Document:

staf-ex101_11.htm

Exhibit 10.1

 

Execution Version

The indebtedness and securities evidenced hereby are subordinated in accordance with and subject to the terms of that certain Subordination Agreement (as amended, restated, supplemented or modified from time to time, the “Subordination Agreement”), dated as of January 25, 2017, by and among Jackson Investment Group, LLC, a Georgia limited liability company, (“Subordinated Lender”), Staffing 360 Solutions, Inc., a Nevada corporation (“Parent”), certain of the Parent’s subsidiaries party thereto and MidCap Funding X Trust, in its capacity as agent (together with its affiliates and their respective successors and assigns, “Senior Agent”) for the Senior Lenders (as defined in the Subordination Agreement), and each holder and transferee of this instrument or agreement, by its acceptance hereof, irrevocably agrees to be bound by the provisions of the Subordination Agreement. 

NOTE AND WARRANT PURCHASE AGREEMENT 

Dated as of January 25, 2017

by and among

 STAFFING 360 SOLUTIONS, INC.,
 as the Company,

and

FARO RECRUITMENT AMERICA, INC.,

MONROE STAFFING SERVICES, LLC,

STAFFING 360 SOLUTIONS LIMITED,

LONGBRIDGE RECRUITMENT 360 LIMITED,

THE JM GROUP (IT RECRUITMENT) LIMITED,

PEOPLESERVE, INC.,

PEOPLESERVE PRS, INC.,

LIGHTHOUSE PLACEMENT SERVICES, INC., and 

the other SUBSIDIARY GUARANTORS from time to time party hereto,

 
as the Subsidiary Guarantors, 

and

Jackson Investment Group, LLC,
as the Purchaser

 

 

 

 

TABLE OF CONTENTS

 

					
	
Article 1.
	
DEFINITIONS
	
 
	
1

	
 
	
Section 1.1
	
Definitions
	
 
	
1

	
 
	
 
	
 
	
 
	
 

	
Article 2.
	
ISSUANCE AND PURCHASE OF SUBORDINATED NOTE AND WARRANT
	
 
	
18

	
 
	
Section 2.1
	
Purchase and Sale of Subordinated Note and Warrant
	
 
	
18

	
 
	
Section 2.2
	
Allocation of Purchase Price
	
 
	
18

	
 
	
Section 2.3
	
Interest on the Subordinated Note
	
 
	
19

	
 
	
Section 2.4
	
Maturity of Subordinated Note; Voluntary Prepayments; Funding Losses
	
 
	
19

	
 
	
 
	
 
	
 
	
 

	
Article 3.
	
OTHER PROVISIONS RELATING TO THE SUBORDINATED NOTE
	
 
	
20

	
 
	
Section 3.1
	
Making of Payments
	
 
	
20

	
 
	
Section 3.2
	
Increased Costs
	
 
	
20

	
 
	
Section 3.3
	
Tax Gross Up and Indemnity
	
 
	
20

	
 
	
Section 3.4
	
Default Rate of Interest
	
 
	
21

	
 
	
Section 3.5
	
Calculation of Interest
	
 
	
21

	
 
	
Section 3.6
	
Usury
	
 
	
21

	
 
	
 
	
 
	
 
	
 

	
Article 4.
	
GUARANTY
	
 
	
21

	
 
	
Section 4.1
	
The Guaranty
	
 
	
21

	
 
	
Section 4.2
	
Obligations Unconditional
	
 
	
21

	
 
	
Section 4.3
	
Reinstatement
	
 
	
22

	
 
	
Section 4.4
	
Certain Additional Waivers
	
 
	
22

	
 
	
Section 4.5
	
Remedies
	
 
	
22

	
 
	
Section 4.6
	
Guarantee of Payment; Continuing Guarantee
	
 
	
23

	
 
	
Section 4.7
	
Limitations on Guaranty
	
 
	
23

	
 
	
Section 4.8
	
Contribution
	
 
	
23

	
 
	
 
	
 
	
 
	
 

	
Article 5.
	
CONDITIONS PRECEDENT TO EFFECTIVE DATE AND THE CLOSING
	
 
	
24

	
 
	
Section 5.1
	
Effective Date Conditions
	
 
	
24

	
 
	
Section 5.2
	
Closing Conditions
	
 
	
27

	
 
	
 
	
 
	
 
	
 

	
Article 6.
	
REPRESENTATIONS AND WARRANTIES
	
 
	
29

	
 
	
Section 6.1
	
Representations and Warranties Generally
	
 
	
29

	
 
	
Section 6.2
	
Corporate Existence; Subsidiaries
	
 
	
29

	
 
	
Section 6.3
	
Organization and Governmental Authorization; No Contravention
	
 
	
29

	
 
	
Section 6.4
	
Binding Effect
	
 
	
29

	
 
	
Section 6.5
	
Capitalization
	
 
	
30

	
 
	
Section 6.6
	
Financial Information
	
 
	
30

	
 
	
Section 6.7
	
Litigation
	
 
	
30

	
 
	
Section 6.8
	
Ownership of Property
	
 
	
30

	
 
	
Section 6.9
	
No Default
	
 
	
30

	
 
	
Section 6.10
	
Labor Matters
	
 
	
31

	
 
	
Section 6.11
	
Regulated Entities
	
 
	
31

	
 
	
Section 6.12
	
[Reserved]
	
 
	
31

	
 
	
Section 6.13
	
Compliance With Laws; Anti-Terrorism Laws
	
 
	
31

	
 
	
Section 6.14
	
Taxes
	
 
	
31

	
 
	
Section 6.15
	
Compliance with ERISA
	
 
	
32

ii

 

					
	
 
	
Section 6.16
	
Consummation of Transaction Documents; Brokers
	
 
	
32

	
 
	
Section 6.17
	
[Reserved]
	
 
	
32

	
 
	
Section 6.18
	
Material Contracts
	
 
	
33

	
 
	
Section 6.19
	
[Reserved]
	
 
	
33

	
 
	
Section 6.20
	
Intellectual Property
	
 
	
33

	
 
	
Section 6.21
	
Solvency
	
 
	
33

	
 
	
Section 6.22
	
Full Disclosure
	
 
	
33

	
 
	
Section 6.23
	
Interest Rate
	
 
	
34

	
 
	
Section 6.24
	
Subsidiaries
	
 
	
34

	
 
	
Section 6.25
	
[Reserved]
	
 
	
34

	
 
	
Section 6.26
	
Approvals
	
 
	
34

	
 
	
Section 6.27
	
Insurance
	
 
	
34

	
 
	
Section 6.28
	
Continuing Business of Company
	
 
	
34

	
 
	
Section 6.29
	
[Reserved]
	
 
	
34

	
 
	
Section 6.30
	
No General Solicitation
	
 
	
34

	
 
	
Section 6.31
	
Representations and Warranties of the Purchaser
	
 
	
35

	
 
	
 
	
 
	
 
	
 

	
Article 7.
	
AFFIRMATIVE COVENANTS
	
 
	
36

	
 
	
Section 7.1
	
Financial Statements and Other Reports
	
 
	
36

	
 
	
Section 7.2
	
Payment and Performance of Obligations
	
 
	
37

	
 
	
Section 7.3
	
Maintenance of Existence
	
 
	
38

	
 
	
Section 7.4
	
Maintenance of Property; Insurance
	
 
	
38

	
 
	
Section 7.5
	
Compliance with Laws and Material Contracts
	
 
	
38

	
 
	
Section 7.6
	
Inspection of Property, Books and Records
	
 
	
38

	
 
	
Section 7.7
	
Use of Proceeds
	
 
	
39

	
 
	
Section 7.8
	
[Reserved]
	
 
	
39

	
 
	
Section 7.9
	
Notices of Litigation and Defaults
	
 
	
39

	
 
	
Section 7.10
	
Further Assurances; Additional Guarantors
	
 
	
40

	
 
	
Section 7.11
	
[Reserved]
	
 
	
40

	
 
	
Section 7.12
	
Maintenance of Management
	
 
	
40

	
 
	
Section 7.13
	
[Reserved]
	
 
	
40

	
 
	
Section 7.14
	
Registration Rights; Indemnification
	
 
	
40

	
 
	
Section 7.15
	
Closing Commitment Fee
	
 
	
42

	
 
	
Section 7.16
	
Post-Closing Covenants
	
 
	
42

	
 
	
 
	
 
	
 
	
 

	
Article 8.
	
NEGATIVE COVENANTS AND FINANCIAL COVeNANTS
	
 
	
42

	
 
	
Section 8.1
	
Debt; Contingent Obligations
	
 
	
42

	
 
	
Section 8.2
	
Liens
	
 
	
43

	
 
	
Section 8.3
	
Restricted Distributions
	
 
	
43

	
 
	
Section 8.4
	
Restrictive Agreements
	
 
	
43

	
 
	
Section 8.5
	
Payments and Modifications of Subordinated Debt
	
 
	
43

	
 
	
Section 8.6
	
Consolidations, Mergers and Sales of Assets; Change in Control
	
 
	
43

	
 
	
Section 8.7
	
Purchase of Assets, Investments
	
 
	
44

	
 
	
Section 8.8
	
Transactions with Affiliates
	
 
	
44

	
 
	
Section 8.9
	
Modification of Organizational Documents
	
 
	
44

	
 
	
Section 8.10
	
Modification of Certain Agreements
	
 
	
44

	
 
	
Section 8.11
	
Conduct of Business
	
 
	
44

	
 
	
Section 8.12
	
Lease Payments
	
 
	
45

	
 
	
Section 8.13
	
Limitation on Sale and Leaseback Transactions
	
 
	
45

	
 
	
Section 8.14
	
Deposit Accounts and Securities Accounts; Payroll and Benefits Accounts
	
 
	
45

iii

 

					
	
 
	
Section 8.15
	
Compliance with Anti-Terrorism Laws
	
 
	
45

	
 
	
Section 8.16
	
Sale or Discount of Receivables
	
 
	
45

	
 
	
Section 8.17
	
Financial Covenants
	
 
	
46

	
 
	
Section 8.18
	
Excluded Subsidiaries
	
 
	
48

	
 
	
 
	
 
	
 
	
 

	
Article 9.
	
EVENTS OF DEFAULT
	
 
	
48

	
 
	
Section 9.1
	
Events of Default
	
 
	
48

	
 
	
Section 9.2
	
Remedies on Default
	
 
	
50

	
 
	
 
	
 
	
 
	
 

	
Article 10.
	
MISCELLANEOUS
	
 
	
51

	
 
	
Section 10.1
	
Notices
	
 
	
51

	
 
	
Section 10.2
	
No Waiver
	
 
	
51

	
 
	
Section 10.3
	
Expenses
	
 
	
52

	
 
	
Section 10.4
	
Amendments, Etc
	
 
	
52

	
 
	
Section 10.5
	
Successors and Assigns
	
 
	
52

	
 
	
Section 10.6
	
Governing Law
	
 
	
53

	
 
	
Section 10.7
	
Survival of Representations and Warranties
	
 
	
53

	
 
	
Section 10.8
	
Severability
	
 
	
53

	
 
	
Section 10.9
	
Counterparts
	
 
	
53

	
 
	
Section 10.10
	
Set-Off
	
 
	
53

	
 
	
Section 10.11
	
Termination of Agreement
	
 
	
53

	
 
	
Section 10.12
	
Consent to Service of Process
	
 
	
53

	
 
	
Section 10.13
	
Waiver of Jury Trial
	
 
	
53

	
 
	
Section 10.14
	
Entire Agreement
	
 
	
54

	
 
	
Section 10.15
	
Publicity
	
 
	
54

	
 
	
Section 10.16
	
Subordination
	
 
	
54

	
 
	
Section 10.17
	
Further Assurances
	
 
	
54

	
 
	
Section 10.18
	
Subordination of Intercompany Indebtedness and Management Fees
	
 
	
54

 

Exhibits and Schedules

 

	
Exhibit A
	
-
	
Form of Subordinated Secured Note

	
Exhibit B
	
-
	
Form of Warrant

	
Exhibit C
	
-
	
Form of Compliance Certificate

	
Exhibit D 
	
-
	
Financial Statements and Projections

	
Exhibit E 
	
-
	
Acknowledgement and Reaffirmation Agreement

	
 
	
 
	
 

	
Schedule 6.2 
	
-
	
Subsidiaries

	
Schedule 6.3 
	
-
	
No Violation

	
Schedule 6.5 
	
-
	
Capitalization

	
Schedule 6.7 
	
-
	
Litigation

	
Schedule 6.16
	
-
	
Taxes

	
Schedule 6.16
	
-
	
Brokers Fees

	
Schedule 6.18
	
-
	
Material Contracts

	
Schedule 6.20
	
-
	
Intellectual Property

	
Schedule 6.24
	
-
	
Joint Ventures/Minority Equity Interests

	
Schedule 7.9
	
-
	
Disputes

	
Schedule 8.1
	
-
	
Existing Debt

	
Schedule 8.2 
	
-
	
Permitted Liens

	
Schedule 8.7 
	
-
	
Permitted Investments

iv

 

	
Schedule 8.8 
	
-
	
Transactions with Affiliates 

	
Schedule 8.11
	
-
	
Conduct of Business

	
Schedule 8.14 
	
-
	
Deposit Accounts/Securities Accounts

 

 

v

 

NOTE AND WARRANT PURCHASE AGREEMENT

THIS NOTE AND WARRANT PURCHASE AGREEMENT, dated as of January 25, 2017, by and among STAFFING 360 SOLUTIONS, INC., a Nevada corporation, as issuer of the Subordinated Note and the Warrant (the “Company”), the Subsidiaries of the Company listed on the signature pages hereto and any subsidiary added hereto from time to time, as Subsidiary Guarantors, and Jackson Investment Group, LLC, as the Purchaser.

WHEREAS, the Company has requested that the Purchaser (as defined below) make a certain subordinated debt investment of Seven Million Four Hundred Thousand Dollars ($7,400,000) in the Company in the form of a purchase of a Subordinated Secured Note and a Warrant to purchase Common Stock of the Company, the proceeds of which will be used by the Company to repay certain indebtedness of the Company, for working capital and other purposes as specified in this Agreement; and

WHEREAS, the Purchaser has agreed to make such subordinated debt investment on the terms and subject to the conditions set forth herein, such investment to be evidenced by a Subordinated Secured Note in the principal amount of Seven Million Four Hundred Thousand Dollars ($7,400,000) issued by the Company in addition to the Warrant issued by the Company as more fully described below.

NOW, THEREFORE, for and in consideration of the mutual premises, covenants and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

Article 1.

DEFINITIONS

Section 1.1 Definitions.  In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“ABN Amro Agreements for the Purchase of Debt” means, collectively, (a) that certain Agreement for the Purchase of Debts, having a commencement date of January 8, 2013, between ABN Amro Commercial Finance PLC and Longbridge Recruitment 360 Limited (f/k/a Longbridge Recruitment (Technology Solutions) Limited), (b) that certain Agreement for the Purchase of Debts, having a commencement date of July 26, 2011, between Venture Finance PLC and Longbridge Recruitment 360 Limited (f/k/a Longbridge Recruitment (Sales & Marketing) Limited), (c) that certain Agreement for the Purchase of Debts, having a commencement date of July 26, 2011, between Venture Finance PLC and Longbridge Recruitment 360 Limited (f/k/a Longbridge Recruitment Technical Limited), (d) that certain Agreement for the Purchase of Debts, having a commencement date of July 26, 2011, between Venture Finance PLC and Longbridge Recruitment 360 Limited (f/k/a ASA Law Limited), and (e) that certain Loan Agreement dated as of November 4, 2015 by and between The JM Group (IT Recruitment) Limited and ABN AMRO Commercial Finance PLC, in each case, as amended, restated, supplemented or otherwise modified from time to time.  

“Acknowledgment and Reaffirmation Agreement” means that certain Acknowledgement and Reaffirmation Agreement dated as of the Closing Date, executed and delivered by the Merger Entity to the Purchaser, in substantially the form of Exhibit E hereto.

“Advance” has the meaning set forth in Section 2.1.

 

 

“Affiliate” shall mean, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified; provided that the holding by the Purchaser of the Warrant (or the Equity Interests into which such Warrant is converted) or the Commitment Fee Shares shall not be deemed to constitute the Purchaser as an Affiliate of the Company hereunder. The term “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. The terms “Controlling” and “Controlled” have meanings correlative thereto. 

“Agreement” means this Note and Warrant Purchase Agreement, as the same may be amended, restated, supplemented or modified from time to time in accordance with the terms hereof.

“Anti-Corruption Laws” means all laws, rules and regulations of any jurisdiction applicable to any of the Obligors or their respective Subsidiaries from time to time concerning or relating to bribery or corruption, including without limitation, the United States Foreign Corrupt Practices Act of 1977, as amended.

“Anti-Terrorism Laws” means any laws with respect to terrorism or money laundering, including Executive Order No. 13224 on Terrorist Financing effective September 24, 2001 (the “Executive Order”) and the PATRIOT Act.

“Applicable Law” means all applicable provisions of constitutions, statutes, rules, regulations and orders of all governmental bodies and all orders and decrees of all courts, tribunals and arbitrators including, without limitation, all Environmental Laws.

“Asset Disposition” means any sale, lease, license, transfer, assignment or other consensual disposition by any Obligor of any asset.

 “Bankruptcy Code” means The Bankruptcy Code of 1978, as amended and in effect from time to time (11 U.S.C. § 101 et seq.). Section references to the Bankruptcy Code are to the Bankruptcy Code, as in effect at the date of this Agreement, and any subsequent provisions of the Bankruptcy Code, amendatory thereof, supplemental thereto or substituted therefor.

“Blocked Person” means any Person that is a blocked person described in Section 1 of the Executive Order.

“Business Day” means any day on which commercial banks located in New York, New York are required or permitted by law to be open for the purpose of conducting a commercial banking business other than a Saturday or Sunday.

“Change in Control” means any of the following events: (a) any Person or two or more Persons acting in concert shall have acquired beneficial ownership, directly or indirectly, of, or shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of or control over, voting stock of the Company (or other securities convertible into such voting stock) representing 40% or more of the combined voting power of all voting stock of the Company or (b) the Company ceases to own, directly or indirectly, 100% of the capital stock of any of the Guarantors, except in connection with any merger or consolidation in respect of any Guarantor expressly permitted under Section 8.6; or (c) the occurrence of any “Change of Control”, “Change in Control”, or terms of similar import under any document or instrument governing or relating to Debt of or equity in such Person. As used herein, “beneficial ownership” shall have the 

2

 

meaning provided in Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934.

“Closing” shall mean the closing of the purchase and sale of the Subordinated Note and the Warrant, and the payment of the Purchase Price therefor, as contemplated by this Agreement and the other Transaction Documents.

 “Closing Date” shall mean the date upon which all conditions in Section 5.2 have been satisfied (or waived in writing by Purchaser in its sole discretion) and the Closing has occurred.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement, and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor.

“Collateral” shall mean all of the property and assets of the Obligors now or hereafter securing the Obligations pursuant to the Security Agreement, the Pledge Agreement, the Intellectual Property Security Agreements and the other Security Documents. 

“Commitment Fee Shares” has the meaning set forth in Section 7.15.

“Common Stock” means the Company’s common stock, par value $0.00001 per share.

“Company” has the meaning set forth in the introductory paragraph hereof and shall include the Company’s successors and permitted assigns.  On and after the effective time of the consummation of the Reincorporation, all references herein to the “Company” shall be deemed to refer to the Merger Entity as successor to the Company, except in the case of any representations or warranties or other provisions herein where the context is intended to refer to periods prior to the effective date of the Reincorporation.

“Compliance Certificate” means a certificate, duly executed by a Responsible Officer of the Company, appropriately completed and substantially in the form of Exhibit C hereto.

 “Consolidated Subsidiary” means, at any date, any Subsidiary the accounts of which would be consolidated with those of the Purchaser (or any other Person, as the context may require hereunder) in its consolidated financial statements if such statements were prepared as of such date.

“Contingent Obligation” means, with respect to any Person, any direct or indirect liability of such Person: (a) with respect to any Debt of another Person (a “Third Party Obligation”) if the purpose or intent of such Person incurring such liability, or the effect thereof, is to provide assurance to the obligee of such Third Party Obligation that such Third Party Obligation will be paid or discharged, or that any agreement relating thereto will be complied with, or that any holder of such Third Party Obligation will be protected, in whole or in part, against loss with respect thereto; (b) with respect to any undrawn portion of any letter of credit issued for the account of such Person or as to which such Person is otherwise liable for the reimbursement of any drawing; (c) under any Swap Contract, to the extent not yet due and payable; (d) to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement; or (e) for any obligations of another Person pursuant to any Guarantee or pursuant to any agreement to purchase, repurchase or otherwise acquire any obligation or any property constituting security therefor, to provide funds for the payment or discharge of such obligation or to preserve the solvency, financial condition or level of income of another Person. The amount of any Contingent Obligation shall be equal to the amount of the obligation so Guaranteed or 

3

 

otherwise supported or, if not a fixed and determinable amount, the maximum amount so Guaranteed or otherwise supported.

“Controlled Group” means all members of any group of corporations and all members of a group of trades or businesses (whether or not incorporated) under common control which, together with any Obligor, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code or Section 4001(b) of ERISA.

“Debt” of a Person means at any date, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising and paid on a timely basis and in the Ordinary Course of Business, (d) all capital leases of such Person, (e) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit, banker’s acceptance or similar instrument, (f) all equity securities of such Person subject to repurchase or redemption other than at the sole option of such Person, (g) all obligations secured by a Lien on any asset of such Person, whether or not such obligation is otherwise an obligation of such Person, (h)  profit sharing arrangements, deferred purchase money amounts and similar payment obligations or continuing obligations of any nature of such Person arising out of purchase and sale contracts, (i) all Debt of others Guaranteed by such Person, (j) off-balance sheet liabilities and/or Pension Plan or Multiemployer Plan liabilities of such Person, (k) obligations arising under non-compete agreements, and (l) obligations arising under bonus, deferred compensation, incentive compensation or similar arrangements, other than those arising in the Ordinary Course of Business. Without duplication of any of the foregoing, Debt of Obligors as of any date of determination shall include the outstanding principal amount of the Subordinated Note.

“Default” shall mean any event that, with notice or lapse of time or both, would constitute an Event of Default. 

“Deposit Account Control Agreement” shall mean any deposit account control agreement entered into on or after the Closing Date by the applicable depository bank, the applicable Obligor, and the Purchaser, as may be amended, restated, supplemented or otherwise modified from time to time. 

“Designated Person” means (a) a Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order; (b) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order; (c) a Person with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law; (d) a Person that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order; or (e) a Person that is named as a “specially designated national and blocked person” on the most current list published by OFAC at its official website or any replacement website or other replacement official publication of such list.

“Dollar” and the sign “$” shall mean the lawful money of the United States of America.

“Domestic Guarantors” means the Domestic Subsidiaries that are Guarantors.

“Domestic Subsidiary” means any Subsidiary that is organized under the Laws of any state of the United States or the District of Columbia.

“Effective Date” means the date on which the conditions specified in Section 5.1 are satisfied (or waived in writing by the Purchaser in its sole discretion).

4

 

“Environmental Laws” means any present and future federal, state and local laws, statutes, ordinances, rules, regulations, standards, policies and other governmental directives or requirements, as well as common law, pertaining to the environment, natural resources, pollution, health (including any environmental clean-up statutes and all regulations adopted by any local, state, federal or other Governmental Authority, and any statute, ordinance, code, order, decree, law rule or regulation all of which pertain to or impose liability or standards of conduct concerning medical waste or medical products, equipment or supplies), safety or clean-up that apply to any Obligor and relate to hazardous materials.

“Equity Interests”  means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA as in effect at the date of this Agreement and any subsequent provisions of ERISA amendatory thereof, supplemental thereto or substituted therefor.

“ERISA Plan” means any “employee benefit plan”, as such term is defined in Section 3(3) of ERISA (other than a Multiemployer Plan), which any Obligor maintains, sponsors or contributes to, or, in the case of an employee benefit plan which is subject to Section 412 of the Code or Title IV of ERISA, to which any Obligor or any member of the Controlled Group may have any liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five (5) years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA.

“Event of Default” means any of the events specified in Section 9.1.

“Excluded Subsidiaries” means, collectively, Control Solutions International Inc., a Florida corporation, and Canada Control Solutions International, Inc., a company organized under the laws of British Columbia.

“Executive Order” has the meaning specified in the definition of Anti-Terrorism Laws.

“Existing Senior Secured Debt Documents” means, collectively, (a) the Existing Senior Secured ABL Credit Agreements, and (b) any promissory notes or other instruments, guarantees, security agreements, pledge agreements, mortgages or other documents or agreements evidencing, guaranteeing or securing the obligations of any Obligors under any of the Senior Secured ABL Credit Agreements.

“Existing Senior Secured ABL Credit Agreements” means, collectively, (a) the MidCap ABL Credit Agreement, (b) ABN Amro Agreements for the Purchase of Debt, and (c) the Sterling Facility Agreement, in each case, as amended, restated, supplemented or otherwise modified from time to time.

“Fiscal Month” means, with respect each Fiscal Year of the Company and each of its Consolidated Subsidiaries, each of twelve non-calendar fiscal month, with fiscal months 1, 2, 4, 5, 7,8, 10 

5

 

and 11 consisting of four consecutive weeks and with fiscal months 3, 6, 9 and 12 consisting of five consecutive weeks.

 “Fiscal Quarter” means, with respect each Fiscal Year of the Company and each of its Consolidated Subsidiaries, each of the four three-Fiscal Month periods with the first Fiscal Quarter consisting of Fiscal Months 1, 2 and 3, the second Fiscal Quarter consisting of Fiscal Months 4, 5 and 6, the third Fiscal Quarter consisting of Fiscal Months 7, 8, and 9 and the fourth Fiscal Quarter consisting of Fiscal Months 10, 11 and 12.

“Fiscal Year” means with respect to the Company and each of its Consolidated Subsidiaries, a fiscal year ending on the last Saturday in May and consisting of twelve (12) Fiscal Months; provided, that upon the delivery of (i) thirty (30) days’ prior written notice to the Purchaser (or such shorter time period as determined by the Purchaser in its reasonable discretion) and (ii) such information and documentation reasonably requested by the Purchaser, the Company may change its Fiscal Year to December 31st.

“Foreign Guarantors” shall mean, collectively, (a) each of the direct and indirect Foreign Subsidiaries of the Company party hereto (other than any Excluded Subsidiary that is a Foreign Subsidiary), and (b) any direct or indirect Foreign Subsidiary of the Company that now or hereafter becomes joined as a Guarantor hereunder or executes a guaranty in favor of the Purchaser in connection with the transactions contemplated by this Agreement and the other Note Documents.

“Foreign Subsidiary” means any Subsidiary that is organized under the laws of a jurisdiction other than the United States, a State thereof or the District of Columbia.  

“GAAP” shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or any successor authority) that are applicable to the circumstances as of the date of determination, consistently applied and maintained through the periods indicated.

“Global Intercompany Note” means the Global Intercompany Note, dated as of even date herewith, by and among the payors (as identified therein) and the payees (as identified therein), as the same may be amended, restated, supplemented or otherwise modified from time to time.

“Governmental Authority” shall mean the government of the United States, any foreign country or any multinational authority, or any state, commonwealth, protectorate or political subdivision thereof, and any entity, body or authority exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including the Pension Benefit Guaranty Corporation and other quasi-governmental entities established to perform such functions.

“Guarantors” shall mean, collectively, (i) the Subsidiary Guarantors, and (ii) each other Person, if any, that now or hereafter executes a guaranty in favor of the Purchaser in connection with the transactions contemplated by this Agreement and the other Note Documents. 

“Guarantee” by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise), or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or 

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other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided, however, that the term Guarantee shall not include endorsements for collection or deposit in the Ordinary Course of Business. The term “Guarantee” used as a verb has a corresponding meaning.

“Hillair Note” means that certain 8% Senior Secured Convertible Debenture originally due April 1, 2017 (issued on July 8, 2015) in the original principal amount of $3,920,000 made in favor of Hillair Capital Management, as amended pursuant to that certain First Amendment to Securities Purchase Agreements and 8% Senior Secured Convertible Debentures, dated as of January 1, 2017, and as further amended, supplemented, restated or modified prior to the Closing Date.  

“Intellectual Property” means, with respect to any Person, all patents, patent applications and like protections, including improvements divisions, continuation, renewals, reissues, extensions and continuations in part of the same, trademarks, trade names, trade styles, trade dress, service marks, logos and other business identifies and, to the extent permitted under applicable law, any applications therefore, whether registered or not, and the goodwill of the business of such Person connected with and symbolized thereby, copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative works, whether published or unpublished, technology, know-how and processes, operating manuals, trade secrets, computer hardware and software, rights to unpatented inventions and all applications and licenses therefore, used in or necessary for the conduct of business by such Person and all claims for damages by way of any past, present or future infringement of any of the foregoing. 

“Intellectual Property Security Agreements” means, collectively, each Intellectual Property Security Agreement entered into by any Obligors in favor of the Purchaser as security for the Obligations, as may be amended, restated, supplemented or otherwise modified from time to time.

“Interest Conversion Shares” has the meaning specified in Section 2.3(b).

“Investment” means any investment in any Person, whether by means of acquiring (whether for cash, property, services, securities or otherwise), making or holding Debt, securities, capital contributions, loans, time deposits, advances, Guarantees or otherwise. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect thereto.

 

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, in respect of such asset. For the purposes of this Agreement and the other Transaction, any Obligor shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. 

“Litigation” means any action, suit or proceeding before any court, mediator, arbitrator or Governmental Authority. 

“Material Adverse Effect” means with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, (a) a material adverse change in, or a material adverse effect upon, any of (i) the financial condition, operations, business or properties of the Obligors, taken as a whole, (ii) the rights and remedies of the Purchaser under any of the Transaction Documents or the ability of the Purchaser to enforce the Obligations or realize upon the 

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Collateral, or the ability of the Obligors to perform any of their obligations under any Transaction Document, (iii) the legality, validity or enforceability of any Transaction Document, (iv) the existence, perfection or priority of any security interest granted in any Note Document, (v) the value of any material Collateral; or (b) the imposition of a fine against or the creation of any liability of any Obligor to any Governmental Authority in excess of $200,000 which is not satisfied or discharged in full within thirty (30) days after the imposition thereof.

“Material Contract” shall have the meaning set forth in Section 6.18 hereof.

“Maturity Date” shall mean July 25, 2018, or such earlier date upon the acceleration thereof pursuant to Section 9.2 hereof.

“Merger Entity” has the meaning set forth in the definition of Reincorporation and shall include the Merger Entity’s successors and permitted assigns.

“MidCap ABL Credit Agreement” means that certain Credit and Security Agreement dated as of April 8, 2015, by and among PeopleServe, Inc., PeopleServe PRS, Inc., Faro Recruitment America, Inc., Lighthouse Placement Services, Inc., and Monroe Staffing Services, LLC, as borrowers, any additional borrowers from time to time party thereto, the Company, MidCap Funding X Trust (as successor by assignment to MidCap Financial Trust), as administrative agent and a lender, and the financial institutions or other entities from time to time party thereto as lenders, providing for revolving and term loan credit facilities to the borrowers thereunder, as amended, restated, supplemented or otherwise modified from time to time.

“MidCap Intercreditor Agreement” means that certain Subordination Agreement, dated as of the date hereof, among the Purchaser, the MidCap Senior Agent, the Company and the Domestic Guarantors party thereto, as amended, restated, supplemented or otherwise modified from time to time.

“MidCap Senior Agent” means, collectively, MidCap Funding X Trust (as successor by assignment to MidCap Financial Trust) in its capacity as administrative agent under the MidCap ABL Credit Agreement, together with its successors and assigns in such capacity.

“Multiemployer Plan” means “Multiemployer Plan” means a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA to which any Obligor or any other member of the Controlled Group (or any Person who in the last five years was a member of the Controlled Group) is making or accruing an obligation to make contributions or has within the preceding five plan years (as determined on the applicable date of determination) made contributions.

“Note Documents” shall mean, collectively, each of the Transaction Documents (other than the Warrant Documents), in each case either as originally executed or as the same may from time to time be supplemented, modified, amended, restated, extended or supplanted.

“Obligations” shall mean all present and future debt, liabilities and obligations of the Company owing to the Purchaser, or any Person entitled to indemnification hereunder, or any of their respective successors, permitted transferees or permitted assigns, arising under or in connection with this Agreement, the Subordinated Note or any other Note Document.

“Obligors” means, collectively, the Company and the Subsidiary Guarantors. 

“OFAC” means the U.S. Treasury Department Office of Foreign Assets Control.

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“Ordinary Course of Business” means, in respect of any transaction involving any Obligor, the ordinary course of business of such Obligor, as conducted by such Obligor in a manner consistent in all material respects with past practices.

“Organizational Documents” means, with respect to any Person other than a natural person, the documents by which such Person was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Person (such as by-laws, a partnership agreement or an operating, limited liability company or members agreement), including any and all stockholder agreements or voting agreements relating to the capital stock or other equity interests of such Person.

“Pay Proceeds Letter” means that certain Pay Proceeds Letter, dated the Closing Date, executed by the Company and addressed to the Purchaser.

“Pension Plan” means any ERISA Plan that is subject to Section 412 of the Code or Title IV of ERISA. 

“Permits” means all governmental licenses, authorizations, provider numbers, supplier numbers, registrations, permits, drug or device authorizations and approvals, certificates, franchises, qualifications, accreditations, consents and approvals of a Obligor required under all applicable laws and required for such Obligor in order to carry on its business as now conducted.

“Permitted Acquisition Other Debt” means Debt, incurred by a Person that is not an Obligor but that is Subsidiary of an Obligor, in connection with a Permitted  Acquisition.

“Permitted Acquisitions” means (a) those other acquisitions as the Purchaser and Company may mutually agree upon in writing from time to time, (b) Permitted Foreign Acquisitions and (c) Permitted Domestic Acquisitions; provided that, in respect of the foregoing clauses (b) and (c), (i) immediately prior to the consummation of such acquisition, no Default or Event of Default then exists or would result therefrom, (ii) with respect to each such acquisition, prior to the closing thereof, the Purchaser has received pro forma financial statements, and (iii) with respect to each such acquisition, Obligors shall be in compliance on a pro forma trailing twelve month basis with the Total Leverage Ratio covenant and each of the other financial covenants in Section 8.17, and the Purchaser shall have received a certificate from a Responsible Officer of the Company, dated the consummation date of such acquisition, certifying and demonstrating that (A) after giving effect to such acquisition (and taking into account any and all Debt incurred, issued or assumed by any Obligor or Subsidiary thereof in connection therewith, and any continuing Debt of any target entity being acquired in connection therewith, including, without limitation, any Debt of the type described under clauses (m) through (p), inclusive, of the definition of Permitted Debt), the Obligors are in compliance on a pro forma trailing twelve month basis with the Total Leverage Ratio covenant and each other financial covenant in Section 8.17, and (B) no Default or Event of Default exists as of such date or would result after giving effect to such acquisition. 

“Permitted Asset Dispositions” means the following Asset Dispositions: (a) dispositions of furniture, fixtures and equipment in the Ordinary Course of Business that the applicable Obligor determines in good faith is no longer used or useful in the business of such Obligor; provided, however, that at the time of such Asset Disposition, no Default or Event of Default exists or would result from such Asset Disposition, (b) Asset Dispositions permitted pursuant to Section 8.16, and (c) dispositions approved by the Purchaser.

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“Permitted Contest” means, with respect to any tax obligation or other obligation allegedly or potentially owing from any Obligor or its Subsidiary to any governmental tax authority or other third party, a contest maintained in good faith by appropriate proceedings promptly instituted and diligently conducted and with respect to which such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made on the books and records and financial statements of the applicable Obligor; provided, however, that (a) compliance with the obligation that is the subject of such contest is effectively stayed during such challenge; (b) such Obligor’s and its Subsidiaries’ title to, and its right to use, the Collateral is not adversely affected thereby and the Purchaser’s Lien and priority on the Collateral are not adversely affected, altered or impaired thereby; (c) Company has given prior written notice to the Purchaser of an Obligor’s or its Subsidiary’s intent to so contest the obligation; (d) the Collateral or any part thereof or any interest therein shall not be in any danger of being sold, forfeited or lost by reason of such contest by such Obligor or its Subsidiaries; (e) the Company has given the Purchaser notice of the commencement of such contest and upon request by the Purchaser, from time to time, notice of the status of such contest by the applicable Obligors and/or confirmation of the continuing satisfaction of this definition; and (f) upon a final determination of such contest, such Obligor and its Subsidiaries shall promptly comply with the requirements thereof.

“Permitted Contingent Obligations” means (a) Contingent Obligations arising in respect of the Debt under the Note Documents; (b) Contingent Obligations resulting from endorsements for collection or deposit in the Ordinary Course of Business; (c) Contingent Obligations outstanding on the date of this Agreement and set forth on Schedule 8.1 (including any refinancings, extensions, increases or amendments to the indebtedness underlying such Contingent Obligations to the extent constituting (i) Refinancing Debt or (ii) extensions of the maturity thereof without any other change in terms); (d) Contingent Obligations incurred in the Ordinary Course of Business with respect to surety and appeal bonds, performance bonds and other similar obligations not to exceed $250,000 in the aggregate at any time outstanding; (f) Contingent Obligations arising under indemnity agreements with title insurers to cause such title insurers to issue to the Purchaser mortgagee title insurance policies; (g) Contingent Obligations arising with respect to customary indemnification obligations in favor of purchasers in connection with dispositions of personal property assets permitted under Section 8.6; (h) [Reserved]; (i) so long as there exists no Event of Default both immediately before and immediately after giving effect to any such transaction, Contingent Obligations existing or arising under any Swap Contract, provided, however, that such obligations are (or were) entered into by an Obligor or an Affiliate in the Ordinary Course of Business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person and not for purposes of speculation; and (j) other Contingent Obligations not permitted by clauses (a) through (i) above, not to exceed $250,000 in the aggregate at any time outstanding.

 “Permitted Debt” means: (a) the Obligors’ Debt to the Purchaser under this Agreement and the other Note Documents; (b) Debt incurred as a result of endorsing negotiable instruments received in the Ordinary Course of Business; (c) purchase money Debt not to exceed $1,000,000 at any time (whether in the form of a loan or a lease) used solely to acquire equipment used in the Ordinary Course of Business and secured only by such equipment; (d) Debt existing, or contemplated on the date of this Agreement and described on Schedule 8.1 (including any refinancings, extensions, increases or amendments to the indebtedness underlying such Debt to the extent constituting (i) Refinancing Debt or (ii) extensions of the maturity thereof without any other change in terms); (e) so long as there exists no Event of Default both immediately before and immediately after giving effect to any such transaction, Debt existing or arising under any Swap Contract, provided, however, that such obligations are (or were) entered into by any Obligor or an Affiliate in the Ordinary Course of Business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person and not for purposes of speculation; (f) Debt in the form of insurance premiums financed through the applicable insurance company; (g) trade accounts payable arising and paid on a timely basis 

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and in the Ordinary Course of Business; (h) Debt (other than Debt for borrowed money) that is a Permitted Intercompany Transaction; (i) Subordinated Debt and any Subordinated Debt Permitted Refinancing with respect thereto; (j) Debt pursuant to the Existing Senior Secured Debt Documents, provided that the principal amount of such Debt does not at any time exceed the facility limits set forth in such Existing Senior Secured Debt Documents as in effect on the date hereof (without giving effect to any accordion or similar options to increase said facility limits) and otherwise does not violate the financial covenants set forth in Section 8.17, and in the case of any Debt incurred under the MidCap Credit Agreement, the principal amount does not exceed the “Senior Debt Cap” as such term is defined in the MidCap Intercreditor Agreement; (k) unsecured intercompany Debt between any Obligors; (l) unsecured intercompany Debt owing from any Obligor to any Foreign Subsidiary or Excluded Subsidiary, provided such Debt is at all times on and after the Closing Date subordinated to the Obligations pursuant to a subordination agreement satisfactory to Purchaser; (m) Permitted Acquisition Other Debt that is incurred in connection with the consummation of one or more Permitted Acquisitions, provided that (i) no Default or Event of Default exists or would result therefrom, (ii) Obligors shall be in compliance on a pro forma trailing twelve month basis with the Total Leverage Ratio covenant and each of the other financial covenants in Section 8.17 after giving effect to such Debt, and the Purchaser shall have received a certificate from a Responsible Officer of the Company demonstrating such compliance in form and with the accompanying detail as described in clause (iii) of the definition of Permitted Acquisition, and (iii) the principal amount of such Debt may not be repaid prior to the repayment in full of the Obligations except in the case of such repayments thereof that, together with any repayments of the principal amount of any Debt incurred pursuant to clauses (n) and (o) of this definition prior to the payment in full of the Obligations, do not exceed an amount equal to $3,000,000 (less the amount of any Series A Catch-up Payment made on or after the Effective Date) in the aggregate; (n) unsecured Debt of any Person that becomes a Subsidiary after the Closing Date in connection with any Permitted Acquisition; provided that (i) such Debt exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary, (ii) no Default or Event of Default exists or would result therefrom, (iii) Obligors shall be in compliance on a pro forma trailing twelve month basis with the Total Leverage Ratio covenant and each of the other financial covenants in Section 8.17 after giving effect to such Debt, and the Purchaser shall have received a certificate from a Responsible Officer of the Company demonstrating such compliance in form and with the accompanying detail as described in clause (iii) of the definition of Permitted Acquisition, (iv) such Debt is at all times on and after the Closing Date subordinated to the Obligations on terms satisfactory to the Purchaser, and (v) the principal amount of such Debt may not be repaid prior to the repayment in full of the Obligations, except in the case of such repayments thereof that, together with any repayments of the principal amount of any Debt incurred pursuant to clauses (m) and (o) of this definition prior to the payment in full of the Obligations, do not exceed an amount equal to $3,000,000 (less the amount of any Series A Catch-up Payment made on or after the Effective Date) in the aggregate; (o) unsecured Debt owing to sellers of assets or Equity Interests that is incurred in connection with the consummation of one or more Permitted Acquisitions so long as (i) such Debt is subordinated is at all times on and after the Closing Date subordinated to the Obligations on terms satisfactory to the Purchaser, (ii) no Default or Event of Default exists or would result therefrom, (iii) Obligors shall be in compliance on a pro forma trailing twelve month basis with the Total Leverage Ratio covenant and each of the other financial covenants in Section 8.17 after giving effect to such Debt, and the Purchaser shall have received a certificate from a Responsible Officer of the Company demonstrating such compliance in form and with the accompanying detail as described in clause (iii) of the definition of Permitted Acquisition, and (iv) the principal amount of such Debt may not be repaid prior to the repayment in full of the Obligations except in the case of such repayments thereof that, together with any repayments of the principal amount of any Debt incurred pursuant to clauses (m) and (n) of this definition prior to the payment in full of the Obligations, do not exceed an amount equal to $3,000,000 (less the amount of any Series A Catch-up Payment made on or after the Effective Date) in the aggregate; (p) secured Debt of a target entity acquired in connection with a Permitted Acquisition, provided that (i) such Debt is incurred pursuant to an asset based working capital facility (“ABL 

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Facility”) provided by a bank or other financial institution to such target entity and existing at the time such target entity was acquired and which ABL Facility continues following such Permitted Acquisition, (ii) the facility amount of such ABL Facility and the advance rates and eligibility requirements under such ABL Facility are not modified following the date of such Permitted Acquisition or in contemplation thereof in a manner which results in an increase in borrowing availability thereunder, (iii) neither the Company nor any other Obligor (other than the target entity) shall be liable, directly or indirectly, for any such Debt or other obligations and liabilities under such ABL Facility, (iv) no assets of the Company or any other Obligor (other than the target entity) shall be subject to any Liens or otherwise be used to secure, repay, guarantee or otherwise provide credit support for such ABL Facility or any such Debt or other obligations and liabilities under such ABL Facility, (v) no Default or Event of Default exists or would result therefrom, (vi) Obligors shall be in compliance on a pro forma trailing twelve month basis with the Total Leverage Ratio covenant and each of the other financial covenants in Section 8.17 after giving effect to such Debt, and the Purchaser shall have received a certificate from a Responsible Officer of the Company demonstrating such compliance in form and with the accompanying detail as described in clause (iii) of the definition of Permitted Acquisition, and (vii) the repayment of such ABL Facility shall be made solely from the cash flow of the target entity so acquired or, in the case of any default thereunder, solely from the cash flow and other assets of the target entity so acquired, and (q) Refinancing Debt. 

“Permitted Distributions” means the following Restricted Distributions: (a)  dividends payable solely in common stock and preferred stock; (b) repurchases of stock from individuals who were, but are no longer, employees, directors or consultants pursuant to stock purchase agreements entered as part of their compensation so long as an Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase, provided, however, that such repurchases do not exceed $250,000 in the aggregate per Fiscal Year; (c) dividends or distributions paid to an Obligor’s stockholder(s) or member(s) solely to the extent and at the times necessary for such stockholder(s) or member(s) to pay its or their respective federal (and, if applicable, state) income taxes arising from such stockholder(s)’ or member(s)’ respective allocable shares of such Obligor’s income that are taxable directly to such stockholder(s) or member(s); (d) dividends, distributions, management fees or other fees or compensation from an Obligor or a Subsidiary of an Obligor to an Obligor; (e) dividends and distributions that are Permitted Intercompany Transactions so long as no Event of Default exists at the time thereof or would result therefrom, and (f) in respect of the Series A Preferred Stock of the Company, provided that the aggregate monthly amount of all such Series A Preferred Stock dividends shall not exceed $17,000 (excluding any catch-up payment amount in respect of the delinquent dividend payments currently outstanding as of the Effective Date in an aggregate amount not to exceed $400,000; the payment of any such catch-up amount being referred to herein as the “Series A Catch-up Payment”) and at the time of the making of such dividend no Event of Default shall exist or would result therefrom.

“Permitted Domestic Acquisitions” means the collective reference to each acquisition by the Company directly or indirectly by new wholly-owned direct or indirect Subsidiaries, (a) of substantially all of the assets, or all of the capital stock, of a Person in the line of business in which the Obligors are engaged on the Effective Date or that is incidental thereto and (b) involving assets and operations domiciled inside of the United States.

 “Permitted Foreign Acquisitions” means the collective reference to each acquisition by the Company directly or indirectly by new wholly-owned direct or indirect Subsidiaries, (a) of substantially all of the assets, or all of the capital stock, of a Person in the line of business in which the Obligors are engaged on the Closing Date or that is incidental thereto and (b) involving assets and operations domiciled outside of the United States.

“Permitted Intercompany Transaction” has the meaning set forth in Section 8.8.

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“Permitted Investments” means: (a) Investments shown on Schedule 8.7 and existing on the Effective Date; (b) cash and cash equivalents; (c) Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the Ordinary Course of Business; (d) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the Ordinary Course of Business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Obligors pursuant to employee stock purchase plans or agreements approved by such Obligors’ Board of Directors (or other governing body), but the aggregate of all such loans outstanding may not exceed $250,000 at any time; (e) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the Ordinary Course of Business; (f) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the Ordinary Course of Business, provided, however, that this subpart (f) shall not apply to Investments of Obligors in any Subsidiary; (g) Investments consisting of deposit accounts in which the Purchaser has received a Deposit Account Control Agreement; (h) Investments by any Obligor in any other Obligor that is not a Foreign Subsidiary; (i) Investments made by Obligor in any other Obligor that is a Foreign Subsidiary in connection with Permitted Acquisitions, provided that the aggregate of all such Investments, together with the outstanding principal amount of all Permitted Acquisition Other Debt, may not at any time exceed $1,000,000; (j) Permitted Acquisitions; and (k) other Investments in an amount not exceeding $250,000 in the aggregate.

“Permitted Liens” means: (a) deposits or pledges of cash to secure obligations under workmen’s compensation, social security or similar laws, or under unemployment insurance (but excluding Liens arising under ERISA) pertaining to an Obligor’s employees, if any; (b) deposits or pledges of cash to secure bids, tenders, contracts (other than contracts for the payment of money or the deferred purchase price of property or services), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the Ordinary Course of Business; (c) carrier’s, warehousemen’s, mechanic’s, workmen’s, materialmen’s or other like Liens on Collateral arising in the Ordinary Course of Business with respect to obligations which are not due, or which are being contested pursuant to a Permitted Contest; (d) Liens on Collateral for taxes or other governmental charges not at the time delinquent or thereafter payable without penalty or the subject of a Permitted Contest; (e) attachments, appeal bonds, judgments and other similar Liens on Collateral, for sums not exceeding $250,000 in the aggregate arising in connection with court proceedings; provided, however, that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are the subject of a Permitted Contest; (f) [reserved]; (g) Liens and encumbrances in favor of the Purchaser under the Transaction Documents; (h) Liens on Collateral existing on the date hereof and set forth on Schedule 8.2 (other than items otherwise expressly set forth in this definition; (i) Liens on the Collateral in respect of the Existing Senior Secured Debt Documents securing the obligations of the Company and the Subsidiaries party thereto; provided that the principal amount of such Debt does not at any time exceed the facility limits set forth in such Existing Senior Secured Debt Documents as in effect on the date hereof (without giving effect to any accordion or similar options to increase said facility limits) and otherwise does not violate the financial covenants set forth in Section 8.17, and in the case of any Debt incurred under the MidCap ABL Credit Agreement, the principal amount does not exceed the “Senior Debt Cap” as such term is defined in the MidCap Intercreditor Agreement; (j) Liens on the property of a Foreign Subsidiary, which Liens secure only Permitted Acquisition Other Debt not to exceed $1,000,000 in the aggregate at any time; (k) Liens on Refinancing Debt permitted hereunder to the extent and only to the extent that the original Debt being so refinanced was secured by a Permitted Lien; (l) any Lien on any equipment securing Debt permitted under subpart (c) of the definition of Permitted Debt, provided, however, that such Lien attaches concurrently with or within twenty (20) days after the acquisition thereof; and (m) Liens securing Debt permitted to be incurred under clause (p) of the definition of Permitted Debt, provided that such Liens do not at any time extend to any assets of the Company or any other Obligor (other than the target entity 

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which is being acquired and which is party to the applicable ABL Facility described in clause (p) of the definition of Permitted Debt).

“Permitted Modifications” means (a) such amendments or other modifications to an Obligor’s or Subsidiary’s Organizational Documents as are required under this Agreement or by applicable Law and fully disclosed to the Purchaser within thirty (30) days after such amendments or modifications have become effective, and (b) such amendments or modifications to an Obligor’s or Subsidiary’s Organizational Documents (other than those involving a change in the name of an Obligor or Subsidiary or involving a reorganization of a Obligor or Subsidiary under the laws of a different jurisdiction) that would not adversely affect the rights and interests of the Purchaser and fully disclosed to the Purchaser within thirty (30) days after such amendments or modifications have become effective.

“Person” shall mean an individual, corporation, limited liability company, partnership, joint venture, trust, unincorporated association, or other entity, or a government or any political subdivision or agency thereof.

“Pledge Agreement” means that certain Pledge Agreement, dated of even date herewith, by and among the Company, the Domestic Subsidiaries party thereto and the Purchaser, as may be amended, restated, supplemented or otherwise modified from time to time.

“Post-Closing Letter Agreement” means that certain Post-Closing Letter Agreement, dated the Effective Date, between Purchaser and the Company.

“Principal Office” means the office of the Purchaser at the address as specified in Section 10.1.

“Purchase Price” has the meaning set forth in Section 2.1.

“Purchaser” means Jackson Investment Group, LLC, together with its successors and assigns and including, without limitation, any Transferee.

“Refinancing Debt” means Debt which represents extensions, renewals, refinancing or replacements of any Debt described in clauses (c), (d), (j), (n), or (p) in the definition of “Permitted Debt” hereunder (such Debt being referred to herein as the “Original Debt”); provided, that (i) such Refinancing Debt does not increase the principal amount of the Original Debt (except by an amount equal to unpaid accrued interest and premium thereon, plus original issue discount and upfront fees plus other fees and expenses reasonably incurred in connection with such extensions, renewals, refinancing or replacement plus an amount equal to any existing commitments unutilized thereunder to the extent such commitments are otherwise permitted hereunder, plus an amount equal to any incremental facilities unutilized thereunder to the extent such amount is otherwise permitted hereunder), (ii) if the Original Debt is unsecured, such Refinancing Debt shall be unsecured, and if the Original Debt was permitted to be secured hereunder, then any Liens securing such Refinancing Debt are not extended to any additional property of an Obligor or any of its Subsidiaries (other than replacement Liens so long as the replacement Liens only encumber those assets or classes of assets that the original Lien encumbered), (iii) no Obligor or any of its Subsidiaries that is not originally obligated with respect to repayment of such Original Debt is required by the terms thereof to become obligated with respect to such Refinancing Debt, (iv) such Refinancing Debt does not result in a shortening of the average weighted maturity of such Original Debt, (v) the terms of such Refinancing Debt are not, taken as a whole, materially more burdensome or restrictive to the Obligors or materially more adverse to the interests of the Purchaser than the original terms of the Original Debt and (vi) if such Original Debt was subordinated in right of payment to the Obligations, then the terms and conditions of such Refinancing Debt must include subordination terms and conditions that are at least as favorable to the Purchaser as those that were applicable to such Original 

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Debt (and in the case of Original Debt subject to the MidCap Intercreditor Agreement, that the terms and conditions of any intercreditor agreement or subordination with respect to such related Refinancing Debt shall be at least as favorable to the Purchaser as those applicable to the MidCap Intercreditor Agreement).

“Reincorporation” means the reincorporation of the Company from a Nevada domiciled corporation to a Delaware domiciled corporation, which reincorporation is to be accomplished by the merger of the Company with and into Staffing 360 Solutions, Inc., a Delaware corporation (the “Merger Entity”) on or prior to the Closing Date, with the Merger Entity being the surviving entity of such merger, pursuant to an Agreement and Plan of Merger entered into between the Company and the Merger Entity. 

“Responsible Officer” means any of the Executive Chairman (with respect the Company), Chief Executive Officer, Chief Financial Officer or any other officer of the applicable Obligor acceptable to the Purchaser.

“Restricted Distribution” means as to any Person (a) any dividend or other distribution (whether in cash, securities or other property) on any equity interest in such Person (except those payable solely in its equity interests of the same class), (b) any payment by such Person on account of (i) the purchase, redemption, retirement, defeasance, surrender, cancellation, termination or acquisition of any equity interests in such Person or any claim respecting the purchase or sale of any equity interest in such Person (except in connection with the Warrant), or (ii) any option, warrant or other right to acquire any equity interests in such Person (excluding, however the Warrant), (c) any management fees, salaries or other fees or compensation to any Person holding an equity interest in an Obligor or a Subsidiary of an Obligor (other than (i) payments of salaries to individuals, (ii) directors fees, and (iii) advances and reimbursements to employees or directors, all in the Ordinary Course of Business), an Affiliate of an Obligor or an Affiliate of any Subsidiary of an Obligor, (d) any lease or rental payments to an Affiliate or Subsidiary of an Obligor other than such payments made in the Ordinary Course of Business and in compliance with Section 8.8, or (e) repayments of or debt service on loans or other indebtedness held by any Person holding an equity interest in an Obligor or a Subsidiary of an Obligor, an Affiliate of an Obligor or an Affiliate of any Subsidiary of an Obligor unless permitted under and made pursuant to a Subordination Agreement applicable to such loans or other indebtedness.

“SEC” means the United States Securities and Exchange Commission.

“Securities Act” shall mean the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.

“Security Agreement” means that certain Security Agreement, dated of even date herewith, by and among the Company, the Domestic Guarantors and the Purchaser, as may be amended, restated, supplemented or otherwise modified from time to time.

“Security Documents” means the Security Agreement, the Pledge Agreement, Intellectual Property Security Agreements, the Deposit Account Control Agreements, the Third Party Waiver Agreements and all other security agreements, pledge agreements, collateral assignments, financing statements, powers of attorney, stock transfer powers and other instruments, documents or agreements now or hereafter executed and delivered by any of the Obligors to the Purchaser for the purposes of creating, perfecting, or preserving the Purchaser’s Liens in, to and under any of the Collateral. 

“Series A Catch-up Payment” has the meaning set forth in the definition of Permitted Distributions.

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“Solvent” shall mean, with respect to any Person at any time, that (i) each of the fair value and the present fair saleable value of such Person’s assets (including any rights of subrogation or contribution to which such Person is entitled, under any of the Transaction Documents or otherwise) is greater than such Person’s debts and other liabilities (including contingent, unmatured and unliquidated debts and liabilities) and the maximum estimated amount required to pay such debts and liabilities as such debts and liabilities mature or otherwise become payable; (ii) such Person is able and expects to be able to pay its debts and other liabilities (including, without limitation, contingent, unmatured and unliquidated debts and liabilities) as they mature; and (iii) such Person does not have unreasonably small capital to carry on its business as conducted and as proposed to be conducted.

“Sterling Facility Agreement” means that certain Agreement dated as of November 4, 2013, between Sterling National Bank and Control Solutions International, Inc., as amended, restated, supplemented or otherwise modified from time to time. 

“Subordinated Debt” means any Debt of any Obligor that by its terms is expressly subordinated to the Obligations and is incurred pursuant to the terms of the Subordinated Debt Documents and with the prior written consent of the Purchaser, all of which documents must be in form and substance reasonably acceptable to the Purchaser in its good faith discretion.

“Subordinated Debt Documents” means any documents evidencing and/or securing Subordinated Debt governed by a Subordination Agreement, all of which documents must be in form and substance reasonably acceptable to the Purchaser in its good faith discretion.

“Subordinated Debt Permitted Refinancing” means the assignment or refinancing of Subordinated Debt if (a) that Subordinated Debt was incurred solely with respect to borrowed money, (b) the assignee or refinancer thereof has given the Purchaser not less than ten (10) Business Days’ prior written notice of such assignment or refinancing, (c) prior to the consummation of any such assignment or refinancing, the assignee or refinancer thereof shall execute and deliver to the Purchaser a joinder to the applicable Subordination Agreement (or to a replacement thereof) satisfactory to the Purchaser in its good faith discretion pursuant to which such assignee or refinancer agrees to be bound by and subject to the terms the Subordination Agreement, (d) the assignee or refinancer specifically acknowledges and agrees in that joinder that no provision of any Subordinated Debt Documents with respect such Subordinated Debt shall contain any provision, and that no action shall be taken, that causes or that would cause a violation of Section 8.5 and (e) there exists no Default or Event of Default.

“Subordinated Note” shall mean, collectively, the Subordinated Secured Promissory Note, dated the Effective Date, in the principal amount of Seven Million Four Hundred Thousand Dollars ($7,400,000) issued by the Company to the Purchaser on the Closing Date pursuant to Section 2.1, in substantially the form of Exhibit A hereto, and each other subordinated promissory note now or hereafter delivered to the Purchaser in substitution, replacement or exchange thereof, in each case as amended, restated, supplemented or modified from time to time pursuant to the provisions of this Agreement.

“Subsidiary” shall mean, as to any person, any corporation, limited liability company, partnership or joint venture, whether now existing or hereafter organized or acquired: (i) in the case of a corporation, of which at least a majority of the outstanding shares of stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (other than stock having such voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person and/or one or more of its Subsidiaries or (ii) in the case of a limited liability company, partnership or joint venture, in which such Person or a Subsidiary of such Person is a member, general partner or joint venturer or of which a majority of the partnership or other ownership interests are 

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at the time owned by such Person or one or more of its Subsidiaries.  Unless otherwise specified herein, all references to a “Subsidiary” shall be deemed to refer to “Subsidiaries” of the Company. 

“Subsidiary Guarantors” means, collectively, (i) each Subsidiary of the Company identified as a “Subsidiary Guarantor” on the signature pages hereto, and (ii) each other Subsidiary of the Company that joins as a Guarantor pursuant to Section 7.10 hereof or otherwise.

“Swap Contract” means any “swap agreement”, as defined in Section 101 of the Bankruptcy Code, that is obtained by Borrower to provide protection against fluctuations in interest or currency exchange rates, but only if the Purchaser provides its prior written consent to the entry into such “swap agreement”.

“Taxes” shall mean any present or future taxes, levies, imposts, duties, fees, assessments, deductions, withholdings or other charges of whatever nature, including without limitation, income, receipts, excise, property, sales, transfer, license, payroll, withholding, social security and franchise taxes now or hereafter imposed or levied by the United States, or any state, local or foreign government or by any department, agency or other political subdivision or taxing authority thereof or therein and all interest, penalties, additions to tax and similar liabilities with respect thereto.

“Third Party Waiver Agreement” shall mean any waiver agreement, executed on or after the Closing Date, by the applicable landlord, bailee, warehousemen, processor or other third party operator of premises on which any Collateral is located and the applicable Obligor in favor of the Purchaser, in each case in form and substance reasonably satisfactory to the Purchaser.

“Transaction Documents” shall mean, collectively, this Agreement, the Subordinated Note, the Security Documents, the Warrant Documents, the Post-Closing Letter Agreement, the MidCap Intercreditor Agreement, the Acknowledgment and Reaffirmation Agreement, the Pay Proceeds Letter, together with any other guaranty now or hereafter executed by any Obligor in favor of the Purchaser, and all consents, notices, documents, certificates and instruments heretofore, now or hereafter executed by or on behalf of any Obligor, and delivered to the Purchaser in connection with this Agreement, the Security Documents, the Warrant or the transactions contemplated thereby, each as amended, restated, supplemented or otherwise modified from time to time.

“Transferee” shall mean any permitted direct or indirect transferee of all or any part of the Subordinated Note purchased under this Agreement.

“UCC” means the Uniform Commercial Code as in effect in the State of New York, unless the context requires application of the Uniform Commercial Code as in effect in another State, in which case such term means the Uniform Commercial Code as in effect in such State.  For purposes of this Agreement, “UCC” also means the equivalent, similar or analogous statutes, regulations and other laws of any foreign country or jurisdiction as the same may be applicable and the context requires, and any successor statute, regulation or law thereto.

“Warrant” shall mean, collectively, (i) the Warrant to purchase Common Stock of the Company, together with the exhibits thereto, dated the Effective Date issued by the Company to the Purchaser on the Closing Date, in substantially the form of Exhibit B hereto, and (ii) any warrant issued and delivered by the Company to the Purchaser (or any successors or assigns of the Purchasers) on or after the Closing Date in substitution, replacement or exchange of the Warrant referred to in clause (i) of this definition, in each case as amended, restated, supplemented or modified from time to time.

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“Warrant Agreement” shall mean that certain Warrant Agreement, dated as of even date herewith, by and between the Purchaser and the Company, as amended, restated, supplemented or modified from time to time. 

“Warrant Documents” shall mean, collectively, the Warrant and the Warrant Agreement. 

Article 2.

ISSUANCE AND PURCHASE OF SUBORDINATED NOTE AND WARRANT

Section 2.1 Purchase and Sale of Subordinated Note and Warrant.  The Company hereby agrees to sell to the Purchaser and, subject to the terms and conditions set forth herein and in reliance upon the representations and warranties of the Company contained herein, Purchaser agrees to purchase from the Company the Subordinated Note and the Warrant for an aggregate total purchase price of Seven Million Four Hundred Thousand Dollars ($7,400,000) (the “Purchase Price”), subject to the conditions as provided below in this Section and to the satisfaction, on or prior to February 8, 2017 (or such later date as the parties hereto may mutually agree in writing), of each of the conditions precedent set forth in Section 5.2, to be paid in a single advance of Seven Million Four Hundred Thousand Dollars ($7,400,000) (the “Advance”) on the Closing Date, as provided in the immediately succeeding sentence.  Upon satisfaction of all conditions to Closing set forth in Section 5.2 on or prior to February 8, 2017 (or such later date as the parties hereto may mutually agree in writing), at the Closing the Purchaser shall pay the Advance to the Company by wire transfer pursuant to the instructions of the Company as set forth in the Pay Proceeds Letter.  The purchase price consideration attributable to the Warrant shall be deemed fully paid and satisfied upon the funding of the Advance on the Closing Date. For the avoidance of doubt, if the conditions precedent set forth in Section 5.2 are not satisfied (or waived in writing by Purchaser in its sole discretion) on or prior to February 8, 2017 (or such later date as the parties hereto may mutually agree in writing), then Purchaser shall be under no obligation to purchase the Subordinated Note and Warrant and pay the Purchase Price and, in such case, Purchaser shall return to the Company the Subordinated Note and Warrant, which shall not be considered issued and outstanding unless and until the Closing has occurred (as evidenced by payment of the Advance to the Company as provided above in this Section 2.1 on the Closing Date). 

Section 2.2 Allocation of Purchase Price.  Under both GAAP and the United States Treasury Regulations issued under the Code (the “Treasury Regulations”), the issuance to the Purchaser of the Subordinated Note and the Warrant for an aggregate purchase price equal to the aggregate principal amount of the Subordinated Note being so purchased results in the creation of “original issue discount” on such Subordinated Note (which original issue discount may also be deemed to include the value of any Warrant issued in connection with the issuance of such Subordinated Note), and such regulations require the determination of the value of any Warrant so delivered.  Pursuant to GAAP and the applicable Treasury Regulations, the Company and the Purchaser agree that the aggregate amount of such original issue discount and the aggregate value of the Warrant for three million one hundred fifty thousand (3,150,000) (subject to adjustment as provided in the terms of the Warrant) shares of Common Stock of the Company is Two Hundred Thousand Dollars ($200,000), which original issue discount and value of such Warrant shall be allocated to the Subordinated Note.  The Company and the Purchaser agree to recognize and adhere to the determinations and allocations of original issue discount and valuation of each Warrant set forth herein for all federal and state income tax purposes.  In the event of any proposed transfer of the Subordinated Note by the Purchaser, the Purchaser shall, prior to such transfer, mark such Subordinated Note with a legend pertaining to the original issue discount in the form required by Treasury Regulation Section 1.1275-3(b)(1).

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Section 2.3 Interest on the Subordinated Note.

(a) Interest on the outstanding principal balance of the Subordinated Note shall accrue at a rate per annum equal to six percent (6.00%) on and after the Closing Date until the principal amount of such Subordinated Note has been paid in full.  All accrued and unpaid interest on the outstanding principal balance of the Subordinated Note shall be due and payable in full on the Maturity Date, provided that (i) Purchaser may require a portion of such accrued interest to be paid in Interest Conversion Shares pursuant to Section 2.3(b), and (ii) upon any prepayment of the Subordinated Note or a portion thereof, accrued and unpaid interest shall be payable with respect to the principal amount of the Subordinated Note so prepaid on such date of prepayment (subject to the right of Purchaser as set forth in Section 2.3(b) to receive Interest Conversion Shares in lieu of cash interest).

(b) Purchaser shall have the sole option (exercised in its sole discretion) to receive, in lieu of any cash interest payment otherwise due and payable under the Subordinated Note, up to one-half (50%) of such cash interest payment in the form of duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company, at the conversion rate of $2.00 per share of Common Stock and on the terms as further specified in the Subordinated Note.  Purchaser may exercise said option with respect to any accrued interest on the Subordinated Note by notifying the Company in writing of Purchaser’s election to receive shares of Common Stock of the Company in lieu of any cash interest payment as further provided for in the Subordinated Note.  Any such shares of Common Stock of the Company issued in lieu of a cash interest payment on the Note are referred to herein as “Interest Conversion Shares”. 

(c) After maturity, whether by acceleration or otherwise, interest shall accrue on the unpaid principal amount of the Subordinated Note at the Default Rate set forth in Section 3.4 below.  Any interest accruing at the Default Rate shall be subject to the right of Purchaser as set forth in Section 2.3(b) to receive Interest Conversion Shares in lieu of cash interest.

Section 2.4 Maturity of Subordinated Note; Voluntary Prepayments; Funding Losses. 

(a) The entire unpaid principal amount of the Subordinated Note shall be due and payable on the Maturity Date, unless sooner accelerated in accordance with the terms hereof.

(b) Prepayments and Premium. The Company may prepay principal on the Subordinated Note in whole or in part from time to time upon five (5) Business Days’ prior notice to Purchaser, provided that (i) any partial prepayment hereunder shall be in a principal amount of not less than $100,000 or, if greater than $100,000, then in integral multiples of $100,000, and (ii) such prepayment is accompanied by all accrued and unpaid interest on the amount prepaid through the date of prepayment (subject to the right of Purchaser in Section 2.3(b) to receive Interest Conversion Shares in lieu of cash interest).  Any prepayment or repayment of the Subordinated Note following acceleration of the Subordinated Note shall be accompanied by all accrued and unpaid interest on the Subordinated Note (subject to the right of Purchaser in Section 2.3(b) to receive Interest Conversion Shares in lieu of cash interest). 

Prepayment of the Subordinated Note shall not preclude the Purchaser from continuing to own the Warrant or from exercising any of its rights pursuant to the Warrant on or at any later date.

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Article 3.

OTHER PROVISIONS RELATING TO THE SUBORDINATED NOTE

Section 3.1 Making of Payments.  The Company shall make each payment hereunder and under the Subordinated Note not later than 1:00 p.m. (New York, New York time) on the day when due in Dollars in same day funds to the Purchaser at its Principal Office, free and clear of any defenses, rights of set-off, counterclaim, or withholding or deduction of taxes.  All payments received after that hour shall be deemed to have been received by the Purchaser on the next following Business Day.

Section 3.2 Increased Costs.  In the event that any change in any applicable law, treaty or governmental regulation, or in the interpretation or application thereof, or compliance by the Purchaser with any guideline, request or directive (whether or not having the force of law) from any central bank or other U.S. or foreign financial, monetary or other governmental authority, shall:  (a) subject the Purchaser to any tax of any kind whatsoever with respect to this Agreement, the Subordinated Note or the Warrant or change the basis of taxation of payments to the Purchaser of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of the Purchaser); (b) impose, modify, or hold applicable any reserve, special deposit, assessment or similar requirement against assets held by, or deposits in or for the account of, advances or loans by, or other credit extended by or committed to be extended by any office of the Purchaser, including, without limitation, pursuant to Regulation D of the Board of Governors of the Federal Reserve System; or (c) impose on the Purchaser any other condition with respect to this Agreement, the Subordinated Note or the Warrant hereunder; and the result of any of the foregoing is to increase the cost to the Purchaser of making or maintaining the Subordinated Note or the Warrant or to reduce the amount of any payment (whether of principal, interest or otherwise) in respect of the Subordinated Note or the Warrant, THEN, IN ANY CASE, the Company shall pay, within five (5) Business Days following the demand of the Purchaser, such additional amounts as will compensate the Purchaser for such additional cost or such reduction, as the case may be, so long as such amounts have accrued on or after the date which is 270 days prior to the date of demand by the Purchaser.  The Purchaser shall certify the amount of such additional cost or reduced amount to the Company, and such certification shall be conclusive absent manifest error.

Section 3.3 Tax Gross Up and Indemnity.  (a) Subject to clause (b) below, any payment to be made by any Obligor under this Agreement and under any other Note Document, shall be made to the Purchaser free and clear of and without deductions or withholdings of Taxes, unless the Obligor is required by law to make such deduction or withholding, in which case the Obligor shall, to the extent permitted by law, increase the sum due to the Purchaser to the extent necessary to ensure that the Purchaser receives a sum equal to the sum which it would have received if no such deduction or withholding had been made or required to be made.  In addition, the Obligors shall indemnify the Purchaser, within 10 days after demand therefor, for the full amount of any such Tax payable or paid by the Purchaser or required to be withheld or deducted from a payment to the Purchaser and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Government Authority.  A certificate as to the amount of such payment or liability delivered to the Obligors by the Purchaser shall be conclusive absent manifest error.

(b) On or before the Closing Date, Purchaser shall deliver to the Company (or to its legal counsel for forwarding to the Company) an IRS Form W-9 establishing its exemption from certain federal income tax withholding. Failure to deliver such Form W-9 shall result in the inapplicability of clause (a) above to the extent any withholding of tax is required as a result of such failure.

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Section 3.4 Default Rate of Interest.  If the Company shall fail to pay on the due date therefor (after giving effect to any grace periods as provided by the terms of the Transaction Documents), whether by acceleration or otherwise, any principal owing under the Subordinated Note or any other Obligations, then interest shall accrue on such unpaid principal or other Obligation from the due date until and including the date on which such principal is paid in full at a rate per annum that is five percent (5%) in excess of the rate of interest otherwise payable hereunder (the “Default Rate”). Interest calculated at the Default Rate shall be due and payable upon demand by the Purchaser (subject to the right of Purchaser in Section 2.3(b) to receive Interest Conversion Shares in lieu of cash interest).

Section 3.5 Calculation of Interest.  Interest payable on the Subordinated Note shall be calculated on the basis of a year of 360 days and shall be payable for the actual number of days elapsed.  If the date for any payment of principal is extended (whether by operation of this Agreement, any provision of law or otherwise), interest shall be payable for such extended time at the rates provided herein.  Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be due on the next succeeding Business Day.

Section 3.6 Usury.  In no event shall the amount of interest due or payable on any Obligation, when aggregated with all amounts payable by the Company under any of the Transaction Documents that are deemed or construed to be interest, exceed the maximum rate of interest allowed by Applicable Law and, in the event any such payment is paid by the Company or received by the Purchaser, then such excess sum shall be credited as a payment of principal, unless the Company, as applicable, shall notify the Purchaser in writing that it elects to have such excess sum returned to it forthwith.  It is the express intent of the parties hereto that the Company not pay, and the Purchaser not receive, directly or indirectly, in any manner whatsoever, interest in excess of that which may be lawfully paid by the Company under Applicable Law.

Article 4.

GUARANTY

Section 4.1 The Guaranty.  Each Subsidiary Guarantor hereby, jointly and severally, guarantees to the Purchaser, as primary obligor and not as surety, the prompt payment of the Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof.  Each Subsidiary Guarantor hereby further agrees that if any of the Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, or otherwise), the Subsidiary Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) in accordance with the terms of such extension or renewal.

Section 4.2 Obligations Unconditional.  The obligations of the Subsidiary Guarantors under this Article 4 are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Note Documents, or any other agreement or instrument referred to therein, or any substitution, release, impairment or exchange of any other guarantee of or security for any of the Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor (other than the payment in full of the Obligations), it being the intent of this Section 4.2 that the obligations of the Subsidiary Guarantors hereunder shall be absolute and unconditional under any and all circumstances.  Each Subsidiary Guarantor agrees that it shall have no right of subrogation, indemnity, reimbursement or contribution against the Company or any other guarantor for amounts paid 

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under this Article 4 until such time as the Purchaser has been paid in full in respect of all Obligations, and no Person or Governmental Authority shall have any right to request any return or reimbursement of funds from the Purchaser in connection with monies received under the Note Documents.  Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of each Subsidiary Guarantor hereunder which shall remain absolute and unconditional as described above:

(a) at any time or from time to time, without notice to any Subsidiary Guarantor, the time for any performance of or compliance with any of the Obligations shall be extended, or such performance or compliance shall be waived;

(b) any of the acts mentioned in any of the provisions of any of the Note Documents, or any other agreement or instrument referred to in the Note Documents shall be done or omitted;

(c) the maturity of any of the Obligations shall be accelerated, or any of the Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Note Documents, or any other agreement or instrument referred to in the Note Documents shall be waived or any other guarantee of any of the Obligations or any security therefor shall be released, impaired or exchanged in whole or in part or otherwise dealt with; or

(d) any of the Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Subsidiary Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Subsidiary Guarantor).

With respect to its obligations hereunder, each Subsidiary Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Purchaser exhaust any right, power or remedy or proceed against any Person under any of the Note Documents, or any other agreement or instrument referred to in the Note Documents, or against any other Person under any other guarantee of, or security for, any of the Obligations.

Section 4.3 Reinstatement.  The obligations of the Subsidiary Guarantors under this Article 4 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Obligations is rescinded or must be otherwise restored by any holder of any of the Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each Subsidiary Guarantor agrees that it will indemnify the Purchaser on demand for all reasonable costs and expenses (including, without limitation, the reasonable and documented out of pocket fees and expenses of counsel) incurred by the Purchaser in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law.

Section 4.4 Certain Additional Waivers.  Each Subsidiary Guarantor further agrees that it shall have no right of recourse to security for the Obligations except, following the payment in full of all Obligations, through the exercise of rights of subrogation pursuant to Section 4.2 and through the exercise of rights of contribution pursuant to Section 4.7.

Section 4.5 Remedies.  Each Subsidiary Guarantor agrees that, to the fullest extent permitted by law, as between the Subsidiary Guarantor, on the one hand, and the Purchaser, on the other hand, the Obligations may be declared to be forthwith due and payable as provided in Section 9.2 (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 9.2) 

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for purposes of Section 4.1 notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Obligations being deemed to have become automatically due and payable), the Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Subsidiary Guarantors for purposes of this Article 4.

Section 4.6 Guarantee of Payment; Continuing Guarantee.  The guarantee in this Article 4 is a guaranty of payment and not of collection, is a continuing guarantee, and shall apply to all Obligations whenever arising.

Section 4.7 Limitations on Guaranty.

(a) Each Guarantor and the Purchaser hereby confirms that it is its intention that the guarantee provided for in this Article 4 not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Code, the Uniform Fraudulent Conveyance Act or any similar Federal or state law.  To effectuate the foregoing intention, each Guarantor and the Purchaser hereby irrevocably agrees that the guarantee of the Obligations by each such Guarantor provided for in this Article 4 shall be limited to an amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Guarantor that are relevant under such laws and after giving effect to any rights to contribution provided in Section 4.7 or pursuant to any agreement providing for an equitable contribution among such Guarantor and the other Guarantors, result in the Obligations guaranteed by such Guarantor in respect of such maximum amount not constituting a fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code, the Uniform Fraudulent Conveyance Act or any comparable Federal or state law.  

(b) In the case of any Guarantor that is a Foreign Subsidiary, to the extent that the enforcement of the guarantee granted by such Foreign Subsidiary in this Article 4 against such Foreign Subsidiary would, taking into account all of the direct and indirect benefits to such Foreign Subsidiary as a result of its relationship to the Company and other Obligors and the consummation of the transactions contemplated by this Agreement, violate the laws of the jurisdiction of organization of such Foreign Subsidiary or any other local laws applicable to such Foreign Subsidiary, then the enforceability of such guarantee granted by such Foreign Subsidiary in this Article 4 shall be considered limited to the extent necessary or required so as to not cause such guarantee by such Foreign Subsidiary to be in violation of such laws; it being understood that nothing in this Section 4.7(b) is intended to nor shall be construed so as to limit the enforceability of the guarantee provided for in this Article 4 against any other Guarantors. 

Section 4.8 Contribution.  At any time a payment in respect of the Obligations guaranteed by the Guarantors under the Article 4 (the “Guaranteed Obligations”) is made under this Article 4, the right of contribution of each Guarantor against each other Guarantor shall be determined as provided in the immediately following sentence, with the right of contribution of each Guarantor to be revised and restated as of each date on which a payment (a “Relevant Payment”) is made on the Guaranteed Obligations under this Article 4.  At any time that a Relevant Payment is made by a Guarantor that results in the aggregate payments made by such Guarantor in respect of the Guaranteed Obligations to and including the date of the Relevant Payment exceeding such Guarantor’s Contribution Percentage (as defined below) of the aggregate payments made by all Guarantors in respect of the Guaranteed Obligations to and including the date of the Relevant Payment (such excess, the “Aggregate Excess Amount”), each such Guarantor shall have a right of contribution against each other Guarantor who has made payments in respect of the Guaranteed Obligations to and including the date of the Relevant Payment in an aggregate amount less than such other Guarantor’s Contribution Percentage of the aggregate payments made to and including the date of the Relevant Payment by all Guarantors in respect 

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of the Guaranteed Obligations (the aggregate amount of such deficit, the “Aggregate Deficit Amount”) in an amount equal to (x) a fraction the numerator of which is the Aggregate Excess Amount of such Guarantor and the denominator of which is the Aggregate Excess Amount of all Guarantors multiplied by (y) the Aggregate Deficit Amount of such other Guarantor.  A Guarantor’s right of contribution pursuant to the preceding sentences shall arise at the time of each computation, subject to adjustment to the time of each computation; provided that no Guarantor may take any action to enforce such right until the Guaranteed Obligations have been paid in full in cash, it being expressly recognized and agreed by all parties hereto that any Guarantor’s right of contribution arising pursuant to this Section 4.7 against any other Guarantor shall be expressly junior and subordinate to such other Guarantor’s obligations and liabilities in respect of the Guaranteed Obligations and any other Obligations owing under this Agreement or the other Note Documents.  As used in this Section 4.7, (i) each Guarantor’s “Contribution Percentage” shall mean the percentage obtained by dividing (x) the Adjusted Net Worth (as defined below) of such Guarantor by (y) the aggregate Adjusted Net Worth of all Guarantors; (ii) the “Adjusted Net Worth” of each Guarantor shall mean the greater of (x) the Net Worth (as defined below) of such Guarantor and (y) zero; and (iii) the “Net Worth” of each Guarantor shall mean the amount by which the fair saleable value of such Guarantor’s assets on the date of any Relevant Payment exceeds its existing debts and other liabilities (including contingent liabilities, but without giving effect to any Guaranteed Obligations arising under this Article 4) on such date.  All parties hereto recognize and agree that, except for any right of contribution arising pursuant to this Section 4.7, each Guarantor who makes any payment in respect of the Guaranteed Obligations shall have no right of contribution or subrogation against any other Guarantor in respect of such payment until all of the Obligations have been irrevocably and paid in full in cash.  Each of the Guarantors recognizes and acknowledges that the rights to contribution arising hereunder shall constitute an asset in favor of the party entitled to such contribution.  In this connection, each Guarantor has the right to waive its contribution right against any Guarantor to the extent that after giving effect to such waiver such Guarantor would remain solvent, in the determination of the Purchaser.

Article 5.

CONDITIONS PRECEDENT TO EFFECTIVE DATE AND THE CLOSING

Section 5.1 Effective Date Conditions.  This Agreement shall not become effective until the date on which each of the following conditions is satisfied (or waived by the Purchaser in its sole discretion, which such waiver must be in writing signed by Purchaser and specifically reference this Section 5.1):

(A) No Injunction, etc.  No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain, or prohibit, or to obtain substantial damages in respect of, or which is related to or arises out of, this Agreement or any other Transaction Document or the consummation of the transactions contemplated hereby or thereby, or which, in Purchaser’s sole discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement

(B) Documentation.  Purchaser shall have received, on or prior to the Effective Date, the following, each in the form and substance satisfactory to Purchaser and its counsel:

(1) duly executed counterparts of this Agreement;

(2) a Subordinated Note in the principal amount of Seven Million Four Hundred Thousand Dollars ($7,400,000) duly executed and issued by the Company to the Purchaser;

(3) the Security Agreement, duly executed by the Company and the Domestic Guarantors party thereto; 

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(4) the Pledge Agreement, duly executed by the Company and the Domestic Guarantors party thereto, which for avoidance of doubt includes, among other collateral specified therein, a pledge of 100% of the equity of all first tier Foreign Subsidiaries;

(5) Post-Closing Letter Agreement, duly executed by the Company, in form and substance reasonably satisfactory to the Purchaser;

(6) the Warrant duly executed and issued by the Company to the Purchaser;

(7) [reserved];

(8) certified copies of the Existing Debt Documents and all other Material Contracts;

(9) UCC-1 Financing Statements for each appropriate jurisdiction naming each of the Company, the Merger Entity and each of the Domestic Guarantors as “debtor” and the Purchaser as “secured party” covering the Collateral as is necessary, in the Purchaser’s sole discretion, to perfect the Purchaser’s Liens in the Collateral;

(10) all stock certificates evidencing any certificated Equity Interests pledged to the Purchaser pursuant to the Pledge Agreement, together with duly executed in blank, undated stock powers attached thereto; provided, however, that the Obligors shall not be required to delivery any such certificates to the extent delivered to MidCap Senior Agent pursuant to and as security for the obligations under the MidCap ABL Senior Credit Agreement;  

(11) UCC, tax, judgment and lien search results with respect to each Obligor and Merger Entity from all appropriate jurisdictions and filing offices as requested by the Purchaser, with results satisfactory to the Purchaser, together with executed originals of such termination statements, releases and cancellations of mortgages required by the Purchaser in connection with the removal of any Liens (other than Permitted Liens) against the assets of the Obligors; 

(12) Secretary Certificate for each Obligor, together with attached copies of the certificate of formation, organization or jurisdictional equivalent of each Obligor and all amendments thereto certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation or organization, together with the bylaws, operating agreement or equivalent document, in each case, certified by the relevant secretary or manager of such Obligor as of a recent date; and (b) good standing certificates or jurisdictional equivalent for each Obligor, issued by the relevant Secretary of State and or equivalent governmental authority in which such Obligor is organized, in each case as of a recent date; (c) a copy of resolutions adopted by the governing board of each Obligor, authorizing the execution, delivery and performance of this Agreement and the other Transaction Documents to which such Obligor is a party certified as true, complete and correct by the relevant secretary of manager of such Transaction as of a recent date; and (d) specimen signatures of the officers or members of each Obligor executing the Agreement and the other Transaction Documents, certified as genuine by the relevant secretary or manager of such Obligor;

(13) favorable legal opinion of (i) Shepard Mullin Richter & Hamilton LLP, counsel to the Obligors, (ii) Brownstein Hyatt Farber Schreck, LLP, special Nevada counsel to the Company, and (iii) Law Offices of Keith A. Minoff, P.C., special Massachusetts counsel to the Obligors, each addressed to the Purchaser, covering such matters relating to the transactions contemplated hereby as the Purchaser may reasonably request, and in form and scope reasonably satisfactory to Purchaser and its counsel; 

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(14) copies of all consents and waivers, if any, required by any Governmental Authorities or required under any of the Company’s Material Contracts in connection with the transactions contemplated hereby, including, without limitation, consents or waivers with respect to any agreements prohibiting (A) the grant of any security interest on any Collateral, (B) the payment of any dividends or distributions with respect to any Equity Interest of any Obligor, (C) the incurrence of the Obligations or any guaranty thereof by any Guarantor, or (D) the issuance of Series D Preferred Stock of the Company; provided, however, that any consent of the MidCap Funding X Trust required under the under MidCap ABL Credit Agreement to the incurrence of Debt under the Subordinated Note and the grant of Liens in favor of the Purchaser shall be delivered as condition to the Closing;

(15) certified copies of (A) the audited annual consolidated financial statements of the Company for the fiscal years ending May 31, 2015 and May 31, 2016, (B) the internally prepared monthly and year-to-date consolidated financial statements of the Company as of October  31, 2016, and (C) twelve (12) months of preliminary financial projections for the Company and its consolidated subsidiaries, each in form and substance satisfactory to the Purchaser, copies of which are attached as Exhibit D hereto; 

(16) a duly executed solvency certificate from the Company as to solvency of each the Obligors, the Company and the Guarantors, taken as a whole, after giving effect to the transactions contemplated hereunder to occur on the Closing Date, including, without limitation, the incurrence of the Debt evidenced by the Subordinated Note, each in form and substance satisfactory to the Purchaser;

(17) each other Transaction Document and closing item specified as an item to be delivered on or prior to the Effective Date on the Closing Checklist prepared by Purchaser’s counsel and furnished to the Company and its counsel shall have been executed and delivered to Purchaser or otherwise satisfied, as applicable, in each case, as determined by the Purchaser; and

(18) the original Global Intercompany Note, duly executed by the Company and the Subsidiaries party thereto, together with a duly executed allonge endorsing said note in blank to Purchaser; provided, however, that the Obligors shall not be required to delivery such note and allonge to the extent delivered to MidCap Senior Agent pursuant to and as security for the obligations under the MidCap ABL Senior Credit Agreement.

(C) No Material Adverse Effect.  No Material Adverse Effect has occurred since May 31, 2016.

(D) No Default, Etc.  No Default or Event of Default shall exist;

(E) Representations Accurate.  All representations and warranties made by the Obligors contained herein or in any other Transaction Document shall be true and correct in all material respects on and as of the Effective Date.

(H) Delivery of Note Documents to MidCap.  Company shall have furnished to Purchaser evidence satisfactory to Purchaser that (i) Company has delivered true, correct and complete copies of all Note Documents to MidCap Senior Agent and (ii) MidCap Senior Agent has acknowledged (by electronic email or otherwise) receipt of same.

(I) Revised Midtown Partner Fee Letter.  Company shall have furnished to Purchaser a revised fee letter duly executed by Midtown Partners & Co., LLC in form and substance satisfactory to Purchaser, and no broker fees payable except as specified on Schedule 6.16. 

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Section 5.2 Closing Conditions.  The obligations of the Purchaser under this Agreement to purchase the Subordinated Note and the Warrant and to pay the Purchase Price therefore are subject to the satisfaction (or waiver by the Purchaser in its sole discretion, which such waiver must be in writing signed by Purchaser and specifically reference this Section 5.2) of each of the following conditions:

(A) Satisfaction of All Conditions to Effective Date.  All of the conditions in Section 5.1 shall have been satisfied in full (or waived in writing by Purchaser in its sole discretion).

(B) Payment of Fees and Expenses.  The Company shall have paid to the Purchaser all fees and other amounts due and payable to the Purchaser, including but not limited to the payment of all reasonable and documented out-of-pocket fees and expenses of legal counsel and other advisors to the Purchaser in connection with the transactions contemplated by the Transaction Documents and the preparation, negotiation, execution and delivery of the Transaction Documents.  The Company hereby authorizes the Purchaser to deduct from the proceeds of the Purchase Price to be paid for the Subordinated Note and the Warrant pursuant to Section 2.1 all such fees and expenses to the extent not paid directly by the Company on or prior to the Closing Date.

(C) Hillair Payoff.  (i) Purchaser shall have received, on or prior to the Closing Date, a payoff letter in respect of the Hillair Note, duly executed by the holder thereof, in form and substance satisfactory to Purchaser, together with UCC 3 termination statements; which payoff letter shall also include lien release and confirmation from Hillair Capital Management LLC that the 8% Senior Secured Convertible Debenture originally due July 1, 2017 (issued on February 8, 2016) in the original principal amount of $728,000 made and executed by the Company in favor of Hillair Capital Management LLC has been paid in full and is no longer outstanding, and such payoff letter shall not have been rescinded and shall by its terms continue to be effective as of the Closing Date, and (ii) substantially contemporaneously with the funding of the Purchase Price on the Closing Date, all Debt and other obligations under the Hillair Note shall be paid off in full on the Closing Date and all Liens securing the same shall have been released.

(D) Stockholder Approval; Reincorporation.  (a) The Company’s stockholders have validly approved (i) an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of Common Stock from 20,000,000 shares to 40,000,000 shares in accordance with Applicable Law, and such amendment shall have been filed with the appropriate Governmental Authorities and shall have become effective in accordance with Applicable Law, and (ii) the Reincorporation, and (b) the Reincorporation shall have occurred and become effective under Applicable Law.  

(E) No Material Adverse Effect.  No Material Adverse Effect has occurred since May 31, 2016.

(F) No Default, Etc.  No Default or Event of Default shall exist.

(G) Representations Accurate.  All representations and warranties made by the Obligors contained herein or in any other Transaction Document shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the Closing Date (with all references to the Effective Date therein being deemed to be references to the Closing Date for purposes hereof).

(H) Opinion.  The Purchaser shall have received favorable legal opinion of Shepard Mullin Richter & Hamilton LLP, counsel to the Company, dated the Closing Date and covering (i) that the Reincorporation has become effective under Delaware law, (ii) the enforceability of the Transaction Documents against the Company (after giving effect to the Reincorporation), (ii) all of the matters in 

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respect of the Company covered under the opinion of Nevada counsel referenced in Section 5.1(B)(13), but as to Delaware law and after giving effect to the Reincorporation, and (iii) such other matters relating to the transactions contemplated hereby as the Purchaser may reasonably request, and in form and scope reasonably satisfactory to Purchaser and its counsel.

(I) Closing Certificate; Funding Request Notice.  The Purchaser has received a Certificate and Funding Request Notice, dated the Closing Date, duly executed by a Responsible Officer of the Company (a) certifying as to (i) the satisfaction of all conditions precedent in Section 5.2, (ii) the consummation of the items described in Section 5.2(D), and attaching true, correct and complete copies of the related amendment to the Company’s Certificate of Incorporation and the related Reincorporation documents filed with the States of Nevada and Delaware to accomplish the Reincorporation, (iii) the specific items set forth in Section 5.2(E), (F) and (G), (iv) the resolutions adopted by the governing board of each Obligor referenced in Section 5.1(B)(12) remain in full force and effect and have not been amended, rescinded or revoked, (v) there have been no amendments, waivers or modifications to the Existing Debt Documents from the copies thereof delivered to the Purchaser pursuant to Section 5.1(B)(8), and (vi) there have been no changes to the information set forth on the Schedules to this Agreement, except for the change in domicile of the Company from Nevada to Delaware in connection with the Reincorporation, and the increase in the number of authorized shares of Common Stock of the Company from twenty million to forty million shares in connection with the amendment to the Company’s Certificate of Incorporation referenced in Section 5.2(D), and (b) requesting the funding of the Purchase Price to the Company pursuant to Section 2.1 and the payment of the proceeds thereof in accordance with the Pay Proceeds Letter.

(J) Acknowledgement and Reaffirmation Agreement; Secretary Certificate and Board Resolutions.  The Purchaser shall have received (i) an Acknowledgment and Reaffirmation Agreement, dated as of the Closing Date, whereby Merger Entity, as successor to the Company following the Reincorporation, assumes and reaffirms and agrees to be bound by all Transaction Documents to which the Company is a party, and (ii) a Secretary Certificate for Merger Entity including and attaching all of the items referenced in the Secretary Certificate in Section 5.1(B)(12), including resolutions of the board of directors approving the Acknowledgment and Reaffirmation Agreement and the other Transaction Documents, all in form and substance satisfactory to the Purchaser.

(K) Bringdown Lien Searches and Good Standing Certificates.  The Purchaser shall have received bringdown Lien searches in respect of the Lien searches referenced in Section 5.1(B) and bringdown good standing certificates as of recent date, all in form and substance satisfactory to Purchaser. 

(L) Pay Proceeds Letter.  The Purchaser shall have received the Pay Proceeds Letter, dated the Closing Date and duly executed and delivered by the Company, directing application of the proceeds of the funded Purchase Price to the payment of fees and expenses owed by the Company to the Purchaser, the pay-off in full of the Hillair Note and as otherwise provided therein, together with a Funds Flow Statement attached thereto, all in form and substance satisfactory to the Purchaser.

(M) MidCap Approval.  Purchaser shall have received evidence satisfactory to it of the consent of MidCap Funding X Trust to the incurrence of Debt under the Subordinated Note and the grant of Liens in favor of the Purchaser to the extent required under the under MidCap ABL Credit Agreement.

(N) MidCap Intercreditor Agreement.  The Purchaser shall have received the MidCap Intercreditor Agreement, in form and substance satisfactory to it, duly executed by the Purchaser, the MidCap Senior Agent, the Company and other Domestic Guarantors party thereto.

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Article 6.

REPRESENTATIONS AND WARRANTIES

Section 6.1 Representations and Warranties Generally.  Each Obligor hereby represents and warrants to the Purchaser that the following statements set forth in Section 6.2 through and including Section 6.30 are true and correct:

Section 6.2 Corporate Existence; Subsidiaries.  Each Obligor is an entity as specified on Schedule 6.2, is duly organized, validly existing and in good standing under the laws of the jurisdiction specified on Schedule 6.2 and no other jurisdiction, has the same legal name as it appears in such Obligor’s Organizational Documents and an organizational identification number (if any), in each case as specified on Schedule 6.2, and has all powers and all Permits necessary or desirable in the operation of its business as presently conducted or as proposed to be conducted, except where the failure to have such Permits could not reasonably be expected to have a Material Adverse Effect. Each Obligor is qualified to do business as a foreign entity in each jurisdiction in which it is required to be so qualified, which jurisdictions as of the Effective Date are specified on Schedule 6.2, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 6.2, no Obligor (a) has had, over the five (5) year period preceding the Effective Date, any name other than its current name, or (b) was incorporated or organized under the laws of any jurisdiction other than its current jurisdiction of incorporation or organization. 

Section 6.3 Organization and Governmental Authorization; No Contravention.  The execution, delivery and performance by each Obligor Party of the Transaction Documents (including, without limitation (a) the issuance and sale, on the terms and subject to the conditions set forth herein, of (i) Subordinated Note in the aggregate issue amount of Seven Million Four Hundred Thousand Dollars ($7,400,000), and (ii) the Warrant for the purchase of three million one hundred fifty thousand (3,150,000) (subject to adjustment as provided in the terms of the Warrant) shares of the Common Stock of the Company, and (b) the issuance of the Commitment Fee Shares and any Interest Conversion Shares on the terms and subject to the conditions set forth herein and in the Subordinated Note, as applicable) to which it is a party are within its powers, have been duly authorized by all necessary action pursuant to its Organizational Documents, require no further action by or in respect of, or filing with, any Governmental Authority and, except as set forth on Schedule 6.3, do not violate, conflict with or cause a breach or a default under (a) any law applicable to any Obligor or any of the Organizational Documents of any Obligor, (b) any Existing Senior Secured Debt Document, or any other material indenture, agreement or other to which any Obligor is a party or by which the Obligors or any of their respective properties is bound, except for such violations, conflicts, breaches or defaults as could not, with respect to this clause (b), reasonably be expected to have a Material Adverse Effect.  The execution, delivery and performance of the Transaction Documents by the Obligors will not result in or require the creation of any material Lien upon or with respect to any of the properties of any Obligor, other than Liens granted pursuant to the Transaction Documents.

Section 6.4 Binding Effect.  Each of the Transaction Documents to which any Obligor is a party constitutes a valid and binding agreement or instrument of such Obligor, enforceable against such Obligor in accordance with its respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws relating to the enforcement of creditors’ rights generally and by general equitable principles.

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Section 6.5 Capitalization.  

(a) The authorized equity securities of each of the Obligors as of the Effective Date are as set forth on Schedule 6.5. All issued and outstanding equity securities of each of the Obligors are duly authorized and validly issued, fully paid, nonassessable, free and clear of all Liens other than those in favor of the Purchaser and Permitted Liens, and such equity securities were issued in compliance with all applicable laws. With the exception of the Warrant Documents, the identity of the holders of the equity securities of each of the Obligors and the percentage of their fully-diluted ownership of the equity securities of each of the Obligors as of the Closing Date is set forth on Schedule 6.5.  The common shares reserved for issuance by the Company pursuant to any existing contractual commitment is as set forth on Schedule 6.5.  No shares of the capital stock or other equity securities of any Obligors, other than those described above, are issued and outstanding as of the Closing Date. Except as set forth on Schedule 6.5, as of the Closing Date there are no (i) preemptive or other outstanding rights, options, warrants, conversion rights or similar agreements or understandings for the purchase or acquisition from any Obligor of any equity securities of any such entity, and (ii) stockholder agreements (or equivalent), subscription agreements, voting trust agreements or any other similar agreements relating to the Equity Interests of any of the Obligors.

(b) The Common Stock of the Company underlying the Warrant, the Interest Conversion Shares and the Commitment Fee Shares has been duly and validly authorized and when issued, will be duly and validly issued, fully paid and non-assessable, and such shares of Common Stock of the Company will not be issued in violation of any preemptive or other rights of stockholders of the Company and will be free from all taxes, liens, and charges with respect to the issuance thereof.

Section 6.6 Financial Information.  All information delivered to the Purchaser and pertaining to the financial condition of any Obligor fairly presents the financial position of such Obligor as of such date in conformity with GAAP (and as to unaudited financial statements, subject to normal year-end adjustments and the absence of footnote disclosures). Since May 31, 2016, there has been no material adverse change in the business, operations, properties, prospects or condition (financial or otherwise) of any Obligor.

Section 6.7  Litigation.  Except as set forth on Schedule 6.7 as of the Effective Date, and except as hereafter disclosed to the Purchaser in writing, there is no Litigation pending against, or to such the Company’s knowledge threatened against or affecting, any Obligor or, to the Company’s knowledge, any party to any Transaction Document other than an Obligor. There is no Litigation pending in which an adverse decision could reasonably be expected to have a Material Adverse Effect or which in any manner draws into question the validity of any of the Transaction Documents.

Section 6.8 Ownership of Property.  Each Obligor and each of its Subsidiaries is the lawful owner of, has good and marketable title to and is in lawful possession of, or has valid leasehold interests in, all properties and other assets (real or personal, tangible, intangible or mixed) purported or reported to be owned or leased (as the case may be) by such Person.

Section 6.9 No Default.  No Event of Default, or to the Company’s knowledge, Default, has occurred and is continuing. No Obligor is in breach or default under or with respect to any contract (including any Material Contract), agreement, lease or other instrument to which it is a party or by which its property is bound or affected, which breach or default could reasonably be expected to have a Material Adverse Effect.

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Section 6.10  Labor Matters.  As of the Effective Date, there are no strikes or other labor disputes pending or, to the Company’s knowledge, threatened against any Obligor. Hours worked and payments made to the employees of the Obligors have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters. All payments due from the Obligors, or for which any claim may be made against any of them, on account of wages and employee and retiree health and welfare insurance and other benefits have been paid or accrued as a liability on their books, as the case may be. The consummation of the transactions contemplated by the Transaction Documents will not give rise to a right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which it is a party or by which it is bound.

Section 6.11 Regulated Entities.  No Obligor is an “investment company” or a company “controlled” by an “investment company” or a “subsidiary” of an “investment company,” all within the meaning of the Investment Company Act of 1940.

Section 6.12 [Reserved].

Section 6.13 Compliance With Laws; Anti-Terrorism Laws.

(a) Each Obligor is in compliance with the requirements of all Applicable Laws, except for such laws the noncompliance with which could not reasonably be expected to have a Material Adverse Effect.

(b) None of the Obligors and, to the knowledge of the Company, no Affiliate of any Obligor (i) is in violation of any Anti-Terrorism Law, (ii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law, (iii) is a Blocked Person, or is controlled by a Blocked Person, (iv) is acting or will act for or on behalf of a Blocked Person, (v) is associated with, or will become associated with, a Blocked Person or (vi) is providing, or will provide, material, financial or technical support or other services to or in support of acts of terrorism of a Blocked Person. No Obligor nor, to the knowledge of the Company, any of Affiliates of any Obligor or agents acting or benefiting in any capacity in connection with the transactions contemplated by this Agreement, (A) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (B) deals in, or otherwise engages in any transaction relating to, any property or interest in property blocked pursuant to the Executive Order, any similar executive order or other Anti-Terrorism Law.

Section 6.14 Taxes.  All federal, state and local tax returns, reports and statements required to be filed by or on behalf of each Obligor have been filed with the appropriate Governmental Authorities in all jurisdictions in which such returns, reports and statements are required to be filed and, except as set forth in Schedule 6.14 and except to the extent subject to a Permitted Contest, all Taxes (including real property Taxes) and other charges shown to be due and payable in respect thereof have been timely paid prior to the date on which any fine, penalty, interest, late charge or loss may be added thereto for nonpayment thereof. Except as set forth in Schedule 6.14 and except to the extent subject to a Permitted Contest, all state and local sales and use Taxes required to be paid by each Obligor have been paid. All federal and state returns have been filed by each Obligor for all periods for which returns were due with respect to employee income tax withholding, social security and unemployment taxes, and, except as set forth in Schedule 6.14 and except to the extent subject to a Permitted Contest, the amounts shown thereon to be due and payable have been paid in full or adequate provisions therefor have been made..

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Section 6.15 Compliance with ERISA.

(a) Each ERISA Plan (and the related trusts and funding agreements) complies in form and in operation with, has been administered in compliance with, and the terms of each ERISA Plan satisfy, the applicable requirements of ERISA and the Code in all material respects. Each ERISA Plan which is intended to be qualified under Section 401(a) of the Code is so qualified, and the United States Internal Revenue Service has issued a favorable determination letter with respect to each such ERISA Plan which may be relied on currently. No Obligor has incurred liability for any material excise tax under any of Sections 4971 through 5000 of the Code.

(b) Except as could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, each Obligor and each Subsidiary is in compliance with the applicable provisions of ERISA and the provision of the Code relating to ERISA Plans and the regulations and published interpretations therein. During the thirty-six (36) month period prior to the Effective Date, (i) except as set forth in Schedule 6.15, no steps have been taken to terminate any Pension Plan, and (ii) no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which could result in the incurrence by any Obligor of any material liability, fine or penalty. No Obligor has incurred liability to the PBGC (other than for current premiums) with respect to any employee Pension Plan. All contributions (if any) have been made on a timely basis to any Multiemployer Plan that are required to be made by any Obligor or any other member of the Controlled Group under the terms of the plan or of any collective bargaining agreement or by applicable Law; no Obligor nor any member of the Controlled Group has withdrawn or partially withdrawn from any Multiemployer Plan, incurred any withdrawal liability with respect to any such plan or received notice of any claim or demand for withdrawal liability or partial withdrawal liability from any such plan, and no condition has occurred which, if continued, could result in a withdrawal or partial withdrawal from any such plan, and no Obligor nor any member of the Controlled Group has received any notice that any Multiemployer Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of any excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent.

Section 6.16  Consummation of Transaction Documents; Brokers.  Except for fees payable to the Purchaser or as set forth on Schedule 6.16, no broker, finder or other intermediary has brought about the obtaining, making or closing of the transactions contemplated by the Transaction Documents, and no Obligor has or will have any obligation to any Person in respect of any finder’s or brokerage fees, commissions or other expenses in connection herewith or therewith.

Section 6.17 [Reserved].

Section 6.18 Material Contracts.  Except for the Existing Senior Secured Debt Documents and the other agreements set forth on Schedule 6.18 (referred to herein collectively, together with any other agreements or instruments to which any Obligor is a party, and the breach, nonperformance or cancellation of which, or the failure of which to renew, could reasonably be expected to have a Material Adverse Effect, as the “Material Contracts”) as of the Effective Date, there are no (a) employment agreements covering the management of any Obligor, (b) collective bargaining agreements or other similar labor agreements covering any employees of any Obligor, (c) agreements for managerial, consulting or similar services to which any Obligor is a party or by which it is bound, (d) agreements regarding any Obligor, its assets or operations or any investment therein to which any of its equity holders is a party or by which it is bound, (e) real estate leases, Intellectual Property licenses or other lease or 

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license agreements to which any Obligor is a party, either as lessor or lessee, or as licensor or licensee (other than licenses arising from the purchase of “off the shelf” products), (f) customer, distribution, marketing or supply agreements to which any Obligor is a party, in each case with respect to the preceding clauses (a) through (e) requiring payment of more than $250,000 in any year, (g) partnership agreements to which any Obligor is a general partner or joint venture agreements to which any Obligor is a party, (h) third party billing arrangements to which any Obligor is a party, or (i) any other agreements or instruments to which any Obligor is a party, and the breach, nonperformance or cancellation of which, or the failure of which to renew, could reasonably be expected to have a Material Adverse Effect. Each of the Material Contracts specified on Schedule 6.18 is in full force and effect on the date hereof and the consummation of the transactions contemplated by the Transaction Documents will not give rise to a right of termination in favor of any party (other than any Obligor) to any Material Contract, except for such Material Contracts the noncompliance with which would not reasonably be expected to have a Material Adverse Effect.  

Section 6.19 [Reserved].

Section 6.20 Intellectual Property.  Each Obligor owns, is licensed to use or otherwise has the right to use, all Intellectual Property that is material to the condition (financial or other), business or operations of such Obligor. All Intellectual Property existing as of the Effective Date which is issued, registered or pending with any United States or foreign Governmental Authority (including, without limitation, any and all applications for the registration of any Intellectual Property with any such United States or foreign Governmental Authority) and all licenses under which any Obligor is the licensee of any such registered Intellectual Property (or any such application for the registration of Intellectual Property) owned by another Person are set forth on Schedule 6.20. Such Schedule 6.20 indicates in each case whether such registered Intellectual Property (or application therefor) is owned or licensed by such Obligor, and in the case of any such licensed registered Intellectual Property (or application therefor), lists the name and address of the licensor and the name and date of the agreement pursuant to which such item of Intellectual Property is licensed and whether or not such license is an exclusive license and indicates whether there are any purported restrictions in such license on the ability to such Obligor to grant a security interest in and/or to transfer any of its rights as a licensee under such license. Except as indicated on Schedule 6.20, the applicable Obligor is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to each such registered Intellectual Property (or application therefor) purported to be owned by such Obligor, free and clear of any Liens and/or licenses in favor of third parties or agreements or covenants not to sue such third parties for infringement. All registered Intellectual Property of each Obligor is duly and properly registered, filed or issued in the appropriate office and jurisdictions for such registrations, filings or issuances, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. No Obligor is party to, nor bound by, any material license or other agreement with respect to which any Obligor is the licensee that prohibits or otherwise restricts such Obligor from granting a security interest in such Obligor’s interest in such license or agreement or other property. To the Company’s knowledge, each Obligor conducts its business without infringement or claim of infringement of any Intellectual Property rights of others and there is no infringement or claim of infringement by others of any Intellectual Property rights of any Obligor, which infringement or claim of infringement could reasonably be expected to have a Material Adverse Effect.

Section 6.21 Solvency.  After giving effect to the Advance, the liabilities and obligations of the Company and each Obligor under the Transaction Documents, taken as a whole, are Solvent.

Section 6.22 Full Disclosure.  None of the written information (financial or otherwise) furnished by or on behalf of any Obligor to the Purchaser in connection with the consummation of the transactions contemplated by the Transaction Documents, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light 

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of the circumstances under which such statements were made. All financial projections delivered to Purchaser by the Company (or their agents) have been prepared on the basis of the assumptions stated therein. Such projections represent the Company’s best estimate of the future financial performance of the Company and the other Obligors, as applicable, and such assumptions are believed by the Company to be fair and reasonable in light of current business conditions; provided, however, that the Company can give no assurance that such projections will be attained.

Section 6.23 Interest Rate.  The rate of interest paid under the Subordinate Note and the method and manner of the calculation thereof do not violate any usury or other law or Applicable Laws, or any of the Organizational Documents.

Section 6.24 Subsidiaries.  Except as set forth on Schedule 6.24, the Company does not own any stock, partnership interests, limited liability company interests or other equity securities or Subsidiaries except for Permitted Investments.  As of the Effective Date, (i) there is no Subsidiary of the Company that is not an Obligor other than the Excluded Subsidiaries, and (ii) the Company does not own any Subsidiaries other than the Subsidiaries identified on Schedule 6.24.

Section 6.25 [Reserved].

Section 6.26 Approvals.  No consent of any Person and no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforcement of any Transaction Document (including, without limitation, the issuance of the Subordinated Note or the Warrant) which has not been obtained or made as of the date hereof.

Section 6.27 Insurance.  Each Obligor has in place, with financially sound and reputable insurance companies or associations, casualty, public liability and other insurance, including without limitation, product liability insurance, in such amounts and covering such risks as are customarily maintained by other companies operating similar businesses in similar locations and will furnish to the Purchaser on the Effective Date, information presented in reasonable detail as to the insurance so carried, including (i) endorsements to (A) all “All Risk” policies naming the Purchaser as loss payee and (B) all general liability and other liability policies naming the Purchaser as additional insured and (ii) legends providing that no cancellation, material reduction in amount or material change in insurance coverage thereof shall be effective until at least thirty (30) days after receipt by the Purchaser of written notice thereof.

Section 6.28 Continuing Business of Company.  There exists no actual or, to the knowledge of any Obligor, threatened in writing termination, cancellation or material limitation of, or any material modification or change in, (i) the business relationships of any Obligor with any customer or group of customers of such Obligor whose business individually or in the aggregate is material to the operations or financial condition of such Obligor, (ii) the business relationships of any Obligor with any of its material suppliers or (iii) any Material Contract; and each Obligor reasonably anticipates that after the consummation of the transactions contemplated by this Agreement, all such customers and suppliers will continue a business relationship with such Obligor on a basis no less favorable to such Obligor than as heretofore conducted.

Section 6.29 [Reserved].

Section 6.30 No General Solicitation.  Except as set forth in Schedule 6.16, neither the Company, nor any of its officers, employees, agents, directors, stockholders or partners has engaged the services of a broker, investment banker or finder to contact any potential investor nor has the Company or any of the 

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Company’s officers, employees, agents, directors, stockholders or partners, agreed to pay any commission, fee or other remuneration to any third party to solicit or contact any potential investor, in either case with respect to the issuance of the Subordinated Note and the Warrant.  The Company and its officers, directors, employees, agents, stockholders and representatives have not published, distributed, issued, posted or otherwise used or employed, and shall not publish, distribute, issue, post or otherwise use or employ, any form of general solicitation or general advertising, including, without limitation, via mass publication (including via mass e-mail to persons or entities with whom the Company has no substantial and pre-existing relationship), television, radio, the Internet or any other form of mass media (“General Solicitation”) within the meaning of Rule 502(c) under the Securities Act or any General Solicitation that constitutes a written communication within the meaning of Rule 405 under the Securities Act in connection with the offer and sale of the Subordinated Note and the Warrant.  The Company shall conduct the offering of the Subordinated Note and the Warrant in a manner so as to allow the offering to qualify for a private placement exemption from registration under the Securities Act, including Rule 506(b) thereunder.

Section 6.31 Representations and Warranties of the Purchaser.  The Purchaser hereby represents and warrants to the Company as of the Effective Date that:

(a) Authorization.  The Purchaser has the requisite legal capacity, power and/or authority to enter into and perform under the Transaction Agreements.  The Transaction Agreements, when executed and delivered by each Purchaser, will constitute valid and legally binding obligations of such Purchaser, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors’ rights generally, and as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies, or (b) to the extent the indemnification provisions contained in the Investors’ Rights Agreement may be limited by applicable federal or state securities laws.

(b) Purchase Entirely for Own Account.  The Subordinated Note and the Warrant to be acquired by the Purchaser on the Closing Date are being acquired for investment for the Purchaser’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof; it being understood that Purchaser may after the Closing Date assign or transfer all or any part of the Subordinated Note and/or the Warrant in accordance with the terms of this Agreement and, in the case of the Warrant, in accordance with the terms of the Warrant Documents.

(c) Disclosure of Information.  The Purchaser further represents that it has had an opportunity to ask questions of and receive answers from the Company regarding the terms and conditions of the offering of the Subordinated Note and the business, properties, prospects and financial condition of the Company.  The foregoing, however, does not limit or modify the representations and warranties of the Company in Article 6 of this Agreement or the right of the Purchaser to rely on such representations and warranties.

(d) Restricted Securities.  The Purchaser understands that the Subordinated Note, the Commitment Fee Shares and the Warrant may be characterized as “restricted securities” under the federal securities laws, inasmuch as they are being acquired from the Company in a transaction not involving a public offering, and that under such laws and applicable regulations they may not be resold without registration under the Securities Act, except in certain limited circumstances.  In this connection, the Purchaser represents that it is familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.  The Purchaser acknowledges that the 

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Company shall have no obligation to register or qualify the Subordinated Note or Warrant for resale, except as set forth in this Agreement.  The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the applicable securities, and on requirements relating to the Company that are outside the Purchaser's control, and which the Company is under no obligation (except as otherwise set forth in Section 7.14 hereof) and may not be able to satisfy.

(e) Legends.  The Purchaser understands that the Warrant, and any securities issued in respect of or exchange for the Warrant, may bear one or all of the following legends:

(i) “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.  NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.”

(ii) Any legend set forth in or required by the other Transaction Agreements.

(iii) Any legend required by the securities laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended.

(f) Accredited Investor.  The Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

(g) ERISA. The Purchaser is not acquiring the Subordinated Note and warrant with the assets of any employee benefit plan, which is subject to Title I of ERISA or any “plan” which is subject to Section 4975 of the Code. 

Each of the foregoing representations and warranties shall be deemed made by each Obligor on and as of both the Effective Date and the Closing Date and shall survive the execution and delivery of this Agreement and the Closing.

Article 7.

AFFIRMATIVE COVENANTS

So long as the Subordinated Note or any other Obligations (other than contingent obligations to the extent that no claim giving rise thereto has been asserted) shall remain outstanding pursuant to the Note Documents, unless the Purchaser shall otherwise consent in the manner set forth in Section 10.4, each Obligor shall, and shall cause each of its Subsidiaries to, comply with each of the following covenants:

Section 7.1 Financial Statements and Other Reports.  The Company will deliver to the Purchaser: (a) as available, but no later than thirty (30) days after the last day of each month, a company prepared “flash report” covering the Company’s and its Consolidated Subsidiaries’ consolidated operations during the period, prepared in a manner, scope and detail satisfactory to the Purchaser, certified by a Responsible Officer and in a form acceptable to the Purchaser, (b) as available, but no later than forty five (45) days 

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(unless further extended to sixty (60) days pursuant to the grant of a valid extension to the filing deadline of the related 10-Q from the SEC) after the last day of each Fiscal Quarter of the Company, a company prepared consolidated balance sheet, cash flow and income statement (including year-to-date results) covering the Company’s and its Consolidated Subsidiaries’ consolidated operations during the period, prepared under GAAP, consistently applied, setting forth in comparative form the corresponding figures as at the end of the corresponding Fiscal Quarter of the previous Fiscal Year and the projected figures for such period based upon the projections required hereunder, all in reasonable detail, certified by a Responsible Officer and in a form acceptable to the Purchaser; (c) together with the flash reports described in (a) above, evidence of payment and satisfaction of all payroll, withholding and similar taxes due and owing by all Obligors with respect to the payroll period(s) occurring during such month, subject to Section 7.2; (d) as soon as available, but no later than one hundred five (105) days after the last day of the Company’s Fiscal Year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to the Purchaser in its reasonable discretion; (e) within five (5) days of delivery or filing thereof, copies of all statements, reports (other than borrowing base reports delivered pursuant thereto) and notices made available to the Company’s security holders or to any agents or lenders under any Existing Senior Secured Debt Documents and copies of all reports and other filings made by the Company with any stock exchange on which any securities of any Obligor are traded and/or the SEC; (f) a prompt written report of any legal actions pending or threatened against any Obligor or any of its Subsidiaries that could reasonably be expected to result in damages or costs to any Obligor or any of its Subsidiaries of One Hundred Fifty Thousand Dollars ($150,000) or more; (g) prompt written notice of an event that materially and adversely affects the value of any Intellectual Property; (h) budgets, sales projections, operating plans and other financial information and information, reports or statements regarding the Obligors, their business and the Collateral (including, without limitation, copies of any borrowing base reports delivered pursuant to any of the Existing Senior Secured Debt Documents) as the Purchaser may from time to time reasonably request. The Company will, within thirty (30) days after the last day of each month, deliver to the Purchaser (i) with the first two monthly flash reports described in clause (a) above and (ii) with quarterly financial statements described in clause (b) above, a duly completed Compliance Certificate signed by a Responsible Officer setting forth calculations showing compliance with the financial covenants set forth in this Agreement; (i) promptly upon receipt thereof, copies of all financial statements of, and all reports and management letters submitted by, independent public accountants to any of the Obligors in connection with each annual, interim, or special audit of any Obligor’s financial statements; (j) within sixty (60) days following the end of the Company’s Fiscal Year, the Company shall deliver to the Purchaser the annual budget for both the Company and any of its Subsidiaries, including forecasts of the income statement, the balance sheet and a cash flow statement for the immediately succeeding year on a quarterly basis and thereafter, shall promptly deliver any amendment thereto; (k) promptly upon their becoming available, the Company shall deliver to the Purchaser copies of all Material Contracts or material amendments thereto entered into after the Effective Date.

Section 7.2 Payment and Performance of Obligations.  Each Obligor (a) will pay and discharge, and cause each Subsidiary to pay and discharge, on a timely basis as and when due, all of their respective obligations and liabilities, except for such obligations and/or liabilities (i) that may be the subject of a Permitted Contest, and (ii) the nonpayment or nondischarge of which could not reasonably be expected to have a Material Adverse Effect or result in a Lien against any Collateral, except for Permitted Liens, (b) without limiting anything contained in the foregoing clause (a), pay all amounts due and owing in respect of Taxes (including without limitation, payroll and withholdings tax liabilities) on a timely basis as and when due, and in any case prior to the date on which any fine, penalty, interest, late charge or loss may be added thereto for nonpayment thereof, other than in connection with any tax payment plan with the applicable Governmental Authority on terms consistent with past practices, provided that Purchaser has been furnished with a copy of such payment plan (or if such payment plan is not in writing, the Company 

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shall either (i) provide the Purchaser with a certificate of a Responsible Officer setting forth the material terms and conditions of such payment plan or (ii) for any such plans existing on the Effective Date, disclose the material terms and conditions of such plan on Schedule 6.14), (c) will maintain, and cause each Subsidiary to maintain, in accordance with GAAP, appropriate reserves for the accrual of all of their respective obligations and liabilities, and (d) will not breach or permit any Subsidiary to breach, or permit to exist any default under, the terms of any lease, commitment, contract, instrument or obligation to which it is a party, or by which its properties or assets are bound, except for such breaches or defaults which could not reasonably be expected to have a Material Adverse Effect.

Section 7.3 Maintenance of Existence.  Each Obligor will preserve, renew and keep in full force and effect and in good standing, and will cause each Subsidiary to preserve, renew and keep in full force and effect and in good standing, their respective existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business.

Section 7.4 Maintenance of Property; Insurance.

(a) Each Obligor will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. If all or any part of the Collateral useful or necessary in its business becomes damaged or destroyed, each Obligor will, and will cause each Subsidiary to, promptly and completely repair and/or restore the affected Collateral in a good and workmanlike manner.

(b) Upon completion of any Permitted Contest, Obligors shall, and will cause each Subsidiary to, promptly pay the amount due, if any, and deliver to the Purchaser proof of the completion of the contest and payment of the amount due, if any, following which the Purchaser shall return the security, if any, deposited with the Purchaser pursuant to the definition of Permitted Contest.

(c) Each Obligor will maintain with financially sound and reputable insurance companies or associations casualty, public liability and other insurance in such amounts and covering such risks as are customarily maintained by other companies operating similar businesses in similar locations, and, at the written request of the Purchaser, provide evidence of compliance with this covenant to the Purchaser in the form of certificates of insurance naming the Purchaser as an additional insured, assignee and lender loss payee, as applicable, on each insurance policy required to be maintained pursuant to this Section 7.4 pursuant to endorsements in form and substance reasonably acceptable to the Purchaser.

Section 7.5  Compliance with Laws and Material Contracts.  Each Obligor will comply, and cause each Subsidiary to comply, with the requirements of all Applicable Laws and Material Contracts, except to the extent that failure to so comply could not reasonably be expected to (a) have a Material Adverse Effect, or (b) result in any Lien upon a material portion of the assets of any such Obligor in favor of any Governmental Authority.

Section 7.6 Inspection of Property, Books and Records.  Each Obligor will keep, and will cause each Subsidiary to keep, proper books of record substantially in accordance with GAAP in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, at the sole cost of the applicable Obligor or any applicable Subsidiary, representatives of the Purchaser to visit and inspect any of their respective properties, to examine and make abstracts or copies from any of their respective books and records, to conduct a collateral audit and analysis of their respective operations and the Collateral, to verify the amount and age of the accounts, the identity and credit of the respective account debtors, to 

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review the billing practices of Obligors and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants as often as may reasonably be desired. Notwithstanding the foregoing, in the absence of a Default or an Event of Default, the Purchaser exercising any rights pursuant to this Section 7.6 shall give the applicable Obligor or any applicable Subsidiary commercially reasonable prior notice of such exercise and (ii) Obligors shall only be required to reimburse the costs of the Purchaser for one such audit, inspection, verification or examination per Fiscal Year. No notice shall be required during the existence and continuance of any Default or Event of Default or any time during which the Purchaser reasonably believes a Default or an Event of Default exists.

Section 7.7 Use of Proceeds.  The Company shall use the proceeds from the sale of the Subordinated Note and the Warrant solely for (i) the repayment in full of the Hillair Note on the Closing Date, (ii) to pay transaction fees and expenses incurred by the Company in connection with the transactions contemplated by this Agreement, and (iii) the remainder for working capital and the general corporate purposes of the Company, and none of such proceeds will be used, directly or indirectly, (a) for the purpose of purchasing or carrying any “margin security” or “margin stock” or for the purpose of reducing or retiring any debt that originally was incurred to purchase or carry a “margin security” or “margin stock” or for any other purpose that might constitute this transaction a “purpose credit” within the meaning of the regulations of the Board of Governors of the Federal Reserve System, (b) for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of any Anti-Corruption Laws, or (c) to fund any activities or business of or with any Designated Person or in any country or territory that at the time of such funding is itself the subject of any sanctions under any Anti-Terrorism Laws or any sanctions program administered by (x) OFAC or (y) the United Nations Security Council, the European Union or Her Majesty’s Treasury of the United Kingdom in violation of any Anti-Terrorism Laws.  Neither the purchase of the Subordinated Note hereunder nor the use of the proceeds thereof, will result in a violation of any Anti-Terrorism Laws or any sanctions program administered by (x) OFAC or (y) the United Nations Security Council, the European Union or Her Majesty’s Treasury of the United Kingdom, or otherwise in violation of any Anti-Corruption Laws. 

Section 7.8 [Reserved].

Section 7.9 Notices of Litigation and Defaults.  Obligors will give prompt written notice to the Purchaser (a) of any litigation or governmental proceedings pending or threatened (in writing) against any Obligor which would reasonably be expected to have a Material Adverse Effect or which in any manner calls into question the validity or enforceability of any Transaction Document, (b) upon any Obligor becoming aware of the existence of any Default or Event of Default together with a certificate of a Responsible Officer of the Company setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto, (c) if any Obligor is in breach or default under or with respect to any Material Contract, or if any Obligor is in breach or default under or with respect to any other contract, agreement, lease or other instrument to which it is a party or by which its property is bound or affected, which breach or default in each case or in the aggregate could reasonably be expected to have a Material Adverse Effect, (d) of any strikes or other labor disputes pending or, to the Company’s knowledge, threatened against any Obligor, (e) if there is any infringement or claim of infringement by any other Person with respect to any Intellectual Property rights of any Obligor that could reasonably be expected to have a Material Adverse Effect, or if there is any claim by any other Person that any Obligor in the conduct of its business is infringing on the Intellectual Property Rights of others, and (f) of all returns, recoveries, disputes and claims that involve more than $250,000. Obligors represent and warrant that Schedule 7.9 sets forth a complete list of all matters existing as of the Effective Date for which notice 

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could be required under this Section and all litigation or governmental proceedings pending or threatened (in writing) against any Obligor as of the Effective Date.

Section 7.10 Further Assurances; Additional Guarantors.

(a) Each Obligor will, and will cause each Subsidiary to, at its own cost and expense, promptly and duly take, execute, acknowledge and deliver all such further acts, documents and assurances as may from time to time be necessary or as the Purchaser may from time to time reasonably request in order to carry out the intent and purposes of the Transaction Documents and the transactions contemplated thereby, including all such actions to establish, create, preserve, protect and perfect a first priority Lien (subject only to Permitted Liens) in favor of the Purchaser on the Collateral (including Collateral acquired after the date hereof).

(b) Upon receipt of an affidavit of an authorized representative of the Purchaser as to the loss, theft, destruction or mutilation of the Subordinated Note or any other Transaction Document which is not of public record, and, in the case of any such mutilation, upon surrender and cancellation of such Subordinated Note or other applicable Transaction Document, Obligors will issue, in lieu thereof, a replacement Subordinated Note or other applicable Transaction Document, dated the date of such lost, stolen, destroyed or mutilated Subordinated Note or other Transaction Document in the same principal amount thereof and otherwise of like tenor.

(c) Within ten (10) Business days (or such later date as the Purchaser may agree in its sole discretion) after any Person becomes a direct or indirect Subsidiary of the Company (other than the Excluded Subsidiaries), cause such Person to (i) become a Subsidiary Guarantor by executing and delivering to the Purchaser a joinder agreement in form and substance satisfactory to the Purchaser, (ii) to deliver to the Purchaser an amendment, unless otherwise covered by the terms of the joinder agreement, to the Pledge Agreement in form and substance satisfactory to the Purchaser to accomplish the pledge of all of the shares of such Subsidiary as security for the Obligations, (iii) to deliver to the Purchaser an amendment, unless otherwise covered by the terms of the joinder agreement, to the Security Agreement in form and substance satisfactory to the Purchaser to join such Subsidiary as a debtor thereunder and to grant a lien on its assets as security for the Obligations, and (iv) deliver to the Purchaser such charter documents, resolutions and favorable opinions of counsel reasonably requested by the Purchaser (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to in clauses (i) through (iii)), all in form, content and scope reasonably satisfactory to Purchaser.

Section 7.11 [Reserved]

Section 7.12 Maintenance of Management.  The Company will cause its business to be continuously managed by its present executive chairman, chief executive officer and chief financial officer or such other individuals serving in such capacities as shall be appointed by the board of directors of the Company. The Company will notify the Purchaser promptly in writing of any change in its board of directors or executive officers.

Section 7.13 [Reserved].

Section 7.14 Registration Rights; Indemnification.

(a) Registration Rights. The Interest Conversion Shares issuable to pay accrued interest under the Subordinated Note pursuant to Section 2.3(b), the Warrant Exercise Shares (as defined 

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in the Warrant Agreement) issuable upon exercise of Warrants, and the Commitment Fee Shares, will be included in an existing Form S-3 Shelf Registration Statement with a resale prospectus through an amendment to such registration statement if permitted or through a new resale registration statement, either of which shall be filed by the Company with the SEC at the Company’s sole expense not later than forty-five (45) days after the Closing Date. The Company shall use its best efforts to cause such amendment to be declared effective by the SEC at the earliest practicable time and to remain effective for the period of the distribution contemplated thereby. The Company shall also (i) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period of the distribution and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement in accordance with the Purchaser’s intended method of disposition, (ii) use its commercially reasonable efforts to register or qualify the securities covered by such registration statement under the securities or blue sky laws of such jurisdictions as the sellers of securities or, in the case of an underwritten public offering, the managing underwriter, may reasonably request; and (iii) notify each seller when the prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to such registration statement or any post-effective amendment, when the same has become effective, of any request by the SEC for amendments or supplements to such registration statement or to amend or to supplement such prospectus or for additional information, of the issuance by the SEC of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings for that purpose.

(b) Indemnification.   To the extent permitted by law, the Company shall indemnify and hold harmless the Purchaser, and any of its members, officers, managers, legal counsel and accountants, underwriter (as defined in the Securities Act), against any expenses, losses, claims, damages or liabilities (joint or several) to which they may become subject under the Securities Act or other applicable federal or state law, insofar as such expenses, losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (each a “Violation”):

(i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto;

(ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading;

(iii) any violation or alleged violation by the Company of the Securities Act, any federal or state securities law or any rule or regulation promulgated under the Securities Act or any federal or state securities law in connection with the offering covered by such registration statement;

and the Company shall reimburse the Purchaser and/or its applicable members, officers, managers, underwriter or controlling person for any legal or other expenses reasonably incurred by it, as incurred, in connection with investigating or defending any such loss, claim, damage liability or action; provided, however, that the Company shall not be liable in any such case to the extent that any such expense, loss, claim, damage or liability arises out of or is based upon an untrue statement or omission made in any such registration statement in reliance upon and in conformity with written information furnished to the Company by the Purchaser expressly for use in preparation thereof.  Lender agrees to promptly notify the Company in writing of any such 

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claim or suit that the pleading, demand letter, or other notice is served upon Lender; and agrees to cooperate in a reasonable manner with the Company and at the Company’s expense, with respect to the defense and disposition of such claim. The Company shall have control of the defense or settlement of any such claim; provided, however, that the Company shall not enter into any settlement that obligates the Purchaser and/or its applicable members, officers, managers, underwriter or controlling person to take any action or incur any expense without such person’s prior written consent, and further provided that the Purchaser and/or its applicable members, officers, managers, underwriter or controlling person shall have the right to be represented by independent counsel of their own choosing, at their own expense, in connection with such claim or suit. If the Company fails to defend such suit, then the Purchaser and/or its applicable members, officers, managers, underwriter or controlling person, through counsel of their own choice, shall, at the expense of the Company, have the right to conduct the defense of such claim; provided however that the Purchaser and/or its applicable members, officers, managers, underwriter or controlling person shall not enter into any settlement that obligates the Company to take any action or incur any expense without the Company’s prior written consent.

Section 7.15 Closing Commitment Fee.  The Company shall issue to the Purchaser 1,650,000 shares of the Company's Common Stock (the "Commitment Fee Shares") as a closing commitment fee, which fee shall be due and payable in full and such shares shall be issued not later than five (5) days after the Closing Date. The Commitment Fee Shares shall be evidenced by an original share certificate duly executed, and validly issued and delivered by the Company to the Purchaser, representing 1,650,000 shares of Common Stock of the Company.

Section 7.16 Post-Closing Covenants. 

(a) The Company shall fully and timely comply with any and all covenants set forth in the Post-Closing Letter Agreement.

(b) Upon the exercise by the Purchaser at any time of any purchase option under the MidCap Intercreditor Agreement, the Company shall promptly (and in any event within five (5) Business Days following demand therefore by the Purchaser) reimburse the Purchaser in full for any prepayment fee or premium paid by the Purchaser to the MidCap Senior Agent in connection with the exercise of any such purchase option. Nothing in the immediately preceding sentence is intended to obligate, nor shall it be construed as obligating, the Purchaser at any time and under any circumstances to exercise such purchase option, it being understood that any decision by the Purchaser to exercise such purchase option shall be made by the Purchaser in its sole and absolute discretion.

Article 8.

NEGATIVE COVENANTS AND FINANCIAL COVeNANTS

For so long as the Subordinated Note or any other Obligations shall remain outstanding (other than contingent obligations to the extent that no claim giving rise thereto has been asserted), unless the Purchaser shall otherwise consent in the manner set forth in Section 10.4, each Obligor agrees to comply with the following covenants:

Section 8.1 Debt; Contingent Obligations.  No Obligor will, or will permit any Subsidiary to, directly or indirectly, create, incur, assume, guarantee or otherwise become or remain directly or indirectly liable with respect to, any Debt, except for Permitted Debt. No Obligor will, or will permit any 

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Subsidiary to, directly or indirectly, create, assume, incur or suffer to exist any Contingent Obligations, except for Permitted Contingent Obligations.

Section 8.2 Liens.  No Obligor will, or will permit any Subsidiary to, directly or indirectly, create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except for Permitted Liens.

Section 8.3 Restricted Distributions.  No Obligor will, or will permit any Subsidiary to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Distribution, except, provided there exists no Default or Event of Default, for Permitted Distributions.

Section 8.4 Restrictive Agreements.  No Obligor will, or will permit any Subsidiary to, directly or indirectly (a) enter into or assume any agreement (other than (w) the Transaction Documents (x) any agreements for purchase money debt permitted under clause (c) of the definition of Permitted Debt and (y) the Existing Senior Secured Debt Documents as in effect on the date hereof) prohibiting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired, or (b) create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind (except as provided by the Existing Senior Secured Debt Documents) on the ability of any Subsidiary to: (i) pay or make Restricted Distributions to any Obligor or any Subsidiary; (ii) pay any Debt owed to any Obligor or any Subsidiary (other than to another Excluded Subsidiary); (iii) make loans or advances to any Obligor or any Subsidiary; or (iv) transfer any of its property or assets to any Obligor or any Subsidiary.

Section 8.5 Payments and Modifications of Subordinated Debt.  No Obligor will, or will permit any Subsidiary to, directly or indirectly (a) declare, pay, make or set aside any amount for payment in respect of any Subordinated Debt, except for payments made in full compliance with and expressly permitted under the Subordination Agreement (other than by a Subordinated Debt Permitted Refinancing), (b) amend or otherwise modify the terms of any Subordinated Debt, except for amendments or modifications made in full compliance with the Subordination Agreement, (c) declare, pay, make or set aside any amount for payment in respect of any Debt hereinafter incurred that, by its terms, or by separate agreement, is subordinated to the Obligations, except for payments made in full compliance with and expressly permitted under the subordination provisions applicable thereto, or (d) amend or otherwise modify the terms of any such Debt if the effect of such amendment or modification is to (i) increase the interest rate or fees on, or change the manner or timing of payment of, such Debt, (ii) accelerate or shorten the dates upon which payments of principal or interest are due on, or the principal amount of, such Debt, (iii) change in a manner adverse to any Obligor or the Purchaser any event of default or add or make more restrictive any covenant with respect to such Debt, (iv) change the prepayment provisions of such Debt or any of the defined terms related thereto, (v) change the subordination provisions thereof (or the subordination terms of any guaranty thereof), or (vi) change or amend any other term if such change or amendment would materially increase the obligations of the obligor or confer additional material rights on the holder of such Debt in a manner adverse to any of the Obligors or the Purchasers. The Obligors shall, prior to entering into any such amendment or modification, deliver to the Purchaser reasonably in advance of the execution thereof, any final or execution form copy thereof.

Section 8.6 Consolidations, Mergers and Sales of Assets; Change in Control.  No Obligor will, or will permit any Subsidiary to, directly or indirectly (a) consolidate or merge or amalgamate with or into any other Person (provided that (i) any Subsidiary may merge into the Company so long as the Company is the surviving entity, (ii) any Domestic Subsidiary may merge with and into any other Domestic Guarantor, (iii) any Foreign Subsidiary may merge with and into any Foreign Guarantor or any Domestic Guarantor or the Company, provided that in the case of a merger of a Foreign Subsidiary with and into a Domestic Guarantor or the Company, such Domestic Guarantor or the Company, as applicable is the 

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surviving entity, and (iv) the Company may consummate the Reincorporation on the Closing Date), or (b) consummate any Asset Dispositions other than Permitted Asset Dispositions. No Obligor will suffer or permit to occur any Change in Control with respect to itself, any Subsidiary or any Guarantor, except any Change of Control with respect to a Subsidiary resulting from a merger or consolidation of the type expressly permitted under clauses (i) through (iii) of the proviso above in this Section 8.6.

Section 8.7 Purchase of Assets, Investments.  No Obligor will, or will permit any Subsidiary to, directly or indirectly (a) acquire or enter into any agreement to acquire any assets other than in the Ordinary Course of Business or as permitted under clause (h) or clause (i) of the definition of Permitted Investments; (b) engage or enter into any agreement to engage in any joint venture or partnership with any other Person; or (c) acquire or own or enter into any agreement to acquire or own any Investment in any Person other than Permitted Investments.

Section 8.8 Transactions with Affiliates.  Except as otherwise disclosed on Schedule 8.8 or as otherwise expressly permitted pursuant to this Agreement with respect to transactions between any Subsidiary and any other Subsidiary or the Company, no Obligor will, or will permit any Subsidiary to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of any Obligor except, provided there exists no Default or Event of Default, for transactions that are disclosed to the Purchaser in advance of being entered into and which contain terms that are no less favorable to the applicable Obligor or any Subsidiary, as the case may be, than those which might be obtained from a third party not an Affiliate of any Obligor (collectively, “Permitted Intercompany Transactions”).  Notwithstanding anything to the contrary herein or in any Schedule, the Company and the Obligors may not pay any management fees to any Subsidiary or other Person that is not an Obligor.

Section 8.9 Modification of Organizational Documents.  No Obligor will, or will permit any Subsidiary to, directly or indirectly, amend or otherwise modify any Organizational Documents of such Person, except for Permitted Modifications.

Section 8.10 Modification of Certain Agreements.  (a) No Obligor will, or will permit any Subsidiary to, directly or indirectly, amend or otherwise modify any Existing Senior Secured Debt Documents (other than the MidCap ABL Credit Agreement and related documents) or any other Material Contract, which amendment or modification in any case: (i) is contrary to the terms of this Agreement or any other Transaction Document; (ii) could reasonably be expected to be materially adverse to the rights, interests or privileges of the Purchaser or their ability to enforce the same; (iii) results in the imposition or expansion in any material respect of any obligation of or restriction or burden on any Obligor or any Subsidiary; or (iv) reduces in any material respect any rights or benefits of any Obligor or any Subsidiaries (it being understood and agreed that any such determination shall be in the discretion of the Purchaser). Each Obligor shall, prior to entering into any amendment or other modification of any of the foregoing documents, deliver to the Purchaser reasonably in advance of the execution thereof, any final or execution form copy of amendments or other modifications to such documents, and such Obligor agrees not to take, nor permit any of its Subsidiaries to take, any such action with respect to any such documents.

(b) No Obligor will, or will permit any Subsidiary to, directly or indirectly, amend or otherwise modify any MidCap ABL Credit Agreement or any related document thereto except for amendments or modifications made in full compliance of the MidCap Intercreditor Agreement.

Section 8.11 Conduct of Business.  No Obligor will, or will permit any Subsidiary to, directly or indirectly, engage in any line of business other than those businesses engaged in on the Effective Date and described on Schedule 8.11 and businesses reasonably related thereto. 

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Section 8.12 Lease Payments.  No Obligor will, or will permit any Subsidiary to, directly or indirectly, incur or assume (whether pursuant to a Guarantee or otherwise) any liability for rental payments except in the Ordinary Course of Business.

Section 8.13 Limitation on Sale and Leaseback Transactions.  No Obligor will, or will permit any Subsidiary to, directly or indirectly, enter into any arrangement with any Person whereby, in a substantially contemporaneous transaction, any Obligor or any Subsidiaries sells or transfers all or substantially all of its right, title and interest in an asset and, in connection therewith, acquires or leases back the right to use such asset.

Section 8.14 Deposit Accounts and Securities Accounts; Payroll and Benefits Accounts.  No Obligor will, or will permit any Subsidiary (except in the case of any Foreign Subsidiary in the Ordinary Course of Business) to, directly or indirectly, establish any new Deposit Account or Securities Account without prior written notice to the Purchaser, and, subject to the terms of the Intercreditor Agreement, unless the Purchaser, such Obligor or such Subsidiary and the bank, financial institution or securities intermediary at which the account is to be opened enter into a Deposit Account Control Agreement or Securities Account Control Agreement prior to or concurrently with the establishment of such Deposit Account or Securities Account. Each Obligor represents and warrants that Schedule 8.14 lists all of the Deposit Accounts and Securities Accounts of each Obligor as of the Effective Date. The provisions of this Section requiring Deposit Account Control Agreements shall not apply to Deposit Accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Obligors’ employees and identified to the Purchaser by the Company as such; provided, however, that at all times that any Obligations remain outstanding, the Obligors shall maintain one or more separate Deposit Accounts to hold any and all amounts to be used for payroll, payroll taxes and other employee wage and benefit payments, and shall not commingle any monies allocated for such purposes with funds in any other Deposit Account.

Section 8.15 Compliance with Anti-Terrorism Laws.  No Obligor will, or will permit any Subsidiary to, directly or indirectly, knowingly enter into any Material Contracts with any Blocked Person or any Person listed on the OFAC Lists. Each Obligor shall immediately notify the Purchaser if such Obligor has knowledge that any Obligor or any of their respective Affiliates or agents acting or benefiting in any capacity in connection with the transactions contemplated by this Agreement is or becomes a Blocked Person or (a) is convicted on, (b) pleads nolo contendere to, (c) is indicted on, or (d) is arraigned and held over on charges involving money laundering or predicate crimes to money laundering. No Obligor will, or will permit any Subsidiary to, directly or indirectly, (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including, without limitation, the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224, any similar executive order or other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224 or other Anti-Terrorism Law.

Section 8.16 Sale or Discount of Receivables.  No Obligor shall sell with recourse or discount or otherwise sell for less than the face value thereof, any of its notes or accounts receivable, except for up to $100,000 in the aggregate in discounts in any Fiscal Year of the Company.

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Section 8.17 Financial Covenants.  Each of the Obligors shall at all times during the term of this Agreement, comply with the following financial covenants and ratios as at the dates and for the fiscal periods indicated below:  

(a) Fixed Charge Coverage Ratio.  Commencing with the Fiscal Month ending December 31, 2016 and until such time as all Obligations are paid, satisfied and discharged in full, the Obligors shall not, as of the end of any Fiscal Month, permit the Fixed Charge Coverage Ratio for the applicable Defined Period (as defined below) most recently ended on or prior to such date to be less than 1.0x. It is hereby agreed that the applicable measurement period (i) for the Fiscal Months ending December 2016, January 2017, February 2017, March 2017, April 2017 and May 2017, respectively, will be from the last day of the Fiscal Month ending in July 2016 through and including such Fiscal Month end date, and (ii) for each Fiscal Month ending on or after June 2017, will be the period of 12 consecutive Fiscal Months (“T12M”) ending on such Fiscal Month end date (each such measurement period herein referred to as a “Defined Period”). 

(b) Minimum Liquidity.  Commencing December 31, 2016 and until such time as all Obligations are paid, satisfied and discharged in full, the Obligors shall, as of the end of any month, have Minimum Liquidity equal to or in excess of $3,000,000; provided, however, if no Event of Default exists (x) upon repayment in full of the MidCap Term Loan, or (y) if the Fixed Charge Ratio, as determined in Section 8.17(a), has been greater than 1.20x for three consecutive Defined Periods, Minimum Liquidity shall no longer be tested under this Section 8.17(b).

(c) Total Leverage Ratio.  Commencing December 31, 12016 and until such time as all Obligations are paid, satisfied and discharged in full, the Obligors will not, as of the end of any Fiscal Month, permit the Total Leverage Ratio, calculated on a trailing T12M basis, to be greater than 5.6 to 1.00. 

(d) Evidence of Compliance. Commencing with the Fiscal Month ending December 31, 2016, Obligors shall furnish to the Purchaser, together with the monthly financial reporting required of Obligors in Section 7.1 hereof, a monthly Compliance Certificate as evidence of Obligors’ compliance with the covenants in this Section 8.17 and evidence that no Event of Default has occurred. The Compliance Certificate shall include, without limitation, (a) a statement and report, on a form approved by the Purchaser, detailing Obligors’ calculations, and (b) if requested by the Purchaser, back-up documentation (including, without limitation, invoices, receipts and other evidence of costs incurred during such fiscal period as the Purchaser shall reasonably require) evidencing the propriety of the calculations.

(e) Additional Defined Terms.  The following additional definitions are hereby appended to Section 1.1 of this Agreement:

“Adjusted EBITDA” means EBITDA (with reference in the definition of EBITDA to “Defined Period” being deemed to be references to “measurement period” for all purposes of this definition) plus (x) EBITDA during the applicable measurement period, but prior to the consummation of such acquisition, of businesses, assets or entities acquired through Permitted Acquisitions or other acquisitions to the extent expressly permitted under this Agreement plus (y) the amount of net “run rate” cost savings, operating expense reductions, other operating improvements and synergies resulting from acquisitions, dispositions, restructurings, cost savings initiatives and other operational initiatives projected by the Company in good faith to be realized after the end of the applicable measurement period but within twelve (12) months after the consummation of the acquisition, disposition, operational change or other applicable event, which is expected to result in such cost savings, expense reductions or synergies (calculated, in the case 

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of each of the foregoing clauses (x) and (y), on a pro forma basis as though such items had been realized on the first day of such period) as a result of actions taken, including consummated acquisitions permitted under this Agreement, by any of the Obligors or any of their Subsidiaries, any operational changes (including, without limitation, operational changes arising out of the modification of contractual arrangements (including, without limitation, renegotiation of lease agreements, utilities and logistics contracts and insurance policies, as well as purchases of leased real properties)) or headcount reductions, net of the amount of actual benefits realized during such period that are otherwise included in the calculation of EBITDA from such actions (it being agreed that “run rate” means the full recurring benefit for a period that is associated with any action taken), provided that (A) a duly completed certificate signed by a Responsible Officer of the Company shall be delivered to the Purchaser together with the Compliance Certificate required to be delivered pursuant to Section 7.1, certifying that (x) such cost savings, operating expense reductions and synergies are reasonably expected and factually supportable, and (y) such actions have been taken and the results with respect thereto have been achieved or are reasonably expected to be achieved within twelve (12) months after the consummation of the acquisition, disposition, operational change or other applicable event, which is expected to result in such cost savings, expense reductions or synergies, (B) no cost savings, operating expense reductions and synergies shall be added pursuant to this subclause (y) to the extent duplicative of any expenses or charges otherwise added to EBITDA, whether through a pro forma adjustment or otherwise, for such period, (C) the aggregate amount of add backs made pursuant to this subclause (y) shall not exceed an amount equal to 50% of EBITDA for the period of four consecutive fiscal quarters most recently ended prior to the determination date and (D) such cost savings, operating expense reductions and synergies are reasonably expected and factually supportable as determined in the Purchaser’s sole discretion.

 

“EBITDA” has the meaning provided in the Compliance Certificate.

“Fixed Charge Coverage Ratio” means the ratio of Operating Cash Flow (as defined in the Compliance Certificate) to Fixed Charges (as defined in the Compliance Certificate) for each Defined Period.

“MidCap Term Loan” means the “Term Loan” as defined in and outstanding under the credit and security agreement described in the definition of MidCap ABL Credit Agreement.

“Minimum Liquidity” means the sum of Revolving Loan Availability (as such term is defined in the MidCap ABL Credit Agreement) plus cash and cash equivalents that are (a) owned by any Obligor, and (b) not subject to any Lien other than a Lien in favor of the Purchaser and the MidCap Senior Agent, excluding, however, any cash and cash equivalents in a specified amount pledged to or held by the MidCap Senior Agent to secure a specified Obligation (as such term is defined in the MidCap ABL Credit Agreement) in that amount. For the avoidance of doubt, cash and cash equivalents that in accordance with this Agreement secure the Subordinated Note or the obligations of the Obligors owing under the MidCap ABL Credit Agreement generally are not excluded except to the extent so specified.

“Total Net Debt” means an amount equal to the total aggregate principal amount of Debt of the Company and its Subsidiaries for borrowed money, including, without limitation, the principal amount of Obligations hereunder, the principal amount of Debt under the Existing Senior Secured Debt Documents, Debt for borrowed money of the type described under clauses (m) through (p) of the definition of Permitted Debt, capitalized leases and the outstanding balance of the Subordinated Debt, net of any cash and cash equivalents that are (a) owned by any Obligor, and (b) not subject to any Lien other than a Lien in favor of the MidCap Senior Agent or 

47

 

Purchaser excluding, however, any cash and cash equivalents in a specified amount pledged to or held by the MidCap Senior Agent or the Purchaser to secure a specified Obligation in that amount. For purposes of calculating the amount of any revolving Debt on any measurement date, the amount of such Debt shall be deemed to be the average daily balance of such Debt during the 30 day period ending immediately prior to such measurement date.

“Total Leverage Ratio” means for any measurement period the ratio of (a) Total Net Debt of Company and its Subsidiaries as of the last date of such period to (b) annualized Adjusted EBITDA of the Company and its Subsidiaries for the trailing twelve month period ending on such date.

Section 8.18 Excluded Subsidiaries.  Unless an Excluded Subsidiary becomes a Guarantor hereunder in accordance with terms of 7.10 of this Agreement, no Obligor shall make any additional Investment (other than any Investments otherwise expressly permitted to be made to an Excluded Subsidiary in the definition of “Permitted Investments”) or other transfer, assignment or conveyance of any type of asset of any kind whatsoever to such Excluded Subsidiary.  

Article 9.

EVENTS OF DEFAULT

Section 9.1 Events of Default.  Each of the following shall constitute an Event of Default, whatever the reason for such event and whether or not it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule, or regulation of any governmental or nongovernmental body:

(a) (i) failure of the Company to pay any principal on any of the Subordinated Note when due; or (ii) failure of the Company to pay any interest on any of the Subordinated Note or to pay any other amount payable hereunder or under any other Note Documents and such failure to pay continues for three days after the due date thereof; or

(b) failure on the part of any Obligor to perform or observe any covenant contained in Article 4, Article 8, Sections 7.1, 7.2(b), 7.3, 7.6, 7.7, 7.10, 7.14, 7.15 or 7.16 hereof; or

(c) failure on the part of any Obligor to perform or observe any other term, covenant or agreement contained in this Agreement or in any other Note Document to which it is a party, not specifically referred to elsewhere in this Article 9, and any such failure remains unremedied for thirty (30) days after the earlier of (i) the discovery thereof by the Company or any other Obligor, or (ii) written notice thereof to the Company by the Purchaser; or

(d) any warranty, representation or other written statement made by or on behalf of any Obligor contained herein or in any other Transaction Document or in any instrument furnished in compliance with or in reference to this Agreement is false or misleading in any material respect on the date as of which made; or

(e) any Obligor shall fail to pay its debts generally as they come due, or shall file any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law, or any other law or laws for the relief of, or relating to, debtors; or

(f) an involuntary petition shall be filed under any bankruptcy statute against any Obligor, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) 

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shall be appointed to take possession, custody, or control of the properties of any Obligor, unless such petition or appointment is set aside or withdrawn or ceases to be in effect within sixty (60) days from the date of said filing or appointment or an order for relief shall be entered in any such involuntary action; or

(g) any Obligor: (i) fails to may any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) in respect of any principal, interest or other amount under any of the Existing Senior Secured Debt Documents, taking into account any applicable grace and cure periods provided for therein (provided, however, if (1) any such failure to pay relates to a borrowing base or appraisal deficiency or to the repurchase of assigned accounts and (2) the applicable creditor is permitting the repayment of such deficiency or repurchase over time, no Event of Default shall arise on account of such failure unless the Obligor subsequently fails to make such repayment when due); or (ii) breaches or fails to maintain compliance with any financial covenant contained in, or fails to perform or observe any other agreement, term or condition contained in, any Existing Senior Secured Debt Documents, or if any other event shall occur and be continuing thereunder, and the effect of such failure or other event as described above in this clause (ii) results in the holders thereof causing the maturity date of the Debt thereunder to be accelerated and become due prior to any stated maturity except to the extent waived by the holders thereof; or

(h) a Change of Control shall occur; or

(i) any order or judgment for the payment of money (unless fully covered by insurance as to which the relevant insurance company has not denied coverage) in excess of $250,000 shall be rendered against any Obligor, and such order or judgment shall continue unsatisfied and unstayed for more than the time permitted by applicable law for an appeal of such judgment to be filed; or

(j) any Obligor shall disavow, revoke or terminate any Transaction Document to which it is a party or shall otherwise challenge or contest in any action, suit or proceeding in any court or before any arbitrator or governmental body the validity or enforceability of this Agreement, any Note Document or any other Transaction Document; or

(k) a warrant or writ of attachment or execution or similar process shall be issued against any property of any Obligor which exceeds, individually or together with all other such warrants, writs and processes since the Effective Date, $250,000 in amount and such warrant, writ or process shall not be discharged, vacated, stayed or bonded for the time permitted by applicable law for an appeal of such judgment to be filed; provided, however, that in the event a bond has been issued in favor of the claimant or other Person obtaining such attachment or writ, the issuer of such bond shall execute a waiver or subordination agreement in form and substance satisfactory to the Purchaser pursuant to which the issuer of such bond subordinates its right of reimbursement, contribution or subrogation to the Obligations and waives or subordinates any Lien it may have on the assets of the Obligors; or

(l) any Obligor is enjoined, restrained or in any way prevented by the order of any court or any administrative or regulatory agency from conducting all or any material part of its business and such order continues for more than the time permitted by applicable law for an appeal of such judgment to be filed; or

(m) the loss, suspension or revocation of, or failure to renew, any license, permit or Material Contract now held or hereafter acquired by any Obligor, if such loss, suspension, revocation or failure to renew could reasonably be expected to have a Material Adverse Effect; or

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(n) any order, judgment or decree is entered against any Obligor decreeing the dissolution or split up of such Obligor and such order remains undischarged or unstayed for a period in excess of sixty (60) days; or

(o) the occurrence of (i) any material default or event of default under the terms of any of the other Warrant Documents, or (ii) any default or event of default under the terms of any Material Contract (other than the Existing Senior Secured Debt Documents), to the extent such default or event of default would give the non-defaulting party thereto the right to terminate, cancel, or suspend its performance under, such contract and such default or event of default under such Material Contract, as the case may be, could reasonably be expected to have a Material Adverse Effect.

Section 9.2 Remedies on Default.  (a)  Upon the occurrence and continuation of an Event of Default (other than an Event of Default described in Section 9.1 (e) and (f)), the Purchaser may, in its sole discretion, but shall not be obligated to, declare all amounts payable under the Subordinated Note and the other Note Documents to be forthwith due and payable, including, without limitation, costs of collection (including reasonable attorneys’ fees if collected by or through an attorney at law or in bankruptcy, receivership or other judicial proceedings) and the same shall thereupon become immediately due and payable without demand, presentment, protest or further notice of any kind, all of which are hereby expressly waived, and may exercise all of its rights and remedies under the Transaction Documents or under applicable law.

(b) Upon the occurrence of any Event of Default set forth in Section 9.1(e) or (f) above, without any notice to the Company or any other act by the Purchaser, all amounts payable under the Subordinated Note and the other Note Documents, including, without limitation, all costs of collection (including reasonable attorneys’ fees if collected by or through an attorney at law or in bankruptcy, receivership or other judicial proceedings) shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Company and each other Obligor.

(c) No remedy herein conferred or reserved is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement and each other Transaction Document or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default, omission or failure of performance hereunder shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to exercise any remedy reserved to the Purchaser in this Agreement or any other Transaction Document, it shall not be necessary to give any notice, other than such notice as may be herein expressly required.

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Article 10.

MISCELLANEOUS

Section 10.1 Notices.  All notices, requests and other communications to any party hereunder shall be in writing (including telecopier) and shall be effective (a) if given by mail, when deposited in the mails or (b) if given by telecopier, when so telecopied.  Notices hereunder shall be mailed or telecopied as follows:

If to the Company or any other Obligor:

Staffing 360 Solutions, Inc. 

3A London Wall Buildings

London Wall

London EC2M 5SY

United Kingdom

Attn:  Brendan Flood, Executive Chairman

Telecopy No.:  ____________

Telephone No.:+44 20 7464 1999

 

with a copy to:

Sheppard Mullin Richter & Hampton LLP

501 W. Broadway, 19th Floor

San Diego, CA 92101

Attn:  Tony Mauriello, Esq.

Telecopy No.: (619) 515-4146   

Telephone No.: (619) 338-6514

 

If to the Purchaser:

Jackson Investment  Group, LLC

2655 Northwinds Parkway

Alpharetta, Georgia 30009

Attn:  Richard L. Jackson

Telecopy Number:   678-495-5356

Telephone Number: 770-643-5605

with a copy to:

Kilpatrick Townsend & Stockton LLP

1100 Peachtree Street, N.E.

Atlanta, GA 30309

Attn:  David Stockton, Esq.

Telecopy Number:  (404) 815-541-3402

Telephone Number:  (404) 815-6444

Section 10.2 No Waiver.  No delay or failure on the part of the Purchaser or any holder of the Subordinated Note and the exercise of any right, power or privilege granted under this Agreement or any other Transaction Document or available at law or in equity, shall impair any such right, power or privilege or be construed as a waiver of any Event of Default or any acquiescence therein.  No single or 

51

 

partial exercise of any such right, power or privilege shall preclude the further exercise of such right, power or privilege.  No waiver shall be valid against the Purchaser unless made in writing and signed by the Purchaser, and then only to the extent expressly specified therein.

Section 10.3 Expenses.

(1) The Company agrees to pay on demand all costs, expenses, taxes and fees (i) incurred by the Purchaser in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Transaction Documents, including the reasonable and documented out-of-pocket fees and disbursements of counsel for the Purchaser, in each case, irrespective of whether or not the Closing has occurred or has failed to occur, (ii) incurred by Purchaser in connection with the preparation, negotiation, execution and delivery of any waiver, amendment or consent by the Purchaser relating to any of the Transaction Documents, including the reasonable costs and fees of counsel for the Purchaser; and (iii) incurred by the Purchaser, including the reasonable costs and fees of its counsel, in connection with the enforcement of the Transaction Documents.

(2) The Company agrees to indemnify, pay and hold the Purchaser and any holder of any of the Subordinated Note and the Warrant and the officers, directors, employees and agents of the Purchaser and such holders (the “Indemnified Persons”) harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind (including, without limitation, the reasonable fees and disbursements of counsel for any Indemnified Person in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnified Person shall be designated a party thereto) which may be incurred by any Indemnified Person, relating to or arising out of the enforcement of this Agreement, the Subordinated Note, the Warrant or any other Transaction Document or any actual or proposed use of proceeds of the Subordinated Note; provided, that no Indemnified Person shall have the right to be indemnified hereunder for its own gross negligence or willful misconduct, as finally determined by a court of competent jurisdiction.

Section 10.4 Amendments, Etc.  Any provision of this Agreement, the Subordinated Note, or any other Note Document to which the Company is a party may be amended or waived, if such amendment or waiver is in writing and is signed by the Company and the Purchaser.  Any provision of any other Note Document to which the Company is not a party may be amended or waived, if such amendment or waiver is in writing and is signed by the Obligor(s) party thereto and the Purchaser. 

Section 10.5 Successors and Assigns.  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, that (a) no Obligor may assign or otherwise transfer any of its rights or obligations under this Agreement, the Subordinated Note or any other Note Document to any Person without the prior written consent of the Purchaser (it being understood that the foregoing restriction is not intended to restrict the consummation of the Reincorporation on the Closing Date), and (b) so long as no Default or Event of Default has occurred and is continuing, any such assignment or transfer by the Purchaser of its rights or obligations under this Agreement or the Subordinated Note shall be subject to the consent of the Company, which consent shall not be unreasonably withheld, delayed or conditioned. Any assignee or transferee of the Purchaser shall have, to the extent of such assignment (unless otherwise provided therein), the same rights, obligations and benefits as it would have if it were the Purchaser hereunder and under the other Note Documents.  Notwithstanding the foregoing, the Purchaser may sell or otherwise grant participations in all or any part of the Subordinated Note, provided, that so long as no Default or Event of Default has occurred and is continuing, any such sale or participation by the Purchaser of its rights or obligations 

52

 

under this Agreement or the Subordinated Note shall be subject to the consent of the Company, which consent shall not be unreasonably withheld, delayed or conditioned.  

Section 10.6 Governing Law.  THIS AGREEMENT AND THE OTHER NOTE DOCUMENTS SHALL (OTHER THAN THE MIDCAP INTERCREDITOR AGREEMENT) BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF LAWS). 

Section 10.7 Survival of Representations and Warranties.  All representations and warranties contained herein or made by or furnished on behalf of the Company in connection herewith shall survive the execution and delivery of this Agreement and the Closing.

Section 10.8 Severability.  If any part of any provision contained in this Agreement shall be invalid or unenforceable under applicable law, said part shall be ineffective to the extent of such invalidity only, without in any way affecting the remaining parts of said provision or the remaining provisions.

Section 10.9 Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one and the same instrument.

Section 10.10 Set-Off.  Upon the occurrence and during the continuation of an Event of Default, each Obligor authorizes the Purchaser, without notice or demand, to apply any indebtedness due or to become due to such Obligor from the Purchaser in satisfaction of any of the indebtedness, liabilities or obligations of such Obligor under this Agreement or under any other Note Document, including, without limitation, the right to set-off against any deposits or other cash collateral of the Company held by the Purchaser or an Affiliate thereof.

Section 10.11 Termination of Agreement.  This Agreement shall terminate upon the payment in full of the Subordinated Note and all other Obligations (subject to Section 4.3 hereof); provided that Sections 3.2, 7.13, 7.14, 10.3, 10.6, 10.12 and 10.13 shall survive the termination of this Agreement.

Section 10.12 Consent to Service of Process.  Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.01.  EACH OF THE OBLIGORS (OTHER THAN THE COMPANY) HEREBY irrevocably ACKNOWLEDGES AND AGREES TO THE APPOINTMENT BY EACH SUCH OBLIGOR OF THE COMPANY AS its NON-EXCLUSIVE AGENT FOR SERVICE OF PROCESS ON BEHALF OF EACH SUCH OBLIGOR IN ANY SUIT, ACTION or PROCEEDING brought by the purchaser arising out of or relating to THIS AGREEMENT, THE SUBORDINATED NOTE or any of the OTHER Transaction documents.  Nothing in this Agreement or any other Transaction Document will affect the right of any party hereto or thereto to serve process in any other manner permitted by law.

Section 10.13 Waiver of Jury Trial.  EACH OF THE PARTIES HERETO KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION, WHETHER IN CONTRACT OR TORT, AT LAW OR EQUITY, BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY OTHER DOCUMENT OR INSTRUMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION 

53

 

HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR PURCHASER ENTERING INTO THIS AGREEMENT.  FURTHER, EACH OBLIGOR HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF PURCHASER, NOR THE PURCHASER’S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT PURCHASER WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION, NO REPRESENTATIVE OR AGENT OF THE PURCHASER, NOR THE PURCHASER’S COUNSEL HAS THE AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION.

Section 10.14 Entire Agreement.  This Agreement, the Subordinated Note, the Warrant and the other Transaction Documents to which the Company is a party, together with any exhibits and schedules attached hereto and thereto, constitute the entire understanding of the parties with respect to the subject matter hereof and thereof, and any other prior or contemporaneous agreements, whether written or oral, with respect hereto or thereto are expressly superseded hereby.  The execution of this Agreement, the Subordinated Note, the Warrant and the other Transaction Documents to which the Company is a party by the Company was not based upon any facts or materials provided by the Purchaser, nor was the Company induced to execute this Agreement, the Subordinated Note, the Warrant or the other Transaction Documents to which the Company is a party by any representation, statement or analysis made by the Purchaser.

Section 10.15 Publicity.  The Company and the Purchaser agree to consult with each other before issuing any press release or public announcement regarding the transactions contemplated hereby or by the other Transaction Agreements, and shall not issue any such press release or public announcement without the consent of the other party, which consent shall not be unreasonably withheld or delayed; provided, however, that while the Company will consult with the Purchaser with regards to any form 8-k filing with respect to the transactions contemplated hereby, nothing herein shall restrict the Company from so filing any such 8-k in accordance with the terms and requirements (including timing requirement) of the SEC.

Section 10.16 Subordination.  Subordination of Notes and Note Guarantees.  The payment of the Subordinated Note and the Subsidiary Guaranty and the rights of the holders thereof are subordinated to the payment of the “Senior Loans” (as defined in the MidCap Intercreditor Agreement) and the rights of the holders thereof, and the Liens granted by the Obligors in favor of the Purchaser to secure the Obligations are subordinated to the Liens granted in favor of the “Agent” and “Senior Lenders” to secure the “Senior Loans” (as such terms are defined in the MidCap Intercreditor Agreement), in each case, upon the terms set forth in the MidCap Intercreditor Agreement.

Section 10.17 Further Assurances.  At any time or from time to time after the date hereof, each party agrees to cooperate with the others, and at the request of any other party, to execute and deliver any further instruments or documents and to take all such further action as the other party may reasonably request in order to evidence or effectuate the consummation of the transactions contemplated hereby and to otherwise carry out the intent of the parties hereunder. Without limiting the foregoing, the Obligors shall and shall do or cause the Merger entity to execute such documents and take such actions as Purchaser may reasonably request in order to perfect and/or maintain the perfection of its Liens on the assets of the Company that will be owned by the Merger Entity following the Reincorporation and to evidence the obligations of the Merger Entity (as successor to the Company following the Reincorporation) to the Purchaser under the Transaction Documents following the Reincorporation.

Section 10.18 Subordination of Intercompany Indebtedness and Management Fees.  Each Obligor (a “Subordinating Obligor”) agrees that the payment of all obligations and indebtedness, whether 

54

 

principal, interest, fees (including, without limitation, any management fees) and other amounts and whether now owing or hereafter arising, owing to such Subordinating Obligor by any other Obligor is expressly subordinated to the payment in full in cash of the Obligations.  If the Purchaser so requests after the occurrence and during the continuance of any Default or Event of Default, any such obligation or indebtedness shall be enforced and performance received by the Subordinating Obligor as trustee for the holders of the Obligations and the proceeds thereof shall be paid over to the holders of the Obligations on account of the Obligations, but without reducing or affecting in any manner the liability of the Subordinating Obligor under this Agreement or any other Note Document.  Without limitation of the foregoing, so long as no Default has occurred and is continuing, the Obligors may make and receive payments with respect to any such obligations and indebtedness, provided, that in the event that any Obligor receives any payment of any such obligations and indebtedness at a time when such  payment is prohibited by this Section, such payment shall be held by such Obligor, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to the Purchaser.

[Signatures on Following Pages]

 

55

 

IN WITNESS WHEREOF, the parties hereto have caused this Note and Warrant Purchase Agreement to be executed by their authorized officers or members, as the case may be, all as of the day and year first above written.

 

	
COMPANY:

	
 
	
 
	
 

	
STaffing 360 solutions, inc.

	
 
	
 
	
 

	
By:
	
 
	
/s/ Brendan Flood

	
Name:
	
 
	
Brendan Flood

	
Title:
	
 
	
Executive Chairman

	
 
	
 
	
 

	
SUBSIDIARY GUARANTORS:

	
 
	
 
	
 

	
FARO RECRUITMENT AMERICA, INC.

	
 
	
 
	
 

	
By:
	
 
	
/s/ Brendan Flood

	
Name:
	
 
	
Brendan Flood

	
Title:
	
 
	
Executive Chairman

	
 
	
 
	
 

	
MONROE STAFFING SERVICES, LLC

	
 
	
 
	
 

	
By:
	
 
	
/s/ Brendan Flood

	
Name:
	
 
	
Brendan Flood

	
Title:
	
 
	
Executive Chairman

	
 
	
 
	
 

	
STAFFING 360 SOLUTIONS LIMITED

	
 
	
 
	
 

	
By:
	
 
	
/s/ Brendan Flood

	
Name:
	
 
	
Brendan Flood

	
Title:
	
 
	
Director

	
 
	
 
	
 

	
LONGBRIDGE RECRUITMENT 360 LIMITED

	
 
	
 
	
 

	
By:
	
 
	
/s/ Brendan Flood

	
Name:
	
 
	
Brendan Flood

	
Title:
	
 
	
Director

	
 
	
 
	
 

 

 

	
THE JM GROUP (IT RECRUITMENT) LIMITED

	
 
	
 
	
 

	
By:
	
 
	
/s/ Brendan Flood

	
Name:
	
 
	
Brendan Flood

	
Title:
	
 
	
Director

	
 
	
 
	
 

	
PEOPLESERVE, INC.

	
 
	
 
	
 

	
By:
	
 
	
/s/ Brendan Flood

	
Name:
	
 
	
Brendan Flood

	
Title:
	
 
	
Executive Chairman

	
 
	
 
	
 

	
PEOPLESERVE PRS, INC.

	
 
	
 
	
 

	
By:
	
 
	
/s/ Brendan Flood

	
Name:
	
 
	
Brendan Flood

	
Title:
	
 
	
Executive Chairman

	
 
	
 
	
 

	
LIGHTHOUSE PLACEMENT SERVICES, INC.

	
 
	
 
	
 

	
By:
	
 
	
/s/ David Faiman

	
Name:
	
 
	
David Faiman

	
Title:
	
 
	
Secretary and Treasurer

	
 
	
 
	
 

	
PURCHASER:

	
 
	
 
	
 

	
JACKSON INVESTMENT GROUP, LLC

	
 
	
 
	
 

	
By:
	
 
	
/s/ Douglas B. Kline

	
Name:
	
 
	
Douglas B. Kline

	
Title:
	
 
	
Chief Financial Office

 

[SIGNATURE PAGE TO THE

SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT]staf-ex102_10.htm

Exhibit 10.2

 

EXECUTION VERSION

WARRANT AGREEMENT 

THIS WARRANT AGREEMENT (this “Agreement”), dated as of January 25, 2017 (the “Effective Date”), is by and between Staffing 360 Solutions, Inc., a Nevada corporation (the “Company”), and Jackson Investment Group, LLC, a Georgia limited liability company (together with its successors and assigns, the “Holder”).

WHEREAS, this Warrant Agreement (the “Warrant”) to purchase shares of the Company’s common stock, par value $0.00001 per share (“Common Stock”), is being issued to the Holder in connection with the Holder’s execution of a Note and Warrant Purchase Agreement for the purchase of a $7,400,000 of 6% Subordinated Secured Note on this date; 

WHEREAS, the Company desires to provide for the form and provisions of the Warrant, the terms upon which they shall be issued and exercised and the respective rights, limitation of rights and immunities of the Company and the Holder;

WHEREAS, all acts and things have been done and performed which are necessary to make the Warrant, when issued, the valid, binding and legal obligations of the Company, and to authorize the execution and delivery of this Agreement.

NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows:

Article I

DEFINITIONS

Section 1.1 Definition of Terms.  As used in this Agreement, the following capitalized terms shall have the following respective meanings:

(a) “Additional Common Stock” has the meaning set forth in Section 4.1 hereof.

(b) “Adjustment Event” has the meaning set forth in Section 4.2 hereof.

(c) “Affiliate” has the meaning set forth in Rule 12b-2 of the Exchange Act.

(d) “Appropriate Officer” has the meaning set forth in Section 2.2(a) hereof.

(e) “Board of Directors” means the Board of Directors of the Company.

(f) “Business Day” means any day other than a Saturday, Sunday or any other day on which The NASDAQ Stock Market is closed for trading.

(g) “Common Stock” has the meaning set forth in the Recitals, and shall include any successor security as a result of any recapitalization, reorganization, reclassification or similar transaction involving the Company.

(h) “Convertible Securities” means any securities (directly or indirectly) convertible into or exchangeable for Common Stock, but excluding Options.

 

 

(i) “Current Sale Price” of the Common Stock on any date of determination means:

(i) if the Common Stock is listed on the New York Stock Exchange or The NASDAQ Stock Market on such date, the average closing sale price per share of the Common Stock (or if no closing sale price is reported, the average of the closing bid and closing ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) for the ten (10) consecutive trading days immediately prior to such date of determination, as reported by the New York Stock Exchange or The NASDAQ Stock Market, as applicable;

(ii) if the Common Stock is not listed on the New York Stock Exchange or The NASDAQ Stock Market on such date, but is listed on another U.S. national or regional securities exchange, the average closing sale price per share of the Common Stock (or if no closing sale price is reported, the average of the high bid and low asked prices or, if more than one in either case, the average of the average high bid and low asked prices) for the ten (10) consecutive trading days immediately prior to such date of determination, as reported in composite transactions for such securities exchange (or, if more than one, the principal securities exchange on which the Common Stock is traded);

(iii) if the Common Stock is not listed on a U.S. national or regional securities exchange, but is traded on an over-the-counter market, the average last quoted sale price for the Common Stock (or, if no sale price is reported, the average of the high bid and low asked price for such date) for the ten (10) consecutive trading days immediately prior to such date of determination, in the over-the-counter market as reported by OTC Markets Group Inc. or other similar organization; or

(iv) in all other cases, as determined in the reasonable judgment of the Board of Directors based on a valuation by a financial advisor with recognized expertise in valuations of companies comparable to the Company.

The Current Sale Price shall be determined without reference to early hours, after hours or extended market trading.

The Current Sale Price shall be appropriately adjusted by the Board of Directors in good faith if the “ex date” (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) occurs during the ten (10) consecutive trading days immediately prior to the day as of which the Current Sale Price is being determined.

For these purposes the term “ex date”, when used:

(i) with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the sale price or bid and ask prices, as applicable, were obtained without the right to receive such issuance or distribution;

(ii) with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective; and

2

 

(iii) with respect to any tender or exchange offer, means the first date on which the Common Stock trades regular way on such exchange or in such market after the expiration time of such offer.

The foregoing adjustments shall be made to the Current Sale Price in accordance with the terms hereof, as may be necessary or appropriate to effectuate the intent of this Agreement and to avoid unjust or inequitable results as determined in good faith by the Board of Directors.

(j) “Date of Issuance” has the meaning set forth in Section 2.1(a) hereof.

(k) “Effective Date” has the meaning set forth in the preamble.

(l) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(m) “Exercise Date” means any date, on or prior to the expiration of the Exercise Period, on which the Holder exercises the right to purchase the Warrant Exercise Shares, in whole or in part, pursuant to and in accordance with the terms and conditions described herein.

(n) “Exercise Form” has the meaning set forth in Section 3.3(d) hereof.

(o) “Exercise Price” has the meaning set forth in Section 3.1 hereof.

(p) “Exercise Period” has the meaning set forth in Section 3.2 hereof.

(q) “Fully Diluted” means all Common Stock outstanding as of the applicable measurement date together with all Common Stock then issuable upon (i) the conversion of Convertible Securities at the then applicable conversion rate, and (ii) the exercise of any Options; provided that, for purposes of clauses (i) and (ii), all conditions to the convertibility and/or exercisability of Convertible Securities and Options of the Company, shall be deemed to have been satisfied.

(r) “Governmental Authority” means any (i) government, (ii) governmental or quasi‐governmental authority of any nature (including any governmental agency, branch, department, official or entity and any court or other tribunal) or (iii) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature, in each case, whether federal, state, local, municipal, foreign, supranational or of any other jurisdiction.

(s) “Holder” has the meaning set forth in the preamble hereof.

(t) “Law” means all laws, statutes, rules, regulations, codes, injunctions, decrees, orders, ordinances, registration requirements, disclosure requirements and other pronouncements having the effect of law of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision or of any Governmental Authority.

(u) “Lighthouse Notes” means that certain “Unsecured Convertible Promissory Note, dated July 8, 2015, made by Staffing 360 Solutions, Inc. in favor of Alison Fogel and David Fogel,” and that certain “Unsecured Convertible Promissory Note, dated July 8, 2015, made by Staffing 360 Solutions, Inc. in favor of Alison Fogel and David Fogel”.

3

 

(v) “Options” means any warrants or other rights or options to subscribe for or purchase Common Stock or Convertible Securities.

(w) “Organic Change” means any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company’s equity securities or assets or other transaction, in each case which is effected in such a way that the holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) cash, stock, securities or other assets or property with respect to or in exchange for Common Stock, other than a transaction which triggers an adjustment pursuant to Sections 4.1, 4.2 or 4.3.

(x) “Person” means any individual, firm, corporation, partnership, limited partnership, limited liability company, association, indenture trustee, organization, joint stock company, joint venture, estate, trust, governmental unit or any political subdivision thereof, or any other entity (as such term is defined in the Bankruptcy Code).

(y) “Pro Rata Repurchase Offer” means any offer to purchase shares of Common Stock by the Company or any Affiliate thereof pursuant to (i) any tender offer or exchange offer subject to Section 13(e) or 14(e) of the Exchange Act or Regulation 14E promulgated thereunder or (ii) any other offer available to substantially all holders of Common Stock to purchase or exchange their shares of Common Stock, in the case of both (i) or (ii), whether for cash, shares of capital stock of the Company, other securities of the Company, evidences of indebtedness of the Company or any other Person, or any other property (including, without limitation, shares of capital stock, other securities or evidences of indebtedness of a Subsidiary), or any combination thereof, effected while the Warrant is outstanding.  The “effective date” of a Pro Rata Repurchase Offer shall mean the date of acceptance of shares for purchase or exchange by the Company under any tender or exchange offer which is a Pro Rata Repurchase Offer or the date of purchase with respect to any Pro Rata Repurchase Offer that is not a tender or exchange offer.

(z) “Registered Holder” has the meaning set forth in Section 2.3(d) hereof.

(aa) “SEC” means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act or the Exchange Act.

(bb) “Securities Act” means the Securities Act of 1933, as amended.

(cc) “Series D Stock Purchase Agreement” means that certain “Stock Purchase Agreement, dated June 24, 2016, by and between Staffing 360 Solutions, Inc. and Discover Growth Fund,” as amended on January 25, 2017.

(dd) “Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, limited liability company or other business entity (other than a corporation), a majority of the partnership, limited liability company or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof.  For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, limited liability company or other business entity if such Person or Persons shall be allocated a majority of partnership, limited liability company or other business entity gains or losses or shall be or 

4

 

control the general partner, the managing member or entity performing similar functions of such partnership, limited liability company or other business entity.

(ee) “Transfer” means any transfer, sale, assignment or other disposition.

(ff) “Warrant Exercise Shares” means the shares of Common Stock issued upon the exercise of the Warrant.

(gg) “Warrant Register” has the meaning set forth in Section 2.3(c) hereof.

(hh) “Warrant” has the meaning set forth in the Recitals.

Section 1.2 Rules of Construction.

(a) The singular form of any word used herein, including the terms defined in Section 1.1 hereof, shall include the plural, and vice versa.  The use herein of a word of any gender shall include correlative words of all genders.

(b) Unless otherwise specified, references to Articles, Sections and other subdivisions of this Agreement are to the designated Articles, Sections and other subdivision of this Agreement as originally executed.  The words “hereof,” “herein,” “hereunder” and words of similar import refer to this Agreement as a whole.

(c) References to “$” are to dollars in lawful currency of the United States of America.

(d) The Exhibits attached hereto are an integral part of this Agreement.

Article II

WARRANTS

Section 2.1 Issuance of Warrant.

(a) On the terms and subject to the conditions of this Agreement and in accordance with the terms of the Note and Warrant Purchase Agreement, on the Effective Date (such date, the “Date of Issuance”), the Company will issue the Warrant to Holder.

(b) The maximum number of shares of Common Stock issuable pursuant to exercise of the Warrant shall be 3,150,000 shares, as such amount may be adjusted from time to time pursuant to this Agreement.

(c) Unless otherwise provided in this Agreement, the Warrant shall be duly executed on behalf of the Company and issued on or as soon as reasonably practicable after the Effective Date. 

Section 2.2 Form of Warrant; Execution of Warrant Certificate.

(a) Subject to Section 5.1 of this Agreement, a Warrant shall be issued through delivery of a Warrant certificate in substantially the form set forth in Exhibit A attached hereto, duly executed on behalf of the Company.  The Warrant certificates may bear such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Agreement and may have such letters, numbers or other marks of identification or designation 

5

 

and such legends or endorsements placed thereon as are consistent with the provisions of this Agreement, or as may be required to comply with any Law or with any rules or regulations made pursuant thereto or with any rules of any securities exchange or as may be determined (in a manner consistent with the provisions of this Agreement) by the Chief Executive Officer or Chief Financial Officer of the Company (each, an “Appropriate Officer”) executing such Warrant certificate, as evidenced by their execution of the Warrant certificates.  Such signatures may be manual or facsimile signatures of such authorized officers and may be imprinted or otherwise reproduced on the Warrant certificate.

(b) In case any Appropriate Officer of the Company who shall have signed the Warrant certificate (either manually or by facsimile signature) shall cease to be such Appropriate Officer before such Warrant certificate so signed shall have been delivered or disposed of by or on behalf of the Company, such Warrant certificate nevertheless may be delivered or disposed of with the same force and effect as though such Appropriate Officer had not ceased to be such Appropriate Officer of the Company; and any Warrant certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Warrant certificate, shall be a proper Appropriate Officer of the Company to sign such Warrant certificate, although at the date of the execution of this Agreement any such person was not such Appropriate Officer.

(c) The Warrant certificate shall be, and shall remain, subject to the provisions of this Agreement until such time as all of the Warrant evidenced thereby shall have been duly exercised or shall have expired or been cancelled in accordance with the terms hereof.

Section 2.3 Registration and Countersignature.

(a) Upon issuance of the Warrant certificate by the Company, the Company shall record such Warrant certificate, including the Registered Holder thereof, in the Warrant Register.  

(b) No Warrant certificate shall be valid for any purpose, and no Warrant evidenced thereby shall be exercisable, until such Warrant certificate has been signed by the manual or facsimile signature of the Company.  Such signature by the Company upon any Warrant certificate shall be conclusive evidence that such Warrant certificate so executed has been duly issued hereunder.

(c) The Company shall keep or cause to be kept, at an office designated for such purpose, books (the “Warrant Register”) in which, subject to such reasonable regulations as it may prescribe, it shall register the Warrant certificates, and exercises, exchanges, cancellations and transfers of outstanding Warrants in accordance with the procedures set forth in Section 5.1 of this Agreement.  

(d) Prior to due presentment for registration of transfer or exchange of the Warrant in accordance with the procedures set forth in this Agreement, the Company may deem and treat the person in whose name such Warrant is registered upon the Warrant Register (the “Registered Holder” of such Warrant) as the absolute owner of such Warrant, for all purposes including, without limitation, for the purpose of any exercise thereof (subject to Section 3.3(d)), any distribution to the Holder thereof and for all other purposes, and the Company shall not be affected by notice to the contrary. 

6

 

Article III

TERMS AND EXERCISE OF WARRANTS

Section 3.1 Exercise Price.  Commencing on a date that is six (6) months following the Date of Issuance, the Warrant shall entitle the Registered Holder thereof, subject to the provisions of this Agreement, the right to purchase from the Company up to 3,150,000 shares of Common Stock at the price of $1.35 per share, subject to adjustment from time to time as provided in Article IV (the “Exercise Price”).

Section 3.2 Exercise Period.  The Warrant may be exercised by the Registered Holder thereof, in whole or in part (but not as to a fractional share of Common Stock), at any time and from time to time commencing six months following the Date of Issuance and prior to 5:00 P.M., New York time on the fifth (5th) anniversary of the Effective Date (the “Exercise Period”); provided that Registered Holder shall be able to exercise its Warrant only if the exercise of such Warrant is exempt from, or in compliance with, any applicable registration requirements of the Securities Act and the applicable securities laws of the states in which the Registered Holder of the Warrant or other persons to whom it is proposed that the Warrant Exercise Shares be issued, on exercise of the Warrant reside.  To the extent that the Warrant or portion thereof is not exercised prior to the expiration of the Exercise Period, it shall be automatically cancelled with no action by any Person, and with no further rights thereunder, upon such expiration.

Section 3.3 Method of Exercise.

(a) In connection with the exercise of the Warrant, (i) the Registered Holder shall surrender such Warrant (or portion thereof) to the Company for the number of Warrant Exercise Shares being exercised, up to the aggregate number of Warrant Exercise Shares for which the Warrant is exercisable and (ii) the Exercise Price shall be paid, at the option of the Holder, in United States dollars by personal, certified or official bank check payable to the Company, or by wire transfer to an account specified in writing by the Company to such Holder, in either case in immediately available funds in an amount equal to the aggregate Exercise Price for such Warrant Exercise Shares as specified in the Exercise Form.

(b) Upon exercise of the Warrant, the Company shall as promptly as practicable calculate and transmit the number of shares of Common Stock issuable in connection with any exercise.  

(c) Subject to the terms and conditions of this Agreement, the Holder of the Warrant may exercise, in whole or in part, such Holder’s right to purchase the Warrant Exercise Shares issuable upon exercise of the Warrant by properly completing and duly executing the exercise form for the election to exercise the Warrant (an “Exercise Form”) substantially in the form of Exhibit B.

(d) Any exercise of the Warrant pursuant to the terms of this Agreement shall be irrevocable as of the date of delivery of the Exercise Form and shall constitute a binding agreement between the Holder and the Company, enforceable in accordance with the terms of this Agreement.

(e) Upon receipt of the Warrant certificate with the properly completed and duly executed Exercise Form pursuant to Section 3.3(c), the Company shall promptly:

7

 

(i) examine the Exercise Form and all other documents delivered to it by or on behalf of the Holder as contemplated hereunder to ascertain whether or not, on their face, such Exercise Form and any such other documents have been executed and completed in accordance with their terms and the terms hereof;

(ii) if an Exercise Form or other document appears, on its face, to have been improperly completed or executed or some other irregularity in connection with the exercise of the Warrant exists, endeavor to inform the appropriate parties (including the person submitting such instrument) of the need for fulfillment of all requirements, specifying those requirements which appear to be unfulfilled;

(iii) resolve any reconciliation problems between the information provided on any Exercise Form received and the information on the Warrant Register; and

(iv) liaise with the transfer agent for the Common Stock for the issuance and registration of the number of shares of Common Stock issuable upon exercise of the Warrant in accordance with the Exercise Form.

The Company reserves the right reasonably to reject any Exercise Form that it determines is not in proper form or for which any corresponding agreement by the Company to exchange would, in the opinion of the Company, be unlawful.  Moreover, the Company reserves the absolute right to waive any of the conditions to any particular exercise of the Warrant or any defects in the Exercise Form(s) with regard to any particular exercise of the Warrant.  

Section 3.4 Issuance of Common Stock.

(a) Upon the effectiveness of any exercise of the Warrant pursuant to Section 3.3, the Company shall, subject to Section 3.6, promptly at its expense, and in no event later than five (5) Business Days after the Exercise Date, cause to be issued as directed by the Holder the total number of whole shares of Common Stock for which the Warrant is being exercised (as the same may be hereafter adjusted pursuant to Article IV) in such denominations as are requested by the Holder as set forth below, registered as directed by the Holder in accordance with the practices and procedures of the Company .

(b) The Warrant Exercise Shares shall be deemed to have been issued at the time at which all of the conditions to such exercise have been fulfilled, and the Holder, or other person to whom the Holder shall direct the issuance thereof, shall be deemed for all purposes to have become the holder of such Warrant Exercise Shares at such time.

Section 3.5 Reservation of Shares.

(a) The Company covenants that during the Exercise Period, the Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of issuance upon the exercise of the Warrant, a number of shares of Common Stock equal to the aggregate Warrant Exercise Shares issuable upon the exercise of the Warrant.  The Company shall use commercially reasonable efforts to take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violating the Company’s governing documents, any agreements to which the Company is a party on the date hereof, any requirements of any national securities exchange upon which shares of Common Stock may be listed or any applicable Laws.  The Company shall not take any action which would 

8

 

cause the number of authorized but unissued shares of Common Stock to be less than the number of such shares required to be reserved hereunder for issuance upon exercise of the Warrant.

(b) The Company covenants that it will take such actions as may be necessary or appropriate in order that all Warrant Exercise Shares issued upon exercise of the Warrant will, upon issuance in accordance with the terms of this Agreement, be fully paid and non-assessable and free from any and all (i) security interests created by or imposed upon the Company and (ii) taxes, liens and charges with respect to the issuance thereof.  If at any time prior to the expiration of the Exercise Period the number and kind of authorized but unissued shares of the Company’s capital stock shall not be sufficient to permit exercise in full of the Warrant, the Company will promptly take such corporate action as may, in the opinion of its counsel, be reasonably necessary (including seeking stockholder approval, if required) to increase its authorized but unissued shares to such number of shares as shall be sufficient for such purposes.  The Company agrees that its issuance of the Warrant shall constitute full authority to its officers who are charged with the issuance of Warrant Exercise Shares to issue Warrant Exercise Shares upon the exercise of the Warrant.  Without limiting the generality of the foregoing, the Company will not increase the stated or par value per share, if any, of the Common Stock above the Exercise Price per share in effect immediately prior to such increase in stated or par value.

(c) The Company represents and warrants to the Holder that the issuance of the Warrant and the issuance of Warrant Exercise Shares upon exercise thereof in accordance with the terms hereof will not constitute a breach of, or a default under, any other material agreements to which the Company is a party on the date hereof.

Section 3.6 Fractional Shares.  Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not be required to issue any fraction of a share of its Common Stock in connection with the exercise of the Warrant, and in any case where the Holder of the Warrant would, except for the provisions of this Section 3.6, be entitled under the terms thereof to receive a fraction of a share upon the exercise of the Warrant, the Company shall, upon the exercise of such Warrant, issue or cause to be issued only the largest whole number of Warrant Exercise Shares issuable upon such exercise (and such fraction of a share will be disregarded, and the Holder shall not have any rights or be entitled to any payment with respect to such fraction of a share); provided that the number of whole Warrant Exercise Shares which shall be issuable upon the contemporaneous exercise of multiple warrants by the Holder shall be computed on the basis of the aggregate number of Warrant Exercise Shares issuable upon exercise of all such warrants by such Holder.

Section 3.7 Close of Books.  The Company shall not close its books against the transfer of the Warrant or any Warrant Exercise Shares in any manner which interferes with the timely exercise of the Warrant.  

Section 3.8 Payment of Taxes.  In connection with the exercise of the Warrant, the Company shall not be required to pay any tax or other charge imposed in respect of any transfer involved in the Company’s issuance and delivery of shares of Common Stock (including certificates therefor) (or any payment of cash or other property in lieu of such shares) to any recipient other than the Holder of the Warrant, and in case of any such tax or other charge, the Company shall not be required to issue or deliver any such shares (or cash or other property in lieu of such shares) until (x) such tax or charge has been paid or an amount sufficient for the payment thereof has been delivered to the Company or (y) it has been established to the Company’s satisfaction that any such tax or other charge that is or may become due has been paid.  

9

 

Article IV

ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF 
WARRANT EXERCISE SHARES

In order to prevent dilution of the rights granted under the Warrant, the Exercise Price shall be subject to adjustment from time to time as provided in this Article IV, and the number of shares of Common Stock issuable upon exercise of the Warrant shall be subject to adjustment from time to time as provided in this Article IV; provided, however, if more than one subsection of this Article IV is applicable to a single event, the subsection shall be applied that produces the largest adjustment and no single event shall cause an adjustment under more than one subsection of this Article IV so as to result in duplication; and provided further, that in no event shall the Exercise Price be adjusted below a price that is less than the consolidated closing bid price of the Common Stock as reported by the NASDAQ Stock Market on the business day immediately prior to the Date of Issuance. Notwithstanding the foregoing, in the event that any adjustment to this Warrant is required pursuant to the provision of this Article IV prior to six months following the Date of Issuance, then and in such event any such adjustment shall be deferred and not be effective until the earlier of (i) the date that all of the shares of Series D Preferred Stock cease to be issued and outstanding or (ii) six months following the Date of Issuance.

Section 4.1 Subdivision or Combination of Common Stock.  In the event that the amount of outstanding Common Stock is increased or decreased by combination (by reverse stock split or reclassification) or subdivision (by any stock split or reclassification) of the Common Stock or any distribution by the Company with respect to the Common Stock in the form of additional Common Stock (“Additional Common Stock”), then, on the effective date of such combination, subdivision or distribution, the number of Warrant Exercise Shares issuable on exercise of the Warrant shall be increased or decreased, as applicable, in proportion to such increase or decrease, as applicable, in the outstanding Common Stock.  Whenever the number of Warrant Exercise Shares purchasable upon the exercise of the Warrant is adjusted pursuant to this Section 4.1, the Exercise Price shall be adjusted (to the nearest cent ($0.01) by multiplying such Exercise Price immediately prior to such adjustment by a fraction (a) the numerator of which shall be the number of Warrant Exercise Shares purchasable upon the exercise of the Warrant immediately prior to such adjustment and (b) the denominator of which shall be the number of Warrant Exercise Shares so purchasable immediately thereafter.

Section 4.2 Distributions.  If the Company at any time after the issuance of the Warrant but prior to the expiration of the Exercise Period fixes a record date for the making of a distribution to all holders of shares of the Common Stock of securities, evidences of indebtedness, assets, cash, rights or warrants (excluding (i) dividends or distributions referred to in Section 4.1 and (ii) any cash dividends made in amounts and at intervals which are within the customary practice for companies that pay recurring cash dividends), then, in each such case, the Exercise Price in effect prior to such record date shall be adjusted thereafter to the price determined by the following formula:

EP1 = EP0  x (CP0 - FV)/CP0

where

	
EP1
	
=
	
the Exercise Price in effect immediately following the application of the adjustments in this Section 4.2;

	
 
	
 
	
 

	
EP0
	
=
	
the Exercise Price in effect immediately prior to the application of the adjustments in this Section 4.2;

	
 
	
 
	
 

10

 

	
CP0

 

 

 

FV

 
	
=

 

 

 

=

 
	
the Current Sale Price of the Common Stock on the last trading day preceding the first date on which the Common Stock trades regular way without the right to receive such distribution; and

 

the amount of cash and/or the fair market value of the securities, evidences of indebtedness, assets, rights or warrants to be so distributed in respect of one share of Common Stock, as determined in the reasonable discretion of the Board of Directors.

 

Such adjustment shall be made successively whenever such a record date is fixed (an “Adjustment Event”).  In such Adjustment Event, the number of Warrant Exercise Shares issuable upon the exercise of the Warrant shall be increased to the number obtained by dividing (x) the product of (1) the number of Warrant Exercise Shares issuable upon the exercise of the Warrant before such adjustment, and (2) the Exercise Price in effect immediately prior to the adjustment by (y) the new Exercise Price immediately following such adjustment.

In the event that such distribution is not so made, the Exercise Price and the number of Warrant Exercise Shares issuable upon exercise of the Warrant then in effect shall be readjusted, effective as of the date when the Board of Directors determines not to distribute such securities, evidences of indebtedness, assets, cash, rights or warrants, as the case may be, to the Exercise Price that would then be in effect and the number of Warrant Exercise Shares that would then be issuable upon exercise of the Warrant if such record date had not been fixed.

Section 4.3 Pro Rata Repurchase Offer of Common Stock.  If at any time after the issuance of the Warrant but prior to the expiration of the Exercise Period the Company consummates a Pro Rata Repurchase Offer of Common Stock, then the Exercise Price shall be reduced to the price determined by the following formula:

EP1 = EP0  x  (OS0 x CP0) – AP 
                       (OS0 – SP) x CP0

where

	
EP1
	
=
	
the Exercise Price in effect immediately following the application of the adjustments in this Section 4.3 (but in no event greater than EP0);

	
 
	
 
	
 

	
EP0
	
=
	
the Exercise Price in effect immediately prior to the application of the adjustments in this Section 4.3;

	
 
	
 
	
 

	
OS0
	
=
	
the number of Fully Diluted shares of Common Stock outstanding immediately before consummation of such Pro Rata Repurchase Offer;

	
 
	
 
	
 

	
CP0
	
=
	
the Current Sale Price of a share of Common Stock on the trading day immediately preceding the first public announcement by the Company or any of its Affiliates of the intent to effect such Pro Rata Repurchase Offer;

	
 
	
 
	
 

11

 

	
AP
	
=
	
the aggregate purchase price (including the fair market value, as determined in the reasonable discretion of the Board of Directors, of any non-cash consideration included therein) paid for the shares of 

Common Stock in the Pro Rata Repurchase Offer; and

	
 
	
 
	
 

	
SP
	
=
	
the number of shares of Common Stock so repurchased in the Pro Rata Repurchase Offer.

 

In such event, the Warrant Exercise Shares issuable upon the exercise of the Warrant shall be increased to the number obtained by dividing (x) the product of (1) the Warrant Exercise Shares issuable upon the exercise of the Warrant before such adjustment, and (2) the Exercise Price in effect immediately prior to the adjustment by (y) the new Exercise Price immediately following such adjustment. For the avoidance of doubt, no increase to the Exercise Price or decrease in the Warrant Exercise Shares issuable upon exercise of the Warrant shall be made pursuant to this Section 4.3.

 

Section 4.4 Reorganization, Reclassification, Consolidation, Merger or Sale.  In connection with any Organic Change prior to the expiration of the Exercise Period, the Holder’s right to receive Warrant Exercise Shares upon exercise of the Warrant shall be converted into the right to acquire and receive, upon exercise of the Warrant, such cash, stock, securities or other assets or property as would have been issued or payable to holders of Common Stock in such Organic Change (if the Holder had exercised such Warrant immediately prior to such Organic Change) with respect to or in exchange, as applicable, for the number of Warrant Exercise Shares that would have been issued upon exercise of the Warrant, if the Warrant had been exercised immediately prior to the occurrence of such Organic Change.  The Company shall not effect any Organic Change unless, prior to the consummation thereof, the surviving Person (if other than the Company) resulting from such Organic Change, shall assume, by written instrument substantially similar in form and substance to this Agreement in all material respects (including with respect to the provisions of Article IV), the obligation to deliver to the Holder such cash, stock, securities or other assets or property which, in accordance with the foregoing provision, the Holder shall be entitled to receive upon exercise of the Warrant.  The provisions of this Section 4.4 shall similarly apply to successive Organic Changes.  

Section 4.5 Certain Issuances of Common Stock.  If the Company shall, at any time or from time to time after the Effective Date, issue any shares of Common Stock pursuant to the conversion features in the Series D Stock Purchase Agreement or the Lighthouse Notes, in either case for consideration per share less than $2.50 per share, with consideration per share being equal to the aggregate payment obligations being relieved under the Lighthouse Notes that are being converted, or the aggregate amount of the Series D principal and dividends being relieved under the Series D Purchase Agreement, in either case divided by the number of shares of Common Stock being issued in such conversion, then immediately upon such issuance, the Exercise Price in effect immediately prior to such issuance shall be reduced (and in no event increased) to an Exercise Price determined by the following formula:

EP1 = EP0  x  (OS0 x EP0) + AP 
                       (OS0 + NS) x EP0

where

	
EP1
	
=
	
the Exercise Price in effect immediately following the adjustments in this Section 4.5 (but in no event greater than EP0);

	
 
	
 
	
 

	
EP0
	
=
	
the Exercise Price in effect immediately prior to the application of the adjustments in this Section 4.5;

	
 
	
 
	
 

12

 

	
OS0
	
=
	
the number of Fully Diluted Shares of Common Stock outstanding immediately before the issuance described in this Section 4.5; 

	
 
	
 
	
 

	
AP
	
=
	
the aggregate payment obligations relieved under the Lighthouse Note(s) or the principal and dividend obligations being relieved under the Series D Purchase Agreement, as applicable, upon the conversion and issuance described in this Section 4.5; and

	
 
	
 
	
 

	
NS
	
=
	
the aggregate number of shares of Common Stock issued by the Company in such conversion transaction.

 

In such event, the Warrant Exercise Shares issuable upon the exercise of the Warrant shall be increased to the number obtained by dividing (x) the product of (1) the Warrant Exercise Shares issuable upon the exercise of the Warrant before such adjustment, and (2) the Exercise Price in effect immediately prior to the adjustment by (y) the new Exercise Price immediately following such adjustment. For the avoidance of doubt, no increase to the Exercise Price or decrease in the Warrant Exercise Shares issuable upon exercise of the Warrant shall be made pursuant to this Section 4.5.

Section 4.6 Notice of Adjustments.  Whenever the number and/or kind of Warrant Exercise Shares or the Exercise Price is adjusted as herein provided, the Company shall (i) prepare or cause to be prepared a written statement setting forth the adjusted number and/or kind of shares issuable upon the exercise of Warrant and the Exercise Price of such shares after such adjustment, the facts requiring such adjustment and the computation by which adjustment was made, and (ii) provide such written statement  to each Holder in the manner provided in Section 7.2 below, together with notice of the record date or the effective date of the event.  Failure to give such notice, or any defect therein, shall not affect the legality or validity of such event.  

Section 4.7 Deferral or Exclusion of Certain Adjustments; Par Value.  No adjustment to the Exercise Price or the number of Warrant Exercise Shares shall be required hereunder unless such adjustment together with other adjustments carried forward as provided below, would result in an increase or decrease of at least one percent (1%) of the applicable Exercise Price or the number of Warrant Exercise Shares; provided that any adjustments which by reason of this Section 4.6 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. Subject to Section 3.5(b), no adjustment need be made for a change in the par value of the shares of Common Stock. All calculations under this Section shall be made to the nearest one one-thousandth (1/1,000) of one cent ($0.01) or to the nearest one one-thousandth (1/1,000) of a share, as the case may be.  If an adjustment in Exercise Price made hereunder would reduce the Exercise Price to an amount below par value of the Common Stock, then such adjustment in Exercise Price made hereunder shall reduce the Exercise Price to the par value of the Common Stock.

Section 4.8 Form of Warrant After Adjustments.  The form of Warrant certificate need not be changed because of any adjustments in the Exercise Price or the number and/or kind of shares issuable upon exercise of the Warrant, and the Warrant certificate theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated therein, as initially issued; provided that such adjustments in the Exercise Price or the number and/or kind of shares issuable upon exercise of the Warrant pursuant to the terms of this Agreement shall nonetheless have effect upon exercise of the Warrant.  The Company, however, may at any time in its sole discretion make any change in the form of Warrant certificate that it may deem appropriate to give effect to such adjustments and that does not affect the substance of the Warrant certificate or this Agreement, and any Warrant certificate thereafter issued, whether in exchange or substitution for an outstanding Warrant certificate, may be in the form so changed.

13

 

Article V

TRANSFER 
OF WARRANTS

Section 5.1 Registration of Transfers.

(a) Transfer of Warrant.  When the Warrant certificate is presented to the Company with a written request to register the Transfer of such Warrant, the Company shall register the Transfer, and shall issue such new Warrant certificates, as requested if its customary requirements for such transactions are met, provided, that (A) the Company shall have received (x) a written instruction of Transfer in form satisfactory to the Company, duly executed by the Registered Holder thereof or by its  attorney, duly authorized in writing along with evidence of authority that may be required by the Company, including but not limited to, a signature guarantee from an eligible guarantor institution participating in a signature guarantee program approved by the Securities Transfer Association, and (y) surrender of the Warrant certificate representing same duly endorsed for Transfer, and (B) if reasonably requested by the Company, the Company shall have received a written opinion of counsel reasonably acceptable to the Company that such transfer is in compliance with the Securities Act.

(b) Restrictions on Transfer.  No Warrant or Warrant Exercise Shares shall be sold, exchanged or otherwise Transferred in violation of the Securities Act or state securities Laws or the Company’s articles of incorporation. If the Holder purports to Transfer the Warrant to any Person in a transaction that would violate the provisions of this Section 5.1(b), such Transfer shall be void ab initio and of no effect.

Section 5.2 Obligations with Respect to Transfers of Warrant.

(a) All warrants issued upon any registration of Transfer of the Warrant shall be the valid obligations of the Company, entitled to the same benefits under this Agreement as the Warrant surrendered upon such registration of Transfer. 

(b) Subject to Section 5.1(a), and this Section 5.2, the Company shall upon receipt of all information required to be delivered hereunder, from time to time register the Transfer of any outstanding Warrant in the Warrant Register, upon delivery by the Registered Holder thereof, of the Warrant certificate representing such Warrant, properly endorsed for transfer, by the  Registered Holder thereof or by the duly appointed legal representative thereof or by a duly authorized attorney; and upon any such registration of Transfer, a new Warrant certificate shall be issued to the transferee.

Section 5.3 Fractional Warrant.  The Company shall not effect any registration of Transfer which will result in the issuance of a fraction of a warrant.

Section 5.4 Restricted Warrant; Legends.  Notwithstanding anything contained in this Agreement, if the Company, in its sole discretion, determines that the Holder of the Warrant may be deemed an “underwriter” under the Securities Act, the Company shall cause such Warrant certificate to be issued bearing a legend in substantially the following form:  

THE WARRANT REPRESENTED BY THIS CERTIFICATE IS ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE 

14

 

“SECURITIES ACT”) AND HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OR OTHER APPLICABLE SECURITIES LAWS.  THESE WARRANTS (AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE THEREOF) MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, OR OTHERWISE DISPOSED EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION THEREUNDER.

The Warrant Exercise Shares issued upon exercise of any such Warrant shall be issued in the form of registered stock certificates bearing a legend indicating that transfer may be restricted under United States federal and state securities laws or in the form of an electronic entry on the stock register maintained by the transfer agent for the Common Stock with a notation to a similar effect.

The Holder (or its transferee, as applicable) of the Warrant or Warrant Exercise Shares, as applicable, shall be entitled to receive from the Company, without expense, new securities of like tenor not bearing the restrictive legend set forth above when (a) the Warrant or Warrant Exercise Shares, as applicable, shall have been (i) effectively registered under the Securities Act and disposed of in accordance with a registration statement covering such securities or (ii) disposed of pursuant to the provisions of Rule 144 or any comparable rule under the Securities Act or (b) when, in the written reasonable opinion of independent counsel for the Holder (which counsel shall be experienced in Securities Act matters and which counsel and opinion shall be reasonably satisfactory to the Company), such restrictions are no longer required in order to insure compliance with the Securities Act (including, without limitation, when the Warrant or Warrant Exercise Shares, as applicable, could be sold in a single transaction pursuant to Rule 144 without restriction as to volume or manner of sale).

Article VI

OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS OF WARRANTS

Section 6.1 No Rights or Liability as Stockholder.  Nothing contained herein shall be construed as conferring upon the Holder or his, her or its transferees the right to vote or to receive dividends or to consent or to receive notice as a stockholder in respect of any meeting of stockholders for the election of directors of the Company or of any other matter, or any rights whatsoever as stockholders of the Company.  The vote or consent of the Holder shall not be required with respect to any action or proceeding of the Company and the Holder shall not have any right not expressly conferred hereunder or under, or by applicable Law with respect to, the Warrant held by such Holder.  The Holder, by reason of the ownership or possession of the Warrant, shall have no right to receive any cash dividends, stock dividends, allotments or rights or other distributions paid, allotted or distributed or distributable to the holders of Common Stock prior to, or for which the relevant record date preceded, the Exercise Date of the Warrant. No provision thereof and no mere enumeration therein of the rights or privileges of the Holder shall give rise to any liability of such Holder for the Exercise Price hereunder or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

Section 6.2 Notice to Registered Holder.  The Company shall give notice to the Registered Holder pursuant to Section 7.2 hereof, if at any time prior to the expiration or exercise in full of the Warrant, any of the following events shall occur:

(a) the payment of any dividend payable in any securities upon shares of Common Stock or the making of any distribution (other than a regular quarterly cash dividend) to all holders of Common Stock;

15

 

(b) the issuance to all holders of Common Stock of any additional shares of Common Stock or of rights, options or warrants to subscribe for or purchase Common Stock or of any other subscription rights, options or warrants;

(c) a Pro Rata Repurchase Offer;

(d) an Organic Change;

(e) a dissolution, liquidation or winding up of the Company; or

(f) any the occurrence of any other event that would result in an adjustment to the Exercise Price or the number of Warrant Exercise Shares issuable upon exercise of the Warrant under Article IV.

Such giving of notice shall be initiated at least ten (10) days prior to the date fixed as the record date or the date of closing of the Company’s stock transfer books for the determination of the stockholders entitled to such dividend, distribution or subscription rights, or of the stockholders entitled to vote on such Organic Change, dissolution, liquidation or winding up or the proposed effective date of a Pro Rata Repurchase Offer or any other event that would result in an adjustment to the Exercise Price or the number of Warrant Exercise Shares issuable upon exercise of the Warrant under Article IV.  Such notice shall specify such record date or the date of closing the stock transfer books or proposed effective date, as the case may be.  Failure to provide such notice shall not affect the validity of any action taken.  For the avoidance of doubt, no such notice (or the failure to provide it to any Holder) shall supersede or limit any adjustment called for by Article IV by reason of any event as to which notice is required by this Section.

Section 6.3 Lost, Stolen, Mutilated or Destroyed Warrant Certificates

.  If any Warrant certificate is lost, stolen, mutilated or destroyed, the Company may issue and deliver, in exchange and substitution for and upon cancellation of the mutilated Warrant certificate, or in lieu of and substitution for the Warrant certificate lost, stolen or destroyed, a new Warrant certificate of like tenor.  The Company shall require evidence reasonably satisfactory to it of the loss, theft or destruction of such Warrant certificate, and an open penalty surety bond satisfactory to it and holding the Company harmless, absent notice to the Company that such certificates have been acquired by a bona fide purchaser.  Applicants for such substitute Warrant certificates shall also comply with such other regulations and pay such other charges as the Company may require.

Section 6.4 Cancellation of Warrant.  If the Company shall purchase or otherwise acquire the Warrant, such Warrant shall be cancelled and retired by appropriate notation on the Warrant Register.

Article VII

MISCELLANEOUS PROVISIONS

Section 7.1 Binding Effects; Benefits.  This Agreement shall inure to the benefit of and shall be binding upon the Company and the Holder and their respective heirs, legal representatives, successors and assigns.  Nothing in this Agreement, expressed or implied, is intended to or shall confer on any person other than the Company and the Holder, or their respective heirs, legal representatives, successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

Section 7.2 Notices.  Unless otherwise provided, any notice or other communication by the Company required or which may be given hereunder to Holder shall be in writing and shall be sent by 

16

 

certified or regular mail (return receipt requested, postage prepaid), by private national courier service, by personal delivery or by facsimile transmission.  Such notice or communication shall be deemed given (i) if mailed, two (2) days after the date of mailing, (ii) if sent by national courier service, one (1) Business Day after being sent, (iii) if delivered personally, when so delivered, or (iv) if sent by facsimile transmission, on the Business Day after such facsimile is transmitted, in each case as follows:

if to the Company, to:

Staffing 360 Solutions, Inc.

641 Lexington Avenue 

27th Floor, Suite 2701

New York, NY 10022

Email: brendan.flood@staffing360solutions.com

Telephone: (646) 507-5710

Attention: Brendan Flood

 

with a copy (which shall not constitute notice) to:

Staffing 360 Solutions, Inc.

641 Lexington Avenue 

27th Floor, Suite 2701

New York, NY 10022

Email: david.faiman@staffing360solutions.com

Telephone: (646) 507-5710
  Attention: David Faiman

 

with copies (which shall not constitute notice) to:

Sheppard Mullin Richter & Hampton LLP

30 Rockefeller Plaza

New York, NY 10112-0015
Facsimile: (212) 655-1729
Attention: Richard Friedman

 

if to Registered Holder, at their addresses as they appear in the Warrant Register and, if different, at the addresses appearing in the records of the transfer agent or registrar for the Common Stock.

Section 7.3 Persons Having Rights under this Agreement.  Nothing in this Agreement expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the parties hereto and the Holder, any right, remedy, or claim under or by reason of this Agreement or of any covenant, condition, stipulation, promise, or agreement hereof.  All covenants, conditions, stipulations, promises, and agreements contained in this Agreement shall be for the sole and exclusive benefit of the parties hereto, their successors and assigns and the Holder.

Section 7.4 Examination of this Agreement.  A copy of this Agreement, and of the entries in the Warrant Register relating to the Registered Holder’s Warrant, shall be available at all reasonable times at the offices of the Company, for examination by the Registered Holder of the Warrant.

17

 

Section 7.5 Counterparts.  This Agreement may be executed in any number of original or facsimile or electronic PDF counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

Section 7.6 Effect of Headings.  The section headings herein are for convenience only and are not part of this Agreement and shall not affect the interpretation hereof.

Section 7.7 Supplements, Amendments and Waivers.  This agreement may not be amended except in writing signed by the Company and the Holder.  Any supplement, amendment or waiver effected pursuant to and in accordance with the provisions of this Section 7.7 shall be binding upon the Holder and upon each future holder and the Company.  In the event of any supplement, amendment or waiver, the Company shall give prompt notice thereof to the Registered Holder.  

Section 7.8 No Inconsistent Agreements; No Impairment.  The Company shall not, on or after the date hereof, enter into any agreement with respect to its securities which conflicts with the rights granted to the Holder in this Agreement.  The Company represents and warrants to the Holder that the rights granted hereunder do not in any way conflict with the rights granted to holders of the Company’s securities under any other agreements.  The Company shall not, by amendment of its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of the Warrant and in the taking of all such action as may be necessary in order to preserve the exercise rights of the Holder against impairment.

Section 7.9 Integration/Entire Agreement.  This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the Company and the Holder in respect of the subject matter contained herein.  There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the Warrant.  This Agreement supersedes all prior agreements and understandings between the parties with respect to the Warrant.

Section 7.10 Governing Law; Exclusive Jurisdiction.  This Agreement and the Warrant issued hereunder shall be deemed to be a contract made under the Laws of the State of New York and for all purposes shall be governed by and construed in accordance with the Laws of such State.  Each party hereto consents and submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and of the U.S. federal courts located in the Southern District of New York in connection with any action or proceeding brought against it that arises out of or in connection with, that is based upon, or that relates to this Agreement or the transactions contemplated hereby.  In connection with any such action or proceeding in any such court, each party hereto hereby waives personal service of any summons, complaint or other process and hereby agrees that service thereof may be made in accordance with the procedures for giving notice set forth in Section 7.2 hereof.  Each party hereto hereby waives any objection to jurisdiction or venue in any such court in any such action or proceeding and agrees not to assert any defense based on forum non conveniens or lack of jurisdiction or venue in any such court in any such action or proceeding.

Section 7.11 Termination.  This Agreement will terminate on the earlier of (i) such date when the Warrant has been exercised with respect to all shares subject thereto, or (ii) the expiration of the Exercise Period.  

Section 7.12 Waiver of Trial by Jury.  Each party hereto, including the Holder by its receipt of the Warrant, hereby irrevocably and unconditionally waives the right to a trial by jury in any action, suit, 

18

 

counterclaim or other proceeding (whether based on contract, tort or otherwise) arising out of, connected with or relating to this Agreement and the transactions contemplated hereby.

Section 7.13 Remedies.  The Company hereby agrees that, in the event that the Company violates any provisions of the Warrants (including the obligation to deliver shares of Common Stock upon the exercise thereof), the remedies at law available to the Holder of the Warrant may be inadequate.  In such event, the Holder shall have the right, in addition to all other rights and remedies that such Holder may have, to specific performance and/or injunctive or other equitable relief to enforce the provisions of this Agreement and the Warrant.

Section 7.14 Severability.  In the event that any one or more of the provisions contained in this Agreement, or the application thereof in any circumstances, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provisions in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.

Section 7.15 Confidentiality.  The Company agrees that the Warrant Register and personal, non-public warrant holder information, which are exchanged or received pursuant to the negotiation or carrying out of this Agreement, shall remain confidential and shall not be voluntarily disclosed to any other person, except as may be required by law, including, without limitation, pursuant to subpoenas from state or federal government authorities (e.g., in divorce and criminal actions), or pursuant to the requirements of the SEC.

Section 7.16 Warrantholder Actions.  

(a) Any notice, consent to amendment, supplement or waiver provided by this Agreement to be given by the Holder (an “act”) may be evidenced by an instrument signed by the Holder delivered to the Company.

(b) Any act by the Holder of the Warrant binds the Holder and every subsequent Holder of the Warrant certificate that evidences the same Warrant of such acting Holder, even if no notation thereof appears on the Warrant certificate.  Subject to paragraph (c), the Holder may revoke an act as to the Warrant, but only if the Company receives the notice of revocation before the date the amendment or waiver or other consequence of the act becomes effective.

(c) The Company may, but is not obligated to, fix a record date for the purpose of determining the holder entitled to act with respect to any amendment or waiver or in any other regard.  If a record date is fixed, the Person that was the holder at such record date and only such Person will be entitled to act, or to revoke any previous act, whether or not such Person continue to be holder after the record date.  

[Signature Page Follows]

 

 

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IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by the undersigned parties hereto as of the date first above written.

 

		
	
Company:

	
 

	
Staffing 360 Solutions, Inc.

	
 
	
 

	
By:
	
/s/ Brendan Flood

	
 
	
Name: Brendan Flood

	
 
	
Title:   Executive Chairman

 

		
	
Accepted and agreed:

	
 

	
Jackson Investment GROUP, LLC

	
 
	
 

	
By:
	
/s/ Douglas B. Kline  

	
 
	
Name:  Douglas B. Kline

	
 
	
Title:   Chief Financial Officer

 

 

 

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EXHIBIT A

THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE (INCLUDING THE SECURITIES ISSUABLE UPON EXERCISE OF THE WARRANT) ARE SUBJECT TO THE WARRANT AGREEMENT DATED AS OF JANUARY [●], 2017, BY AND BETWEEN THE COMPANY AND THE HOLDER (THE “WARRANT AGREEMENT”).

		
	
Certificate Number  ________________
	
Warrant   

	
 
	
CUSIP  [●]

	
This certifies that
	
 

	
is the holder of
	
 

 

WARRANTS TO PURCHASE COMMON STOCK OF
STAFFING 360 SOLUTIONS, INC.

transferable on the books of the Company by the holder hereof in person or by duly authorized attorney upon surrender of the certificate properly endorsed.  The Warrant entitles the holder and its registered assigns (collectively, the “Registered Holder”)  to purchase by exercise from Staffing 360 Solutions, Inc., a Nevada corporation (the “Company”), subject to the terms and conditions hereof, at any time before 5:00 p.m., Eastern time, on January [__], 2022, three million, one hundred fifty thousand (3,150,000) fully paid and non-assessable shares of common stock, par value $0.00001 per share (“Common Stock”) of the Company at the Exercise Price (as defined in the Warrant Agreement).  The Exercise Price and the number and kind of shares purchasable hereunder are subject to adjustment from time to time as provided in Article IV of the Warrant Agreement.  The initial Exercise Price shall be $1.35 per share.

WITNESS the facsimile seal of the Company and the facsimile signatures of its duly authorized officers.

			
	
 
	
 
	
DATED

	
___________________

Authorized Officer

 
	
 
	
 

	
Attest:
	
 
	
 

	
_____________________

Secretary
	
 
	
 

 

 

 

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FORM OF REVERSE OF WARRANT

[●]

The Warrant evidenced by this Warrant certificate is a duly authorized issuance of a Warrant to purchase 3,150,000 shares of Common Stock issued pursuant to the Warrant Agreement, as dated January [●], 2017 between Staffing 360 Solutions, Inc. (the “Company”) and Jackson Investment Group, LLC (together with its successors and assigns, the “Holder” and the agreement, the “Warrant Agreement”), a copy of which may be inspected at the office of the Company.  The Warrant Agreement is incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the Registered Holder of the Warrant.  All capitalized terms used in this Warrant certificate but not defined that are defined in the Warrant Agreement shall have the meanings assigned to them therein.

The Company shall not be required to issue fractions of shares of Common Stock or any certificates that evidence fractional shares of Common Stock.  No Warrant may be sold, exchanged or otherwise transferred in violation of the Securities Act or state securities laws.  The Warrant represented by this Warrant certificate does not entitle the Registered Holder to any of the rights of a stockholder of the Company.  The Company may deem and treat the Registered Holder hereof as the absolute owner of this Warrant certificate (notwithstanding any notation of ownership or other writing hereon made by anyone) for the purpose of any exercise hereof and for all other purposes, and the Company shall not be affected by any notice to the contrary.

 

 

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EXHIBIT B

EXERCISE FORM FOR REGISTERED HOLDER HOLDING WARRANT CERTIFICATE

(To be executed upon exercise of Warrant)

The undersigned Registered Holder of this Warrant certificate, being the holder of Warrants issued by  Staffing 360 Solutions, Inc. (the “Company”) pursuant to that certain Warrant Agreement, as dated January [●], 2017 (the “Warrant Agreement”), by and between the Company and Jackson Investment Group, LLC (the “Holder”), hereby irrevocably elects to exercise the Warrant indicated below, for the purchase of the number of shares of Common Stock, par value $0.00001 per share (“Common Stock”) indicated below and (check one):

☐ herewith tenders payment for _______ of the Warrant Exercise Shares to the order of the Company in the amount of $_________ in accordance with the terms of the Warrant Agreement; or

The undersigned requests that the Warrant Exercise Shares be issued in the name of the undersigned Holder or as otherwise indicated below:

Name  

Address 

 

If said number of Warrant Exercise Shares shall not be all the Warrant Exercise Shares issuable upon exercise of the Warrant, the undersigned requests that a new Warrant certificate representing the balance of such Warrant shall be issued in the name of the undersigned Holder or as otherwise indicated below and be delivered to the address indicated below:

Name  

Address 

 

Delivery Address (if different)

 

 

Dated: ____________, 20___ HOLDER

 

By  ____________________

Name:

Title:

 

 

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