-----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, UWimbxVKqKnJPzTXDRyrQmA5f+cDZ6iGe2+oQDlm2M4G61LSw9PuwtfRuSSMhqiR MGpOY4wZ6Ti+PLqpxOlT5Q== 0000801748-96-000019.txt : 19961115 0000801748-96-000019.hdr.sgml : 19961115 ACCESSION NUMBER: 0000801748-96-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 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: 96661524 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 1996 THIRD QUARTER 10-Q ============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission File Number 0-15223 HEMACARE CORPORATION (Exact name of registrant as specified in its charter) State or other jurisdiction of I.R.S. Employer I.D. incorporation or organization: California Number: 95-3280412 4954 Van Nuys Boulevard Sherman Oaks, California 91403 (Address of principal executive offices) (Zip Code) ___________________ Registrant's telephone number, including area code: (818)986-3883 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES /X/ NO ___ As of November 13, 1996, 7,177,515 shares of Common Stock of the Registrant were issued and outstanding. ============================================================================== 2 INDEX HEMACARE CORPORATION PART I. FINANCIAL INFORMATION - ------- --------------------- Item 1. Financial Statements Consolidated balance sheets--September 30, 1996 and December 31, 1995 Consolidated statements of operations--Three and nine months ended September 30, 1996 and 1995 Consolidated statements of cash flows--Nine months ended September 30, 1996 and 1995 Notes to consolidated financial statements--September 30, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION - -------- ----------------- Item 1. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Matters Item 6. Exhibits and Reports on Form 8-K SIGNATURES - ---------- 2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements HEMACARE CORPORATION CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1996 1995 ------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents........................ $ 1,369,000 $ 997,000 Accounts receivable, net of allowance for doubtful accounts - $88,000 (1996) and $95,000 (1995).................................. 1,690,000 1,627,000 Product inventories.............................. 142,000 141,000 Supplies......................................... 344,000 328,000 Prepaid expenses................................. 199,000 117,000 Note receivable from officer - current........... 15,000 15,000 ------------ ------------- Total current assets.......................... 3,759,000 3,225,000 Plant and equipment, net of accumulated depreciation and amortization of $1,788,000 (1996) and $1,513,000 (1995)............ 870,000 1,051,000 Note receivable from officer - non-current........... 86,000 94,000 Other assets......................................... 98,000 87,000 ------------- ------------- $ 4,813,000 $ 4,457,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable................................. $ 721,000 $ 473,000 Accrued blood purchases.......................... 230,000 252,000 Accrued payroll and payroll taxes................ 247,000 310,000 Other accrued expenses........................... 227,000 239,000 Current obligations under capital leases......... 234,000 209,000 Reserve for discontinued operations - current.... 345,000 336,000 ------------- ------------- Total current liabilities..................... 2,004,000 1,819,000 Obligations under capital leases, net of current portion................................. 557,000 649,000 Other accrued expenses - long-term................... 187,000 163,000 Reserve for discontinued operations - non-current.... 600,000 600,000 Commitments and contingencies........................ Shareholders' equity: Common stock, without par value - 20,000,000 shares authorized, 7,176,683 and 5,911,285 issued and outstanding in 1996 and 1995, respectively............................... 13,468,000 12,179,000 Accumulated deficit.................................. (12,003,000) (10,953,000) ------------- ------------- Total shareholders' equity.................... 1,465,000 1,226,000 ------------- ------------- $ 4,813,000 $ 4,457,000 ============= =============
See Notes to Consolidated Financial Statements. 3 4 HEMACARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended September 30, Nine months ended September 30, 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Revenues: Blood products................... $ 1,645,000 $ 1,752,000 $ 5,041,000 $ 5,103,000 Blood services................... 981,000 963,000 3,073,000 2,821,000 ------------ ------------ ------------ ------------ Total revenues................. 2,626,000 2,715,000 8,114,000 7,924,000 Operating costs and expenses: Blood products................... 1,621,000 1,318,000 5,282,000 3,887,000 Blood services................... 641,000 638,000 2,085,000 1,966,000 ------------ ------------ ------------ ------------ Total operating costs and expenses...................... 2,262,000 1,956,000 7,367,000 5,853,000 ------------ ------------ ------------ ------------ Operating profit........... 364,000 759,000 747,000 2,071,000 General and administrative expense.......................... 529,000 499,000 1,759,000 1,461,000 Interest expense................. 7,000 3,000 39,000 5,000 ------------ ------------ ------------ ------------ Income (loss) from continuing operations before income taxes... (172,000) 257,000 (1,051,000) 605,000 Provision for income taxes........ -- -- -- -- Loss from discontinued operations....................... -- (232,000) -- (767,000) ------------ ------------ ------------ ------------ Net income (loss)................. $ (172,000) $ 25,000 $(1,051,000) $ (162,000) ============ ============ ============ ============ Per share amounts: Income (loss) from continuing operations....................... $ (0.03) $ 0.04 $ (0.16) $ 0.11 Loss from discontinued operations....................... -- (0.04) -- (0.14) ------------ ------------ ------------ ------------ Net income (loss)................. $ (0.03) $ 0.00 $ (0.16) $ (0.03) ============ ============ ============ ============ Weighted average common and common equivalent shares outstanding..................... 6,384,838 6,020,684 6,477,203 5,622,215 ============ ============ ============ ============
See Notes to Consolidated Financial Statements. 4 5 HEMACARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended September 30, 1996 1995 ------------- -------------- Cash flows from operating activities: Net loss........................................... $ (1,051,000) $ (162,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.................... 265,000 384,000 Provision for losses on accounts receivable...... -- 1,000 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable....... (63,000) 355,000 Increase in inventories, supplies and prepaid expenses................................ (99,000) (62,000) Increase in other assets, net.................... (11,000) (81,000) Increase (decrease) in accounts payable and accrued expenses............................ 151,000 (520,000) Increase (decrease) in other accrued expenses - long-term............................ 24,000 (13,000) Reserve for discontinued operations.............. 9,000 -- ------------- ------------ Net cash used in operating activities.............. (775,000) (98,000) ------------- ------------ Cash flows from investing activities: Decrease (increase) in note receivable from officer 8,000 (16,000) Decrease in short-term investments................. -- 300,000 Sale (purchase) of plant and equipment, net........ 8,000 (113,000) ------------- ------------ Net cash provided by investing activities.......... 16,000 171,000 ------------- ------------ Cash flows from financing activities: Net proceeds from issuance of common stock......... 1,289,000 834,000 Principal payments on line of credit and capital leases.................................... (158,000) (299,000) ------------- ------------ Net cash provided by financing activities.......... 1,131,000 535,000 ------------- ------------ Increase (decrease) in cash and cash equivalents....................................... 372,000 608,000 Cash and cash equivalents at beginning of period......................................... 997,000 786,000 ------------- ------------ Cash and cash equivalents at end of period......... $ 1,369,000 $ 1,394,000 ============= ============ Supplemental disclosure: Interest paid..................................... $ 60,000 $ 41,000 ============= ============ Items not impacting cash flows: Increase in capital lease obligations............. $ 92,000 $ 167,000 ============= ============
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 nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. Certain 1995 amounts have been reclassified to conform to the 1996 presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. From 1990 to November 1995, the Company, through its wholly owned subsidiary HemaBiologics, Inc. ("HBI"), conducted research and development of ImmupathTM, an anti-HIV hyperimmune plasma-based product intended to be used in the treatment of Acquired Immune Deficiency Syndrome ("AIDS"). In connection with this project, the Company licensed the rights to the United States patent to commercialize Immupath from Medicorp, Inc. ("Medicorp"). In November 1995, the Company's Board of Directors decided to discontinue the operations of HBI. At the time the operations were discontinued, each party to the license alleged that the other party was in breach of the agreement. (Notes 2 and 5). In September 1995, the Company formed Gateway Community Blood Program, Inc. ("Gateway"), a wholly owned subsidiary incorporated in Missouri, to provide blood products and services in portions of Missouri and Illinois. The Company opened its University of Southern California Blood Center ("USC Blood Center"), a full-service blood donation and services facility, in February 1996. The USC Blood Center facility is leased from USC and is staffed and operated by HemaCare under its Food and Drug Administration ("FDA") license. Located on the USC Health Sciences Campus in Los Angeles, California, the center provides services to the USC/Norris Comprehensive Cancer Center and Hospital and the USC University Hospital (the "USC Hospitals"). The USC Hospitals have agreed that HemaCare will be their primary provider of blood products and therapeutic services for the three- year period ending February 1999. Pathologists on the USC medical faculty provide medical direction services for the USC Blood Center as consultants to the Company. Note 2 - Discontinued Operations In November 1995, the Company's Board of Directors decided to discontinue the operations of HBI, including the research and development of Immupath and the associated specialty plasma business. In connection with this decision, the Company wrote off the remaining book value of HBI's assets and provided a 6 7 reserve for estimated operating losses from the November 30, 1995 measurement date through December 1996, the expected date of substantial completion of disposal. The loss on the disposition of HBI's operations has been accounted for as discontinued operations, and prior year financial statements have been restated to reflect the discontinuation of these operations. The net loss from such operations for the three months and nine months ended September 30, 1995 was $232,000 and $767,000, respectively. For the three-month and nine- month periods ended September 30, 1996, the Company's reserve for discontinued operations decreased by $47,000 and increased by $9,000, respectively. The reserve established for estimated HBI operating losses during the period of disposal included a $600,000 contingent liability for the resolution of the dispute with Medicorp. In July 1996, the dispute was settled without any payment by the Company. (See Note 5). In June 1996, the Company signed an amended agreement to sell substantially all the tangible assets of the discontinued operations and two of the three remaining FDA source plasma licenses. The sale and transfer of the licenses was contingent upon obtaining FDA approval which was received on October 21, 1996. The buyer has delivered a promissory note in payment of the purchase price for the tangible assets sold which is collateralized by these assets. However, the buyer's ability to make payment on the note, which was due November 2, 1996, is dependent upon the completion of a financing transaction by the buyer. If, upon completion of the sale transaction, the remaining reserve exceeds any estimated residual costs of disposition, the Company will reduce its liabilities by the amount of the remaining reserve for disposal, including the amount provided for settlement of the dispute with the license holder, and increase its net income and retained earnings in a corresponding amount. Note 3 - Line of Credit Since August 1991, the Company has maintained a line of credit with a commercial bank secured by its accounts receivable, inventory and equipment. The credit line is in effect through April 30, 1997. Under the terms of the credit line agreement, as amended, the Company may borrow up to 70% of eligible accounts receivable, up to a maximum of $700,000 and must maintain certain ratios, including working capital, as defined, of $500,000 and a tangible net worth of not less than $1.2 million prior to March 31, 1997 and not less than $1.8 million thereafter. The Company was in compliance with all covenants of its borrowing agreement, as amended, at September 30, 1996. Interest on credit line borrowings is at the lender's prime rate (8.25% at September 30, 1996) plus one-half of a percentage point. As of September 30, 1996, there was no balance outstanding under the line of credit. Note 4 - Shareholders' Equity In August 1996, the Company completed a $1.2 million private placement of 1.2 million shares of its common stock. In November 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation" ("SFAS 123"). SFAS 123 recommends changes in accounting for employee stock based compensation plans and requires certain disclosures with respect to these plans. The Company will adopt SFAS 123 prior to December 31, 7 8 1996. The Company does not expect the adoption of SFAS 123 to materially impact the Company's financial position or its results of operations. Note 5 - Commitments and Contingencies On March 11, 1994, the Company was served with a lawsuit filed by a former employee against the Company and its wholly owned subsidiary, HBI, in the Superior Court of the State of California, related to the termination of this employee and seeking relief in the amount of $550,000. A trial date has been set for October 29, 1997; however, at this stage in the proceedings, neither management nor counsel are in a position to evaluate the probable merits of the claim asserted by this former employee. Accordingly, the resolution of this lawsuit could have a material impact on the Company's financial conditions and results of operations. In November 1995, the Company terminated its license agreement with Medicorp (Note 1) due to an alleged default by the license holder. The Company also notified Medicorp that the stock purchase warrants (exercisable for 400,000 shares of HemaCare common stock at $5.50 per share) issued by the Company to Medicorp had terminated under their terms, due to the default. Medicorp denied that it had breached the license agreement and alleged that the Company was liable for royalties of approximately $425,000 under the license agreement and that its warrants remained outstanding. On July 19, 1996, the Company and Medicorp Inc. entered into a settlement agreement and mutual release resolving all disputes between them related to their February 1993 license agreement. In the Medicorp settlement agreement, the parties agreed (i) to terminate the license agreement, (ii) to mutually release each other from all prior monetary and other breaches of the license agreement, (iii) that the Medicorp warrants would remain outstanding and exercisable and (iv) that the Company would grant a nonexclusive royalty-free license to Medicorp to certain research data and other documentation associated with the Immupath project. Note 6 - Related Party Information In 1995 and 1994, the Company made a series of personal loans to Joshua Levy, then an officer and director of the Company, totaling $98,307. The proceeds of these loans were used to refinance existing debt which was collateralized by HemaCare stock owned by Dr. Levy. In January 1996, these individual notes were consolidated into a promissory note, collateralized by HemaCare stock owned by Dr. Levy, which accrues interest at a rate equal to the rate the Company pays under its line of credit (Note 3), adjusted quarterly. Interest accrued related to the loans made to Dr. Levy was $2,154 for the three months and $6,392 for the nine months ended September 30, 1996 and $2,445 for the three months and $7,092 for the nine months ended September 30, 1995, respectively. The note requires four annual installment payments of $15,000 due on January 31, with the balance of the principal and accrued interest due on January 31, 2000. The Company received its first annual installment payment of $15,000 in January 1996. Note 7 - Recent Auditing Pronouncement In the first quarter of 1996, the Company adopted Statement of Financial Auditing Standards No. 121 "Accounting for the Impairment of Long-Lived Assets 8 9 and Long-Lived Assets to be Disposed Of" ("SFAS121"). The adoption of SFAS 121 did not impact the Company's financial position or its results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparison of the Quarter and Nine Months ended September 30, 1996 and 1995. All comparisons within the following discussions are to the same period of the previous year. In late December 1995, the Gateway Community Blood Program ("Gateway") opened in St. Louis, Missouri. The University of Southern California ("USC") Blood Center, located in Los Angeles, California, opened in late February 1996. These new operations are collectively referred to as the "Expansion Operations" in the following discussions. Revenues and Operating Profit - ----------------------------- Revenues for the three month period ended September 30, 1996, decreased 3% ($89,000), and revenue for the nine month period ended September 30, 1996 increased 2% ($190,000). The Company's operating profit as a percentage of sales ("profit margin") decreased to 14% in the three month period and 9% in the nine month period of 1996 from 28% in the three month period and 26% in the nine month period of 1995, due primarily to start-up losses incurred by the Expansion Operations. Losses from Expansion Operations were $284,000 for the three months and $1,264,000 for the nine months ended September 30, 1996. The Company's profit margin before the effect of the Expansion Operations was 27% for the three month period and 26% for the nine month period ended September 30, 1996. Blood Products Blood products revenue decreased 6% for the three months and 1% for the nine months ended September 30, 1996. The decreases were due to a lower platelet sales volumes and prices in Southern California, partially offset by revenue from Gateway sales. Platelet sales volumes declined by 24% in the three month period and 16% in the nine month period of 1996, primarily due to competitive pressures. Average platelet sales prices declined by 4% for the three months and 2% for the nine month periods of 1996. Effective August 1, 1996, the Company reduced many of its blood product prices, as a part of its overall marketing strategy. As a result of the Expansion Operations, operating costs and expenses exceed revenues in the nine month period of 1996 and revenues only slightly exceed operating costs and expenses in the three month period of 1996. Before the effect of the Expansion Operations, the blood products profit margin decreased to 22% for the 1996 three months, as compared to 25% in 1995, and to 23% for the 1996 nine months, as compared to 24% in 1995. The lower 1996 profit margins were due to (1) lower platelet sales prices and (2) lower platelet and component sales volumes. 9 10 Blood Services For the three-month and nine-month periods ended September 30, 1996, blood services revenues increased 2% ($18,000) and 9% ($252,000), respectively, primarily as a result of 5% and 7% increases in the number of therapeutic procedures performed in Southern California during the 1996 three and nine month periods, respectively. The Atlanta therapeutic services operation was closed in July 1996. The profit margin on blood services increased to 35% for the three month period and to 32% for the nine month period of 1996 from 34% and 30% in the corresponding periods of 1995, respectively. General and Administrative Expense - ---------------------------------- General and administrative expense increased 6% ($30,000) for the three months and 20% ($298,000) for the nine months ended September 30, 1996. The increase was primarily due to changes in the Company's corporate structure initiated in late 1995 in conjunction with its expansion strategy. However, since the timing of additional expansion is currently uncertain and dependent upon improved operating performance and increased capitalization, in June 1996, the Company implemented a plan to reduce general and administrative expense. (See "Liquidity and Capital Resources.") As a result of this plan, general and administrative expenses decreased by 12% ($70,000) in the third quarter of 1996, as compared to the second quarter of the year. Discontinued Operations - ----------------------- In November 1995, the Company discontinued its research and development activities and established a $1 million reserve for losses during the disposal period, including $600,000 for a contingent liability related to a dispute with Medicorp, a license holder. The reserve amount is net of the proceeds expected to be realized from the sale of research and development assets. To date, results of the disposal have been more favorable than expected. In June 1996, the Company signed an amended agreement to sell most of its research and development assets, and in July 1996, the Medicorp dispute was settled without any payment by the Company. The asset sale is expected to be completed in the fourth quarter of 1996, at which time the disposal of the discontinued operations will be substantially complete. However, completion of the sale is dependent on the purchaser's ability to obtain financing. At the time the sale is completed, if the remaining reserve exceeds any estimated residual costs of disposition, the Company will reduce its liabilities by the amount of the remaining reserve for disposal, including the amount provided for settlement of the dispute with the license holder, and increase its net income and retained earnings by a corresponding amount. Although management expects that the reserve will exceed the disposal costs, there can be no assurance of this or that the reserve provided will exceed or be sufficient to cover all disposal costs. (See "Liquidity and Capital Resources".) Liquidity and Capital Resources - ------------------------------- At September 30, 1996, the Company had cash and cash equivalents of $1.4 million and working capital of $1.8 million. 10 11 The Company has a $700,000 line of credit with a commercial bank which is in effect through April 30, 1997. Under the terms of the credit line agreement, as amended, the Company may borrow up to 70% of eligible accounts receivable, up to a maximum of $700,000 and must maintain certain ratios, including working capital, as defined, of $500,000 and a tangible net worth of not less than $1.2 million prior to March 31, 1997 and not less than $1.8 million thereafter. The Company was in compliance with all covenants of its borrowing agreement, as amended, at September 30, 1996. At September 30, 1996, there were no borrowings outstanding on the credit line. In order to maintain the listing of its common stock on the Nasdaq SmallCap Market, the Company increased its capitalization through a $1.2 million private placement of its common stock which was completed in August 1996. The Company's blood products and services businesses, other than the Expansion Operations, are profitable and cash flow positive. Effective August 1, 1996, the Company reduced many of its blood product prices, as a part of its overall marketing strategy. The price reductions are intended to retain existing customers and attract new customers. However, profit margins on the affected products have been reduced. To offset the effect of the price reductions and increase the overall profitability of its operations, the Company implemented the following cost reduction and control measures beginning in June 1996: * Closing of the Atlanta-based therapeutic services business which did not achieve sustained profitability. * Reorganization of Los Angeles-based operations to increase efficiency and reduce costs. Operation of the collection, testing, manufacturing and distribution departments were reevaluated and revised to reduce personnel costs. * Reduction of general and administrative expenses. Personnel-related and other costs were critically reviewed, resulting in a significant overall reduction in these expenses. In many instances, the Company competes against the American Red Cross ("ARC") in providing its products and services to health care institutions. To date, the ARC has aggressively responded to competition from the Company, and management believes that such competition will continue. In St. Louis, prior to the opening of Gateway, the ARC provided virtually all blood products to hospitals in the greater St. Louis area. Immediately following the opening of Gateway, the ARC decreased its price for red blood cells in excess of 10%. This price decrease materially impacted Gateway's ability to market its products and services profitably. In Southern California, the Los Angeles Region Blood Service of the American Red Cross (the "Los Angeles ARC") employs pricing practices which the Company has alleged violate antitrust laws. These pricing practices may compel Los Angeles ARC customers to purchase certain blood products from the ARC at higher prices than those offered by the Company. In December 1995, the Company filed an antitrust and unfair competition complaint against the ARC with the United States District Court in the Central District of California to recover damages and secure injunctive relief. In response to the complaint, the ARC filed a motion to dismiss which was partially rejected by the Court. 11 12 The Company amended its complaint, and in November 1996, an ARC motion to dismiss the amended complaint was denied. A May 1997 trial date has been set. The Company cannot predict the outcome of this lawsuit at this time. The Company has developed a blood management program ("Blood Management Program") model which provides its hospital customers with the convenience and efficiencies of an in-house blood program without the associated regulatory and management burdens and related financial risks. The USC Blood Program is a prototype of this approach. The Company's Blood Management Programs are being marketed to: * Existing customers in Southern California and the St. Louis metropolitan area who are buying various blood products and services from the Company in a traditional buyer-vendor relationship. * Potential customers who either have their own blood programs which they prefer to out source or have traditional blood vendors who are not meeting their needs. The USC Blood Program serves the USC/Norris Comprehensive Cancer Center and Hospital and the USC University Hospital (the "Hospitals") under the terms of the Company's three-year agreements with the USC Hospitals. Under the terms of these agreements, the Company is the primary provider of blood products and services to the Hospitals and agrees to equip and operate a blood donor center (the "USC Blood Donor Center"). The Company is entitled to recoup the cost of tenant improvements for the USC Blood Donor Center through surcharges to the Hospitals. On an overall basis, this is a profitable arrangement for the Company, which is currently supplying most of the Hospitals' blood product needs from sources other than donations at the USC Blood Donor Center. However, start-up costs for the USC Blood Donor Center have temporarily reduced the overall profitability of the USC Blood Program. When the USC Blood Donor Center reaches stabilized operations, it is expected to be a profitable, stand-alone operation. To date, blood donations made at the Center have been primarily autologous or directed. To achieve a profitable level of operations, allogeneic donations (donated for general use) of platelets and whole blood must be increased. The Company is attempting to increase allogeneic donations through a platelet donor recruitment program, fixed-site blood drives and mobile blood drives which were initiated in the fourth quarter of 1996. However, there can be no assurance that the Center will be able to achieve and maintain a profitable level of stand-alone operations. Gateway opened for business and began conducting blood drives in December 1995. In June 1996, Gateway's operations were redirected from predominantly mobile blood drives, where the Company competed directly with the ARC on a regional basis, to a more profitable mix of blood products and services targeted to the needs of specific hospital customers. As a result of a substantial reduction in personnel, the cost of Gateway's operations were reduced. The Company believes that Gateway's new strategy will result in a profitable level of donations and revenue. However, the success of Gateway's operations are dependent on a number of factors and circumstances, many of which are outside the Company's control. Accordingly, there can be no assurance that profitable operations will be achieved. If profitable operations are not achieved, Gateway will be closed. The costs of such a closure are not expected to be material to the Company's overall results of operations. 12 13 In October 1996, the Company signed an agreement to provide a comprehensive blood management program to Citrus Valley Health Partners, a three-hospital healthcare system serving a population of approximately 720,000 in suburban Los Angeles. The terms of the agreement require the Company to equip and operate a blood donor center in the vicinity of the three hospitals. Management is evaluating a number of opportunities to implement the Blood Management Program in a variety of other healthcare settings. However, further expansion will require that the Company obtain additional financing and the ability to compete effectively against other blood product and service providers, including the ARC. Accordingly, there can be no assurance that the Company will be successful in marketing its Blood Management Programs or that, if successful, it will be able to obtain the funds necessary to finance such programs. In November 1995, the Company's Board of Directors decided to discontinue its research and development operations. This decision resulted in a write off of assets in the amount of approximately $2.1 million and the provision of a $1 million reserve for losses during the disposal period. To date, results of the disposal have been more favorable than expected. Approximately $9,000 of the reserve was expended in the nine months ended September 30, 1996, net of amounts received from asset sales. In June 1996, the Company signed an amended agreement to sell most of its remaining research and development assets. The asset sale is expected to be completed in the fourth quarter of 1996. However, completion of the sale is dependent on the purchaser's ability to obtain financing. See "Discontinued Operations." On March 11, 1994, the Company was served with a lawsuit filed by a former employee against the Company and its wholly owned subsidiary, HBI, in the Superior Court of the State of California, related to the termination of this employee and seeking relief in the amount of $550,000. The case is still in the discovery stage in the proceedings and neither management nor counsel are in a position to evaluate the probable merits of the claim asserted by this former employee. Accordingly, the resolution of this lawsuit could have a material impact on the Company's financial condition and results of operations. The Company anticipates that positive cash flow from its profitable operations and its cash and investments on hand will be sufficient to provide funding for the anticipated operating deficits of the Expansion Operations, to equip and operate the Citrus Valley Health Partners blood donor center and, if necessary, for the closure of Gateway, and to fund the remaining costs of disposing of its discontinued operations and meet its other working capital needs for the next 12 months. Factors Affecting Forward-Looking Information - --------------------------------------------- The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" from liability for forward-looking statements. Certain information included in this Form 10-Q and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by or on behalf of the Company) are forward-looking, such as statements relating to operational and financing plans, competition, the completion of the disposal of research and developments assets, demand for the Company's products and services, and the anticipated outcome of contingent claims against the Company. Such forward looking statements involve important risks and 13 14 uncertainties, many of which will be beyond the control of the Company. These risks and uncertainties could significantly affect anticipated results in the future, both short-term and long-term, and accordingly, such results may differ from those expressed in forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to the ability of the Company to obtain additional financing, to achieve profitability in either or both of its Expansion Operations, to improve the profitability of the Company's other operations, to expand its operations, to comply with the covenants under its bank line of credit, to effectively compete against the ARC and other competitors, to complete the sale of the Company's research and development assets on contracted terms and to resolve favorably through negotiation or litigation claims asserted against Company. Each of these risks and uncertainties as well as others are discussed in greater detail in the preceding paragraphs of this Management's Discussion and Analysis of Financial Condition and Results of Operations and in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. PART II. OTHER INFORMATION Item 1. Legal Proceedings - ------- ----------------- See disclosure in Form 10-K for the year ended December 31, 1995. Item 4. Submission of Matters to a Vote of Security Holders - ------ --------------------------------------------------- None. Item 5. Other Information - ------- ----------------- None. Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- a. Exhibits 4.1 1996 Stock Incentive Plan of the Registrant as amended and restated through September 17, 1996 10.1 Amendment to Loan Agreement between the Registrant and Bank Leumi dated November 8, 1996. 27 Financial Data Schedule for the Quarter Ending September 30, 1996. b. On August 19, 1996, HemaCare Corporation filed a Report on Form 8-K dated August 19, 1996. The Company reported Under Item 5 that the Company had completed a $1.2 million private placement of its equity securities. 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date November 13, 1996 HEMACARE CORPORATION --------------------- (Registrant) \s\ Sharon C. Kaiser -------------------------------- Sharon C. Kaiser, Vice President, Finance and Chief Financial Officer 15 16 INDEX TO EXHIBITS
Method of Filing 4.1 1996 Stock Incentive Plan of the Registrant as amended and restated through September 17, 1996...................... Filed herewith electronically 10.1 Amendment to Loan Agreement between the Registrant and Bank Leumi dated November 8, 1996......................... Filed herewith electronically 27 Financial Data Schedule for the quarter ending September 30, 1996........................................ Filed herewith electronically
16 17 EX-4 2 EXHIBIT 4.1 HEMACARE CORPORATION 1996 STOCK INCENTIVE PLAN (As Amended and Restated Through September 17, 1996) SECTION 1. Purposes. The purposes of the HemaCare Corporation 1996 Stock Incentive Plan (the "Plan") are to (i) enable HemaCare Corporation (the "Company") and Related Companies (as defined below) to attract, motivate and retain top-quality directors, officers, employees, consultants, advisers and independent contractors (including without limitation dealers, distributors and other business entities or persons providing services on behalf of the Company or a Related Company), (ii) provide substantial incentives for such directors, officers, employees, consultants, advisers and independent contractors of the Company or a Related Company ("Participants") to act in the best interests of the shareholders of the Company and (iii) reward extraordinary effort by Participants on behalf of the Company or a Related Company. For purposes of the Plan, a "Related Company" means any corporation, partnership, joint venture or other entity in which the Company owns, directly or indirectly, at least a twenty percent (20%) beneficial ownership interest. SECTION 2. Types of Awards. Awards under the Plan may be in the form of (i) Stock Options or (ii) Restricted Stock. SECTION 3. Administration. 3.1 Except as otherwise provided herein, the Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Board") or such other committee of directors as the Board shall designate, which committee in either such case shall consist solely of not less than two "non-employee directors" (as such term is defined in Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act") or any successor rule ("Rule 16b-3")) who shall serve at the pleasure of the Board, each of whom shall also be an "outside director" within the meaning of Section 162(m) of the Internal Revenue Code and Section 1.162-27 of the Treasury Regulations or any successor provision(s) thereto ("Section 162(m)"); provided, however, that if there are not two persons on the Board who meet the foregoing qualifications, any such committee may be comprised of two or more directors of the Company, none of which is an officer (other than a non-employee Chairman of the Board of the Company) or an employee of the Company or a Related Company. If no such committee has been appointed by the Board, the Plan shall be administered by the Board, and the Plan shall be administered by the Board to the extent provided in the last sentence of this Section. Such committee as shall be designated to administer the Plan, if any, or the Board is referred to herein as the "Committee." Notwithstanding any other provision of the Plan to the contrary, if such a committee has been designated to administer the Plan, all actions with respect to the administration of the Plan in respect of the members of such committee shall be taken by the Board. 1 17 3.2 The Committee shall have the following authority with respect to awards under the Plan to Participants: to grant awards to eligible Participants under the Plan; to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall deem advisable; to interpret the terms and provisions of the Plan and any award granted under the Plan; and to otherwise supervise the administration of the Plan. In particular, and without limiting its authority and powers, the Committee shall have the authority: (a) to determine whether and to what extent any award or combination of awards will be granted hereunder; (b) to select the Participants to whom awards will be granted; (c) to determine the number of shares of the common stock of the Company (the "Stock") to be covered by each award granted hereunder, provided that no Participant will be granted Stock Options on or with respect to more than 250,000 shares of Stock in any calendar year; (d) to determine the terms and conditions of any award granted hereunder, including, but not limited to, any vesting or other restrictions based on performance and such other factors as the Committee may determine, and to determine whether the terms and conditions of the award are satisfied; (e) to determine the treatment of awards upon a Participant's retirement, disability, death, termination for cause or other termination of employment or other qualifying relationship with the Company or a Related Company; (f) to determine that amounts equal to the amount of any dividends declared with respect to the number of shares covered by an award (i) will be paid to the Participant currently or (ii) will be deferred and deemed to be reinvested or (iii) will otherwise be credited to the Participant, or that the Participant has no rights with respect to such dividends; (g) to determine whether, to what extent, and under what circumstances Stock and other amounts payable with respect to an award will be deferred either automatically or at the election of a Participant, including providing for and determining the amount (if any) of deemed earnings on any deferred amount during any deferral period; (h) to provide that the shares of Stock received as a result of an award shall be subject to a right of first refusal, pursuant to which the Participant shall be required to offer to the Company any shares that the Participant wishes to sell, subject to such terms and conditions as the Committee may specify; 2 18 (i) to amend the terms of any award, prospectively or retroactively; provided, however, that no amendment shall impair the rights of the award holder without his or her consent; and (j) to substitute new Stock Options for previously granted Stock Options, or for options granted under other plans, in each case including previously granted options having higher option prices. 3.3 All determinations made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and all Participants. 3.4 The Committee may from time to time delegate to one or more officers of the Company any or all of its authorities granted hereunder except with respect to awards granted to persons subject to Section 16 of the Exchange Act. The Committee shall specify the maximum number of shares that the officer or officers to whom such authority is delegated may award, and the Committee may in its discretion specify any other limitations or restrictions on the authority delegated to such officer or officers. SECTION 4. Stock Subject to Plan. 4.1 The total number of shares of Stock reserved and available for distribution under the Plan shall be 750,000 (subject to adjustment as provided in Section 4.3); provided, however, that no award of a Stock Option or Restricted Stock may be made at any time if, after giving effect to such award, the total number of shares of Stock issuable upon exercise of all outstanding options and warrants of the Company (whether or not under the Plan) plus the total number of shares of Stock called for under any stock bonus or similar plan of the Company (including shares of Stock underlying awards of Stock Options or Restricted Stock under the Plan) would exceed thirty percent (30%) of the total number of shares of Stock outstanding at the time of such award. For purposes of the foregoing: (i) those shares issuable upon exercise of rights, options or warrants, or under a stock purchase plan, meeting the requirements for exclusion set forth at any time and from time to time in Rule 260.140.45 of the California Commissioner of Corporations shall not be counted against the thirty percent (30%) limitation; (ii) any outstanding preferred or senior common shares of the Company convertible into Stock shall be deemed converted in determining the total number of outstanding shares of Stock at any time; and (iii) any shares of Stock subject to promotional waivers under Rule 260.141 of the California Commissioner of Corporations shall not be deemed to be outstanding. Shares of Stock issuable in connection with any award under the Plan may consist of authorized but unissued shares or treasury shares. 4.2 To the extent a Stock Option terminates without having been exercised, or shares awarded are forfeited, the shares subject to such award shall again be available for distribution in connection with future awards under the Plan, subject to the limitations set forth in Section 4.1, unless the forfeiting Participant received any benefits of ownership such as dividends from the forfeited award. 3 19 4.3 In the event of any merger, reorganization, consolidation, sale of substantially all assets, recapitalization, Stock dividend, Stock split, spin-off, split-up, split-off, distribution of assets or other change in corporate structure affecting the Stock, a substitution or adjustment, as may be determined to be appropriate by the Committee in its sole discretion, shall be made in the aggregate number of shares reserved for issuance under the Plan, the number of shares subject to outstanding awards and the amounts to be paid by award holders or the Company, as the case may be, with respect to outstanding awards; provided, however, that no such adjustment shall increase the aggregate value of any outstanding award. In the event any change described in this Section 4.3 occurs and an adjustment is made in the outstanding Stock Options, a similar adjustment shall be made in the maximum number of shares covered by Stock Options that may be granted to any employee pursuant to Section 3.2(c). SECTION 5. Eligibility. Participants under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among those eligible. SECTION 6. Stock Options. 6.1 The Stock Options awarded to officers and employees under the Plan may be of two types: (i) Incentive Stock Options within the meaning of Section 422 of the Internal Revenue Code or any successor provision thereto ("Section 422"); and (ii) Non-Qualified Stock Options. If any Stock Option does not qualify as an Incentive Stock Option, or the Committee at the time of grant determines that any Stock Option shall be a Non-Qualified Stock Option, it shall constitute a Non-Qualified Stock Option. Stock Options awarded to any Participant who is not an officer or employee of the Company or a Related Company shall be Non-Qualified Stock Options. 6.2 Subject to the following provisions, Stock Options awarded to Participants under the Plan shall be in such form and shall have such terms and conditions as the Committee may determine: (a) Option Price. The option price per share of Stock purchasable under a Stock Option shall be determined by the Committee; provided, however, that the option price per share of Stock shall be not less than one hundred percent (100%) of the "Fair Market Value" (as defined below) of the Stock on the date of grant of the Stock Option; and provided, further, that if at the time of grant the Participant owns, or would be considered to own by reason of Section 424(d) of the Internal Revenue Code or any successor provision thereto, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any parent or subsidiary of the Company, the option price per share of Stock shall be not less than one hundred ten percent (110%) of the Fair Market Value of the Stock on the date of grant of the Stock Option. For purposes of the Plan, "Fair Market Value" in relation to a share of the Stock means, if the Stock is publicly traded, the closing per share bona fide bid price of the Stock on 4 20 such date. In any situation not covered above, the Fair Market Value shall be determined by the Committee in accordance with one of the valuation methods described in Section 20.2031-2 of the Federal Estate Tax Regulations or any successor provision thereto. (b) Option Term. The term of each Stock Option shall be fixed by the Committee, but in no event longer than one hundred twenty (120) months after the date of grant of such Stock Option. (c) Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee; provided, however, that in the case of Stock Options awarded to Participants other than directors, officers, consultants or independent contractors, Stock Options under any award shall become exercisable at the rate of at least twenty percent (20%) per year over five (5) years from the date the Stock Option is granted. If the Committee provides that any Stock Option is exercisable only in installments, the Committee may waive such installment exercise provisions at any time in whole or in part. (d) Method of Exercise. Stock Options may be exercised in whole or in part at any time during the option period by giving written notice of exercise to the Company specifying the number of shares to be purchased, accompanied by payment of the purchase price. Payment of the purchase price shall be made in such manner as the Committee may provide in the award, which may include cash (including cash equivalents), delivery of shares of Stock already owned by the optionee or subject to awards hereunder, any other manner permitted by law as determined by the Committee, or any combination of the foregoing. The Committee may provide that all or part of the shares received upon the exercise of a Stock Option which are paid for using Restricted Stock shall be restricted in accordance with the original terms of the award in question. (e) No Shareholder Rights. An optionee shall have no rights to dividends or other rights of a shareholder with respect to shares subject to a Stock Option until the optionee has given written notice of exercise and has paid for such shares. (f) Surrender Rights. The Committee may provide that Stock Options may be surrendered for cash upon any terms and conditions set by the Committee. (g) Non-Transferability; Limited Transferability. A Stock Option Agreement may permit an optionee to transfer the Stock Option to his or her children, grandchildren or spouse ("Immediate Family"), to one or more trusts for the benefit of such Immediate Family members, or to one or more partnerships in which such Immediate Family members are the only partners if (i) the agreement setting forth such Stock Option expressly provides that such Stock Option may be transferred only 5 21 with the express written consent of the Committee, and (ii) the optionee does not receive any consideration in any form whatsoever for such transfer. Any Stock Option so transferred shall continue to be subject to the same terms and conditions as were applicable to such Stock Option immediately prior to the transfer thereof. Any Stock Option not (x) granted pursuant to any agreement expressly allowing the transfer of such Stock Option or (y) amended expressly to permit its transfer shall not be transferable by the optionee otherwise than by will or by the laws of descent and distribution, and such Stock Option shall be exercisable during the optionee's lifetime only by the optionee. (h) Termination of Relationship. If an optionee's employment or other qualifying relationship with the Company or a Related Company terminates by reason of death, disability, retirement, voluntary or involuntary termination or otherwise, the Stock Option shall be exercisable to the extent determined by the Committee; provided, however, that unless employment or such other qualifying relationship is terminated for cause (as may be defined by the Committee in connection with the grant of any Stock Option), the Stock Option shall remain exercisable (to the extent that it was otherwise exercisable on the date of termination) for (A) at least six (6) months from the date of termination if termination was caused by death or disability or (B) at least ninety (90) days from the date of termination if termination was caused by other than death or disability. The Committee may provide that, notwithstanding the option term fixed pursuant to Section 6.2(b), a Stock Option which is outstanding on the date of an optionee's death shall remain outstanding for an additional period after the date of such death. (i) Option Grants to Participants Subject to Sect ion 16. If for any reason any Stock Option granted to a Participant subject to Section 16 of the Exchange Act is not approved in the manner provided for in clause (d)(1) or (d)(2) of Rule 16b-3, neither the Stock Option (except upon its exercise) nor the Stock underlying the Stock Option may be disposed of by the Participant until six months have elapsed following the date of grant of the Stock Option, unless the Committee otherwise specifically permits such disposition. 6.3 Notwithstanding the provisions of Section 6.2, no Incentive Stock Option shall (i) have an option price which is less than one hundred percent (100%) of the Fair Market Value of the Stock on the date of the award of the Stock Option (or less than one hundred ten percent (110%) of the Fair Market Value of the Stock on the date of award of the Stock Option if the Participant owns, or would be considered to own by reason of Section 424(d) of the Internal Revenue Code or any successor provision thereto, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any parent or subsidiary of the Company at the time of the grant of the Stock Option), (ii) be exercisable more than ten (10) years after the date such Incentive Stock Option is awarded (five (5) years after the date of award if the Participant owns, or would be considered to own by reason of 6 22 Section 424(d) of the Internal Revenue Code or any successor provision thereto, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any parent or subsidiary of the Company at the time of the grant of the Stock Option), (iii) be awarded more than ten (10) years after the effective date of the Plan (or the latest restatement of the Plan) or (iv) be transferable other than by will or by the laws of descent and distribution. In addition, the aggregate Fair Market Value (determined as of the time a Stock Option is granted) of Stock with respect to which Incentive Stock Options granted after December 31, 1986 are exercisable for the first time by a Participant in any calendar year (under the Plan and any other plans of the Company or any subsidiary or parent corporation) shall not exceed $100,000. SECTION 7. Restricted Stock. Subject to the following provisions, all awards of Restricted Stock to Participants shall be in such form and shall have such terms and conditions as the Committee may determine: (a) The Restricted Stock award shall specify the number of shares of Restricted Stock to be awarded, the price, if any, to be paid by the recipient of the Restricted Stock and the date or dates on which, or the conditions upon the satisfaction of which, the Restricted Stock will vest. The vesting of Restricted Stock may be conditioned upon the completion of a specified period of service with the Company or a Related Company, upon the attainment of specified performance goals or upon such other criteria as the Committee may determine. (b) Stock certificates representing the Restricted Stock awarded to an employee shall be registered in the Participant's name, but the Committee may direct that such certificates be held by the Company on behalf of the Participant. Except as may be permitted by the Committee, no share of Restricted Stock may be sold, transferred, assigned, pledged or otherwise encumbered by the Participant until such share has vested in accordance with the terms of the Restricted Stock award. At the time Restricted Stock vests, a certificate for such vested shares shall be delivered to the Participant (or his or her designated beneficiary in the event of death), free of all restrictions. (c) The Committee may provide that the Participant shall have the right to vote or receive dividends, or both, on Restricted Stock. The Committee may provide that Stock received as a dividend on, or in connection with a stock split of, Restricted Stock shall be subject to the same restrictions as the Restricted Stock. (d) Except as may be provided by the Committee, in the event of a Participant's termination of employment or other qualifying relationship with the Company or a Related Company before all of his or her Restricted Stock has vested, or in the event any conditions to the vesting of Restricted Stock have not been satisfied prior to any deadline for the satisfaction of such conditions set forth in the award, the shares of Restricted Stock which have not vested shall be forfeited, and the Committee may 7 23 provide that the lower of (i) any purchase price paid by the Participant and (ii) the Restricted Stock's aggregate Fair Market Value on the date of forfeiture shall be paid in cash to the Participant. (e) The Committee may waive, in whole or in part, any or all of the conditions to receipt of, or restrictions with respect to, any or all of the Participant's Restricted Stock. (f) If for any reason any Restricted Stock awarded to a Participant subject to Section 16 of the Exchange Act is not approved in the manner provided for in clause (d)(1) or (d)(2) of Rule 16b-3, the Restricted Stock may not be disposed of by the Participant until six months have elapsed following the date of award of the Restricted Stock, unless the Committee otherwise specifically permits such disposition. SECTION 8. Substitute Options in Business Combinations. If the Company at any time should succeed to the business of another corporation through a merger or consolidation, or through the acquisition of stock or assets of such corporation, Stock Options may be granted under the Plan to those employees of such corporation or its related companies who, in connection with such succession, become employees of the Company or a Related Company in substitution for options to purchase stock of such acquired corporation held by them at the time of such succession. The Committee, in its sole discretion, shall determine the extent to which such substitute Stock Options shall be granted (if at all), the persons to receive such substitute Stock Options (who need not be all optionees of such corporation), the number and type of Stock Options to be received by each such person, the exercise price of such Stock Options (which may be determined without regard to Section 6) and the terms and conditions of such substitute Stock Options; provided, however, that the exercise price of each substitute Stock Option shall be an amount such that, in the sole judgment of the Committee (and if the Stock Options to be granted are intended to be Incentive Stock Options, in compliance with Section 424(a) of the Code), the economic benefit provided by such Stock Option is not greater than the economic benefit represented by the stock option of the acquired corporation as of the date of the Company's acquisition of such corporation. Any substitute Stock Option granted under this Section 8 shall expire upon the expiration date of such other stock option or, if earlier, ten (10) years after the date of grant of the substitute Stock Option, and, notwithstanding Section 6, shall be exercisable during the period(s) in which the other stock option would have been exercisable. Any provision of this Section 8 to the contrary notwithstanding, no Stock Option shall be granted, nor any action taken, permitted or omitted, which would have the effect of causing the Plan or any awards hereunder to fail to qualify for exemption under Rule 16b-3, without the express approval of the Board. 8 24 SECTION 9. Election to Defer Awards. The Committee may permit a Participant to elect to defer receipt of an award for a specified period or until a specified event, upon such terms as are determined by the Committee. SECTION 10. Tax Withholding. 10.1 Each Participant shall, no later than the date as of which the value of an award first becomes includible in such person's gross income for applicable tax purposes, pay to the Company, or make arrangements satisfactory to the Committee (which may include delivery of shares of Stock already owned by the optionee or subject to awards hereunder) regarding payment of, any federal, state, local or other taxes of any kind required by law to be withheld with respect to the award. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company (and, where applicable, any Related Company), shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. 10.2 To the extent permitted by the Committee, and subject to such terms and conditions as the Committee may provide, a Participant may elect to have the withholding tax obligation, or any additional tax obligation with respect to any awards hereunder, satisfied by (i) having the Company withhold shares of Stock otherwise deliverable to such person with respect to the award or (ii) delivering to the Company shares of unrestricted Stock. SECTION 11. Amendments and Termination. No awards may be granted under the Plan more than ten (10) years after the date of approval of the Plan by the shareholders of the Company. The Board may discontinue the Plan at any earlier time and may amend it from time to time. No amendment or discontinuation of the Plan shall adversely affect any award previously granted without the award holder's written consent. Amendments may be made without shareholder approval except (i) if and to the extent necessary to satisfy any applicable mandatory legal or regulatory requirements (including the requirements of any stock exchange or over-the-counter market on which the Stock is listed or qualified for trading and any requirements imposed under any state securities laws or regulations as a condition to the registration of securities distributable under the Plan or otherwise), or (ii) as required for the Plan to satisfy the requirements of Section 162(m), Section 422 or any other non- mandatory legal or regulatory requirements if the Board of Directors deems it desirable for the Plan to satisfy any such requirements. SECTION 12. Change of Control. 12.1 In the event of a Change of Control, unless otherwise determined by the Committee at the time of grant or by amendment (with the holder's consent) of such grant: (a) all outstanding Stock Options awarded under the Plan shall become fully exercisable and vested; and 9 25 (b) the restrictions applicable to any outstanding Restricted Stock awards under the Plan shall lapse and such shares and awards shall be deemed fully vested. 12.2 A "Change of Control" shall be deemed to occur if: (a) individuals who, as of July 19, 1996, constitute the entire Board of Directors of the Company ("Incumbent Directors") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to such date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the then Incumbent Directors (other than an election or nomination of an individual whose assumption of office is the result of an actual or threatened election contest relating to the election of directors of the Company, as such terms are used in Rule 14a-11 under the Exchange Act), also shall be an Incumbent Director; (b) the shareholders of the Company shall approve (i) any merger, consolidation or recapitalization of the Company (or, if the capital stock of the Company is affected, any subsidiary of the Company) or any sale, lease, or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company (each of the foregoing being an "Acquisition Transaction") where (1) the shareholders of the Company immediately prior to such Acquisition Transaction would not immediately after such Acquisition Transaction beneficially own, directly or indirectly, shares representing in the aggregate more than fifty percent (50%) of (A) the then outstanding common stock of the corporation surviving or resulting from such merger, consolidation or recapitalization or acquiring such assets of the Company, as the case may be (the "Surviving Corporation"), (or of its ultimate parent corporation, if any) and (B) the Combined Voting Power (as defined below) of the then outstanding Voting Securities (as defined below) of the Surviving Corporation (or of its ultimate parent corporation, if any) or (2) the Incumbent Directors at the time of the initial approval of such Acquisition Transaction would not immediately after such Acquisition Transaction constitute a majority of the Board of Directors of the Surviving Corporation (or of its ultimate parent corporation, if any) or (ii) any plan or proposal for the liquidation or dissolution of the Company; or (c) any Person (as defined below) shall become the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of securities of the Company representing in the aggregate forty percent (40%) or more of either (i) the then outstanding shares of Company Common Stock or (ii) the Combined Voting Power of all then outstanding Voting Securities of the Company; provided, however, that notwithstanding the foregoing, a Change of Control of the 10 26 Company shall not be deemed to have occurred for purposes of this clause (c) solely as the result of: (1) an acquisition of securities by the Company which, by reducing the number of shares of Company Common Stock or other Voting Securities outstanding, increases (i) the proportionate number of shares of Company Common Stock beneficially owned by any Person to forty percent (40%) or more of the shares of Company Common Stock then outstanding or (ii) the proportionate voting power represented by the Voting Securities beneficially owned by any Person to forty percent (40%) or more of the Combined Voting Power of all then outstanding Voting Securities; or (2) an acquisition of securities directly from the Company except that this paragraph (2) shall not apply to: (A) any conversion of a security that was not acquired directly from the Company; or (B) any acquisition of securities if the Incumbent Directors at the time of the initial approval of such acquisition would not immediately after (or otherwise as a result of) such acquisition constitute a majority of the Board of the Company; provided, however, that if any Person referred to in clauses (1) or (2) of this clause (c) shall thereafter become the beneficial owner of any additional shares of Company Common Stock or other Voting Securities of the Company (other than pursuant to a stock split, stock dividend or similar transaction or an acquisition exempt under such clause (2)), then a Change of Control shall be deemed to have occurred for purposes of this clause (c). For purposes of this Section 12.2: (i) "Person" shall mean any individual, entity (including, without limitation, any corporation, partnership, trust, joint venture, association or governmental body) or group (as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act and the rules and regulations thereunder); provided, however, that "Person" shall not include the Company, any of its subsidiaries, any employee benefit plan of the Company or any of its majority-owned subsidiaries or any entity organized, appointed or established by the Company or such subsidiary for or pursuant to the terms of any such plan. (ii) "Voting Securities" shall mean all securities of a corporation having the right under ordinary circumstances to vote in an election of the Board of Directors of such corporation. 11 27 (iii) "Combined Voting Power" shall mean the aggregate votes entitled to be cast generally in the election of directors of a corporation by holders of then outstanding Voting Securities of such corporation. SECTION 13. General Provisions. 13.1 If the granting of any award under the Plan or the issuance, purchase or delivery of Stock thereunder shall require, in the determination of the Committee from time to time and at any time, (i) the listing, registration or qualification of the Stock subject or related thereto upon any securities exchange or over- the-counter market or under any federal or state law or (ii) the consent or approval of any government regulatory body, then any such award shall not be granted or exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions, if any, as shall be acceptable to the Committee. In addition, in connection with the granting or exercising of any award under the Plan, the Committee may require the recipient to agree not to dispose of any Stock issuable in connection with such award, except upon the satisfaction of specified conditions, if the Committee determines such agreement is necessary or desirable in connection with any requirement or interpretation of any federal or state securities law, rule or regulation. 13.2 Nothing set forth in this Plan shall prevent the Board from adopting other or additional compensation arrangements. Neither the adoption of the Plan nor any award hereunder shall confer upon any employee of the Company, or of a Related Company, any right to continued employment, and no award under the Plan shall confer upon any director any right to continued service as a director. 13.3 Determinations by the Committee under the Plan relating to the form, amount, and terms and conditions of awards need not be uniform, and may be made selectively among persons who receive or are eligible to receive awards under the Plan, whether or not such persons are similarly situated. 13.4 No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination or interpretation taken or made with respect to the Plan, and all members of the Board or the Committee and all officers or employees of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. SECTION 14. Provision of Financial Information. Each Participant then holding unexercised Stock Options or shares of Restricted Stock the restrictions on which have not then lapsed shall be furnished with financial statements of the Company at least annually not later than the time such financial statements are delivered to shareholders of the Company. 12 28 SECTION 15. Effective Date of Plan. The Plan shall be effective upon the later of (i) the approval of the Plan by the shareholders of the Company by a majority of the votes cast at a duly held meeting of shareholders at which a quorum representing at least a majority of the outstanding shares is, either in person or by proxy, present and voting on the Plan, (ii) August 15, 1996 and (iii) the date upon which the Company becomes subject to the version of Rule 16b-3 adopted by the Securities and Exchange Commission in Release No. 34-37260 promulgated under the Exchange Act. The Plan was duly approved by the shareholders of the Company on July 19, 1996. The Plan, as amended and restated, was most recently adopted by the Board of Directors on September 17, 1996. The Plan became effective on September 17, 1996, upon the election by the Board on that date for the Company to become subject to the version of Rule 16b-3 adopted by the Securities and Exchange Commission in Release No. 34-37260 promulgated under the Exchange Act. 29 EX-10 3 EXHIBIT 10.1 AMENDMENT TO LOAN AGREEMENT Under the terms of the Loan Agreement by and between HemaCare Corporation ("HemaCare") and Bank Leumi Le-Israel, B.M. (the "Bank"), dated April 30, 1996, HemaCare is required to maintain Tangible Net Worth, as defined, of $2 million and a Net Worth Ratio of less than 2.00 to 1.00, after September 29, 1996. The Tangible Net Worth and Net Worth Ratio provisions, as contained in the "Affirmative Covenants - Financial Covenants and Ratios" section of the Loan Agreement, are hereby amended to read as follows: Tangible Net Worth. Maintain a minimum Tangible Net Worth of not less than $370,000 through September 29, 1996 and $1,200,000 from September 30, 1996. By March 31, 1997, it shall be increased to $1.8 million. Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net Worth of less than 3.00 to 1.00 after September 30, 1996. By March 31, 1997, it shall be 2.5 to 1.00. All other provisions of the Loan Agreement are to continue in force, and nothing contained in this amendment shall be construed to (a) waive, limit, prejudice or otherwise adversely affect any rights, remedies or powers of Bank Leumi under the loan documents or (b) to waive any other defaults whether known or unknown to the Bank under the loan documents. LENDER: BORROWER: Bank Leumi Le-Israel, B.M. HemaCare Corporation By: /s/ Robert Cosof By: /s/ Hal I. Lieberman ------------------------- ----------------------- Authorized Officer Hal I. Lieberman, President and CEO BORROWER: HemaCare Corporation By: ______________________________ Hal I. Lieberman, President and CEO 30 EX-27 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from unaudited financial statements contained in Form 10-Q for the quarter ending September 30, 1996 and is qualified in its entirety to such financial statements. 9-MOS DEC-31-1996 SEP-30-1996 1,368,670 0 1,777,764 87,858 141,654 3,759,002 2,657,710 1,787,570 4,812,515 2,003,532 0 0 0 13,468,200 (12,003,177) 4,812,515 2,625,725 2,625,725 2,261,726 2,261,726 529,077 87,858 13,604 (171,636) 0 (171,636) 0 0 0 (171,636) (.03) (.03)
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