FORM 10-K - ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 (Fee Required)
For the fiscal year ended January 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 (No fee required)
For the transition period from _____________ to ______________
Commission File Number: 0 - 15535
LAKELAND INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3115216
- ------------------------- --------------------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
711-2 Koehler Ave., Ronkonkoma, NY 11779
--------------------------------------------
(Address of Principal Executive Offices)
(516) 981-9700
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Common Stock, $.01 Par Value
-------------------------------------------------------------
(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 _ .
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 14, 1999 was approximately $7,284,947 (based on
1,533,673 shares held by nonaffiliates).
The number of shares outstanding of the Registrant's common stock, $.01
par value, on April 29, 1999 was 2,660,500.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
January 31, 1999 are incorporated by reference in Items 5-7A of Part II and
certain portions of the Registrant's Definitive Proxy Statement, for the Annual
Meeting of Stockholders to be held June 16, 1999, are incorporated by reference
in Items 10 - 13 of Part III of this Annual Report on Form 10-K.
A-1
<PAGE>
PART I
ITEM 1. BUSINESS
Lakeland Industries, Inc. (the"Company") believes that it is the
leading manufacturer 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 44 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, 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 five
divisions and four 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 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.
Effective February 1, 1999, the China division, Weifang Lakeland Safety
Products Co., Ltd., was incorporated in China as a wholly owned subsidiary of
the Company.
<PAGE>
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.
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
A-2
<PAGE>
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.
The growth in the markets for disposable/limited use garments in the
industrial safety market has resulted from the following factors:
o lower cost of disposable/limited use garments as opposed
to reusable woven and cloth garments due to the
elimination of costs associated with laundering,
decontaminating, handling, transporting and replacing
reusable woven or cloth garments;
o the promulgation of federal (OSHA) and state regulations
requiring that employees wear protective clothing to
protect against exposure to certain contaminants, such as,
asbestos, PCB(s), lead, acids and other numerous hazardous
chemicals and radioactive materials;
o increasing workmens' compensation claims and large class
action liability suits instituted by both present and
prior employees for failure to be protected against
hazardous agents found in the workplace.
In general, manufacturers of industrial and safety clothing are considered
to be highly fragmented, since they consist of a large number of closely held
small family businesses. Accordingly, the Company believes that the industries
encompassed by disposable/limited use protective garments, industrial work
gloves, reusable woven industrial and medical apparel and fire and heat
protective clothing could present attractive acquisition opportunities.
There are few, if any, dominant personal protective apparel manufacturers,
and the market is witnessing significant ongoing consolidation activity, both at
the manufacturing level and more significantly, at the safety distributor
customer level. Recently, safety distribution channels have experienced more
consolidation than the safety manufacturing segment, due to a number of large
distributors with access to capital acquiring smaller distributors.
Since 1997, the Company's net sales have increased by 31% to $54.655
million in fiscal 1999 while, during the same period, operating profit has
increased by 94% to $3.923 million in fiscal 1999.
A-3
<PAGE>
Products - General
The following table summarizes the principal products manufactured and/or
sold by the Company, organized by the respective fabric's principal markets/uses
therefore:
<TABLE>
<CAPTION>
Product Raw Material Protection Against User Industry
- ------- ------------ ------------------ -------------
<S> <C> <C> <C>
o Limited Use/Disposable o Tyvek(TM) and Tyvek(TM) Contaminants, irritants, o Chemical/petrochemical
Protective Clothing laminates chemicals, fertilizers, industries
pesticides, acids, o Automotive and
asbestos, PCB(s), lead pharmaceutical industries
and other hazardous o Public utilities
chemicals o Janitorial
o Gloves o Kevlar(TM) yarns Cuts, lacerations, heat o Chemical plants
o Arm guards o Spectra(TM) yarns and chemical irritants o Automotive, glass and
metal fabrication industries
o Fire fighting apparel o Neoprene Fire, burns and excessive o Municipal, corporate and
o Nomex(TM) heat volunteer fire departments
o Gortex(TM) o Airport crash rescue
o Heat protective o Aluminized Nomex(TM) Fire, burns and excessive Hot equipment maintenance
aluminized fire suits o Aluminized Kevlar(TM) heat personnel and industrial fire
departments
o Protective woven o Cotton Polyester blends o Protects manufactured o Hospital and Industrial
reusable garments o Cotton products from human Facilities
o Polyester contamination or static o clean room environments
o Staticsorb(TM) Carbon electrical charge o Emergency Medical
Thread C-3 Polyester o Bacteria, viruses and Ambulance Services
blood borne pathogens
o High end Chemical o TyChem(TM) Chemical spills o Hazardous material teams
protective suits o Teflon(TM) Toxic chemicals used in o Chemical and nuclear
o Other Company patented manufacturing processes industries-various uses
Co-Polymer Laminates
</TABLE>
<PAGE>
Limited Use/Disposable Protective Clothing
The Company manufactures a complete line of disposable/limited use protective
garments at its U.S., Mexican and Chinese assembly facilities. 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), TyvekQC(TM), Tyvek/Saranex 23-P(TM), Pyrolon FR(TM), and
Polypropylene and Polyethylene 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.
Disposable/limited use industrial garments are used in a wide variety of
industries and applications. Typical industry users are chemical plants, petro
chemical refineries and related installations, automotive manufacturers,
pharmaceutical companies, coal and oil power generation utilities and telephone
utility companies. There are many smaller industries that use these garments for
specific safety applications unique to their situation.
The Company's limited use garments range in price from $.06 for
disposable/limited use shoe covers to approximately $12.00
A-4
<PAGE>
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 $20.00 to $60.00, exclusive of significant
laundering, maintenance and shrinkage expenses.
The Company cuts, warehouses and sells its disposable/limited use garments
primarily at its Decatur, Alabama facility. The fabric is first cut into
required patterns at this plant which is ISO 9002 certified. 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 assembly facilities or
independent sewing contractors. The Company's assembly facilities in China or
Mexico 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 ten weeks for immediate shipment to the customer.
The Company presently utilizes over 15 independent sewing contractors under
agreements that are terminable at will by either party. These contractors employ
approximately 200 people full-time (both domestically and internationally) and
operate and maintain their own industrial sewing machines. The Company believes
that it is the only customer of the majority of its independent sewing
contractors and considers its relations with such contractors to be excellent.
In the year ended January 31, 1999, no independent sewing contractors accounted
for more than 5% 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 facilities
complemented by the use of independent sewing contractors, the Company is
capable of reducing or alternately increasing by 20% 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.
<PAGE>
Gloves and Arm Guards
The Company manufacturers and sells speciality safety gloves and sleeves made
from Kevlar(TM). The Company is one of four companies licensed to sell 100%
Kevlar(TM) gloves. Kevlar(TM) is a cut and heat resistant, high-strength
lightweight, flexible and durable material produced by Dupont. Kevlar(TM), on an
equivalent weight basis, is five times stronger than steel and has increasingly
been used in manufacturing such diverse products as airplane fuselage components
and bullet-resistant vests.
Gloves made of Kevlar(TM) offer a better overall level of protection, lower
the injury rate and are more cost effective than work gloves made from such
traditional material as leather, canvas and coated gloves. Kevlar(TM) gloves can
withstand temperatures of up to 400 degrees F and are sufficiently cut-resistant
to allow workers to safely handle sharp or jagged unfinished sheet metal.
Kevlar(TM) gloves are used primarily in the automotive, glass and metal
fabrication industries.
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. Spectra(TM) is a cut resistant fiber made
by Allied Signal, Inc. In order to maintain a full line of gloves, however, the
Company intends to continue to produce or import commodity gloves as are
necessary to meet customer 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.
The Company's Kevlar(TM) and Spectra(TM) gloves range in price from $37.00 to
$240.00 for a dozen pair.
The Company also manufactures gloves at its Somerville, Alabama facility.
Computerized robotic knitters are used to weave gloves from both natural and
synthetic materials, including Kevlar(TM)and Spectra(TM) on an automatic basis.
These robotic knitters are generally in operation 20 hours a day, 5-1/2 days a
week.
The Company's robotic knitters allow flexibility in production as they can be
easily reprogrammed in minutes to produce gloves and sleeves in different sizes,
styles, weights, weaves or combinations of materials. Additionally, these
robotic knitters can produce gloves and sleeves separately or as a one-piece
garment. Gloves and sleeves can also be knitted in different weights and
combinations of yarns, such as Kevlar(TM) mixed with cotton or polyester.
Heat Protective and Fire Fighting Apparel
The Company's products protect individuals that must work in high heat
environments and the Company has been the creator, innovator and inventor of
protective systems for high heat or 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
A-5
<PAGE>
study to address the ergonomic needs of stressful occupations. The Company's
protective aluminized fire suits 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 apparel 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
this product division, which was the first to produce and supply military and
civilian markets with protection worn at airports, petrochemical plants and in
the marine industry. Each of the fire suits range in cost to the end user from
$450 for standard fire department turn-out gear to $2,000 for the fire entry
suit.
Protective Woven Reusable 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 much larger woven
industrial and health care related markets. Cloth re-usable garments are more
appropriate in certain situations or applications because of worker familiarity
with and acceptance of these fabrics and woven cloth's heavier weight,
durability and longevity. These products give the Company the flexibility to
supply and satisfy a wider range of safety and customer needs. The Company
designs and manufactures:
o special anti-static apparel, primarily for the automotive industry
(perceived as a premium-priced product)
o clean room apparel as used in the most sophisticated semiconductor
manufacturing facilities
o hospital garments for protection against blood borne pathogens
o jackets and bib overalls for use by emergency medical rescue teams
The Company's reusable wovens range in price from $10.00 to $80.00 per
garment.
The Company manufactures and sells woven cloth garments at its facility in
St. Joseph, 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.
<PAGE>
High-End Chemical Protective Suits
The Company manufactures heavy duty fully encapsulated chemical suits
(three of which have been developed internally and are patented) using
proprietary co-polymer laminates or Viton(TM), butyl rubber, polyvinyl chloride
("PVC") and the Dupont TyChem(TM)and Barricade(TM) fabrics. 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, chemical and electronic plants. The Company's line of chemical
suits range in cost from $80.00 for the Checkmate suits to $3,400 for its
Forcefield 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 flash fire hazards. The Company has also introduced four
National Fire Protection Agency ("NFPA") approved garments for varying levels of
protection required depending on field conditions:
TyChem(TM) - 10,000 is a co-polymer film laminated to a durable spunbonded
substrate. It offers the broadest temperature range for limited use garments
- -25o F to 225o F. TyChem(TM) 10,000 meets all OSHA Level A requirements. It is
available in NFPA 1991-94 certified versions when worn with an aluminized over
cover.
TyChem(TM) - 9400 meets all OSHA Level B and all NFPA 1993 fabric
requirements and offers excellent splash protection against a wide array of
chemicals.
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.
A-6
<PAGE>
Checkmate(TM) - Is used for lower level chemical protection. 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. It meets all NFPA requirements.
The Company manufactures chemical protective clothing at its facility in
Somerville, Alabama. After the Company obtains such materials as Barricade (R),
TyChem(R), Viton(R), butyl rubber, PVC or its own patented laminates, it
designs, cuts, glues and/or sews the materials to meet customer purchase orders.
Quality Control
To assure quality, Company employees monitor the sewing of disposable /
limited use garments at its own Mexican and Chinese facilities and at the
facilities of independent sewing contractors and also inspect the garment upon
delivery to the Company's facilities. Finished product that is below standard is
returned to the contractor for reworking. The Company has been required on a few
occasions 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. ISO standards are
internationally recognized quality manufacturing standards established by the
International Organization for Standardization based in Geneva, Switzerland. To
obtain its ISO registration, the Company's factories were independently audited
to ensure compliance with the applicable standards, and to maintain
registration, the factories receive regular announced inspections by an
independent certification organization. The Company believes that the ISO 9002
registration makes it more competitive in the marketplace, as customers are
increasingly recognizing the standard as an indication of product quality.
Marketing and Sales
The Company's products are sold primarily by over 500 safety and mill
supply distributors including four of the five leading North American
distributors. Sales of the Company's products are solicited by 16 agencies
engaging 44 independent sales representatives. The Company also employs an
in-house sales force of nine (9) people.
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 service accounts properly. The
independent representatives maintain regular interaction with end users and
decision makers at the distribution level, thereby providing the Company with
valuable feedback on market perception of the Company's products, as well as new
developments within the industry. During the year ended January 31, 1999, no one
distributor accounted for more than 5% of sales.
The Company's marketing plan is to maximize the efficiency of its
established distribution network by direct promotion at the end-user level.
Advertising is primarily through trade publications. Promotional activities
include sales catalogs, mailings to end users and a nationwide publicity
program. The Company exhibits at both regional and national trade shows and was
represented at the National Safety Congress in Los Angeles, CA (Fall of 1998)
and at the American Industrial Hygienists Convention (Spring of 1998).
<PAGE>
Research and Development
The Company has a history of new product development and innovation and has
recently introduced the Grapolator(TM) and Kut Buster(TM) glove and sleeve lines
which combine a stainless steel wire core combined with high strength man made
fibers providing the ultimate in cut protection without sacrificing dexterity,
and additionally the Thermbar Mock Twist(TM) which provides heat protection for
temperatures up to 600o F. The Company has nine patents on various fabrics and
production machinery. The Company plans to continue to be an innovator in
protective apparel fabrics, manufacturing equipment, and intends to introduce
new products to the market place in the future. Specifically, the Company plans
to develop new anti-static reusable gowns for the automotive industry made of
specially knit polyester with carbon threads and will continue to dedicate
resources to research and development.
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 product lines. Tyvek(TM) and Kevlar(TM), however, are
purchased from Dupont under
A-7
<PAGE>
licensing agreements. Polypropylene, Polyethylene, Polyvinyle Chloride and their
derivatives are available from thirty or more major mills, while 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 also has not experienced difficulty
in obtaining materials, including cotton, polyester and nylon, used in the
production of reusable non-wovens and 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(TM) yarn used in its Dextra Guard(TM) 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(TM).
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) and Gortex(TM), 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 has not experienced
difficulty obtaining any of the aforementioned materials.
Competition
The Company's business is in a highly competitive industry. The Company
believes that the barriers to entry in each of the fields in which it operates
are relatively low, except in Tyvek(TM) disposable limited use clothing because
of the limited number of Tyvek(TM) licensees. The Company faces competition in
some of its other product markets from large established companies that have
greater financial, managerial, sales and technical resources than the Company.
Where larger competitors offer products that are directly competitive with the
Company's products, particularly as part of an established line of products,
there can be no assurance that the Company can successfully compete for sales
and customers. Larger competitors also may be able to benefit from economics of
scale or to introduce new products that compete with the Company's products.
Seasonality
The Company's quarterly operating results have varied and are expected to
continue to vary in the future. These fluctuations may be caused by many
factors, including seasonal buying patterns, demand for the Company's sales
cycle, competitive pricing and services, the size and timing of individual
sales, the lengthening of the Company's sales cycle, competitive pricing
pressures, customer order deferrals in anticipation of new products, changes in
the mix of products and services sold, the timing of introductions and
enhancements of products by the Company or its competitors, market acceptance of
new products, technological changes in fabrics or production equipment used to
make the Company's products, changes in the Company's operating expenses,
changes in the mix of domestic and international revenues, the Company's ability
to complete fixed price government or private long-term contracts within a
budget, personnel changes, expansion of international operations, changes in the
Company's strategies, and general industry and economic conditions.
The Company's business has experienced, and is expected to continue to
experience, seasonal fluctuations due in large part to the cyclical nature of
certain industrial customers' businesses. Historically, more disposable garments
are sold in the spring and summer months due to moderate weather and
construction starts. Sales are lowest in the third quarter as use of the
Company's disposable garments decrease during the warm summer months.
<PAGE>
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 ten (10) year
licensing arrangement covering seven patents in the Company's name, two Company
developed patents, two 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, 1999, the Company had approximately 923 full-time employees
(735 or 79.6% of whom were international and 188 or 20.4% of whom were domestic)
and in fiscal 1999 met 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
A-8
<PAGE>
is also an officer of the Company. This arrangement has been discontinued and
these people are now employees 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.
The glove and chemical suit product divisions 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, from a third party, which is used in the manufacturing of woven cloth
garments and other cloth products. This lease expires on October 31, 1999, and
has been renewed to October 31, 2001.
The Company's Mexican subsidiary leases two manufacturing facilities from
third parties 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 46,920 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 who have leased the underlying real property for 50 years. The
partnership in turn leases the buildings and real property to the Company's
Chinese subsidiary as a sales, distribution and manufacturing facility. In
fiscal 1999, the lease was on a month to month basis at an annual rental of
$39,020. The rent was increased by $6,960 as 7,100 additional square feet was
added to the building in fiscal 1999. A formal long term lease is expected upon
completion of the buildings at an annual rental of $45,980. A small 2,000 sq.
ft. sales office is also leased from a third party at an annual rental of
$8,000.
The Company leases a 5,600 square foot warehouse in Canada from a third
party under a lease expiring on November 30, 2002.
The Company leases 4,362 square feet of office space in Ronkonkoma, New
York, from a third party, in which its corporate, executive and sales offices
are located. This lease expires on June 30, 1999, and has been renewed to June
30, 2002.
For the years ended January 31, 1999, 1998 and 1997, the Company paid total
rent on property and all leased equipment of approximately $643,000, $621,000
and $581,000, respectively. The Company believes that these facilities are
adequate for its present operations.
<PAGE>
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 5 ("Market for the Registrant's Common Stock and
Related Stockholder Matters") of the Registrant's 1999 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 1 ("Selected Financial Data") of the Registrant's
1999 Annual Report to Shareholders filed as ----
A-9
<PAGE>
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 2 ("Management's Discussion and Analysis of
Financial Condition and Results of Operations") of the Registrant's 1999 Annual
Report to Shareholders filed as Exhibit 13 hereto and incorporated herein by
reference. (See Part IV, Item 14(c) Exhibits.)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Page 5 ("Quantitative and Qualitative Disclosures about
Market Risk") of the Registrant's 1999 Annual Report to Shareholders filed as
Exhibit 13 hereto and incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements are incorporated herein by
reference to Pages 7 to 24 of the Registrant's
Annual Report to Shareholders for the year ended January 31, 1999:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - January 31, 1999 and 1998
Consolidated Statements of Income for the years ended January 31, 1999,
1998 and 1997
Consolidated Statement of Stockholders' Equity for the years ended January
31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended January 31, 1999,
1998 and 1997 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 1999 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.
<PAGE>
<TABLE>
<CAPTION>
Name Age Position Held
- ---- --- -------------
<S> <C> <C>
Raymond J. Smith 60 Chairman of the Board, President and Director
Christopher J. Ryan 47 Executive Vice President - Finance & Secretary and Director
Harvey Pride, Jr. 52 Vice President - Manufacturing
James M. McCormick 51 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.
A-10
<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.)
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8 - K
(a) Index to Consolidated Financial Statements and Schedule:
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, 1999, as
noted in Item 8 hereof:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - January 31, 1999 and 1998
Consolidated Statements of Income for the years ended January 31, 1999,
1998 and 1997
Consolidated tatement of Stockholders' Equity for the years ended
January 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended January 31,
1999, 1998 and 1997
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, 1999.
A-11
<PAGE>
(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 Southwest Parkway, Inc., as
lessor, and the Company, as lessee, dated June 11,
1996.
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
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.
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 16, 1999.
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 7,1999***
13 Annual Report to Shareholders for the year ended
January 31, 1999
20 Proxy Statement of the Registrant for Annual Meeting
of Stockholders - June 16, 1999
A-12
<PAGE>
22 Subsidiaries of the Company (wholly-owned):
Lakeland Protective Wear, Inc.
Lakeland de Mexico S.A. de C.V.
Laidlaw, Adams & Peck, Inc.
Weifang Lakeland Safety Products Co. Ltd.
(effective February 1, 1999)
27 Financial Data Schedule
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.
A-13
<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, 1999
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,
- --------------------------- President and Director
Raymond J. Smith (Principal Executive Officer) April 30, 1999
/s/ Christopher J. Ryan Executive V. P.- Finance April 30, 1999
- --------------------------- & Secretary and Director
Christopher J. Ryan
/s/ James M. McCormick Vice President and Treasurer April 30, 1999
- --------------------------- (Principal Financial and
James M. McCormick Accounting Officer)
/s/ Eric O. Hallman Director April 30, 1999
- ---------------------------
Eric O. Hallman
/s/ John J. Collins Director April 30, 1999
- ---------------------------
John J. Collins,Jr.
/s/ Walter J. Raleigh Director April 30, 1999
- ---------------------------
Walter J. Raleigh
A-14
Julius Blumberg, Inc.
Publisher, NYC 10013
This Agreement between JBJ Realty
376 Fulton Street
Farmingdale, NY 11735
and LAKELAND INDUSTRIES, INC. as Landlord
as Tenant
Witnesseth: The Landlord hereby leases to the Tenant the following premises:
Approximately 4362.5 sf. of space known as
711-2 Koehler Avenue
Ronkonkoma, NY 11779
for the term of Three (3) Years with Two (2) Year Options to renew at 4%
increased to commerce for the First day of July, 1999 and the
end on the Last day of June, 2002 to be used and occupied
only for
Light Industrial
upon the conditions and covenants following:
1st That the Tenant shall pay the annual rent of
1st. yr.-Thirty Seven Thousand One hundred Sixteen Dollars ($37,116.00)
2nd yr.-Thirty Eight Thousand Five Hundred Ninety Two Dollars ($38,592.00)
3rd yr. -Forty Thousand One Hundred Twenty Eight Dollars ($40,128.00)
pt. 1 -Forty One Thousand Seven Hundred Thirty Three and 12/100 ($41,733.12)
pt. 2 -Forty Three Thousand Four Hundred Two and 44/100 ($43,402.44)
said rent to be paid in equal monthly payments in advance on the FIRST day of
each and every month during the term aforesaid, as follows:
1st. yr.-Three Thousand Ninety Three Dollars and 00/100 ($3,093.00)
2nd yr.-Three Thousand Two Hundred Sixteen Dollars and 001/100 ($3,216.00)
3rd yr.-Three Thousand Three Hundred Forty Four Dollars and 00/100 ($3,344.00)
pt. 1-Three Thousand Four Hundred Seventy Seven Dollars and 76/100 ($3,477.76)
pt. 2-Three Thousand Six Hundred Sixteen Dollars and 87/100 ($3,616.87)
2nd. That the Tenant shall take good care of the premises and shall, at the
Tenant's own cost and expense make all repairs not to exceed ten (10%) percent
of the annual lease payments, balance of costs to be paid by Landlord.
<PAGE>
Except Structural
and at the end or other expiration of the term, shall deliver up the demised
premises in good order or condition, damages by the elements excepted.
3rd. That the Tenant shall promptly execute and comply with all statutes,
ordinances, rules, orders, regulations, and requirements of the Federal, State
and Local Governments and of any and all their Departments and Bureaus
applicable to said premises, for the correction, prevention, and abatement of
nuisances or other grievances, in , upon or connected with said premises during
said term; and shall also promptly comply with and execute all rules, orders and
regulations of the New York Board of Fire Underwriters, or any other similar
body, at the Tenant's own cost and expense.
4th. That the Tenant, successors, heirs, executors or administrators shall not
assign this agreement, or underlet or under lease the premises, or any part
thereof, or make any alterations on the premises, without the Landlord's consent
in writing; or occupy, or permit or suffer the same to be occupied for any
business or purpose deemed disreputable or extra-hazardous on account of fire,
under the penalty of damages and forfeiture, and in the event of a breach
thereof, the term herein shall immediately cease and determine at the option of
the Landlord as if it were the expiration of the original term.
5th. Tenant must give Landlord prompt notice of fire, accident, damage or
dangerous or defective condition. If the Premises can not be used because of
fire or other casualty, Tenant is not required to pay rent for the time the
Premises are unusable. If part of the Premises can not be used, Tenant must pay
rent for usable part. Landlord shall have the right to decide which part of the
premises is usable. Landlord need only repair the damaged structural parts of
the Premises. Landlord is not required to repair or replace any equipment,
fixtures, furnishings or decorations unless originally installed by Landlord.
Landlord is not responsible for delays due to settling insurance claims,
obtaining estimates, labor and supply problems or any other cause not fully
under Landlord's control.
If the fire or other casualty is caused by and act or neglect of Tenant,
Tenant's employees or invitees, or at the time of the fire or casualty Tenant is
in default in any term of the Lease, then all repairs will be made at the
Tenant's expense and Tenant must pay the full rent with no adjustment. The cost
of the repairs will be added rent.
Landlord has the right to demolish or rebuild the Building if there is
substantial damage by fire or other casualty. Landlord may cancel this lease
within 30 days after the substantial fire or casualty by giving Tenant notice of
Landlord's intention to demolish or rebuild. The Lease will end 30 days after
Landlord's cancellation notice to Tenant. Tenant must deliver the Premises to
Landlord on or before the cancellation date in the notice and pay all rent due
to the date of the fire or casualty. If the Lease is canceled Landlord is not
required to repair the Premises of Building. The cancellation does not release
Tenant of liability in connection with the fire or casualty. This Section is
intended to replace the terms of New York Real Property Law Section 227.
<PAGE>
6th. The said Tenant agrees that the said Landlord and the Landlord's agents and
other representatives shall have the right to enter into and upon said premises,
or any part thereof, at all reasonable hours for the purpose of examining the
same, or making such repairs or alterations therein as may be necessary for the
safety and preservation thereof.
7th. The Tenant also agrees to permit the Landlord or the Landlord's agents to
show the premises to persons wishing to hire or purchase the same; and the
Tenant further agrees that on and after the sixth month, next preceding the
expiration of the term hereby granted, the Landlord or the Landlord's agents
shall have the right to place notices on the front of said premises, or any
party thereof, offering the premises " To Let " or "For Sale", and the Tenant
hereby agrees to permit the same to remain thereon without hindrance or
molestation.
8th. That if the said premises, or any part thereof shall be deserted or become
vacant during said term, or if any default be made in the payment of the said
rent or any part thereof, or if any default be made in the performance of any of
the covenants herein contained, the Landlord or representatives may re-enter the
said premises by force, summary proceedings or otherwise, and remove all persons
therefrom, without being liable to prosecution therefore, and the Tenant hereby
expressly waives the service of any notice in writing of intention to re-enter,
and the Tenant shall pay at the same time as the rent becomes payable under the
terms hereof a sum equivalent to the rent reserved herein, and the Landlord may
rent the premises on behalf of the Tenant, reserving the right to rent the
premises for a longer period of time that fixed in the original lease without
releasing the original Tenant form any liability, applying any moneys collected,
first to the expense of resuming or obtaining possession, second to restoring
the premises to a rentable condition, and then to the payment of the rent and
all other charges due and to grow due to the Landlord, any surplus to be paid to
the Tenant, who shall remain liable for any deficiency.
9th. Landlord may replace, at the expense of Tenant, any and all broken glass in
and about the demised premises. Landlord may insure and keep insured, all plate
glass in the demised premises for and in the name of Landlord. Bills, for the
premiums therefor shall be rendered by Landlord to Tenant at such times as
Landlord may elect, and shall be due from, and payable by Tenant when rendered,
and the amount thereof shall be deemed to be, and be paid as, additional rental.
Damage and injury to the said premises, caused by the carelessness, negligence
or improper conduct on the part of the said Tenant or the Tenant's agents or
employees shall be repaired as speedily as possible by the Tenant at the
Tenant's own cost and expense.
10th. That the Tenant shall neither encumber nor obstruct the sidewalk in front
of, entrance to, or halls and stairs of said premises, nor allow the same to be
obstructed or encumbered in any manner.
<PAGE>
11th. The Tenant shall neither place, or cause or allow to be placed, any sign
or signs of any kind whatsoever at, in or about the entrance to said premises or
any other part of same, except in or at such place or places as may be indicated
by the Landlord and consented to by the Landlord in writing. And in case the
Landlord or Landlord's representatives shall deem it necessary to remove any
such sign or signs in order to paint the said premises or the building wherein
same is situated or make any other repairs, alterations or improvements in our
upon said premises or building or any part thereof, the Landlord shall have the
right to do so providing the same be removed and replaced at the Land lord's
expense, whenever the said repairs, alterations or improvements shall be
completed.
12th. That the Landlord is exempt for any and all liability for any damage or
injury to person or property caused by or resulting form steam, electricity,
gas, water, rain, ice or snow, or any leak or flow form or into any part of said
building or from any damage or injury resulting or arising from any other cause
or happening whatsoever unless said damage or injury be caused by or be due to
the negligence of the Landlord.
13th. That if default be made in any of the covenants herein contained, then it
shall be lawful for the said Landlord to re-enter the said premises an the same
to have again, re-possess and enjoy. The said Tenant hereby expressly waives the
service of any notice in writing of intention to re-enter.
14th. That this instrument shall not be a lien against said premises in respect
to any mortgages that are now on or that here after may be placed against said
premises, and that the recording of such mortgage or mortgages shall have
preference and precedence and be superior and prior in lien of this lease,
irrespective of the date of recording and the Tenant agrees to execute without
cost, any such instrument which may be deemed necessary or desirable to further
effect the subordination of this lease to any such mortgage or mortgages, and a
refusal to execute such instrument shall entitle the Landlord, or the Landlord's
assigns and legal representatives to the option of canceling this lease without
incurring any expense or damage and the term hereby granted is expressly limited
accordingly.
15th. The Tenant has on deposited with the Landlord the sum of $ 5,089.58 as
security for the full and faithful performance by the Tenant of all the terms,
covenants and conditions of this lease upon the Tenants part to be performed,
which said sum shall be returned to the Tenant after the time fixed as the
expiration of the term herein, provided the Tenant has fully and faithfully
carried out all of the said terms, covenants and conditions on Tenant's part to
be performed. In the event of a bona fide sale, subject to this lease, the
Landlord shall have the right to transfer the security to the vendee for the
benefit of the Tenant and the Landlord shall be considered released by the
Tenant from all liability for the return of such security; and the Tenant agrees
to look to the new Landlord solely for the return of the said security, and it
is agreed that this shall apply to every transfer, or assignment made of the
security to a new Landlord.
16th. That the security deposited under this lease shall not be mortgaged,
assigned or encumbered by either party without the written consent of the other
party.
<PAGE>
17th. It is expressly understood and agreed that in case the demised premises
shall be deserted or vacated, or if default be made in the payment of the rent
or any part as herein specified, or if, without the consent of the Landlord, the
Tenant shall sell, assign, or mortgage this lease or if default be made in the
performance of any of the covenants and agreements in this lease contained on
the part of the Tenant to be kept and performed, or if the Tenant shall fail to
comply with any of the statutes, ordinances, rules, orders, regulations, and
requirements of the Federal, State and Local Governments or of any and all their
Departments and Bureaus, applicable to said premises, or if the Tenant shall
file or there be filed against Tenant a petition of bankruptcy or arrangements,
or Tenant be adjudicated a bankrupt or make an assignment for the benefit of
creditors or take advantage of any insolvency act, the Landlord may, if the
Landlord so elects, at any time thereafter terminate this lease and the term
hereof, on giving to the Tenant five days' notice in writing of the Landlord's
intention so to do, and this lease and the term hereof shall expire and come to
an end on the date fixed in such notice as if the said date were the date
originally fixed in this lease for the expiration hereof. Such notice may be
given by mail to the Tenant addressed to the demised premises.
18th. Tenant shall pay to Landlord the rent or charge, which may, during the
demised term, be assessed or imposed for the water used or consumed in or in the
said premises, whether determined by meter or otherwise, as soon as and when the
same may be assessed or imposed, and will also pay the expenses for the setting
of a water meter in the said premises should the latter be required. Tenant
shall pay Tenant's proportionate part of the sewer rent or charge imposed upon
the building. All such rents or charges or expenses shall be paid as additional
rent and shall be added to the next month's rent thereafter to become due.
19th. That the Tenant will not nor will the Tenant permit undertenants or other
persons to do anything in said premises, or bring anything into said premises,
or permit anything to be brought into said premises or to be kept therein, which
will in any way increase the rate of fire insurance on said demised premises,
nor use the demised premises or any part thereof, nor suffer or permit their use
for any business or purpose which would cause an increase in the rate of fire
insurance on said building, and the Tenant agrees to pay on demand any such
increase.
20th. The failure of the Landlord to insist upon a strict performance of any of
the terms, conditions and covenants herein, shall not ne deemed a waiver of any
rights or remedies that the Landlord may have, and shall not be deemed a waiver
of any subsequent breach or default in the terms, conditions and covenants
herein contained. This instrument may not be changed, modified, discharged or
terminated orally.
21st. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
in that event, the term of this lease shall cease and terminate from the date of
title vesting in such proceeding and Tenant shall have no claim against Landlord
for the value of any unexpired term of said lease. No part of any award shall
belong to the Tenant.
<PAGE>
22nd. If after default in payment of rent or violation of any other provisions
of this lease, or upon the expiration of this lease, the Tenant moves out or is
dispossessed and fails to remove any trade fixtures or other property prior ro
such said default, removal, expiration of lease, or prior to the issuance of the
final order or execution of warrant, then and in that event, the said fixtures
and property shall be deemed abandoned by the said Tenant and shall become the
property of the Landlord.
23rd . In the event that the relation of the Landlord and Tenant may cease or
terminate by reason of the re-entry of the Landlord under the terms and
covenants contained in this lease or by the ejectment of the Tenant by summary
proceedings or otherwise, or after the abandonment of the premises by the
Tenant, it is hereby agreed that the Tenant shall remain liable and shall pay in
monthly payments the rent which accrues subsequent to the re-entry by the
Landlord, and the Tenant expressly agrees to pay as damages for the breach of
the covenants herein contained the difference between the rent reserved and the
rent collected and received, if any, by the Landlord during the remainder of the
unexpired term, such difference or deficiency between the rent herein reserved
and the rent collected if any, shall become due and payable in monthly payments
during the remainder of the unexpired term, as the amounts of such difference or
deficiency shall from time to time be ascertained; and it is mutually agreed
between Landlord and Tenant that the respective parties hereto shall and hereby
do waive trial by jury in any action, proceeding or counterclaim brought by
either parties against the other on any matters whatsoever arising out of or in
any way connected with this lease, the Tenant's use or occupancy of said
premises, and /or any claim of injury or damage.
24th. The Tenant waives all rights to redeem under any law of the State of New
York.
25th. This lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in nowise be affected, impaired or excused because Landlord is
delayed in making any repairs, additions, alterations, or decorations or is
unable to supply or is delayed in supplying any equipment or fixtures if
Landlord is prevented or delayed from so doing by reason of governmental
preemption in connection with a National Emergency or in connection with any
rule, order or regulation of any department or subdivision thereof of any
governmental agency or by reason of the condition of supply and demand which
have been or are affected by war or other emergency.
<PAGE>
26th. No diminution or abatement of rent, or other compensation, shall be
claimed or allowed for inconvenience or discomfort arising from the making of
repairs or improvements to the building or to its appliances, not for any space
taken to comply with any law , ordinance or order of a governmental authority.
In respect to the various "services," if any herein expressly or impliedly
agreed to be furnished by the Landlord to the Tenant, it is agreed that there
shall be no diminution or abatement of the rent, or any other compensations, for
interruption or curtailment of such "service" when such interruption or
curtailment shall be due to accident, alterations or repairs desirable or
necessary to be made or to inability or difficulty in securing supplies or labor
for the maintenance of such "service" or to some other cause, not gross
negligence on the part of the Landlord. No such interruption or curtailment of
any such "service" shall be deemed a constructive eviction. The Landlord shall
not be required to furnish, and the Tenant shall not be entitled to receive, any
of such "services" during any period wherein the Tenant shall be in default in
respect to the payment of rent. Neither shall there be any abatement or
diminution of rent because of making repairs, improvements or decorations to the
demised premises after the date above fixed the commencement of the term, it
being understood that rent shall, in any event, commerce to run at such sate so
above fixed.
27th. Landlord shall not be liable for failure to give possession of the
premises upon commencement date by reason of the fact that premises are not
ready for occupancy or because a prior Tenant or any other person is wrongfully
holding over or is in the wrongful possession, or for any other reason. The rent
shall not commence until possession is given or is available , but the term
herein shall not be extended.
SEE RIDERS ANNEXED HERETO AND MADE A PART HEREEOF
And the said Landlord doth covenant that the said Tenant on paying the said
yearly rent, and performing the covenants aforesaid, shall and may peacefully
and quietly have, hold and enjoy the said demised premises for the term
aforesaid, provided however, that this covenant shall be conditioned upon the
retention of title to the premises by the Landlord.
And it is mutually understood and agreed that the covenants and agreements
contained in the within lease shall be binding upon the parties hereto and upon
their respective successors, heirs, executors and administrators.
In Witness Whereof, the parties have interchangeably set their hands and seals
(or caused these presents to be signed by their proper corporate officers and
caused their proper corporate seal to be hereto affixed) this day of April 14,
1999.
Signed, sealed and delivered
in the presence of
---------------------------------------------------L.S.
JBJ
---------------------------------------------------L.S.
---------------------------------------------------L.S.
LAKELAND INDUSTRIES, INC.
<PAGE>
RIDERS TO BE ANNEXED TO AND MADE PART OF LEASE BETWEEN JBJ REALTY AS LANDLORD,
AND LAKELAND INDUSTRIES, INC. AS TENANT. DATED 6/30/2002.
28th The Tenant agrees to keep in force and provide during the term of this
lease for the benefit of the Landlord general liability policy of insurance in
standard from protecting the Landlord against any liability whatsoever,
occasioned by accident in or about the demised premises in which the Landlord
shall be named as additional insured and shall be protected against all
liability occasioned by any occurrence insured against. Such policies shall
cover and leased premises and shall provide for at least five days' notice to
the Landlord before cancellation. A certification thereof shall be delivered to
their Landlord. Said policies shall provide for the following minimum
coverage's; $300,000.00 for injury or death of one person; $500,000.00 for
injury or death arising out of one accident; and $25,000.00 for property damage.
In the event the Tenant fails to effect such insurance, the Landlord may do so,
and add the cost thereof to the rent for the month next ensuing, and the amount
thereof shall be deemed to be, paid as additional rent.
29th. If any mechanic's liens shall be filed against the premises for work done
or materials furnished to the Tenant, the Tenant shall within thirty days
thereafter, and its own cost and expense cause such lien or liens to be
discharged by filing the bond or bonds required for that purpose by law. In the
event the Tenant fails to have such liens discharged, the Landlord may do so at
the Tenant's expense.
30th. All annexations to the freehold made or installed in such a manner that
their removal would cause injury to the freehold shall be the property of the
Landlord and may not be removed by the Tenant except that all trade fixtures
shall be deemed the property of the Tenant, and may be removed by the Tenant
provided that all injury to the freehold resulting therefrom shall be repaired
at the expense of the Tenant.
31st. There are no representations, warranties, terms, or obligations other than
those expressed in this agreement. No variation of this lease shall be valid
unless in writing and signed by the party to be charged. Any holding over by the
Tenant after the term of this lease shall be unlawful and in no manner
constitute a renewal or extension of this lease agreement. In the event ,
however, Tenant does become a holdover, the use and occupancy charges shall be
125% of the last rental amount. In addition to the provisions of Paragraph 4.
Tenant shall before making any alterations, additions, installations, or
improvements, obtain at its sole cost and expense all permits, approvals and
certificates required by any governmental or quasi-governmental authorities and
upon completions of same, certificates of final approval thereof promptly
deliver to the Landlord copies of all permits, approvals, and certificates.
32nd. The Landlord shall not be liable for damage or injury to person or
property unless written notice of any defect alleged to have caused such damage
or injury shall have been given to the Landlord a sufficient time before such
occurrence to have reasonable time to enable the Landlord to correct such
defect. Nothing herein contained shall impose any additional obligation on the
Landlord to make repairs. Should any additional construction be undertaken on
the interior of the premises, Tenant must:
a) Obtain a Permit;
b) Obtain the permission and signature of the Landlord on application; and
c) Supply Landlord with copy of plans, specifications, and Certificate of
Compliance.
<PAGE>
RIDERS TO BE ANNEXED TO AND MADE PART OF LEASE BETWEEN JBJ REALTY AS LANDLORD,
AND LAKELAND INDUSTRIES, INC. AS TENANT. DATED 6/30/2002.
33rd. It is mutually covenanted that if the Landlord shall reasonably pay or be
compelled to pay sum of money, or shall reasonably perform any act or be
compelled to perform any act, which act shall require the payment of any sum of
money be reason of the failure of the Tenant after thirty days' notice, to
perform any one or more of the covenants herein contained, the sums shall, after
the ten days' notice, in writing and demand, be added to the rent installment
next due and shall be collectible in the same manner and with the same remedies
as if originally reserved as rent hereunder. The failure to pay rent and to make
pursuant to this paragraph shall be deemed a material default.
JBJ REATY LAKELAND INDUSTRIES, INC.
- ---------------- --------------------------------
LANDLORD TENANT
<PAGE>
RIDERS TO BE ANNEXED TO AND MADE PART OF LEASE BETWEEN JBJ REALTY AS LANDLORD,
AND LAKELAND INDUSTRIES, INC. AS TENANT. DATED 6/30/2002.
34th .Notwithstanding any provisions of this Lease to the contrary, in the event
of a breach or default by Landlord, its successors or assigns, of any of its
obligations hereunder of any kind or nature whatsoever, or of any provisions of
this Lease. Tenant shall look solely to the equity of the Landlord, its
successors, or assigns in the demised premises or the building of which they are
a part for the satisfaction of Tenant's remedies and no personal judgement shall
be sought against the Landlord, its successors or assigns under the terms,
covenants, conditions, warranties and obligations of this Lease shall in no
event exceed the loss of its equity in the demised premises or the building of
which they are a part.
35th . The Tenant agrees as its own cost and expense to pay for all electricity,
telephone, gas, fuel, etc., consumed and used by it, it being the understanding
and intention of the parties hereto that the Landlord rents, and the Tenant
hires, the demised premises without any service of any kind whatsoever.
36th. Anything to the contrary herein notwithstanding, Tenant may assign this
Lease as long Tenant is not in default, and the Landlord shall not unreasonably
withhold its consent to the assignment and/or sub-lease agreement upon the
following conditions.
a) Each assignment and/or sublease of this lease shall be accompanied by and
agreement, in writing, executed by the assignee for the benefit of the Landlord,
wherein the assignee shall assume all the duties and obligations of the Tenant
herein.
b) Said agreement executed by the assignee shall be deposited with the Landlord
within five days of the making of the assignment.
c) The assignment and/or sub-lease of this agreement shall in no way operate to
release the assignor from the obligation of the Tenant herein.
d )An additional security-0- shall be deposited with the Landlord by the
assignee to be held by the Landlord in accordance with the provisions of
Paragraph "15" herein.
e) No further or additional assignments of this lease shall be made except upon
compliance with and subject to, the provisions of this paragraph, except that no
further security shall be required.
37th. In the event the premium for the Landlord's policy of insurance covering
fire and extended coverage with all of the usage and customary endorsements its
increased over the basic rate for same as determined by the appropriate
insurance underwriting organization as a result of Tenants use or occupancy of
the premises then Tenant shall pay such insurance as additional rent. Landlord
shall provide Tenant with a copy of pertinent invoices for insurance, and Tenant
shall reimburse Landlord. Failure to make such reimbursement shall be deemed a
material default hereunder.
<PAGE>
RIDERS TO BE ANNEXED TO AND MADE PART OF LEASE BETWEEN JBJ REALTY AS LANDLORD,
AND LAKELAND INDUSTRIES, INC. AS TENANT. DATED 6/30/2002.
38th .The Tenant shall pay to the Landlord during each year of the term herein
demised as and for additional rent hereunder the amount of any increase of the
aggregate of all real estate taxes of every nature and description, including
assessments, if any , levied against the demised premises and herein referred to
as the basic taxes. The basic tax, as aforementioned, shall be the aggregate of
all real estate taxes of each and every nature, including assessments levied
against the demised premises after the completion of the building and
constituting the first assessment predicated upon a completed building. The
amount of any such increase shall be deemed additional rent and shall be paid by
the Tenant to the Landlord not later than the first day of the calendar month
occurring subsequent to the giving notice to the Tenant of the amount of such
increase, and the simultaneous exhibiting to the Tenant of a copy of a tax bill
evidencing such increase. Such notice to be given by the Landlord to the Tenant
may be given personally, or by certified mail, return receipt requested. The
Tenant shall be responsible only for the payment of that portion of increase, if
any; as shall be applicable to that portion of the overall premises lease by
Tenant. The base tax year will be July 1, 1999 through June 30, 2000. Any
additional taxes over and above the base tax year shall be passed on to the
Tenant according to their proportionate share.
39th. Notwithstanding the provisions of Paragraph 15, the Landlord shall have
the right to deduct from the security deposit, if kept an interest-bearing
account, the sum equivalent to one percent (1%) per annum of the security monies
so deposited as administrative expenses. With regard to Tenant's security, this
money shall be in lieu of all other administrative and custodial expenses.
40th. The parties herein acknowledge that No One is the broker which brought
about this leasing agreement, and commissions therefore shall be paid by the
Landlord pursuant to separate agreement.
JBJ REALTY LAKELAND INDUSTRIES
- ----------------- ------------------------------------
LANDLORD TENANT
<PAGE>
RIDERS TO BE ANNEXED TO AND MADE PART OF LEASE BETWEEN JBJ REALTY AS LANDLORD,
AND LAKELAND INDUSTRIES, INC. AS TENANT. DATED 6/30/2002.
41st. In the event the summary proceeding is commences by the Landlord or its
successors and assigns, for non-payment of rent during any part of the term
hereunder; then the Landlord shall be entitled to reasonable costs and
attorney's fees incurred during the summary proceeding as added rent in default
and such costs and attorney's fees may be added to the amount demanded in any
such summary proceeding. A summary proceeding shall be deemed to have been
commenced hereunder upon service of a three day Notice.
42nd. Landlord will put all heating, cooling, electric, and plumbing systems in
good working order for new Tenant. It is the responsibility of all tenants to
maintain the systems in like condition and to provide service and maintenance
for heating system. Minimal heat must be provided by Tenant at all times during
the winter months. To prevent frozen pipes and heating damage. Should this not
be done, any repairs necessary will be at the sole cost of the Tenant. Tenant
shall pay for all electricity, gas, fuel, telephone, garbage, disposal, snow
removal, etc. Should the septic systems and/ or pools become contaminated and in
need of service, the Tenant responsible for such repair will be billed for the
necessary repair. Should the source of the problems be of such indeterminate
nature, other faulty installation, all Tenants will be billed for the service in
proportion with their occupancy of the building. Tenant shall be responsible for
repair and maintenance of plate glass, overhead doors, plumbing, heating, and
cooling systems.
43rd. If, during the term of the lease or Tenant's occupancy of the demised
premise, Landlord or any predecessor in title to the premises of which the
demised premises are a part is required to undertake the removal, clean-up
neutralization or any other affirmative act with respect to the presence of
hazardous, toxic or dangerous materials or substances whether of the Landlord's
own choice or as the result of a directive or order from any governmental
authority or court having jurisdiction, the Tenant specifically acknowledges and
agrees that any such action shall not be a breach of the covenant of quiet
enjoyment of the premises and further, the Tenant shall not be entitled to any
diminution or abatement of rent in such event notwithstanding any other
provisions of this lease to the contrary. Tenant further agrees to cooperate
fully with the Landlord in connection with any such action. It is specifically
understood and agreed that the Tenant will not contaminate the premises with any
hazardous, toxic, or dangerous material or substance and nothing herein
contained shall relieve the Tenant from an liability to the Landlord or any
governmental authority as a result of any actions of the Tenant, its employees,
agents, or invitee with respect to the causation of any such hazardous,
dangerous, or toxic condition at the premises.
<PAGE>
RIDERS TO BE ANNEXED TO AND MADE PART OF LEASE BETWEEN JBJ REALTY AS LANDLORD,
AND LAKELAND INDUSTRIES, INC. AS TENANT. DATED 6/30/2002.
43-2. In the event the Landlord has reason to believe that the Tenant, or
Tenant's employees or agents are in violation of any provision of this
lease pertaining to the use or maintenance of Hazardous Substances or
Hazardous Materials, the Landlord shall give written notice to the
Tenant concerning the suspected issues of non-compliance. The Tenant
shall respond in writingthe Landlord's concerns within ten (10) days,
and shall provide such other documents or information which the Landlord
deems necessary to determine that the Tenant is in compliance with all
the provisions in the lease involving Hazardous Substances or Hazardous
Materials.
43-3. In the event the Tenant fails to provide the assurances required by this
paragraph within the time specified, the Landlord and the Landlord's
designated agent shall have the right to enter and inspect the premises
to determine the Tenant's compliance with the provisions of the lease
pertaining to Hazardous Substances and Hazardous Materials. The
Landlord, its sole discretion, shall also have the right to conduct an
environmental audit of the leased premises for the purposes of
establishing the Tenant's compliance with the provisions of this lease
which involve Hazardous Substances or Materials. The cost of any such
environments audit shall be borne by the Tenant.
JBJ REALTY LAKLAND INDUSTRIES, INC.
- ----------------- ----------------------------------------
LANDLORD TENANT
<PAGE>
RIDERS TO BE ANNEXED TO AND MADE PART OF LEASE BETWEEN JBJ REALTY AS LANDLORD,
AND LAKELAND INDUSTRIES, INC. AS TENANT. DATED 6/30/2002.
44TH Tenant agrees not to allow garbage or refuse to accumulate outside the
building or grounds of the demised premises. Any violations regarding debris
from the local municipality shall be made known to the Tenant and should the
violation not be corrected in the given period of time, the Tenant will payment
as rent, all fines and legal fees incurred.
45th. All rents are due and payable on the first day of the month. In the event
of a default by the Tenant for non-payment of rent, and such default continues
for a period of ten (10) days subsequent to the due date, there shall be added
to the monthly rental then due and payable a sum designated as a late charge,
which shall be equal to five (5) cents for each dollar of the monthly payment
past due rent, shall become immediately due and payable with the succeeding
month's rent. Should Tenant issue a check with insufficient funds, an additional
twenty five dollars and 00/100 ($25.00) fee per check will be applied to the
next month's invoice. If this occurs, Tenant will be expected to substitute cash
or a certified check in person within a three -(3) day period.
45-2 Notwithstanding any provisions in the Lease permitting Tenant to cure any
default within a specified period of time, if Tenant shall default (I) in the
timely payments of rent or additional rent, and such default shall continue or
be repeated for two consecutive months or for a total of four months in any
period of twelve months or (ii) in the performance of any particular term,
condition, or covenant of this Lease more than two times in any period of six
months, then, notwithstanding that such defaults shall have each been cured
within the period after notice if any, as provided in this Lease. Any further
similar default shall be deemed to be deliberate and Landlord thereafter may
cancel or terminate this Lease as provided herein without according to Tenant an
opportunity to cure such further default.
46th. The Tenant agrees to comply with the following rules and regulations and
with such reasonable and additions thereto as the Landlord may hereafter from
time to time make for the premises. The Landlord shall not be responsible for
non-compliance by any other Tenant of any said rules and regulations, however,
will request the non-complying Tenant to comply with all haste.
a) Tenant will not store material, supplies, or equipment outside
the premises.
b.) Tenant will keep loading area/overhead door clean and
unobstructed in order to allow for parking lot, lawn, and other
maintenance.
c.) Tenant will be responsible for any damage done to the building
or parking lot area by trucks making deliveries for the Tenant's
business.
d) Parking or storage of unregistered vehicles is expressly
prohibited.
<PAGE>
RIDERS TO BE ANNEXED TO AND MADE PART OF LEASE BETWEEN JBJ REALTY AS LANDLORD,
AND LAKELAND INDUSTRIES, INC. AS TENANT. DATED 6/30/2002.
47th. Certificate of Insurance with owner named as co-insured mush accompany
this Lease in order for it to become valid. (See Paragraph 28)
48th. Landlord agrees to give Tenant and allowance of $0 for painting and
replacement of carpet.
49th. In the event Tenant vacates the premises prior to the termination date of
this lease, the corporate officers or shareholders or the general partners
executing this Lease on behalf of Tenant or such other guarantors who execute
the guarantee at the end of this Rider personally guarantee the payment of all
rent and additional rent that has accrued to the date the premises are vacated
together with the costs of restoring the premises in accordance with the
provisions of this Lease and Tenant's obligations under Paragraph 43 hereof.
JBJ REALTY LAKLAND INDUSTRIES, INC.
- ----------------- ----------------------------------------
LANDLORD TENANT
<PAGE>
State of New York }SS.:
County of
On the day of ,before me personally came
to me known, and known to me to be the individual described in, and
who executed, the foregoing instrument, and acknowledged to me that he
executed the same.
State of New York }SS.:
County of
On the day of ,before me personally came
to me known, who, being by me duly sworn, did depose and say that
he resides at No.
that he is the of
the corporation mentioned in, and which executed, the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said instrument
i such corporate seal; that it was so affixed by order of the Board of
of said corporation; and that he signed he name thereto by like order.
<PAGE>
==============================
==============================
LEASE
==============================
Date:
------------------------------------------
In Consideration of the letting in of the premises within mentioned to the
within named Tenant and the sum of $1.00 paid to the undersigned by the within
named Landlord, the undersigned do
hereby covenant and agree, to and with the Landlord and the Landlord's legal
representatives, that if default shall any time be made by the said Tenant in
the payment of the rent and the performance of the covenants contained in the
within lease, on the Tenant's part to be paid and performed, that the
undersigned will well and truly pay the said rent, or any arrears thereof, that
may remain due unto the said Landlord, and also pay all damages that may arise
in consequence of the non-performance if said covenants, or either of them,
without requiring notice of any such default form the said Landlord. The
undersigned hereby waives all right to trial by jury in any action or proceeding
hereinafter instituted by the Landlord, to which the undersigned may be a party.
In Witness Whereof, the undersigned has set hand
and seal this day of
WITNESS
---------------------------------L.S.
EXHIBIT 11
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 7, 1999, 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, 1999. 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).
GRANT THORNTON LLP
Melville, New York
April 7, 1999
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
For the Years Ended January 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Net sales $54,655 $47,263 $41,792 $40,189 $35,185
Gross profit 10,374 9,195 7,237 6,288 6,346
Operating expenses 6,451 6,157 5,212 4,882 4,704
Operating profit 3,923 3,038 2,024 1,406 1,642
Income before income taxes (1) 3,222 2,590 1,576 956 2,000
Net income 2,080 1,600 1,063 587 1,421
Earnings per share - Basic (2) $.79 $.63 $.42 $.23 $.56
==== ==== ==== ==== ====
Earnings per share - Diluted (2) $.77 $.61 $.41 $.22 $.54
==== ==== ==== ==== ====
Weighted average common shares outstanding:
Basic 2,642,170 2,558,541 2,550,000 2,550,000 2,550,000
Diluted 2,690,920 2,627,425 2,609,700 2,635,506 2,641,000
BALANCE SHEET DATA (at end of year):
Working capital $12,403 $18,903 $14,018 $13,618 $7,190
Total assets 27,160 25,812 18,573 19,263 15,562
Current liabilities 12,915 5,007 2,920 3,894 6,813
Long-term liabilities 465 9,217 5,746 6,492 441
Stockholders' equity $13,725 $11,518 $9,825 $8,762 $8,175
</TABLE>
(1) Includes $625,000 gain recorded in 1995 relating to the favorable
settlement of an outstanding litigation.
(2) Earnings per share has been restated in accordance with SFAS No. 128,
"Earnings Per Share".
1
<PAGE>
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," "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 that 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations may include forward-looking statements with
respect to the Company's future financial performance. These forward-looking
statements are subject to various risks and uncertainties, that could cause
actual results to differ materially from historical results or those currently
anticipated.
General
For the years ending January 31, 1997, 1998 and 1999 earnings increased
81.3%, 50.5% and 30% respectively, and net sales increased 4%, 13.1% and 15.6%
respectively. Management attributes these gains in earnings to its increasing
revenues and cost efficiencies at all levels of the Company. In addition to
this, stockholders' equity increased 19.2% over fiscal 1998 while, return on
beginning stockholders' equity was 18% over fiscal 1998.
<PAGE>
Overview
The Company derives the majority of its revenues from the sale of its
Tyvek disposable limited/use garments and secondarily from the sales of its cut
and heat resistant gloves, woven reusable garments, heat and fire protective
clothing, and chemical suits all to safety and mill supply distributors. The
Company generally recognizes revenues when it ships its product to its
distributors. Cost of goods sold includes all direct costs to manufacture the
finished product, plus related costs associated with inland or ocean freight on
incoming raw materials, customs duty and warehousing, and manufacturing overhead
expenses. Selling expenses include all salaries for sales and marketing staffs
together with other related expenses such as sales commissions, travel costs,
trade shows, advertising and delivery expenses. General and administrative
expenses include salaries for executives and administrative and MIS staff,
together with related expenses such as travel costs, non-manufacturing
facilities costs and consulting and professional fees.
2
<PAGE>
Result of Operations
The following table sets forth items in the Company's consolidated
statement of operations as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
Years Ended January 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of Goods Sold 81.0 80.4 82.7
Selling, general and administrative expenses 11.8 13.0 12.5
Depreciation and amortization expense 1.0 .9 .8
Operating profit 7.2 6.4 4.8
Interest expense, net 1.3 1.0 1.2
Income tax expense 2.1 2.1 1.2
Net income 3.8 3.4 2.5
EBITDA margin (1) 8.2 7.4 5.7
</TABLE>
- ------------------
(1) EBITDA (earnings before interest, taxes, depreciation and amortization)
margin represents EBITDA expressed as a percentage of revenues.
<PAGE>
Fiscal Year Ended January 31, 1999 Compared to Fiscal Year Ended January 31,
1998.
Net Sales. Net sales for the year ended January 31, 1999 increased
$7,392,000 or 15.6% to $54,655,000 from $47,263,000 for the year ended January
31, 1998. The increase in sales was principally attributable to the Company's
ability to increase its production capacity and maintain higher inventory levels
and the institution of a price increase on its Tyvek(TM) lines on March 1, 1998.
Gross Profit. Gross profit for the year ended January 31, 1999 increased by
$1,179,000, or 12.8% to $10,374,000, or 19% of net sales, from $9,195,000, or
19.5% of net sales, for the year ended January 31, 1998. Gross profit was
consistent between years as a result of global manufacturing efficiencies which
were offset by certain expense reclassifications.
Operating Expenses. Operating expenses for the year ended January 31, 1999
increased by $294,000 or 4.8%, to $6,451,000, or 11.8% of net sales, from
$6,157,000, or 13% of net sales, for the year ended January 31, 1998. Operating
expenses as a percentage of net sales decreased to 11.8%, from 13% as a result
of increased sales volume and the reclassification of certain expenses described
above. The increase in operating expenses was mainly attributable to greater
payroll expenses, increased sales commissions and increased freight out.
Interest Expense. Interest expense for the year ended January 31, 1999
increased by $275,975, or 55.4% to $773,714 from $497,739 for the year ended
January 31, 1998. The increase in interest expense was mainly due to higher
interest costs reflecting an increase in average borrowings under the Company's
credit facility.
Income Tax Expense. The effective tax rate of 35.4% deviates from the
Federal statutory rate of 34%, mainly attributable to state income taxes.
Net Income. As a result of the foregoing, net income for the year ended
January 31, 1999 increased by $480,000 or 30%, to net income of $2,080,000 from
net income of $1,600,000 for the year ended January 31, 1998.
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.
3
<PAGE>
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 the
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.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources. The Company's working capital is equal to
$12,403,000 at January 31, 1999. The Company's primary sources of funds for
conducting its business activities have been from cash flow provided by
operations and borrowings under its revolving credit facility. The Company
requires liquidity and working capital primarily to fund increases in
inventories and accounts receivable associated with sales growth and, to a
lesser extent, for capital expenditures.
Net cash used in operating activities was $509,000 for the year ended
January 31, 1999 and was due primarily to the decrease in accounts payable of
$2,839,000, mainly offset by net income from operations of $2,080,000.
Net cash provided by financing activities of $1,971,000 was primarily
attributable to net borrowings of $1,912,000 during the year in connection with
its revolving credit faciltiy.
The long-term revolving credit facility permits the Company to borrow up to
a maximum of $16 million. The agreement expires on November 30, 1999 and has
therefore been classified as a short-term liability in the accompanying balance
sheet at January 31, 1999. Borrowings under the revolving credit facility
amounted to approximately $10,728,000 million at January 31, 1999. Management
has commenced renewal negotiations with respect to this facility.
The Company believes that cash flow from operations and the revolving
credit facility (upon renewal) will be sufficient to meet its currently
anticipated operating, capital expenditures and debt service requirements for at
least the next 12 months.
<PAGE>
Foreign Currency Activity
The Company's foreign exchange exposure is principally limited to the
relationship of the U.S. Dollar to the Canadian Dollar.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs which were written
using two digits rather than four to define the applicable year. For example,
date-sensitive software may recognize a date using "00" as the Year 1900, rather
than the Year 2000. Such misrecognition could result in system failures or
miscalculations causing disruptions of operations, including among others, a
temporary inability to process transactions, send invoices or engage in similar
normal business activities.
The Company has established a committee to develop a comprehensive Year
2000 plan with the goal of completing updates to key systems by June 1, 1999.
The Company has assessed the scope of the Company's risk related to problems its
computer systems may have in processing date information related to the Year
2000 and believes such risks are not significant.
The Company has identified all of its significant internal software
applications which contain source codes that may be unable to appropriately
interpret the Year 2000 and has already modified or replaced those applications.
The
4
<PAGE>
Company has determined that its accounting system and employee network systems
are Year 2000 compliant.
In addition, the Company has inquired of its major suppliers about their
progress in identifying and addressing problems related to the Year 2000.
Certain of the Company's major suppliers have informed the Company that such
suppliers do not anticipate problems in their business operations due to Year
2000 compliance issues. The Company is currently unable to determine the extent
to which Year 2000 issues will affect its other suppliers, or to the extent to
which it would be vulnerable to the suppliers' failure to remediate any of their
Year 2000 problems. Although no assurance can be given that all of the Company's
major suppliers' systems will be Year 2000 compliant, the Company believes that
the risk is not significant.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The Company is exposed to market risk, including changes in interest rates
and currency exchange rates. To manage the volatility relating to these
exposures, the Company seeks to limit, to the extent possible its non-U.S.
dollar denominated purchases and sales. Foreign exchange risk occurs principally
only with regard to Canadian subsidiary sales.
Foreign Exchange Risk Management
As a multinational corporation, the Company is exposed to changes in
foreign exchange rates. As the Company's non-denominated U.S. dollar
international sales grow, exposure to volatility in exchange rates could have an
adverse impact on the Company's financial results. The Company's risk from
exchange rate changes is presently related to non- dollar denominated sales in
Canada.
Interest Rate Risk
The Company is exposed to interest rate change market risk with respect to
its credit facility with a financial institution which is priced based upon
LIBOR or 30 day commercial paper interest rates. At January 31, 1999,
$10,727,863 was outstanding under the credit facility. Changes in the above
described interest rates during fiscal 2000 will have a positive or negative
effect on the Company's interest expense. Each 1% fluctuation in one or both of
the above rates will increase or decrease interest expense for the Company by
approximately $107,000. In addition, the Company had $91,400 USD on deposit in a
Chinese financial institution earning interest at the rate of 4.3% and a
$854,454 Money Market account in a Canadian financial institution earning
interest at the rate of 4.7%. Each 1% fluctuation in interest rates earned will
increase or decrease interest income on these deposits by approximately $9,000.
<PAGE>
MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Common Stock is listed on the Nasdaq National Market under the symbol
"LAKE". The following table sets forth for the periods indicated the high and
low sales prices for the Common Stock as reported by the Nasdaq National Market.
The Company has a January 31, fiscal year end.
<TABLE>
<CAPTION>
Price Range
of Common Stock
---------------
High Low
<S> <C> <C>
Fiscal 1998
First Quarter ended April 30, 1997.............................................$37/8 $2 13/16
Second Quarter ended July 31, 1997.............................................5 9/16 3 15/32
Third Quarter ended October 31, 1997...........................................9 4 3/4
Fourth Quarter ended January 31, 1998..........................................10 6 3/4
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Price Range
of Common Stock
---------------
High Low
<S> <C> <C>
Fiscal 1999
First Quarter ended April 30, 1998.............................................$10 1/2 $7 3/4
Second Quarter ended July 31, 1998.............................................113/8 9
Third Quarter ended Oct. 31, 1998..............................................97/8 57/8
Fourth Quarter ended January 31, 1999..........................................8 57/8
First Quarter fiscal 2000 (through April 19, 1999).............................6 3/4 4
</TABLE>
As of April 15, 1999, there were approximately 114 record holders of
shares of Common Stock. There are believed to be in excess of 500 beneficial
shareholders in addition to those of record, since over 1.0 million shares are
held in "street" name by Cede & Co., a large financial clearing house.
The Company has never paid cash dividends on its common stock and does
not expect to pay such dividends in the foreseeable future. The Company
currently intends to retain any future earnings, for the operation and expansion
of its business. The payment and rate of future dividends, if any, are subject
to the discretion of the Board of Directors of the Company and will depend upon
the Company's earnings, financial condition, capital requirements, contractual
restrictions under its agreement with its institutional lender and other
factors.
6
<PAGE>
CORPORATE INFORMATION
Directors:
Raymond J. Smith, Chairman
Christopher J. Ryan
John J. Collins, Jr.
Eric O. Hallman
Walter J. Raleigh
.
Market Makers:
Neuberger & Berman
Herzog, Heine, Geduld, Inc.
Donald & Co.
Knight Securities
INCA
USLD
ISLD
STRK
<PAGE>
Officers:
Raymond J. Smith, President
Christopher J. Ryan
Executive Vice President of
Finance and Secretary
James M. McCormick
Vice President and Treasurer
Harvey Pride, Jr.
Vice President, Manufacturing
Auditors:
Grant Thornton LLP
Suite 3S01
One Huntington Quadrangle
Melville, NY 11747-4464
Counsel:
Law Offices of Thomas J. Smith
14 Briarwood Lane
Suffern, NY 10901-3602
<PAGE>
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.
Lakeland de Mexico S.A. de C.V.
Laidlaw, Adams & Peck, Inc.
Weifang Lakeland Safety Products,
Co. Ltd.
Exhibits to Lakeland Industries, Inc.'s fiscal 1999 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.
Thermbar(TM), Kut Buster(TM), Grapolator Mock Twist (TM), Safeguard
"76"(TM), Zone Guard(TM), RyTex(TM), TomTex(TM), 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.
7
<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, 1999 and
1998, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended January 31, 1999.
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, 1999 and 1998, and the consolidated results of their
operations and their consolidated cash flows for each of the three years in the
period ended January 31, 1999, 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, 1999. 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 7, 1999
8
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31,
<TABLE>
<CAPTION>
ASSETS
1999 1998
------------ ------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,436,083 $ 222,700
Accounts receivable, net of allowance for doubtful
accounts of $200,000 and $203,000 at January 31,
1999 and 1998, respectively 6,743,341 6,953,538
Inventories 16,110,910 15,858,052
Deferred income taxes 567,000 511,000
Other current assets 461,231 364,697
------------ ------------
Total current assets 25,318,565 23,909,987
PROPERTY AND EQUIPMENT, NET 1,326,261 1,392,346
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
ACQUIRED, net of accumulated amortization of $236,000
and $218,000 at January 31, 1999 and 1998, respectively 308,798 327,120
OTHER ASSETS 206,847 182,412
------------ ------------
$ 27,160,471 $ 25,811,865
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
------------ ------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 1,455,190 $ 4,294,241
Accrued compensation and benefits 429,874 283,187
Other accrued expenses 252,274 379,143
Current portion of long-term liabilities 10,777,863 50,000
------------ ------------
Total current liabilities 12,915,201 5,006,571
LONG-TERM LIABILITIES 464,762 9,216,669
DEFERRED INCOME TAXES 56,000 71,000
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; 2,660,500 and
2,610,472 shares issued and outstanding at January 31, 1999 and 1998,
respectively 26,605 26,105
Additional paid-in capital 6,199,656 6,073,358
Retained earnings 7,498,247 5,418,162
------------ ------------
13,724,508 11,517,625
------------ ------------
$ 27,160,471 $ 25,811,865
============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
9
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Fiscal year ended January 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Net sales $ 54,655,135 $ 47,262,519 $ 41,792,469
Cost of goods sold 44,281,126 38,067,351 34,555,786
------------ ------------ ------------
Gross profit 10,374,009 9,195,168 7,236,683
------------ ------------ ------------
Operating expenses
Selling and shipping 3,334,609 3,001,500 2,569,702
General and administrative 3,116,745 3,155,605 2,642,584
------------ ------------ ------------
Total operating expenses 6,451,354 6,157,105 5,212,286
------------ ------------ ------------
Operating profit 3,922,655 3,038,063 2,024,397
------------ ------------ ------------
Other (expense) income
Interest expense (773,714) (497,739) (510,757)
Interest income 46,176 35,371 27,293
Other income 26,968 14,179 35,363
------------ ------------ ------------
(700,570) (448,189) (448,101)
------------ ------------ ------------
Income before income taxes 3,222,085 2,589,874 1,576,296
Income tax expense (1,142,000) (990,000) (513,000)
------------ ------------ ------------
NET INCOME 2,080,085 1,599,874 1,063,296
Net income per common share
Basic $ .79 $ .63 $ .42
============ ============ ============
Diluted $ .77 $ .61 $ .41
============ ============ ============
Weighted average common shares outstanding
Basic 2,642,170 2,558,541 2,550,000
============ ============ ============
Diluted 2,690,920 2,627,425 2,609,700
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Fiscal years ended January 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common stock Additional
--------------------------- paid-in Retained
Shares Amount capital earnings Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, February 1, 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
Net income 2,080,085 2,080,085
Exercise of stock options 50,028 500 126,298 126,798
----------- ----------- ----------- ----------- -----------
Balance, January 31, 1999 2,660,500 $ 26,605 $ 6,199,656 $ 7,498,247 $13,724,508
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
11
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended January 31,
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities
<S> <C> <C> <C>
Net income $ 2,080,085 $ 1,599,874 $ 1,063,296
Adjustments to reconcile net income to net cash
(used in) provided by operating activities
Deferred income taxes (71,000) (53,000) (70,000)
Depreciation and amortization 534,673 435,849 342,963
Gain on sale of property - - (4,530)
(Increase) decrease in operating assets
Accounts receivable 210,197 (1,059,944) (913,620)
Inventories (252,858) (5,963,896) 1,350,085
Other current assets (236,785) (54,602) 314,415
Other assets (18,808) 23,688 (46,653)
Increase (decrease) in operating liabilities
Accounts payable (2,839,051) 1,759,242 (930,553)
Accrued expenses and other liabilities 84,143 355,463 759
----------- ----------- -----------
Net cash (used in) provided by operating activities (509,404) (2,957,326) 1,106,162
----------- ----------- -----------
Cash flows from investing activities
Purchases of property and equipment - net (388,393) (803,487) (283,358)
Principal payments on note receivable 140,251 7,104 7,082
Proceeds from sale of property - - 10,414
----------- ----------- -----------
Net cash used in investing activities (248,142) (796,383) (265,862)
----------- ----------- -----------
Cash flows from financing activities
Net borrowings (reductions) under line of credit agreements 1,911,631 3,416,232 (700,000)
Proceeds from exercise of stock options 126,798 92,737 -
Deferred financing costs (67,500) (37,500) -
----------- ----------- -----------
Net cash provided by (used in) financing activities 1,970,929 3,471,469 (700,000)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,213,383 (282,240) 140,300
Cash and cash equivalents at beginning of year 222,700 504,940 364,640
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,436,083 $ 222,700 $ 504,940
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1999, 1998 and 1997
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 personal safety 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, 1999, 1998 and 1997.
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.
13
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1999, 1998 and 1997
NOTE A (continued)
7. Earnings Per Share
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. Foreign dominated cash and cash
equivalents were $1,253,000 and $152,000 at January 31, 1999 and 1998,
respectively.
Supplemental cash flow information for the fiscal years ended January
31 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Interest paid $ 771,294 $ 446,550 $ 494,102
Income taxes paid 1,387,778 825,648 325,242
</TABLE>
<PAGE>
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 principally within the United States. The Company routinely
addresses the financial strength of its customers and, as a
consequence, believes that its receivable credit risk exposure is
limited.
10. Foreign 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.
14
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1999, 1998 and 1997
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.
NOTE B - NOTE RECEIVABLE
An installment mortgage note receivable from the sale of a facility in
fiscal 1995 was paid in full in December 1998. The unpaid balance was
$140,251 at January 31, 1998.
NOTE C - INVENTORIES
Inventories consist of the following at January 31:
<PAGE>
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Raw materials $ 2,461,225 $ 2,672,719
Work-in-process 3,618,901 4,168,376
Finished goods 10,030,784 9,016,957
----------- -----------
$16,110,910 $15,858,052
=========== ===========
</TABLE>
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at January 31:
<TABLE>
<CAPTION>
Useful life
in years 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Machinery and equipment 3 - 10 $3,432,145 $3,076,002
Furniture and fixtures 3 - 10 249,423 223,190
Leasehold improvements Lease term 263,269 257,252
---------- ----------
3,944,837 3,556,444
Less accumulated depreciation and amortization 2,618,576 2,164,098
---------- ----------
$1,326,261 $1,392,346
========== ==========
</TABLE>
15
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1999, 1998 and 1997
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>
1999 1998
----------- -----------
<S> <C> <C>
Revolving credit facility $10,727,863 $ 8,816,232
Pension liability (Note K) 514,762 450,437
----------- -----------
11,242,625 9,266,669
Less current portion 10,777,863 50,000
----------- -----------
Long-term liabilities $ 464,762 $ 9,216,669
=========== ===========
</TABLE>
During December 1997, the Company entered into a $10,000,000 secured
revolving credit facility (the "facility") with a financial institution
with an expiration date of November 30, 1999. On May 1, 1998, the facility
was increased to $13,000,000. Effective September 23, 1998, the facility
was amended to provide for a temporary increase to $16,000,000 through
August 31, 1999. Amounts outstanding under the $3,000,000 temporary
facility are due on August 31, 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, 1999, interest on outstanding borrowings was based
on the commercial paper rate option (6.6%). 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.
The maximum amounts borrowed under the revolving line of credit during the
fiscal years ended January 31, 1999 and 1998 were $12,800,000 and
$10,000,000, respectively, and the average interest rates during the
periods were 7.1% and 7.6%, respectively.
<PAGE>
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 and $397,500 for
the fiscal years ended January 31, 2000 and 2001, respectively.
16
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1999, 1998 and 1997
NOTE G (continued)
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 approximately $3,300.
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
------- ------ -------
Year ended January 31,
<S> <C> <C> <C>
1999 $643,174 $4,611 $402,096
1998 621,162 9,704 405,120
1997 581,161 3,024 392,160
</TABLE>
<PAGE>
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, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
Year ending January 31,
<S> <C>
2000 $419,562
2001 198,277
2002 141,343
2003 39,920
--------
$799,102
========
</TABLE>
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
the Company, as needed, at
17
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1999, 1998 and 1997
NOTE G (continued)
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 $509,000, $552,000 and $426,000 for the fiscal years ended
January 31, 1999, 1998 and 1997, respectively. This agreement was
terminated as of February 1, 1999.
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 of 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 are granted at not less than fair
market value, 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 automatically be granted additional
options to 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
"Plan") provides for the granting of incentive stock options and
nonstatutory options. The 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 years ended January 31, 1999, 1998 and 1997
would be reduced to the pro forma amounts indicated below:
18
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1999, 1998 and 1997
NOTE H (continued)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
Net income per common share
<S> <C> <C> <C>
As reported $2,080,085 $1,599,874 $1,063,296
Pro forma 2,073,495 1,584,144 974,555
Basic earnings per common share
As reported $ .79 $ .63 $ .42
Pro forma .79 .62 .38
Diluted earnings per common share
As reported $ .77 $ .61 $ .41
Pro forma .77 .60 .37
</TABLE>
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, 1999, 1998 and 1997, respectively: expected
volatility of 60%, 52% and 57%; risk-free interest rates of 5.6%, 6.5% and
7%; 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, 1999, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
<PAGE>
1999
------------------------------------------------
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 10,000 $ 3.85 99,528 $ 2.77
Granted 1,000 10.75 - -
Exercised (3,000) 3.58 (47,028) 2.47
------ ------
Outstanding at end of year 8,000 4.81 52,500 3.06
====== ======
Options exercisable at year-end 8,000 4.81 52,500 3.06
Weighted-average remaining contractual
life of options outstanding 3.6 years 6 years
Weighted-average fair value per share
of options granted during 1999 $ 6.59 -
</TABLE>
19
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1999, 1998 and 1997
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>
20
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1999, 1998 and 1997
NOTE H (continued)
Summarized information about stock options outstanding under the two plans
at January 31, 1999 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, 1999 years price
--------------- --------------- --------------- ---------------
<S> <C> <C> <C>
$2.25 - $3.38 21,500 4.91 $2.39
3.39 - 5.12 38,000 6.05 3.61
10.75 1,000 5.50 10.75
------
$2.25 - $10.75 60,500 5.62 3.29
======
</TABLE>
<PAGE>
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>
1999 1998 1997
----------- ---------- --------
<S> <C> <C> <C>
Numerator
Net income $2,080,085 $1,599,874 $1,063,296
========= ========= =========
Denominator
Denominator for basic earnings per share
(weighted-average shares) 2,642,170 2,558,541 2,550,000
Effect of dilutive securities:
Stock options 48,750 68,884 59,700
----------- ----------- -----------
Denominator for diluted earnings per share
(adjusted weighted-average shares) and
assumed conversions 2,690,920 2,627,425 2,609,700
========= ========= =========
Basic earnings per share $.79 $.63 $.42
=== === ===
Diluted earnings per share $.77 $.61 $.41
=== === ===
</TABLE>
21
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1999, 1998 and 1997
NOTE J - INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Year ended January 31,
1999 1998 1997
----------- ----------- --------
<S> <C> <C> <C>
Current
Federal $1,116,000 $ 938,000 $603,000
State 97,000 105,000 (20,000)
----------- ----------- --------
1,213,000 1,043,000 583,000
Deferred (71,000) (53,000) (70,000)
----------- ----------- --------
$1,142,000 $ 990,000 $513,000
=========== =========== ========
</TABLE>
<PAGE>
The following is a reconciliation of the effective income tax rate to the
Federal statutory rate:
<TABLE>
<CAPTION>
Year ended January 31,
1999 1998 1997
----------- ----------- --------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State income taxes, net of Federal tax benefit 2.0 2.7 (.4)
Nondeductible expenses .3 .5 .8
Foreign operating results generating no current tax
(provision) benefit (.6) 2.5 1.8
Change in deferred assets (2.0) (4.4)
Other (.3) .5 .7
---- ------ ------
Effective rate 35.4% 38.2% 32.5%
==== ==== ====
</TABLE>
22
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1999, 1998 and 1997
NOTE J (continued)
The tax effects of temporary differences which give rise to deferred tax
assets at January 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
January 31,
----------------------------
1999 1998
------- --------
<S> <C> <C>
Deferred tax assets
Inventories $265,000 $284,000
Net operating loss carryforward - Canadian subsidiary 102,000 100,500
Accounts receivable 75,000 75,000
Accrued compensation and other 125,000 51,500
------- --------
Gross deferred tax assets 567,000 511,000
------- -------
Deferred tax liabilities
Depreciation 56,000 71,000
-------- --------
Gross deferred tax liabilities 56,000 71,000
-------- --------
Net deferred tax asset $511,000 $440,000
======= =======
</TABLE>
Net operating loss carryforwards of $291,000 applicable to the Canadian
subsidiary expire in fiscal 2002 through 2006.
NOTE K - BENEFIT PLANS
Defined Benefit Plan
The Company has a frozen defined benefit pension plan that covers former
employees of an acquired entity. The Company's funding policy is to
contribute annually the recommended amount based on computations made by
its consulting actuary.
23
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1999, 1998 and 1997
NOTE K (continued)
The following table sets forth the plan's funded status for the fiscal
years ended January 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
Change in benefit obligation
<S> <C> <C>
Benefit obligation at beginning of year $ 917,791 $ 863,621
Service cost 1,613 1,613
Interest cost 67,649 63,772
Actuarial loss 5,202 15,431
Benefits paid (31,621) (26,646)
--------- ---------
Benefit obligation at end of year $ 960,634 $ 917,791
========= =========
Change in plan assets
Fair value of plan assets at beginning of year $ 467,354 $ 467,832
Actual return on plan assets (1,779) 16,168
Employer contributions 11,918 10,000
Benefits paid (31,621) (26,646)
--------- ---------
Fair value of plan assets at end of year $ 445,872 $ 467,354
========= =========
Funded status (underfunded) $(514,762) $(450,437)
Unrecognized net actuarial loss 73,638 19,112
Required minimum liability (included as a component
of other assets) (73,638) (19,112)
--------- ---------
Accrued pension liability $(514,762) $(450,437)
========= =========
</TABLE>
The components of net periodic pension cost for the fiscal years ended
January 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Service cost $ 1,613 $ 1,613 $ 1,613
Interest cost 67,649 63,772 62,259
Actual return on plan assets 1,779 (16,168) (92,226)
Net amortization and deferral (39,469) (10,771) 71,026
---------- ---------- ----------
Net periodic pension cost $ 31,572 $ 38,446 $ 42,672
========== ========== ==========
</TABLE>
24
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1999, 1998 and 1997
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, 1999, approximately 82% of the plan's assets was
held in mutual funds invested primarily in equity securities, 9% was
invested in equity securities and debt instruments and 9% was invested in
money market and other instruments.
Defined Contribution Plan
Pursuant to the terms of the Company's 401(k) plan, substantially all U.S.
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 15% of the
employee's compensation. The Company made discretionary contributions of
$55,322 and $18,950 in the fiscal years ended January 31, 1999 and 1998,
respectively.
NOTE L - MAJOR SUPPLIER
The Company purchased approximately 74% of its raw materials from one
supplier under licensing agreements for each of the years ended January 31,
1999, 1998 and 1997. The Company expects this relationship to continue for
the foreseeable future. If required, similar raw materials could be
purchased from other sources; although, the Company's competitive position
in the marketplace could be affected.
25
<PAGE>
Lakeland Industries, Inc.
and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end of
of period expenses accounts Deductions period
--------- -------- -------- ---------- ------
<S> <C> <C> <C> <C>
Year ended January 31, 1999
Allowance for doubtful
accounts (a) $203,000 $60,263 $ 63,263(b) $200,000
======== ======= ========= ========
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
======== ======== ========= ========
</TABLE>
(a) Deducted from accounts receivable.
(b) Uncollectible accounts receivable charged against allowance.
26
May 13, 1999
Dear Stockholder,
I am pleased to extend to you my personal invitation to attend the 1999
Annual Meeting of Stockholders of Lakeland Industries, Inc. (the "Company") on
Wednesday, June 16, 1999 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, 1999 and its plans for the current fiscal year. Certain members of
the Company's Board of Directors and officers of the Company, as well as a
representative of Grant Thornton LLP, the Company's independent auditors, will
be available to answer any questions you may have, or to make a statement if
they wish to.
While I am looking forward to seeing you at the meeting, it is very
important that those of you who cannot personally attend assure your shares are
represented. I urge you therefore to sign and date the enclosed form of proxy
and return it promptly in the accompanying envelope. If you attend the meeting,
you may, if you wish, withdraw any proxy previously given and vote your shares
in person.
Sincerely,
/s/ Raymond J. Smith
----------------
Raymond J. Smith
President and Chairman of the Board
<PAGE>
NOTICE OF
1999 ANNUAL MEETING OF STOCKHOLDERS
June 16, 1999
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 16, 1999 at 10:00 a.m. at the Holiday Inn, 3845 Veterans
Memorial Highway, Ronkonkoma, NY 11779 for the following purposes:
1. To elect one Class I 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, 1999 will be entitled to notice and to vote at the
meeting.
May 13, 1999
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.
1
<PAGE>
LAKELAND INDUSTRIES, INC.
711-2 Koehler Ave.
Ronkonkoma, New York 11779
PROXY STATEMENT
1999 Annual Meeting of Stockholders
June 16, 1999
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 1999 Annual Meeting of Stockholders to be held on
June 16, 1999, and at any adjournment thereof (the "Annual Meeting").
This proxy statement, the accompanying form of proxy and the Company's
1999 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, 1999.
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, 1999, are entitled to notice of and to vote at the Annual Meeting. At
the close of business on April 29, 1999, there were 2,660,500 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.
2
<PAGE>
The following table sets forth information as of April 29, 1999, 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) 21.78%
711-2 Koehler Ave.
Ronkonkoma, NY 11779
Christopher J. Ryan 250,977 (2) (6) 9.43%
711-2 Koehler Ave.
Ronkonkoma, NY 11779
Joseph P. Gordon 134,500 5.06%
177-23 Union Tpke.,
Flushing, NY 11366
John J. Collins, Jr. 123,400 (3) 4.64%
Eric O. Hallman 47,500 (3) 1.79%
Walter J. Raleigh 7,000 (4) .26%
All officers and directors
as a group (7 persons) 1,052,827 (5) 39.57%
</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;
(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) 3,000 shares granted on April 18, 1997 and 1,000 shares granted
June 17, 1998;
(5) 60,500 shares granted between January, 1, 1994 and June 17, 1998
(6) Mr. Ryan disclaims beneficial ownership of 15,000 shares owned by
his wife.
3
<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 1999 Annual Meeting there is
one nominee for director in Class I. The incumbent Class II and Class III
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 nominee for Class I named in
the following table. The Board of Directors has nominated and Management
recommends the election of the person listed in the following table as Class I
director. The table also sets forth the names of the two directors in Class II
and the two directors in Class III whose terms of office have not expired, their
ages, their positions with the Company and the period each has served as a
director of the Company. There are no family relationships among the Board
members.
<PAGE>
<TABLE>
<CAPTION>
Position
With the Director
Name Age Company Since
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
NOMINEE FOR DIRECTOR - CLASS I
(Nominee for three year Term Expiring in June, 2002)
---------------------------------------------------
Christopher J. Ryan 47 Executive Vice President - 1986
Finance, Secretary and Director
INCUMBENT DIRECTORS - CLASS II
(One Year remaining on Term Expiring in June, 2000)
--------------------------------------------------
John J. Collins, Jr. 56 Director 1986
Eric O. Hallman 55 Director 1982
INCUMBENT DIRECTORS - CLASS III
(Two years remaining on Term Expiring in June, 2001)
--------------------------------------------------
Raymond J. Smith 60 Chairman of the Board, 1982
President and Director
Walter J. Raleigh 71 Director 1991
</TABLE>
4
<PAGE>
The principal occupations and employment of the nominees for
director and for the directors continuing in office are set forth below:
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 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. was Executive Vice President of Chapdelaine
GSI, a government securities firm from 1977 to January 1987. He was Senior Vice
President of Liberty Brokerage, a government securities firm between January
1987 and November 1998. Presently, Mr. Collins is self-employed, managing a
direct investment portfolio of small business enterprises for his own accounts.
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 was an officer of Sylvan Lawrence, a real
estate development company, between 1992 and 1998. Mr. Hallman is presently
President of PREMCO, a real estate management company.
Raymond J. Smith, a co-founder of the Company, has been Chairman
of the Board of Directors and President since its incorporation in 1982.
Walter J. Raleigh is a director of 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.
During the year ended January 31, 1999, 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).
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, 1999.
The committee members are:
John J. Collins, Jr., Eric O. Hallman, and Walter J. Raleigh
<PAGE>
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, 1999.
The committee members are:
John J. Collins, Jr., Eric O. Hallman, and Christopher J. Ryan
COMPENSATION OF EXECUTIVE OFFICERS
--------------------------------------
The table below sets forth all salary, bonus and all other compensation
paid to the Company's chief executive officer and each of the Company's other
executive officers (who earned more than $100,000 per year in salary and bonus)
for the years ended January 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Name and All Other
Principal Position Year Salary Bonus Compensation
- ------------------ ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Raymond J. Smith, 1999 $262,500 $25,000 $5,899
Chairman, President and CEO 1998 225,000 3,089
1997 225,000
Christopher J. Ryan, 1999 $175,000 $20,000 $3,724
Executive V.P.-Finance 1998 169,003 7,750 1,262
and Secretary 1997 115,000 23,250
Harvey Pride, Jr. 1999 $135,000 $3,465
Vice President- 1998 115,000 $23,000 910
Manufacturing 1997 115,000 19,136
James M. McCormick 1999 $115,000 $13,500 $4,214
VP - Treasurer 1998 115,000 8,450 2,138
1997 89,000 16,350
</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 1999. 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 $55,332, during the plan year ended December 31, 1998.
6
<PAGE>
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. Accordingly,
the annual bonus accrued at January 31, 1999 (for payment in May 1999) for
Messrs. Smith, Ryan and Pride were $92,500, $16,000 and $12,800, respectively.
All contracts provide for lump sum payments of contracted salaries pursuant to
various formulas should there be a change in control of the Company.
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.
<PAGE>
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.
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.
7
<PAGE>
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 of
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 in fiscal 1999 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). The outstanding incentive stock options as of
January 31, 1999 are 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> <C> <C>
Mr. Smith 9,000 $ 3.50 6/5/96 6/4/06 $31,500
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>
There are currently 250,000 option shares available for future grant
under this plan. During the year ended January 31, 1999, 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> <C>
Mr. Smith 34,045 $2.48 5/11/98 $10.625
6,255 $2.48 9/8/98 $7.50
4,200 $2.48 10/10/98 $6.125
</TABLE>
8
[ Grapic ommitted depicting of:
Compare 5 Year Cumulative
Total Return ]
9
<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:
<TABLE>
<CAPTION>
# of Option Date of Expiration
Director Shares Price Grant Date
-------- ------ ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
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 3,000 3.25 4/18/97 4/18/2003
During the year ended January 31, 1999, the following options were granted.
Mr. Raleigh 1,000 10.75 6/17/98 6/17/2004
There are currently 40,000 option shares available for future grant under this plan.
During the year ended January 31, 1999, the following options were exercised:
</TABLE>
<TABLE>
<CAPTION>
# of Exercise Date Per Share Exercise
Director Shares Price of Exercise Date Value
-------- ------ ----- ----------- ----------
<S> <C> <C> <C> <C> <C>
Mr. Raleigh 2,000 $3.25 5/19/98 $10.375
1,000 $4.25 5/19/98 $10.375
</TABLE>
<PAGE>
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, 1999, amounted to $364,900 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, 1999, amounted to $37,200.
An Qiu Holding Co., ("An Qiu" a partnership consisting of all the
Directors of the Company, one officer and four employees) entered into a month
to month lease with its then Chinese division for 38,820 square fee at an annual
rental fee of $39,020. On January 1, 1999, the rent was increased by $6,960, as
7,100 additional square feet was added to the building in fiscal 1999. A formal
long term lease is expected upon completion of the building in fiscal 2000 at an
annual rental of $45,980. The Company's subsidiary is the sole occupant of the
facility.
During the year ended January 31, 1999 the Company made payments
totaling $180 to Madison Mobile Storage, Inc. for trailer rentals, and $510,183
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 Agreement between the Company and Madison Mobile Storage, Inc. was
terminated as of February 1, 1999.
10
<PAGE>
The Company paid or accrued legal fees of $5,415 for the fiscal year
ended January 31, 1999 to the Law Offices of Thomas J. Smith, the Company's
General Counsel. Mr. Thomas J. 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 2000 ANNUAL MEETING
---------------------------------------------
Stockholder proposals for inclusion in the Company's Proxy Statement
for the 2000 Annual Meeting of Stockholders must be received by the Company not
later than January 31, 2000. The person submitting the proposal must have been a
record or beneficial owner of the Company's Common Stock for at least one year
and must continue to own such securities through the date on which the meeting
is held, and the securities so held must have a market value of at least $1,000.
Any such proposal will be included in the Proxy Statement for such Annual
Meeting if the rules of the Securities and Exchange Commission are complied with
as to the timing and form of such proposal, and the content of such
stockholder's proposal is determined by the Company to be appropriate under
rules promulgated by the Commission.
By the Order of the Board of Directors
/s/ Christopher J. Ryan,
------------------------
Christopher J. Ryan,
Secretary
May 13, 1999
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 1,436,083
<SECURITIES> 0
<RECEIVABLES> 6,743,341
<ALLOWANCES> 0
<INVENTORY> 16,110,910
<CURRENT-ASSETS> 25,318,565
<PP&E> 1,326,261
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,160,471
<CURRENT-LIABILITIES> 12,915,201
<BONDS> 0
0
0
<COMMON> 26,605
<OTHER-SE> 13,697,903
<TOTAL-LIABILITY-AND-EQUITY> 27,160,471
<SALES> 54,655,135
<TOTAL-REVENUES> 54,655,135
<CGS> 44,281,126
<TOTAL-COSTS> 6,451,354
<OTHER-EXPENSES> (26,968)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 727,538
<INCOME-PRETAX> 3,222,085
<INCOME-TAX> 1,142,000
<INCOME-CONTINUING> 2,080,085
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,080,085
<EPS-PRIMARY> .79
<EPS-DILUTED> .77
</TABLE>
