SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 01-06855
WORKSAFE INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
NEW YORK 3842 11-1874010
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Identification Number)
incorporation or Code Number)
organization)
130 West 10th Street, Huntington Station, New York 11746
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 427-1802
Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Exchange
Title of Class on Which Registered
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a) $.12 par value common stock ("Common Stock") Boston Stock Exchange
b) Class B Redeemable Common Stock Purchase Boston Stock Exchange
Warrant ("Class B Warrant")(1)
Securities registered pursuant to Section 12 (g) of the Act:
a) $.12 par value common stock ("Common Stock")
b) Class B Redeemable Common Stock Purchase Warrant ("Class B Warrant")(1)
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(1) These warrants expired October 11, 1999.
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act of 1934 during the preceding twelve
(12) months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to the filing requirements for the past
ninety (90) days.
YES _X_ NO ___
<PAGE>
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: [X}
State registrant's revenues for its most recent fiscal year. $24,093,811.
The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of September 7, 1999 was approximately $1,636,000. Non-affiliates
include all shareholders other than officers, directors and 5% shareholders
known to registrant. Market value is based upon the price of the Common Stock of
the registrant as of the close of business on September 7, 1999 which was $1.063
per share as reported by NASDAQ.
As of September 7, 1999, the number of shares outstanding of the Common Stock of
the registrant was 1,686,579 shares. The number of shares has been adjusted for
prior stock splits and estimated rounding for fractional shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III which includes Item 10 (Directors and Executive Officers of the
Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and
Related Transactions) will be incorporated in the registrant's proxy statement
to be filed within 120 days of June 30, 1999, and are incorporated herein by
reference thereto.
<PAGE>
PART I
Item 1. BUSINESS
(a) General Development of Business.
Worksafe Industries Inc., formerly known as Eastco Industrial Safety Corp.
(referred to herein as the "registrant" or "Worksafe"), is a corporation
organized and existing under the laws of the State of New York, having been
incorporated on May 15, 1958. On December 17, 1998, the name of the registrant
was changed to Worksafe Industries Inc.
Worksafe, through its wholly-owned subsidiaries, Disposable Safety Wear,
Inc. ("Disposable"), Safety Wear Corp. ("Safety Wear"), Eastco Glove
Technologies, Inc. ("Glove Technologies"), and Puerto Rico Safety Equipment
Corporation ("Puerto Rico Safety Equipment") manufactures industrial protective
clothing products. Worksafe's Manufacturing Operation sells its products to
distributors. Use of products sold by Worksafe has in a large part resulted from
the adoption of OSHA and insurance industry standards.
On January 11, 1999, Worksafe sold certain of the assets of its
Distribution Operation and the Eastco name to Arbill Industries, Inc.
("Arbill"). This division specialized in the distribution of industrial safety
products manufactured by third parties. The Distribution Operation served a
different customer base than the Company's Manufacturing Division, and was
managed as a separate operating unit with its own identifiable assets. This
division had been experiencing operating losses over the past several years, and
this action was intended to enable the Company to better devote management's
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attention and resources to the core strategies of the Manufacturing Operation.
The sales price was approximately $2,494,000, exclusive of related adjustments,
payments applicable to rent and payments for open accounts receivable. Worksafe
generally agreed not to directly compete for 5 years with Arbill in the business
conducted by its Distribution Operation prior to closing. The agreement
self-renews yearly if Arbill purchases not less than 90% of the previous year's
sales as defined. The result of this transaction is that Worksafe has terminated
its distribution segment. Reference should be made to Worksafe's Form 8-K of
January 11, 1999, for a more detailed discussion of this transaction.
(b) Financial Information About Industry Segments.
Since the sale of the Distribution Operation on January 11, 1999, Worksafe
is organized and operates in one business segment, the manufacturing of
protective clothing and safety products that are sold to distributors for end
use by manufacturers, utilities, hospitals and others.
(c) Description of Business.
The following is a discussion of both the Manufacturing Operation of
Worksafe which is continuing and the Distribution Operation, which Worksafe was
engaged in until the sale to Arbill in January, 1999.
Manufacturing Operation
(i) Manufactured products are sold under the "Charkate/Worksafe", "Charkate",
"Worksafe" and "Cover-Up" trade names. Worksafe, through Disposable, Safety Wear
and Puerto Rico Safety Equipment, manufactures limited-use (in prior years
referred to as disposable) and reusable industrial protective apparel.
Limited-use protective products include coveralls, shirts, pants, headwear,
hoods, aprons, smocks, lab coats, hazardous material handler suits, examination
gowns, sleeves, shoe covers and related items. Limited-use clothing is designed
to protect the user from, among other things, splash, dirt, contamination and a
wide range of substances. Limited-use clothing is made primarily of a spun
bonded polyolefin produced solely by E.I. Dupont De Nemours & Company ("Dupont")
under the trade name Tyvek(R). Reusable industrial protective clothing consists
of items for the protection of various parts of the body which are designed to
shield the user from, among other things, splash, dirt, contamination, heat,
fire, cold and the outside environment. Reusable products manufactured include
coveralls, gloves, mitts, shirts, thermal underwear, sleeves, coats, pants,
leggings, spats, bibs, safety vests and a variety of other kinds of protective
clothing and uniforms.
Pursuant to an acquisition during April 1997, Worksafe now manufactures
protective knit gloves and sleeves which are sold by the Charkate/Worksafe Knit
Glove division. These products are generally made of cotton and cotton
polyester, composite high tensile cut-resistant yarns, Kevlar (R) aramid fibers,
as well as steel, stainless steel and other high cut-resistant composite fibers.
The products may have a special coating and are used to protect the individual
from cuts and abrasions. These items are used in industries involving such items
as meat packing, glass handling, sheet metal, and automotive protection.
Sales of manufactured limited-use clothing and related limited-use products
accounted for approximately 67%, 75% and 63% of Worksafe's net sales for the
three fiscal years ended June 30, 1999, respectively.
The Manufacturing Operation and warehousing facilities are located in
Puerto Rico, Minnesota and Alabama. Worksafe also has contracted production
facilities in Mexico to sew materials already cut by Worksafe. The Manufacturing
Operation is directed primarily from Alabama and its sales are directed from New
York. Products are sold primarily in the United States and
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Puerto Rico.
Worksafe utilizes catalogs, telemarketing and its website
(www.charkate.com) to aid in its sales efforts. Worksafe does not engage in any
mail order business. Sales are primarily to independent distributors who sell to
end-users comprised of industrial, commercial and governmental accounts.
Worksafe considers industrial accounts to be those businesses which are
primarily based upon manufacturing and production, while commercial accounts are
considered to be service businesses. Worksafe also believes that standards
established by OSHA and the insurance industry have resulted in a need by others
to purchase Worksafe's products. Sales are also promoted through trade shows,
mailings and advertising in trade magazines and directories.
(ii) Worksafe has made no public announcement of, or made public information
about, any new product in this segment which would require the investment of a
material amount of its assets or which otherwise is material.
(iii) Worksafe is not dependent upon any one vendor as a source of supply of raw
materials for its Manufacturing Operation other than Dupont, which supplies
Worksafe with Tyvek(R), which is used in various lines of its limited-use
products. Products utilizing Tyvek(R) accounted for approximately 67%, 75% and
63% of net sales of the Manufacturing Operation for the three fiscal years ended
June 30, 1999, respectively. See also (iv) immediately below for reference to a
license agreement with Dupont which expires January 31, 2000, and pursuant to
which Dupont supplies raw materials to Worksafe for its Manufacturing Operation.
Management believes that its current relationship with Dupont is satisfactory.
Management expects that based upon its past relationship with Dupont, although
there can be no assurances, that this Agreement will be extended. Loss of Dupont
as a supplier of Tyvek (R) would have a material adverse effect on Worksafe's
operations.
(iv) Puerto Rico Safety Equipment is engaged in manufacturing in Puerto Rico and
was granted an exemption for seventeen (17) years under the Puerto Rico
Industrial Tax Exemption Act of 1963 (the "Industrial Tax Act") with respect to
Puerto Rico income taxes on the production of such items as safety clothing,
protective sleeves, coats, pants, hoods and jackets for the period commencing
January 1, 1970. On July 1, 1989, Puerto Rico Safety Equipment was granted an
extension of its exemption and had a 90% exemption from Puerto Rico income taxes
for the ten-year period which ended June 30, 1999. During this period, Puerto
Rico Safety Equipment had a 75% exemption from Puerto Rico municipal taxes on
its real and personal property utilized in its operations. Puerto Rico Safety
Equipment is in the process of applying for an extension of this exemption. If
granted, this exemption would be for 10 years, and would impose an income tax
rate of only 5% on the taxable income and may grant a 75% exemption on the
corresponding property tax, municipal tax and other taxes.
Disposable has been granted a fifteen-year exemption under the Industrial
Tax Act with respect to Puerto Rico income taxes on its operations covering the
production of limited-use clothing, and with respect to the property used in its
operations for the period commencing June 4, 1977, subject to the terms of the
grant. This exemption has been extended until June 30, 2006, on the basis of a
90% exemption on Puerto Rico income taxes and a 60% exemption on municipal taxes
on its real and personal property.
As Puerto Rico tax exemptions are reduced or expire the registrant may be
required to pay taxes on income earned in Puerto Rico. Worksafe is unable to
predict the monetary impact of such exemptions being reduced or expiring.
Puerto Rico Safety Equipment and Disposable have elected to apply Section
936 of the Internal Revenue Code, effective July 1, 1979. The provisions of
Section 936 are effective until revoked by the registrant. If the conditions
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of Section 936(a)(2) are satisfied, the Section 936 credit equals the portion of
the United States income tax that is attributable to taxable income from sources
outside the United States derived from the active conduct of a trade or business
within a United States possession, or the sale or exchange of substantially all
of the qualified possession source investment income. Dividends payable by each
subsidiary to the registrant from operations are entitled to a 100% dividends
received deduction, but are subject to a 10% withholding tax in Puerto Rico. The
Omnibus Budget Reconciliation Act of 1993 (the "Omnibus Act") imposed new
limitations on computing the Possession Tax Credit under Section 936 for tax
years beginning after 1993. The registrant made an election in 1995 which
reduced the credit to 60% of the 1994 level and which further phased out the
credit by 5% in each subsequent year to a maximum credit of 40% in 1998. Since
the credit is a function of future earnings, if any, the effect of such
limitations cannot be determined at the present time. In addition, the Omnibus
Act makes the 100% dividends received deduction subject to the Alternative
Minimum Tax Calculation. The Small Business Job Protection Act of 1996 further
limits the Possession Tax Credit for years beginning after 2001, with the credit
being eliminated for tax years beginning after 2005. No dividends have been
declared on the aggregate undistributed earnings of Puerto Rico Safety Equipment
and Disposable (which through June 30, 1999, aggregates approximately $666,000)
and none are intended to be declared because it is management's intention to
reinvest the earnings, if any, from such subsidiaries indefinitely. Worksafe
believes that based upon current operations, the Omnibus Act will not have a
material effect on it for the foreseeable future.
Worksafe is a party to a Garment Manufacturer & Seller License Agreement
with Dupont, which, subject to termination for cause at any time and other
specified provisions, continues in effect until January 31, 2000. Management
expects that based upon its past relationship with Dupont, although there can be
no assurances, that this agreement will be extended. Pursuant to this agreement
Dupont provides nonwoven fabric under its trademark to the registrant.
(v) Worksafe does not consider its business to be seasonal.
(vi) Worksafe is required to maintain substantial inventories (see Consolidated
Financial Statements) in order to meet the immediate shipping requirements of
its customers, who require products on short notice and who do not maintain an
inventory of the same. Worksafe believes that other companies in this industry
also maintain substantial inventories.
(vii) Worksafe is not dependent upon any single customer or several customers,
the loss of any one or more of whom would have an adverse effect on its
business. No one customer accounts for more than 10% of net sales.
(viii) The dollar amount of backlog of orders estimated and believed to be firm
with respect to the Manufacturing Operation was approximately $1,500,000 as of
June 30, 1999, compared to approximately $972,000 as of June 30, 1998. All of
the backlog as of June 30, 1999, is expected to be filled during the current
fiscal year.
(ix) No material portion of the business of Worksafe is subject to renegotiation
of profits or termination of contracts or subcontracts at the election of the
government.
(x) Worksafe faces competition in all of its product markets from larger and
more established companies that have greater financial, managerial, sales and
technical resources. Certain markets for Worksafe's products are dominated by
these companies. While larger competitors may be able to benefit from economies
of scale and introduce new products that compete with Worksafe's products,
management is accustomed to such competition, and believes Worksafe will remain
competitive with such companies. Worksafe's major competitors in price and in
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service for its Manufacturing Operation are Kappler Inc. and Lakeland
Industries, Inc. in limited-use clothing sales, and Red Kap, a subsidiary of VF
Industries Inc., Topps Mfg. Co. and Workrite Uniform Co. in reusable clothing
sales. Primary competitors in glove manufacturing are Chicago Protective
Apparel, Inc., Steel Grip, Inc., and Ansell Golden Needles, Inc.
(xi) During the last three fiscal years, the registrant has not spent a material
amount on research and development relating to the development or research
activities of new products, services or techniques or for the improvement of
existing products, services or techniques.
(xii) Compliance with Federal, State and local environmental laws is expected to
have no material effect upon capital expenditures, earnings and the competitive
position of the registrant. Worksafe's manufacturing facilities are subject to
regulation and inspection standards established by OSHA. Such facilities have
not been inspected for compliance with OSHA. Although Worksafe's management
believes it is in material compliance with required standards, there can be no
assurance that any inspection will not reveal that Worksafe has failed to comply
with OSHA and that, as a result, the registrant may be required to expend
material sums to assure compliance with OSHA regulations.
(xiii) The total number of employees employed by the registrant as of June 30,
1999, was approximately 235.
Discontinued Operation
The registrant, until the sale to Arbill on January 11, 1999, distributed
industrial safety products manufactured by third parties. Products distributed
included hard hats, protective clothing, gloves, glasses, ear muffs, ear plugs,
respirators, goggles, face shields, rainwear, protective footwear, first-aid
kits, monitoring devices, signs and related products. These products were sold
to industry and service businesses, including utilities, hospitals,
pharmaceutical plants, and companies engaged in hazardous materials abatement.
This segment supplied a variety of items which could be used during the
removal and/or encapsulation of hazardous materials in office buildings,
chemical plants, refineries, power-generating plants, schools and hospitals.
Abatement products sold included items made by other companies, such as negative
air machines, respirators, air filtration equipment, vacuums, polybags and
sheetings, decontamination showers, signs, tools, pumps, sprayers and related
equipment. The registrant did not engage in the removal or encapsulation of
hazardous materials. Sales of these products accounted for approximately 7%, 12%
and 13% of Worksafe's net sales for the three fiscal years ended June 30, 1999,
respectively. The foregoing percentages do not include abatement products
manufactured by the registrant.
Pursuant to the sale agreement, Worksafe has generally agreed not to
compete with Arbill for a period of 5 years in the business conducted by
Worksafe's Distribution division. There are certain exceptions in this agreement
which includes the right to sell end-users safety products manufactured by
Worksafe if Arbill does not purchase safety products from Worksafe equal to not
less than 90% of the previous year's sales as defined. Arbill is presently in
compliance with this provision.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales.
All sales of the registrant's products are primarily in the United States,
inclusive of Puerto Rico.
<PAGE>
Item 2. PROPERTIES
The following properties are material to the business of Worksafe:
The executive offices of Worksafe are located at 130 West 10th Street,
Huntington Station, New York and are owned by Worksafe (the "Huntington
Property"). The Huntington Property contains approximately 30,000 square feet of
which 25,000 square feet are being sublet to non-affiliates. The remaining 5,000
square feet are being used by Worksafe for its executive offices and for sales
functions. At June 30, 1999, the premises were subject to a first real estate
mortgage made in 1992, payable to 130 West 10th Street Associates, LLC
("Associates") of which approximately $377,000 was then due. The wives of
Messrs. Anthony Towell, an executive officer and director, and Alan Densen, a
director, are members of Associates. Charles Holzberg, a director, is also a
member of Associates.
The registrant's wholly-owned subsidiary, Disposable, leases a building,
which is used for manufacturing and warehousing, consisting of approximately
45,000 square feet in Aguadilla, Puerto Rico from the Puerto Rico Industrial
Development Company. A lease was entered into for these premises on February 21,
1995, effective for the ten-year period commencing September 1, 1993. Rent for
the twelve-month period ending August 31, 1999 was at the monthly rate of
$9,315, and escalates to $13,041 in the final year of the lease.
The registrant's wholly-owned subsidiary, Safety Wear, leases approximately
40,000 square feet in Decatur, Alabama. These premises are utilized for the
cutting and warehousing of coveralls and other limited-use products. Rent is
payable at $8,450 per month on a month-to-month basis. Should these facilities
not be available in the future, Worksafe believes that alternative sites will be
readily available at a comparative cost.
The registrant's wholly-owned subsidiary, Glove Technologies, leases
approximately 11,000 square feet in Chaska, Minnesota. The premises are utilized
in connection with the manufacturing of protective knit gloves and related
operations. This lease terminates on December 31, 1999, at which point Worksafe
may renew or relocate this facility. Rent is payable at the rate of $7,500 per
month.
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Item 3. LEGAL PROCEEDINGS
In the past, the registrant used asbestos in the manufacture of certain of
its products. Such use was terminated by the registrant in the mid-1980's. It
has been alleged that asbestos is a cause of cancer, asbestosis, mesothelioma,
and other related diseases, the symptoms of which may not appear for twenty or
more years. Since the early 1980's, numerous lawsuits have been instituted
against the registrant by persons who have been exposed to asbestos and asbestos
products.
As of June 30, 1999, Worksafe estimates that it is a party to approximately
3,800 cases with respect to exposure to asbestos involving approximately 8,500
plaintiffs. Most of these cases include Puerto Rico Safety Equipment as a
defendant. Reference is made to Exhibit 99.05 of the Form 10-K for the fiscal
year ended June 30, 1998, which is made a part hereof and are incorporated by
reference herein for a schedule of the asbestos cases pending as of that date.
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Reference is also made to exhibits 99.05.01, 99.06.0 and 99.06.3 which are made
a part hereof and are incorporated by reference, respectively, to the Forms 10-Q
for the quarters ended September 30, 1998, December 31, 1998, and March 31,
1999, and Exhibit 99.12 for asbestos cases instituted during the quarter ending
June 30, 1999, all as identified in Item 14 hereof.
To date, all of the actions against the registrant have been brought by
non-employees of the registrant and are based upon personal injury claims. The
pending actions are in the Supreme Court of the State of New York, County of New
York; Superior Court of New Jersey, Middlesex County, Law Division; the Court of
Common Pleas of Luzerne County, Trial Division of Pennsylvania and the Court of
Common Pleas of Allegheny County, Civil Division of Pennsylvania. The number of
first-party plaintiffs referred to throughout this Form 10-K include husband and
wives, in most instances. For the most part, settlements have usually involved
one settlement for both spouses. The actions, with the exception of one pending
action, involve a multitude of defendants. The complaints allege exposure to
asbestos and asbestos products over various periods of time. In general, each
action seeks varying amounts of damages, usually unlimited, or for each
plaintiff as high as $10,000,000 for compensatory damages and $20,000,000 for
punitive damages. The registrant may become a party to additional asbestos
actions in the future.
From 1981 through June 30, 1999, Worksafe estimates that approximately
4,450 actions on behalf of approximately 16,000 first-party plaintiffs have been
instituted against it concerning asbestos-related claims, and that approximately
650 actions and the claims of approximately 7,500 plaintiffs have been
terminated against the registrant. During fiscal 1999, the registrant estimates
approximately 2,700 actions on behalf of approximately 5,300 plaintiffs were
instituted against it and approximately 10 cases involving 327 plaintiffs were
settled or discontinued against the registrant. The registrant estimates that as
of June 30, 1999, with the exception of defense costs, a total of approximately
$1,800,000 has been paid, or agreed to be paid, in settlements to date with
regard to the terminated actions on behalf of Worksafe (inclusive of actions
against Puerto Rico Safety Equipment) of which all but approximately $38,000 has
been paid by the registrant's insurance carriers. The foregoing is based upon
information available to the registrant to date. Through June 30, 1999, the
registrant has paid less than $40,000 for legal and defense costs to counsel
appointed by the insurance carriers to defend it. Past results of settlements
and defense costs are not necessarily indicative of future settlements and
defense costs, which the registrant is unable to predict.
The registrant believes that it maintained various policies of primary
insurance in different amounts which provide coverage to the extent of their
terms for asbestos-made, product-related personal injuries for the periods April
1, 1968, to April 1, 1969, and March 11, 1971, to November 27, 1985. The
policies range in amounts from $50,000 to $1,000,000. The registrant also
believes that since August 10, 1972, to on or about August 11, 1986, it has had
various policies for excess coverage to the extent of their terms applicable to
asbestos claims. These policies range in amounts from $500,000 to $10,000,000
for excess coverage. There are gaps of approximately six weeks in the primary
coverage between March 11, 1971, to November 27, 1985, and approximately
thirty-six months in the excess coverage between August 10, 1972, and August 11,
1986, and an additional period of approximately thirteen months for excess
coverage insurance companies in liquidation where there is likely to be no
coverage. Reference is made to Exhibits 99.06 and 99.07 for a schedule of the
foregoing insurance policies. The policies of insurance set forth on Exhibits
99.06 and 99.07 are not applicable to all of the subsidiaries of the registrant,
which have varying coverage, and such subsidiaries may also be without coverage
for various times of their doing business. Not all of these policies are in the
possession of Worksafe. The foregoing exhibits are incorporated by reference and
made a part hereof as referred to in Item 14 of this Form 10-K.
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During fiscal 1994, the registrant reached a settlement pertaining to all
pending and future cases against it in the State of New York brought by one firm
of plaintiffs' attorneys. The settlement does not apply to Puerto Rico Safety
Equipment and is only applicable to cases brought by the same law firm against
the registrant in the State of New York. The registrant is to be dismissed
without any payment in cases not involving any exposure to a power generating
station in the State of New York ("Powerhouse"). Where there is Powerhouse
exposure, a payment of $100 is to be made for each alleged non-malignant case
and $300 for each malignant case. Where plaintiffs consist of two spouses, such
is deemed one case. Payment is to await appropriate documentation of exposure,
releases from the plaintiffs and the agreement of each plaintiff whose case is
settled. A copy of the letters between counsel for the registrant and counsel
for plaintiffs' attorneys setting forth this settlement is designated as Exhibit
99.11.
An agreement between the registrant and its primary insurance carriers
dated March 26, 1990, became effective June 26, 1990 (the "Indemnity
Agreement"). The registrant entered into the Indemnity Agreement in an effort to
resolve uncertainties as to its insurance coverage which will cover asbestos
claims against the parent company where any exposure to asbestos is alleged
during the period 1971 to 1985, inclusive. Further, the registrant is obligated
to share in the payment of asbestos-related claims against it. Pursuant to the
Indemnity Agreement, the registrant is obligated to pay 12% of all attorneys'
fees incurred on its behalf and 17% of indemnity costs (which include judgment
and settlement amounts). The balance of these costs are to be paid by the
insurance carriers which are party to the Indemnity Agreement. The Indemnity
Agreement is subject to the policy limitations of each insurance policy, and may
be terminated at any time upon ninety (90) days notice by any of the parties,
provided that termination may not be effective as to any asbestos action that
has already been placed on the trial calendar, unless it has a scheduled trial
date more than twelve (12) months from the date the notice of termination is
given. The registrant is presently aware of two cases on the trial calendar. A
copy of the Indemnity Agreement dated March 26, 1990, is designated as Exhibit
99.09, made a part hereof and is incorporated by reference as set forth in Item
14.
Effective during May 1991, the registrant entered into a Settlement
Agreement and Release with Mount Vernon Fire Insurance Company ("Mount Vernon").
Pursuant to this Settlement Agreement, which is designated Exhibit 99.10, the
registrant discontinued its action against Mount Vernon, which provided that,
subject to the terms of the Settlement Agreement, Mount Vernon would reimburse
the registrant (where applicable) for 6.25% of attorneys' fees (52.08% of the
registrant's 12% share referred to in the Indemnity Agreement in the previous
paragraph) and 6.25% of indemnification costs (36.76% of registrant's 17% share
referred to in the Indemnity Agreement in the previous paragraph). The
Settlement Agreement is not applicable to any asbestos actions against the
registrant where no exposure is alleged to products manufactured or distributed
by the registrant between April 1, 1968, and April 1, 1969. The Settlement
Agreement may be terminated at any time upon 90 days notice, but such notice is
not applicable to asbestos actions placed on a trial calendar, unless such has a
trial date more than twelve (12) months from the date the notice of termination
is given. The Settlement Agreement provides that the limit available under the
policy is $100,000 plus attorneys' fees while the Settlement Agreement is in
effect and is applicable only to the parent company. Approximately $35,000 has
been reimbursed by Mount Vernon as of June 30, 1999, for indemnification.
Worksafe is unable to ascertain the total extent of insurance applicable to
asbestos claims against it or the extent to which its insurance carriers will
provide coverage. The two agreements referred to above between the registrant
and the insurance carriers may not be applicable to Puerto Rico Safety
<PAGE>
Equipment, which is covered by other insurance. To date, the claims settled by
Puerto Rico Safety Equipment have been paid in full by insurance. A schedule of
insurance believed to be applicable to Puerto Rico Safety Equipment is
designated Exhibit 99.08. No agreement has been reached with the insurance
companies confirming all of these policies, which range from $100,000 to
$500,000 for primary coverage and $1,000,000 to $5,000,000 for excess coverage.
The policies for Puerto Rico Safety Equipment cover the period March 11, 1971,
to July 23, 1986, with various gaps as described on the exhibit.
The registrant's insurance may not provide coverage for punitive damages
where such damages are sought against it in pending litigation. Punitive damages
are allowable in addition to compensatory damages and are awarded as a
punishment to a defendant for the wrong in the particular case as well as for
the protection of the public against similar acts, to deter the defendant from a
repetition of the wrongful act and to serve as a warning to others. Usually a
wrong, aggravated by an evil or wrongful motive or a willful and intentional
misdoing or a reckless indifference equivalent thereto, is required for a court
to award punitive damages. Worksafe is unable to specify whether its actions
would give rise to punitive damages. It believes that its actions should not
give rise to punitive damages. However, there can be no assurance that this will
be the case.
Worksafe is a party to an action entitled Rule v. The Bethlehem Corporation
pending in the Court of Common Pleas, Bucks County, Pennsylvania. There are 4
defendants including Worksafe. The action was instituted in April, 1997, and has
been referred to both Worksafe's primary and umbrella insurance coverage. The
action is one for injuries sustained while the plaintiff was allegedly wearing
Worksafe clothing. Worksafe has $17,000,000.00 of primary and umbrella coverage,
which it believes is more than sufficient to cover any liability that it may
have with respect to this claim.
Worksafe is a party to miscellaneous other litigation which it believes
will not have a material adverse affect against it.
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
First Elected
Offices and Officer of
Name Age Position Held Worksafe
- ---- --- ------------- -------------
Lawrence Densen 41 President and Chief 1986
Executive Officer
Anthony P. Towell 68 Senior Vice President 1989
and Secretary
Arthur Wasserspring 58 Vice President of 1997
Finance and Chief
Financial Officer
Richard Boyen 58 Vice President of 1997
Manufacturing
- ----------
All of the above executive officers have been elected to serve until the next
annual meeting of the board of directors presently anticipated to be held
December 1999, or until their respective successors are elected and qualified.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The principal market on which the Common Stock of Worksafe is traded is
the NASDAQ Small-Cap Market and its symbol is WRKS. The following chart sets
forth the high and low sales prices as determined from NASDAQ for the Common
Stock for the last two fiscal years.
The following chart sets forth the high and low sale prices for the periods
indicated as determined from NASDAQ quotations reflecting interdealer prices
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions:
High Low
------- ------
Fiscal Year Ended June 30
1998
----
First Quarter $ 3.00 $2.25
Second Quarter 3.25 1.63
Third Quarter 3.44 1.81
Fourth Quarter 3.56 2.38
1999
----
First Quarter $ 2.38 $1.44
Second Quarter 3.19 1.25
Third Quarter 3.31 1.81
Fourth Quarter 2.19 1.00
(b) The approximate number of holders of record of the Common Stock as of
September 13, 1999, was 366. The registrant believes there are in excess of
1,200 beneficial holders of the Common Stock.
(c) (1) No dividends have been paid during the past two years.
(2) The registrant has no present intention of paying any cash
dividends in the foreseeable future and intends to use its net income, if
any, in its operations.
(3) The registrant is prohibited from paying dividends under its loan
agreement with Congress Financial Corporation ("Congress"). However, within
the terms of its agreement, Congress has approved a buy-back of 320,000
shares for up to $400,000.
(d) During the fiscal year ending June 30, 1999, 3,500 shares of Common
Stock that were not registered under the Securities Act of 1933, as amended,
were sold by the registrant at a price of $1.30 per share pursuant to an
exemption under Section 4(2) of the Securities Act of 1933, as amended.
<PAGE>
ITEM 6.SELECTED FINANCIAL DATA
WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands, for continuing operations, except
for per share data)
Operations
- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 24,094 $ 24,807 $ 19,907 $ 17,889 $ 14,791
Income/(loss) from
continuing operations 29 256 (621) 521 423
Basic income (loss) per
share from continuing
operations .02 .15 (.44) .87 1.22
Diluted income (loss)
per share from continuing
operations .02 .15 (.44) .87 1.04
Cash dividends per share(1) 0 0 0 0 0
<CAPTION>
Years Ended June 30,
-------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands, except for per share data)
Financial Condition
- -------------------
Total assets $ 11,806 $ 16,575 $ 13,381 $ 11,546 $ 9,719
Long-term debt 396 538 811 434 490
Stockholders' Equity 3,044 3,899 4,387 2,604 2,026
Book value per share(2) 1.80 2.32 2.61 3.40 5.83
</TABLE>
(1) Worksafe has never declared or paid a cash dividend on its Common
Stock. It is the policy of the board of directors to retain earnings for use in
Worksafe's operations. In addition, Worksafe is prohibited from paying such
dividends based on its loan agreement with Congress.
(2) Adjusted to reflect a 1 for 10 reverse stock split effective August 12,
1996.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Worksafe operated in the manufacturing and distribution industry segments
until the end of its second fiscal quarter for the year ending June 30, 1999,
when it sold its distribution business. Since such sale, Worksafe continues only
its Manufacturing Operation. For an understanding of the significant factors
that influenced Worksafe's performance during the past three fiscal years, the
following discussion should be read in conjunction with the consolidated
financial statements, including the related notes, and other information
appearing elsewhere in this report.
Worksafe's continuing operations now consist of its Manufacturing Operation
which produces limited-use and reusable industrial apparel and protective knit
gloves. Worksafe maintains facilities for warehousing and production in Puerto
Rico, Alabama, Mexico (a contractor), Texas, California, Louisiana and
Minnesota.
The accompanying financial statements have been restated to reflect the
former distribution division as a discontinued operation and Management's
Discussion and Analysis discusses only the continuing operations.
Results of Operations.
Fiscal 1999 Compared to Fiscal 1998
Net sales for the year ended June 30, 1999, were approximately $24,094,000
as compared to approximately $24,807,000 for the year ended June 30, 1998, a
decrease of 2.9%. This decrease in sales in fiscal 1999 was in large part due to
the fact that manufacturing inventory which normally would have been sold
directly to customers during the second half of fiscal 1999 was instead
transferred as part of the second quarter transaction with Arbill, who in turn
sold the inventory to their customers. In addition, in prior years, the Company
realized as part of its manufacturing sales, the sales price to end-users. Since
the sale to Arbill of the discontinued operations, the sales price realized was
the price to Arbill, a distributor, where the sales price is lower than the
price to the end-user.
Worksafe's gross margin decreased to 14.3% for fiscal 1999 from 16.8% for
fiscal 1998. These reductions are the continuing results of the competitive
environment in the marketplace as well as the lower margins on sales to
distributors as opposed to end-users. In a continued effort to increase margin
levels, Worksafe continues to take major steps to reduce overhead expenses, i.e.
by producing more products in Mexico, and increasing efficiencies in material
utilization.
Selling, general and administrative expenses for the year ended June 30,
1999, were approximately $2,915,000, 12.1% of sales, compared to approximately
$3,391,000, 13.7% of sales, for the same period last year. This decrease as a
percentage of sales was mainly due to lower salaries and related benefits. The
Company took advantage of more vendor rebates in fiscal 1999, due to improved
cash availability.
Interest expense was approximately $563,000 for fiscal 1999, an increase of
approximately $2,000 when compared to fiscal 1998.
Income from continuing operations for fiscal 1999 decreased to $29,000 as
compared to $256,000 for fiscal 1998. This decrease was a direct result of the
aforementioned decrease in sales and gross margins.
<PAGE>
Fiscal 1998 Compared to Fiscal 1997
Net sales during fiscal 1998 increased 24.6% to approximately $24,807,000
from approximately $19,907,000 during fiscal 1997. This increase included
approximately $1,123,000 of incremental sales attributable to the glove division
that was acquired in April 1997. Worksafe believes that the overall increase in
sales was due to increased demand for Worksafe's products, the improvement in
its inventory position and the continued overall improvement in industry
conditions.
The gross profit percentage increased to 16.8% for fiscal 1998 from 13.4%
for fiscal 1997. This increase in gross profit was caused in part by (i)
continued increases in production levels by our contractor in Mexico at lower
costs for products previously produced in Puerto Rico and Alabama and (ii)
continued production efficiencies in Puerto Rico and Alabama.
Selling, general and administrative expenses for fiscal 1998 were
approximately $3,391,000 or 13.7% of sales compared to approximately $2,870,000
or 14.4% of sales for fiscal 1997. This increase was primarily due to (i)
$225,000 in incremental expenses attributable to the glove division (acquired
April 1997) and (ii) an increase in total non-glove operations commissions of
$113,000 attributable to increased sales.
Interest expense was approximately $561,000 for fiscal 1998 as compared to
approximately $425,000 in the prior year. This increase was principally due to
an increase in average borrowings in fiscal 1998 on Worksafe's asset-based
facility with Congress as well as a full year's interest on additional
borrowings from Congress used to purchase the Minnesota glove business in April
1997.
Worksafe's income from continuing operations for fiscal 1998 was
approximately $256,000 as compared to a net loss of approximately $621,000 in
fiscal 1997. This increase was caused by increased sales and an increase in
gross margins offset in part by a loss of approximately $266,000 (including
$108,000 in depreciation and amortization) related to the glove division
acquired in April 1997, along with a fourth quarter loss in fiscal 1998 of
approximately $110,000, which was primarily the result of selling price
reductions on certain Worksafe products due to competition, market conditions,
and cash flow requirements.
Liquidity and Capital Resources
Worksafe had working capital as of June 30, 1999, inclusive of net assets
of discontinued operations, of approximately $850,000 as compared to
approximately $1,709,000 as of June 30, 1998. A substantial portion of
Worksafe's working capital consists of inventory, which was approximately
$4,583,000 and $6,372,000 as of June 30, 1999 and 1998, respectively. This
inventory reduction is mainly due to Worksafe closing its warehouses in New
York, Florida and Connecticut as part of its Arbill transaction at which time
Arbill bought all manufacturing inventory contained therein. Although the
manufacturing division maintains a minimum level of inventory for its basic
products, its back order position is expected to keep inventory at lower levels,
thereby having a positive effect on liquidity. Worksafe believes that its
current working capital position will be sufficient to satisfy its needs for the
next twelve months.
Worksafe has a line of credit agreement with Congress, which expires
October 1, 2002. The line provides for borrowings up to $8,000,000, with
interest payable monthly at .75% in excess of prime (unless for the year ending
June 30, 2000, Worksafe is not profitable, then the interest rate becomes 1%
above the prime rate), and an unused line fee of 1/4% a year. The maximum amount
Worksafe can
<PAGE>
borrow on the inventory portion is $3,600,000. The limits on borrowings remain
at 85% of eligible accounts receivable and 55% of eligible inventory. The
amounts outstanding at June 30, 1999, and June 30, 1998, were approximately
$5,699,000 and $8,190,000, respectively. Worksafe had $123,000 available for
borrowing at June 30, 1999, based on its formula with Congress. In addition,
Worksafe may also borrow up to an additional $175,000 until December 31, 1999,
at which time such additional loans are payable in full. The loan is subject to
certain working capital and net worth requirements and is collateralized by all
of the assets of Worksafe not previously pledged under other loan agreements.
The loan agreement prohibits the payment of cash dividends by Worksafe. At June
30, 1999, Worksafe was not in compliance with the tangible net worth requirement
of the line of credit agreement. Congress has since amended such covenant such
that Worksafe is in compliance.
Net cash provided by operating activities was principally a result of a
decrease in accounts receivable and inventory, which was partially offset by a
decrease in accounts payable and accrued expenses. Cash flows used in investing
activities was for the purchase of property, plant and equipment. Cash flows
used in financing activities were principally a result of net paydowns of
Worksafe's loan with Congress.
On September 9, 1999, the board of directors of Worksafe approved a
buy-back plan of up to 320,000 shares of Worksafe's common stock to be purchased
over the next two years at the discretion of Worksafe. Congress has authorized
Worksafe to expend up to $400,000 for such purchase. No shares have been
purchased to date.
Worksafe believes that its current working capital position, line of credit
and operations will be sufficient to satisfy its cash needs for the next twelve
months.
Worksafe has no material commitments for capital expenditures.
At the present time, Worksafe, together with a variety of defendants, is a
party to various asbestos-related lawsuits involving a number of plaintiffs
alleging damages from exposure to asbestos products sold by Worksafe. Worksafe
may become a party to additional asbestos-related actions in the future.
Worksafe is also party to a non-asbestos product liability action. While as
indicated in Item 3. Legal Proceedings, of this Form 10-K, legal and settlement
costs to Worksafe have not been material to date, Worksafe cannot, at this time,
determine the outcome of these uncertainties which may have an adverse effect
upon the liquidity of Worksafe in the future.
Year 2000
The Year 2000 issue results from the inability of some computer programs to
identify the year 2000 properly, potentially leading to errors or system
failure. A company's business may be adversely affected if it, or any of its
suppliers, customers or other third parties with whom it transacts business
(including banks and governmental agencies), have not resolved the Year 2000
issue in a timely manner.
Worksafe's internal computing systems are primarily limited to hardware and
software for its financial systems, such as general ledger, accounts receivable
and accounts payable systems, and word processing. Worksafe believes that it
could replace any of its software or systems, if necessary, quickly and at
reasonable expense.
Worksafe has completed its internal review with respect to Year 2000
issues. Worksafe does not believe Year 2000 issues within its internal
information systems will have a material adverse effect on Worksafe's business,
<PAGE>
financial condition or results of operations. Worksafe believes that its
internal computer systems are currently Year 2000 compliant.
Worksafe has completed its review of the Year 2000 readiness of its
customers and vendors, and believes, based upon such review, that such parties
should not cause a material disruption in Worksafe's business due to Year 2000
issues.
To date, the cost of Worksafe's Year 2000 assessment and compliance efforts
has not been material to Worksafe's results of operations or liquidity. Worksafe
is not aware, at this time, of any Year 2000 non-compliance that will materially
affect Worksafe.
Risks and Other Considerations
From time to time, information provided by Worksafe or statements made by
its employees, or information provided in its filings with the Securities and
Exchange Commission may contain forward-looking information. Any statements
contained herein or otherwise made that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the foregoing,
the words "believes", "expects", "anticipates", "plans" and similar expressions
are intended to identify forward-looking statements. Worksafe's actual future
results may differ materially from those projections or statements made in such
forward-looking information as a result of various risks and uncertainties,
including, but not limited, to the following:
Worksafe, since its fiscal year ended June 30, 1991 with the exception of
fiscal years 1996 and 1995, has had a history of significant losses. There can
be no assurances that Worksafe will be profitable or will not incur losses in
the future.
Worksafe is dependent upon its revolving line of credit with Congress. In
the event that Worksafe is unable to comply with its obligations to Congress,
Worksafe's indebtedness could be declared immediately due and payable and in
certain cases Worksafe's assets could be foreclosed upon. There can be no
assurances that there will be other sources of financing for Worksafe, if
required.
The registrant is a party to approximately 3,800 cases involving
approximately 8,500 plaintiffs, as of June 30, 1999 with respect to asbestos
litigation and additional asbestos actions continue to be brought against it.
During the year ended June 30, 1999, approximately 2,700 asbestos actions
concerning approximately 5,300 plaintiffs have been brought against the
registrant. To date, Worksafe believes that its insurance coverage has been
adequate for those actions previously terminated, but there can be no assurances
that such coverage will continue to be adequate in the future. There can be no
assurances that asbestos litigation will not have an adverse affect upon
Worksafe. For a more complete discussion on asbestos litigation and Worksafe's
insurance coverage, reference is made to Item 3 of this Form 10-K and future
filings under Form 10-Q.
Worksafe has competitors that have greater financial, management, sales and
technical resources than Worksafe. Worksafe's success also depends to a
significant degree on the contributions of its key management. The loss of
services of one or more key members of management could have an adverse affect
upon Worksafe. Worksafe is also dependent upon Dupont which supplies Worksafe
with Tyvek (R) which is used for various lines of Worksafe's limited-use
products. Management believes that its current relationship with Dupont is
satisfactory. Worksafe is a party to a Garment Manufacturer & Seller License
Agreement with Dupont, pursuant to which Dupont provides Worksafe with nonwoven
fabric under its trademark. This agreement, subject to its terms, continues in
effect until January 31, 2000. Management expects that based upon its past
<PAGE>
relationship with Dupont, although there can be no assurances, that this
agreement will be extended. Loss of Dupont as a supplier of Tyvek(R) would have
material adverse effects on Worksafe's operations. Worksafe is also required to
maintain substantial inventory for its operations in order to meet the immediate
requirements of its customers who require products on short notice. There can be
no assurances that Worksafe will be able to maintain sufficient inventory or
that Worksafe will not return to periods where there is not sufficient working
capital to maintain its inventory to meet the needs of its customers.
Worksafe also enjoys the benefits of various tax incentives with respect to
its operations in Puerto Rico which are described in Item 1 of Part I of this
Form 10-K. As Puerto Rico's tax exemptions are reduced or expire, Worksafe may
be required to pay taxes on income earned in Puerto Rico. Worksafe is unable to
predict the amount of such impact after such exemptions are reduced or expire.
Due to the foregoing, the market price of Worksafe's Common Stock may be
volatile at times in response to fluctuations of Worksafe's operating results,
changes in analyst earnings estimates, market conditions as well as general
conditions and other factors general to Worksafe.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Worksafe's principal financial instrument is its revolving line of credit
with Congress that provides for interest at the prime rate plus .75%. Worksafe
is affected by market risk exposure primarily through the effect of changes in
interest rates on amounts payable by the Company under the revolving line of
credit. A significant rise in the prime rate could materially adversely affect
Worksafe's business, financial condition and results of operations. At June 30,
1999, an aggregate principal amount of approximately $5.7 million was
outstanding under the revolver. If principal amounts outstanding under
Worksafe's revolving line of credit remained at this level for an entire year
and the prime increased or decreased, respectively, by 1%, Worksafe would pay or
save, respectively, an additional $57,000 in interest in that year. Worksafe
does not utilize derivative financial instruments to hedge against changes in
interest rates or for any other purpose.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Consolidated Financial Statements annexed hereto.
<PAGE>
- ------------------------------
CORNICK, GARBER & SANDLER, LLP
- ------------------------------
Certified Public Accountants
Independent Auditors' Report
Board of Directors
Worksafe Industries Inc.
Huntington Station, New York
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Worksafe Industries Inc. (formerly Eastco
Industrial Safety Corp.) and subsidiaries for the year ended June 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the results of operations and cash flows of
Worksafe Industries Inc. and subsidiaries for the year ended June 30, 1997, in
conformity with generally accepted accounting principles.
Our audit of the June 30, 1997 financial statements was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. Schedule
II for the year ended June 30, 1997 is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
fiancial statements. This schedule has been subjected to the auditing procedures
applied in the audit of the June 30, 1997 basic financial statements and, in our
opinion fairly states in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
/s/ CORNICK, GARBER & SANDLER, LLP
CERTIFIED PUBLIC ACCOUNTANTS
Uniondale, New York
October 27, 1997
630 Third Avenue New York, NY 10717-6705 212 567-3600 Fax 212 567-3836
50 Charles Lindbergh Boulevard Uniondale, NY 11542-3600
516 542-9030 Fax 516 542-9035
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Worksafe Industries Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Worksafe
Industries Inc. (a New York corporation) and subsidiaries (the "Company") as of
June 30, 1999 and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Worksafe Industries Inc. and
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ARTHUR ANDERSEN LLP
Melville, New York
October 4, 1999
-1-
<PAGE>
WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
-------------------------------
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 129,352 $ 223,125
Accounts receivable, net of allowance for doubtful accounts
of $72,500 and $75,000, respectively 3,485,813 3,554,502
Inventories 4,582,581 6,371,626
Other current assets 812,868 505,887
Net assets of discontinued operations 205,142 3,192,340
------------ ------------
Total current assets 9,215,756 13,847,480
Property, plant and equipment, net 2,112,886 2,253,184
Excess of cost over net assets acquired 403,547 426,229
Other assets 73,832 24,794
Net assets of discontinued operations -- 23,493
------------ ------------
Total assets $ 11,806,021 $ 16,575,180
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable $ 5,698,642 $ 8,189,842
Current maturities of long-term debt 151,411 277,628
Accounts payable 2,289,220 3,389,050
Accrued expenses and other liabilities 226,580 281,569
------------ ------------
Total current liabilities 8,365,853 12,138,089
LONG-TERM DEBT 396,447 538,283
------------ ------------
Total liabilities 8,762,300 12,676,372
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 9 and 11)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized 1,000,000 shares; no
shares issued and outstanding -- --
Common stock, $.12 par value; authorized 20,000,000 shares;
1,686,579 and 1,683,079 shares issued and outstanding,
respectively 202,390 201,970
Additional paid-in capital 9,844,338 9,807,708
Accumulated deficit (7,003,007) (6,110,870)
------------ ------------
Total shareholders' equity 3,043,721 3,898,808
------------ ------------
Total liabilities and shareholders' equity $ 11,806,021 $ 16,575,180
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
-2-
<PAGE>
WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET SALES $ 24,093,811 $ 24,807,480 $ 19,906,887
COST OF GOODS SOLD 20,659,453 20,644,336 17,242,844
------------ ------------ ------------
Gross profit 3,434,358 4,163,144 2,664,043
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,914,617 3,390,604 2,869,699
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 519,741 772,540 (205,656)
OTHER INCOME, net (72,768) (44,166) (9,074)
INTEREST EXPENSE 563,451 561,128 424,590
------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 29,058 255,578 (621,172)
DISCONTINUED OPERATIONS:
Loss from discontinued operations (1,454,167) (744,063) (770,658)
Gain on sale of discontinued operations 532,972 -- --
------------ ------------ ------------
Net loss $ (892,137) $ (488,485) $ (1,391,830)
============ ============ ============
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:
Income (loss) from continuing operations $ .02 $ .15 $ (.44)
Loss from discontinued operations (.87) (.44) (.54)
Gain on sale of discontinued operations .32 .00 .00
------------ ------------ ------------
Net loss $ (.53) $ (.29) $ (.98)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 1,684,246 1,683,079 1,413,775
============ ============ ============
Diluted 1,691,452 1,696,336 1,413,775
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock * Additional
----------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1996 765,488 $ 91,859 $ 6,742,476 $(4,230,555) $ 2,603,780
Shares issued in private placement 114,000 13,680 140,320 -- 154,000
Shares issued in shareholder rights and public offering 703,591 84,431 2,524,405 -- 2,608,836
Sale of warrants to underwriter -- -- 7 -- 7
Shares issued for acquisition of glove manufacturing business 100,000 12,000 400,500 -- 412,500
Net loss for the year ended June 30, 1997 -- -- -- (1,391,830) (1,391,830)
----------- ---------- ----------- ----------- -----------
BALANCE, June 30, 1997 1,683,079 201,970 9,807,708 (5,622,385) 4,387,293
Net loss for the year ended June 30, 1998 -- -- -- (488,485) (488,485)
----------- ---------- ----------- ----------- -----------
BALANCE, June 30, 1998 1,683,079 201,970 9,807,708 (6,110,870) 3,898,808
Stock based compensation -- -- 32,500 -- 32,500
Shares issued upon exercise of stock options 3,500 420 4,130 -- 4,550
Net loss for the year ended June 30, 1999 -- -- -- (892,137) (892,137)
----------- ---------- ----------- ----------- -----------
BALANCE, June 30, 1999 1,686,579 $ 202,390 $ 9,844,338 $(7,003,007) $ 3,043,721
=========== ========== =========== =========== ===========
</TABLE>
* Gives effect to a 1-for-10 reverse stock split in August 1996.
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing operations $ 29,058 $ 255,578 $ (621,172)
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by (used in) operating activities:
Depreciation and amortization 244,621 236,307 132,882
Provision for losses on accounts receivable 46,248 16,000 (27,625)
Loss on disposal of fixed assets 16,173 -- --
Stock based compensation expense 32,500 -- --
Net changes in assets and liabilities:
Accounts receivable 22,441 (1,012,890) (401,644)
Inventories 1,789,045 (1,602,036) (721,794)
Other current assets (306,981) (49,290) (85,310)
Other assets (49,038) 36,544 145,572
Accounts payable (1,099,830) 1,127,056 (169,000)
Accrued expenses and other liabilities (54,989) 57,772 55,163
------------ ------------ ------------
Total adjustments 640,190 (1,190,537) (1,071,756)
------------ ------------ ------------
Net cash provided by (used in) operating activities 669,248 (934,959) (1,692,928)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (97,814) (280,888) (179,815)
Acquisition of glove manufacturing business -- -- (734,526)
------------ ------------ ------------
Net cash used in investing activities (97,814) (280,888) (914,341)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (268,053) (274,320) (79,551)
Borrowings under line of credit agreement 31,095,163 35,919,028 32,054,480
Repayments under line of credit agreement (33,586,363) (33,146,861) (32,489,880)
Proceeds from exercise of stock options 4,550 -- --
Net proceeds from private placement of common stock -- -- 154,000
Net proceeds from shareholder rights and public offering -- -- 2,608,843
Borrowings to finance acquisition of glove manufacturing business -- -- 440,000
------------ ------------ ------------
Net cash (used in) provided by financing activities (2,754,703) 2,497,847 2,687,892
------------ ------------ ------------
Net cash (used in) provided by continuing operations (2,183,269) 1,282,000 (80,623)
Net cash used in discontinued operations (4,218) (1,171,133) (614,395)
Net cash provided by sale of discontinued operations 2,093,714 -- --
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (93,773) 110,867 (533,772)
CASH AND CASH EQUIVALENTS, beginning of year 223,125 112,258 646,030
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 129,352 $ 223,125 $ 112,258
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest $ 779,443 $ 879,406 $ 680,749
============ ============ ============
Cash paid during the year for income taxes $ 3,832 $ 8,454 $ 12,758
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Noncash consideration for acquisition of glove manufacturing business:
Common stock issued $ -- $ -- $ 412,500
============ ============ ============
Minimum guaranteed payments $ -- $ -- $ 240,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. BUSINESS AND ORGANIZATION:
Operations
Worksafe Industries Inc. (formerly Eastco Industrial Safety Corp.) and
subsidiaries (the "Company") is a corporation organized and existing under the
laws of the State of New York, having been incorporated since May 15, 1958. The
Company manufactures limited-use and reusable clothing and safety products sold
to distributors for end use by manufacturers, utilities, hospitals, glass
handlers and others. Products include headwear, hoods, coveralls, aprons, lab
coats, gloves, and suits for handling hazardous materials. Most sales come from
disposable apparel made of E.I. DuPont DeNemours Company's Tyvek(R), a spun
bonded polyolefin. Products made of Tyvek accounted for approximately 67%, 75%
and 63% of net sales for the years ended June 30, 1999, 1998 and 1997,
respectively. The Company has sales representatives and independent distributors
in the United States and Puerto Rico.
Principles of Consolidation
The consolidated financial statements include the accounts of Worksafe
Industries Inc. and its subsidiaries, all of which are wholly-owned. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with maturities of
three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market, which represents estimated net realizable value.
Depreciation and Amortization
Property, plant and equipment are depreciated on a straight-line basis over the
estimated useful lives of the related assets. Leasehold improvements are
amortized on a straight-line basis over the shorter of their estimated useful
lives or the remaining term of the lease.
Excess of Cost over Net Assets Acquired
The excess of cost over the net assets of a business acquired in April 1997 is
being amortized on a straight-line basis over its estimated useful life of 20
years. In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," the Company periodically evaluates this asset for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Management believes that there is no
impairment of this asset as of June 30, 1999.
-6-
<PAGE>
Fair Value of Financial Instruments
The Company calculates the fair value of financial instruments and includes this
additional information in the notes to financial statements when the fair value
is different than the book value of those financial instruments. When the fair
value approximates book value, no additional disclosure is made. Cash and cash
equivalents, receivables, loans payable and long-term debt are reflected in the
consolidated balance sheets at amounts considered by management to reasonably
approximate their fair value because of their relatively short-term maturities,
recent incurrence or because they bear variable interest rates.
Stock-Based Compensation
The Company complies with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation", by continuing to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," while providing the required pro forma disclosures as if the fair
value method had been applied.
Comprehensive Income
During fiscal 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which requires companies to report all changes in equity during a
period, except those resulting from investments by owners and distributions to
owners, for the period in which they are recognized. Comprehensive income is the
total of net income and all other nonowner changes in equity (or other
comprehensive income) such as unrealized gains/losses on securities classified
as available-for-sale, foreign currency translation adjustments and minimum
pension liability adjustments. Comprehensive and other comprehensive income must
be reported on the face of annual financial statements. For the years ended June
30, 1999, 1998 and 1997, there were no items that gave rise to comprehensive
income.
Segment Information
During fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Reportable operating
segments are determined based on the Company's management approach. The
management approach, as defined by SFAS No. 131, is based on the way that the
chief operating decision-maker organizes the segments within an enterprise for
making operating decisions and assessing performance. The Company is organized
and operates in one operating segment, the manufacturing of protective clothing
and safety products that are sold to distributors for end use by manufacturers,
utilities, hospitals and others. As a result, no segment information has been
provided for the years ended June 30, 1999, 1998 or 1997.
Earnings Per Share
In accordance with SFAS No. 128, "Earnings Per Share," basic net income (loss)
per common share ("Basic EPS") is computed by dividing net income (loss) by the
weighted average number of common shares outstanding. Diluted net income (loss)
per common share ("Diluted EPS") is computed by dividing net income (loss) by
the weighted average number of common shares and dilutive common share
equivalents and convertible securities then outstanding.
Common stock equivalents were excluded from the computation for the year ended
June 30, 1997, as the inclusion of their impact would be anti-dilutive. The
number of dilutive common share equivalents included in diluted earnings per
share was 7,206 and 13,257 for the years ended June 30, 1999 and 1998,
respectively.
-7-
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Reclassifications
Certain prior year balances have been reclassified in order to conform with
current year presentation.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 is effective for all fiscal years beginning
after June 15, 1999 (subsequently amended by SFAS No. 137, to be effective for
all fiscal years beginning after June 15, 2000) and will not require retroactive
restatement of prior period financial statements. This statement requires the
recognition of all derivative instruments as either assets or liabilities in the
balance sheet measured at fair value. Derivative instruments will be recognized
as gains or losses in the period of change. If certain conditions are met where
the derivative instrument has been designated as a fair value hedge, the hedge
items may also be marked to market through earnings, thus creating an offset. If
the derivative is designed and qualifies as a cash flow hedge, the changes in
fair value of the derivative instrument may be recorded in comprehensive income.
The Company does not presently make use of derivative instruments.
2. DISCONTINUED OPERATIONS:
On January 11, 1999, the Company sold its distribution division to Arbill
Industries, Inc. ("Arbill"), realizing net cash proceeds of approximately
$2,094,000. In addition, the Company also received a $315,000 note receivable.
This division specialized in the distribution of industrial safety products
manufactured by third parties. The sale resulted in a gain on sale of
discontinued operations of approximately $533,000. As a result of this
transaction, the Company has reported the operating results, net assets and cash
flows of the distribution division as a discontinued operation, with prior years
restated.
Summarized financial information for this discontinued operation as of June 30,
and for the three fiscal years then ended is as follows:
1999 1998 1997
---------- ---------- ----------
Net sales $ 4,240,767 $9,531,558 $8,081,082
Gross profit 569,721 1,553,008 1,485,832
Loss from discontinued operations (1,454,167) (744,063) (770,658)
Current assets 205,142 4,302,161 3,420,313
Total assets 205,142 4,325,654 3,448,362
Current liabilities -- 1,109,821 659,599
Net assets of discontinued operations 205,142 3,215,833 2,788,763
-8-
<PAGE>
3. INVENTORIES:
Inventories consist of the following at June 30, 1999 and 1998:
1999 1998
---------- ----------
Raw materials $1,571,734 $1,579,096
Work-in-process 1,040,826 802,011
Finished goods 1,970,021 3,990,519
---------- ----------
Total $4,582,581 $6,371,626
========== ==========
4. PROPERTY, PLANT AND EQUIPMENT, NET:
Property, plant and equipment is comprised of the following at June 30, 1999 and
1998:
<TABLE>
<CAPTION>
Estimated
Useful
1999 1998 Life (Years)
----------- ----------- ------------
<S> <C> <C> <C>
Land $ 382,000 $ 382,000 N/A
Building and leasehold improvements 867,009 842,967 5 - 40
Machinery and equipment 2,144,065 2,116,208 3 - 10
Furniture and fixtures 159,196 189,198 7 - 10
----------- -----------
3,552,270 3,530,373
Less: Accumulated depreciation and amortization (1,439,384) (1,277,189)
----------- -----------
$ 2,112,886 $ 2,253,184
=========== ===========
</TABLE>
Depreciation and amortization expense for property, plant and equipment for the
fiscal years ended June 30, 1999, 1998 and 1997 amounted to $221,939, $213,626
and $129,082, respectively.
5. INCOME TAXES :
The Company records income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes," which requires recognition of deferred tax liabilities and
assets based on differences between the financial accounting and income tax
bases of assets and liabilities using enacted tax rates in effect for the years
in which the differences are expected to reverse.
While SFAS No. 109 requires the recognition of a deferred tax asset for the
benefit of net operating loss carryforwards, it also requires the recognition of
a valuation allowance when it is more likely than not that such benefit will not
be realized. As a result of the Company's history of losses, it has recorded a
valuation allowance equal to the net deferred tax asset accounts as of June 30,
1999 and 1998.
-9-
<PAGE>
Deferred income taxes relate to the following temporary differences and
carryforwards as of June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,584,000 $ 2,356,000
Allowance for doubtful accounts and credits 92,000 79,000
Tax basis adjustments to inventory 89,000 139,000
Other accruals 22,000 --
Accelerated depreciation of property and equipment -- 5,000
----------- -----------
2,787,000 2,579,000
Deferred tax liabilities:
Accelerated depreciation of property and equipment 55,000 --
Other -- 18,000
----------- -----------
55,000 18,000
----------- -----------
Balance 2,732,000 2,561,000
Less: Valuation allowance (2,732,000) (2,561,000)
----------- -----------
Net deferred income taxes after valuation allowance $ -- $ --
=========== ===========
</TABLE>
Two wholly-owned Puerto Rico based subsidiaries have been granted exemptions
from paying Puerto Rico income taxes under provisions of the Puerto Rico
Industrial Tax Exemption Act of 1963, provided such subsidiaries continue to
meet the terms and conditions of their grants. One subsidiary's exemption
expired June 30, 1999. This subsidiary is in the process of applying for an
extension of this exemption. If granted, the extension would be for ten years
and would impose an income tax rate of 5% on the taxable income, and may grant
the Company a 75% exemption on the corresponding property tax, municipal tax and
other taxes. The second subsidiary has received a 90% exemption from Puerto Rico
income and property taxes and a 60% exemption from Puerto Rico municipal income
taxes until June 2006. These subsidiaries have elected, pursuant to Section 936
of the Internal Revenue Code, to receive credits equivalent to the amount of
federal income taxes that would otherwise be due on their income.
The Omnibus Budget Reconciliation Act of 1993 (the "Act") imposes limitations on
computing the Possession Tax Credit under Section 936 for tax years beginning
after 1993. In addition, the Act makes the 100% dividends received deduction
subject to the Alternative Minimum Tax calculation. The Small Business Job
Protection Act of 1996 further limits the Possession Tax Credit for years
beginning after 2001, with the credit being eliminated in the years beginning
after 2005.
Dividends, if paid by the Puerto Rico based subsidiaries, are subject to a
withholding tax of 10%. However, no taxes have been provided on their aggregate
undistributed earnings (approximately $666,000 at June 30, 1999), as it is
management's intention to reinvest such earnings indefinitely.
-10-
<PAGE>
A reconciliation between the tax provision (benefit) at the federal statutory
tax rate and the effective tax rate is as follows:
<TABLE>
<CAPTION>
Years ended June 30,
----------------- ---------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Income tax benefit at the statutory rate $(303,000) $(166,000) $(529,000)
Effect of net operating loss of Puerto Rican subsidiaries for
which there is no current tax benefit 177,000 256,000 172,000
Effect of domestic net operating loss for which there is no
current tax benefit 126,000 -- 357,000
Benefit of utilization of net operating loss carryforwards -- (90,000) --
--------- --------- ---------
Actual income tax expense $ -- $ -- $ --
========= ========= =========
</TABLE>
At June 30, 1999, the Company has net operating loss carryforwards of
approximately $6,800,000 for federal income tax purposes. The Company's domestic
operations generated taxable income in fiscal 1998, for which it utilized
approximately $337,000 of net operating loss carryforwards. Such carryforwards
expire from 2005 through 2019. As a result of the private placement offering in
June 1996, the amount of the loss carryforwards which can be utilized to offset
future taxable income will be limited to approximately $345,000 per year, plus
any loss carryforwards incurred after June 30, 1996. However, to the extent such
annual limitation is not utilized in any year, it may be further carried forward
until the carryforward would have otherwise expired.
6. LOANS PAYABLE:
Loans payable at June 30, 1999 and 1998 are comprised of borrowings under the
Company's line of credit agreement with Congress Financial Corporation
("Congress").
The Company amended and extended its line of credit agreement with Congress
during June 1999. The line, which expires in October 2002, provides for
borrowings of up to $8,000,000 with interest payable monthly at 3/4% above the
prime rate (7.75% at June 30, 1999), plus an unused line fee of 1/4% per year.
Additionally, if the Company does not report positive pre-tax income for the
fiscal year ending June 30, 2000, the monthly interest rate will be adjusted to
1% above the prime rate. Borrowings are limited to 85% of eligible accounts
receivable, as defined, and 55% of eligible inventory, as defined, up to maximum
inventory borrowings of $3,600,000. The loans are subject to certain working
capital and tangible net worth requirements and are collateralized by all assets
of the Company not previously pledged under other loan agreements. The loan
agreement prohibits the payment of dividends by the Company. At June 30, 1999,
the Company had approximately $123,000 remaining under the line of credit for
additional borrowings.
In addition to the loans provided under the line of credit, the Company may also
borrow up to $175,000 in supplemental loans until December 31, 1999, of which
approximately $114,000 remained available at June 30, 1999. All outstanding
amounts related to supplemental loans are payable in full on December 31, 1999.
At June 30, 1999, the Company was not in compliance with the tangible net worth
requirement of the line of credit agreement. Congress has since amended such
covenant such that the Company is in compliance.
-11-
<PAGE>
7. LONG TERM DEBT :
Long term debt is comprised of the following at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Mortgage payable - interest at 12% per annum, collateralized by land, building
and personal property (a) $377,426 $404,985
Mortgage payable - interest at 11/4% above the prime rate, collateralized by all
assets of the Puerto Rico subsidiaries (b) 29,931 119,725
Term loan - interest at 11/4% above the prime rate, collateralized by all assets
of the Company not previously pledged (c) 30,759 123,034
Guaranteed payments for purchase of glove manufacturing business (d) 100,167 168,167
Other 9,575 --
-------- --------
Total 547,858 815,911
Less: Current portion 151,411 277,628
-------- --------
Noncurrent portion $396,447 $538,283
======== ========
</TABLE>
Maturities of the long-term debt are as follows:
Year ending June 30:
2000 $151,411
2001 58,942
2002 57,588
2003 279,917
--------
Total $547,858
========
(a) The mortgage with an original interest rate of 14.0% per annum, and which
was due in July 1997, was amended and extended on September 26, 1996. The
amendment reduced the annual interest rate to 12.0% commencing July 1,
1997, with monthly payments of $6,223 until July 1, 2002, at which point
the remaining balance of approximately $275,000 is payable. In connection
with the original mortgage in 1992, the Company issued five-year warrants
to acquire 10,833 shares at $30.00 a share. In January 1995, the Company
reduced the exercise price to $13.00 and extended the expiration date.
These warrants expired during April 1999. Approximately 38% of this
mortgage is held by a group of investors which includes the spouse of a
certain officer and director, the spouse of another director, a current
director, and a past director of the Company. Interest on the mortgage
aggregated approximately $47,000, $46,000 and $65,000 for the years ended
June 30, 1999, 1998 and 1997, respectively.
(b) The mortgage is payable in 29 monthly principal installments of $7,690 plus
interest to October 1, 1999. The funds received were used for the
acquisition of the glove manufacturing business.
(c) The term loan is payable in 29 monthly principal installments of $7,483,
plus interest to October 1, 1999. The funds received were used for the
acquisition of the glove manufacturing business.
-12-
<PAGE>
(d) This amount is comprised of guaranteed payments to two individuals in
connection with the acquisition of the glove manufacturing business. One
individual is entitled to 10% of income before taxes, as defined, of the
glove manufacturing business for the five-year period commencing July 1,
1997, up to a maximum of $180,000, but in no event less than $18,000 per
year, for which the Company accrued the $90,000 minimum payment in 1997.
The second individual entered into a consulting agreement with the Company
for the three-year period commencing April 17, 1997, which called for a fee
of $50,000 per year, payable in monthly installments. The Company accrued
the $150,000 required payment in 1997. The $240,000 aggregate minimum
payments accrued, which are due regardless of continued employment, were
recorded as additional purchase price. No imputed interest was recorded on
these payments as the effect would not have been material.
8. SHAREHOLDERS' EQUITY:
Preferred Stock
On August 12, 1996, the shareholders of the Company approved an amendment to the
Company's certificate of incorporation to authorize 1,000,000 shares of
preferred stock. As of June 30, 1999, no preferred shares have been issued.
Common Stock
In April 1991, the Company sold, pursuant to a rights offering, 48,007 shares of
common stock. In connection therewith, the underwriter was sold a warrant to
purchase 4,078 shares of common stock at $53.30 per share, which was exercisable
until February 28, 1996. The Company had also borrowed $200,000 with interest at
17% per annum, during February 1991, from five unrelated parties. These loans,
including interest, were repaid out of the proceeds of the rights offering. In
connection with these loans, the Company issued warrants to purchase 833 shares
of common stock, exercisable at $30.00 per share until May 13, 1996. In January
1995, the Company reduced the exercise price of the above warrants to $13.00 and
extended their expiration dates. These warrants expired in April 1999.
On April 19, 1994, the Company sold in a public offering, 200,000 units at
$20.00 per unit, each consisting of one share of the Company's common stock and
one Class A warrant. Each warrant entitled the holder to purchase one share of
common stock at an exercise price of $24.00 a share from April 1995 to April
1999. In January 1995, the Company reduced the exercise price to $13.00 a share.
In addition, the Company sold to the underwriter for $10 an option, exercisable
from April 1995 to April 1999, options to purchase 23,000 additional units at
$29.00 per unit, and entered into a two-year consulting agreement with the
underwriter at a total cost of $72,000. All the aforementioned warrants and
options expired in April 1999.
In October 1996, the Company sold, pursuant to a combination shareholder rights
and public offering, 703,591 units at $5.00 per unit, with each unit consisting
of one share of common stock and one Class B warrant. Each warrant entitled the
holder to purchase one share of common stock at an exercise price of $6.25 per
share during the period from one year to three years after the closing date of
the offering. These warrants expired subsequent to June 30, 1999. The Company
also sold to the offering agent/underwriter, for a total value of $7, warrants
to purchase 70,359 units. The warrants are exercisable at $6.00 per unit for
four years commencing in October 1997. In addition, the Company entered into a
one-year consulting agreement with the offering agent/underwriter for
approximately $70,000.
-13-
<PAGE>
Private Placements
On June 28, 1996, the Company issued, in a private placement, 10 1/2 units at
$57,000 a unit, with each unit consisting of 38,000 shares of the Company's
common stock. The net proceeds to the Company were approximately $501,000 after
fees to the placement agent and other expenses. The proceeds were used to repay
a $500,000 bridge loan obtained in May 1996. On July 9, 1996, 3 additional units
were sold for net proceeds of approximately $165,000. The Company issued
three-year warrants to purchase 2,500 shares of common stock at $10.00 per share
in connection with the foregoing transactions, all of which expired subsequent
bo June 30, 1999.
Other Warrants
On May 13, 1996, warrants to purchase 9,003 shares of the Company's common stock
were granted to each of the Company's then president and two of the
vice-presidents, in exchange for their guarantees on over-advances by Congress.
The warrants are exercisable until February 23, 2001 at $5.35 per share.
On July 26, 1995, the Company issued to a consulting firm, which was the
employer of a then-new director of the Company, a five-year warrant to purchase
12,500 shares of the Company's common stock at $12.50 a share.
In January 1994, a corporate officer/director of the Company purchased a warrant
from a prior lender. The warrant is for the purchase of 92,477 shares at $5.62
per share. The expiration date of this warrant was extended from March 31, 1997
until April 11, 1999, and has since been extended until April 11, 2000.
Incentive Stock Option Plans
The Company's 1992 Incentive Stock Option Plan provides for the granting of
options for up to 20,000 shares of the Company's common stock to December 2002.
At June 30, 1999, options to purchase 300 shares at $27.50 per share are
outstanding and exercisable. The Company has agreed not to issue any additional
options under this plan.
The Company's 1994 Incentive Stock Option Plan provides for the granting of
options for up to 10,000 shares of the Company's common stock to January 2004.
At June 30, 1999, options to purchase 8,500 shares at $10.63 per share are
outstanding and exercisable.
On August 12, 1996, the shareholders approved the adoption of the 1996 Incentive
Stock Option Plan, which provides for the granting of options to key employees
for up to 300,000 shares of the Company's common stock until May 2006. As of
June 30, 1999, 280,500 stock options were granted to employees at exercise
prices ranging from $1.30 to $2.63, of which 131,400 are exercisable. Of these
options, 10,000 will vest over the next two years; the remaining options will
vest based upon the Company achieving certain sales and income requirements.
Options granted under the incentive stock option plans must be exercised within
such periods, as stated in the plans, and in any event, must be exercised no
later than 10 years after the date they are granted. The plans provide that the
exercise price of the options may not be less than 100% of the fair market value
of common stock at the date of grant, or 110% in the case of an incentive stock
option granted to any employee owning more than 10% of the voting power of all
classes of stock of the Company.
-14-
<PAGE>
Transactions under the above Incentive Stock Option plans are summarized as
follows:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998 June 30, 1997
-------------------- --------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 239,900 $ 2.58 241,065 $ 2.66 9,665 $ 12.60
Granted 76,200 2.19 1,400 2.58 231,400 2.25
Forfeited (7,000) 2.50 (400) 2.25 -- --
Exercised (3,500) 1.30 -- -- -- --
Expired/Canceled (16,300) 2.44 (2,165) 12.08 -- --
------- ------- -------- ------- -------- -------
Outstanding at end of year 289,300 $ 2.66 239,900 $ 2.58 241,065 $ 2.66
======= ======== =======
Exercisable at end of year 140,200 $ 2.83 68,300 $ 3.41 69,065 $ 4.30
======= ======== =======
Weighted average fair value of
options granted $ 2.04 $ 2.34 $ 2.06
</TABLE>
Other Stock Options
1996 Stock Options
On August 12, 1996, the shareholders approved the adoption of the 1996
Nonqualified Stock Option Plan, which provides for the granting of options for
up to 300,000 shares of the Company's stock until August 2006. As of June 30,
1999, 180,000 nonqualified stock options were granted to employees under the
1996 Nonqualified Stock Option Plan at exercise prices ranging from $2.25 -
$3.44 per share, of which 97,692 are exercisable at June 30, 1999.
1995 Stock Options
On January 20, 1995, the Board of Directors granted to the Company's then
president and two vice-presidents ten-year nonqualified options to purchase
249,708 shares at $5.17 per share, of which 124,854 are exercisable at June 30,
1999. The remainder are exercisable after five years, but may become exercisable
sooner upon the Company achieving certain pretax earnings targets.
Other nonqualified options outstanding and exercisable at June 30, 1999, under
prior years' grants, aggregate 3,108 shares at exercise prices of $16.88 to
$30.00 per share.
Non-qualified stock option activity is summarized as follows:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998 June 30, 1997
-------------------- ---------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 376,816 $ 3.84 395,816 $ 4.17 252,816 $ 5.26
Granted 56,000 2.38 21,000 3.44 143,000 2.25
Forfeited -- -- (32,000) 2.25 -- --
Expired/Canceled -- -- (8,000) 2.25 -- --
-------- ------- -------- ------- -------- -------
Outstanding at end of year 432,816 $ 4.14 376,816 $ 3.84 395,816 $ 4.17
======== ======== ========
Exercisable at end of year 225,654 $ 4.10 159,062 $ 4.86 156,562 $ 4.83
======== ======== ========
Weighted average fair value of
options granted $ 1.62 $ 3.13 $ 2.06
</TABLE>
-15-
<PAGE>
The following table summarizes information about stock options outstanding at
June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- -------------------------
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
at Remaining Exercise at Exercise
Range of Exercise Prices 6/30/99 Contractual Life Price 6/30/99 Price
------------------------ ------- ---------------- ----- ------- -----
<S> <C> <C> <C> <C> <C>
$ 1.30 - $ 1.95 21,900 1.18 $ 1.30 21,900 $ 1.30
1.96 - 2.94 419,008 7.71 2.49 187,600 2.48
2.95 - 4.43 21,000 8.78 3.44 21,000 3.44
4.44 - 6.65 249,708 5.56 5.11 124,854 5.11
10.00 - 15.01 8,500 5.56 10.63 8,500 10.63
15.02 - 22.52 2,000 6.07 16.88 2,000 16.88
</TABLE>
If the Company had elected to recognize compensation cost for option grants to
its employees, officers and directors under the fair value method of SFAS No.
123, rather than continue to apply the provisions of APB Opinion No. 25, net
loss and the related per share amounts would have been reported as indicated by
the following pro forma amounts:
<TABLE>
<CAPTION>
Year Ended June 30: 1999 1998 1997
------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Net loss:
As reported $ (892,137) $ (488,485) $ (1,391,830)
Pro forma (1,220,337) (649,562) (1,452,962)
Basic and diluted net loss per share:
As reported $ (.53) $ (.29) $ (.98)
Pro forma $ (.72) $ (.39) $ (1.03)
</TABLE>
The fair value of each stock option grant is estimated as of the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions:
June 30,
-----------------------------------
1999 1998 1997
---- ---- ----
Risk-free interest rate 4.86% 6.56% 6.70%
Expected lives 6.27 10 10
Expected volatility 82.7% 96.2% 80.4%
Expected dividend yields 0% 0% 0%
-16-
<PAGE>
9. COMMITMENTS AND CONTINGENCIES :
Rent
The Company is obligated through August 2003 under several non-cancelable
long-term operating leases covering office, factory and warehouse facilities.
Minimum annual rentals under leases are as follows:
Year Ending June 30:
2000 $ 130,405
2001 141,583
2002 150,525
2003 155,741
2004 26,081
-------------
Total $ 604,335
=============
Rent expense, including month-to-month rentals, was approximately $341,000,
$412,000 and $289,000 for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively.
Employment Agreements
The Company has employment agreements with three of its officers which commenced
on July 1, 1995. On March 1, 1997, these officers were appointed to new
positions with certain changes to their agreements and two new officers were
elected. The following is a summary of these employment agreements as of June
30, 1999:
Officer Expiration Date Annual Salary
President (a) July 1, 2001 $175,000
Senior Vice-President (b) July 1, 2001 $ 50,000
Senior Vice-President and Secretary (c) July 1, 2001 $ 40,000
Vice-President of Finance January 31, 2001 $106,000
Vice-President of Manufacturing January 31, 2001 $110,000
(a) This officer is entitled to a bonus of 3 1/3% of the Company's income
before taxes and interest and a bonus of 3/4% of net sales in excess of
$20,500,000.
(b) This officer is entitled to a bonus of 3 1/3% of the Company's income
before taxes and interest.
(c) This officer is entitled to a bonus of 3 1/3% of the Company's income
before taxes and interest.
Each of the agreements provides for minimum annual increases of 10%, commencing
at various dates, and has automatic renewal provisions.
In addition, should an unrelated party obtain more than 20% of the Company's
then outstanding stock, other than by transactions initiated by the Company, the
following will occur for three of the officers:
(a) Each will be paid a bonus equal to their minimum base salary for the
next three years
(b) All rights (options, warrants, etc.) will become immediately vested
and exercisable
For the remaining two officers, should a majority of the Board of Directors be
replaced, other than by voluntary resignation or their demise, the employees can
terminate their agreements within six months of such occurrence and receive a
one-time bonus of three times their current salary.
-17-
<PAGE>
All bonuses for the years ended June 30, 1999, 1998 and 1997 have been waived
and the bonuses based on income before taxes and interest have been waived
through June 30, 2000.
Stock Buy-Back Plan
On Septebmer 9, 1999, the Company's Board of Directors approved a buy-back plan
of up to 320,000 shares of the Company's common stock, to be purchased over the
next two years at the discretion of the Company. Congress has authorized the
Company to expend up to $400,000 for such purchase. No shares have been
purchased to date.
10. PROFIT SHARING PLAN:
The Company's qualified profit sharing plan for eligible full-time employees
includes a 401(k) salary deferral feature that requires a matching contribution
from the Company of up to $500 per employee for the 401(k) feature and provides
for discretionary profit sharing contributions by the Company, as approved by
its Board of Directors. Contribution expense was approximately $ 18,400, $15,700
and $6,900 for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively.
11. LITIGATION:
At June 30, 1999, the Company, together with a multitude of other defendants,
was a defendant in approximately 3,800 lawsuits, in actions by approximately
8,500 first party plaintiffs alleging exposure to asbestos and products
containing asbestos sold by the Company over unspecified periods of time.
At June 30, 1999, and since 1981, the Company estimates approximately 4,450
actions on behalf of approximately 16,000 first-party plaintiffs have been
instituted against it for asbestos-related claims, and that approximately 650
actions and the claims of approximately 7,500 plaintiffs have been terminated
(the foregoing numbers assume the consummation of pending settlements). The
Company estimates that, with the exception of defense costs, a total of
approximately $ 1,800,000 has been agreed to in settlements to date with regards
to the terminated actions on behalf of the Company, of which all but
approximately $ 38,000 has been paid by the Company's insurance carriers. At
June 30, 1999, the Company had paid less than $40,000 for legal and defense
costs, to counsel appointed by the insurance carriers to defend it.
The Company entered into an agreement with its primary insurance carriers,
whereby its liability is limited to 12% of the cost of the defense liability and
17% of the settlement claim of certain litigation. The agreement, which is
subject to the policy limitations on each insurance policy, may be terminated at
any time upon 90 days notice by any of the parties, provided that termination
may not be effective as to any asbestos action that has already been placed on
the trial calendar, unless it has a scheduled trial date more than 12 months
from the date the notice is given. In May 1991, the Company reached an agreement
with Mount Vernon Fire Insurance Company ("Mount Vernon"), one of its primary
insurance carriers, with respect to its pending and future asbestos litigation.
Mount Vernon agreed to contribute 6.25% to the Company's defense costs and 6.25%
to its indemnity costs for so long a period of time as $100,000 in aggregate has
not been paid for indemnity costs. This agreement applies only to the period
Mount Vernon provided insurance coverage, which was between April 1, 1968 and
April 1, 1969. However, because past results of settlements and defense costs
are not necessarily indicative of future settlements and defense costs, and
because, as of this date, management is still unable to fully ascertain the
extent of insurance coverage, neither management nor counsel is able to predict
the outcome of these matters or the range of any potential liability that might
result. In addition, based on past history, management believes it is likely
that there will be additional asbestos actions against the Company.
The Company is party to other product liability litigation arising in the
ordinary course of business for which management feels it has adequate insurance
coverage.
-18-
<PAGE>
After consultation with counsel, the Company considers that its ultimate
liability, if any, after available insurance coverage, in the majority of these
matters, would not have a material adverse effect upon the Company's financial
position. However, there can be no assurances that the Company's insurance
coverage will adequately cover these cases, or whether the Company's insurance
will provide coverage for punitive damages should they be awarded.
12. ACQUISITION OF GLOVE MANUFACTURING BUSINESS:
In April 1997, the Company, through Eastco Glove Technologies, Inc. (a
newly-formed, wholly-owned subsidiary), acquired all the common stock of
Protective Knitting, Inc. ("PKI"), and certain machinery, equipment and
inventory from a company related to PKI. The purchase price was approximately
$1,387,000, which was recorded as follows:
Inventory $ 139,000
Machinery and equipment 794,000
Excess of cost over net assets acquired 454,000
--------------
$ 1,387,000
==============
In connection with this purchase, the Company borrowed $440,000 from Congress,
issued 100,000 shares of its common stock valued at approximately $412,000 and
agreed to make additional payments to PKI's former owners over the following
three to five years, which aggregates at least $240,000. The remaining purchase
price, including closing costs, was paid in cash. The acquisition was accounted
for as a purchase transaction. The operations of PKI prior to the acquisition
were not material in relation to those of the Company.
-19-
<PAGE>
SCHEDULE II
WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
YEARS ENDED JUNE 30,1999, 1998 AND 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
- -----------------------------------------------------------------------------------------------------------------
Balance at Charged to costs Balance at
Description beginning of period and expenses Deductions (1) end of period
- -----------------------------------------------------------------------------------------------------------------
1999
----
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $75,000 $46,000 $48,000 $73,000
- -----------------------------------------------------------------------------------------------------------------
1998
----
Allowance for doubtful accounts $59,000 $16,000 $ -- $75,000
- -----------------------------------------------------------------------------------------------------------------
1997
----
Allowance for doubtful accounts $87,000 $ -- $28,000 $59,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Deductions relate to uncollectible accounts charged off to valuation
accounts, net of recoveries.
This schedule should be read in conjunction with the accompanying financial
statements and notes thereto.
-20-
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Reference is made to Item 4 of the Form 8-K dated June 4, 1998, and filed
by EDGAR on June 4, 1998, which is incorporated by reference herein.
PART III
Item 10, Item 11, Item 12 and Item 13 (DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT, EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT, and CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
respectively), will be incorporated in the registrant's Proxy Statement to be
filed within 120 days of June 30, 1999, and will be incorporated herein by
reference.
<PAGE>
Item 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are incorporated by reference to the
registrant's Registration Statement on Form SB-2 (No. 333-09517), as filed on
August 2, 1996, and as amended:
Exhibit Description of Exhibit
- ------- ----------------------
1.01 Form of Standby Agreement (with Royce Investment Group Inc.)
3.01 Certificate of Incorporation, as amended
3.01.1 Certificate of Amendment to Certificate of Incorporation filed
August 12, 1996
3.01.2 Certificate of Amendment to Certificate of Incorporation dated
February 15, 1989
3.02 By-Laws
3.02.1 Amendments to By-Laws adopted September, 1996
4.05 Form of Class B Warrant Certificate (filed as Exhibit 4.04)
4.06 Form of Warrant Agency Agreement for Class B Warrants between
the registrant and American Stock Transfer and Trust Co. (filed
as Exhibit 4.05)
4.07 Form of Underwriters (Royce Investment Group Inc.) Warrant
filed as Exhibit 4.06)
10.01 Employment Agreement with Alan Densen,
dated as of July 1, 1995
10.02 Employment Agreement with Lawrence Densen,
dated as of July 1, 1995
10.03 Employment Agreement with Anthony Towell,
dated as of July 1, 1995
10.05 Amendment to Financing Agreements with Congress dated July,
1996
10.07 Form of Modification Agreement to Employment Agreements with
Alan Densen, Lawrence Densen and Anthony Towell and Waiver
99.01 1996 Incentive Stock Option Plan
as amended to date
99.02 1996 Non-Qualified Stock Option Plan
as amended to date
99.03 Form of Warrants held by Anthony Towell dated January 31, 1994
(and whose exercise date has been extended to October 10, 1999)
99.04 Form of Option Agreements Granted as of
January 20, 1995, with Alan Densen, Anthony
Towell and Lawrence Densen
99.06 Product liability primary insurance
coverage for asbestos
99.07 Product liability excess insurance
coverage for asbestos
99.08 Insurance coverage for Puerto Rico
Safety Equipment Corporation for asbestos
99.09 Defense and indemnity agreement dated March 26, 1990
99.10 Defense and indemnity agreement dated May, 1991
99.11 Letters between L'Abbate & Balkan, counsel for Eastco
and Wilentz, Goldman & Spitzer, counsel for plaintiffs' attorneys,
dated February 3, 1994, and March 14, 1994, respectively, with
respect to settlement of New York cases
<PAGE>
The following exhibits are incorporated by reference to Worksafe's annual
reports on Form 10K for the periods indicated:
For the year ended June 30, 1991:
- ---------------------------------
10.04 Accounts Financing Agreement (Security Agreement), Covenants
Supplement to Accounts Financing Agreement (Security Agreement),
Inventory Loan Agreement and Inventory and Equipment Security
Agreement Supplement to Accounts Financing Agreement (Security
Agreement) executed as of October 1, 1991, with Congress (filed
as Exhibit 10.1)
For the year ended June 30, 1993:
- ---------------------------------
10.06 Exemption of Puerto Rico Safety Equipment Corporation with
respect to Puerto Rico taxes as amended to date
For the year ended June 30, 1998:
- ---------------------------------
99.05 Asbestos litigation as of June 30, 1998
The following exhibits are incorporated by reference to Worksafe's
Form 10- QSB for the quarterly period ended March 31, 1997:
10.01.1 Modification to employment agreement with Alan Densen dated March
1, 1997
10.02.1 Modification to employment agreement with Lawrence Densen dated
March 1, 1997
10.03.1 Modification to employment agreement with Anthony Towell dated
March 1, 1997
10.08 Stock Exchange Agreement among Eastco Glove Technologies Inc.,
Eastco Industrial Safety Corp., Steven Robins and Phillip Robins
dated April 17, 1997
10.09 Asset Purchase Agreement among PR Industries Inc., Steven
Robins, Phillip Robins, Eastco Glove technologies Inc. and Eastco
Industrial Safety Corp., dated April 17, 1997
10.10 Voting Trust agreement among Eastco Industrial Safety Corp., Alan
E. Densen, Anthony Towell, Lawrence Densen, Steven Robins and
Phillip Robins dated April 17, 1997
10.11 Employment agreement with Arthur Wasserspring dated February 1,
1997
10.12 Employment agreement with Richard Boyen dated February 1, 1997
10.13 Amendment #8 to Financing Agreements with Congress Financial
Corp. dated April 17, 1997
The following exhibit is incorporated by reference to Worksafe's Form 10-Q
for the quarterly period ending September 30, 1998:
99.05.01 Asbestos litigation commenced during the quarterly period ending
September 30, 1998
The following exhibits are incorporated by reference to Worksafe's Form
10- Q for the quarterly period ending December 31, 1998:
3.01.3 Certificate of Amendment to Certificate of Incorporation filed
December 17, 1998
99.06.0 (Also referred to as 99.06.02) Asbestos litigation commenced
during the quarterly period ending December 31, 1998
The following exhibit is incorporated by reference to Worksafe's Form
10-Q for the quarterly period ending March 31, 1999:
99.06.3 Asbestos litigation commenced for the quarterly period ending
March 31, 1999
The following exhibits are incorporated by reference to Worksafe's form 8-K
filed on January 26, 1999:
10.14 Asset Purchase Agreement between the registrant and Arbill
Industries Inc. dated December 14, 1998 (without exhibits and
schedules)
10.15 Amendment Number 9 to line of credit agreement with Congress
The following exhibits are annexed hereto:
4.01 Form of Common Stock Certificate
10.16 Amendment Number 10 to line of credit agreement with Congress
10.17 Amendment Number 11 to line of credit agreement with Congress
21.01 Subsidiaries of the Registrant
27.01 Financial Data Schedule
99.12 Asbestos Litigation commenced during the quarterly period ending
June 30, 1999.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WORKSAFE INDUSTRIES INC.
By: /s/ LAWRENCE DENSEN Date: October 12, 1999
------------------------
LAWRENCE DENSEN
President and Chief Executive Officer
By: /s/ ARTHUR J. WASSERSPRING Date: October 12, 1999
-------------------------
ARTHUR J. WASSERSPRING
Vice President of Finance and
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ LAWRENCE DENSEN Date: October 12, 1999
------------------------
LAWRENCE DENSEN
Director
By: /s/ ALAN DENSEN Date: October 12, 1999
------------------------
ALAN DENSEN
Director
By: /s/ CHARLES HOLZBERG Date: October 12, 1999
------------------------
CHARLES HOLZBERG
Director
By: /s/ MARTIN FLEISHER Date: October 12, 1999
------------------------
MARTIN FLEISHER
Director
By: /s/ ANTHONY P. TOWELL Date: October 12, 1999
------------------------
ANTHONY P. TOWELL
Director
By: /s/ JAMES A. FAVIA Date: October 12, 1999
------------------------
JAMES A. FAVIA
Director
By: /s/ BRUCE FRIEDMAN Date: October 12, 1999
------------------------
BRUCE FRIEDMAN
Director
NUMBER SHARES
NY
WORKSAFE
INDUSTRIES INC.
WORKSAFE INDUSTRIES INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
COMMON SHARES CUSIP 98138R 10 9
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE
PAR VALUE OF TWELVE CENTS ($.12) OF THE COMMON STOCK OF
WORKSAFE INDUSTRIES INC.
COMMON
(herein called the "Corporation"), transferable on the books of said Corporation
by the holder of Common Stock by duly authorized authority upon the surrender of
this certificate properly endorsed. This certificate is not valid unless
countersigned by the transfer agent and registered by the registrar.
WITNESS the facsimile seal
Dated:
/s/ /s/
- ---------------- ---------------------
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
New York, NY 10005
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
SEE TREVERSE
FOR CERTAIN
DEFINITIONS
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ______________ Custodian ______________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _____________________ hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _______________________
__________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
____________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIBIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED MEDALLION SIGNATURE GUARANTEE PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
AMENDMENT NO. 10 TO FINANCING AGREEMENTS
June 30, 1999
Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Ladies and Gentlemen:
Congress Financial Corporation (together with its successors and assigns,
"Lender") and Worksafe Industries Inc., formerly known a Eastco Industrial
Safety Corp. ("Worksafe") and Eastco Glove Technologies, Inc. ("Eastco Glove",
and together with Worksafe and their respective successors and assigns,
individually and collectively, "Borrower") and Puerto Rico Safety Equipment
Corporation ("PR Equipment"), Worksafe Industries of Puerto Rico Inc., formerly
known as Puerto Rico Safety Corporation ("PR Safety"), Disposable Safety Wear
Inc. ("Disposable"), Safety Wear Corp. ("Safety") and Protective Knitting Inc.
("PKI", and together with PR Equipment, PR Safety, Disposable and Safety, each
individually a "Guarantor", and collectively, "Guarantors") have entered into
financing arrangements pursuant to which Lender may make loans and provide other
financial accommodations to Borrower as set forth in the Accounts Financing
Agreement (Security Agreement], dated as of October 1,1991, by and among Lender
and Borrower, as amended by Amendment to Financing Agreements, dated June 29,
1993, Amendment No. 2 to Financing Agreements, dated September 30,1994,
Amendment No. 3 to Financing Agreements, dated July 1, 1995, Amendment No. 4 to
Financing Agreements, dated November, 1995, Amendment No. 5 to Financing
Agreements, dated as of February 1, 1996, Amendment No. 6 to Financing
Agreements, dated as of February 23, 1996, Amendment No. 7 to Financing
Agreements, dated July 22, 1996, Amendment No. 8 to Financing Agreements, dated
April 17, 1997 and Amendment No. 9 to Financing Agreements, dated January 11,
1999 ("Amendment No. 9") and as supplemented, including, without limitation, by
the Covenants Supplement to Accounts Financing Agreement [Security Agreement],
dated as of October 1, 1991, by and among Lender and Borrower, (the "Covenants
Supplement"), the letter re: Inventory Loans, dated as of October 1, 1991, by
Borrower in favor of Lender (the "Inventory Loan Letter") and the Inventory and
Equipment Security Agreement Supplement to Accounts Financing Agreement
[Security Agreement], dated as of October 1, 1991, by Borrower in favor of
Lender, as the same is amended hereby and as the same may hereafter be further
amended, modified, supplemented, extended, renewed, restated or replaced, the
"Loan Agreement") and other agreements, documents and instruments referred to
therein or at any time executed and/or delivered in connection therewith or
related thereto, including this Amendment (all of the foregoing, together with
the Loan Agreement, as she same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Agreements").
<PAGE>
Borrower and Guarantors have requested that Lender (a) waive certain Events
of Default arising prior to the date hereof as a result of the failure of
Borrower to maintain the amount of Consolidated Working Capital required under
the Loan Agreement and (b) agree to certain amendments to the Loan Agreement and
Lender is willing to grant such waiver and agree to such amendments, subject to
the terms and conditions contained herein. By this Amendment, Lender, Borrower
and Guarantors desire and intend to evidence such waiver and such amendments.
In consideration of the foregoing and the agreements and covenants
contained herein, the parties hereto agree as follows:
1. Definitions.
1.1 Additional Definitions. As used herein, the following terms shall have
the respective meanings given to them below and the Loan Agreement shall be
deemed and is hereby amended to include, in addition and not in limitation, each
of the following definitions:
(a) "Amendment No. 10" shall mean this Amendment No. 10 to Financing
Agreements by and among Lender, Borrower and Guarantors, as it now exists
or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
(b) "Supplemental Loans" shall mean the loans hereafter made by Lender
to or for the benefit of Borrower on a revolving basis (involving advances,
repayments and readvances) as set forth in Section 2 of Amendment No. 10.
(c) "Supplemental Loan Limit" shall mean at any time $250,000.
(d) "Supplemental Loan Termination Date" shall mean December 31, 1999.
(e) "Worksafe" shall mean Worksafe Industries Inc., formerly known as
Eastco Industrial Safety Corp., and its successors and assigns.
1.2 Amendments to Definitions.
(a) All references to the term "Maximum Credit" in the Loan Agreement
and the other Financing Agreements shall be deemed and each such reference
is hereby amended to mean $8,000,000.
(b) All references to "Eastco" in the Loan Agreement and the other
Financing Agreements shall be deemed and each such reference is hereby
amended to mean Worksafe.
-2-
<PAGE>
1.3 Interpretation. For purposes of this Amendment, unless otherwise
defined herein, all terms used herein shall have the respective meanings
assigned to such terms in the Loan Agreement and the Financing Agreements.
2. Supplemental Loans.
(a) In addition to the Loans which may be made by Lender to Borrower
pursuant to Section 2.1(a) of the Loan Agreement, upon the request of
Borrower, made at any time and from time to time on or after the date
hereof and prior to the Supplemental Loan Termination Date, subject to (i)
the terms and conditions contained herein, in the Loan Agreement and in the
other Financing Agreements, and (ii) to Lender's receipt of a written
"desktop" appraisal as to Borrower's Equipment located in Puerto Rico and
Alabama and to Lender's receipt of a full written appraisal as to
Borrower's Equipment located in Minnesota, in each case in form, scope and
methodology acceptable to Lender in its sole discretion and prepared by
Daley-Hodkin, Inc. in the case of Equipment located in Puerto Rico and
Alabama and Accu-Val, Inc. in the case of Equipment located in Minnesota,
each of which appraisal shall forth such information with respect to the
value and condition of Borrower's Equipment as Lender shall, in its sole
discretion, deem acceptable, Lender shall make Supplemental Loans available
to Borrower in amounts in excess of the amounts otherwise available to
Borrower under Section 2.1(a) of the Loan Agreement (as calculated by
Lender, and subject to the Maximum Credit and the applicable sublimits
provided for in the Loan Agreement and after deduction for all reserves
established and maintained at such time by Lender) up to the amount of the
Supplemental Loan Limit. No Supplemental Loans shall be available unless on
the date of the proposed Supplemental Loans there are no other Loans
available to Borrower under Section 2.1(a) of the Loan Agreement (as
calculated by Lender, subject to the applicable sublimits provided for in
the Loan Agreement and after deduction for all reserves established and
maintained at such time by Lender).
(b) Except in Lender' discretion, Borrower shall not have any right to
request, and Lender shall not make, any Supplemental Loans (i) if after
making such Supplemental Loans, the aggregate amount of Supplemental Loans
outstanding would exceed the Supplemental Loan Limit, (ii) at any time on
or after the Supplemental Loan Termination Date, or (iii) if an Event of
Default has occurred and is continuing. The Supplemental Loans shall
constitute Obligations and shall be secured by the Collateral.
(c) Unless sooner demanded by Lender in accordance with the terms of
the Loan Agreement or the other Financing Agreements, all outstanding and
unpaid Obligations relating to the Supplemental Loans (including, but not
limited to, principal, interest, fees, costs, expenses and other charges in
respect thereof payable by Borrower to Lender) shall automatically, without
notice or demand, be absolutely and unconditionally due and payable and
Borrower shall pay to Lender in cash or other immediately available funds
all such Obligations on the Supplemental Loan Termination Date. Interest
shall accrue and be due, until and including the next Business
-3-
<PAGE>
Day, if the amount so paid by Borrower to the bank account designated by
Lender for such purpose is received in such bank account after 11:00 a.m.
New York City time.
(d) Borrower acknowledges and agrees that, notwithstanding anything to
the contrary contained in the Loan Agreement or the other Financing
Agreements, the failure of Borrower to pay all of the Obligations arising
pursuant to the Supplemental Loans on the Supplemental Loan Termination
Date shall constitute an Event of Default.
3. Amendments to Loan Agreement.
3.1 Inventory Sublimit. Paragraph 3 of the Inventory Loan Letter is hereby
deleted in its entirety and the following substituted therefor:
"3. Except in your sole discretion, the outstanding aggregate
principal amount of loans by you to us hereunder shall not exceed, at
any time, the lower of (a) the aggregate amount of the above
percentages of Value of Eligible Inventory or (b) $3,600,000."
3.2 Consolidated Tangible Net Worth. Section 2.7 of the Covenants
Supplement is hereby deleted in its entirety and the following substituted
therefor:
"2.7 Consolidated Tangible Net Worth. Borrower and its Subsidiaries
shall, at all times, until all Obligations have been indefeasibly paid
in full, maintain a Consolidated Tangible Net Worth of not less than
$2,700,000;"
3.3 Consolidated Working Capital. Section 2.8 of the Covenants Supplement
is hereby deleted in its entirety and the following substituted therefor:
"2.8 Consolidated Working Capital. Borrower and its Subsidiaries
shall, at all times, until all Obligations have been indefeasibly paid
in full, maintain a Consolidated Working Capital of not less than
$6,000,000 on and prior to June 30, 1999 and $6,100,000 at all times
thereafter;"
3.4 Interest.
(a) The first sentence of Section 3.1(a) of the Loan Agreement is
hereby deleted in its entirety and the following substituted therefor:
"3.1(a) Interest shall be payable by us to you on the first day of
each month upon the closing daily balances in our loan account for
each day during the immediately preceding month, at a rate equal
-4-
<PAGE>
to three quarters of one percent (.75%) per annum in excess of the
prime rate from time to time publicly announced by First Union
National Bank, or its successors, whether or not such rate is the best
rate available at such bank (the "Prime Rate"); provided, that if; in
any fiscal year of Borrower, commencing with the fiscal year of
Borrower ending June 30, 2000, if the pre-tax income (exclusive of
one-time or extraordinary gains) of Borrower for such fiscal year is
not positive, as determined by Lender based on the audited
consolidated financial statements for Borrower and its Subsidiaries
for such fiscal year, then effective as of the first day of the month
after the date upon which Lender receives such audited financial
statements in accordance with Section 6.4 of this Agreement, the
interest rate hereunder shall be equal to one percent (1%)per annum
in excess of the Prime Rate."
(b,) Section 3.1(b) of Loan Agreement is hereby deleted in its entirety and
the following substituted therefor: "[Intentionally omitted]".
3.5 Collection and Administration. The last sentence of Section 5.1 of the
Loan Agreement is hereby deleted in its entirety and the following substituted
therefor:
"All amounts collected on Accounts when received by you shall be
credited to our loan account, after adding four (4) business days for
collection, clearance and transfer of remittances, conditional upon
final payment to you."
3.6 Termination. The first sentence of Section 9.1 of the Loan Agreement
(including the proviso thereto) is hereby deleted in its entirety and the
following substituted therefor:
"This Agreement shall become effective upon acceptance by you and
shall continue in full force and effect for a term ending October
1, 2002 (the "Renewal Date") and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof."
3.7 Amendment No. 9. Section 4 of Amendment No. 9 is hereby deleted in its
entirety.
4. Special Availability Reserve. Lender has established a special reserve
against loans otherwise available to Borrower in the amount of $100,000. As of
the date hereof, subject to the satisfaction of the conditions set forth herein,
such reserve shall be released in its entirety. Without limiting any other
rights of Lender with respect to the establishment of any reserves, as of
January 1, 2000, a special reserve shall be established in the amount of
$25,000, which reserve shall, at Lender's option increase by $25,000 on the
first day of each of the next three (3) consecutive months thereafter, until it
is $100,000.
-5-
<PAGE>
5. Waiver of Events of Default. Lender hereby waives the Event of Default
arising as a result of the failure of Borrower to maintain the amount of
Consolidated Tangible Net Worth and the amount of Consolidated Working Capital
required under Sections 2.7 and 2.8 of the Covenants Supplement, respectively,
for the period ending on June 29, 1999. Lender has not waived and is not by this
Amendment waiving, and has no intention of waiving, any other Event of Default
which may have occurred prior to, or may be continuing on, the date hereof or
any Event of Default which may occur after the date hereof (whether the same or
similar to any Event of Default referred to in the first sentence of this
Section 5) and Lender reserves the right, in its discretion, to exercise any or
all of its rights and remedies arising under the terms of the Financing
Agreements as a result of any Event of Default which may have occurred prior to,
or is continuing on, the date hereof or which may occur after the date hereof
(whether the same or similar to any Event of Default referred to in the first
sentence of this Section 5). The waiver contained herein shall not constitute a
waiver of any Event of Default arising as a result of the failure of Borrower to
comply with Section 2.7 or Section 2.8 of the Covenants Supplement at any time
after June 29, 1999.
6. Waiver and Amendment Fee. In consideration of the waiver and amendments
set forth herein, Borrower shall pay to Lender a fee in the amount of $3,500,
which fee is fully earned as of the date hereof and $2,500 of which is payable
on the date hereof and $1,000 of which is payable on the date of the initial
disbursement of the Supplemental Loans (or if earlier any Event of Default or
termination or non-renewal of the Financing Agreements). Such fee may be charged
by Lender to Borrower's loan account with Lender.
7. Additional Representations, Warranties and Covenants. Borrower and
Guarantors hereby jointly and severally represent, warrant and covenant with and
to Lender as follows, which representations, warranties and covenants are
continuing and shall survive the execution and delivery hereof, and the truth
and accuracy of, or compliance with each, together with the representations,
warranties and covenants in the other Financing Agreements, being a continuing
condition of the making of loans and providing other financial accommodations by
Lender to Borrower:
(a) No Event of Default or act, condition or event which with notice or
passage of time or both would constitute an Event of Default exists or has
occurred as of the date of this Amendment (after giving effect to the amendments
to the Financing Agreements made by this Amendment).
(b) This Amendment has been duly executed and delivered by Borrower and
Guarantors and is in full force and effect as of the date hereof and the
agreements and obligations of Borrower and Guarantors contained herein
constitute legal, valid and binding obligations of Borrower and Guarantors
enforceable against each of them in accordance with its terms.
-6-
<PAGE>
8. Conditions Precedent. The effectiveness of the amendments contained in
Sections 1 and 2 hereof is subject to the satisfaction of each of the following
conditions precedent in a manner satisfactory to Lender:
(a) all representations and warranties contained herein shall be true and
correct;
(b) as of the date hereof, no Event of Default, or event, act or condition
which with notice or passage of time or both would constitute an Event of
Default, shall exist or have occurred; and
(c) Lender shall have received an original of this Amendment, duly
authorized, executed and delivered by Borrower and Guarantors.
9. Additional Defaults. The failure of any Borrower or Guarantor to comply
with the representations, warranties, covenants, conditions and agreements
contained herein or in any other agreement, document or instrument at any time
executed and/or delivered by any Borrower or Guarantor with, to or in favor of
Lender shall constitute an Event of Default under the Financing Agreements.
10. Effect of this Amendment. Except as modified pursuant hereto, no other
changes or modifications to the Financing Agreements are intended or implied,
and in all other respects the Financing Agreements are hereby specifically
ratified, restated and confirmed by all parties hereto as of the effective date
hereof. Any acknowledgment or consent contained herein shall not be construed to
constitute a consent to any other or further action by any Borrower or Guarantor
or to entitle any Borrower or Guarantor to any other consent. To the extent of
conflict between the terms of this Amendment and the other Financing Agreements,
the terms of this Amendment shall control. The Loan Agreement and this Amendment
shall be read and construed as one agreement.
11. Governing Law. The validity, interpretation and enforcement of this
Amendment and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of laws).
12. Headings. The headings listed herein are for convenience only and do
not constitute matters to be construed in interpreting this Amendment.
13. Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be necessary
to produce or account for more than one counterpart thereof signed by each of
the parties hereto.
14. Binding Effect. This letter agreement shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors and
assigns.
-7-
<PAGE>
The parties hereto have caused this letter agreement to be duly executed
and delivered by their authorized officers as of the day and year first above
written.
Very truly yours,
WORKSAFE INDUSTRIES INC., formerly
known as Eastco Industrial Safety Corp.
By: /s/ ARTHUR WASSERSPRING
---------------------------------
Title: VP
------------------------------
EASTCO GLOVE TECHNOLOGIES, INC.
By: /s/ ARTHUR WASSERSPRING
---------------------------------
Title: VP
------------------------------
AGREED:
PUERTO RICO SAFETY EQUIPMENT
CORPORATION
By: /s/ ARTHUR WASSERSPRING
---------------------------
Title: VP
----------------------
WORKSAFE INDUSTRIES OF PUERTO
RICO INC., formerly known as Puerto
Rico Safety Corporation
By: /s/ ARTHUR WASSERSPRING
---------------------------
Title: VP
----------------------
(SIGNATURES CONTINUE ON NEXT PAGE)
-8-
<PAGE>
DISPOSABLE SAFETY WEAR INC.
By: /s/ ARTHUR WASSERSPRING
----------------------------
Title: VP
----------------------
SAFETY WEAR CORP.
By: /s/ ARTHUR WASSERSPRING
---------------------------
Title: VP
----------------------
PROTECTIVE KNITTING, INC.
By: /s/ ARTHUR WASSERSPRING
---------------------------
Title: VP
----------------------
CONGRESS FINANCIAL CORPORATION
By: /s/ CINDY B.DERBAUM
-------------------------
Title: VP
----------------------
-9-
AMENDMENT NO.11 TO FINANCING AGREEMENTS
October 4, 1999
Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Ladies and Gentlemen:
Congress Financial Corporation (together with its successors and assigns,
"Congress") and Worksafe Industries Inc., formerly known as Eastco Industrial
Safety Corp. ("Worksafe") and Eastco Glove Technologies, Inc. ("Eastco Glove",
and together with Worksafe and their respective succcessors and assigns,
individually and collectively, "Borrower") and Puerto Rico Safety Equipment
Corporation ("PR Equipment"), Worksafe Industries of Puerto Rico Inc., formerly
known as Puerto Rico Safety Corporation ("PR Safety"). Disposable Safety Wear
Inc. ("Disposable"), Safety Wear Corp. ("Safety") and Protective Knitting Inc.
("PKI", and together with PR Equipment, PR Safety, Disposable and Safety, each
individually a "Guarantor", and collectively, "Guarantors") have entered into
financing arrangements pursuant to which Congress may make loans and provide
other financial accommodations to Borrower as set forth in the Accounts
Financing Agreement [Security Agreement), dated as of October 1, 1991, by and
among Congress and Borrower, as amended by Amendment to Financing Agreements,
dated June 29, 1993, Amendment No. 2 to Financing Agreements, dated September
30, 1994, Amendment No. 3 to Financing Agreements, dated July 1, 1995, Amendment
No. 4 to Financing Agreements, dated November, 1995, Amendment No. 5 to
Financing Agreements, dated as of February 1, 1996, Amendment No.6 to Financing
Agreements, dated as of February 23, 1996, Amendment No. 7 to Financing
Agreements, dated July 22, 1996, Amendment No. 8 to Financing Agreements, dated
April 17, 1997, Amendment No.9 to Financing Agreements, dated January 11, 1999
and Amendment No. 10 to Financing Agreements, dated June 30, 1999 and as
supplemented, including, without limitation, by the Covenants Supplement to
Accounts Financing Agreement [Security Agreement], dated as of October 1, 1991,
by and among Congress and Borrower, (the "Covenants Supplement") and the letter
re: Inventory Loans, dated as of October 1, 1991, by Borrower in favor of
Congress as the same is amended hereby and as the same may hereafter be further
amended, modified, supplemented, extended, renewed, restated or replaced, the
"Loan Agreement") and other agreements, documents and instruments referred to
therein or at any time executed and/or delivered in connection therewith or
related thereto, including this Amendment (all of the foregoing, together with
the Loan Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein is the "Financing Agreements"). All capitalized terms used
herein shall have the meaning assigned thereto in the Loan Agreement, unless
otherwise defined herein.
Borrower and Guarantors have requested that Congress agree to certain
amendments to the Loan Agreement in connection with Worksafe's purchase of up to
320,000 shares of its
<PAGE>
common stock, and Congress is willing to agree to such amendments, subject to
the terms and conditions contained herein. By this Amendment, Congress, Borrower
and Guarantors desire and intend to evidence such amendments.
In consideration of the foregoing and the agreements and covenants
contained herein, the parties hereto agree as follows:
1. Definitions.
(a) Additional Definitions. As used herein, the following terms shall have
the respective meanings given to them below and the Loan Agreement shall be
deemed and is hereby amended to include, in addition and not in limitation, each
of the following definitions:
(i) "Excess Availability" shall mean the amount, as determined by Congress,
calculated at any time, equal to: (a) the lesser of: (i) the Revolving
Loans available to Borrower as of such time based on the applicable lending
formulas multiplied by the Net Amount of Eligible Accounts and the Value of
Eligible Inventory, as determined by Congress, and subject to any sublimits
and reserves from time to time established by Congress under the Loan
Agreement and (ii) the Revolving Loan Limit minus (b) the sum of: (i) the
amount of all then outstanding and unpaid Obligations (but not including
for this purpose the then outstanding aggregate principal amount of New
Equipment Term Loans and the Term Loan), plus (ii) the aggregate amount of
all then outstanding and unpaid trade payables and other obligations of
Borrower which are more than sixty (60) days past due as of such time; plus
(iii) the amount of checks issued by Borrower to pay trade payables which
are more than sixty (60) days past due as of such time, but not yet sent.
(ii) "Revolving Loans" shall mean the loans now or hereafter made by
Congress to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 of the
Loan Agreement and in paragraph 2 of the letter, dated October 1, 1991, re:
Inventory Loans, by Borrower in favor of Congress. Revolving Loans shall
not include Supplemental Loans.
(iii) "Revolving Loan Limit" shall mean, at any time, the Maximum Credit
minus the then outstanding principal amount of New Equipment Term Loans
and the Term Loan.
2. Amendments to Covenants Supplement.
(a) Dividends. Section 2.6 of the Covenants Supplement is hereby deleted in
its entirety and the following substituted therefor:
-2-
<PAGE>
"2.6. Dividends. Borrower shall not, and shall not permit any Subsidiary of
Borrower to, directly or indirectly, during any fiscal year, commencing
with the current fiscal year, declare or pay any dividends on account of
any shares of any class of capital stock of Borrower or its Subsidiaries
now or hereafter outstanding, or set aside or otherwise deposit or invest
any sums for such purpose, or redeem, retire, defease, purchase or
otherwise acquire any shares of any class of capital stock (or set aside or
otherwise deposit or invest any sums for such purpose) or apply or set
apart any sums, or make any other distribution (by reduction of capital or
otherwise) in respect of any such shares or agree to do any of the
foregoing, except that (a) any Subsidiary of Borrower may declare and pay
dividends to Borrower on account of any shares of any class of capital
stock of such Subsidiary which such Subsidiary is legally entitled to
declare or pay and (b) Worksafe may purchase from time to time in the open
market or in privately-solicited purchases up to 320,000 shares of its own
common stock; provided, that (i) the aggregate amount paid by Worksafe to
purchase such shares shall not exceed $400,000, (ii) the aggregate amount
paid by Worksafe for each purchase of its common stock shall not exceed
$30,000, (iii) Excess Availability for each of the fourteen (14)
consecutive days immediately preceding the date of any such purchase shall
have exceeded $50,000, (iv) Excess Availability for each of the fourteen
(14) consecutive days immediately succeeding the date of any such purchase
shall exceed $50,000, (v) as of the date of any such purchase and after
giving effect thereto, Excess Availability shall exceed $50,000, (vi) as of
the date of any such purchase and after giving effect thereto, no Event of
Default, or act, condition or event which with notice or passage of time or
both would constitute an Event of Default shall exist or have occurred and
(vii) no such purchases may be made by Worksafe on or after October
4,2001."
(b) Consolidated Tangible Net Worth. Section 2.7 of the Covenants
Supplement is hereby deleted in its entirety and the following substituted
therefor:
"2.7 Consolidated Tangible Net Worth. Borrower and its Subsidiaries shall,
at all times, until all Obligations have been indefeasibly paid in full,
maintain a Consolidated Tangible Net Worth of not less than: (a) $2,400,000
for the period beginning on and including June 30, 1999 and ending on and
including December 31, 1999; (b) $2,450,000 for the period beginning on and
including January 1, 2000 and ending on and including June 30, 2000; and
(c) $2,500,000 beginning on and including July 1, 2000 and at all times
thereafter,"
-3-
<PAGE>
3. Additional Representations, Warranties and Covenants. Borrower and
Guarantors hereby jointly and severally represent, warrant and covenant with and
to Congress as follows, which representations, warranties and covenants are
continuing and shall survive the execution and delivery hereof, and the truth
and accuracy of, or compliance with each, together with the representations,
warranties and covenants in the other Financing Agreements, being a continuing
condition of the making of loans and providing other financial accommodations by
Congress to Borrower:
(a) No Event of Default or act, condition or event which with notice or
passage of time or both would constitute an Event of Default exists or has
occurred as of the date of this Amendment (after giving effect to the amendments
to the Financing Agreements made by this Amendment).
b) This Amendment has been duly executed and delivered by Borrower and
Guarantors and is in full force and effect as of the date hereof and the
agreements and obligations of Borrower and Guarantors contained herein
constitute legal, valid and binding obligations of Borrower and Guarantors
enforceable against each of them in accordance with its terms.
4. Conditions Precedent. The effectiveness of the amendments contained in
Sections 1 and 2 hereof is subject to the satisfaction of each of the following
conditions precedent in a manner satisfactory to Congress;
(a) al1 representations and warranties contained herein shall be true and
correct;
(b) as of the date hereof, no Event of Default, or event, act or condition
which with notice or passage of time or both would constitute an Event of
Default, shall exist or have occurred;
(c) Congress shall have received an original of this Amendment, duly
authorized, executed and delivered by Borrower and Guarantors; and
(d) Congress shall have received the amendment fee referred to in Section 5
hereof.
5. Amendment Fee. Borrower shall pay to Congress as an amendment fee the
amount of $2,000 which fee shall be fully earned and payable as of the date
hereof. Congress may, at its option, charge the amount of such fee directly to
Borrower's loan account maintained by Congress.
6. Additional Defaults. The failure of any Borrower or Guarantor to comply
with the representations, warranties, covenants, conditions and agreements
contained herein or in any other agreement, document or instrument at any time
executed and/or delivered by any Borrower or Guarantor with, to or in favor of
Congress shall constitute an Event of Default under the Financing Agreements.
7. Effect of this Amendment. Except as modified pursuant hereto, no other
changes or modifications to the Financing Agreements are intended or implied,
and in all other respects the
-4-
<PAGE>
Financing Agreements are hereby specifically ratified, restated and confirmed by
all parties hereto as of the effective date hereof. Any acknowledgment or
consent contained herein shall not be construed to constitute a consent to any
other or further action by any Borrower or Guarantor or to entitle any Borrower
or Guarantor to any other consent. To the extent of conflict between the terms
of this Amendment and the other Financing Agreements, the terms of this
Amendment shall control. The Loan Agreement and this Amendment shall be read and
construed as one agreement.
8. Governing Law. The validity, interpretation and enforcement of this
Amendment and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of laws).
9. Headings. The headings listed herein are for convenience only and do not
constitute matters to be construed in interpreting this Amendment.
10. Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be necessary
to produce or account for more than one counterpart thereof signed by each of
the parties hereto.
11. Binding Effect. This letter agreement shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors and
assigns.
The parties hereto have caused this letter agreement to be duly executed
and delivered by their authorized officers as of the day and year first above
written.
Very truly yours,
WORKSAFE INDUSTRIES INC., formerly
known as Eastco Industrial Safety Corp.
By: /s/ ARTHUR J. WASSERSPRING
----------------------------------
Title: VP
--------------------------------
EASTCO GLOVE TECHNOLOGiES, INC.
By: /s/ ARTHUR J. WASSERSPRING
----------------------------------
Title: VP
--------------------------------
(SIGNATURES CONTINUE ON NEXT PAGE)
-5-
<PAGE>
(SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AGREED:
PUERTO RICO SAFETY EQUIPMENT
CORPORATION
By: /s/ ARTHUR J. WASSERSPRING
-------------------------------------
Title: VP
---------------------------------
WORKSAFE INDUSTRIES OF PUERTO
RICO INC., formerly known as Puerto
Rico Safety Corporation
By: /s/ ARTHUR J. WASSERSPRING
-------------------------------------
Title: VP
---------------------------------
DISPOSABLE SAFETY WEAR INC.
By: /s/ ARTHUR J. WASSERSPRING
-------------------------------------
Title: VP
---------------------------------
SAFETY WEAR CORP.
By: /s/ ARTHUR J. WASSERSPRING
-------------------------------------
Title: VP
---------------------------------
PROTECTIVE KNITTING, INC.
By: /s/ ARTHUR J. WASSERSPRING
-------------------------------------
Title: VP
---------------------------------
CONGRESS FINANCIAL CORPORATION
By: /s/ Cindy Denbaum
-------------------------------------
Title: VP
----------------------------------
-6-
EXHIBIT 99.12
CASE DATE STATE COMPANY PLAINTIFFS DEFENDANTS
- ---- ---- ----- ------- ---------- ----------
Acocella, M 6/23/99 New York Eastco PR 2 82
Adler,George 6/23/99 New York Eastco PR 2 82
Agagnina, F 5/25/99 New York Eastco PR 2 79
Agiuli, Antho 6/23/99 New York Eastco PR 1 81
Ahearn, Will 4/22/99 New York Eastco PR 2 82
Ahern, Patric 6/10/99 New York Eastco PR 87 45
Ahmad, Said 6/23/99 New York Eastco PR 2 81
Ahouse, Bern 6/23/99 New York Eastco PR 2 81
Akin,Thomas 6/23/99 New York Eastco PR 1 81
Alacca, Alfre 6/23/99 New York Eastco PR 2 81
Alessandri, R 6/23/99 New York Eastco PR 2 81
Alexander, J 6/23/99 New York Eastco PR 2 81
Allocco, Ben 5/17/99 New York Eastco PR 2 81
Alston,James 6/23/99 New York Eastco PR 2 81
Alt, Jerry 6/23/99 New York Eastco PR 2 81
Altenburger 6/23/99 New York Eastco PR 1 81
Amalfitano,S 6/7/99 New York Eastco PR 2 81
Ambery, Paul 6/23/99 New York Eastco PR 2 81
Ambrosio, N 6/23/99 New York Eastco PR 2 82
Ames,Harold 6/23/99 New York Eastco PR 2 81
Amriati, John 6/7/99 New York Eastco PR 2 81
Anderson, A 5/25/99 New York Eastco PR 2 46
Anderson, H 6/23/99 New York Eastco PR 2 81
Anderson, JO 6/23/99 New York Eastco PR 2 81
Andrews, LE 6/23/99 New York Eastco PR 2 81
Andrillo, JO 6/23/99 New York Eastco PR 2 82
Page 1
<PAGE>
Annette, Rich 6/23/99 New York Eastco PR 2 81
Annorino, B 6/23/99 New York Eastco PR 2 81
Antonucci, S 6/23/99 New York Eastco PR 1 81
Arancio, Ago 6/23/99 New York Eastco PR 2 81
Arcaro, Jos 4/15/99 New York Eastco PR 1 46
Arculeo, Fra 5/25/99 New York Eastco PR 2 82
Arena, Natale 6/23/99 New York Eastco PR 1 81
Aries, Herber 6/23/99 New York Eastco PR 1 81
Arrindell, Au 6/23/99 New York Eastco PR 2 81
Arvay, Georg 6/23/99 New York Eastco PR 2 81
Aschieri, Jos 6/23/99 New York Eastco PR 1 81
Ashby, Gerar 6/23/99 New York Eastco PR 2 81
Ashley, Lawr 6/23/99 New York Eastco PR 2 81
Askew,Thom 6/23/99 New York Eastco PR 2 81
Autrino, Fran 6/23/99 New York Eastco PR 1 81
Babbi, Lauro 6/23/99 New York Eastco PR 2 82
Bagliore, Pat 6/23/99 New York Eastco PR 2 82
Baldwin,John 6/23/99 New York Eastco PR 1 82
Ball, William 6/23/99 New York Eastco PR 2 82
Baneth, Gero 6/23/99 New York Eastco PR 2 82
Banks, Jessie 6/23/99 New York Eastco PR 1 82
Banks, Rober 6/23/99 New York Eastco PR 2 82
Baptista, Don 6/23/99 New York Eastco PR 2 82
Barbera, Guis 6/23/99 New York Eastco PR 2 82
Barbera, Phil 6/23/99 New York Eastco PR 2 82
Barbour, Geo 6/23/99 New York Eastco PR 2 82
Barry, James 6/23/99 New York Eastco PR 1 82
Barry,Vincen 6/23/99 New York Eastco PR 1 82
Page 2
<PAGE>
Bart, Charlie 6/23/99 New York Eastco PR 1 82
Bartink,Kazi 6/23/99 New York Eastco PR 2 82
Bashark, Pete 6/23/99 New York Eastco PR 2 82
Bassett, Jame 6/23/99 New York Eastco PR 2 82
Bates, Timot 6/23/99 New York Eastco PR 2 82
Batista, Albe 6/23/99 New York Eastco PR 1 82
Battaglia, Ja 6/23/99 New York Eastco PR 2 82
Bauer, Ludwi 6/23/99 New York Eastco PR 1 82
Baxter,Josep 6/23/99 New York Eastco PR 1 82
Bayer,Richar 6/23/99 New York Eastco PR 2 82
Bayles, John 4/15/99 New York Eastco PR 2 46
Behr, Lutz 4/15/99 New York Eastco PR 17 46
Belkin, Ronal 6/23/99 New York Eastco PR 1 82
Bellus, Mario 6/23/99 New York Eastco PR 2 82
Benderski, E 6/23/99 New York Eastco PR 1 82
Benedetto, A 5/14/99 New York Eastco PR 2 81
Bennett, Tho 6/23/99 New York Eastco PR 2 82
Beringer, Wil 6/23/99 New York Eastco PR 2 82
Berkeley, Pa 6/7/99 New York Eastco PR 2 81
Berkowitz, P 4/15/99 New York Eastco PR 2 46
Bernardi,Dan 6/23/99 New York Eastco PR 2 82
Bernritter, E 6/23/99 New York Eastco PR 2 82
Best, Fred 5/25/99 New York Eastco PR 51 48
Bianchi, Jos 4/22/99 New York Eastco PR 2 82
Bisculca, Ant 5/25/99 New York Eastco PR 2 82
Bloise,Vince 6/23/99 New York Eastco PR 2 82
Blonski, Tom 6/23/99 New York Eastco PR 2 81
Bobrowicz, J 6/23/99 New York Eastco PR 2 82
Page 3
<PAGE>
Boccio,Nicho 6/23/99 New York Eastco PR 2 82
Boies, Laure 4/15/99 New York Eastco PR 1 46
Boliver, Rich 6/23/99 New York Eastco PR 2 82
Bongo, Peter 6/23/99 New York Eastco PR 2 82
Bonilla, Jame 6/23/99 New York Eastco PR 2 82
Bonnici,Ches 6/23/99 New York Eastco PR 1 82
Booker, Willi 6/23/99 New York Eastco PR 2 82
Borysewicz, 4/22/99 New York Eastco PR 2 82
Boryszewski, 6/23/99 New York Eastco PR 2 82
Bovenzi,John 5/14/99 New York Eastco PR 2 81
Bowen,Leona 6/23/99 New York Eastco PR 1 82
Bowen,Leroy 6/23/99 New York Eastco PR 2 82
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Turner, D 5/25/99 New York Eastco PR 2 82
Turner, F 5/25/99 New York Eastco PR 1 82
Turner, Leam 5/25/99 New York Eastco PR 1 82
Turner, Lind 4/23/99 New York Eastco PR 2 65
Verga 5/17/99 New York Eastco PR 2 80
Vergona 5/17/99 New York Eastco PR 1 80
Verrego 5/17/99 New York Eastco PR 2 80
Versage 5/17/99 New York Eastco PR 2 80
Vetere 5/17/99 New York Eastco PR 2 80
Vigliotti 5/17/99 New York Eastco PR 2 80
Villano 5/17/99 New York Eastco PR 2 80
Page 35
<PAGE>
Villeneuve 5/17/99 New York Eastco PR 2 80
Villnave 5/17/99 New York Eastco PR 2 80
Vine 5/17/99 New York Eastco PR 2 80
Viney 5/17/99 New York Eastco PR 2 80
Vingoe 5/17/99 New York Eastco PR 2 80
Walton 4/22/99 New York Eastco PR 1 82
Washburn 4/15/99 New York Eastco PR 2 46
Zeid 4/22/99 New York Eastco PR 2 82
Zerbo 5/13/99 New York Eastco PR 2 81
Graham 5/4/99 PA Charkate 1 6
Troiano 5/3/99 NJ Eastco 2 30
Page 36
EXHIBIT 21.01
WORKSAFE INDUSTRIES INC.
SUBSIDIARIES
FOR THE YEAR ENDED JUNE 30, 1999
Name of Subsidiary State of Incorporation
- ------------------ -----------------------
Disposable Safety Wear, Inc. Delaware
Worksafe Industries of Puerto Rico Inc. formerly New York
known as Puerto Rico Safety Corporation
Puerto Rico Safety Equipment Corporation Delaware
Safety Wear Corp. Delaware
Eastco Glove Technologies, Inc. Minnesota
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 129,352
<SECURITIES> 0
<RECEIVABLES> 3,558,313
<ALLOWANCES> (72,500)
<INVENTORY> 4,582,581
<CURRENT-ASSETS> 9,215,756
<PP&E> 3,552,270
<DEPRECIATION> (1,439,384)
<TOTAL-ASSETS> 11,806,021
<CURRENT-LIABILITIES> 8,365,853
<BONDS> 0
0
0
<COMMON> 202,390
<OTHER-SE> 2,841,331
<TOTAL-LIABILITY-AND-EQUITY> 11,806,021
<SALES> 24,093,811
<TOTAL-REVENUES> 24,093,811
<CGS> 20,659,453
<TOTAL-COSTS> 20,659,453
<OTHER-EXPENSES> (72,768)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 563,451
<INCOME-PRETAX> 29,058
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,058
<DISCONTINUED> (921,195)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (892,137)
<EPS-BASIC> (.53)
<EPS-DILUTED> (.53)
</TABLE>
