UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
(Mark one)
| x | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April
30, 2015
OR
| o | 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) |
|
(IRS Employer
Identification Number) |
3555 Veterans
Memorial Highway, Suite C, Ronkonkoma, New York |
|
11779
|
(Address of principal
executive offices) |
|
(Zip Code) |
(631) 981-9700
(Registrant's telephone
number, including area code)
701 Koehler Avenue, Suite 7, Ronkonkoma,
NY 11779
(Former name, former address and former
fiscal year, if changed since last report)
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 o
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
x No o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a nonaccelerated filer or a smaller reporting company. See the definition
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12-b-2 of the Exchange Act. Check one.
Large accelerated filer
¨ |
Accelerated filer ¨ |
|
|
Nonaccelerated filer ¨
(Do not check if a smaller reporting company) |
Smaller reporting company x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act).
Yes
o No x
Indicate the number of shares outstanding
of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
|
Outstanding
at June 12, 2015 |
Common Stock, $0.01 par value per share |
|
7,081,076 shares |
LAKELAND INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-Q
The following information of the Registrant
and its subsidiaries is submitted herewith:
LAKELAND INDUSTRIES, INC.
AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
Item
1. Financial Statements
Introduction
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q may contain certain forward-looking
statements. When used in this Form 10-Q or in any other presentation, statements which are not historical in nature, including
the words “anticipate,” “estimate,” “should,” “expect,” “believe,”
“intend,” “project” and similar expressions, are intended to identify forward-looking statements. They
also include statements containing a projection of sales, earnings or losses, capital expenditures, dividends, capital structure
or other financial terms.
The forward-looking statements in this
Form 10-Q are based upon our management’s beliefs, assumptions and expectations of our future operations and economic performance,
taking into account the information currently available to us. These statements are not statements of fact. Forward-looking statements
involve risks and uncertainties, some of which are not currently known to us that may cause our actual results, performance or
financial condition to be materially different from the expectations of future results, performance or financial condition we
express or imply in any forward-looking statements. Some of the important factors that could cause our actual results, performance
or financial condition to differ materially from expectations are:
| · | our
ability to make payments on our significant indebtedness and comply with the restrictive
covenants thereon; |
| · | covenants
in our credit facilities may restrict our financial and operating flexibility; |
| · | our
ability to remediate the material weaknesses in our internal controls identified by the
evaluations performed by us as of October 31, 2014 and throughout fiscal 2014, 2015 and
2016; |
| · | our
ability to make timely payment on the arbitration award balance of $3.75 million which
is payable in the amount of $250,000 quarterly through December 31, 2018; |
| · | the
risk that we will not make sufficient additional sales to justify our expansion of activities
from the net proceeds of the October 2014 private placement; |
| · | our
ability to obtain additional funds, if necessary; |
| · | we
suffered losses from operations in fiscal 2013 and fiscal 2014 and there can be no assurance
that such losses will not continue; |
| · | we
are incurring adverse operating results from our Brazilian operations and we expect such
losses in Brazil to continue through fiscal 2016 and are included in discontinued operations; |
| · | we
are subject to risk as a result of our international manufacturing operations; |
| · | we
are subject to claims for a significant amount of VAT taxes in Brazil; |
| · | our
results of operations could be negatively affected by potential fluctuations in foreign
currency exchange rates; |
| · | we
deal in countries where corruption is an obstacle, particularly in Brazil; |
| · | there
is no assurance that our planned disposition of our Brazilian subsidiary will be successful.
Even if consummated, we may continue to be exposed to contain liabilities in connection
with the pre-closing operations of our Brazilian subsidiary. In addition, while the Company’s
tax advisors believe that the worthless stock deduction intended to be taken by the Company
in connection therewith is valid, there can be no assurance that the IRS will not challenge
it and, if challenged, that the Company will prevail. |
| · | rapid
technological change could negatively affect sales of our products, inventory levels
and our performance; |
| · | we
must estimate customer demand because we do not have long-term commitments from many
of our customers, and errors in our estimates could negatively impact our inventory levels
and net sales; |
| · | our
operations are substantially dependent upon key personnel; |
| · | we
rely on a limited number of suppliers and manufacturers for specific fabrics, and we
may not be able to obtain substitute suppliers and manufacturers on terms that are as
favorable, or at all, if our supplies are interrupted; |
| · | our
inability to protect our intellectual property; |
| · | we
face competition from other companies, a number of which have substantially greater resources
than we do; |
| · | some
of our sales are to foreign buyers, which exposes us to additional risks; |
| · | a
significant reduction in government funding for preparations for terrorist incidents
could adversely affect our net sales; |
| · | we
may be subject to product liability claims, and insurance coverage could be inadequate
or unavailable to cover these claims; |
| · | our
directors and executive officers have the ability to exert significant influence on us
and on matters subject to a vote of our stockholders; |
| · | our
failure to realize anticipated benefits from acquisitions, divestitures or restructurings,
or the possibility that such acquisitions, divestitures or restructurings could adversely
affect us; |
| · | The
other factors referenced in this Form 10-Q, including, without limitation, in the sections
entitled “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and the factors described under “Risk Factors”
disclosed in our fiscal 2015 Form 10-K. |
We believe these forward-looking statements
are reasonable; however, you should not place undue reliance on any forward-looking statements, which are based on current expectations.
Furthermore, forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update
or revise any forward-looking statements after the date of this Form 10-Q, whether as a result of new information, future events
or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-Q might
not occur. We qualify any and all of our forward-looking statements entirely by these cautionary factors.
LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(UNAUDITED)
Three Months Ended April 30, 2015 and 2014
| |
Three Months Ended | |
| |
April 30, | |
| |
($000’s) except for share information | |
| |
2015 | | |
2014* | |
Net sales from continuing operations | |
$ | 24,819 | | |
$ | 21,758 | |
Cost of goods sold from continuing
operations | |
| 15,540 | | |
| 15,253 | |
Gross profit from continuing operations | |
| 9,279 | | |
| 6,505 | |
Operating expenses from continuing
operations | |
| 6,059 | | |
| 5,647 | |
Operating profit from continuing operations | |
| 3,220 | | |
| 858 | |
Other income (loss), net from continuing operations | |
| 15 | | |
| 5 | |
Interest expense from continuing
operations | |
| 183 | | |
| 486 | |
Income before taxes from continuing operations | |
| 3,052 | | |
| 377 | |
Income tax expense from continuing
operations | |
| 892 | | |
| 23 | |
Net income from continuing operations | |
$ | 2,160 | | |
$ | 354 | |
Net loss from discontinued operations | |
$ | (931 | ) | |
$ | (354 | ) |
Net income (loss) | |
$ | 1,229 | | |
$ | (0.00 | ) |
Net income (loss) per common share – Basic: | |
| | | |
| | |
Income
from continuing operations | |
$ | 0.31 | | |
$ | 0.06 | |
Loss from
discontinued operations | |
$ | (0.14 | ) | |
$ | (0.06 | ) |
Net income
(loss) | |
$ | 0.17 | | |
$ | 0.00 | |
Net income (loss) per common
share – Diluted: | |
| | | |
| | |
Income
from continuing operations | |
$ | 0.30 | | |
$ | 0.06 | |
Loss from
discontinued operations | |
$ | (0.13 | ) | |
$ | (0.06 | ) |
Net income
(loss) | |
$ | 0.17 | | |
$ | (0.00 | ) |
Weighted average common shares outstanding: | |
| | | |
| | |
Basic | |
| 7,062,144 | | |
| 5,923,224 | |
Diluted | |
| 7,235,385 | | |
| 5,923,224 | |
The accompanying notes are an integral part of these condensed
consolidated financial statements.
*Restated for discontinued
operations.
LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
(UNAUDITED)
Three months ended April 30, 2015 and 2014
| |
Three Months Ended | |
| |
April 30, | |
| |
($000’s) | |
| |
2015 | | |
2014* | |
| |
| | |
| |
Net income | |
$ | 1,229 | | |
$ | — | |
Other comprehensive income (loss): | |
| | | |
| | |
Cash flow hedge in China | |
| 75 | | |
| (81 | ) |
Cash flow hedge in United Kingdom | |
| 40 | | |
| — | |
Foreign currency translation
adjustments: | |
| | | |
| | |
Lakeland Brazil, S.A. | |
| 193 | | |
| 368 | |
Canada | |
| 52 | | |
| (18 | ) |
United Kingdom | |
| (106 | ) | |
| (3 | ) |
China | |
| 49 | | |
| 39 | |
Russia/Kazakhstan | |
| 41 | | |
| (125 | ) |
Other comprehensive income | |
| 344 | | |
| 180 | |
Comprehensive income | |
$ | 1,573 | | |
$ | 180 | |
The accompanying notes are an integral part of these condensed
consolidated financial statements.
*Restated for discontinued
operations.
LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(UNAUDITED)
April 30,
2015 and January 31, 2015
| |
| | |
| |
ASSETS | |
April 30, | | |
January 31, | |
| |
2015 | | |
2015* | |
Current assets | |
($000’s) | | |
($000’s) | |
Cash and cash equivalents | |
$ | 8,721 | | |
$ | 6,709 | |
Accounts
receivable, net of allowance for doubtful accounts of $538 and $484 at April 30, 2015 and January 31, 2015,
respectively | |
| 14,769 | | |
| 13,277 | |
Inventories,
net of reserves of approximately $2,460 and $2,454 at April 30, 2015 and January 31, 2015, respectively | |
| 39,495 | | |
| 37,092 | |
Deferred income taxes | |
| 1,015 | | |
| 1,144 | |
Assets of discontinued operations
in Brazil | |
| 6,447 | | |
| 6,335 | |
Prepaid VAT tax | |
| 1,216 | | |
| 1,717 | |
Other current
assets | |
| 3,184 | | |
| 2,361 | |
Total current assets | |
| 74,847 | | |
| 68,635 | |
Property and equipment, net | |
| 10,311 | | |
| 10,144 | |
Deferred income tax, noncurrent | |
| 13,101 | | |
| 13,101 | |
Prepaid VAT and other taxes | |
| 173 | | |
| 173 | |
Security deposits | |
| 86 | | |
| 113 | |
Intangibles, prepaid bank fees and other assets, net | |
| 141 | | |
| 171 | |
Goodwill | |
| 871 | | |
| 871 | |
Total assets | |
$ | 99,530 | | |
$ | 93,208 | |
LIABILITIES
AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 8,512 | | |
$ | 7,763 | |
Accrued compensation and benefits | |
| 854 | | |
| 1,120 | |
Other accrued expenses | |
| 1,798 | | |
| 1,462 | |
Liabilities of discontinued operations
in Brazil | |
| 6,692 | | |
| 6,574 | |
Current maturity of long-term
debt | |
| 50 | | |
| 50 | |
Current maturity of accrued arbitration
award | |
| 1,000 | | |
| 1,000 | |
Short-term borrowing | |
| 3,446 | | |
| 2,611 | |
Borrowings
under revolving credit facility | |
| 8,666 | | |
| 5,642 | |
Total current liabilities | |
| 31,018 | | |
| 26,222 | |
Accrued arbitration award, less current portion | |
| 2,637 | | |
| 2,870 | |
Long-term portion of Canada loan | |
| 830 | | |
| 800 | |
VAT taxes payable long term | |
| 130 | | |
| 60 | |
Total liabilities | |
| 34,615 | | |
| 29,952 | |
Stockholders’ equity | |
| | | |
| | |
Preferred
stock, $.01 par; authorized 1,500,000 shares (none issued) | |
| — | | |
| — | |
Common
stock, $.01 par; authorized 10,000,000 shares, issued 7,428,220 and 7,414,037; outstanding 7,071,779 and 7,057,596 at April
30, 2015 and January 31, 2015 respectively | |
| 74 | | |
| 74 | |
Treasury stock, at cost; 356,441 shares at April
30, 2015 and January 31, 2015 | |
| (3,352 | ) | |
| (3,352 | ) |
Additional paid-in capital | |
| 64,680 | | |
| 64,594 | |
Retained earnings | |
| 5,883 | | |
| 4,654 | |
Accumulated
other comprehensive loss | |
| (2,370 | ) | |
| (2,714 | ) |
Total stockholders' equity | |
| 64,915 | | |
| 63,256 | |
Total liabilities and stockholders'
equity | |
$ | 99,530 | | |
$ | 93,208 | |
The accompanying notes are an integral part of these condensed
consolidated financial statements.
*Restated for discontinued
operations.
LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT
OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Three months ended April 30, 2015
($000’s)
except for share information
| |
Common Stock | | |
Treasury Stock | | |
Additional Paid-in | | |
Retained | | |
Accumulated Other Comprehensive | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Earnings | | |
Loss | | |
Total | |
Balance, January 31, 2015 | |
| 7,414,037 | | |
$ | 74 | | |
| (356,441 | ) | |
$ | (3,352 | ) | |
$ | 64,594 | | |
$ | 4,654 | | |
$ | (2,714 | ) | |
$ | 63,256 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,229 | | |
| — | | |
| 1,229 | |
Other comprehensive income
| |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 344 | | |
| 344 | |
Stock-based compensation: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Restricted stock issued | |
| 14,183 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Restricted Stock Plan | |
| — | | |
| — | | |
| — | | |
| — | | |
| 127 | | |
| — | | |
| — | | |
| 127 | |
Return
of shares in lieu of payroll tax withholding | |
| — | | |
| — | | |
| — | | |
| — | | |
| (41 | ) | |
| — | | |
| — | | |
| (41 | ) |
Balance, April 30, 2015 | |
| 7,428,220 | | |
$ | 74 | | |
| (356,441 | ) | |
$ | (3,352 | ) | |
$ | 64,680 | | |
$ | 5,883 | | |
$ | (2,370 | ) | |
$ | 64,915 | |
The accompanying
notes are an integral part of these condensed consolidated financial statements.
LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(UNAUDITED)
Three Months Ended April 30, 2015 and 2014
| |
For the Three Months Ended
April 30, | |
| |
2015 | | |
2014* | |
Cash flows from operating activities: | |
| | | |
| | |
Net income (loss) | |
$ | 1,229 | | |
$ | 0 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities | |
| | | |
| | |
Provision for inventory obsolescence | |
| 7 | | |
| (94 | ) |
Provision for doubtful accounts | |
| 90 | | |
| 14 | |
Deferred income taxes current | |
| 128 | | |
| (128 | ) |
Deferred taxes long-term | |
| 70 | | |
| (1 | ) |
Depreciation and amortization | |
| 246 | | |
| 293 | |
Interest expense resulting from amortization of warrant OID and reclassification of PIK interest | |
| —— | | |
| 481 | |
Stock based and restricted stock compensation | |
| 127 | | |
| 24 | |
Interest expense resulting from Arbitration Award | |
| 16 | | |
| 58 | |
(Increase) decrease in operating assets | |
| | | |
| | |
Accounts receivable | |
| (1,630 | ) | |
| (785 | ) |
Inventories | |
| (2,471 | ) | |
| 518 | |
Prepaid VAT taxes and other current assets | |
| 501 | | |
| (152 | ) |
Other assets-mainly prepaid fees from financing transaction | |
| (714 | ) | |
| (42 | ) |
Assets of discontinued operations | |
| (672 | ) | |
| (598 | ) |
Increase (decrease) in operating liabilities | |
| | | |
| | |
Accounts payable | |
| 828 | | |
| 1,302 | |
Accrued expenses and other liabilities | |
| 77 | | |
| 573 | |
Arbitration award in Brazil | |
| (250 | ) | |
| (250 | ) |
Liabilities of discontinued operations | |
| 871 | | |
| 317 | |
Net cash (used in) provided by operating activities | |
| (1,547 | ) | |
| 1,530 | |
Cash flows from investing activities: | |
| | | |
| | |
Purchases of property and equipment | |
| (307 | ) | |
| (88 | ) |
Net cash used in investing activities | |
| (307 | ) | |
| (88 | ) |
Cash flows from financing activities: | |
| | | |
| | |
Net borrowings under credit agreement (revolver) | |
| 3,024 | | |
| 1,083 | |
Canada loan repayments | |
| (6 | ) | |
| (10 | ) |
Borrowings in Argentina | |
| 269 | | |
| —— | |
UK borrowings, net | |
| 569 | | |
| (30 | ) |
China borrowings, net | |
| 7 | | |
| (14 | ) |
Shares returned to pay employee taxes under restricted stock program | |
| (41 | ) | |
| —— | |
Net cash provided by financing activities | |
| 3,822 | | |
| 1,027 | |
Effect of exchange rate changes on cash | |
| 44 | | |
| (14 | ) |
Net increase in cash and cash equivalents | |
| 2,012 | | |
| 2,455 | |
Cash and cash equivalents at beginning of year | |
| 6,709 | | |
| 4,555 | |
Cash and cash equivalents at end of year | |
$ | 8,721 | | |
$ | 7,010 | |
| |
| | | |
| | |
(in $000)(From continuing operations) | |
Q1FY16
| | |
Q1FY15 | |
Cash paid for interest | |
$ | 184 | | |
$ | 433 | |
Cash paid for taxes | |
$ | 604 | | |
$ | 307 | |
The
accompanying notes are an integral part of these condensed consolidated financial statements.
*Restated
for discontinued operations
LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
1. Business
Lakeland Industries, Inc. and
Subsidiaries (“Lakeland” or the “Company”), a Delaware corporation organized in April 1986, 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
three month periods ending April 30, 2015 and 2014. In April 2015, the Company decided to exit operations in Brazil. See Note 17
for further description.
2. Basis of
Presentation
The condensed consolidated financial
statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission, and reflect all adjustments (consisting of only normal and recurring adjustments) which are, in the opinion
of management, necessary to present fairly the condensed consolidated financial information required herein. Certain information
and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations.
While we believe that the disclosures are adequate to make the information presented not misleading, it is suggested that these
condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto
included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended January
31, 2015.
Our consolidated financial statements
have been prepared using the accrual method of accounting in accordance with US GAAP.
The results of operations for
the three month period ended April 30, 2015 are not necessarily indicative of the results to be expected for the full year.
In this Form 10-Q, (a) “FY”
means fiscal year; thus, for example, FY16 refers to the fiscal year ending January 31, 2016, (b) “Q” refers to quarter;
thus, for example, Q1 FY16 refers to the first quarter of the fiscal year ending January 31, 2016, (c) “Balance Sheet”
refers to the condensed consolidated balance sheet and (d) “Statement of Operations" refers to the condensed consolidated
statement of operations.
3. Principles
of Consolidation
The accompanying consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
4. Inventories
Inventories of continuing operations consist of the
following (in $000s):
| |
April
30, 2015 | | |
January
31, 2015 | |
| |
| | |
| |
Raw materials | |
$ | 16,468 | | |
$ | 14,379 | |
Work-in-process | |
| 1,882 | | |
| 1,670 | |
Finished goods | |
| 21,145 | | |
| 21,043 | |
| |
$ | 39,495 | | |
$ | 37,092 | |
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.
5. 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 shares and common stock equivalents. 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 period.
The following table sets forth
the computation of basic and diluted earnings per share for “income from continuing operations” at April 30, 2015
and 2014, as follows:
| |
Three Months Ended | |
| |
April 30, (in $000s) | |
| |
2015 | | |
2014 | |
Numerator | |
| | | |
| | |
Net income from continuing operations | |
$ | 2,160 | | |
$ | 354 | |
Net loss from discontinued operations | |
| (931 | ) | |
| (354 | ) |
Net income (loss) | |
$ | 1,229 | | |
$ | (0.00 | ) |
Denominator | |
| | | |
| | |
Denominator for basic earnings per share (weighted-average shares which
reflect 356,441 shares in the treasury as a result of the stock repurchase program that ended in 2011, and 0 and 566,015 weighted
average common equivalents relating to the warrant issued with the FY14 subordinated debt financing) | |
| 7,062,144 | | |
| 5,923,224 | |
Effect of dilutive securities from restricted stock
plan and from dilutive effect of stock options | |
| 173,241 | | |
| —— | |
Denominator for diluted earnings per share (adjusted weighted average shares) | |
| 7,235,385 | | |
| 5,923,224 | |
Basic earnings per share from continuing operations | |
$ | 0.31 | | |
$ | 0.06 | |
Basic earnings per share from discontinued operations | |
$ | (0.14 | ) | |
$ | (0.06 | ) |
Basic earnings per share | |
$ | 0.17 | | |
$ | (0.00 | ) |
Diluted earnings per share from continuing operations | |
$ | 0.30 | | |
$ | 0.06 | |
Diluted earnings per share from discontinued operations | |
$ | (0.13 | ) | |
$ | (0.06 | ) |
Diluted earnings per share | |
$ | 0.17 | | |
$ | (0.00 | ) |
6. Long-Term Debt
and Subsequent Event
Revolving Credit Facility
On June 28, 2013, the Company
and its wholly-owned subsidiary, Lakeland Protective Wear Inc. (collectively with the Company, the “Borrowers”), entered
into a Loan and Security Agreement (the “Senior Loan Agreement”) with AloStar Business Credit, a division of AloStar
Bank of Commerce (the “Senior Lender”). The Senior Loan Agreement provides the Borrowers with a three-year $15 million
revolving line of credit, at a variable interest rate based on LIBOR, with a first priority lien on substantially all of the United
States and Canada assets of the Company, except for the Canadian warehouse.
On March 31, 2015, the Borrowers
entered into a First Amendment to Loan and Security Agreement with the Senior Lender (the “Amendment”) relating to
their senior revolving credit facility. Pursuant to the Amendment, the parties agreed to (i) reduce the rate of interest on the
revolving loans by 200 basis points and correspondingly lower the minimum interest rate floor from 6.25% to 4.25% per annum, and
(ii) extend the maturity date of the credit facility to June 28, 2017.
On June 3, 2015, the Borrowers
entered into a Second Amendment (the “Second Amendment”) to the Senior Loan Agreement. The primary purposes of the
Second Amendment are to (i) modify the definition of Permitted Asset Disposition to provide the Company with the ability to transfer
the stock of the Company’s wholly-owned Brazilian subsidiary, Lake Brasil Indústria e Comércio de Roupas e
Equipamentos de Proteção Individual Ltda. (“Lakeland Brazil”), and (ii) allow the Borrowers to transfer
funds to Lakeland Brazil for the specific purposes of settling arbitration claims, paying contractual expenses, and paying expenses
incurred in connection with a transfer of the stock of Lakeland Brazil so long as, after giving effect to any such transfer, the
amount Borrowers have as excess availability under the revolver loans, excluding the $15 million facility cap for this purpose
only, calculated pursuant to and under the Senior Loan Agreement, is at least $3.0 million. Also, as part of the Second Amendment,
Lender consented to the sale of the Company’s corporate offices in Ronkonkoma, New York on the condition that the net cash
proceeds from the sale in the amount of at least $450,000 are used by the Company to pay down the Borrower’s obligations
to Lender under the Senior Loan Agreement.
On June 28, 2013, the Borrowers
also entered into a Loan and Security Agreement (the “Subordinated Loan Agreement”) with LKL Investments, LLC, an
affiliate of Arenal Capital, a private equity fund (the “Junior Lender”). The Subordinated Loan Agreement provided
for a $3.5 million term loan to be made to the Borrowers with a second priority lien on substantially all of the assets of the
Company in the United States and Canada, except for the Canadian warehouse and except for a first lien on the Company’s
Mexican facility. Pursuant to the Subordinated Loan Agreement, among other things, Borrowers issued to the Junior Lender a five-year
term loan promissory note (the “Note”). At the election of the Junior Lender, interest under the Note may have been
paid in cash, by PIK in additional notes or payable in shares of common stock (“Common Stock”), of the Company. The
Junior Lender also, in connection with this transaction, received a common stock purchase warrant (the “Warrant”)
to purchase up to 566,015 shares of Common Stock (subject to adjustment), representing beneficial ownership of approximately 9.58%
of the outstanding Common Stock of the Company, as of the closing of the transactions completed by the Subordinated Loan Agreement.
The Company’s receipt of gross proceeds of $3.5 million (before original issue discount of $2.2 million related to the associated
warrant) in subordinated debt financing was a condition precedent set by the Senior Lender, of which this transaction satisfied.
The Warrant was fully exercised at October 31, 2014.
On October 29, 2014, with the
proceeds from a private placement of 1,110,000 shares of its common stock, the Company repaid in full the Subordinated Debt. The
early extinguishment of the Subordinated Debt resulted in a one-time pretax non-cash charge of approximately $1.6 million for
the remaining unamortized original issue discount on the Subordinated Debt and a pretax non-cash charge of approximately $0.6
million for the remaining unamortized fees paid at the closing of the June 2013 Subordinated Debt financing. These charges were
included in the Company’s financial results for the third fiscal quarter ended October 31, 2014 and the fiscal year ended
January 31, 2015. The $0.6 million of unamortized fees attributable to the Senior Debt will remain on the Company’s books
and continue to be amortized over the remaining term of the Senior Debt through June 2017 as amended.
The following is a summary of
the material terms of the Senior Credit Facility:
$15 million Senior Credit
Facility
| · | Borrowers
are Lakeland Industries, Inc. and its Canadian operating subsidiary Lakeland Protective
Wear Inc. |
| · | Borrowing
pursuant to a revolving credit facility subject to a borrowing base calculated as the
sum of: |
| ○ | 85%
of eligible accounts receivable as defined |
| ○ | The
lesser of 60% of eligible inventory as defined or 85% of net orderly liquidation value
of inventory |
| ○ | In
transit inventory in bound to the US up to a cap of $1,000,000 |
| ○ | Receivables
and inventory held by the Canadian operating subsidiary to be included, up to a cap of
$2 million of availability |
| · | On
April 30, 2015, there was $6.3 million available under the senior credit facility. |
| ○ | A
perfected first security lien on all of the Borrowers United States and Canadian assets,
other than its Mexican plant and the Canadian warehouse |
| ○ | Pledge
of 65% of Lakeland US stock in all foreign subsidiaries other than 100% pledge of stock
of its Canadian subsidiaries |
| ○ | All customers of Borrowers
must remit to a lockbox controlled by Senior Lender or into a blocked account with all
collection proceeds applied against the outstanding loan balance. |
| ○ | An initial term of three
years from June 28, 2013 (the “Closing Date”), which has been extended to
June 28, 2017 pursuant to the Amendment |
| ○ | Prepayment penalties of 2%
if prior to the second anniversary of the Closing Date and 1% thereafter |
| ○ | Rate equal to LIBOR rate
plus 525 basis points, reduced to 325 basis points on March 31, 2015 per the Amendment |
| ○ | Initial rate and rate at
April 30, 2015 of 6.25% per annum |
| ○ | Floor rate of 6.25%, reduced
to 4.25% on March 31, 2015 per annum per the Amendment |
| · | Fees:
Borrowers shall pay to the Lender the following fees: |
| ○ | Origination fee of $225,000,
paid on the Closing Date and being amortized over the term of loans and is included in
“intangibles, prepaid bank fees and other assets, net” in the accompanying
consolidated balance sheet |
| ○ | 0.50% per annum on unused
portion of commitment |
| ○ | A non-refundable collateral
monitoring fee in the amount of $3,000 per month |
| ○ | All legal and other out of
pocket costs |
| ○ | Borrowers covenanted that,
from the Closing Date until the commitment termination date and full payment of the obligations
to Senior Lender, Lakeland Industries, Inc. (the parent company), together with its subsidiaries
on a consolidated basis, excluding its Brazilian subsidiary, shall comply with the following
additional covenants: |
| · | Fixed
Charge Coverage Ratio. At the end of each fiscal quarter of Borrowers, Borrowers shall
maintain a Fixed Charge Coverage Ratio of not less than 1.1 to 1.00 for the four quarter
period then ending. |
| · | Minimum
Quarterly Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”).
Borrowers shall achieve, on a rolling four quarter basis excluding the operations of
the Borrower’s Brazilian subsidiary, EBITDA of not less than $4.1 million. |
| · | Capital
Expenditures. Borrowers shall not during any fiscal year make capital expenditures in
an amount exceeding $1 million in the aggregate. |
| · | The
Company is in compliance with all loan covenants of the Senior Debt at April 30, 2015. |
| ○ | Standard
financial reporting requirements as defined |
| ○ | Limitation on amounts that
can be advanced to or on behalf of Brazilian operations, limited to one aggregate total
of $200,000 for the term of the loan |
| ○ | Limitation on total net investment
in foreign subsidiaries of a maximum of $1.0 million per annum |
Brazil Loans
Brazil short-term borrowings
as of April 30, 2015 consists of R$1,885,028 (US $629,686) and accrued interest of R$15,863 (US $5,299) which are included in
liabilities of discontinued operations on the consolidated balance sheet. Brazil loans are collateralized by receivables, an officer
guarantee, and customer contracts. Monthly interest rates range from 1.40% to 2.50% during the three month period ended April
30, 2015.
Borrowings in UK
On December 3, 2014, the Company
and its UK subsidiary amended the terms of its existing financing facility with HSBC to provide for (i) a one-year extension of
the maturity date of the existing financing facility to December 3, 2015, (ii) an increase in the facility limit from £1,250,000
(approximately USD $1.9 million) to £1,500,000 (approximately USD $2.3 million), and (iii) a decrease in the annual interest
rate margin from 3.46% to 3.0%. In addition, pursuant to a letter agreement dated December 5, 2014, the Company agreed that £400,000
(approximately USD $0.6 million) of the note payable by the UK subsidiary to the Company shall be subordinated in priority of
payment to the subsidiary’s obligations to HSBC under the financing facility. The balance outstanding under this facility
at April 30, 2015 was the equivalent of USD $1.0 million and is included in short-term borrowings on the condensed consolidated
balance sheet. The per annum interest rate repayment rate was 3.44% and the term was for a minimum period of one year renewable
on December 3, 2015.
Canada
Loans
In September 2013, the Company
refinanced its loan with the Development Bank of Canada (BDC) for a principal amount of approximately Canadian and US $1.1 million
(based on exchange rates at time of closing). Such loan is for a term of 240 months at an interest rate of 6.45% per annum with
fixed monthly payments of approximately US $6,447 (C$8,169) including principal and interest. It is collateralized by a mortgage
on the Company's warehouse in Brantford, Ontario. The amount outstanding at April 30, 2015 is C$1,057,474 which is included as
US $829,762 short term borrowings on the accompanying condensed consolidated balance sheet, net of current maturities of US $50,000.
China Loan
On March 27, 2014, the Company’s
China subsidiary, Weifang Lakeland Safety Products Co., Ltd (“WF”), and Weifang Rural Credit Cooperative Bank (“WRCCB”)
completed an agreement for WF to obtain a line of credit for financing in the amount RMB 8,000,000 (approximately US $1.3 million),
with interest at 120% of the benchmark rate supplied by WRCCB (which is currently 5.6%). The effective per annum interest rate
is currently 6.72%. The loan is collateralized by inventory owned by WF. WRCCB had hired a professional firm to supervise WF’s
inventory flow, which WF paid RMB 40,000 (approximately US $6,500). This loan was repaid on March 20, 2015 and the line of credit
matured on March 25, 2015. There were no covenant requirements on this loan.
On October 11, 2014, WF and
Bank of China Anqiu Branch completed an agreement for WF to obtain a line of credit for financing in the amount RMB 5,000,000
(approximately US $0.8 million), with interest at 123% of the benchmark rate supplied by Bank of China Anqiu Branch (which
is currently 6.0%). The effective per annum interest rate is currently 7.38%. The loan is collateralized by inventory owned by
WF. The balance under this loan outstanding at April 30, 2015 was RMB 5,000,000 (approximately US $0.8 million) and is included
in short-term borrowings on the condensed consolidated balance sheet. The line of credit is due within a one year period.
On March 25, 2015 WF and WRCCB
completed an agreement for WF to obtain a line of credit for financing in the amount of RMB 8,000,000 (approximately US $1.3 million),
with interest at 120% of the benchmark rate supplied by WRCCB (which is currently 5.35% per annum). The effective per annum interest
rate is currently 6.42%. The loan is collateralized by inventory owned by WF. WRCCB had hired a professional firm to supervise
WF’s inventory flow, for which WF paid RMB 46,000 (approximately US $7,475). The balance under this loan outstanding at
April 30, 2015 was RMB 8,000,000 (approximately US $1.3 million) and is included in short-term borrowings on the condensed consolidated
balance sheet. The line of credit is due within a one year period.
Argentina Loan
In April 2015, the Company’s
Argentina subsidiary was granted a $300,000 line of credit denominated in Argentine pesos, pursuant to a standby letter of credit
granted by the parent company. There are several drawdowns each with six month terms at an annual rate of 34%.
7. Major
Supplier
No supplier accounted for more
than 10% of cost of sales during the three-month period ended April 30, 2015 and 2014.
8. Employee Stock Compensation
The Company has two main share-based
payment plans: The Nonemployee Directors’ Option Plan (the “Directors’ Plan”) and a Restricted Stock Plan
(the “2012 Equity Plan”). The below table summarizes the main provisions of each of these plans:
|
Nature
and terms |
Nonemployee
Director Stock Option Plan |
The
plan provides for an automatic one-time grant of options to purchase 5,000 shares of common stock to each nonemployee director
newly elected or appointed. Options are granted at not less than fair market value, become exercisable commencing six months
from the date of grant and expire six years from the date of grant. In addition, all nonemployee directors re-elected to the
Company’s Board of Directors at any annual meeting of the stockholders will automatically be granted additional options
to purchase 1,000 shares of common stock on that date. Such plan expired at December 31, 2012 as to any new awards. Existing
options will expire based on individual award dates. |
Restricted
Stock Plan - employees |
Long-term
incentive compensation three-year plan. Employees are granted potential share awards at the beginning of the three-year cycle
at baseline, maximum or zero amounts. The level of award and final vesting is based on the Board of Directors’
opinion as to the performance of the Company and management in the entire three-year cycle. All vesting is three-year
“cliff” vesting - there is no partial vesting. The valuation is based on the stock price at the grant date and
amortized to expense over the three-year period, which approximates the performance period. |
Restricted
Stock Plan - directors |
Long-term
incentive compensation-three-year plan. Directors are granted potential share awards at the beginning of the three-year cycle
at baseline, maximum or zero amounts. The level of award and final vesting is based on the Board of Directors’ opinion
as to the performance of the Company and management in the entire three-year cycle. All vesting is three-year “cliff”
vesting - there is no partial vesting. The valuation is based on the stock price at the grant date and amortized to expense
over the three-year period, which approximates the performance period. |
Matching
award program |
All
participating employees are eligible to receive one share of restricted stock awarded for each two shares of Lakeland stock
purchased on the open market. Such restricted shares are subject to three-year time vesting. The valuation is based on the
stock price at the grant date and amortized to expense over the three-year period, which approximates the performance period. |
Bonus
in stock program - employees |
All
participating employees are eligible to elect to receive any cash bonus in shares of restricted stock. Such restricted
shares are subject to two-year time vesting. The valuation is based on the stock price at the grant date and amortized to
expense over the two-year period. Since the employee is giving up cash for unvested shares, the amount of shares awarded is
133% of the cash amount based on the grant date stock price. |
Director
fee in stock program |
All
directors are eligible to elect to receive any director fees in shares of restricted stock. Such restricted shares
are subject to two-year time vesting. The valuation is based on the stock price at the grant date and amortized to expense
over the two-year period. Since the director is giving up cash for unvested shares, the amount of shares awarded
is 133% of the cash amount based on the grant date stock price, which approximates the performance period. |
The following table represents our stock options granted, exercised
and forfeited during the three-months ended April 30, 2015.
Stock Options | |
Number of Shares | | |
Weighted Average Exercise Price per Share | | |
Weighted Average Remaining Contractual Term | |
Aggregate Intrinsic Value | |
Outstanding at January 31, 2015 | |
| 17,000 | | |
$ | 7.11 | | |
1.83 years | |
$ | 54,580 | |
Granted during the three-months ended April 30, 2015 | |
| — | | |
| — | | |
— | |
| — | |
Forfeited during the three-months ended April 30,
2015 | |
| (5,000 | ) | |
$ | 6.21 | | |
— | |
| — | |
Outstanding at April 30,
2015 | |
| 12,000 | | |
$ | 7.48 | | |
2.26 years | |
$ | 24,070 | |
Exercisable at April 30,
2015 | |
| 12,000 | | |
$ | 7.48 | | |
2.26 years | |
$ | 24,070 | |
Reserved for future issuance: | |
| | | |
| | | |
| |
| | |
Directors’ Plan (expired on December 31, 2012) | |
| 0 | | |
| | | |
| |
| | |
All stock-based option awards
were fully vested at April 30, 2015 and January 31, 2015. There were no new grants during the three months ended April 30, 2015,
and this plan expired by its terms on December 31, 2012.
The
2009 Equity Plan and the 2012 Equity Plan
On June 17, 2009, the stockholders
of the Company approved the 2009 Equity Plan. A total of 253,000 shares of restricted stock were authorized under this plan. On
June 20, 2012, the stockholders of the Company authorized 310,000 shares under a new restricted stock plan (the “2012 Equity
Plan”). Under these restricted stock plans, eligible employees and directors are awarded performance-based restricted shares
of the Company’s common stock. The amount recorded as expense for the performance-based grants of restricted stock are based upon
an estimate made at the end of each reporting period as to the most probable outcome of this plan at the end of the three-year
performance period (e.g., baseline, maximum or zero). In addition to the grants with vesting based solely on performance, certain
awards pursuant to the plan have a time-based vesting requirement, under which awards vest from two to three years after grant
issuance, subject to continuous employment and certain other conditions. Restricted stock has voting rights, and the underlying
shares are not considered to be issued and outstanding until vested.
Under the 2009 Equity Incentive
Plan, all grants have been vested. There are no remaining unvested or ungranted shares available under the 2009 Restricted Stock
Plan as of April 30, 2015.
Under the 2012 Equity Incentive
Plan, the Company has issued 53,556 fully vested shares as of April 30, 2015. The Company has also granted 244,497 of shares of
unvested restricted stock as of April 30, 2015, assuming all maximum awards are achieved, (188,497 shares at “baseline”),
and have a weighted average grant date fair value of $6.49 per share. The Company recognizes expense related to performance-based
awards over the requisite service period using the straight-line attribution method based on the outcome that is probable.
As of April 30, 2015, unrecognized
stock-based compensation expense related to restricted stock awards totaled $207,122 pursuant to the 2012 Equity Incentive Plan,
before income taxes, based on the maximum performance award level, less what has been charged to expense on a cumulative basis
through October 31, 2012, which was set to zero. The cost of these nonvested awards is expected to be recognized over a weighted-average
period of three years. The performance based awards are not considered stock equivalents for earnings per share (“EPS”)
calculation purposes.
Stock-Based Compensation
The Company recognized total stock-based
compensation costs of $127,652 and $24,364 for the three-months ended April 30, 2015 and 2014, respectively, of which $0 and $18,896
result from the 2009 Equity Plan and $127,652 and $5,468 result from the 2012 Equity Plan for the periods ended April 30, 2015
and 2014, respectively, and $0 and $0, respectively, from the Director Option Plan. These amounts are reflected in operating expenses.
The total income tax benefit recognized for stock-based compensation arrangements was $45,955 and $8,771 for the years ended April
30, 2015 and 2014, respectively.
Shares under
2012 Equity Plan | |
Outstanding Unvested Grants at Maximum
at Beginning of FY16 | | |
Granted during FY16 through April
30, 2015 | | |
Becoming Vested during FY16 through April
30, 2015 | | |
Forfeited during FY16 through April
30, 2015 | | |
Outstanding Unvested Grants at Maximum
at End of April 30, 2015 | |
Restricted stock grants – employees | |
| 147,500 | | |
| — | | |
| — | | |
| — | | |
| 147,500 | |
Restricted stock grants - directors | |
| 49,500 | | |
| — | | |
| — | | |
| — | | |
| 49,500 | |
Matching award program | |
| 17,600 | | |
| — | | |
| — | | |
| — | | |
| 17,600 | |
Bonus in stock - employees | |
| 36,172 | | |
| — | | |
| 18,316 | | |
| — | | |
| 17,856 | |
Retainer in stock - directors | |
| 13,634 | | |
| 1,514 | | |
| 3,107 | | |
| — | | |
| 12,041 | |
Total
restricted stock plan | |
| 264,406 | | |
| 1,514 | | |
| 21,423 | | |
| — | | |
| 244,497 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Weighted average grant date fair value | |
$ | 6.27 | | |
$ | 9.22 | | |
$ | 4.06 | | |
| — | | |
$ | 6.49 | |
9. Segment Data
| | Domestic and international sales from continuing operations are as
follows in millions of dollars: |
| |
Three Months Ended April 30, | |
| |
2015 | | |
2014 | |
| |
| |
Domestic | |
$ | 12.84 | | |
| 51.73 | % | |
$ | 12.20 | | |
| 56.07 | % |
International | |
| 11.98 | | |
| 48.27 | % | |
| 9.56 | | |
| 43.93 | % |
Total | |
$ | 24.82 | | |
| 100.00 | % | |
$ | 21.76 | | |
| 100.00 | % |
We manage our operations by
evaluating each of our geographic locations. Our US operations include our facilities in Alabama (primarily the distribution to
customers of the bulk of our products and the manufacture of our chemical, glove and disposable products). We also maintain three
manufacturing companies China (primarily disposable and chemical suit production), a wovens manufacturing facility in Brazil which
has been discontinued and a manufacturing facility in Mexico (primarily disposable, glove and chemical suit production). Our China
and Mexico facilities produce the majority of the Company’s products and China generates a significant portion of the Company’s
revenues. The accounting policies of these operating entities are the same as those described in Note 1. We evaluate the performance
of these entities based on operating profit, which is defined as income before income taxes, interest expense and other income
and expenses. We have sales forces in Canada, Europe, Latin America, India, Russia, Kazakhstan and China, which sell and distribute
products shipped from the United States, Mexico, Brazil (which has been discontinued) or China. The table below represents information
about reported manufacturing segments for the years noted therein:
| |
Three Months Ended April 30, (in
millions of dollars) | |
| |
2015 | | |
2014
(Restated for discontinued operations) | |
Net Sales from continuing operations: | |
| | | |
| | |
USA | |
$ | 13.65 | | |
$ | 13.11 | |
Other foreign | |
| 3.08 | | |
| 3.67 | |
Europe (UK) | |
| 5.61 | | |
| 2.79 | |
Mexico | |
| 0.86 | | |
| 0.92 | |
China | |
| 11.26 | | |
| 10.70 | |
Corporate | |
| 0.62 | | |
| 0.98 | |
Less intersegment
sales | |
| (10.26 | ) | |
| (10.41 | ) |
Consolidated
sales | |
$ | 24.82 | | |
$ | 21.76 | |
External Sales from continuing
operations: | |
| | | |
| | |
USA | |
$ | 12.84 | | |
$ | 12.20 | |
Other foreign | |
| 3.01 | | |
| 3.45 | |
Europe (UK) | |
| 5.60 | | |
| 2.79 | |
Mexico | |
| 0.31 | | |
| 0.42 | |
China | |
| 3.06 | | |
| 2.90 | |
Consolidated
external sales | |
$ | 24.82 | | |
$ | 21.76 | |
Intersegment Sales from continuing
operations: | |
| | | |
| | |
USA | |
$ | 0.81 | | |
$ | 0.91 | |
Other foreign | |
| 0.07 | | |
| 0.22 | |
Europe (UK) | |
| 0.01 | | |
| — | |
Mexico | |
| 0.55 | | |
| 0.50 | |
China | |
| 8.20 | | |
| 7.80 | |
Corporate | |
| 0.62 | | |
| 0.98 | |
Consolidated
intersegment sales | |
$ | 10.26 | | |
$ | 10.41 | |
| |
Three Months Ended
April 30, (in millions of dollars) | |
| |
2015 | | |
2014
(Restated for discontinued operations) | |
Operating Profit (Loss) from
continuing operations: | |
| | | |
| | |
USA | |
$ | 2.57 | | |
$ | 0.91 | |
Other foreign | |
| (0.10 | ) | |
| 0.17 | |
Europe (UK) | |
| 1.79 | | |
| 0.21 | |
Mexico | |
| (0.05 | ) | |
| (0.02 | ) |
China | |
| 0.77 | | |
| 0.96 | |
Corporate | |
| (1.62 | ) | |
| (1.33 | ) |
Less intersegment
profit | |
| (0.14 | ) | |
| (0.04 | ) |
Consolidated
operating profit | |
$ | 3.22 | | |
$ | 0.86 | |
Depreciation and Amortization Expense from continuing
operations: | |
| | | |
| | |
USA | |
$ | 0.04 | | |
$ | 0.04 | |
Other foreign | |
| 0.02 | | |
| 0.03 | |
Europe (UK) | |
| — | | |
| — | |
Mexico | |
| 0.03 | | |
| 0.01 | |
China | |
| 0.08 | | |
| 0.06 | |
Corporate | |
| 0.10 | | |
| 0.16 | |
Less intersegment | |
| (0.03 | ) | |
| (0.01 | ) |
Consolidated
depreciation & amortization expense | |
$ | 0.24 | | |
$ | 0.29 | |
Interest Expense from continuing
operations: | |
| | | |
| | |
USA (shown in Corporate) | |
$ | — | | |
$ | — | |
Other foreign | |
| 0.02 | | |
| 0.04 | |
Europe (UK) | |
| — | | |
| 0.01 | |
Mexico | |
| — | | |
| 0.02 | |
China | |
| 0.04 | | |
| (0.02 | ) |
Corporate | |
| 0.12 | | |
| 0.49 | |
Less intersegment | |
| — | | |
| (0.05 | ) |
Consolidated
interest expense | |
$ | 0.18 | | |
$ | 0.49 | |
Income Tax Expense (Benefits)
from continuing operations: | |
| | | |
| | |
USA (shown in Corporate) | |
$ | — | | |
$ | — | |
Other foreign | |
| 0.05 | | |
| 0.06 | |
Europe (UK) | |
| 0.40 | | |
| 0.02 | |
Mexico | |
| — | | |
| (0.04 | ) |
China | |
| 0.17 | | |
| 0.25 | |
Corporate | |
| 0.30 | | |
| (0.25 | ) |
Less intersegment | |
| (0.03 | ) | |
| (0.02 | ) |
Consolidated
income tax expense | |
$ | 0.89 | | |
$ | 0.02 | |
| |
April
30, 2015 (in millions of dollars) | | |
January
31, 2015 (in millions of dollars) | |
Total Assets:* | |
| | | |
| | |
USA | |
$ | 39.00 | | |
$ | 36.35 | |
Other foreign | |
| 18.00 | | |
| 18.00 | |
Europe (UK) | |
| 6.87 | | |
| 6.75 | |
Mexico | |
| 4.17 | | |
| 4.20 | |
China | |
| 34.47 | | |
| 33.04 | |
India | |
| (1.42 | ) | |
| (1.31 | ) |
Brazil (discontinued operations) | |
| 6.45 | | |
| 6.34 | |
Corporate | |
| 70.72 | | |
| 70.33 | |
Less intersegment | |
| (78.73 | ) | |
| (80.49 | ) |
Consolidated
assets | |
$ | 99.53 | | |
$ | 93.21 | |
Total Assets Less Intersegment:* | |
| | | |
| | |
USA | |
$ | 32.82 | | |
$ | 30.14 | |
Other foreign | |
| 10.22 | | |
| 10.32 | |
Europe (UK) | |
| 6.87 | | |
| 6.75 | |
Mexico | |
| 4.15 | | |
| 4.13 | |
China | |
| 21.55 | | |
| 17.03 | |
India | |
| 0.30 | | |
| 0.44 | |
Brazil (discontinued operations) | |
| 6.45 | | |
| 6.33 | |
Corporate | |
| 17.17 | | |
| 18.07 | |
Consolidated
assets | |
$ | 99.53 | | |
$ | 93.21 | |
Property and Equipment: | |
| | | |
| | |
USA | |
$ | 2.28 | | |
$ | 2.30 | |
Other foreign | |
| 1.83 | | |
| 1.77 | |
Europe (UK) | |
| 0.07 | | |
| 0.07 | |
Mexico | |
| 2.16 | | |
| 2.17 | |
China | |
| 2.74 | | |
| 2.70 | |
India | |
| 0.04 | | |
| 0.05 | |
Corporate | |
| 1.30 | | |
| 1.20 | |
Less intersegment | |
| (0.11 | ) | |
| (0.12 | ) |
Consolidated
property and equipment | |
$ | 10.31 | | |
$ | 10.14 | |
Capital Expenditures: | |
| | | |
| | |
USA | |
$ | 0.03 | | |
$ | 0.05 | |
Other foreign | |
| 0.02 | | |
| 0.05 | |
Europe (UK) | |
| — | | |
| 0.03 | |
Mexico | |
| — | | |
| 0.03 | |
China | |
| 0.11 | | |
| 0.31 | |
India | |
| — | | |
| 0.02 | |
Corporate | |
| 0.15 | | |
| 0.39 | |
Consolidated
capital expenditures | |
$ | 0.31 | | |
$ | 0.88 | |
Goodwill: | |
| | | |
| | |
USA | |
$ | 0.87 | | |
$ | 0.87 | |
Consolidated
goodwill | |
$ | 0.87 | | |
$ | 0.87 | |
* Negative assets reflect
intersegment accounts eliminated in consolidation
10. Income Taxes
Income Tax Audits/Change in Accounting
Estimate
The Company is subject to US
federal income tax, as well as income tax in multiple US state and local jurisdictions and a number of foreign jurisdictions.
The Company has received a final “No Change Letter” from the IRS for FY07 dated August 20, 2009. The Company has received
notice from the IRS on March 21, 2011, that it will shortly commence an audit for the FY09 tax return. There have been no further
communications from the IRS since. The Company has not had any recent US corporate income tax returns examined by the IRS. Returns
for the year since 2011 are still open based on statutes of limitation only.
Chinese tax authorities have
performed limited reviews on all Chinese subsidiaries as of tax years 2008, 2009, 2010, 2011, 2012, 2013 and 2014 with no significant
issues noted. We believe our tax positions are reasonably stated as of April 30, 2015. On May 20, 2015, Weifang Lakeland Safety
Products Co., Ltd., one of our Chinese operations, was visited by the local tax authority as a routine check. Following this visit,
management believes there is no material risk in our China tax position.
Our operations in the UK are
profitable and continue to be subject to UK taxation. Management is not aware of any exposure in the UK.
Lakeland Protective Wear, Inc.,
our Canadian subsidiary, follows Canada tax regulatory framework recording its tax expense and tax deferred assets or liabilities.
As of this statement filing date, we believe the Lakeland Protective Wear, Inc.’s tax situation is reasonably stated in
accordance with accounting principles generally accepted in the United States of America, and we do not anticipate future tax
liability.
The Company’s Brazilian
subsidiary is currently under a tax audit, which raised some issues regarding the tax impact related to the merger held in
2008 and the goodwill resulting from the structure which was set up by the Company's Brazilian counsel's suggestion. The structure
used is relatively common in acquisitions of Brazilian operations made by non-Brazilian companies. In general, acquisitions
with this structure have survived challenge by the taxing authorities in Brazil. The cumulative amount of tax benefits recognized
on the Company’s books through April 30, 2015, resulting from the tax deduction of the goodwill amortization is approximately
US $0.9 million (R$ 2,774,843) consisting of tax of approximately US $0.1 million (R$ 280,416) and the remainder in interest and
penalties. In February 2015, a court decision was reached in favor of the Company and as such no provision has been recorded.
In connection with the exit
plan from Brazil, the Company claimed a worthless stock deduction which generated a tax benefit of approximately US $9.5 million,
net of a US $2.9 million valuation allowance. While the Company and its tax advisors believe that this deduction is valid, there
can be no assurance that the IRS will not challenge it and, if challenged, there is no assurance that the Company will prevail.
Except in Canada, it is our
practice and intention to reinvest the earnings of our non-US subsidiaries in their operations. As of April 30, 2015, the Company
had not made a provision for US or additional foreign withholding taxes on approximately $23.6 million of the excess of the amount
for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration ($21.6
million at January 31, 2015). Generally, such amounts become subject to US taxation upon remittance of dividends and under certain
other circumstances. If theses earnings were repatriated to the US, the deferred tax liability associated with these temporary
differences would be approximately $3.4 million at April 30, 2015.
In China, a dividend of $1.3
million was declared and paid to the Company in July 2014 from the Company’s China subsidiary, Weifang Lakeland Safety Products
Co., Ltd. (“Weifang”) and in August 2014, a dividend of $450,000 was declared from the Company’s China subsidiary,
Weifang Meiyang Protective Products Co., Ltd. (“Meiyang”) and paid to the Company in October 2014. The Company’s
Board of Directors has instituted a plan to pay annual dividends of $1.0 million to the Company from Weifang’s future profits
and 33% of Meiyang’s future profits starting in the next fiscal year. All other retained earnings are expected to be reinvested
indefinitely.
Change in Accounting Estimate/Valuation
Allowance
We record net deferred tax assets
to the extent we believe these assets will more likely than not be realized. In making such determination, we considered all available
positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax
planning strategies and recent financial operations. The valuation allowance was $2,945,884 at April 30, 2015 and January 31, 2015.
Income Tax Expense
Income tax expenses consist
of federal, state and foreign income taxes. Income tax expenses were $0.8 million for the three months ended April 30, 2015, as
compared to income tax expense of $0 million for the three months ended April 30, 2014.
11. Derivative Instruments and Foreign
Currency Exposure
The Company is exposed to foreign
currency risk. Management has commenced a derivative instrument program to partially offset this risk by purchasing forward contracts
to sell the Canadian Dollar and the Euro other than the cash flow hedge discussed below. Such contracts are largely timed to expire
with the last day of the fiscal quarter, with a new contract purchased on the first day of the following quarter, to match the
operating cycle of the Company. We designated the forward contracts as derivatives, but not as hedging instruments, with loss and
gain recognized in current earnings.
The Company accounts for its
foreign exchange derivative instruments by recognizing all derivatives as either assets or liabilities at fair value, which may
result in additional volatility in both current period earnings and other comprehensive income as a result of recording recognized
and unrecognized gains and losses from changes in the fair value of derivative instruments
We have two types of derivatives
to manage the risk of foreign currency fluctuations as noted below:.
We enter into forward contracts
with financial institutions to manage our currency exposure related to net assets and liabilities denominated in foreign currencies.
Those forward contract derivatives, not designated as hedging instruments, are generally settled quarterly. Gain and loss on those
forward contracts are included in current earnings. There were no outstanding forward contracts at April 30, 2015 or 2014.
We enter cash flow hedge contracts
with financial institutions to manage our currency exposure on future cash payments denominated in foreign currencies. The effective
portion of gain or loss on cash flow hedge is reported as a component of accumulated other comprehensive income. The notional
amount of these contracts was $3.3 million and $2.5 million at April 30, 2015 and 2014, respectively. The corresponding asset
and income recorded in the consolidated statements of other comprehensive income is $115,482 at April 30, 2015 and in April 30,
2014 the amount is immaterial to the consolidated financial statements.
12. VAT Tax Issue in Brazil and Prior Period Adjustments
Asserted Claims and Prior
Period Adjustments
VAT (i.e. Value Added Tax) tax
in Brazil is at the state level. We commenced operations in Brazil in May 2008 through an acquisition of Qualytextil, S.A. (“QT”).
At the time of the acquisition, and going back to 2004, the acquired company used a port facility in a neighboring state (Recife-Pernambuco),
rather than its own, in order to take advantage of incentives, in the form of a discounted VAT tax, to use such neighboring port
facility. We continued this practice until April 2009. The practice was stopped largely for economic reasons, resulting from additional
trucking costs and longer lead time. The Bahia state auditors (state of domicile for the Lakeland operations in Brazil) initially
reviewed the period from 2004-2006 and filed a claim for unpaid VAT taxes in October 2009. The claim asserted that the state VAT
taxes are owed to the state of domicile of the ultimate importer/user and disregarded the fact that the VAT taxes had already
been paid to the neighboring state.
The audit notice claimed that
the taxes paid to Recife-Pernambuco should have been paid to Bahia in the amount of R$4.8 million and assessed fines and interest
of an additional R$5.6 million for a total of R$10.4 million (approximately US$3.0 million, $3.5 million and $6.5 million, respectively
based on exchange rates at the time of the claim).
Bahia had announced an amnesty
for this tax whereby R$3.5 million (US$1.9 million) of the taxes claimed were paid by QT by the end of the month of May 2010,
and the interest and penalties related thereto were forgiven. According to fiscal regulation of Brazil, R$2.1 million (US$1.1
million) of this amnesty payment has since been recouped as credits against future taxes due.
An audit for the 2007-2009 period
has been completed by the State of Bahia. In October 2010, the Company received five claims for 2007-2009 from the State
of Bahia, the largest of which was for taxes of R$6.2 (US$2.1) million and fines and interest currently at R$8.3 million (US$2.8
million), for a total of R$14.6 (US$4.9) million. The Company intends to defend itself through a regulatory process and wait
for the next amnesty period. Of other claims, our attorney informs us that three claims totaling R$1.3 (US$0.4) million
in respect of fines and penalties will likely be successfully defended based on state auditor misunderstanding.
Lakeland intends to apply for
amnesty and make any necessary payments upon a forthcoming, anticipated amnesty periods imposed by the local Brazilian authorities.
Of this R$6.2 (US$2.1) million claim, R$3.4 (US$1.1) million is eligible for future credit. The future credit amount had been
recorded at the USD value at the exchange rate prevailing in 2010 when recorded, but has not been recorded on the books and have
been adjusted due to open contingencies (see prior period adjustment for see on VAT taxes in Brazil below).
The Company has changed its
strategy regarding the large VAT tax claim as a result of the current cash flow needs in Brazil. In February 2014, as had been
anticipated, the administrative proceedings have ended and a switch to a formal judicial proceeding became required. The Company
is presently attempting to negotiate a guarantee with the administrative level in the Tax department whereby the Company would
either pledge its inventory as collateral for the judicial deposit or alternately would agree to deposit into an escrow account
with the court system a monthly judicial deposit of a negotiated percentage of its future sales in Brazil. The Company would then
be able to avail itself of a later amnesty. Any amounts paid into the escrow would be available at such time to be applied to
the amnesty payment. The Company believes it is more likely than not that it will have the cash from operations or the borrowing
capacity at such time to fund such amnesty payment but no assurances can be given.
Such arrangement would result
in a judicial tax claim filed against the Company for 20% greater than the total claim, or approximately US$5.1 million (R$15.4
million). Of this amount, only a portion of any amount paid into future amnesty would be eligible for future credit as discussed
elsewhere in this note.
Once this arrangement is completed,
the formal judicial process could take from 5 to 10 years. The Company believes there is a strong likelihood that another amnesty
would be offered by the state prior to such completion.
The Company has accepted amnesty
for a smaller claim (the fifth referenced above) which will result in eight monthly payments of about US $14,000 (R$42,000) which
reflects abatement of 80% of penalty and interest.
Of three remaining claims, our
attorney informs us that R$1.0 (US $0.3) million will be successfully defended based on a lapse of statute of limitations and
R$0.3 (US $0.1) million based on state auditor misunderstanding. No accrual has been made for these items.
In December 2013, the Company
learned of a different VAT tax claimed by the State of Sao Paulo for a tax in the amount of approximately US $45,000 and the total
claim including interest and penalties totaling approximately US $200,000. In July 2014, management settled this claim for
an amount of US $75,000 (R$172,000) net present value which will be paid in 120 monthly installments of R$4,500 (US $1,500) fixed
with no interest or monetary depreciation. An amount of US $75,000 (R$ 172,000) has been charged to expense in Q2FY15.
Set forth below are the total
amounts of potential tax liability from both the original and larger of the five secondary claims, the amount of payments already
made into amnesty or scheduled for future payment, which are not eligible for future credit (essentially the discount allowed
as an incentive by the neighboring state), less the amount of VAT taxes actually paid which are available as a credit and the
amounts of the escrow released by one of the three sellers of the Brazilian company acquired by the Company. The foregoing forms
the basis for the US$1.6 million charge to expense recorded by Lakeland in the first quarter of fiscal 2011.
A table summarizing all four
different VAT claims remaining open and their status is listed below:
Principal | |
Interest & Penalty | | |
Total | | |
Approximate
for
Totals | | |
Loss
Possibility | |
Strategy | |
Collateral |
R$ | |
R$ | | |
R$ | | |
US $ | | |
| |
| |
|
305,897 | |
| 534,038 | | |
| 839,935 | | |
$ | 280,577 | | |
Remote | |
To await Judicial Process and negotiate
judicial deposit | |
New Land |
573,457 | |
| 1,337,933 | | |
| 1,911,390 | | |
$ | 636,492 | | |
Remote | |
To await Judicial Process and negotiate judicial deposit | |
Plant |
6,209,836 | |
| 8,356,422 | | |
| 14,566,258 | | |
| 4,865,800 | | |
Probable | |
To await Judicial Process and negotiate judicial deposit | |
- |
402,071 | |
| 826,346 | | |
| 1,228,417 | | |
$ | 410,347 | | |
Remote | |
To await Judicial Process and
negotiate judicial deposit | |
New Land |
7,491,261 | |
| 11,054,740 | | |
| 18,546,000 | | |
$ | 6,193,216 | | |
| |
| |
|
The R$ 6,209,836 for the larger VAT claim
is intended to be paid into the next amnesty and as such is included on the condensed consolidated balance sheet as liabilities
of discontinued operations of US $2,074,371 as of April 30, 2015.
Numbers may not add
due to rounding.
Future Accounting for Funds
Following earlier payment into
the amnesty program in 2010 and December 2013, a portion of the taxes were since recouped via credits against future taxes
due. The Company does not expect any further charges to expense. Any future payment into amnesty has already been reflected on
our books as a liability at January 31, 2015 and April 30, 2015, along with potential future credits.
Balance Sheet Treatment in
Brazil after Discontinued Operations
The Company has reflected the
above items on its April 30, 2015, balance sheet as follows:
|
|
R$ millions |
US$
millions |
Liabilities of discontinued operations |
Taxes payable |
6.2 |
2.1 |
Prior Period Adjustment for
Credit on VAT taxes in Brazil
In April 2010, the Company had
recorded a credit of approximately R$3.4 million ($1.9 million at time of recording in 2010 and $1.3 million at exchange rates
at January 31, 2015) arising on the payment of VAT taxes into the anticipated future amnesty. This credit results from the
fact that these VAT taxes were paid to the neighboring state of Pernambuco and the State of Bahia is demanding payment in full
to them even though a discounted amount of taxes had already been paid to Pernambuco and the credit is allowed for these paid
taxes but against future taxes due.
It has since been determined
that while the Company is entitled to such credit upon payment of the taxes into a future amnesty program, there is a possibility
this credit could be challenged by a supervisor in the Bahia tax department. Based on research which failed to reveal any
instances in which such a challenge has been made and prevailed, the Company believes that in the case of such challenge it is
also remote that such challenge would prevail. Further, the Company paid an earlier claim for VAT taxes into an amnesty
program in 2010 and received this credit which was utilized in full with no such challenge. However, since there is a contingency
open as to the granting of this credit, (i.e. it is contingent upon paying the tax into a future amnesty program and the credit
not being challenged by the Bahia tax department), however small, US GAAP prohibits this from being recorded as a “contingent
asset” and therefore the Company has adjusted the condensed consolidated balance sheets as at January 31, 2013 and January
31, 2014, to eliminate this “contingent asset.”
Prior Period Adjustment for
exchange rates on VAT taxes in Brazil
The VAT liability was not entered
on the Brazil subsidiary’s books in earlier years but was treated as a consolidation entry and, accordingly, was not adjusted
by the changing foreign exchange rates. This will be a favorable adjustment of $0.7 million and will reduce the liability
in US dollars. Accordingly, the Company has adjusted the condensed consolidated balance sheets as at January 31, 2013 and January
31, 2014.
It should be noted that these
assets would have been eliminated in any case in the event of the effectuation of the proposed transfer of the Company’s
Brazilian subsidiary to an officer of the Company. Further, this, along with the other prior period adjustment referred
to above, may reduce the Company’s basis in its Brazil subsidiary to below zero. The Company has announced that its
Board has approved the aforementioned transfer. In such case, if and when the transfer is consummated, it may result in
reporting a gain on such sale to the extent of negative basis.
Upon a transfer of
Lakeland Brazil the buyer would assume these VAT tax liabilities. As described in Note 17, the Company could, under certain
circumstances, continue to be exposed to these liabilities.
13. Brazil Management
and Share Purchase Agreement-Arbitration Award and Settlement Agreement
Lakeland Industries, Inc. and
its wholly-owned subsidiary, Lakeland Brasil S.A. (“Lakeland Brazil” and, for the purposes of this footnote, together
with the Company were parties to an arbitration proceeding in Brazil involving the Company and two former officers (the “former
officers”) of Lakeland Brazil. On May 8, 2012, the Company received notice of an arbitral award in favor of the former
officers.
On September 11, 2012, the Company
and the former officers entered into a settlement agreement (the “Settlement Agreement”) which fully and finally resolved
all alleged outstanding claims against the Company arising from the arbitration proceeding. Pursuant to the Settlement Agreement,
the Company agreed to a payment schedule to the former officers with a balance remaining as of April 30, 2015 of $3,750,000 in
US dollars consisting of 15 consecutive quarterly installments of US $250,000 ending on December 31, 2018, net of imputed interest
of $127,832 as shown on the condensed consolidated balance sheet at $2,636,523, net of current maturity of $1,000,000. The Company
is current with all obligations pursuant to this Settlement Agreement.
In addition, pursuant to the
Settlement Agreement, as additional security for payment of the settlement amount, Lakeland Brazil agreed to grant the former
officers a second mortgage interest on certain of its property in Brazil, which mortgage is expressly behind the lien securing
the payment of tax debts to a state within Brazil related to certain notices of tax assessment on such property. The Company also
agreed to become a co-obligor, in lieu of a guarantor, for payment of the settlement amount.
On March 9, 2015, Lakeland Brazil
changed its legal form to a Limitada and changed its name to Lake Brasil Industria E Comercio de Roupas E Equipamentos de Protecao
Individual LTDA.
14. Goodwill
There was no impairment of goodwill
during Q1 fiscal year 2016.
15. Recent Accounting Pronouncements
The Company considers the applicability
and impact of all accounting standards updates (ASUs). No recent accounting pronouncement is expected to have a material impact
on the consolidated financial statements.
16. Litigation
The Company is involved in various
litigation proceedings, in addition to those described in Note 10 of the financial statements of the Company’s Form
10-K filed May 18, 2015 for the year ended January 31, 2015, arising during the normal course of business which, though in the
opinion of the management of the Company, will not have a material effect on the Company’s financial position and results
of operations or cash flows; however, there can be no assurance as to the ultimate outcome of these matters.
17. Discontinued
Operations
Potential
Transfer of the Company’s Brazilian Operations
Discontinued
operations
On April 29, 2015, the Board
of Directors of Lakeland Industries, Inc. determined to exit the Brazilian market. The Company’s Brazilian operations have
been unprofitable over the last several years. After extensively considering a number of options and the advice of Brazilian legal
counsel, the Board of Directors approved a transfer of the Company’s wholly-owned Brazilian subsidiary, Lakeland Brazil
to a current officer of Lakeland Brazil, subject to successful negotiation and entry into a definitive agreement. It is intended
that the transfer involve the assumption of a substantial amount of liabilities by the transferee and additional funding from
the Company. In order to effectuate a transfer and aid the transferee to meet its liabilities, it is anticipated the Company would
contribute funding of approximately US $1,900,000 to the transferee, subject to possible partial recoupment through a land sale.
The transfer has been approved by the Company’s senior lender, Alostar Bank of Commerce.
The Company expects that the transfer
of Lakeland Brazil will occur during the second quarter of fiscal 2016. However, there can be no assurances that the transfer
will be successfully consummated. The Company currently estimates that it will incur total pre-tax exit and disposal costs of
approximately US $2.2 million, consisting of the aforementioned approximately US $1,900,000 of funding to the transferee in connection
with the transfer of Lakeland Brazil and approximately US $300,000 for legal and accounting fees and expenses. The foregoing are
estimates only. Actual amounts will not be known until the Company has fully implemented the proposed transfer transaction. Even
after the transfer, the Company may continue to be exposed to certain liabilities arising in connection with the prior operations
of Lakeland Brazil, including, without limitation, from lawsuits pending in the labor courts in Brazil and VAT taxes, as more
fully described in the Company’s annual report on Form 10-K for the fiscal year ended January 31, 2015. The Company understands
that under the laws of Brazil, a concept of fraudulent bankruptcy exists, which may hold a parent company liable for the liabilities
of its Brazilian subsidiary in the event some level of fraud or misconduct is shown during the period that the parent company
owned the subsidiary. While the Company believes that there has been no such fraud or misconduct, there can be no assurance that
the courts of Brazil will not make such a finding nonetheless. The risk of exposure to the Company substantially diminishes if
the transferee continues to operate the Brazilian subsidiary for a period of at least two years, as the risk of a finding of a
fraudulent bankruptcy lessens and pre-sale liabilities are paid off.
The following
tables summarize the results of the Brazil business included in the consolidated statement of income for the three months ended
April 30, 2015 and 2014, and balance sheets as of April 30, 2015 and January 31, 2015 as discontinued operations.
Balance
Sheet |
| |
(000's) | | |
(000's) | |
| |
April 30, 2015 | | |
January 31, 2015 | |
Assets of discontinued operations: | |
| | | |
| | |
Cash | |
$ | 12 | | |
$ | 53 | |
Accounts receivable | |
| 622 | | |
| 888 | |
Inventory | |
| 2,979 | | |
| 3,216 | |
Other current assets | |
| 1,495 | | |
| 634 | |
Property/Equipment
held for sale
| |
| 1,339 | | |
| 1,544 | |
Total assets of
discontinued operations | |
| 6,447 | | |
| 6,335 | |
Liabilities of discontinued operations: | |
| | | |
| | |
Accounts payable | |
| 467 | | |
| 651 | |
Accrued compensation and benefits | |
| 1,361 | | |
| 1,739 | |
Other accrued expenses | |
| 1,901 | | |
| 1,163 | |
Short term borrowings | |
| 630 | | |
| 688 | |
Other liabilities | |
| 2,333 | | |
| 2,333 | |
Total liabilities
of discontinued operations | |
| 6,692 | | |
| 6,574 | |
Statement
of Operations |
| |
(000's) | | |
(000's) | |
| |
April 30, 2015 | | |
April 30, 2014 | |
Net sales from discontinued
operations | |
$ | 444 | | |
$ | 1,749 | |
Cost of goods sold from discontinued
operations | |
| 412 | | |
| 1,154 | |
Gross profit from discontinued operations | |
| 32 | | |
| 595 | |
Operating expense from discontinued operations | |
| 484 | | |
| 871 | |
Operating loss from discontinued operations | |
| (452 | ) | |
| (276 | ) |
Other, net from
discontinued operations | |
| (479 | ) | |
| (78 | ) |
Loss from discontinued
operations before income tax | |
| (931 | ) | |
| (354 | ) |
Net loss from
discontinued operations | |
$ | (931 | ) | |
$ | (354 | ) |
Summary
Cash Flow Statement |
| |
(000's) | | |
(000's) | |
| |
April 30, 2015 | | |
April 30, 2014 | |
Net cash used in operating activities | |
$ | (587 | ) | |
$ | (570 | ) |
Net cash used in investing activities | |
| —
| | |
| (2 | ) |
Net cash provided by financing activities | |
| 552 | | |
| 572 | |
Net effect on cash of FX variations | |
| (6 | ) | |
| — | |
Net increase in cash and cash
equivalents | |
| (41 | ) | |
| —
| |
Cash and cash equivalents at beginning of year | |
| 53 | | |
| —
| |
Cash and cash equivalents at
end of year | |
$ | 12 | | |
$ | —
| |
18. Subsequent Event
In June 2015, Alostar Bank of Commerce, the Company's lender, amended the loan agreement to allow for the
Brazil exit plan.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Form 10-Q 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 and public protective clothing market. Our products are sold by our
in-house customer service group, our regional sales managers and independent sales representatives to a network of over 1,200
North American safety and mill supply distributors. These distributors in turn supply end user industrial customers, such as integrated
oil, chemical/petrochemical, utilities, automobile, steel, glass, construction, smelting, munition plants, janitorial, pharmaceutical,
mortuaries and high technology electronics manufacturers, as well as scientific and medical laboratories. In addition, we supply
federal, state and local governmental agencies and departments, such as fire and law enforcement, airport crash rescue units,
the Department of Defense, the Department of Homeland Security and the Centers for Disease Control. Internationally sales are
to a mixture of end users directly and in industrial distributors depending on the particular country market. Sales are made to
more than 40 foreign countries but are primarily in China, European Economic Community (“EEC”), Canada, Brazil, Chile,
Argentina, Russia, Argentina, Colombia, Ecuador and Southeast Asia.
We have operated facilities
in Mexico since 1995, in China since 1996 and in Brazil since May 2008. 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 of America 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. Our net sales from
continuing operations attributable to customers outside the United States of America were $11.98 million and $9.56 million for
the three months ended April 30, 2015 and 2014, respectively.
Critical Accounting
Policies and Estimates
Our discussion and analysis
of our financial condition and results of operations are based upon our audited condensed 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.
Revenue Recognition.
The Company derives its sales primarily from its limited use/disposable protective clothing and secondarily from its sales of
firefighting and heat protective apparel, high-end chemical protective suits, gloves and arm guards and reusable woven garments.
Sales are recognized when goods are shipped, at which time title and the risk of loss pass to the customer. Some sales in Brazil
may be sold on terms with F.O.B. destination, which are recognized when received by 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.
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. Inventory is written down for slow-moving, obsolete or unusable inventory.
Allowance for Doubtful Accounts.
Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the
following factors when determining the collectability of specific customer accounts:
Customer creditworthiness, past
transaction history with the customer, current economic industry trends and changes in customer payment terms. Past due balances
over 90 days and other less creditworthy accounts are reviewed individually for collectability. If the financial condition of
the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would
be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge
to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection
efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.
Income Taxes and Valuation
Allowances. 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.
Uncertain
Tax Positions. In the event the Company determines that it may not be able to realize all or part of our deferred tax
assets 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. The Company recognizes
tax positions that meet a “more likely than not” minimum recognition threshold.
Valuation of Goodwill and
Other Intangible Assets. Goodwill and indefinite lived, intangible assets are tested for impairment at least annually; however,
these tests may be performed more frequently when events or changes in circumstances indicate the carrying amount may not be recoverable.
Goodwill and other intangibles impairment is evaluated utilizing a two-step process as required by US generally accepted accounting
principles (“US GAAP”). Factors that the Company considers 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. The Company measures any potential impairment
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.
Impairment of Long-Lived
Assets. The Company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances
indicate the carrying value may not be recoverable. The carrying value of a long-lived asset is considered impaired when the total
projected undiscounted cash flows from the asset are separately identifiable and are less than its carrying value. In that event,
a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset.
Foreign Currency Risks.
The functional currency for the Brazil operation is the Brazil Real; the United Kingdom, the Euro; the trading company in China,
the RenminBi; the Canadian Real Estate, the Canadian dollar; the Argentina operation, the Argentine Peso, and the Russian operation,
the Russian Ruble and Kazakhstan Tenge. All other operations have the US dollar as its functional currency.
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 is based upon historical trends. If more claims are made than were estimated or if the costs
of actual claims increase 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.
Loss Contingencies. Certain
conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company
but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its
legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing
loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such
proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims, as
well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency
indicates that it is probable that a material loss has been or is probable of being incurred and the amount of the liability can
be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment
indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot
be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable
and material, would be disclosed.
Loss contingencies considered
remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
Significant
Balance Sheet Fluctuation April 30, 2015, As Compared to January 31, 2015
Cash increased by $2.0 million
as the Company built excess cash in its Chinese manufacturing subsidiary, rather than repaying debt, in anticipation of a planned
dividend to the Company declared and paid in May 2015. Borrowings under the revolving credit facility increased by $3.0 million
as the Company prepared for the restructuring in Brazil. Inventory of continuing operations net of reserves had an increase of
$2.4 million as the Company continued to stock for the Ebola crises response and the heavy volume normally associated with the
second quarter. Accounts receivable increased $1.5 million primarily due to sales volume in the UK and increased volume in chemical
and disposable sales in the US. Accounts payable increased $0.7 million in the USA and the UK as a normal course of business.
Accrued compensation and benefits decreased $0.3 million primarily due to overtime reflected in payroll in the China manufacturing
facilities in the fourth quarter of FY15 and other accrued expenses increased $0.3 million as a result of professional fee accruals
in corporate and an increase in freight and customs accrual in the UK.
Three Months ended
April 30, 2015, As Compared to the Three Months Ended April 30, 2014
Net
Sales. Net sales from continuing operations increased to $24.8 million for the three months ended April
30, 2015 compared to $21.8 million for the three months ended April 30, 2014, an increase of 14%. Sales in the USA increased $2.6
million or 22% due primarily to the strong sales levels in the disposables and chemical divisions related to the Company’s
response to the Ebola crisis. USA sales of disposables increased by $0.5 million and chemical sales increased $0.6 million. Wovens
and fire protection sales combined decreased $0.5 million, glove sales decreased $0.1 million and reflective sales remained
level. Sales in China and to the Asia Pacific Rim were up $0.2 million or 5%. Canada sales increased by $0.1 million or 8% and
UK sales increased by $2.8 million or 101% mostly due to the Company’s Ebola sales. Russia and Kazakhstan sales combined
decreased by $0.2 million or 47% as the economy experienced negative currency fluctuations and Latin America sales decreased $0.6
million or 33% due to an inability to clear raw materials purchases through Argentine customs. Numbers may not add due to rounding.
Gross Profit.
Gross profit from continuing operations increased $2.8 million, or 43%, to $9.3 million for the three months ended April 30,
2015, from $6.5 million for the three months ended April 30, 2014. Gross profit as a percentage of net sales increased to 37.4%
for the three months ended April 30, 2015, from 29.9% for the three months ended April 30, 2014. Major factors driving the changes
in gross margins were:
| · | Disposables
gross margin increased by 10 percentage points as the Company implemented a price increase,
costs were held steady and strong sales were generated in response to the Ebola crisis. |
| · | Chemical
gross margin increased by 6 percentage points as the Company implemented a price increase,
costs were held steady and strong sales were generated in response to the Ebola crisis. |
| · | Wovens
gross margin remained level as sales were flat. |
| · | Fire
protection gross margin decreased 18 percentage points due to low sales volume and product
mix. |
| · | Reflective
gross margins increased 35 percentage points since the Company closed the USA facility
in the first quarter of FY15 and production was moved to our lower cost Mexico facility
with normalized production. |
| · | UK
gross margins increased 15 percentage points as a result of strong sales associated with
the Ebola crisis response, product mix and modest price increases for major customers. |
| · | Chile’s
gross margin decreased 35 percentage points primarily as a result of very weak sales
volume and sale of reserve items at a discount. |
| · | Argentina’s
gross margin increased 13 percentage points due to product mix. |
| · | Russia’s
gross margin increased 10 percentage points due to product mix and level costs though
volume decreased. |
Operating Expense.
Operating expenses of continuing operations increased from $5.6 million for the three months ended April 30, 2014 to $6.1 million
for the three months ended April 30, 2015. Operating expenses as a percentage of net sales was 24.4% for the three months ended
April 30, 2015 down from 25.9% for the three months ended April 30, 2014. The main factors for the increase in operating expenses
is due to a $0.2 million increase in freight, a $0.1 million increase in equity compensation and a $0.1 million increase in foreign
currency fluctuations.
Operating Profit.
Operating profit from continuing operations increased to a profit of $3.2 million for the three months ended April 30, 2015, from
$0.9 million for the three months ended April 30, 2014, mainly as a result of strong sales volume and significantly improved gross
profit margins. Operating margins were 13.0% for the three months ended April 30, 2015, compared to 4.0% for the three months
ended April 30, 2014.
Interest Expense.
Interest expenses from continuing operations decreased $0.3 million to $0.2 million for the three months ended April 30, 2015,
from $0.5 million for the three months ended April 30, 2014, as a result of the payoff of the Company’s subordinated debt
and temporary reduction of senior debt from the proceeds of the Company’s October 2014 equity financing.
Income Tax Expense.
Income tax expense consists of federal, state and foreign income taxes. Income tax expenses from continuing operations were $0.9
million for the three months ended April 30, 2015, as compared to an income tax expense of $0.0 million for the three months ended
April 30, 2014.
Discontinued Operations.
Loss from discontinued operations increased from $0.4 million to $0.9 million this year mainly due to cash constraints impacting
the sales volume of Lakeland Brazil.
Net Income.
Net income from continuing operations increased $1.8 million to $2.2 million for the three months ended April 30, 2015 from $0.3
million for the three month ended April 30, 2014. The net income for the three months ended April 30, 2015 resulted from strong
sales volume in the USA and the UK from the Company’s response to the Ebola crisis.
Liquidity and Capital Resources
Cash Flows. As of April 30,
2015, we had cash and cash equivalents of approximately $8.7 million and working capital of $43.8 million. Cash and cash equivalents
increased $2.0 million by not repaying credit lines and working capital increased $1.4 million from January 31, 2015 primarily
as the Company built excess cash in its Chinese subsidiary in anticipation of a planned dividend to the Company to be declared
and paid in May 2015. International cash management is affected by local requirements and movements of cash across borders can
be slowed down significantly.
Net cash used in operating activities
of $1.5 million for the three-months ended April 30, 2015 was primarily due to an increase to inventories of $2.5 million resulting
from the company’s production planning for our peak sales season, an increase of $1.6 million in accounts receivables payable
resulting from strong sales volume related to the Company’s response to the Ebola crisis, an increase to other assets of
$0.7 million primarily due to prepayments in China for materials for Ebola production and a reduction to accrued compensation
and benefits of $0.3 million resulting from a lower accrual for payroll due to timing. These activities were offset by a decrease
to prepaid VAT of $0.5 million, an increase to accounts payable of $0.7 million, and an increase in accrued expenses of $0.3 million
due to accrued federal income tax. Net cash provided by financing activities was $3.8 million in the three-months ended April
30, 2015, due to net borrowings under the credit agreement, new financing in Argentina and borrowings in the UK.
We currently have one senior
credit facility: $15 million revolving credit facility which commenced June 28, 2013, of which we had $8.7 million of borrowings
outstanding as of April 30, 2015, expiring on June 30, 2017, at a current per annum rate of 4.25%. Maximum availability in excess
of amount outstanding at April 30, 2015 was $6.3 million. Our current credit facility requires, and any future credit facilities
may also require, that we comply with specified financial covenants relating to earnings before interest, taxes, depreciation
and amortization and others relating to fixed charge coverage ratio and limits on capital expenditures and investments in foreign
subsidiaries. Our ability to satisfy these financial covenants can be affected by events beyond our control, and we cannot guarantee
that we will meet the requirements of these covenants. 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, including Development Bank of Canada (“BDC”),
have a security interest in substantially all of our US and Canadian assets and pledges of 65% of the equity of the Company’s
foreign subsidiaries, outside Canada which is 100%. If our lenders declare amounts outstanding under any credit facility to be
due, the lenders could proceed against our assets. Any event of default, therefore, could have a material adverse effect on our
business. We believe that our current availability under our Credit Facility, coupled with our anticipated operating cash and
cash management strategy, is sufficient to cover our liquidity needs for the next 12 months.
Since the equity raise and repayment
of subordinated debt in October 2014, the prevailing interest expense has decreased substantially.
Capital Expenditures.
Our capital expenditures in Q1 FY16 of $0.3 million principally
relate to additions to equipment in China and manufacturing equipment, computer system and leasehold improvements in the USA.
We anticipate FY16 capital expenditures to be approximately $1.0 million. There
are no further specific plans for material capital expenditures in the fiscal year 2016.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
Item
4. Controls and Procedures
Disclosure Controls and
Procedures
We conducted an evaluation,
under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of April 30, 2015. There are inherent
limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error
and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures
can only provide reasonable assurance of achieving their control objectives. Based on their evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of April 30, 2015 based
on the material weaknesses discussed below.
Brazil
Management determined in FY14
that we did not have adequate internal controls in place in Brazil which constituted a material weakness. The Company has operated
without adequate cash resources in Brazil and our loan agreements in the USA precluded us from sending additional cash to Brazil.
As a result, we were not able to invest funds in Brazil on internal controls until the operation could be returned to profitability.
In FY14 we completely changed the senior management in Brazil and recruited and hired a new CEO specializing in turnaround situations
who started in September 2013 and recruited a new CFO who started in February 2014. It was not possible to address the internal
controls in Brazil until late in Q4 FY14 at which time the Company engaged an outside CPA firm in Brazil to review the internal
controls and procedures.
Their report was rendered March
29, 2014. The conclusion of the report was that the design of the activity/process controls does not meet the minimum requirements
needed for information security controls. In addition, the report indicated that the controls resulted in high exposure in the
areas of purchase, accounting closing, sales, financial, production, payroll, and logistics. Since the material weakness was identified
prior to January 31, 2014, action was taken by management such that it did not result in a misstatement for the year. Extensive
internal control work was performed in FY15, including travel by the CFO and VP Finance to Brazil on a quarterly basis for financial
review, and the hiring of a financial and operational consultant Multiplica who watches over the operations and cash flow and
provides funding, and management is confident the financial reporting is correct at April 30, 2015 after the effect of recording
the prior period adjustments. Due to challenges that still exist in Brazil, management concludes that the material weakness
in internal controls was not fully remediated in Q1 FY16. However, the Board of Directors of the Company has approved a plan to
exit Brazil in FY16 and Brazil has become a discontinued operation.
Failure of Entity Level
Controls
As a result of the material
weakness regarding financial reporting in Brazil in FY14 and FY15, the Company concluded that it did not have sufficient internal
controls in place. In addition, the Company did not perform a sufficient level of review of the financial information from Brazil
to ensure that all general ledger accounts were reconciled and that estimates were properly stated in FY14 and FY15. Since the
material weakness was identified prior to January 31, 2014 and all accounts were properly reconciled and reviewed, it did not
result in a misstatement for that year.
Due to the prior period adjustments
related to Brazil and the resulting material weakness in that country in FY15, management believes there remains an entity level
control failure in Q1 FY16. Management believes all other related issues in this area have been remediated and that with the sale
of Brazil this material weakness will be fully resolved.
Changes in Internal Control
over Financial Reporting
There have been no changes in
Lakeland Industries, Inc.'s internal control over financial reporting that occurred during Lakeland's first quarter of fiscal
2016 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial
reporting.
All internal control testing
that cannot be conducted by the existing internal audit team in the US and China will continue to be outsourced. The internal
control program will be monitored/tested in a manner consistent with full Sarbanes-Oxley compliance.
PART
II. OTHER INFORMATION
Items 1, 1A, 2, 3, 4 and 5 are not applicable
Item
6. Exhibits:
Exhibits:
10.1* |
Lease Agreement, dated April 4, 2011, between Wallingfen
Park Limited, as lessor, and Lakeland Industries, Inc., as lessee. |
|
|
10.2* |
Lease Agreement, dated May 15, 2015, between J & L Property Investors, LLC, as Landlord and Lakeland
Industries, Inc., as tenant. |
|
|
31.1* |
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
31.2* |
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
32.1* |
Certification of Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
32.2* |
Certification of Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS* |
XBRL Instance Document |
|
|
101.SCH* |
XBRL Taxonomy Extension Schema Document |
|
|
101.CAL* |
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
101.DEF* |
XBRL Taxonomy Extension Definitions Linkbase Document |
|
|
101.LAB* |
XBRL Taxonomy Extension Labels Linkbase
Document |
|
|
101.PRE* |
XBRL Taxonomy Extension Presentations
Linkbase Document |
_________________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.
| |
LAKELAND INDUSTRIES,
INC. |
| |
(Registrant) |
| |
|
| |
|
Date: June 15, 2015 | |
/s/ Christopher
J. Ryan |
| |
Christopher J. Ryan, |
| |
Chief Executive Officer,
President and Secretary |
| |
(Principal Executive
Officer and Authorized Signatory) |
| |
|
| |
|
Date: June 15, 2015 | |
/s/Gary Pokrassa |
| |
Gary Pokrassa, |
| |
Chief Financial Officer |
| |
(Principal Accounting
Officer and Authorized Signatory) |
Exhibit 10.1
DATED April 4, 2011
WALLINGFEN PARK LIMITED
And
LAKELAND INDUSTRIES EUROPE LIMITED
COUNTERPART
UNDERLEASE
Relating to:
Units 9 & 10, Warehouse 2, Jet Park,
Main Road, Newport
East Riding of Yorkshire
Pepperells Incorporating Ivesons
Solicitors
HULL
LR1.
Date of lease
|
4th April
2011 |
|
LR2.
Title number(s) |
LR2.1 Landlord’s title number(s)
Title number(s) out of which this lease is granted. Leave
blank if not registered.
YEA 57100
LR2.2 Other title number(s)
Existing title number(s) against which entries of matters
referred to in LR9, LR10, LR11 and LR13 are to be made.
|
|
LR3.
Parties to this lease
Give full names, addresses and company’s
registered number, if any, of each of the parties. For Scottish companies use a SC prefix and for limited liability partnerships
use an OC prefix. For foreign companies give territory in which incorporated. |
Landlord
WALLINGFEN PARK LIMITED (Company Number: 03113140) of
Wallingfen Lodge, 236 Main Road, Newport, Brough, East Yorkshire, HU15 2RH
Tenant
LAKELAND INDUSTRIES EUROPE LIMITED (Company Number: 0450066)
whose registered office is at Unit 11, Wallingfen Park, 236 Main Road, Newport, Brough, East Yorkshire, HU15 2RH
Other parties
Specify capacity of each party, for example “management
company”, “guarantor”, etc
|
|
LR4.
Property
Insert a full description of the land
being leased
or
Refer to the clause, schedule or paragraph
of a schedule in this lease in which the land being leased is more fully described.
Where there is a letting of part of
a registered title, a plan must be attached to this lease and any floor levels must be specified
|
In
the case of a conflict between this clause and the remainder of this lease then, for the purposes of registration, this clause
shall prevail.
Paragraph 1.4 of the Particulars
|
|
LR5.
Prescribed statements etc.
If this lease includes a statement falling
within LR5.1, insert under that sub-clause the relevant statement or refer to the clause, schedule or paragraph of a schedule in
this lease which contains the statement
In LR5.2, omit or delete those Acts
which do not apply to this lease |
LR5.1
Statements prescribed under rules 179 (dispositions in favour of a charity), 180 (dispositions by a charity) or 196 (leases
under the Leasehold Reform, Housing and Urban Development Act 1993) of the Land Registration Rules 2003
NONE
LR5.2. This lease
is made under, or by reference to, provisions of:
NONE
|
|
LR6.
Term for which the Property is leased
Include only the appropriate statement
(duly completed) from the three options
NOTE: The information you provide, or
refer to, here will be used as part of the particulars to identify the lease under rule 6 of the Land Registration Rule 2003.
|
The term as specified in this lease at paragraph 1.6
|
LR7.
Premium
Specify the total premium inclusive
of any VAT where payable
|
NONE
|
LR8. Prohibitions or
restrictions on disposing of this lease
Include whichever of the two statements
is appropriate.
Do not set out here the wording of the
provision.
|
This lease contains a provision that prohibit
or restricts dispositions
|
LR9.
Rights of acquisition etc
Insert the relevant provisions in the
sub-clauses or refer to the clause, schedule or paragraph of a schedule in this lease which contains the provisions. |
LR9.1 Tenant’s
contractual rights to renew this lease, to acquire the reversion or another lease of the Property, or to acquire an interest in
other land
NONE
LR9.2 Tenant’s covenant to (or
offer to) surrender this lease
NONE
LR9.3 Landlord’s contractual rights
to acquire this lease
NONE
|
LR10. Restrictive covenants
given in this lease by the Landlord in respect of land other than the Property
Insert the relevant provisions or refer
to the clause, schedule or paragraph of a schedule in this lease which contains the provisions
|
NONE
|
LR11.
Easements
Refer here only to the clause, schedule
or paragraph of a schedule in this lease which sets out the easements. |
LR11.1 Easements
granted by this lease for the benefit of the Property
FIRST SCHEDULE PART II
LR11.2 Easements granted or reserved
by this lease over the Property for the benefit of other property
FIRST SCHEDULE PART I
|
LR12. Estate rentcharge
burdening the Property
Refer here only to the clause, schedule
or paragraph of a schedule in this lease which sets out the rentcharge.
|
NONE
|
LR13. Application for
standard form of restriction
Set out the full text of the standard
form of restriction and the title against which it is to be entered. If you wish to apply for more than one standard form of restriction
use this clause to apply for each of them, tell us who is applying against which title and set out the full text of the restriction
you are applying for.
Standard forms of restriction are set
out in Schedule 4 to the Land Registration Rules 2003
|
The
Parties to this lease apply to enter the following standard form of restriction [against the title of the Property] or [against
title number ]
NONE
|
LR14. Declaration of
trust where there is more than one person comprising the Tenant
If the Tenant is one person, omit or
delete all the alternative statements.
If the Tenant is more than one person,
complete this clause by omitting or deleting all inapplicable alternative statements.
|
|
A LEASE DATED
1.1 |
The Landlord |
WALLINGFEN PARK LIMITED (Company Number 03113140) whose registered office is at Wallingfen Lodge, 236 Main Road, Newport, East Yorkshire, HU15 2RH |
|
|
|
1.2 |
The Tenant |
LAKELAND INDUSTRIES EUROPE LIMITED (Company Number 04500660) whose registered office is at Unit 11, Wallingfen Park, 236 Main Road, Newport aforesaid |
|
|
|
1.3 |
The Guarantor |
None |
|
|
|
1.4 |
The Premises |
All that the light industrial unit known as Units 9 & 10 forming part of Warehouse 2 at Jet Park, Main Road, Newport, East Riding of Yorkshire, HU15 2RP shown edged red on the Plan |
1.5 |
The Estate |
The land and warehouse buildings situate at Jet Park, Main Road, Newport (of which the Premises forms part) shown for the purposes of identification only edged blue on the Plan together with such additional land and buildings owned or acquired by the Landlord from time to time as shall be brought into use in the Estate |
|
|
|
1.6 |
Contractual Term |
Twelve
(12) years from and including the |
|
|
|
1.7 |
Rent Commencement Date |
the day of |
|
|
|
1.8 |
Initial Rent |
Fifty thousand Pounds (£50,000) (exclusive of VAT) for the first year of the Contractual Term |
|
|
|
1.9 |
Review Dates |
the day of and on the day of in each year thereafter and Review Date means any one of the review dates |
|
|
|
1.10 |
Interest Rate |
4% per year above the base lending rate of Barclays Bank Plc or such other Bank (being a member of the Committee of London and Scottish Bankers) as the Landlord may from time to time nominate in writing |
|
|
|
1.11 |
Permitted User |
General workshop storage and office use/light industrial use or such other use that falls within classes B1 and/or B8 of the Schedule to the Town and Country Planning (Use Classes) Order 1987 as the Landlord shall from time to time approve (such approval not to be unreasonably withheld or delayed) |
| 2.1 | For all purposes of this Lease the terms defined in clauses 1 and 2 have the meanings specified |
| 2.2 | "Access Roads" means the roadways, yards and pavements shown hatched green on the Plan |
| 2.3 | "Authorised Guarantee Agreement" shall have the same meaning as in the Landlord and Tenant
(Covenants) Act 1995 |
| 2.4 | "Building(s)" means the warehouse building or buildings now or at any time during the
Term erected on the whole or part of the Estate |
| 2.5 | “the Industrial Covenants” means the covenants set out in the Third Schedule |
| 2.6 | "the Insurance Rent" means the sums which the Landlord shall from time to time pay or
be required to pay by way of premium |
| 2.6.1 | for insuring the Premises (including insuring for loss of Rent) in accordance with its obligations
contained in the Superior Lease and |
| 2.6.2 | for insuring in such amount and on such terms (as the
Landlord shall consider appropriate or shall be reasonable) against all liability of the Landlord to third parties arising
out of or in connection with any matter including or relating to the Premises |
Provided that where any policy
for such insurance includes other property as well as the Premises the Insurance Rent shall be equal to a fair and reasonable proportion
attributable to the Premises (to be assessed by the Surveyor whose decision shall be final and binding on all the parties hereto)
of such sums referred to in sub-clause 2.6.1 and 2.6.2.
| 2.7 | "Insured Risks" means, subject to reasonable and continuing availability of insurance
cover and without limitation, fire lightning explosion riot civil commotion malicious persons and vandals earthquakes storm tempest
flood bursting and over flowing water pipes tanks and other apparatus impact by road vehicles and non-hostile aircraft (including
articles dropped from aircraft) and such other risks or contingencies as the Landlord from time to time in its reasonable discretion
may think fit to insure against subject to any exclusions limitations and conditions contained in the Policy of Insurance |
| 2.8 | "Interest" means interest during the period from the date on which the payment is due
to the date of payment both before and after any judgement at the Interest Rate then prevailing or should the base rate referred
to in clause 1.10 cease to exist or not be published at any time such other rate of interest as is most closely comparable with
the Interest Rate to be agreed between the parties or in default of agreement to be determined by the Surveyor acting as an expert
and not as an arbitrator |
| 2.9 | “Latent Defect” is reference to any defect in the Building or the Premises or anything
installed in or on the Building attributable to:- |
| 2.9.2 | defective workmanship or material |
| 2.9.3. | defective supervision of the construction of or the installation of any thing in or on the Building or the Premises; or |
| 2.9.4. | defective preparation of the site of the Premises |
| 2.10 | "the 1954 Act" means the Landlord and Tenant Act 1954 (and all statutes regulations and
orders included by virtue of clause 3.14) |
| 2.11 | "Pipes" means all pipes sewers drains mains ducts conduits gutters water courses wires
cables channels flues and all other conducting media and includes any fixings louvres cowls and any other ancillary apparatus which
are in on or under or which serve the Premises |
| 2.12 | "the Plan" means the plan annexed to this Lease |
| 2.13 | "the Planning Acts" means the Town and Country Planning Act 1990 the Planning (Listed
Buildings and Conservation Areas) Act 1990, the Planning (Hazardous Substances) Act 1990 and the Planning (Consequential Provisions)
Act 1990 (and all statutes regulations and orders included by virtue of clause 3.14) |
| 2.14 | “Rent" means the Initial Rent and rent ascertained in accordance with the Second Schedule
and such term does not include the Insurance Rent or Service Charge but the term “rents” includes the Rent and the
Insurance Rent and the Service Charge |
| 2.15 | "Service Charge" means such proportion as the gross metric area of the Premises bears
to the gross metric area of the Buildings on the Estate from time to time of which it forms part (to be assessed by the Surveyor
whose decision reasonably based and reached shall be final and binding on all the parties hereto) of the annual expenditure referred
to in Part A of the Fourth Schedule |
| 2.16 | “Superior Lease” means a Lease dated the eighth day of January 2009 and made between
Michael Robert Kendall of the one part and the Landlord of the other part |
| 2.17 | "Surveyor" means any suitability qualified person or firm appointed by the Landlord to
perform any of the functions of the Surveyor under this Lease (including an employee of the Landlord or a company that is a member
of the same group as the Landlord within the meaning of Section 42 of the 1954 Act and including also the person or the firm appointed
by the Landlord to collect the rents) |
| 2.18 | “VAT” means Value Added Tax or any tax of a similar nature that may be substituted
for it or levied in addition to it |
| 3.1 | The expressions "the Landlord" and "the Tenant" wherever the context so admits
include the person for the time being entitled to the reversion immediately expectant on the determination of the Term and the
Tenants successors in title respectively and any reference to Superior Landlord includes the Landlord's immediate reversioner at
any time |
| 3.2 | Where the Landlord the Tenant or the Guarantor for the time being are two or more persons obligations
expressed or implied to be made by or with such party are deemed to be made by or with such persons jointly and severally |
| 3.3 | Words importing one gender include all other genders and words importing the singular include the
plural and vice versa |
| 3.4 | The expression “Guarantor” includes not only the person referred to in clause 1.3 (if
any) but also any person who enters into covenants with the Landlord pursuant to clauses 5.9.5 or 5.26 |
| 3.5 | The expression "the Premises" includes but without limitation |
| 3.5.1 | all additions alterations and improvements to the Premises |
| 3.5.2 | all the Landlord's fixtures and fittings and fixtures of every kind which shall from time to time
be in or upon the Premises (whether originally affixed or fastened to or upon the Premises or otherwise) except any such fixtures
installed by the Tenant |
| 3.5.3 | all Pipes in on under or over and exclusively serving the Premises but such expression includes
no air space above the height of the top of the Premises and references to the Premises in the absence of any provision to the
contrary include any part of the Premises |
| 3.6 | The expression "the Term" includes the Contractual Term and any period of holding over
or extension or continuance of the Contractual Term whether by statute or common law |
| 3.7 | References to "the last year of the Term" include the last year of the Term if the Term
shall determine otherwise than by effluxion of time and references to "the expiration of the Term" include such other
determination of the Term |
| 3.8 | References to any right of the Landlord to have access to the Premises shall be construed as extending
to any Superior Landlord and any mortgagee of the Premises and to all persons authorised by the Landlord and any Superior Landlord
or mortgagee (including agents professional advisers contractors or workmen and others) (where the Superior Lease or mortgage grants
such right of access to the Superior Landlord or mortgagee) |
| 3.9 | Any covenant by the Tenant not to do an act or thing shall be deemed to include an obligation not
to permit or suffer such act or thing to be done by another person where the Tenant is aware that such act or thing is being done |
| 3.10 | Any provision in this Lease referring to the consent or approval of the Landlord shall be construed
as also requiring the consent or approval of any mortgagee of the Premises and the Superior Landlord where such consent shall be
required but nothing in this Lease shall be construed as implying that any obligation is imposed upon any mortgagee or the Superior
Landlord not unreasonably to refuse any such consent or approval |
| 3.11 | References to "consent of the Landlord" or words to similar effect mean a consent in
writing signed by or on behalf of the Landlord and to "approved" and "authorised" or words to similar effect
mean (as the case may be) approved or authorised in writing by or on behalf of the Landlord |
| 3.12 | The terms "the parties" or "party" mean the Landlord and/or the Tenant but
except where there is an express indication to the contrary exclude the Guarantor |
| 3.13 | "Development" has the meaning given by the Town and Country Planning Act 1990 Section
55 |
| 3.14 | Any references to a specific statute include any statutory extension or modification amendment
or re-enactment of such statute and any regulations or orders made under such statute and any general reference to "statute"
or "statutes" includes any regulations or orders made under such statute or statutes |
| 3.15 | References in this Lease to any clause sub clause or schedule without further designation shall
be construed as a reference to the clause sub clause or schedule to this Lease so numbered |
| 3.16 | The clause paragraph and schedule headings do not form part of this Lease and shall not be taken
into account in its construction or interpretation |
The Landlord demises to the Tenant the
Premises EXCEPTING AND RESERVING to the Landlord the rights specified in Part I of the First Schedule BUT TOGETHER WITH
the rights specified in Part II of the First Schedule TO HOLD the Premises to the Tenant for the Contractual Term
SUBJECT to all rights easements privileges restrictions covenants and stipulations of whatever nature affecting the Premises
YIELDING AND PAYING to the Landlord
| 4.1 | The Rent payable without deduction by equal monthly payments in advance on the [ ] day in every
month and proportionately for any period of less than a month the first years payment being a proportionate sum in respect of the
period from and including the Rent Commencement Date to and including the day before the first anniversary next after the Rent
Commencement Date and |
| 4.2 | By way of further rent the Insurance Rent payable in accordance with clause 7 and the Service Charge
payable in accordance with the Third Schedule |
The Tenant
covenants with the Landlord
| 5.1.1 | to pay the rents on the days and in the manner set out in this Lease and not to exercise or seek
to exercise any right or claim to withhold rent or any right or claim to legal or equitable set-off |
| 5.1.2 | if so required in writing by the Landlord to make such payments by banker's order or credit transfer
to any bank account in the United Kingdom that the Landlord may from time to time nominate |
| | To pay and to indemnify the Landlord against |
| 5.2.1 | all rates taxes assessments duties charges impositions and outgoings which are now or during the
Term shall be charged assessed or imposed upon the Premises or upon the owner or occupier of them (excluding any payable by the
Landlord occasioned by a receipt of rents or by any disposition or dealing with or ownership of any interest reversionary to the
interest created by this Lease) and if the Landlord shall suffer any loss of rating relief which may be applicable to empty premises
after the end of the Term by reason of such relief being allowed to the Tenant in respect of any period before the end of the Term
to make good such loss to the Landlord and |
| 5.2.2 | VAT (or any tax of a similar nature that may be substituted for it or levied in addition to it)
chargeable in respect of any payment made by the Tenant under any of the terms of or in connection with this Lease or in respect
of any payment made by the Landlord where the Tenant agrees in this Lease to reimburse the Landlord for such payment |
| 5.3 | Electricity Gas and Other Services Consumed |
To pay to the suppliers and/or
the Landlord as a supplier all charges for water electricity gas sewage and other services consumed or used at or in relation to
the Premises (including meter rents) and to indemnify the Landlord in respect thereof
| 5.4 | Repair Cleaning Decoration etc |
| 5.4.1 | to keep the Premises in good repair and condition excepting damage caused by an Insured Risk save
to the extent that the insurance money is irrecoverable in consequence of any act or default of the Tenant or anyone at the Premises
expressly or by implication with the Tenant's authority and under the Tenant's control and provided that nothing in this Lease
obliged the Tenant to remedy:- |
| (i) | at any time a Latent Defect relating to the structural steelwork or foundations of the Premises |
| (ii) | a Latent Defect of which the Tenant has notified the Landlord within the first three years of the
Term |
| (iii) | any want of repair within such period attributable to such Latent Defect |
| 5.4.2 | to replace from time to time the Landlord's fixtures and fittings in the Premises which may be
or become beyond repair at any time during or at the expiration of the Term |
| 5.4.3 | to clean the Premises and keep them in a clean condition |
| 5.4.4 | the Tenant must redecorate the Premises in a good and workmanlike manner and with appropriate materials
of good quality as often as is in the reasonable opinion of the Landlord or his Surveyor necessary in order to maintain a high
standard of decorative finish and preserve the premises (provided this is not ordinarily more than once in any 5 years of the Term)
and in the last year of the Term and when in the last year of the Term any change to the tints, colours and patterns of the decoration
are to be first approved by the Landlord in writing, provided that the covenants relating to the last year of the Term are not
to apply where the Tenant has redecorated the Premises less than 18 months before the end of the Term. |
| 5.4.5 | not to deposit or permit to be deposited any waste rubbish or refuse on the Access Roads |
| 5.4.6 | not to keep or store on the Access Roads any vehicle caravan or movable dwelling |
| 5.4.7 | not to cause the Access Roads to be untidy or in a dirty condition and in particular (but without
prejudice to the generality of the above) not to deposit on them refuse or other materials |
| 5.4.8 | where the use of Pipes boundary structures or other things is common to the Premises and other
property to be responsible for and to indemnify the Landlord against all sums due from and to undertake all work that is the responsibility
of the owner lessee or occupier of the Premises in relation to those Pipes or other things |
| 5.5.1.2 | make any addition to the Premises |
| 5.5.1.3 | unite the Premises with any adjoining premises |
| 5.5.1.4 | make any alteration to the Premises save as permitted by the following provisions of this clause |
| 5.5.2 | not to make internal structural alterations to the Premises without |
| 5.5.2.1 | obtaining and complying with all necessary consents of any competent authority and paying all charges
of any such authority in respect of such consents |
| 5.5.2.2 | making an application supported by drawings and where appropriate a specification in duplicate
prepared by an Architect or member of some other appropriate profession |
| 5.5.2.3 | paying the reasonable and properly incurred fees of the Landlord any superior landlord any mortgagee
and their respective professional advisers and |
| 5.5.2.4 | entering into such covenants as the Landlord may require as to the execution and reinstatement
of the alterations and in the case of any works of a substantial nature the Landlord may require prior to the commencement of such
works the provision by the Tenant of adequate security in the form of a deposit of money or the provision of a bond as assurance
to the Landlord that any works which may from time to time be permitted by the Landlord shall be fully completed |
| 5.5.3 | subject to the provisions of clause 5.5.2 not to make any internal non-structural alterations to
the Premises without the consent of the Landlord (such consent not to be unreasonably withheld or delayed) |
| 5.5.4 | to remove any additional buildings additions alterations or improvements made to the Premises at
the expiration of the Term if so requested by the Landlord and to make good any part or parts of the Premises which may be damaged
by such removal |
| 5.5.5 | not to make connection with the Pipes that serve the Premises otherwise than in accordance with
plans and specifications approved by the Landlord (such approval not to be unreasonably withheld or delayed) subject to consent
to make such connections having previously been obtained from the competent statutory authority or undertaker |
| 5.6 | Aerials Signs and Advertisements |
| 5.6.1 | Not to erect any pole mast or wire (whether in connection with telegraphic telephonic radio or
television communication or otherwise) upon the Premises |
| 5.6.2 | Not to affix to or exhibit on the outside of the Premises or to or through any window of the Premises
nor display anywhere on the Premises any placard sign notice fascia board or advertisement except any sign permitted by virtue
of any consent given by the Landlord pursuant to a covenant contained in this Lease (such consent not to be unreasonably withheld
or delayed) |
| 5.7.1 | At the Tenant's own expense to execute all works and provide and maintain all arrangements upon
or in respect of the Premises or the use to which the Premises are being put that are required in order to comply with the requirements
of any statute (already or in the future to be passed) or any government department local authority other public or competent authority
or Court of competent jurisdiction regardless of whether such requirements are imposed on the lessor the lessee or the occupier
provided the Tenant shall not be liable for any costs nor works relating to matters which pre-exist the date of this Lease. |
| 5.7.2 | Not to do in or near the Premises any act or thing by reason of which the Landlord may under any
statute incur have imposed upon it or become liable to pay any penalty damages compensation costs charges or expenses |
| 5.7.3 | Without prejudice to the generality of the above to comply in all respects with the provisions
of any statutes and any other obligations imposed by law or by any byelaws applicable to the Premises or in regard to carrying
on the trade or business for the time being carried on at the Premises |
| 5.8 | Access of Landlord and Notice to Repair |
| 5.8.1 | To permit the Landlord on 48 hours written notice (except in case of emergency): |
| 5.8.1.1 | to enter upon the Premises for the purpose of ascertaining that the covenants and conditions of
this Lease have been observed and performed |
| 5.8.1.2 | to view (and to open up floors under the parts of the Premises where such opening up is required
in order to view) the state of repair and condition of the Premises and |
| 5.8.1.3 | to give to the Tenant (or leave upon the Premises) a notice specifying any repairs cleaning maintenance
or painting that the Tenant has failed to execute in breach of the terms of this Lease and to request the Tenant to execute the
same within such reasonable time as the notice may specify having regard to the nature and extent of the work required to remedy
the breach including the making good of such opening up (if any) providing that any such opening-up shall be made good by and at
the cost of the Landlord where such opening-up reveals no breaches of the terms of this Lease |
| 5.8.2 | As soon as reasonably possible to repair cleanse maintain and paint the Premises as required by
such notice |
| 5.8.3 | If within one month of the service of such a notice the Tenant shall not have commenced and be
proceeding diligently with the execution of the work referred to in the notice or shall fail to complete the work within two months
or if in the Landlord's Surveyors reasonable opinion the Tenant is unlikely to have completed the work within such period to permit
the Landlord to enter the Premises to execute such work as may be necessary to comply with the notice and to pay to the Landlord
the cost of so doing and all expenses incurred by the Landlord (including legal costs and surveyors fees) within 14 days of a written
demand |
| 5.9.1 | Not to hold on trust for another or (save pursuant to a transaction permitted by and effected in
accordance with the provisions of this Lease) part with the possession of the whole or any part of the Premises or permit another
to occupy the whole or any part of the Premises |
| 5.9.2 | Not to assign or charge part only of the Premises |
| 5.9.3 | Not to assign or charge the whole of the Premises without the prior consent of the Superior Landlord
and the Landlord (such consent of the Landlord not to be unreasonably withheld or delayed) provided that the Landlord shall be
entitled (for the purposes of Section 19(1A) of the Landlord and Tenant Act 1925) in relation to an assignment |
| 5.9.3.1 | to withhold its consent in any of the circumstances set out in clause 5.9.4 |
| 5.9.3.2 | to impose all or any of the matters set out in clause 5.9.5 as a condition of its consent |
The provisos to this subclause
shall operate without prejudice to the right of the Landlord to withhold such consent on any other ground or grounds where such
withholding of consent would be reasonable or to impose any further condition or conditions upon the grant of consent where the
imposition of such condition or conditions would be reasonable
| 5.9.4 | The circumstances referred to in clause 5.9.3.1 above are as follows:- |
| 5.9.4.1 | where the assignee is an associated company of the Tenant |
| 5.9.4.2. | where in the reasonable opinion of the Landlord the proposed assignee is not responsible or respectable
or of sufficient financial standing to enable it to comply with the tenant’s covenants in the Lease |
| 5.9.4.3 | where prior to completion of the intended assignment the Tenant has not paid all of the rents or
other monetary payments due hereunder or had not substantially observed or performed the covenants on the part of the Tenant herein
contains |
| 5.9.5 | The matters referred to in clause 5.9.3.2 as conditions are as follows:- |
| 5.9.5.1 | that the Tenant enters into an Authorised Guarantee Agreement on or before completion of the assignment
whereby the Tenant covenants by deed with the Landlord to guarantee the performance by the proposed Assignee of all covenants on
the part of the Tenant and conditions contained in this Lease in a form reasonably required by the Landlord to incorporate all
or any of the terms set out in the Fifth Schedule (as if reference therein to “the Guarantor” were reference to the
Tenant) with such amendments or additions as the Landlord may require within the provisions of S.16 of the Landlord and Tenant
(Covenants) Act 1995 save that such guarantee shall not extend to any liability restriction or other requirement arising after
the Assignee is released from its covenants by virtue of the Landlord and Tenant (Covenants) 1995 |
| 5.9.5.2 | that the Tenant provides two references confirming that the proposed assignee is responsible and
will be able to pay the Rent and meet the other outgoings and liabilities arising under the Lease from any of the following namely
a former landlord bank trade creditor solicitor or accountant (except where the financial status of the proposes assignee is such
that it would be unreasonable for the Landlord to require such references) |
| 5.9.5.3 | that any assignee of the whole of the Premises covenants by deed with the Landlord to pay the rents
reserved by this Lease and to observe and perform all covenants on the part of the Tenant and conditions contained in this Lease
during the Term until released by virtue of the Landlord and Tenant (Covenants) Act 1995 |
| 5.9.5.4 | that (where it is reasonable so to require) in addition to the guarantee provided by the Tenant
pursuant to sub clause 5.9.5.1 at least two sureties acceptable to the Landlord (acting reasonably) act as sureties for the assignee
in order to covenant jointly and severally with the Landlord that the assignee will pay the rents reserved by this Lease and perform
and observe the covenants on the part of the Tenant and the conditions contained in this Lease and otherwise in the terms set out
in the Fifth Schedule hereto (as if reference therein to “the Guarantor” were reference to the sureties) or such other
terms as the Landlord may reasonable require |
| 5.9.5.5 | that the Tenant has with the application for consent to assign produced to the Landlord either
an unconditional undertaking from its solicitors to pay or such other security satisfactory to the Landlord (acting reasonably)
to cover payment of, whether the licence is granted or not, all reasonable costs and disbursements (including irrecoverable VAT)
which may be properly incurred by the Landlord in connection with the application for consent (including without prejudice to the
generality of the foregoing) its solicitors’ costs, it surveyors’ costs and the costs of any accountants employed to
advise in whether the intended assignee satisfies and financial criteria specified in this Lease or is a person of such financial
standing that it is reasonable for the Landlord to grant licence for the assignment of this Lease to it |
| 5.9.6 | Not to underlet the whole or any part of the Premises without the prior consent of the Superior
Landlord and the Landlord (such consent not to be unreasonably withheld or delayed) and provided that the following conditions
and obligations contained in clauses 5.9.7 to 5.9.10 inclusive are to be met failing which consent may be withheld. |
The provisos to this sub-clause
shall operate without prejudice to the right of the Landlord to withhold such consent on any other ground or grounds where such
withholding of consent would be reasonable or to impose any further condition or conditions upon the grant of consent where the
imposition of such condition or conditions would be reasonable.
| 5.9.7 | An underletting of part of the Premises shall only be permitted in relation to either the entirety
of Unit 9 and/or the entirety of Unit 10. |
| 5.9.8 | That each and every permitted underlease shall be granted without any fine or premium at a rent
not less than the then open market rental value of the Premises or relevant Unit to be approved by the Landlord prior to any such
underlease or the Rent (or a pro-rata apportionment of it in the case of an underletting of part) then being paid (whichever shall
be the greater) such Rent being payable in advance on the days on which Rent is payable under this Lease and shall contain provisions
approved by the Landlord. |
| 5.9.8.1 | for the upwards only review of the rent reserved by such underlease on the basis and on the dates
on which the Rent is to be reviewed in this Lease |
| 5.9.8.2 | prohibiting the under tenant from doing or allowing any act or thing in relation to the underlet
premises inconsistent with or in breach of the provisions of this Lease |
| 5.9.8.3 | for re-entry by the underlandlord on breach of any covenant by the undertenant |
| 5.9.8.4 | imposing an absolute prohibition against all dispositions of or other dealings whatever with the
Premises other than an assignment of the whole |
| 5.9.8.5 | prohibiting any assignment of the whole without the prior consent of the Landlord under this Lease |
| 5.9.8.6 | prohibiting the undertenant from permitting another to occupy the whole or any part of the Premises |
| 5.9.8.7 | imposing in relation to any permitted assignment the same obligations for registration with the
Landlord as are contained in this Lease in relation to dispositions by the Tenant |
| 5.9.9 | To enforce the performance and observance by every such undertenant of the provisions of the underlease
and not at any time either expressly or by implication to waive any breach of the covenants or conditions on the part of any undertenant
or assignee of any underlease nor (without the consent of the Landlord such consent not to be unreasonably withheld or delayed)
vary the terms or accept a surrender of any permitted underlease. |
| 5.9.10 | In relation to any permitted underlease: |
| 5.9.10.1 | to ensure that the rent is reviewed in accordance with the terms of the underlease |
| 5.9.10.2 | not to agree a reviewed rent with the undertenant without the approval of the Landlord |
| 5.9.10.3 | to give notice to the Landlord of the details of the determination of every rent review within
3 days provided that the Landlord’s approval specified above shall not be unreasonably withheld or delayed |
| 5.9.11 | Within 28 days of any assignment charge underlease or any transmission or other devolution relating
to the Premises to produce for registration with the Landlord’s solicitors such deed to document or a certified copy of it
and to pay the Landlord’s solicitors reasonable charges for the registration of every such document of no more than £50
plus VAT |
| 5.9.12 | Notwithstanding clause 5.9.1 the Tenant may share the occupation of the whole or any part of the
Premises with a company which is a member of the same group as the Tenant (within the meaning of Section 42 of the 1954 Act) for
so long as both companies shall remain members of that group and otherwise than in a manner that transfers or creates a legal estate |
| 5.10 | Nuisance etc and Residential Restrictions |
| 5.10.1 | Not to do nor allow to remain upon the Premises anything which may be or become or cause a nuisance
annoyance disturbance inconvenience injury or damage to the Landlord or its tenants or the owners or occupiers of adjacent or neighbouring
premises |
| 5.10.2 | Not to use the Premises for a sale by auction or for any dangerous noxious noisy or offensive trade
business manufacture or occupation nor for any illegal or immoral act or purpose |
| 5.10.3 | Not to use the Premises as sleeping accommodation or for residential purposes nor keep any animal
fish reptile or bird anywhere on the Premises |
To pay to the Landlord on an
indemnity basis all costs fees charges disbursements and expenses (including without prejudice to the generality of the above those
payable to counsel solicitors surveyors and bailiffs) properly and reasonably incurred by the Landlord in relation to or incidental
to
| 5.11.1 | every application made by the Tenant for a consent or licence required by the provisions of this
Lease whether such consent or licence is granted or refused or proffered subject to any qualification or condition or whether the
application is withdrawn |
| 5.11.2 | the preparation and service of a notice under the Landlord and Tenant [Covenants] Act 1995 Section
17 or under the Law of Property Act 1925 Section 146 or incurred by or in contemplation of proceedings under section 146 or 147
of that Act notwithstanding that forfeiture is avoided otherwise than by relief granted by the court |
| 5.11.3 | the recovery or attempted recovery of arrears of rent or other sums due from the Tenant and |
| 5.11.4 | any steps taken in contemplation of or in connection with the preparation and service of a schedule
of dilapidations during or within two months after the expiration of the Term (but relating in all cases to dilapidations which
occurred prior to such expiration of the Term) |
| 5.12.1 | Not to commit any breach of planning control (such term to be construed as it is used in the Planning
Acts) and to comply with the provisions and requirements of the Planning Acts that affect the Premises whether as to the Permitted
User or otherwise and to indemnify (both during or following the expiration of the Term) and keep the Landlord indemnified against
all liability whatsoever including cost and expenses in respect of any contravention that did not pre-exist the date of this Lease |
| 5.12.2 | At the expense of the Tenant to obtain all planning permissions and to serve all such notices as
may be required for the carrying out of any operations or user on the Premises which may constitute Development provided that no
application for planning permission shall be made without the previous consent of the Landlord (such consent not to be unreasonably
withheld or delayed) in any case where the application for an implementation of such planning permission will not create or give
rise to any tax or other fiscal liability for the Landlord or where the Tenant indemnifies the Landlord against such liability |
| 5.12.3 | Subject only to any statutory direction to the contrary to pay and satisfy any charge or levy that
may subsequently be imposed under the Planning Acts in respect of the carrying out or maintenance of any such operations or the
commencement or continuance of any such user |
| 5.12.4 | Notwithstanding any consent which may be granted by the Landlord under this Lease not to carry
out or make any alteration or addition to the Premises or any change of use until |
| 5.12.4.1 | all necessary notices under the Planning Acts have been served and copies produced to the Landlord |
| 5.12.4.2 | all necessary permissions under the Planning Acts have been obtained and produced to the Landlord
and |
| 5.12.4.3 | the Landlord has acknowledged that every necessary planning permission is acceptable to it (such
acknowledgement not to be unreasonably withheld) the Landlord being entitled to refuse to acknowledge its acceptance of a planning
permission on the grounds that any condition contained in it or anything omitted from it or the period referred to in it would
be (or be likely to be) prejudicial to the Landlord's interest in the Premises whether during or following the expiration of the
Term |
| 5.12.5 | Unless the Landlord shall otherwise direct to carry out and complete before the expiration of the
Term |
| 5.12.5.1 | any works stipulated to be carried out to the Premises by a date subsequent to such expiration
as a condition of any planning permission granted for any Development begun before the expiration of the Term and |
| 5.12.5.2 | any Development begun upon the Premises in respect of which the Landlord shall or may be or become
liable for any change or levy under the Planning Acts |
| 5.12.6 | In any case where a planning permission is granted subject to conditions and if the Landlord reasonably
so requires to provide security for the compliance with such conditions and not to implement that planning permission until security
has been provided |
| 5.13 | Plans Documents and Information |
| 5.13.1 | If called upon to do so to produce to the Landlord or the Surveyor all plans documents and other
evidence as the Landlord may reasonably require in order to satisfy itself that the provisions of this Lease have been complied
with |
| 5.13.2 | If called upon to do so to furnish to the Landlord the Surveyor or any person acting as the third
party determining the Rent in default of agreement between the parties under any provisions for rent review contained in this Lease
such information as may reasonably be requested in writing in relation to any pending or intended step under the 1954 Act or the
implementation of any provision for rent review |
To be responsible for and to
keep the Landlord fully indemnified against all damage damages losses costs expenses actions demands proceedings claims and liabilities
made against or suffered or incurred by the Landlord arising directly or indirectly out of
| 5.14.1 | any act omission or negligence of the Tenant or any persons at the Premises expressly or impliedly
with the Tenant's authority and under the Tenant's control |
| 5.14.2 | any breach or non-observance by the Tenant of the covenants conditions or other provisions of this
Lease or any of the matters to which this demise is subject |
| 5.15.1 | Not to stop up darken or obstruct any windows or light belonging to the Building(s) |
| 5.15.2 | To take all reasonable steps to prevent any window light opening doorway path passage pipe or other
encroachment or easement being made or acquired in against out of or upon the Premises and to notify the Landlord immediately if
any such encroachment or easement shall be made or acquired (or attempted to be made or acquired) and at the request of the Landlord
to adopt such means as shall reasonably be required to prevent such encroachment or the acquisition of any such easement |
| 5.15.3 | Not in any event to place or store or leave any articles or materials of any description on the
Retained Parts (as defined in clause 5 of Part A of the Fourth Schedule) |
| 5.15.4 | Not to allow at any time any vehicular or other obstruction by any employee or invitees of the
Tenant of the highways or the access and service roads or the service areas or forecourts serving the Premises or any other parts
of the Estate |
| | At the expiration of the Term: |
| 5.16.1 | To yield up the Premises in repair and in accordance with the terms of this Lease |
| 5.16.2 | To give up all keys of the Premises to the Landlord |
and
| 5.16.3 | To remove all signs erected by the Tenant in upon or near the Premises and immediately to make
good any damage caused by such removal |
| 5.17.1 | If the Tenant shall fail to pay the rents or any other sum due under this Lease within 14 days
of the date due whether formally demanded or not the Tenant shall pay to the Landlord Interest on the rents or other sum from the
date when they were due to the date on which they are paid (both dates being inclusive) and such interest shall be deemed to be
rents due to the Landlord |
| 5.17.2 | Nothing in the preceding clause shall entitle the Tenant to withhold or delay any payment of the
rents or any other sum due under this Lease after the date upon which they fall due or in any way prejudice affect or derogate
from the rights of the Landlord in relation to such non-payment including (but without prejudice to the generality of the above)
under the proviso for re-entry contained in this Lease |
| 5.18 | Statutory Notices Etc |
To give full particulars to the
Landlord of any notice direction order or proposal for the Premises made given or issued to the Tenant by any local or public authority
within 7 days of receipt and if so required by the Landlord to produce it to the Landlord and without delay to take all necessary
steps to comply with the notice direction or order and at the request of the Landlord but at the cost of the Tenant to make or
join with the Landlord in making such objection or representation against or in respect of any notice direction order or proposal
as the Landlord shall deem expedient
| 5.19 | Sale of Reversion etc |
| 5.19.1 | the Landlord at any time to enter upon the Premises and affix and retain anywhere upon the Premises
(but not so as to obstruct access to or egress from the Premises) a notice for the sale of the Landlord's reversionary interest |
| 5.19.2 | upon reasonable notice at any time during the Term prospective purchasers of or agents instructed
in connection with the sale of the Landlord's reversion or of any other interest superior to the Term to view the Premises without
interruption provided they are authorised in writing by the Landlord or its agents and provided in exercising such access as little
disturbance or interference as possible in caused to the Tenant and its Permitted User |
| | To permit the Landlord at any time during the last 6 months of the Contractual Term and at any
time thereafter unless the Tenant shall have made a valid court application under Section 24 of the 1954 or otherwise be entitled
in law to remain in occupation or to a new tenancy of the Premises (or sooner if the Rent reserved by clause 4.1 or any part of
it shall be in arrear and unpaid for longer than 28 days) to enter upon the Premises and affix and retain anywhere upon the Premises
(but not so as to obstruct access to or egress from the Premises) a notice for reletting the Premises and during such period to
permit persons with the written authority of the Landlord or its agent at reasonable times of the day to view the Premises |
| | To give notice to the Landlord of any defect in the Premises which might give rise to an obligation
on the Landlord to do or refrain from doing any act or thing in order to comply with the provisions of this Lease or the duty of
care imposed on the Landlord pursuant to the Defective Premises Act 1972 or otherwise and at all times to display and maintain
all notices which the Landlord may from time to time reasonably require to be displayed at the Premises |
| | To permit the Landlord at all times during the Term to exercise without interruption or interference
any of the rights granted to it by virtue of the provisions of this Lease |
| 5.23 | The Industrial Covenants |
| | To observe and perform the Industrial Covenants |
| 5.24 | Covenants under the Superior Lease |
| | To perform and observe the covenants on the part of the Landlord as tenant contained in the Superior
Lease (save such covenants as to the payment of rent and insurance and repair of the Premises) so far as the same relate to the
Premises as though the same were set out in full herein but save and except so far as the Landlord expressly covenants in this
Lease to observe and perform the same and to indemnify and keep indemnified the Landlord against all claims damages costs and expenses
in any way relating thereto |
| | To ensure that at all times the Landlord has written notice of the name address and home telephone
number of at least 2 keyholders of the Premises |
| | Within 14 days of the death during the Term of any Guarantor or of such person becoming bankrupt
or having a receiving order made against him or having a receiver appointed under the Mental Health Act 1983 or being a company
passing a resolution to wind up or enter into liquidation or having a receiver to give notice of this to the Landlord and if so
required by the Landlord at the expense of the Tenant within 28 days to produce some other person acceptable to the Landlord to
execute a guarantee in respect of the Tenant’s obligations contained in this Lease in the form of the Guarantor’s covenants
contained in this Lease |
| 6. | THE LANDLORD'S COVENANTS |
The Landlord
covenants with the Tenant:
| | To permit the Tenant peaceably and quietly to hold and enjoy the Premises without any interruption
or disturbance from or by the Landlord or any person claiming under or in trust for the Landlord |
| 6.2 | Observe Superior Lease |
| 6.2.1 | That the Landlord will pay the yearly rent reserved and made payable by the Superior Lease and
will observe and perform or procure the observance and performance of the tenant’s covenants and conditions therein contained
so far as the same are not required to be observed and performed by the Tenant under the covenants on its part hereinbefore contained
and will keep the Tenant indemnified against payment of the said rents and observance and performance of such covenants and conditions
so far as aforesaid and all proceedings costs claims and demands in any way relating thereto |
| 6.2.2 | at the request of the Tenant to use its reasonable endeavours to enforce the covenants on the part
of the Superior Landlord contained in the Superior Lease |
| 6.2.3 | At the cost of the Tenant to use its reasonable endeavours to obtain the consent of the Superior
Landlord wherever the Tenant makes application for any consent required under this Lease where the consent of both the Landlord
and the Superior Landlord is needed by virtue of this Lease or the Superior Lease |
| 6.2.4 | Not to agree to the variation of any of the terms of the Superior Lease which would be likely to
materially adversely affect the Tenant’s occupation or enjoyment of the Premises without first obtaining the Tenant’s
written consent such consent not to be unreasonably withheld or delayed |
| 6.3 | Remedy of Latent Defects |
| | The Landlord must as soon as practicably possible remedy:- |
| 6.3.1 | any Latent Defect relating to the structural Steelwork or foundations of the Premises |
| 6.3.2 | a Latent Defect of which the Tenant has notified the Landlord in writing within the first three
years of the Term |
| 6.3.3 | any want of repair within such period attributable to such Latent Defect |
| 6.4 | To observe and perform its obligations contained in the Fourth Schedule |
| 7.1 | Warranty re convictions |
The Tenant warrants that prior
to the execution of this Lease it has disclosed to the Landlord in writing any conviction judgment or finding of any court or tribunal
relating to the Tenant (or any director other officer or major shareholder of the Tenant) of such a nature as to be likely to affect
the decision of any insurer or underwriter to grant or continue insurance of any of the Insured Risks
| 7.2 | Payment of Insurance Rent |
The Tenant covenants to pay to
the Landlord the Insurance Rent on the date of this Lease for the period from and including the Rent Commencement Date to the day
before the next policy renewal date and subsequently the Tenant shall pay the Insurance Rent on demand
| 7.3.1 | If and whenever during the Term: |
| 7.3.1.1 | the Premises or any part of them are damaged or destroyed by any of the Insured Risks except one
against which insurance may not ordinarily be arranged with an insurer of repute for properties such as the Premises unless the
Landlord has in fact insured against that risk so that the Premises or any part of them are unfit for occupation or use and |
| 7.3.1.2 | save where payment of the insurance money is refused in whole or in part by reason of any act or
default of the Tenant or anyone at the Premises expressly or by implication with the Tenants authority and under the Tenant's control
the provisions of clause 7.3.2 shall have effect |
| 7.3.2 | When the circumstances contemplated in clause 7.3.1 arise the Rent or a fair proportion of the
Rent according to the nature and the extent of the damage sustained shall cease to be payable until the Premises or the affected
part shall have been rebuilt or reinstated so that the Premises or the affected part are made fit for occupation or use or until
the expiration of three years from the destruction or damage whichever period is the shorter (the amount of such proportion and
the period during which the Rent shall cease to be payable to be determined by the Surveyor acting as an expert and not as arbitrator) |
| 7.4 | Reinstatement and Termination if prevented: |
| 7.4.1 | If and whenever during the Term: |
| 7.4.1.1 | the Premises or any part of them are damaged or destroyed by any of the Insured Risks except one
against which insurance may not ordinarily be arranged with an insurer of repute for properties such as the Premises unless the
Landlord has in fact insured against that risk and |
| 7.4.1.2 | save where the payment of the insurance money is refused in whole or in part by reason of any act
or default of the Tenant or anyone at the Premises expressly or by implication with the Tenants authority (and under the Tenant's
control) |
the Landlord shall use reasonable
endeavours to obtain all planning permissions or other permits and consents that may be required under the Planning Acts or other
statutes (if any) and from the Superior Landlord to enable the Landlord to rebuild and reinstate ("Permissions")
| 7.4.2 | Subject to the provisions of clause 7.4.3 and 7.4.4 the Landlord shall as soon as the Permissions
have been obtained or immediately where no Permissions are required apply all monies received in respect of such insurance to which
the Landlord is entitled (except such sums in respect of loss of Rent) in rebuilding or reinstating the Premises so destroyed or
damaged |
| 7.4.3 | For the purposes of this clause the expression "Supervening Events" means |
| 7.4.3.1 | the Landlord has failed despite using reasonable endeavours to obtain the Permissions |
| 7.4.3.2 | any of the Permissions have been granted subject to a lawful condition with which in all the circumstances
it would be unreasonable to expect the Landlord to comply |
| 7.4.3.3 | some defect or deficiency in the site upon which the rebuilding or reinstatement is to take place
would mean that the same could only be undertaken at a cost that would be unreasonable in all the circumstances |
| 7.4.3.4 | the Landlord is unable to obtain access to the site for the purposes of rebuilding or reinstating |
| 7.4.3.5 | the rebuilding or reinstating is prevented by war act of God Government action strike lock out
or |
| 7.4.3.6 | any other circumstances beyond the control of the Landlord |
| 7.4.4 | The Landlord shall not be liable to rebuild or reinstate the Premises if and for so long as such
rebuilding or reinstating is prevented by Supervening Events |
| 7.4.5 | If upon the expiry of 3 years commencing on the date of the damage or destruction the Premises
have not been rebuilt or reinstated so as to be fit for the Tenant's occupation and use either party by notice served at any time
within 6 months of the expiry of such period invoke the provisions of clause 7.4.6 |
| 7.4.6 | Upon service of a notice in accordance with clause 7.4.5 |
| 7.4.6.1 | the Term will absolutely cease but without prejudice to any rights or remedies that may have accrued
to either party against the other including (without prejudice to the generality of the above) any right that the Tenant may have
against the Landlord for a breach of the Landlords covenants set out in clauses 7.4.1 and 7.4.2 |
| 7.4.6.2 | all money received in respect of the insurance effected by the Landlord pursuant to this clause
shall as against the tenant belong to the Landlord |
| 7.5 | Tenant's Insurance Covenants |
| | The Tenant covenants with the Landlord |
| 7.5.1 | To comply with all the requirements of the insurers |
| 7.5.2 | Not to do or omit anything that could cause any policy of insurance on or in relation to the Premises
to become void or voidable wholly or in part nor (unless the Tenant shall have previously notified the Landlord and have agreed
to pay the increased premium) anything by which additional or increased insurance premiums may become payable |
| 7.5.3 | To keep the Premises supplied with such fire fighting equipment as the insurers and the fire authority
may require and to maintain such equipment to their satisfaction and in efficient working order and that at least once in every
12 months to cause any sprinkler system and other fire fighting equipment to be inspected by a competent person |
| 7.5.4 | Not to store or bring on to the Premises any articles substance or liquid of a specially combustible
inflammable or explosive nature and to comply with the requirements and recommendations of the fire authority as to fire precautions
relating to the Premises |
| 7.5.5 | Not to obstruct the access to any fire fighting equipment or means of escape from the Premises
nor to lock any fire door while the Premises are occupied |
| 7.5.6 | To give notice to the Landlord immediately upon the happening of any event which might affect any
insurance policy on or relating to the Premises or upon the happening of any event against which the Landlord may have insured
under this Lease |
| 7.5.7 | Immediately to inform the Landlord in writing of any conviction judgement or finding of any court
or tribunal relating to the Tenant (or any director or other officer or major shareholder of the Tenant) of such a nature as to
be likely to affect the decision of any insurer or underwriter to grant or to continue any such insurance |
| 7.5.8 | If at any time the Tenant shall be entitled to the benefit of any insurance on the Premises (which
is not effected or maintained in pursuance of any obligation contained in this Lease) to apply all money received by virtue of
such insurance in making good the loss or damage in respect of which such money shall have been received |
| 7.5.9 | If however during the Term the Premises or any part of them are damaged or destroyed by an Insured
Risk and the insurance money under the policy of insurance effected by the Landlord pursuant to its obligation contained in this
Lease is by reason of any act or default of the Tenant or anyone at the Premises expressly or by implication with the Tenant's
authority and under the Tenant's control wholly or partially irrecoverable immediately in every such case subject to any necessary
Superior Landlords consent required (at the option of the Landlord) either |
| 7.5.9.1 | to rebuild and reinstate at its own expense the Premises or the part destroyed or damaged to the
reasonable satisfaction and under the supervision of the Surveyor the Tenant being allowed towards the expenses of so doing upon
such rebuilding and reinstatement being completed the amount (if any) actually received in respect of such destruction or damage
under any such insurance policy or |
| 7.5.9.2 | to pay to the Landlord on demand with Interest the amount of such insurance money so irrecoverable
in which event the provisions of clause 7.3 and 7.4 shall apply |
| 7.6 | Landlords Insurance Covenants |
| | The Landlord covenants with the Tenant in relation to the policy of insurance effected by the Landlord
pursuant to its obligations contained in this Lease |
| 7.6.1 | To produce to the Tenant on demand a copy of the policy and the last premium renewal receipt or
reasonable evidence of the terms of the policy and the fact that the last premium has been paid |
| 7.6.2 | To procure, if possible, that the interest of the Tenant is noted or endorsed on the policy |
| 7.6.3 | To notify the Tenant of any material change in the risks covered or requirements by the policy
from time to time |
| | If and whenever during the Term |
| 8.1.1 | the rents (or any of them or any part of them) under this Lease are outstanding for 14 days after
becoming due whether formally demanded or not or |
| 8.1.2 | there is a breach by the Tenant of any covenant or other term of this Lease or any document supplemental
to this Lease or |
| 8.1.3 | an individual Tenant becomes bankrupt or |
| 8.1.4 | a company Tenant or the Guarantor |
| 8.1.4.1 | enters into liquidation whether compulsory or voluntary (but not if the liquidation is for amalgamation
or reconstruction of a solvent company) or |
| 8.1.4.2 | has a receiver appointed or |
| 8.1.5 | the Tenant enters into an arrangement for the benefit of its creditors or |
| 8.1.6 | the Tenant has any distress or execution levied on its goods |
the Landlord may re-enter the
Premises (or any part of them in the name of the whole) at any time (and even if any previous right of re-entry has been waived)
then the Term will absolutely cease but without prejudice to any rights or remedies which may have accrued to the Landlord against
the Tenant or the Guarantor or to the Tenant against the Landlord in respect of any breach of covenant or other term of this Lease
(including the breach in respect of which the re-entry is made)
| 8.2 | Exclusion of Use Warranty |
| | Nothing in this Lease or any consent granted by the Landlord under this Lease shall imply or warrant
that the Premises may lawfully be used under the Planning Acts for the purposes authorised in this Lease (or any purpose subsequently
authorised) |
| | This Lease embodies the entire understanding of the parties relating to the Premises and to all
matters dealt with by any of the provisions of this Lease |
| | The Tenant acknowledges that this Lease has not been entered into in reliance wholly or partly
on any statement or representation made by or on behalf of the Landlord except any such statement or representation that is expressly
set out in this Lease or in written replies to enquiries give by the Landlord’s Solicitors |
| 8.5 | Licences etc under hand |
| | Whilst the Landlord is a limited company or other corporation all licences consents approvals and
notices required to be given by the Landlord shall be sufficiently given if given under the hand of a director the secretary or
other duly authorised officer of the Landlord or the Surveyor on behalf of the Landlord |
| | If after the Tenant has vacated the Premises on the expiry of the Term any property of the Tenant
remains in or on the Premises and the Tenant fails to remove it within 7 days after being requested in writing by Landlord to do
so or if after using its best endeavours the Landlord is unable to make such a request to the Tenant within 14 days from the first
attempt so made by the Landlord |
| 8.6.1 | the Landlord may as the agent of the Tenant sell such property and the Tenant will indemnify the
Landlord against any liability incurred by it to any third party whose property shall have been sold by the Landlord in the mistaken
belief held in good faith (which shall be presumed unless the contrary be proved) that such property belonged to the Tenant |
| 8.6.2 | if the Landlord having made reasonable efforts is unable to locate the Tenant the Landlord shall
be entitled to retain such proceeds of sale absolutely unless the Tenant shall claim them within 6 months of the date upon which
the Tenant vacated the Premises and |
| 8.6.3 | the Tenant shall indemnify the Landlord against any damage occasioned to the Premises and any actions
claims proceedings costs expenses and demands made against the Landlord caused by or related to the presence of the property in
or on the Premises |
| 8.7 | Compensation on Vacating |
Any statutory right of the Tenant
to claim compensation from the Landlord on vacating the Premises shall be excluded to the extent that the law allows
| | The provisions of the Law of Property Act 1925 Section 196 as amended by the Recorded Delivery
Service Act 1962 shall apply to the giving and service of all notices and documents under or in connection with this Lease except
that Section 196 shall be deemed to be amended as follows:- |
| 8.8.1 | the final words of Section 196(4) "and that service...be delivered" shall be deleted
and there shall be substituted "and that service shall be deemed to be made on the third Working Day after the registered
letter has been posted "Working Day" meaning any day from Monday to Friday inclusive other than Christmas Day Good Friday
and any statutory bank or public holiday" |
| 8.8.2 | any notice or document shall also be sufficiently served on a party if served on solicitors who
have acted for that party in relation to this Lease or the Premises at anytime within the year preceding the service of the notice
or document |
| 8.8.3 | any notice or document shall also be sufficiently served if sent by telex telephonic facsimile
transmission or any other means of electronic transmission to the party to be served (or its solicitors where clause 8.8.2 applies)
and that service shall be deemed to be made on the day of transmission if transmitted before 4 p.m. on a Working Day but otherwise
on the next following Working Day (as defined above) |
| | And in the clause “Party” includes the Guarantor |
| 8.9.1 | The Tenant may terminate this Lease on the day of
(“the Break Date”) if the Tenant shall up to the time of such termination have paid Rent and performed and observed
the covenants contained in this Lease by giving notice in writing (“the Break Notice”) to the Landlord not less than
six months before the Break Date |
| 8.9.2 | If a Break Notice is given in accordance with clause 8.9.1 this Lease will terminate on the Break
Date but without prejudice to the respective rights of either party in respect of any antecedent claim or breach of covenant |
This Lease shall be construed
and governed by the Laws of England and Wales to the exclusive jurisdiction of whose Courts the parties hereto unconditionally
submit
| 8.11 | Rights of Third Parties |
This
Lease does not create any right enforceable by any person not a party to it who is not the Landlord for the time being or the Tenant
for the time being or (where relevant) the Guarantor for the time being
This Lease
is a new tenancy for the purposes of Section 1 of the Landlord & Tenant (Covenants) Act 1995
IN WITNESS
WHEREOF the parties hereto have executed this Lease as a deed the day and year first before written
FIRST
SCHEDULE
Part I
(Rights
Reserved)
| 1. | The free and uninterrupted passage of water and soil through the pipes drains and watercourse and
of electricity, gas and other services through the Pipes which are now or may at any time during the Term be in on or under or
passing through the Premises for the benefit of the remainder of the Estate and any adjoining or neighbouring property and every
part thereof with the right to construct and maintain new services for the benefit of the remainder of the Estate and any adjoining
or neighbouring property and every part thereof the right to repair and maintain and renew such existing and new services and the
right at any time but (except in emergency) after giving reasonable notice to enter upon the Premises in the exercise of such rights |
| 2. | Full right and liberty at any time hereafter or from time to time to execute works services and
erections and buildings upon or to alter, demolish or rebuild any of the erections services or buildings erected on the remainder
of the Estate and any adjoining or neighbouring property or any part thereof providing the Landlord is acting reasonably and to
use the remainder of the Estate and any adjoining neighbouring property or buildings erected or to be erected thereon in such manner
as the Landlord acting reasonably shall think fit notwithstanding that the access of light or air to the Premises may be interfered
with or that access to the Premises may be unavoidably temporarily obstructed provided that the Landlord or the person exercising
such rights shall make good all damage occasioned thereby and shall abate an appropriate amount of rent for any part of the Premises
temporarily inaccessible by reason of such works |
| 3. | The right (upon reasonable prior notice except in emergency) to enter upon the Premises so far
as may be necessary for the purpose of executing repairs or alteration to and maintaining the Retained Parts or to the remainder
of the Estate and any adjoining or neighbouring property owned by the Landlord or any part thereof |
| 4. | The right of support and protection from the Premises for the remainder of the Estate and any adjoining
or neighbouring property and every part thereof |
| 5. | The right at any time during the Term at reasonable times and upon 48 hours written notice except
in cases of emergency to enter (or in cases of emergency to break and enter) the Premises |
| 5.1 | to exercise any of the rights granted to the Landlord elsewhere in this Lease |
| 5.2 | to inspect the condition and state of repair of the Premises |
| 5.3 | to take schedules or inventories of fixtures and fittings and other items to be yielded up on the
expiry of the Term |
| 6. | The right with the Surveyor at any time at convenient hours and on reasonable prior notice to enter
and inspect and measure the Premises for all purposes connected with any pending or intended step or action under the 1954 Act
or the implementation of the provisions for rent review |
| 7. | The right to vary alter or change the route leading to and from the Premises or close or build
upon the Access Roads forming part of the Estate provided that the Landlord shall provide or maintain suitable alternate access
to and from the Premises |
| 8. | The right in case of emergency for itself or others the occupiers or Tenants of the remainder of
the Estate and their visitors or licensees to gain egress through such parts of the Premises (if any) as are classified and maintained
as fire exits or emergency escape routes |
Part
II
(Rights Granted)
| 1. | The free and uninterrupted passage of water and soil through the pipes drains and watercourse and
of electricity, gas and other services through the Pipes which are now or may at any time during the Term be in or under or passing
through or over the other parts of the Estate or any adjoining or neighbouring property of the Landlord |
| 2. | All necessary rights of subjacent and lateral support and protection for the Premises |
| 3. | A right (upon reasonable prior notice except in emergencies) to enter onto the remainder of the
Estate so far as may be necessary for the purpose of executing repairs to and maintaining the Premises and a right to enter into
such part of the Building in which meters are housed in relation to mains service supplies provided that the Tenant or the person
exercising such rights shall make good all damage occasioned thereby to the remainder of the Estate |
| 4. | A right of way over the Access Roads for the Tenant or any persons expressly or impliedly authorised
by him at all times and for all purposes connected with such Tenant's use and enjoyment of the Premises and so far only as is necessary
and to load and unload in the Access Roads without causing congestion or any permanent or unnecessary obstruction |
| 5. | The right at all usual times of business to park motor vehicles in the parking areas coloured red
on the Plan or in other such places as the Landlord acting reasonably may from time to time designate together with the right to
casual parking in such other parking spaces which the Landlord may provide and designate from time to time and which may be available |
| 6. | All necessary rights in the event of fire or other similar emergency to use the fire and emergency
exits with the necessary egress to a place of safety |
THE
SECOND SCHEDULE
Rent Review
| | For all purposes of this schedule the terms defined in this paragraph shall have the meanings specified |
| 1.1 | “The Base Figure” means being the amount of the latest index figure of the index last
published before the date of this Lease |
| 1.2 | “the Index” means the Index of Retail Prices published by H M Stationary Office or
any official publication substituted for it |
| 1.3 | “The New Rent” means that rent to apply after the relevant Review Date until the next
Review Date |
| 1.4 | “The Revised Rent” means the rent determined in accordance with this schedule |
| 1.5 | “The Review Date Figure” means the amount of the latest index figure of the Index last
published before the relevant Review Date |
| 2.1 | The New Rent shall be whichever is the higher of: |
| 2.1.1 | An increase of 3% of the Rent then payable and |
| 2.2 | If the relevant Review Date is not a rent payment day the Tenant shall on that Review Date pay
to the Landlord the amount by which one months rent at the rate payable on the immediately preceding rent payment day is less than
one months Rent at the rate of the New Rent apportioned on a daily basis for that part of the month during which the New Rent is
payable |
| | The Revised Rent shall be the amount to be determined at the Review Date by multiplying the Initial
Rent by the Review Date Figure and dividing the result by the Base Figure |
| 4.1 | In the event of any change after the date of this Lease in the reference base used to complete
the Index the figure taken to be shown in the Index after the change shall be the figure which would have been shown in the Index
if the reference base current at the date of this Lease had been retained |
| 4.2 | In the event of it becoming impossible by reason of any change after the date of this Lease in
the methods used to compile the Index or for any other reason whatsoever to calculate the Revised Rent by reference to the Index
or if any dispute or question whatsoever arises between the parties to this Lease with respect to the amount of the Revised Rent
or with respect to the construction or effect of this clause the dispute or question shall be determined by a valuer acting as
an expert who shall have full power to determine on such dates as he shall deem apposite what would have been the Review Date Figure
had the Index continued on the basis and giving the information assumed to be available for the operation of this Schedule |
| 5. | Notification of the Revised Rent |
| 5.1 | The Landlord shall obtain copies of the Index and shall supply the Tenant with a copy of the latest
publication of the Index before the Review Date together with a calculation of the amount of the Revised Rent |
| 5.2 | Within one month of receipt of the Tenant shall in writing acknowledge receipt of the copy and
statement and state whether or not he agrees with the calculation |
| 6.1 | If the Tenant fails to acknowledge the Landlords calculation of the amount of the Revised Rent
within one month or the procedure laid down in this Schedule is not complied with the Revised Rent shall be the amount stated in
the Landlords calculation |
| 6.2 | If it is impossible to determine the Revised Rent in accordance with paragraph 3 of this Schedule
then the Revised Rent shall be determined in accordance with paragraph 4.2 of this Schedule |
| 7. | Payment of the New Rent |
| 7.1 | The Tenant shall continue to pay the previous Rent payable in accordance with the terms of this
Lease until ascertainment of the Revised Rent |
| 7.2 | Upon ascertainment of the Revised Rent the New Rent shall be payable from the Review Date and the
Tenant shall pay the New Rent until the next relevant Review Date |
| 7.3 | Upon ascertainment of the Revised Rent the Tenant shall forthwith pay to the Landlord the amount
of any difference between the rent immediately payable before that Review Date and the New Rent for the period between the Review
Date and the ascertainment of the New Rent with interest at the Interest Rate calculated on a daily basis from the date of ascertainment
of the New Rent to the date of payment |
| | When the New Rent have been ascertained in accordance with this Schedule memoranda of the amounts
shall be endorsed on this Lease and the counterpart of it and shall be signed by or on behalf of the Landlord the Tenant and the
Superior Landlord |
THE
THIRD SCHEDULE
The Industrial
Covenants
| 1.1 | To use the Premises for the Permitted User only |
| 1.2 | Not to cease carrying on business in the Premises or leave the Premises continuously unoccupied
for more than 1 month without |
| 1.2.1 | notifying the Landlord and |
| 1.2.2 | providing such caretaking or other security arrangements as the Landlord shall reasonably require
and the insurers shall require in order to protect the Premises from vandalism theft damage or unlawful occupation |
| 2.1 | To ensure that every furnace boiler or heater at the Premises (whether using solid liquid or gaseous
fuel) is constructed and used so as substantially to consume or burn the smoke arising from it |
| 2.2 | Not to cause or permit any grit or noxious or offensive effluvia to be emitted from any engine
furnace chimney or other apparatus on the Premises without using the best possible means for preventing or counteracting such emission |
| 2.3 | To comply with the provisions of the Clean Air Acts 1956 and 1968 the Control of Pollution Act
1974 and the Environmental Protection Act 1996 and with the requirements of any notice of the local authority served under them |
| | Not to permit to be discharged into any Pipes serving the Premises or to be spilled or deposited
on the Premises or any neighbouring or adjoining land |
| 3.1 | Any oil or grease or any deleterious objectionable dangerous poisonous noxious or explosive matter
or substance and to take all reasonable measures to ensure that any effluent discharged into the Pipes will not be corrosive or
otherwise harmful to the Pipes or cause obstruction or deposit in them or |
| 3.2 | Any fluid of a poisonous or noxious nature or other kind likely to or that does in fact destroy
sicken or injure the fish or contaminate or pollute the water of any stream or river |
| 3.3 | Any controlled or special waste or any other substance that may produce concentrations or accumulations
of noxious gases or noxious liquids that may cause pollution of the environment or harm to human health |
| 4. | Roof and Floor Weighting |
| 4.1 | Not to bring or permit to remain upon the Premises any safes machinery goods or other articles
which shall or may strain or damage the Premises or any part of it |
| 4.2 | Not without the consent of the Landlord to suspend any weight from the portal frames stanchions
or roof purlins of the Premises or use the same for the storage of goods or place any weight on them |
| 4.3 | On the application by the Tenant for the Landlord's consent under paragraph 4.2 the Landlord shall
be entitled to consult and obtain the advice of an engineer or other person in relation to the roof or floor loading proposed by
the Tenant and the Tenant shall repay to the Landlord on demand the fee of such engineer or other person |
| 5.1 | To keep all plant apparatus and machinery (including any boilers and furnaces) upon the Premises
properly maintained and in good working order and for that purpose to employ reputable contractors for the regular periodic inspection
and maintenance of them |
| 5.2 | To renew all working and other parts as and when necessary or when recommended by such contractors |
| 5.3 | To ensure by directions to the Tenants staff and otherwise that such plant apparatus and machinery
are properly operated and |
| 5.4 | To avoid damage to the Premises by vibration or otherwise |
| | At all times to display and maintain a suitable sign showing the Tenant's trading name and business
of the size and kind specified by the Landlord at points designated within the Estate by the Landlord |
| | Not to permit any vehicles belonging to it or to any persons calling at the Premises expressly
or by implication with its authority to stand on or obstruct the Access Roads |
| | To comply with all reasonable regulations made by the Landlord from time to time for the management
of the Estate |
THE
FOURTH SCHEDULE
Service
Charge
PART A
Definitions
| 1. | "Services" means the services facilities and amenities specified in Part C of this Schedule |
| 2. | "Annual Expenditure" means |
| 2.1 | all costs expenses and outgoings whatever properly incurred by the Landlord during a Financial
Year in or incidental to providing all or any of the Services and |
| 2.2 | all sums reasonably and properly incurred by the Landlord during a Financial Year in relation to
the matters specified in Part D of this Schedule ("the Additional Items") |
and any
VAT payable on such items (save where such VAT is recoverable by the Landlord) but
| 2.3 | excluding any expenditure in respect of any part of the Estate for which the Tenant or any other
Tenant shall be wholly responsible and excluding any expenditure that the Landlord shall recover or which shall be met under any
policy of insurance maintained by the Landlord pursuant to its obligations in this Lease |
| 3. | "Computing Date" means 1st August in every year of the Term or such other date as the
Landlord may from time to time nominate and "Computing Dates" shall be construed accordingly |
| 4. | "Financial Years" means the period |
| 4.1 | from the commencement of the Term to and including the first Computing Date and subsequently |
| 4.2 | between 2 consecutive Computing Dates (including the first Computing Date but excluding the second
Computing Date in the period) |
| 5. | "Retained Parts" mean all parts of the Estate not constructed or adapted for letting
including (but without prejudice to the generality of the above): |
| 5.1 | any rooms and storage premises used in connection with the provision of services for the Estate |
| 5.2 | all Pipes equipment and apparatus used in the Building (except such as are within and solely serve an individual unit which
is let or constructed or adapted for letting) |
| 5.3 | Such parts of the structure walls foundations and roofs of the Building that are not included in the Premises and that would
not be included in the Premises demised by leases of all the other units in the Building if let on the same terms as this Lease |
PART B
Performance
of the Services and Payment
of the
Service Charge
| 6. | Performance of the Services |
| | Subject to the Tenant paying to the Landlord the Service Charge the Landlord shall perform the
Services throughout the Term provided that the Landlord shall not be liable to the Tenant in respect of : |
| 6.1 | any failure or interruption in any of the Services by reason of repair replacement maintenance
of any installations or apparatus or their damage or destruction or by reason of mechanical or other defect or breakdown or frost
other inclement conditions or shortage of fuel materials water or labour or any other cause beyond the Landlord's control save
as to the extent that any such failure or interruption could have been prevented or shortened by the exercise of proper care attention
and diligence and skill by the Landlord or those undertaking the Services on behalf of the Landlord and provided that the Landlord
uses and continues to use its reasonable endeavours to restore the Services in question as quickly as possible |
| 6.2 | any act omission or negligence of any person undertaking the Services or any of them on behalf
of the Landlord provided that this paragraph shall not be construed as relieving the Landlord from liability for breach by the
Landlord of any covenants on the part of the Landlord contained in this Lease |
| 7. | Payment of the Service Charge |
| 7.1 | For each Financial Year, the Tenant must pay to the Landlord on account of the Service Charge the
sum of £2,500 or such other sum as the Landlord's Surveyor certifies to be fair and reasonable having regard to the likely
amount of the Service Charge. That sum shall be paid in advance by bankers order (as for Rent), without deduction or set off by
equal monthly instalments on the rent payment days, the first instalment or proportionate part thereof for the period from the
rent commencement date to the next rent payment day being paid on the execution thereof. During any Financial Year the Surveyor
may revise the contribution on account of the service charge for that Financial Year so as to take into account any actual or expected
increase in expenditure, and as soon as reasonably practicable after such revisions the Surveyor must certify the amount of the
revised contribution |
| 7.2 | The Landlord shall as soon as convenient after each Computing Date prepare and serve on the Tenant
an account showing the Annual Expenditure for the Financial Year ending on that Computing Date and containing a fair summary of
the expenditure referred to in it and upon such account being certified by the Surveyor it shall be conclusive evidence for the
purposes of this lease of all matters of fact referred to in the account except in the case of manifest error |
| 7.3 | The Tenant shall be entitled at any time at its own expense to inspect any vouchers, bills and
receipts relating to the Annual Expenditure |
| 7.4 | With the account prepared and served under the provisions of paragraph 7.2 of this Schedule the
Landlord will furnish the Tenant with an account of the service charge payable by him for that Financial Year, credit being given
for payments made on account. Within 14 days of the furnishing of such an account, the Tenant must pay the service charge or the
balance of any balance of it payable, to the Landlord. The Landlord must allow to the Tenant any amount overpaid by him against
future payment of the Service Charge, whether on account or not. At the end of the Financial Year current at the end of the Term
the Landlord must repay to the Tenant any outstanding overpayment of the Service Charge. |
| 7.5 | The Tenant shall pay the Service Charge each Financial Year within 14 days after service upon it
of the account certified by the Surveyor as provided by paragraph 7.1 of this Schedule |
| | The Landlord may withhold add to extend vary or make any alteration in the rendering of the Services
or any of them from time to time provided that the same complies with the principles of good estate management and is reasonable
in all the circumstances |
PART
C
The Services
| 9. | Maintaining etc Retained Parts |
| | Maintaining repairing renewing where beyond economic repair and reinstating and where appropriate
treating washing down painting and decorating the Retained Parts |
| 10. | Maintaining etc apparatus plant machinery etc |
| | Inspecting servicing maintaining repairing amending overhauling replacing where beyond economic
repair and insuring (save in so far as insured under other provisions of this lease) all apparatus plant machinery and equipment
within the Retained Parts from time to time including (without prejudice to the generality of the above) all (if any) lifts and
lift shafts stand-by generators and boilers and closed-circuit television |
| | Maintaining repairing cleansing emptying draining and renewing where necessary for the purpose
of repair only all Pipes within the Retained Parts |
| 12. | Maintaining etc Fire Alarms etc |
| | Maintaining and renewing where necessary for the purposes of repair only any fire alarms and ancillary
apparatus and fire prevention and fire fighting equipment and apparatus in the Retained Parts |
| 13. | Cleaning etc Retained Parts |
| | Cleaning treating heating and lighting the Retained Parts to such standard as the Landlord may
from time to time consider adequate |
| 14. | Fixtures Fittings, etc |
| | Supplying providing purchasing hiring maintaining renewing where beyond economic repair replacing
where necessary for the purposes of repair only repairing servicing overhauling and keeping in good and serviceable order and condition
all fixtures and fittings bins receptacles tools appliances materials equipment and other things which the Landlord may deem desirable
or necessary for the maintenance appearance upkeep or cleanliness of the Estate or any part of the Estate |
| | Any other services relating to the Estate or any part of the Estate provided by the Landlord from
time to time and not expressly mentioned which shall at any time during the Term be in keeping with the principles of good estate
management |
PART D
The Additional
Items
| 16.1 | The reasonable and proper fees and disbursements (and any VAT payable on them save where recoverable
by the Landlord) of : |
| 16.1.1 | the Surveyor and other individual firm or company employed or retained by the Landlord for (or
in connection with) such surveying or accounting functions or the management of the Estate |
| 16.1.2 | the managing agents (whether or not the Surveyor) for or in connection with: |
| 16.1.2.1 | the management of the Estate |
| 16.1.2.2 | the collection of the rents and all other sums due to the Landlord from the tenants of the Estate |
| 16.1.2.3 | the performance of the Services and any other duties in and about the Estate or any part of it
relating to (without prejudice to the generality of the above) the general management administration security maintenance protection
and cleanliness of the Estate |
| 16.1.3 | any individual firm or company valuing the Estate for the purposes of assessing the full cost of
rebuilding and reinstatement |
| 16.1.4 | any individual firm or company providing caretaking or security arrangements and services to the
Estate as a whole |
| 16.1.5 | any other individual firm or company employed or retained by the landlord to perform (or in connection
with) any of the Services or any of the functions or duties referred to in this paragraph |
PROVIDED that such fees and expenses
shall not relate to collecting arrears of rent negotiating new lettings or negotiations or other matters relating to rent reviews
or dilapidations
| 16.2 | The reasonable and proper fees of the Landlord for any of the Services or the other functions and
duties referred to in paragraph 16.1 above that shall be undertaken by the Landlord and not by a third party |
| 17. | Contracts for Services |
| | The cost of entering into any contracts for the carrying out of all or any of the Services and
other functions and duties that the Landlord may in its absolute discretion deem desirable or necessary |
| | All taxes assessments duties charges impositions and outgoings which are now or during the Term
shall be charged assessed or imposed on: |
| 18.1 | the whole of the Estate where there is no separate charge assessment or imposition on or in respect
of an individual unit |
| 18.2 | the whole of the Retained Parts or any part of them including |
| | The cost of supply of electricity gas oil or other fuel for the provision of the Services and for
all purposes in connection with the Retained Parts |
| | The expense or contribution to cost of making repairing maintaining and rebuilding and cleaning
the Access Roads and any ways roads pavements or structures Pipes or anything which may belong to or be used for the Estate or
any part of it exclusively or in common with other neighbouring or adjoining premises |
| | The costs charges and expenses of preparing and supplying to the tenants copies of any regulation
made by the Landlord to the Estate or the use of it |
| 22. | Statutory etc Requirements |
| | The cost of taking all steps deemed desirable or expedient by the Landlord for complying with making
representations against or otherwise contesting the incidence of the provisions of any statute byelaw or notice concerning town
planning public health highways streets drainage or other matters relating to or alleged to relate to the Estate or any part of
it for which any tenant is not directly and exclusively liable |
| | The cost of the Landlord of abating a nuisance in respect of the Estate or any part of it in so
far as the same is not the liability of any individual tenant |
| | Any reasonable and proper interest and fees in respect of money borrowed to finance the provisions
of the Services of the Additional Items |
| 25. | Anticipated Expenditure |
| | Such Provision (if any) for the anticipated expenditure in respect of any of the Services or the
Additional Items as the Landlord shall in its reasonable discretion consider appropriate. |
THE
FIFTH SCHEDULE
Guarantors
Covenants
| 1. | That as between the Guarantor and the Landlord the liability of the Guarantor will be as principal
debtor and covenantor |
| 2. | That the Tenant will at all times during the Term (and as well after as before any disclaimer of
this Lease) duly and punctually pay the rents as herein provided and will observe and perform all the tenant's covenants and the
conditions contained in this Lease |
| 3. | That if at any time during the Term the Tenant defaults in paying any of the rents or in observing
or performing any of the covenants and conditions contained in this Lease the Guarantor will pay such rents and observe and perform
the covenants and conditions in respect of which the Tenant is in default and pay and make good to the Landlord on demand all losses
damages and costs and expenses sustained by the Landlord through the default of the Tenant notwithstanding:- |
| 3.1 | any time or indulgence granted by the Landlord to the Tenant or any neglect or forbearance of the
Landlord in enforcing the payment of rents or the observance or performance of the Tenant's covenants or other terms of this Lease
or any refusal by the Landlord to accept rents tendered by or on behalf of the Tenant at a time when the Landlord was entitled
(or would after the service of a notice under Section 146 of the Law of Property Act 1925 have been entitled) to re-enter the Premises |
| 3.2 | that the terms of this Lease may have been varied by agreement between the parties |
| 3.3 | that the Tenant may have surrendered part of the Premises in which event the liability of the Guarantor
hereunder shall continue in respect of the parts of the Premises not so surrendered after making any necessary apportionments under
the Law of Property Act 1925 s.140 |
| 3.4 | that the Tenant may have ceased to exist |
| 3.5 | any other act or thing whereby but for this provision the Guarantor would have been released |
| 4. | If at any time during the Term the Tenant (being an individual) becomes bankrupt or (being a company)
goes into liquidation and the trustee in bankruptcy or liquidator disclaims this Lease or if this Lease is forfeited then this
Schedule will remain in full force and effect notwithstanding such event and the Guarantor will if the Landlord shall by notice
in writing within 60 days after such disclaimer or forfeiture so require take from the Landlord a lease of the Premises for a term
commensurate with the residue of the Contractual Term which would have remained had there been a disclaimer or forfeiture at the
same Rent then being payable and subject to the same covenants and conditions as are reserved by and contained in this Lease to
take effect from the date of the said disclaimer or forfeiture and in such case the Guarantor shall pay the costs of such new Lease
and execute and deliver to the Landlord a counterpart thereof |
| 5. | The parties agree that this guarantee shall only subsist for such period and extend to such liabilities
restrictions and other requirements as may be permitted by the Landlord and Tenant (Covenants) Act 1995 |
SIGNED AS A DEED AND DELIVERED by |
) |
|
|
by WALLINGFEN PARK LIMITED acting |
) |
|
|
by two Directors or a Director and its Secretary |
) |
|
|
Director:- /s/ M.K. Kendall |
|
|
|
Director/Secretary:- /s/ June Jarvis |
|
|
|
SIGNED AS A DEED AND DELIVERED by |
) |
|
|
LAKELAND INDUSTRIES EUROPE |
) |
|
|
LIMITED acting by two Directors or a Director |
) |
|
|
and its Secretary:- |
) |
|
|
Director: /s/ Martin Lill |
|
|
|
Director/Secretary /s/ Martin Watkin |
|
Exhibit 10.2
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![](ex10-2pg10.jpg)
![](ex10-2pg11.jpg)
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
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-Q 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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. | Designed
such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles; |
| c. | 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 |
| d. | 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; and |
| 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 the registrant’s board of directors (or persons performing
the equivalent functions): |
| a. | All
significant deficiencies and material weaknesses 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: June 15, 2015
|
/s/ Christopher J.
Ryan |
|
By: Christopher J. Ryan, |
|
Chief Executive Officer, |
|
President and Secretary |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary Pokrassa, certify that:
| 1. | I have reviewed this report on Form 10-Q 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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. | Designed
such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles; |
| c. | 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 |
| d. | 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; and |
| 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 the registrant’s board of directors (or persons performing
the equivalent functions): |
| a. | All
significant deficiencies and material weaknesses 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: June 15, 2015 |
/s/ Gary Pokrassa |
|
By: Gary Pokrassa, |
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE
OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing
with the Securities and Exchange Commission of the Quarterly Report of Lakeland Industries, Inc. (the “Company”) on
Form 10-Q for the period ended April 30, 2015 (the “Report”), I, Christopher J. Ryan, Chief Executive Officer, President,
Secretary and General Counsel of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 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.
June 15, 2015 |
/s/Christopher J. Ryan |
|
Christopher J. Ryan |
|
Chief Executive Officer, President and Secretary |
Exhibit 32.2
CERTIFICATION CHIEF FINANCIAL
OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing
with the Securities and Exchange Commission of the Quarterly Report of Lakeland Industries, Inc. (the “Company”) on
Form 10-Q for the period ended April 30, 2015 (the “Report”), I, Gary Pokrassa, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 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.
June 15, 2015 |
/s/Gary Pokrassa |
|
Gary Pokrassa, |
|
Chief Financial Officer |
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