and is not generally known in the industry; such information being collectively and individually referred to herein as "Trade Secrets". The Employer expects to develop, collect, compile, organize, analyze and/or systematize the same or similar kinds of information and to conceive and invent new products, devices, manufacturing processes, software and technologies, continually and in the future, which information and inventions shall become Trade Secrets belonging to the Employer and shall be protected by this Agreement. 11. All Trade Secrets belonging to the Employer and all records pertaining thereto, including (without limitation) those which may be created or developed by the Employee, are and shall be and remain the property of the Employer. The Employee will not ever utilize any Trade Secret belonging to the Employer or any record pertaining thereto for his benefit or for the benefit of others, or for any purpose other than in the ordinary course of and in the furtherance of the Employer's business. 10 12. The Employee will not ever publish or disclose, nor permit to be published or disclosed, any Trade Secrets belonging to the Employer to anyone not authorized to have access thereto without the prior written consent of the Chief Executive Officer of the Employer ("CEO"). Moreover, the Employee agrees to report forthwith to the Employer's Board or CEO any violation of this or any other policy of the Employer applicable to its Trade Secrets, known to or which may come to the knowledge of the Employee. 13. The Employee will have no obligation of confidentiality as to any information which is or hereafter becomes generally known among the Employer's competitors or to the public otherwise than by an unauthorized disclosure by the Employee or by other improper means. Neither shall the Employee be held to violate this Agreement by receiving any Trade Secret of the Employer from a third party having the right to transmit the same, but in such case the obligations or confidentiality, non-use and non-disclosure set forth in Paragraphs 2 and 3 above shall apply to all such information so received. 14. The Employee shall promptly disclose to the Employer's Board or CEO all inventions, discoveries and improvements which the Employee may make, either solely or jointly with others, while in the employ of the Employer, relating to products, manufacturing technologies or software used, manufactured or sold by the Employer during the period of the Employee's employment with the Employer, or the use, manufacture, development or sale of which was in contemplation by the Employer during the period of the Employee's employment with the Employer, and the Employee hereby agrees to assign to the Employer all of the Employee's interest in and to the same, including the Employee's interest in and to any domestic and foreign patent rights therein and any renewals thereof. All expenses of filing any patent applications shall be borne solely by the Employer, but the Employee shall cooperate in filing and supporting any such applications. 15. This Agreement shall survive the termination of employment of the Employee and shall continue with respect to each and all of the Employer's Trade Secrets in conception or existence as of the date of termination, until the same shall have become generally known among the Employer's competitors and potential competitors or to the public at large, other than by unauthorized disclosure by the Employee or other improper means. The Employee agrees that upon the termination of his employment he will immediately return to the Employer all materials, records and drawings provided to the Employee by the Employer or any of its customers, or generated by the Employee relative to the Trade Secrets of the Employer. 16. In the event of a breach of threatened breach by the Employee of this Agreement, it is agreed that the Employer would suffer immediate and irreparable injuries of such a nature and magnitude that money damages would not adequately compensate the Employer and that injunctive relief would be essential for its protection. Such relief -2- 11 shall be without prejudice to any other remedy which the Employer may have or be entitled to receive at law or in equity. To the extent permitted by law, the Employee waives the requirement of bond as a precondition to issuance of any such injunction. 17. If any of the provisions of this Agreement shall be held to be unenforceable for any reason by any Court having jurisdiction of the same, such provision shall be deemed amended by giving to it that construction most consistent with this writing which such Court may find to be enforceable in the matter before it, and all remaining terms and provisions of this Agreement shall not fall, but this Agreement shall be deemed amended by such holding for purposes only of the jurisdiction of such Court, and as so amended shall remain in full force and effect. 18. This Agreement is a prerequisite of employment of the Employee, and need not be signed or otherwise formally accepted by the Employer in order to become binding upon the Employee, but shall be deemed and held so binding and enforceable from and after the date the Employee was first engaged as an employee of the Employer. The Employee acknowledges receipt of a true and correct copy of this Agreement and acknowledges that he has read and understands all of the terms and provisions hereof. Executed this 1st day of August, 1995. EMPLOYEE: ---------------------------------- KIM DAVIS SS Number ---------------------------------- Address ---------------------------------- ---------------------------------- -3- EX-10.22 4 EX-10.22 1 EXHIBIT 10.22 EMPLOYMENT AGREEMENT Agreement made this 1st day of August, 1995, by and between GELMAN SCIENCES, INC. ("Employer") and CHARLES GELMAN ("Employee"). 1. EMPLOYMENT. A. Employer hereby offers to Employee and Employee hereby accepts continued employment by Employer on the conditions set forth herein. 2. DUTIES. A. Employee has been appointed and shall continue to serve Employer as Chairman and Chief Executive Officer, reporting in such capacity directly to the Employer's Board of Directors ("Board"). B. Employee's duties and powers in such capacity shall be as determined, from time to time, by the Board. 3. TERM. A. The term of this Agreement shall be three (3) years beginning August 1, 1995, which term shall be automatically extended one (1) year on August 1, 1996 and on August 1 of each year thereafter, unless Employer shall have given: (1) not less than six (6) months written notice of termination to Employee where there has been no change in control of Employer; or (2) where there has been a change in control of Employer, not less than twelve (12) months written notice of termination 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, after ninety (90) calendar days written notice to Employer where there has been no change in control of Employer, in which event Employee shall not be entitled to any additional compensation or benefits; or 2 (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. 4. COMPENSATION. A. Employer shall pay, and Employee shall accept, as base compensation for all services rendered, not less than the amount received per annum effective as of August 1, 1995, 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 the Employer's Board. B. Employee shall, following the conclusion of each full Employer fiscal year of active employment, become eligible for an incentive bonus, established at the discretion of the Board, which incentive bonus effective for the Employer's 1996 fiscal year and the fiscal years thereafter, shall consist of an amount equal to: (1) Fifty percent (50%) of the Employee's current annual salary for achieving the corporate goals, established at the discretion of Board; or (2) Seventy-five percent (75%) of the Employee's current annual salary for exceeding the corporate stretch goals, established at the discretion of the Board. Incentive bonus, if any, shall be payable to Employee on or before the seventieth (70th) calendar day after the Employer's fiscal year end. -2- 3 C. If this Agreement is earlier terminated pursuant to Paragraph , 3.B.(4) or 3.B.(5), Employee shall become eligible for termination compensation as follows: (1) Where there has been no change in control of Employer, and: (a) the Employer is achieving or exceeding the projected performance plan as approved by the Board, a severance amount equal to the amount of base compensation and incentive bonus the Employee would have received in the year of termination, for the greater of the remaining balance of the contract or two (2) years; (b) the Employer is not achieving the projected performance plan as approved by the Board, a severance amount equal to the amount of base compensation the Employee would have received in the year of termination, for the greater of the remaining balance of the contract or two (2) years; (2) Where there has been a change in control of Employers, and: (a) the Employer is achieving or exceeding the projected performance plan as approved by the Board, a severance amount equal to the amount of base compensation and incentive bonus the Employee would have received in the year of termination, for the remaining balance of the contract plus two (2) years; (b) the Employer is not achieving the projected performance plan as approved by the Board, a severance amount equal to the amount of base compensation the Employee would have received in the year of termination, for the remaining balance of the contract plus two (2) years; (c) immediate vesting of all stock options and awards; and, (d) immediate payment of all incentive awards earned. 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 -3- 4 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, accomplished without consent of the Board; or ii) a tender offer made and consummated for at least thirty-three percent (33%) of Employer's common stock, accomplished without consent of the Board; or 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, accomplished without consent of the Board; or iv) a majority of the members of the Board are replaced within a one (1) year period, by persons whose appointment or election is not endorsed by a majority of the Board prior to the date of the appointment or election. The severance amount shall be payable in equal annual installments to the Employee, which annual installments shall be further divided into equal payments 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. The Employer shall have the right, at its option and without penalty, to accelerate payments owed to the Employee. 5. EXPENSES. A. Employer shall reimburse Employee, upon presentation of proper documentation, for reasonable expenses incurred by Employee in the performance of his assigned duties. B. Employer shall provide Employee with an automobile befitting Employee's status among other executive employees as Chairman and Chief Executive Officer, by which to perform his assigned duties, at no cost to the Employee. 6. BENEFITS. -4- 5 A. Employee shall be eligible to participate in all benefit programs that Employer makes available, from time to time, to executive employees, including such benefit programs as medical, dental, life, long-term disability, 401(k), and others, on the same terms and conditions as other executive employees. B. Employee shall be eligible for up to six (6) weeks paid vacation annually, scheduled at the discretion of Employee, and not inconsistent with the best interest of the Employer. C. Employer shall, during the term of this Agreement, pay the dues and assessments required for Employee to maintain full membership privileges at Travis Pointe Country Club. 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: (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, 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; -5- 6 (3) not withhold from Employer's Board 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. 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. Any amendment or agreement supplemental hereto shall not be binding upon either party unless executed in writing by Employer and the Employee. 9. 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 unenforceable, this Agreement shall be interpreted so that part only is invalid, -6- 7 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. -7- 8 IN WITNESS WHEREOF, the parties have signed this Employment Agreement as of the date first above written. WITNESSES: GELMAN SCIENCES, INC. By - ---------------------------------- ------------------------------- Its - ---------------------------------- ------------------------------- 600 South Wagner Road Ann Arbor, MI 48106-1448 ---------------------------------- CHARLES GELMAN [home address] -8- 9 EXHIBIT A CONFIDENTIALITY AND PATENT PROTECTION AGREEMENT This Agreement entered into as of the date last hereinafter written by and between the undersigned employee (hereinafter "Employee") and GELMAN SCIENCES, INC., a Michigan corporation (herein "Employer"), pertaining to the employment of the Employee by the Employer: WHEREAS, the Employer requires that all employees, as a condition of their employment, covenant and agree with the Employer to hold its Trade Secrets in utmost respect and confidence and not to use or disclose such information in any way in conflict with the Employer's interest. NOW, THEREFORE, in consideration of the premises upon which this Agreement is based and of the engagement of the Employee as an employee of the Employer, the Employee hereby expressly covenants and agrees as follows: 10. The Employer is engaged in the manufacture, distribution and sale of microporous membranes, textiles and microfiltration products, worldwide. In conducting such business, the Employer has developed, collected, compiled, organized, analyzed and/or systematized certain information including (but not necessarily limited to) customer information, market studies and research, marketing methods and techniques, operating and pricing policies, product formulae, product designs and technologies, operating and pricing policies, product formulae, product designs and technologies, manufacturing processes and technologies, innovative research and development, and certain computer software, which information is used by the Employer in conducting its said business, gives the Employer an advantage or the opportunity to gain an advantage over its competitors and potential competitors who do not know or use it, and is not public information and is not generally known in the industry; such information being collectively and individually referred to herein as "Trade Secrets". The Employer expects to develop, collect, compile, organize, analyze and/or systematize the same or similar kinds of information and to conceive and invent new products, devices, manufacturing processes, software and technologies, continually and in the future, which information and inventions shall become Trade Secrets belonging to the Employer and shall be protected by this Agreement. 11. All Trade Secrets belonging to the Employer and all records pertaining thereto, including (without limitation) those which may be created or developed by the Employee, are and shall be and remain the property of the Employer. The Employee will not ever utilize any Trade Secret belonging to the Employer or any record pertaining thereto for his benefit or for the benefit of others, or for any purpose other than in the ordinary course of and in the furtherance of the Employer's business. 10 12. The Employee will not ever publish or disclose, nor permit to be published or disclosed, any Trade Secrets belonging to the Employer to anyone not authorized to have access thereto without the prior written consent of the Employer's Board of Directors ("Board"). Moreover, the Employee agrees to report forthwith to the Employer's Board any violation of this or any other policy of the Employer applicable to its Trade Secrets, known to or which may come to the knowledge of the Employee. 13. The Employee will have no obligation of confidentiality as to any information which is or hereafter becomes generally known among the Employer's competitors or to the public otherwise than by an unauthorized disclosure by the Employee or by other improper means. Neither shall the Employee be held to violate this Agreement by receiving any Trade Secret of the Employer from a third party having the right to transmit the same, but in such case the obligations or confidentiality, non-use and non-disclosure set forth in Paragraphs 2 and 3 above shall apply to all such information so received. 14. The Employee shall promptly disclose to the Employer's Board all inventions, discoveries and improvements which the Employee may make, either solely or jointly with others, while in the employ of the Employer, relating to products, manufacturing technologies or software used, manufactured or sold by the Employer during the period of the Employee's employment with the Employer, or the use, manufacture, development or sale of which was in contemplation by the Employer during the period of the Employee's employment with the Employer, and the Employee hereby agrees to assign to the Employer all of the Employee's interest in and to the same, including the Employee's interest in and to any domestic and foreign patent rights therein and any renewals thereof. All expenses of filing any patent applications shall be borne solely by the Employer, but the Employee shall cooperate in filing and supporting any such applications. 15. This Agreement shall survive the termination of employment of the Employee and shall continue with respect to each and all of the Employer's Trade Secrets in conception or existence as of the date of termination, until the same shall have become generally known among the Employer's competitors and potential competitors or to the public at large, other than by unauthorized disclosure by the Employee or other improper means. The Employee agrees that upon the termination of his employment he will immediately return to the Employer all materials, records and drawings provided to the Employee by the Employer or any of its customers, or generated by the Employee relative to the Trade Secrets of the Employer. 16. In the event of a breach of threatened breach by the Employee of this Agreement, it is agreed that the Employer would suffer immediate and irreparable injuries of such a nature and magnitude that money damages would not adequately compensate the Employer and that injunctive relief would be essential for its protection. Such relief -2- 11 shall be without prejudice to any other remedy which the Employer may have or be entitled to receive at law or in equity. To the extent permitted by law, the Employee waives the requirement of bond as a precondition to issuance of any such injunction. 17. If any of the provisions of this Agreement shall be held to be unenforceable for any reason by any Court having jurisdiction of the same, such provision shall be deemed amended by giving to it that construction most consistent with this writing which such Court may find to be enforceable in the matter before it, and all remaining terms and provisions of this Agreement shall not fall, but this Agreement shall be deemed amended by such holding for purposes only of the jurisdiction of such Court, and as so amended shall remain in full force and effect. 18. This Agreement is a prerequisite of employment of the Employee, and need not be signed or otherwise formally accepted by the Employer in order to become binding upon the Employee, but shall be deemed and held so binding and enforceable from and after the date the Employee was first engaged as an employee of the Employer. The Employee acknowledges receipt of a true and correct copy of this Agreement and acknowledges that he has read and understands all of the terms and provisions hereof. Executed this 1st day of August, 1995. EMPLOYEE: ---------------------------------- CHARLES GELMAN SS Number ---------------------------------- Address ---------------------------------- ---------------------------------- -3- EX-11 5 EX-11 1 EXHIBIT 11 COMPUTATION OF EARNINGS PER COMMON SHARE PRIMARY AND FULLY DILUTED - ------------------------------------------------------------------------------
1995 1994 1993 ---------- ---------- ---------- Net income for computing primary and fully diluted earnings per common share $6,622,000 $4,754,000 $2,702,000 PRIMARY SHARES Weighted average number of common shares outstanding 6,828,809 5,787,236 5,435,611 Additions from assumed exercise of stock options and warrants 406,464 520,652 314,933 ---------- ---------- ---------- Weighted average of common and common equivalent shares 7,235,273 6,307,888 5,750,543 ========== ========== ========== FULLY DILUTED SHARES Weighted average number of common shares outstanding 6,828,809 5,787,236 5,435,611 Additions from assumed exercise of stock options and warrants 420,925 548,640 517,099 ---------- ---------- ---------- Weighted average of common and common equivalent shares 7,249,734 6,335,876 5,952,710 ========== ========== ========== NET INCOME PER COMMON SHARE Primary $ 0.92 $ 0.75 $ 0.47 ========== ========== ========== Fully diluted $ 0.92 $ 0.75 $ 0.45 ========== ========== ==========
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 1995 - $15.53 and $19.875, fiscal 1994 - $10.07 and $13.50, fiscal 1993 - $5.33 and $7.28, respectively. All share and stock price data have been adjusted retroactively to reflect the two, three-for-two stock splits effected during fiscal 1994. EX-13 6 EX-13 1 EXHIBIT 13 STOCK PRICES 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 fiscal 1995. There were 1,180 shareholders of record of the Company on July 31, 1995.
- ---------------------------------------------------------------------------------------------------------- Fiscal Year 1995 1994 - ---------------------------------------------------------------------------------------------------------- HIGH LOW HIGH LOW First Quarter 15.25 12.5 8.375 7 Second Quarter 15.875 11.625 11.25 7.375 Third Quarter 17.375 12 12.5 10 Fourth Quarter 19.875 17.75 14 10.125
HIGHLIGHTS
Dollars in Thousands, except per share data - ------------------------------------------------------------------------------------------------------- Fiscal Year 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- Net Sales $103,503 $94,963 $86,209 Gross Margin 53,433 47,710 42,545 Net earnings 6,622 4,754+ 2,702 Primary earnings per share .92 .75+ .47 Stockholders' equity 58,773 30,435 22,256 Number of employees 829 844 827
+Net earnings includes an after-tax charge of $183,000 for early extinguishment of debt. Without this charge, net earnings would have been $4.9 million or $.78 per share. 2 SELECTED FINANCIAL DATA Gelman Sciences Inc. and Subsidiaries
BALANCE SHEET DATA Dollars in Thousands, except per share data - --------------------------------------------------------------------------------------------------------- Year Ended July 31 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 3,010 $ 1,525 $ 1,142 $ 867 $ 811 Accounts receivable-net 23,985 20,859 17,088 16,529 16,348 Inventories 14,944 13,990 12,986 13,331 13,827 Working capital 31,910 23,450 19,133 8,211 21,943 Total assets 81,781 71,687 63,495 61,530 62,903 Long-term debt including current portion 6,017 23,649 23,854 25,624 30,415 Total liabilities 23,008 41,252 41,239 41,879 42,759 Stockholders' equity 58,773 30,435 22,256 19,651 20,144 Stockholders' equity per share 7.54 4.96 3.81 3.45 3.56 - --------------------------------------------------------------------------------------------------------- OPERATING DATA - --------------------------------------------------------------------------------------------------------- Net sales $103,503 $ 94,963 $ 86,209 $ 81,460 $ 76,516 Gross margin 53,433 47,710 42,545 38,499 35,726 Pollution-related expense - - 543 4,988 806 Interest expense 1,314 1,689 2,006 2,590 2,851 Income taxes (credit) 3,365 2,600 2,030 (212) 250 Net earnings (loss) 6,622 4,754 2,702 (1,211) 88 Net earnings (loss) per share .92 .75 .47 (.21) .02 Return on average stockholders' equity 14.8% 18.0% 12.9% N.A. 0.4% - ---------------------------------------------------------------------------------------------------------
3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 U.S. 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 products in the intravenous therapy applications. Sales of process filtration products increased 21% compared to fiscal 1994 reflecting strong 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 products. Sales to customers in the Asia/Pacific region declined 6% due to the above mentioned non-core product line divestiture in late fiscal 1994. Without the affect 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. 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 by $3.3 million or 9.6% to $37.0 million for fiscal 1995 compared to $33.8 million for fiscal 1994, primarily due to the Company's drive to increase market share consistent with the overall growth strategy. Other expense (income) includes gains on foreign currency transactions and rental income related to the divestiture of non-core operations. 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%. During the year, the Company was granted future tax relief and job training incentives worth $6.1 million from the Michigan Economic Growth Authority and local government authorities in response to the Company's decision to remain and expand its manufacturing operations and corporate headquarters in Ann Arbor, Michigan. The term of the grant is 15 years. As a condition for the grant, the Company is expected to maintain certain levels of employment. 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 the secondary public offering of 1,437,500 shares of common stock in the third quarter of fiscal 1995. As more fully described in Note G - Pollution Related Expenses, cash outflows during fiscal 1995 for the remediation plan, settlement and legal costs associated with groundwater contamination were $1.1 million. This includes $425,000 of final payments on previously accrued settlements. The Company estimates cash outflows for remediation and settlement activities in fiscal 1996 to be approximately $280,000. 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. The ultimate costs to be incurred could exceed the amount provided for at July 31, 1995. 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. Net sales in the fourth quarter of fiscal 1995 increased by 14% over the same period for fiscal 1994, primarily attributable to a 17% increase in sales to customers in Europe and Asia/Pacific. Net earnings for the fourth quarter of fiscal 1995 was $2.2 million or $.27 per share compared to net earnings of $1.5 million or $.23 per share for the fourth quarter of fiscal 1994. Weighted average shares for the fourth quarter of fiscal 1995 and 1994 were 8.1 million and 6.5 million, respectively. The improved operating performance resulted from increased sales volume along with lower interest expense resulting from the repayment of outstanding indebtedness mentioned above. FISCAL YEAR 1994 COMPARED WITH FISCAL YEAR 1993 Net sales for fiscal 1994 increased $8.8 million or 10% to $95.0 million as compared to net sales of $86.2 million for fiscal 1993. Net sales to U.S. customers were $59.8 million, an increase of $5.9 million or 11% over fiscal 1993. Sales to customers in international markets were $35.2 million, an increase of $2.8 million or 9% as compared to fiscal 1993. The increase in sales to U.S. customers was primarily attributable to growth in sales of medical devices and microporous membranes. The international growth was partially offset by fluctuations in foreign currency rates. Without the effects of the fluctuations in foreign currency rates, the increase in international sales in fiscal 1994 would have been 12% over fiscal 1993. Worldwide sales of microporous membranes increased 36% compared to fiscal 1993. This growth was attributable to fulfilling significant orders from original equipment manufacturers that use bulk membrane in filtration applications and diagnostic health care kits. Sales of products for the medical devices market increased 24% in fiscal 1994 over fiscal 1993 due primarily to increased 4 sales of microfiltration products with hemodialysis treatment and intravenous therapy applications. Industrial process product sales increased 11% in fiscal 1994, with particularly strong sales in the international markets. Laboratory product sales increased 4% over fiscal 1993. Gross profit increased $5.2 million or 12 % to $47.7 million in fiscal 1994 as compared to $42.5 million in fiscal 1993. As a percentage of net sales, gross profit was $50.2% compared to 49.4% in fiscal 1993. The improvement in the Company's gross profit margin was attributable to increased sales volume and a higher percentage of microporous membrane sales which have a higher gross margin than other products sold by the Company. Selling and administration expense increased $2.7 million or 9% to $33.8 million in fiscal 1994 compared to $31.0 million in fiscal 1993. As a percentage of net sales, these expenses declined to 35.6% compared to 36.0%. These expenses increased over the prior fiscal year due primarily to higher selling expenses resulting from increased sales. Research and development expenses increased $738,000 or 17.8% to $4.9 million in fiscal 1994 compared to $4.1 million in fiscal 1993 due to a greater new product development effort. As a percentage of net sales, research and development expenses increased to 5.1% from 4.8% in fiscal 1993. During fiscal 1994 all charges and cost recoveries related to pollution expenses were recorded in a reserve maintained by the Company for pollution-related charges. The Company had third party cost recoveries of $750,000 from the settlement of a lawsuit against certain chemical companies. The Company reached a settlement on a lawsuit for $561,000 with resident located near its Ann Arbor facilities for damages related to groundwater contamination. In addition, the Company incurred costs of $1.3 million related to the implementation of a remediation plan and legal costs of $312,000 in defense of the these lawsuits. At July 31, 1994, the Company had accrued $1.5 million to complete the remediation plan and to pay for other costs associated with groundwater contamination In a series of transactions in fiscal 1994, the Company's Australian subsidiary sold all of its non-core product lines for cash and a note receivable. Included in Other expense (income) is a gain of $108,000 or $.02 per share on the sale of the assets relating to the non-core products. Sales from these product lines were $4.4 million and $5.0 million for fiscal 1994 and 1993, respectively. Interest expense decreased $317,000 or 16% to $1.7 million in fiscal 1994 compared to $2.0 million in fiscal 1993. This change was due to steps taken by management to secure more favorable interest rates. The Company's effective tax rate for fiscal 1994 was 34.5% as compared to 42.9% in fiscal 1993. The lower effective tax rate was attributable to use of net operating loss carryforwards from certain foreign subsidiaries in fiscal 1994 and use of research and development tax credits. Net earnings increased $2.1 million or 76% to $4.8 million or $.75 per share in fiscal 1994 compared to $2.7 million or $.47 per share in fiscal 1993. Net earnings included an extraordinary charge of $295,000 (net of $112,000 tax benefit) or $.03 per share to write-off deferred finance charges and the payment of a premium and fees incurred in connection with the redemption of industrial development revenue bonds. Excluding these charges, net earnings would have been $4.9 million or $.78 per share as compared with net earnings of $2.7 million or $.47 per share in fiscal 1993. Net sales in the fourth quarter of fiscal 1994 increased by 10% over the same period for fiscal 1993, primarily attributable to a 15% increase in sales to U.S. customers. Net earnings for the fourth quarter of fiscal 1994 was $1,463,000 or $.23 per share compared to net earnings of $794,000 or $.13 per share for the fourth quarter of fiscal 1993. The improved operating performance resulted from increased sales volume, improved gross margins, along with lower interest and pollution expense. Selling and administration expense increased to 37% of sales for the fourth quarter fiscal 1994. This increase was attributable to increased commissions related to sales volume and increased marketing activities. LIQUIDITY AND CAPITAL RESOURCES During fiscal 1995, the Company generated cash from operating activities of $6.0 million compared to $4.5 million during fiscal 1994. At July 31, 1995, $1.2 million in cash equivalents were held in an interest-bearing money market mutual fund. Financing activities included proceeds of a secondary public offering of $19.4 million used to repay $17 million in outstanding indebtedness of the Company. Remaining funds plus cash from operating activities were used for $7.8 million of capital expenditures. Budgeted capital expenditures for fiscal 1996 are $8 to $10 million, a significant portion to be used for manufacturing process automation and improvements and upgrades to the Company's Ann Arbor facility. Management believes that funding for the required capital expenditures will be achieved through operating cash flow and utilization of the Company's renegotiated $15 million Credit Agreement. During the year, the Company reduced its committed level under its revolving credit facility to $15 million. The measure was taken to reduce fees while maintaining adequate facilities for future needs. At July 31, 1995, the entire credit facility was unused. Working capital at July 31, 1995 and July 31, 1994 was $31.9 million and $23.4 million, respectively. The increased working capital was attributed mainly to increased trade receivables and inventory levels as a result of higher sales volume in fiscal 1995 compared to fiscal 1994. 5 CONSOLIDATED BALANCE SHEETS Gelman Sciences Inc. and Subsidiaries
Consolidated Balance Sheets -- Assets Dollars in Thousands - ------------------------------------------------------------------------------------------------------------ July 31 1995 1994 - ------------------------------------------------------------------------------------------------------------ CURRENT ASSETS Cash and cash equivalents $ 3,010 $ 1,525 Accounts receivable less allowances (1995-$1,310; 1994-$790) 23,985 20,859 Inventories Finished products 6,320 5,790 Work in process 1,572 1,555 Raw materials and purchased parts 7,052 6,645 - ------------------------------------------------------------------------------------------------------------ 14,944 13,990 Other current assets 4,988 3,849 - ------------------------------------------------------------------------------------------------------------ Total Current Assets $ 46,927 40,223 - ------------------------------------------------------------------------------------------------------------ PROPERTY, PLANT AND EQUIPMENT Land 1,438 1,433 Buildings and improvements 19,302 18,851 Equipment 49,102 43,270 - ------------------------------------------------------------------------------------------------------------ 69,842 63,554 Less allowances for depreciation (37,258) (34,392) - ------------------------------------------------------------------------------------------------------------ 32,584 29,162 INTANGIBLES AND OTHER ASSETS 2,270 2,302 - ------------------------------------------------------------------------------------------------------------ Total Assets $ 81,781 $ 71,687 - ------------------------------------------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEETS -- LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------ CURRENT LIABILITIES Notes payable to banks $ 1,368 $ 1,549 Accounts payable 3,813 5,611 Compensation and amounts withheld 5,310 4,273 Other accrued expenses 4,002 3,511 Current maturities of long-term debt 524 1,829 - ------------------------------------------------------------------------------------------------------------ Total Current Liabilities $ 15,017 16,773 - ------------------------------------------------------------------------------------------------------------ LONG-TERM DEBT, EXCLUSIVE OF CURRENT MATURITIES 5,493 21,820 OTHER LONG-TERM LIABILITIES 2,498 2,659 STOCKHOLDERS' EQUITY Preferred stock, par value $1.00 per share-authorized 500,000 shares, none outstanding Common stock, par value $.10 per share issued 7,790,000 shares in 1995 and 6,131,000 shares in 1994. 779 613 Additional capital 35,145 14,055 Retained earnings 23,714 17,092 Foreign currency translation adjustments (565) (875) Note receivable-common stock (300) (450) - ------------------------------------------------------------------------------------------------------------ Total Stockholders' Equity 58,773 30,435 - ------------------------------------------------------------------------------------------------------------ Total Liabilities and Stockholders' Equity $ 81,781 $ 71,687 - ------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 6 CONSOLIDATED STATEMENTS OF OPERATIONS/STOCKHOLDERS' EQUITY Gelman Sciences Inc. and Subsidiaries
Consolidated Statements of Operations Dollars in Thousands, except per share data - -------------------------------------------------------------------------------------------------------------- Year Ended July 31 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------- Net Sales $ 103,503 $ 94,963 $ 86,209 Cost and expenses: Cost of products sold 50,070 47,253 43,664 Selling and administration 37,043 33,785 31,044 Research and development 5,498 4,877 4,139 Pollution-related expense - - 543 Other expense (income)-net (409) (178) 81 - -------------------------------------------------------------------------------------------------------------- Operating earnings 11,301 9,226 6,738 Interest expense 1,314 1,689 2,006 - -------------------------------------------------------------------------------------------------------------- Earnings before income taxes and extraordinary item 9,987 7,537 4,732 Income taxes 3,365 2,600 2,030 - -------------------------------------------------------------------------------------------------------------- Net earnings before extraordinary item 6,622 4,937 2,702 - -------------------------------------------------------------------------------------------------------------- Extraordinary item - 183 - - -------------------------------------------------------------------------------------------------------------- Net earnings $ 6,622 $ 4,754 $ 2,702 - -------------------------------------------------------------------------------------------------------------- Primary earnings per share before extraordinary item $ .92 $ .78 $ .47 Primary earnings per share $ .92 $ .75 $ .47 Fully diluted earnings per share before extraordinary item $ .92 $ .78 $ .45 Fully diluted earnings per share $ .92 $ .75 $ .45 - --------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
Consolidated Statements of Stockholders' Equity Dollars in Thousands - ------------------------------------------------------------------------------------------------------------------------ Foreign Currency Notes Common Additional Retained Translation Receivable Stock Capital Earnings Adjustments Common Stock - ------------------------------------------------------------------------------------------------------------------------ Balances at July 31, 1992 $253 $11,826 $ 9,643 $ (329) $ (1,742) - ------------------------------------------------------------------------------------------------------------------------ Net earnings for 1993 2,702 Stock issued under employee plans - 68,050 shares 7 682 Currency translation adjustments (936) ESOP loan payment 150 - ------------------------------------------------------------------------------------------------------------------------ Balances at July 31, 1993 260 12,508 12,345 (1,265) (1,592) - ------------------------------------------------------------------------------------------------------------------------ Net earnings for 1994 4,754 Stock issued under employee plans - 161,270 shares 16 1,276 ESOP loan payment 150 Three for two common stock splits 337 (337) (7) Tax benefit from exercise of stock options 608 Currency translation adjustment 390 Officer loan repayment 992 - ------------------------------------------------------------------------------------------------------------------------ Balances at July 31, 1994 613 14,055 17,092 (875) (450) - ------------------------------------------------------------------------------------------------------------------------ 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 150 TAX BENEFIT FROM EXERCISE OF NON-QUALIFIED STOCK OPTIONS 631 CURRENCY TRANSLATION ADJUSTMENT 310 - ------------------------------------------------------------------------------------------------------------------------ BALANCES AT JULY 31, 1995 $779 $35,145 $23,714 $ (565) $ (300) - ------------------------------------------------------------------------------------------------------------------------ See notes to consolidated financial statements.
7 CONSOLIDATED STATEMENTS OF CASH FLOW Gelman Sciences Inc. and Subsidiaries
Consolidated Statements of Cash Flow Dollars in Thousands - --------------------------------------------------------------------------------------------------------- Year Ended July 31 1995 1994 1993 - --------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net earnings $ 6,622 $ 4,754 $ 2,702 Extraordinary loss related to early extinguishment of debt, before tax benefit - 295 - Depreciation and amortization 4,495 4,396 4,452 Increase (decrease) in deferred income taxes 144 627 275 Loss (gain) on sale of property, plant and equipment 54 (196) 31 Stock issued for employee service 389 360 300 Contribution to employee stock ownership plan 150 150 150 (Increase) decrease in inventories (615) (1,431) (47) (Increase) decrease in accounts receivable (3,071) (3,391) (1,051) (Increase) decrease in other current assets (1,100) (276) (433) Increase (decrease) in current liabilities (686) 382 2,285 Increase (decrease) in liabilities for environmental activities (597) (1,154) (515) Other 179 (25) 21 - --------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,964 4,491 8,170 FINANCING ACTIVITIES Long-term debt borrowings 25,365 33,011 25,700 Net increase (decrease) in short-term borrowings 60 114 (116) Principal payments on long-term debt (43,070) (33,196) (28,327) Net Proceeds from secondary Stock Offering 19,422 - - Proceeds from exercised stock options 818 924 389 Tax benefit from exercised stock options 631 608 - Fees paid on early retirement of debt - (52) - Payment received - note receivable common stock - 992 - - --------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,226 2,401 (2,354) INVESTING ACTIVITIES Capital expenditures (7,825) (6,682) (5,860) Proceeds from sale of property, plant and equipment 43 537 50 (Increase) decrease in intangibles and other assets (47) (347) 66 - --------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (7,829) (6,492) (5,744) EFFECTS OF EXCHANGE RATE CHANGES ON CASH 124 (17) 203 - --------------------------------------------------------------------------------------------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS 1,485 383 275 - --------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,525 1,142 867 - --------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,010 $ 1,525 $ 1,142 - --------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements.
8 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 after elimination of intercompany accounts and transactions. 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 gains (losses) of $233,000, $77,000 and $(129,000) were recognized in 1995, 1994 and 1993, respectively. Cash and Cash Equivalents: Cash equivalents consist of highly liquid money market mutual funds. The carrying amount approximates fair value. At July 31, 1995, $1.2 million in cash equivalents were held. 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 77% and 78% of the July 31, 1995 and 1994 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 $2,961,000 and $2,556,000 at July 31, 1995 and 1994, respectively. 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. Included in property, plant and equipment are capitalized computer software costs. At July 31, 1995 and 1994 the unamortized amount of these costs was $18,600 and $92,700, respectively. The amount amortized and charged to expense was $74,100, $153,300 and $194,000 for the fiscal years ended July 31, 1995, 1994 and 1993, respectively. The Company capitalized interest costs associated with the construction of certain capital assets of $74,000 and $91,000 in 1995 and 1994, respectively. No interest was capitalized in 1993. 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 and a note receivable related to the sale of non-core product lines in Australia. Earnings) Per Share: Primary earnings per share for fiscal 1995, 1994 and 1993 are based on the weighted average of common and common equivalent shares of 7,235,273, 6,307,388 and 5,750,543, respectively. Common share equivalents included in the computation represent shares issuable upon assumed exercise of stock options and warrants which would have dilutive effect. Fully diluted earnings per share for fiscal 1993 is based on the weighted average of common and common equivalent shares of 5,952,710. Full dilution had no material effect on earnings per share in fiscal 1995 and 1994. Fiscal 1995 weighted average shares includes the effect of the secondary public offering of 1,437,500 shares of common stock. Financial Instruments: The Company enters into certain financial instruments 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) currently. The Company enters into interest rate financial instruments to manage exposure to interest rate fluctuations. The difference 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 settled. The fee paid on a interest rate cap agreement is amortized over the life of the agreement. 9 NOTE B-FINANCING
Financing consisted of the following obligations Dollars in Thousands - ------------------------------------------------------------------------------------------------------------- as of July 31: 1995 1994 - ------------------------------------------------------------------------------------------------------------- Industrial Development Revenue Bonds with maturities through July 1, 2004 $ 4,697 $ 5,045 Borrowings under revolving credit agreement - 13,000 Borrowings under term loan agreement - 4,000 Note payable, State of Michigan, bearing interest at 7.5%, through January 6, 2002 744 850 Notes payable to banks 1,368 1,549 Other 576 754 - ------------------------------------------------------------------------------------------------------------- Total debt 7,385 25,198 Less current maturities and short-term debt 1,892 3,378 - ------------------------------------------------------------------------------------------------------------- Long-term debt $ 5,493 $21,820 - -------------------------------------------------------------------------------------------------------------
During fiscal 1995, the Company used proceeds from a common stock offering to repay outstanding indebtedness under the Company's term loan and revolving credit agreements. During fiscal 1995, the Company renegotiated its unsecured revolving Credit Agreement to reduce the total commitment from $22.5 million to $15 million reflecting revised working capital needs, obtain market pricing on the total commitment, and ease financial covenants. The term of the Agreement was extended to June 2000. Various interest rate options are available to the Company, including a market rate option which permits the Company to seek competitive bids from the bank group before a loan is made. In fiscal 1994, the Company redeemed the 7.98% Industrial Development Revenue Bonds issued in 1989. The redemption was funded by the issuance of 1994 Industrial Development Revenue Bonds. The 1994 Industrial Development Revenue Bonds bear interest at 120% of the 90 day Eurodollar rate (approximately 7.3% at July 31, 1995) with principal and interest due quarterly through July, 2004. As more fully discussed in Note K-Extraordinary Item, the Company recorded a $295,000 extraordinary charge in connection with the redemption. Notes payable to banks of $1,368,000 are short-term borrowings under foreign subsidiaries' local currency credit lines, supported by a parental guarantee. Maturities of long-term debt, including the current portion, for the five years following July 31, 1995 are as follows: $864,000 in 1996; $534,000 in 1997; $567,000 in 1998; $602,000 in 1999; $641,000 in 2000 and $2,698,000 thereafter. Interest paid during the years ended July 31, 1995, 1994 and 1993 was $1,629,000, $1,433,000 and $2,020,000, respectively. 10 NOTE C-INCOME TAXES The components of earnings (loss) before income taxes and extraordinary items consisted of the following:
Dollars in Thousands - ------------------------------------------------------------------------------------------------------ 1995 1994 1993 - ------------------------------------------------------------------------------------------------------ U.S. $7,860 $6,132 $5,336 Foreign 2,127 1,405 (604) - ------------------------------------------------------------------------------------------------------ $9,987 $7,537 $4,732
The provision (benefit) for income taxes is as follows:
- ------------------------------------------------------------------------------------------------------ Current payable: U.S. $ 1,957 $ 1,469 $ 1,481 State 110 88 149 Foreign 1,011 489 138 Deferred (credit): U.S. 418 556 277 Foreign (131) (2) (15) - ------------------------------------------------------------------------------------------------------ $ 3,365 $ 2,600 $ 2,030 - ------------------------------------------------------------------------------------------------------
Income tax benefit attributable to the extraordinary item in fiscal year 1994 amounted to $112,000. A reconciliation between the provision for income taxes and the amount compared through the application of the U.S. statutory tax rate (34%) to earnings before income taxes and extraordinary items is as follows:
- ----------------------------------------------------------------------------------------------------- 1995 1994 1993 - ----------------------------------------------------------------------------------------------------- Income taxes at statutory rate $3,396 $2,563 $ 1,609 Add (deduct): Effect of foreign losses that had no tax benefit 53 47 342 Foreign rates in excess of U.S. statutory rate 89 104 (30) Non-deductible travel and entertainment 59 34 13 Operating loss carryforward utilization (38) (161) (13) Reduction of valuation allowance (210) -- -- State income taxes, net of federal income tax benefit 73 58 98 Foreign sales corporation benefit (89) (26) (10) Tax Credits and other items 32 (19) 21 - ----------------------------------------------------------------------------------------------------- $3,365 $2,600 $2,030 - -----------------------------------------------------------------------------------------------------
11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) GELMAN SCIENCES INC. AND SUBSIDIARIES NOTE C-INCOME TAXES (CONTINUED) Deferred income taxes for 1995 and 1994 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:
Dollars in Thousands - --------------------------------------------------------------------------------------------------------------- 1995 1994 - --------------------------------------------------------------------------------------------------------------- Deferred tax assets Allowance for doubtful accounts $ 131 $ 146 Litigation accruals - 91 Inventory-related transactions 354 283 Administrative and general expenses not currently deductible 781 779 Environmental accrual 511 720 Foreign operating loss carryforwards 420 460 - --------------------------------------------------------------------------------------------------------------- $ 2,197 $ 2,479 Less excess tax over book depreciation and amortization 1,823 1,676 - --------------------------------------------------------------------------------------------------------------- Gross deferred tax asset 374 803 Valuation allowance (210) (460) - --------------------------------------------------------------------------------------------------------------- Net deferred tax asset $ 164 $ 343 - --------------------------------------------------------------------------------------------------------------- Current deferred tax asset $1,597 $ 1,506 Non-current deferred tax liability $1,433 $ 1,163 - ---------------------------------------------------------------------------------------------------------------
The Company has reduced its valuation allowance on foreign operating loss carryforwards, to reflect the ability to utilize certain subsidiary losses against future earnings on a more likely than not basis. Net current deferred tax assets of $1,597,000 and $1,506,000 for fiscal 1995 and 1994 respectively, are included in other current assets and net non-current deferred tax liabilities of $1,433,000 and $1,163,000 for fiscal 1995 and 1994, respectively, are included in 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, 1995, 1994, and 1993 were $1,571,000, $1,210,000 and $2,190,000, respectively. Taxes paid in 1995 and 1994 reflect the benefit received from exercise of stock options under the non- qualified stock option plan. No deferred income taxes have been provided on undistributed earnings of foreign subsidiaries since those earnings are expected to be reinvested indefinitely in the subsidiaries or will not result in incremental income tax expense. NOTE D-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 to the Savings Plan $.85 for every dollar contributed by employees up to 6% of their compensation, with one half of the Company's contribution in Company common stock. Company contributions charged to operations under these plans were $875,000, $861,000 and $714,000 for the years ended July 31, 1995, 1994 and 1993, respectively 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) GELMAN SCIENCES INC. AND SUBSIDIARIES Note E -- Stockholders' Equity During the year, 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 a public common stock 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. All per share amounts have been restated to retroactively reflect the stock splits. In September 1990, the Company issued 128,000 shares (pre-split) of its common stock to an officer of the Company at 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 during the 15-year period of $150,000 per year to cover the principal payments plus additional contributions to cover interest. The Corporation is entitled to a tax deduction for income tax purposes of the amount that an employee reports as ordinary income from non-qualified stock options. Since the Corporation 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. NOTE F-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 date of grant and expiring ten years after date of grant. Changes in the number of shares available under outstanding options during fiscal years 1993, 1994 and 1995 were as follows:
- ----------------------------------------------------------------------------------------------------- Number of Shares Exercise Price - ----------------------------------------------------------------------------------------------------- Outstanding at July 31, 1992 315,325 $6.75 to $10.00 Granted 91,150 7.75 to 16.00 Exercised (47,225) 6.75 to 10.00 Canceled (16,300) 7.75 to 10.00 - ----------------------------------------------------------------------------------------------------- Outstanding at July 31, 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 Cancelled (38,738) 3.39 TO 12.25 - ----------------------------------------------------------------------------------------------------- OUTSTANDING AT JULY 31, 1995 641,931 $3.39 TO $18.88 - -----------------------------------------------------------------------------------------------------
At July 31, 1995, 1994 and 1993, options for 305,823, 259,252 and 148,175 shares, respectively were exercisable and options for 80,996, 231,258 and 242,736 shares, respectively, were available for future grants. During the year, warrants to acquire 40,000 shares of common stock were exercised at prices ranging from $3.78 to $8.11 and warrants to acquire 9,000 shares at $14.25 were granted. In fiscal 1994, 200 warrants were exercised at $10.00 and 18,000 warrants were granted to purchase shares at $16.38. These warrants are exercisable 6 months after the date of grant. At July 31, 1995 and 1994, warrants were outstanding and exercisable to purchase 113,900 and 144,900 shares, respectively, at exercise prices ranging from $3.33 to $14.25. 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) GELMAN SCIENCES INC. AND SUBSIDIARIES NOTE G - POLLUTION-RELATED EXPENSES The Company has settled several legal suits 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 a defined level. The following table shows pollution-related balance sheet activity:
Dollars in Thousands - -------------------------------------------------------------------------------------------------------------- Accrued Liability Long-term Debt - -------------------------------------------------------------------------------------------------------------- Balance as of July 31, 1993 $2,881 $1,375 Remediation costs charged to accrued liability (1,258) Settlement with chemical companies, cost recovery 750 Payments relating to settlements (561) (250) Defense cost on settlement (312) - -------------------------------------------------------------------------------------------------------------- Balance as of July 31, 1994 1,500 1,125 Remediation costs charged to accrued liability (567) Payments relating to settlements (180) (381) - -------------------------------------------------------------------------------------------------------------- Balance as of July 31, 1995 $ 753 $ 744 - --------------------------------------------------------------------------------------------------------------
During the year, the Company made final payments on several settlements which had been accrued for in previous years. At July 31, 1995, $175,000 of the total accrued liability is classified as other accrued expenses with the remainder classified as other long-term liabilities. Of the total long-term debt, $106,250 is classified as current maturities. Total costs to the Company of pollution-related activities will be dependent upon the efficacy and duration of the remediation plan. The ultimate costs to be incurred could exceed the amount provided for at July 31, 1995. 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 H-OTHER EXPENSE (INCOME) For the year ended July 31, 1995, other expense (income) includes interest and rental income of $173,000 related to Australian properties and foreign exchange gains of $233,000. For the year ended July 31, 1994, other expense (income) includes a gain of $108,000 on the sale of Australian assets relating to the Laminar Air Flow product line. Also included are royalties and gains and losses on sales of other assets. 14 NOTE I-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 domestically and internationally are through Company salespeople and a network of distributors.
Dollars in Thousands - --------------------------------------------------------------------------------------------------------------------- Net Operating Identifiable Depreciation Capital INDUSTRY SEGMENTS Sales Earnings Assets Expense Expenditures - --------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------- Year Ended July 31, 1993 Filtration Products Group $ 56,900 $ 7,407 $44,407 $3,069 $3,717 Health Products Group 26,394 4,375 17,356 1,114 2,114 Other 2,915 (14) 1,542 58 29 - --------------------------------------------------------------------------------------------------------------------- Totals $ 86,209 $11,768 $63,305 $4,241 $5,860 - ---------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------- Net Operating Identifiable GEOGRAPHIC AREA DATA Sales Earnings Assets Liabilities - --------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------- Year Ended July 31, 1993 U.S. Operations $ 72,589 $11,932 $50,517 $37,049 Europe 10,564 163 5,938 1,057 Asia/Pacific 8,958 (35) 5,684 2,991 Other 3,142 (292) 1,166 142 Elimination - Inter-area sales (9,044) - - - --------------------------------------------------------------------------------------------------------------------- Totals $ 86,209 $11,768 $63,305 $41,239 - ---------------------------------------------------------------------------------------------------------------------
15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) GELMAN SCIENCES INC. AND SUBSIDIARIES NOTE I-OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (CONTINUED) Operating earnings are total revenues less operating expenses excluding other expense (income) and corporate expenses of: 1995 - $6,599,000; 1994 - $5,649,000; 1993 - $4,949,000. 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. Inter-area sales are accounted for at prices comparable to unaffiliated customer sales. Export sales to unaffiliated customers were: 1995 - $9,667,000; 1994 - $9,239,000; 1993 - $10,018,000. Net sales to two major customers who distribute the Company's products approximated $20,176,000, $19,725,000 and $18,245,000 in 1995, 1994 and 1993, respectively. NOTE J-FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK Foreign Exchange Instruments - The Company enters into forward exchange contracts to hedge foreign currency transactions on a continuing basis. At July 31, 1995 the Company had contracts outstanding to exchange foreign currencies for U.S. dollars amounting to approximately $3.4 million denominated in British pounds, Japanese yen, French francs, Canadian dollars and German deutschemarks, 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. Interest rate instruments - At July 31, 1995, the Company had outstanding a 7.5% interest rate cap on $5 million notional amount effective May 1, 1995 through May 1,1998. During the year, the Company settled its interest rate swap agreement on $5 million notional amount at a gain of $48,000. The gain was recorded as a reduction to interest expense as the underlying hedged instrument was settled during the year. 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. NOTE K-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 L-SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Summarized quarterly financial information for fiscal years ended July 31, 1995 and July 31, 1994 is presented below:
- ----------------------------------------------------------------------------------------------------------------- 1995 QUARTER ENDED 1994 Quarter Ended OCT 31 JAN 31 APR 30 JULY 31 Oct 31 Jan 31 Apr 30 July 31 - ----------------------------------------------------------------------------------------------------------------- Net sales $24,167 $24,018 $26,893 $28,425 $22,294 $23,282 $24,377 $25,010 Gross margin 12,157 12,445 14,068 14,763 10,918 11,628 12,042 13,122 Research and development 1,308 1,316 1,366 1,508 1,220 1,106 1,188 1,363 Earnings before income taxes and extraordinary item 1,909 1,989 3,104 2,985 1,388 1,733 2,266 2,150 Income taxes 678 733 1,133 821 490 639 784 687 Extraordinary expense - - - - - - 183 - Net earnings 1,231 1,256 1,971 2,164 898 1,094 1,299 1,463 Net earnings per share $ .19 $ .19 $ .26 $ .27 $ .15 $ .18 $ .20 $ .23 - -----------------------------------------------------------------------------------------------------------------
For the third quarter ended April 30, 1994, the Company recorded an extraordinary charge of $295,000 net of $112,000 tax benefit or $.03 per share associated with the refinancing of the 1989 Industrial Development Revenue Bonds. 16 INDEPENDENT AUDITOR'S REPORT Board of Directors and Stockholders Gelman Sciences Inc. Ann Arbor, Michigan We have audited the consolidated balance sheets of Gelman Sciences Inc. and Subsidiaries as of July 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended July 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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, 1995 and 1994, and the consolidated results of their operations and cash flows for each of the three years in the period ended July 31, 1995 in conformity with generally accepted accounting principles. As discussed in Note G to the financial statements, the Company has agreed to perform a remediation program for groundwater contamination. The ultimate costs of the remediation program could exceed the amount estimated and accrued at July 31, 1995. /s/ Coopers & Lybrand L.L.P. Detroit, Michigan September 8, 1995 ANNUAL REPORT TO SEC PRINCIPLE BANKS The Form 10-K Annual Report NBD Bank, N.A., Detroit, Michigan to the Securities and Exchange Comerica Bank-Detroit, Michigan Commission provides certain additional information and GENERAL COUNSEL is available to Gelman Sciences Brouse & McDowell, Akron, Ohio Inc. stockholders upon written request to: GELMAN SCIENCES INC. AUDITORS Shareholder Relations Coopers & Lybrand L.L.P., Detroit, Michigan 600 S. Wagner Road Ann Arbor, MI 48103-9019 TRANSFER AGENT AND REGISTRAR Society National Bank, Cleveland, Ohio EX-21 7 EX-21 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.l. 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 8 EX-27
5 This schedule contains summary financial information extracted from (a) Gelman Sciences Inc. Statement of Operations and Consolidated Statement of Cash Flow for the twelve months ended July 31, 1995 and the Consolidated Balance Sheet as of July 31, 1995 and is qualified in its entirety by reference to such (b) Form 10-K for the fiscal year ended July 31, 1995. Year JUL-31-1995 JUL-31-1995 3,010 0 23,985 1,310 14,944 46,927 69,842 37,258 81,781 15,017 5,493 779 0 0 57,994 81,781 103,503 103,503 50,070 50,070 41,568 564 1,314 9,987 3,365 6,622 0 0 0 6,622 .92 .92
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