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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
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
-------------
- --- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number 0-19410
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HEMASURE INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3216862
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Organization or Incorporation)
140 LOCKE DRIVE, MARLBOROUGH, MASSACHUSETTS 01752
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(Address of Principal Executive Offices) (Zip Code)
(508) 485-6850
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 8,076,468
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Class Outstanding at August 9, 1996
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HemaSure Inc.
<TABLE>
INDEX
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<CAPTION>
PAGE
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations for the Three and Six Month Periods
Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the Periods Ended June 30, 1996 and 5
1995
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 8
PART II OTHER INFORMATION 11
SIGNATURES 13
</TABLE>
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<TABLE>
HemaSure Inc.
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
(In thousands) June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,273 $ 23,028
Marketable securities 8,002 24,813
Accounts receivable 1,868 82
Inventory 19,269 756
Prepaid expenses 188 150
-------- --------
Total current assets 57,600 48,829
Property and equipment, net 10,691 1,286
Other assets 179 97
-------- --------
Total assets $ 68,470 $ 50,212
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,749 $ 1,208
Payable to related parties 13 87
Accrued expenses 1,441 522
Notes payable-current portion 1,437
Capital lease obligations-current portion 179 107
-------- --------
Total current liabilities 6,819 1,924
Capital lease obligations 390 286
Notes payable 20,617
-------- --------
Total liabilities 27,826 2,210
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Stockholders' equity:
Common stock 81 80
Additional paid-in capital 60,597 60,372
Unearned compensation (497) (595)
Unrealized holding loss of available for sale marketable securities 2
Cumulative translation adjustments (1,015)
Accumulated deficit (18,524) (11,855)
-------- --------
Total stockholders' equity 40,644 48,002
-------- --------
Total liabilities and stockholders' equity $ 68,470 $ 50,212
======== ========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
3
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<TABLE>
HemaSure Inc.
Consolidated Statements of Operations
For The Three and Six Month Periods
Ended June 30, 1996 and 1995
(Unaudited)
<CAPTION>
Three-month periods Six-month periods
(In thousands, except per share amounts) ended June 30, ended June 30,
------------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Product sales $ 1,981 $ - $ 2,003 $ 3
Product sales to related parties - 109 13 480
Collaborative research and development 8 88 54 88
------- ------- ------- -------
Total revenues 1,989 197 2,070 571
------- ------- ------- -------
Costs and expenses:
Cost of products sold 2,280 110 2,669 215
Cost of products sold to related parties - 109 13 387
Research & development 1,449 1,055 3,025 1,965
Purchase of in process research and development 500 500
Selling, general and administrative 2,285 820 3,500 1,550
------- ------- ------- -------
Total costs and expenses 6.514 2.094 9,707 4,117
------- ------- ------- -------
Loss from operations (4,525) (1,897) (7,637) (3,546)
Interest income, (net) 384 129 968 276
------- ------- ------- -------
Net loss $(4,141) $(1,768) $(6,669) $(3,270)
======= ======= ======= =======
Net loss per share $ (0.51) $ (0.32) $ (0.83) $ (0.59)
Weighted average number of common and
common equivalent shares outstanding 8,063 5,501 8,052 5,501
</TABLE>
The accompanying notes are an integral part
of the financial statements.
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<TABLE>
HemaSure Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
(In thousands) Six-month periods
ended June 30,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,669) $ (3,270)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 366 216
Accretion of marketable securities discount (14)
Purchase of in process research and development 500
Changes in operating assets and liabilities:
Accounts receivable (1,786) (73)
Inventories (4,993) 213
Other current assets 41 252
Accounts payable and accrued expenses 2,351 (436)
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Net cash (used in) operating activities (10,204) (3,098)
Cash flows from investing activities:
Purchase of available for sale marketable securities (114,300)
Maturities of available for sale marketable securities 131,109
Additions to property and equipment (1,677) (460)
Cash paid for acquired business (128)
Decrease in other assets 43 -
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Net cash provided from (used in) investing activities 15,047 (460)
Cash flows from financing activities:
Proceeds from issuance of common stock 226
Borrowings under capital lease arrangements 288 197
Repayments of capital lease obligations (112) (23)
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Net cash provided from financing activities 402 174
Net increase (decrease) in cash 5,245 (3,384)
Cash and cash equivalents at beginning of period 23,028 11,704
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Cash and cash equivalents at end of period $ 28,273 $ 8,320
========= =========
Supplemental schedule of cash flow information:
Cash paid during the period for interest $ 40 $ 14
</TABLE>
The accompanying notes are an integral part
of the financial statements.
5
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HemaSure Inc.
Notes To Consolidated Financial Statements
1. Basis of Presentation
The accompanying financial statements are unaudited and have been prepared
on a basis substantially consistent with the audited financial statements.
Consolidated financial statements include the accounts of the parent
company and its wholly owned subsidiary from the date of acquisition. All
material intercompany transactions have been eliminated. The assets and
liabilities of the Company's international subsidiary are translated into
U.S. dollars using current exchange rates. Statements of operations
amounts are translated at average exchange rates prevailing during the
period. The resulting translation adjustment is recorded in the
cumulative translation adjustment account in stockholders' equity.
Certain information and footnote disclosures normally included in the
Company's annual statements have been condensed or omitted. The
consolidated interim financial statements, in the opinion of management,
reflect all adjustments (including normal recurring accruals) necessary for
a fair statement of the results for the interim periods ended June 30, 1996
and 1995.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year.
These interim financial statements should be read in conjunction with the
audited financial statements for the year ended December 31, 1995, which
are contained in the Company's Form 10K (File No. 0-19410), filed with the
Securities and Exchange Commission on April 1, 1996.
2. Inventories
<TABLE>
Inventories consist of the following:
<CAPTION>
June 30, 1996 December 31, 1995
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<S> <C> <C>
Raw Materials $ 6,502 $492
Work in progress 8,522 6
Finished goods 4,245 258
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$19,269 $756
======= ====
</TABLE>
3. Property and Equipment
<TABLE>
Property and equipment consists of the following:
<CAPTION>
June 30. 1996 December 31, 1995
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<S> <C> <C>
Property and equipment $ 13,349 $ 3,733
Less accumulated depreciation and amortization (2.918) (2,650)
-------- --------
10,431 1,083
Construction in progress 260 203
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$ 10,691 $ 1,286
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</TABLE>
6
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4. Acquisition of Plasma Products Unit
In May 1996, the Company acquired the plasma product unit of Novo Nordisk
A/S (the "Denmark Acquisition"), a Denmark corporation through its newly
formed Danish subsidiary, HemaSure A/S. The Company accounted for this
acquisition using the purchase method of accounting and, accordingly the
net assets of the acquired business have been consolidated in the
Company's financial statements since the date of acquisition. In
connection with the acquisition, the Company recorded a non-recurring
charge of $500,000 identified as "purchase of in process research and
development" representing that portion of the purchase price paid for
the on-going research and development projects of the acquired business
which have not yet resulted in commercially viable products. The purchase
price for the transaction is comprised of three portions.
The first portion of approximately $1,500,000 is in the form of a
Convertible Subordinated Note and is payable in March 1998 in cash or
common stock of HemaSure at the Company's option. This note would
automatically convert to shares of a subsidiary of HemaSure if, prior to
March 1998, certain events occur as described in the terms of the note.
This Convertible Subordinated Note bears interest at 7% per annum beginning
six months from the date of the note.
The second portion of approximately $13,000,000 is in the form of a
Promissory Note and is payable quarterly upon the receipt of funds from the
sale of acquired inventory (valued at approximately $13,000,000) in the
preceding quarter but not later than March 1998, provided that up to
approximately $3,000,000 of this portion may be forgiven in certain
circumstances. The Promissory Note does not bear interest.
The third portion of the purchase price of approximately $8,500,000 is
payable in March 1998 in cash or common stock of HemaSure or a subsidiary
of HemaSure, at the Company's option, provided that all of this portion may
be forgiven in certain circumstances.
5. Net loss per share
The net loss per share is based on the weighted average number of common
and common equivalent shares outstanding during the period. Common
equivalent shares are not included in the per share calculation where the
effect of their inclusion would be antidilutive.
6. Litigation
In February 1996, Pall Corporation ("Pall") filed a complaint against the
Company in the United States District Court for the Eastern District of New
York. The Complaint alleges that the Company has infringed and is
infringing a certain U.S. patent assigned to Pall (the "Pall Patent") by
making, using and selling the Company's LeukoNet System. The Company has
received an opinion of its patent counsel to the effect that a properly
informed court would conclude the Company does not infringe any valid
enforceable claims of the Pall Patent. However, there can be no assurance
that HemaSure will prevail in the pending litigation, and an adverse
outcome in the patent infringement action would have a material adverse
effect on the Company's future business and operations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
HemaSure was established in December 1993 as a wholly-owned subsidiary of
Sepracor Inc. ("Sepracor"). Prior to that date, its business was conducted as
part of Sepracor's bioprocessing division. Effective as of January 1, 1994, in
exchange for 3,000,000 shares of Common Stock, Sepracor transferred to HemaSure
its technology relating to the manufacture, use and sale of medical devices.
In May 1996, the Company acquired the plasma product unit of Novo Nordisk A/S
(the "Denmark Acquisition"), a Denmark corporation through its newly formed
Danish subsidiary, HemaSure A/S. The purchase price for the transaction is
comprised of three portions. The first portion of approximately $1,500,000 is
payable in 1998 in cash or common stock of HemaSure or a subsidiary of
HemaSure, at the Company's option. The second portion of approximately
$13,000,000 is payable from time to time upon receipt of funds from the sale of
acquired inventory (valued at approximately $13,000,000) in the preceding
quarter but not later than 1998, provided that up to $3,000,000 of this portion
may be forgiven in certain circumstances. The third portion of the purchase
price of approximately $8,500,000 is payable in 1998 in cash or common stock of
HemaSure or a subsidiary of HemaSure, at the Company's option, provided that
all of this portion may be forgiven in certain circumstances.
The financial results for the three and six month periods ended June 30, 1996
include the results of the newly acquired plasma products business from the
date of acquisition. In addition, the Company incurred a non-recurring charge
of $500,000 relating to the purchase of in-process technology associated with
the Denmark Acquisition. Due to the Denmark Acquisition described above, the
Company believes that comparisons of its financial results for 1995 and 1996
are not necessarily meaningful.
The Company develops innovative separations and pathogen inactivation
technologies designed to set standards of safety for processing blood components
and plasma pharmaceuticals worldwide. The Company's products are designed for
use in blood centers, hospitals and pharmacies worldwide. From inception through
fiscal 1995, HemaSure has sold non-blood related filter products primarily to
Sepracor, a related party, for use in chemical processing applications. As the
Company continues to focus its efforts in the blood products sector, it does not
expect sales of its non-blood related products to continue in any material
respect. The Company's collaborative research and development efforts have been
with the U.S. Department of the Army for blood filtration related practices.
The Company's future operating results are subject to risks common to companies
in the medical technology industry, including, but not limited to, development
by the Company or its competitors of new technological innovations, dependence
on key personnel, protection of proprietary technology and compliance with FDA
regulations and similar authorities in foreign countries.
Three and six months ended June 30, 1996 and 1995
Revenues were $1,989,000 for the quarter ended June 30, 1996 compared to
$197,000 in the same period in 1995. Revenues in the second quarter 1996 include
sales of the plasma products of HemaSure A/S of $1,967,000. Revenues in the
second quarter 1995 include product sales to Sepracor, a related party, of
$108,000 and collaborafive research and development revenues of $88,000 related
to the Company's SBIR grant.
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Revenues were $2,070,000 for the first six months of 1996 compared to $571,000
for the first six months of 1995. Revenues for the six month period ended June
30, 1996 include sales of the plasma products of HemaSure A/S of $1,967,000 and
collaborative research and development revenues of $54,000 related to the
Company's SBIR grant. Revenues for the six month period ended June 30, 1995
include product sales to Sepracor of $476,000 and collaborative research and
development revenues of $88,000 related to the Company's SBIR grant.
Total cost of products sold exceeded total product sales in all periods due to
the start-up costs of new medical device product introduction and the high
costs associated with low-volume medical device production.
Research and development expenses were $1,449,000 in the second quarter of 1996
compared to $1,055,000 in the second quarter of 1995, and were $3,025,000 in the
six months ended June 30, 1996 compared to $1,965,000 in the six months ended
June 30, 1995. The increase in both the three and six month periods is primarily
attributable to a higher level of spending associated with the Company's
SteriPath Blood Pathogen Inactivation System and preparation for
commercialization of the Company's LeukoNet Pre-Storage Leukoreduction System
(the "LeukoNet System"), which received marketing clearance from the United
States Food and Drug Administration in June 1995.
In 1996, the Company incurred a non-recurring charge of $500,000 relating to the
purchase of in-process technology associated with the Denmark Acquisition.
Selling, general and administrative expenses were $2,285,000 in the three months
ended June 30, 1996 compared to $820,000 in the three months ended June 30,
1995, and were $3,500,000 in the first six months of 1996 compared to $1,550,000
in the first six months of 1995. The increase in both periods is primarily
attributable to expenses associated with preparation for commercialization of
the LeukoNet System and increased costs related to the hiring of management with
specific industry experience. Selling, general and administrative expenses for
both the three and six month periods ended June 30, 1996 include $487,000
related to activities at HemSure A/S.
Interest income, (net) increased for both the three and six month periods ended
June 30, 1996 from the same periods in 1995 primarily due to higher available
cash balances during the periods offset in part by lower average interest rates
and higher interest expense costs associated with higher average capital lease
obligation balances.
LIQUIDITY AND CAPITAL RESOURCES
The net increase in cash and cash equivalents for the six months ended June 30,
1996 was $5,245,000. This increase is attributable primarily to net cash
provided from investing activities of $15,047,000 and net cash provided from
financing activities of $402,000 offset in part by net cash used in operating
activities of $10,204,000. Net cash provided from investing activities resulted
principally from net maturities of available for sale marketable securities of
$16,809,000 offset by investments in property and equipment of $1,677,000. Net
cash used in operating activities is primarily attributable to the net loss of
$6,669,000 and an increase in both the accounts receivable and inventory
balances of $1,786,000 and $4,993,000, respectively, offset in part by an
increase in accounts payable and accrued expenses of $2,351,000.
In June 1994, the Company executed an agreement with a third party to license
certain technology. The Company agrees to pay to the third party, pursuant to
the terms of the agreement, license fees of $1,200,000 payable in four equal
annual installments, and royalties for commercial sale of any product
incorporating this technology. To date the Company has paid $900,000 under
this agreement.
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The Company believes that its available cash balances together with its current
operating plan will be sufficient to fund the Company's operations into 1997.
The Company's cash requirements may vary materially from those now planned
because of factors such as successful development of products, results of
product testing, approval process at the FDA and similar foreign agencies,
commercial acceptance of new products, patent developments and the introduction
of competitive products.
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PART H.
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
In February 1996, Pall Corporation ("Pall") filed a complaint
against the Company in the United States District Court for the
Eastern District of New York. The Complaint alleges that the
Company has infringed and is infringing a certain U.S. patent
assigned to Pall (the "Pall Patent") by making, using and selling
the Company's LeukoNet System. The Company has received an
opinion of its patent counsel to the effect that a properly
informed court would conclude the Company does not infringe any
valid enforceable claims of the Pall Patent. However, there can
be no assurance that HemaSure will prevail in the pending
litigation, and an adverse outcome in the patent infringement
action would have a material adverse effect on the Company's
future business and operations.
Items 2 - 3. None
----
Item 4. Submission of matters to a Vote of Security Holders
---------------------------------------------------
<TABLE>
At the Company's Annual Meeting of Stockholders held on May 16, 1996, the
following proposals were adopted by the vote specified below.
<CAPTION>
Proposal For Withheld
-------- --- --------
<S> <C> <C>
1. Election of Directors
Timothy J. Barberich 7,026,619 49,200
Eugene J. Zurlo 7,026,619 49,200
Rolf S. Stutz 7,026,619 49,200
David S. Barlow 7,026,619 49,200
John T. Kimbell 7,026,619 49,200
</TABLE>
<TABLE>
<CAPTION>
For Against Abstain Broker Nonvotes (1)
--- ------- ------- -------------------
<S> <C> <C> <C> <C>
2. Amendment to the Company's
Certificate of Incorporation
increasing from 12,000,000 to
20,000,000 the number of
authorized shares of Common
Stock 6,221,513 53,040 2,822 798,444
3. Amendments to the
Company's 1994 Director Option
Plan 5,060,809 581,692 10,186 1,423,132
4. Amendments to the
Company's 1994 Stock Option
Plan 4,589,273 1,052,742 10,672 1,423,132
<FN>
(1) Votes counted for purposes of determining whether a quorum is present for the meeting but
indicates that the broker or other holder was not authorized by the beneficial owner to cast a vote on
certain proposals but was authorized to cast (and did cast) a vote on at least one other proposal.
</TABLE>
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Item 5. None
----
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
10.1 Master Strategic Alliance Agreement between
HemaSure Inc. and the American Red Cross BioMedical
Services dated June 5, 1996.
10.2 Amendments to the Company's 1994 Director Option
Plan.
27.1 Financial Data Schedule
b) Reports on Form 8-K
On July 17, 1996 the Company filed Form 8-K/A which
amends the Company's Form 8-K dated May 2, 1996 to
include required financial information with respect to
the acquisition of the plasma product unit of Novo
Nordisk A/S, a Denmark corporation
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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.
HEMASURE INC.
Date: August 9, 1996 /s/ Steven H. Rouhandeh
----------------------------------------------
Steven H. Rouhandeh
President
(Principal Executive Officer)
Date: August 9, 1996 /s/ Jeffrey B. Davis
----------------------------------------------
Jeffrey B. Davis
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
Date: August 9, 1996 /s/ James B. Murphy
---------------------------------------------
James B. Murphy
Sr. Vice President Finance and Administration
(Principal Accounting Officer)
13
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Exhibit 10.1
MASTER STRATEGIC ALLIANCE AGREEMENT
-----------------------------------
THIS MASTER STRATEGIC ALLIANCE AGREEMENT ("Agreement") is entered
into this 5th day of June, 1996 by and between HemaSure Inc., a
Delaware corporation ("HEMA" or "HemaSure") and the American Red Cross
BioMedical Services ("ARCBS").
INTRODUCTION
WHEREAS, ARCBS is the nation's pre-eminent provider of blood
services, serving more than 3,000 hospitals through the generous
donations of some 22,000 people daily;
WHEREAS, HEMA is, among other things, in the business of
developing products to increase the safety of donated blood and to
improve certain blood collection and transfusion procedures; and
WHEREAS, ARCBS and HEMA (collectively, the "Parties") believe that
a strategic alliance and cooperation between them would be in their
mutual interest, all in accordance with the terms and conditions
hereinafter set forth,
NOW, THEREFORE, in consideration of the promises and the mutual
covenants of the Parties herein contained, it is hereby agreed as
follows:
1. SCOPE OF AGREEMENT
1.1 The Parties' intention under this agreement is to
facilitate the development and expansion of a strategic alliance
between them covering the following areas:
(a) a collaboration in the area of pathogen inactivation
for blood components and plasma for transfusion which collaboration may
include (i) the joint completion of development and commercialization
of HEMA's Steripath product line, (ii) the availability to ARCBS of
special pricing arrangements for HEMA's existing Steripath technology,
and/or (iii) a royalty arrangement between the Parties in the case of
any subsequently developed Steripath technology;
(b) a collaboration on HEMA's tumor cell filter project
(which is currently at the basic research level), which may involve a
structure similar to that used in pathogen inactivation;
(c) a contract to manufacture plasma proteins from
<PAGE> 2
American Red Cross volunteer plasma intermediate fractions,
co-marketing arrangement for recombinant Factor VIII and VIIa (if and
to the extent that HemaSure acquires rights to such products), the
possibility of jointly acquiring additional plasma fractionation
capacity or development of alternatives to current methods of
plasmapheresis;
(d) a co-development agreement between the Parties to
accelerate the commercialization of HEMA's second generation
leukoreduction filter in return for a royalty or special pricing
arrangement in favor of ARCBS;
(e) a collaboration agreement between the Parties
to develop and produce factors for producing a hemoglobin intermediate
solution; and
(f) a long-term supply agreement for the use of
platelets for an infusable platelet membrane product.
Each of the projects, collaborations, programs or agreements set forth
above shall be hereinafter referred to as a "Project".
1.2 Each Party agrees to negotiate in good faith the
definitive terms of the Projects described above as and when determined
by the EC.
1.3 It is understood by the Parties that this Agreement is
intended to establish a structure of open communication and
coordination so as to facilitate the expansion of the Parties'
cooperation as set forth above and is not intended to inhibit or
restrict either Party from pursuing business opportunities outside of
this Agreement where deemed appropriate by such Party.
2. ADMINISTRATION.
2.1 As soon as practicable after the Effective Date, the
Parties shall establish an Executive Committee ("EC") which shall
remain in existence for the term of this Agreement. The EC shall be
composed of one senior management representative of each of ARCBS and
HEMA who shall initially be the individuals set forth in Section 13
below and who shall each have full authority to act in the name and on
behalf of his or her company in all matters related to this Agreement.
The EC will maintain open communications to coordinate the overall
cooperation of the Parties hereunder. In this regard, the EC shall hold
a meeting at least once every three months to discuss:
(a) Status of any existing Projects and the status
-2-
<PAGE> 3
of other business activity between the Parties;
(b) General issues of business development and strategic
cooperation between the Parties, including possible multi party
cooperative efforts with other potential strategic partners;
(c) In each instance that a Project is undertaken, the
EC shall designate the responsibilities of each Party.
2.2 Meetings of the EC shall be held alternately between
HEMA's and ARCBS's facilities. An extraordinary meeting may be convened
at any time at the written request of either Party. The Party hosting a
meeting shall prepare the agenda and minutes for the meeting.
2.3 The decisions of the EC shall be made in writing by
unanimous vote and shall be binding on the Parties.
2.4 In such case as the EC decides to pursue a Project, it
shall establish the guidelines for the Parties' activity. Any issues
that may arise during any phase of a Project which cannot be resolved
by the Project teams of the Parties shall be referred to the EC for
resolution.
3. WARRANT. Prior to December 31, 1996, ARCBS may elect to receive
a warrant for the purchase of up to 400,000 shares of HemaSure Common
Stock, $.01 par value per share, at a purchase price per share of
$18.50 pursuant to the conditions and schedule set forth in Exhibit A
hereto (the "Warrant"). The Warrant shall expire four years from the
date of this Agreement. In the event that ARCBS elects not to exercise
its right to receive the Warrant, the Company and ARCBS will negotiate
in good faith a financial component in lieu thereof that may be in the
form of royalties on the sales of products which may be developed
jointly by the parties, a discount on the price of products which may
be purchased by ARCBS from HemaSure or such other form as mutually
agreed by HemaSure and the Company. The value of such financial
component will not exceed the value of the Warrant on the date of this
Agreement. In the event that HemaSure and ARCBS are unable to determine
within 60 days after commencement of negotiations the value of the
Warrant, then the matter shall be submitted to a panel of three
independent arbitrators who are investment bankers and whose decision
as to value shall be binding. ARCBS will select one such arbitrator,
HemaSure shall select the second arbitrator, and the two so selected
shall select and designate a third arbitrator.
-3-
<PAGE> 4
4. DISPUTES.
(a) AMICABLE RESOLUTION: It is the intention of the Parties
to settle amicably all differences or disputes arising from this
Agreement by conference and negotiation. The Parties will first attempt
to resolve any working level disputes through the Project team and, if
there is no resolution, through the EC. An attempt at settlement in
this manner shall be deemed to have failed when a Party informs the
other Party, in writing, of a failure to resolve the dispute at the EC
level and a period of six months elapses after such written notice
without an amicable resolution.
(b) All disputes arising between the Parties hereto in
connection with this Agreement, which cannot be settled amicably and
satisfactorily by them and which attempt at settlement shall have been
deemed to have failed in accordance with Section 4(a) above, shall be
subjected to non-binding mediation reasonably satisfactory to the
Parties for a period of [six months]. If settlement has not been
reached after such mediation, the dispute shall be finally settled
under the rules of arbitration of the American Arbitration Association
by one neutral arbitrator appointed under the rules of the American
Arbitration Association.
(c) The arbitration proceedings shall be conducted at a place
mutually acceptable to the Parties. If the place of arbitration cannot
be agreed upon by the Parties, arbitration shall be conducted in
Boston, Massachusetts. Each Party shall be responsible for its
respective costs incurred in arbitration, except that the costs and
fees imposed by the arbitrator for his expenses shall be borne equally
by the Parties.
(d) The arbitration award rendered in accordance with this
Article will be final. Judgment upon such award may be entered in any
court having jurisdiction.
(e) In the event of a breach by either Party or any of its
obligations or undertakings under Section 8, the other Party shall be
entitled to immediate injunctive relief. Such right to injunctive
relief shall be in addition to the Parties' other rights under this
Agreement.
5. IDENTIFICATION AND PUBLICITY. The Parties agree that, with
respect to any Project which the EC has decided to pursue hereunder,
they shall be identified in the marketplace as a team and they shall
take all necessary steps in order to enhance the image of the team and
the corporate visibility of each Party. Neither Party shall make or
distribute any public announcement or
-4-
<PAGE> 5
media release concerning the subject matter of this Agreement without
the prior written approval of the other Party, except as otherwise
required by law.
6. LIMITATION OF LIABILITY AND REMEDIES. IN NO EVENT SHALL A PARTY
BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION FOR LOSS OF
ANTICIPATED PROFITS, IN CONNECTION WITH AN ALLEGED BREACH OF THIS
AGREEMENT, HOWEVER CAUSED, BY NEGLIGENCE OR OTHERWISE; PROVIDED THAT
THE LIMITATION ON LIABILITY FOR LOSS OF PROFITS SHALL NOT APPLY IN THE
EVENT OF A WILLFUL OR GROSSLY NEGLIGENT BREACH OF THE PROVISIONS OF
SECTION 8 HEREOF.
7. RELATIONSHIP OF THE PARTIES. The relationship of the Parties
under this Agreement is that of independent contractors and that
relationship shall continue as such throughout the term of this
Agreement. Nothing contained in this Agreement shall be construed to
constitute either Party as a partner or agent of the other, and no
officer, employee or agent of either Party shall be deemed to be the
officer, employee or agent of the other. Neither Party shall hold
itself out as a partner or agent of the other or have the authority to
make any agreement or commitment, or incur any liability on behalf of
the other, except as specifically authorized in this Agreement.
8. CONFIDENTIAL INFORMATION. During the term of this Agreement and
for a period of seven (7) years from any termination or expiration
hereof, the Parties agree to keep in confidence and not to disclose to
any third party, or use for any purpose, except pursuant to, and in
order to carry out, the terms and objectives of this Agreement, any
Confidential Information. As used herein, "Confidential Information"
shall mean all trade secrets or confidential or proprietary information
designated as such in writing by the disclosing Party, whether by
letter or by the use of an appropriate stamp or legend, prior to or at
the time any such trade secret or confidential or proprietary
information is disclosed by the disclosing Party to the receiving
Party. Notwithstanding the foregoing, information which is orally or
visually disclosed to the receiving Party by the disclosing Party, or
is disclosed in writing without an appropriate letter, stamp or legend,
shall constitute Confidential Information if the disclosing Party,
within thirty (30) days after such disclosure, delivers to the
receiving Party a written document or documents describing such
information and referencing the place and date of such oral, visual or
written disclosure and the names of the employes or officers of the
receiving Party to whom such disclosure was made. The restrictions on
the disclosure and use of Confidential Information set forth in the
first sentence of
-5-
<PAGE> 6
this Section 8 shall not apply to any Confidential Information which
(a) was known by the receiving Party (as evidenced by the receiving
Party's written records) prior to disclosure by the disclosing Party
hereunder; (b) is or becomes part of the public domain through no fault
of the receiving Party; (c) is disclosed to the receiving Party by a
third party having a legal right to make such a disclosure; or (d) is
required to be disclosed by law or legal process (provided that the
other Party has received prior notice of such intended disclosure if
practicable under the circumstances).
9. INDEMNIFICATION.
HEMA agrees to indemnify and hold harmless ARCBS and its
directors, officers and employees from and against any and all losses,
costs, damages, fees or expenses arising out of the manufacture or sale
of any product developed pursuant to this Agreement provided that HEMA
shall have the right to control the defense or settlement of any claim
for which ARCBS is entitled to indemnification hereunder. HEMA shall
not be liable for any litigation costs or expenses incurred by ARCBS
(or its directors, officers or employees) without HEMA's prior written
consent.
10. TERM AND TERMINATION.
10.1 This Agreement shall become effective upon execution by
both Parties and shall continue in full force and effect for ten years
from the date of this Agreement, unless terminated earlier by the
mutual agreement of the Parties or in accordance with the provisions
herein.
10.2 Either Party shall have the right to terminate this
Agreement for "cause" at any time, by giving written notice to the
other Party in the event that the other Party:
(i) commits a noncurable default or violation of
this Agreement; or
(ii) commits a curable default or violation of this
Agreement which is not remedied within thirty (30) days after written
notice thereof.
11. ENTIRE AGREEMENT. This Agreement is the complete and
exclusive statement of the agreement between the Parties, which
supersedes and merges all prior proposals, understandings and all
other agreements, oral and written, between the Parties relating
to the subject matter of this Agreement. This Agreement cannot be
modified or altered except by a written instrument duly executed
-6-
<PAGE> 7
by both Parties.
12. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon, and shall inure to the benefit of successors to a Party hereto,
but shall not otherwise be assignable without the prior written
consent of both Parties.
13. NOTICES.
13.1 All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be delivered by hand
or telecopier or mailed by first class certified or registered mail,
return receipt requested, postage prepaid:
(i) if to HEMA, at HemaSure Inc., 33 Locke Drive
Marlborough, Massachusetts 01752 ((508) 485-6045), Attention:
President, or at such other address or addresses as may have been
furnished in writing by HEMA to ARCBS, with a copy to Susan W. Murley,
Esq., Hale and Dorr, 60 State Street, Boston, Massachusetts 02109
(telecopier no. (617) 526-5000); and
(ii) if to ARCBS, at 1616 North Fort Meyer Drive,
Rosslyn, Virginia 22209 (telecopier no. 703-312-5734), Attention: Niall
M. Conway, Vice President of Manufacturing, or at such other address or
addresses as may have been furnished in writing by ARCBS to HEMA.
13.2 Notices provided in accordance with this Section 12
shall be deemed delivered upon personal delivery or two business days
after deposit in the mail.
14. INVALIDITY. If any provision of this Agreement is held to
be invalid, such invalidity shall not affect the validity of the
remaining provisions.
15. EXPENSES. Each Party shall be solely responsible for its
own expenses under this Agreement.
16. CAPTIONS. All captions herein are for convenience only
and shall not be interpreted as having any substantive meaning.
17. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Delaware.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the Parties have executed this Agreement
effective the date first written above.
HEMASURE INC. AMERICAN RED CROSS BIOMEDICAL
SERVICES
By: /s/ Steven H. Rouhandeh By: /s/ Derrick McKinley
------------------------- -----------------------
Name: Steven H. Rouhandeh Name: Derrick McKinley
Title: President Title: Senior Director
of Manufacturing
and Engineering
-8-
<PAGE> 9
<TABLE>
Exhibit A
---------
<CAPTION>
Number of Shares Exercisable
Under Warrant Upon
Project Execution of Final Agreement
------- ----------------------------
<S> <C>
Pathogen inactivation
collaboration (subsection 1.1(a))* 40,000
Tumor cell filter project
(subsection 1.1(b))* 40,000
Plasma contract, plasma fractionation
agreement or plasma supply agreement,
co-marketing arrangement for
recombinant factor VIII and factor VIIa
(to extent HemaSure acquires access to
such products) and development of
alternatives to current methods of
plasmapheresis (subsection 1.1(c)) 120,000
Co-development agreement to
accelerate commercialization of
leukoreduction filters
(subsection 1.1(d))* 120,000
Collaboration to develop and
produce factors for hemoglobin
intermediate solution
(subsection 1.1(e))* 40,000
Platelet supply agreement for
infusable platelet membrane
product (subsection 1.1(f))* 40,000
<FN>
------------------
* Upon mutual agreement of the Parties, these projects may be
substituted for other projects not currently contemplated by the
Agreement.
</TABLE>
<PAGE> 1
Exhibit 10.2
AMENDMENT TO
1994 DIRECTOR OPTION PLAN
OF
HEMASURE INC.
The 1994 Director Option Plan (the "PLAN") be and hereby is amended as
follows:
1. The number 100,000 in the second line of Section 4(a) of the Plan
shall be deleted and the number 250,000 shall be inserted in
lieu thereof.
2. The last sentence of Section 5(b) of the Plan shall be deleted in
its entirety and a new sentence inserted in lieu thereof which
shall read as follows:
"Each Reelection Option granted under the Plan shall be
exercisable for 3,000 shares of Common Stock, PROVIDED, HOWEVER,
that the Reelection Options granted under the Plan for directors
re-elected at the 1996 Annual Meeting of Stockholders shall be
for 9,750 shares of Common Stock."
Adopted by the Board of Directors on March 31, 1996
Approved by the Stockholders on May 16, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HEMASURE, INC. FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 28,273
<SECURITIES> 8,002
<RECEIVABLES> 1,868
<ALLOWANCES> 0
<INVENTORY> 19,269
<CURRENT-ASSETS> 57,600
<PP&E> 13,609
<DEPRECIATION> 2,918
<TOTAL-ASSETS> 68,470
<CURRENT-LIABILITIES> 6,819
<BONDS> 0
<COMMON> 81
0
0
<OTHER-SE> 40,563
<TOTAL-LIABILITY-AND-EQUITY> 68,470
<SALES> 2,016
<TOTAL-REVENUES> 2,070
<CGS> 2,682
<TOTAL-COSTS> 2,682
<OTHER-EXPENSES> 7,025
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,669)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,669)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,669)
<EPS-PRIMARY> (0.83)
<EPS-DILUTED> 0
</TABLE>
