LAKELAND INDUSTRIES INC (Form: 10-Q, Received: 06/15/2015 17:23:42)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2015

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:

PART I - FINANCIAL INFORMATION:

Item 1.	Financial Statements (Unaudited)	Page

	Introduction	3

	Condensed Consolidated Statements of Operations Three Months Ended April 30, 2015 and 2014	5

	Condensed Consolidated Statements of Comprehensive Income Three Months Ended April 30, 2015 and 2014	6

	Condensed Consolidated Balance Sheets April 30, 2015 and January 31, 2015	7

	Condensed Consolidated Statement of Stockholders' Equity Three Months Ended April 30, 2015	8

	Condensed Consolidated Statements of Cash Flows Three Months Ended April 30, 2015 and 2014	9

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33

Item 4.	Controls and Procedures	33

PART II - OTHER INFORMATION:

Item 6.	Exhibits	34

Signature Pages		35

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.

Collateral

○

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

Collection

○

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

○

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

Interest Rate

○

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

Financial Covenants

○

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.

Other Covenants

○

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

4 ^th 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

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

THE PARTICULARS

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)

DEFINITIONS

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:-

2.9.1.

defective design

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

INTERPRETATION

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

DEMISE

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'S COVENANTS

The Tenant covenants with the Landlord

5.1

Rent

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

5.2

Outgoings and VAT

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

Waste and Alterations

5.5.1

Not to

5.5.1.1

commit any waste

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

Statutory Obligations

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

Alienation

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

5.11

Landlords Costs

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

The Planning Acts

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

5.14

Indemnities

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

Encroachments

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

5.16

Yield Up

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

Interest on Arrears

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

To permit

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

5.20

Reletting Board

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

5.21

Defective 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

5.22

Landlords Rights

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

5.25

Keyholders

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

5.26

New Guarantor

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

THE LANDLORD'S COVENANTS

The Landlord covenants with the Tenant:

6.1

Quiet Enjoyment

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

INSURANCE

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

Suspension of Rent

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

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

PROVISOS

8.1

Re-entry

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)

8.3

Entire Understanding

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

8.4

Representations

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

8.6

Tenant's Property

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

8.8

Service of Notices

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

Power to Determine

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

8.10

Jurisdiction

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

New Lease

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)

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

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

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

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

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

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

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

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)

All necessary rights of subjacent and lateral support and protection for the Premises

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

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

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

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

DEFINITIONS

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

The New Rent

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

2.1.2

The Revised Rent

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

Revised Rent

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

Provisos

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

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

Default Provision

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

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

Memorandum of New Rent

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

User.

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

Smoke Abatements

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

Pollution

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

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

Machinery

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

Signs

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

Parking

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

Regulations

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

"Services" means the services facilities and amenities specified in Part C of this Schedule

"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

"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

"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)

"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

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

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

Variations

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

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

11.

Maintaining etc Pipes

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

15.

Other Services

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.

Fees

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

18.

Outgoings

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

19.

Electricity Gas etc

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

20.

Road Charges etc

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

21.

Regulations

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

23.

Nuisance

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

24.

Interest

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

That as between the Guarantor and the Landlord the liability of the Guarantor will be as principal debtor and covenantor

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

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

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

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

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:

I have reviewed this report on Form 10-Q of Lakeland Industries, Inc. (the “registrant”);

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;

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;

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:

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;

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;

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

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

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):

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

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:

I have reviewed this report on Form 10-Q of Lakeland Industries, Inc. (the “registrant”);

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