-----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, THMTJcYx//NXa/e1TV8YR2p2FDuIoWrIJQqnzB9f6RDDiHnDU8MIqoTv935bI2WB zK9++HW/fQZvefydNH9IBA== 0000801748-99-000006.txt : 19990817 0000801748-99-000006.hdr.sgml : 19990817 ACCESSION NUMBER: 0000801748-99-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: SEC FILE NUMBER: 000-15223 FILM NUMBER: 99691424 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 QUARTER ENDED JUNE 30, 1999 ============================================================================= 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, 1999 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, 1999, 7,437,582 shares of Common Stock of the Registrant were issued and outstanding. =========================================================================== INDEX HEMACARE CORPORATION PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated balance sheets - June 30, 1999 (unaudited) and December 31, 1998 Consolidated statements of operations - Three and six months ended June 30, 1999 and 1998 (unaudited) Consolidated statements of cash flows - Six months ended June 30, 1999 and 1998 (unaudited) Notes to consolidated financial statements - June 30, 1999 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 6. Exhibits SIGNATURES 2 Item 1. Financial Statements - ------- --------------------- HEMACARE CORPORATION CONSOLIDATED BALANCE SHEETS
June 30, December 31, 1999 1998 ------------ ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents........................... $ 866,000 $ 1,372,000 Marketable securities............................... 576,000 288,000 Accounts receivable, net of allowance for doubtful accounts - $439,000 (1999) and $596,000 (1998)................................... 3,110,000 3,038,000 Product inventories................................. 50,000 87,000 Supplies............................................ 635,000 604,000 Prepaid expenses.................................... 154,000 160,000 Note receivable from officer - current.............. 23,000 24,000 ------------- ------------- Total current assets........................... $ 5,414,000 $ 5,573,000 Plant and equipment, net of accumulated depreciation and amortization of $1,921,000 (1999) and $1,869,000 (1998)............. 1,188,000 1,289,000 Goodwill, net of amortization of $51,000 (1999) and $11,000 (1998)....................................... 702,000 742,000 Note receivable from officer - non-current............ 40,000 49,000 Other assets.......................................... 10,000 9,000 ------------- ------------- $ 7,354,000 $ 7,662,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.................................... $ 1,177,000 $ 1,414,000 Accrued payroll and payroll taxes................... 786,000 802,000 Accrued professional fees........................... 71,000 173,000 Other accrued expenses.............................. 127,000 418,000 Current portion of obligations under capital leases. 154,000 203,000 Current portion of notes payable.................... 136,000 109,000 Reserve for discontinued operations................. 110,000 110,000 ------------- ------------- Total current liabilities..................... 2,561,000 3,229,000 Obligations under capital leases, net of current portion.................................. 549,000 627,000 Notes payable, net of current portion................. 420,000 491,000 Other long-term liabilities........................... 24,000 24,000 Commitments and contingencies......................... Shareholders' equity: Preferred stock, no par value - 5,000,000 shares authorized, 450,000 issued and outstanding........ 75,000 75,000 Common stock, without par value - 20,000,000 shares authorized, 7,437,582 and 7,281,120 issued and outstanding in 1999 and 1998.................................... 13,649,000 13,584,000 Accumulated deficit................................. (9,924,000) (10,368,000) ------------- ------------- Total shareholders' equity............................ 3,800,000 3,291,000 ------------- ------------- $ 7,354,000 $ 7,662,000 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 3 4 HEMACARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended June 30, Six months ended June 30, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Revenues: Blood management programs.... $ 2,035,000 $ 852,000 $ 3,573,000 $ 1,703,000 Regional operations Blood products............. 1,122,000 677,000 2,189,000 1,259,000 Blood services............. 1,837,000 1,314,000 3,685,000 2,799,000 ------------- ------------ ------------- ------------- Total revenue............. 4,994,000 2,843,000 9,447,000 5,761,000 Operating costs and expenses: Blood management programs.... $ 1,747,000 $ 787,000 $ 3,207,000 $ 1,601,000 Regional operations Blood products............. 816,000 477,000 1,553,000 946,000 Blood services............. 1,430,000 944,000 2,852,000 2,062,000 ------------- ------------ ------------- ------------- Total operating costs and expenses................ 3,993,000 2,208,000 7,612,000 4,609,000 ------------- ------------ ------------- ------------- Operating profit........... 1,001,000 635,000 1,835,000 1,152,000 General and administrative expense...................... 791,000 585,000 1,477,000 1,086,000 Gain on sale of Gateway - - 100,000 - Community Blood Program...... ------------- ------------ ------------- ------------- Income from continuing operations before income taxes........................ 210,000 50,000 458,000 66,000 Provision for income taxes...... (9,000) - (14,000) - ------------- ------------ ------------- ------------- Net income................... $ 201,000 $ 50,000 $ 444,000 $ 66,000 ============= ============ ============= ============== Income per shares: Basic........................ $ 0.03 $ 0.01 $ 0.06 $ 0.01 ============= ============ ============= ============== Diluted...................... $ 0.02 $ 0.01 $ 0.06 $ 0.01 ============= ============ ============= ============== Weighted average shares outstanding - basic........ 7,392,238 7,281,120 7,336,679 7,239,318 ============ =========== ============ ============= Weighted average shares outstanding - dilutive..... 8,382,023 7,302,852 7,924,092 7,268,926 ============= ============ ============= ==============
The accompanying notes are an integral part of these consolidated financial statements. 4 5 HEMACARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, 1999 1998 ------------ ------------ Cash flows from operating activities: Net income................................................... $ 444,000 $ 66,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization............................ 146,000 76,000 Issuance of common stock and options for compensation.... 65,000 6,000 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable............... (72,000) 55,000 (Increase) decrease in inventories, supplies and prepaid expenses....................................... 13,000 (90,000) (Increase) in other assets, net.......................... (1,000) - Decrease in accounts payable, accrued expenses and other liabilities...................................... (633,000) (96,000) Other.................................................... - 1,000 ------------ ------------ Net cash provided by (used in) operating activities.......... (38,000) 18,000 Cash flows from investing activities: Decrease in notes receivable from related parties........ 10,000 8,000 Increase in marketable securities........................ (288,000) (213,000) Purchase of plant and equipment, net..................... (19,000) (4,000) ------------ ------------ Net cash used in investing activities........................ (297,000) (209,000) Cash flows from financing activities: Principal payments on line of credit, term loan and capital leases..................................... (171,000) (63,000) ------------ ------------ Net cash used in financing activities.................... (171,000) (63,000) ------------ ------------ Decrease in cash and cash equivalents.................... (506,000) (254,000) Cash and cash equivalents at beginning of period......... 1,372,000 1,249,000 ------------ ------------ Cash and cash equivalents at end of period............... $ 866,000 $ 995,000 ============ ============ Supplemental disclosure: Interest paid............................................ $ 45,000 $ 14,000 ============ ============ Income taxes paid........................................ $ 18,000 $ - ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 5 HemaCare Corporation Notes to Consolidated Financial Statements 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. 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 six months ended June 30, 1999, are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. Certain 1998 amounts have been reclassified to conform to the 1999 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, 1998. Coral Blood Services, Inc. ("CBS"), a wholly owned subsidiary of the Company, was formed in October 1998, for the purpose of purchasing substantially all of the assets of a company which had been in the business of supplying blood products and services to hospitals primarily in the eastern United States. (See Note 2.) Note 2 - Coral Blood Services - ------------------------------ In October 1998, the Company purchased, through its wholly owned subsidiary CBS, substantially all of the assets of Coral Therapeutics, Inc. ("Coral") from Coral's secured lender. Prior to the acquisition, Coral provided blood services to major university, teaching and community hospitals in Maine, New Hampshire, Massachusetts, Connecticut, New York, North Carolina and other states. The Company has concluded new contractual agreements with several former Coral customers; however, the Company operates under interim agreements with certain former Coral customers. Note 3 - Line of Credit and Note Payable - ----------------------------------------- Line of Credit The Company maintains a line of credit with a commercial bank secured by its accounts receivable, inventory and equipment. In February 1999, the commercial bank increased the Company's line of credit borrowing limit to $1.2 million, from $700,000, and converted the $600,000 balance then outstanding on the line of credit to a four-year term loan. Under the terms of the credit agreement, the Company may borrow up to 70% of eligible accounts receivable, up to a maximum of $1.2 million at an interest rate of prime plus 0.5% and must maintain certain ratios. The Company was in compliance with all covenants of its borrowing agreement at June 30,1999, and there was no balance outstanding under the line of credit. The line of credit matures in June 2000. 6 Note Payable The Company has a term note with a bank, payable in 48 monthly payments of principal and interest of approximately $15,000 through February 2003. The note bears interest at the prime rate plus one percent (8.75% at June 30, 1999). Note 4 - Commitments and Contingencies - -------------------------------------- Since 1976, California law has prohibited the infusion of blood products into patients if the donors of those products were paid unless, in the opinion of the recipient's physician, blood from a non-paid donor was not immediately available. Apheresis platelet products obtained from paid donors, including the Company's Sherman Oaks center's paid donors, are exempted from this law by a state statute which contains a "sunset" provision. Unless a new exemption is obtained, the existing exemption will expire under its sunset provision on December 31, 2001. The Company is evaluating a number of available options with regard to the expiration of the exemption. Should the Company be unable to continue to sell apheresis platelets collected from paid donors, the Company's revenue and operating profit could be materially adversely affected. The State and federal laws set forth antikickback and self- referral prohibitions and otherwise regulate financial relationships between blood banks and hospitals, physicians and other persons who refer business to them. While the Company believes its present operations comply with applicable regulations, there can be no assurance that future legislation or rule making, or the interpretation of existing laws and regulations will not prohibit or adversely impact the delivery by HemaCare of its services and products. Note 5 - Segment and Related Party Information - ---------------------------------------------- Business Segments The Company operates in three business segments, each of which represents a separate business activity. The segments and a description of their business activities follows: - - Blood Management Programs ("BMP"). Outsource programs which provide all or a major portion of the blood banking functions to a hospital. - - Blood Products. The collection, manufacture and distribution of apheresis and whole blood derived products. - - Blood Services. Therapeutic apheresis and stem cell collection procedures, autologous interoperative transfusion and donor testing. Management uses more than one measure to evaluate segment performance. However, the dominant measurements are consistent with the Company's consolidated financial statements, which present revenue from external customers and pretax income for each segment. Related Party Loan In 1995 and 1994, the Company made a series of personal loans to Dr. Joshua Levy, then an officer and director of the Company. The Company received installment payments on these loans in 1997 and 1996. Effective July 31, 1997, the Company entered into an 7 agreement with Dr. Levy to forgive the remaining balance of Dr. Levy's loans, including interest accrued at a 10% annual rate, over a five-year period so long as Dr. Levy remains employed by the Company. Note 6 - Gain on Disposition - ---------------------------- 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 Missouri and Illinois. In August 1997, Gateway's operations were sold. The Company is entitled to receive a percentage of Gateway's revenues, as defined, over the five years subsequent to the date of sale, up to maximum of $422,000. An additional payment of $100,000 was due when Gateway received a Food and Drug Administration establishment license. In the first quarter of 1999, the Company realized an additional $100,000 gain on the disposition as Gateway received its license. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ------------------------------------------------------------ HemaCare's operations include blood management programs ("Blood Management Programs" or "BMPs") and regional sales of blood products ("Blood Products") and blood services ("Blood Services"). A HemaCare Blood Management Program allows a hospital to outsource all or a portion of its blood procurement and donor center management operations and other blood related activities. Blood Products include apheresis platelets and whole blood components such as red blood cells and plasma products. Blood Services include therapeutic apheresis procedures, stem cell collection and cyropreservation and donor testing. In October 1998, the Company, through its subsidiary Coral Blood Services, Inc. ("CBS"), acquired existing blood products and services operations in the eastern United States. These consist of Blood Management Programs and other blood services provided to hospitals and medical centers. Presently, CBS is providing services to some of its customers under interim arrangements, while negotiating new contractual agreements. In June 1999, the Company commenced a Blood Management Program with the University of California at Irvine ("UCI"). The Company now operates six blood management programs. In addition to the UCI program, the Company operates the University of Southern California ("USC") program, initiated in 1996, in Southern California and four East Coast programs. The East Coast programs are Dartmouth-Hitchcock Medical Center ("DHMC"), Maine Medical Center ("MMC"), St. Vincent Hospital ("St. Vincent") and University of North Carolina ("UNC"). Prior to October 1998, Coral Therapeutics, Inc. operated these programs. 8 The Gateway Community Blood Program ("Gateway") located in St. Louis, Missouri, and the Citrus Valley Health Partners ("Citrus Valley") Blood Management Program, initiated in 1995 and 1996, failed to meet the Company's profitability criteria. Gateway was sold in August 1997, and the Citrus Valley contract was terminated in July 1998. All comparisons within the following discussions are to the comparable periods of the previous year. Revenues, Operating Profit and Net Income - ----------------------------------------- Total revenues increased 76% ($2,151,000) in the three-month and 64% ($3,686,000) in the six-month periods of 1999. Operating profit increased by 58% ($366,000) in the three-month and 59% ($683,000) in the six-month periods of 1999. Net income increased by 302% ($151,000) in the three-month and 527% ($378,000) for the six months ended June 30, 1999. In both periods, the increases were due to the addition of the CBS operations and to higher California Blood Products revenue, partially offset by lower California BMP and Blood Services revenue. In addition, the Company realized a $100,000 gain on the sale of Gateway, in the first half of 1999. Blood Management Programs Revenue increased 139% ($1,183,000) in the second quarter and 110% ($1,870,000) in the first half of 1999. BMP operating profit increased by 343% ($233,000) in the second quarter and increased by 259% ($264,000) during the six months ended June 30, 1999. The revenue increases were due to the addition of the CBS operations and the UCI BMP, partially offset by the termination of the Citrus Valley contact. The increase in operating profit resulted from the addition of the UCI BMP, improved profitability of CBS BMP operations and the termination of the Citrus Valley contract. Blood Products Blood Products revenues increased 66% ($445,000) in the second quarter and 74% ($930,000) in the first half of 1999. The operating profit on Blood Products sales increased by 53% ($106,000) in the second quarter and increased by 103% ($323,000) during the six months ended June 30, 1999. These increases were the result of higher volume apheresis platelet sales in California, partially offset by a decrease in the average price per apheresis platelet product sold and by lower whole- blood component sales volumes and prices. Blood Services Blood Services revenues increased 40% ($523,000) in the second quarter and 32% ($886,000) in the first six months of 1999. Blood services operating profit increased by 10% ($37,000) in the second quarter and increased by 13% ($96,000) in the first half of 1999. The increases resulted from the addition of CBS operations, partially offset by decreases in California-based revenue. In California, the volume of albumin sales and the average price per therapeutic apheresis procedure both decreased in 1999. When the Company is able to obtain an excess supply of albumin, a protein replacement fluid used in certain therapeutic procedures, at a favorable price, it is offered for sale to non-hospital customers. There was no excess albumin for sale in 1999. The decrease in the average price per California therapeutic procedure was due primarily to lower average usage of albumin. 9 Gain on Disposition As a part of the terms of the sale of Gateway's operations, the Company was entitled to receive a payment of $100,000 when Gateway received a Food and Drug Administration establishment license. In the first quarter of 1999, the Company realized an additional $100,000 gain on the disposition as Gateway received its license. General and Administrative Expense General and administrative expense increased 35% ($205,000) in the second quarter and 36% ($390,000) in the first half of 1999. The increase in general and administrative expenses is consistent with the additional overhead costs required to support CBS operations. As a percentage of revenue, general and administrative expenses decreased to 16% during the three and six-month periods ended June 30, 1999, compared to 21% and 19% during the same periods of 1998. Liquidity and Capital Resources At June 30, 1999, the Company had cash and cash equivalents and marketable securities of $1,442,000 and working capital of $2,853,000. The Company has a $1,200,000 line of credit with a commercial bank which is in effect through June 1, 2000. Under the terms of the credit line agreement, the Company may borrow up to 70% of eligible accounts receivable, up to a maximum of $1,200,000, and must maintain certain financial ratios. The Company was in compliance with all covenants of its borrowing agreement at June 30, 1999, and there were no borrowings outstanding on the line of credit at that date. The Company also has a term note with a bank of $600,000, payable in 48 monthly payments of principal and interest of approximately $15,000 through February 2003. The note bears interest at the prime rate plus one percent, (8.75% as of June 30, 1999). The term note is cross collateralized with the Company's line of credit. The Company has concluded new contractual agreements with several East Coast customers; however, the Company still operates under interim arrangements with certain East Coast customers. The Company expects to enter contractual agreements with most of these customers. However, there can be no assurance that satisfactory contracts can be negotiated with all major customers, and the loss of one or more major customers could have an adverse affect on the Company's revenue and operating profit. Since 1976, California law has prohibited the infusion of blood products into patients if the donors of those products were paid unless, in the opinion of the recipient's physician, blood from a non- paid donor was not immediately available. Apheresis platelet products obtained from paid donors, including the Company's Sherman Oaks center's paid donors, are exempted from this law by a state statute which contains a "sunset" provision. Unless a new exemption is obtained, the existing exemption will expire under its sunset provision on December 31, 2001. The Company is evaluating a number of alternatives with regard to continuing its California based apheresis platelet business after the year 2001. However, there can be no assurance that these initiatives will be successful. Should the Company be unable to continue to sell apheresis platelets collected from paid donors, the Company's revenue and operating profit could be materially adversely affected. 10 Joshua Levy, M.D., medical director of the Company and a shareholder, treats patients through his private practice, who require therapeutic services. Amendments to the Federal self-referral laws and related regulations which became effective in 1995 could restrict the Company's ability to provide therapeutic services to Dr. Levy's patients who are covered by Medicare or MediCal. It is estimated that revenues from these patients represented approximately 2% ($295,000) of the Company's 1998 revenues. New regulations which have been proposed but not yet issued may provide an exemption for therapeutic apheresis services. If the new regulations do not provide an exemption for therapeutic apheresis services, the Company could lose the revenue from its services for Dr. Levy's Medicare and MediCal patients. The Company anticipates that cash flow from profitable operations, collection of the accounts receivable purchased from Coral, borrowing available from its bank line of credit and its cash and investments on hand will be sufficient to provide funding for its existing needs during the next twelve months. Year 2000 Disclosure The Company has developed and is implementing a comprehensive program to address year 2000 issues. The program considers the effect of the Year 2000 on the Company's internal systems, customers, products and services, production systems, and suppliers and other critical business partners. Implementation of the Company's plan is substantially complete, and the Company believes that all identified potential Year 2000 issues have been effectively resolved. The cost to identify and resolve Year 2000 issues was not material to the Company's financial results and has been expensed as incurred. Management does not believe that there will be a significant disruption to the Company's business due to Year 2000 issues. However, the Company has begun contingency planning to address any situations which may arise in which the planning of the Company or third parties prove to be inadequate, and where practical alternatives are available. There can be no assurance that the Company's Year 2000 program or the programs of critical business partners will be successful, and failure could have a material adverse affect on the Company's business and results of operations. 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 effects of discontinued operations, the effect of state and Federal regulation and demand for the Company's products and services. 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 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 expand its operations, obtain additional financing, to repay existing debt, to retain existing customers and obtain new customers, to retain the former customers of Coral, to improve the profitability of the Company's other operations, the effects of the Year 2000 and to comply with the covenants under its bank line of credit. Each of these risks and uncertainties as well as others are discussed in greater detail in 11 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, 1998. PART II. OTHER INFORMATION Item 1. Legal Proceedings See disclosure in Form 10-K for the year ended December 31, 1998. Item 4. Submission of Matters to a Vote of Security Holders a. The Company's Annual Meeting of Shareholders (the "Meeting") held on June 17, 1999 was adjourned and reconvened on July 29, 1999. b. The following table shows the tabulation of votes for all matters put to vote at the Meeting.
Against/ Broker Matters Put to Vote For Withheld Abstain Non-Votes - -------------------------- ----------- ---------- ----------- --------- 1. Proposal to Amend bylaws to provide a range in the number of authorized directors of the Company of five to nine directors.......... 3,886,108 112,420 727,176 1,451,707 2. Election of Five Directors Alan C. Darlington...... 5,434,305 743,106 Charles R. Schwab, Jr... 5,434,305 743,106 Julien L. Steffenhagen.. 5,434,305 743,106 William D. Nicely....... 5,434,305 743,106 Robert L. Johnson....... 5,434,305 743,106 3. Proposal to amend Restated Articles of Incorporation to change the name of the Company to Comprehensive Blood Services................ 5,157,168 83,605 936,638 12 Item 6. Exhibits and Reports on Form 8-K - ------------------------------------------ a. Exhibits 4.1 Loan Agreement the Registrant and Bank Leumi USA, dated June 1, 1999 11 Net Income (Loss) per Common and Common Equivalent Share 27 Financial Data Schedule for the Quarter Ended June 30, 1999. b. The Company did not file any reports on Form 8-K during the three months ended June 30, 1999. 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 16, 1999 HEMACARE CORPORATION ---------------------------- (Registrant) /s/ David Fractor ----------------------------- David Fractor, Chief Financial Officer 13 INDEX TO EXHIBITS
Method of Filing ------------------ 4.1 Loan Agreement between the Registrant and Bank Leumi USA,dated June 1, 1999 Filed herewith electronically 11 Net Income (Loss) per Common and Common Equivalent Share................................ Filed herewith electronically 27 Financial Data Schedule for the quarter ended June 30, 1999................................... Filed herewith electronically
14 EX-4.1 2 [LOGO] BANK LEUMI USA - ------------------------- - ------------------------- - ------------------------- Member FDIC
LOAN AGREEMENT - --------------------------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $1,200,000.00 06-01-1999 05-30-2000 1-1 04A0 030 xxxxxxxxxx KXA - --------------------------------------------------------------------------------------------------------- References in the shaded area are for lender's use only and do not limit the applicability of this document to any particular loan or item. - ---------------------------------------------------------------------------------------------------------
BORROWER: HEMACARE CORPORATION LENDER: BANK LEUMI LE-ISRAEL, B.M. 4954 VAN NUYS BLVD., #201 8383 WILSHIRE BLVD. STE. 400 SHERMAN OAKS, CA 91403 BEVERLY HILLS, CA 90211 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THIS LOAN AGREEMENT BETWEEN HEMACARE CORPORATION ("BORROWER") AND BANK LEUMI LE-ISRAEL, B.M. ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN" AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (A) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B) THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (C) ALL SUCH LOANS SHALL BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT. TERM. This Agreement shall be effective as of JUNE 1, 1999, and shall continue thereafter until all Indebtedness of Borrower to Lender has been performed in full or until May 30, 2000, whichever is later. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Loan Agreement from time to time. ACCOUNT. The word "Account" means a trade account, account receivable, or other right to payment for goods sold or services rendered owing to Borrower (or to a third party grantor acceptable to Lender). ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity obligated upon an Account. ADVANCE. The word "Advance" means a disbursement of Loan funds under this Agreement. BORROWER. The word "Borrower" means HEMACARE CORPORATION. The word "Borrower" also includes, as applicable, all subsidiaries and affiliates of Borrower as provided below in the paragraph titled "Subsidiaries and Affiliates." BORROWING BASE. The words "Borrowing Base" mean: (a) $1,200,000 or (b) the sum of Seventy percent (70.000%) of Eligible Accounts. Lender may, in its discretion, from time to time, upon not less than five (5) days prior notice to Borrower, reduce the Borrowing Base to the extent that Lender determines in good faith that:(a) the dilution with respect to the Accounts for any period (based on the ratio of (i) the aggregate amount of reductions in Accounts other than as a result of payments in cash to (ii) the aggregate amount of total sales) has increased in any material respect or may be reasonably anticipated to increase in any material respect above historical levels, or (b) the general creditworthiness of Account Debtors has declined. BUSINESS DAY. The words "Business Day" mean a day on which commercial banks are open for business in the State of California. CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. CASH FLOW. The words "Cash Flow" mean net income after taxes, and exclusive of extraordinary gains and income, plus depreciation and amortization. COLLATERAL. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. The word "Collateral" includes without limitation all collateral described below in the section titled "COLLATERAL." DEBT. The word "Debt" means all of Borrower's liabilities excluding Subordinated Debt. ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time, all of Borrower's Accounts which contain selling terms and conditions acceptable to Lender. The net amount of any Eligible Account against which Borrower may borrow shall exclude all returns, discounts, credits, and offsets of any nature. Unless otherwise agreed to by Lender in writing, Eligible Accounts do not include: (a) Accounts with respect to which the Account Debtor is an officer, an employee or agent of Borrower. (b) Accounts with respect to which the Account Debtor is a subsidiary of, or affiliated with or related to Borrower or its shareholders, officers, or directors. (c) Accounts with respect to which goods are placed on consignment, guaranteed sale, or other terms by reason of which the payment by the Account Debtor may be conditional. (d) Accounts with respect to which Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to Borrower. (e) Accounts which are subject to dispute, counterclaim, or setoff. (f) Accounts with respect to which the goods have not been shipped or delivered, or the services have not been rendered, to the Account Debtor. (g) Accounts with respect to which Lender, in its sole discretion, deems the creditworthiness or financial condition of the Account Debtor to be unsatisfactory. (h) Accounts of any Account Debtor who has filed or has had filed against it a petition in bankruptcy or an application for relief under any provision of any state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who has had appointed a trustee, custodian, or receiver for the assets of such Account Debtor; or who has made an assignment for the benefit of creditors or has become insolvent or fails generally to pay its debts (including its payrolls) as such debts become due. (i) Accounts with respect to which the Account Debtor is the United States government or any department or agency of the United States. (j) Accounts which have not been paid in full within 90 DAYS from the invoice date. The entire balance of any Account of any single Account debtor will be ineligible whenever the portion of 1he Account which has not been paid within 90 DAYS from the invoice date is in excess of 25.000% of the total amount outstanding on the Account. (k) That portion of Accounts due from an Account Debtor which are in excess of 10.000% of the Debtor's aggregate dollar amount of all outstanding Accounts. ERISA. The word "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. EVENT OF DEFAULT. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT." EXPIRATION DATE. The words "Expiration Date" mean the earlier of May 30, 2000 or the date of termination of Lender's commitment to lend under this Agreement. GRANTOR. The word "Grantor" means and includes without limitation each and all of the persons or entities granting a Security Interest in any Collateral for the Indebtedness, including without limitation all Borrowers granting such a Security Interest. GUARANTOR. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with any Indebtedness. 06-01-1999 LOAN AGREEMENT Page 2 (Continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEBTEDNESS. The word "Indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them; whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such Indebtedness may be or hereafter may become barred by any statute of limitations; and whether such Indebtedness may be or hereafter may become otherwise unenforceable. LENDER. The word "Lender" means BANK LEUMI LE-ISRAEL, B.M., its successors and assigns. LETTER OF CREDIT. The words "Letter of Credit" mean a letter of credit issued by Lender on behalf of Borrower as described below in the section entitled "Letter of Credit Facility." LINE OF CREDIT. The words "Line of Credit" mean the credit facility described in the Section titled "LINE OF CREDIT" below. LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus Borrower's readily marketable securities. LOAN. The word "Loan" or "Loans" means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. NOTE. The word "Note" means and includes without limitation Borrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender, as well as any substitute, replacement or refinancing note or notes therefor. PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security interests securing Indebtedness owed by Borrower to Lender; (b) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (d) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (f) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets. RELATED DOCUMENTS. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. SECURITY AGREEMENT. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. SCURITY INTEREST. The words "Security Interest" mean and include wthout limitation any type of collateral security, whether in the form of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of 1986 as now or hereafter amended. SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and liabilities of Borrower which have been subordinated by written agreement to indebtedness owed by Borrower to Lender in form and substance acceptable to Lender. TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total assets excluding all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total Debt. WORKING CAPITAL. The words "Working Capital" mean Borrower's current assets, excluding prepaid expenses, less Borrower's current liabilities. LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time from the date of this Agreement to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed the Borrowing Base. Within the foregoing limits, Borrower may borrow, partially or wholly prepay, and reborrow under this Agreement as follows. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any Advance to or for the account of Borrower under this Agreement is subject to the following conditions precedent, with all documents, instruments, opinions, reports, and other items required under this Agreement to be in form and substance satisfactory to Lender: (a) Lender shall have received evidence that this Agreement and all Related Documents have been duly authorized, executed, and delivered by Borrower to Lender. (b) Lender shall have received such opinions of counsel, supplemental opinions, and documents as Lender may request. (c) The security interests in the Collateral shall have been duly authorized, created, and perfected with first lien priority and shall be in full force and effect. (d) All guaranties required by Lender for the Line of Credit shall have been executed by each Guarantor, delivered to Lender, and be in full force and effect. (e) Lender, at its option and for its sole benefit, shall have conducted an audit of Borrower's Accounts, Inventory, Equipment books, records, and operations, and Lender shall be satisfied as to their condition. (f) Borrower shall have paid to Lender all fees, costs, and expenses specified in this Agreement and the Related Documents as are then due and payable. (g) There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement, and Borrower shall have delivered to Lender the compliance certificate called for in the paragraph below titled "Compliance Certificate." MAKING LOAN ADVANCES. Advances under the Line of Credit may be requested either orally or in writing subject to the limitations set forth below. Lender may, but need not, require that all oral requests be confirmed in writing. Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of Borrower (a) when credited to any deposit account of Borrower maintained with Lender or (b) when advanced in accordance with the instructions of an authorized person. Lender, at its option, may set a cutoff time, after which all requests for Advances will be treated as having been requested on the next succeeding Business Day. Under no circumstances shall Lender be required to make any Advance in an amount less than $5,000.00. MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount of the outstanding Advances shall exceed the applicable Borrowing Base, Borrower, immediately upon written or oral notice from Lender, shall pay to Lender an amount equal to the difference between the outstanding principal balance of the Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to Lender in full the aggregate unpaid principal amount of all Advances then outstanding and all accrued unpaid interest, together with all other applicable fees, costs and charges, if any, not yet paid. LOAN ACCOUNT. Lender shall maintain on its books a record of account in which Lender shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the credit facility. Lender shall provide Borrower with periodic statements of Borrower's account, which statements shall be considered to be correct and conclusively binding on Borrower unless Borrower notifies Lender to the contrary within thirty (30) days after Borrower's receipt of any such statement which Borrower deems to be incorrect. COLLATERAL. To secure payment of the Line of Credit and performance of all other Loans, obligations and duties owed by Borrower to Lender, Borrower (and others, if required) shall grant to Lender Security Interests in such property and assets as Lender may require (the "Collateral"). Lender's Security Interests in the Collateral shall be continuing liens and shall include the proceeds and products of the Collateral, including without limitation the proceeds of any Insurance. With respect to the Collateral, Borrower agrees and represents and warrants to Lender: PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such financing statements and to take whatever other actions are requested by Lender to perfect and continue Lender's Security Interests in the Collateral. Upon request of Lender, Borrower will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Borrower will note Lender's interest upon any and all chattel paper if not delivered to Lender for possession by Lender. Contemporaneous with the execution of this Agreement, Borrower will execute one or more UCC financing statements and any similar statements as may be required by applicable law, and will file such financing statements and all such similar statements in the appropriate location or locations. Borrower hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue any Security Interest. Lender may at any time, and without further authorization from Borrower, file a carbon, photograph, facsimile, or other reproduction of any financing statement for use as a financing statement. Borrower will reimburse Lender for all expenses for the perfection, termination, and the continuation of the perfection of Lender's security interest in the Collateral. Borrower promptly will notify Lender of any change in Borrower's name including any change to the assumed business names of Borrower. Borrower also promptly will notify Lender of any change in Borrower's Social Security Number or Employer Identification Number. Borrower further agrees to notify Lender in writing prior to any change in address or location of Borrower's principal governance office or should Borrower merge or 06-01-1999 LOAN AGREEMENT Page 3 (Continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- consolidate with any other entity. COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall, keep correct and accurate records of the Collateral, all of which records shall be available to Lender or Lender's representative upon demand for inspection and copying at any reasonable time. With respect to the Accounts, Borrower agrees to keep and maintain such records as Lender may require, including without limitation information concerning Eligible Accounts and Account balances and agings. With respect to the Inventory, Borrower agrees to keep and maintain such records as Lender may require, including without limitation information concerning Eligible Inventory and records itemizing and describing the kind, type, quality, and quantity of Inventory, Borrower's Inventory costs and selling prices, and the daily withdrawals and additions to Inventory. With respect to the Equipment, Borrower agrees to keep and maintain such records as Lender may require, including without limitation information concerning Eligible Equipment and records itemizing and describing the kind, type, quality, and quantity of Equipment, Borrower's Equipment costs, and the daily withdrawals and additions to Equipment. The following is an accurate and complete list of all locations at which Borrower keeps or maintains business records concering Borrower's Accounts, Inventory and Equipment: 4954 VAN NUYS BOULEVARD, #201, SHERMAN OAKS, CA 91403. COLLATERAL SCHEDULES. Concurrently with the execution and delivery of this Agreement, Borrower shall execute and deliver to Lender schedules of Accounts, Inventory and Equipment and schedules of Eligible Accounts, Eligible Inventory and Eligible Equipment, in form and substance satisfactory to the Lender. Thereafter Supplemental schedules shall be delivered according to the following schedule: SUBMISSION OF MONTHLY ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AGINGS WITHIN FIFTEEN (15) DAYS OF THE FOLLOWING MONTH. REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the Accounts, Borrower represents and warrants to Lender: (a) Each Account represented by Borrower to be an Eligible Account for purposes of this Agreement conforms to the requirements of the definition of an Eligible Account; (b) All Account information listed on schedules delivered to Lender will be true and correct, subject to immaterial variance; and (c) Lender, its assigns, or agents shall have the right at any time and at Borrower's expense to inspect, examine, and audit Borrower's records and to confirm with Account Debtors the accuracy of such Accounts. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of Loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists: ORGANIZATION. Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the State of California and is validly existing and in good standing in all states in which Borrower is doing business. Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states in which the failure to so qualify would have a material adverse effect on its businesses or financial condition. AUTHORIZATION. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extent to be executed, delivered or performed by Borrower, have been duly authorized by all necessary action by Borrower; do not require the consent or approval of any other person, regulatory authority or governmental body; and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (b) any law, governmental regulation, court decree, or order applicable to Borrower. FINANCIAL INFORMATION. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. PROPERTIES. Except for Permitted Liens, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years. HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (a) During the period of Borrower's ownership of the properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or substance by any person on, under, about or from any of the properties. (b) Borrower has no knowledge of, or reason to believe that there has been (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance on, under, about or from the properties by any prior owners or occupants of any of the properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters. (c) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the properties shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under, about or from any of the properties; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Borrower authorizes Lender and its agents to enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the properties for hazardous waste and hazardous substances. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to Borrower's ownership or interest in the properties, whether or not the same was or should have been known to Borrower. The provisions of this section of the Agreement, including the obligation to indemnity, shall survive the payment of the Indebtedness and the termination or expiration of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the properties, whether by foreclosure or otherwise. LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. TAXES. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. BINDING EFFECT. This Agreement, the Note, all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note and all of the Related Documents are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for business or commercial related purposes. EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has not withdrawn from any such plan or initiated steps to do so, (iii) no steps have been taken to terminate any such plan, and (iv) there are no unfunded liabilities other than those previously disclosed to Lender in writing. LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business, or Borrower's Chief executive office, if Borrower has more than one place of business, is located at 4954 VAN NUYS BLVD., #201, SHERMAN OAKS, CA 91403. Unless Borrower has designated otherwise in writing this location is also the office or offices where Borrower keeps its records concerning the Collateral. INFORMATION. All information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of Borrower to Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees that Lender, without independent investigation, is relying upon the above representations and warranties in extending Loan Advances to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. 06-01-1999 LOAN AGREEMENT PAGE 4 (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will: LITIGATION. Promptly inform lender in writing of (a) all material adverse changes in Borrower's financial condition, and (b) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. FINANCIAL RECORDS. Maintain its books and records in accordance with generally accepted accounting principles, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times. ADDITIONAL INFORMATION. Furnish such additional information and statements, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may request from time to time. FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and ratios: TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less than $2,500,000.00. NET WORTH RATIO. Maintain a ratio of Total Liabilities to Tangible Net Worth of less than 2.00 to 1.00. WORKING CAPITAL. Maintain Working Capital in excess of $1,500,000.00. CURRENT RATIO. Maintain a ratio of Current Assets to Current Liabilities in excess of 1.00 to 1.00. OTHER RATIO. Maintain a ration of"EBITDA", WHICH MEANS FOR ANY PERIOD, THE SUME OF (A) NET INCOME FOR SUCH PERIOD AND (B) THE FOLLOWING, TO THE EXTENT DEDUCTED IN DETERMINING SUCH NET INCOME: (I) DEPRECIATION AND AMORTIZATION, (II) INCOME TAXES, AND (III) INTEREST EXPENSE DURING FISCAL YEAR 2000 OF 2.50 TO 1.00. Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. INSURANCE. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies reasonably acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require. INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (f) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. OTHER AGREEMENTS. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with generally accepted accounting practices. Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against Borrower's properties, income, or profits. PERFORMANCE. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the Related Documents in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement or under any of the Related Documents. OPERATIONS. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Americans With Disabilities Act and with all minimum funding standards and other requirements of ERISA and other laws applicable to Borrower's employee benefit plans. INSPECTION. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender at least annually and at the time of each disbursement of Loan proceeds with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects with all environmental protection federal, state and local laws, statutes, regulations and ordinances; not cause or permit to exist, as a result of an intentional or unintentional action or omission on its part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law, rule, regulation or guideline, or the interpretation or application of any thereof by any court or administrative or governmental authority (including any request or policy not having the force of law) shall impose, modify or make applicable any taxes (except U.S. federal, state or local income or franchise taxes imposed on Lender), reserve requirements, capital adequacy requirements or other obligations which would (a) increase the cost to Lender for extending or maintaining the credit facilities to which this Agreement relates, (b) reduce the amounts payable to Lender under this Agreement or the Related Documents, or (c) reduce the rate of return on Lender's capital as a consequence of Lender's obligations with respect to the credit facilities to which this Agreement relates, then Borrower agrees to pay Lender such additional amounts as will compensate Lender therefor, within five (5) days after Lender's written demand for such payment, which demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Borrower, which explanation and calculations shall be conclusive in the absence of manifest error. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume additional indebtedness for borrowed money, including capital leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets, or (c) sell with recourse any of Borrowers accounts, except to Lender. 06-01-1999 LOAN AGREEMENT PAGE 5 (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged, (b) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change ownership, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, (c) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of stock of Borrower, or (d) purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure. LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or assets, (b) purchase, create or acquire any interest in any other enterprise or entity, or (c) incur any obligation as surety or guarantor other than in the ordinary course of business. CESSATION OF ADVANCES. If lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (a) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs A material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (e) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred. NOTICE OF LITIGATION. Debtor will promptly give notice to Lender in writing of any proceedings against Debtor involving amounts in excess of $25,000.00 not fully covered by insurance, any substantial claim or dispute which may exist between Debtor and any Person, any labor controversy resulting in or threatening to result in a strike against Debtor, or any proposal by any public authority to acquire a material portion of the assets or business of Debtor. NOTICE OF UNINSURED LOSS. Debtor shall give Lender written notice of any uninsured loss in excess of $25,000.00 in each instance. ADDITIONAL FINANCIAL COVENANT. 1. Monthly internal financial statements and cash flows within Twenty (20) days of the following month. 2. Quarterly 10Q statements within forty five (45) days after the close of each quarter. 3. Fiscal year end Certified Public Accountant audited 10K Financial Statements due within one hundred twenty days of year end. REPLACEMENT OF PRIOR LOAN AGREEMENT. This Agreement replaces and supersedes that certain Loan Agreement, dated as of February 5, 1999, as amended from time to time, between Borrower and Lender. YEAR 2000 BORROWER REPRESENTATIONS AND COVENANT. The borrower has (i) undertaken a sufficient inventory, review and assessment of all areas within its business and operations that could be adversely affected by the failure of the borrower to be Year 2000 Compliant on a timely basis, (ii) developed a plan and timeline for becoming Year 2000 compliant on a timely basis, (iii) to date, implemented that plan in accordance with that timeline in all material respects and, (iv) made inquiry of its key suppliers, vendors and customers as to whether such person(s) will, on a timely basis, be Year 2000 Complaint in all material respects and on the basis of such inquiry reasonably believes that all such person(s) will, on a timely basis, be Year 2000 Compliant. "Year 2000 Compliant" shall mean that, in all material respects, all computer and software related applications shall be able to recognize and perform properly, date sensitive functions involving dates prior to and after December 31, 1999. No later than December 31, 1998, the borrower shall have completed testing to verify whether all of its computer and software related applications are Year 2000 Compliant. The borrower shall take all action necessary to ensure that the borrower shall be Year 2000 Compliant and that no material adverse change will arise in the borrower's financial condition as a result of its efforts or failure to be Year 2000 Compliant. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on the Loans. OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. FALSE STATEMENTS. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any material respect at the time made or furnished, or becomes false or misleading at any time thereafter. DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Agreement to create a valid and perfected Security Interest) at any time and for any reason. INSOLVENCY. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the Indebtedness, or by any governmental agency. This includes a garnishment, attachment, or levy on or of any of Borrowers deposit accounts with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower or Grantor, as the case may be, as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding, and if Borrower or Grantor gives Lender written notice of the creditor or forfeiture proceeding and furnishes reserves or a surety bond for the creditor or forfeiture proceeding satisfactory to Lender. EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. Lender, at its option, may, but shall not be required to, permit the Guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure the Event of Default. CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. ADVERSE CHANGE. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. INSECURITY. Lender, in good faith, deems itself insecure. RIGHT TO CURE. If any default, other than a Default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured (and no Event of Default will have occurred) if Borrower or Grantor, as the case may be, after receiving written notice from Lender demanding cure of such default: (a) cures the default within fifteen (15) days; or (b) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: AMENDMENTS. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as 06-01-1999 LOAN AGREEMENT PAGE 6 (CONTINUED) =============================================================================== to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF LOS ANGELES COUNTY, THE STATE OF CALIFORNIA. LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. CAPTION HEADINGS. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under this Agreement shall be joint and several, and all references to Borrower shall mean each and every Borrower. This means that each of the Borrowers signing below is responsible for ALL obligations in this Agreement. CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loans irrespective of the failure or insolvency of any holder of any interest in the Loans. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's expenses, including without limitation attorneys' fees, incurred in connection with the preparation, execution, enforcement, modification and collection of this Agreement or in connection with the Loans made pursuant to this Agreement. Lender may pay someone else to help collect the Loans and to enforce this Agreement, and Borrower will pay that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post- judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. NOTICES. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimilie, and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower will keep Lender informed at all times of Borrower's current address(es). SEVERABILITY. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any subsidiary or affiliate of Borrower. SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower shall not, however, have the right to assign its rights under this Agreement or any interest therein, without the prior written consent of Lender. SURVIVAL. All warranties, representations, and covenants made by Borrower In this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement shall be considered to have been relied upon by Lender and will survive the making of the Loan and delivery to Lender of the Related Documents, regardless of any investigation made by Lender or on Lender's behalf. TIME IS OF THE ESSENCE. Time is of the essence in the performance of this Agreement. WAIVER. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any obligations of Borrower or of any Grantor as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required, and in all cases such consent may be granted or withheld in the sole discretion of Lender. BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JUNE 1, 1999. BORROWER: HEMACARE CORPORATION BY: /s/ Sharon C. Kaiser BY: /s/ Williamd D. Nicely --------------------------- ------------------------- Authorized Officer Authorized Officer LENDER: BANK LEUMI LE-ISRAEL, B.M. BY: /s/ -------------------------- AUTHORIZED OFFICER [LOGO] BANK LEUMI USA - --------------------------- - --------------------------- - --------------------------- Member FDIC
PROMISSORY NOTE - --------------------------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $1,200,000.00 06-01-1999 05-30-2000 1-1 04A0 030 xxxxxxxxxx KXA - --------------------------------------------------------------------------------------------------------- References in the shaded area are for lender's use only and do not limit the applicability of this document to any particular loan or item. - ---------------------------------------------------------------------------------------------------------
BORROWER: HEMACARE CORPORATION LENDER: BANK LEUMI LE-ISRAEL, B.M. 4954 VAN NUYS BLVD., #201 8383 WILSHIRE BLVD. STE. 400 SHERMAN OAKS, CA 91403 BEVERLY HILLS, CA 90211 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT: $1,200,000 INITIAL RATE: 8.750% DATE OF NOTE: JUNE 1, 1999
PROMISE TO PAY. HEMACARE CORPORATION ("BORROWER") PROMISES TO PAY TO BANK LEUMI USA ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF ONE MILLION TWO HUNDRED THOUSAND & 00/100 DOLLARS ($1,200,000.00), TOGETHER WITH INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE. PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON MAY 30, 2000. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING JUNE 30, 1999, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collections costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the reference rate as established by Bank Leumi USA from time to time as its base rate. (the AIndex@). The Index is not necessarily the lowest rate charged by Lender on its loans and is set by Lender in its sole discretion. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender will tell Borrower the current index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each day. THE INDEX CURRENTLY IS 7.750%. THE INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 0.500 PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 8.250%. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a MINIMUM INTEREST CHARGE OF $250.00. Other than Borrower's obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by the Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, they will reduce the principal balance due. LATE CHARGE. If a payment is 10 DAYS OF MORE LATE, Borrower will be charged 3.000% OF THE UNPAID PORTION OF THE REGULARLY SCHEDULED PAYMENT OF $25.000, WHICHEVER IS GREATER. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note or any other agreement or loan Borrower has with Lender. (c) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect either now or at the time made or furnished. (d) Borrower has become insolvent, a receiver is appointed for any part of Borrower's property. Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (e) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (f) Any guarantor dies or any of other events described in this default section occurs with respect to any guarantor of this Note. (g) A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. (h) Lender in good faith deems itself insecure. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured (and no event of default will have occurred) if Borrower, after receiving written notice from Lender demanding cure of such default: (a) cures the default within fifteen (15) days: or (b) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to product compliance as soon as reasonably practical. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Upon Borrower's failure to pay all amounts declared due pursuant to this section, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, increase the variable interest rate on this Note to 5.500 percentage points over the Index. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuite, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgement collection services. Borrower also will pay court costs, in addition to all other sums provided by law. THE NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF LOS ANGELES COUNTY, THE STATE OF CALIFORNIA. LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. LINE OF CREDIT: This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following party or parties are authorized as provided in this paragraph to request advances under the line of credit until Lender receives from Borrower at Lender's address shown above written notice of revocation of their authority: SHARON KAISER, VICE PRESIDENT / CHIEF FINANCIAL OFFICER; WILLIAM D. NICELY, CHIEF EXECUTIVE OFFICER; AND JOANN STOVER, SECRETARY. (MINIMUM OF $5,000 PER REQUEST). Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantee of this Note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (e) Lender in good faith deems itself insecure under this Note or any other agreement between Lender and Borrower. 06-01-1999 PROMISSORY NOTE PAGE 2 (Continued) - -------------------------------------------------------------------------- - -------------------------------------------------------------------------- GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETE COPY OF THE NOTE. BORROWER: HEMACARE CORPORATION x /s/ Sharon C. Kaiser x /s/ William D. Nicely ------------------------- ------------------------ Authorized Officer Authorized Officer - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [LOGO] BANK LEUMI USA - --------------------------- - --------------------------- - --------------------------- Member FDIC
DISBURSEMENT REQUEST AND AUTHORIZATION - --------------------------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $1,200,000.00 06-01-1999 05-30-2000 1-1 04A0 030 xxxxxxxxxx KXA - --------------------------------------------------------------------------------------------------------- References in the shaded area are for lender's use only and do not limit the applicability of this document to any particular loan or item. - ---------------------------------------------------------------------------------------------------------
BORROWER: HEMACARE CORPORATION LENDER: BANK LEUMI LE-ISRAEL, B.M. 4954 VAN NUYS BLVD., #201 8383 WILSHIRE BLVD. STE. 400 SHERMAN OAKS, CA 91403 BEVERLY HILLS, CA 90211 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LOAN TYPE. This is a Variable Rate (0.500% over reference rate as established by Bank Leumi USA from time to time as its base rate., making an initial rate of 8.20%), Revolving Line of Credit Loan to a Corporation for $1,200,000.00 due on June 1, 1999. This is an unsecured renewal loan. PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for: / / PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT /x/ BUSINESS (INCLUDING REAL ESTATE INVESTMENT) SPECIFIC PURPOSE. The specific purpose on this loan is: WORKING CAPITAL DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be disbursed until all of Lender's conditions for making the loan have been satisfied. Please disburse the loan proceeds of $1,200,000.00 as follows: AMOUNT PAID ON BORROWER'S ACCOUNT: $1,200,000.00 $1,200,000.00 Payment on Loan #0201660600-1-1 (RNW) -------------- NOTE PRINCIPAL: $1,200,000.00 CHARGES PAID IN CASE. Borrower has paid or will pay in cash as agreed the following charges: PREPAID FINANCE CHARGES PAID IN CASH: $ 0.00 OTHER CHARGES PAID IN CASH: $150.00 $150.00 Documentation Fee ------- TOTAL CHARGES PAID IN CASH: $150.00 AUTOMATIC PAYMENTS. Borrower hereby authorized Lender automatically to deduct from Borrower's account numbered xx-xxxxxx the amount of any loan payment. If the funds in the account are insufficient to cover any payment, Lender shall not be obligated to advance funds to cover the payment. At any time and for any reason, Borrower or Lender may voluntarily terminate automatic Payments. COSTS AND CHARGES. Debit DDA #xx-xxxxxx for the fees shown above. FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS AUTHORIZATION IS DATED FEBRUARY 5, 1999. BORROWER: HEMACARE CORPORATION x /s/ Sharon C. Kaiser x /s/ William D. Nicely ------------------------- ----------------------- Authorized Officer Authorized Officer - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EX-11 3 HEMACARE CORPORATION EXHIBIT 11 Net Income (Loss) per Common and Common Equivalent Share
Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 ---------- --------- ---------- ---------- BASIC Weighted average common shares used to compute basic earnings (loss) per share..... 7,392,238 7,281,120 7,336,679 7,239,318 ========== ========== ========== ========== Net income (loss)............... $ 201,252 $ 50,000 $ 444,252 $ 66,000 ========== ========== ========== ========== Basic net income (loss) per share............ $ 0.03 $ 0.01 $ 0.06 $ 0.01 ========== ========== =========== ========== DILUTED Weighted average common shares used to compute basic earnings (loss) per share..... 7,392,238 7,281,120 7,336,679 7,239,318 Dilutive preferred equivalent shares......... 500,000 - 500,000 - Dilutive common equivalent shares attri- butable to stock options (based on average market price)....................... 457,614 21,732 72,394 29,608 Dilutive common equivalent shares attri- butable to warrants (based on average market price)....................... 34,785 - 15,379 - ---------- ---------- ---------- ---------- Weighted average common shares and equivalents used to compute diluted earnings (loss) per share................... 8,384,637 7,302,852 7,924,452 7,268,926 ========== ========== ========== ========== Net income (loss).......... $ 201,252 $ 50,000 $ 444,252 $ 66,000 ========== ========== ========== ========== Dilutive net income (loss) per share......... $ 0.02 $ 0.01 $ 0.06 $ 0.01 ========== ========== ========== ==========
EX-27 4
5 This schedule contains summary financial information extracted from unaudited financial statements contained in Form 10-Q for the Quarter ending June 30, 1999 and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-1999 JUN-30-1999 866,000 576,000 3,549,000 439,000 685,000 5,414,000 3,109,000 1,921,000 7,354,000 2,561,000 0 0 75,000 13,649,000 00 7,354,000 9,447,000 9,447,000 7,612,000 7,612,000 1,432,000 0 45,000 458,000 14,000 444,000 0 0 0 444,000 .06 .06
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