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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - KSB
( ) ANNUAL REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the fiscal year ended FEBRUARY 28, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________________ to ___________________
Commission file number 0-21781
SERACARE, INC.
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(Name of Small Business Issuer in its charter)
Delaware 95-4343492
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1925 Century Park East, Suite 1970
Los Angeles, California 90067
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (310) 772-7777
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Securities registered under Section 12(b) of the Exchange Act: NONE
Securities to be registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 Par Value
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(Title of Class)
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. (X) Yes ( ) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. (X)
The issuer's revenue for its fiscal year ended February 28, 1998 was
$12,410,970.
As of April 30,1998, the aggregate market value of the issuers voting shares
held by non-affiliates was approximately $46,993,222 based on the last
price per share of such common stock at which the stock was sold on such date
as reported by the AMEX.
As of April 30, 1998, the issuer had 7,335,539 shares of its common stock,
$.001 par value issued and outstanding, of which 125,000 shares were deemed.
Transitional Small Business Disclosure Format Yes___ No_X__
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PART I
ITEM 1. BUSINESS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the statements in this
report (including without limitation, statements indicating that the Company
"expects," "estimates," "anticipates," or "believes" and all other statements
concerning future financial results, product offerings or other events that
have not yet occurred) are forward-looking statements that are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended. Forward-looking
statements involve known and unknown factors, risks and uncertainties which
may cause the Company's actual results in future periods to differ materially
from forecasted results. Those factors, risks and uncertainties include, but
are not limited to: the positioning of the Company's products in the
Diagnostic and Therapeutic Plasma Products industry; the Company's ability to
effectively manage its various businesses in a rapidly changing environment;
the impact of new blood safety measures by the American Blood Resources
Association or FDA which could disqualify certain of the Company's current
donors or impose excessive new costs through new or revised testing and/or
screening requirements; new competition for donors and customers; the
Company's dependence on a few major customers and its ability to negotiate
new agreements with such customers with favorable terms and conditions; the
inability of the Company to obtain FDA approval of newly established centers;
the ability of the company to integrate newly acquired company's with
geographically separated organizations, different business backgrounds and
different corporate cultures; and the introduction of synthetic products
which could eliminate the need for plasma products.
DESCRIPTION OF THE BUSINESS
SeraCare, Inc. ("SeraCare" or the "Company") was incorporated under the laws
of the State of Delaware in 1991 and changed its name from American Blood
Institute, Inc. to SeraCare, Inc. effective February 6, 1996. The Company's
principal business and executive offices are at 1925 Century Park East, Suite
1970, Los Angeles, California 90067, telephone (310) 772-7777.
COMPANY HISTORY. SeraCare, Inc. emerged from a Chapter 11 reorganization in
February of 1996 under a new management team and with a strategic plan for
expansion and growth. In the two years since such emergence, the Company
has: made several key acquisitions including Western States Group, Inc.
(herein referred to as "Western States") and Consolidated Technologies (herein
referred to as "CTI"); expanded its plasma collection centers from six
locations to eighteen; and recruited some of the leading experts in the
industry to join the board of directors and direct the operations of the
Company's three divisions. SeraCare, Inc. went public in May 1996 on the OTC
Bulletin Board and is now listed on the American Stock Exchange under the
symbol SRK.
PRINCIPAL BUSINESS OPERATIONS Organizationally, the Company consists of three
divisions: Consolidated Technologies Division; Western States Plasma
Division; and Biologics Division. With the acquisitions of Western States and
CTI, SeraCare has become a fully integrated collector, manufacturer and
marketer of plasma based diagnostic products and tests. Western
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States has also provided expanded worldwide marketing with its domestic
customer base and an extensive European and Asian presence. In addition, the
Company's Biologics Division continues to be a factor in the business of
collecting and selling source and hyperimmune plasma to manufacturers of
pharmaceutical and diagnostic products (called Fractionators). During the
fiscal year ended February 28, 1998, the Company collected and sold two
hyperimmune plasmas, Cytomegalovirus Antibody Plasma (CMV) and Tetanus
Antibody Plasma. Of the Company's total volume of plasma, about 85%
consisted of Source Plasma and approximately 15% represented hyperimmune
plasma. The Company's customers process plasma into such products as gamma
globulin (used to provide passive immunity for infectious diseases such as
hepatitis B, tetanus and rabies), the Antihemophilic factor (used to treat
hemophiliac victims), normal serum albumin (used for shock, trauma and burn
victims), diagnostic test kits for hepatitis and allergies, and blood bank
typing reagents. The Company has also initiated specialty plasma programs.
While these programs are only in the early stages of development, initial
results coordinated through the efforts of Western States and CTI have been
promising.
The process of collecting plasma is called Plasmapheresis, which consists of
drawing whole blood from a donor; centrifuge separation of the whole blood
into its components; removal of the plasma component; and returning of the
red blood cells to the donor; all in the same process. Because the red blood
cells are returned to the donor, it is possible to donate plasma more
frequently than whole blood. Pursuant to FDA rules, a donor can donate
plasma up to twice per week or 104 times per year.
The Company currently sells the source plasma it collects primarily to
fractionators under one to three year renewable contracts which allow for
annual pricing adjustments. The fractionators process the plasma into
therapeutic products which are then sold for distribution to the end users of
the products. None of the source plasma collected by the Company is sold or
administered to an end user without being processed by a fractionator.
CURRENT OPERATIONS.
BIOLOGICS DIVISION. The Biologics Division currently conducts its business
through four wholly-owned subsidiaries: AVRE, Inc., a Nevada corporation,
Binary Associates, Inc., a Colorado corporation, BHM Labs, Inc., an Arkansas
corporation, and SeraCare Acquisitions, Inc., a Nevada corporation. On April
1, 1997 and May 1, 1997 the Company opened newly established centers in
Pasco, Washington and Toledo, Ohio respectively. In June 1997, the
Clearfield, Utah center became fully licensed by the FDA and QPP certified.
On August 13, 1997, the Company completed an Asset Exchange with
Serologicals, Inc. whereby it received: Reno Plasma, Inc. located in Reno,
Nevada; the Simi Biological Resources, Inc. plasma collection center located
in Ft. Smith Arkansas; and $250,000 in cash in exchange for two (2) plasma
collection centers located in Colorado Springs, Colorado and one center
located in Pueblo, Colorado. In September 1997 the Company opened a plasma
collection center in Pocatello, Idaho. On November 29, 1997, the Company
completed an Asset Purchase Agreement whereby it acquired five operating
plasma collection centers from American Plasma Management, Inc. which were
located in South Bend, Indiana; Kalamazoo, Michigan; Boise, Idaho; Reno,
Nevada; and Salt Lake City, Utah. The Company has also opened new centers in
Raleigh, North Carolina, which opened on December 17, 1996; Macon, Georgia,
which opened on December 18, 1996; and Savannah, Georgia which opened on
March 1, 1998. The Macon, Raleigh, Pasco and Toledo centers are operating
under a Reference Number from the FDA pending approval of its license
application. Collection centers which have not received FDA approval of its
license application are allowed
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to operate under a Reference Number and process donors in order to develop
sufficient training and records for review by FDA inspectors to establish the
locations ability to comply with FDA Regulations. Such centers are however,
precluded from selling any of the collected plasma until final approval of
its license application. Historically, it has taken approximately twelve to
eighteen months from date of filing to obtain final FDA approval. The
Company's customers require both an FDA license and QPP Certification under
all current contracts. QPP Certification for such centers is requested when
the FDA license application has been approved and takes approximately six to
eight weeks.
As of May 1, 1998, the Company had seventeen plasma collection centers in
operation which were located in: Las Vegas, Nevada; Clarkesville,
Tennessee; Phoenix, Arizona; Ft. Smith, Arkansas; Clearfield, Utah; Raleigh,
North Carolina; Pasco, Washington; Toledo, Ohio; Macon, Georgia; Savannah,
Georgia; Reno, Nevada (2); South Bend, Indiana; Kalamazoo, Michigan; Boise,
Idaho; Pocatello, Idaho; and Salt Lake City, Utah. As of May 1, 1998, such
centers were collecting plasma at an annualized rate of about 285,000 liters.
The Company has also completed the construction phase for a plasma center
which is expected to open about June 1, 1998 in Wilmington, Delaware.
The plasma centers are operating under the tradename "SeraCare" which is
registered with the United States Patent and Trademark Office.
During the fiscal year ended February 28, 1998 about forty nine percent of
plasma revenue was from Grupo Grifols, S.A. the leading fractionator in
Spain. These sales were made under a renewable contract, the initial term of
which expires December 31, 1998. About twenty three percent of plasma
revenue was from sales to Alpha Therapeutic, a subsidiary of Green Cross
Corporation of Japan ("Alpha"). Alpha and the Company terminated the plasma
contracts effective July 31, 1997. About fifteen percent of plasma revenue
was from sales to DCI Management Group, Inc. Such sales were under an
agreement for CMV plasma which was terminated effective December 31, 1997.
In addition, there is a very active "Spot Market" for plasma via which the
Company could sell excess plasma should any of their location contracts not
be renewed. Prices for "Spot Market" plasma vary, but generally run ten to
fifteen percent higher than the Company's current contract pricing.
Recently opened centers including Clearfield, Utah; Raleigh, North Carolina;
Toledo, Ohio; Macon, Georgia; and Pasco, Washington have been contractually
committed to North American Biologics, Inc. contingent upon final approval of
the FDA license applications and QPP certifications for those centers.
Clearfield received final FDA license approval and QPP certification
effective June 1, 1997. As of February 28, 1998, final FDA approval and QPP
certification was pending for Raleigh, Macon, Pasco and Toledo.
Most of the Company's revenue is derived under contracts and relationships
which once established continue to be renewed. The plasma collected by the
Company is generally used in the manufacture of therapeutic products to treat
certain diseases. Several companies are attempting to develop and market
products to treat these diseases based upon technology which would lessen or
eliminate the need for human blood plasma. Such products, if successfully
developed and marketed, could adversely affect the demand for plasma.
Products utilizing technology developed to date have not yet proven as
cost-effective or as marketable to healthcare
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providers as products based on human blood plasma. However, there can be no
assurances that such technology will not ultimately become economically
viable and cause a severe adverse impact upon the Company and the plasma
industry as a whole.
WESTERN STATES PLASMA DIVISION. Effective January 1, 1998 SeraCare acquired
all of the stock of The Western States Group, Inc., a California corporation
(herein referred to as "Western States"). In the acquisition, SeraCare
acquired all of the operating assets of Western States which included but are
not limited to: cash; trade accounts receivable; inventories; certain
furniture and fixtures; all machinery and equipment; all leasehold
improvements; all licenses and other intangible properties including
certifications, FDA licenses and trademarks; and all rights and interests
arising under or in connection with any contracts with customers to which
Western States is a party. See Note 1 of Notes to Consolidated Financial
Statements for further information on the acquisition.
The Western States Plasma Division operates through Western States Group,
Inc., and is located in Fallbrook, California. Western States is an FDA
licensed worldwide marketing organization for therapeutic based blood plasma
products, diagnostic test kits, specialty plasma and bulk materials, with
offices in Helsinki, London, Milan, Tel Aviv, Seoul and Hong Kong. Western
States is a vendor approved supplier to 507 pharmaceutical and other
healthcare companies, including being listed as an Exclusive Supplier in
several customers regulatory applications with the FDA. Western States has
also helped certain customers develop internal protocols and standards used
to establish quality control benchmarks and has performed various other
value-added services for its' customers in order to establish solid
relationships. This Division's primary focus is on multinational biotech,
pharmaceutical and technology products. Western States generally sells its
plasma under purchase order agreements, but is also active in the spot market
and has been successful in sourcing and distributing plasma based products in
time sensitive situations.
CONSOLIDATED TECHNOLOGIES DIVISION. Effective January 1, 1998, the Company
acquired substantially all of the operating assets of Consolidated
Technologies, Inc., a Texas corporation and Conco Associates, Inc. (dba Cone
Biotech), a Texas corporation (collectively herein referred to as "CTI" )
located in Austin, Texas. Under terms of the Asset Purchase Agreement, the
assets acquired included but are not limited to: certain real property; all
furniture and fixtures; all machinery and equipment; all leasehold
improvements; all licenses and other intangible properties including
certifications, FDA licenses and trademarks; all inventories; and all rights
and interests arising under or in connection with any contracts with
customers or potential customers to which CTI is a party. See Note 1 of
Notes to Consolidated Financial Statements for further information on the
acquisition.
The Consolidated Technologies Division operates through SeraCare Technology,
Inc., a Nevada corporation and consists essentially of the operating assets
acquired in the Consolidated Technologies, Inc. transaction. Located in
Austin, Texas, Consolidated Technologies is a biomedical company which
currently manufacturers over 200 plasma based diagnostic products consisting
primarily of proficiency test specimens, controls and calibrators.
Consolidated Technologies supplies two of the leading proficiency testing
services in the United States who use these products to test members of their
respective organizations. Laboratories and other healthcare companies use
controls, calibrators and standards to assess the accuracy and precision
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of laboratory test methods and instruments. Consolidated Technologies'
products include biological materials and private-labeled products for
manufacturing or laboratory use. Products have applications in most
laboratory test disciplines, including serum chemistry, urine chemistry,
toxicology, immunology/serology, coagulation, and infectious disease. In
joining SeraCare, Consolidated Technologies has established itself as a
diagnostic products manufacturer with an in-house supply of specialty plasma.
This "Closed Loop" cycle from donor to end product is expected to
significant improve quality control, turnaround time and the cost of
delivering the final products to customers.
COMPETITION
The Company competes for donors with pharmaceutical companies which collect
plasma for their own use, several other commercial plasma collection
companies, and non-profit organizations, such as the American Red Cross and
community blood banks, which solicit the donation of whole blood. A number of
these competitors have access to greater financial, marketing and other
resources than the Company. If the Company is unable to maintain and expand
its donor base, its business and future prospects will be adversely affected.
TRADEMARKS
The Company's plasma collection centers are operated under the tradename
"SeraCare" which is registered with the United States Patent and Trademark
Office.
REGULATORY ISSUES
The plasma collection and derivative industry is one of the most heavily
regulated in the United States. Federal, state and local regulations are
designed to protect the health of the donors as well as the integrity of the
products. The Food and Drug Administration (the "FDA") administers the
federal regulations across the country. Failure to comply with FDA
regulations, or state and local regulations, may result in the forced closure
of a collection center or monetary fines or both, depending upon the issues
involved. The Company is also subject to regulation by Occupational Safety
and Health Administration ("OSHA"). The following summarizes the nature of
these regulations:
FEDERAL GOVERNMENT
FOOD AND DRUG ADMINISTRATION:
The Food and Drug Administration has extensive regulations pertaining to
the collection, storage and transport of human SOURCE PLASMA. These
regulations are found in the Code of Federal Regulations 21: Parts 207,
211, 606 and 640.
Part 207 requires the operators of blood and blood products
establishments to register and list their products with the Center for
Biologics Evaluation and Research ("CBER"), FDA. Part 211, Subparts B
and C regulate the quality control personnel and facilities as well as
the overall facilities themselves.
Part 606 relates to the qualifications of the center personnel, both
medical and technical as well as the plant or center facilities and
buildings. Part 640, Subpart G titled Source Plasma is a comprehensive
set of regulations covering virtually every aspect of a plasma center
operation. These include but are not limited to:
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informed consent,
medical supervision,
donor suitability,
collection of blood for source plasma,
plasmapheresis (the actual procedure of collecting plasma),
required laboratory tests,
processing of plasma,
general requirements,
labeling of containers,
manufacturing responsibility,
records,
reporting of donor reactions,
modification of source plasma and
shipping and storage of plasma.
In addition to the Code of Federal Regulations, the FDA regularly releases
various guidelines to which all registered blood establishments are expected
to comply.
To ensure compliance, the FDA, through their various regional offices,
conduct unannounced inspections of all plasma and blood centers. These
inspections are usually annual and the results are kept on record at CBER,
FDA. The inspectors generally examine records, equipment, facilities, review
the training documents for personnel, review the physical examination
procedures and observe the various procedures being accomplished. These
inspections typically last from two to five days and may involve more than
one inspector. The observations of an inspector are recorded on a Form 483, a
copy of which is given to the local manager. These observations must be
responded to within a two week period, detailing what, if any, actions have
been taken to correct the observation. The regional office generally makes a
determination together with CBER as to whether these responses properly
address the issues. If the observations were considered serious enough; or,
if the answers were not considered adequate, CBER will issue a REGULATORY
LETTER. This is considered a "red flag" in the industry and if not responded
to in a timely and appropriate manner, can result in CBER taking further
action, including actually closing the center.
The FDA, through the Federal Register, frequently prints any actions taken
against a blood bank or plasma center as a result of compliance problems.
These are easily obtained either by contacting the FDA directly or on the FDA
world wide web page "www. fda.com". At this time, the Company has no
unresolved compliance issues relating to its ongoing operations.
SeraCare has established the position of "Director of Compliance". This
position serves as the communication link between the company and the FDA.
The Director of Compliance makes periodic unannounced compliance inspections
at the centers, simulating the FDA inspections. Fractionators (manufacturers
to whom we sell the plasma) also conduct compliance inspections in our
centers on an annual basis. Because some of our products find their way into
Europe and Asia, the Company is also periodically inspected by members of
other country's regulatory equivalent to the FDA. The focus of all
inspections and review processes is to ensure that each of the Company's
centers are in compliance with all customer, European or FDA regulations that
protect the integrity of the products and the safety of the donors.
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CLINICAL LABORATORY IMPROVEMENT ACT OF 1988:
In 1988, the U.S. Department of Public Health introduced an updated set of
laboratory regulations. One of the many areas which this law, regulates is
the definition of the education level of personnel required to perform
clinical laboratory tests as well as regulating the equipment and the
required controls and calibrations. Among the various tests that must be
passed by plasma center personnel, there are several that fall under the
guidelines of this act. Although in most states the Federal Government has
specifically delegated the enforcement of this act to the States, the act is
universally applied. Plasma centers are periodically inspected under the CLIA
88 regulations.
Part of the required compliance is that centers participate in a quality
control program which is CLIA approved. Consistent with such quality
control program, center personnel perform tests, the results of which are
transmitted to program administrators. The results must fall within an
acceptable range in order for the center to maintain its CLIA approval. To
date, no SeraCare center has failed to obtain CLIA approval.
OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION:
As with most operating companies, all of our centers must comply with both
Federal and State OSHA regulations. SeraCare trains its employees in current
OSHA standards, provides hepatitis vaccine to employees when desired, and
maintains all required records. OSHA does inspect operating locations as they
deem appropriate, and generally do so without advance notice. SeraCare has
no outstanding issues relating to an OSHA inspection which required
corrective action.
STATE GOVERNMENTS
NEVADA:
Nevada law parallels the federal requirements as stated above with one
addition. The state requires that all employees of plasma centers be
certified with the state. This requires 6 months of experience, a completed
application and a fee.
ALL OTHER STATES
All other states in which SeraCare operates have regulations that parallel
the federal regulations. Most states do conduct periodic unannounced
inspections and require licensing under each state's procedures. The Company
currently has no unresolved issues relating to any state regulations.
INDUSTRY STANDARDS
AMERICAN BLOOD RESOURCES ASSOCIATION:
The American Blood Resources Association ("ABRA"), an industry organization
headquartered in Maryland, represents the majority, by far, of both plasma
collection companies and manufacturers. ABRA has established a voluntary
program in which member centers agree to adhere to a set of standards that
exceed those of FDA or state and local agencies. This program, entitled the
Quality Plasma Program ("QPP"), has been supported by the FDA, the National
Hemophilia Association as well as many European regulatory
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agencies. The QPP program requires a biannual inspection which focuses on:
employee training; facilities, including cleanliness; and donor selection.
The QPP criteria includes but is not limited to:
Donors must have permanent addresses with 150 miles of the center.
The rates of viral marker tests must be within set national limits.
A record of all employee training must be available along with the training
procedure.
A program of donor drug testing must be implemented.
All new donors must be checked with the National Donor Deferral Registry.
The facility must meet all published standards, including location and
neighborhood.
All of the Company's operating centers are QPP certified with the exception
of the four centers for which final FDA license approval is pending. All of
the Company's newly established centers and initial stage centers have been
designed and planned to QPP specifications.
During the past five years, the QPP program has created a higher level of
performance criteria with a focus on upgrading the image of the U.S. plasma
collection industry. Examples of the requirements which are enforced by the
FDA, state authorities and ABRA include: upgraded standards for the physical
facilities; higher standards for Standard Operating Procedures; strict
screening of donors for drugs and disease; verified addresses for all donors;
use of a national registry of deferred donors; and controlled viral reactive
rates to insure they remain within prescribed limits. The Quality Plasma
Program ("QPP") is designed to eliminate the collection of plasma from donors
who are homeless, transient or drug addicted. In addition, it requires all
certified centers to maintain documented and approved employee-training
programs. All testing required by the center must be performed in a
QPP-approved laboratory.
The Company closely monitors compliance with applicable governmental
regulations, ABRA standards imposed through QPP and the Company's own quality
assurance standards. In addition, contracts with fractionators require that
individual locations be reviewed and approved by such customer in order to
allow them to sell their end products in various countries throughout the
world.
THE INDUSTRY AND THE MARKET
THE PRODUCT
Currently, the Company's primary product is "SOURCE PLASMA." SOURCE PLASMA is
plasma collected from humans. Plasma is the liquid part of blood and is
collected through a procedure similar to giving blood. The clear plasma is
mechanically separated from the cellular elements of the blood (such as red
and white blood cells and platelets) through centrifugation or membrane
filtration at the time the donation is made. These cellular elements are
then returned to the donor as part of the same procedure. The process of
collecting plasma is known as PLASMAPHERESIS. Because blood cells are
returned, it is possible for individuals to donate plasma more frequently
than whole blood. Donations of plasma can be made up to twice per week or
104 times per year pursuant to FDA rules.
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PLASMA DERIVED PRODUCTS
Source plasma is sold to fractionators who process the plasma into two
primary groups of plasma products: INJECTABLE AND NON-INJECTABLE. These
products are used throughout the world to prevent illness and treat injuries.
Pursuant to FDA Regulations, plasma collected by the Company is placed in
storage on site while a sample thereof is sent to a lab for testing. No
plasma can be shipped unless test results are received which indicate the
plasma is free of any bacterial or viral occurrences. If results of the
testing indicate any bacterial or viral presence, the Company now has various
customers who use such plasma for diagnostic and/or research purposes. If
the plasma cannot be sold as source plasma or specialty plasma, it is
generally destroyed. In addition, each of our customers (fractionators) has
its own STANDARD OPERATING PROCEDURES which SeraCare, Inc. is obligated to
follow. These procedures which are prepared and provided by the fractionator,
carefully spell out all safety related instructions. In accordance with such
procedures, all initial donors are given a physical examination before being
accepted as a plasma donor. Additionally, every time the donor donates, he is
tested for the presence of blood borne pathogens such as hepatitis B,
hepatitis C, HIV (antigen and antibody)and liver enzymes (indication of liver
disease, such as other types of hepatitis). The donor is also checked for
serum protein content and hematocrit (percent of red blood cells in serum).
These tests serve as a safety mechanism for both the donor and the plasma.
New donors are also checked for syphilis and drug use. Repeat donors are
re-tested for syphilis three times each year and for drug use once each year.
All plasma collected from a donor is held until the results of his viral
tests are completed. If a donor has a reactive result, all of that donor's
plasma is usually culled from the inventory and destroyed. In most cases, the
fractionator operates the laboratory which performs these tests.
Once the plasma arrives at the fractionation facility, all plasma containers
are checked by the fractionator's quality control staff. The unique donor
number is matched to the test results to ensure no plasma is used that has
been found reactive to viral tests. Once cleared, the fractionator processes
the plasma into its final products. That processing consists of various
procedures that, in and of themselves, reduce the presence of any
microorganisms that might have been in the plasma pool. Temperature and pH
are brought to specific levels, then the in-process products are subjected to
a solvent detergent that further reduces viral activity. There are a number
of additional steps, depending on the product, including dry heat, acetone
drying, lyophilizing and membrane filtration that all reduce the presence of
any microorganisms. Some fractionators actually perform further testing both
on in-process products and final products, so sensitive, that the presence of
any single microorganism will be detected.
None of the source plasma or hyperimmune plasma collected by SeraCare, Inc.
is given to end users without first being processed by a fractionator.
Donor safety is very important to the Company. Accordingly, operating
procedures require that donors have the process thoroughly explained,
including the hazards and side effects and that an informed consent form be
signed by each donor The Company does extensive training of employees in
order to insure the safety of its donors.
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INJECTABLE PLASMA PRODUCTS
SOURCE PLASMA is the base raw material used to manufacture many injectable
therapeutic products, the most important of which are:
NORMAL SERUM ALBUMIN AND PLASMA PROTEIN FRACTION, which are primarily used to
keep vessel walls from collapsing following major injury, as blood volume
expanders and as a protein replacement. They are used:
- to treat shock due to trauma or hemorrhage;
- to treat fluid loss due to severe burns;
- in cardiovascular surgery;
- to treat liver and kidney diseases; and
- as a carrier for many other injectable solutions.
IMMUNE GLOBULINS, which are used to strengthen the immune system in order to
fight off common diseases such as:
- Suppressed immune systems in cases of organ transplants, HIV
and other immune deficiencies;
- Hepatitis B;
- Tetanus;
- Rabies, whooping cough, measles and polio; and
- Other immune related diseases.
ANTIHEMOPHILIC FACTORS, which are specific proteins found in plasma that
are an integral part of the blood clotting mechanism. Persons born with an
absence or a deficient amount of the protein suffer from hemophilia, types
A, B, or Von Willebrand's Disease.
RH IMMUNE GLOBULIN, which is a substance administered to prevent
incompatibilities between the blood of a fetus and mother. Rh
incompatibility occurs when an Rh-negative woman is pregnant with an
Rh-positive fetus. This occurs in 9-10% of pregnancies. If no preventive
measures are taken, 0.7-1.8% of Rh-negative women with an Rh-positive fetus
will become isoimmunized antenatally, developing Rh (D) antibody through
exposure to fetal blood; 8-15% will become isoimmunized at birth, 3-5%
after abortion (spontaneous or therapeutic), and 2.1-3.4% after
amniocentesis. Rh(D) isoimmunization currently occurs at a rate of about
1.5 per 1000 births. Its effects on the fetus or newborn include hemolytic
anemia, hyperbilrubinemia, kernicterus, or intrauterine deaths due to
hydrous fetalis. About 45% of cases require intrauterine or exchange
transfusions to survive, and there are about four deaths from this disease
per 100,000 total births. The prevalence of Rh(D) isoimmunization has
declined significantly following the introduction of Rh(D) immune globulin
in the 1960's. Between 1970 and 1979, the crude incidence fell from 40.5
cases to 14.3 cases per 10,000 total births.
The administration of Rh(D) immune globulin to these women prevents
maternal sensitization and subsequent hemolytic disease in Rh-positive
infants. RhIG must be administered after abortion, amniocentesis,
ectopic pregnancy, and antepartum hemorrhage, as well as after delivery.
Time series studies have shown a dramatic decline
11
<PAGE>
in the incidence of Rh isoimmunization, from 13-17% in the
mid-1960's to 0.3-1.9% in the mid-1970's. In Canada, where compliance
with prophylaxis was maximized, Rh isoimmunization fell from 10.3 per
1000 births and 55 deaths in 1964 to 3.4 per 1000 births and 1 death
in 1975.
NON-INJECTABLE PLASMA PRODUCTS
A secondary use of plasma is to manufacture certain diagnostic products which
are for the most part non- injectable. Some of the primary diagnostic products
are:
- BLOOD GROUPING AND TYPING REAGENTS which are used by blood
banks to match
donor blood with the recipient.
- LABORATORY CONTROL REAGENTS which are used by laboratories
to assure the quality control of their tests.
- SPECIAL TEST KIT REAGENTS which are derived from the plasma
of donors known to have a specific disease and are used in
the laboratory as a positive control test.
SPECIALTY PLASMAS
Specialty Plasmas generally contain high concentrations of specific
antibodies and are used primarily to manufacture immune globulin
therapeutic products which bolster the immunity of patients to fight a
particular infection or to treat certain immune system disorders.
Following advances in intravenous therapy in the mid-1980s, use of
specialty plasmas for therapeutic purposes significantly increased. Among
the current uses for specialty plasmas are the production of products to
prevent hepatitis, Rh incompatibility in newborns, tetanus and rabies.
Specialty plasmas are also widely used for diagnostic and tissue culture
purposes. Depending on the rarity of the antibody or medical history of
the donor, the pricing for specialty plasmas currently ranges from $95 to
$3,500 per liter. The average spot price (free market price) of source
plasma is currently approximately $90. Most specialty plasma is derived
serendipitously (not the result of stimulation) which poses no abnormal
risk to the plasma collector.
The Company currently collects and sells both source plasma and specialty
plasmas, including Cytomegalovirus Antibody Plasma (CMV), Tetanus
Antibody Plasma and various other specialty antibody plasma . The Company
has initiated a program that emphasizes the collection of specialty
plasmas by identifying potential specialty plasma donors through various
screening and testing procedures.
THE PLASMA INDUSTRY
The blood resource industry can be divided into two industry segments.
One is the non-profit or voluntary sector which is commonly thought of as
Red Cross and independent non-profit blood centers. This "non-profit"
sector is primarily concerned with providing whole blood and components of
whole blood for transfusion in medical applications at hospitals. The
other is the commercial or "for-profit" segment such as plasma collection
centers. This "for-profit" commercial sector consists of plasma collection
operations which collect plasma from paid
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<PAGE>
donors and sell the plasma to Fractionators, who produce plasma
derivative products or fractions that are used in therapeutics.
Plasma is collected at centers owned by both foreign and U.S.
fractionators and by independent companies who sell to diagnostic
companies and other fractionators.
Plasma collection centers are found in most states throughout the United
States as presented in the following illustration:
DISTRIBUTION OF PLASMA CENTERS BY STATE - 1996
[MAP OF THE UNITED STATES SHOWING THE NUMBER OF PLASMA CENTERS BY STATE]
SOURCE: AMERICAN BLOOD RESOURCES ASSOCIATION
PLASMA MARKET
The source plasma industry has experienced a number of fluctuations in the
supply and demand cycles. The market factors driving the plasma industry
have included:
- The expanded use of immune
globulins to prevent and treat disease.
- The worldwide plasma shortage.
- Extensive public concern over the safety of blood products.
- An increase in domestic and foreign regulatory control over
the collection and testing of plasma.
A worldwide shortage of plasma began in 1991, driven partially by the
increased need for plasma components to treat larger and older
populations, and partially by a diminished pool of donors that resulted
from more restrictive testing and screening requirements imposed by
regulatory authorities. In 1991, the FDA required mandatory screening for
hepatitis C, thereby disqualifying donations from a significant portion of
the then existing donor base. Another market factor has been increasing
public concern over HIV and other viruses which has lead to increased
testing and tighter scrutiny.
The Company has generally sold its plasma under contracts ranging from one
to three years which allow for annual pricing renegotiations. Pricing for
product deliveries is generally mutually agreed upon prior to the
beginning of the contract year and fixed for that year. Consequently, the
Company may be adversely or beneficially affected if its costs of
collecting
13
<PAGE>
and selling plasma rise or fall during the year as a result of changes
in government regulation, donor fees or other factors.
FRACTIONATORS
Fractionation is the process of separating the raw source plasma into a
variety of derivative products (see "The Product" above). Prior to being
fractionated, source plasma is blended into batches of 7,500 to 10,000
liter units from many different donor sources.
The four leading fractionators in the United States are:
ALPHA THERAPEUTIC a subsidiary of The Green Cross Corp.
CORPORATION of Japan
CENTEON a subsidiary of Rhone-Poulenc-Rorer, a
PHARMACEUTICALS French government owned pharmaceutical
conglomerate
BAYER CORPORATION a division of Germany's Bayer A.G.
BAXTER, INC. a division of Baxter, Inc., an $8.1
billion revenue U.S. company.
CURRENT OPERATIONS
CURRENT PLASMA CENTERS
As of May 1, 1998, the Biologics Division had seventeen plasma centers in
operation located in: Las Vegas, Nevada; Clarkesville, Tennessee; Phoenix,
Arizona; Ft. Smith, Arkansas; Clearfield, Utah; Raleigh, North Carolina;
Pasco, Washington; Toledo, Ohio; Reno, Nevada (2); South Bend, Indiana;
Kalamazoo, Michigan; Boise, Idaho; Pocatello, Idaho; Savannah, Georgia;
Salt Lake City, Utah; and Macon, Georgia. As of May 1, 1998, such centers
were collecting plasma at an annualized rate of about 285,000 liters. The
Raleigh, Macon, Pasco, and Toledo, centers which opened December 17, 1996,
December 18, 1996, April 1, 1997 and May 1, 1997 respectively were
operating under Reference Numbers pending FDA approval of license
applications and were not allowed to sell or ship plasma during the
period, although they were collecting plasma during the period.
The Company has also completed the construction phase for a plasma center
which is expected to open about June 1, 1998 in Wilmington, Delaware.
The Company collected approximately 215,600 liters of plasma in the fiscal
year ending February 28, 1998. This represented a 52%, or approximately
74,100 liters, increase over the same 1997 period. The actual total
liters collected includes the impact of the asset exchange with
Seralogicals, Inc in August 1997 and the acquisition of the five operating
centers from American Plasma Management, Inc. on November 29, 1997. The
liters collected also includes plasma collections from six newly
established centers which opened for business in November 1996, December
1996 (2), April 1997, May 1997 and September 1997. Accordingly, the
current collection rate on an annualized basis would be about 285,000
liters.
14
<PAGE>
DONORS
FDA standards restrict the frequency in which a donor may give plasma to
twice a week or 104 times per year. Most regular donors donate between 40
and 60 times per year.
The QPP certification program is focused on excluding drug or alcohol
addicts or homeless persons by requiring proof of permanent address as
well as alcohol and drug use testing.
MARKETING/DONOR RECRUITMENT
Effective recruitment, management and retention of donors are essential
to the Company's plasma business. The Company seeks to attract and
retain its donor base in the following ways:
- by utilizing competitive financial incentives which the
Company offers for the donation of the plasma.
- by providing outstanding customer service to its donors.
- by implementing programs designed to attract donors through
education as to the uses of plasma.
- by encouraging regular participation in its donor programs.
- by providing incentives to encourage donors to return.
Repeat donors are important because of the lower cost associated with
obtaining their plasma and less risk that their plasma will not satisfy
regulatory and customer requirements. The Company's centers advertise for
donors through targeted mailings, flyers and newspapers. Radio and
television ads are also used when advantageous.
The Company's donor records are maintained with the assistance of donor
database systems at each center which allows the Company's personnel to
track the frequency of donor visits. When a donor has not visited a center
in over one month, the center sends a reminder card to the donor
emphasizing the importance of the donor's continued participation.
DONOR PROCESSING
On their first visit all new donors are given a physical
examination by either a licensed physician or physician substitute. The
National Donor Deferral Registry and the deferral lists of the
Fractionators and other local plasma centers are all checked to determine
if the donor has ever had positive viral test results or has ever been
previously deferred or rejected as a donor. In addition to the deferral
list checks, each time the donor visits, the donor is given the
opportunity to defer himself confidentially and is asked a number of
screening questions which he must audibly answer. In addition, each time
he visits, the donor is tested for: blood pressure; temperature; pulse;
weight; hematocrit; total proteins; HIV; hepatitis B and C; and liver
enzymes.
QUALITY AND OPERATIONAL CONTROLS
Through its QPP and internal operating procedures and policies, the
Company strives to maintain a high level of quality control. The Company's
policies require that donor charts be audited on a daily basis, and that
equipment be regularly re-calibrated. Quality control records and
procedures are maintained at a detailed level.
TRAINING
The Company is focusing on two levels of training: (a) technical
training of employees; and (b) center management skills and development.
15
<PAGE>
All employees are required to read and study detailed training materials
and are then given a written test covering that material. Results of the
written tests must be kept available for FDA inspection. Employees are
also required to demonstrate specific skills to an FDA-certified trainer.
Each level of an employee's training is tracked and documented and each
employee is required to be re-tested on all material every six months. All
employees are "cross trained" in all three of the center's functional
areas, allowing for more efficient scheduling. Ongoing or continuing
education sessions are periodically held to review new procedures,
equipment and FDA requirements. All training documentation is subject to
FDA approval.
It is the Company's philosophy to continually develop competent
individuals within the Company to move into management positions. Selected
individuals are sent to outside management development seminars in
addition to the in-house program of development. Consequently, all of the
open manager positions during the past three years have been filled with
existing in-house personnel.
EMPLOYEES
As of May 1, 1998, the Company employed 322 full time employees and 64
part time employees. The Biologics Division employed 249 full time, of
which 22 were nurses, one was a doctor and the balance were cross-trained
as technicians, receptionists and phlebotomists. The Biologics Division
also employed 64 part time employees of which 16 were nurses and balance
were cross-trained as technicians, receptionists and phlebotomists. The
Western States Plasma Division employed 14 full time employees, the
Consolidated Technologies Division employed 54 full time employees and the
corporate office consisted of five full time employees as of May 1, 1998.
The Company believes that the relations between the Company's management
and its employees are good, although there can be no assurances that such
relations will continue. The inability of the Company to attract or retain
qualified personnel could have a material adverse effect on the Company.
ITEM 2. PROPERTIES
The Company currently occupies twenty five locations
with executive offices at 1925 Century Park East, Suite 1970, in Los
Angeles; Western States Division in Fallbrook, California; Consolidated
Technologies Division in Austin, Texas; and twenty two plasma center
locations in: Las Vegas, Nevada (2 locations); Clarkesville, Tennessee;
Phoenix, Arizona; Colorado Springs, Colorado; Pueblo, Colorado; Ft. Smith,
Arkansas (2 locations); Clearfield, Utah; Raleigh, North Carolina; Macon,
Georgia; Pasco, Washington; Toledo, Ohio; Savannah, Georgia; South Bend,
Indiana; Kalamazoo, Michigan; Pocatello, Idaho; Boise, Idaho; Salt Lake
City, Utah; Reno, Nevada (2 locations); and Wilmington, Delaware. Salt
Lake City, Kalamazoo, and South Bend were acquired in the American Plasma
Management acquisition and are owned locations. The balance of the
indicated locations are leased. All of the Company's leased property,
comprising twenty two locations and approximately 136,000 square feet, is
leased from unaffiliated parties under leases expiring through 2006. Most
of these leases contain renewal options which permit the Company to renew
the leases for periods of from two to five years at the then fair rental
value. One of the Company's leases is on a month-to-month basis. The
Company believes that in the normal course of its business it will be able
to renew or replace
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<PAGE>
its existing leases. The Company believes that the space it occupies is
adequate for its existing operations.
The Company's plasma collection centers range in size from approximately
2,950 to 5,500 square feet and generally are located in population centers
of 60,000 to 1,000,000 people.
The Company also owns two parcels totaling approximately one acre of land
in Fort Worth, Texas which was obtained in the purchase of the original
six plasma centers. These parcels are currently listed for sale and are
not being considered for plasma collection center development.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal
proceedings, other than routine litigation occurring in the normal course
of the Company's operations, to which the Company is a party or of which
any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) MARKET INFORMATION:
The Company's Common Stock is quoted on AMEX and
is traded under the symbol "SRK". The Company emerged from bankruptcy on
February 6, 1996 and began trading on the Bulletin Board in May 1996. On
March 25, 1998 the Company's Common Stock began trading on the American
Stock Exchange (AMEX). The following table sets forth the range of bid
prices for the Common Stock during the periods indicated, and represents
inter-dealer prices, without retail mark-up, mark-down or commission to
the broker-dealer, and may not represent actual transactions. The
information summarized in the following table has been derived from the
NASD's Monthly Statistical Report.
The Company's Common Stock was not traded on any market prior to May 1996.
<TABLE>
<CAPTION>
<S> <C> <C>
High Low
----- -----
For the period May 1, 1996 through May 31, 1996 1 1/2 1
For the period June 1, 1996 through August 31, 1996 1 3/4 1/2
For the period September 1, 1996 through November 30, 1996 2 1/2
For the period December 1, 1996 through February 28, 1997 3 9/16 1 1/8
For the period March 1, 1997 through May 31, 1997 3 1/4 2
For the period June 1, 1997 through August 31, 1997 5 1/8 1 7/8
For the period September 1, 1997 through November 30, 1997 6 7/16 2 1/2
For the period December 1, 1997 through February 28, 1998 7 5/16 6 1/16
</TABLE>
17
<PAGE>
(b) HOLDERS:
Approximate Number of
Record Holders (as
Title of Class of April 30, 1998)
-------------- -------------------
Common Stock, $.001 par value 413 (1)
---------------------------
(1) Certain of the Company's shareholders hold shares under "street name"
and are not identified individually. Accordingly, the Company estimates
that it has a total of approximately 460 beneficial shareholders.
(c) DIVIDENDS:
The Company has never paid cash dividends on its Common Stock. Pursuant
to the terms and conditions of the $16 million subordinated debenture and
the $10 million revolving line of credit, the Company may not declare or
pay dividends, except that SeraCare, Inc. may issue warrants, options,
stock, rights or any other form of equity security as a dividend. The
declaration and payment of dividends in the form of equity securities by
the Company's board of directors will depend, among other factors, on
earnings as well as the operating and financial condition of the Company.
At the present time, the Company does not expect to declare or issue any
dividends within the foreseeable future.
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<PAGE>
ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the statements in this
report (including without limitation, statements indicating that the Company
"expects," "estimates," "anticipates," or "believes" and all other statements
concerning future financial results, product offerings or other events that
have not yet occurred) are forward-looking statements that are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended. Forward-looking
statements involve known and unknown factors, risks and uncertainties which
may cause the Company's actual results in future periods to differ materially
from forecasted results. Those factors, risks and uncertainties include, but
are not limited to: the positioning of the Company's products in the
Company's market segment; the Company's ability to effectively manage its
various businesses in a rapidly changing environment; new competition for
donors and customers; the inability of the Company to obtain FDA approval of
newly established centers; and the introduction of synthetic products which
could eliminate the need for plasma products.
1998 AS COMPARED TO 1997
RESULTS OF OPERATIONS
SALES
Net sales increased by $5,749,291 to $12,410,970, an increase of eighty six
percent. The primary factors reflected in those results were: the acquisition
of the Western States Plasma Division and the Consolidated Technologies
Division effective January 1, 1998, which added $3.1 million and $.8 million
respectively to revenue during the period and the increased volumes of plasma
which added $1.8 million to revenue. The Company collected about 215,569
liters of plasma during the year ended February 28, 1998 compared to about
140,540 for the comparable prior period or an increase of fifty three
percent. The increased volumes were the result of the acquisitions of the
five operating plasma collection centers from American Plasma Management,
Inc. and revenue generated by the FDA approval of newly established centers
in Clearfield and Pocatello. The newly established centers in Raleigh, Macon,
Pasco and Toledo were operating under a Reference Number from the FDA during
1998 and were thus not allowed to sell or ship plasma during the period,
although they were collecting plasma during the period.
GROSS PROFIT
Gross profit increased by $1,123,713 or 219 percent in 1998 to $1,636,572
primarily due to the acquisition of the Western States Plasma Division and
the Consolidated Technologies Division effective January 1, 1998 which
contributed $649,876 and $396,865, respectively. Also contributing to the
increase in gross margin was the Biologics Division which contributed $76,972
as a result of increased revenue mostly offset by increased operating costs.
As a result of the aforementioned, the gross profit percentage increased
from 7.7% in fiscal 1997 to 13.2% in fiscal 1998.
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<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and Administrative expenses for 1998 were higher by $726,117 or 96
percent. This increase was primarily due to the acquisition of the Western
States Plasma Division and Consolidated Technologies Division effective
January 1, 1998; higher legal and professional fees; increased travel
expenses; increased salary expense; higher general insurance costs; and
increased consulting fees; partially offset by lower non-cash general and
administrative expenses.
INTEREST EXPENSE / NON-CASH INTEREST EXPENSE
Interest expense increased by $250,464 in fiscal 1998 as a result of the
increased debt during the year, including the $2.6 million in bridge loans
which were acquired at various times throughout the year; the $16 million in
subordinated debentures issued February 1998 and the $600,000 note associated
with the purchase of the five operating plasma collection centers on November
29, 1997. Partially offsetting was a decrease in non-cash interest expense
of $25,614. The current year consists primarily of the amortization of the
original issue discount related to the issuance of the $16 million
subordinated debentures.
OTHER ITEMS
Other income includes $801,215 from a one-time non-operating gain realized
from the sale of salvage plasma material.
INCOME TAXES
State income taxes were higher by $9,000 due to the profitability of certain
operations and minimum state taxes in certain states.
NET INCOME
As a result of the above, there was a net income for the year ended February
28, 1998 of $453,853 compared to a net loss of $511,108 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of February 28, 1998, the Company's current assets exceeded current
liabilities by $9,444,126, an improvement of $9,834,761 when compared to the
year earlier date of February 28, 1997, at which time the Company's current
liabilities exceeded current assets by $390,635. This improvement was
primarily due to the issuance of $16 million in subordinated debt on February
13, 1998 and the proceeds of $5,425,216 from various private placements of
the Company's common and preferred stock. Also contributing were the
acquisitions of the Western States Division and the Consolidated Technologies
Division which contributed $2.0 million and $.9 million respectively to
working capital.
In the Biologics Division, the Company opened new centers on April 1, 1997,
May 1, 1997, September 23, 1997 and March 1, 1998 and is planning an
additional opening on June 1, 1998. In addition, the Company acquired five
(5) operating plasma centers in November 1997. As a result of this
expansion, the Company's current annualized rate for collections is 285,000
liters of plasma compared to 191,000 a year ago. New plasma contracts with
Grupo Grifols and North
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<PAGE>
American Biologics, Inc. combined with more favorable pricing on softgoods
and testing have resulted in improved margins. Partially offsetting those
benefits, has been the establishment of a 60 day hold on plasma shipments to
Spain and a slower than expected process of receiving final FDA license
approval for the newly opened centers. The Company continues to believe that
demand for plasma and plasma products will continue to accelerate through
calendar 1998 and 1999 and has accordingly established itself in a strong
growth posture in order to be able to meet the strong increased demand. The
Company believes that recent occurences in the plasma industry such as the
"Mad Cow" disease in Great Britain and the destruction of over 300,000 liters
of plasma by domestic fractionators due to quality control issues have
eliminated excess inventories and will add significantly to the expected
increase in demand. With this background, the Company is focused on growth in
the volume of plasma collected in order to capitalize on the anticipated
market conditions. The acquisition of the Western States Division has
provided worldwide marketing of plasma and plasma products in both the
therapeutic and diagnostic segments of the blood products industry and the
acquisition of the Consolidated Technologies Division will utilize the
Biologics Division to establish itself as a diagnostic products manufacturer
with an in-house supply of specialty plasma. This "Closed Loop" cycle from
donor to end product is expected to significantly improve quality control,
turnaround time and the cost of delivering end products to customers. These
two acquisitions are reflective of the Company's commitment to growth.
Meanwhile, the Company's projected capital requirements for the coming year
include the establishment of and/or acquisition of more plasma centers in
addition to expansion of both the Consolidated Technologies Division and the
Western States Division.
Net cash used in operations totaled $5,103,631 for fiscal 1998 as compared
to $745,309 for fiscal 1997. The increase in cash used in operations was
primarily related to: extended payment terms of the Company's primary
customer; the 60 day holding period requirement of the Company's primary
customer; and the increased inventory and accounts receivable associated with
the 53% increase in volume of plasma collected. Partially offsetting were: a
net income in the 1998 period compared to a net loss for the comparable prior
year period; an increase in accounts payable and accrued expenses related to
the increased number of plasma collection centers and the direct costs
related to the increased volumes; and an increased cash flow benefit from
depreciation and amortization expense. Cash flow from investing activities
for the year ended February 28, 1998 resulted in net cash used of
$12,871,130 compared to $1,584,401 for the comparable prior year period.
This increase in cash used resulted from the acquisitions of Consolidated
Technologies, Inc., Western States Group, Inc. and American Plasma
Management, Inc. and from the capital requirements of the newly established
plasma collection centers in Pasco, Toledo, Pocatello, Savannah and
Wilmington. Cash flows provided by financing activities was $22,928,208 for
the current period compared to $2,293,311 for the comparable prior year
period. This increase was primarily due to the issuance $16 million in
subordinated debentures in February 1998; the multiple private placements of
$5,425,216 of the Company's common and preferred stock; the proceeds from
bridge loans from officers and directors which totaled $1,924,000; and the
proceeds from various other notes which totaled $1,946,947. This was
partially reduced by repayments made on long-term debt and the notes payable.
The year ended February 28, 1998 was a year of continued consolidation,
growth and of solidifying the financial position of the Company through the
issuance $16 million in
21
<PAGE>
subordinated debentures in February 1998 and the multiple private placements
of $5,425,216 of the Company's common and preferred stock.
SUBSEQUENT EVENT
Effective April 24, 1998, the Company consummated a $10 million, two-year
revolving line of credit with Brown Brothers Harriman & Co. Proceeds from the
financing will be used for general working capital. Under the terms of the
agreement, interest will accrue at the Bank of Boston prime rate plus .75
base points and will be payable quarterly. The agreement contains various
covenants relating to : minimum effective capital; maximum ratio of total
liabilities divided effective capital; a minimum current ratio; a minimum
ratio of EBITDA divided by interest expense plus capital; and various other
non-financial covenants relating to restrictions on additional indebtedness;
guarantees and cross guarantees of indebtedness; limitations on investments;
and restrictions on asset sales, mergers, changes in control, divestitures,
acquisitions, dividends and distributions.
As part of this transaction, the Company agreed to pay to Brown Brothers
Harriman a placement fee of $25,000 plus certain costs of the closing such as
legal fees and agreed to maintain a minimum cash balance of $150,000. The
Company also delivered to the lender warrants to purchase an aggregate of
13,793 shares of the Company's common shares at any time at an exercise price
of $.01 per share. Brown Brothers & Harriman is secured by all the assets of
the Company as the senior lender ahead of all other lenders.
In connection with this transaction, the Company also paid Sutro & Co. a
finders fee and certain related expenses totaling $161,175.
Management believes that the new revolving line of credit combined with
internally generated cash flows will be sufficient to meet the ongoing
working capital requirements of the Company. Any significant acquisitions or
major expansions, however, may require additional financing which could
require additional debt, private placements or a public offering.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 129, "Disclosure of
Information about Capital Structure," ("SFAS 129") issued by the FASB is
effective for financial statements with fiscal years ending after December
31, 1997. The new standard reinstates various securities disclosure
requirements previously in effect under Accounting Principles Board Opinion
No. 15, which has been superceded by SFAS No. 128. The Company adopted SFAS
No. 129 on December 15, 1997 and it did not have any material effect on its
financial position or results of operations.
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income," ("SFAS 130") issued by the FASB is effective for financial
statements with fiscal years beginning after December 15, 1997. Earlier
application is permitted. SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. The Company does not expect adoption
of SFAS 130 to have any material effect on its financial position or results
of operations.
Statement of Financial Accounting Standard No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS 131") issued by the
FASB is effective for financial statements with fiscal years beginning after
December 15, 1997. SFAS 131 requires that public companies
22
<PAGE>
report certain information about operating segments, products, services and
geographical areas in which they operate and their major customers. The
Company does not expect adoption of SFAS 131 to have a material effect on its
financial position or results of operations.
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities,"
(SOP 98-5) issued by the American Institute of Certified Public Accountants
is effective for financial statements beginning after December 15, 1998. SOP
98-5 requires that the costs of start-up activities, including organization
costs, be expensed as incurred. Start-up activities are defined broadly as
those one-time activities related to opening a new facility, introducing a
new product or service, conducting business in a new territory, conducting
business with a new class of customer (excluding ongoing customer acquisition
costs, such as policy acquisition costs and loan origination costs) or
beneficiary, initiating a new process in an existing facility, or commencing
some new operation. The Company anticipates that adoption of SOP 98-5 will
have an effect on its results of operations but has not yet determined the
amount of such effect.
INFLATION
Management believes that inflation generally causes an increase in sales
prices with an offsetting unfavorable effect on the cost of products sold and
other operating expenses. Accordingly, with the possible impact on interest
rates, management believes that inflation will have no significant effect on
the Company's results of operations or financial condition.
YEAR 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in other normal business activities.
The Company has invested in the latest hardware and software and accordingly
management believes the Company is in full compliance with year 2000
standards and anticipates no problems in maintaining this compliance into the
future.
ITEM 7. FINANCIAL STATEMENTS.
All financial statements required to be filed herewith are attached hereto
following the signature page.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The Company is headquartered in Los Angeles, California and operates with a
corporate office staff of five people.
The present term of office of each director will expire at the next
Annual Meeting of Shareholders. Executive Officers of the Company
are elected annually at the first meeting of the Company's Board
of Directors held after the annual meeting of shareholders. Each
executive officer will hold office until his or her successor is duly
elected and qualified or until his or her death or resignation or until he or
she shall have been removed in the manner provided in the
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<PAGE>
Company's Bylaws. The name and position with the Company and age of each
officer and director, and the period during which each director has served
are as follows:
<TABLE>
<CAPTION>
Director
Name Age Position Since
- ---- --- -------------------------------------------------- ----------------
<S> <C> <C> <S>
Barry D. Plost.......... 52 Chairman of the Board, President and CEO 1996
Jerry L. Burdick........ 58 Executive Vice President, Chief Financial Officer, 1995
Secretary and a Director
Sam Anderson............ 61 Director 1996
Ezzat Jallad............ 35 Director 1996
Nelson Teng............. 51 Director 1997
Robert J. Cresci........ 54 Director April 15, 1998
Michael F. Crowley...... 54 Director April 15, 1998
William J. Cone......... 47 Director April 15, 1998
Susan Preston (1)....... 42 Director 1996
</TABLE>
BARRY D. PLOST began serving as Chairman, President and Chief Executive
Officer of the Company on February 6, 1996. Prior to joining the Company, he
was a Management Consultant with the management consulting firm of David
Barrett, Inc. for the period January 1995 until February 6, 1996. Mr. Plost
was President and Chief Executive Officer of Country Wide Transport Services,
Inc., a trucking company, from February 1991 through June 1994, and President
and Chief Operating Officer of Freymiller Trucking, Inc., a trucking company,
from November 1979 through August 1991.
JERRY L. BURDICK was appointed Executive Vice President, Chief Financial
Officer, Secretary and a Director effective December 1, 1995. From August
1993 through March 1995, Mr. Burdick was a consultant to SeraCare, Inc. in
the areas of financing, internal controls, cost accounting and was
specifically requested to evaluate the whole blood operations of the Company
and make recommendations for correcting the increasing losses. When the
Company filed for protection under Chapter 11 of the Federal Bankruptcy Code,
Mr. Burdick was asked to provide guidance to the Controller and financial
staff on appropriate bankruptcy filings and regulations. Mr. Burdick also
drafted the first proposed Reorganization Plan and accompanying Private
Placement Memorandum for SeraCare, Inc. during that period. During that
period, Mr. Burdick had no direct reports and acted only in an advisory
capacity reporting to the President of the Company. In October 1994, the
Company hired Mr. Burdick as an accountant. In March 1995, the Company
determined to terminate the Controller and Chief Financial Officer (same
person) and have Mr. Burdick fill that role on an acting basis during the
remaining tenure of the bankruptcy, through February 6, 1996. Mr. Burdick
previously operated his own consulting practice from March 1988 through
August 1993. Mr. Burdick is a Certified Public Accountant in the State of
California. At the time the Company filed for protection under Chapter 11 of
the Federal Bankruptcy Code, Mr. Burdick was a consultant to the Company.
Mr. Burdick has also participated in various other Chapter 11 restructurings
as a consultant, and for about one year as controller of a company which was
in bankruptcy when he joined the company.
SAM ANDERSON was elected a Director effective April 16, 1996. Since April of
1996, Mr. Anderson has also been a consultant to SeraCare, Inc. in the areas
of: finding and evaluating potential acquisitions; helping the Company in
developing a strategic plan for increasing the volume of hyperimmune plasma
collected including targeting the particular type of
24
<PAGE>
hyperimmune the company should target; and advising the Chief Executive
Officer of the Company on industry trends and potential changes in
regulations and the ramifications thereof. Mr. Anderson's role is strictly
advisory and he has no direct reports within SeraCare, Inc. Since March 1991,
Mr. Anderson has served as a consultant to various companies in the plasma
business and specifically in pharmaceutical products, fractionation and
hyperimmune plasma. From March 1990 to March 1991, Mr. Anderson served as
president of Trancel, Inc., a start-up bio-tech development company in the
area of insulin dependent diabetes and prior to that served as Chairman and
Chief Executive Officer of Alpha Therapeutic Corporation, a manufacturer of
pharmaceutical products and also the largest plasma collection company and
fractionator in the world, until he retired in February 1990.
M. EZZAT JALLAD was elected a Director effective October 28, 1996. Mr. Jallad
has been Chairman and President of Softpoint, Inc., which develops and
markets point of sale software and hardware for the fast food and retail
markets since June 1995. Previously, he was Executive Vice President of SCIM
Corporation, a financial consulting firm, from April 1988 to May 1995.
DR. NELSON TENG was elected a Director effective January 29, 1997. Dr. Teng
has been the Director of Gynecologic Oncology and Associate Professor of
Gynecology and Obstretrics at Stanford University School of Medicine since
1981. Dr. Teng also co-founded ADEZA Biomedical in 1984, and UNIVAX
Biologics in 1988. In addition, Dr. Teng has served as a scientific advisor
and consultant to several biotechnology companies and venture capital firms
and has authored over 100 publications and 15 patents. Dr. Teng serves on
several other boards of directors.
MICHAEL F. CROWLEY, SR. was elected a Director effective April 15, 1998 and
has also served as President of the Western States Plasma Division of the
Company since February 1998. Mr. Crowley founded Western States Group in
1983. Prior to that, Mr. Crowley worked for 12 years for Baxter
International, Inc. from 1970 to 1982 and served first as Sales and
Operations Manager in Baxter's international division in England and later as
Director of Operations for Baxter's diagnostic division, Hyland Laboratories,
a pharmaceutical company.
WILLIAM J. CONE was elected a Director effective April 15, 1998 and has also
served as President of the Consolidated Technologies Division of the Company
since February 1998. Mr. Cone joined Consolidated Technologies, Inc. in 1972
(three years after his father founded the company in 1969) and was President
and sole shareholder of the company from 1988 until February 1998. Mr. Cone
attended Southwest Texas State University where he majored in microbiology.
ROBERT J. CRESCI was elected a Director effective April 15, 1998. Mr. Cresci
has been a Managing Director of Pecks Management Partners Ltd., an investment
management firm, since September 1990. Mr. Cresci currently serves on boards
of Bridgeport Machines, Inc., EIS International, Inc., Sepracor, Inc.,
Arcadia Financial, Ltd., Hitox, Inc., Garnet Resources Corporation, Film
Roman, Inc., Educational Medical, Inc, Source Media, Inc., Castle Dental
Centers, Inc., Candlewood Hotel Co., and several private companies.
SUSAN PRESTON was elected a Director effective April 16, 1996. Ms. Preston
has been a practicing attorney for the law firm of Weiss, Jensen, Ellis &
Howard in Seattle, Washington since May 1994 and previously served as
corporate counsel for various other companies. Susan Preston resigned as a
director effective April 15, 1998.
25
<PAGE>
Effective April 15, 1998, the Board of Directors consists of eight directors:
Barry D. Plost , Chairman, President and Chief Executive Officer; Jerry L.
Burdick, Executive Vice President, Chief Financial Officer and Secretary;
Michael F. Crowley, Sr., President of the Western States Plasma Division;
William J. Cone, President of the Consolidated Technologies Division; Sam
Anderson, outside Director; Robert J. Cresci, outside Director; Ezzat
Jallad, outside Director; and Dr. Nelson Teng, outside Director.
ITEM 10. EXECUTIVE COMPENSATION
The Company has key man insurance on Barry D. Plost, Michael F. Crowley, Sr.,
and William J. Cone. SAM ANDERSON, an outside Director, has a consulting
agreement with the Company which runs through March 31, 2002 at $50,000 per
year plus fully vested options to purchase 30,000 shares of the Company's
common stock at $1.50 per share which expire in three years. Mr. Anderson
also was granted fully vested, three year options to purchase 20,000 shares
of the Company's common stock at $1.00 per share in conjunction with a
$100,000 bridge loan Mr. Anderson made to the Company on July 2, 1996 and on
August 27,1997 was granted fully vested five year options to purchase 100,000
shares at $2.25. SUSAN PRESTON was granted fully vested, three year options
to purchase 15,000 shares of the Company's common stock at $1.50 per share
on April 16, 1996 and fully vested, five year options to purchase 15,000
shares at $2,25 on August 27, 1997. Susan Preston resigned as a director
effective April 15, 1998. DR. NELSON TENG was granted fully vested, three
year options to purchase 50,000 shares of the Company's common stock at $1.50
per share in January 1997 and fully vested, five year options to purchase
15,000 shares at $2,25 on August 27, 1997. Ezzat Jallad was granted fully
vested five-year options to purchase 15,000 shares at $2,25 on August 27,
1997.
The following table sets forth the cash compensation and other consideration
paid by the Company to its executive officers whose cash compensation
exceeded $100,000.
<TABLE>
<CAPTION>
Paid Paid Paid
Fiscal Fiscal Fiscal
Name and Principal Position 1998 1997 1996 Options Other
- --------------------------- -------- -------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
(8)Barry D. Plost, President, $172,115 $124,167 $ 4,327 156,147(1) (7)(6)
Chairman and CEO 150,000(2)
100,000(3)
130,000(4)
1,058,500(5)
(9)Jerry L. Burdick, 125,576 125,000 83,749 67,110(10) (7)(6)
Executive V. P., Secretary and CFO
</TABLE>
- ------------------------
(1) Of these, 56,147 are fully vested five-year options granted on February
6, 1996 at a price of $1.25 and 100,000 are fully vested five-year
options granted on August 27, 1997 at a price of $3.00.
(2) These options were granted on February 6, 1996. The prices are 50,000
at $1.00, 50,000 at $2.00, and 50,000 at $3.00 per share. These options
were fully vested in January 1997 and expire January 2002.
(3) These options were granted on February 6, 1996 and are fully vested at
$1.00 per share which expire at the end of five years.
26
<PAGE>
(4) Mr. Plost was granted on July 2, 1996 and July 17 1996 fully vested
three year options to purchase 130,000 shares of the Company's common
stock at and exercise price of $1.00 per share in conjunction with a
$400,000 bridge loan Mr. Plost made to the Company on July 2, 1996 and a
$50,000 bridge loan he made to the Company on July 17, 1996. The options
granted represented 100% of the options granted employees in the year
1997.
(5) Mr. Plost was granted at various times throughout fiscal year 1998 fully
vested options to purchase 1,058,500 of the Company's common stock at
prices ranging from $2.00 to $3.50 which were the fair market value of
the shares on the grant date. These options were granted in conjunction
with various bridge loans made by Mr. Plost to the Company.
(6) The Company has established a Management Bonus Pool whereby ten percent
(10%) of earnings before taxes which are in excess of $920,549 in the year
ending February 28, 1997; $2,590,160 in the year ending February 28, 1998,
and $4,384,187 in the year ending February 28, 1999 will be allocated to a
bonus pool to be paid pro rata to all officers of the Company on the basis
of salaries.
(7) To the extent that quarterly earnings before taxes exceed $100,000, the
excess will be paid on a pro-rata basis to all officers up to an annual
maximum of $10,000 each.
(8) Effective on February 6, 1996, the Company signed an employment
agreement with Mr. Plost through February 5, 1999. The agreement was
amended on February 13, 1998, providing for a current annual salary of
$225,000. Mr. Plost also participates in the Management Bonus Pool on
the same basis as other officers of the Company during the term of his
agreement and also received certain options as indicated. Mr. Plost was
not an employee prior to February 6, 1996.
(9) Effective on February 6, 1996, the Company signed an employment
agreement with Mr. Burdick through February 5, 1999. The agreement was
amended on February 13, 1998, providing for a current annual salary of
$140,000. Mr. Burdick also participates in the Management Bonus Pool on
the same basis as other officers of the Company during the term of his
agreement and also received stock options as indicated above. Mr.
Burdick functioned as an accountant and consultant to the Company prior
to February 6, 1996.
(10) Of these, 42,110 are fully vested five year options granted on February
6, 1996 at a price of $1.25 and 25,000 are fully vested five year
options granted on April 10, 1997 at a price of $2.00.
AGGREGATE OPTIONS / SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Shares Value of
Shares Acquired Value Underlying Unexercised
Name and Principal Position on Exercise Realized Unexercised In-The-Money
- --------------------------- --------------- -------- Options at Options at
Year-End (1) Year-End(1)
---------------- ------------
<S> <C> <C> <C> <C>
Barry D. Plost, President, NA NA 56,147 $ 322,845
Chairman and CEO 100,000 $ 400,000
150,000 $ 750,000
100,000 $ 600,000
130,000 $ 780,000
858,500 $4,176,500
Jerry L. Burdick, NA NA 67,110 $ 367,133
Executive V. P., Secretary and CFO
</TABLE>
(1) As of February 28, 1998, there were no options which were unexercisable.
27
<PAGE>
OPTIONS / SAR GRANTS LAST FISCAL YEAR
During the current year Mr. Barry D. Plost, the President and CEO, was granted
100,000 fully vested five-year options on August 27, 1997 at a price of $3.00
which represented 80% of the individual grants during the year and Mr. Jerry L.
Burdick was granted 25,000 fully vested five year options on April 10, 1997 at
a price of $2.00 which represented 20% of the individual grants during the
year. There were no individual grants during the preceding year.
ITEM 11. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
SECURITYHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's common shares at February 28,
1998 of each present director, all officers, all officers and directors as a
group and each beneficial owner of more than 5% of the Company's common stock.
<TABLE>
<CAPTION>
Presently Exercisable
---------------------
% of Common Series A
Individual / Group Class Shares Options Warrants
- ------------------ ----- --------- --------- --------
<S> <C> <C> <C> <C>
Barry D. Plost, President & Chairman 20.8% 393,034 1,394,647 -
Brad Rabe, Executive VP & COO(1) 5.2% 308,889 - 72,500
J.L. Burdick, Executive, CFO & Director 2.1% 82,546 67,110 -
Brian Olson, VP Operations(1) .1% 45,777 28,073 -
Nelson Teng, Director 5.2% 315,000 65,000 -
Samual Anderson, Director 4.7% 191,932 150,000
Susan Preston, Director 0.4% - 30,000 -
Ezzat Jallad, Director 0.6% 25,000 15,000 -
All Officers and Directors 35.3% 1,362,178 1,749,830 72,500
Other Beneficial owners:
Brad Gaspard 7.5% 358,500 200,000
Pecks Management Partners, Ltd 22.6% 2,100,572
Consolidated Technologies, Inc. 6.1% 436,364
</TABLE>
(1) Mr. Rabe and Mr. Olson resigned as an officer of the Company in March 1998.
Of the issued and outstanding shares as of May 1, 1998, no person or entity
owns or controls 10% or more of the company's common stock.
Pursuant to the acquisition agreement dated September 2, 1996, Mr. Brad Rabe
may receive up to 125,000 additional shares if certain earnings performance
criteria are met. These additional shares are not reflected in the above
table.
PRICE AND EXERCISE DATE OF SERIES A WARRANTS LISTED ABOVE.
A. Brad Rabe - Previously Executive Vice President and COO 72,500 Series A
Warrants
Mr. Rabe acquired 25 Units of the October 1, 1996 Private Placement for
$187,500 and the Marvin S. Rabe Trust for which Mr. Rabe is a Trustee
acquired 4 Units of the October 1, 1996 Private Placement for $30,000.
Each Unit consisted of 5,000 shares of common stock and 2,500 Series A
warrants to purchase one share of the company's common stock at $2.75.
The Series A warrants are exercisable immediately and terminate on the
earlier of (i) six years from the date of issuance and (ii) three years
from the date of the initial effectiveness of the
28
<PAGE>
"Initial Registration Statement". The Series A warrants are redeemable by
the Company at $.01 per share, upon 30 days notice, if the common stock is
publicly traded and the average of the closing price per share of the
common stock for each of the 20 consecutive trading days immediately prior
to the mailing of such notification and for each day thereafter until the
redemption date shall have exceeded 133.3% of the existing exercise price.
Mr. Rabe resigned as an officer of the Company in March 1998
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
BRIDGE LOANS TO THE COMPANY FROM RELATED PARTIES.
In January 1998, the Company entered into agreements with related parties,
approved by the Board of Directors, which provided for bridge loans of
$599,000. Interest is payable monthly at ten percent per annum. At February
28, 1998, $599,000 of these bridge loans were outstanding. These loans are
due April 12, 1998. In connection with the 1998 bridge loans, the Company
granted the holders warrants to purchase 599,000 shares of restricted common
stock at an exercise price of $3.50, which approximated the fair market value
of the shares on the date of grant. In February 1998, these warrants were
exchanged for 299,500 shares of restricted common stock.
At various times during the year ended February 28, 1998, the Company entered
into agreements with the Company's president, which provided for loans
totaling $1,325,000, which are all outstanding at February 28, 1998. These
loans are due upon demand, and are secured by all the assets of the Company.
The loans accrue interest at ten and twelve percent per annum. In connection
with these loans, the Company granted options to its president to purchase
742,500 and 116,000 shares of restricted common stock at $2.00 and $3.00 per
share, which was at the then fair market value, respectively.
During 1997, the Company entered into agreements with related parties,
approved by the Board of Directors, which provided for bridge loans of
$550,000. The bridge loans are due on demand and are secured by all of the
assets of SeraCare's consolidated operations. The loans accrue interest at
twelve percent per annum. During the year ended February 28, 1997, $332,500
of the bridge loans were converted to equity in private placements. The
holders received 221,667 shares of common stock and warrants to purchase
112,500 shares of common stock at an exercise price of $2.75. At February
28, 1998, $197,500 of these bridge loans was outstanding. In connection with
the 1997 bridge loans, the Company granted three-year options to purchase
150,000 shares of common stock at an exercise price of $1.00. The Company
calculated $100,000 as the value (original issue discount) of the options
issued in conjunction with the bridge loans, which estimated fair market
value in excess of the exercise price of these options at the date of issue.
The entire original issue discount was amortized to interest expense during
the year ended February 28, 1997.
SERIES A WARRANTS
The Company issued 940,000 Series A Warrants in connection with the two private
placements dated June 1, 1996 and October 1, 1996. Each warrant allows the
holder to purchase one share of common stock of the Company at $2.75. The
Series A Warrants were exercisable immediately and
29
<PAGE>
will terminate on the earlier of six years from the date of issuance or three
years from the date of the initial effectiveness of an "Initial Registration
Statement" under Securities Act of 1933. The Initial Registration Statement
is required to register the shares issued in conjunction with both private
placements and the common stock underlying Series A Warrants. The Series A
Warrants provide for adjustments consisting of a reduction of the exercise
price of each Series A Warrant by $.10 upon the 270th day following the
October 23, 1996 and for each subsequent month thereafter until the Company
effectuates such registration. Such reduction is subject to a floor of
$1.50. The Warrants are redeemable by the Company at $.01 per share, upon
thirty days notice, if the common stock is publicly traded and the average of
the closing price per share of the common stock for each of the twenty
consecutive trading days immediately prior to the mailing of such
notification and for each day thereafter until the redemption date shall have
exceeded 133.3% of the then existing exercise price. No call for redemption
can be made unless the Company has an effective registration statement on
file relating to the common stock issued in conjunction with the private
placements and the common stock underlying Series A Warrants. During the
year ended February 28, 1998, the Company offered the holders of these
warrants a cashless exchange of one share of stock for two warrants. Holders
of 615,000 warrants (230,000 of which were held by officers and directors of
the Company), elected to receive 307,500 shares of restricted common stock
(115,000 were received by officers and directors of the Company). As of
February 28, 1998, 325,000 warrants remained outstanding.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) THE FOLLOWING FINANCIAL STATEMENTS ARE BEING FILED AS PART OF THIS
REPORT:
SeraCare, Inc. and Subsidiaries
Report of Independent Certified Public Accountants -
BDO Seidman, LLP
Consolidated Balance Sheets - February 28, 1998 and February 28, 1997
Consolidated Statements of Operations - Year ended February 28, 1998
- Year ended February 28, 1997
Consolidated Statements of Stockholders Equity - Year ended February 28, 1998
- Year ended February 28, 1997
Consolidated Statements of Cash Flows - Year ended February 28, 1998
- Year ended February 28, 1997
Summary of Accounting Policies
Notes to Consolidated Financial Statements
30
<PAGE>
(a)(2) THE FOLLOWING EXHIBITS ARE BEING FILED AS PART OF THIS REPORT.
4.9 Revolving Term Note between Brown Brothers Harriman & Co and
SeraCare, Inc. dated April 24, 1998.
4.10 Revolving Loan and Security Agreement between Brown Brothers
Harriman & Co and SeraCare, Inc. dated April 24, 1998.
4.11 Subordination Agreement between Brown Brothers Harriman & Co and
SeraCare, Inc. dated April 24, 1998.
4.12 Borrowing and Agency Agreement between Brown Brothers Harriman & Co
and SeraCare, Inc. dated April 24, 1998.
4.13 Cross-Guaranty Agreement between Brown Brothers Harriman & Co and
SeraCare, Inc. dated April 24, 1998.
4.14 Warrant To Purchase Common Stock of SeraCare, Inc. issued to Brown
Brothers Harriman & Co. dated April 24, 1998.
(a)(3) THE FOLLOWING EXHIBITS HAVE BEEN PREVIOUSLY FILED WITH THE COMMISSION AND
ARE HEREBY INCORPORATED HEREIN BY REFERENCE THERETO.
INDEX OF DOCUMENTS PREVIOUSLY FILED AS PART OF REGISTRATION STATEMENT
ON FORM 10SB FILED WITH THE COMMISSION ON NOVEMBER 21, 1996:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<S> <C>
2.1 Restated Articles of Incorporation filed on February 6, 1996.
2.2 By-laws of American Blood Institute, Inc. (now known as SeraCare, Inc.) dated June 10, 1992.
3.1 Certificate of Designation of Series A Preferred Stock filed on July 10, 1996.
6.1 Employment Agreement dated February 5, 1996 between the Company and Barry D. Plost
6.2 Employment Agreement dated November 14, 1995 between the Company and Jerry L. Burdick
6.3 Employment Agreement dated November 14, 1995 between the Company and Brian Olson
6.4 Employment Agreement dated September 3, 1996 between the Company and Brad Rabe
6.5 Consulting Agreement dated July 2, 1996 between the Company and Samuel Anderson
6.6 Bridge Note Agreement dated July 2, 1996 between the Company and Barry D. Plost
6.7 Bridge Note Agreement dated July 17, 1996 between the Company and Barry D. Plost
6.8 Bridge Note Agreement dated July 2, 1996 between the Company and Samuel Anderson.
6.9 Asset Purchase Agreement dated September 3, 1996 between the Company and Brad Rabe
6.10 Asset Exchange Agreement dated July 2, 1996 between the Company and Silver
31
<PAGE>
State Plasma Products, Inc.
6.10(a) Note payable dated July 2, 1996 between the Company and Silver State Plasma Products, Inc.
6.11 Amended and Restated Loan Agreement between the Company and CVD Financial Corporation
6.11(a) Note payable dated February 6, 1996 between the Company and CVD Financial Corporation
6.12 Contract for Exchange of Corporate Stock date July 9, 1996 between the Company and Mr. Burt H. McGhee
6.13 Series A Warrant Agreement dated September 4, 1996.
6.14 Series A Warrant Agreement dated October 23, 1996.
6.15 Registration Rights Agreement dated September 4, 1996.
6.16 Registration Rights Agreement dated October 23, 1996.
6.17 Dealer Warrant Agreement dated September 4, 1996.
6.18 Dealer Registration Rights Agreement September 4, 1996.
6.19 Motion for Order Confirming Third Amended Joint Plan of Reorganization of American Blood Institute, Inc., AVRE, Inc.
and Binary Associates, Inc. dated January 24, 1996.
6.19(a) Order Confirming Third Amended Joint Plan of Reorganization of American Blood Institute, Inc., AVRE, Inc. and Binary
Associates, Inc. dated and filed January 24, 1996.
10.1 Subsidiaries of Registrant
</TABLE>
(b) REPORTS ON FORM 8 - K
On March 3, 1997, the Company filed a Current Report on Form - 8K
with respect to a material contract between the Company and North American
Biologicals, Inc. ("NABI") for plasma from startup plasma collection centers
established or to be established in Clearfield, Utah; Raleigh, North
Carolina; Macon, Georgia; Pasco, Washington; and Toledo, Ohio. Included with
such filing was a copy of the agreement relating to the Clearfield, Raleigh
and Macon locations.
On November 29, 1997, the Company filed a Current Report on Form 8k with
respect to the acquisition of substantially all of the operating assets of
American Plasma Management, Inc., American Plasma Systems, Inc., and American
Plasma Reno, Inc.
On January 16, 1998, the Company filed a Current Report on Form 8k with
respect to the establishment of an Audit Committee.
On February 13, 1998, the Company filed a Current Report on Form 8K with
respect to the Acquisition of substantially all of the operating assets of
Consolidated Technologies Inc., the acquisition of the stock of Western
States Group, Inc. and the issuance of $16.0 million in Senior Subordinated
Debentures due 2005 to Pecks Management Partners, Ltd.
32
<PAGE>
GLOSSARY OF TERMS
ALBUMIN A large molecule found in abundance in plasma which assists
in maintaining the body's fluid levels.
ANTIBODY A protein molecule produced in response to a specific
foreign substance to which the antibody may bind and destroy
to protect the body from foreign invasion.
ANTIGEN A foreign substance such as a virus, bacteria or toxin which
stimulates the production of antibodies.
CLOTTING FACTORS A series of protein substances involved in the clotting
processes. The most frequently used are referred to as
Factors VIII and IX.
CYTOMEGALOVIRUS A virus commonly infecting various populations, resulting in
flu-like symptoms and the development of CMV antibodies in
an otherwise healthy person. If it infects a person with a
compromised immune system, it has much more severe
consequences, including causing death.
HEMOPHILIA Any of several blood-coagulation disorders in which the
blood fails to clot normally because of a deficiency or an
abnormality of one of the clotting factors.
HEPATITIS Inflammation of the liver caused by infectious or toxic
agents and characterized by jaundice, fever, liver
enlargement and abdominal pain. There are various forms of
viral hepatitis, including hepatitis A, B, and C, which
cause different disease conditions.
HIV Human Immunodeficiency Virus, a virus that causes AIDS.
IMMUNE GLOBULINS A group of proteins which contains antibodies.
ORPHAN DRUG STATUS A designation given by FDA to a drug which treats
relatively rare diseases or diseases affecting fewer than
200,000 persons in the United States at the time of the
application for such status. The company to first receive
orphan drug status and receive FDA marketing approval is
entitled to a seven-year exclusive marketing period in the
United States.
PLASMA Liquid portion of blood which contains various proteins, as
distinguished from formed elements of the blood such as red
blood cells, white blood cells and platelets. Plasma also
contains antibodies.
PLASMAPHERESIS A process in which plasma is removed from whole blood and
the remaining components of the whole blood are returned to
the donor.
PLATELETS Cells in blood which promote blood clotting.
RED BLOOD CELLS Principal cell found in whole blood, containing hemoglobin,
the primary carrier of oxygen to the body.
33
<PAGE>
SOURCE PLASMA The proper name of a product defined as a liquid portion of
human blood collected by plasmapheresis meeting the FDA
criteria or "source plasma" and intended as source material
for further manufacturing use. Source plasma is sometimes
referred to as normal plasma.
SPECIALTY PLASMA Plasma collected to provide specific antibodies to
manufacture immune globulins for specific diseases or
collected according to special specifications for further
manufacturing either into therapeutic or diagnostic
products.
WHITE BLOOD CELLS Several types of specialized cells found in whole blood that
are a critical part of the defense of the body against
disease and infections.
34
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
SERACARE, INC.
(Registrant)
Dated May 28, 1997 By: /s/ Barry D. Plost
-----------------------------
Barry D. Plost, President & CEO
By: /s/ Jerry L. Burdick
-----------------------------
Jerry L. Burdick
Principal Accounting and
Finance Officer
In accordance with Section 12 of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ------------------------- --------- ----
/s/ BARRY D. PLOST CHAIRMAN OF THE BOARD AND CEO MAY 28, 1998
- -------------------------
BARRY D. PLOST
/s/ JERRY L. BURDICK EXECUTIVE VICE PRESIDENT AND CFO MAY 28, 1998
- -------------------------
JERRY L. BURDICK
/s/ SAMUEL ANDERSON DIRECTOR MAY 28, 1998
- -------------------------
SAMUAL ANDERSON
/s/ ROBERT J. CRESCI DIRECTOR MAY 28, 1998
- -------------------------
ROBERT J. CRESCI
/s/ EZZAT JALLAD DIRECTOR MAY 28, 1998
- -------------------------
EZZAT JALLAD
/s/ DR. NELSON TENG DIRECTOR MAY 28, 1998
- -------------------------
DR. NELSON TENG
/s/ MICHAEL F. CROWLEY, SR. DIRECTOR MAY 28, 1998
- -------------------------
MICHAEL F. CROWLEY, SR,
/s/ WILLIAM J. CONE DIRECTOR MAY 28, 1998
- -------------------------
WILLIAM J. CONE
35
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F-3
Statements of Operations F-5
Statements of Stockholders' Equity F-7
Statements of Cash Flows F-8
Summary of Accounting Policies F-12
Notes to Consolidated Financial Statements F-18
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
SeraCare, Inc.
We have audited the accompanying consolidated balance sheets of SeraCare,
Inc. and subsidiaries as of February 28, 1998 and February 28, 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SeraCare,
Inc. and subsidiaries as of February 28, 1998 and February 28, 1997 and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Los Angeles, California
May 21, 1998
F-2
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, February 28,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS (Notes 1, 2, 3, 4 and 5)
CURRENT ASSETS
Cash and cash equivalents $ 5,497,524 $ 544,077
Accounts receivable 4,612,968 236,571
Inventory 7,644,601 342,504
Prepaid expenses and other current assets 243,785 62,269
------------ ------------
Total current assets 17,998,878 1,185,421
PROPERTY AND EQUIPMENT, net (Note 2) 2,780,850 890,153
FDA LICENSES, less accumulated amortization
of $57,351 and $26,250 2,759,999 1,321,745
DONOR BASE AND RECORDS, less accumulated
amortization of $61,149 and $35,000 1,688,762 879,008
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCATED
TO IDENTIFIABLE ASSETS, less accumulated amortization
of $78,635 and $53,022 692,818 969,447
GOODWILL, less accumulated amortization of $84,292 and
$73,171 9,748,357 901,487
DEFERRED BOND DISCOUNT, less accumulated amortization
of $49,349 8,241,225 -
OTHER ASSETS, including start-up costs of $739,171
and $29,225 1,318,483 175,939
------------ ------------
$ 45,229,372 $ 6,323,200
------------ ------------
------------ ------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, February 28,
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,495,588 $ 605,492
Accrued payroll and related expenses 230,474 177,995
Accrued expenses 1,241,854 162,711
Deferred income 1,131,178
Income taxes payable (Note 10) 25,000
Bridge loans from related parties (Note 3) 1,296,947 197,500
Notes payable (Note 4) 2,121,500
Current portion of long-term debt (Notes 1 and 5) 12,211 432,358
------------- ------------
Total current liabilities 8,554,752 1,576,056
------------- ------------
LONG-TERM DEBT (Notes 1 and 5) 16,196,670 678,484
------------- ------------
SERIES A REDEEMABLE PREFERRED STOCK, $.001 par value,
25,000,000 shares authorized; 1,600 issued and
outstanding (Notes 1 and 7) 231,130 389,047
------------- ------------
COMMITMENTS (Notes 9, 11 and 12)
STOCKHOLDERS' EQUITY (Notes 1, 6, and 8)
Series B convertible preferred stock, $.001 par value,
15,000 shares authorized and outstanding. Liquidation
value $100 per share 15
Common stock, $.001 par value, 25,000,000 shares
authorized; 7,210,585 (including 125,000 to be
issued) and 4,149,387 issued and outstanding 7,210 4,149
Additional paid-in capital 20,293,232 4,182,954
Retained earnings (deficit) (53,637) (507,490)
------------- ------------
Total stockholders' equity 20,246,820 3,679,613
------------- ------------
$45,229,372 $ 6,323,200
------------- ------------
------------- ------------
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-4
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
February 28, February 28,
1998 1997
------------ ------------
<S> <C> <C>
REVENUES
Net sales (Note 12) $12,291,396 $6,661,679
Income from joint venture 119,574
------------ ------------
12,410,970 6,661,679
COST OF SALES 10,774,398 6,148,820
------------ ------------
GROSS PROFIT 1,636,572 512,859
GENERAL AND ADMINISTRATIVE EXPENSE 1,468,596 674,199
NON-CASH GENERAL AND ADMINISTRATIVE
EXPENSES (NOTE 6) 10,700 78,980
------------ ------------
OPERATING INCOME (LOSS) 157,276 (240,320)
INTEREST EXPENSE (458,719) (208,255)
NON-CASH INTEREST EXPENSE (NOTE 3) (74,386) (100,000)
OTHER INCOME, NET (NOTE 14) 854,682 53,467
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 478,853 (495,108)
INCOME TAXES (NOTE 10) 25,000 16,000
------------ ------------
NET INCOME (LOSS) $ 453,853 $ (511,108)
------------ ------------
------------ ------------
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-5
<PAGE>
SeraCare, Inc. and Subsidiaries
Consolidated Statements of Operations
(Continued)
<TABLE>
<CAPTION>
February 28, February 28,
1998 1997
------------ ------------
<S> <C> <C>
EARNINGS (LOSS) PER COMMON SHARE (NOTE 15)
Basic $ .09 $ (.20)
------------ ------------
------------ ------------
Diluted $ .08 $ (.20)
------------ ------------
------------ ------------
WEIGHTED AVERAGE SHARES ISSUED
AND OUTSTANDING (NOTE 15)
Basic 4,818,313 2,509,042
------------ ------------
------------ ------------
Diluted 5,706,405 2,509,042
------------ ------------
------------ ------------
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-6
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
BALANCE, March 1, 1996 - - 2,115,500 $2,115
Common stock issued and to be issued for (Note 6):
Private placements, net of costs of $255,309 - - 1,653,333 1,653
Conversion of debt - - 221,667 222
Acquisition of plasma centers - - 119,875 120
Services - - 38,889 39
Other - - 123 -
Compensation expense related to non-employee
stock options (Notes 6 and 8) - - - -
Issuance of options in conjunction with the original issue
discount associated with the bridge loans (Note 3) - - - -
Net loss for the year - - - -
-------- ------ ------------- -------
BALANCE, February 28, 1997 - - 4,149,387 $4,149
Common stock issued for ( Note 6):
Private placements, net of costs of $204,811 - - 1,136,396 1,136
Conversion of debt - - 487,813 488
Services - - 30,000 30
Acquisition of Western States subsidiary (Note 1) - - 125,000 125
Acquisition of assets of CTI (Note 1) - - 436,364 436
Cashless exchange of warrants - - 840,500 841
Acqusition of plasma centers - - 5,125 5
Compensation expense related to non-employee
stock options - - - -
Issuance of options in conjunction with the original issue
discount associated with the bridge loans - - - -
Warrants issued in conjunction with subordinated bonds - - - -
Issuance of Series B Convertible Preferred Stock, net of
$7,500 of issuance costs, issued in a private placement 15,000 $15 - -
Net income for the year - - - -
-------- ------ ------------- -------
BALANCE, February 28, 1998 15,000 $15 7,210,585 $7,210
-------- ------ ------------- -------
-------- ------ ------------- -------
ADDITIONAL RETAINED
PAID-IN EARNINGS
CAPITAL (DEFICIT) TOTAL
----------------- --------------- -----------------
<S> <C> <C> <C>
BALANCE, March 1, 1996 $ 1,210,671 $ 3,618 $ 1,216,404
Common stock issued and to be issued for (Note 6):
Private placements, net of costs of $255,309 2,223,038 - 2,224,691
Conversion of debt 332,278 - 332,500
Acquisition of plasma centers 179,693 - 179,813
Services 58,294 - 58,333
Other - - -
Compensation expense related to non-employee
stock options (Notes 6 and 8) 78,980 - 78,980
Issuance of options in conjunction with the original issue
discount associated with the bridge loans (Note 3) 100,000 - 100,000
Net loss for the year - (511,108) (511,108)
------------- ------------ -------------
BALANCE, February 28, 1997 $ 4,182,954 $ (507,490) $ 3,679,613
Common stock issued for ( Note 6):
Private placements, net of costs of $204,811 3,931,582 - 3,932,718
Conversion of debt 996,840 - 997,328
Services 9,970 - 10,000
Acquisition of Western States subsidiary (Note 1) 438,163 - 438,288
Acquisition of assets of CTI (Note 1) 1,529,587 - 1,530,023
Cashless exchange of warrants (841) - -
Acqusition of plasma centers 7,682 - 7,687
Compensation expense related to non-employee
stock options 107,101 - 107,101
Issuance of options in conjunction with the original issue
discount associated with the bridge loans 187,009 - 187,009
Warrants issued in conjunction with subordinated bonds 7,410,700 - 7,410,700
Issuance of Series B Convertible Preferred Stock, net of
$7,500 of issuance costs, issued in a private placement 1,492,485 - 1,492,500
Net income for the year 453,853 453,853
------------- ------------- -------------
BALANCE, February 28, 1998 $20,293,232 $ (53,637) $20,246,820
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-7
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH FEBRUARY 28,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 453,853 $(511,108)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 461,182 185,560
Income from joint venture (119,574)
Non-cash interest expense 74,386 100,000
Non-cash general and administrative
expenses 10,700 78,980
Issuance of common stock in exchange
for services 10,000 58,333
(Increase) decrease from changes in:
Accounts receivable (3,503,367) (7,911)
Inventory (5,755,645) (62,746)
Prepaid expenses and other
current assets (108,466) (25,475)
Other assets 45,515 (133,299)
Accounts payable 1,340,823 (122,345)
Accrued payroll and related expenses 27,591 50,152
Accrued expenses 803,193 (355,450)
Deferred income 1,131,178
Income taxes payable 25,000
----------- ---------
Net cash used in operating activities $(5,103,631) $(745,309)
</TABLE>
F-8
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH FEBRUARY 28,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment $ (800,955) $ (861,079)
Cash paid to purchase Western States subsidiary, net of
cash acquired (3,555,662)
Assets of CTI, American Plasma and Serologicals
acquired for cash (6,999,853)
Cash acquired in acquisition 250,000 19,860
Additions to FDA licenses (569,355) (297,995)
Additions to donor base and records (435,903) (214,008)
Purchase of goodwill (176,838)
Additions to other intangibles (759,402) (54,341)
------------ -----------
Net cash used in investing activities (12,871,130) (1,584,401)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt, net of
issuance costs 15,120,125 45,000
Repayment of long-term debt (830,163) (384,158)
Net proceeds from private placements 5,425,216 2,224,691
Payments on redemption of preferred stock (157,917) (122,222)
Proceeds from bridge loans - officers and
directors 1,924,000 650,000
Repayments on bridge loans - officers and
directors (120,000)
Proceeds from notes payable 1,946,947
Repayments on notes payable (500,000)
------------ -----------
Net cash provided by financing activities $ 22,928,208 $ 2,293,311
------------ -----------
------------ -----------
</TABLE>
F-9
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH FEBRUARY 28,
1998 1997
---- ----
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $4,953,447 $(36,399)
CASH AND CASH EQUIVALENTS,
beginning of year 544,077 580,476
---------- --------
CASH AND CASH EQUIVALENTS,
end of year $5,497,524 $544,077
---------- --------
---------- --------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<S> <C> <C>
(a) Cash paid for:
Interest $ 402,861 $212,367
State income taxes -- $ 8,500
</TABLE>
(b) Non-cash investing and financing activities
Effective January 1, 1998, the Company acquired Western States Group,
Inc. in exchange for 125,000 shares of stock and $4,033,204 in cash
(Note 1).
Effective January 1, 1998, the Company acquired substantially all of
the assets of Consolidated Technologies and an affiliate in exchange
for 436,364 shares of stock and $5,600,000 in cash (Note 1).
On November 29, 1997, the Company acquired all assets, rights and
lease commitments to five plasma centers from American Plasma in
exchange for a $600,000 note payable and $1,250,000 in cash. In
addition, the Company assumed the existing mortgage of $175,533 on one
of the plasma centers (Note 1).
In conjunction with the Senior Subordinated Debentures (Note 5), the
Company issued 2,100,572 warrants to purchase common stock to the
debenture holders and 131,286 warrants to the referring investment
banker as part of a finders fee.
During 1998, the holders of $997,328 of the Company's debt elected to
convert such debt into 487,813 restricted shares of common stock.
During 1998, the holders of 615,000 of Series A warrants elected to
convert the warrants into 453,750 shares of restricted common stock in
a cashless exchange.
F-10
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
In February 1998, the holders of warrants to purchase 907,500 shares
of common stock elected to convert the warrants into 307,500 shares of
restricted common stock in a cashless exchange.
During 1998, the Company issued 30,000 shares of restricted common
stock in exchange for consulting services.
During 1998, the Company issued options to purchase 145,000 shares of
common stock to various directors, recognizing non-employee
compensation of $187,009. At February 28, 1998, $162,009 is included
in other assets as deferred compensation expense.
On July 2, 1996, the Company acquired the assets of Silver State
Plasma Center in exchange for a $300,000 note payable and $500,000 in
cash (Note 1).
On July 9, 1996, the Company acquired BHM Labs, Inc. in exchange for
3,600 shares of the Company's Series A Redeemable Preferred Stock
(Notes 1 and 7).
On September 3, 1996, the Company acquired the assets and rights of
two plasma centers in exchange for shares of common stock currently
estimated at $125,000 (Notes 1 and 6).
During 1996, the Company converted $332,500 of its notes payable to
officers and directors to 221,667 shares of common stock and warrants,
which was in connection with the private placements (Notes 3 and 6).
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-11
<PAGE>
SERACARE INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION
SeraCare, Inc. (the "Company"), a Delaware corporation, was formed on
November 8, 1991. The business of the Company is currently carried out
through its wholly-owned subsidiaries AVRE, Inc., a Nevada corporation, BHM
Labs, Inc., an Arkansas corporation, Binary Associates, Inc., a Colorado
corporation, and SeraCare Acquisitions, Inc., a Nevada corporation, Western
States, Inc., a California corporation and Seracare Technology, Inc., a
Nevada corporation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
REVENUE RECOGNITION
The Company's policy is to record revenue upon shipment of its products. The
Company generally sells its plasma to fractionators under long-term
contracts. A fractionator is a company that manufactures pharmaceutical and
diagnostic products by processing the raw source plasma into a variety of
derivative products. During the year, the Company received advance payments
from a customer pending FDA licenses. The revenue related to these advance
payments has been deferred until actual shipment of the plasma and is
presented as deferred income in the accompanying consolidated balance sheet.
INVENTORY
Inventory, which primarily consists of blood plasma collected from donors, is
valued at the lower of cost or market (net realizable value). Cost is
determined by the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated straight line
over the estimated useful lives of five to ten years. Leasehold improvements
are recorded at cost and are amortized using the straight-line method, over
the lesser of the estimated useful lives of the property or the lease term
not to exceed ten years.
INVESTMENT IN JOINT VENTURE
The Company has a 50% interest in a joint venture, included in other assets
in the consolidated balance sheet, which it accounts for using the equity
method of accounting. The 50% interest in the joint venture's assets and
equity is not material in relation to the Company.
F-12
<PAGE>
SERACARE INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. A valuation
allowance is provided when management cannot determine whether or not it is
more likely that the net deferred tax asset will be realized. The effect on
deferred tax assets and liabilities of a change in the rates is recognized in
income in the period that includes the enactment date.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to
be cash equivalents.
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
Under the principles of "fresh-start" reporting, the Company allocated total
reorganization value among identifiable tangible and intangible assets on the
basis of their estimated fair values. The remaining amount is classified as
reorganization value in excess of amounts allocable to identifiable assets
and is being amortized over twenty years. The Company evaluates and assesses
the overall recoverability of this asset by determining if the unamortized
balance can be recovered through undiscounted future operating cash flows.
FDA LICENSES
Food and Drug Administration ("FDA") licenses which are required to operate a
plasma center, are assigned a value based on either the fair market value of
acquiring a FDA license or the incremental costs incurred during the FDA
licensing approval process, not to exceed the fair market value. Costs
incurred during this process consist of salaries, occupancy costs, and other
related expenses. The value assigned to an FDA license acquired in a
business combination is $150,000, which approximates fair market value. The
Company evaluates and assesses the overall recoverability of an FDA license
by determining if the unamortized balance can be recovered through
undiscounted future operating cash flows. Management believes that as long
as the Company continues to demonstrate compliance, an FDA license has an
unlimited useful life. Accordingly, the FDA licenses are being amortized
using the straight-line method over forty years.
F-13
<PAGE>
SERACARE INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
(CONTINUED)
DONOR BASE AND RECORDS
Donor base and records arise from business combinations or from the costs
incurred in establishing a donor base and the required records of a new
center. These costs consist of incremental salaries, occupancy costs, and
other costs directly related to the processing of new donors. The value
assigned to the donor base and records acquired in a business combination is
$100,000, which approximates fair market value. The value assigned to donor
base and records of new locations established by the Company is valued at the
costs incurred, not to exceed the fair market value. The Company evaluates
and assesses the overall recoverability of donor base and records by
determining if the unamortized balance can be recovered through undiscounted
future operating cash flows. Donor base and records are being amortized
using the straight-line method over an estimated useful life of twenty years.
GOODWILL
Goodwill represents the excess of the purchase price over the fair value of
net assets of businesses acquired and is amortized using the straight-line
method over a period of twenty years. The Company assesses the
recoverability of its goodwill periodically by evaluating the expected
undiscounted future cash flows for individual centers to determine whether
they are sufficient to support recorded goodwill. If undiscounted cash flows
are not sufficient to support the recorded asset, an impairment loss is
recognized to reduce the carrying value of the goodwill based on the expected
discounted cash flows of the center.
START-UP COSTS
Start-up costs of $759,402 and $46,145 were included in other assets at
February 28, 1998 and 1997, respectively. These costs represent
non-recurring expenditures directly related to and incurred during the
start-up phase of the opening of the Company's newly established centers.
Start-up costs consist primarily of direct labor and overhead associated with
the start-up phase. The start-up costs are being amortized on a
straight-line basis over a period not to exceed three years. Recoverability
of these costs are assessed on an on-going basis. Amortization of start-up
costs during the year ended February 28, 1998 was $20,231. There was no
amortization during the year ended February 28, 1997.
DEFERRED FINANCING COSTS
Included in other assets as of February 28, 1998, are deferred financing
costs of $162,009. These costs relate to the fair value of options and
warrants issued together with bridge loans and notes payable. These costs
are amortized over the anticipated life of the respective financial
instruments.
F-14
<PAGE>
SERACARE INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
(CONTINUED)
EARNINGS PER SHARE
As of February 28, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). This
pronouncement provides a different method of calculating earnings per share
than was used in accordance with APB 15, "Earnings per Share". SFAS 128
provides for the calculation of Basic and Diluted earnings per share. Basic
earnings per share includes no dilution and is computed by dividing net
income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution of securities that could occur if securities
or other contracts (such as stock options, warrants, convertible debentures
or convertible preferred stock) to issue common stock were exercised or
converted into common stock. None of the previous presented amounts
required restatement.
DEFERRED BOND DISCOUNT
Deferred bond discount represents the fair value of the warrants issued to
debenture holders and an investment banker in connection with the $16 million
debentures issued on February 13, 1998 and the related costs and expenses of
such issuance. The deferred bond discount is being amortized over the 7 year
term of such debentures on a straight-line basis using the bonds outstanding
method.
STOCK-BASED COMPENSATION
As of March 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
which establishes a fair value method of accounting for stock-based
compensation. In accordance with SFAS 123, the Company has chosen to
continue to account for employee stock-based compensation utilizing the
intrinsic value method prescribed in APB 25. Accordingly, compensation cost
for stock options is measured as the excess, if any, of the fair market price
of the Company's stock at the date of grant over the amount an employee must
pay to acquire the stock.
Also, in accordance with SFAS 123, the Company has provided footnote
disclosure with respect to stock-based employee compensation. The cost of
stock-based employee compensation is measured at the grant date based on the
value of the award and is recognized over the service period. The value of
the stock based award is determined using a pricing model whereby
compensation cost is the excess of the fair value of the stock as determined
by the model at grant date or other measurement date over the amount an
employee must pay to acquire the stock.
F-15
<PAGE>
SERACARE INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
(CONTINUED)
STOCK-BASED COMPENSATION (CONTINUED)
The Company accounts for non-employee stock based compensation by
establishing a fair value for stock options granted. Compensation costs is
measured as the excess, if any, of the fair value of the Company's stock at
the date of grant over the amount the non-employee must pay to acquire the
stock and is recognized over the anticipated service period.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF LONG-TERM DEBT
The fair value of the Company's long-term debt, which approximates the
carrying value, is estimated based on the quoted market prices for the same
or similar issues.
IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
established guidelines regarding when impairment losses on long-lived assets,
which include plant and equipment and certain identifiable intangible assets,
should be recognized and how impairment losses should be measured. The
Company periodically reviews such assets for possible impairment and expected
losses, if any, are recorded currently.
RECLASSIFICATIONS
Certain reclassifications have been made to conform the prior year amounts to
the current year presentation.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 129, "Disclosure of
Information about Capital Structure," ("SFAS 129") issued by the FASB is
effective for financial statements with fiscal years ending after December
31, 1997. The new standard reinstates various securities disclosure
requirements previously in effect under Accounting Principles Board Opinion
No. 15, which has been superceded by SFAS No. 128. The Company adopted SFAS
No. 129 on December 15, 1997 and it did not have any material effect on its
financial position or results of operations.
F-16
<PAGE>
SERACARE INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
(CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income," ("SFAS 130") issued by the FASB is effective for financial
statements with fiscal years beginning after December 15, 1997. Earlier
application is permitted. SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. The Company does not expect adoption of
SFAS 130 to have any material effect on its financial position or results of
operations.
Statement of Financial Accounting Standard No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS 131") issued by the
FASB is effective for financial statements with fiscal years beginning after
December 15, 1997. SFAS 131 requires that public companies report certain
information about operating segments, products, services and geographical
areas in which they operate and their major customers. The Company does not
expect adoption of SFAS 131 to have a material effect on its financial
position or results of operations; however, certain disclosures relating to
these items may be expanded.
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities,"
(SOP 98-5) issued by the American Institute of Certified Public Accountants
is effective for financial statements beginning after December 15, 1998. SOP
98-5 requires that the costs of start-up activities, including organization
costs, be expensed as incurred. Start-up activities are defined broadly as
those one-time activities related to opening a new facility, introducing a
new product or service, conducting business in a new territory, conducting
business with a new class of customer (excluding ongoing customer acquisition
costs, such as policy acquisition costs and loan origination costs) or
beneficiary, initiating a new process in an existing facility, or commencing
some new operation. The Company anticipates that adoption of SOP 98-5 will
have an effect on its results of operations but has not yet determined the
effect.
F-17
<PAGE>
SERACARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS OPERATIONS
GENERAL
The Company was initially engaged in the business of whole blood collection
and distribution. After significant and accelerating losses, it changed the
focus of the business from whole blood to plasma collection and distribution.
The Company currently collects and sells source plasma and two hyperimmune
plasmas. On October 4, 1993, the Company acquired 100% of the outstanding
common shares of AVRE, Inc. and Binary Associates, Inc., which owned and
operated six plasma collection centers. On January 7, 1994, the Company and
its subsidiaries filed for protection under Chapter 11 of the U.S. Bankruptcy
Code. The Company emerged from Chapter 11 effective February 6, 1996. During
fiscal 1997, the Company acquired additional centers and started new centers.
At February 28, 1998, the Company was currently operating 16 centers, with
four of those centers operating under reference numbers from the FDA pending
approval of license applications. Two additional centers are scheduled to
open March 1, 1998 and June 1, 1998. The plasma centers currently operated
by the Company are operative under the trade name "SeraCare". The name
"SeraCare" is registered with the United States Patent and Trademark Office.
ACQUISITIONS
Consolidated Technologies, Inc.
Effective January 1, 1998, the Company acquired substantially all of the
operating assets of Consolidated Technologies, Inc. and an affiliate, both
located in Austin, Texas. Consolidated Technologies, Inc. is a biomedical
manufacturing company specializing in the supply of products and services to
the in-vitro diagnostic industry. The total purchase price was valued at
$7,130,023, consisting of $5,600,000 in cash and 436,364 shares of the
Company's common stock.
Western States Group, Inc.
Effective January 1, 1998, the Company acquired all of the stock of Western
States Group, Inc. located in Fallbrook, California. Western States Group,
Inc. is a worldwide marketing organization for therapeutic blood plasma
products, diagnostic test kits, specialty plasma and bulk plasma. The total
purchase price was $4,471,492, consisting of $4,033,204 in cash and 125,000
shares of the Company's common stock.
F-18
<PAGE>
SERACARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. BUSINESS OPERATIONS (CONTINUED)
ACQUISITIONS (CONTINUED)
American Plasma Management, Inc.
On November 29, 1997, the Company acquired substantially all of the operating
assets of five plasma centers from American Plasma Management, Inc. The
total purchase price was $1,850,000, consisting of $1,250,000 in cash and
$600,000 in a note payable, due October 31, 1998 (see Note 4). In addition,
the Company assumed the existing mortgage of $175,533 on one of the plasma
centers.
Serologicals Corporation
On August 13, 1997, the Company acquired two plasma centers located in Reno,
Nevada and Ft. Smith, Arkansas, plus $250,000 in exchange for three of the
Company's plasma centers located in Colorado Springs (2) and Pueblo,
Colorado.
Acquisition of Development Stage Plasma Centers
On September 2, 1996, the Company acquired all the assets, rights and
leasehold rights to two development stage plasma centers located in
Clearfield, Utah and Raleigh, North Carolina in exchange for shares of the
Company's common stock. The purchase price was based upon a
performance-based formula whereby a base quantity of 175,000 shares could be
increased or decreased depending upon performance. At February 28, 1997, the
Company determined that the estimated base shares to be issued under the
agreement would be 119,875, valued at a fair market value of $179,813, and
such amount was reflected in the financial statements at that time. A final
resolution was reached regarding such base shares, and 125,000 shares were
issued. Accordingly, an additional 5,125 shares, valued at $7,687, have been
reflected in the fiscal 1998 financial statements.
The agreement also includes contingent consideration of a maximum of 62,500
shares for each of the two twelve-month periods following the acquisition if
certain criteria are satisfied. The criteria for the first twelve-month
period was not satisfied, and management believes that it is unlikely that
the criteria will be met for the second twelve-month period.
BHM Labs, Inc.
On July 9, 1996, the Company acquired BHM Labs, Inc., which owns and operates
a plasma collection center in Ft. Smith, Arkansas in exchange for 3,600
shares of the Company's Series A redeemable Preferred Stock. The Company
valued the acquisition at $490,800, based on the redemption value of the
preferred stock (Note 7).
F-19
<PAGE>
SERACARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. BUSINESS OPERATIONS (CONTINUED)
ACQUISITIONS (CONTINUED)
Silver State Plasma Center
On July 2, 1996, the Company acquired the operating assets of Silver State
Plasma Center in Las Vegas, Nevada for a purchase price of $800,000, which
consisted of $500,000 in cash and a three year, $300,000 note payable with
interest accruing at eight percent (see Note 5).
All acquisitions were accounted for using the purchase method of accounting.
Accordingly, the results of operations are reported as of the effective dates
of acquisition. The purchase price has been allocated to the net assets
acquired based upon fair market values at the date of acquisition. The
excess purchase price over the net assets acquired was recorded as goodwill
and is being amortized over twenty years.
The unaudited proforma results of operations, assuming the acquisitions
occurred as of the beginning of the respective period for revenue, net income
(loss) and income (loss) per share, is as follows:
<TABLE>
<CAPTION>
Year ended Year ended
February 28 February 28,
1998 1997
----------- -----------
<S> <C> <C>
Revenue $28,028,623 $24,497,531
Net income (loss) 1,170,751 328,512
Income (loss) per share
Basic .24 .13
Diluted .21 .13
</TABLE>
F-20
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consist of the following: February 28,
1998 1997
---- ----
<S> <C> <C>
Land $ 85,280 $ -
Buildings and improvements 458,375 -
Furniture and equipment 1,212,459 288,738
Leasehold improvements 1,020,022 408,747
Construction-in-process 295,382 250,760
---------- --------
3,071,518 948,245
Less: accumulated depreciation and amortization 290,668 58,092
---------- --------
Property and equipment, net $2,780,850 $890,153
---------- --------
---------- --------
</TABLE>
Depreciation and amortization expense on property and equipment was $186,132
and $57,230 for the years ending February 28, 1998 and 1997, respectively.
3. BRIDGE LOANS FROM RELATED PARTIES
In January 1998, the Company entered into agreements with related parties,
approved by the Board of Directors, which provided for bridge loans of
$599,000. Interest is payable monthly at ten percent per annum. At February
28, 1998, $599,000 of these bridge loans were outstanding. These loans are
due April 12, 1998. In connection with the 1998 bridge loans, the Company
granted the holders warrants to purchase 599,000 shares of restricted common
stock at an exercise price of $3.50, which approximated the fair market value
of the shares on the date of grant. In February 1998, these warrants were
exchanged for 299,500 shares of restricted common stock.
At various times during the year ended February 28, 1998, the Company entered
into agreements with the Company's president, which provided for loans
totaling $1,325,000, which are all outstanding at February 28, 1998. These
loans are due upon demand, and are secured by all the assets of the Company.
The loans accrue interest at ten and twelve percent per annum. In connection
with these loans, the Company granted options to its president to purchase
742,500 and 116,000 shares of restricted common stock at $2.00 and $3.00 per
share, which was at the then fair market value, respectively.
F-21
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. BRIDGE LOANS FROM RELATED PARTIES (CONTINUED)
During 1997, the Company entered into agreements with related parties,
approved by the Board of Directors, which provided for bridge loans of
$550,000. The bridge loans are due on demand and are secured by all of the
assets of SeraCare's consolidated operations. The loans accrue interest at
twelve percent per annum. During the year ended February 28, 1997, $332,500
of the bridge loans were converted to equity in private placements. The
holders received 221,667 shares of common stock and warrants to purchase
112,500 shares of common stock at an exercise price of $2.75. At February
28, 1998, $197,500 of these bridge loans were outstanding. In connection
with the 1997 bridge loans, the Company granted three year options to
purchase 150,000 shares of common stock at an exercise price of $1.00. The
Company calculated $100,000 as the value (original issue discount) of the
options issued in conjunction with the bridge loans, which estimated fair
market value in excess of the exercise price of these options at the date of
issue. All of the original issue discount was amortized to interest expense
during the year ended February 28, 1997.
4. NOTES PAYABLE
During 1998, the Company entered into agreements, approved by the Board of
Directors, which provided for loans of $808,500. These loans are due April
12, 1998. Interest is payable monthly at ten percent per annum. The Company
repaid $500,000 of these loans before year end. At February 28, 1998,
$308,500 of these bridge loans were outstanding. In connection with these
loans, the Company granted the holders warrants to purchase 308,500 shares of
common stock at an exercise price of $3.50 per share and 285,000 shares at an
exercise price of $4.00 per share, which approximated the fair market value
of the shares on the dates of grant. In February 1998, the warrants with an
exercise price of $3.50 were exchanged for 154,250 shares of restricted
common stock.
In conjunction with the American Plasma acquisition, the Company is obligated
under a note payable for $600,000, which is due October 31, 1998. The note
bears interest at eight percent per annum.
At various times during the year ended February 28, 1998, the Company entered
into agreements, which provided for loans totaling $1,138,447. These loans
are due upon demand and are secured by all the assets of the Company. The
loans accrue interest at twelve percent per annum. In connection with these
loans, the Company granted three-year options to purchase 487,978 shares of
common stock at exercise prices ranging between $2.00 and $3.00 per share,
which was at the then fair market value. In December 1998, $750,000 of these
loans were converted into 375,000 shares of restricted common stock. At
February 28, 1998, $388,447 of these loans was outstanding.
F-22
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. LONG-TERM DEBT
SENIOR SUBORDINATED DEBENTURES
On February 13, 1998, the Company issued $16,000,000 in Senior Subordinated
Debentures with interest payable quarterly at 12%. One-third of the then
outstanding balance is due on February 13, 2003, one-half of the then
outstanding balance is due on February 13, 2004 with the remaining balance
due on February 13, 2005. In the event of certain public offerings of the
Company's securities or a change in control (as defined), the Company is
required to prepay the outstanding balance of the debentures. In addition,
the Company may prepay the debentures at any time without penalty.
As part of the Securities Purchase Agreement, the Company issued warrants to
the debenture holders to purchase 2,100,572 shares of common stock at $.01
per share. These warrants were valued at the fair value at that date, which
resulted in an original issue discount of $7,575,808. This discount is being
amortized as non-cash interest expense over the term of the debt.
The debentures are senior to all other debt but are subordinate to any future
senior bank debt.
The Securities Purchase Agreement contains certain affirmative and negative
covenants, including maintenance of certain minimum funded debt and fixed
charge coverage ratios and restrictions on incurring certain indebtedness and
liens, making certain dividend payments, making certain loans and advances or
investments in other persons, selling a substantial amount of assets,
entering into certain mergers or business combinations or using securities
which are senior to or pari passu with these debentures. At February 28,
1998, the Company was in compliance with these covenants.
In conjunction with these debentures, the Company paid a finder's fee to the
referring investment banker, consisting of $640,000 in cash and warrants to
purchase 131,286 shares of its common stock at $3.00 per share. These
warrants were valued at $69,599.
MORTGAGE PAYABLE
During the year ended February 28, 1998, the Company assumed the mortgage on
one of the plasma centers in connection with the American Plasma acquisition.
The mortgage, which amounts to $174,343 at February 28, 1998, is due in
monthly installments of principal and interest of $1,830 through June 1,
2005. Interest is accrued at 10.5 percent per annum.
F-23
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
SILVER STATE PLASMA PRODUCTS, INC.
On July 2, 1996, the Company acquired the operating assets of Silver State
Plasma Center in Las Vegas, Nevada for $500,000 in cash and $300,000 in a
note payable. The note payable accrues interest at 8%. Principal and
interest payments are due monthly through August 1999. The note payable is
secured by all the assets acquired in the Silver State Plasma Center
acquisition. During 1998, this note payable was converted into 112,813
shares of restricted common stock.
CVD FINANCIAL CORPORATION
As of February 28, 1997, the Company owed CVD Financial $821,432 under a
loan agreement in the original amount of $1,150,000, with interest at 14% per
annum payable monthly and principal payable quarterly. The final principal
and interest payment is due August 1, 1999. The loan is secured by all the
assets of SeraCare, Inc. During 1998, the Company repaid this loan.
KIER CORPORATION
On September 2, 1996, the Company assumed a $45,000 note payable to The Kier
Corporation, a lessor, in conjunction with the Company's acquisition of the
rights to the Clearfield, Utah plasma collection center. The note payable
accrues interest at 10.5% and is payable in monthly installments of $967.
These monthly installments have been added to the base rental payments and
are paid monthly over a five-year period. The first monthly installment of
interest and principal commenced on October 20, 1996 and the final
installment is due on September 20, 2001. If the lease is terminated or the
Company defaults on the lease, the remainder of the loan is due in full
immediately. At February 28, 1998, the outstanding balance on the note
payable was $34,538.
Future minimum payments to be made, as of February 28, 1998:
<TABLE>
<CAPTION>
Year Ended February 28, Amount
----------------------- ------
<S> <C>
1999 $ 12,211
2000 13,557
2001 15,051
2002 11,786
2003 5,339,160
Thereafter 10,817,116
-----------
16,208,881
Less current portion 12,211
-----------
$16,196,670
-----------
-----------
</TABLE>
F-24
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. STOCKHOLDERS' EQUITY
COMMON STOCK
During 1998, the Company completed various private placements and received
$3,932,718, net of $204,811 of related offering costs and expenses. In
connection with these offerings, the Company issued 1,136,396 shares of its
restricted common stock.
In connection with the Silver State Plasma Products, Inc. acquisitions, the
Company had a note payable with an outstanding balance of $247,328 on
February 28, 1997. During 1998, this note was converted into 112,813 shares
of restricted common stock at the rate of $2.19 per share.
Additionally, during 1998 the Company received $750,000 of bridge loans,
which were converted into 375,000 shares of restricted common stock (see
Note 4).
In connection with the acquisition of Western States Group, Inc., the Company
issued 125,000 shares of restricted common stock, in a transaction valued at
$438,288 (see Note 1).
In connection with the acquisition of the assets of Consolidated
Technologies, Inc., the Company issued 436,364 shares of restricted common
stock, in a transaction valued at $1,530,023 (see Note 1).
In an effort to reduce the number of warrants outstanding prior to the
issuance of the Senior Subordinated Debentures (see Note 5), the Company
offered the holders of various warrants a cashless exchange of one share of
common stock for two warrants. In conjunction with this offer, the holders of
615,000 Series A warrants elected to receive 307,500 shares of restricted
common stock. In addition, the bridge loan holders elected to convert
907,500 warrants to 453,750 shares of restricted common stock. Dealer
warrants were also exchanged for a total of 79,250 shares of restricted
common stock.
On October 23, 1996, the Company completed the private placement offering
dated June 1, 1996 and received net proceeds of $1,088,850. The net proceeds
consisted of $1,047,500 in cash, and $227,500 in debt conversion, less
$186,150 of related offering costs and expenses. In connection with this
offering the Company issued 850,000 shares of its common stock. The offering
also included Series A warrants to purchase 425,000 shares of common stock at
an exercise price of $2.75 per share expiring on the earlier of six years
from date of issuance or three years from effective date of the initial
registration statement, discussed under Series A Warrants below. The proceeds
of this offering were used to finance the expansion program of the Company
and for working capital.
F-25
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK (CONTINUED)
During the period October 1, 1996 through February 28, 1997, the Company
completed multiple closings related to the private placement offering dated
October 1, 1996 and received net proceeds of $1,468,341. The net proceeds
consisted of $1,432,500 in cash and $105,000 in debt conversion, less $69,159
of related offering costs and expenses. In connection with this offering the
Company issued 1,025,000 shares of its common stock. The offering also
included Series A warrants to purchase 512,500 shares of common stock at an
exercise price of $2.75 per share expiring on the earlier of six years from
date of issuance or three years from effective date of the initial
registration statement, discussed under Series A Warrants below.
During the October 1, 1996 private placement, two directors and an officer
purchased 360,000 shares of the Company's common stock and Series A Warrants
to purchase 180,000 shares of common stock for cash of $540,000. In
conjunction with both the June 1, 1996 and October 1, 1996 private
placements, two directors who were also bridge loan holders, converted
$332,500 of bridge loans into 221,667 shares of the Company's common stock
and Series A Warrants to purchase 112,500 shares of common stock (see Note 3).
On September 2, 1996, the Company acquired all the assets, rights and
leasehold rights to two development stage plasma centers located in
Clearfield, Utah and Raleigh, North Carolina in exchange for shares of the
Company's common stock. The purchase price was based upon a
performance-based formula whereby a base quantity of 175,000 shares could be
increased or decreased depending upon performance. At February 28, 1997, the
Company determined that the estimated base shares to be issued under the
agreement would be 119,875, valued at a fair market value of $179,813, and
such amount was reflected in the financial statements at that time. In March
1998, a final resolution was reached regarding such base shares, and 125,000
shares were issued. Accordingly, at February 28, 1998, an additional 5,125
shares, valued at $7,687, have been reflected in the financial statements.
On September 2, 1996, the Company entered into a contract for services
whereby the contractor could be paid in cash or 38,889 shares of common stock
for services rendered. During the period, the Company recorded an expense of
$58,333 to reflect the value of the services rendered. As of February 28,
1997, the contractor elected to receive the 38,889 shares of common stock.
The Company granted options during fiscal 1998 and 1997 to various outside
directors. As a result, the Company recorded deferred compensation expense
of $96,401 in 1998, included in other assets on the Consolidated Balance
Sheets, and compensation expense of $10,700 in 1998 and $78,980 in 1997,
included as non-cash general and administrative expenses on the Consolidated
Statements of Operations (see Note 8).
F-26
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
SERIES B PREFERRED STOCK
In December 1997, the Company issued 15,000 shares of the Company's Series B
Convertible Preferred Stock, par value $.001 per share, for $1,500,000 in a
private placement, less issuance costs of $7,500. Such preferred stock is
convertible into 300,000 common shares and has a $100 per share liquidation
preference. The Series B Convertible Preferred Stock has no voting rights
prior to conversion, does not accrue interest or cash dividends and is
redeemable by the Company beginning January 1, 1999 at a premium to
liquidation preference. The Company is required to redeem on December 31,
2002 all shares of Series B Preferred Stock which remain outstanding on such
date at a price equal to the liquidation preference. As of February 28,
1998, all 15,000 shares issued were still outstanding.
SERIES A WARRANTS
The Company issued 940,000 Series A Warrants in connection with the two
private placements dated June 1, 1996 and October 1, 1996. Each warrant
allows the holder to purchase one share of common stock of the Company at
$2.75. The Series A Warrants were exercisable immediately and will terminate
on the earlier of six years from the date of issuance or three years from the
date of the initial effectiveness of an "Initial Registration Statement"
under Securities Act of 1933. The Initial Registration Statement is required
to register the shares issued in conjunction with both private placements and
the common stock underlying Series A Warrants. The Series A Warrants provide
for adjustments consisting of a reduction of the exercise price of each
Series A Warrant by $.10 upon the 270th day following the October 23, 1996
and for each subsequent month thereafter until the Company effectuates such
registration. Such reduction is subject to a floor of $1.50. The Warrants
are redeemable by the Company at $.01 per share, upon thirty days notice, if
the common stock is publicly traded and the average of the closing price per
share of the common stock for each of the twenty consecutive trading days
immediately prior to the mailing of such notification and for each day
thereafter until the redemption date shall have exceeded 133.3% of the then
existing exercise price. No call for redemption can be made unless the
Company has an effective registration statement on file relating to the
common stock issued in conjunction with the private placements and the common
stock underlying Series A Warrants. During the year ended February 28,
1998, the Company offered the holders of these warrants a cashless exchange
of one share of stock for two warrants. Holders of 615,000 warrants elected
to receive 307,500 shares of restricted common stock. As of February 28,
1998, 325,000 warrants remained outstanding.
OTHER WARRANTS
In conjunction with the issuance of the $16 million in subordinated
debentures (see Note 5), the Company issued warrants to the debenture holders
to purchase 2,100,572 shares of common stock at $.01 per share. In addition,
the Company granted warrants to purchase 131,286 shares of its common stock
at $3.00 per share as a finder's fee to the referring investment banker.
F-27
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. SERIES A REDEEMABLE PREFERRED STOCK
On July 7, 1996, the Company acquired BHM Labs, Inc. in exchange for 3,600
shares of the Company's Series A Preferred Stock. The preferred stock is
redeemable over three years, in 36 monthly installments with interest at the
rate of eight percent per annum starting June 1996. Upon receipt of each
monthly payment, the holder shall deliver to the Company, Series A Stock
Certificates representing 1/36th (one hundred shares) of the preferred stock
initially issued to the holder in connection with the acquisition. As of
February 28, 1998, the Company has redeemed 2,000 shares of the preferred
stock for $280,139 in cash (1,200 shares in 1998 and 800 shares in 1997).
The shares are redeemable at $208,755 and $61,106 during 1999 and 2000,
respectively.
8. STOCK OPTIONS
The Company has entered into various employment and consulting agreements
with officers and directors of the Company. As part of the agreements the
officers and directors were granted stock options as follows:
In February 1996, the president and chief executive officer of the
Company was granted an option to purchase 100,000 shares of common
stock of the Company at a price of $1.00 per share. These options
became fully vested upon execution of the agreement and are exercisable
until January 2001.
Additionally, the president and chief executive officer was granted the
following options, which are exercisable for a period of five years
from the vesting date, unless noted otherwise.
(1) In February 1996, the Company granted options to purchase 56,147
shares of common stock of the Company for the price of $1.25 per share.
The options became fully vested in October 1996.
(2) In conjunction with the employment agreement dated February 6,
1996, the Company granted options to purchase 150,000 shares of common
stock of the Company for prices ranging from $1.00 to $3.00 per share.
These options became fully vested in January 1997.
(3) In conjunction with certain Bridge loans made to the Company in
July 1996 (see Note 3), the Company granted options to purchase 130,000
shares of common stock of the Company at a price of $1.00 per share.
These options were fully vested on the date granted, and are
exercisable for a period of three years from the vesting date.
F-28
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. STOCK OPTIONS (CONTINUED)
(4) In conjunction with the $742,500 loans to the Company during calendar
1997 (see Note 3), the Company granted options to purchase 742,500 and
116,000 shares of common stock at an exercise price of $2.00 and $3.00
per share, which was at the then fair market value, respectively.
These options were fully vested on the date granted, and are
exercisable for three years.
(5) In August 1997, the Board granted options to the Company's
president to purchase 100,000 shares of common stock at an exercise
price of $3.00 per share, which was above the fair market value at the
time. These options vested immediately and are exercisable for five
years.
(6) In conjunction with a January 1998 bridge loan (see Note 3), the
Company granted options to purchase 200,000 shares of common stock at
an exercise price of $3.50 per share, which was at the then fair market
value. In February 1998, these options were exchanged for 100,000
shares of common stock in a cashless exchange.
In conjunction with the 1996 Plan of Reorganization, the Vice President
of Finance and Vice President of Operations were granted options to
purchase 42,110 and 28,073 shares of common stock of the Company,
respectively. The option purchase price of the options related to the
Vice President of Operations is a mean price between $.74 and the
weighted average, as defined in the agreement. The options related to
the Vice President of Finance became fully vested in October 1996 at an
option price set at $1.25 per share. These options are exercisable for
a period of five years from the vesting date. The options related to
the Vice President of Operations vest one-third each year over a three
year period beginning in January 1997.
In April 1997, the Board granted options to the Vice President of
Finance to purchase 25,000 shares of common stock at an exercise price
of $2.00 per share, which was at the then fair market value. These
options vested immediately and are exercisable for five years.
In August 1997, various directors were granted options to purchase
145,000 shares of common stock of the Company at an exercise price of
$2.25 per share, which was at the then fair market value. These options
were fully vested at the granting date and are exercisable for a period
of five years.
During the year ended February 28, 1997, various directors were granted
options to purchase 20,000 and 95,000 shares of common stock of the
Company at an exercise price of $1.00 and $1.50, respectively. These
options were fully vested at the granting date and are exercisable for
a period of five years.
F-29
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
8. STOCK OPTIONS (CONTINUED)
In connection with various loans made to the Company during the year
ended February 28, 1998, the Company granted options to purchase
1,580,473 shares of common stock at exercise prices ranging between
$2.00 and $4.00 share (including 349,000 granted at $3.50 per share to
related parties). These options were fully vested at the granting date
and are exercisable for a period of three years. In February 1998,
707,500 of these options were exchanged for 353,750 shares of common
stock in a cashless exchange (including 349,000 options exchanged for
174,500 shares of common stock by related parties).
The following table summarizes all option/warrant activity for the years
ended February 28, 1998 and 1997:
<TABLE>
<CAPTION>
Number of Weighted
Common Stock Average
Warrants/Options Price
---------------- ---------
<S> <C> <C>
Outstanding as of March 1, 1996 404,405 $1.50
Granted 1,157,427 2.43
---------------- ---------
Outstanding as of February 28, 1997 1,561,832 2.22
Granted 5,140,831 1.69
Exercised (1,523,000) (3.20)
---------------- ---------
Outstanding as of February 28, 1998 5,179,663 $1.40
---------------- ---------
---------------- ---------
Exercisable as of February 28, 1998 5,170,305 $1.40
---------------- ---------
---------------- ---------
</TABLE>
F-30
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
8. STOCK OPTIONS (CONTINUED)
FASB Statement 123, "Accounting for Stock-Based Compensation," requires the
Company to provide pro forma information regarding net income and earnings
per share as if compensation cost for the Company's stock option plans had
been determined in accordance with the fair value based method prescribed in
FASB Statement 123. The Company estimates the fair value of each stock
option, using the Black Scholes method, at the weighted-average assumption
used for grants in fiscal 1998 and 1997 dividend yield of zero percent;
expected volatility of 23 percent; risk free interest rate of 5.67; and
expected life of 5.0 years.
The weighted average fair value of options granted during the years ended
February 28, 1998 and 1997 was $.74 and $.27, respectively.
Under the accounting provisions of FASB Statement 123, the Company's net
income (loss) and income (loss) per share for the years ended February 28,
1998 and 1997 would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Years ended February 28,
1998 1997
---- ----
<S> <C> <C>
Net income (loss)
As reported $453,853 $(511,108)
Pro forma $391,653 $(575,100)
Basic income (loss) per share
As reported $ .09 $ (.20)
Pro forma $ .08 $ (.23)
Diluted income (loss) per share
As reported $ .08 $ (.20)
Pro forma $ .07 $ (.23)
</TABLE>
The table on the following page summarizes information about stock options
outstanding at February 28, 1998:
F-31
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
8. STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
Outstanding Exercisable
- ----------------------------------------------------------------------- ---------------------------
Weighted Average Weighted Average
Range of ------------------------------ ---------------------------
Exercise Prices Shares Life (Months) Exercise Price Shares Exercise Price
- --------------- --------- ------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$0.01 2,100,572 Unlimited $0.01 2,100,572 $0.01
$1.00-$1.50 521,330 27.0 $1.15 511,972 $1.15
$2.00 1,011,726 30.8 $2.00 1,011,726 $2.00
$2.25-$4.00 1,546,035 33.6 $2.97 1,546,035 $2.97
--------- ----- --------- -----
5,179,663 $1.40 5,170,305 $1.40
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>
9. LEASES
The Company is currently leasing its corporate office under a noncancelable
lease agreement, which expires in May 1999. In addition, the Company leases
office and manufacturing facilities in Austin, Texas under a noncancelable
lease agreement expiring in November 1999. The Company is also obligated
under various other lease agreements for other locations (primarily donor
centers) through four of its wholly-owned subsidiaries. Two donor center
locations are leased on a month-to-month basis. The remaining leases expire
at various dates ranging from August 1998 to September 2006. All of the
leases have renewal options.
Future minimum rental obligations under the aforementioned lease agreements
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AMOUNT
- ----------------- ----------
<S> <C>
1999 $663,761
2000 519,085
2001 362,452
2002 297,691
2003 221,741
Thereafter 128,234
----------
$2,192,964
----------
----------
</TABLE>
Rent expense amounted to $571,508 and $319,751 for the years ended February
28, 1998 and 1997, respectively.
F-32
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
10. INCOME TAXES
The provision for income taxes included in the accompanying consolidated
statements of operations consists of the following components:
<TABLE>
Year ended February 28,
1998 1997
---- ----
<S> <C> <C>
Currently payable:
Federal $ - $ -
State 25,000 16,000
Deferred taxes - -
------- -------
Total income tax provision $25,000 $16,000
------- -------
------- -------
</TABLE>
The effective tax rate on income before income taxes in fiscal 1998 differed
from the federal statutory tax rate primarily due to state income tax expense
of $25,000 and utilization of federal net operating loss carryforwards that
were not previously recorded as deferred tax assets because the Company was
unable to determine whether it was more likely than not that the deferred tax
asset would be realized.
The effective tax rate on loss before income taxes in fiscal 1997 differed
from the federal statutory tax rate primarily due to the increase in the
valuation allowance for deferred tax assets, except for state income tax
expense of $16,000.
Deferred income taxes reflect the impact of temporary differences between the
amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. The tax effects of temporary
differences for depreciation, amortization, and valuation allowances from
current and prior periods and net operating loss carryforwards could give
rise to the recording of deferred tax assets. The Company is in the process
of determining the amount of net operating loss carryforwards available to
offset future taxable income. The Company was unable to determine whether it
was more likely than not that the deferred tax assets would be realized,
therefore a 100% valuation allowance was established.
F-33
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
11. COMMITMENTS
The Company has entered into various employment and consulting agreements
with current and previous officers and directors of the Company. The
following describes certain terms and obligations provided by the agreements
entered into by the Company with such officers and directors:
The Company is obligated to two officers under three-year employment
agreements dated February 6, 1996. The current annual salaries under
these agreements are $365,000.
Under the terms of a consulting agreement dated in April 1996, the
Company is obligated to pay an outside director $50,000 per year. In
January 1998, the term of such agreement was extended through March 2002.
In connection with the acquisitions of Consolidated Technology Group and
Western States Group, Inc., the Company is obligated under the terms of
four five-year employment agreements dated February 13, 1998. The
current annual salaries under these agreements are $522,000.
The employment agreements also provide for a management bonus which will
allocate on the basis of salaries, 10% of pre-tax earnings to management
personnel in the event the Company achieves certain minimum annual
pre-tax earnings, as defined in the agreements.
12. CONCENTRATION OF CREDIT RISK, SIGNIFICANT CUSTOMERS AND SALES COMMITMENTS
During the year ended February 28, 1998, the Company sold its primary
product, plasma, on credit mainly to fractionators in the health care
industry. The plasma is processed into various immune enhancing and other
pharmaceutical products which are then sold for therapeutic applications.
Plasma collection, storage, labeling and distribution activities are subject
to strict regulation and licensing by the U.S. Food and Drug Administration
("FDA"). The Company's facilities are subject to periodic inspection by the
FDA. Failure to comply or correct deficiencies with applicable laws or
regulations could subject the Company to enforcement action, including
product seizures, recalls, center or facility closure, license revocations
and civil and criminal penalties, any one or more could have a material
adverse effect on the Company's business.
Laws and regulations with similar substantive and enforcement provisions are
also in effect in many of the states and municipalities where the Company
does business. Any change in existing federal, state or municipal laws or
regulations, or in the interpretation or enforcement thereof, or the
promulgation of any additional laws or regulations could have an adverse
effect on the Company's business.
F-34
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
12. CONCENTRATION OF CREDIT RISK, SIGNIFICANT CUSTOMERS AND SALES
COMMITMENTS (CONTINUED)
The Company is required to obtain from each donor an informed consent
regarding the donation procedure. Failure of the Company to obtain an
adequate consent could have a material adverse effect on the Company.
For the year ended February 28, 1998, 87% of the net sales (including 49% to
a European customer) were made to three customers by the plasma operations.
During the year ended February 28, 1998, the Company terminated agreements
with two customers which represented 28% and 15% of sales in fiscal 1998 and
85% and 13% of sales in fiscal 1997 from the plasma operations and negotiated
new agreements with a new customer for such plasma. In addition, in November
1997, the Company acquired five mature plasma collection centers from
American Plasma Management, Inc. (see Note 1) and began to expand its
customer base by selling the plasma from such centers to new customers.
Further, effective January 1, 1998, the Company acquired Western States
Group, Inc. and Consolidated Technologies, Inc., both of whom enjoy a broad
customer base of complementary but not identical customers.
In November 1996, the Company entered into an agreement with one customer
relating to three start-up facilities and in April 1997 added two additional
start-up facilities whereby the Company committed to sell substantially all
of the plasma collected from the indicated centers at various prices
specified in the agreement. The agreement expires January 31, 2000 and may
be terminated if the plasma collection centers fail to comply with applicable
FDA, QPP and customer initiated operating procedures. In June 1997, one of
the five centers subject to this agreement became licensed to ship plasma by
FDA and QPP approval. The four other centers, however, were operating under
reference numbers from the FDA in order to establish compliance documentation
sufficient for approval and had not yet received FDA and QPP approval to sell
collected plasma.
13. RELATED PARTY TRANSACTIONS
The Company has had various transactions with related parties. These
transactions are described in Notes 3, 6, 8 and 11.
F-35
<PAGE>
SERACARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
14. OTHER INCOME
Other income includes $801,215 from a one-time non-operating gain realized
from the sale of salvage plasma material.
15. EARNINGS PER SHARE
The following table reconciles the numerators and denominators of the basis
and diluted earnings per share computation:
<TABLE>
<CAPTION>
Year ending February 28,
1998 1997
---- ----
<S> <C> <C>
Basic earnings (loss) per share
Net income (loss) $453,853 $(511,108)
--------- ----------
--------- ----------
Income (loss) available to common stockholders (numerator) $453,853 $(511,108)
--------- ----------
--------- ----------
Weighted average common shares outstanding (denominator) 4,818,313 2,509,042
--------- ----------
--------- ----------
Basic earnings (loss) per share $0.09 $(.20)
--------- ----------
--------- ----------
Diluted earnings (loss) per share
Income (loss) available to common stockholders (numerator) $453,853 $(511,108)
---------
---------
Weighted average common shares outstanding 4,818,313 2,509,042
Weighted average warrants/options outstanding 2,505,029 -
Weighted average other dilutive securities 75,000 -
Stock acquired with proceeds (1,691,937) -
--------- ----------
Weighted average common shares and assumed conversion
outstanding (denominator) 5,706,405 2,509,042
--------- ----------
--------- ----------
Diluted earnings (loss) per share $0.08 $(.20)
--------- ----------
--------- ----------
</TABLE>
Options and warrants to purchase 1,561,832 shares were outstanding during
the fiscal year ended 1997 but were not included in the computation of
diluted loss per common share because the effect would be anti-dilutive.
16. SUBSEQUENT EVENTS
Effective April 24, 1998, the Company consummated a $10 million, two-year
committed credit facility with Brown Brothers Harriman & Co. Proceeds from
the financing will be used for general working capital. Under the terms of
the agreement, interest will accrue at Bank of Boston prime rate plus .75
base points and will be payable quarterly. The agreement contains various
covenants relating to: minimum effective capital; maximum total
liabilities/effective capital; minimum current ratio; minimum EBITDA/interest
expense + capital; and other nonfinancial covenants relating to restrictions
on additional indebtedness, guarantees of indebtedness, limitations on
investments, asset sales, mergers or other changes of control, divestitures,
acquisitions, dividends and distributions. As of May 15, 1998, $3 million
had been drawn against the line.
F-36
<PAGE>
EXHIBIT INDEX
THE FOLLOWING EXHIBITS ARE BEING FILED AS PART OF THIS REPORT.
<TABLE>
<CAPTION>
<S> <C>
4.9 Revolving Term Note between Brown Brothers Harriman & Co and SeraCare,
Inc. dated April 24, 1998.
4.10 Revolving Loan and Security Agreement between Brown Brothers Harriman &
Co and SeraCare, Inc. dated April 24, 1998.
4.11 Subordination Agreement between Brown Brothers Harriman & Co and
SeraCare, Inc. dated April 24, 1998.
4.12 Borrowing and Agency Agreement between Brown Brothers Harriman & Co and
SeraCare, Inc. dated April 24, 1998.
4.13 Cross-Guaranty Agreement between Brown Brothers Harriman & Co and
SeraCare, Inc. dated April 24, 1998.
4.14 Warrant To Purchase Common Stock of SeraCare, Inc. issued to Brown
Brothers Harriman & Co. dated April 24, 1998.
</TABLE>
<PAGE>
EXHIBIT 4.9
REVOLVING TERM NOTE
APRIL 24, 1998
$10,000,000.00 Boston, Massachusetts
For value received, the undersigned (the "Borrower"), promises to pay to
Brown Brothers Harriman & Co. ("Lender"), or order, the principal amount of Ten
Million Dollars and Zero Cents ($10,000,000.00) or such lesser amount as may be
outstanding under that certain Revolving Loan and Security Agreement, dated of
even date herewith (the "Loan Agreement"), among the Borrower and each
subsidiary of the Borrower and Lender, on or before April 24, 2000, with
interest from the date hereof on the said principal balance from time to time
outstanding. The aggregate principal balance outstanding shall bear interest
thereon at a per annum rate equal to three-quarters of one percent (0.75%)
above the Wall Street Journal Prime Rate (as hereinafter defined), payable
quarterly in arrears on the 1st business day of each calendar quarter,
commencing July 1, 1998.
Wall Street Journal Prime Rate means the highest rate published from
time to time by the Wall Street Journal as the Prime Rate, or, in the event
the Wall Street Journal ceases to publish the Prime Rate, the base, reference
or other rate then designated by Bank for general commercial loan reference
purposes, it being understood that such rate is a reference rate, not
necessarily the lowest, established from time to time, which serves as the
basis upon which effective interest rates are calculated for loans making
reference thereto. The effective interest rate applicable to undersigned's
loans shall change on the date of each change in the Wall Street Journal
Prime Rate.
Principal and interest shall be payable at the Lender's main office in
lawful money of the United States of America without set-off, deduction or
counterclaim. Interest shall be calculated on the basis of actual number of
days elapsed and a 360-day year.
This Note is a revolving note and subject to the foregoing the Borrower
may, at its option, at any time prior to demand borrow, pay, prepay and
reborrow hereunder, all in accordance with the provisions hereof and of any
and all other agreements between the Borrower and the Lender related hereto;
provided, however, that the principal balance outstanding shall at no time
exceed the face amount of the Note.
At the option of the holder, this Note shall become immediately due and
payable without notice or demand upon the occurrence of an Event of Default
under that certain Revolving Loan and Security Agreement, dated of even date
herewith, among Lender, the undersigned; Avre, Inc., Binary Associates, Inc.,
SeraCare Acquisitions, Inc., BHM Labs, Inc., Sera Care Technology, Inc. and
Western States Group, Inc.
Any payments received by the Lender on account of this Note shall be
applied first, to any costs, expenses or charges then owed to the Lender by
the Borrower; second, to accrued and unpaid interest; and third, to the
unpaid principal balance hereof. The Borrower hereby authorizes the Lender
to charge any deposit account which the Borrower may maintain with the Lender
for any payment required hereunder.
The Borrower represents to the Lender that the proceeds of this Note
will not be used for personal, family or household purposes.
Any and all deposits or other sums at any time credited by or due to
the undersigned or any endorser or guarantor hereof from the Lender or any of
its banking or lending affiliates, or any Lender acting as a participant
under any loan arrangement between the Lender and the Borrower, any endorser
or guarantor hereof, and any cash, securities, instruments or other property
of the undersigned in the
<PAGE>
possession of the Lender or any of its banking or lending affiliates, or any
Lender acting as a participant under any loan arrangement between the Lender
and the Borrower, any endorser or guarantor hereof, whether for safekeeping
or otherwise, or in transit to or from the Lender or any of its banking or
lending affiliates or any such participant, or in the possession of any third
party acting on the Lender's behalf (regardless of the reason the Lender had
received same or whether the Lender has conditionally released the same)
shall at all times constitute security for all of the liabilities and
obligations of the undersigned and any endorser and guarantor hereof to the
Lender and may be applied or set off against such liabilities and obligations
of the undersigned or any endorser or guarantor hereof to the Lender at any
time, whether or not such are then due, whether or not demand has been made
and whether or not other collateral is then available to the Lender.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other right of
such holder, nor shall any delay, omission or waiver on any one occasion be
deemed a bar to or waiver of the same or any other right on any future
occasion. The Borrower and every other maker and every endorser or guarantor
of this Note, regardless of the time, order or place of signing, waives
presentment, demand, protest and notices of every kind and assents to any
extension or postponement of the time of payment or any other indulgence, to
any substitution, exchange or release of collateral, and to the addition or
release of any other party or person primarily or secondarily liable. The
Borrower and each endorser and guarantor of this Note waive any rights to any
homestead exemptions on record as of the date of this Note respecting any
premises under the provisions of Chapter 188, Section 1, of the General Laws
of Massachusetts.
The Borrower and each endorser and guarantor of this Note shall
indemnify, defend and hold the Lender and its directors, officers, employees,
agents and attorneys harmless against any claim brought or threatened against
the Lender by the Borrower, by any endorser or guarantor, or by any other
person (as well as from attorneys' reasonable fees and expenses in connection
therewith) on account of the Lender's relationship with the Borrower or any
endorser or guarantor hereof (each of which may be defended, compromised,
settled or pursued by the Lender with counsel of the Lender's selection, but
at the expense of the Borrower and any endorser and/or guarantor), except for
any claim arising out of the gross negligence or willful misconduct of the
Lender.
The Borrower and each endorser and guarantor of this Note agree to pay,
upon demand, costs of collection of the principal of and interest on this
Note, including without limitation reasonable attorneys' fees. After demand,
interest shall accrue at a rate per annum equal to the aggregate of Four (4%)
percent plus the rate provided for herein. If any payment due under this
Note is unpaid for 10 days or more, the Borrower shall pay, in addition to
any other sums due under this Note (and without limiting the holder's other
remedies on account thereof), a late charge equal to 5.0% of such unpaid
amount.
This Note shall be binding upon the Borrower and each endorser and
guarantor hereof and upon their respective heirs, successors, assigns and
legal representatives, and shall inure to the benefit of the Lender and its
successors, endorsees and assigns.
The liabilities of the Borrower and any endorser or guarantor of this
Note are joint and several; provided, however, the release by the Lender of
the Borrower or any one or more endorser or guarantor shall not release any
other person obligated on account of this Note. Any and all present and
future debts of the Borrower to any endorser or guarantor of this Note are
subordinated to the full payment and performance of all present and future
debts and obligations of the Borrower to the Lender. Each reference in this
Note to the Borrower, any endorser, and any guarantor, is to such person
individually and also to all such persons jointly. No person obligated on
account of this Note may seek contribution from any other person also
obligated, unless and until all liabilities, obligations and indebtedness to
the Lender of the person from whom contribution is sought have been satisfied
in full. The release or compromise by the Lender of any collateral shall not
release any person obligated on account of this Note.
A photographic or other reproduction of this Note may be made by the
Lender if marked "copy" or
2
<PAGE>
"duplicate" or with any similar designation, and any such reproduction shall
be admissible in evidence with the same effect of the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence.
This Note is delivered to the Lender at one of its offices in
Massachusetts, shall be governed by the laws of the Commonwealth of
Massachusetts, and shall take effect as a sealed instrument.
The Borrower and each endorser and guarantor of this Note each
irrevocably submits to the nonexclusive jurisdiction of any federal or state
court sitting in Massachusetts, over any suit, action or proceeding arising
out of or relating to this Note. Each Borrower, endorser or guarantor
irrevocably waives, to the fullest extent it may effectively do so under
applicable law, any objection it may now or hereafter have to the laying of
the venue of any such suit, action or proceeding brought in any such court
and any claim that the same has been brought in an inconvenient forum. Each
Borrower, endorser or guarantor irrevocably appoints the Secretary of State
of the Commonwealth of Massachusetts as its authorized agent to accept and
acknowledge on its behalf any and all process which may be served in any such
suit, action or proceeding, consents to such process being served (i) by
mailing a copy thereof by registered or certified mail, postage prepaid,
return receipt requested, to such Borrower's, endorser's or guarantor's
address shown below or as notified to the Lender and (ii) by serving the same
upon such agent, and agrees that such service shall in every respect be
deemed effective service upon such Borrower, endorser or guarantor.
EACH BORROWER, ENDORSER AND GUARANTOR AND LENDER EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY, AND AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL
COUNSEL, WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING IN CONNECTION WITH THIS NOTE, ALL OF THE OBLIGATIONS OF EACH
BORROWER TO THE LENDER, AND ALL MATTERS CONTEMPLATED HEREBY AND DOCUMENTS
EXECUTED IN CONNECTION HEREWITH. EACH BORROWER, ENDORSER AND GUARANTOR
CERTIFIES THAT NEITHER THE LENDER NOR ANY OF ITS REPRESENTATIVES, AGENTS OR
COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT IN
THE EVENT OF ANY SUCH PROCEEDING SEEK TO ENFORCE THIS WAIVER OF RIGHT TO
TRIAL BY JURY.
[INTENTIONALLY LEFT BLANK]
3
<PAGE>
Executed as an instrument under seal as of April 24, 1998.
Witness Borrower:
SeraCare, Inc.
- ------------------------------ By: /s/ Barry D. Plost
----------------------------------
Barry D. Plost, Chairman and CEO
1925 Century Park East, Suite 1970
Los Angeles, California
90067
STATE OF CALIFORNIA
- -------------------, ss. April 24, 1998
Then personally appeared the above-named Barry D. Plost, Chairman and CEO
of SeraCare, Inc., and acknowledged the foregoing instrument to be the free act
and deed of SeraCare, Inc., before me,
/s/ , Notary Public
--------------------------------------
My Commission expires: -----------------------------
4
<PAGE>
EXHIBIT 4.10
REVOLVING LOAN AND SECURITY AGREEMENT
This REVOLVING LOAN AND SECURITY AGREEMENT entered into at Boston,
Massachusetts, as of April 24, 1998, between SeraCare, Inc., a California
corporation, with an address of 1925 Century Park East, Suite 1970,
Los Angeles, California 90067 (the "Borrower"); Avre, Inc., a Nevada
corporation, with an address of 3529 W. McDowell, Phoenix, Arizona 85029
("Avre"); Binary Associates, Inc., a Colorado corporation with an address of
1925 Century Park East, Suite 1970, Los Angeles, California 90067("Binary");
SeraCare Acquisitions, Inc., a Nevada corporation, with an address of
1925 Century Park East, Suite 1970, Los Angeles, California 90067
("Acquisitions"); BHM Labs, Inc., an Arkansas corporation, with an address of
910 N. 32nd Street, Fort Smith, Arizona 85029 ("BHM"); Sera Care
Technology, Inc., a Nevada corporation, with an address of 2170 Woodward,
Austin, Texas 78744 ("Technology"); Western States Group, Inc., a California
corporation, with an address of 131 W. Beech Street, Suite A, Fallbrook,
California 92028 ("Western"; and along with the Borrower, Avre, Binary,
Acquisitions, BHM and Technology, each an "Obligor" and collectively the
"Obligors") and Brown Brothers Harriman & Co., a New York general partnership
with an address of 40 Water Street, Boston, Massachusetts 02109 (the
"Lender").
FOR VALUE RECEIVED, and in consideration of the granting by the Lender
of financial accommodations to Obligors, each Obligor represents and agrees
with the Lender, as of the date hereof and as of the date of each credit
and/or other financial accommodation, as follows:
THE LOAN
A. LOAN. LENDER AGREES TO ESTABLISH A REVOLVING LINE OF CREDIT FOR BORROWER
WHICH SHALL EXPIRE ON APRIL 24, 2000 PURSUANT TO WHICH LENDER AGREES TO LEND
TO BORROWER UPON BORROWER'S REQUEST UP TO TEN MILLION DOLLARS AND ZERO CENTS
($10,000,000.00) (THE "REVOLVING LOAN AMOUNT"), SUBJECT TO THE TERMS AND
CONDITIONS SET FORTH HEREIN, BUT IN NO EVENT MORE THAN THE BORROWING BASE, AS
SUCH TERM IS HEREINAFTER DEFINED AND AS CALCULATED IN A BORROWING BASE
CERTIFICATE IN THE FORM OF EXHIBIT A, ATTACHED HERETO, AND DELIVERED TO THE
LENDER SIMULTANEOUSLY WITH THE EXECUTION AND DELIVERY OF THIS AGREEMENT AND
QUARTERLY ON OR BEFORE THE 45TH DAY OF EACH FISCAL QUARTER (WITH RESPECT TO
THE PRIOR FISCAL QUARTER), COMMENCING JULY 15, 1998. THE REVOLVING LOAN MADE
PURSUANT TO THIS AGREEMENT (THE "REVOLVING LOAN") SHALL BE EVIDENCED BY THAT
CERTAIN REVOLVING TERM NOTE, OF EVEN DATE HEREWITH (THE "NOTE"), BY THE
BORROWER IN FAVOR OF THE
5
<PAGE>
LENDER IN THE FACE AMOUNT OF THE REVOLVING LOAN AMOUNT. THIS AGREEMENT, THE
NOTE, AND ANY AND ALL OTHER DOCUMENTS, AMENDMENTS OR RENEWALS EXECUTED AND
DELIVERED IN CONNECTION WITH ANY OF THE FOREGOING ARE COLLECTIVELY
HEREINAFTER REFERRED TO AS THE "LOAN DOCUMENTS".
B. REVOLVING LOAN ACCOUNT. AN ACCOUNT SHALL BE OPENED ON THE BOOKS OF
LENDER WHICH SHALL BE DESIGNATED ON LENDER'S BOOKS AND RECORDS AS BORROWER'S
"REVOLVING LOAN ACCOUNT" IN WHICH ACCOUNT A RECORD WILL BE KEPT OF ALL LOANS
AND OTHER ADVANCES MADE BY LENDER TO BORROWER RESPECTING THE REVOLVING LOAN,
AND ALL PAYMENTS THEREON AND OTHER APPROPRIATE DEBITS AND CREDITS AS PROVIDED
BY THIS AGREEMENT. EACH LOAN MADE HEREUNDER MAY BE CREDITED BY LENDER TO ANY
DEPOSIT ACCOUNT OF BORROWER WITH LENDER OR MAY BE PAID TO BORROWER OR MAY BE
APPLIED TO ANY OBLIGATIONS, AS LENDER MAY IN EACH INSTANCE ELECT.
C. INTEREST. INTEREST WILL BE CHARGED TO BORROWER ON THE PRINCIPAL AMOUNT
FROM TIME TO TIME OUTSTANDING AT THE RATE SPECIFIED IN THE NOTE IN ACCORDANCE
WITH THE TERMS OF THE NOTE.
D. COMMITMENT AND FACILITY FEES. IN ADDITION TO ALL OTHER FEES AND EXPENSES
DUE TO LENDER RESPECTING THE REVOLVING LOAN, BORROWER SHALL PAY TO LENDER
(I) SIMULTANEOUSLY WITH THE EXECUTION AND DELIVERY OF THIS AGREEMENT A
FACILITY FEE EQUAL TO $25,000 AND (II) QUARTERLY IN ARREARS ON THE 1ST
BUSINESS DAY OF EACH CALENDAR QUARTER COMMENCING JULY 1, 1998, A COMMITMENT
FEE EQUAL TO AN AMOUNT CALCULATED BY MULTIPLYING .000625 BY THE DIFFERENCE
BETWEEN THE REVOLVING LOAN AMOUNT AND THE AVERAGE DAILY BALANCE OUTSTANDING
RESPECTING THE REVOLVING LOAN DURING THE PRIOR CALENDAR QUARTER.
E. REPAYMENT AND CLEAN-UP. ALL LOANS AND ADVANCES MADE BY LENDER TO
BORROWER UNDER OR PURSUANT TO THIS AGREEMENT RESPECTING THE REVOLVING LOAN
SHALL BE PAYABLE TO LENDER ON OR BEFORE THE MATURITY DATE OF THE NOTE UNLESS
OTHERWISE AGREED TO IN WRITING BY THE BORROWER AND THE LENDER AND SO LONG AS
THERE ARE NO UNCURED EVENTS OF DEFAULT.
F. ADDITIONAL LOANS. ANY LOANS, ADVANCES AND CREDITS TO THE BORROWER THAT
ARE MADE IN EXCESS OF THE REVOLVING LOAN AMOUNT FOR THE LINE OF CREDIT
ESTABLISHED HEREUNDER SHALL NOT AFFECT THE OBLIGATIONS OF BORROWER OR ANY OF
THE LENDER'S RIGHTS OR REMEDIES HEREUNDER OR UNDER THE LOAN DOCUMENTS OR
OTHERWISE, SUCH LOANS AND ALL LOANS HEREUNDER TO BE SECURED BY THE
COLLATERAL, AS HEREINAFTER DEFINED, AND TO BE DUE AND PAYABLE TO THE LENDER
UPON THE SAME TERMS AS OF THE REVOLVING LOAN AMOUNT PURSUANT TO THE NOTE, AND
SHALL BEAR INTEREST AT THE RATE SET FORTH IN THE NOTE UNLESS OTHERWISE AGREED
TO IN WRITING. ALL CHECKS OR OTHER ITEMS PAID BY LENDER WHICH CAUSE AN
OVERDRAFT IN ANY DEPOSIT
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ACCOUNT MAINTAINED BY BORROWER WITH LENDER SHALL CONSTITUTE AN ADVANCE TO
BORROWER PURSUANT TO THIS AGREEMENT, REPAYABLE ON DEMAND, AND SHALL BE
SECURED BY ALL COLLATERAL AT ANY TIME PLEDGED BY BORROWER TO LENDER.
G. AUTHORIZED PERSONS. ANY PERSON DULY AUTHORIZED BY A GENERAL BORROWING
RESOLUTION OF THE BORROWER, OR IN THE ABSENCE OF SUCH A RESOLUTION, THE
PRESIDENT, CHIEF FINANCIAL OFFICER, TREASURER OR ANY VICE PRESIDENT OF THE
BORROWER, MAY REQUEST DISCRETIONARY LOANS HEREUNDER, EITHER ORALLY OR
OTHERWISE, BUT THE LENDER AT ITS OPTION MAY REQUIRE THAT ALL REQUESTS FOR
LOANS HEREUNDER SHALL BE IN WRITING. THE LENDER SHALL INCUR NO LIABILITY TO
THE BORROWER IN ACTING UPON ANY REQUEST REFERRED TO HEREIN WHICH THE LENDER
BELIEVES IN GOOD FAITH TO HAVE BEEN MADE BY AN AUTHORIZED PERSON OR PERSONS.
H. MONTHLY STATEMENT. AT THE OPTION OF THE LENDER, AFTER THE END OF EACH
MONTH, LENDER WILL RENDER TO BORROWER A STATEMENT OF BORROWER'S LOAN ACCOUNT
WITH LENDER, SHOWING ALL APPLICABLE CREDITS AND DEBITS. EACH STATEMENT SHALL
BE CONSIDERED CORRECT AND TO HAVE BEEN ACCEPTED BY BORROWER AND SHALL BE
CONCLUSIVELY BINDING UPON BORROWER IN RESPECT OF ALL CHARGES, DEBITS AND
CREDITS OF WHATSOEVER NATURE CONTAINED THEREIN RESPECTING THE REVOLVING LOAN,
AND THE CLOSING BALANCE SHOWN THEREIN, UNLESS BORROWER NOTIFIES LENDER IN
WRITING OF ANY DISCREPANCY WITHIN TWENTY (20) DAYS FROM THE RECEIPT BY
BORROWER OF ANY SUCH MONTHLY STATEMENT.
GRANT OF SECURITY INTEREST
A. GRANT OF SECURITY INTEREST. IN CONSIDERATION OF THE LENDER'S EXTENDING
CREDIT AND OTHER FINANCIAL ACCOMMODATIONS TO THE OBLIGORS, EACH OBLIGOR
HEREBY GRANTS TO THE LENDER A SECURITY INTEREST IN (INCLUDING, WITHOUT
LIMITATION, A LIEN ON AND PLEDGE OF) ALL OF SUCH OBLIGOR'S COLLATERAL (AS
HEREINAFTER DEFINED). THE SECURITY INTEREST GRANTED BY THIS AGREEMENT IS
GIVEN TO AND SHALL BE HELD BY THE LENDER AS SECURITY FOR THE PAYMENT AND
PERFORMANCE OF ALL OBLIGATIONS.
B. DEFINITIONS. The following definitions shall apply:
1. "Accounts Receivable" means all of an Obligor's accounts, accounts
receivable, contract rights, notes, bills, drafts, acceptances, instruments,
documents, chattel paper and all other debts, obligations and liabilities in
whatever form owing to an Obligor from any Person (as defined below) for
goods sold by it or for services rendered by it, or however otherwise
established or created, all guaranties and security therefor, all right,
title and interest of an Obligor in the goods or services which gave rise
thereto, including rights to reclamation and stoppage in transit and all
rights of any unpaid seller of goods or services; whether any of the
foregoing be now existing or hereafter arising, now or hereafter received by
or owing or belonging to an Obligor.
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2. "Borrowing Base" as used in this Agreement means two times the Obligors'
consolidated EBITDA (as hereinafter defined) for the four trailing fiscal
quarters ending on the last date of the Obligors' most recent full fiscal
quarter. EBITDA shall be calculated on a consolidated basis for the Obligors
including any past period during which any of the Obligors was not controlled
by Borrower.
3. "Code" shall mean the Massachusetts Uniform Commercial Code (General Law,
Chapter 106) as amended from time to time.
4. "Collateral" shall mean all of an Obligor's present and future right,
title and interest in and to any and all of the following property, whether
such property is now existing or hereafter created:
(a) All goods including without limitation all Inventory (as hereinafter
defined), farm products, Equipment (as hereinafter defined), including
without limitation machinery, furniture, trade fixtures;
(b) All accounts, Accounts Receivable, contract rights and chattel paper,
regardless of whether or not they constitute proceeds of other Collateral;
(c) All investment property including without limitation all securities,
whether certificated or uncertificated, all securities entitlements,
securities accounts, commodity contracts or commodity accounts;
(d) All general intangibles, regardless of whether or not they constitute
proceeds of other Collateral, including, without limitation, all of an
Obligor's rights to tax refunds and all of an Obligor's rights (which the
Lender may exercise or not as it in its sole discretion may determine) to
acquire or obtain goods and/or services with respect to the manufacture,
processing, storage, sale, shipment, delivery or installation of any of an
Obligor's inventory or other Collateral:
(e) All products of and accessions to any of the Collateral;
(f) All liens, guaranties, securities, rights, remedies and privileges
pertaining to any of the Collateral, including the right of stoppage in
transit;
(g) All obligations owing to an Obligor of every kind and nature; and all
choses in action;
(h) All goodwill, trade secrets, computer programs, customer lists, trade
names, trademarks and patents;
(i) All documents and instruments (whether negotiable or nonnegotiable,
and regardless of their being attached to chattel paper);
(j) All proceeds of Collateral of every kind and nature in whatever form,
including, without limitation, both cash and noncash proceeds resulting or
arising from the rendering of services by an Obligor or the sale or other
disposition by an Obligor of the Inventory or other Collateral;
(k) All books and records relating to the conduct of an Obligor's business
including, without in any way limiting the generality of the foregoing,
those relating to its accounts; and
(l) All deposit accounts maintained by an Obligor with any Lender, trust
company, investment firm or
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fund, or any similar institution or organization.
5. "Contract Rights" or "contract rights" means rights of an Obligor to
payment under contracts not yet earned by performance and not evidenced by
instruments or chattel paper.
6. "Debtors" shall mean an Obligor's customers who are indebted to the
Obligor.
7. "Equipment" shall mean and include all of an Obligor's machinery,
equipment, furniture, trade fixtures and motor vehicles and intending to
include all tangible personal property, or goods, utilized in the conduct of
an Obligor's business, but excluding therefrom inventory, as that term is
defined in the Code, and all replacements or substitutions therefor and all
accessions thereto.
8. "Inventory" means all inventory of whatever name, nature, kind or
description, all goods held for sale or lease or to be furnished under
contracts of service, finished goods, work in process, raw materials,
materials used or consumed by an Obligor, parts, supplies, all wrapping,
packaging, advertising labeling, and shipping materials, devices, names and
marks, all contract rights and documents relating to any of the foregoing,
whether any of the foregoing be now existing or hereafter arising, wherever
located, now owned or hereafter acquired by an Obligor.
9. "Obligation(s)" shall mean, without limitation, all loans, advances,
indebtedness, notes, liabilities and amounts, liquidated or unliquidated,
owing by the Obligors to the Lender at any time, of each and every kind,
nature and description, whether arising under this Agreement or otherwise,
and whether secured or unsecured, direct or indirect (that is, whether the
same are due directly by an Obligor to the Lender; or are due indirectly by
an Obligor to the Lender as endorser, guarantor or other surety, or as a
borrower of obligations due third persons which have been endorsed or
assigned to the Lender, or otherwise), absolute or contingent, due or to
become due, now existing or hereafter contracted. Said term shall also
include all interest and other charges chargeable to an Obligor or due from
an Obligor to the Lender from time to time and all costs and expenses
referred to in this Agreement.
10. "Permitted Investments" shall mean (i) direct obligations of the United
States, or obligations guaranteed as to principal and interest by the United
States government, (ii) bankers' acceptances and certificates of deposit
issued by any bank or any other bank or trust company or, in the case of any
subsidiary bank of a bank holding company, a bank holding company, having
capital, surplus and undivided profits of at least $500,000,000, the
short-term deposits of which are given an A1 or P1 rating by Standard &
Poor's Rating Group or Moody's Investors Service, Inc., as applicable,
(iii) obligations of any bank or trust company or bank holding company
described in clause (ii) above, in respect of the repurchase of obligations
of the type described in clause (i) hereof, provided that such repurchase
obligations shall be fully secured by obligations of the type described in
said clause (i) and the possession of such obligations shall be transferred
to, and segregated from other obligations owned by, and any such bank's trust
company or bank holding company, (iv) commercial paper given a rating of A1
or P1 by Standard & Poor's Ratings Group or Moody's Investors Service, Inc.,
as applicable and (v) money market funds organized under the laws of the
United States or any state thereof that invest substantially all of their
assets in any of the types of investments described in clauses (i), (ii),
(iii) or (iv); PROVIDED, HOWEVER, that no such investment shall have a
maturity longer than 270 days from the date of acquisition by the Company.
11. "Person" or "party" shall include individuals, firms, corporations and
all other entities.
All words and terms used in this Agreement other than those specifically
defined herein shall have the meanings accorded to them in the Code.
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C. ORDINARY COURSE OF BUSINESS. THE LENDER HEREBY AUTHORIZES AND PERMITS
EACH OBLIGOR TO HOLD, PROCESS, SELL, USE OR CONSUME IN THE MANUFACTURE OR
PROCESSING OF FINISHED GOODS, OR OTHERWISE DISPOSE OF THE INVENTORY FOR FAIR
CONSIDERATION, ALL IN THE ORDINARY COURSE OF SUCH OBLIGOR'S BUSINESS,
EXCLUDING, WITHOUT LIMITATION, SALES TO CREDITORS OR IN BULK OR SALES OR
OTHER DISPOSITIONS OCCURRING UNDER CIRCUMSTANCES WHICH WOULD OR COULD CREATE
ANY LIEN OR INTEREST ADVERSE TO THE LENDER'S SECURITY INTEREST OR OTHER RIGHT
HEREUNDER IN THE PROCEEDS RESULTING THEREFROM. THE LENDER ALSO HEREBY
AUTHORIZES AND PERMITS EACH OBLIGOR TO RECEIVE FROM THE DEBTORS ALL AMOUNTS
DUE AS PROCEEDS OF THE COLLATERAL AT THE OBLIGOR'S OWN COST AND EXPENSE, AND
ALSO LIABILITY, IF ANY, IN THE ORDINARY COURSE OF BUSINESS; AND THE LENDER
MAY, SO LONG AS THERE IS AN EXISTING UNCURED EVENT OF DEFAULT, TERMINATE ALL
OR ANY PART OF THE AUTHORITY AND PERMISSION HEREIN OR ELSEWHERE IN THIS
AGREEMENT GRANTED TO ANY SUCH OBLIGOR WITH REFERENCE TO THE COLLATERAL.
Until the Lender shall otherwise notify an Obligor, all proceeds of and
collections of Collateral shall be retained by such Obligor and used solely
for the ordinary and usual operation of the such Obligor's business. From
and after notice by the Lender to an Obligor, all proceeds of and collections
of the Collateral shall be held in trust by such Obligor for the Lender and
shall not be commingled with such Obligor's other funds or deposited in any
Lender account of such Obligor; and such Obligor agrees to deliver to the
Lender on the dates of receipt thereof by such Obligor, duly endorsed to the
Lender or to bearer, or assigned to the Lender, as may be appropriate, all
proceeds of the Collateral in the identical form received by such Obligor.
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D. ALLOWANCES. EACH OBLIGOR MAY GRANT SUCH ALLOWANCES OR OTHER ADJUSTMENTS
TO DEBTORS (EXCLUSIVE OF EXTENDING THE TIME FOR PAYMENT OF ANY ITEM IN EXCESS
OF $20,000 WHICH SHALL NOT BE DONE WITHOUT FIRST OBTAINING THE LENDER'S
WRITTEN CONSENT IN EACH INSTANCE) AS SUCH OBLIGOR MAY REASONABLY DEEM TO
ACCORD WITH SOUND BUSINESS PRACTICE, INCLUDING, WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, ACCEPTING THE RETURN OF ALL OR ANY PART OF THE
INVENTORY.
E. RECORDS. EACH OBLIGOR SHALL DELIVER TO THE LENDER FROM TIME TO TIME
PROMPTLY AT ITS REASONABLE REQUEST ALL INVOICES, ORIGINAL DOCUMENTS OF TITLE,
CONTRACTS, CHATTEL PAPER, INSTRUMENTS AND ANY OTHER WRITINGS RELATING
THERETO, AND OTHER EVIDENCE OF PERFORMANCE OF CONTRACTS, OR EVIDENCE OF
SHIPMENT OR DELIVERY OF THE MERCHANDISE OR OF THE RENDERING OF SERVICES; AND
EACH OBLIGOR WILL DELIVER TO THE LENDER PROMPTLY AT THE LENDER'S REASONABLE
REQUEST FROM TIME TO TIME ADDITIONAL COPIES OF ANY OR ALL OF SUCH PAPERS OR
WRITINGS, AND SUCH OTHER INFORMATION WITH RESPECT TO ANY OF THE COLLATERAL
AND SUCH SCHEDULES OF INVENTORY, SCHEDULES OF ACCOUNTS AND SUCH OTHER
WRITINGS AS THE LENDER MAY IN ITS SOLE DISCRETION DEEM TO BE NECESSARY OR
EFFECTUAL TO EVIDENCE ANY LOAN HEREUNDER OR THE LENDER'S SECURITY INTEREST IN
THE COLLATERAL.
F. LEGENDS. EACH OBLIGOR SHALL PROMPTLY MAKE, STAMP OR RECORD SUCH ENTRIES
OR LEGENDS ON SUCH OBLIGOR'S BOOKS AND RECORDS OR ON ANY OF THE COLLATERAL AS
THE LENDER SHALL REASONABLY REQUEST FROM TIME TO TIME, TO INDICATE AND
DISCLOSE THAT THE LENDER HAS A SECURITY INTEREST IN SUCH COLLATERAL.
G. INSPECTION. THE LENDER, OR ITS REPRESENTATIVES, AT ANY TIME AND FROM
TIME TO TIME, BUT WITH AT LEAST ONE (1) BUSINESS DAY'S NOTICE, SHALL HAVE THE
RIGHT, AND EACH OBLIGOR WILL PERMIT IT AND THEM AT THE OBLIGORS' EXPENSE
DURING NORMAL BUSINESS HOURS SO LONG AS THERE IS NO EXISTING UNCURED EVENT OF
DEFAULT UNDER THIS AGREEMENT OR AT ANY TIME (WITH OR WITHOUT NOTICE AT
LENDER'S OPTION) IF THERE IS AN EXISTING UNCURED EVENT OF DEFAULT:
1. to examine, check, make copies of or extracts from any of the Obligor's
books, records and files (including, without limitation, orders and original
correspondence);
2. to inspect, examine or appraise the Collateral and to check and test the
same as to quality, quantity, value and condition; and
3. to verify the Collateral or any portion or portions thereof or each
Obligor's compliance with the provisions of this Agreement.
REPRESENTATIONS AND WARRANTIES
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A. ORGANIZATION AND QUALIFICATION. EACH OBLIGOR IS A DULY ORGANIZED AND
EXISTING CORPORATION UNDER THE LAWS OF THE STATE OF ITS INCORPORATION, AS
INDICATED ABOVE, IN GOOD STANDING UNDER THE LAWS OF SAID STATE, AND IS DULY
QUALIFIED TO DO BUSINESS UNDER THE LAWS OF EACH STATE WHERE THE NATURE OF THE
BUSINESS DONE OR PROPERTY OWNED REQUIRES SUCH QUALIFICATION, EXCEPT WHERE THE
FAILURE TO BE SO QUALIFIED WOULD NOT HAVE A MATERIAL ADVERSE AFFECT ON THE
FINANCIAL CONDITION OR RESULTS OF OPERATIONS OF OBLIGORS ON A CONSOLIDATED
BASIS.
B. SUBSIDIARIES. EACH OBLIGOR HAS NO SUBSIDIARIES OTHER THAN THOSE LISTED ON
SCHEDULE 3.2, IF ANY, AND EACH OBLIGOR HAS NEVER CONSOLIDATED, MERGED OR
ACQUIRED SUBSTANTIALLY ALL OF THE ASSETS OF ANY OTHER ENTITY OR PERSON OTHER
THAN THOSE LISTED ON SCHEDULE 3.2, IF ANY.
C. CORPORATE RECORDS. EACH OBLIGOR'S CERTIFICATE OF INCORPORATION AND ALL
AMENDMENTS THERETO HAVE BEEN DULY FILED. ALL OUTSTANDING CAPITAL STOCK ISSUED
BY EACH OBLIGOR WAS AND IS PROPERLY ISSUED AND ALL BOOKS AND RECORDS OF EACH
OBLIGOR, INCLUDING BUT NOT LIMITED TO ITS MINUTE BOOKS, BYLAWS AND BOOKS OF
ACCOUNT, ARE ACCURATE AND UP TO DATE AND WILL BE SO MAINTAINED.
D. TITLE TO PROPERTIES; ABSENCE OF LIENS. EXCEPT AS SET FORTH ON SCHEDULE
3.4, EACH OBLIGOR HAS GOOD AND CLEAR RECORD AND MARKETABLE TITLE TO ALL OF ITS
PROPERTIES AND ASSETS, AND ALL OF ITS PROPERTIES AND ASSETS INCLUDING THE
COLLATERAL ARE FREE AND CLEAR OF ALL MORTGAGES, LIENS, PLEDGES, CHARGES,
ENCUMBRANCES, SETOFFS, EXCEPT (a) THE MORTGAGES AND SECURITY INTERESTS AS SET
FORTH ON SCHEDULE 3.4A, IF ANY, AND (b) THE LEASES OF PERSONAL PROPERTY AS SET
FORTH ON SCHEDULE 3.4B, IF ANY.
E. PLACES OF BUSINESS. EACH OBLIGOR'S CHIEF EXECUTIVE OFFICE IS CORRECTLY
STATED IN THE PREAMBLE TO THIS AGREEMENT, AND EACH OBLIGOR SHALL, DURING THE
TERM OF THIS AGREEMENT, KEEP THE LENDER CURRENTLY AND ACCURATELY INFORMED IN
WRITING OF EACH OF ITS OTHER PLACES OF BUSINESS, AND SHALL NOT CHANGE THE
LOCATION OF SUCH CHIEF EXECUTIVE OFFICE OR OPEN OR CLOSE, MOVE OR CHANGE ANY
EXISTING OR NEW PLACE OF BUSINESS WITHOUT GIVING THE LENDER AT LEAST THIRTY (30)
DAYS PRIOR WRITTEN NOTICE THEREOF.
F. VALID OBLIGATIONS. THE EXECUTION, DELIVERY AND PERFORMANCE OF THE LOAN
DOCUMENTS HAVE BEEN DULY AUTHORIZED BY ALL NECESSARY CORPORATE ACTION AND EACH
REPRESENTS A LEGAL, VALID AND BINDING OBLIGATION OF EACH OBLIGOR AND IS FULLY
ENFORCEABLE ACCORDING TO ITS TERMS, EXCEPT AS LIMITED BY LAWS RELATING TO THE
ENFORCEMENT OF CREDITORS' RIGHTS AND BY GENERAL PRINCIPLES OF EQUITY.
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G. CONFLICTS WITH OTHER AGREEMENTS. THERE IS NO PROVISION IN ANY INDENTURE,
CONTRACT OR AGREEMENT TO WHICH ANY OBLIGOR IS A PARTY WHICH PROHIBITS THE
EXECUTION, DELIVERY OR PERFORMANCE OF THE LOAN DOCUMENTS.
H. GOVERNMENTAL APPROVALS. THE EXECUTION, DELIVERY AND PERFORMANCE OF THE
LOAN DOCUMENTS DOES NOT REQUIRE ANY APPROVAL OF ANY GOVERNMENTAL AGENCY OR
AUTHORITY AND EACH OBLIGOR HAS OBTAINED ALL REQUISITE LICENSES AND PERMITS WHICH
ARE MATERIAL TO OPERATE ITS BUSINESS AS CURRENTLY CONDUCTED.
I. LITIGATION. THERE ARE NO ACTIONS, SUITS OR PROCEEDINGS PENDING OR TO THE
KNOWLEDGE OF ANY OBLIGOR THREATENED AGAINST ANY OBLIGOR WHICH MIGHT MATERIALLY
ADVERSELY AFFECT THE ABILITY OF ANY OBLIGOR TO PERFORM ITS OBLIGATIONS UNDER THE
LOAN DOCUMENTS.
J. FINANCIAL STATEMENTS. THE OBLIGORS HAVE FURNISHED TO THE LENDER THE
FOLLOWING FINANCIAL STATEMENTS (THE "FINANCIAL STATEMENTS"): CONSOLIDATED AND
CONSOLIDATING BALANCE SHEET AS OF NOVEMBER 30, 1997, AND CONSOLIDATED AND
CONSOLIDATING STATEMENT OF PROFIT AND LOSS FOR THE PERIOD ENDING NOVEMBER 30,
1997. THE BALANCE SHEET FAIRLY PRESENTS THE CONDITION OF THE OBLIGORS AT THE
DATE THEREOF AND THE STATEMENT OF PROFIT AND LOSS FAIRLY PRESENTS THE RESULTS OF
THE OPERATIONS OF THE OBLIGORS FOR THE PERIOD INDICATED, ALL IN CONFORMITY WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, CONSISTENTLY APPLIED.
K. ACCOUNTS AND CONTRACT RIGHTS. ALL OF EACH OBLIGOR'S ACCOUNTS RECEIVABLE
ARISE OUT OF LEGALLY ENFORCEABLE AND EXISTING CONTRACTS; AND REPRESENT
UNDISPUTED BONA FIDE INDEBTEDNESS BY THE DEBTOR FOR SALES OR LEASES OF INVENTORY
SHIPPED AND DELIVERED OR SERVICES RENDERED BY AN OBLIGOR TO A DEBTOR, AND ARE
NOT AND WILL NOT BE SUBJECT TO ANY DISCOUNT (EXCEPT SUCH CASH OR TRADE DISCOUNT
AS MAY BE SHOWN ON ANY INVOICE, CONTRACT OR OTHER WRITING IN THE ORDINARY COURSE
OF BUSINESS). NO CONTRACT RIGHT, ACCOUNT, GENERAL INTANGIBLE OR CHATTEL PAPER IS
OR WILL BE REPRESENTED BY ANY NOTE OR OTHER INSTRUMENT, AND NO CONTRACT RIGHT,
ACCOUNT OR GENERAL INTANGIBLE IS, OR WILL BE REPRESENTED BY ANY CONDITIONAL OR
INSTALLMENT SALES OBLIGATION OR OTHER CHATTEL PAPER, EXCEPT SUCH INSTRUMENTS OR
CHATTEL PAPER AS HAVE BEEN OR IMMEDIATELY UPON RECEIPT BY AN OBLIGOR WILL BE
DELIVERED TO THE LENDER (DULY ENDORSED OR ASSIGNED), SUCH DELIVERY, IN THE CASE
OF CHATTEL PAPER, TO INCLUDE ALL EXECUTED COPIES EXCEPT THOSE IN THE POSSESSION
OF THE INSTALLMENT BUYER AND ANY SECURITY FOR OR GUARANTY OF ANY OF THE
COLLATERAL SHALL BE DELIVERED TO THE LENDER IMMEDIATELY UPON RECEIPT THEREOF BY
AN OBLIGOR, WITH SUCH ASSIGNMENTS AND ENDORSEMENTS THEREOF AS THE LENDER MAY
REQUEST.
L. TITLE TO COLLATERAL. EXCEPT AS SET FORTH IN SCHEDULE 3.12, ATTACHED
HERETO, OR AS OTHERWISE PERMITTED UNDER THIS AGREEMENT, (i) AT THE DATE HEREOF
EACH OBLIGOR
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IS (AND AS TO COLLATERAL THAT SUCH OBLIGOR MAY ACQUIRE AFTER THE
DATE HEREOF, WILL BE) THE LAWFUL OWNER OF THE COLLATERAL; (ii) THE COLLATERAL
AND EACH ITEM THEREOF IS, WILL BE AND SHALL CONTINUE TO BE FREE OF ALL
RESTRICTIONS, LIENS, ENCUMBRANCES OR OTHER RIGHTS, TITLE OR INTERESTS (OTHER
THAN THE SECURITY INTEREST THEREIN GRANTED TO THE LENDER HEREBY), CREDITS,
DEFENSES, RECOUPMENTS, SET-OFFS OR COUNTERCLAIMS WHATSOEVER; EACH OBLIGOR HAS
AND WILL HAVE FULL POWER AND AUTHORITY TO GRANT TO THE LENDER A SECURITY
INTEREST THEREIN; (iii) EACH OBLIGOR HAS NOT TRANSFERRED, ASSIGNED, SOLD,
PLEDGED, ENCUMBERED, SUBJECTED TO LIEN OR GRANTED ANY SECURITY INTEREST IN, AND
WILL NOT TRANSFER, ASSIGN, SELL (EXCEPT SALES OR OTHER DISPOSITIONS IN THE
ORDINARY COURSE OF BUSINESS IN RESPECT TO INVENTORY OR AS EXPRESSLY PERMITTED IN
THIS AGREEMENT), PLEDGE, ENCUMBER, SUBJECT TO LIEN OR GRANT ANY SECURITY
INTEREST IN ANY OF THE COLLATERAL (OR ANY OF SUCH OBLIGOR'S RIGHT, TITLE OR
INTEREST THEREIN), TO ANY PERSON OTHER THAN THE LENDER; THE COLLATERAL IS AND
WILL BE VALID AND GENUINE IN ALL RESPECTS; (iv) THE ACCOUNTS RECEIVABLE SHALL
REPRESENT UNCONDITIONAL AND UNDISPUTED BONA FIDE INDEBTEDNESS BY THE DEBTOR FOR
SALES OR LEASES OF INVENTORY SHIPPED AND DELIVERED OR SERVICES RENDERED BY AN
OBLIGOR TO DEBTOR, AND IS NOT AND WILL NOT BE SUBJECT TO ANY DISCOUNT (EXCEPT
SUCH CASH OR TRADE DISCOUNT AS MAY BE SHOWN ON ANY INVOICE, CONTRACT OR OTHER
WRITING IN THE ORDINARY COURSE OF BUSINESS); AND (v) EACH OBLIGOR WILL WARRANT
AND DEFEND THE LENDER'S RIGHT TO AND INTEREST IN THE COLLATERAL AGAINST ALL
CLAIMS AND DEMANDS OF ALL PERSONS WHATSOEVER.
M. LOCATION OF COLLATERAL. EXCEPT FOR SALE, PROCESSING, USE, CONSUMPTION OR
OTHER DISPOSITION IN THE ORDINARY COURSE OF BUSINESS, EACH OBLIGOR WILL KEEP ALL
INVENTORY AND EQUIPMENT ONLY AT LOCATIONS SPECIFIED IN THIS AGREEMENT; EACH
OBLIGOR SHALL, DURING THE TERM OF THIS AGREEMENT, KEEP THE LENDER CURRENTLY AND
ACCURATELY INFORMED IN WRITING OF EACH LOCATION WHERE SUCH OBLIGOR'S RECORDS
RELATING TO ITS ACCOUNTS AND CONTRACT RIGHTS, RESPECTIVELY, ARE KEPT, AND SHALL
NOT REMOVE SUCH RECORDS OR ANY OF THEM TO ANOTHER STATE WITHOUT GIVING THE
LENDER AT LEAST THIRTY (30) DAYS PRIOR WRITTEN NOTICE THEREOF.
N. THIRD PARTIES. THE LENDER SHALL NOT BE DEEMED TO HAVE ASSUMED ANY
LIABILITY OR RESPONSIBILITY TO ANY OBLIGOR OR ANY THIRD PERSON FOR THE
CORRECTNESS, VALIDITY OR GENUINENESS OF ANY INSTRUMENTS OR DOCUMENTS THAT MAY BE
RELEASED OR ENDORSED TO AN OBLIGOR BY THE LENDER (WHICH SHALL AUTOMATICALLY BE
DEEMED TO BE WITHOUT RECOURSE TO THE LENDER IN ANY EVENT) OR FOR THE EXISTENCE,
CHARACTER, QUANTITY, QUALITY, CONDITION, VALUE OR DELIVERY OF ANY GOODS
PURPORTING TO BE REPRESENTED BY ANY SUCH DOCUMENTS; AND THE LENDER, BY ACCEPTING
SUCH SECURITY INTEREST IN THE COLLATERAL, OR BY RELEASING ANY COLLATERAL TO ANY
OBLIGOR, SHALL NOT BE DEEMED TO HAVE ASSUMED ANY OBLIGATION OR LIABILITY TO ANY
SUPPLIER OR DEBTOR OR TO ANY OTHER THIRD PARTY, AND EACH OBLIGOR AGREES TO
INDEMNIFY AND DEFEND THE
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LENDER AND HOLD IT HARMLESS IN RESPECT TO ANY CLAIM OR PROCEEDING ARISING OUT
OF ANY MATTER REFERRED TO IN THIS PARAGRAPH.
O. PAYMENT OF ACCOUNTS. UPON BECOMING AWARE OF ANY SUSPENSION OF BUSINESS,
ASSIGNMENT OR TRUST MORTGAGE FOR THE BENEFIT OF CREDITORS, DISSOLUTION, PETITION
IN RECEIVERSHIP OR UNDER ANY CHAPTER OF THE BANKRUPTCY CODE AS AMENDED FROM TIME
TO TIME BY OR AGAINST ANY DEBTOR, ANY DEBTOR BECOMING INSOLVENT OR UNABLE TO PAY
ITS DEBTS AS THEY MATURE OR ANY OTHER ACT OF THE SAME OR DIFFERENT NATURE
AMOUNTING TO A BUSINESS FAILURE, EACH OBLIGOR WILL FORTHWITH NOTIFY THE LENDER
THEREOF.
P. NOTIFICATION OF DAMAGE. EACH OBLIGOR WILL IMMEDIATELY NOTIFY THE LENDER OF
ANY LOSS OR DAMAGE TO, OR MATERIAL DIMINUTION IN OR ANY OCCURRENCE THAT WOULD
MATERIALLY ADVERSELY AFFECT THE VALUE OF THE INVENTORY, THE EQUIPMENT OR OTHER
COLLATERAL.
Q. CHANGES. SINCE THE DATE OF THE FINANCIAL STATEMENTS, THERE HAVE BEEN NO
CHANGES IN THE ASSETS, LIABILITIES, FINANCIAL CONDITION OR BUSINESS OF ANY
OBLIGOR, OTHER THAN CHANGES IN THE ORDINARY COURSE OF BUSINESS, OR RELATING TO
THE ACQUISITIONS OF AMERICAN PLASMA LOCATIONS, WESTERN STATES GROUP AND
CONSOLIDATED TECHNOLOGIES, OR THE ISSUANCE OF THE COMPANY'S 12% SENIOR
SUBORDINATED DEBENTURES, THE EFFECT OF WHICH HAVE, IN THE AGGREGATE, BEEN
MATERIALLY ADVERSE TO THE FINANCIAL CONDITION OR RESULTS OF OPERATIONS OF THE
OBLIGORS ON A CONSOLIDATED BASIS.
R. YEAR 2000. TO THE OBLIGOR'S KNOWLEDGE, (i) NO MATERIAL MODIFICATIONS ARE
REQUIRED TO ANY OF EACH OBLIGOR'S COMPUTER SYSTEMS OR COMPUTER SOFTWARE TO
ASSURE THAT SUCH SYSTEMS AND SOFTWARE CONTAIN NO DEFICIENCIES RELATING TO
FORMATTING FOR ENTERING DATES (COMMONLY REFERRED TO AND REFERRED HEREIN AS THE
"YEAR 2000 PROBLEM"); (ii) EACH OBLIGOR'S COMPUTER SYSTEMS AND SOFTWARE IN ALL
MATERIAL RESPECTS ARE SUSCEPTIBLE TO ALL NECESSARY MODIFICATION AND EACH OBLIGOR
HAS ADEQUATE PERSONNEL OR CONSULTANTS UNDER CONTRACT OR OTHER AVAILABLE MEANS TO
TIMELY MODIFY (OR, AS APPLICABLE, REPLACE AND/OR UPGRADE) ITS OWN COMPUTER
SYSTEMS AND SOFTWARE. EACH OBLIGOR IS NOT AWARE OF ANY INABILITY ON THE PART OF
ANY OF ITS CUSTOMERS, INSURANCE PROVIDERS OR VENDORS TO TIMELY ADDRESS THE YEAR
2000 PROBLEM THAT WILL IN ANY MANNER MATERIALLY ADVERSELY AFFECT SUCH OBLIGOR'S
BUSINESS OPERATIONS.
S. TAXES. EACH OBLIGOR HAS FILED OR IS IN THE PROCESS OF FILING ALL FEDERAL,
STATE AND OTHER TAX RETURNS REQUIRED TO BE FILED (EXCEPT FOR SUCH RETURNS FOR
WHICH CURRENT AND VALID EXTENSIONS HAVE BEEN FILED), AND ALL TAXES, ASSESSMENTS
AND OTHER GOVERNMENTAL CHARGES DUE FROM EACH OBLIGOR HAVE BEEN FULLY PAID. EACH
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OBLIGOR HAS ESTABLISHED ON ITS BOOKS RESERVES ADEQUATE FOR THE PAYMENT OF ALL
FEDERAL, STATE AND OTHER TAX LIABILITIES (IF ANY).
T. USE OF PROCEEDS. NO PORTION OF ANY LOAN IS TO BE USED FOR THE PURPOSE OF
PURCHASING OR CARRYING ANY "MARGIN SECURITY" OR "MARGIN STOCK" AS SUCH TERMS ARE
USED IN REGULATIONS G AND U OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE
SYSTEM, 12 C.F.R. 207 AND 221.
AFFIRMATIVE COVENANTS
A. PAYMENTS. EACH OBLIGOR WILL DULY AND PUNCTUALLY PAY ALL INTEREST AND
PRINCIPAL BECOMING DUE THE LENDER AND WILL DULY AND PUNCTUALLY PERFORM ALL
THINGS ON ITS PART TO BE DONE OR PERFORMED UNDER THIS AGREEMENT.
B. BOOKS AND RECORDS; INSPECTION. EACH OBLIGOR WILL AT ALL TIMES KEEP
PROPER BOOKS OF ACCOUNT IN WHICH FULL, TRUE AND CORRECT ENTRIES WILL BE MADE
OF ITS TRANSACTIONS IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES, CONSISTENTLY APPLIED AND WHICH ARE, IN THE OPINION OF A CERTIFIED
PUBLIC ACCOUNTANT REASONABLY ACCEPTABLE TO LENDER, ADEQUATE TO DETERMINE
FAIRLY THE FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS OF EACH OBLIGOR.
EACH OBLIGOR WILL AT ALL REASONABLE TIMES MAKE ITS BOOKS AND RECORDS
AVAILABLE IN ITS OFFICES FOR INSPECTION AND EXAMINATION BY THE LENDER AND THE
LENDER'S REPRESENTATIVES AND, WITH AT LEAST ONE (1) BUSINESS DAY'S ADVANCE
NOTICE, WILL PERMIT INSPECTION OF THE COLLATERAL AND ALL OF ITS PROPERTIES BY
THE LENDER AND THE LENDER'S REPRESENTATIVES DURING NORMAL BUSINESS HOURS SO
LONG AS THERE IS NO EXISTING UNCURED EVENT OF DEFAULT UNDER THIS AGREEMENT OR
AT ANY TIME (WITH OR WITHOUT NOTICE AT THE LENDER'S OPTION) IF THERE IS AN
EXISTING UNCURED EVENT OF DEFAULT. EACH OBLIGOR WILL FROM TIME TO TIME
FURNISH THE LENDER WITH SUCH INFORMATION AND STATEMENTS AS THE LENDER MAY
REASONABLY REQUEST WITH RESPECT TO THE OBLIGATIONS OR THE LENDER'S SECURITY
INTEREST IN THE COLLATERAL. EACH OBLIGOR SHALL, DURING THE TERM OF THIS
AGREEMENT, KEEP THE LENDER CURRENTLY AND ACCURATELY INFORMED IN WRITING OF
EACH LOCATION WHERE EACH OBLIGOR'S RECORDS RELATING TO ITS ACCOUNTS AND
CONTRACT RIGHTS ARE KEPT, AND SHALL NOT REMOVE SUCH RECORDS TO ANOTHER STATE
WITHOUT GIVING THE LENDER AT LEAST THIRTY (30) DAYS PRIOR WRITTEN NOTICE
THEREOF.
C. FINANCIAL STATEMENTS. THE OBLIGORS WILL FURNISH TO LENDER:
1. as soon as available to the Obligors, but in any event within 45 days
after the close of each quarterly period of their fiscal year, a full and
complete signed copy of financial statements, which shall include a balance
sheet of the Obligors, as at the end of such quarter, and statement of profit
and loss of the Obligors reflecting the results of their operations during
such quarter on a consolidated and consolidating basis, and shall be prepared
by the Obligors and certified by the Chief Financial Officer of
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each Obligor as to correctness in accordance with generally accepted
accounting principles, consistently applied;
2. as soon as available to the Obligors, but in any event within 90 days after
the close of their fiscal year, a full and complete signed copy of financial
statements, prepared by certified public accountants reasonably acceptable to
Lender, which shall include a balance sheet of the Obligors, as at the end of
such year, and statement of profit and loss of the Obligors reflecting the
results of their operations during such year on a consolidated and consolidating
basis, bearing the opinion of such certified public accountants and prepared on
an audited basis in accordance with generally accepted accounting principles,
consistently applied together with any so-called management letter;
3. within 30 days after the close of each fiscal year, financial projections
and cash flow reports for the Obligors including projected borrowing through the
then current fiscal year;
4. within 45 days after end of each fiscal quarter, a Covenant Compliance
Certificate in the form of Exhibit B attached hereto;
5. from time to time, such financial data and information about any Obligor as
Lender may reasonably request; and
6. any financial data and information about any guarantors of the Obligations
as Lender may reasonably request.
D. CONDUCT OF BUSINESS. EACH OBLIGOR WILL MAINTAIN ITS CORPORATE EXISTENCE IN
GOOD STANDING AND COMPLY WITH ALL LAWS AND REGULATIONS OF THE UNITED STATES AND
OF ANY STATE OR STATES THEREOF AND OF ANY POLITICAL SUBDIVISION THEREOF, AND OF
ANY GOVERNMENTAL AUTHORITY WHICH MAY BE APPLICABLE TO IT OR TO ITS BUSINESS;
PROVIDED THAT THIS COVENANT SHALL NOT APPLY TO ANY TAX, ASSESSMENT OR CHARGE
WHICH IS BEING CONTESTED IN GOOD FAITH AND WITH RESPECT TO WHICH RESERVES HAVE
BEEN ESTABLISHED AND ARE BEING MAINTAINED.
E. NOTICE TO ACCOUNT DEBTORS. EACH OBLIGOR AGREES, AT THE REQUEST OF THE
LENDER, TO NOTIFY ALL OR ANY OF THE DEBTORS IN WRITING OF THE LENDER'S SECURITY
INTEREST IN THE COLLATERAL IN WHATEVER REASONABLE MANNER THE LENDER REQUESTS
AND, IF THE LENDER SO REQUESTS, TO PERMIT THE LENDER TO NOTIFY ALL OR ANY OF THE
DEBTORS AT SUCH OBLIGOR'S EXPENSE.
F. OPERATING AND DEPOSIT ACCOUNTS. THE OBLIGORS SHALL MAINTAIN WITH THE
LENDER THEIR PRIMARY OPERATING AND DEPOSIT ACCOUNTS WHICH SHALL AT ALL TIMES
HAVE A MINIMUM BALANCE OF AT LEAST $150,000. AT THE OPTION OF THE LENDER, ALL
LOAN PAYMENTS AND FEES WILL AUTOMATICALLY BE DEBITED FROM THE BORROWER'S PRIMARY
OPERATING ACCOUNT AND ALL ADVANCES WILL AUTOMATICALLY BE CREDITED TO THE
BORROWER'S PRIMARY OPERATING ACCOUNT.
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G. TAXES. EACH OBLIGOR WILL PROMPTLY PAY ALL REAL AND PERSONAL PROPERTY
TAXES, ASSESSMENTS AND CHARGES AND ALL FRANCHISE, INCOME, UNEMPLOYMENT, OLD AGE
BENEFITS, WITHHOLDING, SALES AND OTHER TAXES ASSESSED AGAINST IT OR PAYABLE BY
IT BEFORE DELINQUENT; PROVIDED THAT THIS COVENANT SHALL NOT APPLY TO ANY TAX
ASSESSMENT OR CHARGE WHICH IS BEING CONTESTED IN GOOD FAITH AND WITH RESPECT TO
WHICH RESERVES HAVE BEEN ESTABLISHED AND ARE BEING MAINTAINED. THE LENDER MAY,
AT ITS OPTION, FROM TIME TO TIME, DISCHARGE ANY TAXES, LIENS OR ENCUMBRANCES OF
ANY OF THE COLLATERAL, AND EACH OBLIGOR WILL PAY TO THE LENDER ON DEMAND OR THE
LENDER IN ITS SOLE DISCRETION MAY CHARGE TO THE OBLIGORS ALL AMOUNTS SO PAID OR
INCURRED BY IT.
H. MAINTENANCE. EACH OBLIGOR WILL KEEP AND MAINTAIN THE COLLATERAL AND ITS
OTHER PROPERTIES, IF ANY, IN GOOD REPAIR, WORKING ORDER AND CONDITION. EACH
OBLIGOR WILL PROMPTLY NOTIFY THE LENDER OF ANY LOSS OR DAMAGE TO OR ANY
OCCURRENCE WHICH WOULD MATERIALLY ADVERSELY AFFECT THE VALUE OF ANY COLLATERAL.
THE LENDER MAY, AT ITS OPTION, FROM TIME TO TIME, TAKE ANY OTHER ACTION THAT THE
LENDER MAY DEEM PROPER TO REPAIR, MAINTAIN OR PRESERVE ANY OF THE COLLATERAL,
AND EACH OBLIGOR WILL PAY TO THE LENDER ON DEMAND OR THE LENDER IN ITS SOLE
DISCRETION MAY CHARGE TO THE OBLIGORS ALL AMOUNTS SO PAID OR INCURRED BY IT.
I. INSURANCE. EACH OBLIGOR WILL MAINTAIN IN FORCE CASUALTY INSURANCE ON
ALL COLLATERAL AND ANY OTHER PROPERTY OF SUCH OBLIGORS, IF ANY, AGAINST RISKS
CUSTOMARILY INSURED AGAINST BY COMPANIES ENGAGED IN BUSINESSES SIMILAR TO
THAT OF SUCH OBLIGORS CONTAINING SUCH TERMS AND WRITTEN BY SUCH COMPANIES AS
MAY BE REASONABLY SATISFACTORY TO THE LENDER, SUCH INSURANCE TO BE PAYABLE TO
THE LENDER AS ITS INTEREST MAY APPEAR IN THE EVENT OF LOSS; NO LOSS SHALL BE
ADJUSTED THEREUNDER WITHOUT THE LENDER'S APPROVAL; AND ALL SUCH POLICIES
SHALL PROVIDE THAT THEY MAY NOT BE CANCELED WITHOUT FIRST GIVING AT LEAST TEN
(10) DAYS' WRITTEN NOTICE OF CANCELLATION TO THE LENDER. IN THE EVENT THAT
ANY OBLIGOR FAILS TO PROVIDE EVIDENCE OF SUCH INSURANCE, THE LENDER MAY, AT
IS OPTION, SECURE SUCH INSURANCE AND CHARGE THE COST THEREOF TO THE OBLIGORS.
AT THE OPTION OF THE LENDER, ALL INSURANCE PROCEEDS RECEIVED FROM ANY LOSS
OR DAMAGE TO ANY OF THE COLLATERAL SHALL BE APPLIED EITHER TO THE REPLACEMENT
OR REPAIR THEREOF OR AS A PAYMENT ON ACCOUNT OF THE OBLIGATIONS. FROM AND
AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT, THE LENDER IS AUTHORIZED TO
CANCEL ANY INSURANCE MAINTAINED HEREUNDER AND APPLY ANY RETURNED OR UNEARNED
PREMIUMS, ALL OF WHICH ARE HEREBY ASSIGNED TO THE LENDER, AS A PAYMENT ON
ACCOUNT OF THE OBLIGATIONS.
J. NOTIFICATION OF DEFAULT. WITHIN FIVE (5) DAYS OF BECOMING AWARE OF THE
EXISTENCE OF ANY CONDITION OR EVENT WHICH CONSTITUTES AN EVENT OF DEFAULT, OR
ANY CONDITION OR EVENT WHICH WOULD UPON NOTICE OR LAPSE OF TIME, OR BOTH,
CONSTITUTE AN EVENT OF DEFAULT, THE OBLIGORS SHALL GIVE LENDER WRITTEN NOTICE
THEREOF
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SPECIFYING THE NATURE AND DURATION THEREOF AND THE ACTION BEING OR PROPOSED
TO BE TAKEN WITH RESPECT THERETO.
K. NOTIFICATION OF MATERIAL LITIGATION. EACH OBLIGOR WILL PROMPTLY NOTIFY
THE LENDER IN WRITING OF ANY LITIGATION OR OF ANY INVESTIGATIVE PROCEEDINGS
OF A GOVERNMENTAL AGENCY OR AUTHORITY COMMENCED OR THREATENED AGAINST IT
WHICH WOULD OR MIGHT BE MATERIALLY ADVERSE TO THE FINANCIAL CONDITION OF SUCH
OBLIGOR.
L. YEAR 2000. EACH OBLIGOR WILL TAKE COMMERCIALLY REASONABLE ACTIONS TO
ENSURE THAT SUCH OBLIGOR'S COMPUTER SYSTEMS AND COMPUTER SOFTWARE SHALL AT
ALL TIMES CONTAIN NO MATERIAL DEFICIENCIES RELATING TO THE YEAR 2000 PROBLEM;
AND EACH OBLIGOR HEREBY INDEMNIFIES AND HOLDS THE LENDER HARMLESS FROM ANY
LOSSES THE LENDER MAY SUFFER RESULTING FROM ANY DEFICIENCIES IN SUCH
OBLIGOR'S COMPUTER SYSTEMS OR COMPUTER SOFTWARE RELATING TO THE YEAR 2000
PROBLEM.
M. PENSION PLANS. WITH RESPECT TO ANY PENSION OR BENEFIT PLAN MAINTAINED
BY ANY OBLIGOR, OR TO WHICH ANY OBLIGOR CONTRIBUTES ("PLAN"), THE BENEFITS
UNDER WHICH ARE GUARANTIED, IN WHOLE OR IN PART, BY THE PENSION BENEFIT
GUARANTY CORPORATION CREATED BY THE EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974, P.L. 93-406, OR ANY GOVERNMENTAL AUTHORITY SUCCEEDING TO ANY OR ALL
OF THE FUNCTIONS OF THE PENSION BENEFIT GUARANTY CORPORATION ("PENSION
BENEFIT GUARANTY CORPORATION"), EACH OBLIGOR WILL (a) FUND EACH PLAN AS
REQUIRED BY THE PROVISIONS OF SECTION 412 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED; (b) CAUSE EACH PLAN TO PAY ALL BENEFITS WHEN DUE; (c)
FURNISH LENDER (i) PROMPTLY WITH A COPY OF ANY NOTICE OF EACH PLAN'S
TERMINATION SENT TO THE PENSION BENEFIT GUARANTY CORPORATION AND (ii) NO
LATER THAN THE DATE OF SUBMISSION TO THE DEPARTMENT OF LABOR OR TO THE
INTERNAL REVENUE SERVICE, AS THE CASE MAY BE, A COPY OF ANY REQUEST FOR
WAIVER FROM THE FUNDING STANDARDS OR EXTENSION OF THE AMORTIZATION PERIODS
REQUIRED BY SECTION 412 OF THE INTERNAL REVENUE CODE OF 1954, AS AMENDED; AND
(d) SUBSCRIBE TO ANY CONTINGENT LIABILITY INSURANCE PROVIDED BY THE PENSION
BENEFIT GUARANTY CORPORATION TO PROTECT AGAINST EMPLOYER LIABILITY UPON
TERMINATION OF A GUARANTIED PENSION PLAN, IF AVAILABLE TO SUCH OBLIGOR.
N. ENVIRONMENTAL. AS OF THE DATE HEREOF NEITHER THE OBLIGORS NOR ANY OF
OBLIGORS' AGENTS, EMPLOYEES OR INDEPENDENT CONTRACTORS (1) HAVE CAUSED OR ARE
AWARE OF A RELEASE OR THREAT OF RELEASE OF MATERIALS (AS DEFINED HEREIN) ON
ANY OF THE PREMISES OR PERSONAL PROPERTY OWNED OR CONTROLLED BY ANY OBLIGOR,
OR ANY ABUTTING PROPERTY, WHICH COULD GIVE RISE TO ANY MATERIAL LIABILITY
UNDER ANY SUPERFUND AND HAZARDOUS WASTE LAWS (AS DEFINED HEREIN) OR ANY OTHER
FEDERAL, STATE OR LOCAL LAW, RULE OR REGULATION RELATING TO THE PROTECTION OF
THE ENVIRONMENT OR HUMAN SAFETY; (2) HAVE ARRANGED FOR THE TRANSPORT OF OR
TRANSPORTED ANY
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MATERIALS IN A MANNER AS TO VIOLATE, OR RESULT IN POTENTIAL LIABILITIES
UNDER, ANY SUPERFUND AND HAZARDOUS WASTE LAWS; (3) HAVE RECEIVED ANY NOTICE,
ORDER OR DEMAND FROM THE ENVIRONMENTAL PROTECTION AGENCY OR ANY STATE OR
LOCAL AGENCY OR AUTHORITY UNDER ANY SUPERFUND AND HAZARDOUS WASTE LAWS; (4)
HAVE INCURRED ANY LIABILITY UNDER ANY SUPERFUND AND HAZARDOUS WASTE LAWS IN
CONNECTION WITH THE MISMANAGEMENT, IMPROPER DISPOSAL OR RELEASE OF MATERIALS;
(5) ARE AWARE OF ANY INSPECTION OR INVESTIGATION OF ANY OF THE PREMISES OR
PERSONAL PROPERTY OWNED OR CONTROLLED BY ANY OBLIGOR OR ABUTTING PROPERTY BY
ANY FEDERAL, STATE OR LOCAL AGENCY FOR POSSIBLE VIOLATIONS OF THE SUPERFUND
AND HAZARDOUS WASTE LAWS.
To the best of each Obligor's knowledge, no prior owner or tenant of
any premises or property presently controlled or owned by such Obligor
committed or omitted any act which caused the release of Materials on such
premises or property which could give rise to a lien thereon by any federal,
state or local government. No notice or statement of claim or lien affecting
any property or premises owned or controlled by each Obligor has been
recorded or filed in any public records by any federal, state or local
government for costs, penalties, fines or other charges as to such property.
Each Obligor agrees to indemnify and hold Lender harmless from all
liability, loss, cost, damage and expense, including attorney fees and costs
of litigation, arising from any and all of its violations of the Superfund
and Hazardous Waste Laws including those arising from any lien on any
premises or property owned or controlled by such Obligor by any federal,
state and local government arising from the presence of Materials. Each
Obligor further agrees to reimburse Lender upon demand for any reasonable
costs incurred by Lender in connection with the foregoing. Each Obligor
agrees its obligations hereunder shall be continuous and shall survive the
repayment of all debts to Lender including repayment of all Obligations.
The term "Materials" means any "oil," "hazardous material," "hazardous
wastes" or "hazardous substances" as defined under the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section
9601 ET SEQ., as amended, the Resource Conservation and Recovery Act of 1976,
42 U.S.C. Section 6901 ET SEQ., as amended, any applicable state or local
statutes or ordinances, and regulations adopted thereunder, and the foregoing
are collectively the "Superfund and Hazardous Waste Laws."
NEGATIVE COVENANTS
A. FINANCIAL COVENANTS. THE OBLIGORS WILL NOT AT ANY TIME OR DURING ANY
FISCAL PERIOD (AS APPLICABLE) FAIL TO BE IN COMPLIANCE WITH ANY OF THE FINANCIAL
COVENANTS IN THIS SECTION ON A CONSOLIDATED BASIS.
1. Definitions. The following definitions shall apply to this Section:
(a) "Current Maturities of Long-Term Debt" shall mean all principal and
lease payments to be paid by the Obligors during any fiscal period of
Obligors on account of (x) the Loan, (y) other money borrowed from all
sources and (z) capitalized leases.
(b) "Tangible Net Worth" shall mean Obligors stockholders' equity determined
in accordance with generally accepted accounting principles, consistently
applied, SUBTRACTING THEREFROM (x) intangibles (as determined in accordance
with such principles so applied); and (y) accounts receivable and
Indebtedness owing to an Obligor from any employee, stockholder or parent,
subsidiary or other affiliate of such Obligor.
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(c) "Indebtedness" shall mean, with respect to any person (x) all
indebtedness for borrowed money or for the deferred purchase price of
property or services, and all obligations under leases which are or should
be, under generally accepted accounting principles, recorded as capital
leases, in respect of which such person is directly or contingently liable
as borrower, guarantor, endorser or otherwise, or in respect of which such
person otherwise assures a creditor against loss, (y) all indebtedness for
borrowed money or for the deferred purchase price of property or services
secured by (or for which the holder has an existing right, contingent or
otherwise, to be secured by) any lien upon property (including without
limitation accounts receivable and contract rights) owned by such person,
whether or not such person has assumed or become liable for the payment
thereof, and (z) all other liabilities or obligations which would, in
accordance with generally accepted accounting principles, be classified as
liabilities of such person.
(d) "Subordinated Indebtedness" shall mean Indebtedness which is expressly
subordinated to Senior Indebtedness in writing pursuant to a subordination
agreement acceptable to the Lender.
(e) "Senior Indebtedness" shall mean any amount of any Indebtedness owing
by the Borrower to the Lender.
(f) "Current Assets" and "Current Liabilities" shall be defined according
to generally accepted accounting principles.
(g) "Income" and "Net Income" shall be defined according to generally
accepted accounting principles.
2. TANGIBLE CAPITAL BASE. The Obligors will not at any time permit their
Tangible Net Worth plus their Subordinated Indebtedness to be less than
$16,300,000 plus fifty (50%) percent of the Obligors' Net Income for each fiscal
quarter ending after the date of this Agreement.
3. DEBT TO CAPITAL BASE. The Obligors will not at any time permit the
aggregate amount of their Indebtedness (excluding Subordinated Indebtedness) to
be more than 0.85 times the sum of their Tangible Net Worth plus their
Subordinated Indebtedness.
4. CURRENT RATIO. The Obligors will not at any time permit the ratio of
their Current Assets to Current Liabilities, excluding any Current Maturities
of Long-Term Debt to be less than 1.0:1.0.
5. EBITDA TO INTEREST. The Obligors will not at any time permit their
income before interest, tax, deprecation and amortization expense ("EBITDA")
to be less than 2.5 times the sum of interest expense plus capital
expenditures.
B. LIMITATIONS ON INDEBTEDNESS. EACH OBLIGOR WILL NOT ISSUE ANY EVIDENCE
OF INDEBTEDNESS OR CREATE, ASSUME, GUARANTEE, BECOME CONTINGENTLY LIABLE FOR,
OR SUFFER TO EXIST INDEBTEDNESS IN ADDITION TO INDEBTEDNESS TO THE LENDER,
EXCEPT (i) INDEBTEDNESS OR LIABILITIES OF SUCH OBLIGOR FOR MONEY BORROWED,
INCURRED OR ARISING IN THE ORDINARY COURSE OF BUSINESS, (ii) INDEBTEDNESS
RELATING TO THE BORROWER'S 12% SENIOR SUBORDINATED DEBENTURES DUE 2005
(INCLUDING ALL GUARANTEES THEREOF), (iii) INDEBTEDNESS OF ANY OBLIGOR WHICH
IS SUBORDINATED TO THE SENIOR INDEBTEDNESS ON TERMS AND CONDITIONS ACCEPTABLE
TO THE LENDER, (iv) INDEBTEDNESS SECURED BY LIENS PERMITTED PURSUANT TO
SECTION 5.10 HEREOF, OR (v)
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INDEBTEDNESS WHICH IS INCURRED AFTER THE DATE HEREOF, IS NON-RECOURSE TO THE
OBLIGORS, IS INCURRED IN CONNECTION WITH THE ACQUISITION OF (A) ASSETS OF
ANOTHER PERSON BY ANY OBLIGOR OR (B) STOCK BY ANY OBLIGOR, AND IS SECURED
SOLELY BY THE STOCK OR ASSETS SO ACQUIRED.
C. SALE OF INTEREST. THERE SHALL NOT BE ANY SALE OR TRANSFER OF OWNERSHIP
OF ANY INTEREST IN ANY SUBSIDIARY OF THE BORROWER WHICH IS AN OBLIGOR
HEREUNDER WITHOUT THE LENDER'S PRIOR WRITTEN CONSENT.
D. LOANS OR ADVANCES. EACH OBLIGOR WILL NOT MAKE ANY LOANS OR ADVANCES TO
ANY INDIVIDUAL, FIRM OR CORPORATION, INCLUDING WITHOUT LIMITATION ITS
OFFICERS AND EMPLOYEES; PROVIDED, HOWEVER, THAT (i) AN OBLIGOR MAY MAKE
ADVANCES TO ITS EMPLOYEES, INCLUDING ITS OFFICERS, WITH RESPECT TO EXPENSES
INCURRED OR TO BE INCURRED BY SUCH EMPLOYEES WHICH EXPENSES ARE REIMBURSABLE
BY SUCH OBLIGOR; (ii) EACH OBLIGOR MAY EXTEND CREDIT IN THE ORDINARY COURSE
OF BUSINESS IN ACCORDANCE WITH CUSTOMARY TRADE PRACTICES; (iii) EACH OBLIGOR
MAY OWN, PURCHASE OR ACQUIRE PERMITTED INVESTMENTS, OR OTHERWISE MAKE AN
INVESTMENT IN A PERSON NOT OTHERWISE PERMITTED PURSUANT TO THIS SECTION,
PROVIDED THE AMOUNT OF SUCH INVESTMENT SHALL NOT EXCEED $25,000 INDIVIDUALLY
OR $50,000 IN THE AGGREGATE; AND (iv) EACH OBLIGOR MAY MAKE OR PERMIT TO
REMAIN OUTSTANDING LOANS OR ADVANCES TO ANY OTHER OBLIGOR NAMED HEREIN,
SUBJECT TO SECTION 5.6 OF THIS AGREEMENT.
E. DIVIDENDS AND DISTRIBUTIONS. EACH OBLIGOR MAY WITHOUT PRIOR WRITTEN
PERMISSION OF THE LENDER, PAY ANY DIVIDENDS ON OR MAKE ANY DISTRIBUTION ON
ACCOUNT OF ANY CLASS OF SUCH OBLIGOR'S CAPITAL STOCK IN CASH OR IN PROPERTY
(OTHER THAN ADDITIONAL SHARES OF SUCH STOCK), OR REDEEM, PURCHASE OR
OTHERWISE ACQUIRE, DIRECTLY OR INDIRECTLY, ANY OF SUCH STOCK, PROVIDED THAT
NO SUCH PAYMENTS OR DISTRIBUTION SHALL CAUSE ANY OBLIGOR, AFTER EFFECTING ANY
SUCH DIVIDEND OR DISTRIBUTION, TO FAIL TO COMPLY WITH ANY OTHER PROVISIONS OF
THIS AGREEMENT, INCLUDING WITHOUT LIMITATION, EACH OF THE FINANCIAL COVENANTS
SET FORTH IN SECTION 5.1 OF THIS AGREEMENT.
F. INTENTIONALLY OMITTED.
G. INVESTMENTS. EACH OBLIGOR WILL NOT MAKE INVESTMENTS IN, OR ADVANCES TO,
ANY INDIVIDUAL, PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY, TRUST OR
OTHER ORGANIZATION OR PERSON, NOR PURCHASE OR OTHERWISE INVEST IN OR HOLD
SECURITIES, NONOPERATING REAL ESTATE OR OTHER NONOPERATING ASSETS OR PURCHASE
ALL OR SUBSTANTIALLY ALL THE ASSETS OF ANY ENTITY; EXCEPT THE OBLIGORS OR ANY
OBLIGOR MAY
1. own, purchase or acquire Permitted Investments;
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2. endorse negotiable instruments for collection in the ordinary course of
business;
3. make an Investment in a Person not otherwise permitted pursuant to this
Section 5.6, provided the amount of such Investment (including the amount of
any guarantee, endorsement or other liability with respect thereto) shall not
exceed $25,000 individually or $50,000 in the aggregate;
4. make an Investment in a Person that becomes a wholly-owned Subsidiary as
a result of such Investment or in assets of a Person that become assets of an
Obligor; provided that: (a) such Investments relate to the acquisition of
companies engaged in the business of whole blood or plasma collection,
processing and marketing, selling of blood and blood byproducts and any
related business or activities; (b) the Obligors shall deliver to Lender pro
forma financial statements reflecting the Investment and related calculations
demonstrating compliance with all covenants contained herein, relating to
financial and accounting matters, together with a description in reasonable
detail of the nature and reasons for the proposed transaction; (c)
immediately after giving effect to such transaction, no Event of Default
shall exist and be continuing; and (d) such Investments do not exceed
$5,000,000 in purchase price for the Obligors in any one fiscal year, and
5. make or permit to remain outstanding loans or advances to any wholly
owned subsidiary (hereafter created), subject to Section 5.6 of this
Agreement.
H. MERGER. Each Obligor will not merge or consolidate or be merged or
consolidated with or into any other corporation except that any Obligor may
enter into a merger in connection with an investment permitted by Section
5.7, and except that any Obligor may be merged, consolidated, dissolved or
liquidated into any other Obligor.
I. SALE OF ASSETS. Each Obligor will not sell, lease or otherwise dispose
of any of its assets, (i) EXCEPT IN THE ORDINARY AND USUAL COURSE OF BUSINESS
AND EXCEPT FOR THE PURPOSE OF REPLACING MACHINERY, EQUIPMENT OR OTHER
PERSONAL PROPERTY WHICH, AS A CONSEQUENCE OF WEAR, DUPLICATION OR
OBSOLESCENCE, IS NO LONGER USED OR NECESSARY IN SUCH OBLIGOR'S BUSINESS,
PROVIDED THAT FAIR CONSIDERATION IS RECEIVED THEREFOR (ii) IF THE NET
PROCEEDS OF SUCH SALE ARE APPLIED TO THE REPAYMENT OF THE SENIOR
INDEBTEDNESS; (iii) IF THE NET PROCEEDS OF SUCH SALE ARE REINVESTED IN THE
BUSINESS OF THE OBLIGORS OR ARE OTHERWISE INVESTED PURSUANT TO SECTION 5.7
HEREOF; OR (iv) IF IN THE AGGREGATE ALL OF THE TRANSFERS MADE SINCE THE DATE
HEREOF AND NOT OTHERWISE PERMITTED BY CLAUSE (i), (ii) OR (iii) ABOVE AMOUNTS
TO LESS THAN $200,000. NOTWITHSTANDING THIS SECTION 5.9, NO ASSETS OF ANY
OBLIGOR SHALL BE SOLD, DISPOSED OF OR OTHERWISE CONVEYED (i) AT LESS THAN
FAIR MARKET VALUE NOR (ii) IF ANY EVENT OF DEFAULT SHALL HAVE OCCURRED AND
THEN BE CONTINUING OR SHALL RESULT FROM SUCH SALE OR DISPOSITION.
J. RESTRICTION ON LIENS. EACH OBLIGOR WILL NOT GRANT ANY SECURITY INTEREST
IN, OR MORTGAGE OF, ANY OF ITS PROPERTIES OR ASSETS INCLUDING THE COLLATERAL
EXCEPT (i) LIENS FOR TAXES NOT YET DUE OR WHICH ARE BEING CONTESTED IN GOOD
FAITH BY APPROPRIATE PROCEEDINGS AND FOR WHICH ADEQUATE RESERVES HAVE BEEN
ESTABLISHED
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<PAGE>
IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP"); (ii)
STATUTORY LIENS OF LANDLORDS AND LIENS OF CARRIERS, WAREHOUSEMEN, MECHANICS,
MATERIALMEN AND OTHER SIMILAR PERSONS AND OTHER LIENS IMPOSED BY LAW INCURRED
IN THE ORDINARY COURSE OF BUSINESS FOR SUMS NOT YET DELINQUENT OR BEING
CONTESTED IN GOOD FAITH, IF SUCH RESERVE OR OTHER APPROPRIATE PROVISION, IF
ANY, AS SHALL BE REQUIRED BY GAAP SHALL HAVE BEEN MADE THEREFOR; (iii) LIENS
MADE TO SECURE SENIOR INDEBTEDNESS; (iv) LIENS INCURRED THROUGH PURCHASE
MONEY SECURITY INTERESTS OR IN CONNECTION WITH EQUIPMENT LEASES IN AMOUNTS
WHICH, AT THE TIME INCURRED, DO NOT EXCEED THE FAIR MARKET VALUE OF THE ASSET
SECURING SUCH LIEN; PROVIDED THAT ANY INDEBTEDNESS OR LEASES INCURRED IN ANY
YEAR SECURED BY SUCH LIENS SHALL NOT EXCEED $500,000; (v) LIENS SECURING
INDEBTEDNESS PERMITTED UNDER SECTION 5.2 HEREOF; AND (vi) LIENS OR DEPOSITS
MADE TO SECURE PAYMENT OF WORKERS' COMPENSATION, OR IN CONNECTION WITH THE
PARTICIPATION IN ANY FUND IN CONNECTION WITH WORKERS' COMPENSATION,
UNEMPLOYMENT INSURANCE, PENSIONS OR OTHER SOCIAL SECURITY PROGRAMS.
K. OTHER BUSINESS. EACH OBLIGOR WILL NOT ENGAGE IN ANY BUSINESS OTHER THAN
THE BUSINESS IN WHICH IT IS CURRENTLY ENGAGED OR A BUSINESS REASONABLY ALLIED
THERETO.
DEFAULT
A. DEFAULT. "EVENT OF DEFAULT" SHALL MEAN THE OCCURRENCE OF ONE OR MORE OF
ANY OF THE FOLLOWING EVENTS:
(a) the Borrower or any other Obligor defaults in the payment of any
principal of or interest on any Senior Indebtedness when the same shall
become due, either by the terms thereof or otherwise as herein provided,
and in the case of interest payments, such default shall continue for a
period of three (3) business days after such date;
(b) the Borrower or any other Obligor defaults in the payment when due,
either by the terms thereof or otherwise as herein provided, of any
other amounts on any Senior Indebtedness and such default shall continue
unremedied for five or more business days;
(c) the Borrower or any other Obligor (i) defaults in any payment
of principal of or interest on any other Indebtedness in an amount
exceeding $100,000 and such default shall continue beyond any applicable
grace period or (ii) fails to perform or observe any other agreement,
term or condition contained in any agreement under which any such
obligation is created (or if any other event thereunder or under any
such agreement shall occur and be continuing), and in the case of (ii)
above, the effect of such default, failure or other event is to cause,
or, with respect to any Indebtedness, to permit the holder or holders of
such obligation (or a trustee on behalf of such holder or holders) to
cause an obligation of more than $100,000 to become due prior to any
stated maturity;
(d) the Borrower or any other Obligor defaults in the performance
or observance of any of the
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<PAGE>
agreements contained in Article 4 (Affirmative Covenants) or Article 5
(Negative Covenants) hereof or in the performance or observance of any
other material agreement, term or condition contained herein or in the
other Loan Documents and any such default shall not have been remedied
within 30 days after such default shall first become known to any
officer of any Obligor;
(e) If any statement, representation or warranty heretofore, now
or hereafter made in connection with this Agreement or in any supporting
financial statement of any Obligor shall be determined by Lender to have
been false in any material respect when made, and if susceptible to
cure, such inaccuracy shall not have been remedied within 30 days after
such default shall first become known to any officer of any Obligor;
(f) The liquidation, termination or dissolution of, or the merger
or consolidation of, any Obligor, with or into another entity (except
as otherwise permitted hereunder without the consent of the Lender), or
any Obligor ceasing to carry on actively its present business or the
appointment of a receiver for any Obligor.
(g) The institution by or against any Obligor or guarantor of the
Obligations of any proceedings under the Bankruptcy Code 11 USC Section
101 ET SEQ. or any other law in which any Obligor or any guarantor of
the Obligations is alleged to be insolvent or unable to pay their
respective debts as they mature, or the making by any Obligor or any
guarantor of the Obligations of an assignment for the benefit of
creditors or the granting of a trust mortgage for the benefit of
creditors.
(h) The service upon the Lender hereof of a writ in which the
Lender is named as trustee of any Obligor or of any guarantor of the
Obligations.
(i) A judgment or judgments for the payment of money in excess of
$100,000 shall be rendered against any Obligor and any such judgment
shall remain unsatisfied and in effect for any period of sixty (60)
consecutive days without a stay of execution.
(j) Any levy, seizure, attachment, execution or similar process
shall be issued or levied on any of the property of any Obligor having a
material adverse affect on any Obligor.
(k) The termination of any guaranty of the Obligations.
(l) The occurrence of such a materially adverse change in the
condition or affairs (financial or otherwise) of any Obligor such that
the that the prospects for timely or full payment or performance of any
of the Obligations have been or may be substantially impaired.
B. DEFAULT. IF AN EVENT OF DEFAULT SHALL OCCUR, AT THE ELECTION OF THE
LENDER, ALL OBLIGATIONS SHALL BECOME IMMEDIATELY DUE AND PAYABLE WITHOUT
NOTICE OR DEMAND.
The Lender is hereby authorized, at its election, after an Event of
Default, without any further demand or notice except to such extent as notice
may be required by applicable law, to take possession
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<PAGE>
and/or sell or otherwise dispose of all or any of the Collateral at public or
private sale; and the Lender may also exercise any and all other rights and
remedies of a secured party under the Code or which are otherwise accorded to
it by applicable law, all as the Lender may determine. If notice of a sale
or other action by the Lender is required by applicable law, unless the
Collateral is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, each Obligor agrees that five
(5) days' written notice to such Obligor, or the shortest period of written
notice permitted by such law, whichever is larger, shall be sufficient
notice; and that to the extent permitted by law, the Lender, its officers,
attorneys and agents may bid and become purchasers at any such sale, if
public, and may purchase at any private sale any of the Collateral that is of
a type customarily sold on a recognized market or which is the subject of
widely distributed standard price quotations. Any sale (public or private)
shall be free from any right of redemption, which each Obligor hereby waives
and releases. No purchaser at any sale (public or private) shall be
responsible for the application of the purchase money. Any balance of the
net proceeds of sale remaining after paying all Obligations of the Obligors
to the Lender shall be returned to the Obligors or to such other party as may
be legally entitled thereto; and if there is a deficiency, the Obligors shall
be responsible for the same, with interest, to the extent permitted by
applicable law. Upon demand by the Lender, each Obligor shall assemble the
Collateral and make it available to the Lender at a place designated by the
Lender which is reasonably convenient to the Lender and such Obligor. Each
Obligor hereby acknowledges that the Lender has extended credit and other
financial accommodations to the Obligors upon reliance of such Obligor's
granting the Lender the rights and remedies contained in this Agreement
including without limitation the right to take immediate possession of the
Collateral upon the occurrence of an Event of Default and each Obligor hereby
acknowledges that the Lender is entitled to equitable and injunctive relief
to enforce any of its rights and remedies hereunder or under the Code and
each Obligor hereby waives any defense to such equitable or injunctive relief
based upon any allegation of the absence of irreparable harm to the Lender.
C. POWER OF ATTORNEY. EACH OBLIGOR HEREBY IRREVOCABLY CONSTITUTES AND
APPOINTS THE LENDER AS SUCH OBLIGOR'S TRUE AND LAWFUL ATTORNEY, WITH FULL
POWER OF SUBSTITUTION, AT THE SOLE COST AND EXPENSE OF SUCH OBLIGOR BUT FOR
THE SOLE BENEFIT OF THE LENDER, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT TO
CONVERT THE COLLATERAL INTO CASH, INCLUDING, WITHOUT LIMITATION, COMPLETING
THE MANUFACTURE OR PROCESSING OF WORK IN PROCESS, AND THE SALE (EITHER PUBLIC
OR PRIVATE) OF ALL OR ANY PORTION OR PORTIONS OF THE INVENTORY AND OTHER
COLLATERAL; TO ENFORCE COLLECTION OF THE COLLATERAL, EITHER IN ITS OWN NAME
OR IN THE NAME OF SUCH OBLIGOR, INCLUDING, WITHOUT LIMITATION, EXECUTING
RELEASES, COMPROMISING OR SETTLING WITH ANY DEBTORS AND PROSECUTING,
DEFENDING, COMPROMISING OR RELEASING ANY ACTION RELATING TO THE COLLATERAL;
TO RECEIVE, OPEN AND DISPOSE OF ALL MAIL ADDRESSED TO ANY OBLIGOR AND TO TAKE
THEREFROM ANY REMITTANCES OR PROCEEDS OF COLLATERAL IN WHICH THE LENDER HAS A
SECURITY INTEREST; TO NOTIFY POST OFFICE AUTHORITIES TO CHANGE THE ADDRESS
FOR DELIVERY OF MAIL ADDRESSED TO ANY OBLIGOR TO SUCH ADDRESS AS THE LENDER
SHALL DESIGNATE; TO ENDORSE THE NAME OF ANY OBLIGOR IN FAVOR OF THE LENDER
UPON ANY AND ALL CHECKS, DRAFTS, MONEY ORDERS, NOTES, ACCEPTANCES OR OTHER
INSTRUMENTS OF THE SAME OR DIFFERENT NATURE; TO SIGN AND ENDORSE THE NAME OF
ANY OBLIGOR ON AND TO RECEIVE AS SECURED PARTY ANY OF THE COLLATERAL, ANY
INVOICES SCHEDULES OF COLLATERAL, FREIGHT OR EXPRESS RECEIPTS, OR BILLS OF
LADING, STORAGE RECEIPTS, WAREHOUSE RECEIPTS, OR OTHER DOCUMENTS OF TITLE OF
THE SAME OR DIFFERENT NATURE RELATING TO THE COLLATERAL; TO SIGN THE NAME OF
ANY OBLIGOR ON ANY NOTICE TO THE
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<PAGE>
DEBTORS OR ON VERIFICATION OF THE COLLATERAL; AND TO SIGN AND FILE OR RECORD
ON BEHALF OF ANY OBLIGOR ANY FINANCING OR OTHER STATEMENT IN ORDER TO PERFECT
OR PROTECT THE LENDER'S SECURITY INTEREST. THE LENDER SHALL NOT BE OBLIGED
TO DO ANY OF THE ACTS OR EXERCISE ANY OF THE POWERS HEREINABOVE AUTHORIZED,
BUT IF THE LENDER ELECTS TO DO ANY SUCH ACT OR EXERCISE ANY SUCH POWER, IT
SHALL NOT BE ACCOUNTABLE FOR MORE THAN IT ACTUALLY RECEIVES AS A RESULT OF
SUCH EXERCISE OF POWER, AND IT SHALL NOT BE RESPONSIBLE TO ANY OBLIGOR EXCEPT
FOR WILLFUL MISCONDUCT IN BAD FAITH. ALL POWERS CONFERRED UPON THE LENDER BY
THIS AGREEMENT, BEING COUPLED WITH AN INTEREST, SHALL BE IRREVOCABLE SO LONG
AS ANY OBLIGATION OF ANY OBLIGOR TO THE LENDER SHALL REMAIN UNPAID.
D. NONEXCLUSIVE REMEDIES. ALL OF THE LENDER'S RIGHTS AND REMEDIES NOT ONLY
UNDER THE PROVISIONS OF THIS AGREEMENT BUT ALSO UNDER ANY OTHER AGREEMENT OR
TRANSACTION SHALL BE CUMULATIVE AND NOT ALTERNATIVE OR EXCLUSIVE, AND MAY BE
EXERCISED BY THE LENDER AT SUCH TIME OR TIMES AND IN SUCH ORDER OF PREFERENCE
AS THE LENDER IN ITS SOLE DISCRETION MAY DETERMINE.
E. REASSIGNMENT TO OBLIGORS. WHENEVER THE LENDER DEEMS IT DESIRABLE THAT
ANY LEGAL ACTION BE INSTITUTED WITH RESPECT TO ANY COLLATERAL OR THAT ANY
OTHER ACTION BE TAKEN IN ANY ATTEMPT TO EFFECTUATE COLLECTION OF ANY
COLLATERAL, THE LENDER MAY REASSIGN THE ITEM IN QUESTION TO THE RESPECTIVE
OBLIGOR (AND IF THE LENDER SHALL EXECUTE ANY SUCH REASSIGNMENT, IT SHALL
AUTOMATICALLY BE DEEMED TO BE WITHOUT RECOURSE TO THE LENDER IN ANY EVENT)
AND REQUIRE SUCH OBLIGOR TO PROCEED WITH SUCH LEGAL OR OTHER ACTION AT SUCH
OBLIGOR'S SOLE LIABILITY, COST AND EXPENSE, IN WHICH EVENT ALL AMOUNTS
COLLECTED BY SUCH OBLIGOR ON SUCH ITEM SHALL NEVERTHELESS BE SUBJECT TO THE
LENDER'S SECURITY INTEREST.
MISCELLANEOUS
A. WAIVERS. EACH OBLIGOR WAIVES NOTICE OF NONPAYMENT, DEMAND, PRESENTMENT,
PROTEST OR NOTICE OF PROTEST OF THE COLLATERAL, AND ALL OTHER NOTICES,
CONSENTS TO ANY RENEWALS OR EXTENSIONS OF TIME OF PAYMENT THEREOF, AND
GENERALLY WAIVES ANY AND ALL SURETYSHIP DEFENSES AND DEFENSES IN THE NATURE
THEREOF.
B. SEVERABILITY. IF ANY PROVISION OF THIS AGREEMENT OR PORTION OF SUCH
PROVISION OR THE APPLICATION THEREOF TO ANY PERSON OR CIRCUMSTANCE SHALL TO
ANY EXTENT BE HELD INVALID OR UNENFORCEABLE, THE REMAINDER OF THIS AGREEMENT
(OR THE REMAINDER OF SUCH PROVISION) AND THE APPLICATION THEREOF TO OTHER
PERSONS OR CIRCUMSTANCES SHALL NOT BE AFFECTED THEREBY.
C. SET-OFF. ANY DEPOSITS, BALANCES OR OTHER SUMS CREDITED BY OR DUE FROM
THE LENDER OR ANY OF ITS AFFILIATES TO ANY OBLIGOR AND ANY SECURITY OR OTHER
PROPERTY OF
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<PAGE>
ANY OBLIGOR IN THE POSSESSION OF THE LENDER, WHETHER FOR SAFEKEEPING OR
OTHERWISE, MAY, AT ANY TIME WHETHER OR NOT AN EVENT OF DEFAULT HAS OCCURRED
OR DEMAND HAS BEEN MADE, WITHOUT NOTICE TO ANY OBLIGOR, OR COMPLIANCE WITH
ANY OTHER CONDITION PRECEDENT NOW OR HEREAFTER IMPOSED BY STATUTE, RULE OF
LAW, OR OTHERWISE (ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED) BE SET OFF,
APPROPRIATED AND APPLIED BY LENDER AGAINST ANY AND ALL OF THE OBLIGATIONS IN
SUCH MANNER AS THE LENDER IN ITS SOLE DISCRETION MAY DETERMINE.
D. INDEMNIFICATION. EACH OBLIGOR SHALL INDEMNIFY, DEFEND AND HOLD THE
LENDER HARMLESS OF AND FROM ANY CLAIM BROUGHT OR THREATENED AGAINST THE
LENDER BY SUCH OBLIGOR, ANY GUARANTOR OR ENDORSER OF THE OBLIGATIONS, OR ANY
OTHER PERSON (AS WELL AS FROM ATTORNEYS' REASONABLE FEES AND EXPENSES IN
CONNECTION THEREWITH) ON ACCOUNT OF THE LENDER'S RELATIONSHIP WITH ANY
OBLIGOR, OR ANY GUARANTOR OR ENDORSER OF THE OBLIGATIONS (EACH OF WHICH MAY
BE DEFENDED, COMPROMISED, SETTLED OR PURSUED BY THE LENDER WITH COUNSEL OF
THE LENDER'S ELECTION, BUT AT THE EXPENSE OF THE OBLIGORS), EXCEPT FOR ANY
CLAIM ARISING OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
LENDER. THE WITHIN INDEMNIFICATION SHALL SURVIVE PAYMENT OF THE OBLIGATIONS,
AND/OR ANY TERMINATION, RELEASE OR DISCHARGE EXECUTED BY THE LENDER IN FAVOR
OF ANY OBLIGOR.
E. COSTS AND EXPENSES. EACH OBLIGOR SHALL PAY TO THE LENDER ANY AND ALL
COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS'
FEES, COURT COSTS, LITIGATION AND OTHER EXPENSES) INCURRED OR PAID BY THE
LENDER IN ESTABLISHING, MAINTAINING, PROTECTING OR ENFORCING ANY OF THE
LENDER'S RIGHTS OR THE OBLIGATIONS, INCLUDING, WITHOUT LIMITATION, ANY AND
ALL SUCH COSTS AND EXPENSES INCURRED OR PAID BY THE LENDER IN DEFENDING THE
LENDER'S SECURITY INTEREST IN, TITLE OR RIGHT TO THE COLLATERAL OR IN
COLLECTING OR ATTEMPTING TO COLLECT OR ENFORCING OR ATTEMPTING TO ENFORCE
PAYMENT OF THE COLLATERAL.
F. COUNTERPARTS. THIS AGREEMENT MAY BE EXECUTED IN TWO OR MORE
COUNTERPARTS, EACH OF WHICH SHALL BE AN ORIGINAL, BUT ALL OF WHICH SHALL
CONSTITUTE BUT ONE AGREEMENT.
G. BINDING EFFECT OF AGREEMENT. THIS AGREEMENT SHALL BE BINDING UPON AND
INURE TO THE BENEFIT OF THE RESPECTIVE HEIRS, EXECUTORS, ADMINISTRATORS,
LEGAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS OF THE PARTIES HERETO, AND
SHALL REMAIN IN FULL FORCE AND EFFECT (AND THE LENDER SHALL BE ENTITLED TO
RELY THEREON) UNTIL TERMINATED AS TO FUTURE TRANSACTIONS BY WRITTEN NOTICE
FROM EITHER PARTY TO THE OTHER PARTY OF THE TERMINATION HEREOF; PROVIDED THAT
ANY SUCH TERMINATION SHALL NOT RELEASE OR AFFECT ANY COLLATERAL IN WHICH THE
LENDER ALREADY HAS A SECURITY INTEREST OR ANY OBLIGATIONS INCURRED OR RIGHTS
ACCRUED HEREUNDER PRIOR TO THE EFFECTIVE DATE OF SUCH NOTICE (AS HEREINAFTER
DEFINED) OF SUCH TERMINATION.
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NOTWITHSTANDING ANY SUCH TERMINATION, THE LENDER SHALL HAVE A SECURITY
INTEREST IN ALL COLLATERAL TO SECURE THE PAYMENT AND PERFORMANCE OF
OBLIGATIONS ARISING AFTER SUCH TERMINATION AS A RESULT OF COMMITMENTS OR
UNDERTAKINGS MADE OR ENTERED INTO BY THE LENDER PRIOR TO SUCH TERMINATION.
THE LENDER MAY, WITH THE PRIOR WRITTEN APPROVAL OF BORROWER (WHICH SHALL NOT
BE UNREASONABLY WITHHELD OR DELAYED), TRANSFER AND ASSIGN THIS AGREEMENT AND
DELIVER THE COLLATERAL TO THE ASSIGNEE, WHO SHALL THEREUPON HAVE ALL OF THE
RIGHTS OF THE LENDER; AND THE LENDER SHALL THEN BE RELIEVED AND DISCHARGED OF
ANY RESPONSIBILITY OR LIABILITY WITH RESPECT TO THIS AGREEMENT AND THE
COLLATERAL. THE LENDER MAY, WITH THE PRIOR WRITTEN APPROVAL OF BORROWER
(WHICH SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED), GRANT A PARTICIPATION
INTEREST WHICH SHALL NOT RELIEVE THE LENDER OF ANY OBLIGATIONS OR LIABILITY
HEREUNDER WITH RESPECT TO THE MAKING OF LOANS, AND (ii) NOTWITHSTANDING THE
GRANT OF ANY SUCH PARTICIPATION INTEREST, THE BORROWER AND THE OTHER OBLIGORS
MAY LOOK SOLELY TO THE LENDER AS THE AGENT FOR ALL PARTICIPANTS FOR PURPOSES
OF OBTAINING THE CONSENT, WAIVER OR AGREEMENT OF LENDER TO ANY ACTION OR
AMENDMENT OF THE LOAN DOCUMENTS AND FOR PURPOSES OF THE DELIVERY OF NOTICE
THEREUNDER.
H. FURTHER ASSURANCES. EACH OBLIGOR WILL FROM TIME TO TIME EXECUTE AND
DELIVER TO THE LENDER, AND TAKE OR CAUSE TO BE TAKEN, ALL SUCH OTHER FURTHER
ACTION AS THE LENDER MAY REQUEST IN ORDER TO EFFECT AND CONFIRM OR VEST MORE
SECURELY IN THE LENDER ALL RIGHTS CONTEMPLATED OR TO VEST MORE FULLY IN OR
ASSURE TO THE LENDER THE SECURITY INTEREST IN THE COLLATERAL GRANTED TO THE
LENDER BY THIS AGREEMENT OR TO COMPLY WITH APPLICABLE STATUTE OR LAW AND TO
FACILITATE THE COLLECTION OF THE COLLATERAL.
I. AMENDMENTS AND WAIVERS. THIS AGREEMENT MAY BE AMENDED AND ANY OBLIGOR
MAY TAKE ANY ACTION HEREIN PROHIBITED, OR OMIT TO PERFORM ANY ACT HEREIN
REQUIRED TO BE PERFORMED BY IT, IF SUCH OBLIGOR SHALL OBTAIN THE LENDER'S
PRIOR WRITTEN CONSENT TO EACH SUCH AMENDMENT, ACTION OR OMISSION TO ACT. NO
DELAY OR OMISSION ON THE PART OF LENDER IN EXERCISING ANY RIGHT HEREUNDER
SHALL OPERATE AS A WAIVER OF SUCH RIGHT OR ANY OTHER RIGHT AND WAIVER ON ANY
ONE OR MORE OCCASIONS SHALL NOT BE CONSTRUED AS A BAR TO OR WAIVER OF ANY
RIGHT OR REMEDY OF LENDER ON ANY FUTURE OCCASION.
J. TERMS OF AGREEMENT. THIS AGREEMENT SHALL CONTINUE IN FORCE AND EFFECT
SO LONG AS ANY OBLIGATIONS OR OBLIGATION OF ANY OBLIGOR TO LENDER SHALL BE
OUTSTANDING AND IS SUPPLEMENTARY TO EACH AND EVERY OTHER AGREEMENT BETWEEN
ANY OBLIGOR AND LENDER AND SHALL NOT BE SO CONSTRUED AS TO LIMIT OR OTHERWISE
DEROGATE FROM ANY OF THE RIGHTS OR REMEDIES OF LENDER OR ANY OF THE
LIABILITIES, OBLIGATIONS OR UNDERTAKINGS OF ANY OBLIGOR UNDER ANY SUCH
AGREEMENT, NOR SHALL ANY CONTEMPORANEOUS OR SUBSEQUENT AGREEMENT BETWEEN ANY
OBLIGOR AND THE
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<PAGE>
LENDER BE CONSTRUED TO LIMIT OR OTHERWISE DEROGATE FROM ANY OF THE RIGHTS OR
REMEDIES OF LENDER OR ANY OF THE LIABILITIES, OBLIGATIONS OR UNDERTAKINGS OF
ANY OBLIGOR HEREUNDER, UNLESS SUCH OTHER AGREEMENT SPECIFICALLY REFERS TO
THIS AGREEMENT AND EXPRESSLY SO PROVIDES.
K. NOTICES. ANY NOTICES UNDER OR PURSUANT TO THIS AGREEMENT SHALL BE
DEEMED DULY RECEIVED AND EFFECTIVE IF DELIVERED IN HAND TO ANY OFFICER OF
AGENT OF ANY OBLIGOR OR LENDER, OR IF MAILED BY REGISTERED OR CERTIFIED MAIL,
RETURN RECEIPT REQUESTED, ADDRESSED TO ANY OBLIGOR OR LENDER AT ADDRESS SET
FORTH IN THIS AGREEMENT OR AS ANY PARTY MAY FROM TIME TO TIME DESIGNATE BY
WRITTEN NOTICE TO THE OTHER PARTY, ON THE THIRD BUSINESS DAY AFTER SUCH
MAILING.
L. MASSACHUSETTS LAW. THIS AGREEMENT IS INTENDED TO TAKE EFFECT AS A
SEALED INSTRUMENT AND HAS BEEN EXECUTED OR COMPLETED AND IS TO BE PERFORMED
IN MASSACHUSETTS, AND IT AND ALL TRANSACTIONS THEREUNDER OR PURSUANT THERETO
SHALL BE GOVERNED AS TO INTERPRETATION, VALIDITY, EFFECT, RIGHTS, DUTIES AND
REMEDIES OF THE PARTIES THEREUNDER AND IN ALL OTHER RESPECTS BY THE DOMESTIC
LAWS OF MASSACHUSETTS.
M. REPRODUCTIONS. THIS AGREEMENT AND ALL DOCUMENTS WHICH HAVE BEEN OR MAY
BE HEREINAFTER FURNISHED BY ANY OBLIGOR TO THE LENDER MAY BE REPRODUCED BY
THE LENDER BY ANY PHOTOGRAPHIC, PHOTOSTATIC, MICROFILM, XEROGRAPHIC OR
SIMILAR PROCESS, AND ANY SUCH REPRODUCTION SHALL BE ADMISSIBLE IN EVIDENCE AS
THE ORIGINAL ITSELF IN ANY JUDICIAL OR ADMINISTRATIVE PROCEEDING (WHETHER OR
NOT THE ORIGINAL IS IN EXISTENCE AND WHETHER OR NOT SUCH REPRODUCTION WAS
MADE IN THE REGULAR COURSE OF BUSINESS).
N. VENUE. EACH OBLIGOR IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF ANY FEDERAL OR STATE COURT SITTING IN MASSACHUSETTS, OVER ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH
OBLIGOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO
UNDER APPLICABLE LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT AND ANY CLAIM THAT THE SAME HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. EACH OBLIGOR IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF THE
COMMONWEALTH OF MASSACHUSETTS AS ITS AUTHORIZED AGENT TO ACCEPT AND
ACKNOWLEDGE ON ITS BEHALF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH
SUIT, ACTION OR PROCEEDING, CONSENTS TO SUCH PROCESS BEING SERVED (i) BY
MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID,
RETURN RECEIPT REQUESTED TO SUCH OBLIGOR AND (ii) BY SERVING THE SAME UPON
SUCH AGENT, AND AGREES THAT SUCH SERVICE SHALL IN EVERY RESPECT BE DEEMED
EFFECTIVE SERVICE UPON SUCH OBLIGOR.
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O. JURY WAIVER. EACH OBLIGOR AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY, AND AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, WAIVE
ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING IN
CONNECTION WITH THIS AGREEMENT, THE OBLIGATIONS, ALL MATTERS CONTEMPLATED
HEREBY AND DOCUMENTS EXECUTED IN CONNECTION HEREWITH. EACH OBLIGOR CERTIFIES
THAT NEITHER THE LENDER NOR ANY OF ITS REPRESENTATIVES, AGENTS OR COUNSEL HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT IN THE EVENT
OF ANY SUCH PROCEEDING SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY JURY.
[INTENTIONALLY LEFT BLANK]
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Witness Obligor:
SeraCare, Inc.
- ---------------------------- By: /s/ Barry D. Plost
-----------------------------------
Barry D. Plost, Chairman and CEO
Avre, Inc.
- ---------------------------- By: /s/ Barry D. Plost
-----------------------------------
Barry D. Plost, Chairman and CEO
Binary Associates, Inc.
- ----------------------------- By: /s/ Barry D. Plost
-----------------------------------
Barry D. Plost, Chairman and CEO
SeraCare Acquisitions, Inc.
- ----------------------------- By: /s/ Barry D. Plost
-----------------------------------
Barry D. Plost, Chairman and CEO
BHM Labs, Inc.
- ----------------------------- By: /s/ Barry D. Plost
-----------------------------------
Barry D. Plost, Chairman and CEO
SeraCare Technology, Inc.
- ----------------------------- By: /s/ Barry D. Plost
-----------------------------------
Barry D. Plost, Chairman and CEO
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Western States Group, Inc.
- ----------------------------- By: /s/ Barry D. Plost
-----------------------------------
Barry D. Plost, Chairman and CEO
Accepted: Brown Brothers Harriman & Co.
By: /s/ Joseph E. Hall
-------------------------
Name: Joseph E. Hall
Title: Deputy Manager
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EXHIBIT B
COVENANT COMPLIANCE CERTIFICATE
The undersigned hereby certifies to Brown Brothers Harriman & Co.
("Brown Brothers"), in connection with that certain Revolving Loan and
Security Agreement, dated April ___, 1998 (the "Loan Agreement") among Brown
Brothers and SeraCare, Inc. ("SeraCare"); Avre, Inc. ("Avre"); Binary
Associates, Inc. ("Binary"); SeraCare Acquisitions, Inc. ("Acquisitions");
BHM Labs, Inc. ("BHM"); Sera Care Technology, Inc. ("Technology"); Western
States Group, Inc. ("Western"; and along with the SeraCare, Avre, Binary,
Acquisitions, BHM and Technology, each an "Obligor" and collectively the
"Obligors"), that the undersigned is the duly elected and acting
__________________ of SeraCare, Inc., a California corporation (the
"Corporation"), and that, as of the date hereof (i) each Obligor is, as of
the date of this certificate, in full and complete compliance with each of
the Affirmative Covenants set forth in Section 4 of the Agreement and with
each of the Negative Covenants set forth in Section 5 of the Loan Agreement;
and (ii) there are no existing uncured Events of Default under Section 6 of
the Loan Agreement.
WITNESS my hand and seal as of April ____, 1998.
--------------------------------------
<PAGE>
EXHIBIT A
BORROWING BASE CERTIFICATE
Date:____________
To: Brown Brothers Harriman & Co. (the "Lender") under a certain Loan
and Security Agreement dated April ___, 1998 (the "Loan Agreement"), by and
between the Lender and SeraCare, Inc. (the "Borrower").
Terms used in this certificate shall have the same meaning as ascribed
thereto in the Loan Agreement.
The undersigned officers of the Borrower certify that the information
furnished herein as of ____________________, 19__ is true and correct and
that as of the date hereof no Event of Default, or event which after notice
or lapse of time or both would be an Event of Default under the Loan
Agreement has occurred.
Computation of Borrowing Base
-----------------------------
(a) EBITDA for four trailing fiscal quarters $
-------------
(b) Times 2 200%
(c) Borrowing Value of EBITDA (a x b) $
-------------
(d) Maximum Revolving Loan Amount $10,000,000
(e) Outstanding Revolving Loan Amount $
-------------
(f) Net Amount Available (Due) $
-------------
For Purposes of inducing Brown Brothers Harriman & Co. to grant loans
to us pursuant to the terms of our Agreement dated __________, we hereby
certify that the foregoing statement of our EBDITA is true and correct and
according to the books and records of the Borrower and is available as
acceptable collateral for loans in accordance with the representations and
warranties set forth in the Agreement. The Outstanding Revolving Loan Amount
reflects our indebtedness for advances under the Loan Agreement subject to
changes by Brown Brothers Harriman & Co..
Borrower: SeraCare, Inc.
By: _________________ Date: __________________
Authorized Signer
<PAGE>
SCHEDULE A
All the Debtor's present and future right, title and interest in and
to any and all of the following property, whether such property is now
existing or hereafter created:
(a) all goods including without limitation all inventory, farm
products, equipment, including without limitation machinery, furniture,
trade fixtures;
(b) all accounts, accounts receivable, contract rights and chattel paper,
regardless of whether or not they constitute proceeds of other collateral;
(c) all investment property including without limitation all securities,
whether certificated or uncertificated, all securities entitlements,
securities accounts, commodity contracts or commodity accounts;
(d) all general intangibles, regardless of whether or not they constitute
proceeds of other collateral, including, without limitation, all of the
debtor's rights to tax refunds and all the debtor's rights (which the
secured party may exercise or not as it in its sole discretion may
determine) to acquire or obtain goods and/or services with respect to the
manufacture, processing, storage, sale, shipment, delivery or installation
of any of the debtor's inventory or other collateral:
(e) all products of and accessions to any of the collateral;
(f) all liens, guaranties, securities, rights, remedies and privileges
pertaining to any of the collateral, including the right of stoppage in
transit;
(g) all obligations owing to the debtor of every kind and nature; and all
choses in action;
(h) all goodwill, trade secrets, computer programs, customer lists, trade
names, trademarks and patents;
(i) all documents and instruments (whether negotiable or nonnegotiable,
and regardless of their being attached to chattel paper);
(j) all proceeds of collateral of every kind and nature in whatever form,
including, without limitation, both cash and noncash proceeds resulting or
arising from the rendering of services by the debtor or the sale or other
disposition by the debtor of the inventory or other collateral;
(k) all books and records relating to the conduct of the debtor's business
including, without in any way limiting the generality of the foregoing,
those relating to its accounts; and
(l) all deposit accounts maintained by the debtor with any secured party,
trust Borrower, investment firm or fund, or any similar institution or
organization.
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LANDLORD'S CONSENT AND WAIVER OF LIEN
PREMISES:
TENANT: SeraCare, Inc.
FOR VALUABLE CONSIDERATION, the undersigned, being the owner and landlord
of the above-described premises, hereby waives any claim against or lien upon
the inventory, equipment and proceeds therefrom (and replacements, substitutions
and additions for or to the foregoing), installed or to be installed in the
aforesaid premises in which Brown Brothers Harriman & Co. (the "Lender"), its
successors or assigns, now or hereafter holds a security interest.
The landlord further agrees to interpose no objections to the entry by the
Lender, its successors and assigns, upon said premises for the purpose of
removing and/or liquidating its collateral in the event of default by the tenant
in its obligations to the Lender, provided that (a) the Lender restores any
walls, windows, doors, partitions, roofs, floors or other parts of the premises
damaged by it in the course of removal to their condition at the time of the
Lender's entry into possession, (b) the Lender pays the landlord rent on a per
diem basis at the same rate as the tenant for the period of its occupancy, such
rent to be paid in arrears on the thirtieth (30th) day after the Lender's entry
into possession, and (c) the Lender completes such removal and liquidation
within ninety (90) days of the Lender's entry into possession. The undersigned
agrees that upon the Lender taking possession of the premises that the Lender's
only obligation shall be the payment of the aforementioned sums and no amount
that may be due to the undersigned from tenant shall in any way be chargeable to
the Lender or against the collateral of the Lender.
The landlord represents that a true and correct copy of the lease of said
premises is attached hereto and acknowledges that there are currently no uncured
defaults on the part of the tenant. The landlord agrees to give the Lender a
copy of any notice of default given to the tenant under the lease and of any
notice terminating the rights of the tenant hereunder. The landlord agrees that
the Lender shall have the right for a period of thirty (30) days after receipt
of such notice to either (a) enter into possession for the purpose of removing
and liquidating its collateral in accordance with the preceding paragraph, or
(b) cure any default which can be cured by the payment or expenditure of money
and thereupon to assume all of the obligations and rights of the tenant under
the lease in the Lender's discretion for a period of three (3) months or for the
unexpired term of the lease, the assumption by the Lender and period of the
Lender's tenancy to be set forth in writing to landlord within thirty (30) days
of the Lender's entry on the premises.
The acceptance of such rents or other sums from the Lender will not bar the
landlord's rights against the tenant under the lease.
SIGNED and SEALED on behalf of the successors and assigns of the
undersigned as of April ____, 1998.
<PAGE>
Witness Landlord:
- ------------------------------- By: ------------------------------
Name:
Title:
2
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EXHIBIT 4.11
SUBORDINATION AGREEMENT
This AGREEMENT entered into at Boston, Massachusetts, as of April 24, 1998,
between the undersigned holders of the 12% Senior Subordinated Debentures due
2005 of SeraCare, Inc. (each a "Creditor", and collectively, the "Creditors"),
and Brown Brothers Harriman & Co., a New York General Partnership with an
address of 40 Water Street, Boston, Massachusetts 02109 (the "Lender").
For valuable consideration, receipt whereof is hereby acknowledged, and in
consideration of the loans, advances, discounts, renewals or extensions now or
hereafter made each by Lender to or for the account of SeraCare, Inc.
(hereinafter called the "Borrower"), each Creditor hereby agrees with the Lender
as follows:
1. Creditor represents to the Lender that the Borrower now owes Creditor
the principal amount of $16,000,000, together with accrued and unpaid
interest, fees and expenses (the "Debenture Indebtedness") and that
the Debenture Indebtedness has not been assigned to or subordinated in
favor of any other person or entity and that Creditor holds no
security therefor. Creditor further represents that the Debenture
Indebtedness is not represented by any notes or other negotiable
instruments, except that certain 12% Senior Subordinated Debenture,
dated February 13, 1998 (the "Debenture") by the Borrower in favor of
the Creditor which contains a legend indicating that the Debenture is
subordinate to the obligations owing by Borrower to Lender. Creditor
and, by its acknowledgment and agreement below, Borrower agree that if
at any time the Debenture Indebtedness is evidenced by any notes,
debentures, or instruments other than the Debenture, Creditor and
Borrower shall cause such notes, debentures, or instruments to contain
a legend substantially similar to the legend contained on the
Debenture.
2. Creditor hereby subordinates all present and future indebtedness of
the Borrower to Creditor (collectively, the "Pecks Indebtedness") to
any and all indebtedness now or hereafter owing by the Borrower to the
Lender (collectively, the "Lender Indebtedness") and agrees not to
demand, accept or receive any payment of principal or interest upon
account of the Pecks Indebtedness or any collateral therefor, until
all Lender Indebtedness has been paid in full, except for regularly
scheduled payments of principal and interest respecting the Pecks
Indebtedness, provided there is no existing event of default
continuing under Lender Indebtedness. Creditor will not commence or
join with any other creditor or creditors of Borrower in commencing
any bankruptcy, reorganization or insolvency proceedings against
Borrower. Creditor also subordinates any claims that Creditor might
assert against any guarantor of the Pecks Indebtedness to any and all
claims assertable by the Lender against guarantors of the Lender
Indebtedness.
3. Subject to the Lender's priority of liens in the Lender's collateral
securing the Lender Indebtedness, nothing in this Agreement shall
prohibit Creditor from taking action (except to commence or join with
any other creditor or creditors of Borrower in commencing any
bankruptcy, reorganization or insolvency proceedings against Borrower)
to enforce its rights under the Pecks Indebtedness after expiration of
the Standstill Period (as hereinafter defined) so long as there is no
existing uncured event of default involving the payment of money under
the Pecks
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Indebtedness. "Standstill Period" shall mean the period of
time commencing with the date on which Lender notifies Creditor that
an event of default has occurred under the Lender Indebtedness,
provided that such event of default has not been cured or waived, and
expiring one hundred and eighty (180) days after the notice to Lender.
If, during the Standstill Period, the default under the Lender
Indebtedness is cured or waived, the Standstill Period shall cease
running, and a new Standstill Period shall commence running when
Lender gives notice that an additional event of default has occurred
under the Lender Indebtedness. The Standstill Period shall be tolled
during any period of time that there is in effect an automatic stay
under the Bankruptcy Code or an injunction or restraining order issued
by a court prohibiting Lender from exercising its remedies, until a
court of competent jurisdiction has lifted such stay, injunction, or
restraint.
4. Subject to the terms of paragraph 2 of this Agreement, should any
payment be received by Creditor for or on account of any of the Pecks
Indebtedness, prior to the satisfaction of all Lender Indebtedness,
Creditor will forthwith deliver the same to the Lender, in precisely
the form received (except for Creditor's endorsement where necessary)
for application on account of the Borrower's obligations to the Lender
and, until so delivered, the same shall be held in trust by Creditor
as the property of the Lender.
5. In order to carry out the terms and the intent of this agreement more
effectively, Creditor will do all acts and execute all further
instruments reasonably requested by the Lender as necessary or
convenient to preserve for the Lender the benefit of this
Subordination Agreement.
6. Creditor further waives presentment, notice and protest in connection
with all negotiable instruments evidencing the indebtedness
subordinated hereby or Borrower's indebtedness to Lender, notice of
the acceptance of this agreement by Lender, notice of any loan made,
extension granted or other action taken in reliance hereon and all
demands and notices of every kind in connection with this agreement,
or the indebtedness of Borrower to Lender or to Creditor; assents to
any renewal, extension or postponement of the time of payment of the
Lender Indebtedness or any other indulgence with respect thereto, to
any substitution, exchange or release of collateral therefor and to
the addition or release of any person primarily or secondarily liable
thereon; and agrees to the provisions of any instrument, security or
other writing evidencing the Lender Indebtedness. No action which the
Lender, or the Borrower with the consent of the Lender, may take or
refrain from taking with respect to any Lender Indebtedness, or any
note or notes representing the same, or any collateral therefor,
including a waiver or release thereof or any agreement or agreements
(including guaranties) in connection therewith, shall affect this
agreement or the obligations of Creditor hereunder. If all Lender
Indebtedness is at any time hereafter paid in full and thereafter
Borrower again becomes indebted to the Lender, the provisions of this
agreement shall apply to said new indebtedness unless, before the same
is incurred, Creditor notifies the Lender in writing of the
cancellation of this agreement.
7. No waiver shall be deemed to be made by Lender of any of its rights
hereunder unless the same shall be in writing and shall be a waiver
only with respect to the specific instance involved unless otherwise
provided for in such waiver; and it shall in no way impair Lender's
rights or Creditor's obligations to it in any other respect or any
other time. This Subordination Agreement incorporates all discussions
and negotiations between Creditor and Lender concerning the
subordination provided by Creditor hereby, and no such discussions or
negotiations shall limit, modify or otherwise affect the provisions
hereof, and no provision hereof may be altered, amended, waived,
canceled or modified, except by a written instrument executed and
delivered by a duly authorized officer of Lender.
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8. The rights granted to the Lender hereunder are solely for its
protection and nothing herein contained shall impose on the Lender any
duties with respect to any property of the Borrower or Creditor
received hereunder, beyond reasonable care in its custody and
preservation while in the Lender's possession. The Lender shall have
no duty to preserve rights against prior parties in any instrument or
chattel paper received hereunder or pursuant to this agreement.
9. In the event of a conflict between the terms of this Agreement and the
terms of Section 8 of that certain Securities Purchase Agreement,
dated as of February 13, 1998, among Borrower, Avre, Inc., Binary
Associates, Inc., BHM Labs, Inc., SeraCare Acquisitions, Inc.,
SeraCare Technology, Inc., and the Creditors, the terms of this
Agreement shall govern. This agreement shall bind Creditor and
Creditor's heirs, successors, assigns and legal representatives and
shall inure to the benefit of the Lender and its successors and
assigns, and shall be governed by and construed in conformity with the
laws of the Commonwealth of Massachusetts.
EXECUTED under seal as of the date first above written.
Witness Creditors:
DECLARATION OF TRUST
FOR DEFINED BENEFIT PLANS
OF ZENECA HOLDINGS INC.
DECLARATION OF TRUST
FOR DEFINED BENEFIT PLANS
OF ICI AMERICAN HOLDINGS INC.
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
THE J. W. MCCONNELL FAMILY
FOUNDATION
By: Pecks Management Partners Ltd.,
Its Investment Advisor
- ----------------------------- By: /s/ Robert J. Cresci
-------------------------------------
Robert J. Cresci, General Partner
ACCEPTED: BROWN BROTHERS HARRIMAN & CO.
By: /s/ Joseph E. Hall
----------------------------
Joseph E. Hall, Deputy Manager
5
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The Borrower above named hereby acknowledges notice of the within and
foregoing subordination and agrees to be bound by all the terms, provisions and
conditions thereof.
Witness Borrower:
- ----------------------------- By: /s/ Barry D. Plost
-------------------------------------
Barry D. Plost, Chairman and CEO
6
<PAGE>
EXHIBIT 4.12
A. BORROWING AND AGENCY AGREEMENT
April 24, 1998
Brown Brothers Harriman & Co.
40 Water Street, Boston
Massachusetts 02109
Gentlemen:
The undersigned, SeraCare, Inc., a California Corporation, with an
address of 1925 Century Park East, Suite 1970, Los Angeles, California 90067
("SeraCare"), Avre, Inc., a Nevada corporation, with an address of 3529 W.
McDowell, Phoenix, Arizona 85029 ("Avre"); Binary Associates, Inc., a
Colorado corporation with an address of 1925 Century Park East, Suite 1970,
Los Angeles, California 90067("Binary"); SeraCare Acquisitions, Inc., a
Nevada corporation, with an address of 1925 Century Park East, Suite 1970,
Los Angeles, California 90067 ("Acquisitions"); BHM Labs, Inc., an Arkansas
corporation, with an address of 910 N. 32nd Street, Fort Smith, Arizona 85029
("BHM"); Sera Care Technology, Inc., a Nevada corporation, with an address of
2170 Woodward, Austin, Texas 78744 ("Technology"); Western States Group,
Inc., a California corporation, with an address of 131 W. Beech Street, Suite
A, Fallbrook, California 92028 are referred to as the "PRINCIPAL OBLIGORS"
and SeraCare, is referred to in such additional capacity as the "AGENT
BORROWER", have requested that you establish certain loan arrangements with
them (hereinafter the "Loan Arrangements"), and are today executing a
Revolving Loan and Security Agreement, Revolving Term Note and other
documents with Brown Brothers Harriman & Co. (hereinafter the "Lender"),
pursuant to which the Lender will make revolving credit loans, or otherwise
extend credit accommodations to the Principal Obligors, subject to the terms
and conditions therein set forth.
The undersigned request that as a convenience to them, such loans as may
be
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made under the Loan Arrangement be directed to the Agent Borrower which will,
in turn, distribute the proceeds thereof to the Principal Obligors. As an
additional inducement for Lender to establish the Loan Arrangements and to
direct such loans as may be made thereunder to the Agent Borrower, as
described above, each of the undersigned covenants and agrees as follows:
1. Loans and advances under the Loan Arrangement shall be requested
solely by the Agent Borrower as agent for the Principal Obligors. In
connection therewith each Principal Obligor has authorized the Agent Borrower
to execute promissory notes to the Lender from time to time to evidence the
liabilities, obligations and indebtedness of the Principal Obligors to the
Lender. The authority of the Agent Borrower so to request loans on behalf
of, and to bind, the Principal Obligors, shall continue unless and until
Lender actually receives written notice of the termination of such authority,
which notice is signed by the respective Presidents or Treasurers of each of
the Principal Obligors.
2. Any advances which may be made by Lender under the Loan
Arrangements which are directed to the Agent Borrower shall be received by
the Agent Borrower in trust for the Principal Obligors. The Agent Borrower
shall distribute the proceeds of any such advances solely to the Principal
Obligors for such uses as are permitted under the Loan Arrangements. Each
Principal Obligor shall be directly indebted to Lender for each advance
distributed to it by the Agent Borrower as if that amount had been advanced
directly by Lender to the Principal Obligor which received such proceeds. In
addition, the other Principal Obligors shall also be obligated to Lender in
such amount.
3. All advances by Lender to and for each Principal Obligor made
directly to the Agent Borrower under the Loan Agreement shall be based on the
collective Borrowing Base of all Principal Obligors pursuant to the terms of
such Loan Arrangement.
4. All notices to be made by Lender to all Principal Obligors shall be
deemed duly given if they are in writing and addressed to the Agent Borrower
at its address as set forth in the Loan Arrangements, or at any other place
such party may designate by notice in writing in accordance therewith.
5. The Lender shall have no responsibility to inquire as to the
distribution of loans and advances made by Lender through the Agent Borrower
as described herein. The Agent Borrower and each of the Principal Obligors
agrees to indemnify, defend, and to hold Lender harmless of, to, and from any
liability, claim, demand, expense, or loss made against Lender on account of,
or arising out of, the Loan Arrangements, and the Lender's reliance upon loan
requests made by the Agent Borrower.
6. The Lender may issue one monthly statement to the Agent Borrower on
behalf of all of the Principal Obligors, which statement shall cover all of
the loans and advances made by Lender through the Agent Borrower as described
herein and shall be deemed correct and accepted by the Agent Borrower and
each of the Principal Obligors, unless Lender is
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provided within fifteen (15) days of the receipt of that statement by Agent
Borrower with written notice by the Agent Borrower of exceptions with respect
to that monthly statement. Such notice shall set forth, with reasonable
particularity, the reasons for such exceptions.
7. In consideration of the continuance of the mutually beneficial
business relationships of the Principal Obligors, and to induce the Lender to
enter into the Loan Arrangements, each of the Principal Obligors hereby
agrees to guarantee the payment when due of the other Principal Obligors'
indebtedness to the Lender from time to time outstanding in accordance with
the terms of that certain Cross-Guaranty Agreement, of even date herewith, by
the Principal Obligors in favor of the Lender.
8. If any term or provision of this Agreement, or the application
thereof to any person or circumstance, shall to any extent be invalid or
unenforceable, the remainder of this Agreement, or the application of such
terms or provisions to persons or circumstances other than those as to which
it is invalid or unenforceable, shall not be affected thereby, and each term
and provisions of this Agreement shall be valid and be enforced to the
fullest extent permitted by law.
[INTENTIONALLY LEFT BLANK]
9
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Very truly yours,
PRINCIPAL OBLIGORS:
SeraCare, Inc.
- ---------------------- By: /s/ Barry D. Plost
--------------------------------
Barry D. Plost, Chairman and CEO
Avre, Inc.
- ---------------------- By: /s/ Barry D. Plost
--------------------------------
Barry D. Plost, Chairman and CEO
Binary Associates, Inc.
- ---------------------- By: /s/ Barry D. Plost
------------------------------------
Barry D. Plost, Chairman and CEO
SeraCare Acquisitions, Inc.
- ---------------------- By: /s/ Barry D. Plost
------------------------------------
Barry D. Plost, Chairman and CEO
BHM Labs, Inc.
- ---------------------- By: /s/ Barry D. Plost
------------------------------------
Barry D. Plost, Chairman and CEO
10
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SeraCare Technology, Inc.
- ---------------------- By: /s/ Barry D. Plost
------------------------------------
Barry D. Plost, Chairman and CEO
Western States Group, Inc.
- ---------------------- By: /s/ Barry D. Plost
------------------------------------
Barry D. Plost, Chairman and CEO
AGENT BORROWER
SeraCare, Inc.
By: /s/ Barry D. Plost
------------------------------------
Barry D. Plost, Chairman and CEO
Accepted: Brown Brothers Harriman & Co.
By: /s/ Joseph E. Hall
--------------------------------
Joseph E. Hall, Deputy Manager
11
<PAGE>
EXHIBIT 4.13
CROSS-GUARANTY AGREEMENT
(Unlimited)
To: Brown Brothers Harriman & Co. (the "Lender")
40 Water Street
Boston, Massachusetts 02109
1. GUARANTY OF PAYMENT AND PERFORMANCE OF OBLIGATIONS. In consideration
of the Lender extending credit or otherwise in its discretion giving time,
financial or banking facilities or accommodations to any one or more of the
undersigned (each a "Customer" with respect to such extensions of credit,
facilities or accommodations), each undersigned hereby unconditionally
guarantees to the Lender (each undersigned being referred to as a "Guarantor"
with respect to its guaranty obligations set forth herein) that (a) each
Customer will duly and punctually pay or perform, at the place specified
therefor or, if no place is specified, at the Lender's Head Office or at the
branch of the Lender where this Guaranty is given, all indebtedness, obligations
and liabilities, direct or indirect, matured or unmatured, primary or secondary,
certain or contingent, of any Customer to the Lender now or hereafter owing or
incurred (including without limitation costs and expenses incurred by the Lender
in attempting to collect or enforce any of the foregoing) which are chargeable
to any Customer either by law or under the terms of the Lender's arrangements
with such Customer, accrued in each case to the date of payment hereunder
(collectively, the "Obligations" and individually, an "Obligation"); (b) if
there is an agreement evidencing or executed and delivered in connection with
any Obligation, each Customer will perform in all other respects strictly in
accordance with the terms thereof; and (c) this Guaranty shall not be affected
by any fraudulent, illegal, or improper act by any customer, nor by the
invalidation (by operation of law or otherwise) of all or any part of the
Obligations of any customer to you. This Guaranty is an absolute, direct,
unconditional and continuing guaranty of the full and punctual payment and
performance by each Customer of the Obligations and not of their collectibility
only and is in no way conditioned upon any requirement that the Lender first
attempt to collect any of the Obligations from any Customer or resort to any
security or any other means of obtaining payment of any of the Obligations which
the Lender now has or may acquire after the date hereof, or upon any other
contingency
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whatsoever. Nothing shall discharge or satisfy the liability of
each Guarantor hereby except the full payment and performance of all of each
customer's debts and obligations to the Lender with interest and cost of
collection. Upon any default by any Customer in the full and punctual payment
and performance of the Obligations, the liabilities and obligations of each
Guarantor hereunder shall, at the option of the Lender, become forthwith due and
payable to the Lender without demand or notice of any nature, all of which are
expressly waived by each Guarantor. Payments by each Guarantor hereunder may be
required by the Lender on any number of occasions.
2. GUARANTORS' FURTHER AGREEMENTS TO PAY. Each Guarantor further agrees,
as the principal obligor and not as a guarantor only, to pay to the Lender
forthwith upon demand, in funds immediately available to the Lender, all costs
and expenses (including court costs and legal expenses) incurred or expended by
the Lender in connection with this Guaranty and the enforcement hereof, together
with interest on amounts recoverable under this Guaranty from the time such
amounts become due until payment at the usual rate charged by the Lender to each
of the undersigned respectively.
3. UNLIMITED LIABILITY OF GUARANTORS. The liability of each Guarantor
hereunder shall be unlimited and shall be joint and several.
4. TERMINATION OF GUARANTY. Except as specifically provided otherwise,
the obligations of each Guarantor under this Guaranty shall continue in full
force and effect until all Obligations are fully paid and performed. This
Guaranty may be terminated as to any Guarantor only by giving you sixty (60)
days' prior written notice by registered or certified mail, and thereupon this
Guaranty shall terminate with respect to such Guarantor only at the expiration
of said sixty (60) days period which shall then be the effective date of
termination, and that such termination shall be applicable only to transactions
having their inception after the effective date of termination and shall not
affect rights and obligations arising out of transactions having their inception
prior to such date. The death, termination and dissolution of any Guarantor
shall not effect the termination of this Guaranty as to any other Guarantor.
The termination by any Guarantor or any other Guaranty shall not affect the
continuing liability hereunder of Guarantor. This Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time payment of all or
any part of the obligations guaranteed hereunder is rescinded or otherwise must
be restored by Lender to any Customer or to the creditors of such Customer or
any representative of such Customer or representative of the Customer's
creditor's as a voidable preference or fraudulent conveyance upon the
insolvency, Bankruptcy or reorganization of any Customer, or to
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any Guarantor or to the creditors of any Guarantor or any representative of
any Guarantor or representative of the creditors of any Guarantor upon the
insolvency, Bankruptcy or reorganization of any Guarantor, or otherwise, all
as though such payments had not been made, and in such event this Guaranty
shall survive as an obligation of each Guarantor, notwithstanding any return
of the original of this Guaranty to any Guarantor or Customer or any other
apparent termination of Guarantor's obligations hereunder.
5. SECURITY; SETOFF. Each Guarantor grants to the Lender, as security
for the full and punctual payment and performance of such Guarantor's
obligations hereunder, a continuing lien on and security interest in all
securities or other property belonging to such Guarantor now or hereafter held
by the Lender or any of its lending affiliates, or any Lender acting as a
participant under any loan agreement between any Customer and Lender, and in all
deposits and other sums credited by or due from the Lender or any of its lending
affiliates, or any Lender acting as a participant under any loan agreement
between any Customer and Lender, to such Guarantor or subject to withdrawal by
such Guarantor; and regardless of the adequacy of any collateral or other means
of obtaining repayment of the Obligations, the Lender may at any time and
without notice to such Guarantor set off the whole or any portion or portions of
any or all such deposits and other sums against amounts payable under this
Guaranty, whether or not any other person or persons could also withdraw money
therefrom.
6. LENDER'S FREEDOM TO DEAL WITH CUSTOMERS AND OTHER PARTIES. The Lender
shall be at liberty, without giving notice to or obtaining the assent of any
Guarantor and without relieving any Guarantor of any liability hereunder, to
deal with each Customer and with each other party who now is or after the date
hereof becomes liable in any manner for any of the Obligations, in such manner
as Lender in its sole discretion deems fit, and to this end each Guarantor gives
to the Lender full authority in its sole discretion to do any or all of the
following things: (a) extend credit, make loans and afford other financial
accommodations to any Customer at such times, in such amounts and on such terms
as the Lender may approve, (b) vary the terms and grant extensions or renewals
of any present or future indebtedness or obligation to the Lender of any
customer or of any such other party, (c) grant time, waivers and other
indulgences in respect thereto, (d) vary, exchange, release or discharge,
wholly or partially, or delay in or abstain from perfecting and enforcing any
security or guaranty or other means of obtaining payment of any of the
Obligations which the Lender now has or acquires after the date hereof,
(e) accept partial payments from any Customer or any such other party,
(f) release or discharge, wholly or partially, any endorser or guarantor, and
(g) compromise or make any settlement or other arrangement with any Customer or
any such other party.
14
<PAGE>
7. UNENFORCEABILITY OF OBLIGATIONS AGAINST CUSTOMERS; INVALIDITY OF
SECURITY OR OTHER GUARANTIES. If for any reason a Customer has no legal
existence or is under no legal obligation to discharge any of the Obligations
undertaken or purported to be undertaken by it or on its behalf, or if any of
the moneys included in the Obligations are not recoverable from any Customer by
operation of law or for any other reason, this Guaranty shall nevertheless be
binding on each Guarantor to the same extent as if such Guarantor at all times
had been the principal debtor on all such Obligations. This Guaranty shall be
in addition to any other guaranty or other security for the Obligations, and it
shall not be prejudiced or rendered unenforceable by the invalidity of any such
other guaranty or security.
8. WAIVERS BY GUARANTORS. Each Guarantor waives: notice of acceptance
thereof, presentment and protest of any instrument, and notice thereof; notice
of default; notice of any action taken or omitted by the Lender in reliance
hereon, and any requirement that the Lender be diligent or prompt in making
demands hereunder, giving notice of any default by any Customer or asserting any
other right of the Lender hereunder. Each Guarantor also irrevocably waives, to
the fullest extent permitted by law, all defenses which at any time may be
available in respect of such Guarantor's obligations hereunder by virtue of any
homestead exemption, statute of limitations, valuation, stay, moratorium law or
other similar law now or hereafter in effect.
9. NO CONTEST WITH LENDER. No Guarantor will, by paying any sum
recoverable hereunder (whether or not demanded by the Lender) or by any means or
on any other ground, claim any setoff or counterclaim against any Customer in
respect of any liability of such Guarantor to such Customer or, in proceedings
under the Bankruptcy Act or insolvency proceedings of any nature, prove in
competition with the Lender in respect of any payment hereunder or be entitled
to have the benefit of any counterclaim or proof of claim or dividend or payment
by or on behalf of any Customer or the benefit of any other security for any
Obligation which, now or hereafter, the Lender may hold or in which it may have
any share.
10. BANKRUPTCY. If any Customer or Guarantor or any other guarantor
should at any time become insolvent or make a general assignment, or if a
petition in Bankruptcy or any insolvency or reorganization proceedings shall be
filed or commenced by, against or in respect of any Customer or Guarantor, or
any other guarantor, any and all obligations of each Guarantor shall, at your
option, forthwith become due and payable without notice.
15
<PAGE>
11. LENDER'S RECORDS. The Lender's books and records showing the account
between you and any Customer shall be admissible in any action or proceeding,
shall be binding upon each Guarantor for the purpose of establishing the items
therein set forth and shall constitute prima facie proof thereof.
12. DEMANDS AND NOTICES. Any demand on or notice to any Guarantor shall
be in writing and shall be effective when handed to such Guarantor or left at or
mailed or sent by telegraph to such Guarantor's usual or last-known address.
13. AMENDMENTS, WAIVERS, ETC. Except as otherwise provided in paragraph 4
of this Guaranty, no provision of this Guaranty can be changed, waived,
discharged or terminated except by an instrument in writing signed by the Lender
and the Guarantor to be affected by the same, expressly referring the provision
of this Guaranty to which such instrument relates; and no such waiver shall
extend to, affect or impair any right with respect to any Obligation which is
not expressly dealt with therein. No course of delaying or delay or omission on
the part of the Lender in exercising any right shall operate as a waiver thereof
or otherwise be prejudicial thereto.
14. MISCELLANEOUS PROVISIONS. Rights and remedies available to Lender
under this Guaranty are cumulative, and not exclusive of any rights and
remedies otherwise available to Lender. Lender's delay or omission by Lender
in exercising any of its rights and remedies shall not constitute a waiver of
these rights and remedies, nor shall Lender's waiver of any right or remedy
operate as a waiver of any other right or remedy available to Lender.
Lender's waiver of any right or remedy on any one occasion shall not be
considered a waiver of same on any subsequent occasion, nor shall it be
considered to be a continuing waiver. This Guaranty incorporates all
discussions and negotiations between Lender and each Guarantor concerning the
guaranty and indemnification provided by the undersigned hereby, and that no
such discussions or negotiations shall limit, modify, or otherwise affect the
provisions hereof, and that no provision hereof may be altered, amended,
waived, canceled or modified, except by a written instrument executed,
sealed, and acknowledged by a duly authorized officer of the Lender. This
Guaranty and all documents which have been or may be hereinafter furnished by
each Guarantor to Lender may be reproduced by Lender by any photographic,
photostatic, microfilm, xerographic, or similar process, and that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course
of business).
16
<PAGE>
This Guaranty, all acts and transactions hereunder, and the rights and
obligations of the parties hereto shall be governed, construed and interpreted
according to the laws of the Commonwealth of Massachusetts, shall be binding
upon the heirs, executors, administrators, successors and assigns of each
Guarantor and shall inure to the benefit of Lender's successors and assigns.
If any provision of this Guaranty is found to be invalid, illegal or
unenforceable, the validity of the remainder of the Guaranty shall not be
affected.
JURY WAIVER. EACH GUARANTOR AND LENDER HEREBY WAIVE ANY AND ALL RIGHTS TO
A TRIAL BY JURY IN ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS GUARANTY,
THE OBLIGATIONS, IN ALL MATTERS CONTEMPLATED HEREBY AND DOCUMENTS EXECUTED IN
CONNECTION HEREWITH.
[INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Guaranty or have
caused this Guaranty to be executed on their behalf by an officer or other
person thereunto duly authorized under seal as of the 24th day of April, 1998.
18
<PAGE>
SeraCare, Inc.
- ----------------------------- By: /s/ Barry D. Plost
------------------------------------
Barry D. Plost, Chairman and CEO
Avre, Inc.
- ----------------------------- By: /s/ Barry D. Plost
------------------------------------
Barry D. Plost, Chairman and CEO
Binary Associates, Inc.
- ----------------------------- By: /s/ Barry D. Plost
------------------------------------
Barry D. Plost, Chairman and CEO
SeraCare Acquisitions, Inc.
- ----------------------------- By: /s/ Barry D. Plost
------------------------------------
Barry D. Plost, Chairman and CEO
BHM Labs, Inc.
- ----------------------------- By: /s/ Barry D. Plost
------------------------------------
Barry D. Plost, Chairman and CEO
SeraCare Technology, Inc.
- ----------------------------- By: /s/ Barry D. Plost
------------------------------------
Barry D. Plost, Chairman and CEO
Western States Group, Inc.
- ----------------------------- By: /s/ Barry D. Plost
------------------------------------
19
<PAGE>
Barry D. Plost, Chairman and CEO
20
<PAGE>
EXHIBIT 4.14
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS WARRANT
OR THE SHARES PURCHASABLE HEREUNDER SHALL BE MADE EXCEPT PURSUANT TO
REGISTRATION UNDER THE SECURITIES ACT, AND APPLICABLE STATE SECURITIES LAWS, OR
PURSUANT TO AN EXEMPTION THEREFROM UNDER SUCH ACT AND SUCH STATE LAWS AND THE
RESPECTIVE RULES AN REGULATIONS THEREUNDER.
--------------------------------------------
WARRANT TO PURCHASE COMMON STOCK OF
SERACARE, INC.
--------------------------------------------
Exercisable as of the
Commencement Date
(as defined below)
Void After
the Expiration Date
(as defined below)
1
THIS CERTIFIES that, for value received, Brown Brothers Harriman &
Co., or registered assigns, is entitled, subject to the terms and conditions
set forth in this Warrant, to purchase from SERACARE, INC., a Delaware
corporation (the "Company"), subject to adjustment as provided in paragraph 3
of this Warrant, 13,793 fully paid and nonassessable shares of Common Stock,
par value $.001 per share, of the Company (the "Common Stock"), at any time
commencing on the date hereof (the "Commencement Date") and continuing up to
5:00 p.m. New York time on the fifth anniversary of the date hereof (the
"Expiration Date"), at a price of $.01 per share (the "Exercise Price").
21
<PAGE>
This Warrant is subject to the following provisions:
SECTION 1. EXERCISE OF WARRANT
This Warrant may be exercised by the holder hereof, in whole or in part
(but not as to a fractional share), by the presentation and surrender of this
Warrant with the form of election to purchase attached hereto as EXHIBIT A,
properly completed and executed by the holder by certified mail, by overnight
courier, in person or by a legal representative or attorney duly authorized
to do so in writing, at the principal office of the Company (or at such other
address as the Company may designate by notice in writing to the holder
hereof at the address of such holder appearing on the books of the Company),
and upon payment to the Company of an amount equal to the exercise price
multiplied by the number of shares being purchased pursuant to such exercise,
payable by payment to the Company in cash, by certified check or by wire
transfer.
The shares of Common Stock so purchased pursuant to the preceding
paragraph shall be deemed to be issued to the holder hereof as the record
owner of such shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such shares.
Certificates for the shares of Common Stock so purchased shall be delivered
or mailed to the holder promptly after this Warrant shall have been so
exercised, and, unless this Warrant has expired or has been exercised in
full, a new Warrant identical in form but representing the number of shares
of Common Stock with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof at the expense of the
Company.
The Company shall pay all documentary, stamp or other transactional
taxes attributable to the issuance or delivery of shares of capital stock of
the Company upon exercise of this Warrant; PROVIDED, HOWEVER, that the
Company shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any
certificate for such shares in a name other than that of the holder of this
Warrant in respect of which such shares are being issued.
SECTION 2. REPLACEMENT.
This Warrant is exchangeable, upon its surrender by the holder at the
principal office of the Company, for new Warrants (containing the same terms
as this Warrant) each representing the right to purchase such number of
shares of common stock as shall be designated by such holder at the time of
surrender (but not exceeding in the aggregate the remaining number of shares
of common stock which may be purchased hereunder). Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and upon delivery of indemnity satisfactory to the Company (or,
in the case of mutilation, upon surrender of this Warrant), the Company will
issue to the holder a replacement Warrant (containing the same terms as this
Warrant). The unsecured undertaking of the original holder of this Warrant
or any of its assigns shall constitute satisfactory indemnity for purposes of
this paragraph. As used herein, "Warrant" shall include all new Warrants
issued in exchange for or replacement of this Warrant.
SECTION 3. ADJUSTMENT OF NUMBER OF SHARES.
22
<PAGE>
If the number of shares of Common Stock outstanding at any time
hereafter is increased by a stock dividend payable in shares of Common Stock
or by a subdivision or split-up of shares of Common Stock, then, following
the record date fixed for the determination of holders of Common Stock
entitled to receive such stock dividend, subdivision or split-up, the number
of shares of Common Stock issuable on exercise of this Warrant shall be
increased in proportion to such increase in outstanding shares.
If at any time hereafter the number of shares of Common Stock
outstanding is decreased by a combination of the outstanding shares of Common
Stock or a reverse stock-split, following the record date for such
combination, the number of shares of Common Stock issuable on exercise of
this Warrant shall be decreased in proportion to such decrease in outstanding
shares.
If at any time hereafter any reorganization, reclassification of the
capital stock of the Company (other than a change in par value or from par
value to no par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares),
consolidation or merger (including a merger in which the Company is the
surviving entity), sale or other disposition of all or substantially all of
the Company's assets or a distribution of property to shareholders (other
than distributions payable out of earnings or retained earnings) shall occur,
then this Warrant shall (in lieu of or, in respect of sales of all or
substantially all assets or distribution of property to shareholders, in
addition to, being exercisable for shares of Common Stock) after such
reorganization, reclassification, consolidation or merger be exercisable into
the kind and number of shares of stock or other securities or property
(including cash) of the company or of the corporation resulting from such
consolidation or surviving such merger or to which such properties and assets
shall have been sold or otherwise disposed of or distributed to which the
holder of the number of shares of Common Stock deliverable (immediately prior
to the time of such reorganization, reclassification, consolidation, merger,
sale or other disposition or distribution) upon exercise of such Warrant
would have been entitled upon such reorganization, reclassification,
consolidation, merger, sale or other disposition or distribution. The
provisions of this Section shall similarly apply to successive
reorganizations, reclassifications and other transactions contemplated above.
All calculations under this Section 3 shall be made to the nearest cent
($.01) or to the nearest whole share, as the case may be.
In any case in which the provisions of this Section 3 shall require that
an adjustment of the number of shares of Common Stock issuable upon exercise
of this Warrant shall become effective immediately after a record date for an
event, the Company may, until the occurrence of such event, defer issuing to
the holder of the Warrant exercised after such record date and before the
occurrence of such event the additional shares of capital stock issuable upon
such exercise by reason of the adjustment required by such event over and
above the shares of capital stock issuable upon exercise before giving effect
to such adjustment; PROVIDED, HOWEVER, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
Whenever the number of shares of Common Stock issuable upon exercise of
this Warrant shall be adjusted as provided in Section 3, the Company shall
promptly thereafter file, at its principal office or at such other place as
may be designated by the Company, a statement, signed by its president or
chief financial officer and by its treasurer, showing in reasonable detail
the facts requiring such adjustment and the number of shares of Common Stock
issuable upon exercise of this Warrant that shall be in effect after such
adjustment. The Company shall cause a copy of such statement to be sent by
first-class, certified
23
<PAGE>
mail, return receipt requested, postage prepaid, to each holder of this
Warrant at such holder's address appearing in the Company's records.
The Company will not, by amendment of its Articles of Incorporation or
By-laws or through any reorganization, transfer of assets, reclassification,
merger, dissolution, issue or sale of securities or otherwise, avoid or seek
to avoid the observance or performance of any of the terms to be observed or
performed by the Company hereunder but will at all times in good faith assist
in the carrying of all the provisions hereof and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of
the holders of this Warrant against impairment.
SECTION 4. FRACTIONAL SHARES.
No fractional shares shall be issued upon exercise of this Warrant. In
the case of this Warrant being exercised in part only, the Company shall,
upon such exercise, execute and deliver to the holder thereof, at the expense
of the Company, a new Warrant or Warrants equal to the unexercised portion of
such Warrant. Instead of issuing any fractional shares of Common Stock that
would otherwise be issuable upon exercise of this Warrant, the Company shall
round off to the nearest whole number of shares of Common Stock.
SECTION 5. OBLIGATIONS OF THE COMPANY.
The Company will at all times reserve, free from any preemptive rights,
and keep available out of its authorized Common Stock, solely for the purpose
of issue upon the exercise of Warrants as herein provided, such number of
shares of Common Stock as shall then be issuable upon the exercise of all
outstanding Warrants. The Company covenants and agrees that all shares of
Common Stock which shall be so issuable will, upon issuance, be duly
authorized and issued, fully paid and nonassessable. The Company will not
take any action which results in any adjustment of the number of shares of
Common Stock issuable upon exercise of this Warrant if the total number of
shares of Common Stock issuable after such action upon exercise of this
Warrant would (a) exceed the total number of shares of Common Stock then
authorized by the Company's Articles of Incorporation in effect at such time
or (b) would conflict with, or result in any violation of, or require the
consent or approval (unless the same shall be obtained) of any court or
administrative or governmental body pursuant to, or result in a breach of the
terms, conditions, or provisions of, or constitute a default under, the
Articles of Incorporation or By-laws of the Company or any agreement or
instrument to which the Company is then subject. The Company will take all
such action as may be necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable requirements of
any exchange upon which the Common Stock of the Company may be listed or in
respect of which the Common Stock has qualified for unlisted trading
privileges.
The Company will not close its books against the issuance or transfer of
any shares of Common Stock issuable upon exercise of this Warrant.
SECTION 6. TRANSFERABILITY.
This Warrant and all rights hereunder are transferable, in whole or in
part, without charge to the holder, upon surrender of this Warrant with an
executed Assignment in the form annexed hereto as EXHIBIT B, properly
executed by the holder hereof and the assignee.
24
<PAGE>
If this Warrant, or any part hereof, is transferred to another holder
and such holder shall have designated in writing the address to which
communications with respect to this Warrant shall be mailed, all notices,
certificates, requests, statements and other documents required to be
delivered to the transferring holder by reason for the holding of this
Warrant shall also be delivered to such holder.
SECTION 7. "PIGGYBACK" REGISTRATION RIGHTS.
(a) Subject to Sections 7(b) through 7(d) below, if the Company shall
determine to proceed with the preparation and filing of a registration
statement under the Securities Act of 1933, as amended, in connection with
the proposed offer and sale of any of its securities by it or any of its
security holders, the Company will give written notice of its determination
to the holder of this Warrant. Upon the written request from the holder of
this Warrant, within twenty (20) days after receipt of any such notice from
the Company (and receipt by the Company of any information from the holder of
this Warrant which is required to be included in a registration statement),
the Company will, except as provided in this Section 7 and at the Company's
expense, cause all shares of the Company's common stock issuable upon the
exercise of this Warrant to be included in such registration statement, all
to the extent requisite to permit the sale or other disposition by the
prospective seller or sellers of the securities to be so registered;
PROVIDED, HOWEVER, that nothing herein shall prevent the Company from, at any
time, abandoning or delaying any registration. If any registration shall be
underwritten in whole or in part, the Company may require that the securities
requested for inclusion pursuant to this section be included in the
underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters.
(b) Notwithstanding the foregoing, if the managing underwriter
determines and advises in writing that the inclusion of the shares of the
Company's common stock issuable upon the exercise of this Warrant proposed to
be included in the underwritten public offering would interfere with the
successful marketing of such offering, then the number of such shares that
the managing underwriter believes may be sold in such underwritten public
offering shall be allocated for inclusion in any registration statement in
the following order of priority: (i) the securities being offered by the
Company; (ii) the securities being offered by the Investors (as such term is
defined in Section 7(c) below); (iii) the securities being offered by the
Holders (as such term is defined in that certain Registration Rights
Agreement dated February 13, 1998 by and between Sutro & Co. Incorporated, a
Delaware corporation, or its permitted assigns, and the Company); (iv) the
securities being sought to be registered by the holder of this Warrant, on a
PRO RATA basis based upon the number of securities sought to be registered by
such holder and the number of securities sought to be registered by all
persons other than those identified in clauses (i) through (iii) above.
(c) Notwithstanding the provisions of Section 7(a), the holder of
this Warrant shall have no rights to registration or to otherwise participate
in any underwritten public offering of the Company's common stock effected
pursuant to Section 2.1 of that certain Registration Rights Agreement (the
"Senior Agreement") dated as of February 13, 1998 by and among the Company
and the investors named therein (the "Investors") unless: (i) the managing
underwriter of such offering shall have advised each holder of Registerable
Securities (as such term is defined in the Senior Agreement) to be covered by
the registration statement that the inclusion of the securities registerable
hereunder would not, in such underwriters reasonable judgement, adversely
effect the marketing or the selling price of the Registerable Securities to
be covered by such registration statement; and (ii) the holders of a majority
of the Registerable Securities to be covered by such registration statement
shall have consented in writing to the inclusion of the securities
registerable hereunder.
25
<PAGE>
(d) The rights granted to the holder of the Warrant under this
Section 7 shall terminate at such time as the shares of Common Stock issued
pursuant to the exercise of this Warrant become freely transferable by the
holder of such shares pursuant to Rule 144 under the Securities Act of 1933,
as amended.
SECTION 8. GOVERNING LAW.
This Warrant shall be construed and enforced in accordance with the laws
of the State of Delaware without regard to principles of conflicts of law or
choice of law.
SECTION 9. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY.
This Warrant shall not entitle the holder hereof to any voting rights or
other rights as a stockholder of the Company. No provision hereof, in the
absence of affirmative action by the holder hereof to exercise this Warrant,
and no enumeration herein of the rights or privileges of such holder shall
give rise to any liability of such holder for the exercise price of the
shares acquirable by exercise hereof or as a stockholder of the Company.
SECTION 10. NOTICES.
Except as otherwise expressly provided herein, all notices and
deliveries referred to in this Warrant shall be in writing, shall be
delivered personally, sent by registered or certified mail, return receipt
requested and postage prepaid or sent via nationally recognized overnight
courier or via facsimile, and shall be deemed to have been given when so
delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices and (ii) to the holder of
this Warrant, at such holder's address as it appears in the records of the
Company (unless otherwise indicated by any such holder).
SECTION 11. AMENDMENT AND WAIVER.
Except as otherwise provided herein, the provisions of the Warrants may
be amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company
has obtained the prior written consent of the holder of this Warrant.
[INTENTIONALLY LEFT BLANK]
26
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer on this 24th day of April, 1998.
SERACARE, INC.
By: /s/ Barry D. Plost
------------------- ------------------------
Barry D. Plost
Chairman and Chief Executive Officer
27
<PAGE>
EXHIBIT A
FORM OF ELECTION TO PURCHASE
SERACARE, INC.
The undersigned holder of this Warrant (1) hereby irrevocably elects to
exercise the right to purchase hereunder ___ fully paid shares of the Common
Stock of SERACARE, INC., (2) makes payment in full of the purchase price of such
shares, (3) requests that certificates for such shares be issued in the name of
________________, and (4) if said number of shares shall not be all the shares
the holder is entitled to purchase under this Warrant, requests that a new
Warrant for the unexercised and unexpired portion of this Warrant be issued.
By:
-------------------------
Dated: , 199
--------------- --
28
<PAGE>
EXHIBIT B
ASSIGNMENT
FOR VALUE RECEIVED, __________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant with respect to the number of the shares covered thereby set forth
below, unto:
Name of Assignee Address No. of Shares
---------------- ------- -------------
Dated: Signature
----------------------------
Witness
-------------------------------
Each assignee of the Warrant hereby acknowledges and agrees that
this Warrant and the securities into which the Warrant may be exercised have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws and that no sale, transfer,
pledge or other disposition of this Warrant or the shares purchasable
hereunder shall be made except pursuant to registration under the Securities
Act and any applicable state securities laws or pursuant to an exemption
therefrom.
29
<PAGE>
Dated:
-------------------------------------
Signature of Assignee
Dated:
-------------------------------------
Signature of Assignee
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 5,497,524
<SECURITIES> 0
<RECEIVABLES> 4,612,968
<ALLOWANCES> 0
<INVENTORY> 7,644,601
<CURRENT-ASSETS> 17,998,878
<PP&E> 2,780,850
<DEPRECIATION> 0
<TOTAL-ASSETS> 45,229,372
<CURRENT-LIABILITIES> 8,554,752
<BONDS> 16,196,670
231,130
0
<COMMON> 7,210
<OTHER-SE> 20,239,595
<TOTAL-LIABILITY-AND-EQUITY> 45,229,372
<SALES> 12,410,970
<TOTAL-REVENUES> 12,410,970
<CGS> 10,774,398
<TOTAL-COSTS> 10,774,398
<OTHER-EXPENSES> 1,479,296
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 533,105
<INCOME-PRETAX> 478,853
<INCOME-TAX> 25,000
<INCOME-CONTINUING> 453,853
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 453,853
<EPS-PRIMARY> .09
<EPS-DILUTED> .08
</TABLE>
