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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number 0-15223
HEMACARE CORPORATION
(Exact name of registrant as specified in its charter)
State or other jurisdiction of I.R.S. Employer I.D.
incorporation or organization: California Number: 95-3280412
4954 Van Nuys Boulevard
Sherman Oaks, California 91403
(Address of principal executive offices) (Zip Code)
___________________
Registrant's telephone number, including area code: (818) 986-3883
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days:YES X NO ___
As of May 11, 2000, 7,588,857 shares of Common Stock of the Registrant
were issued and outstanding.
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<PAGE>
INDEX
HEMACARE CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets-March 31, 2000 (unaudited) and
December 31, 1999
Consolidated income statements-Three months ended March
31, 2000 and 1999 (unaudited)
Consolidated statements of cash flows-Three months ended
March 31, 2000 and 1999 (unaudited)
Notes to consolidated financial statements-March 31, 2000
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits
SIGNATURES
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE> 3
HEMACARE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,274,000 $ 1,490,000
Marketable securities................................ 1,174,000 778,000
Accounts receivable, net of allowance for
doubtful accounts - $262,000 (2000) and $256,000
(1999)............................................. 3,592,000 3,090,000
Product inventories.................................. 81,000 91,000
Supplies............................................. 710,000 690,000
Prepaid expenses..................................... 150,000 202,000
------------ ------------
Total current assets..................... 6,981,000 6,341,000
Plant and equipment, net of accumulated
depreciation and amortization of
$1,966,000 (2000) and $1,920,000 (1999).............. 688,000 719,000
Goodwill, net of amortization of $75,000 (2000) and
$62,000 (1999)....................................... 455,000 468,000
Other assets........................................... 42,000 46,000
------------ ------------
$ 8,166,000 $ 7,574,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 1,425,000 $ 1,305,000
Accrued payroll and payroll taxes.................... 726,000 530,000
Accrued professional fees............................ 36,000 73,000
Other accrued expenses............................... 380,000 376,000
Current obligations under capital leases............. 67,000 63,000
Current notes payable................................ 140,000 138,000
Reserve for discontinued operations.................. 80,000 81,000
------------ ------------
Total current liabilities................ 2,854,000 2,566,000
Obligations under capital leases, net
of current portion................................... 169,000 188,000
Notes payable, net of current portion.................. 317,000 353,000
Other long-term liabilities............................ 27,000 27,000
Commitments and contingencies..........................
Shareholders' equity:
Preferred stock no par value 5,000,000 shares
authorized, 450,0000 issued and outstanding........ 75,000 75,000
Common stock, no par value - 20,000,000
shares authorized, 7,512,082 issued and
outstanding in 2000 and 7,475,082 in 1999........... 13,710,000 13,676,000
Accumulated deficit.................................. (8,986,000) (9,311,000)
------------ ------------
Total shareholders' equity............... 4,799,000 4,440,000
------------ ------------
$ 8,166,000 $ 7,574,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
HEMACARE CORPORATION
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTIION>
Three months ended March 31,
2000 1999
------------- -------------
<S> <C> <C>
Revenues:
Blood management programs......................... $ 2,253,000 $ 1,538,000
Regional operations
Blood products.................................. 1,039,000 1,067,000
Blood services.................................. 1,680,000 1,848,000
------------ ------------
Total revenue................................. 4,972,000 4,453,000
Operating costs and expenses:
Blood management programs......................... 1,820,000 1,460,000
Regional operations
Blood products.................................. 788,000 737,000
Blood services.................................. 1,133,000 1,422,000
------------ ------------
Total operating costs and expenses........... 3,741,000 3,619,000
------------ ------------
Operating profit............................. 1,231,000 834,000
General and administrative expense.................. 891,000 686,000
Gain on sale of Gateway Community Blood Program..... - 100,000
------------ ------------
Income from operations before income taxes.......... 340,000 248,000
Provision for income taxes.......................... 15,000 5,000
------------ ------------
Net income..................................... $ 325,000 $ 243,000
============ ============
Basic and diluted per share amounts:
Net income..................................... $ 0.04 $ 0.03
============ ============
Weighted average shares outstanding - basic......... 7,489,000 7,281,000
============ ============
Weighted average shares outstanding - diluted....... 8,888,000 7,798,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
HEMACARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net Income................................................ $ 325,000 $ 243,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for losses on accounts receviable........... 6,000 -
Depreciation and amortization......................... 59,000 63,000
Issuance of common stock and options for compensation. - 4,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............ (508,000) 398,000
Decrease (increase) in inventories, supplies
and prepaid expenses................................. 42,000 (46,000)
(Increase) in other assets, net....................... - (1,000)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities...................... 282,000 (519,000)
----------- -----------
Net cash provided by operating activities............. 206,000 142,000
Cash flows from investing activities:
Decrease in other assets.................................. 4,000 2,000
(Increase) in marketable securities....................... (396,000) (288,000)
(Purchase) of plant and equipment, net.................... (15,000) (12,000)
----------- -----------
Net cash used in investing activities..................... (407,000) (298,000)
Cash flows from financing activities:
Proceeds from issuance of common stock.................... 34,000 -
Principal payments on line of credit, net and capital
leases.................................................. (49,000) (76,000)
----------- -----------
Net cash used in financing activities..................... (15,000) (76,000)
----------- -----------
Increase in cash and cash equivalents....................... (216,000) (232,000)
Cash and cash equivalents at beginning of period............ 1,490,000 1,372,000
----------- -----------
Cash and cash equivalents at end of period.................. $1,274,000 $1,140,000
=========== ===========
Supplemental disclosure:
Interest paid............................................. $ 13,000 $ 20,000
=========== ===========
Income taxes paid......................................... $ 36,000 $ 0
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
HemaCare Corporation
Notes to Consolidated Financial Statements
Note 1 - Basis of Presentation and General Information
- ------------------------------------------------------
The accompanying unaudited consolidated financial statements of
HemaCare Corporation (the "Company" or "HemaCare") have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months ended
March 31, 2000, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000. For
further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
Note 2 - Line of Credit and Note Payable
- ----------------------------------------
Line of Credit
The Company maintains a line of credit with a commercial bank
secured by its accounts receivable, inventory and equipment.
Under the terms of the credit agreement, the Company may borrow
up to 70% of eligible accounts receivable, up to a maximum of
$1.2 million at an interest rate of prime (9.0% as of March 31,
2000) plus 0.5%, and must maintain certain financial ratios and
covenants. The Company was in compliance with all covenants of
its borrowing agreement at March 31, 2000, and there was no
balance outstanding under the line of credit.
Subsequent to March 31, 2000, the Company entered into two new
line of credit agreements, one relating to working capital and
the other for equipment purchases. Under the terms of the
working capital agreement, the Company may borrow the lesser of
75% of eligible accounts receivable or $2.0 million at an
interest rate of prime plus 0.25%. The Company must maintain
certain financial ratios and covenants. Additionally, the
Company has a secondary line of credit of $350,000 for equipment
purchases. Borrowings on the equipment purchase line of credit
are converted annually to a fully amortized note payable. This
equipment purchase line of credit bears interest at the rate of
the bank's internal cost of funds plus 3.0% (10.1% as of April
30, 2000). As of April 30, 2000, there were no borrowings on
either of these lines of credit and the Company was in compliance
with all loan covenants.
Note Payable
The Company has a term note with a bank, payable in 48 monthly
payments of principal and interest of approximately $15,000
through February 2003. The note bears interest at the prime rate
(9.0% as of March 31, 2000) plus one percent. Subsequent to
March 31, 2000, the Company paid off the remaining balance of
this note.
6
<PAGE> 7
Note 3 - Commitments and Contingencies
- --------------------------------------
Since 1976, California law has prohibited the infusion of blood
products into patients if the donors of those products were paid
unless, in the opinion of the recipient's physician, blood from a
non-paid donor was not immediately available. Apheresis platelet
products obtained from paid donors, including the Company's
Sherman Oaks Center's paid donors, are exempted from this law by
a series of state statutes the latest of which passed in late
1994. Unless a new exemption is obtained, the existing exemption
will expire under its sunset provision of December 31, 2001,
which could have a material adverse effect on the Company's
revenue and net income.
In February 2000, AB 2714, sponsored by the Company, was
introduced in the California Legislature. If enacted, this bill
would make permanent the current provisions of California law
allowing payment of apheresis platelet donors. However, there are
no assurances that AB 2714 will be passed by the legislature
and enacted into law.
State and Federal laws set forth antikickback and self-referral
prohibitions and otherwise regulate financial relationships
between blood banks and hospitals, physicians and other persons
who refer business to them. While the Company believes its
present operations comply with applicable regulations, there can
be no assurance that future legislation or rule making, or the
interpretation of existing laws and regulations will not prohibit
or adversely impact the delivery by HemaCare of its services and
products.
Note 4 - Business Segments
- ---------------------------
The Company operates in three business segments, each of which
represents a separate business activity. The segments and a
description of their business activities follows:
- - Blood Management Programs (BMP) - outsource programs which
provide all or a major portion of the blood related functions
to a hospital.
- - Blood Products- the collection, manufacture and distribution
of apheresis and whole blood derived products.
- - Blood Services - therapeutic apheresis and stem cell
collection procedures, autologous interoperative transfusion
and donor testing.
Management uses more than one measure to evaluate segment
performance. However, the dominant measurements are consistent
with the Company's consolidated financial statements, which
present revenue from external customers and operating income for
each segment.
Note 5 - Gain on Disposition
- ----------------------------
In September 1995, the Company formed Gateway Community Blood
Program, Inc. ("Gateway"), a wholly owned subsidiary incorporated
in Missouri, to provide blood products and services in Missouri
7
<PAGE> 8
and Illinois. In August 1997, Gateway's operations were sold.
The Company is entitled to receive a percentage of Gateway's
revenues, as defined over the five years subsequent to the date
of sale, up to a maximum of $422,000. The Company received an
additional payment of $100,000 during the first quarter of 1999,
when Gateway received a Food and Drug Administration
establishment license. This amount was accounted for as an
additional gain on the disposition of Gateway in the quarter
ended March 31, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- -------------------------------------------------------------------
HemaCare's operations include blood management programs ("Blood
Management Programs" or "BMPs") and regional sales of blood products
("Blood Products") and blood services ("Blood Services").
A HemaCare Blood Management Program allows a hospital to outsource all
or a portion of its blood procurement and donor center management
operations and other blood related activities. Blood Products include
apheresis platelets and whole blood components such as red blood cells
and plasma products. Blood Services include therapeutic apheresis
procedures, stem cell collection, interoperative autologus transfusion
and donor testing.
In October 1998, the Company, through its subsidiary Coral Blood
Services, Inc. ("CBS"), acquired existing blood products and services
operations in the eastern United States. These consist of Blood
Management Programs and other blood services provided to hospitals and
medical centers.
In February 2000, the Company commenced a Blood Management Program
with Long Beach Memorial Medical Center ("LBMMC"). The Company now
operates seven blood management programs. In addition to the LBMMC
program, the Company operates programs at the University of Southern
California ("USC"), initiated in 1996, the University of California at
Irvine ("UCI"), initiated in June 1999, and four East Coast programs.
The East Coast programs are Dartmouth-Hitchcock Medical Center
("DHMC"), Maine Medical Center ("MMC"), St. Vincent Hospital ("St.
Vincent") and University of North Carolina ("UNC"). Prior to October
1998, Coral Therapeutics, Inc. operated these programs.
All comparisons within the following discussions are to the comparable
periods of the previous year.
Revenues and Operating Profit
- -----------------------------
Total revenues increased 12% ($519,000) in the first quarter of 2000.
The increase was due to the expansion of the California based BMPs
and increased revenue at other BMPs, partially offset by lower
California Blood Services revenue. The Company's operating profit as
a percentage of revenue ("profit margin") increased to 25% in the
first quarter of 2000 from 19% in the comparable quarter of 1999.
This increase reflects continued improvement in CBS's operating
efficiency.
8
<PAGE> 9
Blood Management Programs
Revenue increased 46% ($715,000) in the first quarter of 2000. The
revenue increase was primarily due to the addition of two new
California BMPs. The UCI BMP opened in June 1999, and the LBMMC BMP
opened in February 2000. These new programs contributed approximately
$450,000 to first quarter 2000 revenues. The balance of the increase
was due to increased demand for products and services at continuing BMPs.
Operating profit increased by 455% ($355,000) in the first quarter of
2000. The increase is attributable to the new programs and improved
operating efficiencies at continuing programs.
Blood Products
Blood Products revenue decreased by 3% ($28,000) in the first quarter
of 2000. The decrease in revenue is primarily due to a decrease in
the average price per blood platelet unit sold offset by an increase
in the number of platelets sold. Competition among apheresis platelet
suppliers intensified during the third quarter of 1999 and continued
through the first quarter of 2000. In response to the competitive
pressures (primarily from the American Red Cross), the Company decreased
its platelet prices to certain customers.
The profit margin on Blood Products decreased to 24% from 31% in the
first quarter of 1999. The decrease in profit margin resulted primarily
from a decrease in the average price per platelet sold along with a
greater number of product expirations.
Blood Services
Blood Services revenue decreased by 9% ($168,000) in the first quarter
of 2000. While the total number of therapeutic procedures was
comparable in 1999 and 2000, the decrease in revenue resulted from
lower albumin sales. The Company often provides albumin, a plasma
replacement fluid, used in therapeutic procedures. The Company's cost
of albumin and the price the Company charges its customers decreased
in the first quarter of 2000 compared to 1999.
Blood Services profit increased by $121,000 or 28% in the first
quarter of 2000. The increase is due primarily to improved operating
efficiencies in East Coast operations.
Gain on Disposition
As part of the terms of sale of Gateway's operations, the Company was
entitled to receive a payment of $100,000 when Gateway received a Food
and Drug Administration establishment license. In the first quarter
of 1999, Gateway received this license, and the Company realized an
additional $100,000 gain on the disposition.
General and administrative expense
General and administrative expenses increased by 30% ($205,000) during
the first quarter of 2000. The increase reflects additional expenses
incurred in connection with proposed California legislation (AB2714)
9
<PAGE> 10
(See Liquidity and Capital Resources below), expanded marketing
efforts, and accrual of employee incentive compensation related to
improved operating performance.
Liquidity and Capital Resources
At March 31, 2000, the Company had cash and cash equivalents and
marketable securities of $2,448,000 and working capital of $4,127,000.
As of March 31, 2000, the Company had a line of credit with a
commercial bank whereby the Company may borrow up to 70% of eligible
accounts receivable, up to a maximum of $1.2 million and must maintain
certain financial ratios. The Company was in compliance with all
covenants of its borrowing agreement at March 31, 2000, and there were
no borrowings outstanding on the line of credit at that date.
The Company also has a term note with a bank that has a March 31,
2000, balance of $457,000. The note requires monthly payments of
approximately $15,000 including interest equal to the prime rate
(9% at March 31, 2000) plus one percent. This note is cross
collateralized with the Company's line of credit. Subsequent to March
31, 2000, this note was paid in full.
Subsequent to March 31, 2000, the Company entered into a new banking
relationship. Under the terms of this new agreement the Company has a
working capital line of credit and a second line of credit for equipment
purchases. The working capital line provides availability equal to
the lesser or 75% of eligible accounts receivable or $2.0 million.
Interest is payable monthly at a rate of prime plus 0.25%. The
Company must maintain certain financial ratios and covenants. This
line matures in December 2001.
The equipment purchase line provides $350,000 for equipment purchases.
On an annual basis, the Company may convert its equipment purchases into
a long-term, fully amortized note payable. The note requires monthly
payments including interest equal to the Bank's internal cost of funds
plus 3% (10.1% at April 30, 2000).
These new banking arrangements are secured by substantially all of the
Company's unencumbered assets and require the Company to maintain
certain financial covenants. As of March 31, 2000, the Company was in
compliance with these covenants.
Since 1976, California law has prohibited the infusion of blood
products into patients if the donors of those products were paid
unless, in the opinion of the recipient's physician, blood from a non-
paid donor was not immediately available. Apheresis platelet products
obtained from paid donors, including the Company's Sherman Oaks
Center's paid donors, are exempted from this law by a series of state
statutes the latest of which passed in late 1994. Unless a new
exemption is obtained, the existing exemption will expire under its
sunset provision of December 31, 2001, which could have a material
adverse effect on the Company's revenue and net income.
In February 2000, AB 2714, sponsored by the Company, was introduced in
the California Legislature. If enacted, this bill would make
permanent the current provisions of California law allowing payment of
apheresis platelet donors. The Company believes that its twenty-one
year history of providing platelets to hospitals and patients (without
a single adverse patient health outcome) and its excellent regulatory
compliance record strongly support the passage of AB 2714. However,
there are no assurances that AB 2714 will be passed by the legislature
10
<PAGE> 11
and enacted into law. Historically, legislation permitting the
payment of apheresis platelet donors has been opposed by the not for
profit blood centers operating in California which rely exclusively on
uncompensated blood product donors. Such blood centers, which compete
with the Company, oppose AB 2714.
The Company anticipates that cash flow from profitable operations,
borrowing available from its bank line of credit and its cash and
investments on hand will be sufficient to provide funding for its
existing needs during the next twelve months.
Year 2000 Disclosure
To date, the Company has not experienced any major systems failures or
other adverse consequences due to Year 2000 noncompliance. While the
possibility still exists for further computer failures, internally or
among its customers and suppliers, management does not expect that
these developments, should they occur, would have a material adverse
impact on the financial position, results of operation or cash flows
of the Company.
Factors Affecting Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" from liability for forward-looking statements. Certain
information included in the Form 10-Q and other materials filed or to
be filed by the Company with the Securities and Exchange Commission
(as well as information included in oral statements or other written
statements made or to be made by or on behalf of the Company) are
forward-looking, such as statements relating to operational and
financing plans, competition, the effects of discontinued operations,
the effect of state and Federal regulation and demand for the
Company's products and services. Such forward-looking statements
involve important risks and uncertainties, many of which will be
beyond the control of the Company. These risks and uncertainties
could significantly affect anticipated results in the future, both
short-term and long-term, and accordingly, such results may differ
from those expressed in forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include, but are
not limited to, those relating to the passage of AB 2714 in California
to permit continuation of the Company's use of paid apheresis platelet
donors in California, the ability of the Company to expand its
operations, to obtain additional financing, to repay existing debt, to
retain existing customers and obtain new customers and to comply with
the covenants under its bank line of credit. Each of these risks and
uncertainties as well as others are discussed in greater detail in the
preceding paragraphs of this Management's Discussion and Analysis of
Financial Condition and Results of Operations and in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See disclosure in Form 10-K for the year ended December 31,
1999.
Item 4. Submission of Matters to a Vote of Security Holders
None
11
<PAGE> 12
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Revolving Credit Loan & Security Agreement between
the Registrant and Comerica Bank, dated March 1,
2000
11 Net Income per Common and Common Equivalent Share
27 Financial Data Schedule for the Quarter Ended
March 31, 2000
b. The Company did not file any reports on Form 8-K during
the three months ended March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: May 12, 2000 HEMACARE CORPORATION
-----------------------
(Registrant)
/s/ David E. Fractor
------------------------
David E. Fractor, Chief
Financial Officer
(Duly authorized officer
and principal financial and
accounting officer)
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Method of Filing
----------------
<S> <C> <C>
10.1 Revolving Credit Loan & Security Agreement between
the Registrant and Comerica Bank, dated March 1,
2000............................................... Filed herewith electronically
11 Net Income per Common and Common Equivalent Share.. Filed herewith electronically
27 Financial Data Schedule for the quarter ended
September 30, 1999................................. Filed herewith electronically
</TABLE>
13
Exhibit 10.1
REVOLVING CREDIT LOAN & SECURITY
AGREEMENT
(ACCOUNTS AND INVENTORY)
- --------------------------------------------------------------------|
|OBLIGOR # | NOTE# | AGREEMENT DATE |
| | | |
| | | March 01, 2000 |
|-------------------------------------------------------------------|
|CREDIT LIMIT | INTEREST RATE | OFFICER NO./INITIALS |
| | | |
|$2,000,000.00 | Base Rate + 0.25% | 48226, Jason Brown |
|-------------------------------------------------------------------|
THIS AGREEMENT is entered into on March 1, 2000, between
Comerica Bank-California ("Bank") as secured party, whose
Headquarter Office is 333 West Santa Clara Street, San Jose,
California and HemaCare Corporation ("Borrower"), a corporation
whose sole place of business (if it has only one), chief
executive (if it has more than one place of business) or
residence (if an individual is located at 4954 Van Nuys
Boulevard, Sherman Oaks, California. The parties agree as
follows:
1. DEFINITIONS
1.1 "Agreement" as used in this Agreement means and
includes this Revolving Credit Loan & Security Agreement
(Accounts and Inventory), any concurrent or subsequent rider to
this Revolving Credit Loan & Security Agreement (Accounts and
Inventory) and any extensions, supplements, amendments or
modifications to this Revolving Credit Loan & Security Agreement
(Accounts and Inventory) and to any such rider.
1.2 "Bank Expenses'1 as used in this Agreement means
and includes: all costs or expenses required to be paid by
Borrower under this Agreement which are paid or advanced by Bank;
taxes and insurance premiums of every nature and kind of Borrower
paid by Bank; filing, recording, publication and search fees,
appraiser fees, auditor fees and costs, and title insurance
premiums paid or incurred by Bank in connection with Bank's
transactions with Borrower; costs and expenses incurred by Bank
in collecting the Receivables (with or without suit) to correct
any default or enforce any provision of this Agreement, or in
gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, disposing of, preparing for sale
and/or advertising to sell the Collateral, whether or not a sale
is consummated; costs and expenses of suit incurred by Bank in
enforcing or defending this Agreement or any portion hereof,
including, but not limited to, expenses incurred by Bank in
attempting to obtain relief from any stay, restraining order,
injunction or similar process which prohibits Bank from
exercising any of its rights or remedies; and attorneys' fees and
expenses incurred by Bank in advising, structuring, drafting,
reviewing, amending, terminating, enforcing, defending or
concerning this Agreement, or any portion hereof or any agreement
related hereto, whether or not suit is brought. Bank Expenses
shall include Bank's in-house legal charges at reasonable rates.
1.3 "Base Rate" as used in this Agreement means that
variable rate of interest so announced by Bank at its
headquarters office in San Jose, California as its "Base Rate"
from time to time and which serves as the basis upon which
effective rates of Interest are calculated for those loans making
reference thereto.
1.4 "Borrower's Books" as used in this Agreement means
and includes all of the Borrower's books and records including
but not limited to: minute books; ledgers; records indicating,
summarizing or evidencing Borrower's assets, liabilities,
Receivables, business operations or financial condition, and all
Information relating thereto, computer programs; computer disk or
tape files; computer printouts; computer runs; and other computer
prepared information and equipment of any kind.
1.5 "Borrowing Base" as used in this Agreement means
the sum of (1) Seventy-Five percent (75.000%) of the net amount
of Eligible Accounts after deducting therefrom all payments,
adjustments and credits applicable thereto ("Accounts Receivable
Borrowing Base"); and (2) the amount, if any, of the advances
against Inventory agreed to be made pursuant to any Inventory
Rider ("Inventory Borrowing Base"), or other rider, amendment or
modification to this Agreement, that may now or hereafter be
entered into by Bank anti Borrower.
1.6 "Cash Flow" as used in this Agreement means, for
any applicable period of determination, the Net Income (after
deduction for Income taxes and other taxes of such person
determined by reference to income or profits of such person) for
such period, plus, to the extent deducted In computation of such
Net Income, the amount of depreciation and amortization expense
and the amount of deferred tax liability during such period, all
as determined in accordance with GAAP. The applicable period of
determination will annually, beginning with the period from
January 1, 2000 to December 31, 2000.
1.7 "Collateral" as used in this Agreement means and
includes each and all of the following: the Receivables; the
Intangibles; the negotiable collateral, the Inventory; all money,
deposit accounts and all other assets of Borrower in which Bank
receives a security interest or which hereafter come into the
possession, custody or control of Bank; and the proceeds of any
of the foregoing, including, but not limited to, proceeds of
insurance covering the collateral and any and all Receivables.
Intangibles, negotiable collateral, Inventory, equipment, money,
deposit accounts or other tangible and intangible property of
borrower resulting from the sale or other disposition of the
collateral, and the proceeds thereof. Notwithstanding anything
to the contrary contained herein, collateral shall not include
any waste or other materials which have been or may be designated
as toxic or hazardous by Bank.
1.8 "Credit" as used in this Agreement means all
Obligations, except those obligations arising pursuant to any
other separate contract, instrument, note, or other separate
agreement which, by its terms, provides for a specified interest
rate and term.
1.
<PAGE>
1.9 "Current Assets" as used in this Agreement means,
as of any applicable date of determination, all cash, non-
affiliated customer receivables, United States government
securities, claims against the United States government, and
inventories.
1.10 "Current Liabilities" as used in this Agreement
means, as of any applicable date of determination, (i) all
liabilities of a person that should be classified as current in
accordance with GAAP, including without limitation any portion of
the principal of the indebtedness classified as current, plus
(ii) to the extent not otherwise included, all liabilities of the
Borrower to any of its affiliates whether or not classified as
current In accordance with GAAP.
1.11 "Daily Balance" as used in this Agreement means
the amount determined by taking the amount of the Credit owed at
the beginning of a given day, adding any new Credit advanced or
incurred on such date, and subtracting any payments or
collections which are deemed to be paid and are applied by Bank
in reduction of the Credit on that date under the provisions of
this Agreement.
1.12 "Eligible Accounts" as used in this Agreement
means and includes those accounts of Borrower which are due and
payable within thirty (30) days, or less, from the date of
invoice, have been validly assigned to Bank and strictly comply
with all of Borrower's warranties and representations to Bank;
but Eligible Accounts shall not include the following:
(a) accounts with respect to which the account debtor is an
officer, employee, partner, joint venturer or agent of Borrower;
(b) accounts with respect to which goods are placed on
consignment, guaranteed sale or other terms by reason of which
the payment by the account debtor may be conditional;
(c) accounts with respect to which the account debtor Is not a
resident of the United States; (d) accounts with respect to which
the account debtor is the United States or any department, agency
or instrumentality of the United States; (e) accounts with
respect to which the account debtor is any State of the United
States or any city, county, town, municipality or division
thereof; (f) accounts with respect to which the account debtor is
a subsidiary of, related to, affiliated or has common
shareholders, officers or directors with Borrower; (g) accounts
with respect to which Borrower is or may become liable to the
account debtor for goods sold or services rendered by the account
debtor to Borrower; (h) accounts not paid by an account debtor
within ninety (90) days from the date of the invoice;
(i) accounts with respect to which account debtors dispute
liability or make any claim, or have any defense, crossclaim,
counterclaim, or offset; (j) accounts with respect to which any
Insolvency Proceeding is filed by or against the account debtor,
or if an account debtor becomes insolvent, fails or goes out of
business; and (k) accounts owed by any single account debtor
which exceed twenty percent (20%) of all of the Eligible
Accounts; and (l) accounts with a particular account debtor on
which over twenty-five percent (25 %) of the aggregate amount
owing is greater than ninety (90) days from the date of the
invoice.
1.13 "Event of Default" as used in this Agreement means
those events described in Section 7 contained herein below.
1.14 "Fixed Charges" as used in this Agreement means
and includes, for any applicable period of determination, the
sum, without duplication, of (a) all interest paid or payable
during such period by a person on debt of such person, plus
(b) all payments of principal or other sums paid or payable
during such period by such person with respect to debt of such
person having a final maturity more than one year from the date
of creation of such debt, plus (c) all debt discount and expense
amortized or required to be amortized during such period by such
person, plus (d) the maximum amount of all rents and oilier
payments paid or required to be paid by such person during such
period under any lease or other contract or arrangement providing
for use of real or personal property In respect of which such
person is obligated as a lessee, use or obligor, plus (e) all
dividends and other distributions paid or payable by such person
or otherwise accumulating during such period on any capital stock
of such person, plus (f) all loans or other advances made by such
person during such
period to any Affiliate of such person. The applicable period of
determination will be [non-applicable], beginning with period
from ____________________ to ____________________ .
1.15 "GAAP"as used in this Agreement means as of any
applicable period, generally accepted accounting principles in
effect during such period.
1.16 "Insolvency Proceeding" as used in this Agreement
means and includes any proceeding or case commenced by or against
the Borrower, or any guarantor of Borrower's Obligations, or any
of borrower's account debtors, under any provisions of the
Bankruptcy Code, as amended, or any other bankruptcy or
Insolvency law, including but not limited to assignments for time
benefit of creditors, formal or informal moratoriums, composition
or extensions with some or all creditors, any proceeding seeking
a reorganization, arrangement or any other relief under the
Bankruptcy code, as amended, or any other bankruptcy or
insolvency law.
1.17 "Intangibles" as used in this Agreement means and
Includes all of Borrower's present and future general Intangibles
and other personal property (including, without limitation, any
and all rights In any legal proceedings, goodwill, patents, trade
names, copyrights, trademarks, blueprints, drawings, purchase
orders, computer programs, computer disks, computer tapes,
literature, reports, catalogs and deposit accounts) other than
goods and Receivables, as well as Borrower's Books relating to
any of the foregoing.
1.18 "Inventory" as used in this Agreement means and
includes all present and future inventory in which Borrower has
any interest, including, but not limited to, goods held by
borrower for sale or lease or to be furnished under a contract of
service and all of Borrower's present and future raw materials,
work in process, finished goods, advertising materials, and
packing and shipping materials, wherever located and any
documents of title representing any of the above, and any
equipment, fixtures or other property used in the storing,
moving, preserving, identifying, accounting for and shipping or
preparing for the shipping of inventory, and any and all other
items hereafter acquired by Borrower by way of substitution,
2.
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replacement, return, repossession or otherwise, and all additions
and accessions thereto, and the resulting product or mass, and
any documents of title respecting any of the above.
1.19 "Net Income" as used in this Agreement means the
net income (or loss) of a person for any period determined in
accordance with GAAP but excluding in any event:
a. any gains or losses on the sale or other
disposition, not in the ordinary course of business, of
investments or fixed or capital assets, and any taxes on
time excluded gains and any tax deductions or credits on
account on any excluded losses; and
b. in time case of time Borrower, net earnings of any
Person in which Borrower has an ownership interest, unless
such net earnings shall have actually been received by
Borrower in time form of cash distributions.
1.20 "Judicial Officer or Assignee" as used in this
Agreement means and includes any trustee, receiver, controller,
custodian, assignee for the benefit of creditors or any other
person or entity having powers or duties like or similar to the
powers and duties of trustee, receiver, controller, custodian or
assignee for time benefit of creditors.
1.21 "Obligations" as used in this Agreement means and
includes any and all loans, advances, overdrafts, debts,
liabilities (including, without limitation, any and all amounts
charged to Borrower's account pursuant to any agreement
authorizing Bank to charge Borrower's account), obligations,
lease payments, guaranties, covenants and duties owing by
Borrower to Bank of any kind and description whether advanced
pursuant to or evidenced by this Agreement; by any note or other
instrument; or by any other agreement between Bank and Borrower
and whether or not for time payment of money, whether direct or
indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including, without limitation,
any debt, liability or obligation owing from Borrower to others
which Bank may have obtained by assignment, participation,
purchase or otherwise, and further Including, without limitation,
all interest not paid when due and all Bank Expenses which
Borrower is required to pay or reimburse by this Agreement, by
law, or otherwise.
1.22 "Person" or "person" as used in this Agreement
means and includes any individual, corporation, partnership,
joint venture, association, trust, unincorporated association,
joint stock company, government, municipality, political
subdivision or agency, or other entity.
1.23 "Receivables" as used in this Agreement means and
includes all presently existing and hereafter arising accounts,
instruments, documents, chattel paper, general intangibles, all
other forms of obligations owing to Borrower, all of Borrower's
rights in, to and under all purchase orders heretofore or
hereafter received, all moneys due to Borrower under all
contracts or agreements (whether or not yet earned or due), all
merchandise returned to or reclaimed by Borrower and the
Borrower's books (except minute books) relating to any of the
foregoing.
1.24 "Subordinated Debt" as used in this Agreement
means indebtedness of the Borrower to third parties which has
been subordinated to the Obligations pursuant to a subordination
agreement in form and content satisfactory to the Bank.
1.25 "Subordination Agreement" as used in this
Agreement means a subordination agreement in form satisfactory to
Bank making all present and future indebtedness of the Borrower
to [non-applicable] subordinate to the Obligations.
1.26 "Tangible Effective Net Worth" as used in this
Agreement means net worth as determined in accordance with GAAP
consistently applied, increased by Subordinated Debt, if any, and
decreased by the following: patents, licenses, goodwill,
subscription lists, organization expenses, trade receivables
converted to notes, money due from affiliates (including
officers, directors, subsidiaries and commonly held companies).
1.27 "Tangible Net Worth"as used in this Agreement
means, as of any applicable date of determination, the excess of
a. the net book value of all assets of a person
(other than patents, patent rights, trademarks, trade names,
franchises, copyrights, licenses, goodwill, and similar
intangible assets) after all appropriate deductions In
accordance whim GAAP (including, without limitation,
reserves for doubtful receivables, obsolescence,
depreciation anti amortization), over
b. all Debt of such person.
1.28 "Total Liabilities" as used in this Agreement
means the total of all items of indebtedness, obligation or
liability which, in accordance with GAAP consistently applied,
would be Included in determining the total liabilities of the
Borrower as of the date total Liabilities is to be determined,
including without limitation (a) all obligations secured by any
mortgage, pledge, security interest or other lien on property
owned or acquired, whether or not the obligations secured thereby
shall have been assumed; (b) all obligations which are
capitalized lease obligations; and (c) all guaranties,
endorsements or other contingent or surety obligations with
respect to the indebtedness of others, whether or not reflected
on the balance sheets of the borrower, including any obligation
to furnish funds, directly or indirectly through the purchase of
goods, supplies, services, or by way of stock purchase, capital
contribution, advance or loan or any obligation to enter into a
contract for any of the foregoing.
1.29 "Working Capital" as used in this Agreement means,
as of any applicable date of determination, Current Assets less
Current Liabilities.
3.
<PAGE>
1.30 Any and all terms used in this Agreement shall be
construed and defined in accordance with the meaning and
definition of such terms under and pursuant to the California
Uniform commercial Code (hereinafter referred to as the "Code")
as amended.
2. LOAN AND TERMS OF PAYMENT
For value received, Borrower promises to pay to the order of
Bank such amount, as provided for below, together with
interest, as provided for below.
2.1 Upon the request of Borrower, made at any time and
from time to time during the term hereof, and so long as no Event
of Default has occurred, Bank shall lend to Borrower an amount
equal to the Borrowing Base; provided, however, that in no event
shall Bank be obligated to make advances to Borrower under this
Section 2.1 whenever the Daily Balance exceeds, at any time,
either the Borrowing Base or the sum of Two Million and no/100
($2,000,000.00), such amount being referred to herein as an
"Overadvance".
See Addendum attached hereto and made a part hereof.
2.2 Except as hereinbelow provided, the Credit shall
bear interest, on the Daily Balance owing, at a rate of Zero
25/100 (0.250) percentage points per annum above the Base Rate
(the "Rate"). the Credit shall bear interest, from and after the
occurrence of an Event of Default and without constituting a
waiver of any such Event of Default, on the Daily Balance owing,
at a rate three (3) percentage points per annum above the Rate.
All interest chargeable under this Agreement that is based upon
a per annum calculation shall be computed on the basis of a three
hundred sixty (360) day year for actual days elapsed.
See Addendum attached hereto and made a part hereof.
The Base Rate as of the date of this Agreement is Eight and
75/100 (8.750%) per annum. In the event that the Base Rate
announced is, from time to time hereafter changed, adjustment in
the Rate shall be made and based on the Base Rate in effect on
the date of such change. The Rate, as adjusted, shall apply to
the Credit until the Base Rate is adjusted again. The minimum
interest payable by the Borrower under this Agreement shall in no
event be less than _________ per month. All interest payable by
Borrower under the Credit shall be due and payable on the first
day of each calendar month during the term of this Agreement. A
late payment charge equal to 5% of each late payment may be
charged on any payment not received by the Bank within 10
calendar days after the payment due date, but acceptance of
payment of this charge shall not waive any Default under this
Agreement.
2.3 Without affecting Borrower's obligation to repay
immediately any Overadvance in accordance with Section 2.1
hereof, all Overadvances shall bear additional interest on the
amount thereof at a rate equal to ____________________ (_____%)
percentage points per month in excess of the interest rate set
forth in Section 2.2, from the date incurred and for each month
thereafter, until repaid in full.
3. TERM.
3.1 This Agreement shall remain in full force and
effect until December 15, 2001, or until terminated by notice by
Borrower. Notice of such termination by Borrower shall be
effectuated by mailing of a registered or certified letter not
less than thirty (30) days prior to the effective date of such
termination, addressed to the Bank at the address set forth
herein and the termination shall be effective as of the date so
fixed in such notice. Notwithstanding the foregoing, should
Borrower be in default of one or more of the provisions of this
Agreement, Bank may terminate this Agreement at any time without
notice. Notwithstanding the foregoing, should either Bank or
Borrower become insolvent or unable to meet its debts as they
mature, or fail, suspend, or go out of business, the other party
shall have the right to terminate this Agreement at any time
without notice. On the date of termination all Obligations shall
become immediately due and payable without notice or demand; no
notice of termination by Borrower shall be effective until
Borrower shall have paid all Obligations to Bank in full.
Notwithstanding termination, until all Obligations have been
fully satisfied, Bank shall retain its security interest in all
existing Collateral and Collateral arising thereafter, and
Borrower shall continue to perform all of its Obligations.
3.2 After termination and when Bank has received
payment in full of Borrower's Obligations to Bank, Bank shall
reassign to Borrower all Collateral held by Bank, and shall
execute a termination of all security agreements and security
interests given by Borrower to Bank, upon the execution and
delivery of mutual general releases.
4. CREATION OF SECURITY INTEREST
4.1 Borrower hereby grants to Bank a continuing
security interest in all presently existing and hereafter arising
Collateral in order to secure prompt repayment of any and all
Obligations owed by Borrower to Bank and in order to secure
prompt performance by Borrower of each and all of its covenants
and Obligations under this Agreement and otherwise created.
Bank's security interest in the Collateral shall attach to all
Collateral without further act on the part of Bank or Borrower.
In the event that any Collateral, including proceeds, is
evidenced by or consists of a letter of credit, advice of credit,
instrument, money, negotiable documents, chattel paper or similar
property (collectively, "Negotiable Collateral"), Borrower shall,
immediately upon receipt thereof, endorse and assign such
Negotiable Collateral over to Bank and deliver actual physical
possession of the Negotiable Collateral to Bank.
4.2 Bank's security interest in Receivables shall
attach to all Receivables without further act on the part of Bank
or Borrower. Upon request from Bank, Borrower shall provide Bank
with schedules describing all Receivables created or acquired by
Borrower (including without limitation agings listing the names
and addresses of, and amounts owing by date by account debtors),
and shall execute and deliver written assignments of all
Receivables to Bank all in a form acceptable to Bank, provided,
however, Borrower's failure to execute and deliver such schedules
and/or assignments shall not affect or limit Bank's security
interest and other rights in and to the Receivables. Together
with each schedule, Borrower shall furnish Bank with copies of
4.
<PAGE>
Borrower's customers' invoices or the equivalent, and original
shipping or delivery receipts for all merchandise sold, and
Borrower warrants the genuineness thereof. Bank or Bank's
designee may notify customers or account debtors of collection
costs and expenses to Borrower's account but, unless and until
Bank does so or gives Borrower other written instructions,
Borrower shall collect all Receivables for Bank, receive in trust
all payments thereon a Bank's trustee, and, if so requested to do
so from Bank, Borrower shall immediately deliver said payments to
Bank in their original form as received from the account debtor
and all letters of credit, advices of credit, instruments,
documents, chattel paper or any similar property evidencing or
constituting Collateral. Notwithstanding anything to the
contrary contained herein, if sales of Inventory are made for
cash, Borrower shall immediately deliver to Bank, in identical
form, all such cash, checks, or other forms of payment which
Borrower receives. The receipt of any check or other item of
payment by Bank shall not be considered a payment on account
until such check or other item of payment is honored when
presented for payment, in which event, said check or other item
of payment shall be deemed to have been paid to Bank two (2)
calendar days after the date Bank actually receives such check or
other item of payment.
4.3 Bank's security interest in Inventory shall attach
to all Inventory without further act on the part of Bank or
Borrower. Upon Bank's request Borrower will from time to time at
Borrower' expense pledge, assemble and deliver such Inventory to
Bank or to a third party as bank's bailee; or hold the same in
trust for Bank's account or store the same in a warehouse in
Bank's name; or deliver to Bank documents of title representing
said Inventory; or evidence of Bank's security interest in some
other manner acceptable to Bank. Until a default by Borrower
under this Agreement or any other Agreement between Borrower and
Bank, Borrower may, subject to the provisions hereof and
consistent herewith, sell the Inventory, but only in the ordinary
course of Borrower's business. A sale of Inventory in Borrower's
ordinary course of business does not include an exchange or a
transfer in partial or total satisfaction of a debt owing by
Borrower.
4.4 Borrower shall execute and deliver to Bank
concurrently with Borrower's execution of this Agreement, and at
any time or times hereafter at the request of Bank, all financing
statements, continuation financing statements, security
agreements, mortgages, assignments, certificates of title,
affidavits, reports, notices, schedules of accounts, letters of
authority and all other documents that Bank may request, in form
satisfactory to Bank, to perfected and maintain perfected Bank's
security interest in the Collateral and in order to fully
consummate all of the transactions contemplated under this
Agreement. Borrower hereby irrevocably makes, constitutes and
appoints Bank (and any of Bank's officers, employees or agents
designated by Bank) as Borrower's true and lawful attorney-in-
fact with power to sign the name of Borrower on any financing
statements, continuation financing statements, security
agreement, mortgage, assignment, certificate of title, affidavit,
letter of authority, notice of other similar documents which must
be executed and/or filed in order to perfect or continue
perfected Bank's security interest in the Collateral.
Borrower shall make appropriate entries in Borrower's Books
disclosing Bank's security interest in the Receivables. Bank
(through any of its officers, employees or agents) shall have the
right at any time or times hereafter during Borrower's usual
business hours, or during the usual business hours of any third
party having control over the records of Borrower, to inspect and
verify Borrower's Books in order to verify the amount or
condition of, or any other matter, relating to, said Collateral
and Borrower's financial condition.
4.5 Borrower appoints Bank or any other person whom
Bank may designate as Borrower's attorney-in-fact, with power to
endorse Borrower's name on any checks, notes, acceptances, money
order, drafts or other forms of payment or security that may come
into Bank's possession; to sign Borrower's name on any invoice or
bill of lading relating to any Receivables, on drafts against
account debtors, on schedules and assignments of Receivables, on
verifications of Receivables and on notices to account debtors;
to establish a lock box arrangement and/or to notify the post
office authorities to change the address for delivery of
Borrower's mail addressed to Borrower to an address designated by
Bank, to receive and open all mail addressed to Borrower, and to
retain all mail relating to the Collateral and forward all other
mail to Borrower; to send, whether in writing or by telephone,
requests for verification of Receivables; and to do all things
necessary to carry out this Agreement. Borrower ratifies and
approves all acts of the attorney-in-fact. Neither Bank nor its
attorney-in-fact will be liable for any acts or omissions or for
any error of judgment or mistake of fact or law. This power
being coupled with an interest, is irrevocable so long as any
Receivables in which Bank has a security interest remain unpaid
and until the Obligations have been fully satisfied.
4.6 In order to protect or perfect any security
interest which Bank is granted hereunder, Bank may, in its sole
discretion, discharge any lien or encumbrance or bond the same,
pay any insurance, maintain guards, warehousemen, or any
personnel to protect the Collateral, pay any service bureau, or,
obtain any records, and all costs for the same shall be added to
the Obligations and shall be payable on demand.
4.7 Borrower agrees that Bank may provide information
relating to this Agreement or relating to Borrower to Bank's
parent, affiliates, subsidiaries and service providers.
5. CONDITIONS PRECEDENT
5.1 Conditions preceded to the making of the loans and
the extension of the financial accommodations hereunder, Borrower
shall execute, or cause to be executed, and deliver to Bank, in
form and substance satisfactory to Bank and its counsel, the
following:
a. This Agreement and other documents required by
Bank;
b. Financing statements (Form UCC-1) in form
satisfactory to Bank for filing and recording with the
appropriate governmental authorities;
5.
<PAGE>
c. If Borrower is a corporation, then certified
extracts from the minutes of the meeting of its board of
directors, authorizing the borrowings and the granting of
the security interest provided for herein and authorizing
specific officers to execute and deliver the agreements
provided for herein;
d. If Borrower is a corporation, then a certificate
of good standing showing that Borrower is in good standing
under the laws of the state of its incorporation and
certificates indicating that Borrower is qualified to
transact business and is in good standing in any other state
in which it conducts business;
e. If Borrower is a partnership, then a copy of
Borrower's partnership agreement certified by each general
partner of Borrower;
f. UCC searches, tax lien and litigation searches,
fictitious business statement filings, insurance
certificates, notices or other similar documents which Bank
may require and in such form as Bank may require, in order
to reflect, perfect or protect Bank's first priority
security interest in the Collateral and in order to fully
consummate all of the transactions contemplated under this
Agreement;
g. Evidence that Borrower has obtained insurance and
acceptable endorsements;
h. Waivers executed by landlords and mortgagees of
any real property on which any Collateral is located; and
i. Warranties and representations of officers.
6. WARRANTIES, REPRESENTATIONS AND COVENANTS.
6.1 If so requested by Bank, Borrower shall, at such
intervals designated by Bank, during the term hereof execute and
deliver a Report of Accounts Receivable or similar report, in
form customarily used by Bank. Borrower's Borrowing Base at all
times pertinent hereto shall not be less than the advances made
hereunder. Bank shall have the right to recompute Borrower's
Borrowing Base in conformity with this Agreement.
* See Addendum attached hereto and made a part hereof.
6.2 If any warranty is breached as to any account, or
any account is not paid in full by an account debtor within
Ninety (90) days from the date of invoice, or an account debtor
disputes liability or makes any claim with respect thereto, or a
petition in bankruptcy or other application for relief under the
Bankruptcy Code or any other insolvency law is filed by or
against an account debtor, or an account debtor makes an
assignment for the benefit of creditors, becomes insolvent, fails
or goes out of business, then Bank may deem ineligible any and
all accounts owing by that account debtor, and reduce Borrower's
Borrowing Base by the amount thereof. Bank shall retain its
security interest in all Receivables and accounts, whether
eligible or ineligible, until all Obligations have been fully
paid and satisfied. Returns and advances, if any, as between
Borrower and its customers, will be on the same basis and in
accordance with the usual customary practices of the Borrower, as
they exist at this time. Any merchandise which is returned by an
account debtor or otherwise recovered shall be set aside, marked
with Bank's name, and Bank shall retain a security interest
therein. Borrower shall promptly notify Bank of all disputes and
claims and settle or adjust them on terms approved by Bank.
After default by Borrower hereunder, no account, credit or
allowance shall be granted to any account debtor by Borrower and
no return of merchandise shall be accepted by Borrower without
Bank's consent. Bank may, after default by Borrower, settle or
adjust disputes and claims directly with account debtors for
amounts and upon terms which Bank considers advisable, and in
such cases Bank will credit Borrower's account with only the net
amounts received by Bank in payment of the accounts, after
deducting all Bank Expenses in connection therewith.
6.3 Borrower warrants, represents, covenants and
agrees that:
a. Borrower has good and marketable title to the
Collateral. Bank has and shall continue to have a first
priority perfected security interest in and to the
Collateral. The Collateral shall at all times remain free
and clear of all liens, encumbrances and security interests
(except those in favor of Bank).
b. All accounts are and will, at the times pertinent
hereto, be bona fide existing obligations created by the
sale and delivery of merchandise or the rendition of
services to account debtors in the ordinary course of
business, free of liens, claims, encumbrances and security
interests (except as held by Bank and except as may be
consented to, in writing, by Bank) and are unconditionally
owed to Borrower without defenses, disputes, offsets,
counterclaims, rights of return or cancellation, and
Borrower shall have received no notice of actual or imminent
bankruptcy or insolvency of any account debtor at any time
an account due from such account debtor is assigned to Bank.
c. At the time each account is assigned to Bank, all
property giving rise to such account shall have been
delivered to the account debtor or to the agent for the
account debtor for immediate shipment to, and unconditional
acceptance by, the account debtor. Borrower shall deliver
to Bank, as Bank from time to time require, delivery
receipts, customer's purchase orders, shipping instructions,
bills of lading and any other evidence of shipping
arrangements. Absent such a request by Bank, copies of all
such documentation shall be held by Borrower as custodian
for Bank.
6.4 At the time each Eligible Account is assigned to
Bank, all such Eligible Accounts will be due and payable on terms
set forth in Section 1.12, or on such other terms approved in
writing by Bank in advance of the creation of such accounts and
which are expressly set forth on the face of all invoices, copies
of which shall be held by Borrower as custodian for Bank, and no
such eligible account will then be past due.
6.
<PAGE>
6.5 Borrower shall keep the Inventory only at the
following locations:
_______________________________________________________________
_____________________________________________________ and the
owner or mortgagees of the respective locations are:
____________________________________________.
a. Borrower, immediately upon demand by Bank
therefor, shall now and from time to time hereafter, at such
intervals as are requested by Bank, deliver to Bank,
designations of Inventory specifying Borrower's cost of
Inventory, the wholesale market value thereof and such other
matters and information relating to the Inventory as Bank
may request;
b. Borrower's Inventory, valued at the lower of
Borrower's cost or the wholesale market value thereof, at
all times pertinent hereto shall not be less than
_______________________ Dollars ($_________) of which no
less than ________________________ Dollars ($_________)
shall be in raw materials and finished goods;
c. All of the Inventory is and shall remain free from
all purchase money or other security interests, liens or
encumbrances, except as held by Bank;
d. Borrower does now keep and hereafter at all times
shall keep correct and accurate records itemizing and
describing the kind, type, quality and quantity of the
Inventory, its cost therefor and selling price thereof, and
the daily withdrawals therefrom and additions thereto, all
of which records shall be available upon demand to any of
Bank's officers, agents and employees for inspection and
copying;
e. All Inventory, now and hereafter at all times,
shall be new Inventory of good and merchantable quality free
from defect;
f. Inventory is not now and shall not at any time or
times hereafter be located or stored with a bailee,
warehouseman or other third party without Bank's prior
written consent, and, in such event, Borrower will
concurrently therewith cause any such bailee, warehouseman
or other third party to issue and deliver to Bank, in a form
acceptable to Bank, warehouse receipts in Bank's name
evidencing the storage of Inventory or other evidence of
Bank's prior rights in the Inventory. In any event,
Borrower shall instruct any third party to hold all such
Inventory for Bank's account subject to Bank's security
interests and its instructions; and
g. Bank shall have the right upon demand now and/or
at all times hereafter, during Borrower's usual business
hours, to inspect and examine the Inventory and to check and
test the same as to quality, quantity, value and condition
and Borrower agrees to reimburse Bank for Bank's reasonable
costs and expenses in so doing.
6.6 Borrower represents, warrants and covenants with
Bank that Borrower will not, without Bank's prior written
consent:
a. Grant a security interest in or permit a lien,
claim or encumbrance upon any of the Collateral to any
person, association, firm, corporation, entity or
governmental agency or instrumentality;
b. Permit any levy, attachment or restraint to be
made affecting any of Borrower's assets;
c. Permit any Judicial Officer or Assignee to be
appointed or to take possession of any or all of Borrower's
assets;
d. Other than sales of Inventory in the ordinary
course of Borrower's business, to sell, lease, or otherwise
dispose of, move, or transfer, whether by sale or otherwise,
any of Borrower's assets;
e. Change its name, business structure, corporate
identity or structure; add any new fictitious names,
liquidate, merge or consolidate with or into any other
business organization;
f. Move or relocate any Collateral;
g. Acquire any other business organization;
h. Enter into any transaction not in the usual course
of Borrower's business;
i. Make any investment in securities of any person,
association, firm, entity, or corporation other than the
securities of the United States of America;
j. Make any change in Borrower's financial structure
or in any of its business objectives, purposes or operations
which would adversely effect the ability of Borrower to
repay Borrower's Obligations;
k. Incur any debts outside the ordinary course of
Borrower's business except renewals or extensions of
existing debt and interest thereon;
l. Make any advance or loan except in the ordinary
course of Borrower's business as currently conducted;
7.
<PAGE>
m. Make loans, advances or extensions of credit to
any Person, except for sales on open account and otherwise
in the ordinary course of business;
n. Guarantee or otherwise, directly or indirectly, in
any way be or become responsible for obligations of any
other Person, whether by agreement to purchase the
indebtedness of any other Person, agreement for the
furnishing of funds to any other Person through the
furnishing of goods, supplies or services, by way of stock
purchase, capital contribution, advance or loan, for the
purpose of paying or discharging (or causing the payment or
discharge of) the indebtedness of any other Person, or
otherwise, except for the endorsement of negotiable
instruments by the Borrower in the ordinary course of
business for deposit or collection.
o. (a) Sell, lease, transfer or otherwise dispose of
properties and assets having an aggregate book value of more
than _________________________ Dollars ($__________)
(whether in one transaction or in a series of transactions)
except as to the sale of inventory in the ordinary course of
business; (b) change its name, consolidate with or merge
into any other corporation, permit another corporation to
merge into it, acquire all or substantially all the
properties or assets of any other Person, enter into any
reorganization or recapitalization or reclassify its
capital stock, or (c) enter into any sale-leaseback
transaction;
p. Subordinate any indebtedness due to it from a
person to indebtedness of other creditors of such person;
q. Purchase or hold beneficially any stock or other
securities of, or make any investment or acquire any
interest whatsoever in, any other Person, except for the
common stock of the Subsidiaries owned by the Borrower on
the date of this Agreement and except for certificates of
deposit with maturities of one year or less of United States
commercial banks with capital, surplus and undivided profits
in excess of $100,000,000 and direct obligations of the
United States Government maturing within one year from the
date of acquisition thereof; or
r. Allow any fact, condition or event to occur or
exist with respect to any employee pension or profit sharing
plan established or maintained by it which might constitute
grounds for termination of any such plan or for the court
appointment of a trustee to administer any such plan.
6.7 Borrower is not a merchant whose sales for resale
of goods for personal, family or household purposes exceeded
seventy-five percent (75%) in dollar volume of its total sales of
all goods during the 12 months preceding the filing by Bank of a
financing statement describing the Collateral. At no time
hereafter shall Borrower's sales for resale of goods for
personal, family or household purposes exceed seventy-five
percent (75%) in dollar volume of its total sales.
6.8 Borrower's sole place of business or chief
executive office or residence is located at the address indicated
above and Borrower covenants and agrees that it will not, during
the term of this Agreement, without prior written notification to
Bank, relocate said sole place of business or chief executive
office or residence.
6.9 If Borrower is a corporation, Borrower represents,
warrants and covenants as follows:
a. Borrower will not make any distribution or declare
or pay any dividend (in stock or in cash) to any shareholder
or on any of its capital stock, of any class, whether now or
hereafter outstanding, or purchase, acquire, repurchase,
redeem or retire any such capital stock;
b. Borrower is and shall at all times hereafter be a
corporation duly organized and existing in good standing
under the laws of the state of its incorporation and
qualified and licensed to do business in California or any
other state in which it conducts its business;
c. Borrower has the right and power and is duly
authorized to enter into this Agreement; and
d. The execution by Borrower of this Agreement shall
not constitute a breach of any provision contained in
Borrower's articles of incorporation or by-laws.
6.10 The execution of and performance by Borrower of
all of the terms and provisions contained in this Agreement shall
not result in a breach of or constitute an event of default under
any agreement to which Borrower is now or hereafter becomes a
party.
6.11 Borrower shall promptly notify Bank in writing of
its acquisition by purchase, lease or otherwise of any after
acquired property of the type included in the Collateral, with
the exception of purchases of Inventory in the ordinary course of
business.
6.12 All assessments and taxes, whether real, personal
or otherwise, due or payable by, or imposed, levied or assessed
against, Borrower or any of its property have been paid, and
shall hereafter be paid in full, before delinquency. Borrower
shall make due and timely payment or deposit of all federal,
state and local taxes, assessments or contributions required of
it by law, and will execute and deliver to Bank, on demand,
appropriate certificates attesting to the payment or deposit
thereof. Borrower will make timely payment or deposit of all
F.I.C.A. payments and withholding taxes required of it by
applicable laws, and will upon request furnish Bank with proof
satisfactory to it that Borrower has made such payments or
deposit. If Borrower fails to pay any such assessment, tax,
contribution, or make such deposit, or furnish the required
proof, Bank may, in its sole and absolute discretion and without
8.
<PAGE>
notice to Borrower; (i) make payment of the same or any part
thereof; or (ii) set up such reserves in Borrower's account as
Bank deems necessary to satisfy the liability therefor, or both.
Bank may conclusively rely on the usual statements of the amount
owing or other official statements issued by the appropriate
governmental agency. Each amount so paid or deposited by Bank
shall constitute a Bank Expense and an additional advance to
Borrower.
6.13 There are no actions or proceedings pending by or
against Borrower or any guarantor of Borrower before any court or
administrative agency and Borrower has no knowledge of any
pending, threatened or imminent litigation, governmental
investigations or claims, complaints, actions or prosecutions
involving Borrower or any guarantor of Borrower, except as
heretofore specifically disclosed in writing to Bank. If any of
the foregoing arise during the term of the Agreement, Borrower
shall immediately notify Bank in writing.
6.14 a. Borrower, at its expense, shall keep and
maintain its assets insured against loss or damage by fire,
theft, explosion, sprinklers and all other hazards and risks
ordinarily insured against by other owners who use such
properties in similar businesses for the full insurable value
thereof. Borrower shall also keep and maintain business
interruption insurance and public liability and property damage
insurance relating to Borrower's ownership and use of the
Collateral and its other assets. All such policies of insurance
shall be in such form, with such companies, and in such amounts
as may be satisfactory to Bank. Borrower shall deliver to Bank
certified copies of such policies of insurance and evidence of
the payments of all premiums therefor. All such policies of
insurance (except those of public liability and property damage)
shall contain an endorsement in a form satisfactory to Bank
showing Bank as a loss payee thereof, with a waiver of warranties
(form 438-BFU), and all proceeds payable thereunder shall be
payable to Bank and, upon receipt by Bank, shall be applied on
account of the Obligations owing to Bank. To secure the payment
of the Obligations, Borrower grants Bank a security interest in
and to all such policies of insurance (except those of public
liability and property damage) and the proceeds thereof, and
Borrower shall direct all insurers under such policies of
insurance to pay all proceeds thereof directly to Bank.
b. Borrower hereby irrevocably appoints Bank (and any
of Bank's officers, employees or agents designated by Bank) as
Borrower's attorney for the purpose of making, selling and
adjusting claims under such policies of insurance, endorsing the
name of Borrower on any check, draft, instrument or other item of
payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect to such
policies of insurance. Borrower will not cancel any of such
policies without Bank's prior written consent. Each such insurer
shall agree by endorsement upon the policy or policies of
insurance issued by it to Borrower as required above, or by
independent instruments furnished to Bank, that it will give Bank
at least ten (10) days written notice before any such policy or
policies of insurance shall be altered or cancelled, and that no
act or default of Borrower, or any other person, shall affect the
right of Bank to recover under such policy or policies of
insurance required above or to pay any premiums in whole or in
part relating thereto. Bank, without waiving or releasing any
Obligations or any Event of Default, may, but shall have no
obligation to do so, obtain and maintain such policies of
insurance and pay such premiums and take any other action with
respect to such policies which Bank deems advisable. All sums so
disbursed by Bank, as well as reasonable attorneys' fees, court
costs, expenses and other charges relating thereto, shall
constitute Bank Expenses and are payable on demand.
6.15 All financial statements and information relating
to Borrower which have been or may hereafter be delivered by
Borrower to Bank are true and correct and have been prepared in
accordance with GAAP consistently applied and there has been no
material adverse change in the financial condition of Borrower
since the submission of such financial information to Bank.
6.16 a. Borrower at all times hereafter shall maintain
a standard and modern system of accounting in accordance with
GAAP consistently applied with ledger and account cards and/or
computer tapes and computer disks, computer printouts and
computer records pertaining to the Collateral which contain
information as may from time to time be requested by Bank, not
modify or change its method of accounting or enter into, modify
or terminate any agreement presently existing, or at any time
hereafter entered into with any third party accounting firm
and/or service bureau for the preparation and/or storage of
Borrower's accounting records without the written consent of Bank
first obtained and without said accounting firm and/or service
bureau agreeing to provide information regarding the Receivables
and Inventory and Borrower's financial condition to Bank; permit
Bank and any of its employees, officers or agents, upon demand,
during Borrower's usual business hours, or the usual business
hour of third persons having control thereof, to have access to
and examine all of the Borrower's Books relating to the
Collateral, Borrower's Obligations to Bank, Borrower's financial
condition and the results of Borrower's operations and in
connection therewith, permit Bank or any of its agents, employees
or officers to copy and make extracts therefrom.
b. Borrower shall deliver to Bank within thirty (30)
days after the end of each Quarter, a COMPANY PREPARED balance
sheet and profit and loss statement covering Borrower's
operations and deliver to Bank within ninety (90) days after the
end of each of Borrower's fiscal years an AUDITED statement of
the financial condition of the Borrower for each such fiscal
year, including but not limited to, a balance sheet and profit
and loss statement and any other report requested by Bank
relating to the Collateral and the financial condition of
Borrower, and a certificate signed by an authorized employee of
Borrower to the effect that all reports, statements, computer
disk or tape files, computer printouts, computer runs, or other
computer prepared information of any kind or nature relating to
the foregoing or documents delivered or caused to be delivered to
Bank under this subparagraph are complete, correct and thoroughly
present the financial condition of borrower and that there exists
on the date of delivery to Bank no condition or event which
constitutes a breach or Event of Default under this Agreement.
9.
<PAGE>
c. In addition to the financial statements requested
above, the Borrower agrees to provide Bank with the following
schedules:
XX Accounts Receivable Agings on a quarterly
basis;
XX Accounts Payable Agings on a quarterly basis;
___ Job Progress Reports on a _________ basis; and
XX Borrowing Base Certificates on a quarterly
basis.
See Addendum attached hereto and made a part hereof.
6.17 Borrower shall maintain the following financial
ratios and covenants on a consolidated and non-consolidated
basis:
a. Working Capital in an amount not less than
_________________________________________________________.
b. Tangible Effective Net Worth in an amount not less
than ____________________________________________________.
c. a ratio of Current Assets to a Current Liabilities
of not less than
__________________________________________________________.
d. a quick ratio of cash plus securities plus
Receivables to Current Liabilities of not less than
1.20:1.00.
e. a ratio of Total Liabilities (less debt
subordinated to Bank) to Tangible Effective Net Worth of
less than 1.75:1.00.
f. a ratio of Cash Flow to Fixed Charges of not less
than 1.50:1.00.
g. Net Income after taxes of $1.00 (measured on a
quarterly basis).
h. Borrower shall not without Bank's prior written
consent acquire or expend for or commit itself to acquire or
expend for fixed assets by lease, purchase or otherwise in
an aggregate amount that exceeds __________________ Dollars
($________) in any fiscal year; and
i. ___________________________________________________
_____________________________________________________________.
All financial covenants shall be computed in accordance with
GAAP consistently applied except as otherwise specifically set
forth in this Agreement. All monies due from affiliates
(including officers, directors and shareholders) shall be
excluded from Borrower's assets for all purposes hereunder.
6.18 Borrower shall promptly supply Bank (and cause any
guarantor to supply Bank) with such other information (including
tax returns) concerning its financial affairs (or that of any
guarantor) as Bank may request from time to time hereafter, and
shall promptly notify Bank of any material adverse change in
Borrower's financial condition and of any condition or event
which constitutes a breach of or an event which constitutes an
Event of Default under this Agreement.
6.19 Borrower is now and shall be at all times
hereafter solvent and able to pay its debts (including trade
debts) as they mature.
6.20 Borrower shall immediately and without demand
reimburse Bank for all sums expended by Bank in connection with
any action brought by Bank to correct any default or enforce any
provision of this Agreement, including all Bank Expenses;
Borrower authorizes and approves all advances and payments by
Bank for items described in this Agreement as Bank Expenses.
6.21 Each warranty, representation and agreement
contained in this Agreement shall be automatically deemed
repeated with each advance and shall be conclusively presumed to
have been relied on by Bank regardless of any investigation made
or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be
cumulative and in addition to any and all other warranties,
representations and agreements which Borrower shall give, or
cause to be given, to Bank, either now or hereafter.
6.22 Borrower shall keep all of its principal bank
accounts with Bank and shall notify the Bank immediately in
writing of the existence of any other bank account, deposit
account, or any other account into which money can be deposited.
6.23 Borrower shall furnish to the Bank: (a) as soon
as possible, but in no event later than thirty (30) days after
Borrower knows or has reason to know that any reportable event
10.
<PAGE>
with respect to any deferred compensation plan has occurred, a
statement of the chief financial officer of Borrower setting
forth the details concerning such reportable event and the action
which Borrower proposes to take with respect thereto, together
with a copy of the notice of such reportable event given to the
Pension Benefit Guaranty Corporation, if a copy of such notice is
available to Borrower; (b) promptly after the filing thereof with
the United States Secretary of Labor or the Pension Benefit
Guaranty Corporation, copies of each annual report with respect
to each deferred compensation plan; (c) promptly after receipt
thereof, a copy of any notice Borrower may receive from the
Pension Benefit Guaranty Corporation or the Internal Revenue
Service with respect to any deferred compensation plan; provided,
however, this subparagraph shall not apply to notice of general
application issued by the Pension Benefit Guaranty Corporation or
the Internal Revenue Service; and (d) when the same is made
available to participants in the deferred compensation plan, all
notices and other forms of information from time to time
disseminated to the participants by the administrator of the
deferred compensation plan.
6.24 Borrower is now and shall at all times hereafter
remain in compliance with all federal, state and municipal laws,
regulations and ordinances relating to the handling, treatment
and disposal of toxic substances, wastes and hazardous material
and shall maintain all necessary authorizations and permits.
6.25 Borrower shall maintain insurance on the life of
_________________ in an amount not to be less than
__________________________ Dollars ($_________) under one or more
policies issued by insurance companies satisfactory to Bank,
which policies shall be assigned to Bank as security for the
Obligations and on which Bank shall be named as sole beneficiary.
6.26 Borrower shall limit direct and indirect
compensation paid to the following employees:
________________________, ________________________,
________________________, to an aggregate of
________________________ Dollars ($__________) per
________________________.
6.27 Borrower shall perform all acts reasonably
necessary to ensure that: (i) Borrower and any business in which
Borrower holds a substantial interest, and (ii) all customers,
suppliers and vendors that are material to Borrower's business,
become Year 2000 Compliant in a timely manner. Such acts shall
include, without limitation, performing a comprehensive review
and assessment of all of Borrower's systems and adopting a
detailed plan, with itemized budget, for the remediation,
monitoring and testing of such systems. As used in this
paragraph, "Year 2000 Compliant" shall mean, in regard to any
entity, that all software, hardware, firmware, equipment, goods
or systems utilized by or material to the business operations or
financial condition of such entity, will properly perform date
sensitive function before, during and after the year 2000.
Borrower shall, immediately upon request, provide to Bank such
certifications or other evidence of Borrower's compliance with
terms of this paragraph as Bank may from time to time require.
7. EVENTS OF DEFAULT.
Any one or more of the following events shall
constitute a default by Borrower under this Agreement:
a. If Borrower fails or neglects to perform, keep or
observe any term, provision, condition, covenant, agreement,
warranty or representation contained in this Agreement, or
any other present or future agreement between Borrower and
Bank;
b. If any representation, statement, report or
certificate made or delivered by Borrower, or any of its
officers, employees or agents to Bank is not true and
correct;
c. If Borrower fails to pay when due and payable or
declared due and payable, all or any portion of the
Borrower's Obligations (whether of principal, interest,
taxes, reimbursement of Bank Expenses, or otherwise);
d. If there is a material impairment of the prospect
of repayment of all or any portion of Borrower's Obligations
or a material impairment of the value or priority of Bank's
security interest in the Collateral;
e. If all or any of Borrower's assets are attached,
seized, subject to a writ or distress warrant, or are levied
upon, or come into the possession of any Judicial Officer or
Assignee and the same are not released, discharged or bonded
against within ten (10) days thereafter;
f. If any Insolvency Proceeding is filed or commenced
by or against Borrower without being dismissed within ten
(10) days thereafter;
g. If any proceeding is filed or commenced by or
against Borrower for its dissolution or liquidation;
h. If Borrower is enjoined, restrained or in any way
prevented by court order from continuing to conduct all or
any material part of its business affairs;
i. If a notice of lien, levy or assessment is filed
of record with respect to any or all of Borrower's assets by
the United States Government, or any department, agency or
instrumentality thereof, or by any state, county, municipal
or other government agency, or if any taxes or debts owing
at any time hereafter to any one or more of such entities
becomes a lien, whether choate or otherwise, upon any or all
of the Borrower's assets and the same is not paid on the
payment date thereof;
j. If a judgment or other claim becomes a lien or
encumbrance upon any or all of Borrower's assets and the
same is not satisfied, dismissed or bonded against within
ten (10) days thereafter;
k. If Borrower's records are prepared and kept by an
outside computer service bureau at the time this Agreement
is entered into or during the term of this Agreement such an
agreement with an outside service bureau is entered into,
and at any time thereafter, without first obtaining the
written consent of Bank, Borrower terminates, modifies,
amends or changes its contractual relationship with said
computer service bureau or said computer service bureau
fails to provide Bank with any requested information or
financial data pertaining to Bank's Collateral, Borrower's
financial condition or the results of Borrower's operations;
11.
<PAGE>
l. If Borrower permits a default in any material
agreement in which Borrower is a party with third parties so
as to result in an acceleration of the maturity of
Borrower's indebtedness to others, whether under any
indenture, agreement or otherwise;
m. If Borrower makes any payment on account of
indebtedness which has been subordinated to Borrower's
Obligations to Bank;
n. If any misrepresentation exists now or thereafter
in any warranty or representation made to Bank by any
officer or director of Borrower, or if any such warranty or
representation is withdrawn by any officer or director;
o. If any party subordinating its claims to that of
Bank's or any guarantor of Borrower's Obligations dies or
terminates its subordination or guaranty, becomes insolvent
or an Insolvency Proceeding is commenced by or against any
such subordinating party or guarantor;
p. If Borrower is an individual and Borrower dies;
q. If there is a change of ownership or control of
________________ percent (___%) or more of the issued and
outstanding stock of Borrower; or
r. If any reportable event, which the Bank determines
constitutes grounds for the termination of any deferred
compensation plan by the Pension Benefit Guaranty
Corporation or for the appointment by the appropriate United
States District Court of a trustee to administer any such
plan, shall have occurred and be continuing thirty (30)
days after written notice of such determination shall have
been given to Borrower by Bank, or any such Plan shall be
terminated within the meaning of Title IV of the Employment
Retirement Income Security Act ("ERISA"), or a trustee shall
be appointed by the appropriate United States District Court
to administer any such plan, or the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any
plan and in case of any event described in this Section 7.0,
the aggregate amount of the Borrower's liability to the
Pension Benefit Guaranty Corporation under Sections 4062,
4063 or 4064 of ERISA shall exceed five percent (5%) of
Borrower's Tangible Effective Net Worth.
Notwithstanding anything contained in Section 7 to the
contrary, Bank shall refrain from exercising its rights and
remedies and Event of Default shall thereafter not be deemed to
have occurred by reason of the occurrence of any of the events
set forth in Sections 7.3, 7.f or 7.j of this Agreement if,
within ten (10) days from the date thereof, the same is released,
discharged, dismissed, bonded against or satisfied; provided,
however, if the event is the institution of Insolvency
Proceedings against Borrower, Bank shall not be obligated to make
advances to Borrower during such cure period.
8. BANK'S RIGHTS AND REMEDIES.
8.1 Upon the occurrence of an Event of Default by
Borrower under this Agreement, Bank may, at its election, without
notice of its election and without demand, do any one or more of
the following, all of which are authorized by Borrower:
a. Declare Borrower's Obligations, whether evidenced
by this Agreement, installment notes, demand notes or
otherwise, immediately due and payable to the Bank;
b. Cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement, or any
other agreement between Borrower and Bank;
c. Terminate this Agreement as to any future
liability or obligation of Bank, but without affecting
Bank's rights and security interests in the Collateral, and
the Obligations of Borrower to Bank;
d. Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Bank
considers necessary or reasonable to protect its security
interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires and to make the Collateral
available to Bank as Bank may designate. Borrower
authorizes Bank to enter the premises where the Collateral
is located, take and maintain possession of the Collateral
and the premises (at no charge to Bank), or any part
thereof, and to pay, purchase, contest or compromise any
encumbrance, charge or lien which in the opinion of Bank
appears to be prior or superior to its security interest and
to pay all expenses incurred in connection therewith;
e. Without limiting Bank's rights under any security
interest, Bank is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names,
trademarks and advertising matter, or any property of a
similar nature as it pertains to the Collateral, in
completing production of, advertising for sale and selling
any Collateral and Borrower's rights under all licenses and
all franchise agreement shall inure to Bank's benefit, and
Bank shall have the right and power to enter into sublicense
agreements with respect to all such rights with third
parties on terms acceptable to Bank;
f. Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sales and sell (in
the manner provided for herein) the Inventory;
g. Sell or dispose the Collateral at either a public
or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at
such places (including Borrower's premises) as is
commercially reasonable in the opinion of Bank. It is not
necessary that the Collateral be present at any such sale;
h. Bank shall give notice of the disposition of the
Collateral as follows:
12.
<PAGE>
(1) Bank shall give the Borrower and each holder
of a security interest in the Collateral who has filed
with Bank a written request for notice, a notice in
writing of the time and place of public sale, or, if
the sale is a private sale or some disposition other
than a public sale is to be made of the Collateral, the
time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower's address
appearing in this Agreement, at least five (5) calendar
days before the date fixed for the sale, or at least
five (5) calendar days before the date on or after
which the private sale or other disposition is to be
made, unless the Collateral is perishable or threatens
to decline speedily in value. Notice to persons other
than Borrower claiming an interest in the Collateral
shall be sent to such addresses as they have furnished
to Bank;
(3) If the sale is to be a public sale, Bank
shall also give notice of the time and place by
publishing a notice one time at least five (5) calendar
days before the date of the sale in a newspaper of
general circulation in the county in which the sale is
to be held; and
(4) Bank may credit bid and purchase at any
public sale.
i. Borrower shall pay all Bank Expenses incurred in
connection with Bank's enforcement and exercise of any of
its rights and remedies as herein provided, whether or not
suit is commenced by Bank;
j. Any deficiency which exists after disposition of
the Collateral as provided above will be paid immediately by
Borrower. Any excess will be returned, without interest and
subject to the rights of third parties, to Borrower by Bank,
or, in Bank's discretion, to any party who Bank believes, in
good faith, is entitled to the excess; and
k. Without constituting a retention of Collateral in
satisfaction of an obligation within the meaning of 9505 of
the Uniform Commercial Code or an action under California
Code of Civil Procedure 726, apply any and all amounts
maintained by Borrower as deposit accounts (as that term is
defined under 9105 of the Uniform Commercial Code) or other
accounts that Borrower maintains with Bank against the
Obligations.
8.2 Bank's rights and remedies under this Agreement
and all other agreements shall be cumulative. Bank shall have
all other rights and remedies not inconsistent herewith as
provided by law or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of
any default on Borrower's part shall be deemed a continuing
waiver. No delay by Bank shall constitute a waiver, election or
acquiescence by Bank.
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY.
If Borrower fails to pay promptly when due to another
person or entity, monies which Borrower is required to pay by
reason of any provision in this Agreement, Bank may, but need
not, pay the same and charge Borrower's account therefor, and
Borrower shall promptly reimburse Bank. All such sums shall
become additional indebtedness owing to Bank, shall bear interest
at the rate hereinabove provided, and shall be secured by all
Collateral. Any payments made by Bank shall not constitute
(i) an agreement by it to make similar payments in the future; or
(ii) a waiver by Bank of any default under this Agreement. Bank
need not inquire as to, or contest the validity of, any such
expense, tax, security interest, encumbrance or lien and the
receipt of the usual official notice of the payment thereof shall
be conclusive evidence that the same was validly due and owing.
Such payments shall constitute Bank Expenses and additional
advances to Borrower.
10. WAIVERS.
10.1 Borrower agrees that checks and other instruments
received by Bank in payment or on account of Borrower's
Obligations constitute only conditional payment until such items
are actually paid to Bank and Borrower waives the right to direct
the application of any and all payments at any time or times
hereafter received by Bank on account of Borrower's Obligations
and Borrower agrees that Bank shall have the continuing exclusive
right to apply and reapply such payments in any manner as Bank
may deem advisable, notwithstanding any entry by Bank upon its
books.
10.2 Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension or renewal of any or
all commercial paper, accounts, documents, instruments chattel
paper, and guarantees at any time held by Bank on which Borrower
may in any way be liable.
10.3 Bank shall not in any way or manner be liable or
responsible for (a) the safekeeping of the Inventory; (b) any
loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof;
or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency or other person whomsoever. All risk of loss,
damage or destruction of Inventory shall be borne by Borrower.
10.4 Borrower waives the right and the right to assert
a confidential relationship, if any, it may have with any
accountant, accounting firm and/or service bureau or consultant
in connection with any information requested by Bank pursuant to
or in accordance with this Agreement, and agrees that a Bank may
contact directly any such accountants, accounting firm and/or
service bureau or consultant in order to obtain such information.
10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR
ANY TRANSACTION HEREUNDER, OR CONTEMPLATED HEREUNDER, OR ANY
OTHER CLAIM (INCLUDING TORT OR BREACH OF DUTY CLAIMS) OR DISPUTE
HOWSOEVER ARISING BETWEEN BANK AND BORROWER.
13.
<PAGE>
10.6 In the event that Bank elects to waive any rights
or remedies hereunder, or compliance with any of the terms
hereof, or delays or fails to pursue or enforce any terms, such
waiver, delay or failure to pursue or enforce shall only be
effective with respect to that single act and shall not be
construed to affect any subsequent transactions or Bank's rights
to later pursue such rights and remedies.
11. ONE CONTINUING LOAN TRANSACTION.
All loans and advances heretofore, now or at any time
or times hereafter made by Bank to Borrower under this Agreement
or any other agreement between Bank and Borrower, shall
constitute one loan secured by Bank's security interests in the
Collateral and by all other security interests, liens,
encumbrances heretofore, now or from time to time hereafter
granted by Borrower to Bank.
Notwithstanding the above, (i) to the extent that any
portion of the Obligations are a consumer loan, that portion
shall not be secured by any deed of trust or mortgage on or other
security interest in the Borrower's principal dwelling which is
not a purchase money security interest as to that portion, unless
expressly provided to the contrary in another place, or (ii) if
the Borrower (or any of them) has (have) given or give(s) Bank a
deed of trust or mortgage covering real property, that deed of
trust or mortgage shall not secure the loan and any other
Obligation of the Borrower (or any of them), unless expressly
provided to the contrary in another place.
12. NOTICES.
Unless otherwise provided in this Agreement, all
notices or demands by either party on the other relating to this
Agreement shall be in writing and sent by regular United States
mail, postage prepaid, properly addressed to Borrower or to Bank
at the addresses stated in this Agreement, or to such other
addresses as Borrower or Bank may from time to time specify to
the other in writing. Requests to Borrower by Bank hereunder may
be made orally.
13. AUTHORIZATION TO DISBURSE.
Bank is hereby authorized to make loans and advances
hereunder upon telephonic or other instructions received from
anyone purporting to be an officer employee, or representative of
Borrower, or at the discretion of Bank if said loans and advances
are necessary to meet any Obligations of Borrower to Bank. Bank
shall have no duty to make inquiry or verify the authority of any
such party, and Borrower shall hold Bank harmless from any
damage, claims or liability by reason of Bank's honor of, or
failure to honor, any such instructions.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
Any documents, schedules, invoices or other papers
delivered to Bank, may be destroyed or otherwise disposed of by
Bank six (6) months after they are delivered to or received by
Bank, unless Borrower requests, in writing, the return of the
said documents, schedules, invoices or other papers and makes
arrangements, at Borrower's expense, for their return.
15. CHOICE OF LAW.
The validity of this Agreement, its construction,
interpretation and enforcement, and the rights of the parties
hereunder and concerning the Collateral, shall be determined
according to the laws of the State of California. The parties
agree that all actions or proceedings arising in connection with
this Agreement shall be tried and litigated only in the state and
federal courts in the Northern District of California or County
of Santa Clara.
16. GENERAL PROVISIONS.
16.1 This Agreement shall be binding and deemed
effective when executed by the Borrower and accepted and executed
by Bank at its Headquarter Office.
16.2 This Agreement shall bind and inure to the benefit
of the respective successors and assigns of each of the parties,
provided, however, that Borrower may not assign this Agreement or
any rights hereunder without Bank's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an
assignment by Bank shall release Borrower or any guarantor from
their Obligations to Bank. Bank may assign this Agreement and
its rights and duties hereunder. Bank reserves the right to
sell, assign, transfer, negotiate or grant participations in all
or any part of, or any interest in Bank's rights and benefits
hereunder. In connection therewith, Bank may disclose all
documents and information which Bank now or hereafter may have
relating to Borrower or Borrower's business.
16.3 Paragraph headings and paragraph numbers have been
set forth herein for convenience only; unless the contrary is
compelled by the context, everything contained in each paragraph
applies equally to this entire Agreement.
16.4 Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Bank or
Borrower, whether under any rule of construction or otherwise; on
the contrary, this Agreement has been reviewed by all parties and
shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes
and intentions of all parties hereto. When permitted by the
context, the singular includes the plural and vice versa.
14.
<PAGE>
16.5 Each provision of this Agreement shall be
severable from every other provision of this Agreement for the
purpose of determining the legal enforceability of any specific
provision.
16.6 This Agreement cannot be changed or terminated
orally. Except as to currently existing Obligations owing by
Borrower to Bank, all prior agreements, understandings,
representations, warranties, and negotiations, if any, with
respect to the subject matter hereof, are merged into this
Agreement.
16.7 The parties intend and agree that their respective
rights, duties, powers, liabilities, obligations and discretions
shall be performed, carried out, discharged and exercised
reasonably and in good faith.
IN WITNESS WHEREOF, the parties hereto have caused this
Revolving Credit Loan & Security Agreement (Accounts and
Inventory) to be executed as of the date first hereinabove
written.
ATTEST: BORROWER:
________________________ By: /s/ David Fractor
_______________________________
Title: Signature of
Title: CFO
Accepted and effective as -------------------------
of March 01, 2000
at Bank's Headquarter Office
By: /s/ William Nicely
________________________________
Signature of
Title: CEO
__________________________
By: /s/ Alan C. Darlington
(Bank) Comerica Bank - ________________________________
California Signature Of
Title: Executive Chairman
By: /s/ Jason Brown ________________________________
--------------------------
Title: Vice President By: /s/ JoAnn R. Stover
--------------------------------
Signature of
Title: Secretary
--------------------------------
15.
<PAGE>
ADDENDUM TO REVOLVING CREDIT LOAN & SECURITY AGREEMENT
This Addendum is made, and by this reference
incorporated into, that certain Revolving Credit Loan & Security
Agreement (Accounts & Inventory) dated as of March 1, 2000 by and
between HemaCare Corporation, as "Borrower" and Comerica Bank-
California as "Bank", (the "Agreement").
1. Section 1.12 - "Eligible Accounts", is hereby amended by
deleting the first line thereof its entirety, and replacing
it with the following:
"For purposes of establishing the Borrowing Base
hereunder, "Eligible Accounts" as used in this Agreement means
and includes those accounts of Borrower and Coral Blood Services,
Inc., (a wholly owned subsidiary of Borrower), which accounts are
due. . ."
2. Section 2.1 of the Agreement is hereby amended by adding the
following sentence at the end thereof:
. . . . "Notwithstanding the foregoing, Bank, in its
sole discretion, may permit an advance which exceeds the
Borrowing Base; provided the Daily Balance before and after said
advance is not in excess of an aggregate amount of up to One
Million Dollars ($1,000,000), (the "Non-Formula Portion.").
3. Section 6. of the Agreement is hereby amended as follows:
a. Section 6.1 By adding the following at the
second sentence thereof:
". . . . except if and when Bank shall have advanced
hereunder in accordance with the Non-Formula Portion".
b. Section 6.16 Section 6.16 c is hereby amended by
deleting the first sentence thereof in its entirety, and
replacing it with the following:
"c. In addition to the financial statements
requested above, the Borrower agrees to provide Bank with the
following schedules, on a consolidated basis, within ten (10)
days of each of Borrower's fiscal operating quarters, provided
however, that such schedules shall not be required if and when
Bank shall have advanced hereunder in accordance with the "Non-
Formula Portion".
c. Section 6.22 Section 6.22 is hereby amended by
adding the following sentence at the end thereof:
. . . . "In addition, so long as the credit
provided under Section 2.1 is available, and until full and final
payment of all sums outstanding under this Agreement and any
instrument or agreement required under this Agreement, Borrower
shall maintain in such Bank accounts an aggregate average ledger
balance measured on a calendar month basis, in an amount of not
less than Five Hundred Thousand Dollars ($500,000)."
JS DF
____________
Initials
<PAGE>
EXHIBIT 11
HEMACARE CORPORATION
BASIC AND DILUTED NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------------ ------------
<S> <C> <C>
BASIC
Weighted average common shares used to compute
basic earnings per share......................... 7,489,055 7,281,120
=========== ===========
Net income................................ $ 325,000 $ 243,000
=========== ===========
Basic net income per share....................... $ 0.04 $ 0.03
=========== ===========
DILUTED
Weighted average common shares used to compute
basic earnings per share........................ 7,489,055 7,281,120
Dilutive preferred equivalent shares............. 500,000 500,000
Dilutive common equivalent shares attributable to
stock options (based on average market price)... 820,055 6,365
Dilutive common equivalent shares attributable to
warrants (based on average market price)........ 78,914 10,358
----------- -----------
Weighted average common shares and equivalents used
to compute diluted earnings per share........... 8,888,024 7,797,843
=========== ===========
Net income............................... $ 325,000 $ 243,000
=========== ===========
Diluted net income per share..................... $ 0.04 $ 0.03
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from unaudited financial
statements contained in Form 10-Q for the quarter ended March 31, 2000 and is
qualified in its entirety by reference to such financial information.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,274,000
<SECURITIES> 1,174,000
<RECEIVABLES> 3,854,000
<ALLOWANCES> 262,000
<INVENTORY> 791,000
<CURRENT-ASSETS> 6,981,000
<PP&E> 2,654,000
<DEPRECIATION> 1,966,000
<TOTAL-ASSETS> 8,166,000
<CURRENT-LIABILITIES> 2,854,000
<BONDS> 0
0
75,000
<COMMON> 13,710,000
<OTHER-SE> (8,986,000)
<TOTAL-LIABILITY-AND-EQUITY> 8,166,000
<SALES> 4,972,000
<TOTAL-REVENUES> 4,972,000
<CGS> 3,741,000
<TOTAL-COSTS> 3,741,000
<OTHER-EXPENSES> 891,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,000
<INCOME-PRETAX> 340,000
<INCOME-TAX> 15,000
<INCOME-CONTINUING> 325,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 325,000
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
