<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
- ------ Exchange Act of 1934
For the quarterly period ended June 30, 1996
OR
- ----- Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------- ----------------
Commission file number 0-22726
SAFESKIN CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2617525
- ----------------------------------- ---------------------
(State or other jurisdiction (IRS Employer ID No.)
of incorporation of organization)
12671 High Bluff Drive, San Diego, California 92130
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(619) 794-8111
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at August 02, 1996
----- ------------------------------
<S> <C>
Common Stock, par value $0.01 per share 12,904,058
</TABLE>
<PAGE> 2
SAFESKIN CORPORATION
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I: Financial Information.............................................. 1
ITEM 1. Financial Statements............................................... 1
Condensed Consolidated Balance Sheets at June 30, 1996
and December 31, 1995.............................................. 2
Condensed Consolidated Statements of Operations for the
three months ended June 30, 1996 and 1995.......................... 3
Condensed Consolidated Statements of Operations for the
six months ended June 30, 1996 and 1995............................ 4
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1996 and 1995........................ 5
Notes to Condensed Consolidated Financial Statements............... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 7
PART II: Other Information.................................................. 13
ITEM 6. Exhibits and Reports on Form 8-K................................... 13
SIGNATURES......................................................... 14
</TABLE>
-i-
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
INDEX PAGE
----- ----
<S> <C>
Condensed Consolidated Balance Sheets at June 30, 1996
and December 31, 1995...........................................................................2
Condensed Consolidated Statements of Operations for
the three months ended June 30, 1996 and 1995...................................................3
Condensed Consolidated Statements of Operations for
the six months ended June 30, 1996 and 1995.....................................................4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1995.........................................................5
Notes to Condensed Consolidated Financial Statements............................................6
</TABLE>
-1-
<PAGE> 4
SAFESKIN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
-------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................................. $ 3,417,982 $ 2,086,972
Accounts receivable, net ............................................... 18,652,179 17,521,996
Inventory .............................................................. 22,947,472 18,021,414
Other current assets ................................................... 2,694,546 2,488,855
------------ ------------
Total current assets ............................................. 47,712,179 40,119,237
Property, plant and equipment, net ....................................... 49,109,872 42,737,526
Deferred taxes and other assets .......................................... 1,604,347 1,818,030
------------ ------------
Total assets...................................................... $ 98,426,398 $ 84,674,793
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................................... 5,454,802 $ 6,318,089
Accrued liabilities .................................................... 6,284,042 5,745,663
------------ ------------
Total current liabilities ........................................ 11,738,844 12,063,752
------------ ------------
Long-term debt ........................................................... -- 2,750,000
------------ ------------
Total liabilities ................................................ 11,738,844 14,813,752
Commitments and contingencies
Shareholders' equity:
Preferred stock; $.01 par value; 10,000,000 shares
authorized and no shares outstanding ................................. -- --
Common stock; $.01 par value; 40,000,000 shares
authorized; 12,902,108 shares
and 12,480,531 shares outstanding .................................... 129,021 124,805
Additional paid-in-capital ............................................. 35,524,389 31,013,995
Deferred compensation .................................................. (784,103) (1,012,895)
Foreign currency translation adjustment ................................ 793,288 348,851
Retained earnings ...................................................... 51,024,959 39,386,285
------------ ------------
Total shareholders' equity ....................................... 86,687,554 69,861,041
------------ ------------
Total liabilities and shareholders' equity ....................... $ 98,426,398 $ 84,674,793
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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<PAGE> 5
SAFESKIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Net sales ........................................................... $35,986,610 $ 29,244,320
Cost of goods sold .................................................. 21,767,338 19,910,021
----------- ------------
Gross profit ............................................ 14,219,272 9,334,299
----------- ------------
Operating expenses:
Selling ........................................................ 3,884,002 4,000,354
Research and development ....................................... 425,468 301,397
General and administrative ..................................... 2,680,962 1,453,836
----------- ------------
Total operating expenses ................................ 6,990,432 5,755,587
----------- ------------
Income from operations .................................. 7,228,840 3,578,712
Interest expense .................................................... 45,029 28,830
Other expense (income), net ......................................... 29,380 (401,599)
----------- ------------
Income before income tax provision .................................. 7,154,431 3,951,481
Income tax provision ................................................ 966,141 816,234
----------- ------------
Net income .......................................................... $ 6,188,290 $ 3,135,247
=========== ============
Per share amounts:
Earnings per share of common stock and common stock equivalents:
Primary ............................................ $ 0.44 $ 0.25
Fully diluted ...................................... 0.44 0.25
Weighted average number of shares of common stock and common stock
equivalents outstanding:
Primary ............................................ 13,928,416 12,573,422
Fully diluted ...................................... 14,102,016 12,573,422
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
-3-
<PAGE> 6
SAFESKIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Net sales .................................................. $69,041,527 $ 51,837,260
Cost of goods sold ......................................... 41,553,564 34,372,423
----------- ------------
Gross profit ................................... 27,487,964 17,464,837
----------- ------------
Operating expenses:
Selling ............................................... 7,747,690 7,407,343
Research and development .............................. 877,831 557,551
General and administrative ............................ 5,077,763 2,575,562
----------- ------------
Total operating expenses ....................... 13,703,284 10,540,456
----------- ------------
Income from operations ......................... 13,784,680 6,924,381
Interest expense ........................................... 109,474 37,420
Other expense (income), net ................................ 124,565 (482,989)
----------- ------------
Income before income tax provision ......................... 13,550,641 7,369,950
Income tax provision ....................................... 1,911,967 1,137,734
----------- ------------
Net income ................................................. $11,638,674 $ 6,232,216
=========== ============
Per share amounts:
Earnings per share of common stock and common stock
equivalents:
Primary ................................... $ 0.86 $ 0.50
Fully diluted ............................. 0.84 0.50
Weighted average number of shares of common stock and common
stock equivalents outstanding:
Primary ................................... 13,550,505 12,588,526
Fully diluted ............................. 13,917,672 12,588,526
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
-4-
<PAGE> 7
SAFESKIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 11,638,674 $ 6,232,216
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization ................. 2,674,563 1,624,590
Loss on sale of property, plant and equipment.. 24,896 1,915
Amortization of deferred compensation ......... 228,793 --
Changes in operating assets and liabilities:
(Increase) in:
Accounts receivable ...................... (1,171,565) (7,009,437)
Inventory ................................ (4,968,625) (2,582,416)
Other assets ............................. (803) (332,689)
(Decrease) increase in:
Accounts payable and accrued liabilities.. (374,476) 2,229,001
------------ -----------
Net cash provided by operating activities ..... 8,051,457 163,180
------------ -----------
Cash flows from investing activities:
Purchase of property, plant and equipment .......... (8,969,733) (7,899,627)
Proceeds from sale of equipment .................... -- 7,853
------------ -----------
Net cash used by investing activities ......... (8,969,733) (7,891,774)
------------ -----------
Cash flows from financing activities:
(Decrease) increase in long-term debt .............. (2,750,000) 2,500,000
Increase in short-term debt, net ................... -- 3,437,637
Proceeds from issuance of common stock ............. 4,514,610 110,321
------------ -----------
Net cash provided by financing activities ..... 1,764,610 6,047,958
------------ -----------
Effect of exchange rate changes on cash ................. 484,676 (347,154)
------------ -----------
Net increase (decrease) in cash and cash equivalents .... 1,331,010 (2,027,790)
Cash and cash equivalents at beginning of period ........ 2,086,972 4,581,417
------------ -----------
Cash and cash equivalents at end of period .............. $ 3,417,982 $ 2,553,627
============ ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
-5-
<PAGE> 8
SAFESKIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, which
consist only of normal and recurring adjustments necessary for a fair
presentation of results for the periods indicated. The results of any
interim period are not necessarily indicative of results for the full
year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes thereto for the
year ended December 31, 1995. The December 31, 1995 condensed
consolidated balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
Inventories at June 30, 1996 consisted of $1,581,000, $202,000 and
$21,164,000 for raw materials, work in process and finished goods,
respectively. At December 31, 1995, inventories consisted of
$2,005,000, $132,000 and $15,884,000 for raw materials, work in process
and finished goods, respectively.
-6-
<PAGE> 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and related notes thereto.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report and the documents incorporated by reference herein contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements include, among others, statements
concerning the Company's outlook for 1996 for future periods, the Company's
liquidity and working capital, the Company's ability to generate additional
efficiencies in its manufacturing facilities and other statements of
expectations, beliefs, future plans and strategies, anticipated events or trends
and similar expressions concerning matters that are not historical facts. The
forward-looking statements in this report are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in or
implied by the statements.
The most important factors that could prevent the Company from achieving its
goals -- and cause actual results to differ materially from those expressed in
or implied by the forward-looking statements -- include, but are not limited
to, the following:
-- the competitive nature of the industry and the ability of the
Company to continue to distinguish its products on the basis of
quality, reliability and value
-- the regular availability of raw rubber harvested by independent
growers in Malaysia and Thailand at competitive prices
-- risks associated with investments and operations in foreign
countries, particularly Thailand and Malaysia, including those
related to the local economic conditions, exchange rate
fluctuations, governmental policies regarding foreign ownership of
manufacturing facilities, local regulatory requirements and
political factors
-- economic conditions in the healthcare industry, including the
potential impact of industry consolidation
-- delays in the completion of the Company's construction of its new
production line and manufacturing plant in Thailand or the failure
of such new line or plant to generate anticipated productivity and
efficiencies
-- changes in significant government regulations affecting the
healthcare industry
-- the ability of the Company to protect its proprietary products,
know-how and manufacturing processes
-- changes in the Company's rates or basis of income taxation
-- possible obsolescence of the Company's primary product due to the
development by competitors of new products, manufacturing processes
or technologies including latex alternatives
These and other risks and uncertainties affecting the Company are discussed in
greater detail in this report and in other filings by the Company with the
Securities and Exchange Commission.
GENERAL
The Company's net sales have grown substantially over the past several years.
The Company attributes the growth in net sales during this period principally to
growth in markets for its products, the introduction of new products and
increased market penetration due to the development of sales and marketing
programs. The Company introduced lightly powdered hypoallergenic medical gloves,
powder-free hypoallergenic medical gloves, HypoClean(R) powder-free
hypoallergenic gloves, powder-free hypoallergenic latex surgical gloves and
Scientific/Industrial Nitrile gloves in 1989, 1990, 1992, 1994 and 1995,
respectively. Although the Company has continued to develop new products and
expects to do so in the future, no assurance can be given that the new products
will be accepted in the marketplace with similar growth rates.
The Company's net sales are derived from the sale of finished products net of
allowable rebates through distributors for their sales of the Company's products
in specific volumes to specified end user customers. Cost of goods sold includes
all costs to manufacture the finished product plus related costs associated with
ocean freight, customs duty and warehousing. Selling expenses include all
salaries for sales and marketing staffs together with other related expenses
such as sales commissions, travel costs, trade shows, advertising and delivery
expenses. Research and development expenses include salaries for research and
development staffs as well as expenses such as consulting, product testing and
travel costs. General and administrative expenses include salaries for
executives and administrative staffs, together with related expenses such as
travel costs, insurance, facilities costs and professional fees. Income tax
expenses are substantially less than statutory rates as a result of the tax free
status of the Company's foreign manufacturing operations.
The Company's medical glove distributors do not bill third-party reimbursement
sources separately for purchases of the Company's gloves. Consequently, the
timing and effect of third-party payments to hospitals and clinics does not have
a material direct effect on the Company's operations and liquidity.
-7-
<PAGE> 10
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1995
Net sales for the three months ended June 30, 1996 were $35,987,000 which
represents a 23.1% increase over net sales of $29,244,000 for the same period in
1995. The predominant causes for the sales growth were an increase in unit
volumes sold and the shift in product mix to higher priced powder-free gloves in
the 1996 period as compared to the 1995 period.
Cost of goods sold increased 9.3% from $19,910,000 for the three month period
ended June 30, 1995 to $21,767,000 for the three months ended June 30, 1996. As
a percentage of net sales, cost of goods sold decreased from 68.1% for the three
months ended June 30, 1995 to 60.5% for the same period in 1996. This decrease
in cost of goods sold as a percentage of net sales was principally attributable
to improved operating efficiencies in the Thailand facility coupled with lower
latex prices during the 1996 period. As a result of the above, gross profits
increased 52.3% from $9,334,000 for the three months ended June 30, 1995 to
$14,219,000 for the three months ended June 30, 1996.
Selling expenses decreased 2.9% from $4,000,000 for the three months ended June
30, 1995 to $3,884,000 for the three months ended June 30, 1996. As a percentage
of net sales, selling expenses decreased from 13.7% for the three months ended
June 30, 1995 to 10.8% for the same period in 1996. The decrease in selling
expenses as a percentage of net sales pertains primarily to overall selling
expenses such as salaries, travel costs and delivery expenses remaining
comparable to the prior year while sales levels have significantly increased
over the prior year.
Research and development expenses increased 41.2% from $302,000 for the three
months ended June 30, 1995 to $425,000 for the three months ended June 30, 1996.
As a percentage of net sales, these expenses increased from 1.0% for the three
months ended June 30, 1995 to 1.2% for the three months ended June 30, 1996.
General and administrative expenses increased 84.4% from $1,454,000 for the
three months ended June 30, 1995 to $2,681,000 for the three months ended June
30, 1996. As a percentage of net sales, general and administrative expenses
increased from 5.0% for the 1995 period to 7.5% for the 1996 period. The
increase in general and administrative expenses as a percentage of net sales
pertains primarily to increased costs associated with the Information Technology
Department (which was established in the second quarter of fiscal year 1995) to
support the continued growth of the Company. Additional factors include
increased consulting fees and facilities costs in fiscal 1996.
Income from operations increased 102.0% from $3,579,000 for the three months
ended June 30, 1995 to $7,229,000 for the three months ended June 30, 1996.
Operating margins increased from 12.2% in the 1995 period to 20.1% in the 1996
period.
-8-
<PAGE> 11
Interest expense increased from $29,000 for the three months ended June 30, 1995
to $45,000 for the three months ended June 30, 1996. The increase resulted from
the additional debt incurred in 1996 to facilitate the growth of the Company.
Other expense (income), net, decreased from $402,000 of other income for the
three months ended June 30, 1995 to $29,000 of other expense for the three
months ended June 30, 1996. The decrease in other income was substantially due
to losses experienced from foreign currency transactions in the Company's
European subsidiaries in the three months ended June 30, 1996 compared to gains
from foreign currency transactions experienced in the three months ended June
30, 1995.
Income taxes increased from $816,000 for the three months ended June 30, 1995 to
$966,000 for the three months ended June 30, 1996. The income tax provisions
recorded in both 1995 and 1996 remain less than statutory rates due to the
foreign tax free status.
Net income increased 97.4% from $3,135,000 for the three months ended June 30,
1995 to $6,188,000 for the three months ended June 30, 1996 due to the foregoing
factors.
-9-
<PAGE> 12
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30,
1995
Net sales for the six months ended June 30, 1996 were $69,042,000 which
represents a 33.2% increase over net sales of $51,837,000 for the same period in
1995. The predominant causes for the sales growth were an increase in unit
volumes sold and the shift in product mix to higher priced powder-free gloves in
the 1996 period as compared to the 1995 period.
Cost of goods sold increased 20.9% from $34,372,000 for the six month period
ended June 30, 1995 to $41,554,000 for the six months ended June 30, 1996. As a
percentage of net sales, cost of goods sold decreased from 66.3% for the six
months ended June 30, 1995 to 60.2% for the same period in 1996. This decrease
in cost of goods sold as a percentage of net sales was principally attributable
to improved operating efficiencies in the Thailand facility during the 1996
period. As a result of the above, gross profits increased 57.4% from $17,465,000
for the six months ended June 30, 1995 to $27,488,000 for the six months ended
June 30, 1996.
Selling expenses increased 4.6% from $7,407,000 for the six months ended June
30, 1995 to $7,748,000 for the six months ended June 30, 1996. As a percentage
of net sales, selling expenses decreased from 14.3% for the six months ended
June 30, 1995 to 11.2% for the same period in 1996. The decrease in selling
expenses as a percentage of net sales pertains primarily to overall selling
expenses such as salaries, travel costs and delivery expenses remaining
comparable to the prior year while sales levels have significantly increased
over the prior year.
Research and development expenses increased 57.4% from $558,000 for the six
months ended June 30, 1995 to $878,000 for the six months ended June 30, 1996.
As a percentage of net sales, these expenses increased from 1.1% for the six
months ended June 30, 1995 to 1.3% for the six months ended June 30, 1996.
General and administrative expenses increased 97.2% from $2,576,000 for the six
months ended June 30, 1995 to $5,078,000 for the six months ended June 30, 1996.
As a percentage of net sales, general and administrative expenses increased from
5.0% for the 1995 period to 7.4% for the 1996 period. The increase in general
and administrative expenses as a percentage of net sales pertains primarily to
increased costs associated with the Information Technology Department (which was
established in the second quarter of fiscal year 1995) to support the continued
growth of the Company. Additional factors include compensation increases for
existing employees, increased consulting fees and increased facilities costs in
fiscal 1996.
Income from operations increased 99.1% from $6,924,000 for the six months ended
June 30, 1995 to $13,785,000 for the six months ended June 30, 1996. Operating
margins increased from 13.4% in the 1995 period to 20.0% in the 1996 period.
-10-
<PAGE> 13
Interest expense increased from $37,000 for the six months ended June 30, 1995
to $109,000 for the six months ended June 30, 1996. The increase resulted from
the additional debt incurred in 1996 to facilitate the growth of the Company.
Other expense (income), net, decreased from $483,000 of other income for the six
months ended June 30, 1995 to $125,000 of other expense for the six months ended
June 30, 1996. The decrease in other income was substantially due to losses
experienced from foreign currency transactions in the Company's European
subsidiaries in the six months ended June 30, 1996 compared to gains from
foreign currency transactions experienced in the prior year.
Income taxes increased from $1,138,000 for the six months ended June 30, 1995 to
$1,912,000 for the six months ended June 30, 1996. The income tax provisions
recorded in both 1995 and 1996 remain less than statutory rates due to the
foreign tax free status.
Net income increased 86.8% from $6,232,000 for the six months ended June 30,
1995 to $11,639,000 for the six months ended June 30, 1996 due to the foregoing
factors.
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<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations generated approximately $8,051,000 and $163,000 of cash
during the six months ended June 30, 1996 and 1995, respectively. Further,
during the six months ended June 30, 1996 and 1995, the Company acquired capital
assets of approximately $8,970,000 and $7,900,000, respectively, primarily all
of which were for the expansion of the Company's foreign manufacturing
operations.
The Company is currently constructing a new production line in its Thailand
facility. The new production line is expected to have the highest capacity of
any glove production line in the world, equivalent in capacity to approximately
eight of the existing production lines in this facility. Production and capital
costs are expected to be reduced due to labor savings and higher unit
production. Construction is expected to be completed by early 1997 and is being
funded with internally generated cash.
In addition, the Company is currently building a latex concentrate plant in
Thailand. The output of the plant will supply latex concentrate to the Company's
factories in Thailand and Malaysia to manufacture its hypoallergenic disposable
latex gloves. The Company expects that the first construction phase of this new
plant will be completed in the first half of 1997 and that the final phase will
be completed within three years. This plant will allow the Company to more fully
integrate its manufacturing process to gain better control over the quality,
cost and reliability of latex supplies.
As of June 30, 1996, the Company had a domestic line of credit, up to a maximum
of $15,000,000 in borrowings. As of June 30, 1996, there were no borrowings
outstanding under this credit facility. As of July 15, 1996, the Company entered
into a new two-year-term credit facility up to a maximum of $25,000,000 with a
bank. The credit facility is to be used for financing general working capital
needs.
The Company's foreign manufacturing subsidiaries have revolving lines of credit
for financing general working capital needs up to approximately $13,700,000 of
which there were no outstanding balances as of June 30, 1996. These borrowings
are collateralized by all assets of the subsidiaries and are further supported
by the guarantee of the Company.
The Company does not believe that the relatively moderate levels of inflation
which have been experienced in the United States in recent years have had a
significant effect on its net sales or its profitability.
-12-
<PAGE> 15
PART II: OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
10.37 Credit Agreement, dated July 15, 1996, by Safeskin Corporation to Union
Bank
10.38 Letter of Agreement between Judy Grimes and Safeskin Corporation
11 Statement re: Computation of per share earnings
</TABLE>
(b) Reports on Form 8-K
None.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SAFESKIN CORPORATION
Date: August 14, 1996 By: /s/ David L. Morash
--------------------
David L. Morash, Executive Vice-
President, Chief Financial Officer
-14-
<PAGE> 1
EXHIBIT 10.37
[Union Bank logo]
PROMISSORY NOTE
(BASE RATE)
SIGN
HERE
================================================================================
Borrower Name SAFESKIN CORPORATION
- --------------------------------------------------------------------------------
Borrower Address: Office Loan Number
12571 HIGH BLUFF DRIVE 40061
SAN DIEGO, CA 92130 ---------------------------------------------
Maturity Date July 15, 1996 Amount
[initials] 25,000,000.00
================================================================================
Check Initial Name
SAN DIEGO, California $25,000,000.00 Date
- --------------------- -------------- ------------------------
Check Initial Name
FOR VALUE RECEIVED, on July 15, 1996, the undersigned ("Debtor") promises to
pay to the order of UNION BANK ("Bank"), as indicated below, the principal sum
of TWENTY FIVE MILLION AND NO/100 Dollars ($25,000,000.00), or so much thereof
as is disbursed, together with interest on the balance of such principal from
time to time outstanding, at the per annum rates and at the times set forth
below; provided, however, Debtor shall pay total interest over the term of this
note of not less than $500.
1. INTEREST PAYMENTS. Debtor shall pay interest on the 1ST day of each MONTH
(commencing JUNE 1, 1996). Should interest not be paid when due, it shall become
part of the principal and bear interest as herein provided. All computations of
Interest under this note shall be made on the basis of a year of 360 days, for
actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding
hereunder in increments of at least $10,000 shall bear interest at a
rate to be selected by Debtor which is 1.00% per annum in excess of
Bank's Adjusted LIBOR-Rate for the Interest Period so selected by
Debtor.
Any Base Interest Rate selected by Debtor may not be changed, altered
or otherwise modified until the expiration of the Interest Period for
which it was selected. The exercise of interest options by Debtor shall
be as recorded in Bank's records, which records shall be prima facie
evidence of the amount borrowed under either interest option and the
interest rate; provided, however, that failure of Bank to make any such
notation in its records shall not discharge Debtor from its obligations
to repay in full with interest all amounts borrowed. In no event shall
any Interest Period extend beyond the maturity date of this note.
To select a Base Interest Rate, Debtor may, from time to time with
respect to principal outstanding on which a Base Interest Rate has not
been selected and on the expiration of any Interest Period with respect
to principal outstanding on which a Base Interest Rate has been
selected, select a Base Interest Rate by telephoning an authorized
lending officer of Bank located at the banking office identified below
prior to 10:00 a.m., California time, on any Business Day and advising
that officer of the Base Interest Rate, the Interest Period and the
Origination Date selected (which Origination Date, for a Base Interest
Rate Loan based on the Adjusted LIBOR-Rate, shall follow the date of
such election by no more than two (2) Business Days).
Bank will confirm the terms of the election in writing by mail to
Debtor promptly after the election is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the
rate selected. If, on the date of the election, the Base Interest Rate
selected is unavailable for any reason, the selection shall be void.
Bank reserves the right to fund the principal from any source of funds
notwithstanding any Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which
is not bearing interest at a Base Interest Rate shall bear interest at a
rate per annum equal to the Reference Rate, which rate shall vary as and
when the Reference Rate changes.
At any time prior to the maturity of this note, subject to the
provisions of paragraph 4, below, of this note, Debtor may borrow, repay
and reborrow hereon so long as the total outstanding at any one time
does not exceed the principal amount of this note. Debtor shall pay all
amounts due under this note in lawful money of the United States at
Bank's SAN DIEGO COMMERCIAL BANKING Office, or such other office as may
be designated by Bank, from time to time.
2. LATE PAYMENTS. If any payment required by the terms of this note shall
remain unpaid ten days after same is due, at the option of Bank, Debtor shall
pay a fee of $100 to Bank.
<PAGE> 2
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and, to the extent permitted by law, interest shall be payable on the
outstanding principal under this note at a per annum rate equal to five percent
(5%) in excess of the interest rate specified in paragraph 1.b, above, of this
note, calculated from the date of default until all amounts payable under this
note are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based
on the Reference Rate may be prepaid in whole or in part at any time,
without penalty or premium. Amounts outstanding at a Base Interest Rate
under this note may only be prepaid, in whole or in part provided Bank
has received not less than five (5) Business Days prior written notice
of an intention to make such prepayment and Debtor pays a prepayment fee
to Bank in an amount equal to: (i) the difference between (a) the Base
Interest Rate applicable to the principal amount which Debtor intends to
prepay, and (b) the return which Bank could obtain if it used the amount
of such prepayment of principal to purchase at bid price regularly
quoted securities issued by the United States having a maturity date
most closely coinciding with the relevant Base Rate Maturity Date and
such securities were held by Bank until the relevant Base Rate Maturity
Date ("Yield Rate"); (ii) the above difference, if greater than zero, is
multiplied by a fraction, the numerator of which is the number of days
in the period between the date of prepayment and the relevant Base Rate
Maturity Date and the denominator of which is 360 days; (iii) the above
product is multiplied by the amount of the principal so prepaid (except
in the event that principal payments are required and have been made as
scheduled under the terms of the Base Interest Rate Loan being prepaid,
then the amount multiplied in this section shall be the lesser of the
amount prepaid or 50% of the total of the amount prepaid and the amount
of principal scheduled under the terms of the Base Interest Rate Loan
being prepaid to be outstanding at the relevant Base Rate Maturity
Date); and (iv) the above product is then discounted to present value
using the Yield Rate as the annual discount factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim
against Bank, should the return which Bank could obtain under the above
prepayment formula exceed the interest that Bank would have received if
no prepayment had occurred. All prepayments shall include payment of
accrued interest on the principal amount so prepaid and shall be applied
to payment of interest before application to principal. A determination
by Bank as to the prepayment fee amount, if any, shall be conclusive.
c. Such prepayment fee, if any, shall also be payable if prepayment
occurs as the result of the acceleration of the principal of this note
by Bank because of any default hereunder. If, following such
acceleration, all or any portion of a Base Interest Rate Loan is
satisfied, whether through sale of property encumbered by a security
agreement or other agreement securing this note, if any, at a
foreclosure sale held thereunder or through the tender of payment any
time following such acceleration, but prior to such a foreclosure sale,
then such satisfaction shall be deemed an evasion of the prepayment
conditions set forth above, and Bank shall, automatically and without
notice or demand, be entitled to receive, concurrently with such
satisfaction the prepayment fee set forth above, and the obligation to
pay such prepayment fee shall be added to the principal. DEBTOR HEREBY
ACKNOWLEDGES AND AGREES THAT BANK WOULD NOT LEND TO DEBTOR THE LOAN
EVIDENCED BY THIS NOTE WITHOUT DEBTOR'S AGREEMENT, AS SET FORTH ABOVE,
TO PAY BANK A PREPAYMENT FEE UPON THE SATISFACTION OF ALL OR ANY PORTION
OF THE PRINCIPAL BEARING INTEREST AT A BASE INTEREST RATE FOLLOWING THE
ACCELERATION OF THE MATURITY DATE HEREOF BY REASON OF A DEFAULT. DEBTOR
HAS CAUSED THOSE PERSONS SIGNING THIS NOTE ON ITS BEHALF TO SEPARATELY
INITIAL THE AGREEMENT CONTAINED IN THIS PARAGRAPH BY PLACING THEIR
INITIALS BELOW:
INITIALS: /s/ /s/
----------- -----------
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but not
be limited to, any of the following: (a) debtor shall fail to pay when due any
principal payment, or shall fail to pay within ten (10) days of the date when
due any interest or other payment, required under the terms of this note, that
certain Loan Agreement between Debtor and Bank, of even date herewith, and any
extensions, modifications or amendments thereof (the "Loan Agreement") or any
of the other Loan Documents (as defined in the Loan Agreement); (b) Debtor
shall fail to observe or perform any covenant, obligation, condition or
agreement set forth in section 5, or in subsections 4.5(f), 4.6, 4.7, 4.8 or
4.9, of the Loan Agreement; (c) Debtor shall fail to observe or perform any
other covenant, obligation, condition or agreement contained in the Loan
Agreement or the other Loan Documents, and such failure shall continue for
thirty (30) days after written notice thereof to Debtor from Bank; (d) any
representation, warranty, certificate or other statement (financial or
otherwise) made or furnished by or on behalf of Debtor to Bank in or in
connection with this note, the Loan Agreement or any of the other Loan
Documents, or as an inducement to Bank to enter into the Loan Agreement and the
other Loan Documents, shall be false, incorrect, incomplete or misleading in
any material respect when made or furnished; (e) Debtor or any subsidiary of
Debtor shall fail to pay when due any principal or interest payment required
under the terms of any bonds, debentures, notes or other evidences of
indebtedness required to be paid by Debtor or such subsidiary of Debtor which
represent or evidence indebtedness in an aggregate amount in excess of One
Million Dollars ($1,000,000) (except for payments required hereunder, under the
Loan Agreement or under the other Loan Documents) beyond any period of grace
provided with respect thereto, or shall default in the observance or
performance of any other Agreement, term or condition contained in any such
bonds, debentures, notes or other evidences of indebtedness, and the effect of
such failure or default is to cause the indebtedness evidenced thereby to
become due prior to its stated date of maturity; (f) Debtor shall (i) apply for
or consent to the appointment of a receiver, trustee, liquidator or custodian
of itself or of all or a substantial part of its property, (ii) be unable, or
admit in writing its inability, to pay its debts generally as they mature,
(iii) make a general assignment for the benefit of its or any of its creditors,
(iv) be dissolved or liquidated, (v) commence a voluntary case or other
proceedings seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect or consent to any such relief or to the appointment of
or taking possession of its property by any official in an involuntary case or
other proceeding commenced against it, or (vi) take any corporate action for
the purpose of affecting any of the foregoing; (g) proceedings for the
appointment of a receiver, trustee, liquidator or custodian of Debtor or of all
or a substantial part of its property, or an involuntary case or other
proceedings seeking liquidation, reorganization or other similar relief with
respect to Debtor or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect, shall be commenced and shall not be
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<PAGE> 3
dismissed or discharged within sixty (60) days of commencement; or (h) a final
judgment or order for the payment of money in excess of One Million Dollars
($1,000,000) (exclusive of amounts covered by insurance) shall be rendered
against Debtor and the same shall remain undischarged for a period of thirty
(30) days during which execution shall not be effectively stayed, or any
judgment, writ, warrant of attachment, or execution or similar process shall be
issued or levied against a substantial part of Debtor's property and such
judgment, writ or similar process shall not be released, stayed, vacated,
bonded or otherwise dismissed within twenty (20) days after its issue or levy.
Upon the occurrence of any such default, Bank may declare, in its discretion,
all obligations under this note immediately due and payable; provided, however,
upon the occurrence of a default under (f) or (g), all principal and interest
shall automatically become immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note are
not paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement
of this note. Debtor and any endorsers of this note, for the maximum period of
time and the full extent permitted by law, (a) waive diligence, presentment,
demand, notice of nonpayment, protest, notice of protest, and notice of every
kind; (b) waive the right to assert the defense of any statute of limitations
to any debt or obligation hereunder; and (c) consent to renewals and extensions
of time for the payment of any amounts due under this note. If this note is
signed by more than one party, the term "Debtor" includes each of the
undersigned and any successors in interest thereof; all of whose liability
shall be joint and several. The receipt of any check or other item of payment
by Bank, at its option, shall not be considered a payment on account until such
check or other item of payment is honored when presented for payment at the
drawee bank. Bank may delay the credit of such payment based upon Bank's
schedule of funds availability, and interest under this note shall accrue until
the funds are deemed collected. In any action brought under or arising out of
this note, Debtor and any Obligor, including their successors or assigns,
hereby consent to the jurisdiction of any competent court within the State of
California, and consent to service of process by any means authorized by
California law. The term "Bank" includes, without limitation, any holder of
this note. This note shall be construed in accordance with and governed by the
laws of the State of California. The definitions listed below are hereby made a
part of this note.
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "Adjusted LIBOR-Rate" shall mean the LIBOR Base
Rate as adjusted for reserve requirements imposed on Bank from time to time.
"Base Interest Rate" shall mean a rate of interest based on the Adjusted
LIBOR-Rate, "Base Interest Rate Loan" shall mean amounts outstanding under this
note that bear interest at a Base Interest Rate. "Base Rate Maturity Date"
shall mean the last day of the Interest Period with respect to principal
outstanding on which a Base Interest Rate has been selected by Debtor.
"Business Day" shall mean a day which is not a Saturday or Sunday on which Bank
is open for business in California and on which dealings in U.S. dollar
deposits outside of the United States may be carried on by Bank. "Interest
Period" shall mean any calendar period of one, three, six, nine or twelve
months. In determining an Interest Period, a month means a period that starts
on one Business Day in a month and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in which there
is no such numerically corresponding day, then as to that month, such day shall
be deemed to be the last calendar day of such month. Any Interest Period which
would otherwise and on a non-Business Day shall end on the next succeeding
Business Day unless that is the first day of a month, in which event such
Interest Period shall end on the next preceding Business Day. "LIBOR Base Rate"
shall mean for each Interest Period the rate per annum (rounded upward, if
necessary, to the nearest 1/100 of 1%) at which dollar deposits, in immediately
available funds and in lawful money of the United States would be offered to
Bank, outside of the United States, for a term coinciding with such Interest
Period and for an amount equal to the amount of principal covered by Debtor's
interest rate election. "Origination Date" shall mean the Business Day on which
funds are made available to Debtor relating to Debtor's selection of a Base
Interest Rate. "Reference Rate" shall mean the rate announced by Bank from time
to time at its corporate headquarters at its "Reference Rate." The Reference
Rate is an index rate determined by Bank from time to time as a means of
pricing certain extensions of credit and is neither directly tied to any
external rate of interest or index nor necessarily the lowest rate of interest
charged by Bank at any given time.
8. WAIVER OF JURY TRIAL. Debtor and Bank, to the extent that they may legally
do so, hereby expressly, deliberately and intentionally waive any right to
trial by jury of any claim, demand, action, cause of action or proceeding
arising under or with respect to this note, any document, instrument or
agreement entered into in connection herewith, or any transaction contemplated
hereby or thereby, whether sounding in contract, tort or otherwise.
SAFESKIN CORPORATION
- --------------------------------
By /s/
-----------------------------
Title CO-CEO
---------------------------
By /s/
-----------------------------
Title EVP-CFO
---------------------------
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<PAGE> 4
[Union Bank logo]
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") is made and entered into as of
____________________, 1996 by and between Safeskin Corporation, a Florida
Corporation, ("Borrower") and Union Bank, a Division of Union Bank of
California, N.A. ("Bank").
SECTION 1. THE LOAN
1.1 THE REVOLVING LOAN. Bank will loan to Borrower an amount
not to exceed Twenty-five Million Dollars ($25,000,000) outstanding in the
aggregate at any one time (the "Revolving Loan"). Borrower may borrow, repay
and reborrow all or part of the Revolving Loan in accordance with the terms of
the Revolving Note. All borrowings of the Revolving Loan must be made before
July 15, 1998 at which time all unpaid principal and interest of the Revolving
Loan shall be due and payable. The Revolving Loan shall be evidenced by a
promissory note (the "Revolving Note") substantially on the standard form used
by Bank for commercial loans. Bank shall enter each amount borrowed and repaid
in Bank's records and such entries shall constitute prima facie evidence of the
matters noted. Omission of Bank to make any such entries shall not discharge
Borrower of its obligation to repay in full with interest all amounts borrowed.
1.2 TERMINOLOGY.
As used herein the word "Loan" shall mean, collectively,
all the credit facilities described above.
As used herein the word "Note" shall mean, collectively,
all the promissory notes described above.
As used herein, the words "Loan Documents" shall mean all
documents executed in connection with this Agreement.
1.3 PURPOSE OF LOAN. The proceeds of the Revolving Loan shall
be used for general working capital purposes, general operating needs, common
and/or preferred stock repurchases, acquisitions, and repayment in full of
Borrower's existing credit facility with Barnett Bank.
1.4 INTEREST. The unpaid principal balance of the Revolving
Loan shall bear interest at the rate or rates provided in the Revolving Note
and selected by Borrower. The Revolving Loan may be prepaid in full or in part
only in accordance with the terms of the Revolving Note.
1.5 UNUSED COMMITMENT FEE. On the last calendar day of the
third month following the execution of this Agreement and on the last calendar
day of each three-month period thereafter until June 1, 1998, or the earlier
termination of the Loan, Borrower shall pay to Bank a
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<PAGE> 5
fee of fifteen one-hundredths percent (0.15%) per year on the average unused
portion of the Loan for the preceding quarter computed on the basis of actual
days elapsed of a year of 360 days.
1.6 BALANCES. Borrower shall maintain its major depository accounts
with Bank until the Note and all sums payable pursuant to this Agreement have
been paid in full.
1.7 DISBURSEMENT. Bank shall disburse the proceeds of the Loan from
time to time as requested by Borrower as provided in Bank's standard form
Authorization executed by Borrower.
1.8 CONTROLLING DOCUMENT. In the event of any inconsistency between
the terms of this Agreement and any Note or any of the other Loan Documents,
the terms of such Note or other Loan Documents will prevail over the terms of
this Agreement.
SECTION 2. CONDITIONS PRECEDENT
Bank shall not be obligated to disburse all or any portion of the
proceeds of the Loan unless at or prior to the time for the making of such
disbursement, the following conditions have been fulfilled to Bank's
satisfaction:
2.1 COMPLIANCE. Borrower shall have performed and complied with all
terms and conditions required by this Agreement to be performed or complied
with by it prior to or at the date of the making of such disbursement and shall
have executed and delivered to Bank the Note and other documents deemed
necessary by Bank.
2.2 BORROWING RESOLUTION. Borrower shall have provided Bank with
certified copies of resolutions duly adopted by the Board of Directors of
Borrower, authorizing this Agreement and the Loan Documents. Such resolutions
shall also designate the persons who are authorized to act on Borrower's behalf
in connection with this Agreement and to do the things required of Borrower
pursuant to this Agreement.
2.3 TERMINATION STATEMENTS. Borrower shall have provided Bank with
UCC-2 termination statements executed by such secured creditors as may be
required by Bank suitable for filing with the Secretary of State in each state
designated by Bank.
2.4 CONTINUING COMPLIANCE. At the time any disbursement is to be made,
there shall not exist any event, condition or act which constitutes an event of
default under Section 6 hereof or any event, condition or act which with
notice, lapse of time or both would constitute such event of default; nor shall
there be any such event, condition, or act immediately after the disbursement
were it to be made.
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<PAGE> 6
SECTION 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
3.1 BUSINESS ACTIVITY. The principal business of Borrower
is as a manufacturer and seller of disposable, hypoallergenic latex gloves.
3.2 AFFILIATES AND SUBSIDIARIES. Borrower's affiliates and
subsidiaries (those entities in which Borrower has either a controlling
interest or at least a 25% ownership interest) and their addresses, and the
names of Borrower's principal shareholders who are known by Borrower to own 5%
or more of Borrower's outstanding common stock, are as provided on a schedule
delivered to Bank on or before the date of this Agreement.
3.3 AUTHORITY TO BORROW. The execution, delivery and
performance of this Agreement, the Note and all other agreements and
instruments required by Bank in connection with the Loan are not in
contravention of any of the terms of any indenture, agreement or undertaking to
which Borrower is a party or by which it or any of its property is bound or
affected.
3.4 FINANCIAL STATEMENTS. The financial statements of
Borrower, including both a balance sheet at December 31, 1995, together with
supporting schedules, and an income statement for the twelve (12) months ended
December 31, 1995, have heretofore been furnished to Bank, and are true and
complete and fairly represent the financial condition of Borrower during the
period covered thereby. Since December 31, 1995, there has been no material
adverse change in the financial condition or operations of Borrower.
3.5 TITLE. Except for assets which may have been disposed
of in the ordinary course of business, Borrower has good and marketable title
to all of the property reflected in its financial statements delivered to Bank
and to all property acquired by Borrower since the date of said financial
statements, free and clear of all liens, encumbrances, security interests and
adverse claims known to Borrower, except those specifically referred to in said
financial statements.
3.6 LITIGATION. There is no litigation or proceeding
pending or, to Borrower's knowledge, threatened against Borrower or any of its
property which is reasonably likely to affect the financial condition, property
or business of Borrower in a materially adverse manner or result in liability
in excess of Borrower's insurance coverage.
3.7 DEFAULT. Borrower is not in default (nor is there any
waiver in effect which, if not in effect, would result in a default) under any
mortgage, indenture, lease, contract or other agreement or instrument binding
upon Borrower where such default would have a material adverse effect on the
operations or financial condition of Borrower.
3.8 ORGANIZATION. Borrower is duly organized and existing
under the laws of the state of its organization, and has the power and
authority to carry on the business in which it is engaged and/or proposes to
engage.
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<PAGE> 7
3.9 POWER. Borrower has the power and authority to enter
into this Agreement and to execute and deliver the Note and all of the other
Loan Documents.
3.10 AUTHORIZATION. This Agreement and all things required
by this Agreement have been duly authorized by all requisite action of Borrower.
3.11 QUALIFICATION. Borrower is duly qualified and in good
standing in any jurisdiction where such qualification is required, except for
any jurisdiction where the failure to so qualify would not have a material
adverse effect on the operations or financial condition of Borrower.
3.12 COMPLIANCE WITH LAWS. Borrower is not in violation with
respect to any applicable laws, rules, ordinances or regulations where such
violation would materially affect the operations or financial condition of
Borrower.
3.13. ERISA. Borrower does not maintain any defined benefit
pension plans as defined in the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
3.14 REGULATION U. No action has been taken or is currently
planned by Borrower, or any agent acting on its behalf, which would cause this
Agreement or the Note to violate Regulation U or any other regulation of the
Board of Governors of the Federal Reserve System or to violate the Securities
and Exchange Act of 1934, in each case as in effect now or as the same may
hereafter be in effect. Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock as one of its
important activities and none of the proceeds of the Loan will be used directly
or indirectly for such purpose.
3.15 CONTINUING REPRESENTATIONS. These representations shall
be considered to have been made again at and as of the date of each
disbursement of the Loan and shall be true and correct as of such date or dates.
SECTION 4. AFFIRMATIVE COVENANTS
Until the Note and all sums payable pursuant to this Agreement or any
other of the Loan Documents have been paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
4.1 USE OF PROCEEDS. Borrower will use the proceeds of the
Loan only as provided in subsection 1.3 above.
4.2 PAYMENT OF OBLIGATIONS. Borrower will pay and discharge
promptly all taxes, assessments and other governmental charges and claims
levied or imposed upon it or its property, or any part thereof, provided,
however, that Borrower shall have the right in good faith to contest any such
taxes, assessments, charges or claims and, pending the outcome of such contest,
to delay or refuse payment thereof provided that adequately funded reserves are
established by it to pay and discharge any such taxes, assessments, charges and
claims.
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<PAGE> 8
4.3 MAINTENANCE OF EXISTENCE. Borrower will maintain and preserve its
existence and assets and all rights, franchises, licenses and other authority
necessary for the conduct of its business and will maintain and preserve its
property, equipment and facilities in good order, condition and repair. Bank
may, at reasonable times on twenty-four (24) hours notice, visit and inspect
any of the properties of Borrower.
4.4 RECORDS. Borrower will keep and maintain full and accurate
accounts and records of its operations according to generally accepted
accounting principles and will permit Bank, at reasonable times on twenty-four
(24) hours notice, to have access thereto, to make examination and photocopies
thereof, and to make audits during regular business hours. Costs for such
audits shall be paid by Borrower.
4.5 INFORMATION FURNISHED. Borrower will furnish to Bank:
(a) Within sixty (60) days after the close of each fiscal
quarter, except for the final quarter of each fiscal year, its unaudited
balance sheet as of the close of such fiscal quarter, its unaudited income and
expense statement with supportive schedules and statement of retained earnings
for that fiscal quarter, prepared in accordance with generally accepted
accounting principles;
(b) Within one hundred (100) days after the close of each
fiscal year, a copy of its statement of financial condition including at least
its balance sheet as of the close of such fiscal year, its income and expense
statement and retained earnings statement for such fiscal year, examined and
prepared on an audited basis by independent certified public accountants
selected by Borrower and reasonably satisfactory to Bank, in accordance with
generally accepted accounting principles applied on a basis consistent with
that of the previous year, except for any inconsistencies explained in such
audit or the notes thereto;
(c) As soon as available, copies of such financial statements
and reports as Borrower may file with any state or federal agency;
(d) Such other information regarding the operations or condition
of Borrower as Bank may reasonably request from time to time;
(e) In connection with each financial statement provided
hereunder, a statement executed by chief financial officer of Borrower,
certifying that no default has occurred and no event exists which with notice
or the lapse of time, or both, would result in a default hereunder, and a
certification of compliance with all covenants under the Agreement, executed by
Borrower's chief financial officer or other duly authorized officer of
Borrower, in form reasonably acceptable to Bank;
(f) Prompt written notice to Bank of all events of default
under any of the terms or provisions of this Agreement or of any other
agreement, contract, document or instrument entered, or to be entered into with
Bank; and of any litigation which, if decided adversely to Borrower, would have
a material adverse effect on Borrower's financial condition; and of any other
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<PAGE> 9
matter which has resulted in, or is likely to result in, a material adverse
change in its financial condition or operations; and,
(g) Written notice to Bank of any changes in Borrower's
officers and other senior management, and prior written notice to Bank of any
changes in Borrower's name, the location of Borrower's assets, or Borrower's
principal place of business or chief executive office.
4.6 QUICK RATIO. Borrower shall maintain at all times a ratio of
cash, accounts receivable and marketable securities to current liabilities of
not less than 1.5:1.0, as such terms are defined by generally accepted
accounting principles.
4.7 TANGIBLE NET WORTH. Borrower will at all times maintain
Tangible Net Worth of not less than the sum of (a) Sixty-four Million Dollars
($64,000,000), (b) eighty percent (80%) of the cumulative after tax net profits
of Borrower for all fiscal years of Borrower ending after December 31, 1995 and
on or prior to the date of computation, and (c) the aggregate amount of all
infusions of equity, except for the grant or exercise of stock options, made
on or after the date of this Agreement. Tangible Net Worth may be adjusted,
dollar for dollar, by a maximum of Eighteen Million dollars ($18,000,000) for
the purpose of common and/or preferred stock repurchases. "Tangible Net Worth"
shall mean net worth increased by indebtedness of Borrower subordinated to
Bank and decreased by patents, licenses, trademarks, trade names, goodwill and
other similar intangible assets, organizational expenses, and monies due from
affiliates (including officers, shareholders and directors).
4.8 DEBT TO TANGIBLE NET WORTH. Borrower will at all times maintain
a ratio of total liabilities to tangible net worth of not greater than 1.0:1.0.
4.9 PROFITABILITY. Borrower will maintain a net profit, after
provision for income taxes, of any positive amount as reported at the end of
each fiscal quarter, and Borrower will maintain its net profit, after provision
for income taxes, at not less than Two Million Dollars ($2,000,000) for any
fiscal year.
4.10 INSURANCE. Borrower will keep all of its insurable property,
real, personal or mixed, insured by good and responsible companies against fire
and such other risks as are customarily insured against by companies conducting
similar business with respect to like properties. Borrower will maintain
worker's compensation insurance and insurance against liability for damages to
persons and property in such amounts as are customarily maintained by companies
engaged in similar businesses in the same general areas in which Borrower
operates.
4.11 ADDITIONAL REQUIREMENTS. Borrower will promptly, upon demand by
Bank, take such further action and execute all such additional documents and
instruments in connection with this Agreement as Bank in its reasonable
discretion deems necessary, and promptly supply Bank with such other
information concerning its affairs as Bank may reasonably request from time
to time.
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<PAGE> 10
4.12 LITIGATION AND ATTORNEYS' FEES. Borrower will pay promptly
to Bank upon demand, reasonable attorneys' fees (including but not limited to
the reasonable estimate of the allocated costs and expenses of in-house legal
counsel and legal staff) and all costs and other expenses paid or incurred by
Bank in collecting, modifying or compromising the Loan or in enforcing or
exercising its rights or remedies created by, connected with or provided for in
this Agreement or any of the Loan Documents, whether or not an arbitration,
judicial action or other proceeding is commenced. If such proceeding is
commenced, only the prevailing party shall be entitled to attorneys' fees and
court costs.
4.13 BANK EXPENSES. Borrower will pay or reimburse Bank for
all costs, expenses and fees incurred by Bank in preparing and documenting all
amendments and modifications to this Agreement and the Loan, including but not
limited to all filing and recording fees, costs of appraisals, insurance and
reasonable attorneys' fees, including the reasonable estimate of the allocated
costs and expenses of in-house legal counsel and legal staff.
4.14 REPORTS UNDER PENSION PLANS. Intentionally Deleted.
SECTION 5. NEGATIVE COVENANTS
Until the Note and all other sums payable pursuant to this Agreement or
any other of the Loan Documents have been paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
5.1 ENCUMBRANCES AND LIENS. Borrower will not create, assume
or suffer to exist any mortgage, pledge, security interest, encumbrance, or
lien (other than for taxes not delinquent and for taxes and other items being
contested in good faith) on property of any kind, whether real, personal or
mixed, now owned or hereafter acquired, or upon the income or profits thereof,
except to Bank and except for minor encumbrances and easements on real property
which do not affect its market value, and except for existing liens on
Borrower's personal property and future purchase money security interests
encumbering only the personal property purchased. All of such permitted
personal property liens shall not exceed, in the aggregate, One Million Five
Hundred Thousand Dollars ($1,500,000) at any time.
5.2 BORROWINGS. Borrower will not sell, discount or otherwise
transfer any account receivable or any note, draft or other evidence of
indebtedness, except to Bank or except to a financial institution at face value
for deposit or collection purposes only and without any fee other than fees
normally charged by the financial institution for deposit or collection
services. Borrower will not borrow any money, become contingently liable to
borrow money, nor enter any agreement to directly or indirectly obtain borrowed
money, except pursuant to agreements made with Bank.
5.3 SALE OF ASSETS, LIQUIDATION OR MERGER. Borrower will
neither liquidate nor dissolve nor enter into any consolidation, merger,
partnership or other combination, nor convey, sell or lease all or the greater
part of its assets or business, nor acquire all or the greater part of the
assets or business of another, provided, however, Borrower may merge or
consolidate with another corporation, and may acquire all or the greater part
of the assets or business of another, if (a)
-7-
<PAGE> 11
Borrower is in compliance with the covenants of this Agreement immediately
following the consummation of such transaction, (b) the aggregate compensation
paid or to be paid by Borrower in connection with such transaction does not
exceed fifteen percent (15%) of Borrower's Tangible Net Worth as of the last
day of the calendar month immediately preceding the calendar month in which
such transaction is consummated, (c) the assets acquired in connection with
such transaction are not, following the consummation of such transaction,
subject to any lien or encumbrance in favor of any person or entity other than
Bank unless otherwise permitted by the terms of this Agreement, and (d) if such
transaction is a merger or consolidation, Borrower is the surviving corporation.
5.4 LOANS, ADVANCES AND GUARANTIES. Borrower will not, except in the
ordinary course of business as currently conducted, make any loans or advances,
become a guarantor or surety, pledge its credit or properties in any manner or
extend credit; except, however, Borrower may offer, up to a maximum of Fifteen
Million Dollars ($15,000,000), its unsecured guarantee to its subsidiaries
located in Malaysia and Thailand.
5.5 INVESTMENTS. Borrower will not purchase the debt or equity of
another person or entity except for savings accounts and certificates of
deposit from banks with deposits in excess of five hundred million dollars
($500,000,000), direct U.S. Government obligations and commercial paper issued
by corporations with the top ratings of Moody's or Standard & Poor's, provided
all such permitted investments shall mature within one year of purchase.
5.6 PAYMENT OF DIVIDENDS. Borrower will not declare or pay any
dividends, other than a dividend payable in its own common stock, or authorize
or make any other distribution with respect to any of its stock now or
hereafter outstanding, unless, subsequent to the payment of such dividend or
distribution, Borrower will be in compliance with the covenants contained in
this Agreement.
5.7 RETIREMENT OF STOCK. Borrower may acquire or retire shares of its
capital stock up to a maximum value of Eighteen Million dollars ($18,000,000).
5.8 AFFILIATE TRANSACTIONS. Borrower will not transfer any property
to an affiliate or subsidiary, except for value received in the normal course
of business as business would be conducted with an unrelated or unaffiliated
entity. In no event shall management fees or fees for services be paid by
Borrower to any such affiliate without Bank's prior written approval.
5.9 CAPITAL EXPENDITURES. Borrower will not make consolidated capital
expenditures in excess of Thirty-five Million Dollars ($35,000,000) during the
period covered by this Agreement; and shall only make such expenditures as are
necessary for Borrower, in Borrower's reasonable discretion, in the conduct of
its ordinary course of business. Each said expenditure shall be needed by
Borrower, in Borrower's reasonable discretion, in the ordinary course of its
business. Expenditures as used in this subsection shall include the current
expense portion of all leases whether or not capitalized and shall also include
the current portion of any debt used to finance capital expenditures.
-8-
<PAGE> 12
5.10 LEASE OBLIGATIONS. Borrower will not incur new lease obligations
as lessee which would result in aggregate lease payments for any fiscal year
exceeding One Million Five Hundred Thousand Dollars ($1,500,000). Each said
lease shall be of equipment or real property needed by Borrower, in Borrower's
reasonable discretion, in the ordinary course of its business.
SECTION 6. EVENTS OF DEFAULT
The occurrence of any of the following events ("Events of Default")
shall terminate any obligation on the part of Bank to make or continue the Loan
and automatically, unless otherwise provided under the Note, shall make all
sums of interest and principal and any other amounts owing under the Loan
immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor, or any other notices
or demands:
6.1 Borrower shall fail to pay when due any principal payment, or
shall fail to pay within ten (10) days of the date when due any interest or
other payment, required under the terms of the Note, this Agreement or any of
the other Loan Documents; or
6.2 Any default shall occur under the Note; or
6.3 Intentionally Deleted.
6.4 Intentionally Deleted.
6.5 Any of the following events or conditions shall occur or exist:
(a) Richard Jaffe, Irving Jaffe and/or Neil Braverman or their
respective affiliates shall cease to own or control, in the aggregate, at least
twenty percent (20%) of the issued and outstanding stock of Borrower; or
(b) Any person, entity or affiliated group other than Richard
Jaffe, Irving Jaffe and/or Neil Braverman or their respective affiliates shall
own or control twenty percent (20%) or more of the issued and outstanding stock
of Borrower; or
(c) Borrower and/or one or more subsidiaries of Borrower shall
cease to own or control at least eighty percent (80%) of the issued and
outstanding stock of any subsidiary of Borrower.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 ADDITIONAL REMEDIES. The rights, powers and remedies given to
Bank hereunder shall be cumulative and not alternative and shall be in addition
to all rights, powers and
-9-
<PAGE> 13
remedies given to Bank by law against Borrower or any other person, including
but not limited to Bank's rights of setoff or banker's lien.
7.2 NONWAIVER. Any forbearance or failure or delay by Bank in
exercising any right, power or remedy hereunder shall not be deemed a waiver
thereof and any single or partial exercise of any right, power or remedy shall
not preclude the further exercise thereof. No waiver shall be effective unless
it is in writing and signed by an officer of Bank.
7.3 INUREMENT. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assignees of
Borrower, and any assignment by Borrower without Bank's consent shall be null
and void.
7.4 APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California.
7.5 SEVERABILITY. Should any one or more provisions of this Agreement
be determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
7.6 INTEGRATION CLAUSE. Except for documents and instruments
specifically referenced herein, this Agreement constitutes the entire agreement
between Bank and Borrower regarding the Loan and all prior communications
verbal or written between Borrower and Bank shall be of no further effect or
evidentiary value.
7.7 CONSTRUCTION. The section and subsection headings herein are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
7.8 AMENDMENTS. This Agreement may be amended only in writing signed
by all parties hereto.
7.9 COUNTERPARTS. Borrower and Bank may execute one or more
counterparts to this Agreement, each of which shall be deemed an original.
SECTION 8. SERVICE OF NOTICES
8.1 Any notices or other communications provided for or allowed
hereunder shall be effective only when given by one of the following methods
and addressed to the respective party at its address given with the signatures
at the end of this Agreement and shall be considered to have been validly
given: (a) upon delivery, if delivered personally; (b) upon receipt, if mailed,
first class postage prepaid, with the United States Postal Service; (c) on the
next business day, if sent by overnight courier service of recognized standing;
and (d) upon telephoned confirmation of receipt, if telecopied.
- 10 -
<PAGE> 14
8.2 The addresses to which notices or demands are to be given
may be changed from time to time by notice delivered as provided above.
THIS AGREEMENT is executed on behalf of the parties by duly authorized
officers as of the date first above written.
UNION BANK, A DIVISION OF UNION BANK OF CALIFORNIA, N.A.
By: /s/ Bruce Breslau By: /s/ [illegible]
-------------------------------- ------------------------------------
Title: Vice President Title: VP
----------------------------- ---------------------------------
Address: 530 "B" Street, 4th Floor
San Diego, California 92186-5324
Attention: Bruce Breslau, Vice President
Telecopier: (619) 230-3766
Telephone: (619) 230-3758
SAFESKIN CORPORATION
By: /s/ Richard Jaffe By: /s/ David Morash
----------------------------------- -----------------------------------
Title: CO-CEO Title: EVP-CFO
-------------------------------- --------------------------------
Address: 12671 High Bluff Drive, Building "B"
San Diego, California 92130
Attention: David Morash, Chief Financial Officer
Telecopier: (619) 350-2378
Telephone: (619) 794-8111
-11-
<PAGE> 15
[UNION BANK LOGO]
CERTIFIED COPY OF BORROWING RESOLUTION
- --------------------------------------------------------------------------------
UNION BANK OFFICE/ADDRESS
SAN DIEGO COMMERCIAL BANKING OFFICE
530 B STREET, SAN DIEGO, CA 92101
- --------------------------------------------------------------------------------
In completing this resolution, you must list in this opening paragraph the
names of the officers authorized to sign and you must insert the words "AND" or
"OR" after the title of each officer if there is more than one authorized
signer. Unless otherwise stated herein, use of the word "AND" will indicate
that two or more signatures are needed to execute documents and use of the word
"OR" will indicate that only one signature of two or more successive signers
will be required on documents.
- --------------------------------------------------------------------------------
NOW, THEREFORE, RESOLVED, that ONE Signature(s) required
/s/ Richard Jaffe Richard Jaffe CO-CEO
- ------------------------- ------------------------- ------------------------
Signature Name Title
/s/ David L. Morash David L. Morash EVP-CFO
- ------------------------- ------------------------- ------------------------
Signature Name Title
- ------------------------- ------------------------- ------------------------
Signature Name Title
- ------------------------- ------------------------- ------------------------
Signature Name Title
(hereafter sometimes referred to, whether one or more, as "said officers") of
SAFESKIN CORPORATION a corporation, are authorized to borrow from time to time,
in the name of and in behalf of this corporation, from UNION BANK such sums of
money as said officers deem expedient, from time to time to extend or renew any
such loan in whole or in part, to contract with said bank upon such terms and
conditions as it requires for the issuance of commercial letters of credit,
circular letters for the use of travelers and any other instruments of credit,
the aggregate principal indebtedness of this corporation with respect to such
transaction outstanding and unpaid at any one time not to exceed the sum of
FORTY MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100 dollars ($10,750,000.00);
and said officers are hereby authorized to execute in its corporate name the
note or notes of this corporation as evidence of each such loan and of any
extension or renewal thereof and to execute all contracts and other instruments
required by the bank in connection with any loan, each of which contracts, notes
and other instruments shall contain such terms and conditions as are agreed upon
by said officers and said bank. Including among others not specified in this
resolution provisions regulating or restricting the declaration and payment of
dividends by the corporation, the payment of indebtedness to officers,
shareholders, or other persons other than the bank, or other regulations or
restrictions of the same or different kinds, conditions as to default,
attorneys, fees, waivers of notice, and sale of securities.
"RESOLVED FURTHER that said officers are authorized to hypothecate or pledge
with and transfer and deliver to said bank as security for the payment of any
obligations so incurred such securities or other assets of this corporation as
are agreed upon by them and said bank and to execute in the name of the
corporation such agreements of hypothecation as they deem expedient and to
include in any such agreement such waivers of demand, notice of advertisement
and such other waivers and provisions as seem expedient to them, including
among others a provision that any such security may be held by said bank to
secure any other indebtedness, whether due or not due, owing to said bank from
this corporation.
"RESOLVED FURTHER that said officers may direct said bank orally or by written
instruction to disburse the proceeds of any loan made in the name of the
corporation to any person, partnership, corporation or other legal entity
without limit including to said officers personally.
"RESOLVED FURTHER that at any time said bank may apply any money or property in
its hands belonging to this corporation to the payment of any indebtedness of
this corporation to it, whether due or not due, and any agreement executed as
aforesaid may so provide.
"RESOLVED FURTHER that if two or more resolutions of this corporation
authorizing any of the transactions authorized by this resolution are
outstanding concurrently at any time the provisions thereof shall be deemed to
be cumulative.
"RESOLVED FURTHER that said officers are authorized in addition to any
obligation incurred under any of the preceding provisions of this resolution to
discount with said bank any notes, drafts, acceptances, bills of exchange, or
other evidence of debt owned by this corporation upon such terms as are agreed
upon by said bank and said officers and in the name of this corporation to
endorse such evidence of indebtedness so to be discounted by said bank and to
guarantee payment thereof to said bank.
"RESOLVED FURTHER that upon the execution by said officers of any instrument
authorized by this resolution such instrument shall be deemed to be executed by
this corporation whether or not the corporate seal of this corporation is
affixed thereto.
"RESOLVED FURTHER that all loans heretofore made by said officers in the name of
this corporation and all promissory notes and other documents executed by them
in connection therewith or to secure the same are hereby ratified and approved.
"RESOLVED FURTHER that said bank shall be able to rely on the incumbency of the
above-named officers until written notice is received at the above-captioned
office.
"RESOLVED FURTHER that this resolution shall remain in full force and effect
until written notice of its repeal has been received by said bank, at the
above-captioned office, such revocation, however, not to affect the validity of
any note or other instruments theretofore executed."
This is to certify that the foregoing is a true copy of a resolution duly
adopted by the directors of SAFESKIN CORPORATION, a corporation, at a meeting of
its board of directors duly held on May 15, 1996, and that said resolution is
in full force and effect.
This will further certify that the signatures indicated above are true
specimens of each captioned officer's signature.
Dated May 15, 1996 at San Diego , California.
------------------------- ------------------------
CITY
/s/ Richard Jaffe CO-CEO
---------------------------------------
as Secretary of
/s/ David L. Morash SAFESKIN CORPORATION
- ------------------------------------ ---------------------------------------
EVP-CFO
<PAGE> 16
[Union Bank logo]
AUTHORIZATION
- --------------------------------------------------------------------------------
Borrower Name SAFESKIN CORPORATION [Check]
Initial Loan
- --------------------------------------------------------------------------------
Borrower Address Office Loan Number
12671 HIGH BLUFF DR. 40061
BUILDING "B" ----------------------------------------
SAN DIEGO, CA 92130 Maturity Date Amount
July 15, 1996 $25,000,000.00
- --------------------------------------------------------------------------------
Union Bank ("Bank") is hereby authorized and instructed to disburse the
proceeds of that certain Note referenced above in the following manner:
Deposit the proceeds of my/our revolving note into my/our account
# from time to time and in such amounts as may be requested
verbally or in writing.
- --------------------------------------------------------------------------------
Fees itemized below are payable as follows (check one):
/ / Charge account # / / Check enclosed
---------------------
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS
- --------------------------------------------------------------------------------
1. Bank is authorized to charge account number _________________________ in
the name(s) of _____________________________________________________________
____________________________________________________________________________
for payments of interest (or principal/interest) when due in connection
with this Note and all renewals or extensions thereof.
2. Bank shall disburse proceeds in the amounts stated above in accordance with
the foregoing authorization or when Bank receives verbal or written
authorization from Borrower(s) to do so, or any one of the Borrowers, if
there are joint Borrowers, but not later than July 15, 1998. The Bank, at
its discretion, may elect to extend this date without notice to or
acknowledgement by the Borrower(s). This Authorization and the above
mentioned Note will remain in full force and effect until the obligations
in connection with this Note have been fulfilled.
3. Unless dated by Bank prior to execution, the Note shall be dated by Bank as
of the date on which Bank disburses proceeds.
4. Notwithstanding anything to the contrary herein, Bank reserves the right to
decline to advance the proceeds of the above described Note if there is a
filing as to the Borrower(s), or any of them of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act or any other
insolvency law; the issuance of any attachment, garnishment, execution or
levy of any asset of the Borrower(s), or any endorser or guarantor which
results in Bank deeming itself, in good faith insecure.
5. The borrower(s) authorizes Bank to release information concerning the
borrower(s) financial condition to suppliers, other creditors, credit
bureaus and other credit reporters; and also authorizes Bank to obtain such
information from any third party at any time.
The Borrower(s) by their execution of this Authorization accept the foregoing
terms, conditions and instructions.
Executed on May 15, 1996
---------------------------
SAFESKIN CORPORATION
By: /s/ Richard Jaffe CO-CEO
-------------------------------------- ------------------------------------
TITLE
By: /s/ David L. Morash EVP-CFO
-------------------------------------- ------------------------------------
TITLE
- ----------------------------------------- ------------------------------------
- ----------------------------------------- ------------------------------------
- ----------------------------------------- ------------------------------------
- ----------------------------------------- ------------------------------------
<PAGE> 1
EXHIBIT 10.38
July 24, 1996
Judy W. Grimes
Executive Vice President
Safeskin Corporation
12671 High Bluff Drive
San Diego, California 92130
Dear Judy:
This letter sets forth the offer by Safeskin Corporation ("Safeskin" or "the
Company") of special severance benefits in exchange for the release and
consideration described below. The terms of our offer, which will constitute an
agreement upon your acceptance (the "Agreement), are as follows:
1. Your current position as Executive Vice President will be
restructured to that of a non-employee consultant, as more fully described
below, effective as of August 1, 1996. You acknowledge and agree that after
August 1, 1996 (the "Severance Date"), you will not render any services or
perform any duties or responsibilities for Safeskin, except as may be requested
of you as a consultant pursuant to the terms of this Agreement.
2. (a) You acknowledge that your employment under the
Employment Agreement between you and the Company dated June 29, 1995 (the
"Employment Agreement") will terminate as of the Severance Date. You and the
Company hereby agree that except to the extent expressly set forth herein, the
Employment Agreement shall terminate, and all of the obligations of both parties
under the Employment Agreement shall terminate.
(b) Safeskin and you agree that you may advise any
prospective employer to address inquiries regarding you to Richard Jaffe, his
successor or his designee, who shall respond, on behalf of Safeskin, by
providing, either orally or in writing, the information provided in the
statement attached to this Agreement as Exhibit A. Safeskin shall instruct its
appropriate personnel to refer any request for a reference about you to Richard
Jaffe, his successor or his designee, for response in accordance with this
subparagraph 2(b). In addition, Safeskin shall place a memorandum in your
personnel files which details the foregoing instructions with a copy of Exhibit
A.
(c) Safeskin and you agree that Company shall release
the statement,
<PAGE> 2
Judy W. Grimes
July 24, 1996
Page 2
attached to this Agreement as Exhibit B-1, for both internal and external
announcement of your departure. Safeskin and you also agree that the statement
attached to this Agreement as Exhibit B-2 may be released to a limited number of
medical industry trade magazines that you and Safeskin jointly select.
(d) You shall have no duty to seek other employment
or to become self-employed, and there shall be no offset against amounts due you
on account of any remuneration attributable to any subsequent employment or
self-employment.
3. You acknowledge that prior to the Severance Date, Safeskin
had no obligation to provide you with severance benefits, other than those to
which you may have been entitled pursuant to Section 5.4 of the Employment
Agreement. However, as consideration for your agreement to the release and
covenant not to sue and the other covenants and conditions set forth in this
letter and contingent upon your adherence to all of your obligations under such
release and covenants, and in lieu of those severance benefits to which you may
have been entitled under Section 5.4 of the Employment Agreement, the following
will occur:
a. Safeskin will continue your salary from the
Severance Date through December 31, 1997 at your final salary
level of $270,000 per year, payable in installments at such
times as the Company customarily pays its senior level
executives (but in any event no less often than monthly).
Notwithstanding these payments, you will not be considered an
employee of Safeskin after the Severance Date.
b. Safeskin will provide you with health insurance
coverage under the Company's plan (to the extent permitted by
such plan) or will (if such coverage is not permitted) pay you
on a tax equivalent basis an amount equal to the cost of the
existing Company health insurance coverage of you and your
dependents from the Severance Date through December 31, 1997.
In the event that Safeskin elects to continue the Consultancy
Term (as hereinafter defined) through December 31, 1998 (which
election shall be made in writing to you on or prior to
December 1, 1997), Safeskin will continue such coverage or
payments through December 31, 1998. For purposes of COBRA
continuation, your termination date shall be deemed to be
December 31, 1997 or the end of the Consultancy Term, if
later.
c. Safeskin will pay to you the sum of $189,000 for
each of the calendar years 1996 and 1997, respectively
(representing the annual cash bonus provided for
<PAGE> 3
Judy W. Grimes
July 24, 1996
Page 3
in Section 1.7 of the Employment Agreement at the specified
1996 rate of 70 percent, and based on your final salary level
of $270,000). Such amounts will be paid to you not later than
annual cash bonus payments are made to the Company's senior
level executives generally.
d. The restrictions on 25, 000 of the Granted Shares
described in the Restricted Stock Grant Letter attached as
Annex 2 to the Employment Agreement will lapse on August 1,
1996. You shall forfeit all rights to the remaining 58,334
Granted Shares.
e. Options to purchase shares of Safeskin common
stock previously granted to you, which options are set forth
on Exhibit C hereto, will continue to vest on the dates and in
the amounts set forth on Exhibit C during 1996, 1997 and 1998
and any options not yet vested as of December 31, 1998 will
vest in full on December 31, 1998. All unexercised Safeskin
stock options held by you as of December 31, 1998 may be
exercised on or before January 4, 2000 and will thereupon
expire.
f. Safeskin will pay to you all amounts due for 1996
under the Company's special incremental incentive bonus plan
based upon the Company's final reported earnings per share for
1996, which plan is described on Exhibit D hereto, when, as
and if payments are earned by and made to the other plan
participants.
g. Safeskin shall offset against the final
installments of the payments made pursuant to Section 3(a)
hereof all unpaid expense advances previously made to you and
the unpaid balance (deemed to be $30,000) of your club
membership loan described on Annex 1 to the Employment
Agreement, in each case together with interest at rate of 7%
per annum. The Company shall reimburse you for all expenses
incurred by you prior to the Severance Date in the ordinary
cause of business subject to the Company's current expense
reimbursement policies with regard to the propriety of the
expense, documentation, etc. The Company shall also reimburse
you, consistent with its then current expense reimbursement
policies, for the expenses you incur while performing
consulting services for the Company during the Consultancy
Term (as hereinafter defined).
h. In the event of a Change in Control (as defined in
the Employment Agreement) of Safeskin prior to December 31,
1998, all remaining payments (if any)
<PAGE> 4
Judy W. Grimes
July 24, 1996
Page 4
and the economic equivalent of the benefits (if any) shall be
accelerated and paid in a lump sum, restrictions on the 25,000
Granted Shares referred to in subparagraph 3(d), above, shall
lapse (if not previously lapsed) and all currently outstanding
stock options not previously vested shall vest, subject to
reduction as described in Section 6.6 of the Employment
Agreement.
i. Safeskin shall provide you with the additional
benefits set forth on Exhibit E hereto for the time period
indicated on such Exhibit E.
4. In the event of your death prior to December 31, 1998, your
estate shall be entitled to receive all payments, stock rights and other
benefits which you would have been entitled to receive hereunder as of December
31, 1998. Notwithstanding the foregoing or the provisions of Section 3, you
shall not be entitled to receive any cash payments, option vesting, Granted
Shares or other benefits hereunder from and after any date on which you have
breached any of the provisions of the release set forth in paragraph 10 or the
covenants set forth in paragraphs 12, 13, 14 or 16 hereof, whether or not the
Company would be legally entitled to obtain specific performance of such release
or covenants.
5. You represent and warrant that on or before the close of
business on the Severance Date, you will return to Safeskin all personal
property of Safeskin, including any credit cards furnished to you by the Company
and all Confidential Information (as hereinafter defined) in your possession,
custody or control and whether recorded on paper, computer disk, other
computer-readable form, or any other medium. For the purposes of this paragraph,
Confidential Information shall not include your personal notes, personal
correspondence, diaries, rolodexes and other similar documents of a personal
nature.
6. You agree to serve the Company as a consultant according to
the terms of this paragraph. The term of consulting will be for a period
commencing on the Severance Date and continuing until December 31, 1997 (the
"Consultancy Term"). During the Consultancy Term, you will serve as a
non-employee consultant to the Company, and will perform services, including
without limitation, providing advice and information concerning the Company's
business, as requested and required by the Chairman of the Company and/or his
designee, from time to time, but limited to a maximum of five days per calendar
quarter, taking into account your other business and personal commitments,
unless you and the Chairman of the Company mutually agree to exceed the five-day
limit. For each eight hour work day that you render consulting services to the
Company pursuant to this paragraph, you will be paid $1,500 ($187.50 per hour).
The Company will provide you with an appropriate office for your use on the days
you are providing consulting services
<PAGE> 5
Judy W. Grimes
July 24, 1996
Page 5
hereunder to the extent reasonably necessary in order for you to provide such
services in an efficient manner.
7. You will respond to inquiries from Safeskin about any
matters concerning Safeskin or its affairs that occurred or arose during the
period of your employment by Safeskin or during the Consultancy Term, and you
will cooperate with Safeskin, taking into account your other business and
personal commitments, in investigating, prosecuting and defending any charges,
claims, demands, liabilities, causes of action, lawsuits and other proceedings
by, against or involving Safeskin relating to any period during which you were
employed by or serving as a consultant to Safeskin or relating to matters of
which you have knowledge or should have knowledge by virtue of your employment
by or consultancy for Safeskin, all for no additional compensation; provided
that complying with this paragraph does not require you to travel more than 100
miles from your residence or office at the time of compliance (whichever is more
distant), does not require you to devote more than eight consecutive hours or 24
hours in a calendar month, and does not cause your employment at the time of
compliance to be placed in jeopardy. Safeskin will reimburse you for all
reasonable expenses you incur in complying with this paragraph in accordance
with Safeskin's employee business expense approval procedures then in effect.
8. You represent and warrant that you have disclosed to
Safeskin all contracts, understandings, agreements, proposals, offers and bids
to which Safeskin may be a party or by which it may be bound or affected or
which have been made for the benefit of Safeskin or which may have obligated
Safeskin in any way, whether oral or written, including, without limitation,
employment agreements, of which you have knowledge.
9. The Company will indemnify and defend you from any claim,
demand, action or cause of action asserted against you arising with the scope of
your employment with the Company to the same extent as for any former officer.
The Company will also continue your coverage under the directors' and officers'
liability insurance policy to the extent the Company provides such coverage for
its former officers and directors.
10. (a) As consideration for the payments and agreements
described above, you hereby release, agree not to sue, and agree not to bring
suit with or on behalf of another against Safeskin and its predecessor,
subsidiary, affiliated and successor corporations and business entities, past,
present and future, and their directors, officers, shareholders, employees,
executives and agents, past, present and future, and their heirs, executors,
administrators, and assigns, with respect to any and all claims, demands,
liabilities, actions, causes of action, suits, debts, charges, complaints,
obligations, promises, agreements, controversies, damages and expenses
(including attorneys' fees
<PAGE> 6
Judy W. Grimes
July 24, 1996
Page 6
and costs actually incurred) arising out of facts which occurred prior to the
execution of this Agreement, including but not limited to any claims arising
from or in connection with your employment relationship with Safeskin, the
termination of that relationship or the termination of the Employment Agreement,
including claims arising from any alleged violation of any federal, state, or
local statutes, ordinances or common law (including but not limited to Title VII
of the Civil Rights Act of 1964, as amended, the Age Discrimination in
Employment Act, and the Americans with Disabilities Act) provided, however, that
this release does not affect (i) any vested right you may have under an employee
benefit plan; (ii) any rights you may have to indemnification under the articles
of incorporation or bylaws of the Company or under any agreement of the Company,
including under this Agreement; or (iii) any right you may have to obtain
contribution in the event of the entry of judgment against you as a result of
any act or failure to act for which you and the Company are jointly responsible.
In the event you, or any person, firm or entity with your consent and on your
behalf, files, sues or causes or permits to be filed, any action seeking
damages, injunctive, declaratory, monetary or other relief, despite your
agreement not to do so hereunder, you agree to pay to Safeskin, regardless of
the outcome of such action, as liquidated damages: one-half of all salary and
bonus payments made to you pursuant to paragraph 3 of this Agreement.
(b) As consideration for your release and other
covenants herein, Safeskin and its predecessor, subsidiary, affiliated and
successor corporations and business entities, past, present and future, hereby
release, agrees not to sue and agree not to bring suit with or on behalf of
another against you with respect to any and all claims, demands, liabilities,
actions, causes of action, suits, debts, charges, complaints, obligations, and
expenses (including attorneys' fees and costs actually incurred) arising out of
facts which occurred prior to the execution of this Agreement, provided,
however, that this release does not affect any rights the Company has under this
Agreement and does not apply to any criminal conduct or acts outside the scope
of your employment.
11. For the purpose of implementing a full and complete
release and discharge of claims, you and the Company expressly acknowledge that
this Agreement is intended to include in its effect, without limitation, all the
claims described in the preceding paragraphs, whether known or unknown,
suspected or unsuspected, and that this Agreement contemplates the extinction of
all such claims, including claims for attorney's fees. You and the Company
expressly waive any right to assert after the execution of this Agreement that
any such claim, demand, obligation, or cause of action has, through ignorance or
oversight, been omitted from the scope of the Agreement. YOU AND THE COMPANY
EXPRESSLY WAIVE ANY AND ALL RIGHTS AND BENEFITS CONFERRED UPON YOU BY THE
PROVISIONS OF SECTION 1542 OF THE CALIFORNIA CIVIL CODE (OR ANY SIMILAR
PROVISION UNDER FLORIDA LAW) WHICH PROVIDES AS FOLLOWS:
<PAGE> 7
Judy W. Grimes
July 24, 1996
Page 7
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
12. You will not disclose to any person, including, but not
limited to, any former, current, or prospective employee of Safeskin, its
affiliates, and its subsidiaries, the existence or terms of this Agreement;
provided, however, that you may discuss and disclose it to your attorney, your
spouse, and your financial adviser, and you may disclose such aspects of the
Agreement as may be required to be disclosed by court order, by the proper
inquiry of a state or Federal governmental agency, or by a subpoena to testify
issued by a court of competent jurisdiction, in any of which events, you agree
to respond truthfully to all questions asked of you.
13. You acknowledge that by reason of your employment by and
service to the Company before the Severance Date, and during the Consultancy
Term, you have had and will continue to have access to certain confidential and
proprietary information relating to the Company's business, which may include,
but is not limited to, trade secrets, trade "know-how," manufacturing processes
and production methods, product development techniques and plans, formulas,
customer lists and addresses, supplier information, cost and pricing
information, marketing and sales techniques, strategy and programs, computer
programs and software and financial information (collectively referred to as
"Confidential Information"). You acknowledge that such Confidential Information
is a valuable and unique asset of the Company and you covenant that you will
not, unless expressly authorized in writing by the Company, use the Confidential
Information or divulge or disclose any Confidential Information to any person,
firm or corporation except in connection with the performance of your consulting
duties for the Company and in a manner consistent with the Company's policies
regarding Confidential Information. You also covenant that at any time after the
date hereof, you will not use any Confidential Information or divulge or
disclose any Confidential Information to any person, firm or corporation, unless
such information is in the public domain through no fault of yours or except
when required to do so by a court of law, by any governmental agency having
supervisory authority over the business of the Company or by any administrative
or legislative body (including a committee thereof) with apparent jurisdiction
to order you to divulge, disclose or make accessible such information. All
written Confidential Information (including, without limitation, in any computer
or other electronic format) which comes into your possession during the
Consultancy Term shall remain the property of the Company. Except as required in
the performance of your consulting duties for the Company, or unless expressly
authorized in writing by the Company, you will not remove any written
Confidential Information from the Company's premises and then only in a manner
consistent with the Company's policies
<PAGE> 8
Judy W. Grimes
July 24, 1996
Page 8
regarding Confidential Information. You agree to return, on or before August 1,
1996, all Confidential Information in your possession and to return at the
conclusion of the Consultancy Term all Confidential Information provided to or
obtained by you during the Consultancy Term.
14. (a) During the period beginning on the date hereof and
ending on the later of December 31, 1998 or one year after the Consultancy Term
has ended, you will not, except with the prior written consent of the Company's
Board of Directors, directly or indirectly, anywhere in North America or Europe,
own, manage, operate, join, control, finance or participate in the ownership,
management, operation, control or financing of, or be connected as an officer,
director, employee, partner, principal, agent, representative, consultant or
otherwise with, or use or permit your name to be used in connection with, any
business or enterprise (a "Competitor") which generates, directly or indirectly,
for itself or others more than $10.0 million in annual revenues from the design,
engineering, manufacture, marketing or sale of latex gloves or more than $10.0
million in annual revenues from the design, engineering, manufacture, marketing
or sale of any other product designed, engineered, manufactured, marketed or
sold by the Company during your employment by the Company or the Consultancy
Term; provided, however, that if you are employed by or are a consultant to a
subsidiary, division or other affiliate of a Competitor (the "Affiliate") and
the Affiliate is not itself engaged either in the latex glove business or in any
other business engaged in by the Company during your employment by the Company
or the Consultancy Term, such employment or consultation shall not be in
violation of this paragraph so long as your duties and responsibilities with
respect to such employment or consultation are limited solely to the business of
the Affiliate.
(b) The foregoing restrictions shall not be construed
to prohibit the ownership by you of less than one percent (1%) of any class of
securities of any corporation which is engaged in any of the foregoing
businesses having a class of securities registered pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act"), provided that such ownership
represents a passive investment and that neither you nor any group of persons
including you in any way, either directly or indirectly, manages or exercises
control of any such corporation, guarantees any of its financial obligations,
otherwise takes any part in its business, other than exercising your rights as a
shareholder, or seeks to do any of the foregoing.
(c) You further covenant and agree that during the
period beginning on the date hereof and ending on the later of December 31, 1998
or one year after the Consultancy Term has ended, you will not, directly or
indirectly, (i) solicit, divert, take away, or attempt to solicit, divert or
take away, any of the Company's Principal Customers (defined herein to include
General Medical Corporation, Owens & Minor, Durr Medical, Fisher Scientific and
Professional Hospital
<PAGE> 9
Judy W. Grimes
July 24, 1996
Page 9
Supply) or (ii) encourage any Principal Customer to reduce its patronage of the
Company.
(d) Without limiting the generality of the foregoing,
you agree that during the period beginning on the date hereof and ending on
December 31, 1998, you will not, directly or indirectly, solicit any Principal
Customer to purchase from any other person, firm or entity any latex gloves or
any other products of a type generally similar to or competitive with products
designed engineered, manufactured, or sold by the Company during the period of
your employment by the Company or during the Consultancy Term.
(e) You further covenant and agree that during the
period beginning on the date hereof and ending on the later of December 31, 1999
or one year after the Consultancy Term has ended, you will not, directly or
indirectly, solicit or hire, or encourage the solicitation or hiring of, (x) any
person who was an employee of the Company at any time during the such period (y)
by any employer other than the Company (z) for any position as an employee,
independent contractor, consultant or otherwise. Clause (x) of the foregoing
covenant shall not apply to an person after a period of twelve months has
elapsed subsequent to the date on which such person's employment by the Company
has terminated.
15. (a) You acknowledge and agree that the restrictions
contained in paragraphs 13, 14 or 16 are reasonable and necessary to protect and
preserve the legitimate interests, properties, goodwill and business of the
Company and its affiliates, that the Company would not have entered into this
Agreement in the absence of such restrictions and that irreparable injury will
be suffered by the Company should you breach any of the provisions of those
paragraphs. You represent and acknowledge that (i) you have been advised by the
Company to consult your own legal counsel in respect of this Agreement, and (ii)
that you have had full opportunity, prior to execution of this Agreement, to
review it thoroughly with your counsel.
(b) You further acknowledge and agree that a breach
of any of the restrictions in paragraphs 13, 14 or 16 cannot be adequately
compensated by monetary damages. You agree that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of paragraphs 13, 14 or 16 hereof,
which rights shall be cumulative and in addition to any other rights or remedies
to which the Company may be entitled. In the event that any of the provisions of
paragraphs 13, 14 or 16 hereof should ever be adjudicated to exceed the time,
geographic, service, or other imitations permitted by applicable law in any
jurisdiction, it is the intention of the parties that the provision shall be
amended to the extent of the maximum time, geographic, service, or other
limitations permitted by applicable law, that such
<PAGE> 10
Judy W. Grimes
July 24, 1996
Page 10
amendment shall apply only within the jurisdiction of the court that made such
adjudication and that the provision be enforced to the maximum extent permitted
by law.
(c) You irrevocably and unconditionally (i) agree
that any suit, action or other legal proceeding arising out of paragraphs 13, 14
or 16 hereof commenced by the Company for preliminary or permanent injunctive
relief or other equitable relief, may be brought in the United States District
Court for the Southern District of California, or if such court does not have
jurisdiction or will not accept jurisdiction, in any court of general
jurisdiction in San Diego County, California, (ii) consent to the non-exclusive
jurisdiction of any such court in any such suit, action or proceeding, and (iii)
waives any objection which you may have to the laying of venue of any such suit,
action or proceeding in any such court. You also irrevocably and unconditionally
consent to the service of an process, pleadings, notices or other papers in a
manner permitted by the notice provisions of paragraph 19 hereof.
(d) You agree that during the period ending on the
later of December 31, 1999 or one year after the Consultancy Term has ended, you
will provide, and that the Company may similarly provide, a copy of the relevant
provisions of paragraphs 13, 14 or 16 hereof to any business or enterprise (i)
which you may directly or indirectly own, manage, operate, finance, join,
control or participate in the ownership, management, operation, financing,
control or control of, or (ii) with which you may be connected with as an
officer, director, employee, partner, principal, agent, representative,
consultant or otherwise, or in connection with which you may use or permit your
name to be used.
16. You and Safeskin each agree that you or it shall not
(except as required by law) directly or indirectly make any statement or release
any information, or encourage others to make any statement or release any
information that is designed to embarrass, disparage or criticize the other (or
any of their respective affiliates or associates), provided that it shall not be
a violation of this Paragraph 16 for either you or Safeskin to make truthful
statements when required to do so by a court of law, by any governmental agency
having supervisory authority over the business of Safeskin or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order you or it to divulge, disclose or make accessible such
information.
17. Neither the fact that this offer was made or Agreement
entered, nor any provision of this Agreement, shall be construed as an admission
of any wrongdoing of any kind by Safeskin.
18. Except as provided in Paragraph 15 above, any dispute or
controversy arising
<PAGE> 11
Judy W. Grimes
July 24, 1996
Page 11
from or relating to this Agreement shall be decided by arbitration in accordance
with the commercial arbitration rules of the American Arbitration Association
before a panel of three arbitrators, two of whom shall be selected by the
Company and you, respectively, and the third of whom shall be selected by the
other two arbitrators. Any award entered by the arbitrators shall be final,
binding and nonappealable and judgment may be entered thereon by either party in
accordance with applicable law in any court of competent jurisdiction. This
arbitration provision shall be specifically enforceable. Each party shall be
responsible for her or its own share of the fees of the American Arbitration
Association and the arbitrators and any expenses relating to the conduct of the
arbitration (including attorneys' fees and expenses). At the request of either
you or Safeskin, arbitration proceedings shall be conducted in the utmost
secrecy, and, in such case, all documents, testimony and records shall be
received, heard and maintained by Safeskin or by you and by our respective
attorneys and experts who shall agree, in advance and in writing, to receive all
such information confidentially and to maintain the secrecy of such information
until such information shall become generally known.
19. All notices and other communications required or permitted
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be deemed to have been given when hand delivered or mailed by
registered or certified mail, as follows (provided that notice of change of
address shall be deemed given only when received):
If to the Company, to:
Safeskin Corporation
12671 High Bluff Drive
San Diego, CA 92130
Attention: Richard Jaffe, Chairman, President
and Chief Executive Officer
With a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
Attention: Howard L. Shecter, Esquire
<PAGE> 12
Judy W. Grimes
July 24, 1996
Page 12
If to you, to:
Judy W. Grimes
3901 Stonebridge Lane
Rancho Santa Fe, CA 92067
With a required copy to:
Law Offices of Joseph E. Bachelder
780 Third Avenue
New York, NY 10017
Attention: Sara Champion Kinsey, Esquire
or to such other names or addresses as the Company or you, as the case may be,
shall designate by notice to each other person entitled to receive notices in
the manner specified in this paragraph.
20. If any provision of this Agreement is declared or
determined by any court to be illegal or invalid, validity of the remaining
parts, terms or provisions shall not be affected thereby and said illegal or
invalid part, term or provision shall be deemed not to be a part of this
Agreement.
21. This Agreement sets forth the entire agreement between the
parties hereto, and fully supersedes any and all prior agreements or
understandings between the parties hereto pertaining to the subject matter
hereof.
22. This Agreement shall be construed and enforced in
accordance with the laws of the State of Florida without reference to conflicts
of laws principles or provisions.
This Agreement may be accepted by dating and signing below, and returning to the
undersigned at the address provided in paragraph 19 above.
Sincerely,
Richard Jaffe
Chairman, President
and Chief Executive Officer
<PAGE> 13
Judy W. Grimes
July 24, 1996
Page 13
I expressly acknowledge that I enter this Agreement knowingly and voluntarily,
without any coercion or duress, and that I have had an adequate opportunity to
review this letter and to consult my attorney regarding it. I understand the
contents of this letter, and I agree to all of its terms and conditions.
Date: ________________ __________________________________
Judy W. Grimes
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED JUNE 30, FOR SIX MONTHS ENDED JUNE 30,
PRIMARY: 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income ........... $ 6,188,290 $ 3,135,247 $11,638,674 $ 6,232,216
=========== =========== =========== ===========
Weighted average
number of shares of
common stock
outstanding ......... 12,697,290 12,360,531 12,697,290 12,360,531
Net effect of dilutive
stock options -- based
on the treasury stock
method using average
market price.......... 1,231,126 212,891 853,215 227,995
----------- ----------- ----------- -----------
market price
Total weighted average
number of shares of
common stock and
common stock equivalents
outstanding .......... 13,928,416 12,573,422 13,550,505 12,588,526
=========== =========== =========== ===========
Net income per common
share ............... $ 0.44 $ 0.25 $0.86 $ 0.50
<CAPTION>
FULLY DILUTED: 1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income ........... $ 6,188,290 $ 3,135,247 $11,638,674 $ 6,232,216
=========== =========== =========== ===========
Weighted average
number of shares of
common stock
outstanding........... 12,697,290 12,360,531 12,697,290 12,360,531
Net effect of dilutive
stock options -- based
on the treasury stock
method using the
greater of the average
or quarter-end market
price................ 1,404,726 212,891 1,220,382 227,995
----------- ----------- ----------- ----------
Total weighted average
number of shares of
common stock and
common stock
equivalents
outstanding........... 14,102,016 12,573,422 13,917,672 12,588,526
=========== =========== =========== ===========
Net income per common
share ............... $ 0.44 $ 0.25 $ 0.84 $ 0.50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,417,982
<SECURITIES> 0
<RECEIVABLES> 18,652,179
<ALLOWANCES> 0
<INVENTORY> 22,947,472
<CURRENT-ASSETS> 47,712,179
<PP&E> 49,109,872
<DEPRECIATION> 0
<TOTAL-ASSETS> 98,426,398
<CURRENT-LIABILITIES> 11,738,844
<BONDS> 0
0
0
<COMMON> 129,021
<OTHER-SE> 86,558,533
<TOTAL-LIABILITY-AND-EQUITY> 98,426,398
<SALES> 69,041,527
<TOTAL-REVENUES> 69,041,527
<CGS> 41,553,564
<TOTAL-COSTS> 41,553,564
<OTHER-EXPENSES> 877,831
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,474
<INCOME-PRETAX> 13,550,641
<INCOME-TAX> 1,911,967
<INCOME-CONTINUING> 11,638,674
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,638,674
<EPS-PRIMARY> .86
<EPS-DILUTED> .84
</TABLE>
