<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1999
( ) 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.
---------------------------------------------------------------------
(Exact name of Small Business Registrant as specified in its charter)
DELAWARE 95-4343492
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1925 CENTURY PARK EAST, SUITE 1970
LOS ANGELES, CALIFORNIA 90067
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (310) 772-7777
----------------
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 whether the registrant has filed all documents and
reports required to be filed by Section 13 or 15 (d) of the Securities Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes ( X ) No ( )
As of August 31, 1999, the issuer had 7,644,418 shares of its common stock,
$.001 par value issued and outstanding.
Transitional Small Business Disclosure Format Yes No X
---- ----
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED FINANCIAL STATEMENTS ARE PROVIDED AS FOLLOWS:
<TABLE>
<CAPTION>
PAGE
NUMBER
SERACARE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<S> <C>
Consolidated Statements of Operations - (Unaudited)
For the three and six months ended August 31, 1999 and
For the three and six months ended August 31, 1998 3
Consolidated Balance Sheets -
as of August 31, 1999 (Unaudited) and
as of February 28, 1999 (Audited) 4
Consolidated Statements of Cash Flows - (Unaudited)
For the six months ended August 31, 1999 and
For the six months ended August 31, 1998 5 - 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 10
PART II OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS 14
SIGNATURES 15
</TABLE>
2
<PAGE>
SERACARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN WHOLE DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended For the Three Months Ended
-------------------------------------- ---------------------------------------
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
---------------- ------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues
Net sales $ 28,941,531 $ 18,484,377 $ 13,041,985 $ 10,822,592
Income from joint venture 505,340 388,623 315,450 188,985
------------ ------------ ------------ ------------
29,446,871 18,873,000 13,357,435 11,011,577
Cost of sales 22,507,161 14,655,794 10,751,509 8,440,938
------------ ------------ ------------ ------------
Gross profit 6,939,710 4,217,206 2,605,926 2,570,639
General and administrative expenses 3,356,380 1,717,687 1,838,322 1,061,866
Non-cash general and administrative expenses 10,710 10,710 5,355 5,355
------------ ------------ ------------ ------------
Net income from operations 3,572,620 2,488,809 762,249 1,503,418
Interest expense 1,798,082 1,433,266 924,334 813,840
Non-cash interest expense 624,096 613,497 312,048 312,048
Other expense (income), net (42,086) (451,436) (23,645) (329,161)
------------ ------------ ------------ ------------
Income before income tax expense and
cumulative effect of change in accounting method 1,192,528 893,482 (450,488) 706,691
Income tax expense 19,080 0 (82,787) 0
------------ ------------ ------------ ------------
Income before cumulative effect of change
in accounting method 1,173,448 893,482 (367,701) 706,691
Cumulative effect of change in accounting method,
net (719,903) 0 0 0
------------ ------------ ------------ ------------
Net income $ 453,545 $ 893,482 $ (367,701) $ 706,691
============ ============ ============ ============
Earnings per common share
Basic
Income before cumulative effect of change in
accounting method $ 0.15 $ 0.12 $ (0.05) $ 0.10
Cumulative effect of change in accounting method (0.09) 0.00 0.00 0.00
------------ ------------ ------------ ------------
Net income $ 0.06 $ 0.12 $ (0.05) $ 0.10
============ ============ ============ ============
Diluted
Income before cumulative effect of change in
accounting method $ 0.09 $ 0.08 (0.03) $ 0.06
Cumulative effect of change in accounting method (0.06) 0.00 0.00 0.00
------------ ------------ ------------ ------------
Net income $ 0.04 $ 0.08 $ (0.03) $ 0.06
============ ============ ============ ============
Weighted average shares issued and outstanding
Basic 7,773,585 7,243,918 7,902,752 7,277,252
============ ============ ============ ============
Diluted 12,363,311 11,777,067 12,465,459 11,777,067
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
<TABLE>
<CAPTION>
SERACARE, INC.
CONSOLIDATED BALANCE SHEET
AS OF AUGUST 31, 1999 8-31-99 2-28-99
(IN WHOLE DOLLARS) (Unaudited) (Audited)
--------------------- --------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 526,089 $ 843,226
Accounts receivable 13,475,328 13,619,739
Inventory 20,620,369 10,659,226
Prepaid expenses and other current assets 562,310 580,883
--------------- --------------
Total Current Assets 35,184,096 25,703,074
--------------- --------------
PROPERTY AND EQUIPMENT - NET 5,911,888 4,632,159
FDA LICENSES, less accumulated amortization
of $224,159 and $145,716 8,128,147 7,836,942
DONOR BASE AND RECORDS, less accumulated
amortization of $249,248 and $173,834 4,461,861 4,376,488
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCATED
TO IDENTIFIABLE ASSETS, less accumulated amortization
of $126,845 and $117,203 634,966 654,250
GOODWILL, less accumulated amortization of $957,818
and $770,946 11,460,903 11,798,511
DEFERRED BOND DISCOUNT, less accumulated
amortization of $1,531,416 and $1,234,954 6,499,026 7,091,952
OTHER ASSETS 1,533,896 2,482,886
--------------- --------------
TOTAL ASSETS $ 73,814,783 $ 64,576,262
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,054,989 $ 2,535,050
Accrued payroll and related expenses 510,918 366,475
Accrued expenses 2,299,140 2,219,957
Deferred income 0 397,353
Line of credit 13,476,000 8,840,000
Bridge loans from related parties 123,000 123,000
Notes payable 297,746 297,746
Current portion of long-term debt 1,949,870 1,199,909
--------------- --------------
Total current liabilities 24,711,663 15,979,490
--------------- --------------
LONG-TERM DEBT 22,007,924 22,895,014
SERIES A REDEEMABLE PREFERRED STOCK, $.001 par
value, 25,000,000 shares authorized; 400 shares
issued and outstanding at 2/28/99 0 60,107
STOCKHOLDERS' EQUITY
Series B convertible preferred stock, $.001 par value,
15,000 shares authorized and outstanding at 2/28/99. 0 15
Series C convertible preferred stock, $.001 par value,
22,500 shares authorized and outstanding.
Liquidation value $100 per share 22 22
Common stock, $.001 par value, 25,000,000 shares authorized
Issued and outstanding - 8,219,418 and 7,644,418 respectively 7,859 7,644
Additional paid-in capital 23,982,405 22,982,605
Retained earnings 3,104,910 2,651,365
--------------- --------------
Total stockholders' equity 27,095,196 25,641,651
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 73,814,783 $ 64,576,262
=============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
<TABLE>
<CAPTION>
SERACARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN WHOLE DOLLARS)
(UNAUDITED) For the Six Months Ended
--------------------------------------------------------
August 31, August 31,
INCREASE (DECREASE) IN CASH 1999 1998
-------------------------- ---------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $453,545 $893,482
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities:
Depreciation and amortization 924,822 665,110
Income from joint venture (505,340) (388,623)
Gain on sale of land and buildings 0 (533,547)
Non-cash interest expense 624,096 613,487
Non-cash general and administrative expense 10,710 10,710
(Increase) decrease from changes in:
Accounts receivable 144,411 (2,830,874)
Inventory (9,961,143) (3,310,447)
Prepaid expenses and other current assets 18,573 (1,022,073)
Other assets 1,027,451 (439,055)
Accounts payable 3,519,939 (887,277)
Accrued payroll and related expenses 144,443 50,746
Accrued expenses 160,383 5,320
Deferred income (397,353) (733,825)
-------------------------- ---------------------------
Net cash used in operating activities (3,835,463) (7,906,866)
-------------------------- ---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (1,615,979) (553,947)
Proceeds from sale of land and buildings 801,891
Cash paid to purchase American Plasma, Inc., net (7,824,065)
Additions to other intangible assets (3,284) (1,004,433)
Distributions from unconsolidated subsidiary 385,000 235,000
Additions to FDA licenses (448,054) 0
Additions to donor base and records (238,121) (257,855)
-------------------------- ---------------------------
Net cash used in investing activities (1,920,438) (8,603,409)
-------------------------- ---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances under line of credit 4,636,000 10,511,000
Repayments of long-term debt (617,129) (28,740)
Repayments of notes payable (558,500)
Repayments of bride loans from related parties 0 (1,376,000)
Proceeds from issuance of stock 300,000
Proceeds from bridge loans from related parties 1,250,000
Payments on redemption of preferred stock (60,107) (83,807)
Issuance of stock for property and equipment 1,000,000
Borrowings under notes payable 480,000 2,000,000
-------------------------- ---------------------------
Net cash provided by financing activities 5,438,764 12,013,953
-------------------------- ---------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (317,137) (4,496,322)
CASH AND CASH EQUIVALENTS, beginning of period 843,226 5,497,524
-------------------------- ---------------------------
CASH AND CASH EQUIVALENTS, end of period $526,089 $1,001,202
========================== ===========================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
SERACARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN WHOLE DOLLARS)
(UNAUDITED)
<TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<S> <C> <C>
(a) Cash paid for:
Interest $1,642,966 $483,236
State income taxes $76,320 $0
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
SeraCare, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. STATEMENT OF INFORMATION FURNISHED
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting only of normal and recurring accruals)
necessary to present fairly the financial position of SeraCare, Inc. and
Subsidiaries as of August 31, 1999, and the results of their operations and
cash flows for the three months and six months ended August 31, 1999 and
1998. These results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with those used in
the preparation of the audited financial statements included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended February 28, 1999.
The results of operations for the three and six months ended August 31, 1999
are not necessarily indicative of the results to be expected for any other
period or for the entire current fiscal year.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted in accordance with the rules to
Form 10-QSB. The accompanying financial statements should be read in
conjunction with the Company's audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB-A for the fiscal year
ended February 28, 1999.
2. EARNINGS PER SHARE
Basic earnings per common share amounts for the three and six months ended
August 31, 1999 and 1998 have been calculated based upon the weighted average
number of shares actually outstanding during the period. Diluted earnings per
share for the same periods have been calculated by considering common stock
options, purchase warrants and convertible debt instruments which are deemed
common stock equivalents in such calculations.
3. CREDIT FACILITY
Effective July 15, 1999 the Company modified its existing senior credit
facility to increase the revolving line of credit from $10 million to $15
million and to modify the terms of the Revolving Term Notes and the Term
Promissory Notes. Interest on the amended notes accrues at a per annum rate
equal to the Wall Street Journal Prime Rate plus .25% for the Revolving Term
Notes (aggregate of $15,000,000) and at a per annum rate equal to the Wall
Street Journal Prime Rate plus .50% for the Term Promissory Notes (aggregate
of $7,000,000). The Company may also elect to base the interest rate on a
LIBOR rate. Additionally, a covenant was changed relating to the maintenance
of the tangible capital base. As of August 31, 1999, the Company was in
violation of a covenant, which was subsequently waived by the lender.
7
<PAGE>
SeraCare, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. ACQUISITIONS
Effective on July 6, 1998, the Company acquired all of the capital stock of
American Plasma, Inc. ("American") located in Houston, Texas. American
operates eleven plasmapheresis centers.
In October, 1998, the Company acquired certain of the operating assets of a
plasma center in Baton Rouge, Louisiana from Amex Plasma Management, Inc.
The unaudited proforma results of operations, assuming these acquisitions had
occurred as of the beginning of 1998, for revenue, net income and net income
per share, are as follows:
<TABLE>
<CAPTION>
Six Months Ended
August 31, 1998
----------------
<S> <C>
Revenue $22,891,880
Net income $ 700,235
Net income per share
Basic $ .0967
Diluted $ .0595
Weighted average shares issued and outstanding:
Basic 7,243,918
Diluted 11,777,067
</TABLE>
5. INCOME TAXES
The income taxes provided during the period are for certain franchise taxes. No
Federal taxes on income have been provided due to the utilization of available
loss carryforwards.
8
<PAGE>
SeraCare, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING METHOD, NET
Effective March 1, 1999, the Company adopted 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. 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, initiating a new process in an existing facility, or commencing some
new operation.
SOP 98-5 is effective for fiscal years beginning after December 15, 1998.
Accordingly, the Company wrote off the approximate $720,000 (net of $44,600 of
tax benefits) of start-up costs that had been previously capitalized and
included in other assets. In accordance with SOP 98-5, the write-off of such
costs is being reported as a cumulative effect of a change in accounting method.
Also, in accordance with SOP 98-5, prior periods have not been restated.
To the extent that the Company establishes new start-up centers, the inability
to defer start-up costs will result in a decrease in its results of operations
during the start-up period. The adoption of SOP 98-5 may also have a negative
impact on the Company's strategic plan for expansion because of the inability to
match the cost of establishing a new center with the revenue derived from such
center, even when all production from the center has been contractually
committed. The Company is currently evaluating alternative strategies for
achieving its grow objective.
7. CONVERSION OF SERIES B PREFERRED STOCK
In August 1999, the holders of 15,000 shares of Series B convertible preferred
stock elected to convert such shares into 300,000 shares of the Company's common
stock. In addition, pursuant to certain price protection terms of the preferred
stock agreement, an additional 75,000 shares of common stock was issued.
9
<PAGE>
ITEM 2. MANAGEMENT'S 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1999 AS COMPARED TO THREE MONTHS ENDED
AUGUST 31, 1998
REVENUE
Total revenue of the Company increased by 21% or $2,345,858 to $13,357,435
during the three-month period. This improvement was primarily the result of
higher revenue relating to the Biologics Division, and to increased revenues
from its manufacturing operations. The increase in revenues from the Biologics
division is due primarily to the acquisition of American Plasma, Inc. in July,
1998 (11 collection centers), the purchase of certain of the operating assets of
Amex Plasma Management, Inc. in October 1998 and the continued ramp-up of the
eleven centers established by the Company during the past two years. Increases
in manufacturing revenues are primarily due to increased sales of lab
calibration products.
GROSS PROFIT
Gross profit decreased, as a percentage of sales, to $2,605,926, or 20%, in the
three-month period from 23% of sales during the prior year period. The decreased
margin is primarily due to the increased costs of producing source plasma during
the current year, in part due to the Company's inability to capitalize certain
start-up costs of developing centers and to increased staffing requirements at
existing centers as a result of FDA compliance issues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses in the current quarter increased by $776,456
to $1,843,677, an increase of 73%, due mainly to higher salaries, legal and
professional fees, travel and insurance costs associated with the expanded
operations of the Company. The Company established an administrative office for
its Biologics division and has increased its sales staff at its Western States
division.
10
<PAGE>
INTEREST EXPENSE
Interest paid increased by $110,494 to $924,334 due primarily to the higher debt
required to finance acquisitions and the increased working capital needs of the
Company. The non-cash interest of $312,048 represents the amortization of the
bond discount associated with the February 1998 $16.0 million subordinated
debenture issue.
OTHER INCOME
Other income in the 1998 quarter is principally the gain from the sale of
certain properties during the period.
NET INCOME
As a result of the above, net loss for the three months ended August 31, 1999
was ($367,701) as compared to a net income of $706,691 for the same prior year
period.
SIX MONTHS ENDED AUGUST 31, 1999 AS COMPARED TO SIX MONTHS ENDED AUGUST 31, 1998
REVENUE
Total revenue of the Company increased by 56% or $10,573,871 to $29,446,871
during the six-month period. This improvement was primarily the result of higher
revenue relating to the Biologics Division and to increased revenues from its
manufacturing operations. The increase in revenues from the Biologics division
is due primarily to the acquisition of American Plasma, Inc. in July, 1998 (11
collection centers), the purchase of certain of the operating assets of Amex
Plasma Management, Inc. in October 1998 and the continued ramp-up of the eleven
centers established by the Company during the past two years. Increases in
manufacturing revenues are primarily due to increased sales of lab calibration
products.
GROSS PROFIT
Gross profit increased, as a percentage of sales, to $6,939,710, or 24%, in the
six-month period from 22% of sales during the prior year period. The increased
margin is primarily due to the acquisition of certain plasma centers during the
current year that produce a higher yield, in relation to operating costs. The
margin increases, as a percentage of sales, are mitigated by increased costs of
producing source plasma during the current year, primarily as a result of the
Company's inability to capitalize certain start-up costs of developing centers
and to increased staffing requirements at existing centers as a result of FDA
compliance issues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses in current period increased by $1,638,693 to
$3,367,090, an increase of 95% due mainly to higher salaries, legal and
professional fees, travel and insurance costs associated with the expanded
operations of the Company.
INTEREST EXPENSE
Interest paid increased by $364,816 to $1,798,082 due primarily to the increased
debt required to finance acquisitions and the increased working capital needs of
the Company. The non-cash interest of $624,096 represents the amortization of
the bond discount associated with the February 1998 $16.0 million subordinated
debenture issue.
OTHER INCOME
Other income in the 1998 period is principally the gain from the sale of certain
properties during the period.
11
<PAGE>
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING METHOD
As a result of the above, income before the cumulative effect of a change in
accounting method for the six months ended August 31, 1999 was $1,173,448 as
compared to $893,482 for the same prior year period.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING METHOD
Effective March 1, 1999, the Company adopted 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. SOP 98-5 is effective for
fiscal years beginning after December 15, 1998, and requires that the costs of
start-up activities be expensed as incurred. Accordingly, the Company wrote off
$719,903 (net of $44,634 of tax benefit) of start-up costs that had been
previously capitalized and was included in other assets as of February 28, 1999.
In accordance with SOP 98-5, the write-off of such costs is being reported as a
cumulative effect of a change in accounting method and prior periods have not
been restated.
NET INCOME
As a result of the above, there was a net income for the six months ended August
31, 1999 of $453,545 compared to a net income of $893,482 for the same prior
year period.
LIQUIDITY AND CAPITAL RESOURCES
As of August 31, 1999 the Company's current assets exceeded current liabilities
by $10,472,433. The use of cash during the quarter was consistent with the
Company's strategic plan for strong growth and the Company feels that progress
has been made during the period. With a continuation of a strategic focus on
growth, the short-term impact on the Company's earnings and cash flow has been
to defer profitability and positive cash flows. The Company believes, however,
that the acquisitions of American Plasma, Inc. in July 1998 and the purchase of
certain of the operating assets of Amex Plasma Management, Inc. in October 1998
plus the continuing ramp-up of the newly established centers located in Pasco,
Washington; Toledo, Ohio; Raleigh, North Carolina; Macon, Georgia; Clearfield,
Utah; Pocatello, Idaho; Savannah, Georgia; Wilmington, Delaware; Port Arthur,
Texas; Lancaster, Pennsylvania and Reading, Pennsylvania represent substantial
progress toward becoming a significant company within the plasma products
industry.
Net cash used in operating activities during the six-month period ended August
31, 1999 was $3,835,463 compared to $7,906,866 during the same prior year
period. The decrease in cash used, as compared to the prior year period, was due
primarily to an increase in inventory partially offset by increases in accounts
payable and other accrued expenses attributable to the acquisitions of American
Plasma, Inc., Western States Plasma Group, Inc. and Consolidated Technologies
during the prior year. Inventory increases also resulted from the terms of
certain sales agreements and an increase in inventory due to the Applicant Donor
program initiated by ABRA and effective July 1, 1998.
Cash flows used in investing activities for the six months ended August 31, 1999
was $1,920,438 compared to $8,603,409 for the comparable prior year period.
During the prior year, capital applications were made primarily for the
acquisition of American Plasma, Inc. and investments were also made in the newly
established plasma collection centers in Raleigh, Macon, Pasco, Toledo,
Pocatello, Wilmington and Savannah.
Cash flow provided by financing activities was $4,438,764 for the current year
period compared to $12,013,953 for the comparable prior year period. This
increase was mostly due to advances under the
12
<PAGE>
new revolving line of credit, which was used in part to finance the
acquisition of American Plasma, Inc. and partially to provide working capital
for the newly acquired and start-up operations.
The Company has been impacted by a trend toward increased scrutiny and
regulatory enforcement activities by the Food and Drug Administration (FDA),
which has been directed towards the plasma collection industry. The Company
has responded by increasing its internal quality control enforcement
oversight personnel and believes that its standards are among the finest in
the industry, however, the increased staffing has resulted in permanent cost
increases in its operations. Such increases may be passed on to customers in
the form of higher prices in the future, however, there can be no assurance
that such price increases will be possible or that further cost increases may
become necessary in the future. The Company also has experienced fluctuations
in short-term earnings and cash flow that have resulted from the timing of
shipments. The increase in the revolving line of credit has been effected in
response to these fluctuations in cash flow from operations.
Management believes that internally generated cash flow combined with the $15
million revolving line of credit will be sufficient to meet the Company's
working capital requirements for the balance of fiscal 2000. However, any
significant expansion or acquisition will need to be funded by a combination of
internally generated cash flows, short-term bridge financing, private
placements, and/or a possible public offering. In addition, the Company is
currently evaluating various alternatives for restructuring its current debt
position.
13
<PAGE>
PART II OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of August 31, 1999, the Company was in violation of a covenant relating
to its senior credit facility of $22 million, which was subsequently waived by
the lender.
ITEM 5. OTHER INFORMATION
On September 10, 1999, the Company announced the appointment of James
Linesch as Chief Financial Officer, succeeding Jerry Burdick who was appointed
Executive Vice President of Administration.
ITEM 6. EXHIBITS
Exhibit 6.20 - Employment agreement dated September 9, 1999 between
the Company and James Linesch
Exhibit 27 - Financial Data Schedule
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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: October 14, 1999 By: /s/ Barry D. Plost
-------------------------------
Barry D. Plost, President & CEO
By: /s/ James Linesch
-------------------------------
James Linesch
Principal Accounting and
Finance Officer
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EXHIBITS
Exhibit 6.20 - Employment agreement dated September 9, 1999 between
the Company and James Linesch
Exhibit 27 - Financial Data Schedule
16
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EXHIBIT 6.20
EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT") is entered into as of
September 9, 1999 (the "EFFECTIVE DATE"), by and between James Linesch (the
"EXECUTIVE") and SeraCare, Inc., a Delaware corporation (the "COMPANY").
RECITALS
The Company desires that the Executive be employed by the Company in
the capacities described below, on the terms and conditions hereinafter set
forth, and the Executive is willing to accept such employment on such terms and
conditions.
AGREEMENT
The Executive and the Company agree as follows:
1. DUTIES.
1.1 RETENTION. The Company does hereby hire, engage, and employ the
Executive as the Chief Financial Officer of the Company, and the
Executive does hereby accept and agree to such hiring, engagement, and
employment. During the Period of Employment (as defined in Section 2),
the Executive shall serve the Company in such position, and shall have
duties and authority consistent with such position (including primary
general authority over the Company's finance department), subject,
however, to the other provisions of this Agreement, directives of the
Chief Executive Officer of the Company (the "CEO") and/or the Board of
Directors of the Company (the "BOARD"), and the corporate policies and
budgets of the Company as they presently exist, and as such policies
and budgets may be amended, modified, changed, or adopted during the
Period of Employment. During the Period of Employment, the Executive
shall report to the CEO. The current corporate office location is 1925
Century Park East, Suite 1970, Los Angeles, CA.
1.2 NO OTHER EMPLOYMENT. Throughout the Period of Employment, the Executive
shall devote his full business time, energy, and skill to the
performance of his duties for the Company (vacations and other leave
authorized under this Agreement excepted) and shall devote his best
efforts to advancing the interests of the Company. The Executive agrees
that any appointment to or continuing service on the board of directors
of any corporation must be approved in writing by the Company, such
approval not to be unreasonably withheld if the Company determines that
such appointment should not interfere with the performance of the
Executive's duties hereunder; PROVIDED that the Company's advance
approval is
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not required for the Executive to serve on the board of directors or
as an officer of any non-profit trade association, or of any
non-profit civic, educational or other charitable organization (in
each case subject to the following sentence). The Executive's
continued membership on any board or in any other position
referenced in the preceding sentence, on or in which he may now or
in the future serve (including Tadeo Holdings, Inc.), is subject to
the conditions (a) that the Executive's membership or position does
not materially interfere with the performance of the Executive's
duties hereunder, and (b) that the entity with which the Executive
is affiliated does not compete (within the meaning of Section 11,
without giving effect to the last sentence thereof) with the
business of any entity within the Company Group. For purposes of
this Agreement, the "COMPANY GROUP" includes, collectively, the
Company and any subsidiary or affiliate of the Company.
Executive has disclosed that he is a member of the Board of Directors
of Tadeo Holdings, Inc. and that the Company hereby approves the
continuing service as a Board Member of that company.
1.3 NO BREACH OF CONTRACT. The Executive hereby represents to the Company
that his execution and delivery of this Agreement and the performance
of his duties hereunder will not constitute a breach of, or otherwise
contravene, the terms of any employment or other agreement or policy to
which the Executive is a party or otherwise bound. The Company hereby
represents to the Executive that it is authorized to enter into this
Agreement and that the execution and delivery of this Agreement and the
employment of the Executive hereunder will not constitute a breach of,
or otherwise contravene, the terms of any law, agreement or policy by
which it is bound.
2. PERIOD OF EMPLOYMENT.
The "PERIOD OF EMPLOYMENT" shall, unless sooner terminated as provided
herein, be a one (1) year period commencing on the Effective Date and
ending at the close of business on the day before the first (1st)
anniversary of the Effective Date. Notwithstanding the preceding
sentence, commencing on the first anniversary of the Effective Date and
each anniversary thereof (each an "EXTENSION DATE"), the Period of
Employment shall be automatically extended for an additional one-year
period, unless the Company or the Executive provides the other party
hereto at least four (4) months prior written notice before the next
scheduled Extension Date that the Period of Employment shall not be so
extended. The term "Period of Employment" shall include any extension
that becomes applicable pursuant to the preceding sentence.
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3. COMPENSATION.
3.1 BASE SALARY AND BONUS. The Executive's initial Base Salary shall be at
a rate of $140,000 annually, paid in accordance with the Company's
regular payroll practices in effect from time to time, but not less
frequently than in monthly installments. (As used in this Agreement,
"Base Salary" shall mean Base Salary as it may be increased by the
Company, in its discretion, from time to time.) The Executive's Base
Salary, as in effect from time to time, shall not be decreased for any
reason or for any purpose (including for purposes of determining any
amounts due to the Executive upon a termination of his employment)
during the Period of Employment.
The Executive shall be eligible and considered for bonuses under the
Company's management bonus program, which generally provides for annual
bonuses based on the Company's profitability, the amount of any such
bonus determined in the Company's sole discretion.
3.2 EQUITY COMPENSATION. As soon as administratively practicable after the
Effective Date, the Executive shall be granted stock options to
purchase 100,000 shares of the Company's Common Stock, par value $0.001
per share (the "COMMON STOCK").
The per share exercise price of each option granted pursuant to this
Section 3.2 shall be at $4.25 per share, equal the fair market value of
a share of Common Stock as of the date of grant of the option. Such
options shall have a term of five years and shall vest in accordance
with the following schedule, subject to the Executive's continued
employment by the Company: 25% of the aggregate number of shares
subject to the options shall vest and become exercisable, subject to
the Executive's continued employment by the Company, on each of
December 9, 1999, March 9, 2000, June 9, 2000, and September 8, 2000.
Such options shall be granted under the SeraCare, Inc. 1998 Stock
Option Plan, and (a) shall be granted subject to the terms of such plan
and (b) shall be evidenced by and subject to the terms of a form of
stock option agreement customarily used by the Company for employee
stock option grants under the Stock Option Plan. Notwithstanding any
termination of employment provisions in the SeraCare, Inc. 1998 Stock
Option Plan or any customary form of stock option agreement thereunder,
if the Executive's employment by the Company terminates (for any reason
whatsoever): (x) before the first anniversary of the Effective Date,
each option granted pursuant to this Section 3.2 shall terminate
immediately to the extent that it is not then vested, and, to the
extent that it may then be vested, it shall continue to be exercisable
only for the ninety (90) day period following the termination of the
Executive's employment, at which time it shall terminate to the extent
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not exercised; and (y) on or after the first anniversary of the
Effective Date, each option granted pursuant to this Section 3.2 shall
continue to be exercisable for the remainder of its term.
To the extent (if any) that the Period of Employment is extended beyond
the first anniversary of the Effective Date, the Executive shall be
considered for additional annual stock option grants in accordance with
the policies and procedures of the Company then in effect for executive
stock option grants.
4. BENEFITS.
4.1 HEALTH AND WELFARE. During the Period of Employment, the Executive
shall be entitled to participate in all employee pension and welfare
benefit plans and programs generally made available to the Company's
executive management, as such plans or programs may be in effect from
time to time, including, without limitation, pension, profit sharing,
savings and other retirement plans or programs, medical, dental,
hospitalization, short-term and long-term disability and life insurance
plans, accidental death and dismemberment protection, travel accident
insurance, and any other pension or retirement plans or programs and
any other employee welfare benefit plans or programs that may be
sponsored by the Company from time to time, including any plans that
supplement the above-listed types of plans or programs, whether funded
or unfunded. Executive's employee and his family's welfare benefit plan
premiums and costs shall be paid fully by the Company.
4.2 REIMBURSEMENT OF BUSINESS AND OTHER EXPENSES; PERQUISITES
4.2.1 EXPENSE REIMBURSEMENT. The Executive is authorized to incur
reasonable expenses in carrying out his duties and
responsibilities under this Agreement and the Company shall
promptly reimburse him for all business expenses incurred in
connection with carrying out the business of the Company,
subject to the Company's reimbursement policies and procedures
for executive officers in effect from time to time.
4.2.2 PERQUISITES. During the Period of Employment, the Executive
shall be entitled to: (a) a monthly auto allowance of $750.00
to acquire and/or maintain a principal business vehicle, and
to an additional reimbursement by the Company for all
customary and reasonable gas, oil and incidental auto expenses
incurred in connection with such vehicle; and (b) Company-paid
parking for such vehicle at the Company's principal executive
offices.
4.3 VACATION AND OTHER LEAVE. During the Period of Employment, the
Executive shall receive three (3) weeks paid vacation
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per year; PROVIDED, that if the Period of Employment extends beyond
the first anniversary of the Effective Date, the Executive shall
instead be entitled to paid vacation in accordance with the
Company's executive vacation pay policy as it may then be in effect
if such policy results in the Executive receiving more than three
(3) weeks paid vacation per year; PROVIDED FURTHER, that all such
vacation shall be scheduled and taken in accordance with the
Company's standard vacation policies. The Executive shall also be
entitled to all other holiday and leave pay generally available to
the Company's employees.
5. DEATH OR DISABILITY.
5.1 DEFINITION OF DISABLED AND DISABILITY. For purposes of this Agreement,
the terms "DISABLED" and "DISABILITY" shall mean the Executive's
inability, because of physical or mental illness or injury, to perform
the essential function of his customary duties pursuant to this
Agreement, with or without reasonable accommodation, and the
continuation of such disabled condition for a period of one hundred
twenty (120) continuous days, or for not less than one hundred eighty
(180) days during any continuous twenty-four (24) month period. The
Company reserves the right, in good faith, to make the determination of
disability under this Agreement based upon information supplied by the
Executive and/or his medical personnel, as well as information from
medical personnel or others selected by the Company or its insurers.
5.2 TERMINATION DUE TO DEATH OR DISABILITY. If the Executive dies or
becomes Disabled during the Period of Employment, the Period of
Employment and the Executive's employment shall automatically cease and
terminate as of the date of the Executive's death or the date of
Disability (which date shall be determined under Section 5.1 above), as
the case may be. In the event of the termination of the Executive's
employment due to his death or Disability, the Executive (or, in the
event of his death, his estate) shall be entitled to receive only those
benefits set forth in Section 8.2.1; PROVIDED that if the Executive's
employment is terminated by reason of the Executive's Disability, he
shall, so long as his Disability continues, remain eligible for all
benefits provided under any long-term disability programs of the
Company in effect at the time of such termination, subject to the terms
and conditions of any such programs, as the same may be changed,
modified or terminated for or with respect to employees of the Company
generally.
6. TERMINATION BY THE COMPANY.
6.1 TERMINATION FOR CAUSE. The Company may, by providing written notice to
the Executive, terminate the Period of Employment and the Executive's
employment hereunder for
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Cause at any time. The term "CAUSE" for purposes of this Agreement
shall mean:
(a) the Executive is convicted of, or has plead guilty or entered
a plea of nolo contendere to, a felony (under the laws of the
United States or any state thereof);
(b) fraudulent conduct by the Executive in connection with the
business affairs of any member of the Company Group or the
theft, embezzlement, or other criminal misappropriation of
funds by the Executive from any member of the Company Group;
(c) the Executive's failure to perform the duties of the Company's
Chief Financial Officer, after reasonable notice has been
provided of such non-performance and, if such failure is
curable, Executive has not cured such failure within a ten day
period following such notice;
(d) the Executive's failure to comply with reasonable directives
of the Board or the CEO which are communicated to him in
writing, after reasonable notice has been provided of such
non-performance and, if such failure is curable, Executive has
not cured such failure within a ten day period following such
notice; or
(e) the Executive has habitually abused any substance (such as
narcotics or alcohol).
If the Executive's employment is terminated by the Company for Cause,
the termination shall take effect on the effective date (pursuant to
Section 17.10) of written notice of such termination to the Executive.
In the event of the termination of the Period of Employment and the
Executive's employment hereunder due to a termination by the Company
for Cause, then the Executive shall be entitled to receive only those
benefits set forth in Section 8.2.1.
6.2 TERMINATION WITHOUT CAUSE. The Company may, with or without reason,
terminate the Period of Employment and the Executive's employment
hereunder without Cause at any time by providing the Executive written
notice of such termination. If the Executive's employment is terminated
without Cause, the termination shall take effect on the effective date
(pursuant to Section 17.10) of written notice of such termination to
the Executive.
In the event of the termination of the Period of Employment and the
Executive's employment hereunder due to a termination by the Company
without Cause (other than due to the Executive's death or Disability)
prior to a Change in
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Control, the Executive shall be entitled to receive those benefits
set forth in Section 8.2.1, plus a lump sum cash payment equal to
the amount of his Base Salary then in effect that would have
otherwise been paid over the remainder of the Period of Employment
then in effect had he continued in the employ of the Company
(including any extension of the Period of Employment which has
already occurred as of the date of termination, but not including
any additional extension of the period of the Period of Employment).
The Company will not terminate Executive in anticipation of a Change
in Control (as such term is described below) and if such termination
occurs, benefits as described in Sections 6.2(a)(b)(c) below will
apply.
In the event of the termination of the Period of Employment and the
Executive's employment hereunder due to a termination by the Company
without Cause (other than due to the Executive's death or Disability)
upon or following a Change in Control (as such term is defined below),
or a requirement that the Executive relocate outside the state of
California, the Executive shall be entitled to receive:
(a) those benefits set forth in Section 8.2.1 hereof;
(b) a lump sum severance payment equal to twelve (12) times the
Executive's monthly Base Salary in effect immediately prior to
such termination; and
(c) All outstanding stock options granted to Executive shall
become fully vested.
(d) the Company will allow the Executive to exercise any stock
options granted by delivering a note to the Company on the
following terms and conditions:
(i) The principal of the note shall not exceed the amount
required to be paid to the Company upon the exercise
of one or more of such stock options and the note
shall be delivered directly to the Company in
consideration of such exercise.
(ii) The term of the note shall not exceed a period of one
month.
(iii) The note shall provide for full recourse to the
Executive and shall bear interest at a rate equal to
the interest rate then charged to the Company by the
Company's primary bank lender.
(iv) The note shall be secured by a pledge of the shares
financed thereby.
(v) The terms, repayment provisions, and collateral
release provisions of the note and the pledge
securing the note shall conform with applicable rules
and regulations, including those of the
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Federal Reserve Board and under the California
Corporations Code, as then in effect, and shall be
on such other reasonable terms as the Company may
require.
If a Change in Control results in a diminution of the Executive's
senior management position, responsibilities or compensation and
benefits as CFO, in his reporting responsibility to the CEO or in a
relocation of his office to a location more than twenty additional
miles from his residence, he may, within three months of such
diminution, change in reporting responsibility or relocation, terminate
his employment and be entitled to those benefits specified in Sections
6.2(a)(b)(c) above.
For purposes of this Section 6.2, "Change in Control" means any of
the following:
(x) Approval by the shareholders of the Company of the dissolution
or liquidation of the Company;
(y) Consummation of a merger, consolidation, or other
reorganization, with or into, or the sale of all or
substantially all of the Company's business and/or assets as
an entirety to, one or more entities that are not subsidiaries
or other affiliates of the Company (a "Business Combination"),
unless (1) as a result of the Business Combination more than
50% of the outstanding voting power generally in the election
of directors of the surviving or resulting entity or a parent
thereof (the "Successor Entity") immediately after the
reorganization are, or will be, owned, directly or indirectly,
by holders of the Company's voting securities immediately
before the Business Combination; and (2) no "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended, excluding the Successor
Entity or an Excluded Person (as such term is defined below))
beneficially owns, directly or indirectly, more than 50% of
the outstanding shares or the combined voting power of the
outstanding voting securities of the Successor Entity, after
giving effect to the Business Combination, except to the
extent that such ownership existed prior to the Business
Combination; or
(z) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended, other than
an Excluded Person becomes the beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as
amended), directly or indirectly, of securities of the
Corporation representing more than 50% of the combined voting
power of the Corporation's then outstanding securities
entitled to then vote generally in the election of directors
of the Corporation, other than as a result of
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(1) an acquisition directly from the Company, (2) an
acquisition by the Company, (3) an acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or a Successor Entity, or (4) an
acquisition by an entity pursuant to a transaction which is
expressly excluded under clause (b) above.
"Excluded Person" means (a) any person described in and satisfying the
conditions of Rule 13d-1(b)(1) under the Securities Exchange Act of
1934, as amended, (b) the Company, (c) an employee benefit plan (or
related trust) sponsored or maintained by the Company or the Successor
Entity, or (d) any person who is the beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of
more than 10% of the outstanding shares of Common Stock on the
Effective Date (or any affiliate, successor or related party of or to
any such person).
7. TERMINATION BY THE EXECUTIVE. The Executive shall have the right to
terminate the Period of Employment and the Executive's employment
hereunder at any time upon four (4) months prior written notice of such
termination to the Company. Upon such a termination by the Executive,
he shall be entitled only to those benefits set forth in Section 8.2.1.
8. EXPIRATION OF PERIOD OF EMPLOYMENT.
8.1 BENEFITS UPON EXPIRATION OF PERIOD OF EMPLOYMENT. If either party
elects not to extend the Period of Employment pursuant to Section 2,
unless the Executive's employment is earlier terminated pursuant to
Section 5, 6 or 7, termination of the Executive's employment hereunder
shall be deemed to occur at the close of business on the day
immediately preceding the next anniversary of the Effective Date which
occurs at least four (4) months after delivery of the non-extension
notice in accordance with Section 2. If the Company or the Executive
elect not to extend the Period of Employment, upon the Executive's
termination in accordance with the preceding sentence he will be
entitled to only those benefits set forth in Section 8.2.1.
8.2 GENERAL TERMINATION PROVISIONS.
8.2.1 GENERAL TERMINATION BENEFITS. In the case of any of the
foregoing terminations or the expiration of the Period of
Employment, the Executive or his estate shall be entitled to
(without duplication of benefits):
(a) any accrued but unpaid Base Salary as of the date of
such termination, including unused vacation;
(b) any earned but unpaid cash incentive compensation as
of the date of such termination;
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(c) any reimbursements or allowances due but not yet paid
the Executive; and
(d) such employee benefits described in Section 4.1 as
the Executive or his estate may be entitled to
hereunder or under the employee benefit plans,
programs and arrangements of the Company.
All amounts due the Executive in accordance with this Section
8.2.1 shall be paid promptly following their becoming due as
provided hereunder.
8.2.2 OTHER TERMINATION PROVISIONS. In the event of any termination
of employment under this Agreement, the Executive shall be
under no obligation to seek other employment and there shall
be no offset against amounts due the Executive under this
Agreement on account of any remuneration attributable to any
subsequent employment that he may obtain except on account of
any claims the Company may have against the Executive. Any
amounts due under Sections 5, 6, 7 or 8 are in the nature of
severance payments considered to be reasonable by the Company
and are not in the nature of a penalty.
9. SECTION 280G PROVISIONS.
Notwithstanding contained in this Agreement to the contrary, to the
extent that any payment or distribution of any type to or for the
Executive by the Company or any of its affiliates, whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (including, without limitation, any accelerated
vesting of stock options or restricted stock granted by the Company
pursuant to this Agreement or otherwise) (collectively, the "TOTAL
PAYMENTS") is or will be subject to the excise tax imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the
"CODE"), then the Total Payments shall be reduced (but not below zero)
so that the maximum amount of the Total Payments (after reduction)
shall be one dollar ($1.00) less than the amount which would cause the
Total Payments to be subject to the excise tax imposed by Section 4999
of the Code. Unless the Executive shall have given prior written notice
to the Company to effectuate a reduction in the Total Payments if such
a reduction is required, the Company shall reduce or eliminate the
Total Payments by first reducing or eliminating any cash severance
benefits, then by reducing or eliminating any accelerated vesting of
stock options, then by reducing or eliminating any accelerated vesting
of restricted stock, then by reducing or eliminating any other
remaining Total Payments. The preceding provisions of this Section 9
shall take precedence over the provisions of any other plan,
arrangement or agreement governing the Executive's rights and
entitlements to any benefits or compensation.
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Any determination that Total Payments to the Executive must be reduced
or eliminated in accordance with the forgoing provisions of this
Section 9 and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm
or consulting firm with experience in such matters selected by the
Company (the "ACCOUNTING FIRM"), which shall provide detailed
supporting calculations both to the Company and the Executive within
fifteen (15) business days after the date such calculation is requested
by the Company or the Executive. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. If a reduction or
elimination of Total Payments to the Executive in accordance with the
foregoing is necessary based on the Accounting Firm's determination,
the Accounting Firm shall furnish the Executive with a written opinion
that failure to limit the amount of the Total Payments would result in
the imposition of a tax under Section 4999 of the Code. Any
determination by the Accounting Firm shall be binding upon the Company
and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that Total Payments to
the Executive which will not have been made by the Company should have
been made ("UNDERPAYMENT"). The Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit of the
Executive. In the event that any Total Payment made to the Executive
shall be determined by the Accounting Firm to result in the imposition
of any tax under Section 4999 of the Code, the amount of such excess
Total Payment shall be a loan from the Company to the Executive, and
the Executive shall promptly reimburse the Company for the amount of
such excess together with interest on such amount (at the same rate as
is applied to determine the present value of payments under Section
280G or any successor thereto), from the date the reimbursable payment
was received by the Executive to the date the same is repaid to the
Company.
10. MEANS AND EFFECT OF TERMINATION.
Any termination of the Executive's employment under this Agreement
shall be communicated by written notice of termination from the
terminating party to the other party. The notice of termination shall
indicate the specific provision(s) of this Agreement relied upon in
effecting the termination and shall set forth in reasonable detail the
facts and circumstances alleged to provide a basis for termination, if
any such basis is required by the applicable provision(s) of this
Agreement.
11. NON-COMPETITION.
The Executive acknowledges and recognizes the highly competitive nature
of the businesses of the Company Group, the amount of sensitive and
confidential information
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involved in the discharge of the Executive's position as Chief
Financial Officer of the Company, and the harm to the Company Group
that would result if such knowledge or expertise was disclosed or made
available to a competitor, and accordingly agrees as follows:
(a) During the Period of Employment and, as a result of the
particular nature of the Executive's relationship with the
Company as its Chief Financial Officer, for the two (2) year
period immediately following the termination of the Period of
Employment, the Executive will not, directly or indirectly,
(i) engage in any business for the Executive's own account
that competes with the business of any entity within the
Company Group, (ii) enter the employ of, or render any
services to, any person engaged in any business that competes
with the business of any entity within the Company Group,
(iii) acquire a financial interest in any person engaged in
any business that competes with the business of any entity
within the Company Group, directly or indirectly, as an
individual, partner, shareholder, officer, director,
principal, agent, trustee or consultant, or (iv) interfere
with business relationships (whether formed before or after
the date of this Agreement) between the Company, any of its
affiliates or subsidiaries, and any customers, suppliers,
officers, employees, partners, members or investors of any
entity within the Company Group.
(b) Notwithstanding anything to the contrary in this Agreement,
the Executive may, directly or indirectly, own, solely as an
investment, securities of any person engaged in the business
of the Company or its affiliates which are publicly traded on
a national or regional stock exchange or on an
over-the-counter market if the Executive (i) is not a
controlling person of, or a member of a group which controls,
such person and (ii) does not, directly or indirectly, own
five percent (5%) or more of any class of securities of such
person.
For purposes of this Agreement, businesses in competition with the
Company Group shall mean (x) businesses which any entity within the
Company Group has specific plans to conduct in the future and as to
which the Executive is aware of such planning, and (y) other businesses
that are in the plasma collection industry. Solely for purposes of
clauses (a)(i), (a)(ii), and (a)(iii) of this Section 11 (but for no
other purpose of this Section 12 or any other provision of this
Agreement), a business that would otherwise be in competition with the
Company Group in accordance with the preceding sentence shall not be
deemed to be in competition with the Company Group if each of its
places of business are
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no closer than 50 miles to the nearest place of business of the
Company Group.
12. CONFIDENTIALITY.
The Executive will not at any time (whether during or after his
employment with the Company), other in the course of his duties
hereunder or unless compelled by lawful process, disclose or use for
his own benefit or purposes or the benefit or purposes of any other
person, firm, partnership, joint venture, association, corporation or
other business organization, entity or enterprise other than an entity
then within the Company Group, any trade secrets, or other confidential
data or information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, financing methods, or plans of any entity within the
Company Group; PROVIDED that the foregoing shall not apply to
information which is generally known to the industry or the public
other than as a result of the Executive's breach of this covenant. The
Executive agrees that upon termination of his employment with the
Company for any reason, he will return to the Company immediately all
memoranda, books, papers, plans, information, letters and other data,
and all copies thereof or therefrom, in any way relating to the
business of any entity within the Company Group, except that he may
retain personal notes, notebooks and diaries that do not contain
confidential information of the type described in the preceding
sentence. The Executive further agrees that he will not retain or use
for his account at any time any trade names, trademark or other
proprietary business designation used or owned in connection with the
business of any entity within the Company Group.
13. ANTISOLICITATION; NO DISPARAGEMENT.
The Executive promises and agrees that during the Period of Employment
and for a period of two (2) years thereafter:
(a) he will not influence or attempt to influence customers of any
entity within the Company Group (as it may now or in the
future be composed), either directly or indirectly, to divert
their business away from the Company Group to any individual,
partnership, firm, corporation or other entity then in
competition with the business of any entity within the Company
Group; and
(b) he will not make disparaging statements, whether oral or
written, regarding any entity within the Company Group.
13
<PAGE>
14. SOLICITING EMPLOYEES.
The Executive promises and agrees that for a period of one year
following termination of his employment he will not directly or
indirectly solicit any person who is then, or at any time within six
months prior thereto was, an employee of an entity within the Company
Group who earned on an annual basis $25,000 or more as an employee of
such entity at any time during the last six months of his or her own
employment to work for any business, individual, partnership, firm,
corporation, or other entity then in competition with the business of
any entity within the Company Group.
15. COOPERATION IN LITIGATION.
The Executive agrees that he will reasonably cooperate with the
Company, subject to his reasonable personal and business schedules, in
any litigation which arises out of events occurring prior to the
termination of his employment, including but not limited to, serving as
a witness or consultant and producing documents and information
relevant to the case or helpful to the Company. The Company agrees to
reimburse the Executive for all reasonable costs and expenses he incurs
in connection with his obligations under this Section 15.
16. INDEMNIFICATION.
The Company agrees to indemnify the Executive to the fullest extent
permitted by the law of the jurisdiction in which the Company is
incorporated against claims asserted against him personally arising out
of, or related to, the business of the Company or the Executive's
services for the Company. The Company shall provide officers' liability
insurance coverage to the Executive consistent with the levels of
coverage that it provides generally to its other executive officers
from time to time.
17. GENERAL.
17.1 ASSIGNMENT. This Agreement is personal in its nature and neither of the
parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder;
PROVIDED, HOWEVER, that, in the event of a merger, consolidation, or
transfer or sale of all or substantially all of the assets of the
Company with or to any other individual(s) or entity, this Agreement
shall, subject to the provisions hereof, be binding upon and inure to
the benefit of such successor and such successor shall discharge and
perform all the promises, covenants, duties, and obligations of the
Company hereunder.
17.2 GOVERNING LAW. This Agreement and the legal relations hereby created
between the parties hereto shall be governed by and construed under and
in accordance with the internal
14
<PAGE>
laws of the State of California, without regard to conflicts of laws
principles thereof.
The Executive and the Company agree (a) that his or its legal counsel
participated in the preparation of this Agreement and/or he or it has
had ample opportunity to have his or its legal counsel fully examine
this Agreement, and (b) that the rule of construction that ambiguities
are to be resolved against the drafting party shall not be employed in
the interpretation of this Agreement to the favor of either party
hereto against the other.
17.3. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of the
parties hereto respecting the matters within its scope. This Agreement
supersedes all prior agreements of the parties hereto on the subject
matter hereof. Any prior negotiations, correspondence, agreements,
proposals or understandings relating to the subject matter hereof shall
he deemed to be merged into this Agreement and to the extent
inconsistent herewith, such negotiations, correspondence, agreements,
proposals, or understandings shall be deemed to be of no force or
effect. There are no representations, warranties, or agreements,
whether express or implied, or oral or written, with respect to the
subject matter hereof, except as set forth herein.
17.4 MODIFICATIONS. This Agreement shall not be modified by any oral
agreement, either express or implied, and all modifications hereof
shall be in writing and signed by the parties hereto.
17.5 WAIVER. Failure to insist upon strict compliance with any of the terms,
covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment
of, or failure to insist upon strict compliance with, any right or
power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
17.6 NUMBER AND GENDER. Where the context requires, the singular shall
include the plural, the plural shall include the singular, and any
gender shall include all other genders.
17.7 SECTION HEADINGS. The section headings in this Agreement are for the
purpose of convenience only and shall not limit or otherwise affect any
of the terms hereof.
17.8 RESTRICTIONS ON THE EXECUTIVE. Each of the restrictions on the
Executive set forth in Section 11, 12, 13, 14 and/or 15 shall be
construed as an independent covenant, and the existence of any claim or
cause of action against the Company, whether predicated upon this
Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of any of such restrictions. The Executive
agrees that such restrictions are reasonable (including,
15
<PAGE>
without limitation, reasonable as to time, geographical area and
scope).
17.9 SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any
statute or public policy, then only the portions of this Agreement
which violate such statute or public policy shall be stricken, and all
portions of this Agreement which do not violate any statute or public
policy shall continue in full force and effect. Furthermore, any court
order striking any portion of this Agreement shall modify the stricken
terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
17.10 NOTICES. All notices under this Agreement shall be in writing and shall
be either personally delivered or mailed postage prepaid, by certified
United States mail, return receipt requested:
(a) if to the Company, at the address of the Company's principal
executive offices to the attention of the Chief Executive
Officer; or
(b) if to the Executive, at the address of the Executive's
principal residence as last reflected on the Company's
records.
Either party may change its address set forth above by written notice
given to the other party in accordance with the foregoing. Any notice
shall be effective when personally delivered, or five (5) business days
after being mailed in accordance with the foregoing.
17.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
17.12 WITHHOLDING TAXES. The Company may withhold from any amounts payable
under this Agreement such federal, state and local income, employment,
or other taxes as may be required to be withheld pursuant to any
applicable law or regulation.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
16
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Employment Agreement as of the date first above written.
THE COMPANY
SeraCare, Inc.,
a California corporation
By: /s/ Barry D. Plost
--------------------------------
Barry D. Plost
Chief Executive Officer
THE EXECUTIVE
/s/ James Linesch
-------------------------------
James Linesch
17
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