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
For the fiscal year ended, January 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number: 0 - 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 whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate 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 ____.
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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 17, 1998 was approximately $14,163,091 (based on
1,531,145 shares held by nonaffiliates).
The number of shares outstanding of the Registrant's common stock, $.01
par value, on April 29, 1998 was 2,610,472.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended January
31, 1998 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 17, 1998, are incorporated by reference in Items
10 - 13 of Part III of this Annual Report on Form 10-K.
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CAUTIONARY STATEMENTS
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements are all statements other than
statements of historical fact included in this report, including, without
limitation, the statements under the headings "Business," and "Properties,"
"Market for Registrant's Common Stock and Related Stockholder Matters," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position and liquidity, the
Company's strategic alternatives, future capital needs, development and capital
expenditures (including the amount and nature thereof), future net revenues,
business strategies, and other plans and objectives of management of the Company
for future operations and activities.
Forward-looking statements are based on certain assumptions and analyses
made by the Company in light of its experience and its perception of historical
trends, current conditions, expected future developments and other factors it
believes are appropriate under the circumstances. These statements are subject
to a number of assumptions, risks and uncertainties, and factors in the
Company's other filings with the Securities and Exchange Commission (the
"Commission"), general economic and business conditions, the business
opportunities that may be presented to and pursued by the Company, changes in
law or regulations and other factors, many of which are beyond the control of
the Company. Readers are cautioned that these statements are not guarantees of
future performance, and the actual results or developments may differ materially
from those projected in the forward-looking statements. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by these
cautionary statements.
PART I
ITEM 1. BUSINESS
Lakeland Industries, Inc. (the"Company") believes that it is one of the
leading manufacturers of a comprehensive line of safety garments and accessories
for the industrial safety and protective clothing industries in the United
States. The Company's major product areas include disposable / limited use
protective industrial garments, specialty safety and industrial work gloves,
reusable woven industrial and medical apparel, fire and heat protective clothing
along with protective systems for personnel, and suits for use by toxic waste
clean up teams. Products are manufactured both domestically and internationally
by the Company and by contract manufacturers. Products are sold by Company
personnel and 42 independent sales representatives, primarily to a network of
500 safety and mill supply distributors.
The Company's protective garments are used primarily for: (i) safety and
hazard protection, to protect the wearer from contaminants or irritants, such
as, chemicals, pesticides, fertilizers, paint, grease, and dust and from limited
exposure to hazardous waste and toxic chemicals including acids, asbestos, lead,
and hydro-carbon's (PCB's) (ii) clean room environments, for the prevention of
human contamination of manufacturing processes in clean room environments, (iii)
hand and arm protection, to protect the wearer's hand and arms from lacerations,
heat and chemical irritants without sacrificing manual dexterity or comfort,
(iv) heat and fire protection, to protect municipal fire fighters, military,
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airport and industrial fire fighting teams and for maintenance of "hot"
equipment, such as, coke ovens, kilns, glass furnaces, refinery installations,
and smelting plants, (v) protection from viral and bacterial microbiologicals,
to protect the wearer from contagious diseases, such as AIDS and hepatitis, at
hospitals, clinics and emergency rescue sites, and (vi) protection from highly
concentrated and powerful chemical and biological toxins, to protect the wearer
from toxic wastes at Super Fund sites, accidental toxic chemical spills or
biological discharges, the handling of chemical or biological warfare weapons
and the cleaning and maintenance of chemical, petro-chemical and nuclear
facilities.
These products are manufactured, distributed and sold through six
divisions and three wholly owned subsidiaries.
The Company was incorporated in New York in 1982 and later reincorporated
in Delaware in 1986. A new subsidiary, Fireland Industries, Inc. was formed
during fiscal 1994 to hold the land and building then owned in Ohio and to act
as Trustee and Sponsor of the Fireland Industries, Inc. Pension Plan. During
fiscal 1998, the name of this subsidiary was changed to Laidlaw, Adams & Peck,
Inc.
In December 1997, the Company replaced its $8 million dollar bank line of
credit with a two year $10 million credit facility.
Background and Market
The market for disposable industrial garments has increased substantially
in the past 20 years. In 1970, Congress enacted the 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.
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. The Company continued to market
Fyrepel's product line and furnishes these products but utilized domestic or
international independent manufacturing contractors while internal manufacturing
was phased out.
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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 as promulgated under prior Congressional Super Fund Acts and the
Super Fund Reform Act of 1998 presently awaiting passage. 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. Various states
have also enacted worker safety laws which are equal to or go beyond OSHA
standards and requirements, as it affects the Company's products.
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 specify 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.
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 or woven 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.
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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,
Barricade, Tychem 9400, Tychem 10,000, Pyrolon FR, proprietary patented fabrics
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)
disposable 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 $.06 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, maintenance and slippage
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.
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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 enhanced 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 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
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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 $12 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. The Company has also introduced two
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 from the Company's plant by the
Company's wholly owned contract assembly facilities or independent sewing
contractors. The assembly facilities and independent contractors sew and package
the finished garments at their own facilities and return them to the Company's
plant, normally within one to nine weeks for immediate shipment to the customer.
The Company presently utilizes over 30 independent sewing contractors
under agreements that are terminable at will by either party. These contractors
employ approximately 500 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
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independent sewing contractors and considers its relations with such contractors
to be excellent. In the year ended January 31, 1998, no 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. 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 its Company owned
facilities complemented by the 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.
This allows the Company to react quickly to changing unit demand for its
products.
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 garments for
emergency response paramedic teams.
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 Company 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 TM suits (a Teflon level A sophisticated chemical suit) the
Interceptor TM line of suits, and Checkmate TM suits used by hazardous materials
response teams have been developed internally to provide chemical protection at
the highest level of barrier available today and are patented products.
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.
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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.
Glove dotting for grip enhancement is also done internally.
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's Decatur, Alabama plant was ISO 9002 certified during fiscal year 1998.
Marketing
The Company markets and sells its products through a minimum of 42
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, 1998, 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. Due to increasingly technical nature
of the sale, in 1992 the Fyrepel division ceased using independent sales
representatives, utilizing in house personnel only. Products are sold through
the Company's network of distributors to the steel, aluminum, nuclear, chemical
and petro chemical, fiberglass, agricultural, pharmaceutical, aerospace,
electronics, semi conductor, food processing, glass, power generation and
automotive industries, ammunition plants, and fire departments, the U.S. Defense
Department and numerous other governmental and quasi-governmental agencies.
Highland, the glove division, 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
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represented at the National Safety Congress in Chicago, IL (Fall of 1997) and
will be represented at the American Industrial Hygienists Convention (Spring of
1998). The Company also markets its products through its web-site on the
Internet at /http://www.lakeland.com.
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 thirty 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 its raw materials,
fabrics or components on any of the above described products. 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 coatings. The chemical protective suits are made of Viton TM, butyl
rubber, PVC (available from multiple sources), proprietary and Company patented
laminates and Teflon TM, Saranex TM Tyvek QC TM, TyChem TM and Barricade TM from
DuPont. The Company also has not experienced difficulty obtaining any of the
aforementioned materials.
Competition
Competition in the market for all of the Company's products is intense.
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 continued through fiscal
1993. However, small price increases on the core Tyvek disposable line in
February of 1993, 1994, 1996 and 1998 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 1998. The Company continues to focus its efforts on increasing the
sales and profitability of all products, and to redeploy its capital toward
higher margin proprietary products.
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Seasonality
Historically, more disposable garments are sold in spring and summer due
to moderate weather and construction starts. The highest level of activity is 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. Since
fiscal 1994, the third quarter has been the only seasonally weak quarter.
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, two Company developed
patents, five additional patents in the application and approval process with
the U.S. Patent and Trademark office, and has one non-exclusive agreement with
DuPont regarding patented materials used in the manufacture of chemical suits.
Employees
As of April 15, 1998, the Company had approximately 766 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 foreign sales office, one Canadian 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 one lease expiring on December 31, 2000 and
the second smaller facility is leased on a month to month basis. The Company
also leases a 39,816 square foot manufacturing facility in China. This lease
agreement is with a partnership of American and Chinese individuals (which
include certain officers, employees and directors of the Company) who own the
buildings and leases the property for 50 years. The partnership in turn leases
the buildings to the Chinese division of the Company as a sales, distribution
and manufacturing facility. Currently, the lease is on a month to month basis at
an annual rental of $36,288. A formal lease is expected upon completion of the
building. A small 2,000 sq. ft. sales office is also leased (from a third party)
at an annual rental of $8,000.
<PAGE>
The Company leases a 5,600 square foot warehouse in Canada under a lease
expiring on November 30, 2001.
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, 1998, the Company paid total rent on
property and all leased equipment of approximately $669,514 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 1998 Annual Report to
Shareholders filed as Exhibit 13 hereto and incorporated herein by reference.
(See Part IV, Item 14(c) Exhibits.)
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to Page 2 ("Selected Financial Data") of the
Registrant's 1998 Annual Report to Shareholders filed as an exhibit hereto filed
as an Exhibit 13 hereto and incorporated herein by reference. (See Part IV, Item
14(c) Exhibits.)
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 Operations") of the Registrant's 1998 Annual
Report to Shareholders filed as Exhibit 13 hereto and incorporated herein by
reference. (See Part IV, Item 14(c) Exhibits.)
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements are incorporated herein by
reference to Pages 5 to 23 of the Registrant's Annual Report to Shareholders for
the year ended January 31, 1998:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - January 31, 1998 and 1997
Consolidated Statements of Income for the years ended January 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended
January 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended January
31, 1998, 1997 and 1996
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 1998 Annual Meeting of Stockholders
("Proxy Statement"), which information is included in Exhibit 20 hereto and
incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.)
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.
<TABLE>
<CAPTION>
Name Age Position Held
---- --- -------------
<S> <C> <C>
Raymond J. Smith 59 Chairman of the Board, President and Director
Christopher J. Ryan 46 Executive Vice President - Finance & Secretary and Director
Harvey Pride, Jr. 51 Vice President - Manufacturing
James M. McCormick 50 Vice President and Treasurer
</TABLE>
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.
<PAGE>
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 & 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 included in Exhibit 20
hereto and incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.)
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 included in Exhibit 20 hereto and
incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.)
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. (See Part IV, Item 14(c) Exhibits.)
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, 1998, as noted
in Item 8 hereof:
<PAGE>
Report of Independent Certified Public Accounts
Consolidated Balance Sheets - January 31, 1998 and 1997
Consolidated Statements of Income for the years ended January 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended
January 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended January
31, 1998, 1997 and 1996
Notes to consolidated financial statements
2. Financial Statement Schedules
The following consolidated financial statement schedule is included
in Part IV of this report: Schedule II - Valuation and qualifying
accounts All other schedules are omitted because they are not
applicable, or not required, or because the required information is
included in the consolidated financial statements or notes thereto.
(b) Reports on Form 8 - K.
No report on Form 8 - K has been filed for the Quarter ended January 31,
1998.
(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 (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 January 23, 1998
<PAGE>
10 (h) Employment agreement between the Company and Harvey Pride, Jr.,
dated January 31, 1998
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 December 12, 1997 between the Company and
Merrill Lynch.
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 29, 1998***
13 Annual Report to Shareholders for the year ended January 31, 1998
20 Proxy Statement of the Registrant for Annual Meeting of Stockholders -
June 17, 1998
22 Subsidiaries of the Company (wholly-owned):
Lakeland Protective Wear, Inc.
Lakeland de Mexico S.A. de C.V.
Laidlaw, Adams & Peck, Inc.
27 Financial Data Schedules
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.
<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 30, 1998
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 30, 1998
- ------------------- President and Director
Raymond J. Smith (Principal Executive Officer)
/s/Christopher J. Ryan Executive V. P.- Finance April 30, 1998
- ---------------------- & Secretary and Director
Christopher J. Ryan
/s/James M. McCormick Vice President and Treasurer April 30, 1998
- --------------------- (Principal Financial and
James M. McCormick Accounting Officer)
/s/Eric O. Hallman Director April 30, 1998
- ------------------
Eric O. Hallman
/s/John J. Collins, Jr. Director April 30, 1998
- -----------------------
John J. Collins, Jr.
/s/Walter J. Raleigh Director April 30, 1998
- --------------------
Walter J. Raleigh
<PAGE>
<TABLE>
<CAPTION>
Lakeland Industries, Inc.
and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
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, 1998
Allowance for doubtful
accounts (a) $150,000 $69,421 $ 16,421 (b) $203,000
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
</TABLE>
(a) Deducted from accounts receivable.
(b) Uncollectible accounts receivable charged against allowance.
EXHIBIT 10(g)
January 23, 1998
Mr. Raymond J. Smith
34 Riverview Terrace
Smithtown, NY 11787
Dear Mr. Smith:
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 Raymond J. Smith, residing at 34 Riverview
Terrace, Smithtown 11787 (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 three year period from February
1, 1998 through and including January 31, 2002 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 President 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.
You agree to devote your full time and attention and best efforts to the
faithful and diligent performance of your duties to the Company and shall serve
and further the best interests and enhance the reputation of the Company to the
best of your ability. You shall be the Chief Operating and Administrative
Officer of the Company. All employees of the Company shall report or be
ultimately responsible to you.
4. COMPENSATION
As full compensation for your services you shall receive following from
the Company:
(a) A base annual salary of $262,500 per year payable bi-weekly (the "Base
Salary"); and
(b) Payments, compensation, and reimbursements equal to such payments,
compensation and reimbursements as are paid to the members of the Board of
Directors from time to time; and
<PAGE>
(c) 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; and
(d) A group term life policy insuring your life, the beneficiary of whom shall
be designated by you, with a face amount of no less than $1,000,000.00, provided
you meet the insurance company's reasonable medical qualifications; and
(e) Such other benefits as are provided from time to time by the Company to its
officers and employees; provided, however, that your vacation shall be for a
period of no less than 5 weeks; and
(f) The use of an appropriate new luxury automobile furnished by the Company on
a bi-annual basis, or an automobile allowance to be paid to you in an amount
sufficient to pay for the lease of such an automobile; and
(g) Reimbursement for the dues and expenses incurred by you that are necessary
and proper to conduct the Company's business; and
(h) An annual bonus as set forth in Section 5 of this Agreement (the "Annual
Bonus").
5. ANNUAL BONUS
In May of each year commencing in 1999 you shall be awarded an annual
bonus based on the achievement of specific goals in the previous fiscal year.
The annual bonus to be awarded in May shall be based upon the following
performance goals:
If the Company achieves .50 per share in the fiscal years covered by
this contract the bonus is computed as follows: Base .50* bonus amounts to
$25,000 and for each .01 earning per share an additional $2500 to be added to
the base of the $25,000 mentioned above.
* Subject to recalculation of earnings per share as the result of the
implementation of SFAS 128 (earning per share).
The earnings per share shall be the earnings per share of common stock
of the Company as determined by the Company's independent auditors as set forth
in the annual audited financial statements and reported to the Company's
shareholders. If during the fiscal year commencing February 1, 1998 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 annual bonus will be appropriately 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 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 one year thereafter, you shall
not either directly or indirectly as an agent, employee, partner, stockholder,
director, investor, or otherwise engage in any activities in competition with
the activities of the Company.
<PAGE>
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. As used in this
Agreement, "confidential information" means any information relating to the
business of the Company which is not publicly known or readily ascertainable by
proper means.
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 (provided such thirty 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
<PAGE>
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 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 officerships, 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 (ninety 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.
<PAGE>
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 (three) 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.
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.
<PAGE>
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 34
Riverview Terrace, Smithtown, NY 11787.
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.
<PAGE>
17. HEADINGS
The headings contained in this agreement are for convenience only and
shall not effect, restrict, or modify the interpretation of this agreement.
LAKELAND INDUSTRIES, INC.
/S/Raymond J. Smith
- ------------------- ---------------------------
Raymond J. Smith By: John J. Collins
President
---------------------------
By: Eric O. Hallman
/S/W. James Raleigh
---------------------------
By: W. James Raleigh
Board of Directors
Compensation Committee
<PAGE>
EXHIBIT 10(h)
[LAKELAND INDUSTRIES, INC LETTERHEAD]
January 31, 1998
Mr. Harvey Pride, Jr.
810-E Island Way NW
Decatur, AL 35602
Dear Mr. Pride:
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 Harvey Pride, Jr. residing at 810-E Island Way NW,
Decatur, Alabama 35602 (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 2 year period from February 1, 1998
through and including January 31, 2000 which term shall be automatically renewed
for a maximum of 2 successive annual periods unless either party notifies the
other 30 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 Vice President 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 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 $135,000 per year payable bi-weekly; and
(b) Participation when eligible in any of the Company's Pension, Profit
Sharing Plans and ESOP - 401(K) when any such plans become effective:
(c) Such other benefits as are consistent with the personnel benefits
provided by the Company to its officers and employees; provided however that
your vacation shall be for a period of no less than 5 weeks; and
(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.
<PAGE>
5. ANNUAL BONUS
In June of each year commencing in 1999 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 June of 1999 and 2000 shall be based upon the following formula
by pro rata increments for each cents per share earnings measured upwardly from
fiscal 1998 earnings per share. For each .01(cent) earnings per share increase
over fiscal year and 1998 earnings per share, you shall receive $800.00 in
bonus. Thus, if EPS 1998 are .50(cent) then if EPS for fiscal 1999 are .60(cent)
you shall receive a bonus of 10 x 800 or $8,000.00. Further, if EPS for fiscal
1999 are .80(cent), the fiscal 1999 bonus will be .80(cent) - .60(cent) = 20 x
$800 = $16,000 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, 1996 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
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 discretionary bonus shall be final,
binding and conclusive and shall not be subject to any further review.
6. DISABILITY
In the event that you shall incur a total disability which renders you unable to
substantially perform your duties to the Company as determined by the Board of
Directors you shall receive 100% of your base annual salary for the first year
of such total disability reduced by the amount of any disability insurance
payments received under a disability insurance policy maintained by the Company
or you (Disability Insurance). Thereafter, and for the following six months you
shall receive 50% of your base annual salary during the period of such total
disability reduced by the amount of any such Disability Insurance. If such
disability continues after such 18 month period your employment hereunder shall
terminate.
7. CONFIDENTIALITY AND NO-COMPETE
A. Restrictive Covenants.
The Company and you acknowledge and agree that: (i) the business contracts,
joint ventures, Asian and all the Company's other U.S. and international
suppliers, independent, contractors, customers, international and domestic
vendors, joint venture or non-joint venture contractors and customers, patterns,
know-how, trade secrets, marketing techniques and other aspects of the business
of the Company are of value to the Company and will provide the Company with
substantial competitive advantage in the operation of its business; (ii) the
business of the Company is national and international in scope, and (iii) the
Company is entitled to protect its goodwill during and after the term of this
Agreement.
<PAGE>
(b) For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by you, you hereby agree that you nor any of your
companies, corporations or subsidiaries thereof joint ventures, proprietorships
or affiliates of same hereinafter referred to as ("the affiliates") shall in any
manner, directly or indirectly: (i) at any time, divulge, transmit or otherwise
disclose, or cause to be divulged, transmitted or otherwise disclosed, to any
person or entity whatsoever, any confidential or proprietary information of the
Company, including business contacts, customer lists, supplier lists, domestic
and international vendors, suppliers, joint ventures and assembly contractors,
technology know-how, trade secrets, marketing techniques, marketing plans and
strategies, manufacturing methods, patterns, product development techniques or
plans, patents, laminates, fabrics, contracts or other confidential or
proprietary information of the Company (including such matters related to the
business heretofore conducted by the Company); (ii) at any time during the
period from the date hereof through and including the second (2nd) anniversary
of any termination date this Agreement hereof (the "Restrictive Period"),
anywhere in or out of the United States of America, render any services to or
engage, participate, or have any interest or be involved in any capacity,
whether as an owner, agent, stockholder (excluding ownership of not more than 5%
of the outstanding shares of a publicly held corporation if such ownership does
not involve, and neither Employee nor any of his affiliates, otherwise has, any
managerial or operational responsibility in respect thereof), officer, director,
manager, partner, joint venturer, employee, consultant or otherwise, in any
business enterprise which is, or shall at any time during the Restrictive Period
be, engaged in any manner in the business of designing, developing,
manufacturing, marketing, selling and/or distributing any Products (as defined
below); (iii) directly or indirectly solicit, request, cause or induce any
person who is at the time or eighteen months prior thereto had been an employee
of or consultant to the Company, to leave the employ of or terminate his
relationship with the Company, or to employ, hire, engage or be associated with,
or endeavor to entice away from the Company, any such person; and (iv) induce
any customers, vendors, joint venturers or contract manufacturers of the
Company, either domestically or internationally to discontinue doing business
with the Company.
(c) As used herein, the term "Products" means any and all goods and/or products
of the type heretofore sold by the Company or any of its affiliates, including
but not limited to the "Products" as listed in the company's product catalogs,
pricing lists, or other literature and any functionally similar goods and/or
products, already developed by the Company and shown in its catalogs, pricing
lists or other literature or to be developed by the Company during the term of
this Agreement.
(d) For purposes hereof, information shall not be deemed "confidential" or
"proprietary" to the extent that it (i) is a matter of common knowledge or of
public record, or within the public domain (other than as a result of any breach
hereof by Supplier); (ii) is generally known throughout the industry or was
otherwise acquired from other legitimate sources; or (iii) is required to be
disclosed by law or by order of any court or governmental authority.
B. Specific Performance
You hereby acknowledges and agrees that any default by you or any of your
affiliates, singly or collectively, in any of the foregoing restrictive
covenants will cause the Company irreparable injury for which there is no
adequate remedy at law. Accordingly, you expressly agree that, in the event of
any breach or threatened breach of any such covenant or agreement by you or any
<PAGE>
of your affiliates the Company shall be entitled, in addition to any and all
other remedies available, to seek and obtain injunctive and/or other equitable
relief to require specific performance of or prevent a default under the
provisions of this Agreement; and you hereby consent to each such application.
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 10 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 of control for 1 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 the bonus as set forth in this agreement for the fiscal year during
which the change of control occurred as 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 fiscal year through the effective date
of the termination and its historical results of operations and pro-rated to the
effective date of termination. You shall not be required to mitigate the amount
of termination payment provided pursuant to this section nor will such payment
be reduced by reason of your securing other employment.
A change of control shall have occurred (i) upon the acquisition of any person
(as such term is defined in sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934 as amended), directly or indirectly of securities of the
Company representing 66 2/3% or more of the combined voting power of the
Company's then outstanding securities or (ii) upon the future 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 in the transaction.
In the event of a future 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. NOTICES
Any notices required to be give 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 810-E Island
NW, Decatur, Alabama 35602.
10. 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.
<PAGE>
11. 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.
12. HEADINGS
The headings contained in this agreement are for convenience only and shall not
affect restrict or modify the interpretation this agreement.
13. CONTROLLING LAW
This agreement shall be governed by and construed in accordance with the laws of
the State of New York applicable to contracts made and to be performed therein,
and you agree to the exclusive jurisdiction and venue of all State and Federal
Courts sitting in the State of New York in connection with any claim, dispute,
or controversy arising under or in connection with this Agreement.
LAKELAND INDUSTRIES, INC.
/S/Harvey Pride, Jr.
- -------------------- ______________________
Harvey Pride, Jr. By: John J. Collins
Vice President Manufacturing
______________________
By: Eric O. Hallman
/S/W. James Raleigh
----------------------
By: W. James Raleigh
Board of Directors
Compensation Committee
<PAGE>
Exhibit 10 (l)
UNCONDITIONAL GUARANTY
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit
to or for the benefit of, or modify its credit relationship with LAKELAND
INDUSTRIES, INC., (with any successor-in interest, including, without
limitation, any successor by merger or by operation of law, herein collectively
referred to as "Customer"), under: (a) that certain WCMA NOTE, LOAN AND SECURITY
NO. 849-07230 between MLBFS and Customer (the "Loan Agreement"), (b) any
"Additional Agreements", as that term is defined in the Loan Agreement
(including, without limitation, the NOTE incorporated by reference into the Loan
Agreement), and (c) all present and future amendments and other evidences of any
extensions, increases, renewals and other changes of or to the Loan Agreement or
Additional Agreements (collectively, the "Guaranteed Documents"), and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the undersigned, LAKELAND PROTECTIVE WEAR INC. (CANADA) a
corporation organized and existing under the laws of the Province of Ontario,
Canada ("Guarantor"), hereby unconditionally guarantees to MLBFS (i) the prompt
and full payment when due, by acceleration or otherwise, of all sums now or any
time hereafter due from Customer to MLBFS under the Guaranteed Documents; (ii)
the prompt, full and faithful performance and discharge by Customer of each and
every other covenant and warranty of Customer set forth in the Guaranteed
Documents, and (iii) the prompt and full payment and performance of all other
indebtedness, liabilities and obligations of Customer to MLBFS, howsoever
created or evidenced, and whether now existing or hereafter arising
(collectively, the "Obligations"). Guarantor further agrees to pay all
reasonable costs and expenses (including, but not limited to, court costs and
reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring to collect
or enforce performance of any of the Obligations, or in enforcing this Guaranty.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully paid, performed and
discharged. Upon the occurrence and during the continuance of any default or
Event of Default under the Guaranteed Documents, any or all of the indebtedness
hereby guaranteed then existing shall, at the option of MLBFS, become
immediately due and payable from Guarantor. Notwithstanding the occurrence of
any such event, this Guaranty shall continue and remain in full force and
effect. Guarantor will pay the Obligations without regard to any equities or any
defense or right of set-off or counter-claim between Guarantor and Customer or
any defense or right of set-off or counter-claim which Customer or Guarantor may
have against MLBFS.
The liability of Guarantor hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from time
to time, without notice to or the consent of Guarantor: (a) any renewals,
amendments, modifications or supplements of or to any of the Guaranteed
Documents, or any extensions, forbearances, compromises or releases of any of
the Obligations or any of MLBFS' rights under any of the Guaranteed Documents;
(b) any acceptance by MLBFS of any collateral or security for, or other
guarantors of, any of the Obligations; (c) any failure, neglect or omission on
the part of MLBFS to realize upon or protect any of the Obligations, or any
collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any other
guarantor, possessed by or under the control of MLBFS or any of its affiliates,
toward the liquidation or reduction of the Obligations; (d) any application of
payments or credits by MLBFS; (e) the granting of credit from time to time by
MLBFS to Customer in excess of the amount set forth in the Guaranteed Documents;
or (f) any other act of commission or omission of any kind or at any time upon
the part of MLBFS or any of its affiliates or any of their respective employees
or agents with respect to any matter whatsoever. MLBFS shall not be required at
any time, as a condition of Guarantor's obligations hereunder, to resort to
payment from Customer or other persons or entities whatsoever, or any of their
properties or estates, or resort to any collateral or pursue or exhaust any
other rights or remedies whatsoever. Guarantor renounces all benefits of
discussion and division.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been fully paid and discharged. Guarantor expressly
waives presentment, protest, demand, notice of dishonor or default, notice of
acceptance of this Guaranty, notice of advancement of funds under the Guaranteed
Documents and all other notices and formalities to which Customer or Guarantor
might be entitled, by statute or otherwise, and, so long as there are any
Obligations or MLBFS is committed to extend credit to Customer, waives any right
to revoke or terminate this Guaranty without the express written consent of
MLBFS.
This Guaranty shall not be affected by any change in the name of Customer, or by
any change whatsoever in the objects, capital structure or constitution of
Customer, or by Customer being amalgamated with one or more corporations, but
shall notwithstanding the happening of any such event continue to apply to all
the Obligations whether theretofore or thereafter incurred or arising and in
this instrument the word "Customer" shall include every such firm and
corporation. This Guaranty shall not be affected by the bankruptcy, dissolution
or winding-up of Customer or by any reorganization, moratorium, arrangement with
creditors or other proceedings affecting Customer.
So long as there are any Obligations, Guarantor shall not have any claim, remedy
or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
This Guaranty shall not be considered as wholly or partially satisfied by the
payment or liquidation at any time or times of any sum or sums of money for the
time being due or remaining unpaid to MLBFS, and all dividends, compositions,
proceeds of security valued and payments received by MLBFS from Customer or from
others or from estates shall be regarded for all purposes as payments in gross
without any right on the part of Guarantor to claim in reduction of its
liability under this Guaranty the benefit of any such dividends, compositions,
proceeds or payments or any securities held by MLBFS or proceeds thereof
Guarantor until MLBFS shall have received payment in full of the Obligations.
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
Customer or any other surety or guarantor of the Obligations, any sale or other
disposition of all or substantially all of the assets of Customer, or any
insolvency bankruptcy, reorganization, moratorium, arrangement with creditors,
judicial or extra-judicial receivership, or other similar proceedings affecting
Customer or any surety for or guarantor of Obligations, the rights of MLBFS
shall not be limited, lessened or released by its omission to prove its claim or
to prove its full claim and it may prove such claim as it sees fit and may
refrain from proving any claim and in its discretion it may value as it sees fit
or refrain from valuing any security or securities held by it, without in any
way lessening, limiting or releasing the liability to MLBFS of Guarantor.
All monies, advances, renewals, credits and credit facilities in fact borrowed
or obtained from MLBFS shall be deemed to form part of the Obligations,
notwithstanding any lack or limitation of status or of power, incapacity or
disability of Customer or of the directors, partners or agents of Customer, or
that Customer may not be a legal or suable entity, or any irregularity, defect
or informality in the borrowing or obtaining of such monies, advances, renewals,
credits or credit facilities, or any other reason, similar or not, the whole
whether known to MLBFS or not. Any sum of which may not be recoverable from
Guarantor on the footing of a Guaranty, whether for the reasons set out in the
previous sentence or for any other reason, similar or not, shall be recoverable
from Guarantor as sole or principal debtor in respect of that sum, and shall be
paid to MLBFS on demand with interest.
This Guaranty is in addition to and not in substitution for any other guaranty,
by whomsoever given, at any time held by MLBFS, and any present or future
obligation to MLBFS incurred or arising otherwise than under a guaranty, of
Guarantor or of any other obligant, whether bound with or apart from Customer.
Guarantor shall be bound by any account settled between MLBFS and Customer, and
if no such account has been so settled immediately before demand for payment
under this Guaranty any account stated by MLBFS shall be accepted by Guarantor
as prima facie evidence of the amount which at the date of the account so stated
is due by Customer to MLBFS or remains unpaid by Customer to MLBFS.
This Guaranty was not delivered in escrow or pursuant to any agreement that it
should not be effective until any conditions precedent or subsequent had been
complied with.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or any other of the
Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold, set
off and apply toward the payment of any amount due hereunder, in such order of
application as MLBFS may elect, all cash, credits, deposits, accounts,
securities and any other property of Guarantor which is in transit to or in the
possession, custody or control of MLBFS or Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), or any of their respective agents, bailees or
affiliates, including, without limitation, all securities accounts with MLPF&S
and all cash and securities therein or controlled thereby, and all proceeds
thereof. Guarantor hereby collaterally assigns, charges and grants to MLBFS a
fixed and floating charge and a security interest in all such property as
additional security for the Obligations. Upon the occurrence and during the
continuance of an Event of Default, MLBFS shall have all rights in such property
available to collateral assignees and secured parties under all applicable laws,
including, without limitation, the Personal Property Security Act (Ontario).
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall have
occurred) obtain from and disclose to each other any and all financial and other
information about Guarantor.
Each payment to be made by Guarantor under this Guaranty in respect of any of
the Obligations are denominated in United States currency (the "Agreed
Currency"). If MLBFS receives any payment from or for the account of Guarantor
in any currency other than the Agreed Currency (the "Other Currency"), that
payment shall constitute satisfaction of the obligations of Guarantor under this
Guaranty only to the extent of the amount of the Agreed Currency that MLBFS, in
accordance with its normal procedures, could purchase with the amount of the
Other Currency received by it on the first business day after the day of
receipt.
If, to obtain judgment in any court, it is necessary to convert any amount owing
or payable under this Guaranty in the Agreed Currency into a particular currency
(the "Judgment Currency"), the rate of exchange is to be applied in the
conversion shall be the rate at which MLBFS, in accordance with its normal
procedures, could purchase the Agreed Currency with the Judgment Currency on the
day that judgment is given. The obligation of the Guarantor in respect of any
amount owing or payable under this Guaranty in the Agreed Currency shall,
notwithstanding any judgment and payment in the Judgment Currency, be satisfied
only to the extent that MLBFS, in accordance with its normal procedures, could
purchase the Agreed Currency with the amount of the Judgment Currency paid on
the first business day after the day of payment. If the amount of Agreed
Currency that MLBFS could purchase is less that the amount originally due in the
Agreed Currency, Guarantor shall, as a separate obligation and notwithstanding
any judgment or payment, indemnify MLBFS against its loss.
No delay on the part of MLBFS in the exercise of any right or remedy under any
agreement (including, but not limited to, this Guaranty) shall operate as a
waiver thereof, and, without limiting the foregoing, no delay in the enforcement
of any security interest, and no single or partial exercise by MLBFS of any
right or remedy shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. This Guaranty may be executed in any
number of counterparts, each of which counterparts, once they are executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Guaranty. This Guaranty
shall be binding upon Guarantor and its successors and assigns, and shall inure
to the benefit of MLBFS and its successors and assigns. If there are more than
one guarantor of the Obligations, all of the obligations and agreements of
Guarantor are joint and several with such other guarantors.
This Guaranty shall be governed by and construed in accordance with the laws of
the Province of Ontario and the laws of Canada applicable therein. Guarantor and
MLBFS irrevocably submit to the non-exclusive jurisdiction of the courts of the
Province of Ontario and of Canada sitting in Ontario in any action or proceeding
arising out of or relating to this Guaranty, and irrevocably agree that all such
actions and proceeding may be heard and determined in such courts, and
irrevocably waive, to the fullest extent possible, the defense of an
inconvenient forum. Guarantor agrees that a judgment or order in any such action
or proceeding may be enforced in any jurisdiction in any manner provided by law.
For greater certainty, MLBFS may serve legal process in any manner permitted by
law and may bring an action or proceeding against Guarantor or the property or
assets of Guarantor in the courts of any jurisdiction. Wherever possible each
provision of this Guaranty shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Guaranty
shall be prohibited by or invalid under such law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty. No modification or waiver of any of the provisions of this Guaranty
shall be effective unless in writing and signed by both Guarantor and an officer
of MLBFS. Each signatory on behalf of Guarantor warrants that he or she has
authority to sign on behalf of Guarantor, and by so signing, to bind Guarantor
hereunder.
Guarantor hereby acknowledges receipt of a copy of this warranty.
Dated as of December 2, 1998.
LAKELAND PROTECTIVE WEAR INC. (CANADA)
By: s/s Christopher Ryan /s/
-------------------- ------------------------
Signature (1) Signature (2)
Christopher Ryan
Printed Name Printed Name
Title: Vice President Title:
Address of Guarantor:
<PAGE>
[GRAPHIC-LOGO Merrill Lynch] No. 849-07230
SECURITY AGREEMENT
SECURITY AGREEMENT ("Agreement") dated as of December 2, 1997, between LAIDLAW
ADAMS & PECK INC. F/K/A FIRELAND INDUSTRIES, INC., a corporation organized and
existing under the laws of the State of Delaware having its principal office at
815 Superior Avenue, Cleveland, OH 44114 ("Grantor"), and MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC., a corporation organized and existing under the laws of
the State of Delaware having its principal office at 33 West Monroe Street,
Chicago, IL 60603 ("MLBFS").
In order to induce MLBFS to extend or continue to extend credit to LAKELAND
INDUSTRIES, INC. ("Customer"), under the Loan Agreement (as defined below) or
otherwise, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Grantor hereby agrees with MLBFS as
follows:
1. DEFINITIONS
(a) Specific Terms. In addition to terms defined elsewhere in this Agreement,
when used herein the following terms shall have the following meanings:
(i) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(ii) "Bankruptcy Event" shall mean any of the following: (A) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Grantor or
Customer; or (B) any such proceeding shall be filed against Grantor or Customer
and shall not be dismissed or withdrawn within sixty (60) days after filing; or
(C) Grantor or Customer shall make a general assignment for the benefit of
creditors; or (D) Grantor or Customer shall become insolvent or generally fail
to pay or admit in writing its inability to pay its debts as they become due; or
(E) Grantor or Customer shall be adjudicated a bankrupt or insolvent.
(iii) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(iv) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents
and Instruments of Grantor, howsoever arising, whether now owned or existing or
hereafter acquired or arising, and wherever located; together with all parts
thereof (including spare parts), all accessories and accessions thereto, all
books and records (including computer records) directly related thereto, all
proceeds thereof (including, without limitation, proceeds in the form of
Accounts and insurance proceeds), and the additional collateral described in
Section 7 (b) hereof.
(v) "Default" shall mean an "Event of Default", as defined in Section 6 hereof,
or any event which with the giving of notice, passage of time, or both, would
constitute such an Event of Default.
(vi) "Loan Agreement" shall mean that certain WCMA NOTE, LOAN AND SECURITY
AGREEMENT No. 849-07230 between Customer and MLBFS, as the same may from time to
time be or have been amended, restated, extended or supplemented.
<PAGE>
(vii) "Location of Tangible Collateral" shall mean the address of Grantor set
forth at the beginning of this Agreement, together with any other address or
addresses set forth on any exhibit hereto as being a Location of Tangible
Collateral.
(viii) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer or Grantor to MLBFS, howsoever created, arising or
evidenced, whether now existing or hereafter arising, whether direct or
indirect, absolute or contingent, due or to become due, primary or secondary or
joint or several, and, without limiting the foregoing, shall include interest
accruing after the filing of any petition in bankruptcy, and all present and
future liabilities, indebtedness and obligations of Customer under the Loan
Agreement and the agreements, instruments and documents executed pursuant
thereto, and of Grantor under this Agreement.
(ix) "Permitted Liens" shall mean with respect to the Collateral: (A) liens for
current taxes not delinquent, other non-consensual liens arising in the ordinary
course of business for sums not due, and, if MLBFS' rights to and interest in
the Collateral are not materially and adversely affected thereby, any such liens
for taxes or other non-consensual liens arising in the ordinary course of
business being contested in good faith by appropriate proceedings; (B) liens in
favor of MLBFS; and (C) any other liens expressly permitted in writing by MLBFS.
(b) Other Terms. Except as otherwise defined herein, all terms used in this
Agreement which are defined in the Uniform Commercial Code of Illinois ("UCC")
shall have the meanings set forth in the UCC.
2. COLLATERAL
(a) Pledge of Collateral. To secure payment and performance of the Obligations,
Grantor hereby pledges, assigns, transfers and sets over to MLBFS, and grants to
MLBFS a first lien and security interest in and upon all of the Collateral,
subject only to Permitted Liens.
(b) Liens. Except upon the prior written consent of MLBFS, Grantor shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) Performance of Obligations. Grantor shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Grantor's said
obligations.
(d) Notice of Certain Events. Grantor shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.
(e) Indemnification. Grantor shall indemnify, defend and save MLBFS harmless
from and against any and all claims, losses, costs, expenses (including, without
limitation, reasonable attorneys' fees and expenses), demands, liabilities,
penalties, fines and forfeitures of any nature whatsoever which may be asserted
against or incurred by MLBFS arising out of or in any manner occasioned by (i)
<PAGE>
the ownership, use, operation, condition or maintenance of any Collateral, or
(ii) any failure by Grantor to perform any of its obligations hereunder;
excluding, however, from said indemnity any such claims, losses, etc. arising
out of the willful wrongful act or active gross negligence of MLBFS. This
indemnity shall survive the expiration or termination of this Agreement as to
all matters arising or accruing prior to such expiration or termination.
(f) Insurance. Grantor shall insure all of the tangible Collateral with an
insurer or insurers reasonably acceptable to MLBFS, under a policy or policies
of physical damage insurance reasonably acceptable to MLBFS providing that (i)
losses will be payable to MLBFS as its interests may appear pursuant to a
Lender's Loss Payable endorsement, and (ii) MLBFS will receive not less than 10
days prior written notice of any cancellation; and containing such other
provisions as may be reasonably required by MLBFS. Grantor shall maintain such
other insurance as may be required by law or otherwise reasonably required by
MLBFS. Grantor shall furnish MLBFS with a copy or certificate of each such
policy or policies and, prior to any expiration or cancellation, each renewal or
replacement thereof.
(g) Event of Loss. Grantor shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of $25,000.00
or more, then, on or before the first to occur of (i) 90 days after the
occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Grantor or MLBFS shall receive any proceeds of insurance on account
of such Event of Loss, or any underwriter of insurance on such tangible
Collateral shall advise either Grantor or MLBFS that it disclaims liability in
respect of such Event of Loss, Grantor shall, at Grantor's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Grantor shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or pay
to MLBFS on account of the Obligations an amount equal to the actual cash value
of such Collateral as determined by either the applicable insurance company's
payment (plus any applicable deductible) or, in absence of insurance company
payment, as reasonably determined by MLBFS. Notwithstanding the foregoing, if at
the time of occurrence of such Event of Loss or any time thereafter prior to
replacement or payment, as aforesaid, an Event of Default shall have occurred
and be continuing hereunder, then MLBFS may at its sole option, exercisable at
any time while such Event of Default shall be continuing, require Grantor to
either replace such Collateral or make a payment on account of the Obligations,
as aforesaid.
(h) Sales and Collections. So long as no Event of Default shall have occurred
and be continuing, Grantor may in the ordinary course of its business: (i) sell
any Inventory normally held by Grantor for sale, (ii) use or consume any
materials and supplies normally held by Grantor for use or consumption, and
(iii) collect all of its Accounts. Grantor shall take such action with respect
to protection of its Inventory and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.
(i) Account Schedules. Upon the request of MLBFS, made now or at any time or
times hereafter, Grantor shall deliver to MLBFS, in addition to the other
information required hereunder, a schedule identifying, for each Account and all
Chattel Paper subject to MLBFS' security interests hereunder, each Account
<PAGE>
Debtor by name and address and amount, invoice number and date of each invoice.
Grantor shall furnish to MLBFS such additional information with respect to the
Collateral, and amounts received by Grantor as proceeds of any of the
Collateral, as MLBFS may from time to time reasonably request.
(j) Location. Except for movements in the ordinary course of its business,
Grantor shall give MLBFS 30 days' prior written notice of the placing at or
movement of any tangible Collateral to any location other than a Location of
Tangible Collateral. In no event shall Grantor cause or permit any tangible
Collateral to be removed from the United States without the express prior
written consent of MLBFS.
(k) Alterations and Maintenance. Except upon the prior written consent of MLBFS,
Grantor shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Grantor shall at all times keep the tangible Collateral in good condition and
repair and shall pay or cause to be paid all obligations arising from the repair
and maintenance of such Collateral, as well as all obligations with respect to
each Location of Tangible Collateral, except for any such obligations being
contested by Grantor in good faith by appropriate proceedings.
3. REPRESENTATIONS AND WARRANTIES
Grantor represents and warrants to MLBFS that:
(a) Grantor. Grantor is a corporation, duly organized and validly existing in
good standing under the laws of the State of Delaware and is qualified to do
business and in good standing in each other state where the nature of its
business or the property owned by it make such qualification necessary.
(b) Execution, Delivery and Performance. The execution, delivery and performance
by Grantor of this Agreement have been duly authorized by all requisite action,
do not and will not violate or conflict with any law or other governmental
requirement, or any of the agreements, instruments or documents which formed or
governed Grantor, and do not and will not breach or violate any of the
provisions of, and will not result in a default by Grantor under, any other
agreement, instrument or document to which it is a party or by which it or its
properties are bound.
(c) Notice or Consent. Except as may have been given or obtained, no notice to
or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Grantor of this
Agreement.
(d) Valid and Binding. This Agreement is the legal, valid and binding obligation
of Grantor, enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting the
rights of creditors generally or by general principles of equity.
(e) Financial Statements. Except as expressly set forth in Grantor's financial
statements, all financial statements of Grantor furnished to MLBFS have been
prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct, and fairly present the financial
condition of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation.
<PAGE>
(f) Litigation, etc. No litigation, arbitration, administrative or governmental
proceedings are pending or threatened against Grantor, which would, if adversely
determined, materially and adversely affect the financial condition or continued
operations of Grantor, or the liens and security interests of MLBFS hereunder.
(g) Taxes. All federal, state and local tax returns, reports and statements
required to be filed by Grantor have been filed with the appropriate
governmental agencies and all taxes due and payable by Grantor have been timely
paid (except to the extent that any such failure to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or the financial condition or continued operations of Grantor).
(h) Collateral. Grantor has good and marketable title to the Collateral, and,
except for any Permitted Liens: (i) none of the Collateral is subject to any
lien, encumbrance or security interest, and (ii) upon the filing of all Uniform
Commercial Code financing statements executed by Grantor with respect to the
Collateral or a copy of this Agreement in the appropriate jurisdiction(s) and/or
the completion of any other action required by applicable law to perfect is lien
and security interests, MLBFS will have valid and perfected first liens and
security interests upon all of the Collateral.
Each of the foregoing representations and warranties has been and will be relied
upon as an inducement to MLBFS to advance funds or extend or continue to extend
credit to Customer, and is continuing and shall be deemed remade by Grantor
concurrently with each such advance or extension of credit by MLBFS to Customer.
4. FINANCIAL AND OTHER INFORMATION
Grantor covenants and agrees that Grantor will furnish or cause to be furnished
to MLBFS during the term of this Agreement such financial and other information
as may be required by the Loan Agreement or any other document evidencing the
Obligations or as MLBFS may from time to time reasonably request relating to
Grantor or the Collateral.
5. OTHER COVENANTS
Grantor further agrees during the term of this Agreement that:
(a) Financial Records; Inspection. Grantor will: (i) maintain complete and
accurate books and records at its principal place of business, and maintain all
of its financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real and personal), operations, books and records.
(b) Taxes. Grantor will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder, or the financial condition or continued operations of Grantor.
(c) Compliance With Laws and Agreements. Grantor will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which it is a party or by which it is bound, if any such violation will
materially and adversely affect either the liens and security interests of MLBFS
hereunder, or the financial condition or continued operations of Grantor.
<PAGE>
(d) Notification By Grantor. Grantor shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Grantor; and (iii) any
information which indicates that any financial statements of Grantor fail in any
material respect to present fairly the financial condition and results of
operations purported to be presented in such statements. Each notification by
Grantor pursuant hereto shall specify the event or information causing such
notification, and, to the extent applicable, shall specify the steps being taken
to rectify or remedy such event or information.
(e) Notice of Change. Grantor shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business of Grantor.
(f) Continuity. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Grantor shall not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any person or entity, or sell, transfer or
lease all or any substantial part of its assets, if any such action would result
in either: (A) a material change in the principal business, ownership or control
of Grantor, or (B) a material adverse change in the financial condition or
operations of Grantor; (ii) Grantor shall preserve its existence and good
standing in the jurisdictions of establishment and operation, and shall not
operate in any material business substantially different from its business in
effect as of the date of application by Customer for credit from MLBFS; and
(iii) Grantor shall not cause or permit any material change in its controlling
ownership.
6. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Agreement:
(a) Default Under Loan Agreement. An Event of Default shall occur under the
terms of the Loan Agreement.
(b) Failure to Perform. Grantor shall default in the performance or observance
of any covenant or agreement on its part to be performed or observed under this
Agreement (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for 10 Business Days after
written notice thereof shall have been given by MLBFS to Grantor.
(c) Breach of Warranty. Any representation or warranty made by Grantor contained
in this Agreement shall at any time prove to have been incorrect in any material
respect when made.
(d) Default Under Other Agreement. A default or Event of Default by Grantor
shall occur under the terms of any other agreement, instrument or document with
or intended for the benefit of MLBFS, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") or any of their affiliates, and any required notice
shall have been given and required passage of time shall have elapsed.
(e) Seizure or Abuse of Collateral. The Collateral, or any material part
thereof, shall be or become subject to any levy, attachment, seizure or
confiscation which is not released within 10 Business Days.
(f) Bankruptcy Event. Any Bankruptcy Event shall occur.
<PAGE>
(g) Material Impairment. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Grantor has been materially impaired.
(h) Acceleration of Debt to Other Creditors. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Grantor to another creditor under any indenture, agreement, undertaking, or
otherwise.
7. REMEDIES
(a) Remedies Upon Default Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) Acceleration. MLBFS may declare all Obligations to be forthwith due and
payable, whereupon all such amounts shall be immediately due and payable,
without presentment, demand for payment, protest and notice of protest, notice
of dishonor, notice of acceleration, notice of intent to accelerate or other
notice or formality of any kind, all of which are hereby expressly waived;
provided, however, that upon the occurrence of any Bankruptcy Event all
Obligations shall automatically become due and payable without any action on the
part of MLBFS.
(ii) Exercise Rights of Secured Party. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Agreement.
(iii) Possession. MLBFS may require Grantor to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient to Grantor, or may take possession of the
Collateral and the records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Grantor.
(iv) Sale. MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and conditions as MLBFS may reasonably deem proper, and MLBFS
may purchase any Collateral at any such public sale; and the net proceeds of any
such public or private sale and all other amounts actually collected or received
by MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Grantor or whoever else may be entitled thereto,
and with Customer and each guarantor of Customer's obligations remaining jointly
and severally liable for any amount remaining unpaid after such application.
(v) Delivery of Cash, Checks, Etc. MLBFS may require Grantor to forthwith upon
receipt, transmit and deliver to MLBFS in the form received, all cash, checks,
drafts and other instruments for the payment of money (properly endorsed, where
required, so that such items may be collected by MLBFS) which may be received by
Grantor at any time in full or partial payment of any Collateral, and require
that Grantor not commingle any such items which may be so received by Grantor
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.
<PAGE>
(vi) Notification of Account Debtors. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.
(vii) Control of Collateral. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Grantor name on any item of payment on or proceeds of the
Collateral, and, in connection therewith, MLBFS may notify the postal
authorities to change the address for delivery of mail addressed to Grantor to
such address as MLBFS may designate.
(b) Set-Off. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credits, deposits, accounts,
securities and any other property of Grantor which is in transit to or in the
possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or
affiliate of MLBFS or MLPF&S, including, without limitation, all securities
accounts with MLPF&S and all cash and securities and other financial assets
therein or controlled thereby, and all proceeds thereof. Grantor hereby
collaterally assigns and grants to MLBFS a security interest in all such
property as additional Collateral.
(c) Power of Attorney. Effective upon the occurrence and during the continuance
of an Event of Default, Grantor hereby irrevocably appoints MLBFS as its
attorney-in-fact, with full power of substitution, in its place and stead and in
its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion
take any action and to execute any instrument which MLBFS may deem necessary or
advisable to accomplish the purposes of this Agreement, including, but not
limited to, to receive, endorse and collect all checks, drafts and other
instruments for the payment of money made payable to Grantor included in the
Collateral.
(d) Remedies are Severable and Cumulative. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available at law or in equity, and any one or more of such rights and
remedies may be exercised simultaneously or successively. Any notice required
under this Agreement or under applicable law shall be deemed reasonably and
properly given to Grantor if given at the address and by any of the methods of
giving notice set forth in this Agreement at least 5 Business Days before taking
any action specified in such notice.
(e) Notices. To the fullest extent permitted by applicable law, Grantor hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Grantor waives all rights of redemption or reinstatement from any
such sale. MLBFS shall have the right to postpone or adjourn any sale or other
disposition of Collateral at any time without giving notice of any such
postponed or adjourned date. In the event MLBFS seeks to take possession of any
or all of the Collateral by court process, Grantor further irrevocably waives to
the fullest extent permitted by law any bonds and any surety or security
relating thereto required by any statute, court rule or otherwise as an incident
to such possession, and any demand for possession prior to the commencement of
any suit or action.
<PAGE>
8. MISCELLANEOUS
(a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Agreement shall operate as a waiver
thereof, and no single or partial exercise of any such right, power or remedy
shall preclude any other or further exercise thereof, or the exercise of any
other right, power or remedy. Neither any waiver of any provision of this
Agreement, nor any consent to any departure by Grantor therefrom, shall be
effective unless the same shall be in writing and signed by MLBFS. Any waiver of
any provision of this Agreement and any consent to any departure by Grantor from
the terms of this Agreement shall be effective only in the specific instance and
for the specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Grantor shall in any case entitle Grantor to
any other or further notice or demand in similar or other circumstances.
(b) Communications. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Agreement, and, in the case of facsimile transmission, to the
parties at their respective regular facsimile telephone number.
(c) Costs, Expenses and Taxes. Grantor shall pay or reimburse MLBFS upon demand
for: (i) all Uniform Commercial Code filing and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral; (ii) any and all
stamp, transfer and other taxes and fees payable or determined to be payable in
connection with the execution, delivery and/or recording of this Agreement; and
(iii) all reasonable fees and out-of-pocket expenses (including, but not limited
to, reasonable fees and expenses of outside counsel) incurred by MLBFS in
connection with the enforcement of this Agreement or the protection of MLBFS'
rights hereunder, excluding, however, salaries and expenses of MLBFS' employees.
The obligations of Grantor under this paragraph shall survive the expiration or
termination of this Agreement and the discharge of the other Obligations.
(d) Right to Perform Obligations. If Grantor shall fail to do any act or thing
which it has covenanted to do under this Agreement or any representation or
warranty on the part of Grantor contained in this Agreement shall be breached,
MLBFS may, in its sole discretion, after 5 Business Days written notice is sent
to Grantor (or such lesser notice, including no notice, as is reasonable under
the circumstances), do the same or cause it to be done or remedy any such
breach, and may expend its funds for such purpose. Any and all reasonable
amounts so expended by MLBFS shall be repayable to MLBFS by Grantor upon demand,
with interest at the "Interest Rate" (as that term is defined in the Loan
Agreement or any document incorporated into the Loan Agreement) during the
period from and including the date funds are so expended by MLBFS to the date of
repayment, and any such amounts due and owing MLBFS shall be additional
Obligations. The payment or performance by MLBFS of any of Grantor's obligations
hereunder shall not relieve Grantor of said obligations or of the consequences
of having failed to pay or perform the same, and shall not waive or be deemed a
cure of any Default.
<PAGE>
(e) Further Assurances. Grantor agrees to do such further acts and things and to
execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Agreement , or to establish, perfect and maintain MLBFS'
security interests and liens upon the Collateral, including, but not limited to:
(i) executing financing statements or amendments thereto when and as reasonably
requested by MLBFS; and (ii) if in the reasonable judgment of MLBFS it is
required by local law, causing the owners and/or mortgagees of the real property
on which any Collateral may be located to execute and deliver to MLBFS waivers
or subordinations reasonably satisfactory to MLBFS with respect to any rights in
such Collateral.
(f) Binding Effect. This Agreement shall be binding upon Grantor and its
successors and assigns, and shall inure to the benefit of MLBFS and its
successors and assigns.
(g) Headings. Captions and section and paragraph headings in this Agreement are
inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(h) Governing Law. This Agreement shall be governed in all respects by the laws
of the State of Illinois.
(i) Severability of Provisions. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
(j) Term. This Agreement shall become effective upon acceptance by MLBFS, and,
subject to the terms hereof, shall continue in effect so long thereafter as
either MLBFS shall be committed to advance funds or extend credit to Customer or
there shall be any Obligations outstanding.
(k) Counterparts. This Agreement may be executed in one or more counterparts
which, when taken together, constitute one and the same agreement.
(l) Jurisdiction; Waiver. GRANTOR ACKNOWLEDGES THAT THIS AGREEMENT IS BEING
ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN ITS
SOLE DISCRETION, TO ENFORCE THIS AGREEMENT IN EITHER THE STATE OF ILLINOIS OR IN
ANY OTHER JURISDICTION WHERE GRANTOR OR ANY COLLATERAL FOR THE OBLIGATIONS MAY
BE LOCATED. GRANTOR CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE
IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND
GRANTOR WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE.
GRANTOR FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY
JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND
GRANTOR HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE
OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE LOAN AGREEMENT, THIS AGREEMENT AND/OR ANY OF THE TRANSACTIONS
WHICH ARE THE SUBJECT MATTER OF THE LOAN AGREEMENT OR THIS AGREEMENT.
<PAGE>
(m) Integration. THIS WRITTEN AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING AND
REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE
SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN
AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. NO AMENDMENT OR
MODIFICATION OF THIS AGREEMENT SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY
BOTH MLBFS AND GRANTOR.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
LAIDLAW ADAMS & PECK INC. F/K/A FIRELAND INDUSTRIES, INC.
By: s/s Raymond J. Smith s/s Christopher Ryan
---------------- ----------------
Signature (1) Signature (2)
Raymond J. Smith Christopher Ryan
Printed Name Printed Name
Title: President Title: Executive V.P. Secretary
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: __________________________________________________________
<PAGE>
EXHIBIT A
ATTACHED TO AND HEREBY MADE A PART OF SECURITY AGREEMENT NO. 849-07230 BETWEEN
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. AND LAIDLAW ADAMS & PECK INC.
F/K/A FIRELAND INDUSTRIES, INC.
Locations of Tangible Collateral:
<PAGE>
WCMA(R) NOTE, LOAN AND SECURITY AGREEMENT
WCMA NOTE, LOAN AND SECURITY AGREEMENT NO. 849-07230 ("Loan Agreement") dated as
of December 2, 1997, between LAKELAND INDUSTRIES, INC., a corporation organized
and existing under the laws of the State of Delaware having its principal office
at 711-2 Koehler Avenue, Ronkonkoma, NY 11779-7410 ("Customer"), and MERRILL
LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation organized and existing
under the laws of the State of Delaware having its principal office at 33 West
Monroe Street, Chicago, IL 60603 ("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT(R) ACCOUNT AGREEMENT
NO. 849-07230 ("WCMA Agreement") between Customer and MLBFS' affiliate, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith and as
part of the WCMA Program, Customer has requested that MLBFS provide, and subject
to the terms and conditions herein set forth MLBFS has agreed to provide, a
commercial line of credit for Customer (the "WCMA Line of Credit").
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
1. DEFINITIONS
(a) Specific Terms. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(i) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(ii) "Activation Date" shall mean the date upon which MLBFS shall cause the WCMA
Line of Credit to be fully activated under MLPF&S' computer system as part of
the WCMA Program.
(iii) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon the Collateral or any other collateral for the
Obligations.
(iv) "Bankruptcy Event" shall mean any of the following: (A) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Customer or any
Guarantor; or (B) any such proceeding shall be filed against Customer or any
Guarantor and shall not be dismissed or withdrawn within sixty (60) days after
filing; or (C) Customer or any Guarantor shall make a general assignment for the
benefit of creditors; or (D) Customer or any Guarantor shall become insolvent or
generally fail to pay or admit in writing its inability to pay its debts as they
become due; or (E) Customer or any Guarantor shall be adjudicated a bankrupt or
insolvent.
(v) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
<PAGE>
(vi) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents
and Instruments of Customer, howsoever arising, whether now owned or existing or
hereafter acquired or arising, and wherever located; together with all parts
thereof (including spare parts), all accessories and accessions thereto, all
books and records (including computer records) directly related thereto, all
proceeds thereof (including, without limitation, proceeds in the form of
Accounts and insurance proceeds), and the additional collateral described in
Section 9 (b) hereof.
(vii) "Commitment Expiration Date" shall mean January 2, 1998.
(viii) "Default" shall mean an "Event of Default" as defined in Section 8
hereof, or an event which with the giving of notice, passage of time, or both,
would constitute such an Event of Default.
(ix) "General Funding Conditions" shall mean each of the following conditions to
any WCMA Loan by MLBFS hereunder: (A) no Default shall have occurred and be
continuing or would result from the making of any WCMA Loan hereunder by MLBFS;
(B) there shall not have occurred and be continuing any material adverse change
in the business or financial condition of Customer or any Guarantor; (C) all
representations and warranties of Customer or any Guarantor herein or in any
Additional Agreements shall then be true and correct in all material respects;
(D) MLBFS shall have received this Loan Agreement and all of the Additional
Agreements, duly executed and filed or recorded where applicable, all of which
shall be in form and substance reasonably satisfactory to MLBFS; (E) MLBFS shall
have received evidence reasonably satisfactory to it as to the ownership of the
Collateral and the perfection and priority of MLBFS' liens and security
interests thereon, as well as the ownership of and the perfection and priority
of MLBFS' liens and security interests on any other collateral for the
Obligations furnished pursuant to any of the Additional Agreements; (F) MLBFS
shall have received evidence reasonably satisfactory to it of the insurance
required hereby or by any of the Additional Agreements; and (G) any additional
conditions specified in the "WCMA Line of Credit Approval" letter executed by
MLBFS with respect to the transactions contemplated hereby shall have been met
to the reasonable satisfaction of MLBFS.
(x) "Guarantor" shall mean a person or entity who has either guaranteed or
provided collateral for any or all of the Obligations; and "Business Guarantor"
shall mean any such Guarantor that is a corporation, partnership,
proprietorship, limited liability company or other entity regularly engaged in a
business activity.
(xi) "Initial Maturity Date" shall mean the first date upon which the WCMA Line
of Credit will expire unless it has been renewed in accordance with the terms
hereof; to wit: November 30, 1999.
(xii) "Interest Rate" shall mean a variable per annum rate of interest equal to
the sum of 1.75% and the 30-Day Commercial Paper Rate. The "30-Day Commercial
Paper Rate" shall mean, as of the date of any determination, the interest rate
from time to time published in the "Money Rates" section of The Wall Street
Journal for 30-day high-grade unsecured notes sold through dealers by major
corporations. If no Default shall then have occurred and be continuing, Customer
shall have the option, exercisable not more than once in any calendar quarter
upon not less than 15 days prior written notice to MLBFS, to: (a) substitute for
the 30-Day Commercial Paper Rate the interest rate published in the "Money
Rates" section of The Wall Street Journal as the one-month London Interbank
Offered Rate (the "One-Month LIBOR.), or (b) substitute the 30-Day Commercial
<PAGE>
Paper Rate for the One-Month Libor, as applicable. The Interest Rate will change
as of the date of publication in The Wall Street Journal of a 30-Day Commercial
Paper Rate or One-Month Libor that is different from that published on the
preceding Business Day. In the event that The Wall Street Journal shall, for any
reason, fail or cease to publish the 30-Day Commercial Paper Rate or One-Month
Libor, MLBFS will choose a reasonably comparable index or source to use as the
basis for the Interest Rate.
(xiii) "Line Fee" shall mean the fee of $37,500.00 payable periodically by
Customer to MLBFS in connection with the WCMA Line of Credit, as provided
herein.
(xiv) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Loan Agreement, together with any other address
or addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.
(xv) "Maturity Date" shall mean the date of expiration or earlier termination of
the WCMA Line of Credit pursuant to the terms hereof.
(xvi) "Maximum WCMA Line of Credit" shall mean $10,000,000.00.
(xvii) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer to MLBFS, howsoever created, arising or evidenced,
whether now existing or hereafter arising, whether direct or indirect, absolute
or contingent, due or to become due, primary or secondary or joint or several,
and, without limiting the foregoing, shall include interest accruing after the
filing of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement.
(xviii) "Permitted Liens" shall mean shall mean with respect to the Collateral:
(A) liens for current taxes not delinquent, other non-consensual liens arising
in the ordinary course of business for sums not due, and, if MLBFS' rights to
and interest in the Collateral are not materially and adversely affected
thereby, any such liens for taxes or other non-consensual liens arising in the
ordinary course of business being contested in good faith by appropriate
proceedings; (B) liens in favor of MLBFS; (C) liens which will be discharged
with the proceeds of the initial WCMA Loan; and (D) any other liens expressly
permitted in writing by MLBFS.
(xix) "Renewal Year" shall mean and refer to the 12-month period immediately
following the Initial Maturity Date and each 12-month period thereafter.
(xx) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as Account No. 849-07230.
(xxi) "WCMA Loan" shall mean each advance made by MLBFS pursuant to this Loan
Agreement.
(b) Other Terms. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meanings set
forth in the WCMA Agreement.
<PAGE>
2. WCMA PROMISSORY NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the Maturity Date, the aggregate unpaid principal amount of
all WCMA Loans (the "WCMA Loan Balance"); (b) interest at the Interest Rate on
the outstanding WCMA Loan Balance, from and including the date on which the
initial WCMA Loan is made until the date of payment of all WCMA Loans in full;
and (c) on demand, all other sums payable pursuant to this Loan Agreement,
including, but not limited to, the periodic Line Fee and any late charges.
Except as otherwise expressly set forth herein, Customer hereby waives
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate and all other
notices and formalities in connection with this WCMA Promissory Note and this
Loan Agreement.
3. WCMA LOANS
(a) Activation Date. Provided that: (i) the Commitment Expiration Date shall not
then have occurred, and (ii) Customer shall have subscribed to the WCMA Program
and its subscription to the WCMA Program shall then be in effect, the Activation
Date shall occur on or promptly after the date, following the acceptance of this
Loan Agreement by MLBFS at its office in Chicago, Illinois, upon which each of
the General Funding Conditions shall have been met or satisfied to the
reasonable satisfaction of MLBFS. No activation by MLBFS of the WCMA Line of
Credit for a nominal amount shall be deemed evidence of the satisfaction of any
of the conditions herein set forth, or a waiver of any of the terms or
conditions hereof. Customer hereby authorizes MLBFS to pay out of and charge to
Customer's WCMA Account on the Activation Date any and all amounts necessary to
fully pay off any bank or other financial institution having a lien upon any of
the Collateral other than a Permitted Lien.
(b) WCMA Loans. Subject to the terms and conditions hereof, during the period
from and after the Activation Date to the Maturity Date: (i) MLBFS will make
WCMA Loans to Customer in such amounts as Customer may from time to time request
in accordance with the terms hereof, up to an aggregate outstanding amount not
to exceed the Maximum WCMA Line of Credit, and (ii) Customer may repay any WCMA
Loans in whole or in part at any time without premium or penalty, and request a
re-borrowing of amounts repaid on a revolving basis. Customer may request WCMA
Loans by use of WCMA Checks, FTS, Visa(R) charges, wire transfers, or such other
means of access to the WCMA Line of Credit as may be permitted by MLBFS from
time to time; it being understood that so long as the WCMA Line of Credit shall
be in effect, any charge or debit to the WCMA Account which but for the WCMA
Line of Credit would under the terms of the WCMA Agreement result in an
overdraft, shall be deemed a request by Customer for a WCMA Loan.
(c) Conditions of WCMA Loans. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of receipt by MLBFS of Customer's request:
(i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to
be exceeded; or (ii) the Maturity Date shall have occurred, or the WCMA Line of
Credit shall have otherwise been terminated in accordance with the terms hereof;
or (iii) Customer's subscription to the WCMA Program shall have been terminated;
or (iv) an event shall have occurred and be continuing which shall have caused
<PAGE>
any of the General Funding Conditions to not then be met or satisfied to the
reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time
when any one or more of said conditions shall not have been met shall not in any
event be construed as a waiver of said condition or conditions or of any
Default, and shall not prevent MLBFS at any time thereafter while any condition
shall not have been met from refusing to honor any request by Customer for a
WCMA Loan.
(d) Force Majeure. MLBFS shall not be responsible, and shall have no liability
to Customer or any other party, for any delay or failure of MLBFS to honor any
request of Customer for a WCMA Loan or any other act or omission of MLBFS,
MLPF&S or any of their affiliates due to or resulting from any system failure,
error or delay in posting or other clerical error, loss of power, fire, Act of
God or other cause beyond the reasonable control of MLBFS, MLPF&S or any of
their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
(e) Interest. The WCMA Loan Balance shall bear interest at the Interest Rate.
Interest shall be computed for the actual number of days elapsed on the basis of
a year consisting of 360 days. Notwithstanding any provision to the contrary in
this Agreement or any of the Additional Agreements, no provision of this
Agreement or any of the Additional Agreements shall require the payment or
permit the collection of any amount in excess of the maximum amount of interest
permitted to be charged by law ("Excess Interest"). If any Excess Interest is
provided for, or is adjudicated as being provided for, in this Agreement or any
of the Additional Agreements, then: (a) Customer shall not be obligated to pay
any Excess Interest; and (b) any Excess Interest that MLBFS may have received
hereunder or under any of the Additional Agreements shall, at the option of
MLBFS, be: (i) applied as a credit against the then unpaid balance of the WCMA
Line of Credit, (ii) refunded to the payer thereof, or (iii) any combination of
the foregoing. Except as otherwise provided herein, accrued and unpaid interest
on the WCMA Loan Balance shall be payable monthly on the last Business Day of
each calendar month, commencing with the last Business Day of the calendar month
in which the Activation Date shall occur. Customer hereby irrevocably authorizes
and directs MLPF&S to pay MLBFS such accrued interest from any available free
credit balances in the WCMA Account, and if such available free credit balances
are insufficient to satisfy any interest payment due, to liquidate any
investments in the Money Accounts (other than any investments constituting any
Minimum Money Accounts Balance under the WCMA Directed Reserve program) in an
amount up to the balance of such accrued interest, and pay to MLBFS the
available proceeds on account thereof. If available free credit balances in the
WCMA Account and available proceeds of the Money Accounts are insufficient to
pay the entire balance of accrued interest, and Customer otherwise fails to make
such payment when due, MLBFS may, in its sole discretion, make a WCMA Loan in an
amount equal to the balance of such accrued interest and pay the proceeds of
such WCMA Loan to itself on account of such interest. The amount of any such
WCMA Loan will be added to the WCMA Loan Balance. If MLBFS declines to extend a
WCMA Loan to Customer under these circumstances, Customer hereby authorizes and
directs MLPF&S to make all such interest payments to MLBFS from any Minimum
Money Accounts Balance. If there is no Minimum Money Accounts Balance, or it is
insufficient to pay all such interest, MLBFS will invoice Customer for payment
of the balance of the accrued interest, and Customer shall pay such interest as
directed by MLBFS within 5 Business Days of receipt of such invoice.
<PAGE>
(f) Payments. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance.
The acceptance by or on behalf of MLBFS of a check or other payment for a lesser
amount than shall be due from Customer, regardless of any endorsement or
statement thereon or transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and MLBFS or anyone
acting on behalf of MLBFS may accept such check or other payment without
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
WCMA Line of Credit are subject to final collection.
(g) Exceeding the Maximum WCMA Line of Credit. In the event that the WCMA Loan
Balance shall at any time exceed the Maximum WCMA Line of Credit, Customer shall
within 1 Business Day of the first to occur of (i) any request or demand of
MLBFS, or (ii) receipt by Customer of a statement from MLPF&S showing a WCMA
Loan Balance in excess of the Maximum WCMA Line of Credit, deposit sufficient
funds into the WCMA Account to reduce the WCMA Loan Balance below the Maximum
WCMA Line of Credit.
(h) Statements. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.
(i) Use of Loan Proceeds; Securities Transactions. On the Activation Date, a
WCMA Loan will be made to pay any indebtedness of Customer to a third party
secured by all or any part of the Collateral. The proceeds of each subsequent
WCMA Loan shall be used by Customer solely for working capital in the ordinary
course of its business, or, with the prior written consent of MLBFS, for other
lawful business purposes of Customer not prohibited hereby. Customer agrees that
under no circumstances will funds borrowed from MLBFS through the WCMA Line of
Credit be used: (i) for personal, family or household purposes of any person
whatsoever, or (ii) to purchase, carry or trade in securities, or repay debt
incurred to purchase, carry or trade in securities, whether in or in connection
with the WCMA Account, another account of Customer with MLPF&S or an account of
Customer at any other broker or dealer in securities.
(j) Renewal at Option of MLBFS; Right of Customer to Terminate. MLBFS may at any
time, in its sole discretion and at its sole option, renew the WCMA Line of
Credit for one or more Renewal Years; it being understood, however, that no such
renewal shall be effective unless set forth in a writing executed by a duly
authorized representative of MLBFS and delivered to Customer. Unless any such
renewal is accompanied by a proposed change in the terms of the WCMA Line of
<PAGE>
Credit (other than the extension of the Maturity Date), no such renewal shall
require Customer's approval. Customer shall, however, have the right to
terminate the WCMA Line of Credit at any time upon written notice to MLBFS. If
the WCMA Line of Credit shall be terminated for any reason prior to payment by
Customer of the Line Fee of $37,500.00 due for the 12-month period immediately
following November 30, 1998, then said fee shall be deemed fully earned by MLBFS
and immediately payable by Customer on the date of such termination.
(k) Line Fees. (i) In consideration of the extension of the WCMA Line of Credit
by MLBFS to Customer during the period from the Activation Date to November 30,
1998 (the "Initial Line Period"), Customer has paid or shall pay the initial
Line Fee to MLBFS. If the initial Line Fee has not heretofore been paid by
Customer, Customer hereby authorizes MLBFS, at its option, to either cause the
Line Fee to be paid on the Activation Date with a WCMA Loan, or invoice Customer
for such initial Line Fee (in which event Customer shall pay said fee within 5
Business Days after receipt of such invoice). No delay in the Activation Date,
howsoever caused, shall entitle Customer to any rebate or reduction in the Line
Fee or to any extension of the Initial Maturity Date.
(ii) Customer shall pay an additional Line Fee for each 12-month period
following the Initial Line Period to the Initial Maturity Date, and for each
Renewal Year. In connection therewith, Customer hereby authorizes MLBFS, at its
option, to either cause each such additional Line Fee to be paid with a WCMA
Loan on or at any time after the first Business Day of such 12-month period or
Renewal Year, as applicable, or invoiced to Customer at such time (in which
event Customer shall pay such Line Fee within 5 Business Days after receipt of
such invoice). Each Line Fee shall be deemed fully earned by MLBFS on the date
payable by Customer, and no termination of the WCMA Line of Credit, howsoever
caused, shall entitle Customer to any rebate or refund of any portion of such
Line Fee.
4. REPRESENTATIONS AND WARRANTIES
Customer represents and warrants to MLBFS that:
(a) Organization and Existence. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Delaware and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary; and, where applicable, each Business Guarantor is duly organized,
validly existing and in good standing under the laws of the state of its
formation and is qualified to do business and in good standing in each other
state where the nature of its business or the property owned by it make such
qualification necessary.
(b) Execution, Delivery and Performance. The execution, delivery and performance
by Customer of this Loan Agreement and by Customer and each Guarantor of such of
the Additional Agreements to which it is a party: (i) have been duly authorized
by all requisite action, (ii) do not and will not violate or conflict with any
law or other governmental requirement, or any of the agreements, instruments or
documents which formed or govern Customer or any such Guarantor, and (iii) do
not and will not breach or violate any of the provisions of, and will not result
in a default by Customer or any such Guarantor under, any other agreement,
instrument or document to which it is a party or by which it or its properties
are bound.
<PAGE>
(c) Notices and Approvals. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer or any
Guarantor of such of this Loan Agreement and the Additional Agreements to which
it is a party.
(d) Enforceability. This Loan Agreement and such of the Additional Agreements to
which Customer or any Guarantor is a party are the respective legal, valid and
binding obligations of Customer and such Guarantor, enforceable against it or
them, as the case may be, in accordance with their respective terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting the
rights of creditors generally or by general principles of equity.
(e) Collateral. Except for any Permitted Liens: (i) Customer has good and
marketable title to the Collateral, (ii) none of the Collateral is subject to
any lien, encumbrance or security interest, and (iii) upon the filing of all
Uniform Commercial Code financing statements executed by Customer with respect
to the Collateral in the appropriate jurisdiction(s) and/or the completion of
any other action required by applicable law to perfect its liens and security
interests, MLBFS will have valid and perfected first liens and security
interests upon all of the Collateral.
(f) Financial Statements. Except as expressly set forth in Customer's or any
Business Guarantor's financial statements, all financial statements of Customer
and each Business Guarantor furnished to MLBFS have been prepared in conformity
with generally accepted accounting principles, consistently applied, are true
and correct, and fairly present the financial condition of it as at such dates
and the results of its operations for the periods then ended; and since the most
recent date covered by such financial statements, there has been no material
adverse change in any such financial condition or operation. All financial
statements furnished to MLBFS of any Guarantor other than a Business Guarantor
are true and correct and fairly represent such Guarantor's financial condition
as of the date of such financial statements, and since the most recent date of
such financial statements, there has been no material adverse change in such
financial condition.
(g) Litigation. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer or any Guarantor, which would, if adversely determined, materially and
adversely affect the liens and security interests of MLBFS hereunder or under
any of the Additional Agreements, the financial condition of Customer or any
such Guarantor or the continued operations of Customer or any Business
Guarantor.
(h) Tax Returns. All federal, state and local tax returns, reports and
statements required to be filed by Customer and each Guarantor have been filed
with the appropriate governmental agencies and all taxes due and payable by
Customer and each Guarantor have been timely paid (except to the extent that any
such failure to file or pay will not materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of the Additional
Agreements, the financial condition of Customer or any Guarantor, or the
continued operations of Customer or any Business Guarantor).
(i) Collateral Location. All of the tangible Collateral is located at a Location
of Tangible Collateral.
<PAGE>
Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to provide the WCMA Line of Credit, and
(ii) is continuing and shall be deemed remade by Customer concurrently with each
request for a WCMA Loan.
5. FINANCIAL AND OTHER INFORMATION
Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:
(a) Annual Financial Statements. Within 120 days after the close of each fiscal
year of Customer, Customer shall furnish or cause to be furnished to MLBFS a
copy of the annual audited financial statements of Customer, consisting of at
least a balance sheet as at the close of such fiscal year and related statements
of income, retained earnings and cash flows, certified by its current
independent certified public accountants or other independent certified public
accountants reasonably acceptable to MLBFS.
(b) Interim Financial Statements. Within 45 days after the close of each fiscal
quarter of Customer, Customer shall furnish or cause to be furnished to MLBFS:
(i) its statement of profit and loss for the fiscal quarter then ended, and (ii)
a balance sheet as at the close of such fiscal quarter; all in reasonable detail
and certified by its chief financial officer.
(c)Agings of Accounts. Within 15 days after the close of each fiscal month of
Customer, Customer shall furnish or cause to be furnished to MLBFS an aging of
Accounts and Chattel Paper for Customer as of the end of such fiscal month, in
reasonable detail and certified by its chief financial officer.
(d) Other Information. Customer shall furnish or cause to be furnished to MLBFS
such other information as MLBFS may from time to time reasonably request
relating to Customer, any Guarantor or the Collateral.
6. OTHER COVENANTS
Customer further covenants and agrees during the term of this Loan Agreement
that:
(a) Financial Records; Inspection. Customer and each Business Guarantor will:
(i) maintain at its principal place of business complete and accurate books and
records, and maintain all of its financial records in a manner consistent with
the financial statements heretofore furnished to MLBFS, or prepared on such
other basis as may be approved in writing by MLBFS; and (ii) permit MLBFS or its
duly authorized representatives, upon reasonable notice and at reasonable times,
to inspect its properties (both real and personal), operations, books and
records.
(b) Taxes. Customer and each Guarantor will pay when due all taxes, assessments
and other governmental charges, howsoever designated, and all other liabilities
and obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or any Guarantor or the continued operations of Customer or any
Business Guarantor.
<PAGE>
(c) Compliance With Laws and Agreements. Neither Customer nor any Guarantor will
violate any law, regulation or other governmental requirement, any judgment or
order of any court or governmental agency or authority, or any agreement,
instrument or document to which it is a party or by which it is bound, if any
such violation will materially and adversely affect either the liens and
security interests of MLBFS hereunder or under any of the Additional Agreements,
the financial condition of Customer or any Guarantor, or the continued
operations of Customer or any Business Guarantor.
(d) Notification By Customer. Customer shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer or any Business
Guarantor; and (iii) any information which indicates that any financial
statements of Customer or any Guarantor fail in any material respect to present
fairly the financial condition and results of operations purported to be
presented in such statements. Each notification by Customer pursuant hereto
shall specify the event or information causing such notification, and, to the
extent applicable, shall specify the steps being taken to rectify or remedy such
event or information.
(e) Notice of Change. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer or any Guarantor.
(f) Continuity. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) neither Customer nor any Business
Guarantor shall be a party to any merger or consolidation with, or purchase or
otherwise acquire all or substantially all of the assets of, or any material
stock, partnership, joint venture or other equity interest in, any person or
entity, or sell, transfer or lease all or any substantial part of its assets, if
any such action would result in either: (A) a material change in the principal
business, ownership or control of Customer or such Business Guarantor, or (B) a
material adverse change in the financial condition or operations of Customer or
such Business Guarantor; (ii) Customer and each Business Guarantor shall
preserve their respective existence and good standing in the jurisdictions of
establishment and operation, and shall not operate in any material business
substantially different from their respective business in effect as of the date
of application by Customer for credit from MLBFS; and (iii) neither Customer nor
any Business Guarantor shall cause or permit any material change in its
controlling ownership.
(g) Minimum Tangible Net Worth. Customer's "tangible net worth" shall at all
times exceed $9,000,000.00. For the purposes hereof, the term "tangible net
worth" shall mean Customer's net worth as shown on Customer's regular financial
statements prepared in a manner consistent with the terms hereof, but excluding
an amount equal to: (i) any assets which are ordinarily classified as
\"intangible\" in accordance with generally accepted accounting principles, and
(ii) any amounts now or hereafter directly or indirectly owing to Customer by
officers, shareholders or affiliates of Customer.
7. COLLATERAL
(a) Pledge of Collateral. To secure payment and performance of the Obligations,
Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants
to MLBFS first liens and security interests in and upon all of the Collateral,
subject only to Permitted Liens.
<PAGE>
(b) Liens. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) Performance of Obligations. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customer's said
obligations.
(d) Sales and Collections. So long as no Event of Default shall have occurred
and be continuing, Customer may in the ordinary course of its business: (i) sell
any Inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption, and
(iii) collect all of its Accounts. Customer shall take such action with respect
to protection of its Inventory and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.
(e) Account Schedules. Upon the request of MLBFS, made now or at any reasonable
time or times hereafter, Customer shall deliver to MLBFS, in addition to the
other information required hereunder, a schedule identifying, for each Account
and all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice or contract number and
date of each invoice or contract. Customer shall furnish to MLBFS such
additional information with respect to the Collateral, and amounts received by
Customer as proceeds of any of the Collateral, as MLBFS may from time to time
reasonably request.
(f) Alterations and Maintenance. Except upon the prior written consent of MLBFS,
Customer shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times keep the tangible Collateral in good condition and
repair and shall pay or cause to be paid all obligations arising from the repair
and maintenance of such Collateral, as well as all obligations with respect to
each Location of Tangible Collateral, except for any such obligations being
contested by Customer in good faith by appropriate proceedings.
(g) Location. Except for movements required in the ordinary course of Customer's
business, Customer shall give MLBFS 30 days' prior written notice of the placing
at or movement of any tangible Collateral to any location other than a Location
of Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS.
(h) Insurance. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer and each Business Guarantor shall maintain such other
insurance as may be required by law or is customarily maintained by companies in
a similar business or otherwise reasonably required by MLBFS. All such insurance
shall provide that MLBFS will receive not less than 10 days prior written notice
of any cancellation, and shall otherwise be in form and amount and with an
insurer or insurers reasonably acceptable to MLBFS. Customer shall furnish MLBFS
with a copy or certificate of each such policy or policies and, prior to any
expiration or cancellation, each renewal or replacement thereof.
<PAGE>
(i) Event of Loss. Customer shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of $25,000.00
or more, then, on or before the first to occur of (i) 90 days after the
occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customer's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Customer shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or
consent to a reduction in the Maximum WCMA Line of Credit in an amount equal to
the actual cash value of such Collateral as determined by either the applicable
insurance company's payment (plus any applicable deductible) or, in absence of
insurance company payment, as reasonably determined by MLBFS. Notwithstanding
the foregoing, if at the time of occurrence of such Event of Loss or any time
thereafter prior to replacement or line reduction, as aforesaid, an Event of
Default shall have occurred and be continuing hereunder, then MLBFS may at its
sole option, exercisable at any time while such Event of Default shall be
continuing, require Customer to either replace such Collateral or, on its own
volition and without the consent of Customer, reduce the Maximum WCMA Line of
Credit, as aforesaid.
(j) Notice of Certain Events. Customer shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.
(k) Indemnification. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any Collateral, or (ii) any failure by Customer to perform any
of its obligations hereunder; excluding, however, from said indemnity any such
claims, liabilities, etc. arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan Agreement as to all matters arising or accruing prior
to such expiration or termination.
8. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) Failure to Pay. Customer shall fail to pay to MLBFS or deposit into the WCMA
Account when due any amount owing or required to be paid or deposited by
Customer under this Loan Agreement, or shall fail to pay when due any other
Obligations, and any such failure shall continue for more than five (5) Business
Days after written notice thereof shall have been given by MLBFS to Customer.
<PAGE>
(b) Failure to Perform. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement or any of the Additional
Agreements (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for ten (10) Business Days
after written notice thereof shall have been given by MLBFS to Customer.
(c) Breach of Warranty. Any representation or warranty made by Customer or any
Guarantor contained in this Loan Agreement or any of the Additional Agreements
shall at any time prove to have been incorrect in any material respect when
made.
(d) Default Under Other Agreement. A default or Event of Default by Customer or
any Guarantor shall occur under the terms of any other agreement, instrument or
document with or intended for the benefit of MLBFS, MLPF&S or any of their
affiliates, and any required notice shall have been given and required passage
of time shall have elapsed.
(e) Bankruptcy Event. Any Bankruptcy Event shall occur.
(f) Material Impairment. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or performance
by Customer or any Guarantor of any of their respective liabilities or
obligations under this Loan Agreement or any of the Additional Agreements to
which Customer or such Guarantor is a party has been materially impaired.
(g) Acceleration of Debt to Other Creditors. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer or any Guarantor to another creditor under any indenture, agreement,
undertaking, or otherwise.
(h) Seizure or Abuse of Collateral. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure or confiscation which is not released within ten (10)
Business Days.
9. REMEDIES
(a) Remedies Upon Default. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) Termination. MLBFS may without notice terminate the WCMA Line of Credit and
all obligations to provide the WCMA Line of Credit or otherwise extend any
credit to or for the benefit of Customer (it being understood, however, that
upon the occurrence of any Bankruptcy Event the WCMA Line of Credit and all such
obligations shall automatically terminate without any action on the part of
MLBFS); and upon any such termination MLBFS shall be relieved of all such
obligations.
<PAGE>
(ii) Acceleration. MLBFS may declare the principal of and interest on the WCMA
Loan Balance, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other notice
or formality of any kind, all of which are hereby expressly waived; provided,
however, that upon the occurrence of any Bankruptcy Event all such principal,
interest and other Obligations shall automatically become due and payable
without any action on the part of MLBFS.
(iii) Exercise Rights of Secured Party. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Loan
Agreement and the Additional Agreements.
(iv) Possession. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient to Customer, or may take possession of the
Collateral and the records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Customer.
(v) Sale. MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS may
purchase any Collateral at any such public sale. The net proceeds of any such
public or private sale and all other amounts actually collected or received by
MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer and each Guarantor remaining jointly and severally liable for
any amount remaining unpaid after such application.
(vi) Delivery of Cash, Checks, Etc. MLBFS may require Customer to forthwith upon
receipt, transmit and deliver to MLBFS in the form received, all cash, checks,
drafts and other instruments for the payment of money (properly endorsed, where
required, so that such items may be collected by MLBFS) which may be received by
Customer at any time in full or partial payment of any Collateral, and require
that Customer not commingle any such items which may be so received by Customer
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.
(vii) Notification of Account Debtors. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.
(viii) Control of Collateral. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Customer's name on any item of payment on or proceeds of
the Collateral.
(b) Set-Off. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
securities and any other property of Customer which is in transit to or in the
<PAGE>
possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or
affiliate of MLBFS or MLPF&S, including, without limitation, the WCMA Account
and any Money Accounts, and all cash, securities and other financial assets
therein or controlled thereby, and all proceeds thereof. Customer hereby
collaterally assigns and grants to MLBFS a continuing security interest in all
such property as additional Collateral.
(c) Power of Attorney. Effective upon the occurrence and during the continuance
of an Event of Default, Customer hereby irrevocably appoints MLBFS as its
attorney-in-fact, with full power of substitution, in its place and stead and in
its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion
take any action and to execute any instrument which MLBFS may deem necessary or
advisable to accomplish the purposes of this Loan Agreement, including, but not
limited to, to receive, endorse and collect all checks, drafts and other
instruments for the payment of money made payable to Customer included in the
Collateral.
(d) Remedies are Severable and Cumulative. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.
(e) Notices. To the fullest extent permitted by applicable law, Customer hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Customer waives all rights of redemption or reinstatement from any
such sale. Any notices required under applicable law shall be reasonably and
properly given to Customer if given by any of the methods provided herein at
least 5 Business Days prior to taking action. MLBFS shall have the right to
postpone or adjourn any sale or other disposition of Collateral at any time
without giving notice of any such postponed or adjourned date. In the event
MLBFS seeks to take possession of any or all of the Collateral by court process,
Customer further irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession, and any demand for
possession prior to the commencement of any suit or action.
10. MISCELLANEOUS
(a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any waiver
of any provision of this Loan Agreement or any of the Additional Agreements, nor
any consent to any departure by Customer therefrom, shall be effective unless
the same shall be in writing and signed by MLBFS. Any waiver of any provision of
this Loan Agreement or any of the Additional Agreements and any consent to any
departure by Customer from the terms of this Loan Agreement or any of the
Additional Agreements shall be effective only in the specific instance and for
the specific purpose for which given. Except as otherwise expressly provided
herein, no notice to or demand on Customer shall in any case entitle Customer to
any other or further notice or demand in similar or other circumstances.
<PAGE>
(b) Disclosure. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer. In connection with
said authorization, the parties recognize that in order to provide a WCMA Line
of Credit certain information about Customer is required to be made available on
a computer network accessible by certain affiliates of MLBFS, including MLPF&S.
(c) Communications. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Loan Agreement, or, in the case of facsimile transmission, to
the parties at their respective regular facsimile telephone number.
(d) Costs, Expenses and Taxes. Customer shall upon demand pay or reimburse MLBFS
for: (i) all Uniform Commercial Code filing and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery and/or recording of this Loan Agreement or any of the Additional
Agreements; (iii) all reasonable fees and out-of-pocket expenses of outside
counsel up to $5,000.00 incurred by MLBFS in connection with the preparation of
this Loan Agreement and the additional agreements and (iv) all reasonable fees
and out-of-pocket expenses (including, but not limited to, reasonable fees and
expenses of outside counsel) incurred by MLBFS in connection with the collection
of any sum payable hereunder or under any of the Additional Agreements not paid
when due, the enforcement of this Loan Agreement or any of the Additional
Agreements and the protection of MLBFS' rights hereunder or thereunder,
excluding, however, salaries and normal overhead attributable to MLBFS'
employees. The obligations of Customer under this paragraph shall survive the
expiration or termination of this Loan Agreement and the discharge of the other
Obligations.
(e) Right to Perform Obligations. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 days written notice is sent
to Customer (or such lesser notice, including no notice, as is reasonable under
the circumstances), do the same or cause it to be done or remedy any such
breach, and may expend its funds for such purpose. Any and all reasonable
amounts so expended by MLBFS shall be repayable to MLBFS by Customer upon
demand, with interest at the Interest Rate during the period from and including
the date funds are so expended by MLBFS to the date of repayment, and all such
amounts shall be additional Obligations. The payment or performance by MLBFS of
any of Customer's obligations hereunder shall not relieve Customer of said
obligations or of the consequences of having failed to pay or perform the same,
and shall not waive or be deemed a cure of any Default.
(f) Late Charge. Any payment required to be made by Customer pursuant to this
Loan Agreement not paid within ten (10) days of the applicable due date shall be
subject to a late charge in an amount equal to the lesser of: (i) 5% of the
<PAGE>
overdue amount, or (ii) the maximum amount permitted by applicable law. Such
late charge shall be payable on demand, or, without demand, may in the sole
discretion of MLBFS be paid by a WCMA Loan and added to the WCMA Loan Balance in
the same manner as provided herein for accrued interest.
(g) Further Assurances. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement or any of the Additional Agreements, or to
establish, perfect and maintain MLBFS' security interests and liens upon the
Collateral, including, but not limited to: (i) executing financing statements or
amendments thereto when and as reasonably requested by MLBFS; and (ii) if in the
reasonable judgment of MLBFS it is required by local law, causing the owners
and/or mortgagees of the real property on which any Collateral may be located to
execute and deliver to MLBFS waivers or subordinations reasonably satisfactory
to MLBFS with respect to any rights in such Collateral.
(h) Binding Effect. This Loan Agreement and the Additional Agreements shall be
binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its rights
or delegate any of its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent
shall in any event relieve Customer of any of its obligations under this Loan
Agreement or the Additional Agreements.
(i) Headings. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(j) Governing Law. This Loan Agreement, and, unless otherwise expressly provided
therein, each of the Additional Agreements, shall be governed in all respects by
the laws of the State of Illinois.
(k) Severability of Provisions. Whenever possible, each provision of this Loan
Agreement and the Additional Agreements shall be interpreted in such manner as
to be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Loan Agreement and the Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(l) Term. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as the WCMA Line of Credit shall be
in effect or there shall be any Obligations outstanding.
(m) Counterparts. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.
<PAGE>
(n) Jurisdiction; Waiver. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER CONSENTS
TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT
IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS
TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER WAIVES ANY RIGHTS TO
COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF
COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY
AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY
MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE WCMA LINE OF
CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS AND/OR ANY OF THE
TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT.
(o) Integration. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS,
CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE FOREGOING, CUSTOMER ACKNOWLEDGES
THAT EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN: (I) NO PROMISE OR COMMITMENT
HAS BEEN MADE TO IT BY MLBFS, MLPF&S OR ANY OF THEIR RESPECTIVE EMPLOYEES,
AGENTS OR REPRESENTATIVES TO EXTEND THE AVAILABILITY OF THE WCMA LINE OF CREDIT
OR THE MATURITY DATE, OR TO INCREASE THE MAXIMUM WCMA LINE OF CREDIT, OR
OTHERWISE EXTEND ANY OTHER CREDIT TO CUSTOMER OR ANY OTHER PARTY; (II) NO
PURPORTED EXTENSION OF THE MATURITY DATE, INCREASE IN THE MAXIMUM WCMA LINE OF
CREDIT OR OTHER EXTENSION OR AGREEMENT TO EXTEND CREDIT SHALL BE VALID OR
BINDING UNLESS EXPRESSLY SET FORTH IN A WRITTEN INSTRUMENT SIGNED BY MLBFS; AND
(III) THIS LOAN AGREEMENT SUPERSEDES AND REPLACES ANY AND ALL PROPOSALS, LETTERS
OF INTENT AND APPROVAL AND COMMITMENT LETTERS FROM MLBFS TO CUSTOMER, NONE OF
WHICH SHALL BE CONSIDERED AN ADDITIONAL AGREEMENT. NO AMENDMENT OR MODIFICATION
OF THIS AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS TO WHICH CUSTOMER IS A
PARTY SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY BOTH MLBFS AND CUSTOMER.
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
LAKELAND INDUSTRIES, INC.
By: s/s Raymond J. Smith /s/Christopher Ryan
-------------------- -------------------
Signature (1) Signature (2)
Raymond J. Smith Christopher Ryan
Printed Name Printed Name
Title: President Title: Executive V.P. & Secretary
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: _________________________________
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned hereby certifies to MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC. that the undersigned is the duly appointed and acting Secretary (or
Assistant Secretary) of LAKELAND INDUSTRIES, INC., a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
and that the following is a true, accurate and compared transcript of
resolutions duly, validly and lawfully adopted on the 10th day of December ,
1997 by the Board of Directors of said Corporation acting in accordance with the
laws of the state of incorporation and the charter and by-laws of said
Corporation:
"RESOLVED, that this Corporation is authorized and empowered, now and from time
to time hereafter, to borrow and/or obtain credit from, and/or enter into other
financial arrangements with, MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
("MLBFS"), and in connection therewith to grant to MLBFS liens and security
interests on any or all property belonging to this Corporation; all such
transactions to be on such terms and conditions as may be mutually agreed from
time to time between this Corporation and MLBFS; and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary
or other officer of this Corporation, or any one or more of them, be and each of
them hereby is authorized and empowered to: (a) execute and deliver to MLBFS on
behalf of this Corporation any and all loan agreements, promissory notes,
security agreements, pledge agreements, financing statements, mortgages, deeds
of trust, leases and/or all other agreements, instruments and documents required
by MLBFS in connection therewith, and any present or future extensions,
amendments, supplements, modifications and restatements thereof; all in such
form as any such officer shall approve, as conclusively evidenced by his or her
signature thereon, and (b) do and perform all such acts and things deemed by any
such officer to be necessary or advisable to carry out and perform the
undertakings and agreements of this Corporation in connection therewith; and any
and all prior acts of each of said officers in these premises are hereby
ratified and confirmed in all respects; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from an
authorized officer of this Corporation, which change or revocation shall not in
any event affect the obligations of this Corporation with respect to any
transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."
The undersigned further certifies that: (a) the foregoing resolutions have not
been rescinded, modified or repealed in any manner, are not in conflict with any
agreement of said Corporation and are in full force and effect as of the date of
this Certificate, and (b) the following individuals are now the duly elected and
acting officers of said Corporation and the signatures set forth below are the
true signatures of said officers:
President: s/s
---------------------
Vice President: s/s
---------------------
Treasurer: s/s
---------------------
Secretary: s/s
---------------------
V.P. Manufacturing: s/s
Additional Title ---------------------
IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said Corporation hereto, pursuant to due authorization, all
as of this 10th day of December , 1997.
(Corporate Seal) s/s Christopher Ryan
----------------
Printed Name:
Christopher Ryan
Secretary
<PAGE>
UNCONDITIONAL GUARANTY
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit
or lease property to or for the benefit of, or modify its credit relationship
with, or enter into any other financial accommodations with LAKELAND INDUSTRIES,
INC. (with any successor-in interest, including, without limitation, any
successor by merger or by operation of law, herein collectively referred to as
"Customer"), under: (a) that certain WCMA NOTE, LOAN AND SECURITY AGREEMENT NO.
849-07230 between MLBFS and Customer (the "Loan Agreement"), (b) any "Additional
Agreements", as that term is defined in the Loan Agreement, and (c) all present
and future amendments, restatements, supplements and other evidences of any
extensions, increases, renewals, modifications and other changes of or to the
Loan Agreement or any Additional Agreements (collectively, the "Guaranteed
Documents"), and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the undersigned, LAIDLAW ADAMS &
PECK INC. F/K/A FIRELAND INDUSTRIES, INC., a corporation organized and existing
under the laws of the State of Delaware ("Guarantor"), hereby unconditionally
guarantees to MLBFS: (i) the prompt and full payment when due, by acceleration
or otherwise, of all sums now or any time hereafter due from Customer to MLBFS
under the Guaranteed Documents, (ii) the prompt, full and faithful performance
and discharge by Customer of each and every other covenant and warranty of
Customer set forth in the Guaranteed Documents, and (iii) the prompt and full
payment and performance of all other indebtedness, liabilities and obligations
of Customer to MLBFS, howsoever created or evidenced, and whether now existing
or hereafter arising (collectively, the "Obligations"). Guarantor further agrees
to pay all reasonable costs and expenses (including, but not limited to, court
costs and reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring
to collect or enforce performance of any of the Obligations, or in enforcing
this Guaranty. Guarantor acknowledges that MLBFS is relying on the execution and
delivery of this Guaranty in advancing moneys to or extending or continuing to
extend credit to or for the benefit of Customer.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully and indefeasibly paid,
performed and discharged. Upon the occurrence and during the continuance of any
default or Event of Default under the Guaranteed Documents, any or all of the
indebtedness hereby guaranteed then existing shall, at the option of MLBFS,
become immediately due and payable from Guarantor (it being understood, however,
that upon the occurrence of any "Bankruptcy Event", as defined in the Guaranteed
Documents, all such indebtedness shall automatically become due and payable
without action on the part of MLBFS). Notwithstanding the occurrence of any such
event, this Guaranty shall continue and remain in full force and effect. To the
extent MLBFS receives payment with respect to the Obligations, and all or any
part of such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside, required to be repaid by MLBFS or is repaid by MLBFS
pursuant to a settlement agreement, to a trustee, receiver or any other person
or entity, whether under any Bankruptcy law or otherwise (a "Returned Payment"),
this Guaranty shall continue to be effective or shall be reinstated, as the case
may be, to the extent of such payment or repayment by MLBFS, and the
indebtedness or part thereof intended to be satisfied by such Returned Payment
shall be revived and continued in full force and effect as if said Returned
Payment had not been made.
<PAGE>
The liability of Guarantor hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from time
to time, without notice to or the consent of Guarantor: (a) any renewals,
amendments, restatements, modifications or supplements of or to any of the
Guaranteed Documents, or any extensions, forbearances, compromises or releases
of any of the Obligations or any of MLBFS' rights under any of the Guaranteed
Documents; (b) any acceptance by MLBFS of any collateral or security for, or
other guarantees of, any of the Obligations; (c) any failure, neglect or
omission on the part of MLBFS to realize upon or protect any of the Obligations,
or any collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any other
guarantor, possessed by or under the control of MLBFS or any of its affiliates,
toward the liquidation or reduction of the Obligations; (d) any invalidity,
irregularity or unenforceability of all or any part of the Obligations, of any
collateral security for the Obligations, or the Guaranteed Documents; (e) any
application of payments or credits by MLBFS; (f) the granting of credit from
time to time by MLBFS to Customer in excess of the amount set forth in the
Guaranteed Documents; or (g) any other act of commission or omission of any kind
or at any time upon the part of MLBFS or any of its affiliates or any of their
respective employees or agents with respect to any matter whatsoever. MLBFS
shall not be required at any time, as a condition of Guarantor's obligations
hereunder, to resort to payment from Customer or other persons or entities
whatsoever, or any of their properties or estates, or resort to any collateral
or pursue or exhaust any other rights or remedies whatsoever.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been indefeasibly fully paid and discharged. Guarantor
expressly waives presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this Guaranty, notice of advancement of funds under the
Guaranteed Documents and all other notices and formalities to which Customer or
Guarantor might be entitled, by statute or otherwise, and, so long as there are
any Obligations or MLBFS is committed to extend credit to Customer, waives any
right to revoke or terminate this Guaranty without the express written consent
of MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim, remedy
or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or any other of the
Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold, set
off and apply toward the payment of any amount due hereunder, in such order of
application as MLBFS may elect, all cash, credits, deposits, accounts,
securities and any other property of Guarantor which is in transit to or in the
possession, custody or control of MLBFS or Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), or any of their respective agents, bailees or
affiliates, including, without limitation, all securities accounts with MLPF&S
<PAGE>
and all cash, securities and other financial assets therein or controlled
thereby, and all proceeds thereof. Guarantor hereby collaterally assigns and
grants to MLBFS a continuing security interest in all such property as
additional security for the Obligations. Upon the occurrence and during the
continuance of an Event of Default, MLBFS shall have all rights in such property
available to collateral assignees and secured parties under all applicable laws,
including, without limitation, the UCC.
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall have
occurred) obtain from and disclose to each other any and all financial and other
information about Guarantor.
No delay on the part of MLBFS in the exercise of any right or remedy under the
Guaranteed Documents, this Guaranty or any other agreement shall operate as a
waiver thereof, and, without limiting the foregoing, no delay in the enforcement
of any security interest, and no single or partial exercise by MLBFS of any
right or remedy shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. This Guaranty may be executed in any
number of counterparts, each of which counterparts, once they are executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Guaranty. This Guaranty
shall be binding upon Guarantor and its successors and assigns, and shall inure
to the benefit of MLBFS and its successors and assigns. If there are more than
one guarantor of the Obligations, all of the obligations and agreements of
Guarantor are joint and several with such other guarantors.
This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT
THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN WHICH
ANY OF THE GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS HEREBY EACH
EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY IN ANY
WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE OBLIGATIONS. Wherever
possible each provision of this Guaranty shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under such law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty. No modification or waiver of any of the provisions of this Guaranty
shall be effective unless in writing and signed by both Guarantor and an officer
of MLBFS. Each signatory on behalf of Guarantor warrants that he or she has
authority to sign on behalf of Guarantor, and by so signing, to bind Guarantor
hereunder.
<PAGE>
Dated as of December 2, 1997.
LAIDLAW ADAMS & PECK INC. F/K/A FIRELAND INDUSTRIES, INC.
By: s/s Raymond J. Smith s/s Christopher Ryan
-------------------- --------------------
Signature (2) Signature (2)
Raymond J. Smith Christopher Ryan
Printed Name Printed Name
Title: President Title: Executive V.P. Secretary
Address of Guarantor:
815 SUPERIOR AVENUE
CLEVELAND, OH 44114
<PAGE>
CERTIFICATE OF SECRETARY
(Guaranty)
The undersigned hereby certifies to MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC. that the undersigned is the duly appointed and acting Secretary (or
Assistant Secretary) of LAIDLAW ADAMS & PECK INC. F/K/A FIRELAND INDUSTRIES,
INC., a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware; and that the following is a true, accurate
and compared transcript of resolutions duly, validly and lawfully adopted on the
10th day of December , 1997 by the Board of Directors of said Corporation acting
in accordance with the laws of the state of incorporation and the charter and
by-laws of said Corporation:
"RESOLVED, that it is advisable and in the best interests and to the benefit of
this Corporation to guaranty the obligations of LAKELAND INDUSTRIES, INC.
("Customer") to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS"); and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary
or other officer of this Corporation, or any one or more of them, be and each of
them hereby is authorized and empowered for and on behalf of this Corporation
to: (a) execute and deliver to MLBFS: (i) an Unconditional Guaranty of the
obligations of Customer, (ii) any other agreements, instruments and documents
required by MLBFS in connection therewith, including, without limitation, any
agreements, instruments and documents evidencing liens or security interests on
any of the property of this Corporation as collateral for said Unconditional
Guaranty and/or the obligations of Customer to MLBFS, and (iii) any present or
future amendments to any of the foregoing; all in such form as such officer
shall approve, as evidenced by his signature thereon; and (b) to do and perform
all such acts and things deemed by any such officer to be necessary or advisable
to carry out and perform the undertakings and agreements of this Corporation set
forth therein; and all prior acts of each of said officers in these premises are
hereby ratified and confirmed; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from an
authorized officer of this Corporation, which change or revocation shall not in
any event affect the obligations of this Corporation with respect to any
transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."
The undersigned further certifies that: (a) the foregoing resolutions have not
been rescinded, modified or repealed in any manner, are not in conflict with any
agreement of said Corporation and are in full force and effect as of the date of
this Certificate, and (b) the following individuals are now the duly elected and
acting officers of said Corporation and the signatures set forth below are the
true signatures of said officers:
President: s/s
-------------------
Vice President: s/s
-------------------
Treasurer: s/s
-------------------
Secretary: s/s
-------------------
Additional Title
IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said corporation hereto, pursuant to due authorization, all
as of this 10th day of December, 1997.
(Corporate Seal) s/s Christopher Ryan
----------------------
Printed Name:
Christoper Ryan
Secretary
EXHIBIT 11
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We have issued our report dated April 15, 1998, accompanying the consolidated
financial statements and schedule included in the Annual Report of Lakeland
Industries, Inc. and Subsidiaries on Form 10-K for the fiscal year ended January
31, 1998. 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 29, 1998
Dear Fellow Shareholders:
It is my pleasure to tell you that the fiscal year ended January 31, 1998,
set new records for your company. Sales climbed to an all-time high of $47.3
million compared with $41.8 million in fiscal 1997. Net income increased to a
record $1,600,000 from the prior year's net profit of $1,063,000. Stated on a
diluted per share basis, earnings reached $0.61, which represented a gain of 49%
over the $0.41 per share profit in fiscal 1997.
Fiscal 1998 saw major progress regarding our ongoing plans to reduce
production costs while simultaneously improving the quality of our products. Our
new factory in Mexico, mentioned in last year's letter, is running at peak
efficiency. Augmenting the Mexican production is a new manufacturing facility in
China. The establishment of this factory further reduces the costs of several of
our major sales items. Also, it enables us to compete more efficiently with
foreign manufacturers both in the United States and Pacific Rim markets.
"Very proud" would be the phrase of choice to best describe my feelings
regarding the ISO 9002 certification of our Decatur, Alabama facility during
fiscal 1998. The entire staff worked diligently as a team, and because of their
cooperation and resolve, came through the exacting international certification
process with flying colors.
Another of this past year's significant accomplishments was the
installation and implementation of a new computer software package to serve the
entire corporation. It enables the company to maintain even better control over
its financial and inventory areas, and has already confronted and complied with
- -- two years ahead of time -- those potential computer problems generally
associated with the arrival of the year 2000.
Lakeland's relationships with its prime vendors continue to be firm and
cordial. The licensing program with DuPont involving our most popular products,
Tyvek(R) and Tychem(R), has proven to be very successful. We have been advised
by DuPont and other vendors that their preparation for the year 2000 is going
well. They do not expect major changes.
On the financial side, we concluded an agreement with a major financial
institution allowing us to fund safely the growth we have enjoyed during fiscal
1998 and that which lies in your company's promising future.
Importantly, we have enlarged our Internet web site to provide both
potential customers and shareholders the ability to see what Lakeland has to
offer by way of a full product line.
The markets we are selling to currently are expanding as more
manufacturers become aware of the savings they can realize by providing
employees with appropriate safety clothing. Additionally, we are seeing a much
larger interest in chemical- and biological-resistant clothing. This is due to
the unfortunate threat of increased terrorist activities using chemical and
biological agents throughout the world.
<PAGE>
I would like to extend my personal thanks to the Board of Directors for
their valued advice and support of our efforts to steer Lakeland on a successful
course. I would like to thank as well the members of our management staff, all
of our employees worldwide, our vendors and our shareholders for their
unflagging support. We expect next year to be another record breaker for your
company.
Respectfully submitted,
/s/Raymond J. Smith
- -------------------
Raymond J. Smith
President and Chief Executive Officer
-1-
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
For the Years Ended January 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ............................. $ 47,263 $ 41,792 $ 40,189 $ 35,185 $ 30,143
Gross profit .......................... 9,195 7,237 6,288 6,346 4,763
Operating expenses (1) ................ 6,157 5,212 4,882 4,704 4,739
Operating profit ...................... 3,038 2,024 1,406 1,642 24
Income (loss) before income
taxes and cumulative effect of change
in accounting principle (2) .......... 2,590 1,576 956 2,000 (137)
Income (loss) before
cumulative effect of change
in accounting principle .............. 1,600 1,063 587 1,421 (278)
Cumulative effect of change in
accounting principle (3) ............. 241
Net income (loss) ..................... 1,600 1,063 587 1,421 (37)
Earnings (loss) per share - Basic (4)
Income (loss) before cumulative
effect of change in accounting ....... $ .63 $ .42 $ .23 $ .56 $ (.11)
Cumulative effect of change in
accounting principle ................. -- -- -- -- .10
----------- ----------- ----------- ----------- -----------
Net income (loss) ..................... $ .63 $ .42 $ .23 $ .56 ($ .01)
Earnings (loss) per share - Diluted (4)
Income (loss) before cumulative
effect of change in accounting ....... .61 .41 .22 .54 (0.11)
Cumulative effect of change in
accounting principle ................. -- -- -- -- 0.10
----------- ----------- ----------- ----------- -----------
Net Income (loss) ..................... $ .61 $ .41 $ .22 $ .54 ($ .01)
=========== =========== =========== =========== ===========
Weighted average common
shares outstanding:
Basic ......................... 2,558,541 2,550,000 2,550,000 2,550,000 2,550,000
Diluted ....................... 2,627,425 2,609,700 2,635,506 2,641,000 2,550,000
BALANCE SHEET DATA (at end of year):
Working capital ....................... $ 18,903 $ 14,018 $ 13,618 $ 7,190 $ 8,871
Total assets .......................... 25,812 18,573 19,263 15,562 13,103
Current liabilities ................... 5,007 2,920 3,894 6,813 2,464
L/T liabilities ....................... 9,217 5,746 6,492 441 3,680
Stockholders' equity .................. $ 11,518 $ 9,825 $ 8,762 $ 8,175 $ 6,754
</TABLE>
<PAGE>
(1) Includes a write-off of $583,669 in Notes receivable due from one customer
in 1994.
(2) Includes $625,000 gain recorded in 1995 relating to the favorable
settlement of an outstanding litigation.
(3) 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.
(4) Earnings per share has been restated in accordance with SFAS No. 128,
"Earnings Per Share".
-2-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Fiscal Year Ended January 31, 1998 Compared to Fiscal Year Ended January 31,
1997
Net sales for the year ended January 31, 1998 increased $5,471,000 or
13.1% to $47,263,000 from $41,792,000 reported for the year ended January 31,
1997. 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 10.2% during
the quarter ended January 31, 1998 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 19.5% for the year
ended January 31, 1998 from 17.3% reported for the prior year, principally due
to price increases instituted at the beginning of the fiscal year and market
price stabilization during the course of the year. The prior year was negatively
affected as a result of the competitive and economic climate of the protective
clothing industry. Margins decreased to 16.5% during the quarter ended January
31, 1998 as compared to the immediate preceding quarter due to meeting
competitive pricing situations and additionally some products imported for sale
during the fourth quarter were sold at lower margins.
Operating expenses as a percentage of net sales increased to 13% for year
ended January 31, 1998 from 12.5% for the prior year, as sales continued to
increase at a rate of 13% without a corresponding increase in selling and
general and administrative expenses.
Interest expense decreased slightly consistent with outstanding
borrowings.
As a result of the foregoing, operating results increased to net income of
$1,600,000 (up 50.5%) for the year ended January 31, 1998 from net income of
$1,063,000 for the year ended January 31, 1997.
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.
<PAGE>
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 selling and 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.
-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
December 12, 1997, the Company entered into a new $10 million facility with a
financial institution. This facility matures on November 30, 1999. Interest
charges under this credit facility are calculated on various optional formulas
using LIBOR or the 30 day commercial paper rates, as defined. The Company's
January 31, 1998 balance sheet shows a strong current ratio and working capital
position and management believes that its positive financial position, together
with its new 2 year credit facility and proposed amendment to increase the
facility by $3 million, will provide sufficient funds for operating purposes for
the next twelve months.
The Company has substantially completed its program to prepare computer
systems and applications for the Year 2000. The Company expects to incur
additional internal staff costs as well as consulting and other expenses related
to enhancements necessary to complete the systems for the Year 2000. The Company
is also communicating with customers and suppliers with whom it conducts
business to help identify and resolve any potential Year 2000 issues. Management
has not quantified the remaining Year 2000 compliance and related expenses to be
incurred, however, management believes the remaining costs will not have a
material affect on its financial position.
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".
<PAGE>
The following table sets forth the high and low trade prices, as reported
by NASDAQ for the last two fiscal years:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
-------------------------- -------------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 3 7/8 2 13/16 4 1/4 3 1/8
Second Quarter 5 9/16 3 15/32 4 5/8 2 3/4
Third Quarter 9 4 3/4 4 1/16 3
Fourth Quarter 10 6 3/4 3 1/2 2 3/4
First Quarter fiscal 1998 10 1/2 7 3/4 3 3/4 2 13/16
(through April 17, 1998)
</TABLE>
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.
As of April 10, 1998, there were 135 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, 1998 and
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended January 31, 1998.
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, 1998 and 1997, and the consolidated results of their
operations and their consolidated cash flows for each of the three years in the
period ended January 31, 1998, 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, 1998. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.
/s/GRANT THORNTON LLP
- ---------------------
GRANT THORNTON LLP
Melville, New York
April 15, 1998
-5-
<PAGE>
<TABLE>
<CAPTION>
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31,
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................. $ 222,700 $ 504,940
Accounts receivable, net of allowance for doubtful
accounts of $203,000 and $150,000 at January 31,
1998 and 1997, respectively ....................... 6,953,538 5,893,594
Inventories ........................................... 15,858,052 9,894,156
Deferred income taxes ................................. 511,000 469,000
Other current assets .................................. 364,697 176,901
----------- -----------
Total current assets .............................. 23,909,987 16,938,591
PROPERTY AND EQUIPMENT, net ............................... 1,392,346 989,667
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
ACQUIRED, net of accumulated amortization of $218,000
and $198,000 at January 31, 1998 and 1997, respectively 327,120 347,116
OTHER ASSETS .............................................. 182,412 297,742
----------- -----------
$25,811,865 $18,573,116
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
<TABLE>
<CAPTION>
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
January 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable ................................ $ 4,294,241 $ 2,534,999
Accrued compensation and benefits ............... 283,187 223,090
Other accrued expenses .......................... 379,143 112,224
Current portion of long-term liabilities ........ 50,000 50,000
----------- -----------
Total current liabilities ................. 5,006,571 2,920,313
LONG-TERM LIABILITIES ............................... 9,216,669 5,745,789
DEFERRED INCOME TAXES ............................... 71,000 82,000
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; 2,610,472 and 2,550,000 shares issued
and outstanding at January 31, 1998 and 1997,
respectively ................................ 26,105 25,500
Additional paid-in capital ...................... 6,073,358 5,981,226
Retained earnings ............................... 5,418,162 3,818,288
----------- -----------
11,517,625 9,825,014
----------- -----------
$25,811,865 $18,573,116
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-7-
<PAGE>
<TABLE>
<CAPTION>
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Fiscal year ended January 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales ................................ $ 47,262,519 $ 41,792,469 $ 40,188,916
Cost of goods sold ....................... 38,067,351 34,555,786 33,901,232
------------ ------------ ------------
Gross profit ................... 9,195,168 7,236,683 6,287,684
------------ ------------ ------------
Operating expenses
Selling and shipping ................. 3,001,500 2,569,702 2,691,193
General and administrative ........... 3,155,605 2,625,866 2,163,621
Research and development ............. -- 16,718 27,298
------------ ------------ ------------
Total operating expenses ....... 6,157,105 5,212,286 4,882,112
------------ ------------ ------------
Operating profit ............... 3,038,063 2,024,397 1,405,572
------------ ------------ ------------
Other (expense) income
Interest expense ..................... (497,739) (510,757) (511,180)
Interest income ...................... 35,371 27,293 19,938
Other income ......................... 14,179 35,363 41,292
------------ ------------ ------------
(448,189) (448,101) (449,950)
------------ ------------ ------------
Income before income taxes ..... 2,589,874 1,576,296 955,622
Income tax expense ....................... (990,000) (513,000) (369,000)
------------ ------------ ------------
NET INCOME ..................... 1,599,874 1,063,296 586,622
Net income per common share
Basic ................................ $ .63 $ .42 $ .23
============ ============ ============
Diluted .............................. $ .61 $ .41 $ .22
============ ============ ============
Weighted average common shares outstanding
Basic ................................ 2,558,541 2,550,000 2,550,000
============ ============ ============
Diluted .............................. 2,627,425 2,609,700 2,635,506
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
-8-
<PAGE>
<TABLE>
<CAPTION>
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Fiscal years ended January 31, 1998, 1997 and 1996
Additional
Common stock paid-in Retained
Shares Amount capital earnings Total
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 31, 1995 2,550,000 $ 25,500 $ 5,981,226 $ 2,168,370 $ 8,175,096
Net income .............. 586,622 586,622
--------- ----------- ----------- ----------- -----------
Balance, January 31, 1996 2,550,000 25,500 5,981,226 2,754,992 8,761,718
Net income .............. 1,063,296 1,063,296
--------- ----------- ----------- ----------- -----------
Balance, January 31, 1997 2,550,000 25,500 5,981,226 3,818,288 9,825,014
Net income .............. 1,599,874 1,599,874
Exercise of stock options 60,472 605 92,132 92,737
--------- ----------- ----------- ----------- -----------
Balance, January 31, 1998 2,610,472 $ 26,105 $ 6,073,358 $ 5,418,162 $11,517,625
========= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
-9-
<PAGE>
<TABLE>
<CAPTION>
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended January 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income ................................................ $ 1,599,874 $ 1,063,296 $ 586,622
Adjustments to reconcile net income to net cash
(used in) provided by operating activities
Deferred income taxes ..................................... (53,000) (70,000) 5,000
Depreciation and amortization ............................. 435,849 342,963 272,135
Gain on sale of property .................................. -- (4,530) --
(Increase) decrease in operating assets
Accounts receivable ....................................... (1,059,944) (913,620) (571,104)
Inventories ............................................... (5,963,896) 1,350,085 (2,385,943)
Other current assets ...................................... (54,602) 314,415
Other assets .............................................. 23,688 (46,653) 130,550
Increase (decrease) in operating liabilities
Accounts payable .......................................... 1,759,242 (930,553) 641,004
Accrued expenses and other liabilities .................... 355,463 759 6,108
----------- ----------- -----------
Net cash (used in) provided by operating activities ....... (2,957,326) 1,106,162 (1,645,353)
----------- ----------- -----------
Cash flows from investing activities
Purchases of property and equipment - net ................. (803,487) (283,358) (577,756)
Principal payments on note receivable ..................... 7,104 7,082 6,015
Proceeds from sale of property ............................ -- 10,414 --
----------- ----------- -----------
Net cash used in investing activities ..................... (796,383) (265,862) (571,741)
----------- ----------- -----------
Cash flows from financing activities
Net borrowings (reductions) under line of credit agreements 3,416,232 (700,000) 2,485,150
Proceeds from exercise of stock options ................... 92,737 -- --
Deferred financing costs .................................. (37,500) -- (23,335)
----------- ----------- -----------
Net cash provided by (used in) financing activities ....... 3,471,469 (700,000) 2,461,815
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS .......................................... (282,240) 140,300 244,721
Cash and cash equivalents at beginning of year ............ 504,940 364,640 119,919
----------- ----------- -----------
Cash and cash equivalents at end of year .................. $ 222,700 $ 504,940 $ 364,640
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-10-
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1998, 1997 and 1996
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, 1998, 1997 and 1996.
2. Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Laidlaw,
Adams & Peck, Inc., (formerly 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.
<PAGE>
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 would be 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.
-11-
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1998, 1997 and 1996
NOTE A (continued)
7. Earnings Per Share
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," which requires
public companies to present basic earnings per share and, if
applicable, diluted earnings per share. In accordance with SFAS No.
128, all comparative periods have been restated as of January 31,
1998. Basic earnings per share are based on the weighted average
number of common shares outstanding without consideration of
potential common stock. Diluted earnings per share are based on the
weighted average number of common and potential common shares
outstanding. The calculation takes into account the shares that may
be issued upon exercise of stock options, reduced by the shares that
may be repurchased with the funds received from the exercise, based
on the average price during the fiscal year.
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 is as follows:
1998 1997 1996
---- ---- ----
Interest paid $446,550 $494,102 $431,555
Income taxes paid 825,648 325,242 618,853
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.
<PAGE>
10. Foreign Operations and Foreign Currency Translation
The Company maintains manufacturing operations and uses independent
contractors in Mexico and the People's Republic of China. It also
maintains a sales and distribution entity located in Canada. The
Company is vulnerable to currency risks in these countries.
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. 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.
-12-
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1998, 1997 and 1996
NOTE A (continued)
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 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.
12. New Pronouncement Not Yet Adopted
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits," which
is effective for the Company's fiscal year ending January 31, 1999.
This statement standardizes the disclosure requirements for pensions
and other postretirement benefits, requires additional information on
changes in the benefit obligation and fair values of plan assets and
eliminates certain disclosures that are no longer useful. Adoption of
SFAS No. 132 is not expected to have a material effect on the
Company's financial statements.
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. The unpaid balance was $140,251 and $147,355 at January
31, 1998 and 1997, respectively.
NOTE C - INVENTORIES
Inventories consist of the following at January 31:
1998 1997
------------ ----------
Raw materials $ 2,672,719 $2,669,254
Work-in-process 4,168,376 3,124,141
Finished goods 9,016,957 4,100,761
------------ ----------
$ 15,858,052 $9,894,156
============ ==========
-13-
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1998, 1997 and 1996
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at January 31:
<TABLE>
<CAPTION>
Useful life
in years 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Machinery and equipment 3 - 10 $3,076,002 $2,409,648
---------- ----------
Furniture and fixtures 3 - 10 223,190 157,722
Leasehold improvements Lease term 257,252 185,587
---------- ----------
3,556,444 2,752,957
Less accumulated depreciation and amortization 2,164,098 1,763,290
---------- ----------
$1,392,346 $ 989,667
========== ==========
</TABLE>
NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's principal financial instrument consists of its
outstanding revolving credit facility. 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.
NOTE F - LONG-TERM LIABILITIES
Long-term liabilities consist of the following at January 31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revolving credit facility $8,816,232 $5,400,000
Pension liability (Note K) 450,437 395,789
---------- ----------
9,266,669 5,795,789
Less current portion of pension liability 50,000 50,000
---------- ----------
Long-term liabilities $9,216,669 $5,745,789
========== ==========
</TABLE>
<PAGE>
During December 1997, the Company entered into a new $10,000,000
secured revolving credit facility (the "facility") with a financial
institution with an initial expiration date of November 30, 1999.
Borrowings under the facility bear interest at a rate per annum equal
to the one-month LIBOR or the 30-day commercial paper rate, as
defined, plus 1.75%, with interest payable monthly. At January 31,
1998, interest on outstanding borrowings was based on the commercial
paper rate option (7.2%). The facility is collateralized by
substantially all the assets of the Company and guaranteed by certain
of the Company's subsidiaries. The facility requires the Company to
maintain a minimum tangible net worth, at all times.
-14-
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1998, 1997 and 1996
NOTE F (continued)
During August 1995, the Company entered into an $8,000,000,
three-year secured revolving credit facility with a bank. Under this
secured revolving credit facility, which was replaced with the new
facility in December 1997, the Company's maximum available borrowings
were based upon eligible accounts receivable and inventories, as
defined. Borrowings under the revolving credit facility incurred
interest at a rate per annum equal to the prime commercial lending
rate or LIBOR plus 200 points. A fee of 1/2% per annum was charged to
the Company on the unused portion of such facility. The loan was
collateralized by substantially all the assets of the Company.
The maximum amounts borrowed under the revolving lines of credit
during the fiscal years ended January 31, 1998 and 1997 were
$10,000,000 and $7,000,000, respectively, and the average interest
rate during each period was 7.5%.
NOTE G - COMMITMENTS AND CONTINGENCIES
1. Employment Contracts
The Company has employment contracts with three principal officers
expiring through January 2001. 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 $572,500, $572,500 and
$397,500 for the fiscal years ended January 31, 1999, 2000 and 2001,
respectively.
2. Leases
The Company leases the majority of its premises under various
operating leases expiring through fiscal 2003. The lease for the
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. The Company also leases two manufacturing facilities
pursuant to month-to-month leases from an officer of the Company.
Monthly payments are $3,100. In addition, the Company has several
operating leases for machinery and equipment.
In January 1998, the Company entered into a month-to-month lease for
a manufacturing facility in the People's Republic of China. The
lessor is a partnership of which the Company's directors, one officer
and four employees hold partnership interests. This leasing
arrangement requires monthly payments of $3,024.
<PAGE>
Total rental expense under all operating leases is summarized as
follows:
<TABLE>
<CAPTION>
Total Rentals
Gross sublease paid to
rental rental related
expense income parties
------- ------ -------
<S> <C> <C> <C>
Year ended January 31,
1998 $621,162 $ 9,704 $405,120
1997 581,161 3,024 392,160
1996 483,690 20,011 369,150
</TABLE>
-15-
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1998, 1997 and 1996
NOTE G (continued)
Minimum annual rental commitments for the remaining term of the
Company's noncancellable operating leases relating to manufacturing
facilities, office space and equipment rentals at January 31, 1998
are summarized as follows:
Year ending January 31,
1999 $ 626,695
2000 411,815
2001 108,652
2002 35,902
2003 23,200
----------
$1,206,264
==========
Certain leases require additional payments based upon increases in
property taxes and other expenses.
3. Services Agreement
Pursuant to the terms of a services agreement with an affiliated
entity, principally owned by a principal officer and stockholder of
the Company, 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 $552,000,
$426,000 and $520,000 for the fiscal years ended January 31, 1998,
1997 and 1996, respectively.
4. Litigation
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.
<PAGE>
NOTE H - STOCKHOLDERS' EQUITY AND STOCK OPTIONS
The Nonemployee Directors' Option Plan (the "Directors' Plan")
provides for an automatic one-time grant on options to purchase 5,000
shares of common stock to each nonemployee director elected or
appointed to the Board of Directors. Under the Directors' Plan,
60,000 shares of common stock have been authorized for issuance.
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
-16-
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1998, 1997 and 1996
NOTE H (continued)
purchase 1,000 shares of common stock on each of such dates. In April
1997, the Company extended the term on 5,000 expiring options for an
additional six years.
The Company's 1986 Incentive and Nonstatutory Stock Option Plan (the
"Incentive Plan") provides for the granting of incentive stock
options and nonstatutory options. The Incentive 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. 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).
The Company has adopted the disclosure provisions of SFAS 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 years ended
January 31, 1998 and 1997 would be reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net income per common share
As reported $1,599,874 $1,063,296
Pro forma 1,584,144 974,555
Basic earnings per common share
As reported $.63 $.42
Pro forma .62 .38
Diluted earnings per common share
As reported $.61 $.41
Pro forma .60 .37
</TABLE>
<PAGE>
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, 1998, 1997 and 1996,
respectively: expected volatility of 52%, 57% and 43%; risk-free
interest rates of 6.5%, 7% and 6%; and expected life of six years for
all periods.
Additional information with respect to the Company's plans for the
fiscal years ended January 31, 1998, 1997 and 1996 is summarized as
follows:
-17-
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1998, 1997 and 1996
NOTE H (continued)
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------
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 $2.36
Granted 7,000 3.78 - -
Exercised (10,000) 1.44 (50,472) 1.54
Expired (5,000) 1.56 - -
------- -------
Outstanding at end of year 10,000 3.85 99,528 2.77
======= =======
Options exercisable at year-end 10,000 3.85 99,528 2.77
Weighted-average remaining contractual
life of options outstanding 4.5 years 3.5 years
Weighted-average fair value per share
of options granted during 1998 2.25 -
</TABLE>
<PAGE>
<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>
-18-
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1998, 1997 and 1996
NOTE H (continued)
<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>
Summarized information about stock options outstanding under the two
plans at January 31, 1998 is as follows:
<TABLE>
<CAPTION>
Options outstanding and exercisable
-----------------------------------------------
Weighted-
Number average
outstanding remaining Weighted-
at contractual average
Range of January life in exercise
exercise prices 31, 1998 years price
--------------- -------- ----- -----
<S> <C> <C> <C>
$2.25 - $3.38 70,528 1.00 $2.45
3.39 - 5.12 39,000 7.50 3.62
------- ---- -----
$2.25 - $5.12 109,528 3.58 $2.88
</TABLE>
-19-
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1998, 1997 and 1996
NOTE I - EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings per share at January 31:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Numerator
Net income $1,599,874 $1,063,296 $ 586,622
========== ========== ===========
Denominator
Denominator for basic earnings per share
(weighted-average shares) 2,558,541 2,550,000 2,550,000
Effect of dilutive securities:
Stock options 68,884 59,700 85,506
---------- ---------- ----------
Denominator for diluted earnings per share
(adjusted weighted-average shares) and
assumed conversions 2,627,425 2,609,700 2,635,506
========== ========== ===========
Basic earnings per share $ .63 $ .42 $ .23
========== ========== ===========
Diluted earnings per share $ .61 $ .41 $ .22
========== ========== ===========
</TABLE>
NOTE J - INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Year ended January 31,
-------------------------------------------------
1998 1997 1996
----------- -------- --------
<S> <C> <C> <C>
Current
Federal $ 938,000 $603,000 $382,000
State 105,000 (20,000) (18,000)
----------- -------- --------
1,043,000 583,000 364,000
Deferred (53,000) (70,000) 5,000
----------- -------- --------
$ 990,000 $513,000 $369,000
=========== ======== ========
</TABLE>
-20-
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1998, 1997 and 1996
The following is a reconciliation of the effective income tax rate to
the Federal statutory rate:
<TABLE>
<CAPTION>
Year ended January 31,
---------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State income taxes, net of Federal tax benefit 2.7 (.4) (.4)
Nondeductible expenses .5 .8 1.7
Operating losses generating no current tax benefit 2.5 1.8 2.5
Change in deferred assets (2.0) (4.4) .5
Other .5 .7 .3
---- ---- ----
Effective rate 38.2% 32.5% 38.6%
==== ==== ====
</TABLE>
The tax effects of temporary differences which give rise to deferred
tax assets at January 31, 1998 and 1997 are summarized as follows:
January 31,
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets
Inventories ......................................... $284,000 $302,500
Net operating loss carryforward - Canadian subsidiary 100,500 53,000
Accounts receivable ................................. 75,000 57,000
Accrued compensation and other ...................... 51,500 56,500
-------- --------
Gross deferred tax assets ......................... 511,000 469,000
-------- --------
Deferred tax liabilities
Depreciation ........................................ 71,000 82,000
-------- --------
Gross deferred tax liabilities .................... 71,000 82,000
-------- --------
Net deferred tax asset .............................. $440,000 $387,000
======== ========
</TABLE>
Net operating loss carryforwards of $287,000 applicable to the
Canadian subsidiary expire in fiscal 2003 through 2005.
-21-
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1998, 1997 and 1996
NOTE K - BENEFIT PLANS
Defined Benefit 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 were based on years of service and the employee's
final average annual salary which was 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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Normal cost $ 1,613 $ 1,613 $ 1,613
Interest cost on projected benefit obligation 63,772 62,259 60,611
Actual return on assets (16,168) (92,226) (40,653)
Net amortization and deferral (10,771) 71,026 25,159
--------- --------- ---------
Net periodic pension cost $ 38,446 $ 42,672 $ 46,730
======== ======== ========
</TABLE>
<PAGE>
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>
1998 1997
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefits $ 917,791 $ 863,621
--------- ---------
Projected benefit obligation 917,791 863,621
Plan assets at fair market value 467,354 467,832
--------- ---------
Projected benefit obligation in excess of plan assets 450,437 395,789
Unrecognized (loss) gain (19,112) 16,945
Unrecognized net obligation at transition amortized
over a 15-year period (69,358) (79,213)
Required minimum liability (also included as a
component of other assets) 88,470 62,268
--------- ---------
Pension cost liability (included in long-term liabilities) $ 450,437 $ 395,789
========= =========
</TABLE>
-22-
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1998, 1997 and 1996
NOTE K (continued)
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, 1998, approximately 73%
of the plan's assets were held in mutual funds invested primarily in
equity securities, approximately 15% was invested in money market
instruments and the remaining 12% was invested in equity securities
and debt instruments.
Defined Contribution Plan
Pursuant to the terms of the Company's 401(k) plan, substantially all
employees over 21 years of age with a minimum period of service are
eligible to participate. The 401(k) plan is administered by the
Company and provides for voluntary employee contributions ranging
from 1% to 18% of the employee's compensation. The Company made
discretionary contributions of $18,950 in fiscal 1998.
NOTE L - 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.
-23-
<PAGE>
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.
Mayer & Schweitzer Inc.
Nash Weiss/Div of Shatkin Inv.
Herzog, Heine, Geduld, Inc.
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
<PAGE>
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:
Lakeland Protective Wear, Inc.
(Canada)
Lakeland de Mexico S.A. de C.V.
Laidlaw, Adams & Peck, Inc.
Exhibits to Lakeland Industries, Inc.'s 1998 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, 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.
-24-
[GRAPHIC-LOGO FOR LAKELAND INUDSTRIES, INC.]
(LETTERHEAD LAKELAND INUDSTRIES, INC.)
Corporate Headquarters
711-2 Koehler Avenue
Ronkonkoma, NY USA 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
<PAGE>
May 13, 1998
Dear Stockholder,
I am pleased to extend to you my personal invitation to attend the 1998 Annual
Meeting of Stockholders of Lakeland Industries, Inc. (the "Company") on
Wednesday, June 17, 1998 at 10:00 a.m. at the Holiday Inn, 3845 Veterans
Memorial Highway, Ronkonkoma, NY 11779.
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, 1998 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
-------------------
President and Chairman of the Board
<PAGE>
LAKELAND INDUSTRIES, INC.
NOTICE OF
1998 ANNUAL MEETING OF STOCKHOLDERS
June 17, 1998
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 17, 1998 at 10:00 a.m. at the Holiday Inn, 3845
Veterans Memorial Highway, Ronkonkoma, NY 11779 for the following
purposes:
1. To elect two Class III 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, 1998 will be entitled to notice and to vote at the
meeting.
May 13, 1998
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
1998 Annual Meeting of Stockholders
June 17, 1998
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 1998 Annual Meeting of Stockholders to be held on June
17, 1998, and at any adjournment thereof (the "Annual Meeting").
This proxy statement, the accompanying form of proxy and the Company's 1998
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, 1998.
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, 1998, are entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 29, 1998, there were 2,610,472 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.
<PAGE>
The following table sets forth information as of April 24, 1998, 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.
<TABLE>
<CAPTION>
Name and Address Number of Common Percent of
Beneficial Owner Shares Beneficially Owned of Class
---------------- ------------------------- --------
<S> <C> <C>
Raymond J. Smith 579,500 (1) 22.2%
711-2 Koehler Ave.
Ronkonkoma, NY 11779
Christopher J. Ryan 250,977 (2) (6) 9.61%
711-2 Koehler Ave.
Ronkonkoma, NY 11779
Joseph P. Gordon 134,500 5.15%
177-23 Union Tpke.
Flushing, NY 11366
John J. Collins, Jr. 123,400 (3) 4.73%
Eric O. Hallman 47,500 (3) 1.82%
Walter J. Raleigh 6,000 (4) .23%
All officers and directors
as a group (7 persons) 1,051,827 (5) 40.3%
</TABLE>
- ----------
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) 4,050 shares granted on January 1, 1994;
(3) 1,000 shares granted on June 15, 1994 and 1,000 shares granted
on June 18, 1997 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) 107,000 shares granted between May 28, 1991 and June 18, 1997
(6) Mr. Ryan disclaims beneficial ownership of 15,000 shares owned
by his wife.
<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 1998 Annual Meeting there are
two nominees for director in Class III. The incumbent Class I and Class II
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 III 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
III directors. The table also sets forth the names of the one director in Class
I and the two directors in Class II 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 III
(Nominees for 3 Year Term Expiring in June, 2001)
- --------------------------------------------------------------------------------
Raymond J. Smith 59 Chairman of the Board, 1982
President and Director
Walter J. Raleigh 70 Director 1991
INCUMBENT DIRECTOR - CLASS I
(One Year Remaining on Term Expiring in June, 1999)
Christopher J. Ryan 46 Executive Vice President - 1986
Finance, Secretary and Director
<PAGE>
INCUMBENT DIRECTORS - CLASS II
(Two Years remaining on Term Expiring in June, 2000)
- --------------------------------------------------------------------------------
John J. Collins, Jr. 55 Director 1986
Eric O. Hallman 54 Director 1982
The principal occupations and employment of the nominees for director and
for the directors continuing in office are set forth below:
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 CMI Industries, Inc., the successor
company to 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. Mr. Raleigh is a former 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 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. Mr. Ryan has been a
director of Auerback, Pollack & Richardson and Lessing, Inc. since 1996.
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.
During the year ended January 31, 1998, the Board of Directors of the
Company met two 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).
<PAGE>
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 met once during the year ended January 31, 1998. The committee members
are:
John J. Collins, Jr., Eric O. Hallman, and Walter J. Raleigh
Compensation Committee Interlocks and Insider Participation
Members of the Stock Option and Compensation Committee are outside
directors who 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, 1998.
The committee members are:
John J. Collins, Jr., Eric O. Hallman, and Christopher J. Ryan
<PAGE>
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, 1998, 1997 and 1996:
Name and All Other
Principal Position Year Salary Bonus Compensation
------------------ ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Raymond J. Smith, 1998 $225,000 $ ------ $ 3,089
Chairman, President and CEO 1997 225,000 ------ ------
1996 225,000 28,653 ------
Christopher J. Ryan, 1998 $169,003 $ 7,750 $ 1,262
Executive V.P.-Finance 1997 115,000 23,250 ------
and Secretary 1996 115,000 55,956 ------
Harvey Pride, Jr. 1998 $115,000 $ 23,000 $ 910
Vice President- 1997 115,000 19,136 ------
Manufacturing 1996 115,000 9,044 ------
James McCormick 1998 $115,000 $ 8,450 $ 2,138
VP - Treasurer 1997 89,000 16,350 ------
1996 89,000 10,968 ------
</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 1998. The Company has
entered into employment contracts with certain executive officers providing for
annual compensation of $262,500 for Mr. Smith and $175,000 for Mr. Ryan and
$135,000 for Mr. Pride. Messrs. Smith and Pride each have a three year contract
which expires on January 31, 2001, 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 made a contribution to this
plan totaling $18,950, during the plan year ended December 31, 1997.
These employment contracts are similar in nature and include disability
benefits, vacation time, non-compete and 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
provide for lump sum payments of contracted salaries pursuant to various
formulas should there be a change in control of the Company.
<PAGE>
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 who 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 and Mr. Pride's employment contracts in January 1998, 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 $262,500,
$175,000 and $135,000, for fiscal 1999, 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 In-House 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 after reviewing Growth Resources Officer
Compensation Report Eleventh Edition - Panel Publications.
<PAGE>
These contracts also provide for bonuses in addition to salary based upon
the Company's increase in earnings. (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's 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, 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 1998 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 4,050 $2.25 1/1/94 1/1/04 $ 9,113
Mr. Pride 29,600 $2.25 - 3.50 6/5/96 & 1/1/94 6/4/06 & 1/1/04 $ 91,600
Mr. McCormick 9,850 $2.25 - 3.50 6/5/96 & 1/1/94 6/4/06 & 1/1/04 $ 28,413
</TABLE>
<PAGE>
There are currently 250,000 option shares available for future grant under
this plan. During the year ended January 31, 1998, no stock options were granted
and the following options were exercised:
<TABLE>
<CAPTION>
No. of
Name of Shares Exercise Date of Per Share Exercise
Executive Exercised Price Exercise Date Value
--------- --------- ----- -------- ----------
<S> <C> <C> <C> <C>
Mr. Ryan 40,000 $1.37 9/11/97 $6 15/16
4,700 $2.25 9/11/97 $6 15/16
Mr. McCormick 5,000 $2.25 10/10/97 $7 7/8
</TABLE>
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG LAKELAND INDUSTRIES, INC.
S&P INDUSTRIES INDEX AND PEER GROUP INDEX
[GRAPHIC-GRAPH PLOTTED TO POINTS LISTED BELOW]
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
--------------------------------------------------------
COMPANY 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
LAKELAND INDUSTRIES INC. 100 140.00 253.33 228.34 168.34 433.33
PEER GROUP 100 111.22 104.28 69.25 67.09 74.31
BROAD MARKET 100 112.45 114.41 157.04 198.04 250.28
</TABLE>
THE PEER GROUP CHOSEN WAS:
Customer Selected Stock List
THE BROAD MARKET INDEX CHOSEN WAS:
AN INDEX OF THE COMPANIES ON THE S&P INDUSTRIALS INDEX
THE PEER GROUP IS MADE UP OF THE FOLLOWING SECURITIES;
ANGELICA CORP
CYRK INC
EASTCO INDUSTRIAL SAFETY
SALANT CORP
ASSUMES $100 INVESTED ON FEB. 1, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JAN. 31, 1998
<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 1,000 5.125 6/18/97 6/18/2003
Mr. Collins 1,000 3.88 6/15/94 6/15/2000
Mr. Hallman 1,000 5.125 6/18/97 6/18/2003
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 40,000 option shares available for future grant under
this plan. During the year ended January 31, 1998, no options were granted and
the following options were exercised:
# of Exercise Date Per Share Exercise
Director Shares Price of Exercise Date Value
-------- ------ ----- ----------- ------------------
Mr. Collins 5,000 $1.43 5/13/97 $3.50
Mr. Hallman 5,000 $1.43 5/13/97 $3.50
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.
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 a $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, 1998, amounted to $368,011 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, 1998, amounted to $37,200.
<PAGE>
An Qiu Holding Co., ("An Qiu" a partnership consisting of all the Directors
of the Company, one officer and four employees) leases to the Chinese division
of the Company 39,660 square feet of manufacturing space in Shangdong Province,
PR, China. The partnership owns the buildings located on property which it
leases in China for a 50 year period. This month to month lease to the Company's
division was effective 1/1/98, at $3,024 per month, $36,288 annually. A formal
lease will not be effective until August 1998 when full construction is
completed. The Company's division is the sole occupant of the facility.
During the year ended January 31, 1998 the Company made payments totaling
$778 to Madison Mobile Storage, Inc. for trailer rentals, and $557,855 for
expenses incurred by Madison Mobile Storage, Inc. in running the Company's
Missouri facility. Such expenses included employee 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 $3,369 for the fiscal year ended
January 31, 1998 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.
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 1999 ANNUAL MEETING
---------------------------------------------
Stockholder proposals for inclusion in the Company's Proxy Statement for
the 1999 Annual Meeting of Stockholders must be received by the Company not
later than January 31, 1999. 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
Christopher J. Ryan,
Secretary
May 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 222,700
<SECURITIES> 6,953,538
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 15,858,052
<CURRENT-ASSETS> 23,909,987
<PP&E> 1,392,346
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,811,865
<CURRENT-LIABILITIES> 5,006,571
<BONDS> 0
0
0
<COMMON> 26,105
<OTHER-SE> 6,073,358
<TOTAL-LIABILITY-AND-EQUITY> 11,517,625
<SALES> 47,262,519
<TOTAL-REVENUES> 47,262,519
<CGS> 38,067,351
<TOTAL-COSTS> 6,157,105
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 497,739
<INCOME-PRETAX> 2,589,874
<INCOME-TAX> 990,000
<INCOME-CONTINUING> 1,599,874
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,599,874
<EPS-PRIMARY> .63
<EPS-DILUTED> .61
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 504,940 364,640
<SECURITIES> 0 0
<RECEIVABLES> 5,893,594 4,979,975
<ALLOWANCES> 0 0
<INVENTORY> 9,894,156 11,244,241
<CURRENT-ASSETS> 16,938,591 17,511,632
<PP&E> 989,667 1,026,203
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 18,573,116 19,262,732
<CURRENT-LIABILITIES> 2,920,313 3,894,076
<BONDS> 0 0
0 0
0 0
<COMMON> 25,500 25,500
<OTHER-SE> 5,981,226 5,981,226
<TOTAL-LIABILITY-AND-EQUITY> 18,573,116 19,262,732
<SALES> 41,792,469 40,188,916
<TOTAL-REVENUES> 41,792,469 40,188,916
<CGS> 34,555,786 33,901,232
<TOTAL-COSTS> 5,212,286 4,882,112
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 510,757 511,180
<INCOME-PRETAX> 1,576,296 955,622
<INCOME-TAX> 513,000 369,000
<INCOME-CONTINUING> 1,063,296 586,622
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,063,296 586,622
<EPS-PRIMARY> .42 .23
<EPS-DILUTED> .41 .22
</TABLE>
