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Long-Term Debt and Subsequent Event | 9 Months Ended
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Oct. 31, 2014
Debt Disclosure [Abstract] |
Long-term Debt [Text Block] |
6. | Long-Term Debt and Subsequent Event
On June 28, 2013, Lakeland Industries, Inc. 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 Canadian assets of the Company, except for the Canadian warehouse and the Mexican facility (“Senior Debt”). 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) and fully exercised at October 31, 2014, 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 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 Company recorded the debt and warrants using the relative fair value method, in which there was a debt discount recorded at the date the transaction of approximately $2.2 million recorded as a component of additional paid-in capital. This was treated as Original Issue Discount (OID) and was being amortized as additional interest over the five-year term of the related subordinated debt. Including the 12% coupon and the amortization of the OID gave an effective per annum rate on just the debt of approximately 47%, assuming the warrant was broken out separately. However, management viewed 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. In July 2014, the Company prepaid $500,000 on the subordinated loan. The subordinated lenders waived any prepayment penalty. The remainder of the subordinated loan was repaid in full on October 29, 2014 from the proceeds of the equity financing that closed on that date, again without prepayment penalty. As a result, the remaining OID of approximately $1.6 million and unamortized fees of approximately $0.6 million were completely written off and will no longer be charged to expense in future quarters. See Note 7.
The following is a summary of the material terms of the $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
| ⋅ | On October 31, 2014, there was $9.9 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 | Annual rate equal to LIBOR rate plus 525 basis points
| o | Initial rate and rate at October 31, 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 condensed consolidated 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 the Borrowers, commencing with the fiscal quarter ending October 31, 2013, the 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 October 31, 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 cash investment in foreign subsidiaries of a maximum of $1.0 million per annum
The amount outstanding as of October 31, 2014 under the Senior Lender Facility was $5.1 million. Borrowings in UK and Subsequent Event 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., (“HSBC”) 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 US $1.6 million) to £1,250,000 (approximately USD $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 October 31, 2014 was the equivalent of USD $0.5 million and is included in short-term borrowings on the 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 19, 2014. On December 3, 2014, the Company and its UK subsidiary further 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 $2.0 million) to £1,500,000 (approximately USD $2,350,000), 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 $623,000) 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. Canada Loan In September 2013 the Company refinanced its loan with the Development Bank of Canada (BDC) for a principal amount of approximately 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 US $7,620 (C$8,529) including principal and interest. It is collateralized by a mortgage on the Company's warehouse in Brantford, Ontario. The amount outstanding at October 31, 2014 is US $0.96 million which is included in long-term portion of Canada and Brazil loan on the balance sheet, net of current maturities of $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 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 $6,501). The balance under this loan outstanding at October 31, 2014 was RMB 8,000,000 (approximately US $1.3 million) and is included in short-term borrowings on the consolidated balance sheet. There are no covenant requirements in this loan. The loans are comprised of several loans with due dates ranging from June 18, 2014 to January 11, 2016. On October 11, 2014, the Company’s China subsidiary, Weifang Lakeland Safety Products Co., Ltd (“WF”), and Bank of China Anqiu Branch completed an agreement 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 October 31, 2014 was RMB 5,000,000 (approximately US $0.8 million) and is included in short-term borrowings on the consolidated balance sheet. The line of credit is due within a one year period. Brazil Loans Brazil has long-term borrowing of R$ 39,506 (US $16,163) that are included in long-term portion of Canada and Brazil loans on the balance sheet, short-term borrowing of R$ 2.7 million (US $1.1 million) that are included in short-term borrowings on the balance sheet, and accrued interest of R$ 195,000 (US $79,781). Brazil loans are collateralized by receivables, officer guarantee, and customer contracts. Monthly interest rates range from 1.40% to 2.50%.

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- Definition The entire disclosure for long-term debt. + References Reference 1: 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 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 22 -Article 5 + Details
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