WELLS FARGO BUSINESS CREDIT CREDIT AND SECURITY AGREEMENT

Exhibit 10.39

WELLS FARGO BUSINESS CREDIT
CREDIT AND SECURITY AGREEMENT

THIS CREDIT AND SECURITY AGREEMENT (the "Agreement") is dated April 10, 2008, and is entered into between HemaCare Corporation , a California corporation, and Coral Blood Services, Inc. , a California corporation (jointly and severally, the "Company"), and Wells Fargo Bank, National Association (as more fully defined in Exhibit A, "Wells Fargo"), acting through its Wells Fargo Business Credit operating division.

RECITALS

Company has asked Wells Fargo to provide it with a $4,750,000 revolving line of credit (the "Line of Credit") for working capital purposes and to facilitate the issuance of letters of credit. Company has also requested a $250,000 capital expenditure line (the "Cap Ex Line"). Wells Fargo is agreeable to meeting Company's requests, provided that Company agrees to the terms and conditions of this Agreement.

For purposes of this Agreement, capitalized terms not otherwise defined in the Agreement shall have the meaning given them in Exhibit A.

AGREEMENT

1.     AMOUNT AND TERMS OF THE LINE OF CREDIT

1.1   Line of Credit; Limitations on Borrowings; Termination Date; Use of Proceeds.

(a)

Line of Credit and Limitations on Borrowing .    Wells Fargo shall make advances (each an "Advance", and collectively the "Advances") to Company under the Line of Credit that, together with the L/C Amount, shall not at any time exceed in the aggregate the lesser of (i) $4,750,000 (the "Maximum Line Amount"), or (ii) the Borrowing Base limitations described in Section 1.2. Within these limits, Company may periodically borrow, prepay in whole or in part, and reborrow. Wells Fargo has no obligation to make an Advance during a Default Period or at any time Wells Fargo believes that an Advance would result in an Event of Default.

(b)

Maturity and Termination Dates .    Company may request Advances from the date that the conditions set forth in Section 3 of this Agreement are satisfied until the earlier of: (i) April     , 2011 (the "Maturity Date"), (ii) the date Company terminates the Line of Credit, or (iii) the date Wells Fargo terminates the Line of Credit following an Event of Default. (The earliest of these dates is the "Termination Date.")

(c)

Use of Line of Credit Proceeds .    Company shall use the proceeds of each Line of Credit Advance and each Letter of Credit for ordinary working capital purposes, provided , however , notwithstanding anything herein to the contrary, up to $300,000 of the proceeds of the initial Line of Credit Advance may be used to purchase from Comerica Bank outstanding indebtedness of HemaCare Bioscience, Inc. ("HemaBio") to Comerica Bank (the "HemaBio Loan"). Documentation relating to the purchase of the HemaBio Loan shall be reasonably acceptable to Wells Fargo, and the Collateral shall include without limitation the HemaBio Loan and all rights and remedies relating thereto and all collateral and security therefor. All proceeds received by Company from the payment or enforcement of the HemaBio Loan or otherwise arising out of the HemaBio Loan shall be remitted to Wells Fargo in the same form received, and shall be applied by Wells Fargo to the Indebtedness in such manner as Wells Fargo shall determine in its discretion. Notwithstanding the foregoing, Company shall cause the assignee of that certain HemaBio Assignment for the Benefit of Creditors executed on or about December 4, 2007 to pay all proceeds thereof that would otherwise be paid to Comerica Bank or the Company to instead be paid directly to Wells

• Fargo, and Company shall execute all documentation that Wells Fargo deems necessary in order to effect the same.

(d)

Revolving Note .    Company's obligation to repay Advances on the Line of Credit, regardless of how the Advances were initiated under Section 1.3 of this Agreement, shall be evidenced by a revolving promissory note (as periodically renewed, amended or replaced, the "Revolving Note").

1.2   Borrowing Base; Mandatory Prepayment.

(a)

Borrowing Base.     Aggregate unreimbursed Advances, plus the L/C Amount, shall not at any time exceed the borrowing base (the "Borrowing Base"), which is an amount equal to: (i) 85% of Eligible Accounts (or such lesser rate as Wells Fargo in its good faith business judgment may deem appropriate from time to time with written notice to Company, provided that, as of any date of determination, said advance rate shall be reduced by one (1) percentage point for each percentage by which Dilution is in excess of five percent (5.0%)) less (ii) the Borrowing Base Reserve, less (iii) Indebtedness that Company owes Wells Fargo that has not been advanced on the Revolving Note (exclusive of the Cap Ex Loans), less (iv) Indebtedness that Wells Fargo in its sole discretion finds on the date of determination to be equal to Wells Fargo's net credit exposure with respect to any swap, derivative, foreign exchange, hedge, deposit, treasury management or similar product or transaction extended to Company by Wells Fargo that is not otherwise described in Section 1 of this Agreement and any Indebtedness owed by Company to Wells Fargo Merchant Services, L.L.C.

(b)

Mandatory Prepayment; Overadvances.     If unreimbursed Advances evidenced by the Revolving Note plus the L/C Amount exceed the Borrowing Base at any time, then Company shall immediately prepay the Revolving Note in an amount sufficient to eliminate the excess, and if payment in full of the Revolving Note is insufficient to eliminate this excess and the L/C Amount continues to exceed the Borrowing Base, then Company shall deliver cash to Wells Fargo in an amount equal to the remaining excess for deposit to the Special Account, unless in each case, Wells Fargo has delivered to Company an Authenticated Record consenting to the resulting Overadvance prior to its occurrence, in which event the Overadvance shall be temporarily permitted on such terms and conditions as Wells Fargo in its sole discretion may deem appropriate, including the payment of additional fees or interest, or both.

1.3   Procedures for Advances.

(a)

Line of Credit Advances to Operating Account.     Line of Credit Advances to HemaCare Corporation shall be credited to HemaCare Corporation's operating account # 4121672778 maintained with Wells Fargo (the "HemaCare Operating Account"), unless Wells Fargo and Company agree in a Record Authenticated by both parties to disburse to another account. Line of Credit Advances to Coral Blood Services, Inc. shall be credited to Coral Blood Services, Inc.'s operating account # 4121672794 maintained with Wells Fargo (the "Coral Blood Operating Account" which together with the HemaCare Operating Account is referred to herein as the "Operating Account"), unless Wells Fargo and Company agree in a Record Authenticated by both parties to disburse to another account.

•           (i)   Advances upon Company's Request.     Each Advance will be funded as a Floating Rate Advance upon Company's request, which must be communicated to Wells Fargo no later than 9:30 a.m. Pacific Time on the Business Day on which Company wants the Advance to be funded, and no request will be deemed received until Wells Fargo acknowledges receipt, and Company, if requested by Wells Fargo, confirms the request in an Authenticated Record. Company shall repay all Advances, even if the Person requesting the Advance on behalf of Company lacked authorization.

           (ii)  [Intentionally Omitted].

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(b)

Protective Advances; Advances to Pay Indebtedness Due.     Wells Fargo may initiate a Floating Rate Advance on the Line of Credit in its sole discretion for any reason at any time, without Company's compliance with any of the conditions set forth in this Agreement, and (i) disburse the proceeds directly to third Persons in order to protect Wells Fargo's interest in Collateral or to perform any of Company's obligations under this Agreement, or (ii) apply the proceeds to the amount of any Indebtedness then due and payable to Wells Fargo.

1.4   Collection of Accounts and Application to Revolving Note.

(a)

Wells Fargo's Collection Account.     Company has granted a security interest to Wells Fargo in the Collateral, including all Accounts. Except as otherwise agreed by both parties in an Authenticated Record, all Proceeds of Accounts and other Collateral of HemaCare Corporation, upon receipt or collection, shall be deposited each Business Day into a non interest bearing demand deposit account owned by and maintained with Wells Fargo (the "HemaCare Collection Account"). Except as otherwise agreed by both parties in an Authenticated Record, all Proceeds of Accounts and other Collateral of Coral Blood Services, Inc., upon receipt or collection, shall be deposited each Business Day into a non interest bearing demand deposit account owned by and maintained with Wells Fargo (the "Coral Blood Collection Account" which together with the HemaCare Corporation Collection Account is referred to herein as the "Collection Account")). Funds so deposited ("Account Funds") are the property of Wells Fargo, and may only be withdrawn from the Collection Account by Wells Fargo.

(b)

Payment of Accounts by Company's Account Debtors.     Company shall instruct all account debtors to pay Accounts owed to Company as follows:

•           (i)   Payments by Check.     If account debtors are making payments by check, Company will instruct that all such payments be sent directly to Company's post office box (the "Lockbox"), to which Wells Fargo has been given exclusive access by separate agreement, and Wells Fargo shall deposit all such payments received into the Lockbox directly to the Collection Account.

           (ii)   Wire Transfers through Ready Remit ^SM Service.     If Company has separately contracted with Wells Fargo to use the Wells Fargo Ready Remit ^SM service ("Ready Remit"), Company may instruct account debtors to make payments by wire transfer that conform to the requirements of Ready Remit, and all conforming payments shall be wire transferred directly to Wells Fargo's general account.

          (iii)   All Other Forms of Payment.     If account debtors are making payment by any means other than by check, or by check for delivery to Wells Fargo without initial delivery to the Lockbox, Company will instruct that all such payments be sent directly to Wells Fargo for deposit to the Collection Account pursuant to such other product or service agreed to by the parties in a service description to the Master Agreement for Treasury Management Services.

  If Company receives a payment or the Proceeds of Collateral directly, Company will promptly deposit the payment or Proceeds into the Collection Account. Until deposited, Company shall hold all such payments and Proceeds in trust for Wells Fargo as its property without commingling with other funds or property. All deposits held in the Collection Account shall constitute Proceeds of Collateral and shall not constitute the payment of Indebtedness.

(c)

Application of Payments to Revolving Note.

•           (i)   Payments Received into the Collection Account.     Account Funds deposited to the Collection Account will be processed in accordance with the terms of the Collection Account service description to the Master Agreement for Treasury Management Services. Wells Fargo will withdraw Account Funds deposited to the Collection Account and pay down borrowings on the

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• Line of Credit by applying them to the Revolving Note on the first Business Day following the Business Day of deposit to the Collection Account.

           (ii)   Payments Received via Ready Remit.     If Company uses Ready Remit, conforming wire transfers received directly by Wells Fargo shall be applied to the Revolving Note on the Business Day of receipt, if received no later than 12:30 p.m. Central Time, or the next Business Day if received after 12:30 p.m. Central Time.

1.4A Cap Ex Loans.

(a)

Cap Ex Loans.     Subject to the terms and conditions of this Agreement, Wells Fargo, shall, from time to time, make available Advances to Company (each, a "Cap Ex Loan" and collectively, the "Cap Ex Loans") to finance Company's purchase of new Eligible Equipment acquired after the date hereof (the "Cap Ex Equipment") for use in Company's business. All such Cap Ex Loans shall be in such amounts as are requested by Company, but in no event shall any Cap Ex Loan exceed eighty percent (80%) percent of the net invoice cost (excluding taxes, shipping, delivery, handling, installation, labor, overhead and other so-called "soft" costs) of the Cap Ex Equipment then to be purchased by Company and the total amount of all Cap Ex Loans outstanding hereunder shall not exceed, in the aggregate, the sum of Two Hundred Fifty Thousand Dollars ($250,000). Once repaid Cap Ex Loans may not be reborrowed.

(b)

Cap Ex Note.     Company's obligation to repay each Cap Ex Loan shall be evidenced by an installment promissory note (as renewed, amended, or replaced from time to time, the "Cap Ex Note").

(c)

Cap Ex Loan Period; Disbursements.     Cap Ex Loans may only be requested and made during the period from the date hereof to the first anniversary of the date hereof (the "Cap Ex Loan Period"). A total of not more than five disbursements of Cap Ex Loans shall be made, and each disbursement shall be in the amount of not less than $50,000. Subject to the satisfaction of the conditions set forth herein, in the event Company desires an Cap Ex Loan, Company shall give Wells Fargo at least three (3) Business Days' prior written notice, which notice shall be accompanied by the invoice with respect to the Cap Ex Equipment being financed with the Cap Ex Loan, evidence of delivery of the same to Company and such other information with respect thereto as Wells Fargo shall request. Wells Fargo shall deposit the proceeds of each Cap Ex Loan to Company's Operating Account. Upon request, Company shall confirm its request for a Cap Ex Loan in an Authenticated Record, and agrees that it shall repay the Cap Ex Loan even if the Person requesting any Cap Ex Loan on behalf of Company lacked authorization.

(d)

Condition.     Without limiting the other provisions of this Agreement, the disbursement of each Cap Ex Loan is conditioned on Company meeting the following requirement: Company shall have a Debt Service Coverage Ratio for the 12 month period ending with the date of the most recent financial statements of Company of not less than 1.20 to 1.00, assuming for purposes of calculating such Debt Service Coverage Ratio that the Cap Ex Loan to be disbursed was outstanding throughout said 12-month period and was repayable in 36 equal monthly installments throughout said 12-month period.

(e)

Repayment.     Each disbursement of a Cap Ex Loan shall accrue interest only at the rate provided for herein for the first three months after such Cap Ex Loan disbursement; provided , however , on each of the third, sixth, ninth and twelfth month anniversary date of this Agreement, the principal amount of all outstanding Cap Ex Loan disbursements made during such three month period (months 1 through 3, months 4 through 6, months 7 through 9 and months 10 through 12) shall be aggregated into a single Cap Ex Loan disbursement and shall be repaid in 36 equal monthly installments, plus interest, commencing on the first day of the month on or immediately following the three month (or, as applicable, six month, nine month or twelve month) anniversary date of

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• this Agreement and continuing on the same day of each month thereafter until the Termination Date, on which date the entire unpaid balance of all Cap Ex Loans and all accrued and unpaid interest shall be due and payable.

• As an example, assuming this Agreement is dated March 31, 2008, and assuming a Cap Ex Loan disbursement is made in the amount of $50,000 on each of April 1, May 1, and June1, then the Company will pay interest only on such disbursements as follows: (i) on the April 1 disbursement, interest only payments for April, May and June, (ii) on the May 1 disbursement, interest only payments for May and June and (iii) on the June 1 disbursement, an interest only payment for June. On July 1 (the first of the month on or immediately following the three month anniversary of the date of this Agreement), the outstanding principal balance of the April 1, May 1 and June 1 disbursements will be aggregated into a single Cap Ex Loan disbursement of $150,000 and shall be repaid in 36 equal monthly installments of principal (commencing on July 1), as provided for above, plus interest as provided for herein. The same procedure would apply for any Cap Ex Loan disbursements made from July 2008 through September 2008, from October 2008 through December 2008 and from January 2009 through March 2009.

(f)

[intentionally omitted]

(g)

Event of Loss.     Company shall bear the risk of any loss, theft, destruction, or damage of or to the Cap Ex Equipment. If, during the term of this Agreement, any item of Cap Ex Equipment becomes obsolete or is lost, stolen, destroyed, damaged beyond repair, rendered permanently unfit for use, or seized by a governmental authority for any reason (an "Event of Loss"), then, within ten (10) days following such Event of Loss, Company shall (i) pay to Wells Fargo on account of the Indebtedness all accrued interest to the date of the prepayment, plus all outstanding principal owing with respect to the Cap Ex Equipment subject to the Event of Loss; or (ii) if no Event of Default has occurred and is continuing, at Company's option, repair or replace any Cap Ex Equipment subject to an Event of Loss, provided the repaired or replaced Cap Ex Equipment is of equal or like value to the Cap Ex Equipment subject to an Event of Loss, and provided further that Wells Fargo has a first priority perfected security interest in such repaired or replaced Cap Ex Equipment. Any partial prepayment of an Equipment Advance paid by Company on account of an Event of Loss shall be applied to prepay amounts owing for such Equipment Advance in the inverse order of maturity.

(h)

Application of Prepayments; Cap Ex Loan Payable on Termination Date.     All prepayments of principal with respect to the Cap Ex Note, including those required under the terms of this Agreement, shall be accompanied by any prepayment and contracted funds breakage fees payable under this Agreement, and shall be applied to the most remote principal installment or installments then unpaid. On the Termination Date of the Line of Credit, the entire unpaid principal amount of the Cap Ex Note and any accrued and unpaid interest, prepayment, and contracted funds breakage fees shall also be fully due and payable.

1.5

Liability Records.     Wells Fargo shall maintain accounting and bookkeeping records of all Advances and payments under the Line of Credit and all other Indebtedness due to Wells Fargo in such form and content as Wells Fargo in its sole discretion deems appropriate. Wells Fargo's calculation of current Indebtedness shall be presumed correct unless proven otherwise by Company. Upon Wells Fargo's request, Company will admit and certify in a Record the exact principal balance of the Indebtedness that Company then believes to be outstanding. Any billing statement or accounting provided by Wells Fargo shall be conclusive and binding unless Company notifies Wells Fargo in a detailed Record of its intention to dispute the billing statement or accounting within 30 days of receipt.

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1.6   Interest and Interest Related Matters; Application of Payments.

(a)

Interest Rates Applicable to Line of Credit and Cap Ex Loans.

•           (i)  Except as otherwise provided in this Agreement, the unpaid principal amount of each Advance evidenced by the Revolving Note shall accrue interest at an annual interest rate equal to the sum of the Prime Rate minus one-quarter of one percent (0.25%), which interest rate shall change whenever the Prime Rate changes.

           (ii)  Except as otherwise provided in this Agreement, the unpaid principal amount of each Advance evidenced by the Cap Ex Note shall accrue interest at an annual interest rate equal to the sum of the Prime Rate plus zero percent (0.0%), which interest rate shall change whenever the Prime Rate changes.

(b)

Minimum Interest Charge.     Notwithstanding the other terms of Section 1.6 of this Agreement to the contrary, and except as limited by the usury savings provision set forth in Section 1.6(e), Company shall pay Wells Fargo at least $14,000 of interest each calendar month with respect to the Line of Credit (the "Minimum Interest Charge") during the term of this Agreement, and Company shall pay any deficiency between the Minimum Interest Charge and the amount of interest otherwise payable on the first day of each month and on the Termination Date. When calculating this deficiency, the Default Rate set forth in Section 1.6(c) of this Agreement, if applicable, shall be disregarded.

(c)

Default Interest Rate.     Commencing on the day an Event of Default occurs, through and including the date identified by Wells Fargo in a Record as the date that the Event of Default has been cured or waived (each such period a "Default Period"), or during a time period specified in Section 1.9 of this Agreement, or at any time following the Termination Date, in Wells Fargo's sole discretion and without waiving any of its other rights or remedies, the principal amount of each of the Revolving Note and Cap Ex Note shall bear interest at a rate that is three percent (3.0%) above the contractual rate set forth in Section 1.6(a) of this Agreement (the "Default Rate"), or any lesser rate that Wells Fargo may deem appropriate, starting on the first day of the month in which the Default Period begins through the last day of that Default Period, or any shorter time period to which Wells Fargo may agree in an Authenticated Record.

(d)

Interest Accrual on Payments Applied to Revolving Note.     Payments received by Wells Fargo other than by wire transfer shall be applied to the Revolving Note as provided in Section 1.4(c)(i) of this Agreement, but the principal amount paid down shall continue to accrue interest through the end of the third Business Day following the Business Day that the payment was applied to the Revolving Note. If Company uses Ready Remit, then payments received by Wells Fargo shall be applied to Indebtedness advanced on the Revolving Note as provided in Section 1.4(c)(ii) of this Agreement, but the amount of principal paid shall continue to accrue interest through the end of the third Business Day following the Business Day that the payment was applied to the Revolving Note.

(e)

Usury.     No interest rate shall be effective which would result in a rate greater than the highest rate permitted by law. Payments in the nature of interest and other charges made under any Loan Documents that are later determined to be in excess of the limits imposed by applicable usury law will be deemed to be a payment of principal, and the Indebtedness shall be reduced by that amount so that such payments will not be deemed usurious.

1.7   Fees.

(a)

Origination Fee.     Company shall pay Wells Fargo a one time origination fee of $100,000, which shall be fully earned upon the execution of this Agreement and payable as follows: (i) $50,000

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• payable upon the execution of this Agreement, (ii) $25,000 payable on the earlier of (a) the first anniversary of the date of this Agreement or (b) the Termination Date and (iii) $25,000 payable on the earlier of (a) the second anniversary of the date of this Agreement or (b) the Termination Date.

(b)

Unused Line Fee.     Company shall pay Wells Fargo an annual unused line fee of one-half of one percent (0.50%) of the daily average of the Maximum Line Amount reduced by outstanding Advances (the "Unused Amount"), from the date of this Agreement to and including the Termination Date, which unused line fee shall be payable monthly in arrears on the first day of each month and on the Termination Date.

(c)

Facility Fee.     [None].

(d)

Collateral Exam Fees.     Company shall pay Wells Fargo fees in connection with any collateral exams, audits or inspections conducted by or on behalf of Wells Fargo at the current rates established from time to time by Wells Fargo as its collateral exam fees (which fees are currently $105 per hour per collateral examiner), together with all actual out-of-pocket costs and expenses incurred in conducting any collateral examination or inspection.

(e)

Collateral Monitoring Fees.     Company shall pay Wells Fargo a fee at the rates established from time to time by Wells Fargo as its Collateral monitoring fees (which fees are currently $400 per month), due and payable monthly in arrears on the first day of the month and on the Termination Date. In addition, Company shall pay Wells Fargo a one-time set-up fee $750, due and payable on the date hereof.

(f)

Termination and Line Reduction Fees.     If (i) Wells Fargo terminates the Line of Credit during a Default Period, or if (ii) Company terminates the Line of Credit on a date prior to the Maturity Date, or if (iii) Company and Wells Fargo agree to reduce the Maximum Line Amount, then Company shall pay Wells Fargo as liquidated damages a termination or reduction fee in an amount equal to a percentage of the Maximum Line Amount (or the reduction of the Maximum Line Amount, as the case may be) calculated as follows:

•         (A)  three percent (3.00%) if the termination occurs on or before the first anniversary of the date of this Agreement;

          (B)  two percent (2.00%) if the termination or reduction occurs after the first anniversary of the date of this Agreement, but on or before the second anniversary of the date of this Agreement; and

          (C)  one percent (1.00%) if the termination or reduction occurs after the second anniversary of the date of this Agreement;

  provided that the foregoing termination fees shall not be charged if, more than 18 months after the date hereof the credit facilities provided by this Agreement are refinanced by the Beverly Hills Regional Corporate Banking office of Wells Fargo Bank.

(g)

Overadvance Fees.     Except in instances in which an Overadvance results due to a Wells Fargo calculation error (in which instance no Overadvance fee will apply), Company shall pay a $500 Overadvance fee for each day that an Overadvance exists which was not agreed to by Wells Fargo in an Authenticated Record prior to its occurrence; provided that Wells Fargo's acceptance of the payment of such fees shall not constitute either consent to the Overadvance or waiver of the resulting Event of Default. Company shall pay additional Overadvance fees and interest in such amounts and on such terms as Wells Fargo in its sole discretion may consider appropriate for any Overadvance to which Wells Fargo has specifically consented in an Authenticated Record prior to its occurrence.

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(h)

Letter of Credit Fees.     Company shall pay a fee with respect to each Letter of Credit issued by Wells Fargo of one-half of one percent (0.5%) of the aggregate undrawn amount of the Letter of Credit (the "Aggregate Face Amount") accruing daily from and including the date the Letter of Credit is issued until the date that it either expires or is returned, which shall be payable monthly in arrears on the first day of each month and on the date that the Letter of Credit either expires or is returned; and following an Event of Default, this fee shall increase to three percent (3.0%) of the Aggregate Face Amount, commencing on the first day of the month in which the Default Period begins and continuing through the last day of such Default Period, or any shorter time period that Wells Fargo in its sole discretion may deem appropriate, without waiving any of its other rights and remedies.

(i)

Letter of Credit Administrative Fees.     Company shall pay all administrative fees charged by Wells Fargo in connection with the honoring of drafts under any Letter of Credit, and any amendments to or transfers of any Letter of Credit, and any other activity with respect to the Letters of Credit at the current rates published by Wells Fargo for such services rendered on behalf of its customers generally.

(j)

Treasury Management Fees.     Company will pay service fees to Wells Fargo for treasury management services pursuant to the Master Agreement for Treasury Management Services or any other agreement entered into by the parties, in the amount prescribed in Wells Fargo's current service fee schedule.

(k)

Other Fees and Charges.     Wells Fargo may impose additional fees and charges during a Default Period for (i) waiving an Event of Default, or for (ii) the administration of Collateral by Wells Fargo. All such fees and charges shall be imposed at Wells Fargo's sole discretion following oral notice to Company on either an hourly, periodic, or flat fee basis, and in lieu of or in addition to imposing interest at the Default Rate, and Company's request for an Advance following such notice shall constitute Company's agreement to pay such fees and charges.

(l)

[Intentionally Omitted]

(m)

Contracted Funds Breakage Fees; Cap Ex Note.     Company may prepay the principal amount of the Cap Ex Note at any time in any amount, whether voluntarily or by acceleration, subject to the payment of all of the following fees, provided that the prepayment fee set forth below shall not be charged if, more than 18 months after the date hereof the credit facilities provided by this Agreement are refinanced by the Beverly Hills Regional Corporate Banking office of Wells Fargo Bank:

• If the Cap Ex Note is prepaid for any reason and the Line of Credit is terminated by Company within thirty (30) days of such prepayment, the Company shall pay to the Lender a prepayment fee with regard to the Cap Ex Note in an amount equal to (i) three percent (3.00%) of the amount of the Cap Ex Loan prepaid, if prepayment occurs on or before the first anniversary of the funding date of such Cap Ex Loan; (ii) two percent (2.00%) of the amount of the Cap Ex Loan prepaid, if prepayment occurs after the first anniversary of the funding date of such Cap Ex Loan but on or before the second anniversary of the funding date of such Cap Ex Loan; and (iii) one percent (1.00%) of the amount of the Cap Ex Loan prepaid, if prepayment occurs after the second anniversary of the funding date of such Cap Ex Loan.

  Company acknowledges that prepayment of the Cap Ex Note may result in Wells Fargo incurring additional costs, expenses or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses or liabilities. Company therefore agrees to pay the above-described contracted funds breakage fee and agrees that said amount represents a reasonable estimate of the contracted funds breakage costs, expenses and/or liabilities of Wells Fargo.

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1.8   Interest Accrual; Principal and Interest Payments; Computation.

(a)

Interest Payments and Interest Accrual.     Accrued and unpaid interest shall be due and payable on the first day of each month (each an "Interest Payment Date") and on the Termination Date. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of Advance to the Interest Payment Date.

(b)

Payment of Revolving Note Principal.     The principal amount of the Revolving Note shall be paid from time to time as provided in Section 1.2(b), and shall be fully due and payable on the Termination Date.

(c)

Payments Due on Non-Business Days.     If an Interest Payment Date or the Termination Date falls on a day which is not a Business Day, payment shall be made on the next Business Day, and interest shall continue to accrue during that time period.

(d)

Computation of Interest and Fees.     Interest accruing on the outstanding principal balance of the Revolving Note and fees payable under this Agreement shall be computed on the basis of the actual number of days elapsed in a year of 360 days.

1.9   Termination, Reduction or Non-Renewal of Line of Credit by Company; Notice.

(a)

Termination by Company after Advance Notice.     Company may terminate or reduce the Line of Credit at any time prior to the Maturity Date, if it (i) delivers an Authenticated Record notifying Wells Fargo of its intentions at least 30 days prior to the proposed Termination Date, (ii) pays Wells Fargo the termination fee set forth in Section 1.7(f) of this Agreement, and (iii) pays the Indebtedness in full or down to the reduced Maximum Line Amount.

(b)

Termination by Company without Advance Notice.     If Company fails to deliver Wells Fargo timely notice of its intention to terminate the Line of Credit or reduce the Maximum Line Amount as provided in Section 1.9(a) of this Agreement, Company may nevertheless terminate the Line of Credit or reduce the Maximum Line Amount and pay the Indebtedness in full or down to the reduced Maximum Line Amount if it (i) pays the termination fee set forth in Section 1.7(f) of this Agreement, (ii) pays the Default Rate on the Revolving Note commencing on the 30 ^th  day prior to the proposed Termination Date and continuing through the date that Wells Fargo receives delivery of an Authenticated Record giving it actual notice of Company's intention to terminate.

(c)

Non-Renewal by Company; Notice.     If Company does not wish Wells Fargo to consider renewal of the Line of Credit on the next Maturity Date, Company shall deliver an Authenticated Record to Wells Fargo at least 30 days prior to the Maturity Date notifying Wells Fargo of its intention not to renew. If Company fails to deliver to Wells Fargo such timely notice, then the Revolving Note shall accrue interest at the Default Rate commencing on the 30th day prior to the Maturity Date and continuing through the date that Wells Fargo receives delivery of an Authenticated Record giving it actual notice of Company's intention not to renew.

1.10 Letters of Credit

(a)

Issuance of Letters of Credit; Amount.     Wells Fargo, subject to the terms and conditions of this Agreement, shall issue, on or after the date that Wells Fargo is obligated to make its first Advance under this Agreement and prior to six months before the Termination Date, one or more irrevocable standby or documentary letters of credit (each, a "Letter of Credit", and collectively, "Letters of Credit") for Company's account. Wells Fargo will not issue any Letter of Credit if the face amount of the Letter of Credit would exceed the lesser of: (i) $900,000 less the L/C Amount, or (ii) the Borrowing Base.

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(b)

Additional Letter of Credit Documentation.     Prior to requesting issuance of a Letter of Credit, Company shall first execute and deliver to Wells Fargo a Standby Letter of Credit Agreement or Commercial Letter of Credit Agreement, an L/C Application, and any other documents that Wells Fargo may request, which shall govern the issuance of the Letter of Credit and Company's obligation to reimburse Wells Fargo for any related Letter of Credit draws (the "Obligation of Reimbursement").

(c)

Expiration.     No Letter of Credit shall be issued that has an expiry date that is later than one (1) year from the date of issuance, or the Maturity Date in effect on the date of issuance, whichever is earlier.

(d)

Obligation of Reimbursement During Default Periods.     If Company is unable, due to the existence of a Default Period or for any other reason, to obtain an Advance to pay any Obligation of Reimbursement, Company shall pay Wells Fargo on demand and in immediately available funds, the amount of the Obligation of Reimbursement together with interest, accrued from the date presentment of the underlying draft until reimbursement in full at the Default Rate. Wells Fargo is authorized, alternatively and in its sole discretion, to make an Advance in an amount sufficient to discharge the Obligation of Reimbursement and pay all accrued but unpaid interest and fees with respect to the Obligation of Reimbursement.

1.11

Special Account.     If the Line of Credit is terminated for any reason while a Letter of Credit is outstanding, or if after prepayment of the Revolving Note the L/C Amount continues to exceed the Borrowing Base, then Company shall promptly pay Wells Fargo in immediately available funds for deposit to the Special Account, an amount equal, as the case may be, to either (a) the L/C Amount plus any anticipated fees and costs, or (b) the amount by which the L/C Amount exceeds the Borrowing Base. If Company fails to pay these amounts promptly, then Wells Fargo may in its sole discretion make an Advance to pay these amounts and deposit the proceeds to the Special Account. The Special Account shall be an interest bearing account maintained with Wells Fargo or any other financial institution acceptable to Wells Fargo. Wells Fargo may in its sole discretion apply amounts on deposit in the Special Account to the Indebtedness. Company may not withdraw amounts deposited to the Special Account until the Line of Credit has been terminated and all outstanding Letters of Credit have either been returned to Wells Fargo or have expired and the Indebtedness has been fully paid.

2.     SECURITY INTEREST AND OCCUPANCY OF COMPANY'S PREMISES

2.1

Grant of Security Interest .    Company hereby pledges, assigns and grants to Wells Fargo, for the benefit of Wells Fargo and as agent for Wells Fargo Merchant Services, L.L.C. a Lien and security interest (collectively referred to as the "Security Interest") in the Collateral, as security for the payment and performance of the Indebtedness. Company shall notify Wells Fargo in writing of, and hereby grants Wells Fargo for the benefit of Wells Fargo and as agent for Wells Fargo Merchant Services, L.L.C. a Lien and security interest in, all commercial tort claims that it may have against any Person.

2.2

Notifying Account Debtors and Other Obligors; Collection of Collateral.     Wells Fargo may at any time (during a Default Period) deliver a Record giving an account debtor or other Person obligated to pay an Account, a General Intangible, or other amount due, notice that the Account, General Intangible, or other amount due has been assigned to Wells Fargo for security and must be paid directly to Wells Fargo. Company shall join in giving such notice and shall Authenticate any Record giving such notice upon Wells Fargo's request. After Company or Wells Fargo gives such notice, Wells Fargo may, but need not, in Wells Fargo's or in Company's name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, such Account, General Intangible, or other amount due, or grant any extension to, make

10

• any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any account debtor or other obligor. After Company or Wells Fargo gives such notice, Wells Fargo may, in Wells Fargo's name or in Company's name, as Company's agent and attorney-in-fact, notify the United States Postal Service to change the address for delivery of Company's mail to any address designated by Wells Fargo, otherwise intercept Company's mail, and receive, open and dispose of Company's mail, applying all Collateral as permitted under this Agreement and holding all other mail for Company's account or forwarding such mail to Company's last known address.

2.3

Assignment of Insurance.     As additional security for the Indebtedness, Company hereby assigns to Wells Fargo and to Wells Fargo Merchant Services, L.L.C. all rights of Company under every policy of insurance covering the Collateral and all business records and other documents relating to it, as well as every policy pertaining to Directors and Officers insurance and all monies (including proceeds and refunds) that may be payable under any policy, and Company hereby directs the issuer of each policy to pay all such monies directly to Wells Fargo. At any time, whether or not a Default Period then exists, Wells Fargo may (but need not), in Wells Fargo's or Company's name, execute and deliver proofs of claim, receive payment of proceeds and endorse checks and other instruments representing payment of the policy of insurance, and adjust, litigate, compromise or release claims against the issuer of any policy. Any monies received under any insurance policy assigned to Wells Fargo, or received as payment of any award or compensation for condemnation or taking by eminent domain, shall be paid to Wells Fargo and, as determined by Wells Fargo in its sole discretion, either be applied to prepayment of the Indebtedness or disbursed to Company under staged payment terms reasonably satisfactory to Wells Fargo for application to the cost of repairs, replacements, or restorations which shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items or property destroyed.

2.4   Company's Premises

(a)

Wells Fargo's Right to Occupy Company's Premises.     Company hereby grants to Wells Fargo the right, at any time during a Default Period and without notice or consent, to take exclusive possession of all locations where Company conducts its business or has any rights of possession, including the locations described on Exhibit B (the "Premises"), until the earlier of (i) payment in full and discharge of all Indebtedness and termination of the Line of Credit, or (ii) final sale or disposition of all items constituting Collateral and delivery of those items to purchasers.

(b)

Wells Fargo's Use of Company's Premises.     Wells Fargo may use the Premises to store, process, manufacture, sell, use, and liquidate or otherwise dispose of items that are Collateral, and for any other incidental purposes deemed appropriate by Wells Fargo in good faith.

(c)

Company's Obligation to Reimburse Wells Fargo.     Wells Fargo shall not be obligated to pay rent or other compensation for the possession or use of any Premises, but if Wells Fargo elects to pay rent or other compensation to the owner of any Premises in order to have access to the Premises, then Company shall promptly reimburse Wells Fargo all such amounts, as well as all taxes, fees, charges and other expenses at any time payable by Wells Fargo with respect to the Premises by reason of the execution, delivery, recordation, performance or enforcement of any terms of this Agreement.

2.5

License.     Without limiting the generality of any other Security Document, Company hereby grants to Wells Fargo a non-exclusive, worldwide and royalty-free license to use or otherwise exploit all Intellectual Property Rights of Company for the purpose of: (a) completing the manufacture of any in-process materials during any Default Period so that such materials become saleable Inventory, all in accordance with the same quality standards previously adopted by Company for its

11

• own manufacturing and subject to Company's reasonable exercise of quality control; and (b) selling, leasing or otherwise disposing of any or all Collateral during any Default Period.

2.6

Financing Statements.     Company authorizes Wells Fargo to file financing statements describing Collateral to perfect Wells Fargo's Security Interest in the Collateral, and Wells Fargo may describe the Collateral as "all personal property" or "all assets" or describe specific items of Collateral including commercial tort claims as Wells Fargo may consider necessary or useful to perfect the Security Interest. All financing statements filed before the date of this Agreement to perfect the Security Interest were authorized by Company and are hereby re-authorized. Following the termination of the Line of Credit and payment of all Indebtedness, Wells Fargo shall, at Company's expense and within the time periods required under applicable law, release or terminate any filings or other agreements that perfect the Security Interest.

2.7

Setoff.     Wells Fargo may at any time, in its sole discretion and without demand or notice to anyone, setoff any liability owed to Company by Wells Fargo against any Indebtedness, whether or not due.

2.8

Collateral.     This Agreement does not contemplate a sale of Accounts or chattel paper, and, as provided by law, Company is entitled to any surplus and shall remain liable for any deficiency. Wells Fargo's duty of care with respect to Collateral in its possession (as imposed by law) will be deemed fulfilled if it exercises reasonable care in physically keeping such Collateral, or in the case of Collateral in the custody or possession of a bailee or other third Person, exercises reasonable care in the selection of the bailee or third Person, and Wells Fargo need not otherwise preserve, protect, insure or care for such Collateral. Wells Fargo shall not be obligated to preserve rights Company may have against prior parties, to liquidate the Collateral at all or in any particular manner or order or apply the Proceeds of the Collateral in any particular order of application. Wells Fargo has no obligation to clean-up or prepare Collateral for sale. Company waives any right it may have to require Wells Fargo to pursue any third Person for any of the Indebtedness.

2.9

Notices Regarding Disposition of Collateral.     If notice to Company of any intended disposition of Collateral or any other intended action is required by applicable law in a particular situation, such notice will be deemed commercially reasonable if given in the manner specified in Section 7.4 at least ten calendar days before the date of intended disposition or other action.

3.     CONDITIONS PRECEDENT

3.1

Conditions Precedent to Initial Advance and Issuance of Initial Letter of Credit.     Wells Fargo's obligation to make the initial Advance or issue the first Letter of Credit shall be subject to the condition that Wells Fargo shall have received this Agreement and each of the Loan Documents, fees, and other documents and information described in Exhibit C, duly executed and in form and content satisfactory to Wells Fargo. Company agrees to comply with all covenants set forth in Exhibit C.

3.2

Additional Conditions Precedent to All Advances and Letters of Credit.     Wells Fargo's obligation to make any Advance (including the initial Advance) or issue any Letter of Credit shall be subject to the further additional conditions: (a) that the representations and warranties described in Exhibit D are correct on the date of the Advance or the issuance of the Letter of Credit, except to the extent that such representations and warranties relate solely to an earlier date; and (b) that no event has occurred and is continuing, or would result from the requested Advance or issuance of the Letter of Credit that would result in an Event of Default.

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4.     REPRESENTATIONS AND WARRANTIES

• To induce Wells Fargo to enter into this Agreement, Company makes the representations and warranties described in Exhibit D. Any request for an Advance will be deemed a representation by Company that all representations and warranties described in Exhibit D are true and correct as of the time of the request, unless they relate exclusively to an earlier date. Company shall promptly deliver a Record notifying Wells Fargo of any change in circumstance that would affect the accuracy of any representation or warranty, unless the representation and warranty specifically relates to an earlier date.

5.     COVENANTS

• So long as the Indebtedness remains unpaid, or the Line of Credit has not been terminated, Company shall comply with each of the following covenants, unless Wells Fargo shall consent otherwise in an Authenticated Record delivered to Company.

5.1

Reporting Requirements.     Company shall deliver to Wells Fargo the following information, compiled where applicable using GAAP consistently applied, in form and content acceptable to Wells Fargo:

(a)

Annual Financial Statements.     As soon as available and in any event within 90 days after Company's fiscal year end, Company's (i) Form 10-K filed with the Securities and Exchange Commission, and (ii) audited financial statements prepared by an independent certified public accountant acceptable to Wells Fargo, which shall include Company's balance sheet, income statement, and statement of retained earnings and cash flows prepared, if requested by Wells Fargo, on a consolidated and consolidating basis to include Company's Affiliates. The annual financial statements shall be accompanied by a Compliance Certificate in the form of Exhibit E that is signed by Company's chief financial officer.

• Each Compliance Certificate that accompanies an annual financial statement shall also be accompanied by (i) copies of all management letters prepared by Company's accountants; and (ii) a report signed by the accountant stating that in making the investigations necessary to render the opinion, the accountant obtained no knowledge, except as specifically stated, of any Event of Default under the Agreement, and a detailed statement, including computations, demonstrating whether or not Company is in compliance with the financial covenants set forth in this Agreement.

(b)

Monthly Financial Statements; Form 10-Q.     As soon as available and in any event within 25 days after the end of each month, a Company prepared balance sheet, income statement, and statement of retained earnings prepared for that month and for the year-to-date period then ended, prepared, if requested by Wells Fargo, on a consolidated and consolidating basis to include Company's Affiliates, and stating in comparative form the figures for the corresponding date and periods in the prior fiscal year, subject to year-end adjustments. The financial statements shall be accompanied by a Compliance Certificate in the form of Exhibit E that is signed by Company's chief financial officer. Additionally, within 45 days after the end of each fiscal quarter, Company shall provided to Wells Fargo, Company's Form 10-Q filed with the Securities and Exchange Commission.

(c)

Collateral Reports.     No later than 15 days after each month end (or more frequently if Wells Fargo shall request it), detailed agings of Company's accounts receivable and accounts payable and a calculation of Company's Accounts, Eligible Accounts as of the end of that month or shorter time period requested by Wells Fargo.

(d)

Projections.     No later than 30 days prior to each fiscal year end, Company's projected balance sheet and income statement and statement of retained earnings and cash flows for each month of

13

• the next fiscal year, certified as accurate by Company's chief financial officer and accompanied by a statement of assumptions and supporting schedules and information.

(e)

Supplemental Reports.     Weekly, or more frequently if Wells Fargo requests, Company's standard form of "daily collateral report", together with receivables schedules, collection reports, and copies of invoices, shipment documents and delivery receipts for goods sold to account debtors.

(f)

Litigation.     No later than three days after discovery, a Record notifying Wells Fargo of any litigation or other proceeding before any court or governmental agency which seeks a monetary recovery against Company in excess of $50,000.

(g)

Intellectual Property . (i) No later than 30 days before it acquires material Intellectual Property Rights, a Record notifying Wells Fargo of Company's intention to acquire such rights; (ii) except for transfers permitted under Section 5.18, no later than 30 days before it disposes of material Intellectual Property Rights, a Record notifying Wells Fargo of Company's intention to dispose of such rights, along with copies of all proposed documents and agreements concerning the disposal of such rights as requested by Wells Fargo; (iii) promptly upon knowledge thereof, a Record notifying Wells Fargo of (A) any Infringement of Company's Intellectual Property Rights by any Person, (B) claims that Company is Infringing another Person's Intellectual Property Rights and (C) any threatened cancellation, termination or material limitation of Company's Intellectual Property Rights; and (iv) promptly upon receipt, copies of all registrations and filings with respect to Company's Intellectual Property Rights.

(h)

Defaults.     No later than three days after learning of the probable occurrence of any Event of Default, a Record describing in detail the Event of Default and the steps being taken by Company to cure the Event of Default.

(i)

Disputes.     Promptly upon discovery, a Record notifying Wells Fargo of (i) any disputes or claims by Company's customers exceeding $25,000 individually or $50,000 in the aggregate during any fiscal year; (ii) credit memos not previously reported in Section 5.1(e); and (iii) any goods returned to or recovered by Company outside of the ordinary course of business or in the ordinary course of business but with a value in an amount in excess of $25,000.

(j)

Changes in Officers and Directors.     Promptly following occurrence, a Record notifying Wells Fargo of any change in the persons constituting Company's Officers and Directors.

(k)

Collateral.     Promptly upon discovery, a Record notifying Wells Fargo of any loss of or material damage to any Collateral or of any substantial adverse change in any Collateral or the prospect of its payment.

(l)

Commercial Tort Claims.     Promptly upon discovery, a Record notifying Wells Fargo of any commercial tort claims brought by Company against any Person, including the name and address of each defendant, a summary of the facts, an estimate of Company's damages, copies of any complaint or demand letter submitted by Company, and such other information as Wells Fargo may request.

(m)

Reports to Owners.     Promptly upon distribution, copies of all financial statements, reports and proxy statements which Company shall have sent to its Owners.

(n)

Tax Returns of Company.     No later than 30 days after they are required to be filed (inclusive of any applicable extension periods), copies of Company's signed and dated state and federal income tax returns and all related schedules, and copies of any extension requests.

(o)

[ Intentionally Omitted] .

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(p)

Violations of Law.     No later than three days after discovery of any violation, a Record notifying Wells Fargo of Company's violation of any law, rule or regulation, the non-compliance with which could have a Material Adverse Effect on Company.

(q)

Other Reports.     From time to time, with reasonable promptness, all receivables schedules, collection reports, deposit records, equipment schedules, invoices to account debtors, shipment documents and delivery receipts for goods sold, and such other materials, reports, records or information as Wells Fargo may request.

(r)

Customer Listings.     Semi-annually, or more frequently if Wells Fargo request, an updated listing of Company's customers together with contact names and addresses for each customer.

5.2

Financial Covenants.     Company agrees to comply with the financial covenants described below, which shall be calculated using GAAP consistently applied, except as they may be otherwise modified by the following capitalized definitions:

(a)

Minimum Book Net Worth.     Company shall maintain, during each period described below, its Book Net Worth (excluding intercompany receivables owed from Hemacare Bioscience, Inc.), determined as of the end of each month, in an amount not less than the amount set forth for each such period (numbers appearing between "< >" are negative):

(b)

Minimum Net Income.     Company shall achieve, for each period described below, Net Income of not less than the amount set forth for each such period (numbers appearing between "< >" are negative).

(c)

[Intentionally Omitted]

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(d)

Minimum Debt Service Coverage Ratio.     Company shall maintain during each period described below, a Debt Service Coverage Ratio, determined as at the end of each month, of not less than the ratio set forth for each such period:

(e)

Capital Expenditures.     Company shall not incur or contract to incur Capital Expenditures of more than $1,000,000 in the aggregate during any fiscal year.

5.3   Other Liens and Permitted Liens.

(a)

Other Liens; Permitted Liens.     Company shall not create, incur or suffer to exist any Lien upon any of its assets, now owned or later acquired, as security for any indebtedness, with the exception of the following (each a "Permitted Lien"; collectively, "Permitted Liens"): (i) In the case of real property, covenants, restrictions, rights, easements and minor irregularities in title which do not materially interfere with Company's business or operations as presently conducted; (ii) Liens in existence on the date of this Agreement that are described in Exhibit F and secure indebtedness for borrowed money permitted under Section 5.4; (iii) The Security Interest and Liens created by the Security Documents; and (iv) Purchase money Liens relating to the acquisition of Equipment not exceeding the lesser of cost or fair market value not exceeding $50,000 for any one purchase or $100,000 in the aggregate during any fiscal year, and so long as no Default Period is then in existence and none would exist immediately after such acquisition.

(b)

Financing Statements.     Company shall not authorize the filing of any financing statement by any Person as Secured Party with respect to any of Company's assets, other than Wells Fargo. Company shall not amend any financing statement filed by Wells Fargo as Secured Party except as permitted by law.

5.4

Indebtedness.     Company shall not incur, create, assume or permit to exist any indebtedness or liability on account of deposits or letters of credit issued on Company's behalf, or advances or any indebtedness for borrowed money of any kind, whether or not evidenced by an instrument, except : (a) Indebtedness arising under this Agreement; (b) indebtedness of Company described in Exhibit F; and (c) indebtedness secured by Permitted Liens.

5.5

Guaranties.     Company shall not assume, guarantee, endorse or otherwise become directly or contingently liable for the obligations of any Person, except : (a) the endorsement of negotiable instruments by Company for deposit or collection or similar transactions in the ordinary course of business; and (b) guaranties, endorsements and other direct or contingent liabilities in connection with the obligations of other Persons in existence on the date of this Agreement and described in Exhibit F.

5.6

Investments and Subsidiaries.     Company shall not make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any Person or Affiliate, including

16

• any partnership or joint venture, nor purchase or hold beneficially any stock or other securities or evidence of indebtedness of any Person or Affiliate, except :

(a)

Investments in direct obligations of the United States of America or any of its political subdivisions whose obligations constitute the full faith and credit obligations of the United States of America and have a maturity of one year or less, commercial paper issued by U.S. corporations rated "A-1" or "A-2" by Standard & Poor's Ratings Services or "P-1" or "P-2" by Moody's Investors Service or certificates of deposit or bankers' acceptances having a maturity of one year or less issued by members of the Federal Reserve System having deposits in excess of $100,000,000 (which certificates of deposit or bankers' acceptances are fully insured by the Federal Deposit Insurance Corporation);

(b)

Travel advances or loans to Company's Officers and employees not exceeding at any one time an aggregate of $10,000; or $5,000 for any single advance or loan;

(c)

Prepaid rent not exceeding one month or security deposits; and

(d)

Current investments in those Subsidiaries in existence on the date of this Agreement which are identified on Exhibit D.

5.7

Dividends and Distributions.     Company shall not declare or pay any dividends (other than dividends payable solely in stock of Company) on any class of its stock, or make any payment on account of the purchase, redemption or retirement of any shares of its stock, or other securities or evidence of its indebtedness or make any distribution regarding its stock, either directly or indirectly.

5.8

Salaries.     Company shall not pay excessive or unreasonable salaries, bonuses, commissions, consultant fees or other compensation; or increase the salary, commissions, consultant fees or other compensation of any Director, Officer or consultant, or any member of their families, by more than 15% in any one year, either individually or for all such Persons in the aggregate, or pay such an increase from any source other than profits earned in the year of payment; or pay bonuses to any such aforementioned Persons in excess of $100,000 per individual not to exceed $250,000 for all such aforementioned Persons in the aggregate.

5.9    [Intentionally Omitted].

5.10 Books and Records; Collateral Examination; Inspection and Appraisals

(a)

Books and Records; Inspection.     Company shall keep complete and accurate books and records with respect to the Collateral and Company's business and financial condition and any other matters that Wells Fargo may request, in accordance with GAAP. Company shall permit any employee, attorney, accountant or other agent of Wells Fargo to audit, review, make extracts from and copy any of its books and records at any time during ordinary business hours, and to discuss Company's affairs with any of its Directors, Officers, employees, Owners or agents.

(b)

Authorization to Company's Agents to Make Disclosures to Wells Fargo.     Company authorizes all accountants and other Persons acting as its agent to disclose and deliver to Wells Fargo's employees, accountants, attorneys and other Persons acting as its agent, at Company's expense, all financial information, books and records, work papers, management reports and other information in their possession regarding Company.

(c)

Collateral Exams and Inspections.     Company shall permit Wells Fargo's employees, accountants, attorneys or other Persons acting as its agent, to examine and inspect any Collateral or any other property of Company at any time during ordinary business hours.

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(d)

Collateral Appraisals.     Wells Fargo may also obtain, from time to time, at Company's expense, an appraisal of Company's Collateral, by an appraiser acceptable to Wells Fargo in its sole discretion.

5.11 Account Verification; Payment of Permitted Liens

(a)

Account Verification.     Wells Fargo or its agents may (i) contact account debtors and other obligors at any time to verify Company's Accounts; and (ii) require Company to send requests for verification of Accounts or send notices of assignment of Accounts to account debtors and other obligors.

(b)

Covenant to Pay Permitted Liens.     Company shall pay when due each account payable due to any Person holding a Permitted Lien (as a result of such payable) on any Collateral.

5.12 Compliance with Laws

(a)

General Compliance with Applicable Law; Use of Collateral.     Company shall (i) comply, and cause each Subsidiary to comply, with the requirements of applicable laws and regulations, the non-compliance with which would have a Material Adverse Effect on its business or its financial condition and (ii) use and keep the Collateral, and require that others use and keep the Collateral, only for lawful purposes, without violation of any federal, state or local law, statute or ordinance.

(b)

Compliance with Federal Regulatory Laws.     Company shall (i) prohibit, and cause each Subsidiary to prohibit, any Person that is an Owner or Officer from being listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by the Office of Foreign Assets Control ("OFAC"), the Department of the Treasury or included in any Executive Orders, (ii) not permit the proceeds of the Line of Credit or any other financial accommodation extended by Wells Fargo to be used in any way that violates any foreign asset control regulations of OFAC or other applicable law, (iii) comply, and cause each Subsidiary to comply, with all applicable Bank Secrecy Act laws and regulations, as amended from time to time, and otherwise comply with the USA Patriot Act and Wells Fargo's related policies and procedures.

(c)

FDA and Governmental Communications.     The Company shall provide Wells Fargo with copies of any communications Borrower receives from the Food and Drug Administration ("FDA") or any other federal, state or local governmental agency concerning any potential regulatory issues. The Company shall also provide Wells Fargo with copies of the results of any inspections or audits conducted by any f