-----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, JQGCZe3hpIByah+Zl2R16+kMJaNOUPopxNnLYWGaP2W1bFi9oaPIjCau9hurYLl5 tZ/DmbBZf8OdPyblj1rKyg== 0000914317-04-001806.txt : 20040430 0000914317-04-001806.hdr.sgml : 20040430 20040430103319 ACCESSION NUMBER: 0000914317-04-001806 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20040131 FILED AS OF DATE: 20040430 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: 1934 Act SEC FILE NUMBER: 000-15535 FILM NUMBER: 04767820 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 CITY: RONKONKOMA STATE: NY ZIP: 11779 10-K 1 form10k-lakeland_59102.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) |X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 2004 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ______________ Commission File Number: 0 - 15535 LAKELAND INDUSTRIES, INC. (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 (ss. 229.405 of this chapter) 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 Yes |X| No |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes |_| No |X| The aggregate market value of the Common Stock outstanding and held by non-affiliates (as defined in Rule 405 under the Securities Exchange Act of 1934) of the Registrant, based upon the closing price of the Common Stock on NASDAQ on the last day of the registrant's most recently completed second quarter (July 31, 2003) was approximately $23,994,513 (based on 2,298,325 shares held by non-affiliates). The number of shares outstanding of the Registrant's common stock, $.01 par value, on April 26, 2004 was 3,273,925. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the Registrant's Definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than May 30, 2004,(for the Annual Meeting of Stockholders to be held June 16, 2004), are incorporated by reference to Part III of this Annual Report on Form 10-K. 1 LAKELAND INDUSTRIES, INC. INDEX TO ANNUAL REPORT ON FORM 10-K PART 1: Cautionary Statement regarding Forward-Looking Information Item I Business Overview Industry Overview and Consolidation Business Strategy Our Competitive Strengths Products Quality Control Marketing and Sales Research and Development Suppliers and Materials Competition Seasonality Patents and Trademarks Employees Enviromental Matters Item 2 Properties Item 3 Legal Proceedings Item 4 Submission of Matters to a Vote of Security Holders PART II: Item 5 Market for the Registrant's Common Stock and Related Stockholder Matters Item 6 Selected Consolidated Financial Data Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A Quantitative and Qualitative Disclosure about Market Risk Item 8 Financial Statements and Supplementary Data Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A Controls and Procedures PART III: Item 10 Directors and Executive Officers of the Registrant Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management Item 13 Certain Relationships and Related Transactions Item 14 Principal Accounting Fees and Services PART IV: Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K Signatures Certification under Exchange Act Rules 13a - 14(b) and 15d- 14(b) 2 This Annual Report on Form 10-K contains forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, uncertainties and assumptions as described from time to time in registration statements, annual reports and other periodic reports and filings of the Company filed with the Securities and Exchange Commission. All statements, other than statements of historical facts, which address the Company's expectations of sources of capital or which express the Company's expectation for the future with respect to financial performance or operating strategies, can be identified as forward-looking statements. As a result, there can be no assurance that the Company's future results will not be materially different from those described herein as "believed,""anticipated,""estimated" or "expected," which reflect the current views of the Company with respect to future events. We caution readers that these forward-looking statements speak only as of the date hereof. The Company hereby expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in the Company's expectations or any change in events, conditions or circumstances on which such statement is based. PART I Lakeland Industries, Inc. (the "Company" or "Lakeland," "we," "our," or "us") was incorporated in the State of Delaware in 1986. Our executive offices are located at 711-2 Kohler Avenue, Ronkonkoma, New York 11779, and our telephone number is (631) 981-9700. Our web site is located at www.lakeland.com. Information contained on our web site is not part of this report. ITEM 1. BUSINESS Overview We manufacture and sell a comprehensive line of safety garments and accessories for the industrial protective clothing market. Our products are sold by our in-house sales force and independent sales representatives to a network of over 500 safety and mill supply distributors. These distributors in turn supply end user industrial customers such as chemical/petrochemical, automobile, steel, glass, construction, smelting, janitorial, pharmaceutical and high technology electronics manufacturers, as well as hospitals and laboratories. In addition, we supply federal, state and local governmental agencies and departments such as fire and police departments, airport crash rescue units, the Department of Defense, Central Intelligence Agency, Federal Bureau of Investigation, U.S. Secret Service and the Centers for Disease Control. In fiscal 2004, we had net sales of $89.7 million and earnings per share of $1.11, which represent a growth rate of 15.3% and 38.8%, respectively, over our previous fiscal year. Our net sales attributable to customers outside the United States were $4.5 million, $5.7 million and $8.0 million, in fiscal 2002, fiscal 2003 and fiscal 2004, respectively. Our major product categories and their applications are described below: Limited Use/Disposable Protective Clothing. We manufacture a complete line of limited use/disposable protective garments offered in coveralls, lab coats, shirts, pants, hoods, aprons, sleeves and smocks. These garments are made from several non-woven fabrics, primarily Tyvek(R) and TyvekQC (both DuPont manufactured fabrics) and also our proprietary fabrics manufactured pursuant to customer order. These garments provide protection from low-risk 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-carbons (or PCBs) that pose health risks after exposure for long periods of time. Additional applications include protection from viruses and bacteria, such as AIDS, streptococcus, SARS and hepatitis, at hospitals, clinics and emergency rescue sites and use in clean room environments to prevent human contamination in the manufacturing processes. This is our largest product line. High-End Chemical Protective Suits. We manufacture heavy duty chemical suits made from TyChem(R) SL, TK and TyChem(R) BR, which are DuPont manufactured fabrics. These suits are worn by individuals on hazardous material teams to provide protection from powerful, highly concentrated and hazardous or potentially lethal chemical and biological toxins, such as toxic wastes at Super Fund sites, toxic chemical spills or biological discharges, chemical or biological warfare weapons (such as anthrax or ricin), and chemicals and petro-chemicals present during the cleaning of refineries and nuclear facilities. These suits can be used in conjunction with a fire protective shell that we manufacture to protect the user from both chemical and flash fire hazards. Homeland Security measures and government funding of personal protective equipment for first responders to terrorist threats or attack have recently resulted in increased demand for our high-end chemical suits and we believe demand for these suits will continue to increase in the future. Fire Fighting and Heat Protective Apparel. We manufacture an extensive line of fire fighting and heat protective apparel for use by fire fighters and other individuals that work in extreme heat environments. Our branded fire fighting apparel Fyrepel(TM) is sold to local municipalities and industrial fire fighting teams. Our heat protective aluminized fire suits 3 are manufactured from Nomex(R), a fire and heat resistant material, and Kevlar(R), a cut and heat resistant, high-strength, lightweight, flexible and durable material produced by DuPont. This apparel is also used for maintenance of extreme high temperature equipment, such as coke ovens, kilns, glass furnaces, refinery installations and smelting plants, as well as for military and airport crash and rescue teams. Gloves and Arm Guards. We manufacture gloves and arm guards from Kevlar(R) and Spectra(R), a cut resistant fiber made by Honeywell. Our gloves are used primarily in the automotive, glass and metal fabrication industries to protect the wearer's hand and arms from lacerations and heat without sacrificing manual dexterity or comfort. Reusable Woven Garments. We manufacture a line of reusable and washable woven garments that complement our fire fighting and heat protective apparel offerings and provide alternatives to our limited use/disposable protective clothing lines. Product lines include electrostatic dissipative apparel used in the automotive industry for control of static electricity in the manufacturing process, clean room apparel to prevent human contamination in the manufacturing processes, hospital garments to protect against blood borne pathogens and bacteria such as AIDS, streptococcus and hepatitis, and flame resistant Nomex(R) coveralls used in chemical and petroleum plants and for wild land fire fighting. We believe we are one of the largest independent customers of DuPont's Tyvek(R) and TyChem(R) apparel grade material. We purchase Tyvek(R) under North American licensing agreements and other DuPont materials, such as Kevlar(R), under international licensing agreements. While we have operated under these trademark agreements since 1995, we have been a significant customer of these DuPont materials since 1982. The trademark agreements require certain quality standards and the identification of the DuPont trademark on the finished product manufactured by us. We believe this brand identification with DuPont and Tyvek(R) significantly benefits the marketing of our largest product line, as over the past 30 years Tyvek(R) has become known as the standard for limited use/disposable protective clothing. We believe our relationship with DuPont to be excellent. We maintain manufacturing facilities in Decatur, Alabama; Celaya, Mexico; AnQui City, China; Jiaozhou, China; and St. Joseph, Missouri, where our products are designed, manufactured and sold. We also have a relationship with a sewing subcontractor in Mexico, which we can utilize for unexpected production surges. Our China and Mexico facilities allow us to take advantage of favorable labor and supplier costs, thereby increasing our profit margins on products manufactured in these facilities. Our China and Mexico facilities are designed for the manufacture of limited use/disposable protective clothing as well as our high-end chemical protective suits. We have significantly improved our profit margins in these product lines by shifting production to our international facilities and we intend to expand our international manufacturing capabilities to include our gloves and reusable woven protective apparel product lines in the future. Industry Overview According to Global Industry Analysts, Inc., the global market for industrial protective clothing is projected to be approximately $6.0 billion in 2004, and is projected to grow at a compound annual growth rate of approximately 6.5%. Our primary market, North America, is the largest market, expected to make up over one-third, or approximately $2.0 billion, of the global market. The industrial protective clothing market includes our limited use/disposable protective clothing, our high-end chemical protective suits, our fire fighting and heat protective apparel and our reusable woven garments. Global Industry Analysts, Inc. estimates that the market for gloves was over $2.6 billion worldwide in 2003. The industrial protective clothing market has evolved over the past 35 years as a result of governmental regulations and requirements and commercial product development. In 1970, Congress enacted the Occupational Safety and Health Act, or OSHA, which requires employers to supply protective clothing in certain work environments. Almost two million workers are subject to OSHA standards today. Certain states have also enacted worker safety laws that supplement OSHA standards and requirements. The advent of OSHA coincided with DuPont's development of Tyvek(R) which, for the first time, allowed for the economical production of lightweight, disposable protective clothing. The attraction of disposable garments grew in the late 1970s as a result of increases in labor and material costs of producing cloth garments and the promulgation of federal, state and local safety regulations. In 1990, additional standards proposed and developed by the National Fire Protection Association and the American Society for Testing and Materials were adopted by OSHA. These standards identify four levels of protection, A through D, and specify the equipment and clothing required to adequately protect the wearer at each level: o Level A requires total encapsulation in a vapor proof chemical suit with self contained breathing apparatus, or SCBA, and appropriate accessories. 4 o Level B calls for SCBA or a positive pressure supplied respirator with escape SCBA, plus hooded chemical resistant clothing (coveralls), one or two piece chemical splash suit, or disposable chemical resistant coveralls. o Level C requires hooded chemical resistant clothing, such as coveralls, two piece chemical splash suit, or disposable chemical resistant coveralls. o Level D involves work and/or training situations that require minimal coverall protection. In response to the terrorist attacks that took place on September 11, 2001, the federal government has provided for additional protective equipment funding through programs that are part of the Homeland Security initiative. The Fire Act of 2002 created the federal Assistance to Firefighters Grant Program, or AFGP, to provide funds directly to local fire districts to help improve their readiness and capability to respond to terrorist attacks. Funds are allocated under AFGP to the following areas: fire operations/firefighter safety; fire prevention; emergency medical services; and firefighting vehicle acquisition. AFGP will provide more than $1.3 billion in funding through 2004, with approximately $750 million appropriated for 2003 and $750 million more in 2004. The Bio Terrorism Preparedness and Response Act of 2002, which we refer to as the Bio Terrorism Act, appropriated $337 million for bio-defense equipment and another $770 million to purchase equipment for first responders, such as fire, police, medical and military personnel. These bio terrorism monies are expected to be disbursed in late 2005 and 2006. Recently, federal and state purchasing of industrial protective clothing and federal grants to fire departments have increased demand for industrial protective clothing to protect first responders against actual or threatened terrorist incidents. Specific events such as the 2002 U.S. Winter Olympics, the anthrax letters incidents in 2001 and the ricin letter incidents in 2004 have also resulted in increased demand for our products. Industry Consolidation The industrial protective clothing industry is highly fragmented and consists of a large number of small, closely-held family businesses. DuPont, Kimberly Clark and Lakeland and are the dominant disposable industrial protective apparel manufacturers. Since 1997, the markets for manufacturing and distribution have consolidated. A number of large distributors with access to capital have acquired smaller distributors. The acquisitions include Vallen Corporation's acquisitions of Safety Centers, Inc., All Supplies, Inc., Shepco Manufacturing Co., and Century Safety (Canada) and Hagemeyer's acquisition of Vallen Corporation; W.W. Grainger's acquisitions of Allied Safety, Inc., Lab Safety Supply, Inc., Acklands Limited, Gempler's safety supply division and Ben Meadows, Inc.; Air Gas' acquisitions of Rutland Tool & Supply Co., Inc., IPCO Safety Supply, Inc., Lyon Safety, Inc., Safety Supply, Inc., Safety West, Inc. and Delta Safety Supply, Inc.; and Fischer Scientific's acquisitions of Safety Services of America, Cole-Parner, Retsch and Emergo. As these safety distributors consolidate and grow, we believe they are looking to reduce the number of safety manufacturing vendors they deal with and support, while at the same time shifting the burden of end user selling to the manufacturer. This creates a significant capital availability issue for small safety manufacturers as end user selling is more expensive, per sales dollar, than selling to safety distributors. As a result, the manufacturing sector in this industry is seeing follow-on consolidation. DuPont has acquired Marmac Manufacturing, Inc., Kappler, Inc., Cellucup, Melco, Mfg., and Regal Manufacturing since 1998, while in the related safety product industries Norcross Safety Products L.L.C. has acquired Morning Pride, Ranger-Servus, Salisbury, North and Pro Warrington and Christian Dalloz has acquired Bacou, USA which itself acquired Uvex Safety, Inc., Survivair, Howard Leight, Perfect Fit, Biosystems, Fenzy, Titmus, Optrel, OxBridge and Delta Protection. We believe a larger industrial protective clothing manufacturer has competitive advantages over a smaller competitor including: o economies of scale when selling to end users, either through the use of a direct sales force or independent representation groups; o broader product offerings that facilitate cross-selling opportunities; o the ability to employ dedicated protective apparel training and selling teams; o the ability to offer volume and growth incentives to safety distributors; and o access to international sales. 5 We believe we have a substantial opportunity to pursue acquisitions in the industrial protective clothing industry, particularly because many smaller manufacturers share customers with us. Business Strategy Key elements of our strategy include: o Increase Sales to the First Responder Market. Our high-end chemical protective suits meet all of the requirements and are particularly well qualified to provide protection to first responders to chemical or biological attacks. For example, our products have been used for response to recent threats such as the 2001 anthrax letters and the 2004 ricin letters. A portion of appropriations for the Fire Act of 2002 and the Bio Terrorism Act of 2002 are available for purchase of products for first responders that we manufacture, and we intend to aggressively target this market. o Improve Marketing in Existing Markets. We believe significant growth opportunities are available to us through the better positioning, marketing and enhanced cross-selling of our reusable woven protective clothing, glove and arm guards and high-end chemical suit product lines, along with our limited use/disposable lines. o Increase Penetration of the North American Tyvek(R) Market. We intend to increase our sales of Tyvek(R)-based garments by introducing Tyvek(R) in industries which have generally used woven reusable garments, such as food processing and food service industries including kitchens, grocery stores and chicken and fishery slaughter operations. We believe that limited use/disposable garments are more effective at preventing contamination than reusable garments that are exposed to possible contamination while in transit or while being laundered. We also plan to expand our sales of Tyvek(R)-based products and marketing efforts in Mexico and Canada. Industrial safety gear utilized in U.S. manufacturing often gains acceptance as standard equipment for new facilities and factories operated by U.S. companies in other countries. o Emphasize Customer Service. We continue to offer a high level of customer service to distinguish our products and to create customer loyalty. We offer well-trained and experienced sales and support personnel, on-time delivery and accommodation of custom and rush orders. We also seek to extensively advertise our brand names. o Decrease Manufacturing Expenses by Moving Production to International Facilities. We have additional opportunities to take advantage of our low cost production capabilities in Mexico and China. Beginning in 1995, we successfully moved the labor intensive sewing operation for our limited use/disposable protective clothing lines to these facilities. Beginning January 1, 2005, pursuant to the United States World Trade Organization Treaty with China, quota requirements imposed by the U.S. on textiles such as our reusable woven garments and gloves are scheduled to be removed, making it more cost effective to move production for these product lines to our assembly facilities in China. We are in the early stages of this process and expect to complete this process by the third quarter of fiscal 2005. As a result, we expect to see profit margin improvements for these product lines, which will allow us to compete more effectively as the quota restrictions are removed. o Acquisitions. We believe that the protective clothing market is fragmented and presents the opportunity to acquire businesses that offer comparable products or specialty products that we do not offer. We intend to consider acquisitions that afford us economies of scale, enhanced opportunity for cross-selling, expanded product offerings and an increased market presence. We have no letters of intent or understandings with respect to any potential acquisitions. o Introduction of New Products. We continue our history of product development and innovation by introducing new proprietary products across all our product lines. Our innovations have included Micromax(R) disposable protective clothing line, our Despro(TM) glove and Grapolator(TM) sleeve lines for hand and arm cut protection and our Thermbar(TM) Mock Twist glove for hand and arm heat protection. We own seven patents on fabrics and production machinery and have eight additional patents in application. We will continue to dedicate resources to research and development. Our Competitive Strengths Our competitive strengths include: 6 o Industry Reputation. We devote significant resources to creating customer loyalty by accommodating custom and rush orders and focusing on on-time delivery. Additionally, our ISO 9001 certified facilities manufacture high-quality products. As a result of these factors, we believe that we have an excellent reputation in the industry. o Long-standing Relationship with DuPont. We believe we are the largest independent customer for Dupont's Tyvek(R) and TyChem(R) material for use in the industrial protective clothing market. Our trademark agreements with DuPont for Tyvek(R), TyChem(R) and Kevlar(R) require certain quality standards and the identification of the DuPont brand on the finished product. We believe this brand identification with DuPont significantly benefits the marketing of our product lines, as over the past 30 years Tyvek(R) has become known as the standard for limited use/disposable protective clothing. We believe our relationship with DuPont to be excellent. o International Manufacturing Capabilities. We have operated manufacturing facilities in Mexico since 1995 and in China since 1996. Our three facilities in China total over 160,000 sq. ft. of manufacturing, warehousing and administrative space while our facility in Mexico totals over 14,000 sq. ft. of manufacturing, warehousing and administrative space. Our facilities and capabilities in China and Mexico allow access to a less expensive labor pool than is available in the United States and permit us to purchase certain raw materials at a lower cost than they are available domestically. o Comprehensive Inventory. We have a large product offering with numerous specifications, such as size, styles and pockets, and maintain a large inventory of each in order to satisfy customer orders in a timely manner. Many of our customers traditionally make purchases of industrial protective gear with expectations of immediate delivery. We believe our ability to provide timely service for these customers enhances our reputation in the industry and positions us strongly for repeat business, particularly in our limited use/disposable protective clothing product lines. o Manufacturing Flexibility. By locating labor-intensive manufacturing processes such as sewing in Mexico and China, and by utilizing sewing sub-contractors, we have the ability to increase production without substantial additional capital expenditures. Our manufacturing systems allow us flexibility for unexpected production surges and alternative capacity in the event any of our independent contractors become unavailable. o Experienced Management Team. We have an experienced management team. Our executive officers average greater than 20 years of experience in the industrial protective clothing market. The knowledge, relationships and reputation of our management team helps us maintain and build our customer base. 7 Products The following table summarizes our principal product lines, the raw materials used to manufacture them, their applications and end markets:
- ------------------------------------------------------------------------------------------------------------------------ Product Line Raw Material Protection Against End Market - ------------------------------------------------------------------------------------------------------------------------ Limited use/disposable o Tyvek(R) and o Contaminants, o Chemical/petrochemical protective clothing TyvekQC, laminates of irritants, metals, industries Polyethylene, chemicals, fertilizers, o Automotive and Micromax(R), SMS, pesticides, acids, pharmaceutical Polypropylene, asbestos, PCBs, industries Pyrolon(R), and other lead, dioxin and o Public utilities non-woven fabrics many other hazardous o Government (terrorist chemicals response) o Viruses and o Janitorial bacteria (AIDS, streptococcus, SARS and hepatitis) - ------------------------------------------------------------------------------------------------------------------------ High-end chemical protective o TyChem(R) SL o Chemical spills o Hazardous material suits o TyChem(R) TK o Toxic chemicals used teams o TyChem(R) BR in manufacturing o Chemical and o Other Lakeland processes nuclear industries patented co-polymer o Terrorist attacks, o Fire departments laminates biological warfare o Government (first (anthrax and ricin) responders) - ------------------------------------------------------------------------------------------------------------------------ Fire fighting and heat o PBI o Fire, burns and o Municipal, corporate protective apparel o Nomex(R) excessive heat and volunteer fire o Millenia(R) departments o Basofil(R) o Wildland fire fighting o Advance Indura(R) o Hot equipment Ultrasoft maintenance personnel o Aluminized Nomex(R) and industrial fire o Aluminized Kevlar(R) departments o Oil well fires o Airport crash rescue - ------------------------------------------------------------------------------------------------------------------------ Gloves and arm guards o Kevlar(R) yarns o Cuts, lacerations, o Automotive, glass and o Spectra(R) yarns heat and chemical metal fabrication o Kevlar(R) wrapped irritants industries steel core yarns o Chemical plants - ------------------------------------------------------------------------------------------------------------------------ Reusable woven garments o Staticsorb carbon o Protects o Hospital and industrial thread with polyester manufactured facilities o Cotton polyester products from human o Clean room blends contamination or environments o Cotton static electrical o Emergency medical o Polyester charge ambulance services o FR cottons/Nomex(R) o Bacteria, viruses and o Chemical and refining blood borne pathogens o Protection from flash fires - ------------------------------------------------------------------------------------------------------------------------
Limited Use/Disposable Protective Clothing We manufacture a complete line of limited use/disposable protective garments, including coveralls, laboratory coats, shirts, pants, hoods, aprons, sleeves and smocks. Limited use garments can also be coated or laminated to increase splash protection against many inorganic acids, bases and other liquid chemicals. Limited use garments are made from several non-woven fabrics, including Tyvek(R) and Tyvek QC (both DuPont fabrics) and our own fabrics such as Pyrolon(R) Plus 2 XT, CRFR, Micromax(R), Safegard "76"(R), Zonegard, Body Gard(R), RyTex(R) and TomTex(R), which are made of spunlaced polyester, polypropylene and polyethylene materials, laminates, films and derivatives. We incorporate many seaming 8 techniques depending on the level of protection needed in the end use application. Typical users of these garments include chemical plants, petrochemical refineries and related installations, automotive manufacturers, pharmaceutical companies, construction companies, coal and oil power generation utilities and telephone utility companies. Numerous smaller industries use these garments for specific safety applications unique to their businesses. Additional applications include protection from viruses and bacteria, such as AIDS, streptococcus, SARS and hepatitis, at hospitals, clinics and emergency rescue sites and use in clean room environments to prevent human contamination in the manufacturing processes. Our limited use/disposable protective clothing products range in unit price from $.04 for shoe covers to approximately $14.00 for a TyChem(R) QC laminated hood and booted coverall. Our largest selling item, a standard white Tyvek(R) coverall, sells for approximately $2.75 to $3.75 per garment. By comparison, similar reusable cloth coveralls range in price from $30.00 to $60.00, exclusive of laundering, maintenance and shrinkage expenses. We cut, warehouse and sell our limited use/disposable garments primarily at our Decatur, Alabama and China facilities. The fabric is cut into required patterns at our Decatur plant and shipped to our Mexico facility for assembly. Our assembly facilities in China or Mexico and independent contractors sew and package the finished garments and return them primarily to our Decatur, Alabama plant, normally within one to eight weeks, for immediate shipment to the customer. We presently utilize nine independent domestic sewing contractors and one international contractor under agreements that are terminable at will by either party. In fiscal 2004, no independent sewing contractor accounted for more than 5% of our production of limited use/disposable garments. We believe that we can obtain adequate alternative production capacity should any of our independent contractors become unavailable. The capacity of our facilities, complemented by the availability of our independent sewing contractors, allow us to reduce by 10%, or alternately increase by 20%, our production capacity without incurring large on going costs typical of many manufacturing operations. This allows us to react quickly to changing unit demand for our products. High-End Chemical Protective Suits We manufacture heavy-duty chemical suits made from DuPont TyChem(R) SL, TK and TyChem(R) BR fabrics. These suits are worn by individuals on hazardous material teams to provide protection from powerful, highly concentrated and hazardous or potentially lethal chemical and biological toxins, such as toxic wastes at Super Fund sites, toxic chemical spills or biological discharges, chemical or biological warfare weapons (such as anthrax or ricin), and chemicals and petro-chemicals present during the cleaning of refineries and nuclear facilities. Our line of chemical suits range in cost from $24 per coverall to $1,926. The chemical suits can be used in conjunction with a fire protective shell that we manufacture to protect the user from both chemical and flash fire hazards. We have also introduced two garments approved by the National Fire Protection Agency for varying levels of protection that are manufactured from DuPont materials: o TyChem(R) TK - a co-polymer film laminated to a durable spun bonded substrate. This garment offers the broadest temperature range for limited use garments of -94(degree)F to 194(degree)F. TyChem(R) TK meets all OSHA Level A requirements. It is available in National Fire Protection Agency 1991-2000 certified versions when worn with an aluminized over cover. o TyChem(R) BR - meets all OSHA Level B and all National Fire Protection Agency 1994 fabric requirements and offers splash protection against a wide array of chemicals. We manufacture chemical protective clothing at our facilities in Decatur, Alabama and Mexico. Using fabrics such as TyChem(R) SL, TyChem(R) TK and TyChem(R) BR, we design, cut, glue and/or sew the materials to meet customer purchase orders. The federal government, through the Fire Act of 2002, appropriated approximately $750 million in 2003 to fire departments in the United States and its territories to fund the purchase, among other things, of personal protective equipment, including our fire fighting and heat protective apparel and high-end chemical protective suits. An additional $750 million has been appropriated for 2004. The Bio Terrorism Preparedness and Response Act of 2002 includes an appropriation of $337 million for bio-defense equipment and $770 million to purchase equipment for first responders, such as fire, police, medical and military personnel. Purchases of equipment under these appropriations will include our personal protective equipment and are expected to be made in late 2005 and in 2006. 9 Fire Fighting and Heat Protective Apparel We manufacture an extensive line of products to protect individuals who work in high heat environments. Our heat protective aluminized fire suit product lines include the following: o Fire entry suit - to allow total flame entry when dealing with volatile and highly flammable products. o Kiln entry suit - to protect kiln maintenance workers from extreme heat. o Proximity suits - to give protection in high heat areas where exposure to hot liquids, steam or hot vapors is possible. o Approach suits - to protect personnel engaged in maintenance, repair and operational tasks where temperatures do not exceed 200(degree)F ambient, with a radiant heat exposure up to 2,000(degree)F. We manufacture fire fighter protective apparel for domestic and foreign fire departments. We developed the popular Sterling Heights(TM) style (short coat and bib pants) bunker gear. Crash rescue continues to be a major market for us, as we were one of the first manufacturers to supply military and civilian markets with airport fire fighting protection. Our fire suits range in price from $480 for standard fire department turn out gear to $2,000 for a fire entry suit. All of our heat protective clothing is currently manufactured at our facility in St. Joseph, Missouri. Our Fyrepel(TM) brand of fire fighting apparel continues to benefit from ongoing research and development investment, as we seek to address the ergonomic needs of stressful occupations. Gloves and Arm Guards We manufacture and sell specially designed gloves and arm guards made from Kevlar(R), a cut and heat resistant material produced by DuPont, Spectra(R), a cut resistant fiber made by Honeywell, and our proprietary patented yarns. We are one of only seven companies licensed in North America to sell 100% Kevlar(R) gloves, which are high strength, lightweight, flexible and durable. Kevlar(R) gloves offer a better overall level of protection and lower worker injury rates, and are more cost effective, than traditional leather, canvas or coated work gloves. Kevlar(R) gloves, which can withstand temperatures of up to 400(degree)F and are cut resistant enough to allow workers to safely handle sharp or jagged unfinished sheet metal, are used primarily in the automotive, glass and metal fabrication industries. Our higher end Kevlar(R) and Spectra(R) gloves range in price from $37 to $240 for a dozen pair. We manufacture gloves primarily at our Decatur, Alabama facility, but we are shifting production to our Mexico and China facilities. We expect to complete this shift by the third quarter of fiscal 2005 as quotas and tariffs on products of this type expire. Foreign production will allow lower fabric and labor costs. We have applied for patents on manufacturing processes that provide hand protection to the areas of a glove where it is most needed in various applications. For example, while the top or back of a glove generally does not require the same thickness as the palm or thumb of a glove, gloves typically have a uniform level of yarn protection. This manufacturing process allows us to produce our gloves more economically. Reusable Woven Garments We manufacture and market a line of reusable and washable woven garments that complement our fire fighting and heat protective apparel offerings and provide alternatives to our limited use/disposable protective clothing lines and give us access to the much larger woven industrial and health care-related markets. Cloth reusable garments are favored by customers for certain uses or applications because of familiarity with and acceptance of these fabrics and woven cloth's heavier weight, durability and longevity. These products allow us to supply and satisfy a wider range of safety and customer needs. Our product lines include the following: o Electrostatic dissipative apparel - used primarily in the automotive industry. o Clean room apparel - used in semiconductor manufacturing and pharmaceutical manufacturing to protect against human contamination. o Hospital garments - used to protect against blood borne pathogens and common bacteria. o Flame resistant Nomex(R) coveralls/pants/jackets - used in chemical and petroleum plants and for wild land firefighting. 10 Our reusable woven garments range in price from $10 to $100 per garment. We manufacture and sell woven cloth garments at our facility in St. Joseph, Missouri. We continue to relocate highly repetitive sewing processes for our high volume, standard product lines such as woven protective coveralls and electrostatic dissipative apparel to our facilities in China where lower fabric and labor costs allow increased profit margins. We expect the relocation process to be substantially complete by the third quarter of fiscal 2005. Quality Control Our Alabama, Missouri, Mexico and China manufacturing facilities are ISO 9001 certified. ISO standards are internationally recognized quality manufacturing standards established by the International Organization for Standardization based in Geneva, Switzerland. To obtain our ISO registration, our factories were independently audited to test our compliance with the applicable standards. In order to maintain registration, our factories receive regular announced inspections by an independent certification organization. We believe that the ISO 9001 certification makes us more competitive in the marketplace, as customers increasingly recognize the standard as an indication of product quality. Marketing and Sales We employ an in-house sales force of 14 people and utilize 42 independent sales representatives. These employees and representatives call on over 500 safety and mill supply distributors nationwide in order to promote, provide product information for and sell our products. Distributors buy our products for resale and typically maintain inventory at the local level in order to assure quick response times and the ability to service their customers properly. Our sales employees and independent representatives have consistent communication with end users and decision makers at the distribution level, thereby allowing us valuable feedback on market perception of our products, as well as information about new developments in our industry. During fiscal 2004, no single distributor accounted for more than 5% of our net sales. We seek to maximize the efficiency of our established distribution network through direct promotion of our products at the end user level. We advertise primarily through trade publications and our promotional activities include sales catalogs, mailings to end users, a nationwide publicity program and our Internet web site. We exhibit at both regional and national trade shows such as the National Safety Congress and the American Industrial Hygienists Convention. Research and Development We continue to evaluate and engineer new or innovative products. We recently introduced the Micromax(R) line of disposable protective clothing; a newly configured line of fire retardant work coveralls and fire turn-out gear; a SARS protective medical gown for Chinese hospital personnel; the Despro(TM), Grapolator(TM) and Kut Buster(TM) cut protective glove and sleeve lines; and our patented Thermbar(TM) Mock Twist that provides heat protection for temperatures up to 600(degree)F. We own seven patents on various fabrics, patterns and production machinery. We plan to continue investing in research and development in protective apparel fabrics and manufacturing equipment. Specifically, we plan to continue to develop new specially knit and coated gloves, woven gowns for industrial and medical uses, fire retardant cotton fabrics and protective non-woven fabrics. During fiscal 2002, 2003 and 2004, we spent approximately $378,000, $164,000 and $82,000, respectively, on research and development. Suppliers and Materials Our largest supplier is DuPont, from whom we purchase Tyvek(R) under North American trademark licensing agreements and Kevlar(R) under international trademark licensing agreements. Commencing in 1995, anticipating the expiration of certain patents on its proprietary materials, DuPont offered certain customers of these materials the opportunity to enter into two year trademark licensing agreements. We entered into such agreements and have renewed them continually since. In fiscal 2004, we purchased approximately 77.4% of the dollar value of our materials from DuPont, and Tyvek(R) constituted approximately 55% of our cost of goods sold and approximately 71.2% of the dollar value of our raw material purchases. We believe our relationship with DuPont to be excellent and expect to continue our licenses. We do not have long-term, formal agreements with any other suppliers of non-woven fabric raw materials used by us in the production of our limited use/disposable protective clothing product lines. Materials such as polypropylene, polyethylene, polyvinyl chloride, spun laced polyester and their derivatives are available from thirty or more major mills. Flame retardant fabrics are also available from a number of both domestic and international mills. The accessories used in the production of our disposable garments, such as thread, boxes, snaps and elastics are obtained from unaffiliated suppliers. We have not experienced difficulty in obtaining our requirements for these commodity component items. We have not experienced difficulty in obtaining materials, including cotton, polyester and nylon, used in the production of reusable non-wovens and commodity gloves. We obtain Spectra(R) yarn used in our super cut-resistant Dextra Guard gloves from Honeywell, and we believe Honeywell will be able to meet our needs for this material in the future. We obtain Kevlar(R), used in the production of our specialty safety gloves, from independent mills that purchase the fiber from DuPont. Our use of Kevlar(R) is subject to the trademark licensing agreements described above. 11 Materials used in our fire and heat protective suits include glass fabric, aluminized glass, Nomex(R), aluminized Nomex(R), Kevlar(R), aluminized Kevlar(R), polybenzimidazole and Gortex, as well as combinations utilizing neoprene coatings. Traditional chemical protective suits are made of Viton, butyl rubber and polyvinyl chloride, all of which are available from multiple sources. Advanced chemical protective suits are made from Tyvek(R) SL, TyChem(R) TK and BR, which we obtain from DuPont, and our patented fabrics. We have not experienced difficulty obtaining any of these materials. Competition Our business is highly competitive. We believe that the barriers to entry in the reusable garments and glove markets are relatively low. We face competition in some of our other product markets from large established companies that have greater financial, managerial, sales and technical resources. Where larger competitors, such as DuPont and Kimberly Clark, offer products that are directly competitive with our products, particularly as part of an established line of products, there can be no assurance that we can successfully compete for sales and customers. Larger competitors also may be able to benefit from economies of scale and technological innovation and may introduce new products that compete with our products. Seasonality Our operations have historically been seasonal, with higher sales generally occurring in February, March, April and May when scheduled maintenance on nuclear, coal, oil and gas fired utilities, chemical, petrochemical and smelting facilities, and other heavy industrial manufacturing plants occurs, primarily due to cooler temperatures. Sales decline during the warmer summer and vacation months and generally increase from Labor Day through February with slight declines during holidays. As a result of this seasonality in our sales, we have historically experienced a corresponding seasonality in our working capital, specifically inventories, with peak inventories occurring between September and March coinciding with lead times required to accommodate the spring maintenance schedules. We believe that by sustaining higher levels of inventory, we gain a competitive advantage in the marketplace. Certain of our large customers seek sole sourcing to avoid sourcing their requirements from multiple vendors whose prices, delivery times and quality standards differ. In recent years, due to increased demand by first responders for our chemical suits and fire gear, our historical seasonal pattern has shifted. Governmental disbursements are dependent upon budgetary processes and grant administration processes that do not follow our traditional seasonal sales patterns. Due to the size and timing of these governmental orders, our net sales, results of operations, working capital requirements and cash flows can vary between different reporting periods. As a result, we expect to experience increased variability in net sales, net income, working capital requirements and cash flows on a quarterly basis. Patents and Trademarks We own seven patents and have eight patents in the application and approval process with the U.S. Patent and Trademark Office. Additionally, a Patent Corporation Treaty application was filed for our Unilayer Glove Fabrics which involves technology using a robotic knitter that allows us to knit a glove using stronger or weaker yarns in different parts of the glove, as necessary, depending on the expected wear. We license one patent from Lavian Corporation, covering manufacturing processes for certain limited use/disposable protective clothing products. This license provides for semi-exclusive rights in North American and international markets, subject to royalty payments based on yards sold and annual dollar minimums. Net sales from products manufactured pursuant to this process accounted for less than 2% of our total net sales in fiscal 2004. Employees As of April 19, 2004, we had approximately 1,292 full time employees, 1,005, or 77.8%, of whom were employed in our international facilities and 287, or 22.2%, of whom were employed in our domestic facilities. An aggregate of 988 of our employees, representing all of our employees in our Mexico facility and in each of our China facilities, are members of unions. We are not currently a party to any collective bargaining agreements. We believe our employee relations to be excellent. Environmental Matters We are subject to various foreign, federal, state and local environmental protection, chemical control, and health and safety laws and regulations, and we incur costs to comply with those laws. We own and lease real property, and certain environmental laws hold current or previous owners or operators of businesses and real property responsible for contamination on or originating from property, even if they did not know of or were not responsible for the contamination. The presence of hazardous substances on any of our properties or the failure to meet environmental regulatory requirements could affect our ability to use or to sell the property or to use the property as collateral for borrowing, and could result in substantial remediation or compliance costs. If hazardous substances are released from or located on any of our properties, we could incur substantial costs and damages. 12 Although we have not in the past had any material costs or damages associated with environmental claims or compliance and we do not currently anticipate any such costs or damages, we cannot assure you that we will not incur material costs or damages in the future, as a result of the discovery of new facts or conditions, acquisition of new properties, the release of hazardous substances, a change in interpretation of existing environmental laws or the adoption of new environmental laws. ITEM 2. PROPERTIES We believe that our owned and leased facilities are suitable for the operations we conduct in each of them. Each manufacturing facility is well maintained and capable of supporting higher levels of production. The table below sets forth certain information about our principal facilities.
Estimated Square Address Feet Annual Rent Lease Expiration Principal Activity - ------- --------- ----------- ---------------- ------------------ Weifang Lakeland Safety Products Co., 65,000 Owned(1) N/A Manufacturing Ltd. Administration Xiao Shi Village Engineering AnQui City, Shandong Province PRC 262100 Qing Dao MayTung 90,415 Owned(1) N/A Manufacturing Healthcare Co., Ltd Administration Yinghai Industrial Park Warehousing Jiaozhou, Shandong Province PRC 266318 Meiyang Protective Products 9,360 $3,630 12/31/04 Manufacturing Co., Ltd. Xiao Shi Village AnQui City, Shandong Province PRC 262100 Uniland Division 44,000 $96,000 7/31/06 Manufacturing 2401 SW Parkway Administration St. Joseph, MO 64503 Warehousing Lakeland de Mexico S.A. de C.V. 14,057 $59,400 7/31/07 Manufacturing (Luis Gomez Guzman - employee) Administration Poniente, Mza 8, Lote 11 Warehousing Ciudad Industrial, S/No. Celaya, Guanajuato 38010 Mexico Lakeland Protective Wear Canada 8,250 $55,600 11/30/07 Sales 5109-B7 Harvestor Road Administration Burlington, ON L7L5Y9 Warehousing Canada Lakeland Industries, Inc. 4,362 $43,402 6/30/04 Administration Headquarters 711-2 Koehler Avenue Ronkonkoma, NY 11779 Lakeland Industries, Inc. 900 $7,800 6/30/04 Studio 751-4 Koehler Avenue Warehousing Ronkonkoma, NY 11779
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Estimated Square Address Feet Annual Rent Lease Expiration Principal Activity - ------- --------- ----------- ---------------- ------------------ Lakeland Industries, Inc. 91,788 $364,900 3/31/09 Manufacturing (POMS Holding Co.- related party) Administration 202 Pride Lane Engineering Decatur, AL 35603 Warehousing Lakeland Industries, Inc. 49,500 $199,100 3/31/09 Warehousing (River Group Holding Co., Ltd - Administration related Party) 3428 Valley Ave. (201 1/2Pride Lane) Decatur, AL 35603 Lakeland Industries, Inc. 2,400 $18,000 3/31/09 Sales (Harvey Pride, Jr. - officer- related Administration party) 201 Pride Lane, SW Decatur, AL 35603 Lakeland Industries Europe Ltd. 2,470 Approximately 1/31/08 Warehouse Wallingfen Park $25,528 (varies Sales 236 Main Road with exchange Newport, East Yorkshire rates) HU15 2RH U United Kingdom
- ---------- (1) We own the buildings in which we conduct our manufacturing operations and lease the land underlying the buildings from the Chinese government. We have 43 years and 48 years remaining under the leases with respect to the AnQui City and Jiaozhou facilities, respectively. Our facilities in Decatur, Alabama; Celaya, Mexico; AnQui, China; Jiaozhou, China; and St. Joseph, Missouri contain equipment used for the design, development and manufacture and sale of our products. Our operations in Burlington, Canada and Newport, United Kingdom are primarily sales and warehousing operations receiving goods for resale from our manufacturing facilities around the world. We had $0.2 million, $1.4 million and $1.9 million of long-lived assets, net located in China and $0.12 million, $0.21 million and $0.17 million of long-lived assets located in Mexico as of January 31, 2002, 2003 and 2004. ITEM 3. LEGAL PROCEEDINGS From time to time, we are a party to litigation arising in the ordinary course of our business. We are not currently a party to any litigation that we believe could reasonably be expected to have a material adverse effect on our results of operations, financial condition or cash flows. 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 our security holders. 14 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS Our common stock is currently traded 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 our common stock as reported by the Nasdaq National Market. The stock prices in the table below have been adjusted for periods prior to July 31, 2003 to reflect our 10% stock dividends to stockholders of record on July 31, 2002 and July 31, 2003. Price Range of Common Stock ----------------------- High Low -------- --------- Fiscal 2003 First Quarter................................... $ 8.64 $ 6.72 Second Quarter.................................. 9.92 5.46 Third Quarter................................... 8.77 5.52 Fourth Quarter.................................. 7.29 5.69 Fiscal 2004 First Quarter................................... $ 8.44 $ 6.14 Second Quarter.................................. 10.92 7.73 Third Quarter................................... 12.99 9.67 Fourth Quarter.................................. 18.87 11.78 Fiscal 2005 First Quarter (through April 20, 2004).......... $ 22.33 $ 15.64 On April 20, 2004 the last reported sale price of our common stock on the Nasdaq National Market was $22.33 per share. As of April 2, 2004, there were approximately 78 record holders of shares of our common stock. Dividend Policy We have never paid any cash dividends on our common stock and we currently intend to retain any future earnings for use in our business. The payment and rate of future dividends, if any, are subject to the discretion of our board of directors and will depend upon our earnings, financial condition, capital requirements, contractual restrictions under our credit facilities and other factors. In the past, we have declared dividends in stock to our stockholders. We paid a 10% dividend in additional shares of our common stock to holders of record on July 31, 2002 and another 10% dividend in additional shares of our common stock to holders of record on July 31, 2003. We may pay stock dividends in future years at the discretion of our board of directors. ITEM 6. Selected Consolidated Financial Data The following selected consolidated financial data as of and for our fiscal years 2000, 2001, 2002, 2003 and 2004 have been derived from our audited consolidated financial statements, which have been audited by Grant Thornton LLP as of and for the fiscal years ended January 31, 2000, 2001 and 2002 and by PricewaterhouseCoopers LLP as of and for the fiscal years ended January 31, 2003 and 2004. You should read the information set forth below in conjunction with our "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included in this Form 10-K. 15
Year Ended January 31, ----------------------------------------------------------------------- 2000 2001 2002 2003 2004 ----------- ----------- ----------- ----------- ----------- (in thousands, except share and per share data) Income Statement Data: Net sales ..................................... $ 58,644 $ 76,108 $ 76,431 $ 77,826 $ 89,717 Costs of goods sold ........................... 48,156 64,798 63,294 62,867 71,741 ----------- ----------- ----------- ----------- ----------- Gross profit .............................. 10,488 11,310 13,137 14,959 17,976 ----------- ----------- ----------- ----------- ----------- Operating expenses: Selling and shipping ...................... 4,177 4,825 5,414 6,338 7,342 General and administrative ................ 3,014 3,794 4,134 4,262 4,596 Impairment of goodwill .................... -- -- -- -- 249 ----------- ----------- ----------- ----------- ----------- Total operating expenses .................. 7,191 8,619 9,548 10,600 12,187 ----------- ----------- ----------- ----------- ----------- Operating profit .......................... 3,297 2,691 3,589 4,359 5,789 ----------- ----------- ----------- ----------- ----------- Other income (expense): Interest expense .......................... (821) (1,248) (882) (643) (535) Interest income ........................... 26 27 18 20 19 Other income .............................. 7 15 91 40 24 ----------- ----------- ----------- ----------- ----------- Total other expense ....................... 788 1,206 773 583 492 Income before income taxes ................ 2,509 1,485 2,816 3,776 5,297 Income tax expense ............................ 761 362 846 1,172 1,659 ----------- ----------- ----------- ----------- ----------- Net income ................................ $ 1,748 $ 1,123 $ 1,970 $ 2,604 $ 3,638 =========== =========== =========== =========== =========== Net income per common share (Basic)(1) .................................. $ 0.54 $ 0.35 $ 0.61 $ 0.80 $ 1.11 =========== =========== =========== =========== =========== Net income per common share (Diluted)(1) ................................ $ 0.54 $ 0.35 $ 0.61 $ 0.80 $ 1.11 =========== =========== =========== =========== =========== Weighted average common shares outstanding(1): Basic .................................... 3,211,280 3,200,990 3,222,956 3,261,116 3,268,551 =========== =========== =========== =========== =========== Diluted .................................. 3,234,873 3,227,265 3,247,290 3,269,039 3,275,501 =========== =========== =========== =========== =========== Balance Sheet Data (at period end): Current assets ................................ $ 32,460 $ 36,099 $ 39,545 $ 38,859 $ 43,285 Total assets .................................. 34,770 38,628 42,417 42,823 47,304 Current liabilities ........................... 16,551 20,052 22,778 20,934 21,509 Long-term liabilities ......................... 2,759 1,981 912 529 768 Stockholders' equity .......................... 15,405 16,537 18,727 21,359 25,027
- ---------- (1) Adjusted for periods prior to July 31, 2003 to reflect our 10% stock dividends to stockholders of record as of July 31, 2002 and July 31, 2003. Earnings per share have been restated in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." 16 ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following summary together with the more detailed business information and consolidated financial statements and related notes that appear elsewhere in this Form 10-K and Annual Report and in the documents that we incorporate by reference into this Form 10-K. This document may contain certain "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. This information involves risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Overview We manufacture and sell a comprehensive line of safety garments and accessories for the industrial protective clothing market. Our products are sold by our in-house sales force and independent sales representatives to a network of over 500 safety and mill supply distributors. These distributors in turn supply end user industrial customers such as chemical/petrochemical, automobile, steel, glass, construction, smelting, janitorial, pharmaceutical and high technology electronics manufacturers, as well as hospitals and laboratories. In addition, we supply federal, state and local governmental agencies and departments such as fire and police departments, airport crash rescue units, the Department of Defense, Central Intelligence Agency, Federal Bureau of Investigation, U.S. Secret Service and the Centers for Disease Control. Our net sales attributable to customers outside the United States were $4.5 million, $5.7 million and $8.0 million, in fiscal 2002, fiscal 2003 and fiscal 2004, respectively. In fiscal 2004, we hired five additional sales personnel, increasing our sales team from nine to fourteen. Although it has taken time to identify and train the new personnel, we believe our increase in net sales in the year ended January 31, 2004 compared to the year ended January 31, 2003 is in part attributable to our increased focus on our internal sales team. As sales increase, we intend to continue to invest in the hiring of additional sales personnel. Our sales of limited use/disposable protective clothing grew approximately 13% in the year ended January 31, 2004 compared to the year ended January 31, 2003, and our expectation is to see continued growth. We expect that distributors will continue to stock more inventory as economic conditions in the United States continue to improve. We also expect our net sales to increase as we introduce our Tyvek(R)-based products into new industries in which the use of Tyvek(R) is not widespread. In addition, our net sales are driven in part by government funding and health-related events. Our net sales attributable to chemical suits increased 55% and our net sales attributable to fire gear and aluminized apparel increased 25% in the year ended January 31, 2004 compared to the year ended January 31, 2003. These sales increases were driven primarily by grants from the federal government under the Fire Act of 2002 and the Bio Terrorism Preparedness and Response Act of 2002 as part of the Homeland Security initiatives. During fiscal 2004, as a result of the SARS virus outbreak in various cities in 2003, we sold approximately $1.1 million of SARS-related garments in China, Toronto, Hong Kong and Taiwan. The Centers for Disease Control has recommended protective garments be used to protect healthcare workers in the fight against the spread of the SARS virus. In the event of future outbreaks of SARS or other similar contagious viruses, such as avian flu in 2004, we have positioned ourselves with increased production capacity. We have operated manufacturing facilities in Mexico since 1995 and in China since 1996. Beginning in 1995, we moved the labor intensive sewing operation for our limited use/disposable protective clothing lines to these facilities. Our facilities and capabilities in China and Mexico allow access to a less expensive labor pool than is available in the United States and permit us to purchase certain raw materials at a lower cost than they are available domestically. As we have increasingly moved production of our products to our facilities in Mexico and China, we have seen improvements in the profit margins for these products. We are in the early stages of moving production of our reusable woven garments and gloves to these facilities and expect to complete this process by the third quarter of fiscal 2005. As a result, we expect to see profit margin improvements for these product lines as well. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses, and disclosure of contingent assets and liabilities. We base estimates on our past experience and on various other assumptions that we believe to be reasonable under the circumstances and we periodically evaluate these estimates. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. 17 Revenue Recognition. We derive our sales primarily from our limited use/disposable protective clothing and secondarily from our sales of high-end chemical protective suits, fire fighting and heat protective apparel, gloves and arm guards, and reusable woven garments. Sales are recognized when goods are shipped to our distributors at which time title and the risk of loss passes. Sales are reduced for sales returns and allowances. Payment terms are generally net 30 days for United States sales and net 90 days for international sales. Inventories. Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost (on a first-in, first-out basis) or market. Provision is made for slow-moving, obsolete or unusable inventory. Allowance for Doubtful Accounts. We establish an allowance for doubtful accounts to provide for accounts receivable that may not be collectible. In establishing the allowance for doubtful accounts, we analyze the collectibility of individual large or past due accounts customer-by-customer. We establish reserves for accounts that we determine to be doubtful of collection. Income Taxes and Valuation Reserves. We are required to estimate our income taxes in each of the jurisdictions in which we operate as part of preparing our consolidated financial statements. This involves estimating the actual current tax in addition to assessing temporary differences resulting from differing treatments for tax and financial accounting purposes. These differences, together with net operating loss carryforwards and tax credits, are recorded as deferred tax assets or liabilities on our balance sheet. A judgment must then be made of the likelihood that any deferred tax assets will be realized from future taxable income. A valuation allowance may be required to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event we determine that we may not be able to realize all or part of our deferred tax asset in the future, or that new estimates indicate that a previously recorded valuation allowance is no longer required, an adjustment to the deferred tax asset is charged or credited to net income in the period of such determination. Valuation of Goodwill and Other Intangible Assets. On February 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," which provides that goodwill and other intangible assets are no longer amortized, but are assessed for impairment annually and upon occurrence of an event that indicates impairment may have occurred. Goodwill impairment is evaluated utilizing a two-step process as required by SFAS No. 142. Factors that we consider important that could identify a potential impairment include: significant underperformance relative to expected historical or projected future operating results; significant changes in the overall business strategy; and significant negative industry or economic trends. When we determine that the carrying value of intangibles and goodwill may not be recoverable based upon one or more of these indicators of impairment, we measure any potential impairment based on a projected discounted cash flow method. Estimating future cash flows requires our management to make projections that can differ materially from actual results. In fiscal 2004, as a result of our decision to move a portion of our reusable woven garment assembly from the United States to China, we reviewed this portion of our business for impairment. An impairment was calculated based on estimating the fair value, utilizing a discounted cash flow analysis, resulting in an impairment charge of $0.2 million, we have no remaining goodwill recorded as of January 31, 2004. Self-Insured Liabilities. We have a self-insurance program for certain employee health benefits. The cost of such benefits is recognized as expense based on claims filed in each reporting period and an estimate of claims incurred but not reported during such period. Our estimate of claims incurred but not reported are based upon historical trends. If more claims are made than were estimated or if the costs of actual claims increases beyond what was anticipated, reserves recorded may not be sufficient and additional accruals may be required in future periods. We maintain separate insurance to cover the excess liability over set single claim amounts and aggregate annual claim amounts. 18 Results of Operations The following table set forth our historical results of operations for the years ended January 31, 2002, 2003 and 2004 as a percentage of our net sales. Year Ended January 31, ------------------------------------- 2002 2003 2004 ------ ------ ------ Net sales .......................... 100.0% 100.0% 100.0% Cost of goods sold ................. 82.8% 80.8% 80.0% ------ ------ ------ Gross profit ................... 17.2% 19.2% 20.0% Operating expenses ................. 12.5% 13.6% 13.6% Operating profit ............... 4.7% 5.6% 6.4% Interest expense, net .............. 1.0% 0.8% 0.5% Income tax expense ................. 1.1% 1.5% 1.8% ------ ------ ------ Net income ..................... 2.6% 3.3% 4.1% Year Ended January 31, 2004 Compared to Year Ended January 31, 2003 Net Sales. Net sales increased $11.9 million, or 15.3%, to $89.7 million for the year ended January 31, 2004 from $77.8 million for the year ended January 31, 2003. The increase was due primarily to an increase in our market share in our Tyvek(R)-based product lines as well as an increase in the price of these products beginning in May 2003. Increased sales were also driven by an improving U.S. economy which increased demand for our products, particularly in the industrial Tyvek(R) markets we serve, and increased demand for our chemical protective suits and fire turnout gear for Homeland Security purposes. In addition, as a result of the SARS outbreak, we sold our products for the first time in domestic China, which amounted to $0.6 million in the year ended January 31, 2004. Gross Profit. Gross profit increased $3.0 million, or 20.2%, to $18.0 million for the year ended January 31, 2004 from $15.0 million for the year ended January 31, 2003. Gross profit as a percent of net sales increased to 20.0% for the year ended January 31, 2004 from 19.2% for the year ended January 31, 2003, primarily because of cost reductions achieved by shifting production of additional Tyvek(R) -based products and chemical suits to China and Mexico. We have increasingly shifted production to these lower-cost facilities. In addition, we increased the price of our Tyvek(R) -based products beginning in May 2003, which contributed to an increase in our gross margins for these products. In the year ended January 31, 2004, we also determined that a portion of our inventory was obsolete. As a result, we wrote off $0.4 million of inventory offsetting the factors contributing to an increase in gross profit discussed above. Operating Expenses. Operating expenses increased $1.6 million, or 15%, to $12.2 million for the year ended January 31, 2004 from $10.6 million for the year ended January 31, 2003. As a percent of net sales, operating expenses remained constant at 13.6% for the year ended January 31, 2004 and the year ended January 31, 2003. The $1.6 million increase in operating expenses in the year ended January 31, 2004 compared to the year ended January 31, 2003 was principally due to increased expenses corresponding to our increase in net sales, as well as impairment of goodwill of $0.2 million. This was offset by a decrease in bad debt expense of $0.3 million in fiscal 2004 resulting from improvement in the U.S. economy and a reorganization of our credit department. Interest Expenses. Interest expenses decreased $0.1 million, or 16.8%, to $0.5 million for the year ended January 31, 2004 from $0.6 million for the year ended January 31, 2003. The decrease was primarily due to a decrease in average monthly borrowings under our credit facilities. Income Tax Expense. Income tax expense consists of federal, state and foreign income taxes. Income tax expense increased $0.5 million, or 41.6%, to $1.7 million for the year ended January 31, 2004 from $1.2 million for the year ended January 31, 2003. The increase was due to a relative increase in our income recognized in the United States as compared to the income recognized in China, where income tax rates are lower. Our effective tax rate was 31.3% and 31.0% in the years ended January 31, 2004 and 2003, respectively. Our effective tax rate varied from the federal statutory rate of 34% due primarily to lower foreign tax rates. Net Income. Net income increased $1.0 million, or 39.7%, to $3.6 million for the year ended January 31, 2004 from $2.6 million for the year ended January 31, 2003. The increase in net income was the result of an increase in net sales and increased productivity as a result of shifts in production to our China facilities, partially offset by an increase in costs and expenses due to higher volumes of our products being sold. 19 Year Ended January 31, 2003 Compared to Year Ended January 31, 2002 Net Sales. Net sales increased $1.4 million, or 1.8%, to $77.8 million for the year ended January 31, 2003 from $76.4 million for the year ended January 31, 2002. The increase in net sales was principally attributable to slowly improving economic conditions and to an increase in the price of our Tyvek(R)-based products beginning in April 2002. Gross Profit. Gross profit increased by $1.8 million, or 13.9%, to $15.0 million for the year ended January 31, 2003 from $13.1 million for the year ended January 31, 2002. Gross profit as a percentage of net sales increased to 19.2% for the year ended January 31, 2003 from 17.1% for the prior year, principally due to an increase in the price of our Tyvek(R) -based products beginning in April 2002, which contributed to an increase in our gross margins for these products. Labor and overhead costs also decreased in the year ended January 31, 2003 compared to the year ended January 31, 2002 due to a headcount reduction in our Decatur, Alabama facility and our continuing shift of production to China, where the labor costs are lower. This was partially offset by an increase in inventory reserves of $0.2 million as well as a decrease in our margins on our Tyvek(R)-based products in the period between March 2002 and April 2002 during which we were unable to pass on the Tyvek(R) price increase to our customers. Operating Expenses. Operating expenses increased by $1.1 million, or 11%, to $10.6 million for the year ended January 31, 2003 from $9.5 million for the year ended January 31, 2002. As a percent of net sales, operating expenses increased to 13.6% for the year ended January 31, 2003 from 12.5% for the year ended January 31, 2002. The $1.1 million increase in operating expenses for the year ended January 31, 2003 compared to the year ended January 31, 2002 was due primarily to a $0.3 million increase in freight costs as a result of price increases by our carriers, a $0.3 million increase in sales commissions as a result of a corresponding increase in our chemical suit sales which have a higher commission rate than our Tyvek(R)-based products, and a $0.3 million increase in bad debt expense as a result of general economic conditions. These increases were offset in part by a $0.2 million decrease in labor expenses as a result of increased automation in our manufacturing processes and a $0.2 million decrease in research and development expenses as a result of the completion of our development of our Micromax(R) products. Interest Expense. Interest expense decreased by $0.3 million, or 27.1%, to $0.6 million for the year ended January 31, 2003 from $0.9 million for the year ended January 31, 2002. This decrease was primarily due to a decrease in average borrowings under our revolving credit facilities and to decreasing interest rates. Income Tax Expense. Income tax expense increased $0.4 million, or 50.0%, to $1.2 million for the year ended January 31, 2003 from $0.8 million for the year ended January 31, 2002. The increase was due to a relative increase in our income recognized in the United States as compared to the income recognized in China, where income tax rates are lower. Our effective tax rate was 31.0% and 30.0% in the years ended January 31, 2003 and 2002, respectively. Our effective tax rate varied from the federal statutory rate of 34% due primarily to lower foreign tax rates. Net Income. Net income increased $0.6 million, or 32.2%, from $2.6 million for the year ended January 31, 2003 from $2.0 million for the year ended January 31, 2002. The increase in net income was primarily the result of the price increase of our Tyvek(R)-based products, offset in part by the increase in operating expenses discussed above. Liquidity and Capital Resources Cash Flows As of January 31, 2004 we had cash and cash equivalents of $2.4 million and working capital of $21.8 million, an increase of $1.0 million and $3.9 million, respectively, from January 31, 2003. Our primary sources of funds for conducting our business activities have been from cash flow provided by operations and borrowings under our credit facilities described below. We require liquidity and working capital primarily to fund increases in inventories and accounts receivable associated with our net sales and, to a lesser extent, for capital expenditures. Net cash provided by operating activities of $2.2 million for the year ended January 31, 2004 was due primarily to net income from operations of $3.6 million and an increase in accounts payable of $0.4 million, offset in part by an increase in inventories of $0.8 million and an increase in accounts receivable of $2.2 million. Net cash provided by operating activities of $1.8 million for the year ended January 31, 2003 was primarily attributable to net income from operations of $2.6 million and an decrease in inventories of $1.0 million, offset in part by an decrease in accounts payable of $1.9 million and an increase in accounts receivable of $0.8 million. Net cash used in investing activities of $1.4 million and $1.7 million in the years ended January 31, 2004 and 2003, respectively, was due to purchases of property and equipment. Net cash provided by financing activities in the years ended January 31, 2004 and 2003 was primarily attributable to payments and borrowings under our credit facilities. 20 Credit Facilities We currently have two credit facilities: o an $18 million revolving credit facility, of which we had $16.3 million of borrowings outstanding as of April 20, 2004; and o a $3 million revolving credit facility (the availability of which reduces incrementally over its 3-year term), of which we had no borrowings outstanding as of April 20, 2004. In November 1999, we entered into a 5-year $3 million term loan which we repaid in full on March 31, 2003. Our $18 million revolving credit facility permits us to borrow up to the lower of $18 million and a borrowing base determined by reference to a percentage of our eligible accounts receivable and inventory. Our $18 million revolving credit facility expires on July 31, 2004, and has therefore been classified as a short-term liability on our balance sheet at January 31, 2004. Borrowings under this revolving credit facility bear interest at the London Interbank Offering Rate (LIBOR) plus 2% and were approximately $16.8 million at January 31, 2004. As of April 20, 2004, we had $1.7 million of borrowing availability under this revolving credit facility. In January 2004, we entered into a new 3-year $3 million revolving credit facility which expires on January 21, 2007. Availability under this facility decreases from $3 million by $83,333 each month over the 3-year term and is also subject to the borrowing base limitation discussed above in connection with our $18 million revolving credit facility. Borrowings under this revolving credit facility bear interest at LIBOR plus 2.5%. We did not have any borrowings outstanding under this facility at January 31, 2004. As of April 20, 2004, we had $2.9 million of borrowing availability under this revolving credit facility. Our credit facilities require that we comply with specified financial covenants relating to interest coverage, debt coverage, minimum consolidated net worth, and earnings before interest, taxes, depreciation and amortization. These restrictive covenants could affect our financial and operational flexibility or impede our ability to operate or expand our business. Default under our credit facilities would allow the lenders to declare all amounts outstanding to be immediately due and payable. Our lenders have a security interest in substantially all of our assets to secure the debt under our credit facilities. As of April 20, 2004, we were in compliance with all covenants contained in our credit facilities. We believe that cash flow from operations along with borrowing availability under our $3 million revolving credit facility, as well as the expected renewal of our $18 million revolving credit facility, will be sufficient to meet our currently anticipated operating, capital expenditures and debt service requirements for at least the next 12 months. Historically, we have been able to renew our primary credit facility on acceptable terms, but there can be no assurance that such financing will continue to be available or that any renewal will be on favorable terms as favorable as our current facility. Capital Expenditures Our capital expenditures principally relate to purchases of manufacturing equipment, computer equipment, leasehold improvement and automobiles, as well as payments related to the construction of our facilities in China. Our capital spending plans for fiscal 2005 include the last payment on our 90,415 square foot facility in Jiaozhou, China due to a construction company as payment for the construction of this facility in 2004. Our facilities in China are not encumbered by commercial bank mortgages and thus Chinese commercial mortgage loans may be available with respect to these real estate assets if we need additional liquidity. We expect our capital expenditures to be approximately $1.1 million in fiscal 2005. 21 Contractual Obligations We had no off-balance sheet arrangements at January 31, 2004. As shown below, at January 31, 2004, our contractual cash obligations totaled approximately $20.6 million, including lease renewals entered into subsequent to January 31, 2004.
Payments Due by Period ------------------------------------------------------------------ Less than --------- Total 1 Year 1-3 Years 4-5 Years After 5 Years --------- --------- --------- --------- ------------- (in thousands) Operating leases ......................... $ 3,702 $ 848 $ 1,589 $ 1,265 $ -- Automobiles leased ....................... 78 30 34 14 -- Revolving credit facility ................ 16,785 16,785 -- -- -- ========= ========= ========= ========= ========= Total .................................... $ 20,565 $ 17,663 $ 1,623 $ 1,279 $ --
Seasonality Our operations have historically been seasonal, with higher sales generally occurring in February, March, April and May when scheduled maintenance occurs on nuclear, coal, oil and gas fired utilities, chemical, petrochemical and smelting facilities, and other heavy industrial manufacturing plants occurs, primarily due to cooler temperatures. Sales decline during the warmer summer and vacation months, and generally increase from Labor Day through February with slight declines during holidays. As a result of this seasonality in our sales, we have historically experienced a corresponding seasonality in our working capital, specifically inventories, with peak inventories occurring between September and March coinciding with lead times required to accommodate the spring maintenance schedules. We believe that by sustaining higher levels of inventory, we gain a competitive advantage in the marketplace. Certain of our large customers seek sole sourcing to avoid sourcing their requirements from multiple vendors whose prices, delivery times and quality standards differ. In recent years, due to increased demand by first responders for our chemical suits and fire gear, our historical seasonal pattern has shifted. Governmental disbursements are dependent upon budgetary processes and grant administration processes that do not follow our traditional seasonal sales patterns. Due to the size and timing of these governmental orders, our net sales, results of operations, working capital requirements and cash flows can vary between different reporting periods. As a result, we expect to experience increased variability in net sales, net income, working capital requirements and cash flows on a quarterly basis. Effects of Recent Accounting Pronouncements In November 2002, the Financial Accounting Standards Board, or FASB, issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others-an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34." This interpretation expands on the existing accounting guidance and disclosure requirements for most guarantees, including indemnifications. It requires that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligations it assumes under that guarantee if the amount is reasonably estimable, and must disclose that information in its interim and annual financial statements. The provisions for initial recognition and measurement of the liability are to be applied on a prospective basis to guarantees issued or modified on or after January 1, 2003. Our initial adoption of this statement on January 1, 2003 did not have an impact on its results of operations, financial position or cash flows. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." This interpretation provides guidance with respect to the consolidation of certain entities, referred to as variable interest entities, in which an investor is subject to a majority of the risk of loss from the variable interest entity's activities, or is entitled to receive a majority of the variable interest entity's residual returns. This interpretation also provides guidance with respect to the disclosure of variable interest entities in which an investor maintains an interest but is not required to consolidate. The provisions of the interpretation are effective immediately for all variable interest entities created after January 31, 2003, or in which we obtain an interest after that date. In October 2003, the FASB issued a revision to this pronouncement, FIN 46R, which clarified certain provisions and modified the effective date from July 1, 2003 to December 31, 2003 for variable interest entities created before February 1, 2003. We believe that the adoption of this pronouncement will have no impact on our financial position or results of operations. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 requires that certain financial instruments that were accounted for as equity under previous guidance must now be accounted for as liabilities. The financial instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in 22 exchange for cash or other assets, and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have any impact on our consolidated financial statements for the year ended and at January 31, 2004. In December 2003, the FASB issued a revised SFAS No. 132, "Employers Disclosures about Pension and Other Postretirement Benefits", to improve financial statement disclosures for defined benefit plans. We have adopted SFAS No. 132, which includes new disclosure requirements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk, including changes in interest rates and currency exchange rates. To manage the volatility relating to these exposures, we seek to limit, to the extent possible, our non-U.S. dollar denominated purchases. Foreign Currency Risk We are exposed to changes in foreign currency exchange rates as a result of our purchases and sales in other countries. To manage the volatility relating to foreign currency exchange rates, we seek to limit, to the extent possible, our non-U.S. dollar denominated purchases and sales. In connection with our operations in China, we purchase a significant amount of products from outside of the United States. However, our purchases in China are primarily made in Chinese Yuan, the value of which has been largely pegged to the U.S. dollar for the last decade. As a result, any currency risks related to these transactions are deemed to be immaterial to us as a whole. Our primary risk from foreign currency exchange rate changes is presently related to non-U.S. dollar denominated sales in Canada and, to a smaller extent, in Europe. Our sales in Canada are denominated in U.S. dollars. If the value of the U.S. dollar increases relative to the Canadian dollar, then our net sales could decrease as our products would be more expensive to our Canadian customers because of the exchange rate change. Although our sales in China are denominated in the Chinese Yuan, because this currency has recently been largely pegged to the U.S. dollar, our foreign currency exchange rate risk in China has been minimized. At this time, we do not manage the foreign currency risk through the use of derivative instruments. A 10% decrease in the value of the U.S. dollar relative to foreign currencies would not have a material impact on our results of operations or financial position. As non-U.S. dollar denominated international purchases and sales grow, exposure to volatility in exchange rates could have a material adverse impact on our financial results. Interest Rate Risk We are exposed to interest rate risk with respect to our credit facilities, which have variable interest rates based upon the London Interbank Offered Rate. At January 31, 2004, we had $16.8 million of borrowings outstanding under these credit facilities. If the interest rate applicable to this variable rate debt rose 1% in the year ended January 31, 2004, our interest expense would have increased and our income before income taxes would have decreased by less than $200,000. 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Consolidated Financial Statements: Page No. -------- Report of Independent Auditors A-25 Report of Independent Auditors A-26 Consolidated Balance Sheets - January 31, 2004 and 2003 A-27 Consolidated Statements of Income for the years ended A-28 January 31, 2004, 2003 and 2002 Consolidated Statement of Stockholders' Equity for the years ended A-29 January 31, 2004, 2003 and 2002 Consolidated Statements of Cash Flows for the years ended A-30 January 31, 2004, 2003 and 2002 Notes to Consolidated Financial Statements A-31 to 46 Schedule II - Valuation and Qualifying Accounts A-47 All other schedules are omitted because they are not applicable, not required, or because the required information is included in the consolidated financial statements or notes thereto. 24 Report of Independent Auditors To the Board of Directors and Shareholders Of Lakeland Industries, Inc. and Subsidiaries: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Lakeland Industries, Inc. and its subsidiaries at January 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the years ended January 31, 2004 and 2003 listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial information. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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 assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1, the Company changed the manner in which it accounts for goodwill and other intangible assets upon adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", on February 1, 2002. PricewaterhouseCoopers LLP Melville, New York April 2, 2004 25 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Lakeland Industries, Inc. and Subsidiaries We have audited the accompanying consolidated statements of income, stockholders' equity and cash flows of Lakeland Industries, Inc. and Subsidiaries (the "Company") for the year ended January 31, 2002. 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 audit. We conducted our audit 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 presentation of the results of operations and cash flows. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of the Company for the year ended January 31, 2002, in conformity with accounting principles generally accepted in the United States of America. We have also audited Schedule II - Valuation and Qualifying Accounts for the year ended January 31, 2002. In our opinion, this schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be set forth therein. GRANT THORNTON LLP Melville, New York April 15, 2002 26 Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
January 31, 2004 2003 ----------- ----------- Assets Current assets Cash and cash equivalents $ 2,445,271 $ 1,474,135 Accounts receivable, net of allowance for doubtful accounts of $323,000 and $343,000 at January 31, 2004 and 2003 respectively 12,570,320 10,364,188 Inventories 26,265,807 25,470,044 Deferred income taxes 790,272 1,001,133 Other current assets 1,213,104 549,564 ----------- ----------- Total current assets 43,284,774 38,859,064 Property and equipment, net 3,921,308 3,356,835 Other assets, net 97,745 358,001 Goodwill 248,834 ----------- ----------- Total assets $47,303,827 $42,822,734 =========== =========== Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 3,461,353 $ 3,014,038 Accrued compensation and benefits 796,285 586,795 Other accrued expenses 466,759 675,380 Borrowings under revolving credit facility 16,784,781 16,657,882 ----------- ----------- Total current liabilities 21,509,178 20,934,095 Pension liability 517,147 514,572 Deferred income taxes 250,532 14,643 ----------- ----------- Total liabilities 22,276,857 21,463,310 ----------- ----------- 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; 3,273,925 and 2,969,107 shares issued and outstanding 32,739 29,691 at January 31, 2004 and 2003, respectively Additional paid-in capital 11,862,461 8,762,673 Retained earnings 13,131,770 12,567,060 ----------- ----------- Total stockholders' equity 25,026,970 21,359,424 ----------- ----------- Total liabilities and stockholders' equity $47,303,827 $42,822,734 =========== ===========
The accompanying notes are an integral part of these financial statements. 27 Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME
Fiscal years ended January 31, 2004 2003 2002 ------------ ------------ ------------ Net sales $ 89,717,162 $ 77,825,717 $ 76,431,245 Cost of goods sold 71,740,876 62,866,550 63,293,922 ------------ ------------ ------------ Gross profit 17,976,286 14,959,167 13,137,323 ------------ ------------ ------------ Operating expenses Selling and shipping 7,342,017 6,337,726 5,414,400 General and administrative 4,596,437 4,262,707 4,133,790 Impairment of goodwill 248,834 -0- -0 ------------ ------------ ------------ Total operating expenses 12,187,288 10,600,433 9,548,190 ------------ ------------ ------------ Operating profit 5,788,998 4,358,734 3,589,133 ------------ ------------ ------------ Other income (expense) Interest expense (534,540) (642,595) (881,948) Interest income 18,976 20,245 17,311 Other income - net 24,064 39,555 91,040 ------------ ------------ ------------ Total other expense (491,500) (582,795) (773,597) ------------ ------------ ------------ Income before income taxes 5,297,498 3,775,939 2,815,536 Income tax expense 1,659,064 1,171,881 846,000 ------------ ------------ ------------ Net income $ 3,638,434 $ 2,604,058 $ 1,969,536 ============ ============ ============ Net income per common share Basic $ 1.11 $ .80 $ .61 ============ ============ ============ Diluted $ 1.11 $ .80 $ .61 ============ ============ ============ Weighted average common shares outstanding Basic 3,268,551 3,261,116 3,222,956 ============ ============ ============ Diluted 3,275,501 3,269,039 3,247,290 ============ ============ ============
The accompanying notes are an integral part of these financial statements. 28 Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Fiscal years ended January 31, 2004, 2003 and 2002
Common stock Additional ---------------------- paid-in Retained Shares Amount Capital Earnings Total --------- ------- ----------- ------------ ----------- Balance, January 31, 2001 2,646,000 $26,460 $ 6,140,221 $ 10,369,831 $16,536,512 Net income 1,969,536 1,969,536 Exercise of stock options 38,600 386 125,864 126,250 Stock option income tax benefit 94,656 94,656 --------- ------- ----------- ------------ ----------- Balance, January 31, 2002 2,684,600 26,846 6,360,741 12,339,367 18,726,954 Net income 2,604,058 2,604,058 Exercise of stock options 10,100 101 28,311 28,412 10% stock dividend 274,407 2,744 2,373,621 (2,376,365) -- --------- ------- ----------- ------------ ----------- Balance, January 31, 2003 2,969,107 29,691 8,762,673 12,567,060 21,359,424 Net income 3,638,434 3,638,434 Exercise of stock options 10,400 104 29,008 29,112 10% stock dividend 294,418 2,944 3,070,780 (3,073,724) -- --------- ------- ----------- ------------ ----------- Balance, January 31, 2004 3,273,925 $32,739 $11,862,461 $ 13,131,770 $25,026,970 --------- ------- ----------- ------------ -----------
The accompanying notes are an integral part of these financial statements. 29 Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended January 31, 2004 2003 2002 ----------- ----------- ----------- Cash flows from operating activities Net income $ 3,638,434 $ 2,604,058 $ 1,969,536 Adjustments to reconcile net income to net cash provided by (used in) operating activities Deferred income taxes 446,750 (401,490) (19,000) Depreciation and amortization 803,234 595,384 689,969 Impairment of goodwill 248,834 -- -- Stock option income tax benefit -- -- 94,656 (Increase) decrease in operating assets Accounts receivable (2,206,132) (763,450) 1,257,550 Inventories (795,763) 1,059,106 (3,819,067) Prepaid income taxes and other current assets (663,540) 216,739 355,587 Other assets 260,256 47,365 (80,832) Increase (decrease) in operating liabilities Accounts payable 447,315 (1,913,434) (1,731,074) Accrued expenses and other liabilities 3,444 355,724 312,638 ----------- ----------- ----------- Net cash provided by (used in) operating activities 2,182,832 1,800,002 (970,037) ----------- ----------- ----------- Cash flows from investing activities Purchases of property and equipment (1,367,707) (1,733,759) (831,919) ----------- ----------- ----------- Net cash used in investing activities (1,367,707) (1,733,759) (831,919) ----------- ----------- ----------- Cash flows from financing activities Borrowings from related party to finance construction of a building 168,099 Net borrowings (payments) under credit agreements 126,899 (549,254) 2,772,513 Proceeds from exercise of stock options 29,112 28,412 126,250 Payment of deferred financing costs -- -- (120,750) ----------- ----------- ----------- Net cash provided by (used in) financing 156,011 (352,743) 2,778,013 activities ----------- ----------- ----------- Net increase (decrease) in cash and cash 971,136 (286,500) 976,057 equivalents Cash and cash equivalents at beginning of year 1,474,135 1,760,635 784,578 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 2,445,271 $ 1,474,135 $ 1,760,635 =========== =========== ===========
See notes for Supplemental Cash Flow information. The accompanying notes are an integral part of these financial statements 30 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 2004, 2003 and 2002 1. - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Business Lakeland Industries, Inc. and Subsidiaries (the "Company"), a Delaware corporation, organized in April 1982, manufactures and sells a comprehensive line of safety garments and accessories for the industrial protective clothing market. 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, 2004, 2003 and 2002. 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 (MeiYang Protective Products Co. Ltd., a Chinese corporation), Lakeland Protective Wear, Inc. (a Canadian corporation), Weifang Lakeland Safety Products Co., Ltd. (a Chinese corporation), Qing Dao Maytung Healthcare Co., Ltd. (a Chinese corporation, formed), Lakeland Industries Europe Ltd. (a British corporation) and Lakeland de Mexico S.A. de C.V. (a Mexican corporation). All significant intercompany accounts and transactions have been eliminated. Revenue Recognition The Company derives its sales primarily from its limited use/disposable protective clothing and secondarily from its sales of high-end chemical protective suits, fire fighting and heat protective apparel, gloves and arm guards, and reusable woven garments. Sales are recognized when goods are shipped at which time title and the risk of loss passes to the customer. Sales are reduced for sales returns and allowances. Payment terms are generally net 30 days for United States sales and net 90 days for international sales. Domestic and international sales are as follows:
Fiscal Years Ended January 31, 2004 2003 2002 ---- ---- ---- Domestic $81,763,000 91.1% $72,126,000 92.7% $71,962,000 94.2% International 7,954,000 8.9% 5,700,000 7.3% 4,469,000 5.8% ----------- ------- ----------- ------- ----------- ------- Total $89,717,000 100% $77,826,000 100% $76,431,000 100% =========== ======= =========== ======= =========== =======
Inventories Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost (on a first-in first-out basis) or market. Provision is made for slow-moving, obsolete or unusable inventory. 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. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the account and the gain or loss on disposition is reflected in operating income. 31 Goodwill On February 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," which provides that goodwill and other intangible assets will no longer be amortized, but are assessed for impairment annually and upon occurrence of an event that indicates impairment may have occurred. Goodwill impairment is evaluated, utilizing a two-step process as required by SFAS No. 142. Factors that the Company considers important that could identify a potential impairment include: significant under performance relative to expected historical or projected future operating results; significant changes in the overall business strategy; and significant negative industry or economic trends. When the Company determines that the carrying value of intangibles and goodwill may not be recoverable based upon one or more of these indicators of impairment, the Company measures any potential impairment based on a projected discounted cash flow method. Estimating future cash flows requires the Company's management to make projections that can differ materially from actual results. In fiscal 2004, as a result of the Company's decision to move a portion of our reusable woven garment assembly from the United States to China, the Company reviewed this portion of its business for impairment. The impairment was calculated based on estimating the fair value utilizing a discounted cash flow analysis, resulting in an impairment of $0.2 million in fiscal 2004. The Company has no remaining goodwill recorded at January 31, 2004. In fiscal 2003, the Company ceased amortization of goodwill. Had this pronouncement been retroactively applied net income would have increased approximately $12,000 net of tax in 2002 and diluted earnings per share would have increased by less than one cent per share in 2002. 32 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 2004, 2003 and 2002 1. (continued) Stock-Based Compensation The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123"). In compliance with 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 employee stock-based compensation plans. The Company has also adopted the disclosure provisions of SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure." This pronouncement requires prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reporting results. 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, 2004, 2003 and 2002 to the pro forma amounts indicated below:
2004 2003 2002 ------------- ------------- ------------- Net income As reported $ 3,638,434 $ 2,604,058 $ 1,969,536 Less: Option expense based on fair value method 28,344 -- 3,930 Pro forma $ 3,610,090 $ 2,604,058 $ 1,965,606 ============= ============= ============= Basic earnings per common share As reported $ 1.11 $ .80 $ .61 Pro forma $ 1.10 $ .80 $ .61 Diluted earnings per common share As reported $ 1.11 $ .80 $ .60 Pro forma $ 1.10 $ .80 $ .60
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, 2004 and 2002: expected volatility of 57% and 57%, respectively; risk-free interest rate of 3.25 % and 5%, respectively; expected dividend yield of 0.0%; and expected life of six years. All stock-based awards were fully vested at January 31, 2004 and 2003 and 7,000 new option grants were made during the year ended January 31, 2004. No options were granted in 2003. Earnings per share have been adjusted to reflect the 10% stock dividends to stockholders of record as of July 31, 2003 and 2002. Allowance for Doubtful Accounts The Company establishes an allowance for doubtful accounts to provide for accounts receivable that may not be collectible. In establishing the allowance for doubtful accounts, the Company analyzes the collectibility of individual large or past due accounts customer-by-customer. The Company establishes reserves for accounts that it determines to be doubtful of collection. 33 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 2004, 2003 and 2002 1. (continued) Shipping and Handling Costs The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with outbound freight are included in selling and shipping expenses and aggregated approximately $2,394,000, $1,835,000 and $1,532,000 in the fiscal years ended January 31, 2004, 2003 and 2002, respectively. Research and Development Costs Research and development costs are expensed as incurred and included in general and administrative expenses. Research and development expenses aggregated approximately $82,000, $164,000, and $378,000 in the fiscal years ended January 31, 2004, 2003 and 2002, respectively, paid to contractors for development of new raw materials. Income Taxes The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part of preparing the consolidated financial statements. This involves estimating the actual current tax in addition to assessing temporary differences resulting from differing treatments for tax and financial accounting purposes. These differences, together with net operating loss carryforwards and tax credits, are recorded as deferred tax assets or liabilities on the Company's balance sheet. A judgment must then be made of the likelihood that any deferred tax assets will be recovered from future taxable income. A valuation allowance may be required to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines that it may not be able to realize all or part of our deferred tax asset in the future, or that new estimates indicate that a previously recorded valuation allowance is no longer required, an adjustment to the deferred tax asset is charged or credited to income in the period of such determination. Earnings Per Share Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of common stock equivalents. Diluted earnings per share are based on the weighted average number of common and common stock equivalents. The common stock equivalents for the years ended January 31, 2004, 2003 and 2002 were 6,950, 7,923, and 24,334 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 shares that may be repurchased with the funds received from the exercise, based on the average price during the fiscal year (as adjusted for the 10% stock dividend to holders of record July 31, 2003 and 2002). Options to purchase 1,100, and 1,000, shares of the Company's common stock have been excluded from the computation of diluted earnings per share in 2003 and 2002, respectively, as their inclusion would have been anti-dilutive. Advertising Costs Advertising costs are expensed as incurred. 34 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2004, 2003 and 2002 1. (continued) 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 approximately $2,012,000 and $1,011,000 at January 31, 2004 and 2003, respectively. Supplemental cash flow information for the years ended January 31 is as follows: 2004 2003 2002 ---------- -------- -------- Interest paid $ 534,540 $642,595 $881,934 Income taxes paid 1,303,513 895,401 606,700 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. 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 and the U.K. The Company is vulnerable to currency risks in these countries. The functional currency of foreign subsidiaries is the U.S. dollar. The monetary assets and liabilities of the Company's foreign operations are translated into U.S. dollars at current exchange rates, while non-monetary 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 and aggregated approximately $29,000, $95,000, and $129,000 for the fiscal years ended January 31, 2004, 2003 and 2002, respectively. 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 most 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. 35 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2004, 2003 and 2002 1. (continued) 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. Effects of Recent Accounting Pronouncements In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 requires that certain financial instruments that were accounted for as equity under previous guidance, must now be accounted for as liabilities. The financial instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 in July 1, 2003 did not have any impact on our consolidated financial statements for the year ended and at January 31, 2004. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others-an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34." This interpretation expands on the existing accounting guidance and disclosure requirements for most guarantees, including indemnifications. It requires that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligations it assumes under that guarantee if that amount is reasonably estimable, and must disclose that information in its interim and annual financial statements. The provisions for initial recognition and measurement of the liability are to be applied on a prospective basis to guarantees issued or modified on or after January 1, 2003. Our initial adoption of this statement on January 1, 2003 did not have an impact on its results of operations, financial position, or cash flows. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." This interpretation provides guidance with respect to the consolidation of certain entities, referred to as variable interest entities ("VIE"), in which an investor is subject to a majority of the risk of loss from the VIE's activities, or is entitled to receive a majority of the VIE's residual returns. This interpretation also provides guidance with respect to the disclosure of VIEs in which an investor maintains an interest but is not required to consolidate. The provisions of the interpretation are effective immediately for all VIEs created after January 31, 2003, or in which we obtain an interest after that date. In October 2003, the FASB issued a revision to this pronoucement, FIN 46R which clarified certain provisions and modified the effective date from July 1, 2003 to December 31, 2003 for variable interest entities created before February 1, 2003. We believe that the adoption of this pronouncement will have no impact on our financial position or results of operations. In December 2003, the FASB issued a revised FAS No. 132, Employers Disclosures about Pensions and Other Postretirement benefits, to improve financial statement disclosures for defined benefit plans. The company has adopted FAS No. 132, which includes new disclosure requirements, which have been included in note 7, Benefit Plans. 2 -INVENTORIES Inventories consist of the following at January 31: 2004 2003 ----------- ----------- Raw materials $10,868,816 $ 7,839,144 Work-in-process 2,279,444 1,656,942 Finished goods 13,117,547 15,973,958 ----------- ----------- $26,265,807 $25,470,044 ----------- ----------- 36 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2004, 2003 and 2002 3 -PROPERTY, PLANT AND EQUIPMENT Property and equipment consist of the following at January 31:
Useful life in years 2004 2003 ----------- ---------- ---------- Machinery and equipment 3 - 10 5,819,322 $ 4,815,225 Furniture and fixtures 3 - 10 205,216 176,073 Leasehold improvements Lease term 802,318 778,514 Building ( in China) 20 1,605,737 1,295,074 ----------- ----------- 8,432,593 7,064,886 Less accumulated depreciation and amortization (4,511,285) (3,708,051) ----------- ----------- $ 3,921,308 $ 3,356,835 =========== ===========
Depreciation expense incurred in fiscal 2004, 2003 and 2002 amounted to $803,234, $595,384, and $689,969, respectively. Net fixed assets in China were approximately $1.9 million, $1.4 million and $0.2 million as of January 31, 2004, 2003 and 2002, respectively. Net fixed assets in Mexico were approximately $168,000, $208,000 and $121,000 at January 31, 2004, 2003 and 2002, respectively. 4 -LONG-TERM DEBT Long-term debt consists of the following at January 31: 2004 2003 ----------- ----------- Revolving credit facility $16,784,781 $16,478,781 Term loan -0- 179,101 ----------- ----------- 16,784,781 16,657,882 Less current portion 16,784,781 16,657,882 ----------- ----------- Long-term debt $ -0- $ -0- =========== =========== 37 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2004, 2003 and 2002 4. (continued) Revolving Credit Facility The Company's agreement with its lending institution, as amended, provides the Company with a revolving credit facility of $18 million. This credit facility, which is subject to a borrowing base based on a percentage of eligible accounts receivable and inventory as defined, bears interest at LIBOR plus 2% (3.10% at January 31, 2004) and pursuant to an amendment dated July 19, 2003 expires on July 31, 2004. The agreement was amended on March 9, 2001 to (i) extend the maturity date to October 31, 2001, (ii) modify the interest rate, and (iii) modify certain financial covenants. The agreement was amended on July 12, 2001 to (i) extend the maturity date to July 31, 2002, (ii) increase the amount available under the revolving line of credit from $14 million to a percentage of eligible accounts receivable and inventory as defined, up to a maximum of $18 million, (iii) modify the interest rate, and (iv) modify a certain financial covenant. The maximum amounts borrowed under the credit facility during the fiscal years ended January 31, 2004, 2003 and 2002 were $18,000,000, $18,000,000, and $17,702,000 respectively, and the average interest rates during the periods were 3.20%, 3.73% and 5.93%, respectively. At January 31, 2004, the Company had approximately $1,215,000 in availability under the agreement. In January 2004, the Company entered into a new 3-year $3 million revolving credit facility which expires on January 21, 2007. Availability under this facility decreases from $3 million by $83,333 each month over the 3-year term and is also subject to the borrowing base limitation discussed above in connection with the $18 million revolving credit facility. Borrowings under this revolving credit facility bear interest at LIBOR plus 2.5%. The Company did not have any borrowings outstanding under this facility at January 31, 2004. Term Loan In November 1999, the Company entered into a $3,000,000, five-year term loan which was paid in full in March 2003. The credit facility is and the term loan was collateralized by substantially all of the assets of the Company. 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 fees incurred by the Company related to the credit facility amounted to $63,000, $63,000, and $107,000 during fiscal 2004, 2003 and 2002, respectively. 5. - STOCKHOLDERS' EQUITY AND STOCK OPTIONS The Non-employee 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 non-employee 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 non-employee 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. The Company's 1986 Incentive and Non-statutory Stock Option Plan (the "Plan") provides for the granting of incentive stock options and non-statutory options. The Plan provides for the grant of options to key employees to purchase up to 400,000 shares of the Company's common stock, upon terms and conditions determined by a committee of the Board of Directors, which administers the plan. Options are granted at not less than fair market value (110 percent of fair market value as to incentive stock options granted to ten percent stockholders) and are exercisable over a period not to exceed ten years (five years as to incentive stock options granted to ten percent stockholders). 38 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2004, 2003 and 2002 5. (continued) Additional information with respect to the Company's plans for the fiscal years ended January 31, 2004, 2003 and 2002 is summarized as follows:
2004 ----------------------------------------------- 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 9,900 $ 4.71 4,455 $1.86 10% stock dividend 1,140 445 Granted 7,000 8.74 Exercised (5,500) (4,900) -------- ------- Outstanding and exercisable at end of year 12,540 7.70 0 ======== ======= Weighted-average remaining contractual life of options outstanding 4.25 years Weighted-average fair value per shares of options granted during 2004 $7.70 2003 ----------------------------------------------- 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 9,000 $5.48 13,900 $2.70 10% stock dividend 900 655 exercised 0 (10,100) -------- ------- Outstanding and exercisable at end of year 9,900 4.71 4,455 1.86 ======== ======= Weighted-average remaining contractual life of options outstanding 1.5 years 1 year
39 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2004, 2003 and 2002 5. (continued)
2002 ----------------------------------------------- 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 $5.53 52,500 $3.06 Granted 1,000 6.69 Exercised (38,600) 3.27 -------- ------- Outstanding and exercisable at end of year 9,000 5.48 13,900 2.70 ======== ======= Weighted-average remaining contractual life of options outstanding 2.7 years 2.5 years Weighted-average fair value per shares of options granted during 2002 $6.69
Summarized information about stock options outstanding under the two plans at January 31, 2003 is as follows (as adjusted for the 10% stock dividends):
Options outstanding and exercisable --------------------------------------------------------------------- Weighted- Number Average Outstanding Remaining Weighted- Range of At Contractual Average Exercise prices January 31, 2004 Life in years Exercise price --------------- ---------------- ------------- -------------- $4.91-$5.53 3,630 3.00 $5.11 $8.74-$8.88 8,910 5.5 8.76 ------ 12,540 4.25 7.70 ======
6. - INCOME TAXES The provision for income taxes is based on the following pre-tax income: Domestic $3,292,770 $2,905,060 $1,881,965 Foreign 2,004,728 870,879 933,571 Total $5,297,498 $3,775,939 $2,815,536 ---------- ---------- ----------
40 The provision for income taxes is summarized as follows: Year ended January 31, 2004 2003 2002 ---------- ----------- --------- Current Federal $ 699,069 $ 1,273,371 $ 719,000 State 99,324 163,984 78,000 Foreign 413,921 136,016 68,000 ---------- ----------- --------- 1,212,314 1,573,371 865,000 Domestic 446,750 (401,490) (19,000) deferred ---------- ----------- --------- $1,659,064 $ 1,171,881 $ 846,000 ========== =========== ========= The following is a reconciliation of the effective income tax rate to the Federal statutory rate:
Year ended January 31, ---------------------------------- 2004 2003 2002 ------ ------ ------ Statutory rate 34.0% 34.0% 34.0% State income taxes, net of Federal tax benefit 1.7% 2.3% 1.6 Nondeductible expenses .6% -- .6 Taxes on foreign income which differ from the statutory rate (3.2%) (4.7%) (5.6) Other (1.8%) (.6%) (.6)_ ------ ------ ------ Effective rate 31.3% 31.0% 30.0% ------ ------ ------
The tax effects of temporary differences which give rise to deferred tax assets at January 31, 2003 and 2002 are summarized as follows: January 31, 2004 2003 Deferred tax assets Inventories $639,156 $ 505,680 Net operating loss carry forward - foreign subsidiary 0 123,810 Accounts receivable 122,740 130,340 Accrued compensation and other 28,376 241,303 -------- ---------- Gross deferred tax assets 790,272 1,001,133 -------- ---------- Deferred tax liabilities Depreciation and other 250,532 14,643 -------- ---------- Gross deferred tax liabilities 250,532 14,643 -------- ---------- Net deferred tax asset $539,740 $ 986,490 ======== ========== 41 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2004, 2003 and 2002 7. - 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 as of January 31, 2004 and 2003. The following table sets forth the plan's funded status for the fiscal year ended January 31:
2004 2003 ----------- ----------- Change in benefit obligation Projected benefit obligation at beginning of year $ 1,159,088 $ 998,058 Interest cost 76,727 73,635 Actuarial (gain) loss 3,819 130,639 Benefits paid (44,779) (43,244) ----------- ----------- Projected benefit obligation at end of year $ 1,194,855 $ 1,159,088 =========== =========== Change in plan assets Fair value of plan assets at beginning of year $ 633,404 $ 568,057 Actual return on plan assets 366,369 86,591 Employer contributions 34,000 22,000 Benefits paid (44,779) (43,244) ----------- ----------- Fair value of plan assets at end of year $ 988,994 $ 633,404 =========== =========== Funded status Pension Liability 205,861 525,684 Unrecognized net gain 321,514 8,971 Unrecognized net transition liability (10,228) (20,083) ----------- ----------- Accrued pension cost $ 517,147 $ 514,572 =========== ===========
The components of net periodic pension cost for the fiscal years ended January 31 are summarized as follows:
2004 2003 2002 --------- -------- -------- Interest cost $ 76,727 $ 73,233 $ 75,889 Actual return on plan assets (366,369) (86,591) (89,707) Net amortization and deferral 326,217 52,178 61,230 --------- -------- -------- Net periodic pension cost $ 36,575 $ 38,820 $ 47,412 ========= ======== ========
An assumed discount rate of 6.75%, 6.75% and 7.5% was used in determining the actuarial present value of benefit obligations for the years ended January 31, 2004, 2003 and 2002, respectively. The expected long-term rate of return on plan assets was 8% for all periods presented. At January 31, 2004 and 2003, approximately 33.9% and 35.7%of the plan's assets were held in mutual funds invested primarily in equity securities, 64.5% and 62.2%were invested in equity securities and debt instruments and 1.6% and 2.1% were invested in money market and other instruments, respectively. 42 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2004, 2003 and 2002 7. (continued) The Company's policy is to hold no more than 50% of its pension assets in broadly held mutual funds which invest in a wide range of securities as well as money market funds, with the remainder of the plan assets invested in equity securities and debt instruments. The Company has utilized and expected long-term rate of return of 8% which it deems appropriate as a result of the fact that the actual rate of return on investments has not been less that 8% in the past 4 years. The Company does not expect its contributions for 2005 to exceed $50,000. 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 $100,033, $88,901 and $81,225 in the fiscal years ended January 31, 2004, 2003 and 2002, respectively. 8. - MAJOR SUPPLIER The Company purchased approximately 77.4%, 76.3% and 82.7% of its raw materials from one supplier under licensing agreements for the fiscal years ended January 31, 2004, 2003 and 2002, 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. 9. - COMMITMENTS AND CONTINGENCIES Employment Contracts The Company has employment contracts with four principal officers and the Chairman of the Board of Directors, expiring through January 2007. Such contracts are automatically renewable for two, one 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 $1,015,000 and $1,095,000 for the fiscal years ended January 31, 2005 and 2006. Leases POMS Holding Co. ("POMS"), a partnership consisting of three directors and one officer of Lakeland, who own 55% of the entity, and six non-affiliates, was formed to lease both land and building to the Company because bank financing was unavailable. POMS presently leases to the Company a 91,788 square foot disposable garment manufacturing facility in Decatur, Alabama. 20% of this space is highly improved office space. Under a lease effective September 1, 1999 and expiring on August 31, 2004, the Company paid an annual rent of $364,900 and is the sole occupant of the facility. This lease was renewed on April 1, 2004 through March 31, 2009 at the same rental rate. On June 1, 1999, the Company entered into a five year lease agreement (expiring May 31, 2004) with River Group Holding Co., L.L.C. for a 49,500 sq. ft. warehouse facility located next to the existing facility in Decatur, Alabama. River Group Holding Co., L.L.C. is a limited liability company consisting of five directors and one officer of the Company. The annual rent for this facility is $199,100 and the Company is the sole occupant of the facility. This lease was renewed on April 1, 2004 through March 31, 2009 at the same rental rate. 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 a 2,400 sq. ft. customer service office for $18,000 annually located next to the existing Decatur, Alabama facility mentioned above. This lease was renewed on March 1, 2004 through March 31, 2009 at the same rental rate and terms. 43 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2004, 2003 and 2002 9. (continued) The Company believes that all rents paid to POMS, River Group Holding Co., L.L.C. and Harvey Pride, Jr. by the Company are comparable to what would be charged by an unrelated party, as three different rent fairness appraisals were performed in 1999, 2002 and 2004. The net rent paid to POMS and River Group Holding Co., L.L.C. by the Company for the year entered January 31, 2004 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, 2004 amounted to $18,000. Total rental under all operating leases is summarized as follows: Rentals Gross paid to rental related expense parties ------- ------- Year ended January 31, 2004 $944,375 $641,400 2003 827,187 641,400 2002 858,429 611,700 Minimum annual rental commitments for the remaining term of the Company's non-cancelable operating leases relating to manufacturing facilities, office space and equipment rentals at January 31, 2004 including lease renewals subsequent to year-end, are summarized as follows: Year ending January 31, 2005 $ 878,000 2006 839,000 2007 784,000 2008 697,000 2009 582,000 ---------- $3,780,000 ========== Certain leases require additional payments based upon increases in property taxes and other expenses. 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 effect on the Company's financial position, results of operations, or cash flows. 10. OTHER RELATED PARTY TRANSACTIONS In 1997, An Qui Holding Co., L.L.C., or An Qui, a limited liability company whose members include the Company, five directors and one officer of the Company, provided financing for the construction of a 46,000 square foot building in An Qui City, China and the lease of the real property underlying the building for 50 years from the Chinese government to Weifang Lakeland Safety Product Co., Ltd., or Weifang, one of the Company's subsidiaries. In connection with the financing, Weifang agreed to make annual payments to An Qui and to allocate a portion of the proceeds from any sale of the property to An Qui. In 2002, An Qui relinquished its rights to the annual payments and to its rights to proceeds from the sale of the property in exchange for the amount of $406,185 (net of expenses). Weifang paid $222,645, $89,000 and $94,400 of this amount to An Qui in December 2002, January 2003 and June 2003, respectively. The Company now owns the building. 44 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2004, 2003 and 2002 10. (continued) In 2001, An Qui also helped to finance the construction of the Company's facility in Jiaozhou, China through a loan to one of the Company's Chinese subsidiaries. The loan's interest rate was 9% per annum until May 30, 2003, when the rate increased to 10% per annum. On June 19, 2003, the Company repaid this construction loan by paying $168,100 (plus accrued interest) to An Qui and a foreign investor who contributed to the loan. 11. MANUFACTURING SEGMENT DATA The Company manages its operations by evaluating its geographic locations. The Company's North American operations include its facilities in Decatur, Alabama (primarily disposables,chemical suit and glove production), Celaya, Mexico (primarily disposable chemical suit and glove production) and St. Joseph, Missouri (primarily woven products). The company also maintains contract manufacturing facilities in China (primarily disposable and chemical suit production). The Company's China facilities and the Decatur, Alabama facility produce the majority of the Company's products. The accounting policies of these operating entities are the same as those described in Note 1. The Company evaluates the performance of these entities based on operating profit which is defined as income before income taxes and other income and expenses. The Company has a small sales force in Canada and Europe who distribute products shipped from the United States, the table below represents information about reported manufacturing segments for the years noted therein:
2004 2003 2002 Net Sales: North America $ 88,346,362 $ 76,718,179 $ 75,785,190 China 4,753,853 3,896,680 4,249,153 Less intersegment sales (3,383,053) (2,789,142) (3,603,098) ------------ ------------ ------------ Consolidated sales $ 89,717,162 $ 77,825,717 $ 76,431,245 ============ ============ ============ Operating Profit: North America $ 4,721,880 $ 3,588,852 $ 2,613,800 China 1,255,118 963,382 1,181,333 Less intersegment profit (188,000) (193,500) (206,000) ------------ ------------ ------------ Consolidated profit $ 5,788,998 $ 4,358,734 $ 3,589,133 ============ ============ ============ Identifiable Assets: North America $ 40,211,021 $ 38,520,608 $ 39,164,386 China 7,092,806 4,302,126 3,253,099 ------------ ------------ ------------ Consolidated assets $ 47,303,827 $ 42,822,734 $ 42,417,485 ============ ============ ============ Depreciation: North America $ 535,572 $ 488,795 $ 558,203 China 267,662 106,589 131,766 ------------ ------------ ------------ Consolidated depreciation $ 803,234 $ 595,384 $ 689,969 ============ ============ ============
45 12. - UNAUDITED QUARTERLY RESULTS of OPERATIONS (In thousands, except for per share amounts):
Fiscal Year Ended January 31, 2004: 1/31/04 10/31/03 7/31/03 4/30/03 Net Sales $ 21,270 $ 21,332 $ 23,290 $ 23,825 Cost of Sales 16,584 16,831 18,597 19,729 --------- --------- --------- --------- Gross Profit $ 4,686 $ 4,501 $ 4,693 $ 4,096 ========= ========= ========= ========= Net Income $ 914 $ 870 $ 990 $ 864 ========= ========= ========= ========= Basic and Diluted income per common share*: Basic (b) $ 0.28 $ 0.27 $ 0.30 $ 0.29 ========= ========= ========= ========= Diluted (b) $ 0.28 $ 0.27 $ 0.30 $ 0.29 ========= ========= ========= ========= Fiscal Year Ended January 31, 2003: 1/31/03 10/31/02 7/31/02 4/30/02 Net Sales $ 19,684 $ 18,535 $ 18,964 $ 20,643 Cost of Sales(a) 15,993 15,084 15,321 16,469 --------- --------- --------- --------- Gross Profit $ 3,691 $ 3,451 $ 3,643 $ 4,174 ========= ========= ========= ========= Net Income $ 653 $ 496 $ 559 $ 896 ========= ========= ========= ========= Basic and Diluted income per common share*: Basic (b) $ 0.20 $ 0.15 $ 0.17 $ 0.27 ========= ========= ========= ========= Diluted (b) $ 0.20 $ 0.15 $ 0.17 $ 0.27 ========= ========= ========= =========
(a) During the fourth quarter of fiscal 2003, the Company recorded an additional inventory reserve of $254,000 related to slow moving and obsolete finished goods inventory. (b) The sum of earnings per share for the four quarters may not equal earnings per share for the full year due to changes in the average number of common shares outstanding. *Adjusted, retroactively, for the 10% stock dividends to shareholders of records on July 31, 2003 and 2002. 46 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E -------------------- -------- ----------------------- -------- -------- Additions Balance at Charge to Charged to Balance at Beginning costs and other end of of period expenses accounts Deductions period --------- -------- -------- ---------- ------ Year ended January 31, 2004 Allowance for doubtful account (a) $343,000 $ -- $ 20,000 $323,000 ======== ======== ======== ======== Allowance for slow moving inventory $354,000 $ 63,000 -- $417,000 ======== ======== ======== ======== Year ended January 31, 2003 Allowance for doubtful account (a) $221,000 $369,717 $247,717 $343,000 ======== ======== ======== ======== Allowance for slow moving inventory $100,000 $254,000 $354,000 ======== ======== ======== ======== Year ended January 31, 2002 Allowance for doubtful account (a) $221,000 $ 83,965 $ 83,965 $221,000 ======== ======== ======== ======== Allowance for slow moving inventory $100,000 $100,000 ======== ======== ======== ========
- ---------- (a) Deducted from accounts receivable. (b) Uncollectible accounts receivable charged against allowance. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 47 ITEM 9A. CONTROLS AND PROCEDURES (a) The Company's chief executive officer and principal accounting officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, they have concluded that as of such date, our disclosure controls and procedures are effective and designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms. (b) During the quarter ended January 31, 2004, there were no significant changes in our internal controls over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting during 2004. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following is a list of the names and ages of all of our directors and executive officers, indicating all positions and offices they hold with us as of April 28, 2004. Our directors hold office for a three-year term and until their successors have been elected and qualified. Our executive officers hold office for one year or until their successors are elected by our board of directors.
Name Age Position - ---- --- -------- Raymond J. Smith.................................. 65 Chairman of the Board of Directors Christopher J. Ryan............................... 52 Chief Executive Officer, President, Secretary, General Counsel and Director Harvey Pride, Jr. ................................ 57 Vice President - Manufacturing James M. McCormick................................ 56 Chief Financial Officer and Treasurer Paul C. Smith..................................... 37 Vice President John J. Collins................................... 61 Director Eric O. Hallman................................... 60 Director Walter J. Raleigh................................. 76 Director Michael E. Cirenza................................ 48 Director
Raymond J. Smith, one of our co-founders, has been Chairman of our board of directors since our incorporation in 1982 and was President from 1982 to January 31, 2004. Mr. Smith's term as a director will expire at our annual meeting of stockholders in June 2004. Christopher J. Ryan has served as our Chief Executive Officer since April 2004, and President since February 1, 2004, Secretary since April 1991, General Counsel since February 2000 and a director since May 1986. Mr. Ryan was our Executive Vice President - Finance from May 1986 until becoming our President on February 1, 2004. 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, Mr. Ryan 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 served as one of our directors since 1986 and his term as a director will expire at our annual meeting of stockholders in June 2005. Harvey Pride, Jr. has been our Vice President of manufacturing since May 1986. He was Vice President of Ryland (our former subsidiary) from May 1982 to June 1986 and President of Ryland until its merger into Lakeland on January 31, 1990. James M. McCormick was our Vice President and Treasurer from May 1986 to August 2003 and is presently Chief Financial Officer and Treasurer. Mr McCormick has been our Chief Financial Officer since April 2004. Between January 1986 and May 1986 Mr. McCormick was our Controller. Paul C. Smith, son of Raymond J. Smith, has served as Vice President since February 1, 2004. Prior to that, Mr. Smith was our Northeast Regional Sales Manager since September 1998. From April 1994 until September 1998, Mr. Smith was 48 a sales representative for the Metropolitan Merchandising and Sales Co. 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. Mr. Collins has served as one of our directors since 1986 and his term as a director will expire at our annual meeting of stockholders in June 2006. Eric O. Hallman was President of Naess Hallman Inc., a ship brokering firm, from 1974 to 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. Between 1998 and 2000, Mr. Hallman was President of PREMCO, a real estate management company, and currently is Comptroller of the law firm Murphy, Bartol & O'Brien, LLP. Mr. Hallman has served as one of our directors since our incorporation in 1982 and his term as a director will expire at our annual meeting of stockholders in June 2006. 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 was a Senior Adviser to CMI Industries, Inc. between 1995 and 2000. Mr. Raleigh has served as one of our directors since 1991 and his term as a director will expire at our annual meeting of stockholders in June 2004. Michael E. Cirenza has been the Executive Vice President and Chief Financial Officer of Consac Industries, Inc., a manufacturer and distributor of vitamins and nutritional supplements, since September 2002. Mr. Cirenza was the Chief Financial Officer and Chief Operating Officer of Resilien, Inc., an independent distributor of computers, components and peripherals from January 2000 to September 2002. He was an Audit Partner with the international accounting firm of Grant Thornton LLP from August 1993 to January 2000 and an Audit Manager with Grant Thornton LLP from May 1989 to August 1993. Mr. Cirenza was employed by the international accounting firm of Price Waterhouse from July 1980 to May 1989. Mr. Cirenza is a Certified Public Accountant in the State of New York and a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants. Mr. Cirenza has served as one of our directors since June 18, 2003 and his term as a director will expire at our annual meeting of stockholders in 2005. Committees of the Board Our board of directors has a designated Audit Committee that reviews the scope and results of the audit and other services performed by our independent accountants. The Audit Committee is comprised solely of independent directors and consists of Messrs. Raleigh, Cirenza, Hallman and Collins. The board of directors has also designated a Compensation Committee that establishes objectives for our senior executive officers, sets the compensation of directors, executive officers and our other employees and is charged with the administration of our employee benefit plans. The Compensation Committee is comprised solely of independent directors and consists of Messrs. Collins, Hallman and Raleigh. Compensation of Directors Each non-employee director receives a fee of $3,000 per quarter for attending meetings of our board of directors or committees of our board of directors. Non-employee directors are reimbursed for their reasonable expenses incurred in connection with attendance at or participation in such meetings. In addition, under our 1995 Director Plan, each non-employee director who becomes a director is granted an option to purchase 5,000 shares of our common stock. Messrs. Raleigh, Hallman and Collins were each granted an option to purchase 5,000 shares of our common stock under our previous 1986 Plan at the time of their respective appointments or reelections to the board of directors. Such grants and the terms thereof were renewed on April 18, 1997, May 5, 1996 and May 5, 1996, respectively, in accordance with stockholder approval of the 1995 Director Plan at our 1995 annual meeting of stockholders. Mr. Cirenza received an option to purchase 5,000 shares of our common stock upon his election to our board of directors in June 2003. Directors who are employees of Lakeland receive no additional compensation for their service as directors. However, such directors are reimbursed for their reasonable expenses incurred in connection with travel to or attendance at or participation in meetings of our board of directors or committees of the board of directors. 49 ITEM 11. EXECUTIVE COMPENSATION See information under the caption "Compensation of Executive Officers" in the Company's Proxy Statement, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See the information under the caption "Voting Securities and Stock Ownership of Officers, Directors and Principal Stockholders" in the Company's Proxy Statement, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Related Party Leases In the past, because our access to third party financing was insufficient, we entered into arrangements with our directors and executive officers in order to fund the construction or acquisition of our assembly facilities. In such cases, we commissioned independent appraisals in 1999, 2002 and 2004 to ensure that these arrangements approximated arrangements made on an arms length basis. We believe that we currently have sufficient access to financing to fund our current and anticipated facility needs, we do not anticipate entering into additional arrangements with our directors or executive officers in the future and we are examining alternatives for restructuring the ownership and/or the financing of these facilities in a manner that would not involve our directors or executive officers. We intend to conclude our examination of the alternative ownership structures and financing arrangements by July 30, 2004 and to implement any new arrangements by October 30, 2004, if possible. Any such restructuring or financing would involve negotiations with, and require the agreement of, the entities described below and their partners or members, including some of our officers and directors, and we therefore cannot assure you that we will be able to implement any such restructuring or financing. A description of our current arrangements with our directors and executive officers follows. POMS Holding Co., or POMS, was formed in 1984 to lease both land and a building to us because bank financing was unavailable. POMS is a partnership whose partners include three of our directors, one of our officers and six other individuals who were stockholders of Lakeland at the time of the formation of POMS. Raymond J. Smith, the chairman of our board of directors, Harvey Pride, Jr., our Vice President - Manufacturing, and John J. Collins and Eric O. Hallman, both of whom are directors, have a 20%, 20%, 8.75% and 5% interest in POMS, respectively. POMS presently leases to us a 91,788 square foot disposable garment manufacturing facility in Decatur, Alabama. Under a lease effective September 1, 1999, we paid an annual rent of $364,900. This lease was renewed on April 1, 2004 through March 31, 2009 at the same rental rate. On March 1, 1999, we entered into a one year (renewable for four additional one year terms) lease agreement with Harvey Pride, Jr., our Vice President - Manufacturing, for a 2,400 sq. ft. customer service office located next to our existing Decatur, Alabama facility. We paid an annual rent of $18,000 for this facility under the lease agreement in fiscal 2004. This lease was renewed on March 1, 2004 through March 31, 2009 at the same rental rate. On June 1, 1999, we entered into a five year lease agreement (expiring May 31, 2004) with River Group Holding Co., L.L.C. for a 49,500 sq. ft. warehouse facility located next to our existing facility in Decatur, Alabama. River Group Holding Co., L.L.C. is a limited liability company, the members of which are Raymond Smith, John Collins, Eric Hallman, Walter Raleigh, Christopher Ryan and Harvey Pride, who all have an equal ownership interest. Mr. Ryan is our Chief Executive Officer, President, Secretary, General Counsel and a director of our company, Messrs. Smith, Collins, Hallman and Raleigh are all directors of our company, and Mr. Pride is our Vice President - Manufacturing. We paid an annual rent of $199,100 for this facility in fiscal 2004. We are the sole occupant of the facility. This lease was renewed on April 1, 2004 through March 31, 2009 at the same rental rate. Past Related Party Transactions In 1997, An Qui Holding Co., L.L.C., or An Qui, a limited liability company whose members include Lakeland, and Messrs. Smith, Collins, Hallman, Raleigh, Ryan and Pride, provided financing for the construction of a 65,000 square foot building in An Qui City, China and the lease of the real property underlying the building for 50 years from the Chinese government to Weifang Lakeland Safety Product Co., Ltd., or Weifang, one of our subsidiaries. In connection with the financing, Weifang agreed to make annual payments to An Qui and to allocate a portion of the proceeds from any sale of the property to An Qui. In 2002, An Qui relinquished its rights to the annual payments and to its rights to proceeds from the sale of the property in exchange for the amount of $406,185 (net of expenses). Weifang paid $222,645, $89,000 and $94,400 of this amount to An Qui in December 2002, January 2003 and June 2003, respectively. Of the $406,185 paid to An Qui, Messrs Smith, Collins, Hallman, Ryan and Pride each received $44,421 and Mr. Raleigh received $39,792. 50 In 2001, An Qui also helped to finance the construction of our facility in Jiaozhou, China through a loan to one of our Chinese subsidiaries. The loan bore interest at the rate of 9% per annum until May 30, 2003, when the rate increased to 10% per annum. On June 19, 2003, we repaid this construction loan by paying $168,100 (plus accrued interest) to An Qui and a foreign investor who contributed to the loan. Messrs. Smith, Collins, Hallman, Ryan and Pride, the members of An Qui who participated in this transaction, were each repaid their $26,000 investments plus interest of approximately $3,038. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES See the information under the caption "Report of the Audit Committee" in the Company's Proxy Statement, which information is incorporated herein by reference. 51 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8 - K (a) The following documents are filed as part of this report: 1 Consolidated Financial Statements (See Page 24 of this report which includes an index to the consolidated financial statements) 2 Financial Statement Schedules: Schedule II- Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable, not required, or because the required intermation is included in the Consolidated Financial Statements or Notes therto. 3. Exhibits: Exhibit Description 3.1 Restated Certificate of Incorporation of Lakeland Industries, Inc. (Incorporated by reference to Exhibit 3(a) of Lakeland Industries, Inc.'s Registration Statement on Form S-18 (File No. 33-7512 NY)) 3.2 Bylaws of Lakeland Industries Inc., as amended (Incorporated by reference to Exhibit 3(b) of Lakeland Industries, Inc.'s Registration Statement on Form S-18 (File No. 33-7512 NY)) 10.1* Lease Agreement, dated April 1, 2004, between POMS Holding Co., as lessor, and Lakeland Industries, Inc., as lessee 10.2 Lease Agreement, dated August 1, 2001, between Southwest Parkway, Inc., as lessor, and Lakeland Industries, Inc., as lessee, (Incorporated by reference to Exhibit 10(b) of Lakeland Industries, Inc.'s Annual Report on Form 10-K for the year ended January 31, 2002) 10.3 Lakeland Industries, Inc. Stock Option Plan (Incorporated by reference to Exhibit 10(n) of Lakeland's Registration Statement on Form S-18 (File No. 33-7512 NY)) 10.4 Employment Agreement, dated September 22, 2003, between Lakeland Industries, Inc. and Raymond J. Smith (Incorporated by reference to Exhibit 10(g) of Lakeland Industries, Inc.'s Quarterly Report on Form 10-Q filed December 12, 2003) 10.5* Employment, dated December 1, 2002, agreement between Lakeland Industries, Inc. and Harvey Pride, Jr. 10.6 Lease, dated April 16, 1999, between Lakeland Industries, Inc. and JBJ Realty (Incorporated by reference to Exhibit 10(i) of Lakeland Industries, Inc.'s Annual Report on Form 10-K for the year ended January 31, 2002) 10.7* Employment Agreement, dated February 1, 2004, between Lakeland Industries, Inc. and Christopher J. Ryan 10.8* WCMA Reducing Revolver Loan and Security Agreement, dated January 21, 2004, between Lakeland Industries, Inc. and Merrill Lynch Business Financial Services Inc. 10.9* Lease Agreement, dated April 1, 2004, between River Group Holding Co., 53 LLP, as lessor, and Lakeland Industries, Inc., as lessee 10.10* Lease Agreement, dated March 1, 2004, between Harvey Pride, Jr., as lessor, and Lakeland Industries, Inc., as lessee 10.11 Term Loan and Security Agreement, dated September 9, 1999, between Lakeland Industries, Inc. and Merrill Lynch Business Financial Services Inc. (Incorporated by reference to Exhibit 10(q) of Lakeland Industries, Inc.'s Annual Report on Form 10-K for the year ended January 31, 2002) 10.12 Employment Agreement, dated December 1, 2002, between Lakeland Industries, Inc. and James M. McCormick (Incorporated by reference to Exhibit 10(r) of Lakeland Industries, Inc.'s Quarterly Report on Form 10-Q filed December 13, 2002) 10.13 Employment Agreement, dated September 22, 2003, between Lakeland Industries, Inc. and Paul C. Smith (Incorporated by reference to Exhibit 10(s) of Lakeland Industries, Inc.'s Quarterly Report on Form 10-Q filed December 12, 2003) 14.1* Lakeland Industries, Inc. Code of Ethics 21.1 Subsidiaries of Lakeland Industries, Inc. (wholly-owned): Lakeland Protective Wear, Inc. Lakeland de Mexico S.A. de C.V. Laidlaw, Adams & Peck, Inc. and Subsidiary (Meiyang Protective Products Co., Ltd.) Weifang Lakeland Safety Products Co. Ltd. Qing Dao MayTung Healthcare Co., Ltd. Lakeland Industries Europe Ltd. 23.1* Consent of Grant Thornton LLP 23.2* Consent of PricewaterhouseCoopers LLP (b) Report on Form 8 - K. The documents which we incorporate by reference consist of the documents listed below that we have previously filed with the SEC: Current Report on Form 8-K filed on November 11, 2003. - ---------- * Filed herewith. 54 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 28, 2004 LAKELAND INDUSTRIES, INC. By: /s/ Christopher J. Ryan --------------------------- Christopher J. Ryan, Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Name Title Date - ---- ----- ---- /s/ Raymond J. Smith Chairman of the Board April 26, 2004 - --------------------------- Raymond J. Smith /s/ Christopher J. Ryan Chief Executive Officer April 26, 2004 - --------------------------- President, General Counsel, Christopher J. Ryan Secretary and Director /s/ James M. McCormick Chief Financial Officer and April 26, 2004 - --------------------------- Treasurer (Principal Financial James M. McCormick and Accounting Officer) /s/ Eric O. Hallman Director April 26, 2004 - --------------------------- Eric O. Hallman /s/ John J. Collins, Jr. Director April 26, 2004 - --------------------------- John J. Collins, Jr. /s/ Walter J. Raleigh Director April 26, 2004 - --------------------------- Walter J. Raleigh /s/ Michael E. Cirenza Director April 26, 2004 - --------------------------- Michael E. Cirenza 55 EX-10.1 2 exhibit10-1.txt EXHIBIT 10.1 THIS AGREEMENT BETWEEN as Landlord POMS HOLDING CO., New York Partnership, c/o MURPHY, BARTOL & O'BRIEN, f/k/a MURPHY AND BARTOL, 22 Jericho Turnpike, Mineola, New York 115501 as Tenant WITNESSETH: The Landlord hereby leases to the Tenant the following premises: approximately 91,788 square feet of the building located at and know as 202 Pride Lane, Decatur, Alabama 35603 for the term of Five (5) years to commence from the 1st day of April 2004 and to end on the 31st day of March 2009 to be used and occupied only for office, light manufacturing and warehouse space. upon the conditions and covenants following: 1st That the Tenant shall pay the annual rent of Three Hundred Sixty Four thousand Nine Hundred ($364,900.).- said rent to be paid in equal monthly payments in advance on the First day of each month during the term aforesaid, as follows: Thirty Thousand Four Hundred and Eight Dollars Thirty Three Cents ($30, 408.33) non-structural 2nd That the Tenant shall take good care of the premises and shall, at the Tenant's own cost and expense make all repairs including, but not limited to , repairs of the plumb, heating and electrical system. 3rd That the Tenant shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and Local Governments and of any and all their Departments and Bureaus applicable to said premises during said term; and shall also promptly comply with and execute all rules, order and regulations of the New York Board of Fire Underwriters, or any other similar body, at the Tenant's own cast and expense. 4th That the Tenant, successors, heirs, executors or administrators shall not assign this agreement, or underlet or under lease the premises, or any part thereof, or make any alterations on the premises, without the Landlord's consent in writing; or occupy, or permit or suffer the same to be occupied for any business or purpose deemed disreputable or extra-hazardous on account of fire, under the penalty of damages and forfeiture, and in the event of a breach thereof, the term herein shall immediately cease and determine at the option of the Landlord as if it were the expiration of the original term. 5th Tenant must give Landlord prompt notice of fire, accident, damage or dangerous or defective condition. If the Premises can not be used because of fire or other casualty, Tenant is not required to pay rent for the time the Premises are unusable. If part of the Premises can not be used, Tenant must pay rent for the usable part. Landlord shall have the right to decide which part of the Premises is usable. Landlord need only repair the damaged structural parts of the Premises. Landlord is not required to repair or replace any equipment, fixtures, furnishings, or decorations unless originally installed by Landlord. Landlord is not responsible for delays due to settling insurance claims, obtaining estimates, labor and supply problems or any other cause not fully under Landlord's control. If the fire or other casualty is caused by an act or neglect of Tenant, Tenant's employees or invitees, or at the time of the fire or casualty Tenant is in default in any term of this Lease, then all repairs will be made at Tenant's expense and Tenant must pay the full rent with no adjustments. The cost of the repairs will be added rent. Landlord has the right to demolish or rebuild the Building if there is substantial damage by fire or other casualty. Landlord may cancel this Lease within 30 days after the substantial fire or casualty by giving Tenant notice of Landlord's intention to demolish or rebuild. The Lease will end 30 days after Landlord's cancellation notice to Tenant. Tenant must deliver the Premises to Landlord on or before the cancellation date in the notice and pay all rent due to date of the fire or casualty. If the Lease is cancelled Landlord is not required to repair the Premises or Building. The cancellation does not release Tenant of liability in connection with the fire or casualty. This Section is intended to replace the terms of New York Real Property Law Section 227. 6th The said Tenant agrees that the said Landlord and the Landlord's agents and other representatives shall have the right to enter into and upon said premises, or any part thereof, at all reasonable hours for the purpose of examining the same, or making such repairs or alterations therein as may be necessary for the safety and preservation thereof. 7th The Tenant also agrees to permit the Landlord or the Landlord's agents to show the premises to persons wishing to hire or purchase the same; and the Tenant further agrees that on and after the sixth month, next preceding the expiration of the term hereby granted, the Landlord or the Landlord's agents shall have the right to place notices on the front of said premises, or any part thereof offering the premises "To Let" or "For Sale", and the Tenant hereby agrees to permit the same to remain thereon without hindrance or molestation. 8th That if the said premises, or any part thereof shall be deserted or become vacant during said term, or if any default be made in the payment of the said rent or any part thereof, or if any default be made in the performance of any of the covenants herein contained, the Landlord or representatives may re-enter the said premises by force, summary proceedings or otherwise, and remove all persons there from, without being liable to prosecution therefor, and the Tenant hereby expressly waives the service of any notice in writing of intention to re-enter, and the Tenant shall pay at the same time as the rent becomes payable under the terms hereof a sum equivalent to the rent reserved herein, and the Landlord may rent the premises on behalf of the Tenant, reserving the right to rent the premises for a longer period of time than fixed in the original lease without releasing the original Tenant from any liability, applying any moneys collected, first to the expense of resuming or obtaining possession, second to restoring the premises to a rentable condition, and then to the payment of the rent and all other charges due and to grow due to the Landlord, any surplus to be paid to the Tenant, who shall remain liable for any deficiency. 9th Landlord may replace at the expense of Tenant, any and all broken glass in and about the demised premises. Landlord may insure, and keep insured, all plate glass in the demised premises for and in the name of Landlord. Bills, for the premiums therefor shall be rendered by Landlord to Tenant at such times as Landlord may elect, and shall be due from, and payable by Tenant when rendered, and the amount thereof shall be deemed to be, and be paid as, additional rental. Damage and injury to the said premises, caused by the carelessness, negligence or improper conduct on the part of the said Tenant or the Tenant's agents or employees shall be repaired as speedily as possible by the Tenant at the Tenant's own cost and expense. 10th That the Tenant shall neither encumber nor obstruct the sidewalk in front of , entrance to, or halls and stairs of said premises, nor allow the same to be obstructed or encumbered in any manner. 11th The Tenant shall neither place, or cause or allow to be placed, any sign or signs of any kind whatsoever at, in or about the entrance to said premises or any other part of same, except in or at such place or places as may be indicated by the Landlord and consented to by the Landlord in writing. And in case the Landlord or the Landlord's representatives shall deem it necessary to remove any such sign or signs in order to paint the said premises or the building wherein same is situated or make any other repairs, alterations or improvements in or upon said premises or building or any part thereof, the Landlord shall have the right to do so, providing the same be removed and replaced at the Landlord's expense, whenever the said repairs alterations or improvements shall be completed. 12th That the Landlord is exempt from any and all liability for any damage or injury to person or property caused by or resulting from steam, electricity, gas, water, rain, ice or snow, or any leak or flow from or into any part of said building or from any damage or injury resulting or arising from any other cause or happening whatsoever unless said damage or injury be caused by or be due to the negligence of the Landlord. 13th That if default be made in any of the covenants herein contained, then it shall be lawful for the said Landlord to re-enter the said premises, and the same to have again, re-possess and enjoy. The said Tenant hereby expressly waives the service of any notice in writing of intention to re-enter. 14th That this instrument shall not be a lien against said premises in respect to any mortgages that are now on or that hereafter may be placed against said premises, and that the recording of such mortgage or mortgages shall have preference and precedence and be superior and prior in lien of this lease, irrespective of the date of recording and the Tenant agrees to execute without cost, any such instrument which may be deemed necessary or desirable to further effect the subordination of this lease to any such mortgage or mortgages, and a refusal to execute such instrument shall entitle the Landlord, or the Landlord's assigns and legal representatives to the option of canceling this lease without incurring any expense or damage and the term hereby granted is expressly limited accordingly. 15th The Tenant has this day deposited with the Landlord the sum of $ as security for the full and faithful performance by the Tenant of all the terms, covenants and conditions of this lease upon the Tenant's part to be performed, which said sum shall be returned to the Tenant after the time fixed as the expiration of the term herein, provided the Tenant has fully and faithfully carried out all of said terms, covenants and conditions on Tenant's part to be performed. In the event of a bona fide sale, subject to this lease, the Landlord shall have the right to transfer the security to the vendee for the benefit of the Tenant and the Landlord shall be considered released by the Tenant from all liability for the return of such security; and the Tenant agrees to look to the new Landlord solely for the return of the said security, and it is agreed that this shall apply to every transfer or assignment made of the security to a new Landlord. 16th That the security deposited under this lease shall not be mortgaged, assigned or encumbered by the Tenant without the written consent of the Landlord. 17th It is expressly understood and agreed that in case the demised premises shall be deserted or vacated, or if default be made in the payment of the rent or any part thereof as herein specified, or if, without the consent of the Landlord, the Tenant shall sell, assign or mortgage this lease or if default be made in the performance of any of the covenants and agreements in this lease contained on the part of the Tenant to be kept and performed, or if the Tenant shall fail to comply with any of the statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and Local Governments or of any and all their Departments and Bureaus, applicable to said premises, or if the Tenant shall file or there be filed against Tenant a petition in bankruptcy or arrangement or Tenant be adjudicated a bankrupt or make an assignment for the benefit of creditors or take advantage of any insolvency act, the Landlord may, if the Landlord so elects, at any time thereafter terminate this lease and the term hereof, on giving to the Tenant five days' notice in writing of the Landlord's intention so to do, and this lease and the term hereof shall expire and come to an end on the date fixed in such notice as if the said date were the date originally fixed in this lease for the expiration hereof. Such notice may be given by mail to the Tenant addressed to the demised premises. 18th Tenant shall pay to Landlord the rent or charge, which may, during the demised term, be assessed or imposed for the water used or consumed in or on the said premises, whether determined by meter or otherwise, as soon as and when the same may be assessed or imposed, and will also pay the expenses for the setting of a water meter in the said premises should the latter be required. Tenant shall pay Tenant's proportionate part of the sewer rent or charge imposed upon the building. All such rents or charges or expenses shall be paid as additional rent and shall be added to the next month's rent thereafter to become due. 19th That the Tenant will not nor will the Tenant permit under tenants or other persons to do anything in said premises, or bring anything into said premises, or permit anything to be brought into said premises or to be kept therein, which will in any way increase the rate of fire insurance on said demised premises, nor use the demised premises or any part thereof, nor suffer or permit their use for any business or purpose which would cause an increase in the rate of fire insurance on said building, and the Tenant agrees to pay on demand any such increase. 20th The failure of the Landlord to insist upon a strict performance of any of the terms, conditions and covenants herein, shall not be deemed a waiver of any rights or remedies that the Landlord may have, and shall not be deemed a waiver of any subsequent breach or default in the terms, conditions and covenants herein contained. This instrument may not be changed, modified, discharged or terminated orally. 21st If the whole or any part of the demised premises shall be acquired or condemned by Eminent Domain for any public or quasi public use or purpose, then and in that event, the term of this lease shall cease and terminate from the date of title vesting in such proceeding and Tenant shall have no claim against Landlord for the value of any unexpired term of said lease. No part of any award shall belong to the Tenant. 22nd If after default in payment of rent or violation of any other provision of this lease, or upon the expiration of this lease, the Tenant moves out or is dispossessed and fails to remove any trade fixtures or other property prior to such said default, removal, expiration of lease, or prior to the issuance of the final order or execution of the warrant, then and in that event, the said fixtures and property shall be deemed abandoned by the said Tenant and shall become the property of the Landlord. 23rd In the event that the relation of the Landlord and Tenant may cease or terminate by reason of the re-entry of the Landlord under the terms and covenants contained in this lease or by the ejectment of the Tenant by summary proceedings or otherwise, or after the abandonment of the premises by the Tenant, it is hereby agreed that the Tenant shall remain liable and shall pay in monthly payments the rent which accrues subsequent to the re-entry by the Landlord, and the Tenant expressly agrees to pay as damages for the breach of the covenants herein contained, the difference between the rent reserved and the rent collected and received, if any, by the Landlord during the remainder of the unexpired term, such difference or deficiency between the rent herein reserved ant the rent collected if any, shall become due and payable in monthly payments during the remainder of the unexpired term, as the amounts of such difference or deficiency shall from time to time be ascertained; and it is mutually agreed between Landlord and Tenant that the respective parties hereto shall and hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties against the other on any matters whatsoever arising out of or in any way connected with this lease, the Tenant's use or occupancy of said premises, and/or any claim of injury or damage. 24th The Tenant waives all rights to redeem under any law. 25th This lease and the obligation of Tenant to pay rent hereunder and perform all of the covenants and agreements hereunder on part of Tenant to be performed shall in nowise be affected, impaired or excused because Landlord is unable to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make or is delayed in making any repairs, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of governmental preemption in connection with a National Emergency or in connection with any rule, order or regulation of any department or subdivision thereof of any governmental agency or by reason of the condition of supply and demand which have been or are affected by war or other emergency. 26th No diminution or abatement of rent, or other compensation, shall be claimed or allowed for inconvenience or discomfort arising from the making of repairs or improvements to the building or to its appliances, nor for any space taken to comply with any law, ordinance or order of a governmental authority. In respect to the various "services," if any, herein expressly or impliedly agreed to be furnished by the Landlord to the Tenant, it is agreed that there shall be no diminution or abatement of the rent, or any other compensation, for interruption or curtailment of such "service" when such interruption or curtailment shall be due to accident, alterations or repairs desirable or necessary to be made or to inability or difficulty in securing supplies or labor for the maintenance of such "service" or to some other cause, not gross negligence on the part of the Landlord. No such interruption or curtailment or any such "service" shall be deemed a constructive eviction. The Landlord shall not be required to furnish, and the Tenant shall not be entitled to receive, any of such "services" during any period wherein the Tenant shall be in default in respect to the payment of rent. Neither shall there be any abatement of diminution of rent because of making of repairs, improvements or decorations to the demised premises after the date above fixed for the commencement of the term, it being understood that rent shall, in any event, commence to run at such date so above fixed. 27th Landlord shall not be liable for failure to give possession of the premises upon commencement date by reason of the fact that premises are not ready for occupancy or because a prior Tenant or any other person is wrongfully holding over or is in wrongful possession, or for any other reason. The rent shall not commence until possession is given or is available, but the term herein shall not be extended. Additional provisions on Rider Attached hereto.- And the said Landlord doth covenant that the said Tenant on paying the said yearly rent, and performing the covenants aforesaid, shall and may peacefully and quietly have, hold and enjoy the said demised premises for the term aforesaid, provided however, that this covenant shall be conditioned upon the retention of title to the premises by the Landlord. And it is mutually understood and agreed that the covenants and agreements contained in the within lease shall be binding upon the parties hereto and upon their respective successors, heirs, executors and administrators. In Witness Whereof, the parties have interchangeably set their hands and seals (or caused these presents to be signed by their proper corporate officers and caused their proper corporate seal to be hereto affixed) this day of Sighed, sealed and delivered POMS HOLDING CO., AS Landlord In the presence of By: /s/ Harvey Pride, Jr. --------------------- LAKELAND INDUSTRIES INC. ------------------------ By: /s/ Christopher J. Ryan ----------------------- State of New York, Count of Suffolk On before me, the undersigned, Personally appeared Christopher J. Ryan Personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their signature(s) on the instruments, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument. Signature and office of individual taking acknowledgment ACKNOWLEDGMENT OUTSIDE NEW YORK STATE State of County of On before me, the undersigned undersigned Personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instruments, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument, and that such individual made such appearance before the undersigned -------------------------------------------------------- Signature and office of individual taking acknowledgment State of County of On Before me, the undersigned Personally appeared the subscribing witness(es) to the foregoing instrument, with whom I am personally acquainted, who, being by me duly sworn, did depose and say that he/she/they reside(s) in (if the place of residence is in a city, include the street and street number, if any thereof) that he/she/they know(s) to be the individual(s) described in and who executed the foregoing instruments; that said subscribing witness(es) was (were) present and saw said execute the same; and that said witness(es) at the same time subscribed his/her/their name(s) as a witness(es) thereto. (_ if taken outside New York State insert city or political subdivision and state or country or other place acknowledgment taken and that said subscribing witness(es) made such appearance before the undersigned in - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (signature and office of individual taking acknowledgement - ---------------------------------------------------------- LEASE Dated 4/1/2004 --------------------- In consideration of the letting of the premises within mentioned to the within named Tenant and the sum of $1.00 paid to the undersigned by the within named Landlord, the undersigned do hereby covenant and agree, to and with the Landlord and the Landlords legal representatives, that it default shall at any time be made by the said Tenant in the payment of the rent and the performance of the covenants contained in the within lease, on the Tenant's part to be paid an performed, that the undersigned will well and truly pay the said rent, or any arrears thereof, that may remain due unto the said Landlord, and also pay all damages that may arise in consequence of the non-performance of said covenants, or either of them, without requiring notice of any such default from the said Landlord. The undersigned hereby waives all right to trial by jury in any action or proceeding hereinafter by the Landlord, to which the undersigned may be a party. In Witness Whereof, the undersigned ha set hand and seal this day of WITNESS L.S ---------------------------- RIDER TO LEASE -------------- DATED: April 1st, 2004 Between POMS HOLDING CO., As Landlord and LAKELAND INDUSTRIES, INC., As Tenant 28th Wherever there is a conflict between the printed and typewritten portions of this leases, the typewritten portions shall govern. 29th Tenant, at its own expense, shall maintain plate glass and comprehensive general public liability insurance protecting Landlord and Tenant and naming Landlord as an additional insured with respect to personal injury or property damage due to negligence occurring in or about the leased premises with minimum limits of $300,000.00 for personal injury to any one person, and$500,000.00 for personal injury to any number of persons arising out of one accident, and $100.000.00 for property damage. Said insurance shall be taken out with a company licensed to do business in the State of New York and the State of Alabama and proof of such insurance shall be delivered to the Landlord upon the commencement of this lease. Annual proof of payment shall thereafter be submitted to the Landlord. The original policy, upon Landlord's request, shall be exhibited to the Landlord by the Tenant within thirty (30) days after commencement of the term of this agreement. Upon failure of the Tenant to so deposit said policy, the Landlord shall have the privilege to procure said insurance on his own application therefore, and the amount of the premium, if paid by the Landlord, shall be due and payable with the rent reserved hereunder, collectible with the same remedies as if originally reserved as rent hereunder. 30th Notwithstanding anything else contained in this lease, it is understood and agreed that the Tenant shall provide his own heat and pay his own electricity bills. All of the utilities shall be supplied by the Tenant at his own cost and expense. 31st Notwithstanding anything else contained in this lease, upon the expiration of same for any reason whatsoever, Tenant covenants and agrees that the premises will be redelivered to the Landlord broom clean. 32nd The Tenant shall make no physical improvements, changes, modifications, alterations or additions to the leased premises without the written consent of the Landlord. All alterations, repairs, improvements, extensions or additions which may be made to the demised premises by the Tenant shall immediately become the property of the Landlord and become a part of the demised premises hereunder, excepting, however, removable trade fixtures. It is, however, agreed that when trade fixtures are removed, the demised premises are to be placed, at the Tenant's expense, in their original condition. 33rd The Tenant shall pay as additional rent during the term hereof without any set off or deduction whatsoever, all taxes on the entire building of which the leased premises are a part including, but not limited to, ad valorem taxes, real estate taxes and water charges. Such payment shall be made within thirty (30) days of the demand therefore by the Landlord and receipted tax bills shall be sufficient evidence of the amount of such taxes. 34th Tenant shall pay as additional rent during the term hereof without any set off or deduction whatsoever, all fire insurance premiums on the entire building of which the leased premises are a part within thirty (30) days of the date or receipt by Tenant from Landlord of a bill therefore. 35th Tenant shall have the right to sublet all or any portion of the demised premises provided the following conditions are complied with: (a) At the time of such subletting, this lease must be in full force and effect without any breach or default thereunder on the part of the tenant. (b) A copy of the sublease shall be mailed to Landlord within ten (10) days from the effective date of such subletting. (c) Such subletting shall be upon and subject to all the provisions, terms, covenants and conditions of this lease and Tenant shall continue to be and remain liable hereunder. (d) Notwithstanding the foregoing, if the Tenant proposes to sublet all or substantially all of the demised premises. Tenant shall so notify the Landlord and Landlord shall have the option to cancel and terminate this lease as of the date proposed by Tenant for such subletting, which options shall be exercisable within fifteen (15) days after receipt of such notice by Landlord of the proposed subletting. (e) Tenant shall not assign this lease without the consent of Landlord first had received, which consent Landlord agrees not to unreasonably withhold or delay: provided however, that Tenant shall have the right, without the consent of Landlord to assign this lease to (i) a subsidiary or affiliated corporation, either of which may have a normal capital; (ii) any corporation resulting from a reorganization of Tenant or its parent company with any one or more corporations; (iii) any corporation resulting from the consolidated of Tenant with or into any one or more corporations. 36th Throughout the term of this lease, Tenant shall indemnify Landlord and save it harmless against and from any and all liability, losses, damages, costs, expenses and claims by or on behalf of any person, firm, corporation, governmental authority or other entity incurred by Landlord with respect to the leased premises, including, without limitation, burdens resulting from any and all acts of commission or omission on the part of Tenant or of anyone holding by, through or under Tenant, and any and all of its agents, servants, employees, invitees and contractors, and against and from any injury or damage to any person, or to any property of any person, except as a result of Landlord's own acts of commission or omission. 37th Tenant shall be responsible for, and hereby relieves and shall save Landlord harmless of and from any and all liability by reason of any injury or damage to any person or property in the leased premises, whether such property belongs to Tenant or to any persons, firms, corporations or other entity caused by any fire, installation, or from water, rain or snow that may leak into, issue or flow from any part of said leased premises, or from the drains, pipes or plumbing work of the said leased premises, or from any place or quarter and from the use, misuse or abuse of any hoists, conveyors, hatches, openings, platforms, stairways, machinery or equipment of any kind whatever which may exist at the time of the date of this lease or thereafter be installed in or on the leased premises, and from any and all kinds of injury and damage which may arise in or upon the leased premises from any other cause, unless such damage, injury, use, misuse or abuse shall have been caused by or result from the negligence of Landlord, its agents, servants or employees during the continuance of this lease by acts of commission or omission. 38th It is hereby understood and agreed that in the event the Tenant leaves any property on the leased premises subsequent to the expiration of the within lease that said property is hereby deemed abandoned and the Landlord may dispose of said property at its option without any liability on the part of the Landlord. It is further understood and agreed that the Tenant waives any and all rights, title and interest to said property, releases and waives any and all claims thereto, and further agrees that the Tenant will be responsible to the Landlord for any and all expenses incurred by the Landlord concerning said property. 39th Whenever under the terms of the lease any sum of money is required to be paid by Tenant in addition to the rental herein reserved, and said additional amount so to be paid is not designated as "additional," or provision is not made in the paragraph covering such payment for the collection of said amount as "additional rental," then said amount shall nevertheless, at the option of Landlord if not paid when due, be deemed "additional rental" and collectible as such with any installment of rental thereafter falling due here under, but nothing herein contained shall be deemed to suspend or delay the payment of any sum at the time the same becomes due and payable hereunder or limit any other remedy of Landlord. 40th This lease contains the entire agreement between Landlord and Tenant and shall not be modified in any manner except by an instrument in writing signed by Landlord and Tenant. POMS HOLDING CO., As Landlord By: Harvey Pride, Jr. ----------------- LAKELANS INDUSTRIES, INC., As Tenant By: Christopher J. Ryan ------------------- EX-10.5 3 exhibit10-5.txt December 1, 2002 EXHIBIT 10.5 Mr. Harvey Pride, Jr. 810-P Island Way NW Decatur, AL 35602 Dear Mr. Pride: The purpose of this letter is to confirm your continuing employment with Lakeland Industries Inc. on the following terms and conditions: 1. THE PARTIES ----------- This is an agreement between Harvey Pride, Jr. residing at 810-P Island Way NW, Decatur, Alabama 35602 (hereinafter referred to as "you") and Lakeland Industries, Inc., a Delaware corporation, with principal place of business located at 711-2 Koehler Avenue, Ronkonkoma, NY 11779-7410 (hereinafter the Company). 2. TERM; RENEWAL -------------- The term of the agreement shall be for a 3 year period from February 1, 2003 through and including January 31, 2005 which term shall be automatically renewed for a maximum of 2 successive annual periods unless either party notifies the other 30 days prior to the expiration of the original term or renewal thereof, that the agreement will not be renewed. 3. CAPACITY -------- You shall be employed in the capacity of Vice President of Lakeland Industries, Inc. and such other senior executive title or titles as may from time to time be determined by the Board of Directors of the Company. You shall be directly responsible to the Board of Directors of the Company and to the President of Lakeland. 4. COMPENSATION ------------ As full compensation for your services you shall receive following from the Company: (a) A base annual salary of $152,000 year one, $170,000 year two, and $190,000 year three payable bi-weekly; and (b) Participation when eligible in any of the Company's Pension, Profit Sharing Plans and ESOP - 401(K) when any such plans become effective: (c) Such other benefits as are consistent with the personnel benefits provided by the Company to its officers and employees; provided however that your vacation shall be for a period of no less than 5 weeks; and (d) You shall be entitled to an automobile allowance consistent with the allowance you have been receiving; and (e) Reimbursement for any dues and expenses incurred by you that are necessary and proper in the conduct of the Company's business; and (f) An annual bonus as set forth in this agreement. 5. ANNUAL BONUS ------------ In May of each year commencing in 2004, you shall be awarded an annual bonus based on the positive current year performance of the Company as compared to the prior Fiscal Year. The bonus to be awarded in May 2004 and upon the successive annual renewals, shall be based under an incentive compensation plan which equals $1,000.00 for each penny of additional after tax earnings incrementally earned over the prior years fiscal earnings. The earnings per share shall be the earnings per share of common stock of the Company as determined by the Company's auditors in the preparation of the annual audit and reported to the Company's shareholders. If during the fiscal year commencing February 1, 2004 the Company acquires all of the stock and/or assets of a separate business entity or divests itself of one or more subsidiaries or is involved in a recapitalization or other public offering of the Company's securities, then in that event the amount of the aforesaid annual bonus will be adjusted to reflect such change or changes. The adjustment to the annual bonus will be made by the Compensation Committee of the Board of Directors of the Company. The decision of the Compensation Committee of the Board of Directors as to any matter relating to the annual bonus or discretionary bonus shall be final, binding and conclusive and shall not be subject to any further review. 6. DISABILITY ---------- In the event that you shall incur a total disability which renders you unable to substantially perform your duties to the Company as determined by the Board of Directors you shall receive 100% of your base annual salary for the first year of such total disability reduced by the amount of any disability insurance payments received under a disability insurance policy maintained by the Company or you (Disability Insurance). Thereafter, and for the following six months you shall receive 50% of your base annual salary during the period of such total disability reduced by the amount of any such Disability Insurance. If such disability continues after such 18 month period your employment hereunder shall terminate. 7. CONFIDENTIALITY AND NO-COMPETE ------------------------------ A. Restrictive Covenants. The Company and you acknowledge and agree that: (i) the business contracts, joint ventures, Asian and all the Company's other U.S. and international suppliers, independent, contractors, customers, international and domestic vendors, joint venture or non-joint venture contractors and customers, patterns, know-how, trade secrets, marketing techniques and other aspects of the business of the Company are of value to the Company and will provide the Company with substantial competitive advantage in the operation of its business; (ii) the business of the Company is national and international in scope, and (iii) the Company is entitled to protect its goodwill during and after the term of this Agreement. (b) For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by you, you hereby agree that you nor any of your companies, corporations or subsidiaries thereof joint ventures, proprietorships or affiliates of same hereinafter referred to as ("the affiliates") shall in any manner, directly or indirectly: (i) at any time, divulge, transmit or otherwise disclose, or cause to be divulged, transmitted or otherwise disclosed, to any person or entity whatsoever, any confidential or proprietary information of the Company, including business contacts, customer lists, supplier lists, domestic and international vendors, suppliers, joint ventures and assembly contractors, technology know-how, trade secrets, marketing techniques, marketing plans and strategies, manufacturing methods, patterns, product development techniques or plans, patents, laminates, fabrics, contracts or other confidential or proprietary information of the Company (including such matters related to the business heretofore conducted by the Company); (ii) at any time during the period from the date hereof through and including the second (2nd) anniversary of any termination date this Agreement hereof (the "Restrictive Period"), anywhere in or out of the United States of America, render any services to or engage, participate, or have any interest or be involved in any capacity, whether as an owner, agent, stockholder (excluding ownership of not more than 5% of the outstanding shares of a publicly held corporation if such ownership does not involve, and neither Employee nor any of his affiliates, otherwise has, any managerial or operational responsibility in respect thereof), officer, director, manager, partner, joint venturer, employee, consultant or otherwise, in any business enterprise which is, or shall at any time during the Restrictive Period be, engaged in any manner in the business of designing, developing, manufacturing, marketing, selling and/or distributing any Products (as defined below); (iii) directly or indirectly solicit, request, cause or induce any person who is at the time or eighteen months prior thereto had been an employee of or consultant to the Company, to leave the employ of or terminate his relationship with the Company, or to employ, hire, engage or be associated with, or endeavor to entice away from the Company, any such person; and (iv) induce any customers, vendors, joint venturers or contract manufacturers of the Company, either domestically or internationally to discontinue doing business with the Company. (c) As used herein, the term "Products" means any and all goods and/or products of the type heretofore sold by the Company or any of its affiliates, including but not limited to the "Products" as listed in the company's product catalogs, pricing lists, or other literature and any functionally similar goods and/or products, already developed by the Company and shown in its catalogs, pricing lists or other literature or to be developed by the Company during the term of this Agreement. (d) For purposes hereof, information shall not be deemed "confidential" or "proprietary" to the extent that it (i) is a matter of common knowledge or of public record, or within the public domain (other than as a result of any breach hereof by Supplier); (ii) is generally known throughout the industry or was otherwise acquired from other legitimate sources; or (iii) is required to be disclosed by law or by order of any court or governmental authority. B. Specific Performance -------------------- You hereby acknowledges and agrees that any default by you or any of your affiliates, singly or collectively, in any of the foregoing restrictive covenants will cause the Company irreparable injury for which there is no adequate remedy at law. Accordingly, you expressly agree that, in the event of any breach or threatened breach of any such covenant or agreement by you or any of your affiliates the Company shall be entitled, in addition to any and all other remedies available, to seek and obtain injunctive and/or other equitable relief to require specific performance of or prevent a default under the provisions of this Agreement; and you hereby consent to each such application. 8. CHANGE IN CONTROL ----------------- Upon the occurrence of a change in control (as hereinafter defined) you shall have the right to terminate at your option this agreement within 10 days after the occurrence of such change in control. Upon the effective date of such termination you shall be entitled to receive a lump sum severance amount equal to the sum of (i) the greater of the present value of your base salary in effect at the time of the change of control for 1 year or the present value of your base salary in effect at the time of the change of control for the remainder of the term and (ii) the estimated amount which would have been payable to you pursuant to the bonus as set forth in this agreement for the fiscal year during which the change of control occurred as determined in good faith by the Compensation Committee of the Board of Directors of the Company based upon the Company's results of operations for the fiscal year through the effective date of the termination and its historical results of operations and pro-rated to the effective date of termination. You shall not be required to mitigate the amount of termination payment provided pursuant to this section nor will such payment be reduced by reason of your securing other employment. A change of control shall have occurred (i) upon the acquisition of any person (as such term is defined in sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 as amended), directly or indirectly of securities of the Company representing 66 2/3% or more of the combined voting power of the Company's then outstanding securities or (ii) upon the future disposition by the Company (whether direct or indirect by sale of assets or stock merger consolidation or otherwise) of all or substantially all of the Company's business and/or assets in the transaction. In the event of a future disposition by the Company (whether direct or indirect by sale of assets or stock, merger, consolidation or otherwise) of all or substantially all of its business and/or assets the Company will require any successor to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform, if no such disposition had taken place. 9. NOTICES ------- Any notices required to be give Under this Agreement shall unless otherwise agreed to by you and the Company be in writing and by certified mail return receipt requested and mailed to the Company at its headquarters at 711-2 Koehler Avenue Ronkonkoma, NY 11779-7410 or to you at your home address at 810-E Island NW, Decatur, Alabama 35602. 10. WAIVER OR MODIFICATION ---------------------- No waiver or modification in whole or in part of this agreement or any term or condition hereof shall be effective against any party unless in writing and duly signed by the party sought to be bound. Any waiver of any breach of any provision hereof or right or power by any party on one occasion shall not be construed as a waiver of or a bar to the exercise of such right or power on any other occasion or as a waiver of any subsequent breach. 11. SEPARABILITY ------------ Any provision of this agreement which is unenforceable or invalid in any respect in any jurisdiction shall be ineffective in such jurisdiction to the extent that it is unenforceable or invalid without effecting the remaining provisions hereof which shall continue in full force and effect. The unenforceability or invalidity of any provision of the agreement in one jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 12. HEADINGS -------- The headings contained in this agreement are for convenience only and shall not affect restrict or modify the interpretation this agreement. 13. CONTROLLING LAW --------------- This agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein, and you agree to the exclusive jurisdiction and venue of all State and Federal Courts sitting in the State of New York in connection with any claim, dispute, or controversy arising under or in connection with this Agreement. LAKELAND INDUSTRIES, INC. /s/ Harvey Pride, Jr. /s/ John J. Collins - --------------------- ------------------- Harvey Pride, Jr. By: John J. Collins Vice President Manufacturing /s/ Eric O. Hallman ------------------- By: Eric O. Hallman /s/ W. James Raleigh -------------------- By: W. James Raleigh Board of Directors Compensation Committee EX-10.7 4 exhibit10-7.txt Lakeland Industries, Inc. EXHIBIT 10.7 (19 pages) Employment Agreement This agreement ("Agreement") has been entered into this 1st day of February 2004, by and between Lakeland Industries, Inc., a Delaware corporation ("Company"), and Christopher J. Ryan, and individual ("Executive"). IT IS AGREED AS FOLLOWS: SECTION 1: DEFINITIONS AND CONSTRUCTION. 1.1 DEFINITIONS. For purposes of this Agreement, the following words and phrases, whether or not capitalized, shall have the meanings specified below, unless the context plainly requires a different meaning. 1.1(a) "ACCRUED COMPENSATION" has the meaning set forth in Section 4.5 of this Agreement. 1.1(b) "ACCRUED OBLIGATIONS" has the meaning set forth in Section 4.1 (a) of this Agreement. 1.1(c) "ANNUAL BASE SALARY" has the meaning set forth in Section 2.4 (a) of this Agreement. 1.1(d) "BOARD" means the Board of Directors of the Company. 1.1(e) "CAUSE" has the meaning set forth in Section 3.3 of this Agreement. 1.1(f) "CHANGE IN CONTROL" means: (i) The acquisition by any individual, entity or group, or a Person (within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Exchange Act) of ownership of 30% or more of either (a) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); or 1 (ii) Individuals who, as the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, as a member of the Incumbent Board, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (a) more than 50% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors and (c) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the stockholders of the Company of (a) a complete liquidation or dissolution of the Company or (b) the sale or other disposition of all or substantially all of the assets of the 2 Company, other than to a corporation, with respect to which following such sale or other disposition, (1) more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sales or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (3) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 1.1(g) "COMPANY" has the meaning set forth in the first paragraph of this Agreement and, with regard to successors, in Section 6.2 of this Agreement. 1.1(h) "CODE" shall mean the Internal Revenue Code of 1986, as amended. 1.1(i) "CURRENT TARGET BONUS" has the meaning set forth in Section 4. (a) of this Agreement. 1.1(j) "DATE OF TERMINATION" has the meaning set forth in Section 3.6 of this Agreement. 1.1(k) "DISABILITY" has the meaning set forth in Section 3.2 of this Agreement. 1.1(l) "DISABILITY EFFECTIVE DATE" has the meaning set forth in Section 3.2 of this Agreement. 1.1(m) "DISPOSITION OF A MAJOR PART" means: (i) when used with reference to the stock of an Operating Line of Business that is or becomes a separate corporation, limited liability 3 corporation, partnership or other business entity, the sale, exchange, transfer, distribution or other disposition of the ownership, either beneficially or of record or both, by the Company of more than 50% of either (a) the then outstanding shares of common stock (or the equivalent equity interests) of such Operating Line of Business, or (b) the combined voting power of the then outstanding voting securities of such Operating Line of Business entitled to vote generally in the election of the Board or the equivalent governing body of the Operating Line of Business; (ii) when used with reference to the merger or consolidation of an Operating Line of Business that is or becomes a separate corporation, limited liability corporation, partnership or other business entity, any such transaction that results in the Company owning, either beneficially or of record or both, less that 50% of either (a) the then outstanding shares of common stock (or the equivalent equity interests) of such Operating Line of Business, or (b) the combined voting power of the then outstanding voting securities of such Operating Lines of Business entitled to vote generally in the election of the Board or the equivalent governing body of the Operating Line of Business; or (iii) when used with reference to the assets of an Operating Line of Business, the sale, exchange, transfer, liquidation, distribution or other disposition of assets of such Operating Line of Business (a) having a fair market value (as determined by the Incumbent Board) aggregating more than 50% of the aggregate fair market value of all of the assets of such Operating Line of Business as of the Triggering Transaction Date, (b) accounting for more than 50% of the aggregate book value (net of depreciation and amortization) of all of the assets of such Operating Line of Business, as would be shown on a balance sheet for such Operating Line of Business, prepared in accordance with generally accepted accounting principles then in effect, as of the Triggering Transaction Date; or (c) accounting for more than 50% of the net income of such Operating Line of Business, as would be shown on an income statement, prepared in accordance with generally accepted accounting principles then in effect, for the 12 months ending on the last day of the month immediately preceding the month in which the Triggering Transaction Date occurs. 1.1 (n) "EFFECTIVE DATE" means the date of this Agreement. 1.1 (o) "EMPLOYMENT PERIOD" means the period beginning on the Effective Date and ending on the later of (i) February 1, 2006, or (ii) February 1 of any succeeding fiscal year during which notice is given by 4 either party (as described in Section 1.1 (dd) of this Agreement) of such party's intent not to renew this Agreement. 1.1(p) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. 1.1(q) "EXCISE TAX" has the meaning set forth in Section 4.2 (e) of this Agreement. 1.1(r) "GOOD REASON" has the meaning set forth in Section 3.4 of this Agreement. 1.1(s) "GROSS-UP PAYMENT" has the meaning set forth in Section 4.2 (i) of this Agreement. 1.1(t) "INCENTIVE BONUS" has the meaning set forth in Section 2.4 (b) of this Agreement. 1.1(u) "NOTICE OF TERMINATION" has the meaning set forth in Section 3.5 of this Agreement. 1.1(w) "OPERATING LINES OF BUSINESS" means the following lines of business of the Company, whether operated as a division or as a separate subsidiary: (i) provides disposable and woven protective apparel and accessory items manufacturing and marketing, which manufactures and sell uniforms, gloves, chemical suits, fire turnout and aluminized fire protective apparel, PVC aprons, medical disposable gowns and all nature of safety apparel to a wide variety of distributors, institutions and businesses in the United States, Canada and internationally. 1.1(x) "OTHER BENEFITS" has the meaning set forth in Section 4.1 (d) of this Agreement. 1.1 y) "OUTSTANDING COMPANY COMMON STOCK" has the meaning set forth in Section 1.1 (f) (i) of this Agreement. 1.1 (z) "OUTSTANDING COMPANY VOTING SECURITIES" has the meaning set forth in Section 1.1 (f) (i) of this Agreement. 1.1 (aa) "PAYMENT" has the meaning set forth in Section 4.2 (e) of this Agreement 1.1 (bb) "PERSON" has the meaning set forth in Sections 13 (d) and 14 (d) of the Exchange Act. 5 1.1 (cc) "SUPPLEMENTAL PLAN" has the meaning set forth in Section 4.2 (e) of this Agreement. 1.1 (dd) "TERM" means the period that begins on the Effective Date and ends on the earlier of: (i) the Date of Termination as defined in Section 3.6 of this Agreement, or (ii) the close of business on the later of February 1,2006 or February 1 of any renewal term as set forth in Section 2.1 of this Agreement. 1.1 (ee) "TRIGGERING TRANSACTION" means (i) a Change of Control of the Company or (ii) a Disposition of a Major Part of two or more of the Company's Operating Lines of Business. 1.1 (ff) "TRIGGERING TRANSACTION DATE" shall mean the date of the Triggering Transaction. 1.2 GENDER AND NUMBER. When appropriate, pronouns in this Agreement used in the masculine gender include the feminine gender, words in the singular include the plural, and words in the plural include the singular. 1.3 HEADINGS. All headings in this Agreement are included solely for ease of reference and do not bear on the interpretation of the text. Accordingly, as used in this Agreement, the terms "Article" and "Section" mean the text that accompanies the specified Article and Section of the Agreement. 1.4 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to its conflict of law principles. SECTION 2: TERMS AND CONDITIONS OF EMPLOYMENT. 2.1 PERIOD OF EMPLOYMENT. The Executive shall remain in the employ of the Company throughout the Term of this Agreement in accordance with the terms and provisions of this Agreement. This Agreement will automatically renew for two year periods unless either party gives the other written notice, by October 28, 2005, or October 28 of any succeeding year, of such party's intent not to renew this Agreement. 2.2 POSITIONS AND DUTIES. 2.2 (a) Throughout the Term of this Agreement, the Executive shall serve as a Director of the Board and President, General Counsel and Secretary of the Company, subject to reasonable directions and nominations of the Board. The Executive shall have such authority and shall perform such duties as are specified by the By-laws of the Company for the office to which he has been appointed hereunder and shall so serve, subject to the control exercised by the Board from time to time. Additionally, each year 6 throughout the Term of the Executive's service as a Director, the Executive shall be nominated to serve as member of the Board. 2.2 (b) Throughout the Term of this Agreement (but excluding any periods of vacation and sick leave to which the Executive is entitled), the Executive shall devote reasonable attention and time during normal business hours to the business and affairs of the Company and shall use his reasonable best efforts to perform faithfully and efficiently such responsibilities as are assigned to him under or in accordance with this Agreement; provided that, it shall not be a violation of this paragraph for the Executive to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures or fulfill speaking engagements, or (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement or violate the Company's conflict of interest policy as in effect immediately prior to the Effective Date. 2.3 SITUS OF EMPLOYMENT. Throughout the Term of this Agreement, the Executive's services shall be performed at the location where the Executive was employed immediately prior to the Effective Date, or any office of the Company which is located in the greater Long Island areas. It is understood and agreed by the Executive that the Executive will be required at the discretion of the Board of Directors, to engage in substantial business travel. 2.4 COMPENSATION. 2.4 (a) ANNUAL BASE SALARY. For the first year within the Term of this Agreement, the Executive shall receive an annual salary ("Annual Base Salary") of $295,000 between February 1, 2004 and February 1, 2005; $335,000 between February 1, 2005 and February 1, 2006 which shall be paid in equal or substantially equal semi-monthly installments. During the Term of this Agreement, the Annual Base Salary payable to the Executive shall be reviewed at least annually and shall be increased at the discretion of the Board or the Compensation Committee of the Board but shall not be reduced. 2.4(b) INCENTIVE BONUSES. In addition to Annual Base Salary, the Executive shall be awarded the opportunity to earn an incentive bonus on an annual basis ("Incentive Bonus") under an incentive compensation plan which equals $2500.00 for each penny of additional after tax earnings incrementally earned over the prior year's fiscal earnings, which shall be calculated from the Company's certified audited financial statements. During the Term of this Agreement, the annual target Incentive Bonus which the Executive will have the opportunity to earn shall be reviewed at least annually and be increased at the discretion of the Board or the Compensation Committee of the Board, but in no case shall such target 7 annual Incentive Bonus which the Executive will have the opportunity to earn be reduced below Twenty Thousand Dollars ($20,000). 2.4 (c) INCENTIVE, SAVINGS AND RETIREMENT PLANS. Throughout the Term of this Agreement, the Executive shall be entitled to participate in all incentive, savings and retirement plans generally available to other peer executives of the Company. 2.4 (d) WELFARE BENEFIT PLANS. Throughout the Term of this Agreement (and thereafter, subject to Sections 4.1 (c) hereof), the Executive and /or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent generally available to other peer executives of the Company. As it affects Sections 2.4(c) and 2.4(d) above, the Company shall always have the right to alter its benefit plan providers. 2.4 (e) EXPENSES. Throughout the Term of this Agreement, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies, practices and procedures generally applicable to other peer executives of the Company. The Executive agrees to submit receipts and or vouchers in support of all requests for reimbursement. 2.4 (f) FRINGE BENEFITS. Throughout the Term of this Agreement, the Executive shall be entitled to the lease of an automobile bi-annually or Company purchase for a 4-year period, title to remain in the Company and whole life insurance in the face amount of $500,000 paid by the Company. Executive agrees where necessary to be responsible for any and all federal, state and local taxes owning as a result of such life insurance being provided. 2.4 (g) VACATION. Throughout the Term of this Agreement, the Executive shall be entitled to paid vacation for four (4) weeks each year. SECTION 3: TERMINATION OF EMPLOYMENT 3.1 DEATH. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. 3.2. DISABILITY. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), the Company may give to the Executive written notice in accordance with Section 7.2 of its intention to terminate the Executive's employment. In such event, the 8 Executive's employment with the Company shall terminate effective on the thirtieth (30th) day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean that the Executive has been unable to perform the services required of the Executive hereunder on a full-time basis for a period of one hundred eighty (180) consecutive business days by reason of a physical and/or mental condition. "Disability" shall be deemed to exist when certified by a physician paid for and selected by the Company and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). The Executive will submit to such medical or psychiatric examinations and tests as such physician deems necessary to make any such Disability determination. 3.3 TERMINATION FOR CAUSE. The Company may terminate the Executive's employment during the Employment Period for "Cause", which shall mean termination based upon: (i) the Executive's willful and continued failure to substantially perform his duties with the Company (other than as a result of incapacity due to physical or mental condition), after a written demand for substantial performance is delivered to the Executive by the Company, which specifically identifies the manner in which the Executive has not substantially performed his duties, (ii) the Executive's commission of an act constituting a criminal offense involving moral turpitude, dishonesty, or breach of trust, or (iii) the Executive's material breach of any provision of this Agreement. For purposes of this Section, no act, or failure to act on the Executive's part shall be considered "willful" unless done, or omitted to be done, without good faith and without reasonable belief that the act or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless and until (i) he receives a Notice of Termination from the Company, (ii) he is given the opportunity, with counsel to be heard before the Board, and (iii) the Board finds, in its good faith opinion, the Executive was guilty of the conduct set forth in the Notice of Termination. 3.4 GOOD REASON. The Executive may terminate his employment with the Company for "Good Reason", which shall mean: 3.4 (a) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2.2 (a) or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose any action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; 3.4 (b) (i) in the event of and after the occurrence of a Triggering Transaction, the failure by the Company to continue in effect any benefit or compensation plan, stock ownership plan, life insurance plan, health and accident plan or disability plan to which the Executive is entitled as specified in Section 2.4, (ii) the taking of any action by the Company which 9 would adversely affect the Executive's participation in, or materially reduce the Executive's benefits under, any plans described in Section 2.4, or deprive the Executive of any material fringe benefit enjoyed by the Executive as described in Section 2.4 (f), or (iii) the failure by the Company to provide the Executive with paid vacation to which the Executive is entitled as described in Section 2.4 (g). 3.4 (c) in the event of and after the occurrence of a Triggering Transaction, the Company's requiring the Executive to be based at any office or location other than that described in Section 2.3; 3.4 (d) a material breach by the Company of any provision of this Agreement; Such breach by the Company shall require Executive to provide the Company a written notice describing with specificity the nature of the contractual breach and the Company shall have 30 days to cure such breach. 3.4 (e) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or 3.4 (f) within a period ending at the close of business on the date one (1) year after the Triggering Transaction Date of any Change in Control, if the Company has failed to comply with and satisfy Section 6.2 on or after such Triggering Transaction Date. For purposes of this Section, any good faith determination of "Good Reason" made by the Executive shall be conclusive. 3.5 NOTICE OF TERMINATION. Any termination by the Company for Cause or Disability, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party, given in accordance with Section 7.2. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the Date of Termination (as defined in Section 3.6 hereof) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. 3.6 DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the Date of Termination shall be the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated 10 by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, or (iii) if the Executive's employment is terminated by the Company other than for Cause, death, or Disability, the Date of Termination shall be the date of receipt of the Notice of Termination; provided that if within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). SECTION 4: CERTAIN BENEFITS UPON TERMINATION. 4.1 TERMINATION WITHOUT CAUSE OR FOR GOOD REASON NOT IN CONNECTION WITH A TRIGGERING TRANSACTION. If, prior to a Triggering Transaction during the Employment Period (except in the event that one of the following terminations of employment occurs within the six-month period prior to the earlier of (a) a Triggering Transaction or (b) the execution of a definitive agreement or contract that eventually results in a Triggering Transaction, which shall result in the payment of severance benefits set forth in Section 4.2 of this Agreement): (i) the Company shall terminate the Executive's employment without Cause, or (ii) the Executive shall terminate employment with the Company for Good Reason, the Executive shall be entitled to the payment of the benefits provided below as of the Date of Termination: 4.1 (a) Accrued Obligations. Within thirty (30) days after the Date of ------------------- Termination, the Company shall pay to the Executive the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid, (2) the accrued benefit payable to the Executive under any deferred compensation plan, program or arrangement in which the Executive is a participant subject to the computation of benefits provisions of such plan, program or arrangement, and (3) any accrued vacation pay; in each case to the extent not previously paid (the "Accrued Obligation"). In addition, on the date that Incentive Bonuses are paid to other peer executives for the year in which the Executive's employment is terminated, the Executive will be paid an amount equal to the product of the Current Target Bonus multiplied by a fraction, the numerator of which is the number of days during the fiscal year for which the Incentive Bonus is paid prior to the Date of Termination and denominator of which is 365. For purposes of this Agreement, the term "Current Target Bonus" means the Incentive Bonus that would have been paid to the Executive for the fiscal year in which the termination of employment occurred, if the Executive's employment had not been so terminated and the Executive had earned 100% of the Incentive Bonus that he could have earned for that year. 4.1 (b) Annual Base Salary and Target Bonus Continuation. For the ------------------------------------------------ remainder of the Employment Period, the Company shall pay to the 11 Executive, the Executive's then-current Annual Base Salary and Current Target Bonus as would have been paid to the Executive had the Executive remained in the Company's employ throughout the Employment Period; provided that in all cases the Executive shall receive, at minimum, the then-current Annual Base Salary and Current Target Bonus for the remainder of the Employment Period, or for a period beginning on the Date of Termination and ending two years thereafter, whichever is longer. The Company at any time may elect to pay the balance of such payments then remaining in a lump sum, in which case the total of such payments shall be discounted to present value on the basis of the applicable Federal short-term monthly rate as determined according to Code Section 1274 (s) for the month in which the Executive's Date of Termination occurred. 4.1 (c) Medical and Health Benefit Continuation. For a period of two --------------------------------------- years beginning on the Date of Termination, or such longer period as any plan, program, practice or policy may provide, the Company shall continue medical and health benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 2.4 (d) if the Executive's employment had not been terminated, in accordance with the plans, practices, programs or policies of the Company as those provided generally to other peer executives and their families; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive medical or health benefits under another employer-provided plan, the medical and health benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. In the event Executive is able to obtain medical and health care coverage from a third party for the duration of such coverage period that is at least as good in all material respects as that described in the immediately preceding sentence, Executive agrees to accept, in lieu of such Company provided medical and health benefits, a lump sum cash payment in an amount equal in value to the entire cost to Executive on an after-tax basis of such alternate medical and health care coverage. 4.1 (d) Other Benefits. To the extent not previously paid or provided, -------------- the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits required to be paid or provided for which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company as those provided generally to other peer executives and their families ("Other Benefits"). 4.2 BENEFITS UPON TERMINATION IN CONNECTION WITH A TRIGGERING TRANSACTION. If (a) a Triggering Transaction occurs during the Employment Period and within three years after the Triggering Transaction Date (i) the Company shall 12 terminate the Executive's employment without Cause, or (ii) the Executive shall terminate employment with the Company for Good Reason, or alternatively, (b) if one of the above-described terminations of employment occurs within the six-month period prior to the earlier of (i) a Triggering Transaction or (ii) the execution of a definitive agreement or contract that eventually results in a Triggering Transaction, then the Executive shall become entitled to the payment of the benefits as provided below as of either (y) the Date of Termination, in the case where the sequence of the requisite events is as set forth in subsection (a) above or (z) the Triggering Transaction Date, in the case where the sequence of the requisite events occurred as set forth in subsection (b) above (the relevant date for purposes of entitlement to the benefits set forth in this Section 4.2 is hereinafter referred to as the "Entitlement Date"): 4.2 (a) Accrued Obligations. Within thirty (30) days ------------------- after the Entitlement Date, the Company shall pay to the Executive the Accrued Obligation. In addition, on the date that Incentive Bonuses are paid for the year in which the Executive's employment is terminated, the Executive will be paid an amount equal to the product of the Current Target Bonus multiplied by a fraction, the numerator of which is the number of days during the fiscal year for which the Incentive Bonus is paid prior to the Date of Termination and the denominator of which is 365. 4.2 (b) Severance Amount. Within thirty (30) days ---------------- after the Entitlement Date, the Company shall pay to the Executive as liquidated damages severance pay in a lump sum, in cash, an amount equal to 2.99 times an amount equal to his then-current Annual Base Salary and Current Target Bonus. 4.2 (c) Stock Options. To the extent not otherwise ------------- provided for under the terms of the Company's stock option plans or the Executive's stock option agreements, all stock options held by the Executive that have not expired in accordance with their respective terms shall vest and become fully exercisable as of the Entitlement Date. 4.2 (d) Other Benefits. To the extent not previously -------------- paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any Other Benefits required to be paid or provided for which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company to be implemented by the Company during the term of this Agreement, such as deferred compensation or retirement plans. 13 4.2 (e)Excess Parachute Payment. Anything in this ------------------------ Agreement to the contrary notwithstanding, in the event that it shall be determined that any payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise but determined without regard to any additional payments required under this Section 4.2 (e) (a "Payment") would be subject to the excise tax imposed by Code Section 4999 (or any successor provision) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-up Payment:) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest or penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment on an after-tax basis equal to the Excise Tax imposed upon the Payment. The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than thirty (30) business days after the Executive is informed in writing of such claim by the Internal Revenue Service and the notification shall apprise the Company of the nature of the claim and the date on which such claim is required to be paid. The Executive shall not pay such claim prior to the expiration of a thirty (30) day period following the date on which the Executive has given such notification to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is required). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall cooperate with the Company in so contesting; provided, however, that the Company shall bear and pay all costs and expenses, (including additional interest and penalties) incurred in connection with such contest, on an after-tax basis to the Executive. 4.3 DEATH. If the Executive's employment is terminated by reason of the Executive's death during the employment Period (either prior or subsequent to a Triggering Transaction), this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (as defined in Section 4.1 (a)) (which shall be paid to the Executive's estate or 14 beneficiary, as applicable, in a lump sum in cash within thirty (30) days of the Date of Termination) and (ii) the timely payment or provision of Other Benefits (as defined in Section 4.1 (d)), including death benefits pursuant to the terms of any plan, policy, or arrangement of the Company. 4.4 DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period (either prior or subsequent to a Triggering Transaction), this Agreement shall terminate without further obligations to the Executive, other than for (i) payment of Accrued Obligations as defined in Section 4.1 (a)) which shall be paid to the Executive in a lump sum in cash within thirty (30) days of the Date of Termination) and (ii) the timely payment or provision of Other Benefits (as defined in Section 4.1 (d)) including Disability benefits pursuant to the terms of any plan, policy or arrangement of the Company. 4.5 TERMINATION FOR CAUSE; OTHER THAN GOOD REASON. If the Executive's employment shall be terminated for Cause during the Employment Period (either prior or subsequent to a Triggering Transaction), this Agreement shall terminate without further obligations to the Executive other than the obligations to pay to the Executive his Accrued Compensation (as defined in this Section). If the Executive terminates employment with the Company during the Employment Period, (excluding a termination for Good Reason), this Agreement shall terminate without further obligations to the Executive, other than for the payment of Accrued Compensation (as defined in this Section) and the timely payment or provision of Other Benefits (as defined in Section 4.1 (d)). In such case, all Accrued Compensation shall be paid to the Executive in a lump sum in cash within thirty (30) days of the Date of Termination. For the purpose of this Section, the term "Accrued Compensation" means the sum of (i) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid, (ii) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), and (iii) any accrued vacation pay in each case to the extent not previously paid. 4.6 NON-EXCLUSIVITY OF RIGHTS; SUPERSESSION OF CERTAIN BENEFITS. Except as provided in Section 4.1 (c) and in this Section 4.6, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company. Amounts which are vested benefits of which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company at or subsequent to the Date of Termination, shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 4.7 FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or 15 action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Sections 4.1 (c), such amounts shall not be reduced whether or not the Executive obtains other employment. In the event of and after the occurrence of a Triggering Transaction, the Company agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Code Section 7872 (f) (2) (A). 4.8 RESOLUTION OF DISPUTES. If there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, non-appealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Executive of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 4.1 as though such termination were by the Company without Cause or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this Section except upon receipt of an undertaking by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. SECTION 5: NON-COMPETITION. 5.1 NON-COMPETE AGREEMENT 5.1(a) It is agreed that during the period beginning on the date the Term of this Agreement expires and ending two (2) years thereafter, the Executive shall not, without prior written approval of the Board, become an officer, employee, agent, partner, consultant, beneficial/owner, agent, investor, or director or any business enterprise in substantial direct competition (as defined in Section 5.1 (b)) with the Company; provided that, if the Executive is terminated by the Company without Cause or if the Executive terminates his employment for Good Reason, then he will not be subject to the restrictions of this Section. 5.1 (b) For purposes of Section 5.1, a business enterprise with which the Executive becomes associated as an officer, employee, agent, partner, consultant, beneficial/owner, agent, investor or director shall be considered in substantial direct competition, if such entity competes with the Company 16 in any business in which the Company is engaged and is within the Company's market area as of the date that the Employment Period expires. 5.1 (c) The above constraint shall not prevent the Executive from making passive investments, not to exceed five percent (5%), in any enterprise. 5.1 (d) The Executive agrees that the foregoing restrictions, in the absence of a Triggering Transaction, are reasonable and may not prevent the Executive from earning a livelihood, and further more, if any court of competent jurisdiction deems any of the provisions of the foregoing invalid, this Agreement shall be enforced to the full extent that such other provisions are valid and such court may modify such restrictions to afford the Company the maximum applicable protection permitted under the law. 5.1(e) Should Executive be adjudicated by a court of competent jurisdiction to be in violation of this Section 5.1, all amounts owed Executive pursuant to this Agreement shall be forfeited, and the Company shall be entitled to injunctive or such other equitable relief as is necessary to restrain Executive's breaching conduct. 5.2 CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. SECTIONS 6: SUCCESSORS. 6.1 SUCCESSORS OF EXECUTIVE. This Agreement is personal to the Executive and , without the prior written consent of the Company, the rights (but not the obligations) shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. 6.2 SUCCESSORS OF COMPANY. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain 17 such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to terminate the Agreement at his option on or after the Triggering Transaction Date for Good Reason. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. SECTION 7: MISCELLANEOUS. 7.1 OTHER AGREEMENTS. The Board may, from time to time, in the future, provide other incentive programs and bonus arrangements to the Executive with respect to the occurrence of a Triggering Event that will be in addition to the benefits required to be paid in the designated circumstances in connection with the occurrence of a Triggering Transaction. Such additional incentive programs and/or bonus arrangements will affect or abrogate the benefits to be paid under this Agreement only in the manner and to the extent explicitly agreed to by the Executive in any such subsequent program or arrangement. 7.2 NOTICE. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses as set forth below; provided that all notices to the Company shall be directed to the attention of the Chairman of the Board, or to such other address as one party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. Notice to Executive: ------------------------ Christopher J. Ryan 136 West Bayberry Road Islip, NY 11751 Notice to Company: ----------------------- Lakeland Industries, Inc. 711-2 Koehler Ave. Ronkonkoma, NY 11779 7.3 VALIDITY. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforce ability of any other provision of this Agreement. 7.4 WAIVER. The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 3.4 shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. 18 IN WITNESS WHEREOF, the Executive and, the Company, pursuant to the authorization from its Board, have caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. This agreement may be countersigned separately by individual members of the Compensation Committee. By: /s/Christopher J. Ryan ------------------------------ Christopher J. Ryan Members BOD Compensation Committee By: /s/ Eric O. Hallman ------------------------------ Eric O. Hallman By: /s/ John J. Collins ------------------------------ John J. Collins By: /s/ Walter J. Raleigh ------------------------------ Walter J. Raleigh 19 EX-10.8 5 exhibit10-8.txt [GRAPHIC OMITTED] WCMA(R)REDUCING REVOLVERsm LOAN AND SECURITY AGREEMENT EXHIBIT 10.8 ================================================================================ WCMA REDUCING REVOLVERsm Loan and Security Agreement NO. 849-02005 ("Loan Agreement") dated as of January 21, 2004, 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"). Pursuant to that certain Working Capital Management(R) Account Agreement No. 849-02005 and the accompanying Program Description (as the same may be, or have been, amended, modified or supplemented, the "WCMA Agreement") between Customer and MLBFS' affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), Customer opened, or shall prior to the Activation Date open, a Working Capital Management Account pursuant to the "WCMA Service" and the "WCMA Program" described in the WCMA Agreement and any documents incorporated therein. The WCMA Agreement is by this reference incorporated as a part hereof. In conjunction therewith, Customer has requested that MLBFS make a reducing revolving credit facility available to Customer (the "Reducing Revolver") in the amount and upon the terms hereafter specified, and, subject to the terms and conditions hereafter set forth, MLBFS has agreed to provide a Reducing Revolver for Customer. Accordingly, and in consideration of the premises and 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: "Activation Date" shall mean the date upon which MLBFS shall cause the WCMA Line of Credit to be fully activated under MLPF&S' computer system as part of the WCMA Program. "Bankruptcy Event" shall mean any of the following: (i) a proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, liquidation, winding up or receivership law or statute shall be commenced, filed or consented to by any Credit Party; or (ii) any such proceeding shall be filed against any Credit Party and shall not be dismissed or withdrawn within sixty (60) days after filing; or (iii) any Credit Party shall make a general assignment for the benefit of creditors; or (iv) any Credit Party shall generally fail to pay or admit in writing its inability to pay its debts as they become due; or (v) any Credit Party shall be adjudicated a bankrupt or insolvent; or (vi) any Credit Party shall take advantage of any other law or procedure for the relief of debtors or shall take any action for the purpose of or with a view towards effecting any of the foregoing; or (vii) a receiver, trustee, custodian, fiscal agent or similar official for any Credit Party or for any substantial part of any of their respective property or assets shall be sought by such Credit Party or appointed. "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. "Business Guarantor" shall mean every Guarantor that is not a natural person. "Certificate of Compliance" shall mean, as applicable, that duly executed certificate, substantially the same form as Exhibit B attached hereto to the extent such certificate shall be applicable, of the president, chief financial officer or chief executive officer of Customer, certifying as to the matters set forth in such certificate. "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. "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights, Inventory, 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 4.6 (b) hereof. "Commitment Expiration Date" shall mean February 16, 2004. "Commitment Fee" shall mean a fee of $15,000.00 due to MLBFS in connection with this Loan Agreement. "Credit Party" and "Credit Parties" shall mean, individually or collectively, the Customer, all Guarantors and all Pledgors. "Default" shall mean either an "Event of Default" as defined in Section 4.5 hereof, or an event which with the giving of notice, passage of time, or both, would constitute such an Event of Default. 1 "Default Rate" shall mean an annual interest rate equal to the lesser of: (i) two percentage points over the Interest Rate; or (ii) the highest interest rate allowed by applicable law. "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, all as determined on Customer's and Business Guarantors' regular consolidated financial statements prepared in a manner consistent with the terms hereof. "Event of Loss" shall mean the occurrence whereby any tangible Collateral is damaged beyond repair, lost, totally destroyed or confiscated. "Excess Interest" shall mean any amount or rate of interest (including the Default Rate and, to the extent that they may be deemed to constitute interest, any prepayment fees, late charges and other fees and charges) payable, charged or received in connection with any of the Loan Documents which exceeds the maximum amount or rate of interest permitted under applicable law. "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 of 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. "GAAP" shall mean the generally accepted accounting principles in effect in the United States of America from time to time. "General Funding Conditions" shall mean each of the following conditions precedent to the obligation of MLBFS to make the Loan or any Subsequent WCMA Loan hereunder: (i) Customer shall have validly subscribed to and continued to maintain the WCMA Account with MLPF&S, and the WCMA Account shall then be reflected as an active "commercial" WCMA Account (i.e., one with line of credit capabilities) on MLPF&S' WCMA computer system; (ii) no Default or Event of Default shall have occurred and be continuing or would result from the making of the Loan or such Subsequent WCMA Loan by MLBFS; (iii) there shall not have occurred and be continuing any material adverse change in the business or financial condition of any Credit Party; (iv) all representations and warranties of all of the Credit Parties herein or in any of the Loan Documents shall then be true and correct in all material respects; (v) MLBFS shall have received this Loan Agreement and all of the other Loan Documents, duly executed and filed or recorded where applicable, all of which shall be in form and substance satisfactory to MLBFS; (vi) the Commitment Fee shall have been paid in full; (vii) MLBFS shall have received, as and to the extent applicable, copies of invoices, bills of sale, loan payoff letters and/or other evidence satisfactory to it that the proceeds of the Loan will satisfy the Loan Purpose; (viii) MLBFS shall have received evidence 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 Loan Documents; (ix) MLBFS shall have received evidence satisfactory to it of the insurance required hereby or by any of the Loan Documents; and (x) any additional conditions specified in the "WCMA Reducing Revolver Loan Approval" letter executed by MLBFS with respect to the transactions contemplated hereby shall have been met to the satisfaction of MLBFS. "Guarantor" shall mean each Person obligated under a guaranty, endorsement or other undertaking by which such Person guarantees or assumes responsibility in any capacity for the payment or performance of any of the Obligations. "Individual Guarantor" shall mean each Guarantor who is a natural person. "Intangible Assets" shall mean the total amount of goodwill, patents, trade names, trade or service marks, copyrights, experimental expense, organization expense, unamortized debt discount and expense, the excess of cost of shares acquired over book value of related assets, and such other assets as are properly classified as "intangible assets" of Customer and Business Guarantors determined in accordance with GAAP. "Interest Due Date" shall mean the first Business Day of each calendar month during the term hereof. "Interest Rate" shall mean a variable per annum rate equal to the sum of (i) 2.50% per annum, and (ii) the interest rate from time to time published in the "Money Rates" section of The Wall Street Journal as the one-month London Interbank Offered Rate (the "One-Month LIBOR"). Notwithstanding anything to the contrary, if more than one rate is so published, then the interest rate shall be the highest of such published rates. The Interest Rate will change as of the date of publication in The Wall Street Journal of a One-Month LIBOR that is different from that published on the preceding Business Day. In the event that The Wall Street Journal shall, for any reason, fail or cease to publish the One-Month LIBOR, MLBFS will choose a reasonably comparable index or source to use as the basis for the Interest Rate. "Loan" shall mean the specific Reducing Revolver by MLBFS to Customer pursuant to this Agreement for the Loan Purpose and in the Loan Amount. "Loan Amount" shall mean an amount equal to the lesser of: (i) 100% of the amount required by Customer to satisfy or fulfill the Loan Purpose, (ii) the aggregate amount which Customer shall request be advanced by MLBFS on account of the Loan Purpose on the Closing Date, or (iii) $3,000,000.00. "Loan Documents" shall mean this Loan Agreement, any indenture, any guaranty of any of the Obligations and all other security and other instruments, assignments, certificates, certifications and agreements of any kind relating to any of the Obligations, whether obtained, authorized, authenticated, executed, sent or received concurrently with or subsequent to this Loan Agreement, or which evidence the creation, guaranty or collateralization of any of the Obligations or the granting or perfection of liens or security interests upon any Collateral or any other collateral for the Obligations, including any modifications, amendments or restatements of the foregoing. "Loan Purpose" shall mean the purpose for which the proceeds of the Loan will be used, to wit: to finance working capital needs. 2 "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. "Maximum WCMA Line of Credit" shall mean the maximum aggregate line of credit which MLBFS will extend to Customer subject to the terms and conditions hereof, as the same shall be reduced each month in accordance with the terms hereof. On the Closing Date, the Maximum WCMA Line of Credit will equal the Loan Amount. "MLBFS Debt to EBITDA Ratio" shall mean the ratio of (a) the aggregate outstanding indebtedness of Customer to MLBFS under this Loan Agreement and under each other agreement, instrument or document heretofore or hereafter executed by Customer for the benefit of MLBFS in connection with a loan or credit facility by MLBFS, to (b) Customer's income before interest (including payments in the nature of interest under capital leases), taxes, depreciation and amortization, all as determined on Customer's consolidated financial statements prepared in a manner consistent with the terms hereof. "Obligations" shall mean all liabilities, indebtedness and other obligations of Customer to MLBFS, howsoever created, arising or evidenced, whether now existing or hereafter arising, whether direct or indirect, absolute or contingent, due or to become due, primary or secondary or joint or several, and, without limiting the generality of the foregoing, shall include principal, accrued interest (including without limitation interest accruing after the filing of any petition in bankruptcy), all advances made by or on behalf of MLBFS under the Loan Documents, collection and other costs and expenses incurred by or on behalf of MLBFS, whether incurred before or after judgment, and all present and future liabilities, indebtedness and obligations of Customer under the Loan Documents and under that certain WCMA Note, Loan and Security Agreement No. 849-07230. "Permitted Liens" shall mean with respect to the Collateral: (i) liens for current taxes not yet due and payable, 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 initial WCMA Loan; and (iv) any other liens expressly permitted in writing by MLBFS. "Person" shall mean any natural person and any corporation, partnership (general, limited or otherwise), limited liability company, trust, association, joint venture, governmental body or agency or other entity having legal status of any kind. "Pledgor" shall mean each Person who at any time provides collateral, or otherwise now or hereinafter agrees to grant MLBFS a security interest in any assets as security for Customer's Obligations. "Subsequent WCMA Loan" shall mean each WCMA Loan other than the Loan, including, without limitation, each WCMA Loan to pay accrued interest. "Tangible Net Worth" shall mean Customer's and Business Guarantors' combined net worth as shown on the 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 and Business Guarantors by officers, shareholders or affiliates of Customer or Business Guarantors. "Termination Date" shall mean the first to occur of: (i) the last Business Day of the thirty-sixth (36th) full calendar month following the Closing Date, or (ii) if earlier, the date of termination of the WCMA Line of Credit pursuant to the terms hereof. "WCMA Account" shall mean and refer to the Working Capital Management Account of Customer with MLPF&S identified as WCMA Account No. 849-02005 and any successor Working Capital Management Account of Customer with MLPF&S. "WCMA Line of Credit" shall mean the line of credit funded by MLBFS through the WCMA Account. "WCMA Loan" shall mean each advance made by MLBFS pursuant to the WCMA Line of Credit, including the Loan and each Subsequent WCMA Loan. "WCMA Loan Balance" shall mean an amount equal to the aggregate unpaid principal balance of all WCMA Loans. "UCC" shall mean the Uniform Commercial Code of Illinois as in effect in Illinois from time to time. 1.2 Other Terms. Except as otherwise defined herein: (i) all terms used in this Loan Agreement which are defined in the UCC shall have the meanings set forth in the UCC, and (ii) capitalized terms used herein which are defined in the WCMA Agreement (including, without limitation, "Money Accounts", "Minimum Money Accounts Balance", and "WCMA Directed Reserve Program") shall have the meanings set forth in the WCMA Agreement; and (iii) accounting terms not defined herein shall have the meaning ascribed to them in GAAP. 1.3 UCC Filing. Customer hereby authorizes MLBFS to file a record or records (as defined or otherwise specified under the UCC), including, without limitation, financing statements, in all jurisdictions and with all filing offices as MLBFS may determine, in its sole discretion, are necessary or advisable to perfect the security interest granted to MLBFS herein. Such financing statements may describe the Collateral in the same manner as described herein or may contain an indication or description of collateral that describes such property in any other manner as MLBFS may determine, in its sole discretion, is necessary, advisable or prudent to ensure the perfection of the security interest in the Collateral granted to the MLBFS herein. Article II. THE LOAN 2.1 Commitment. Subject to the terms and conditions hereof, MLBFS hereby agrees to make the Loan to Customer, and Customer hereby agrees to borrow the Loan from MLBFS. Except as otherwise provided in Section 3.1 hereof, the entire proceeds of the Loan will be disbursed by MLBFS out of the 3 WCMA Line of Credit 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 for the Loan Purpose; all as directed by Customer in a Closing Certificate to be executed and delivered to MLBFS prior to the date of funding. 2.2 Conditions of MLBFS' Obligation. The Closing Date and MLBFS' obligations to activate the WCMA Line of Credit, as hereafter set forth, and make the Loan on the Closing Date are subject to the prior fulfillment of each of the following conditions: (a) not less than two Business Days prior to any requested funding date, MLBFS shall have received a Closing Certificate, duly executed by Customer, setting forth, among other things, the amount of the Loan and the method of payment and payee(s) of the proceeds thereof; (b) after giving effect to the Loan, the WCMA Loan Balance will not exceed either the Maximum WCMA Line of Credit or the Loan Amount; (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. 2.3 Commitment Fee. In consideration of the agreement by MLBFS to extend the Loan and any Subsequent WCMA Loans to Customer in accordance with and subject to the terms hereof, Customer has paid or shall, on or before the Closing Date pay, the Commitment Fee to MLBFS. Customer acknowledges and agrees that the Commitment Fee has been fully earned by MLBFS, and that it will not under any circumstances be refundable. 2.4 Use of Loan Proceeds. Unless otherwise agreed by MLBFS in writing, the proceeds of the Loan shall be used solely for the Loan Purpose. The Proceeds of each Subsequent WCMA Loan initiated by Customer shall be used by Customer solely for working capital in the ordinary course of its business, or, with the prior written consent of MLBFS, for other lawful business purposes of Customer not prohibited hereby. Customer agrees that under no circumstances will the proceeds of the Loan or any Subsequent WCMA Loan be used: (i) for personal, family or household purposes of any person whatsoever, or (ii) to purchase, carry or trade in securities, or repay debt incurred to purchase, carry or trade in securities, whether in or in connection with the WCMA Account, another account of Customer with MLPF&S or an account of Customer at any other broker or dealer in securities, or (iii) 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. THE WCMA LINE OF CREDIT 3.1 Activation of the WCMA Line of Credit. Subject to the terms and conditions hereof, on the Closing Date MLBFS will activate a WCMA Line of Credit for Customer in the Loan Amount. The Loan will be funded out of the WCMA Line of Credit immediately after such activation (or, if and to the extent otherwise expressly contemplated in the definition of Loan Purpose or otherwise directed in the Closing Certificate and hereafter expressly agreed by MLBFS, all or part of the Loan may be made available as a WCMA Line of Credit and funded by Customer.) 3.2 Subsequent WCMA Loans. Subject to the terms and conditions hereof, during the period from and after the Closing Date to the Termination Date: (a) Customer may repay the WCMA Loan Balance in whole or in part at any time without premium or penalty, and request a re-borrowing of amounts repaid on a revolving basis, and (b) in addition to Subsequent WCMA Loans made automatically to pay accrued interest, as hereafter provided, MLBFS will make such Subsequent WCMA Loans as Customer may from time to time request or be deemed to have requested in accordance with the terms hereof. Customer may request Subsequent WCMA Loans by use of WCMA Checks, FTS, Visa(R) charges, wire transfers, or such other means of access to the WCMA Line of Credit as may be permitted by MLBFS from time to time; it being understood that so long as the WCMA Line of Credit shall be in effect, any charge or debit to the WCMA Account which but for the WCMA Line of Credit would under the terms of the WCMA Agreement result in an overdraft, shall be deemed a request by Customer for a Subsequent WCMA Loan. 3.3 Conditions of Subsequent WCMA Loans. Notwithstanding the foregoing, MLBFS shall not be obligated to make any Subsequent WCMA Loan, and may without notice refuse to honor any such request by Customer, if at the time of receipt by MLBFS of Customer's request: (a) the making of such Subsequent WCMA Loan would cause the Maximum WCMA Line of Credit, as reduced pursuant to the provisions of Section 3.6 hereof, to be exceeded; or (b) the Termination Date shall have occurred; or (c) an event shall have occurred and be continuing which shall have caused any of the General Funding Conditions to not then be met or satisfied to the reasonable satisfaction of MLBFS. The making by MLBFS of any Subsequent WCMA Loan (including, without limitation, the making of a Subsequent WCMA Loan to pay accrued interest or late charges, as hereafter provided) at a time when any one or more of said conditions shall not have been met shall not in any event be construed as a waiver of said condition or conditions or of any Default, and shall not prevent MLBFS at any time thereafter while any condition shall not have been met from refusing to honor any request by Customer for a Subsequent WCMA Loan. 3.4 WCMA Note. Customer hereby promises to pay to the order of MLBFS, at the times and in the manner set forth in this Loan Agreement, or in such other manner and at such place as MLBFS may hereafter designate in writing: (a) the WCMA Loan Balance; (b) interest at the Interest Rate on the outstanding WCMA Loan Balance (computed for the actual number of days elapsed on the basis of a year consisting of 360 days), from and including the date on which the Loan is made until the date of payment of all WCMA Loans in full; and (c) on demand, all other sums payable pursuant to this Loan Agreement, including, but not limited to, any late charges. Except as otherwise expressly set forth herein, Customer hereby waives presentment, demand for payment, protest and notice of protest, notice of dishonor, notice of acceleration, notice of intent to accelerate and all other notices and formalities in connection with this WCMA Note and this Loan Agreement. 3.5 Interest. (a) An amount equal to accrued interest on the daily WCMA Loan Balance shall be payable by Customer monthly on each Interest Due Date, commencing with the first Interest Due Date after the Closing Date shall occur. Unless otherwise hereafter directed in writing by MLBFS on or after the Termination Date, such interest will be automatically charged to the WCMA Account on the applicable Interest Due Date, and, to the extent not paid with free credit balances or the proceeds of sales of any Money Accounts then in the WCMA Account, as hereafter provided, such interest will be paid by a Subsequent WCMA Loan and added to the WCMA Loan Balance. All interest shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days. 4 (b) Upon the occurrence and during the continuance of any Default, but without limiting the rights and remedies otherwise available to MLBFS hereunder or waiving such Default, the interest payable by Customer hereunder shall at the option of MLBFS accrue and be payable at the Default Rate. The Default Rate, once implemented, shall continue to apply to the Obligations under this Loan Agreement and be payable by Customer until the date MLBFS gives written notice that such Default has been cured to the satisfaction of MLBFS. (c) Notwithstanding any provision to the contrary in any of the Loan Documents, no provision of the Loan Documents shall require the payment or permit the collection of Excess Interest. If any Excess Interest is provided for, or is adjudicated as being provided for, in the Loan Documents, then: (i) Customer shall not be obligated to pay any Excess Interest; and (ii) any Excess Interest that MLBFS may have received hereunder or under any of the Loan Documents shall, at the option of MLBFS, be either applied as a credit against the then unpaid WCMA Loan Balance, or refunded to the payor thereof. 3.6 Periodic Reduction of Maximum WCMA Line of Credit. Commencing on the last Business Day of the first full calendar month following the Closing Date, and continuing on the last Business Day of each calendar month thereafter to and including the last Business Day of the thirty-fifth (35th) such calendar month, the Maximum WCMA Line of Credit shall be reduced by an amount equal to one-thirty-sixth (1/36th) of the Loan Amount per month. Unless the WCMA Line of Credit shall have been earlier terminated pursuant to the terms hereof, on the last Business Day of the thirty-sixth (36th) such calendar month, the WCMA Line of Credit shall, without further action of either of the parties hereto, be terminated, Customer shall pay to MLBFS the entire WCMA Loan Balance, if any, and all other Obligations, and the WCMA Account, at the option of Customer, will either be converted to a WCMA Cash Account (subject to any requirements of MLPF&S) or terminated. No failure or delay on the part of MLBFS in entering into the WCMA computer system any scheduled reduction in the Maximum WCMA Line of Credit pursuant to this Section shall have the effect of preventing or delaying such reduction. 3.7 Mandatory Payments. CUSTOMER AGREES THAT IT WILL, WITHOUT DEMAND, INVOICING OR THE REQUEST OF MLBFS, FROM TIME TO TIME MAKE SUFFICIENT PAYMENTS ON ACCOUNT OF THE WCMA LOAN BALANCE TO ASSURE THAT THE WCMA LOAN BALANCE WILL NOT AT ANY TIME EXCEED THE MAXIMUM WCMA LINE OF CREDIT, AS REDUCED EACH MONTH PURSUANT TO SECTION 3.6 HEREOF. 3.8 Method of Making Payments. All payments required or permitted to be made pursuant to this Loan Agreement shall be made in lawful money of the United States. Unless otherwise hereafter directed by MLBFS, such payments may be made by the delivery of checks (other than WCMA Checks), or by means of FTS or wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S for credit to the WCMA Account. Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by Customer upon the same basis and schedule as funds are made available for investment in the Money Accounts in accordance with the terms of the WCMA Agreement. The acceptance by or on behalf of MLBFS of a check or other payment for a lesser amount than shall be due from Customer, regardless of any endorsement or statement thereon or transmitted therewith, shall not be deemed an accord and satisfaction or anything other than a payment on account, and MLBFS or anyone acting on behalf of MLBFS may accept such check or other payment without prejudice to the rights of MLBFS to recover the balance actually due or to pursue any other remedy under this Loan Agreement or applicable law for such balance. All checks accepted by or on behalf of MLBFS in connection with this Loan Agreement are subject to final collection. 3.9 Irrevocable Instructions to MLPF&S. In order to minimize the WCMA Loan Balance, Customer hereby irrevocably authorizes and directs MLPF&S, effective on the Closing Date and continuing thereafter so long as this Loan Agreement shall be in effect: (a) to immediately and prior to application for any other purpose pay to MLBFS to the extent of any WCMA Loan Balance or other amounts payable by Customer hereunder all available free credit balances from time to time in the WCMA Account; and (b) if such available free credit balances are insufficient to pay the WCMA Loan Balance and such other amounts, and there are in the WCMA Account at any time any investments in Money Accounts (other than any investments constituting any Minimum Money Accounts Balance under the WCMA Directed Reserve Program), to immediately liquidate such investments and pay to MLBFS to the extent of any WCMA Loan Balance and such other amounts the available proceeds from the liquidation of any such Money Accounts. 3.10 Late Charge. Any payment or deposit required to be made by Customer pursuant to the Loan Documents not paid or made within ten (10) days of the applicable due date shall be subject to a late charge in an amount equal to the lesser of: (a) 5% of the overdue amount, or (b) the maximum amount permitted by applicable law. Such late charge shall be payable on demand, or, without demand, may in the sole discretion of MLBFS be paid by a Subsequent WCMA Loan and added to the WCMA Loan Balance in the same manner as provided herein for accrued interest with respect to the WCMA Line of Credit. 3.11 Prepayment. Customer may prepay the Loan and any Subsequent WCMA Loan at any time in whole or in part without premium or penalty. 3.12 Option of Customer to Terminate. Customer will have the option to terminate the WCMA Line of Credit at any time upon written notice to MLBFS. Concurrently with any such termination, Customer shall pay to MLBFS the entire WCMA Loan Balance and all other Obligations. 3.13 Limitation of Liability. MLBFS shall not be responsible, and shall have no liability to Customer or any other party, for any delay or failure of MLBFS to honor any request of Customer for a WCMA Loan or any other act or omission of MLBFS, MLPF&S or any of their affiliates due to or resulting from any system failure, error or delay in posting or other clerical error, loss of power, fire, Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S or any of their affiliates unless directly arising out of the willful wrongful act or active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer or any other party for any incidental or consequential damages arising from any act or omission by MLBFS, MLPF&S or any of their affiliates in connection with the WCMA Line of Credit or this Loan Agreement. 3.14 Statements. MLPF&S will include in each monthly statement it issues under the WCMA Program information with respect to WCMA Loans and the WCMA Loan Balance. Any questions that Customer may have with respect to such information or the Loan should be directed to MLBFS; and any questions with respect to any other matter in such statements or about or affecting the WCMA Program should be directed to MLPF&S. Article IV. GENERAL PROVISIONS 5 4.1 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. Each Credit Party has the requisite power and authority to enter into and perform the Loan Documents. The Customer holds all necessary permits, licenses, certificates of occupancy and other governmental authorizations and approvals required in order to own or operate the Customer's business. The execution, delivery and performance by Customer of this Loan Agreement and by each of the other Credit Parties of such of the other Loan Documents 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, order or other governmental requirement, or any of the agreements, instruments or documents which formed or govern any of the Credit Parties, and (iii) do not and will not breach or violate any of the provisions of, and will not result in a default by any of the Credit Parties under, any other agreement, instrument or document to which it is a party or is subject. (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 any Credit Party of such of the Loan Documents to which it is a party. (d) Enforceability. The Loan Documents to which any Credit Party is a party are the respective legal, valid and binding obligations of such Credit Party, 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 priorities afforded to 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 authenticated or otherwise authorized 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; Compliance With All Laws. No litigation, arbitration, administrative or governmental proceedings are pending or, to the knowledge of Customer, threatened against any Credit Party, which would, if adversely determined, materially and adversely affect (i) such Credit Party's interest in the Collateral or the liens and security interests of MLBFS hereunder or under any of the Loan Documents, or (ii) the financial condition of such Credit Party or its continued operations. Each Credit Party is in compliance in all material respects with all laws, regulations, requirements and approvals applicable to such Credit Party. (h) Tax Returns. All federal, state and local tax returns, reports and statements required to be filed by any Credit Party have been filed with the appropriate governmental agencies and all taxes due and payable by any Credit Party have been timely paid (except to the extent that any such failure to file or pay will not materially and adversely affect (i) either the liens and security interests of MLBFS hereunder or under any of the Loan Documents, (ii) the financial condition of any Credit Party or (iii) its continued operations). (i) Collateral Location. All of the tangible Collateral is located at a Location of Tangible Collateral. (j) No Default. No "Default" or "Event of Default" (each as defined in this Loan Agreement or any of the other Loan Documents) has occurred and is continuing. (k) 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 any WCMA Loan, and (ii) is continuing and shall be deemed remade by Customer on the Closing Date, and concurrently with each request by Customer for a Subsequent WCMA Loan. 4.2 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: 6 (i) Borrowing Base Certificate. Within 45 days after the close of each fiscal quarter of Customer, a Borrowing Base Certificate, duly executed by an authorized officer of Customer, in the form of Exhibit B-1 attached hereto, or such other form as reasonably required by MLBFS from time to time; (ii) Certificate of Compliance. Within 45 days after the close of each fiscal quarter of Customer, a Certificate of Compliance, duly executed by an authorized officer of Customer, in the form of Exhibit B attached hereto, or such other form as reasonably required by MLBFS from time to time; (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; (i) SEC Reports. Customer shall furnish, or cause to be furnished to MLBFS, not later than 10 days after the date of filing with the Securities and Exchange Commission ("SEC"), a copy of each 10-K, 10-Q and other report required to be filed with the SEC during the term hereof by Customer; and (ii) Other Information. Such other information as MLBFS may from time to time reasonably request relating to Customer, any Credit Party 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. 4.3 Other Covenants. Customer further covenants and agrees during the term of this Loan Agreement that: (a) Financial Records; Inspection. Each Credit Party (other than any Individual 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. Each Credit Party 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 file or pay will not materially and adversely affect either the liens and security interests of MLBFS hereunder or under any of the Loan Documents, the financial condition of any Credit Party or its continued operations. (c) Compliance With Laws and Agreements. No Credit Party will violate (i) any law, regulation or other governmental requirement, any judgment or order of any court or governmental agency or authority; (ii) any agreement, instrument or document which is material to its operations or to the operation or use of any Collateral, in each case as contemplated by the Loan Documents; or (iii) 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 Loan Documents, the financial condition of any Credit Party , or its continued operations. (d) No Use of Merrill Lynch Name. No Credit Party 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 material adverse change in the business, financial condition or operations of any Credit Party; (iii) any information which indicates that any financial statements of any Credit Party fail in any material respect to present fairly the financial condition and results of operations purported to be presented in such statements; (iv) any threatened or pending litigation involving any Credit Party; (v) any casualty loss, attachment, lien, judicial process, encumbrance or claim affecting or involving $25,000 or more of any Collateral; and (vi) 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) Entity Organization. Each Credit Party which is an entity will (i) remain (A) validly existing and in good standing in the state of its organization and (B) 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 (ii) maintain all governmental permits, licenses and authorizations. Customer shall give MLBFS not less than 30 days prior written notice of any change in name (including any fictitious name) or chief executive office, place of business, or as applicable, the principal residence of any Credit Party. (g) Merger, Change in Business. Except upon the prior written consent of MLBFS, Customer shall not cause or permit any Credit Party to (i) 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 sell, transfer or lease all or any substantial part of its assets; (ii) 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; or (iii) cause or permit any other Person to assume or succeed to any material business or operations of such Credit Party. (h) Minimum Tangible Net Worth. Customer's and Business Guarantors' combined Tangible Net Worth shall, at all times, exceed $22,500,000.00. (i) Debt To Tangible Net Worth. The ratio of Customer's and Business Guarantors' combined Debt to Tangible Net Worth shall not at any time exceed 1.50 to 1.00. 7 (j) No Additional 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 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). (k) Customer Relationship. Customer shall notify MLBFS of the occurrence of any materially negative change in its relationship with its principal supplier, DuPont. (l) MLBFS Debt To EBITDA Ratio. Customer's MLBFS Debt to EBITDA Ratio shall not at any time exceed 4.50 to 1.00. (m) Fixed Charge Coverage Ratio. Customer's and Business Guarantors' combined Fixed Charge Coverage Ratio shall, at all times, not be less than 1.10 to 1.00. 4.4 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 priorities afforded 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. Customer shall not sell, transfer or otherwise dispose of any Collateral, except that 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. (e) Account Schedules. Upon the request of MLBFS, which may be made from time to time, 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) Location. Except for movements required in the ordinary course of Customer's business, Customer shall give MLBFS 30 days' prior written notice of the placing at or movement of any tangible Collateral to any location other than a Location of Tangible Collateral. In no event shall Customer cause or permit any material tangible Collateral to be removed from the United States without the express prior written consent of MLBFS. Customer will keep its books and records at its principal office address specified in the first paragraph of this Loan Agreement. Customer will not change the address where books and records are kept, or change its name or taxpayer identification number. Customer will place a legend acceptable to MLBFS on all chattel paper that is Collateral in the possession or control of Customer from time to time indicating that MLBFS has a security interest therein. (g) Insurance. Customer shall insure all of the tangible Collateral under a policy or policies of physical damage insurance for the full replacement value thereof against such perils as MLBFS shall reasonably require and also providing that losses will be payable to MLBFS as its interests may appear pursuant to a lender's or mortgagee's long form 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 commercial general 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. (h) Event of Loss. Customer shall at its expense promptly repair all repairable damage to any tangible Collateral. In the event that there is an Event of Loss and the affected 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 permanently prepay the Obligations 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; it being further understood that any such permanent prepayment shall cause an immediate permanent reduction in the Maximum WCMA Line of Credit in the amount of such prepayment and shall not reduce the amount of any future reductions in the Maximum WCMA Line of Credit that may be required hereunder. Notwithstanding the foregoing, if at the time of occurrence of such Event of Loss or any time thereafter prior to replacement or line reduction, as aforesaid, an Event of Default shall have occurred and be continuing hereunder, then MLBFS may at its sole option, exercisable at any time while such Event of Default shall be continuing, require Customer to either replace such Collateral or prepay the Obligations and reduce the Maximum WCMA Line of Credit, as aforesaid. 8 (i) 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. (j) 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. 4.5 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. (i) Customer shall fail to deposit into the WCMA Account an amount sufficient to assure that the WCMA Loan Balance does not exceed the Maximum WCMA Line of Credit (ii) Customer shall fail to pay to MLBFS or deposit into the WCMA Account when due any other amount owing or required to be paid or deposited by Customer under the Loan Documents, or (iii) Customer shall fail to pay when due any other Obligations; and any such failure as described in this subparagraph shall continue for more than five (5) Business Days after such failure. (b) Failure to Perform. Any Credit Party shall default in the performance or observance of any covenant or agreement on its part to be performed or observed under any of the Loan Documents (not constituting an Event of Default under any other clause of this Section), and such default shall continue unremedied for ten (10) Business Days (i) after written notice thereof shall have been given by MLBFS to Customer, or (ii) from Customer's receipt of any notice or knowledge of such default from any other source. (c) Breach of Warranty. Any representation or warranty made by any Credit Party contained in any of the Loan Documents shall at any time prove to have been incorrect in any material respect when made. (d) Default Under Other ML Agreement. A default or event of default by any Credit Party shall occur under the terms of any other agreement, instrument or document with or intended for the benefit of MLBFS, MLPF&S or any of their affiliates, and any required notice shall have been given and required passage of time shall have elapsed, or the WCMA Agreement shall be terminated for any reason. (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 the Credit Parties of any of their respective liabilities or obligations under any of the Loan Documents 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) Default Under Other Agreements. Any event shall occur which results in any default of any material agreement involving any Credit Party or any agreement evidencing any indebtedness of any Credit Party of $100,000.00 or more. (h) Collateral Impairment. The loss, theft or destruction of any Collateral, the occurrence of any material deterioration or impairment of any Collateral or any material decline or depreciation in the value or market price thereof (whether actual or reasonably anticipated), which causes any Collateral, in the sole opinion of MLBFS, to become unsatisfactory as to value or character; or any levy, attachment, seizure or confiscation of the Collateral which is not released within ten (10) Business Days. (i) Contested Obligation. (i) Any of the Loan Documents shall for any reason cease to be, or are asserted by any Credit Party not to be a legal, valid and binding obligations of any Credit Party, enforceable in accordance with their terms; or (ii) the validity, perfection or priority of MLBFS' first lien and security interest on any of the Collateral is contested by any Person; or (iii) any Credit Party shall or shall attempt to repudiate, revoke, contest or dispute, in whole or in part, such Credit Party's obligations under any Loan Document. (j) Judgments. A judgment shall be entered against any Credit Party in excess of $25,000 and the judgment is not paid in full and discharged, or stayed and bonded to the satisfaction of MLBFS. (k) Change in Control/Change in Management. (i) Any direct or indirect sale, conveyance, assignment or other transfer of or grant of a security interest in any ownership interest of any Credit Party which results, or if any rights related thereto were exercised would result, in any change in the identity of the individuals or entities in control of any Credit Party; or (ii) the owner(s) of the controlling equity interest of the Customer on the date hereof shall cease to own and control such Credit Party; or (iii) the Person (or a replacement who is satisfactory to MLBFS in its sole discretion) who is the chief executive officer or holds such similar position, or any senior manager of such Credit Party on the date hereof shall for any reason cease to be the chief executive officer or senior manager of such Credit Party. (l) Withdrawal, Death, etc. The incapacity, death, withdrawal, dissolution, or the filing of dissolution of: (i) any Credit Party; or (ii) any controlling shareholder, partner, or member of any Credit Party. 4.6 Remedies. 9 (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 extend any credit to or for the benefit of Customer (it being understood that upon the occurrence of any Bankruptcy Event all such obligations shall automatically terminate without any action on the part of MLBFS). (ii) Acceleration. MLBFS may declare the WCMA Loan Balance and all other Obligations to be forthwith due and payable, whereupon all such amounts shall be immediately due and payable, without presentment, demand for payment, protest and notice of protest, notice of dishonor, notice of acceleration, notice of intent to accelerate or other notice or formality of any kind, all of which are hereby expressly waived; provided, however, that upon the occurrence of any Bankruptcy Event the WCMA Loan Balance 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 and in equity, including, but not limited to, the UCC, and any or all of its other rights and remedies under the Loan Documents. (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, whether for cash, on credit, or for future delivery, in bulk or in lots. MLBFS may purchase any Collateral at any such sale free of Customer's right of redemption, if any, which Customer expressly waives to the extent not prohibited by applicable law. The net proceeds of any such public or private sale and all other amounts actually collected or received by MLBFS pursuant hereto, after deducting all costs and expenses incurred at any time in the collection of the Obligations and in the protection, collection and sale of the Collateral, will be applied to the payment of the Obligations, with any remaining proceeds paid to Customer or whoever else may be entitled thereto, and with Customer and each Guarantor remaining jointly and severally liable for any amount remaining unpaid after such application. (vi) Delivery of Cash, Checks, Etc. MLBFS may require Customer to forthwith upon receipt, transmit and deliver to MLBFS in the form received, all cash, checks, drafts and other instruments for the payment of money (properly endorsed, where required, so that such items may be collected by MLBFS) which may be received by Customer at any time in full or partial payment of any Collateral, and require that Customer not commingle any such items which may be so received by Customer with any other of its funds or property but instead hold them separate and apart and in trust for MLBFS until delivery is made to MLBFS. (vii) Notification of Account Debtors. MLBFS may notify any Account Debtor that its Account or Chattel Paper has been assigned to MLBFS and direct such account debtor to make payment directly to MLBFS of all amounts due or becoming due with respect to such Account or Chattel Paper; and MLBFS may enforce payment and collect, by legal proceedings or otherwise, such Account or Chattel Paper. (viii) Control of Collateral. MLBFS may otherwise take control in any lawful manner of any cash or non-cash items of payment or proceeds of Collateral and of any rejected, returned, stopped in transit or repossessed goods included in the Collateral and endorse Customer's name on any item of payment on or proceeds of the Collateral. (b) Set-Off. MLBFS shall have the further right upon the occurrence and during the continuance of an Event of Default to set-off, appropriate and apply toward payment of any of the Obligations, in such order of application as MLBFS may from time to time and at any time elect, any cash, credit, deposits, accounts, 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 Collateral and as additional security for the Obligations. Upon the occurrence and during the continuance of an Event of Default, MLBFS shall have all rights in such property available to collateral assignees and secured parties under all applicable laws, including, without limitation, the UCC. (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 and the other Loan Documents, 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. The powers of attorney granted to MLBFS in this Loan Agreement are coupled with an interest and are irrevocable until the Obligations have been indefeasibly paid in full and fully satisfied and all obligations of MLBFS under this Loan Agreement have been terminated. (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 Loan Documents, at law or in equity, and any one or more of such rights and remedies may be exercised simultaneously or successively. (e) No Marshalling. MLBFS shall be under no duty or obligation to (i) preserve, protect or marshall the Collateral; (ii) preserve or protect the rights of any Credit Party or any other Person claiming an interest in the Collateral; (iii) realize upon the Collateral in any particular order or manner, (iv) seek repayment of any Obligations from any particular source; (v) proceed or not proceed against any Credit Party pursuant to any guaranty or security agreement or against any Credit Party under the Loan Documents, with or without also realizing on the 10 Collateral; (vi) permit any substitution or exchange of all or any part of the Collateral; or (vii) release any part of the Collateral from the Loan Agreement or any of the other Loan Documents, whether or not such substitution or release would leave MLBFS adequately secured. (f) 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. 4.7 Miscellaneous. (a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any right, power or remedy pursuant to the Loan Documents 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 any of the Loan Documents, 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 any of the Loan Documents and any consent to any departure by Customer from the terms thereof 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, and to any third party in connection with Section 4.7 (g) herein, any and all financial and other information about Customer. In connection with said authorization, the parties recognize that in order to provide a WCMA Line of Credit certain information about Customer is required to be made available on a computer network accessible by certain affiliates of MLBFS, including MLPF&S. Customer further irrevocably authorizes MLBFS to contact, investigate, inquire and obtain consumer reports, references and other information on Customer from consumer reporting agencies and other credit reporting services, former or current creditors, and other persons and sources (including, without limitation, any Affiliate of MLBFS) and to provide to any references, consumer reporting agencies, credit reporting services, creditors and other persons and sources (including, without limitation, affiliates of MLBFS) all financial, credit and other information obtained by MLBFS relating to the Customer. (c) Communications. Delivery of an agreement, instrument or other document may, at the discretion of MLBFS, be by electronic transmission. Except as required by law or otherwise provided herein or in a writing executed by the party to be bound, all notices demands, requests, accountings, listings, statements, advices or other communications to be given under the Loan Documents shall be in writing and shall be served either personally, by deposit with a reputable overnight courier with charges prepaid, or by deposit in the United States mail by certified mail return receipt required. Notices may be addressed to Customer as set forth at its address shown in the preamble hereto, or to any office to which billing or account statements are sent; to MLBFS at its address shown in the preamble hereto, or at such other address designated in writing by MLBFS. Any such communication shall be deemed to have been given upon, in the case of personal delivery the date of delivery, one Business Day after deposit with an overnight courier, two (2) Business Days after deposit in the United States by certified mail (return receipt required), or receipt of electronic transmission (which shall be presumed to be three hours after the time of transmission unless an error message is received by the sender), except that any notice of change of address shall not be effective until actually received. (d) Fees, Expenses and Taxes. Customer shall pay or reimburse MLBFS for: (i) all UCC, real property or other filing, recording, and search fees and expenses incurred by MLBFS in connection with the verification, perfection or preservation of MLBFS' rights hereunder or in any Collateral or any other collateral for the Obligations; (ii) any and all stamp, transfer, mortgage, intangible, document, filing, recording and other taxes and fees payable or determined to be payable in connection with the borrowings hereunder or the execution, delivery, filing, and/or recording of the Loan Documents and any other instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith; and (iii) all fees and out-of-pocket expenses (including, attorneys' fees and legal expenses) incurred by MLBFS in connection with the preparation, execution, administration, collection, enforcement, protection, waiver or amendment of this Loan Agreement, the other Loan Documents and such other instruments or documents, and the rights and remedies of MLBFS thereunder, and all other matters in connection therewith. Customer hereby authorizes MLBFS, at its option, to either cause any and all such fees, expenses and taxes to be paid with a WCMA Loan, or invoice Customer therefore (in which event Customer shall pay all such fees, expenses and taxes within 5 Business Days after receipt of such invoice). 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 any of the Loan Documents or any representation or warranty on the part of Customer contained in the Loan Documents 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 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) 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 the Loan Documents, to confirm the WCMA Loan 11 Balance, 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. (g) Binding Effect. The Loan Documents shall be binding upon, and shall inure to the benefit of MLBFS, Customer and their respective successors and assigns. MLBFS reserves the right, at any time while the Obligations remain outstanding, to sell, assign, syndicate or otherwise transfer or dispose of any or all of MLBFS' rights and interests under the Loan Documents. MLBFS also reserves the right at any time to pool the WCMA Loan with one or more other loans originated by MLBFS or any other Person, and to securitize or offer interests in such pool on whatever terms and conditions MLBFS shall determine. Customer consents to MLBFS releasing financial and other information regarding Credit Parties, the Collateral and the WCMA Loan in connection with any such sale, pooling, securitization or other offering. Customer shall not assign any of its rights or delegate any of its obligations under any of the Loan Documents without the prior written consent of MLBFS. Unless otherwise expressly agreed to in a writing signed by MLBFS, no such consent shall in any event relieve Customer of any of its obligations under this Loan Agreement or any of the other Loan Documents. (h) Interpretation; Construction. (i) 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; (ii) no provision of this Loan Agreement shall be construed against a particular Person or in favor of another Person merely because of which Person (or its representative) drafted or supplied the wording for such provision; and (iii) where the context requires: (a) use of the singular or plural incorporates the other, and (b) pronouns and modifiers in the masculine, feminine or neuter gender shall be deemed to refer to or include the other genders. (i) Governing Law. This Loan Agreement and, unless otherwise expressly provided therein, each of the Loan Documents, shall be governed in all respects by the laws of the State of Illinois, not including its conflict of law provisions. (j) Severability of Provisions. Whenever possible, each provision of this Loan Agreement and the other Loan Documents shall be interpreted in such manner as to be effective and valid under applicable law. Any provision of the Loan Documents 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 the Loan Documents or affecting the validity or enforceability of such provision in any other jurisdiction. (k) Term. This Loan Agreement shall become effective on the date accepted by MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof, shall continue in effect so long thereafter as: (i) the WCMA Line of Credit shall be in effect, (ii) there shall be any moneys outstanding under this Loan Agreement, or (iii) there shall be any other Obligations outstanding. Customer hereby waives notice of acceptance of this Loan Agreement by MLBFS. (l) Exhibits. The exhibits to this Loan Agreement are hereby incorporated and made a part hereof and are an integral part of this Loan Agreement (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 the Loan Documents in either the State of Illinois or in any other jurisdiction where Customer or any Collateral 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. Customer agrees that all such service of process shall be made by mail or messenger directed to it in the same manner as provided for notices to Customer in this Loan Agreement and that service so made shall be deemed to be completed upon the earlier of actual receipt or three (3) days after the same shall have been posted to Customer or Customer's agent. Nothing contained herein shall affect the right of MLBFS to serve legal process in any other manner permitted by law or affect the right of MLBFS to bring any action or proceeding against Customer or its property in the courts of any other jurisdiction. Customer waives, to the extent permitted by law, any bond or surety or security upon such bond which might, but for this waiver, be required of MLBFS. Customer further waives the right to bring any non-compulsory counterclaims. (o) Jury Waiver. 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 Loan, the Obligations, this Loan Agreement, any of the other Loan Documents and/or any of the transactions which are the subject matter of this Loan Agreement. (p) Integration. This Loan Agreement, together with the other Loan Documents, 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 any WCMA Loan on any terms other than as expressly set forth herein, 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 a Loan Document. No amendment or modification of any of the Loan Documents to which Customer is a party shall be effective unless in writing signed by both MLBFS and Customer. 12 (q) Survival. All representations, warranties, agreements and covenants contained in the Loan Documents shall survive the signing and delivery of the Loan Documents, and all of the waivers made and indemnification obligations undertaken by Customer shall survive the termination, discharge or cancellation of the Loan Documents. (r) Customer's Acknowledgments. The Customer acknowledges that the Customer: (i) has had ample opportunity to consult with counsel and such other parties as deemed advisable prior to signing and delivering this Loan Agreement and the other Loan Documents; (ii) understands the provisions of this Loan Agreement and the other Loan Documents, including all waivers contained therein; and (iii) signs and delivers this Loan Agreement and the other Loan Documents freely and voluntarily, without duress or coercion. This Loan Agreement and the other Loan Documents are executed under seal and are intended to take effect as sealed instruments. IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year first above written. LAKELAND INDUSTRIES, INC. By: /s/Christopher J. Ryan /s/James M. McCormick -------------------------------------------------------------------------- Signature (1) Signature (2) Christopher J. Ryan James M. McCormick - -------------------------------------------------------------------------------- Printed Name Printed Name President & Secretary Treasurer - -------------------------------------------------------------------------------- Title Title Accepted at Chicago, Illinois: MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. By: /s/Kathy Thomas --------------- 13 EXHIBIT A ATTACHED TO AND HEREBY MADE A PART OF WCMA Reducing Revolver LOAN AND SECURITY AGREEMENT NO. 849-02005 BETWEEN MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. AND LAKELAND INDUSTRIES, INC. ================================================================================ Additional Locations of Tangible Collateral: 3420 Valley Avenue S.W. Decatur, Alabama 202 Pride Lane S.W. Decatur, Alabama 2401 Southwest Parkway St. Joseph, Missouri [GRAPHIC OMITTED] 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 WCMA REDUCING REVOLVERsm LOAN AND SECURITY AGREEMENT No. 849-02005 between Customer and MLBFS dated as of January 21, 2004 (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 the priority afforded to the "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 a "Default" under the Loan Agreement. 3. There has not occurred any material adverse change in the business or financial condition of Customer or any of the other Credit Parties obligations to MLBFS since the date of the last financial statements submitted to MLBFS. 15,000 4. MLBFS is hereby authorized and directed to disburse the proceeds of the Loan in the amount of $_________________, by: [_]check [_]wire transfer [_]Xdeposit as follows: Please make available $3,000,000.00 in Customer's WCMA Account No. 849-02005. 11 Dated this 11 day of February , 2004 ---- ---------------- LAKELAND INDUSTRIES, INC. By: /s/Christopher J. Ryan /s/James M. McCormick ---------------------------------------------------------------------------- Signature (1) Signature (2) Christopher J. Ryan James M. McCormick - -------------------------------------------------------------------------------- Printed Name Printed Name President Treasurer - -------------------------------------------------------------------------------- Title Title [GRAPHIC OMITTED] BORROWING BASE CERTIFICATE ================================================================================ To: Merrill Lynch Business Financial Services Inc. ("MLBFS") 222 North LaSalle Street 17th Floor Chicago, IL 60601 The undersigned, on behalf of LAKELAND INDUSTRIES, INC. ("Customer"), hereby certifies to MLBFS that: (i) he/she is an officer authorized to execute and deliver this certificate on behalf of Customer, and is familiar with the business and financial condition of the Customer; (ii) the financial statements delivered with this Certificate fairly present in all material respects the results of operations and financial condition of Customer; and (iii) to the best of my knowledge and belief, after reasonable investigation, each of the following statements is true and correct as of the date hereof: (a) no Event of Default, or event which with the giving of notice, passage of time, or both, would constitute and Event of Default, has occurred or is continuing, (b) no material adverse change in the financial condition of Customer has occurred or is continuing, and (c) the attached annexations, which are hereby incorporated herein by reference, are accurate, true and correct, and do not fail to state any material fact known (or should have been known) to Customer which would, but for the lapse of time, make any such statement or calculation false in any respect. Date: 2/4/04 -------- LAKELAND INDUSTRIES, INC. By: /s/Christopher J. Ryan s/James M. McCormick ----------------------------------------------------------------------------- Signature (1) Signature (2) Christopher J. Ryan James M. McCormick - -------------------------------------------------------------------------------- Printed Name Printed Name President & Secretary Treasurer - -------------------------------------------------------------------------------- Title Title INSTRUCTIONS: In accordance with the terms of the Loan Agreement (to which this original form of Borrowing Base Certificate is attached as Exhibit B-1), this Borrowing Certificate and the attached Annexations must be completed by you within 45 DAYS after the close of each fiscal quarter. MLBFS expects you to make copies of this original form of Borrowing Base Certificate and send them to MLBFS without notification or reminder. Additional copies will be provided to you upon request. BORROWING BASE CALCULATION ANNEX TO BORROWING BASE CERTIFICATE (Exhibit B-1 to Loan Agreement) As set forth in the Loan Agreement, the "Maximum WCMA Line of Credit" shall mean, as of any date of determination thereof, an amount $3,000,000.00 As of 10/31/03 (insert quarter-end date): --------- 1. 23,140,157 Total Collateral Borrowing Base available $_____________ [GRAPHIC OMITTED] COMPLIANCE CERTIFICATE ================================================================================ To: Merrill Lynch Business Financial Services Inc. ("MLBFS") 222 North LaSalle Street 17th Floor Chicago, IL 60601 The undersigned, on behalf of LAKELAND INDUSTRIES, INC. ("Customer"), hereby certifies to MLBFS that: (i) he/she is an officer authorized to execute and deliver this certificate on behalf of Customer, and is familiar with the business and financial condition of the Customer; (ii) the financial statements delivered with this Certificate fairly present in all material respects the results of operations and financial condition of Customer; and (iii) to the best of my knowledge and belief, after reasonable investigation, each of the following statements is true and correct as of the date hereof: (a) no Event of Default, or event which with the giving of notice, passage of time, or both, would constitute and Event of Default, has occurred or is continuing, (b) no material adverse change in the financial condition of Customer has occurred or is continuing, and (c) the attached annexations, which are hereby incorporated herein by reference, are accurate, true and correct, and do not fail to state any material fact known (or should have been known) to Customer which would, but for the lapse of time, make any such statement or calculation false in any respect. Date: February 4, 2004 ---------------- LAKELAND INDUSTRIES, INC. By: /s/Christopher J. Ryan ---------------------------- Signature (1) Christpoher J. Ryan - ------------------------------- Printed Name President and Secretary - ------------------------------- Title ================================================================================ INSTRUCTIONS: In accordance with the terms of the Loan Agreement (to which this original form of Compliance Certificate is attached as Exhibit B), this Compliance Certificate and the attached Annexations must be completed by you within 45 days after the close of each fiscal quarter. MLBFS expects you to make copies of this original form of Compliance Certificate and send them to MLBFS without notification or reminder. Additional copies will be provided to you upon request. ================================================================================ Private Client Group Merrill Lynch Business Financial Services Inc. 222 North LaSalle Street 17th Floor [GRAPHIC OMITTED] Chicago, Illinois 60601 312.499.3276 FAX: 312.269.1348 January 21, 2004 Mr. Christopher J. Ryan Lakeland Industries, Inc. 711-2 Koehler Avenue Ronkonkoma, NY 11779-7410 Re: WCMA Reducing Revolversm Loan Approval Dear Mr. Ryan, As I believe you know, we have approved the request of Lakeland Industries, Inc. ("Customer") for a WCMA Reducing Revolversm Loan ("Reducing Revolver") 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: Description: A Reducing Revolver is a term loan facility funded out of a line of credit in the amount of the initial loan provided in connection with a Merrill Lynch WCMA Account. The line of credit will be reduced each month by the amount that would be payable on account of principal if the Reducing Revolver were a conventional term loan amortized over the same term and in the same manner as the Reducing Revolver; and the borrower will be required to make sufficient deposits into the WCMA Account to assure that the line of credit, as reduced each month is not exceeded. Absent a prepayment by the borrower, this structure results in required monthly payments for the Reducing Revolver that are substantially the same as the required monthly payments for a conventional term loan with the same term and amortization. However, because the Reducing Revolver is funded out of a line of credit, any amounts prepaid may (subject to the terms and conditions set forth in the Loan Documents) be re-borrowed on a revolving basis so long as the line of credit, as reduced each month, is not thereby exceeded. The structure of the Reducing Revolver therefore enables the borrower at its option to use any free cash balances that it may have from time to time to reduce interest expense on the Reducing Revolver without impairing its working capital. Loan Purpose: The purpose of the Reducing Revolver is to finance working capital needs. Maximum Loan Amount: An amount equal to the lesser of: (i) 100% of the amount required by Customer to satisfy or fulfill the Loan Purpose, (ii) the aggregate amount which Customer shall request be advanced by MLBFS on account of the Loan Purpose on the Closing Date, or (iii) $3,000,000.00. Term: 36-months from the first day of the calendar month immediately following the date of funding. Amortization of the Reducing Revolver (i.e., monthly Line of Credit reductions) will be based upon a term of 36 months, with a balloon payment due at maturity. Interest Rate: Variable at a per annum rate equal to the sum of 2.50% and the "One-Month LIBOR" (as published in The Wall Street Journal), based upon actual days elapsed over a 360-day year. Interest will generally be charged to the line of credit each month and funded as an additional loan under the Reducing Revolver facility. Commitment Fee: $15,000.00. Please refer to the Loan Documents for a complete description and statement of the terms of the WCMA Reducing Revolver 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 February 16, 2004, after which time it shall be void. Note that as set forth above the Loan Documents require a Commitment Fee of $15,000.00. If this fee has not yet been paid, please furnish your check to cover this fee at the time you return the executed Loan Documents. Note further 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. Please note that in order to help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. Therefore, prior to opening an account, you have been or will be asked for identifying information, such as (and as applicable): name, address, date of incorporation, date of birth and other information that will allow MLBFS to identify you. MLBFS also may have asked or may ask to see documentation such as Articles of Incorporation, Partnership Agreements, driver's licenses and/or other identifying documents. FINALLY, NOTE THAT ACCRUED INTEREST UNDER A WCMA LINE OF CREDIT IS ORDINARILY PAID WITH A WCMA LOAN, WITH THE FIRST SUCH WCMA LOAN FOR ACCRUED INTEREST CHARGED ON THE FIRST BUSINESS DAY OF THE CALENDAR MONTH IN WHICH THE LOAN IS FUNDED. THEREFORE, TO AVOID EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT, PLEASE PLAN UPON MAKING A DEPOSIT INTO THE WCMA ACCOUNT, AT LEAST SUFFICIENT TO PAY SUCH INTEREST, PRIOR TO THE END OF SUCH MONTH. ADDITIONAL DEPOSITS WILL HAVE TO BE MADE EACH MONTH THEREAFTER AS BOTH INTEREST IS CHARGED AND THE WCMA LINE OF CREDIT IS REDUCED, AS PROVIDED IN THE LOAN DOCUMENTS. 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 me at 312-499-3276. Very truly yours, MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. By: /s/Lisa Hopkins ------------------ Lisa Hopkins Vice President cc: Wayne J Dedrick EX-10.9 6 exhibit10-9.txt EXHIBIT 10.9 THIS AGREEMENT BETWEEN River Group Holding Co., LLP, c/o Harvey Pride, Jr., 202 Pride Lane, SW, Decatur, Al 35603 As Landlord and LAKELAND INDUSTRIES, INC., A Delaware corporation with offices at 711-2 Koehler Avenue, Ronkonkoma, New York 11779 As Tenant WITNESSETH: The Landlord hereby leases to the Tenant the following premises: The Premises located at 3428 Valley Ave. (2011/2Pride Lane) Decatur, Al, consisting of approximately 49,00 square feet.- For the term of five (5) Years. to commence from the 1st day of April 2004 and to the end on the 31st day of March 2009 to be used and occupied only for office office, light manufacturing and warehouse space upon the conditions and covenants following: 1st That the Tenant shall pay the annual rent of One Hundred Ninety Nine Thousand One Hundred ($199,100) dollars. said rent to be paid in equal monthly payments in advance on the first day of each and every month during the term aforesaid, as follows: Sixteen Thousand Five Hundred and Ninety Two ($16,592.00) dollars on April 1, 2004 and monthly thereafter.- 2nd That the Tenant shall take Good care of the premises and shall, at the Tenant's own cost and expense make all repairs including, but not limited to, repairs of the plumbing, heating and electrical systems, and at the end or other expiration of the terms, shall deliver up the demised premises in good order or condition, damages by the elements excepted. 3rd That the Tenant shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and Local Governments and of any and all their Departments and Bureaus applicable to said premises during said term; and shall also promptly comply with and execute all rules, order and regulations of the New York Board of Fire Underwriters, or any other similar body, at the Tenant's own cast and expense. 4th That the Tenant, successors, heirs, executors or administrators shall not assign this agreement, or underlet or under lease the premises, or any part thereof, or make any alterations on the premises, without the Landlords consent in writing; or occupy, or permit or suffer the same to be occupied for any business or purpose deemed disreputable or extra-hazardous on account of fire, under the penalty of damages and forfeiture, and in the event of a breach thereof, the term herein shall immediately cease and determine at the option of the Landlord as if it were the expiration of the original term. 5th Tenant must give Landlord prompt notice of fire, accident, damage or dangerous or defective condition. If the Premises can not be used because of fire or other casualty, Tenant is not required to pay rent for the time the Premises are unusable. If part of the Premises can not be used, Tenant must pay rent for the usable part. Landlord shall have the right to decide which part of the Premises is usable. Landlord need only repair the damaged structural parts of the Premises. Landlord is not required to repair or replace any equipment, fixtures, furnishings, or decorations unless originally installed by Landlord. Landlord is not responsible for delays due to settling insurance claims, obtaining estimates, labor and supply problems or any other cause not fully under Landlord's control. If the fire or other casualty is caused by an act or neglect of Tenant, Tenant's employees or invitees, or at the time of the fire or casualty Tenant is in default in any term of this Lease, then all repairs will be made at Tenant's expense and Tenant must pay the full rent with no adjustments. The cost of the repairs will be added rent. Landlord has the right to demolish or rebuild the Building if there is substantial damage by fire or other casualty. Landlord may cancel this Lease within 30 days after the substantial fire or casualty by giving Tenant notice of Landlord's intention to demolish or rebuild. The Lease will end 30 days after Landlord's cancellation notice to Tenant. Tenant must deliver the Premises to Landlord on or before the cancellation date in the notice and pay all rent due to date of the fire or casualty. If the Lease is cancelled Landlord is not required to repair the Premises or Building. The cancellation does not release Tenant of liability in connection with the fire or casualty. This Section is intended to replace the terms of New York Real Property Law Section 227. 6th The said Tenant agrees that the said Landlord and the Landlord's agents and other representatives shall have the right to enter into and upon said premises, or any part thereof, at all reasonable hours for the purpose of examining the same, or making such repairs or alterations therein as may be necessary for the safety and preservation thereof. 7th The Tenant also agrees to permit the Landlord or the Landlord's agents to show the premises to persons wishing to hire or purchase the same; and the Tenant further agrees that on and after the sixth month, next preceding the expiration of the term hereby granted, the Landlord or the Landlord's agents shall have the right to place notices on the front of said premises, or any part thereof offering the premises "To Let" or "For Sale", and the Tenant hereby agrees to permit the same to remain thereon without hindrance or molestation. 8th That if the said premises, or any part thereof shall be deserted or become vacant during said term, or if any default be made in the payment of the said rent or any part thereof, or if any default be made in the performance of any of the covenants herein contained, the Landlord or representatives may re-enter the said premises by force, summary proceedings or otherwise, and remove all persons there from, without being liable to prosecution therefor, and the Tenant hereby expressly waives the service of any notice in writing of intention to re-enter, and the Tenant shall pay at the same time as the rent becomes payable under the terms hereof a sum equivalent to the rent reserved herein, and the Landlord may rent the premises on behalf of the Tenant, reserving the right to rent the premises for a longer period of time than fixed in the original lease without releasing the original Tenant from any liability, applying any moneys collected, first to the expense of resuming or obtaining possession, second to restoring the premises to a rentable condition, and then to the payment of the rent and all other charges due and to grow due to the Landlord, any surplus to be paid to the Tenant, who shall remain liable for any deficiency. 9th Landlord may replace at the expense of Tenant, any and all broken glass in and about the demised premises. Landlord may insure, and keep insured, all plate glass in the demised premises for and in the name of Landlord. Bills, for the premiums therefor shall be rendered by Landlord to Tenant at such times as Landlord may elect, and shall be due from, and payable by Tenant when rendered, and the amount thereof shall be deemed to be, and be paid as, additional rental. Damage and injury to the said premises, caused by the carelessness, negligence or improper conduct on the part of the said Tenant or the Tenant's agents or employees shall be repaired as speedily as possible by the Tenant at the Tenant's own cost and expense. 10th That the Tenant shall neither encumber nor obstruct the sidewalk in front of , entrance to, or halls and stairs of said premises, nor allow the same to be obstructed or encumbered in any manner. 11th The Tenant shall neither place, or cause or allow to be placed, any sign or signs of any kind whatsoever at, in or about the entrance to said premises or any other part of same, except in or at such place or places as may be indicated by the Landlord and consented to by the Landlord in writing. And in case the Landlord or the Landlord's representatives shall deem it necessary to remove any such sign or signs in order to paint the said premises or the building wherein same is situated or make any other repairs, alterations or improvements in or upon said premises or building or any part thereof, the Landlord shall have the right to do so, providing the same be removed and replaced at the Landlord's expense, whenever the said repairs alterations or improvements shall be completed. 12th That the Landlord is exempt from any and all liability for any damage or injury to person or property caused by or resulting from steam, electricity, gas, water, rain, ice or snow, or any leak or flow from or into any part of said building or from any damage or injury resulting or arising from any other cause or happening whatsoever unless said damage or injury be caused by or be due to the negligence of the Landlord. 13th That if default be made in any of the covenants herein contained, then it shall be lawful for the said Landlord to re-enter the said premises, and the same to have again, re-possess and enjoy. The said Tenant hereby expressly waives the service of any notice in writing of intention to re-enter. 14th That this instrument shall not be a lien against said premises in respect to any mortgages that are now on or that hereafter may be placed against said premises, and that the recording of such mortgage or mortgages shall have preference and precedence and be superior and prior in lien of this lease, irrespective of the date of recording and the Tenant agrees to execute without cost, any such instrument which may be deemed necessary or desirable to further effect the subordination of this lease to any such mortgage or mortgages, and a refusal to execute such instrument shall entitle the Landlord, or the Landlord's assigns and legal representatives to the option of cancelling this lease without incurring any expense or damage and the term hereby granted is expressly limited accordingly. 15th The Tenant has this day deposited with the Landlord the sum of $ as security for the full and faithful performance by the Tenant of all the terms, covenants and conditions of this lease upon the Tenant's part to be performed, which said sum shall be returned to the Tenant after the time fixed as the expiration of the term herein, provided the Tenant has fully and faithfully carried out all of said terms, covenants and conditions on Tenant's part to be performed. In the event of a bona fide sale, subject to this lease, the Landlord shall have the right to transfer the security to the vendee for the benefit of the Tenant and the Landlord shall be considered released by the Tenant from all liability for the return of such security; and the Tenant agrees to look to the new Landlord solely for the return of the said security, and it is agreed that this shall apply to every transfer or assignment made of the security to a new Landlord. 16th That the security deposited under this lease shall not be mortgaged, assigned or encumbered by the Tenant without the written consent of the Landlord. 17th It is expressly understood and agreed that in case the demised premises shall be deserted or vacated, or if default be made in the payment of the rent or any part thereof as herein specified, or if, without the consent of the Landlord, the Tenant shall sell, assign or mortgage this lease or if default be made in the performance of any of the covenants and agreements in this lease contained on the part of the Tenant to be kept and performed, or if the Tenant shall fail to comply with any of the statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and Local Governments or of any and all their Departments and Bureaus, applicable to said premises, or if the Tenant shall file or there be filed against Tenant a petition in bankruptcy or arrangement or Tenant be adjudicated a bankrupt or make an assignment for the benefit of creditors or take advantage of any insolvency act, the Landlord may, if the Landlord so elects, at any time thereafter terminate this lease and the term hereof, on giving to the Tenant five days notice in writing of the Landlord's intention so to do, and this lease and the term hereof shall expire and come to an end on the date fixed in such notice as if the said date were the date originally fixed in this lease for the expiration hereof. Such notice may be given by mail to the Tenant addressed to the demised premises. 18th Tenant shall pay to Landlord the rent or charge, which may, during the demised term, be assessed or imposed for the water used or consumed in or on the said premises, whether determined by meter or otherwise, as soon as and when the same may be assessed or imposed, and will also pay the expenses for the setting of a water meter in the said premises should the latter be required. Tenant shall pay Tenant's proportionate part of the sewer rent or charge imposed upon the building. All such rents or charges or expenses shall be paid as additional rent and shall be added to the next month's rent thereafter to become due. 19th That the Tenant will not nor will the Tenant permit under tenants or other persons to do anything in said premises, or bring anything into said premises, or permit anything to be brought into said premises or to be kept therein, which will in any way increase the rate of fire insurance on said demised premises, nor use the demised premises or any part thereof, nor suffer or permit their use for any business or purpose which would cause an increase in the rate of fire insurance on said building, and the Tenant agrees to pay on demand any such increase. 20th The failure of the Landlord to insist upon a strict performance of any of the terms, conditions and covenants herein, shall not be deemed a waiver of any rights or remedies that the Landlord may have, and shall not be deemed a waiver of any subsequent breach or default in the terms, conditions and covenants herein contained. This instrument may not be changed, modified, discharged or terminated orally. 21st If the whole or any part of the demised premises shall be acquired or condemned by Eminent Domain for any public or quasi public use or purpose, then and in that event, the term of this lease shall cease and terminate from the date of title vesting in such proceeding and Tenant shall have no claim against Landlord for the value of any unexpired term of said lease. No part of any award shall belong to the Tenant. 22nd If after default in payment of rent or violation of any other provision of this lease, or upon the expiration of this lease, the Tenant moves out or is dispossessed and fails to remove any trade fixtures or other property prior to such said default, removal, expiration of lease, or prior to the issuance of the final order or execution of the warrant, then and in that event, the said fixtures and property shall be deemed abandoned by the said Tenant and shall become the property of the Landlord. 23rd In the event that the relation of the Landlord and Tenant may cease or terminate by reason of the re-entry of the Landlord under the terms and covenants contained in this lease or by the ejectment of the Tenant by summary proceedings or otherwise, or after the abandonment of the premises by the Tenant, it is hereby agreed that the Tenant shall remain liable and shall pay in monthly payments the rent which accrues subsequent to the re-entry by the Landlord, and the Tenant expressly agrees to pay as damages for the breach of the covenants herein contained, the difference between the rent reserved and the rent collected and received, if any, by the Landlord during the remainder of the unexpired term, such difference or deficiency between the rent herein reserved ant the rent collected if any, shall become due and payable in monthly payments during the remainder of the unexpired term, as the amounts of such difference or deficiency shall from time to time be ascertained; and it is mutually agreed between Landlord and Tenant that the respective parties hereto shall and hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties against the other on any matters whatsoever arising out of or in any way connected with this lease, the Tenant's use or occupancy of said premises, and/or any claim of injury or damage. 24th The Tenant waives all rights to redeem under any law. 25th This lease and the obligation of Tenant to pay rent hereunder and perform all of the covenants and agreements hereunder on part of Tenant to be performed shall in nowise be affected, impaired or excused because Landlord is unable to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make or is delayed in making any repairs, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of governmental preemption in connection with a National Emergency or in connection with any rule, order or regulation of any department or subdivision thereof of any governmental agency or by reason of the condition of supply and demand which have been or are affected by war or other emergency. 26th No diminution or abatement of rent, or other compensation, shall be claimed or allowed for inconvenience or discomfort arising from the making of repairs or improvements to the building or to its appliances, nor for any space taken to comply with any law, ordinance or order of a governmental authority. In respect to the various "services," if any, herein expressly or impliedly agreed to be furnished by the Landlord to the Tenant, it is agreed that there shall be no diminution or abatement of the rent, or any other compensation, for interruption or curtailment of such "service" when such interruption or curtailment shall be due to accident, alterations or repairs desirable or necessary to be made or to inability or difficulty in securing supplies or labor for the maintenance of such "service" or to some other cause, not gross negligence on the part of the Landlord. No such interruption or curtailment or any such "service" shall be deemed a constructive eviction. The Landlord shall not be required to furnish, and the Tenant shall not be entitled to receive, any of such "services" during any period wherein the Tenant shall be in default in respect to the payment of rent. Neither shall there be any abatement of diminution of rent because of making of repairs, improvements or decorations to the demised premises after the date above fixed for the commencement of the term, it being understood that rent shall, in any event, commence to run at such date so above fixed. 27th Landlord shall not be liable for failure to give possession of the premises upon commencement date by reason of the fact that premises are not ready for occupancy or because a prior Tenant or any other person is wrongfully holding over or is in wrongful possession, or for any other reason. The rent shall not commence until possession is given or is available, but the term herein shall not be extended. ADDITIONAL PROVISIONS ON RIDER ATTACHED HERETO And the said Landlord doth covenant that the said Tenant on paying the said yearly rent, and performing the covenants aforesaid, shall and may peacefully and quietly have, hold and enjoy the said demised premises for the term aforesaid, provided however, that this covenant shall be conditioned upon the retention of title to the premises by the Landlord. And it is mutually understood and agreed that the covenants and agreements contained in the within lease shall be binding upon the parties hereto and upon their respective successors, heirs, executors and administrators. In Witness Whereof, the parties have interchangeably set their hands and seals (or caused these presents to be signed by their proper corporate officers and caused their proper corporate seal to be hereto affixed) this 1st day of April, 2004 Sighed, sealed and delivered In the presence of River Group Holding Co., LLP, As Landlord By: /s/Harvey Pride, Jr. -------------------- Harvey Pride, Jr. Lakeland Industries, Inc. By: /s/Christopher J. Ryan ---------------------- Christopher J. Ryan ACKNOWLEDGMENT IN NEW YORK STATE State of New York, Count of On before me, the undersigned, Personally appeared Personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their signature(s) on the instruments, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument. -------------------------------------------------------- Signature and office of individual taking acknowledgment ACKNOWLEDGMENT OUTSIDE NEW YORK STATE State of County of On before me, the undersigned Personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instruments, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument, and that such individual made such appearance before the undersigned --------------------------------------------------------- Signature and office of individual taking acknowledgment ACKNOWLEDGMENT BY SUBSCRIBING WITNESS(ES) State of County of On Before me, the undersigned Personally appeared the subscribing witness(es) to the foregoing instrument, with whom I am personally acquainted, who, being by me duly sworn, did depose and say that he/she/they reside(s) in (if the place of residence is in a city, include the street and street number, if any thereof) that he/she/they know(s) to be the individual(s) described in and who executed the foregoing instruments; that said subscribing witness(es) was (were) present and saw said execute the same; and that said witness(es) at the same time subscribed his/her/their name(s) as a witness(es) thereto. (_?if taken outside New York State insert city or political subdivision and state or country or other place acknowledgment taken and that said subscribing witness(es) made such appearance before the undersigned in - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ------------------------------------------------------------------------------- (signature and office of individual taking acknowledgement - ---------------------------------------------------------- LEASE Dated April 1, 2004 -------------- In consideration of the letting of the premises within mentioned to the within named Tenant and the sum of $1.00 paid to the undersigned by the within named Landlord, the undersigned do hereby covenant and agree, to and with the Landlord and the Landlords legal representatives, that it default shall at any time be made by the said Tenant in the payment of the rent and the performance of the covenants contained in the within lease, on the Tenant's part to be paid an performed, that the undersigned will well and truly pay the said rent, or any arrears thereof, that may remain due unto the said Landlord, and also pay all damages that may arise in consequence of the non-performance of said covenants, or either of them, without requiring notice of any such default from the said Landlord. The undersigned hereby waives all right to trial by jury in any action or proceeding hereinafter by the Landlord, to which the undersigned may be a party. In Witness Whereof, the undersigned ha set hand and seal this day of WITNESS L.S ------------------------- RIDER TO LEASE -------------- DATED: APRIL 1ST, 2004 Between as Landlord River Group Holding Co. LLP and as Tenant LAKELAND INDUSTRIES, INC., as Tenant 28th Wherever there is a conflict between the printed and typewritten portions of this leases, the typewritten portions shall govern. 29th Tenant, at its own expense, shall maintain plate glass and comprehensive general public liability insurance protecting Landlord and Tenant and naming Landlord as an additional insured with respect to personal injury or property damage due to negligence occurring in or about the leased premises with minimum limits of $300,000.00 for personal injury to any one person, and$500,000.00 for personal injury to any number of persons arising out of one accident, and $100.000.00 for property damage. Said insurance shall be taken out with a company licensed to do business in the State of New York and the State of Alabama and proof of such insurance shall be delivered to the Landlord upon the commencement of this lease. Annual proof of payment shall thereafter be submitted to the Landlord. The original policy, upon Landlord's request, shall be exhibited to the Landlord by the Tenant within thirty (30) days after commencement of the term of this agreement. Upon failure of the Tenant to so deposit said policy, the Landlord shall have the privilege to procure said insurance on his own application therefore, and the amount of the premium, if paid by the Landlord, shall be due and payable with the rent reserved hereunder, collectible with the same remedies as if originally reserved as rent hereunder. 30th Notwithstanding anything else contained in this lease, it is understood and agreed that the Tenant shall provide his own heat and pay his own electricity bills. All of the utilities shall be supplied by the Tenant at his own cost and expense. 31st Notwithstanding anything else contained in this lease, upon the expiration of same for any reason whatsoever, Tenant covenants and agrees that the premises will be redelivered to the Landlord broom clean. 32nd The Tenant shall make no physical improvements, changes, modifications, alterations or additions to the leased premises without the written consent of the Landlord. All alterations, repairs, improvements, extensions or additions which may be made to the demised premises by the Tenant shall immediately become the property of the Landlord and become a part of the demised premises hereunder, excepting, however, removable trade fixtures. It is, however, agreed that when trade fixtures are removed, the demised premises are to be placed, at the Tenant's expense, in their original condition. 33rd The Tenant shall pay as additional rent during the term hereof without any set off or deduction whatsoever, all taxes on the entire building of which the leased premises are a part including, but not limited to, ad valorem taxes, real estate taxes and water charges. Such payment shall be made within thirty (30) days of the demand therefore by the Landlord and receipted tax bills shall be sufficient evidence of the amount of such taxes. 34th Tenant shall pay as additional rent during the term hereof without any set off or deduction whatsoever, all fire insurance premiums on the entire building of which the leased premises are a part within thirty (30) days of the date or receipt by Tenant from Landlord of a bill therefore. 35th Tenant shall have the right to sublet all or any portion of the demised premises provided the following conditions are complied with: (a) At the time of such subletting, this lease must be in full force and effect without any breach or default thereunder on the part of the tenant. (b) A copy of the sublease shall be mailed to Landlord within ten (10) days from the effective date of such subletting. (c) Such subletting shall be upon and subject to all the provisions, terms, covenants and conditions of this lease and Tenant shall continue to be and remain liable hereunder. (d) Notwithstanding the foregoing, if the Tenant proposes to sublet all or substantially all of the demised premises. Tenant shall so notify the Landlord and Landlord shall have the option to cancel and terminate this lease as of the date proposed by Tenant for such subletting, which options shall be exercisable within fifteen (15) days after receipt of such notice by Landlord of the proposed subletting. (e) Tenant shall not assign this lease without the consent of Landlord first had received, which consent Landlord agrees not to unreasonably withhold or delay: provided however, that Tenant shall have the right, without the consent of Landlord to assign this lease to (i) a subsidiary or affiliated corporation, either of which may have a normal capital; (ii) any corporation resulting from a reorganization of Tenant or its parent company with any one or more corporations; (iii) any corporation resulting from the consolidated of Tenant with or into any one or more corporations. 36th Throughout the term of this lease, Tenant shall indemnify Landlord and save it harmless against and from any and all liability, losses, damages, costs, expenses and claims by or on behalf of any person, firm, corporation, governmental authority or other entity incurred by Landlord with respect to the leased premises, including, without limitation, burdens resulting from any and all acts of commission or omission on the part of Tenant or of anyone holding by, through or under Tenant, and any and all of its agents, servants, employees, invitees and contractors, and against and from any injury or damage to any person, or to any property of any person, except as a result of Landlord's own acts of commission or omission. 37th Tenant shall be responsible for, and hereby relieves and shall save Landlord harmless of and from any and all liability by reason of any injury or damage to any person or property in the leased premises, whether such property belongs to Tenant or to any persons, firms, corporations or other entity caused by any fire, installation, or from water, rain or snow that may leak into, issue or flow from any part of said leased premises, or from the drains, pipes or plumbing work of the said leased premises, or from any place or quarter and from the use, misuse or abuse of any hoists, conveyors, hatches, openings, platforms, stairways, machinery or equipment of any kind whatever which may exist at the time of the date of this lease or thereafter be installed in or on the leased premises, and from any and all kinds of injury and damage which may arise in or upon the leased premises from any other cause, unless such damage, injury, use, misuse or abuse shall have been caused by or result from the negligence of Landlord, its agents, servants or employees during the continuance of this lease by acts of commission or omission. 38th It is hereby understood and agreed that in the event the Tenant leaves any property on the leased premises subsequent to the expiration of the within lease that said property is hereby deemed abandoned and the Landlord may dispose of said property at its option without any liability on the part of the Landlord. It is further understood and agreed that the Tenant waives any and all rights, title and interest to said property, releases and waives any and all claims thereto, and further agrees that the Tenant will be responsible to the Landlord for any and all expenses incurred by the Landlord concerning said property. 39th Whenever under the terms of the lease any sum of money is required to be paid by Tenant in addition to the rental herein reserved, and said additional amount so to be paid is not designated as "additional," or provision is not made in the paragraph covering such payment for the collection of said amount as "additional rental," then said amount shall nevertheless, at the option of Landlord if not paid when due, be deemed "additional rental" and collectible as such with any installment of rental thereafter falling due here under, but nothing herein contained shall be deemed to suspend or delay the payment of any sum at the time the same becomes due and payable hereunder or limit any other remedy of Landlord. 40th This lease contains the entire agreement between Landlord and Tenant and shall not be modified in any manner except by an instrument in writing signed by Landlord and Tenant. Landlord River Group Holding Co., LLP By: /s/Harvey Pride, Jr. -------------------- Harvey Pride, Jr. Tenant ------ LAKELAND INDUSTRIES, INC. ------------------------- By: /s/Christopher J. Ryan ----------------------- Christopher J. Ryan EX-10.10 7 exhibit10-10.txt THIS AGREEMENT BETWEEN EXHIBIT 10.10 Harvey Pride Jr. As Landlord and LAKELAND INDUSTRIES, INC., A Delaware corporation with offices at 711-2 Koehler Avenue, Ronkonkoma, New York 11779 As Tenant WITNESSETH: The Landlord hereby leases to the Tenant the following premises: the premises located at 201 Pride Lane, SW, Decatur, Alabama consisting of approximately 2400 square feet of office space. for the term of One (1) year, renewable by Tenant for four (4) one year terms to commence from the 1st. day of March 2004 and to end on the 31st. day of March of 2009 to be used and occupied only for office upon the conditions and covenants following: 1st That the Tenant shall pay the annual rent of Eighteen Thousand and no/00 dollars. ($18.000.00).- said rent to be paid in equal monthly payments in advance on the First day of each and every month during the term aforesaid, as follows: Fifteen Hundred and no/00 ($1,500.00) dollars on March 1, 2004 and monthly thereafter. 2nd That the Tenant shall take good care of the premises and shall, at the Tenant's own cost and expense make all repairs and at the end or other expiration of the term, shall deliver up the demised premises in good order or condition, damages by the elements excepted. 3rd That the Tenant shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and Local Governments and of any and all their Departments and Bureaus applicable to said premises, for the correction, prevention, and abatement of nuisances or other grievances, in, upon, or connected with said premises during said term; and shall also promptly comply with and execute all rules, orders and regulations of the New York Board of Fire Underwriters, or any other similar body, at the Tenant's own cast and expense. 4th That the Tenant, successors, heirs, executors or administrators shall not assign this agreement, or underlet or under lease the premises, or any part thereof, or make any alterations on the premises, without the Landlord's consent in writing; or occupy, or permit or suffer the same to be occupied for any business or purpose deemed disreputable or extra-hazardous on account of fire, under the penalty of damages and forfeiture, and in the event of a breach thereof, the term herein shall immediately cease and determine at the option of the Landlord as if it were the expiration of the original term. 5th Tenant must give Landlord prompt notice of fire, accident, damage or dangerous or defective condition. If the Premises can not be used because of fire or other casualty, Tenant is not required to pay rent for the time the Premises are unusable. If part of the Premises can not be used, Tenant must pay rent for the usable part. Landlord shall have the right to decide which part of the Premises is usable. Landlord need only repair the damaged structural parts of the Premises. Landlord is not required to repair or replace any equipment, fixtures, furnishings, or decorations unless originally installed by Landlord. Landlord is not responsible for delays due to settling insurance claims, obtaining estimates, labor and supply problems or any other cause not fully under Landlord's control. If the fire or other casualty is caused by an act or neglect of Tenant, Tenant's employees or invitees, or at the time of the fire or casualty Tenant is in default in any term of this Lease, then all repairs will be made at Tenant's expense and Tenant must pay the full rent with no adjustments. The cost of the repairs will be added rent. Landlord has the right to demolish or rebuild the Building if there is substantial damage by fire or other casualty. Landlord may cancel this Lease within 30 days after the substantial fire or casualty by giving Tenant notice of Landlord's intention to demolish or rebuild. The Lease will end 30 days after Landlord's cancellation notice to Tenant. Tenant must deliver the Premises to Landlord on or before the cancellation date in the notice and pay all rent due to date of the fire or casualty. If the Lease is cancelled Landlord is not required to repair the Premises or Building. The cancellation does not release Tenant of liability in connection with the fire or casualty. This Section is intended to replace the terms of New York Real Property Law Section 227. 6th The said Tenant agrees that the said Landlord and the Landlord's agents and other representatives shall have the right to enter into and upon said premises, or any part thereof, at all reasonable hours for the purpose of examining the same, or making such repairs or alterations therein as may be necessary for the safety and preservation thereof. 7th The Tenant also agrees to permit the Landlord or the Landlord's agents to show the premises to persons wishing to hire or purchase the same; and the Tenant further agrees that on and after the sixth month, next preceding the expiration of the term hereby granted, the Landlord or the Landlord's agents shall have the right to place notices on the front of said premises, or any part thereof, offering the premises "To Let" or "For Sale", and the Tenant hereby agrees to permit the same to remain thereon without hindrance or molestation. 8th That if the said premises, or any part thereof shall be deserted or become vacant during said term, or if any default be made in the payment of the said rent or any part thereof, or if any default be made in the performance of any of the covenants herein contained, the Landlord or representatives may re-enter the said premises by force, summary proceedings or otherwise, and remove all persons there from, without being liable to prosecution therefor, and the Tenant hereby expressly waives the service of any notice in writing of intention to re-enter, and the Tenant shall pay at the same time as the rent becomes payable under the terms hereof a sum equivalent to the rent reserved herein, and the Landlord may rent the premises on behalf of the Tenant, reserving the right to rent the premises for a longer period of time than fixed in the original lease without releasing the original Tenant from any liability, applying any moneys collected, first to the expense of resuming or obtaining possession, second to restoring the premises to a rentable condition, and then to the payment of the rent and all other charges due and to grow due to the Landlord, any surplus to be paid to the Tenant, who shall remain liable for any deficiency. 9th Landlord may replace at the expense of Tenant, any and all broken glass in and about the demised premises. Landlord may insure, and keep insured, all plate glass in the demised premises for and in the name of Landlord. Bills, for the premiums therefor shall be rendered by Landlord to Tenant at such times as Landlord may elect, and shall be due from, and payable by Tenant when rendered, and the amount thereof shall be deemed to be, and be paid as, additional rental. Damage and injury to the said premises, caused by the carelessness, negligence or improper conduct on the part of the said Tenant or the Tenant's agents or employees shall be repaired as speedily as possible by the Tenant at the Tenant's own cost and expense. 10th That the Tenant shall neither encumber nor obstruct the sidewalk in front of , entrance to, or halls and stairs of said premises, nor allow the same to be obstructed or encumbered in any manner. 11th The Tenant shall neither place, or cause or allow to be placed, any sign or signs of any kind whatsoever at, in or about the entrance to said premises or any other part of same, except in or at such place or places as may be indicated by the Landlord and consented to by the Landlord in writing. And in case the Landlord or the Landlord's representatives shall deem it necessary to remove any such sign or signs in order to paint the said premises or the building wherein same is situated or make any other repairs, alterations or improvements in or upon said premises or building or any part thereof, the Landlord shall have the right to do so, providing the same be removed and replaced at the Landlord's expense, whenever the said repairs alterations or improvements shall be completed. 12th That the Landlord is exempt from any and all liability for any damage or injury to person or property caused by or resulting from steam, electricity, gas, water, rain, ice or snow, or any leak or flow from or into any part of said building or from any damage or injury resulting or arising from any other cause or happening whatsoever unless said damage or injury be caused by or be due to the negligence of the Landlord. 13th That if default be made in any of the covenants herein contained, then it shall be lawful for the said Landlord to re-enter the said premises, and the same to have again, re-possess and enjoy. The said Tenant hereby expressly waives the service of any notice in writing of intention to re-enter. 14th That this instrument shall not be a lien against said premises in respect to any mortgages that are now on or that hereafter may be placed against said premises, and that the recording of such mortgage or mortgages shall have preference and precedence and be superior and prior in lien of this lease, irrespective of the date of recording and the Tenant agrees to execute without cost, any such instrument which may be deemed necessary or desirable to further effect the subordination of this lease to any such mortgage or mortgages, and a refusal to execute such instrument shall entitle the Landlord, or the Landlord's assigns and legal representatives to the option of cancelling this lease without incurring any expense or damage and the term hereby granted is expressly limited accordingly. 15th The Tenant has this day deposited with the Landlord the sum of $ as security for the full and faithful performance by the Tenant of all the terms, covenants and conditions of this lease upon the Tenant's part to be performed, which said sum shall be returned to the Tenant after the time fixed as the expiration of the term herein, provided the Tenant has fully and faithfully carried out all of said terms, covenants and conditions on Tenant's part to be performed. In the event of a bona fide sale, subject to this lease, the Landlord shall have the right to transfer the security to the vendee for the benefit of the Tenant and the Landlord shall be considered released by the Tenant from all liability for the return of such security; and the Tenant agrees to look to the new Landlord solely for the return of the said security, and it is agreed that this shall apply to every transfer or assignment made of the security to a new Landlord. 16th That the security deposited under this lease shall not be mortgaged, assigned or encumbered by the Tenant without the written consent of the Landlord. 17th It is expressly understood and agreed that in case the demised premises shall be deserted or vacated, or if default be made in the payment of the rent or any part thereof as herein specified, or if, without the consent of the Landlord, the Tenant shall sell, assign or mortgage this lease or if default be made in the performance of any of the covenants and agreements in this lease contained on the part of the Tenant to be kept and performed, or if the Tenant shall fail to comply with any of the statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and Local Governments or of any and all their Departments and Bureaus, applicable to said premises, or if the Tenant shall file or there be filed against Tenant a petition in bankruptcy or arrangement or Tenant be adjudicated a bankrupt or make an assignment for the benefit of creditors or take advantage of any insolvency act, the Landlord may, if the Landlord so elects, at any time thereafter terminate this lease and the term hereof, on giving to the Tenant five days notice in writing of the Landlord's intention so to do, and this lease and the term hereof shall expire and come to an end on the date fixed in such notice as if the said date were the date originally fixed in this lease for the expiration hereof. Such notice may be given by mail to the Tenant addressed to the demised premises. 18th Tenant shall pay to Landlord the rent or charge, which may, during the demised term, be assessed or imposed for the water used or consumed in or on the said premises, whether determined by meter or otherwise, as soon as and when the same may be assessed or imposed, and will also pay the expenses for the setting of a water meter in the said premises should the latter be required. Tenant shall pay Tenant's proportionate part of the sewer rent or charge imposed upon the building. All such rents or charges or expenses shall be paid as additional rent and shall be added to the next month's rent thereafter to become due. 19th That the Tenant will not nor will the Tenant permit under tenants or other persons to do anything in said premises, or bring anything into said premises, or permit anything to be brought into said premises or to be kept therein, which will in any way increase the rate of fire insurance on said demised premises, nor use the demised premises or any part thereof, nor suffer or permit their use for any business or purpose which would cause an increase in the rate of fire insurance on said building, and the Tenant agrees to pay on demand any such increase. 20th The failure of the Landlord to insist upon a strict performance of any of the terms, conditions and covenants herein, shall not be deemed a waiver of any rights or remedies that the Landlord may have, and shall not be deemed a waiver of any subsequent breach or default in the terms, conditions and covenants herein contained. This instrument may not be changed, modified, discharged or terminated orally. 21st If the whole or any part of the demised premises shall be acquired or condemned by Eminent Domain for any public or quasi public use or purpose, then and in that event, the term of this lease shall cease and terminate from the date of title vesting in such proceeding and Tenant shall have no claim against Landlord for the value of any unexpired term of said lease. No part of any award shall belong to the Tenant. 22nd If after default in payment of rent or violation of any other provision of this lease, or upon the expiration of this lease, the Tenant moves out or is dispossessed and fails to remove any trade fixtures or other property prior to such said default, removal, expiration of lease, or prior to the issuance of the final order or execution of the warrant, then and in that event, the said fixtures and property shall be deemed abandoned by the said Tenant and shall become the property of the Landlord. 23rd In the event that the relation of the Landlord and Tenant may cease or terminate by reason of the re-entry of the Landlord under the terms and covenants contained in this lease or by the ejectment of the Tenant by summary proceedings or otherwise, or after the abandonment of the premises by the Tenant, it is hereby agreed that the Tenant shall remain liable and shall pay in monthly payments the rent which accrues subsequent to the re-entry by the Landlord, and the Tenant expressly agrees to pay as damages for the breach of the covenants herein contained, the difference between the rent reserved and the rent collected and received, if any, by the Landlord during the remainder of the unexpired term, such difference or deficiency between the rent herein reserved ant the rent collected if any, shall become due and payable in monthly payments during the remainder of the unexpired term, as the amounts of such difference or deficiency shall from time to time be ascertained; and it is mutually agreed between Landlord and Tenant that the respective parties hereto shall and hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties against the other on any matters whatsoever arising out of or in any way connected with this lease, the Tenant's use or occupancy of said premises, and/or any claim of injury or damage. 24th The Tenant waives all rights to redeem under any law. 25th This lease and the obligation of Tenant to pay rent hereunder and perform all of the covenants and agreements hereunder on part of Tenant to be performed shall in nowise be affected, impaired or excused because Landlord is unable to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make or is delayed in making any repairs, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of governmental preemption in connection with a National Emergency or in connection with any rule, order or regulation of any department or subdivision thereof of any governmental agency or by reason of the condition of supply and demand which have been or are affected by war or other emergency. 26th No diminution or abatement of rent, or other compensation, shall be claimed or allowed for inconvenience or discomfort arising from the making of repairs or improvements to the building or to its appliances, nor for any space taken to comply with any law, ordinance or order of a governmental authority. In respect to the various "services," if any, herein expressly or impliedly agreed to be furnished by the Landlord to the Tenant, it is agreed that there shall be no diminution or abatement of the rent, or any other compensation, for interruption or curtailment of such "service" when such interruption or curtailment shall be due to accident, alterations or repairs desirable or necessary to be made or to inability or difficulty in securing supplies or labor for the maintenance of such "service" or to some other cause, not gross negligence on the part of the Landlord. No such interruption or curtailment or any such "service" shall be deemed a constructive eviction. The Landlord shall not be required to furnish, and the Tenant shall not be entitled to receive, any of such "services" during any period wherein the Tenant shall be in default in respect to the payment of rent. Neither shall there be any abatement of diminution of rent because of making of repairs, improvements or decorations to the demised premises after the date above fixed for the commencement of the term, it being understood that rent shall, in any event, commence to run at such date so above fixed. 27th Landlord shall not be liable for failure to give possession of the premises upon commencement date by reason of the fact that premises are not ready for occupancy or because a prior Tenant or any other person is wrongfully holding over or is in wrongful possession, or for any other reason. The rent shall not commence until possession is given or is available, but the term herein shall not be extended. Additional provisions on Rider Attached hereto.- And the said Landlord doth covenant that the said Tenant on paying the said yearly rent, and performing the covenants aforesaid, shall and may peacefully and quietly have, hold and enjoy the said demised premises for the term aforesaid, provided however, that this covenant shall be conditioned upon the retention of title to the premises by the Landlord. And it is mutually understood and agreed that the covenants and agreements contained in the within lease shall be binding upon the parties hereto and upon their respective successors, heirs, executors and administrators. In Witness Whereof, the parties have interchangeably set their hands and seals (or caused these presents to be signed by their proper corporate officers and caused their proper corporate seal to be hereto affixed) this 1st day of March 2004 Sighed, sealed and delivered in the presence of Harvey Pride,Jr. as Landlord By: /s/ Harvey Pride, Jr. L.S. --------------------- Harvey Pride, Jr. Lakeland Industries, Inc. By: /s/ Christopher J. Ryan L.S. ----------------------- Christopher J. Ryan President ACKNOWLEDGMENT IN NEW YORK STATE State of New York, Count of Suffolk On March 8, 2004 before me, the undersigned, Personally appeared Christopher J. Ryan Personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their signature(s) on the instruments, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument. Diane A. Macaluso -------------------------------------------------------- Signature and office of individual taking acknowledgment ACKNOWLEDGMENT OUTSIDE NEW YORK STATE State of New York County of Suffolk On March 8, 2004 before me, the undersigned Personally appeared Personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instruments, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument, and that such individual made such appearance before the undersigned in --------------------------------------------------------- Signature and office of individual taking acknowledgment ACKNOWLEDGMENT BY SUBSCRIBING WITNESS(ES) State of Alabama ) ) ss.: County of Madison ) On 2/20/04 Before me, the undersigned personally appeared the subscribing witness(es) to the foregoing instrument, with whom I am personally acquainted, who, being by me duly sworn, did depose and say that he/she/they reside(s) in (if the place of residence is in a city, include the street and street number, if any thereof) that he/she/they know(s) Harvey Pride, Jr. to be the individual(s) described in and who executed the foregoing instruments; that said subscribing witness(es) was (were) present and saw said execute the same; and that said witness(es) at the same time subscribed his/her/their name(s) as a witness(es) thereto. (_? if taken outside New York State insert city or political subdivision and state or country or other place acknowledgment taken and that said subscribing witness(es) made such appearance before the undersigned in /s/ Greg Willis - -------------------------------------------------------------------------------- /s/ Carl Brown - -------------------------------------------------------------------------------- /s/ Brenda Day - -------------- (signature and office of individual taking acknowledgement - ---------------------------------------------------------- LEASE Dated March 1,2004 ------------- In consideration of the letting of the premises within mentioned to the within named Tenant and the sum of $1.00 paid to the undersigned by the within named Landlord, the undersigned do hereby covenant and agree, to and with the Landlord and the Landlords legal representatives, that it default shall at any time be made by the said Tenant in the payment of the rent and the performance of the covenants contained in the within lease, on the Tenant's part to be paid an performed, that the undersigned will well and truly pay the said rent, or any arrears thereof, that may remain due unto the said Landlord, and also pay all damages that may arise in consequence of the non-performance of said covenants, or either of them, without requiring notice of any such default from the said Landlord. The undersigned hereby waives all right to trial by jury in any action or proceeding hereinafter by the Landlord, to which the undersigned may be a party. In Witness Whereof, the undersigned ha set hand and seal this day of WITNESS L.S ---------------------------- RIDER TO LEASE -------------- DATED: Between as Landlord and as Tenant 28th Wherever there is a conflict between the printed and typewritten portions of this leases, the typewritten portions shall govern. 29th Tenant, at its own expense, shall maintain plate glass and comprehensive general public liability insurance protecting Landlord and Tenant and naming Landlord as an additional insured with respect to personal injury or property damage due to negligence occurring in or about the leased premises with minimum limits of $300,000.00 for personal injury to any one person, and$500,000.00 for personal injury to any number of persons arising out of one accident, and $100.000.00 for property damage. Said insurance shall be taken out with a company licensed to do business in the State of New York and the State of Alabama and proof of such insurance shall be delivered to the Landlord upon the commencement of this lease. Annual proof of payment shall thereafter be submitted to the Landlord. The original policy, upon Landlord's request, shall be exhibited to the Landlord by the Tenant within thirty (30) days after commencement of the term of this agreement. Upon failure of the Tenant to so deposit said policy, the Landlord shall have the privilege to procure said insurance on his own application therefore, and the amount of the premium, if paid by the Landlord, shall be due and payable with the rent reserved hereunder, collectible with the same remedies as if originally reserved as rent hereunder. 30th Notwithstanding anything else contained in this lease, it is understood and agreed that the Tenant shall provide his own heat and pay his own electricity bills. All of the utilities shall be supplied by the Tenant at his own cost and expense. 31st Notwithstanding anything else contained in this lease, upon the expiration of same for any reason whatsoever, Tenant covenants and agrees that the premises will be redelivered to the Landlord broom clean. 32nd The Tenant shall make no physical improvements, changes, modifications, alterations or additions to the leased premises without the written consent of the Landlord. All alterations, repairs, improvements, extensions or additions which may be made to the demised premises by the Tenant shall immediately become the property of the Landlord and become a part of the demised premises hereunder, excepting, however, removable trade fixtures. It is, however, agreed that when trade fixtures are removed, the demised premises are to be placed, at the Tenant's expense, in their original condition. 33rd The Tenant shall pay as additional rent during the term hereof without any set off or deduction whatsoever, all taxes on the entire building of which the leased premises are a part including, but not limited to, ad valorem taxes, real estate taxes and water charges. Such payment shall be made within thirty (30) days of the demand therefore by the Landlord and receipted tax bills shall be sufficient evidence of the amount of such taxes. 34th Tenant shall pay as additional rent during the term hereof without any set off or deduction whatsoever, all fire insurance premiums on the entire building of which the leased premises are a part within thirty (30) days of the date or receipt by Tenant from Landlord of a bill therefore. 35th Tenant shall have the right to sublet all or any portion of the demised premises provided the following conditions are complied with: (a) At the time of such subletting, this lease must be in full force and effect without any breach or default thereunder on the part of the tenant. (b) A copy of the sublease shall be mailed to Landlord within ten (10) days from the effective date of such subletting. (c) Such subletting shall be upon and subject to all the provisions, terms, covenants and conditions of this lease and Tenant shall continue to be and remain liable hereunder. (d) Notwithstanding the foregoing, if the Tenant proposes to sublet all or substantially all of the demised premises. Tenant shall so notify the Landlord and Landlord shall have the option to cancel and terminate this lease as of the date proposed by Tenant for such subletting, which options shall be exercisable within fifteen (15) days after receipt of such notice by Landlord of the proposed subletting. (e) Tenant shall not assign this lease without the consent of Landlord first had received, which consent Landlord agrees not to unreasonably withhold or delay: provided however, that Tenant shall have the right, without the consent of Landlord to assign this lease to (i) a subsidiary or affiliated corporation, either of which may have a normal capital; (ii) any corporation resulting from a reorganization of Tenant or its parent company with any one or more corporations; (iii) any corporation resulting from the consolidated of Tenant with or into any one or more corporations. 36th Throughout the term of this lease, Tenant shall indemnify Landlord and save it harmless against and from any and all liability, losses, damages, costs, expenses and claims by or on behalf of any person, firm, corporation, governmental authority or other entity incurred by Landlord with respect to the leased premises, including, without limitation, burdens resulting from any and all acts of commission or omission on the part of Tenant or of anyone holding by, through or under Tenant, and any and all of its agents, servants, employees, invitees and contractors, and against and from any injury or damage to any person, or to any property of any person, except as a result of Landlord's own acts of commission or omission. 37th Tenant shall be responsible for, and hereby relieves and shall save Landlord harmless of and from any and all liability by reason of any injury or damage to any person or property in the leased premises, whether such property belongs to Tenant or to any persons, firms, corporations or other entity caused by any fire, installation, or from water, rain or snow that may leak into, issue or flow from any part of said leased premises, or from the drains, pipes or plumbing work of the said leased premises, or from any place or quarter and from the use, misuse or abuse of any hoists, conveyors, hatches, openings, platforms, stairways, machinery or equipment of any kind whatever which may exist at the time of the date of this lease or thereafter be installed in or on the leased premises, and from any and all kinds of injury and damage which may arise in or upon the leased premises from any other cause, unless such damage, injury, use, misuse or abuse shall have been caused by or result from the negligence of Landlord, its agents, servants or employees during the continuance of this lease by acts of commission or omission. 38th It is hereby understood and agreed that in the event the Tenant leaves any property on the leased premises subsequent to the expiration of the within lease that said property is hereby deemed abandoned and the Landlord may dispose of said property at its option without ay liability on the part of the Landlord. It is further understood and agreed that the Tenant waives any and all rights, title and interest to said property, releases and waives any and all claims thereto, and further agrees that the Tenant will be responsible to the Landlord for any and all expenses incurred by the Landlord concerning said property. 39th Whenever under the terms of the lease any sum of money is required to be paid by Tenant in addition to the rental herein reserved, and said additional amount so to be paid is not designated as "additional," or provision is not made in the paragraph covering such payment for the collection of said amount as "additional rental," then said amount shall nevertheless, at the option of Landlord if not paid when due, be deemed "additional rental" and collectible as such with any installment of rental thereafter falling due here under, but nothing herein contained shall be deemed to suspend or delay the payment of any sum at the time the same becomes due and payable hereunder or limit any other remedy of Landlord. 40th This lease contains the entire agreement between Landlord and Tenant and shall not be modified in any manner except by an instrument in writing signed by Landlord and Tenant. Landlord By /s/Harvey Pride, Jr. --------------------- Tenant ------ By /s/Christopher J. Ryan ---------------------- EX-14.1 8 exhibit14-1.txt EXHIBIT 14.1 LAKELAND INDUSTRIES, INC. CODE OF ETHICS FOR DIRECTORS, OFFICERS AND EMPLOYEES. 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 a Lakeland 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 of Lakeland to: 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. Offer employees a safe, healthy, and clean work environment. Offer work that challenges the employees and gives them a feeling of satisfaction. Pay employees fairly in relation to their contributions to the company's efforts, within the boundaries of current standards. 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 of Lakeland technology and know-how. Lakeland and the Law It is the policy of Lakeland 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 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 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. Enforcement and Protection for Reporting Persons Any director, officer or employee can report, anonymously, if they want, violations of the above Code of Ethics directly to Michael Cirenza an independent director and member to our Audit Committee. Mr. Cirenza will then inform the other independent directors Messrs. Hallman, Collins, and Raleigh and they will determine whether a violation has occurred, according to the standards outlined above, hold a formal meeting, if required, to question the officer, employee or director reported, and if necessary recommend a disciplinary remedy, termination, or notify the appropriate legal authorities. The reporting contact is Michael Cirenza, CFO County-Life, 180 Vanderbilt Motor Parkway, Hauppauge, NY 11788, Tel. # 631-232-5482; E-mail: Michael@country-life.com. EX-23.1 9 ex23-1.txt EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated April 15, 2002, 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, 2004. 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 29, 2004 EX-23.2 10 ex23-2.txt Consent of Independent Auditors We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-92564) of Lakeland Industries, Inc. of our report dated April 2, 2004 relating to the financial statements and financial statement schedule as of January 31, 2004 and 2003 and for each of the years then ended, which appears in this Form 10-K. PricewaterhouseCoopers LLP Melville, New York April 28, 2004 EX-31.1 11 ex31-1.txt Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Christopher J. Ryan, certify that: 1. I have reviewed this report on Form 10-K of Lakeland Industries, Inc. (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: April 28, 2004 /s/ Christopher J. Ryan -------------------------------- By: Christopher J. Ryan Chief Executive Officer, President, Secretary and General Counsel EX-31.2 12 ex31-2.txt Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James M. McCormick, certify that: 1. I have reviewed this report on Form 10-K of Lakeland Industries, Inc. (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: April 28, 2004 /s/ James M. McCormick ----------------------- By: James M. McCormick Chief Financial Officer and Treasurer EX-32.1 13 ex32-1.txt Exhibit 32.1 CERTIFICATION PRESIDENT, SECRETARY AND GENERAL COUNSEL Pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 In connection with the filing with the Securities and Exchange Commission of the Annual Report of Lakeland Industries, Inc. (the "Company") on Form 10-K for the period ending January 31, 2004 (the "Report"), I Christopher J. Ryan, Chief Executive Officer, President, Secretary and General Counsel of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents in all material respects, the financial condition and results of operations of the Company. /s/ Christopher J. Ryan - ----------------------------- Christopher J. Ryan Chief Executive Officer, President, Secretary and General Counsel April 28, 2004 EX-32.2 14 ex32-2.txt Exhibit 32.2 CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER Pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 In connection with the filing with the Securities and Exchange Commission of the Annual Report of Lakeland Industries, Inc. (the "Company") on Form 10-K for the year ending January 31, 2004 (the "Report"), I James M. McCormick, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents in all material respects, the financial condition and results of operations of the Company. /s/ James M. McCormick - ----------------------- James M. McCormick Chief Financial Officer and Treasurer April 28 , 2004 -----END PRIVACY-ENHANCED MESSAGE-----