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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 0-15223
HEMACARE CORPORATION
(Exact name of registrant as specified in its charter)
State or other jurisdiction of I.R.S. Employer I.D.
incorporation or organization: California Number: 95-3280412
4954 Van Nuys Boulevard
Sherman Oaks, California 91403
(Address of principal executive offices) (Zip Code)
___________________
Registrant's telephone number, including area code: (818)986-3883
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 ___
As of November 13, 1996, 7,177,515 shares of Common Stock of the Registrant
were issued and outstanding.
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<PAGE> 2
INDEX
HEMACARE CORPORATION
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements
Consolidated balance sheets--September 30, 1996 and December 31,
1995
Consolidated statements of operations--Three and nine months ended
September 30, 1996 and 1995
Consolidated statements of cash flows--Nine months ended September
30, 1996 and 1995
Notes to consolidated financial statements--September 30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Matters
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
- ----------
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HEMACARE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 1,369,000 $ 997,000
Accounts receivable, net of allowance for
doubtful accounts - $88,000 (1996) and
$95,000 (1995).................................. 1,690,000 1,627,000
Product inventories.............................. 142,000 141,000
Supplies......................................... 344,000 328,000
Prepaid expenses................................. 199,000 117,000
Note receivable from officer - current........... 15,000 15,000
------------ -------------
Total current assets.......................... 3,759,000 3,225,000
Plant and equipment, net of accumulated
depreciation and amortization of
$1,788,000 (1996) and $1,513,000 (1995)............ 870,000 1,051,000
Note receivable from officer - non-current........... 86,000 94,000
Other assets......................................... 98,000 87,000
------------- -------------
$ 4,813,000 $ 4,457,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 721,000 $ 473,000
Accrued blood purchases.......................... 230,000 252,000
Accrued payroll and payroll taxes................ 247,000 310,000
Other accrued expenses........................... 227,000 239,000
Current obligations under capital leases......... 234,000 209,000
Reserve for discontinued operations - current.... 345,000 336,000
------------- -------------
Total current liabilities..................... 2,004,000 1,819,000
Obligations under capital leases, net
of current portion................................. 557,000 649,000
Other accrued expenses - long-term................... 187,000 163,000
Reserve for discontinued operations - non-current.... 600,000 600,000
Commitments and contingencies........................
Shareholders' equity:
Common stock, without par value -
20,000,000 shares authorized, 7,176,683 and
5,911,285 issued and outstanding in 1996 and
1995, respectively............................... 13,468,000 12,179,000
Accumulated deficit.................................. (12,003,000) (10,953,000)
------------- -------------
Total shareholders' equity.................... 1,465,000 1,226,000
------------- -------------
$ 4,813,000 $ 4,457,000
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
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HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Blood products................... $ 1,645,000 $ 1,752,000 $ 5,041,000 $ 5,103,000
Blood services................... 981,000 963,000 3,073,000 2,821,000
------------ ------------ ------------ ------------
Total revenues................. 2,626,000 2,715,000 8,114,000 7,924,000
Operating costs and expenses:
Blood products................... 1,621,000 1,318,000 5,282,000 3,887,000
Blood services................... 641,000 638,000 2,085,000 1,966,000
------------ ------------ ------------ ------------
Total operating costs and
expenses...................... 2,262,000 1,956,000 7,367,000 5,853,000
------------ ------------ ------------ ------------
Operating profit........... 364,000 759,000 747,000 2,071,000
General and administrative
expense.......................... 529,000 499,000 1,759,000 1,461,000
Interest expense................. 7,000 3,000 39,000 5,000
------------ ------------ ------------ ------------
Income (loss) from continuing
operations before income taxes... (172,000) 257,000 (1,051,000) 605,000
Provision for income taxes........ -- -- -- --
Loss from discontinued
operations....................... -- (232,000) -- (767,000)
------------ ------------ ------------ ------------
Net income (loss)................. $ (172,000) $ 25,000 $(1,051,000) $ (162,000)
============ ============ ============ ============
Per share amounts:
Income (loss) from continuing
operations....................... $ (0.03) $ 0.04 $ (0.16) $ 0.11
Loss from discontinued
operations....................... -- (0.04) -- (0.14)
------------ ------------ ------------ ------------
Net income (loss)................. $ (0.03) $ 0.00 $ (0.16) $ (0.03)
============ ============ ============ ============
Weighted average common and
common equivalent shares
outstanding..................... 6,384,838 6,020,684 6,477,203 5,622,215
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
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HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1996 1995
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................... $ (1,051,000) $ (162,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................... 265,000 384,000
Provision for losses on accounts receivable...... -- 1,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable....... (63,000) 355,000
Increase in inventories, supplies and
prepaid expenses................................ (99,000) (62,000)
Increase in other assets, net.................... (11,000) (81,000)
Increase (decrease) in accounts payable
and accrued expenses............................ 151,000 (520,000)
Increase (decrease) in other accrued
expenses - long-term............................ 24,000 (13,000)
Reserve for discontinued operations.............. 9,000 --
------------- ------------
Net cash used in operating activities.............. (775,000) (98,000)
------------- ------------
Cash flows from investing activities:
Decrease (increase) in note receivable from officer 8,000 (16,000)
Decrease in short-term investments................. -- 300,000
Sale (purchase) of plant and equipment, net........ 8,000 (113,000)
------------- ------------
Net cash provided by investing activities.......... 16,000 171,000
------------- ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock......... 1,289,000 834,000
Principal payments on line of credit and
capital leases.................................... (158,000) (299,000)
------------- ------------
Net cash provided by financing activities.......... 1,131,000 535,000
------------- ------------
Increase (decrease) in cash and cash
equivalents....................................... 372,000 608,000
Cash and cash equivalents at beginning
of period......................................... 997,000 786,000
------------- ------------
Cash and cash equivalents at end of period......... $ 1,369,000 $ 1,394,000
============= ============
Supplemental disclosure:
Interest paid..................................... $ 60,000 $ 41,000
============= ============
Items not impacting cash flows:
Increase in capital lease obligations............. $ 92,000 $ 167,000
============= ============
</TABLE>
See Notes to Consolidated Financial Statements.
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HEMACARE CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation and General Information
The accompanying unaudited consolidated financial statements of HemaCare
Corporation (the "Company" or "HemaCare") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. Certain 1995 amounts have been reclassified to
conform to the 1996 presentation. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
From 1990 to November 1995, the Company, through its wholly owned subsidiary
HemaBiologics, Inc. ("HBI"), conducted research and development of ImmupathTM,
an anti-HIV hyperimmune plasma-based product intended to be used in the
treatment of Acquired Immune Deficiency Syndrome ("AIDS"). In connection with
this project, the Company licensed the rights to the United States patent to
commercialize Immupath from Medicorp, Inc. ("Medicorp"). In November 1995,
the Company's Board of Directors decided to discontinue the operations of HBI.
At the time the operations were discontinued, each party to the license
alleged that the other party was in breach of the agreement. (Notes 2 and 5).
In September 1995, the Company formed Gateway Community Blood Program, Inc.
("Gateway"), a wholly owned subsidiary incorporated in Missouri, to provide
blood products and services in portions of Missouri and Illinois.
The Company opened its University of Southern California Blood Center ("USC
Blood Center"), a full-service blood donation and services facility, in
February 1996. The USC Blood Center facility is leased from USC and is
staffed and operated by HemaCare under its Food and Drug Administration
("FDA") license. Located on the USC Health Sciences Campus in Los Angeles,
California, the center provides services to the USC/Norris Comprehensive
Cancer Center and Hospital and the USC University Hospital (the "USC
Hospitals"). The USC Hospitals have agreed that HemaCare will be their
primary provider of blood products and therapeutic services for the three-
year period ending February 1999. Pathologists on the USC medical faculty
provide medical direction services for the USC Blood Center as consultants
to the Company.
Note 2 - Discontinued Operations
In November 1995, the Company's Board of Directors decided to discontinue the
operations of HBI, including the research and development of Immupath and the
associated specialty plasma business. In connection with this decision, the
Company wrote off the remaining book value of HBI's assets and provided a
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<PAGE> 7
reserve for estimated operating losses from the November 30, 1995 measurement
date through December 1996, the expected date of substantial completion of
disposal. The loss on the disposition of HBI's operations has been accounted
for as discontinued operations, and prior year financial statements have been
restated to reflect the discontinuation of these operations. The net loss
from such operations for the three months and nine months ended September 30,
1995 was $232,000 and $767,000, respectively. For the three-month and nine-
month periods ended September 30, 1996, the Company's reserve for discontinued
operations decreased by $47,000 and increased by $9,000, respectively.
The reserve established for estimated HBI operating losses during the period
of disposal included a $600,000 contingent liability for the resolution of
the dispute with Medicorp. In July 1996, the dispute was settled without any
payment by the Company. (See Note 5). In June 1996, the Company signed an
amended agreement to sell substantially all the tangible assets of the
discontinued operations and two of the three remaining FDA source plasma
licenses. The sale and transfer of the licenses was contingent upon obtaining
FDA approval which was received on October 21, 1996. The buyer has delivered
a promissory note in payment of the purchase price for the tangible assets
sold which is collateralized by these assets. However, the buyer's ability to
make payment on the note, which was due November 2, 1996, is dependent upon
the completion of a financing transaction by the buyer. If, upon completion
of the sale transaction, the remaining reserve exceeds any estimated residual
costs of disposition, the Company will reduce its liabilities by the amount
of the remaining reserve for disposal, including the amount provided for
settlement of the dispute with the license holder, and increase its net
income and retained earnings in a corresponding amount.
Note 3 - Line of Credit
Since August 1991, the Company has maintained a line of credit with a
commercial bank secured by its accounts receivable, inventory and equipment.
The credit line is in effect through April 30, 1997. Under the terms of the
credit line agreement, as amended, the Company may borrow up to 70% of
eligible accounts receivable, up to a maximum of $700,000 and must maintain
certain ratios, including working capital, as defined, of $500,000 and a
tangible net worth of not less than $1.2 million prior to March 31, 1997 and
not less than $1.8 million thereafter. The Company was in compliance with all
covenants of its borrowing agreement, as amended, at September 30, 1996.
Interest on credit line borrowings is at the lender's prime rate (8.25% at
September 30, 1996) plus one-half of a percentage point. As of September 30,
1996, there was no balance outstanding under the line of credit.
Note 4 - Shareholders' Equity
In August 1996, the Company completed a $1.2 million private placement of 1.2
million shares of its common stock.
In November 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation" ("SFAS 123"). SFAS 123 recommends changes in accounting for
employee stock based compensation plans and requires certain disclosures with
respect to these plans. The Company will adopt SFAS 123 prior to December 31,
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1996. The Company does not expect the adoption of SFAS 123 to materially
impact the Company's financial position or its results of operations.
Note 5 - Commitments and Contingencies
On March 11, 1994, the Company was served with a lawsuit filed by a former
employee against the Company and its wholly owned subsidiary, HBI, in the
Superior Court of the State of California, related to the termination of this
employee and seeking relief in the amount of $550,000. A trial date has been
set for October 29, 1997; however, at this stage in the proceedings, neither
management nor counsel are in a position to evaluate the probable merits of
the claim asserted by this former employee. Accordingly, the resolution of
this lawsuit could have a material impact on the Company's financial conditions
and results of operations.
In November 1995, the Company terminated its license agreement with Medicorp
(Note 1) due to an alleged default by the license holder. The Company also
notified Medicorp that the stock purchase warrants (exercisable for 400,000
shares of HemaCare common stock at $5.50 per share) issued by the Company to
Medicorp had terminated under their terms, due to the default. Medicorp
denied that it had breached the license agreement and alleged that the
Company was liable for royalties of approximately $425,000 under the license
agreement and that its warrants remained outstanding. On July 19, 1996, the
Company and Medicorp Inc. entered into a settlement agreement and mutual
release resolving all disputes between them related to their February 1993
license agreement. In the Medicorp settlement agreement, the parties agreed
(i) to terminate the license agreement, (ii) to mutually release each other
from all prior monetary and other breaches of the license agreement, (iii)
that the Medicorp warrants would remain outstanding and exercisable and (iv)
that the Company would grant a nonexclusive royalty-free license to Medicorp
to certain research data and other documentation associated with the Immupath
project.
Note 6 - Related Party Information
In 1995 and 1994, the Company made a series of personal loans to Joshua Levy,
then an officer and director of the Company, totaling $98,307. The proceeds
of these loans were used to refinance existing debt which was collateralized
by HemaCare stock owned by Dr. Levy. In January 1996, these individual notes
were consolidated into a promissory note, collateralized by HemaCare stock
owned by Dr. Levy, which accrues interest at a rate equal to the rate the
Company pays under its line of credit (Note 3), adjusted quarterly. Interest
accrued related to the loans made to Dr. Levy was $2,154 for the three months
and $6,392 for the nine months ended September 30, 1996 and $2,445 for the
three months and $7,092 for the nine months ended September 30, 1995,
respectively. The note requires four annual installment payments of $15,000
due on January 31, with the balance of the principal and accrued interest due
on January 31, 2000. The Company received its first annual installment
payment of $15,000 in January 1996.
Note 7 - Recent Auditing Pronouncement
In the first quarter of 1996, the Company adopted Statement of Financial
Auditing Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
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<PAGE> 9
and Long-Lived Assets to be Disposed Of" ("SFAS121"). The adoption of SFAS
121 did not impact the Company's financial position or its results of
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Comparison of the Quarter and Nine Months ended September 30, 1996 and 1995.
All comparisons within the following discussions are to the same period of
the previous year.
In late December 1995, the Gateway Community Blood Program ("Gateway") opened
in St. Louis, Missouri. The University of Southern California ("USC") Blood
Center, located in Los Angeles, California, opened in late February 1996.
These new operations are collectively referred to as the "Expansion
Operations" in the following discussions.
Revenues and Operating Profit
- -----------------------------
Revenues for the three month period ended September 30, 1996, decreased 3%
($89,000), and revenue for the nine month period ended September 30, 1996
increased 2% ($190,000). The Company's operating profit as a percentage of
sales ("profit margin") decreased to 14% in the three month period and 9% in
the nine month period of 1996 from 28% in the three month period and 26% in
the nine month period of 1995, due primarily to start-up losses incurred by
the Expansion Operations. Losses from Expansion Operations were $284,000 for
the three months and $1,264,000 for the nine months ended September 30, 1996.
The Company's profit margin before the effect of the Expansion Operations was
27% for the three month period and 26% for the nine month period ended
September 30, 1996.
Blood Products
Blood products revenue decreased 6% for the three months and 1% for the nine
months ended September 30, 1996. The decreases were due to a lower platelet
sales volumes and prices in Southern California, partially offset by revenue
from Gateway sales. Platelet sales volumes declined by 24% in the three month
period and 16% in the nine month period of 1996, primarily due to competitive
pressures. Average platelet sales prices declined by 4% for the three months
and 2% for the nine month periods of 1996. Effective August 1, 1996, the
Company reduced many of its blood product prices, as a part of its overall
marketing strategy.
As a result of the Expansion Operations, operating costs and expenses exceed
revenues in the nine month period of 1996 and revenues only slightly exceed
operating costs and expenses in the three month period of 1996. Before the
effect of the Expansion Operations, the blood products profit margin decreased
to 22% for the 1996 three months, as compared to 25% in 1995, and to 23% for
the 1996 nine months, as compared to 24% in 1995. The lower 1996 profit
margins were due to (1) lower platelet sales prices and (2) lower platelet
and component sales volumes.
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<PAGE> 10
Blood Services
For the three-month and nine-month periods ended September 30, 1996, blood
services revenues increased 2% ($18,000) and 9% ($252,000), respectively,
primarily as a result of 5% and 7% increases in the number of therapeutic
procedures performed in Southern California during the 1996 three and nine
month periods, respectively. The Atlanta therapeutic services operation was
closed in July 1996.
The profit margin on blood services increased to 35% for the three month
period and to 32% for the nine month period of 1996 from 34% and 30% in the
corresponding periods of 1995, respectively.
General and Administrative Expense
- ----------------------------------
General and administrative expense increased 6% ($30,000) for the three months
and 20% ($298,000) for the nine months ended September 30, 1996. The increase
was primarily due to changes in the Company's corporate structure initiated
in late 1995 in conjunction with its expansion strategy. However, since the
timing of additional expansion is currently uncertain and dependent upon
improved operating performance and increased capitalization, in June 1996,
the Company implemented a plan to reduce general and administrative expense.
(See "Liquidity and Capital Resources.") As a result of this plan, general
and administrative expenses decreased by 12% ($70,000) in the third quarter
of 1996, as compared to the second quarter of the year.
Discontinued Operations
- -----------------------
In November 1995, the Company discontinued its research and development
activities and established a $1 million reserve for losses during the disposal
period, including $600,000 for a contingent liability related to a dispute
with Medicorp, a license holder. The reserve amount is net of the proceeds
expected to be realized from the sale of research and development assets.
To date, results of the disposal have been more favorable than expected. In
June 1996, the Company signed an amended agreement to sell most of its
research and development assets, and in July 1996, the Medicorp dispute was
settled without any payment by the Company. The asset sale is expected to be
completed in the fourth quarter of 1996, at which time the disposal of the
discontinued operations will be substantially complete. However, completion of
the sale is dependent on the purchaser's ability to obtain financing. At the
time the sale is completed, if the remaining reserve exceeds any estimated
residual costs of disposition, the Company will reduce its liabilities by the
amount of the remaining reserve for disposal, including the amount provided
for settlement of the dispute with the license holder, and increase its net
income and retained earnings by a corresponding amount. Although management
expects that the reserve will exceed the disposal costs, there can be no
assurance of this or that the reserve provided will exceed or be sufficient
to cover all disposal costs. (See "Liquidity and Capital Resources".)
Liquidity and Capital Resources
- -------------------------------
At September 30, 1996, the Company had cash and cash equivalents of $1.4
million and working capital of $1.8 million.
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The Company has a $700,000 line of credit with a commercial bank which is in
effect through April 30, 1997. Under the terms of the credit line agreement,
as amended, the Company may borrow up to 70% of eligible accounts receivable,
up to a maximum of $700,000 and must maintain certain ratios, including
working capital, as defined, of $500,000 and a tangible net worth of not
less than $1.2 million prior to March 31, 1997 and not less than $1.8 million
thereafter. The Company was in compliance with all covenants of its borrowing
agreement, as amended, at September 30, 1996. At September 30, 1996, there
were no borrowings outstanding on the credit line.
In order to maintain the listing of its common stock on the Nasdaq SmallCap
Market, the Company increased its capitalization through a $1.2 million
private placement of its common stock which was completed in August 1996.
The Company's blood products and services businesses, other than the Expansion
Operations, are profitable and cash flow positive. Effective August 1, 1996,
the Company reduced many of its blood product prices, as a part of its
overall marketing strategy. The price reductions are intended to retain
existing customers and attract new customers. However, profit margins on the
affected products have been reduced. To offset the effect of the price
reductions and increase the overall profitability of its operations, the
Company implemented the following cost reduction and control measures
beginning in June 1996:
* Closing of the Atlanta-based therapeutic services business which did not
achieve sustained profitability.
* Reorganization of Los Angeles-based operations to increase efficiency and
reduce costs. Operation of the collection, testing, manufacturing and
distribution departments were reevaluated and revised to reduce personnel
costs.
* Reduction of general and administrative expenses. Personnel-related and
other costs were critically reviewed, resulting in a significant overall
reduction in these expenses.
In many instances, the Company competes against the American Red Cross ("ARC")
in providing its products and services to health care institutions. To date,
the ARC has aggressively responded to competition from the Company, and
management believes that such competition will continue. In St. Louis, prior
to the opening of Gateway, the ARC provided virtually all blood products to
hospitals in the greater St. Louis area. Immediately following the opening of
Gateway, the ARC decreased its price for red blood cells in excess of 10%.
This price decrease materially impacted Gateway's ability to market its
products and services profitably.
In Southern California, the Los Angeles Region Blood Service of the American
Red Cross (the "Los Angeles ARC") employs pricing practices which the Company
has alleged violate antitrust laws. These pricing practices may compel Los
Angeles ARC customers to purchase certain blood products from the ARC at
higher prices than those offered by the Company. In December 1995, the
Company filed an antitrust and unfair competition complaint against the ARC
with the United States District Court in the Central District of California
to recover damages and secure injunctive relief. In response to the complaint,
the ARC filed a motion to dismiss which was partially rejected by the Court.
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The Company amended its complaint, and in November 1996, an ARC motion to
dismiss the amended complaint was denied. A May 1997 trial date has been set.
The Company cannot predict the outcome of this lawsuit at this time.
The Company has developed a blood management program ("Blood Management
Program") model which provides its hospital customers with the convenience
and efficiencies of an in-house blood program without the associated
regulatory and management burdens and related financial risks. The USC Blood
Program is a prototype of this approach. The Company's Blood Management
Programs are being marketed to:
* Existing customers in Southern California and the St. Louis metropolitan
area who are buying various blood products and services from the Company in a
traditional buyer-vendor relationship.
* Potential customers who either have their own blood programs which they
prefer to out source or have traditional blood vendors who are not meeting
their needs.
The USC Blood Program serves the USC/Norris Comprehensive Cancer Center and
Hospital and the USC University Hospital (the "Hospitals") under the terms of
the Company's three-year agreements with the USC Hospitals. Under the terms
of these agreements, the Company is the primary provider of blood products
and services to the Hospitals and agrees to equip and operate a blood donor
center (the "USC Blood Donor Center"). The Company is entitled to recoup the
cost of tenant improvements for the USC Blood Donor Center through surcharges
to the Hospitals. On an overall basis, this is a profitable arrangement for
the Company, which is currently supplying most of the Hospitals' blood
product needs from sources other than donations at the USC Blood Donor Center.
However, start-up costs for the USC Blood Donor Center have temporarily
reduced the overall profitability of the USC Blood Program. When the USC
Blood Donor Center reaches stabilized operations, it is expected to be a
profitable, stand-alone operation. To date, blood donations made at the Center
have been primarily autologous or directed. To achieve a profitable level of
operations, allogeneic donations (donated for general use) of platelets and
whole blood must be increased. The Company is attempting to increase
allogeneic donations through a platelet donor recruitment program, fixed-site
blood drives and mobile blood drives which were initiated in the fourth
quarter of 1996. However, there can be no assurance that the Center will be
able to achieve and maintain a profitable level of stand-alone operations.
Gateway opened for business and began conducting blood drives in December
1995. In June 1996, Gateway's operations were redirected from predominantly
mobile blood drives, where the Company competed directly with the ARC on a
regional basis, to a more profitable mix of blood products and services
targeted to the needs of specific hospital customers. As a result of a
substantial reduction in personnel, the cost of Gateway's operations were
reduced. The Company believes that Gateway's new strategy will result in a
profitable level of donations and revenue. However, the success of Gateway's
operations are dependent on a number of factors and circumstances, many of
which are outside the Company's control. Accordingly, there can be no
assurance that profitable operations will be achieved. If profitable
operations are not achieved, Gateway will be closed. The costs of such a
closure are not expected to be material to the Company's overall results of
operations.
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In October 1996, the Company signed an agreement to provide a comprehensive
blood management program to Citrus Valley Health Partners, a three-hospital
healthcare system serving a population of approximately 720,000 in suburban
Los Angeles. The terms of the agreement require the Company to equip and
operate a blood donor center in the vicinity of the three hospitals.
Management is evaluating a number of opportunities to implement the Blood
Management Program in a variety of other healthcare settings. However,
further expansion will require that the Company obtain additional financing
and the ability to compete effectively against other blood product and
service providers, including the ARC. Accordingly, there can be no assurance
that the Company will be successful in marketing its Blood Management
Programs or that, if successful, it will be able to obtain the funds
necessary to finance such programs.
In November 1995, the Company's Board of Directors decided to discontinue its
research and development operations. This decision resulted in a write off of
assets in the amount of approximately $2.1 million and the provision of a $1
million reserve for losses during the disposal period. To date, results of
the disposal have been more favorable than expected. Approximately $9,000 of
the reserve was expended in the nine months ended September 30, 1996, net of
amounts received from asset sales. In June 1996, the Company signed an amended
agreement to sell most of its remaining research and development assets. The
asset sale is expected to be completed in the fourth quarter of 1996. However,
completion of the sale is dependent on the purchaser's ability to obtain
financing. See "Discontinued Operations."
On March 11, 1994, the Company was served with a lawsuit filed by a former
employee against the Company and its wholly owned subsidiary, HBI, in the
Superior Court of the State of California, related to the termination of this
employee and seeking relief in the amount of $550,000. The case is still in
the discovery stage in the proceedings and neither management nor counsel are
in a position to evaluate the probable merits of the claim asserted by this
former employee. Accordingly, the resolution of this lawsuit could have a
material impact on the Company's financial condition and results of
operations.
The Company anticipates that positive cash flow from its profitable operations
and its cash and investments on hand will be sufficient to provide funding
for the anticipated operating deficits of the Expansion Operations, to equip
and operate the Citrus Valley Health Partners blood donor center and, if
necessary, for the closure of Gateway, and to fund the remaining costs of
disposing of its discontinued operations and meet its other working capital
needs for the next 12 months.
Factors Affecting Forward-Looking Information
- ---------------------------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
from liability for forward-looking statements. Certain information included
in this Form 10-Q and other materials filed or to be filed by the Company
with the Securities and Exchange Commission (as well as information included
in oral statements or other written statements made or to be made by or on
behalf of the Company) are forward-looking, such as statements relating to
operational and financing plans, competition, the completion of the disposal
of research and developments assets, demand for the Company's products and
services, and the anticipated outcome of contingent claims against the
Company. Such forward looking statements involve important risks and
13
<PAGE> 14
uncertainties, many of which will be beyond the control of the Company. These
risks and uncertainties could significantly affect anticipated results in the
future, both short-term and long-term, and accordingly, such results may
differ from those expressed in forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to the ability of the Company to obtain additional
financing, to achieve profitability in either or both of its Expansion
Operations, to improve the profitability of the Company's other operations,
to expand its operations, to comply with the covenants under its bank line of
credit, to effectively compete against the ARC and other competitors, to
complete the sale of the Company's research and development assets on
contracted terms and to resolve favorably through negotiation or litigation
claims asserted against Company. Each of these risks and uncertainties as
well as others are discussed in greater detail in the preceding paragraphs of
this Management's Discussion and Analysis of Financial Condition and Results
of Operations and in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
See disclosure in Form 10-K for the year ended December 31, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
None.
Item 5. Other Information
- ------- -----------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
a. Exhibits
4.1 1996 Stock Incentive Plan of the Registrant as amended and
restated through September 17, 1996
10.1 Amendment to Loan Agreement between the Registrant and
Bank Leumi dated November 8, 1996.
27 Financial Data Schedule for the Quarter Ending September
30, 1996.
b. On August 19, 1996, HemaCare Corporation filed a Report on Form
8-K dated August 19, 1996. The Company reported Under Item 5
that the Company had completed a $1.2 million private placement
of its equity securities.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date November 13, 1996 HEMACARE CORPORATION
--------------------- (Registrant)
\s\ Sharon C. Kaiser
--------------------------------
Sharon C. Kaiser, Vice President,
Finance and Chief Financial Officer
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Method of Filing
<S> <C> <C>
4.1 1996 Stock Incentive Plan of the Registrant as amended and
restated through September 17, 1996...................... Filed herewith electronically
10.1 Amendment to Loan Agreement between the Registrant and
Bank Leumi dated November 8, 1996......................... Filed herewith electronically
27 Financial Data Schedule for the quarter ending
September 30, 1996........................................ Filed herewith electronically
</TABLE>
16
<PAGE> 17
EXHIBIT 4.1
HEMACARE CORPORATION
1996 STOCK INCENTIVE PLAN
(As Amended and Restated Through September 17, 1996)
SECTION 1. Purposes.
The purposes of the HemaCare Corporation 1996 Stock Incentive
Plan (the "Plan") are to (i) enable HemaCare Corporation (the
"Company") and Related Companies (as defined below) to attract,
motivate and retain top-quality directors, officers, employees,
consultants, advisers and independent contractors (including
without limitation dealers, distributors and other business
entities or persons providing services on behalf of the Company or
a Related Company), (ii) provide substantial incentives for such
directors, officers, employees, consultants, advisers and
independent contractors of the Company or a Related Company
("Participants") to act in the best interests of the shareholders
of the Company and (iii) reward extraordinary effort by
Participants on behalf of the Company or a Related Company. For
purposes of the Plan, a "Related Company" means any corporation,
partnership, joint venture or other entity in which the Company
owns, directly or indirectly, at least a twenty percent (20%)
beneficial ownership interest.
SECTION 2. Types of Awards. Awards under the Plan may be in
the form of (i) Stock Options or (ii) Restricted Stock.
SECTION 3. Administration.
3.1 Except as otherwise provided herein, the Plan shall be
administered by the Compensation Committee of the Board of
Directors of the Company (the "Board") or such other committee of
directors as the Board shall designate, which committee in either
such case shall consist solely of not less than two "non-employee
directors" (as such term is defined in Rule 16b-3 under the
Securities Exchange Act of 1934 (the "Exchange Act") or any
successor rule ("Rule 16b-3")) who shall serve at the pleasure of
the Board, each of whom shall also be an "outside director" within
the meaning of Section 162(m) of the Internal Revenue Code and
Section 1.162-27 of the Treasury Regulations or any successor
provision(s) thereto ("Section 162(m)"); provided, however, that if
there are not two persons on the Board who meet the foregoing
qualifications, any such committee may be comprised of two or more
directors of the Company, none of which is an officer (other than
a non-employee Chairman of the Board of the Company) or an employee
of the Company or a Related Company. If no such committee has been
appointed by the Board, the Plan shall be administered by the
Board, and the Plan shall be administered by the Board to the
extent provided in the last sentence of this Section. Such
committee as shall be designated to administer the Plan, if any, or
the Board is referred to herein as the "Committee." Notwithstanding
any other provision of the Plan to the contrary, if such a
committee has been designated to administer the Plan, all actions
with respect to the administration of the Plan in respect of the
members of such committee shall be taken by the Board.
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<PAGE> 17
3.2 The Committee shall have the following authority with
respect to awards under the Plan to Participants: to grant awards
to eligible Participants under the Plan; to adopt, alter and repeal
such administrative rules, guidelines and practices governing the
Plan as it shall deem advisable; to interpret the terms and
provisions of the Plan and any award granted under the Plan; and to
otherwise supervise the administration of the Plan. In particular,
and without limiting its authority and powers, the Committee shall
have the authority:
(a) to determine whether and to what extent any
award or combination of awards will be granted hereunder;
(b) to select the Participants to whom awards will
be granted;
(c) to determine the number of shares of the common
stock of the Company (the "Stock") to be covered by each
award granted hereunder, provided that no Participant
will be granted Stock Options on or with respect to more
than 250,000 shares of Stock in any calendar year;
(d) to determine the terms and conditions of any
award granted hereunder, including, but not limited to,
any vesting or other restrictions based on performance
and such other factors as the Committee may determine,
and to determine whether the terms and conditions of the
award are satisfied;
(e) to determine the treatment of awards upon a
Participant's retirement, disability, death, termination
for cause or other termination of employment or other
qualifying relationship with the Company or a Related
Company;
(f) to determine that amounts equal to the amount
of any dividends declared with respect to the number of
shares covered by an award (i) will be paid to the
Participant currently or (ii) will be deferred and deemed
to be reinvested or (iii) will otherwise be credited to
the Participant, or that the Participant has no rights
with respect to such dividends;
(g) to determine whether, to what extent, and under
what circumstances Stock and other amounts payable with
respect to an award will be deferred either automatically
or at the election of a Participant, including providing
for and determining the amount (if any) of deemed
earnings on any deferred amount during any deferral
period;
(h) to provide that the shares of Stock received as
a result of an award shall be subject to a right of first
refusal, pursuant to which the Participant shall be
required to offer to the Company any shares that the
Participant wishes to sell, subject to such terms and
conditions as the Committee may specify;
2
<PAGE> 18
(i) to amend the terms of any award, prospectively
or retroactively; provided, however, that no amendment
shall impair the rights of the award holder without his
or her consent; and
(j) to substitute new Stock Options for previously
granted Stock Options, or for options granted under other
plans, in each case including previously granted options
having higher option prices.
3.3 All determinations made by the Committee pursuant to the
provisions of the Plan shall be final and binding on all persons,
including the Company and all Participants.
3.4 The Committee may from time to time delegate to one or
more officers of the Company any or all of its authorities granted
hereunder except with respect to awards granted to persons subject
to Section 16 of the Exchange Act. The Committee shall specify the
maximum number of shares that the officer or officers to whom such
authority is delegated may award, and the Committee may in its
discretion specify any other limitations or restrictions on the
authority delegated to such officer or officers.
SECTION 4. Stock Subject to Plan.
4.1 The total number of shares of Stock reserved and
available for distribution under the Plan shall be 750,000 (subject
to adjustment as provided in Section 4.3); provided, however, that
no award of a Stock Option or Restricted Stock may be made at any
time if, after giving effect to such award, the total number of
shares of Stock issuable upon exercise of all outstanding options
and warrants of the Company (whether or not under the Plan) plus
the total number of shares of Stock called for under any stock
bonus or similar plan of the Company (including shares of Stock
underlying awards of Stock Options or Restricted Stock under the
Plan) would exceed thirty percent (30%) of the total number of
shares of Stock outstanding at the time of such award. For
purposes of the foregoing: (i) those shares issuable upon exercise
of rights, options or warrants, or under a stock purchase plan,
meeting the requirements for exclusion set forth at any time and
from time to time in Rule 260.140.45 of the California Commissioner
of Corporations shall not be counted against the thirty
percent (30%) limitation; (ii) any outstanding preferred or senior
common shares of the Company convertible into Stock shall be deemed
converted in determining the total number of outstanding shares of
Stock at any time; and (iii) any shares of Stock subject to
promotional waivers under Rule 260.141 of the California
Commissioner of Corporations shall not be deemed to be outstanding.
Shares of Stock issuable in connection with any award under the
Plan may consist of authorized but unissued shares or treasury
shares.
4.2 To the extent a Stock Option terminates without having
been exercised, or shares awarded are forfeited, the shares subject
to such award shall again be available for distribution in
connection with future awards under the Plan, subject to the
limitations set forth in Section 4.1, unless the forfeiting
Participant received any benefits of ownership such as dividends
from the forfeited award.
3
<PAGE> 19
4.3 In the event of any merger, reorganization,
consolidation, sale of substantially all assets, recapitalization,
Stock dividend, Stock split, spin-off, split-up, split-off,
distribution of assets or other change in corporate structure
affecting the Stock, a substitution or adjustment, as may be
determined to be appropriate by the Committee in its sole
discretion, shall be made in the aggregate number of shares
reserved for issuance under the Plan, the number of shares subject
to outstanding awards and the amounts to be paid by award holders
or the Company, as the case may be, with respect to outstanding
awards; provided, however, that no such adjustment shall increase
the aggregate value of any outstanding award. In the event any
change described in this Section 4.3 occurs and an adjustment is
made in the outstanding Stock Options, a similar adjustment shall
be made in the maximum number of shares covered by Stock Options
that may be granted to any employee pursuant to Section 3.2(c).
SECTION 5. Eligibility.
Participants under the Plan shall be selected from time to
time by the Committee, in its sole discretion, from among those
eligible.
SECTION 6. Stock Options.
6.1 The Stock Options awarded to officers and employees under
the Plan may be of two types: (i) Incentive Stock Options within
the meaning of Section 422 of the Internal Revenue Code or any
successor provision thereto ("Section 422"); and (ii) Non-Qualified
Stock Options. If any Stock Option does not qualify as an
Incentive Stock Option, or the Committee at the time of grant
determines that any Stock Option shall be a Non-Qualified Stock
Option, it shall constitute a Non-Qualified Stock Option. Stock
Options awarded to any Participant who is not an officer or
employee of the Company or a Related Company shall be Non-Qualified
Stock Options.
6.2 Subject to the following provisions, Stock Options
awarded to Participants under the Plan shall be in such form and
shall have such terms and conditions as the Committee may
determine:
(a) Option Price. The option price per share of
Stock purchasable under a Stock Option shall be
determined by the Committee; provided, however, that the
option price per share of Stock shall be not less than
one hundred percent (100%) of the "Fair Market Value" (as
defined below) of the Stock on the date of grant of the
Stock Option; and provided, further, that if at the time
of grant the Participant owns, or would be considered to
own by reason of Section 424(d) of the Internal Revenue
Code or any successor provision thereto, more than ten
percent (10%) of the total combined voting power of all
classes of stock of the Company or any parent or
subsidiary of the Company, the option price per share of
Stock shall be not less than one hundred ten
percent (110%) of the Fair Market Value of the Stock on
the date of grant of the Stock Option. For purposes of
the Plan, "Fair Market Value" in relation to a share of
the Stock means, if the Stock is publicly traded, the
closing per share bona fide bid price of the Stock on
4
<PAGE> 20
such date. In any situation not covered above, the Fair
Market Value shall be determined by the Committee in
accordance with one of the valuation methods described in
Section 20.2031-2 of the Federal Estate Tax Regulations
or any successor provision thereto.
(b) Option Term. The term of each Stock Option
shall be fixed by the Committee, but in no event longer
than one hundred twenty (120) months after the date of
grant of such Stock Option.
(c) Exercisability. Stock Options shall be
exercisable at such time or times and subject to such
terms and conditions as shall be determined by the
Committee; provided, however, that in the case of Stock
Options awarded to Participants other than directors,
officers, consultants or independent contractors, Stock
Options under any award shall become exercisable at the
rate of at least twenty percent (20%) per year over
five (5) years from the date the Stock Option is granted.
If the Committee provides that any Stock Option is
exercisable only in installments, the Committee may waive
such installment exercise provisions at any time in whole
or in part.
(d) Method of Exercise. Stock Options may be
exercised in whole or in part at any time during the
option period by giving written notice of exercise to the
Company specifying the number of shares to be purchased,
accompanied by payment of the purchase price. Payment of
the purchase price shall be made in such manner as the
Committee may provide in the award, which may include
cash (including cash equivalents), delivery of shares of
Stock already owned by the optionee or subject to awards
hereunder, any other manner permitted by law as
determined by the Committee, or any combination of the
foregoing. The Committee may provide that all or part of
the shares received upon the exercise of a Stock Option
which are paid for using Restricted Stock shall be
restricted in accordance with the original terms of the
award in question.
(e) No Shareholder Rights. An optionee shall have
no rights to dividends or other rights of a shareholder
with respect to shares subject to a Stock Option until
the optionee has given written notice of exercise and has
paid for such shares.
(f) Surrender Rights. The Committee may provide
that Stock Options may be surrendered for cash upon any
terms and conditions set by the Committee.
(g) Non-Transferability; Limited Transferability.
A Stock Option Agreement may permit an optionee to
transfer the Stock Option to his or her children,
grandchildren or spouse ("Immediate Family"), to one or
more trusts for the benefit of such Immediate Family
members, or to one or more partnerships in which such
Immediate Family members are the only partners if (i) the
agreement setting forth such Stock Option expressly
provides that such Stock Option may be transferred only
5
<PAGE> 21
with the express written consent of the Committee, and
(ii) the optionee does not receive any consideration in
any form whatsoever for such transfer. Any Stock Option
so transferred shall continue to be subject to the same
terms and conditions as were applicable to such Stock
Option immediately prior to the transfer thereof. Any
Stock Option not (x) granted pursuant to any agreement
expressly allowing the transfer of such Stock Option or
(y) amended expressly to permit its transfer shall not be
transferable by the optionee otherwise than by will or by
the laws of descent and distribution, and such Stock
Option shall be exercisable during the optionee's
lifetime only by the optionee.
(h) Termination of Relationship. If an optionee's
employment or other qualifying relationship with the
Company or a Related Company terminates by reason of
death, disability, retirement, voluntary or involuntary
termination or otherwise, the Stock Option shall be
exercisable to the extent determined by the Committee;
provided, however, that unless employment or such other
qualifying relationship is terminated for cause (as may
be defined by the Committee in connection with the grant
of any Stock Option), the Stock Option shall remain
exercisable (to the extent that it was otherwise
exercisable on the date of termination) for (A) at least
six (6) months from the date of termination if
termination was caused by death or disability or (B) at
least ninety (90) days from the date of termination if
termination was caused by other than death or disability.
The Committee may provide that, notwithstanding the
option term fixed pursuant to Section 6.2(b), a Stock
Option which is outstanding on the date of an optionee's
death shall remain outstanding for an additional period
after the date of such death.
(i) Option Grants to Participants Subject to Sect
ion 16. If for any reason any Stock Option granted to a
Participant subject to Section 16 of the Exchange Act is
not approved in the manner provided for in clause (d)(1)
or (d)(2) of Rule 16b-3, neither the Stock Option (except
upon its exercise) nor the Stock underlying the Stock
Option may be disposed of by the Participant until six
months have elapsed following the date of grant of the
Stock Option, unless the Committee otherwise specifically
permits such disposition.
6.3 Notwithstanding the provisions of Section 6.2, no
Incentive Stock Option shall (i) have an option price which is less
than one hundred percent (100%) of the Fair Market Value of the
Stock on the date of the award of the Stock Option (or less than
one hundred ten percent (110%) of the Fair Market Value of the
Stock on the date of award of the Stock Option if the Participant
owns, or would be considered to own by reason of Section 424(d) of
the Internal Revenue Code or any successor provision thereto, more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary of the
Company at the time of the grant of the Stock Option), (ii) be
exercisable more than ten (10) years after the date such Incentive
Stock Option is awarded (five (5) years after the date of award if
the Participant owns, or would be considered to own by reason of
6
<PAGE> 22
Section 424(d) of the Internal Revenue Code or any successor
provision thereto, more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any
parent or subsidiary of the Company at the time of the grant of the
Stock Option), (iii) be awarded more than ten (10) years after the
effective date of the Plan (or the latest restatement of the Plan)
or (iv) be transferable other than by will or by the laws of
descent and distribution. In addition, the aggregate Fair Market
Value (determined as of the time a Stock Option is granted) of
Stock with respect to which Incentive Stock Options granted after
December 31, 1986 are exercisable for the first time by a
Participant in any calendar year (under the Plan and any other
plans of the Company or any subsidiary or parent corporation) shall
not exceed $100,000.
SECTION 7. Restricted Stock.
Subject to the following provisions, all awards of Restricted
Stock to Participants shall be in such form and shall have such
terms and conditions as the Committee may determine:
(a) The Restricted Stock award shall specify the
number of shares of Restricted Stock to be awarded, the
price, if any, to be paid by the recipient of the
Restricted Stock and the date or dates on which, or the
conditions upon the satisfaction of which, the Restricted
Stock will vest. The vesting of Restricted Stock may be
conditioned upon the completion of a specified period of
service with the Company or a Related Company, upon the
attainment of specified performance goals or upon such
other criteria as the Committee may determine.
(b) Stock certificates representing the Restricted
Stock awarded to an employee shall be registered in the
Participant's name, but the Committee may direct that
such certificates be held by the Company on behalf of the
Participant. Except as may be permitted by the
Committee, no share of Restricted Stock may be sold,
transferred, assigned, pledged or otherwise encumbered by
the Participant until such share has vested in accordance
with the terms of the Restricted Stock award. At the
time Restricted Stock vests, a certificate for such
vested shares shall be delivered to the Participant (or
his or her designated beneficiary in the event of death),
free of all restrictions.
(c) The Committee may provide that the Participant
shall have the right to vote or receive dividends, or
both, on Restricted Stock. The Committee may provide
that Stock received as a dividend on, or in connection
with a stock split of, Restricted Stock shall be subject
to the same restrictions as the Restricted Stock.
(d) Except as may be provided by the Committee, in
the event of a Participant's termination of employment or
other qualifying relationship with the Company or a
Related Company before all of his or her Restricted Stock
has vested, or in the event any conditions to the vesting
of Restricted Stock have not been satisfied prior to any
deadline for the satisfaction of such conditions set
forth in the award, the shares of Restricted Stock which
have not vested shall be forfeited, and the Committee may
7
<PAGE> 23
provide that the lower of (i) any purchase price paid by
the Participant and (ii) the Restricted Stock's aggregate
Fair Market Value on the date of forfeiture shall be paid
in cash to the Participant.
(e) The Committee may waive, in whole or in part,
any or all of the conditions to receipt of, or
restrictions with respect to, any or all of the
Participant's Restricted Stock.
(f) If for any reason any Restricted Stock awarded
to a Participant subject to Section 16 of the Exchange
Act is not approved in the manner provided for in
clause (d)(1) or (d)(2) of Rule 16b-3, the Restricted
Stock may not be disposed of by the Participant until six
months have elapsed following the date of award of the
Restricted Stock, unless the Committee otherwise
specifically permits such disposition.
SECTION 8. Substitute Options in Business Combinations.
If the Company at any time should succeed to the business of
another corporation through a merger or consolidation, or through
the acquisition of stock or assets of such corporation, Stock
Options may be granted under the Plan to those employees of such
corporation or its related companies who, in connection with such
succession, become employees of the Company or a Related Company in
substitution for options to purchase stock of such acquired
corporation held by them at the time of such succession. The
Committee, in its sole discretion, shall determine the extent to
which such substitute Stock Options shall be granted (if at all),
the persons to receive such substitute Stock Options (who need not
be all optionees of such corporation), the number and type of Stock
Options to be received by each such person, the exercise price of
such Stock Options (which may be determined without regard to
Section 6) and the terms and conditions of such substitute Stock
Options; provided, however, that the exercise price of each
substitute Stock Option shall be an amount such that, in the sole
judgment of the Committee (and if the Stock Options to be granted
are intended to be Incentive Stock Options, in compliance with
Section 424(a) of the Code), the economic benefit provided by such
Stock Option is not greater than the economic benefit represented
by the stock option of the acquired corporation as of the date of
the Company's acquisition of such corporation. Any substitute
Stock Option granted under this Section 8 shall expire upon the
expiration date of such other stock option or, if earlier, ten (10)
years after the date of grant of the substitute Stock Option, and,
notwithstanding Section 6, shall be exercisable during the
period(s) in which the other stock option would have been
exercisable. Any provision of this Section 8 to the contrary
notwithstanding, no Stock Option shall be granted, nor any action
taken, permitted or omitted, which would have the effect of causing
the Plan or any awards hereunder to fail to qualify for exemption
under Rule 16b-3, without the express approval of the Board.
8
<PAGE> 24
SECTION 9. Election to Defer Awards.
The Committee may permit a Participant to elect to defer
receipt of an award for a specified period or until a specified
event, upon such terms as are determined by the Committee.
SECTION 10. Tax Withholding.
10.1 Each Participant shall, no later than the date as of
which the value of an award first becomes includible in such
person's gross income for applicable tax purposes, pay to the
Company, or make arrangements satisfactory to the Committee (which
may include delivery of shares of Stock already owned by the
optionee or subject to awards hereunder) regarding payment of, any
federal, state, local or other taxes of any kind required by law to
be withheld with respect to the award. The obligations of the
Company under the Plan shall be conditional on such payment or
arrangements, and the Company (and, where applicable, any Related
Company), shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment of any kind otherwise due to
the Participant.
10.2 To the extent permitted by the Committee, and subject to
such terms and conditions as the Committee may provide, a
Participant may elect to have the withholding tax obligation, or
any additional tax obligation with respect to any awards hereunder,
satisfied by (i) having the Company withhold shares of Stock
otherwise deliverable to such person with respect to the award or
(ii) delivering to the Company shares of unrestricted Stock.
SECTION 11. Amendments and Termination.
No awards may be granted under the Plan more than ten (10)
years after the date of approval of the Plan by the shareholders of
the Company. The Board may discontinue the Plan at any earlier
time and may amend it from time to time. No amendment or
discontinuation of the Plan shall adversely affect any award
previously granted without the award holder's written consent.
Amendments may be made without shareholder approval except (i) if
and to the extent necessary to satisfy any applicable mandatory
legal or regulatory requirements (including the requirements of any
stock exchange or over-the-counter market on which the Stock is
listed or qualified for trading and any requirements imposed under
any state securities laws or regulations as a condition to the
registration of securities distributable under the Plan or
otherwise), or (ii) as required for the Plan to satisfy the
requirements of Section 162(m), Section 422 or any other non-
mandatory legal or regulatory requirements if the Board of
Directors deems it desirable for the Plan to satisfy any such
requirements.
SECTION 12. Change of Control.
12.1 In the event of a Change of Control, unless otherwise
determined by the Committee at the time of grant or by amendment
(with the holder's consent) of such grant:
(a) all outstanding Stock Options awarded under the
Plan shall become fully exercisable and vested; and
9
<PAGE> 25
(b) the restrictions applicable to any outstanding
Restricted Stock awards under the Plan shall lapse and
such shares and awards shall be deemed fully vested.
12.2 A "Change of Control" shall be deemed to occur if:
(a) individuals who, as of July 19, 1996,
constitute the entire Board of Directors of the Company
("Incumbent Directors") cease for any reason to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director
subsequent to such date whose election, or nomination for
election by the Company's shareholders, was approved by
a vote of at least a majority of the then Incumbent
Directors (other than an election or nomination of an
individual whose assumption of office is the result of an
actual or threatened election contest relating to the
election of directors of the Company, as such terms are
used in Rule 14a-11 under the Exchange Act), also shall
be an Incumbent Director;
(b) the shareholders of the Company shall approve
(i) any merger, consolidation or recapitalization of the
Company (or, if the capital stock of the Company is
affected, any subsidiary of the Company) or any sale,
lease, or other transfer (in one transaction or a series
of transactions contemplated or arranged by any party as
a single plan) of all or substantially all of the assets
of the Company (each of the foregoing being an
"Acquisition Transaction") where (1) the shareholders of
the Company immediately prior to such Acquisition
Transaction would not immediately after such Acquisition
Transaction beneficially own, directly or indirectly,
shares representing in the aggregate more than fifty
percent (50%) of (A) the then outstanding common stock of
the corporation surviving or resulting from such merger,
consolidation or recapitalization or acquiring such
assets of the Company, as the case may be (the "Surviving
Corporation"), (or of its ultimate parent corporation, if
any) and (B) the Combined Voting Power (as defined below)
of the then outstanding Voting Securities (as defined
below) of the Surviving Corporation (or of its ultimate
parent corporation, if any) or (2) the Incumbent
Directors at the time of the initial approval of such
Acquisition Transaction would not immediately after such
Acquisition Transaction constitute a majority of the
Board of Directors of the Surviving Corporation (or of
its ultimate parent corporation, if any) or (ii) any plan
or proposal for the liquidation or dissolution of the
Company; or
(c) any Person (as defined below) shall become the
beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of
securities of the Company representing in the aggregate
forty percent (40%) or more of either (i) the then
outstanding shares of Company Common Stock or (ii) the
Combined Voting Power of all then outstanding Voting
Securities of the Company; provided, however, that
notwithstanding the foregoing, a Change of Control of the
10
<PAGE> 26
Company shall not be deemed to have occurred for purposes
of this clause (c) solely as the result of:
(1) an acquisition of securities by the
Company which, by reducing the number of shares of
Company Common Stock or other Voting Securities
outstanding, increases (i) the proportionate number
of shares of Company Common Stock beneficially
owned by any Person to forty percent (40%) or more
of the shares of Company Common Stock then
outstanding or (ii) the proportionate voting power
represented by the Voting Securities beneficially
owned by any Person to forty percent (40%) or more
of the Combined Voting Power of all then
outstanding Voting Securities; or
(2) an acquisition of securities directly
from the Company except that this paragraph (2)
shall not apply to:
(A) any conversion of a security that
was not acquired directly from the Company; or
(B) any acquisition of securities if the
Incumbent Directors at the time of the initial
approval of such acquisition would not
immediately after (or otherwise as a result
of) such acquisition constitute a majority of
the Board of the Company;
provided, however, that if any Person referred to
in clauses (1) or (2) of this clause (c) shall
thereafter become the beneficial owner of any
additional shares of Company Common Stock or other
Voting Securities of the Company (other than
pursuant to a stock split, stock dividend or
similar transaction or an acquisition exempt under
such clause (2)), then a Change of Control shall be
deemed to have occurred for purposes of this
clause (c).
For purposes of this Section 12.2:
(i) "Person" shall mean any individual, entity
(including, without limitation, any corporation,
partnership, trust, joint venture, association or
governmental body) or group (as defined in
Section 13(d)(3) or 14(d)(2) of the Exchange Act and the
rules and regulations thereunder); provided, however,
that "Person" shall not include the Company, any of its
subsidiaries, any employee benefit plan of the Company or
any of its majority-owned subsidiaries or any entity
organized, appointed or established by the Company or
such subsidiary for or pursuant to the terms of any such
plan.
(ii) "Voting Securities" shall mean all securities
of a corporation having the right under ordinary
circumstances to vote in an election of the Board of
Directors of such corporation.
11
<PAGE> 27
(iii) "Combined Voting Power" shall mean the
aggregate votes entitled to be cast generally in the
election of directors of a corporation by holders of then
outstanding Voting Securities of such corporation.
SECTION 13. General Provisions.
13.1 If the granting of any award under the Plan or the
issuance, purchase or delivery of Stock thereunder shall require,
in the determination of the Committee from time to time and at any
time, (i) the listing, registration or qualification of the Stock
subject or related thereto upon any securities exchange or over-
the-counter market or under any federal or state law or (ii) the
consent or approval of any government regulatory body, then any
such award shall not be granted or exercised, in whole or in part,
unless such listing, registration, qualification, consent or
approval shall have been effected or obtained on conditions, if
any, as shall be acceptable to the Committee. In addition, in
connection with the granting or exercising of any award under the
Plan, the Committee may require the recipient to agree not to
dispose of any Stock issuable in connection with such award, except
upon the satisfaction of specified conditions, if the Committee
determines such agreement is necessary or desirable in connection
with any requirement or interpretation of any federal or state
securities law, rule or regulation.
13.2 Nothing set forth in this Plan shall prevent the Board
from adopting other or additional compensation arrangements.
Neither the adoption of the Plan nor any award hereunder shall
confer upon any employee of the Company, or of a Related Company,
any right to continued employment, and no award under the Plan
shall confer upon any director any right to continued service as a
director.
13.3 Determinations by the Committee under the Plan relating
to the form, amount, and terms and conditions of awards need not be
uniform, and may be made selectively among persons who receive or
are eligible to receive awards under the Plan, whether or not such
persons are similarly situated.
13.4 No member of the Board or the Committee, nor any officer
or employee of the Company acting on behalf of the Board or the
Committee, shall be personally liable for any action, determination
or interpretation taken or made with respect to the Plan, and all
members of the Board or the Committee and all officers or employees
of the Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company
in respect of any such action, determination or interpretation.
SECTION 14. Provision of Financial Information.
Each Participant then holding unexercised Stock Options or
shares of Restricted Stock the restrictions on which have not then
lapsed shall be furnished with financial statements of the Company
at least annually not later than the time such financial statements
are delivered to shareholders of the Company.
12
<PAGE> 28
SECTION 15. Effective Date of Plan.
The Plan shall be effective upon the later of (i) the approval
of the Plan by the shareholders of the Company by a majority of the
votes cast at a duly held meeting of shareholders at which a quorum
representing at least a majority of the outstanding shares is,
either in person or by proxy, present and voting on the Plan,
(ii) August 15, 1996 and (iii) the date upon which the Company
becomes subject to the version of Rule 16b-3 adopted by the
Securities and Exchange Commission in Release No. 34-37260
promulgated under the Exchange Act.
The Plan was duly approved by the shareholders of the Company
on July 19, 1996. The Plan, as amended and restated, was most
recently adopted by the Board of Directors on September 17, 1996.
The Plan became effective on September 17, 1996, upon the election
by the Board on that date for the Company to become subject to the
version of Rule 16b-3 adopted by the Securities and Exchange
Commission in Release No. 34-37260 promulgated under the Exchange
Act.
<PAGE> 29
EXHIBIT 10.1
AMENDMENT TO LOAN AGREEMENT
Under the terms of the Loan Agreement by and between HemaCare Corporation
("HemaCare") and Bank Leumi Le-Israel, B.M. (the "Bank"), dated April 30,
1996, HemaCare is required to maintain Tangible Net Worth, as defined, of $2
million and a Net Worth Ratio of less than 2.00 to 1.00, after September 29,
1996.
The Tangible Net Worth and Net Worth Ratio provisions, as contained in the
"Affirmative Covenants - Financial Covenants and Ratios" section of the Loan
Agreement, are hereby amended to read as follows:
Tangible Net Worth. Maintain a minimum Tangible Net Worth of not less than
$370,000 through September 29, 1996 and $1,200,000 from September 30, 1996.
By March 31, 1997, it shall be increased to $1.8 million.
Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net Worth
of less than 3.00 to 1.00 after September 30, 1996. By March 31, 1997, it
shall be 2.5 to 1.00.
All other provisions of the Loan Agreement are to continue in force, and
nothing contained in this amendment shall be construed to (a) waive, limit,
prejudice or otherwise adversely affect any rights, remedies or powers of
Bank Leumi under the loan documents or (b) to waive any other defaults
whether known or unknown to the Bank under the loan documents.
LENDER: BORROWER:
Bank Leumi Le-Israel, B.M. HemaCare Corporation
By: /s/ Robert Cosof By: /s/ Hal I. Lieberman
------------------------- -----------------------
Authorized Officer Hal I. Lieberman, President
and CEO
BORROWER:
HemaCare Corporation
By: ______________________________
Hal I. Lieberman, President and CEO
<PAGE> 30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from unaudited
financial statements contained in Form 10-Q for the quarter ending September 30,
1996 and is qualified in its entirety to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,368,670
<SECURITIES> 0
<RECEIVABLES> 1,777,764
<ALLOWANCES> 87,858
<INVENTORY> 141,654
<CURRENT-ASSETS> 3,759,002
<PP&E> 2,657,710
<DEPRECIATION> 1,787,570
<TOTAL-ASSETS> 4,812,515
<CURRENT-LIABILITIES> 2,003,532
<BONDS> 0
0
0
<COMMON> 13,468,200
<OTHER-SE> (12,003,177)
<TOTAL-LIABILITY-AND-EQUITY> 4,812,515
<SALES> 2,625,725
<TOTAL-REVENUES> 2,625,725
<CGS> 2,261,726
<TOTAL-COSTS> 2,261,726
<OTHER-EXPENSES> 529,077
<LOSS-PROVISION> 87,858
<INTEREST-EXPENSE> 13,604
<INCOME-PRETAX> (171,636)
<INCOME-TAX> 0
<INCOME-CONTINUING> (171,636)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (171,636)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
