17. Subsequent event – Potential Sale of the Company’s Brazilian 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 sale of the Company’s wholly-owned Brazilian subsidiary, Lakeland Brazil (On March 9, 2015 Lakeland Brazil changed legal form to a Limitada and changed its name from Lakeland Brazil S.A.), to a current officer of Lakeland Brazil, subject to successful negotiation and entry into a definitive agreement. It is intended that the sale involve the assumption of a substantial amount of liabilities by the buyer and additional funding from the Company. In order to effectuate a sale and aid the buyer to meet its liabilities, it is anticipated the Company would contribute funding of slightly less than US $1,600,000 to the buyer, subject to possible partial recoupment through a land sale. The sale is also subject to the approval of the Company’s senior lender, Alostar Bank of Commerce. The Company anticipates receiving formal approval from the bank by the end of May 2015. The Company expects that the sale of Lakeland Brazil will occur during the second quarter of fiscal 2016. However, there can be no assurances that the sale will be successfully consummated. The Company currently estimates that it will incur total pre-tax exit and disposal costs of approximately US $1.9 million, consisting of the aforementioned approximately US $1,600,000 of funding to the buyer in connection with the sale 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 sale transaction. Even after the sale, 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. See Footnote 13 with respect to the labor cases and Footnote 10 with respect to VAT taxes. 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 buyer 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.