Brazil Management and Share Purchase Agreement

9 Months Ended

Oct. 31, 2011

Brazil Management and Share Purchase Agreement [Abstract]

Brazil Management and Share Purchase Agreement [Text Block]

14. Brazil Management and Share Purchase Agreement

On May 19, 2010, the president and V.P. of Operations (the “two terminated sellers”) of Qualytextil, S.A. (“QT”), Lakeland’s Brazil subsidiary, were terminated for cause as a result of numerous documented breaches of their Management Agreements (“MA”) with QT and misrepresentations in their Share Purchase Agreement (“SPA”) with Lakeland. As a result of these breaches and misrepresentations, Lakeland has taken the position that it is not obligated to pay their share or 65% of any Supplemental Purchase Price (“SPP”) due in 2011 pursuant to the SPA. These two sellers’ shares constitute 35% and 30%, respectively, of the SPP totals, if any, which may be due under the SPA. The former Chief Financial Officer of QT has been promoted to President of QT. He holds the remaining 35% of the SPA and SPP totals.

Lakeland and the two terminated sellers unsuccessfully attempted to negotiate a settlement. The claim is now in arbitration. Lakeland has asserted further damages in such arbitration proceeding as more fully discussed in Note 13. The matter is currently being arbitrated with a decision expected in March 2012. Should the terminations be determined by the Arbiters not to be for cause, there could be a payment up to approximately $10.3 million USD payable to the two terminated individuals, or $5.5 million to one and $4.8 million to the other.  These payments reflect contractual provisions that entitle these individuals to maximum earn-out payments should they be terminated without cause. Based on the actual results of calendar 2010 as contractually specified, no supplemental purchase price has been earned. Management believes it has strong evidence to support its case that the terminations were properly for cause and believes it is probable that there will be no liability to the Company. As such, no accrual has been made. However, as with most judicial proceedings, there is a reasonable possibility that a loss may be incurred.  The current balance in the escrow fund is approximately $1.3 million USD which, if released by the arbitration panel to the Company, will represent a gain contingency, net of legal fees and other related costs.

The legal and arbitration fees are being charged to expense as incurred.