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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
___________________
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MARCH 31, 1996.
OR
- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-10538.
GAMMA BIOLOGICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-1668436
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
3700 MANGUM ROAD 77092
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE IS (713) 681-8481
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
COMMON STOCK $.10 PAR VALUE..........AMERICAN STOCK EXCHANGE
COMMON STOCK PURCHASE RIGHTS.........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 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 the 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.
[ X ]
State the aggregate market value of the voting stock held by non-
affiliates of the Registrant. The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of a specified date within 60 days of the date of
filing.
As of June 17, 1996: Common Stock, $.10 par value -- $18,211,208
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as at the latest practicable date.
As of June 17, 1996: Common Stock, $.10 par value -- 4,552,802 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to shareholders for the year ended March
31, 1996 are incorporated by reference into Part I and Part II.
Portions of the proxy statement for the annual meeting to be held
August 8, 1996 are incorporated by reference into Part III.
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P A R T I
ITEM 1. BUSINESS.
Gamma Biologicals, Inc. (which, together with its subsidiaries is herein
referred to as the "company" or "Gamma") manufactures reagents and systems used
for in-vitro diagnostic testing. The reagents are sold to hospitals, blood
centers and medical laboratories where they are used to detect the presence of
diagnostically significant substances in biological fluids, primarily human
blood. The company also develops test systems, which use certain of the
company's reagents and serve to standardize test procedures. See "New
Technology" and "Products Under Development - Gamma ReACT/TM/ System".
The company's current products are used in a number of applications,
including:
. grouping donor and patient bloods and performing compatibility tests
prior to transfusion
. detecting hemolytic disease of the newborn
. identifying antibodies and certain inherited blood group antigens
. screening for certain human diseases
Gamma markets its products to over 3,500 hospitals, blood centers and
laboratories in the United States and Canada, and to dealers in approximately 50
countries. Domestic sales are made through the company's direct sales force, as
well as through distributors. Internationally, the company sells its products
and products manufactured by others through independent dealers.
CURRENT PRODUCTS
Most of the company's sales are derived from products used in tests
performed to determine the ABO and Rh groups of hospital patients and blood
donors, to detect and identify antibodies, to confirm compatibility between
blood donors and patients, and in routine prenatal care. Antibodies are serum
components produced in reaction to the introduction of foreign substances into
the body through transfusion, pregnancy or other mechanisms. The company's
reagent red cell products are used to test patients' blood specimens for
antibodies and, if antibodies are present, to determine their identity, thereby
enabling suitable donor blood to be selected. The selection of proper donor
blood is also aided by testing with the company's line of other blood grouping
reagents. Blood grouping reagents are products prepared from serum (the liquid
portion) of blood drawn from immunized human donors, from antibodies secreted by
monoclonal cell lines (hybridomas), and certain seed extracts (lectins). After
an appropriate donor blood has been selected for transfusion to a patient, a
direct test of compatibility is commonly performed using patient and donor
bloods. The company's antiglobulin reagents (commonly known as "Coombs
reagents") are used in all stages of these procedures beyond initial blood
grouping. The company's line of serological products is used in screening for
certain diseases.
BLOOD BANK PRODUCTS. This group includes blood grouping reagents, Coombs
reagents, antibody potentiators, test cell products, quality control systems and
certain specialty products.
Blood grouping reagents are used to determine the four major blood groups
(A, B, AB and O) and six factors in the Rh blood group system, and include other
products utilized to detect blood group factors in the eight other blood group
systems.
Coombs reagents are used in blood grouping, antibody detection and
identification procedures and in the diagnosis of hemolytic disease of the
newborn, as well as autoimmune hemolytic anemia. The company presently markets
nine Coombs products in three different specificities.
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Antibody potentiators are solutions added to blood testing systems to
enhance their sensitivity. Improved sensitivity is also achieved by the use of
certain proteolytic enzymes. The company presently markets six antibody
potentiators and two enzyme reagents.
Reagent red cell products are used in conjunction with Coombs reagents to
detect and identify antibodies during pregnancy and in patient and donor blood
serums. The company presently manufactures and sells 20 test cell products
processed from human blood.
Reagent Quality Control (RQC(R)) Kit is a product comprising three selected
reagents, designed to enable hospital laboratories and blood banks to test the
effectiveness of reagents and to provide an organized permanent record of the
test results, as required by various regulatory agencies.
Specialty reagents include a screening test for the detection of significant
fetal-maternal hemorrhage, a self-evaluation system that is designed both to
determine technical proficiency and to provide educational content, a simpler
system for competency testing, and six products for the resolution of unusual
blood groups or antibody detection problems.
DIAGNOSTIC PRODUCTS. The company currently sells several diagnostic products
manufactured by others, which are used to test for typhoid, brucellosis and
other human diseases.
GAMMA PRODUCT GROUP TABLE
<TABLE>
<CAPTION> NUMBER OF
BASIC PRODUCT GROUPS PRODUCTS MAIN USE OF PRODUCTS
- --------------------------- --------- ----------------------------------------
BLOOD GROUPING REAGENTS
<S> <C> <C>
ABO
Monoclonal 4 Routine testing of patients and donors
Lectin 2 and in prenatal care.
Rh
Human source 6 Rh phenotyping in selected cases;
Monoclonal 2 routine testing of patients and donors
and in prenatal care.
Rh Control 2 Routine control of Rh grouping tests.
Other
Human source 15 To aid in the selection of blood for
Monoclonal 8 patients with blood group antibodies.
Lectin 1
COOMBS REAGENTS
Monoclonal 5 With other products, in routine
antibody detection (including
pretransfusion compatibility testing),
antibody identification and the
diagnosis of certain diseases.
ANTIBODY POTENTIATORS 6 With other products, in all antibody
detection and identification tests.
REAGENT RED CELL PRODUCTS
Serum ABO Grouping 4 With ABO blood grouping reagents, in
routine ABO grouping tests.
Antibody Detection 11 With Coombs reagents and antibody
potentiators, in detection of
antibodies in patients and donors, and
in prenatal care.
(Table continued on following page)
</TABLE>
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<TABLE>
<CAPTION> NUMBER OF
BASIC PRODUCT GROUPS PRODUCTS MAIN USE OF PRODUCTS
- --------------------------- --------- ----------------------------------------
REAGENT RED CELL PRODUCTS (continued)
- --------------------------------------------------------------------------------
<S> <C> <C>
Antibody 6 With Coombs reagents and antibody
Identification potentiators, in identification of
antibodies detected in routine testing.
Reagent Control 4 Routine control of all Coombs tests and
control of the test for weak D
(D/u/test), mainly on donors.
RQC(R) KIT 1 Routine quality control of blood bank
reagents and procedures.
SPECIALTY REAGENTS
Fetal Bleed Screen Kit 1 To detect excessive fetal-maternal
hemorrhage in Rh-negative women.
ELU-KIT(R) II 1 To aid in identification of antibodies
(especially those bound to red cells in
the circulation).
Blood Group Substances 2 To assist in antibody identification
procedures.
Enzymes 2 To assist in antibody detection and
identification.
Gamma-Quin(R) 1 To remove cell-bound antibody in some
disease states to enable patient cells
to be tested with blood grouping
reagents.
Lectins 2 For the investigation of
polyagglutination.
RiSE/TM/ 1 To determine technical proficiency and
provide continuing education.
Tech-Chek/TM/ 1 To test technical staff for competency.
SEROLOGICAL REAGENTS
Febrile Antigens and 19 To aid in the diagnosis of febrile
Controls illnesses.
OTHER SPECIALTY ITEMS
PV-Plates/TM/ 4 Extended blood grouping on selected
samples, for forensic use.
PT-Trays/TM/ 1 Prefilled trays for tissue typing, for
forensic use.
SegmentSampler/TM/ 1 Blood handling safety device.
</TABLE>
NEW TECHNOLOGY
In 1989, Gamma began in-house research into a new in-vitro diagnostic
testing system utilizing electro-biosensor technology. The immunoelectrode
technique detects change in electrical charge as a positive test result in less
than five minutes. The advantages of this testing system are speed and accuracy,
while obtaining objectivity, as the results are determined by electrical
impulse.
Gamma is currently funding biosensor research at the University of
Wollongong, Australia, and progress reports appear encouraging towards the
development of a reliable test system. Although commercialization is not
expected before fiscal 1999, the company is not aware of any competitive efforts
to utilize this new technology in the field of immunohematology. The company
provided the University with $155,000 for biosensor research in fiscal 1996 and
has committed to provide an additional $165,000 in fiscal 1997.
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PRODUCTS UNDER DEVELOPMENT
Gamma ReACT/TM/ System. Gamma has developed and applied for a patent on a
microcolumn technology to be used for red cell affinity testing. Products based
on this technology should help Gamma compete with other microcolumn tests
marketed very successfully in Europe since 1988 and recently introduced in the
United States. The acronym ReACT has been chosen as a commercial trade name for
the product line.
The principle of ReACT is based on the affinity adherence of red cells to an
immunologically active matrix. The matrix consists of specially treated agarose
beads. Custom designed disposables and dedicated centrifuge equipment have been
developed to provide customers with an easy-to-use and inexpensive testing
system.
The company's first ReACT products will be used for blood grouping,
crossmatching, antibody screening and identification. Gamma plans to apply for
FDA approval to market ReACT products in the United States later this year after
completion of field testing. Manufacture and sales of test systems are currently
expected to commence outside the United States before the end of fiscal 1997.
Gamma-clone(R) (Monoclonal) Reagents. The development of hybridoma
technology has led to a ready availability of monoclonal antibodies, which have
had a major impact on the design and manufacture of immunodiagnostic reagents.
The company has recognized the potential for the application of this new
technology to several of its blood bank product lines, and has pursued a program
of introducing monoclonal-based products wherever the technology proves to be
advantageous.
The company currently markets fourteen FDA-licensed blood grouping reagents
manufactured by hybridoma technology. Its five monoclonal Coombs reagents
include the first FDA-licensed Anti-IgG. The company owns or has exclusive use
of the raw material sources (clones) for nine of the blood grouping reagents and
all of the Coombs products; these clones are grown in-house to produce source
material for manufacturing the relevant products. A license supplement has
recently been approved for an Anti-B reagent made from the secretions of a
hybridoma developed in Gamma's facility. Consequently another existing product
purchased from an outside source has been replaced by one for which the company
is its own source of raw material. Raw materials for the remaining products are
currently purchased from a single supplier. Should the supply of these materials
from this source be interrupted, the company anticipates that it could locate
alternative sources of supply. The company is committed to a program aimed at
developing clones for all blood grouping reagents.
Gamma is currently pursuing license applications for additional monoclonal
blood grouping reagents. Applications for two Anti-D reagents and an Anti-E
reagent based on cell lines of which the company has exclusive use, as well as
an Anti-e reagent manufactured from purchased monoclonal antibodies, are still
awaiting review and approval by the FDA, having been filed in 1995. Upon
approval, the two new Anti-D reagents will replace the existing
monoclonal/polyclonal product.
PRODUCTION AND QUALITY CONTROL
The company believes that its reputation in the industry as a source of
quality products and services is largely attributable to the expertise of its
technical employees and its maintenance of rigid quality control procedures at
every step of the manufacturing process.
Raw materials for the FDA-licensed products manufactured and sold by the
company are obtained from several sources. The principal sources for the
company's blood grouping reagent products are human plasma obtained from FDA-
licensed establishments and monoclonal antibodies. Test cell products are
manufactured from whole blood drawn from local donors or purchased from licensed
blood banks. The company believes that the available sources of supply for all
raw materials are adequate for its present and anticipated needs. The company is
not dependent on any single source
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for any of its raw materials, other than six of its current Gamma-clone(R)
products (see above), and for PT-Trays/TM, which are manufactured by another
company and marketed exclusively by Gamma.
Once received, raw materials are subjected to a series of manufacturing and
quality control steps, which vary according to the product. FDA regulations
require samples of each finished lot of all blood grouping and Coombs reagents
to be submitted to the Center for Biologics Evaluation and Research for approval
of release prior to shipment. The FDA has granted the company exemption from the
lot release requirements for Coombs reagents, for one of its Rh reagents, for
three of its other monoclonal blood grouping reagents, and also for two of its
monoclonal ABO reagents. The remaining blood grouping reagents remain subject to
this provision of the regulations. Test cell products, though also licensed, do
not require prior FDA approval on a lot-by-lot basis.
The products sold by the company that are not required to be licensed by the
FDA (including antibody potentiators, diagnostic and specialty reagents) fall
into two categories: those manufactured by the company from raw materials
acquired from various sources, and those purchased from outside manufacturers
for distribution by the company. All such products are manufactured in
accordance with current Good Manufacturing Practices (cGMPs) as promulgated by
the FDA. See "Regulation".
The company maintains product liability insurance against bodily injury and
property damage in the amount of $10,000,000.
MARKETING AND SERVICES
The company's marketing strategy is to build a broad base of customer
loyalty by providing a wide variety of quality products, marketed by a highly
qualified sales force and supported by in-house technical assistance. The
company believes that responsiveness to customer needs, both in the provision of
services and the introduction of new products, is the key to success.
The company sells its products to hospitals, blood banks, the United States
armed forces, and university and private research institutions throughout the
world. In the United States and Canada, the company is directly represented by
20 full-time salespersons. Most members of the sales force have degrees in
medical technology or blood banking experience. Each salesperson makes direct
calls on pathologists, chief blood bank technologists and purchasing agents at
institutions in defined geographic areas. The company also markets its products
domestically through selected distributors, who sell to small hospitals,
laboratories and doctors' offices. Internationally, the company is represented
by independent dealers.
Management believes that timely delivery of its products to customers is an
important element of its marketing and sales strategy. The company maintains an
inventory sufficient to allow prompt response to customer needs. The company
sells test cell products and its RQC(R) and Tech-Chek Kits on standing orders
for shipment every two, three or four weeks. The RiSE/TM/ educational product is
shipped quarterly. All contracts for company products may be terminated at any
time without penalty by either the customer or the company.
To support its sales force and dealers, the company participates in a number
of educational programs, with management and employees serving as speakers or
faculty members in numerous domestic and international workshops and
conventions. This participation provides visibility for the company and enhances
its reputation in the scientific community. The company also conducts in-house
training programs for blood bank personnel. In addition, the company maintains a
reference laboratory, recognized by the American Association of Blood Banks,
which employs five persons (including three persons registered as blood bank
specialists by the American Society of Clinical Pathologists) and provides
consulting services for hospitals and blood banks with rare or difficult blood
testing problems. The reference laboratory often serves as a means of
introducing the company and its products to potential customers, generating new
products in response to customer needs and providing ongoing quality control of
the company's blood bank products. New discoveries made in the course of
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investigating problems referred for consultation are regularly reported in
scientific literature or at scientific meetings.
Sales to the company's six largest domestic customers (two of which are
regional laboratory supply dealers) represented 5.8% of the company's net sales
for fiscal 1996 and 8.6% for fiscal 1995.
Approximately 27.6% of the company's net sales in fiscal 1996 were made to
foreign customers. In fiscal 1996 the company's export sales were to customers
in Japan ($715,000), Italy ($442,000), Spain ($430,000), Australia ($327,000),
Saudi Arabia ($292,000), and over 50 other countries worldwide.
REGULATION
The company operates under U.S. Government Establishment License No. 435,
granted by the National Institutes of Health in 1971. The terms of the license
subject the company to stringent manufacturing and quality control standards,
and the license may be suspended or revoked by the FDA for cause at any time.
Such revocation would cause the company to cease business. The company's blood
grouping and Coombs reagents, as well as its test cell products, must be
licensed by the FDA pursuant to the Public Health Service Act and are
manufactured in accordance with defined standards.
In addition, the Federal Food, Drug and Cosmetic Act and the Safe Medical
Devices Act, together with regulations issued or authorized thereunder, provide
for regulation by the FDA of the marketing, manufacture, labeling, packaging and
distribution of medical devices, including most of the company's non-licensed
products. Among the applicable regulations are requirements that medical device
manufacturers register with the FDA, list devices manufactured by them, and file
various reports. Regulations covering Good Manufacturing Practices for Medical
Devices set forth requirements for, among other things, the company's
manufacturing processes and associated record-keeping and maintenance. Certain
requirements must be met before initial marketing of medical devices, ranging
from a minimum obligation to notify the FDA before commencing marketing of a
product substantially equivalent to devices already in commerce, to a maximum
obligation to comply with the potentially expensive and time-consuming process
of testing necessary to support an application for premarket approval. The FDA
also has the authority, which it has so far exercised only to a limited degree,
to issue performance standards to be met by most of the types of non-licensed
products manufactured by the company. The company anticipates no difficulty in
meeting the performance standards for the products as promulgated by the FDA.
None of the company's current or proposed products, except those labeled for
forensic use only, can be marketed in the United States without the licenses or
registrations required by the FDA. Unscheduled FDA inspections of the company's
facilities occur from time to time to determine compliance with applicable FDA
regulations. To date, the company believes that it has satisfactorily complied
with requirements imposed by the FDA, OSHA, EEOC and other government agencies.
The company also believes that the manufacturing and quality control procedures
it employs conform to requirements of Good Manufacturing Practices for Medical
Devices regulations, and does not anticipate having to make any material
additional expenditures as a result of these requirements.
MARKETS AND COMPETITION
Management believes that the world market for blood bank reagent products is
approximately $160 million per year, with about 40% of the market being in the
United States. There are three other companies that actively compete with the
company, two of which are divisions of large, diversified corporations with
substantially greater financial resources than those of Gamma. The largest share
of the domestic market is held by Ortho Diagnostic Systems, a division of
Johnson and Johnson, Inc., which the company believes accounts for about 50% of
all domestic sales. Other competitors include Immucor and Organon-Teknika, a
division of AKZO.
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Competition is based on quality of product, price, the size and talent of
sales forces, ability to furnish a range of existing and new products, customer
services and continuity of product supply. During the past several years, the
industry has experienced aggressive price competition, particularly among
manufacturers that target large hospitals and institutions as key customers. In
spite of this competitive environment, the company has maintained its worldwide
sales and increased its domestic reagent market share. Management believes that
this is due to the company's emphasis on product quality, the introduction of
new products, specialty products, customer service and training.
RESEARCH AND DEVELOPMENT
The company's strategy for growth includes internal research and
development, technology acquisition and worldwide marketing. The research and
development program is based upon the allocation of available resources among
new product development, process development, product and process improvement,
and technical services to manufacturing and marketing.
Any new product developed by the company will require, prior to its domestic
sale, licensing or approval to market by the FDA. There can be no assurance that
any such product will be so licensed or approved, or that it will gain
acceptance in the marketplace.
In fiscal 1996, 1995 and 1994, the company expended $1,349,000, $1,013,000
and $902,000, respectively, for research and development on monoclonal,
microcolumn and electro-biosensor technologies. The company engaged in no
customer-sponsored research during these periods.
PATENTS AND TRADEMARKS
In May 1994, the company applied for a United States patent covering a new
antigen/antibody detection procedure using an affinity adherence technology. See
"Products Under Development - Gamma ReACT System/TM/".
The company is funding two international patent applications, submitted by
the University of Wollongong, covering certain procedures developed in the
course of their electro-biosensor research. In return for this financial
support, the company would receive a four-year, royalty-free exclusive worldwide
license to manufacture and sell any product based on claims made in these
applications.
The company's trademark rights to the mark "Gamma" have been federally
registered. The company holds nine different trademark registrations for various
uses of "Gamma" and claims trademark rights in respect of other brand names
utilized to identify the company's products. The company presently owns a number
of federal and state registrations and has an aggressive policy of registering
its trademark rights, where such is deemed available. There can be no assurance
that any of the company's registrations will be enforceable.
EMPLOYEES
The company has 126 full-time employees, of whom 36 hold advanced technical
degrees or certifications in medical technology. Of the total, 42 are sales,
marketing and customer-support personnel, 50 are engaged in manufacturing and
quality control, and the remainder serve in other capacities. The company has
experienced a low turnover rate among its employees and considers its employee
relations to be excellent. None of the company's employees are represented by a
union.
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EXECUTIVE OFFICERS
The executive officers of the company and their respective ages, offices and
periods of service as executive officers are set forth below. The officers are
elected for one-year terms.
<TABLE>
<CAPTION>
SERVED AS AN
EXECUTIVE OFFICER
NAME AGE POSITION SINCE
- --------------------------- --- --------------------------- -----------------
<S> <C> <C> <C>
David E. Hatcher 73 Chairman of the Board and 1970
Chief Executive Officer
John J. Moulds 52 President and Chief 1984
Operating Officer
Betty F. Hatcher 63 Executive Vice President 1992
-- Product Development
John Case 69 Vice President -- 1980
Regulatory Affairs
Margaret J. O'Bannion 41 Vice President -- Finance 1989
and Chief Financial Officer
Jimmie L. Turner 57 Vice President -- Customer 1989
Services
Gary L. Parrish 59 Vice President -- 1994
National Sales
</TABLE>
All of the executive officers of the company have held the office indicated
or other offices, or have been employed by the company for more than five years.
There are no family relationships among any of the directors or executive
officers of the company.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The company operates in one business sector and one geographic area.
ITEM 2. PROPERTIES.
The principal manufacturing, research, shipping, sales and administrative
functions of the company are conducted in a 41,000 square foot building located
in northwest Houston on a three-acre tract of land owned by the company. The
land and building are subject to a first lien mortgage. Management believes that
the facility is both suitable and adequate for current production needs and has
no plans for expanding its domestic facilities in fiscal 1997. The company is
currently evaluating potential manufacturing sites outside the United States for
the production of ReACT test systems, currently scheduled to begin in late
fiscal 1997.
ITEM 3. LEGAL PROCEEDINGS.
The company is involved in various legal actions that are in various stages
of litigation and investigation by the company and its legal counsel. After
reviewing all actions pending or threatened involving the company, management
believes that while the resolution of any matter may have an impact on the
financial results of the period in which the matter is settled, their ultimate
resolution will not have any material adverse affect upon the business or
consolidated financial position of the company. Since these matters are in
various stages of proceedings, future developments could cause management to
revise its assessment of these matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of fiscal 1996, no matter was submitted to a vote
of security holders of the company.
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P A R T II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information contained under "Market for Registrant's Common Equity and
Related Shareholder Matters" on page 32 of the company's annual report to
shareholders for the year ended March 31, 1996, is incorporated herein by
reference. See also Notes 7 and 8 of Notes to Consolidated Financial Statements
on page 27 of the company's annual report to shareholders for the year ended
March 31, 1996, which is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information contained under "Selected Financial Data" on the inside
front cover and page 1 of the company's annual report to shareholders for the
year ended March 31, 1996, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information contained under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 13 through 18 of the
company's annual report to shareholders for the year ended March 31, 1996, is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements of the company and its
subsidiaries, included on pages 19 through 29 of the company's annual report to
shareholders for the year ended March 31, 1996, are incorporated herein by
reference:
Statements of Consolidated Income -- Years ended March 31, 1996, 1995 and
1994
Consolidated Balance Sheets -- March 31, 1996 and 1995
Statements of Changes in Shareholders' Equity -- Years ended March 31, 1996,
1995 and 1994
Statements of Consolidated Cash Flows -- Years ended March 31, 1996, 1995
and 1994
Notes to Consolidated Financial Statements
The information contained under "Quarterly Financial Data" on page 32 of the
company's annual report to shareholders for the year ended March 31, 1996, is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
P A R T III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under "Election of Directors" on pages 3 and 4 of
the company's proxy statement dated June 28, 1996, which has been filed with the
Securities and Exchange Commission, is incorporated herein by reference.
Reference is made to the information set forth under the caption "Executive
Officers" on page 9 in Item 1 of this report, which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under "Executive Officers", "Severance
Agreements", and "Split-Dollar Agreements" on pages 4 through 10 (except for the
Compensation/Stock Option Committee
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Report therein) of the company's proxy statement dated June 28, 1996, which has
been filed with the Securities and Exchange Commission, is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under "Common Stock Outstanding and Principal
Holders Thereof" on pages 2 and 3 of the company's proxy statement dated June
28, 1996, which has been filed with the Securities and Exchange Commission, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under "Certain Relationships and Related
Transactions" on page 10 of the company's proxy statement dated June 28, 1996,
which has been filed with the Securities and Exchange Commission, is
incorporated herein by reference.
P A R T IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) AND (2) FINANCIAL STATEMENTS AND RELATED SCHEDULES The response to
this portion of Item 14 is submitted as a separate section of this report.
(3) EXHIBITS
The response to this portion of Item 14 is submitted as a separate section
of this report.
(b) REPORTS ON FORM 8-K
No Report on Form 8-K was filed by the company during the quarter ended
March 31, 1996.
(c) EXHIBITS
See Item 14(a)(3), above.
(d) FINANCIAL STATEMENT SCHEDULES
Such schedules are not required or are disclosed in the financial
statements.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
GAMMA BIOLOGICALS, INC.
By: /s/ DAVID E. HATCHER
----------------------------------------
(DAVID E. HATCHER, CHAIRMAN OF THE BOARD
OF DIRECTORS AND CHIEF EXECUTIVE OFFICER)
Dated: June 24, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
------------------------ ---------------------------------- -------------
<S> <C> <C>
/s/ DAVID E. HATCHER Chairman of the Board of Directors June 24, 1996
--------------------------- and Chief Executive Officer
(DAVID E. HATCHER) (Principal executive officer)
/s/ MARGARET J. O'BANNION Vice President--Finance and June 24, 1996
--------------------------- Chief Financial Officer
(MARGARET J. O'BANNION) (Principal financial and
accounting officer)
/s/ JOHN J. MOULDS Director and President June 24, 1996
---------------------------
(JOHN J. MOULDS)
/s/ BETTY FRANCIS HATCHER Director and Executive Vice June 24, 1996
--------------------------- President
(BETTY FRANCIS HATCHER)
/s/ BRYAN J. BRIEDEN Director June 24, 1996
---------------------------
(BRYAN J. BRIEDEN)
/s/ R. BRUCE LaBOON Director June 24, 1996
---------------------------
(R. BRUCE LaBOON)
/s/ HAYLE B. RANDOLPH Director June 24, 1996
---------------------------
(HAYLE B. RANDOLPH)
</TABLE>
12
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Gamma Biologicals, Inc.:
We consent to the incorporation by reference in Registration Statement No.
33-44950 on Form S-8 and in Registration Statement No. 333-01147 on Form S-8 of
our report dated May 28, 1996, incorporated by reference in the 1996 Annual
Report on Form 10-K of Gamma Biologicals, Inc. for the year ended March 31,
1996.
/s/ Deloitte & Touche LLP
Houston, Texas
June 24, 1996
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(3)
EXHIBIT INDEX
EXHIBITS
Year Ended March 31, 1996
GAMMA BIOLOGICALS, INC.
HOUSTON, TEXAS
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(3)
GAMMA BIOLOGICALS, INC. AND SUBSIDIARIES
MARCH 31, 1996
EXHIBIT
NUMBER
- -------
3(a) -- Restated Articles of Incorporation of the Company dated June 20,
1996.
(b) -- Amended and Restated Bylaws of the Company dated April 13, 1990.
Incorporated by reference to Exhibit 3(b) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1990 (the "1990
Form 10-K").
4(a) -- Specimen Common Stock certificate of the Company. Incorporated by
reference to Exhibit 4(a) to the 1990 Form 10-K.
(b) -- Shareholder Rights Plan dated as of September 5, 1989. Incorporated
by reference to Exhibit 4.1 to the Company's Current Report on Form
8-K dated September 5, 1989.
10(a) -- Restated and Amended Split-Dollar Agreement dated May 29, 1990
between the Company and David E. Hatcher. Incorporated by reference
to Exhibit 10(a) to the 1990 Form 10-K.
(b) -- Restated and Amended Split-Dollar Agreement dated May 29, 1990
between the Company and Betty F. Hatcher. Incorporated by reference
to Exhibit 10(b) to the 1990 Form 10-K.
(c) -- Restated and Amended Split-Dollar Agreement dated May 29, 1990
between the Company and Bryan J. Brieden. Incorporated by reference
to Exhibit 10(c) to the 1990 Form 10-K.
(d) -- Restated and Amended Split-Dollar Agreement dated May 29, 1990
between the Company and Larry E. Letwin. Incorporated by reference
to Exhibit 10(d) to the 1990 Form 10-K.
(e) -- Amendment to Restated and Amended Split-Dollar Agreement dated May
8, 1991 between the Company and David E. Hatcher. Incorporated by
reference to Exhibit 10(e) to the Company's Annual Report on Form
10-K for the year ended March 31, 1991 (the "1991 Form 10-K").
(f) -- Amendment to Restated and Amended Split-Dollar Agreement dated May
8, 1991 between the Company and David E. Hatcher. Incorporated by
reference to Exhibit 10(f) to the 1991 Form 10-K.
(g) -- Amendment to Restated and Amended Split-Dollar Agreement dated May
8, 1991 between the Company and Betty F. Hatcher. Incorporated by
reference to Exhibit 10(g) to the 1991 Form 10-K.
<PAGE>
EXHIBIT
NUMBER
- -------
(h) -- Amendment to Restated and Amended Split-Dollar Agreement dated May
8, 1991 between the Company and Betty F. Hatcher. Incorporated by
reference to Exhibit 10(h) to the 1991 Form 10-K.
(i) -- Amendment to Restated and Amended Split-Dollar Agreement dated May
8, 1991 between the Company and Bryan J. Brieden. Incorporated by
reference to Exhibit 10(i) to the 1991 Form 10-K.
(j) -- Amendment to Restated and Amended Split-Dollar Agreement dated May
8, 1991 between the Company and Larry E. Letwin. Incorporated by
reference to Exhibit 10(j) to the 1991 Form 10-K.
(k) -- Split-Dollar Agreement dated March 25, 1993 between the Company and
John J. Moulds. Incorporated by reference to Exhibit 10(k) to the
Company's Annual Report on Form 10-K for the year ended March 31,
1993 (the "1993 Form 10-K").
(l) -- Split-Dollar Agreement dated March 25, 1993 between the Company and
Margaret J. O'Bannion. Incorporated by reference to Exhibit 10(l)
to the 1993 Form 10-K.
(m) -- Split-Dollar Agreement dated March 25, 1993 between the Company and
Jimmie L. Turner. Incorporated by reference to Exhibit 10(m) to the
1993 Form 10-K.
(n) -- Split-Dollar Agreement dated March 25, 1993 between the Company and
Jimmie L. Turner. Incorporated by reference to Exhibit 10(n) to the
1993 Form 10-K.
(o) -- Split-Dollar Agreement dated May 5, 1995 between the Company and
Gary L. Parrish.
(p) -- Incentive Stock Option Plan of the Company. Incorporated by
reference to the Company's Proxy Statement dated June 25, 1987,
Exhibit A.
(q) -- 1991 Employee Stock Option Plan of the Company. Incorporated by
reference to Exhibit 28.2 to the Company's Registration Statement
on Form S-8 (File No. 33-44950) dated January 6, 1992.
(r) -- 1991 Outside Director Stock Option Plan of the Company.
Incorporated by reference to Exhibit 28.3 to the Company's
Registration Statement on Form S-8 (File No. 33-44950) dated
January 6, 1992.
(s) -- 1995 Employee Stock Option Plan of the Company. Incorporated by
reference to the Company's Registration Statement on Form S-8 (File
No. 333-01147) dated February 21, 1996.
(t) -- 401(k) Retirement Savings Plan of the Company adopted July 1, 1992.
Incorporated by reference to Exhibit 10(r) to the 1993 Form 10-K.
<PAGE>
EXHIBIT
NUMBER
- -------
(u) -- Patent License Agreement effective November 30, 1990 between the
Company and the Board of Regents of the University of Texas System.
Incorporated by reference to Exhibit 10(s) to the 1991 Form 10-K.
(v) -- Term and Revolving Line of Credit Loan Agreement dated August 17,
1990 between Sterling Bank and the Company. Incorporated by
reference to Exhibit 10(v) to the 1991 Form 10-K.
(w) -- Promissory Note dated November 2, 1990 payable to the order of
Sterling Bank by the Company. Incorporated by reference to Exhibit
10(w) to the 1991 Form 10-K.
(x) -- Employment Contract dated January 29, 1976 between the Company and
John Case. Incorporated by reference to Exhibit 10(aa) to the
Company's Annual Report on Form 10-K for the year ended March 31,
1986.
(y) -- Amended and Restated Severance Agreement dated February 19, 1996
between Betty F. Hatcher and the Company.
(z) -- Amended and Restated Severance Agreement dated February 19, 1996
between John J. Moulds and the Company.
(aa) -- Amended and Restated Severance Agreement dated February 19, 1996
between David E. Hatcher and the Company.
(bb) -- Amended and Restated Severance Agreement dated February 19, 1996
between Margaret J. O'Bannion and the Company.
(cc) -- Amended and Restated Severance Agreement dated February 19, 1996
between Jimmie L. Turner and the Company.
(dd) -- Severance Agreement dated December 19, 1995 between Gary L. Parrish
and the Company.
(ee) -- Listing Agreement dated May 14, 1990 between the Company and the
American Stock Exchange. Incorporated by reference to Exhibit
10(mm) to the 1990 Form 10-K.
(ff) -- Agreement Concerning Issuance of Rights. Incorporated by reference
to Exhibit 10(nn) to the 1990 Form 10-K.
<PAGE>
EXHIBIT
NUMBER
- -------
11 -- Incorporated by reference to the Company's Statements of
Consolidated Income for the years ended March 31, 1996, 1995 and
1994 on page 19 of the Company's Annual Report to Shareholders for
the year ended March 31, 1996 and to Note 1 of Notes to
Consolidated Financial Statements on pages 23 and 24 of the
Company's Annual Report to Shareholders for the year ended March
31, 1996.
13 -- The Company's Annual Report to Shareholders for the year ended
March 31, 1996.
21 -- Subsidiaries of the Company.
27 -- Financial Data Schedule.
<PAGE>
EXHIBIT 3(a)
RESTATED ARTICLES OF INCORPORATION
OF GAMMA BIOLOGICALS, INC.
ARTICLE ONE
Gamma Biologicals, Inc., pursuant to the provisions of Article 4.07 of the
Texas Business Corporation Act, hereby adopts Restated Articles of Incorporation
which accurately copy the Articles of Incorporation and all amendments thereto
that are in effect to date and such Restated Articles of Incorporation contain
no change in any provision thereof.
ARTICLE TWO
The Restated Articles of Incorporation were adopted by resolution of the
Board of Directors of the corporation on the 20th day of June, 1996.
ARTICLE THREE
The Articles of Incorporation and all amendments and supplements thereto
are hereby superseded by the following Restated Articles of Incorporation which
accurately copy the entire text thereof:
<PAGE>
RESTATED ARTICLES OF INCORPORATION OF
GAMMA BIOLOGICALS, INC.
ARTICLE I
---------
The name of the corporation is GAMMA BIOLOGICALS, INC.
ARTICLE II
----------
The period of its duration is perpetual.
ARTICLE III
-----------
The purposes for which the corporation is organized are as follows:
(1) To manufacture, market, distribute, sell and otherwise deal with
diagnostic reagents and related products, equipment and instruments of every
kind and character.
(2) To purchase and sell and otherwise deal in goods, wares and merchandise
of every description.
(3) To acquire, hold, use, sell, assign, lease, grant licenses in respect
of, mortgage or otherwise dispose of letters patent of the United States or any
foreign country, patent rights, licenses and privileges, inventions,
improvements and processes, copyrights, trademark and trade names, relating to
or useful in connection with any business of this corporation.
(4) To purchase or otherwise acquire, invest in, own, mortgage, pledge,
sell assign or transfer real property, subject however to the provisions of Part
Four, Texas Miscellaneous Corporation Act.
(5) To do all and everything necessary, suitable and proper for the
accomplishment of any of the purposes or the attainment of any of the objects
with the furtherance of any of the powers hereinabove set forth, either alone or
in association with other corporations, firms or individuals, and to do every
act or acts, thing or things, incidental or appurtenant to, or growing out of or
connected with, the aforesaid objects or purposes or any part or parts thereof,
provided that same be not inconsistent with the laws under which this
corporation is organized.
(6) To engage in any activity permitted by the Texas Business Corporation
Act as such Act may be amended from time to time.
-2-
<PAGE>
ARTICLE IV
----------
4.1 General.
-------
The aggregate number of shares which the corporation has authority to
issue is twenty-six million (26,000,000) divided into: one class of twenty-five
million (25,000,000) shares of Common Stock with par value of $0.10 per share,
and one class of one million (1,000,000) shares of Preferred Stock with par
value of $10.00 per share, which may be divided into and issued in Series as
follows.
4.2 Authorization of Directors to Determine Certain Rights.
------------------------------------------------------
The Board of Directors is authorized, from time to time, to divide the
Preferred Stock into Series, to fix and determine separately for each Series any
one or more of the following relative rights and preferences, and to issue
shares of any Series then or previously designated, fixed and determined:
(A) the rate of dividend;
(B) the price at and the terms and conditions on which shares may be
redeemed;
(C) the amount payable upon shares in event of involuntary
liquidation;
(D) the amount payable upon shares in event of voluntary liquidation;
(E) sinking fund provisions (if any) for the redemption or purchase of
shares;
(F) the terms and conditions on which shares may be converted if the
shares of any Series are issued with the privilege of conversion; and
(G) voting rights (including the number of votes per share, the
matters on which the shares can vote, and the contingencies which make the
voting rights effective).
4.3 Preferences, Limitations and Relative Rights.
--------------------------------------------
(A) General. All shares of Common Stock shall have identical rights
with each other. Except as provided in this Article 4, all shares of Preferred
Stock shall have preferences, limitations, and relative rights identical with
each other. Except as otherwise expressly provided by law, shares of Preferred
Stock shall have only the preferences and relative rights expressly stated in
this Article 4.
-3-
<PAGE>
(B) Dividends.
(1) Amount; Time. The Preferred Stock at the time outstanding shall be
entitled to receive, when and as declared by the Board of Directors, out of
any funds legally available therefor, dividends at the rate fixed by the
Board of Directors (pursuant to paragraph 4.2 above), and no more, payable
not less often than annually as determined by the Board of Directors.
(2) Cumulatively. Dividends on Preferred Stock shall be cumulative
from date of issue. Cumulations of dividends shall not bear interest.
(3) Priority over Common Stock; Restriction on Purchases of Common
Stock. No dividend shall be paid on Common Stock, and no Common Stock shall
be purchased by the corporation, unless full dividends on outstanding
Preferred Stock for all past dividend periods and for the current dividend
shall have been declared and paid.
(4) Parity Among Series. No dividend shall be declared on any Series
of Preferred Stock: (a) for any dividend period unless all dividends
cumulated for all prior dividend periods shall have been declared or shall
then be declared at the same time upon all Preferred Stock then outstanding;
or (b) unless a dividend for the same period shall be declared at the same
time upon all Preferred Stock then outstanding in like proportion to the
dividend rate then declared.
(C) Liquidation Preference. In the event of dissolution, liquidation,
or winding up of the corporation (whether voluntary or involuntary), after
payment or provision for payment of debts but before any distribution to the
holders of Common Stock, the holders of each Series of Preferred Stock then
outstanding shall be entitled to receive the amount fixed by the Board of
Directors (pursuant to paragraph 4.2 above) plus a sum equal to all cumulated
but unpaid dividends (whether or not earned or declared) to the date fixed for
distribution, and no more. All remaining assets shall be distributed pro rata
among the holders of Common Stock. If the assets distributable among the
holders of Preferred Stock are insufficient to permit full payment to them, the
entire assets shall be distributed among the holders of the Preferred Stock in
proportion to their respective liquidation preferences. None of the following
events is a dissolution, liquidation, or winding up within the meaning of the
paragraph: consolidation, merger, or reorganization of the corporation with any
other corporation or corporations, sale of all or substantially all the assets
of the corporation, or any purchase or redemption by the corporation of any of
its outstanding shares.
(D) Redemption.
(1) Right; Method. All or any part of any one or more Series of
Preferred Stock may be redeemed at any time or times at the option of the
-4-
<PAGE>
corporation, by resolution of the Board of Directors, in accordance with the
terms and conditions of this Article 4 and those fixed by the Board of Directors
(pursuant to paragraph 4.2 above). The corporation may redeem shares of any one
or more Series without redeeming shares of any other Series. If less than all
the shares of any Series are to be redeemed, the shares of the Series to be
redeemed shall be selected ratably or by lot or by any other equitable method
determined by the Board of Directors.
(2) Notice. Notice shall be given to the holders of shares to be
redeemed, either personally or by mail, not less than twenty (20) days nor more
than fifty (50) days before the date fixed for redemption.
(3) Payment. Redeemed shares shall be paid in cash the amount fixed
by the Board of Directors (pursuant to paragraph 4.2 above) plus a sum equal to
all cumulated but unpaid dividends (whether or not earned or declared) to the
date fixed for redemption, and no more.
(4) Provision for Payment. On or before the date fixed for
redemption, the corporation may provide for payment of a sum sufficient to
redeem the shares called for redemption either (1) by setting aside the sum,
separate from its other funds, in trust for the benefit of the holders of the
shares to be redeemed, or (2) by depositing such sum in a bank or trust company
(either one in Texas having capital and surplus of at least ten million dollars
($10,000,000) according to its latest statement of condition, or one anywhere in
the United States duly appointed and acting as transfer agent of the
corporation) as a trust fund, with irrevocable instructions and authority to the
bank or trust company to give or complete the notice of redemption, the
redemption price on surrender of their respective share certificates. The
holders may be evidenced by a list certified by the corporation (by its
president or a vice president and by its secretary or an assistant secretary) or
by its transfer agent. If the corporation so provides for payment, then from
and after the date fixed for redemption: (a) the shares shall be deemed to be
redeemed, (b) dividends thereon shall cease to accrue, (c) such setting aside or
deposit shall be deemed to constitute full payment for the shares, (d) the
shares shall no longer be deemed to be outstanding, (e) the holders thereof
shall cease to be shareholders with respect to such shares, and (f) the holders
shall have no rights with respect thereto except the right to receive (without
interest) their proportionate shares of the funds so set aside or deposited upon
surrender of their respective certificates, and any right to convert such shares
which may exist. Any interest accrued on funds so set aside or deposited shall
belong to the corporation. If the holders of the shares do not, within six (6)
years after such deposit, claim any amount so deposited for redemption thereof,
the bank or trust company shall upon demand pay over to the corporation the
balance of the funds so deposited, and the bank or trust company shall thereupon
be relieved of all responsibility to such holders.
-5-
<PAGE>
(5) Status of Redeemed Shares. Shares of Preferred Stock which are
redeemed shall be cancelled and shall be restored to the status of
authorized but unissued shares.
(E) Purchase. Except as specified in paragraph 4.3(B)(3) nothing shall
limit the right of the corporation to purchase any of its outstanding
shares in accordance with law, by public or private transaction.
(F) Voting; No Preemptive Rights. Except as fixed by the Board of
Directors (pursuant to paragraph 4.2 above), and except as otherwise
expressly provided by law, all voting power shall be in the Common Stock
and none in the Preferred Stock. Where Preferred Stock as a class has
voting power, all series of Preferred Stock shall be a single class.
Cumulative voting of the shares, both Common Stock and Preferred Stock is
expressly prohibited. No holder of Common Stock or Preferred Stock or other
person shall have any preemptive right whatsoever.
ARTICLE V
---------
The corporation will not commence business until it has received for the
issuance of its shares consideration of the value of One Thousand and No/100
Dollars ($1,000.00), consisting of money, labor done or property actually
received.
ARTICLE VI
----------
The post office address of the corporation's initial registered office is
3500 Texas Commerce Tower, Houston, Texas 77002.
The name of its initial registered agent at such address is R. Bruce
LaBoon.
ARTICLE VII
-----------
The number of Directors constituting the Board of Directors is six. The
names and addresses of the persons who are to serve as directors until their
successors be elected and qualified are as follows:
David E. Hatcher 3700 Mangum Road
Houston, Texas 77092
Bryan J. Brieden 3700 Mangum Road
Houston, Texas 77092
-6-
<PAGE>
Betty Francis Hatcher 3700 Mangum Road
Houston, Texas 77092
R. Bruce LaBoon 3700 Mangum Road
Houston, Texas 77092
John J. Moulds 3700 Mangum Road
Houston, Texas 77092
Hayle B. Randolph 3700 Mangum Road
Houston, Texas 77092
ARTICLE VIII
------------
No director of the corporation shall be liable to the corporation or
its shareholders for monetary damages for an act or omission in the director's
capacity as a director, except for liability of a director for (i) a breach of a
director's duty of loyalty to the corporation or its shareholders, (ii) an act
or omission not in good faith or that involved intentional misconduct or a
knowing violation of the law, (iii) a transaction from which a director received
an improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office, (iv) an act or omission for which the
liability of a director is expressly provided for by statute, or (v) an act
related to an unlawful stock repurchase or payment of a dividend. If the Texas
Business Corporation Act, the Texas Miscellaneous Corporation Laws Act, or other
applicable law is amended after approval by the shareholders of this article to
authorize corporate action further eliminating or limiting the liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Texas Business
Corporation Act, the Texas Miscellaneous Corporation Laws Act, or other
applicable law, as so amended.
Any repeal or modification of the foregoing paragraph by the
shareholders shall not adversely affect any right or protection of a director
existing at the time of such repeal or modification.
DATED THIS 20th day of June, 1996.
GAMMA BIOLOGICALS, INC.
By:/s/ Margaret J. O'Bannion
-------------------------------
Margaret J. O'Bannion
Vice President - Finance
H 1995 A\48250-1
-7-
<PAGE>
EXHIBIT 10(o)
ABSOLUTE ASSIGNMENT OF INSURANCE POLICY
WHEREAS, Gary L. Parrish is the owner of Life Insurance Policy Number
9 808 362 issued by the Massachusetts Mutual Life Insurance Company on the life
of Gary L. Parrish, and desires to transfer the ownership of said policy to
Gamma Biologicals, Inc.;
NOW, THEREFORE, it is agreed between the parties hereto as follows:
Article 1.
Gary L. Parrish hereby assigns, transfers and sets over all rights, titles,
interests and incidents of ownership in said policy to Gamma Biologicals, Inc.
Article 2.
In the event that the Massachusetts Mutual Life Insurance Company requires
the completion of additional forms to reflect this transfer in its records, the
parties hereto mutually agree to execute such forms within a reasonable period
of time after they become available.
EXECUTED this 5th day of May, 1995.
--- ---
/s/ Gary L. Parrish
-------------------
Gary L. Parrish
Gamma Biologicals, Inc.
By /s/ Margaret J. O'Bannion
-------------------------
ATTEST:
/s/ Eileen Neucere
- ------------------
<PAGE>
SPLIT DOLLAR AGREEMENT
Agreement made the 5th day of May, 1995, by and between Gamma Biologicals,
Inc. and Gary L. Parrish.
WHEREAS, Gary L. Parrish (hereinafter sometimes called "Parrish")
previously assigned to Gamma Biologicals, Inc. (hereinafter called "the
Corporation") without consideration his entire interest in the insurance policy
on his own life issued by the Massachusetts Mutual Life Insurance Company
(Policy Number 9 808 362) in the face amount of $500,000 (hereinafter called
"the Policy");
WHEREAS, Gary L. Parrish is a valued employee and/or director of the
Corporation, which wishes to retain the benefit of his services;
NOW, THEREFORE, it is agreed between the two parties hereto as follows:
Article 1.
As soon as possible, the corporation shall cause the right to the death
benefits payable under the Policy to be endorsed pursuant to the provisions of
Articles 3 and 10 of this Agreement.
Article 2.
The Corporation will be the owner of the Policy and it may exercise all the
rights of ownership with respect to the Policy except as otherwise hereinafter
provided.
Article 3.
The right to designate the beneficiary or beneficiaries to receive any
proceeds payable under the Policy in excess of the amount of proceeds payable to
the Corporation under Article 10(B) of this Agreement, as well as the right to
elect the settlement option with respect to such portion of such proceeds, shall
remain with Parrish.
Article 4.
All dividends declared by the Massachusetts Mutual Life Insurance Company
on the Policy or any part thereof as may be necessary, shall be applied to
purchase one-year term insurance on the life of Gary L. Parrish in an amount
equal to the guaranteed cash value of the Policy as of the end of the next
Policy anniversary and any balance of the dividend shall be applied to buy
additional paid-up insurance. Whenever the dividend is not adequate to purchase
the required amount of term insurance, the entire dividend shall be applied to
purchase whatever amount of term insurance the dividend will purchase.
<PAGE>
Article 5.
All premiums due on the Policy shall be paid by the Corporation. However,
Parrish agrees to reimburse the Corporation within 30 days of each premium
payment an amount such that for federal income tax purposes the reimbursement
for each year is equal to the value of the economic benefit of the life
insurance protection enjoyed by Parrish under the terms of this Agreement. For
purposes of this Agreement, the term "net premium payment" means such part of
each gross premium which is not reimbursable to the Corporation by Parrish
pursuant to the preceding sentence.
Article 6.
Parrish shall be obligated to repay the Corporation the amount of the
aggregate net premium payments under Article 5 of this Agreement, plus interest
on each net premium payment calculated at the rate of 3% per annum. This
obligation of Parrish to the Corporation shall be payable as provided in
Articles 10, 11(e) and 12 of this Agreement.
Article 7.
The Corporation may add a rider to the Policy for its own benefit. Upon
written request made by Parrish, the Corporation may add a rider to the Policy
for his benefit. Any additional premium for any rider which is added to the
Policy shall be paid by the party which will be entitled to receive the proceeds
of the rider.
Article 8.
A. The Corporation shall have the right to obtain loans secured by the
Policy. These loans may be obtained either from the Massachusetts Mutual Life
Insurance Company or from others. The Corporation shall have the right to assign
the Policy as security for the repayment of such loans. The amount of such loans
together with the interest thereon shall at no time exceed the cash surrender
value of the Policy as of the date to which the premiums on the Policy have been
paid. All interest charges with respect to any such loans shall be paid by the
Corporation. The Corporation may also consent to policy loans to Parrish, in
which case all interest charges with respect to any such policy loans shall be
paid by Parrish, unless otherwise agreed to by the Corporation.
B. If the Policy is assigned or is encumbered in any way, other than by a
policy loan, on the date of the death of Gary L. Parrish, the Corporation will
promptly take all steps which may be necessary to secure release or discharge of
the assignment or encumbrance so that the portion of the death proceeds payable
under the Policy to the beneficiary or beneficiaries named therein will be paid
promptly.
<PAGE>
Article 9.
Except as otherwise herein provided, the Corporation agrees that while this
Agreement remains in force and effect it will not, without the consent of
Parrish, transfer, assign or terminate the Policy.
Article 10.
A. Upon the death of Gary L. Parrish, the Corporation will promptly take
all steps which may be necessary to obtain the death benefits provided under the
Policy.
B. Upon the death of Gary L. Parrish, the Corporation shall be entitled to
receive a portion of the death benefits provided under the Policy. The amount
to which the Corporation will be entitled shall be the amount of its aggregate
net premiums payments pursuant to Article 5 of this Agreement, plus the
aggregate amount of any interest charges in respect of any policy loans to
Parrish paid by the Corporation pursuant to Article 8 of the Agreement, less the
amount of any indebtedness which may exist against the Policy and any interest
due on such indebtedness (but only to the extent the proceeds of such
indebtedness were provided to the Corporation), plus interest on each net
premium payment and interest payment made by the Corporation in respect of any
policy loans to Parrish calculated at the rate of 3% per annum. The amount to
which the Corporation will be entitled will not, however, exceed the cash value
of the Policy (without reduction for any policy loans or other indebtedness
which may exist against the Policy) at the end of the policy year in which the
death of Gary L. Parrish occurs, plus the aggregate amount of interest payments
made by the Corporation in respect of any policy loans to Parrish, plus interest
on each net premium payment and interest payment made by the Corporation in
respect of any policy loan to Parrish calculated at the rate of 3% per annum.
The receipt of this amount by the Corporation shall constitute satisfaction of
this obligation of Parrish under Article 6 of this Agreement.
C. Upon the death of Gary L. Parrish, the beneficiary or beneficiaries
named in accordance with the provisions of Article 3 of this Agreement shall be
entitled to receive the amount of the death benefits provided under the Policy
in excess of the amount payable to the Corporation under paragraph B of this
Article.
Article 11.
This Agreement shall terminate on the occurrence of any of the following
events: (a) cessation of the business of the Corporation; (b) written notice
given by Parrish to the Corporation; (c) bankruptcy, receivership or
dissolution of the Corporation; (d) upon the election of aggrieved party if
either the Corporation or Parrish fails for any reason to make the payment or
reimbursement required by Article 5 of this Agreement toward payment of any
premium due on this Policy, provided that any election to terminate this
Agreement under this clause must be made within 90 days after the failure to
make the required payment or reimbursement occurs; (e) repayment in full by
Parrish
<PAGE>
of the aggregate net premium payments made by the Corporation under Article 5 of
this Agreement and the aggregate interest payments made by the Corporation in
respect of any policy loans to Parrish under Article 8 of this Agreement, plus
interest on each net premium payment and interest payment calculated at the rate
of 3% per annum, provided that upon receipt of such repayment the Corporation
shall transfer ownership of the Policy to Parrish.
Article 12.
If this Agreement is terminated under paragraph (a), (b), (c), or (d) of
Article 11, Parrish shall have the option to pay the Corporation, within 90 days
of such termination, the amount of the aggregate net premium payments made by
the Corporation under Article 5 of this Agreement, plus the amount of the
aggregate interest payments made by the Corporation in respect of any policy
loans to Parrish under Article 8 of this Agreement, plus interest on each such
net premium payment and interest payment calculated at the rate of 3% per annum.
If the Policy is encumbered by a policy loan at the time ownership is to be
transferred, the Corporation shall either remove the encumbrance or reduce the
price to be paid for the Policy by the amount of the indebtedness (but only to
the extent the proceeds of such indebtedness were provided to the Corporation).
If the Policy is assigned to a third party at the time ownership is to be
transferred, the Corporation shall take all steps necessary to secure release of
the assignment. If Parrish does not exercise his option to acquire the Policy,
ownership of the Policy by the Corporation shall constitute satisfaction of the
obligation of Parrish to the Corporation under Article 6 of this Agreement.
Article 13.
This Agreement shall not be modified or amended except by a writing signed
by the Corporation and by Parrish. This Agreement shall be binding upon the
heirs, administrators or executors and the successors and assigns of each party
to this Agreement.
Article 14.
This Agreement shall be subject to and shall be construed under the laws of
the State of Texas.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement at
Houston, Texas.
/s/ Gary L. Parrish
-----------------------------------
Gary L. Parrish
Gamma Biologicals, Inc.
By: /s/ Margaret J. O'Bannion
---------------------------------
Margaret J. O'Bannion
Vice President-Finance
<PAGE>
EXHIBIT 10(y)
GAMMA BIOLOGICALS, INC.
Amended and Restated Severance Agreement
----------------------------------------
THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (the "Agreement"), is
entered into this 19th day of February, 1996, between BETTY F. HATCHER
("Executive") and GAMMA BIOLOGICALS, INC., a Texas corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its shareholders
for the Company to agree to provide benefits under circumstances described below
to Executive and other executives who are responsible for the policy-making
functions of the Company and the overall viability of the Company's business;
and
WHEREAS, the Board recognizes that the possibility of a change of
control of the Company is unsettling to such executives and wishes to make
arrangements at this time to assure their continuing dedication to their duties
to the Company and its shareholders notwithstanding attempts by outside parties
to gain control of the Company; and
WHEREAS, the Board believes it important, since the Company may
receive proposals from such outside parties, to enable such executives, without
being distracted by the uncertainties of their own employment situations, to
perform their regular duties, and where appropriate to assess such proposals and
advise the Board as to the best interests of the Company and its shareholders
and to take such other action as the Board determines to be appropriate; and
WHEREAS, the Board also wishes to demonstrate to the executives that
the Company is concerned with their welfare and intends to assure that loyal
executives are treated fairly; and
WHEREAS, Executive and the Company previously entered into a Severance
Agreement dated April 25, 1990, and the parties now wish to amend and restate
such Severance Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. In the event that any individual, corporation, partnership,
company or other entity (a "Person"), which terms shall include a "group"
(within the meaning of section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Act")), begins a tender or exchange offer, circulates a proxy to
the Company's shareholders, or takes other steps to effect a "Change of Control"
(as defined in paragraph 3 below), Executive agrees that she will not
voluntarily leave the employ of the Company and will render the services
contemplated in the recitals to this Agreement until such Person has terminated
its efforts to effect a Change of Control or until a Change of Control has
occurred.
<PAGE>
2. If, within twenty-four months after a Change of Control,
Executive's employment is terminated by the Company for any reason other than
Cause (as defined in paragraph 4 below) subject to paragraph 6 below:
a. the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to 200% of her
average annual compensation for the most recent five years ending before
the Change of Control (or for such shorter portion of that period as
Executive performed services for the Company), including for this purpose
all compensation included by the Company on her Forms W-2 for such years;
and
b. any stock options granted to Executive by the Company will become
immediately exercisable in full; and
c. the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to the full
balance standing to her credit with the Company under any and all deferred
compensation plans or arrangements; and
d. the Company will promptly reimburse Executive for any and all legal
fees and expenses incurred by her as a result of such termination of
employment, including, without limitation, all fees and expenses incurred
to enforce the provisions of this Agreement.
3. A Change of Control will occur for purposes of this Agreement if
(i) any Person becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act) of more than thirty percent (30%) of the then outstanding voting stock
of the Company, (ii) there is a change of control of the Company of a kind which
would be required to be reported under Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Act (or a similar item in a similar schedule or form)
whether or not the Company is then subject to such reporting requirement, (iii)
the Company is a party to a merger, consolidation, sale of assets or other
reorganization or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter, or (iv) during any period of two
consecutive years (which period may begin before the date of this Agreement),
individuals who at the beginning of such period constituted the Board cease for
any reason to constitute a majority thereof; provided, however, that any
director who is not in office at the beginning of such twenty-four month period
but whose election by the Board or whose nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved shall be deemed to have been in office at the beginning of such period
for purposes of this definition. Notwithstanding the foregoing provisions of
this paragraph 3, a Change of Control will not be deemed to have occurred solely
because of the acquisition or ownership of securities of the Company (or any
reporting requirement under the Act relating thereto) by any employee benefit
plan maintained by the Company for the benefit of employees.
-2-
<PAGE>
4. "Cause" means only the willful commission by Executive of theft,
embezzlement or other serious and substantial crimes against the Company. For
purposes of this definition, no act or omission shall be considered to have been
"willful" unless it was not in good faith and Executive had knowledge at the
time that the act or omission was not in the best interest of the Company.
5. If Executive leaves the employ of the Company for any reason
following a reduction in her position, compensation, responsibilities,
authority, fringe benefits, perquisites or any other benefit or privilege
enjoyed by her prior to the Change of Control or following an attempt by the
Company after a Change of Control to relocate Executive outside the Greater
Houston Metropolitan Area or, if Executive is at the time of the Change of
Control employed outside the Greater Houston Metropolitan Area, an area of
approximately comparable size surrounding the place where she is then employed,
or to require her to perform regular services outside of such area, her
employment will be deemed to have been terminated by the Company for reasons
other than Cause.
6. The payments and benefits due to Executive under paragraph 2 will
be subject to reduction as provided in this paragraph 6 for the purpose of
avoiding a limitation on the Company's federal income tax deduction of "excess
parachute payments" under section 280G of the Internal Revenue Code of 1986.
Within 20 days after the termination of Executive's employment, Executive may
(but is not required to) submit to the Company a written opinion of a nationally
recognized accounting firm, employment consulting firm or law firm selected by
Executive to the effect that, in such firm's opinion, the payments and benefits
due to Executive hereunder are not required to be reduced in order to avoid such
limitation on the Company's deduction, or if such firm is of the view that a
reduction in the payments and benefits should be reduced. The opinion of such
firm concerning the extent of the required reduction, if any, in such payments
and benefits (which opinion need not be free from doubt), shall be final and
binding on both Executive and the Company. The Company agrees to pay the fees
and expenses of such firm in preparing and rendering its opinion. If Executive
does not submit such an opinion within 20 days after termination of Executive's
employment, the Company will make the determination to the extent of the
required reduction, if any, in the payments and benefits due to Executive
pursuant to this paragraph 6, and will make such payments and provide such
benefits to Executive no later than 30 days after the termination of Executive's
employment. The determination of the Company concerning the extent of such
required reduction will not be binding and will be subject to arbitration in
accordance with paragraph 8 of this Agreement. In connection with any required
reduction in the payments or benefits due to Executive pursuant to this
paragraph 6, Executive will be entitled to designate the particular payments
and/or benefits to be reduced.
7. If there has been a termination to which paragraph 2 applies, and
the Company and Executive agree that Executive shall provide post-termination
consulting or other services to the Company, the Company shall be entitled to
reduce its payment for such post-termination consulting or other services to the
extent of the payment made by it pursuant to paragraph 2.
-3-
<PAGE>
This paragraph 7 shall not obligate either the Company or Executive to agree to
Executive's provision of post-termination services.
8. In the case of any dispute under this Agreement, Executive may
initiate binding arbitration in Houston, Texas, before the American Arbitration
Association by serving a notice to arbitrate upon the Company or, at Executive's
election, institute judicial proceedings, in either case within 90 days of the
effective date of her termination or, if later, her receipt of notice of
termination, or such longer period as may be reasonably necessary for Executive
to take such action if illness or incapacity should impair her taking such
action within the 90-day period. The Company agrees (i) to pay the cost of any
such arbitration and/or judicial proceeding, and (ii) to pay interest to
Executive on any amounts ultimately found to be due to Executive hereunder
during any period of time that such amounts are withheld pending arbitration
and/or judicial proceedings.
9. If the Company is at any time, whether before or after or as a
part of a Change of Control, merged or consolidated into or with any other
corporation or other entity (whether or not the Company is the surviving
entity), or if substantially all of the assets thereof are transferred to
another corporation or other entity, the provisions of this Agreement will be
binding upon and inure to the benefit of the corporation or other entity
resulting from such merger or consolidation or the acquirer of such assets, and
this paragraph 9 will apply in the event of any subsequent merger or
consolidation or transfer of assets. In the event of any merger, consolidation
or sale of assets described above, nothing contained in this Agreement will
detract from or otherwise limit Executive's right to or privilege of
participation in any stock option or purchase plan or any bonus, profit sharing,
pension, group insurance, hospitalization or other incentive or benefit plan or
arrangement which may be or become applicable to executives of the corporation
resulting from such merger or consolidation or the corporation acquiring such
assets from the Company. In the event of any merger, consolidation or sale of
assets described above, references to the Company in this Agreement shall unless
the context suggests otherwise be deemed to include the entity resulting from
such merger or consolidation or the acquirer of such assets of the Company.
10. All payments required to be made by the Company hereunder to
Executive or her dependents, beneficiaries or estate will be subject to the
withholding of such amounts relating to tax and/or other payroll deductions as
may be required by law.
11. No amendment, change or modification of this Agreement may be made
except in writing, signed by both parties.
12. At the election of the Company, this Agreement shall not apply to
a Change of Control which takes place after the third anniversary of the date
first written above, provided that the Company has given Executive notice of its
election at least 30 days before the Change of Control.
-4-
<PAGE>
13. Payments made by the Company pursuant to this Agreement shall be
in lieu of severance payments, if any, which might otherwise be available to
Executive.
14. The provisions of this Agreement shall be binding upon and shall
inure to the benefit of Executive, her executors, administrators, legal
representatives and assigns, and the Company and its successors.
15. The validity, interpretation and effect of this Agreement shall be
governed by the laws of the State of Texas.
16. There shall be no right of set-off or counterclaim in respect of
any claim, debt or obligation, against any payments to Executive, her
dependents, beneficiaries or estate provided for in this Agreement.
17. No right or interest to or in any payments shall be assignable by
Executive; provided, however, that this provision shall not preclude her from
designating one or more beneficiaries to receive any amount that may be payable
after her death and shall not preclude the legal representative of her estate
from assigning any right hereunder to the person or persons entitled thereto
under her will or, in the case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to her estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount or, if no beneficiary has
been so designated, the legal representative of Executive's estate.
18. No right, benefit or interest hereunder shall be subject to
anticipation, alienation, sale, assignment, encumbrance, change, pledge,
hypothecation, or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process, or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence, shall, to the full extent permitted by law,
be null, void and of no effect.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date set forth above.
GAMMA BIOLOGICALS, INC.
By: /s/ David E. Hatcher
----------------------------
Name: David E. Hatcher
Title: Chairman
/s/ Betty F. Hatcher
-------------------------------
Betty F. Hatcher, Executive
24112
-6-
<PAGE>
EXHIBIT 10(z)
GAMMA BIOLOGICALS, INC.
Amended and Restated Severance Agreement
----------------------------------------
THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (the "Agreement"), is
entered into this 19th day of February, 1996, between JOHN J. MOULDS
("Executive") and GAMMA BIOLOGICALS, INC., a Texas corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its shareholders
for the Company to agree to provide benefits under circumstances described below
to Executive and other executives who are responsible for the policy-making
functions of the Company and the overall viability of the Company's business;
and
WHEREAS, the Board recognizes that the possibility of a change of
control of the Company is unsettling to such executives and wishes to make
arrangements at this time to assure their continuing dedication to their duties
to the Company and its shareholders notwithstanding attempts by outside parties
to gain control of the Company; and
WHEREAS, the Board believes it important, since the Company may
receive proposals from such outside parties, to enable such executives, without
being distracted by the uncertainties of their own employment situations, to
perform their regular duties, and where appropriate to assess such proposals and
advise the Board as to the best interests of the Company and its shareholders
and to take such other action as the Board determines to be appropriate; and
WHEREAS, the Board also wishes to demonstrate to the executives that
the Company is concerned with their welfare and intends to assure that loyal
executives are treated fairly; and
WHEREAS, Executive and the Company previously entered into a Severance
Agreement dated October 18, 1989, and the parties now wish to amend and restate
such Severance Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. In the event that any individual, corporation, partnership,
company or other entity (a "Person"), which terms shall include a "group"
(within the meaning of section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Act")), begins a tender or exchange offer, circulates a proxy to
the Company's shareholders, or takes other steps to effect a "Change of Control"
(as defined in paragraph 3 below), Executive agrees that he will not voluntarily
leave the employ of the Company and will render the services contemplated in the
recitals to this
1
<PAGE>
Agreement until such Person has terminated its efforts to effect a Change of
Control or until a Change of Control has occurred.
2. If, within twenty-four months after a Change of Control,
Executive's employment is terminated by the Company for any reason other than
Cause (as defined in paragraph 4 below) subject to paragraph 6 below:
a. the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to 200% of his average
annual compensation for the most recent five years ending before the Change of
Control (or for such shorter portion of that period as Executive performed
services for the Company), including for this purpose all compensation included
by the Company on his Forms W-2 for such years; and
b. any stock options granted to Executive by the Company will become
immediately exercisable in full; and
c. the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to the full balance
standing to his credit with the Company under any and all deferred compensation
plans or arrangements; and
d. the Company will promptly reimburse Executive for any and all
legal fees and expenses incurred by him as a result of such termination of
employment, including, without limitation, all fees and expenses incurred to
enforce the provisions of this Agreement.
3. A Change of Control will occur for purposes of this Agreement if
(i) any Person becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act) of more than thirty percent (30%) of the then outstanding voting stock
of the Company, (ii) there is a change of control of the Company of a kind which
would be required to be reported under Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Act (or a similar item in a similar schedule or form)
whether or not the Company is then subject to such reporting requirement, (iii)
the Company is a party to a merger, consolidation, sale of assets or other
reorganization or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter, or (iv) during any period of two
consecutive years (which period may begin before the date of this Agreement),
individuals who at the beginning of such period constituted the Board cease for
any reason to constitute a majority thereof; provided, however, that any
director who is not in office at the beginning of such twenty-four month period
but whose election by the Board or whose nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved shall be deemed to have been in office at the beginning of such period
for purposes of this definition. Notwithstanding the foregoing provisions of
this paragraph 3, a Change of Control will not be
2
<PAGE>
deemed to have occurred solely because of the acquisition or ownership of
securities of the Company (or any reporting requirement under the Act relating
thereto) by any employee benefit plan maintained by the Company for the benefit
of employees.
4. "Cause" means only the willful commission by Executive of theft,
embezzlement or other serious and substantial crimes against the Company. For
purposes of this definition, no act or omission shall be considered to have been
"willful" unless it was not in good faith and Executive had knowledge at the
time that the act or omission was not in the best interest of the Company.
5. If Executive leaves the employ of the Company for any reason
following a reduction in his position, compensation, responsibilities,
authority, fringe benefits, perquisites or any other benefit or privilege
enjoyed by him prior to the Change of Control or following an attempt by the
Company after a Change of Control to relocate Executive outside the Greater
Houston Metropolitan Area or, if Executive is at the time of the Change of
Control employed outside the Greater Houston Metropolitan Area, an area of
approximately comparable size surrounding the place where he is then employed,
or to require him to perform regular services outside of such area, his
employment will be deemed to have been terminated by the Company for reasons
other than Cause.
6. The payments and benefits due to Executive under paragraph 2 will
be subject to reduction as provided in this paragraph 6 for the purpose of
avoiding a limitation on the Company's federal income tax deduction of "excess
parachute payments" under section 280G of the Internal Revenue Code of 1986.
Within 20 days after the termination of Executive's employment, Executive may
(but is not required to) submit to the Company a written opinion of a nationally
recognized accounting firm, employment consulting firm or law firm selected by
Executive to the effect that, in such firm's opinion, the payments and benefits
due to Executive hereunder are not required to be reduced in order to avoid such
limitation on the Company's deduction, or if such firm is of the view that a
reduction in the payments and benefits should be reduced. The opinion of such
firm concerning the extent of the required reduction, if any, in such payments
and benefits (which opinion need not be free from doubt), shall be final and
binding on both Executive and the Company. The Company agrees to pay the fees
and expenses of such firm in preparing and rendering its opinion. If Executive
does not submit such an opinion within 20 days after termination of Executive's
employment, the Company will make the determination to the extent of the
required reduction, if any, in the payments and benefits due to Executive
pursuant to this paragraph 6, and will make such payments and provide such
benefits to Executive no later than 30 days after the termination of Executive's
employment. The determination of the Company concerning the extent of such
required reduction will not be binding and will be subject to arbitration in
accordance with paragraph 8 of this Agreement. In connection with any required
reduction in the payments or benefits due to Executive pursuant to this
paragraph 6, Executive will be entitled to designate the particular payments
and/or benefits to be reduced.
3
<PAGE>
7. If there has been a termination to which paragraph 2 applies, and
the Company and Executive agree that Executive shall provide post-termination
consulting or other services to the Company, the Company shall be entitled to
reduce its payment for such post-termination consulting or other services to the
extent of the payment made by it pursuant to paragraph 2. This paragraph 7 shall
not obligate either the Company or Executive to agree to Executive's provision
of post-termination services.
8. In the case of any dispute under this Agreement, Executive may
initiate binding arbitration in Houston, Texas, before the American Arbitration
Association by serving a notice to arbitrate upon the Company or, at Executive's
election, institute judicial proceedings, in either case within 90 days of the
effective date of his termination or, if later, his receipt of notice of
termination, or such longer period as may be reasonably necessary for Executive
to take such action if illness or incapacity should impair him taking such
action within the 90-day period. The Company agrees (i) to pay the cost of any
such arbitration and/or judicial proceeding, and (ii) to pay interest to
Executive on any amounts ultimately found to be due to Executive hereunder
during any period of time that such amounts are withheld pending arbitration
and/or judicial proceedings.
9. If the Company is at any time, whether before or after or as a
part of a Change of Control, merged or consolidated into or with any other
corporation or other entity (whether or not the Company is the surviving
entity), or if substantially all of the assets thereof are transferred to
another corporation or other entity, the provisions of this Agreement will be
binding upon and inure to the benefit of the corporation or other entity
resulting from such merger or consolidation or the acquirer of such assets, and
this paragraph 9 will apply in the event of any subsequent merger or
consolidation or transfer of assets. In the event of any merger, consolidation
or sale of assets described above, nothing contained in this Agreement will
detract from or otherwise limit Executive's right to or privilege of
participation in any stock option or purchase plan or any bonus, profit sharing,
pension, group insurance, hospitalization or other incentive or benefit plan or
arrangement which may be or become applicable to executives of the corporation
resulting from such merger or consolidation or the corporation acquiring such
assets from the Company. In the event of any merger, consolidation or sale of
assets described above, references to the Company in this Agreement shall unless
the context suggests otherwise be deemed to include the entity resulting from
such merger or consolidation or the acquirer of such assets of the Company.
10. All payments required to be made by the Company hereunder to
Executive or his dependents, beneficiaries or estate will be subject to the
withholding of such amounts relating to tax and/or other payroll deductions as
may be required by law.
11. No amendment, change or modification of this Agreement may be made
except in writing, signed by both parties.
12. At the election of the Company, this Agreement shall not apply to
a Change of Control which takes place after the third anniversary of the date
first written above, provided
4
<PAGE>
that the Company has given Executive notice of its election at least 30 days
before the Change of Control.
13. Payments made by the Company pursuant to this Agreement shall be
in lieu of severance payments, if any, which might otherwise be available to
Executive.
14. The provisions of this Agreement shall be binding upon and shall
inure to the benefit of Executive, his executors, administrators, legal
representatives and assigns, and the Company and its successors.
15. The validity, interpretation and effect of this Agreement shall be
governed by the laws of the State of Texas.
16. There shall be no right of set-off or counterclaim in respect of
any claim, debt or obligation, against any payments to Executive, his
dependents, beneficiaries or estate provided for in this Agreement.
17. No right or interest to or in any payments shall be assignable by
Executive; provided, however, that this provision shall not preclude him from
designating one or more beneficiaries to receive any amount that may be payable
after his death and shall not preclude the legal representative of his estate
from assigning any right hereunder to the person or persons entitled thereto
under his will or, in the case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount or, if no beneficiary has
been so designated, the legal representative of Executive's estate.
18. No right, benefit or interest hereunder shall be subject to
anticipation, alienation, sale, assignment, encumbrance, change, pledge,
hypothecation, or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process, or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence, shall, to the full extent permitted by law,
be null, void and of no effect.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date set forth above.
GAMMA BIOLOGICALS, INC.
By: /s/ David E. Hatcher
---------------------------------
Name: David E. Hatcher
-------------------------------
Title: Chairman
------------------------------
/s/ John J. Moulds
------------------------------------
John J. Moulds, Executive
24124
6
<PAGE>
EXHIBIT 10(aa)
GAMMA BIOLOGICALS, INC.
Amended and Restated Severance Agreement
----------------------------------------
THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (the "Agreement"), is
entered into this 19th day of February, 1996, between DAVID E. HATCHER
("Executive") and GAMMA BIOLOGICALS, INC., a Texas corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its shareholders
for the Company to agree to provide benefits under circumstances described below
to Executive and other executives who are responsible for the policy-making
functions of the Company and the overall viability of the Company's business;
and
WHEREAS, the Board recognizes that the possibility of a change of
control of the Company is unsettling to such executives and wishes to make
arrangements at this time to assure their continuing dedication to their duties
to the Company and its shareholders notwithstanding attempts by outside parties
to gain control of the Company; and
WHEREAS, the Board believes it important, since the Company may
receive proposals from such outside parties, to enable such executives, without
being distracted by the uncertainties of their own employment situations, to
perform their regular duties, and where appropriate to assess such proposals and
advise the Board as to the best interests of the Company and its shareholders
and to take such other action as the Board determines to be appropriate; and
WHEREAS, the Board also wishes to demonstrate to the executives that
the Company is concerned with their welfare and intends to assure that loyal
executives are treated fairly; and
WHEREAS, Executive and the Company previously entered into a Severance
Agreement dated October 2, 1989, and the parties now wish to amend and restate
such Severance Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. In the event that any individual, corporation, partnership,
company or other entity (a "Person"), which terms shall include a "group"
(within the meaning of section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Act")), begins a tender or exchange offer, circulates a proxy to
the Company's shareholders, or takes other steps to effect a "Change of Control"
(as defined in paragraph 3 below), Executive agrees that he will not voluntarily
leave the employ of the Company and will render the services contemplated in the
recitals to this
<PAGE>
Agreement until such Person has terminated its efforts to effect a Change of
Control or until a Change of Control has occurred.
2. If, within twenty-four months after a Change of Control,
Executive's employment is terminated by the Company for any reason other than
Cause (as defined in paragraph 4 below) subject to paragraph 6 below:
a. the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to 299% of his average
annual compensation for the most recent five years ending before the Change of
Control (or for such shorter portion of that period as Executive performed
services for the Company), including for this purpose all compensation included
by the Company on his Forms W-2 for such years; and
b. any stock options granted to Executive by the Company will become
immediately exercisable in full; and
c. the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to the full balance
standing to his credit with the Company under any and all deferred compensation
plans or arrangements; and
d. the Company will promptly reimburse Executive for any and all
legal fees and expenses incurred by him as a result of such termination of
employment, including, without limitation, all fees and expenses incurred to
enforce the provisions of this Agreement.
3. A Change of Control will occur for purposes of this Agreement if
(i) any Person becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act) of more than thirty percent (30%) of the then outstanding voting stock
of the Company, (ii) there is a change of control of the Company of a kind which
would be required to be reported under Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Act (or a similar item in a similar schedule or form)
whether or not the Company is then subject to such reporting requirement, (iii)
the Company is a party to a merger, consolidation, sale of assets or other
reorganization or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter, or (iv) during any period of two
consecutive years (which period may begin before the date of this Agreement),
individuals who at the beginning of such period constituted the Board cease for
any reason to constitute a majority thereof; provided, however, that any
director who is not in office at the beginning of such twenty-four month period
but whose election by the Board or whose nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved shall be deemed to have been in office at the beginning of such period
for purposes of this definition. Notwithstanding the foregoing provisions of
this paragraph 3, a Change of Control will not be
2
<PAGE>
deemed to have occurred solely because of the acquisition or ownership of
securities of the Company (or any reporting requirement under the Act relating
thereto) by any employee benefit plan maintained by the Company for the benefit
of employees.
4. "Cause" means only the willful commission by Executive of theft,
embezzlement or other serious and substantial crimes against the Company. For
purposes of this definition, no act or omission shall be considered to have been
"willful" unless it was not in good faith and Executive had knowledge at the
time that the act or omission was not in the best interest of the Company.
5. If Executive leaves the employ of the Company for any reason
following a reduction in his position, compensation, responsibilities,
authority, fringe benefits, perquisites or any other benefit or privilege
enjoyed by him prior to the Change of Control or following an attempt by the
Company after a Change of Control to relocate Executive outside the Greater
Houston Metropolitan Area or, if Executive is at the time of the Change of
Control employed outside the Greater Houston Metropolitan Area, an area of
approximately comparable size surrounding the place where he is then employed,
or to require him to perform regular services outside of such area, his
employment will be deemed to have been terminated by the Company for reasons
other than Cause.
6. The payments and benefits due to Executive under paragraph 2 will
be subject to reduction as provided in this paragraph 6 for the purpose of
avoiding a limitation on the Company's federal income tax deduction of "excess
parachute payments" under section 280G of the Internal Revenue Code of 1986.
Within 20 days after the termination of Executive's employment, Executive may
(but is not required to) submit to the Company a written opinion of a nationally
recognized accounting firm, employment consulting firm or law firm selected by
Executive to the effect that, in such firm's opinion, the payments and benefits
due to Executive hereunder are not required to be reduced in order to avoid such
limitation on the Company's deduction, or if such firm is of the view that a
reduction in the payments and benefits should be reduced. The opinion of such
firm concerning the extent of the required reduction, if any, in such payments
and benefits (which opinion need not be free from doubt), shall be final and
binding on both Executive and the Company. The Company agrees to pay the fees
and expenses of such firm in preparing and rendering its opinion. If Executive
does not submit such an opinion within 20 days after termination of Executive's
employment, the Company will make the determination to the extent of the
required reduction, if any, in the payments and benefits due to Executive
pursuant to this paragraph 6, and will make such payments and provide such
benefits to Executive no later than 30 days after the termination of Executive's
employment. The determination of the Company concerning the extent of such
required reduction will not be binding and will be subject to arbitration in
accordance with paragraph 8 of this Agreement. In connection with any required
reduction in the payments or benefits due to Executive pursuant to this
paragraph 6, Executive will be entitled to designate the particular payments
and/or benefits to be reduced.
3
<PAGE>
7. If there has been a termination to which paragraph 2 applies, and
the Company and Executive agree that Executive shall provide post-termination
consulting or other services to the Company, the Company shall be entitled to
reduce its payment for such post-termination consulting or other services to the
extent of the payment made by it pursuant to paragraph 2. This paragraph 7 shall
not obligate either the Company or Executive to agree to Executive's provision
of post-termination services.
8. In the case of any dispute under this Agreement, Executive may
initiate binding arbitration in Houston, Texas, before the American Arbitration
Association by serving a notice to arbitrate upon the Company or, at Executive's
election, institute judicial proceedings, in either case within 90 days of the
effective date of his termination or, if later, his receipt of notice of
termination, or such longer period as may be reasonably necessary for Executive
to take such action if illness or incapacity should impair him taking such
action within the 90-day period. The Company agrees (i) to pay the cost of any
such arbitration and/or judicial proceeding, and (ii) to pay interest to
Executive on any amounts ultimately found to be due to Executive hereunder
during any period of time that such amounts are withheld pending arbitration
and/or judicial proceedings.
9. If the Company is at any time, whether before or after or as a
part of a Change of Control, merged or consolidated into or with any other
corporation or other entity (whether or not the Company is the surviving
entity), or if substantially all of the assets thereof are transferred to
another corporation or other entity, the provisions of this Agreement will be
binding upon and inure to the benefit of the corporation or other entity
resulting from such merger or consolidation or the acquirer of such assets, and
this paragraph 9 will apply in the event of any subsequent merger or
consolidation or transfer of assets. In the event of any merger, consolidation
or sale of assets described above, nothing contained in this Agreement will
detract from or otherwise limit Executive's right to or privilege of
participation in any stock option or purchase plan or any bonus, profit sharing,
pension, group insurance, hospitalization or other incentive or benefit plan or
arrangement which may be or become applicable to executives of the corporation
resulting from such merger or consolidation or the corporation acquiring such
assets from the Company. In the event of any merger, consolidation or sale of
assets described above, references to the Company in this Agreement shall unless
the context suggests otherwise be deemed to include the entity resulting from
such merger or consolidation or the acquirer of such assets of the Company.
10. All payments required to be made by the Company hereunder to
Executive or his dependents, beneficiaries or estate will be subject to the
withholding of such amounts relating to tax and/or other payroll deductions as
may be required by law.
11. No amendment, change or modification of this Agreement may be made
except in writing, signed by both parties.
12. At the election of the Company, this Agreement shall not apply to
a Change of Control which takes place after the third anniversary of the date
first written above, provided
4
<PAGE>
that the Company has given Executive notice of its election at least 30 days
before the Change of Control.
13. Payments made by the Company pursuant to this Agreement shall be
in lieu of severance payments, if any, which might otherwise be available to
Executive.
14. The provisions of this Agreement shall be binding upon and shall
inure to the benefit of Executive, his executors, administrators, legal
representatives and assigns, and the Company and its successors.
15. The validity, interpretation and effect of this Agreement shall be
governed by the laws of the State of Texas.
16. There shall be no right of set-off or counterclaim in respect of
any claim, debt or obligation, against any payments to Executive, his
dependents, beneficiaries or estate provided for in this Agreement.
17. No right or interest to or in any payments shall be assignable by
Executive; provided, however, that this provision shall not preclude him from
designating one or more beneficiaries to receive any amount that may be payable
after his death and shall not preclude the legal representative of his estate
from assigning any right hereunder to the person or persons entitled thereto
under his will or, in the case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount or, if no beneficiary has
been so designated, the legal representative of Executive's estate.
18. No right, benefit or interest hereunder shall be subject to
anticipation, alienation, sale, assignment, encumbrance, change, pledge,
hypothecation, or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process, or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence, shall, to the full extent permitted by law,
be null, void and of no effect.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date set forth above.
GAMMA BIOLOGICALS, INC.
By: /s/ Margaret J. O'Bannion
---------------------------------
Name: Margaret J. O'Bannion
Title: V.P.-Finance
/s/ David E. Hatcher
------------------------------------
David E. Hatcher, Executive
24131
6
<PAGE>
EXHIBIT 10(bb)
GAMMA BIOLOGICALS, INC.
Amended and Restated Severance Agreement
----------------------------------------
THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (the "Agreement"), is
entered into this 19th day of February, 1996, between MARGARET J. O'BANNION
("Executive") and GAMMA BIOLOGICALS, INC., a Texas corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its shareholders
for the Company to agree to provide benefits under circumstances described below
to Executive and other executives who are responsible for the policy-making
functions of the Company and the overall viability of the Company's business;
and
WHEREAS, the Board recognizes that the possibility of a change of
control of the Company is unsettling to such executives and wishes to make
arrangements at this time to assure their continuing dedication to their duties
to the Company and its shareholders notwithstanding attempts by outside parties
to gain control of the Company; and
WHEREAS, the Board believes it important, since the Company may
receive proposals from such outside parties, to enable such executives, without
being distracted by the uncertainties of their own employment situations, to
perform their regular duties, and where appropriate to assess such proposals and
advise the Board as to the best interests of the Company and its shareholders
and to take such other action as the Board determines to be appropriate; and
WHEREAS, the Board also wishes to demonstrate to the executives that
the Company is concerned with their welfare and intends to assure that loyal
executives are treated fairly; and
WHEREAS, Executive and the Company previously entered into a Severance
Agreement dated July 25, 1991, and the parties now wish to amend and restate
such Severance Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. In the event that any individual, corporation, partnership,
company or other entity (a "Person"), which terms shall include a "group"
(within the meaning of section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Act")), begins a tender or exchange offer, circulates a proxy to
the Company's shareholders, or takes other steps to effect a "Change of Control"
(as defined in paragraph 3 below), Executive agrees that she will not
voluntarily leave the employ of the Company and will render the services
contemplated in the recitals to this Agreement until such Person has terminated
its efforts to effect a Change of Control or until a Change of Control has
occurred.
<PAGE>
2. If, within twenty-four months after a Change of Control,
Executive's employment is terminated by the Company for any reason other than
Cause (as defined in paragraph 4 below) subject to paragraph 6 below:
a. the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to 200% of her average
annual compensation for the most recent five years ending before the Change of
Control (or for such shorter portion of that period as Executive performed
services for the Company), including for this purpose all compensation included
by the Company on her Forms W-2 for such years; and
b. any stock options granted to Executive by the Company will become
immediately exercisable in full; and
c. the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to the full balance
standing to her credit with the Company under any and all deferred compensation
plans or arrangements; and
d. the Company will promptly reimburse Executive for any and all
legal fees and expenses incurred by her as a result of such termination of
employment, including, without limitation, all fees and expenses incurred to
enforce the provisions of this Agreement.
3. A Change of Control will occur for purposes of this Agreement if
(i) any Person becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act) of more than thirty percent (30%) of the then outstanding voting stock
of the Company, (ii) there is a change of control of the Company of a kind which
would be required to be reported under Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Act (or a similar item in a similar schedule or form)
whether or not the Company is then subject to such reporting requirement, (iii)
the Company is a party to a merger, consolidation, sale of assets or other
reorganization or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter, or (iv) during any period of two
consecutive years (which period may begin before the date of this Agreement),
individuals who at the beginning of such period constituted the Board cease for
any reason to constitute a majority thereof; provided, however, that any
director who is not in office at the beginning of such twenty-four month period
but whose election by the Board or whose nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved shall be deemed to have been in office at the beginning of such period
for purposes of this definition. Notwithstanding the foregoing provisions of
this paragraph 3, a Change of Control will not be deemed to have occurred solely
because of the acquisition or ownership of securities of the Company (or any
reporting requirement under the Act relating thereto) by any employee benefit
plan maintained by the Company for the benefit of employees.
2
<PAGE>
4. "Cause" means only the willful commission by Executive of theft,
embezzlement or other serious and substantial crimes against the Company. For
purposes of this definition, no act or omission shall be considered to have been
"willful" unless it was not in good faith and Executive had knowledge at the
time that the act or omission was not in the best interest of the Company.
5. If Executive leaves the employ of the Company for any reason
following a reduction in her position, compensation, responsibilities,
authority, fringe benefits, perquisites or any other benefit or privilege
enjoyed by her prior to the Change of Control or following an attempt by the
Company after a Change of Control to relocate Executive outside the Greater
Houston Metropolitan Area or, if Executive is at the time of the Change of
Control employed outside the Greater Houston Metropolitan Area, an area of
approximately comparable size surrounding the place where she is then employed,
or to require her to perform regular services outside of such area, her
employment will be deemed to have been terminated by the Company for reasons
other than Cause.
6. The payments and benefits due to Executive under paragraph 2 will
be subject to reduction as provided in this paragraph 6 for the purpose of
avoiding a limitation on the Company's federal income tax deduction of "excess
parachute payments" under section 280G of the Internal Revenue Code of 1986.
Within 20 days after the termination of Executive's employment, Executive may
(but is not required to) submit to the Company a written opinion of a nationally
recognized accounting firm, employment consulting firm or law firm selected by
Executive to the effect that, in such firm's opinion, the payments and benefits
due to Executive hereunder are not required to be reduced in order to avoid such
limitation on the Company's deduction, or if such firm is of the view that a
reduction in the payments and benefits should be reduced. The opinion of such
firm concerning the extent of the required reduction, if any, in such payments
and benefits (which opinion need not be free from doubt), shall be final and
binding on both Executive and the Company. The Company agrees to pay the fees
and expenses of such firm in preparing and rendering its opinion. If Executive
does not submit such an opinion within 20 days after termination of Executive's
employment, the Company will make the determination to the extent of the
required reduction, if any, in the payments and benefits due to Executive
pursuant to this paragraph 6, and will make such payments and provide such
benefits to Executive no later than 30 days after the termination of Executive's
employment. The determination of the Company concerning the extent of such
required reduction will not be binding and will be subject to arbitration in
accordance with paragraph 8 of this Agreement. In connection with any required
reduction in the payments or benefits due to Executive pursuant to this
paragraph 6, Executive will be entitled to designate the particular payments
and/or benefits to be reduced.
7. If there has been a termination to which paragraph 2 applies, and
the Company and Executive agree that Executive shall provide post-termination
consulting or other services to the Company, the Company shall be entitled to
reduce its payment for such post-termination consulting or other services to the
extent of the payment made by it pursuant to paragraph 2.
3
<PAGE>
This paragraph 7 shall not obligate either the Company or Executive to agree to
Executive's provision of post-termination services.
8. In the case of any dispute under this Agreement, Executive may
initiate binding arbitration in Houston, Texas, before the American Arbitration
Association by serving a notice to arbitrate upon the Company or, at Executive's
election, institute judicial proceedings, in either case within 90 days of the
effective date of her termination or, if later, her receipt of notice of
termination, or such longer period as may be reasonably necessary for Executive
to take such action if illness or incapacity should impair her taking such
action within the 90-day period. The Company agrees (i) to pay the cost of any
such arbitration and/or judicial proceeding, and (ii) to pay interest to
Executive on any amounts ultimately found to be due to Executive hereunder
during any period of time that such amounts are withheld pending arbitration
and/or judicial proceedings.
9. If the Company is at any time, whether before or after or as a
part of a Change of Control, merged or consolidated into or with any other
corporation or other entity (whether or not the Company is the surviving
entity), or if substantially all of the assets thereof are transferred to
another corporation or other entity, the provisions of this Agreement will be
binding upon and inure to the benefit of the corporation or other entity
resulting from such merger or consolidation or the acquirer of such assets, and
this paragraph 9 will apply in the event of any subsequent merger or
consolidation or transfer of assets. In the event of any merger, consolidation
or sale of assets described above, nothing contained in this Agreement will
detract from or otherwise limit Executive's right to or privilege of
participation in any stock option or purchase plan or any bonus, profit sharing,
pension, group insurance, hospitalization or other incentive or benefit plan or
arrangement which may be or become applicable to executives of the corporation
resulting from such merger or consolidation or the corporation acquiring such
assets from the Company. In the event of any merger, consolidation or sale of
assets described above, references to the Company in this Agreement shall unless
the context suggests otherwise be deemed to include the entity resulting from
such merger or consolidation or the acquirer of such assets of the Company.
10. All payments required to be made by the Company hereunder to
Executive or her dependents, beneficiaries or estate will be subject to the
withholding of such amounts relating to tax and/or other payroll deductions as
may be required by law.
11. No amendment, change or modification of this Agreement may be made
except in writing, signed by both parties.
12. At the election of the Company, this Agreement shall not apply to
a Change of Control which takes place after the third anniversary of the date
first written above, provided that the Company has given Executive notice of its
election at least 30 days before the Change of Control.
4
<PAGE>
13. Payments made by the Company pursuant to this Agreement shall be
in lieu of severance payments, if any, which might otherwise be available to
Executive.
14. The provisions of this Agreement shall be binding upon and shall
inure to the benefit of Executive, her executors, administrators, legal
representatives and assigns, and the Company and its successors.
15. The validity, interpretation and effect of this Agreement shall be
governed by the laws of the State of Texas.
16. There shall be no right of set-off or counterclaim in respect of
any claim, debt or obligation, against any payments to Executive, her
dependents, beneficiaries or estate provided for in this Agreement.
17. No right or interest to or in any payments shall be assignable by
Executive; provided, however, that this provision shall not preclude her from
designating one or more beneficiaries to receive any amount that may be payable
after her death and shall not preclude the legal representative of her estate
from assigning any right hereunder to the person or persons entitled thereto
under her will or, in the case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to her estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount or, if no beneficiary has
been so designated, the legal representative of Executive's estate.
18. No right, benefit or interest hereunder shall be subject to
anticipation, alienation, sale, assignment, encumbrance, change, pledge,
hypothecation, or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process, or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence, shall, to the full extent permitted by law,
be null, void and of no effect.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date set forth above.
GAMMA BIOLOGICALS, INC.
By: /s/ David E. Hatcher
---------------------------------
Name: David E. Hatcher
Title: Chairman
/s/ Margaret J. O'Bannion
------------------------------------
Margaret J. O'Bannion, Executive
24020
6
<PAGE>
EXHIBIT 10(cc)
GAMMA BIOLOGICALS, INC.
Amended and Restated Severance Agreement
----------------------------------------
THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (the "Agreement"), is
entered into this 19th day of February, 1996, between JIMMIE L. TURNER
("Executive") and GAMMA BIOLOGICALS, INC., a Texas corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its shareholders
for the Company to agree to provide benefits under circumstances described below
to Executive and other executives who are responsible for the policy-making
functions of the Company and the overall viability of the Company's business;
and
WHEREAS, the Board recognizes that the possibility of a change of
control of the Company is unsettling to such executives and wishes to make
arrangements at this time to assure their continuing dedication to their duties
to the Company and its shareholders notwithstanding attempts by outside parties
to gain control of the Company; and
WHEREAS, the Board believes it important, since the Company may
receive proposals from such outside parties, to enable such executives, without
being distracted by the uncertainties of their own employment situations, to
perform their regular duties, and where appropriate to assess such proposals and
advise the Board as to the best interests of the Company and its shareholders
and to take such other action as the Board determines to be appropriate; and
WHEREAS, the Board also wishes to demonstrate to the executives that
the Company is concerned with their welfare and intends to assure that loyal
executives are treated fairly; and
WHEREAS, Executive and the Company previously entered into a Severance
Agreement dated July 25, 1991, and the parties now wish to amend and restate
such Severance Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. In the event that any individual, corporation, partnership,
company or other entity (a "Person"), which terms shall include a "group"
(within the meaning of section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Act")), begins a tender or exchange offer, circulates a proxy to
the Company's shareholders, or takes other steps to effect a "Change of Control"
(as defined in paragraph 3 below), Executive agrees that he will not voluntarily
leave the employ of the Company and will render the services contemplated in the
recitals to this Agreement until such Person has terminated its efforts to
effect a Change of Control or until a Change of Control has occurred.
<PAGE>
2. If, within twenty-four months after a Change of Control,
Executive's employment is terminated by the Company for any reason other than
Cause (as defined in paragraph 4 below) subject to paragraph 6 below:
a. the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to 200% of his average
annual compensation for the most recent five years ending before the Change of
Control (or for such shorter portion of that period as Executive performed
services for the Company), including for this purpose all compensation included
by the Company on his Forms W-2 for such years; and
b. any stock options granted to Executive by the Company will become
immediately exercisable in full; and
c. the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to the full balance
standing to his credit with the Company under any and all deferred compensation
plans or arrangements; and
d. the Company will promptly reimburse Executive for any and all
legal fees and expenses incurred by him as a result of such termination of
employment, including, without limitation, all fees and expenses incurred to
enforce the provisions of this Agreement.
3. A Change of Control will occur for purposes of this Agreement if
(i) any Person becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Act) of more than thirty percent (30%) of the then outstanding voting stock
of the Company, (ii) there is a change of control of the Company of a kind which
would be required to be reported under Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Act (or a similar item in a similar schedule or form)
whether or not the Company is then subject to such reporting requirement, (iii)
the Company is a party to a merger, consolidation, sale of assets or other
reorganization or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter, or (iv) during any period of two
consecutive years (which period may begin before the date of this Agreement),
individuals who at the beginning of such period constituted the Board cease for
any reason to constitute a majority thereof; provided, however, that any
director who is not in office at the beginning of such twenty-four month period
but whose election by the Board or whose nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved shall be deemed to have been in office at the beginning of such period
for purposes of this definition. Notwithstanding the foregoing provisions of
this paragraph 3, a Change of Control will not be deemed to have occurred solely
because of the acquisition or ownership of securities of the Company (or any
reporting requirement under the Act relating thereto) by any employee benefit
plan maintained by the Company for the benefit of employees.
2
<PAGE>
4. "Cause" means only the willful commission by Executive of theft,
embezzlement or other serious and substantial crimes against the Company. For
purposes of this definition, no act or omission shall be considered to have been
"willful" unless it was not in good faith and Executive had knowledge at the
time that the act or omission was not in the best interest of the Company.
5. If Executive leaves the employ of the Company for any reason
following a reduction in his position, compensation, responsibilities,
authority, fringe benefits, perquisites or any other benefit or privilege
enjoyed by him prior to the Change of Control or following an attempt by the
Company after a Change of Control to relocate Executive outside the Greater
Houston Metropolitan Area or, if Executive is at the time of the Change of
Control employed outside the Greater Houston Metropolitan Area, an area of
approximately comparable size surrounding the place where he is then employed,
or to require him to perform regular services outside of such area, his
employment will be deemed to have been terminated by the Company for reasons
other than Cause.
6. The payments and benefits due to Executive under paragraph 2 will
be subject to reduction as provided in this paragraph 6 for the purpose of
avoiding a limitation on the Company's federal income tax deduction of "excess
parachute payments" under section 280G of the Internal Revenue Code of 1986.
Within 20 days after the termination of Executive's employment, Executive may
(but is not required to) submit to the Company a written opinion of a nationally
recognized accounting firm, employment consulting firm or law firm selected by
Executive to the effect that, in such firm's opinion, the payments and benefits
due to Executive hereunder are not required to be reduced in order to avoid such
limitation on the Company's deduction, or if such firm is of the view that a
reduction in the payments and benefits should be reduced. The opinion of such
firm concerning the extent of the required reduction, if any, in such payments
and benefits (which opinion need not be free from doubt), shall be final and
binding on both Executive and the Company. The Company agrees to pay the fees
and expenses of such firm in preparing and rendering its opinion. If Executive
does not submit such an opinion within 20 days after termination of Executive's
employment, the Company will make the determination to the extent of the
required reduction, if any, in the payments and benefits due to Executive
pursuant to this paragraph 6, and will make such payments and provide such
benefits to Executive no later than 30 days after the termination of Executive's
employment. The determination of the Company concerning the extent of such
required reduction will not be binding and will be subject to arbitration in
accordance with paragraph 8 of this Agreement. In connection with any required
reduction in the payments or benefits due to Executive pursuant to this
paragraph 6, Executive will be entitled to designate the particular payments
and/or benefits to be reduced.
7. If there has been a termination to which paragraph 2 applies, and
the Company and Executive agree that Executive shall provide post-termination
consulting or other services to the Company, the Company shall be entitled to
reduce its payment for such post-termination consulting or other services to the
extent of the payment made by it pursuant to paragraph 2.
3
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This paragraph 7 shall not obligate either the Company or Executive to agree to
Executive's provision of post-termination services.
8. In the case of any dispute under this Agreement, Executive may
initiate binding arbitration in Houston, Texas, before the American Arbitration
Association by serving a notice to arbitrate upon the Company or, at Executive's
election, institute judicial proceedings, in either case within 90 days of the
effective date of his termination or, if later, his receipt of notice of
termination, or such longer period as may be reasonably necessary for Executive
to take such action if illness or incapacity should impair him taking such
action within the 90-day period. The Company agrees (i) to pay the cost of any
such arbitration and/or judicial proceeding, and (ii) to pay interest to
Executive on any amounts ultimately found to be due to Executive hereunder
during any period of time that such amounts are withheld pending arbitration
and/or judicial proceedings.
9. If the Company is at any time, whether before or after or as a
part of a Change of Control, merged or consolidated into or with any other
corporation or other entity (whether or not the Company is the surviving
entity), or if substantially all of the assets thereof are transferred to
another corporation or other entity, the provisions of this Agreement will be
binding upon and inure to the benefit of the corporation or other entity
resulting from such merger or consolidation or the acquirer of such assets, and
this paragraph 9 will apply in the event of any subsequent merger or
consolidation or transfer of assets. In the event of any merger, consolidation
or sale of assets described above, nothing contained in this Agreement will
detract from or otherwise limit Executive's right to or privilege of
participation in any stock option or purchase plan or any bonus, profit sharing,
pension, group insurance, hospitalization or other incentive or benefit plan or
arrangement which may be or become applicable to executives of the corporation
resulting from such merger or consolidation or the corporation acquiring such
assets from the Company. In the event of any merger, consolidation or sale of
assets described above, references to the Company in this Agreement shall unless
the context suggests otherwise be deemed to include the entity resulting from
such merger or consolidation or the acquirer of such assets of the Company.
10. All payments required to be made by the Company hereunder to
Executive or his dependents, beneficiaries or estate will be subject to the
withholding of such amounts relating to tax and/or other payroll deductions as
may be required by law.
11. No amendment, change or modification of this Agreement may be made
except in writing, signed by both parties.
12. At the election of the Company, this Agreement shall not apply to
a Change of Control which takes place after the third anniversary of the date
first written above, provided that the Company has given Executive notice of its
election at least 30 days before the Change of Control.
4
<PAGE>
13. Payments made by the Company pursuant to this Agreement shall be
in lieu of severance payments, if any, which might otherwise be available to
Executive.
14. The provisions of this Agreement shall be binding upon and shall
inure to the benefit of Executive, his executors, administrators, legal
representatives and assigns, and the Company and its successors.
15. The validity, interpretation and effect of this Agreement shall be
governed by the laws of the State of Texas.
16. There shall be no right of set-off or counterclaim in respect of
any claim, debt or obligation, against any payments to Executive, his
dependents, beneficiaries or estate provided for in this Agreement.
17. No right or interest to or in any payments shall be assignable by
Executive; provided, however, that this provision shall not preclude him from
designating one or more beneficiaries to receive any amount that may be payable
after his death and shall not preclude the legal representative of his estate
from assigning any right hereunder to the person or persons entitled thereto
under his will or, in the case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount or, if no beneficiary has
been so designated, the legal representative of Executive's estate.
18. No right, benefit or interest hereunder shall be subject to
anticipation, alienation, sale, assignment, encumbrance, change, pledge,
hypothecation, or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process, or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence, shall, to the full extent permitted by law,
be null, void and of no effect.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date set forth above.
GAMMA BIOLOGICALS, INC.
By: /s/ David E. Hatcher
---------------------------------
Name: David E. Hatcher
Title: Chairman
/s/ Jimmie L. Turner
------------------------------------
Jimmie L. Turner, Executive
24117
6
<PAGE>
EXHIBIT 10(dd)
GAMMA BIOLOGICALS, INC.
Severance Agreement
-------------------
AGREEMENT, made this 19th day of December, 1995, between GARY L. PARRISH
("Executive") and GAMMA BIOLOGICALS, INC. (the "Company"),
WITNESSETH:
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders for the
Company to agree to provide benefits under circumstances described below to
Executive and other executives who are responsible for the policy-making
functions of the Company and the overall viability of the Company's business;
and
WHEREAS, the Board recognizes that the possibility of a change of control of
the Company is unsettling to such executives and wishes to make arrangements at
this time to assure their continuing dedication to their duties to the Company
and its shareholders notwithstanding attempts by outside parties to gain control
of the Company; and
WHEREAS, the Board believes it important, since the Company may receive
proposals from such outside parties, to enable such executives, without being
distracted by the uncertainties of their own employment situations, to perform
their regular duties and where appropriate to assess such proposals and advise
the Board as to the best interests of the Company and its shareholders and to
take such other action as the Board determines to be appropriate; and
WHEREAS, the Board also wishes to demonstrate to the executives that the
Company is concerned with their welfare and intends to assure that loyal
executives are treated fairly.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
1. In the event that any individual, corporation, partnership, company or
other entity (a "Person"), which terms shall include a "group" (within the
meaning of
1
<PAGE>
section 13(d) of the Securities Exchange Act of 1934, as amended (the "Act")),
begins a tender or exchange offer, circulates a proxy to the Company's
stockholders, or takes other steps to effect a "Change of Control" (as defined
in paragraph 3 below), Executive agrees that he will not voluntarily leave the
employ of the Company and will render the services contemplated in the recitals
to this Agreement until such Person has terminated its efforts to effect a
Change of Control or until a Change of Control has occurred.
2. If, within twenty-four months after a Change of Control, Executive's
employment is terminated by the Company for any reason other than Cause (as
defined in paragraph 4 below) subject to paragraph 6 below:
a. the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to 200% of his average
annual compensation for the most recent five years ending before the Change of
Control (or for such shorter portion of that period as Executive performed
services for the Company), including for this purpose all compensation included
by the Company on his Forms W-2 for such years; and
b. any stock options granted to Executive by the Company will become
immediately exercisable in full; and
c. the Company will pay to Executive within 30 days of such
termination of employment a lump-sum cash payment equal to the full balance
standing to his credit with the Company under any and all deferred compensation
plans or arrangements; and
d. the Company will promptly reimburse Executive for any and all
legal fees and expenses incurred by him as a result of such termination of
employment, including, without limitation, all fees and expenses incurred to
enforce the provisions of this Agreement.
3. A Change of Control will occur for purposes of this Agreement if (i)
any Person becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Act) of more than thirty percent (30%) of the then outstanding voting stock of
the Company, (ii) there is a change of control of the Company of a kind which
would be required to be reported under Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Act (or a
2
<PAGE>
similar item in a similar schedule or from) whether or not the Company is then
subject to such reporting requirement, (iii) the Company is a party to a merger,
consolidation, sale of assets or other reorganization or a proxy contest, as a
consequence of which members of the Board in office immediately prior to such
transaction or event constitute less than a majority of the Board thereafter, or
(iv) during any period of two consecutive years (which period may begin before
the date of this Agreement), individuals who at the beginning of such period
constituted the Board cease for any reason to constitute a majority thereof;
provided, however, that any director who is not in office at the beginning of
such twenty-four month period but whose election by the Board or whose
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved shall be deemed to have been in office at
the beginning of such period for purposes of this definition. Notwithstanding
the foregoing provisions of this paragraph 3, a Change of Control will not be
deemed to have occurred solely because of the acquisition or ownership of
securities of the Company (or any reporting requirement under the Act relating
thereto) by any employee benefit plan maintained by the Company for the benefit
of employees.
4. "Cause" means only the willful commission by Executive of theft,
embezzlement or other serious and substantial crimes against the Company. For
purposes of this definition, no act or omission shall be considered to have been
"willful" unless it was not in good faith and Executive had knowledge at the
time that the act or omission was not in the best interest of the Company.
5. If Executive leaves the employ of the Company for any reason following
a reduction in his position, compensation, responsibilities, authority, fringe
benefits, perquisites or any other benefit or privilege enjoyed by him prior to
the Change of Control or following an attempt by the Company after a Change of
Control to relocate Executive outside the Greater Houston Metropolitan Area, an
area of approximately comparable size surrounding the place where he is then
employed, or to require him to
3
<PAGE>
perform regular services outside of such area, his employment will be deemed to
have been terminated by the Company for reasons other than Cause.
6. The payments and benefits due to Executive under paragraph 2 will be
subject to reduction as provided in this paragraph 6 for the purpose of avoiding
a limitation on the Company's federal income tax deduction of "excess parachute
payments" under section 280G of the Internal Revenue Code of 1986. Within 20
days after the termination of Executive's employment, Executive may (but is not
required to) submit to the Company a written opinion of a nationally recognized
accounting firm, employment consulting firm or law firm selected by Executive to
the effect that, in such firm's opinion, the payments and benefits due to
Executive hereunder are not required to be reduced in order to avoid such
limitation the Company's deduction, or if such firm is of the view that a
reduction in the payments and benefits should be reduced. The opinion of such
firm concerning the extent of the required reduction, if any, in such payments
and benefits (which opinion need not be free from doubt), shall be final and
binding both Executive and the Company. The Company agrees to pay the fees and
expenses of such firm in preparing and rendering its opinion. If Executive does
not submit such an opinion within 20 days after termination of Executive's
employment, the Company will make the determination to the extent of the
required reduction, if any, in the payments and benefits due to Executive
pursuant to this paragraph 6, and will make such payments and provide such
benefits to Executive no later than 30 days after the termination of Executive's
employment. The determination of the Company concerning the extent of such
required reduction will not be binding and will be subject to arbitration in
accordance with paragraph 8 of this Agreement. In connection with any required
reduction in the payments or benefits due to Executive pursuant to this
paragraph 6, Executive will be entitled to designate the particular payments
and/or benefits to be reduced.
7. If there has been a termination to which paragraph 2 applies, and the
Company and Executive agree that Executive shall provide post-termination
consulting or other services to the Company, the Company shall be entitled to
reduce its payment for such post-termination consulting or other services to the
extent of the payment made by it
4
<PAGE>
pursuant to paragraph 2. This paragraph 7 shall not obligate either the Company
or Executive to agree to Executive's provision of post-termination services.
8. In the case of any dispute under this Agreement, Executive may
initiate binding arbitration in Houston, Texas, before the American Arbitration
Association by serving a notice to arbitrate upon the Company or, at Executive's
election, institute judicial proceedings in either case within 90 days of the
effective date of his termination or, if later, his receipt of notice of
termination, or such longer period as nay be reasonably necessary for Executive
to take such action if illness or incapacity should impair his taking such
action within the 90-day period. The Company agrees (i) to pay the cost of any
such arbitration and/or judicial proceeding, and (ii) to pay interest to
Executive on any amounts ultimately found to be due to Executive hereunder
during any period of time that such amounts are withheld pending arbitration
and/or judicial proceedings.
9. If the Company is at any time, whether before or after or as a part of
a Change of Control, merged or consolidated into or with any other corporation
or other entity (whether or not the Company is the surviving entity), or if
substantially all of the assets thereof are transferred to another corporation
or other entity, the provisions of this Agreement will be binding upon and inure
to the benefit of the corporation or other entity resulting from such merger or
consolidation or the acquirer of such assets, and this paragraph 9 will apply in
the event of any subsequent merger or consolidation or transfer of assets.
In the event of any merger, consolidation or sale of assets described
above, nothing contained in this Agreement will detract from or otherwise limit
Executive's right to or privilege of participation in any stock option or
purchase plan or any bonus, profit sharing, pension, group insurance,
hospitalization or other incentive or benefit plan or arrangement which may be
or become applicable to executives of the corporation resulting from such merger
or consolidation or the corporation acquiring such assets from the Company.
In the event of any merger, consolidation or sale of assets described
above, references to the Company in this Agreement shall unless the context
suggests otherwise
5
<PAGE>
be deemed to include the entity resulting from such merger or consolidation or
the acquirer of such assets of the Company.
10. All payments required to be made by the Company hereunder to Executive
or his dependents, beneficiaries or estate will be subject to the withholding of
such amounts relating to tax and/or other payroll deductions as may be required
by law.
11. No amendment, change or modification of this Agreement may be made
except in writing, signed by both parties.
12. At the election of the Company, this Agreement shall not apply to a
Change of Control which takes place after the third anniversary of the date
first written above, provided that the Company has given Executive notice of its
election at least 30 days before the Change of Control.
Payments made by the Company pursuant to this Agreement shall be in lieu of
severance payments, if any, which might otherwise be available to Executive.
The provisions of this Agreement shall be binding upon and shall inure to
the benefit of Executive, his executors, administrators, legal representatives
and assigns, and the Company and its successors.
The validity, interpretation and effect of this Agreement shall be governed
by the laws of the State of Texas.
There shall be no right of set-off or counterclaim in respect of any claim,
debt or obligation, against any payments to Executive, his dependents,
beneficiaries or estate provided for in this Agreement.
No right or interest to or in any payments shall be assignable by
Executive; provided, however, that this provision shall not preclude him from
designating one or more beneficiaries to receive any amount that may be payable
after his death and shall not preclude the legal representative of his estate
from assigning any right hereunder to the person or persons entitled thereto
under his will or, in the case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount or, if no beneficiary has
been so designated, the legal representative of Executive's estate.
6
<PAGE>
No right, benefit or interest hereunder shall be subject to anticipation,
alienation, sale, assignment, encumbrance, change, pledge, hypothecation. or
set-off in respect of any claim, debt or obligation, or to execution,
attachment, levy or similar process, or assignment by operation of law. Any
attempt, voluntary or involuntary, to effect any action specified in the
immediately preceding sentence, shall, to the full extent permitted by law, be
null, void and of no effect.
IN WITNESS WHEREOF, Gamma Biologicals, Inc., and Executive have each caused
this Agreement to be duly executed and delivered as of the date set forth above.
ATTEST: GAMMA BIOLOGICALS, INC.
/s/ Margaret J. O'Bannion By /s/ David E. Hatcher
- ------------------------- --------------------
/s/ Gary L. Parrish
-------------------
GARY L. PARRISH, EXECUTIVE
7
<PAGE>
Annual Report 1996
Gamma Biologicals: Manufacturing in a Niche Market
[Following paragraph runs across back and front covers and pages 5-12 of the
annual report.]
GAMMA PROVIDES PRODUCTS AND SERVICES TO IMMUNOHEMATOLOGY, A MAJOR DISCIPLINE
WITHIN CLINICAL MEDICINE. FOR OVER A QUARTER CENTURY, THE GAMMA TEAM HAS
MANUFACTURED QUALITY IN-VITRO DIAGNOSTIC REAGENTS FOR MEDICAL TECHNOLOGISTS WHO
USE OUR PRODUCTS DAILY. AS AN IN-VITRO DIAGNOSTIC REAGENT MANUFACTURER, GAMMA
BIOLOGICALS IS PART OF A TWENTIETH CENTURY PHENOMENON. ALTHOUGH THE ABO BLOOD
GROUP SYSTEM WAS DISCOVERED IN 1900, GAMMA'S INDUSTRY BEGAN JUST 60 YEARS AGO IN
1936 AND ACCELERATED IN THE 1950s-60s WITH MORE SENSITIVE TESTS AND INCREASED
TRANSFUSIONS. ORGANIZED IN 1970, GAMMA TODAY IS ONE OF ONLY FOUR ACTIVE,
FDA-LICENSED, U.S. MANUFACTURERS IN IMMUNOHEMATOLOGY. OUR SCIENTIFIC TEAM
CONTRIBUTED TO THE DETECTION AND IDENTIFICATION OF MORE THAN 25 UNIQUE BLOOD
GROUP FACTORS. THE COMPANY BROUGHT TO MARKET BOTH THE FIRST LICENSED MONOCLONAL
BLOOD GROUPING REAGENT AND THE FIRST LICENSED TOTAL MONOCLONAL POLYSPECIFIC
ANTIGLOBULIN (COOMBS) REAGENT, AMONG OTHER REAGENT AND TEST KIT PRODUCTS. AS WE
PURSUE NEW TECHNOLOGIES AND FULFILL CUSTOMER REQUIREMENTS, WE STRIVE, THROUGH
cGMP, TO PROVIDE QUALITY PRODUCTS AND SERVICE SECOND TO NONE.
<PAGE>
Contents
11-year summary Inside front cover
Company profile 1
Letter to shareholders 2
Review of manufacturing 5
Management's discussion and analysis 13
Income statement 19
Balance sheets 20
Shareholders' equity 21
Cash flows 22
Notes to consolidated financials 23
Independent auditors' report 30
Management's report 31
Market for common equity 32
Quarterly financial data 32
Corporate data Inside back cover
11-year Summary of Selected Financial Data
Year Ended March 31, 1996 1995
- --------------------------------------------------------------------------
Financial
Net sales $16,941 $18,261
Operating income (loss) 899 2,193
Income (loss) before extraordinary item 824 1,467
Net income (loss) 824 1,467
Working capital 10,299 10,675
Total assets 18,426 18,384
Long-term obligations 353 19
Shareholders' equity 16,852 16,454
Statistical
Operating margin 5.3% 12.0%
Return on net sales 4.9% 8.0%
Return on average equity 4.9% 9.1%
Current ratio 11.9 7.5
Per Share Amounts
Income (loss) before extraordinary item $ .18 $ .32
Net income (loss) .18 .32
Dividends .10 .10
Book value 3.66 3.55
Weighted average common and common equivalent
shares outstanding 4,609 4,638
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992 1991* 1990 1989 1988 1987 1986
- -------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$17,213 $16,390 $16,942 $15,674 $19,257 $18,089 $18,385 $18,014 $15,804
1,546 (966) 678 1,402 2,288 (2,631) 938 464 (3,399)
1,348 (904) 533 896 727 (3,510) (83) (451) (2,378)
1,348 (904) 721 1,253 1,299 (3,510) (83) (451) (2,378)
11,261 9,772 10,543 6,714 8,719 9,410 7,722 6,150 5,289
18,030 16,925 17,800 19,005 23,158 22,056 28,548 28,420 27,607
630 734 815 1,122 1,240 4,168 2,531 2,842 2,868
15,620 14,507 15,397 14,818 14,354 12,383 16,582 16,395 15,803
9.0% (5.9)% 4.0% 8.9% 11.9% (14.5)% 5.1% 2.6% (22.0)%
7.8% (5.5)% 4.3% 8.0% 6.7% (19.4)% (.5)% (2.5)% (15.0)%
9.0% (6.0)% 4.8% 8.6% 9.7% (24.2)% (.5)% (2.8)% (14.2)%
8.3 6.8 7.6 3.2 2.2 2.7 1.8 1.7 1.6
$ .28 $ (.20) $ .12 $ .20 $ .17 $ (.77) $ (.02) $ (.10) $ (.52)
.28 (.20) .16 .28 .29 (.77) (.02) (.10) (.52)
.05 .07
3.29 3.16 3.35 3.26 3.15 2.72 3.67 3.64 3.51
4,744 4,594 4,661 4,551 4,551 4,546 4,542 4,539 4,535
</TABLE>
*The company sold its Italian subsidiaries in 1991.
The Company
Gamma Biologicals, Inc. manufactures and sells a wide variety of highly refined
and specialized testing products known as in-vitro diagnostic reagents. These
reagents, which are restricted to specific uses and for which there are no
substitutes, are used . to test blood to ensure safe transfusions, . to detect
hemolytic disease of the newborn, . to determine the presence or absence of the
Rh factor, . to study inherited blood factors, and . to aid in the diagnosis of
certain human diseases, such as autoimmune hemolytic anemia.
Operating in a niche market, Gamma supplies products and services to
immunohematology, commonly called "blood banking". Immunohematology is one of
the major disciplines within the $2+ billion clinical (laboratory) medicine
market.
The company sells its products to blood donation centers (blood banks),
transfusion departments of hospitals, medical laboratories, physicians' offices
and research institutions through a direct sales force and a dealer network.
Gamma distributes its products to more than 50 countries.
1
<PAGE>
Shareholders' Letter
Dear Shareholder:
We are pleased to report that Gamma was profitable, earning $824,000 (18 cents
per share) on net sales of $16,941,000 for the fiscal year ended March 31, 1996.
While sales revenues were approximately 7% lower, the decrease was due more
to an unusual order in 1995 than to lack of recurring volume this year. In
fiscal 1995, a competitor who was experiencing short-term manufacturing problems
placed large orders with Gamma to supply customers. This kind of event (while
profitable) is rare, and we were gratified that Gamma's manufacturing personnel
were able to take on the additional work required by these extra orders.
Additionally, revenues were affected by:
. declines in sales of third-party products due to supply shortages. Gamma
offers such products as part of a complete line required by certain
purchasing groups. These items will continue to be in short supply
throughout fiscal 1997.
. an 8% decrease in export sales, due primarily to a reorganization of the
distributor network and currency volatility in Mexico and Argentina.
Another influence on net income was a 34% increase in research and
development expense during fiscal 1996, following a 12% increase in 1995,
associated with ReACT/TM/ project alpha testing costs and ongoing
electro-biosensor research.
A strong balance sheet allowed the company to continue funding day-to-day
operations from cash flows, including expenditures for research and development
and $1.7 million in capital improvements to modernize manufacturing. We are
proud that the company maintains positive cash flow while investing for the
future.
Shareholder Value
Shareholders' equity increased slightly, and management continues to explore
ways to augment that increase. This year, we paid quarterly dividends of 2-1/2
cents per share for a total of 10 cents per common share for the year. That
dividend yield is currently about 2% of market price and 3% of book value, an
amount the board believes the company can pay from cash flows while continuing
to fund operating requirements. Gamma paid dividends in July, October, January
and April.
In February 1996, we announced that Gamma had retained Vector Securities
International, Inc. as its financial adviser to assist the company in
identifying and reviewing strategic alternatives to enhance shareholder value.
The board realized that, while the company is positioned to continue as a major
domestic player in its field, some form of alliance could help us compete in
worldwide markets. To date, we have not entered negotiations with any entity.
Sales Expansion
In May, Gamma contracted to manufacture a custom line of monoclonal blood
grouping reagents for Olympus America Inc., Clinical Instrument Division. The
licensed, ready-to-use reagents
[Five-year bar chart of net sales goes here]
2
<PAGE>
[Five-year bar chart of net income goes here]
[Five-year bar chart of net income per share goes here]
will be dedicated to the Olympus PK 7200, one of the series of immunohematology
analyzers used to determine the blood groups of approximately 80% to 85% of
blood donations in the United States.
Under terms of the contract, Olympus America will become the exclusive
worldwide distributor for this custom line. Gamma will obtain the necessary FDA
licenses for the reagents, which are now ready for field testing. The agreement
with Olympus America is for an initial term of three years following FDA
approval.
We estimate approximately $500,000 in sales during the first full year of
the contract and continued growth in years two and three. Currently, only about
22% of the Rh reagents and 10% of the ABO reagents used in Olympus automated
blood grouping instruments are Gamma products. The custom line manufactured by
Gamma Biologicals exclusively for Olympus America should increase these
percentages considerably.
With these custom reagents, the large blood processing centers that use the
Olympus PK 7200 will no longer be required to perform extensive qualification
studies to determine the working dilutions of purchased reagents. Instead of
preparing reagent stock solutions daily or weekly, the centers will simply use
the Gamma reagents custom-formulated for these instruments, saving both
technologist time and blood center funds.
Research and Development
During fiscal 1996, we took delivery of the first 25 incubators for the ReACT
system and ordered the first production lot of 25 centrifuges, which are
scheduled for immediate delivery. With alpha testing complete, we are using test
results from the prototype equipment plus in-house data for marketing purposes.
We are particularly pleased that a scientific workshop at the major blood
banking meeting in Spain this July will focus on ReACT.
We continue to evaluate sites outside the United States for the
international manufacture and sale of ReACT products prior to FDA approval
to market domestically. Approval may take as long as two years.
In the electro-biosensor research project, Gamma agreed to fund for one
year the next phase to prove feasibility. This work is being conducted at the
University of Wollongong, Australia.
Core Products
To reduce overhead costs and improve manufacturing schedules, Gamma applied for
and received FDA approval to extend red cell product shelf life. Product quality
is not affected.
Over the past 12 months, the company submitted applications to the FDA for
five additional monoclonal-based reagents produced either from company-owned
clones or from clones to which Gamma has exclusive license. Such clones reduce
our reliance on raw material often available from only a single outside source.
We expect approval during calendar 1996.
Gamma has the most extensive monoclonal product line among the domestic
blood bank diagnostic reagent manufacturers. Still, we continue to evaluate
additional clones that we might purchase and grow in-house. We believe that
controlling the entire process, from clone supernate as a source of raw material
to finished reagent, will allow us to maintain the quality for which we are
known.
3
<PAGE>
SegmentSampler/TM/, a blood handling safety device, is being widely
accepted domestically. Sales increased 700% during fiscal 1996. As the product
gains exposure in the international markets, sales should continue to experience
healthy growth.
Other News
As we and others in health care have reported, a long-term challenge to earnings
is the continuing price pressure on products created by laboratory cost
containment and the growth of large purchasing groups. About 50% of Gamma's
domestic business now channels through these groups. We believe that providing a
complete product line, specialty items, and new products and technology should
help us maintain market share.
Gamma is committed to building sales throughout Latin and South America,
despite the economic challenges. During fiscal 1996, we appointed new
distributors in Brazil, Chile and Colombia; reorganized our distributorship
structure; and instituted minimum order requirements.
In a move designed to provide significant long-term benefit, Gamma
installed a bar code control system for product tracking. An overall software
update is scheduled for this year. Together, these improvements will lower
shipping costs, provide better control of inventory, and allow our employees to
work more efficiently.
Once again, we join with all Gamma personnel to thank each shareholder for your
interest in Gamma Biologicals, "a company of experienced people dedicated to
quality products and service to the profession".
/s/ David E. Hatcher /s/ John J.Moulds
- ----------------------------- -------------------------------
David E.Hatcher John J. Moulds
Chairman & Chief President & Chief
Executive Officer Operating Officer
June 24, 1996
[Five-year bar chart of sales foreign/domestic goes here]
4
<PAGE>
process
"Gamma people work together as a team, perhaps more like a family, to focus on
the customer's need to perform accurate tests."
As director of manufacturing, Susan Batcha has responsibility for getting
products from drawing board to customer's hands.
[Photo of manufacturing director goes here.]
MANUFACTURE
From raw material to shipped products, Gamma Biologicals manufactures in-vitro
diagnostic reagents used primarily by blood donation centers and transfusion
departments of hospitals.
More than 60% of Gamma personnel work directly in manufacturing and quality
control of core and specialty products. The remainder include the sales force,
order processing employees, and finance, accounting and administrative
personnel.
The manufacturing process is governed by customer need, raw material
availability and, beyond all else, time. Producing a reagent from raw material
to lot release may take several weeks. Add three or four months for FDA lot
approval of licensed products. Plan for as much as two years if the product must
be developed and FDA-approved for marketing.
To streamline the process, a product management committee, with
representatives from each department, coordinates the innumerable details needed
to build an idea into a finished new product ready for submission to the FDA.
How will the product perform? What will it cost to manufacture and sell? What do
we name it? How will packaging and labeling look? What does the direction insert
need to say? Dozens of questions asked and answered early make the process run
more efficiently, eliminate excessive meetings and cut manufacturing delays.
This management process was used on our newest reagent red cell product,
Panel 15/TM/, which begins shipping this month to the intended international
markets. This reagent red cell product is Gamma's first with multilingual
packaging in English, Spanish, German and Italian.
While developing Panel 15, we obtained FDA approval to extend cell product
shelf life. The extension improves production logistics and provides additional
days in the customer's hands.
Extended shelf life also changes our donor scheduling. To help, we've
upgraded our computer program to identify and select donors, the sources of
certain products that cannot be produced from monoclonal material.
Throughout the process, quality is the key. It starts with the quality of
the raw components, whether produced internally or purchased from outside
suppliers. We take pride in developing, manufacturing and shipping quality
products.
Employees, too, are essential in that regard, with each team member
focusing on customers' need to perform accurate tests.
Our current challenge is to meet customers' increasing desire for
customized products and packaging. Accommodating them involves extra effort. All
our personnel know when it's time to give that extra effort, and we do it with
pride.
On the following pages, take a walk through Gamma's basic manufacturing
process with the people who isolate and grow clones, manufacture and vial cell
and serum products, perform quality control, and distribute finished goods to
customers in more than 50 countries.
5
<PAGE>
ISOLATE
[Photo of clone isolation laboratory goes here.]
Dr. Chen inoculates a special breed of mouse to produce an antibody-secreting
cell that can be cloned and grown in a culture medium.
MANUFACTURING BEGINS IN THE CLONE ISOLATION LABORATORY. Here, scientists
test thousand of clones to identify those most suitable for Gamma's reagents. A
stable clone capable of reproducing and secreting the particular antibody needed
to produce monoclonal anti-B, anti-Le, or another of the myriad reagent products
is a valuable resource of the company. Monoclonal reagents are superior in
specificity and potency and ensure lot-to-lot consistency. Gamma-owned clones
eliminate reliance on outside sources.
[Photo of two scientists goes here.]
John Shen, PhD, and Victor Chen, MD, spearhead Gamma's efforts to isolate and
develop useful clones.
lab
"To develop a unique clone like anti-Henshaw that no one else has been able to
do successfully takes patience and evaluation of thousands of cells."
6
<PAGE>
GROW
Working in a sterile environment, Ernestine Spencer, Brenda Stafford and Kristen
Ford feed fresh medium to the clones, remove waste and harvest culture fluid
daily.
[Photo of clone growing laboratory goes here.]
WHEN CLONED CELLS REACH A CERTAIN DENSITY, they are transferred to the
bioreactors in the growing laboratory. There, they begin producing sufficient
level of antibody within about three days and continue for up to four months.
Depending on volume requirements, Gamma can grow several different secreting
cell lines at one time. The challenge is to obtain a good, stable,
antibody-secreting cell line. This area makes intermediate material, filtered
either as supernate or into a buffer exchange and transferred to final
antiserum production. About 40% of the technicians' time is spent keeping
equipment clean and sterile.
"Tending cells is a learned process, a bit like tending plants but using
sterile technique."
[Photo of clone program managers goes here.]
Tom Frame manages Gamma's clone program, while Lea Hendrix supervises the
growing laboratory day-to-day operations.
7
<PAGE>
product
EVERY WEEK, GAMMA SHIPS REAGENT RED CELL PRODUCTS to hospitals and blood
donation centers. During manufacturing, whole blood or packed red blood cells
are filtered into sterile "donut" bags, centrifuged and washed. Technicians
perform calculations, test samples, culture, and transform the raw material into
bulk product, ready for vialing. Gamma developed its latest cell product, Panel
15, in response to requests from international customers. Kits to evaluate
technologist competence include Canadian, Japanese, Spanish and Portuguese
surveys.
[Photo of reagent red cell manufacturing goes here.]
Supervisor Peggy Willis and Rose Atkins are part of the team that washes the
cells, does sterility testing, and makes finished red cell panels plus
components of RQC kits and RiSE.
PRODUCE
"Teamwork and cross-training allow us to work on multiple red cell products at
any given time."
[Photo of cell product managers goes here.]
Co-managers Juanita Puckett and Brenda Sullivan direct reagent red cell
manufacturing, Gamma's most time-sensitive product line.
8
<PAGE>
BULK
During antiserum manufacturing, Beth Cason measures and weighs chemicals, pours
them into a fluid base in specified order, and stirs to dissolve.
[Photo of antiserum manufacturing goes here.]
"Whether clone- or human-source, the reagents we make are manufactured for both
quality and cost effectiveness."
[Photo of serum manufacturing manager goes here.]
Besides managing serum manufacturing, Diane Barkley developed the custom
reagents for the Olympus PK 7200 automated immunohematology analyzer.
IN ADDITION TO RED CELL PRODUCTS, GAMMA PRODUCES other reagents in large
quantities. The reagent laboratory receives raw monoclonal antibodies from the
growing lab or supernate from outside sources, as well as human plasma
containing antibody, and bulks the product by adding appropriate chemicals and
purified water. Chemical and serological tests and activity verification are
part of a multiday process. Preprocessing starts several weeks earlier.
9
<PAGE>
VIAL
[Photo of vialing room goes here.]
Sterile technique is the vialing team's most important skill. Deloise Thomas,
Kim Daughtry and Oralia Izquierdo are cross-trained on equipment and
documentation.
BULK PRODUCT MOVES TO STERILE FILTRATION, then refrigerated storage, to
await vialing. Gamma has an intensive vialing schedule involving many products,
including high-volume reagents that may require a second shift. Rare antiserums
and certain specialized kits may be vialed only three or four times per year.
finish
"Our task is to vial up to 20 products per day, all under identical sterile
conditions."
With two vialing rooms, sterile filtration and packaging to manage,
Michael McElroy relies on his shift supervisors and experienced crews.
[Photo of vialing manager goes here.]
10
<PAGE>
CONTROL
"Our challenge is the enormous increase in testing required in a specified
period to meet shipping deadlines."
[Photo of quality control laboratory goes here.]
When medical technologist Anne Craig evaluates random samples of vialed
reagents, she tests for identity, reactivity, potency, specificity, avidity and
sterility.
Norma Wheeler, manager of quality control, works closely with both vialing and
regulatory affairs.
[Photo of quality control manager goes here.]
ONCE VIALING IS COMPLETE, QC RECEIVES RANDOM SAMPLES for testing at various
levels. Over the past five years, the total number of products submitted for
quality control has increased substantially, especially in reagent red cell
products. For both existing and new products, Gamma also conducts stability
studies, required by the FDA to monitor performance of material.
11
<PAGE>
SHIP
"Speed with accuracy is our motto. With expanded facilities and bar coding, our
shipping errors have dropped to .08%."
GAMMA'S STATE-OF-THE-ART SHIPPING AREA, NEW BAR CODING SYSTEM, and extended
dating of cell products have allowed us to automate processes and reduce costs,
while using personnel more efficiently. A conveyor takes boxes directly to
shipping stations, where individual products are scanned and packed, then on to
tracking scanners. Consolidating multiple inventory locations has saved time and
eliminated waste. A software upgrade and a request to vendors to provide bar
coded products should also increase accuracy of receiving.
[Photo of materials manager goes here.]
Materials manager Jerry Thomas has spent the last two years upgrading the
shipping and warehousing department.
freight
Robert Campos tracks packages through Gamma's new bar coding system. At a modern
work station in the background, Debra Oaks scans individual products for
inventory control.
[Photo of shipping area goes here.]
12
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
NET INCOME
A significant increase in research and development expenses, coupled with the
loss of margin from nonrecurring sales to another domestic reagent manufacturer
that benefited fiscal 1995, resulted in lower net income of $823,530 for the
year ended March 31, 1996, compared with net income of $1,466,519 in 1995 and
$1,348,548 in 1994. Management believes that the investment in research and
development is an investment in the future success of the company.
REVENUES
Revenues fell 7% to $16,940,588 in 1996, following a 6% increase in 1995. The
loss of $622,000 in sales of reagent red cell and RQC products to another major
U.S. reagent manufacturer accounted for over half of the decline in 1996,
although recurring sales in these product lines rose 3%. Sales of the
SegmentSampler/TM/, a blood handling safety device introduced in February 1995,
grew 700% in 1996 to $312,000, which offset an anticipated loss of STS-M-related
revenues. SegmentSampler sales should continue to experience healthy growth in
fiscal 1997 as the product gains exposure in international markets. Sales of one
third-party product line declined $102,000, or 11%, due to supply shortages and
FDA recalls; these products will continue to be in short supply throughout
fiscal 1997. Sales of the company's marginally profitable line of serological
products, which have been steadily declining over recent years, fell 17%, or
$73,000, in 1996. The company ceased production of this line in late fiscal 1996
and has contracted with a third party to manufacture certain of these
serological products for sale by the company primarily in international markets.
In May 1996, we signed an agreement with Olympus America Inc., Clinical
Instrument Division, to manufacture a custom line of monoclonal reagents
dedicated to the PK 7200, one of a series of immunohematology analyzers used to
determine the blood groups of approximately 80% to 85% of blood donations in the
United States. The agreement is for an initial term of three years following FDA
approval, which is not expected until fiscal 1998. Gamma estimates sales of
approximately $500,000 during the first full year of the contract. We believe
the Olympus reagents and the ReACT/TM/ (Red Cell Adherence Column Technology)
product line, currently scheduled for introduction in export markets in late
fiscal 1997, will provide the greatest opportunities for revenue growth in the
near future.
DOMESTIC SALES
Reflected in the 7% decrease in domestic sales are $707,000 of sales to another
reagent manufacturer to cover unanticipated inventory shortages between
September 1994 and February 1995. Also, most of the lost STS-M-related revenue
and substantially all of the reduced third-party product sales in 1996 were
domestic source. The 3% increase in recurring sales of reagent red cell and RQC
products and the 656% increase in SegmentSampler revenues eased the impact on
domestic sales to some extent.
Purchasing groups, formed to help the health care industry control costs,
continue to be a major factor in the domestic market. All of these groups award
contracts through a competitive bidding process, which has resulted in overall
price erosion.
13
<PAGE>
Gamma now has national contracts with 33 group purchasing organizations to
supply diagnostic reagents for the blood bank laboratory; sales to these
organizations accounted for about 50% of our domestic business in 1996. An
additional 18% to 20% of sales to customers who are not members of one or more
purchasing groups were also subject to competitive bidding. The company lost
$100,000, or 1% of domestic revenues, in 1996 due to price erosion. We believe
that the influence of purchasing groups will maintain the pressure on prices of
routine products for the foreseeable future, although products based on newer
technologies, such as ReACT, may not be subject to the same price constraints.
EXPORT SALES
Export sales experienced an 8% decline in 1996 due primarily to the
reorganization of the distributor network and currency volatility in Mexico and
Argentina. In spite of this, Gamma expanded market share in Central and South
America, recording a 14% increase in sales, and now has exclusive distributors
in every country in the region. To strengthen distributor ties, minimum sales
levels have been built into contracts in return for our commitment to provide
increased technical support and training.
Internationally, the market is now undergoing the same process of
consolidation that has occurred in the United States. With the number of
potential customers decreasing, competition is very aggressive. Customers and
regulatory authorities are requesting, even requiring, all labeling, packaging
and technical information to be provided in their native languages. In response
to customer demand, Gamma is becoming more flexible in manufacturing customized
products for selected markets. In June 1996, our newest reagent red cell
product, Panel 15/TM/, will be introduced with packaging and instructions for
use printed in English, Spanish, German and Italian. The introduction of the
ReACT test system, developed to meet customer demand for microcolumn testing
products, will also have a positive impact on export sales in the near term.
The combination of a 7% domestic volume increase and a 4% increase in export
sales increased revenues 6% in 1995. The nonrecurring sales of reagent red cell,
serum and RQC products to another domestic reagent manufacturer boosted domestic
sales, adding to the expansion of export sales in the core product lines of
monoclonal blood grouping and Coombs reagents.
GROSS MARGIN
Gross margin as a percentage of sales held constant at 54%, after rising from
51% in 1994. We continue to upgrade our primary product lines through conversion
to clone-based raw materials that are grown in our in-house clone lab. This
conversion will continue to result in significant savings as we become less
dependent on a limited number of suppliers for sources of raw material. Three
rare reagents developed from our own clones were licensed in 1996. Since year
end, we have received license approval on a large volume ABO reagent and should
soon be receiving license approval on a large volume Rh blood grouping reagent.
To reduce the manufacturing lead time for reagent red cell products, we recently
requested and received FDA approval of an
[Working Capital Barchart appears here]
14
<PAGE>
[Barchart of Cash Flows provided by Operations appears here]
extension of product shelf life. Manufacturing unit costs in 1995 declined, with
an 8% increase in production volume due, in part, to the supplementary sales to
a domestic reagent manufacturer and the final conversion of human-source ABO
blood grouping reagents to clone-source products.
SELLING EXPENSES
Selling expenses decreased 2% due to the reorganization of the international
sales function after rising 5% in 1995 to expand export marketing efforts.
Downsizing reduced total instrument service costs by $164,000 in 1996 and
$113,000 in 1995. Now that the service department has been closed, selling
expenses for 1997 will be reduced by an additional $85,000. To increase the
efficiency of customer service personnel, we installed an autofax software
system that lets customers access our most requested documents by facsimile and
a data interchange that allows us to receive purchase orders electronically.
Also in 1996, the company began accepting MasterCard and VISA for certain orders
to eliminate CODs and speed the collection process.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses rose 7% in 1996 after remaining relatively
constant in 1995. Increased expenditures were for legal fees related to patent
applications covering ReACT and electro-biosensor technologies, as well as for
additional insurance coverage and for travel associated with the evaluation of
potential manufacturing sites outside the United States to produce the ReACT
line and other products awaiting FDA approval.
Late in 1996, Gamma retained Vector Securities International, Inc. as its
financial adviser to assist the company in identifying and reviewing strategic
alternatives to enhance shareholder value. Through March 31, 1996, charges of
$63,000 were incurred in this continuing process. Increased expenses were
partially offset by the elimination of amortization expense related to the
distributorship agreement with the company's former Italian subsidiary which
expired in March 1995. Amortization expense had been $147,000 in each of the
previous five years.
SHIPPING AND WAREHOUSING EXPENSES
Shipping and warehousing expenses rose 16% in 1996 and 13% in 1995. Shipping
supplies experienced vendor price increases in both periods. Depreciation
expense increased $55,000 in 1996 following the March 1995 installation of the
first phase of a bar coding system. The remaining phase will be implemented this
fall in conjunction with a computer software upgrade. This technology has
streamlined the shipping process, enabling us to ensure accurate handling of the
greater than 117,000 annual package volume while minimizing staffing levels. To
further improve efficiency by improving process flow, we recently relocated the
shipping department to the space formerly occupied by the animal laboratory,
adding line automation and centralized inventory staging. The 1995 increase
reflected additional staffing and supply expense to support increased sales
volume.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 34% in 1996, after a 12% increase in
1995, due to costs associated with ReACT alpha
15
<PAGE>
testing and ongoing electro-biosensor research. Total costs for ReACT product
development and collection of field study data amounted to $408,000 in 1996.
Electro-biosensor research expenses at the University of Wollongong, Australia,
increased 67% to $230,000 in 1996 and will continue throughout fiscal 1997, as
the project enters the next phase to prove feasibility. Considerable efforts
were also expended for studies to extend the shelf life of reagent red cell
products and to collect submission data for FDA market approval of four new
products.
INTEREST
Interest income increased 5% in 1996 and 61% in 1995 due to an increase in funds
invested and higher interest rates. Interest expense declined 29% in 1996 due to
normal debt retirement.
OTHER EXPENSE
Other expense declined in 1996, after rising significantly in 1995, due to
$83,000 in losses on the disposal of obsolete computer equipment and the
recognition of an $87,000 permanent decline in the fair value of a common stock
investment, in accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities".
INCOME TAXES
The provision for income taxes fell 56% in 1996 due to lower pretax earnings,
after increasing in 1995 due to higher pretax earnings and the utilization of
all net operating loss carryforwards during the year ended March 31, 1994.
OTHER
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which is effective for the company on April 1, 1996.
The statement sets forth guidance as to when to recognize an impairment of
long-lived assets, including goodwill, and how to measure such an impairment.
The methodology set forth in SFAS No. 121 is not significantly different from
our current policy, and, therefore, we do not expect the adoption of SFAS No.
121, as it relates to impairment, to have a significant impact on the
consolidated financial statements. SFAS No. 121 also addresses the accounting
for long-lived assets to be disposed of. We have not yet determined the impact
of this aspect of SFAS No. 121 on the consolidated financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective for the company on April 1, 1996. SFAS No. 123
permits, but does not require, a fair-value-based method of accounting for
employee stock option plans which results in compensation expense being
recognized in the results of operations when stock options are granted. We plan
to continue the use of our current intrinsic-value-based method of accounting
for such plans where no compensation expense is recognized. However, as required
by SFAS No. 123, we will provide pro forma disclosure of net income and earnings
per share in the notes to the consolidated financial statements as if the
fair-value-based method of accounting has been applied.
[Barchart of Shareholders' Equity appears here]
16
<PAGE>
[Barchart of Book Value Per Share appears here]
Liquidity and Capital Resources
OPERATING ACTIVITIES
Net cash flows increased $3,308,000 during the year ended March 31, 1996,
compared with a decline of $1,098,000 in 1995. Cash flows from operating
activities improved $1,380,000 due to collection of receivables, decreased
inventory purchases and income tax payments, and the reduced payment of fees to
obtain the rights to use certain technologies developed by others. The number of
days sales in receivables fell to 74 days at March 31, 1996, from 80 days at
March 31, 1995, due mainly to the collection of large export receivables
outstanding at March 31, 1995. Days sales in inventory fell to 152 days at March
31, 1996, from 167 days at March 31, 1995, due to three primary factors. First,
outsourcing the assembly of droppers and SegmentSamplers has eliminated the
necessity of carrying component parts in inventory. Second, we were granted
self-release for eight products that previously required FDA approval of each
lot. This resulted in a reduction of lead times by as much as eight weeks and
lowered the required level of inventory needed to support demand. Third,
replacement of additional products produced from in-house clones significantly
reduced the carrying value of reagent inventory. Income tax payments decreased
$358,500 in 1996 due to lower pretax earnings; $61,000 of that amount will be
applied to 1997 taxes. License fees of $35,000 were paid in 1996, compared with
$230,000 paid in 1995, to purchase the rights to use 14 new clones and to
manufacture and sell the SegmentSampler. In 1995, cash flows from operations
declined due to slower collection of customer receivables, increased income tax
payments, and the payments of license fees.
INVESTING ACTIVITIES
Cash flows from investing activities improved $1,589,000 due to the maturing of
$2,000,000 of short-term investments made in 1995, offset by a $365,000 increase
in capital expenditures. Capital expenditures were made to modernize
manufacturing, convert space formerly occupied by the animal laboratory into a
semi-automated shipping area, design phase two of the bar coding/shipping
system, and upgrade the computer software system (scheduled for Fall 1996). Cash
flows from investing activities improved $1,245,000 in 1995 due to the
maturation of investments made in 1994, offset by increased capital expenditures
to renovate and modify office and laboratory areas, install a computer network
system, and design and install phase one of the bar coding system.
FINANCING ACTIVITIES
Cash flows used in financing activities decreased $336,000 due primarily to the
curtailment of open-market repurchases of stock. In 1994, the board authorized
the open-market repurchase, from time to time, of up to 250,000 shares of the
company's common stock; 59,217 shares were repurchased in 1995 at a total cost
of $265,000. Cash flows used in financing activities increased $658,000 in 1995
due primarily to the payment of dividends and the purchase of treasury shares.
The company's mortgage note, originally due to mature in December 1995, was
extended through November 2000 with no significant changes in terms or
conditions.
17
<PAGE>
Management believes that operating cash flows will continue to meet the
company's operating needs for the future. We now own or have exclusive use of
more than 70 antibody-producing clones and, to achieve self-sufficiency in raw
materials, are striving to incorporate as many of these clones into products as
is feasible. Eighteen products have been formulated from in-house clones; 14 of
these products are FDA-licensed; three are awaiting FDA approval; and one is in
field testing. Continued conversion of human-source products to monoclonal
equivalents and introduction of new products such as the Olympus reagents and
the ReACT test system should help sustain margins and improve operating cash
flows.
CAPITAL EXPENDITURES
Domestic capital expenditures for 1996 exceeded $1,600,000 and are expected to
drop at least 50% in 1997. Expenditures are planned to complete improvements in
the computer system, modify the old shipping area to accommodate new packaging
equipment, and add capacity to the monoclonal laboratory.
PRODUCT DEVELOPMENT
In 1996, we funded $66,000 on a prototype incubator for use in the ReACT system
and took delivery of the first production lot of 25. In April 1995, we ordered
the first production lot of 25 centrifuges; we expect delivery in June 1996.
This lot will cost about $23,000, plus a molding charge of $21,000. We are
currently evaluating potential manufacturing sites outside the United States,
since FDA approval to market ReACT in the United States may take as long as two
years.
Funding for electro-biosensor research was $155,000 in fiscal 1996,
compared with $197,000 in fiscal 1995. The company has committed an additional
$165,000 for the next phase to prove feasibility. The researchers estimate
that marketable products derived from electro-biosensor research will not be
available until fiscal 1999.
Our existing capital resources, consisting of about $3,800,000 in cash
and short-term investments and a $1,500,000 revolving credit line, should be
sufficient to support product development and planned capital improvements
during the next 12 months.
INFLATION
Except for the 1995 and 1996 price increases in shipping supplies mentioned
above, costs of material and services have remained relatively stable over the
past three years. We do not expect operations to be influenced significantly by
rising costs in the foreseeable future.
Management's Discussion and Analysis includes certain forward-looking statements
reflecting the company's expectations in the near future. However, many factors
which may affect actual results, especially market conditions and changing
regulations, are difficult to predict. Accordingly, there is no assurance
that the company's expectations will be realized.
[BARCHART OF TOTAL DEBT APPEARS HERE]
18
<PAGE>
<TABLE>
<CAPTION>
Statements of Consolidated Income
Year ended March 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $16,940,588 $18,261,288 $17,212,635
Cost of sales 7,825,828 8,393,870 8,383,301
-----------------------------------------------------
Gross margin 9,114,760 9,867,418 8,829,334
------------------------------------------------------
Operating expenses:
Selling 3,530,721 3,607,945 3,426,741
General and administrative 2,468,584 2,306,374 2,290,873
Shipping and warehouse 867,209 746,644 663,609
Research and development 1,349,272 1,013,155 901,751
------------------------------------------------------
Total operating expenses 8,215,786 7,674,118 7,282,974
------------------------------------------------------
Operating income 898,974 2,193,300 1,546,360
------------------------------------------------------
Other income (expense):
Interest income 262,228 250,163 154,973
Interest expense (48,350) (67,645) (74,082)
Other income (expense) 19,578 (213,099) (17,703)
-------------------------------------------------------
Other income (expense) - net 233,456 (30,581) 63,188
-------------------------------------------------------
Income before income taxes 1,132,430 2,162,719 1,609,548
Income taxes 308,900 696,200 261,000
--------------------------------------------------------
NET INCOME $ 823,530 $ 1,466,519 $ 1,348,548
--------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 4,608,771 4,638,183 4,744,255
--------------------------------------------------------
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $.18 $.32 $.28
--------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
19
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,724,379 $ 1,759,854
Short-term investments 100,000 2,094,112
Receivables-net of allowance for doubtful accounts:
1996, $156,839; 1995, $201,668 3,696,880 3,987,349
Inventories 3,240,360 3,807,495
Prepaid expenses 369,380 514,334
Deferred taxes 110,900 124,400
-------------------------
Total current assets 11,241,899 12,323,544
-------------------------
Property:
Land 284,147 284,147
Building and improvements 5,437,365 4,788,218
Machinery and equipment 4,573,877 3,672,214
Furniture and fixtures 567,581 530,290
-------------------------
Total 10,862,970 9,274,869
Less accumulated depreciation and amortization 5,684,907 5,084,309
-------------------------
Property-net 5,178,063 4,190,560
-------------------------
Cash value of life insurance 1,729,774 1,531,998
Other 275,964 337,806
-------------------------
TOTAL ASSETS $18,425,700 $18,383,908
-------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 96,588 $ 602,746
Accounts payable-trade 487,681 565,649
Dividends payable 113,796 113,528
Accrued salaries and other expenses 244,852 366,446
-------------------------
Total current liabilities 942,917 1,648,369
-------------------------
Long-term obligations 353,097 19,263
-------------------------
Deferred taxes 277,600 262,600
-------------------------
Commitments and contingencies
Shareholders' equity:
Preferred stock-$10.00 par value; 1,000,000 shares
authorized; none outstanding
Common stock-$.10 par value; 25,000,000 shares
authorized; outstanding: 1996, 4,711,365 shares;
1995, 4,700,303 shares 471,136 470,030
Capital in excess of par value 13,512,836 13,482,615
Retained earnings 3,988,022 3,619,289
Treasury stock at cost: 1996, 159,563 shares;
1995, 159,169 shares (1,119,908) (1,118,258)
-------------------------
Total shareholders' equity 16,852,086 16,453,676
-------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $18,425,700 $18,383,908
-------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE>
Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Year ended March 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK
Balance, beginning of year 4,700,303 $ 470,030 4,700,078 $ 470,008 4,696,328 $ 469,633
Exercise of stock options 11,062 1,106 225 22 3,750 375
----------------------------------------------------------------------------------------
Balance, end of year 4,711,365 471,136 4,700,303 470,030 4,700,078 470,008
----------------------------------------------------------------------------------------
CAPITAL IN EXCESS OF PAR VALUE
Balance, beginning of year 13,482,615 13,481,763 13,471,600
Exercise of stock options 30,221 852 10,163
----------------------------------------------------------------------------------------
Balance, end of year 13,512,836 13,482,615 13,481,763
----------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of year 3,619,289 2,609,496 1,490,881
Net income 823,530 1,466,519 1,348,548
Dividends declared (454,797) (456,726) (229,933)
----------------------------------------------------------------------------------------
Balance, end of year 3,988,022 3,619,289 2,609,496
----------------------------------------------------------------------------------------
UNREALIZED INVESTMENT GAIN
(LOSS)
Balance, beginning of year (87,683) (71,433)
Current year unrealized gain
(loss) 87,683 (16,250)
----------------------------------------------------------------------------------------
Balance, end of year (87,683)
----------------------------------------------------------------------------------------
TREASURY STOCK
Balance, beginning of year (159,169) (1,118,258) (99,952) (853,469) (99,952) (853,469)
Purchase of treasury stock (394) (1,650) (59,217) (264,789)
----------------------------------------------------------------------------------------
Balance, end of year (159,563) (1,119,908) (159,169) (1,118,258) (99,952) (853,469)
----------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 4,551,802 $16,852,086 4,541,134 $16,453,676 4,600,126 $15,620,115
----------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
21
<PAGE>
Statements of Consolidated Cash Flows
<TABLE>
<CAPTION>
Year ended March 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 17,454,501 $ 17,406,173 $ 17,507,789
Interest received 149,118 125,224 110,744
Cash paid to suppliers and employees (15,060,164) (15,992,239) (15,025,539)
Interest paid (48,350) (67,645) (74,082)
Income taxes paid (343,000) (701,500) (65,000)
------------------------------------------------
Net cash provided by operating activities 2,152,105 770,013 2,453,912
------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property additions (1,668,145) (1,302,629) (378,571)
Purchase of investments (892,709) (2,997,977) (2,102,211)
Increase in cash value of life insurance (197,776) (152,110) (126,958)
Proceeds from:
Investments 3,093,608 3,181,064 89,352
Sale of equipment 38,618 56,055 57,332
------------------------------------------------
Net cash provided by (used in) investing
activities 373,596 (1,215,597) (2,461,056)
------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term obligations (172,324) (211,710) (171,475)
Exercise of stock options 31,327 874 10,538
Dividends paid (454,529) (458,202) (114,929)
Purchase of treasury stock (1,650) (264,789)
------------------------------------------------
Net cash used in financing activities (597,176) (933,827) (275,866)
------------------------------------------------
Effect of exchange rate fluctuation on cash 1,562
Net increase (decrease) in cash 1,928,525 (1,379,411) (281,448)
Cash and cash equivalents at beginning of
period 1,795,854 3,175,265 3,456,713
------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,724,379 $ 1,795,854 $ 3,175,265
------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income $ 823,530 $ 1,466,519 $ 1,348,548
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 650,471 529,957 518,850
Amortization of goodwill 147,034 147,034
Loss on sale of fixed assets 148 101,897 13,554
Gain on sale of investments (206,718) (124,939) (44,229)
Net effect of changes in operating
accounts 884,674 (1,350,455) 470,155
------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,152,105 $ 770,013 $ 2,453,912
------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
BUSINESS
The company manufactures and sells a wide variety of highly refined and
specialized testing products known as in-vitro diagnostic reagents. The company
operates in one business sector and geographic area. Customers include numerous
hospitals, blood donation centers, medical laboratories and research
institutions in more than 50 countries. The company does not have a
concentration of credit risk due to its large customer base.
CONSOLIDATION
The consolidated financial statements include the accounts of Gamma Biologicals,
Inc. and all subsidiaries (the company). All significant intercompany items have
been eliminated in consolidation.
INVENTORIES
Inventories are valued at the lower of cost or market value.
PROPERTY AND DEPRECIATION
Property, including improvements, is stated at cost, including interest charges
incurred during construction. Expenditures for maintenance and repairs are
charged to operations as incurred. Costs of assets sold or retired and the
related amounts of accumulated depreciation are eliminated from the accounts,
and the resulting gains or losses are recognized in current operations.
Depreciation on machinery and equipment and furniture and fixtures is
computed using the straight-line method over estimated useful lives of five to
10 years. Depreciation and amortization on building and improvements are
computed using the straight-line and 150% declining balance methods over
estimated service lives of five to 30 years.
EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of cost over net assets acquired was amortized on a straight-line
basis over the initial five-year term of the distributorship agreement with the
former Italian subsidiary. The accumulated amortization was $917,033 and
$769,999 at March 31, 1995 and 1994, respectively. The distributorship agreement
expired without renewal in April 1995.
RESEARCH AND DEVELOPMENT EXPENDITURES
The company capitalizes certain costs relating to the development of new
technologies. Capitalization does not begin until technological feasibility is
established. All other research and development expenditures are charged to
expense in the period incurred.
REVENUE RECOGNITION
Revenue is recognized when products are shipped or services are performed.
FEDERAL INCOME TAXES
The company adopted SFAS No. 109, "Accounting for Income Taxes," during the
first quarter of 1994. Deferred income taxes reflect the future tax consequences
of differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements. There was no cumulative effect of
this change because the company had a net operating loss carryforward for which
a valuation allowance was established at the adoption date.
Tax credits are recognized as a reduction of federal income taxes in the
year in which the credits are realized.
23
<PAGE>
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is computed using the weighted
average number of shares and dilutive equivalent shares outstanding during each
year.
STATEMENTS OF CONSOLIDATED CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and in banks, amounts deposited in money market funds, and certificates of
deposit with original maturities of three months or less.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2. Inventories
Inventory costs and the methods of computing such costs are summarized as
follows:
March 31, 1996 1995
- --------------------------------------------------------------------------
First-in, first-out:
Finished products $1,387,826 $1,540,278
Products in process 499,579 650,443
----------------------------
1,887,405 2,190,721
----------------------------
Specific identification:
Raw material 737,717 840,289
Finished instrument systems 3,648
----------------------------
737,717 843,937
----------------------------
Average:
Supplies 615,238 772,837
----------------------------
TOTAL $3,240,360 $3,807,495
----------------------------
Note 3. Investments
The company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", in 1994. In accordance with this statement, the company
classified its investment in equity securities as "available for sale," which is
reported at fair value. The company has the positive intent and ability to hold
its investments in debt securities to maturity; these investments are reported
at amortized cost. Unrealized holding gains and losses are reported in a
separate component of shareholders' equity until realized. Investments in debt
and equity securities are summarized as follows:
<TABLE>
<CAPTION>
Unrealized Carrying
Type Classification Fair Value Gain (Loss) Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended March 31, 1996
Debt securities:
Certificates of Deposit-due 9/9/96 Held to maturity $100,000 $100,000
--------------------------------------
Total debt securities $100,000 $100,000
--------------------------------------
TOTAL INVESTMENTS $100,000 $100,000
--------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Unrealized Carrying
Type Classification Fair Value Gain (Loss) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended March 31, 1995
Equity securities:
Common stock Available for sale $ 10,569 $ $ 10,569
----------------------------------------------------------
Debt securities:
U.S. Government:
Federal Farm Credit Banks - due 9/1/95 Held to maturity 997,500 (3,087) 1,000,587
Treasury Notes - due 3/31/96 Held to maturity 986,560 (6,731) 993,291
Certificates of Deposit - due 9/11/95 Held to maturity 100,234 100,234
----------------------------------------------------------
Total debt securities $ 2,084,294 $ (9,818) $ 2,094,112
----------------------------------------------------------
TOTAL INVESTMENTS $ 2,094,863 $ (9,818) $ 2,104,681
----------------------------------------------------------
</TABLE>
Note 4. Cash Value of Life Insurance
Cash value of life insurance consists primarily of contractual rights under
split-dollar life insurance agreements on the lives of certain officers and
directors. The company owns the policies and pays the premiums. Each insured
party is required to reimburse the company for the annual economic benefit that
the insured party receives. The premiums paid by the company less amounts
reimbursed by the insured party (net premiums) accrue interest at 3% per year.
The company can borrow against the policies. With the company's permission,
the insured parties can also secure loans against the policies. The company can
elect to pay the interest accruing on loans secured by insured parties.
Upon death of an insured party, the insured party's estate must repay
all loans against the policy and accrued interest (plus 3%) previously paid by
the company. Additionally, policy proceeds in excess of the amount (net premiums
paid plus interest) due to the company under terms of the split-dollar insurance
agreements will be distributed to the designated beneficiaries of the insured
party.
Note 5. Long-term Obligations and Credit Agreement
LONG-TERM OBLIGATIONS
Long-term obligations consists of:
March 31, 1996 1995
- --------------------------------------------------------------------------------
Mortgage note, due monthly through 2000 $ 430,422 $ 508,434
Other obligations 19,263 113,575
-----------------------------------
449,685 622,009
Less current portion 96,588 602,746
-----------------------------------
TOTAL LONG-TERM OBLIGATIONS $ 353,097 $ 19,263
-----------------------------------
The mortgage note bears interest at the bank's base rate, but not less
than 7% nor more than 13%. At March 31,1996, the note bore interest at 9.25%.
The mortgage note is collateralized by a first lien on the company's land and
building. In November 1995, the note was extended through November 2000 with no
significant changes in terms or conditions.
Long-term obligations mature as follows: $96,588 in 1997; $85,142 in
1998; $93,750 in 1999; $103,206 in 2000; and $70,999 in 2001.
25
<PAGE>
CREDIT AGREEMENT
The company has a revolving line of credit agreement under which the company can
borrow $1,500,000 at the bank's floating base rate plus 0.5%. The agreement was
renewed in October 1995. At March 31, 1996 or during the year then ended, no
borrowings were outstanding under this agreement. The company pays no fees nor
is required to maintain any compensating balances under this agreement.
The line of credit agreement provides for maximum amounts that can be
outstanding, based on the company's receivables and inventories. Prepayments on
this loan may be required when the bases of receivables and inventories, as
determined under the agreement provisions, are less than certain defined levels.
The agreement also contains various provisions that restrict borrowings,
capital expenditures, advances and other distributions, and certain direct or
contingent liabilities. Dividend payments are restricted to 25% of the company's
prior year net income. This restriction was waived in December 1993 for the
years ended March 31, 1996, 1995 and 1994. The agreement also provides for the
maintenance of certain ratios or amounts relative to working capital, net worth
and debt-to-equity. At March 31, 1996, the company was in compliance with the
provisions of the agreement.
Security for the company's obligations under the line of credit agreement
includes substantially all of the company's assets, except for the cash value of
all life insurance policies and the company's land and building which are
pledged as collateral for the mortgage note.
Note 6. Cash Flows Information
Following is a summary of the changes in operating assets and liabilities.
Year ended March 31, 1996 1995 1994
- -----------------------------------------------------------------------------
Decrease (increase) in:
Receivables $290,400 $ (764,114) $ 381,008
Inventories 567,135 44,842 185,746
Prepaid expenses 136,359 (250,518) (109,053)
Other assets 61,842 (76,505) 171,101
Increase (decrease) in:
Accounts payable (77,968) (125,685) (29,242)
Accrued salaries and other expenses (93,094) (178,475) (129,405)
------------------------------------
NET EFFECT OF CHANGE IN OPERATING
AMOUNTS $884,674 $(1,350,455) $ 470,155
------------------------------------
The company entered into various capital leases for new equipment, which
increased the company's property and long-term debt by $119,389 in 1994.
In April 1992, a note receivable of $221,356 was received in connection
with the sale of the company's plastics manufacturing operations. Additional
advances of $26,518 in fiscal 1995 and $114,730 in 1994 in connection with the
former plastics manufacturing operations were consolidated into a note
receivable in September 1994. The note was paid in full in September 1995.
26
<PAGE>
In March 1996, the company outsourced the assembly of plastic droppers and
SegmentSamplers. As a result, inventory of component parts totaling $282,886 was
transferred to outside vendors and a corresponding receivable due from the
vendors was recorded. This receivable will be reduced as assembled parts are
delivered, with the cost of components deducted from the vendors' selling price.
As of March 31, 1996, the receivable balance was $256,190.
Note 7. Stock Option Plan
The company's 1995 incentive stock option plan was approved by shareholders in
August 1995. Under the plan, 250,000 shares of its common stock were reserved
for grant to various employees. The options become exercisable at 25% per year.
The number of shares reserved under the plan will be adjusted for stock splits
and stock dividends.
Options have been granted to certain nonemployee members of the board of
directors to purchase up to 10,000 shares of common stock each at a price of
$2.88 per share, exercisable before October 26, 1999. In addition, the 1991
Outside Director Stock Option Plan (nonqualified) reserves 100,000 shares of the
company's common stock for grant to nonemployee directors.
The following summarizes the company's stock option plans:
March 31, 1996 1995 1994
- --------------------------------------------------------------------------
NUMBER OF SHARES
Common stock under option 419,025 361,337 369,562
Options exercisable 270,900 226,093 166,385
Options exercised 11,062 225 3,750
Options available 254,750 73,500 65,500
Options reserved 419,025 361,337 369,562
AVERAGE OPTION PRICE
Common stock under option $ 4.29 $ 4.23 $ 4.22
Options exercisable 4.16 3.88 3.53
Options exercised 2.83 3.89 2.81
Note 8. Shareholder Rights Plan
The company has a shareholder rights plan which expires in September 1999. Under
terms of the plan: a) the rights are not exercisable until 10 days after a
public announcement that a person or group has acquired or intends to acquire
20% or more of the company's common stock without the consent of the board of
directors; and b) each share of common stock has the right to purchase common
stock with a value of two times the right's purchase price. The right's purchase
price, which is subject to adjustment by the board of directors, is currently
$15.00 per right. If exercisable, based upon a closing market price of $4.25 per
share at March 31, 1996, a shareholder could purchase, by exercising such right,
approximately 7.1 shares of common stock for each share held. The board of
directors may elect to redeem the outstanding rights at $.01 per right at any
time before the expiration date.
27
<PAGE>
Note 9. Employee Retirement Savings Plan
The company has a 401(k) Retirement Savings Plan. Under the plan's provisions,
the company may, at the discretion of the board of directors, match a portion of
the employee's annual contribution. All employees over 21 years of age with at
least one year of service are eligible for the plan. Company contributions,
which are 100% vested after five years of continuous service, were $35,194 in
1996; $35,220 in 1995; and $32,952 in 1994.
Note 10. Disposition of Manufacturing Facilities
In May 1992, the company sold its plastics manufacturing operations. Terms of
the sale provided for payment of approximately $220,000 for equipment (net book
value) and inventory, due in monthly installments, including interest, over
three years. In addition, the purchaser agreed to supply for at least two years
the plastic specialty items formerly manufactured by the company. In September
1995, the purchaser, in turn, sold the plastics manufacturing operation and
retired the note in full.
Note 11. Income Taxes
Income taxes consist of the following:
Year ended March 31, 1996 1995 1994
- ------------------------------------------------------------------------
Federal:
Current $280,400 $705,000 $114,000
Deferred 28,500 (8,800) 147,000
-------------------------------
TOTAL $308,900 $696,200 $261,000
-------------------------------
Income taxes as shown in the statements of consolidated income differ from
the amount that would be computed if income before income taxes was multiplied
by the United States federal income tax rate (statutory rate) applicable in each
year. The reasons for this difference are as follows:
Year ended March 31, 1996 1995 1994
- --------------------------------------------------------------------------
Statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Exempt export earnings (4.1) (3.2)
Valuation of temporary differences (2.3) 2.2
Reduction of taxes provided in prior
years (1.5)
Net operating loss recognition/limitation (21.2)
Amortization of goodwill 2.3 3.1
Tax credits (4.3)
Other-net 1.2 1.2 .3
---------------------------
EFFECTIVE TAX RATE 27.3% 32.2% 16.2%
---------------------------
28
<PAGE>
The provision for deferred income taxes is based on the liability method
prescribed by SFAS No. 109, which the company adopted during the first quarter
of 1994. A deferred income tax liability or asset is recognized for temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in net taxable or
deductible amounts in future years. Significant components of the company's
deferred tax assets (liabilities) are as follows:
Year ended March 31, 1996 1995
- -----------------------------------------------------------------
Allowance for bad debts $ 53,300 $ 68,600
Inventory costs capitalized 57,600 50,800
Other 5,000
------------------------
Net current deferred tax asset 110,900 124,400
------------------------
Difference between book and tax basis of
property, plant and equipment (253,000) (254,000)
Other (24,600) (8,600)
------------------------
Net noncurrent deferred tax liability (277,600) (262,600)
------------------------
NET DEFERRED TAX LIABILITY $(166,700) $(138,200)
------------------------
Note 12. Sales by Geographic Area
The company operates within one dominant segment-the manufacture and sale of
blood bank and diagnostic products-and has no customer which accounts for 10% or
more of its total sales. The company operates in one geographic area, the United
States, from which it sells to numerous countries.
Year ended March 31, 1996 1995 1994
- -----------------------------------------------------------------------------
(in thousands)
Net sales to unaffiliated customers:
United States $12,260 $13,177 $12,344
Europe 1,553 1,893 1,930
Pacific Region 1,244 1,342 1,246
Mexico, Central and South America 1,020 898 553
Middle East 620 637 848
Other 244 314 292
---------------------------------
TOTAL $16,941 $18,261 $17,213
---------------------------------
Note 13. Commitments and Contingencies
OPERATING LEASES
The company leases certain facilities, equipment and automobiles under operating
leases which range from one month to five years. Rent expense charged to income
was approximately $239,000 in 1996; $250,000 in 1995; and $280,000 in 1994.
Future minimum rental commitments at March 31, 1996 are $586,000, due between
two and five years.
CONTINGENCIES
From time to time, the company is involved in certain legal proceedings and
claims which arise in the normal course of business, none of which, in
management's opinion, is expected to have a material adverse effect on the
company's consolidated operations or financial position.
29
<PAGE>
Independent Auditors' Report
Gamma Biologicals, Inc.
We have audited the accompanying consolidated balance sheets of Gamma
Biologicals, Inc. and subsidiaries (the company) as of March 31, 1996 and 1995,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the three years in the period ended March 31,
1996. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on the 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the company at March 31, 1996
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Houston, Texas
May 28, 1996
30
<PAGE>
Management's Responsibility for Financial Reporting
The management of Gamma Biologicals, Inc. has prepared and is responsible for
the financial statements and related financial data contained in this report.
The financial statements were prepared in accordance with generally accepted
accounting principles and necessarily include certain amounts based upon
management's best estimates and judgments. The financial information contained
elsewhere in this annual report is consistent with that in the financial
statements.
The company maintains internal accounting control systems that are
adequate to prepare financial records and to provide reasonable assurance that
the assets are safeguarded from loss or unauthorized use. We believe these
systems are effective, and the cost of the systems does not exceed the benefits
obtained.
The Audit Committee, composed exclusively of outside directors, meets
periodically with the company's management and independent public accountants
on financial reporting matters. The independent public accountants have free
access to the Audit Committee and may meet with the committee, without
management present, to discuss their audit results and opinions on the quality
of financial reporting.
The role of independent public accountants is to render a professional,
independent opinion on management's financial statements to the extent required
by generally accepted auditing standards. Gamma's responsibility is to conduct
its affairs according to the highest standards of personal and corporate
conduct.
/s/ Margaret J. O'Bannion
- -------------------------
Margaret J. O'Bannion
Vice President - Finance
31
<PAGE>
Quarterly Financial Data (unaudited)
<TABLE>
Net Gross Operating Net Net Income
Sales Margins Income Income Per Share
- ---------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
FISCAL 1996
First Quarter $ 4,088 $ 2,172 $ 237 $ 220 $.05
Second Quarter 4,332 2,411 381 304 .07
Third Quarter 4,203 2,197 139 167 .04
Fourth Quarter 4,318 2,335 142 133 .02
--------------------------------------------------------------------------------
$16,941 $ 9,115 $ 899 $ 824 $.18
--------------------------------------------------------------------------------
FISCAL 1995
First Quarter $ 4,343 $ 2,300 $ 529 $ 353 $.07
Second Quarter 4,301 2,399 483 311 .07
Third Quarter 4,773 2,535 580 484 .10
Fourth Quarter 4,844 2,633 601 319 .08
--------------------------------------------------------------------------------
$18,261 $9,867 $2,193 $1,467 $.32
--------------------------------------------------------------------------------
</TABLE>
Market for the Registrant's Common Equity and Related Shareholder Matters
The company's common stock trades on the American Stock Exchange under the
symbol GBL. The bid prices included in the following table are from the
American Stock Exchange and may not reflect prices in actual transactions. The
prices do not include markups, markdowns or commissions.
<TABLE>
High Closing Low Closing
Bid Price Bid Price Dividend
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FISCAL 1996
First Quarter $4.63 $4.06 $.025
Second Quarter 5.00 4.00 .025
Third Quarter 4.88 4.00 .025
Fourth Quarter 5.06 4.25 .025
FISCAL 1995
First Quarter $6.75 $5.25 $.025
Second Quarter 6.25 4.31 .025
Third Quarter 5.00 4.02 .025
Fourth Quarter 4.75 3.94 .025
</TABLE>
As of June 17, 1996, there were approximately 490 holders of record of the
company's common stock. The number does not include shares held in broker or
nominee name.
32
<PAGE>
Corporate Data
Officers
David E. Hatcher
Chairman & Chief Executive Officer
John J. Moulds
President & Chief Operating Officer
Betty Francis Hatcher
Executive Vice President-Product Development
John Case
Vice President-Regulatory Affairs
Lawrence E. Letwin
Corporate Secretary
Margaret J. O'Bannion
Vice President-Finance & Chief Financial Officer
Gary L. Parrish
Vice President-National Sales
Jimmie L. Turner
Vice President-Customer Services
Directors
David E. Hatcher
Chairman
Bryan J. Brieden*+
Consultant & former president
Bryan Biologicals, Inc.
Detroit, Michigan
(Laboratory supplies distributor)
Betty Francis Hatcher
R. Bruce LaBoon*+
Partner
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
Houston, Texas
(Attorneys at law)
John J. Moulds
Hayle B. Randolph*+
Blood services consultant
Mesa and Flagstaff, Arizona
* Member, Audit Committee
+ Member, Compensation/Stock Option Committee
General Counsel
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
Houston, Texas
Auditors
Deloitte & Touche LLP
Houston, Texas
Stock Transfer Agent and Registrar
Please direct communications concerning stock transfer requirements, lost
certificates or changes of address to:
Society National Bank
c/o KeyCorp Shareholder Services, Inc.
700 Louisiana, Suite 2620
Houston, Texas 77002-2729
1-800/539-6549 or 713/546-5500
FAX: 713/546-5510
Stock Trading
Gamma Biologicals, Inc. common stock trades on the American Stock Exchange using
the symbol GBL.
SEC Form 10-K
Gamma will provide its shareholders, without charge, a copy of the company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1996, filed with
the Securities and Exchange Commission. Direct requests to:
Margaret J. O'Bannion
Gamma Biologicals, Inc.
3700 Mangum Road
Houston, TX 77092.
Financial Mailing List
Shareholders whose stock is held in trust or by a brokerage firm may receive
timely financial mailings directly from Gamma by writing to Ms. Margaret J.
O'Bannion at the above address.
Annual Meeting
Gamma Biologicals, Inc. invites shareholders to attend its annual meeting at
3:00 p.m. CDT on Thursday, August 8, 1996, at the company's offices, 3700 Mangum
Road, Houston, Texas.
[Recycled Paper logo appears here]
<PAGE>
Gamma Biologicals, Inc.
3700 Mangum Road
Houston, Texas 77092
713/681-8481
FAX 713/956-3333
<PAGE>
EXHIBIT 21
GAMMA BIOLOGICALS, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
State or Country
in which Percent
Incorporated Owned
------------------ --------
Registrant:
Gamma Biologicals, Inc.................. Texas Not Applicable
Subsidiaries of the Registrant(A):
Delta Diagnostics, Inc.................. Texas 100%
Gamma Biologicals International, Inc.... United States
Virgin Islands 100%
____________
Note A All of the subsidiaries are included in the consolidated financial
statements of the Registrant.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF CONSOLIDATED INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
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0
0
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</TABLE>
