UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): April 26, 2013

 

STAFFING 360 SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   333-169152   68-0680859
(State or other jurisdiction of
incorporation)
  (Commission File Number)   (IRS Employer Identification No.)

 

641 Lexington Ave

Suite 1526

New York, NY 10022

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: 212.634.6410

 

N/A

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see  General Instruction A.2. below):

 

  ¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

  ¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)

 

  ¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))

 

  ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))

 

 
 

  

Item 2.01. Completion of Acquisition or Disposition of Assets.

 

On April 26, 2013, Staffing 360 Solutions, Inc. (the “Company” or “we”) consummated (the “Closing”) the acquisition (the “Acquisition”) of 100% of the issued and outstanding stock of The Revolution Group, Ltd. (“TRG”), pursuant to a Stock Purchase Agreement (the “Purchase Agreement”) dated March 21, 2013, entered into by and among the Company, TRG and the shareholders of TRG (the “TRG Shareholders”).

 

The aggregate consideration to be paid by the Company to the TRG Shareholders for the Acquisition is $1,665,849 (the “Purchase Price”), payable as follows:

 

(i) Cash Portion of the Purchase Price at Closing . At the Closing, the Company made cash payments to the TRG Shareholders in an aggregate of $896,996.

 

(ii) Purchaser Shares . At the Closing, the Company paid the remaining $768,853 of the Purchase Price by issuing to the TRG Shareholders of 512,569 restricted shares of the Company’s common stock, par value $0.0001 per share (the “Purchaser Shares”) at a price of $1.50 per share.

 

In addition to the Purchase Price, the Company will pay to the Shareholders performance based compensation in an amount in cash equal to the following percentages of TRG’s Gross Profit from the Closing date through the end of the sixteenth (16th) quarter following the Closing Date (the “Earn Out Period”) not to exceed a total of ($1,500,000):

 

(i) 20% of the amount of TRG’s gross profit up to and including an aggregate of $5,000,000 during the Earn Out Period; plus

 

(ii) 7% of the amount of TRG’s gross profit, if any, in excess of an aggregate of $5,000,000 during the Earn Out Period.

 

As a result of the Acquisition, TRG became a wholly-owned subsidiary of the Company. The description of the Purchase Agreement is qualified in its entirety by reference to the complete text of the Purchase Agreement, which was attached as Exhibit 10.1 to this Current Report on Form 8-K.

 

Description of TRG Business.

 

Founded in 1999, prior to the Acquisition, TRG was a privately held staffing services corporation and consulting company with competency in various information technology fields, with a specialized focus on Cyber Security. TRG’s secureRevGroup division is one of the few Cyber Security Consulting firms in the United States solely dedicated to identifying the top 10% of highly-trained Cyber Security professionals available for consulting assignments. TRG has won numerous accolades, including Fastest Growing IT firm in the United States, and a Diversity Supplier Award. TRG’s headquarters are in Wakefield, Massachusetts.

 

The staffing industry is divided into three major segments: temporary help services, professional employer organizations and placement agencies. Temporary help services provide workers for limited periods, often to substitute for absent permanent workers or to help during periods of peak demand. These workers, who are employees of the temporary help agency, will generally fill clerical, technical, or industrial positions. Professional employer organizations (PEOs), sometimes known as employee leasing agencies, contract to provide workers to customers for specific functions, often related to human resource management. In many cases, customers’ employees are hired by a PEO and then leased back to the customer. Placement agencies, sometimes referred to as executive recruiters or headhunters, find workers to fill permanent positions at customer companies. These agencies may specialize in placing senior managers, midlevel managers, technical workers, or clerical and other support workers.

 

1
 

 

Staffing companies identify potential employees through advertising and referrals, and the companies interview, test and counsel workers before sending them to the customer for approval. Pre-employment screening can include skills assessment, drug tests and criminal background checks. Most staffing agencies provide some sort of training, often involving data entry and basic computer skills. The personnel staffing industry has been radically changed by the Internet. Many employers list available positions with one or several Internet personnel sites like monster.com or jobs.com, and on their own site. Personnel agencies operate their own sites and often still work as intermediaries by helping employers accurately describe job openings and screening candidates who submit applications.

 

Job growth drives demand for the personnel staffing industry. The profitability of individual companies depends on good marketing and availability of qualified employees. Large companies enjoy economies of scale in marketing and back-office operations. Small companies can compete successfully by specializing in an industry or a job function.

 

To a great extent, clients follow the seasonal retail cycles but precede them by 2-3 months. What occurs are two distinct “peak” seasons which fall in August-October, preceding Halloween, Thanksgiving and Christmas. The second is April-May, preceding the summer season. Both provide extended spikes to the baseline revenue average of companies in the staffing sector.

 

Major end-use customers include businesses from a wide range of industries. Marketing involves direct sales presentations, referrals from existing clients and advertising. Agencies compete both for customers and workers. Depending on market supply and demand at any given time, agencies may allocate more resources either to finding potential employers or potential workers. Permanent placement agencies work either on a retainer or a contingency basis. Clients may retain an agency for a specific job search or on contract for a specific period. Temporary help services charge customers a fixed price per hour or a standard markup on prevailing hourly rates.

  

For many staffing companies, demand is lower late in the fourth quarter and early in the first quarter, partly because of holidays, and higher during the rest of the year. Staffing companies may have high receivables from customers. Temp agencies and PEOs must manage a high cash flow and may maintain high cash balances because they funnel payroll payments from employers.

 

Demand for personnel staffing services is strongest in areas with strong employment growth, and geographic location can determine an agency's success in attracting employees and employers. Customers generally prefer a staffing service that can provide workers for all of their office locations. Temporary employee candidates are often unwilling to relocate for a position.

 

The revenue of personnel agencies depends on the number of jobs they fill, which in turn depends on economic growth. During economic slowdowns, many client companies stop hiring altogether. Internet employment sites expand a companies' ability to find workers without the help of traditional agencies. Personnel agencies often work as intermediaries, helping employers accurately describe job openings and screen candidates. Increasing the use of sophisticated, automated job description and candidate screening tools could make many traditional functions of personnel agencies obsolete. Free social networking sites such as LinkedIn and Facebook are also becoming a common way for recruiters and employees to connect without the assistance of a staffing agency.

 

To avoid large placement agency fees, big companies may use in-house personnel staff, current employee referrals, or human resources consulting companies to find and hire new personnel. Because placement agencies typically charge a fee based on a percentage of the first year's salary of a new worker, companies with many jobs to fill have a large financial incentive to avoid agencies.

 

2
 

 

Many personnel agencies are small and may depend heavily on a few big customers for a large portion of revenue. Large customers may lead to increased revenues, but also expose agencies to higher risks. When major accounts experience financial hardships, and have less need for temporary employment services, agencies stand to lose large portions of revenue.

 

The loss of a staff member who handles a large volume of business can result in a large loss of revenue for an agency. Individual staff members, rather than the agency itself, usually develop strong relationships with customers.

 

Some of the best opportunities for temporary employment are in industries traditionally active in seasonal cycles, such as construction, wholesale and retail. However, seasonal demand for workers creates cash flow fluctuations throughout the year. Cash flow imbalances also occur because agencies must pay workers even though they haven't been paid by customers.

 

Products and Services

 

TRG provides the following services to its customers: Consulting Staffing (primarily IT), Permanent Placement (primarily IT), Consulting to Permanent Placement (primarily IT) and Information Security/ Cyber Security Services involving; Penetration Testing, Vulnerability Testing; andRegulatory and Compliance Support

 

Intellectual Property

 

TRG operates a website and owns the domains: http://www.therevgroup.com and www.securerev.com.

 

TRG does not have any license agreements authorizing the use of its intellectual property with any third-party.

 

Sales and Marketing

 

TRG utilizes an internally developed “Persistent Marketing Process” for business development utilizing an ten person sales and recruiting staff. The Company has developed its own business development training program for its staff as well as a monthly e-mail marketing newsletter that is sent to approximately 10,000 subscribers.

 

TRG’s target customers are those with revenues in excess of $100 Million nationally. Currently, the Company’s principal clients are located exclusively in New England, with most of its sales volume in Massachusetts. Key clients include: Blue Cross of MA; Verizon; American Tower; and Sovereign. The Company currently has approximately twenty (20) active clients.

 

Government Regulation

 

Staffing companies are regulated by the US Department of Labor (DOL) and the Equal Employment Opportunity Commission (EEOC), and often by state authorities. At issue is the relationship between the staffing companies and the consulting employees, or employee candidates. Many federal anti-discrimination rules regulate the type of information that employment firms can request from candidates or provide to customers about candidates. PEOs are often considered co-employers along with the client, but the PEO is responsible for employee wages, taxes and benefits. State regulation aims to ensure that PEOs provide the benefits they promise to workers.

 

3
 

 

Competition

 

In addition to IT staffing competitors such as Adecco, Robert Half, TRG’s competitors also include: L.J. Kushner located in New Jersey (www.ljkushner.com); Mindbank located in Virginia, Maryland & Colorado (www.mindbank.com); Securityrecruiter.com located in Colorado; and Alta Associates, located in New Jersey (www.altaassociates.com).

 

Employees

 

TRG has 42 full time employees consisting of twelve corporate employees, with twenty staffing employees located in Massachusetts; five staffing employees in New Hampshire; two staffing employees in Texas; and one staffing employee each in Florida, Georgia, and New York.

 

Facilities

 

TRG leases a single office facility in Wakefield, Massachusetts.

 

4
 

 

Risk Factors.

 

We are subject to a number of risks. Some of these risks are endemic to the staffing industry and are the same or similar to those disclosed in our previous SEC filings. This section should be read in conjunction with the consolidated financial statements and the accompanying notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Current Report. The risks and uncertainties set out below are not the only risks and uncertainties we face. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks and investors may lose all or part of their investment. The information included in this Current Report is provided as of the filing date with the SEC and future events or circumstances could differ significantly from the forward-looking statements included herein.

 

Risk Related to TRG Business

 

TRG business involves significant risks and uncertainties, many of which are beyond its control. Discussed below are many of the material risk factors faced by TRG that may have an impact on our future results.

 

TRG’s business depends on the ability to attract and retain qualified consulting or consultant employees that possess the skills demanded by clients, and intense competition may limit the ability to attract and retain such employees.

 

The success of TRG depends on the ability to attract and retain qualified consulting employees who possess the skills and experience necessary to meet the requirements of clients. This could be impaired by an improvement in economic conditions resulting in lower unemployment, increases in compensation, or increased competition. During periods of economic growth, TRG faces increasing competition from other staffing companies in retaining and recruiting qualified consulting employees, which in turn leads to greater advertising and recruiting costs and increased salary expenses. If the Company cannot attract and retain qualified consulting employees, the quality of its services may deteriorate and its financial condition, business and results of operations may be materially adversely affected.

 

Any significant or prolonged economic downturn could result in clients using fewer consulting employees and the other services which the Company offers, terminating their relationship with the Company, or becoming unable to pay for services on a timely basis, or at all.

 

Because demand for staffing services is sensitive to changes in the level of economic activity, TRG’s business may suffer during economic downturns. Demand for staffing is highly correlated to changes in the level of economic activity and employment. Consequently, as economic activity slows down, companies tend to reduce their use of consulting employees, resulting in decreased demand for consulting employees and the other services the Company offers. Significant declines in demand, and thus in revenues, would likely result in lower profit levels. In addition, TRG may experience pricing pressure during economic downturns which could have a negative impact on its financial condition and results of operations.

 

The deterioration of the financial condition and business prospects of clients could reduce their need for staffing services and result in a significant decrease in TRG’s revenues. In addition, during economic downturns, companies may slow the rate at which they pay their vendors, seek more flexible payment terms or become unable to pay their debts as they become due.

 

5
 

 

State unemployment insurance expense is a direct cost of doing business in the staffing industry. Economic downturns have in the past, and may in the future, result in a higher occurrence of unemployment claims, resulting in higher state unemployment tax rates. Due to the recent economic downturn, states have increased, and may continue to increase, unemployment tax rates to employers, regardless of the employer’s specific experience. This would result in higher direct costs to us. In addition, many state unemployment funds have been depleted during the recent economic downturn and many states have borrowed from the federal government under the Title XII loan program. Employers in all states receive a credit against their federal unemployment tax liability if the employer’s federal unemployment tax payments are current and the applicable participating state is also current with its Title XII loan program. If a state fails to repay such loans within a specific time period, employers in such states may lose a portion of their tax credit.

  

TRG is exposed to employment-related claims and costs as well as periodic litigation that could materially adversely affect the TRG’s financial condition, business and results of operations.

 

The staffing business entails employing and placing individuals in clients’ workplaces. The ability to control the workplace environment of clients is limited. As the employer of record of its employees, TRG incurs a risk of liability to its employees and clients for various workplace events, including:

 

· claims of misconduct or negligence on the part of employees;

  

· immigration-related claims;

 

· claims relating to violations of wage, hour, and other workplace regulations;

  

· personal injury claims;

  

· claims relating to employee benefits, entitlements to employee benefits, or errors in the calculation or administration of such benefits; and

 

· possible claims relating to misuse of clients’ confidential information, misappropriation of assets, or other similar claims.

 

TRG may incur fines and other losses, including loss of clients, and negative publicity with respect to any of these situations. Some of the claims may result in litigation, which is expensive and distracts attention from the operations of ongoing business.

 

  TRG assumes the obligation to make wage, tax, and regulatory payments for our temporary employees, and, as a result, are exposed to client credit risks.

 

TRG generally assumes responsibility for and manages the risks associated with, employees’ payroll obligations, including liability for payment of salaries, wages, and certain taxes. These obligations are fixed, whether or not clients make payments as required by services contracts, which exposes TRG to credit risks of clients.

 

6
 

 

The staffing industry is highly competitive with limited barriers to entry, which could limit TRG’s ability to maintain or increase its market share or profitability.

 

The staffing industry is highly competitive with limited barriers to entry. Price competition in the staffing industry, particularly from our smaller competitors in local and regional markets, is intense, and pricing pressures from competitors and clients are increasing. New competitors entering various markets may further increase pricing pressures. This competition may impact TRG’s growth prospects, results of operations and financial condition.

 

Improper disclosure of employee and client data could result in liability and harm to the reputation of TRG.

 

The business of TRG involves the use, storage and transmission of information about employees and clients. It is possible that security controls over personal and other data and practices that TRG follows may not prevent the improper access to, or disclosure of, personally identifiable or otherwise confidential information. Such disclosure could harm the reputation of TRG and subject TRG to liability under contracts and the laws that protect personal data and confidential information, resulting in increased costs, reputational risk or loss of revenue. Further, data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions in which TRG provides services. The failure to adhere to or successfully implement processes in response to changing regulatory requirements in this area could result in increased costs, legal liability or impairment to the reputation of TRG in the marketplace.

  

Government regulation could negatively impact the business.

 

TRG’s business segments are subject to various government regulations in the jurisdictions in which they operate. Due to the potential wide scope of TRG’s operations, TRG could be subject to regulation by various political and regulatory entities, including various, federal, state, local and municipal agencies and government sub-divisions. TRG may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. TRG’s operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry.

 

TRG faces significant competition.

 

TRG faces competition from other companies that offer similar product and services. Some of these potential competitors may have longer operating histories, greater brand recognition, larger client bases and significantly greater financial, technical and marketing resources than TRG possesses. These advantages may enable such competitors to respond more quickly to new or emerging trends and changes in customer preferences. These advantages may also allow them to engage in more extensive market research and development, undertake extensive far-reaching marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential customers, employees and strategic partners. Potential competitors may have or may rapidly acquire significant market share. Increased competition may result in price reductions, reduced gross margin and loss of market share. TRG may not be able to compete successfully, and competitive pressures may adversely affect its business, results of operations and financial condition.

 

7
 

 

 

TRG relies on a limited number of clients for all of its revenue and the loss of any customer can be expected to have a material adverse effect on its results of operations.

 

TRG currently has 12 clients. Accordingly, the loss of any customer can be expected to have a material adverse effect on TRG’s business, prospects, financial condition, results of operations and future growth prospects.

 

Risks Relating to the Recent Acquisition

 

The acquisition may not result in the increase of revenue and profits of the Company.

 

While the management expects that the acquisition of TRG will enable the Company to tap into and expand its operations in the staffing industry, TRG may not be able to contribute an increase in revenue and profit to the results of the Company as other factors such as changes in future economic climate, intensity of competition from competitors, ability to adapt due to change in market trends, which will have a significant impact on the results of TRG that could generate.

 

Successful operation of the acquired business is not assured.

 

Despite that TRG has existing customer agreements on hand, the Company may not be able to expand the business of TRG beyond these projects and may suffer losses after these agreements terminate, which may have a significant negative impact to the Company financial position.

 

Successful integration of TRG businesses with our other businesses is not assured.

 

While management expects that they will be able to integrate the business of TRG into the Company’s existing staffing business within the expected timeframe which would enables the Company to operate more effectively and efficiently and to create synergy hence lower costs of operations, such integration may fail or fail to achieve the desired level of synergy and may increase the overall administrative expenses at a ratio higher than the proportionate revenue and profit contribution from TRG, and may have significant negative impact to the Company.

   

Our ability to execute on our business strategy and growth will depend in part on the success of the staffing industry.

 

The acquisition is part of the Company’s business strategy to grow and expand through access to the staffing industry. As a result, the success of TRG business will have a material impact on the overall success of the Company.

 

8
 

 

Cautionary Language Regarding Forward-Looking Statements and Industry Data

 

This Current Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our current assumptions, expectations and beliefs concerning future developments and their potential effect on our business. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although the absence of these words does not necessarily mean that a statement is not forward-looking. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements.

 

Factors that may cause or contribute actual results to differ from these forward-looking statements include, but are not limited to, for example:

 

· Adverse economic conditions;
· inability to raise sufficient additional capital to operate our business;
· the commercial success and market acceptance of any of our services;
· unexpected regulatory changes;
· the adequacy of our intellectual property protections;
· the inability to attract and retain qualified senior management and personnel;
· other specific risks referred to in the section entitled “ Risk Factors ”.

 

All forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements or other information contained herein. Stockholders and potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, we cannot assure stockholders and potential investors that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from expectations under “Risk Factors” and elsewhere in this current report. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

 

Information regarding market and industry statistics contained in this Current Report is included based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services.  Except as required by U.S. federal securities laws, we have no obligation to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements. See the section entitled “ Risk Factors ” for a more detailed discussion of risks and uncertainties that may have an impact on our future results.

 

9
 

 

Item 3.02.   Unregistered Sales of Equity Securities.

 

Pursuant to the Purchase Agreement, at the Closing on April 26, 2013, the Company issued an aggregate of 512,569 shares of its common stock to the stockholders of TRG as portion of the Purchase Price in exchange for shares representing 100% of the issued and outstanding common stock of TRG. The shares of common stock of the Company issued to the TRG Shareholders were not registered under the Securities Act.  These securities qualified for exemption under Rule 506 promulgated under Section 4(2) of the Securities Act since the issuance of securities by the Company did not involve a “public offering.”  The issuance was not a public offering based upon the following factors: (i) the issuance of the securities was an isolated private transaction; (ii) a limited number of securities were issued to a limited number of offerees; (iii) there was no public solicitation; (iv) each offeree was an “accredited investor,” (v) the investment intent of the offerees; and (vi) the restriction on transferability of the securities issued.

 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

 

Effective April 26, 2013, the Board appointed Mark P. Aiello as the Company’s Senior Vice-President of the Company and as President of Cyber 360 Solutions, the Company’s Cyber Security Division.

 

Mark P. Aiello: Mr. Aiello, age 51, graduated with a BS in Marketing and a BA in Computer Science from Stonehill College (MA). He began working in IT staffing in 1984. By 1994, Mr. Aiello was a principal in a closely held IT staffing firm that was subsequently sold and rolled up to Modis, a then multi-billion dollar staffing company. Mr. Aiello left Modis in 1999 to found the Revolution Group. He oversees all financial and operating areas of the company, including human resources, legal, sales, recruiting, finance, marketing, operations, and customer service. Prior to joining the Company, Mr. Aiello was the President and CEO of The Revolution Group, Ltd., responsible for the company’s strategy, leadership, and day-to-day financial and operational activities.

 

Mr. Aiello entered into an employment agreement with the Company, effective April 26, 2013 (the “Employment Agreement”), pursuant to which Mr. Aiello was employed by the Company as the Company’s Senior Vice-President of the Company and as President of Cyber 360 Solutions, the Company’s Cyber Security Division, commencing as of April 26, 2013 until April 26, 2017 unless earlier terminated pursuant to the terms of the Employment Agreement. During the term of the agreement, Mr. Aiello will be entitled to a base salary at the annualized rate of $150,000 and will be eligible for a discretionary performance bonus. In addition, Mr. Aiello will receive, an annual base commission equal to 3% of the gross profit of TRG and the Company’s Cyber Security Division. Mr. Aiello will also be entitled to participate equally in any and all stock incentive programs offered to other senior executives of the Company. Pursuant to the Employment Agreement, Mr. Aiello may be terminated for “cause” as defined. Under the Employment Agreement, Mr. Aiello is subject to confidentiality, non-compete and non-solicitation restrictions. A copy of the Employment Agreement is attached hereto as Exhibit 10.1.

 

Mr. Aiello does not have any family relationship with any officer or director of the Company or been involved in any transaction with the Company that would require disclosure under Item 404(a) of the Regulation S-K.

 

Item 9.01.   Financial Statements and Exhibits.

 

(a)  Financial Statements of Businesses Acquired.

 

10
 

 

  Exhibit 99.1 –  Audited financial statements of The Revolution Group, Ltd. for the fiscal years ended December 31, 2011 and December 31, 2012.

 

The unaudited Pro Forma Consolidation Financial Statements of the Company and the accompanying notes will be filed within 71 days after filing of this Current Report.

 

 

 

(d)   Exhibits .

 

The exhibits listed in the following Exhibit Index are filed as part of this current report.

 

Exhibit No. Description
10.1 Stock Purchase Agreement by and among the Company, TRG and TRG Shareholders, dated as of March 21, 2013
10.2 Employment Agreement between the Company and Mark Aiello, dated March 21, 2013
99.1 Audited financial statements of The Revolution Group, Ltd. for the fiscal years ended December 31, 2011 and December 31, 2012.

 

11
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated: May 2, 2013

 

  STAFFING 360 SOLUTIONS, INC.  
       
  By: /s/ Alfonso J. Cervantes  
    Alfonso J. Cervantes
President
 

  

 
 

 

EXHIBIT INDEX

 

Exhibit No. Description
10.1 Stock Purchase Agreement by and among the Company, TRG and TRG Shareholders, dated as of March 21, 2013
10.2 Employment Agreement between the Company and Mark Aiello, dated March 21, 2013.
99.1 Audited financial statements of The Revolution Group, Ltd. for the fiscal years ended December 31, 2011 and December 31, 2012.

 

 

 

 

EXECUTION

 

 

 

 

 

STOCK PURCHASE AGREEMENT

 

BETWEEN

 

STAFFING 360 SOLUTIONS, INC.

(the “Purchaser”)

 

AND

 

THE REVOLUTION GROUP, LTD.

(“TRG”)

 

AND

 

THE SHAREHOLDERS OF THE REVOLUTION GROUP, LTD.

(the “Shareholders”)

 

Dated as of March 21, 2013

 

 

  

 

 

 
 

 

TABLE OF CONTENTS

 

    Page
     
I. Definitions 1
  1.1 Definitions 1
  1.2 Meaning of “Knowledge” 4
     
II. Purchase and Sale of Shares 4
     
  2.1 Sale and Delivery 4
  2.2 Purchase Price 4
  2.3 Employment Agreement 8
  2.4 Closing 8
  2.5 Other Payments at Closing 8
     
III. Representations and Warranties Concerning the Shareholders 8
     
  3.1 Ownership of Shares, Options and Warrants 8
  3.2 Execution and Delivery; Valid Title 8
  3.3 No Conflicts 9
     
IV. Representations and Warranties Concerning TRG 9
     
  4.1 Organization and Good Standing 9
  4.2 Subsidiaries 9
  4.3 No Conflicts 9
  4.4 Capitalization 10
  4.5 Financial Statements 10
  4.6 Title to Property; Encumbrances 10
  4.7 Insurance 11
  4.8 Indebtedness 11
  4.9 Litigation 12
  4.10 Income and Other Taxes 12
  4.11 Employee Benefit Matters 12
  4.12 Consents 13
  4.13 Material Contracts; No Defaults 13
  4.14 Employees and Labor Matters 14
  4.15 Principal Customers and Suppliers 15
  4.16 Books and Records 15
  4.17 Intellectual Property 15
  4.18 Authorization 15
  4.19 Absence of Changes 15
  4.20 Absence of Undisclosed Liabilities 16
  4.21 Legal Compliance 16

 

 
 

 

  4.22 Illegal Payments 16
  4.23 Affiliate Transactions 16
  4.24 Money Laundering Laws 17
  4.25 Disclosure 17
     
V. Representations and Warranties of Purchaser 17
     
  5.1 Organization and Good Standing 17
  5.2 Execution and Delivery; Compliance with Law 17
  5.3 Purchaser Shares 17
  5.4 No Conflicts 18
  5.5 Consents 18
     
VI. Covenants 18
     
  6.1 Ordinary Course 18
  6.2 Dividends; Capital Stock 18
  6.3 Covenant Not to Use Name 18
  6.4 Confidentiality 19
  6.5 Publicity 19
  6.6 Required Information 19
     
VII. Conditions Precedent to Closing 19
     
  7.1 Conditions of the Purchaser 19
  7.2 Conditions of the Shareholders 21
     
VIII. Indemnification 22
     
  8.1 Survival of Representations and Warranties 22
  8.2 Indemnification 22
     
IX. Termination, Amendment and Waiver 24
     
  9.1 Termination 24
  9.2 Effect 24
  9.3 Amendment 24
  9.4 Waiver 24
     
X. General Provisions 25
     
  10.1 Complete Agreement and Other Matters 25
  10.2 Expenses 25
  10.3 Broker’s Fees 25
  10.4 Further Action 25

 

- ii -
 

 

  10.5 Notices 25
  10.6 Survival 26
     
Exhibit A Capitalization of TRG; List of Shareholders, Number of Shares of Stock Owned by Each, Allocation of Payments  

 

- iii -
 

 

SCHEDULE   SUBJECT
     
2.1(c)   Excluded Liabilities
4.1   Foreign Qualifications
4.3   No Conflicts
4.6(a)   Liens
4.6(b)   Property Leases and Licenses
4.7   Insurance
4.9   Litigation
4.11(a)   Employee Welfare Plans
4.11(b)   Employee Benefit Plans
4.12   Consents
4.13(a)   Customer Agreements
4.13(b)   Consultant Agreements
4.13(c)   Non-Competition and Non-Disclosure Agreements
4.13(d)   Key Employee Agreements
4.13(e)   Other Material Contracts
4.13(f)   Defaults
4.13(g)   Agreements for Borrowed Money and Investments
4.14   Employee and Labor Matters
4.15(a)   Major Customer Sales
4.15(b)   Termination of Major Customers
4.19   Material Changes
4.20   Liabilities
4.21   Compliance with Laws
4.23(a)   Affiliate Transactions
4.23(b)   Interests in Assets

 

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STOCK PURCHASE AGREEMENT

 

THIS STOCK PURCHASE AGREEMENT (the “Agreement”), dated as of March 21, 2013, is by and between Staffing 360 Solutions, Inc., a Nevada corporation (the “Purchaser”), those Persons listed on Exhibit A hereto (individually a “Shareholder”, and individually and collectively the “Shareholders”), and The Revolution Group, Ltd., a Massachusetts corporation (“TRG”). The Purchaser, the Shareholders and TRG are collectively referred to herein as the “Parties.”

 

This Agreement contemplates a transaction in which the Purchaser will purchase from the Shareholders all of the issued and outstanding shares of capital stock of TRG in consideration of the Purchase Price (as defined below).

 

Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows:

 

ARTICLE I

 

Definitions

 

1.1            Definitions . In addition to the capitalized terms defined elsewhere in this Agreement, including the recitals, the following capitalized terms, when used herein, shall have the following meanings:

 

“Adjustment Events” has the meaning set forth in Section 2.2(c)(ii) hereof.

 

Affiliate ” means, with respect to a specified Person, any other Person or member of a group of Persons acting together that, directly or indirectly, through one or more intermediaries, Controls, or is Controlled by or is under common Control with, the specified Person.

 

“Agreement,” “this Agreement,” “hereto,” “hereof,” “hereunder,” “hereby , and similar expressions refer to this Stock Purchase Agreement, including the Schedules and exhibits attached hereto, and not any particular article, section, subsection or other subdivision hereof or thereof.

 

“Annual Financial Statements” has the meaning set forth in Section 4.5(a) hereof.

 

“Business Day” means a day, other than Saturday or Sunday, on which banks in Boston, Massachusetts and New York, New York are open to the public for the transaction of their normal banking business.

 

“Cash Portion of the Purchase Price ” has the meaning set forth in section 2.2(a) hereto.

 

“Closing” has the meaning set forth in Section 2.4 hereof.

 

 
 

 

“Closing Date” has the meaning set forth in Section 2.4 hereof.

 

“Closing Payment” has the meaning set forth in Section 2.2 hereof.

 

“Code” means the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder.

 

“Consents” has the meaning set forth in Section 4.12 hereof.

 

“Control” (including the terms “Controlling,” “Controlled By,” and “under Common Control With”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, by position or otherwise.

 

“Disclosure Schedule” means, individually, a Schedule referred to in Article IV hereof, and collectively, all of the Schedules referred to in Article IV hereof.

 

“Documents” has the meaning set forth in Section 5.2 hereof.

 

“Earn Out” has the meaning set forth in Section 2.2(c)(i) hereof.

 

“Earn Out Period” has the meaning set forth in Section 2.2(c)(i) hereof.

 

“Earn Out Statement” has the meaning set forth in Section 2.2(c)(i) hereof.

 

“EBITDA” means earnings before interest, taxes, depreciation and amortization and shall be calculated in accordance with generally accepted accounting principles, consistently applied.

 

“Employment Agreement” has the meaning set forth in Section 2.3 hereof.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

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

 

“Excluded Assets” has the meaning set forth in Section 2.1(b) hereof.

 

“Excluded Liabilities” has the meaning set forth in Section 2.1(c) hereof.

 

“Financial Statements” means the Annual Financial Statements and the Interim Financial Statements.

 

“Governmental Body” means any federal, state or local governmental body or political subdivision thereof, and any agency or other entity exercising executive, legislative, judicial, regulatory or administrative functions of government, including, without limitation, all taxing authorities.

 

“Gross Profit” means the difference between gross revenue and the cost of goods sold.

 

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“Indebtedness” has the meaning set forth in Section 4.8 hereof.

 

“Interim Financial Statements” has the meaning set forth in Section 4.5(a) hereof.

 

“Key Employee” means an employee of TRG who meets any one or more of the following criteria: (i) owns either directly or indirectly at least five percent of the issued and outstanding stock of TRG; or (ii) is an officer or director of TRG.

 

“Lien” means any interest, consensual or otherwise, in property securing a monetary obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, including without limitation, all liens, mortgages, security interests, pledges, deeds of trust, statutory liens for unpaid rentals, options or other charges and encumbrances.

 

“Material” or “Materially” (Capitalized) means (a) a contract with a value in excess of Fifty Thousand Dollars ($50,000), or (b) an effect on TRG in excess of Fifty Thousand Dollars ($50,000).

 

“material” or “materially” (not capitalized) means (a) a contract with a value in excess of Twenty-Five Thousand Dollars ($25,000), or (b) an effect on TRG in excess of Twenty-Five Thousand Dollars ($25,000).

 

“Material Adverse Change” or “Material Adverse Effect” means any change, effect, event, occurrence or state of facts that is, or is reasonably likely to be, Materially adverse to the business and/or financial condition, assets, results of operations or prospects of TRG, other than any change, effect, event, occurrence or state of facts relating to the economy in general.

 

“Permitted Lien” has the meaning set forth in Section 4.6(a) hereof

 

“Person” means any individual, corporation, partnership, limited liability company or partnership, unincorporated association, trust, joint venture or other organization or entity.

 

“Purchase Price” has the meaning set forth in Section 2.2 hereof.

 

“Purchaser Shares” has the meaning set forth in Section 2.2(b) hereof.

 

“Schedule” means any Schedule to this Agreement, including without limitation any Disclosure Schedule.

 

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

 

“Shares” has the meaning set forth in Section 2.1(a) hereof.

 

“Subsidiary” means, as to any particular parent corporation, any corporation, partnership, trust, joint venture, limited liability company, association, or other business entity as to which more than fifty percent (50%) of the outstanding stock or equity interests having ordinary voting rights or power at the time is owned or Controlled by such parent corporation or by one or more Subsidiaries of such parent corporation.

 

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1.2            Meaning of “Knowledge .”

 

For the purposes of this Agreement, any reference to the existence or absence of facts which is indicated to be based on the Knowledge of TRG means the actual knowledge of TRG, its officers, directors, Shareholders and Key Employees.

 

ARTICLE II

 

Purchase and Sale of Shares

 

2.1            Sale and Delivery .

 

(a)            Purchase of Shares . On the terms and subject to the conditions set forth in this Agreement, each Shareholder hereby agrees to sell, assign, transfer, convey and deliver to the Purchaser, and the Purchaser hereby agrees to purchase, acquire and take assignment and delivery of, all of the shares of capital stock of TRG held by such Shareholder, which on the Closing Date shall collectively constitute one hundred percent (100%) of the issued and outstanding shares of capital stock of TRG (the “Shares”). The respective ownership of each Shareholder is set forth on Exhibit A attached hereto and made a part hereof.

 

(b)            Excluded Assets . Notwithstanding the purchase of the Shares, the Purchaser acknowledges and agrees that it shall acquire no interest in: (i) any bank accounts or investment accounts of TRG or cash therein as such exist immediately prior to the Closing, (ii) any accounts receivable of TRG arising in connection with work performed on or prior to the Closing Date, whether or not collected after the Closing Date; (iii) the cell phones and cell phone numbers of any Shareholder or employee of TRG; or (iv) any LinkedIn account or Facebook, Twitter or other social media account of any Shareholder or employee; all of which items in clauses (i) through (iv) shall belong to the Shareholders or the employees, as the case may be (the “Excluded Assets”).

 

(c)            Excluded Liabilities . Notwithstanding the purchase of the Shares, the Parties acknowledge and agree that TRG shall not retain and the Purchaser shall not assume the liabilities set forth on Schedule 2.1(c) to be attached to this Agreement at the Closing Date (the “Excluded Liabilities”).

 

2.2            Purchase Price . The aggregate consideration to be paid by the Purchaser to the Shareholders for the sale and purchase of the Shares (the “Purchase Price”) shall be the sum of One Million Six Hundred Sixty-Five Thousand Eight Hundred Forty-Nine ($1,665,849) Dollars payable at Closing as set forth in Sections 2.2(a) and (b) below (the “Closing Payment”), plus (b) the amount of the Earn Out determined and paid as set forth in Section 2.2(c) below. The Purchase Price shall be payable as follows:

 

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(a)            Cash Portion of the Purchase Price at Closing . At the Closing, the Purchaser shall pay to the Shareholders $ 896,996 , pro rata to each Shareholder in accordance with the percentage ownership of TRG set forth on Exhibit A hereto, in immediately available funds by (i) wire transfer to an account specified by each such Shareholders, or (ii) by a certified or bank cashier’s check payable to, or upon the order of, each such Shareholder (collectively, the “Cash Portion of the Purchase Price”).

 

(b)            Purchaser Shares . At the Closing, the Purchaser shall pay the remaining $ 768,853 of the Closing Payment by the issuance by the Purchaser to the Shareholders of Five Hundred Twelve Thousand Five Hundred Sixty-Nine (512,569) restricted shares of the Purchaser’s common stock (the “Purchaser Shares”) at a price of $1.50 per share. The Purchaser Shares shall be issued pro rata to each Shareholder in accordance with the percentage ownership of TRG set forth on Exhibit A hereto. The Purchaser Shares will be issued free and clear of all Liens, and will have all rights associated with Purchaser’s common stock issued to or held by the other shareholders of the Purchaser.

 

(c)            Earn Out .

 

(i)    Calculation and Payment of Earn Out . In addition to the Closing Payment payable at Closing, the Purchaser shall pay to the Shareholders performance based compensation (the “Earn Out”) in an amount in cash equal to the following percentages of TRG’s Gross Profit from the Closing Date through the end of the sixteenth (16th) quarter following the Closing Date (the “Earn Out Period”) not to exceed a total of One Million Five Hundred Thousand Dollars ($1,500,000):

 

(A)         Twenty Percent (20%) of the amount of TRG’s Gross Profit up to and including an aggregate of Five Million Dollars ($5,000,000) of Gross Profit during the Earn Out Period; plus

 

(B)         Seven Percent (7%) of the amount of TRG’s Gross Profit, if any, in excess of an aggregate of Five Million Dollars ($5,000,000) of Gross Profit during the Earn Out Period.

 

In the event the Earn Out payments made to shareholders are taxed as ordinary income for Federal income tax purposes, the Purchaser shall reimburse the Shareholders for the additional Federal income tax owed on the Earn Out payments computed at ordinary income tax rates over income tax computed at capital gains rates.

 

For purposes of the Earn Out, “TRG’s Gross Profit” means the Gross Profit of TRG conducted as a separate subsidiary of the Purchaser or, if TRG is not operated a separate subsidiary of the Purchaser, the Gross Profit of the division or other internal organization of the Purchaser which includes the business formerly conducted by TRG.

 

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The Earn Out shall be calculated quarterly on the last day of each quarter then ended, and shall be paid by the fifteenth (15 th ) day of the first month of the immediately succeeding quarter. The Earn Out shall be paid pro rata to each Shareholder in accordance with the percentage ownership of TRG set forth on Exhibit A hereto. If the Closing Date does not occur on the last day of a quarter, the Gross Profit for the number of days from the Closing Date to the commencement of the next quarter shall be included in the Earn Out calculation for such first quarter.

 

With each quarterly payment of the Earn Out, the Purchaser shall deliver to each Shareholder a statement detailing the calculation of the payment based on TRG’s Gross Profit during the applicable quarter (the “Earn Out Statement”). Upon the written request of the Shareholders, the Shareholders will have the right, at their expense and for the term of the Earn Out Period, and for one (1) calendar year thereafter, to have a single independent certified public accountant representing all of the Shareholders (the “ Auditor ”) inspect the Purchaser’s records for the preceding two (2) calendar years for the purpose of determining the accuracy of the Earn Out Statement and the associated payments made to the Shareholders pursuant to this Agreement. The selection of the auditor must be acceptable to both the Purchaser and the Shareholders. The Purchaser will permit the Auditor, upon reasonable prior written notice, to have access during normal business hours to such records of the Purchaser as may be reasonably necessary to verify the Purchaser’s compliance with the Earn Out payments due hereunder. In the event the Auditor reasonably determines that there was an underpayment of the Earn Out to the Shareholders for any period, the Purchaser will pay such underpayment within thirty (30) days after the date the Purchaser receives such Auditor’s written report. In the event the Auditor reasonably determines that there was an overpayment of the Earn Out for any period, the overpayment will be credited toward future payments of the Earn Out to be paid by the Purchaser to the Shareholders under this Agreement, provided, however, that in the event no further payments of the Earn Out will become due under this Agreement, said overpayment will be paid by the Shareholders to the Purchaser within thirty (30) days after the date the Shareholders receive such Auditor’s written report. If the underpayment of the Earn Out is greater than five percent (5%) of the Earn Out determined by the Auditor to be payable to the Shareholders, the reasonable fees and expenses charged by the Auditor will be paid by the Purchaser; otherwise the fees and expenses charged by such Auditor shall be paid by the Shareholders.

 

(ii)           Adjustment to Earn Out . The Purchaser acknowledges and agrees that the following events (“Adjustment Events”) may have a negative impact on TRG’s Gross Profit . The Purchaser further acknowledges that the actual damages likely to result from an Adjustment Event are difficult to estimate on the date of this Agreement and would be difficult for the Shareholders to prove. Therefore, the Purchaser acknowledges and agrees that, upon the occurrence of an Adjustment Event, the Purchaser shall pay the Shareholders, pro rata, an amount equal to $1.0 Million less the amount of any Earn Out previously paid to the Shareholders (the “Adjustment Amount”). Additionally, the Purchaser agrees to pay any reasonable legal fees of the Shareholders in connection with the collection of any Earn Out. The Parties intend that the Purchaser’s payment of the Adjustment Amount would serve to compensate the Shareholders for any Adjustment Event, and they do not intend for it to serve as a penalty to the Purchaser for any such Adjustment Event.

 

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For purposes of this Section, the occurrence of any of the following events constitutes an “ Adjustment Event ”:

 

(a)  The failure of the Purchaser to pay any Earn Out amount due, and such failure is not cured within thirty (30) days after the due date;

 

(b)  The failure of the Purchaser to perform, keep or observe any term, provision, condition, covenant, warranty or representation contained in this Agreement;

 

(c)  Any warranty, representation or statement made or furnished to the Shareholders by or on behalf of the Purchaser in connection with the transactions contemplated under this Agreement proves at any time to be not true and correct in any material respect.

 

(d)  The occurrence of any breach by the Purchaser of its obligations under the Employment Agreement, including without limitation the failure to pay Mark P. Aiello the required compensation thereunder.

 

(e)  The occurrence of any event that would give Mark P. Aiello the right to terminate the Employment Agreement for “Good Reason” (as defined therein); or the termination by the Purchaser of the Employment Agreement without “Cause” (as defined therein).

 

(f)  the Purchaser, or TRG for so long as TRG is operated as a separate company from the Purchaser, shall (i) apply for or consent to the appointment of a receiver, conservator, trustee or liquidator of all or a substantial part of any of its assets; (ii) be unable, or admit in writing its inability, to pay its debts as they mature; (iii) file or permit the filing of any petition, case, arrangement, reorganization, or the like under any insolvency or bankruptcy law, or the adjudication of it as a bankrupt, or the making of an assignment for the benefit of creditors or the consenting to any form of arrangement for the satisfaction, settlement or delay of debt or the appointment of a receiver for all or any part of its properties; or (iv) take any action for the purpose of effecting any of the foregoing.

 

(g)  An order, judgment or decree shall be entered, or a case shall be commenced, against the Purchaser or TRG without the application, approval or consent of the Purchaser or TRG, as applicable, by or in any court of competent jurisdiction, approving a petition or permitting the commencement of a case seeking reorganization or liquidation of the Purchaser or TRG, or appointing a receiver, trustee, conservator or liquidator of the Purchaser or TRG, or of all or a substantial part of their respective assets and the Purchaser or TRG, as applicable, by any act, indicates its approval thereof, consent thereto, or acquiescence therein, or such order, judgment, decree or case shall continue unstayed and in effect for any period of thirty (30) consecutive days.

 

(h)  The dissolution, termination of existence of the Purchaser or TRG.

 

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2.3            Employment Agreement . In addition to the payment of the Purchase Price, the Purchaser and Mark Aiello will enter into an employment agreement, in form and substance satisfactory to them (the “Employment Agreement”).

 

2.4            Closing . The purchase and sale of the Shares and the consummation of the other transactions contemplated by this Agreement (the “Closing”) shall occur on such date, hour and place as shall be agreed upon in writing by the Shareholders and the Purchaser, but not later than thirty (30) days from the date of this Agreement (unless said date is otherwise mutually extended in writing by the parties), upon fulfillment of all (or waiver in writing of certain) conditions precedent to the Closing, said date being generally referred to as the “Closing Date.” The Purchaser hereby agrees that it will pay to each Shareholder any increase in amounts such Shareholder is required to pay to any entity or governmental authority in connection with an increase in any state, local or federal taxes (“Required Payments”), to the extent that such amounts are in excess of the Required Payments that would have been payable by such Shareholder if the Closing Date had occurred on or prior to December 31, 2012 (the “Increased Amounts”).

 

2.5            Other Payments at Closing . If necessary, at the Closing the Parties shall make such payments to each other as the Parties may agree prior to the Closing in order to address certain issues, including without limitation, balance sheet items, and such issues as Excluded Liabilities, reimbursement of prepaid expenses, and timing of collection of accounts receivable.

 

ARTICLE III

 

Representations and Warranties

Concerning the Shareholders

 

Each of the Shareholders severally hereby represents and warrants to the Purchaser, as to such Shareholder and his or her respective Shares, that:

 

3.1            Ownership of Shares, Options and Warrants . Such Shareholder owns of record and beneficially the Shares set forth opposite his or her name on Exhibit A , and has, and immediately prior to the Closing will have, good and valid title to his/her Shares free and clear of all liens, trusts (constructive and other), adverse claims and other encumbrances.

 

3.2            Execution and Delivery; Valid Title . All consents, approvals and waivers necessary for the execution and delivery by such Shareholder of this Agreement, and the sale and delivery of the Shares to be sold by such Shareholder hereunder, have been obtained or will be obtained on or prior to the Closing Date, and such Shareholder has, and immediately prior to the Closing will have, full right, power, authority and capacity to enter into and perform fully such Shareholder’s obligations under this Agreement, including without limitation to sell, assign, transfer and deliver the Shares pursuant to this Agreement. This Agreement has been duly authorized, executed and delivered by such Shareholder and constitutes a legal, valid and binding obligation of such Shareholder, enforceable against such Shareholder in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors’ rights generally, and by general equitable principles. Upon delivery of the Shares to be sold by each Shareholder hereunder and payment of the consideration therefor to be paid at the Closing pursuant to this Agreement, the Purchaser will receive good and valid title to the Shares, free and clear of all liens and other encumbrances.

 

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3.3            No Conflicts . The execution, delivery and performance of this Agreement by such Shareholder and the consummation of the transactions contemplated hereby by such Shareholder will not conflict with, require consent or result in a breach or violation of any term or provision of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Shareholder is a party or by which any of such Shareholder’s Shares are bound.

 

ARTICLE IV

 

Representations and Warranties

Concerning TRG

 

The Parties acknowledge that the Disclosure Schedules have not been completed as of the date of execution of this Agreement and that, therefore, TRG cannot make the representations and warranties contained in this Article IV as of such date. It is a condition precedent to the Closing of the purchase and sale of the Shares hereunder that the Disclosure Schedules be completed to the satisfaction of the Purchaser. Therefore, at the Closing, TRG, Mark P. Aiello and Michael A. Consolazio, jointly and severally, shall make the following representations and warranties to the Purchaser as of the Closing Date by delivery of a certificate certifying the same:

 

4.1            Organization and Good Standing . TRG has been duly organized and is validly existing as a corporation in good standing under the laws of The Commonwealth of Massachusetts with full power and authority to own or lease its properties and to conduct its business as currently conducted. TRG is duly qualified, licensed or admitted to do business as a foreign corporation and is in good standing in every jurisdiction in which the operation of its business or the ownership of its assets requires it to be so qualified, licensed, admitted or in good standing. Schedule 4.1 lists all of the jurisdictions in which TRG is qualified to do business as a foreign corporation.

 

4.2            Subsidiaries . TRG has no Subsidiaries.

 

4.3            No Conflicts . Except as set forth on Schedule 4.3 , the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not (i) conflict with or result in a breach or violation of any term or provision of, or constitute a default under, the charter or bylaws of TRG or any indenture, mortgage, deed of trust, loan agreement, or other agreement or instrument to which TRG is a party or by which TRG is bound or to which any of the property or assets of TRG is subject or (ii) violate or conflict with any law or order to which TRG is subject.

 

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4.4            Capitalization . The authorized, issued and outstanding capital stock of TRG consists solely of those Shares shown on Exhibit A hereto. At the Closing, the Shares shall constitute all of the issued and outstanding equity securities of TRG. The Shares have been duly authorized and validly issued and are outstanding, fully paid and nonassessable. The Company holds no treasury stock. There are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, to purchase or acquire from TRG any shares of any class of capital stock, or any securities or other instruments convertible into or exchangeable for shares of capital stock of TRG, and no commitments to issue any such securities or instruments.

 

4.5            Financial Statements .

 

(a)           TRG maintains its financial information and creates its financial statements with the use of “QuickBooks” software program. TRG has delivered to the Purchaser true and complete copies of (i) balance sheet, the statements of assets, liabilities and stockholders’ equity of TRG as of December 31, 2012, 2011, 2010 and 2009, and the related statements of revenue and expenses for the twelve months then ended (the “Annual Financial Statements”); and (ii) the balance sheet (“Latest Balance Sheet”), statement of assets, liabilities and stockholders’ equity of TRG for the year-to-date ending October 27, 2012, and the related statements of revenue and expenses for the period then ended (the “Interim Financial Statements” and, together with the Annual Financial Statements, the “Financial Statements”). The 2009 Annual Financial Statements have been reviewed by Ryter & Company, P.C., and the 2010 and 2011 Annual Financial Statements have been compiled by Shuman & Epstein, LLC, accountants for TRG.

 

(b)           The Financial Statements (including in all cases the notes thereto, if any) are accurate and complete in all material respects, have been prepared from and are consistent with the books and records of TRG (which books and records are correct and complete in all material respects) and present fairly, in all material respects, the financial position of TRG as of the dates indicated therein and the results of operations and changes in financial position of TRG for the periods specified therein and, to the Knowledge of TRG, the Financial Statements have been prepared in accordance with accounting principles applied on a consistent basis during the periods covered thereby. The Purchaser has been afforded the opportunity to have the Financial Statements audited by an independent certified public accountant of its choice.

 

4.6            Title to Property: Encumbrances .

 

(a)           TRG has, and immediately prior to the Closing TRG will have, good, clear and marketable title to all real property and good, clear and valid title to all personal property reflected on the Interim Financial Statements and all real property and personal property acquired by TRG since October 27, 2012, in each case free and clear of all Liens except (i) as set forth on Schedule 4.6(a) hereto and (ii) for Permitted Liens. The term “Permitted Liens,” as used in this Agreement, shall mean (i) statutory liens for taxes or assessments not at the time due, (ii) liens in respect of pledges or deposits under workers’ compensation laws or similar legislation, (iii) carriers’, warehousemen’s, mechanics’, laborers’ and material men’s liens if the obligations secured by such liens are not then delinquent, (iv) encumbrances in the nature of zoning restrictions, easements, rights or restrictions of record on the use of real property if the same do not detract from the value of the property encumbered thereby or impair the use of such property in the business of TRG.

 

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(b)           All real property, personal property leases and licenses pursuant to which TRG leases or licenses from others real or personal property are valid, subsisting and effective in accordance with their respective terms, and there is not, under any real property lease, license or personal property lease, any existing default or event of default of TRG or any other party thereto. Schedule 4.6(b) hereto contains a list of all real property leases, licenses and personal property leases under which TRG is the lessee or licensee. True and complete copies of all real property leases, licenses and personal property leases listed on said Schedule 4.6(b) hereto have been delivered to Purchaser heretofore. Except as set forth on said Schedule 4.6(b) , no such lease or license will require the consent of the lessor or licensor to or as a result of the consummation of the transactions contemplated by this Agreement. TRG does not own any real property.

 

4.7            Insurance . Schedule 4.7 hereto contains a true and complete list of all insurance policies and bonds and self insurance arrangements currently in force that cover or purport to cover risks or losses to or associated with TRG’s business, operations, premises, properties, assets, employees, agents and directors and all such policies are in full force and effect. TRG has not received notice advising it that it will be unable to renew its existing insurance coverage as and when the same shall expire upon terms at least as favorable as those currently in effect, other than possible increases in premiums. TRG has not received any notice that any insurer under any policy referred to in this Section 4.7 is denying liability with respect to a claim thereunder or defending under a reservation of rights clause.

 

4.8            Indebtedness . TRG has no liability or obligation for Indebtedness. The term “Indebtedness”, as used in this Agreement, shall mean: (a) any liability of TRG created or assumed by TRG: (i) for borrowed money; (ii) evidenced by a bond, note, debenture or similar instrument (including a purchase money obligation, deed of trust or mortgage) given in connection with the acquisition of, or exchange for, any property or assets (other than inventory or similar property acquired and consumed or to be consumed in the ordinary course of TRG’s business), including securities and debt instruments; (iii) in respect of letters of credit issued for TRG’s account and “swaps” of interest and currency exchange rates (and other interest and currency exchange rate hedging agreements) to which TRG is a party; or (iv) for the payment of money as lessee under leases that are consistent with the past practice of TRG described in the Financial Statements recorded as capital leases for financial reporting purposes; and (b) any amendment, renewal, extension, revision or refunding of any such liability or obligation; provided, however, that Indebtedness shall not include any liability for: (1) compensation of Company employees in the ordinary course of business; (2) interest that has been accrued and is not yet due and payable; (3) inventory or similar property acquired and consumed or to be consumed in the ordinary course of TRG’s business; (4) services in the ordinary course of business; (5) rent or other amounts payable under real or personal property leases that have been as disclosed elsewhere herein, other than capital leases as described in subsection (a)(iv) above; (6) amounts payable on credit cards to the extent used to acquire inventory or similar property; and (7) utility bills, property taxes and other accounts payable.

 

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4.9            Litigation . Except as set forth on Schedule 4.9 hereto, there is no claim, legal action, suit, arbitration, or mediation proceeding or other legal, administrative or governmental investigation, inquiry or proceeding pending or, to the Knowledge of TRG threatened, against or affecting TRG or its properties, assets or business or any director, officer, employee or agent (in his, her or its capacity as such) of TRG or any Shareholder or to which any assets of TRG are subject, or to which any TRG capital stock is subject or relating to the transactions contemplated by this Agreement or the consummation thereof. Except as set forth on Schedule 4.9 hereto, TRG is not subject to or bound by any currently existing judgment, order, writ, injunction or decree. TRG is not in default with respect to any order, writ, judgment, injunction, decree, determination or award of any court or of any governmental agency or instrumentality, or of any decision of any arbitrator, mediator or other dispute resolution proceeding.

 

4.10          Income and Other Taxes . All federal, state and local tax returns required to be filed with any governmental tax authority to date in connection with the operations of TRG have been timely filed (after giving effect to applicable extensions properly granted by law), and all taxes required to be paid, and required to be deposited to date in connection with its operations have been timely paid and deposited. All of the information that TRG uses for its income tax returns for the period of January 1, 2012 through the Closing Date is true and correct in all material respects and reasonably will enable TRG’s tax preparers to prepare such returns consistently with the income tax returns of prior periods. No audit, examination or similar proceeding is pending or, to the Knowledge of TRG, threatened in regard to any taxes due from or with respect to TRG or any tax return filed by or with respect to TRG.

 

4.11          Employee Benefit Matters .

 

(a)            Schedule 4.11(a) hereto contains a true and complete list of each employee welfare benefit plan (as defined in Section 3(l) of ERISA (an “Employee Welfare Plan”)) currently maintained by TRG or to which TRG contributes or is required to contribute. Schedule 4.11(b) hereto contains a true and complete list of each employee pension benefit plan (as defined in Section 3(2) of ERISA (an “Employee Pension Plan”)) currently maintained by TRG or to which TRG contributes or is required to contribute. The Employee Welfare Plans and the Employee Pension Plans are sometimes collectively referred to herein as the “Plans.”

 

(b)           With respect to each current Plan, the Purchaser has been provided heretofore true and complete copies of all Plan documents and all documents or instruments establishing or constituting any related trust, annuity contract or other funding instrument, and any amendments thereto.

 

(c)           With respect to each Plan, to the Knowledge of TRG, all premiums, and accruals for all periods ending prior to or as of the Closing Date shall have been made or provided for and there is no material unfunded liability which is not reflected on the Latest Balance Sheet. To the Knowledge of TRG, all Plans are fully insured with no claim accrual liabilities.

 

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(d)           To the Knowledge of TRG, each Plan has been maintained, funded and administered in all material respects in accordance with its terms and in compliance with all applicable laws, including ERISA and the Code. With respect to each Plan, to the Knowledge of TRG (i) there have been no nonexempt Prohibited Transactions, and (ii) no breach of fiduciary duty (as determined under ERISA) or any other failure to act or comply in connection with the administration or investment of the assets of such Plan. No action with respect to any Plan (other than routine claims for benefits and appeals of denials of such claims) is pending or to the Knowledge of TRG threatened.

 

(e)           To the Knowledge of TRG, the transfer of the Shares contemplated by this Agreement will not cause the acceleration of vesting in, or payment of, any compensation or benefits under any Plan and will not otherwise accelerate or increase any current or potential liability or obligation under any Plan.

 

4.12          Consents . Except as set forth on Schedule 4.12 , no consents, authorizations, order or approvals of or registration, qualification, designation, declaration or filing with any court, governmental body or agency or instrumentality thereof or any arbitrator or any other Person (“Consents”) is required for the execution and delivery of this Agreement by TRG and the consummation of the transactions contemplated hereby.

 

4.13          Material Contracts; No Defaults.

 

(a)             Schedule 4.13(a) hereto contains a true and complete list as of the date hereof of each agreement of TRG with its customers and clients (“Customer Agreements”), and true and complete copies of the same have been delivered to Purchaser heretofore. All Customer Agreements have been entered into in the ordinary course of business of TRG and reflect terms customarily offered by TRG.

 

(b)             Schedule 4.13(b) hereto contains a true and complete list as of the date hereof of each agreement of TRG with its consultants and independent contractors (“Consultant Agreements”), and true and complete copies of the same have been delivered to Purchaser heretofore. All Consultant Agreements have been entered into in the ordinary course of business of TRG and reflect terms customarily offered by TRG.

 

(c)             Schedule 4.13(c) hereto contains a true and complete list of all noncompetition and nondisclosure agreements and nondisclosure covenants under which either of TRG or the Key Employees is or are obligated, and true and complete copies of the same have been delivered to Purchaser heretofore (excluding those entered into with the Purchaser). Except as described in Schedule 4.13(c) hereto, TRG is not restricted by any agreement from carrying on its business or engaging in any other activity anywhere in the world, and no Key Employee is a party to or otherwise bound or affected by any agreement, covenant or other arrangement or understanding that would restrict or impair his or her ability to perform diligently his duties to TRG.

 

(d)             Schedule 4.13(d) hereto contains a true and complete list and description of all contracts, agreements, employment agreements, understandings arrangements and commitments, written or oral, of TRG with any Key Employee, officer or director, including without limitation severance agreements other than those contracts and the like disclosed in Schedule 4.13(c) hereto; in each case a true and complete copy of such contract, agreement, understanding, arrangement or commitment has been delivered to Purchaser heretofore.

 

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(e)             Schedule 4.13(e) hereto contains a true and complete list and description of all other material contracts, agreements, understandings, arrangements and commitments, written or oral, of TRG by which it or its properties, rights or assets are bound that are not otherwise disclosed in this Agreement or the Schedules hereto. True and complete copies of such written contracts, agreements, understandings, arrangements and commitments and true and complete summaries of such oral contracts, agreements, understandings, arrangements and commitments have been delivered to Purchaser heretofore.

 

(f)            Except as described in Schedule 4.13(f) hereto, no event or condition has occurred or is alleged to have occurred that constitutes or, with notice or the passage of time, or both, would constitute a default or a basis of force majeure or other claim of excusable delay or nonperformance by TRG, or any other person or entity, under any contract, agreement, arrangement, commitment or other understanding, written or oral, described above in this Section 4.13, which default, or the delay or nonperformance of which, individually or in the aggregate, would have a Material Adverse Effect. Except as set forth on Schedule 4.13(f) hereto, to TRG’s Knowledge, no person or entity with whom TRG has such a contract, agreement, arrangement, commitment or other understanding is in default thereunder or has failed to perform fully thereunder by reason of force majeure or other claim of excusable delay or nonperformance thereunder, which default, or the delay or nonperformance of which, individually or in the aggregate, would have a Material Adverse Effect.

 

(g)            Schedule 4.13(g) lists any agreement or indenture relating to the borrowing of money or to the mortgaging, pledging, guaranteeing or otherwise placing a Lien on any asset or group of assets of TRG; any partnership, joint venture, joint development, joint design, collaboration, joint marketing, equityholders’ or other similar contract with any Person; any obligation, or guarantee of any obligation, for borrowed money or otherwise; and agreement with respect to the lending or investing of its funds; and any licensing of intellectual property.

 

4.14          Employees and Labor Matters . To the Knowledge of TRG, TRG is in compliance in all material respects with all laws respecting employment and employment practices, terms and conditions of employment, and wages and hours. Schedule 4.14 hereto sets forth a list of all employees and independent contractors who have employment contracts or loans or other agreements with TRG, true, complete copies of which have been delivered to the Purchaser heretofore. TRG has provided to the Purchaser a true, correct and complete copy of all of its Employee Manuals and Handbooks and list of benefits. With the exception of Mike Consolazio, no Key Employee, or group of employees of TRG has notified TRG of such Person’s or group’s intent to terminate employment with TRG, and there are no pending or, to the Knowledge of TRG, threatened Material disputes, disagreements or controversies between TRG, on the one hand, and any employee or consultant of TRG on the other hand. Any notice required under any law applicable to TRG in order to consummate the transactions contemplated by this Agreement has been or, prior to Closing, will be given.

 

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4.15          Principal Customers and Suppliers .

 

(a)             Schedule 4.15(a) states a total of all sales of TRG for the period from October 30, 2011 through October 27, 2012 to each of the customers that constitute the ten (10) largest customers of TRG in terms of TRG’s sales of services during such period, and lists each of such ten (10) largest customers. None of such customers has given notice of its intention to take any action, for any reason, which would adversely affect its relationship with TRG.

 

(b)           Except as shown on Schedule 4.15(b) , none of the ten (10) largest suppliers of TRG as listed on Schedule 4.15(b) in terms of TRG’s purchase of goods or services during the ten months ended on October 27, 2012 has terminated its relationship with TRG, or imposed Materially more adverse terms on its relationship with TRG or indicated (for any reason) its intention to terminate such relationship or take such adverse action with respect thereto.

 

4.16          Books and Records . TRG’s minute book and other books and records of TRG are located at TRG’s principal offices, at 607 North Avenue, Suite 15, Wakefield, MA 01880. The books of account and other financial and corporate records of TRG are in all material respects complete and correct and are accurately reflected in the Financial Statements. The minute book(s) of TRG, as previously made available to the Purchaser and its counsel, contain materially accurate records of all meetings and accurately reflect all other corporate action of the stockholders and directors of TRG through the date hereof. The minute books will be delivered to the Purchaser at Closing.

 

4.17          Intellectual Property . TRG owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted and, to TRG’s Knowledge, as presently proposed to be conducted (the “Intellectual Property”), without any Known infringement of the rights of others.

 

4.18          Authorization . TRG has all requisite corporate power and authority to execute, deliver and perform this Agreement. All corporate action required to be taken by TRG’s Board of Directors and shareholders in order to authorize TRG to enter into and perform this Agreement has been taken or will have been taken prior to the Closing. This Agreement, when executed and delivered by TRG, shall constitute the valid and legally binding obligation of TRG, enforceable against TRG in accordance with its terms except: (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally; or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

 

4.19          Absence of Changes . Except as set forth on Schedule 4.19 , since December 31, 2012, there has not occurred any event, circumstance or occurrence that could reasonably be expected to have a Material Adverse Effect on TRG.

 

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4.20          Absence of Undisclosed Liabilities . Except as set forth on Schedule 4.20 , to the Knowledge of TRG, TRG has no liability and there is no basis for any claim with respect to any liability that has, or could reasonably be expected to have, a Material Adverse Effect on TRG, except in either case for (a) liabilities set forth on the Latest Balance Sheet, and (b) liabilities which have arisen since the date of the Latest Balance Sheet in the ordinary course of business.

 

4.21          Legal Compliance .

 

(a)            Compliance with Laws . Except as set forth on Schedule 4.21 , TRG has not received any communication, written or otherwise, during the past three (3) years from a governmental authority that alleges that TRG is not in compliance with any law applicable to the conduct of its business, the noncompliance with which could reasonably be expected to have a Material Adverse Effect on TRG. To the Knowledge of TRG, TRG is in compliance, in all material respects, with all laws applicable to the conduct of its business.

 

(b)            Permits . To the Knowledge of TRG, TRG possesses all Material certificates, licenses, permits, authorizations and approvals made or issued pursuant to or under, or required by, laws applicable to TRG to own, lease and operate its assets and to conduct the business of TRG as currently conducted.

 

4.22          Illegal Payments . Neither TRG nor, to the Knowledge of TRG, any officer, director or employee of TRG has: (a) used any funds of TRG for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (b) made any payment in violation of applicable Law to any foreign or domestic government official or employee or to any foreign or domestic political party or campaign or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (c) made any other payment in violation of applicable Law.

 

4.23          Affiliate Transactions .

 

(a)           Except as set forth on Schedule 4.23(a) or as related to employment, (i) there are no agreements, understandings, arrangements (in each case whether written or oral), liabilities or obligations between TRG, on the one hand, and the Shareholders, any trustee of the Shareholders, or any current or former shareholder, member, partner, officer, director or manager of TRG or any Affiliate of any such Person, on the other hand, (ii) TRG does not provide or cause to be provided any assets, services or facilities to any Person described in clause (i) foregoing, (iii) no Person described in clause (i) foregoing provides or causes to be provided any assets, services or facilities to TRG, and (iv) TRG does not beneficially own, directly or indirectly, any interests or investment assets of any Person described in clause (i).

 

(b)           Except as set forth on Schedule 4.23(b) , and except for the ownership by the Shareholders of TRG Shares, none of the Shareholders nor any of their Affiliates (other than TRG), as the case may be, have any interest of any nature in any of the assets and properties used for or related to the business or operations of TRG.

 

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4.24          Money Laundering Laws . The operations of TRG are and have been conducted at all times in compliance in all material respects with money laundering statutes in all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Body (collectively, the “Money Laundering Laws”) and no action involving TRG with respect to the Money Laundering Laws is pending or, to the Knowledge of TRG, threatened.

 

4.25          Disclosure . Neither this Agreement nor any of the Disclosure Schedules, other schedules, attachments or exhibits hereto contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made herein or therein, in the light of the circumstances under which they were made, not misleading.

 

ARTICLE V

 

Representations and Warranties of Purchaser

 

The Purchaser hereby represents and warrants to the Shareholders that:

 

5.1            Organization and Good Standing . The Purchaser has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its organization with full power and authority (corporate and otherwise) to enter into this Agreement and to consummate the transactions contemplated hereby.

 

5.2            Execution and Delivery; Compliance with Law . Each of this Agreement and all other documents to be executed and delivered hereunder, including without limitation the Employment Agreement (the “Documents”) has been duly authorized by all necessary action on the part of the Purchaser, and each of this Agreement and the other Documents has been duly executed and delivered by the Purchaser and constitutes the legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors’ rights generally, and by general equitable principles. The Purchaser is in compliance, in all material respects, with all federal, state and local laws and regulations applicable to it and its business, including without limitation the Securities Act, the Exchange Act, and the regulations promulgated thereunder.

 

5.3            Purchaser Shares . The Purchaser Shares have been duly authorized by all necessary action, and when issued at Closing, shall be validly issued, fully paid and non-assessable and free and clear of all Liens.

 

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5.4            No Conflicts . Neither the execution, delivery and performance of this Agreement, the Promissory Note and the other Documents, nor the consummation of the transactions contemplated hereby and thereby, nor the issuance of the Purchaser Shares, will conflict with or result in a breach or violation of any term or provision of, or (with or without notice or passage of time, or both) constitute a default under, or otherwise give any person or entity a basis for nonperformance under, any indenture, mortgage, deed of trust, loan or credit agreement, or other agreement or instrument to which the Purchaser is a party or by which the Purchaser is bound or to which any of the property or assets of the Purchaser is subject, nor will such action result in the violation of the provisions of the charter or bylaws of the Purchaser or any statute applicable to it (including without limitation the Securities Act, the Exchange Act or the regulations promulgated thereunder), or any order, rule or regulation of any governmental body or agency or instrumentality thereof applicable to the Purchaser, or any order, writ, injunction or decree of any court or any arbitrator having jurisdiction over the Purchaser or any of its property or assets.

 

5.5            Consents . All consents, authorizations and approvals of any court, governmental body or agency or instrumentality thereof or any arbitrator or any other Person required to be obtained by the Purchaser as a result of the consummation of the transactions contemplated by this Agreement, including without limitation the issuance of the Purchaser Shares, have been obtained.

 

ARTICLE VI

 

Covenants

 

TRG and the Shareholders hereby covenant as follows:

 

6.1            Ordinary Course . Prior to the Closing Date, TRG shall conduct its business in the usual and ordinary course, in substantially the same manner as theretofore conducted, use commercially reasonable efforts (in compliance with this Agreement) to preserve intact its current business and goodwill, to maintain its equipment in good condition and repair, to keep available the services of its current officers and Key Employees and to preserve its relationships with customers, suppliers and others having business dealings with it.

 

6.2            Dividends; Capital Stock . Prior to the Closing Date, TRG shall not (i) declare any dividends on, or make other distributions in respect of, any shares of its capital stock; (ii) issue, authorize or propose the issuance of, or purchase or propose the purchase of, any shares of TRG’s capital stock or securities convertible into or exchangeable with securities of TRG; (iii) change the outstanding shares of TRG’s capital stock into a different number of shares of the same or different class by reason of any reclassification, recapitalization, forward stock split, reverse stock split, combination, exchange of shares or readjustment, or declare a stock dividend thereon; or (iv) obligate itself to do any of the foregoing.

 

6.3            Covenant Not to Use Name . After the Closing the Shareholders shall not use the name “TRG”, or any confusingly similar variations thereof as a trademark, service mark, trade name, corporate name, logo, slogan, website and Internet domain name for purposes of conducting or transaction any business.

 

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6.4            Confidentiality . Any information (except publicly available or freely usable material obtained from another source) respecting any party or its Affiliates will be kept in strict confidence by all other parties to this Agreement and their agents. Except as required by Law, each party and their respective Affiliates, directors, officers, employees or agents, will not disclose the terms of the transactions contemplated hereunder at any time, currently, or on or after the Closing, regardless of whether the Closing takes place, except as necessary to their attorneys, accountants, third parties, or professional advisors, in which instance such persons and any employees or agents shall be advised of the confidential nature of the terms of the transaction and shall themselves be required by the applicable party to keep such information confidential. Except as required by Law, each party shall retain all information obtained from the other and their lawyers on a confidential basis except as necessary to their attorneys, accountants and professional advisors, in which instance such persons and any employees or agents of such party shall be advised of the confidential nature of the terms of the transaction and shall themselves be required by such party to keep such information confidential.

 

6.5            Publicity . If mutually desired by Purchaser and the Shareholders, Purchaser and Shareholders will cooperate with each other in the development and distribution of any news releases and other public disclosures relating to the transactions contemplated by this Agreement and, following the Closing, relating to the Business generally. Notwithstanding the foregoing, the provisions of this paragraph shall not be applicable in the event a party hereto is required to make public disclosure pursuant to the Laws of any Governmental Body or securities exchange.

 

6.6            Required Information . In connection with the preparation of any report, statement, filing notice or application made by or on behalf of Purchaser to any Governmental Body, FINRA, the SEC or other third Person in connection with the transactions contemplated hereby, and for such other reasonable purposes, TRG and/or the Shareholders shall, upon request by Purchaser, furnish the other with all information concerning themselves, TRG’s directors, officers and employees, and such other matters as may be reasonably necessary or advisable in connection with the transactions contemplated hereby, or any other report, statement, filing, notice or application made by or on behalf of Purchaser to any third party and/ or any Governmental Authority in connection with the transactions contemplated hereby.

 

ARTICLE VII

 

Conditions Precedent to Closing

 

7.1            Conditions of the Purchaser . The obligations of the Purchaser to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction, at or prior to the Closing, of the following conditions, any of which may be waived in whole or in part by Purchaser:

 

(a)  the Closing shall occur on or prior to the date that is 30 days from the date of this Agreement, or such other date as mutually agreed to by the parties in writing;

 

(b)  the Disclosure Schedules shall have been completed to the satisfaction of the Purchaser, and TRG, Mark P. Aiello and Michael A. Consolazio shall have delivered to the Purchaser the certificate contemplated under Article IV hereof, in which TRG, Mark P. Aiello and Michael A. Consolazio shall certify that the representations and warranties contained in such Article IV, as qualified by such Disclosure Schedules, are true and correct in all material respects on and as of the Closing Date;

 

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(c)  the representations and warranties of the Shareholders in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date, and TRG and the Shareholders shall have complied with all covenants and agreements and satisfied all conditions on their part to be performed or satisfied under this Agreement on or prior to the Closing Date;

 

(d)     Schedule 2.1(c) shall have been completed to the satisfaction of the Purchaser and the Shareholders, and the Shareholders shall have duly executed and delivered Schedule 2.1(c);

 

(e)  there shall not have occurred any Material Adverse Change with respect to TRG;

 

(f)  each of the Shareholders shall have delivered to the Purchaser (i) the original stock certificate or certificates for the Shares being transferred hereunder, duly endorsed for transfer or (ii) a Lost Stock Certificate Affidavit, certifying as to the loss or destruction of such certificate(s), or certifying that a stock certificate representing such Shares was never issued to such Shareholder, in each case in a form reasonably satisfactory to the Purchaser’s counsel;

 

(g)  each of the Shareholders shall have entered into Covenants Not to Compete/Non-Solicitation with the Purchaser and TRG in form and substance reasonably satisfactory to all Parties;

 

(h)  each current member of TRG’s board of directors shall have tendered his or her written resignation to TRG, to be effective upon the Closing;

 

(i)  each officer of TRG requested to do so by the Purchaser shall have resigned;

 

(j)  the Parties shall have obtained all of the Consents required in connection with the consummation of the transactions contemplated by this Agreement;

 

(k)  the Purchaser shall have obtained on terms and conditions satisfactory to the Purchaser in the Purchaser’s sole and absolute discretion, all of the financing it needs in order to consummate the transactions contemplated by this Agreement and to fund the working capital requirements of the TRG after the Closing;

 

(l)  the Purchaser’s independent outside accountants shall have completed their audit of TRG’s 2012 and 2011 Annual Financial Statements and shall have reviewed TRG’s financials for the stub-period for the current fiscal year;

 

(m)  the Purchaser shall have completed its due diligence of TRG’s financial and legal documents, materials, books and records to its reasonable satisfaction;

 

(n)  If required by the Purchaser (and at its expense), the Shareholders shall have delivered to Purchaser an opinion of counsel to the Shareholders reasonably satisfactory in form and substance to Purchaser, and

 

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(o)  the Shareholders shall have delivered to the Purchaser such other documents, certificates and instruments as may be reasonably requested by the Purchaser in connection with the consummation of the transactions contemplated by this Agreement.

 

7.2            Conditions of the Shareholders . The obligations of the Shareholders to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction, at or prior to the Closing, of the following conditions, any of which may be waived in whole or in part by the Shareholders:

 

(a)  The Closing shall occur on or prior to the date that is 30 days from the date of this Agreement, or such other date as mutually agreed to by the parties;

 

(b)  the representations and warranties of the Purchaser in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date, and the Purchaser shall have complied with all covenants and agreements and satisfied all conditions on its part stated to be performed or satisfied under this Agreement prior to the Closing Date;

 

(c)  the Purchaser shall have paid the Cash Portion of the Purchase Price in immediately available funds, as required by Section 2.2(a) hereof; and shall have duly executed and delivered to the Shareholders either (i) certificates representing the Purchaser Shares or (ii) evidence reasonably satisfactory to the Shareholders’ counsel that the Purchaser Shares have been duly issued to each Shareholder and that each Shareholder is reflected as the owner thereof on the books and records of the Purchaser;

 

(d)  Schedule 2.1(c) shall have been completed to the satisfaction of the Purchaser and the Shareholders, and the Purchaser shall have duly executed and delivered Schedule 2.1(c); and

 

(e)  the Purchaser shall have delivered to the Shareholders such documents, certificates and instruments as may be reasonably requested by the Shareholders in connection with the consummation of the transactions contemplated by this Agreement.

 

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ARTICLE VIII

 

Indemnification

 

8.1            Survival of Representations and Warranties .

 

All representations and warranties of the Shareholders in Article III shall survive the Closing and shall terminate four (4) years from the Closing Date and thereafter shall be of no force or effect except for any claim with respect to which notice has been given to the party to be charged prior to such expiration date. All representations and warranties of TRG contained in this Agreement shall survive the Closing and shall terminate twelve (12) months from the Closing Date (the “Expiration Date”) and thereafter shall be of no force or effect, except for any claim with respect to which notice has been given to the party to be charged prior to such expiration date; provided, however, that any representations and warranties that are proven to have been fraudulently made shall not expire on the Expiration Date; provided further that representations of Section 4.10 (Income and Other Taxes) and 4.11 (Employee Benefit Matters) shall expire upon the termination of any applicable statutes of limitations.

 

8.2             Indemnification .

 

(a)           Subject to the terms of this Agreement, including without limitation the floor and cap on indemnification set forth in Section 8.2(c), the Shareholders agree to indemnify, defend, save and hold harmless, Purchaser, TRG, its officers, directors, employees, agents, and representatives from and against any loss, cost, expense, liability, claim or legal damages (including, without limitation, reasonable fees and disbursements of counsel) (collectively, “Damages”) arising out of or resulting from: (i) any inaccuracy in or breach of any representation and warranty of TRG or any Shareholder (but only with respect to such Shareholder) in this Agreement; or (ii) any failure of TRG or any Shareholder (but only with respect to such Shareholder) to perform or observe fully any covenant, agreement or provision to be performed or observed by it pursuant to this Agreement.

 

(b)           Subject to the terms of this Agreement, the Purchaser agrees to indemnify, defend, save and hold harmless, the Shareholders, TRG, its officers, directors, employees, agents, and representatives from and against any Damages arising out of or resulting from: (i) any inaccuracy in or breach of any representation and warranty of the Purchaser in this Agreement; or (ii) any failure of the Purchaser to perform or observe fully any covenant, agreement or provision to be performed or observed by it pursuant to this Agreement.

 

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(c)           Notwithstanding any other provision of this Agreement, (i) no claim shall be made for indemnification under Section 8.2(a) or Section 8.2(b) unless and until the Damages exceed $25,000 in the aggregate, in which event the party seeking indemnification hereunder (the “Indemnified Party”) shall be entitled to indemnification from party obligated to provide indemnification hereunder (the “Indemnifying Party”) for the entire amount of such Damages from the first dollar; (ii) the aggregate amount of any claims for indemnification made by the Purchaser shall not exceed the total of the Cash Portion of the Purchase Price, plus any Earn Out paid as of the date of such claim; and (iii) with respect to each Shareholder, the amount of any indemnification payable by such Shareholder shall not exceed such Shareholder’s pro rata portion of amounts set forth in clause (ii) above received by such Shareholder. Any indemnification based on claims by the Purchaser which are finally established to be due and payable, shall be paid first by applying such amounts against any Earn Out due or to become due under this Agreement, then by returning the number of Purchaser Shares necessary to satisfy the claim.

 

(d)           The Indemnified Party shall deliver notice of any claim for indemnity under Section 8.2(a) or Section 8.2(b), as applicable, in writing to the Indemnifying Party promptly after a discovery by the Indemnified Party of such claim, setting forth with reasonable specificity the amount claimed and the underlying facts supporting such claim to the extent known by the Indemnifying Party; provided however, that the failure of the Indemnified Party to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligation to indemnify under this Agreement unless the claim arises from a third party and the rights of the Indemnifying Party are thereby materially prejudiced. The Indemnifying Party shall have fifteen (15) days to accept or dispute such claim. Any undisputed claims shall be satisfied within such fifteen (15) day period. Any disputes that the parties are not mutually able to resolve within fifteen (15) days after the Indemnifying Party has disputed the claim (or the end of such fifteen (15) day period, whichever is earlier), shall be finally settled by arbitration in New York, New York, in accordance with the Commercial Arbitration Rules of the American Arbitration Association in force at such time, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. This agreement to arbitrate shall be specifically enforceable and following the Closing shall be the sole and exclusive remedy of the Indemnified Party for the resolution of any disputes related to the subject matter of this Agreement; provided however that such agreement to arbitrate, such exclusive remedy or the limitations on liability set forth herein shall not preclude the Indemnified Party from pursuing any claim for rescission based upon fraud that induces Indemnified Party into entering into this Agreement, or claim for injunctive relief which the parties may make in any court of competent jurisdiction.

 

(e)           After receipt by the Indemnified Party of notice of the commencement of any action or other claim by a third party that may give rise to a claim of indemnity hereunder (a “third party claim”), the Indemnified Party will, in a timely manner, notify the Indemnifying Party of the third party claim, but the failure to notify Indemnifying Party shall not relieve the Indemnifying Party of its obligation to indemnify under this Agreement unless the lack of timeliness materially prejudices the Indemnifying Party’s ability to defend against such third party claim. After receipt of such notice the Indemnifying Party shall, in a timely manner, undertake the defense or settlement of such third party claim with counsel reasonably satisfactory to the Indemnified Party (who shall not, except with the consent of the Indemnified Party, be counsel to the Indemnifying Party). The Indemnifying Party shall not settle any such action without the consent of the Indemnified Party, which shall not be unreasonably withheld.

 

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ARTICLE IX

 

Termination, Amendment and Waiver

 

9.1           Termination . This Agreement may be terminated at any time on or prior to the Closing Date:

 

(a)           by mutual agreement of the Parties hereto;

 

(b)           by any Party hereto if the Closing has not occurred on or before the date that is 30 days after the date of this Agreement, or such later Closing Date as may have been agreed to by the Parties in writing;

 

(c)           by the Purchaser if: (i) at any time there has been a material misrepresentation, breach of warranty or breach of covenant by the Shareholders or TRG under this Agreement; or (ii) any condition precedent to Closing set forth in Section 7.1 of this Agreement has not been met on the Closing Date, and, in each case, Purchaser is not then in default of its obligations hereunder; and

 

(d)           by the Shareholders if: (i) at any time there has been a material misrepresentation, breach of warranty or breach of covenant by Purchaser under this Agreement; or (ii) any condition precedent to Closing set forth in Section 7.2 of this Agreement has not been met on the Closing Date, and, in each case, the Shareholders are not then in default of their obligations hereunder.

 

9.2            Effect . In the event of termination of this Agreement as provided in Section 9.1 hereof, this Agreement shall forthwith become void and there shall be no liability for any reason on the part of any Party hereto, or any officer, director, employee, agent or representative of any Party hereto or any person who Controls a Party hereto, except for willful breach.

 

9.3            Amendment . This Agreement may be amended at any time only by a written instrument executed by the Purchaser and the Shareholders.

 

9.4            Waiver . Compliance with or performance under any term or provision of this Agreement may be waived in writing by mutual agreement of the Purchaser and the Shareholders.

 

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ARTICLE X

 

General Provisions

 

10.1          Complete Agreement and other Matters . This Agreement (a) constitutes the entire agreement and supersedes all other prior and contemporaneous promises, covenants, understandings, representations, warranties, agreements and undertakings, both written and oral, between the Parties hereto with respect to the subject matter hereof; (b) is not intended to confer upon any person or entity any rights or remedies hereunder or with respect to the subject matter hereof except an specifically provided in this Agreement; (c) shall not be assigned by operation of law or otherwise; (d) shall be governed by, and construed in accordance with, the internal laws (and not the law of conflicts) of the State of New York; (e) may be executed in two or more counterparts, each of which shall be deemed to be an original, but all such counterparts together shall constitute a single agreement; (f) may be executed by facsimile signature, provided that the original thereof is provided to the other Parties promptly after the Closing; and (g) shall be construed without regard to headings or captions, or gender, or whether a reference is to the singular or plural. The Shareholders and the Purchaser agree that service of process by registered or certified mail, return receipt requested, at his, her or its address specified in or pursuant to Section 10.6 is reasonably calculated to give actual notice.

 

10.2         Expenses . All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party or Parties incurring the same, it being expressly understood by the Parties hereto that TRG, and not the Shareholders, shall be liable for the costs and expenses of the Shareholders and their counsel and other advisors in connection with this Agreement and the transactions contemplated hereby.

 

10.3          Broker’s Fees . Both the Purchaser and the Shareholders agree to pay the fees of any broker hired by it and to indemnify and hold the other Parties harmless from any claim by any broker, finder, banker or intermediary hired or claiming to have been hired by it.

 

10.4          Further Action . Subject to the terms and conditions provided in this Agreement, each of the Parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. If at any time after the Closing Date any further action is necessary to carry out the purposes of this Agreement, the Shareholders or Purchaser, as the case may be, shall take, or cause to be taken, all such necessary action.

 

10.5          Notices . All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given: (a) upon receipt if delivered personally; (b) one (1) Business Day following the date sent when sent by reputable overnight courier (such as FedEx) and (c) three (3) Business Days following the date mailed when mailed by registered or certified mail, return receipt requested and postage prepaid, at the following addresses:

 

(a)         As to Purchaser:

Staffing 360 Solutions, Inc.

641 Lexington Avenue

Suite 1526

New York, NY  10022

Attention: A.J. Cervantes

 

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(b)         As to Shareholders:  
   
If to Mark P. Aiello Mr. Mark P. Aiello
  805 Summer Street
  Manchester, Massachusetts 01944
   
If to Michael A. Consolazio: Mr. Michael A. Consolazio
  71 Thornberry Rd.
  Winchester, MA  01890
   
If to Heather D. Haughey Ms. Heather D. Haughey
  35 Lancashire Drive
  Mansfield, MA 02048
   
With a Copy to: Vrountas, Ayer & Chandler, P.C.
  250 Commercial Street, Suite 4004
  Manchester, NH 03101
  Attention: Christopher T. Vrountas, Esq.

 

or to such other address, or to such other authorized recipient of any notice hereunder, as any Party shall in writing deliver to all other Parties in accordance with this Section 10.5.

 

10.6          Survival . The obligations of the Purchaser under Section 2.2(c) and Section 2.4 shall survive the Closing.

 

[Signature page follows]

 

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IN WITNESS WHEREOF, each of the Parties hereto has executed this Agreement, or has caused this Agreement to be executed on its behalf by a representative duly authorized, as an instrument under seal, all as of the date first above set forth.

 

  PURCHASER:
   
  Staffing 360 Solutions, Inc.
   
  By:   /s/ Alfonso J. Cervantes
    Name: Alfonso J. Cervantes
    Title: President
   
  SHAREHOLDERS:
   
  /s/ Mark P. Aiello
  Mark P. Aiello
   
  /s/ Michael A. Consolazio
  Michael A. Consolazio
   
  /s/ Heather D. Haughey
  Heather D. Haughey
   
  TRG:
   
  The Revolution Group, Ltd.
   
  By:  /s/ Mark P. Aiello
    Name: Mark P. Aiello
    Title: CEO & President

 

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Exhibit A

 

Capitalization of TRG; List of Shareholders,

Number of Shares of Stock Owned by Each,

Allocation of Payments

 

TRG has authorized the issuance of 178,222 shares of Common Stock, no par value per share, designated as 90,000 shares of Class A Voting Shares and 88,222 shares of Class B Non-Voting Shares. As of the date of this Stock Purchase Agreement, there are One Hundred Sixty-Six Thousand (166,000) shares of Common Stock outstanding as follows:

 

    Number of   Allocation of  
Shareholder   Shares Owned   Payment  
           
Mark P Aiello   45,000 Class A     48.19 %
805 Summer Street   35,000 Class B        
Manchester, Massachusetts 10944            
             
Michael A. Consolazio   45,000 Class A     48.19 %
71 Thornberry Rd.   35,000 Class B        
Winchester, MA  01890            
             
Heather D. Haughey   6,000 Class B     3.61 %
35 Lancashire Drive            
Mansfield, MA 02048            

 

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EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “Agreement”) is made and entered into as of the 21st day of March, 2013 and effective as of the Effective Date (defined below), by and between Staffing 360 Solutions, Inc., a Nevada corporation (the “Company”), and Mark P. Aiello (the “Executive”).

 

WITNESSETH:

 

WHEREAS, the Company and The Revolution Group, Ltd., a Massachusetts corporation and wholly-owned subsidiary of the Company (“TRG”), desire to engage the full-time services of the Executive;

 

WHEREAS, the Executive desires to be so employed by the Company and TRG; and

 

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the parties hereto agree as follows:

 

1.         Employment and Term . The Company hereby agrees to employ the Executive as the Senior Vice-President of the Company and as President of Cyber 360 Solutions, the Company’s Cyber Security Division, reporting directly to the Chief Executive Officer of the Company, and the Executive hereby agrees to accept such employment, on the terms and conditions set forth herein, for the period commencing on the date of the effectiveness of this Agreement pursuant to Section 14 hereof (the “Effective Date”) and expiring as of 11:59 p.m. on the fourth (4 th ) anniversary of the Effective Date (unless sooner terminated as hereinafter set forth) (the “Term”); provided, however, that commencing on such fourth (4 th ) anniversary of the Effective Date, and on each anniversary of the Effective Date thereafter, the Term of this Agreement shall be extended automatically for one (1) additional year unless at least One Hundred Eighty (180) days prior to each such anniversary date, the Company or the Executive shall have given notice that it or he, as applicable, does not wish to extend this Agreement.

 

2.         Duties and Restrictions .

 

(a) Duties as Executive of the Company . The Executive shall serve as the Senior Vice-President of the Company and as President of TRG and the Company’s Cyber Security Division. In such capacity, he shall report directly to the Chief Executive Officer of the Company, and his duties and responsibilities shall be as prescribed from time to time by the Company’s Board of Directors. Neither the Chief Executive Officer of the Company nor the Board of Directors shall, however, assign to the Executive any of the rights, duties, or responsibilities of the principal executive officer or principal financial officer of the Company or any other functions that would subject the Executive to certification requirements under Section 302 of the Sarbanes-Oxley Act, 15 U.S.C. § 7241. The Executive shall devote his entire working time, attention and energy during normal working hours for a similarly situated executive with the Executive’s level of responsibility to the affairs of the Company and TRG during the term of his employment pursuant to this Agreement.

 

 
 

 

(b) Confidentiality . During the Term of this Agreement and for a period of twelve (12) months thereafter, the Executive shall not, directly or indirectly, during the Term and at any time during or following the termination of his employment with the Company, reveal, divulge, or make known to any person or entity, or use for the Executive’s personal benefit (including, without limitation, for the purpose of soliciting business competitive with any business of the Company, TRG, or any of their subsidiaries or affiliates), any information acquired during the course of employment hereunder with regard to the financial, business or other affairs of the Company, TRG or any of their subsidiaries or affiliates, other than (i) material in the public domain at the time it is disclosed to the Executive, or which comes into the public domain thereafter not due to any breach by the Executive of his obligations hereunder, (ii) information of a type not considered confidential by persons engaged in the same business or a similar business to that conducted by the Company, or (iii) material that the Executive is required to disclose under the following circumstances: (A) in the performance by the Executive of his duties and responsibilities hereunder, reasonably necessary or appropriate disclosure to another executive of the Company or to representatives or agents of the Company (such as independent public accountants and legal counsel); (B) at the express direction of any authorized governmental entity; (C) pursuant to a subpoena or other court process;(D) as otherwise required by law or the rules, regulations, or orders of any applicable regulatory body; (E) as otherwise permitted in this Agreement; or (E) as otherwise necessary, in the opinion of counsel for the Executive, to be disclosed by the Executive in connection with the prosecution of any legal action or proceeding initiated by the Executive against the Company, TRG or any subsidiary or affiliate of the Company or TRG, or the defense of any legal action or proceeding initiated against the Executive in his capacity as an executive of the Company, TRG or any subsidiary or affiliate of the Company or TRG.

 

(c) Noncompetition . The Executive agrees that he will not, during the Term and for a period of twelve (12) consecutive months following the termination of his employment with the Company not resulting from a breach by the Company of this Agreement or from failure to pay the Earn Out (as defined below) or from any “Good Reason” as defined in section 4(d)(i) – (viii) hereto (the “Survival Period”), be employed by, associated with, or have any interest in, directly or indirectly (whether as principal, director, officer, employee, consultant, partner, stockholder, trustee, manager or otherwise), any business entity that competes with the Company (as the Company’s business is conducted at the time of termination of the Executive’s employment with the Company), in the business of staffing for the Information or Cyber Security industry within thirty (30) miles of any city where TRG has placed consultants or has otherwise done business (each, a “Competitor”). Notwithstanding the foregoing, the Executive shall not be prohibited from owning or acquiring one percent (1%) or less of the outstanding equity securities of any entity whose equity securities are listed on a national securities exchange or publicly traded in any over-the-counter market.

 

(d) Non-Solicitation . During the Term and the Survival Period, the Executive will not solicit, or attempt to solicit, any officer, director, consultant, executive or employee of the Company, TRG or any of their subsidiaries or affiliates to leave his or her engagement with the Company, TRG or such subsidiary or affiliate, nor will he call upon, solicit, divert or attempt to solicit or divert from the Company or any of its affiliates or subsidiaries any of their customers or suppliers, or potential customers or suppliers, of whose names he was aware during the Term of his employment with the Company; provided, however, that a general advertisement for employees shall not be considered a violation of this Section 2(d), and provided, further, that nothing in this Section shall be deemed to prohibit the Executive from calling upon or soliciting a customer or supplier during the Survival Period if such action relates solely to a business which does not compete with the Company.

 

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(e) The provisions of Sections 2(b), (c) and (d) hereof shall terminate and be of no further force and effect if (i) the Company fails to pay any amount due in connection with the Earn Out (as defined below), which failure is not cured within the applicable cure period set forth in the Stock Purchase Agreement (as defined below), (ii) the Company and/or TRG terminates the Executive’s employment hereunder without Cause (as defined in Section 4(c)) or otherwise breaches its obligations under this Agreement, or (iii) the Executive terminates this Agreement for Good Reason (as defined in Section 4(d)). For purposes of this Agreement, “Earn Out” has the meaning set forth under that certain Stock Purchase Agreement, dated as of March 21, 2013 pursuant to which the Company purchased all of the issued and outstanding shares of

TRG (the “Stock Purchase Agreement”).

 

3.         Compensation and Benefits .

 

(a) Base Salary . The Executive shall receive a base salary paid by the Company (“Base Salary”) at the annual rate of One Hundred Fifty Thousand Dollars ($150,000) during each calendar year of the Term, payable in substantially equal monthly installments (or such other more frequent times as executives of the Company normally are paid). In addition, the Company’s Board of Directors shall, in good faith, consider granting increases in the Base Salary based on such factors as the Executive’s performance and the financial performance of the Company’s Cyber Security Division and/or TRG.

 

(b) Base Commission . The Executive shall receive, in addition to the Base Salary, an annual base commission (the “Base Commission”) equal to three percent (3%) of the Gross Profit (as defined under GAAP) of TRG and the Company’s Cyber Security Division. The Base Commission of any given year shall be paid shall be paid quarterly no later than 60 days from the last day of each quarter.

 

(c) Bonus Payments . The Executive shall be entitled to receive, in addition to the Base Salary and Base Commission, such bonus payments, if any, as the Board of Directors may specify in accordance with certain performance criteria adopted by the Board of Directors within a reasonable time after the commencement of each calendar year, taking into account the business plan for such year.

 

(d) Expenses . During the term of his employment hereunder, the Executive shall be entitled to receive prompt reimbursement for all expenses incurred by him in performing services hereunder. Without limiting the generality of the foregoing, the Executive shall be entitled to reimbursement for, or the Company shall directly pay: (i) all expenses incurred in connection with the use of a mobile phone by the Executive; (ii) all expenses incurred in connection with the entertainment of customers and potential customers; and (iii) all charges in connection with business travel by the Executive.

 

(e) Fringe Benefits . As an executive of the Company, the Executive shall be eligible to participate in all executive fringe benefit programs as are made available from time to time to the Company’s executives and to participate in such other non-discriminatory fringe benefit programs as the Company may make available to its other executive personnel.

 

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(f) Insurance Coverage . During the Term, the Company shall provide the Executive with group health, disability and group term life insurance (the beneficiary of which shall be designated by the Executive) to the same extent that it makes such insurance coverage available to its other executive personnel; provided , however , that the group health, disability, and group term life insurance (collectively, “Benefits”) provided to the Executive shall not contain less coverage or be less favorable to the Executive than those provided to Executive by TRG immediately prior to the Effective Date. In addition, the Company will purchase, at its expense a term life insurance policy on the life of the Executive (the beneficiary of which shall be designated by the Executive) in a face amount of not less than the highest amount purchased by the Company on behalf of its other executive personnel, as soon as practicable after the date hereof.

 

(g) Vacations . The Executive shall be entitled to paid vacation days and other paid time off (PTO) in accordance with policies adopted by the Board of Directors for senior executives of the Company as in effect from time to time. The policy will provide no less vacation benefits to the Executive than TRG’s policy and practice do now.

 

(h) Proration . Any payments or benefits payable to the Executive hereunder in respect of any calendar year during which the Executive is employed by the Company for less than the entire year, unless otherwise provided in the applicable plan or arrangement, shall be prorated in accordance with the number of days in such calendar year during which he is so employed.

 

(i) Stock Incentives . The Executive shall be entitled to participate equally in any and all stock incentive programs offered to other senior executives of the Company.

 

4.         Termination . The Executive’s employment hereunder may be terminated by the Company or the Executive, as applicable, without any breach of this Agreement, only under the following circumstances:

 

(a) Death . The Executive’s employment hereunder shall terminate upon his death. In such event, the Executive shall be entitled to the benefits set forth in Section 5(a).

 

(b) Disability . If, as a result of the Executive’s incapacity due to physical or mental illness (as determined by a qualified independent physician selected by the Company’s Board of Directors and agreed to by the Executive), the Executive shall have been unable, with reasonable accommodation, to perform the essential functions of his duties and responsibilities hereunder on a full-time basis for either (i) one hundred and eighty (180) consecutive calendar days, or (ii) two hundred and seventy (270) calendar days within any three hundred and sixty (360) consecutive days, and, at the end of such one hundred eighty (180) or two hundred and seventy (270) day period, as the case may be, the Executive shall not have returned to the performance of his duties and responsibilities hereunder on a full-time basis, the Company may terminate the Executive’s employment hereunder. The Executive agrees to cooperate with the independent physician in providing information and subjecting to medical examinations and tests. In such event, the Executive shall be entitled to the benefits set forth in Section 5(b).

 

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(c) Cause . Subject to the provisions of Section 5(c), the Company, by vote of a majority of its directors, may terminate the Executive’s employment hereunder for Cause. For purposes of this Agreement, the Company shall have “Cause” to terminate the Executive’s employment hereunder (subject to Section 6(d)) upon:

 

(i) The conviction of, or entering of a plea of guilty or nolo contendere by, the Executive to any felony or to any crime involving moral turpitude;

 

(ii) The commission by the Executive of any fraud, embezzlement, or misappropriation of funds;

 

(iii) The breach by the Executive of any of the Executive’s material obligations under Sections 2(b), (c) and (d) of this Agreement, as reasonably determined by a majority of the Company’s Directors in good faith at a meeting of the Board of Directors at which the Executive is granted an opportunity to attend and participate with counsel; or

 

(iv) For purposes of this Agreement, “TRG’s Gross Profit” shall have the same meaning as that term is defined in the Stock Purchase Agreement.

 

(d) Termination by the Executive . Subject to the provisions of Section 6(c), and at his option, the Executive may terminate his employment hereunder: (i) for Good Reason; (ii) without Cause, or (iii) if his health should become impaired to an extent that makes the continued performance of his duties hereunder hazardous to his physical or mental health or his life.

For purposes of this Agreement, the termination of the Executive’s employment hereunder by the Executive because of the occurrence of any one or more of the following events shall be deemed to have occurred for “Good Reason”:

 

(i) a material diminution in the nature or scope of the Executive’s duties, responsibilities, authority, powers or functions;

 

(ii) any removal by the Company or TRG of the Executive from the position indicated in Section 1 hereof;

 

(iii) a failure by the Company, TRG or any subsidiary to comply with any other material term or provision hereof, including a reduction in the Executive’s compensation payable in accordance with Section 3 hereof;

 

(iv) the relocation of Executive’s office at which he is to perform his duties and responsibilities hereunder to a location more than thirty (30) miles (in any direction) from Wakefield, Massachusetts;

 

(v) the dissolution or termination of the existence of the Company or TRG (other than the merger of TRG into the Company, with the Company as the surviving entity), the Company or TRG becomes insolvent, a receiver is appointed for any part of Company’s or TRG’s property, or the Company or TRG makes an assignment for the benefit of creditors;

 

(vi) the commencement by or against the Company or TRG of bankruptcy or insolvency proceedings, or other proceedings for relief of debtors, whether such proceedings are voluntary or involuntary, unless in the case of involuntary proceedings the Company or TRG shall obtain a discharge of the case within thirty (30) days of its commencement;

  

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(vii) either the Company or TRG experiences a “Change of Control” (as that term is defined herein) without Executive’s written consent during the Term of this Agreement; or

 

(viii) the Company fails to pay any amount due in connection with the Earn Out beyond any grace period provided in the Stock Purchase Agreement, or the failure of the Company to pay any other amounts due under the Stock Purchase Agreement, including without limitation, the obligation to pay the Required Payments thereunder.

 

For purposes of this Agreement, “Change of Control” means, with respect to the Company and/or TRG, a consolidation, sale of all or substantially all voting Securities or a sale, lease, transfer or other disposition of all or substantially all of the assets of the Company, TRG or the Company’s Cyber Security Division; provided that a Change of Control shall not include any consolidation or merger effected exclusively to change the domicile of the Company, or any transaction or series of transactions principally for bona fide equity financing purposes.

 

5.         Compensation Upon Termination or Failure to Renew . Upon termination of this Agreement, all payments, salary and other benefits shall cease as of the stated effective date of termination, except as specifically provided for in this Section 5:

 

(a) Death . If the Executive’s employment shall be terminated by reason of his death, the Company shall pay to such person as shall have been designated in a notice filed with the Company prior to the Executive’s death, or, if no such person shall have been designated, to his estate: (i) the Executive’s Base Salary, Base Commission and any bonus accrued through the Date of Termination (as defined in Section 6(b)) at the rate in effect at the time of death; (ii) all accrued and unused vacation days or other PTO; (iii) any payments which the Executive’s spouse, beneficiaries, or estate may be entitled to receive pursuant to any insurance or executive benefit plan or other arrangement or life insurance policy maintained by the Company, as a death benefit; (iv) all fringe benefits payable under the terms of any executive benefit plan or other arrangement as of the date of the Executive’s death; and (v) a death benefit equal to the

Executive’s Base Salary for a period of 180 days.

 

(b) Disability . During any period that the Executive fails to perform his duties and responsibilities hereunder as a result of incapacity due to physical or mental illness, the Executive shall continue to receive his Base Salary and Base Commissions until the Executive’s employment is terminated pursuant to Section 4(b) hereof. Upon such termination, the Executive shall receive: (i) the Executive’s Base Salary, Base Commission and any bonus accrued through the Date of Termination at the rate in effect at the time Notice of Termination is given, (ii) payment for all accrued and unused vacation days or other PTO; (iii) any disability insurance benefits the Executive is entitled to receive; (iv) all fringe benefits payable under the terms of any executive benefit plan or other arrangement as of the Date of Termination; and (v) all other benefits required by any federal or state law requiring continuation of benefits, including COBRA insurance benefits.

 

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(c) Cause or Voluntary Termination . If the Executive’s employment shall be terminated either (1) by the Company for Cause or (2) voluntarily by the Executive, other than for Good Reason, the Company shall pay the Executive: (i) his Base Salary and Base Commission accrued through the Date of Termination at the rate in effect at the time Notice of Termination is given; and (ii) for all accrued and unused vacation days or other PTO.

 

(d) Without Cause or For Good Reason . Termination by the Company without Cause shall be deemed a material breach of this Agreement, and the Executive shall be entitled to all remedies provided by law in addition to those prescribed in this Agreement. If (1) the Company terminates the Executive’s employment without Cause, or (2) the Executive shall terminate his employment for Good Reason (which termination shall be treated as if the Company terminated the Employee without Cause), the Company shall pay the Executive: (i) his Base Salary, Base Commission and bonus accrued through the Date of Termination at the rate in effect at the time Notice of Termination is given; (ii) for all accrued and unused vacation days or other PTO; (iii) severance in an amount equal to the greater of (a) the Executive’s full annual Base Salary to be paid in one lump sum on the Date of Termination, or (b) the Executive’s full Base Salary for the remainder of the Term (i.e., until the fourth (4 th ) anniversary of the Effective Date) to be paid in one lump sum amount on the Date of Termination; (iv) all fringe benefits payable under the terms of any executive benefit plan or other arrangement as of the Date of Termination; and (v) all other benefits required by any federal or state law requiring continuation of benefits, including COBRA insurance benefits. Further, the Company shall not contest any claim by the Employee for unemployment benefits. Further, the Executive and other former shareholders of TRG shall have the remedies set forth in Section 2.2(c)(ii) of the Stock Purchase Agreement.

 

6.         Other Provisions Relating to Termination .

 

(a) Notice of Termination . Any termination of the Executive’s employment by the Company or by the Executive (other than termination because of the death of the Executive) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

 

(b) Date of Termination . For purposes of this Agreement, “Date of Termination” shall mean: (1) if the Executive’s employment is terminated by his death, the date of his death; (2) if the Executive’s employment is terminated because of a disability pursuant to Section 5(b), then thirty (30) days after the Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period); (3) if the Executive’s employment is terminated by the Company for Cause or by the Executive for Good Reason, then, subject to Sections 6(c) and 6(d), the date specified in the Notice of Termination; (4) if the Company or the Executive gives the other party notice pursuant to Section 1 prior to any anniversary of the date hereof that the Term of this Agreement shall not be automatically extended for an additional year on any such anniversary date, the date upon which the Term expires; and (5) if the Executive’s employment is terminated by the Company without Cause or by the Executive in the absence of a Good Reason, then thirty (30) days after a Notice of Termination is given.

 

7
 

 

(c) Good Reason . Upon the occurrence of an event described in Section 4(d), the Executive may terminate his employment hereunder for Good Reason at any time within ninety (90) days thereafter by giving a Notice of Termination to the Company to that effect. If the effect of the occurrence of an event described in Sections 4(d)(i)-(v) and (viii) may be cured, the Company shall have the opportunity to cure any such effect for a period of thirty (30) days following receipt of the Executive’s Notice of Termination. However, the Company shall have the opportunity to cure any such effect of the occurrence of the event described in Section 4(d)(vii) for a period of only five (5) days following receipt of the Executive’s Notice of Termination. If the Company fails to cure any such effect during the applicable cure period, the termination for Good Reason shall become effective on the date specified in the Executive’s Notice of Termination. In the event that the Executive terminates his employment for Good Reason, the Executive immediately shall be released from any and all obligations imposed upon him by this Agreement, including but not limited to the obligations set forth in Sections 2(b), (c) and (d). If the Executive does not give such Notice of Termination to the Company, then this Agreement will remain in effect; provided, however, that the failure of the Executive to terminate this Agreement for Good Reason shall not be deemed a waiver of the Executive’s right to seek damages or any other remedy on account of any breach by the Company of any Agreement with the Executive or any right on the part of the Executive to terminate his employment for Good Reason upon the occurrence of a subsequent event described in Section 4(d) in accordance with the terms of this Agreement.

 

(d) Cause . In the case of any termination of the Executive for Cause, the Company will give the Executive a Notice of Termination describing in reasonable details the facts or circumstances giving rise to the Executive’s termination (and, if applicable, the action required to cure same). With respect to Section 4(c)(iii), if the effect of the occurrence of the failure, refusal or breach (collectively, “Failure”) may be cured, the Executive shall have the opportunity to cure the effect of any such Failure for a period of thirty (30) days following receipt of the Company’s Notice of Termination. If the effect of such Failure is remediable, but the Executive fails to cure the effect of such Failure within such thirty (30) day period, the Termination for Cause shall become effective at the end of such thirty (30) day period; provided that if the effect of such Failure is not reasonably susceptible of being remedied within such thirty (30) day period, the Company shall not be entitled to terminate this Agreement for such Cause as long as the Executive continues to use his best efforts during the cure period to cure the effect of such Failure and diligently pursues such efforts to remedy such effects within a reasonable time thereafter.

  

7.         Assignment and Transfer . Neither this Agreement nor any of the rights, duties or obligations of the Company or the Executive shall be assignable by either party without the express written permission of the other party hereto. Such written permission shall be at the sole discretion of the non-assigning/non-transferring party and may be withheld for any reason or for no reason at all. Any assignment or transfer conducted without the express written permission of the non-assigning/non-transferring party shall constitute material breach of this Agreement.

  

8.         Indemnification and Insurance . The Company shall defend, indemnify, and hold harmless the Executive against any and all costs, expenses, or liability asserted against or incurred by him in connection with the defense, any settlement, or any judgment awarded in any action, suit, or proceeding in which he is made a party by reason of having been or being an officer or employee of the Company, except for claims arising wholly out of his breach of the duty of loyalty to the Company, for acts or omissions not in good faith or that involve intentional misconduct or knowing violation of the law, or for a transaction from which he derives an improper personal benefit. Such right of indemnification is not deemed exclusive of any right to which he may be entitled under the applicable law. The Company shall purchase and maintain insurance that protects the Executive against any liability asserted against or incurred by him in his capacity as or arising out of his status as an officer or employee, in such amounts as is customary for similarly situated officers of public companies .

 

8
 

  

9.         Notices . For purposes of this Agreement, all notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when: (a) delivered personally; (b) sent by facsimile or similar electronic device and confirmed; (c) delivered by reputable overnight courier; or (d) if sent by any other means, upon receipt. Notices and all other communications provided for in this Agreement shall be addressed as follows:

 

If to the Executive:

 

Mark P. Aiello

805 Summer Street

Manchester, Massachusetts 01944

 

With a copy to:

 

Vrountas, Ayer & Chandler, P.C.

250 Commercial Street, Suite 4004

Manchester, NH 03101

Facsimile No. (603) 518-7617

 

Attention:

 

Christopher T. Vrountas, Esq.

 

If to the Company:

Staffing 360 Solutions, Inc.

641 Lexington Avenue Suite 1526

New York, NY 10022

 

Attention:

 

A.J. Cervantes

 

or to such other address as either party may have furnished to the other in writing in accordance herewith.

 

10.       Miscellaneous . No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in a written instrument signed by the Executive and the Company. No waiver by either party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement.

 

9
 

 

11.       Attorneys’ Fees . All reasonable legal fees and costs incurred by the Executive in connection with the resolution of any dispute or controversy under or in connection with this Agreement shall be reimbursed by the Company to the Executive as bills for such services are presented by the Executive to the Company, unless such dispute or controversy is found to have been brought not in good faith or without merit by a court of competent jurisdiction, a mediator or arbitrator.

 

12.       Validity . The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

 

13.      Counterparts . This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same agreement.

 

14.       Entire Agreement Effectiveness . This Agreement shall be of no force or effect unless and until the consummation of the Stock Purchase Agreement (the “Effective Date”). Upon such consummation, this Agreement shall be in full force and effect. If the Stock Purchase Agreement is not consummated, for whatever reason, neither the Company nor the Executive shall have any liability to each other or to any other party by reason of such non-consummation and non-effectiveness of this Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes and terminates any and all prior employment agreements and/or severance protection letters, agreements, or arrangements between the Executive, on the one hand, and the Company, or any other predecessor in interest thereto or any of their respective subsidiaries, on the other hand.

 

15.       GOVERNING LAW . THIS AGREEMENT, INCLUDING THE VALIDITY HEREOF AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY IN SUCH STATE (WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PROVISIONS THEREOF). EACH OF THE PARTIES HERETO AGREES THAT ANY ACTION OR PROCEEDING BROUGHT TO ENFORCE THE RIGHTS OR OBLIGATIONS OF ANY PARTY HERETO UNDER THIS AGREEMENT MAY BE COMMENCED AND MAINTAINED IN ANY COURT OF COMPETENT JURISDICTION LOCATED IN THE STATE OF NEW YORK, AND THAT THE UNITED STATES SOUTHERN DISTRICT COURT OF NEW YORK SHALL HAVE NON-EXCLUSIVE JURISDICTION OVER ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT BY ANY OF THE PARTIES HERETO. EACH OF THE PARTIES HERETO FURTHER AGREES THAT PROCESS MAY BE SERVED UPON IT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED AS MORE GENERALLY PROVIDED IN SECTION 9 HEREOF, AND CONSENTS TO THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTIES WITH RESPECT TO ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ENFORCEMENT OF ANY RIGHTS UNDER THIS AGREEMENT.

 

10
 

 

16.       Injunctive Relief . The Executive acknowledges that the remedies the Company may have at law for any breach or threat of breach of the provisions of Section 2(b), (c) or (d) hereof by the Executive are inadequate, and in the event of breach or threat of breach of the provisions of such Section 2(b), (c) or (d) hereof by the Executive, the Company shall be entitled to seek an injunction or other equitable relief restraining the Executive from such a breach.

 

17.       Invalidity . If any cause, paragraph, section or part of this Agreement shall be held or declared to be void, invalid or illegal, for any reason, by any court of competent jurisdiction, such provision shall be ineffective but shall not in any way invalidate or affect any other clause, paragraph, section or part of this Agreement, which shall be construed to effect the purposes of this Agreement to the fullest extent permitted by law.

 

 

 

[Signature Page Follows]

 

11
 

 

IN WITNESS WHEREOF, the parties have executed this Employment Agreement as an instrument under seal as of the date and year first above written.

 

COMPANY:  
       
. Staffing 360 Solutions, Inc.  
       
       
       
       
  By: /s/ Alfonso J. Cervantes  
  Name: Alfonso J. Cervantes  
  Title: President  
       
       
       
THE EXECUTIVE:  
       
       
       
       
  /s/ Mark P. Aiello  
Mark P. Aiello  

 

12

 

 

The Revolution Group, Ltd.

 

Audited Financial Statements

 

December 31, 2012 and 2011

 

(With Independent Auditor’s Report Thereon)

 

 
 

 

The Revolution Group, Ltd

 

Table of Contents

 

  Page
   
Independent Auditor’s Report 2
   
Balance Sheets 3
   
Statements of Operations and Comprehensive Income 4
   
Statement of Stockholders‘ Equity 5
   
Statements of Cash Flows 6
   
Notes to Financial Statements 7

 

1
 

 

805 Third Avenue

Suite 902

New York, NY 10022

212.868.3669

212.838.2676/ Fax

www.rbsmllp.com

 

INDEPENDENT AUDITOR’S REPORT

 

Board of Directors and Stockholders

of The Revolution Group, Ltd.

 

We have audited the accompanying financial statements of The Revolution Group, Ltd. (a Massachusetts Corporation), which comprise the balance sheets as of December 31, 2012 and 2011, and the related statements of operations and comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our audit opinion.

 

Opinion

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Revolution Group, Ltd. as of December 31, 2012 and 2011, as the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

 

New York, New York

March 12, 2013

 

New York, NY Washington DC Mumbai, India Boca Raton, FL San Francisco, CA Long Island, NY Beijing, China

Member of Russell Bedford International with affiliated offices worldwide

 

2
 

 

THE REVOLUTION GROUP, LTD

BALANCE SHEETS

 

    December 31,
2012
    December 31,
2011
 
ASSETS                
Current Assets:                
Cash and cash equivalents   $ 202,407     $ 209,349  
Available for sale securities     18,458       29,372  
Trade receivables     679,455       831,434  
Prepaid expenses and other current assets     50,773       59,118  
Total current assets     951,093       1,129,273  
Fixed assets, net     32,623       38,240  
Related party receivable     150,000       150,000  
                 
Total Assets   $ 1,133,716     $ 1,317,513  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current Liabilities:                
Accounts payable and accrued liabilities   $ 66,535     $ 261,699  
                 
Total Liabilities     66,535       261,699  
                 
Stockholders’ Equity:                
Common stock, no par value; 178,222 shares authorized, 166,000 issued and outstanding     -       -  
Accumulated other comprehensive loss     (7,707 )     (10,731 )
Retained earnings     1,074,888       1,066,545  
                 
Total Stockholders’ Equity     1,067,181       1,055,814  
                 
Total Liabilities and Stockholders’ Equity   $ 1,133,716     $ 1,317,513  

 

The accompanying notes are an integral part of these audited  financial statements.

 

3
 

 

THE REVOLUTION GROUP, LTD
STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
             
             
    Twelve Months Ended  
    December 31,     December 31,  
    2012     2011  
Service revenues   $ 4,797,372     $ 5,390,103  
Direct costs of services     3,538,830       3,879,228  
                 
Gross profit     1,258,541       1,510,875  
                 
Recruiting expenses     376,238       431,362  
Sales expenses     311,676       350,288  
General and administrative expenses     560,915       688,442  
                 
Income from operations     9,712       40,783  
Other income     867       4,373  
                 
Income from operations before income taxes     10,579       45,156  
Income tax expense     2,236       2,779  
                 
Net income   $ 8,343     $ 42,377  
Other comprehensive income (loss):                
Available for sale securities     3,024       (10,731 )
Comprehensive income   $ 11,367     $ 31,646  

 

The accompanying notes are an integral part of these audited  financial statements.              

 

4
 

 

THE REVOLUTION GROUP, LTD
STATEMENT OF STOCKHOLDERS' EQUITY
 
                Accumulated              
    Common Stock     Other           Total  
    (no par value)     Comprehensive     Retained     Stockholders'  
    Shares     Amount     Loss     Earnings     Equity  
                               
Balance, December 31, 2010     166,000     $ -     $ -     $ 1,064,168     $ 1,064,168  
                                         
Comprehensive loss     -       -       (10,731 )     -       (10,731 )
                                         
Stockholder distributions                             (40,000 )     (40,000 )
                                         
Net income     -       -       -       42,377       42,377  
                                         
Balance, December 31, 2011     166,000       -       (10,731 )     1,066,545       1,055,814  
                                         
Comprehensive income     -       -       3,024       -       3,024  
                                         
Net income     -       -       -       8,343       8,343  
                                      -  
Balance, December 31, 2012     166,000     $ -     $ (7,707 )   $ 1,074,888     $ 1,067,181  
                                         

 

The accompanying notes are an integral part of these audited  financial statements.

 

5
 

 

THE REVOLUTION GROUP, LTD

STATEMENTS OF CASH FLOWS

 

    Twelve Months Ended  
    December 31,     December 31,  
    2012     2011  
Cash flows from operating activities:                
Net income   $ 8,343     $ 42,377  
Adjustments to reconcile net  income to cash (used in) provided by operating activities:                
Depreciation     11,000       12,198  
(Increase) decrease in operating assets:                
Trade receivables     151,979       (87,690 )
Prepaid expenses and other current assets     15,007       4,486  
Increase (decrease) in operating liabilities:                
Accounts payable and other current liabilities     (195,164 )     43,955  
                 
Cash provided by (used in) operating activities     (8,835 )     15,326  
                 
Cash flows used in investing activities:                
Proceeds from available for sale securities, net     14,651       37,739  
Purchases of available for sale securities, net     (7,375 )     (56,066 )
Purchases of fixed assets     (5,383 )     (30,890 )
                 
Cash provided by (used in) investing activities     1,893       (49,217 )
                 
Cash flows from financing activities:                
Distributions to stockholders     -       (40,000 )
                 
Cash used in financing activities     -       (40,000 )
                 
Decrease in cash and cash equivalents     (6,942 )     (73,891 )
                 
Cash and cash equivalents at beginning of period     209,349       283,323  
                 
Cash and cash equivalents at end of period   $ 202,407     $ 209,349  
                 
Supplemental Cash Flow Information:                
Income taxes paid   $ 2,236     $ 2,779  
Interest paid   $ -     $ -  

 

The accompanying notes are an integral part of these audited  financial statements.                

 

6
 

 

The Revolution Group, Ltd.

Notes to Financial Statements

December 31, 2012 and 2011

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business – The Revolution Group, Ltd. (the “Company” or “RG”) was formed in 1999 as an Information Technology (IT) staffing services firm. The Company’s core areas of competency are in the information technology and information security fields.

 

The Company provides the following services to its customers:

· Temporary Staffing (primarily IT);
· Permanent Placement (primarily IT);
· Temporary to Permanent Placement (primarily IT);
· Information Security Services;
· Vulnerability Testing; and
· Regulatory and Compliance Support

 

The Company leases a single office facility in Wakefield, Massachusetts.

 

Basis of presentation – The accompanying financial statements of the Company for the years ended December 31, 2012 and 2011 have been prepared using accounting principles generally accepted in the United States of America (“GAAP”). The Company’s fiscal year end is December 31.

 

Cash and Cash Equivalents – Cash and cash equivalents primarily consists of bank deposits. The Company currently has cash equivalents consisting of money market accounts and other highly liquid investments with an original maturity of three months or less when purchased.

 

Use of Estimates - The preparation of financial statements in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

7
 

 

Available-for-Sale - The Company classifies its investments in publicly traded equity securities as available-for-sale. These available-for-sale investments are held in the custody of a major financial institution. The weighted-average method is used to determine the cost basis of publicly traded equity securities sold. These securities are recorded in the balance sheets at fair value. Unrealized gains and losses on these securities, to the extent the securities are unhedged, are included as a separate component of other comprehensive income (loss), net of tax, if any. The Company classifies its securities as current based on the nature of the investments and their availability for use in current operations.

 

Accounts Receivable – Accounts receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management's evaluation of collectability.  Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied against the allowance for doubtful accounts.

 

Revenue Recognition The Company derives its revenues from three segments: contingent staffing, permanent placement staffing, and consulting. The Company recognizes revenue in accordance with ASC Topic 605-45 “Revenue Recognition – Principal Agent Considerations.” The Company records revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that the gross reporting is appropriate because the Company (i) has the duty of identifying and hiring qualified employees, (ii) uses its judgment to select the employees and establish their price, and (iii) bears the risk for services that are not fully paid by the customers. Pursuant to the guidance of ASC 605, the Company recognizes revenue when an arrangement exists, services have been rendered, the purchase price is fixed or determinable and collectability is reasonable assured.

 

Contingent staffing and consulting – Contingent staffing and consulting revenues are recognized when the services are rendered by the Company’s contingent employees and consultants. The Company pays all related costs of employment, including workers’ compensation insurance, state and federal unemployment taxes, social security and certain fringe benefits.

 

8
 

 

Permanent placement staffing revenues – Permanent placement staffing revenues are recognized when employment candidates typically start their first day of work. The Company offers a 30/60/90 day guarantee. If the employee is terminated or leaves voluntarily during this period, a pro-rated refund is provided. The Company has a substantial history of estimating the effect of permanent placement candidates who do not remain with its client through the guarantee period. Fees to clients are generally calculated as a percentage of the new employee’s annual compensation.

 

Significant Customers - During the year ended December 31, 2012 sales to two customers represented $3,474,243 (72%) of the Company’s revenue. During the year ended December 31, 2011 sales to three customers represented $4,227,639 (48%) of the Company’s revenue.  As of December 31, 2012 and 2011, the Company had two customers representing approximately 51% and 72% of gross accounts receivable at that date, respectively.

 

Advertising – Advertising is expensed as incurred. For the years ended December 31, 2012 and 2011 the Company incurred $6,042 and $1,993, respectively, in advertising expense.

 

Direct Costs of Services - Direct costs of services are composed primarily of payroll wages, payroll taxes, and payroll-related insurance for RG’s flexible employees, and subcontractor costs.

 

Fixed Assets - Fixed assets are carried at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Depreciation expense for the years ended December 31, 2012 and 2011 amounted to $11,000 and $12,198, respectively. Accumulated depreciation was $227,120 and $216,120, respectively.

 

I ncome Taxes – The Company, with the consent of its stockholders, has elected under the Internal Revenue Service Code to be a sub-chapter S corporation. In lieu of federal corporate income tax, the stockholders' of an S corporation are taxed on their proportionate share of the Company’s taxable income. Therefore, no provision for federal income tax has been included in the financial statements. The Company pays income taxes in various states in which it does business.

 

Recently Issued Accounting Standards The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flows.

 

9
 

 

NOTE 2 – INVESTMENTS

 

The following is a summary of our available for sale securities:

 

 

    As of December 31, 2012  
          Gross     Gross        
          Unrealized     Unrealized     Fair  
    Cost     Gains     Losses     Value  
                       
Corporate equity securities   $ 31,088     $ 930     $ (13,560 )   $ 18,458  

  

    As of December 31, 2011  
          Gross     Gross        
          Unrealized     Unrealized     Fair  
    Cost     Gains     Losses     Value  
                         
Corporate equity securities   $ 40,103     $ 869     $ (11,600 )   $ 29,372  

 

NOTE 3 - FAIR VALUE MEASUREMENTS

 

The Company adopted Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, for assets and liabilities measured at fair value on a recurring basis. ASC 820 established a common definition of fair value to be applied to existing GAAP that require the use of fair value measurements, established a framework for measuring fair value and expanded disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

 

10
 

 

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities
   
Level 2:     Observable market-based inputs or unobservable inputs that are corroborated by market data
   
Level 3:     Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

  

The Company did not have any Level 2 or Level 3 assets or liabilities as of December 31, 2012 and December 31, 2011. In addition, the Company did not have any transfers of assets and liabilities between Levels 1, 2 and 3 during the periods ending December 31, 2012 and 2011.

 

The Company discloses the estimated fair values for all financial instruments for which it is practicable to estimate fair value. As of December 31, 2012 and December 31, 2011, the fair value short-term financial instruments including cash and cash equivalents, receivables, and accounts payable and accrued expenses, approximates book value due to their short-term duration.

 

Cash and cash equivalents include money market securities that are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the fair value hierarchy.

 

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In addition, the Financial Accounting Standards Board (“FASB”) issued, “The Fair Value Option for Financial Assets and Financial Liabilities,” effective for January 1, 2008. This guidance expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value option for any of its qualifying financial instruments. The FASB has established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 assets and liabilities, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

The following items are measured at fair value on a recurring basis as of December 31, 2012 and are classified as Level 1, 2, or 3 as follows:

 

    December 31, 2012     (Level 1)     (Level 2)     (Level 3)  
    Fair value measurements at reporting date  
Cash and cash equivalents   $ 202,407     $ 202,407     $ -     $ -  
Available for sale securities     18,458       18,458       -       -  
Total   $ 220,865     $ 220,865     $ -     $ -  

 

The following items are measured at fair value on a recurring basis as of December 31, 2011 and are classified as Level 1, 2, or 3 as follows:

 

    December 31, 2011     (Level 1)     (Level 2)     (Level 3)  
    Fair value measurements at reporting date  
Cash and cash equivalents   $ 209,349     $ 209,349     $ -     $ -  
Available for sale securities     29,372       29,372       -       -  
Total   $ 238,721     $ 238,721     $ -   $ -  

 

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NOTE 4 – RELATED PARTY RECEIVABLE

 

During the year ended December 31, 2009 the Company loaned the CEO, Mark Aiello, $150,000 in cash at an interest rate of .81% per year. During the year ended December 31, 2012 the interest rate was reduced to .19% per year. This loan is due on demand.

 

NOTE 5 – COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

On June 1, 2011 the Company entered into a Tenancy at Will (TAW), triple net lease to lease 3,953 square feet located in Wakefield, MA. The lease may be terminated within 90 days written notice by either party. The Company was required to pay a nominal security deposit upon execution of the lease. Rent expense (presented in selling, general and administrative expenses) for the twelve months ended December 31, 2012 and 2011 amounted to $38,391 and $47,436, respectively.

 

Legal Matters

 

Ronald C. Yates

 

Mr. Yates filed a Charge of Discrimination in the United States Equal Employment Opportunity Commission (“EEOC”), Boston Area Office, Charge No.: 523-2012-00008 on October 24, 2011. Briefly, Yates alleged that the Company discriminated against him on the basis of his age when he was not offered a position for which he applied. The Company filed its response and defenses on November 11, 2011. We believe the response was very strong and that the Company had good defenses. Yates thereafter requested that the EEOC issue a Notice of Right to Sue and the EEOC closed its investigation on February 3, 2012. Yates had ninety (90) days from the date of his receipt of the Notice to file suit in federal court. Yates did not meet this deadline.

 

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Mark Needham

 

Mr. Needham sent a demand letter demanding $237,500 and claiming that the Company discriminated against him on the basis of age and disability when it allegedly terminated his employment in January 2013. At this time, Mr. Needham has not filed a claim in any administrative agency and/or any court. If Mr. Needham decides to bring litigation against the Company, we believe the Company has strong defenses against any potential claims he might bring. Mr. Needham resigned his employment in January 2013 after the Company provided him with a performance improvement plan, but he told the Company that he would accept a severance package in lieu of continuing his employment subject to the performance improvement plan.

 

NOTE 6 – STOCKHOLDERS EQUITY

 

The Company was incorporated on September 22, 1999, with an election to be taxed as an “S” corporation. It initially authorized 200,000 shares of no par common stock in two classes: 100,000 Class A (voting); and 100,000 Class B (non-voting). On October 8, 2010, the Company amended its Articles of Organization to decrease its authorized capital stock to 178,222. As of December 31, 2012, there are 166,000 shares of common stock issued and outstanding.

 

NOTE 7 – SUBSEQUENT EVENTS

 

The Company evaluated subsequent events through March 12, 2013. Subsequent to year end, the Company made a stockholder distribution of $14,500 in cash.

 

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