-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tz33YBEInP7kzsPzD1NfvAFCulFd+OeiQCkLeHxDsMRQWWjR2/F9JY0ncd8vdWKY 9jWj3R1KD8VLokrKmv0C+Q== 0000914317-01-500037.txt : 20010501 0000914317-01-500037.hdr.sgml : 20010501 ACCESSION NUMBER: 0000914317-01-500037 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010131 FILED AS OF DATE: 20010430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAKELAND INDUSTRIES INC CENTRAL INDEX KEY: 0000798081 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 133115216 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15535 FILM NUMBER: 1616402 BUSINESS ADDRESS: STREET 1: 711-2 KOEHLER AVENUE CITY: RONKONKOMA STATE: NY ZIP: 11779 BUSINESS PHONE: 5169819700 MAIL ADDRESS: STREET 1: 711- 2 KOEHLER AVENUE STREET 2: 711- 2 KOEHLER AVENUE CITY: RONKONKOMA STATE: NY ZIP: 11779 10-K 1 form10k_4-28.txt FORM 10K - 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, 2001 ---------------- 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) (631) 981-9700 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $.01 Par Value ------------------------------------------------------------- (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 17, 2001 was approximately $6,740,267 (based on 1,501,173 shares held by nonaffiliates). The number of shares outstanding of the Registrant's common stock, $.01 par value, on April 27, 2001 was 2,646,000. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended January 31, 2001 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 20, 2001, are incorporated by reference in Items 10 - 13 of Part III of this Annual Report on Form 10-K. A-1 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 four 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, and October 1999 the China divisions, Weifang Lakeland Safety Products Co., Ltd., and MeiYang Protective Products Co., Ltd. were registered as enterprises in China and are accounted for as a wholly owned subsidiary of the Company and of the Company's subsidiary Laidlaw, Adams & Peck, Inc., respectively. 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 TyvekT M 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. 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. A-2 OSHA responded by formulating an all encompassing compendium of safety regulations that prescribe operating standards for all aspects of OSHA projects. Almost 2 million people are affected by OSHA Standards today. Various states have also enacted worker safety laws which are equal to or go beyond OSHA standards and requirements, as it affects the Company's products. In 1990, additional standards proposed and developed by the National Fire Protection Association ("NFPA") and the American Society for Testing and Materials ("ASTM") were accepted by OSHA. NFPA Standard 1991 set performance requirements for total-encapsulating vapor-proof chemical suits and includes rigid chemical and flame resistance tests and a permeability test against 17 challenge chemicals. The basic OSHA Standards call for 4 levels of protection, A through D, and specify in detail the equipment and clothing required to adequately protect the wearer at corresponding danger levels. A summary of these four levels follows: NFPA 1991 / Level Acalls 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 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 were considered to be highly fragmented, since they consisted of a large number of closely held small family businesses. However, a number of companies that competed directly with Lakeland in disposable limited use protective garments have closed their doors over the last couple of years. Thus, pricing in this, the largest part of Lakeland's business should experience pricing stabilization in fiscal 2002. 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 at the safety distributor customer level. A-3 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:
Product Raw Material Protection User Industry Against - -------------------------------------------------------------------------------- o Limited o TyvekTM and Contaminants, o Chemical/petrochemical Use/Disposable TyvekTM irritants, industries Protective laminates chemicals, o Automotive and Clothing fertilizers, pharmaceutical pesticides, acids, industries asbestos, PCB(s), o Public utilities lead o Janitorial and other hazardous chemicals - -------------------------------------------------------------------------------- o Gloves o KevlarTM yarns Cuts, o Chemical plants o Arm guards o SpectraTM yarns lacerations, heat o Automotive, glass and and chemical metal fabrication irritants industries - -------------------------------------------------------------------------------- o Fire fighting o Neoprene Fire, burns and o Municipal, corporate apparel o NomexTM excessive heat and volunteer fire o GortexTM departments o IndurraTM o Airport crash rescue - -------------------------------------------------------------------------------- o Heat protective o Aluminized Fire, burns and Hot equipment aluminized fire NomexTM excessive heat maintenance suits o Aluminized personnel and KevlarTM industrial fire departments - -------------------------------------------------------------------------------- o Protective woven o Cotton Polyester o Protects o Hospital and reusable blends manufactured Industrial garments o Cotton products from Facilities o Polyester human o clean room o StaticsorbTM contamination environments Carbon or static o Emergency Medical Thread C-3 electrical Ambulance Services Polyester charge o Bacteria, viruses and blook borne pathogens - -------------------------------------------------------------------------------- o High end o TyChemTM Chemical spills o Hazardous material Chemical o TeflonTM teams protective o Other Company Toxic chemicals o Chemical and nuclear suits patented used in industries-various Co-Polymer manufacturing uses Laminates processes - --------------------------------------------------------------------------------
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 TyvekT M, TyvekQCT M, Tyvek/Saranex 23-PT M, Pyrolon FRT M, 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. A-4 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 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 eight weeks for immediate shipment to the customer. The Company presently utilizes over 11 independent sewing contractors under agreements that are terminable at will by either party. These contractors employ approximately 140 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, 2001, 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. Gloves and Arm Guards - --------------------- The Company manufacturers and sells speciality safety gloves and sleeves made from KevlarTM. The Company is one of five companies licensed in North America to sell 100% KevlarTM gloves. KevlarTM is a cut and heat resistant, high-strength lightweight, flexible and durable material produced by Dupont. KevlarTM, 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 KevlarTM 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. KevlarTM 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. KevlarTM 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 KevlarTM , SpectraTM and Company patented yarns to make gloves, which carry a higher profit margin than commodity gloves. SpectraT M 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 KevlarTM and SpectraTM gloves range in price from $37.00 to $240.00 for a dozen pair. The Company also manufactures gloves at its Decatur, Alabama facility. Computerized robotic knitters are used to weave gloves from both natural and synthetic materials, including KevlarTMand SpectraTM on an automatic basis. These robotic knitters are generally in operation 20 hours a day, 5-1/2 days a week. A-5 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 KevlarTM 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 FYREPELT M is recognized nationally and internationally. The Company has completed an intensive redesign and engineering study to address the ergonomic needs of stressful occupations. The Company's 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. All the manufacturing is done at the Company's facility in St. Joseph, Missouri. 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 reusable 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. 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 VitonT M, butyl rubber, polyvinyl chloride ("PVC") and the Dupont TyChemTMand BarricadeTM 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. A-6 The Company has also introduced four National Fire Protection Agency ("NFPA") approved garments for varying levels of protection required depending on field conditions: TyChemTM - 10,000 is a co-polymer film laminated to a durable spunbonded substrate. It offers the broadest temperature range for limited use garments -25(degree)F to 225(degree)F. TyChemT M 10,000 meets all OSHA Level A requirements. It is available in NFPA 1991-94 certified versions when worn with an aluminized over cover. TyChemTM - 9400 meets all OSHA Level B and all NFPA 1993 fabric requirements and offers excellent splash protection against a wide array of chemicals. InterceptorTM - 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. CheckmateTM - 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 Decatur, 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. Both the Company's Alabama disposable and China disposable facilities are ISO 9002 certified. 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, 2001, 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 Orlando, FL (Fall of 2000) and at the American Industrial Hygienists Convention (Spring of 2000). A-7 Research and Development - ------------------------ The Company has a history of new product development and innovation and has recently introduced the GrapolatorT M and Kut BusterT M 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 patented Thermbar Mock TwistT M which provides heat protection for temperatures up to 600(degree)F. The Company has eleven 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. TyvekTM and KevlarTM, however, are purchased from Dupont under trademark 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 thread, boxes, 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. KevlarTM, 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 GuardTM gloves from mills that purchase the fiber from General Electric Corp. ("GE"). The Company believes that GE will be able to meet the Company's needs for SpectraTM. In manufacturing its fire and heat protective suits, the Company uses glass fabric, aluminized glass, NomexTM, aluminized NomexTM, KevlarTM, aluminized KevlarTM, polybenzimidazole (PBI) and GortexTM, as well as combinations utilizing neoprene coatings. The chemical protective suits are made of VitonTM, butyl rubber, PVC (available from multiple sources), proprietary and Company patented laminates and TeflonTM, SaranexTM Tyvek QCTM, TyChemTM and BarricadeTM 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 TyvekTM disposable limited use clothing because of the limited number of TyvekTM 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 products, competitive pricing and services, the size and timing of individual sales, the lengthening of the Company's sales and production 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 A-8 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. 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, four Company developed patents,one additional patent 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 17, 2001, the Company had approximately 1,524 full-time employees (1,243 or 81.6% of whom were international and 281 or 18.4% of whom were domestic). 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 two domestic manufacturing facilities, four foreign manufacturing facilities, one Canadian warehouse facility and a corporate office headquarters. The Company's 131,788 square foot manufacturing facility in Decatur, Alabama, are used in the production and storage of disposable/limited use garments. The Alabama facilities are leased entirely by the Company from partnerships consisting primarily of Directors,certain officers and certain stockholders of the Company, pursuant to two lease agreements expiring on May 31 and August 31, 2004. Early in 1999, the Company entered into a one year (renewable for four additional one year terms) lease agreement with an officer of the Company, for 2400 sq. ft. customer service office. This is located next to the existing Decatur, Alabama facility mentioned above. 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, 2001. The Company's Mexican subsidiary leases two manufacturing facilities from third parties totaling 28,816 square feet under one lease expiring on December 31, 2001 and the second smaller facility is leased until September 30, 2001. The Company also utilizes a 46,000 square foot manufacturing facility in China. There is a real estate appreciation rights and rent sharing agreement with this consortium in consideration of its financing and leasing of the real property with a consortium of American and Chinese individuals (which include certain officers, employees and directors of the Company). A second auxiliary facility to this main facility was rented on a month to month basis starting October 10,1999 at a monthly rent of $670 for 16,000 square feet. This lease expires April 2001. 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, 2002. For the years ended January 31, 2001, 2000 and 1999, the Company paid total rent on property and all leased equipment of approximately $866,000, $827,000 and $643,000, respectively. The Company believes that these facilities are adequate for its present operations. ITEM 3. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- The Company and its subsidiaries are involved as plaintiffs in certain receivable collection actions and claims arising in the ordinary course of business, none of which are of a material nature. A-9 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 6 ("Market for the Registrant's Common Stock and Related Stockholder Matters") of the Registrant's 2001 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 2001 Annual Report to Shareholders filed as 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 2001 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 2001 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 21 of the Registrant's Annual Report to Shareholders for the year ended January 31, 2001: Report of Independent Certified Public Accountants Consolidated Balance Sheets - January 31, 2001 and 2000 Consolidated Statements of Income for the years ended January 31, 2001, 2000 and 1999 Consolidated Statement of Stockholders' Equity for the years ended January 31, 2001, 2000 and 1999 Consolidated Statements of Cash Flows for the years ended January 31, 2001, 2000 and 1999 Notes to Consolidated Financial Statements ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - -------------------------------------------------------------------------------- None A-10 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 2001 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. Name Age Position Held - ------------------- --- --------------------------------------------- Raymond J. Smith 62 Chairman of the Board, President and Director Christopher J. Ryan 49 Executive Vice President, General Counsel, Secretary and Director Harvey Pride, Jr. 54 Vice President - Manufacturing James M. McCormick 53 Vice President and Treasurer Mr. Smith, a co-founder of the Company, has been Chairman of the Board and President since its incorporation. Prior to 1982, he was employed for 16 years by Disposables, Inc., a manufacturer of disposable garments, first as sales manager, then as Executive Vice President and subsequently as President and Director. Mr. Christopher J. Ryan has served as Executive Vice President and director since May, 1986, Secretary since April 1991and General Counsel since February 2000. 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.) A-11 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, 2001, as noted in Item 8 hereof: Report of Independent Certified Public Accountants Consolidated Balance Sheets - January 31, 2001 and 2000 Consolidated Statements of Income for the years ended January 31, 2001, 2000 and 1999 Consolidated Statement of Stockholders' Equity for the years ended January 31, 2001, 2000 and 1999 Consolidated Statements of Cash Flows for the years ended January 31, 2001, 2000 and 1999 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, 2001. (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 September 1, 1999 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 Randles** 10 (f) Asset Purchase Agreement, dated September 30, 1987 by and among the Company and Walter H. Mayer & Co. (Incorporated by reference to the report on Form 8 - K filed by the Company on October 14, 1987.) 10 (g) Employment agreement between the Company and Raymond J. Smith, dated January 23, 1998. 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. A-12 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 1, 2000. 10 (l) Loan agreement dated March 9, 2001 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. 10 (o) Lease Agreement between River Group Holding Co., LLP, as lessor, and the Company, as lessee, dated June 1, 1999. 10 (p) Lease Agreement between Harvey Pride, Jr., as lessor, and the Company, as lessee, dated March 1, 1999. 10 (q) Term loan and security agreement between the Company and Merrill Lynch, dated November 1, 1999. 10 (r) Employment Agreement between the Company and James M. McCormick dated February 2,2000. 11 Consent of Grant Thornton LLP dated April 6,2001*** 13 Annual Report to Shareholders for the year ended January 31, 2001 20 Proxy Statement of the Registrant for Annual Meeting of Stockholders - June 20, 2001 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. 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 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, 2001 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: /s/ Raymond J. Smith Chairman of the Board April 30, 2001 - --------------------------- President and Director Raymond J. Smith (Principal Executive Officer) /s/ Christopher J. Ryan Executive V.P.-Finance April 30, 2001 - --------------------------- & Secretary and Director Christopher J. Ryan /s/ James M. McCormick Vice President and Treasurer April 30, 2001 - --------------------------- (Principal Financial and James M. McCormick Accounting Officer) /s/ Eric O. Hallman - --------------------------- Director April 30, 2001 Eric O. Hallman /s/ John J. Collins, Jr. - --------------------------- Director April 30, 2001 John J. Collins, Jr. /s/ Walter J. Raleigh Director April 30, 2001 - --------------------------- Walter J. Raleigh A-14 Lakeland Industries, Inc. and Subsidiaries SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions -------------------------- Balance at Charged to Charged to Balance at beginning costs and other end of of period expenses accounts Deductions period Year ended January 31, 2001 Allowance for doubtful accounts (a) $200,000 $ 30,176 $ 9,176 (b) $221,000 ======== ======== =========== ======== Year ended January 31, 2000 Allowance for doubtful accounts (a) $200,000 $ 20,700 $20,700 (b) $200,000 ======== ======== =========== ======== Year ended January 31, 1999 Allowance for doubtful accounts (a) $203,000 $ 60,263 $63,263 (b) $200,000 ======== ======== =========== ========
- ----------- (a) Deducted from accounts receivable. (b) Uncollectible accounts receivable charged against allowance. EX-10 2 exhibit10l.txt [GRAPHIC - MERRILL LYNCH LETTERHEAD] March 9, 2001 Lakeland Industries, Inc. 711-2 Koehler Avenue Ronkonkoma, New York 11779-7410 Re: WCMA Line of Credit Extension Ladies & Gentlemen: This Letter Agreement will supercede our previous Letter Agreement and will serve to confirm certain agreements of Merrill Lynch Business Financial Services Inc. ("MLBFS") and Lakeland Industries, Inc. ("Customer") with respect to: (i) that certain WCMA NOTE, LOAN AND SECURITY AGREEMENT No. 849-07230 between MLBFS and Customer (including any previous amendments and extensions thereof), and (ii) all other agreements between MLBFS and Customer or any party who has guaranteed or provided collateral for Customer's ___ obligations to MLBFS (a "Guarantor") in connection therewith (collectively, the "Loan Documents"). Capitalized terms used herein and not defined herein shall have the meaning set forth in the Loan Documents. Subject to the terms hereof, effective as of the "Effective Date" (as defined below) the Loan Documents are hereby amended as follows: (a) The "Maturity Date" of the WCMA Line of Credit is hereby extended to October 31, 2001. (b) The "Maximum WCMA Line of Credit" shall be $14,000,000.00. (c) ______ The "Line Fee" for the period ending October 31, 2001, shall be $70,000.00. Customer hereby authorizes and directs MLBFS to charge said amount to WCMA Account No. 849-07230 on or at any time after the Effective Date. Once paid, Line Fees are non-refundable. (d) ______ The term "Interest Rate" shall mean a variable per annum rate of interest equal to the sum of 2.30% and the 30-Day Dealer Commercial Paper Rate. The "30-Day Dealer Commercial Paper Rate" shall mean, as of the date of any determination, the interest rate from time to time published in the "Money Rates" section of The Wall Street Journal for 30-day high-grade unsecured notes sold through dealers by major corporations. The Interest Rate will change as of the date of publication in The Wall Street Journal of a 30-Day Dealer Commercial Paper Rate that is different from that published on the preceding Business Day. In the event that The Wall Street Journal shall, for any reason, fail or cease to publish the 30-Day Dealer Commercial Paper Rate, MLBFS will choose a reasonably comparable index or source to use as the basis for the Interest Rate. (e) Section 6(g) shall mean: Minimum Tangible Net Worth. Customer's and Business Guarantors' "tangible net worth" shall at all times exceed $14,000,000.00. For the purposes hereof, the term "tangible net worth" shall mean Customer's and Business Guarantors' net Merrill Lynch Business Financial Services Inc. Lakeland Industries, Inc. January 31, 2001 Page No. 2 worth as shown on Customer's and Business Guarantors' regular financial statements prepared in a manner consistent with the terms hereof, but excluding an amount equal to: (i) any assets which are ordinarily classified as "intangible" in accordance with generally accepted accounting principles, and (ii) any amounts now or hereafter directly or indirectly owing to Customer or Business Guarantors' by officers, shareholders or affiliates of Customer or Business Guarantors'. (f) Add to the end of Section 6 the following: 6(h) Debt to Tangible Net Worth. The ratio of Customer's and Business Guarantors' total debt to Customer's and Business Guarantors' tangible net worth, as aforesaid, shall not at any time exceed 1.50 to 1. 6(i) Borrowed Debt. Except upon the prior written consent of MLBFS, neither Customer nor any Business Guarantor shall directly or indirectly incur or permit to exist any debt of Customer or any Business Guarantor for borrowed money or the lease under a capital lease or deferred purchase price of real or personal property other than: (i) debt to MLBFS and (ii) debt existing as of the date of and reflected on the last financial statements of Customer and Business Guarantors submitted to MLBFS prior to the date hereof and not refinanced by MLBFS (including a $200,000 Line of Credit extended to Lakeland's Chinese subsidiary from China Construction Bank). 6(j) Customer Relationship. Customer shall notify MLBFS in writing of the occurrence of any materially negative change in its relationship with its principal supplier, DuPont. 6(k) Fixed Charge Coverage Ratio. Customer and Business Guarantors', on a consolidated basis, shall at all times during the term hereof maintain a Fixed Charge Coverage Ratio of not less than 1.10 to 1. The term "Fixed Charge Coverage Ratio" shall mean the ratio of: (i) income before interest (including payments in the nature of interest under capital leases), taxes, depreciation and amortization, less internally financed capital expenditures, to (ii) the sum the aggregate principal and interest paid or accrued, the aggregate rental under capital leases paid or accrued, any dividends and other distributions paid or payable to shareholders and taxes paid in cash; all as determined on a trailing 12-month basis from the regular consolidated financial statements of Customer and Business Guarantors' prepared in a manner consistent with the terms hereof. 6(l) Minimum EBITDA. Customer's and Business Guarantors' consolidated "EBITDA" shall be a minimum of $950,000.00 for the fiscal period ending 4/30/01. The term "EBITDA" shall mean Customer's and Business Guarantors' income before interest (including payments in the nature of interest under capital leases), taxes, depreciation and amortization, determined on a trailing 12-month basis from the regular consolidated financial statements of Customer and Business Guarantors prepared in a manner consistent with the terms hereof. (g) Section 9(a)(ix) shall mean: Collateral Audit. MLBFS may notify Customer that it is required, at Customer's sole cost and expense, to furnish to MLBFS a collateral audit on its accounts and inventory, prepared by an audit firm selected by MLBFS and in form and substance reasonably satisfactory to MLBFS. Except as expressly amended hereby, the Loan Documents shall continue in full force and effect upon all of their terms and conditions. Merrill Lynch Business Financial Services Inc. Lakeland Industries, Inc. January 31, 2001 Page No. 3 By their execution of this Letter Agreement, the below-named Guarantors hereby consent to the foregoing modifications to the Loan Documents, and hereby agree that the "Obligations" under their respective Unconditional Guaranty and/or agreements providing collateral shall extend to and include the Obligations of Customer under the Loan Documents, as amended hereby. Customer and said Guarantors acknowledge, warrant and agree, as a primary inducement to MLBFS to enter into this Agreement, that: (a) no Default or Event of Default has occurred and is continuing under the Loan Documents; (b) each of the warranties of Customer in the Loan Documents are true and correct as of the date hereof and shall be deemed remade as of the date hereof; (c) neither Customer nor any of said Guarantors have any claim against MLBFS or any of its affiliates arising out of or in connection with the Loan Documents or any other matter whatsoever; and (d) neither Customer nor any of said Guarantors have any defense to payment of any amounts owing, or any right of counterclaim for any reason under, the Loan Documents. Provided that no Event of Default, or event which with the giving of notice, passage of time, or both, would constitute an Event of Default, shall then have occurred and be continuing under the terms of the Loan Documents, the amendments and agreements in this Letter Agreement will become effective on the date (the "Effective Date") upon which: (a) Customer and the Guarantors shall have executed and returned the duplicate copy of this Letter Agreement and the other documents enclosed herewith; and (b) an officer of MLBFS shall have reviewed and approved this Letter Agreement and such other documents as being consistent in all respects with the original internal authorization hereof. Notwithstanding the foregoing, if Customer and the Guarantors do not execute and return the duplicate copy of this Letter Agreement and said other documents within 14 days from the date hereof, or if for any other reason (other than the sole fault of MLBFS) the Effective Date shall not occur within said 14-day period, then all of said amendments and agreements will, at the sole option of MLBFS, be void. Very truly yours, Merrill Lynch Business Financial Services Inc. By: /s/ Jodie Zwerner -------------------------------------- Jodie Zwerner Documentation Manager Accepted: Lakeland Industries, Inc. By: /s/ Raymond J. Smith -------------------------------------- Printed Name: Raymond J. Smith ---------------------------- Title: President ----------------------------------- Merrill Lynch Business Financial Services Inc. Lakeland Industries, Inc. January 31, 2001 Page No. 4 Approved: Lakeland Protective Wear, Inc. By: /s/ Raymond J. Smith -------------------------------------- Printed Name: Raymond J. Smith ---------------------------- Title: V. President ----------------------------------- Laidlaw, Adams & Peck, Inc. f/k/a Fireland Industries, Inc. By: /s/ Raymond J. Smith -------------------------------------- Printed Name: Raymond J. Smith ---------------------------- Title: President ----------------------------------- Lakeland de Mexico, S.A. By: /s/ Raymond J. Smith -------------------------------------- Printed Name: Raymond J. Smith ---------------------------- Title: President ----------------------------------- [GRAPHIC - MERRILL LYNCH LETTERHEAD] March 9, 2001 Mr. Raymond J. Smith President Lakeland Industries, Inc. 711-2 Koehler Avenue Ronkonkoma, New York 11779-7410 Re: WCMA Line of Credit Extension Dear Mr. Smith, I am pleased to advise you that the request of Lakeland Industries, Inc. for an extension of its WCMA Line of Credit has been approved upon the terms set forth in the enclosed Letter Agreement. Note that, among other conditions in said Letter Agreement, in order for this extension to become effective, one copy of the enclosed Letter Agreement and the other documents enclosed herewith must be fully executed and returned to me within 14 days from the date hereof. If you have any questions, please call me at (312) 269-5458. Very truly yours, MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. By: /s/ Jodie Zwerner -------------------------------------- Jodie Zwerner Documentation Manager cc: Wayne Dedrick [GRAPHIC - MERRILL LYNCH LOGO WCMA LINE OF CREDIT RENEWAL AUTHORIZATION CUSTOMER: LAKELAND INDUSTRIES, INC. WCMA ACCOUNT NUMBER: 849-07230 MAXIMUM WCMA LINE OF CREDIT: $14,000,000.00 NEW MATURITY DATE: October 31, 2001 RENEWAL FEE: $70,000.00 DATE OF RENEWAL: ____________________________________ - -------------------------------------------------------------------------------- RENEWAL APPROVED BY: - ------------------------------------------ - ------------------------------------------ ENTERED BY ACCOUNTING: - ------------------------------------------ [GRAPHIC - MERRILL LYNCH LOGO WCMA RENEWAL CONTROL FORM ===================================== ======================================== Customer: LAKELAND INDUSTRIES, INC. - --------------------------------------- ---------------------------------------- WCMA Account No.: 849-07230 - --------------------------------------- ---------------------------------------- WCMA Line of Credit: $14,000,000.00 - --------------------------------------- ---------------------------------------- New Maturity Date: October 31, 2001 - --------------------------------------- ---------------------------------------- Renewal Fee: $70,000.00 - --------------------------------------- ---------------------------------------- Other Changes in Terms: - --------------------------------------- ---------------------------------------- Special Conditions: ======================================= ======================================== POST-FUNDING FOLLOW-UP: ========================================== ==================================== ITEM IN POWER 2 (INITIAL) - ------------------------------------------ ------------------------------------ - ------------------------------------------ ------------------------------------ - ------------------------------------------ ------------------------------------ ========================================== ==================================== APPROVALS: ==================================== =============================== =========== Initials / Comments Date - ------------------------------------ ------------------------------- ----------- Credit/Client Services - ------------------------------------ ------------------------------- ----------- Manager ==================================== =============================== =========== ==================================== =============================== =========== Initials Date - ------------------------------------ ------------------------------- ----------- Renewal Entered By: - ------------------------------------ ------------------------------- ----------- Renewal Audited By: ==================================== =============================== =========== CUST ID: 0000016719 DEAL NO: D:00029918 [GRAPHIC - MERRILL LYNCH LOGO] FILE COVER SHEET ================================================================================ TO: Records Management Department (Documents to be Imaged): Process Stage (check appropriate box): [ ] New Funding [ ] Post Funding [ X ] Increase/Renewal Power 2 ID: 0000016719 Deal ID: D:00029918 Customer (Client Name): Lakeland Industries, Inc. WCMA Account Number: 849-07230 Deal Type: WCMA Line of Credit Business Group/Region (Dept. Name): Portfolio Mgt./Middle Market Division Loan Status: Funded Portfolio Manager (Inbox Owner): Phil Kain Cover Sheet Completed By: Jodie Zwerner For Records Management Use Only - -------------------------------------------------------------------------------- Batch # _______________________________________ Page Count ___________ Date _________________ - -------------------------------------------------------------------------------- [GRAPHIC - MERRILL LYNCH LOGO] TERM LOAN AND SECURITY AGREEMENT TERM LOAN AND SECURITY AGREEMENT NO. 0101552001 ("Loan Agreement") dated as of March 9, 2001, between LAKELAND INDUSTRIES, INC., a corporation organized and existing under the laws of the State of Delaware having its principal office at 711-2 Koehler Avenue, Ronkonkoma, NY 11779-7410 ("Customer"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation organized and existing under the laws of the State of Delaware having its principal office at 222 North LaSalle Street, Chicago, IL 60601 ("MLBFS"). In consideration of the mutual covenants of the parties hereto, Customer and MLBFS hereby agree as follows: Article I. DEFINITIONS 1.1 Specific Terms. In addition to terms defined elsewhere in this Loan Agreement, when used herein the following terms shall have the following meanings: (a) "Account Debtor" shall mean any party who is or may become obligated with respect to an Account or Chattel Paper. (b) "Additional Agreements" shall mean all agreements, instruments, documents and opinions other than this Loan Agreement, whether with or from Customer or any other party, which are contemplated hereby or otherwise reasonably required by MLBFS in connection herewith, or which evidence the creation, guaranty or collateralization of any of the Obligations or the granting or perfection of liens or security interests upon the Collateral or any other collateral for the Obligations, and shall include, without limitation, the Note. (c) "Bankruptcy Event" shall mean any of the following: (i) a proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or receivership law or statute shall be filed or consented to by Customer or any Guarantor; or (ii) any such proceeding shall be filed against Customer or any Guarantor and shall not be dismissed or withdrawn within sixty (60) days after filing; or (iii) Customer or any Guarantor shall make a general assignment for the benefit of creditors; or (iv) Customer or any Guarantor shall generally fail to pay or admit in writing its inability to pay its debts as they become due; or (v) Customer or any Guarantor shall be adjudicated a bankrupt or insolvent. (d) "Business Day" shall mean any day other than a Saturday, Sunday, federal holiday or other day on which the New York Stock Exchange is regularly closed. (e) "Closing Date" shall mean the date upon which all conditions precedent to MLBFS' obligation to make the Loan shall have been met to the satisfaction of MLBFS. (f) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights, Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents, Instruments, Investment Property and Financial Assets of Customer, howsoever arising, whether now owned or existing or hereafter acquired or arising, and wherever located; together with all parts thereof (including spare parts), all accessories and accessions thereto, all books and records (including computer records) directly related thereto, all proceeds thereof (including, without limitation, proceeds in the form of Accounts and insurance proceeds), and the additional collateral described in Section 3.6 (b) hereof. (g) "Commitment Expiration Date" shall mean March 31, 2001. (h) "Default" shall mean either an "Event of Default" as defined in Section 3.5 hereof, or an event which with the giving of notice, passage of time, or both, would constitute such an Event of Default. (i) "General Funding Conditions" shall mean each of the following conditions to each loan or advance by MLBFS hereunder: (i) no Default shall have occurred and be continuing or would result from the making of any such loan or advance hereunder by MLBFS; (ii) there shall not have occurred and be continuing any material adverse change in the business or financial condition of Customer or any Guarantor; (iii) all representations and warranties of Customer or any Guarantor herein or in any Additional Agreements shall then be true and correct in all material respects; (iv) MLBFS shall have received this Loan Agreement and all Additional Agreements, duly executed and filed or recorded where applicable, all of which shall be in form and substance reasonably satisfactory to MLBFS; (v) MLBFS shall have received, as and to the extent applicable, copies of invoices, bills of sale, loan payoff letters and/or other evidence reasonably satisfactory to it that the proceeds of the Loan will satisfy the Loan Purpose; (vi) MLBFS shall have received evidence reasonably satisfactory to it as to the ownership of the Collateral and the perfection and priority of MLBFS' liens and security interests thereon, as well as the ownership of and the perfection and priority of MLBFS' liens and security interests on any other collateral for the Obligations furnished pursuant to any of the Additional Agreements; (vii) MLBFS shall have received evidence reasonably satisfactory to it of the insurance required hereby or by any of the Additional Agreements; and (viii) any additional conditions specified in the "Term Loan Approval" letter executed by MLBFS with respect to the transactions contemplated hereby shall have been met to the reasonable satisfaction of MLBFS. (j) "Guarantor" shall mean a person or entity who has either guaranteed or provided collateral for any or all of the Obligations; and "Business Guarantor" shall mean any such Guarantor that is a corporation, partnership, proprietorship, limited liability company or other entity regularly engaged in a business activity. (k) "Loan" shall mean a two-year term installment loan in an amount equal to the lesser of: (A) 100% of the amount required by Customer to satisfy or fulfill the Loan Purpose, (B) the aggregate amount which Customer shall request be advanced by MLBFS on account of the Loan Purpose, or (C) $2,149,207.11. (l) "Loan Purpose" shall mean the purpose for which the proceeds of the Loan will be used; to wit: to refinance Customer's existing Term Loan No. 9909550501. (m) "Location of Tangible Collateral" shall mean the address of Customer set forth at the beginning of this Loan Agreement, together with any other address or addresses set forth on an exhibit hereto as being a Location of Tangible Collateral. (n) "Obligations" shall mean all liabilities, indebtedness and obligations of Customer to MLBFS, howsoever created, arising or evidenced, whether now existing or hereafter arising, whether direct or indirect, absolute or contingent, due or to become due, primary or secondary or joint or several, and, without limiting the foregoing, shall include interest accruing after the filing of any petition in bankruptcy, and all present and future liabilities, indebtedness and obligations of Customer under the Note and this Loan Agreement and under that certain WCMA Note, Loan and Security Agreement No. 849-07230. (o) "Permitted Liens" shall mean with respect to the Collateral: (i) liens for current taxes not delinquent, other non-consensual liens arising in the ordinary course of business for sums not due, and, if MLBFS' rights to and interest in the Collateral are not materially and adversely affected thereby, any such liens for taxes or other non-consensual liens arising in the ordinary course of business being contested in good faith by appropriate proceedings; (ii) liens in favor of MLBFS; (iii) liens which will be discharged with the proceeds of the Loan; and (iv) any other liens expressly permitted in writing by MLBFS. 1.2 Other Terms. Except as otherwise defined herein, all terms used in this Loan Agreement which are defined in the Uniform Commercial Code of Illinois ("UCC") shall have the meanings set forth in the UCC. Article II. THE LOAN 2.1 Commitment. Subject to the terms and conditions hereof, MLBFS hereby agrees to make the Loan to Customer for the Loan Purpose, and Customer agrees to borrow all amounts borrowed to satisfy the Loan Purpose from MLBFS. The entire proceeds of the Loan shall be disbursed on the Closing Date either directly to the applicable third party or parties on account of the Loan Purpose or to reimburse Customer for amounts directly expended by it; all as directed by Customer in a Closing Certificate to be executed by Customer and delivered to MLBFS prior to the Closing Date. 2.2 Note. The Loan will be evidenced by and repayable in accordance with that certain Collateral Installment Note made by Customer payable to the order of MLBFS and issued pursuant to this Loan Agreement (the "Note"). The Note is hereby incorporated as a part hereof as if fully set forth herein. 2.3 Conditions of MLBFS' Obligation. The Closing Date and MLBFS' obligation to make the Loan on the Closing Date are subject to the prior fulfillment of each of the following conditions: (a) MLBFS shall have received a written request from Customer that the Loan be funded in accordance with the terms hereof, together with a written direction from Customer as to the method of payment and payee(s) of the proceeds of the Loan, which request and direction shall have been received by MLBFS not less than two Business Days prior to any requested funding date; (b) MLBFS shall have received a copy of invoices, bills of sale, payoff letters or other applicable evidence reasonably satisfactory to it that the proceeds of the Loan will satisfy or fulfill the Loan Purpose; (c) the Commitment Expiration Date shall not then have occurred; and (d) each of the General Funding Conditions shall then have been met or satisfied to the reasonable satisfaction of MLBFS. 2.4 Use of Loan Proceeds. The proceeds of the Loan shall be used by Customer solely for a Loan Purpose, or, with the prior written consent of MLBFS, for other lawful business purposes of Customer not prohibited hereby. Customer agrees that under no circumstances will the proceeds of the Loan be used: (a) for personal, family or household purposes of any person whatsoever, or (b) to purchase, carry or trade in securities, or repay debt incurred to purchase, carry or trade in securities, or (c) unless otherwise consented to in writing by MLBFS, to pay any amount to Merrill Lynch and Co., Inc. or any of its subsidiaries, other than Merrill Lynch Bank USA, Merrill Lynch Bank & Trust Co. or any subsidiary of either of them (including MLBFS and Merrill Lynch Credit Corporation). Article III. GENERAL PROVISIONS 3.1 REPRESENTATIONS AND WARRANTIES Customer represents and warrants to MLBFS that: (a) Organization and Existence. Customer is a corporation, duly organized and validly existing in good standing under the laws of the State of Delaware and is qualified to do business and in good standing in each other state where the nature of its business or the property owned by it make such qualification necessary; and, where applicable, each Business Guarantor is duly organized, validly existing and in good standing under the laws of the state of its formation and is qualified to do business and in good standing in each other state where the nature of its business or the property owned by it make such qualification necessary. (b) Execution, Delivery and Performance. The execution, delivery and performance by Customer of this Loan Agreement and by Customer and each Guarantor of such of the Additional Agreements to which it is a party: (i) have been duly authorized by all requisite action, (ii) do not and will not violate or conflict with any law or other governmental requirement, or any of the agreements, instruments or documents which formed or govern Customer or any such Guarantor, and (iii) do not and will not breach or violate any of the provisions of, and will not result in a default by Customer or any such Guarantor under, any other agreement, instrument or document to which it is a party or by which it or its properties are bound. (c) Notices and Approvals. Except as may have been given or obtained, no notice to or consent or approval of any governmental body or authority or other third party whatsoever (including, without limitation, any other creditor) is required in connection with the execution, delivery or performance by Customer or any Guarantor of such of this Loan Agreement, the Note and the other Additional Agreements to which it is a party. 2 (d) Enforceability. This Loan Agreement, the Note and such of the other Additional Agreements to which Customer or any Guarantor is a party are the respective legal, valid and binding obligations of Customer and such Guarantor, enforceable against it or them, as the case may be, in accordance with their respective terms, except as enforceability may be limited by bankruptcy and other similar laws affecting the rights of creditors generally or by general principles of equity. (e) Collateral. Except for any Permitted Liens: (i) Customer has good and marketable title to the Collateral, (ii) none of the Collateral is subject to any lien, encumbrance or security interest, and (iii) upon the filing of all Uniform Commercial Code financing statements executed by Customer with respect to the Collateral in the appropriate jurisdiction(s) and/or the completion of any other action required by applicable law to perfect its liens and security interests, MLBFS will have valid and perfected first liens and security interests upon all of the Collateral. (f) Financial Statements. Except as expressly set forth in Customer's or any Business Guarantor's financial statements, all financial statements of Customer and each Business Guarantor furnished to MLBFS have been prepared in conformity with generally accepted accounting principles, consistently applied, are true and correct in all material respects, and fairly present the financial condition of it as at such dates and the results of its operations for the periods then ended (subject, in the case of interim unaudited financial statements, to normal year-end adjustments); and since the most recent date covered by such financial statements, there has been no material adverse change in any such financial condition or operation. All financial statements furnished to MLBFS of any Guarantor other than a Business Guarantor are true and correct in all material respects and fairly represent such Guarantor's financial condition as of the date of such financial statements, and since the most recent date of such financial statements, there has been no material adverse change in such financial condition. (g) Litigation. No litigation, arbitration, administrative or governmental proceedings are pending or, to the knowledge of Customer, threatened against Customer or any Guarantor, which would, if adversely determined, materially and adversely affect the liens and security interests of MLBFS hereunder or under any of the Additional Agreements, the financial condition of Customer or any such Guarantor or the continued operations of Customer or any Business Guarantor. (h) Tax Returns. All federal, state and local tax returns, reports and statements required to be filed by Customer and each Guarantor have been filed with the appropriate governmental agencies and all taxes due and payable by Customer and each Guarantor have been timely paid (except to the extent that any such failure to file or pay will not materially and adversely affect either the liens and security interests of MLBFS hereunder or under any of the Additional Agreements, the financial condition of Customer or any Guarantor, or the continued operations of Customer or any Business Guarantor). (i) Collateral Location. All of the tangible Collateral is located at a Location of Tangible Collateral. (j) No Outside Broker. Except for employees of MLBFS, MLPF&S or one of their affiliates, Customer has not in connection with the transactions contemplated hereby directly or indirectly engaged or dealt with, and was not introduced or referred to MLBFS by, any broker or other loan arranger. Each of the foregoing representations and warranties: (i) has been and will be relied upon as an inducement to MLBFS to make the Loan, and (ii) is continuing and shall be deemed remade by Customer on the Closing Date. 3.2 FINANCIAL AND OTHER INFORMATION (a) Customer shall furnish or cause to be furnished to MLBFS during the term of this Loan Agreement all of the following: (i) Annual Financial Statements. Within 120 days after the close of each fiscal year of Customer, a copy of the annual audited financial statements of Customer, including in reasonable detail, a balance sheet and statement of retained earnings as at the close of such fiscal year and statements of profit and loss and cash flow for such fiscal year; (ii) Interim Financial Statements. Within 45 days after the close of each fiscal quarter of Customer, a copy of the interim financial statements of Customer for such fiscal quarter (including in reasonable detail both a balance sheet as of the close of such fiscal period, and statement of profit and loss for the applicable fiscal period); (iii) A/R Agings. Within 15 days after the close of each fiscal month of Customer, a copy of the Accounts Receivable Aging of Customer as of the end of such fiscal month; (iv) Inventory Reports. Within 15 days after the close of each fiscal month of Customer, a copy of the Inventory Report (as and to the extent applicable, breaking out Inventory by location, and separately reporting any work in process) of Customer as of the end of such fiscal month; (v) 10Q and 10K Reports. Not later than 10 days after the date of filing with the Securities and Exchange Commission ("SEC"), a copy of each 10-Q and 10-K and other report required to be filed with the SEC during the term hereof by Customer; and (vi) Other Information. Such other information as MLBFS may from time to time reasonably request relating to Customer, any Guarantor or the Collateral. (b) General Agreements With Respect to Financial Information. Customer agrees that except as otherwise specified herein or otherwise agreed to in writing by MLBFS: (i) all annual financial statements required to be furnished by Customer to MLBFS hereunder will be prepared by either the current independent accountants for Customer or other independent accountants reasonably acceptable to MLBFS, and (ii) all other financial information required to be furnished by Customer to MLBFS hereunder will be certified as correct in all material respects by the party who has prepared such information, and, in the case of internally prepared information with respect to Customer or any Business Guarantor, certified as correct by their respective chief financial officer. 3 3.3 OTHER COVENANTS Customer further agrees during the term of this Loan Agreement that: (a) Financial Records; Inspection. Customer and each Business Guarantor will: (i) maintain at its principal place of business complete and accurate books and records, and maintain all of its financial records in a manner consistent with the financial statements heretofore furnished to MLBFS, or prepared on such other basis as may be approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized representatives, upon reasonable notice and at reasonable times, to inspect its properties (both real and personal), operations, books and records. (b) Taxes. Customer and each Guarantor will pay when due all taxes, assessments and other governmental charges, howsoever designated, and all other liabilities and obligations, except to the extent that any such failure to pay will not materially and adversely affect either the liens and security interests of MLBFS hereunder or under any of the Additional Agreements, the financial condition of Customer or any Guarantor or the continued operations of Customer or any Business Guarantor. (c) Compliance With Laws and Agreements. Neither Customer nor any Guarantor will violate any law, regulation or other governmental requirement, any judgment or order of any court or governmental agency or authority, or any agreement, instrument or document to which it is a party or by which it is bound, if any such violation will materially and adversely affect either the liens and security interests of MLBFS hereunder or under any of the Additional Agreements, the financial condition of Customer or any Guarantor, or the continued operations of Customer or any Business Guarantor. (d) No Use of Merrill Lynch Name. Neither Customer nor any Guarantor will directly or indirectly publish, disclose or otherwise use in any advertising or promotional material, or press release or interview, the name, logo or any trademark of MLBFS, MLPF&S, Merrill Lynch and Co., Incorporated or any of their affiliates. (e) Notification By Customer. Customer shall provide MLBFS with prompt written notification of: (i) any Default; (ii) any materially adverse change in the business, financial condition or operations of Customer or any Business Guarantor; (iii) any information which indicates that any financial statements of Customer or any Guarantor fail in any material respect to present fairly the financial condition and results of operations purported to be presented in such statements; and (iv) any change in Customer's outside accountants. Each notification by Customer pursuant hereto shall specify the event or information causing such notification, and, to the extent applicable, shall specify the steps being taken to rectify or remedy such event or information. (f) Notice of Change. Customer shall give MLBFS not less than 30 days prior written notice of any change in the name (including any fictitious name) or principal place of business or residence of Customer or any Guarantor. (g) Continuity. Except upon the prior written consent of MLBFS, which consent will not be unreasonably withheld: (i) neither Customer nor any Business Guarantor shall be a party to any merger or consolidation with, or purchase or otherwise acquire all or substantially all of the assets of, or any material stock, partnership, joint venture or other equity interest in, any person or entity, or sell, transfer or lease all or any substantial part of its assets, if any such action would result in either: (A) a material change in the principal business, ownership or control of Customer or such Business Guarantor, or (B) a material adverse change in the financial condition or operations of Customer or such Business Guarantor; (ii) Customer and each Business Guarantor shall preserve their respective existence and good standing in the jurisdiction(s) of establishment and operation; (iii) neither Customer nor any Business Guarantor shall engage in any material business substantially different from their respective business in effect as of the date of application by Customer for credit from MLBFS, or cease operating any such material business; (iv) neither Customer nor any Business Guarantor shall cause or permit any other person or entity to assume or succeed to any material business or operations of Customer or such Business Guarantor; and (v) neither Customer nor any Business Guarantor shall cause or permit any material change in its controlling ownership. (h) Minimum Tangible Net Worth. Customer's and Business Guarantors' "tangible net worth" shall at all times exceed $14,000,000.00. For the purposes hereof, the term "tangible net worth" shall mean Customer's and Business Guarantors' net worth as shown on Customer's and Business Guarantors' regular financial statements prepared in a manner consistent with the terms hereof, but excluding an amount equal to: (i) any assets which are ordinarily classified as "intangible" in accordance with generally accepted accounting principles, and (ii) any amounts now or hereafter directly or indirectly owing to Customer or Business Guarantors' by officers, shareholders or affiliates of Customer or Business Guarantors'. (i) Debt to Tangible Net Worth. The ratio of Customer's and Business Guarantor's total debt to Customer's and Business Guarantors' tangible net worth, as aforesaid, shall not at any time exceed 1.50 to 1. (j) Borrowed Debt. Except upon the prior written consent of MLBFS, Customer shall not directly or indirectly incur or permit to exist any debt of Customer or any Business Guarantor for borrowed money or the lease under a capital lease or deferred purchase price of real or personal property other than: (i) debt to MLBFS and (ii) debt existing as of the date of and reflected on the last financial statements of Customer and Business Guarantor's submitted to MLBFS prior to the date hereof and not refinanced by MLBFS (including a $200,000 Line of Credit extended to Lakeland's Chinese subsidiary from China Construction Bank). (k) Customer Relationship. Customer shall notify MLBFS in writing of the occurrence of any materially negative change in its relationship with its principal supplier, DuPont. (l) Fixed Charge Coverage Ratio. Customer and Business Guarantors' on a consolidated basis shall at all times during the term hereof maintain a Fixed Charge Coverage Ratio of not less than 1.10 to 1. The term "Fixed Charge Coverage Ratio" shall mean the ratio of: (i) income before interest (including payments in the nature of interest under capital leases), taxes, depreciation and amortization, less internally financed capital expenditures, to (ii) the sum the aggregate principal and interest paid or accrued, the aggregate rental under capital leases paid or accrued, any dividends and other distributions paid or 4 payable to shareholders and taxes paid in cash; all as determined on a trailing 12-month basis from the regular consolidated financial statements of Customer and Business Guarantors' prepared in a manner consistent with the terms hereof. (m) Minimum EBITDA. Customer's and Business Guarantors' consolidated "EBITDA" shall be a minimum of $950,000.00 for the fiscal period ending 4/30/01. The term "EBITDA" shall mean Customer's and Business Guarantors' income before interest (including payments in the nature of interest under capital leases), taxes, depreciation and amortization, determined on a trailing 12-month basis from the regular consolidated financial statements of Customer and Business Guarantors prepared in a manner consistent with the terms hereof. 3.4 COLLATERAL (a) Pledge of Collateral. To secure payment and performance of the Obligations, Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants to MLBFS first liens and security interests in and upon all of the Collateral, subject only to Permitted Liens. (b) Liens. Except upon the prior written consent of MLBFS, Customer shall not create or permit to exist any lien, encumbrance or security interest upon or with respect to any Collateral now owned or hereafter acquired other than Permitted Liens. (c) Performance of Obligations. Customer shall perform all of its obligations owing on account of or with respect to the Collateral; it being understood that nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or otherwise, shall be deemed an assumption by MLBFS of any of Customer's said obligations. (d) Sales and Collections. So long as no Event of Default shall have occurred and be continuing, Customer may in the ordinary course of its business: (i) sell any Inventory normally held by Customer for sale, (ii) use or consume any materials and supplies normally held by Customer for use or consumption, and (iii) collect all of its Accounts. Customer shall take such action with respect to protection of its Inventory and the other Collateral and the collection of its Accounts as MLBFS may from time to time reasonably request. (e) Account Schedules. Upon the request of MLBFS, made now or at any reasonable time or times hereafter, Customer shall deliver to MLBFS, in addition to the other information required hereunder, a schedule identifying, for each Account and all Chattel Paper subject to MLBFS' security interests hereunder, each Account Debtor by name and address and amount, invoice or contract number and date of each invoice or contract. Customer shall furnish to MLBFS such additional information with respect to the Collateral, and amounts received by Customer as proceeds of any of the Collateral, as MLBFS may from time to time reasonably request. (f) Alterations and Maintenance. Except upon the prior written consent of MLBFS, Customer shall not make or permit any material alterations to any tangible Collateral which might materially reduce or impair its market value or utility. Customer shall at all times keep the tangible Collateral in good condition and repair, reasonable wear and tear excepted, and shall pay or cause to be paid all obligations arising from the repair and maintenance of such Collateral, as well as all obligations with respect to any Location of Tangible Collateral, except for any such obligations being contested by Customer in good faith by appropriate proceedings. (g) Location. Except for movements required in the ordinary course of Customer's business (including Inventory in transit to/from Canada, Mexico and China), Customer shall give MLBFS 30 days' prior written notice of the placing at or movement of any tangible Collateral to any location other than a Location of Tangible Collateral. In no event shall Customer cause or permit any material tangible Collateral to be removed from the United States without the express prior written consent of MLBFS. (h) Insurance. Customer shall insure all of the tangible Collateral under a policy or policies of physical damage insurance providing that losses will be payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable Endorsement and containing such other provisions as may be reasonably required by MLBFS. Customer shall further provide and maintain a policy or policies of comprehensive public liability insurance naming MLBFS as an additional party insured. Customer and each Business Guarantor shall maintain such other insurance as may be required by law or is customarily maintained by companies in a similar business or otherwise reasonably required by MLBFS. All such insurance policies shall provide that MLBFS will receive not less than 10 days prior written notice of any cancellation, and shall otherwise be in form and amount and with an insurer or insurers reasonably acceptable to MLBFS. Customer shall furnish MLBFS with a copy or certificate of each such policy or policies and, prior to any expiration or cancellation, each renewal or replacement thereof. (i) Event of Loss. Customer shall at its expense promptly repair all repairable damage to any tangible Collateral. In the event that any tangible Collateral is damaged beyond repair, lost, totally destroyed or confiscated (an "Event of Loss") and such Collateral had a value prior to such Event of Loss of $25,000.00 or more, then, on or before the first to occur of (i) 90 days after the occurrence of such Event of Loss, or (ii) 10 Business Days after the date on which either Customer or MLBFS shall receive any proceeds of insurance on account of such Event of Loss, or any underwriter of insurance on such Collateral shall advise either Customer or MLBFS that it disclaims liability in respect of such Event of Loss, Customer shall, at Customer's option, either replace the Collateral subject to such Event of Loss with comparable Collateral free of all liens other than Permitted Liens (in which event Customer shall be entitled to utilize the proceeds of insurance on account of such Event of Loss for such purpose, and may retain any excess proceeds of such insurance), or prepay the Loan by an amount equal to the actual cash value of such Collateral as determined by either the insurance company's payment (plus any applicable deductible) or, in absence of insurance company payment, as reasonably determined by MLBFS. Notwithstanding the foregoing, if at the time of occurrence of such Event of Loss or any time thereafter prior to replacement or prepayment, as aforesaid, an Event of Default shall have occurred and be continuing hereunder, then MLBFS may at its sole option, exercisable at any time while such Event of Default shall be continuing, require Customer to either replace such Collateral or make a prepayment on account of the Loan, as aforesaid. Any partial prepayment of the Loans shall be applied to installments due in inverse order of maturity. (j) Notice of Certain Events. Customer shall give MLBFS immediate notice of any attachment, lien, judicial process, encumbrance or claim affecting or involving $25,000.00 or more of the Collateral. 5 (k) Indemnification. Customer shall indemnify, defend and save MLBFS harmless from and against any and all claims, liabilities, losses, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) of any nature whatsoever which may be asserted against or incurred by MLBFS arising out of or in any manner occasioned by (i) the ownership, collection, possession, use or operation of any Collateral, or (ii) any failure by Customer to perform any of its obligations hereunder; excluding, however, from said indemnity any such claims, liabilities, etc. arising directly out of the willful wrongful act or active gross negligence of MLBFS. This indemnity shall survive the expiration or termination of this Loan Agreement as to all matters arising or accruing prior to such expiration or termination. 3.5 EVENTS OF DEFAULT The occurrence of any of the following events shall constitute an "Event of Default" under this Loan Agreement: (a) Failure to Pay. Customer shall fail to pay when due any amount owing by Customer to MLBFS under the Note or this Loan Agreement, or shall fail to pay when due any other Obligations, and any such failure shall continue for more than five (5) Business Days after written notice thereof shall have been given by MLBFS to Customer. (b) Failure to Perform. Customer or any Guarantor shall default in the performance or observance of any covenant or agreement on its part to be performed or observed under this Loan Agreement, the Note or any of the other Additional Agreements (not constituting an Event of Default under any other clause of this Section), and such default shall continue unremedied for ten (10) Business Days after written notice thereof shall have been given by MLBFS to Customer. (c) Breach of Warranty. Any representation or warranty made by Customer or any Guarantor contained in this Loan Agreement, the Note or any of the other Additional Agreements shall at any time prove to have been incorrect in any material respect when made. (d) Default Under Other Agreement. A default or Event of Default by Customer or any Guarantor shall occur under the terms of any other agreement, instrument or document with or intended for the benefit of MLBFS, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") or any of their affiliates, and any required notice shall have been given and required passage of time shall have elapsed. (e) Bankruptcy Event. Any Bankruptcy Event shall occur. (f) Material Impairment. Any event shall occur which shall reasonably cause MLBFS to in good faith believe that the prospect of full payment or performance by Customer or any Guarantor of any of their respective liabilities or obligations under this Loan Agreement, the Note or any of the other Additional Agreements to which Customer or such Guarantor is a party has been materially impaired. The existence of such a material impairment shall be determined in a manner consistent with the intent of Section 1-208 of the UCC. (g) Acceleration of Debt to Other Creditors. Any event shall occur which results in the acceleration of the maturity of any indebtedness of $100,000.00 or more of Customer or any Guarantor to another creditor under any indenture, agreement, undertaking, or otherwise. (h) Seizure or Abuse of Collateral. The Collateral, or any material part thereof, shall be or become subject to any material abuse or misuse, or any levy, attachment, seizure or confiscation which is not released within ten (10) Business Days. 3.6 REMEDIES (a) Remedies Upon Default. Upon the occurrence and during the continuance of any Event of Default, MLBFS may at its sole option do any one or more or all of the following, at such time and in such order as MLBFS may in its sole discretion choose: (i) Termination. MLBFS may without notice terminate its obligation to make the Loan (if the Loan has not then been funded) or otherwise extend any credit to or for the benefit of Customer (it being understood, however, that upon the occurrence of any Bankruptcy Event all such obligations shall automatically terminate without any action on the part of MLBFS); and upon any such termination MLBFS shall be relieved of all such obligations. (ii) Acceleration. MLBFS may declare the principal of and interest and any premium on the Note, and all other Obligations to be forthwith due and payable, whereupon all such amounts shall be immediately due and payable, without presentment, demand for payment, protest and notice of protest, notice of dishonor, notice of acceleration, notice of intent to accelerate or other notice or formality of any kind, all of which are hereby expressly waived; provided, however, that upon the occurrence of any Bankruptcy Event all such principal, interest, premium and other Obligations shall automatically become due and payable without any action on the part of MLBFS. (iii) Exercise Other Rights. MLBFS may exercise any or all of the remedies of a secured party under applicable law, including, but not limited to, the UCC, and any or all of its other rights and remedies under this Loan Agreement and the Additional Agreements. (iv) Possession. MLBFS may require Customer to make the Collateral and the records pertaining to the Collateral available to MLBFS at a place designated by MLBFS which is reasonably convenient to Customer, or may take possession of the Collateral and the records pertaining to the Collateral without the use of any judicial process and without any prior notice to Customer. (v) Sale. MLBFS may sell any or all of the Collateral at public or private sale upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS may purchase any Collateral at any such public sale. The net proceeds of any such public or private sale and all other amounts actually collected or received by MLBFS pursuant hereto, after deducting all costs and expenses incurred at any time in the collection of the Obligations and in the protection, collection and 6 sale of the Collateral, will be applied to the payment of the Obligations, with any remaining proceeds paid to Customer or whoever else may be entitled thereto, and with Customer and each Guarantor remaining jointly and severally liable for any amount remaining unpaid after such application. (vi) Delivery of Cash, Checks, Etc. MLBFS may require Customer to forthwith upon receipt, transmit and deliver to MLBFS in the form received, all cash, checks, drafts and other instruments for the payment of money (properly endorsed, where required, so that such items may be collected by MLBFS) which may be received by Customer at any time in full or partial payment of any Collateral, and require that Customer not commingle any such items which may be so received by Customer with any other of its funds or property but instead hold them separate and apart and in trust for MLBFS until delivery is made to MLBFS. (vii) Notification of Account Debtors. MLBFS may notify any Account Debtor that its Account or Chattel Paper has been assigned to MLBFS and direct such Account Debtor to make payment directly to MLBFS of all amounts due or becoming due with respect to such Account or Chattel Paper; and MLBFS may enforce payment and collect, by legal proceedings or otherwise, such Account or Chattel Paper. (viii) Control of Collateral. MLBFS may otherwise take control in any lawful manner of any cash or non-cash items of payment or proceeds of Collateral and of any rejected, returned, stopped in transit or repossessed goods included in the Collateral and endorse Customer's name on any item of payment on or proceeds of the Collateral. (ix) Collateral Audit. MLBFS may notify Customer that it is required, at Customer's sole cost and expense, to furnish to MLBFS a collateral audit on its accounts and inventory, prepared by an audit firm selected by MLBFS and in form and substance reasonably satisfactory to MLBFS. (b) Set-Off. MLBFS shall have the further right upon the occurrence and during the continuance of an Event of Default to set-off, appropriate and apply toward payment of any of the Obligations, in such order of application as MLBFS may from time to time and at any time elect, any cash, credit, deposits, accounts, financial assets, investment property, securities and any other property of Customer which is in transit to or in the possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S. Customer hereby collaterally assigns and grants to MLBFS a continuing security interest in all such property as additional Collateral. (c) Power of Attorney. Effective upon the occurrence and during the continuance of an Event of Default, Customer hereby irrevocably appoints MLBFS as its attorney-in-fact, with full power of substitution, in its place and stead and in its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion take any action and to execute any instrument which MLBFS may deem necessary or advisable to accomplish the purposes of this Loan Agreement, including, but not limited to, to receive, endorse and collect all checks, drafts and other instruments for the payment of money made payable to Customer included in the Collateral. (d) Remedies are Severable and Cumulative. All rights and remedies of MLBFS herein are severable and cumulative and in addition to all other rights and remedies available in the Note, the other Additional Agreements, at law or in equity, and any one or more of such rights and remedies may be exercised simultaneously or successively. (e) Notices. To the fullest extent permitted by applicable law, Customer hereby irrevocably waives and releases MLBFS of and from any and all liabilities and penalties for failure of MLBFS to comply with any statutory or other requirement imposed upon MLBFS relating to notices of sale, holding of sale or reporting of any sale, and Customer waives all rights of redemption or reinstatement from any such sale. Any notices required under applicable law shall be reasonably and properly given to Customer if given by any of the methods provided herein at least 5 Business Days prior to taking action. MLBFS shall have the right to postpone or adjourn any sale or other disposition of Collateral at any time without giving notice of any such postponed or adjourned date. In the event MLBFS seeks to take possession of any or all of the Collateral by court process, Customer further irrevocably waives to the fullest extent permitted by law any bonds and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession, and any demand for possession prior to the commencement of any suit or action. 3.7 MISCELLANEOUS (a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any right, power or remedy pursuant to this Loan Agreement, the Note or any of the other Additional Agreements shall operate as a waiver thereof, and no single or partial exercise of any such right, power or remedy shall preclude any other or further exercise thereof, or the exercise of any other right, power or remedy. Neither any waiver of any provision of this Loan Agreement, the Note or any of the other Additional Agreements, nor any consent to any departure by Customer therefrom, shall be effective unless the same shall be in writing and signed by MLBFS. Any waiver of any provision of this Loan Agreement, the Note or any of the other Additional Agreements and any consent to any departure by Customer from the terms of this Loan Agreement, the Note or any of the other Additional Agreements shall be effective only in the specific instance and for the specific purpose for which given. Except as otherwise expressly provided herein, no notice to or demand on Customer shall in any case entitle Customer to any other or further notice or demand in similar or other circumstances. (b) Disclosure. Customer hereby irrevocably authorizes MLBFS and each of its affiliates, including without limitation MLPF&S, to at any time (whether or not an Event of Default shall have occurred) obtain from and disclose to each other any and all financial and other information about Customer. (c) Communications. All notices and other communications required or permitted hereunder shall be in writing, and shall be either delivered personally, mailed by postage prepaid certified mail or sent by express overnight courier or by facsimile. Such notices and communications shall be deemed to be given on the date of personal delivery, facsimile transmission or actual delivery of certified mail, or one Business Day after delivery to an express overnight courier. Unless otherwise specified in a notice sent or delivered in accordance with the terms hereof, notices and other communications in writing shall be given to the parties hereto at their respective addresses set forth at the beginning of this Loan Agreement, or, in the case of facsimile transmission, to the parties at their respective regular facsimile telephone number. 7 (d) Costs, Expenses and Taxes. Customer shall upon demand pay or reimburse MLBFS for: (i) all Uniform Commercial Code and other filing and search fees and expenses incurred by MLBFS in connection with the verification, perfection or preservation of MLBFS' rights hereunder or in the Collateral or any other collateral for the Obligations; (ii) any and all stamp, transfer and other taxes and fees payable or determined to be payable in connection with the execution, delivery and/or recording of this Loan Agreement or any of the Additional Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including, but not limited to, reasonable fees and expenses of outside counsel) incurred by MLBFS in connection with the collection of any sum payable hereunder or under any of the Additional Agreements not paid when due, the enforcement of this Loan Agreement or any of the Additional Agreements and the protection of MLBFS' rights hereunder or thereunder, excluding, however, salaries and normal overhead attributable to MLBFS' employees. The obligations of Customer under this paragraph shall survive the expiration or termination of this Loan Agreement and the discharge of the other Obligations. (e) Right to Perform Obligations. If Customer shall fail to do any act or thing which it has covenanted to do under this Loan Agreement or any representation or warranty on the part of Customer contained in this Loan Agreement shall be breached, MLBFS may, in its sole discretion, after 5 Business Days written notice is sent to Customer (or such lesser notice, including no notice, as is reasonable under the circumstances), do the same or cause it to be done or remedy any such breach, and may expend its funds for such purpose. Any and all reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer upon demand, with interest at the "Interest Rate" (as that item is defined in the Note) during the period from and including the date funds are so expended by MLBFS to the date of repayment, and all such amounts shall be additional Obligations. The payment or performance by MLBFS of any of Customer's obligations hereunder shall not relieve Customer of said obligations or of the consequences of having failed to pay or perform the same, and shall not waive or be deemed a cure of any Default. (f) Late Charge. Any payment required to be made by Customer pursuant to this Loan Agreement or any of the Additional Agreements not paid within ten (10) days of the applicable due date shall be subject to a late charge in an amount equal to the lesser of: (i) 5% of the overdue amount, or (ii) the maximum amount permitted by applicable law. Such late charge shall be payable upon receipt of written notice by MLBFS to Customer. (g) Further Assurances. Customer agrees to do such further acts and things and to execute and deliver to MLBFS such additional agreements, instruments and documents as MLBFS may reasonably require or deem advisable to effectuate the purposes of this Loan Agreement, the Note or any of the other Additional Agreements, or to establish, perfect and maintain MLBFS' security interests and liens upon the Collateral, including, but not limited to: (i) executing financing statements or amendments thereto when and as reasonably requested by MLBFS; and (ii) if in the reasonable judgment of MLBFS it is required by local law, causing the owners and/or mortgagees of the real property on which any Collateral may be located to execute and deliver to MLBFS waivers or subordinations reasonably satisfactory to MLBFS with respect to any rights in such Collateral. (h) Binding Effect. This Loan Agreement, the Note and the other Additional Agreements shall be binding upon, and shall inure to the benefit of MLBFS, Customer and their respective successors and assigns. Customer shall not assign any of its rights or delegate any of its obligations under this Loan Agreement, the Note or any of the other Additional Agreements without the prior written consent of MLBFS. Unless otherwise expressly agreed to in a writing signed by MLBFS, no such consent shall in any event relieve Customer of any of its obligations under this Loan Agreement, the Note or any of the other Additional Agreements. (i) Headings. Captions and section and paragraph headings in this Loan Agreement are inserted only as a matter of convenience, and shall not affect the interpretation hereof. (j) Governing Law. This Loan Agreement, the Note and, unless otherwise expressly provided therein, each of the other Additional Agreements, shall be governed in all respects by the laws of the State of Illinois. (k) Severability of Provisions. Whenever possible, each provision of this Loan Agreement, the Note and the other Additional Agreements shall be interpreted in such manner as to be effective and valid under applicable law. Any provision of this Loan Agreement, the Note or any of the other Additional Agreements which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Loan Agreement, the Note and the other Additional Agreements or affecting the validity or enforceability of such provision in any other jurisdiction. (l) Term. This Loan Agreement shall become effective when accepted by MLBFS at its office in Chicago, Illinois, and subject to the terms hereof, shall continue in effect so long thereafter as there shall be any moneys owing hereunder or under the Note, or there shall be any other Obligations outstanding. (m) Counterparts. This Loan Agreement may be executed in one or more counterparts which, when taken together, constitute one and the same agreement. (n) Jurisdiction; Waiver. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT, THE TERM NOTE AND THE OTHER ADDITIONAL AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER IRREVOCABLY SUBMITS ITSELF TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE AND THE CONVENIENCE OF ANY SUCH FORUM, AND ANY AND ALL RIGHTS TO REMOVE SUCH ACTION FROM STATE TO FEDERAL COURT. CUSTOMER FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE TERM LOAN, THIS LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS AND/OR ANY OF THE 8 TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT. CUSTOMER FURTHER WAIVES THE RIGHT TO BRING ANY NON-COMPULSORY COUNTERCLAIMS. (o) Integration. This Loan Agreement, together with the Note and the other Additional Agreements, constitutes the entire understanding and represents the full and final agreement between the parties with respect to the subject matter hereof, and may not be contradicted by evidence of prior written agreements or prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements of the parties. Without limiting the foregoing, Customer acknowledges that: (i) no promise or commitment has been made to it by MLBFS, MLPF&S or any of their respective employees, agents or representatives to make the Loan on any terms other than as expressly set forth herein and in the Note, or to make any other loan or otherwise extend any other credit to Customer or any other party; and (ii) except as otherwise expressly provided herein, this Loan Agreement supersedes and replaces any and all proposals, letters of intent and approval and commitment letters from MLBFS to Customer, none of which shall be considered an Additional Agreement. No amendment or modification of this Agreement or any of the Additional Agreements to which Customer is a party shall be effective unless in a writing signed by both MLBFS and Customer. IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year first above written. LAKELAND INDUSTRIES, INC. By: ____________________________________________________________________________ Signature (1) Signature (2) - -------------------------------------------------------------------------------- Printed Name Printed Name - -------------------------------------------------------------------------------- Title Title Accepted at Chicago, Illinois: MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. By:___________________________________________________________ 9 EXHIBIT A ATTACHED TO AND HEREBY MADE A PART OF TERM LOAN AND SECURITY AGREEMENT NO. 0101552001 BETWEEN MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. AND LAKELAND INDUSTRIES, INC. ================================================================================ Additional Locations of Tangible Collateral: 2451 Highway 67 South Somerville, Alabama 3420 Valley Avenue S.W. Decatur, Alabama 202 Pride Lane S.W. Decatur, Alabama 2401 Southwest Parkway St. Joseph, Missouri [GRAPHIC MERRILL LYNCH LOGO] No. 0101552001 ================================================================================ $2,149,207.11 March 9, 2001 COLLATERAL INSTALLMENT NOTE FOR VALUE RECEIVED, LAKELAND INDUSTRIES, INC., a corporation organized and existing under the laws of the State of Delaware ("Customer") hereby promises to pay to the order of MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation organized and existing under the laws of the State of Delaware ("MLBFS"), in lawful money of the United States, the principal sum of Two Million One Hundred Forty-Nine Thousand Two Hundred Seven And 00/100 Dollars ($2,149,207.11), or if more or less, the aggregate amount advanced by MLBFS to Customer pursuant to the Loan Agreement (the "Loan Amount"); together with interest on the unpaid balance of the Loan Amount, from the Closing Date until payment, at the Interest Rate, as follows: 1. DEFINITIONS. (a) In addition to terms defined elsewhere in this Note, as used herein, the following terms shall have the following meanings: (i) "Closing Date" shall mean the date of advancement of funds hereunder. (ii) _____ "Excess Interest" shall mean any amount of interest in excess of the maximum amount of interest permitted to be charged by law. (iii) ____ "Interest Rate" shall mean a variable per annum rate equal to the sum of (i) 2.45% per annum, and (ii) the interest rate from time to time published in the "Money Rates" section of The Wall Street Journal for 30-day high-grade unsecured notes sold through dealers by major corporations (the "30-day Dealer Commercial Paper Rate"). The Interest Rate will change as of the date of publication in The Wall Street Journal of a 30-day Dealer Commercial Paper Rate that is different from that published on the preceding Business Day. In the event that The Wall Street Journal shall, for any reason, fail or cease to publish the 30-day Dealer Commercial Paper Rate, MLBFS will choose a reasonably comparable index or source to use as the basis for the Interest Rate. (iv) _____ "Loan Agreement" shall mean that certain TERM LOAN AND SECURITY AGREEMENT No. 0101552001 between Customer and MLBFS, as the same may have been or may hereafter be amended or supplemented. (v) "Note" shall mean this COLLATERAL INSTALLMENT NOTE. (b) Capitalized terms used herein and not defined herein shall have the meaning set forth in the Loan Agreement. Without limiting the foregoing, the terms "Additional Agreements", "Bankruptcy Event" and "Event of Default" shall have the respective meanings set forth in the Loan Agreement. 2. PAYMENT AND OTHER TERMS. Customer shall pay the indebtedness under this Note in 24 consecutive monthly installments commencing on the first day of the second calendar month following the Closing Date and continuing on the first day of each calendar month thereafter until this Note shall be paid in full. Each such installment in an amount equal to the sum of (i) accrued interest, and (ii) 1/24th of the Loan Amount (with the first such installment including interest accrued from the date of funding). Each payment received hereunder shall be applied first to any fees and expenses of MLBFS payable by Customer under the terms of the Loan Agreement (including, without limitation, late charges), next to accrued interest at the Interest Rate, with the balance applied on account of the unpaid principal hereof. Any part of the principal hereof or interest hereon or other sums payable hereunder or under the Loan Agreement not paid within ten (10) days of the applicable due date shall be subject to a late charge equal to the lesser of (i) 5% of the overdue amount, or (ii) the maximum amount permitted by law, payable upon receipt of written notice by MLBFS to Customer. All interest shall be computed on the basis of actual days elapsed over a 360-day year. All sums payable hereunder shall be payable at 2356 Collections Center Drive, Chicago, Illinois 60693, or at such other place or places as the holder hereof may from time to time appoint in writing. Customer may prepay this Note at any time in whole or in part without premium or penalty. Any partial prepayment shall be applied to installments of the Loan Amount in inverse order of maturity. This Note is the Collateral Installment Note referred to in, and is entitled to all of the benefits of the Loan Agreement and any Additional Agreements. If Customer shall fail to pay when due any installment or other sum due hereunder, and any such failure shall continue for more than five (5) Business Days after written notice thereof shall have been given by the holder hereof to Customer, or if any other Event of Default shall have occurred and be continuing, then at the option of the holder hereof (or, upon the occurrence of any Bankruptcy Event, automatically, without any action on the part of the holder hereof), and in addition to all other rights and remedies available to such holder under the Loan Agreement, any Additional Agreements, and otherwise, the entire Loan Amount at such time remaining unpaid, together with accrued interest thereon and all other sums then owing by Customer under the Loan Agreement, may be declared to be and thereby become immediately due and payable. It is expressly understood, however, that nothing contained in the Loan Agreement, any other agreement, instrument or document executed by Customer, or otherwise, shall affect or impair the right, which is unconditional and absolute, of the holder hereof to enforce payment of all sums due under this Note at or after maturity, whether by acceleration or otherwise, or shall affect the obligation of Customer, which is also unconditional and absolute, to pay the sums payable under this Note in accordance with its terms. Except as otherwise expressly set forth herein or in the Loan Agreement, Customer hereby waives presentment, demand for payment, protest and notice of protest, notice of dishonor, notice of acceleration, notice of intent to accelerate and all other notices and formalities in connection with this Note. Wherever possible each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Note. Notwithstanding any provision to the contrary in this Note, the Loan Agreement or any of the Additional Agreements, no provision of this Note, the Loan Agreement or any of the Additional Agreements shall require the payment or permit the collection of any Excess Interest. If any Excess Interest is provided for, or is adjudicated as being provided for, in this Note, the Loan Agreement or any of the Additional Agreements, then: (a) Customer shall not be obligated to pay any Excess Interest; and (b) any Excess Interest that MLBFS may have received under this Note, the Loan Agreement or any of the Additional Agreements shall, at the option of MLBFS, be: (i) applied as a credit against the then unpaid principal balance of this Note, or accrued interest hereon not to exceed the maximum amount permitted by law, or both, (ii) refunded to the payor thereof, or (iii) any combination of the foregoing. This Note shall be construed in accordance with the laws of the State of Illinois and may be enforced by the holder hereof in any jurisdiction in which the Loan Agreement may be enforced. IN WITNESS WHEREOF, this Note has been executed by Customer as of the day and year first above written. LAKELAND INDUSTRIES, INC. By: - -------------------------------------------------------------------------------- Signature (1) Signature (2) - -------------------------------------------------------------------------------- Printed Name Printed Name - -------------------------------------------------------------------------------- Title Title 2 [GRAPHIC - MERRILL LYNCH LOGO] SECRETARY'S CERTIFICATE ================================================================================ The undersigned hereby certifies to Merrill Lynch Business Financial Services Inc. that the undersigned is the duly appointed and acting Secretary (or Assistant Secretary) of LAKELAND INDUSTRIES, INC., a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; and that the following is a true, accurate and compared transcript of resolutions duly, validly and lawfully adopted on the _______ day of ____________________, 2001 by the Board of Directors of said Corporation acting in accordance with the laws of the state of incorporation and the charter and by-laws of said Corporation: "RESOLVED, that this Corporation is authorized and empowered, now and from time to time hereafter, to borrow and/or obtain credit from, and/or enter into other financial arrangements with, MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS"), and in connection therewith to grant to MLBFS liens and security interests on any or all property belonging to this Corporation; all such transactions to be on such terms and conditions as may be mutually agreed from time to time between this Corporation and MLBFS; and "FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary or other officer of this Corporation, or any one or more of them, be and each of them hereby is authorized and empowered to: (a) execute and deliver to MLBFS on behalf of this Corporation any and all loan agreements, promissory notes, security agreements, pledge agreements, financing statements, mortgages, deeds of trust, leases and/or all other agreements, instruments and documents required by MLBFS in connection therewith, and any present or future extensions, amendments, supplements, modifications and restatements thereof; all in such form as any such officer shall approve, as conclusively evidenced by his or her signature thereon, and (b) do and perform all such acts and things deemed by any such officer to be necessary or advisable to carry out and perform the undertakings and agreements of this Corporation in connection therewith; and any and all prior acts of each of said officers in these premises are hereby ratified and confirmed in all respects; and "FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing resolutions until it receives written notice of any change or revocation from an authorized officer of this Corporation, which change or revocation shall not in any event affect the obligations of this Corporation with respect to any transaction conditionally agreed or committed to by MLBFS or having its inception prior to the receipt of such notice by MLBFS." The undersigned further certifies that: (a) the foregoing resolutions have not been rescinded, modified or repealed in any manner, are not in conflict with any agreement of said Corporation and are in full force and effect as of the date of this Certificate, and (b) the following individuals are now the duly elected and acting officers of said Corporation and the signatures set forth below are the true signatures of said officers: President: ____________________________________________________________ Vice President: _______________________________________________________ Treasurer: ____________________________________________________________ Secretary:_____________________________________________________________ ___________________: __________________________________________________ Additional Title IN WITNESS WHEREOF, the undersigned has executed this Certificate and has affixed the seal of said Corporation hereto, pursuant to due authorization, all as of this ________ day of _________________, 2001. (Corporate Seal) ____________________________________ Secretary Printed Name:____________________________________ GRAPHIC - MERRILL LYNCH LOGO] UNCONDITIONAL GUARANTY ================================================================================ FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit or lease property to or for the benefit of, or modify its credit relationship with, or enter into any other financial accommodations with LAKELAND INDUSTRIES, INC., a corporation organized and existing under the laws of the State of Delaware (with any successor in interest, including, without limitation, any successor by merger or by operation of law, herein collectively referred to as "Customer") under: (a) that certain TERM LOAN AND SECURITY AGREEMENT No. 0101552001 between MLBFS and Customer (the "Loan Agreement"), (b) any "Additional Agreements", as that term is defined in the Loan Agreement, including, without limitation, the NOTE incorporated by reference in the Loan Agreement, and (c) all present and future amendments, restatements, supplements and other evidences of any extensions, increases, renewals, modifications and other changes of or to the Loan Agreement or any Additional Agreements) (collectively, the "Guaranteed Documents"), and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned, LAIDLAW, ADAMS & PECK, INC. F/K/A FIRELAND INDUSTRIES, INC., a corporation organized and existing under the laws of the State of Delaware ("Guarantor"), hereby unconditionally guarantees to MLBFS: (i) the prompt and full payment when due, by acceleration or otherwise, of all sums now or any time hereafter due from Customer to MLBFS under the Guaranteed Documents, (ii) the prompt, full and faithful performance and discharge by Customer of each and every other covenant and warranty of Customer set forth in the Guaranteed Documents, and (iii) the prompt and full payment and performance of all other indebtedness, liabilities and obligations of Customer to MLBFS, howsoever created or evidenced, and whether now existing or hereafter arising (collectively, the "Obligations"). Guarantor further agrees to pay all reasonable costs and expenses (including, but not limited to, court costs and reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring to collect or enforce performance of any of the Obligations, or in enforcing this Guaranty. Guarantor acknowledges that MLBFS is relying on the execution and delivery of this Guaranty in advancing moneys to or extending or continuing to extend credit to or for the benefit of Customer. This Guaranty is absolute, unconditional and continuing and shall remain in effect until all of the Obligations shall have been fully and indefeasibly paid, performed and discharged. Upon the occurrence and during the continuance of any default or Event of Default under any of the Guaranteed Documents, any or all of the indebtedness hereby guaranteed then existing shall, at the option of MLBFS, become immediately due and payable from Guarantor (it being understood, however, that upon the occurrence of any "Bankruptcy Event", as defined in the Loan Agreement, all such indebtedness shall automatically become due and payable without action on the part of MLBFS). Notwithstanding the occurrence of any such event, this Guaranty shall continue and remain in full force and effect. To the extent MLBFS receives payment with respect to the Obligations, and all or any part of such payment is subsequently invalidated, declared to be fraudulent or preferential, set aside, required to be repaid by MLBFS or is repaid by MLBFS pursuant to a settlement agreement, to a trustee, receiver or any other person or entity, whether under any Bankruptcy law or otherwise (a "Returned Payment"), this Guaranty shall continue to be effective or shall be reinstated, as the case may be, to the extent of such payment or repayment by MLBFS, and the indebtedness or part thereof intended to be satisfied by such Returned Payment shall be revived and continued in full force and effect as if said Returned Payment had not been made. The liability of Guarantor hereunder shall in no event be affected or impaired by any of the following, any of which may be done or omitted by MLBFS from time to time, without notice to or the consent of Guarantor: (a) any renewals, amendments, restatements, modifications or supplements of or to any of the Guaranteed Documents, or any extensions, forbearances, compromises or releases of any of the Obligations or any of MLBFS' rights under any of the Guaranteed Documents; (b) any acceptance by MLBFS of any collateral or security for, or other guarantees of, any of the Obligations; (c) any failure, neglect or omission on the part of MLBFS to realize upon or protect any of the Obligations, or any collateral or security therefor, or to exercise any lien upon or right of appropriation of any moneys, credits or property of Customer or any other guarantor, possessed by or under the control of MLBFS or any of its affiliates, toward the liquidation or reduction of the Obligations; (d) any invalidity, irregularity or unenforceability of all or any part of the Obligations, of any collateral security for the Obligations, or the Guaranteed Documents; (e) any application of payments or credits by MLBFS; (f) the granting of credit from time to time by MLBFS to Customer in excess of the amount set forth in the Guaranteed Documents; or (g) any other act of commission or omission of any kind or at any time upon the part of MLBFS or any of its affiliates or any of their respective employees or agents with respect to any matter whatsoever. MLBFS shall not be required at any time, as a condition of Guarantor's obligations hereunder, to resort to payment from Customer or other persons or entities whatsoever, or any of their properties or estates, or resort to any collateral or pursue or exhaust any other rights or remedies whatsoever. No release or discharge in whole or in part of any other guarantor of the Obligations shall release or discharge Guarantor unless and until all of the Obligations shall have been indefeasibly fully paid and discharged. Guarantor expressly waives presentment, protest, demand, notice of dishonor or default, notice of acceptance of this Guaranty, notice of advancement of funds under the Guaranteed Documents and all other notices and formalities to which Customer or Guarantor might be entitled, by statute or otherwise, and, so long as there are any Obligations or MLBFS is committed to extend credit to Customer, waives any right to revoke or terminate this Guaranty without the express written consent of MLBFS. So long as there are any Obligations, Guarantor shall not have any claim, remedy or right of subrogation, reimbursement, exoneration, contribution, indemnification, or participation in any claim, right, or remedy of MLBFS against Customer or any security which MLBFS now has or hereafter acquires, whether or not such claim, right or remedy arises in equity, under contract, by statute, under common law, or otherwise. MLBFS is hereby irrevocably authorized by Guarantor at any time during the continuance of an Event of Default under the Loan Agreement or any other of the Guaranteed Documents or in respect of any of the Obligations, in its sole discretion and without demand or notice of any kind, to appropriate, hold, set off and apply toward the payment of any amount due hereunder, in such order of application as MLBFS may elect, all cash, credits, deposits, accounts, financial assets, investment property, securities and any other property of Guarantor which is in transit to or in the possession, custody or control of MLBFS or Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their respective agents, bailees or affiliates. Guarantor hereby collaterally assigns and grants to MLBFS a continuing security interest in all such property as additional security for the Obligations. Upon the occurrence and during the continuance of an Event of Default, MLBFS shall have all rights in such property available to collateral assignees and secured parties under all applicable laws, including, without limitation, the Uniform Commercial Code. Guarantor agrees to furnish to MLBFS such financial information concerning Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may otherwise from time to time reasonably request. Guarantor further hereby irrevocably authorizes MLBFS and each of its affiliates, including without limitation MLPF&S, to at any time (whether or not an Event of Default shall have occurred) obtain from and disclose to each other any and all financial and other information about Guarantor. No delay on the part of MLBFS in the exercise of any right or remedy under any of the Guaranteed Documents, this Guaranty or any other agreement shall operate as a waiver thereof, and, without limiting the foregoing, no delay in the enforcement of any security interest, and no single or partial exercise by MLBFS of any right or remedy shall preclude any other or further exercise thereof or the exercise of any other right or remedy. This Guaranty may be executed in any number of counterparts, each of which counterparts, once they are executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Guaranty. This Guaranty shall be binding upon Guarantor and its successors and assigns, and shall inure to the benefit of MLBFS and its successors and assigns. If there are more than one guarantor of the Obligations, all of the obligations and agreements of Guarantor are joint and several with such other guarantors. This Guaranty shall be governed by the laws of the State of Illinois. Without limiting the right of MLBFS to enforce this Guaranty in any jurisdiction and venue permitted by applicable law: (I) Guarantor agrees that this Guaranty may at the option of MLBFS be enforced by MLBFS in either the State of Illinois or in any other jurisdiction where GUARANTOR, Customer or any collateral for the Obligations OF CUSTOMER may be located, (ii) GUARANTOR IRREVOCABLY SUBMITS ITSELF to jurisdiction in the State of Illinois and venue in any State or Federal Court in the County of Cook for such purposes, and (iii) GUARANTOR waives any and all rights to contest said jurisdiction and venue AND THE CONVENIENCE OF ANY SUCH FORUM AND ANY AND ALL RIGHTS TO REMOVE SUCH ACTION FROM STATE TO FEDERAL COURT. guarantor further waives any rights to commence any action against MLBFS in any jurisdiction except in the County of Cook and State of Illinois. MLBFS and guarantor hereby each expressly waive any and all rights to a trial by jury in any action, proceeding or counterclaim brought BY either of the parties against the other party with respect to any matter relating to, arising out of or in any way connected with THIS GUARANTY and/or any of the transactions which are the subject matter of this GUARANTY. gUARANTOR FURTHER WAIVES THE RIGHT TO BRING ANY NON-COMPULSORY COUNTERCLAIMS. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. No modification or waiver of any of the provisions of this Guaranty shall be effective unless in writing and signed by both Guarantor and an officer of MLBFS. Each signatory on behalf of Guarantor warrants that he or she has authority to sign on behalf of Guarantor, and by so signing, to bind Guarantor hereunder. Dated as of March 9, 2001. LAIDLAW, ADAMS & PECK, INC. F/K/A FIRELAND INDUSTRIES, INC. By: ---------------------------------------------------------------------------- Signature (1) Signature (2) - -------------------------------------------------------------------------------- Printed Name Printed Name - -------------------------------------------------------------------------------- Title Title Address of Guarantor: 711-2 Koehler Avenue Ronkonkoma, NY 11779 2 GRAPHIC - MERRILL LYNCH LOGO] SECRETARY'S CERTIFICATE ================================================================================ (Guaranty by Corporation) The undersigned hereby certifies to Merrill Lynch Business Financial Services Inc. that the undersigned is the duly appointed and acting Secretary (or Assistant Secretary) of LAIDLAW, ADAMS & PECK, INC. F/K/A FIRELAND INDUSTRIES, INC., a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; and that the following is a true, accurate and compared transcript of resolutions duly, validly and lawfully adopted on the _______ day of ____________________, 2001 by the Board of Directors of said Corporation acting in accordance with the laws of the state of incorporation and the charter and by-laws of said Corporation: "RESOLVED, that it is advisable and in the best interests and to the benefit of this Corporation to guaranty the obligations of LAKELAND INDUSTRIES, INC. ("Customer") to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS"); and "FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary or other officer of this Corporation, or any one or more of them, be and each of them hereby is authorized and empowered for and on behalf of this Corporation to: (a) execute and deliver to MLBFS: (i) an Unconditional Guaranty of the obligations of Customer, (ii) any other agreements, instruments and documents required by MLBFS in connection therewith, including, without limitation, any agreements, instruments and documents evidencing liens or security interests on any of the property of this Corporation as collateral for said Unconditional Guaranty and/or the obligations of Customer to MLBFS, and (iii) any present or future amendments to any of the foregoing; all in such form as such officer shall approve, as evidenced by his signature thereon; and (b) to do and perform all such acts and things deemed by any such officer to be necessary or advisable to carry out and perform the undertakings and agreements of this Corporation set forth therein; and all prior acts of each of said officers in these premises are hereby ratified and confirmed; and "FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing resolutions until it receives written notice of any change or revocation from an authorized officer of this Corporation, which change or revocation shall not in any event affect the obligations of this Corporation with respect to any transaction conditionally agreed or committed to by MLBFS or having its inception prior to the receipt of such notice by MLBFS." The undersigned further certifies that: (a) the foregoing resolutions have not been rescinded, modified or repealed in any manner, are not in conflict with any agreement of said Corporation and are in full force and effect as of the date of this Certificate, and (b) the following individuals are now the duly elected and acting officers of said Corporation and the signatures set forth below are the true signatures of said officers: President: ____________________________________________________________ Vice President: _______________________________________________________ Treasurer: ____________________________________________________________ Secretary:_____________________________________________________________ _________________: ____________________________________________________ Additional Title IN WITNESS WHEREOF, the undersigned has executed this Certificate and has affixed the seal of said corporation hereto, pursuant to due authorization, all as of this ________ day of _________________, 2001. (Corporate Seal) __________________________________________ Secretary Printed Name: __________________________________________ GRAPHIC - MERRILL LYNCH LOGO] SECURITY AGREEMENT ================================================================================ Security Agreement ("Agreement") dated as of February 2, 2001, between LAIDLAW, ADAMS & PECK, INC. F/K/A FIRELAND INDUSTRIES, INC., a corporation organized and existing under the laws of the State of Delaware having its principal office at 711-2 Koehler Avenue, Ronkonkoma, NY 11779 ("Grantor"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation organized and existing under the laws of the State of Delaware having its principal office at 222 North LaSalle Street, Chicago, IL 60601 ("MLBFS"). In order to induce MLBFS to extend or continue to extend credit to LAKELAND INDUSTRIES, INC. ("Customer") under the Loan Agreement (as defined below) or otherwise, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Grantor hereby agrees with MLBFS as follows: 1. DEFINITIONS (a) Specific Terms. In addition to terms defined elsewhere in this Agreement, when used herein the following terms shall have the following meanings: (i) "Account Debtor" shall mean any party who is or may become obligated with respect to an Account or Chattel Paper. (ii) "Bankruptcy Event" shall mean any of the following: (A) a proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or receivership law or statute shall be filed or consented to by Grantor or Customer; or (B) any such proceeding shall be filed against Grantor or Customer and shall not be dismissed or withdrawn within sixty (60) days after filing; or (C) Grantor or Customer shall make a general assignment for the benefit of creditors; or (D) Grantor or Customer shall generally fail to pay or admit in writing its inability to pay its debts as they become due; or (E) Grantor or Customer shall be adjudicated a bankrupt or insolvent. (iii) "Business Day" shall mean any day other than a Saturday, Sunday, federal holiday or other day on which the New York Stock Exchange is regularly closed. (iv) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights, Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents, Instruments, Financial Assets and Investment Property of Grantor, howsoever arising, whether now owned or existing or hereafter acquired or arising, and wherever located; together with all parts thereof (including spare parts), all accessories and accessions thereto, all books and records (including computer records) directly related thereto, all proceeds thereof (including, without limitation, proceeds in the form of Accounts and insurance proceeds), and the additional collateral described in Section 7 (b) hereof. (v) "Default" shall mean an "Event of Default", as defined in Section 6 hereof, or any event which with the giving of notice, passage of time, or both, would constitute such an Event of Default. (vi) "Loan Agreement" shall mean that certain TERM LOAN AND SECURITY AGREEMENT No. 0101552001 between MLBFS and Customer, together with all agreements, instruments and documents executed pursuant thereto, as any or all of the same may from time to time be or have been amended, restated, extended or supplemented. (vii) "Location of Tangible Collateral" shall mean the address of Grantor set forth at the beginning of this Agreement, together with any other address or addresses set forth on any exhibit hereto as being a Location of Tangible Collateral. (viii) "Obligations" shall mean all liabilities, indebtedness and other obligations of Customer or Grantor to MLBFS, howsoever created, arising or evidenced, whether now existing or hereafter arising, whether direct or indirect, absolute or contingent, due or to become due, primary or secondary or joint or several, and, without limiting the foregoing, shall include interest accruing after the filing of any petition in bankruptcy, and all present and future liabilities, indebtedness and obligations of Customer under the Loan Agreement and the agreements, instruments and documents executed pursuant thereto, and of Grantor under this Agreement. (ix) "Permitted Liens" shall mean with respect to the Collateral: (A) liens for current taxes not delinquent, other non-consensual liens arising in the ordinary course of business for sums not due, and, if MLBFS' rights to and interest in the Collateral are not materially and adversely affected thereby, any such liens for taxes or other non-consensual liens arising in the ordinary course of business being contested in good faith by appropriate proceedings; (B) liens in favor of MLBFS; and (C) any other liens expressly permitted in writing by MLBFS. (b) Other Terms. Except as otherwise defined herein, all terms used in this Agreement which are defined in the Uniform Commercial Code of Illinois ("UCC") shall have the meanings set forth in the UCC. 2. COLLATERAL (a) Pledge of Collateral. To secure payment and performance of the Obligations, Grantor hereby pledges, assigns, transfers and sets over to MLBFS, and grants to MLBFS a first lien and security interest in and upon all of the Collateral, subject only to Permitted Liens. (b) Liens. Except upon the prior written consent of MLBFS, Grantor shall not create or permit to exist any lien, encumbrance or security interest upon or with respect to any Collateral now owned or hereafter acquired other than Permitted Liens. (c) Performance of Obligations. Grantor shall perform all of its obligations owing on account of or with respect to the Collateral; it being understood that nothing herein, and no action or inaction by MLBFS, under this Agreement or otherwise, shall be deemed an assumption by MLBFS of any of Grantor's said obligations. (d) Notice of Certain Events. Grantor shall give MLBFS immediate notice of any attachment, lien, judicial process, encumbrance or claim affecting or involving $25,000.00 or more of the Collateral. (e) Indemnification Grantor shall indemnify, defend and save MLBFS harmless from and against any and all claims, losses, costs, expenses (including, without limitation, reasonable attorneys' fees and expenses), demands, liabilities, penalties, fines and forfeitures of any nature whatsoever which may be asserted against or incurred by MLBFS arising out of or in any manner occasioned by (i) the ownership, use, operation, condition or maintenance of any Collateral, or (ii) any failure by Grantor to perform any of its obligations hereunder; excluding, however, from said indemnity any such claims, losses, etc. arising out of the willful wrongful act or active gross negligence of MLBFS. This indemnity shall survive the expiration or termination of this Agreement as to all matters arising or accruing prior to such expiration or termination. (f) Insurance. Grantor shall insure all of the tangible Collateral with an insurer or insurers reasonably acceptable to MLBFS, under a policy or policies of physical damage insurance reasonably acceptable to MLBFS providing that (i) losses will be payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable endorsement , and (ii) MLBFS will receive not less than 10 days prior written notice of any cancellation; and containing such other provisions as may be reasonably required by MLBFS. Grantor shall maintain such other insurance as may be required by law or otherwise reasonably required by MLBFS. Grantor shall furnish MLBFS with a copy or certificate of each such policy or policies and, prior to any expiration or cancellation, each renewal or replacement thereof. (g) Event of Loss. Grantor shall at its expense promptly repair all repairable damage to any tangible Collateral. In the event that any tangible Collateral is damaged beyond repair, lost, totally destroyed or confiscated (an "Event of Loss") and such Collateral had a value prior to such Event of Loss of $25,000.00 or more, then, on or before the first to occur of (i) 90 days after the occurrence of such Event of Loss, or (ii) 10 Business Days after the date on which either Grantor or MLBFS shall receive any proceeds of insurance on account of such Event of Loss, or any underwriter of insurance on such tangible Collateral shall advise either Grantor or MLBFS that it disclaims liability in respect of such Event of Loss, Grantor shall, at Grantor's option, either replace the Collateral subject to such Event of Loss with comparable Collateral free of all liens other than Permitted Liens (in which event Grantor shall be entitled to utilize the proceeds of insurance on account of such Event of Loss for such purpose, and may retain any excess proceeds of such insurance), or pay to MLBFS on account of the Obligations an amount equal to the actual cash value of such Collateral as determined by either the applicable insurance company's payment (plus any applicable deductible) or, in absence of insurance company payment, as reasonably determined by MLBFS. Notwithstanding the foregoing, if at the time of occurrence of such Event of Loss or any time thereafter prior to replacement or payment, as aforesaid, an Event of Default shall have occurred and be continuing hereunder, then MLBFS may at its sole option, exercisable at any time while such Event of Default shall be continuing, require Grantor to either replace such Collateral or make a payment on account of the Obligations, as aforesaid. (h) Sales and Collections. So long as no Event of Default shall have occurred and be continuing, Grantor may in the ordinary course of its business: (i) sell any Inventory normally held by Grantor for sale, (ii) use or consume any materials and supplies normally held by Grantor for use or consumption, and (iii) collect all of its Accounts. Grantor shall take such action with respect to protection of its Inventory and the other Collateral and the collection of its Accounts as MLBFS may from time to time reasonably request. (i) Account Schedules. Upon the request of MLBFS, made now or at any time or times hereafter, Grantor shall deliver to MLBFS, in addition to the other information required hereunder, a schedule identifying, for each Account and all Chattel Paper subject to MLBFS' security interests hereunder, each Account Debtor by name and address and amount, invoice number and date of each invoice. Grantor shall furnish to MLBFS such additional information with respect to the Collateral, and amounts received by Grantor as proceeds of any of the Collateral, as MLBFS may from time to time reasonably request. (j) Location. Except for movements in the ordinary course of its business, Grantor shall give MLBFS 30 days' prior written notice of the placing at or movement of any tangible Collateral to any location other than a Location of Tangible Collateral. (k) Alterations and Maintenance. Except upon the prior written consent of MLBFS, Grantor shall not make or permit any material alterations to any tangible Collateral which might materially reduce or impair its market value or utility. Grantor shall at all times keep the tangible Collateral in good condition and repair and shall pay or cause to be paid all obligations arising from the repair and maintenance of such Collateral, as well as all obligations with respect to each Location of Tangible Collateral, except for any such obligations being contested by Grantor in good faith by appropriate proceedings. 3. REPRESENTATIONS AND WARRANTIES Grantor represents and warrants to MLBFS that: (a) Organization. Grantor is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware, and is qualified to do business and in good standing in each other state where the nature of its business or the property owned by it make such qualification necessary. (b) Execution, Delivery and Performance. The execution, delivery and performance by Grantor of this Agreement have been duly authorized by all requisite action, do not and will not violate or conflict with any law or other governmental requirement, or any of the agreements, instruments or documents which formed or governed Grantor, and do not and will not breach or violate any of the provisions of, and will not result in a default by Grantor under, any other agreement, instrument or document to which it is a party or by which it or its properties are bound. (c) Notice or Consent. Except as may have been given or obtained, no notice to or consent or approval of any governmental body or authority or other third party whatsoever (including, without limitation, any other creditor) is required in connection with the execution, delivery or performance by Grantor of this Agreement. (d) Valid and Binding. This Agreement is the legal, valid and binding obligation of Grantor, enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws affecting the rights of creditors generally or by general principles of equity. (e) Financial Statements. Except as expressly set forth in Grantor 's financial statements, all financial statements of Grantor furnished to MLBFS have been prepared in conformity with generally accepted accounting principles, consistently applied, are true and correct, and fairly present the financial condition of it as at such dates and the results of its operations for the periods then ended; and since the most recent date covered by such financial statements, there has been no material adverse change in any such financial condition or operation. (f) Litigation, etc. No litigation, arbitration, administrative or governmental proceedings are pending or threatened against Grantor, which would, if adversely determined, materially and adversely affect the financial condition or continued operations of Grantor, or the liens and security interests of MLBFS hereunder. (g) Taxes. All federal, state and local tax returns, reports and statements required to be filed by Grantor have been filed with the appropriate governmental agencies and all taxes due and payable by Grantor have been timely paid (except to the extent that any such failure to file or pay will not materially and adversely affect either the liens and security interests of MLBFS hereunder or the financial condition or continued operations of Grantor). (h) Collateral. Grantor has good and marketable title to the Collateral, and, except for any Permitted Liens: (i) none of the Collateral is subject to any lien, encumbrance or security interest, and (ii) upon the filing of all Uniform Commercial Code financing statements executed by Grantor with respect to the Collateral or a copy of this Agreement in the appropriate jurisdiction(s) and/or the completion of any other action required by applicable law to perfect is lien and security interests, MLBFS will have valid and perfected first liens and security interests upon all of the Collateral. Each of the foregoing representations and warranties has been and will be relied upon as an inducement to MLBFS to advance funds or extend or continue to extend credit to Customer, and is continuing and shall be deemed remade by Grantor concurrently with each such advance or extension of credit by MLBFS to Customer. 4. FINANCIAL AND OTHER INFORMATION Grantor covenants and agrees that Grantor will furnish or cause to be furnished to MLBFS during the term of this Agreement such financial and other information as may be required by the Loan Agreement or any other document evidencing the Obligations or as MLBFS may from time to time reasonably request relating to Grantor or the Collateral. 5. OTHER COVENANTS Grantor further agrees during the term of this Agreement that: (a) Financial Records; Inspection. Grantor will: (i) maintain complete and accurate books and records at its principal place of business, and maintain all of its financial records in a manner consistent with the financial statements heretofore furnished to MLBFS, or prepared on such other basis as may be approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized representatives, upon reasonable notice and at reasonable times, to inspect its properties (both real and personal), operations, books and records. (b) Taxes. Grantor will pay when due all taxes, assessments and other governmental charges, howsoever designated, and all other liabilities and obligations, except to the extent that any such failure to pay will not materially and adversely affect either the liens and security interests of MLBFS hereunder, or the financial condition or continued operations of Grantor. (c) Compliance With Laws and Agreements. Grantor will not violate any law, regulation or other governmental requirement, any judgment or order of any court or governmental agency or authority, or any agreement, instrument or document to which it is a party or by which it is bound, if any such violation will materially and adversely affect either the liens and security interests of MLBFS hereunder, or the financial condition or continued operations of Grantor. (d) Notification By Grantor. Grantor shall provide MLBFS with prompt written notification of: (i) any Default; (ii) any materially adverse change in the business, financial condition or operations of Customer or Grantor; and (iii) any information which indicates that any financial statements of Customer or Grantor fail in any material respect to present fairly the financial condition and results of operations purported to be presented in such statements. Each notification by Grantor pursuant hereto shall specify the event or information causing such notification, and, to the extent applicable, shall specify the steps being taken to rectify or remedy such event or information. (e) Notice of Change Grantor shall give MLBFS not less than 30 days prior written notice of any change in the name (including any fictitious name) or principal place of business of Grantor. (f) Continuity. Except upon the prior written consent of MLBFS, which consent will not be unreasonably withheld: (i) Grantor shall not be a party to any merger or consolidation with, or purchase or otherwise acquire all or substantially all of the assets of, or any material stock, partnership, joint venture or other equity interest in, any person or entity, or sell, transfer or lease all or any substantial part of its assets, if any such action would result in either: (A) a material change in the principal business, ownership or control of Grantor, or (B) a material adverse change in the financial condition or operations of Grantor; (ii) Grantor shall preserve its existence and good standing in the jurisdiction(s) of establishment and operation; (iii) Grantor shall not engage in any material business substantially different from its business in effect as of the date of application by Customer for credit from MLBFS, or cease operating any such material business; (iv) Grantor shall not cause or permit any other person or entity to assume or succeed to any material business or operations of Grantor; and (iv) Grantor shall not cause or permit any material change in its controlling ownership. 6. EVENTS OF DEFAULT The occurrence of any of the following events shall constitute an "Event of Default" under this Agreement: (a) Event of Default Under any Loan Agreement. An Event of Default shall occur under the terms of the Loan Agreement. (b) Failure to Perform. Grantor shall default in the performance or observance of any covenant or agreement on its part to be performed or observed under this Agreement (not constituting an Event of Default under any other clause of this Section), and such default shall continue unremedied for 10 Business Days after written notice thereof shall have been given by MLBFS to Grantor. (c) Breach of Warranty. Any representation or warranty made by Grantor contained in this Agreement shall at any time prove to have been incorrect in any material respect when made. (d) Default Under Other Agreement. A default or Event of Default by Grantor shall occur under the terms of any other agreement, instrument or document with or intended for the benefit of MLBFS, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") or any of their affiliates, and any required notice shall have been given and required passage of time shall have elapsed. (e) Seizure or Abuse of Collateral. The Collateral, or any material part thereof, shall be or become subject to any levy, attachment, seizure or confiscation which is not released within 10 Business Days. (f) Bankruptcy Event. Any Bankruptcy Event shall occur. (g) Material Impairment. Any event shall occur which shall reasonably cause MLBFS to in good faith believe that the prospect of payment or performance by Grantor has been materially impaired. The existence of such a material impairment shall be determined in a manner consistent with the intent of Section 1-208 of the UCC. (h) Acceleration of Debt to Other Creditors. Any event shall occur which results in the acceleration of the maturity of any indebtedness of $100,000.00 or more of Grantor to another creditor under any indenture, agreement, undertaking, or otherwise. 7. REMEDIES (a) Remedies Upon Default Upon the occurrence and during the continuance of any Event of Default, MLBFS may at its sole option do any one or more or all of the following, at such time and in such order as MLBFS may in its sole discretion choose: (i) Acceleration. MLBFS may declare all Obligations to be forthwith due and payable, whereupon all such amounts shall be immediately due and payable, without presentment, demand for payment, protest and notice of protest, notice of dishonor, notice of acceleration, notice of intent to accelerate or other notice or formality of any kind, all of which are hereby expressly waived; provided, however, that upon the occurrence of any Bankruptcy Event all Obligations shall automatically become due and payable without any action on the part of MLBFS. (ii) Exercise Rights of Secured Party. MLBFS may exercise any or all of the remedies of a secured party under applicable law, including, but not limited to, the UCC, and any or all of its other rights and remedies under this Agreement. (iii) Possession. MLBFS may require Grantor to make the Collateral and the records pertaining to the Collateral available to MLBFS at a place designated by MLBFS which is reasonably convenient to Grantor, or may take possession of the Collateral and the records pertaining to the Collateral without the use of any judicial process and without any prior notice to Grantor. (iv) Sale. MLBFS may sell any or all of the Collateral at public or private sale upon such terms and conditions as MLBFS may reasonably deem proper, and MLBFS may purchase any Collateral at any such public sale; and the net proceeds of any such public or private sale and all other amounts actually collected or received by MLBFS pursuant hereto, after deducting all costs and expenses incurred at any time in the collection of the Obligations and in the protection, collection and sale of the Collateral, will be applied to the payment of the Obligations, with any remaining proceeds paid to Grantor or whoever else may be entitled thereto, and with Customer and each guarantor of Customer's obligations remaining jointly and severally liable for any amount remaining unpaid after such application. (v) Delivery of Cash, Checks, Etc. MLBFS may require Grantor to forthwith upon receipt, transmit and deliver to MLBFS in the form received, all cash, checks, drafts and other instruments for the payment of money (properly endorsed, where required, so that such items may be collected by MLBFS) which may be received by Grantor at any time in full or partial payment of any Collateral, and require that Grantor not commingle any such items which may be so received by Grantor with any other of its funds or property but instead hold them separate and apart and in trust for MLBFS until delivery is made to MLBFS. (vi) Notification of Account Debtors. MLBFS may notify any Account Debtor that its Account or Chattel Paper has been assigned to MLBFS and direct such Account Debtor to make payment directly to MLBFS of all amounts due or becoming due with respect to such Account or Chattel Paper; and MLBFS may enforce payment and collect, by legal proceedings or otherwise, such Account or Chattel Paper. (vii) Control of Collateral. MLBFS may otherwise take control in any lawful manner of any cash or non-cash items of payment or proceeds of Collateral and of any rejected, returned, stopped in transit or repossessed goods included in the Collateral and endorse Grantor name on any item of payment on or proceeds of the Collateral, and, in connection therewith, MLBFS may notify the postal authorities to change the address for delivery of mail addressed to Grantor to such address as MLBFS may designate. (b) Set-Off. MLBFS shall have the further right upon the occurrence and during the continuance of an Event of Default to set-off, appropriate and apply toward payment of any of the Obligations, in such order of application as MLBFS may from time to time and at any time elect, any cash, credits, deposits, accounts, financial assets, investment property, securities and any other property of Grantor which is in transit to or in the possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S. Grantor hereby collaterally assigns and grants to MLBFS a security interest in all such property as additional Collateral. (c) Power of Attorney. Effective upon the occurrence and during the continuance of an Event of Default, Grantor hereby irrevocably appoints MLBFS as its attorney-in-fact, with full power of substitution, in its place and stead and in its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion take any action and to execute any instrument which MLBFS may deem necessary or advisable to accomplish the purposes of this Agreement, including, but not limited to, to receive, endorse and collect all checks, drafts and other instruments for the payment of money made payable to Grantor included in the Collateral. (d) Remedies are Severable and Cumulative. All rights and remedies of MLBFS herein are severable and cumulative and in addition to all other rights and remedies available at law or in equity, and any one or more of such rights and remedies may be exercised simultaneously or successively. Any notice required under this Agreement or under applicable law shall be deemed reasonably and properly given to Grantor if given at the address and by any of the methods of giving notice set forth in this Agreement at least 5 Business Days before taking any action specified in such notice. (e) Notices. To the fullest extent permitted by applicable law, Grantor hereby irrevocably waives and releases MLBFS of and from any and all liabilities and penalties for failure of MLBFS to comply with any statutory or other requirement imposed upon MLBFS relating to notices of sale, holding of sale or reporting of any sale, and Grantor waives all rights of redemption or reinstatement from any such sale. MLBFS shall have the right to postpone or adjourn any sale or other disposition of Collateral at any time without giving notice of any such postponed or adjourned date. In the event MLBFS seeks to take possession of any or all of the Collateral by court process, Grantor further irrevocably waives to the fullest extent permitted by law any bonds and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession, and any demand for possession prior to the commencement of any suit or action. 8. MISCELLANEOUS (a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any right, power or remedy pursuant to this Agreement shall operate as a waiver thereof, and no single or partial exercise of any such right, power or remedy shall preclude any other or further exercise thereof, or the exercise of any other right, power or remedy. Neither any waiver of any provision of this Agreement, nor any consent to any departure by Grantor therefrom, shall be effective unless the same shall be in writing and signed by MLBFS. Any waiver of any provision of this Agreement and any consent to any departure by Grantor from the terms of this Agreement shall be effective only in the specific instance and for the specific purpose for which given. Except as otherwise expressly provided herein, no notice to or demand on Grantor shall in any case entitle Grantor to any other or further notice or demand in similar or other circumstances. (b) Communications. All notices and other communications required or permitted hereunder shall be in writing, and shall be either delivered personally, mailed by postage prepaid certified mail or sent by express overnight courier or by facsimile. Such notices and communications shall be deemed to be given on the date of personal delivery, facsimile transmission or actual delivery of certified mail, or one Business Day after delivery to an express overnight courier. Unless otherwise specified in a notice sent or delivered in accordance with the terms hereof, notices and other communications in writing shall be given to the parties hereto at their respective addresses set forth at the beginning of this Agreement, and, in the case of facsimile transmission, to the parties at their respective regular facsimile telephone number. (c) Costs, Expenses and Taxes. Grantor shall pay or reimburse MLBFS upon demand for: (i) all Uniform Commercial Code filing and search fees and expenses incurred by MLBFS in connection with the verification, perfection or preservation of MLBFS' rights hereunder or in the Collateral; (ii) any and all stamp, transfer and other taxes and fees payable or determined to be payable in connection with the execution, delivery and/or recording of this Agreement; and (iii) all reasonable fees and out-of-pocket expenses (including, but not limited to, reasonable fees and expenses of outside counsel) incurred by MLBFS in connection with the enforcement of this Agreement or the protection of MLBFS' rights hereunder, excluding, however, salaries and expenses of MLBFS' employees. The obligations of Grantor under this paragraph shall survive the expiration or termination of this Agreement and the discharge of the other Obligations. (d) Right to Perform Obligations. If Grantor shall fail to do any act or thing which it has covenanted to do under this Agreement or any representation or warranty on the part of Grantor contained in this Agreement shall be breached, MLBFS may, in its sole discretion, after 5 Business Days written notice is sent to Grantor (or such lesser notice, including no notice, as is reasonable under the circumstances), do the same or cause it to be done or remedy any such breach, and may expend its funds for such purpose. Any and all reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Grantor upon demand, with interest at the highest "Interest Rate" under the Loan Agreement under the Loan Agreement, or the highest interest rate permitted by law, whichever is less, during the period from and including the date funds are so expended by MLBFS to the date of repayment, and any such amounts due and owing MLBFS shall be additional Obligations. The payment or performance by MLBFS of any of Grantor's obligations hereunder shall not relieve Grantor of said obligations or of the consequences of having failed to pay or perform the same, and shall not waive or be deemed a cure of any Default. (e) Further Assurances. Grantor agrees to do such further acts and things and to execute and deliver to MLBFS such additional agreements, instruments and documents as MLBFS may reasonably require or deem advisable to effectuate the purposes of this Agreement, or to establish, perfect and maintain MLBFS' security interests and liens upon the Collateral, including, but not limited to: (i) executing financing statements or amendments thereto when and as reasonably requested by MLBFS; and (ii) if in the reasonable judgment of MLBFS it is required by local law, causing the owners and/or mortgagees of the real property on which any Collateral may be located to execute and deliver to MLBFS waivers or subordinations reasonably satisfactory to MLBFS with respect to any rights in such Collateral. (f) Binding Effect. This Agreement shall be binding upon Grantor and its successors and assigns, and shall inure to the benefit of MLBFS and its successors and assigns. (g) Headings. Captions and section and paragraph headings in this Agreement are inserted only as a matter of convenience, and shall not affect the interpretation hereof. (h) Governing Law. This Agreement shall be governed in all respects by the laws of the State of Illinois. (i) Severability of Provisions. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. (j) Term. This Agreement shall become effective upon acceptance by MLBFS, and, subject to the terms hereof, shall continue in effect so long thereafter as either MLBFS shall be committed to advance funds or extend credit to Customer or there shall be any Obligations outstanding. (k) Counterparts. This Agreement may be executed in one or more counterparts which, when taken together, constitute one and the same agreement. (l) Jurisdiction; Waiver. GRANTOR ACKNOWLEDGES THAT THIS AGREEMENT IS BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN ITS SOLE DISCRETION, TO ENFORCE THIS AGREEMENT IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE GRANTOR OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. GRANTOR IRREVOCABLY SUBMITS ITSELF TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND GRANTOR WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE AND THE CONVENIENCE OF ANY SUCH FORUM, AND ANY AND ALL RIGHTS TO REMOVE SUCH ACTION FROM STATE TO FEDERAL COURT. GRANTOR FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND GRANTOR HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE LOAN AGREEMENT, THIS AGREEMENT AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THE LOAN AGREEMENT OR THIS AGREEMENT. GRANTOR FURTHER WAIVES THE RIGHT TO BRING ANY NON-COMPULSORY COUNTERCLAIMS. (m) Integration. THIS WRITTEN AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. NO AMENDMENT OR MODIFICATION OF THIS AGREEMENT SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY BOTH MLBFS AND GRANTOR. IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written. LAIDLAW, ADAMS & PECK, INC. F/K/A FIRELAND INDUSTRIES, INC. By: ---------------------------------------------------------------------------- Signature (1) Signature (2) - -------------------------------------------------------------------------------- Printed Name Printed Name - -------------------------------------------------------------------------------- Title Title Accepted at Chicago, Illinois: MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. By: -------------------------------------- GRAPHIC - MERRILL LYNCH LOGO] UNCONDITIONAL GUARANTY ================================================================================ FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit or lease property to or for the benefit of, or modify its credit relationship with, or enter into any other financial accommodations with LAKELAND INDUSTRIES, INC., a corporation organized and existing under the laws of the State of Delaware (with any successor in interest, including, without limitation, any successor by merger or by operation of law, herein collectively referred to as "Customer") under: (a) that certain TERM LOAN AND SECURITY AGREEMENT No. 0101552001 between MLBFS and Customer (the "Loan Agreement"), (b) any "Additional Agreements", as that term is defined in the Loan Agreement, including, without limitation, the NOTE incorporated by reference in the Loan Agreement, and (c) all present and future amendments, restatements, supplements and other evidences of any extensions, increases, renewals, modifications and other changes of or to the Loan Agreement or any Additional Agreements) (collectively, the "Guaranteed Documents"), and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned, LAKELAND PROTECTIVE WEAR, INC. , a corporation organized and existing under the laws of the State of Delaware ("Guarantor"), hereby unconditionally guarantees to MLBFS: (i) the prompt and full payment when due, by acceleration or otherwise, of all sums now or any time hereafter due from Customer to MLBFS under the Guaranteed Documents, (ii) the prompt, full and faithful performance and discharge by Customer of each and every other covenant and warranty of Customer set forth in the Guaranteed Documents, and (iii) the prompt and full payment and performance of all other indebtedness, liabilities and obligations of Customer to MLBFS, howsoever created or evidenced, and whether now existing or hereafter arising (collectively, the "Obligations"). Guarantor further agrees to pay all reasonable costs and expenses (including, but not limited to, court costs and reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring to collect or enforce performance of any of the Obligations, or in enforcing this Guaranty. Guarantor acknowledges that MLBFS is relying on the execution and delivery of this Guaranty in advancing moneys to or extending or continuing to extend credit to or for the benefit of Customer. This Guaranty is absolute, unconditional and continuing and shall remain in effect until all of the Obligations shall have been fully and indefeasibly paid, performed and discharged. Upon the occurrence and during the continuance of any default or Event of Default under any of the Guaranteed Documents, any or all of the indebtedness hereby guaranteed then existing shall, at the option of MLBFS, become immediately due and payable from Guarantor (it being understood, however, that upon the occurrence of any "Bankruptcy Event", as defined in the Loan Agreement, all such indebtedness shall automatically become due and payable without action on the part of MLBFS). Notwithstanding the occurrence of any such event, this Guaranty shall continue and remain in full force and effect. To the extent MLBFS receives payment with respect to the Obligations, and all or any part of such payment is subsequently invalidated, declared to be fraudulent or preferential, set aside, required to be repaid by MLBFS or is repaid by MLBFS pursuant to a settlement agreement, to a trustee, receiver or any other person or entity, whether under any Bankruptcy law or otherwise (a "Returned Payment"), this Guaranty shall continue to be effective or shall be reinstated, as the case may be, to the extent of such payment or repayment by MLBFS, and the indebtedness or part thereof intended to be satisfied by such Returned Payment shall be revived and continued in full force and effect as if said Returned Payment had not been made. The liability of Guarantor hereunder shall in no event be affected or impaired by any of the following, any of which may be done or omitted by MLBFS from time to time, without notice to or the consent of Guarantor: (a) any renewals, amendments, restatements, modifications or supplements of or to any of the Guaranteed Documents, or any extensions, forbearances, compromises or releases of any of the Obligations or any of MLBFS' rights under any of the Guaranteed Documents; (b) any acceptance by MLBFS of any collateral or security for, or other guarantees of, any of the Obligations; (c) any failure, neglect or omission on the part of MLBFS to realize upon or protect any of the Obligations, or any collateral or security therefor, or to exercise any lien upon or right of appropriation of any moneys, credits or property of Customer or any other guarantor, possessed by or under the control of MLBFS or any of its affiliates, toward the liquidation or reduction of the Obligations; (d) any invalidity, irregularity or unenforceability of all or any part of the Obligations, of any collateral security for the Obligations, or the Guaranteed Documents; (e) any application of payments or credits by MLBFS; (f) the granting of credit from time to time by MLBFS to Customer in excess of the amount set forth in the Guaranteed Documents; or (g) any other act of commission or omission of any kind or at any time upon the part of MLBFS or any of its affiliates or any of their respective employees or agents with respect to any matter whatsoever. MLBFS shall not be required at any time, as a condition of Guarantor's obligations hereunder, to resort to payment from Customer or other persons or entities whatsoever, or any of their properties or estates, or resort to any collateral or pursue or exhaust any other rights or remedies whatsoever. No release or discharge in whole or in part of any other guarantor of the Obligations shall release or discharge Guarantor unless and until all of the Obligations shall have been indefeasibly fully paid and discharged. Guarantor expressly waives presentment, protest, demand, notice of dishonor or default, notice of acceptance of this Guaranty, notice of advancement of funds under the Guaranteed Documents and all other notices and formalities to which Customer or Guarantor might be entitled, by statute or otherwise, and, so long as there are any Obligations or MLBFS is committed to extend credit to Customer, waives any right to revoke or terminate this Guaranty without the express written consent of MLBFS. So long as there are any Obligations, Guarantor shall not have any claim, remedy or right of subrogation, reimbursement, exoneration, contribution, indemnification, or participation in any claim, right, or remedy of MLBFS against Customer or any security which MLBFS now has or hereafter acquires, whether or not such claim, right or remedy arises in equity, under contract, by statute, under common law, or otherwise. MLBFS is hereby irrevocably authorized by Guarantor at any time during the continuance of an Event of Default under the Loan Agreement or any other of the Guaranteed Documents or in respect of any of the Obligations, in its sole discretion and without demand or notice of any kind, to appropriate, hold, set off and apply toward the payment of any amount due hereunder, in such order of application as MLBFS may elect, all cash, credits, deposits, accounts, financial assets, investment property, securities and any other property of Guarantor which is in transit to or in the possession, custody or control of MLBFS or Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their respective agents, bailees or affiliates. Guarantor hereby collaterally assigns and grants to MLBFS a continuing security interest in all such property as additional security for the Obligations. Upon the occurrence and during the continuance of an Event of Default, MLBFS shall have all rights in such property available to collateral assignees and secured parties under all applicable laws, including, without limitation, the Uniform Commercial Code. Guarantor agrees to furnish to MLBFS such financial information concerning Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may otherwise from time to time reasonably request. Guarantor further hereby irrevocably authorizes MLBFS and each of its affiliates, including without limitation MLPF&S, to at any time (whether or not an Event of Default shall have occurred) obtain from and disclose to each other any and all financial and other information about Guarantor. No delay on the part of MLBFS in the exercise of any right or remedy under any of the Guaranteed Documents, this Guaranty or any other agreement shall operate as a waiver thereof, and, without limiting the foregoing, no delay in the enforcement of any security interest, and no single or partial exercise by MLBFS of any right or remedy shall preclude any other or further exercise thereof or the exercise of any other right or remedy. This Guaranty may be executed in any number of counterparts, each of which counterparts, once they are executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Guaranty. This Guaranty shall be binding upon Guarantor and its successors and assigns, and shall inure to the benefit of MLBFS and its successors and assigns. If there are more than one guarantor of the Obligations, all of the obligations and agreements of Guarantor are joint and several with such other guarantors. This Guaranty shall be governed by the laws of the State of Illinois. Without limiting the right of MLBFS to enforce this Guaranty in any jurisdiction and venue permitted by applicable law: (I) Guarantor agrees that this Guaranty may at the option of MLBFS be enforced by MLBFS in either the State of Illinois or in any other jurisdiction where GUARANTOR, Customer or any collateral for the Obligations OF CUSTOMER may be located, (ii) GUARANTOR IRREVOCABLY SUBMITS ITSELF to jurisdiction in the State of Illinois and venue in any State or Federal Court in the County of Cook for such purposes, and (iii) GUARANTOR waives any and all rights to contest said jurisdiction and venue AND THE CONVENIENCE OF ANY SUCH FORUM AND ANY AND ALL RIGHTS TO REMOVE SUCH ACTION FROM STATE TO FEDERAL COURT. guarantor further waives any rights to commence any action against MLBFS in any jurisdiction except in the County of Cook and State of Illinois. MLBFS and guarantor hereby each expressly waive any and all rights to a trial by jury in any action, proceeding or counterclaim brought BY either of the parties against the other party with respect to any matter relating to, arising out of or in any way connected with THIS GUARANTY and/or any of the transactions which are the subject matter of this GUARANTY. gUARANTOR FURTHER WAIVES THE RIGHT TO BRING ANY NON-COMPULSORY COUNTERCLAIMS. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. No modification or waiver of any of the provisions of this Guaranty shall be effective unless in writing and signed by both Guarantor and an officer of MLBFS. Each signatory on behalf of Guarantor warrants that he or she has authority to sign on behalf of Guarantor, and by so signing, to bind Guarantor hereunder. Dated as of March 9, 2001. LAKELAND PROTECTIVE WEAR, INC. By: ---------------------------------------------------------------------------- Signature (2) Signature (2) - -------------------------------------------------------------------------------- Printed Name Printed Name - -------------------------------------------------------------------------------- Title Title Address of Guarantor: 26-4380 South Service Road Brulington, Ontario, L7L5Y6 2 GRAPHIC - MERRILL LYNCH LOGO] SECRETARY'S CERTIFICATE ================================================================================ (Guaranty by Corporation) The undersigned hereby certifies to Merrill Lynch Business Financial Services Inc. that the undersigned is the duly appointed and acting Secretary (or Assistant Secretary) of LAKELAND PROTECTIVE WEAR, INC. , a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; and that the following is a true, accurate and compared transcript of resolutions duly, validly and lawfully adopted on the _______ day of ____________________, 2001 by the Board of Directors of said Corporation acting in accordance with the laws of the state of incorporation and the charter and by-laws of said Corporation: "RESOLVED, that it is advisable and in the best interests and to the benefit of this Corporation to guaranty the obligations of LAKELAND INDUSTRIES, INC. ("Customer") to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS"); and "FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary or other officer of this Corporation, or any one or more of them, be and each of them hereby is authorized and empowered for and on behalf of this Corporation to: (a) execute and deliver to MLBFS: (i) an Unconditional Guaranty of the obligations of Customer, (ii) any other agreements, instruments and documents required by MLBFS in connection therewith, including, without limitation, any agreements, instruments and documents evidencing liens or security interests on any of the property of this Corporation as collateral for said Unconditional Guaranty and/or the obligations of Customer to MLBFS, and (iii) any present or future amendments to any of the foregoing; all in such form as such officer shall approve, as evidenced by his signature thereon; and (b) to do and perform all such acts and things deemed by any such officer to be necessary or advisable to carry out and perform the undertakings and agreements of this Corporation set forth therein; and all prior acts of each of said officers in these premises are hereby ratified and confirmed; and "FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing resolutions until it receives written notice of any change or revocation from an authorized officer of this Corporation, which change or revocation shall not in any event affect the obligations of this Corporation with respect to any transaction conditionally agreed or committed to by MLBFS or having its inception prior to the receipt of such notice by MLBFS." The undersigned further certifies that: (a) the foregoing resolutions have not been rescinded, modified or repealed in any manner, are not in conflict with any agreement of said Corporation and are in full force and effect as of the date of this Certificate, and (b) the following individuals are now the duly elected and acting officers of said Corporation and the signatures set forth below are the true signatures of said officers: President: ____________________________________________________________ Vice President: _______________________________________________________ Treasurer: ____________________________________________________________ Secretary:_____________________________________________________________ _________________: ____________________________________________________ Additional Title IN WITNESS WHEREOF, the undersigned has executed this Certificate and has affixed the seal of said corporation hereto, pursuant to due authorization, all as of this ________ day of _________________, 2001. (Corporate Seal) ____________________________________________ Secretary Printed Name: ____________________________________________ GRAPHIC - MERRILL LYNCH LOGO] UNCONDITIONAL GUARANTY ================================================================================ FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit or lease property to or for the benefit of, or modify its credit relationship with, or enter into any other financial accommodations with LAKELAND INDUSTRIES, INC., a corporation organized and existing under the laws of the State of Delaware (with any successor in interest, including, without limitation, any successor by merger or by operation of law, herein collectively referred to as "Customer") under: (a) that certain TERM LOAN AND SECURITY AGREEMENT No. 0101552001 between MLBFS and Customer (the "Loan Agreement"), (b) any "Additional Agreements", as that term is defined in the Loan Agreement, including, without limitation, the NOTE incorporated by reference in the Loan Agreement, and (c) all present and future amendments, restatements, supplements and other evidences of any extensions, increases, renewals, modifications and other changes of or to the Loan Agreement or any Additional Agreements) (collectively, the "Guaranteed Documents"), and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned, LAKELAND DE MEXICO, S.A., a corporation domiciled in _______________, Mexico, United Mexican States and existing under the laws of Mexico, as evidenced in Public Instrument No. ______________ registered before the Public Registry of Commerce under Mercantile Folio No. _____________ on _____________, 199__, (hereinafter the "Guarantor") represented herein by ____________________, hereby unconditionally guarantees to MLBFS: (i) the prompt and full payment when due, by acceleration or otherwise, of all sums now or any time hereafter due from Customer to MLBFS under the Guaranteed Documents, (ii) the prompt, full and faithful performance and discharge by Customer of each and every other covenant and warranty of Customer set forth in the Guaranteed Documents, and (iii) the prompt and full payment and performance of all other indebtedness, liabilities and obligations of Customer to MLBFS, howsoever created or evidenced, and whether now existing or hereafter arising (collectively, the "Obligations"). Guarantor further agrees to pay all reasonable costs and expenses (including, but not limited to, court costs and reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring to collect or enforce performance of any of the Obligations, or in enforcing this Guaranty. Guarantor acknowledges that MLBFS is relying on the execution and delivery of this Guaranty in advancing moneys to or extending or continuing to extend credit to or for the benefit of Customer. This Guaranty is absolute, unconditional and continuing and shall remain in effect until all of the Obligations shall have been fully and indefeasibly paid, performed and discharged. Upon the occurrence and during the continuance of any default or Event of Default under any of the Guaranteed Documents, any or all of the indebtedness hereby guaranteed then existing shall, at the option of MLBFS, become immediately due and payable from Guarantor (it being understood, however, that upon the occurrence of any "Bankruptcy Event", as defined in the Loan Agreement, all such indebtedness shall automatically become due and payable without action on the part of MLBFS). Notwithstanding the occurrence of any such event, this Guaranty shall continue and remain in full force and effect. To the extent MLBFS receives payment with respect to the Obligations, and all or any part of such payment is subsequently invalidated, declared to be fraudulent or preferential, set aside, required to be repaid by MLBFS or is repaid by MLBFS pursuant to a settlement agreement, to a trustee, receiver or any other person or entity, whether under any Bankruptcy law or otherwise (a "Returned Payment"), this Guaranty shall continue to be effective or shall be reinstated, as the case may be, to the extent of such payment or repayment by MLBFS, and the indebtedness or part thereof intended to be satisfied by such Returned Payment shall be revived and continued in full force and effect as if said Returned Payment had not been made. The liability of Guarantor hereunder shall in no event be affected or impaired by any of the following, any of which may be done or omitted by MLBFS from time to time, without notice to or the consent of Guarantor: (a) any renewals, amendments, restatements, modifications or supplements of or to any of the Guaranteed Documents, or any extensions, forbearances, compromises or releases of any of the Obligations or any of MLBFS' rights under any of the Guaranteed Documents; (b) any acceptance by MLBFS of any collateral or security for, or other guarantees of, any of the Obligations; (c) any failure, neglect or omission on the part of MLBFS to realize upon or protect any of the Obligations, or any collateral or security therefor, or to exercise any lien upon or right of appropriation of any moneys, credits or property of Customer or any other guarantor, possessed by or under the control of MLBFS or any of its affiliates, toward the liquidation or reduction of the Obligations; (d) any invalidity, irregularity or unenforceability of all or any part of the Obligations, of any collateral security for the Obligations, or the Guaranteed Documents; (e) any application of payments or credits by MLBFS; (f) the granting of credit from time to time by MLBFS to Customer in excess of the amount set forth in the Guaranteed Documents; or (g) any other act of commission or omission of any kind or at any time upon the part of MLBFS or any of its affiliates or any of their respective employees or agents with respect to any matter whatsoever. MLBFS shall not be required at any time, as a condition of Guarantor's obligations hereunder, to resort to payment from Customer or other persons or entities whatsoever, or any of their properties or estates, or resort to any collateral or pursue or exhaust any other rights or remedies whatsoever. No release or discharge in whole or in part of any other guarantor of the Obligations shall release or discharge Guarantor unless and until all of the Obligations shall have been indefeasibly fully paid and discharged. Guarantor expressly waives presentment, protest, demand, notice of dishonor or default, notice of acceptance of this Guaranty, notice of advancement of funds under the Guaranteed Documents and all other notices and formalities to which Customer or Guarantor might be entitled, by statute or otherwise, and, so long as there are any Obligations or MLBFS is committed to extend credit to Customer, waives any right to revoke or terminate this Guaranty without the express written consent of MLBFS. So long as there are any Obligations, Guarantor shall not have any claim, remedy or right of subrogation, reimbursement, exoneration, contribution, indemnification, or participation in any claim, right, or remedy of MLBFS against Customer or any security which MLBFS now has or hereafter acquires, whether or not such claim, right or remedy arises in equity, under contract, by statute, under common law, or otherwise. MLBFS is hereby irrevocably authorized by Guarantor at any time during the continuance of an Event of Default under the Loan Agreement or any other of the Guaranteed Documents or in respect of any of the Obligations, in its sole discretion and without demand or notice of any kind, to appropriate, hold, set off and apply toward the payment of any amount due hereunder, in such order of application as MLBFS may elect, all cash, credits, deposits, accounts, financial assets, investment property, securities and any other property of Guarantor which is in transit to or in the possession, custody or control of MLBFS or Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their respective agents, bailees or affiliates. Guarantor hereby collaterally assigns and grants to MLBFS a continuing security interest in all such property as additional security for the Obligations. Upon the occurrence and during the continuance of an Event of Default, MLBFS shall have all rights in such property available to collateral assignees and secured parties under all applicable laws, including, without limitation, the Uniform Commercial Code. Guarantor agrees to furnish to MLBFS such financial information concerning Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may otherwise from time to time reasonably request. Guarantor further hereby irrevocably authorizes MLBFS and each of its affiliates, including without limitation MLPF&S, to at any time (whether or not an Event of Default shall have occurred) obtain from and disclose to each other any and all financial and other information about Guarantor. No delay on the part of MLBFS in the exercise of any right or remedy under any of the Guaranteed Documents, this Guaranty or any other agreement shall operate as a waiver thereof, and, without limiting the foregoing, no delay in the enforcement of any security interest, and no single or partial exercise by MLBFS of any right or remedy shall preclude any other or further exercise thereof or the exercise of any other right or remedy. This Guaranty may be executed in any number of counterparts, each of which counterparts, once they are executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Guaranty. This Guaranty shall be binding upon Guarantor and its successors and assigns, and shall inure to the benefit of MLBFS and its successors and assigns. If there are more than one guarantor of the Obligations, all of the obligations and agreements of Guarantor are joint and several with such other guarantors. This Guaranty shall be governed by the laws of the State of Illinois. Without limiting the right of MLBFS to enforce this Guaranty in any jurisdiction and venue permitted by applicable law: (I) Guarantor agrees that this Guaranty may at the option of MLBFS be enforced by MLBFS in either the State of Illinois or in any other jurisdiction where GUARANTOR, Customer or any collateral for the Obligations OF CUSTOMER may be located, (ii) GUARANTOR IRREVOCABLY SUBMITS ITSELF to jurisdiction in the State of Illinois and venue in any State or Federal Court in the County of Cook for such purposes, and (iii) GUARANTOR waives any and all rights to contest said jurisdiction and venue AND THE CONVENIENCE OF ANY SUCH FORUM AND ANY AND ALL RIGHTS TO REMOVE SUCH ACTION FROM STATE TO FEDERAL COURT. guarantor further waives any rights to commence any action against MLBFS in any jurisdiction except in the County of Cook and State of Illinois. MLBFS and guarantor hereby each expressly waive any and all rights to a trial by jury in any action, proceeding or counterclaim brought BY either of the parties against the other party with respect to any matter relating to, arising out of or in any way connected with THIS GUARANTY and/or any of the transactions which are the subject matter of this GUARANTY. gUARANTOR FURTHER WAIVES THE RIGHT TO BRING ANY NON-COMPULSORY COUNTERCLAIMS. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. No modification or waiver of any of the provisions of this Guaranty shall be effective unless in writing and signed by both Guarantor and an officer of MLBFS. Each signatory on behalf of Guarantor warrants that he or she has authority to sign on behalf of Guarantor, and by so signing, to bind Guarantor hereunder. Dated as of March 9, 2001. LAKELAND DE MEXICO, S.A. By: ---------------------------------------------------------------------------- Signature (3) Signature (2) - -------------------------------------------------------------------------------- Printed Name Printed Name - -------------------------------------------------------------------------------- Title Title Address of Guarantor: Rancho La Soledad Lote No. 2 Fracc. Poniente, C.P. 38020 Celaya , GGTO Mexico GRAPHIC - MERRILL LYNCH LOGO] SECRETARY'S CERTIFICATE ================================================================================ (Guaranty by Corporation) The undersigned hereby certifies to Merrill Lynch Business Financial Services Inc. that the undersigned is the duly appointed and acting Secretary (or Assistant Secretary) of LAKELAND DE MEXICO, S.A., a corporation duly organized, validly existing and in good standing under the laws of Mexico; and that the following is a true, accurate and compared transcript of resolutions duly, validly and lawfully adopted on the _______ day of ____________________, 2001 by the Board of Directors of said Corporation acting in accordance with the laws of the state of incorporation and the charter and by-laws of said Corporation: "RESOLVED, that it is advisable and in the best interests and to the benefit of this Corporation to guaranty the obligations of LAKELAND INDUSTRIES, INC. ("Customer") to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS"); and "FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary or other officer of this Corporation, or any one or more of them, be and each of them hereby is authorized and empowered for and on behalf of this Corporation to: (a) execute and deliver to MLBFS: (i) an Unconditional Guaranty of the obligations of Customer, (ii) any other agreements, instruments and documents required by MLBFS in connection therewith, including, without limitation, any agreements, instruments and documents evidencing liens or security interests on any of the property of this Corporation as collateral for said Unconditional Guaranty and/or the obligations of Customer to MLBFS, and (iii) any present or future amendments to any of the foregoing; all in such form as such officer shall approve, as evidenced by his signature thereon; and (b) to do and perform all such acts and things deemed by any such officer to be necessary or advisable to carry out and perform the undertakings and agreements of this Corporation set forth therein; and all prior acts of each of said officers in these premises are hereby ratified and confirmed; and "FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing resolutions until it receives written notice of any change or revocation from an authorized officer of this Corporation, which change or revocation shall not in any event affect the obligations of this Corporation with respect to any transaction conditionally agreed or committed to by MLBFS or having its inception prior to the receipt of such notice by MLBFS." The undersigned further certifies that: (a) the foregoing resolutions have not been rescinded, modified or repealed in any manner, are not in conflict with any agreement of said Corporation and are in full force and effect as of the date of this Certificate, and (b) the following individuals are now the duly elected and acting officers of said Corporation and the signatures set forth below are the true signatures of said officers: President: ____________________________________________________________ Vice President: _______________________________________________________ Treasurer: ____________________________________________________________ Secretary:_____________________________________________________________ __________________: ___________________________________________________ Additional Title IN WITNESS WHEREOF, the undersigned has executed this Certificate and has affixed the seal of said corporation hereto, pursuant to due authorization, all as of this ________ day of _________________, 2001. (Corporate Seal) ________________________________________ Secretary Printed Name: ________________________________________ GRAPHIC - MERRILL LYNCH LOGO] CLOSING CERTIFICATE ================================================================================ The undersigned, LAKELAND INDUSTRIES, INC., a corporation organized and existing under the laws of the State of Delaware ("Customer"), as a primary inducement to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS") to make a loan to Customer (the "Loan") pursuant to that certain TERM LOAN AND SECURITY AGREEMENT No. 0101552001 between Customer and MLBFS dated as of March 9, 2001 (the "Loan Agreement") DOES HEREBY REPRESENT, WARRANT AND AGREE AS FOLLOWS: 1. All of Customer's representations and warranties in the Loan Agreement are true and correct and remade as of the date hereof, and, without limiting the foregoing: (i) subject only to "Permitted Liens" (as defined in the Loan Agreement), MLBFS has a first lien and security interest upon all of the "Collateral" under the Loan Agreement (including any Collateral financed or refinanced with the proceeds of the Loan), and (ii) the Loan is being applied on account of and will satisfy the "Loan Purpose" under the Loan Agreement. 2. There has not occurred any event which constitutes an "Default" under the Loan Agreement. 3. There has not occurred any material adverse change in the business or financial condition of Customer or any Guarantor of Customer's obligations to MLBFS since the date of the last financial statements submitted to MLBFS. 4. MLBFS is hereby authorized and directed to disburse the proceeds of the Loan in the amount of $______________, by: check wire transfer deposit as follows: To refinance Customer's Term Loan No. 9909550501. Dated this ____ day of ____________, 2001 LAKELAND INDUSTRIES, INC. By: ---------------------------------------------------------------------------- Signature (1) Signature (2) - -------------------------------------------------------------------------------- Printed Name Printed Name - -------------------------------------------------------------------------------- Title Title [GRAPHIC - MERRILL LYNCH LETTERHEAD] March 9, 2001 Mr. Raymond J. Smith Lakeland Industries, Inc. 711-2 Koehler Avenue Ronkonkoma, NY 11779-7410 Re: Term Loan Approval Dear Mr. Smith, As I believe you know, we have approved the request of Lakeland Industries, Inc. ("Customer") for a Term Loan upon the terms and conditions set forth in the enclosed documents ("Loan Documents"). For your information, the following are some of the principal terms of the approval: Loan Purpose: The purpose of the Term Loan is to refinance Customer's existing Term Loan No. 9909550501. Maximum Loan Amount: An amount equal to the lesser of: (A) 100% of the amount required by Customer to satisfy or fulfill the Loan Purpose, (B) the aggregate amount which Customer shall request be advanced by MLBFS on account of the Loan Purpose, or (C) $2,149,207.11. Term: 2-years from the first day of the calendar month immediately following the date of funding. Interest Rate: Variable at a per annum rate equal to the sum of 2.45% plus the 30-day Dealer Commercial Paper Rate published from time to time in The Wall Street Journal, based upon actual days elapsed over a 360-day year. Please refer to the Loan Documents for a complete statement of the terms of the Term Loan. In addition to conditions set forth in the Loan Documents, our approval is subject to: (a) Our receipt of all of the Loan Documents together with any additional documents contemplated thereby or otherwise reasonably required by us, all of which shall be duly executed and, if applicable, recorded, and all of which shall be in form and substance satisfactory to us. (b) Acceptance by us in writing of the executed Loan Documents at our office in Chicago after review and a final determination by us of the consistency of the Loan Documents with our original internal credit approval. (Without limiting the foregoing, it should be understood that prior to such acceptance we are not bound by any clerical or other errors in or omissions from the Loan Documents.) (c) Our continuing satisfaction with the financial condition of Customer and each guarantor of Customer's obligations to us. (d) There not occurring any event which under the terms of the Loan Documents would constitute a Default. (e) Evidence satisfactory to us of the perfection and priority of any liens required by us in the Loan Documents. (f) Our receipt of a Certificate of Insurance satisfactory to us evidencing a policy or policies of physical damage insurance on the tangible collateral described in the Loan Documents, and providing that losses shall be payable to us as our interests may appear pursuant to a Lender's Loss Payable Endorsement, and that we shall receive not less than 10 days prior notice of any cancellation or material amendment. Our approval will remain open subject to said conditions until March 31, 2001, after which time it shall be void. Note that under the terms of the Loan Documents Customer is responsible for UCC filing and search fees and expenses and any taxes in connection with the Loan Documents and/or such filing . To assist you in completing the Loan Documents, we have affixed a "Sign Here" sticker to each page requiring a signature, and have penciled an "x" in front of each signature line. In order to minimize signature requirements, we normally seek only one copy of each of the Loan Documents. After the Loan has been funded, we will return a fully executed duplicate copy for your records. If you have any questions about our approval or the structure or terms of the facility, please call Phil M. Kain at 312-269-1367. If you have any questions about the Loan Documents, please call me at 312-269-5458. Very truly yours, MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. By: _________________________________________________ Jodie Zwerner Documentation Manager cc: Wayne Dedrick Phil M. Kain [GRAPHIC - MERRILL LYNCH LOGO] FILE COVER SHEET ================================================================================ TO: Records Management Department (Documents to be Imaged): Process Stage (check appropriate box): [ X ] New Funding [ ] Post Funding [ ] Increase/Renewal Power 2 ID: 0000016719 Customer (Client Name): Lakeland Industries, Inc. Deal ID: D:00017204 Term Loan # (ID): 0101552001 Deal Type: Term Loan Business Group/Region (Dept. Name): Documentation/ Loan Status: Approved Portfolio Manager (Inbox Owner): Phil Kain Cover Sheet Completed By: Jodie Zwerner For Records Management Use Only - -------------------------------------------------------------------------------- Batch # ________________________ Initials _______Date ____________ Page Count ___________ Date Indexed_____________ Initials________ Reassembled By___________________ - --------------------------------------------------------------------------------
=================================================================================================================================== TERM LOAN Control Form =================================================================================================================================== - ------------------------------------------------------------------------------------------------ ---------------------------------- Customer: LAKELAND INDUSTRIES, INC. Loan No: 0101552001 - ------------------------------------------------------------------------------------------------ ---------------------------------- Street: 711-2 Koehler Avenue Fed. Tax ID #: 13-3115216 - ------------------------------------------------------------------------------------------------ ---------------------------------- City/ST/Zip: Ronkonkoma, NY 11779-7410 - ------------------------------------------------- ---------------------------------------------- ---------------------------------- Contact: Mr. Raymond J. Smith Phone: 631-981-9700 FM: WAYNE DEDRICK - ------------------------------------------------- ---------------------------------------------- ---------------------------------- FC: FRANK COLLINS FC #: 7769 FC Phone: 212-415-7877 - ------------------------------------------------------------------------------------------------ ---------------------------------- Interest Rate: 30-day Dealer Commercial Paper PLUS 2.45% FC Office: 849 - ------------------------------------------------------------------------------------------------ ---------------------------------- Maximum Loan Amount: $2,149,207.11 Term: 2-years Number of Advances: 1 - ------------------------------------------------------------------------------------------------ ---------------------------------- FM/FC Payout: Standard FM Payout based on fee of: $0.00 FC Payout based on fee of: $0.00 - ------------------------------------------------------------------------------------------------ ---------------------------------- Third Party Payoff? No Loan Covenants (non-standard): [X] Yes [ ] No - ------------------------------------------------- ---------------------------------------------- ---------------------------------- Collateral: First on all business assets Commitment Fee: $0.00 [X] Received - ------------------------------------------------- ---------------------------------------------- ---------------------------------- Individual Guarantor(s): Business Guarantor(s): Trust Guarantor(s): None Laidlaw, Adams & Peck, Inc. f/k/a None Fireland Industries, Inc. Lakeland Protective Wear, Inc. Lakeland de Mexico, S.A. - ------------------------------------------------- ---------------------------------------------- ---------------------------------- Customer id: 0000016719 Deal Number: D:00017204 Account Rating: [ X ] Acceptable [ ] Good [ ] Prime - ------------------------------------------------- ---------------------------------------------- ----------------------------------
INITIAL FUNDING Payout Summary - ---------------- -------------------------- ----------------- ------------------ DATE PAID PAYEE AMOUNT CUMULATIVE TOTAL - ---------------- -------------------------- ----------------- ------------------ - ---------------- -------------------------- ----------------- ------------------ - ---------------- -------------------------- ----------------- ------------------ - ---------------- -------------------------- ----------------- ------------------ - ---------------- -------------------------- ----------------- ------------------ FUNDING/PAYOUT APPROVAL - ---------------------- --------------- ----------- ----------------------------- Initials date comments - ---------------------- --------------- ----------- ----------------------------- DOCUMENTATION Department - ---------------------- --------------- ----------- ----------------------------- Manager/Officer - ---------------------- --------------- ----------- ----------------------------- POWER 2/UCC AUDIT - --------------------- ---------------------------- ----------------------------- POWER 2 Audit UCC Audit - --------------------- ---------------------------- ----------------------------- INITIALS - --------------------- ---------------------------- ----------------------------- DATE - --------------------- ---------------------------- -----------------------------
=========================================================================================================================== TERM LOAN DOCUMENT CHECKLIST Customer: LAKELAND INDUSTRIES, INC. =========================================================================================================================== DOCUMENT REQ REC P/F WAIV COMMENTS REF - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Credit Approval X X A - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Risk Rating Work and Data Sheets X - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Loan Agreement X B - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Note X - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Cert. of Secy./Part./LLC Cert. - Loan Agree. X - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Evidence of Good Standing X - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Evidence of Ownership of Collateral (Invoice/Bill of Sale, etc.) - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Guaranties - Corporation / Partnership / LLC X - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Cert. of Secy. / Partner Cert. / LLC - X Guaranty - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Guaranties - Individual X - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Security Agreement - Third Party - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Financial Assets Security Agree. - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Spousal Consent - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Subordination Agreement - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Landlord Subordination - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Physical Damage Insurance X Expires on: - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Liability Insurance (Vehicles, Rail, etc.) - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ UCC - Lien Search X - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ State UCC Filing - X Date of Filing: State(s) Where Required: Alabama Missouri New York Ohio - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Local UCC Filing Date Of Filing: - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ UCC - Termination/ Subordination - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Bank Payoff Letter/Customer Authorization - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Closing Certificate X - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ Approval Letter X X - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------ - --------------------------------------------- -------- -------- -------- -------- ---------------------------------- ------
POST-FUNDING FOLLOW-UP - --------------------------- ------------------------- -------------------------- ITEM APPROVED BY IN POWER 2 (INITIAL) - --------------------------- ------------------------- -------------------------- - --------------------------- ------------------------- -------------------------- - --------------------------- ------------------------- -------------------------- - --------------------------- ------------------------- -------------------------- - --------------------------- ------------------------- -------------------------- EX-11 3 exhibit11_4-28.txt EXHIBIT 11 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated April 6, 2001, 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, 2001. 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 6, 2001 EX-13 4 ex13_4-28.txt [LOGO] Lakeland Industries, Inc. Corporate Headquarters 711-2 Koehler Avenue Ronkonkoma, NY U.S.A.11779-7410 Tel: 631-981-9700 Fax: 631-981-9751 E-Mail: info@lakeland.com Internet: http://www.lakeland.com [GRAPHIC] Lakeland Industries, Inc. 2001 ANNUAL REPORT AND FORM 10-K [GRAPHIC] Safety. It's elusive, and often changing. Lakeland Industries, Inc. strives to make quality products that keep safety in hand. Our goal is to make sure that the work force of America goes home, safe and sound, ready for another day. contrasts... [PHOTO] To put your all into your job has always been a trait of the American worker. The work was often simple, but tough, and sometimes dangerous. Even one generation back, employees didn't enjoy the protection and production-enhancing peace of mind lent by modern, quality protective clothing. The total number of injury cases reported per 100 employees has dropped by nearly 50% from 1973-1999. [PHOTO] In contrast, today's work environment can be highly technical and complicated. Dangers from chemicals, vapors and particles that are inhaled are factors that were not present in the workplace of yesteryear. Employees are protected by a multitude of regulations and requirements. Among the new advances is the clothing worn on the job, with Lakeland at the forefront of protective clothing design and development. costs... In the Roaring Twenties, gloveless, bare-faced workers operated grinding mills and inhaled lungs full of all kinds of harmful particles. Both health and economic costs were high. [PHOTO] Among all operators and fabricators from 1992 to 1999, injury and illness cases have decreased 24.2%. [PHOTO] Lakeland's limited-use and disposable garments keep particulates away from those who grind, mill and spray. Our low cost limited use garments let employees work easily and safely. These days, they're covered correctly, particularly by Lakeland. Encapsulated suits offer reliable protection against today's workplace chemicals. These suits are disposable and do away with the expensive and risky practice of decontamination and re-use. Hot zones are set up around a contaminated area, which utilize various chemical protective garments. Lakeland is a leader in the development of chemical protective clothing products. In Lakeland garments, people are safer. [PHOTO] dangers... Among lost work time injuries and illnesses recorded by the Bureau of Labor, the number for chemical burns dropped 4,100 cases from 1993 to 1999. Part of this encouraging decrease is due to proper protective clothing. [PHOTO] Exposed skin spelled danger and sometimes disaster years ago. Knowledge of how chemicals reacted to our bodies was at best minimal. This photo, taken during World War II years, is mute testimony to the patterns of negligence that occurred at the time. The gloveless worker is taking an awful risk with her fingers and hands. [PHOTO] patterns... [PHOTO] Today, Lakeland materials and glove patterns are designed for maximum grip on the job at hand. Cut resistance can be built into the arm and hand protective product, while the glove dots provide grip while protecting workers' precious hands. [PHOTO] The man with the ladle is wearing a hat, goggles, gloves and shin guards, while handling molten steel. A lack of heat and respiratory protection made injuries commonplace. Technology has made it possible to design protective garments that drop injuries substantially in high risk work areas. This kiln worker is completely protected by aluminized heat protective clothing from head to foot. Air conditioned vests keep him cool physically and mentally. Dressing for the job is now part of the job. [PHOTO] Because more and more hot-spot workers are wearing quality protective gear, the number of lost-work time heat burns and scalds was reduced by 10,600 cases from 1993 to 1999. technology... science... [PHOTO] It was white shirts, trousers and ties for the "angels of mercy" in times past. The science of healing was unexposed to many of the deadly germs and bacteria that are threatening lives in the world of today. [PHOTO] The science of healing has been joined by the science of protection for the medical work force. Bloodborne pathogen protective wear is a must, along with splash resistance, high visibility, and comfort. 1930's turnout gear was "whatever." Street clothes were often used, and the turnout gear that existed at the time made advancing upon a fire a very uncomfortable task. [PHOTO] advances... [PHOTO] Turnout gear design has advanced into a highly specialized craft. Lightweight materials that offer superior protection greatly reduce the risk to fire injuries. One of the main causes of injuries to fire fighters is heat exhaustion. Lakeland is at the forefront of turnout gear design and is striving to reduce turnout gear weight. Dear Fellow Shareholders, Once again, it is with great pleasure that I extend a warm welcome to each of you, and do so on behalf of every Lakeland employee. Thanks to their dedication to the Company's many and diverse tasks, Lakeland has increased its sales for the sixth consecutive year. Revenues for the year just ended were $76.1 million compared to last year's $58.6 million; an increase of approximately 30 percent. I must report, however, that earnings decreased from $1.7 million to $1.1 last year, a reduction of 36 percent. Most of this decline in earnings came in the second half of the year and was attributable to several factors. First was the continued increase in Federal Reserve interest rates, the full impact of which arrived in the third and fourth quarters. A second factor was an irrational - some in the industry have used the term vicious - round of price cutting in the market during the third and, particularly, in the fourth quarter. In order to stay in the game and stave off the loss of business, we met this pressure cooker situation wherever possible. This strategy enabled us to keep our distributor system intact, while watching a major competitor go out of business in January, the final month of our fiscal year. We raised prices beginning February1, and expect them to take hold during the early part of fiscal 2002. The third factor that negatively influenced earnings was the conversion of our Fyrepel manufacturing from a contractor operation to an integral part of our St. Joseph, Missouri facility. This was necessary because the contractor we were using did not want to become registered for ISO 9000, which is demanded for NFPA (National Fire Protection Association) certification. At midyear, we moved all of the production equipment and inventory to St. Joseph and began the critical task of interviewing, hiring and training personnel to operate in what amounted to virtually a new factory. Those startup costs are now behind us, and we anticipate a very aggressive sales program on the fire garment line during this upcoming year. Finally, due to the change in factory location, an inordinate amount of testing by outside certification laboratories, such as UL Laboratories, was done to ensure that the garments produced met all of the specifications required by various government agencies as well as our own stringent quality levels. In spite of these additional hits upon earnings, we weathered the storm and enjoyed a successful year. The additional costs have been written off rather than capitalized. Pricing in our main markets appear to have stabilized and Federal Reserve rates have receded, which suggests that fiscal 2002 will be yet another successful year for Lakeland. Once again, I want to thank all of our employees, shareholders and, of course, our hardworking Board of Directors for the confidence and guidance that they have given to us during the past year. Sincerely, Raymond J. Smith President Lakeland Industries, Inc. SELECTED FINANCIAL DATA (In thousands, except per share and share amounts)
For the Years Ended January 31, 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- INCOME STATEMENT DATA: Net sales $76,108 $58,644 $54,655 $47,263 $41,792 Gross profit 11,310 10,488 10,374 9,195 7,237 Operating expenses 8,619 7,191 6,451 6,157 5,212 Operating profit 2,691 3,297 3,923 3,038 2,024 Income before income taxes 1,485 2,509 3,222 2,590 1,576 Net income 1,123 1,748 2,080 1,600 1,063 Earnings per share - Basic (1) $.42 $.66 $.79 $.63 $.42 ==== ==== ==== ==== ==== Earnings per share - Diluted (1) $.42 $.65 $.77 $.61 $.41 ==== ==== ==== ==== ==== Weighted average common shares outstanding: Basic 2,645,446 2,653,950 2,642,170 2,558,541 2,550,000 Diluted 2,667,161 2,673,449 2,690,920 2,627,425 2,609,700 BALANCE SHEET DATA (at end of year): Working capital $16,047 $15,909 $12,403 $18,903 $14,018 Total assets 38,628 34,770 27,160 25,812 18,573 Current liabilities 20,052 16,551 12,915 5,007 2,920 Long-term liabilities 1,981 2,759 465 9,217 5,746 Stockholders' equity $16,537 $15,405 $13,725 $11,518 $9,825
- ---------- (1) Earnings per share has been restated in accordance with SFAS No. 128, "Earnings Per Share". 1 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, including the factors described elsewhere in this Report, that could cause actual results to differ materially from historical results or those currently anticipated. 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 customers. 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. 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. 2
Years Ended January 31, 2001 2000 1999 --------- --------- --------- Revenues 100.0% 100.0 100.0% Cost of Goods Sold 85.1 82.1 81.0 Selling, general and administrative expenses 11.3 12.3 11.8 Depreciation and amortization expense .9 1.0 1.0 Operating profit 3.5 5.6 7.2 Interest expense, net 1.6 1.4 1.3 Income tax expense .48 1.3 2.1 Net income 1.5 3.0 3.8 EBITDA margin (1) 4.5 6.7 8.2
- ---------- (1) EDITDA (earnings before interest, taxes, depreciation and amortization) margin represents EBITDA expressed as a percentage of revenues. Fiscal Year Ended January 31, 2001 compared to Fiscal Year Ended January 31, 2000 - -------------------------------------------------------------------------------- Net Sales. Net sales for the year ended January 31, 2001 increased $17,464,000 or 29.8% to $76,108,000 from $58,644,000 for the year ended January 31, 2000. The increase in sales was principally attributable to the Company's ability to increase its production capacity, maintain adequate inventory levels, and to the withdrawal of a major competitor from the TyvekTM markets, in which the Company secured certain business. The Company initiated a sales price increase effective with the commencement of fiscal 2002, which stimulated sales during the last month of fiscal 2001. Gross Profit. Gross profit for the year ended January 31, 2001 increased by $822,000, or 7.8% to $11,310,000, or 14.9% of net sales, from $10,488,000, or 17.9% of net sales, for the year ended January 31, 2000. The gross profit percentage decreased as a result of an increase in the cost of raw materials (from a major supplier [and now competitor] in February 2000) without a corresponding increase in selling prices. This was partially offset by manufacturing efficiencies (due to the use of automated equipment) and to higher sales volume. Competition increased during the second half of the year ended January 31, 2001, most severely in the fourth quarter as the industry's newest competitor lowered prices to gain market share. In most cases, the Company was forced to meet the competition. The second half of fiscal 2001 was also negatively affected by the relocation of manufacturing from an independent contractor to the company's facility in Missouri. Operating Expenses. Operating expenses for the year ended January 31, 2001 increased by $1,428,000 or 19.9%, to $8,619,000, or 11.3% of net sales, from $7,191,000, or 12.3% of net sales, for the year ended January 31, 2000. The increase in operating expenses is pricipally as a result of higher cost of freight, sales commissions, travel and show participation anduse of temporary help due to higher sales volume, and also to increased medial expense, research and development expense. Interest Expense. Interest expense for the year ended January 31, 2001 increased by $426,000, or 52% to $1,248,000 from $821,000 for the year ended January 31, 2000. Interest expense increase was principally due to higher interest costs reflecting and increase in average borrowings under the Company's credit facility and to increasing interest rates. Income Tax Expense. The effective tax rate for the year ended January 31, 2001 and 2000 of 24.4% and 30.3% respectively, deviates from the Federal statutory rate of 34%, mainly attributable to differing foreign tax rates and exemptions as well as to state income taxes. Net Income. As a result of the foregoing, net income for the year ended January 31, 2001 decreased by $625,000 to $1,123,000 from $1,748,000 for the year ended January 31, 2000. 3 Fiscal Year Ended January 31, 2000 compared to Fiscal Year Ended January 31, 1999 - -------------------------------------------------------------------------------- Net Sales. Net sales for the year ended January 31, 2000 increased $3,989,000 or 7.3% to $58,644,000 from $54,655,000 for the year ended January 31, 1999. The increase in sales was principally attributable to the Company's ability to increase its production capacity and maintain higher inventory levels. Gross Profit. Gross profit for the year ended January 31, 2000 increased by $1,114,000, or 1.1% to $10,488,000, or 18% of net sales, from $10,374,000, or 19% of net sales, for the year ended January 31, 1999. Gross profit was consistent between years as a result of global manufacturing efficiencies, however, the current year was negatively affected by relocation and expansion which temporarily decreased these efficiencies. The industry is highly competitive and margins (historically and) in the current year were vulnerable to erosion resulting from new competition reduced selling prices. Operating Expenses. Operating expenses for the year ended January 31, 2000 increased by $740,000 or 11.5%, to $7,191,000, or 12.3% of net sales, from $6,451,000, or 11.8% of net sales, for the year ended January 31, 1999. Operating expenses as a percentage of net sales decreased to 12.3%, from 11.8% as a result of increased sales volume. The increase in operating expenses was mainly attributable to greater payroll expenses, increased sales commissions and increased freight out, and the addition of in-house regional sales managers. Interest Expense. Interest expense for the year ended January 31, 2000 increased by $47,619, or 6.2% to $821,333 from $773,714 for the year ended January 31, 1999. The increase in interest expense was mainly due to higher interest costs reflecting an increase in average borrowings under the Company's credit facility and increasing interest rates. Income Tax Expense. The effective tax rate of 30.8% deviates from the Federal statutory rate of 34%, mainly attributable to foreign income generating no current taxes or foreign jurisdiction with lower tax rates and the effect of state income taxes. Net Income. As a result of the foregoing, net income for the year ended January 31, 2000 decreased by $332,000 or 16%, to net income of $1,748,000 from net income of $2,080,000 for the year ended January 31, 1999. LIQUIDITY AND CAPITAL RESOURCES - -------------------------------------------------------------------------------- Liquidity and Capital Resources.The Company's working capital is equal to $16,047,000 at January 31, 2001. The Company's primary sources of funds for conducting its business activities have been from cash flow provided by operations and borrowings under its credit facilities. 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 provided by operating activities was $412,000 for the year ended January 31, 2001 and was due primarily to the increase in inventories of $243,000, and accounts receivable of $2,509,000, and other current assets of $800,000, offset by the increase in accounts payable of $2,248,000 and net income from operations of $1,123,000. Net cash provided by financing activities of $473,000 was primarily attributable to net borrowings during the year in connection with the term loan and revolving credit facility. The revolving credit facility permits the Company to borrow up to a maximum of $14 million. The revolving credit agreement expires on October 31, 2001, and has therefore been classified as a short-term liability in the accompanying balance sheet at January 31, 2001. Borrowings under the revolving credit facility amounted to approximately $12,335,000 at January 31, 2001. The maturity date on the five year $3 million term-loan agreement entered into in November 1999 has been accelerated to expire on March 31, 2003. The Company believes that cash flow from operations and the revolving credit facility will be sufficient to meet its currently anticipated operating, capital expenditures and debt service requirements for at least the next 12 months. Foreign Currency Activity - ------------------------- The Company's foreign exchange exposure is principally limited to the relationship of the U.S. Dollar to the Mexican Peso, Canadian Dollar and the Chinese RMB. 4 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, 2001, $14,435,000 was outstanding under the term-loan and revolving credit facilities. Changes in the above described interest rates during fiscal 2001 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 $145,000. Each 1% fluctuation in interest rates earned would not increase or decrease interest income on these deposits by a significant amount. Unaudited Quarterly Results of Operations (in thousands, except for per share amounts. - --------------------------------------------------------------------------------
Fiscal Year Ended January 31, 2001: 1/31/01 10/31/00 7/31/00 4/30/00 ------- -------- ------- ------- Net Sales $20,130 $15,762 $18,109 $22,107 Cost of Sales 17,802 13,353 14,890 18,753 ------- -------- ------- ------- Gross Profit $ 2,328 $ 2,409 $ 3,219 $ 3,354 ======= ======= ======= ======= Net Income (loss) $ (64) $ 150 $ 376 $ 661 ======= ======= ======= ======= Basic and Diluted income per common share: Basic $ (.03) $ 0.06 $ 0.14 $ 0.25 ======= ======= ======= ======= Diluted $ (.03) $ 0.06 $ 0.14 $ 0.25 ======= ======= ======= ======= Fiscal Year Ended January 31, 2000: 1/31/00 10/31/99 7/31/99 4/30/99 ------- -------- ------- ------- Net Sales $15,559 $13,688 $13,941 $15,456 Cost of Sales 12,617 10,917 11,758 12,864 ------- -------- ------- ------- Gross Profit $ 2,942 $ 2,771 $ 2,183 $ 2,592 ======= ======= ======= ======= Net Income (loss) $ 648 $ 510 $ 86 $ 504 ======= ======= ======= ======= Basic and Diluted income per common share: Basic $ 0.25 $ 0.19 $ 0.03 $ 0.19 ======= ======= ======= ======= Diluted $ 0.24 $ 0.19 $ 0.03 $ 0.19 ======= ======= ======= =======
5 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.
Price Range of Common Stock --------------------- High Low --------------------- Fiscal 2000 First Quarter ended April 30, 1999..................... $6 3/4 $4 Second Quarter ended July 31, 1999..................... 6 3/4 4 3/4 Third Quarter ended October 31, 1999................... 7 3/8 2 7/8 Fourth Quarter ended January 31, 2000.................. 4 3/4 2 15/16 Fiscal 2001 First Quarter ended April 30, 2000..................... 4 3/4 $3 3/4 Second Quarter ended July 31, 2000..................... 7 1/2 5 3/8 Third Quarter ended Oct. 31, 2000...................... 6 1/2 4 3/4 Fourth Quarter ended January 31, 2001.................. 5 1/4 3 3/8 First Quarter Fiscal 2002 (through April 20, 2001)..... 5 4 1/32
As of April 17, 2001, there were approximately 94 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 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, 2001 and 2000, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended January 31, 2001. 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 auditing standards generally accepted in the United States of America. 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, 2001 and 2000, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended January 31, 2001, in conformity with accounting principles generally accepted in the United States of America. We have also audited Schedule II - Valuation and Qualifying Accounts for each of the three years in the period ended January 31, 2001. 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 6, 2001 7 Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
January 31, 2001 2000 ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 784,578 $ 650,541 Accounts receivable, net of allowance for doubtful accounts of $221,000 and $200,000 at January 31, 2001 and 2000, respectively 10,858,288 8,379,477 Inventories 22,710,083 22,467,395 Prepaid income taxes 461,113 52,434 Deferred income taxes 624,000 661,000 Other current assets 660,777 249,264 ----------- ----------- Total current assets 36,098,839 32,460,111 PROPERTY AND EQUIPMENT, NET 1,978,070 1,851,964 EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, net of accumulated amortization of $276,000 and $256,000 at January 31, 2001 and 2000, respectively 268,822 288,810 OTHER ASSETS 282,235 169,365 ----------- ----------- $38,627,966 $34,770,250 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 6,490,447 $ 4,242,874 Accrued compensation and benefits 418,320 502,785 Other accrued expenses 207,795 135,883 Current portion of long-term debt 12,935,416 11,669,681 ----------- ----------- Total current liabilities 20,051,978 16,551,223 LONG-TERM DEBT 1,499,207 2,300,000 PENSION LIABILITY 482,269 458,643 DEFERRED INCOME TAXES 58,000 55,000 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; 2,646,000 and 2,644,000 shares issued and outstanding at January 31, 2001 and 2000, respectively 26,460 26,440 Additional paid-in capital 6,140,221 6,132,491 Retained earnings 10,369,831 9,246,453 ----------- ----------- 16,536,512 15,405,384 ----------- ----------- $38,627,966 $34,770,250 =========== ===========
The accompanying notes are an integral part of these statements. 8 Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME
Fiscal year ended January 31, 2001 2000 1999 ----------- ----------- ----------- Net sales $76,108,038 $58,644,181 $54,655,135 Cost of goods sold 64,797,943 48,155,753 44,281,126 ----------- ----------- ----------- Gross profit 11,310,095 10,488,428 10,374,009 ----------- ----------- ----------- Operating expenses Selling and shipping 4,825,331 4,177,171 3,334,609 General and administrative 3,793,745 3,013,780 3,116,745 ----------- ----------- ----------- Total operating expenses 8,619,076 7,190,951 6,451,354 ----------- ----------- ----------- Operating profit 2,691,019 3,297,477 3,922,655 ----------- ----------- ----------- Other income(expense) Interest expense (1,247,708) (821,333) (773,714) Interest income 26,595 25,716 46,176 Other income - net 15,472 7,346 26,968 ----------- ----------- ----------- Total other expense (1,205,641) (788,271) (700,570) ----------- ----------- ----------- Income before income taxes 1,485,378 2,509,206 3,222,085 Income tax expense (362,000) (761,000) (1,142,000) ----------- ----------- ----------- NET INCOME $ 1,123,378 $ 1,748,206 $ 2,080,085 =========== =========== =========== Net income per common share Basic $.42 $.66 $. 79 ==== ==== ===== Diluted $.42 $.65 $. 77 ==== ==== ===== Weighted average common shares outstanding Basic 2,645,446 2,653,950 2,642,170 ========= ========= ========= Diluted 2,667,161 2,673,449 2,690,920 ========= ========= =========
The accompanying notes are an integral part of these statements. 9 Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Fiscal years ended January 31, 2001, 2000 and 1999
Common stock Additional ------------------- paid-in Retained Shares Amount capital earnings Total --------- ------- ---------- ----------- ----------- 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 Net income 1,748,206 1,748,206 Purchase and retirement of common stock (16,500) (165) (67,165) (67,330) --------- ------- ---------- ----------- ----------- Balance, January 31, 2000 2,644,000 26,440 6,132,491 9,246,453 15,405,384 Net income 1,123,378 1,123,378 Exercise of stock options 2,000 20 7,730 7,750 --------- ------- ---------- ----------- ----------- Balance, January 31, 2001 2,646,000 $26,460 $6,140,221 $10,369,831 $16,536,512 ========= ======= ========== =========== ===========
The accompanying notes are an integral part of this statement. 10 Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended January 31, 2001 2000 1999 ------------ ----------- ----------- Cash flows from operating activities Net income $ 1,123,378 $ 1,748,206 $ 2,080,085 Adjustments to reconcile net income to net cash provided by (used in) operating activities Deferred income taxes 40,000 (95,000) (71,000) Depreciation and amortization 699,304 598,095 534,673 Provision for bad debts 30,176 20,700 60,263 (Increase) decrease in operating assets Accounts receivable (2,508,987) (1,656,836) 149,934 Inventories (242,688) (6,356,485) (252,858) Other current assets (799,556) 159,533 (236,785) Other assets (187,882) (20,823) (18,808) Increase (decrease) in operating liabilities Accounts payable 2,247,573 2,787,684 (2,839,051) Accrued expenses and other liabilities 11,073 (43,480) 84,143 ------------ ----------- ----------- Net cash provided by (used in) operating activities 412,391 (2,858,406) (509,404) ------------ ----------- ----------- Cash flows from investing activities Purchases of property and equipment (751,046) (1,049,124) (388,393) Principal payments on note receivable 140,251 ------------ ----------- ----------- Net cash used in investing activities (751,046) (1,049,124) (248,142) ------------ ----------- ----------- Cash flows from financing activities Net borrowings under credit agreements 464,942 3,241,818 1,911,631 Proceeds from exercise of stock options 7,750 126,798 Purchase and retirement of common stock (67,330) Deferred financing costs (52,500) (67,500) ------------ ----------- ----------- Net cash provided by financing activities 472,692 3,121,988 1,970,929 ------------ ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 134,037 (785,542) 1,213,383 Cash and cash equivalents at beginning of year 650,541 1,436,083 222,700 ------------ ----------- ----------- Cash and cash equivalents at end of year $ 784,578 $ 650,541 $ 1,436,083 ============ =========== ===========
The accompanying notes are an integral part of these statements. 11 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 2001, 2000 and 1999 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, 2001, 2000 and 1999. 2. Principles of Consolidation - ------------------------------ The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Laidlaw, Adams & Peck, Inc. and Subsidiary (formerly Fireland Industries, Inc.), Lakeland Protective Wear, Inc. (a Canadian corporation), Weifang Lakeland Safety Products Co. Ltd. (a Chinese Corporation) and Lakeland de Mexico S.A. de C.V. (a Mexican corporation). All significant intercompany accounts and transactions have been eliminated. 3. Revenue Recognition - ---------------------- Revenue is recognized upon shipment of goods to customers. 4. Inventories - -------------- Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. 5. 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. 6. 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. 7. 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. 12 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2001, 2000 and 1999 NOTE A(continued) - ----------------- 8. Earnings Per Share - --------------------- Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of potential common shares. Diluted earnings per share are based on the weighted average number of common and potential common shares outstanding. The potential common shares for the years ended January 31, 2001, 2000 and 1999 were 21,715, 19,499 and 48,750, respectively, representing the dilutive effect of stock options. The diluted earnings per share 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. Options to purchase 5,000, 3,000 and 1,000 shares of the Company's common stock have been excluded from the computation of diluted earnings per share in 2001, 2000 and 1999, respectively, as their inclusion would have been antidilutive. 9. 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 denominated cash and cash equivalents were $334,000 and $476,000 at January 31, 2001 and 2000, respectively. Supplemental cash flow information for the fiscal years ended January 31, is as follows: 2001 2000 1999 ---------- ---------- ------------ Interest paid $1,238,448 $ 783,664 $ 771,294 Income taxes paid 688,412 693,456 1,387,778 10. 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. 11. 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. 13 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2001, 2000 and 1999 NOTE A(continued) - ----------------- 12. Use of Estimates - -------------------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. 13. Reclassifications - --------------------- Certain prior year amounts have been reclassified to conform with the 2001 presentation. NOTE B - INVENTORIES - -------------------- Inventories consist of the following at January 31: 2001 2000 ----------- ----------- Raw materials $ 4,088,498 $ 3,180,556 Work-in-process 6,467,779 5,538,608 Finished goods 12,153,806 13,748,231 ----------- ----------- $22,710,083 $22,467,395 =========== =========== NOTE C - PROPERTY AND EQUIPMENT - ------------------------------- Property and equipment consist of the following at January 31: Useful life in years 2001 2000 ----------- ----------- ----------- Machinery and equipment 3 - 10 $ 4,701,148 $ 3,993,315 Furniture and fixtures 3 - 10 261,737 255,790 Leasehold improvements Lease term 703,958 666,692 ----------- ----------- 5,666,843 4,915,797 Less accumulated depreciation and (3,688,773) (3,063,833) amortization ----------- ----------- $ 1,978,070 $ 1,851,964 =========== =========== NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS - -------------------------------------------- The Company's principal financial instrument consists of its outstanding revolving credit facility and term loan. The Company believes that the carrying amount of such debt approximates the fair value as the variable interest rates approximate the current prevailing interest rate. 14 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) January 31, 2001, 2000 and 1999 NOTE E - LONG-TERM DEBT - ----------------------- Long-term debt consist of the following at January 31: 2001 2000 ----------- ----------- Revolving credit facility $12,335,416 $11,069,681 Term loan 2,099,207 2,900,000 ----------- ----------- 14,434,623 13,969,681 Less current portion 12,935,416 11,669,681 ----------- ----------- Long-term debt $ 1,499,207 $ 2,300,000 =========== =========== During 1997, the Company entered into a $10,000,000 secured revolving credit facility (the "credit facility") with a financial institution with an initial expiration date of November 30, 1999. On May 1, 1998, the credit facility was increased to $13,000,000. Effective September 23, 1998, the credit 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 credit facility were repaid on August 31, 1999. In November 1999, the $13,000,000 credit facility was renewed for one year, and a $3,000,000, five-year term loan (the "term loan") was entered into, which replaced the repaid temporary credit facility. In August 2000, the credit facility was increased to $14,000,000. Borrowings under the credit facility bore 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, 2001, interest on outstanding credit facility borrowings was based on the commercial paper rate option (7.3% at January 31, 2001). On March 9, 2001, the Company extended its agreement to October 31, 2001 and accelerated the term loan to expire in 24 months. In addition, the interest rate on the credit facility was changed to LIBOR or the 30-day commercial paper rate, as defined, plus 2.3%. The term loan is payable in monthly installments of $50,000, plus interest payable at the 30-day commercial paper rate plus 2.45% (8.0% at January 31, 2001) through March 2001; beginning April 2001, the monthly principal installments increase to $89,550. The credit facility and term loan are collateralized by substantially all the assets of the Company and guaranteed by certain of the Company's subsidiaries. The credit facility and term loan contain financial covenants, including, but not limited to, minimum levels of earnings and maintenance of minimum tangible net worth and other certain ratios at all times. The maximum amounts borrowed under the credit facility during the fiscal years ended January 31, 2001 and 2000 were $14,000,000 and $12,900,000, respectively, and the average interest rates during the periods were 8.1% and 7.3%, respectively. NOTE F - 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 15 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) January 31, 2001, 2000 and 1999 NOTE F(continued) - ----------------- 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 as reported would be reduced for the years ended January 31, 2001 and 1999 to the pro forma amounts indicated below: 2001 1999 ---------- ---------- Net income As reported $1,123,378 $2,080,085 Pro forma 1,116,338 2,073,495 Basic earnings per common share As reported $.42 $.79 Pro forma .42 .79 Diluted earnings per common share As reported $.42 $.77 Pro forma .42 .77 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, 2001 and 1999: expected volatility of 55% and 60%, respectively; risk-free interest rate of 6.3% and 5.6%, respectively; expected dividend yield of 0.0% for all periods; and expected life of six years for all periods. No options were granted for the year ended January 31, 2000. Additional information with respect to the Company's plans for the fiscal years ended January 31, 2001, 2000 and 1999 is summarized as follows: 2001 ---------------------------------------- Directors' Plan Plan -------------------- ----------------- Weighted- Weighted- Number average Number average of exercise of exercise shares price shares price ------ --------- ------ --------- Shares under option Outstanding at beginning of year 8,000 $4.81 52,500 $3.06 Granted 2,000 5.94 Exercised (2,000) 3.88 ----- ------ Outstanding and exercisable at end of year 8,000 5.33 52,500 3.06 ===== ====== Weighted-average remaining contractual life of options outstanding 3.3 years 4 years Weighted-average fair value per shares of options granted during 2001 $5.94 16 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2001, 2000 and 1999 NOTE F(continued) - ----------------- 2000 ---------------------------------------- Directors' Plan Plan -------------------- ----------------- Weighted- Weighted- Number average Number average of exercise of exercise shares price shares price ------ --------- ------ --------- Shares under option Outstanding at beginning of year 8,000 $4.81 52,500 $3.06 Outstanding and exercisable at end of year 8,000 4.81 52,500 $3.06 Weighted-average remaining contract- ual life of options outstanding 2.6 years 5 years 1999 ---------------------------------------- Directors' Plan Plan -------------------- ----------------- Weighted- Weighted- Number average Number average of exercise of exercise shares price shares price ------ --------- ------ --------- 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 and exercisable at end of year 8,000 4.81 52,500 3.06 ====== ======= Weighted-average remaining contract- ual life of options outstanding 3.6 years 6 years Weighted-average fair value per share of options granted during 1999 $ 6.59 -- 17 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2001, 2000 and 1999 NOTE F(continued) - ----------------- Summarized information about stock options outstanding under the two plans at January 31, 2001 is as follows: Options outstanding and exercisable ------------------------------------------------ Weighted- Number average Outstanding remaining Weighted- at contractual average Range of January life in exercise exercise prices 31, 2001 years price - --------------- ------------- ----------- --------- $2.25 - $3.38 21,500 2.90 $ 2.39 3.39 - 5.94 38,000 4.45 3.71 10.75 1,000 3.50 10.75 ------ $2.25 - $10.75 60,500 3.88 3.36 ====== NOTE G - INCOME TAXES - --------------------- The provision for income taxes is summarized as follows: Year ended January 31, ------------------------------------------ 2001 2000 1999 -------- -------- ---------- Current Federal $189,000 $756,000 $1,116,000 State 27,000 100,000 97,000 Foreign 106,000 -------- -------- ---------- 322,000 856,000 1,213,000 Deferred 40,000 (95,000) (71,000) -------- -------- ---------- $362,000 $761,000 $1,142,000 ======== ======== ========== The following is a reconciliation of the effective income tax rate to the Federal statutory rate: Year ended January 31, ------------------------------- 2001 2000 1999 ------ ------ ------ Statutory rate 34.0% 34.0% 34.0% State income taxes, net of Federal tax benefit 1.2 2.7 2.0 Nondeductible expenses 1.1 .8 .3 Foreign operating results generating no current tax provision (12.5) (2.4) (.6) Change in deferred assets (3.8) Other .6 (1.0) (.3) ------ ------ ------ Effective rate 24.4% 30.3% 35.4% ====== ====== ====== 18 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2001, 2000 and 1999 NOTE G(continued) - ---------------- The tax effects of temporary differences which give rise to deferred tax assets at January 31, 2001 and 2000 are summarized as follows: January 31, --------------------------- 2001 2000 -------- --------- Deferred tax assets Inventories $391,000 $385,000 Net operating loss carryforward - foreign 29,000 89,000 subsidiary Accounts receivable 84,000 76,000 Accrued compensation and other 120,000 111,000 -------- -------- Gross deferred tax assets 624,000 661,000 -------- -------- Deferred tax liabilities Depreciation 58,000 55,000 -------- -------- Gross deferred tax liabilities 58,000 55,000 -------- -------- Net deferred tax asset $566,000 $606,000 ======== ======== Net operating loss carryforwards of $83,000 applicable to its foreign subsidiary in Canada expire in fiscal 2003 through 2007. NOTE H - 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. The following table sets forth the plan's funded status for the fiscal years ended January 31: 2001 2000 --------- --------- Change in benefit obligation - ---------------------------- Projected benefit obligation at beginning of year $ 961,492 $ 960,634 Service cost 1,613 Interest cost 70,546 70,579 Actuarial (gain)loss 874 (32,185) Benefits paid (41,750) (39,149) --------- --------- Projected benefit obligation at end of year $ 991,162 $ 961,492 ========= ========= Change in plan assets - --------------------- Fair value of plan assets at beginning of year $ 502,849 $ 445,872 Actual return on plan assets 46,194 87,626 Employer contributions 1,600 8,500 Benefits paid (41,750) (39,149) --------- --------- Fair value of plan assets at end of year $ 508,893 $ 502,849 ========= ========= Funded status - ------------- Pension liability $(482,269) $(458,643) ========= ========= 19 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2001, 2000 and 1999 NOTE H(continued) - ----------------- The components of net periodic pension cost for the fiscal years ended January 31 are summarized as follows: 2001 2000 1999 -------- --------- --------- Service cost $ 1,613 $ 1,613 Interest cost $ 70,546 70,579 67,649 Actual return on plan assets (46,194) (87,626) 1,779 Net amortization and deferral 17,451 62,896 (39,469) -------- --------- --------- Net periodic pension cost $ 41,803 $ 47,462 $ 31,572 ======== ========= ========= 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, 2001, approximately 59% of the plan's assets was held in mutual funds invested primarily in equity securities, 29% was invested in equity securities and debt instruments and 12% 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 $83,947, $57,642 and $55,332 in the fiscal years ended January 31, 2001, 2000 and 1999, respectively. NOTE I - MAJOR SUPPLIER - ----------------------- The Company purchased approximately 77% and 74% of its raw materials from one supplier under licensing agreements for the year ended January 31, 2001 and years ended January 31, 2000 and 1999, respectively. 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. NOTE J - COMMITMENTS AND CONTINGENCIES - -------------------------------------- 1. Employment Contracts The Company has employment contracts with four principal officers expiring through January 2003. Such contracts are automatically renewable for two-year terms unless 30 to 120 days' notice is given by either party. Pursuant to such contracts, the Company is committed to aggregate annual base remuneration of $747,500 and $350,000 for the fiscal years ended January 31, 2002 and 2003, respectively. 2. Leases The Company leases the majority of its premises under various operating leases expiring through fiscal 2005. The leases for the manufacturing facilities (located in Decatur, Alabama) are with two partnerships whose partners are principal officers and stockholders of the Company. One lease expires on August 31, 2004 and requires annual payments of approximately $365,000 plus certain operating expenses and the second lease expires on May 31, 2004 and requires annual payments of $199,104 plus certain operating expenses. The Company also leases one customer service facility pursuant to a one-year lease (renewable at the Company's option for four additional one-year terms), from an officer of the Company. Monthly payments are $1,500. In addition, the Company has several operating leases for machinery and equipment. 20 Lakeland Industries, Inc. andSubsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2001, 2000 and 1999 NOTE J (continued) - ----------------- The Company has a one-year lease with a related partnership for a manufacturing facility in the People's Republic of China. The related lessor is a partnership in which the Company's directors, one officer and four employees hold partnership interests. This related party leasing arrangement requires monthly payments of approximately $4,081. Total rental expense under all operating leases is summarized as follows: Total Rentals Gross sublease paid to rental rental related expense income parties ------- ------ ------- Year ended January 31, 2001 $817,366 $ 2,144 $582,004 2000 808,852 10,578 545,136 1999 643,174 4,611 402,096 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, 2001 are summarized as follows: Year ending January 31, 2002 $ 791,869 2003 650,464 2004 624,711 2005 300,311 ---------- $2,367,355 ========== 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 provided professional and/or skilled labor to the Company, as needed, at contractual rates of compensation. Such agreement was 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 for the fiscal year ended January 31, 1999. 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. 21 CORPORATE INFORMATION - -------------------------------------------------------------------------------- Directors: - --------- Raymond J. Smith, Chairman Christopher J. Ryan John J. Collins, Jr. Eric O. Hallman Walter J. Raleigh Officers: - -------- Raymond J. Smith, President Christopher J. Ryan Executive Vice President, Secretary and General Counsel 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 Transfer Agent: - -------------- Registrar and Transfer Company 10 Commerce Drive Cranford, NJ 07016 NASDAQ symbol: LAKE Executive Offices: - ----------------- 711-2 Koehler Ave. Ronkonkoma, NY 11779 (631) 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 2001 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. ThermbarTM, Kut BusterTM, Grapolator Mock TwistTM, Safeguard "76"TM, Body GuardTM,, Zone GuardTM, RyTexTM, TomTexTM, DextraGardTM, ForcefieldTM, InterceptorTM, CheckmateTM, HeatexTM, PyrolonTM, Sterling HeightsTM, FyrepelTM, HighlandTM, ChemlandTM and UnilandTM are trademarks of Lakeland Industries, Inc. TyvekTM, VitonTM, BarricadeTM, NomexTM, Kevlar TM, DelrinTM, TyChemTM and TeflonTM are registered trademarks of E.I.DuPont de Nemours and Company. SaranexTM is a registered trademark of Dow Chemical. SpectraTM is a registered trademark of Allied Signal, Inc. 22 EX-20 5 def14a38172_4-28.txt SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [_] Preliminary Proxy Statement [_] Soliciting Material Under Rule [_] Confidential, For Use of the 14a-12 Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [_] Definitive Additional Materials LAKELAND INDUSTRIES, INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: ________________________________________________________________________________ 2) Aggregate number of securities to which transaction applies: ________________________________________________________________________________ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ________________________________________________________________________________ 4) Proposed maximum aggregate value of transaction: ________________________________________________________________________________ 5) Total fee paid: ________________________________________________________________________________ [_] Fee paid previously with preliminary materials: ________________________________________________________________________________ [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. 1) Amount previously paid: ________________________________________________________________________________ 2) Form, Schedule or Registration Statement No.: ________________________________________________________________________________ 3) Filing Party: ________________________________________________________________________________ 4) Date Filed: ________________________________________________________________________________ [LOGO] LAKELAND INDUSTRIES, INC. Corporate Headquarters Lakeland Limited-Use and Chemical 711-2 Koehler Avenue Protective Clothing Customer Service Ronkonkoma, NY USA 11779-7410 800-645-9291 Tel: 631-981-9700 Tel: 256-350-3873 Fax: 631-981-9751 Fax: 256-350-0773 E-Mail: 74313.1743@compuserve.com Email: sales@lakeland-ind.com Internet: http://www.lakeland.com Hand/Arm Protection Division Woven Clothing Division Customer Service Customer Service 800-886-8010 800-933-0115 Tel: 256-351-9126 Tel: 219-929-5536 Fax: 256-353-9463 Fax: 219-929-5562 Fire Protective Clothing Division Lakeland Protective Wear Inc. Canada Customer Service 5109 Harvestor Road 800-645-9291 Unit B-7 Tel: 256-350-3107 Burlington, Ontario L7L5Y9 Fax: 256-350-3011 800-489-9131 Tel: 905-634-6400 Fax: 905-634-6611 May 11, 2001 Dear Stockholder, I am pleased to extend to you my personal invitation to attend the 2001 Annual Meeting of Stockholders of Lakeland Industries, Inc. (the "Company") on Wednesday, June 20, 2001 at 9:30 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, 2001 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 LAKELAND INDUSTRIES, INC. NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS June 20, 2001 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 20, 2001 at 9:30 a.m. at the Holiday Inn, 3845 Veterans Memorial Highway, Ronkonkoma, NY 11779 for the following purposes: 1. To elect two Class III members of the Board of Directors, and 2. To transact such other business as properly may come before the meeting or any adjournment thereof. Each share of the Company's Common Stock will be entitled to one vote upon all matters described above. Stockholders of record at the close of business on April 27, 2001 will be entitled to notice and to vote at the meeting. May 11, 2001 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. LAKELAND INDUSTRIES, INC. 711-2 Koehler Ave. Ronkonkoma, New York 11779 PROXY STATEMENT 2001 Annual Meeting of Stockholders June 20, 2001 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 2001 Annual Meeting of Stockholders to be held on June 20, 2001, and at any adjournment thereof (the "Annual Meeting"). This proxy statement, the accompanying form of proxy and the Company's 2001 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 11, 2001. About the Annual Meeting What is the purpose of the Annual Meeting? At the Annual Meeting, stockholders will act upon the matters outlined in the accompanying notice of meeting, including the election of directors. In addition, the Company's management will report on the performance of the Company during fiscal 2001 and respond to appropriate questions from stockholders. Who is entitled to vote? Only stockholders of record at the close of business on the record dated, April 27, 2001, are entitled to receive notice of the annual meeting and to vote the shares of common shares that they held on that date at the meeting, or any postponement or adjournment of the meeting. Each outstanding share entitles its holder to cast one vote on each matter to be voted upon. Please note that if you hold your shares in "street name" (that is, through a broker or other nominee), you will need to bring appropriate documentation from your broker or nominee to vote personally at the meeting. What constitutes a quorum? The presence at the meeting, in person or by proxy, of the holders of a majority of the shares of common stock outstanding on the record date will constitute a quorum, permitting the meeting to conduct its business. As of the record date, 2,646,000 shares of common stock of the Company were outstanding. Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting for purposes of determining the presence of a quorum. A "broker non-vote" occurs when a broker or other nominee indicates on the proxy card that it does not have discretionary authority to vote on a particular matter. How do I vote? If you complete and properly sign the accompanying proxy card and return it to the Company, it will be voted as you direct. If you are a registered stockholder and attend the meeting, you may deliver your completed proxy card in person. "Street name" stockholders who wish to vote at the meeting will need to obtain and vote a proxy from the institution that holds their shares. The Company has made proxy statements, proxies and annual reports available to the nominee institutions for delivery to "street name" stockholders. 1 Can I change my vote after I return my proxy card? Yes. Even after you have submitted your proxy, you may change your vote at any time before the proxy is exercised by filing with the secretary of the Company either a notice of revocation or a duly executed proxy, bearing a later date. The powers of the proxy holders will be suspended if you attend the meeting in person and so request, although attendance at the meeting will not by itself revoke a previously granted proxy. What are the Board's recommendations? Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board of Directors. The Board's recommendation is set forth together with the description of each item in this proxy statement. The Board recommends a vote: o for election of the nominated slate of 2 directors (see page 4), and With respect to any other matter that properly comes before the meeting, the proxy holders will vote as recommended by the Board of Directors or, if no recommendation is given, in their own discretion. What vote is required to approve each item? Election of Directors.The affirmative vote of plurality of the votes cast at the meeting is required for the election of directors. A properly executed proxy marked "WITHHOLD AUTHORITY" with respect to the election of one or more directors will not be voted with respect to the director or directors indicated although it will be counted for purposes of determining whether there is a quorum. Abstentions and broker non-votes will have no legal effect on the election of directors. The Certificate of Incorporation does not provide for cumulative voting in the election of directors. Who will bear the costs of soliciting proxies for the Annual Meeting? The Cost of soliciting proxies for the Annual Meeting will be borne by the Company. In addition to the use of the mails, proxies may be solicited personally or by telephone, by officers and employees of the Company who will not receive any additional compensation for their services. Proxies and proxy material will also be distributed at the expense of the Company by broker, nominees, custodians, and other similar parties. VOTING SECURITIES AND STOCK OWNERSHIP OF OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS The following table sets forth information as of April 27, 2001, with respect to beneficial ownership of the Company's Common Stock by all persons known by the Company to own beneficially more than 5% of the Common Stock, each director and nominee for director of the Company and all directors and officers of the Company as a group. All persons listed have sole voting and investment power with respect to their shares of Common Stock. Name and Address Number of Common Percent Beneficial Owner Shares Beneficially Owned of Class - ---------------- ------------------------- -------- Raymond J. Smith 579,500 (1) 21.90% 711-2 Koehler Ave. Ronkonkoma, NY 11779 Christopher J. Ryan 266,977 (2)(6) 10.09% 711-2 Koehler Ave. Ronkonkoma, NY 11779 John J. Collins, Jr. 124,400 (3) 4.70% Eric O. Hallman 48,500 (3) 1.83% Walter J. Raleigh 7,000 (4) .27% 2 Name and Address Number of Common Percent Beneficial Owner Shares Beneficially Owned of Class - ---------------- ------------------------- -------- All officers and directors as a group (7 persons) 1,070,827 (5) 40.47% Mr. & Mrs. Luis Hernandez and 169,000 6.39% Anthony Hernandez 3069 Misty Harbor Las Vegas, NV 89117 Joseph P. Gordon 134,500 5.08% 177-23 Union Tpke., Flushing, NY 11366 - ------ 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 18, 1997 and 1,000 shares granted on June 21, 2000 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 21, 2000 (6) Mr. Ryan disclaims beneficial ownership of 15,000 shares owned by his wife. 3 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 2001 Annual Meeting there are two nominees for director in Class III. The incumbent Class I and Class II directors have one year and two years, respectively, remaining on their terms of office. The Company has no reason to believe that either of the nominees will be disqualified or unable to serve, or will refuse to serve if elected. However, if a nominee is unable or unwilling to accept election, the proxies will be voted for such substitute as the Board of Directors may select. It is intended that the shares represented by proxies will be voted, in the absence of contrary instructions, for the election as director of the nominees for Class III named in the following table. The Board of Directors has nominated and Management recommends the election of the persons listed in the following table as Class III directors. The table also sets forth the names of the two directors in Class II and the one director in Class I 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. Position With the Director Name Age Company Since - -------------------------------------------------------------------------------- NOMINEES FOR DIRECTORS - CLASS III Nominees for Three year Term Expiring in June, 2004 --------------------------------------------------- Raymond J. Smith 62 Chairman of the Board, 1982 President and Director Walter J. Raleigh 73 Director 1991 INCUMBENT DIRECTOR - CLASS I One year remaining on Term Expiring in June, 2002 ------------------------------------------------- Christopher J. Ryan 49 Executive Vice President, 1986 General Counsel, Secretary and Director INCUMBENT DIRECTORS - CLASS II Two years remaining on Term Expiring in June, 2003 -------------------------------------------------- John J. Collins, Jr 58 Director 1986 Eric O. Hallman 57 Director 1982 4 The principal occupations and employment of the nominees for director and for the directors continuing in office are set forth below: Raymond J. Smith, a co-founder of the Company, has been Chairman of the Board of Directors and President since its incorporation in 1982. Walter J. Raleigh is a director of CMI Industries, Inc., the successor company to Clinton Mills, Inc. and was president of Clinton Mills Sales, Co. Division, N.Y. from 1974 to 1995. Clinton Mills was a textile manufacturer of woven fabrics. Mr. Raleigh retired from Clinton Mills in 1995 and now is a Senior Adviser to CMI Industries, Inc. Mr. Raleigh is a former director of Kerry Petroleum Company, an oil and gas development company. Christopher J. Ryan has served as Executive Vice President-Finance and director since May, 1986 and Secretary since April 1991and General Counsel since February 2000. 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 ship brokering firm, between 1984 and 1991. Mr. Hallman was also affiliated between 1991 and 1992 with Finanshuset (U.S.A.), Inc., a ship brokering 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 between 1998-2000 was President of PREMCO, a real estate management company and currently is Comptroller of the law firm, Murphy, Bartol & O'Brien, LLP. During the year ended January 31, 2001, 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). Potential Anti-Takeover Effect The Board of Directors has the authority, without further approval of the Company's shareholders, to issue preferred shares (the "Preferred Shares") having such rights, preferences and privileges as the Board of Directors may determine. Any such issuance of Preferred Shares could, under certain circumstances, have the effect of delaying or preventing a change in control of the Company and may adversely affect the rights of holders of Common Stock. In addition, the Company is subject to Delaware statutes regulating business combinations, takeovers and control share acquisitions which might hinder or delay a change in control of the Company. Anti-takeover provisions that could be included in the Preferred Shares when issued and the Delaware statutes regulating business combinations, takeovers and control share acquisitions can have a depressive effect on the market price of the Company's securities and can limit shareholders' ability to receive a premium on their shares by discouraging takeover and tender offer bids. The Directors of the Company serve staggered three-year terms. The Company's Restated Certificate of Incorporation sets forth a provision that requires certain business combinations to be approved by at least 66.66% of the Company's voting securities, unless 66.66% of the members of the Board of Directors have approved the transaction, and require approval of holders of 66.66% of the Company's voting shares to amend these provisions. In addition, the Company has an Employee Stock Ownership Plan ("ESOP"). In the past, other companies have used similar plans to hinder or prevent a takeover situation. The Company has also entered into employment contracts with certain executive officers providing for lump sum payments of contracted salaries pursuant to various formulas, should there be a change in control of the Company. These factors could have an anti-takeover effect by making it more difficult to acquire the Company by means of a tender offer, a proxy contest or otherwise or the removal of incumbent officers and directors. These provisions could delay, deter or prevent a tender offer or takeover attempt that a shareholder might 5 consider in his or her best interest, including those attempts that might result in a premium over the market price for the Common Stock held by the Company's shareholders. Committees of the Board of Directors are as follows: 1-The Audit Committeewas 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. The committee members are: John J. Collins, Jr., Eric O. Hallman, and Walter J. Raleigh 2- 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, 2001. The committee members are: John J. Collins, Jr., Eric O. Hallman, and Walter J. Raleigh Compensation Committee Interlocks and Insider Participation Members of the Stock Option and Compensation Committee are outside directors who do not serve in any other capacity with respect to the Company or any of its subsidiaries. Messrs. Collins and Hallman are partners of POMS Holding Co. See "Certain Relationships and Related Transactions". REPORT OF THE AUDIT COMMITTEE The following Report of the Audit Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein. During fiscal 2001, the Audit Committee of the Board of Directors developed a charter for the Committee, which was approved by the full Board of Directors on June 21, 2000. The complete text of the new charter, which reflects standards set forth in the regulations of the Securities and Exchange Commission ("SEC") and NASDAQ Stock Exchange rules, is reproduced in the Appendix A to this proxy statement. As set forth in more detail in the charter, the Audit Committee's primary duties and responsibilities fall into three broad categories: o first, the Committee will serve as an independent and objective party to monitor the Company's financial reporting process and internal control system; o second, the Committee is responsible for reviewing and appraising the audit efforts of the Company's independent accountants and internal auditing department; this includes matters concerning the relationship between the Company and its outside auditors, including recommending their appointment or removal; reviewing the scope of their audit services and related fees, as well as any other services being provided to the Company; and determining whether the outside auditors are independent (based in part on the annual letter provided to the Company pursuant to Independence Standards Board Standard No. 1) and o third, to provide an open avenue of communication among the independent accountants, financial and senior management and the Board of Directors. The Committee has implemented procedures to ensure that during the course of each fiscal year it devotes the attention that it deems necessary or appropriate to each of the matters assigned to it under the Committee's charter. To carry out its responsibilities, the Committee met four times during fiscal 2001. 6 In overseeing the preparation of the Company's financial statements, the Committee met with both management who has the primary responsibility for the financial statements, the reporting process and the systems of internal control, and the Company's outside auditors who are responsible for expressing an opinion on the conformity of the Company's audited financial statements under generally accepted auditing standards, to review and discuss all financial statements under generally accepted auditing standards, to review and discuss all financial statements prior to their issuance and to discuss significant accounting issues. Management advised the Committee that all financial statements were prepared in accordance with generally accepted accounting principles, and the Committee discussed the statements with both management and the outside auditors. The Committee's review included discussion with the outside auditors of matters required to be discussed pursuant to Statement on Auditing Standards Nos. 61 and 90, "Communication With Audit Committees". With respect to the Company's outside auditors, the Committee, among other things, discussed with Grant Thornton LLP matters relating to its independence, including the disclosures made to the Committee and received written disclosure and the letter from the independent auditors as required by the Independence Standards Board Standard No. 1, "Independence Discussions with Audit Committees". On the basis of these reviews and discussions, the Committee recommended to the Board of Directors that the Board approve the inclusion of the Company's audited financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2001, for filing with the Securities and Exchange Commission. The Committee and the Board have also recommended the selection of the Company's independent auditors. THE AUDIT COMMITTEE: -------------------- John J. Collins, Jr. Eric O. Hallman Walter J. Raleigh Fees billed to the Company by Grant Thornton LLP for the year ended January 31, 2001: Audit Fees: Audit fees billed to the Company by Grant Thornton LLP during the Company's 2001 fiscal year for review of the Company's annual financial statements and those financial statements included in the Company's quarterly reports on Form 10-Q totaled $77,900. Financial Information Systems Design and Implementation Fees: The Company did not engage Grant Thornton LLP to provide advice to the Company regarding financial information systems design and implementation during the fiscal year ended January 31, 2001. All Other Fees: Fees billed to the Company by Grant Thornton LLP during the Company's 2001 fiscal year for all other non-audit services rendered to the Company, including tax related services totaled $30,100. 7 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, 2001, 2000 and 1999: Name and All Other Principal Position Year Salary Bonus Compensation - ------------------ ---- ------ ----- ------------ Raymond J. Smith, 2001 $262,500 $62,500 $7,767 Chairman, President and CEO 2000 262,500 92,500 6,716 1999 262,500 25,000 5,899 Christopher J. Ryan, 2001 $215,000 $ 0 $4,282 Executive V.P., General Counsel 2000 175,000 16,000 3,252 and Secretary 1999 175,000 20,000 3,724 Harvey Pride, Jr. 2001 $135,000 $ 0 $3,923 Vice President- 2000 135,000 12,800 3,864 Manufacturing 1999 135,000 0 3,465 James M. McCormick 2001 $135,000 $ 8,000 $4,574 VP - Treasurer 2000 115,000 16,500 4,139 1999 115,000 13,500 4,214 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 2001. The Company has entered into employment contracts with all executive officers providing for annual compensation of $262,500 for Mr. Smith and $215,000 for Mr. Ryan, $135,000 for Mr. Pride, and $135,000 for Mr. McCormick. 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 1, 2003 and Mr. McCormick has a three year contract expiring January 31, 2003 . 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 $83,947, during the plan year ended December 31, 2000. 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, Pride and McCormick'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, no annual bonus was accrued at January 31, 2001 (for payment in May 2001) for Messrs. Smith, Ryan, Pride and McCormick. 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. 8 The Compensation Committee's responsibilities include overseeing the Company's compensation policies, supervising compensation for management and employee benefits and administering the Company's stock option and other employee benefit plans. The Compensation Committee also develops and negotiates employment agreements with key executive officers. These employment agreements include base salaries and incentive compensation arrangements designed to reward management for achieving certain production or performance levels. The Compensation Committee is also responsible for developing or reviewing incentive compensation arrangements which the Company enters into with executive officers and key individuals, other than those senior executives who have written employment agreements. See "Compensation of Executive Officers". In order to determine appropriate levels of executive compensation, the Compensation Committee reviews various factors, including individual performance, and evaluates the progress of the Company towards attaining its long-term profit and return on equity goals. Compensation packages for senior executive officers have been structured to attempt to compensate them to a substantial extent based on both the profitability of the Company as a whole and the productivity of their individual departments. Particulars: Messrs. Eric O. Hallman, John J. Collins, Jr. and Walter J. Raleigh were members of the Company's Stock Option and Compensation Committee when it ratified Mr. Smith's and Mr. Pride's employment contracts in January 1998, and Mr. Ryan's which was ratified in July 2000 and Mr. McCormick's in June 2000. 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, Ryan, Pride and McCormick were awarded base compensations of $262,500, $215,000, $135,000 and $135,000, for fiscal 2002, respectively. In addition, the Committee reviewed what was normally paid the President and Chairman in Mr. Smith's case and Executive Vice President, Secretary and General Counsel in Mr. Ryan's case, the Chief Manufacturing Executive in Mr. Pride's case, and V.P. and Treasurer in Mr. McCormick'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. 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 2001 and no SAR grants have been made since inception of the Stock Option Plan. See "Directors' Compensation". 9 COMPARE 5-YEAR CUMULATIVE TOTAL RETURN AMONG LAKELAND INDUSTRIES, INC. S&P INDUSTRIES INDEX AND PEER GROUP INDEX [PERFORMANCE GRAPH APPEARS HERE] 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- LAKELAND INDUSTRIES, INC. 100.00 73.72 189.78 148.90 100.73 110.22 PEER GROUP INDEX 100.00 105.37 117.52 92.98 72.12 56.38 S&P INDUSTRIALS 100.00 126.33 159.37 218.76 247.40 230.81 ASSUMES $100 INVESTED ON FEB. 1, 1996 ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING JAN. 31, 2001 10 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, 2001 are as follows:
No. of Date(s) Grant Name of Shares Option of Expiration Date Executive Granted Price Grant Date(s) Value - --------- ------- ----- ----- ------- ----- 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
There are currently 250,000 option shares available for future grant under this plan. During the year ended January 31, 2001, no stock options were granted or exercised. 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 $1,250 for each meeting as compensation for serving on the Board. There are no charitable award or director legacy programs. Messrs. Collins, Hallman and Raleigh participate in the Company's Non-employee Directors' Option Plan as follows: # of Option Date of Expiration Director Shares Price Grant Date -------- ------ ----- ----- ---- Mr. Collins 1,000 $ 5.125 6/18/97 6/18/2003 Mr. Collins 1,000* 5.938 6/21/00 6/21/2006 Mr. Hallman 1,000 5.125 6/18/97 6/18/2003 Mr. Hallman 1,000* 5.938 6/21/00 6/21/2006 Mr. Raleigh 3,000 3.25 4/18/97 4/18/2003 Mr. Raleigh 1,000 10.75 6/17/98 6/17/2004 *Granted during fiscal year ended January 31, 2001, upon re-election as member of Board of Directors. There are currently 37,000 option shares available for future grant under this plan. During the year ended January 31, 2001, the following stock options were exercised: # of Shares Exercise Date of Per Share Exercise Director Exercised Price Exercise Date Value -------- --------- ----- -------- ---------- Mr. Hallman 1,000 $3.88 6/14/00 $6.125 Mr. Collins 1,000 $3.88 6/14/00 $6.125 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 91,788 square foot disposable garment manufacturing facility in Decatur, Alabama. Under a lease effective September 1, 1999 and expiring on August 31, 2004, the Company pays an annual rent of $364,900 and is the sole occupant of the facility. 11 On June 1, 1999, the Company entered into a five year lease agreement with River Group Holding Co., L.L.P. for a 40,000 sq. ft. warehouse facility located next to the existing facility in Decatur, Alabama. River Group Holding Co., L.L.P. is a limited liability partnership made up of the Directors and certain officers of the Company. The annual rent for this facility is $199,100 and the Company is the sole occupant of the facility. On March 1, 1999, the Company entered into a one year (renewable for four additional one year terms) lease agreement with Harvey Pride, Jr., an officer of the Company, for 2400 sq. ft. customer service office for $18,000 annually. This is located next to the existing Decatur, Alabama facility mentioned above. The Company believes that all rents paid to POMS, River Group Holding Co., L.L.P. and Harvey Pride, Jr. by the Company, are comparable to what would be charged by an unrelated third party. The net rent paid to POMS, River Group Holding Co., L.L.P. by the Company for the year ended January 31, 2001, amounted to $564,000 and the total rent paid to Harvey Pride, Jr. by the Company for use of the customer service office, for the year ended January 31, 2001, amounted to $18,000. An Qui Holdings Co., L.L.C. (Hereinafter "AnQui" a limited liability company consisting all the Directors of the company and one officer) financed the construction of a 46,000 square footing building and the leasing of the real property underlying the building for 50 years. In consideration of this financing Weifang Lakeland Safety Products Co., Ltd. owns and utilizes the facility in return for granting AnQui 51.6% of any real estate appreciation rights upon sale and annual payments of $25,285 estimated to begin in July 2003, when all bank debt on the building is repaid. The Company did not incur any legal fees for the fiscal year ended January 31, 2001 to the Law Offices of Thomas J. Smith, the Company's former General Counsel. Mr. Thomas J. Smith, is the brother of Raymond J. Smith. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's directors, officers and beneficial owners of more than 10% of the Common Stock to file with the SEC initial reports of ownership of the Company's equity securities and to file subsequent reports when there are changes in such ownership. Officers, directors and beneficial owners of more than 10% of the Common Stock are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file. 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 2002 ANNUAL MEETING --------------------------------------------- Stockholder proposals for inclusion in the Company's Proxy Statement for the 2002 Annual Meeting of Stockholders must be received by the Company not later than January 31, 2002. The person submitting the proposal must have been a record or beneficial owner of the Company's Common Stock for at least one year and must continue to own such securities through the date on which the meeting is held, and the securities so held must have a market value of at least $1,000. Any such proposal will be included in the Proxy Statement for such Annual Meeting if the rules of the Securities and Exchange Commission are complied with as to the timing and form of such proposal, and the content of such stockholder's proposal is determined by the Company to be appropriate under rules promulgated by the Commission. By the Order of the Board of Directors Christopher J. Ryan, Secretary May 11, 2001 12 Appendix A - ---------- LAKELAND INDUSTRIES, INC. AUDIT COMMITTEE CHARTER Membership The audit committee will be composed of not less than three members of the board. They will be selected by the board, taking into account prior experience in matters to be considered by the committee, probable availability at times required for consideration of these matters, and their individual independence and objectivity. The committee membership will meet the requirements of the audit committee policy of the NASDAQ Independent Director and Audit Committee Requirements. Accordingly, all of the members will be directors independent of management and free from any relationship that, in the opinion of the board of directors, would interfere with the exercise of independent judgment as a committee member. No officers or employees of the company or its subsidiaries will serve on the committee. A former officer of the company or any of its subsidiaries may serve on the committee (even though the former officer may be receiving pension or deferred compensation payments from the company) if, in the opinion of the board of directors, the former officer will exercise independent judgment and will materially assist the committee's function. However, a majority of the committee will be directors who were not formerly officers of the company or any of its subsidiaries. In considering relationships that might affect independence, including possible affiliate status, the board of directors will give appropriate consideration to guidelines issued by the NASDAQ as supplementary material to its audit committee policy, which were provided to assist boards of directors in observing the spirit of the policy. Actions of the Committee The activities of the committee may result in the following types of actions. a. Those in which the committee will inform the board that action has been taken in the board's interest and does not require prior board approval. 1. Review and approve the scope of the annual audit for the company and its subsidiaries recommended jointly by the independent CPAs and the president. 2. Review and approve the scope of the company's annual profit and pension trusts audits. 3. When requested by the chairman of the board during an annual shareholders' meeting, the committee chairman will answer questions raised by a shareholder on matters relating to the committee's activities. 4. Request the president to have the internal audit staff study a particular area of interest or concern. b. Those which the committee will review and study and then recommend action by the board. 1. Appoint independent public accountants. 2. Review major accounting policy changes before implementation. 3. Review SEC registration statements before signature by other board members. 4. Review annual audit reports and the content of proposed published reports. c. Those which the committee will review and study and provide summary information reports to the board when appropriate. 1. Review trends in accounting policy changes proposed or adopted by organizations such as the Financial Accounting Standards Board, the Securities and Exchange Commission (SEC), and the American Institute of Certified Public Accountants or by comparable bodies outside the United States. 2. Interview independent CPAs for review and analysis of strengths and weaknesses of the company's financial staff, systems, adequacy of controls, and other factors which might be pertinent to the integrity of published financial reports. A-1 3. Participate in financial review preceding publication of quarterly reports. 4. Review administration of the company's "conflict of interest" policy. 5. Review the performance of management and operating personnel under the company's code of ethics. 6. Review insurance programs from the standpoint of gaps and exposure as well as fraud. 7. Review reports on the company or its subsidiaries by agencies of governments in countries where the company or its subsidiaries operate. 8. Review periodic SEC filings by the company and assure that adequate programs and procedures exist to comply with SEC regulations and regulations of securities exchanges (such as the NASDAQ). Appendix B - ---------- LAKELAND INDUSTRIES, INC. CODE OF ETHICS Introduction For the past several years, the activities of business organizations, both large and small, have been the subject of increased scrutiny and criticism by the public, the government, and the news media. This is particularly true of multinational corporations, which have been the object of worldwide demands for public statements of their corporate codes of ethics. For that reason, it is appropriate for Lakeland Industries, Inc. to restate it position on ethical conduct, based on the original precepts of the business and on policies formulated as the corporation has grown. As a good corporate citizen, Lakeland Industries, Inc. has always endeavored to conduct its business in a manner conforming to the highest ethical standards. The company's reputation for unquestionable integrity is its most valuable asset in its relationships with its customers, employees, shareholders, and the communities in which its plants are located. The following statement of business principles has been prepared to guide the future conduct of company activities in an ethical and legal manner. It is not intended to supply answers for every business activity; rather, it is an effort to reiterate the continuing policies of the corporation on ethical business behavior, which must be observed by all Lakeland Industries, Inc. employees and representatives throughout the world. It is essential that all employees and representatives conform to these principles as they perform their activities on behalf of Lakeland Industries, Inc. Lakeland and its employees Employees are the corporation's greatest asset, and it is aLakeland Industries, Inc.policy to treat them fairly in all matters and to pay them competitively. Lakeland and its domestic subsidiaries are engaged in a program of full compliance with all federal and state laws applicable to hiring and promoting people on the basis of demonstrated ability, experience, and training without regard to race, religion, sex age, national origin, or other factors requiring affirmative action. The corporation requires continuous management attention at all corporate levels to assure compliance with the spirit and letter of this policy. With this in mind, it is the intent ofLakeland to: o Choose its employees on the basis of their ability to perform the work for which they are hired without regard to race, religion, sex, age, national origin, or other factors requiring affirmative action. o Offer employees a safe, healthy, and clean work environment. o Offer work that challenges the employees and gives them a feeling of satisfaction. o Pay employees fairly in relation to their contributions to the company's efforts, within the boundaries of current standards. A-2 Lakeland and the Community The corporation shall conduct its business in a manner that is socially responsible. In addition to manufacturing and selling products, it shall protect the quality of the environment and endeavor to conserve energy and other valuable resources. Each of the corporation's facilities is expected to make every effort to be an integral part of the community in which it operates, and to participate in its activities as a concerned and responsible citizen. Like individual citizens, it benefits from such activities as health, welfare, character building, education, and culture. And like individuals, it has the responsibility to support and develop these social and civic activities. The company recognizes that employee participation in cultural, social or volunteer organizations can be public service of a higher order, and all Lakeland employees are encouraged to participate in public activities of their individual choice. Lakeland and its Customers The corporation shall endeavor to supply its customers with quality products, delivered on schedule and sold at a fair price.Lakeland products will be manufactured to the company's high quality standards and will offer customers all the technical skills of its employees and the expertise ofLakeland technology and know-how. Lakeland and the Law It is the policy ofLakeland to comply fully with all valid laws and regulations that govern its operations in the various communities, states and countries in which it operates and to conduct its affairs in keeping with the highest moral, legal and ethical standards. There is an obligation, both corporate and individual, to fulfill the intent of the above statement. It is not expected that every employee will have full knowledge of the laws affecting his or her responsibilities. The company does, however, expect that employees with significant responsibilities will have a general knowledge of prohibited activities involved in their work and will seek guidance on any matter on which there is a question, either directly from the corporation's legal department or through their supervisors. Honesty is not subject to equivocation at any time in any culture, and even where the law may be permissive, your corporation chooses to follow the course of highest integrity. The reputation of the company for scrupulous dealing is a priceless asset, just as it is for individuals. The intent of these principles is to maintain and develop the corporation's reputation in the future as it has in the past. Lakeland and Business Ethics The law is a base for ethical business conduct which should normally be at a level well above the minimum required by law. In its relationships with customers, the corporation will offer the same advantages to all and will be fair in all its endeavors. Gifts or bribes for the purpose of influencing the buying decisions of employees of customers or potential customers or persons in a position to influence a buying decision are clearly improper and prohibited. In dealing with suppliers, an employee shall not solicit, accept, or countenance payments or substantial gifts, regardless of motive, from either a vendor or a potential vendor. In its relationships with its competitors, the corporation and its employees will fully understand and strictly adhere to the requirements of the antitrust laws. These laws, which, in the United States, include the Sherman Act, Clayton Act, Robinson-Patman Act, and Federal Trade Commission Act, seek to advance and maintain the free enterprise system and take precedence over any business objective of the corporation, notwithstanding any resulting increases in sales or profits. Such acts as price-fixing, restrictive agreements, boycotts, tie-in arrangements exclusive of reciprocal dealings, monopolizing, price inducements, and discriminatory allowances are or may be illegal. All employees shall scrupulously avoid violations of the antitrust laws. The corporation will not condone any actions which an employee knew or should have known would violate the antitrust laws or any other valid law or regulation. The corporation and its units shall make no financial contributions to a political party or to a candidate running for any elective office. This policy applies to all political parties or candidates worldwide, even when permitted by A-3 local law. Payments, regardless of amount, to any government employee, or gifts or services of substantial value or lavish entertainment, regardless of motive, are prohibited. Relationships with public employees shall be so conducted that neither the officials's nor the company's integrity would be compromised if the full details of the relationship became a matter of public knowledge. Lakeland and Conflicts of Interest It has always been, and continues to be, the corporation's intent that its employees maintain the highest standards of loyalty in their conduct of company affairs. In essence, company employees shall deal with suppliers, customers, and other persons doing business or seeking to do business with the corporation in a manner that eliminates considerations of personal advantage. Because they hold positions of trust in the corporation, a director, an officer, or any employees may not make a profit from the corporation because of their official position. They are also clearly prohibited from engaging in a competing business. In addition to the legal responsibility of the directors and officers, it is the duty of all employees to act in the best interests of the corporation and to avoid situations which might produce a conflict between their own interests and those of the corporation. Employees shall have no financial interest in any firm doing business with or seeking to do business with the corporation, nor shall they accept employment outside the company which may result in a conflict of interest, unless same is fully disclosed and approved by a disinterested group of officers and/or directors. A-4 X PLEASE MARK VOTES AS IN THIS EXAMPLE REVOCABLE PROXY LAKELAND INDUSTRIES, INC. 711-2 Koehler Avenue, Ronkonkoma, New York 11779-7410 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The undersigned hereby appoints John J. Collins, Jr. and Eric O. Hallman as proxies, each with power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated hereon, all the shares of common stock of Lakeland Industries, Inc., held of record by the undersigned on April 27, 2001 at the annual meeting of stockholders to be held on June 20, 2001 or any adjournment there of. 1. Election of Directors Raymond J. Smith and Walter J. Raleigh With- For All For hold Except [ ] [ ] [ ] INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For All Except" and write that nominee's name in the space provided below. - -------------------------------------------------------------------------------- 2. Other Business 1. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1. Please sign exactly as your name appears on this card. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. _________________________________________ Please be sure to sign and date Date this Proxy in the box below. ________________________________________________________________________________ ________Stockholder sign above_________Co-holder (if any) sign above____________ => Detach above card, sign, date and mail in postage paid envelope provided. => LAKELAND INDUSTRIES, INC. - -------------------------------------------------------------------------------- PLEASE ACT PROMPTLY SIGN, DATE & MAIL YOUR PROXY CARD TODAY - -------------------------------------------------------------------------------- IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED. - ---------------------------------------------------- - ---------------------------------------------------- - ---------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----