-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ufrf8Ixr7Kel5nBmkVK4ACQKslIjGzxorRDAHPMWwZFn5Za0Yt56L6r2pa5YPFPC wgqxTeM6b5VIZcpJeZVRFw== 0000801748-96-000015.txt : 19960814 0000801748-96-000015.hdr.sgml : 19960814 ACCESSION NUMBER: 0000801748-96-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEMACARE CORP /CA/ CENTRAL INDEX KEY: 0000801748 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 953280412 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15223 FILM NUMBER: 96610717 BUSINESS ADDRESS: STREET 1: 4954 VAN NUYS BLVD 2ND FLR CITY: SHERMAN OAKS STATE: CA ZIP: 91403 BUSINESS PHONE: 8189863883 MAIL ADDRESS: STREET 1: 4954 VAN NUYS BLVD, 2ND FL. CITY: SHERMAN STATE: CA ZIP: 91403 10-Q 1 10-Q FOR PERIOD ENDING JUNE 30, 1996 ============================================================================== 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. =============================================================================== 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 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements
HEMACARE CORPORATION CONSOLIDATED BALANCE SHEETS June 30, December 31 1996 1995 ------------ ----------- (Unaudited) 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 ============= =============
See Notes to Consolidated Financial Statements. 3 4 HEMACARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended June 30, Six months ended June 30, 1996 1995 1996 1995 ----------- ------------ ----------- ----------- 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 ============ ============ ============ ============
See Notes to Consolidated Financial Statements. 4 5 HEMACARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, 1996 1995 ------------ ------------ 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 ============ ============
See Notes to Consolidated Financial Statements. 5 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 6 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 7 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 8 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. 9 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 10 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 11 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 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 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 15
Against/ Broker Matters Put to Vote For Withheld Abstentions Non-Votes -------------------- --------- -------- ----------- ----------- 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
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 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 17 INDEX TO EXHIBITS
Method of Filing ---------------- 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
EX-27 2 FINANCIAL DATA SCHEDULE
5 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. 6-MOS DEC-31-1996 JUN-30-1996 995,626 0 1,424,820 93,438 149,495 3,031,501 2,654,979 1,693,377 4,175,950 2,282,672 0 0 0 12,312,933 (11,831,539) 4,175,950 2,678,816 2,678,816 2,494,142 2,494,142 599,052 93,438 21,234 (430,249) 0 (430,249) 0 0 0 (430,249) (.07) (.07)
EX-2.1 3 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 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 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 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 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 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 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 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 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, A-9 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. A-10 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 A-11 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. A-12 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 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 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 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. A-16 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. A-17 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 A-18 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 A-19 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 A-20 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. A-21 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 A-22 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. A-23 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 A-24 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 EX-99.1 4 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. A-26 -----END PRIVACY-ENHANCED MESSAGE-----