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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 June 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 August 12, 1996, 5,962,515 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--June 30, 1996 and December 31,
1995
Consolidated statements of operations--Three and six months
ended June 30, 1996 and 1995
Consolidated statements of cash flows--Six months ended June
30, 1996 and 1995
Notes to consolidated financial statements--June 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
- -----------
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
HEMACARE CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, December 31
1996 1995
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 996,000 $ 997,000
Accounts receivable, net of allowance for
doubtful accounts - $93,000 (1996) and
$95,000 (1995)............................. 1,331,000 1,627,000
Product inventories.......................... 149,000 141,000
Supplies..................................... 292,000 328,000
Prepaid expenses............................. 248,000 117,000
Note receivable from officer - current....... 15,000 15,000
------------- -------------
Total current assets.............. 3,031,000 3,225,000
Plant and equipment, net of accumulated
depreciation and amortization of
$1,693,000 (1996) and $1,513,000 (1995)....... 962,000 1,051,000
Note receivable from officer - non-current...... 83,000 94,000
Other assets.................................... 100,000 87,000
------------- -------------
$ 4,176,000 $ 4,457,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 532,000 $ 473,000
Accrued blood purchases...................... 248,000 252,000
Accrued payroll and payroll taxes............ 355,000 310,000
Other accrued expenses....................... 237,000 239,000
Current obligations under capital leases..... 219,000 209,000
Line of credit payable....................... 300,000 --
Reserve for discontinued operations-current.. 392,000 336,000
------------- -------------
Total current liabilities......... 2,283,000 1,819,000
Obligations under capital leases, net
of current portion............................ 639,000 649,000
Other accrued expenses - long-term.............. 173,000 163,000
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, 5,961,683
and 5,911,285 issued and outstanding in
1996 and 1995, respectively................ 12,313,000 12,179,000
Accumulated deficit.......................... (11,832,000) (10,953,000)
------------- -------------
Total shareholders' equity........ 481,000 1,226,000
------------- -------------
$ 4,176,000 $ 4,457,000
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Blood products..... $ 1,712,000 $ 1,642,000 $ 3,397,000 $ 3,351,000
Blood services..... 967,000 881,000 2,092,000 1,858,000
------------ ------------ ------------ ------------
Total revenues... 2,679,000 2,523,000 5,489,000 5,209,000
Operating costs and
expenses:
Blood products..... 1,797,000 1,343,000 3,662,000 2,618,000
Blood services..... 697,000 600,000 1,444,000 1,279,000
------------ ------------ ------------ ------------
Total operating
costs and
expenses........ 2,494,000 1,943,000 5,106,000 3,897,000
------------ ------------ ------------ ------------
Operating profit. 185,000 580,000 383,000 1,312,000
General and admini-
strative expense.... 599,000 472,000 1,235,000 962,000
Interest (income)
expense:
Interest income... (5,000) (11,000) (14,000) (26,000)
Interest expense.. 21,000 20,000 41,000 28,000
------------ ------------ ------------ ------------
Income from continuing
operations before
income taxes......... (430,000) 99,000 (879,000) 348,000
Provision for income
taxes................ -- -- -- --
Loss from discontinued
operations........... -- (238,000) -- (535,000)
------------ ------------ ------------ ------------
Net loss.............. $ (430,000) $ (139,000) $ (879,000) $ (187,000)
============ ============ ============ ============
Per share amounts:
Income from continuing
operations.......... $ (0.07) $ 0.02 $ (0.14) $ 0.06
Loss from discontinued
operations.......... -- (0.04) -- (0.09)
------------ ------------ ------------ ------------
Net loss............. $ (0.07) $ (0.02) $ (0.14) $ (0.03)
============ ============ ============ ============
Weighted average
common and common
equivalent shares
outstanding........ 6,149,905 5,634,480 6,125,751 5,512,930
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................... $ (879,000) $ (187,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........... 169,000 258,000
Provision for losses on accounts
receivable............................. -- 30,000
Changes in operating assets and liabilities:
Decrease in accounts receivable.............. 296,000 437,000
Increase in inventories, supplies and
prepaid expenses........................... (103,000) (201,000)
Increase in other assets, net................ (13,000) (2,000)
Increase (decrease) in accounts payable
and accrued expenses....................... 98,000 (459,000)
Increase (decrease) in other accrued
expenses - long-term....................... 10,000 (43,000)
Reserve for discontinued operations.......... 56,000 --
------------ ------------
Net cash used in operating activities........ (366,000) (167,000)
------------ ------------
Cash flows from investing activities:
Decrease (increase) in note receivable from
officer.................................... 11,000 (13,000)
Decrease in short-term investment............ -- 295,000
Purchase of plant and equipment, net......... (89,000) (41,000)
------------ ------------
Net cash (used in) provided by investing
activities................................. (78,000) 241,000
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock....... 134,000 560,000
Proceeds from line of credit................. 300,000 --
Principal payments on line of credit and
capital leases............................. (91,000) (71,000)
------------ ------------
Net cash provided by financing activities.... 343,000 489,000
------------ ------------
Increase (decrease) in cash and cash
equivalents................................ (1,000) 562,000
Cash and cash equivalents at beginning of
period..................................... 997,000 786,000
------------ ------------
Cash and cash equivalents at end of period... $ 996,000 $ 1,348,000
============ ============
Supplemental disclosure:
Interest paid................................ $ 41,000 $ 28,000
============ ============
Items not impacting cash flows:
Increase in capital lease obligations........ $ 91,000 $ 167,000
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE> 6
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 six months ended June 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"). The Company had a license agreement with Medicorp,
Inc. ("Medicorp") for the rights to the United States patent to
commercialize Immupath. In November 1995, the Company's Board of
Directors decided to discontinue the operations of HBI. (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. In June 1996, Gateway's operational focus was redirected to
providing autologous and directed blood donation services and single
donor platelet products to specific hospital customers.
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 reserve for estimated
operating losses from the November 30, 1995 measurement date through
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<PAGE> 7
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 ended June 30, 1995
was $238,000. For the three-month and six-month periods ended June 30,
1996, the Company's reserve for discontinued operations increased by
$137,000 and $56,000, respectively, as the result of favorable variance
in estimated operating losses. A reserve in the amount of $1,035,000
was established for estimated HBI operating losses during the period of
disposal. Included in this reserve was $600,000 for the resolution of
contingent liabilities in connection with the Medicorp license agreement
and Medicorp warrants, none of which will be required to be applied for
this purpose. (See Note 5). The Company has been actively pursuing a
sale of HBI's research and development and associated specialty plasma
assets, and 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.
Final closing of the sale is contingent upon obtaining FDA approval to
transfer the licenses to the purchaser and certain other conditions.
Although subject to a number of factors beyond the Company's control,
management believes that the disposal of the remainder of the
discontinued HBI operations will be substantially completed during the
third or fourth quarter of 1996.
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. Effective May 1, 1996, the credit line was renewed through
April 30, 1997. Under the terms of the new credit line agreement, 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, defined, of $500,000 and a tangible net worth of not less than
$370,000 prior to September 30, 1996 and not less than $2 million
thereafter. At June 30, 1996, the Company's defined working Capital was
$500,000. The credit line agreement also requires that the Company
achieve defined operating objectives in order to make loan draws.
Although the Company was in compliance with all covenants of its
borrowing agreement at June 30, 1996, further borrowing is
restricted due to the failure to achieve the defined operating
objectives, until tangible net worth of $2 million is achieved. In
order to comply with the tangible net worth covenant after September
1996, the Company will be required to increase its shareholders' equity
through the sale of additional equity securities. Interest on credit
line borrowings is at the lender's prime rate (8.25% at June 30, 1996)
plus one-half of a percentage point. As of June 30, 1996, $300,000 was
outstanding under the line of credit.
Note 4 - Shareholders' Equity
- -----------------------------
In April 1994, HemaCare sold 250,000 units consisting of one share of
common stock and three warrants to purchase additional shares (at $4.00
per unit) in an offshore transaction, from which it received net
proceeds of approximately $900,000. The second group of 250,000
warrants was fully exercised in the first quarter of 1995 and yielded
net proceeds of approximately $350,000. In consideration of this
exercise, which was made 45 days prior to the expiration date, a fourth
group of 250,000 warrants exercisable at a price of $3.50 per share and
expiring in December 1998 was granted to the purchaser. The third group
of 250,000 warrants was exercised in June and July 1995, yielding net
proceeds of approximately $390,000. The fourth group of options remains
outstanding at June 30, 1996. In connection with the sale of the units
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<PAGE> 8
and the subsequent exercise of related warrants, the Company granted to
the finder warrants to purchase 50,000 shares of the Company's common
stock (the "Finder Warrants"). The Finder Warrants expire five years
from their issue date and are exercisable at prices ranging from $1.45
to $4.00. Up to 12,500 additional Finder Warrants may be issued at
$3.50 per share, depending on the number of the fourth group of 250,000
warrants which are exercised.
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, 1996.
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. 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 September 1995, the Company entered into a letter of intent to make
royalty payments to certain parties in consideration of certain
commitments to the establishment of Gateway. The definitive agreement
providing for the payment of these royalties has not been completed due
to a dispute with one of the parties, which is now the only remaining
party who may be entitled to royalty payments. The letter of intent
provides for cash royalties of up to 20% of Gateway's cash flow, as
defined, and shares of HemaCare common stock with a value equal to the
cash royalty, up to a maximum of 500,000 shares of HemaCare common
stock. If a definitive royality agreement is entered into, royalty
payments would commence after the Company recovers its initial
investment in Gateway, including capital expenditures and operating
deficits, and terminate in 2003.
In November 1995, the Company terminated its license agreement with
Medicorp (Note 1) due to a 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 under the license
agreement of approximately $425,000 and that its warrants remain
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. The Medicorp settlement agreement does not require
any monetary settlement payments by either party.
In February 1996, the Company terminated an agreement with a vendor,
based on an unsatisfactory level of performance of the vendor's product.
The vendor is disputing the basis for the termination. The Company
intends to vigorously defend any legal action which may result from this
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<PAGE> 9
dispute, and the resolution of this matter is not expected to have a
material impact on the Company's financial position or results of
operations.
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 for the quarters ended June 30, 1996 and 1995 was
$2,112 and $2,426, 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 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 Six Months ended June 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 and six month periods ended June 30, 1996,
increased 6% ($156,000) and 5% ($280,000), respectively. The Company's
operating profit as a percentage of sales ("profit margin") decreased to
7% in the three and six month periods of 1996 from 23% in the three
month period and 25% in the six month period of 1995, due to start-up
losses incurred by the Expansion Operations. Operating losses from
Expansion Operations were $420,000 for the three months and $979,000 for
the six months ended June 30, 1996. The Company's profit margin before
the effect of the Expansion Operations was 26% for the three month
period and 27% for the six month period ended June 30, 1996.
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<PAGE> 10
Blood Products
Blood product revenue increased by 4% for the three months and 1% for
the six months ended June 30, 1996. The increases were due to revenue
from Expansion Operations, partially offset by a decrease in revenue
from other product sales, primarily due to a lower volume of platelet
sales. Platelet sales volumes declined by 12% in the three month and
13% in the six month period of 1996, primarily due to competitive
pressures.
The blood product operating costs and expenses exceed blood product
revenue for the 1996 three and six month periods due to the Expansion
Operations. Before the effect of the Expansion Operations, the blood
product profit margin increased to 24% for the second quarter 1996 as
compared to 18% in 1995 and to 23% for the 1996 six months as compared
to 22% in 1995. The higher 1996 profit margins were due to (1) a
decrease in the percentage of lower margin, imported products sold and
(2) a higher ratio of products produced per donation, in the 1996
quarter.
Blood Services
For the three-month and six-month periods ended June 30, 1996, blood
services revenues increased 10% ($86,000) and 13% ($234,000),
respectively, primarily as a result of an 8% increase in the number of
therapeutic procedures performed in both periods. The second quarter
1996 increase in procedures was comprised of a 9% increase in Los
Angeles partially offset by a 16% decrease in Atlanta. The Atlanta
operation was closed in July 1996.
The profit margin on blood services decreased to 28% in the second
quarter of 1996 from 32% in the comparable period of 1995. This
decrease was primarily due to the decline in Atlanta business. The blood
services profit margin for the first six months of 1996 and 1995 was
31%.
General and Administrative Expense
- ----------------------------------
General and administrative expense increased 27% ($127,000) for the
three months and 28% ($273,000) for the six months ended June 30, 1996.
The increase was primarily due to changes in the Company's corporate
structure initiated in late 1995, in conjunction with its national
expansion strategy, including the addition of a business development
department. However, since the timing of additional expansion is
currently uncertain and dependent upon improved operating performance
and increased capitalization, the Company recently implemented a plan to
reduce general and administrative expense. (See "Liquidity and Capital
Resources".)
Discontinued Operations
- -----------------------
In November 1995, the Company discontinued its Immupath related 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 expected proceeds 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. In July 1996, the Medicorp dispute
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<PAGE> 11
was settled without any payment by the Company. The asset sale is
expected to close in the third or fourth quarter of 1996, at which time
the disposal of the discontinued operations will be substantially
complete. If at that time 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. 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 June 30, 1996, the Company had cash and cash equivalents of $996,000
and working capital of $748,000. 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 product prices to its primary, high volume customers, as a part
of its overall marketing strategy. The price reductions are expected to
increase the number of products sold. However, profit margins on these
products will be 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
rescheduled 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.
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 new credit
line agreement, 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, defined, of $500,000 and a tangible
net worth of not less than $370,000 prior to September 30, 1996 and not
less than $2 million thereafter. At June 30, 1996, the Company's
defined Working Capital was $500,000. The credit line agreement also
requires that the Company achieve defined operating objectives in order
to make loan draws. Although the Company was in compliance with all
covenants of its borrowing agreement at June 30, 1996, further
borrowing is restricted due to the failure to achieve the defined
operating objectives, until tangible net worth of $2 million is achieved.
In order to comply with the tangible net worth covenant after September 1996,
the Company will be required to increase its shareholders' equity through
the sale of additional equity securities. The Company is implementing a
compliance plan, but no assurance can be given that this plan will be
completed on a timely basis or at all and, if completed, will result in
one or more financing transactions adequate to satisfy the credit line
covenants. At June 30, 1996, $300,000 was outstanding on the credit
line.
The Company's common stock is listed on the NASDAQ SmallCap Market. To
maintain that listing, the Company's "capital and surplus," as defined,
must be at least $1 million. At June 30, 1996, the Company had capital
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<PAGE> 12
and surplus of approximately $481,000. NASDAQ has granted the Company
an exception to the capital and surplus requirement, subject to
completing certain steps to increase its capital and surplus to $2
million by August 16, 1996. On July 19, 1996, the Company resolved a
dispute which is expected to result in a $600,000 increase in its
capital and surplus on a pro forma basis (See "Discontinued Operations").
The Company is pursuing a plan to meet the $2 million capital and surplus
requirement. However, there can be no assurance that the Company can
complete the required steps by August 16, 1996 or at all. If the Company's
stock is no longer listed on NASDAQ's SmallCap Market or a national securities
exchange, the Company's ability to raise capital may be impaired.
The USC Blood Center serves the USC/Norris Comprehensive Cancer Center
and Hospital and the USC University Hospital (the "Hospitals"). The USC
Blood Center operates under the terms of the Company's three-year
agreements with the USC Hospitals. These agreements designate the Company
as the primary provider of blood products and services to the Hospitals,
and the Company is entitled to recoup the cost of tenant improvements for
the USC Blood 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 Center. On a stand-alone
basis, the USC Blood Center is experiencing start up losses, in
accordance with original expectations. When the USC Blood Center reaches
stabilized operations, it is expected to be a profitable, stand-alone
operation. To date, blood donations made at the USC Blood 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 and the
initiation of blood drives. 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, in which efforts the Company competed
directly with the American Red Cross (the "ARC") on a regional basis, to
a more profitable mix of blood products and services provided for
specific hospital customers. As a result, the cost of Gateway's
operations were reduced, including a substantial reduction in personnel.
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 will be dependent on a number of factors and
circumstances, many of which will be 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.
In many instances, the Company competes against the 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 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 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 Los
Angeles 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. A February 1997 trial date has
been set. The Company cannot predict the outcome of this lawsuit at this
time.
12
<PAGE> 13
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 was
largely responsible for the redirection of Gateway's operations.
Management is evaluating a number of opportunities to expand its
operations by packaging the Company's capabilities in a blood management
program (the "Blood Management Program") that responds to and solves
customers' problems. The USC Blood Center program is a prototype of
this approach, which enables a hospital to gain control over its blood
utilization and costs by providing the benefits of an in house blood
program without the associated regulatory and management burdens and
financial risks. The Company's blood management programs are being
marketed to:
- - Existing customers in Southern California and St. Louis
metropolitan area who are buying various blood products and
services from the Company in a traditional buyer-vendor
relationship and
- - 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.
Further expansion will require that the Company obtain additional
financing and overcome its competitors, which in many instances, will be
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 HBI's 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 $56,000 of the reserve was funded in the six months ended
June 30, 1996, net of amounts received from asset sales. In June 1996,
the Company signed an amended agreement to sell most of its research and
development assets. The asset sale is expected to close in the third or
fourth quarter of 1996. However closure of the sale is contingent upon
obtaining FDA approval to transfer certain of the assets to the
purchaser and certain other conditions. Should the FDA fail to approve
the transfer, the Company would be obligated to return a portion of
sales proceeds paid by the purchaser in June 1996. (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.
In February 1996, the Company terminated an agreement with a vendor,
based on the inability of the vendor's product to perform to the
standards outlined in the agreement. The vendor is disputing the basis
13
<PAGE> 14
for the termination, and the parties are discussing a negotiated
settlement. However, if an acceptable settlement cannot be achieved,
the Company intends to vigorously defend any legal action which may
result from the dispute. In either event, the resolution of this matter
is not expected to have a material impact on the Company's financial
position or future 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 and, if necessary, the closure of Gateway, 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
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 on behalf of the Company. These risks and
uncertainties include, but are not limited to, those relating to the
ability of the Company to increase its shareholders' equity through the
sale of equity securities, 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
- ------- ---------------------------------------------------
a. The Company's Annual Meeting of Shareholders (the
"Meeting") was held on July 19, 1996.
c. The following table shows the tabulation of votes for all
matters put to vote at the Company's Annual Meeting of
Shareholders held July 19, 1996.
14
<PAGE> 15
<TABLE>
<CAPTION>
Against/ Broker
Matters Put to Vote For Withheld Abstentions Non-Votes
-------------------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Election of Four Directors
Thomas M. Asher 4,528,423 210,590 0 0
Hal I. Lieberman 4,709,753 29,260 0 0
Glenn W. Bartlett 4,691,753 47,260 0 0
Jon B. Victor 4,707,608 31,405 0 0
Approval of the Company's
1996 Stock Incentive Plan 2,750,584 245,935 42,702 1,699,792
</TABLE>
Item 5. Other Information
- ------- -----------------
On July 29, 1996, Joshua Levy resigned as Senior Vice
President of the HemaCare Corporation. Dr. Levy will continue
in his position as Medical Director of the Company. On August
9, 1996, Thomas A. Asher, Ph.D. resigned as a Director of the
Company. Dr. Asher served as Chairman of the Board from 1986
to his resignation. Glenn W. Bartlett, was elected as the new
Chairman of the Board on that date. Dr. Bartlett has served
as a Director of the Company since 1991. Also, on August 9,
1996, Sharon C. Kaiser, Vice President and Chief Financial
Officer was elected as a Director of the Company.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
a. Exhibits
2.1 Amended and Restated Asset Purchase Agreement
between the Registrant, HemaBiologics, Inc. (a
wholly owned subsidiary of the Registrant) and
Atopix Pharmaceuticals Corporation, dated June 26,
1996. See also Exhibit 99.1.
4.1 1996 Stock Incentive Plan of the Registrant--incorporated
by reference to the Supplemental Proxy Statement of the
Registrant dated June 14, 1996.
10.1 Settlement Agreement between the Registrant and
Medicorp Inc.--incorporated by reference to Exhibit
10.1 to Form 8-K of the Registrant dated July 19,
1996.
27 Financial Data Schedule for the Quarter Ending June
30, 1996.
99.1 Agreement to Furnish Exhibits and Schedules.
b. On July 31, 1996, HemaCare Corporation filed a Report on Form
8-K dated July 19, 1996. The Company reported Under Item 5
that the Company entered into Settlement Agreement and Mutual
15
<PAGE> 16
Release with Medicorp Inc. resolving all disputes between them
related to their February 1993 License Agreement.
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: August 13, 1996 HEMACARE CORPORATION
--------------------- -----------------------------
(Registrant)
\s\ Sharon C. Kaiser
------------------------------
Sharon C. Kaiser, Vice President,
Finance and Chief Financial Officer
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Method of Filing
----------------
<S> <C> <C>
2.1 Asset Purchase Agreement among the Registrant,
HemaBiologics, Inc. (a wholly owned subsidiary of
the Registrant) and Atopix Pharmaceuticals
Corporation, dated May 2, 1996......................... Filed herewith electronically
27 Financial Data Schedule for the quarter ending
March 31, 1996......................................... Filed herewith electronically
99.1 Agreement to Furnish Exhibits and Schedules............ Filed herewith electronically
17
</TABLE>
<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 June 30,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 995,626
<SECURITIES> 0
<RECEIVABLES> 1,424,820
<ALLOWANCES> 93,438
<INVENTORY> 149,495
<CURRENT-ASSETS> 3,031,501
<PP&E> 2,654,979
<DEPRECIATION> 1,693,377
<TOTAL-ASSETS> 4,175,950
<CURRENT-LIABILITIES> 2,282,672
<BONDS> 0
0
0
<COMMON> 12,312,933
<OTHER-SE> (11,831,539)
<TOTAL-LIABILITY-AND-EQUITY> 4,175,950
<SALES> 2,678,816
<TOTAL-REVENUES> 2,678,816
<CGS> 2,494,142
<TOTAL-COSTS> 2,494,142
<OTHER-EXPENSES> 599,052
<LOSS-PROVISION> 93,438
<INTEREST-EXPENSE> 21,234
<INCOME-PRETAX> (430,249)
<INCOME-TAX> 0
<INCOME-CONTINUING> (430,249)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (430,249)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
EXHIBIT 2.1
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
THIS AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (this
"Agreement") is made and entered into as of the 26th day of June
1996, by and among HEMABIOLOGICS, INC., a California corporation
("Seller"), HEMACARE CORPORATION, a California corporation of which
Seller is a wholly owned subsidiary ("Parent"), and ATOPIX
PHARMACEUTICALS CORPORATION, a California corporation ("Buyer").
This Agreement is being entered into for the purpose of amending
and restating the Asset Purchase Agreement, dated as of May 2,
1996, among the parties to this Agreement (the "Original
Agreement").
WITNESSETH:
WHEREAS, Seller is the owner of United States Food and Drug
Administration ("FDA") establishment license number 0641-004
bearing the FDA registration number 2077790 (the "San Diego
Establishment License"), under which Seller conducts operations at
3538 30th Street, San Diego, California 92104 (the "San Diego
Center");
WHEREAS, Seller is also the owner of a number of FDA product
licenses associated with the San Diego Establishment License, as
set forth on Schedule A-1 attached to this Agreement (the "San
Diego Product Licenses" and collectively with the San Diego
Establishment License, the "San Diego Licenses");
WHEREAS, Seller is the owner of FDA establishment license
number 0641-007 bearing the FDA registration number 2050075 (the
"Sherman Oaks Establishment License"), under which Seller conducts
operations at its headquarters facilities at 4954 Van Nuys
Boulevard, Sherman Oaks, California 91403 (the "Sherman Oaks
Center");
WHEREAS, Seller is also the owner of a number of FDA product
licenses associated with the Sherman Oaks Establishment License, as
set forth on Schedule A-2 attached to this Agreement (the "Sherman
Oaks Product Licenses" and collectively with the Sherman Oaks
Establishment License, the "Sherman Oaks Licenses") (the San Diego
Licenses and the Sherman Oaks Licenses are sometimes collectively
referred to herein as the "Licenses");
WHEREAS, Seller owns a partially completed biopharmaceutical
manufacturing facility in Valencia, California, at which it has
certain items of equipment; and
WHEREAS, Seller desires to sell to Buyer the Licenses, certain
assets of the San Diego Center and certain of the equipment at its
Valencia, California facility, and Buyer desires to purchase such
assets from Seller and to assume certain liabilities of Seller in
connection therewith, on the terms set forth in this Agreement.
A-1
<PAGE> A-2
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Purchase and Sale of Purchased Assets. Seller hereby agrees to
sell, transfer, assign and convey to Buyer at the Initial Closing
and the Second Closing (each as defined below), and Buyer hereby
agrees to purchase from Seller at the Initial Closing and the
Second Closing, all of Seller's right, title and interest in and
to:
(a) At the Initial Closing:
(i) the equipment (the "Valencia Equipment") located at
Seller's Valencia, California facility, located at
24963 Tibbits Avenue (the "Valencia Premises"),
described on Schedules D-1 and D-2 attached hereto;
provided, however, that the equipment described on
Schedule D-1 (the "Clean Room Equipment") shall be
subject to purchase and sale under this Agreement
only if (A) it can be removed without damage to the
Valencia Premises and without impairing the ability
of Seller to sublet the Valencia Premises or
(B) Buyer pays for the costs of restoring the
Valencia Premises; and
(ii) all claims and rights against third parties
relating to the Valencia Equipment, including
without limitation manufacturers' and vendors'
warranties (to the extent that such warranties are
transferable by Seller to Buyer), but excluding
claims under any insurance policies maintained by or
for the benefit of Seller.
(b) At the Second Closing:
(i) the Licenses;
(ii) the rights of Seller and/or Parent as lessee to use
and obtain title to the seven (7) Haemonetics PCS
Ultralite plasma collection machines (serial numbers
92M162, 92M168, 92M151, 92M150, 92M170, 93L172 and
93L164) located at the San Diego Center (the
"Haemonetics Equipment");
(iii) the rights of Seller under that certain Office
Lease dated as of November 17, 1993, between Harold
D. and Anne M. West as landlord (who have assigned
their rights thereunder to Logan Heights Family
Health Center) and Seller as tenant, for the
premises in which the San Diego Center currently
operates and which expires January 31, 1999 (the
"Lease"), which include the rights of Seller to any
and all deposits held by the landlord under the
Lease;
A-2
<PAGE> A-3
(iv) the furniture, fixtures, leasehold improvements and
equipment at the San Diego Center described on
Schedule B attached hereto (the "Other San Diego
Equipment");
(v) those items of materials inventory of the type
described on Schedule C attached hereto as shall be
on hand at the San Diego Center on the Second
Closing Date (as defined below), with no assurance
or guaranty of any minimum inventory to be on hand
on the Second Closing Date;
(vi) all plasma inventory on hand at the San Diego
Center on the Second Closing Date other than any
plasma inventory (including work in progress) that
was on hand on or prior to the Initial Closing Date
(as defined below), and all accounts receivable of
the San Diego Center other than those relating to
any plasma inventory (including work in progress)
that was on hand on or prior to the Initial Closing
Date;
(vii) originals or copies of business and regulatory
records maintained by Seller with respect to the
assets being purchased hereunder and Seller's
operations under the Licenses (including donor lists
and records, inspection records and FDA-approved
Standard Operating Procedures) that are necessary
for Buyer to continue the operation of the San Diego
Center;
(viii) all of Seller's rights under the equipment
leases, purchase obligations, equipment maintenance
and service contracts (unless such maintenance and
service contracts are cancellable by Seller without
penalty upon thirty (30) days' notice or less)
described on Schedule E-1 attached hereto, and all
open contracts and purchase orders for disposable or
consumable supplies for the San Diego Center as of
the Second Closing Date (collectively, the "Assumed
Contracts"); and
(ix) all claims and rights against third parties
relating to the assets being purchased hereunder at
the Second Closing, including without limitation
manufacturers' and vendors' warranties (to the
extent that such warranties are transferable by
Seller to Buyer), but excluding claims under any
insurance policies maintained by or for the benefit
of Seller.
The foregoing assets are referred to in this Agreement as the
"Purchased Assets." The current equipment lease between Seller or
Parent and Haemonetics (the "Haemonetics Lease") provides for the
lease of equipment in addition to the Haemonetics Equipment, with
respect to which neither the rights nor the obligations of Seller
or Parent are being transferred to or assumed by Buyer. The
Haemonetics Lease provides for Parent and/or Seller to purchase at
specified prices certain minimum quantities of Haemonetics
consumable kits (Haemonetics list number 525) in lieu of lease
payments, which obligations are stated on an aggregate basis rather
than on a per machine basis. As of the date of this Agreement,
Seller and Parent have not satisfied these minimum purchase
obligations.
A-3
<PAGE> A-4
2. Excluded Assets. The Purchased Assets shall include only
those assets described in Section 1 and shall not include any other
assets of Seller or Parent (all of which excluded assets are herein
referred to as the "Excluded Assets"). Without limiting the
description of the Excluded Assets, it is hereby agreed that all of
the following shall be Excluded Assets:
(a) all cash, accounts receivable (other than those
described in Section 1((b)(vi)), bank accounts and
other cash assets;
(b) all plasma inventories (including work in progress)
in existence on or prior to the Initial Closing Date;
(c) the Clean Room Equipment to the extent that it is
not subject to purchase and sale under this Agreement
as provided in Section 1(a)(i);
(d) Seller's rights under the lease for the Valencia
Premises;
(e) any tangible or intangible assets of Seller or
Parent located or held for use at the Sherman Oaks
Center other than the Sherman Oaks Licenses;
(f) Seller's rights under any insurance policies with
respect to any of the Purchased Assets, including
without limitation rights to any premiums paid in
respect of any period following the applicable Closing
Date; and
(g) Seller's rights under the contracts related to the
operations of the San Diego Center described on
Schedule E-2 attached to this Agreement (the
"Terminable Contracts"), which will be terminated by
Seller on or about the Second Closing Date.
Buyer acknowledges its awareness and understanding that
some of the Terminable Contracts, as designated on
Schedule E-2 (the "Essential Contracts"), are essential to
the operations and/or regulatory compliance of the San
Diego Center.
3. Assumed Liabilities. Buyer shall assume as of the Second
Closing and perform when due:
(a) Seller's obligations to be performed after the
Second Closing Date under or in connection with the
Lease, the Assumed Contracts and the Licenses;
(b) Seller's obligations under the Haemonetics Lease
with respect to the Haemonetics Equipment, as it shall
be amended by the Haemonetics Amendment as contemplated
by Section 10(a)(v); and
(c) all trade payables of or relating to the San Diego
Center in respect of the period following the Second
Closing Date.
A-4
<PAGE> A-5
The foregoing obligations and liabilities are referred to in this
Agreement as the "Assumed Liabilities." Buyer shall not assume or
be bound by any duties, obligations or liabilities of Seller in
existence on the Second Closing Date of any kind or nature, known,
unknown, contingent or otherwise, other than the Assumed
Liabilities.
4. Purchase Prices and Terms of Payment; Payment of Outstanding
Obligation by Buyer to Seller.
(a) Purchase Prices. The purchase price for the
Purchased Assets other than the Valencia Equipment and the Sherman
Oaks Licenses (the "San Diego Assets") shall be One Hundred Sixteen
Thousand Dollars ($116,000) (the "San Diego Purchase Price"), of
which Twenty-One Thousand Dollars ($21,000) is allocated to the San
Diego Assets described in Sections 1(b)(iv) and 1(b)(v) and Ninety-Five
Thousand Dollars ($95,000) is allocated to the other San Diego Assets.
The purchase price for the Sherman Oaks Licenses (the "Sherman Oaks Purchase
Price") shall be Twenty-Five Thousand Dollars ($25,000). The purchase price
for the Valencia Equipment(the "Valencia Purchase Price") shall be Two
Hundred Thousand Dollars ($200,000), and there shall be no deduction from
the Valencia Purchase Price if the Clean Room Equipment becomes part of
the Excluded Assets. The San Diego Purchase Price, the Sherman Oaks Purchase
Price and the Valencia Purchase Prices are collectively referred to in this
Agreement as the "Purchase Price." Each party agrees to report the purchase
and sale of the Purchased Assets for federal and state tax purposes in
accordance with the allocation of the Purchase Price set forth herein.
(b) Payment of San Diego and Sherman Oaks Purchase
Prices. Each of the San Diego Purchase Price and the Sherman Oaks
Purchase Price shall be payable by certified or bank cashier's
check at the Initial Closing.
(c) Payment of Valencia Purchase Price and Security
Agreement. The Valencia Purchase Price shall be evidenced by a
negotiable promissory note (the "Note") delivered at the Initial
Closing substantially in the form attached hereto as Exhibit 1 and
otherwise satisfactory in form and substance to Seller. The Note
and the other obligations of Buyer to Seller under this Agreement
with respect to the Valencia Equipment will be secured by a first
in priority security interest in the Valencia Assets, which shall
be granted by Buyer to Seller pursuant to a Security Agreement (the
"Security Agreement") entered into at the Initial Closing
substantially in the form attached hereto as Exhibit 2 and
otherwise satisfactory in form and substance to Seller. Prior to
the Initial Closing, Buyer and Seller shall execute a financing
statement on Form UCC-1 in form and substance satisfactory to Buyer
(the "Financing Statement"), which Financing Statement shall be
recorded in the Office of the Secretary of State of California
prior to the Closing Date.
(d) Payment of Outstanding Balance. Buyer remains
indebted to Seller in the amount of Fourteen Thousand
Dollars ($14,000) for prior plasma collection and storage services.
This balance shall be paid in cash on the earlier of the Initial
Closing Date and June 30, 1996. If paid at the Initial Closing,
this payment shall be made by certified or bank cashier's check.
Upon the payment in full of this balance, Seller shall deliver
possession to Buyer of the plasma so collected and stored by
Seller. Any payments made by Buyer to Seller for prior plasma
A-5
<PAGE> A-6
collection and storage services, including a $40,000 payment made
in March 1996 and the $14,000 balance referenced above shall not be
refundable in the event of the termination of this Agreement for
any reason.
5. Delivery of Valencia Equipment. At the Initial Closing, Seller
shall deliver possession of the Valencia Equipment to Buyer at the
Valencia Premises. Buyer agrees immediately thereafter to accept
delivery of the Equipment and to remove it, at Buyer's sole risk
and expense, from such location. Notwithstanding any other
provision of this Agreement or the Security Agreement to the
contrary, all risk of loss of the Valencia Equipment shall pass to
and shall be assumed by Buyer as of the Initial Closing. If the
Valencia Equipment is not removed by Buyer from the Valencia
Premises within fifteen (15) days after the Initial Closing Date,
Buyer shall pay to Seller One Hundred and 00/100 Dollars ($100.00)
per day for each day thereafter until the date of removal of all of
the Valencia Equipment from the Valencia Premises; provided,
however, that if Seller needs to remove the Valencia Equipment in
order to sublet, assign or terminate its lease for all or any
portion of its space in Valencia, California, Buyer shall reimburse
Seller for the actual costs incurred by Seller to move and store
the Valencia Equipment in lieu of such payment. Such
reimbursements shall be made as such costs are incurred by Seller.
Seller may withhold delivery of possession of the Valencia
Equipment pending the satisfaction of any amounts due from Buyer
under this Section.
6. Equipment Sold "As Is". Seller is selling the Haemonetics
Equipment, the Other San Diego Equipment and the Valencia Equipment
(collectively, the "Equipment") and Buyer agrees to accept the
Equipment, "As Is." Buyer represents and warrants that it has had
sufficient opportunity to inspect the Equipment to its
satisfaction. WITH RESPECT TO THE EQUIPMENT, SELLER HEREBY
DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT
NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE. SELLER FURTHER HEREBY DISCLAIMS ANY AND
ALL LIABILITY FOR CONSEQUENTIAL AND INCIDENTAL DAMAGES ARISING OUT
OF OR IN CONNECTION WITH ANY CLAIM WITH RESPECT TO THE EQUIPMENT,
INCLUDING BUT NOT LIMITED TO CLAIMS OF NEGLIGENCE, STRICT LIABILITY
IN TORT OR BREACH OF CONTRACT.
7. Transfer of Licenses; Additional Authorizations.
(a) Transfer of Licenses. Promptly following the
execution of the Original Agreement, Seller prepared and submitted
applications to the FDA seeking amendments to the Licenses for the
assignment and transfer of the Licenses to Buyer. Seller has
requested the FDA to register the assignment and transfer of the
San Diego Licenses and the Sherman Oaks Licenses as of the same
effective date. Buyer has cooperated and shall continue to
cooperate with Seller in the preparation and submission of these
applications as requested by Seller. Seller agrees to use
commercially reasonable efforts to seek the transfer and assignment
of the Licenses to Buyer as soon as possible. If the FDA amends
the Licenses to give effect to the transfer of the Licenses from
Seller to Buyer and this Agreement is subsequently terminated prior
to Second Closing for any reason, Buyer and Seller shall use their
A-6
<PAGE> A-7
best efforts to cause the FDA to amend the Licenses to transfer
them back to Seller from Buyer. From the date of any amendment of
the Licenses giving effect to their transfer from Seller to Buyer
until the Closing, Buyer shall conduct no operations under any of
the Licenses.
(b) Buyer's Responsibilities for Additional
Authorizations. Buyer acknowledges and agrees that it shall have
the sole responsibility to seek, obtain or make any and all
licenses, permits, qualifications, registrations or other
authorizations (other than the Licenses) from, or filings with,
governmental, regulatory or accreditation authorities necessary for
it to conduct operations under the Licenses or otherwise, including
without limitation applications to the FDA for the relocation of
the Sherman Oaks Licenses to a location of Buyer upon or after the
Second Closing ("Additional Authorizations"). The purchase and
sale of the Purchased Assets is not and shall not be conditioned in
any way upon the receipt by Buyer of any Additional Authorizations,
and Seller hereby makes no representation or warranty concerning
the need for any Additional Authorizations or the ability of Buyer
to obtain any Additional Authorizations. Notwithstanding any other
provision hereof to the contrary, Buyer shall have no right to
conduct any operations under the Sherman Oaks License in any
facility of Seller or Parent, including without limitation the
Sherman Oaks Center. Buyer hereby acknowledges that Seller has
disclosed to it that Seller has permitted its State of California
Biologics License and CLIA certificate for the Sherman Oaks Center
to expire.
8. Representations and Warranties of Seller and Parent. Seller and
Parent hereby jointly and severally represent and warrant to Buyer
that:
(a) Each of Seller and Parent is a corporation duly
organized and validly existing in good standing under the laws of
California and, in the case of Seller, with the power to own the
Purchased Assets.
(b) Each of Seller and Parent has the power and
authority to execute, deliver and perform this Agreement. Such
execution, delivery and performance have been duly authorized by
all necessary action on the part of each of Seller and Parent, do
not and will not require any approvals on behalf of either Seller
or Parent not heretofore obtained and do not and will not
contravene the organizational or charter documents of either Seller
or Parent or conflict with, result in a breach of, or entitle any
party (with due notice or lapse of time or both) to terminate,
accelerate or call a default with respect to, or result in the
creation or imposition of any lien, charge, encumbrance or claim of
any nature whatsoever upon any of the Purchased Assets pursuant to,
any agreement or instrument to which either Seller or Parent is a
party or by which either Seller or Parent or any of their
respective properties or assets is bound, subject to the
procurement of any consents otherwise contemplated hereby. Neither
Seller nor Parent is a party to, or subject to or bound by, any
judgment, injunction or decree of any court or governmental
authority which may restrict or interfere with the performance by
it of this Agreement or the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Seller and
Parent will not result in any violation by either Seller or Parent
of any law, rule or regulation applicable to it or the Purchased
Assets. This Agreement is, and each of the other instruments and
documents to be executed by either Seller or Parent hereunder will
A-7
<PAGE> A-8
be, a valid and binding obligation of such party enforceable in
accordance with its terms.
(c) Seller has and will convey to Buyer, good and
marketable title to all the Purchased Assets, subject to no
mortgage, security interest, pledge, lien, conditional sales
agreement, claim, restriction, reservation, covenant, encumbrance,
charge, restraint on transfer, or any other title defect of any
nature whatsoever, except for the Assumed Liabilities and, as of
the date of this Agreement but not as of the Second Closing Date,
defaults under the Haemonetics Lease. There are no liabilities of
Seller with respect to any of the Purchased Assets other than the
Assumed Liabilities for which Buyer will be responsible or to which
the Purchased Assets will be subject upon their sale, assignment,
transfer and conveyance by Seller to Buyer.
(d) Except for the amendment of the Licenses by the FDA
to give effect to the transfer of the Licenses from Seller to
Buyer, no consent, approval, authorization or order of, or
registration, qualification or filing with, any court, regulatory
authority or other governmental body is required for the execution,
delivery and performance by Seller of this Agreement, and the other
instruments and documents required or contemplated hereby. No
consent of any party is required for the execution, delivery and
performance by Seller of this Agreement or such other instruments
and documents, except for the consents of the landlord under the
Lease and the consent of Haemonetics to the Haemonetics Amendment
(as contemplated by Section 10(a)(v).
(e) No material investigation or review by any
governmental entity with respect to any of the Purchased Assets is
pending or, to the best knowledge of Seller's and Parent's
respective senior officers, threatened, nor has any governmental
entity indicated to either Seller or Parent an intention to conduct
such an investigation or review; and there is no action, suit or
proceeding pending or, to the best knowledge of Seller's and
Parent's respective senior officers, threatened against or
affecting any of the Purchased Assets at law or in equity, or
before any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
which either singly or in the aggregate would, if adversely
determined, have a material adverse effect on the ownership,
possession or use of the Purchased Assets by Buyer after the sale
and conveyance of such Purchased Assets hereunder, or which would
impair Seller's ability to perform this Agreement or the
transactions contemplated hereby. To the best knowledge of the
respective senior officers of Seller and Parent, the operations of
neither the San Diego Center nor the Sherman Oaks Center is being
conducted in violation of any applicable law, ordinance,
regulation, decree or order or any court or governmental entity.
(f) To the best knowledge of Seller's and Parent's
respective senior officers, the Lease and each of the Assumed
Contracts is valid and binding upon each party thereto and is in
full force and effect, there is no material default or claim of
default under any provision thereof and no event has occurred
which, with the passage of time or the giving of notice (or both),
would constitute a material default by Seller (or, to the best
knowledge of Seller's and Parent's respective senior officers, any
other party thereto) under any provision thereof (other than the
Haemonetics Lease with respect to which Seller and/or Parent is
currently in default), or would permit modification, acceleration
A-8
<PAGE> A-9
or termination of the Lease or any Assumed Contract by any other
party thereto or by Seller (except for the Haemonetics Lease).
(g) Seller is not a "foreign person" as that term is
defined for purposes of the Internal Revenue Code of 1986, as
amended.
9. Representations and Warranties of Buyer. Buyer hereby
represents and warrants to Seller and Parent that:
(a) Buyer is a corporation duly organized and validly
existing in good standing under the laws of California with the
power to acquire and own the Purchased Assets.
(b) Buyer has the power and authority to execute,
deliver and perform this Agreement. Such execution, delivery and
performance have been duly authorized by all necessary action on
the part of Buyer, do not and will not require any approvals on
behalf of Buyer not heretofore obtained and do not and will not
contravene the organizational or charter documents of Buyer or
conflict with, result in a breach of, or entitle any party (with
due notice or lapse of time or both) to terminate, accelerate or
call a default with respect to any agreement or instrument to which
Buyer is a party or by which Buyer or any of its properties or
assets is bound. Buyer is not a party to, or subject to or bound
by, any judgment, injunction or decree of any court or governmental
authority which may restrict or interfere with the performance by
it of this Agreement or the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Buyer will
not result in any violation by Buyer of any law, rule or regulation
applicable to Buyer. This Agreement is, and each of the other
instruments and documents to be executed by Buyer hereunder will
be, a valid and binding obligation of Buyer enforceable in
accordance with its terms.
(c) All information furnished or to be furnished by
Buyer to Seller or the FDA in connection with seeking the
amendments of the Licenses as contemplated by this Agreement is or
will be true, correct and complete in all material respects.
10. Covenants of the Parties.
(a) Seller's Covenants. Seller (and/or Parent to the
extent provided below) covenants and agrees with Buyer that between
the date of this Agreement and the Initial Closing Date or the
Second Closing Date, as the case may be:
(i) Seller will conduct the business of the San Diego
Center in the ordinary course and substantially in the same
manner as heretofore conducted, will perform all acts to be
performed by it pursuant to this Agreement and will refrain
from taking or omitting to take any action that would violate
Seller's and Parent's representations and warranties hereunder
or render them inaccurate as of the date hereof or the Initial
Closing Date or the Second Closing Date or that in any way
would prevent the consummation of the transactions
contemplated hereby. Notwithstanding the foregoing, if the
FDA has amended the Licenses giving effect to the transfer of
the Licenses from Seller to Buyer prior to the Second Closing,
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<PAGE> A-10
Seller shall cease all operations at the San Diego Center and
the Sherman Oaks Center that are dependent upon the Licenses.
(ii) Seller will give prompt notice to Buyer of any
breach or default (or notice thereof) of the Lease or any
Assumed Contract or any other event that may have a material
adverse effect on the Purchased Assets following their sale,
transfer and conveyance hereunder.
(iii) Seller will permit Buyer and its authorized
representatives at reasonable times to have access to and to
examine the tangible Purchased Assets.
(iv) Seller will use its best efforts to obtain the
consents of other parties required for the consummation of the
transactions contemplated by this Agreement and to cause the
FDA to transfer the Licenses from Seller to Buyer.
(v) Seller and/or Parent will use their best efforts to
enter into a modification of the Haemonetics Lease (the
"Haemonetics Amendment") providing for the waiver and release
of all prior defaults under the Haemonetics Lease with respect
to the Haemonetics Equipment and severable future rights and
obligations with respect to the Haemonetics Equipment on terms
either (A) no more onerous than those applicable to the other
equipment leased thereunder or (B) otherwise reasonably
acceptable to Buyer.
(vi) Seller and Parent will promptly furnish Buyer with
the information necessary to prepare the notice(s)
contemplated by Section 10(b)(v), including all names and
businesses addresses used by Seller within the last three
years and the location of all assets to be transferred under
this Agreement.
(b) Buyer's Covenants. Buyer covenants and agrees with
Seller that between the date of this Agreement and the Closing Date
or the Second Closing date, as the case may be (or in the case of
clause (ii) below, the date of payment in full of the Note):
(i) Buyer will perform all acts to be performed by it
pursuant to this Agreement and will refrain from taking or
omitting to take any action that would violate its
representations and warranties hereunder or render them
inaccurate as of the date hereof or the Initial Closing Date
or the Second Closing Date, as the case may be, or that in any
way would prevent the consummation of the transactions
contemplated hereby.
(ii) Buyer will use its best efforts to complete the
Private Placement as soon as practicable.
(iii) Buyer will use its best efforts to cause the
FDA to amend the Licenses to give effect to the transfer of
the Licenses from Seller to Buyer.
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<PAGE> A-11
(iv) Buyer will arrange to contract with vendors, as of
the Second Closing Date, for the provision of all goods and
services of the types provided to Seller under the Essential
Contracts.
(v) Buyer will give timely notice(s), in compliance with
Division 6 of the California Commercial Code, of the
transfer(s) contemplated by this Agreement.
Notwithstanding the compliance by the parties with the requirements
of Division 6 of the California Commercial Code, none of the
parties shall be estopped or prevented from asserting as a bar or
defense to any action or proceeding brought under such law that
such law does not apply to the sale contemplated by this Agreement.
(c) Additional Covenant of Buyer to Maintain Records.
Buyer covenants and agrees with Seller to maintain all records
described in Section 1(b)(vii) without alteration for such periods
of time as shall be necessary to satisfy any federal, state or
local legal or regulatory requirements applicable to Seller or
Buyer, and to permit Seller to have access to any and all such
transferred records at reasonable times for the purpose of
demonstrating compliance by Seller with such requirements.
(d) Additional Covenant to Enter into Interim Operating
Agreement. At the Initial Closing, Buyer and Seller shall enter
into an Interim Operating Agreement substantially in the form of
Exhibit 3 attached hereto (the "Interim Operating Agreement").
11. Conditions to Obligations of Buyer.
(a) Initial Closing. The obligation of Buyer to proceed
with the Initial Closing is subject to the satisfaction or waiver
of the following conditions on or before the Initial Closing Date:
(i) Each representation and warranty of Seller and
Parent made in or pursuant to this Agreement shall be true and
correct in all material respects as of the date made and at
and as of the Initial Closing Date, with the same force and
effect as though made at and as of the Initial Closing Date,
and Buyer shall have received from appropriate officers of
each of Seller and Parent a certificate or certificates to
such effect, in form and substance reasonably satisfactory to
Buyer.
(ii) Each of Seller and Parent shall have performed and
complied with all the obligations, agreements and conditions
required by this Agreement to be performed or complied with by
it at or prior to the Initial Closing, and Buyer shall have
received from appropriate officers of each of Seller and
Parent a certificate or certificates to such effect, in form
and substance reasonably satisfactory to Buyer.
(iii) There shall be no suit, action or other
proceeding pending or threatened before any court or before or
by any governmental agency in which it is sought to restrain,
prohibit, invalidate or set aside in whole or in part the
consummation of this Agreement or the transactions
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<PAGE> A-12
contemplated hereby or to obtain substantial damages in
connection therewith.
(iv) Seller and/or Parent shall have obtained the
contractual consents referred to in Section 8(d) or otherwise
required for the sale and assignment, as of the Second Closing
Date, to Buyer of the Purchased Assets or for the consummation
of the transactions contemplated hereby.
(v) The notice contemplated by Section 10(b)(v) with
respect to the Purchased Assets to be sold, transferred and
conveyed at the Initial Closing shall have been given in the
manner and within the time periods required by Division 6 of
the California Commercial Code.
(vi) The Haemonetics Amendment shall have been entered
into (or shall be the subject of an irrevocable offer from
Haemonetics) and, if executed, shall be in full force and
effect with an effective date of the Second Closing Date.
(b) Second Closing. The obligation of Buyer to proceed
with the Second Closing is subject to the satisfaction or waiver of
the following conditions on or before the Second Closing Date:
(i) Each representation and warranty of Seller and
Parent made in or pursuant to this Agreement (except any such
representations and warranties to the extent they relate to
the sale, transfer and conveyance of the Valencia Equipment
consummated at the Initial Closing) shall be true and correct
in all material respects as of the Second Closing Date, with
the same force and effect as though made at and as of the
Second Closing Date, and Buyer shall have received from
appropriate officers of each of Seller and Parent a
certificate or certificates to such effect, in form and
substance reasonably satisfactory to Buyer.
(ii) Each of Seller and Parent shall have performed and
complied with all the obligations, agreements and conditions
(other than any such obligations, agreements and conditions to
the extent they relate to the sale, transfer and conveyance of
the Valencia Equipment consummated at the Initial Closing)
required by this Agreement and the Interim Operating Agreement
to be performed or complied with by it at or prior to the
Second Closing, and Buyer shall have received from appropriate
officers of each of Seller and Parent a certificate or
certificates to such effect, in form and substance reasonably
satisfactory to Buyer.
(iii) There shall be no suit, action or other
proceeding pending or threatened before any court or before or
by any governmental agency in which it is sought to restrain,
prohibit, invalidate or set aside in whole or in part the
consummation of this Agreement or the transactions
contemplated hereby or to obtain substantial damages in
connection therewith.
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<PAGE> A-13
(iv) The FDA shall have amended the San Diego Licenses to
give effect to their transfer from Seller to Buyer.
(v) The notice contemplated by Section 10(b)(v) with
respect to the Purchased Assets to be sold, transferred and
conveyed at the Second Closing shall have been given in the
manner and within the time periods required by Division 6 of
the California Commercial Code.
(vi) The Haemonetics Amendment shall have been entered
into and shall be in full force and effect.
(vii) Seller and/or Parent shall have obtained the
contractual consents referred to in Section 8(d) or otherwise
required for the sale and assignment, as of the Second Closing
Date, to Buyer of the Purchased Assets or for the consummation
of the transactions contemplated hereby.
(ix) The Initial Closing shall have been completed.
12. Conditions to Obligations of Seller.
(a) Initial Closing. The obligation of Seller to
proceed with the Initial Closing is subject to the satisfaction or
waiver of the following conditions on or before the Initial Closing
Date:
(i) Each representation and warranty of Buyer made in or
pursuant to this Agreement shall be true and correct in all
material respects as of the date made and at and as of the
Initial Closing Date, with the same force and effect as though
made at and as of the Initial Closing Date, and Seller and
Parent shall have received from appropriate officers of Buyer
a certificate or certificates to such effect, in form and
substance reasonably satisfactory to Seller.
(ii) Buyer shall have performed and complied with all the
obligations, agreements and conditions required by this
Agreement to be performed or complied with by it at or prior
to the Initial Closing, and Seller and Parent shall have
received from appropriate officers of Buyer a certificate or
certificates to such effect, in form and substance reasonably
satisfactory to Seller and Parent.
(iii) There shall be no suit, action or other
proceeding pending or threatened before any court or before or
by any governmental agency in which it is sought to restrain,
prohibit, invalidate or set aside in whole or in part the
consummation of this Agreement or the transactions
contemplated hereby or to obtain substantial damages in
connection therewith.
(iv) Seller and/or Parent shall have obtained the
contractual consents referred to in Section 8(d) or otherwise
required for the sale and assignment to Buyer of the Purchased
Assets or for the consummation of the transactions
contemplated hereby.
A-13
<PAGE> A-14
(v) The notice contemplated by Section 10(b)(v) with
respect to the Purchased Assets to be sold, transferred and
conveyed at the Initial Closing shall have been given in the
manner and within the time periods required by Division 6 of
the California Commercial Code.
(vi) The Haemonetics Amendment shall have been entered
into (or shall be the subject of an irrevocable offer from
Haemonetics) and, if executed, shall be in full force and
effect with an effective date of the Second Closing Date.
(vii) The Financing Statement shall have been duly
and properly recorded by the Office of the Secretary of State
of California sufficient to perfect the security interest to
be granted under the Security Agreement as a first in priority
security interest in the Valencia Equipment, and Seller shall
have received a copy of the recorded Financing Statement,
which in form and substance shall be satisfactory to Seller
and its counsel.
(b) Second Closing. The obligation of Seller to proceed
with the Second Closing is subject to the satisfaction or waiver of
the following conditions on or before the Second Closing Date:
(i) Each representation and warranty of Buyer made in or
pursuant to this Agreement (except any such representations
and warranties to the extent they relate to the sale, transfer
and conveyance of the Valencia Equipment consummated at the
Initial Closing) shall be true and correct in all material
respects as of the Second Closing Date, with the same force
and effect as though made at and as of the Second Closing
Date, and Seller and Parent shall have received from
appropriate officers of Buyer a certificate or certificates to
such effect, in form and substance reasonably satisfactory to
Seller and Parent.
(ii) Buyer shall have performed and complied with all the
obligations, agreements and conditions required by this
Agreement and the Interim Operating Agreement to be performed
or complied with by it at or prior to the Second Closing, and
Seller and Parent shall have received from appropriate
officers of Buyer a certificate or certificates to such
effect, in form and substance reasonably satisfactory to
Seller and Parent.
(iii) There shall be no suit, action or other
proceeding pending or threatened before any court or before or
by any governmental agency in which it is sought to restrain,
prohibit, invalidate or set aside in whole or in part the
consummation of this Agreement or the transactions
contemplated hereby or to obtain substantial damages in
connection therewith.
(iv) The FDA shall have amended the San Diego Licenses to
give effect to their transfer from Seller to Buyer.
A-14
<PAGE> A-15
(v) The notice contemplated by Section 10(b)(v) with
respect to the Purchased Assets to be sold, transferred and
conveyed at the Second Closing shall have been given in the
manner and within the time periods required by Division 6 of
the California Commercial Code.
(vi) No Event of Default under the Security Agreement
shall have occurred and be continuing as of the Second Closing
Date, and no event shall have occurred as of the Second
Closing Date that, with notice or the passage of time or both,
will result in an Event of Default under the Security
Agreement, and Seller and Parent shall have received from
appropriate officers of Buyer a certificate or certificates to
such effect, in form and substance reasonably satisfactory to
Seller and Parent.
(vii) Seller and/or Parent shall have obtained the
contractual consents referred to in Section 8(d) or otherwise
required for the sale and assignment to Buyer of the Purchased
Assets or for the consummation of the transactions
contemplated hereby.
(viii) The Haemonetics Amendment shall have been
entered into and shall be in full force and effect as of the
Second Closing Date.
(ix) The Initial Closing shall have been completed.
13. Closings.
(a) Initial Closing. Except as provided in
Sections 13(b) and (c) below, the transfers and deliveries to be
made pursuant to this Agreement (the "Initial Closing") shall take
place at the offices of Sanders, Barnet, Goldman, Simons & Mosk, A
Professional Corporation, at 4:00 p.m. on such date designated by
Seller within five (5) days after the last to occur of (i) the date
of the consent of the landlord for the assignment of the Lease to
Buyer, (ii) the date of the last contractual consent referred to in
Section 8(d) or otherwise required for the sale and assignment to
Buyer of the Purchased Assets or for the consummation of the
transactions contemplated hereby, (iii) the date of execution of
the Haemonetics Amendment or, if earlier, the date of an
irrevocable offer from Haemonetics to enter into the Haemonetics
Amendment effective as of the Second Closing Date, or such other
place, time or date as the parties shall agree upon in writing.
The date on which the Initial Closing is to occur is herein
referred to as the "Initial Closing Date". At the Initial Closing,
the parties shall deliver the following documents or such documents
in substitution therefor as are satisfactory to the recipient:
(i) Deliveries by Seller. Seller (and/or Parent, as the
case may be) shall deliver to Buyer:
(A) Bills of sale, instruments of transfer,
assignment and conveyance, and other instruments in form and
substance satisfactory to Buyer and sufficient to convey,
transfer, and assign to Buyer and effectively vest in Buyer
all right, title and interest in and to the Purchased Assets
to be conveyed at the Initial Closing and good and marketable
A-15
<PAGE> A-16
title to the Purchased Assets to be conveyed at the Initial
Closing subject only to exceptions referred to on the
Schedules hereto;
(B) All required consents to assignments, as of the
Second Closing Date, of the Lease and the Assumed Contracts,
including the Haemonetics Amendment (or the irrevocable offer
by Haemonetics to enter into the Haemonetics Amendment
effective as of the Second Closing);
(C) The Security Agreement;
(D) Certified copies of the resolutions, duly
adopted by the Board of Directors of Seller, that shall be in
full force and effect at the time of delivery, authorizing the
execution, delivery and performance of this Agreement;
(E) The certificates executed by officers of Seller
and Parent provided for in Sections 11(a)(i) and 11(a)(ii);
(F) Possession of the Purchased Assets to be
conveyed at the Initial Closing;
(G) The Interim Operating Agreement; and
(H) Such other instruments and documents as may be
reasonably requested by, and in form and substance
satisfactory to, Buyer.
(ii) Deliveries by Buyer. Buyer shall deliver to Seller
(and/or Parent, as the case may be):
(A) Certified or bank cashier's checks in the
aggregate amount required by Sections 1(a)(i) (clause (B)),
4(a), 4(d) and 16;
(B) The Note and the Security Agreement;
(C) Certified copies of resolutions, duly adopted
by the Board of Directors of Buyer that shall be in full force
and effect at the time of delivery, authorizing the execution,
delivery and performance of this Agreement, the Note and the
Security Agreement;
(D) The certificates executed by officers of Buyer
provided for in Sections 12(a)(i) and 12(a)(ii);
(E) The Interim Operating Agreement; and
(F) Such other instruments and documents as may be
reasonably requested by, and in form and substance
satisfactory to, Seller.
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<PAGE> A-17
(b) Second Closing. Except as provided in
Sections 13(a) and (c) below, the transfers and deliveries to be
made pursuant to this Agreement (the "Second Closing") shall take
place at the offices of Sanders, Barnet, Goldman, Simons & Mosk, A
Professional Corporation, at 4:00 p.m. on such date designated by
Seller within five (5) days after the date on which the parties
receive notice of the amendment of the San Diego Licenses by the
FDA giving effect to the transfer of the San Diego Licenses from
Seller to Buyer, or such other place, time or date as the parties
shall agree upon in writing. The date on which the Second Closing
is to occur is herein referred to as the "Second Closing Date". At
the Second Closing, the parties shall deliver the following
documents or such documents in substitution therefor as are
satisfactory to the recipient:
(i) Deliveries by Seller. Seller (and/or Parent, as the
case may be) shall deliver to Buyer:
(A) Bills of sale, instruments of transfer,
assignment and conveyance, and other instruments in form and
substance satisfactory to Buyer and sufficient to convey,
transfer, and assign to Buyer and effectively vest in Buyer
all right, title and interest in and to the Purchased Assets
to be conveyed at the Second Closing and good and marketable
title to the Purchased Assets to be conveyed at the Second
Closing subject only to exceptions referred to on the
Schedules hereto;
(B) The amendment of the Licenses giving effect to
the transfer of the Licenses from Seller to Buyer;
(C) All required consents to assignments of the
Lease and the Assumed Contracts, including the Haemonetics
Amendment;
(D) The certificates executed by officers of Seller
and Parent provided for in Sections 11(b)(i) and 11(b)(ii);
(E) Possession of the Purchased Assets to be
conveyed at the Second Closing; and
(F) Such other instruments and documents as may be
reasonably requested by, and in form and substance
satisfactory to, Buyer.
(ii) Deliveries by Buyer. Buyer shall deliver to Seller
(and/or Parent, as the case may be):
(A) The certificates executed by officers of Buyer
provided for in Sections 12(b)(i), 12(b)(ii) and 12(b)(vi);
and
(B) Such other instruments and documents as may be
reasonably requested by, and in form and substance
satisfactory to, Seller.
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<PAGE> A-18
(d) Delayed Closing or Termination of Agreement with
Respect to Sherman Oaks Licenses. Notwithstanding any other
provision of this Agreement to the contrary, if the FDA has not
amended the Sherman Oaks Licenses to give effect to their transfer
from Seller to Buyer on or before the Second Closing Date, the
sale, purchase and transfer of the Sherman Oaks Licenses shall be
excluded from the Second Closing; provided, however, that the
application to the FDA for the amendment of the Sherman Oaks
Licenses to effect their transfer shall remain pending and the
obligations of the parties hereunder with respect to the sale,
purchase and transfer of the Sherman Oaks Licenses hereunder shall
survive the Second Closing. Within five (5) days following the
FDA's amendment of the Sherman Oaks Licenses to give effect to
their transfer from Seller to Buyer, the parties shall conduct an
additional closing with respect to the Sherman Oaks Licenses (the
"Additional Closing") at which Seller shall deliver the items
described in clauses (B), (D) and (F) of Section 13(b)(i) and Buyer
shall deliver the items described in clauses (A) and (B) of
Section 13(b)(ii). Subject to the foregoing, the date, time and
place of the Additional Closing shall be mutually agreed upon by
Seller and Buyer. Without prejudice to any other rights or
remedies which it may have, either Seller or Buyer may, prior to
the Additional Closing, forthwith abandon the transactions
contemplated hereby to be consummated at the Additional Closing by
written notice to the other party if there shall have been a
failure of condition or a breach of any representation or warranty
contained herein by the other party (including Parent in the case
of Seller) which failure or breach is not cured or cannot
reasonably be cured prior to the Additional Closing, or if a
default shall be made by any other party in the timely performance
of any of that party's agreements or obligations contained herein.
If Buyer is the terminating party under the preceding sentence,
Seller and/or Parent shall promptly return to Buyer the amount of
the Sherman Oaks Purchase Price actually paid by Buyer. If the FDA
has not amended the Sherman Oaks Licenses to give effect to their
transfer from Seller to Buyer within ninety (90) days following the
Second Closing, either Seller or Buyer may terminate its
obligations hereunder with respect to the sale, purchase and
transfer of the Sherman Oaks Licenses (except for the provisions of
Sections 15, 16, 19 and 20, which shall continue in effect) by
written notice given to the other party. In the event of any
termination permitted by the preceding sentence, Seller and/or
Parent shall promptly return to Buyer the amount of the Sherman
Oaks Purchase Price actually paid by Buyer (unless the failure of
the FDA to amend the Sherman Oaks License is due to failure of a
condition to Seller's obligations or a breach of any representation
or warranty contained herein by Buyer or a default by Buyer in the
timely performance of any of its obligations contained herein, and
no party hereto shall have any other liability or obligation
pursuant to this Agreement to any other party hereto with respect
to the Sherman Oaks Licenses, except for liabilities or obligations
arising under Sections 15, 16, 19 and 20.
14. Termination. This Agreement (except for the
provisions of Sections 4(d), 7(a), 15, 16, 19, 20 and 22, which
shall continue in effect) and the transactions contemplated hereby
may be terminated and abandoned at any time prior to the Initial
Closing Date or the Second Closing Date (i) by mutual written
agreement of Buyer and Seller, (ii) by Buyer or Seller upon written
notice given to the other party after entry of a restraining order
or injunction restraining or prohibiting the sale or purchase of
the Purchased Assets, or (iii) with respect to a termination prior
to the Initial Closing Date only, by Buyer or Seller upon written
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<PAGE> A-19
notice to the other party if the Initial Closing shall not have
taken place by August 15, 1996, other than by reason of a matter
within the control of the party asserting such termination. In the
event of any termination permitted by the preceding sentence, no
party hereto shall have any liability or obligation pursuant to
this Agreement to any other party hereto, except for liabilities or
obligations arising under Sections 4(d), 7(a) 15, 16, 19, 20 and
22. Without prejudice to any other rights or remedies which it may
have, either Seller or Buyer may, prior to the Initial Closing or
the Second Closing, as applicable, abandon the transactions
contemplated hereby by written notice to the other party if there
shall have been a failure of condition or a breach of any
representation or warranty contained herein by the other party
(including Parent in the case of Seller) which failure or breach is
not cured or cannot reasonably be cured prior to the Initial
Closing, or if a default shall be made by any other party in the
timely performance of any of that party's agreements or obligations
contained herein or in the Interim Operating Agreement.
Notwithstanding the foregoing or any other provision of this
Agreement, no termination of this Agreement following the Initial
Closing shall result in any rescission, reformation or termination
of the sale, transfer and conveyance of the Purchased Assets
consummated at the Initial Closing. In the event of a termination
of this Agreement after the Initial Closing, Seller and/or Parent
shall promptly return to Buyer the amount of the Purchase Price
(excluding the Valencia Purchase Price) plus any sales tax thereon
actually paid by Buyer; provided, however, that if any such
termination is made by Seller due to a failure or breach by Buyer,
Seller and/or Parent shall be entitled to retain out of such amount
as liquidated damages and not as a penalty Fifty Thousand and
00/100 Dollars ($50,000.00). BUYER HEREBY AGREES THAT THE AMOUNT
OF DAMAGES SELLER AND PARENT WOULD SUFFER AS A RESULT OF SUCH A
FAILURE OR BREACH WOULD BE EXTREMELY DIFFICULT TO ASCERTAIN AND
THAT THE ABOVE AMOUNT OF LIQUIDATED DAMAGES IS A REASONABLE AND
FAIR ESTIMATE OF THE AMOUNT OF ACTUAL DAMAGES THAT WOULD BE
SUFFERED.
15. Survival and Indemnification.
(a) All representations, warranties, covenants,
indemnities and agreements contained in or made pursuant to this
Agreement or in any exhibit, certificate, document or statement
delivered pursuant hereto shall survive the transfer of the
Purchased Assets, subject only to applicable statutes of
limitations.
(b) Buyer hereby agrees to protect, defend, indemnify
and hold harmless Seller, Parent and the respective directors,
officers, employees and agents of Seller and Parent from, and to
reimburse such parties for, any loss, cost, expense, damage,
liability or claim (including, without limitation, any and all
fees, costs and expenses whatsoever, which fees, costs and expenses
shall be paid as incurred, reasonably incurred by any and all such
parties and its or their counsel in investigating, preparing for,
defending against, or providing evidence, producing documents or
taking any other action in respect of any threatened or asserted
claim) arising out of, based upon or resulting from (i) the
inaccuracy as of the date hereof or as of any applicable Closing
Date of any representation or warranty of Buyer which is contained
in or made pursuant to this Agreement; (ii) Buyer's breach of or
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<PAGE> A-20
failure to perform any of its covenants or agreements contained in
or made pursuant to this Agreement; or (iii) any Assumed Liability.
(c) Seller and Parent jointly and severally hereby agree
to protect, defend, indemnify and hold harmless Buyer and its
directors, officers, employees and agents from, and to reimburse
such parties for, any loss, cost, expense, damage, liability or
claim (including, without limitation, any and all fees, costs and
expenses whatsoever, which fees, costs and expenses shall be paid
as incurred, reasonably incurred by any and all such parties and
its or their counsel in investigating, preparing for, defending
against, or providing evidence, producing documents or taking any
other action in respect of any threatened or asserted claim)
arising out of, based upon, or resulting from (i) the inaccuracy as
of the date hereof or as of any applicable Closing Date of any
representation or warranty of either Seller or Parent which is
contained in or made pursuant to this Agreement; (ii) the breach of
or failure to perform any of the covenants or agreements of either
Seller or Parent contained in or made pursuant to this Agreement;
or (iii) any liability or obligation of Seller that is not
expressly assumed by Buyer under or pursuant to this Agreement
asserted after the Initial Closing or the Second Closing, as the
case may be, and attributable to the period prior to such Closing.
(d) If at any time an indemnified party hereunder learns
of any claim or basis of any claim which could result in liability
of any indemnifying party under its indemnification obligations
hereunder, the indemnified party shall give to the indemnifying
party written notice within such time as is reasonable under the
circumstances, describing such claim in reasonable detail. If such
claim is a third party claim, the indemnifying party shall have
sole control over, and shall assume all expense with respect to,
the defense or settlement of such claim; provided, however, that:
(i) the indemnified party or parties (represented by Buyer or
Seller, as the case may be) shall have the right to approve of
legal counsel selected by the indemnifying party, which approval
shall not be unreasonably withheld; (ii) the indemnified party or
parties shall be entitled to participate in the defense of such
claim and to employ counsel at its or their own expense to assist
in the handling of such claim; and (iii) the indemnifying party
shall obtain the prior written approval of the indemnified party or
parties, which shall not be unreasonably withheld, before entering
into any settlement, adjustment or compromise of such claim or
ceasing to defend against such claim, if pursuant thereto or as a
result thereof there would be imposed injunctive or other equitable
relief against the indemnified party or parties. If the
indemnifying party does not assume control over the defense or
settlement of such claim as provided above, the indemnified party
or parties shall have the right to defend and settle the claim in
such manner as it or they may deem appropriate at the cost and
expense of the indemnifying party, and the indemnifying party will
promptly reimburse the indemnified party or parties therefor.
16. Sales Taxes; expenses of Transfer and Legal Fees. All
sales or use taxes payable in connection with the transactions
contemplated hereby shall be paid by Buyer, and Buyer shall pay to
Seller together with its payment of the Purchase Price any and all
amounts required to be collected or remitted by Seller in respect
of such taxes. The reasonable fees and expenses of Seller's
counsel in preparing this Agreement, the Original Agreement and the
Terms Sheet leading to the execution of the Original Agreement and
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<PAGE> A-21
this Agreement and consummating the transactions contemplated
hereby, and the reasonable fees and expenses of Buyer's counsel in
reviewing the Original Agreement and this Agreement and
consummating the transactions contemplated by this Agreement, shall
be borne equally by the parties, and each party shall promptly
remit to the other its portion of such fees and expenses upon
presentation of an invoice to the obligated party. Except as set
forth above, each party shall pay all costs and expenses, including
without limitation the fees of counsel and all brokers' or finders'
fees, incurred by or on behalf of such party in connection with
this Agreement and the transactions contemplated hereby. Without
limiting the foregoing, neither Seller nor Parent shall have any
liability or obligation to Buttonwood Financial Corporation, which
has acted as an adviser to Buyer in connection with this Agreement
and the transactions contemplated hereby. If any litigation or
other proceeding between the parties is commenced in connection
with or related to this Agreement, the losing party shall pay the
reasonable attorneys' fees and costs and expenses of the prevailing
party incurred in connection therewith.
17. Entire Agreement. This Agreement, the schedules and
exhibits hereto and the other agreements, documents and instruments
delivered or to be delivered pursuant hereto or contemplated hereby
set forth the entire understanding of the parties with respect to
the subject matter hereof, supersede any and all prior agreements,
arrangements and understandings, and any and all contemporaneous
oral agreements, arrangements and understandings, with respect to
the subject matter hereof. This Agreement may be modified only by
a written instrument duly executed by each party affected by any
such modification. No breach of any covenant, agreement, warranty
or representation made herein or in any such schedules, exhibits,
agreements, documents or instruments shall be deemed waived unless
expressly waived in writing by the party who might assert such
breach.
18. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the
same agreement and each of which shall be deemed to constitute an
original.
19. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS RULES AND LAWS.
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<PAGE> A-22
20. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be
mailed by registered or certified mail, postage prepaid, return
receipt requested, or delivered in person or by commercial courier
against receipt or by facsimile copy with confirmed receipt, as
follows:
If to Seller or Parent:
HemaBiologics, Inc.
or
HemaCare Corporation (as the case may be)
4954 Van Nuys Boulevard
Sherman Oaks, California 91403
Attention: Hal I. Lieberman, President and
Chief Executive Officer
Telecopier: (818) 386-6522
Telephone: (818) 986-3833
with a copy to:
Sanders, Barnet, Goldman, Simons & Mosk
A Professional Corporation
1901 Avenue of the Stars, Suite 850
Los Angeles, California 90067-6078
Attention: Gordon R. Kanofsky, Esq.
Telecopier: (310) 553-2435
Telephone: (310) 551-8407
If to Buyer:
Atopix Pharmaceuticals Corporation
5 Park Plaza, Suite 600
Irvine, California 92714
Attention: William Pollack, President
Telecopier: (714) 851-1845
Telephone: (714) 622-1845
with a copy to:
Boldra & Klueger
15760 Ventura Boulevard, Suite 1900
Encino, California 91436
Attention: Robert Klueger, Esq.
Telecopier: (818) 784-9747
Telephone: (818) 784-9601
or to such other address as either party shall have furnished in
writing in accordance with the provisions of this Section. Any
notice or other communication mailed by registered or certified
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<PAGE> A-23
mail shall be deemed given at the earlier of the time of its
receipt by the addressee or three days after the time of mailing
thereof. Any notice or other communications given by any other
means shall be deemed given at the time of its receipt by the
addressee.
21. Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective
successors, legal representatives and assigns, but this Agreement
may not be assigned by either Buyer or Seller without the written
consent of the other, except that Seller may assign any of its
rights and may delegate any of its duties hereunder to Parent.
22. Disclosures. Without the prior written consent of Seller,
Buyer shall not prior to the Second Closing make any public
disclosure of or relating to this Agreement or the transactions
contemplated hereby, which consent shall not be unreasonably
withheld with respect to disclosures proposed to be made in
securities offerings documents in connection with the Private
Placement. Notwithstanding the foregoing, neither Seller nor
Parent nor their respective officers, directors, employees and
agents shall have any responsibility for any alleged or proven
misstatements, omissions or misleading statements contained in such
offering documents, which shall be the sole responsibility of
Buyer.
23. Headings. The headings of the Sections herein are inserted
for convenience of reference only and are not intended to be a part
of, or to affect the meaning or interpretation of, this Agreement.
24. Severability. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable,
the validity, legality or enforceability of the remaining
provisions of this Agreement will not be affected thereby and the
parties will use all reasonable efforts to substitute one or more
valid, legal and enforceable provisions which, insofar as
practicable, implement the purpose and intent hereof. To the
extent permitted by applicable law, each party waives any provision
of law which renders any provision of this Agreement invalid,
illegal or unenforceable in any respect.
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<PAGE> A-24
25. Further Assurances. After any Closing under this Agreement,
for no further consideration but without incurring any material
expense, each of Seller and Parent shall perform all such other
action (including, without limitation, the use of Seller's best
efforts to achieve transfer of registrations, permits, approvals
and the like as contemplated by this Agreement) and shall execute,
acknowledge and deliver all such assignments, transfers, consents
and other documents as Buyer or its counsel may reasonably request
to vest in Buyer, and protect Buyer's right, title and interest in,
and enjoyment of, the Purchased Assets conveyed at such Closing.
Buyer shall similarly perform all such other action and shall
execute, acknowledge and deliver all such other documents as
Seller, Parent or their counsel may reasonably request to perfect
and protect Seller's and/or Parent's rights under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
SELLER:
HEMABIOLOGICS, INC.
By: /s/ Hal I. Lieberman
-------------------------------
Hal I. Lieberman, President and
Chief Executive Officer
PARENT:
HEMACARE CORPORATION
By: /s/ Hal I. Lieberman
-------------------------------
Hal I. Lieberman, President and
Chief Executive Officer
BUYER:
ATOPIX PHARMACEUTICALS CORPORATION
By: /s/ William Pollack
-------------------------------
William Pollack, President
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<PAGE> A-25
LIST OF EXHIBITS AND SCHEDULES
Exhibit 1 Form of Promissory Note
Exhibit 2 Form of Security Agreement
Schedule A-1 San Diego Product Licenses
Schedule A-2 Sherman Oaks Product Licenses
Schedule B Other San Diego Equipment
Schedule C Description of Materials Inventory-San Diego Center
Schedule D-1 Valencia Clean Room Equipment
Schedule D-2 Other Valencia Equipment
Schedule E-1 Long-Term Assumed Contracts
Schedule E-2 Terminable Contracts
EXHIBIT 99.1
AGREEMENT TO FURNISH EXHIBITS AND SCHEDULES
HemaCare Corporation (the "Registrant") hereby agrees to furnish
supplementally to the Securities and Exchange Commission a copy of
any omitted exhibits and schedules to the Amended and Restated Asset
Purchase Agreement dated June 26, 1996, between the Registrant, HemaBiologics,
Inc. and Atopix Pharmaceuticals Corporation, filed with this Report as
Exhibit 2.1. The Amended and Restated Asset Purchase Agreement includes a
list briefly identifying the omitted exhibits and schedules.
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