13. COMMITMENTS AND CONTINGENCIES

Certain conditions may exist as of the date the 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 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.

We must comply with American laws such as the Foreign Corrupt Practices Act (FCPA) and Sarbanes-Oxley, and also with anti-corruption legislation in the UK.

Employment Contracts

The Company has employment contracts with three principal officers expiring through January 31, 2016. Pursuant to such contracts, the Company is committed to aggregate annual base remuneration of $765,000, $765,000, $718,000 and $342,000 for FY13, FY14, FY15 and FY16, respectively. Three of such employees voluntarily took an 8% reduction in pay along with a 30% reduction to be paid in restricted shares rather than cash. Two of such contracts provide for bonuses based on reported earnings per share for FY14 compared with targets set by the Board. Such bonuses were not earned in FY13.

In March 2013, the Company reached a Termination Agreement with Mr. Miguel Bastos, President of Lakeland’s Brazilian subsidiary. Such Agreement will become effective 120 days from signing, unless earlier as determined by the Company. This is a part of both the Company’s efforts to reduce costs and the Company’s efforts to improve sales.

Mr. Bastos will join a Brazilian organization working with Lakeland to strengthen our sales efforts. The Termination Agreement calls for an aggregate maximum payout of R$1.1 million (approximately US$550,000), to be paid out over a period of approximately two years. Mr. Bastos will continue to receive his normal salary for six months and then will receive 3% of Lakeland Brazil’s sales, which Mr. Bastos will be supporting and generating from an independent company, until he reaches a total payout equal to the aggregate R$1.1 million. This Termination Agreement pays Mr. Bastos approximately half of the amount which would have been paid out for the remaining years of Mr. Bastos’s employment contract, which had run through December 31, 2015. Such termination amount has been accrued as of January 31, 2013.

This entity is not expected to generate any sales commissions or any other payments from the Company in the first half of FY14. Such entity will be evaluated for potential variable interest entity (VIE) status if and when it becomes significant.

Leases

In FY09, Qualytextil, in connection with the expansion needed to accommodate the importation and sales of Lakeland branded products in Brazil, signed several leases for additional warehousing, corporate and sales space in Rio de Janiero and Sao Paulo, aggregating approximately 14,800 square feet at an aggregate annual rental of approximately $142,000, with expiration dates ranging from March 2012 to October 2013.

Total rental costs under all operating leases are summarized as follows:

	Gross rental		Rentals paid to related parties
Year ended January 31,
2013	$	559,485	$	0
2012	$	749,645	$	63,540

Minimum annual rental commitments for the remaining term of the Company’s noncancelable operating leases relating to manufacturing facilities, office space and equipment rentals at January 31, 2013, including lease renewals subsequent to year end, are summarized as follows:

Year ending January 31,

2014	$	499,169
2015		175,568
2016		109,125
2017		76,168
2018		66,000
and thereafter		335,500

Litigation

The Company is involved in various litigation proceedings, in addition to those described in Notes 4 and 10 of the financial statements, 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.