<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 0-26126
SEROLOGICALS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 58-2142225
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
780 PARK NORTH BLVD., STE. 110 30021
ATLANTA, GEORGIA (Zip Code)
(Address of principal
executive offices)
(404) 296-5595
(Registrant Telephone Number Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past (90) days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K / /
The aggregate market value of the shares of common stock held by
non-affiliates (based upon the closing sale price on The Nasdaq Stock Market) on
March 15, 1999 was approximately $381,140,000. As of March 15, 1999, there were
24,645,282 shares of Common Stock, $0.01 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the definitive proxy statement for the Annual Meeting of
Stockholders (which will be filed pursuant to Regulation 14A within 120 days of
the close of the Registrant's fiscal year ended December 27, 1998) shall be
deemed to be incorporated by reference in Part III.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I.
Item 1. Business.................................................................... 4
Item 2. Properties.................................................................. 16
Item 3. Legal Proceedings........................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders......................... 16
Item 4a. Executive Officers and Key Employees of the Registrant...................... 17
PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters... 19
Item 6. Selected Financial Data..................................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 21
Item 7a. Quantitative and Qualitative Disclosures about Market Risk.................. 31
Item 8. Financial Statements and Supplementary Data................................. 31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 31
PART III.
Item 10. Directors and Executive Officers of the Registrant.......................... 31
Item 11. Executive Compensation...................................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 31
Item 13. Certain Relationships and Related Transactions.............................. 31
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............. 32
SIGNATURES............................................................................. 35
</TABLE>
2
<PAGE>
PART I.
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, WHICH GENERALLY CAN BE IDENTIFIED BY THE USE OF FORWARD LOOKING
TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "INTEND," "ESTIMATE," "ANTICIPATE,"
"BELIEVE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR
SIMILAR TERMINOLOGY, AND/OR WHICH INCLUDE WITHOUT LIMITATION, STATEMENTS
REGARDING THE FOLLOWING:
- SEROLOGICALS CORPORATION'S (AND ITS SUBSIDIARIES, COLLECTIVELY, THE
"COMPANY") INTERNAL AND EXTERNAL GROWTH STRATEGIES, INCLUDING THE
COMPANY'S ABILITY TO CREATE ECONOMIES OF SCALE THROUGH ITS ABILITY TO
COMPLETE ACQUISITIONS AND ITS LONG TERM GROWTH PROSPECTS;
- THE IMPACT OF COMPETITION, INCLUDING INCREASED COMPETITION FOR ANTI-D
ANTIBODIES;
- THE EFFECT OF THE COMPANY'S EXPANDED MONOCLONAL MANUFACTURING FACILITIES;
- CERTAIN TRENDS IN THE INDUSTRY, INCLUDING INCREASED DEMAND FOR AND A
LIMITED SUPPLY OF ANTIBODIES AND ANTIBODY-BASED PRODUCTS IN GENERAL;
INCREASED REGULATORY SCRUTINY BY THE FOOD AND DRUG ADMINISTRATION ("FDA"),
IN PARTICULAR, TEAM BIOLOGICS, ITS EFFECT ON DONORS AND CUSTOMERS AND THE
COMPANY'S ABILITY TO RESPOND; CHANGING CUSTOMER SPECIFICATIONS AND
EVOLVING INDUSTRY AND CUSTOMER STANDARDS AND CUSTOMER DEMAND FOR HIGHER
QUALITY AND VALUE ADDED SERVICES;
- THE IMPACT OF THE YEAR 2000 ISSUE, THE ABILITY OF THE COMPANY TO ACHIEVE
YEAR 2000 COMPLIANCE IN A TIMELY AND EFFECTIVE MANNER AND THE RELATED COST
TO ACHIEVE SUCH COMPLIANCE;
- THE IMPACT OF THE NEW BIOLOGIC LICENSE (BLA) REGULATIONS;
- THE IMPACT OF THE POTENTIAL LOSS OF DONORS DUE TO THE IMPOSITION OF NEW
BLOOD SAFETY MEASURES;
- INCREASED DEMAND FOR ANTI-D, AND THE COMPANY'S ADVANTAGE REGARDING ITS
ON-GOING ABILITY TO CONTINUE TO PRODUCE ADEQUATE QUANTITIES OF ITS
PROPRIETARY ANTI-D VACCINES;
- INCREASED DEMAND FOR ITS LINE OF EX-CYTE-REGISTERED TRADEMARK- AND BOVINE
ALBUMIN PRODUCT LINES;
- THE IMPACT OF DELAYED OR REDUCED SALES TO CERTAIN CUSTOMERS ON THE COMPANY
AND ITS OPERATIONS;
- CERTAIN POTENTIAL PRODUCT AND SERVICE DEVELOPMENT EFFORTS THE COMPANY MAY
PURSUE OR WHICH ARE CURRENTLY UNDERWAY;
- THE EXPECTED LEVEL OF CAPITAL EXPENDITURES IN 1999 AND THE SUFFICIENCY OF
CAPITAL AND LIQUIDITY TO MEET WORKING CAPITAL, CAPITAL EXPENDITURE AND
OTHER ANTICIPATED CASH REQUIREMENTS OVER THE NEXT TWELVE MONTHS AND
AVAILABILITY OF CAPITAL RESOURCES FOR USE IN THE COMPANY'S ACQUISITION
STRATEGY; AND
- THE RENEWAL OF CERTAIN AGREEMENTS, INCLUDING LEASES COVERING ITS DONOR
CENTERS AND THE AUTOMATIC RENEWAL OF CERTAIN LONG-TERM CUSTOMER CONTRACTS.
THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY,
INCLUDING BUT NOT LIMITED TO:
- THE COMPANY'S ABILITY TO ATTRACT AND RETAIN QUALIFIED DONORS;
- THE COMPANY'S ABILITY TO MAINTAIN AND EXPAND ITS CUSTOMER BASE;
- THE COMPANY'S ABILITY TO GENERATE SUFFICIENT CASH FLOWS TO SUPPORT ITS
INTERNAL AND EXTERNAL GROWTH STRATEGIES;
- THE COMPANY'S ABILITY TO IDENTIFY AND CONSUMMATE SUITABLE ACQUISITIONS IN
THE FUTURE AND TO INTEGRATE AND MANAGE THEM;
- THE COMPANY'S ABILITY TO COMPLETE THE EXPANSION OF ITS PROTEIN
FRACTIONATION FACILITY IN KANKAKEE, ILLINOIS ON SCHEDULE AND TO IMPLEMENT
SUCCESSFULLY NEW PROCESSES AND TECHNOLOGIES;
- CHANGES IN LAWS AND REGULATIONS THAT COULD AFFECT THE COMPANY'S ABILITY TO
OBTAIN ADDITIONAL AND MAINTAIN EXISTING REGULATORY LICENSES AND APPROVALS;
- THE EFFECT OF COMPETITION FOR CUSTOMERS, DONORS OR OTHERWISE;
3
<PAGE>
- THE EFFECT OF REGULATORY SCRUTINY;
- POTENTIAL FUTURE TECHNOLOGIES THAT COULD LESSEN OR ELIMINATE THE NEED FOR
ANTIBODIES AND OTHER PLASMA-BASED PRODUCTS;
- CHANGES IN INDUSTRY TRENDS, CUSTOMER SPECIFICATIONS, MARKET DEMAND AND
POTENTIAL FOREIGN RESTRICTIONS OF THE IMPORTATION OF THE COMPANY'S
PRODUCTS THAT COULD IMPACT INTERNAL AND EXTERNAL GROWTH, EARNINGS AND
MARKET SHARE;
- THE COMPANY'S DEPENDENCE ON A FEW MAJOR CUSTOMERS AND SUPPLIERS AND ITS
ABILITY TO MAINTAIN FAVORABLE SUPPLIER AGREEMENTS AND RELATIONSHIPS WITH
THEM; AND
- THE COMPANY'S SUBSTANTIAL RELIANCE ON TWO PRODUCTS, ANTI-D AND
NON-SPECIALTY ANTIBODIES DERIVED FROM SOURCE PLASMA.
ITEM 1. BUSINESS
The Company is a leading worldwide provider of specialty human antibodies
and other blood-related products and services to major healthcare companies. The
Company's services, including donor recruitment, donor management and clinical
testing services, enable the Company to provide value-added specialty antibodies
that are used as the active ingredients in therapeutic products for the
treatment and management of such medical indications as Rh incompatibility in
newborns, rabies and hepatitis and in diagnostic products such as blood typing
reagents and diagnostic test kits. In addition, the Company collects source
plasma containing non-specialty antibodies from which a number of products,
primarily intravenous immune globulin (IVIG), a product containing a broad
spectrum of antibodies used in the treatment of a wide variety of medical
indications, are derived. As of March 15, 1999, the Company conducted its
operations through a national network of 64 donor centers and through
laboratories located in the United States and the United Kingdom. The Company
also operates two monoclonal antibody manufacturing facilities in Scotland.
Furthermore, the Company operates a clinical trial site dedicated to the
management and performance of clinical trials for the pharmaceutical and
biotechnology industries. On December 29, 1998, subsequent to year end, the
Company purchased substantially all of the domestic assets of Pentex Blood
Proteins ("Pentex"), a unit of Bayer Corporation. Located in Kankakee, Illinois,
Pentex supplies a broad line of purified animal and human blood proteins to the
diagnostic and biopharmaceutical industries.
INDUSTRY OVERVIEW
The human blood products and services industry encompasses a number of
markets, with products ranging from whole blood, which is used for direct
transfusions, to blood components, such as source plasma, specialty and
non-specialty antibodies found in source plasma and other specialty biologic
components. Source plasma, the clear liquid portion of blood characterized by
non-specific concentrations of antibodies, is used to manufacture many products
that treat a variety of medical indications. Antibodies are soluble components
contained in plasma which are produced by the immune system to fight specific
diseases. Other derivative products of source plasma include albumin, used to
treat shock and burn patients, and clotting factors such as Factor VIII
Concentrate and Factor IX Concentrate, used primarily by hemophiliac patients.
The industry is generally divided into two distinct sectors. The largest
sector of the industry is comprised of non-profit organizations, such as the
American Red Cross and community blood banks, which supply whole blood and other
transfusible products to hospitals. Conversely, the commercial sector of the
industry is focused primarily on supplying source plasma, specialty and
non-specialty antibodies and specialty biologic components to healthcare
companies which further process these components into therapeutic and diagnostic
products.
The therapeutic segment of the commercial sector includes products
consisting of specialty antibodies and cells, as well as non-specific, or
non-specialty, antibodies and source plasma. Specialty antibodies are typically
used to manufacture products for treating persons exposed to, or at risk of,
contracting a specific
4
<PAGE>
disease. Specialty antibodies used for therapeutic purposes range from those
used to treat medical indications such as tetanus and rabies, which the Company
believes generally sell for approximately $90 to $110 per liter, to high-end
products such as anti-D, an antibody used to treat Rh incompatibility in
newborns and anti-hepatitis, which the Company believes generally sell for
approximately $400 to $600 per liter. By comparison, the average industry gross
price of source plasma, from which IVIG and other products are derived, is
approximately $85 to $90 per liter.
Antibodies, both human sourced as well as those in monoclonal form, are also
used to make diagnostic products used to screen patients for prior exposure to a
specific disease or to determine blood type. Polyclonal and monoclonal
antibodies used in diagnostic products such as blood typing reagents and
diagnostic test kits generally sell for $0.95 per milliliter to $6.50 per
milliliter, with some rare antibodies selling for as high as $20.00 per
milliliter.
The Company believes that there are a number of factors increasing the
demand for antibodies and antibody-based products in general. In the treatment
of certain diseases such as rabies and Rh incompatibility in newborns,
antibody-based products are recognized as the only generally accepted treatment
or prevention for such diseases. In addition, medical and scientific advances
are increasing the demand for antibodies for new indications and improved
therapies. For example, while there are only six FDA-approved uses for IVIG, the
Company believes there are approximately 60 medical conditions for which it is
currently being used or clinically examined as a treatment. The Company also
believes that cost containment in healthcare is spurring the demand for
alternatives to antibiotics and vaccines, such as the use of antibody-based
products for disease management. Additionally, increasing regulation and
concerns relating to blood safety are causing demand for a broader array of
antibody-based diagnostic tests used to evaluate blood samples. The demand for
more diverse diagnostic tests is also increasing as world population migration
is spreading diseases, which were once confined to specific geographic areas.
The Company also believes that the aging of the U.S. population is increasing
the demand for antibody-based products that are as efficacious as, but less
toxic than, many alternative treatment regimens. Recently, the industry has been
experiencing critical shortages of certain end products, most notably IVIG.
The Company believes that there are a number of factors that are limiting
the supply of commercially available human antibodies. The supply of antibodies
has been adversely affected by the more rigorous screening procedures required
by regulatory authorities, in particular the FDA and certain German regulatory
bodies, industry trade organizations and manufacturers of the various end
products. These procedures, which include a more extensive investigation into a
donor's background, new tests to detect the presence of disease-causing
organisms and other limitations on donors such as age restrictions, have
disqualified numerous potential donors and discouraged other donors who may be
reluctant to undergo the screening procedures. Furthermore, the Company believes
that, owing in part to the general strength of the national economy, the
financial incentives provided to donors may be less attractive as compensation
for their time, further decreasing the pool of potential donors. Also, as
customers require increasingly higher concentrations of specialty antibodies,
the qualified pool of donors is further reduced. These customer requirements
have resulted in an increasing need to boost the concentration of specialty
antibodies in donors through vaccination or immunization. Furthermore, the
length of time required to be granted regulatory licenses for antibody
collection sites (donor centers), testing facilities and biological products is
significant.
The Company believes that in addition to the factors discussed above, this
shortage has been caused by several company specific manufacturing, regulatory
or other issues facing the manufacturers of this product, as well as by recalls
of product manufactured with antibodies obtained from donors who are
subsequently discovered to have had Creutzfeld-Jakob disease ("CJD"). See
"Government and Industry Regulation" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Overview".
In addition to the demand and supply factors discussed above, the industry
continues to experience a number of other trends. One such trend is the movement
by healthcare companies towards obtaining
5
<PAGE>
antibodies and other biologic products and services from a fewer number of
suppliers who can supply a wider array of products and services. The resulting
enhanced relationships between healthcare companies and these suppliers have
resulted in an increased tendency of some major healthcare companies to
outsource essential complex regulatory, testing and specialized manufacturing
activities. For example, during 1998, the Company commenced laboratory testing
services on the majority of the non-specialty antibodies sold to its largest
customer, a service that was previously performed by the customer. In addition,
the increased regulatory environment, as well as the increasing preference of
customers for value-added services, requires suppliers to have a high level of
expertise and capital resources. Primarily as a result of these trends, the
industry has been undergoing a consolidation for several years.
OPERATIONS
As of March 15, 1999, the Company conducted its operations through a
national network of 64 donor centers and through laboratories located in the
United States and the United Kingdom. The Company also operates two monoclonal
production facilities in Scotland, a purified blood proteins fractionation
facility in Kankakee, IL and a clinical trial site.
DONOR RECRUITMENT. The Company obtains the significant majority of its
specialty antibodies from donors with high concentrations of the antibodies
sought. The Company maintains an active communications network with medical
professionals and healthcare organizations nationwide to assist in identifying
these donors. The majority of the Company's 17 specialty donor centers are
strategically located on or near medical campuses, enhancing the Company's
ability to source specialty antibodies from medical community referrals. In
addition, the Company is able to identify and react rapidly to disease outbreaks
in order to recruit suitable donors for specialty antibodies created by such
specific diseases. The Company actively seeks to maintain and replenish its
donor base for its specialty therapeutic and diagnostic products and maintains
an ongoing program to recruit donors and make medical professionals aware of its
capabilities and needs.
One trend that the Company has experienced recently is an increased
difficulty in recruiting and retaining donors of non-specialty antibodies. The
Company believes that owing in part to the general strength of the national
economy, the financial incentives provided to these donors may be less
attractive as compensation for their time. While the Company is currently
pursuing various alternatives to increase production at its non-specialty donor
centers, there can be no assurance that such efforts will be successful, or that
any adverse effect from these trends will not be material.
DONOR SCREENING AND PRODUCT COLLECTION. Each donor candidate undergoes a
process that includes an explanation of the donation procedure and how the
antibodies they are donating are subsequently used, extensive physiological and
biological screening, a physical examination and the collection of test samples.
In addition, donors of specialty antibodies undergo further qualification
profiling. Once a candidate is accepted as a donor, the Company may collect
antibodies from the donor at its donor centers through an FDA-approved
collection procedure known as plasmapheresis, which lasts between 40 and 60
minutes and is very similar to donating blood. However, since red blood cells
are returned to the donor by means of centrifugation, individuals may donate as
frequently as twice per week. Each donation is quarantined at the donor center
while test samples are sent to the Company's central laboratory, or in some
cases, its customers' laboratories, for FDA-mandated viral marker screening
tests (e.g., hepatitis, HIV, etc.) and in the case of specialty antibodies,
characterization (i.e., special analytical tests to identify and measure the
quality and concentration of the targeted antibodies). Furthermore, voluntary
industry standards require that each first time donor's ("Applicant Donor")
donation be quarantined until such time that a second donation is received from
the Applicant Donor and appropriate test results are obtained on both donations.
If a second donation is not received from the Applicant Donor within six months,
the initial donation must be destroyed. Once these two donations and their test
results are complete and acceptable, the Applicant Donor becomes a "qualified
donor" and all future donations are generally available for immediate shipment
once the mandated tests have been completed.
6
<PAGE>
PRODUCT CHARACTERIZATION. The Company characterizes the specialty
antibodies it collects to ensure that the concentration of antibodies meets
customer specifications. The Company maintains extensive data on each of its
donors for both regulatory compliance and quality assurance. This database
enhances the Company's donor tracking and monitoring capabilities, which help
assure the quality of the antibodies for its customers. The ability to
accurately characterize and trace the source of antibodies adds value to the
products for the customer by replacing steps the customer might otherwise have
to perform.
DONOR MANAGEMENT. Through communication and incentive programs and an
emphasis on customer service, the Company encourages full and continuing
participation by its donors. As an integral part of donor management, the
Company's staff continually communicates with donors to reinforce their
commitment. The Company has personnel and programs designed to make each visit
to the donor center a smooth, comfortable and safe experience. The Company's
expertise in donor management has enabled it to retain many donors for years of
repeated, regular donations, thereby enhancing the Company's profitability. The
Company's specialty donors typically donate once or twice per week, with many
having continued as donors for ten years or greater. A significant portion of
the Company's rare specialty antibody donors have entered into contracts with
the Company pursuant to which they have agreed to donate exclusively to the
Company for a three-year period.
IMMUNIZATION. In response to customer demands for higher quality products,
the Company's specialty donor centers are actively involved in the immunization
of the majority their specialty antibody donors. In addition, certain of the
Company's non-specialty donor centers are licensed to immunize donors for
certain specialty antibodies. Immunization is the use of FDA-approved vaccines
to stimulate the development or heighten the concentration of already existing
specialty antibodies in the donor. Although vaccines to conduct immunization for
several of the Company's products are commercially available, the Company
believes it has a competitive advantage through its existing inventory of, and
ongoing ability to produce, its own proprietary FDA-approved vaccine to produce
anti-D antibodies in donors. In some cases, antibody-producing white cells are
also collected from immunized donors and used to develop monoclonal products for
diagnostic use.
MONOCLONAL ANTIBODY PRODUCTION. In addition to collecting antibodies from
its donors, the Company, through its Serologicals, Ltd. subsidiary, formerly
known as Bioscot, Ltd. ("Bioscot"), produces monoclonal, or cloned, antibodies
from over 45 cell lines. The Company's FDA-licensed monoclonal manufacturing
facilities in Edinburgh and Livingston, Scotland produce monoclonal antibodies
from cells derived through the Company's donor network or acquired from other
laboratories. Currently, all monoclonal antibodies manufactured by the Company
are used in diagnostic products such as blood typing reagents. Through this
monoclonal manufacturing capability, the Company has been able to introduce
additional, second generation, human monoclonal products and also begin to sell
finished products outside the United States, such as its value-added line of OEM
and branded blood typing reagents. In 1998, the operations of Bioscot
represented the majority of the business conducted by the Diagnostic Products
segment.
BLOOD PROTEIN FRACTIONATION. As a result of its acquisition of Pentex
subsequent to year end, the Company, through its manufacturing facility in
Kankakee, IL, isolates specific proteins contained primarily in animal sera or
plasma through specialized manufacturing processes known as protein
fractionation. The Company utilizes core technologies such as organic solvent
precipitation, heat shock, molecular and microporous filtration, ion-exchange
chromatography and salt precipitation to isolate and purify major plasma protein
classes (e.g., albumin, gamma globulin, transferrin, lipoproteins and clotting
factors). The resulting blood protein product line is sold worldwide in over 25
countries, primarily to healthcare companies that manufacture blood typing or
other diagnostic reagents, as well as to biopharmaceutical companies for use in
tissue culture media.
7
<PAGE>
PRODUCTS
Through its value-added services, the Company provides antibodies that serve
as the active ingredients in certain therapeutic and diagnostic products
manufactured by major healthcare companies. The Company's customers generally
further process these products. The Company also sells certain antibodies for
blood typing reagents directly to end-users. In 1998, the Company derived
approximately 83% of its net sales from the Therapeutic Products segment, a
substantial majority of which related to anti-D and non-specialty antibodies,
and approximately 16% of its net sales from its Diagnostic Products segment, the
majority of which related to blood typing reagents and antibodies used in
diagnostic test kits. The remaining sales were generated by miscellaneous
products and services. Subsequent to year end, the Company, through its
acquisition of Pentex, commenced selling a line of animal protein products for
use in diagnostic reagents and as tissue media components for use in
biopharmaceutical therapeutic products.
Therapeutic Products
Therapeutic end products produced by the Company's customers for which it
supplies the majority of its antibodies include the following
SPECIALTY ANTIBODIES
ANTI-D IMMUNE GLOBULIN ("ANTI-D"). Since 1968, anti-D immune globulin, also
known as Rh immune globulin, has been prescribed by obstetricians to prevent Rh
incompatibility in newborns ("RhHDN"). This sometimes-fatal condition affecting
Rh positive infants born to Rh-negative women is due to the incompatibility of
the blood of an Rh-negative mother and her Rh-positive child. Anti-D immune
globulin is also used in the treatment of Idiopathic Thrombocytopenic Purpura
("ITP") in immunocompromised patients. ITP, which is common in HIV positive
patients, is a disease that is characterized by destruction of the patient's
platelets, which, if untreated, can result in internal hemorrhaging and
ultimately, death. This condition is estimated to affect up to 100,000
Americans.
The Company believes that demand for anti-D antibodies used in the treatment
of RhHDN has generally followed the birth rate of developed countries. The
Company believes that, on a longer-term basis, worldwide demand for anti-D
antibodies could increase as its use as a treatment for ITP becomes more widely
accepted.
ANTI-RABIES IMMUNE GLOBULIN ("ANTI-RABIES"). Anti-rabies immune globulin
therapy is prescribed for individuals suspected of recent exposure to the rabies
virus. Rabies is commonly transmitted by infectious saliva from the bite of a
rabid animal. Anti-rabies is administered as promptly as possible after exposure
and consists of antibodies directed against the live virus particles with which
the patient may be infected. In the post-exposure treatment regimen, anti-rabies
is administered in conjunction with a rabies vaccine, which is used to provide
the patient with an additional active immunity to the rabies virus.
ANTI-HEPATITIS IMMUNE GLOBULIN ("ANTI-HBS"). The traditional use for
anti-HBs is for the prevention of hepatitis in individuals who are at risk of
contracting, or have had recent exposure to, the hepatitis B virus. In addition,
anti-HBs is used for intensive treatment of liver transplant patients.
NON-SPECIALTY ANTIBODIES
INTRAVENOUS IMMUNE GLOBULIN ("IVIG"). IVIG is derived from source plasma and
is comprised of a broad spectrum of antibodies. IVIG is used in the treatment of
many medical indications, primarily for patients with suppressed immune systems,
to help build the body's defense against exposure to life threatening diseases.
OTHER. The Company has on occasion supplied antibodies used in the
treatment of respiratory syncytial virus, a virus affecting the respiratory
tract, and cytomegalovirus, a herpes virus for which individuals with
compromised immune systems are most at risk.
8
<PAGE>
Diagnostic Products
The primary products produced and sold by the Diagnostic Products segment
include the following:
ANTIBODIES FOR BLOOD TYPING REAGENTS. Blood typing reagents are used by
blood banks and hospital transfusion services worldwide to assure compatibility
between the recipient and the donor's blood type. Historically, blood typing
reagents were made primarily from human sourced, or polyclonal, antibodies. More
recently, monoclonal antibodies have been developed to provide certain high
quality antibodies on a consistent basis, and many of these are now FDA approved
for diagnostic purposes. The Company currently provides over 80 different
antibodies used in the production of blood typing reagents that the Company
believes provide it with a competitive advantage in this market due to the
desire of customers to buy an entire panel of different antibodies for blood
typing reagents from one manufacturer. While the majority of these antibodies
are in monoclonal form, the Company continues to collect human-sourced
polyclonal antibodies that are used in diagnostic products.
CLINICAL DIAGNOSTIC ANTIBODIES. Through its expertise in donor recruiting,
the Company is able to locate and recruit donors who can provide antibodies and
other biological specimens that are known to be positive or negative for a
specific disease or infection. The Company provides these biological specimens
for use in clinical diagnostic test kit controls. The diseases for which the
Company sources clinical diagnostic antibodies include, among others, CMV,
rheumatoid arthritis, toxoplasmosis, hepatitis and HIV. The Company's recruiting
capability is complemented by extensive in-house experience in the laboratory
disciplines of immunohematology, immunology, serology and clinical chemistry to
characterize human specimens to meet manufacturers' requirements.
ANIMAL BLOOD PROTEINS. Through its acquisition of Pentex subsequent to its
fiscal year end, the Company provides a wide range of approximately 90 distinct
animal protein products derived from five different animal species. These
products, such as bovine serum albumin (BSA), are primarily supplied to
healthcare companies for use in diagnostic reagents. One of the primary uses of
bovine albumin is to enhance the detection of blood group antibodies, a
characteristic essential for the safe transfusion of whole blood. The Company
also provides a line of highly purified animal proteins known as tissue culture
media components that are used by biopharmaceutical companies as nutrient
additives in cell culture media. Examples of these media components are Bovine
EX-CYTE-Registered Trademark-, Growth Enhancement Media Supplement, produced
through a patented manufacturing process, and transferrin. Many of the
recombinant proteins currently used as therapeutic products are genetically
engineered in mammalian cells. In order for these cells to grow and produce,
they require nourishment that can be found from such sources as Bovine EX-CYTE,
which is rich in cholesterol, phospholipids and essential fatty acids, and
transferrin, a protein that provides the cells with the iron required for proper
cellular respiration to occur.
In order to meet current and expected demand for its line of EX-CYTE and
bovine albumin product lines, the Company is undergoing a significant, 17,000
square foot expansion of its protein fractionation facility in Kankakee,
Illinois. Demand for the acquired EX-CYTE product line has increased
significantly in recent years as the success rate of genetically engineered
proteins and other biotechnology products has increased. Furthermore, the Pentex
brand of bovine albumin has also seen recent growth, generally following the
growth rate of immunodiagnostic products.
PRODUCT AND SERVICE DEVELOPMENT
PRODUCTS
The Company is engaged in a number of near-term development projects
designed to enhance its existing product lines. These projects include the
development of more efficacious donor immunization protocols to increase yields
and the development of more efficient techniques for the manufacture of both
polyclonal and monoclonal antibodies. The Company is also exploring the
opportunity of providing monoclonal antibodies for use in diagnostic test kit
controls using the same approach that led to the Company's ability to
commercialize monoclonal antibodies for use in blood typing reagents.
9
<PAGE>
On a longer-term basis, the Company is evaluating several alternatives for
the development of a therapeutic monoclonal anti-D product. Monoclonal
production techniques eliminate the need for fractionation of the product and
may give the Company the ability to market more value-added finished therapeutic
products directly to end-users. While the Company is no longer actively
developing its own proprietary therapeutic anti-D product, it continues to
monitor the therapeutic monoclonal anti-D market and is pursuing strategic
alternatives, including future collaborations or partnerships with existing
research projects, to bring such a product to market.
Through its acquisition of Pentex, the Company is also involved in the
development of new process technologies and products that it believes will
ultimately add value to its blood proteins business. These technologies and
projects include developing scale-up technologies for the manufacture of bovine
serum albumin, protease-free; process improvement of the procedure used to
control the polymerization of bovine serum albumin; increasing capacity to
manufacture bovine and human transferrins; and further purification of Bovine
EX-CYTE into its critical components.
SERVICES
During 1998, the Company purchased a site specializing in the management and
performance of clinical trials for the pharmaceutical and biotechnology
industries. While the Company believes its expertise in regulatory and protocol
compliance, quality assurance, data management and donor recruitment enables it
to provide value-added clinical trial related services to the pharmaceutical and
biotechnology industries, it does not intend to pursue additional, individual
site acquisitions at this time. However, the Company is exploring introducing
these services at its existing donor centers or entering the market through a
multi-site acquisition.
The Company has also identified and investigated several potential niche
service offerings including, but not limited to, the collection of or therapy
involving therapeutic apheresis or plasma exchange and autologous blood and cell
collections. The Company believes it can take advantage of its existing
regulatory and donor center infrastructure to provide a lower-cost, value-added
setting for these services.
The Company believes a number of these and several other specialty service
areas also represent external growth opportunities where it can further leverage
its infrastructure and expertise. These include, but are not limited to, the
consolidation of existing therapeutic apheresis, cell salvage and other
transfusion related services which the Company believes currently are all highly
fragmented and emerging segments of the healthcare services industry.
There can be no assurance that the Company will be successful in the
implementation of any of its product or service initiatives.
MARKETING AND CUSTOMERS
The Company markets its products to over 200 customers worldwide, including
several major healthcare companies. However, in 1996, 1997 and 1998, sales to
the Company's top ten customers accounted for approximately 87%, 84% and 84%,
respectively, of total net sales. One of the Company's customers, Bayer
Corporation ("Bayer"), accounted for approximately 56%, 47% and 40% of the
Company's net sales in 1996, 1997 and 1998, respectively, while another
customer, Centeon Pharma GmbH, accounted for approximately 15%, 11% and 14% of
net sales in 1996, 1997 and 1998, respectively. During 1997, sales to Alpha
Therapeutic Corporation accounted for approximately 12% of net sales. During
1996, 1997 and 1998, no other single customer of the Company accounted for
greater than 10% of net sales. In 1996, 1997 and 1998, the Company's domestic
sales represented approximately 68%, 74% and 63%, respectively, of net sales.
THERAPEUTIC PRODUCTS
The majority of the Company's therapeutic products are sold through its own
sales force and, in limited markets, through independent brokers, to major
biological product manufacturers. The majority of
10
<PAGE>
the Company's specialty antibodies for therapeutic use are sold pursuant to
annual purchase orders, with prices generally negotiated annually. The Company
is a party to four five-year supply contracts with Bayer for the sale of
non-specialty antibodies produced at a number of its non-specialty donor
centers. Such contracts, three of which expire in 1999 and one in 2002,
accounted for approximately 24% of the Company's net sales in 1998. After their
initial terms, the contracts are subject to automatic one-year renewals. At its
option, Bayer may also purchase any production in excess of the stipulated
minimums at the related donor centers. Targeted amounts to be purchased by Bayer
are subject to up to 20% reductions in any given year; however, the Company is
eligible to sell any excess production to other customers. The contracts are
subject to the maintenance of certain quality criteria, certain termination
events and production incentives. In addition, under certain of the contracts,
either Bayer or the Company can reduce, by up to 10%, the quantity supplied upon
notification. Early termination or the inability of the Company to renew the
agreements beyond their initial terms could have a material adverse effect on
the Company.
In connection with the Company's acquisition of Nations Biologics, Inc. and
its affiliates (the "Nations Group") in 1997, the Company acquired several
supply contracts with Alpha Therapeutics Corporation for the sale of
non-specialty antibodies collected at certain of the donor centers previously
operated by the Nations Group. The contracts vary in term, price and volume
levels, but are generally similar to the Company's other supply contracts for
non-specialty antibodies.
DIAGNOSTIC PRODUCTS
The Company's monoclonal and polyclonal antibodies are sold to more than 100
manufacturers or suppliers of blood typing reagents and independent brokers.
While a significant amount of the Company's monoclonal antibody sales are made
pursuant to supply agreements, the majority are regarded as spot sales. The
polyclonal blood typing reagent market can be characterized as a spot market
with limited advance sales and commitments to purchase typically made orally
after the customer receives a sample. Due to the technical nature of the
product, monoclonal antibodies used to manufacture blood typing reagents require
a highly trained and technical sales staff. The Company's sales and technical
support staff for this product is located in Scotland. The capabilities of the
Company's facilities and staff allow for the marketing of monoclonal antibodies
for blood typing in many forms, from unfinished product to finished, vialed and
branded product.
In 1998, the Company's clinical diagnostic antibodies were sold to more than
60 customers in 10 countries. Clinical diagnostic antibodies are primarily sold
to manufacturers of diagnostic test kits for incorporation as controls or for
use in product development projects. The Company maintains a separate sales
group dedicated to this product line due to the large number of customers
requiring personalized treatment and the special product knowledge required. The
Company is a "Preferred Provider" and sells a significant portion of its
clinical diagnostic antibodies pursuant to a supply contract with a customer
that expires in December 1999.
As a result of its acquisition of Pentex, the Company sells its line of
blood proteins products worldwide to over 200 customers in 25 countries. These
customers are generally healthcare companies that manufacture diagnostic
reagents or biopharmaceuticals. The Company's marketing strategy involves
identifying candidate customers, maintaining intimate knowledge of next
generation projects of these companies and creating working relationships with
the research teams of such companies. The Company believes that by competing at
the earliest development stages, it increases its potential for being a sole
source provider and learns more about the needs of developing technologies.
ACQUISITIONS
The commercial sector of the blood products and services industry is
undergoing a consolidation driven largely by the rising cost and complexity
related to increased regulatory compliance requirements. A
11
<PAGE>
significant component of the Company's business strategy has and continues to
include acquisitions which enable the Company to participate in the
consolidation of the industry and to add complementary products and services
which will expand the Company's current product and service portfolio.
A significant factor in the Company's growth has been the acquisition of
donor centers. The Company intends to pursue the acquisition of selective donor
centers throughout the United States in order to expand its antibody-sourcing
network. The Company believes that acquiring additional donor center operations
will allow it to leverage its selling, general and administrative costs over a
greater volume of production, thereby creating economies of scale. In addition,
the Company believes that these acquisitions will enable the Company to leverage
its core competencies and infrastructure to allow the acquired businesses to
provide, on an incremental basis, additional higher-margin specialty products
and services that the Company offers. During 1998, the Company acquired the
assets of four non-specialty donor centers, as well as a site that manages and
performs clinical trials for the pharmaceutical and biotechnology industries.
The Company also intends to pursue acquisitions of businesses that provide
services and products that are complementary to its existing businesses, such as
the acquisition, subsequent to year end, of Pentex. However, there can be no
assurance that the Company will be able to complete suitable acquisitions in the
future or successfully integrate any such acquisitions into its existing
operations.
QUALITY ASSURANCE
The Company maintains quality assurance programs designed to assure the
efficacy and safety of its products and compliance with the requirements of
regulatory authorities, industry trade associations and its customers. Through
the Company's Quality Assurance Program, an internally maintained regulatory
compliance program, the Company conducts periodic audits of each facility to
monitor staff adherence to regulations and protocols. These audits are designed
to ensure adherence to Company procedures and effectiveness of staff training
efforts. The Company subscribes to the Quality Plasma Program ("QPP"), which is
a donor center certification program administered by the American Blood
Resources Association ("ABRA"), an industry trade organization. ABRA certifies
only those facilities that meet its standards and provide the highest quality
products. Most of the Company's customers require their suppliers to be QPP
certified. All of the Company's donor center facilities are currently QPP
certified.
COMPETITION
The Company is engaged in the business of providing antibodies, which is a
competitive and continually changing field. The Company competes for customers
with other antibody suppliers on the basis of price, reliability and quality of
product, breadth of product line and the ability to provide value-added
services. While the Company believes that its proprietary anti-D vaccination
protocol and extensive donor base of individuals with high concentrations of
pre-existing anti-D antibodies provides it a competitive advantage and allows it
to offer a premium product in terms of quality, the Company expects increased
competition in the future for its anti-D antibodies from other independent
collection companies. The Company believes that further increases in the
production of anti-D antibodies by other suppliers could have an adverse effect
on the Company through decreased orders for its product or lower selling prices
per unit.
In certain markets, the Company competes for donors by means of financial
incentives which the Company offers for the donation of the antibodies it
collects, by providing donor services, by implementing programs designed to
attract and retain donors through education as to the uses for collected
antibodies, by encouraging groups to have their members become antibody donors
and by improving the attractiveness of the Company's donor centers. Certain of
the Company's specialty antibodies are derived from donors with rare antibody
characteristics, resulting in increased competition for such donors. If the
Company is unable to maintain and expand its donor base, its business and future
prospects may be adversely affected.
12
<PAGE>
Furthermore, several companies are attempting to develop and market products
to treat diseases based upon technology that may lessen or eliminate the need
for certain antibodies or other plasma-based products. Such products, if
successfully developed and marketed, could adversely affect the demand for
antibodies and other plasma-based products.
There can be no assurance that competition for customers, donors, end
products or otherwise will not adversely affect the Company.
The Company believes it takes on average 10-12 months to obtain FDA approval
for a non-specialty donor center, and takes up to 18 months to obtain the
necessary regulatory approvals in order to begin shipping product from a
specialty donor center which immunizes its donors. In addition to these
regulatory requirements, once the center is operational, a stable donor base
must be established and maintained as repeat donors are critical to success for
both quality control and profitability. A significant volume of donated
antibodies and sophisticated screening and immunization procedures also are
necessary in order to provide the diversity and quality of antibody products
demanded by the market.
GOVERNMENT AND INDUSTRY REGULATION
GENERAL. The Company's activities are subject to significant regulation by
numerous governmental authorities in the U.S. and internationally. These
regulatory authorities govern the collection, testing, manufacturing, safety,
efficacy, labeling, storage, record keeping, transportation, approval,
advertising and promotion of the Company's products, as well as the hiring and
training of its employees. The Company believes it is in substantial compliance
with all relevant laws and regulations.
The Company is subject to extensive FDA regulation. Excluding one recently
opened location, all of the Company's donor centers and the Company's monoclonal
manufacturing facilities hold FDA establishment licenses and the Company's
specialty donor centers have numerous supplements to the source plasma product
license, permitting the production and sale of specialty antibodies and the
immunization of donors. The Company is also licensed to immunize donors at
certain of its primarily non-specialty donor centers.
During 1998, the FDA issued proposals to create a single license for
biologic products (BLA), replacing the current establishment licenses and
product licenses, with the goal of reducing unnecessary burdens for the industry
without diminishing public health protection. Under these regulations, the FDA
issues a single license to manufacturers of multiple biological products, such
as specialty antibodies and product derived from immunized donors. While the
application process has not yet been unified under a single application, the
regulations are now in effect for the issuing of licenses, and the Company's
non-specialty donor centers are now operating under a single license. The
Company is currently seeking approval for a recently opened specialty donor
center; when approved, it and the Company's remaining 16 specialty donor centers
will be covered under a single license. The Company is unable to determine the
impact of these new guidelines, including, for example, how enforcement actions
such as suspension or revocation of licenses will affect other donor centers
under a single license when and if compliance issues arise. However, if
enforcement action were to be taken against all donor centers under a BLA for
the actions of a single donor center, the Company could be materially adversely
affected. The Company also believes that other collectors might attempt to enter
the specialty antibody market, as they will generally be allowed to immunize
donors at historically non-specialty donor centers during the application
process. However, the Company believes that its extensive experience in
immunization will be a competitive advantage, as it expects the difficulty of
the application and approval process to increase.
New facilities, products and operating procedures at each location must
undergo approval processes through the FDA. Significant changes to existing
facilities, products or operating procedures must also undergo FDA review prior
to implementation. The Company's FDA-licensed antibody collection and testing
operations in the United States and its monoclonal manufacturing facilities in
the U.K. are required to adhere to FDA current Good Manufacturing Practices
(cGMP) and are routinely inspected by the FDA.
13
<PAGE>
Furthermore, the Company's protein fractionation site is an FDA-registered
facility. Donor centers must meet detailed standards for, among other things,
the screening of donors, obtaining informed consent from donors, the collection
of antibodies, training of personnel and the testing, handling and disposal of
biologic products. If the FDA believes that a facility is not in compliance with
applicable laws and regulations, generally as a result of an on-site inspection,
it typically issues a deficiency notice known as a Form 483 and, subsequently, a
warning letter if such deficiencies are not adequately responded to or addressed
in an appropriate and timely manner. An inadequate response to a warning letter
could ultimately result in the detainment or seizure of products, issuance of a
recall, enjoinment of future operations and the assessment of civil and criminal
penalties against the Company, its officers or its employees. In addition,
approvals or licenses could be temporarily suspended or revoked in certain
circumstances. Failure to comply with regulatory requirements or a significant
adverse regulatory action could have a material adverse effect on the Company.
Due in part to a new approach by the FDA known as "Team Biologics", there
has been an increasing level of regulatory scrutiny in the biologics industry
resulting in more detailed and frequent inspections, and what the Company
believes are a greater number of observations cited per inspection, deficiency
notices and warning letters. On occasion, the Company has received notifications
and warning letters from the FDA of possible deficiencies in the Company's
compliance with FDA requirements. To date, the Company believes that it has
adequately addressed or corrected such deficiencies. See "Government and
Industry Regulation" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Overview".
The Company is also subject to additional inspections by customer quality
assurance auditors, ABRA auditors, the Health Care Financing Administration
("HCFA") and state health departments. HCFA regulates and certifies all clinical
testing performed at each donor center and the Company's central testing
laboratory under the Clinical Laboratories Improvement Act of 1988. The
Company's central testing laboratory in Atlanta, Georgia is licensed by the FDA
and the State of Georgia.
Outside the United States, sales of the Company's products are subject to
additional regulatory requirements, which vary widely from country to country.
In particular, much of Company's domestic operations are subject to inspection
and approval by various German regulatory bodies, as a significant portion of
its products, including those sold to domestic affiliates of German companies,
are ultimately further manufactured or sold in Germany. These regulations, while
similar in scope to those promulgated by the FDA, are often more restrictive. In
the United Kingdom, the Company is subject to the U.K. Health and Safety at Work
Act, which regulates the safety precautions required of manufacturers in the
United Kingdom, and to various other regulations covering the use of genetically
engineered organisms in laboratory and manufacturing processes. In certain
countries, the Company's customers are subject to regulatory requirements that
require additional inspection and approval of the Company's facilities prior to
the shipment of products to such countries. Changes in existing federal, state
or foreign laws or regulations could have an adverse effect on the Company's
business.
The Company is also subject to numerous industry and customer-mandated
standards. Industry groups such as ABRA and the Company's customers continually
evaluate their practices and procedures regarding new information or public
concerns over diseases which may be transmitted from donors through their blood
or blood components. Based upon such evaluation, a certain portion of the
population may be prohibited from donating in the future, or certain new testing
and screening procedures may be required to be performed with respect to certain
donors. The Company is also subject to routine inspections of its facilities by
its customers, whose approval must generally be obtained for each donor center
prior to shipping product.
One specific concern currently facing the industry is CJD, an often fatal
disease occurring sporadically in the world at an incidence of about one per
million population per year and which has been reportedly linked in some cases
to bovine spongiform encephalopathy, also known as "mad cow disease". However,
14
<PAGE>
no evidence currently exists that CJD can be transmitted by blood and plasma
products and the risk, if any, is believed to be small and at present only
theoretical. While no acceptable testing or screening procedure currently exists
to detect CJD, it has generally been found to have a higher incidence in the
older population. In response to this concern and at the request of several of
its customers, the Company has ceased collecting certain antibodies from donors
over the age of 59 at certain of its donor centers.
Another relatively new standard voluntarily adopted by the industry relates
to the acceptance of new donors. In an effort to further minimize the potential
that infected plasma could enter the manufacturing process undetected, all first
time donors' plasma is excluded from shipment and further manufacture unless a
second, negative set of test results is also obtained on a second donation
within six months, essentially precluding one-time donations. Also, in order to
further shorten the "window period" during which time a donor is potentially
infectious but is not detected as such by current screening tests that measure
antibody response to the viruses, certain of the Company's therapeutic customers
have implemented a testing method, Nucleic Acid Amplification ("NAT"), sometimes
known as Polymerase Chain Reaction ("PCR") technology. PCR/NAT testing is a
method used to detect the presence of genetic material of problem viruses before
antibodies against those viruses can be formed. While the test is not yet
required or approved by the FDA, the Company's customers have begun testing all
source plasma for hepatitis C and, in some cases, hepatitis B and HIV, as a
further measure of safety.
Although the Company does not believe that the potential loss of donors
resulting from these new standards will have a material impact on its operating
results, there is no assurance that the long-term impact of these standards, or
the imposition of other blood safety measures, will not have a material adverse
effect on future operations.
PRODUCT APPROVALS. Before new specialty antibody collection activities can
be initiated at any donor center, separate approvals for each type of specialty
antibody to be collected must be obtained from the FDA. There can be no
assurance that difficulties or delays will not arise in connection with
applications for approval to conduct expanded antibody collection activities.
Federal, state and foreign laws and regulations regarding the manufacture
and sale of blood products are subject to future change. The Company cannot
predict what impact, if any, such change might have on its business. However,
such changes could have a material impact on the Company's business.
OTHER. The Company is also subject to government regulations enforced under
the Environmental Protection Act, the Clean Air Act, the Clean Water Act, the
National Environmental Policy Act, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act, the Medical Waste Tracking Act, and
other national, state or local restrictions. The Company is also subject to
workplace safety regulations under the Occupational Safety and Health Act
(OSHA). The Company believes that it is in substantial compliance with all
applicable regulations.
THIRD PARTY REIMBURSEMENT
In both domestic and foreign markets, sales by the Company's customers may
depend in part on the availability of reimbursement from third-party payors such
as government health administration authorities, private health insurers and
other similar organizations. Third-party payors are increasingly challenging the
price and cost-effectiveness of medical products and services. There can be no
assurance that pricing pressures which may be experienced by the Company's
customers will not adversely affect the Company because of a determination that
these products are not cost effective or because of inadequate third-party
reimbursement levels to such customers. Moreover, the Company's profitability
may be directly affected by the availability of third party reimbursement for
any finished monoclonal product it seeks to sell.
15
<PAGE>
EMPLOYEES
As of March 15, 1999, the Company employed 1,175 persons, 1,094 of whom were
located in the United States and 81 of whom were located in the United Kingdom.
Of the Company's U.S.-based employees, 33 that were hired in connection with the
acquisition of Pentex are members of a collective bargaining unit. The Company
believes that its relationship with its employees is generally satisfactory.
PRODUCT LIABILITY AND INSURANCE
The sourcing, processing and sale of the Company's products involve a risk
of product and professional liability claims. The Company has obtained product
liability insurance in an amount of $3.0 million per incident and $3.0 million
in the aggregate per annum for each of the Company's facilities on an occurrence
basis and professional liability insurance in the same amounts on a claims made
basis. The Company also has a $5.0 million excess liability umbrella insurance
policy. There can be no assurance that the coverage limits of the Company's
insurance policies and/or any rights of indemnification and contribution that
the Company may have will offset potential claims. A successful claim against
the Company in excess of insurance coverage and not subject to indemnification
could have a material adverse effect on the Company.
ITEM 2. PROPERTIES
The Company's 64 donor centers and its clinical trial site are located in 22
states and the District of Columbia, principally in the South, Southwest,
Midwest and Northwest United States. The donor centers range in size from
approximately 1,000 to 10,000 square feet and are generally leased with
five-year terms. A majority of these leases contain renewal options which permit
the Company to renew the leases for a five-year period at the then fair rental
value. The Company believes that in the normal course of its business, it will
be able to renew its existing leases or relocate its operations subject to
regulatory approval. See Item 1, "Business-Operations."
The Company's central testing laboratory and international headquarters are
located in Atlanta, GA; its monoclonal research and development laboratories and
the Company's FDA licensed monoclonal antibody manufacturing facilities are
located in Edinburgh, Scotland (large scale monoclonal production) and
Livingston, Scotland (vialing and labeling). All of these facilities are leased
with terms expiring through 2021.
The Company's owned blood protein fractionation facility, acquired in the
Pentex transaction, is a 44,000 square foot facility located on five acres in
Kankakee, Illinois. In order to meet current and expected demand for certain of
its products, the facility is currently undergoing a 17,000 square foot
expansion, which it expects to have completed during the fourth quarter of 1999.
ITEM 3. LEGAL PROCEEDINGS
In connection with a dispute relating to the "earn-out" provisions in a
stock and asset purchase agreement entered into by the Company and certain of
its subsidiaries with Nations Biologics, Inc., affiliated entities and the other
sellers named therein (the "Sellers"), dated March 6, 1997, pursuant to which
the Company acquired 16 donor centers (the "Purchase Agreement"), the Sellers in
November 1998 commenced an action titled DECATUR PLASMA, INC. ET AL. V.
SEROLOGICALS CORPORATION ET AL, in federal district court in the Northern
District of Georgia. The complaint asserted a claim for breach of contract,
alleging that the Sellers were entitled to an "earn-out" payment in addition to
the consideration already received by the Sellers in connection with the
transaction. The Company notified the Sellers that it denied the allegations and
intended to defend the action vigorously and potentially to assert counterclaims
against the Sellers. Subsequently, the Company filed a motion to dimiss the
complaint, and no answer was filed or discovery taken. During the pendency of
the motion to dismiss, the parties agreed to voluntarily dismiss the
16
<PAGE>
action and to exchange releases pursuant to a settlement. In accordance with the
settlement, no earn-out or other consideration beyond the initial purchase price
is being paid to the Sellers.
The Company is also a party to litigation in the ordinary course of
business. The Company does not believe that such litigation is likely to have a
material adverse effect on its financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth quarter
of the fiscal year ended December 27, 1998.
ITEM 4A. EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
The following table sets forth the names, ages and all positions and offices
with the Company held by the Company's present executive officers. Unless
otherwise indicated below, each person has held the office indicated for more
than five years:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES PRESENTLY HELD
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Harold J. Tenoso, Ph.D............................... 60 President, Chief Executive Officer and Director
Terry Dobson......................................... 53 Vice President, International Development
Charles P. Harrison.................................. 51 Vice President, Therapeutic Business Unit
P. Ann Hoppe......................................... 59 Vice President, Regulatory Affairs
Timm M. Hurst........................................ 57 Vice President, Sales and Marketing
Russell H. Plumb..................................... 40 Vice President, Finance and Administration,
Chief Financial Officer and Treasurer
Toby L. Simon, M.D................................... 54 Vice President, Medical and Scientific Affairs
Keith J. Thompson.................................... 41 Vice President, Diagnostic Operations
</TABLE>
HAROLD J. TENOSO, PH.D. has served as President and Chief Executive Officer
of the Company since March 1993 and as a director since August 1993. From 1984
until April 1993, he served in various capacities at UNIMED, Inc., a publicly
held pharmaceutical company, including as Chief Executive Officer from January
1989 to April 1992, chairman from January 1991 to April 1992 and consultant from
May 1992 to April 1993.
TERRY DOBSON has served as Vice President, International Development of the
Company since January 1995. Mr. Dobson was Managing Director of Bioscot from
January 1990 to January 1995. Prior to joining the Company upon the Company's
acquisition of Bioscot, Mr. Dobson served as the Business Manager, FDA
Responsible Head and a director of Bioscot.
CHARLES P. HARRISON has served as Vice President, Therapeutics Business Unit
since January 1999. Previously, he served as Vice President, Healthcare Services
from February 1996 until December 1998. Prior to joining the Company he was the
President, Chief Executive Officer, Chief Financial Officer and a director of
Creative Products Resource, Inc., a drug delivery firm from January 1993 until
January 1996. Prior to that time, he was the President, Chief Financial Officer
and a director of UNIMED, Inc., a publicly held pharmaceutical company, from May
1986 until May 1992 and a consultant from May 1992 until April 1993. Mr.
Harrison is presently a director of Creative Products Resource, Inc.
P. ANN HOPPE has served as Vice President, Regulatory Affairs since March
1997. From September 1994 until she joined the Company, Ms. Hoppe served as
President, Hoppe Regulatory Consulting, a private consulting firm servicing the
blood and blood products industries. From 1974 until September 1994, Ms. Hoppe
served in various capacities with the FDA, most recently as Assistant Director,
Office of Blood
17
<PAGE>
Research and Review, Center for Biologics Evaluation and Research from September
1993 until September 1994 and Director, Division of Blood Collection and
Processing, from October 1990 until September 1993.
TIMM M. HURST, has served as Vice President, Sales and Marketing of the
Company since May 1998 and was a Vice President from May 1997 until May 1998.
From April 1994 until May 1997, Mr. Hurst served as Vice President, Sales and
Marketing of the Company and from 1984 until April 1994, as Vice President in
charge of disease state products, technical services and administration of the
Company. Prior to joining the Company, Mr. Hurst was the Director of Sales and
Marketing for Blood Products of Delmed, Inc. Mr. Hurst is a member of AABB.
RUSSELL H. PLUMB has served as Vice President, Finance and Administration,
Chief Financial Officer and Treasurer since joining the Company in April 1994.
Prior to joining the Company, he was a Senior Manager in the Corporate Finance
Group at Ernst & Young from April 1991 to April 1994. Prior to joining Ernst and
Young, he was a Managing Director for Tunstall Consulting, a business advisory
firm, from October 1987 to July 1990.
TOBY L. SIMON, M.D. has served as Vice President, Medical and Scientific
Affairs since March 1997. From March 1990 until joining the Company, Dr. Simon
served in various capacities with Blood Systems, Inc., an organization of blood
and plasma centers ("BSI"), and its research affiliate, Blood Systems Foundation
("BSF"), most recently as President of BSF from March 1995 until March 1997 and
President and Chief Executive Officer of BSI from March 1991 until March 1995.
Dr. Simon is certified in internal medicine and hematology by the American Board
of Internal Medicine and in blood banking by the American Board of Pathology.
KEITH J. THOMPSON has served as Vice President, Diagnostic Operations since
January 1998. Prior to his appointment as Vice President, Mr. Thompson served in
various capacities at Bioscot since 1985, including as Managing Director from
January 1995 until December 1997 and as Operations Director from November 1992
until December 1994.
In addition, the following individuals serve as key employees of the
Company:
JAMES F. SOWINSKI, 49, has served as Vice President of the Company since May
1997. From 1988 until May 1997, Mr. Sowinski served as Vice President,
Operations of the Company. Mr. Sowinski joined the Company in 1977 as a donor
center Executive Director and Responsible Head.
M. DWAIN WILCOX, 31, has served as Vice President, Information Systems since
joining the Company in October 1998. Prior to joining the Company, Mr. Wilcox
held several positions at Lanier Worldwide, a subsidiary of Harris Corporation,
most recently as Director, Systems Integration from June 1996 until October 1998
and Program Manager, System Integration from November 1993 until June 1996.
18
<PAGE>
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock was initially offered to the public on June 15,
1995 at a price of $5.11 per share and trades on the Nasdaq Stock Market
("Nasdaq") under the symbol "SERO."
The Company declared a three-for-two split of its common stock effective
August 14, 1998 for shareholders of record on July 31, 1998. All price and share
amounts herein are adjusted to reflect the effect of such split.
On March 15, 1999, the closing price of the common stock was $16.00 per
share. As of March 15, 1999, there were 102 holders of record and approximately
3,300 beneficial holders of the Company's common stock.
The Company has not paid any cash dividends on its common stock to date. The
payment of cash dividends, if any, in the future is within the discretion of the
Board of Directors and will depend on the Company's earnings, its capital
requirements and financial condition. It is the present intention of the Board
of Directors to retain all earnings, if any, for use in the Company's business
operations and, accordingly, the Board of Directors does not expect to declare
or pay any cash dividends in the foreseeable future. In addition, under the
Company's Second Amended and Restated Credit Agreement dated as of October 16,
1997, with NationsBank, N.A., there are limitations on the Company's ability to
pay cash dividends.
The following table sets forth the high and low sale prices for the
Company's common stock for the periods indicated as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Year Ended December 27, 1998
Quarter Ended
March 29............................................................... $ 19.58 $ 15.42
June 28................................................................ 22.50 16.67
September 27........................................................... 26.00 16.75
December 27............................................................ 30.38 18.00
Year Ended December 28, 1997
Quarter Ended
March 30............................................................... $ 15.72 $ 10.08
June 29................................................................ 14.67 9.17
September 28........................................................... 15.67 12.59
December 28............................................................ 17.33 12.00
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been derived from the
Consolidated Financial Statements of the Company. These data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and notes thereto included elsewhere in this Form 10-K. The statements
of operations data and balance sheet data as of and for the years ended December
31, 1994 and 1995, December 29, 1996,
19
<PAGE>
December 28, 1997 and December 27, 1998 have been derived from the audited
Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $ 30,100 $ 52,124 $ 65,571 $ 97,534 $ 123,072
Costs and Expenses
Cost of sales........................................... 16,796 31,525 38,752 62,065 81,242
Selling, general and administrative expenses............ 6,290 8,216 9,394 12,222 13,545
Product development expenses............................ 829 1,974 2,242 2,000 1,403
Other expense, net...................................... 12 1,328 1,847 2,713 2,696
Interest expense (income), net.......................... 407 2,116 220 (532) (846)
--------- --------- --------- --------- ----------
Income before income taxes and extraordinary loss......... 5,766 6,965 13,116 19,066 25,032
Provision for income taxes................................ 2,227 2,499 4,866 7,064 8,687
--------- --------- --------- --------- ----------
Income before extraordinary loss.......................... 3,539 4,466 8,250 12,002 16,345
Extraordinary loss on early retirement of debt, net of
income taxes............................................ (103) (1,823) (14) -- --
--------- --------- --------- --------- ----------
NET INCOME................................................ 3,436 2,643 8,236 12,002 16,345
Accretion of common stock put warrants.................... (186) (46) -- -- --
--------- --------- --------- --------- ----------
NET INCOME available for common stockholders.............. $ 3,250 $ 2,597 $ 8,236 $ 12,002 $ 16,345
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
NET INCOME PER COMMON SHARE--BASIC:
Income before extraordinary loss........................ $ 0.36 $ 0.27 $ 0.41 $ 0.54 $ 0.68
Extraordinary loss...................................... (0.01) (0.11) -- -- --
--------- --------- --------- --------- ----------
Net income.............................................. $ 0.35 $ 0.16 $ 0.41 $ 0.54 $ 0.68
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
NET INCOME PER COMMON SHARE-- DILUTED:
Income before extraordinary loss........................ $ 0.24 $ 0.26 $ 0.38 $ 0.51 $ 0.63
Extraordinary loss...................................... (0.01) (0.11) -- -- --
--------- --------- --------- --------- ----------
Net income.............................................. $ 0.23 $ 0.15 $ 0.38 $ 0.51 $ 0.63
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING:
Basic................................................. 9,296 16,160 20,210 22,249 24,001
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Diluted (1)........................................... 14,063 17,204 21,482 23,789 25,942
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
BALANCE SHEET DATA:
Working capital......................................... $ 6,060 $ 6,174 $ 20,705 $ 37,425 $ 56,164
Total assets............................................ 50,135 50,234 80,837 123,492 147,331
Long-term debt, less current maturities................. 32,708 6,751 147 4,446 878
Stockholders' equity.................................... 6,842 36,577 67,804 103,285 129,009
</TABLE>
- ------------------------
(1) The dilutive effect of stock options and warrants has been calculated
according to the treasury stock method using the IPO price of $5.11 per
share for all periods presented prior to June 14, 1995.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a leading worldwide provider of specialty human antibodies
and related services to major healthcare companies. The Company also collects
source plasma containing non-specialty antibodies used in the manufacture of a
number of products, primarily intravenous immune globulin (IVIG), a product
containing a broad spectrum of antibodies used in the treatment of a wide
variety of medical indications. As of March 15, 1999, the Company operated 64
donor centers, 17 of which specialize in specialty antibody collections and 47
of which primarily collect source plasma. Through the Company's Serologicals,
Ltd. subsidiary, formerly known as Bioscot, Ltd. ("Bioscot"), it also operates
two FDA-licensed monoclonal antibody manufacturing facilities in Scotland. For
management purposes, the operations of the Company's subsidiaries are organized
into two primary operating segments, Therapeutic Products and Diagnostic
Products. These segments are based primarily on the differing nature of the
ultimate end use of the Company's products, the differing production and other
value-added processes performed by the Company with respect to the products and,
to a lesser extent, the differing customer bases to which each reportable
segment sells its products.
The activities of the Therapeutic Products segment primarily include the
collection and sale of human antibodies that are used as the active ingredients
in therapeutic products for the treatment and management of diseases such as Rh
incompatibility in newborns, hepatitis and rabies. The activities of the
Diagnostic Products segment primarily include the Company's manufacture and sale
of monoclonal antibodies and the sale of certain human-sourced, polyclonal
antibodies, which are used in diagnostic products such as blood typing reagents
and diagnostic test kits.
Increasing regulatory scrutiny continues to be a significant factor shaping
the biologics industry, resulting in more detailed and frequent Food and Drug
Administration (FDA) inspections of the Company's and its customers' operations,
a potentially greater number of observations, deficiency notices and warning
letters per inspection, and more product recalls and temporary or permanent
closures of facilities. One factor contributing to this trend is the FDA's
implementation of a new approach to inspections of donor centers and laboratory
testing and manufacturing facilities, including the Company's customers',
entitled "Team Biologics". Under this new approach, substantially all such
inspections are performed by highly trained field investigators who are focusing
more extensively on the FDA's current good manufacturing practices (cGMP) and
quality systems. This approach was first applied to the plasma fractionators and
subsequently to other biologic product areas, including to date certain of the
Company's facilities. Several large fractionators, including certain of the
Company's customers, have been affected in varying degrees, from complete
shutdowns of manufacturing facilities to operating under a consent decree to
bring their facilities into compliance. Furthermore, the Company believes
certain manufacturers are currently experiencing a longer than anticipated FDA
approval process of new, relocated or expanded manufacturing and laboratory
testing facilities. Specifically, during 1998 the Company's largest customer
ceased performing laboratory testing services on the non-specialty antibodies it
purchased from the Company, due to difficulties in the validation of its
relocated laboratory testing facility. The Company has since transferred the
majority of the mandatory viral marker testing of the product sold to this
customer to its own central laboratory located in Atlanta, Georgia. Also during
1998, the Company was notified that another of its customers, which has been
operating under a consent decree, had suspended certain operations following an
FDA inspection. As the majority of the Company's sales to this customer are made
to its European affiliate whose manufacturing facilities were not impacted by
this suspension, the Company believes that the impact on its results of
operations and financial condition will not be material.
On occasion, the Company has received notifications and warning letters from
the FDA related to possible deficiencies in the Company's compliance with FDA
requirements. To date, the Company believes that it has adequately addressed or
corrected such deficiencies and that it is in substantial compliance with all
relevant laws and regulations. However, as all of the Company's operations have
not yet been fully
21
<PAGE>
subjected to Team Biologics inspections, it is unable to determine what impact,
if any, such inspections will have on the Company and its operations when they
occur.
Another trend the industry is currently experiencing is the continuing
imposition of more rigorous donor screening standards by the FDA and certain
regulatory bodies in foreign countries, in particular, those governing the
manufacture of plasma-based products in Germany. The Company's customers and
certain industry trade organizations are also imposing stricter standards. Such
new standards, including donor age restrictions, the elimination of one-time and
certain other infrequent donors and the introduction of new testing techniques
have reduced the pool of, and increased the competition for, potential donors.
Furthermore, the Company believes that, owing in part to the general strength of
the national economy, the financial incentives provided to donors may be less
attractive as compensation for their time, further decreasing the pool of
potential donors. Conversely, current demand for many of the antibodies the
Company offers has increased for a variety of reasons, including increased
demand for the end products into which they are manufactured, expanded use of
the various end products and increased manufacturing capacity of certain
fractionators as they are able to bring their facilities into compliance. These
factors have led to recent and, in some cases, critical shortages of various
plasma-based products, most notably IVIG.
While the Company believes it has been adversely impacted by the factors
described above, including lower than anticipated collections of non-specialty
antibodies and the, increased collection costs thereof, it believes that the
current supply and demand factors affecting the industry may serve to enhance
the pricing of non-specialty antibodies in the future and the Company's
long-term prospects. While the Company is currently pursuing various
alternatives to increase production at its non-specialty donor centers, there
can be no assurance that such efforts will be successful, or that any further
impact related to these factors will not have a material adverse effect on the
Company or its operations.
RECENT DEVELOPMENTS
On December 29, 1998, the Company purchased substantially all of the
domestic assets of the Pentex Blood Proteins unit of Bayer Corporation
("Pentex") for $27.5 million cash at closing. Pursuant to the same transaction,
the Company entered into an agreement to purchase certain foreign assets of
Pentex for $1.5 million; the Company anticipates consummating this portion of
the acquisition in the second quarter of 1999. Pentex provides a full range of
over 100 distinct animal protein products derived from five different animal
species. These products, such as bovine serum albumin (BSA), are primarily
supplied to healthcare companies for use in diagnostic reagents. The Company
also provides a line of highly purified animal proteins known as tissue culture
media components that are used by biopharmaceutical companies as nutrient
additives in cell culture media. One example of these media components is Bovine
EX-CYTE-Registered Trademark-, Growth Enhancement Media Supplement, that is
produced through a patented manufacturing process. The Company will account for
the acquisition as a purchase in accordance with Accounting Principles Board
Opinion Number 16.
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Consolidated
Financial Statements and Notes thereto. The following table sets forth certain
consolidated operating data of the Company as a percentage of net sales for the
fiscal years indicated below.
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net sales............................................................ 100.0% 100.0% 100.0%
Gross profit......................................................... 40.9% 36.4% 34.0%
Selling, general and administrative expenses......................... 14.3% 12.5% 11.0%
Product development expenses......................................... 3.4% 2.1% 1.1%
Net income........................................................... 12.6% 12.3% 13.3%
</TABLE>
22
<PAGE>
YEARS ENDED DECEMBER 27, 1998 AND DECEMBER 28, 1997
NET SALES
CONSOLIDATED
Consolidated net sales increased 26.2%, or approximately $25.5 million, from
$97.5 million in 1997 to $123.1 million in 1998. Of this increase, approximately
$17.0 million was attributable to increased sales from existing operations,
while the remainder, or approximately $8.5 million, was attributable to
acquisitions completed during 1997 and 1998.
THERAPEUTIC PRODUCTS
Net sales of Therapeutic Products increased approximately $22.9 million, or
28.9%, from $79.2 million in 1997 to $102.1 million in 1998. Of this increase,
approximately $16.5 million was from increased sales of antibodies from existing
operations, most significantly anti-D, and to a lesser extent, non-specialty
antibodies. The increase in sales of anti-D antibodies was a result of both
pricing and volume increases, while the increase in sales of non-specialty
antibodies was due in large part to an increase in the percentage of the product
sold on a "gross" pricing basis, for which the increased selling price is
reflective of the Company's provision of laboratory testing services and certain
donor supplies that were previously borne by the customer on a net basis. The
remainder of the increase, or approximately $6.3 million, was the result of
acquisitions completed during 1997 and 1998. The majority of the sales
attributable to the acquisitions was of non-specialty antibodies. Total net
sales of specialty antibodies increased approximately $11.0 million, or 31.8%,
from $34.7 million in 1997 to $45.7 million in the current year, while total net
sales of non-specialty antibodies increased approximately $11.9 million, or
26.6%, from $44.6 million in 1997 to $56.4 million in 1998.
DIAGNOSTIC PRODUCTS
Net sales of Diagnostic Products increased approximately $1.8 million, or
10.0%, from $18.3 million in 1997 to $20.1 million in the current year. Of the
increase, $492,000 was primarily the result of increased sales of antibodies
used in blood typing reagents, which were offset by marginal decreases in
certain other diagnostic products. The remainder of the increase, or $1.4
million, was attributable to an acquisition completed during 1997. Total net
sales of monoclonal antibodies increased $430,000, or 3.6%, from $11.8 million
in 1997 to $12.3 million in 1998. The remaining net sales, primarily
human-sourced antibodies used in blood typing reagents and diagnostic test kits,
increased approximately $1.4 million, or 22.0%, from $6.4 million in the prior
year to $7.8 million in 1998.
GROSS PROFIT
CONSOLIDATED
Consolidated gross profit increased 17.9%, or approximately $6.4 million,
from $35.5 million in 1997 to $41.8 million in the current year. Of this
increase, approximately $5.1 million was the result of increased sales from
existing operations, while approximately $1.3 million was attributable to
acquisitions completed during 1997 and 1998. Gross profit as a percentage of net
sales ("gross margin") decreased from 36.4% in 1997 to 34.0% in the current
year, largely as a result of lower than anticipated production at many of the
Company's primarily non-specialty donor centers, resulting in decreased fixed
cost absorption and lower gross profit per unit, and a changing pricing mix of
non-specialty antibody sales.
THERAPEUTIC PRODUCTS
Gross profit from Therapeutic Products increased approximately $4.2 million,
or 16.5%, from $25.4 million in 1997 to $29.6 million in the current year. This
increase was due to additional gross profit from existing operations, primarily
a result of increased sales of anti-D, offset by lower gross profit on
23
<PAGE>
several product lines, most notably non-specialty antibodies, and higher
depreciation expense. Gross margin decreased from 32.0% in 1997 to 29.0% in
1998, primarily as a result of the level of non-specialty antibody production.
Gross margin was also impacted by the increase in the percentage of
non-specialty antibodies sold on a gross basis, as there was relatively
insignificant gross profit attributed to the additional revenue.
DIAGNOSTIC PRODUCTS
Gross profit from Diagnostic Products increased approximately $2.2 million,
or 21.7%, from $10.1 million in 1997 to $12.3 million in 1998. The majority of
this increase was attributable to increased sales from existing operations, most
notably monoclonal and polyclonal antibodies used in blood typing reagents and
increased margins on antibodies sold for use in diagnostic test kits. Gross
margin for the Diagnostic Products segment increased from 55.2% to 61.1%,
primarily as a result of a favorable sales mix within the segment's products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated selling, general and administrative expenses increased 10.8%,
or $1.3 million, from $12.2 million in 1997 to $13.5 million in the current
year. The increase was primarily due to a general increase in corporate
overhead, in particular expenditures for information systems and related
personnel, as well as legal, accounting and other expenses related to the
Company's acquisition activities. Selling, general and administrative expenses,
as a percentage of consolidated net sales, decreased from 12.5% in 1997 to 11.0%
in the current year, due to the higher average selling price for non-specialty
antibodies, which required only minimally higher general and administrative
expenses. The Company also continued to effectively leverage its general
corporate infrastructure.
PRODUCT DEVELOPMENT EXPENSES
Consolidated product development expenses decreased $597,000, or 29.9%, from
$2.0 million in 1997 to $1.4 million in the current year. The decrease was
primarily due to a decreased emphasis on the development of a monoclonal anti-D
product.
OTHER EXPENSE, NET
Consolidated other expense, net, which primarily consists of amortization of
goodwill and other intangible assets and gains and losses from foreign currency
translations, was essentially unchanged from the prior year.
INTEREST INCOME, NET
Consolidated interest income, net increased $314,000, or 59.0%, from
$532,000 in 1997 to $846,000 in 1998. The increase was primarily attributable to
higher average cash and cash equivalent balances during the year and lower
average borrowings outstanding during the year, offset by lower average interest
rates earned on invested cash balances.
PROVISION FOR INCOME TAXES
The provision for income taxes as a percentage of income before income taxes
decreased from 37.1% in 1997 to 34.7% in 1998. The decrease was primarily the
result of the favorable impact of a number of foreign, state and local tax
planning initiatives adopted by the Company.
24
<PAGE>
YEARS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996
NET SALES
CONSOLIDATED
Consolidated net sales increased approximately $32.0 million, or 48.7%, from
$65.6 million in 1996 to $97.5 million in 1997. Of the increase, approximately
$19.2 million was the result of acquisitions completed during 1997 and the
full-year effect of acquisitions completed during 1996. The remainder of the
increase, or approximately $12.8 million, resulted from increased sales from
existing operations.
THERAPEUTIC PRODUCTS
Net sales of Therapeutic Products increased $28.3 million, or 55.7%, from
$50.9 million in 1996 to $79.2 million in 1997. Of this increase, approximately
$19.2 was the result of acquisitions completed during 1997, the full-year effect
of acquisitions completed in 1996 and increased sales from the businesses
acquired. The remainder of the increase, or approximately $9.2 million, was from
increased sales of antibodies from existing operations, primarily anti-D and, to
a lesser extent, anti-hepatitis and non-specialty antibodies. Net sales of
specialty antibodies increased $7.1 million, or 25.6%, from $27.6 million in
1996 to $34.7 million in 1997, while net sales of non-specialty antibodies
increased approximately $21.3 million, or 91.5%, from $23.3 million in 1996 to
$44.6 million in 1997.
DIAGNOSTIC PRODUCTS
Net sales of Diagnostic Products increased approximately $3.8 million, or
26.1%, from $14.5 million in 1996 to $18.3 million in 1997. The increase in net
sales was attributable to additional sales from existing operations, primarily
monoclonal antibodies used for blood typing reagents and antibodies used in
diagnostic test kits. Total net sales of monoclonal antibodies increased $1.8
million, or 17.7%, from $10.1 million in 1996 to $11.8 million in 1997. The
remaining net sales of the segment, primarily human-sourced antibodies used in
blood typing reagents and diagnostic test kits, increased approximately $2.0
million, or 44.5%, from $4.4 million in 1996 to $6.4 million in 1997.
GROSS PROFIT
CONSOLIDATED
Consolidated gross profit increased approximately $8.7 million, or 32.3%,
from $26.8 million in 1996 to $35.5 million during 1997. The majority of the
increase, or approximately $6.4 million, was attributable to additional sales
of, and higher margins on, specialty antibodies, in particular anti-D and
monoclonal antibodies, and to a lesser extent, additional sales of non-specialty
antibodies. The remainder of the increase, or approximately $2.2 million,
related to acquisitions completed during 1997 and 1996. Gross margin decreased
from 40.9% in 1996 to 36.4% in 1997, primarily attributable to an increase in
net sales of relatively lower-margin non-specialty antibodies as a percentage of
total net sales from approximately 35% in 1996 to 46% in 1997 and higher
depreciation expense, offset in part by an increase in sales of certain higher
margin clinical diagnostic products.
THERAPEUTIC PRODUCTS
Gross profit from Therapeutic Products increased approximately $7.4 million,
or 41.3%, from $18.0 million in 1996 to $25.4 million in 1997. Of this increase,
$6.7 million was primarily due to increased sales of specialty antibodies, most
significantly anti-D, while the remainder of the increase, or approximately
$992,000 was due to acquisitions completed in 1997 and 1996, offset by
additional depreciation expense. Gross margin decreased from 35.3% in 1996 to
32.0% in 1997, primarily attributable to an increase in net sales of relatively
lower-margin non-specialty antibodies as a percentage of total net sales
25
<PAGE>
from approximately 46% in 1996 to 56% in 1997, as well as a decrease in gross
margins on non-specialty products.
DIAGNOSTIC PRODUCTS
Gross profit from Diagnostic Products increased approximately $1.3 million,
or 14.7%, from $8.8 million in 1996 to $10.1 million in 1997, primarily due to
increased sales of monoclonal and polyclonal antibodies used in blood typing
reagents and, to a lesser extent, increased margins on antibodies sold for use
in diagnostic test kits. Gross margin decreased from 59.9% in 1996 to 55.2% in
1997, primarily as a result of product mix within monoclonal products and
additional depreciation expense.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated selling, general and administrative expenses increased
approximately $2.8 million, or 30.1%, from $9.4 million in 1996 to $12.2 million
in 1997. The increase was primarily attributable to a larger information
systems, regulatory and general corporate infrastructure needed to support the
Company's acquisitions and internal growth. However, selling, general and
administrative expenses, as a percentage of net sales, decreased from 14.3% to
12.5% as the Company continued to effectively leverage its corporate
infrastructure.
PRODUCT DEVELOPMENT EXPENSE
Consolidated product development expenses decreased $242,000, or 10.8%, from
$2.2 million in 1996 to $2.0 million in 1997, due primarily to a reduction in
expenditures relating to the development of a therapeutic monoclonal anti-D
product. As a result, product development expenses as a percentage of net sales
decreased from 3.4% in 1996 to 2.1% in 1997.
OTHER EXPENSE, NET
Consolidated other expense net increased $867,000, or 46.9%, from
approximately $1.8 million in 1996 to $2.7 million in 1997, substantially all
due to the amortization of goodwill and other intangible assets resulting from
acquisitions completed during 1997 and 1996.
INTEREST EXPENSE (INCOME), NET
Consolidated interest expense (income), net, decreased $752,000, from net
interest expense of $220,000 in 1996 to net interest income of $532,000 in 1997.
The change was primarily a result of higher cash balances during the year and
the September 1997 receipt of approximately $17.5 million in net proceeds from a
private placement of the Company's common stock, offset in part by the
additional interest expense attributable to convertible notes issued in
acquisitions.
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain indicators of consolidated financial
condition and liquidity of the Company as of the following fiscal year ends:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash and cash equivalents.................................... $ 21,232 $ 31,812 $ 34,940
Working capital.............................................. 20,705 37,425 56,164
Long-term debt and capital lease obligations................. 3,714 6,798 5,284
Stockholders' equity......................................... 67,804 103,285 129,009
Total debt to equity ratio................................... 5.5% 6.6% 4.1%
</TABLE>
The Company has three principal sources of near-term liquidity: (i) existing
cash and cash equivalents; (ii) cash generated by operations, and (iii)
borrowing capacity under the Revolver (as defined below). Subsequent to year
end, the Company utilized $27.5 million of cash on hand for the acquisition of
Pentex. Management believes the Corporation's liquidity and capital resources
are sufficient to meet its working capital, capital expenditure and other
anticipated cash requirements over the next twelve months and may be available
for use in its acquisition strategy. However, the Company anticipates that
future acquisition and growth opportunities may require supplementary funding,
including the issuance of equity or debt securities.
During 1998, the Company's sales to one customer, Bayer Corporation,
accounted for approximately 40% of its total sales. Sales of therapeutic
specialty antibodies to Bayer Corporation are generally made pursuant to annual
purchase orders while the sale of therapeutic non-specialty antibodies are
generally made pursuant to four five-year supply contracts. The revenues and
cash flows generated from these supply contracts are significant; early
termination, material revisions in the supply requirements or other terms of
these contracts or the inability of the Company to renew these contracts beyond
their original terms could adversely affect the Company's ability to meet its
financial obligations in the short term.
Net cash provided by operating activities in 1998 was $9.8 million as
compared to $12.3 million in the prior year, a decrease of $2.5 million. This
decrease was primarily attributable to an increased investment in working
capital of approximately $7.7 million versus the prior year, offset by increased
net income of $4.3 million and $719,000 of additional non-cash depreciation and
amortization expense. The increased investment in working capital was primarily
due to an increase in accounts receivable of $11.5 million in 1998 as compared
to an increase of $4.1 million in 1997, primarily resulting from additional
sales volume and the timing of such sales. In addition, the Company's net sales
to foreign countries, which generally have longer payment terms than domestic
sales, increased 80%, or $20.3 million, from $25.2 million in 1997 to $45.5
million in the current year.
Net cash used in investing activities in 1998 was $12.2 million as compared
to $20.9 million in the previous year. Investing activities in 1998 consisted
primarily of the acquisition of four donor centers and a clinical trial site for
aggregate consideration of approximately $5.5 million (net of cash acquired) and
$5.2 million in capital expenditures. Additionally, net cash used in investing
activities in 1998 is net of the receipt of approximately $878,000 in cash for
the final post closing adjustments relating to the acquisition of the Nations
Group. Investing activities in 1997 consisted primarily of the acquisitions of
the Nations Group and two specialty donor centers for aggregate consideration of
approximately $15.7 million (net of cash acquired) and capital expenditures of
approximately $4.4 million.
Capital expenditures relate primarily to the Company's facilities, related
equipment and information systems. Capital expenditures made in 1997 were
primarily funded through cash flow from operations. The significant expenditures
of 1998 included continuing upgrading and expansion of the Company's information
systems, in particular, its wide area network and development of a donor center
operating system (DCOS); expansion of the Company's international headquarters
in Atlanta, Georgia; and certain donor center capital expenditures, such as
storage freezer upgrades and replacements.
27
<PAGE>
During 1999, the Company anticipates making capital expenditures of
approximately $18 million to $20 million, approximately $11-$13 million of which
relates to the expansion of the protein fractionation facility acquired in the
Pentex acquisition. The remaining expenditures are primarily for the Company's
information system, including the development of DCOS, and the remodeling or
relocation of a number of the Company's donor centers.
Net cash provided by financing activities in 1998 was approximately $5.5
million as compared to $19.2 million in the prior year. Financing activities in
1998 primarily consisted of proceeds from the exercise of stock options.
Financing activities in 1997 consisted primarily of a private placement sale of
1,425,000 shares of the Company's common stock in September 1997 that resulted
in net proceeds to the Company of approximately $17.5 million.
Total long-term debt and capital lease obligations were $5.3 million at
December 27, 1998, a decrease of $1.5 million from December 28, 1997. This
decrease was primarily due to the conversion of a $1.3 million principal portion
of a convertible note into 106,608 shares of the Company's common stock.
The Company has a revolving credit facility with a commercial bank (the
"Revolver"), which provides for total borrowing capacity of $35 million, of
which $30 million may be used for acquisitions. The Company anticipates using
the proceeds from the Revolver primarily to fund acquisitions. There were no
amounts outstanding under the Revolver at December 27, 1998.
YEAR 2000
The Year 2000 issue results from computer-based systems that use two digits
rather than four to define the applicable year. If not corrected, many computer
applications could fail or create erroneous results after December 31, 1999, or
before, to the extent a system references future dates. The Year 2000 issue is
believed to affect the majority of all companies and organizations worldwide,
including the Company.
In response to increasing regulatory scrutiny and to improve customer
service and increase its operating performance and efficiency, the Company has
undertaken a number of significant information system initiatives. These
initiatives include the installation of a new laboratory system during 1997 and
the development of DCOS, the first phase of which the Company anticipates
implementing during 1999. An ancillary benefit of these initiatives is that the
resulting systems are Year 2000 compliant. The Company has completed the
evaluation of all other owned and leased information systems, including those
scheduled to be replaced by DCOS. The Company has determined that, with the
exception of one information system used to track inventory for a product line
representing less than 4% of consolidated net sales in 1998, its systems are
Year 2000 compliant. The Company intends to upgrade its non-compliant system by
June 30, 1999. The Company also intends to validate the Year 2000 compliance of
those systems critical to its operations, which it expects to complete by
September 30, 1999.
The Company is also analyzing all other systems that are material to its
operations that could contain date-sensitive embedded technology, such as its
automated plasmapheresis machines and plasma storage freezers. This analysis is
substantially complete, and to date, has not revealed compliance issues of any
significance. Finally, the Company is analyzing the Year 2000 issue as it
relates to its customers, suppliers, financial institutions and other third
parties with which it has a material relationship and what, if any, impact that
could have on the Company.
While the Company currently markets its products to over 200 customers
worldwide, approximately 84% of the Company's net sales during 1998 were made to
its top ten customers. Furthermore, certain plasmapheresis and other supplies
critical to its operations are purchased from a limited number of suppliers. As
a result of these concentrated risks, the inability of any of the Company's
major suppliers to provide it with critical supplies, or any prolonged delay or
other disruption in the manufacturing, laboratory testing or other processes of
the Company's customers, could have a material adverse effect on
28
<PAGE>
the Company. The Company is currently communicating with its significant
customers, suppliers and other third parties to determine the status of their
Year 2000 compliance. While the process is not complete, none of the responses
received to date suggests that any significant customer, supplier or other third
party expects the Year 2000 issue to cause an interruption in its operations
which would have a material adverse impact on the Company. However, because
these suppliers, customers and other third parties are exposed to the risk of
failure not only of their own systems, but of other third parties, the ultimate
effect of the Year 2000 issue is subject to a high degree of uncertainty.
Furthermore, due to the inherent lack of control over these third parties, the
Company is able to give no assurance as to the current readiness or success of
these parties' Year 2000 compliance.
Based on the information known to date, the Company believes that the most
likely worst-case Year 2000 scenario would entail an interruption in its
business, including disruption in the collection or manufacturing of antibodies
due to the inability to obtain critical supplies, and loss of revenue due to the
inability of the Company's customers to further manufacture the Company's
products or to provide the required laboratory testing services. The Company
could also be significantly affected by the failure of infrastructure services
such as electricity and telephone service. While the Company is unable to
quantify the effect of such a scenario, it could potentially have a material
adverse impact on the Company's results of operations, liquidity or financial
condition.
Based on the analysis the Company has completed to date, it expects that the
cost of its Year 2000 compliance program will be approximately $200,000. The
Company believes that it will be able to achieve compliance of its systems by
the end of 1999 and does not currently anticipate any material disruption of its
operations as the result of any failure by the Company to be in compliance. The
Company is currently in the process of developing a contingency plan to address
the potential noncompliance of material third parties, which it expects to
complete by the third or fourth quarter of 1999.
MARKET RISK
The Company is exposed to market risk from changes in foreign currency
exchange rates and, to a lesser extent, interest rates, which could affect its
future results of operations and financial condition. The Company manages its
exposure to these risks through its regular operating and financing activities.
FOREIGN CURRENCY EXCHANGE RATES
The Company's foreign-based operations are conducted primarily through its
Bioscot subsidiary located in the United Kingdom. In 1996, 1997 and 1998,
foreign-based operations accounted for approximately 15%, 14% and 10% of net
sales and approximately 17%, 15%, and 21% of income from operations,
respectively.
The functional currency of Bioscot is the British pound sterling.
Fluctuations in foreign exchange rates can impact operating results, including
net revenues and expenses, when translations of the subsidiary financial
statements are made in accordance with SFAS No. 52, "Foreign Currency
Translation." Furthermore, the Company transacts business in various foreign
currencies, subjecting it to exposure from movements in the exchange rates of
those countries. However, a large portion of the Company's sales to foreign
countries is denominated in U.S. currency, thus mitigating a significant portion
of this risk. It has not been the Company's practice to hedge its assets and
liabilities in the U.K. or its intercompany transactions and, accordingly, has
not used derivatives or other off-balance sheet items to manage any significant
foreign currency exchange risk. In 1996, 1997 and 1998, the Company recorded
foreign currency transaction gains (losses) of approximately $46,000, ($10,000)
and ($76,000), respectively.
INTEREST RATES
The Company's outstanding indebtedness as of December 27, 1998 is comprised
primarily of two convertible notes payable with a total outstanding balance of
approximately $5.3 million. The Company
29
<PAGE>
also has borrowing capacity under the Revolver, which as of December 27, 1998
had no amounts outstanding. The convertible notes bear interest at fixed rates
of 4.0% and 4.5% and the interest rate on the Revolver fluctuates, at the
Company's option, with the prime lending rate or the London Interbank Offer
Rate. Based on these factors, the Company does not believe it has a material
exposure to fluctuations in interest rates.
OUTLOOK
The Company's strategy is to continue to expand its specialty and
non-specialty antibody business and to take advantage of emerging opportunities
relating to the provision of other biologic products and services, such as the
recent acquisition of Pentex. The key elements of this strategy include (i)
expanding its core business by increasing its donor base and broadening the
range of antibodies it sources and the services it provides; (ii) pursuing
selective acquisitions to capitalize on opportunities in consolidating
therapeutic and diagnostic industries; (iii) expanding customer relationships by
providing additional services, allowing the Company to become more deeply
involved in its customers' product development, regulatory compliance and
quality assurance programs; (iv) seeking to increase the quality of antibodies
and production efficiencies; and (v) utilizing its existing donor center network
and expertise in biologic product development, manufacturing techniques and
regulatory compliance to capitalize on emerging opportunities in other specialty
biologic based products and services. However, there can be no assurance that
the Company will be successful in achieving any or all of the elements of its
strategy.
External growth through acquisitions has been and continues to be a
significant component of the Company's strategic plan. The Company's strategy
includes acquisitions of selected donor centers, as well as businesses that
provide services and products that are complementary to its existing business.
The Company believes that these acquisitions will enable it to leverage its core
competencies and its general and administrative infrastructure, thereby creating
economies of scale. However, there can be no assurance that the Company will be
able to complete suitable acquisitions in the future or successfully integrate
such acquisitions into the Company's business to achieve economies of scale.
The Company intends to capitalize on its existing monoclonal technology to
take advantage of the increasing preference of its customers for more consistent
and uniform antibody yields achievable through monoclonal manufacturing
techniques. During 1997, the Company significantly expanded its monoclonal
antibody production facilities in Scotland. This expansion will enable the
Company to implement more efficient manufacturing techniques, as well as provide
additional production capacity for diagnostic monoclonal products.
Finally, the Company is involved in the development of new process
technologies and products that it believes will ultimately add value to its
blood proteins business. These technologies and projects include developing
scale-up technologies for the manufacture of bovine serum albumin,
protease-free; process improvement of the procedure used to control the
polymerization of bovine serum album; increasing capacity to manufacture bovine
and human transferrins; and further purification of Bovine EX-CYTE into its
critical components.
The industry in which the Company operates is subject to strict regulation
and licensing by the FDA. Similar or more restrictive regulation exists in many
of the states and foreign countries where the Company and its customers conduct
business. Changes in existing federal, state or foreign laws or regulations
could have an adverse effect on the Company's business. See Item
1.-Business-"Government and Industry Regulation".
RECENT ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). Comprehensive income is
defined as the total of net income and all other non-owner changes in
stockholders' equity. The Company's comprehensive income includes net income,
30
<PAGE>
foreign translation adjustments and unrealized gains and losses on certain
available-for-sale investments. In accordance with SFAS No. 130, the Company
expanded its reporting and display of comprehensive income and its components in
the consolidated statements of stockholders' equity.
Effective December 27, 1998, the Company adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS
No. 131, which supersedes SFAS Nos. 14, 18, 24 and 30, establishes standards for
segment reporting, using the "management approach," in which reportable segments
are based on the same criteria on which management disaggregates a business for
making operating decisions and assessing performance. See Note 13 to the
Consolidated Financial Statements for the segment information required by SFAS
No. 131.
The adoption of these standards did not have an effect on the Company's
financial position, results of operations or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are discussed
under the caption "Market Risks" in Item 7--Management's Discussion and Analysis
of Financial Condition and Results of Operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is contained in the Company's
consolidated financial statements indicated in the Index on Page F-1 of this
Annual Report on Form 10-K and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Items 10, 11, 12 and 13 will be contained in
the Company's definitive proxy statement which the Company intends to file
within 120 days after the end of the Company's fiscal year ended December 27,
1998 and such information is incorporated herein by reference. Certain
information concerning the executive officers and certain key employees of the
Company is set forth in Part I under the caption "Executive Officers and Key
Employees of the Registrant."
31
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) Financial Statements
The financial statements listed in the accompanying Index to Financial
Statements are filed as part of this Annual Report on Form 10-K
(b) Reports on Form 8-K
On December 4, 1998, the Company filed a Current Report on Form 8-K in which
it reported pursuant to Item 2 that it had entered into an agreement to purchase
substantially all of the assets of the Pentex Blood Proteins unit of Bayer
Corporation's Diagnostic Business Group.
(c) Exhibits
<TABLE>
<C> <S>
3.1 Amended and Restated Certificate of Incorporation (Exhibit 3.3 to the Registrant's
Registration Statement on Form S-1 (File No. 33-91176), effective June 14, 1995, is
hereby incorporated by reference).
3.2 Amended and Restated By-laws (Exhibit 3.4 to the Registrant's Registration
Statement on Form S-1 (File No. 33-91176), effective June 14, 1995, is hereby
incorporated by reference).
4.1 Specimen Common Stock Certificate (Exhibit 4.1 to the Registrant's Registration
Statement on Form S-1 (File No. 33-91176), effective June 14, 1995, is hereby
incorporated by reference).
4.2 Amended and Restated Shareholders Agreement, dated as of August 31, 1993, as
amended (Exhibit 4.2 to the Registrant's Registration Statement on Form S-1 (File
No. 33-91176), effective June 14, 1995, is hereby incorporated by reference).
4.2.1 Amendment No. 3 to Amended and Restated Shareholders Agreement (Exhibit 4.2.1 to
the Registrant's Registration Statement on Form S-1 (File No. 33-91176), effective
June 14, 1995, is hereby incorporated by reference).
4.2.2 Amendment No. 4 to Amended and Restated Shareholders Agreement (Exhibit 4.2.2 to
the Registrant's Annual Report on Form 10-K for the period ended December 31, 1995
is hereby incorporated by reference).
10.1.1 Second Amended and Restated Credit Agreement, dated as of October 16, 1997, between
the Company and NationsBank NA (Exhibit 10.1.1 to the Registrant's Annual Report on
Form 10-K for the period ended December 28, 1997 is hereby incorporated by
reference).
10.1.2 Revolving Note, dated October 16, 1997, from the Company in favor of NationsBank NA
(Exhibit 10.1.2 to the Registrant's Annual Report on Form 10-K for the period ended
December 28, 1997 is hereby incorporated by reference).
10.3 Warrant of the Company dated March 9, 1993 issued to State Street Bank & Trust
Company (Exhibit 10.10 to the Registrant's Registration Statement on Form S-1 (File
No. 33-91176), effective June 14, 1995, is hereby incorporated by reference).
10.3.1 Amendment to Warrant of the Company issued to State Street Bank & Trust Company
(Exhibit 10.10.1 to the Registrant's Registration Statement on Form S-1 (File No.
33-91176), effective June 14, 1995, is hereby incorporated by reference).
10.3.2 Amendment to Warrant of the Company issued to State Street Bank & Trust Company
(Exhibit 10.10.2 to the Registrant's Registration Statement on Form S-1 (File No.
33-91176), effective June 14, 1995, is hereby incorporated by reference).
</TABLE>
32
<PAGE>
<TABLE>
<C> <S>
10.4 Plasma Purchase Agreement, dated as of December 20, 1994, between Seramune, Inc.
(now known as Seramed, Inc.) and Bayer, Inc. (Exhibit 10.11 to the Registrant's
Registration Statement on Form S-1 (File No. 33-91176), effective June 14, 1995, is
hereby incorporated by reference).
10.5 Technical Collaboration Agreement, dated February 10, 1995, between Bioscot Limited
and The Common Services Agency (Exhibit 10.12 to the Registrant's Registration
Statement on Form S-1 (File No. 33-91176), effective June 14, 1995, is hereby
incorporated by reference).
10.5.1 IP Acquisition Agreement, dated February 10, 1995, between Bioscot Limited and The
Common Services Agency (Exhibit 10.12.1 to the Registrant's Registration Statement
on Form S-1 (File No. 33-91176), effective June 14, 1995, is hereby incorporated by
reference).
10.6 Employment Agreement, dated as of March 8, 1993, between Serologicals, Inc. and
Harold J. Tenoso, as amended (Exhibit 10.13 to the Registrant's Registration
Statement on Form S-1 (File No. 33-91176), effective June 14, 1995, is hereby
incorporated by reference).
10.7 1994 Amended and Restated Omnibus Incentive Plan (Exhibit 10.11.1 to the
Registrant's Annual Report on Form 10-K for the period ended December 31, 1995, is
hereby incorporated by reference).
10.7.1 1994 Second Amended and Restated Omnibus Incentive Plan*+
10.8 Forms of Stock Option Agreement (Exhibit 10.15 to the Registrant's Registration
Statement on Form S-1 (File No. 33-91176), effective June 14, 1995, is hereby
incorporated by reference).
10.8.1 Forms of First Revised Stock Option Agreements (Exhibit 10.12.1 to the Registrant's
Annual Report on Form 10-K for the period ended December 31, 1995, is hereby
incorporated by reference).
10.8.2 Forms of Second Revised Stock Option Agreements+ (Exhibit 10.10.2 to the
Registrant's Annual Report on Form 10-K for the period ended December 29, 1996, is
hereby incorporated by reference).
10.8.3 Forms of Third Revised Stock Option Agreements *+
10.9 1995 Non-Employee Directors' Stock Option Plan, as amended (Exhibit 10.13 to the
Registrant's Annual Report on Form 10-K for the period ended December 31, 1995, is
hereby incorporated herein by reference).
10.9.1 Amended and Restated 1995 Non-Employee Directors' Stock Option Plan*+
10.10 Form of Indemnification Agreement (Exhibit 10.16 to the Registrant's Registration
Statement on Form S-1 (File No. 33-91176), effective June 14, 1995, is hereby
incorporated by reference).
10.11 1996 Employee Stock Purchase Plan (Exhibit 10.18 to the Registrant's Annual Report
on Form 10-K for the period ended December 31, 1995, is hereby incorporated by
reference).
10.12 Employment Agreement between the Company and Charles P. Harrison(+) (Exhibit 10.19
to the Registrant's Annual Report on Form 10-K for the period ended December 31,
1995, is hereby incorporated by reference).
10.14 Purchase Agreement, dated March 6, 1997, among Serologicals Corporation, Seramune,
Inc., Seronat Plasma, Inc., Nations Biologics, Inc., Decatur Plasma, Inc.,
Bloomington Plasma, Inc., Lake Forest Plasma Center, Inc., Southwest Plasma
Company, Inc., Riverfront Plasma Company, Inc., Green Street Biological Corp.,
Silver State Plasma Products, Inc., Rodney L. Savoy, Barry J. Heinen, Noel P.
Dragon, Jr. and La Savoy Famille, L.C. (Exhibit 2.1 to the Company's Current Report
on Form 8-K, dated March 21, 1997, is hereby incorporated by reference).
10.15 Promissory Note, dated March 6, 1997 from the Company in favor of Rodney L. Savoy
(Exhibit 99 to the Company's Current Report on form 8-K, dated March 21, 1997, is
hereby incorporated by reference).
</TABLE>
33
<PAGE>
<TABLE>
<C> <S>
10.16 Employment Agreement between the Company and Terence Dobson (Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 29, 1996,
is hereby incorporated by reference).+
10.17 Serologicals Corporation 1996 UK Sharesave Scheme (Exhibit 10.9 to the Registrant's
Annual Report on Form 10-K for the period ended December 29, 1996, is hereby
incorporated by reference).+
10.18 Employment Agreement between the Company and P. Anne Hoppe (Exhibit 10.1 to the
Company's Quarterly Report on Form 10Q for the quarter ended June 29, 1997, is
hereby incorporated by reference).+
10.19 Employment Agreement between the Company and Toby L. Simon, M.D. (Exhibit 10.2 to
the Company's Quarterly Report on Form 10Q for the quarter ended June 29, 1997, is
hereby incorporated by reference).+
10.20 Forms of Senior Executive Severance Agreement.*+
10.21 Forms of Executive Severance Agreement.*+
10.22 Serologicals Corporation Compensation Plan for Non-Employee Directors*+
10.23 Agreement of Purchase and Sale, dated November 30, 1998, between Serologicals
Corporation and Bayer Corporation (Exhibit 2.1 to the Company's Current Report on
Form 8-K, dated January 12, 1999, is hereby incorporated by reference).
10.23.1 First Amendment to the Agreement of Purchase and Sale, dated December 29, 1998,
between Serologicals Corporation and Bayer Corporation (Exhibit 2.2 to the
Company's Current Report on Form 8-K, dated March 15, 1999, is hereby incorporated
by reference).
21 Subsidiaries of the Company.*
23.1 Consent of Arthur Andersen LLP.*
27.1 Financial Data Schedule for the fiscal year ended December 27, 1998.*
</TABLE>
- ------------------------
* Filed herewith
+ Compensatory Plan or Arrangement
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Serologicals Corporation has duly caused this annual
report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized on March , 1999.
<TABLE>
<S> <C> <C>
SEROLOGICALS CORPORATION
(Registrant)
By: /s/ HAROLD J. TENOSO, PH.D.
-----------------------------------------
Harold J. Tenoso, Ph.D.
President & Chief Executive Officer
</TABLE>
35
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Serologicals
Corporation and in the capacities indicated on March 29, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
/s/ HAROLD J. TENOSO, PH. D. President (Chief Executive Officer)
- -------------------------------------------
Harold J. Tenoso, Ph.D.
/s/ RUSSELL H. PLUMB Vice President/Chief Financial Officer (Principal
- ------------------------------------------- Financial and Accounting Officer)
Russell H. Plumb
/s/ SAMUEL A. PENNINGER, JR. Chairman of the Board of Directors
- -------------------------------------------
Samuel A. Penninger, Jr.
/s/ JAMES L. CURRIE Director
- -------------------------------------------
James L. Currie
/s/ GEORGE M. SHAW, MD., PH.D. Director
- -------------------------------------------
George M. Shaw, MD., Ph.D.
/s/ LAWRENCE E. TILTON Director
- -------------------------------------------
Lawrence E. Tilton
- ------------------------------------------- Director
Desmond H. O'Connell, Jr.
/s/ MATTHEW C. WEISMAN Director
- -------------------------------------------
Matthew C. Weisman
- ------------------------------------------- Director
Wade Fetzer, III
</TABLE>
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets--December 28, 1997 and December 27, 1998....................................... F-3
Consolidated Statements of Income--For the years ended December 29, 1996, December 28, 1997 and December
27, 1998................................................................................................. F-4
Consolidated Statements of Stockholders' Equity--For the years ended December 29, 1996, December 28, 1997
and December 27, 1998.................................................................................... F-5
Consolidated Statements of Cash Flows--For the years ended December 28, 1997, December 27, 1996 and
December 27, 1998........................................................................................ F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Serologicals Corporation:
We have audited the accompanying consolidated balance sheets of SEROLOGICALS
CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of December 28, 1997
and December 27, 1998 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three fiscal years in the
period ended December 27, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Serologicals Corporation and
subsidiaries as of December 28, 1997 and December 27, 1998 and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 27, 1998 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 1, 1999
F-2
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1997 AND DECEMBER 27, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 31,812 $ 34,940
Trade accounts receivable, less allowance for doubtful accounts of $531 at December 28, 9,991 22,072
1997 and $784 at December 27, 1998....................................................
Inventories............................................................................. 10,154 13,441
Other current assets.................................................................... 865 2,563
---------- ----------
Total current assets.................................................................. 52,822 73,016
---------- ----------
PROPERTY AND EQUIPMENT, NET............................................................... 13,682 16,332
OTHER ASSETS:
Goodwill, net........................................................................... 51,006 51,741
FDA licenses, net....................................................................... 4,347 4,548
Other, net.............................................................................. 1,635 1,694
---------- ----------
Total other assets.................................................................... 56,988 57,983
---------- ----------
$ 123,492 $ 147,331
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations...................... $ 2,352 $ 4,406
Accounts payable........................................................................ 3,654 4,028
Accrued liabilities..................................................................... 8,493 8,172
Deferred revenue........................................................................ 898 246
---------- ----------
Total current liabilities............................................................. 15,397 16,852
---------- ----------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS CURRENT MATURITIES..................... 4,446 878
---------- ----------
OTHER LIABILITIES......................................................................... 364 592
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares authorized, no shares issued.......... -- --
Common stock, $.01 par value; 50,000,000 shares authorized, 23,546,623 and 24,355,322 235 243
shares issued and outstanding at December 28, 1997 and December 27, 1998,
respectively..........................................................................
Additional paid-in capital.............................................................. 75,458 84,983
Retained earnings....................................................................... 27,370 43,715
Accumulated other comprehensive income.................................................. 222 68
---------- ----------
Total stockholders' equity............................................................ 103,285 129,009
---------- ----------
$ 123,492 $ 147,331
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND
DECEMBER 27, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES............................................................... $65,571 $97,534 $123,072
COSTS AND EXPENSES:
Cost of sales......................................................... 38,752 62,065 81,242
Selling, general and administrative expenses.......................... 9,394 12,222 13,545
Product development expenses.......................................... 2,242 2,000 1,403
Other expense, net.................................................... 1,847 2,713 2,696
Interest expense (income), net........................................ 220 (532) (846)
------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS....................... 13,116 19,066 25,032
PROVISION FOR INCOME TAXES.............................................. 4,866 7,064 8,687
------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY LOSS........................................ 8,250 12,002 16,345
EXTRAORDINARY LOSS ON EARLY RETIREMENT OF DEBT, NET OF INCOME TAXES..... (14) -- --
------------ ------------ ------------
NET INCOME.............................................................. $ 8,236 $12,002 $ 16,345
------------ ------------ ------------
------------ ------------ ------------
INCOME BEFORE EXTRADORDINARY LOSS AND NET INCOME PER COMMON SHARE:
Basic................................................................. $0.41 $0.54 $0.68
------------ ------------ ------------
------------ ------------ ------------
Diluted............................................................... $0.38 $0.51 $0.63
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic................................................................. 20,210,400 22,249,160 24,001,326
------------ ------------ ------------
------------ ------------ ------------
Diluted............................................................... 21,482,468 23,789,289 25,941,764
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997
AND DECEMBER 27, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------------ PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME TOTAL
---------- ------ ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995, AS RESTATED FOR 3-FOR-2 COMMON
STOCK SPLITS EFFECTED IN THE FORM OF STOCK DIVIDENDS (NOTE
5)........................................................ 18,914,066 $189 $29,235 $ 7,132 $ 21 $ 36,577
Comprehensive income:
Net income.............................................. -- -- -- 8,236 -- 8,236
Foreign currency translation adjustments, net of tax of
$63................................................... -- -- -- -- 111 111
---------- ------ ---------- -------- --- --------
Comprehensive income.................................. -- -- -- 8,236 111 8,347
---------- ------ ---------- -------- --- --------
Exercise of common stock warrants....................... 34,971 -- -- -- -- --
Exercise of stock options............................... 207,678 2 401 -- -- 403
Tax effect of stock option exercise..................... -- -- 807 -- -- 807
Proceeds from sale of common stock, net of issuance
costs................................................. 2,025,000 20 21,650 -- -- 21,670
---------- ------ ---------- -------- --- --------
BALANCE, DECEMBER 29, 1996................................ 21,181,715 211 52,093 15,368 132 67,804
Comprehensive income:
Net income.............................................. -- -- -- 12,002 -- 12,002
Foreign currency translation adjustments, net of tax of
$51................................................... -- -- -- -- 90 90
---------- ------ ---------- -------- --- --------
Comprehensive income.................................. -- -- -- 12,002 90 12,092
---------- ------ ---------- -------- --- --------
Conversion of promissory note........................... 562,500 6 3,494 -- -- 3,500
Exercise of common stock warrants....................... 56,247 1 85 -- -- 86
Exercise of stock options............................... 313,418 3 1,373 -- -- 1,376
Tax effect of stock option exercise..................... -- -- 813 -- -- 813
Shares issued through employee stock purchase Plan...... 7,743 -- 79 -- -- 79
Proceeds from sale of common stock, net of issuance
costs................................................. 1,425,000 14 17,521 -- -- 17,535
---------- ------ ---------- -------- --- --------
BALANCE, DECEMBER 28, 1997................................ 23,546,623 235 75,458 27,370 222 103,285
Comprehensive income:
Net income.............................................. -- -- -- 16,345 -- 16,345
Foreign currency translation adjustments, net of tax of
$9.................................................... -- -- -- -- (16) (16)
Unrealized losses on investments, net of tax of $74..... -- -- -- -- (138) (138)
---------- ------ ---------- -------- --- --------
Comprehensive income.................................. -- -- -- 16,345 (154) 16,191
---------- ------ ---------- -------- --- --------
Conversion of promissory note........................... 106,608 1 1,332 -- -- 1,333
Exercise of common stock warrants....................... 50,000 1 76 -- -- 77
Exercise of stock options............................... 643,528 6 5,454 -- -- 5,460
Tax effect of stock option exercise..................... -- -- 2,530 -- -- 2,530
Shares issued through employee stock purchase plan...... 8,563 -- 133 -- -- 133
---------- ------ ---------- -------- --- --------
BALANCE, DECEMBER 27, 1998................................ 24,355,322 $243 $84,983 $43,715 $ 68 $129,009
---------- ------ ---------- -------- --- --------
---------- ------ ---------- -------- --- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-5
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................................. $ 8,236 $ 12,002 $ 16,345
---------- ---------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 3,417 4,908 5,627
Deferred income tax provision............................................. 190 214 307
Extraordinary loss, net of income taxes................................... 14 -- --
Changes in operating assets and liabilities, net of acquisitions of
businesses
Trade accounts receivable, net............................................ 121 (4,076) (11,503)
Inventories............................................................... (1,527) (2,584) (3,073)
Other current assets...................................................... (469) 249 132
Accounts payable.......................................................... 403 276 677
Accrued liabilities....................................................... 1,363 1,311 2,008
Deferred revenue.......................................................... (15) 13 (724)
---------- ---------- ----------
Total adjustments....................................................... 3,497 311 (6,549)
---------- ---------- ----------
Net cash provided by operating activities............................... 11,733 12,313 9,796
---------- ---------- ----------
INVESTING ACTIVITIES:
Purchases of property and equipment......................................... (4,187) (4,370) (5,169)
Purchases of businesses, net of cash acquired............................... (6,935) (15,714) (4,618)
Other....................................................................... 44 (801) (2,370)
---------- ---------- ----------
Net cash used in investing activities................................... (11,078) (20,885) (12,157)
---------- ---------- ----------
FINANCING ACTIVITIES:
Net payments on revolving line of credit.................................... (2,059) -- --
Proceeds from long-term debt................................................ 89 -- --
Payments on long-term debt and capital lease obligations.................... (2,587) (64) (181)
Proceeds from stock plans and warrants...................................... 403 1,541 5,670
Net proceeds from sales of common stock..................................... 21,670 17,535 --
Other....................................................................... 174 140 --
---------- ---------- ----------
Net cash provided by financing activities............................... 17,690 19,152 5,489
---------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS..................................... 18,345 10,580 3,128
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................................. 2,887 21,232 31,812
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR........................................ $ 21,232 $ 31,812 $ 34,940
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Debt assumption............................................................. $ 1,154 $ -- $ --
Forgiveness of note receivable.............................................. 500 -- --
Accrued acquisition consideration........................................... 724 -- --
Tax effect of stock option exercise......................................... 807 813 2,530
Issuance of promissory notes as acquisition consideration................... -- 6,650 --
Conversion of promissory note into common stock............................. -- 3,500 1,333
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
1. ORGANIZATION AND BUSINESS OPERATIONS
Serologicals Corporation (a Delaware corporation) (the "Company") is a
leading worldwide provider of specialty human antibodies and related services to
major healthcare companies. The Company's services, including donor recruitment,
donor management and clinical testing services, enable the Company to provide
value-added antibodies that are used as the active ingredients in therapeutic
and diagnostic pharmaceutical products.
The Company, through its wholly-owned subsidiaries, operates a national
network of 64 donor centers, 17 of which specialize in the collection of
specialty antibodies and 47 of which primarily collect source plasma containing
non-specialty antibodies from which a number of therapeutic products, primarily
intravenous immune globulin ("IVIG"), are derived. The Company also operates two
laboratories in the United States and Scotland, two U.S. Food and Drug
Administration ("FDA") licensed monoclonal antibody manufacturing facilities in
Scotland and a clinical trial site dedicated to the management and performance
of clinical trials for the pharmaceutical and biotechnology industries.
The industry in which the Company operates is subject to strict regulation
and licensing by the FDA and similar regulatory bodies in many of the states and
foreign countries where the Company or its customers conduct business. Changes
in existing federal, state or foreign laws or regulations could have an adverse
effect on the Company's business.
The industry is also characterized by sales to a relatively few major
healthcare companies. One of the Company's customers, Bayer Corporation
("Bayer"), accounted for approximately 40% of the Company's net sales in 1998
(Note 11). The Company has four five-year supply contracts with Bayer for the
sale of non-specialty antibodies that accounted for approximately 24% of the
Company's net sales in 1998, three of which expire in 1999 and one in 2002.
There can be no assurance that the contracts will not be terminated, that Bayer
will not materially change its supply requirements pursuant to the agreements or
that the contracts will be renewed beyond their current terms.
Export sales from the United States represented approximately 29% of net
sales in 1998, and foreign sales originating in the United Kingdom accounted for
an additional 8% of net sales (Note 13). Concern over the safety of blood
products has led to movements in a number of countries, particularly those in
western Europe, to restrict the importation of blood and blood derivatives,
including antibodies, collected outside the countries' borders or, in the case
of certain European countries, outside Europe. To date, these efforts have not
led to any meaningful restriction on the importation of blood and blood
derivatives and have not adversely affected the Company. However, there can be
no assurance that the impact of these or other efforts will not have a material
adverse effect on the Company or its operations.
The Company's business is highly dependent upon its ability to attract and
retain qualified donors. A portion of the industry's potential donor population
has been disqualified due in large part to more rigorous testing and screening
procedures required by regulatory authorities, industry trade associations and
the Company's customers. The potential donor population with certain naturally
occurring specialty antibodies has also decreased due to aging and attrition.
The inability to maintain and replenish its donor base could adversely affect
the Company.
The Company generates significant sales outside the United States and is
subject to risks generally associated with international operations. The
Company's Serologicals, Ltd. subsidiary, formerly known as Bioscot, Ltd.
("Bioscot"), which accounted for approximately 10% of the Company's net sales in
1998,
F-7
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
1. ORGANIZATION AND BUSINESS OPERATIONS (CONTINUED)
generates net sales and incurs expenses in foreign currencies. Accordingly, the
Company's financial results from international operations may be affected by
fluctuations in currency exchange rates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The Company's
fiscal period end for financial reporting purposes is the last Sunday of each
period.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
USE OF ESTIMATES
The preparation of these consolidated 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.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being determined
on a first-in, first-out basis. Market for antibody inventories is net
realizable value and for supplies is replacement cost.
Inventories at December 28, 1997 and December 27, 1998 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Antibody products....................................................... $ 9,036 $ 12,465
Supplies................................................................ 1,118 976
--------- ---------
$ 10,154 $ 13,441
--------- ---------
--------- ---------
</TABLE>
PROPERTY AND EQUIPMENT
Fixed assets are stated at cost and are depreciated using the straight-line
method over their estimated useful lives for financial reporting purposes. For
income tax purposes, the Company uses accelerated depreciation methods.
Depreciable lives for equipment, furniture and fixtures range from three to ten
years. Leasehold improvements are amortized over the shorter of the lease term
or the economic lives of the assets. Expenditures for maintenance and repairs
are charged to expense as incurred.
F-8
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and equipment at December 28, 1997 and December 27, 1998 consisted
of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Construction in progress............................................... $ 2,400 $ 2,794
Leasehold improvements................................................. 4,754 6,656
Laboratory and office equipment and furniture and fixtures............. 13,843 16,956
--------- ----------
Total property and equipment........................................... 20,997 26,406
Accumulated depreciation and amortization.............................. (7,315) (10,074)
--------- ----------
Property and equipment, net............................................ $ 13,682 $ 16,332
--------- ----------
--------- ----------
</TABLE>
Construction in progress at December 28, 1997 consisted primarily of
expenditures relating to the expansion of the Company's laboratory testing
facility and international headquarters in Atlanta, Georgia. Construction in
progress at December 27, 1998 consisted primarily of capital expenditures
relating to the development of a donor center management information system, and
capital expenditures relating to further the expansion of the Company's
international headquarters in Atlanta, Georgia.
Consolidated depreciation expense was $1,731,000, $2,228,000 and $2,822,000
in 1996, 1997 and 1998, respectively.
ACCRUED LIABILITIES
Accrued liabilities at December 28, 1997 and December 27, 1998 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Accrued payroll, bonuses and payroll taxes................................. $ 2,725 $ 2,801
Other...................................................................... 5,768 5,371
--------- ---------
$ 8,493 $ 8,172
--------- ---------
--------- ---------
</TABLE>
REVENUE RECOGNITION AND DEFERRED REVENUE
The Company's policy is to record revenue upon the shipment of its products.
On occasion, the Company receives advance payments from customers for future
delivery of specified products. The revenue related to these advance payments is
deferred until the specified products are shipped.
CASH EQUIVALENTS
For financial reporting purposes, the Company considers all investments
purchased with an original maturity of three months or less to be cash
equivalents.
FOREIGN OPERATIONS
The financial statements of Bioscot have been translated into U.S. dollars
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52,
"Foreign Currency Translation" ("SFAS
F-9
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
No. 52"). Under SFAS No. 52, all balance sheet accounts are translated at the
exchange rate at year-end. Income statement items are translated at the average
exchange rate for the year. Translation adjustments are not included in
determining net income but are accumulated and reported as a component of
stockholders' equity and comprehensive income. Gains and losses, which result
from foreign currency transactions, are included in the accompanying
consolidated statements of income.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The excess of cost over the fair market value of the net assets acquired
("goodwill") is being amortized to income on a straight-line basis over a period
of 25 years. The goodwill relates primarily to the acquisition of donor centers.
In determining whether goodwill is recoverable, the Company periodically reviews
the carrying values assigned to goodwill based upon expectations of undiscounted
future cash flows and operating income generated by the underlying assets.
FDA Licenses
In connection with its acquisitions (Note 4), the Company acquired the
related licenses of the FDA-approved donor centers. The estimated fair values of
the FDA licenses are capitalized and amortized to income on a straight-line
basis over a period of 25 years.
Noncompete Agreements
In connection with certain of its acquisitions (Note 4), the Company has
entered into noncompete agreements with the sellers. Such agreements are
recorded at their estimated fair market value and are being amortized to income
on a straight-line basis over the terms of the respective agreements, which
range from three to five years.
The consolidated amortization expense of all intangible assets was
$1,686,000, $2,680,000 and $2,805,000 in 1996, 1997 and 1998, respectively.
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period. The
calculation of the Company's diluted earnings per share is similar to basic
earnings per share, except that net income is adjusted by the after-tax interest
expense on convertible indebtedness and the weighted average number of shares
includes the dilutive effect of stock options, warrants, convertible
indebtedness and similar instruments.
All share and per share data included herein have been adjusted to reflect
the three-for-two stock splits effected in February of 1997 and August of 1998
(Note 5).
F-10
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the calculation of basic and diluted earnings
per share ("EPS") (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1997 1998
------------------------------- ------------------------------- --------------------
INCOME SHARES EPS INCOME SHARES EPS INCOME SHARES
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Basic earnings per share................ $ 8,236 20,210 $ 0.41 $ 12,002 22,249 $ 0.54 $ 16,345 24,001
--------- ---------
--------- ---------
Dilutive effect of:
Stock options and warrants.............. -- 1,272 -- 1,233 -- 1,604
Convertible notes....................... -- -- 112 307 93 337
--------- --------- --------- --------- --------- ---------
Diluted earnings per share.............. $ 8,236 21,482 $ 0.38 $ 12,114 23,789 $ 0.51 $ 16,438 25,942
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
EPS
---------
<S> <C>
Basic earnings per share................ $ 0.68
---------
---------
Dilutive effect of:
Stock options and warrants..............
Convertible notes.......................
Diluted earnings per share.............. $ 0.63
---------
---------
</TABLE>
The diluted earnings per share calculation for 1996 and 1998 exclude 562,500
shares issuable upon the conversion of certain indebtedness and 26,250 shares
issuable upon the exercise of stock options, respectively, as their inclusion
would have been antidilutive.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"). The Company applies SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") for disclosures of its stock-based compensation
plans. SFAS No. 123 requires that companies that do not choose to account for
stock-based compensation as prescribed by the statement shall disclose the pro
forma effects on earnings and earnings per share as if SFAS No. 123 had been
adopted as of January 1, 1995. Additionally, certain other disclosures are
required with respect to stock compensation and the assumptions used to
determine the pro forma effects of SFAS No. 123 (Note 6).
RECENT ACCOUNTING PRONOUNCEMENTS
Comprehensive Income
During the first quarter of 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). Comprehensive income is
defined as the total of net income and all other non-owner changes in
stockholders' equity. The Company's comprehensive income includes net income,
foreign translation adjustments and unrealized gains and losses on certain
available-for-sale investments. In accordance with SFAS No. 130, the Company
expanded its reporting and display of comprehensive income and its components in
the consolidated statements of stockholders' equity. The adoption of SFAS No.
130 had no effect on the Company's financial position, results of operations or
cash flows.
Segment Information
Effective December 27, 1998, the Company adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS
No. 131, which supersedes SFAS Nos. 14, 18, 24 and 30, establishes standards for
segment reporting using the "management approach," in which reportable segments
are based on the same criteria on which management disaggregates a business for
making operating decisions and assessing performance. All prior years' segment
information has been
F-11
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
restated to conform to the current presentation. The adoption of SFAS No. 131
had no effect on the Company's financial position, results of operations or cash
flows. (Note 13).
3. SALES OF COMMON STOCK
In a public offering in June 1996, the Company sold 2,025,000 shares of its
common stock at a price of $11.56 per share. Net proceeds to the Company were
approximately $22.0 million, including proceeds from the exercise of options.
The net proceeds were used to retire approximately $7.9 million of debt, with
the remainder, or approximately $14.1 million, available to the Company for
general corporate purposes, including acquisitions.
In September 1997, the Company sold 1,425,000 shares of its common stock, at
a price of $13.00 per share, to institutional investors in a private placement
transaction made in reliance upon the exemption from the registration
requirements of the Securities Act of 1933, as amended, afforded by Section 4(2)
thereof. The net proceeds to the Company from the sale of the shares were
approximately $17.5 million and were available for general corporate purposes,
including acquisitions.
4. ACQUISITIONS
During 1996, the Company purchased nine non-specialty donor centers and two
specialty donor centers in three separate transactions for aggregate
consideration of approximately $8.1 million, before recording certain
transaction costs.
In March 1997, the Company acquired Nations Biologics, Inc. and its
affiliates (the "Nations Group") for approximately $14.2 million (the "Nations
Acquisition"), before recording certain transaction costs and before adjustments
based primarily on the closing net assets of the businesses acquired. The
initial purchase price consisted of approximately $10.2 million of cash and the
issuance to one of the sellers of a $4.0 million convertible subordinated
promissory note maturing on March 7, 2002 (the "Nations Note"). The Company
financed the $10.2 million of cash paid at closing with cash on hand. During
1998, the Company received approximately $878,000 for payment of all
post-closing adjustments. The Nations Group operated 16 donor centers that
primarily specialize in the collection of non-specialty antibodies.
In September 1997, the Company acquired all of the outstanding capital stock
of Bio-Lab, Inc. and Med-Lab, Inc. (collectively, "Bio-Lab") for $8.5 million,
before transaction costs. The purchase price consisted of $5.95 million in cash
and the issuance to one of the sellers of a $2.55 million convertible
subordinated promissory note due September 23, 2000 (the "Bio-Lab Note"). The
Company financed the $5.95 million of cash paid at closing with cash on hand.
Each of the 1996 and 1997 acquisitions was accounted for as a purchase in
accordance with APB No. 16, and accordingly, the purchase price has been
allocated to the net assets acquired based on the fair values as of the
acquisition date. The excess of the cost over the estimated fair value of the
net assets acquired has been allocated to goodwill and certain other
identifiable intangible assets.
During 1998, the Company purchased the assets of four non-specialty donor
centers and the assets of a clinical trial site in two separate transactions for
aggregate consideration of approximately $5.5 million (net of cash acquired).
Each of these 1998 acquisitions was accounted for as a purchase in accordance
with APB No. 16, and accordingly, the purchase price has been preliminarily
allocated to the net assets acquired based on the fair values as of the
acquisition date. The excess of the cost over the estimated fair value of
F-12
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
4. ACQUISITIONS (CONTINUED)
the net assets acquired has been preliminarily allocated to goodwill and certain
other identifiable intangible assets.
5. STOCKHOLDERS' EQUITY
STOCK SPLITS
In February 1997, the Company's Board of Directors approved a 3-for-2 stock
split effected in the form of a stock dividend, whereby each shareholder of
record as of February 10, 1997 received on February 28, 1997 one-half additional
share of common stock for each share owned as of the record date.
In July 1998, the Company's Board of Directors approved a 3-for-2 stock
split effected in the form of a stock dividend, whereby each shareholder of
record as of July 31, 1998 received on August 14, 1997 one-half additional share
of common stock for each share owned as of the record date.
All share and per share amounts herein have been restated to reflect these
stock splits. Additionally, common stock and additional paid-in capital amounts
have been restated to reflect the issuance of the additional shares.
CAPITAL STOCK
Under the terms of its amended and restated articles of incorporation, the
Company has authorized 50,000,000 shares of common stock and 1,000,000 shares of
preferred stock that may contain such preferences and rights as determined by
the Company's Board of Directors.
COMMON STOCK WARRANT
In connection with a bank credit agreement entered into in 1993, the Company
issued a warrant to the bank to purchase 332,436 shares of the Company's common
stock at an exercise price of $1.53 per share of common stock. The warrant is
currently exercisable and expires on March 9, 2003. As of December 27, 1998, a
portion of the warrant to purchase up to 118,750 shares of common stock remained
outstanding.
COMMON SHARES RESERVED FOR ISSUANCE
Shares of common stock reserved for issuance at December 28, 1997 and
December 27, 1998 consisted of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Various stock option agreements..................................... 5,260,263 6,116,909
Convertible notes................................................... 502,233 395,624
Employee stock purchase plan........................................ 554,757 544,802
Warrants............................................................ 162,654 118,750
---------- ----------
6,479,907 7,176,085
---------- ----------
---------- ----------
</TABLE>
F-13
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
6. STOCK COMPENSATION PLANS
OFFICER STOCK OPTIONS
During March 1993, the Company entered into an employment agreement with its
chief executive officer. As part of the agreement, the officer was granted two
options (the "base option" and the "market option") to purchase shares of the
Company's common stock. Under each option, the officer could purchase up to
378,000 shares of common stock at an exercise price of $1.53 per share (the
estimated fair value on the date of grant). During December 1994, the officer
was granted additional options to purchase 345,357 shares of common stock at an
exercise price of $2.45, the estimated fair market value at the date of grant.
All of these options have a term of ten years and became fully vested as of the
IPO date of June 14, 1995. As of December 27, 1998, options to purchase 868,857
shares of common stock were outstanding.
SECOND AMENDED AND RESTATED 1994 OMNIBUS INCENTIVE PLAN
The Company's Second Amended and Restated 1994 Omnibus Incentive Plan (the
"Omnibus Plan") provides for the issuance of up to 4,875,000 stock options to
key employees and directors. Options granted under the Omnibus Plan can have
varying terms as determined by the Board of Directors. Options granted through
1998 under the Omnibus Plan generally vest ratably over three to four years or
in full after three years and have terms of six to ten years. Certain option
grants are eligible for accelerated vesting upon the Company's achievement of
certain predetermined performance objectives that are approved by the
Compensation Committee of the Company's Board of Directors. As of December 27,
1998, there were options to purchase 1,842,082 shares outstanding under the
Omnibus Plan, 1,359,509 of which were exercisable. As of December 27, 1998, the
Company had 2,203,345 options available for grant.
AMENDED AND RESTATED 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Company's Amended and Restated 1995 Non-Employee Directors' Stock Option
Plan (the "Director Plan") provides for the issuance of up to 810,000 stock
options to non-employee directors. Pursuant to the Director Plan, each person
who becomes a non-employee director of the Company is automatically granted an
option to purchase 36,000 shares of the Company's common stock on the date of
adoption or on the day after such person's first election to the Board of
Directors. The exercise price of the options is the fair market value of the
common stock on the date of grant. In addition, the Director Plan provides for
the automatic grant of options to purchase 9,000 shares of common stock on an
annual basis to each non-employee director of the Company after the initial
36,000 share option grant has vested in full. Options granted since 1996 under
the Director Plan typically vest over a four-year period, while options granted
prior to that were fully vested upon issuance. As of December 27, 1998, options
to purchase 378,000 shares were outstanding under the Director Plan, 208,125 of
which were exercisable. As of December 27, 1998, the Company had 432,000 options
available for grant under the Director Plan.
EMPLOYMENT STOCK OPTIONS
During 1997, the Company entered into employment agreements with four
individuals. As an integral part of these agreements, the individuals were
granted options to purchase an aggregate of 613,125 shares of the Company's
common stock (the "Employment Options"). The options were each issued with an
exercise price equal to the fair market value of the Company's common stock on
the date of grant. Each of the options has a term of ten years, vests ratably
over a four-year period and contains other terms and
F-14
<PAGE>
SEROLOGICALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND DECEMBER 27, 1998
6. STOCK COMPENSATION PLANS (CONTINUED)
conditions similar to options issued under the Omnibus Plan. As of December 27,
1998, options to purchase 392,625 shares were outstanding, 21,375 of which were
exercisable.
STOCK OPTION ACTIVITY
The following table summarizes the activity for all stock options
outstanding:
<TABLE>
<CAPTION>
1996 1997 1998
----------------------- ----------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.................. 1,832,700 $ 2.20 2,745,230 $ 4.67 4,069,229 $ 8.31
Granted........................................... 1,132,313 8.15 1,769,942 13.55 100,500 19.28
Exercised......................................... (207,678) 1.93 (313,418) 4.50 (643,528) 7.97
Forfeited......................................... (12,105) 2.95 (132,525) 11.83 (44,637) 11.07
---------- ---------- ----------
Outstanding at end of year........................ 2,745,230 4.67 4,069,229 8.31 3,481,564 8.65
---------- ---------- ----------
---------- ---------- ----------
Options exercisable at end of year................ 1,610,109 $ 2.91 2,055,501 $ 4.25 2,457,866 $ 6.88
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following table summarizes information about all stock options
outstanding at December 27, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE -----------------------
REMAINING WEIGHTED- WEIGHTED-
OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
RANGE OF AT LIFE EXERCISE AT EXERCISE
EXERCISE PRICES 12/27/98 (YEARS) PRICE 12/27/98 PRICE
- --------------- ----------- --------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$1.53-$3.00..... 1,109,550 5.1 $ 1.92 1,109,550 $ 1.92
$3.01-$6.00..... 147,375 3.4 5.61 144,000 5.67
$6.01-$9.00..... 600,873 7.1 7.64 470,373 7.83
$9.01-$12.00.... 182,250 7.8 11.66 56,250 11.65
$12.01-$15.00... 919,427 5.9 13.07 402,595 13.34
$15.01-$18.00... 457,589 6.0 15.58 275,098 15.42
$18.01-$23.88... 64,500 7.0 20.27 -- --
----------- ----------
3,481,564 5.9 $ 8.65 2,457,866 $ 6.88
----------- ----------
----------- ----------
</TABLE>
F-15
<PAGE>
6. STOCK COMPENSATION PLANS (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
In May 1996, the stockholders of the Company approved the 1996 Employee
Stock Purchase Plan (the "Purchase Plan"). Pursuant to the terms of the Purchase
Plan, eligible employees are able to purchase up to 562,500 shares of the
Company's common stock through a payroll deduction program. Employees may have
up to 25% of their compensation withheld to purchase shares at a price equal to
85% of the lower of the closing price on the first or last day of each
successive three month purchase period. As of December 27, 1998, there were
544,802 shares reserved for issuance under the Purchase Plan.
ACCOUNTING FOR STOCK PLANS
The Company uses the intrinsic value-based method to account for its stock
plans, as provided by APB No. 25. Accordingly, no compensation expense has been
recognized for grants of stock options as all options were issued at their fair
market value on the date of the respective grants, or in the case of options
granted prior to the Company's initial public offering, their estimated fair
market value. Had compensation expense for the Company's stock-based
compensation plans been determined in accordance with the provisions of SFAS No.
123, the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net income
As reported................................................. $ 8,236 $ 12,002 $ 16,345
Pro forma................................................... 6,362 9,357 13,740
Net income per share-basic
As reported................................................. $ 0.41 $ 0.54 $ 0.68
Pro forma................................................... 0.32 0.42 0.57
Net income per share-diluted
As reported................................................. $ 0.38 $ 0.51 $ 0.63
Pro forma................................................... 0.30 0.40 0.54
</TABLE>
The pro forma amounts reflected above are not representative of the effects
on reported net income in future years as SFAS No. 123 does not apply to grants
made prior to January 1, 1995 and additional awards are generally made each
year.
Under SFAS No. 123, the fair value of stock-based awards is calculated
through the use of option-pricing models, even though such models were developed
to estimate the fair value of freely tradable, fully transferable options
without vesting restrictions, which differ significantly from the Company's
stock option grants. These models also require subjective assumptions, including
future stock price volatility and expected lives of each option grant. The fair
value for each option grant was estimated on the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Expected life (years)............................................. 4.0 4.4 4.6
Dividend yield.................................................... 0% 0% 0%
Expected stock price volatility................................... 55% 50% 65%
Risk-free interest rate........................................... 5.51% 6.22% 5.45%
</TABLE>
Using these assumptions for the Omnibus Plan, the Director Plan and the
Employment Options, the weighted average fair value of options granted in 1996,
1997 and 1998 was $3.93, $6.51 and $11.02, respectively. No other options were
granted in 1996, 1997 or 1998.
F-16
<PAGE>
7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations at December 28, 1997 and
December 27, 1998 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Convertible subordinated note payable in the original principal amount of $4 million, interest
payable quarterly at 4.5%; maturing on March 7, 2002......................................... $ 4,000 $ 2,667
$2.55 million convertible subordinated note payable; interest payable quarterly at 4.0%;
principal payable on September 23, 2000...................................................... 2,550 2,550
Capital lease obligations at varying interest rates and terms, maturing through June 2001...... 141 67
Other notes at varying interest rates and terms................................................ 107 --
--------- ---------
6,798 5,284
Less current maturities........................................................................ 2,352 4,406
--------- ---------
$ 4,446 $ 878
--------- ---------
--------- ---------
</TABLE>
The Company has a revolving credit facility with a commercial bank (the
"Revolver") that provides for total borrowing capacity of $35 million, $30
million of which may be used for acquisitions. The Revolver bears interest at a
variable rate and is payable in full on October 16, 2000. The Company may elect
either a floating rate or Eurodollar interest rate option applicable to
borrowings under the Revolver. The floating rate and Eurodollar interest rate
options are based on a base rate, as defined, plus a floating rate margin that
fluctuates on the basis of the Company's leverage ratio. The initial floating
rate margin under the Revolver is 0% for the floating rate option and 1.5% for
the Eurodollar rate option. The Company is required to pay a fee of .375% on the
unused portion of the Revolver. The Revolver is secured by substantially all of
the assets of the Company and the stock of its subsidiaries. The Revolver also
contains certain financial covenants that require the maintenance of minimum
levels of cash flow coverage, debt service coverage and debt to net worth and
also provides for maximum levels of debt to cash flow. Furthermore, under the
terms of the Revolver, there are limitations on the Company's ability to pay
cash dividends. There were no amounts outstanding under the Revolver at December
28, 1997 or December 27, 1998.
In connection with the acquisition of the Nations Group, the Company issued
one of the sellers the Nations Note, which matures on March 7, 2002. The Nations
Note bears interest at a rate of 4.5% per annum through the earlier of the date
of repayment, conversion or March 7, 2000. On or after March 7, 1998, 1999 and
2000, the payee could call for repayment (or conversion into shares of the
Company's common stock) one-third, two-thirds and all, respectively, of the then
outstanding principal amount of the Nations Note, subject to certain
restrictions as to minimum amounts and frequency. The Nations Note is
convertible at the option of the holder at a conversion price of $12.51 per
share, the fair market value of the Company's common stock at the date of
issuance. The Company has the right to call the Nations Note at any time
commencing March 7, 2000, or earlier if certain events occur. During 1998 and
pursuant to the terms of the related note agreement, the holder of the Nations
Note opted to convert $1.3 million principal amount of the Nations Note into
106,608 shares of the Company's common stock. Subsequent to year end, the
Company and the payee agreed to amend the note, allowing the payee to call for
repayment (or conversion into shares of the Company's common stock), the
remaining outstanding principal balance of the Nations Note.
In connection with the acquisition of Bio-Lab, the Company issued one of the
sellers the Bio-Lab Note, which bears interest at a rate of 4.0% per annum
through the earlier of the date of repayment, conversion or September 23, 2000.
Commencing September 23, 1999, the Bio-Lab Note may be prepaid, in whole or in
part, upon not less than thirty days prior written notice by the Company. The
Company may also prepay the note prior to September 23, 1999, in whole or in
part, at a premium to the then outstanding
F-17
<PAGE>
principal balance if certain events occur. On or after September 23, 1998, 1999
and 2000, the payee may call for repayment (or conversion into shares of the
Company's common stock) one-third, two-thirds and all, respectively, of the then
outstanding principal amount of the Bio-Lab Note, subject to certain
restrictions as to minimum amounts and frequency. The Bio-Lab Note is
convertible at the option of the holder at a conversion price of $13.98 per
share, the fair market value of the Company's common stock at the date of
issuance.
Future maturities of long-term debt and capital lease obligations at
December 27, 1998 were as follows (in thousands):
<TABLE>
<S> <C>
1999................................................................ $4,406
2000................................................................ 871
2001................................................................ 7
---------
$5,284
---------
---------
</TABLE>
The Company made interest payments of approximately $520,000, $348,000 and
$245,000 during 1996, 1997 and 1998, respectively.
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain office space, donor centers, laboratory and
manufacturing facilities and laboratory equipment under non-cancelable operating
lease agreements. Future minimum annual rental obligations under the
non-cancelable portion of operating leases as of December 27, 1998 were as
follows (in thousands):
<TABLE>
<S> <C>
1999............................................................... $ 3,913
2000............................................................... 2,545
2001............................................................... 1,809
2002............................................................... 1,364
2003............................................................... 749
2004 and thereafter................................................ 696
---------
$ 11,076
---------
---------
</TABLE>
Rent expense was approximately $2,321,000, $3,297,000 and $3,871,000 during
1996, 1997 and 1998, respectively.
SUPPLY CONTRACTS
The Company is party to several long-term agreements for the sale of
non-specialty antibodies to three customers at specified prices which are
typically renegotiated annually. The contracts generally include escalating
minimum annual purchase amounts by the customers subject to the rights of such
customers to reduce the amounts purchased under certain terms. The Company
expects to meet its obligations under the supply contracts.
LITIGATION
The Company is involved in certain litigation arising in the ordinary course
of business. In the opinion of management, the ultimate resolution of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
F-18
<PAGE>
9. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH EQUIVALENTS
The Company estimates that the fair value of cash equivalents approximates
carrying value due to the relatively short maturity of these instruments.
NOTES PAYABLE
The Company estimates that the fair value of notes payable approximates
carrying value based upon its estimated current borrowing rate for issuance of
debt with similar terms and remaining maturities.
Disclosure about the estimated fair value of financial instruments is based
on pertinent information available to management as of December 28, 1997 and
December 27, 1998. Although management is not aware of any factors that would
significantly affect the reasonable fair value amounts, such amounts have not
been comprehensively revalued for purposes of these financial statements since
the periods presented and current estimates of fair value may differ
significantly from the amounts presented herein.
10. INCOME TAXES
The income tax provision for the years ended December 29, 1996, December 28,
1997 and December 27, 1998 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Current:
U.S. federal and state......................................... $ 4,009 $ 5,854 $ 7,230
Foreign........................................................ 667 996 1,150
--------- --------- ---------
4,676 6,850 8,380
--------- --------- ---------
Deferred:
U.S. federal and state......................................... 108 176 300
Foreign........................................................ 82 38 7
--------- --------- ---------
190 214 307
--------- --------- ---------
Income tax provision............................................. $ 4,866 $ 7,064 $ 8,687
--------- --------- ---------
--------- --------- ---------
</TABLE>
The income tax provision as reported in the consolidated statements of
income differs from the amounts computed by applying federal statutory rates due
to the following (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Federal income taxes at statutory rate........................... $ 4,459 $ 6,482 $ 8,761
State income taxes, net of federal income tax benefit............ 525 755 826
Impact of foreign tax rates and credits.......................... (69) (135) (642)
Non-deductible goodwill amortization............................. 69 213 315
Other............................................................ (118) (251) (573)
--------- --------- ---------
$ 4,866 $ 7,064 $ 8,687
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income tax assets and liabilities for 1997 and 1998 reflect the
impact of temporary differences between the amounts of assets and liabilities
for financial reporting and income tax reporting
F-19
<PAGE>
purposes. Temporary differences which give rise to deferred tax assets and
liabilities at December 28, 1997 and December 27, 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves.................................................... $ 1,056 $ 1,051
Unearned compensation.................................................... 106 106
Other.................................................................... 218 287
--------- ---------
1,380 1,444
Deferred tax liabilities:
Goodwill amortization.................................................... (1,006) (1,388)
Excess tax depreciation.................................................. (613) (570)
Other.................................................................... (69) (101)
--------- ---------
(1,688) (2,059)
--------- ---------
Net deferred tax liability................................................. $ (308) $ (615)
--------- ---------
--------- ---------
</TABLE>
The Company did not record any valuation allowance against the deferred tax
asset at December 28, 1997 and December 27, 1998 as it believes it is more
likely than not that the deferred tax asset will be realizable through future
taxable income.
The Company made income tax payments of approximately $4,144,000, $6,680,000
and $7,940,000 during 1996, 1997 and 1998, respectively.
11. SIGNIFICANT CUSTOMERS
The Company's ten largest customers accounted for approximately 87%, 84% and
84% of total net sales for the years ended December 29, 1996, December 28, 1997
and December 27, 1998, respectively.
During the years ended December 29, 1996, December 28, 1997 and December 27,
1998, sales to Bayer Corporation accounted for 56%, 47% and 40%, respectively,
of total net sales, while sales to Centeon Pharma GmbH accounted for 15%, 11%
and 14%, respectively. During 1997, sales to Alpha Therapeutic Corporation
accounted for 12% of the Company's net sales. No other single customer
individually accounted for greater than 10% of net sales during the three fiscal
years ended December 27, 1998.
All net sales to Bayer, Centeon Pharma GmbH and Alpha were generated from
the Therapeutic Products segment (Note 13). At December 27, 1998, the Company's
accounts receivable from Bayer, Centeon and Alpha were approximately $5,625,000,
$2,626,000 and $614,000, respectively.
12. EMPLOYEE SAVINGS PLAN
The Company maintains a defined contribution 401(k) savings plan for all
eligible employees. Under the plan, the Company matches a specified percentage
of each participating employee's compensation. The employees become fully vested
in the Company's contributions after three years of service. The Company's
contributions approximated $102,000, $114,000 and $205,000 in 1996, 1997 and
1998, respectively.
13. SEGMENT AND GEOGRAPHIC INFORMATION
Effective December 27, 1998, the Company adopted SFAS No. 131 for financial
reporting of its operating segments. SFAS No. 131 defines operating segments to
be those components of a business about which separate financial information is
available that is regularly evaluated by management in making operating
decisions and in assessing performance. SFAS No. 131 further requires that the
segment
F-20
<PAGE>
information presented be consistent with the basis and manner in which
management internally disaggregates financial information for the purposes of
assisting in making internal operating decisions. The Company's business
activities are conducted and managed primarily through two business segments,
the Therapeutic Products segment and the Diagnostic Products segment. These
segments were determined based primarily on the differing nature of the ultimate
end use of the Company's products, the differing production and other
value-added processes performed by the Company with respect to the products and,
to a lesser extent, the differing customer bases to which each reportable
segment sells its products. The remainder of the Company's operations that do
not otherwise fall into one of these two segments, as well as general,
unallocated corporate overhead expenses, are reported in the category entitled
"Corporate and Other". Prior period amounts have been restated to conform to the
requirements of this statement.
The activities of the Therapeutic Products segment generally include the
collection and sale of human antibodies that are used as the active ingredients
in therapeutic products for the treatment and management of diseases such as Rh
incompatibility in newborns, hepatitis and rabies. The activities of the
Therapeutic Products segment also include the general operations of the
Company's central testing laboratory. The activities of the Diagnostic Products
segment generally include the Company's monoclonal antibody production
facilities in the U.K. and the sales and marketing efforts related to certain
human-sourced, polyclonal antibodies. The antibodies provided by the Diagnostic
Products segment are used in diagnostic products such as blood typing reagents
and diagnostic test kits. The Company's donor centers are generally classified
and managed as assets and operations of the Therapeutic Products segment which
provide, on an incremental basis and at cost, antibodies for sale by the
Diagnostic Products segment. Such sales are recorded as direct sales of the
Diagnostic Products segment; accordingly, no intersegment sales are recorded.
The Company's senior management utilizes multiple forms of analysis of
operating and financial data to assess segment performance and to make operating
decisions with respect to the segments. While segment financial statements are
prepared on the same basis as the Company's consolidated financial statements,
the primary focus of senior management is on gross profit, and, to a lesser
extent, segment operating income, defined as earnings before income taxes,
interest, amortization, foreign currency gains and losses and other
non-operating expenses. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies (Note 2).
F-21
<PAGE>
The Company's segment information as of and for the years ended December 29,
1996, December 28, 1997 and December 27, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
CORPORATE
DIAGNOSTIC THERAPEUTIC TOTAL AND CONSOLIDATED
PRODUCTS PRODUCTS SEGMENTS OTHER TOTAL
----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales-external customers
1996.................................................... $ 14,510 $ 50,888 $ 65,398 $ 173 $ 65,571
1997.................................................... 18,291 79,222 97,513 21 97,534
1998.................................................... 20,111 102,116 122,227 845 123,072
Gross profit (loss)
1996.................................................... 8,795 17,958 26,753 66 26,819
1997.................................................... 10,090 25,374 35,464 5 35,469
1998.................................................... 12,281 29,572 41,853 (23) 41,830
Segment operating income (loss)
1996.................................................... 3,360 16,966 20,326 (5,143) 15,183
1997.................................................... 5,853 22,439 28,292 (7,045) 21,247
1998.................................................... 8,882 27,530 36,412 (9,530) 26,882
Identifiable assets
1996.................................................... 8,860 49,591 58,451 22,386 80,837
1997.................................................... 10,666 79,986 90,652 32,840 123,492
1998.................................................... 12,016 94,212 106,228 41,103 147,331
Depreciation expense
1996.................................................... 499 1,232 1,731 -- 1,731
1997.................................................... 772 1,453 2,225 3 2,228
1998.................................................... 845 1,944 2,789 33 2,822
Capital expenditures
1996.................................................... 2,687 1,500 4,187 -- 4,187
1997.................................................... 726 3,644 4,370 -- 4,370
1998.................................................... 730 4,439 5,169 -- 5,169
</TABLE>
"Corporate and Other" includes general corporate expenses, corporate
interest income, interest expense other than that directly attributable to an
operating segment and other operations that do not otherwise meet the SFAS No.
131 criteria for disclosure. Identifiable assets of each segment consist of
accounts receivable, inventories, goodwill and other intangible assets and
property and equipment. Corporate assets generally consist of cash and cash
equivalents and other unallocated assets.
F-22
<PAGE>
The following table reconciles operating income above to consolidated net
income:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Operating income-segments.................................... $ 20,326 $ 28,292 $ 36,412
Corporate and other.......................................... (5,143) (7,045) (9,530)
--------- --------- ---------
Consolidated operating income................................ 15,183 21,247 26,882
Other expense, net........................................... 1,847 2,713 2,696
Interest expense (income), net............................... 220 (532) (846)
--------- --------- ---------
Income before income taxes................................... 13,116 19,066 25,032
Provision for income taxes................................... 4,866 7,064 8,687
--------- --------- ---------
Income before extraordinary loss............................. 8,250 12,002 16,345
Extraordinary loss on early retirement of debt, net of tax... (14) -- --
--------- --------- ---------
Net income................................................... $ 8,236 $ 12,002 $ 16,345
--------- --------- ---------
--------- --------- ---------
</TABLE>
GEOGRAPHIC INFORMATION
The Company markets its products and services to numerous countries
worldwide and has operations in the United States and the United Kingdom. Other
than in the United States and Germany, the Company does not conduct business in
any one country in which its sales in that country are material to the Company
as a whole. However, the majority of the Company's remaining foreign sales is to
western Europe. Net sales are attributed to regions based on the country to
which the Company ships its products, which can differ from their ultimate
destination. The composition of the Company's net sales to unaffiliated
customers between those in the United States, Germany and other foreign
locations for each fiscal year is set forth below (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
United States............................................. $ 44,338 $ 72,303 $ 77,596
Germany................................................... 9,948 10,879 17,723
Other foreign............................................. 11,285 14,352 27,753
--------- --------- ----------
$ 65,571 $ 97,534 $ 123,072
--------- --------- ----------
--------- --------- ----------
Long-lived assets:
United States............................................. $ 42,480 $ 65,151 $ 68,842
United Kingdom............................................ 5,014 5,519 5,473
--------- --------- ----------
$ 47,494 $ 70,670 $ 74,315
--------- --------- ----------
--------- --------- ----------
</TABLE>
14. SUBSEQUENT EVENT
Effective December 29, 1998, the Company purchased substantially all of the
domestic assets of the Pentex Blood Proteins ("Pentex") business of Bayer
Corporation. The purchase price was $27.5 million, plus assumption of certain
liabilities, and is subject to adjustment based on the closing net assets, as
defined, of the acquired business as of the closing date. Pursuant to the same
transaction, the Company agreed to purchase certain foreign assets owned by
Bayer AG affiliated companies located in Europe for $1.5 million, which has not
yet been consummated. The acquisition of Pentex will be accounted for as a
purchase in accordance with APB No. 16. Pentex is engaged in the research,
manufacturing, marketing and sale of a full line of high quality purified blood
protein products primarily to customers in the diagnostics and
biopharmaceuticals industries in the United States and approximately 25 other
countries worldwide. The Company funded the acquisition with cash on hand.
F-23
<PAGE>
EXHIBIT 10.7.1
================================================================================
SEROLOGICALS CORPORATION
SECOND AMENDED AND RESTATED 1994 OMNIBUS INCENTIVE PLAN
================================================================================
SECTION 1. PURPOSE
The purposes of the Serologicals Corporation Second Amended and
Restated 1994 Omnibus Incentive Plan (the "Plan") are to encourage certain
directors and selected employees (or consultants) of Serologicals Corporation
(together with any successor thereto, the "Company") and its Affiliates (as
defined below) to acquire a proprietary interest in the growth and performance
of the Company, to generate an increased incentive to contribute to the
Company's future success and prosperity, thus enhancing the value of the Company
for the benefit of its stockholders, and to enhance the ability of the Company
and its Affiliates to attract and retain qualified individuals upon whom, in
large measure, the sustained progress, growth, and profitability of the Company
depend.
SECTION 2. DEFINITIONS
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Affiliate" shall mean any entity that, directly or through one or
more intermediaries, is controlled by, controls or is under common control with,
the Company; for purposes of this definition only, control shall include,
without limitation, the direct or indirect beneficial ownership of 10% or more
of an entity's equity securities or economic interests.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent, or other
Stock Award or Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean a written agreement, contract, or
other instrument or document evidencing an Award granted under the Plan.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Cause" shall have the meaning provided in the Participant's
employment agreement; provided that if the Participant does not have an
employment agreement, Cause shall mean (i) the Participant's willful misconduct,
gross negligence or dishonesty in the performance of his duties on behalf of the
Company, (ii) the willful and repeated neglect, failure or refusal of the
Participant to carry out any reasonable request of the Board, the Chief
Executive Officer or any officer having supervisory authority over the
Participant, (iii) the material breach of any provision of any employment,
consulting, or
Page 1
<PAGE>
other services agreement between the Participant and the Company or (iv) the
entering of a plea of guilty or nolo contendere to, or the Participant's
conviction of, a felony or other crime involving moral turpitude, dishonesty,
theft or unethical business conduct.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time-to-time.
(g) "Committee" shall mean a committee of the Board designated by the
Board to administer the Plan and composed of not less than two (2) directors,
each of whom qualifies as a "disinterested person" within the meaning of Rule
16b-3, and an "outside director" as defined for purposes of Section 162(m) of
the Code.
(h) "Dividend Equivalent" shall mean any right granted under Section
6(d) of the Plan.
(i) "Fair Market Value" shall mean, with respect to Shares (i) if the
Shares are listed on a registered securities exchange or quoted on the National
Market System, the closing price per share of the Shares on such date (or, if
there was no trading reported on such date, on the next preceding day on which
there was trading reported); (ii) if the Shares are not listed on a registered
securities exchange and not quoted on the National Market System, but the bid
and asked prices per share for the Shares are provided by Nasdaq, the National
Quotation Bureau Incorporated or any similar organization, the average of the
closing bid and asked prices per share of the Shares on such date (or, if there
was no trading in the Shares on such date, on the next preceding day on which
there was trading) as provided by such organization; and (iii) if the Shares are
not traded on a registered securities exchange and not quoted on the National
Market System and the bid and asked prices per share of the Shares are not
provided by Nasdaq, the National Quotation Bureau Incorporated or any similar
organization, solely as determined by the Committee in good faith; the "Fair
Market Value" of any property (other than Shares), shall mean the fair market
value of such property determined by such methods or procedures as shall be
established from time-to-time by the Committee.
(j) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that meets the requirements of Section 422 of the Code or any
successor provision thereto.
(k) "Key Employee" shall mean any officer, director, consultant, or
other employee who is a regular full-time employee of the Company or its present
and future Affiliates.
(l) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not an Incentive Stock Option.
(m) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
Page 2
<PAGE>
(n) "Participant" shall mean a Key Employee who has been granted an
Award under the Plan.
(o) "Performance Award" shall mean any right granted under Section 6(f)
of the Plan.
(p) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
(q) "Released Securities" shall mean securities that were Restricted
Securities with respect to which all applicable restrictions have expired,
lapsed, or been waived.
(r) "Restricted Securities" shall mean Restricted Stock or any other
Award under which issued and outstanding Shares are held subject to restrictions
imposed by the terms of the Award.
(s) "Restricted Stock" shall mean any Share granted under Section 6(c)
of the Plan.
(t) "Restricted Stock Unit" shall mean any right granted under Section
6(c) of the Plan that is denominated in Shares.
(u) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation thereto.
(v) "Shares" shall mean the common stock of the Company, $.01 par
value, and such other securities or property as may become the subject of Awards
pursuant to an adjustment made under Section 4(b) of the Plan.
(w) "Stock Appreciation Right" shall mean any right granted under
Section 6(b) of the Plan.
(x) "Stock Award" shall mean an Award of an Option, Restricted Stock,
or other right or security consisting of or convertible into Shares.
(y) "Stock-Based Award" shall mean an Award of a Stock Appreciation
Right, Dividend Equivalent, Restricted Stock Unit or other right, the value of
which is determined by reference to Shares.
(z) "Tandem Option" shall mean a Non-Qualified Option issued in tandem
with a Stock Appreciation Right.
Page 3
<PAGE>
SECTION 3. ADMINISTRATION
(a) GENERALLY. The Plan shall be administered by the Committee. Unless
otherwise expressly provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time, and shall be final, binding and conclusive upon all Persons, including the
Company, any Affiliate, any Participant, any holder or beneficiary of any Award,
any Stockholder, and any employee of the Company or of any Affiliate.
Notwithstanding anything to the contrary contained in this Section 3, no member
of the Committee shall participate in any action of the Committee directly
affecting his rights under the Plan.
(b) POWERS. Subject to the terms of the Plan and applicable law, the
Committee shall have the full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to each
Participant under the Plan; (iii) determine the number of shares to be covered
by (or with respect to which payments, rights or other matters are to be
calculated in connection with), Awards; (iv) determine the terms and conditions
of any Award; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other Awards,
or other property, or canceled, forfeited, or suspended, and the method or
methods by which Awards may be settled, exercised, canceled, forfeited, or
suspended; (vi) determine whether, to what extent, and under what circumstances
cash, Shares, other Awards, other property, and other amounts payable with
respect to an Award under the Plan shall be deferred; (vii) interpret and
administer the Plan and any instruments or agreements relating to, or Award made
under, the Plan; (viii) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan.
(c) RELIANCE. Indemnification. The Committee may employ attorneys,
consultants, accountants or other persons and the Committee, the Company and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. No member of the Committee shall be personally
liable for any action, determination or interpretation taken or made in good
faith with respect to the Plan, or Awards made thereunder, and all members of
the Committee shall be fully indemnified and protected by the Company in respect
of any such action, determination or interpretation.
SECTION 4. SHARES AVAILABLE FOR AWARDS
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section
4(b):
(i) LIMITATION ON NUMBER OF SHARES. Awards issuable under the
Plan are limited such that the maximum aggregate number of Shares with respect
to which Stock Awards and Stock-Based Awards may be granted to any recipient are
100,000 in any fiscal year, to an aggregate maximum for all recipients in all
years of 3,250,000 any or all of
Page 4
<PAGE>
which may be subject to Incentive Stock Options or other Awards in the
discretion of the Committee. To the extent that an Award ceases to remain
outstanding by reason of termination of rights granted thereunder, forfeiture or
otherwise, the Shares subject to such Award shall again become available for
Award under the Plan; provided, however, that in the case of the cancellation or
termination of an Option in the same fiscal year that such Option was granted
(or for purposes of determining the maximum number of Options which may be
granted to any recipient under the Plan, the cancellation or termination of the
Option at any time) both the canceled Option and the newly granted Option shall
be counted in determining whether the recipient has received the maximum number
of Options permitted to be issued to any one recipient under the Plan.
(ii) ACCOUNTING FOR AWARDS. For purposes of this Section 4,
for any Award which is denominated in, or with respect to, Shares, the number of
Shares covered by such Award, or to which such Award relates, shall be counted
on the date of grant of such Award against the aggregate number of Shares
available for granting Awards under the Plan; provided, however, that Awards
that operate in tandem with (whether granted simultaneously with or at a
different time from), or that are substituted for, other Awards may be counted
or not counted under procedures adopted by the Committee in order to avoid
double counting. Any Shares that are delivered by the Company pursuant to any
Award, and any Awards that are granted by or become obligations of the Company
through the assumption by the Company or an Affiliate of, or in substitution
for, outstanding awards previously granted by an acquired company shall be
counted against the Shares available for granting Awards under the Plan.
(iii) SOURCES OF SHARES DELIVERABLE UNDER AWARDS. Any Shares
delivered pursuant to an Award may consist, in whole or in part, of authorized
and unissued Shares or of treasury Shares.
(b) ADJUSTMENTS. In the event that the Committee shall determine that
any (i) subdivision or consolidation of Shares, (ii) stock dividend or other
distribution of property other than cash, (iii) recapitalization or other
capital adjustment of the Company or (iv) merger, consolidation or other
reorganization of the Company or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event,
affects the Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(x) the number and type of Shares (or other securities or property) which
thereafter may be made the subject of Awards, (y) the number and type of Shares
(or other securities or property) subject to outstanding Awards, and (z) the
grant, purchase, or exercise price with respect to any Award or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Award; provided, however, in each case, that with respect to Awards of Incentive
Stock Options no such adjustment shall be authorized to the extent that such
adjustment would cause the Plan to violate Section 422 of the Code or for
compensation otherwise exempt from the application of Code Section 162(m) to
fail to so qualify for such exemption; and provided
Page 5
<PAGE>
further, however, that the number of Shares subject to any Award denominated in
Shares shall always be a whole number.
SECTION 5. ELIGIBILITY FOR AWARDS
(a) ELIGIBILITY FOR AWARDS. Awards may be granted only to Key Employees
and, solely as provided in Section 5(b) hereof, to directors who are not
otherwise Key Employees. In determining the employees to whom Awards shall be
granted and the number of shares or units to be covered by each Award, the
Committee shall take into account the nature of employees' duties, their present
and potential contributions to the success of the Company and such other factors
as it shall deem relevant in connection with accomplishing the purposes of the
Plan. A director of the Company or a subsidiary who is not also a regular
full-time employee will not be eligible to receive an Award except as provided
in Section 5(b). A Key Employee who has been granted an Award or Awards under
the Plan may be granted an additional Award or Awards, subject to such
limitations as may be imposed by the Code on the grant of Incentive Stock
Options.
(b) AWARDS TO DIRECTORS. (i) The following provisions shall apply to
the Options to purchase an aggregate of 48,000 Shares (after giving effect to
the 6-for-5 stock split declared by the Board of Directors on April 13, 1995)
granted to the directors who are not Key Employees, which Options were
outstanding on November 15, 1994;
(1) Subject to clauses (2) through (4) below, such Options shall
vest as follows: 25% on April 26, 1994 and 25% on each of the first, second and
third anniversaries of such date;
(2) In the event such director ceases to serve as a director and is
otherwise no longer affiliated with the Company prior to the vesting in full of
the exercisability of such Options according to the schedule set forth above in
clause (1), vesting of previously unvested Options shall be calculated on a
quarterly basis for full calendar quarters served;
(3) Such Options shall immediately vest in full on the earlier of
(x) the Company's becoming subject to the reporting requirements under the
Securities Exchange Act of 1934, as amended, and (y) the merger or other
business combination of the Company in which the Company is not the surviving
corporation or survives only as a subsidiary of another corporation, the sale of
all or substantially all of the assets or outstanding stock of the Company or
other similar transaction that results in the change in control of the Company;
and
(4) In the event of a voluntary resignation or involuntary removal
of the holder of such Options AND the occurrence of any of the events specified
in clauses (x) or (y) of Section 5(b)(3) within twelve months of such
resignation or removal, such options shall immediately vest in full as of the
date of the event specified in clause (x) or (y) of Section 5(b)(3).
Page 6
<PAGE>
(ii) No other directors who are not Key Employees shall be entitled
to Option grants hereunder.
SECTION 6. AWARDS
(a) OPTIONS. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions, in either case not inconsistent with the provisions of the
Plan, as the Committee shall determine:
(i) EXERCISE PRICE. The purchase price per Share purchasable under
a Non-Qualified Stock Option shall be determined by the Committee. The purchase
price per Share purchasable under an Incentive Stock Option shall not be less
than 100% (110% in the case of a 10% shareholder as deemed for purposes of
Section 422(c)(5) of the Code) of the Fair Market Value of a Share on the date
of grant of such Incentive Stock Option.
(ii) OPTION TERM. The term of each Non-Qualified Stock Option shall
be faced by the Committee but generally shall not exceed ten (10) years (five
(5) years in the case of a 10% shareholder, as defined for purposes of Section
422(c)(5) of the Code) from the date of grant. The term of each Incentive Stock
Option shall in no event be more than ten (10) years from the date of grant.
(iii) TIME AND METHOD OF EXERCISE. The Committee shall determine
the time or times at which an Option may be exercised in whole or in part, and
the method or methods by which, and the form or forms (including, without
limitation, cash, Shares, outstanding Awards or other consideration, or any
combination thereof, having a Fair Market Value on the exercise date equal to
the relevant option price) in which, payment of the option prices with respect
thereto may be made or deemed to have been made.
(iv) EARLY TERMINATION. The unexercised portion of any option
granted under the Plan will generally be terminated (a) three (3) months after
the date on which the Participant's employment is terminated for any reason
other than (i) cause, (ii) mental or physical disability, (iii) death or (iv)
retirement; (b) immediately upon the termination of the Participant's employment
for cause; (c) Six (6) months after the date on which the Participant's
employment is terminated by reason of mental or physical disability, or (d) (i)
twelve (12) months after the date on which the Participant's employment is
terminated by reason of retirement or the death of the employee, or (ii) nine
(9) months after the date on which the Participant shall die if such death shall
occur during the three (3) month period following the termination of the
Participant's employment by reason of retirement or mental or physical
disability.
(v) INCENTIVE STOCK OPTIONS. All terms of any Incentive Stock
Option granted under the Plan shall comply in all respects with the provisions
of Section 422 of
Page 7
<PAGE>
the Code, or any successor provision thereto, and any regulations promulgated
thereunder. The Fair Market Value of Shares subject to Incentive Stock Options
(determined as of the date such Incentive Stock Options are granted) exercisable
for the first time by any individual during any calendar year shall in no event
exceed $100,000.
(b) STOCK APPRECIATION RIGHTS. The Committee is authorized to grant
Stock Appreciation Rights to Participants. Subject to the terms of the Plan and
any applicable Award Agreement, a Stock Appreciation Right granted under the
Plan shall confer upon the holder thereof a right to receive, upon exercise
thereof, an amount in cash equal of the excess of (i) the Fair Market Value of
one Share on the date of exercise over (ii) the Fair Market Value of one Share
on the date of grant of the Stock Appreciation Right. Subject to the terms of
the Plan and any applicable Award Agreement, the grant price, term, methods of
exercise, methods of settlement, and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate, including, but not limited to the following: a
Participant may not exercise a Stock Appreciation Right if the aggregate amount
to be received as a result of his or her exercise of Stock Appreciation Rights
in the preceding twelve (12) month period exceeds such Participant's current
base salary.
(c) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee is
hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units
to Participants subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote a Share of
Restricted Stock or the right to receive any dividend or other right or
property), which restrictions may lapse separately or in combination at such
time or times, in such installments or otherwise, as the Committee may deem
appropriate but not inconsistent with the provisions of the Plan:
(i) REGISTRATION. Any Restricted Stock granted under the Plan may
be evidenced in such manner as the Committee may deem appropriate, including,
without limitation, book-entry registration or issuance of a stock certificate
or certificates. In the event any stock certificate is issued in respect of
shares of Restricted Stock granted under the Plan, such certificate shall be
registered in the name of the Participant and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such
Restricted Stock.
(ii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment (as determined under criteria established by the
Committee) for any reason during the applicable restriction period, all shares
of Restricted Stock and all Restricted Stock Units still, in either case,
subject to restriction shall be forfeited to and reacquired by the Company;
provided, however, that the Committee may, when it finds that a waiver would be
in the best interest of the Company, waive in whole, or in part, any or all
remaining restrictions with respect to shares of Restricted Stock or Restricted
Stock Units.
Page 8
<PAGE>
(iii) LAPSE OF RESTRICTIONS. Unrestricted Shares, evidenced in such
manner as the Committee shall deem appropriate, shall be delivered to the holder
of Restricted Stock promptly after such Restricted Stock shall become Released
Securities.
(d) DIVIDEND EQUIVALENTS. The Committee is hereby authorized to grant
Awards to Participants under which the holders thereof shall be entitled to
receive payments equivalent to dividends with respect to a number of Shares and
payable on such date or dates as determined by the Committee, and the Committee
may provide that such amounts (if any) shall be deemed to have been reinvested
in additional Shares or otherwise reinvested. Subject to the terms of the Plan
any applicable Award Agreement, such Awards may have such terms and conditions
as the Committee shall determine.
(e) OTHER AWARDS. The Committee is hereby authorized, to the extent
permitted under Rule 16b-3 and applicable law, to grant to Participants such
other Awards that are denominated or payable in, valued in whole or in part by
reference to, or otherwise based on or related to, Shares (including, without
limitation, securities, convertible into Shares), as are deemed by the Committee
to be consistent with the purposes of the Plan. Subject to the terms of the Plan
and any applicable Award Agreement, the Committee shall determine the terms and
conditions of such Awards. Shares or other securities delivered to a Participant
pursuant to a purchase right granted under this Section 6(e) shall be purchased
for such consideration, which may be paid by such method or methods and in such
form or forms, including, without limitation, cash, Shares, outstanding Awards,
or other consideration, or any combination thereof, as the Committee shall
determine.
(f) PERFORMANCE AWARDS. The Committee is hereby authorized to grant
Performance Awards to Participants. Subject to the terms of the Plan and any
applicable Award Agreement, a Performance Award granted under the Plan (i) may
be denominated as a Stock Award or a Stock Based Award and payable in cash,
Shares, other securities or other property and (ii) shall confer on the holder
thereof rights valued as determined by the Committee and payable to, or
exercisable by, the holder of the Performance Award, in whole or in part, upon
the achievement of such performance goals and during such performance periods as
the Committee shall establish. Subject to the terms of the Plan and applicable
Award Agreement, the performance goals to be achieved during any performance
period, the length of any performance period, and the amount of any payment or
transfer to be made pursuant to any Performance Award shall be determined by the
Committee.
(g) GENERAL.
(i) NO CASH CONSIDERATION FOR AWARDS. Awards shall be granted for
no cash consideration or such minimal cash consideration as may be required by
applicable law.
(ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may, at
the discretion of the Committee, be granted either alone or in addition to, in
tandem with, or
Page 9
<PAGE>
in substitution for any other Award or any award granted under any other plan of
the Company or any Affiliate. Awards granted in addition to or in tandem with
other Awards, in addition to or in tandem with awards granted under any other
plan of the Company or any Affiliate, may be granted either at the same time as
or at a different time from the grant of such other Awards or awards; provided,
that any Tandem Option shall be subject to the following provisions: upon
exercise of an Option issued as part of a Tandem Option, the participant shall
be entitled to a credit toward the option exercise price equal to the value of
the Stock Appreciation Rights issued in tandem with the Option exercised, but
not in an amount that would exceed the amount of the federal income tax
deduction allowed to the Company in respect of such Stock Appreciation Rights.
Upon such exercise of a Tandem Option, the related Stock Appreciation Right
shall terminate and the value of such Stock Appreciation Right shall be limited
to such credit. Upon the exercise of a Stock Appreciation Right issued as part
of a Tandem Option, the Option to which such Stock Appreciation Right relates
shall cease to be exercisable to the extent of the number of Shares with respect
to which the Stock Appreciation Right was exercised.
(iii) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of the
Plan and of any applicable Award Agreement, payment or transfers to be made by
the Company or an Affiliate upon the grant or exercise of an Award may be made
in such form or forms as the Committee shall determine, including, without
limitation, cash, Shares, other securities, other Awards, or other property, or
any combination thereof, and may be made in a single payment or transfer, in
installments, or on a deferred basis, in each case in accordance with rules and
procedures established by the Committee. Such rules and procedures may include,
without limitation, provisions for the payment or crediting of reasonable
interest on installment or deferred payments or the grant of crediting of
Dividend Equivalents in respect of installment or deferred payments denominated
in Shares on other securities.
(iv) LIMITS ON TRANSFER OF AWARDS. No Award (other than Released
Securities), and no right under any such Award, shall be assignable, alienable,
salable, or transferable by a Participant otherwise than by will or by the laws
of descent and distribution (or, in the case of an Award of Restricted
Securities, to the Company); provided, however, that, if so determined by the
Committee, a Participant may, in the manner established by the Committee,
designate a beneficiary or beneficiaries to exercise the rights of the
Participant, and to receive any property distributable, with respect to any
Award upon the death of the Participant. Each Award, and each right under any
Award, shall be exercisable, during the Participant's lifetime, only by the
Participant or, if permissible under applicable law with respect to any Award
that is not an Incentive Stock Option, by the Participant's guardian or legal
representative. No Award (other than Released Securities), and no right under
any such Award, may be pledged, alienated, attached, or otherwise encumbered,
and any purported pledge, alienation, attachment, or encumbrance thereof shall
be void and unenforceable against the Company or any Affiliate.
Page 10
<PAGE>
(v) TERM OF AWARDS. Except as set forth in Section 6(a)(ii), the
term of each Award shall be for such period as may be determined by the
Committee.
(vi) SHARE CERTIFICATES. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan pursuant to
any Award or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the Plan or the
rules, regulations, and other restrictions of the Securities and Exchange
Commission, any stock exchange upon which such Shares or other securities are
then listed, and any applicable Federal or state securities laws, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
SECTION 7. AMENDMENT AND TERMINATION
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) AMENDMENTS TO THE PLAN. The Board may amend, alter, suspend,
discontinue, or terminate the Plan, except that any amendment, alteration,
suspension, discontinuation, or termination that would impair the rights of any
Participant, or any other holder or beneficiary of any Award theretofore
granted, shall require the consent of such Participant, other holder or
beneficiary of an Award. Notwithstanding the foregoing, the Board may condition
any amendment on the approval of the stockholders of the Company if such
approval is necessary or advisable with respect to tax (including Code Sections
162(m) and 422), securities or other applicable laws and rules and regulations
to which the Company, this Plan, Participants or other applicable Persons are
subject.
(b) CORRECTION OF DEFECTS, OMISSIONS, AND INCONSISTENCIES. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
SECTION 8. GENERAL PROVISIONS.
(a) NO RIGHTS TO AWARDS. No Key Employee or Participant shall have any
claim to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Key Employees, Participants, or holders or
beneficiaries of Awards under the Plan. The terms and conditions of Awards need
not be the same with respect to each recipient.
(b) WITHHOLDING. The Company or any Affiliate shall be authorized to
withhold from any Award granted or any payment due or transfer made under any
Award or under the Plan the amount (in cash, Shares, other securities, or other
property) of withholding taxes due in respect of an Award, its exercise, or any
payment or transfer under such Awards or under the Plan and to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes. In case of
Page 11
<PAGE>
Awards paid in Shares, the Participant or other person receiving such Shares may
be required to pay the Company or Affiliate, as appropriate, the amount of any
such withholding taxes which is required to be withheld with respect to such
Shares.
(c) NO LIMIT ON OTHER PLANS. Nothing contained in the Plan shall
prevent the Company or any Affiliate from adopting or continuing in effect other
or additional compensation arrangements and such arrangements may be either
generally applicable or applicable only in specific cases.
(d) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate. the Company or an Affiliate may at any time dismiss a
Participant from employment, free from any liability, or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(e) GOVERNING LAW. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable federal law.
(f) SEVERABILITY. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction, or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed amended
to conform to applicable laws, or if it cannot be construed or deemed amended
without, in the determination of the Committee, materially altering the intent
of the Plan, such provision shall be deemed void, stricken and the remainder of
the Plan and any such Award shall remain in full force and effect.
(g) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(h) NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(i) HEADINGS. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision hereof.
Page 12
<PAGE>
SECTION 9. EFFECTIVE DATE OF THE PLAN
The Plan is effective as of November 14, 1994. The amendments to the
Plan are effective upon stockholder approval thereof.
SECTION 10. TERM OF THE PLAN
The Plan shall continue until the earlier of (i) the date on which all
Stock Awards and Stock Based Awards issuable hereunder have been issued, or (ii)
the termination of the Plan by the Board. However, unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award theretofore
granted may extend beyond such date and the authority of the Committee to amend,
alter, adjust, suspend, discontinue, or terminate any such Award or to waive any
conditions or rights under any such Award, and the authority of the Board to
amend the Plan, shall extend beyond such date. Notwithstanding anything to the
contrary in this Section 10, no Incentive Stock Options may be granted under the
Plan more than ten (10) years after the date of adoption of the Plan.
Page 13
<PAGE>
EXHIBIT 10.8.3
STOCK OPTION AGREEMENT FOR KEY EMPLOYEES
UNDER SEROLOGICALS CORPORATION
SECOND AMENDED AND RESTATED 1994 OMNIBUS INCENTIVE PLAN
Agreement, made as of the _____________________, between
Serologicals Corporation (the "Company"), a Delaware corporation, and _________
("Optionee"), employed at 780 Park North Blvd., Suite 110, Clarkston, GA 30021.
The Company has duly adopted the Second Amended and Restated
1994 Omnibus Incentive Plan (the "Plan"), the terms of which are hereby
incorporated by reference. In the case of any conflict between the provisions
hereof and those of the Plan, the provisions of the Plan shall be controlling. A
copy of the Plan is available upon request by the Optionee from the Secretary of
the Company.
In accordance with its authority under Section 3 of the Plan,
a committee of the Board of Directors of the Company which administers the Plan
(the "Committee") has adopted a resolution granting the Optionee a stock option
(the "Option") under the Plan to purchase shares of the Company's Common Stock,
$.01 par value per share ("Shares"), for the price and on the terms and
conditions set forth in this Agreement and in the Plan.
The Company makes no representations or warranties as to the
income, estate or other tax consequences to the Optionee of the grant or
exercise of the Option or the sale or other disposition of the Shares acquired
pursuant to the exercise thereof.
1. (a) The price at which the Optionee shall have the right to
purchase Shares under this Agreement is set forth on Schedule A hereto and is
subject to adjustment as provided in Paragraph 6.
(b) Unless the Option is previously terminated pursuant to
the Plan or this Agreement, the Option shall be exercisable during the period or
periods specified on Schedule A. In no event shall any Shares be purchasable
under this Agreement after the respective expiration date or dates specified on
Schedule A ("Expiration Date").
(c) Unless otherwise specified on Schedule A, the
unexercised portion of the Option will terminate:
(1) three (3) months after the date on which the
Optionee's voluntarily terminates his or her
employment;
(2) one (1) year after the date on which the Optionee
voluntarily terminates his employment due to
elimination
<PAGE>
of position, retirement, death, disability, or
change in control in which the Company is not
the surviving Company; or
(3) immediately following the termination of the
Optionee's employment for cause.
(d) Vesting of all Options terminates effective with the
employee's voluntary termination or upon termination for cause.
2. Nothing contained herein shall be construed to confer on
the Optionee any right to continue as an employee of the Company or any
subsidiary of the Company or to derogate from any right of the Company or any
subsidiary thereof to retire, request the resignation of or discharge the
Optionee, or to lay off or require a leave of absence of the Optionee, with or
without pay, at any time, with or without cause. No person or entity shall be
entitled to vote, receive dividends or be deemed for any purpose the holder of
any Shares subject to the Option until the Option shall have been duly exercised
to purchase such Shares in accordance with the provisions of this Agreement.
3. The Option shall be exercisable during the Optionee's
lifetime only by the Optionee or, if permissible under applicable law, by his or
her guardian or legal representative, and after the Optionee's death only by the
person or entity entitled to do so under the Optionee's last will and testament
or applicable intestate law. The Option may only be exercised by the delivery to
the Company of a written notice of such exercise in the form of Annex I hereto
(the "Exercise Notice"), which notice shall specify the number of Shares to be
purchased and the aggregate exercise price for such Shares, together with
payment in full of such aggregate exercise price in cash or by check payable to
the Company;
4. The Option shall not be assignable, alienable, saleable, or
transferable by the Optionee otherwise than by will or by the laws of descent
and distribution. The Option may not be pledged, alienated, attached, or
otherwise encumbered, and any purported pledge, alienation, attachment, or
encumbrance thereof shall be void and unenforceable against the Company or any
Affiliate (as defined in the Plan).
5. If the Company shall become obligated to withhold an amount
on account of any tax imposed as a result of the exercise of the Option,
including, without limitation, any federal, state, local or other income tax, or
any F.I.C.A., state disability insurance tax or other employment tax (the
"Withholding Liability"), then the Optionee shall, on the date of exercise and
as a condition to the issuance of the Shares subject to the Option, pay the
Withholding Liability to the Company. Payment shall be by check payable to the
Company; provided, however, that with the consent of the Committee, payment may
instead be made by delivery to the Company of a certificate or certificates
representing Shares duly endorsed or accompanied by a duly executed stock
power(s), which delivery effectively transfers to the Company good and valid
title
<PAGE>
to such Shares, free and clear of any pledge, commitment, lien, claim or other
encumbrance (such Shares to be valued on the basis of the fair market value
thereof on the date of such payment); provided, further, that the Company is not
then prohibited from purchasing or acquiring such shares of Common Stock. The
Optionee hereby consents to the Company withholding the full amount of the
Withholding Liability from any compensation or other amounts otherwise payable
to the Optionee if the Optionee does not pay the Withholding Liability to the
Company on the date of exercise of the Option, and the Optionee agrees that the
withholding and payment of any such amount by the Company to the relevant taxing
authority shall constitute full satisfaction of the Company's obligation to pay
such compensation or other amounts to Optionee.
6. (a) If the outstanding Shares of the Company are
subdivided, consolidated, increased, decreased, changed into or exchanged for a
different number or kind of shares or securities of the Company through
reorganization, merger, recapitalization, reclassification, capital adjustment
or similar event, or if the Company shall issue Shares as a dividend or upon a
stock split, then the number and kind of Shares subject to the unexercised
portion of the Option and the exercise price of the Option shall be adjusted to
prevent the inequitable enlargement or dilution of any rights hereunder,
provided, however, that any such adjustment shall be made without change in the
total exercise price applicable to the unexercised portion of the option. In
computing any adjustment under this paragraph, any fractional share shall be
eliminated. Nothing contained in this Agreement shall be construed to affect in
any way the right or power of the Company to make any adjustment,
reclassification, reorganization or changes to its capital or business structure
or to merge or to consolidate or to dissolve, liquidate or transfer all or any
part of its business or assets.
(b) In the event of a Change of Control (as defined below),
all outstanding and unvested portion of this Option shall vest and become
exercisable immediately before the date of the Change of Control and such
exercise period shall extend for the remainder of the original term of this
Option without giving effect to any shorter term of this Option as a result of
the termination of the Optionee's employment.
"Change in Control" shall mean the occurrence of any of the
events described below: (i) a change, within a period of 24 months or less, in
the composition of the Board of Directors of the Company, such that at any time
the majority of directors who are then serving were not serving at the beginning
of such period, unless at such date of determination, such directors were
nominated upon the recommendation of a majority of the Board of Directors who
were directors at the beginning of such period; (ii) any "person" (as such term
is defined in Section 3(a)(9) and 13(d)(3) of the Exchange Act), other than the
Optionee, or any group of which the Optionee is a member (within the meaning of
Rule 13d-1(f) of the Rules and Regulations promulgated under the Exchange Act),
or an "Affiliate" or "Associate" (as such terms are defined in Rule 405 of the
Rules and Regulations promulgated under the Securities Act of 1933, as amended
(the "Securities Act")) thereof, becomes a beneficial owner (as defined in
Section 13(d)(3) of the Exchange Act), directly or indirectly, of (x) securities
of the Company representing thirty percent (30%) or more of the Company's then
outstanding securities having the right to vote for the election of directors or
(y) all or substantially all
<PAGE>
of the assets of the Company; (iii) commencement (within the meaning of Rule
14d-2 of the Rules and Regulations promulgated under the 1934 Act) of a "tender
offer" for capital stock of the Company subject to Section 14(d)(2) of the 1934
Act by any "person" (as defined above) other than the Company or any group of
which the Optionee is a member; or (iv) the stockholders of the Company approve
a plan of complete liquidation of the Company or an agreement for the same or
disposition by the Company of all or substantially all of the Company's assets.
"Constructive Dismissal by Employer" shall occur if the
Company demotes Optionee from his or her present position; changes Optionee's
title or reporting relationship which results in a diminution of the position,
duties, authority or responsibility of Optionee; significantly reduces
Optionee's duties; materially decreases Optionees' benefits or compensation by
10% or greater; significantly increases Optionee's duties or responsibilities
without a corresponding change of title or increase in compensation; or
relocates Optionee to a location outside of the community where Optionee is
employed as of the date of the Change in Control.
7. The Company has been authorized by the Committee to, and
the Company, in its discretion, may, establish procedures whereby the Optionee,
to the extent permitted by and subject to the requirements of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), Regulation T issued by the Board of Governors of the Federal Reserve
System pursuant to the Exchange Act, federal income tax laws, and other federal,
state or local tax and securities laws, can exercise the Option, or a portion
thereof, without making a direct payment of the exercise price thereof to the
Company. If the Company so elects to establish such a cashless exercise program,
the Company shall determine, in its discretion and from time to time, such
administrative procedures and policies as it deems appropriate. Such procedures
and policies shall be binding on the Optionee should he elect to utilize the
cashless exercise program.
8. Anything in this Agreement to the contrary notwithstanding,
in no event may the Option be exercisable if the Company shall, at any time and
in its sole discretion, determine that (i) the listing, registration or
qualification of any Shares otherwise deliverable upon such exercise, upon any
securities exchange or under any state or federal law, or (ii) the consent or
approval of any regulatory body or the satisfaction of withholding tax or other
withholding liabilities is necessary or desirable in connection with such
exercise. In such event, such exercise shall be held in abeyance and shall not
be effective unless and until such withholding, listing, registration,
qualification or approval shall have been affected or obtained free of any
conditions not acceptable to the Company.
9. Unless the issuance of the Shares upon exercise of the
Option has been registered under the Securities Act, the Committee may require
as a condition to the right to exercise the Option hereunder that the Company
receive from the person exercising the Option representations, warranties and
agreements, at the time of any such exercise, to the effect that the Shares are
being purchased for investment only and without any present intention to sell or
otherwise distribute such Shares and that
<PAGE>
the Shares will not be disposed of in transactions which, in the opinion of
counsel to the Company, would violate the registration provisions of the
Securities Act and the rules and regulations thereunder. The certificate issued
to evidence such Shares shall bear appropriate legends summarizing such
restrictions on the disposition thereof.
10. Employees of the Company desiring to effect a broker
cashless exercise must use the Company's existing stock broker when exercising
Options issued under this Agreement.
11. This Agreement shall be construed and enforced in
accordance with the laws of the State of Georgia, without reference to
principles regarding conflicts of law. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors or assigns, as the case may be.
IN WITNESS WHEREOF, the parties have witnessed this Agreement
to be duly executed and delivered as of the date first above written.
SEROLOGICALS CORPORATION
By:
- -------------------- ----------------------
Optionee President/CEO
<PAGE>
SCHEDULE A
Name of Optionee:
Date of Grant:
Option Exercise Price:
Market Price on Date of Grant:
Number of Shares subject to Option:
Type of Option:
Date of Expiration:
Terms of Exercisability:
Number of Shares Exercisable On Exercisable Until
Or After (Expiration Date)
Other Exercisability Features:
SEROLOGICALS CORPORATION
By:
--------------------------------
Optionee:
-----------------------------------
Date:
------------------------------
<PAGE>
ANNEX I
FORM OF ELECTION TO EXERCISE
(To be executed upon exercise of Option).
The undersigned hereby elects to exercise the right pursuant
to that certain Option Agreement dated as of ________________ by and between
Serologicals Corporation and __________________________ (the "Option
Agreement"), to purchase _____ shares of common stock, $.01 par value (the
"Shares").
Choose one of the following options:
_____ (i) Payment for the Shares in the amount of $_______________ is
enclosed. The undersigned requests that certificates for the
Shares be registered in the name of the undersigned.
_____ (ii) Cashless Exercise/Same Day Sale (Appropriate broker forms must
be completed; forms may be obtained from the Human Resources
Department).
Dated:
- --------------------------- -----------------------------
Optionee
------------------------------
Social Security Number
Administrator Use Only
- -------------------------------------------------------------------------------
Date of Grant:
-------------------------------------------------------
Market Price on Date of Grant:
-------------------------------------------------------
Market Price on Date of Exercise:
-------------------------------------------------------
Number of shares:
-------------------------------------------------------
Type of Option:
-------------------------------------------------------
Number of Options Currently Vested:
-------------------------------------------------------
Expiration Date:
-------------------------------------------------------
Withholding Tax:
-------------------------------------------------------
- ------------------------------------- ------------------------------------
Stock Option Administrator Date Vice President, Finance Date
<PAGE>
EXHIBIT 10.9.1
SEROLOGICALS CORPORATION
AMENDED AND RESTATED 1995 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
1. PURPOSE. The Amended and Restated 1995 Non-Employee
Directors' Stock Option Plan (the "Plan") of Serologicals Corporation, a
Delaware corporation (the "Corporation"), is designed to aid the Corporation and
its subsidiaries in retaining and attracting non-employee directors of
exceptional ability by enabling such non-employee directors to purchase a
proprietary interest in the Corporation, thereby stimulating in such individuals
an increased desire to render greater services which will contribute to the
continued growth and success of the Corporation and its subsidiaries.
2. AMOUNT AND SOURCE OF STOCK. The total number of shares of
the Corporation's Common Stock (the "Shares") which may be the subject of
options granted pursuant to the Plan shall be limited so that the total number
of Shares issued upon the exercise of options granted pursuant to the Plan shall
not exceed 540,000 (after giving effect to the 3 for 2 split of the Shares in
February 1997), subject to adjustment as provided in paragraph 12. None of the
options to be granted under the Plan are intended to be "Incentive Stock
Options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations (whether proposed, temporary or final)
promulgated thereunder. Such Shares may be reserved or made available from the
Corporation's authorized and unissued Shares or from Shares reacquired and held
in the Corporation's treasury. In the event that any option granted hereunder
shall terminate prior to its exercise in full for any reason, then the Shares
subject to such option shall be added to the Shares otherwise available for
issuance pursuant to the exercise of options under the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by a committee (the "Committee") of the Board of Directors of the Corporation
(the "Board") comprised of two or more members of the Board, selected by the
Board, all of which members shall be "disinterested persons" as that term is
defined in Rule 16b-3(d)(3) (or any successor provision) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Committee
is hereinafter sometimes referred to as the "Administrative Body." The
Administrative Body shall have full authority to interpret the Plan, to
establish and amend rules and regulations relating to it and to make all other
determinations necessary or advisable for the administration of the Plan.
-1-
<PAGE>
4. NON-DISCRETIONARY LUMP SUM GRANTS.
(a) Each person who is elected for the first time to
be a non-employee director automatically shall, on the day after the date of his
initial election to be a non-employee director by the Board or stockholders of
the Corporation, be granted an option exercisable to purchase 24,000 Shares. The
date on which an option is granted under paragraph 4 or 5 to a specified
individual shall constitute the date of grant of such option (the "Date of
Grant").
(b) Subject to subparagraph 13(b) hereof, options
granted to a participant under subparagraph 4(a) hereof shall vest at the rate
of 25% per year commencing on the first anniversary of the Date of Grant;
provided that for each six months (or portion thereof) of service as a director
of the Corporation or any subsidiary prior to the Date of Grant, such vesting
shall accelerate by one (1) year.
5. NON-DISCRETIONARY ANNUAL GRANTS.
(a) Each non-employee director shall automatically
receive an annual grant of an option to purchase 6,000 Shares on the day after
the annual meeting of stockholders at which directors are elected each year (the
"Annual Meeting Date"); PROVIDED, that the first grant of an option to a
particular non-employee director under this subparagraph 5(a) shall be made on
the first Annual Meeting Date after the option granted under subparagraph 4(a)
shall have or would have (had not such director elected to decline an award in
accordance with subparagraph 6(a)), vested in full.
(b) Subject to subparagraph 13(b) hereof, options
granted to a participant under subparagraph 5(a) hereof shall vest at the rate
of 25% per year commencing on the first anniversary of the Date of Grant.
6. ELECTION TO DECLINE GRANT; REVOCATION OF DECLINATION.
(a) Any non-employee director entitled to an option
under paragraph 4 or 5 may, at any time on or before Date of Grant, elect to
decline such award. Such election shall be in writing, and signed by the
non-employee director.
(b) A non-employee director who makes an election
under (a) above, shall receive no compensation as a substitute for the option(s)
declined.
(c) An election described in (a) above may be revoked
on a prospective basis at any time prior to a scheduled award. Such revocation
election must be in writing and signed by the non-employee director.
-2-
<PAGE>
7. OPTION PRICE. The exercise price of the Shares purchasable
under any option granted pursuant to the Plan shall be 100% of the fair market
value of the Shares subject to such option on the Date of Grant. For purposes of
the Plan, the "fair market value per share" of the Shares on a given date shall
be: (i) if the Shares are listed on a registered securities exchange or quoted
on the National Market System, the closing price per share of the Shares on such
date (or, if there was no trading reported on such date, on the next preceding
day on which there was trading reported); (ii) if the Shares are not listed on a
registered securities exchange and not quoted on the National Market System, but
the bid and asked prices per share for the Shares are provided by Nasdaq, the
National Quotation Bureau Incorporated or any similar organization, the average
of the closing bid and asked price per share of the Shares on such date (or, if
there was no trading in the Shares on such date, on the next preceding day on
which there was trading) as provided by such organization; and (iii) if the
Shares are not traded on a registered securities exchange and not quoted on the
National Market System and the bid and asked price per share of the Shares are
not provided by Nasdaq, the National Quotation Bureau Incorporated or any
similar organization, solely as determined by the Administrative Body in good
faith.
8. TERM OF OPTION.
(a) Options granted hereunder shall be exercisable for
a period of ten (10) years from the Date of Grant.
(b) The grant of options pursuant to the terms of the
Plan shall be effective as of the Date of Grant; provided, however, that no
option granted hereunder shall be exercisable unless and until this Plan has
been approved by the Corporation's stockholders and unless and until the holder
has entered into an individual option agreement with the Corporation that shall
set forth the terms and conditions of such option. Each such agreement shall
expressly incorporate by reference the provisions of this Plan (a copy of which
shall be made available for inspection by the optionee during normal business
hours at the principal office of the Corporation), and shall state that in the
event of any inconsistency between the provisions hereof and the provisions of
such agreement, the provisions of this Plan shall govern.
9. EXERCISE OF OPTIONS. An option shall be exercised when
written notice of such exercise, signed by the person entitled to exercise the
option, has been delivered or transmitted by registered or certified mail to the
Secretary of the Corporation at its then principal office. Such notice shall
specify the number of Shares for which the option is being exercised and shall
be accompanied by (i) such documentation, if any, as may be required by the
Corporation as provided in subparagraph 13(b), and (ii) payment of the aggregate
option price. Such payment shall be in the form of (i) cash or check payable to
the order of the Corporation in the amount of the aggregate option price, (ii)
certificates duly endorsed for transfer (with all transfer taxes paid or
provided for) evidencing a number
-3-
<PAGE>
of Shares of which the aggregate fair market value on the date of exercise is
equal to the aggregate option exercise price of the Shares being purchased,
(iii) any method of payment which is acceptable to the Administrative Body
(including pursuant to a cashless exercise program adopted by the Administrative
Body) or (iv) a combination of these methods of payment. Delivery of such notice
shall constitute an irrevocable election to purchase the Shares specified in
such notice, and the date on which the Corporation receives the last of such
notice, documentation and the aggregate option exercise price for all of the
shares covered by the notice shall, subject to the provisions of paragraph 13
hereof, be the date as of which the Shares so purchased shall be deemed to have
been issued. The person entitled to exercise the option shall not have the right
or status as a holder of the Shares to which such exercise relates prior to
receipt by the Corporation of the payment, notice and documentation expressly
referred to in this paragraph 9. Notwithstanding the foregoing, a holder whose
transactions in Common Stock are subject to Section 16(b) of the Exchange Act
may tender Shares in payment of all or any portion of the option price only if
the following additional conditions are met: (i) the tender is made at least six
months after the Date of Grant and (ii) either (x) the election to tender is
irrevocably made at least six months in advance of the tender of Shares or (y)
the tender of Shares takes place during the period beginning on the third
business day following the date of release of the Corporation's quarterly or
annual financial results and ending on the twelfth business day following such
date.
10. EXERCISE AND CANCELLATION OF OPTIONS AFTER TERMINATION,
DISABILITY OR DEATH. Except as set forth below, if a holder shall voluntarily or
involuntarily cease to serve as a director of the Corporation or if a holder's
service shall terminate on account of death or disability, the option of such
holder shall terminate two years following the first day that the holder is no
longer such a director (the "Termination Date"); provided that if such director
is removed for cause, the option shall terminate immediately. In no event may
the holder, or the holder's guardian, conservator, executor or administrator, as
the case may be, exercise an option after the end of the original term of the
option.
Nothing contained herein or in any option agreement shall be
construed to confer on any option holder any right to continue as a director of
the Corporation or derogate from any right of the Corporation, the Board or the
stockholders of the Corporation to remove such option holder as a director of
the Corporation, with or without cause.
11. NON-TRANSFERABILITY OF OPTIONS. No option granted under
the Plan shall be sold, pledged, assigned or transferred in any manner except to
the extent that options may be exercised by an executor or administrator as
provided in paragraph 10 hereof. An option may be exercised, during the lifetime
of the holder thereof, only by such holder or his duly appointed guardian or
conservator in the event of his disability.
-4-
<PAGE>
12. ADJUSTMENTS UPON CERTAIN EVENTS.
If the outstanding Shares are subdivided,
consolidated, increased, decreased, changed into, or exchanged for a different
number or kind of shares or other securities of the Corporation through
reorganization, merger, recapitalization, reclassification, capital adjustment
or similar transaction, or if the Corporation shall issue additional Shares as a
dividend or pursuant to a stock split, then the number and kind of Shares
available for issuance pursuant to the exercise of options to be granted under
this Plan and all Shares subject to the unexercised portion of any option
theretofore granted and the exercise price of such options shall be adjusted on
a pro rata basis to prevent the inequitable enlargement or dilution of any
rights hereunder; provided, however, that any such adjustment in outstanding
options under the Plan shall be made without change in the aggregate exercise
price applicable to the unexercised portion of any such outstanding option.
Distributions to the Corporation's stockholders consisting of property other
than Shares of the Corporation or its successor and distributions to
stockholders of rights to subscribe for Shares shall not result in the
adjustment of the Shares purchasable under outstanding options or the exercise
price of outstanding options. Adjustments under this paragraph shall be made by
the Administrative Body, whose determination thereof shall be conclusive and
binding. Any fractional Share resulting from adjustments pursuant to this
paragraph shall be eliminated from any then outstanding option. Nothing
contained herein or in any option agreement shall be construed to affect in any
way the right or power of the Corporation to make or become a party to any
adjustments, reclassifications, reorganizations or changes in its capital or
business structure or to merge, consolidate, dissolve, liquidate or otherwise
transfer all or any part of its business or assets.
13. GENERAL RESTRICTIONS.
(a) No option granted hereunder shall be exercisable
if the Corporation shall at any time determine that (i) the listing upon any
securities exchange, registration or qualification under any state or federal
law of any Shares otherwise deliverable upon such exercise, or (ii) the consent
or approval of any regulatory body or the satisfaction of withholding tax or
other withholding liabilities, is necessary or appropriate in connection with
such exercise. In any of the events referred to in clause (i) or clause (ii)
above, the exercisability of such options shall be suspended and shall not be
effective unless and until such withholding, listing, registration,
qualifications or approval shall have been effected or obtained free of any
conditions not acceptable to the Corporation in its sole discretion,
notwithstanding any termination of any option or any portion of any option
during the period when exercisability has been suspended.
(b) The Administrative Body may require, as a
condition to the right to exercise an option, that the Corporation receive from
the option holder, at the time of any such exercise, representations, warranties
and agreements to the effect that the Shares are being purchased by the option
holder for investment only and without any
-5-
<PAGE>
present intention to sell or otherwise distribute such Shares and that the
option holder will not dispose of such Shares in transactions which, in the
opinion of counsel to the Corporation, would violate the registration provisions
of the Securities Act of 1933, as then amended, and the rules and regulations
thereunder. The certificates issued to evidence such Shares shall bear
appropriate legends summarizing such restrictions on the disposition thereof.
14. AMENDMENT. Except to the extent prohibited by
applicable law and unless otherwise expressly provided in an Option agreement or
in the Plan:
(a) The Board may amend, alter, suspend, discontinue
or terminate the Plan, except that any amendment, alteration, suspension,
discontinuation or termination that would impair the rights of any participant,
or any other holder or beneficiary of any option theretofore granted to the
extent such rights are not then accrued and vested, shall require the consent of
such participant, other holder or beneficiary of an option. Notwithstanding the
foregoing, the Board may condition any amendment on the approval of the
stockholders of the Corporation if such approval is necessary or advisable with
respect to tax (including Code Sections 162(m) and 422), securities or other
applicable laws and rules and regulations to which the Corporation, this Plan,
participants or other applicable persons are subject.
(b) The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any option in the manner
and to the extent it shall deem desirable to carry the Plan into effect.
15. TERMINATION. Unless the Plan shall theretofore have
been terminated as provided hereinafter and in paragraph 16 hereof, the Plan
shall terminate on August 9, 2005, and no options under the Plan shall
thereafter be granted; provided, however, that the Board may at any time, in its
sole discretion, terminate the Plan prior to the foregoing date. No termination
of the Plan by the Board shall, without the consent of the holder of an existing
option, materially and adversely affect his rights under such option.
-6-
<PAGE>
EXHIBIT 10.20
SENIOR EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT made this 27TH day of March, 1998 between Serologicals
Corporation having its principal place of business at 780 Park North Blvd.,
Suite 110, Clarkston, GA 30021 ("Employer"), and __________________________
("Employee").
The purpose of this Agreement is to afford Employee additional security
concerning his or her employment with Employer by providing for certain
termination payments to Employee in the event that there is a Change in Control
of Employer as described in the definition of "Change in Control" below. The
provisions of this Agreement shall only be effective in the event that there is
a Change in Control, and nothing in this Agreement extends or expands Employee's
present rights concerning employment with Employer in the absence of a Change in
Control or is intended to create a contract, guarantee or promise of continued
employment by the Employer or alter the compensation that the Employee could
reasonably expect in the absence of a Change in Control. The Employer shall have
no obligation hereunder if the Employee's employment shall have been terminated
for any reason prior to a Change in Control. It is acknowledged and agreed that
even if Employee is in fact an employee of a subsidiary of Employer the
provisions hereof shall nevertheless remain applicable as if Employee were
employed by Employer.
Based upon the foregoing, and in consideration of Employee's continued
employment with Employer, Employer agrees as follows:
1
<PAGE>
1. TERM. This Agreement shall be effective as of the date first above
written through March 27, 2003, provided, however, that this Agreement shall be
automatically renewed for successive two (2) year periods thereafter unless one
hundred twenty (120) days written notice is given by either party to the other
prior to the end of the term then in effect; provided that no termination of the
Employee's employment shall affect receipt of a Termination Payment or other
benefits hereunder which are payable in respect of a Change in Control which
occurred prior to such termination.
2. TERMINATION.
(a) TERMINATION BY EMPLOYEE AFTER A CHANGE IN CONTROL.
Employee shall have the right to terminate his or her employment at any time
within twelve (12) months after the occurrence of a Change in Control, except
that the Employee may not terminate his or her employment on account of a Change
of Control that occurs solely as a result of the circumstances described in
paragraph 3(b)(i) hereof. If Employee terminates his or her employment during
such time period, Employee shall be paid an amount equal to the Termination
Payment. If Employee is entitled to payment under this subparagraph 2(a),
Employee shall not be entitled to payment under subparagraph 2(b).
(b) TERMINATION BY EMPLOYER OR CONSTRUCTIVE DISMISSAL BY
EMPLOYER AFTER A CHANGE IN CONTROL. Except in the case of a termination for
Disability by Employer, if any time within two (2) years after the occurrence of
a Change in Control, either (i) Employer terminates Employee's employment, or
(ii) Employee terminates his or her employment following a Constructive
Dismissal by Employer, then Employee shall be paid an amount equal to the
2
<PAGE>
Termination Payment. If Employee is entitled to payment under this subparagraph
2(b), Employee shall not be entitled to payment under subparagraph 2(a).
(c) TERMINATION PAYMENT. The Termination Payment shall be paid
in a lump sum and shall equal the product of (x) 2.99 and (y) the Employee's
combined annual base salary and bonus, averaged over the most recent three (3)
year period immediately prior to the Change in Control. With respect to the year
in which the Employee's employment is terminated, the above calculation shall
include the full year's base salary and any bonus or incentive compensation to
which the Employee would have been entitled had the Employee's employment not
been terminated in such year. In the event that Employee becomes entitled to the
Termination Payment, if any of the Termination Payment will be subject to the
tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), the Employer shall pay to Employee, an additional
amount (the "Gross-Up Payment") such that the net amount retained by Employee,
after deduction of any Excise Tax on the Termination Payment and any federal,
state and local income tax and Excise Tax upon the payment provided for by this
paragraph, shall be equal to the Termination Payment. For purposes of
determining whether any of the Termination Payment will be subject to the Excise
Tax and the amount of such Excise Tax, (x) any other payments or benefits
received or to be received by Employee in connection with a Change in Control or
the termination of Employee's employment (whether pursuant to the terms of this
agreement or any other plan, arrangement or agreement with the Employer, any
person whose actions result in a Change in Control or any person having such a
relationship with the Employer or such person as to require attribution of stock
ownership between the parties under section 318(a) of the Code) shall be treated
as
3
<PAGE>
"parachute payments" within the meaning of section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of section 280G(b)(1) shall
be treated as subject to the Excise Tax, unless in the opinion of tax counsel
selected by the Employer's independent auditors and reasonably acceptable to
Employee such other payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code, (y) the amount of the Termination
Payment which shall be treated as subject to the Excise Tax shall be equal to
the lesser of (A) the total amount of the Termination Payment or (B) the amount
of excess parachute payments within the meaning of Sections 280G(b)(1) and (4)
(after applying clause (x), above, and after deducting any excess parachute
payments in respect of which payments have been made under this clause (y)), and
(z) the value of any non-cash benefits or any deferred payment or benefit shall
be determined by the Employer's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, Employee shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rates of taxation in the state and
locality of residence upon the date of termination, net of the maximum reduction
in federal income taxes which could be obtained from deduction of such state and
local taxes. In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of termination of
Employee's employment, Employee shall repay to the Employer at the time that the
amount of such reduction in Excise Tax is finally determined the portion of the
Gross-Up
4
<PAGE>
Payment attributable to such reduction plus interest on the amount of such
repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of Employee's employment (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-Up Payment), the Employer shall make an additional
gross-up payment in respect of such excess (plus any interest payable with
respect to such excess) at the time that the amount of such excess is finally
determined.
(d) TIME OF PAYMENT. Employer shall pay any amounts due to
Employee under subparagraphs 2(a) or 2(b) upon the later of (x) if Employee is
requested by Employer to be Reasonably Available during the Transition Period,
the end of the Transition Period or (y) termination of Employee's employment.
(e) BENEFITS. In the event of a termination of employment of
the Employee pursuant to paragraph 2, the Employee shall be entitled to the
following provisions:
(i) all Employer provided executive perquisites,
including, without limitation, any automobile allowance, provided to Employee at
the time of the Change in Control shall continue to be provided to Employee for
three (3) years at the Employer's sole expense;
(ii) all Employer provided employee health insurance
benefits provided to Employee at the time of the Change in Control shall
continue to be provided to Employee for three (3) years at the Employer's sole
expense or the Employer may, at its election, provide the Employee with the cash
equivalent of the premiums then payable by the Employer for such health
insurance;
5
<PAGE>
(iii) Employer shall contribute for three (3) years to the
Employee's 401(k) Plan account an amount equal to the average of the
Employer's contribution, if any, for the three (3) years prior to the
Change in Control;
(iv) the Employee shall immediately vest in any Employer
contributions to the Employee's 401(k) Plan account; and
(v) except to the extent such actions shall make "pooling
of interests" accounting unavailable to a Change of Control
transaction approved by the Employer's Board of Directors, all
outstanding and unvested stock options held by the Employee shall
immediately vest and become exercisable and such exercise period
shall extend for the remainder of the original term of such options
without giving effect to any shorter term of such options as a result
of the termination of the Employee's employment.
(f) NO OTHER SEVERANCE PAYMENTS. If Employee receives a
payment under either subparagraphs 2(a) or 2(b), Employee shall not be entitled
to any severance payments that might otherwise be payable to Employee, whether
by employment contract or otherwise.
(g) TRANSITION PERIOD. Upon the termination of Employee's
employment resulting in the Employee being entitled to receive the Termination
Payment, Employee shall be Reasonably Available during the Transition Period to
assist the Employer in the transition of the business of the Employer and the
transactions effected as part of the Change of Control, and the Employer shall
continue for the Transition Period to (x) pay Employee at a rate equal to the
higher of (i) the average annual base salary and bonus used to calculate the
Termination Payment and (ii) the Employee's rate of pay immediately prior to
Employee's termination of
6
<PAGE>
employment and (y) provide benefits to Employee that Employee was receiving
immediately prior to the Transition Period.
3. CERTAIN DEFINITIONS. For purposes of this agreement, the following
terms have the meanings indicated:
(a) "Constructive Dismissal by Employer" shall occur if
Employer demotes Employee from his or her present position; changes Employee's
title or reporting relationship which results in a diminution of the position,
duties, authority or responsibility of Employee; significantly reduces
Employee's duties; materially decreases Employee's benefits or compensation by
10% or greater; significantly increases Employee's duties or responsibilities
without a corresponding change of title and increase in compensation; or
relocates Employee to a location outside of the community where Employee is
employed as of the date of the Change in Control.
(b) "Change in Control" shall mean the occurrence of any of
the events described below:
(i) a change, within a period of 24 months or less, in the
composition of the Board of Directors of the Employer, such that at any time the
majority of directors who are then serving were not serving at the beginning of
such period, unless at such date of determination, such directors were nominated
upon the recommendation of a majority of the Board of Directors who were
directors at the beginning of such period;
(ii) any "person" (as such term is defined in Section
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"1934 Act")), other than the Employee, or any group of which the Employee is a
member (within the meaning of Rule 13d-1(f) of the
7
<PAGE>
Rules and Regulations promulgated under the 1934 Act), or an "Affiliate" or
"Associate" (as such terms are defined in Rule 405 of the Rules and Regulations
promulgated under the Securities Act of 1933, as amended) thereof, becomes a
beneficial owner (as defined in Section 13(d)(3) of the 1934 Act), directly or
indirectly, of (x) securities of the Employer representing thirty percent (30%)
or more of the Employer's then outstanding securities having the right to vote
for the election of directors; PROVIDED, that the acquisition by the Employer of
another corporation or the assets thereof or a similar transaction in which the
Employer issues securities representing 30% or more of the total number of votes
that may be cast for the election of directors of the Employer to such a
"person" shall not constitute a "Change in Control" if (1) the Employer is the
surviving corporation, (2) within a 12 month period after the closing of such
transaction, the Chief Executive Officer of the Employer and the Chief Financial
Officer who were serving as such immediately preceding the signing of the
acquisition (or similar) agreement relating to such transaction, have not been
terminated by the Employer (other than for cause) and neither such Chief
Executive Officer nor such Chief Financial Officer have terminated his or her
employment following a Constructive Dismissal by Employer and (3) the Board of
Directors of the Employer shall not change over a 24 month period, in connection
with or as a consequence of such transaction, by more than 30%; or (y) all or
substantially all of the assets of the Employer;
(iii) commencement (within the meaning of Rule 14d-2 of
the Rules and Regulations promulgated under the 1934 Act) of a "tender offer"
for capital stock of the Employer subject to Section 14(d)(2) of the 1934 Act by
any "person" (as defined above) other than the Employer or any group of which
the Employee is a member; or
8
<PAGE>
(iv) the stockholders of the Employer approve a plan of
complete liquidation of the Employer or an agreement for the sale or disposition
by the Employer of all or substantially all of the Employer's assets.
(c) "Disability" shall mean termination because of the
Employee's failure to properly and fully perform the duties and responsibilities
of his or her employment with the Employer, due to mental or physical illness,
for a period of 120 consecutive days, or 180 days, even though not consecutive,
within any 360-day period, all as determined in good faith by the Board of
Directors of the Employer and supported by medical evidence.
(d) "Reasonably Available" shall mean being available in
person during regular business hours at the facilities of the Employer where the
Employer was principally employed during the twelve (12) month period
immediately prior to termination, approximately seven (7) hours per day for each
weekday that such facility is open for business.
(e) "Transition Period" shall mean the period of up to three
(3) months commencing upon the termination of Employee's employment during which
the Employee shall be Reasonably Available at the request of the Employer. The
Employer shall specify in writing upon such termination of employment the exact
number of days it desires to have the Employee be Reasonably Available.
4. EFFECT OF EMPLOYER'S MERGER, TRANSFER OF ASSETS OR DISSOLUTION. This
Agreement shall not be terminated by any merger or consolidation where Employer
is not the consolidated or surviving corporation, transfer of substantially all
of the assets of Employer, or voluntary or involuntary dissolution of Employer.
In the event of any such merger, consolidation or transfer of assets, the
surviving corporation or the transferee of Employer's assets shall be bound by
the
9
<PAGE>
provisions of this Agreement, and Employer shall take all actions necessary to
insure that such corporation or transferee is bound by the provisions of this
Agreement.
5. ARBITRATION. Any controversy between Employer and Employee involving
the construction or application of any of the terms, provisions or conditions of
this Agreement, any claim hereunder, or any claim pertaining to any covenant of
good faith and fair dealing or any other duty implied by law, shall on the
written request of either party served on the other be submitted to arbitration,
and such arbitration shall proceed and be governed by the provisions of the
American Arbitration Association. Employer and Employee shall, within fourteen
(14) days after such notice, each appoint one person to hear and determine the
dispute, and the two appointees, within fourteen (14) days after appointment of
both of them, shall jointly select a third impartial arbitrator whose decision
shall be final and conclusive upon both parties. The arbitrators shall have the
power to alter, amend or modify the terms of this Agreement. The decision of the
arbitrators shall be final and binding. The costs of arbitration, including the
reasonable attorneys fees of the prevailing party, shall be borne by the losing
party. Any such arbitration shall be conducted in Atlanta, Georgia. Arbitration
as provided herein shall be the exclusive means to resolve any of the
controversies referred to in this paragraph 5.
6. PARTIAL INVALIDITY. If any provision of this Agreement is held by a
court of competent jurisdiction be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired or
invalidated in any way.
7. AGREEMENT SUPERSEDES ANY INCONSISTENT PRIOR AGREEMENTS OR
UNDERSTANDINGS. The terms of this Agreement supersede any inconsistent prior
promises, policies,
10
<PAGE>
representations, understandings, arrangements or agreements between the parties
with respect to the subject matter hereof, whether by employment contract or
otherwise.
8. NOTICES. All notices required or permitted to be given by either
party hereunder, including notice of change of address, shall be in writing and
delivered by hand, or mailed, postage prepaid, certified or registered mail,
return receipt requested, to the other party as follows:
If to the Employer: Serologicals Corporation
780 Park North Blvd.
Suite 110
Clarkston, GA 30021
Attn: Chief Executive Officer
If to the Employee: [NAME]
[ADDRESS]
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Georgia applicable to
contracts executed in and to be performed solely within such State.
10. FURTHER ASSURANCES. The parties hereto agree that, after the
execution of this Agreement, they will make, do, execute or cause or permit to
be made, done or executed all such further and other lawful acts, deeds, things,
devices, conveyances and assurances in law whatsoever as may be required to
carry out the true intention and to give full force and effect to this
Agreement.
11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts with the same effect as if the signatures to all such counterparts
were upon the same instrument, and all counterparts shall constitute but one
instrument.
11
<PAGE>
12. HEADINGS. All headings in this Agreement are for convenience only
and are not intended to affect the meaning of any provision hereof.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of, and be binding upon, the Employer, its successors and assigns and any
corporation with which the Employer merges or consolidates or to which the
Employer sells all or substantially all of its assets, and upon the Employee and
his or her executors, administrators, heirs and legal representatives.
IN WITNESS WHEREOF, the Employee has executed this Agreement and the
Employer has caused this Agreement to be executed by a duly authorized officer
as of the day and year first above written.
SEROLOGICALS CORPORATION
By:_____________________
------------------------
Employee Name
12
<PAGE>
EXHIBIT 10.21
EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT made this 27th day of March, 1998 between Serologicals
Corporation having its principal place of business at 780 Park North Blvd.,
Suite 110, Clarkston, GA 30021 ("Employer"), and ________________ ("Employee").
The purpose of this Agreement is to afford Employee additional security
concerning his or her employment with Employer by providing for certain
termination payments to Employee in the event that there is a Change in Control
of Employer as described in the definition of "Change in Control" below. The
provisions of this Agreement shall only be effective in the event that there is
a Change in Control, and nothing in this Agreement extends or expands Employee's
present rights concerning employment with Employer in the absence of a Change in
Control or is intended to create a contract, guarantee or promise of continued
employment by the Employer or alter the compensation that the Employee could
reasonably expect in the absence of a Change in Control. The Employer shall have
no obligation hereunder if the Employee's employment shall have been terminated
for any reason prior to a Change in Control. It is acknowledged and agreed that
even if Employee is in fact an employee of a subsidiary of Employer the
provisions hereof shall nevertheless remain applicable as if Employee were
employed by Employer.
Based upon the foregoing, and in consideration of Employee's continued
employment with Employer, Employer agrees as follows:
1
<PAGE>
1. TERM. This Agreement shall be effective as of the date first above
written through March 27, 2003, provided, however, that this Agreement shall be
automatically renewed for successive two (2) year periods thereafter unless one
hundred twenty (120) days written notice is given by either party to the other
prior to the end of the term then in effect; provided that no termination of the
Employee's employment shall affect receipt of a Termination Payment or other
benefits hereunder which are payable in respect of a Change in Control which
occurred prior to such termination.
2. TERMINATION.
(a) TERMINATION BY EMPLOYER OR CONSTRUCTIVE DISMISSAL BY
EMPLOYER AFTER A CHANGE IN CONTROL. Except in the case of a termination for
Disability by Employer, if any time within two (2) years after the occurrence of
a Change in Control, either (i) Employer terminates Employee's employment, or
(ii) Employee terminates his or her employment following a Constructive
Dismissal by Employer, then Employee shall be paid an amount equal to the
Termination Payment.
(b) TERMINATION PAYMENT. The Termination Payment shall be paid
in a lump sum and shall equal the product of (x) 2.0 and (y) the Employee's
combined annual base salary and bonus, averaged over the most recent three (3)
year period immediately prior to the Change in Control. With respect to the year
in which the Employee's employment is terminated, the above calculation shall
include the full year's base salary and any bonus or incentive compensation to
which the Employee would have been entitled had the Employee's employment not
been terminated in such year. In the event that Employee becomes entitled to the
Termination Payment, if any of the Termination Payment
2
<PAGE>
will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), the Employer shall pay
to Employee, an additional amount (the "Gross-Up Payment") such that the net
amount retained by Employee, after deduction of any Excise Tax on the
Termination Payment and any federal, state and local income tax and Excise Tax
upon the payment provided for by this paragraph, shall be equal to the
Termination Payment. For purposes of determining whether any of the Termination
Payment will be subject to the Excise Tax and the amount of such Excise Tax, (x)
any other payments or benefits received or to be received by Employee in
connection with a Change in Control or the termination of Employee's employment
(whether pursuant to the terms of this agreement or any other plan, arrangement
or agreement with the Employer, any person whose actions result in a Change in
Control or any person having such a relationship with the Employer or such
person as to require attribution of stock ownership between the parties under
section 318(a) of the Code) shall be treated as "parachute payments" within the
meaning of section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel selected by the Employer's
independent auditors and reasonably acceptable to Employee such other payments
or benefits (in whole or in part) do not constitute parachute payments, or such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code, (y) the amount of the Termination Payment which shall be
treated as subject to the Excise Tax shall be equal to the lesser of (A) the
total amount of the
3
<PAGE>
Termination Payment or (B) the amount of excess parachute payments within the
meaning of Sections 280G(b)(1) and (4) (after applying clause (x), above, and
after deducting any excess parachute payments in respect of which payments have
been made under this clause (y)), and (z) the value of any non-cash benefits or
any deferred payment or benefit shall be determined by the Employer's
independent auditors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code. For purposes of determining the amount of the Gross-Up
Payment, Employee shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the highest
marginal rates of taxation in the state and locality of residence upon the date
of termination, net of the maximum reduction in federal income taxes which could
be obtained from deduction of such state and local taxes. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time of termination of Employee's employment, Employee
shall repay to the Employer at the time that the amount of such reduction in
Excise Tax is finally determined the portion of the Gross-Up Payment
attributable to such reduction plus interest on the amount of such repayment at
the rate provided in section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account hereunder at
the time of the termination of Employee's employment (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Employer shall make an additional gross-up payment in
respect of such excess (plus any
4
<PAGE>
interest payable with respect to such excess) at the time that the amount of
such excess is finally determined.
(c) TIME OF PAYMENT. Employer shall pay any amounts due to
Employee under subparagraph 2(a) upon the later of (x) if Employee is requested
by Employer to be Reasonably Available during the Transition Period, the end of
the Transition Period or (x) termination of Employee's employment.
(d) BENEFITS. In the event of a termination of employment of
the Employee pursuant to paragraph 2, the Employee shall be entitled to the
following provisions:
(i) all Employer provided executive perquisites,
including, without limitation, any automobile allowance, provided to Employee at
the time of the Change in Control shall continue to be provided to Employee for
two (2) years at the Employer's sole expense;
(ii) all Employer provided employee health insurance
benefits provided to Employee at the time of the Change in Control shall
continue to be provided to Employee for two (2) years at the Employer's sole
expense or the Employer may, at its election, provide the Employee with the cash
equivalent of the premiums then payable by the Employer for such health
insurance;
(iii) Employer shall contribute for two (2) years to the
Employee's 401(k) Plan account an amount equal to the average of the Employer's
contribution, if any, for the three (3) years prior to the Change in Control;
5
<PAGE>
(iv) the Employee shall immediately vest in any Employer
contributions to the Employee's 401(k) Plan account; and
(v) except to the extent such actions shall make "pooling
of interests" accounting unavailable to a Change of Control transaction approved
by the Employer's Board of Directors, all outstanding and unvested stock options
held by the Employee shall immediately vest and become exercisable and such
exercise period shall extend for the remainder of the original term of such
options without giving effect to any shorter term of such options as a result of
the termination of the Employee's employment.
(e) NO OTHER SEVERANCE PAYMENTS. If Employee receives a payment under
subparagraph 2(a), Employee shall not be entitled to any severance payments that
might otherwise be payable to Employee, whether by employment contract or
otherwise.
(f) TRANSITION PERIOD. Upon the termination of Employee's employment
resulting in the Employee being entitled to receive the Termination Payment,
Employee shall be Reasonably Available during the Transition Period to assist
the Employer in the transition of the business of the Employer and the
transactions effected as part of the Change of Control, and the Employer shall
continue for the Transition Period to (x) pay Employee at a rate equal to the
higher of (i) the average annual base salary and bonus used to calculate the
Termination Payment and (ii) the Employee's rate of pay immediately prior to
Employee's termination of employment and (y) provide benefits to Employee that
Employee was receiving immediately prior to the Transition Period.
3. CERTAIN DEFINITIONS. For purposes of this agreement, the following
terms have the meanings indicated:
6
<PAGE>
(a) "Constructive Dismissal by Employer" shall occur if
Employer demotes Employee from his or her present position; changes Employee's
title or reporting relationship which results in a diminution of the position,
duties, authority or responsibility of Employee; significantly reduces
Employee's duties; materially decreases Employee's benefits or compensation by
10% or greater; significantly increases Employee's duties or responsibilities
without a corresponding change of title and increase in compensation; or
relocates Employee to a location outside of the community where Employee is
employed as of the date of the Change in Control.
(b) "Change in Control" shall mean the occurrence of any of
the events described below:
(i) a change, within a period of 24 months or less, in the
composition of the Board of Directors of the Employer, such that at any time the
majority of directors who are then serving were not serving at the beginning of
such period, unless at such date of determination, such directors were nominated
upon the recommendation of a majority of the Board of Directors who were
directors at the beginning of such period;
(ii) any "person" (as such term is defined in Section
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"1934 Act")), other than the Employee, or any group of which the Employee is a
member (within the meaning of Rule 13d-1(f) of the Rules and Regulations
promulgated under the 1934 Act), or an "Affiliate" or "Associate" (as such terms
are defined in Rule 405 of the Rules and Regulations promulgated under the
Securities Act of 1933, as amended) thereof, becomes a beneficial owner (as
defined in Section 13(d)(3) of the 1934 Act), directly or indirectly, of
7
<PAGE>
(x) securities of the Employer representing thirty percent (30%) or more of the
Employer's then outstanding securities having the right to vote for the election
of directors; PROVIDED, that the acquisition by the Employer of another
corporation or the assets thereof or a similar transaction in which the Employer
issues securities representing 30% or more of the total number of votes that may
be cast for the election of directors of the Employer to such a "person" shall
not constitute a "Change in Control" if (1) the Employer is the surviving
corporation, (2) within a 12 month period after the closing of such transaction
the Chief Executive Officer of the Employer who was serving as such immediately
preceding the signing of the acquisition (or similar) agreement relating to such
transaction neither had been terminated by the Employer (other than for cause)
nor has such Chief Executive Officer terminated his or her employment following
a Constructive Dismissal by Employer and (3) the Board of Directors of the
Employer shall not change over a 24 month period, in connection with or as a
consequence of such transaction, by more than 30%; or (y) all or substantially
all of the assets of the Employer;
(iii) commencement (within the meaning of Rule 14d-2 of the
Rules and Regulations promulgated under the 1934 Act) of a "tender offer" for
capital stock of the Employer subject to Section 14(d)(2) of the 1934 Act by any
"person" (as defined above) other than the Employer or any group of which the
Employee is a member; or
(iv) the stockholders of the Employer approve a plan of
complete liquidation of the Employer or an agreement for the sale or disposition
by the Employer of all or substantially all of the Employer's assets.
8
<PAGE>
(c) "Disability" shall mean termination because of the
Employee's failure to properly and fully perform the duties and responsibilities
of his or her employment with the Employer, due to mental or physical illness,
for a period of 120 consecutive days, or 180 days, even though not consecutive,
within any 360-day period, all as determined in good faith by the Board of
Directors of the Employer and supported by medical evidence.
(d) "Reasonably Available" shall mean being available in
person during regular business hours at the facilities of the Employer where the
Employee was principally employed during the twelve (12) month period
immediately prior to termination, approximately seven (7) hours per day for each
weekday that such facilities are open for business.
(e) "Transition Period" shall mean the period of up to two (2)
months commencing upon the termination of Employee's employment during which the
Employee shall be Reasonably Available at the request of the Employer. The
Employer shall specify in writing upon such termination of employment the exact
number of days it desires to have the Employee be Reasonably Available.
4. EFFECT OF EMPLOYER'S MERGER, TRANSFER OF ASSETS OR DISSOLUTION. This
Agreement shall not be terminated by any merger or consolidation where Employer
is not the consolidated or surviving corporation, transfer of substantially all
of the assets of Employer, or voluntary or involuntary dissolution of Employer.
In the event of any such merger, consolidation or transfer of assets, the
surviving corporation or the transferee of Employer's assets shall be bound by
the provisions of this Agreement, and Employer shall
9
<PAGE>
take all actions necessary to insure that such corporation or transferee is
bound by the provisions of this Agreement.
5. ARBITRATION. Any controversy between Employer and Employee involving
the construction or application of any of the terms, provisions or conditions of
this Agreement, any claim hereunder, or any claim pertaining to any covenant of
good faith and fair dealing or any other duty implied by law, shall on the
written request of either party served on the other be submitted to arbitration,
and such arbitration shall proceed and be governed by the provisions of the
American Arbitration Association. Employer and Employee shall, within fourteen
(14) days after such notice, each appoint one person to hear and determine the
dispute, and the two appointees, within fourteen (14) days after appointment of
both of them, shall jointly select a third impartial arbitrator whose decision
shall be final and conclusive upon both parties. The arbitrators shall have the
power to alter, amend or modify the terms of this Agreement. The decision of the
arbitrators shall be final and binding. The costs of arbitration, including the
reasonable attorneys fees of the prevailing party, shall be borne by the losing
party. Any such arbitration shall be conducted in Atlanta, Georgia. Arbitration
as provided herein shall be the exclusive means to resolve any of the
controversies referred to in this paragraph 5.
6. PARTIAL INVALIDITY. If any provision of this Agreement is held by a
court of competent jurisdiction be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired or
invalidated in any way.
7. AGREEMENT SUPERSEDES ANY INCONSISTENT PRIOR AGREEMENTS OR
UNDERSTANDINGS. The terms of this Agreement supersede any inconsistent prior
promises,
10
<PAGE>
policies, representations, understandings, arrangements or agreements between
the parties with respect to the subject matter hereof, whether by employment
contract or otherwise.
8. NOTICES. All notices required or permitted to be given by either
party hereunder, including notice of change of address, shall be in writing and
delivered by hand, or mailed, postage prepaid, certified or registered mail,
return receipt requested, to the other party as follows:
If to the Employer: Serologicals Corporation
780 Park North Blvd.
Suite 110
Clarkston, GA 30021
Attn: Chief Executive Officer
If to the Employee: [NAME]
[ADDRESS]
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Georgia applicable to
contracts executed in and to be performed solely within such State.
10. FURTHER ASSURANCES. The parties hereto agree that, after the
execution of this Agreement, they will make, do, execute or cause or permit to
be made, done or executed all such further and other lawful acts, deeds, things,
devices, conveyances and assurances in law whatsoever as may be required to
carry out the true intention and to give full force and effect to this
Agreement.
11
<PAGE>
11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts with the same effect as if the signatures to all such counterparts
were upon the same instrument, and all counterparts shall constitute but one
instrument.
12. HEADINGS. All headings in this Agreement are for convenience only
and are not intended to affect the meaning of any provision hereof.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of, and be binding upon, the Employer, its successors and assigns and any
corporation with which the Employer merges or consolidates or to which the
Employer sells all or substantially all of its assets, and upon the Employee and
his or her executors, administrators, heirs and legal representatives.
IN WITNESS WHEREOF, the Employee has executed this Agreement and the
Employer has caused this Agreement to be executed by a duly authorized officer
as of the day and year first above written.
SEROLOGICALS CORPORATION
By:___________________________
------------------------------
Employee Name
12
<PAGE>
EXHIBIT 10.22
SEROLOGICALS CORPORATION
COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS (the "Plan")
(as of May 18, 1998)
SECTION 1. ELIGIBILITY. Each member of the Board of Directors
(the "Board") of Serologicals Corporation (the "Company") who is not an employee
of the Company or any of its divisions or subsidiaries (an "Eligible Director")
is eligible to participate in the Plan.
SECTION 2. PURPOSE. The purpose of the Plan is to advance the
interests of the Company and its stockholders by compensating and providing
incentives, which are linked directly to increases in stockholder value, to
Eligible Directors for services rendered, time expended and for risks assumed
and value added, in order that they will be encouraged to serve on the Board and
exert their best efforts on behalf of the Company, thus enhancing the value of
the Company for the benefit of the Company's stockholders.
SECTION 3. SHARES SUBJECT TO PLAN. Except as otherwise set
forth herein, the Company shall not be required to reserve or otherwise set
aside funds or shares of common stock, par value $.01 per share, of the Company
("Common Stock") for the payment of its obligations hereunder. The aggregate
number of shares of Common Stock that may be issued pursuant to the Plan shall
not exceed 25,000[, subject to adjustment upon the occurrence of adjustments to
the outstanding Common Stock described in Section 8(e) hereof.] At all times
during the term of the Plan, the Company shall reserve and keep available for
issuance such number of shares of Common Stock[, adjusted in accordance with
Section 8(e) hereof,] as applicable (each a "Share"), as the Company is
obligated to issue pursuant to the Plan. Common Stock issued under the Plan may
consist, in whole or in part, of authorized and unissued Shares or treasury
Shares, as determined in the sole and absolute discretion of the Board. No
fractional Shares shall be issued under the Plan.
SECTION 4. ADMINISTRATION.
(a) GENERALLY. The Plan shall be administered, construed and
interpreted by the Board. Pursuant to such authorization, the Board shall have
the responsibility for carrying out the terms of the Plan, including but not
limited to, the determination of the meeting based fees to be paid to all
Eligible Directors. To the extent permitted under the securities laws applicable
to compensation plans including, without limitation, the requirements of Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or under the Internal Revenue Code of 1986, as amended (the "Code"), the
Compensation Committee of the Board, or a subcommittee of the Compensation
-1-
<PAGE>
Committee, may exercise the discretion granted to the Board under the Plan,
provided that the composition of such Committee or subcommittee shall satisfy
the requirements of Rule 16b-3 under the Exchange Act, or any successor rule or
regulation. The Board may also designate a plan administrator to manage the
record keeping and other routine administrative duties under the Plan.
(b) RELIANCE AND INDEMNIFICATION OF BOARD MEMBERS. The Board
may employ attorneys, consultants, accountants or other persons, and the Board,
the Company and its officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. No member of the Board shall
be personally liable for any action, determination or interpretation taken or
made in good faith by the Board with respect to the Plan or compensation granted
hereunder, and all members of the Board shall be fully indemnified and protected
by the Company in respect of any such action, determination or interpretation.
SECTION 5. COMPENSATION. Each Eligible Director shall be
entitled to receive: (i) $2,000 for each meeting (each of which is a meeting for
which attendance in person was expected) of the Board of Directors actually
attended in person each year ("Regular Compensation"); (ii) $1,000 for each
meeting (each of which is a meeting for which attendance in person was expected)
of a Committee of the Board of Directors actually attended in person if held in
conjunction with a meeting of the Board of Directors ("Committee Compensation")
and (iii) $2,000 for each meeting (each of which is a meeting for which
attendance in person was expected) of a Committee of the Board of Directors
actually attended in person if not held in conjunction with a meeting of the
Board of Directors (collectively with Regular Compensation and Committee
Compensation, "Compensation"). All Compensation shall be payable in cash as
accrued unless otherwise provided herein. Compensation payable to Eligible
Directors for services rendered as a director during a calendar year, if not
deferred pursuant to Section 6 of the Plan, shall be paid (a) partly in Shares
of Common Stock and partly in cash (in whatever percentages as shall be elected
by the Eligible Director), (b) all in cash or (c) all in Shares of Common Stock,
at the election of the Eligible Director. Such election shall be made, in
writing, and delivered to the Secretary of the Company on or before December
31st each year (or, in the case of the first year of the Plan, on or before
September 25, 1998). Payment in Shares, if any, shall be made on the last day of
any month in which Compensation shall have been earned. Shares shall initially
be issued in uncertificated form and recorded in the accounting records of the
Company. Upon the request of an Eligible Director, but not more frequently than
once per quarter, the Company shall issue stock certificates with respect to the
uncertificated Shares accounted for as provided in the preceding sentence. The
amount of any cash payment to be made to an Eligible Director that elected
option (a) above shall equal the result obtained by multiplying (x) the
Compensation by (y) the decimal equivalent of the percentage of cash elected to
be received by the Eligible Director (i.e., 40% cash shall equal .40). The
number of Shares to be transferred to an Eligible Director pursuant to option
(a) or (c) above shall be determined by dividing (x) the amount
-2-
<PAGE>
of the Compensation balance by (y) the closing price of the Common Stock on the
NASDAQ National Market (or such other national securities exchange on which the
Common Stock shall be primarily traded) on the last trading day of the calendar
month in which the Compensation is earned.
SECTION 6. ELECTION TO DEFER.
(a) TIME OF ELECTION. On or before September 25, 1998, an
Eligible Director may elect to defer Compensation by directing that all of the
Compensation which otherwise would have been payable in accordance with Section
5 above thereafter during such calendar year and succeeding calendar years shall
be credited to a deferred compensation account (the "Director's Account"). Under
a valid election, such deferred Compensation shall be payable entirely in Shares
of Common Stock. Any person who shall become an Eligible Director during any
calendar year, and who was not an Eligible Director of the Company prior to the
beginning of such calendar year, may elect, within 30 days after his or her term
begins, to defer payment of all of his or her Compensation earned during the
remainder of such calendar year and for succeeding calendar years.
(b) FORM AND DURATION OF ELECTION. An election to defer
Compensation shall be made by written notice executed by the Eligible Director
and filed with the Secretary of the Company. Such election shall continue until
the Eligible Director terminates such election by subsequent written notice
filed with the Secretary of the Company; provided, however, that an Eligible
Director may not revoke, change or make an election, if such Eligible Director
has made an opposite-way election under any plan of the Company within the
previous six months. Any such election to terminate deferral shall become
effective for the calendar year following receipt of the election form by the
Company and shall only be effective with respect to Compensation payable for
services rendered as an Eligible Director thereafter. Amounts credited to the
Director's Account prior to the effective date of termination shall not be
affected by such termination and shall be distributed only in accordance with
the terms of the Plan.
(c) CHANGE OF ELECTION. An Eligible Director who has
terminated his or her election to defer Compensation hereunder may thereafter
make another election in accordance with Section 6(a) to defer such Compensation
for the calendar year subsequent to the filing of such election and succeeding
calendar years.
(d) THE DIRECTORS ACCOUNT. All Compensation that an Eligible
Director has elected to defer under the Plan shall be credited to the Director's
Account as follows:
(i) As of the date set forth in Section 5, there shall be
credited to the Director's Account the number of shares of Common Stock
determined as set forth in Section 5. If the amount of the Compensation is not
evenly divisible by such closing price of the Common Stock, the balance shall be
credited to the Director's Account in cash.
-3-
<PAGE>
(ii) At the end of each calendar year, there shall be
credited to the Director's Account an amount equal to the cash dividends that
would have been paid on the number of Shares of Common Stock credited to the
Director's Account as of the dividend record date, if any, occurring during such
calendar year as if such Shares had been shares of issued and outstanding Common
Stock on such record date, and such amount shall be treated as reinvested in
additional shares of Common Stock on the dividend payment date.
(iii) An Eligible Director shall not have any interest in
the cash or Common Stock in his or her Director's Account until such cash or
Common Stock is distributed in accordance with the Plan.
(e) DISTRIBUTION FROM ACCOUNTS.
(i) At the time an Eligible Director makes an election to
defer receipt of Compensation pursuant to this Section 6, such Director shall
also file with the Secretary of the Company a written election with respect to
the distribution of the aggregate amount of cash and Shares credited to the
Director's Account pursuant to such election. An Eligible Director may elect to
receive such amount in one lump-sum payment or in a number of approximately
equal annual installments (provided the payout period does not exceed 15 years).
The lump-sum payment or the first installment shall be paid as of (i) the first
business day of any calendar year subsequent to the date the Compensation would
otherwise be payable, as specified by the Director, (ii) the first business day
of the calendar year immediately following the cessation of the Eligible
Director's service as a director of the Company or (iii) the earlier of (i) or
(ii), as the Eligible Director may elect. Subsequent installments shall be
distributed as of the first business day of each succeeding annual installment
period until the entire amount credited to the Director's Account shall have
been distributed. A cash payment will be made with the final installment for any
fraction of a share of Common Stock credited to the Director's Account.
(ii) An Eligible Director participating in the Plan may,
on or prior to December 31st each year, file another written election with the
Secretary of the Company electing to change the date and/or method of
distribution of the aggregate amount of cash and Shares of Common Stock credited
to the Director's Account for services rendered as a director commencing with
such calendar year; provided, however, that an Eligible Director may not revoke,
change or make an election, if such Eligible Director has made an opposite-way
election under any plan of the Company within the previous six months. Amounts
credited to the Director's Account prior to the effective date of such change
(the "Prior Amounts") shall not be affected by such change and shall be
distributed only in accordance with the election in effect at the time the Prior
Amounts were credited to the Director's Account; PROVIDED, HOWEVER, that an
Eligible Director may elect to change the
-4-
<PAGE>
time at which Prior Amounts are to be paid, if (i) a written election to effect
such change is filed with the Secretary of the Company at least one year before
the earliest scheduled payment of the Prior Amounts and (ii) such change would
not accelerate the Eligible Director's receipt of the Prior Amounts.
Notwithstanding the foregoing, in the event an Eligible Director suffers a
severe financial hardship outside the control of such Director, as determined by
the Company, the Company may, in its sole discretion, at the request of such
Eligible Director, elect to advance or defer the date of distribution of the
Director's Account or change the method of distribution thereof.
(iii) Notwithstanding anything to the contrary contained
herein, upon a "Change of Control" (as defined below) and except to the extent
such actions shall make "pooling of interests" accounting unavailable to a
"Change of Control" transaction approved by the Company's Board of Directors,
the full number of Shares of Common Stock and cash in each Director's Account
shall be immediately funded and be distributable on the earlier of the date
which is six months and one day from the "Change of Control" or the distribution
date(s) previously elected by an Eligible Director. For purposes of this Plan, a
"Change of Control" shall mean the occurrence of any of the events described
below: (i) a change, within a period of 24 months or less, in the composition of
the Board of Directors of the Company, such that at any time the majority of
directors who are then serving were not serving at the beginning of such period,
unless at such date of determination, such directors were nominated upon the
recommendation of a majority of the Board of Directors who were directors at the
beginning of such period; (ii) any "person" (as such term is defined in Section
3(a)(9) and 13(d)(3) of the Exchange Act), other than the Eligible Director, or
any group of which the Eligible Director is a member (within the meaning of Rule
13d-1(f) of the Rules and Regulations promulgated under the Exchange Act), or an
"Affiliate" or "Associate" (as such terms are defined in Rule 405 of the Rules
and Regulations promulgated under the Securities Act of 1933, as amended (the
"Securities Act")) thereof, becomes a beneficial owner (as defined in Section
13(d)(3) of the Exchange Act), directly or indirectly, of (x) securities of the
Company representing thirty percent (30%) or more of the Company's then
outstanding securities having the right to vote for the election of directors or
(y) all or substantially all of the assets of the Company; PROVIDED, that the
acquisition by the Company of another company or the assets thereof or a similar
transaction in which the Company issues securities representing 30% or more of
the total number of votes that may be cast for the election of directors of the
Company shall not constitute a "Change in Control" if (1) the Company is the
surviving corporation, (2) the President and Chief Executive Officer of the
Company and the Chief Financial Officer immediately preceding the signing of the
acquisition (or similar) agreement relating to such transaction shall serve as
such for a 24 month period after the closing of such transaction and (3) the
Board of Directors of the Company shall not change over a 24 month period, in
connection with or as a consequence of such transaction, by more than 30%.;
(iii) commencement (within the meaning of Rule 14d-2 of the Rules and
Regulations promulgated under the Exchange Act) of a "tender offer" for capital
stock of the Company subject to Section 14(d)(2) of the Exchange Act by any
"person" (as defined
-5-
<PAGE>
above) other than the Company or any group of which the Eligible Director is a
member; or (iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.]
(f) DISTRIBUTION ON DEATH. If an Eligible Director should die
before all amounts credited to the Director's Account shall have been paid in
accordance with the election referred to in Section 6(d), the balance in such
Director's Account as of the date of such Director's death shall be paid
promptly following such Director's death to the beneficiary designated in
writing by such Director. Such balance shall be paid to the estate of the
Eligible Director if (a) no such designation has been made or (b) the designated
beneficiary shall have predeceased the Director and no further beneficiary
designation has been made.
SECTION 7. AMENDMENT AND TERMINATION.
(a) MODIFICATIONS TO THE PLAN. The Plan shall continue in
effect until terminated by the Board. The Board may at any time amend or
terminate the Plan; provided, however, that (i) no amendment or termination
shall impair the rights of an Eligible Director with respect to amounts then
credited to the Director's Account; and (ii) no amendment shall become effective
without approval of the stockholders of the Company if such stockholder approval
is required to enable the Plan to satisfy applicable state or Federal statutory
or regulatory requirements.
(b) RIGHTS OF ELIGIBLE DIRECTOR. No amendment, suspension or
termination of the Plan that would adversely affect the right of any Eligible
Director with respect to a Director's Account will be effective without the
written consent of the affected Eligible Director.
(c) CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The
Board may correct any defect, supply any omission or reconcile any inconsistency
in the Plan in the manner and to the extent it shall deem desirable to carry the
Plan into effect.
SECTION 8. MISCELLANEOUS.
(a) NON-TRANSFERABLE. The right of an Eligible Director to
receive any amount in the Director's Account shall not be transferable or
assignable by such Director, except by will or by the laws of descent and
distribution, and no part of such amount shall be subject to attachment or other
legal process.
(b) NO RIGHT TO CONTINUE AS DIRECTOR. Nothing contained herein
or in any instrument executed pursuant to the Plan will confer upon any Eligible
Director any right to continue as a member of the Board or affect the right of
the Company, the Board or the
-6-
<PAGE>
stockholders of the Company to terminate the directorship of any Eligible
Director at any time with or without cause.
(c) NO RIGHT TO ASSETS OR VOTING RIGHTS. The establishment and
maintenance of, or allocation and credits to, the Director's Account shall not
vest in the Eligible Director or his beneficiary any right, title or interest in
and to any specific assets of the Company. With respect to Compensation deferred
pursuant to Section 6, an Eligible Director shall not have any dividend or
voting rights or any other rights of a stockholder (except as expressly set
forth in Section 6(d)(ii) with respect to dividends and as provided in
subparagraph (e) below) until the shares of Common Stock issues in respect of
such Compensation and credited to a Director's Account are distributed. The
rights of an Eligible Director to receive payments under the Plan shall be no
greater than the right of an unsecured general creditor of the Company.
(d) ANNUAL STATEMENT. Each Eligible Director participating in
the Plan will receive an annual statement indicating the amount of cash and
number of Shares of Common Stock credited to the Director's Account as of the
end of the preceding calendar year.
(e) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If adjustments
are made to outstanding Shares of Common Stock as a result of stock dividends,
stock splits, recapitalizations, mergers, consolidations and similar
transactions, an appropriate adjustment shall be made in the number of Shares of
Common Stock credited to the Director's Account and to the number of Shares of
Common Stock subject to the Plan.
(f) GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and of its rules and regulations, and
rights relating to the Plan, shall be determined solely in accordance with the
laws of the State of Delaware, without regard to the choice-of-law principles
thereof, and applicable federal law.
(g) SEVERABILITY. If any term or provision of this Plan or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, then the remainder of the Plan, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision hereof shall be valid and be enforced to the fullest extent
permitted by applicable law.
(h) OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the
Plan shall prevent the Board from adopting other compensation arrangements for
Eligible Directors, subject to stockholder approval if such approval is
required. Such other arrangements may be either generally applicable or
applicable only in specific cases.
(i) REPRESENTATIONS. The Board may require, as a condition to
the right
-7-
<PAGE>
to receive payment of the Compensation hereunder (whether directly or from the
Director's Account), that the Company receive from the Eligible Director,
representations, warranties and agreements to the effect that the Shares are
being accepted by the Eligible Director only for investment and without any
present intention to sell or otherwise distribute such Shares and that the
Eligible Director will not dispose of such Shares in transactions which, in the
opinion of counsel to the Company, would violate the registration provisions of
the Securities Act of 1933, as then amended, and the rules and regulations
thereunder. The certificate issued to evidence such Shares shall bear
appropriate legends summarizing such restrictions on the disposition thereof.
(j) WITHHOLDING. The Company shall be authorized to withhold
from any Director's Account, or any payment due under the Plan, the amount of
withholding taxes due, if any, in respect thereof, and to take such other action
as may be necessary in the opinion of the Company to satisfy all obligations for
the payment of such taxes. Upon receiving distributions from the Director's
Account, the Eligible Director receiving Shares pursuant thereto may be required
to pay the Company the amount of any such withholding taxes which is required to
be withheld with respect to such Shares.
(k) COST OF THE PLAN. The costs and expenses of administering
the Plan shall be borne by the Company.
(l) NO WAIVER OF BREACH. No waiver by any person at any time
or any breach by another person of, or compliance with, any condition or
provision of the Plan to be performed by such other person shall be deemed a
waiver of the same, any similar or any dissimilar provisions or conditions at
the same, or at any prior or subsequent, time.
(m) NO TRUST OR FUND CREATED. The Plan shall not create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company and an Eligible Director or any other
individual, corporation, partnership, association, joint-stock company, trust,
unincorporated organization, or government or political subdivision thereof
("Person"). To the extent that any Person acquires a right to receive payments
from the Company pursuant to a Directors' Account or otherwise, such right shall
be no greater than the right of any unsecured general creditor of the Company.
(n) HEADINGS. The headings contained herein are for reference
purposes only and shall not affect in any way the meaning or interpretation of
the Plan.
-8-
<PAGE>
EXHIBIT 21
SUBSIDIARIES
SEROLOGICALS CORPORATION
- - Serologicals Finance Company
-- Serologicals License Company
-- Serologicals, Inc.
* Allegheny Biologicals, Inc.
* Am Rho Laboratories, Inc.
* Serologicals Ltd. (formerly known as Bioscot Ltd.)
--- Bioscot, Ltd.
* Serologicals Investment Company
--- Serologicals Management Partnership, LP (1)
* Serologicals Royalty Company
* Bio-Lab, Inc.
* Med-Lab, Inc.
-- Serologicals Proteins, Inc. (formerly known as Serologicals
Diagnostics, Inc.)
-- Site Acquisition Corp.
* Therapeutics, Inc.
-- Seramed, Inc.
* Allied Plasma Products, Inc.
* Simi Biological Resources, Inc.
* Nations Biologics, Inc.
--- Alameda Plasma Center, Inc.
--- MBW Enterprises, Inc.
---- American Biologics, Inc.
---- National Biologicals, Inc.
* Bloomington Plasma, Inc.
* Seronat Plasma, Inc.
* Southeastern Biologics, Inc.
* Plasma Management, Inc.
* Reno Plasma, Inc.
- - Serologicals (Barbados), Inc. (FSC)
(1) Serologicals Investment Company is the 99% limited partner in
Serologicals Management Partnership. Serologicals, Inc. is the 1%
general partner.
- --------------------------------------------------------------------------------
- - First tier subsidiary of Serologicals Corporation
-- Second tier subsidiary
* Third tier subsidiary
--- Fourth tier subsidiary
---- Fifth tier subsidiary
Unless otherwise indicated, all subsidiaries are wholly owned
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 1, 1999 and to all references to our
firm, included in this Annual Report on Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (File Nos. 333-59041,
333-59043, 333-47433, 333-03769, 333-03771 and 333-09549) and on Form S-3
(File No. 333-34345).
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEROLOGICALS
CORPORATION AND SUBSIDIARIES' CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL
YEAR ENDED DECEMBER 27, 1998 AS SET FORTH IN ITS FORM 10-K FOR THE YEAR, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE SUCH TO FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> DEC-27-1998
<CASH> 34,940
<SECURITIES> 0
<RECEIVABLES> 22,856
<ALLOWANCES> (784)
<INVENTORY> 13,441
<CURRENT-ASSETS> 73,016
<PP&E> 26,406
<DEPRECIATION> 10,074
<TOTAL-ASSETS> 147,331
<CURRENT-LIABILITIES> 16,852
<BONDS> 0
0
0
<COMMON> 243
<OTHER-SE> 128,766
<TOTAL-LIABILITY-AND-EQUITY> 147,331
<SALES> 123,072
<TOTAL-REVENUES> 123,072
<CGS> 81,242
<TOTAL-COSTS> 81,242
<OTHER-EXPENSES> 17,644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (846)
<INCOME-PRETAX> 25,032
<INCOME-TAX> 8,687
<INCOME-CONTINUING> 16,345
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,345
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.63
</TABLE>
