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Long-Term Debt | 3 Months Ended
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Apr. 30, 2014
Debt Disclosure [Abstract] |
Long-term Debt [Text Block] | 6. Long-Term Debt 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 and the Mexican plant. 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 provides for a $3.5 million term loan to be made to the Borrowers and 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 be paid in cash, by payment in kind (“PIK”) in additional notes or payable in shares of common stock (“Common Stock”), of the Company (the “Interest Shares”). If shares of Common Stock are used to make interest payments on the Note, the number of Interest Shares will be based upon 100% of an average of the then current market value of the Common Stock, subject to the limitations set forth in the Subordinated Loan Agreement. 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 contemplated 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 Senior Lender, of which this transaction satisfied. The proceeds from such financings have been used to fully repay the Company’s former financing facility with TD Bank, N.A. in the amount of approximately US $13.7 million. Also repaid upon closing of the financings was the warehouse loan in Canada with a balance of CDN $1,362,000 Canadian dollars (approximately US $1,320,000), payable to Business Development Bank of Canada (“BDC”). The following is a summary of the material terms of the financings: $15 million Senior Credit Facility
| ⋅ | Borrowers are both 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:
| o | 85% of eligible accounts receivable as defined
| o | The lesser of 60% of eligible inventory as defined or 85% of net orderly liquidation value of inventory
| o | In transit inventory in bound to the US up to a cap of $1,000,000
| o | Receivables and inventory held by the Canadian operating subsidiary to be included, up to a cap of $2 million of availability
| o | On April 30, 2014, there was $1.5 million available under the senior credit facility
| ⋅ | Collateral
| o | A perfected first security lien on all of the Borrowers United States and Canadian assets, other than its Mexican plant and the Canadian warehouse
| o | Pledge of 65% of Lakeland US stock in all foreign subsidiaries other than 100% pledge of stock of its Canadian subsidiaries
| ⋅ | Collection
| o | 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
| ⋅ | Maturity
| o | An initial term of three years from June 28, 2013 (the “Closing Date”)
| o | Prepayment penalties of 3%, if prepaid prior to the first anniversary of Closing Date; 2% if prior to the second anniversary and 1% if prior to the third anniversary of the Closing Date
| ⋅ | Interest Rate
| o | Rate equal to LIBOR rate plus 525 basis points
| o | Initial rate and rate at April 30, 2014 of 6.25%
| o | Floor rate of 6.25%
| ⋅ | Fees: Borrowers shall pay to the Lender the following fees:
| o | Origination fee of $225,000, paid on the Closing Date and being amortized over the term of loan and is included in “intangibles, prepaid bank fees and other assets, net” in the accompanying balance sheet
| o | 0.50% per annum on unused portion of commitment
| o | A non-refundable collateral monitoring fee in the amount of $3,000 per month
| o | All legal and other out of pocket costs
| ⋅ | Financial Covenants
| o | 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, commencing with the fiscal quarter ending July 31, 2013, Borrowers shall maintain a Fixed Charge Coverage Ratio of not less than 1.1 to 1.0 for the four quarter period then ending.
| ⋅ | Minimum Quarterly Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”). Borrowers shall achieve, on a rolling basis excluding the operations of the Borrower’s Brazilian subsidiary, EBITDA of not less than the following as of the end of each quarter as follows:
| o | July 31, 2013 for the two quarters then ended, $2.1 million;
| o | October 31, 2013 for the three quarters then ended, $3.15 million,
| o | January 31, 2014 for the four quarters then ended, and thereafter, $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, 2014.
| ⋅ | Other Covenants
| o | Standard financial reporting requirements as defined
| o | 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
| o | Limitation on total net investment in foreign subsidiaries of a maximum of $1.0 million per annum
$3.5 million Subordinated Debt Financing
| ⋅ | Subordinated Loan Agreement
| o | Maturity date: June 28, 2018
| o | Interest at 12.0% per annum through and including December 27, 2016, increased to 16% per annum on December 28, 2016 and 20% per annum on December 28, 2017. Until the first anniversary of the Closing Date, all interest shall either be paid in kind (PIK) or paid in shares of common stock of Lakeland, valued at 100% of the then market value, at the election of the Junior Lender. Such accrued PIK interest in the amount of $368,755 is included in “Subordinated debt, net of OID” in the accompanying balance sheet.
| o | All loan costs associated with the Subordinated Debt are included with the deferred debt costs from the Senior Loan and are being amortized over the life of the Senior Loan and are included with “intangibles, bank fees and other assets, net” on the balance sheet
| o | Warrant to purchase 566,015 shares of Common Stock (subject to adjustment), exercisable at $0.01 per share
| o | Warrant is subject to customary anti-dilution adjustment provisions, including for issuances of Common Stock or Common Stock equivalents at a price less than $5.00 per share, computed on a weighted average basis, subject to a hard cap limitation of 1,068,506 shares on total number of shares to be issued from a combination of warrants, interest shares and price-protection anti-dilution adjustments. The Company is allowed to issue up to 500,000 shares without triggering this provision, to allow for restricted shares and other new compensatory issuances.
| o | Warrant exercise period is five years from the Closing Date
| o | Registration Rights: the Company has filed with the Securities and Exchange Commission a registration statement covering the shares issuable in connection with the subordinated loan transaction. The Company filed a Post-Effective Amendment on June 2, 2014.
| o | Investor Rights: Junior Lender will have the right to designate one board member or a board observer, subject to certain conditions. As of June 12, 2014, the Junior Lender has not exercised this right
| o | Subject to Senior Lender Subordination Agreement, the subordinated loan may be repaid in increments of $500,000 with Senior Lender approval on or after June 28, 2014
| o | Early Termination Fees; Applicable Termination Percentage:
| ⋅ | (a) Upon early repayment of the Term Loan, Borrowers shall be obligated to pay, in addition to all of the other Obligations then outstanding, an amount equal to the product obtained by multiplying $3,500,000 or the amount of principal repaid by the applicable percentage set forth below:
| ⋅ | 5.00% if the effective date of termination occurs on or before June 28, 2014;
| ⋅ | 3.00% if the effective date of termination occurs after June 28, 2014, but on or before June 28, 2015; or
| ⋅ | 1.00% if the effective date of termination occurs after June 28, 2015, but on or before June 28, 2016
| ⋅ | Upon acceleration of the loan following a Change of Control, Borrowers shall be obligated to pay an additional fee equal to $35,000
| o | Financial covenant amounts are 10% less restrictive than those in the Senior Loan Agreement
| o | 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 the Company’s Mexican facility.
| o | The Company is in compliance with all covenants of the Subordinated Debt at April 30, 2014.
Management has valued the Warrant at $2.2 million. This has been treated as Original Issue Discount (OID) and is being amortized as additional interest over the five-year term of the related subordinated debt. The effective rate of return to the Junior Lender is computed by deducting the warrant valuation OID from the $3.5 million principal leaving a valuation for the debt at closing of $1.3 million. Including the 12% coupon and the amortization of the OID gives an effective per annum rate on just the debt of approximately 47%, assuming the warrant is broken out separately. However, management views this to be one blended loan or transaction along with the Senior Debt of up to $15 million at 6.25%, since the subordinated debt was a required condition of closing made by the Senior Lender. Amounts outstanding as of April 30, 2014, under the Senior Lender Facility were $13.5 million and under the Junior Lender Facility, $3.5 million net of un-amortized original issue discount of $1.9 million plus PIK interest of $0.4 million, for a net value of $2.0 million included in the subordinated debt on the balance sheet. Borrowings in UK On December 19, 2013 the Company and its UK subsidiary entered into a one-year extension of its existing financing facility with HSBC Invoice Finance (UK) Ltd., pursuant to the same terms as disclosed in the Company's Form 8-K filed with the SEC on February 25, 2013, except for: the facility limit was increased from £1,000,000 (approximately USD $1.6 million) to £1,250,000 (approximately US $2.0 million at current exchange rates), and the prepayment percentage (advance rate) was increased from 80% to 85% of eligible receivables; more fully described in the Company’s Form 8-K which was filed on December 23, 2013. The balance outstanding under this facility at April 30, 2014 was the equivalent of US $0.8 million and is included in short-term borrowings on the balance sheet. The per annum interest rate repayment rate is 3.44% and the term is for a minimum period of one year renewable on December 19, 2014. China Loan On August 12, 2013, the Company’s China subsidiary borrowed approximately US $0.8 million at an interest rate of 5.395% for a term of one year as more fully described in the Company’s Form 8-K which was filed on August 16, 2013. The balance under this loan outstanding at April 30, 2014 was $0.8 million. Such amounts mature August 2014 and is included in short-term borrowings on the balance sheet. 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 to obtain a line of credit for financing in the amount RMB 8,000,000 (approximately USD $1,287,000). The term is through September 27, 2014, 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 will be collateralized by inventory owned by WF. WRCCB has hired a professional firm to supervise WF’s inventory flow, which WF will pay yearly at a rate of RMB 40,000 (approximately US $6,450). As of April 30, 2014 the Company has not yet drawn down on this line of credit, but intends to do so shortly. There are no covenant requirements in this loan. Canada Loan 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. Such loan is for a term of 240 months at a per annum interest rate of 6.45% with fixed monthly payments of approximately US $7,780 (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, 2014 is US $0.9 million which is included in long-term portion of Canada and Brazil loan on the balance sheet, net of current maturities of $50,000. Brazil Loans
Brazil Loan Schedule Quarter Ended April 30, 2014 |
|  | USD |  |  | BRL |
Balance Beginning |  |  | 1,148,114 |  |  |  | 2,785,644 |
New Borrowings |  |  | 705,254 |  |  |  | 1,632,434 |
Principal Payments |  |  | (821,539) |  |  |  | (1,919,957) |
Foreign Exchange Difference |  |  | 85,399 |  |  |  | N/A |
Balance Ending |  |  | 1,117,228 |  |  |  | 2,498,122 |
Less Accrued Interest Included |  |  | (20,321) |  |  |  | (47,037) |
TOTAL |  |  | 1,096,907 |  |  |  | 2,451,085 |
Collateral |  |  | Receivables, Officer Guarantee, Customer Contract |  |  |  | Receivables, Officer Guarantee, Customer Contract |
Monthly Interest Rate Range |  |  | 1.09% – 2.11 | % |  |  | 1.09% – 2.11 | %
The above is comprised of numerous amounts with several lenders and factors. |  |  |  |  |  |  |  |

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- Definition The entire disclosure for long-term debt. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 22 -Article 5 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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