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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, 1997.
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
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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.
[ ]
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, 1997: Common Stock, $.10 par value -- $20,426,043
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, 1997: Common Stock, $.10 par value -- 4,603,052 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to shareholders for the year ended March 31,
1997 are incorporated by reference into Part I and Part II.
Portions of the proxy statement for the annual meeting to be held August 7,
1997 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
. assisting in platelet antibody/antigen detection
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 its subsidiary, Gamma Biologicals,
B.V., and 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.
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
five 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 25 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.
Platelet testing kits are manufactured by Genetic Testing Institute, Inc.
and are distributed exclusively by Gamma in the domestic market. Distribution
in certain other countries is by mutual consent.
GAMMA PRODUCT GROUP TABLE
NUMBER OF
BASIC PRODUCT GROUPS PRODUCTS MAIN USE OF PRODUCTS
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BLOOD GROUPING REAGENTS
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 6 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 10 With Coombs reagents and antibody
potentiators, in detection of
antibodies in patients and donors, and
in prenatal care.
(Table continued on following page)
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NUMBER OF
BASIC PRODUCT GROUPS PRODUCTS MAIN USE OF PRODUCTS
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REAGENT RED CELL PRODUCTS (continued)
Antibody Identification 7 With Coombs reagents and antibody
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.
Platelet Testing Kits 3 To assist in platelet antibody/antigen
detection.
OTHER SPECIALTY ITEMS
PV-Plates(TM) 4 Extended blood grouping on selected
samples, for forensic use.
SegmentSampler(TM) 1 Disposable blood handling safety
device.
Saber(TM) 1 Segment sampling device.
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 continues 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 $207,500 for biosensor research in fiscal 1997 and has committed to provide
an additional $42,500 in fiscal 1998.
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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 applied for FDA
approval to market ReACT products in the United States in October 1996. Sales
of test systems are currently expected to commence outside the United States in
the summer of 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 eighteen 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 twelve 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 two Anti-D reagents and an Anti-E reagent based
on cell lines of which the company has exclusive use. Consequently three more
existing products purchased from an outside source have been replaced by ones
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 a license application for a monoclonal Anti-c
reagent based on a cell line of which the company has exclusive use. In
addition, the company has filed a premarket notification submission for a
product intended to assist in the testing of patients with auto-immune hemolytic
anemia (EGA-Kit). This should be approved in the summer of 1997.
We have entered into a contractual arrangement with Olympus America, Inc.
to develop blood group reagents and reagent red blood cells ready to use on that
company's PK7200 immunohematology analyzers. Field testing is complete on the
initial products, and an application for the necessary license supplement is
expected to be made before the end of August 1997. Reagents for Rh phenotyping
and typing for the K antigen on the PK7200 are under development.
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 sources for many of the company's
blood grouping reagent
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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 for any of its raw materials, other than six of its current Gamma-
clone(R) products (see above), and for platelet testing, which are manufactured
by Genetic Testing Institute, Inc. and marketed exclusively in the U.S. 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 exemptions 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 a Quality System as promulgated by the FDA. See "Regulation".
The company is currently pursuing ISO 9001 certification and expects to obtain
certification by the summer of 1998.
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
21 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 its subsidiary, Gamma Biologicals, B.V., and 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 and Tech-Chek Kits on standing orders for
shipment every two, three or four weeks. The RiSE 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,
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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 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 5.7% of the company's net sales
for fiscal 1997 and 5.8% for fiscal 1996.
Approximately 29.8% of the company's net sales in fiscal 1997 were made to
foreign customers. In fiscal 1997 the company's export sales were to customers
in Japan ($832,000), Spain ($470,000), the Netherlands ($462,000), Brazil
($375,000), Argentina ($332,000), 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 The Quality System 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 the Quality
System regulations.
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, one of which is Ortho Diagnostic Systems, a
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division of Johnson and Johnson, Inc., which the company believes accounts for
about 50% of all domestic sales. Other competitors include Immucor, Inc. and
BCA, a division of Biopool International.
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 1997, 1996 and 1995, the company expended $1,449,000, $1,349,000
and $1,013,000, 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 United States and international
patents covering a new antigen/antibody detection procedure using an affinity
adherence technology. See "Products Under Development - Gamma ReACT System(TM)".
Two additional patent applications have been submitted covering the ReACT
technology.
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 40 hold advanced technical
degrees or certifications in medical technology. Of the total, 43 are sales,
marketing and customer-support personnel, 53 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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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The company operates in one industry segment and two geographic areas, the
United States and Europe.
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 1998. Gamma
Biologicals, B.V. leases approximately 900 square feet of office and warehouse
space in Amsterdam, the Netherlands, which management believes is adequate for
current needs.
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 effect 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 1997, 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, 1997, is incorporated herein by
reference. See also Notes 7 and 8 of Notes to Consolidated Financial Statements
on pages 26 and 27 of the company's annual report to shareholders for the year
ended March 31, 1997, 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, 1997, 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, 1997, 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 30 of the company's annual report to
shareholders for the year ended March 31, 1997, are incorporated herein by
reference:
Statements of Consolidated Income -- Years ended March 31, 1997,
1996 and 1995
Consolidated Balance Sheets -- March 31, 1997 and 1996
Statements of Changes in Shareholders' Equity -- Years ended March 31,
1997, 1996 and 1995
Statements of Consolidated Cash Flows -- Years ended March 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements
The information contained under "Quarterly Financial Data (unaudited)" on
page 32 of the company's annual report to shareholders for the year ended March
31, 1997, 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 "Proposal No. 1 - Election of Directors",
"Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" on pages 3, 4, 7, 8 and 14 of the company's proxy statement dated
June 27, 1997, which has been filed with the Securities and Exchange Commission,
is incorporated herein by reference.
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ITEM 11. EXECUTIVE COMPENSATION.
The information contained under "Executive Officers", "Severance
Agreements", and "Split-Dollar Agreements" on pages 7 through 13 (except for the
Compensation/Stock Option Committee Report and Performance Graph therein) of
the company's proxy statement dated June 27, 1997, 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 27, 1997, 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 14 of the company's proxy statement dated June 27, 1997,
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, 1997.
(c) EXHIBITS
See Item 14(a)(3), above.
(d) FINANCIAL STATEMENT SCHEDULES
The response to this portion of Item 14 is submitted as a separate
section of this report.
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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: DAVID E. HATCHER
--------------------------------
(DAVID E. HATCHER,
CHAIRMAN OF THE BOARD OF
DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER)
Dated: June 27, 1997
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.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ DAVID E. HATCHER Chairman of the Board of Directors, June 27, 1997
- -------------------------- President and Chief Executive
(DAVID E. HATCHER) Officer
/s/ MARGARET J. O'BANNION Vice President--Finance and June 27, 1997
- -------------------------- Chief Financial Officer (Principal
(MARGARET J. O'BANNION) financial and accounting officer)
/s/ JOHN J. MOULDS Director, Senior Vice President June 27, 1997
- -------------------------- and Chief Science Officer
(JOHN J. MOULDS)
/s/ BETTY FRANCIS HATCHER Director and Executive Vice June 27, 1997
- -------------------------- President
(BETTY FRANCIS HATCHER)
/s/ BRYAN J. BRIEDEN Director June 27, 1997
- --------------------------
(BRYAN J. BRIEDEN)
/s/ R. BRUCE LaBOON Director June 27, 1997
- --------------------------
(R. BRUCE LABOON)
/s/ HAYLE B. RANDOLPH Director June 27, 1997
- --------------------------
(HAYLE B. RANDOLPH)
/s/ RICHARD H. ASTER, M.D. Director June 27, 1997
- --------------------------
(RICHARD H. ASTER, M.D.)
/s/ H. H. (WILL) HARDEE Director June 27, 1997
- --------------------------
(H. H. (WILL) HARDEE)
-12-
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) and (2) and ITEM 14(d)
LIST OF FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
Year Ended March 31, 1997
GAMMA BIOLOGICALS, INC.
HOUSTON, TEXAS
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) and (2)
GAMMA BIOLOGICALS, INC. AND SUBSIDIARIES
MARCH 31, 1997
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of the registrant and its
subsidiaries, included on pages 19 through 30 of the annual report of the
registrant to its shareholders for the year ended March 31, 1997, are
incorporated by reference in Item 8.
Statements of Consolidated Income -- Years ended March 31, 1997,
1996 and 1995
Consolidated Balance Sheets -- March 31, 1997 and 1996
Statements of Changes in Shareholders' Equity -- Years ended March 31,
1997, 1996 and 1995
Statements of Consolidated Cash Flows -- Years ended March 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements
The following consolidated financial statement schedules of the Registrant
and its subsidiaries are included in Item 14(d):
Schedule V -- Property
Schedule VI -- Accumulated depreciation and amortization of property
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
<PAGE>
SCHEDULE V
GAMMA BIOLOGICALS, INC. AND SUBSIDIARIES
PROPERTY
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
====================================================================================================================================
BALANCE AT ADDITIONS OTHER ADD BALANCE AT
BEGINNING AT COST (DEDUCT) END OF
CLASSIFICATION OF PERIOD (1) RETIREMENTS (2) PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended March 31, 1997:
Land..................................... $ 284,147 $ 284,147
Building and improvements................ 5,437,366 $ 654,011 6,091,377
Machinery and equipment.................. 4,573,877 958,850 $ 268,898 $ (2,697) 5,261,132
Furniture and fixtures................... 567,580 32,041 (565) 599,056
----------- ----------- ----------- ------------ -----------
Total................................. $10,862,970 $ 1,644,902 $ 268,898 $ (3,262) $12,235,712
=========== =========== =========== ============ ===========
Year Ended March 31, 1996
Land..................................... $ 284,147 $ 284,147
Building and improvements................ 4,788,218 $ 649,987 $ 839 5,437,366
Machinery and equipment.................. 3,672,215 977,616 75,954 4,573,877
Furniture and fixtures................... 530,289 40,542 3,251 567,580
----------- ----------- ----------- ------------ -----------
Total................................. $ 9,274,869 $ 1,668,145 $ 80,044 - $10,862,970
=========== =========== =========== ============ ===========
Year Ended March 31, 1995
Land..................................... $ 284,147 $ 284,147
Building and improvements................ 4,495,903 $ 446,842 $ 154,527 4,788,218
Machinery and equipment.................. 3,809,399 818,002 955,186 3,672,215
Furniture and fixtures................... 683,274 37,785 190,770 530,289
----------- ----------- ----------- ------------ -----------
Total................................. $ 9,272,723 $ 1,302,629 $ 1,300,483 - $ 9,274,869
=========== =========== =========== ============ ===========
</TABLE>
___________
(1) Includes $35,175 of assets added in the acquisition of the Netherlands
subsidiary for the year ended March 31, 1997.
(2) Other changes are due to foreign currency translation adjustments.
<PAGE>
SCHEDULE VI
GAMMA BIOLOGICALS, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATON OF PROPERTY
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
====================================================================================================================================
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND RETIREMENTS END OF
CLASSIFICATION OF PERIOD EXPENSES (1) PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended March 31, 1997:
Building and improvements..................... $ 2,519,615 $ 297,253 $ 69 $ 2,816,799
Machinery and equipment....................... 2,707,862 495,985 265,764 2,938,083
Furniture and fixtures........................ 457,430 29,130 104 486,456
----------- ----------- ----------- -----------
Total...................................... $ 5,684,907 $ 822,368 $ 265,937 $ 6,241,338
=========== =========== =========== ===========
Year Ended March 31, 1996
Building and improvements..................... $ 2,269,455 $ 250,160 $ 2,519,615
Machinery and equipment....................... 2,380,331 374,695 $ 47,164 2,707,862
Furniture and fixtures........................ 434,523 25,616 2,709 457,430
----------- ----------- ----------- -----------
Total...................................... $ 5,084,309 $ 650,471 $ 49,873 $ 5,684,907
=========== =========== =========== ===========
Year Ended March 31, 1995
Building and improvements..................... $ 2,209,687 $ 200,175 $ 140,407 $ 2,269,455
Machinery and equipment....................... 2,958,151 309,002 886,822 2,380,331
Furniture and fixtures........................ 582,383 20,780 168,640 434,523
----------- ----------- ----------- -----------
Total...................................... $ 5,750,221 $ 529,957 $ 1,195,869 $ 5,084,309
=========== =========== =========== ===========
</TABLE>
___________
(1) Includes foreign currency translation adjustments of ($399) for the year
ended March 31, 1997.
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(3)
EXHIBIT INDEX
EXHIBITS
Year Ended March 31, 1997
GAMMA BIOLOGICALS, INC.
HOUSTON, TEXAS
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(3)
GAMMA BIOLOGICALS, INC. AND SUBSIDIARIES
MARCH 31, 1997
EXHIBIT
NUMBER
- -------
3(a) -- Restated Articles of Incorporation of the Company dated June 20,
1996. Incorporated by reference to Exhibit 3(a) to the Company's
Annual Report on Form 10-K for the year ended March 31, 1996 (the
"1996 Form 10-K").
(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. Incorporated by reference to Exhibit 10(o) to the
1996 Form 10-K.
(p) -- Split-Dollar Agreement dated October 23, 1996 between the Company
and Raul Alvarez.
(q) -- Split-Dollar Agreement dated October 21, 1996 between the Company
and Susan A. Batcha.
(r) -- Split-Dollar Agreement dated October 17, 1996 between the Company
and Thomas H. Frame.
(s) -- Split-Dollar Agreement dated October 17, 1996 between the Company
and Marilyn K. Moulds.
(t) -- Incentive Stock Option Plan of the Company. Incorporated by
reference to the Company's Proxy Statement dated June 25, 1987,
Exhibit A.
<PAGE>
EXHIBIT
NUMBER
- -------
(u) -- 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.
(v) -- 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.
(w) -- 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.
(x) -- 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.
(y) -- Patent License Agreement effective May 12, 1997 between the Company
and Pasteur Sanofi Diagnostics.
(z) -- 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.
(aa) -- 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.
(bb) -- 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.
(cc) -- Amended and Restated Severance Agreement dated February 19, 1996
between Betty F. Hatcher and the Company. Incorporated by reference
to Exhibit 10(y) to the 1996 Form 10-K.
(dd) -- Amended and Restated Severance Agreement dated February 19, 1996
between John J. Moulds and the Company. Incorporated by reference to
Exhibit 10(z) to the 1996 Form 10-K.
(ee) -- Amended and Restated Severance Agreement dated February 19, 1996
between David E. Hatcher and the Company. Incorporated by reference
to Exhibit 10(aa) to the 1996 Form 10-K.
(ff) -- Amended and Restated Severance Agreement dated February 19, 1996
between Margaret J. O'Bannion and the Company. Incorporated by
reference to Exhibit 10(bb) to the 1996 Form 10-K.
<PAGE>
EXHIBIT
NUMBER
- -------
(gg) -- Amended and Restated Severance Agreement dated February 19, 1996
between Jimmie L. Turner and the Company. Incorporated by reference
to Exhibit 10(cc) to the 1996 Form 10-K.
(hh) -- Severance Agreement dated December 19, 1995 between Gary L. Parrish
and the Company. Incorporated by reference to Exhibit 10(dd) to the
1996 Form 10-K.
(ii) -- Severance Agreement dated August 12, 1996 between Raul F. Alvarez
and the Company.
(jj) -- Severance Agreement dated August 12, 1996 between Susan A. Batcha
and the Company.
(kk) -- Severance Agreement dated August 12, 1996 between Thomas H. Frame
and the Company.
(ll) -- Severance Agreement dated August 12, 1996 between Marilyn K. Moulds
and the Company.
11 -- Statement Regarding Computation of per Share Earnings. Incorporated
by reference to the Company's Statements of Consolidated Income for
the years ended March 31, 1997, 1996 and 1995 on page 19 of the
Company's Annual Report to Shareholders for the year ended March 31,
1997 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, 1997.
13 -- The Company's Annual Report to Shareholders for the year ended
March 31, 1997.
21 -- Subsidiaries of the Company.
23 -- Consent of Deloitte & Touche LLP.
27 -- Financial Data Schedule.
<PAGE>
EXHIBIT 10(p)
SPLIT DOLLAR AGREEMENT
Agreement made the 23rd day of October, 1996, by and between Gamma
Biologicals, Inc. and Raul F. Alvarez.
WHEREAS, Raul F. Alvarez (hereinafter sometimes called "Alvarez")
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 9 890 347) in the face amount of $500,000 (hereinafter called
"the Policy");
WHEREAS, Raul F. Alvarez 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 Alvarez.
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 Raul F. Alvarez 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,
Alvarez 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 Alvarez 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 Alvarez
pursuant to the preceding sentence.
Article 6.
Alvarez 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 Alvarez 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 Alvarez, 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
Alvarez, in which case all interest charges with respect to any such policy
loans shall be paid by Alvarez, 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 Raul F. Alvarez, 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
Alvarez, transfer, assign or terminate the Policy.
Article 10.
A. Upon the death of Raul F. Alvarez, 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 Raul F. Alvarez, 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 premium payments pursuant to Article 5 of this Agreement, plus the
aggregate amount of any interest charges in respect of any policy loans to
Alvarez 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 Alvarez 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 Raul F. Alvarez occurs, plus the aggregate amount of interest payments
made by the Corporation in respect of any policy loans to Alvarez, plus interest
on each net premium payment and interest payment made by the Corporation in
respect of any policy loan to Alvarez calculated at the rate of 3% per annum.
The receipt of this amount by the Corporation shall constitute satisfaction of
this obligation of Alvarez under Article 6 of this Agreement.
C. Upon the death of Raul F. Alvarez, 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 Alvarez to the Corporation; (c) bankruptcy, receivership or
dissolution of the Corporation; (d) upon the election of aggrieved party if
either the Corporation or Alvarez 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
Alvarez
<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 Alvarez 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 Alvarez.
Article 12.
If this Agreement is terminated under paragraph (a), (b), (c), or (d) of
Article 11, Alvarez 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 Alvarez 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 Alvarez does not exercise his option to acquire the Policy,
ownership of the Policy by the Corporation shall constitute satisfaction of the
obligation of Alvarez 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 Alvarez. 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/ Raul F. Alvarez
-------------------------------
Raul F. Alvarez
Gamma Biologicals, Inc.
By: /s/ Margaret J. O'Bannion
----------------------------
Margaret J. O'Bannion
Vice President - Finance
<PAGE>
EXHIBIT 10(q)
SPLIT DOLLAR AGREEMENT
Agreement made the 21st day of October, 1996, by and between Gamma
Biologicals, Inc. and Susan A. Batcha.
WHEREAS, Susan A. Batcha (hereinafter sometimes called "Batcha") previously
assigned to Gamma Biologicals, Inc. (hereinafter called "the Corporation")
without consideration her entire interest in the insurance policy on her own
life issued by the Massachusetts Mutual Life Insurance Company (Policy Number 9
890 472) in the face amount of $500,000 (hereinafter called "the Policy");
WHEREAS, Susan A. Batcha is a valued employee and/or director of the
Corporation, which wishes to retain the benefit of her 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 the 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 the Agreement, as well as the right to
elect the settlement option with respect to such portion of such proceeds, shall
remain with Batcha.
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 Susan A. Batcha 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,
Batcha 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 Batcha under the terms of the Agreement. For
purposes of the Agreement, the term "net premium payment" means such part of
each gross premium which is not reimbursable to the Corporation by Batcha
pursuant to the preceding sentence.
Article 6.
Batcha shall be obligated to repay the Corporation the amount of the
aggregate net premium payments under Article 5 of the Agreement, plus interest
on each net premium payment calculated at the rate of 3% per annum. The
obligation of Batcha to the Corporation shall be payable as provided in Articles
10, 11(e) and 12 of the Agreement.
Article 7.
The Corporation may add a rider to the Policy for its own benefit. Upon
written request made by Batcha, the Corporation may add a rider to the Policy
for her 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
Batcha, in which case all interest charges with respect to any such policy loans
shall be paid by Batcha, 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 Susan A. Batcha, 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 the
Agreement remains in force and effect it will not, without the consent of
Batcha, transfer, assign or terminate the Policy.
Article 10.
A. Upon the death of Susan A. Batcha, 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 Susan A. Batcha, 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 premium payments pursuant to Article 5 of the Agreement, plus the aggregate
amount of any interest charges in respect of any policy loans to Batcha 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
Batcha 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
Susan A. Batcha occurs, plus the aggregate amount of interest payments made by
the Corporation in respect of any policy loans to Batcha, plus interest on each
net premium payment and interest payment made by the Corporation in respect of
any policy loan to Batcha calculated at the rate of 3% per annum. The receipt
of the amount by the Corporation shall constitute satisfaction of the obligation
of Batcha under Article 6 of the Agreement.
C. Upon the death of Susan A. Batcha, the beneficiary or beneficiaries
named in accordance with the provisions of Article 3 of the 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 the
Article.
Article 11.
The 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 Batcha to the Corporation; (c) bankruptcy, receivership or
dissolution of the Corporation; (d) upon the election of aggrieved party if
either the Corporation or Batcha fails for any reason to make the payment or
reimbursement required by Article 5 of the Agreement toward payment of any
premium due on the Policy, provided that any election to terminate the Agreement
under the clause must be made within 90 days after the failure to make the
required payment or reimbursement occurs; (e) repayment in full by Batcha
<PAGE>
of the aggregate net premium payments made by the Corporation under Article 5 of
the Agreement and the aggregate interest payments made by the Corporation in
respect of any policy loans to Batcha under Article 8 of the 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 Batcha.
Article 12.
If the Agreement is terminated under paragraph (a), (b), (c), or (d) of
Article 11, Batcha 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 the Agreement, plus the amount of the
aggregate interest payments made by the Corporation in respect of any policy
loans to Batcha under Article 8 of the 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 Batcha does not exercise her option to acquire the Policy,
ownership of the Policy by the Corporation shall constitute satisfaction of the
obligation of Batcha to the Corporation under Article 6 of the Agreement.
Article 13.
The Agreement shall not be modified or amended except by a writing signed
by the Corporation and by Batcha. The Agreement shall be binding upon the
heirs, administrators or executors and the successors and assigns of each party
to the Agreement.
Article 14.
The 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 the Agreement at
Houston, Texas.
/s/ Susan A. Batcha
------------------------------
Susan A. Batcha
Gamma Biologicals, Inc.
By: /s/ Margaret J. O'Bannion
---------------------------
Margaret J. O'Bannion
Vice President - Finance
<PAGE>
EXHIBIT 10(r)
SPLIT DOLLAR AGREEMENT
Agreement made the 17th day of October, 1996, by and between Gamma
Biologicals, Inc. and Thomas H. Frame.
WHEREAS, Thomas H. Frame (hereinafter sometimes called "Frame") 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
890 434) in the face amount of $500,000 (hereinafter called "the Policy");
WHEREAS, Thomas H. Frame 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 Frame.
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 Thomas H. Frame 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,
Frame 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 Frame 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 Frame pursuant to the
preceding sentence.
Article 6.
Frame 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 Frame 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 Frame, 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
Frame, in which case all interest charges with respect to any such policy loans
shall be paid by Frame, 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 Thomas H. Frame, 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 Frame,
transfer, assign or terminate the Policy.
Article 10.
A. Upon the death of Thomas H. Frame, 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 Thomas H. Frame, 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 premium payments pursuant to Article 5 of this Agreement, plus the
aggregate amount of any interest charges in respect of any policy loans to Frame
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 Frame
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 Thomas H. Frame
occurs, plus the aggregate amount of interest payments made by the Corporation
in respect of any policy loans to Frame, plus interest on each net premium
payment and interest payment made by the Corporation in respect of any policy
loan to Frame calculated at the rate of 3% per annum. The receipt of this
amount by the Corporation shall constitute satisfaction of this obligation of
Frame under Article 6 of this Agreement.
C. Upon the death of Thomas H. Frame, 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 Frame to the Corporation; (c) bankruptcy, receivership or dissolution
of the Corporation; (d) upon the election of aggrieved party if either the
Corporation or Frame 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 Frame
<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 Frame 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 Frame.
Article 12.
If this Agreement is terminated under paragraph (a), (b), (c), or (d) of
Article 11, Frame 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 Frame 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 Frame does not exercise his option to acquire the Policy,
ownership of the Policy by the Corporation shall constitute satisfaction of the
obligation of Frame 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 Frame. 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/ Thomas H. Frame
------------------------------
Thomas H. Frame
Gamma Biologicals, Inc.
By: /s/ Margaret J. O'Bannion
---------------------------
Margaret J. O'Bannion
Vice President - Finance
<PAGE>
EXHIBIT 10(s)
SPLIT DOLLAR AGREEMENT
Agreement made the 17th day of October, 1996, by and between Gamma
Biologicals, Inc. and Marilyn K. Moulds.
WHEREAS, Marilyn K. Moulds (hereinafter sometimes called "Moulds")
previously assigned to Gamma Biologicals, Inc. (hereinafter called "the
Corporation") without consideration her entire interest in the insurance policy
on her own life issued by the Massachusetts Mutual Life Insurance Company
(Policy Number 9 890 387) in the face amount of $500,000 (hereinafter called
"the Policy");
WHEREAS, Marilyn K. Moulds is a valued employee and/or director of the
Corporation, which wishes to retain the benefit of her 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 the 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 the Agreement, as well as the right to
elect the settlement option with respect to such portion of such proceeds, shall
remain with Moulds.
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 Marilyn K. Moulds 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,
Moulds 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 Moulds under the terms of the Agreement. For
purposes of the Agreement, the term "net premium payment" means such part of
each gross premium which is not reimbursable to the Corporation by Moulds
pursuant to the preceding sentence.
Article 6.
Moulds shall be obligated to repay the Corporation the amount of the
aggregate net premium payments under Article 5 of the Agreement, plus interest
on each net premium payment calculated at the rate of 3% per annum. The
obligation of Moulds to the Corporation shall be payable as provided in Articles
10, 11(e) and 12 of the Agreement.
Article 7.
The Corporation may add a rider to the Policy for its own benefit. Upon
written request made by Moulds, the Corporation may add a rider to the Policy
for her 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
Moulds, in which case all interest charges with respect to any such policy loans
shall be paid by Moulds, 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 Marilyn K. Moulds, 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 the
Agreement remains in force and effect it will not, without the consent of
Moulds, transfer, assign or terminate the Policy.
Article 10.
A. Upon the death of Marilyn K. Moulds, 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 Marilyn K. Moulds, 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 premium payments pursuant to Article 5 of the Agreement, plus the
aggregate amount of any interest charges in respect of any policy loans to
Moulds 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 Moulds 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 Marilyn K. Moulds occurs, plus the aggregate amount of interest
payments made by the Corporation in respect of any policy loans to Moulds, plus
interest on each net premium payment and interest payment made by the
Corporation in respect of any policy loan to Moulds calculated at the rate of 3%
per annum. The receipt of the amount by the Corporation shall constitute
satisfaction of the obligation of Moulds under Article 6 of the Agreement.
C. Upon the death of Marilyn K. Moulds, the beneficiary or beneficiaries
named in accordance with the provisions of Article 3 of the 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 the
Article.
Article 11.
The 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 Moulds to the Corporation; (c) bankruptcy, receivership or
dissolution of the Corporation; (d) upon the election of aggrieved party if
either the Corporation or Moulds fails for any reason to make the payment or
reimbursement required by Article 5 of the Agreement toward payment of any
premium due on the Policy, provided that any election to terminate the Agreement
under the clause must be made within 90 days after the failure to make the
required payment or reimbursement occurs; (e) repayment in full by Moulds
<PAGE>
of the aggregate net premium payments made by the Corporation under Article 5 of
the Agreement and the aggregate interest payments made by the Corporation in
respect of any policy loans to Moulds under Article 8 of the 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 Moulds.
Article 12.
If the Agreement is terminated under paragraph (a), (b), (c), or (d) of
Article 11, Moulds 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 the Agreement, plus the amount of the
aggregate interest payments made by the Corporation in respect of any policy
loans to Moulds under Article 8 of the 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 Moulds does not exercise her option to acquire the Policy,
ownership of the Policy by the Corporation shall constitute satisfaction of the
obligation of Moulds to the Corporation under Article 6 of the Agreement.
Article 13.
The Agreement shall not be modified or amended except by a writing signed
by the Corporation and by Moulds. The Agreement shall be binding upon the
heirs, administrators or executors and the successors and assigns of each party
to the Agreement.
Article 14.
The 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 the Agreement at
Houston, Texas.
/s/ Marilyn K. Moulds
------------------------------
Marilyn K. Moulds
Gamma Biologicals, Inc.
By: /s/ Margaret J. O'Bannion
------------------------------
Margaret J. O'Bannion
Vice President - Finance
<PAGE>
EXHIBIT 10(y)
LICENSE AGREEMENT
This License Agreement (the "Agreement") is entered into and made effective
this 12th day of May 1997, by and between:
GAMMA BIOLOGICALS INC., a company organized under the laws of USA, with a
principal place of business at 3700 Mangum Road, Houston, Texas, USA
(hereinafter referred to as "Licensee"), on the one hand, and PASTEUR SANOFI
DIAGNOSTICS, a company organized under the laws of France, with a principal
place of business at 3, boulevard Raymond Poincare, 92430 Marnes-la-Coquette,
France (hereinafter referred to as "Licensor"), on the other hand.
WITNESSETH:
WHEREAS, Licensor is the owner of patent FR 92.12605 and patent application
EP 594506 which are presently in force or pending in each of the countries
listed in Exhibit A relating to immuno-diagnostic methods using affinity matrix,
useful for detecting natural erythrocyte antigens;
WHEREAS, Licensee desires to acquire a non-exclusive license under the
Licensed Patents and Licensed Patent Applications for the purpose of making,
having made for its own use and sale, using and selling the Licensed Products as
hereinafter defined;
CONSEQUENTLY, THE PARTIES HAVE AGREED AS FOLLOWS:
1. DEFINITIONS
1.1 "Affiliate" shall mean:
(a) an organization of which 50% (fifty percent) or more of the voting
stock is controlled or owned directly or indirectly by either party to this
Agreement;
(b) an organization which directly or indirectly owns or controls 50%
(fifty percent) or more of the voting stock of either party to this Agreement;
(c) an organization, the majority ownership of which is directly or
indirectly common to the majority ownership of either party to this Agreement;
and
(d) an organization under (a), (b), or (c) above in which the amount of
said ownership is less than 50% (fifty percent) and that amount is the maximum
amount permitted pursuant to the law governing the ownership of said
organization.
1.2 "Licensed Patents" shall mean the claims of Licensor's patent FR 92.12605
and any granted patent claiming priority of EP 594506 and any divisions or
reissues thereof.
1.3 "Licensed Patent Applications" shall mean patent applications claiming
priority of EP 594506 which are pending.
1
<PAGE>
1.4 "Licensed Product(s)" shall mean any product for in-vitro diagnostics in
immunohematology field which would infringe a Valid Claim of the Licensed
Patents and/or Licensed Patent Applications and which is made, kept, imported,
exported, practiced, used or sold by Licensee or its Affiliates.
1.5 "Net Sales" shall mean the amount invoiced to third party (other than
Affiliates) in sales by Licensee or its Affiliates of the Licensed Products less
6% (six percent) representing the following:
(a) Discounts and allowances actually taken in amounts customary in the trade.
(b) Sales, customs duties and similar governmental charges directly imposed
against gross sales and actually paid by the selling party.
(e) Transportation and insurance charges separately set forth on the invoice
for shipping.
(d) Credits or price reductions for claims, allowances, recalls or returns or
for spoiled, damaged or outdated goods.
(e) Such portion of the gross amount invoiced for the Licensed Products which
is provided as free samples for customer evaluation in the proportion of 2% (two
percent) of the total quantity of Licensed Products delivered for commercial use
by Licensee.
1.6 "Territory" shall mean the countries listed in Exhibit A in which Licensed
Patents or Licensed Patent Applications are pending or in force at the time
sale of a Licensed Product is made.
1.7 "Valid Claim" shall mean a subsisting claim in any unexpired Licensed
Patents and/or Licensed Patent Applications which has not been held unpatentable
or invalid by a non-appealed or unappealable decision by a court or other
appropriate body of competent jurisdiction. The scope of a Valid Claim shall be
limited to its terms as defined by any such court or decision-making body of
competent jurisdiction.
2.0 GRANT
Licensor hereby grants to Licensee within the Territory a non-exclusive
license, without the right to sublicense, under the Licensed Patents and
Licensed Patent Applications to make, have made, use and sell Licensed Products.
Licensee shall have the right to extend such license to its Affiliates provided
that Licensee shall remain responsible as regards all obligations placed upon
him on the basis of this Agreement. Licensee or its Affiliates has the right to
sell Licensed Products through distributors only under Licensee's trademarks or
labeling.
2
<PAGE>
3.0 TERM
This Agreement shall become effective as of the execution date hereof and
shall continue in effect until the expiration of the last to expire of the
Licensed Patents, unless it is terminated in the conditions described in
Article 11.
4.0 PAYMENT
4.1 In consideration for the license herein granted, Licensee undertakes to pay
Licensor a non-refundable amount of USD 200,000 (two hundred thousand U.S.
dollars) on the execution date.
4.2 During the term of this Agreement as set forth in Article 3 hereabove and
in consideration for the license herein granted, Licensee shall pay to Licensor,
in accordance with Section 5.1:
(i) in consideration for the Licensed Patents and Patent Applications, a
royalty fee of 12% (twelve per cent) of all Net Sales of the Licensed Products
in the Territory with a minimum royalty amount of USD 0.20 (twenty cents) per
six-well strip or a minimum royalty amount of USD 0.265 (26.5 cents) per eight
well strip.
4.3 All payments shall be made hereunder in U.S. Dollars.
4.4 In the event the royalties set forth herein are higher than the maximum
royalties permitted by the law or regulations of a particular country, the
royalty payable for sales in such country shall be equal to the maximum
permitted royalty under such law or regulations.
4.5 In the event that any taxes, withholding or otherwise, are levied by any
taxing authority in connection with accrual of payment of any royalties payable
to Licensor under this Agreement, Licensee shall have the right to pay such
taxes to the local tax authorities on behalf of Licensor and the payment to
Licensor of the net amount due after reduction by the amount of such taxes,
shall fully satisfy Licensee's royalty obligations under this Agreement.
5.0 REPORTS AND RECORDS
5.1 Licensee shall furnish to Licensor, within 2 (two) months following the
last day of each calendar quarter in each year during the term of this
Agreement, a report in writing identifying the number of Licensed Products sold
and the Net Sales during the preceding calendar quarter by Licensee, and/or its
Affiliates, or Licensed Products sold hereunder and the amount of the payment,
if any, due thereon. Each such report shall be accompanied by payment in full
of the amount due to Licensor in U.S. Dollars calculated in accordance with
Section 4.2 hereof.
5.2 For a period of 3 (three) years from the date of each report pursuant to
Paragraph 5.1, Licensee shall keep records for itself and its Affiliates
adequate to verify each such report and accompanying payment made to Licensor
under this Agreement, and an Independent Certified Public Accountant or
Accounting Firm selected by Licensor and acceptable to Licensee may
3
<PAGE>
have access, on reasonable notice during regular business hours, not to exceed
once per year, to such records to verify such reports and payments. Such
Accountant or Accounting Firm shall not disclose to Licensor any information
other than that information relating solely to the accuracy of, or necessity
for, the reports and payments made hereunder. In the event any such audit
results in a change upward in any royalty payment of as much as 5% (five
percent) for any annual period, Licensee shall pay the costs of such audit,
otherwise such audit shall be at Licensor's expense.
6.0 MARKING
Licensee may mark all Licensed Products as permitted or required by law
with an appropriate notice of the Licensed Patents and/or Licensed Patent
Applications under which such Licensed Products or their use are encompassed.
Licensee will not use Pasteur Sanofi Diagnostics' or its affiliate, Sanofi
Diagnostics Pasteur's name or trademark or copyright relating to the Licensed
Products.
7.0 CONFIDENTIAL INFORMATION AND NOTIFICATION TO THIRD PARTIES
From time to time during the term of this Agreement, Licensor and Licensee
may provide to each other information concerning Licensed Patents and/or
Licensed Patent Applications, the existence of this Agreement and the terms and
conditions hereof and other confidential or proprietary information related to
this Agreement (the "Information").
Each party receiving such information (the "Receiving Party") shall during
the Term of this Agreement and for a period of 3 (three) years after termination
hereof-.
(i) maintain the information in confidence,
(ii) not disclose the information or any portion or copy of it to any
purpose not directly related to performance of its obligations under this
Agreement.
The obligations of this Article shall not apply to any information which is
or which becomes generally known to the public by publication or by means other
than a breach of a duty by the Receiving Party; or which otherwise becomes
available to the Receiving Party prior to disclosure to the Receiving Party, or
independent of any disclosure to the Receiving Party.
The Receiving Party shall disclose the information only to those officers,
employees and agents bound by similar terms of confidentiality to those imposed
on the Receiving Party hereunder.
Upon termination of this Agreement for any reason, the Receiving Party
shall return all information and copies thereof, provided that the Receiving
Party may retain one copy thereof in department files solely for evidentiary and
regulatory purposes.
4
<PAGE>
8.0 MOST FAVORED TERMS
Licensor will advise Licensee as to those terms which are strictly more
favorable in other future agreements. Licensee shall, at its election, be
entitled, upon written notice to Licensor, to have this Agreement amended to
substitute all terms of such more favorable license for all terms of this
Agreement effective retroactively as of the date of the more favorable license.
9.0 ASSIGNMENT AND DEVOLUTION
9.1 Either Licensor or Licensee may, at its sole discretion, assign this
Agreement or transfer all of its rights under this Agreement to any Affiliate,
or designate and cause any Affiliate to have the benefit of all of its rights
hereunder. In the event of any such assignment, transfer or designation, the
assignee, transferee or designee Affiliate shall agree in writing (with a copy
to Licensor or Licensee as the case may be) to be bound by all of the provisions
of this Agreement, and such Affiliate's performance under this Agreement shall
be guaranteed by Licensor or Licensee (as the case may be).
9.2 This Agreement shall extend to and be binding upon the successors, legal
representatives and permitted assigns of Licensor and Licensee.
10.0 NOTICES, PAYMENTS AND COMMUNICATIONS
Any notice, payment, report or other communication (hereinafter collectively
referred to as "correspondence") required or permitted to be given hereunder
shall be mailed by certified mail or delivered by hand to the party to whom such
correspondence is required or permitted to be given hereunder. If mailed, any
such notice shall be deemed to have been given when mailed as evidenced by the
postmark at point of mailing. If delivered by hand, any such correspondence
shall be deemed to have been given when received by the party to whom such
correspondence is given, as evidenced by written and dated receipt of the
receiving party.
All correspondence to Licensee shall be addressed as follows:
GAMMA BIOLOGICALS, INC.
3700 Mangum Road
Houston, Texas, USA
Attention:
All correspondence to Licensor shall be addressed as follows:
PASTEUR SANOFI DIAGNOSTICS
3, boulevard Raymond Poincare
92430 Marnes-la-Coquette, France
Attention:
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Either party may change the address to which correspondence to it is to be
addressed by as provided for herein.
11.0 TERMINATION
11.1 Either Licensor or Licensee shall have the right to terminate this
Agreement (i) immediately, on notice, if the other party enters into liquidation
or winding up, becomes insolvent, applies for a preventive or suspensive
agreement with creditors, applies for bankruptcy, or has entered against it a
decree of bankruptcy, (ii) if the other party commits a material breach of an
obligation under this Agreement and continues in default for more than 60
(sixty) days after receiving written notice of such default, such termination to
be effective upon further written notice to the defaulting party after failure
by the latter to cure such default.
11.2 Upon Termination of such Agreement, Licensee may (i) complete any Licensed
Products in the process of manufacture at the time of such Termination, (ii)
sell off or otherwise dispose of all such Licensed Products in inventory at the
time of such Termination or completed in accordance with (i) above, provided
however that any such sale or disposal shall be subject to royalties under
Article 4.2(i) and royalty report under Article 5 unless such Agreement was so
terminated due to Licensor breach.
12. WARRANTY
12.1 Licensor represents and warrants to Licensee that it has and will have the
full right and power to grant license to Licensee as set forth in this Agreement
and that as of the execution date of this agreement that Licensor owns no other
patents or patent applications necessary for Gamma to import, make, use, sell,
or offer for sale the Gamma ReACT immunodiagnostic test described in Exhibit B.
12.2 Except as specifically set forth in paragraph 12.1 herein, Licensor makes
no representation or warranties, either express or implied, arising by law or
otherwise, including, but not limited to, implied warranties of merchantability
or fitness for a particular purpose. In no event will Licensor have any
obligation or liability arising from tort or for loss of revenue or profit or
for incidental or consequential damages.
In particular, with no limitation nothing in this Agreement will be construed
as:
(i) A warranty or representation by Licensor as to the validity or scope
of any of the Licensed Patents and/or Licensed Applications;
(ii) A warranty or representation that anything made, used, sold or
otherwise disposed of under the license granted in this Agreement is or will be
free from infringement of patents of third parties; or
(iii) Conferring the right to use in advertising, publicity or otherwise
any trademark,
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trade name, or any contraction, abbreviation, simulation or adaptation thereof,
of Licensor.
12.3 As Licensee shall be fully responsible for the manufacture and sale of the
Licensed Products in the Territory, Licensor disclaims any and all liability or
responsibility for any damages, claims, injuries, or losses that might result
from the manufacture and sale of the Licensed Products in the Territory.
Licensee agrees to indemnify and hold Licensor harmless from and against any and
all losses, responsibilities, injuries or damages arising from the sale of the
Licensed Products in the Territory.
13.0 APPLICABLE LAW AND JURISDICTION
13.1 This Agreement shall be interpreted by and construed according to the
substantive laws of France.
13.2 The Parties shall endeavor to resolve amicably any dispute arising from or
in relation to this Agreement. If one party notifies the other in writing that
an attempt at settlement has failed, then any such controversy or claim shall be
finally settled by arbitration.
In such event, the rules of conciliation and arbitration of the
International Chamber of Commerce shall apply. The place of arbitration shall be
Paris and the substantive laws of France shall apply to this Agreement.
13.3 However, any question concerning the construction or effect of the
Licensed Patents and/or Licensed Patent Applications will be decided in
accordance with the laws of the country in which the Licensed Patents and /or
Licensed Patent Applications exist.
14.0 CAPTIONS
The captions and paragraph headings of this Agreement are solely for the
convenience of reference and shall not affect its interpretation.
15.0 FORCE MAJEURE
Neither party to this Agreement shall be liable for delay or failure in the
performance of any of its obligations hereunder if such delay or failure is due
to causes beyond its reasonable control, including, without limitation, acts of
God, fires, earthquakes, strikes, and labor disputes, acts of war, civil unrest
or intervention of any governmental authority, but any such delay or failure be
remedied by such party as soon as is reasonably possible.
16.0 SEVERABILITY
Should any part or provision of this Agreement be held unenforceable or in
conflict with the applicable laws or regulations of any jurisdiction, the
invalid or unenforceable part or provision shall be replaced with a provision
which accomplishes, to the extent possible, the
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original business purpose of such part or provision in a valid and enforceable
manner and the remainder of this Agreement shall remain binding upon the parties
hereto.
17.0 WAIVER
No failure or delay on the part of a party in exercising any right
hereunder will operate as a waiver of, or impair, any such right. No single or
partial exercise of any such right will preclude any other or further exercise
thereof or the exercise of any other right. No waiver of any such right will be
deemed a waiver of any other right hereunder.
18.0 SURVIVAL
18.1 The provisions of Sections 5, 7, 11 and 13 shall survive the termination
or expiration of this Agreement and shall remain in full force and effect.
18.2 The provisions of this Agreement which do not survive termination or
expiration hereof (as the case may be) shall, nonetheless, be controlling on and
shall be used in construing and interpreting, the rights and obligations of the
parties hereto with regard to any dispute, controversy or claim which may arise
under, out of, in connection with or relating to this Agreement.
19.0 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties hereto
respecting the subject matter hereof and supersedes and terminates all prior
agreements respecting the subject matter hereof, whether written or oral and may
be amended only by an instrument in writing executed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized to be effective
as of the execution date.
PASTEUR SANOFI DIAGNOSTICS GAMMA BIOLOGICALS, INC.
/s/ Christian Policard /s/ David E. Hatcher
Christian Policard David E. Hatcher
President director general Chairman, Chief Executive Officer
8
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EXHIBIT A
Switzerland
Germany
Great Britain
Liechtenstein
France
Italy
9
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EXHIBIT B
The Gamma ReACT technology comprises a microcolumn test procedure for the
detection of antibodies by means of a plastic strip comprising a series of
microcolumns filled with immunoreactive particles, e.g. Sepharose 4B and/or
Sephacryl 200, to which protein A and/or G have been covalently bound, suspended
in a viscous buffer solution.
In the ReACT antibody detection system, serum or plasma to be examined for
the presence of antibodies for a given antigen is incubated with red blood cells
possessing the antigen in the upper portion of a well in the microcolumn.
Incubation of the red cells causes the antibodies to become attached to the red
blood cells. A viscous barrier between the incubating test mixture and the
immunoreactive gel in the microcolumn prevents contact between the red cells or
antibodies and the immunoreactive gel particles during the incubation phase.
When the microcolumns are centrifuged, the red blood cells pass through the
viscous barrier. If the red blood cells are coated with the antibodies of
interest, they adhere to the protein A and/or G on the immunoreactive gel
particles. Strong positive reactions produce a band of red cells at the top of
the immunoreactive gel column. Positive reactions produce a band of red cells at
the top of the gel column and a button of red cells at the bottom. In the case
of a negative reaction, all the red blood cells form a button at the bottom of
the column.
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EXHIBIT 10(ii)
GAMMA BIOLOGICALS, INC.
Severance Agreement
-------------------
THIS SEVERANCE AGREEMENT (the "Agreement"), is entered into this 12th day of
August, 1996, between RAUL F. ALVAREZ ("Executive") and GAMMA BIOLOGICALS, INC.,
a Texas corporation (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:
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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.
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
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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.
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
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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
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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
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<PAGE>
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.
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.
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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.
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/ Raul F. Alvarez
----------------------------
Raul F. Alvarez, Executive
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EXHIBIT 10(jj)
GAMMA BIOLOGICALS, INC.
Severance Agreement
-------------------
THIS SEVERANCE AGREEMENT (the "Agreement"), is entered into this 12th day of
August, 1996, between SUSAN A. BATCHA ("Executive") and GAMMA BIOLOGICALS, INC.,
a Texas corporation (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
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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.
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 two 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
2
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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.
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
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Change of Control employed outside the Metropolitan Houston 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 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
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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 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
5
<PAGE>
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.
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.
6
<PAGE>
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.
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/ Susan A. Batcha
----------------------------
Susan A. Batcha, Executive
7
<PAGE>
EXHIBIT 10(kk)
GAMMA BIOLOGICALS, INC.
Severance Agreement
-------------------
THIS SEVERANCE AGREEMENT (the "Agreement"), is entered into this 12th day of
August, 1996, between THOMAS H. FRAME ("Executive") and GAMMA BIOLOGICALS, INC.,
a Texas corporation (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
<PAGE>
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.
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
2
<PAGE>
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.
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
3
<PAGE>
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
4
<PAGE>
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
5
<PAGE>
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.
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.
6
<PAGE>
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.
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/ Thomas H. Frame
----------------------------
Thomas H. Frame, Executive
7
<PAGE>
EXHIBIT 10(ll)
GAMMA BIOLOGICALS, INC.
Severance Agreement
-------------------
THIS SEVERANCE AGREEMENT (the "Agreement"), is entered into this 12th day of
August, 1996, between MARILYN K. MOULDS ("Executive") and GAMMA BIOLOGICALS,
INC., a Texas corporation (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
<PAGE>
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.
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 two 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
2
<PAGE>
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.
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
3
<PAGE>
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
4
<PAGE>
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 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
5
<PAGE>
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.
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.
6
<PAGE>
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.
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/ Marilyn K. Moulds
----------------------------
Marilyn K. Moulds, Executive
7
<PAGE>
Gamma Biologicals 1997 Annual Report
After food and water, individuals seek shelter and safety, property and
belonging, work and recognition. All humanity is connected by this hierarchy.
The highest level is a person's "calling," the need to be and do that which he
was born to do.
bloed
[Photo of fence over rolling hills goes here.]
Flowing through miles of veins and arteries, blood transports oxygen and
nutrients throughout the body, carries away waste, and fights infection. At the
most basic level of need is blood.
<PAGE>
About this report
In this report, we have used the word "blood" in languages from some of the
countries Gamma serves. Whether Dutch (bloed), Czech (krev), Chinese (Chinese
character), Portuguese (sangue) or English, blood is universal.
Contents
11-year summary Inside front cover
Company profile 1
Shareholders' letter 2
International marketplace 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 31
Management's report 31
Quarterly financial data 32
Market for common equity 32
Corporate data Inside back cover
11-year Summary of Selected Financial Data
Year Ended March 31, 1997 1996
- -------------------------------------------------------------------
Financial
Net sales $17,555 $16,941
Operating income (loss) 1,576 899
Income (loss) before
extraordinary item 1,116 824
Net income (loss) 1,116 824
Working capital 10,167 10,299
Total assets 19,870 18,426
Long-term obligations 345 353
Shareholders' equity 17,665 16,852
Statistical
Operating margin 9.0% 5.3%
Return on net sales 6.4% 4.9%
Return on average equity 6.5% 4.9%
Current ratio 8.7 11.9
Per Share Amounts
Income (loss) before
extraordinary item $ .24 $ .18
Net income (loss) .24 .18
Dividends .10 .10
Book value 3.83 3.66
Weighted average common and
common equivalent shares outstanding 4,608 4,609
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991* 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$18,261 $17,213 $16,390 $16,942 $15,674 $19,257 $18,089 $18,385 $18,014
2,193 1,546 (966) 678 1,402 2,288 (2,631) 938 464
1,467 1,348 (904) 533 896 727 (3,510) (83) (451)
1,467 1,348 (904) 721 1,253 1,299 (3,510) (83) (451)
10,675 11,261 9,772 10,543 6,714 8,719 9,410 7,722 6,150
18,384 18,030 16,925 17,800 19,005 23,158 22,056 28,548 28,420
19 630 734 815 1,122 1,240 4,168 2,531 2,842
16,454 15,620 14,507 15,397 14,818 14,354 12,383 16,582 16,395
12.0% 9.0% (5.9)% 4.0% 8.9% 11.9% (14.5)% 5.1% 2.6%
8.0% 7.8% (5.5)% 4.3% 8.0% 6.7% (19.4)% (.5)% (2.5)%
9.1% 9.0% (6.0)% 4.8% 8.6% 9.7% (24.2)% (.5)% (2.8)%
7.5 8.3 6.8 7.6 3.2 2.2 2.7 1.8 1.7
$.32 $ .28 $ (.20) $ .12 $ .20 $ .17 $ (.77) $ (.02) $ (.10)
.32 .28 (.20) .16 .28 .29 (.77) (.02) (.10)
.10 .05
3.55 3.29 3.16 3.35 3.26 3.15 2.72 3.67 3.64
4,638 4,744 4,594 4,661 4,551 4,551 4,546 4,542 4,539
</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 collection 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:
Fue un gran ano! (It was a very good year!) - thanks to continued growth in
the overseas markets. For the fiscal year ended March 31, 1997, net income
increased approximately 35% to $1,116,000 (24 cents per share) on net sales of
$17,555,000. Approximately 30% of Gamma's net sales came from international
customers.
Highlights
The year's major events are detailed in Management's Discussion & Analysis (page
13). Here are the highlights:
. Acquired Gamma Biologicals, B.V., our distributor in the Netherlands. The
purchase strengthens our ability to service our European customer base and will
expedite the introduction and sale in other countries of products awaiting Food
and Drug Administration (FDA) approval in the United States. Founder Nico
Vreeswijk continues as general manager.
. Submitted a 510K application to the FDA for approval to market the ReACT(TM)
system, which provides quick antibody screening results and minimizes human
error. Widespread international acceptance could dramatically increase Gamma's
sales growth over the next several years. Meanwhile, we have received
authorization from the Dutch government, which will allow us to begin marketing
in Europe, and have shipped the first units to Argentina and the Czech Republic.
We will introduce ReACT at the European International Society of Blood
Transfusion Regional Congress in Germany this fall.
. Became exclusive distributor in North America and all U.S. territories and
protectorates of Genetic Testing Institute, Inc. (GTI) enzyme-linked
immunosorbant assay (ELISA) testing products on blood platelets. Revenues should
exceed $1 million in the first full year of the contract. We are negotiating to
expand the agreement to cover South American, Asian and European countries we
now service. Gamma Biologicals, B.V. negotiated a separate agreement to market
GTI platelet products in the Netherlands prior to being acquired by Gamma.
. Signed a cooperative agreement with the Shanghai Blood Center (SBC) to
manufacture and market Gamma reagent products through a 50/50 joint venture
called Shanghai Gamma Grouping Reagents Products Co. Ltd. (Shanghai Gamma).
Since China has no manufacturer dedicated to producing a complete line of blood
group typing reagents, we
2
<PAGE>
believe this offers Gamma a competitive advantage in entering the world's
largest market. The real impact of the joint venture won't be felt for three or
four years, but we expect to be profitable from the first year of operations. We
want to thank the SBC representatives who facilitated the agreement: Professor
ZHANG Qin Hui, SBC president and vice chairman, Chinese Association of Blood
Transfusion; ZHU Yong Ming, director, Administration Office; and LIU Da Zhuang,
head, Blood Group Reference Department.
[Five-year bar charts of net sales, sales foreign/domestic and net sales per
employee go here.]
Corporate changes
In management changes, Jimmie L. Turner, MT(ASCP)SBB, formerly vice president-
customer services, was named chief operating officer. His prior duties were
assumed by Gary L. Parrish as vice president-national sales & customer services.
John J. Moulds, MT(ASCP)SBB, formerly president and COO, was named chief science
officer.
Because Gamma has always prided itself on recognizing outstanding service among
its highly qualified staff, four department managers were promoted to vice
president: Raul Alvarez, vice president-international business; Susan (Sue)
Batcha, MT(ASCP)SBB, vice president-manufacturing; Thomas H. Frame, FIBMS, vice
president-research & development; and Marilyn Moulds, MT(ASCP)SBB, vice
president-consultation & education. We are particularly pleased that, at the
1996 American Association of Blood Banks annual meeting, Marilyn Moulds became
the fifth member of Gamma management to receive the Ivor Dunsford Award. Given
by one's peers, the award recognizes outstanding contributions to blood grouping
serology, transfusion and education.
3
<PAGE>
Board additions
In March, Richard H. Aster, MD, a hematologist, was appointed to the board. Dr.
Aster, chairman of GTI, is one of the world's leading authorities on blood
platelets, particularly the immune mechanisms that cause their destruction.
After 26 years, he retired as president and CEO of the Blood Center of
Southeastern Wisconsin. He remains senior investigator at the center's Blood
Research Institute and professor of medicine at Medical College of Wisconsin.
[Five-year bar charts of net income (loss) and net income (loss) per share go
here.]
H.H. (Will) Hardee was appointed a director in May. Will is a senior vice
president at Rauscher Pierce Refsnes, Inc., the largest regional securities firm
in the Southwest. With a partner, he manages more than $300 million in
investments. Will has been a valued adviser to the company since Gamma's initial
public offering in 1980.
We welcome both gentlemen and look forward to their contributions.
We regret to report that director R. Bruce LaBoon has decided not to stand for
re-election at the annual meeting in August. I want to thank Bruce for his
counsel, both to the company and to me personally, over the past 27 years.
Sincerely,
[Hatcher signature goes here.]
David E. Hatcher
Chairman, President & CEO
June 16, 1997
4
<PAGE>
Meeting Basic Needs in the International Marketplace
Years ago, Abraham Maslow identified a universal hierarchy of needs, from the
basic to the esoteric. Man's initial focus must be on the basics of life: water,
food and shelter. Only as a person meets his needs at one level can he be freed
to seek fulfillment at the next.
Most of us don't think about our blood as we climb the hierarchy. We don't feel
the red cells carrying oxygen to our brains and muscles. We rarely cheer on our
white cells as they battle infection. Yet all over the world, one person looks
for a place to live, while another donates blood. One person works to feed a
family, while another receives blood. At the most basic, physiologic level is
blood.
Gamma manufactures and sells in-vitro diagnostic reagents used to test the blood
of individuals in more than 50 different countries. These products are
restricted to specific uses and have no substitutes. With our testing reagents,
the blood of a couple in Chile having a child can be checked for inherited
factors, including the Rh factor. Because we make the products that ensure
compatibility between donor blood and recipient blood, a person facing surgery
in New Zealand can be assured of a safe transfusion.
In Japan or Jamaica, Norway or Nigeria, wherever one lives, there are dozens of
types of shelters, hundreds of foods to meet basic needs. But the variety in
"basic" blood is staggering: more than 400 distinct factors, including 19 blood
group systems, have been identified - most within the past 50 years. Our
scientific team has contributed to the detection and identification of more than
25 unique blood group factors. (Actually, blood cell antigens are so numerous
and the combinations in individuals so complex that most scientists believe that
the only two identical blood types would be those of identical twins!)
5
<PAGE>
Without water, the human body can neither survive nor function properly. For
centuries, Eastern and Western Europeans have visited spas to "take the waters,"
both drinking and bathing in the local mineral water.
krev
[Photo of people at European spa goes here.]
Early Europeans believed that blood was a mysterious potion or rejuvenating
tonic that could cure evil humors. Not until advances in the 1800s did medical
knowledge show that blood was basic to life itself.
6
<PAGE>
The United States is home base for Gamma Biologicals, one of four active,
domestic diagnostic manufacturers of blood grouping reagents licensed by the
Food and Drug Administration. At home, we use a direct sales force of men and
women who understand our products and our business. The majority are former
Gamma customers who have experience as laboratory technologists.
We sometimes speak of our competition as the other FDA-licensed manufacturers in
the United States. However, in the international marketplace, there are many
companies selling blood grouping reagents.
To compete, we have built an international network of dealers knowledgeable
about Gamma products, immunohematology, and, especially, their own countries and
cultures. Much of our growth has been in Central and South America, where each
country now has an exclusive Gamma distributor. We recently entered Eastern
Europe with a strong distributor in the Czech Republic. When necessary, we
change representation to distributors who better understand the specialized
reagents we manufacture.
We support our international network with promotional materials and educational
opportunities. For distributors, we offer seminars on marketing and selling
Gamma products. Gamma Biologicals, B.V. in the Netherlands will soon be
supplying such information to European distributors, who must now come to
Houston for training. Next year, our Consultation & Education Department will
conduct one tutorial entirely in Spanish. Customized programs are also planned
in the United States and Brazil for foreign customers.
In marketing to countries from Aruba to Zimbabwe, we have identified three
situations that offer particular opportunities for sales growth:
7
<PAGE>
1. Countries trying to develop more sophisticated blood banking services and
increase the number of donations
Many Central and South American countries fall in this category. They have
established blood banking systems and require continuing education for staff.
Increasingly, they request direction inserts, labels, documents and marketing
materials written in their own language(s) and produced to their own standards.
Except in Brazil and Argentina, there is little demand for automation in
immunohematology.
Among the more advanced South American countries in blood donation, Brazil has
the largest blood center in South America. The number of transfusions is
increasing very rapidly. Of greatest concern is the quality of reagent
production and the continuous education of the blood banking staffs. Colombia's
economy is growing, too, though moderately. Colombia, too, is working to
increase the knowledge and skill levels of technologists in its blood bank
network, which is being reorganized to use resources more efficiently.
Several Central and South American countries are beginning to seek the product
quality and consistency usually associated with U.S. regulatory standards. Their
governments are asking industry's assistance in drafting quality standards.
Gamma is helping by providing international customers with a certificate of
analysis on each product lot to match the quality requirements to FDA
regulations. Taking the initiative to consult the FDA, Colombia standardized the
tests required on each unit of blood donated or transfused. Formerly, each
hospital decided which tests to perform. Meanwhile, a commission in Guatemala is
trying to set standards for the Central American countries.
The market in Central America is not growing like that in South America, and
there are few diagnostic reagent manufacturers. Customers prefer to deal with
one primary supplier in a family-like relationship. Gamma and its distributors
in the region must invest considerable time in training and education.
8
<PAGE>
Throughout the Far East, rice provides the basic food of life. Whether grown in
a Chinese field or purchased in a Japanese market, rice, when shared, helps
fulfill needs of love and belonging for both host and guest.
Chinese character for blood
[Photo of people planting rice in a Chinese field goes here.]
In many Asian countries, "life is blood and blood is life." Perhaps because
their basic needs have been met, many donors believe that giving blood out of
goodheartedness is a noble deed.
9
<PAGE>
2. Countries concerned most with cost-containment and service
In the developed countries, our market is flat. Throughout Europe, countries
that have national health services are experiencing political pressure to do
more work with fewer funds. Newer surgery techniques require less blood. So even
with a growing patient base, the number of donations and transfusions remains
constant. At the same time, the worldwide trend to transfuse components rather
than whole blood increases the number of tests that must be performed. The
governments tend to regulate reagents, and the health services seek quality
products at competitive prices.
Gamma's advantage in this marketplace is monoclonal reagents, which are superior
in specificity and potency to human- and animal-based products. We own most of
the clones we use, eliminating dependence on outside suppliers and enabling us
to manufacture these high-quality reagents at competitive costs.
Customers trying to contain costs are particularly interested in Gamma's
Consultation & Education Department service to help identify rare blood types or
unusual factors. Free to hospital laboratories, physicians' offices and blood
collection facilities, the service uses our extensive knowledge and specialized
resources to solve customer's serological problems.
In the sophisticated Japanese blood banking system, cost is of lesser concern,
but customers require extensive attention and seek the highest quality and
service. Regulatory approval takes even longer than in the United States. Gamma
tailors selected reagent products for this market (and for Scandinavia and
Eastern Europe), where certain antigens differ from those generally found in the
U.S. population.
10
<PAGE>
After food and water, all peoples seek safety through some type of shelter. The
ancient Incas, indigenous to Peru, built stone villages linked by terraces and
stone paths. In modern-day Brazil, a similar concept is the apartment building,
connected by staircases and hallways.
sangue
[Photo of ancient Inca mountain village goes here.]
Group O, the most common in nearly all human populations, is the only blood
group among some native tribes of South America. Blood of every type contains a
defense mechanism to keep the body safe from infection.
11
<PAGE>
3. Countries trying to extend health services to their total population
Here, the number of both surgeries and transfusions is growing, and the need for
reagent diagnostic products increasing. A lack of suitable donors hampers some
growth, especially as countries that traditionally have paid donors retreat from
this practice.
Blood banking in the Peoples Republic of China, with its centralized blood
collection system, is changing as rapidly as the country itself. Government and
hospitals alike are raising the level and the quality of health care available
to the general population. China has nearly 30 million donations annually at its
approximately 250 major centers. While most facilities produce their own
reagents from human-source raw material, few products are manufactured using the
latest monoclonal technology. Shortages of raw material and the lack of
monoclonal-based reagents hamper testing, which is conducted both at the time of
donation and again before blood is actually transfused.
China's move to develop centralized manufacturing and to buy from commercial
suppliers drew Gamma to this market that is 2-1/2 times the size of the U.S.
market. Using our monoclonal manufacturing technology, we will supply Shanghai
Gamma first with bulk ready-to-use product, then with raw material and cell
lines in a technology transfer that will give us an advantage over potential
competitors.
The future for Gamma internationally is through joint ventures like Shanghai
Gamma. As we transform Gamma from a U.S.-based reagent manufacturer into a truly
global company, the joint venture concept will mitigate risks associated with
new ventures.
Whether customers are in Argentina or Yemen, Australia or Saudi Arabia, France
or Kenya, they can be assured that Gamma will continue to fulfill their basic
need for in-vitro diagnostic reagents that type and test blood.
12
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Net Income
Over the past three years, Gamma has made a sizable investment in infrastructure
to utilize recent developments in both information technology and biotechnology
to improve customer service and maximize internal manufacturing efficiencies.
Fiscal 1997 financial results reflect a payback on these investments with a 75%
increase in operating income to $1,576,255 and a 35% increase in net income to
$1,115,820, compared with $898,974 and $823,530, respectively, in 1996. In 1995,
operating income of $2,193,300 and net income of $1,466,519 benefited from
$707,000 in nonrecurring sales to another domestic reagent manufacturer.
Revenues
Revenues rose 4% to $17,554,502 after a 7% decline to $16,940,588 in 1996.
Increased sales volume of reagent red cell, RQC and potentiator products and one
third-party product offset the loss of $338,000 in revenues from mature, noncore
lines that are being phased out. Gamma Biologicals, B.V., our former distributor
in the Netherlands which we acquired September 30, 1996, also contributed
$262,000 to consolidated revenues. During the six months ended March 31, 1997,
Gamma Biologicals, B.V. sold directly to customers in the Netherlands and to
certain distributors in Europe and other areas.
Competition for customers in the company's established markets, particularly the
United States and Europe, remains strong, putting continued pressure on prices
and requiring rapid introduction of products utilizing the latest technology to
meet customer demands and maintain market share. Management believes that future
revenue growth will come from expanding into new or less established markets and
offering the most technologically advanced product line possible. Actions taken
over the last 12 months to accomplish these objectives include the following:
. In April 1997, a cooperative agreement was signed with the Shanghai Blood
Center (SBC) of Shanghai, P.R. China to market Gamma reagent products through a
50/50 joint venture named Shanghai Gamma Grouping Reagents Products Co. Ltd.
(Shanghai Gamma). On May 8, the project proposal and other required documents
were submitted to the Shanghai Public Health Bureau for approval. At present,
China has no manufacturer dedicated to producing a complete line of blood group
typing reagents. The China market for diagnostic blood banking reagents, with
approximately 30 million blood donations annually and growing, is 2-1/2 times
the size of the U.S. market of 12 million donations. Initially, Shanghai Gamma
is expected to import partially processed reagents from Gamma's Houston
manufacturing facility for in-house use and distribution throughout China. Upon
completion of government registration and approval, expected in Fall 1997, Gamma
will transfer technology and monoclonal cell lines to the new company. Gamma and
the SBC plan for Shanghai Gamma to become a fully integrated production and
marketing company. Certain rare reagents and specialty products may still be
shipped directly from Gamma for distribution in China.
. Effective March 13, 1997, Genetic Testing Institute, Inc. (GTI) appointed
Gamma the exclusive distributor of GTI enzyme-linked immunosorbant assay (ELISA)
testing products in North America and all U.S. territories and protectorates.
GTI manufactures certain sophisticated diagnostic products in conjunction with
organ transplantation and platelet transfusion and for the diagnosis of platelet
disorders. In the first full year of the initial three-year contract, Gamma
anticipates revenues in excess of $1 million. Negotiations are under way to
expand the agreement to include various South American, Asian and European
countries Gamma now services. Prior to being acquired by Gamma, Gamma
Biologicals, B.V. negotiated a separate agreement to market GTI platelet
products in the Netherlands.
13
<PAGE>
. In October 1996, a 510K application was submitted to the FDA for approval to
market ReACT(TM) (Red Cell Adherence Column Technology) in the United States.
ReACT is a state-of-the-art microcolumn gel technology designed for rapid and
labor-saving detection of red blood cell antibodies. ReACT's advantages over
conventional tube test procedures include prefilled strips, no washing (which
manual tests require), ease of use, stable and reproducible results, fast and
short centrifuge time (less than three minutes per test compared with up to 10
minutes for available methods), and clear differentiation between positive and
negative results. All domestic sales representatives have been issued a ReACT
system and are actively performing product demonstrations to ready the domestic
market for introduction following FDA licensure. An export market introduction
is also under way, with the first systems shipped to distributors in the Czech
Republic and Argentina in June 1997.
[Five-year bar charts of working capital, cash flows provided by operations and
shareholders' equity go here.]
. Since the May 1996 signing of the agreement with Olympus America Inc.,
Clinical Instruments Division to manufacture a custom line of monoclonal
reagents dedicated to the PK series of immunohematology analyzers, the first
reagents have been formulated and field studies completed. Applications for
licensure are now being prepared for submission to the FDA. Additional reagents
are being readied for field studies. The Olympus agreement is for an initial
term of three years following FDA approval, which is not expected until late
fiscal 1998. Gamma estimates sales of approximately $500,000 during the first
full year of the contract.
Domestic revenues remained constant compared with the previous year. Increased
sales of RQC products and the fulfillment of backorders of one third-party
product offset a decline of $235,000 in product lines that are being phased out.
The fourth quarter included $120,000 in RQC sales to another major U.S. reagent
manufacturer. The influence of purchasing groups maintains pressure on domestic
prices of routine products. Technologically advanced products, such as the GTI
ELISA tests, the Olympus reagents and ReACT, should not be subject to the same
price constraints and thus provide some relief from domestic price erosion.
Efforts over the past three years to expand our international distributor base
and standardize contracts are now showing a return on our investments.
International sales rose 12% and accounted for 30% of total sales in 1997,
compared with 28% in 1996 and 1995. Expanded representation in Latin America
produced a 27% increase in sales, led by Brazil, where sales grew 116% to
$375,000. The acquisition of Gamma Biologicals, B.V. increased our presence in
Europe and contributed $262,000 to revenues, primarily from sales to end-users
in the Netherlands. Gamma Biologicals, B.V. will begin direct sales efforts in
Belgium in fiscal 1998 and will also serve as a European distribution center. We
appointed a new distributor
14
<PAGE>
in Germany, where sales rose 159% to $102,000, and, following our successful
entrance into the Czech market, we plan further expansion in Eastern Europe in
fiscal 1998. In the Far East, we have appointed a new distributor in Taiwan and
anticipate marketing Gamma products in the People's Republic of China through
Shanghai Gamma, our joint venture with the Shanghai Blood Center, in early 1998.
The export market introduction of Gamma ReACT is also under way, with the first
systems shipped to distributors in the Czech Republic and Argentina in June
1997.
Revenue in 1996 declined 7% with the loss of $707,000 in sales to another major
U.S. reagent manufacturer to cover unanticipated inventory shortages between
September 1994 and February 1995 and lower export sales due to the
reorganization of the distributor network and currency volatility in Mexico and
Argentina.
Gross Margin
Return on investments in advanced technology was also realized at the gross
margin level in 1997. Gross margin as a percentage of sales rose to 55% after
holding constant at 54% in 1996. This 1% increase translates to over $200,000 in
margin. Over the past three years, we have invested more than $800,000 in
capital improvements and licensing fees to further our program of converting
primary reagent product lines to clone-based raw materials grown in-house.
Current year savings on the conversion of two rare reagents and a high-volume
ABO reagent amounted to nearly $120,000. This conversion will continue to
produce significant savings as we become less dependent on a limited number of
suppliers for raw material. Two formulations of a large-volume Rh blood grouping
reagent and one lower volume reagent using in-house material were licensed by
the FDA late in fiscal 1997. The cost savings on these products will have a
favorable impact on gross margin in fiscal 1998. In addition, the 1996 extension
of reagent red cell product shelf life resulted in reduced manufacturing lead
time and allowed for more efficient use of raw materials. Initial end-user sales
from Gamma Biologicals, B.V. also contributed to the margin increase. In January
1997, we began the process leading to ISO 9001 certification. More and more
customers and regulatory bodies are requesting and will soon require such
certification of suppliers; we anticipate certification within the next 12
months. In addition to attracting and retaining customers and complying with
governmental regulations, the investment in the certification process should
generate future savings through efficiencies achieved by enhancing our quality
system.
The margin remained at 54% in 1996 due to savings realized on raw materials
previously converted to in-house material as described above.
Selling Expenses
Selling expenses rose 7% in 1997 compared with 1996 due in large part to the
acquisition of Gamma Biologicals, B.V. Additionally, we incurred increased
expenditures for the annual American Association of Blood Banks (AABB) meeting,
where we presented the ReACT test system, and for travel and promotional
materials required to establish new international distributors. Selling expenses
decreased 2% in 1996 due to the reorganization of the international sales
function and the downsizing of the instrument service department, which reduced
costs by $164,000 in 1996.
General and Administrative Expenses
General and administrative expenses dipped 14% in 1997 after rising 7% in 1996.
In 1996 we incurred nonrecurring expenditures for legal fees related to patent
applications covering ReACT and biosensor technologies, as well as for travel
associated with the evaluation of potential sites outside the United States to
manufacture products awaiting FDA approval. Additionally, Gamma retained Vector
Securities International, Inc. as its financial adviser to assist the company in
identifying and reviewing strategic alternatives to enhance share-
15
<PAGE>
holder value. Fees and expenses related to this process were $21,000 in 1997 and
$63,000 in 1996. The contract expired without renewal in November 1996. General
and administrative expenses also decreased in 1997 with a reduction of the
allowance for doubtful accounts to reflect recent loss experience and the
reclassification of state income taxes.
Shipping and Warehouse Expenses
Shipping and warehouse expenses declined 13% in 1997 after they rose 16% in
1996. With full implementation of the new shipment processing system and product
bar coding, the processing of packages has been streamlined, enabling us to
ensure accurate handling of the more than 117,000 annual package volume while
minimizing staffing levels. We realized a payback on this investment in
infrastructure and technology of nearly $170,000 in 1997 from more accurate
weight and freight assessments. The increase in 1996 reflected additional supply
expense and increased depreciation expense for the first phase of the bar coding
system implemented in March 1995.
Research and Development Expenses
Research and development expenses increased 7% in 1997 after a 34% increase in
1996 due to costs associated with ReACT and Olympus reagent field studies, and
the addition of the Chief Science Officer to the research and development staff
at midyear. Funding for electro-biosensor research at the University of
Wollongong, Australia declined 34% to $151,000 in 1997 from $230,000 in 1996.
Because the project team has proven specificity of the test system, Gamma
granted funding for another six months of research amounting to $85,000, half of
which was funded in February 1997. The increase in 1996 was related to ReACT
product development costs and electro-biosensor research expenses.
Interest and Other Income
Interest income decreased 22% in 1997 after increasing 5% in 1996 due to a
reduction in the amount of funds invested and a change in the investment mix in
the current period. Interest expense declined 9% domestically due to normal debt
retirement but was offset by interest expense on debt carried by Gamma
Biologicals, B.V.
The other income decline in 1997 was related to the sale of a noncore product
technology in 1996 for $25,000.
Income Taxes
The provision for income taxes rose 96% due to a 52% increase in income, after
declining 56% in 1996, and to deferred taxes provided for temporary differences
between the book and tax basis of property additions.
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 sets forth guidance as to when to recognize an
impairment of long-lived assets, including goodwill, and how to measure such an
impairment. The company adopted SFAS No. 121 on April 1, 1996. The adoption of
SFAS No. 121 did not have a material effect on the company's results of
operations or financial position.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which 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.
The company adopted SFAS No. 123 on April 1, 1996. 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
16
<PAGE>
required by SFAS No. 123, we will provide pro forma disclosure of net income and
earnings per share, if significantly different from reported amounts, in the
notes to the consolidated financial statements as if the fair-value-based method
had been applied. The company did not grant any stock-based compensation
instruments in the period ended March 31, 1997.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." SFAS No.
128 establishes standards for computing and presenting earnings per share (EPS)
and applies to entities with publicly held common stock or potential common
stock. This statement simplifies the standards for computing EPS previously
found in Accounting Principles Board Opinion No. 15, "Earnings Per Share," and
makes them comparable to international EPS standards. This statement is
effective for financial statements issued for periods ending after
[Five-year bar charts of book value and total debt go here.]
December 15, 1997, including interim periods; earlier application is not
permitted. This statement requires restatement of all prior-period EPS data
presented. Considering the guidelines as prescribed by SFAS No. 128, management
believes that the adoption of this statement will not have a material effect on
EPS and thus pro forma EPS, as suggested for all interim and annual periods
prior to required adoption, have been omitted.
Liquidity and Capital Resources
Operating Activities
Net cash flows decreased $2,034,000 during the year ended March 31, 1997,
compared with an increase of $3,308,000 during 1996. Cash flows from operating
activities declined $105,000. Cash received from customers increased $462,000.
Despite a 12% increase in sales to international customers, which tend to have
longer payment terms, the number of days sales in receivables decreased to 73
days in 1997, after falling from 80 days to 74 days in 1996, due to diligent
collection efforts. This improvement in cash flow was offset by increased
investment in inventory, license fees paid and insurance deposits. Centrifuges
and incubators, as well as raw materials for the manufacture of disposable test
strips, were purchased in anticipation of the market introduction of ReACT, and
significant purchases were made to build an inventory of SegmentSamplers(TM), in
short supply at the end of fiscal 1996. Additional license fees of $63,000 were
paid for three new clones and for milestone fees due on products licensed in the
fourth quarter of 1997. Premium deposits of $83,000 were made at the end of 1997
relating to insurance coverage in fiscal 1998. In May 1997, we acquired a
nonexclusive license from the owner of a patent covering certain technology
utilized in the ReACT test strip. The license agreement calls for a one-time fee
of $200,000 upon execution and a 12% royalty on net sales of strips to customers
in the six European
17
<PAGE>
countries covered by the patent. Additionally, approximately $200,000 has been
committed for 100 additional ReACT centrifuges and incubators to be delivered in
the second and third quarters of fiscal 1998. In 1996, cash flows from
operations 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.
Investing Activities
Cash flows from investing activities decreased $1,965,000 in 1997 following an
improvement of $1,589,000 in 1996. Cash flows in 1996 benefited from the
maturation of $2,000,000 of short-term investments made in 1995. Completing
improvements to the shipping area and the computer system, and projects in
progress to relocate and streamline the packaging function and to double the
monoclonal laboratory capacity, kept capital expenditures at a higher than
normal level. The downswing in cash flow from investing activities was partially
offset by $143,000 acquired with Gamma Biologicals, B.V. The subsidiary
relocated its operations to a larger facility in the Amsterdam area and
purchased additional refrigeration equipment in the third quarter in
anticipation of expanded European distribution activities. In 1996, capital
expenditures were made for manufacturing modernization, the conversion of space
formerly occupied by the animal laboratory into a semiautomated shipping area,
the design of phase two of the bar coding/shipping system, and the computer
software system upgrade.
Financing Activities
Cash flows used in financing activities decreased $47,000 due to reduced long-
term debt payments with the termination of certain capital leases in October
1996. In June 1997, we placed an order for customized equipment to automate the
filling, sealing and labeling of ReACT test strips, with delivery scheduled for
November 1997. The estimated cost of this equipment is approximately $700,000;
the company has entered into a lease agreement to finance the equipment
purchase. The 1996 decrease in cash flows used in financing activities was due
primarily to the curtailment of open-market repurchases of stock.
Product Development
The company is currently reviewing proposals from medical equipment
manufacturers for the development of an upgraded version of the ReACT system.
The cost to develop such a system will depend on several factors, including the
level of automation and the number of enhanced features required for market
acceptance. Once a manufacturer is selected, the development process should take
between six and 12 months.
Future Needs
Management believes that operating cash flows will continue to meet the
company's operating needs for the future. Our existing capital resources,
consisting of approximately $3,700,000 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.
Costs of materials and services have remained relatively stable over the past
three years, with the exception of shipping supply increases in 1995 and 1996.
We do not expect operations to be influenced significantly by rising costs in
the foreseeable future.
Management's Discussion and Analysis of Financial Condition and Results of
Operations 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.
18
<PAGE>
<TABLE>
<CAPTION>
Statements of Consolidated Income
Year ended March 31, 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $17,554,502 $16,940,588 $18,261,288
Cost of sales 7,857,815 7,825,828 8,393,870
- -------------------------------------------------------------------------------------
Gross margin 9,696,687 9,114,760 9,867,418
- -------------------------------------------------------------------------------------
Operating expenses:
Selling 3,792,115 3,530,721 3,607,945
General and administrative 2,122,075 2,468,584 2,306,374
Shipping and warehouse 756,848 867,209 746,644
Research and development 1,449,394 1,349,272 1,013,155
- -------------------------------------------------------------------------------------
Total operating expenses 8,120,432 8,215,786 7,674,118
- -------------------------------------------------------------------------------------
Operating income 1,576,255 898,974 2,193,300
- -------------------------------------------------------------------------------------
Other income (expense):
Interest income 204,554 262,228 250,163
Interest expense (48,449) (48,350) (67,645)
Other income (expense) (9,623) 19,578 (213,099)
- -------------------------------------------------------------------------------------
Other income (expense) - net 146,482 233,456 (30,581)
- -------------------------------------------------------------------------------------
Income before income taxes 1,722,737 1,132,430 2,162,719
Income taxes 606,917 308,900 696,200
- -------------------------------------------------------------------------------------
Net income $ 1,115,820 $ 823,530 $ 1,466,519
- -------------------------------------------------------------------------------------
Weighted average number of common and
common equivalent shares outstanding 4,607,518 4,608,771 4,638,183
- -------------------------------------------------------------------------------------
Net income per common and
common equivalent share $.24 $.18 $.32
- -------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
19
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
March 31, 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,618,970 $ 3,724,379
Short-term investments 100,000 100,000
Receivables - net of allowance for doubtful
accounts: 1997, $105,505; 1996, $156,839 3,524,585 3,696,880
Inventories 3,658,642 3,240,360
Prepaid expenses 515,660 369,380
Deferred taxes 73,400 110,900
- -----------------------------------------------------------------------------------------
Total current assets 11,491,257 11,241,899
- -----------------------------------------------------------------------------------------
Property:
Land 284,147 284,147
Building and improvements 6,091,377 5,437,365
Machinery and equipment 5,261,132 4,573,877
Furniture and fixtures 599,056 567,581
- -----------------------------------------------------------------------------------------
Total 12,235,712 10,862,970
Less accumulated depreciation and amortization 6,241,338 5,684,907
- -----------------------------------------------------------------------------------------
Property - net 5,994,374 5,178,063
- -----------------------------------------------------------------------------------------
Cash value of life insurance 1,858,672 1,729,774
Excess of cost over net assets acquired - net 139,686
Other 385,538 275,964
- -----------------------------------------------------------------------------------------
Total assets $19,869,527 $18,425,700
- -----------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term obligations $ 127,761 $ 96,588
Accounts payable - trade 786,214 487,681
Dividends payable 115,077 113,796
Accrued salaries and other expenses 294,748 244,852
- -----------------------------------------------------------------------------------------
Total current liabilities 1,323,800 942,917
- -----------------------------------------------------------------------------------------
Long-term obligations 345,120 353,097
- -----------------------------------------------------------------------------------------
Deferred taxes 535,700 277,600
- -----------------------------------------------------------------------------------------
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: 1997, 4,762,615 shares;
1996, 4,711,365 shares 476,261 471,136
Capital in excess of par value 13,674,209 13,512,836
Retained earnings 4,644,801 3,988,022
Accumulated translation adjustments (10,456)
Treasury stock at cost: 1997 and 1996, 159,563
shares (1,119,908) (1,119,908)
- -----------------------------------------------------------------------------------------
Total shareholders' equity 17,664,907 16,852,086
- -----------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $19,869,527 $18,425,700
- -----------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Shareholders' Equity
Year ended March 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Common Stock
Balance, beginning of year 4,711,365 $ 471,136 4,700,303 $ 470,030 4,700,078 $ 470,008
Acquisition of wholly owned subsidiary 50,000 5,000
Exercise of stock options 1,250 125 11,062 1,106 225 22
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 4,762,615 476,261 4,711,365 471,136 4,700,303 470,030
- -----------------------------------------------------------------------------------------------------------------------------------
Capital in Excess of Par Value
Balance, beginning of year 13,512,836 13,482,615 13,481,763
Acquisition of wholly owned subsidiary 157,500
Exercise of stock options 3,873 30,221 852
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 13,674,209 13,512,836 13,482,615
- -----------------------------------------------------------------------------------------------------------------------------------
Retained Earnings
Balance, beginning of year 3,988,022 3,619,289 2,609,496
Net income 1,115,820 823,530 1,466,519
Dividends declared (459,041) (454,797) (456,726)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 4,644,801 3,988,022 3,619,289
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized Investment Gain (Loss)
Balance, beginning of year (87,683)
Current year unrealized gain (loss) 87,683
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year
- -----------------------------------------------------------------------------------------------------------------------------------
Translation Adjustments
Balance, beginning of year
Current year translation adjustments (10,456)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year (10,456)
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury Stock
Balance, beginning of year (159,563) (1,119,908) (159,169) (1,118,258) (99,952) (853,469)
Purchase of treasury stock (394) (1,650) (59,217) (264,789)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year (159,563) (1,119,908) (159,563) (1,119,908) (159,169) (1,118,258)
- -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,603,052 $17,664,907 4,551,802 $16,852,086 4,541,134 $16,453,676
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
21
<PAGE>
<TABLE>
<CAPTION>
Statements of Consolidated Cash Flows
Year ended March 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Cash received from customers $ 17,916,399 $ 17,454,501 $ 17,406,173
Interest received 204,315 149,118 125,224
Cash paid to suppliers and employees (15,722,474) (15,060,164) (15,992,239)
Interest paid (48,444) (48,350) (67,645)
Income taxes paid (302,680) (343,000) (701,500)
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,047,116 2,152,105 770,013
- ------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Property additions (1,609,727) (1,668,145) (1,302,629)
Purchase of investments (892,709) (2,997,977)
Investment in subsidiary 142,659
Increase in cash value of life insurance (128,898) (197,776) (152,110)
Proceeds from:
Investments 4,786 3,093,608 3,181,064
Sale of equipment 50 38,618 56,055
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (1,591,130) 373,596 (1,215,597)
- ------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Payments on long-term obligations (96,199) (172,324) (211,710)
Exercise of stock options 3,998 31,327 874
Dividends paid (457,760) (454,529) (458,202)
Purchase of treasury stock (1,650) (264,789)
- ------------------------------------------------------------------------------------------------------
Net cash used in financing activities (549,961) (597,176) (933,827)
- ------------------------------------------------------------------------------------------------------
Effect of exchange rate fluctuation on cash (11,434)
Net increase (decrease) in cash (105,409) 1,928,525 (1,379,411)
Cash and cash equivalents at beginning of period 3,724,379 1,795,854 3,175,265
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,618,970 $ 3,724,379 $ 1,795,854
- ------------------------------------------------------------------------------------------------------
Reconciliation of Net Income to Net Cash
provided by Operating Activities
Net income $ 1,115,820 $ 823,530 $ 1,466,519
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 822,368 650,471 529,957
Amortization of goodwill 15,521 147,034
Loss on sale of fixed assets 3,312 148 101,897
Gain on sale of investments (239) (206,718) (124,939)
Net effect of changes in operating accounts 90,334 884,674 (1,350,455)
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 2,047,116 $ 2,152,105 $ 770,013
- ------------------------------------------------------------------------------------------------------
</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 industry segment and two geographic areas. Customers include
numerous hospitals, blood collection 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.
Translation of Foreign Currencies
All assets and liabilities in the balance sheet of the company's foreign
subsidiary are translated at year-end exchange rates. Translation gains and
losses are not included in determining net income but are accumulated in a
separate component of shareholders' equity.
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 in the purchase of Gamma
Biologicals, B.V. was $155,207 and is being amortized over five years on a
straight-line basis. The accumulated amortization was $15,521 at March 31, 1997.
The excess of cost over net assets acquired related to the company's former
Italian subsidiary was amortized on a straight-line basis over the five-year
term of the distributorship agreement with the former subsidiary. 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.
Impairment of Long-lived Assets
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 sets forth guidance as to when to recognize an
impairment of long-lived assets, including goodwill, and how to measure such an
impairment. The company adopted SFAS No. 121 on April 1, 1996. The adoption of
SFAS No. 121 did not have a material effect on the company's results of
operations or financial position.
Revenue Recognition
Revenue is recognized when products are shipped or services are performed.
23
<PAGE>
Federal Income Taxes
The company utilizes an asset and liability approach in the calculation of
deferred income taxes. This approach gives consideration to the future tax
consequences of differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements. The net taxable or
deductible amounts in future years are adjusted for the effect of any available
tax credits.
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 is valued at the lower of cost (principally FIFO) or market, as
follows:
<TABLE>
<CAPTION>
March 31, 1997 1996
- ---------------------------------------------
<S> <C> <C>
Raw materials $1,144,949 $ 737,717
Products in process 432,357 499,579
Finished products 1,319,605 1,387,826
Supplies 761,731 615,238
- ---------------------------------------------
Total $3,658,642 $3,240,360
- ---------------------------------------------
</TABLE>
Note 3. Investments
In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," and since the company has the positive intent and ability to
hold its investments in debt securities to maturity, these investments are
reported at amortized cost. Investments in debt 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, 1997
Debt securities:
Certificates of Deposit - due 9/8/97 Held to maturity $100,000 $100,000
- ----------------------------------------------------------------------------------------------------
Total debt securities $100,000 $100,000
- ----------------------------------------------------------------------------------------------------
Total investments $100,000 $100,000
- ----------------------------------------------------------------------------------------------------
Unrealized Carrying
Type Classification Fair Value Gain (Loss) Value
- ----------------------------------------------------------------------------------------------------
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>
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 consist of:
<TABLE>
<CAPTION>
March 31, 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Mortgage note, due monthly through 2000 $353,485 $430,422
Note payable-foreign, due semiannually through 2000 119,396
Other obligations 19,263
- -------------------------------------------------------------------------
472,881 449,685
Less current portion 127,761 96,588
- -------------------------------------------------------------------------
Total long-term obligations $345,120 $353,097
- -------------------------------------------------------------------------
</TABLE>
The mortgage note bears interest at the bank's base rate, but not less than
7% nor more than 13%. At March 31, 1997, the note bore interest at 9.5%. The
mortgage note is collateralized by a first lien on the company's land and
building. The foreign note payable bears interest at 7%.
Long-term obligations mature as follows: $127,761 in 1998; $120,839 in
1999; $130,216 in 2000; and $94,065 in 2001.
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 November 1996. At March 31, 1997 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 for the years ended March 31,
1997, 1996 and 1995. 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, 1997, 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 domestic 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.
25
<PAGE>
Note 6. Cash Flows Information
Following is a summary of the changes in operating assets and liabilities.
<TABLE>
<CAPTION>
Year ended March 31, 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Decrease (increase) in:
Receivables $ 373,941 $290,400 $ (764,114)
Inventories (483,338) 567,135 44,842
Prepaid expenses (142,903) 136,359 (250,518)
Other assets (121,873) 61,842 (76,505)
Increase (decrease) in:
Accounts payable 225,179 (77,968) (125,685)
Accrued salaries and other expenses 239,328 (93,094) (178,475)
- -------------------------------------------------------------------------------------
Net effect of change in operating accounts $ 90,334 $884,674 $(1,350,455)
- -------------------------------------------------------------------------------------
</TABLE>
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 is being reduced as assembled parts are
delivered, with the cost of components deducted from the vendors' selling price.
During fiscal 1997, additional inventory of $88,000 was transferred to the
outside vendors, and the outstanding receivable balance at March 31, 1997 was
$16,378.
The company purchased 100% of the outstanding shares of Gamma Biologicals,
B.V., effective September 30, 1996, for 50,000 shares of common stock. In
conjunction with the acquisition, assets of $336,000 (including $143,000 cash)
were received, and liabilities of $313,000 were assumed.
Note 7. Stock Option Plans
Under the company's incentive stock option plans, 250,000 shares of its common
stock are 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. In May 1997, the board of directors adopted, subject to
shareholders' approval, the 1997 Outside Director Stock Option Plan
(nonqualified), which reserves 100,000 shares of the company's common stock for
grant to nonemployee directors.
The following is a summary of the company's stock option plans:
<TABLE>
<CAPTION>
Year Ended March 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------
Number Average Number Average Number Average
of Shares Price of Shares Price of Shares Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at beginning of year 469,025 $4.14 411,337 $4.07 419,562 $4.06
Options granted 0 73,500 4.25 5,000 5.50
Options exercised (1,250) 3.20 (11,062) 2.83 (225) 3.89
Options canceled (2,000) 4.50 (4,750) 3.12 (13,000) 4.25
- -------------------------------------------------------------------------------------------
Options outstanding
at end of year 465,775 $4.14 469,025 $4.14 411,337 $4.07
- -------------------------------------------------------------------------------------------
Options exercisable
at end of year 383,399 $4.08 320,900 $3.96 276,093 $3.70
- -------------------------------------------------------------------------------------------
Options available
at end of year 256,750 334,750 153,500
- -------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
The company accounts for its stock option plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations, under which no compensation cost has
been recognized for stock option awards. No stock options were granted during
fiscal 1997. In fiscal 1996, 73,500 stock options were granted. Had compensation
cost of the plans been determined consistent with SFAS No. 123, "Accounting for
Stock-Based Compensation," the company's pro forma net income and earnings per
common share would not have been significantly different from reported amounts.
Because the SFAS No. 123 accounting method has not been applied to options
granted prior to April 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
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
$3.63 per share at March 31, 1997, a shareholder could purchase, by exercising
such right, approximately 8.3 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.
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 $37,043 in
1997; $35,194 in 1996; and $35,220 in 1995.
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.
27
<PAGE>
Note 11. Income Taxes
Income taxes consist of the following:
<TABLE>
<CAPTION>
Year ended March 31, 1997 1996 1995
- ----------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $273,000 $280,400 $705,000
State 13,900
Foreign 24,417
- ----------------------------------------------------
Total current 311,317 280,400 705,000
- ----------------------------------------------------
Deferred:
Federal 295,600 28,500 (8,800)
- ----------------------------------------------------
Total deferred 295,600 28,500 (8,800)
- ----------------------------------------------------
Total $606,917 $308,900 $696,200
- ----------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
Year ended March 31, 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Exempt export earnings (2.3) (4.1) (3.2)
Valuation of temporary differences 8.7 (2.3) 2.2
Research and development credit (7.9)
Life insurance premiums 1.2 .6
Amortization of goodwill 2.3
Tax credits (4.3)
Other - net 1.5 (.3) .6
- ----------------------------------------------------------------------------------
Effective tax rate 35.2% 27.3% 32.2%
- ----------------------------------------------------------------------------------
</TABLE>
Significant components of the company's deferred tax assets (liabilities)
are as follows:
<TABLE>
<CAPTION>
Year ended March 31, 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Allowance for doubtful accounts $ 35,900 $ 53,300
Inventory costs capitalized 37,500 57,600
Other
- -----------------------------------------------------------------------------------
Net current deferred tax asset 73,400 110,900
- -----------------------------------------------------------------------------------
Difference between book and tax basis of property,
plant and equipment (523,900) (253,000)
Other (11,800) (24,600)
- -----------------------------------------------------------------------------------
Net noncurrent deferred tax liability (535,700) (277,600)
- -----------------------------------------------------------------------------------
Net deferred tax liability $(462,300) $(166,700)
- -----------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
Note 12. Operations 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. During the six-month period ended March 31, 1997,
the company operated in two geographic areas, the United States and Europe.
Prior to the September 30, 1996 acquisition of Gamma Biologicals, B.V., the
company operated in one geographic area from which it sold to numerous
countries.
<TABLE>
<CAPTION>
Year ended March 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Net sales to unaffiliated customers:
United States $12,317 $12,260 $13,177
Europe 1,697 1,553 1,893
Pacific Region 1,382 1,244 1,342
Mexico, Central and South America 1,297 1,020 898
Middle East 651 620 637
Other 211 244 314
- ---------------------------------------------------------------------------------------
Total $17,555 $16,941 $18,261
- ---------------------------------------------------------------------------------------
Export sales from United States to unaffiliated customers:
Europe $ 1,284 $ 1,553 $ 1,893
Pacific Region 1,382 1,244 1,342
Mexico, Central and South America 1,297 1,020 898
Middle East 651 620 637
Other 211 244 314
- ---------------------------------------------------------------------------------------
Total $ 4,825 $ 4,681 $ 5,084
- ---------------------------------------------------------------------------------------
Export sales from United States to affiliated customers: $ 151
- ---------------------------------------------------------------------------------------
Income from operations:
United States $ 1,078 $ 824 $ 1,467
Europe 38
- ---------------------------------------------------------------------------------------
Total $ 1,116 $ 824 $ 1,467
- ---------------------------------------------------------------------------------------
Identifiable assets:
United States $17,468 $16,696 $16,852
Europe 318
Corporate 2,084 1,730 1,532
- ---------------------------------------------------------------------------------------
Total $19,870 $18,426 $18,384
- ---------------------------------------------------------------------------------------
</TABLE>
Note 13. Acquisition of Wholly Owned Subsidiary
Effective September 30, 1996, the company acquired 100% of the outstanding
shares of its distributor in the Netherlands, Gamma Biologicals, B.V.
Consideration for the acquisition was 50,000 shares of Gamma common stock,
valued at $3.25 per share, the market price on the effective date. The
acquisition has been accounted for using the purchase method of accounting, and
accordingly, the purchase price has been allocated to the assets purchased and
the liabilities assumed based upon the fair values at the acquisition date. The
excess of the purchase price over the fair values of the net assets acquired was
$155,207 and has been recorded as goodwill, which will be amortized over five
years.
29
<PAGE>
On the basis of a pro forma consolidation of the results of operations as
if the acquisition had taken place at April 1, 1995 rather than at September 30,
1996, consolidated net sales for the years ended March 31, 1997 and 1996 would
have been approximately $17,903,000 and $17,524,000, respectively. Consolidated
income and earnings per share would have been $1,187,000 and $.26 for 1997 and
$944,000 and $.20 for 1996. Such pro forma amounts are not necessarily
indicative of what the actual consolidated results of operations might have been
if the acquisition had been effective April 1, 1995 and should not be viewed as
indicative of future operations.
Gamma Biologicals, B.V. was formed in November 1993 to market Gamma
products and certain noncompeting product lines in the Netherlands. Subsequent
to the acquisition, the subsidiary will continue to sell directly in the Benelux
area, as well as serve as a European distribution center.
Note 14. Subsequent Events
In April 1997, the company signed a cooperative agreement with the Shanghai
Blood Center (SBC) of Shanghai, P.R. China, to market Gamma reagent products
through a 50/50 joint venture named Shanghai Gamma Grouping Reagents Products
Co. Ltd. (Shanghai Gamma). The agreement is the first step toward the government
approvals required for foreign companies to sell products and services in China.
At present, China has no manufacturer dedicated to producing a complete line of
blood group typing reagents.
While no accurate dollar value can be placed on the cooperative agreement
at present, the China market for diagnostic blood banking reagents is large and
growing. The market, with approximately 30 million blood donations annually, is
2-1/2 times the size of the U.S. market of 12 million donations.
Initially, Shanghai Gamma is expected to import partially processed
reagents from Gamma's Houston manufacturing facility for in-house use and
distribution throughout China. Upon completion of government registration and
approval, expected in Fall 1997, Gamma will transfer technology and monoclonal
cell lines to the new company. Gamma and the SBC plan for Shanghai Gamma to
become a fully integrated production and marketing company. Certain rare
reagents and specialty products may still be shipped directly from Gamma for
distribution in China.
There is no assurance that Shanghai Gamma will obtain government approval
to market Gamma reagents in China nor that any additional agreements will be
signed regarding manufacturing and licensing. The cooperative agreement is
considered the initial step in the sales process to open new markets for Gamma
products.
In May 1997, the company acquired a nonexclusive license from Pasteur
Sanofi Diagnostics covering certain patented affinity matrix technology utilized
in the ReACT strip. The agreement applies to six European countries in which
Sanofi holds or has applied for a patent.
Note 15. 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 $262,000 in 1997; $239,000 in 1996; and $250,000 in 1995.
Future minimum rental commitments at March 31, 1997 are $792,000, 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.
30
<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, 1997 and 1996,
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,
1997. 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, 1997
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles.
[Deloitte & Touche LLP signature goes here.]
Houston, Texas
May 28, 1997
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.
[O'Bannion signature goes here.]
Margaret J. O'Bannion
Vice President - Finance
31
<PAGE>
Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
Net Gross Operating Net Net Income
Sales Margin Income Income Per Share
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands except per share amounts)
Fiscal 1997
First Quarter $4,212 $2,227 $ 332 $ 220 $.05
Second Quarter 4,177 2,445 455 332 .07
Third Quarter 4,650 2,464 351 330 .07
Fourth Quarter 4,516 2,561 438 234 .05
- ----------------------------------------------------------------------------------------------
$17,555 $9,697 $1,576 $1,116 $.24
- ----------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------
</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>
<CAPTION>
High Closing Low Closing
Bid Price Bid Price Dividend
- ---------------------------------------------------------
<S> <C> <C> <C>
Fiscal 1997
First Quarter $4.50 $3.75 $.025
Second Quarter 4.00 2.88 .025
Third Quarter 3.75 3.00 .025
Fourth Quarter 4.00 3.06 .025
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
</TABLE>
As of June 16, 1997, there were approximately 460 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, President & Chief Executive Officer
Jimmie L. Turner
Executive Vice President & Chief Operating Officer
Betty Francis Hatcher
Executive Vice President - Product Development
John J. Moulds
Senior Vice President & Chief Science Officer
Raul F. Alvarez
Vice President - International Business
Susan A. Batcha
Vice President - Manufacturing
John Case
Vice President - Regulatory Affairs
Thomas H. Frame
Vice President - Research & Development
Lawrence E. Letwin
Corporate Secretary
Marilyn K. Moulds
Vice President - Consultation & Education
Margaret J. O'Bannion
Vice President - Finance & Chief Financial Officer
Gary L. Parrish
Vice President - National Sales & Customer Services
Directors
David E. Hatcher
Chairman
Richard H. Aster, MD *
Chairman
Genetic Testing Institute, Inc.
Milwaukee, Wisconsin
(Medical diagnostic products manufacturer)
Bryan J. Brieden *+
Consultant & former president
Bryan Biologicals, Inc.
Detroit, Michigan
(Laboratory supplies distributor)
H.H. (Will) Hardee +
Senior Vice President
Rauscher Pierce Refsnes, Inc.
Houston, Texas
(Regional securities firm)
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
Rio Verde 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:
Harris Trust and Savings Bank
ATTN: Shareholder Services
P.O. Box A3504
Chicago, IL 60690-3504
1-800/577-5042
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, 1997, as filed
with the Securities and Exchange Commission. Please 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
The directors and officers of Gamma Biologicals, Inc. invite interested
shareholders to attend the annual meeting at 3:00 p.m. CDT on Thursday, August
7, 1997, at the company's offices, 3700 Mangum Road, Houston, Texas.
Gamma Biologicals, Inc.
3700 Mangum Road
Houston, Texas 77092
713/681-8481
FAX 713/956-3333
www.gammabio.com
<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%
Gamma Biologicals, B.V. ............... The Netherlands 100%
____________
Note A All of the subsidiaries are included in the consolidated financial
statements of the Registrant.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Gamma Biologicals, Inc.:
We consent to the incorporation by reference in Registration Statement No.
33-44950 on Form S-8 and Registration Statement No. 333-01147 on Form S-8 of
Gamma Biologicals, Inc. of our report dated May 28, 1997, incorporated by
reference in the 1997 Annual Report on Form 10-K of Gamma Biologicals, Inc.
for the year ended March 31, 1997.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Houston, Texas
June 27, 1997
<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>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,618,970
<SECURITIES> 100,000
<RECEIVABLES> 3,630,090
<ALLOWANCES> 105,505
<INVENTORY> 3,658,642
<CURRENT-ASSETS> 11,491,257
<PP&E> 12,235,712
<DEPRECIATION> 6,241,338
<TOTAL-ASSETS> 19,869,527
<CURRENT-LIABILITIES> 1,323,800
<BONDS> 345,120
0
0
<COMMON> 476,261
<OTHER-SE> 17,188,646
<TOTAL-LIABILITY-AND-EQUITY> 19,869,527
<SALES> 17,554,502
<TOTAL-REVENUES> 17,554,502
<CGS> 7,857,815
<TOTAL-COSTS> 13,856,172
<OTHER-EXPENSES> 2,110,031
<LOSS-PROVISION> 12,044
<INTEREST-EXPENSE> 48,449
<INCOME-PRETAX> 1,722,737
<INCOME-TAX> 606,917
<INCOME-CONTINUING> 1,115,820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,115,820
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
