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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended, January 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934 (No fee required)
For the transition period from _____________ to ______________
Commission File Number: 0 - 15535
LAKELAND INDUSTRIES, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3115216
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(State of Incorporation) (I.R.S. Employer
Identification Number)
711-2 Koehler Ave., Ronkonkoma, NY 11779
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(Address of Principal Executive Offices, Including Zip Code)
(516) 981-9700
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 Par Value
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(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K _____.
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 ____
The aggregate market value of the Common Stock outstanding and held by
nonaffiliates (as defined in Rule 405 under the Securities Exchange Act of 1934)
of the Registrant, based upon the average high and low bid price of the Common
Stock on NASDAQ on April 18, 1997 was approximately $4,856,728 (based on
1,494,378 shares held by nonaffiliates).
The number of shares outstanding of the Registrant's common stock, $.01
par value, on April 25, 1997 was 2,550,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
January 31, 1997 are incorporated by reference in Items 5-7 of Part II and
certain portions of the Registrant's Definitive Proxy Statement, for the Annual
Meeting of Stockholders to be held June 18, 1997, are incorporated by reference
in Items 10-13 of Part III of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
Lakeland Industries, Inc. (the"Company") is a company with six
divisions and three wholly-owned subsidiaries: One large division of the Company
manufactures disposable / limited use garments domestically and via offshore
manufacturing operations and its four smaller divisions, Chemland ("Chemland"),
manufactures suits for use by toxic waste clean up teams; Fireland ("Fireland")
d/b/a Fyrepel Products, manufactures fire and heat protective apparel and
protective systems for personnel; Highland ("Highland"), manufacturers specialty
safety and industrial work gloves and Uniland ("Uniland"), manufactures
industrial and medical woven cloth garments. A predecessor corporation of the
Company was incorporated in New York in April 1982. In September 1986, the
Company completed its initial public offering for 950,000 shares of common stock
at $6.75 per share. The Company formed two new subsidiaries in December 1986,
Chemland and Fireland (both Delaware corporations), which purchased the assets
and certain liabilities of Siena Industries, Inc. and Fyrepel Products, Inc.,
respectively, both located in Ohio. Chemland, Fireland, Highland and Uniland
were all formerly wholly-owned subsidiaries of the Company. Highland was merged
into the Company on June 30, 1993 and Chemland, Fireland and Uniland were merged
into the Company on August 31, 1993. A new subsidiary Fireland Industries, Inc.
was formed during fiscal 1994 to hold the land and building currently owned in
Ohio and act as Trustee and Sponsor of the Fireland Industries, Inc. Pension
Plan.
During fiscal 1988, the Company formed two new subsidiaries, Highland
(a Delaware corporation) which opened an office and warehouse in Edison, New
Jersey and Mayer (a Delaware corporation), formed to purchase the assets of
Walter H. Mayer & Co., located in Chicago, Illinois. Later that year, a
subsidiary, Uniland (an Arkansas corporation), opened a 30,000 square foot
manufacturing facility in St. Joseph, Missouri.
During fiscal 1989, a former subsidiary, Triland Mfg.Co., Inc.
("Triland", a New Jersey corporation), was merged into Highland on January 31,
1989. Highland's warehousing and manufacturing were relocated to Alabama (from
New Jersey) while the administrative operations were absorbed by the Company in
New York. Uniland's Arkansas facility was relocated to the larger facility in
St. Joseph, Missouri.
During fiscal 1990, Chemland moved its small chemical suit
manufacturing facility in Coshocton, Ohio to Somerville, Alabama and opened a
larger facility in Coshocton to replace the firecoat manufacturing previously
done in St. Joseph, Missouri. A former subsidiary Ryland Mfg., Inc. ("Ryland",
an Alabama corporation) was merged into the Company as of January 31, 1990 to
eliminate duplication of record keeping.
During fiscal 1991, Chemland closed its Coshocton, Ohio facility due to
manufacturing inefficiencies and Uniland was reorganized as a Delaware
corporation. On December 11, 1990, the Company's subsidiary, Mayer, sold
substantially all of the operating assets of its health care and hospitality
divisions to a private investor group located in Charlotte, North Carolina.
Pursuant to the terms of the Asset Purchase Agreement, Mayer's name was changed
to Oakdale Distribution Company, Inc. Oakdale Distribution Company, Inc. was
later merged into the Company on January 31, 1992. Cash proceeds received at
closing were utilized to pay down bank indebtedness of the Company under a
revolving credit facility.
During fiscal 1993, in-house manufacturing was phased out at Fireland's
Ohio facility. Additionally, Highland relocated from the Decatur, Alabama plant
to share space with Chemland which has a larger facility in Somerville, Alabama.
During fiscal 1994, the Company entered into a new, $5 million,
secured, two year revolving credit agreement with a bank replacing a $3.4
million line which was due to expire in November 1993.
During fiscal 1995, (December 1994) Lakeland Protective Wear Inc. was
formed and opened an office with warehouse facilities in Burlington, Ontario to
serve the Canadian market. A sales office was opened in March 1997 in Montreal,
Quebec. The company markets and sells all the products manufactured by the
Lakeland group of companies through a network of safety and industrial
distributors including two national distributors. With sales of $1.5 million in
fiscal 1997, it is expected that market penetration and share will continue to
grow. As the NAFTA trade agreement continues to reduce duties and tariffs, the
trade borders will be eliminated January 1, 1998 and will offer the possibility
of this facility to also service the Northeast U.S. market.
During fiscal 1996 (November 1995) Lakeland de Mexico S.A. de C.V. was
formed, as a wholly owned subsidiary, to assemble disposable/limited use
garments on a contract basis. The Company also entered into a new $8 million,
secured, three year revolving credit agreement with its Bank, to replace its
existing loan facility which was about to expire.
During fiscal 1997, the Company began using offshore production to
assist in the manufacture of certain disposable/limited use protective garments.
During the fourth quarter, the Company relocated its woven cloth manufacturing
facility to a larger facility remaining in St. Joseph, Missouri.
Background and Market
The market for disposable industrial garments has increased
substantially in the past 20 years. In 1970, Congress enacted the
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Occupational Safety and Health Act ("OSHA"), which requires employers to supply
protective clothing in certain work environments. At about the same time, DuPont
developed Tyvek TM which, for the first time, allowed for the economical
production of lightweight, disposable protective clothing. The attraction of
disposable garments grew in the late 1970's with the increases in both labor and
material costs of producing cloth garments and the promulgation of federal,
state and local regulations requiring that employees wear protective clothing to
protect against exposure to certain contaminants, such as asbestos and P.C.B.s.
During the second half of 1989, polypropylene materials became a major
competitor to Tyvek TM.
Beginning in the second quarter of fiscal 1990 the Company encountered
erosions in margins in its disposable garment business due to a movement by
asbestos removal contractors away from Tyvek TM materials to polypropylene
materials and concomitant pricing pressures in the industry as a whole. The
industry pricing pressures, most intense during the fourth quarter of fiscal
1990, continued through fiscal 1991. While the Company was able to maintain its
sales volume at a level comparable to fiscal 1989, a substantial portion of
fiscal 1990 and 1991 sales were of polypropylene garments in lieu of Tyvek TM
garments; resulting in reduced gross profit margins. During fiscal 1991, the
Company attempted to increase selling prices; however, these new selling prices
were still below those of prior years. During fiscal 1992, the erosion in gross
margins began to stabilize. However, competition and recessionary economic
conditions adversely affected sales volume, especially during the second half of
fiscal 1992 and into fiscal 1993 and 1994.
The use of disposable garments avoids the continuing costs of
laundering and decontaminating woven cloth work garments and reduces the
overhead costs associated with handling, transporting and replacing such
garments. As manufacturers have become aware of the advantages of disposable
clothing, the demand for such garments has increased. This has allowed for
greater production volume and, in turn, has reduced the cost of manufacturing
disposable industrial garments.
With the acquisition of the assets and certain liabilities of Fyrepel
Products, Inc., the Company entered, via Fireland, into the field of
manufacturing and selling fire and heat protective garments. Fyrepel Products,
Inc. conducted business in this field for 40 years, and the Company acquired its
assets as well as the right to use its trade name. During fiscal 1992, the
Company re-evaluated the product lines manufactured at this facility in order to
reduce the operating losses that occurred in prior fiscal years. Orders that
would not assure an acceptable return were not booked, causing a decrease in
overall sales, but an improved bottom line. A new management team was in place
at this facility to initiate a turn around. In December 1991, it was determined
that even with the efforts of this new team it was apparent that the Ohio
facility would be negatively affected by union related problems. The Company
continued to market Fyrepel's product line and furnishes these products
utilizing domestic or international independent manufacturing contractors while
internal manufacturing was phased out.
Chemland was formed in December 1986 to purchase the assets and certain
liabilities of Siena Industries, Inc. Chemland manufactures protective garments
for use in hazardous chemical environments. All of its products are sold through
the Company's distributor network. The Company believes that this market will
grow due to the extensive government legislation which mandates the clean up of
toxic waste sites and the elimination of hazardous materials from the
environment. The Environmental Protection Agency ("EPA") designated OSHA to be
responsible for the health and safety of workers in and around areas of
hazardous materials and contaminated waste. OSHA responded by formulating an all
encompassing compendium of safety regulations that prescribe operating standards
for all aspects of OSHA projects. Almost 2 million people are affected by OSHA
Standards today.
In 1990, additional standards proposed and developed by the National
Fire Protection Association ("NFPA") and the American Society for Testing and
Materials ("ASTM") were accepted by OSHA. NFPA Standard 1991 set performance
requirements for total-encapsulating vapor-proof chemical suits and includes
rigid chemical and flame resistance tests and a permeability test against 17
challenge chemicals. The basic OSHA Standards call for 4 levels of protection, A
through D, and specific in detail the equipment and clothing required to
adequately protect the wearer at corresponding danger levels. A summary of these
four levels follows:
NFPA 1991 / Level A calls for total encapsulation in a vapor-proof
chemical suit with self-contained breathing apparatus ("SCBA") and
appropriate accessories.
Level B calls for SCBA or positive pressure supplied respirator with
escape SCBA, plus hooded chemical resistant clothing (overalls, and
long sleeved jacket; coveralls; one or two piece chemical-splash suit;
or disposable chemical-resistant overalls).
Level C requires hooded chemical-resistant clothing (overalls;
two-piece chemical-splash suit; disposable chemical-resistant
overalls).
Level D is basically a work and/or training situation requiring minimal
coverall protection.
Highland, formed in 1987, was organized for the importation of high
quality work gloves for sale primarily in retail outlets. Since another then
subsidiary of the Company, Triland, was a manufacturer of industrial gloves,
management combined the two operations as a cost saving measure. This merger was
completed on January 31, 1989 and during fiscal 1990, the Company phased out the
importation of retail gloves, concentrating solely on the manufacture of Kevlar
TM and other industrial safety gloves.
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Products
General
Prior to acquiring Fyrepel Products, Inc. and Siena Industries, Inc. in
December 1986, the Company's product line consisted principally of two product
groups: disposable / limited use protective industrial garments and specialty
safety and industrial work gloves. With the formation of Fireland and Chemland,
the Company entered the field of fire, heat and chemical protective garments.
The Company also manufactures and sells gloves made from Kevlar TM and
Spectra TM, both high-strength fibers. These gloves provide the wearer with a
high degree of protection against cuts and lacerations in a glove that is both
lightweight and flexible. The Company anticipates strong demand for these gloves
in the manufacturing and food service industries.
Disposable / Limited Use Garments
The Company manufactures a complete line of limited use protective
garments. These garments are offered in coveralls, lab-coats, shirts, pants,
hoods, aprons, sleeves and smocks. The Company offers these garments in a number
of sizes and styles to fit the end users' needs. Limited-use garments can also
be coated or laminated to increase splash protection against many inorganic
acids, bases, and other liquid chemicals. Limited use garments are made from
several non-woven fabrics including Tyvek (TM), Tyvek(R)QC, Tyvek/Saranex 23- P,
Tychem 7500, Barricade, Tychem 9400, Tychem 10,000, Pyrolon FR, and
Polypropylene materials and derivatives.
The Company incorporates many seaming techniques depending on the level
of hold-out needed in the end use application. Seam types utilized include
standard serge seam, bound seam, and heat sealed seam.
During fiscal 1995, the Company continued to market the Pyrolon(TM)
flame retardant garments. Pyrolon garments meet the stringent requirements of
NFPA 701. This material offers multiple benefits; replacing traditional bulky
layers of clothing, reducing overall weight and reducing both inventory and
storage and replacement costs.
The Company's limited use garments range in price from $.50 for limited
use shoe covers to approximately $12.00 for Tyvek/Saranex 23-P laminated hood
and booted coverall. The Company's largest selling item, a standard white
limited-use Tyvek coverall, costs the end user approximately $2.75 to $3.25 per
garment. By comparison, similar re-usable cloth coveralls range in price from
$10.00 to $35.00, exclusive of significant laundering and maintenance expenses.
Industrial and Medical Cloth Garments
The Company also manufactures and markets a line of reusable and
launderable woven cloth protective apparel which supplement the disposable /
limited use garments, giving the Company access to the broader industrial and
health care related markets. Cloth re-usable garments are more appropriate in
certain situations because of their heavier weight and greater durability which
gives the Company the flexibility to supply and satisfy a wider range of safety
and customer needs. The Company also designs and manufactures:
o special apparel for the auto industry's paint systems,
o hospital garments for protection against blood borne
pathogens,
o clean room apparel as used in the most sophisticated
semiconductor manufacturing facilities, and
o jackets and bib overalls for use by emergency medical teams
around the country.
Safety and Industrial Gloves
The Company manufactures and sells specialty safety gloves and sleeves
made from Kevlar TM. The Company is one of four companies licensed to sell 100%
Kevlar TM gloves. Kevlar TM is a cut and heat resistant, high-strength,
lightweight, flexible and durable material produced by DuPont. Kevlar TM, on an
equivalent weight basis, is five times stronger than steel and has increasingly
been used in manufacturing such diverse products as airplane fuselage components
and bullet-resistant vests.
Gloves made of Kevlar TM offer a better overall level of protection,
lower the injury rate and are more cost effective than work gloves made from
such traditional material as leather, canvas and coated gloves. Kevlar TM gloves
can withstand temperatures of up to 400 degrees F and are sufficiently
cut-resistant to allow workers to safely handle sharp or jagged unfinished sheet
metal. Kevlar TM gloves are used primarily in the automotive and metal
fabrication industries.
The Company also markets approximately 30 different types of commodity
industrial work gloves to a small extent made from such materials as cotton,
polyester, terry cloth and nylon. Sales of these commodity gloves are used to
augment the Company's product line.
Kevlar TM gloves and sleeves represent a large portion of the Company's
glove production and therefore a majority of the Company's dollar volume of
glove and sleeve sales. The Company has been manufacturing and selling knit
gloves and sleeves made of Spectra TM since 1989. The Company expects the
continued demand for these gloves to increase as users become familiar with the
cut resistance and versatility of these gloves. New markets are continuously
being explored for these gloves whose sales account for less than 10% of the
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Company' dollar volume of glove and sleeve sales.
The Company phased out its importation of gloves for distribution into
retail sales channels during 1989 to concentrate on the more profitable
manufactured gloves. The Company is devoting an increasing portion of its
manufacturing capacity to the production of Kevlar TM and Spectra TM gloves,
which carry a higher profit margin than commodity gloves. In order to maintain a
full line of gloves, however, the Company intends to continue to produce
commodity gloves and to import such additional commodity gloves as are necessary
to meet demand for its glove products. The Company believes that there are
adequate and reliable foreign manufacturers available to meet the Company's
import requirements of commodity gloves, if needed.
Fire and Heat Protective Apparel and Protective Systems for Personnel
The Company's products protect individuals that must work in hostile
environments and the Company has been the creator, innovator and inventor of
protective systems for hazardous occupations for the last 12 years. The brand
name FYREPEL TM is recognized nationally and internationally. The Company has
completed an intensive redesign and engineering study to address the ergonomic
needs of stressful occupations. The Company's products include:
Fire entry suit - for total flame entry for industries dealing with volatile and
highly flammable products.
Kiln Entry suit - to protect kiln maintenance workers from extreme heat.
Proximity suits - designed for performance in high heat areas to give protection
where exposure to hot liquids, steam or hot vapors is
possible.
Approach suits - for personnel engaged in maintenance, repair and operational
tasks where temperatures do not exceed 200F degrees ambient,
with a radiant heat exposure up to 2,000F degrees.
The Company also manufactures Fire Fighters Protective Clothing for
domestic and foreign fire departments and developed the popular Sterling Heights
style (short coat and bib pants) bunker gear. Crash Rescue has been a major
market for the Company, which was the first to produce and supply military and
civilian markets with protection worn at airports, petrochemical plants and in
the marine industry. Each of the fire suits range in cost to the end user from
$450 for a standard fire department turn-out gear to $2,000 for the fire entry
suit. The Company anticipates continuing growth and emphasis in the industrial
fire market and the international markets. With greater emphasis being placed on
the globalization of the industrial manufacturing capacity, it is expected that
the Company's products will receive more attention and will be in grater demand
worldwide.
Chemical Protective Garments
The Company manufactures heavy duty fully encapsulated chemical suits
which are made of Viton TM, butyl rubber, polyvinylchloride ("PVC") TyChem TM
and Teflon TM. These suits are worn to protect the user from exposure to
hazardous chemicals. Hazardous material teams or individuals use chemical suits
for toxic cleanups, chemical spills, or in industrial and electronic plants. The
Company also makes a line of lighter weight chemical suits using such materials
as Saranex-coated Tyvek TM and Barricade TM, both DuPont products. The Company's
line of chemical suits range in cost from $25 for the Saranex-coated Tyvek suits
to $3,400 for the Teflon suits. The chemical suits can be used in conjunction
with a fire protective shell manufactured by the Company which will protect the
user from both chemical and fire hazards. During the fourth quarter of fiscal
1991, the Company introduced two new NFPA approved garments:
Forcefield TM-A lightweight hazmat suit, totally encapsulized providing
greater mobility, visibility, dependability and versatility in dealing safely
and effectively with most types of chemical hazards. This product meets NFPA
1991 standards for a fully certified chemical protective suit. When combined
with an Aluminized PBI/Kevlar over cover, it provides NFPA 1991 / Level A
protection;
Interceptor TM-Model A meets all OSHA Level A requirements as a
vapor-proof suit. Model 1 meets and exceeds NFPA 1991 requirements of
certification for vapor-proof suit when used with an Aluminized PBI / Kevlar
over cover.
The Company also manufactures and sells a Level B worksuit called
Checkmate TM. This suit is lightweight, tough, versatile, durable and cost
effective and can be used for: splash protection, basic clean up, toxic waste
dumps and post fire monitoring of toxic residue.
Manufacturing Disposable / Limited Use Garments
The Company manufactures its disposable / limited use garments
primarily at its Decatur, Alabama facility. The fabric is first cut into
required patterns at the Company's own plant. The cut fabric and any necessary
accessories, such as zippers or elastic, are then obtained at the Company's
plant by independent sewing contractors. These contractors sew and package the
finished garments at their own facilities and return them to the Company's
plant, normally within one week for immediate shipment to the customer. This
quick turn-around time
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enables the Company to operate with relatively low inventory levels of finished
goods.
The Company presently utilizes over 90 independent sewing contractors
under agreements that are terminable at will by either party. These contractors
employ approximately 1,000 people full-time (both domestically and
internationally) and operate and maintain their own industrial sewing machines.
The Company believes that it is the only customer of the majority of its
independent sewing contractors and considers its relations with such contractors
to be excellent. In the year ended January 31, 1997 two independent sewing
contractors accounted for more than 10% of the Company's production of
disposable / limited use garments. The Company believes that it can obtain
adequate alternative production capacity should any of its independent
contractors become unavailable.
The Company believes that its manufacturing system permits it
considerable flexibility. Through the use of independent sewing contractors, the
Company has achieved its current level of production on a relatively small
capital investment. Furthermore, by employing additional sewing contractors, the
Company can increase production without substantial additional capital
expenditures.
While the Company has not experienced reduced demand for its disposable
limited use garments, management believes that by its use of independent sewing
contractors, the Company is capable of reducing or alternately increasing its
production capacity without incurring large on-going costs typical of many
manufacturing operations.
Industrial and Medical Woven Garments
The Company manufactures and sells woven cloth garments at its facility
in Missouri. After the Company receives fabrics from suppliers, principally
blends of polyester and cotton, the Company cuts and sews the fabrics at its own
facilities to meet customer purchase orders. Some of the items manufactured at
this facility are static-free clean room garments, coveralls, lab coats, shirts,
pants, jackets, protective covers for industrial robots and other garments.
Fire and Heat Protective Apparel
Prior to 1992, the Company solely manufactured fire and heat protective
garments at its Newark, Ohio facility, which facility was subsequently sold.
Independent manufacturing contractors have been utilized subsequently. The
Company receives fabric from its suppliers and sends it to the contractor who
cuts the fabric, assembles the suits, boxes the finished product and delivers it
pursuant to customer purchase orders or to a warehouse. The fire and heat
protective suits are manufactured to the purchaser's specifications and
delivered upon completion.
Chemical Protective Garments
The Company manufactures chemical protective clothing at its facility
in Somerville, Alabama. After the Company obtains such materials as
Saranex-coated Tyvek TM, Barricade TM, TyChem TM, Viton TM, butyl rubber and
PVC, it designs, cuts, glues and/or sews the materials to meet customer purchase
orders. Forcefield suits (a Teflon level A sophisticated chemical suit) and the
Interceptor line of suits, used by hazardous materials response teams have been
developed internally to provide chemical protection at the highest level of
barrier available today.
Safety and Industrial Work Gloves
The Company also manufactures gloves at its Somerville, Alabama
facility. Computerized robotic knitters are used to weave gloves from both
natural and synthetic materials, including Kevlar TM and Spectra TM, on an
automatic basis. These robotic knitters are generally in operation 20 hours a
day, 5-1/2 days a week.
The Company's robotic knitters allow flexibility in production as they
can be easily reprogrammed in minutes to produce gloves and sleeves in different
sizes, styles, weights, weaves or combinations of materials. Additionally, these
robotic knitters can produce gloves and sleeves separately or as a one-piece
garment. Gloves and sleeves can also be knitted in different weights and
combinations of yarns, such as Kevlar TM mixed with cotton or polyester.
Additional processing is sometimes provided by independent sewing contractors.
The acquisition of a glove dotting machine, during fiscal 1992, allowed the
Company to eliminate the cost of out-of-factory processing.
Quality Control
To assure quality, Company employees monitor the sewing of disposable /
limited use garments at the facilities of the independent sewing contractors and
also inspect the garments upon delivery to the Company's facilities. Finished
product that is below standard is returned to the contractor for reworking. The
Company has rarely been required to return product to its independent sewing
contractors. The Company also actively participates in the Industrial Safety
Equipment Association's (ISEA) frequent independent quality inspection programs.
The Company conducts quality control inspections of its industrial gloves,
cloth, fire and chemical garments throughout the manufacturing process. The
Company expects to be ISO 9001 approved during fiscal year 1998.
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Marketing
The Company markets and sells its products through a minimum of 22
independent manufacturers' representatives. The Company believes that these
representatives constitute one of the largest and most sophisticated independent
sales force in its industry.
These independent representatives call on over 500 safety and
industrial distributors nationwide and promote and sell the Company's products
to safety and industrial distributors and provide product information. The
distributors buy the Company's products and maintain inventory at the local
level in order to assure quick response time and the ability to serve accounts
properly. During the year ended January 31, 1997, no one distributor accounted
for more than 5% of sales.
Fire, heat and chemical suits were sold through the sales force which
was previously used by Fyrepel Products, Inc. and Siena Industries, Inc.
Starting in fiscal 1989, the Company increased sales of these products by having
them sold through the Company's entire sales network. During fiscal 1992,
Fireland ceased using independent sales representatives, utilizing in house
personnel only. Products are sold to the steel industry, aluminum industry,
nuclear industry, utilities, refineries, chemical industry, ammunition plants,
automotive, glass industry and fire departments.
Highland uses independent sales representatives, exclusively.
The Company's marketing plan is to maximize the efficiency of its
established distribution network by direct promotion at the end-user level.
Advertising is primarily through trade publications. Promotional activities
include sales catalogs, mailings to end users and a nationwide publicity
program. The Company exhibits at both regional and national trade shows and was
represented at the National Safety Congress in Orlando, FL (Fall of 1996) and
will be represented at the American Industrial Hygienists Convention (Spring of
1997).
Suppliers and Materials
The Company does not have long-term, formal agreements with
unaffiliated suppliers of non-woven fabric raw materials used by the Company in
the production of its disposable garments. Tyvek TM, Tychem TM and Kevlar TM,
however, are purchased from DuPont under licensing agreements; Polypropylene is
available from ten or more major mills; flame retardant fabrics are also
available from a number of both domestic and international mills.
The accessories used in the production of the Company's disposable
garments such as zippers, snaps and elastics are obtained from unaffiliated
suppliers. The Company has not experienced difficulty in obtaining its
requirements for these commodity component items.
The Company has not experienced difficulty in obtaining materials,
including cotton, polyester and nylon, used in Highland's production of
commodity gloves. Kevlar TM, used in the production of the Company's specialty
safety gloves, is obtained from independent mills that purchase the fiber from
DuPont. The Company has not experienced difficulty in obtaining its requirements
for Kevlar TM. The Company obtains the Spectra yarn used in its Dextra Guard
gloves from mills that purchase the fiber from Allied Signal Company, Inc.
("Allied"). The Company believes that Allied will be able to meet the Company's
needs for Spectra.
In manufacturing its fire and heat protective suits, the Company uses
glass fabric, aluminized glass, Nomex TM, aluminized Nomex TM, Kevlar TM,
aluminized Kevlar TM, polybenzimidazole (PBI) as well as combinations utilizing
neoprene coating. The chemical protective suits are made of Viton TM, butyl
rubber, PVC, proprietary patented laminates, Teflon TM, Saranex TM coated Tyvek
TM, TyChem TM and Barricade TM from DuPont. The Company has not experienced
difficulty obtaining any of the aforementioned materials.
Competition
Competition in the market for all of the Company's products is intense,
more so in the five most recent fiscal years than in previous fiscal years. The
Company competes with a large number of domestic and foreign companies, public
and private, some of which are larger and have substantially greater financial
resources. Competition within the industry is on the basis of price, quality,
timely delivery, consistency of product, and support services to distributors
and end users.
Beginning in the third quarter of fiscal 1990, intense competition in
the disposable garment business drove margins on non- Tyvek TM garments down.
This competition and the concomitant sales price erosion noted earlier continued
through fiscal 1993. However, small price increases on the core Tyvek disposable
line in February of 1993, 1994 and 1996 have and should continue to result in
gross margin increases. Management continued to take steps to reduce the
Company's manufacturing costs and overhead in order to improve operating results
in fiscal 1997. The Company continues to focus its efforts to increase sales and
profitability of all products, and to redeploy its capital toward higher margin
proprietary products.
Seasonality
Historically, more disposable garments are sold in spring and summer
due to the asbestos abatement industry, which has its highest level of activity
in the spring months. This does not materially affect the total sales of the
Company. The fourth quarters of fiscal years 1990 and 1991 yielded the lowest
sales volume of each fiscal year. However, during fiscal 1992 and 1993 the third
quarter and second quarter, respectively, yielded the lowest sales volume.
During fiscal 1994, 1995, 1996 and 1997, the third quarter was the only
seasonally weak quarter.
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Patents and Trademarks
At this time, there are no patents or trademarks which are significant
to the Company's operations; however, the Company has one exclusive licensing
arrangement covering seven patents in the Company's name and has one
non-exclusive agreement with DuPont regarding patented materials used in the
manufacture of chemical suits.
Employees
As of April 15, 1997, the Company had approximately 416 full-time
employees (both domestically and internationally) and meets its manpower
requirements at one division through an employee leasing agreement with Madison
Manpower and Mobile Storage, Inc., the president and principal stockholder of
which is also an officer of the Company. The Company has experienced a low
turnover rate among its employees. The Company believes its employee relations
to be excellent.
ITEM 2. PROPERTIES
The Company leases three domestic manufacturing facilities, three
foreign manufacturing facilities, one domestic and one foreign warehouse
facility and a corporate office headquarters. The Company's 90,308 square foot
facility in Decatur, Alabama, is used in the production of disposable / limited
use garments. The Alabama facility is leased entirely by the Company from a
partnership consisting primarily of certain stockholders of the Company,
pursuant to two lease agreements expiring on August 31, 1999.
Chemland and Highland lease 12,000 sq. ft. of manufacturing space,
each, on a month to month basis in Somerville, Alabama. This Somerville facility
is owned by an officer of the Company.
The Company leases 44,000 square feet of manufacturing space in St.
Joseph, Missouri used in the manufacturing of woven cloth garments and other
cloth products. This lease expires on October 31, 1999.
The Company's Mexican subsidiary leases two manufacturing facilities
totaling 33,816 square feet under two leases expiring on September 30, 1997 and
December 31, 2000. The Company also leases a 12,000 square foot manufacturing
facility overseas. This lease expired on March 30, 1997 and is presently leased
on a month to month basis. A smaller facility lease expired on March 30, 1997
and was not renewed.
The Company leases 4,362 square feet of office space in Ronkonkoma, New
York, in which its corporate, executive and sales offices are located. This
lease expires on June 30, 1999.
For the year ended January 31, 1997, the Company paid total rent on
property and all leased equipment of approximately $581,161 on a net basis. The
Company believes that these facilities are adequate for its present operations.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved as plaintiffs in certain
receivable collection actions and claims arising in the ordinary course of
business, none of which are of a material nature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders of the Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Reference is made to Page 4 ("Market for the Registrant's Common Stock
and Related Stockholder Matters") of the Registrant's 1997 Annual Report to
Shareholders filed as an exhibit hereto, which information is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to Page 2 ("Selected Financial Data") of the
Registrant's 1997 Annual Report to Shareholders filed as an exhibit hereto,
which information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Reference is made to Page 3 ("Management's Discussion and Analysis of
Financial Condition and Results of Operation") of the Registrant's 1997 Annual
Report to Shareholders filed as an exhibit hereto, which information is
incorporated herein by reference.
8
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements are incorporated herein
by reference to Pages 5 to 21 of the Registrant's Annual Report to Shareholders
for the year ended January 31, 1997:
Report of Independent Certified Public Accounts
Consolidated Balance Sheets as of January 31, 1997 and 1996
Consolidated Statements of Income and Retained Earnings for the years
ended January 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended January 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information under the caption "Election of Directors" in the
Company's Proxy Statement relating to the 1997 Annual Meeting of Stockholders
("Proxy Statement"), which information is incorporated herein by reference.
The following table sets forth the names and ages of all executive
officers of the Company, and all positions and offices within the Company
presently held by such executive officers. None of the directors, executive
officers or nominees for director has any family relationship with any other
director, executive officer or nominee for director of the Company.
Name Age Position Held
- ---- --- -------------
Raymond J. Smith 58 Chairman of the Board, President and Director
Christopher J. Ryan 45 Executive Vice President-Finance & Secretary and
Director
Harvey Pride, Jr. 50 Vice President-Manufacturing
James M. McCormick 49 Vice President and Treasurer
Mr. Smith, a co-founder of the Company, has been Chairman of the Board
and President since its incorporation. Prior to 1982, he was employed for 16
years by Disposables, Inc., a manufacturer of disposable garments, first as
sales manager, then as Executive Vice President and subsequently as President
and Director.
Mr. Christopher J. Ryan has served as Executive Vice President- Finance
and director since May, 1986 and Secretary since April 1991. From October 1989
until February 1991 Mr. Ryan was employed by Sands Brothers, Mitchell Co. Ltd.
and Rodman & Renshaw, Inc., both investment banking firms. Prior to that, he was
an independent consultant with Laidlaw Holding Co., Inc., an investment banking
firm, from January 1989 until September 1989. From February, 1987 to January,
1989 he was employed as the Managing Director of Corporate Finance for Brean
Murray, Foster Securities, Inc.
Mr. Pride has been Vice President of the Company since May 1986. He was
Vice President of Ryland (the Company's former subsidiary) from May 1982 to June
1986, and President of Ryland until its merger into Lakeland on January 31,
1990.
Mr. McCormick has been Vice President and Treasurer since May 1986.
Between January 1986 and May 1986 he was the Company's Controller.
ITEM 11. EXECUTIVE COMPENSATION
See information under the caption "Compensation of Executive Officers"
in the Company's Proxy Statement, which information is incorporated herein by
reference.
9
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information under the caption "Voting Securities and Stock
Ownership of Officers, Directors and Principal Stockholders" in the Company's
Proxy Statement, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information under the caption "Certain Relationships and
Related Transactions" in the Company's Proxy Statement, which information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements and Schedules:
(1) Financial Statements:
The following Consolidated Financial Statements of the Registrant are
incorporated herein by reference to the Registrant's Annual Report to
Shareholders for the year ended January 31, 1997, as noted in Item 8 hereof:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of January 31, 1997 and 1996
Consolidated Statements of Income and Retained Earnings for
the years ended January 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
January 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule:
Schedule for the years ended January 31, 1997, 1996 and 1995:
II-Valuation and Qualifying Accounts
All other schedules to the Consolidated Financial Statements are
omitted because the required information is inapplicable or has been presented
in the consolidated financial statements or related notes thereto.
(b) Reports on Form 8-K.
No report on Form 8-K has been filed for the Quarter ended January 31,
1997.
(c) Exhibits:
3 (a) Restated Certificate of Incorporation*
3 (b) By-Laws, as amended*
10 (a) Lease agreements between POMS Holding Co., as lessor,
and the Company, as lessee, dated January 1, 1995
10 (b) Lease agreement between Central Life Assurance
Company, as lessor, and the Company, as lessee, dated
September 10, 1987. (Incorporated by reference to the
Company's Form 10-K for the year ended January 31,
1988).
10 (c) The Company's Stock Option Plan*
10 (d) Asset Purchase Agreement, dated as of December 26,
1986, by and among the Company, Fireland, Fyrepel
Products, Inc. and John H. Weaver, James R. Gauerke
and Vernon W. Lenz**
10 (e) Asset Purchase Agreement, dated as of December 26,
1986, by and among the Company, Chemland, Siena
Industries, Inc. and John H. Weaver, James R.
Gauerke, Eugene R. Weir, John E. Oberfield and Frank
Randles**
10
<PAGE>
10 (f) Asset Purchase Agreement, dated September 30, 1987 by
and among the Company and Walter H. Mayer & Co.
(Incorporated by reference to the report on Form 8-K
filed by the Company on October 14, 1987.)
10 (g) Employment agreement between the Company and Raymond
J. Smith, dated September 7, 1994
10 (h) Employment agreement between the Company and Harvey
Pride, Jr., dated January 31, 1995
10 (i) Lease between Lakeland Industries, Inc. and JBJ
Realty, dated April 11, 1994
10 (j) Asset Purchase Agreement, dated November 19, 1990 by
and among the Company, Mayer and WHM Acquisition
Corp. (Incorporated by reference to the report on
Form 10-Q for the quarter ended October 31, 1990,
filed by the Company on December 14, 1990).
10 (k) Employment agreement between the Company and
Christopher J. Ryan, dated February 14, 1997.
10 (l) Loan agreement dated August 30, 1995 between the
Company and its bank (Incorporated by reference to
the report on Form 10-Q for the quarter ended October
31, 1995).
10 (m) Consulting and License Agreements between the Company
and W. Novis Smith dated December 10, 1991.
10 (n) Agreement dated June 17, 1993 between the Company and
Madison Manpower and Mobile Storage, Inc.
11 Consent of Grant Thornton LLP dated April 25, 1997***
13 Annual Report to Shareholders for the year ended
January 31, 1997
20 Proxy Statement of the Registrant for Annual Meeting
of Stockholders-June 18, 1997
22 Subsidiaries of the Company (wholly-owned):
Fireland Industries, Inc.
Lakeland Protective Wear Inc.
Lakeland de Mexico S.A. de C.V.
All other exhibits are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
- ------------------------
* Incorporated by reference to Registration Statement on Form S-18 on file
with the Securities and Exchange Commission No.33-7512-NY.
** Incorporated by reference to report on Form 8-K filed by the Company on
January 9, 1987.
*** Incorporated by reference to Registration Statement on Form S-8 on file with
the Securities & Exchange Commission No. 33-92564 - NY.
The Exhibits listed above (with the exception of the Annual Report to
Shareholders) have been filed separately with the Securities and Exchange
Commission in conjunction with this Annual Report on Form 10-K. On request,
Lakeland Industries, Inc. will furnish to each of its shareholders a copy of any
such Exhibit for a fee equal to Lakeland's cost in furnishing such Exhibit.
Requests should be addressed to the Office of the Secretary, Lakeland
Industries, Inc., 711-2 Koehler Avenue, Ronkonkoma, New York 11779.
11
<PAGE>
_________________SIGNATURES_________________
Pursuant to the requirements of Section 13 or 15 (d) 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.
Dated: April 25, 1997
LAKELAND INDUSTRIES, INC.
By: /s/ Raymond J. Smith
------------------------------------------------------
Raymond J. Smith , Chairman of the Board and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Name Title Date
- ---- ----- ----
/s/ Raymond J. Smith Chairman of the Board, April 25, 1997
- ----------------------- President and Director
Raymond J. Smith (Principal Executive Officer)
/s/ Christopher J. Ryan Executive V. P.- Finance April 25, 1997
- ----------------------- & Secretary and Director
Christopher J. Ryan
/s/ James M. McCormick Vice President and Treasurer April 25, 1997
- ----------------------- (Principal Financial and
James M. McCormick Accounting Officer)
/s/ Eric O. Hallman Director April 25, 1997
- -----------------------
Eric O. Hallman
/s/ John J. Collins Director April 25, 1997
- -----------------------
John J. Collins,Jr.
/s/ Walter J. Raleigh Director April 25, 1997
- -----------------------
Walter J. Raleigh
12
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end of
of period expenses accounts Deductions period
-=======-- -========= ---------- =======--- ----------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 1997
Allowance for doubtful
accounts (a) $262,765 $ 7,439 $120,204(b) $150,000
======= ========= ======= =======
Year ended January 31, 1996
Allowance for doubtful
accounts (a) $375,597 $ 32,069 $144,901(b) $262,765
======= ======== ======= =======
Year ended January 31, 1995
Allowance for doubtful
accounts (a) $516,757 $141,606 $282,766(b) $375,597
======= ======= ======= =======
</TABLE>
(a) Deducted from accounts receivable.
(b) Uncollectible accounts receivable charged against allowance.
<PAGE>
Exhibit 10(k)
[LETTERHEAD OF LAKELAND INDUSTRIES, INC.]
February 14, 1997
Mr. Christopher J. Ryan
136 West Bayberry Rd.
Islip, NY 11751
Dear Mr. Ryan:
The purpose of this letter is to confirm your continuing employment with
Lakeland Industries Inc. on the following terms and conditions:
1. THE PARTIES
This is an agreement between Christopher J. Ryan residing at 136 West
Bayberry Rd., Islip 11751 (hereinafter referred to as "you") and Lakeland
Industries, Inc., a Delaware corporation, with principal place of business
located at 711-2 Koehler Avenue, Ronkonkoma, NY 11779-7410 (hereinafter the
Company).
2. TERM; RENEWAL
The term of the agreement shall be for a 3 year period from February
14, 1997 through and including February 13, 2000 which term shall be
automatically renewed for a maximum of 2 successive annual periods unless either
party notifies the other 120 days prior to the expiration of the original term
or renewal thereof, that the agreement will not be renewed.
3. CAPACITY
You shall be employed in the capacity of Executive Vice President,
Secretary and In-House General Counsel of Lakeland Industries, Inc. and such
other senior executive title or titles as may from time to time be determined by
the Board of Directors of the Company. You shall be nominated for election to
serve as a member of the Board of Directors of the Company, so long as this
agreement shall remain in effect. You shall be directly responsible to the Board
of Directors of the Company and to the President of Lakeland.
4. COMPENSATION
As full compensation for your services you shall receive following from
the Company:
(a) A base annual salary of $175,000 per year payable bi-weekly; and
(b) Participation when eligible in any of the Company's Pension, Profit
Sharing Plans, medical and disability plans, stock appreciation rights plan or
stock option plans and ESOP-401(K) plans when any such plans become effective:
(c) Such other benefits as are consistent with the personnel benefits
provided by the Company to its other officers and employees; provided however
that your vacation shall be for a period of no less than 5 weeks; and
<PAGE>
(d) You shall be entitled to an automobile allowance consistent with
the allowance you have been receiving; and
(e) Reimbursement for any dues and expenses incurred by you that are
necessary and proper in the conduct of the Company's business; and
(f) An annual bonus as set forth in this agreement.
5. ANNUAL BONUS
In May of each year commencing in 1998 you shall be awarded an annual
bonus based on the performance of the Company in the previous fiscal year. The
bonus to be awarded in May of 1998, 1999 and 2000 shall be based upon the
following formula by pro rata increments for each cents per share earnings
measured upwardly from fiscal 1997 earnings per share. For each .01(cents)
earnings per share increase over fiscal year and 1997 earnings per share, you
shall receive $1000.00 in bonus. Thus, if EPS 1997 are .37(cents) then if EPS
for fiscal 1998 are .50(cents) you shall receive a bonus of 13 x 1,000 or
$13,000.00. Further, if EPS for fiscal 1998 are .60(cents), the fiscal 1999
bonus will be .60(cents) - .50(cents) the '99 earnings minus the '98 earnings =
10 x $1,000 = $10,000 and so on.
The earnings per share shall be the earnings per share of common stock
of the Company as determined by the Company's auditors in the preparation of the
annual audit and reported to the Company's shareholders. If during the fiscal
year commencing February 1, 1997 or thereafter, the Company acquires all of the
stock and/or assets of a separate business entity or divests itself of one or
more subsidiaries or is involved in a recapitalization or other public offering
of the Company's securities, then in that event the amount of the aforesaid
annual bonus will be adjusted to reflect such change or changes. The adjustment
to the annual bonus and any additional discretionary bonus will be made by the
Compensation Committee of the Board of Directors of the Company.
The decision of the Compensation Committee of the Board of Directors as
to any matter relating to the annual bonus or any additional discretionary bonus
shall be final, binding and conclusive and shall not be subject to any further
review.
6. NON-COMPETITION
During the term of this Agreement and for six months thereafter, you
shall not either directly or indirectly as an agent, employee, partner,
stockholder, director, investor, or otherwise engage in any activity in
competition with the activities of the Company, its subsidiaries or affiliates.
You acknowledge that the Company's products are marketed throughout North
America and therefore, for the duration of this non-competition period you shall
not compete with the Company in any location therein whatsoever.
7. CONFIDENTIALITY
Except as required in your duties to the Company, you shall not at any
time during your employment and for a period of twelve months thereafter,
directly or indirectly, use or disclose any confidential information relating to
the Company or its business which is disclosed to you or known by you as a
consequence of or through your employment by the Company and which is not
otherwise generally obtainable by the public.
8. CHANGE IN CONTROL
Upon the occurrence of a change in control (as hereinafter defined) you
shall have the right to terminate at your option this agreement within 30 days
after the occurrence of such change in control
<PAGE>
(provided such ten day period shall not begin to run until you have actual
knowledge of the change in control). Upon the effective date of such
termination, you shall be entitled to receive a lump sum severance payment in an
amount equal to the greater of the present value (determined by applying a
discount factor of 6% effective annual interest rate) of (I) the balance of your
Base Salary of the Term of the Agreement, plus your estimated Annual Bonus for
the fiscal year in which such termination occurs, or (ii) two times your Base
Salary, plus your estimated Annual Bonus for the fiscal year in which such
termination occurs. The estimated amount of your Annual Bonus in this Agreement
for the fiscal year during which the termination occurs shall be determined in
good faith by the Compensation Committee of the Board of Directors of the
Company based upon the Company's results of operations for the partial fiscal
year through the effective date of the termination and the Company's historical
results of operations.
A "change of control" shall have occurred (I) upon any person or group
becoming directly or indirectly, the beneficial owner of 50% or more of the
Company's then outstanding securities or (ii) upon the disposition by the
Company (whether direct or indirect by sale of assets or stock, merger,
consolidation or otherwise) of all or substantially all of the Company's
business and/or assets.
For purposes of this paragraph, "person" means such term as used in
Section 13(d) (1) of the Securities Exchange Act of 1934 (the "1934 Act");
"beneficial owner" means such term as defined in Rule 13d-3 of the SEC under the
1934 Act; and "group" means such term as defined in Section 13(d) (3) of the
1934 Act.
In the event of a disposition by the Company (whether direct or
indirect by sale of assets or stock, merger, consolidation or otherwise) of all
or substantially all of its business and/or assets the Company will require any
successor to expressly assume and agree to perform this agreement in the same
manner and to the same extent that the Company would be required to perform, if
no such disposition had taken place.
9. TERMINATION
You or the Company may terminate your employment prior to the end of
the Term for any reason upon written notice to the other party in accordance
with the following provisions;
a) Termination of Employment for Cause or Without Good Reason. If,
before the end of the Term, the Company terminates your employment for Cause (as
defined below) or you quit without Good Reason (as defined below), the Company
shall pay you, within thirty days of such termination, (I) that portion of your
Base Salary which is accrued but unpaid as of the date of such termination, and
(ii) any other benefits accrued prior to the date of termination under this
Agreement, but you will not be entitled to receive any portion of your Annual
Bonus for the year in which said termination occurs or any other compensation or
benefits under this Agreement. If the Company terminates your employment for
Cause, the written notice of such termination shall set forth the effective date
of your termination (which shall not be prior to the date such notice is
delivered) and a reasonable detailed description of the facts and circumstances
giving rise to the Cause for termination.'
"Cause" means a written finding by the Board or the Company, acting
through an authorized officer, that you were convicted of, or entered a plea of
nolo contendere to a charge of, committing a felony involving moral turpitude,
or you were grossly negligent in performing your duties and responsibilities
(other than on account of "total disability" as referred to in sub-Paragraph c
below), or that you committed an act of fraud, embezzlement, or gross neglect
of duty. Cause shall not mean (I) the exercise of bad judgment alone, (ii)
negligence not amounting to gross negligence, (iii) any act or omission
believed by you in good faith to have been in or not opposed to the interest of
the Company (without intent of you to gain therefrom, directly or indirectly, a
profit to which you were not legally entitled), or (iv) any act or omission
with respect to which
<PAGE>
notice of the termination of your employment is given to you more than 12 months
after the earliest date on which any member of the Board who is not a party to
the act or omission, knew of such act or omission.
"Good Reason" means any of the following events: (I) the assignment to
you of any duties materially and adversely inconsistent with your position,
responsibilities, duties, or officer ships, as required under Section 3 hereof,
(ii) the liquidation or dissolution of the Company, (iii) any material breach
by the Company of the provisions of this Agreement, or (iv) the Company's
requiring, without your written consent, that you be based in an office or
location other than the Company's principal business location at Ronkonkoma,
New York.
b) Death. Your employment shall terminate on the date of your death.
Your Base Salary (as in effect on the date of death) shall continue through the
last day of the month in which your death occurs. Payment of your Base Salary
shall be made to your estate or your beneficiary as designated in writing to the
Company. Your estate or designated beneficiaries, as applicable, shall also
receive a pro-rata portion of the Annual Bonus, if any, determined for the
fiscal year up to and including the date of death which shall be determined in
good faith by the Compensation Committee of the Board of Directors. Your
beneficiaries shall also be entitled to all other benefits generally paid by the
Company on an employee's death.
c) Total Disability. Your employment shall terminate if you become
totally disabled. You shall be deemed to be totally disabled if you are unable,
for any reason, to substantially perform your duties to the Company for a period
of (sixty consecutive days). In the event of your Total Disability, you shall
receive 100% of your Base Salary for the greater of (I) the remainder of the
Term of this Agreement or (ii) one year, such amount shall be reduced by the
amount of any disability insurance payments received by you under any disability
insurance policy maintained by the Company. For the six months thereafter, you
shall receive 50% of your Base Salary reduced by the amount of any such
disability insurance payments.
d) Termination Without Cause or for Good Reason. If, before the end of
the Term, the Company terminates your employment without Cause or you quit with
Good Reason, the Company shall:
(i) Pay you within 10 days of the termination of your
employment, a lump sum amount equal to the then present value of your Base
Salary (as in effect on the date of your termination) though the remainder of
the Term, determined by applying a discount factor of 6% effective annual
interest rate.
(ii) Pay you within 10 days of the termination of your
employment, a lump sum amount equal to a pro-rata portion of the Annual Bonus,
if any, that you would have received for the fiscal year in which such
termination occurs determined in good faith by the Compensation Committee of the
Board of Directors.
(iii) Pay you within 10 days of the termination of your
employment, a lump sum amount equal to the present value of (two) times your
Base Salary (as in effect of the date of your termination), determined by
applying a discount factor of 6% effective annual interest rate.
(iv) Continue to provide to you for a period equal to the
greater of (i) the remainder of the Term of this Agreement or (ii) one year,
benefits under any of the following welfare benefit programs of the Company as
in effect from time to time during the Term of this Agreement: long term
disability insurance, life insurance, accidental death and dismemberment
insurance, and health and major medical benefits, pursuant to COBRA.
<PAGE>
10. TAX GROSS-UP
If it is determined that as a result of any payments provided to you
under this Agreement, you will incur an excise tax under Section 4999 of the
Internal Revenue Code on "excess parachute payments" or any similar tax payable
under any federal, state, local or other law, as a result of payments made to
you under this Agreement, then the Company shall pay to you an amount necessary
to reimburse you for such excise taxes and the tax due on such reimbursement
payments. All determinations and payments hereunder shall be made in adequate
time to permit you to prepare and file your individual tax returns in a timely
fashion.
11. MITIGATION
In no event shall you, subsequent to the termination of your
employment, be obligated to seek other employment arrangements or take any other
action by way of mitigation of the amounts payable to you under and provision of
this Agreement, nor shall the amount of any payment, hereunder be reduced by any
compensation earned by you as a result of a subsequent contract with or
employment by another employer.
12. ASSIGNMENT AND SUCCESSORS
The rights and obligations of the Company under this Agreement shall
inure to the benefit of and shall be binding upon the successors of the Company.
This Agreement may not be assigned by the Company unless the assignee or
successor (as the case may be) expressly assumes the Company's obligations
hereunder in writing or unless, in the opinion of counsel for the Company
addressed to you, the obligations of the Company under this Agreement become the
obligations of the successor to the Company by operation of law. In the event of
a successor to the Company or the assignment of the Agreement, the term
"Company" as used herein shall include any such successor or assignee.
13. CONSTRUCTION
This Agreement shall be interpreted and construed in accordance with
the laws of the State of New York without regard to its choice of law
principles. In case of any dispute or disagreement arising out of or connected
with this Agreement, the parties hereto hereby agree to resolve such dispute or
disagreement in a court of competent jurisdiction within the State of New York.
The Company shall reimburse you for all reasonable legal fees and expenses
incurred by you in an effort to establish entitlement to fees and benefits under
this Agreement. If you do not prevail (after exhaustion of all available
judicial remedies), and a court of competent jurisdiction decides that you had
no reasonable basis for bringing you action or there was an absence of good
faith for bringing your action, no further reimbursement for legal fees and
expenses shall be due to you, and you shall repay the Company for any amounts
previously paid by the Company. It is understood that in all events, the Company
shall be responsible for its own legal fees and expenses incurred for any action
brought hereunder.
14. NOTICES
Any notices required to be given under this Agreement shall unless
otherwise agreed to by you and the Company be in writing and by certified mail,
return receipt requested and mailed to the Company at its headquarters at 711-2
Koehler Avenue Ronkonkoma, NY 11779-7410 or to you at your home address at 136
W. Bayberry Rd., Islip, NY 11751.
<PAGE>
15. WAIVER OR MODIFICATION
No waiver or modification in whole or in part of this agreement or any
term or condition hereof, shall be effective against any party unless in writing
and duly signed by the party sought to be bound. Any waiver of any breach of any
provision hereof or right or power by any party on one occasion shall not be
construed as a waiver of or a bar to the exercise of such right or power on any
other occasion or as a waiver of any subsequent breach.
16. SEPARABILITY
Any provision of this agreement which is unenforceable or invalid in
any respect in any jurisdiction shall be ineffective in such jurisdiction to the
extent that it is unenforceable or invalid without effecting the remaining
provisions hereof, which shall continue in full force and effect. The
unenforceability or invalidity of any provision of the agreement in one
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
LAKELAND INDUSTRIES, INC.
/s/ Christopher J. Ryan
- ------------------------ ----------------------------------
Christopher J. Ryan By: John J. Collins
Executive Vice President
/s/ Eric O. Hallman
----------------------------------
By: Eric O. Hallman
/s/ W. James Raleigh
----------------------------------
By: W. James Raleigh
Board of Directors
Compensation Committee
Raymond J. Smith
/s/ Raymond J. Smith
-----------------------------------
Chairman of the Board and President
of Lakeland Industries, Inc.
<PAGE>
EXHIBIT 11
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We have issued our report dated April 10, 1997, accompanying the consolidated
financial statements and schedule incorporated by reference in the Annual Report
of Lakeland Industries, Inc. and Subsidiaries on Form 10-K for the fiscal year
ended January 31, 1997. We hereby consent to the incorporation by reference of
said report in the Registration Statement of Lakeland Industries, Inc. and
Subsidiaries on Form S-8 (File No. 33-92564, effective May 15, 1995).
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Melville, New York
April 25, 1997
<PAGE>
Exhibit 13
Dear Fellow Shareholders:
The fiscal year ended January 31, 1997 witnessed a significant
improvement in the operating results of your Company. Sales increased to a
record $41.8 million, compared with $40.2 million in the previous fiscal year.
Net income rose to $1,063,000, versus a prior-year net profit of $587,000. On a
per share basis, earnings reached $0.41, which represented a gain of 86% over
the $0.22 per share profit reported in fiscal 1996. Pre-tax profit margins
expanded to 3.8% of sales in the most recent fiscal year, compared with 2.4% for
the year ended January 31, 1996.
Management has taken a number of steps during the past 24 months to
strengthen Lakeland Industries' position as a leader in the protective garment
industry. We expanded our facilities in Decatur, Alabama, allowing us to
automate cutting operations, increase warehouse space for raw materials and
finished goods, and shorten response time to customers' orders. We opened a new
factory in Mexico, which allowed us to take advantage of lower offshore
manufacturing costs and enhance Lakeland's competitiveness within our industry.
The Company is now the recipient of nine patents covering proprietary fabrics
and machinery. We also established a new subsidiary which has begun to penetrate
the Canadian market. Our employees have worked diligently to refine our
manufacturing, sales and delivery systems, and your Company is considerably more
efficient than it was two years ago.
By teaming up with the Dupont company in a number of new licensing
agreements involving Tyvek(Registered) and Tychem(Registered) clothing, our most
popular products, we have forged a relationship with one of the world's largest
producers of specialized textile fibers and related products. Such solid
relationships with Dupont and other vendors provide us with reliable access to
raw materials, while offshore production capabilities should position Lakeland
as one of the most efficient manufacturers in the protective garment industry.
When combined with our strong lender relationships and creative sales and
marketing strategies, we believe your Company is poised to further improve its
operating performance and significantly enhance shareholder values in the
future.
In order to better communicate with customers and investors, Lakeland
Industries has established an award-winning website (Majon's Web Select Award)
on the Internet at http://www.lakeland.com, and we encourage you to visit the
site for a more comprehensive understanding of the Company and its entire
product line. We are also taking advantage of multimedia technology in our
marketing programs, as evidenced by the publication of product information and
catalogs in CD-ROM format.
In the United States, protective clothing products are routinely
required for many workers in the chemical, petrochemical, health care,
automotive, glass, cement and other industries which involve the handling of
hazardous materials and/or exposure to extreme environmental conditions. We
expect international markets for protective garments and related products to
expand significantly as national boundaries become less important in a worldwide
economy. Lakeland Industries, with its 14-year history as a quality manufacturer
and its excellent vendor/customer relationships with Dupont, is now well
positioned to take advantage of these international market opportunities.
On behalf of management and the Board of Directors, I would like to
thank all of our employees, customers, vendors and shareholders for their
continued support, and I look forward to reporting upon your Company's future
accomplishments. Respectfully submitted,
/s/ Raymond J. Smith
Raymond J. Smith
President and Chief Executive Officer
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
For the Years Ended January 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $41,792 $40,189 $35,185 $30,143 $26,512
Gross profit 7,237 6,288 6,346 4,763 3,885
Operating expenses (1) 5,212 4,882 4,704 4,739 4,281
Operating income (loss) 2,024 1,406 1,642 24 (396)
Income (loss) before income
taxes and cumulative effect of change
in accounting principle 1,576 956 2,000 (137) (701)
Income (loss) before
cumulative effect of change
in accounting principle 1,063 587 1,421 (278) (683)
Cumulative effect of change in
accounting principle (2) 241
------
Net income (loss) 1,063 587 1,421 (37) (683)
===== ===== ===== ====== =====
Earnings (loss) per share:
Income (loss) before cumulative
effect of change in accounting .41 .22 .54 (.11) (.27)
Cumulative effect of change in
accounting principle .10
===== ===== ===== ====== =====
Net earnings (loss) $.41 $.22 $.54 $(.01) $(.27)
===== ===== ===== ====== =====
Weighted average common
and common equivalent shares 2,607 2,637 2,641 2,550 2,550
BALANCE SHEET DATA (at end of year):
Working capital $14,018 $13,618 $7,190 $8,871 $5,008
Total assets 18,573 19,263 15,562 13,103 13,157
Current liabilities 2,920 3,894 6,813 2,464 5,752
L/T liabilities 5,746 6,492 441 3,680 615
Stockholders' equity $9,825 $8,762 $8,175 $6,754 $6,790
</TABLE>
- ----------
(1)Includes a write-off of $583,669 in Notes receivable due from one customer in
1994.
(2) Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"),
which requires an asset and liability approach to accounting for income taxes.
The cumulative effect as of February 1, 1993, of the adoption of SFAS No. 109,
resulted in a fiscal 1994 benefit of $241,000 or $.10 per common share. Prior
year's financial statements were not restated.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Fiscal Year Ended January 31, 1997 Compared to Fiscal Year Ended January 31,
1996
Net sales for the year ended January 31, 1997 increased $1,603,000 or 3.99% to
$41,792,000 from $40,189,000 reported for the year ended January 31, 1996.
Increased prices and unit shipments of various protective garment products are
the principal reason for this upward movement in sales. This industry, however,
continues to be highly competitive. Net sales increased 13.7% during the quarter
ended January 31, 1997 as compared to the immediate preceding quarter,
principally as the result of the Company's ability to maintain inventory levels
to meet sales demand.
Gross profit as a percentage of net sales increased to 17.3% for the
year ended January 31, 1997 from 15.6% reported for the prior year, principally
due to the price increase instituted at the beginning of the fiscal year and
price stabilization. The prior year was negatively affected as a result of the
competitive and economic climate of the protective clothing industry. Margins
decreased to 14.8% during the quarter ended January 31, 1997 as compared to the
immediate preceding quarter as some products imported for sale during the fourth
quarter were sold at lower margins.
Operating expenses as a percentage of net sales increased to 12.5% for
year ended January 31, 1997 from 12.1% for the prior year, as sales continue to
increase without a corresponding increase in general and administrative expenses
as well as the prior year having benefited from a reduction in pension expense.
Interest expense remained the same consistent with outstanding
borrowings.
As a result of the foregoing, operating results increased to net income
of $1,063,000 for the year ended January 31, 1997 from net income of $587,000
for the year ended January 31, 1996.
Fiscal Year Ended January 31, 1996 Compared to Fiscal Year Ended January 31,
1995
Net sales for the year ended January 31, 1996 increased $5,004,000 or
14.2% to $40,189,000 from $35,185,000 reported for the year ended January 31,
1995. Increased prices and unit shipments of various protective garment products
are the principal reason for this upward movement in sales. This industry,
however, continues to be highly competitive. Net sales increased 14.6% during
the quarter ended January 31, 1996 as compared to the immediate preceding
quarter, principally as the result of the Company's ability to maintain
inventory levels to meet sales demand.
Gross profit as a percentage of net sales decreased to 15.6% for the
year ended January 31, 1996 from 18.0% reported for the prior year, principally
due to the erosion of the price increase instituted at the beginning of the
fiscal year. Both years were negatively affected as a result of the competitive
and economic climate of the protective clothing industry. Margins decreased to
12.1% during the quarter ended January 31, 1996 as compared to the immediate
preceding quarter as manufacturing difficulties were incurred during the fourth
quarter.
Operating expenses as a percentage of net sales decreased to 12.1% for
year ended January 31, 1996 from 13.4% for the prior year, as sales continue to
increase without a corresponding increase in general and administrative
expenses.
Interest expense increased as borrowings increased during the current
year, while other income decreased as the prior year included a $625,000 law
suit settlement.
As a result of the foregoing, operating results decreased to net income
of $587,000 for the year ended January 31, 1996 from net income of $1,421,000
for the year ended January 31, 1995.
3
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Lakeland has historically met its cash requirements through funds
generated from operations and borrowings under a revolving credit facility. On
August 30, 1995, the Company entered into a new $8 million facility with its
Bank. This facility matures on July 31, 1998. Interest charges under this credit
facility are calculated on various optional formulas using the prime rate,
LIBOR, banker's acceptances and letters of credit. The Company's January 31,
1997 balance sheet shows a strong current ratio and working capital position and
management believes that its positive financial position, together with its
credit agreement, will provide sufficient funds for operating purposes for the
next twelve months.
IMPACT OF INFLATION
Management believes inflation has not had a material effect on the
Company's operations or its financial condition. There can be no assurance,
however, that the Company's business will not be affected by inflation in the
future.
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Prior to September 9, 1986, there was no public market for the
Company's Common Stock. On September 9, 1986, the effective date of the
Company's initial public offering, the Company's Common Stock began trading in
the over-the-counter market. On June 2, 1987, the Company's Common Stock began
trading in the over-the-counter market as a National Market Issue. The Company's
Common Stock trades on The Nasdaq Stock Market under the symbol "LAKE". It is
listed in major publications under "Lakeland".
The following table sets forth the high and low trade prices, as
reported by NASDAQ for the last two fiscal years:
Fiscal 1997 Fiscal 1996
High Low High Low
---- --- ---- ---
First Quarter 4 1/4 3 1/8 6 1/8 4
Second Quarter 4 5/8 2 3/4 5 7/8 3 3/4
Third Quarter 4 1/16 3 4 7/8 3 1/4
Fourth Quarter 3 1/2 2 3/4 4 3/8 2 7/8
First Quarter fiscal 1998 3 3/4 2 13/16
(through April 18, 1997)
The Company has never declared or paid a cash dividend on its Common
Stock, and the Company has no present intention of declaring or paying any cash
dividends on its Common Stock in the foreseeable future.
The Company's revolving credit facility provides for certain
restrictions that, at January 31, 1997 prohibited the Company from paying any
cash dividends.
As of April 11, 1997, there were 129 holders of record of the Common
Stock of the Company. There are believed to be in excess of 500 beneficial
shareholders in addition to those of record, since over 1 million shares are
held in street name by Cede & Co. a large financial clearing house.
4
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Lakeland Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Lakeland
Industries, Inc. and Subsidiaries (the "Company") as of January 31, 1997 and
1996, and the related consolidated statements of income and retained earnings
and cash flows for each of the three years in the period ended January 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of January 31, 1997 and 1996, and the consolidated results of their
operations and their consolidated cash flows for each of the three years in the
period ended January 31, 1997, in conformity with generally accepted accounting
principles.
We have also audited Schedule II - Valuation and Qualifying Accounts for each
of the three years in the period ended January 31, 1997. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.
GRANT THORNTON LLP
Melville, New York
April 10, 1997
5
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31,
<TABLE>
<CAPTION>
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 504,940 $ 364,640
Accounts receivable, net of allowance for doubtful
accounts of $150,000 and $263,000 at January 31,
1997 and 1996, respectively 5,893,594 4,979,975
Inventories 9,894,156 11,244,241
Deferred income taxes 469,000 432,000
Other current assets 176,901 490,776
----------- -----------
Total current assets 16,938,591 17,511,632
PROPERTY AND EQUIPMENT, NET 989,667 1,026,203
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
ACQUIRED, net of accumulated amortization of $198,000
and $178,000 at January 31, 1997 and 1996, respectively 347,116 367,104
NOTE RECEIVABLE 140,298 147,921
OTHER ASSETS 157,444 209,872
----------- -----------
$18,573,116 $19,262,732
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
January 31,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 2,534,999 $ 3,465,552
Accrued expenses and other current liabilities 335,314 378,524
Current portion of long-term liabilities 50,000 50,000
----------- -----------
Total current liabilities 2,920,313 3,894,076
LONG-TERM LIABILITIES 5,745,789 6,491,938
DEFERRED INCOME TAXES 82,000 115,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par; 1,500,000 shares
authorized; none issued
Common stock, $.01 par; 10,000,000 shares
authorized; 2,550,000 shares issued
and outstanding 25,500 25,500
Additional paid-in capital 5,981,226 5,981,226
Retained earnings 3,818,288 2,754,992
----------- -----------
9,825,014 8,761,718
----------- -----------
$18,573,116 $19,262,732
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
Fiscal year ended January 31,
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 41,792,469 $ 40,188,916 $ 35,184,994
Cost of goods sold 34,555,786 33,901,232 28,839,099
------------ ------------ ------------
Gross profit 7,236,683 6,287,684 6,345,895
------------ ------------ ------------
Operating expenses
Selling and shipping 2,569,702 2,691,193 2,288,602
General and administrative 2,625,866 2,163,621 2,315,611
Research and development 16,718 27,298 99,795
------------ ------------ ------------
Total operating expenses 5,212,286 4,882,112 4,704,008
------------ ------------ ------------
Operating profit 2,024,397 1,405,572 1,641,887
------------ ------------ ------------
Other (expense) income
Interest expense (510,757) (511,180) (304,613)
Interest income 27,293 19,938 632
Other income 35,363 41,292 662,572
------------ ------------ ------------
(448,101) (449,950) 358,591
------------ ------------ ------------
Income before income taxes 1,576,296 955,622 2,000,478
Income tax expense (513,000) (369,000) (579,000)
------------ ------------ ------------
NET INCOME 1,063,296 586,622 1,421,478
Retained earnings at beginning of year 2,754,992 2,168,370 746,892
------------ ------------ ------------
Retained earnings at end of year $ 3,818,288 $ 2,754,992 $ 2,168,370
============ ============ ============
Net income per common share $ .41 $ .22 $ .54
============ ============ ============
Average number of common shares outstanding 2,607,498 2,637,394 2,640,518
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended January 31,
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,063,296 $ 586,622 $ 1,421,478
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Deferred income taxes (70,000) 5,000 (212,000)
Depreciation and amortization 342,963 272,135 266,565
Gain on sale of property (4,530)
(Increase) decrease in operating assets
Accounts receivable (913,620) (571,104) (353,872)
Inventories 1,350,085 (2,385,943) (2,157,905)
Other current assets 314,415 (329,725) 92,270
Other assets (46,653) 130,550 (8,444)
Increase (decrease) in operating liabilities
Accounts payable (930,553) 641,004 669,663
Accrued expenses and other liabilities 759 6,108 143,941
----------- ----------- -----------
Net cash provided by (used in) operating activities 1,106,162 (1,645,353) (138,304)
----------- ----------- -----------
Cash flows from investing activities
Purchases of property and equipment - net (283,358) (577,756) (84,099)
Payments on note receivable 7,082 6,015 2,048
Proceeds from sale of property 10,414 -- 33,063
----------- ----------- -----------
Net cash used in investing activities (265,862) (571,741) (48,988)
----------- ----------- -----------
Cash flows from financing activities
Net borrowings (reductions) under line of credit agreement (700,000) 2,485,150 295,904
Deferred financing costs -- (23,335) --
----------- ----------- -----------
Net cash (used in) provided by financing activities (700,000) 2,461,815 295,904
----------- ----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 140,300 244,721 108,612
Cash and cash equivalents at beginning of year 364,640 119,919 11,307
----------- ----------- -----------
Cash and cash equivalents at end of year $ 504,940 $ 364,640 $ 119,919
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997, 1996 and 1995
NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
1. Business
Lakeland Industries, Inc. and Subsidiaries (the "Company"), a Delaware
corporation, organized in April 1982, is engaged primarily in the
manufacture of disposable and reusable protective work clothing. The
principal market for the Company's products is in the United States.
No customer accounted for more than 10% of net sales during the fiscal
years ended January 31, 1997, 1996 and 1995.
2. Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Fireland
Industries, Inc., Lakeland Protective Wear, Inc. (a Canadian
corporation) and Lakeland de Mexico S.A. de C.V. (a Mexican
corporation). All significant intercompany accounts and transactions
have been eliminated.
3. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method.
4. Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated service
lives, on a straight-line basis. Leasehold improvements and leasehold
costs are amortized over the term of the lease or service lives of the
improvements, whichever is shorter. The costs of additions and
improvements which substantially extend the useful life of a
particular asset are capitalized. Repair and maintenance costs are
charged to expense.
5. Excess of Cost Over the Fair Value of Net Assets Acquired
The excess of cost over the fair value of net assets acquired
(goodwill) is amortized on a straight-line basis over a 30-year
period. On an ongoing basis, management reviews the valuation and
amortization of goodwill to determine possible impairment by
considering current operating results and comparing the carrying value
to the anticipated undiscounted future cash flows of the related
assets.
6. Income Taxes
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities and
loss carryforwards and tax credit carryforwards for which income tax
benefits are expected to be realized in future years. A valuation
allowance is established to reduce deferred tax assets if it is more
likely than not that all, or some portion of, such deferred tax assets
will not be realized. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the
enactment date.
10
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1997, 1996 and 1995
NOTE A (continued)
7. Income (Loss) Per Common Share
Income per share is based on the weighted average number of common
shares outstanding and common share equivalents.
8. Statement of Cash Flows
The Company considers highly liquid temporary cash investments with an
original maturity of three months or less to be cash equivalents. Cash
equivalents consist of money market funds. The market value of the
cash equivalents approximates cost.
Supplemental cash flow information for the fiscal years ended January
31 was as follows:
1997 1996 1995
--------- --------- --------
Interest paid $494,102 $431,555 $304,676
Income taxes paid, net of refunds 325,242 618,853 665,488
9. Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of trade receivables.
Concentration of credit risk with respect to these receivables is
generally diversified due to the large number of entities comprising
the Company's customer base and their dispersion across geographic
areas within the United States. The Company routinely addresses the
financial strength of its customers and, as a consequence, believes
that its receivable credit risk exposure is limited.
10. Foreign Currency Translation
The monetary assets and liabilities of the Company's foreign
operations are translated into U.S. dollars at current exchange rates,
while nonmonetary items are translated at historical rates. Revenues
and expenses are generally translated at average exchange rates for
the year. Resulting translation adjustments are reflected as a
separate component of stockholders' equity. Transaction gains and
losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are
included in the results of operations as incurred.
11. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
year-end and the reported amounts of revenues and expenses
11
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1997, 1996 and 1995
NOTE A (continued)
during the reporting period. Actual results could differ from those
estimates. The significant estimates include the allowance for
doubtful accounts and inventory reserves. It is reasonably possible
that events could occur during the upcoming year that could change
such estimates.
NOTE B - NOTE RECEIVABLE
In October 1994, the Company sold its Ohio facility to an unrelated third
party for $187,500 ($25,000 cash and a $162,500 mortgage note). The
selling price of the property approximated the net book value at the time
of sale. The mortgage note is payable in 47 consecutive monthly payments
of $1,523, including principal and interest at an annual rate of 8%, until
October 1998 when the entire unpaid balance of the indebtedness shall be
due and payable. This note is secured by a mortgage on real estate located
in the City of Newark, Licking County, Ohio.
NOTE C - INVENTORIES
Inventories consist of the following at January 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Raw materials $2,669,254 $ 2,980,137
Work-in-process 3,124,141 3,225,272
Finished goods 4,100,761 5,038,832
--------- -----------
$9,894,156 $11,244,241
</TABLE>
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at January 31:
<TABLE>
<CAPTION>
Useful life
in years 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Machinery and equipment 10 $2,409,648 $2,180,832
Furniture and fixtures 5 - 10 157,722 148,814
Leasehold improvements Lease term 185,587 147,374
---------- ----------
2,752,957 2,477,020
Less accumulated depreciation and amortization 1,763,290 1,450,817
--------- ---------
$ 989,667 $1,026,203
========== =========
</TABLE>
12
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1997, 1996 and 1995
NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Fair Value of
Financial Instruments," requires disclosure of the estimated fair value of
an entity's financial instrument assets and liabilities. The Company's
principal financial instrument consists of its three-year revolving credit
facility with a bank. The Company believes that the carrying amount of
such debt approximates the fair value as the variable interest rate
approximates the current prevailing interest rate. Additionally, the
Company's financial position has not substantially changed since the
August 1995 inception of such credit facility.
NOTE F - LONG-TERM LIABILITIES
Long-term liabilities consist of the following at January 31:
1997 1996
----------- -----------
Revolving credit facility $5,400,000 $6,100,000
Pension liability (Note J) 395,789 441,938
---------- ----------
5,795,789 6,541,938
Less current portion of pension liability 50,000 50,000
----------- -----------
Long-term liabilities $5,745,789 $6,491,938
========= =========
During August 1995, the Company entered into a $8,000,000, three-year
secured revolving credit facility with a bank, replacing the two-year
facility that was due to expire. Under this secured revolving credit
facility, which expires on July 31, 1998, the Company may borrow up to a
maximum of $8,000,000 based upon eligible accounts receivable and
inventories, as defined in the Agreement. Borrowings under the revolving
credit facility bear interest at a rate per annum equal to the prime
commercial lending rate or LIBOR plus 200 points (7.44% at January 31,
1997). Such interest is payable at the end of the respective interest
period, ranging from 30 to 180 days. A fee of 1/2% per annum is charged to
the Company on the unused portion of such facility. The loan is
collateralized by substantially all the assets of the Company. Deferred
financing fees of $20,000 are being amortized on a straight-line basis
over the three-year term of this facility. The revolving credit facility
also contains restrictive covenants, measurable on a quarterly or annual
basis, with respect to: tangible net worth, capital expenditures and
certain financial ratios, as defined. The revolving credit agreement
restricts the Company from declaring or paying any dividends. As of
January 31, 1997, the Company was in compliance with all covenants related
to this agreement.
The maximum amounts borrowed under the revolving lines of credit during
the fiscal years ended January 31, 1997 and 1996 were $7,000,000 and
$7,120,000, respectively, and the average interest rate for each period
then ended was 7.5% and 9.4%, respectively.
13
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1997, 1996 and 1995
NOTE G - COMMITMENTS AND CONTINGENCIES
1. Employment Contracts
The Company has employment contracts with three principal officers
expiring through February 2000. Such contracts are automatically
renewable for one- or two-year terms, unless 30 to 120 days' notice is
given by either party. Pursuant to such contracts, the Company is
committed to aggregate base remuneration of $515,000, $175,000 and
$175,000 for the fiscal years ended January 31, 1998, 1999 and 2000,
respectively.
2. Leases
The Company leases the majority of its premises under various
operating leases expiring through fiscal 2002. The lease for the
principal manufacturing facility (located in Decatur, Alabama) is with
a partnership whose partners are principal officers and stockholders
of the Company. This lease expires on August 31, 1999 and requires
annual payments of approximately $365,000 plus certain operating
expenses. In addition, the Company has several operating leases for
machinery and equipment. Total rental expense under all operating
leases is summarized as follows:
Total Rentals
Gross sublease paid to
rental rental related
expense income parties
------- --------- -------
Year ended January 31,
1997 581,161 $ 3,024 $392,160
1996 483,690 20,011 369,150
1995 340,171 13,169 249,300
Minimum annual rental commitments for the remaining term of the
Company's noncancellable operating leases relating to office space and
equipment rentals at January 31, 1997 are summarized as follows:
Year ending January 31,
1998 $ 622,795
1999 594,151
2000 383,885
2001 76,576
2002 8,062
------------
$1,685,469
============
Certain leases require additional payments based upon increases in
property taxes and other expenses.
14
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1997, 1996 and 1995
NOTE G (continued)
3. Services Agreement
In August 1993, the Company entered into a services agreement with an
affiliated entity, principally owned by a principal officer and
stockholder of the Company. Pursuant to the terms of such agreement,
the affiliate provides professional and/or skilled labor to a division
of the Company, as needed, at contractual rates of compensation. Such
agreement is cancelable by either the Company or the affiliate upon
thirty days' written notice. Costs incurred by the Company in
connection with such agreement aggregated $426,000, $520,000 and
$654,000 for the fiscal years ended January 31, 1997, 1996 and 1995,
respectively.
4. Litigation
In January 1995, the Company received a $625,000 cash settlement
pursuant to an action filed against its prior legal counsel, involving
a number of causes of action relating to that law firm's
representation of the Company between 1987 and 1991. This amount is
included in "Other income" for the fiscal year ended January 31, 1995.
The Company is involved in various litigation arising during the
normal course of business which, in the opinion of the management of
the Company, will not have a material adverse effect on the
consolidated financial position or results of operations of the
Company.
5. Self-insurance
The Company maintains a self-insurance program for that portion of
health care costs not covered by insurance. The Company is liable for
claims up to defined limits. Self-insurance costs are based upon the
aggregate of the liability for reported claims and an estimated
liability for claims incurred but not reported.
NOTE H - STOCKHOLDERS' EQUITY AND STOCK OPTIONS
A Nonemployee Directors' Option Plan (the "Directors' Plan") was adopted
by the Board of Directors and approved by the stockholders during the year
ended January 31, 1990. Under the Directors' Plan, 60,000 shares of common
stock have been authorized for issuance. The Directors' Plan provides for
an automatic one-time grant of options to purchase 5,000 shares of common
stock to each nonemployee director elected or appointed to the Board.
Options become exercisable commencing six months from the date of grant
and expire six years from the date of grant. In addition, all nonemployee
directors re-elected to the Company's Board of Directors at any annual
meeting of the stockholders will be automatically granted additional
options to purchase 1,000 shares of common stock on each of such dates.
On May 1, 1986, the Company's 1986 Incentive and Nonstatutory Stock Option
Plan (the "Incentive Plan"), which provides for the granting of incentive
stock options and nonstatutory options, was adopted by the Board of
Directors and approved by the stockholders. This plan provides for the
grant of options to key employees and independent sales representatives to
purchase up to 400,000 shares of the Company's common stock, upon terms
and conditions determined by a committee of the Board of Directors which
administers the plan.
15
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1997, 1996 and 1995
NOTE H (continued)
Options are granted at not less than fair market value (110 percent of
fair market value as to incentive stock options granted to ten percent
stockholders) and are exercisable over a period not to exceed ten years
(five years as to incentive stock options granted to ten percent
stockholders). On February 15, 1989, the Board of Directors approved a
restatement of the Incentive Plan to conform with certain changes required
by the Tax Reform Act of 1986. The Board of Directors also restated the
Incentive Plan to provide for stock appreciation rights and changed
provisions of the plan relative to option holders' rights upon termination
of employment with the Company and modified the language of the Incentive
Plan in other sections such as "Eligibility" and "Terms and Conditions of
Options." The restatement of the Incentive Plan was approved by the
stockholders.
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plans and does not recognize compensation expense for
its stock-based compensation plans. If the Company had elected to
recognize compensation expense based upon the fair value at the date of
grant for awards under these plans consistent with the methodology
prescribed by SFAS 123, the effect on the Company's net income and
earnings per share for the year ended January 31, 1996 would not be
material in relation to the consolidated financial statements and the
Company's net income and earnings per share for the year ended January 31,
1997 would be reduced to the pro forma amounts indicated below:
Net income
As reported $1,063,296
Pro forma 974,555
Net income per common share
As reported $.41
Pro forma .37
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense
related to grants made before fiscal 1995. The fair value of these options
was estimated at the date of grant using the Black-Scholes option-pricing
model with the following assumptions for the years ended January 31, 1997
and 1996, respectively: expected volatility of 57% and 43%; risk-free
interest rates of 7% and 6%; and expected life of six years for both
periods.
16
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1997, 1996 and 1995
NOTE H (continued)
Additional information with respect to the Company's plans for the fiscal
years ended January 31, 1997, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------
Directors' Plan Incentive Plan
-------------------------- -------------------------
Weighted- Weighted-
Number average Number average
of exercise of exercise
Shares price shares price
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Shares under option
Outstanding at beginning of year 18,000 $1.90 150,000 $2.13
Granted - - 34,000 3.50
Expired - - (34,000) 2.50
------ -------
Outstanding at end of year 18,000 1.90 150,000 2.36
====== =======
Options exercisable at year-end 18,000 1.90 150,000 2.36
Weighted-average remaining contractual
life of options outstanding 1 year 4 years
Weighted-average fair value per share
of options granted during 1997 - 2.61
</TABLE>
The exercise prices of options outstanding at January 31, 1997 ranged from
$1.37 to $4.25.
<TABLE>
<CAPTION>
1996
-------------------------------------------------------------
Directors' Plan Incentive Plan
-------------------------- -------------------------
Weighted- Weighted-
Number average Number average
of exercise of exercise
Shares price shares price
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Shares under option
Outstanding at beginning of year 17,000 $1.76 150,000 $2.13
Granted 1,000 4.25 -
------ -------
Outstanding at end of year 18,000 1.90 150,000 2.13
====== =======
Options exercisable at year-end 18,000 1.90 150,000 2.13
Weighted-average fair value per share
of options granted during 1996 2.15 -
</TABLE>
17
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1997, 1996 and 1995
NOTE H (continued)
<TABLE>
<CAPTION>
1995
-------------------------------------------------------------
Directors' Plan Incentive Plan
-------------------------- -------------------------
Weighted- Weighted-
Number average Number average
of exercise of exercise
Shares price shares price
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Shares under option
Outstanding at beginning of year 15,000 $1.48 150,000 $2.13
Granted 2,000 3.88 -
------ -------
Outstanding at end of year 17,000 1.76 150,000 2.13
====== =======
Options exercisable at year-end 17,000 1.76 150,000 2.13
</TABLE>
NOTE I - INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Year ended January 31,
------------------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current
Federal $603,000 $382,000 $ 584,000
State (20,000) (18,000) 207,000
-------- --------- ---------
583,000 364,000 791,000
Deferred (70,000) 5,000 (212,000)
-------- --------- ---------
$513,000 $369,000 $ 579,000
======== ========= =========
</TABLE>
18
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1997, 1996 and 1995
NOTE I (continued)
The following is a reconciliation of the effective income tax rate to the
Federal statutory rate:
<TABLE>
<CAPTION>
Year ended January 31,
----------------------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State income taxes, net of Federal tax benefit (.4) (.4) 4.6
Nondeductible expenses .8 1.7 .5
Operating loss generating no current tax benefit 1.8 2.5
Change in deferred assets/valuation allowance (4.4) .5 (10.0)
Other .7 .3 (.2)
------ ------ ------
Effective rate 32.5% 38.6% 28.9%
====== ====== ======
</TABLE>
The tax effects of temporary differences which give rise to deferred tax
assets at January 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
January 31,
-----------------------------
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets
Accounts receivable $ 57,000 $100,000
Inventories 302,500 271,300
Vacation accrual 37,500 36,300
Net operating loss carryforward - Canadian subsidiary 53,000 24,400
Accrued compensation 19,000
--------
Gross deferred tax assets 469,000 432,000
------- -------
Deferred tax liabilities
Depreciation 82,000 115,000
-------- -------
Gross deferred tax liabilities 82,000 115,000
------- -------
Net deferred tax asset $387,000 $317,000
======= =======
</TABLE>
19
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1997, 1996 and 1995
NOTE I (continued)
The net operating loss carryforwards applicable to the Company's Canadian
subsidiary expire in fiscal 2002 through 2004.
The Internal Revenue Service is currently auditing the Company's fiscal
1995 return. The State of Missouri is currently auditing the Company's
1993 to 1996 fiscal periods. The management of the Company does not expect
that these examinations will have a material adverse impact on the
consolidated financial statements.
NOTE J - DEFINED BENEFIT PENSION PLAN
A former subsidiary of the Company has a defined benefit pension plan
which the Company assumed in connection with an acquisition made in fiscal
1987. This plan covers substantially all of the former subsidiary's
employees. Benefits pursuant to this plan were frozen as of January 1,
1986.
The benefits earned are based on years of service and the employee's final
average annual salary which is based on the highest five consecutive of
the last ten years of employment prior to January 1, 1986. The Company's
funding policy is to contribute annually the recommended amount based on
computations made by its consulting actuary.
The components of the net periodic pension cost for the fiscal years ended
January 31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Normal cost $ 1,613 $ 1,613 $ 1,613
Interest cost on projected benefit obligation 62,259 60,611 56,692
Actual return on assets (92,226) (40,653) (4,322)
Net amortization and deferral 71,026 25,159 (8,529)
------- ------- ------
Net periodic pension cost $ 42,672 $ 46,730 $45,454
======= ======= ======
</TABLE>
The following is a summary of the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at January 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligation
Vested benefits $863,621 $842,701
------- -------
Projected benefit obligation 863,621 842,701
Plan assets at fair market value 467,832 400,763
------- -------
Projected benefit obligation in excess of plan assets 395,789 441,938
</TABLE>
20
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1997, 1996 and 1995
NOTE J (continued)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Unrecognized gain (loss) $ 16,945 $ (62,021)
Unrecognized net obligation at transition amortized
over a 15-year period (79,213) (89,068)
Required minimum liability (also included as a
component of other assets) 62,268 151,089
-------- -------
Pension cost liability (included in long-term liabilities) $395,789 $441,938
======= =======
</TABLE>
An assumed discount rate of 7.5% was used in determining the actuarial
present value of benefit obligations for all periods presented. The
expected long-term rate of return on plan assets was 8% for all periods
presented. At January 31, 1997, approximately 73% of the plan's assets
were held in mutual funds invested primarily in equity securities,
approximately 14% was invested in money market instruments and the
remaining 13% was invested in equity securities and debt instruments.
NOTE K - MAJOR SUPPLIER
The Company purchased approximately 74% of its raw materials from one
supplier under licensing agreements. The Company expects this relationship
to continue for the foreseeable future. If required, similar raw materials
could be purchased from other sources.
21
>
CORPORATE INFORMATION
---------------------
Directors:
Raymond J. Smith, Chairman
Christopher J. Ryan
John J. Collins, Jr.
Senior Vice President of Liberty Brokerage, Inc.
Eric O. Hallman
Officer of Sylvan-Lawrence
Walter J. Raleigh
Senior Advisor to CMI Industries, Inc.
Market Makers:
Troster Singer Corp.
Legg Mason Wood Walker Inc.
G.V.R. Company
Mayer & Schweitzer Inc.
Nash Weiss/Div of Shatkin Inv.
Herzog, Heine, Geduld, Inc.
Mercer Bokert Buckman & Reid
Worldco L.L.C.
M.H. Meyerson & Co.
MPAC Capital Partners, L.P.
Wein Securities Corp.
Officers:
Raymond J. Smith, President
Christopher J. Ryan
Executive Vice President of Finance and Secretary
James M. McCormick
Vice President and Treasurer
Harvey Pride, Jr.
Vice President, Manufacturing
Auditors:
Grant Thornton LLP
Suite 3S01
One Huntington Quadrangle
Melville, NY 11747-4464
Counsel:
Law Offices of Thomas J. Smith
14 Briarwood Lane
Suffern, NY 10901-3602
Transfer Agent:
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
NASDAQ symbol: LAKE
Executive Offices:
711-2 Koehler Ave.
Ronkonkoma, NY 11779
(516) 981-9700
Subsidiaries:
Fireland Industries, Inc.
Lakeland Protective Wear, Inc.
(Canada)
Lakeland de Mexico S.A. de C.V.
Exhibits to Lakeland Industries, Inc.'s 1997 Form 10-K are available to
shareholders for a fee equal to Lakeland's cost in furnishing such exhibits, on
written request to the Secretary, Lakeland Industries, Inc., 711-2 Koehler
Avenue, Ronkonkoma, New York 11779.
DextraGard TM, Forcefield TM, Interceptor TM, Checkmate TM, Heatex TM,
Pyrolon TM, Sterling Heights TM, Fyrepel TM, Highland TM, Impede TM, Chemland TM
and Uniland TM are trademarks of Lakeland Industries, Inc. Tyvek TM, Viton TM,
Barricade TM, Nomex TM, Kevlar TM, Delrin TM, TyChem TM and Teflon TM are
registered trademarks of E.I.DuPont de Nemours and Company. Saranex TM is a
registered trademark of Dow Chemical. Spectra TM is a registered trademark of
Allied Signal, Inc.
22
<PAGE>
[LOGO]
Corporate Headquarters
711-2 Koehler Avenue
Ronkonkoma, NY U.S.A.11779-7410
Tel: 516-981-9700
Fax: 516-981-9751
E-Mail: [email protected]
Internet: http://www.lakeland.com
Lakeland Limited-Use Clothing
Customer Service
800-645-9291
Tel: 205-350-3873
Fax: 205-350-0773
Chemical Protective Clothing Division
Customer Service
800-645-9291
Tel: 205-350-3873
Fax: 205-350-3011
Hand/Arm Protection Division
Customer Service
800-886-8010
Tel: 205-351-9126
Fax: 205-353-9463
Woven Clothing Division
Customer Service
800-933-0115
Tel: 219-929-5536
Fax: 219-929-5562
Fire Protective Clothing Division
Customer Service
800-345-7845
Tel: 205-350-3107
Fax: 205-350-3011
Lakeland Protective Wear Inc. Canada
5109 Harvestor Road
Unit B-14
Burlington, Ontario L7L5Y9
800-489-9131
Tel: 905-634-6400
Fax: 905-634-6611
<PAGE>
May 13, 1997
Dear Stockholder,
I am pleased to extend to you my personal invitation to attend the 1997
Annual Meeting of Stockholders of Lakeland Industries, Inc. (the "Company") on
Wednesday, June 18, 1997 at 10:00 a.m. at the Decatur Country Club, 2401 Country
Club Road SE, Decatur, AL 35601.
The accompanying Notice of Annual Meeting and Proxy Statement contain a
description of the formal business to be acted upon by the stockholders. At the
meeting, I intend to discuss the Company's performance for its fiscal year ended
January 31, 1997 and its plans for the current fiscal year. Certain members of
the Company's Board of Directors and officers of the Company, as well as a
representative of Grant Thornton LLP, the Company's independent auditors, will
be available to answer any questions you may have, or to make a statement if
they wish to.
While I am looking forward to seeing you at the meeting, it is very
important that those of you who cannot personally attend assure your shares are
represented. I urge you therefore to sign and date the enclosed form of proxy
and return it promptly in the accompanying envelope. If you attend the meeting,
you may, if you wish, withdraw any proxy previously given and vote your shares
in person.
Sincerely,
/s/ Raymond J. Smith
Raymond J. Smith
President and Chairman of the Board
<PAGE>
LAKELAND INDUSTRIES, INC.
NOTICE OF
1997 ANNUAL MEETING OF STOCKHOLDERS
June 18, 1997
TO THE STOCKHOLDERS OF LAKELAND INDUSTRIES, INC.:
Notice is hereby given that the Annual Meeting of Stockholders of
Lakeland Industries, Inc., a Delaware corporation (the "Company"), will be held
on Wednesday, June 18, 1997 at 10:00 a.m. at the Decatur Country Club, 2401
Country Club Road SE, Decatur, AL 35601 for the following purposes:
1. To elect two Class II members of the Board of Directors, and
2. To transact such other business as properly may come before
the meeting or any adjournment thereof.
Each share of the Company's Common Stock will be entitled to one vote
upon all matters described above. Stockholders of record at the close of
business on April 29, 1997 will be entitled to notice and to vote at the
meeting.
May 13, 1997
BY ORDER OF THE BOARD OF DIRECTORS
Christopher J. Ryan, Secretary
PLEASE DATE, VOTE AND SIGN THE ENCLOSED PROXY AND RETURN PROMPTLY. AN ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THIS
PURPOSE.
<PAGE>
LAKELAND INDUSTRIES, INC.
711-2 Koehler Ave.
Ronkonkoma, New York 11779
PROXY STATEMENT
1997 Annual Meeting of Stockholders
June 18, 1997
GENERAL INFORMATION
-------------------------
This proxy statement is furnished in connection with the solicitation
by the Board of Directors of Lakeland Industries, Inc. (the "Company") of
proxies from the holders of the Company's $.01 par value Common Stock (the
"Common Stock") for use at the 1997 Annual Meeting of Stockholders to be held on
June 18, 1997, and at any adjournment thereof (the "Annual Meeting").
This proxy statement, the accompanying form of proxy and the Company's
1997 Form 10-K (which includes the Company's Annual Report to Stockholders) are
first being sent to the Company's stockholders on or about May 13, 1997.
The accompanying proxy may be revoked by the person giving it at any
time prior to its being voted; such revocation may be accomplished by a letter,
or by a properly signed proxy bearing a later date, filed with the Secretary of
the Company prior to the Annual Meeting. If the person giving the proxy is
present at the meeting and wishes to vote in person, he or she may withdraw his
or her proxy at that time.
The Company has borne all costs of solicitation of proxies. In addition
to solicitation by mail, there may be incidental personal solicitations made by
directors, officers and regular employees of the Company and its subsidiaries.
The cost of solicitation, including the payments to nominees who at the request
of the Company mail such material to their customers, will be borne by the
Company.
VOTING SECURITIES AND STOCK OWNERSHIP OF OFFICERS,
DIRECTORS AND PRINCIPAL STOCKHOLDERS
All holders of record of the Common Stock at the close of business on
April 29, 1997, are entitled to notice of and to vote at the Annual Meeting. At
the close of business on April 29, 1997, there were 2,550,000 shares of
outstanding Common Stock, each entitled to one vote per share on all matters to
be voted upon at the Annual Meeting. The Company's stockholders do not have
cumulative voting rights.
1
<PAGE>
The following table sets forth information as of April 25, 1997, with
respect to beneficial ownership of the Company's Common Stock by all persons
known by the Company to own beneficially more than 5% of the Common Stock, each
director and nominee for director of the Company and all directors and officers
of the Company as a group. All persons listed have sole voting and investment
power with respect to their shares of Common Stock.
Name and Address Number of Common Percent of
Beneficial Owner Shares Beneficially Owned of Class
- ------------------- ------------------------ ----------
Raymond J. Smith 579,500 (1) 22.73%
711-2 Koehler Ave.
Ronkonkoma, NY 11779
Christopher J. Ryan 248,972 (2)(6) 9.76%
711-2 Koehler Ave.
Ronkonkoma, NY 11779
Joseph P. Gordon 140,500 5.51%
177-23 Union Tpke.,
Flushing, NY 11366
John J. Collins, Jr. 126,400 (3) 4.96%
Eric O. Hallman 74,000 (3) 2.90%
Walter J. Raleigh 6,000 (4) .24%
All officers and directors
as a group (7 persons) 1,079,822 (5) 42.35%
- --------------------------
Included in the above are fully exercisable options to purchase the Company's
common stock, as follows:
(1) 9,000 shares granted on June 5, 1996; and 44,500 shares
granted January 1 and 2, 1994;
(2) 40,000 shares granted on May 28, 1991; and 8,750 shares
granted January 1, 1994;
(3) 5,000 shares granted on June 5, 1991; and 1,000 shares granted
on June 15, 1994 to each of Mr. Hallman and Mr. Collins;
(4) 5,000 shares granted on April 18, 1997 and 1,000 shares
granted June 15, 1995;
(5) 164,700 shares granted between May 28, 1991 and April 18, 1997
(6) Mr. Ryan disclaims beneficial ownership of 15,000 shares owned
by his wife.
2
<PAGE>
Proposal 1 -
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for three classes
of directors with staggered terms of office and provides that upon the
expiration of the terms of office for a class of directors, nominees for each
class shall be elected for a term of three years to serve until the election and
qualification of their successors or until their earlier resignation, death or
removal from office. The Company currently has one Class I director, two Class
II directors and two Class III directors. At the 1997 Annual Meeting there are
two nominees for director in Class II. The incumbent Class III and Class I
directors have one year and two years, respectively, remaining on their terms of
office.
The Company has no reason to believe that either of the nominees will
be disqualified or unable to serve, or will refuse to serve if elected. However,
if a nominee is unable or unwilling to accept election, the proxies will be
voted for such substitute as the Board of Directors may select. It is intended
that the shares represented by proxies will be voted, in the absence of contrary
instructions, for the election as director of the nominees for Class II named in
the following table. The Board of Directors has nominated and Management
recommends the election of the persons listed in the following table as Class II
directors. The table also sets forth the names of the one director in Class I
and the two directors in Class III whose terms of office have not expired, their
ages, their positions with the Company and the period each has served as a
director of the Company. There are no family relationships among the Board
members.
<TABLE>
<CAPTION>
Position
With the Director
Name Age Company Since
- ---------------------------------------------------------------------------------------------------------------
NOMINEES FOR DIRECTOR
CLASS II
(Nominees for 3 Year Term Expiring in June, 2000)
-----------------------------------------
<S> <C> <C> <C>
John J. Collins, Jr. 54 Director 1986
Eric O. Hallman 53 Director 1982
<CAPTION>
INCUMBENT DIRECTOR - CLASS I
(Two Years Remaining on Term Expiring in June, 1999)
-----------------------------------------
<S> <C> <C> <C>
Christopher J. Ryan 45 Executive Vice President - 1986
Finance, Secretary and Director
<CAPTION>
INCUMBENT DIRECTORS - CLASS III
(One Year remaining on Term Expiring in June, 1998)
------------------------------------------
<S> <C> <C> <C>
Raymond J. Smith 58 Chairman of the Board, 1982
President and Director
Walter J. Raleigh 69 Director 1991
</TABLE>
3
<PAGE>
The principal occupations and employment of the nominees for director
and for the directors continuing in office are set forth below:
John J. Collins, Jr. has been Senior Vice President of Liberty
Brokerage, a government securities firm, since January 1987. From 1977 to
January, 1987, he was Executive Vice President of Chapdelaine GSI, a government
securities firm.
Eric O. Hallman has been a director of the Company since its
incorporation. He was President of Naess Hallman Inc., a shipbrokering firm,
between 1984 and 1991. Mr. Hallman was also affiliated between 1991 and 1992
with Finanshuset (U.S.A.), Inc., a shipbrokering and international financial
services and consulting concern, and is currently an officer of Sylvan Lawrence,
a real estate development company.
Raymond J. Smith, a co-founder of the Company, has been Chairman of the
Board of Directors and President since its incorporation in 1982.
Walter J. Raleigh is a director of Clinton Mills, Inc. and was
president of Clinton Mills Sales, Co. Division, N.Y. from 1974 to 1995. Clinton
Mills was a textile manufacturer of woven fabrics. Mr. Raleigh retired from
Clinton Mills in 1995 and now is a Senior Adviser to CMI Industries, Inc., the
successor company to Clinton Mills. Mr. Raleigh is a director of Kerry Petroleum
Company, an oil and gas development company.
Christopher J. Ryan has served as Executive Vice President-Finance and
director since May, 1986 and Secretary since April 1991. From October 1989
until February 1991 Mr. Ryan was employed by Sands Brothers, Mitchell Co. Ltd.
and Rodman & Renshaw, Inc., both investment banking firms. Prior to that, he
was an independent consultant with Laidlaw Holding Co., Inc., an investment
banking firm, from January 1989 until September 1989. From February, 1987 to
January, 1989 he was employed as the Managing Director of Corporate Finance for
Brean Murray, Foster Securities, Inc. He was employed from June, 1985 to March,
1986 as a Senior Vice President with the investment banking firm of Laidlaw
Adams Peck, Inc., a predecessor firm to Laidlaw Holdings, Inc.
During the year ended January 31, 1997, the Board of Directors of the
Company met three times, and four of the five members of the Board of Directors
attended at least 75% of the aggregate of (1) the total number of meetings of
the Board of Directors held during the period when he was a director, and (2)
the total number of meetings held by all committees of the Board of Directors
on which he served (during the periods when he served).
Committees of the Board of Directors are as follows:
1- The Stock Option and Compensation Committee is responsible for
evaluating the performance of the Company's management, fixing or determining
the method of fixing compensation of the Company's salaried employees,
administering the Company's Stock Option and 401K/ESOP Plans, and reviewing
significant amendments to a subsidiary's employee pension benefit plan. The
Committee also, in conjunction with the Chief Executive Officer, considers the
qualifications of prospective Directors of the Company and, as vacancies occur,
recommends nominees to the Board of Directors. The Stock Option and Compensation
Committee (which also functions as a nominating committee for nominations to the
Board) will consider nominees to the Board recommended by stockholders. Such
recommendations must be in writing and sent to the Secretary of the Company no
later than January 31st of the year in which the Annual Meeting is to be held,
accompanied by a brief description of the proposed nominee's principal
occupation and his or her other qualifications which, in the stockholder's
opinion, make such person a suitable candidate for nomination to the Board. This
Committee did not meet during the year ended January 31, 1997.
The committee members are:
John J. Collins, Jr., Eric O. Hallman, and Walter J. Raleigh
4
<PAGE>
Compensation Committee Interlocks and Insider Participation
Members of the Stock Option and Compensation Committee are outside
directors that do not serve in any other capacity with respect to the Company or
any of its subsidiaries. Messrs. Collins and Hallman are partners of POMS
Holding Co., see Certain Relationships and Related Transactions.
2- The Audit Committee was formed in September, 1987 and is responsible
for recommending to the Board of Directors the appointment of independent
auditors for the fiscal year, reviewing with the independent auditors the scope
of their proposed and completed audits, and reviewing with the Company's
financial management and its independent auditors, other matters relating to
audits and to the adequacy of the Company's internal control structure. This
Committee met once during the year ended January 31, 1997.
The committee members are:
John J. Collins, Jr., Eric O. Hallman, and Christopher J. Ryan
COMPENSATION OF EXECUTIVE OFFICERS
--------------------------------------
The table below sets forth all salary, bonus and all other compensation
paid to the Company's chief executive officer and each of the Company's other
executive officers (who earned more than $100,000 per year in salary and bonus)
for the years ended January 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Name and All Other
Principal Position Year Salary Bonus Compensation
<S> <C> <C> <C> <C>
Raymond J. Smith, 1997 $225,000 $-------- $--------
Chairman, President and CEO 1996 225,000 28,653 --------
1995 195,000 29,250 --------
Christopher J. Ryan, 1997 115,000 23,250 --------
Executive V.P.-Finance 1996 115,000 55,956 --------
and Secretary 1995 115,000 17,250 --------
Harvey Pride, Jr. 1997 115,000 19,136 --------
Vice President- 1996 115,000 9,044 --------
Manufacturing 1995 108,619 16,044 --------
James McCormick 1997 89,000 16,350 --------
VP - Treasurer 1996 89,000 10,968 --------
1995 87,802 12,684 --------
</TABLE>
There are four executive officers with salary and bonus individually
exceeding $100,000. There were no pension or retirement plans or other benefits,
payable or accrued, for such persons during fiscal year 1997. The Company has
entered into employment contracts with certain executive officers providing for
annual compensation of $225,000 for Mr. Smith and $175,000 for Mr. Ryan and
$115,000 for Mr. Pride. Mr. Smith has a three year contract which expires on
January 31, 1998, Mr. Pride has a one year contract which expires on January 31,
1998 and Mr. Ryan has a three year contract which expires on February 13, 2000.
All contracts are automatically renewable for one or two year terms, unless in
various instances 30 to 120 days notice is given by either party. The above
named executives participate in the Company's 401-K Plan which commenced on
January 1, 1995. The Company has not made a contribution to this plan.
These employment contracts are similar in nature and include disability
benefits, vacation time, non-compete and
5
<PAGE>
confidentiality clauses. There are no provisions for retirement. Messrs. Smith,
Ryan and Pride's contracts have an additional provision for annual bonus based
on the Company's performance and based upon earnings per share formulas
determined by the Stock Option and Compensation Committee of the Board of
Directors of the Company. All contracts contain language substantially similar
to the following change in control clause:
"Upon the occurrence of a change in control..., you shall have
the right to terminate, at your option this agreement within 10 to 45
days after the occurrence of such change in control. Upon the effective
date of such termination, you shall be entitled to receive a lump sum
severance amount equal to the sum of (i) the greater of the present
value of your base salary in effect at the time of the change in
control for one year or the present value of your base salary in effect
at the time of the change of control for the remainder of the term and
(ii) the estimated amount which would have been payable to you pursuant
to any bonus as set forth in this agreement for the fiscal year during
which the change in control occurred, as determined in good faith by
the (Stock Option and Compensation Committee) Board of Directors of the
Company based upon the Company's results of operations for the fiscal
year through the effective date of the termination and its historical
results of operations and pro-rated to the effective date of
termination...
In the event of a disposition by the Company (whether direct
or indirect, by sale of assets or stock, merger, consolidation or
otherwise) of all or substantially all of its business and/or assets
the Company will require any successor, to expressly assume and agree
to perform this agreement in the same manner and to the same extent
that the Company would be required to perform if no such disposition
had taken place."
STOCK OPTION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Policies: The compensation policy of the Company is to provide its executive
officers and management with a level of pay and benefits that will assure the
Company's competitiveness and continued growth, and allow the Company to retain
key executives critical to this long-term success and attract and retain
qualified personnel. The Company competes for talented executives in a market
segment where successful entrepreneurial executives are highly compensated. It
also competes for executives with a background in manufacturing and selling
protective safety garments. As a result, to obtain and retain highly qualified
and motivated executives, the Compensation Committee has deemed it desirable to
structure employment arrangements which compensate highly for high profitability
and performance and to enter into written employment agreements with its senior
executive officers.
The Compensation Committee's responsibilities include overseeing the
Company's compensation policies., supervising compensation for management and
employee benefits and administering the Company's stock option and other
employee benefit plans.
The Compensation Committee also develops and negotiates employment
agreements with key executive officers. These employment agreements include base
salaries and incentive compensation arrangements designed to reward management
for achieving certain production or performance levels. The Compensation
Committee is also responsible for developing or reviewing incentive compensation
arrangements which the Company enters into with executive officers and key
individuals, other than those senior executives that have written employment
agreements. See "Compensation of Executive Officers".
In order to determine appropriate levels of executive compensation, the
Compensation Committee reviews various factors, including individual
performance, and evaluates the progress of the Company towards attaining its
long-term profit and return on equity goals. Compensation packages for senior
executive officers have been structured to attempt to compensate them to a
substantial extent based on both the profitability of the Company as a whole and
the productivity of their individual departments.
Particulars: Messrs. Eric O. Hallman, John J. Collins, Jr. and Walter J. Raleigh
were members of the Company's Stock Option and Compensation Committee when it
ratified Mr. Smith's employment contract on September 7, 1994, and Mr. Pride's
employment contract renewed February 1, 1995 and Mr.Ryan's which was ratified on
February 14, 1997. Mr. Walter J. Raleigh joined the Board of Directors on April
18, 1991, as a third outside director and with Messrs. Hallman and Collins,
these three outside directors presently make up the Stock Option and
Compensation Committee.
Messrs. Smith, Pride and Ryan were awarded base compensations of
$225,000, $115,000 and $115,000, for fiscal 1997, respectively. In addition, the
Committee reviewed what was normally paid the President and Chairman in Mr.
Smith's case and Executive Vice President Finance and InHouse Counsel in Mr.
Ryan's case and the Chief Manufacturing Executive in Mr. Pride's case, in public
companies of Lakeland's size and concluded that the compensation package
represented close to the median of what other officers were being compensated in
like public companies of comparable size
6
<PAGE>
after reviewing Growth Resources Officer Compensation Report Tenth Edition -
Panel Publications.
These contracts also provide for bonuses in addition to salary based
upon the Company's increase in earnings. No options during this period were
exercised by any officer. (See Directors and Principal Stockholders.) The Stock
Option and Compensation Committee believes that the contracts covering Messrs.
Smith, Pride and Ryan are appropriately tied to their respective levels of
expertise, were constructed at or below industry norms, and any increases in
compensation were and will be tied to increases in the Company's earnings. The
Stock Option and Compensation Committee also took into consideration that since
the inception of the Company 15 years ago there have been no executive pension
plans, deferred compensation plans, or other compensation or benefit plans for
executives of the Company other than the Company Stock Option Plan and the
401-K/ESOP Plan, the latter of which went into effect January 1, 1995.
The Board Compensation Committee Report on Executive Compensation shall
not be deemed incorporated by reference by any general statement incorporating
by reference this proxy statement into any filing under the Securities Act 1933
or the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
Performance Graph
The Corporate Performance Graph, appearing on the following page,
obtained from Media General Financial Services of Virginia, compares the five
year cumulative total return of the Company's common stock with that of a broad
equity market index (NASDAQ), including dividend reinvestment and with that of a
peer group:
Option/SAR Grants in Last Fiscal Year - No stock options were granted to any
employee not listed below in fiscal 1997 and no SAR grants have been made since
inception of the Stock Option Plan. See Directors' Compensation.
Stock Option Plan
Messrs. Smith, Ryan, Pride and McCormick participate in the Company's Incentive
Stock Option Plan (common stock) as follows:
<TABLE>
<CAPTION>
No. of Date(s) Grant
Name of Shares Option of Expiration Date
Executive Granted Price Grant Date(s) Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mr. Smith 53,500 $2.25 - 3.50 6/5/96 & 1/2/94 & 1/1/94 6/4/06 & 1/2/99 & 1/1/99 $140,894
Mr. Ryan 48,750 $1.37 - 2.25 5/28/91 & 1/1/94 5/27/01 & 1/1/04 $74,487
Mr. Pride 29,600 $2.25 - 3.50 6/5/96 & 1/1/94 6/4/06 & 1/1/04 $91,600
Mr. McCormick 14,850 $2.25 - 3.50 6/5/96 & 1/1/94 6/4/06 & 1/1/04 $39,663
</TABLE>
There are currently 250,000 option shares available for future grant
under this plan. During the year ended January 31, 1997, 34,000 stock options
were granted (replacing same that expired); no stock options have ever been
exerecised under this Plan.
7
<PAGE>
[CHART]
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG LAKELAND INDUSTRIES, INC.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
-------------------------------------------------------------------
COMPANY 1992 1993 1994 1995 1996 1997
- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
LAKELAND INDUSTRIES, INC. $100 $187.50 $262.50 $475.00 $428.13 $315.63
BROAD MARKET 100 99.66 125.55 118.65 166.13 218.63
PEER GROUP 100 75.15 83.71 78.60 52.53 50.93
</TABLE>
ASSUMES $100 INVESTED ON FEB. 1, 1992
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JAN. 31, 1997
8
<PAGE>
DIRECTORS' COMPENSATION
-----------------------------
Members of the Board of Directors, in their capacity as directors, are
reimbursed for all travel expenses to and from meetings of the Board. Outside
Directors received $750 for each meeting as compensation for serving on the
Board. There are no charitable award or director legacy programs. Messrs.
Collins, Hallman and Raleigh participate in the Company's Non-employee
Directors' Option Plan as follows:
# of Option Date of Expiration
Director Shares Price Grant Date
------------- -------- ------ -------- ----------
Mr. Collins 5,000 1.43 6/5/91 6/5/97
Mr. Hallman 5,000 1.43 6/5/91 6/5/97
Mr. Collins 1,000 3.88 6/15/94 6/15/2000
Mr. Hallman 1,000 3.88 6/15/94 6/15/2000
Mr. Raleigh 1,000 4.25 6/15/95 6/15/2001
Mr. Raleigh 5,000 3.25 4/18/97 4/18/2003
There are currently 42,000 option shares available for future grant
under this plan. During the year ended January 31, 1997, no options were granted
and no options have ever been exercised under this plan. On April 18, 1997,
5,000 option shares for Mr. Raleigh expired and were renewed for an additional
six year period at the market price at the close of business April 18, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------------
POMS Holding Co. ("POMS", a partnership consisting of Raymond J. Smith,
Eric O. Hallman, John J. Collins, Jr., Joseph P. Gordon, Harvey Pride, Jr. and
certain other stockholders of the Company) leases to the Company a 90,308 square
foot disposable garment manufacturing facility in Decatur, Alabama. Under leases
effective January 1 and March 1, 1995 and expiring on August 31, 1999, the
Company pays an annual rent of $364,900 and is the sole occupant of the
facility.
The Company received a $3,000 monthly rent reduction from POMS (that
commenced August 1, 1991 and continued until August 31, 1994, and during January
1994, the Company received an additional one time rent reduction of $5,000. For
the years ended January 31, 1997, 1996 and 1995 this rent reduction amounted to
$0, $0, and $21,000, respectively.
During September 1992 Highland, a former wholly-owned subsidiary of the
Company, relocated to Somerville, Alabama from the above mentioned Decatur
facility. Highland entered into $1,500 month to month lease agreement for 12,000
sq. ft. of manufacturing space, sharing this same Somerville location with
Chemland, another former wholly-owned subsidiary of the Company. Chemland
currently has a $1,600 month to month lease agreement for 12,000 sq. ft. This
Somerville facility is owned by Harvey Pride, Jr., an officer of the Company.
The Company believes that all rents paid to POMS and Harvey Pride, Jr.
by the Company, Highland and Chemland Divisions are comparable to what would be
charged by an unrelated third party. The net rent paid to POMS by the Company
for the year ended January 31, 1997, amounted to $354,960 and the total rent
paid to Harvey Pride, Jr. by the Company for use by its Highland and Chemland
divisions, for the year ended January 31, 1997, amounted to $37,200.
During the year ended January 31, 1997 the Company made payments
totaling $4,396 to Madison Mobile Storage, Inc. for trailer rentals, and
$433,262 for expenses incurred by Madison Mobile Storage, Inc. in running the
Company's Missouri facility. Such expenses included payroll, insurance, auto and
other miscellaneous expenses. The principal shareholder of Madison Mobile
Storage, Inc. is Mr. Harvey Pride, Jr. who is also an officer of the Company.
The Company paid or accrued legal fees of $2,670 for the fiscal year
ended January 31, 1997 to the law firm of Wildman, Harrold, Allen, Dixon &
Smith, the Company's General Counsel, of which a partner, Mr. Thomas Smith, is
the brother of Raymond J. Smith.
9
<PAGE>
OTHER MATTERS
------------------
The Board of Directors knows of no matters other than those described
above that may come before the Annual Meeting. As to other matters, if any, that
properly may come before the Annual Meeting, the Board of Directors intends that
proxies in the accompanying form will be voted in respect thereof in accordance
with the judgment of the person or persons voting the proxies.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
---------------------------------------------
Stockholder proposals for inclusion in the Company's Proxy Statement
for the 1998 Annual Meeting of Stockholders must be received by the Company not
later than January 1, 1998. The person submitting the proposal must have been a
record or beneficial owner of the Company's Common Stock for at least one year
and must continue to own such securities through the date on which the meeting
is held, and the securities so held must have a market value of at least $1,000.
Any such proposal will be included in the Proxy Statement for such Annual
Meeting if the rules of the Securities and Exchange Commission are complied with
as to the timing and form of such proposal, and the content of such
stockholder's proposal is determined by the Company to be appropriate under
rules promulgated by the Commission.
By the Order of the Board of Directors
/s/ Christopher J. Ryan
Christopher J. Ryan,
Secretary
May 13, 1997
10
<PAGE>
<TABLE>
<S> <C> <C>
/x/ PLEASE MARK VOTES PROXY
AS IN THIS EXAMPLE LAKELAND INDUSTRIES, INC.
711-2 KOEHLER AVENUE, RONKONKOMA, NEW YORK 11779-7410
</TABLE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Raymond J. Smith and Christopher J. Ryan as
proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all the shares of common
stock of Lakeland Industries, Inc., held of record by the undersigned on April
29, 1997, at the annual meeting of stockholders to be held on June 18, 1997 or
any adjournment thereof.
<TABLE>
<S> <C> <C>
PLEASE BE Dated: 1997
SURE TO
SIGN AND
DATE
THIS
PROXY IN
THE BOX
BELOW.
Signature Signature if held jointly
</TABLE>
<TABLE>
<S> <C> <C>
FOR WITHHOLD
nominee AUTHORITY
listed to vote
below for
(except nominee
as listed
marked to below
the
contrary
below)
1. Election of Directors / / / /
</TABLE>
JOHN J. COLLINS, JR., ERIC O. HALLMAN
(Instruction: To withhold authority to vote for any individual nominee write
that nominee's name on the space provided below.)
- -------------------------------------------------------------------
2. Other Business
1. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give title as such. If a corporation, please sign in
full corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
+ +
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
LAKELAND INDUSTRIES, INC.
PLEASE DATE, VOTE SIGN AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from [identify
specific financial statements[s]] and is qualified in its entirety by reference
to such financial statement[s].
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 504,940
<SECURITIES> 0
<RECEIVABLES> 5,893,594
<ALLOWANCES> 0
<INVENTORY> 9,894,156
<CURRENT-ASSETS> 16,938,591
<PP&E> 989,667
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,573,116
<CURRENT-LIABILITIES> 2,920,313
<BONDS> 0
0
0
<COMMON> 25,500
<OTHER-SE> 5,981,226
<TOTAL-LIABILITY-AND-EQUITY> 18,573,116
<SALES> 41,792,469
<TOTAL-REVENUES> 41,792,469
<CGS> 34,555,786
<TOTAL-COSTS> 5,212,286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 510,757
<INCOME-PRETAX> 1,576,296
<INCOME-TAX> 513,000
<INCOME-CONTINUING> 1,063,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,063,296
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
