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Letter of Offer dated August 30th, 2013

 

Lakeland Protective Real Estate Inc.

59 Bury Court

Brantford, ON

N3S 0A9

 

Attention of: Mr. Norman Brown

 

Re:Loan Account No. 038405-02

 

In accordance with this letter of offer of credit as amended from time to time
(the “Letter of Offer”), Business Development Bank of Canada (“BDC”) is pleased
to offer you the following loan (the “Loan”). The Letter of Offer is open for
acceptance until September 8th, 2013 (the “Acceptance Date”) after which date it
shall become null and void.

 

LOAN PURPOSE AND FUNDING

 

Loan Purpose      Advance to Related Company  $1,100,000.00     $1,100,000.00 
       Funding      BDC  $1,100,000.00     $1,100,000.00 

 

No change to the Loan Purpose or Funding may be made without BDC’s prior written
consent. The proceeds of the Loan may only be used for this Loan Purpose.

 

SCHEDULE

 

The Letter of Offer includes Schedule “A” which contains Definitions,
Representations and Warranties, Covenants, Events of Default and General Terms
and Conditions. Schedule “A” has been inserted after the signature page and
forms an integral part of the Letter of Offer.

 

Business Development Bank of Canada

25 Main Street West, Suite 1900, Hamilton, Ontario L8P 1H1 

Fax: (905) 572-4282     www.bdc.ca

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Page 1 of 9

 

 

LETTER OF OFFER Lakeland Protective Real Estate Inc. - 038405-02, August 30th,
2013  

 

DEFINITIONS

 

In the Letter of Offer, capitalized terms have the meanings described in
Schedule “A” – Section I or are defined elsewhere in the text of the Letter of
Offer.

 

LENDER

 

BDC

 

BORROWER

 

Lakeland Protective Real Estate Inc. (the “Borrower”)

 

LOAN AMOUNT

 

Cdn $1,100,000.00.

 

INTEREST RATE

 

The Loan and all other amounts owing by the Borrower pursuant to the Loan
Documents shall bear interest at the following rate:

 

Fixed Rate

 

6.450% per year, being the applicable BDC’s Base Rate of 5.950% per year plus a
variance of 0.500% per year (the “Variance”). BDC will guarantee the interest
rate until the Acceptance Date. Should the Acceptance Date be extended, this
interest rate will not be guaranteed.

 

The Interest Adjustment Date for this fixed interest rate plan is August 23rd,
2018.

 

INTEREST CALCULATION

 

Interest shall be calculated monthly on the outstanding principal, commencing on
the date of the first disbursement, both before and after maturity, default and
judgment.

 

Arrears of interest or principal and all other amounts owing by the Borrower
pursuant to the Loan Documents shall bear interest at the rate applicable to the
Loan and shall be calculated and compounded monthly.

 

Page 2 of 9

 

 

LETTER OF OFFER Lakeland Protective Real Estate Inc. - 038405-02, August 30th,
2013  

 

REPAYMENT

 

Principal is repayable as follows:

 

Blended Payment

 

All payments are to be made on the day of the month selected by the Borrower
(the "Payment Date”). Interest is payable monthly commencing on the next
occurring Payment Date following the first advance on the Loan. Once the Loan
has been fully disbursed, interest on the Loan together with the principal of
the Loan shall be payable by way of monthly blended instalments of principal and
interest of $8,168.96 each (based on the fixed rate indicated above and an
initial amortization period of 240 months) commencing on November 23rd, 2013 up
to and including the Interest Adjustment Date. Prior to the Interest Adjustment
Date, BDC shall advise of the new monthly blended instalment based on the
available fixed rate plans.

 

The equivalent rate calculated semi-annually, not in advance, is 6.537% per
year.

 

On October 23rd, 2033 (the “Maturity Date”), the balance of the Loan in
principal and interest and all other amounts owing pursuant to the Loan
Documents shall become due and payable.

 

PREPAYMENT

 

Annual prepayment privilege: Provided that the loan is not in default, the
Borrower may, once in any 12 month period, prepay up to 15% of the then
outstanding principal without indemnity.  The first pre-payment can be made at
any time more than one year after August 29th, 2013, being the date the loan was
authorized.  The prepayment privilege is not cumulative and each prepayment must
be at least 12 months subsequent to the last prepayment. The prepayment
privilege is not applicable upon prepayment of the loan in full.

 

In addition to the annual privilege, the Borrower may prepay at any time all or
part of the principal provided that the Borrower pays the interest owing up to
the time of the prepayment together with an indemnity equal to:

 

If the interest rate on the Loan is a floating rate:

-three months further interest on the principal prepaid at the floating interest
rate then applicable to the Loan.

 

If the interest rate on the Loan is a fixed rate:

-the sum of (a) three months further interest on the principal prepaid at the
fixed interest rate then applicable to the Loan; and (b) the Interest
Differential Charge.

 

Partial prepayments shall be applied regressively on the then last maturing
instalments of principal.

 

Page 3 of 9

 

 

LETTER OF OFFER Lakeland Protective Real Estate Inc. - 038405-02, August 30th,
2013  

 

SECURITY

 

The Loan, interest on the Loan and all other amounts owing pursuant to the Loan
Documents shall be secured by the following (the “Security”):

 

1.First readvanceable mortgage on land (approx. 3.0 Acres) legally described as
Part Lot 41, Concession 3, Township of Brantford, being Part 5 on 2R6763; City
of Brantford and building (approx. 24,000 sq ft.) located at 59 Bury Court
Brantford, Ontario owned by Lakeland Protective Real Estate Inc. Building
location survey or title insurance required.

 

2.General Security Agreement from Lakeland Protective Real Estate Inc. providing
a first security interest in all present and after-acquired personal property,
except consumer goods.

 

3.Postponement of loan for $504,028 from parent company. Interest may not be
paid.

 

4.First registered general assignment of rents. Rent may be paid in the normal
course of business unless notified by BDC.

 

CONDITIONS PRECEDENT

 

Any obligation to make any advance under the Letter of Offer is subject to the
following conditions being fulfilled to the satisfaction of BDC:

 

1.Receipt of the Security in form and substance satisfactory to BDC registered
as required to perfect and maintain the validity and rank of the security, and
such certificates, authorizations, resolutions and legal opinions as BDC may
reasonably require.

 

2.Satisfactory review of all financial information relating to the Borrower and
any corporate Guarantor and their respective business as BDC may reasonably
require.

 

3.No Default or Event of Default shall have occurred.

 

4.No Material Adverse Change shall have occurred.

 

5.Provision of documents evidencing expenditures under the Loan Purpose, if
applicable.

 

6.Satisfaction of all applicable disbursement conditions contained in the
Underlying Conditions section of this Letter of Offer.

 

7.Submit a Phase I – Environmental Site Assessment Report prepared by an
external consultant commissioned by BDC. The contents and the conclusions of the
Report must all be acceptable to BDC. The Borrower is responsible for the
payment of all charges relative to the preparation of the report.

 

8.Provide a letter addressed to BDC from AloStar Business Credit, a division of
AloStar Bank of Commerce confirming their concurrence with the Borrower
obtaining this Loan and the terms and conditions in this Letter of Offer.

 

9.Provide a written confirmation that the lease agreement dated August 20, 2013
between Lakeland Protective Real Estate Inc. (Landlord) and Lakeland Protective
Wear Inc. (Tenant) for lease of realty located at 59 Bury Court, Brantford,
Ontario charged as security for this Loan has been reviewed by and is acceptable
to BDC's Solicitor.

 

Page 4 of 9

 

 

LETTER OF OFFER Lakeland Protective Real Estate Inc. - 038405-02, August 30th,
2013  

 

UNDERLYING CONDITIONS

 

So long as any amount owing pursuant to the Loan Documents remains unpaid, the
following conditions shall apply:

 

1.You will confirm, on demand, proof of payment to each government agency
through documentation prepared by your external accredited accountant which is
to be forwarded to BDC along with your annual financial statements. You also
agree to sign a standard consent form enabling BDC to inquire as to the status
of these remittances.

 

2.You agree to provide to BDC annually written proof of your payment of the
property, school or similar taxes which are assessed against the mortgaged land
and improvements (the “taxes”), within thirty (30) days following the due date
of each required instalment. Should you default in paying any such instalment of
the taxes when due, you will pay BDC monthly payments as calculated by BDC to
establish a tax reserve account. These payments will be collected by the
pre-authorized debit plan and the funds in the account will earn interest in
accordance with BDC’s policy then in effect. You authorize BDC to pay the
relevant taxing authorities. Should there be insufficient funds to satisfy the
taxes owing, you will pay the shortfall. BDC will not be responsible for funding
the shortfall or any arrears, including interest and other charges. You will
instruct the taxing authority to forward a copy of the tax notice to BDC, or you
will deliver a copy to BDC upon receipt.

 

3.Notwithstanding terms and conditions for interest rate contained in this
Letter of Offer, the Loan must remain on fixed interest rate plans renewed from
time to time for periods chosen by the Borrower, which will be subject to all
other terms and conditions applicable to fixed interest rate plans.

 

4.DISBURSEMENT
This Loan will be disbursed through Solicitor in trust once all the required
Security is in place and terms and conditions set out in this Letter of Offer
have been met.

 

DISBURSEMENT

 

Unless otherwise authorized, funds shall be disbursed to the solicitor or notary
who shall confirm to BDC the execution, delivery and registration of the
Security.

 

REPRESENTATIONS AND WARRANTIES

 

The Borrower makes the representations and warranties in Schedule “A” – Section
II. These representations and warranties shall survive the execution of the
Letter of Offer and shall continue in force and effect until the full payment
and performance of all obligations of the Borrower pursuant to the Loan
Documents.

 

Page 5 of 9

 

 

LETTER OF OFFER Lakeland Protective Real Estate Inc. - 038405-02, August 30th,
2013  

 

COVENANTS

 

So long as any amount owing pursuant to the Loan Documents remains unpaid, the
Borrower and any corporate Guarantor shall perform the covenants in Schedule “A”
– Section III.

 

REPORTING OBLIGATIONS

 

The Borrower (and if applicable the corporate Guarantor) shall provide to BDC
within 90 days of its (their) fiscal year end the following financial
statements:

 

Company   Type   Frequency   Period Ending Lakeland Protective Wear, Inc.  
Review Engagement   Annual   January               Lakeland Industries, Inc.  
Audited   Annual   January               Lakeland Protective Real Estate Inc.  
Notice to Reader   Annual   January

 

and such other financial and operating statements and reports as and when BDC
may reasonably require.

 

EVENTS OF DEFAULT

 

The occurrence of any of the events listed in Schedule “A” – Section IV
constitutes an event of default under the Letter of Offer (each an “Event of
Default”). If an Event of Default occurs, any obligation of BDC to make any
advance, shall, at BDC’s option, terminate and BDC may, at its option, demand
immediate payment of the Loan and enforce any Security.

 

FEES

 

Cancellation Fee

 

If the Borrower does not draw on the Loan by August 29th, 2014 (the “Lapsing
Date”), the Loan shall lapse and be cancelled and the Borrower and the Guarantor
shall pay BDC a cancellation fee of $33,000.00. If the Borrower draws on the
Loan partially, the undisbursed part of the Loan shall lapse on the Lapsing Date
and be cancelled. If the Borrower cancels more than 50% of the Loan
(cumulative), the Borrower and the Guarantor shall pay a prorated part of the
above stated cancellation fee proportionate to the percentage of the Loan
cancelled.

 

The cancellation fee is payable on demand and is liquidated damages, not a
penalty, and represents a reasonable estimate of BDC's damages should the Loan
be cancelled or allowed to lapse in whole or in part.

 

Page 6 of 9

 

 

LETTER OF OFFER Lakeland Protective Real Estate Inc. - 038405-02, August 30th,
2013  

 

Standby Fee

 

The Borrower and the Guarantor shall pay BDC a non-refundable standby fee
calculated at a rate of 1.5% per annum on the portion of the Loan which has not
been advanced or cancelled. This fee shall be calculated daily and be payable in
arrears commencing on October 29th, 2013 and on each Payment Date thereafter.

 

Legal Fees and Expenses

 

The Borrower and the Guarantor shall pay, on demand, all legal and other
out-of-pocket costs of BDC incurred in connection with the Loan and the Loan
Documents including the enforcement of the Loan and the Loan Documents, whether
or not any documentation is entered into or any advance is made to the Borrower.
All legal and other out-of-pocket expenses of BDC in connection with any
amendment or waiver related to the Loan and the Loan documents shall also be for
the account of the Borrower.

 

Loan Management Fee

 

The Borrower shall pay BDC a management fee of $750.00 per year. This management
fee is payable annually on the Payment Date immediately following each
anniversary of the first advance of the Loan. This fee is non-refundable and is
subject to change.

 

Transaction Fees

 

The Borrower shall pay BDC loan amendment and Security processing fees charged
for the administrative handling of the Loan.

 

CONFLICTS

 

The Loan Documents constitute the entire agreement between BDC and the Borrower.
To the extent that any provision of the Letter of Offer is inconsistent with or
in conflict with the provisions of the other Loan Documents, such provision of
the Letter of Offer shall govern.

 

INDEMNITY

 

The Borrower shall indemnify and hold BDC harmless against any and all claims,
damages, losses, liabilities and expenses incurred, suffered or sustained by BDC
by reason of or relating directly or indirectly to the Loan Documents save and
except any such claim, damage, loss, liability and expense resulting from the
gross negligence or wilful misconduct of BDC.

 

GOVERNING LAW

 

This Letter of Offer shall be governed by and construed in accordance with the
laws of the jurisdiction in which the Business Centre of BDC is located as shown
on the first page of this Letter of Offer.

 

Page 7 of 9

 

 

LETTER OF OFFER Lakeland Protective Real Estate Inc. - 038405-02, August 30th,
2013  

 

SUCCESSORS AND ASSIGNS

 

The Letter of Offer shall extend to and be binding on the Borrower and BDC and
their respective successors and assigns. BDC, in its sole discretion, may
assign, sell or grant participation in (a “transfer”) all or any part of its
rights and obligations under this Letter of Offer or the Loan to any third
party, and the Borrower agrees to sign any documents and take any actions that
BDC may reasonably require in connection with any such transfer. Upon completion
of the transfer, the third party will have the same rights and obligations under
this Letter of Offer as if it were a party to it, with respect to all rights and
obligations included in the transfer and BDC will be released to the extent of
any interest under this Letter of Offer or the Loan it assigns. BDC may disclose
information it has in connection with the Borrower or any Guarantor to any
actual or prospective transferee. No Borrower or Guarantor shall have the right
to assign any of its rights or obligations under or pursuant to the Loan
Documents without BDC’s prior written consent.

 

ACCEPTANCE

 

The Letter of Offer and any modification of it may be executed and delivered by
original signature, fax, or any other electronic means of communication
acceptable to BDC and in any number of counterparts, each of which is deemed to
be an original and all of which taken together shall constitute one and the same
Letter of Offer.

 

Should you have any questions regarding the Letter of Offer, do not hesitate to
communicate with one of the undersigned.

 

/s/ Sean Tiernay   /s/ Vince Ditta Sean Tiernay   Vince Ditta Manager, Major
Accounts   Business Centre Manager Tel: (905) 572-2352     Fax: (905) 572-4282  
 

 

Page 8 of 9

 

 

LETTER OF OFFER Lakeland Protective Real Estate Inc. - 038405-02, August 30th,
2013  

 

ACCEPTANCE

 

The parties accept the terms and conditions set forth above and in the attached
Schedule “A”.

 

This 3rd day of September 2013.

 

Lakeland Protective Real Estate Inc.

 

Per: /s/ Gary Pokrassa ,  Authorized Signing Officer       Print Name: Gary
Pokrassa, CFO         Per:   ,  Authorized Signing Officer       Print Name:    

 

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