FIRST AMENDMENT TO AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

AND OTHER LOAN DOCUMENTS

  

This FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND
OTHER LOAN DOCUMENTS (this “Amendment”) is made as of the 28th day of April,
2014, by and among BG STAFFING, INC., a Delaware corporation, f/k/a LTN
Staffing, LLC, a Delaware limited liability company (“BG Staffing, Inc.”), BG
STAFFING, LLC, a Delaware limited liability company (“BG Staffing, LLC”), BG
PERSONNEL SERVICES, LP, a Texas limited partnership (“BG Personnel Services”),
BG PERSONNEL, LP, a Texas limited partnership (“BG Personnel”), and B G STAFF
SERVICES INC., a Texas corporation (“B G Staff Services”, and together with BG
Staffing, Inc., BG Staffing, LLC, BG Personnel Services and BG Personnel,
collectively, “Borrowers” and each a “Borrower”), and FIFTH THIRD BANK, an Ohio
banking corporation, successor by merger with Fifth Third Bank, a Michigan
banking corporation (“Lender”).

 

W I T N E S S E T H:

 

WHEREAS, Borrowers and Lender are parties to that certain Amended and Restated
Loan and Security Agreement dated as of January 29, 2014 (as amended, restated,
modified or supplemented and in effect from time to time, the “Loan Agreement”);
and

 

WHEREAS, Borrowers have requested that Lender amend the Loan Agreement and the
other Loan Documents in certain respects, and Lender is agreeable to such
request, on and subject to the terms and conditions set forth herein.

 

NOW, THEREFORE, the parties hereto hereby agree as follows:

 

1. Definitions. Capitalized terms used herein which are defined in the Loan
Agreement and not otherwise defined herein are used with the meanings given such
terms in the Loan Agreement.

 

2. Amendments to Loan Agreement. The Loan Agreement is hereby amended as
follows:

 

(a) by amending and restating the following definitions in Section 1.1 in their
respective entireties to read as follows:

 

“Borrowing Base Amount” shall mean:

 

(a) (i) for the period from March 30, 2014 through and including August 31,
2014, an amount equal to eighty-five percent (85%) of the net amount (after
deduction of such reserves and allowances as Lender deems proper and necessary,
including an accrual for sales rebates) of all Eligible Accounts, and (ii) on
September 1, 2014 and thereafter, an amount equal to eighty percent (80%) of the
net amount (after deduction of such reserves and allowances as Lender deems
proper and necessary, including an accrual for sales rebates) of all Eligible
Accounts; plus

 

 

 

 

(b) an amount equal to the lesser of (i) (A) for the period from March 30, 2014
through and including August 31, 2014, an amount equal to eighty-five percent
(85%) of the net amount (after deduction of such reserves and allowances as
Lender deems proper and necessary) of all Eligible Unbilled Accounts, and (B) on
September 1, 2014 and thereafter, an amount equal to eighty percent (80%) of the
net amount (after deduction of such reserves and allowances as Lender deems
proper and necessary) of all Eligible Unbilled Accounts, and (ii) One Million
and No/100 Dollars ($1,000,000.00).

 

“Debt Service Coverage Ratio” shall mean the ratio of (a) consolidated EBITDA
plus (i) all Earn Out Payments made by any Borrower for such period to the
extent treated as an expense, plus (ii) all management fees due to Taglich
Brothers, Inc. and its affiliates which Borrowers have accrued but not paid and
all director fees due by BG Staffing, Inc. to its directors which Borrowers have
accrued but not paid, less (iii) all distributions and dividends made to the
members, shareholders or partners of Borrowers (other than distributions and/or
dividends to other Borrowers), less (iv) federal and state income taxes paid by
Borrowers for such period, less (v) capital expenditures (other than capital
expenditures financed with the proceeds of purchase money indebtedness or
capital leases to the extent permitted under this Agreement), to (b)
consolidated Debt Service.

 

“EBITDA” shall mean for any period, the consolidated net income of Borrowers,
determined in accordance with GAAP consistently applied, plus (i) Interest
Expense for such period, plus (ii) federal and state income taxes of Borrowers
for such period, plus (iii) all depreciation and amortization of capitalized
costs for such period, plus (iv) actual closing costs in an amount not to exceed
$400,000 incurred by Borrowers in connection with closing the API Purchase
Transaction, provided that such closing costs are verified by Lender and
consented to by Lender in its sole discretion, plus (v) actual closing costs in
an amount not to exceed $400,000 incurred by Borrowers in connection with
closing the InStaff Purchase Transaction, provided that such closing costs are
verified by Lender and consented to by Lender in its sole discretion, plus (vi)
actual closing costs in an amount not to exceed $250,000 incurred by Borrowers
in connection with the conversion of BG Staffing, Inc. from a limited liability
company to a corporation and related transactions, provided that such closing
costs are verified by Lender and consented to by Lender in its sole discretion,
plus (vii) all other non-cash items. Notwithstanding the foregoing, however, for
purposes of testing the Debt Service Coverage Ratio financial covenant pursuant
to Section 10.1 of this Agreement, the Total Funded Indebtedness to Adjusted
EBITDA Ratio financial covenant pursuant to Section 10.2 of this Agreement and
the Adjusted EBITDA financial covenant pursuant to Section 10.3 of this
Agreement, the following shall be permitted to be added back to EBITDA for the
relevant calculation periods: (A) pre-transaction InStaff EBITDA in the amount
of $60,413 for the month of January 2013, $117,224 for the month of February
2013, $336,562 for the month of March 2013, $206,803 for the month of April
2013, and $204,664 for the month of May 2013, and (B) the non-cash portion of
loss on extinguishment of Debt not to exceed $960,000 for the month of February
2014.

 

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3. Amendment to the Other Loan Documents. The other Loan Documents are hereby
amended to the extent necessary to be consistent with the foregoing amendments
to the Loan Agreement.

 

4. Reaffirmation and Confirmation of Security Interests. Each Borrower hereby
confirms to Lender that such Borrower has granted to Lender a security interest
in or Lien upon substantially all of the property of such Borrower, including,
without limitation, the Collateral, to secure the Obligations. Each Borrower
hereby reaffirms its grant of such security interest and Lien to Lender for such
purpose in all respects.

 

In addition to the foregoing:

 

(a) BG Staffing, Inc. hereby confirms to Lender that BG Staffing, Inc. has
granted to Lender a security interest in or Lien upon the Pledged Collateral (as
defined in that certain Membership Interests Security Agreement dated as of May
24, 2010 by and between BG Staffing, Inc. and Lender (as amended, restated,
modified or supplemented and in effect from time to time, the “Membership
Interests Security Agreement”)), to secure the Liabilities (as defined in the
Membership Interests Security Agreement), under and pursuant to the Membership
Interests Security Agreement. BG Staffing, Inc. hereby expressly agrees that the
Lien on the Pledged Collateral shall secure all of the Liabilities (as defined
in the Membership Interests Security Agreement), including, without limitation,
the Loans, and hereby reaffirms its grant of such security interest and Lien to
Lender for such purpose in all respects. BG Staffing, Inc. hereby further
expressly agrees that upon consummation of the Subject Transactions, the Lien on
such Pledged Collateral shall continue to secure all of the Liabilities,
including, without limitation, the Loans.

 

(b) BG Staffing, Inc. hereby confirms to Lender that BG Staffing, Inc. has
granted to Lender a security interest in or Lien upon the Pledged Collateral (as
defined in that certain Partnership Interests Security Agreement dated as of May
24, 2010 by and between BG Staffing, Inc. and Lender (as amended, restated,
modified or supplemented and in effect from time to time, the “Partnership
Interests Security Agreement”)), to secure the Liabilities (as defined in the
Partnership Interests Security Agreement), under and pursuant to the Partnership
Interests Security Agreement. BG Staffing, Inc. hereby expressly agrees that the
Lien on the Pledged Collateral shall secure all of the Liabilities (as defined
in the Partnership Interests Security Agreement), including, without limitation,
the Loans, and hereby reaffirms its grant of such security interest and Lien to
Lender for such purpose in all respects. BG Staffing, Inc. hereby further
expressly agrees that upon consummation of the Subject Transactions, the Lien on
such Pledged Collateral shall continue to secure all of the Liabilities,
including, without limitation, the Loans.

 

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(c) BG Staffing, LLC hereby confirms to Lender that BG Staffing, LLC has granted
to Lender a security interest in or Lien upon the Pledged Collateral (as defined
in that certain Partnership Interests Security Agreement dated as of May 24,
2010 by and between BG Staffing, LLC and Lender (as amended, restated, modified
or supplemented and in effect from time to time, the “BG Staffing, LLC
Partnership Interests Security Agreement”)), to secure the Liabilities (as
defined in the BG Staffing, LLC Partnership Interests Security Agreement), under
and pursuant to the BG Staffing, LLC Partnership Interests Security Agreement.
BG Staffing, LLC hereby expressly agrees that the Lien on the Pledged Collateral
shall secure all of the Liabilities (as defined in the BG Staffing, LLC
Partnership Interests Security Agreement), including, without limitation, the
Loans, and hereby reaffirms its grant of such security interest and Lien to
Lender for such purpose in all respects. BG Staffing hereby further expressly
agrees that upon consummation of the Subject Transactions, the Lien on such
Pledged Collateral shall continue to secure all of the Liabilities, including,
without limitation, the Loans.

 

(d) BG Staffing, Inc. hereby confirms to Lender that BG Staffing, Inc. has
granted to Lender a security interest in or Lien upon the Pledged Collateral (as
defined in that certain Securities Pledge Agreement dated as of May 24, 2010 by
and between BG Staffing, Inc. and Lender (as amended, restated, modified or
supplemented and in effect from time to time, the “Securities Pledge
Agreement”)), to secure the Liabilities (as defined in the Securities Pledge
Agreement), under and pursuant to the Securities Pledge Agreement. BG Staffing,
Inc. hereby expressly agrees that the Lien on the Pledged Collateral shall
secure all of the Liabilities (as defined in the Securities Pledge Agreement),
including, without limitation, the Loans, and hereby reaffirms its grant of such
security interest and Lien to Lender for such purpose in all respects. BG
Staffing, Inc. hereby further expressly agrees that upon consummation of the
Subject Transactions, the Lien on such Pledged Collateral shall continue to
secure all of the Liabilities, including, without limitation, the Loans.

 

5. Representations and Warranties. Each Borrower hereby represents, warrants and
covenants to Lender that:

 

(a) Authorization. Each Borrower is duly authorized to execute and deliver this
Amendment and all deliveries required hereunder, and is and will continue to be
duly authorized to borrow monies under the Loan Agreement, as amended hereby,
and to perform its obligations under the Loan Agreement and the other Loan
Documents.

 

(b) No Conflicts. The execution and delivery of this Amendment and all
deliveries required hereunder, and the performance by each Borrower of its
obligations under the Loan Agreement and the other Loan Documents do not and
will not conflict with any provision of law or of the charter or by-laws,
operating agreement or partnership agreement of any Borrower or of any agreement
binding upon any Borrower.

 

(c) Validity and Binding Effect. This Amendment, the Loan Agreement and the
other Loan Documents are a legal, valid and binding obligation of each Borrower,
enforceable against such Borrower in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency or other
similar laws of general application affecting the enforcement of creditors’
rights or by general principles of equity limiting the availability of equitable
remedies.

 

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(d) No Events of Default. As of the date hereof, no default or Event of Default
under the Loan Agreement or any of the other Loan Documents has occurred or is
continuing.

 

(e) Warranties. As of the date hereof, the representations and warranties in the
Loan Agreement and the other Loan Documents are true and correct in all material
respects as though made on such date, except where a different date is
specifically indicated.

 

6. Conditions to Effectiveness. This Amendment shall be deemed to be effective
as of the date hereof (the “Amendment Effective Date”), and the effectiveness of
this Amendment shall be subject to, the satisfaction of all of the following
conditions:

 

(a) This Amendment, duly authorized and fully executed by each Borrower and
Lender, and the Consent and Ratification of Amended and Restated Capital
Contribution Agreement attached hereto and made a part hereof, duly authorized
and fully executed by the parties thereto, shall have been delivered to Lender.

 

(b) Payment by Borrowers to Lender of an amendment fee in the amount of Seven
Thousand Five Hundred and No/100 Dollars ($7,500.00).

 

(c) Such other documents, instruments or agreements as Lender may reasonably
request in order to effectuate fully the transactions contemplated herein shall
have been duly executed and delivered to Lender.

 

7. Costs and Expenses. Borrowers shall jointly and severally pay all costs and
expenses in connection with the preparation of this Amendment and other related
loan documents, including, without limitation, reasonable attorneys’ fees.

 

8. Further Assurances. Each Borrower shall take such actions as are necessary or
as Lender may reasonably request from time to time to ensure that the
Obligations under the Loan Documents are secured by substantially all of the
assets of such Borrower, in each case as Lender may determine, including (a) the
execution and delivery of security agreements, pledge agreements, mortgages,
deeds of trust, financing statements and other documents, and the filing or
recording of any of the foregoing, and (b) the delivery of certificated
securities and other collateral with respect to which perfection is obtained by
possession.

 

9. Miscellaneous.

 

(a) Recitals; Captions. The WHEREAS clauses at the beginning of this Amendment
are part of this Amendment. Section captions and headings used in this Amendment
are for convenience only and are not part of and shall not affect the
construction of this Amendment.

 

(b) Governing Law. This Amendment shall be a contract made under and governed by
the laws of the State of Illinois, without regard to conflict of laws
principles. Whenever possible, each provision of this Amendment shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Amendment shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Amendment.

 

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(c) Counterparts. This Amendment may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which shall together
constitute but one and the same document.

 

(d) Successors and Assigns. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.

 

(e) References. From and after the Amendment Effective Date, any reference to
the Loan Agreement or the other Loan Documents contained in any notice, request,
certificate or other instrument, document or agreement executed concurrently
with or after the execution and delivery of this Amendment shall be deemed to
include this Amendment unless the context shall otherwise require.

 

(f) Continued Effectiveness. Notwithstanding anything contained herein, the
terms of this Amendment are not intended to and do not serve to effect a
novation as to the Loan Agreement. The parties hereto expressly do not intend to
extinguish the Loan Agreement. Instead, it is the express intention of the
parties hereto to reaffirm the indebtedness created under the Loan Agreement and
secured by the Collateral. The Loan Agreement and each of the other Loan
Documents, except as modified hereby, remain in full force and effect and are
hereby reaffirmed in all respects.

 

(g) Customer Identification - USA Patriot Act Notice; OFAC and Bank Secrecy Act.
Lender hereby notifies each Borrower that pursuant to the requirements of the
USA Patriot Act (Title III of Pub. L. 107-56, signed into law October 26, 2001)
(the “Act”), and Lender’s policies and practices, Lender is required to obtain,
verify and record certain information and documentation that identifies such
Borrower, which information includes the name and address of such Borrower and
such other information that will allow Lender to identify such Borrower in
accordance with the Act. In addition, each Borrower shall (a) ensure that no
person who owns a controlling interest in or otherwise controls such Borrower or
any subsidiary of such Borrower is or shall be listed on the Specially
Designated Nationals and Blocked Person List or other similar lists maintained
by the Office of Foreign Assets Control (“OFAC”), the Department of the Treasury
or included in any Executive Orders, (b) not use or permit the use of the
proceeds of the Loan to violate any of the foreign asset control regulations of
OFAC or any enabling statute or Executive Order relating thereto, and (c)
comply, and cause any of its subsidiaries to comply, with all applicable Bank
Secrecy Act (“BSA”) laws and regulations, as amended.

 

[Remainder of page intentionally left blank; signature pages follow]

 

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IN WITNESS WHEREOF, the parties have executed this First Amendment to Amended
and Restated Loan and Security Agreement and Other Loan Documents as of the date
first set forth above.

 

  BORROWERS:             BG STAFFING, INC., a Delaware corporation, f/k/a LTN
Staffing, LLC, a Delaware limited liability company           By:     Name: L.
Allen Baker, Jr.   Title: President and Chief Executive Officer                
  BG STAFFING, LLC, a Delaware limited liability company           By: BG
Staffing, Inc., a Delaware corporation, f/k/a LTN Staffing, LLC, a Delaware
limited liability company   Its: Sole Member           By:        Name: L. Allen
Baker, Jr.   Title: President and Chief Executive Officer

 

 

BG PERSONNEL SERVICES, LP, a Texas limited partnership

            By:

BG Staffing, LLC, a Delaware limited liability company

  Its:   General Partner                 By: BG Staffing, Inc., a Delaware
corporation, f/k/a LTN Staffing, LLC, a Delaware limited liability company    
Its:   Sole Member                 By:         Name:   L. Allen Baker, Jr.      
Title: President and Chief Executive Officer

 

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BG PERSONNEL, LP, a Texas limited partnership

            By:

BG Staffing, LLC, a Delaware limited liability company,

  Its:   General Partner                 By: BG Staffing, Inc., a Delaware
corporation, f/k/a LTN Staffing, LLC, a Delaware limited liability company    
Its:   Sole Member                 By:         Name:   L. Allen Baker, Jr.      
Title: President and Chief Executive Officer

 

  B G STAFF SERVICES INC., a Texas corporation         By:     Name:   L. Allen
Baker, Jr.   Title: President and Chief Executive Officer

 

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  LENDER:         FIFTH THIRD BANK, an Ohio banking corporation, successor by
merger with Fifth Third Bank, a Michigan banking corporation         By:    
Name:   David L. Mistic   Title: Vice President         By:     Name: Clayton A.
Bruce   Title: Vice President

 

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