UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended May 31, 2014

 

or

 

¨ TRANSACTION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to _____

 

COMMISSION FILE NUMBER: 000-54515

 

STAFFING 360 SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   68-0680859
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification)

 

641 Lexington Avenue, Suite 1526

New York, New York 10022

(Address of principal executive offices)

 

(212) 634-6410

(Registrant’s telephone number)

 

Securities registered under Section 12(b) of the Exchange Act: None.

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.00001

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of the chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act: (Check one) 

 

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the act): Yes ¨   No x

 

As of November 29, 2013, the last business day of the registrant’s most recently completed second fiscal quarter the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was approximately $15,946,021 based on the closing price (last sale of the day) for the registrant’s common stock on the OTC Bulletin Board on November 29, 2013 of $2.09 per share.

 

As of September 15, 2014, 33,659,804 shares of common stock, $0.00001 par value, were outstanding.

 

 
 

  

TABLE OF CONTENTS

 

    PAGE
  PART I 4
ITEM 1. Business 4
ITEM 1A. Risk Factors 9
ITEM 1B. Unresolved Staff Comments 9
ITEM 2. Properties 9
ITEM 3. Legal Proceedings 9
ITEM 4. Mine Safety Disclosures 10
     
  PART II 11
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 11
ITEM 6. Selected Financial Data 11
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 11
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 23
ITEM 8. Financial Statements 24
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 25
ITEM 9A. Controls and Procedures 25
ITEM 9B. Other Information 26
     
  PART III 26
ITEM 10. Directors, Executive Officers and Corporate Governance 26
ITEM 11. Executive Compensation 30
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 35
ITEM 13. Certain Relationships and Related Transactions, and Director Independence 37
ITEM 14. Principal Accounting Fees and Services 38
     
  PART IV 38
ITEM 15. Exhibits, Financial Statement Schedules 38
   
SIGNATURES 41

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K (“Annual Report”) includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. Forward-looking statements include those that address activities, developments or events that we expect or anticipate will or may occur in the future. All statements other than statements of historical facts contained in this Annual Report, including statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. We undertake no obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise. We advise you to carefully review the reports and documents we file from time to time with the Securities and Exchange Commission (the “SEC”), particularly our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.

 

As used in this Annual Report, the terms “we,” “us,” “our,” “Staffing 360” and the “Company” mean Staffing 360 Solutions, Inc. and its subsidiaries, unless otherwise indicated. All dollar amounts in this Annual Report are expressed in U.S. dollars, unless otherwise indicated.

 

The disclosures set forth in this report should be read in conjunction with our financial statements and notes thereto for the year ended May 31, 2014.

 

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PART I

 

ITEM 1. BUSINESS

 

BUSINESS

 

General

 

We were incorporated in the State of Nevada on December 22, 2009, as Golden Fork Corporation (“Golden Fork”). On July 31, 2012, the Company commenced operations in the staffing sector. Our business model is to find and acquire suitable, mature, profitable operating staffing companies. We are an emerging public company in the international staffing sector engaged in the acquisition of domestic and international staffing companies. As part of our targeted consolidation model, we are pursuing a broad spectrum of staffing companies supporting the information technology (“IT”), accounting and finance, engineering, administration and cyber security industries. Our headquarters are located at 641 Lexington Avenue, Suite 1526, New York, NY 10022. Our telephone number is (212) 634-6410.

 

Corporate History

 

The Company was incorporated in the State of Nevada on December 22, 2009, as Golden Fork.

 

On February 17, 2012, TRIG Special Purpose 1, LLC, a Nevada Corporation, (“TRIG”) purchased 78.7%, or 2,000,000 shares of common stock with a par value of $0.00001 (the “Shares”), of Golden Fork Corporation for $240,000 in a private cash transaction. As a result of the transaction, the Company became a 78.7% owned subsidiary of TRIG. These Shares were subsequently distributed to Trilogy Capital Partners, Inc., Grandview Capital Partners, Inc., and Robert Y. Lee, who made distributions to other third parties in the aggregate of 600,000 shares. TRIG no longer owns any Shares.

 

On March 16, 2012, Golden Fork filed a Certificate of Amendment to its Articles of Incorporation (the “Amendment”) to change its name from Golden Fork to Staffing 360 Solutions, Inc. Upon filing of the Amendment, the Company began its operations in the international staffing sector.

 

On April 13, 2012, the Company received approval from the Financial Industry Regulatory Authority (“FINRA”) to effect its name change and to change its trading symbol from “GDNF” to “STAF”. Simultaneously therewith, the Company received approval to conduct a forward split of its issued and outstanding shares of common stock at a ratio of one for three (the “Forward Split”). Following the Forward Split, the Company’s issued and outstanding shares of common stock increased from 2,540,000 to 7,620,000.

 

On July 31, 2012, the Company formed Staffing 360 Alliance, Inc. (“Staffing Alliance”), a wholly-owned subsidiary, incorporated in the State of Nevada. For a short period of time, Staffing Alliance had operations in the staffing sector and provided trained employees to clients who worked in word processing, data entry, administrative support staff and other areas. Such operations have ceased.

 

On April 19, 2013, we formed Staffing 360 Group, Inc., a wholly-owned subsidiary of the Company, in the State of Nevada (“Staffing Group”). Staffing Group was formed to be the principle acquisition vehicle for the Company.

 

On April 26, 2013, we completed our first acquisition when we purchased 100% of the issued and outstanding stock of The Revolution Group, Ltd. (“TRG”) pursuant to a stock purchase agreement, dated March 21, 2013, entered into by and among the Company, TRG and the shareholders of TRG (the “TRG Shareholders” and such agreement, the “TRG Purchase Agreement”). As a result of the acquisition (the “TRG Acquisition”), TRG became a wholly-owned subsidiary of the Company. The TRG Acquisition is described in detail below.

 

On June 28, 2013, we filed a Certificate of Amendment to our Articles of Incorporation with the State of Nevada (the “2013 Amendment”), whereby increasing the number of shares of common stock that the Company is authorized to issue from 75,000,000 to 200,000,000. The 2013 Amendment also allowed the Company to issue 20,000,000 shares of blank check preferred stock, having such rights, designations, preferences and privileges as our board of directors (the “Board”) determines from time to time in their sole discretion.

 

On November 4, 2013, we completed our second acquisition when we purchased 100% of the issued and outstanding stock of Control Solutions International, Inc., a Florida corporation (“CSI”), pursuant to a stock purchase agreement, dated August 14, 2013, entered into by and among the Company, NewCSI, Inc., a Delaware corporation (“NCSI”), the sole shareholder of CSI and the shareholders of NCSI (the “NCSI Shareholders” and such agreement, the “CSI Purchase Agreement”). As a result of the acquisition (the “CSI Acquisition”), CSI became a wholly-owned subsidiary of the Company. The CSI Acquisition is described in detail below.

 

On January 3, 2014, we completed our third acquisition when we purchased 100% of the issued and outstanding stock of Initio International Holdings Limited, a company organized under the laws of England and Wales (“Initio”) and its respective subsidiaries, including but not limited to Monroe Staffing Services, LLC, a Delaware limited liability company (“Monroe,” and together with all of Initio’s subsidiaries, the “Subsidiaries”). This acquisition was completed pursuant to a share purchase agreement, dated October 30, 2013, as amended by Amendment No. 1 to the share purchase agreement, dated December 10, 2013, by and among the Company and the shareholders of Initio (the “Initio Shareholders” and such agreement, as amended, the “Initio Purchase Agreement”). As a result of the acquisition (the “Initio Acquisition”), Initio and its Subsidiaries became wholly-owned subsidiaries of the Company. On January 6, 2014, Initio changed its name to Staffing 360 Solutions Limited. The Initio Acquisition is described in detail below.

 

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On February 28, 2014, we completed our fourth acquisition (the “Poolia Acquisition”) when we purchased, through our wholly-owned United Kingdom (“UK”) subsidiary Staffing 360 Solutions (UK) Limited, substantially all of the business and assets of Poolia UK Ltd., including but not limited to all contracts, business information, records, book debts and good will, pursuant to an asset purchase agreement, dated February 2, 2014. The Poolia Acquisition is described in detail below.

 

On May 17, 2014, we completed our fifth acquisition when we purchased 100% of the issued and outstanding capital stock of PeopleSERVE, Inc., a Massachusetts corporation (“PS”), and 49% of the issued and outstanding capital stock of PeopleSERVE PRS, Inc., a Massachusetts corporation (“PRS”), pursuant to a definitive stock purchase agreement, dated May 17, 2014, by and among the Company, PS, PRS and Linda Moraski, sole stockholder of PS and PRS (the “PeopleSERVE Purchase Agreement”). As a result of the acquisition (the “PeopleSERVE Acquisition”), PS became a wholly-owned subsidiary of the Company and PRS became a 49% owned subsidiary of the Company. The PeopleSERVE Acquisition is described in detail below.

 

Business Model and Acquisitions

 

We are a public company in the international staffing sector engaged in the acquisition of domestic and international staffing companies. As part of our consolidation model, we pursue a broad spectrum of staffing companies supporting the IT, financial, accounting, engineering, administrative and light industrial sectors. Our standard acquisition model is to pay consideration for companies as follows: (i) 33.3% of the total consideration in cash; (ii) 33.3% of the total consideration in stock of the Company; and (iii) 33.3% of the consideration in a three (3) year note or earn-out, although the final terms may differ substantially from this model. In accordance with and in furtherance of our business model, on April 26, 2013, November 4, 2013, January 3, 2014, February 28, 2014 and May 17, 2014, we consummated the TRG Acquisition, CSI Acquisition, Initio Acquisition, Poolia Acquisition and PeopleSERVE Acquisition, respectively. Prior to and since the PeopleSERVE Acquisition we have continued to engage in discussions of further acquisitions with a significant number of other suitable, mature operating staffing companies.

 

The Revolution Group, Ltd.

 

On April 26, 2013, the Company consummated the TRG Acquisition pursuant to the TRG Purchase Agreement, dated March 21, 2013, entered into by and among the Company, TRG and the TRG Shareholders. The aggregate consideration paid by the Company to the TRG Shareholders was $2,509,342 (the “TRG Purchase Price”), payable as follows: at the closing of the TRG Acquisition (the “TRG Closing”), the Company made cash payments to the TRG Shareholders in an aggregate of $907,287 and paid the remaining $410,055 of the TRG Purchase Price by issuing to the TRG Shareholders 512,569 restricted shares of its common stock at a price of $0.80 per share. In addition to the TRG Purchase Price, the Company will pay to the TRG Shareholders, from the date of the TRG Closing through the end of the sixteenth quarter following the TRG Closing (the “TRG Earn Out Period”), performance based compensation in an amount in cash equal to the following percentages of TRG’s Gross Profit (as defined in the TRG Purchase Agreement), not to exceed a total of $1,500,000: (i) 20% of the amount of TRG’s Gross Profit up to an aggregate of $5,000,000 during the TRG 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 TRG Earn Out Period. The Company estimates that the performance based compensation will total $1,192,000. The earn-out liability is calculated in accordance with the terms of the TRG Purchase Agreement. The liability was valued by a third party financial advisory firm based on management's best estimates of the projected financial results of TRG over the next four (4) years. The Company adjusts the earn-out liability on a quarterly basis based on actual results. At May 31, 2014 the balance of the earn-out liability was $929,145. As a result of the Acquisition, TRG became a wholly-owned subsidiary of the Company, and TRG subsequently changed its name to Cyber 360 Solutions, Inc. (“Cyber 360”).

 

Cyber 360 is a staffing services and consulting company with competency in various information technology fields, with a specialized focus on cyber security. Cyber 360 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 and regulatory and compliance support. Cyber 360 is one of the few cyber security consulting firms in the United States (“US”) solely dedicated to identifying the top 10% of highly-trained cyber security professionals available for consulting assignments.

 

Control Solutions International, Inc.

 

On November 4, 2013, the Company consummated the CSI Acquisition pursuant to the CSI Purchase Agreement, dated August 14, 2013, by and among the Company, NCSI, and the NCSI Shareholders. The aggregate consideration paid by the Company to the NCSI Shareholders was $3,530,454, which was paid at the closing: (i) cash payments to the NCSI Shareholders in an aggregate of $1,311,454 and (ii) the remaining $119,000 of the aggregate consideration through the issuance of 136,000 restricted shares of the Company’s common stock at a price of $0.875 per share to the NCSI Shareholders. In addition to the aggregate consideration, the Company will pay to the NCSI shareholders performance based compensation in an amount in cash equal to 20% of the amount of the consolidated gross profit of NCSI and Canada Control Solutions International, Inc., a British Columbia corporation and wholly-owned subsidiary of NCSI (“CCSI”), from the closing date of the CSI Acquisition through the end of the sixteenth (16th) quarter following such closing date, not to exceed a total of $2,100,000. As a result of the CSI Acquisition, NCSI has become a wholly-owned subsidiary of the Company.

 

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CSI is a professional services company specializing in a broad spectrum of risk management, financial, internal audit and IT solutions. In particular, CSI provides consulting and risk advisory services in the U.S. and Canada and also has a network of affiliated entities across a 33 additional countries.

 

Initio International Holdings Limited

 

On January 3, 2014, the Company consummated the Initio Acquisition pursuant to the Initio Purchase Agreement. The aggregate consideration paid at the closing by the Company to the Initio Shareholders for the purchase of all the shares of Initio and the Subsidiaries was as follows: (i) $12.79 million (the "Purchase Price") in cash, shares and promissory notes of the Company; plus (ii) $500,000 (the aggregate of (i) an (ii) together, the “Total Purchase Price”). The Purchase Price was paid as follows: (i) at the closing of the Initio Acquisition, the Company paid to the Initio Shareholders an aggregate of $6,440,000 in immediately available funds equal to 40% of the Purchase Price plus $500,000; (ii) at the closing, the Company issued 3,296,702 shares of its common stock valued at $2,884,614, representing 33.3% of the Purchase Price, to the Initio Shareholders, valued at a price of $0.875 per share, which such shares are subject to piggy-back registration rights; and (iii) at the closing, the Company executed and delivered to the Initio Shareholders a three year promissory note (subject to adjustment if certain post-closing results are not achieved) in the aggregate principal amount of $3,964,949 equal to 26.7% of the Purchase Price, each promissory note bearing interest at the rate of six (6%) percent per annum, amortized on a five year straight line basis.

 

Initio is a U.K. domiciled full service staffing company with established brands in the US, UK and Spain. Initio’s US division, Monroe, was established in 1969 and is a full-service consulting and staffing agency serving companies ranging from Fortune 100 companies to new startup organizations. Monroe has approximately 14 offices located in the US, including offices in Connecticut, Massachusetts, Rhode Island, New Hampshire and North Carolina. Initio’s U.K. division, consisting of four distinct entities (the “Longbridge Entities”), was established in 1989 and is an international multi-sector recruitment company, catering to the sales and marketing, technology, legal and information technology solutions sectors. Initio’s Spanish business was not acquired as part of the Initio Acquisition.

 

Poolia

 

On February 28, 2014, we, through our wholly-owned U.K. subsidiary Staffing 360 Solutions (UK) Limited (“Staffing UK”), completed the acquisition of the business and certain assets of Poolia UK Ltd. (“Poolia”). The Poolia Acquisition was completed pursuant to that certain asset purchase agreement dated February 2, 2014, by and between Staffing UK, and Poolia (“Poolia Purchase Agreement”). Pursuant to the Poolia Purchase Agreement, the Company purchased from Poolia substantially all of Poolia’s business and assets, including but not limited to contracts, business information, records, book debts and goodwill.

 

The aggregate consideration paid by the Company to Poolia for the sale and purchase of the business and assets was £500,000 (approximately $825,000 USD) (the “Fixed Consideration”), plus an amount equal to the net asset value at the completion date of the acquisition (the “NAV Consideration,” together with the Fixed Consideration, collectively, the “Purchase Price”). The Fixed Consideration and a sum of £250,000 (approximately $412,500 USD), being an advance payment of the NAV Consideration, was paid in full in cash at Closing. The balance of the NAV Consideration was to be paid by the Company to Poolia UK Ltd. by April 30, 2014 for total consideration of $1,626,266.  

 

Poolia UK operates its professional staffing services from its office in London and focuses on providing temporary, contract and permanent qualified professionals to various banking, financial and commercial clients across the United Kingdom.

 

PeopleSERVE

 

On May 17, 2014, we consummated the acquisition of 100% of the issued and outstanding capital stock of PeopleSERVE, Inc., and forty-nine percent (49%) of the issued and outstanding capital stock of PeopleSERVE PRS, Inc., pursuant to the PeopleSERVE Purchase Agreement, dated May 17, 2014, by and among the Company, PS, PRS and Linda Moraski, sole owner of all of the issued and outstanding capital stock of PS and PRS.

 

In connection with the PeopleSERVE Acquisition, we agreed to pay to Ms. Moraski an aggregate purchase price of approximately $6,764,188 based upon a formula in the PeopleSERVE Purchase Agreement (the “PeopleSERVE Purchase Price”).

 

At the closing of the PeopleSERVE Acquisition, the Company paid to Ms. Moraski the purchase price as follows: (i) cash in the amount of $2,705,675; (ii) restricted shares of the Company’s Common Stock, based on the closing price of $1.93 on the date of acquisition, May 17, 2014,or 1,127,365 shares of Common Stock for a total fair value of $2,175,814; (iii) an unsecured promissory note (“the Promissory Note”) with an initial principal amount equal to $2,367,466; (iv) pursuant to the terms of the PS Purchase Agreement, the PS Seller is entitled to receive from the Acquired Companies all of the Net Working Capital as of the Closing Date (as defined in the PS Purchase agreement filed in Form 8-K dated May 20, 2014) valued at $1,138,153, and the Company and the Acquired Companies shall have no right to, or obligations with respect to, such Net Working Capital, except as otherwise set forth in the PS Purchase Agreement.

 

Pursuant to the terms of the PeopleSERVE Purchase Agreement, Ms. Moraski is entitled to receive from PS and PRS all of the Net Working Capital (as defined in the PS Purchase agreement filed in Form 8-K dated May 20, 2014) as of the closing date, and the Company and PRS and PS shall have no right to, or obligations with respect to, such Net Working Capital, except as otherwise set forth in the PeopleSERVE Purchase Agreement.

 

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The purchase price is subject to a post-closing purchase price adjustment, whereby within sixty (60) days of the closing date, audited financial statements for each of PS and PRS will be provided to the Company. The parties have agreed to defer the delivery date of the audited financial statements until after the filing of the Company’s Form 10-K. Upon receipt of such audited financial statements, the Company will prepare and deliver to Ms. Moraski a certificate that sets forth the Company’s determination of (i) the PeopleSERVE Purchase Price, including the calculation of the Adjusted EBITDA (as defined in the PS Purchase agreement filed in Form 8-K dated May 20, 2014) of PS and PRS for the audited period and (ii) the calculation of the Net Working Capital. Once the Company and the Ms. Moraski have agreed on the final financial statements as disclosed above, the PeopleSERVE Purchase Price shall be adjusted based on the purchase price adjustment amount, which means an amount equal to the final determined PeopleSERVE Purchase Price as shown in the final financial statements minus the amount of the Estimated PeopleSERVE Purchase Price. In the event the PeopleSERVE Purchase Price is adjusted, the difference will either be paid to Ms. Moraski or returned to the Company, as the case may be, in the same percentages of cash, shares of common stock and the PeopleSERVE Promissory Note as the purchase price paid at closing (with a one-time payment by the appropriate party to catch-up on principal payments previously made under the PeopleSERVE Promissory Note). PeopleSERVE provides IT staffing support to companies in the governmental, commercial and educational sectors principally in the State of Massachusetts.

 

Operating History

 

The Company has demonstrated that it is able to expand its business through its acquisition model. Our business is subject to risks inherent in growing an enterprise, including limited capital resources and possible rejection of our business model and/or sales methods.

 

We cannot guarantee we will be successful in our business operations. Among other risks, our business is subject to risks inherent in the establishment of a new business enterprise, including executing our roll-up strategy, limited capital resources and possible cost overruns.

 

We are seeking additional debt and equity financing in order to obtain the capital required to implement our business plan and continue operations. We have no assurance that future financing will be available to us on acceptable terms or at all. If financing is not available to us on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financing, if received, will result in additional dilution to our existing shareholders.

 

Industry Background

 

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 referred to 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 contracted 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, mid-level managers, technical workers, or clerical and other support workers.

 

The Company considers itself to be a temporary staffing company within the broader staffing industry. However, the Company provides permanent placements at the request of existing clients and consulting services such as risk audits, due diligence for mergers and acquisition targets, and internal audit assessments.

 

Staffing companies identify potential employees through online advertising and referrals, and 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. The personnel staffing industry has been radically changed by the internet. Many employers list available positions with one or several internet personnel sites like www.monster.com or www.careerbuilder.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 by 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. There are two distinct “peak” seasons: August to October, preceding the Holiday season; April to June, 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 calendar quarter and early in the first calendar 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.

 

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Staffing companies are regulated by the U.S. Department of Labor (DOL) and the Equal Employment Opportunity Commission (EEOC), and often by state authorities. At issue is the relationship between the agency and the temporary 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.

 

We believe 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.

 

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. Staff members who move to another agency are often able to move customers with them.

 

Some of the best opportunities for temporary employment are in industries traditionally active in seasonal cycles, such as manufacturing, 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.

 

Many personnel firms have been accused of employment discrimination based on age, race, religion, or sex. Age discrimination is a rapidly growing type of employment charge filed with the US EEOC. Allegations of discrimination by temporary workers results in high insurance costs for staffing agencies.

 

Because worker leasing and the large-scale use of temporary workers are relatively new phenomena, federal and state labor laws do not directly address many of the issues these employer-employee relationships create. However, because clients have used PEOs to evade labor laws in the past, regulations are being tightened. PEOs are regulated in an increasing number of states, including Florida and Texas, where a significant number operate.

 

Trends in the Staffing Business

 

Startup costs for a personnel agency are very low. Individual offices can be profitable, but consolidation is driven mainly by the opportunity for large agencies to develop national relationships with big customers. Some agencies expand by starting new offices in promising markets, but most prefer to buy existing independent offices with proven staff and an existing customer roster.

 

Temporary workers are becoming such a large factor at some companies that personnel agency staff sometimes work at the customer's site to recruit, train, and manage. The Company has a number of on-sight relationships with its customers. Agencies try to match the best qualified employees for the customer's needs, but often provide additional training specific to that company, such as instruction in the use of proprietary software.

 

Some personnel consulting firms and human resource departments are increasingly using psychological tests to evaluate potential job candidates. Psychological, or liability, testing has gained popularity due to fraud scandals. In addition to stiffer background checks, headhunters check the credit of prospective employees.

 

We believe the trends of outsourcing entire departments and dependence on temporary and leased workers will expand opportunities for personnel agencies. Taking advantage of their expertise in assessing worker capabilities, some agencies manage clients’ entire human resource functions. Human resources outsourcing (HRO) may include management of payroll, tax filings, and benefit administration services. HRO may also include recruitment process outsourcing (RPO), where an agency manages all recruitment activities for a client.

 

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New online technology is improving staffing efficiency. For example, some online applications coordinate workflow for staffing agencies, their clients and temporary workers, and allow agencies and customers to share work order requests, submit and track candidates, approve timesheets and expenses, and run reports. Interaction between candidates and potential employers is increasingly being handled online.

 

Initially viewed as rivals, some Internet job-search companies and traditional employment agencies are now collaborating. While some Internet sites do not allow agencies to use their services to post jobs or look through resumes, others find that agencies are their biggest customers, earning the sites a large percentage of their revenue. Some staffing companies contract to help client employers find workers online.

   

Competition

 

The Company’s staffing divisions face competition in attracting clients as well as temporary candidates. The staffing business is highly competitive, with a number of firms offering services similar to those provided by the Company, on a national, regional or local basis. In many areas the local companies are the strongest competitors. The most significant competitive factors in the staffing business are price and reliability of service. The Company believes its competitive advantage is from its experience in niche markets, and commitment to the specialized employment market, along with its growing global presence.

 

The staffing industry is characterized by a large number of competing companies in a fragmented sector. Major competitors also exist across the sector, but as the industry affords low barriers to entry, new entrants are constantly introduced to the marketplace.

 

The top layer of competitors are large corporate staffing and employment companies which have yearly revenues of $75 million or more. The next (middle) layer of the competition consists of medium-sized entities with yearly revenues of $10 million or more. The largest portion of the marketplace is the bottom rung of this competitive landscape consisting of small individual-sized or family-run operations. As barriers to entry are low, sole proprietors, partnerships and small entities routinely enter the industry.

 

Employees

 

We currently employ one hundred thirty-seven (137) full-time employees and five (5) part-time employees as part of our internal operations. Three (3) of our employees are employed in general or administrative functions at our headquarters in New York, New York. Twelve (12) of our employees, all of whom worked for TRG prior to the TRG Acquisition, are employed in our Massachusetts office. Five (5) of our employees, all of whom worked for CSI or NCSI prior to the CSI Acquisition, are employed in our Massachusetts office. Additionally, one hundred eleven (111) of our employees, all of whom worked for Initio or its Subsidiaries prior to the Initio Acquisition, are employed in the following offices: Connecticut, Massachusetts, Rhode Island, New Hampshire, North Carolina and London. This does not include persons that we place directly with clients, which currently totals more than 3,200 individuals across our various staffing subsidiary operations.

 

ITEM 1A. RISK FACTORS.

 

Not required for smaller reporting companies

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

Not applicable.

 

ITEM 2. PROPERTIES.

 

The Company currently leases 20 facilities: Our New York properties are as follows: Our corporate headquarters is located at 641 Lexington Avenue, Suite 1526, New York, NY 10022 - month to month basis. Our Massachusetts properties are as follows: 607 North Ave, Wakefield, MA 01880 - tenancy at will; 187 Plymouth Avenue, Fall River, MA 02722 – twenty-four (24) month term; 1985 Main Street, Springfield, MA 01103 – twenty-four (24) month term; 29 Mountain East Street, Worcester, MA – twenty-four (24) month term; 855 Worcester Road, Framingham, MA – twenty-four (24) month term; 643 Veterans of Foreign Wars Pkwy, Chestnut Hill, MA 02467 – twelve (12) month term; 500 West Cummings Park, Suite 2550 Woburn, MA 01801 – sixty (60) month term, Our Connecticut office spaces are as follows: 35 Corporate Drive, Trumbull, CT 06611 – sixty-five (65) month term; 1800 Barnum Avenue, Stratford CT 06614 – forty-five (45) month term; 20 North Plains Industrial Road, Wallington, CT 06492 – twelve (12) month term; 887 Main Street, Manchester, CT 06040 – thirty-six (36) month term; 767 Wolcott Street, Waterbury, CT – sixty (60) month term; 973 Orange Avenue, West Haven, CT 06516 – sixty (60) month term; Our Rhode Island property is located at 400 Reservoir Avenue, 2J, Providence, RI 02907 – twenty-four (24) month term; Our New Hampshire property are as follows: 814 Elm Street, Manchester, New Hampshire – thirty-six (36) month term; 60 Main Street Nashua, NH – thirty-six (36) month term; Our North Carolina property is located at 718 Jake Alexander Blvd West, Salisbury NC 28147 – twenty-four (24) month term. Our United Kingdom property is located at 18 King William Street, London – twenty-four (24) month term.

 

These leases expire at various times from 2014 until 2017.

 

ITEM 3. LEGAL PROCEEDINGS.

 

In May 2014, NewCSI Inc., (“NCSI”) the former owners of Control Solutions International, filed a complaint against the Company, alleging that the Company breached the terms of the Stock Purchase Agreement dated August 14, 2013 between NCSI and the Company (the “SPA”) by failing to calculate and pay NCSI 50% of certain “Deferred Tax Assets” defined in the SPA (the “Action”). In the Action, NCSI seeks to accelerate the earn out payment provided for in the SPA in the amount of $1.4 million plus $154,433 representing a Deferred Tax Assets claim, together with other unspecified damages and legal fees. The Company filed an Answer denying the material allegations in the plaintiff’s complaint and interposing numerous affirmative defenses. The Action is currently pending in the U.S. District Court for the Western District of Texas and is in the early stages of discovery and the Company intends to aggressively defend against NCSI’s claims which the Company believes are not meritorious.

 

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From time to time, the Company, including its subsidiaries, may enter into legal disputes in the ordinary course of business. However, other than as described above, the Company believes there are no material legal or administrative matter pending that are likely to have, individually or in the aggregate, a material adverse effect on its business or results of operations.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

10
 

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY.

 

Market Information

 

The Company's common stock is traded on the OTCBB tier of the over-the-counter securities market run by FINRA, as well as OTCQB run by OTC Markets, under the symbol “STAF”. The Company’s common stock began trading on the OTCBB on February 15, 2013, although there has not been a lot of trading volume to date. The following table sets forth the high and low intraday price information for the period since the Company’s common stock began trading:

 

 

Fiscal Year 2013, Quarters Ended   High     Low  
February 28, 2013 (as of February 15, 2013)   $ 1.50     $ 0.75  
May 31, 2013   $ 2.25     $ 1.00  

 

Fiscal Year 2014, Quarters Ended   High     Low  
August 31, 2013   $ 1.80     $ 0.55  
November 30, 2013   $ 2.05     $ 1.01  
February 28, 2014   $ 2.10     $ 1.05  
May 31, 2014   $ 2.19     $ 1.55  

 

As of September 12, 2014, the Company’s common stock was trading at $1.54.

 

Holders of Common Stock

 

We have 401 record holders of our common stock as of September 1, 2014.

 

Dividends

 

We have never paid any cash dividends on our common stock, and we do not anticipate paying any dividends with respect to those securities in the foreseeable future. Our current business plan is to retain any future earnings to finance the expansion and development of our business.

 

Recent Sales of Unregistered Securities

 

Other than those sales of unregistered securities that have been disclosed by the Company in quarterly reports on Form 10-Q, current reports on Form 8-K, and as described in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “ Financings ,” the Company has not recently sold any unregistered securities.

 

ITEM 6. SELECTED FINANCIAL DATA.

 

Not required for smaller reporting companies.

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

 

Overview

 

The Company was incorporated in the State of Nevada on December 22, 2009, with the name “Golden Fork Corporation”. On March 16, 2013, the Company filed the Amendment to change its name from “Golden Fork Corporation” to “Staffing 360 Solutions, Inc.”

 

On July 31, 2012, the Company formed Staffing Alliance. In September 2012, Staffing Alliance commenced operations and in October 2012, we began generating revenues. Staffing Alliance is a wholly-owned subsidiary of the Company. The Company ceased operations in Staffing Alliance during 2014.

 

On April 26, 2013, the Company consummated the TRG Acquisition, pursuant to the TRG Purchase Agreement dated March 21, 2013, entered into by and among the Company, TRG and the shareholders of TRG. As a result of the Acquisition, TRG became a wholly-owned subsidiary of the Company and now operates under the name “Cyber 360 Solutions.” See Note 13 to the financial statements in this Annual Report on Form 10-K for a more complete description of the acquisition of Cyber 360 Solutions.

 

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On November 4, 2013, the Company consummated the acquisition of 100% of the issued and outstanding stock of CSI pursuant to a definitive stock purchase agreement dated August 14, 2013 by and among the Company, NCSI, and the shareholders of NCSI. See Note 13 to the financial statements in this Annual Report on Form 10-K for a more complete description of the acquisition of CSI.

  

On January 3, 2014, the company consummated and closed the acquisition of 100% of the issued and outstanding stock of Staffing 360 Solutions (UK) Limited (formerly Initio International Holdings Limited) and its respective Subsidiaries, including but not limited to Monroe The acquisition was completed pursuant to that certain share purchase agreement, dated October 30, 2013, as amended by Amendment No. 1 to the share purchase agreement, dated December 10, 2013, by and among the Company and the shareholders of Initio. See Note 13 to the financial statements in this Annual Report on Form 10-K for a more complete description of the acquisition of Initio.

 

On February 28, 2014, the Company purchased from Poolia UK substantially all of Poolia UK’s business and assets, including but not limited to contracts, business information, records, book debts and goodwill.  The acquisition was completed pursuant to that certain asset purchase agreement, dated February 28, 2014. See Note 13 to the financial statements in this Annual Report on Form 10-K for a more complete description of the acquisition of Poolia UK.

 

On May 17, 2014, the Company consummated the acquisition of 100% of the issued and outstanding stock of PeopleSERVE, Inc. pursuant to a definitive stock purchase agreement dated May 17, 2014 by and among the Company and the shareholders of PeopleSERVE, Inc. See Note 13 to the financial statements in this Annual Report on Form 10-K for a more complete description of the acquisition of PeopleSERVE, Inc.

  

On May 17, 2014, the Company consummated the acquisition of 49% of the issued and outstanding stock of PeopleSERVE, PRS pursuant to a definitive stock purchase agreement dated May 17, 2014 by and among the Company and the shareholders of PeopleSERVE, PRS. See Note 13 to the financial statements in this Annual Report on Form 10-K for a more complete description of the acquisition of PeopleSERVE, PRS.

 

Operating History

 

We intend to acquire domestic and international staffing companies. To date, we have six operating divisions: Cyber 360, CSI, Staffing 360 Solutions (UK), Poolia (UK), PeopleSERVE, Inc., and PeopleSERVE, PRS Inc. We are currently negotiating with other potential acquisitions. We began generating revenues in October 2012. As a result of these current acquisitions, we generated in excess of $45 million in revenues in fiscal 2014. Our business plan is subject to risks inherent in growing an enterprise, including limited capital resources and possible rejection of our business model and/or sales methods and cost overruns.

 

Prior Financings

 

Bridge Financing

 

From November 13, 2013 through December 6, 2013, the Company completed multiple closings of its “best efforts” private placement offering (the “Bridge Offering”) of 12% Unsecured Convertible Promissory Notes (the “Convertible Notes”) with certain accredited investors (the “Bridge Purchasers”).

 

Pursuant to the purchase agreements between the Company and the Bridge Purchasers in connection with the Convertible Notes (the “Subscription Agreements”), we issued Convertible Notes for an aggregate amount of $1,655,000 to 23 accredited investors. In addition to the Convertible Notes, each Bridge Purchaser received equity consideration at a rate of 12,500 shares of common stock for each $50,000 investment. Accordingly, the Company issued an aggregate of 413,750 shares of common stock to the Bridge Purchasers. 

 

In connection with the Bridge Offering, the Company retained Accelerated Capital Group, Inc. (“Accelerated Capital”) as the placement agent. For acting as placement agent, the Company agreed to pay Accelerated Capital: (i) a fee in cash up to an amount equal to ten percent (10%) of the aggregate gross proceeds raised by such brokers in the Bridge Offering, (ii) a non-accountable expense allowance of up to two percent (2%) of the aggregate gross proceeds raised by such broker in the Bridge Offering, and (iii) shares of common stock of the Company equal to an amount of up to ten percent (10%) of the aggregate number of shares of common stock of the Company issued in connection with funds raised by the broker in the Bridge Offering. As of the final closing on December 6, 2013, the Company paid the placement agent an aggregate consideration of $198,600 and issued an aggregate of 41,375 shares of common stock.

 

Subsequently, on the final closing of the private placement offering (the “PIPE Financing”), as described below, all of the Bridge Purchasers elected to convert all of the respective Convertible Notes, plus accrued interest, into Units at the same terms of the PIPE Financing. This resulted in the aggregate issuance of an additional 1,727,058 shares of common stock to the Bridge Purchasers. Further, in connection with this conversion, the Company issued to Accelerated Capital, as placement agent for the Bridge Offering, an additional 345,412 shares of common stock, which is equal to 20% of the shares of common stock issued to the Bridge Purchasers upon such conversion.

 

12
 

  

PIPE Financing

 

From January 3, 2014 through March 13, 2014, the company completed multiple closings of its PIPE Financing up to $10,000,000 consisting of up to 400 units (the “Units”) of the Company, each Unit consisting of (i) 25,000 shares of Common Stock of the Company, priced at $1.00 per share (“PIPE Shares”) and (ii) warrants (the “PIPE Warrants”) to purchase 12,500 shares of the Company’s common stock at an exercise price of $2.00 per share. As of the final closing on March 13, 2014, the Company received an aggregate amount of $10,000,000 from a total of 137 accredited investors and issued an aggregate of 400 Units, which consisted of a total of 10,000,000 shares of common stock and 5,000,000 Warrants.

 

In connection with the PIPE Financing, the Company retained Accelerated Capital as the placement agent. For acting as placement agent, the Company agreed to pay Accelerated Capital: (i) a fee in cash up to an amount equal to ten percent (10%) of the aggregate gross proceeds raised by such broker in the PIPE Financing, (ii) a non-accountable expense allowance of up to two percent (2%) of the aggregate gross proceeds raised by such broker in the PIPE Financing, and (iii) shares of common stock equal to an amount of up to ten percent (10%) of the aggregate number of shares of common stock of the Company issued in connection with funds raised by the broker in the PIPE Financing. As of the final closing, the Company paid Accelerated Capital an aggregate consideration of $1,105,380 and issued an aggregate of 921,150 shares of common stock.

 

Bond Financing

 

From May 19, 2014 through July 29, 2014, the Company completed multiple closings of its best efforts private offering (the “Bond Financing”) of 12% Convertible Bonds (the “Convertible Bonds”) with certain accredited investors (the “Bond Purchasers”). Pursuant to purchase agreements with each of the Bond Purchasers (the “Bond Agreements”), the Company issued Convertible Bonds for an aggregate of $4,058,500 to a total of 70 accredited investors. On or prior to the maturity date of each of the Convertible Bonds, the Bond Purchasers must notify the Company whether the payment for the Convertible Bond will be made in cash or as payment-in-kind in comparably valued common stock of the Company. The Bond Purchasers may elect to convert the Convertible Bonds, including all accrued but unpaid coupon payments, at any time prior to the maturity date, into restricted shares of common stock of the Company, at a conversion price of $1.50 per share. The Convertible Bonds have a maturity date of October 15, 2014.

 

In addition to the Convertible Bonds, each Bond Purchaser received equity consideration at a rate of 5,000 shares of the Company’s common stock for each $50,000 investment. Accordingly, the Company issued an aggregate of 405,850 shares of its common stock to the Bond Purchasers. 

 

In connection with the Bond Financing, the Company retained Accelerated Capital as the placement agent. For acting as placement agent, the Company agreed to pay Accelerated Capital: (i) a cash fee up to an amount equal to ten percent (10%) of the aggregate gross proceeds raised by Accelerated Capital in the Bond Financing, (ii) a non-accountable expense allowance of up to two percent (2%) of the aggregate gross proceeds raised by Accelerated Capital in the Bond Financing, and (iii) shares of common stock equal to an amount no greater than ten percent (10%) of the Bond Financing. As of the final closing, the Company paid Accelerated Capital an aggregate consideration of $ 487,020 and issued to Accelerated Capital an aggregate of 40,585 shares of common stock.

 

Short Term Financings

 

From April 21, 2014 through May 27, 2014, the Company also conducted a note offering, whereby the Company raised approximately $950,000 from 2 accredited investor through the issuance of five (5) short-term 12% convertible promissory notes (the “April Notes”). The purchaser of the April Notes received an aggregate of 150,000 shares of restricted common stock. The April Notes are due and payable upon demand by the holder with advance written notice fifteen (15) days prior to the desired payment date. Commencing on dates ranging from July 15, 2014 to August 1, 2014, the holder is entitled to receive shares ranging from an additional 2,500 to 5,000 shares of the Company’s restricted common stock per $100,000 note payable in arrears per month that any principal amount or interest remains outstanding under the note. The holder of the April Notes may convert, at its sole election, the principal amount and any accrued but unpaid interest due under the April Notes into restricted shares of common stock at a price of $1.50 per share. The April Notes and shares of common stock issued in connection with the April Notes qualified for exemption under Rule 506(b) promulgated under Section 4(a)(2) of the Securities Act since the issuance of these securities by the Company was to an accredited investor and did not involve a “public offering.”

 

From May 14, 2014 through May 19, 2014, the Company conducted an additional note offering whereby the Company raised approximately $600,000 from 5 accredited investors through the issuance of five (5) short-term 12% convertible promissory notes (the “May Notes”). The May Notes were payable upon the earlier of (i) completion of the Company’s convertible bond offering, (ii) completion of the Company’s senior debt facility or (iii) July 14, 2014. The purchasers of the May Notes received an aggregate of 120,000 shares of restricted common stock. The holders of the May Notes were entitled to convert, at their sole election, the principal amount and any accrued but unpaid interest due under the May Notes into restricted shares of common stock at a price of $1.50 per share. The May Notes and shares of common stock issued in connection with the May Notes qualified for exemption under Rule 506(b) promulgated under Section 4(a)(2) of the Securities Act since the issuance of these securities by the Company were only made to accredited investors and did not involve a “public offering.” On July 14, 2014, all five (5) of the holders of the May Notes converted such May Notes into an aggregate of 407,915 shares of common stock.

 

On May 27, 2014, the Company conducted an additional note offering whereby the Company raised approximately $50,000 from one accredited investor through the issuance of a short-term 12% convertible promissory note (the “May 27 Note”). The May 27 Note was payable upon the earlier of (i) completion of the Company’s convertible bond offering, (ii) completion of the Company’s senior debt facility or (iii) July 12, 2014. The purchasers of the May 27 Note received an aggregate of 50,000 shares of restricted common stock. The holder of the May 27 Note was entitled to convert, at his sole election, the principal amount and any accrued but unpaid interest due under the May 27 Note into restricted shares of common stock at a price of $1.50 per share. The May 27 Note and shares of common stock issued in connection with the May 27 Note qualified for exemption under Rule 506(b) promulgated under Section 4(a)(2) of the Securities Act since the issuance of these securities by the Company were only made to accredited investors and did not involve a “public offering.” On July 25, 2014, the Company repaid the May 27 Note, including all accrued and unpaid interest.

 

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In connection with the May 27, 2014 Note, and pursuant to that certain placement agent agreement, dated January 23, 2014, between the Company and Corinthian Partners (“Corinthian”), the Company paid Corinthian, in connection with the introduction of the investor to the Company, a cash fee of $5,000 and issued 1,000 shares of common stock.

 

On June 22, 2014, the Company conducted an additional note offering whereby the Company raised approximately $100,000 from one accredited investor through the issuance of a short-term 12% convertible promissory note (the “June Note”). The June Note is also payable upon the earlier of (i) completion of the Series A Bond Offering, (ii) completion of the Company’s senior debt facility or (iii) eight (8) weeks from the original issuance date of the June Note. The purchaser of the June Note received an aggregate of 20,000 shares of restricted common stock. The holder of the June Note may convert, at his sole election, the principal amount and any accrued but unpaid interest due under the June Note into restricted shares of Common Stock at a price of $1.50 per share. The June Note and shares of common stock issued in connection with the June Note qualified for exemption under Rule 506(b) promulgated under Section 4(a)(2) of the Securities Act since the issuance of these securities by the Company were only made to accredited investors and did not involve a “public offering.” In August 2014, the Company repaid the June 22 Note, including all accrued and unpaid interest.

 

In June 2014, the Company issued a promissory note for consideration totaling $100,000 to Robert Mayer, a director and shareholder of the Company. The promissory note was non-interest bearing and due on demand. The Company issued 5,000 shares to Mr. Mayer as additional consideration. This note was paid in full in June, 2014.

 

In July 2014, the Company issued three non-interest bearing promissory notes in the aggregate amount of $280,000 to three related parties. The promissory notes were due upon demand. The first note was issued on July 16, 2014 to Trilogy Capital Partners, which is owned by the Company’s President, Alfonso J. Cervantes, in the amount of $30,000. This note was repaid in full on July 25, 2014. The second note was issued on July 17, 2014 to Jeff Mitchell, the Company’s CFO, in the amount of $150,000. The Company issued 10,000 Common Stock shares to Mr. Mitchell as additional consideration. This note was repaid in full on July 25, 2014. The third note was issued on July 8, 2014 to Robert Mayer, a director and shareholder of the Company, in the amount of $100,000. The Company issued 7,000 shares to Mr. Mayer as additional consideration. This note was paid in full on July 29, 2014.

 

In August 2014, the Company issued a promissory note for consideration totaling $125,000 to Robert Mayer, a director and shareholder of the Company. The promissory note was non-interest bearing and due on demand. The Company issued 7,500 shares to Mr. Mayer as additional consideration. This note is still outstanding.

 

In July and August 2014, the Company issued promissory notes to Sterling National bank for consideration totaling $625,000. The notes bear interest at 18% per annum and are due upon demand. As of the date of this filing, the Company has repaid $488,992 in principal and $5,271 in interest. The balance outstanding as of the date of this filing is $136,008.

 

In August 2014, the Company issued a non-interest bearing promissory note in the amount of $150,000 to Barry Cervantes, a brother of the Company’s President, Alfonso J. Cervantes. The promissory note is due upon demand. The Company issued 7,500 shares to Barry Cervantes as additional consideration. This note remains outstanding.

 

Accounts Receivable Credit Facilities

 

In May 2013 and November 2013, respectively, Staffing 360 Group, Inc. d/b/a Cyber 360 Solutions and Control Solutions International, Inc., both wholly owned subsidiaries of the Company, entered into financing services agreements by which they assign accounts receivable to fund working capital with Sterling National Bank (“Sterling”). Pursuant to these agreements, Sterling may advance up to 90% of the face value of eligible accounts receivable.  The borrowings carry interest at a rate of .025% per day, or 9% per annum, from the date of the advance until the date of repayment.  There is no ending date to the agreement, only a closing fee of $500 upon termination.

 

In February 2014, Staffing 360 Solutions (UK) Limited, a wholly owned subsidiary of the Company, entered into an agreement with ABN AMRO Commercial Finance PLC under which it borrows money against open accounts receivable. Under this agreement, the Borrower receives advances of up to 90% on temporary placements and 75% on permanent placements of the face value of eligible receivables.  The borrowings carry interest at a rate of 2.50% above the Sterling Libor rate (3.90%).  The maximum loan amount is 1,250,000 Pounds Sterling. The agreement terminates on its second anniversary. Additionally, it entered a term loan with ABN-AMRO Commercial Finance PLC for £200,000, to fund part of the Poolia Acquisition. This agreement is paid over a 24 month period starting in March 2014 and has a personal guarantee of the Executive Chairman, Brendan Flood.

 

Effective November 1, 2012, the Company’s subsidiary, Monroe Staffing, a subsidiary of Staffing (UK), entered into a $14,000,000 line of credit (“Credit and Security Agreement”) with Wells Fargo Bank, NA. The Credit and Security Agreement is subject to accounts receivable limitations and bears interest at Libor plus 5% (5.15% as of May 31, 2014) on the greater of $5,000,000 or the actual loan balance outstanding, and expires on October 31, 2015. The Agreement is subject to an annual facility fee, certain covenants and is secured by all of the assets of Monroe Staffing. The covenants are as follows:

 

14
 

  

  · The Company’s Working Capital Ratio shall at all times be not less than 1:1 measured on a quarterly basis.
  · The Company’s Cash Flow shall at all times be positive, as measured on a quarterly cumulative basis.
  · The Company shall not make any loans, advances or transfers to any subsidiary or affiliate other than transactions in the ordinary course of business.

 

In March 2014, the Company obtained a one-time waiver relating to the above covenants, specifically as it relates to the failure to maintain a working capital ratio of 1:1 and positive cash flow for the quarterly period ended December 2013.

 

Effective July 25, 2014, the Company joined with its subsidiaries, Monroe Staffing Services, LLC, PeopleSERVE, Inc. and PeopleSERVE PRS, Inc., (collectively referred to as “Borrowers”) in an Amended and Restated Credit and Security Agreement and a new Credit and Security Agreement (“Credit Facility”) with Wells Fargo Bank, NA. This Credit Facility increased the line of credit amount from $14,000,000 to $15,000,000 and modified the covenant to permit, with certain limitations, the transfer of funds amongst the Borrowers. All of terms and conditions remain unchanged. At May 31, 2014, $11,260,207 was recorded as a liability relating to the Line of Credit.

 

Going concern

 

Through August 2012, the Company was presented as a development stage company. Activities during the development stage included organizing the business and raising capital.  In September 2012, Staffing Alliance commenced operations and the Company began to generate revenues in October 2012. In April 2013, Cyber 360 Solutions commenced operations and began generating revenues. In November 2013, NCSI commenced operations and began generating revenues. In January 2014, Staffing UK commenced operations and began generating revenues. In February 2014, Poolia UK commenced operations and began generating revenues. In May 2014, PeopleSERVE, Inc. and PeopleSERVE, PRS commenced operations and began generating revenues. Since inception, the Company has been able to operate under a going concern audit opinion and meet its financial obligations. Since the Company has incurred losses and currently has negative working capital, these consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year.  Realization value may be substantially different from carrying values as shown and these consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.  As of May 31, 2014, the Company had a working capital deficiency of $7,158,462, and had an accumulated deficit of $16,337,118 and for the year ended May 31, 2014 had net losses and net cash used in operations of $12,657,739 and $4,287,975 respectively.  The continuation of the Company as a going concern is dependent upon the continued financial support from its major shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and through profitable operations from existing subsidiaries and the acquisition of additional entities.  These factors raise substantial doubt regarding the Company’s ability to continue as a going concern and the outcome of these uncertainties cannot be predicted.

 

Currently, we do not have sufficient working capital to fund the expansion of our operations and to provide working capital necessary for our ongoing operations and obligations. We will need to raise significant additional capital to fund our operating expenses, pay our obligations, and acquire additional entities. In order to continue as a going concern and achieve a profitable level of operations, the Company will need, among other things, additional capital resources.  Management’s plan to continue as a going concern includes raising capital through increased sales and conducting additional financings through debt and equity transactions in order to acquire additional entities. The Company anticipates it will require $4.0 million over the next twelve (12) months for working capital. This amount does not include capital needed to fund additional acquisitions. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon the management’s ability to successfully implement the plans described above, including securing additional sources of financing and attain profitable operations.   Management also cannot provide any assurance that unforeseen circumstances that could occur at any time within the next twelve months or thereafter will not increase the need for the Company to raise additional capital on an immediate basis. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

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From inception through May 31, 2014, the Company has raised capital by conducting financings through debt and equity transactions. During the fiscal year ended May 31, 2014, the Company conducted various note offerings (See Note 5 to the financial statements with this Annual Report), whereby the Company raised $3,255,000 for the issuance of 12% convertible promissory notes. The notes have varying due dates and triggering events. However, they are all short-term notes. The purchaser of the notes also received additional equity consideration in the form of restricted Common Stock. The notes and shares of common stock issued in connection with the notes qualified for exemption under Rule 506(b) promulgated under Section 4(a)(2) of the Securities Act since the issuance of these securities by the Company was to an accredited investor and did not involve a “public offering.” In addition, the Company conducted note offerings (see Note 6 to the financial statements with this Annual Report), whereby the Company raised $340,000 pursuant to 12% promissory note agreements dated September 27, 2013, October 18, 2013 and October 28, 2013, in the amount of $40,000, $200,000 and $100,000, respectively. As additional consideration, the note holders received additional equity consideration in the form of restricted Common Stock. On December 6, 2014, the Company raised $1,655,000 in the form of 12% convertible promissory notes relating to its $1.75 million bridge financing. In April 2014, the Company converted the entire $1,655,000 of principal and $72,044 of interest and issued 1,727,044 shares (1,655,000 relating to principal and 72,044 relating to accrued interest). On March 13, 2014, the Company successfully completed its private placement offering of the maximum amount of $10,000,000 which consisted of common stock and warrants. Each unit consisted of (i) 25,000 shares of common stock priced at $1.00 per share and (ii) warrants to purchase 12,500 shares, at an exercise price of $2.00 per share. Since the issuance of these securities by the Company did not involve a “public offering” and the Company only accepted investments from accredited investors, the sale of the units qualified for exemption under Rule 506(b) promulgated under Section 4(a)(2) of the Securities Act. For the aggregate amount of $10,000,000 and the 400 units through May 31, 2014, the Company issued a total of 10,000,000 shares of common stock and 5,000,000 warrants.

 

In April, 2014, the Company commenced its best efforts private offering (the “Bond Offering”) of 12% Convertible Bonds (the “Bonds”) with certain accredited investors (the “Purchasers”). As of May 31, 2014, the Company issued Bonds for an aggregate of $2,998,500 (see Note 7 to the financial statements with this Annual Report). On July 29, 2014, the Company completed the Bond Offering for an aggregate of $4,058,500. These Bonds mature on October 15, 2014, unless voluntarily converted. In addition to the Bonds, each Purchaser of the Bonds received equity consideration at a rate of 5,000 shares (the “Equity Consideration”) of Common Stock for each $50,000 investment for a total of 405,850 shares of common stock. From April 21, 2014 through May 27, 2014, the Company also conducted a note offering, whereby the Company raised approximately $950,000 from 2 accredited investors through the issuance of five (5) short-term 12% convertible promissory notes (the “April Notes”). The purchaser of the April Notes received an aggregate of 150,000 shares of common stock. From May 14, 2014 through May 19, 2014, the Company conducted an additional note offering whereby the Company raised approximately $600,000 from 5 accredited investors through the issuance of five (5) short-term 12% convertible promissory notes (the “May Notes”). The purchasers of the May Notes received an aggregate of 120,000 shares of restricted common stock. On May 27, 2014, the Company conducted an additional note offering whereby the Company raised approximately $50,000 from one accredited investor through the issuance of a short-term 12% convertible promissory note (the “May 27 Note”). The purchaser of the May 27 Note received an aggregate of 10,000 shares of restricted common stock. In July 2014, the Company issued three non-interest bearing promissory notes in the aggregate amount of $280,000 to three related parties. The promissory notes were due upon demand. The first note was issued on July 16, 2014 to Trilogy Capital Partners, which is owned by the Company’s President, Alfonso J. Cervantes, in the amount of $30,000. The second note was issued on July 17, 2014 to Jeff Mitchell, the Company’s CFO, in the amount of $150,000. The Company issued 10,000 shares of common stock to Mr. Mitchell as additional consideration. The third note was issued on July 8, 2014 to Robert Mayer, a director and shareholder of the Company, in the amount of $100,000. The Company issued 7,000 shares to Mr. Mayer as additional consideration. In August 2014, the Company issued a non-interest bearing promissory note in the amount of $150,000 to Barry Cervantes, a brother of the Company’s President, Alfonso J. Cervantes. The promissory note is due upon demand. The Company issued 7,500 shares to Barry Cervantes as additional consideration. In August 2014, the Company issued a non-interest bearing promissory note in the amount of $125,000 to Robert Mayer, a director and shareholder of the Company. The promissory note is due upon demand. The Company issued 7,500 shares to Mr. Mayer as additional consideration. In July and August 2014, the Company issued promissory notes to Sterling National bank for consideration totaling $625,000. These notes bear interest at 18% per annum and are due upon demand.

 

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In total, for the fiscal year ended May 31, 2014, the Company raised an aggregate of $17,158,500 in capital by conducting financings through debt and equity transactions. In addition, from June 1, 2014 through the date of this filing, the Company raised an aggregate of $2,240,000. The Company intends to continue to conduct additional short-term note financings to provide necessary working capital to the Company, as needed

 

Results of Operations

 

The Company is still in the early stages of its development and the acquisition of five (5) additional staffing companies. As a consequence of this, and specifically the transaction costs of the acquisition program and the cost of obtaining financing, the Company generated a loss of $12.6 million in the year-ended May 31, 2014. In addition, during 2014, the Company recorded approximately $3.5 million of non-cash impairment charges against the first two acquisitions.  Additionally, the Company incurred approximately $1.1 million of non-cash amortization of intangibles. While we accept that these two acquisitions have under-performed from a GAAP perspective, we view our M&A program in its totality. Without the Cyber360 acquisition we could not have made the Control Solutions International acquisition and without both, we would not have been able to consummate our transformative acquisition of Initio International Holdings. The acquisition of Initio allowed us to complete both Poolia UK and PeopleSERVE. In the medium to long-term we will view this impairment as a cost of getting our growth program in place. 

 

From a revenue perspective, the Company delivered $45.8 million for the year, of which $25.6 million was in the final quarter of the year. The fourth quarter revenue is consistent with what will be expected each quarter on a go forward basis not taking into account any potential acquisitions. The Company believes the acquisitions consummated during calendar year 2014 are performing as expected. We are confident that we can continue to grow these businesses and that they will allow us to attract further acquisitions in line with our stated Strategic Plan of getting to $300 million of annualized revenues.

 

The Company is vigilant in managing its operations and has developed a “Path to Profitability” program that is monitored constantly. This Path to Profitability includes overhead control, operational reviews, cash management, adequate capitalization, and our M&A program. Young, growing companies often confront struggles such as integration, financing, etc. We have invested for our future in building a strong corporate team which allows stronger financial reporting, compliance and commercial management. This investment has contributed to our losses in the short-term but would not need material additions to it as we grow, both organically and through acquisition.

 

The following table sets forth the results of our operations for the years ended May 31, 2014 and 2013 indicated as a percentage of net revenues:

 

    Years Ended May 31,  
    2014     2013  
                         
Service revenues   $ 45,778,493       100 %   $ 647,731       100 %
Direct cost of services     36,694,123       80 %     448,507       69 %
Gross profit     9,084,370       20 %     199,224       31 %
Operating expenses     18,945,032       34 %     2,632,924       406 %
Loss from operations     (9,860,662 )     (14 )%     (2,433,700 )     (367 )%
Other expenses     (2,727,109 )     (14 )%     (971,482 )     (150 )%
Net loss   $ (12,657,739 )     (28 )%   $ (3,405,182 )     (526 )%

 

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Service revenues

 

We began to generate revenues in October 2012. As of May 31, 2014, the Company had six entities – Cyber 360, Control Solutions International (CSI), Staffing (UK), Poolia (UK), PeopleSERVE, Inc. and PeopleSERVE PRS.

 

Cyber 360 was acquired on April 26, 2013. Cyber 360 primarily provides IT and information security temporary staffing services for an array of large institutions. They also provide permanent placement, consulting to permanent placement 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. For the year ended May 31, 2014, Cyber 360 had revenues of $4,580,331 compared to $475,506 for the year ended May 31, 2013. The revenues for the year ended May 31, 2013 are from date of acquisition through the fiscal year end (approximately one month period). 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.

 

Control Solutions International (CSI) was acquired on November 4, 2013. It provides consulting and risk advisory services principally in the U.S. and Canada but also has a network of affiliated entities across 33 countries through which our services are provided. It recognizes revenue ratably over the period in which the service is provided. The costs of the service provision are recognized as the cost and time is incurred. For the year ended May 31, 2014, CSI added revenue to the Company of $3,564,249 compared to $0 for the year ended May 31, 2013.

 

Staffing UK (including its subsidiary Monroe) was acquired on January 3, 2014. It provides temporary staffing and permanent placement services in the US and the UK. Revenues are derived from gross billings, which are based on (i) the payroll cost of its worksite employees; and (ii) a markup computed as a percentage of the payroll cost. The gross billings are invoiced concurrently with each periodic payroll of its worksite employees. For the year ended May 31, 2014, Staffing UK (including Monroe) added revenue to the Company of $35,234,255 compared to $0 for the year ended May 31, 2013.

 

Poolia UK was acquired on February 28, 2014. Poolia UK operates its professional staffing services from its office in London and focuses on providing temporary, contract and permanent qualified professionals to various banking, financial and commercial clients across the United Kingdom. For the year ended May 31, 2014, Poolia UK added revenue to the Company of $1,586,630 compared to $0 for the year ended May 31, 2013.

 

PeopleSERVE, Inc. was acquired on May 17, 2014. It provides temporary staffing and permanent placement services primarily in the IT sector. Revenues are derived from gross billings, which are based on (i) the payroll cost of its worksite employees; and (ii) a markup computed as a percentage of the payroll cost. The gross billings are invoiced concurrently with each periodic payroll of its worksite employees. For the year ended May 31, 2014, PeopleSERVE, Inc. added revenue to the Company of $434,410 compared to $0 for the year ended May 31, 2013.

 

PeopleSERVE, PRS was acquired on May 17, 2014. It provides temporary staffing and payrolling services primarily in the IT sector. Revenues are derived from gross billings, which are based on (i) the payroll cost of its worksite employees; and (ii) a markup computed as a percentage of the payroll cost. The gross billings are invoiced concurrently with each periodic payroll of its worksite employees. For the year ended May 31, 2014, PeopleSERVE, PRS added revenue to the Company of $300,879 compared to $0 for the year ended May 31, 2013.

 

For the year ended May 31, 2014, we, on a consolidated basis, had net revenues of $45,778,493 compared to $647,731 for the year ended May 31, 2013. The dramatic increase in revenues is due to the full year impact of the five acquisitions the Company has consummated.

 

Direct cost of services

 

Cost of revenues includes the cost of labor and other overhead costs (payroll wages, taxes and related insurance) as they relate to employees (temporary and permanent) as well as sub-contractors and consultants. For the year ended May 31, 2014 and 2013, cost of revenues was $36,694,123 and $448,507, respectively. The increase is related to the cost of revenues of the Company’s five (5) acquisitions, which took place after the year ended May 31, 2013.

 

Gross profit and gross margin

 

Our gross profit for the year ended May 31, 2014 and 2013 was $9,084,370 and $199,224, respectively, representing gross margin of 20% and 31% respectively. The decrease is related to the gross profit margin of the Company’s five (5) acquisition, four (4) of which took place after the year ended May 31, 2013 as compared to the gross profit of its lone subsidiary in 2013.

 

Operating expenses

 

For the year ended May 31, 2014, operating expenses amounted to $15,404,177 as compared to $2,632,924 for the year ended May 31, 2013, an increase of $12,771,253. For the year ended May 31, 2014 and 2013, operating expenses consisted of the following:

 

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    Years Ended May 31,  
    2014     2013  
General and administrative   $ 2,827,094     $ 319,075  
Compensation     7,620,509       368,547  
Director and Consulting fees – related parties     458,968       476,129  
Impairment of goodwill     2,700,255       -  
Impairment of intangible assets     833,592       -  
Depreciation and amortization     1,198,788       22,752  
Professional fees     3,305,826       1,446,421  
Total operating expenses   $ 18,945,032     $ 2,632,924  

 

For the year ended May 31, 2014, the increase in our operating expenses as compared to the year ended May 31, 2013 was primarily attributable to:

 

· An increase of $2,508,019 in general and administrative expenses for the year ended May 31, 2014 as compared to the year ended May 31, 2013. The increase is primarily attributable to the implementation of the Company’s business plan in relation to costs incurred for adding four acquisitions as well as office expenses related to the Company’s subsidiaries, four of which did not exist prior to May 2013.

 

· An increase in compensation of $7,251,962. The Company has increased its workforce due to the increase related to the acquisitions made in November 2013 and January, February and May 2014. In 2013, the Company hired a president of the Company as well as two senior vice presidents. The increase in compensation primarily relates to the compensation of the employees working for the Company’s acquired subsidiaries.

 

· A decrease of $17,161 in director and consulting fees to related parties incurred for administrative overhead services and business development services is primarily attributable to the Company hiring executive officers rather than hiring consultants in order to implement the Company’s business plan specifically researching potential target acquisitions as well as implementing the Company’s plan relating to its existing subsidiaries.

 

· During the year ended May 31, 2014 and 2013 the Company recognized amortization expense of $1,084,961 and $20,828, respectively. Amortization expense relates to the amortization of the Company’s intangible assets. The Company’s intangible assets are being amortized on a straight line basis over the estimated life of the asset of four years except for Trade Names which are being amortized over fifteen years. The intangible asset is related to the acquisitions of Cyber 360 on April 26, 2013, Control Solutions International on November 4, 2013, Staffing UK on January 3, 2014, Poolia on February 28, 2014 and PeopleSERVE, Inc. and PeopleSERVE, PRS on May 17, 2014.

 

· An increase of $113,827 in depreciation expense. The increase relates to the fixed assets of the Company’s subsidiaries and the fixed assets the Company acquired.

 

· An increase of $1,859,405 in professional fees in the year ended May 31, 2014 as compared to the year ended May 31, 2013. The increase primarily relates to increases in accounting, consulting and legal fees relating to the implementation of the Company’s business plan specifically due diligence (legal and accounting) of potential acquisition targets, as well as, legal and auditing costs associated with the completion of the acquisitions. This is expected to continue while we look to acquire new businesses. The increase also relates to the professional fees relating to running public companies (accounting, auditing, legal, transfer agent, and filing fees).

 

· For the year ended May 31, 2014, the Company recorded an impairment to its goodwill totaling $2,700,255. The Company fully impaired its goodwill asset related to the acquisition of Cyber 360 Solutions, Inc. for a total of $1,412,646 and impaired $1,287,609 related to the full impairment associated with the acquisition of Control Solutions, Inc. The Company periodically reviews its goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable or annually if not done earlier.  The valuations provided were performed by an independent professional valuation services’ calculations.

 

· For the year ended May 31, 2014, the Company recorded an impairment to its intangible assets totaling $833,592. The Company fully impaired its intangible assets related to the acquisition of Cyber 360 Solutions, Inc. for a total of $823,567 and impaired $10,025 related to the acquisition of Control Solutions, Inc. The Company periodically reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable or annually if not done earlier.  The valuations provided were performed by an independent professional valuation services’ calculations.

 

Other Expenses

 

For the years ended May 31, 2014 and 2013, we incurred interest and financing expense of $2,272,109 and $1,011,482, respectively, relating to interest from convertible notes payables, accounts receivable financing, amortization of beneficial conversion feature, debt discount and amortization of deferred financing costs.

 

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Net Loss

 

As a result of the factors described above, our net losses for the years ended May 31, 2014 and 2013 were $12,657,739 and $3,405,182, respectively, or a net loss per common share of $0.65 and $0.43 (basic and diluted), respectively.

 

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. We have been funding our operations through promissory notes, the sale of the Company’s common stock through private offerings and from advances from our majority shareholders/officers/directors.

 

Through August 2013, the Company was presented as a development stage company. Activities during the development stage included organizing the business and raising capital.  In September 2012, Staffing Alliance commenced operations and the Company began to generate revenues. In April 2013, Cyber 360 Solutions commenced operations and began generating revenues. In November 2013, NCSI commenced operations and began generating revenues. In January 2014, Staffing UK commenced operations and began generating revenues. In February 2014, Poolia UK commenced operations and began generating revenues. In May 2014, PeopleSERVE, Inc. and PeopleSERVE, PRS commenced operations and began generating revenues. Since the Company has incurred losses and currently has negative working capital, these consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year.  Realization value may be substantially different from carrying values as shown and these consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.  As of May 31, 2014, the Company had a working capital deficiency of $7,158,462, and had an accumulated deficit of $16,337,118 and for the year ended May 31, 2014 has a net loss and net cash used in operations of $12,657,739 and $4,287,975, respectively.  The continuation of the Company as a going concern is dependent upon the continued financial support from its major shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and through profitable operations from existing subsidiaries and the acquisition of additional entities.  These factors raise substantial doubt regarding the Company’s ability to continue as a going concern and the outcome of these uncertainties cannot be predicted.

 

Our primary uses of cash have been for professional fees related to our operations and financial reporting requirement and for the payment of compensation and benefits and consulting fees to related parties. All funds received have been expended in growing the business, implementing our business plan and funding operations. The following trends are reasonably likely to result in a material decrease in our liquidity over the near to long term:

 

· An increase in working capital requirements to finance targeted acquisitions,
· Addition of administrative and sales personnel as the business grows,
· Increases in advertising, public relations and sales promotions for existing and new brands as we expand within existing markets or enters new markets,
· The cost of being a public company, and
· Capital expenditures to add technologies.

 

In October 2012, we began to generate revenues. At May 31, 2014, we had cash of $1,324,711. We have funded our operations as follows:

 

· On January 17, 2013, the Company signed a promissory note with a lender in the principal amount of $750,000. The promissory note bears interest at a rate of 12% per annum.

 

· During the period from March 2013 through February 2014, the Company entered into promissory notes with various parties in the aggregate principal amount of $425,000. The notes bear interest at the rate of 12% per annum.

 

· During the year ended May 31, 2013, the Company entered into note agreements with various shareholders/directors/officers of the Company in the aggregate amount of $56,500. These notes are unsecured, bear interest at 5.0% and are due one year from the respective note date.

 

· During the year ended May 31, 2013, the Company entered into an agreement under which it borrows money under an accounts receivable financing arrangement. The Company receives an advance of 90% of the face value of an eligible receivable.   Upon collection of the receivable, the advance is repaid and the remaining funds are remitted to the Company. The borrowings carry interest at a rate of .025% per day (9% per annum).  At May 31, 2014, $2,958,790 was recorded (including interest) to the accounts receivable financing liability.

 

· During the year ended May 31, 2013, the Company completed a closing of a private offering for total gross proceeds of $1,050,000. Pursuant to a subscription agreement, the Company issued to the purchasers units consisting of (i) 27,778 shares of common stock and (ii) a three year warrant to purchase 13,889 shares of common stock at an exercise price of $1.80 per share, for a purchase price of $25,000 per unit. In total, the Company sold 42 units totaling 1,166,676 common shares and 583,338 warrants.

 

In addition, on July 2, 2013 the Company completed a closing of a second private offering for total gross proceeds of $565,000. The terms of the second offering mirror the first offering. In total, the Company sold 22.6 units totaling 627,783 common shares and 313,892 warrants.

  

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· On August 28, 2013, a related party loaned the Company $155,000 for short term obligations. This loan was non-interest bearing and was repaid on September 3, 2013.

 

· During the year ended May 31, 2014, the Company issued promissory notes to four investors for a total of $340,000. The loans bear interest at 12% per annum and were due at the earlier of the completion of the Company’s $1.75 million bridge financing or 90 days from the date of the note. These notes were repaid in fiscal 2014.

 

· During the year ended May 31, 2014 the Company raised $1,655,000 in the form of convertible promissory notes relating to its $1.75 million bridge financing. The loans bear interest at 12% per annum and are due within 10 days following the closing of a $10 million private placement financing or February 28, 2014 (the “Maturity Date”). In April 2014, the Company converted $1,655,000 of principal and $72,044 of interest and issued 1,727,044 shares (1,655,000 relating to principal and 72,044 relating to accrued interest) .

 

· Through February 28, 2014, in connection with the Company’s private placement offering of units for up to $10,000,000 the Company raised $9,144,000 for a total of 365.76 units. Each unit consisting of (i) 25,000 shares of common stock priced at $1.00 per share and (ii) warrants to purchase 12,500 shares, at an exercise price of $2.00 per share. In connection with such unit offering, as of May 31, 2014, the Company issued a total of 9,144,000 shares of common stock and 4,572,000 warrants. On March 13, 2014, the Company successfully completed the sale of the remaining unit offering of the maximum amount of $10,000,000.

 

· From April 21, 2014 through May 27, 2014, the Company also conducted a note offering, whereby the Company raised approximately $1,600,000 through the issuance of short-term 12% convertible promissory notes. The purchasers of the short-term 12% convertible promissory notes received an aggregate of 320,000 shares of restricted common stock as additional consideration.

 

· In April, 2014, the Company commenced its Bond Offering of 12% Convertible Bonds with certain accredited investors. Through May 31, 2014, the Company issued Bonds for an aggregate of $2,998,500. The purchasers of the 12% Convertible Bonds received an aggregate of 299,850 shares of restricted common stock as additional consideration. On July 29, 2014, the company completed the Bond Offering for an aggregate of $4,058,500.

 

As a result of these financings and additional financings in the near future, we believe that we will be able to implement our business plan and pursue the acquisition of a broad spectrum of staffing agencies in the IT, financial, accounting, and banking industries and for working capital for the next twelve (12) months. This does not include payments for closing certain acquisitions that we have entered into agreements and/or term sheets with, none of which may ultimately close. Currently, we do not have sufficient working capital to fund the expansion of our operations and to provide working capital necessary for our ongoing operations and obligations. We will need to raise significant additional capital to fund our operating expenses, pay our obligations, and grow our company organically and through further acquisitions. Therefore our future operations will be dependent on our ability to secure additional financing. We estimate that based on current plans and assumptions, that our available cash will not be sufficient to satisfy our cash requirements under our present operating expectations, without further financing, for to the next twelve (12) months. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. Currently, dilutive common share equivalents totaling 12,544,071 consist of shares issuable upon the conversion of existing convertible notes and the exercise of stock options and warrants. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our marketing and development plans and possibly cease our operations.

 

We anticipate that depending on market conditions and our current state of operations, we will incur additional operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.

 

Our liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly.

 

Operating activities

 

For the year ended May 31, 2014, net cash used in operations of $4,287,975 was primarily attributable to the net loss of $12,657,739 offset by changes in operating assets and liabilities totaling $79,739, which primarily relates to accounts receivable of $203,039, prepaid expenses of $18,321, deferred finance costs of $1,349,128, other assets of $212,102, accounts payable and accrued expenses of $555,810, accounts payable and accrued expenses – related parties of $124,676, accrued payroll and taxes of $785,820 and other current liabilities of $43,177, non-cash adjustments of $3,364,000 of depreciation and amortization, impairment of intangibles and goodwill totaling $3,533,847 and share based compensation totaling $1,551,656. Cash used in operations of $1,423,484 in 2013 was primarily attributable to the net loss of $3,405,182 offset by changes in operating assets and liabilities totaling $608,717, which primarily relates to accounts payable and accrued expenses of $1,119,262, prepaid expenses of $18,452 and accounts receivable of $528,997, non-cash adjustments of $954,018 of depreciation and amortization, share based compensation of $458,963 and gain on settlement of debt totaling $40,000.

 

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 Investing activities

 

For the year ended May 31, 2014, net cash flows used in investing activities was $11,612,461 and was attributable to the acquisition related cash acquired of $835,342, the purchase of fixed assets of $144,964, payments due to sellers of Poolia and People Serve totaling $137,591 and the payments of $525,572 made for the earn-out agreement relating to the acquisition of Cyber 360 on April 26, 2013 and CSI on November 3, 2013. The Company also made cash payments totaling $11,639,676 towards the purchases of CSI, Staffing UK, Poolia UK, PeopleSERVE, Inc. and PeopleSERVE, PRS. For the year ended May 31, 2013, the Company made cash payments totaling $907,287 towards the purchase of Cyber 360 Solutions.

 

Financing activities

 

For the year ended May 31, 2014, net cash flows provided by financing activities totaled $16,962,325 and was attributable to proceeds relating to accounts receivable financing of $1,602,780, proceeds of $3,255,000 from the issuance of convertible promissory notes, proceeds of $340,000 from the issuance of promissory notes, proceeds of $2,998,500 from the issuance of series A convertible bonds and $10,565,000 relating to proceeds from the sale of Common Stock and warrants. In addition, the Company repaid $688,075 in convertible notes, and made payments to a private placement agent totaling $1,110,880. For the year ended May 31, 2013, net cash flows provided by financing activities totaled $2,574,726 and was attributable to proceeds from convertible notes payable of $925,000, cash received from related parties notes of $56,500 offset by the repayment of related parties notes of $66,100, proceeds of $259,326 relating to accounts receivable financing and $1,400,000 relating to proceeds from the sale of common stock.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

Our significant accounting policies are fully described in Note 3 to our consolidated financial statements for the fiscal year ended May 31, 2014 contained herein.

 

Recent Accounting Pronouncements

 

In June 2014, the Financial Accounting Standards Board ("FASB") issued new authoritative guidance related to share-based payments where performance targets can be achieved subsequent to the requisite service period. The guidance, effective in fiscal year ended 2015, is not expected to have a material impact on its results of operations, financial position or cash flows.

 

In May 2014, the FASB issued new authoritative guidance related to revenue recognition. This guidance will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance allows for two methods of adoption: (a) full retrospective adoption, meaning the guidance is applied to all periods presented, or (b) modified retrospective adoption, meaning the cumulative effect of applying this guidance is recognized as an adjustment to the Accumulated deficit balance. The Company is evaluating the two adoption methods as well as the impact this new guidance will have on the consolidated financial statements and related disclosures and will be effective in the Company’s fiscal year ended 2018.

 

In April 2014, the FASB issued authoritative guidance, which specifies that only disposals, such as a disposal of a major line of business, representing a strategic shift in operations should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The Company does not anticipate the adoption of this guidance will have a material impact on its consolidated financial statements, absent any disposition representing a strategic shift in the Company's operations.

 

In July 2013, the FASB issued authoritative guidance that requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The Company does not anticipate the adoption of this guidance will have a material impact on its consolidated financial statements.

 

In March 2013, FASB issued authoritative guidance that resolves the diversity in practice regarding the release into net income of the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This guidance will be effective for the Company beginning in the first quarter of fiscal 2015. The Company does not anticipate the adoption of this guidance will have a material impact on its consolidated financial statements, absent any material transactions involving derecognition of subsidiaries or groups of assets within a foreign entity.

 

22
 

  

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not required for smaller reporting companies.

 

 

23
 

  

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

  

TABLE OF CONTENTS      

 

    Page
     
Report of Independent Registered Public Accounting Firm   F-1
     
Consolidated Balance Sheets at May 31, 2014 and 2013   F-2
     
Consolidated Statements of Operations for the Years ended May 31, 2014 and 2013   F-3
     
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Years ended May 31, 2014 and 2013   F-4
     
Consolidated Statements of Cash Flows for the Years ended May 31, 2014 and 2013   F-5
     
Notes to Consolidated Financial Statements   F-6

  

24
 

 

DESCRIPTION: RBSM-LOGO-RGB

805 Third Avenue

Suite 902

New York, NY 10022

212.838-5100

212.838.2676/ Fax

www.rbsmllp.com

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

Staffing 360 Solutions, Inc.

 

We have audited the accompanying consolidated balance sheets of Staffing 360 Solutions, Inc. (the “Company”) as of May 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the two years ended May 31, 2014 and 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Staffing 360 Solutions, Inc. at May 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the two years ended May 31, 2014 and 2013, in conformity with U.S. generally accepted accounting principles.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2 to the consolidated financial statements, the Company has incurred recurring operating losses and has a working capital deficiency. These conditions among others raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters also are described in Note 2. The 2014 consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

 

New York, NY

September 15, 2014

 

F- 1
 

 

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

  

    May 31,  
    2014     2013  
             
ASSETS                
Current Assets:                
Cash and equivalents   $ 1,324,711     $ 262,822  
Accounts receivable, net     17,036,267       528,997  
Deferred financing, net     342,745       -  
Prepaid expenses and other current assets     881,326       52,378  
Total Current Assets     19,585,049       844,197  
                 
Property and equipment, net of accumulated depreciation     454,606       29,680  
Goodwill     8,318,637       1,467,719  
Intangible assets, net     13,803,305       978,901  
Other assets     1,523,585       -  
Total Assets   $ 43,685,182     $ 3,320,497  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current Liabilities:                
Accounts payable and accrued expenses   $ 5,459,175     $ 640,348  
Accounts payable and accrued expenses - related parties     136,914       261,590  
Accrued payroll and taxes     3,803,613       138,869  
Convertible notes payable, net     620,172       50,000  
Promissory notes     1,578,291       -  
Earnout liability     850,216       298,000  
Accounts receivable financing     11,260,207       259,326  
Bonds payable     1,499,660       -  
Due to sellers     1,347,215       -  
Other current liabilities     188,048       -  
Total Current Liabilities     26,743,511       1,648,133  
                 
Earnout liability     1,916,212       894,000  
Promissory notes - long term     4,406,049       -  
Total Liabilities     33,065,772       2,542,133  
                 
Stockholders' Equity:                
Preferred stock, $0.00001 par value, 20,000,000 shares authorized; 0 shares issued and outstanding as of May 31, 2014 and May 31, 2013, respectively     -       -  
Common stock, $0.00001 par value, 200,000,000 shares authorized; 32,950,537 and 12,288,138 shares issued and outstanding as of May 31, 2014 and 2013, respectively     329       123  
Common stock to be issued     -       527,789  
Additional paid in capital     26,411,211       3,920,194  
Accumulated other comprehensive loss     (37,549 )     -  
Accumulated deficit     (16,337,118 )     (3,669,742 )
Total Staffing 360 Solutions, Inc. Stockholders' Equity     10,036,873       778,364  
Non-controlling interest     582,537       -  
Total Equity     10,619,410       778,364  
Total Liabilities and Stockholders' Equity   $ 43,685,182     $ 3,320,497  

 

The accompanying notes are an integral part of these consolidated financial statements

  

F- 2
 

  

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    For the Years Ended May 31,  
    2014     2013  
             
Net Sales   $ 45,778,493     $ 647,731  
                 
Cost of Sales     36,694,123       448,507  
                 
Gross Profit     9,084,370       199,224  
                 
Operating Expenses:                
Salaries and wages     7,620,509       368,547  
Professional fees     3,305,826       1,446,421  
Director and related party consulting     458,968       476,129  
Goodwill impairment     2,700,255       -  
Intangibles impairment     833,592       -  
Depreciation and amortization     1,198,788       22,752  
General and administrative expenses     2,827,094       319,075  
Total Operating Expenses     18,945,032       2,632,924  
                 
Loss From Operations     (9,860,662 )     (2,433,700 )
                 
Other Income (Expenses):                
Interest expense     (481,072 )     (80,216 )
Amortization of deferred financing     (1,006,383 )     -  
Amortization of beneficial conversion feature     (673,568 )     -  
Amortization of debt discount     (566,086 )     (931,266 )
Gain on debt settlement     -       40,000  
Loss Before Provision For Income Tax     (12,587,771 )     (3,405,182 )
                 
Income tax expense     (69,968 )     -  
Net Loss   $ (12,657,739 )   $ (3,405,182 )
                 
Net income attributable to non-controlling interest     9,637       -  
Net Loss Attributable To Staffing 360 Solutions, Inc.   $ (12,667,376 )   $ (3,405,182 )
                 
Other Comprehensive Loss                
Foreign exchange translation     (37,549 )     -  
Comprehensive Loss   $ (12,695,288 )   $ (3,405,182 )
                 
Earnings Per Share - Basic And Diluted   $ (0.65 )   $ (0.43 )
                 
Weighted Average Shares Outstanding - Basic And Diluted     19,471,886       7,835,453  

  

The accompanying notes are an integral part of these consolidated financial statements

  

F- 3
 

  

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

 

    Preferred Stock     Common Stock     Common Stock     Additional Paid In     Accumulated Other
Comprehensive
    Non-Controlling     Accumulated     Total Stockholders'  
    Shares     Par Value     Shares     Par Value     to be Issued     Capital     Loss     Interest     (Deficit)     Equity (Deficit)  
Balance May 31, 2012     -     $ -       7,620,000     $ 76     $ -     $ 50,404     $ -     $ -     $ (264,560 )   $ (214,080 )
                                                                                 
Common stock issued pursuant to subscription agreement                     1,166,676       12               1,049,988                               1,050,000  
Common stock issued pursuant to conversion of convertible notes payable                     2,500,000       25               1,124,975                       -       1,125,000  
Common stock issued for accrued interest                     160,759       2               72,340                               72,342  
Common stock issued for acquisition                     512,569       5               410,050                               410,055  
Common stock issued to consultant pursuant to agreement                     175,734       2               140,585                               140,587  
Common stock issued to officer pursuant to agreement                     152,400       2               140,585                               140,587  
Beneficial conversion feature pursuant to issuance of convertible notes payable                                             931,266                               931,266  
Common stock to be issued                                     527,789       -                               527,789  
Net loss     -       -       -       -       -       -       -       -       (3,405,182 )     (3,405,182 )
Balance May 31, 2013     -       -       12,288,138       123       527,789       3,920,194       -       -       (3,669,742 )     778,364  
                                                                                 
Common stock issued pursuant to private placements                     10,627,783       106       (350,000 )     10,564,894                               10,215,000  
Common stock issued to consultants                     831,055       8       (137,289 )     1,025,370                               888,089  
Common stock issued pursuant to conversion of liabilities                     196,950       2               177,314                               177,316  
Common stock issued pursuant to conversion of financings                     1,766,111       18               1,704,982                               1,705,000  
Shares issued in connection with financings                     1,118,600       11               1,288,277                               1,288,288  
Shares issued to board of directors                     132,912       1       (22,500 )     132,977                               110,478  
Shares issued to employees                     90,000       1       (18,000 )     113,499                               95,500  
Share issued to acquisitions                     4,560,067       46               5,179,383                               5,179,429  
Payment to Private Placement Agent in relation to private placements                                             (1,110,880 )                             (1,110,880 )
Shares issued to Private Placement Agent in relation to private placements                     921,150       9               (9 )                             -  
Shares issued to Private Placement Agent in relation to convertible debt and bond offerings                     417,772       4               786,204                               786,208  
Options issued to employees                                             198,974                               198,974  
Warrants issued in connection with conversion of promissory notes                                             80,825                               80,825  
Beneficial Conversion Feature                                             2,349,207                               2,349,207  
Other comprehensive income (loss)                                                     (37,549 )                     (37,549 )
Non-controlling interest attributable to purchase of 49% of PeopleSERVE PRS, Inc.                                                             572,900               572,900  
Net income (loss)     -       -       -       -       -       -       -       9,637       (12,667,376 )     (12,657,739 )
Balance May 31, 2014     -     $ -       32,950,537     $ 329     $ -     $ 26,411,211     $ (37,549 )   $ 582,537     $ (16,337,118 )   $ 10,619,410  

 

The accompanying notes are an integral part of these consolidated financial statements  

 

F- 4
 

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

  

    For the Years Ended May 31,  
    2014     2013  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (12,657,739 )   $ (3,405,182 )
Adjustments to reconcile net loss from operations to net cash used in operating activities:                
Depreciation     113,827       1,924  
Amortization of intangible     1,084,961       20,828  
Amortization of deferred financing costs     1,006,383       -  
Amortization of debt discount and beneficial conversion feature     1,239,654       931,266  
Impairment of goodwill     2,700,255       -  
Impairment of intangible assets     833,592       -  
Gain on settlement of debt     -       (40,000 )
Stock based compensation     1,470,831       458,963  
Changes in operating assets and liabilities:                
Accounts receivable     203,039       (528,997 )
Prepaid expenses     18,321       18,452  
Deferred finance costs     (1,349,128 )     -  
Other assets     (212,102 )     -  
Accounts payable and accrued expenses     555,810       859,775  
Accounts payable and accrued expenses - related parties     (124,676 )     259,487  
Accrued payroll and taxes     785,820       -  
Other current liabilities     43,177       -  
NET CASH USED IN OPERATING ACTIVITIES     (4,287,975 )     (1,423,484 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Acquisition-related cash acquired     835,342       -  
Payment towards earnout     (525,572 )     -  
Acquisitions - payments due to sellers     (137,591 )     -  
Purchase of fixed assets     (144,964 )     -  
Cash paid for purchase of subsidiary     (11,639,676 )     (907,287 )
NET CASH USED IN INVESTING ACTIVITIES     (11,612,461 )     (907,287 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
                 
Proceeds from convertible notes payable     3,255,000       925,000  
Proceeds from notes payable - related parties     -       56,500  
Repayment of convertible notes payable     (688,075 )     (66,100 )
Proceeds from promissory notes payable     340,000       -  
Proceeds from accounts receivable financing     1,602,780       259,326  
Proceeds from pipe financing     10,565,000       1,400,000  
Payments to private placement agent     (1,110,880 )     -  
Proceeds from sale of convertible bonds     2,998,500       -  
NET CASH PROVIDED BY FINANCING ACTIVITIES     16,962,325       2,574,726  
                 
NET INCREASE IN CASH     1,061,889       243,955  
                 
CASH - beginning of year     262,822       18,867  
                 
CASH - end of year   $ 1,324,711     $ 262,822  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Cash paid for:                
Interest   $ 86,518     $ 4,530  
Income taxes   $ -     $ -  
                 
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES:                
                 
Intangible asset   $ 13,335,087     $ 999,729  
Goodwill   $ 8,427,593     $ 1,467,719  
Common stock issued in connection with purchase of subsidiaries   $ 5,179,429     $ 410,055  
Net assets acquired from purchase of subsidiary   $ 1,392,509     $ 41,896  
Conversion of accounts payable to common stock   $ 100,981     $ -  
Conversion of a convertible note payable   $ 1,705,000     $ 1,125,000  
Conversion of interest related to a convertible note payable   $ 76,334     $ 72,342  
Warrants issued in connection with conversion of convertible notes   $ 80,825     $ -  
Equity consideration for issuance of debt   $ 1,288,288     $ -  
Earnout liability   $ 2,100,000     $ 1,192,000  
Promissory notes issued in connection with acquisitions   $ 6,332,415     $ -  

  

The accompanying notes are an integral part of these consolidated financial statements

 

F- 5
 

 

STAFFING 360 SOLUTIONS, INC. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Staffing 360 Solutions, Inc. (“we,” “us,” “our,” “Staffing 360,” or the “Company”) was incorporated in the State of Nevada on December 22, 2009, as Golden Fork Corporation (“Golden Fork”). 

 

On February 17, 2012, TRIG Special Purpose 1, LLC, a Nevada Corporation, (“TRIG”) purchased 78.7%, or 2,000,000 shares of Common Stock with a par value of $0.00001 (the “Common Stock”), of Golden Fork Corporation for $240,000 in a private cash transaction. As a result of the transaction, the Company became a 78.7% owned subsidiary of TRIG. These shares were subsequently distributed to Trilogy Capital Partners, Inc., Grandview Capital Partners, Inc., and Robert Y. Lee, who made distributions to other third parties in the aggregate of 600,000 shares. TRIG no longer owns any shares. 

 

On March 16, 2012, Golden Fork filed a Certificate of Amendment to its Articles of Incorporation (the “Amendment”) to change its name from Golden Fork to Staffing 360 Solutions, Inc. Upon filing of the Amendment, the Company began its operations in the international staffing sector.

 

On April 13, 2012, the Company received approval from the Financial Industry Regulatory Authority (“FINRA”) to effect its name change and to change its trading symbol from “GDNF” to “STAF”. Simultaneously therewith, the Company received approval to conduct a forward split of its issued and outstanding shares of Common Stock at a ratio of one for three (the “Forward Split”). Following the Forward Split, the Company’s issued and outstanding shares of Common Stock increased from 2,540,000 to 7,620,000.

 

On July 31, 2012, the Company formed Staffing 360 Alliance, Inc. (“Staffing Alliance”), a wholly-owned subsidiary, incorporated in the State of Nevada. For a short period of time, Staffing Alliance had operations in the staffing sector and provided trained employees to clients who worked in word processing, data entry, administrative support staff and other areas. In February 2014, such operations had ceased.

 

On April 26, 2013, the Company purchased 100% of the issued and outstanding stock of The Revolution Group, Ltd. (“TRG”). The aggregate consideration paid by the Company to the TRG shareholders was $2,509,342 (the “TRG Purchase Price”), payable as cash at closing, issuing Common Stock of the Company and a percentage of future gross profits. As a result of the Acquisition, TRG became a wholly-owned subsidiary of the Company and now operates under the name “Cyber 360 Solutions” (“Cyber Solutions”). (See Note 13).

 

On June 28, 2013, the Company filed a Certificate of Amendment to its Articles of Incorporation with the State of Nevada (the “2013 Amendment”), whereby increasing the number of shares of Common Stock that the Company is authorized to issue from 75,000,000 to 200,000,000. The 2013 Amendment also allowed the Company to issue 20,000,000 shares of blank check preferred stock, having such rights, designations, preferences and privileges as the board of directors (the “Board”) determines from time to time in their sole discretion.

 

On November 4, 2013, the Company purchased 100% of the issued and outstanding Common Stock (the “CSI Acquisition”) of Control Solutions International, Inc. (“CSI”), a Florida corporation and its wholly owned subsidiary, Canada Control Solutions International, Inc., an Ontario, Canada corporation (“CCSI”) pursuant to a Stock Purchase Agreement dated August 14, 2013 by and among the Company, NewCSI, Inc., a Delaware corporation (“NCSI”), and the shareholders of NCSI. The aggregate consideration paid by the Company for the CSI Acquisition was $3,530,454, payable as cash at closing, issuing Common Stock of the Company and a percentage of future gross profits. As a result of the Acquisition, CSI became a wholly-owned subsidiary of the Company. (See Note 13).

  

F- 6
 

  

On January 3, 2014, the Company purchased 100% of the issued and outstanding Common Stock (the “Initio Acquisition”) of Initio International Holdings Limited (“Initio”), a company organized under the laws of England and Wales and its respective subsidiaries, including but not limited to Monroe Staffing Services, LLC, a Delaware limited liability company (“Monroe,” and together with all of Initio’s subsidiaries, the “Subsidiaries”).  The aggregate consideration paid by the Company for the Initio Acquisition was $13.29 million, payable with cash at closing, issuing Common Stock of the Company and promissory notes. As a result of the Acquisition, Initio and its Subsidiaries became wholly-owned subsidiaries of the Company. Initio was renamed Staffing 360 Solutions (UK) Limited (“Staffing UK”). (See Note 13).

 

Initio is a U.K. domiciled full-service staffing company with established brands in the United Kingdom and United States. Initio’s U.K. division, Longbridge, was established in 1989 as an international multi-sector recruitment company, with a long history of success catering to the sales and marketing, technology, legal and IT solutions sectors. Initio’s U.S. division, Monroe Staffing, was established in 1969 as a full-service consulting and staffing agency serving companies ranging from Fortune 100 to new start-up organizations. Monroe has 14 offices throughout Connecticut, Massachusetts, Rhode Island, New Hampshire and North Carolina. 

 

Upon closing of the Initio Acquisition, certain of the Initio Shareholders were appointed to the Company’s Board of Directors and entered into employment agreements with the Company and/or one of its subsidiaries.

 

On February 28, 2014, the Company, through its wholly owned subsidiary, Staffing UK, purchased substantially all of the business and certain assets, including but not limited to contracts, business information, records, book debt and goodwill (the “Poolia Acquisition”) of Poolia UK Ltd. (“Poolia UK”). The aggregate consideration paid by the Company was £500,000 (the “Fixed Consideration”), plus an amount equal to the net asset value at the completion date of the acquisition (the “NAV Consideration,” together with the Fixed Consideration, collectively, the “Poolia Purchase Price”). The Fixed Consideration and a sum of £250,000, being an advance payment of the NAV Consideration, was paid in cash at closing. The balance of the NAV Consideration was to be paid subsequently by the Company to Poolia UK Ltd. for total consideration of $1,626,266. (See Note 13)

 

On May 17, 2014, the Company purchased 100% of the issued and outstanding Common Stock of PeopleSERVE, Inc., a Massachusetts corporation (“PSI”), and 49% of the issued and outstanding Common Stock of PeopleSERVE PRS, Inc., a Massachusetts corporation (“PRS”, together with PSI, collectively the “Acquired Companies” or “PS”), pursuant to a Stock Purchase Agreement (the “PS Purchase Agreement”) dated May 17, 2014, by and among the Company, the Acquired Companies and Linda Moraski (“PS Seller”), sole owner of all of the issued and outstanding Common Stock of the Acquired Companies.

 

In connection with the purchase of the Acquired Companies, the Company agreed to pay to PS Seller an aggregate purchase price (the “PS Purchase Price”) of approximately $8.4 million based upon a formula in the PS Purchase Agreement. Immediately prior to the closing, the PS Seller provided the Company with a certificate setting forth the Seller’s good faith estimate of (i) the Purchase Price (the “Estimated Purchase Price”), including the calculation of the Adjusted EBITDA of each Acquired Company for the twelve (12) fiscal months period ending April 26, 2014, and (ii) the Net Working Capital.

 

At the PS closing, the Company paid to the PS Seller the PS Purchase Price as follows: (i) cash in the amount of $2,705,675; (ii) restricted shares of the Company’s Common Stock, based on the closing price of $1.93 on the date of acquisition, May 17, 2014, or 1,127,365 shares of Common Stock for a total fair value of $2,175,814; (iii) an unsecured promissory note with an initial principal amount equal to $2,367,466; (iv) pursuant to the terms of the PS Purchase Agreement, the PS Seller is entitled to receive from the Acquired Companies all of the Net Working Capital as of the Closing Date valued at $1,138,153, and the Company and the Acquired Companies shall have no right to, or obligations with respect to, such Net Working Capital, except as otherwise set forth in the PS Purchase Agreement.

 

The PS Purchase Price was subject to a Post-Closing Purchase Price Adjustment within sixty (60) days of the Closing Date, based on audited financial statements for each of the Acquired Companies. Upon receipt of such audited financial statements, the Company will prepare and deliver to Seller a certificate that sets forth the Company’s determination of (i) the PS Purchase Price, including the calculation of the Adjusted EBITDA of each Acquired Company for the audited period and (ii) the calculation of the Net Working Capital. Once the Company and the PS Seller have agreed on the final financial statements as disclosed above, the PS Purchase Price shall be adjusted based on the PS Purchase Price Adjustment Amount, which means an amount equal to the finally determined PS Purchase Price as shown in the final financial statements minus the amount of the Estimated Purchase Price. In the event the PS Purchase Price is adjusted, the difference will either be paid to the Seller or returned to the Company, as the case may be, in the same percentages of cash, shares of Common Stock and Promissory Note as the PS Purchase Price paid on the Closing with a one-time payment by the appropriate party to catch-up on principal payments previously made under the Promissory Note.

 

F- 7
 

  

NOTE 2 – GOING CONCERN

 

The accompanying consolidated financial statements have been prepared on a going concern basis which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year.  As of May 31, 2014, the Company had a working capital deficiency of $7,158,462 and had an accumulated deficit of $16,337,118, and for the year ended May 31, 2014 had net loss and net cash used in operations of $12,657,739 and $4,287,975, respectively.  These factors raise substantial doubt regarding the Company’s ability to continue as a going concern and the outcome of these uncertainties cannot be predicted.

 

Currently, the Company does not have sufficient working capital to fund the expansion of its operations and to provide the working capital necessary for its ongoing operations and obligations. The Company will need to raise significant additional capital to fund its operating expenses, pay its obligations, and acquire additional entities. In order to continue as a going concern and achieve a profitable level of operations, the Company will need, among other things, additional capital resources.  Management’s plan to continue as a going concern includes raising capital through increased gross margin by driving organic sales growth and well executed strategic acquisitions, managing and reducing operating and overhead costs, and conducting additional financings through debt and equity transactions to fund working capital and acquire additional entities . The Company anticipates it will require $4.0 million over the next twelve months for working capital purposes; this amount does not include capital needed to fund additional acquisitions. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon the management’s ability to successfully secure additional sources of financing and attain profitable operations.   Management also cannot provide any assurance that unforeseen circumstances that could occur at any time within the next twelve months or thereafter will not increase the need for the Company to raise additional capital on an immediate basis. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

If management is unsuccessful in the execution of its aforementioned plans to address issues which create substantial doubt about its ability to continue as a going concern, the Company may be forced to take one of the following actions:

 

· Liquidate its assets at distressed prices and/or
· File for reorganization and/or
· File for bankruptcy protection.

 

Any of the above scenarios will decrease stockholder value significantly and may result in the value of the Company’s securities becoming worthless.

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Year End and Principles of Consolidation

 

These consolidated financial statements and related notes are presented in accordance with generally accepted accounting principles (“GAAP”) in the United States, and are expressed in U.S. dollars. The Company’s consolidated fiscal year-end is May 31. Some of the Company’s subsidiaries have varying year-ends.

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. As described below, the Company consolidates PRS, an entity of which it owns 49%, since the Company is deemed to be the primary beneficiary of this entity. All significant inter-company transactions are eliminated.

 

F- 8
 

  

Variable Interest Entities

 

Current accounting guidance provides a framework for identifying a Variable Interest Entity (“VIE”) and determining when a company should include the assets, liabilities, non-controlling interests, and results of activities of the VIE in its consolidated financial statements. In general, a VIE is an entity or other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. Generally, a VIE should be consolidated if a party with an ownership, contractual, or other financial interest in the VIE has the power to direct the VIE’s most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities, and non-controlling interest at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest. On May 17, 2014, the Company purchased 49% of the issued and outstanding Common Stock of PRS. Pursuant to ASC 810, PRS is deemed to be a variable interest entity since the Company is the primary beneficiary of PRS. Accordingly, the Company consolidated the results of PRS from May 17, 2014 through May 31, 2014. As of May 31, 2014 the total assets and liabilities of PRS which were consolidated were $1,226,766 and $1,206,870, respectively. The total revenues and expenses consolidated since May 17, 2014 were $300,879 and $281,983, respectively.

 

Non-controlling Interests

 

Non-controlling interests in our subsidiaries are recorded in accordance with the provisions of ASC 810 “Consolidation”, and are reported as a component of equity, separate from the parent company’s equity.  Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions.  Results of operations attributable to the non-controlling interests are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

 

Use of Estimates

 

The preparation of consolidated financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. We regularly evaluate our estimates and assumptions related to valuation, impairment testing, earn-out liabilities, stock-based compensation and deferred income tax assets valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected. Significant estimates for the years ended May 31, 2014 and 2013, respectively, include the valuation of intangible assets, including goodwill, liabilities associated with earn-out obligations and testing our long-lived assets for impairment.

 

In recording the purchase accounting for previous acquisitions we had estimated the fair value of identifiable intangible assets and goodwill reflected in the Company’s previously issued interim financial statements. Upon retaining the services of an independent valuation consultant, the allocations previously estimated by the Company have been revised and the results of the independent valuation consultant have been retroactively reflected in the Company’s consolidated financial statements for the fiscal year ended May 31, 2014. The Company originally estimated its goodwill and intangibles to total $14,828,837 and $3,832,924, respectively. Based upon the results of the independent valuation, the Company adjusted the goodwill and intangible totals to $6,229,013 and $12,482,121, respectively. These amounts were subsequently tested for impairment which resulted in impairment of goodwill and intangibles in the amounts of $2,700,255 and $833,592, respectively.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments with original maturities of three months or less when acquired, to be cash equivalents.  The Company had no cash equivalents at May 31, 2014 or May 31, 2013.

 

F- 9
 

  

Accounts Receivable

 

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. At May 31, 2014 and 2013, the Company had an allowance for doubtful accounts of $561,311 and $0, respectively.

 

Income Taxes

 

The Company is governed by the Income Tax Law of the United States. The Company utilizes ASC Topic 740, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

The Company applied the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes”, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in the financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of the date of this filing, the Company is current on all corporate, federal and state tax returns.

 

The U.K. entities are domiciled in the U.K. and file their tax returns in those jurisdictions.

 

Foreign Currency Translation

 

Assets and liabilities of subsidiaries operating in foreign countries are translated into U.S. dollars using both the exchange rate in effect at the balance sheet date or historical rate, as applicable. Results of operations are translated using the average exchange rates prevailing throughout the year. The effects of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are included in a separate component of stockholders’ equity (accumulated other comprehensive loss), while gains and losses resulting from foreign currency transactions are included in operations.

 

Amortization of Deferred Financing Costs

 

Costs incurred in connection with obtaining financing are deferred and amortized on a straight-line basis over the term of the related loan, which is not materially different than the effective interest method. As of May 31, 2014 and 2013, accumulated amortization of deferred financing costs totaled $1,006,383 and $0, respectively.

  

Business Combinations

 

In accordance with Accounting Standards Codification 805, "Business Combinations" ("ASC 805") the Company records acquisitions under the purchase method of accounting, under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values. The Company utilizes management estimates and, in some instances, may retain the services of an independent third-party valuation firm to assist in determining the fair values of assets acquired, liabilities assumed and contingent consideration granted. Such estimates and valuations require us to make significant assumptions, including projections of future events and operating performance.

 

F- 10
 

  

Fair Value of Financial Instruments

 

In accordance with Accounting Standards Codification 820, “Fair Value Measurements and Disclosures” (“ASC 820”), the Company measures and accounts for certain assets and liabilities at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, and establishes a framework for measuring fair value and standards for disclosure about such fair value measurements.

 

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 May 31, 2014 or 2013, with the exception of its notes payable (See Note 6), convertible notes payable (See Note 5), bonds payable (See Note 7) and its earn out liabilities (See Note 13).

 

Cash is considered to be highly liquid and easily tradable as of May 31, 2014 and 2013 and therefore classified as Level 1 within our fair value hierarchy.

 

Accounting Standards Codification 825-10-25, “Fair Value Option” (ASC 825-10-25) 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 options for any of its qualifying financial instruments.

 

Convertible Instruments

 

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with accounting standards for “Accounting for Derivative Instruments and Hedging Activities.”

 

Accounting standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.  Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”

 

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note.

 

F- 11
 

  

ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.

 

Revenue Recognition

 

Cyber 360 Solutions: 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. 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.

 

· Permanent placement staffing: 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.

 

Control Solutions International Inc.: The Company recognizes revenues primarily on a time and materials basis as the services are performed and amounts are earned. The Company considers amounts to be earned once evidence of an arrangement has been obtained, services are rendered, fees are fixed or determinable, and collectability is reasonably assured.

 

· Revenue earned in excess of billings are recorded as unbilled accounts receivable until billed. Billings in excess of revenues earned are recorded as advanced billings until revenue recognition criteria are met. Deposits and prepayments from customers are carried as deferred revenue until the requirements for revenue recognition are met.

 

· Reimbursements, including those relating to travel, other out-of-pocket expenses and third-party costs, are included in revenues. The related reimbursable expenses are included in cost of revenue.

 

Staffing 360 Solutions (UK) Limited: The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition.  The Company recognizes revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

Poolia (UK) Limited: The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition.  The Company recognizes revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

F- 12
 

  

PeopleSERVE, Inc. and PeopleSERVE PRS, Inc.: The Company recognizes revenues from the sale of staffing services as the services are performed, along with related labor costs and payroll taxes. The Company recognizes revenue for permanent employee placements when contractual contingencies, generally the passage of time, are satisfied. The Company’s revenue recognition policies comply with ASC 605, “Revenue Recognition.” The Company is the primary obligor in its transactions, and has responsibility for fulfillment, including the acceptability of services ordered and purchased by customers. In addition, the Company has all credit risk, retains substantially all risk and rewards of the services rendered, has sole discretion in staffing engagements and sets the billing rates of its consultants. Accordingly, the Company records all transactions at the gross revenue amount billed, consistent with the provisions of ASC 605. Typically, contracts require clients to pay for out-of-pocket expenses, principally travel related expenses. Accordingly, revenue includes amounts billed for these costs and the cost of revenue includes the corresponding actual costs. The Company provides certain customers a 5.0% discount on certain contracts if paid within 30 days of the invoice date. Accounts receivable result from services provided to clients. The Company carries its accounts receivable at net realizable value. At the closing of the Company’s fiscal period, a portion of receivables may not be invoiced. These unbilled receivables are typically billed within thirty days of the close of the fiscal period.

 

Stock-Based Compensation

 

The Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50.

 

Earnings (Loss) per Common Share

 

The Company utilizes the guidance per FASB Codification “ASC 260 "Earnings per Share."  Basic earnings per share are calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common shares and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the conversion of convertible notes and the exercise of stock options and warrants (calculated using the modified-treasury stock method).  Such securities, shown below, presented on a common share equivalent basis and outstanding as of May 31, 2014 and 2013 have been excluded from the per share computations, since its inclusion would be anti-dilutive:

 

    For the Years Ended  
    May 31,  
    2014     2013  
Convertible notes issued     -       120,609  
Convertible Bonds - Series A     2,021,779       -  
Convertible promissory notes     1,073,494       -  
Warrants     6,760,809       583,338  
Options     1,900,000       -  
Total     11,756,082       703,947  

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation is computed on the straight-line method. The depreciation and amortization methods are designed to amortize the cost of the assets over their estimated useful lives, in years, of the respective assets as follows:

 

F- 13
 

  

Computers     4 Years
Computer Equipment     4 Years
Network Equipment     3 Years
Software     3-8 Years
Office Equipment     7 Years
Furniture and Fixtures     7 Years
Leasehold Improvements     7 Years

 

Amortization of leasehold improvements is computed using the straight-line method over the shorter of the life of the lease or the estimated useful life of the assets. Maintenance and repairs are charged to expense as incurred. Improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any gains or losses are reflected in income.

 

Impairment of Long-Lived Assets

 

In accordance with ASC 360 “Property, Plant, and Equipment,” we periodically review our long-lived assets, including goodwill and other intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable.  We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset.  The amount of impairment is measured as the difference between the estimated fair value and the book value of the underlying asset.

 

Goodwill

 

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations. ASC 350-30-35-4 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit. During fiscal years 2014 and 2013, the Company impaired $2,700,255 and $0, respectively, of goodwill associated with the Cyber 360 and Control Solutions, Inc. acquisitions.

 

Intangible Assets

 

In connection with the acquisition of TRG (See Note 13), the Company identified and recognized an intangible asset of $1,054,801 representing trade name, customer relationships and employment agreements/non-competes. The assets are being amortized on the straight line basis over their estimated life of four (4) years, other than the trade name which is amortized over fifteen (15) years. TRG customer relationships were valued based on the discounted cash flow method applied to projected future cash flows as estimated by Company management. This method results in the sum of the future net cash flows discounted to its present day value. The valuation provided for the trade name, customer relationships and employment agreements/non-competes is based on independent professional valuation services’ calculations. The intangible asset balance, net of accumulated amortization, at May 31, 2014 was $823,567. An impairment was necessary as of May 31, 2014. The Company fully impaired trade name, customer relationships and employment agreements/non-competes valued at $823,567, resulting in a net intangible asset balance of $0 at May 31, 2014.

 

In connection with the acquisition of CSI (See Note 13), the Company identified and recognized an intangible asset of $912,000 representing trade name, customer relationships and employment agreements/non-competes. The assets are being amortized on the straight line basis over their estimated life of four (4) years, other than the trade name which is amortized over fifteen (15) years. CSI customer relationships were valued based on the discounted cash flow method. This method results in the sum of the future net cash flows discounted to its present day value. The valuation provided for the trade name, customer relationships and employment agreements/non-competes is based on independent professional valuation services’ calculations. The intangible asset balance, net of accumulated amortization, at May 31, 2014 was $804,346. An impairment was necessary as of May 31, 2014. The Company impaired trade name, customer relationships and employment agreements/non-competes valued at $10,025. At May 31, 2014, the intangible asset balance, net of accumulated amortization and after impairment of $10,025, is $794,321. 

 

F- 14
 

  

In connection with the acquisition of Staffing 360 Solutions (UK) (See Note 13), the Company identified and recognized an intangible asset of $10,050,000 representing trade name, customer relationships and employment agreements/non-competes. The assets are being amortized on the straight line basis over their estimated life of four (4) years, other than the trade name which is amortized over fifteen (15) years. Staffing UK customer relationships were valued based on an estimate of the discounted cash flow method applied to projected future cash flows. This method results in the sum of the future net cash flows discounted to its present day value. The valuation provided for the trade name, customer relationships and employment agreements/non-competes is based on independent professional valuation services’ calculations. The intangible asset balance, net of accumulated amortization, at May 31, 2014 is $9,337,785. In addition, the Company recognized intangible assets of $261,465 upon acquisition of Staffing 360 Solutions (UK). In total the intangible assets balance, net of accumulated amortization, at May 31, 2014 is $9,599,250.

 

In connection with the acquisition of Poolia UK (See Note 13), the Company identified and recognized an intangible asset of $465,321 representing customer relationships and employment agreements/non-competes. The assets are being amortized on a straight line basis over the estimated life of four years. Poolia UK customer relationships were valued based on an estimate of the discounted cash flow method. This method results in the sum of the future net cash flows discounted to its present day value. The valuation provided for the trade name, customer relationships and employment agreements/non-competes is based on independent professional valuation services’ calculations. The intangible asset balance, net of accumulated amortization, at May 31, 2014 is $436,238.

 

In connection with the acquisition of PeopleSERVE, Inc. and PeopleSERVE PRS, Inc. (See Note 13), the Company identified and recognized an intangible asset of $2,999,100 representing trade name, customer relationships and employment agreements/non-competes. The assets are being amortized on the straight line basis over their estimated life of four (4) years, other than the trade name which is amortized over fifteen (15) years. PS customer relationships were valued using the discounted replacement cost approach. This method is based on acquisition costs invested to attract each customer and relied on actual selling costs incurred and allocated to new customer generation over the preceding four years. The valuation provided for the trade name, customer relationships and employment agreements/non-competes is based on independent professional valuation services’ calculations. The intangible asset balance, net of accumulated amortization, at May 31, 2014 is $2,973,497.

 

Reclassifications

 

Certain reclassifications have been made to conform the prior period data to the current presentations. These reclassifications had no effect on the reported results.

 

Forward Stock Split

 

The Company effected a one-for-three forward stock split on April 13, 2013. Following the forward split, the Company’s issued and outstanding shares of Common Stock increased from 2,540,000 to 7,620,000. All share and per share information has been retroactively adjusted to reflect this forward stock split.

 

Recent Accounting Pronouncements

 

In June 2014, the Financial Accounting Standards Board ("FASB") issued new authoritative guidance related to share-based payments where performance targets can be achieved subsequent to the requisite service period. The guidance, effective in fiscal year ended 2015, is not expected to have a material impact on its results of operations, financial position or cash flows.

 

 

 

F- 15
 

  

In May 2014, the FASB issued new authoritative guidance related to revenue recognition. This guidance will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance allows for two methods of adoption: (a) full retrospective adoption, meaning the guidance is applied to all periods presented, or (b) modified retrospective adoption, meaning the cumulative effect of applying this guidance is recognized as an adjustment to the accumulated deficit balance. The Company is evaluating the two (2) adoption methods as well as the impact this new guidance will have on the consolidated financial statements and related disclosures and will be effective in the Company’s fiscal year ended 2018.

 

In April 2014, the FASB issued authoritative guidance, which specifies that only disposals, such as a disposal of a major line of business, representing a strategic shift in operations should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The Company does not anticipate the adoption of this guidance will have a material impact on its consolidated financial statements, absent any disposition representing a strategic shift in the Company's operations.

 

In July 2013, the FASB issued authoritative guidance that requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The Company does not anticipate the adoption of this guidance will have a material impact on its consolidated financial statements.

 

In March 2013, FASB issued authoritative guidance that resolves the diversity in practice regarding the release into net income of the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This guidance will be effective for the Company beginning in the first quarter of fiscal 2015. The Company does not anticipate the adoption of this guidance will have a material impact on its consolidated financial statements, absent any material transactions involving derecognition of subsidiaries or groups of assets within a foreign entity.  

 

NOTE 4 - PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following:

 

    May 31,  
    2014     2013  
Computer software   $ 113,615     $ 5,075  
Office equipment     38,098       9,146  
Computer Equipment     216,581       -  
Furniture and fixtures     105,637       11,937  
Website     32,117       -  
Leasehold improvements     28,093       5,446  
Total Cost     534,141       31,604  
Accumulated depreciation     (79,535 )     (1,924 )
Total   $ 454,606     $ 29,680  

 

Depreciation and amortization expense for the years ended May 31, 2014 and 2013 was $113,827 and $1,924, respectively.

 

F- 16
 

  

NOTE 5 - CONVERTIBLE NOTES PAYABLE

 

Convertible notes consist of the following as of:

 

    May 31,  
    2014   2013  
               
Convertible promissory notes (unsecured): On March 5, 2012, May 4, 2012, August 13, 2012, August 20, 2012, September 14, 2012, October 4, 2012 and January 17, 2013, the Company issued Notes in the principal amounts of $50,000, $200,000 and $70,000, $30,000, $50,000 and $25,000 (the “Notes”), respectively, totaling $425,000. The Notes bear interest at the rate of 12% per annum and were due on February 20, 2013. Note holders totaling $375,000 extended their maturity dates to July 20, 2013 and one note holder totaling $50,000 extended the maturity date to June 15, 2013. Interest accrued and was payable on the last day of every fiscal quarter commencing on the first calendar quarter subsequent to the respective Note date and ending on the maturity date. The Company did not have the right to pre-pay these notes. On May 31, 2013, Notes totaling $375,000 and accrued interest of $39,054 were converted to Common Stock at a price equal to 50% of the securities sold in the private offering dated April 19, 2013. The unit price of the securities sold in the private offering totaled $0.90. In addition, on October 30, 2013, Notes totaling $50,000 and accrued interest of $4,274 were converted to Common Stock at a price equal to 50% of the securities sold in the private offering dated April 19, 2013 and as a result issued 920,120 shares of Common Stock. The unit price of the securities sold in the private offering totaled $0.90. During the year ended May 31, 2014, the Company issued a total of 120,609 shares (111,111 for $50,000 principal portion and 9,498 shares for $4,274 of accrued interest.)               
               
Beginning balance   $ 50,000   $ 425,000  
Fair value of shares issued for conversion of convertible notes payable     (50,000 )   (375,000 )
Ending balance   $ -   $ 50,000  
               
Convertible promissory note (unsecured):  On January 17, 2013, the Company issued a Note to a shareholder in the principal amount of $750,000 (the “Convertible Note”). The Note bears interest at the rate of 12% per annum and was due on July 20, 2013.  If the payment occurred prior to July 20, 2013, the note was subject to a mandatory conversion into shares of the Company’s Common Stock, on the later of the date on which the Company: (i) acquired an operating company in the staffing industry, or (ii) closed the issuance and sale of equity securities in connection with the target acquisition.  The shares of Common Stock issuable upon conversion of the Convertible Note equaled:  (i) the principal amount of the Convertible Note and the accrued interest thereon divided by (ii) 50% of the per share price at which shares were sold in the private offering which closed on April 19, 2013.  On May 31, 2013, the Company converted the $750,000 of principal and $33,288 of accrued interest to 1,666,667 and 73,972 shares, respectively of Common Stock of the Company at a price equal to 50% of the securities sold in the private offering which closed on April 19, 2013.  The unit price of the securities sold in the private offering totaled $0.90.              
               
Beginning balance   $ -   $ 750,000  
Fair value of shares issued for conversion of convertible notes payable     -     (750,000 )
Ending balance   -   $  -  

  

F- 17
 

  

Convertible promissory notes (unsecured): On November 7, 2013, November 13, 2013, November 22, 2013 and December 6, 2013, the Company issued Notes in the principal amounts of $1,025,000, $350,000, $130,000 and $150,000 (the “2013 Notes”) respectively, totaling $1,655,000. The 2013 Notes bear interest at the rate of 12% per annum and mature on the earlier of: (i) within 10 days following the closing of a $10 million private placement financing, or (ii) February 28, 2014, the maturity date, unless voluntarily converted prior to such date. The 2013 Notes are subject to a voluntary conversion by the holders upon the earlier of: (i) the final closing of a private placement offering (“PIPE Financing”), or (ii) the consummation of the acquisition as described in the 2013 Notes. The holders may elect to convert the principal amount of the 2013 Notes, including all accrued and unpaid interest, into units of the Company consisting of shares of Common Stock and warrants to purchase shares of Common Stock (the “Warrants”), at the same price as any units are sold in a PIPE Financing, whereas each holder will receive 25,000 Common Stock shares and 12,500 Warrants at an exercise price of $2.00 for each $25,000 investment. In the event there is no PIPE Financing, upon notice from the Company, the holders may elect to convert the notes at a conversion price equal to $0.90 and receive 12,500 Warrants for each $25,000 of principal converted. The Warrants will have an exercise price of $2.00 per share. In addition to the 2013 Notes, each holder receives 12,500 shares of Common Stock for each $50,000 investment. In total, the Company issued 413,750 shares of Common Stock. As a result of the share issuance, the Company recorded a debt discount of $297,009 and amortization of $297,009. The Company also recorded a beneficial conversion of $89,884 and amortization of $89,884. In April 2014, the Company fully converted $1,655,000 of principal and $72,044 of interest by issuing 1,727,044 common shares at $1 per share (1,655,000 common shares for principal and 72,044 common shares for accrued interest). Additionally, the Company issued 863,535 Warrants valued at $80,825 and recorded this as interest expense.

The Company agreed to pay the placement agent, Accelerated Capital Group, Inc., the Company agreed to pay: (i) a cash fee up to ten percent (10%) of the aggregate gross proceeds raised, (ii) a non-accountable expense allowance of up to two percent (2%) of the aggregate gross proceeds raised, and (iii) shares of Common Stock up to ten percent (10%) of the aggregate number of shares of Common Stock issued in connection with funds. The Company paid the placement agent an aggregate consideration of $198,600 and issued an aggregate of 41,375 shares of Common Stock valued at $36,203. Further, the Company recorded deferred finance costs (including escrow agent fees of $4,500) of $239,303 and accumulated amortization of $239,303.

             
               
Beginning balance   $ 1,655,000   $ -  
Beneficial conversion feature     (90,176 )   -  
Debt discount – restricted stock     (297,051 )   -  
Accumulated amortization     387,227     -  
Fair value of shares issued for conversion of convertible notes payable     (1,655,000 )   -  
Ending balance   $ -   $ -  
               

From April 21, 2014 through May 27, 2014, the Company also conducted a note offering, whereby the Company raised approximately $950,000 from 2 accredited investor through the issuance of five (5) short-term 12% convertible promissory notes (the “April Notes”).  The purchaser of the April Notes received an aggregate of 190,000 shares of restricted Common Stock.  The April Notes are due and payable upon demand by the holder with advance written notice fifteen (15) days prior to the desired payment date.  Commencing on dates ranging from July 15, 2014 to August 1, 2014, the holder is entitled to receive shares ranging from an additional 2,500 to 5,000 shares of the Company’s restricted common stock per $100,000 note payable in arrears per month that any principal amount or interest remains outstanding under the note. The holder of the April Notes may convert, at its sole election, the principal amount and any accrued but unpaid interest due under the April Notes into restricted shares of Common Stock at a price of $1.50 per share.

             

  

F- 18
 

  

From May 14, 2014 through May 19, 2014, the Company conducted an additional note offering whereby the Company raised approximately $600,000 from five (5) accredited investors through the issuance of five (5) short-term twelve percent (12%) convertible promissory notes (the “May Notes”). The May Notes were payable upon the earlier of (i) completion of the Company’s convertible bond offering, (ii) completion of the Company’s senior debt facility, or (iii) July 14, 2014. The purchasers of the May Notes received an aggregate of 120,000 shares of restricted Common Stock. The holders of the May Notes were entitled to convert, at their sole election, the principal amount and any accrued but unpaid interest due under the May Notes into restricted shares of Common Stock at a price of $1.50 per share. On July 14, 2014, all five (5) of the holders of the May Notes converted such May Notes into an aggregate of 407,915 shares of Common Stock.

 

On May 27, 2014, the Company conducted an additional note offering whereby the Company raised approximately $50,000 from one accredited investor through the issuance of a short-term twelve percent (12%) convertible promissory note (the “May 27 Note”). The May 27 Note was payable upon the earlier of (i) completion of the Company’s convertible bond offering, (ii) completion of the Company’s senior debt facility or (iii) July 12, 2014. The purchasers of the May 27 Note received an aggregate of 10,000 shares of restricted Common Stock. The holder of the May 27 Note was entitled to convert, at his sole election, the principal amount and any accrued but unpaid interest due under the May 27 Note into restricted shares of Common Stock at a price of $1.50 per share. On July 25, 2014, the Company repaid the May 27 Note, including all accrued and unpaid interest.

 

In connection with the May 27, 2014 Note, and pursuant to that certain placement agent agreement, dated January 23, 2014, between the Company and Corinthian Partners (“Corinthian”), the Company paid Corinthian, in connection with the introduction of the investor to the Company, a cash fee of $5,000 and issued 1,000 shares of Common Stock.

 

As a result of the 320,000 restricted shares issued in relation to the April Notes, May Notes and May 27 Notes, the Company recorded a debt discount of $442,035 and amortization of $116,289. The Company also recorded a beneficial conversion feature of $879,035 and related amortization of $224,952. As of May 31, 2014, $1,600,000 in principal remained outstanding net of the remaining debt discount of $979,825, for a net loan balance of $620,172.

             
               
Beginning balance   1,600,000   $ -  
Debt discount – restricted stock     (442,035   -  
Beneficial conversion feature     (879,035 )   -  
Accumulated amortization     341,241     -  
Ending balance   $ 620,172   $ -  

  

F- 19
 

  

NOTE 6 – PROMISSORY NOTES

 

Promissory notes – short-term consisted of the following:

 

    May 31,  
    2014     2013  
Short-term promissory notes   $ 340,000     $ -  
Promissory notes – Staffing 360 Solutions (UK)     1,137,211       -  
Promissory note – PeopleSERVE     789,155       -  
Payment of short-term notes     (340,000 )     -  
Payment of promissory notes – Staffing (UK)     (348,075 )     -  
Debt discount – restricted shares (short-term notes)     61,026       -  
Accumulated amortization – debt discount (short-term notes)     (61,026 )     -  
    $ 1,578,291     $ -  

 

Promissory notes –long-term consisted of the following:

 

    May 31,  
    2014     2013  
Promissory notes – Staffing 360 Solutions (UK)   $ 2,827,738     $ -  
Promissory note – PeopleSERVE     1,578,311       -  
    $ 4,406,049     $ -  

 

 

Short-term promissory notes: Pursuant to the promissory note agreements dated September 27, 2013, October 18, 2013 and October 28, 2013, the Company issued notes in the amount of $40,000, $200,000 and $100,000, respectively. The promissory notes bear interest at the rate of twelve percent (12%) per annum and were due at the earlier of the completion of the Company’s $1.5 million bridge financing or 90 days from the date of the note. As additional consideration, the note holders received an aggregate of 25,000 shares of Common Stock for each $100,000 invested or a prorated portion thereof. The Company issued 85,000 common shares. As a result of the share issuance, the Company recorded a debt discount of $61,026 and amortization of $61,026. On November 12, 2013 and November 19, 2013, the Company re-paid $300,000 in principal and $3,189 in interest. On March 21, 2014, the Company repaid $40,000 in principal and $1,933 in interest. As of May 31, 2014, all principal and interest has been paid. For the years ended May 31, 2014 and 2013, interest expense related to the promissory notes amounted to $5,122 and $0, respectively.

 

Promissory notes - Staffing 360 Solutions (UK): Pursuant to the purchase of Staffing 360 Solutions (UK), the Company executed and delivered to the Staffing 360 Solutions (UK) shareholders a three (3) year promissory note (the “Initio Promissory Notes”) in the aggregate principal amount of $3,964,949 to the shareholders of Staffing 360 Solutions (UK). Each Initio Promissory Note bears interest at the rate of six (6%) percent per annum and is amortizes over a five (5) year, straight line basis. As of May 31, 2014, the Company has repaid $348,106 in principal. The remaining principal balance outstanding is $3,616,843. At May 31, 2014, the current portion of the outstanding balance is $789,136 with the remaining $2,827,738 recorded as promissory notes - long-term. For the years ended May 31, 2016 and 2017, the Company’s future payments towards the long-term portion of the promissory note consists of $789,136 and $2,038,602 respectively. During the year ended May 31, 2014, the Company recorded $91,645 of interest expense of which $83,329 has been paid.

 

Brendan Flood, the Company’s Executive Chairman was a shareholder of Staffing 360 Solutions (UK), and was issued a three (3) year promissory note. Mr. Flood’s portion of the $3,964,949 aggregate principal amount totaled $2,064,880. Mr. Flood has been paid $172,073 in principal and $43,466 in interest through May 31, 2014. As of May 31, 2014, the balance due to Mr. Flood amounted to $1,892,807 and $4,978 in principal and interest, respectively.

 

In addition, Matt Briand, the Company’s Chief Executive Officer was a shareholder of Staffing 360 Solutions (UK), was issued a three (3) year promissory note. Mr. Briand’s portion of the $3,964,949 aggregate principal amount totaled $1,115,144. Mr. Briand has been paid $92,929 in principal and $23,474 in interest through May 31, 2014. As of May 31, 2014, the balance due to Mr. Briand amounted to $1,022,215 and $2,688 in principal and interest, respectively.

  

Promissory note - PeopleSERVE: Pursuant to the purchase of PeopleSERVE, the Company executed and delivered to the PeopleSERVE shareholder a three (3) year promissory note (the “PS Promissory Note”) in the aggregate principal amount of $2,367,466 to the shareholder of PeopleSERVE, Linda Moraski. Ms. Moraski is current serving as President and Chief Executive of PeopleSERVE. The PS Promissory Note bears interest at the rate of six (6%) percent per annum and is amortized over a five year straight line basis. As of May 31, 2014, the Company has repaid $0 in principal and interest. The remaining principal balance outstanding is $2,367,466. At May 31, 2014, the current portion of the outstanding balance is $789,155 with the remaining $1,578,311 recorded as promissory notes - long-term. For the years ended May 31, 2016 and 2017, the Company’s future payments towards the long-term portion of the promissory note consists of $789,155 and $789,155 respectively.  

 

For the years ended May 31, 2014 and 2013, the Company’s interest expense for long-term notes amounted to $97,093 ($91,645 from the Initio Promissory Notes and $5,448 from the PS Promissory Note) and $0, respectively. As of May 31, 2014 and 2013, accrued and unpaid interest under the long-term notes amounted to $13,764 ($8,316 from the Initio Promissory Notes and $5,448 from PS Promissory Note) and $0, respectively, and are included in accrued expenses on the accompanying consolidated balance sheets.

 

F- 20
 

  

NOTE 7 – BONDS – SERIES A

 

Bonds – Series A consisted of the following:

 

    May 31,  
    2014     2013  
Bonds – Series A   $ 2,998,500     $ -  
Beneficial Conversion Feature     (1,379,997 )     -  
Debt discount – Restricted Stock     (488,176 )     -  
Accumulated amortization     369,334       -  
Bonds – Series A, net   $ 1,499,660     $ -  

 

From April 17, 2014 through May 31, 2014, the Company completed multiple closings of its best efforts private offering (the “Bond Financing”) of twelve percent (12%) Convertible Bonds (the “Convertible Bonds”) with certain accredited investors (the “Bond Purchasers”). Pursuant to purchase agreements with each of the Bond Purchasers (the “Bond Agreements”), the Company issued Convertible Bonds for an aggregate of $2,998,500. On or prior to the maturity date, October 15, 2014, of each of the Convertible Bonds, the Bond Purchasers must notify the Company whether the payment for the Convertible Bond will be made in cash or as payment-in-kind in comparably valued Common Stock of the Company. The Bond Purchasers may elect to convert the Convertible Bonds, including all unpaid coupon payments, at any time prior to the maturity date, into restricted shares of Common Stock of the Company, at a conversion price of $1.50 per share.

 

Each Bond Purchaser received equity consideration at a rate of 5,000 restricted shares of the Company’s Common Stock for each $50,000 investment. Accordingly, the Company issued an aggregate of 299,850 shares of its Common Stock to the Bond Purchasers.  As a result of the 299,850 restricted shares issued, the Company recorded a debt discount of $488,176 and amortization of $97,364. The Company also recorded a beneficial conversion of $1,379,997 and amortization of $271,970. At May 31, 2014, the principal amount outstanding remains $2,998,500. Net of the remaining debt discount and beneficial conversion of $369,334, the remaining loan balance is $1,499,660.

 

For the years ended May 31, 2014 and 2013, interest expense related to the Bond Financing amounted to $33,980 and $0, respectively. As of May 31, 2014 and 2013, accrued interest under the Bond Financing amounted to $33,980 and $0, respectively, and are included in accrued expenses on the accompanying consolidated balance sheets.

 

As the retained placement agent, Accelerated Capital Group, Inc., the Company agreed to pay: (i) a fee in cash up to an amount equal to ten percent (10%) of the aggregate gross proceeds raised by such brokers, (ii) a non-accountable expense allowance of up to two percent (2%) of the aggregate gross proceeds raised by such broke, and (iii) shares of Common Stock equal to an amount up to ten percent (10%) of the aggregate number of shares of Common Stock issued in connection with funds raised by the broker. As of the final closing, the Company paid the placement agent an aggregate cash amount of $142,825 and issued an aggregate of 29,985 shares of Common Stock valued at $57,271. As a result, the Company recorded deferred finance cost totaling $200,096 and accumulated amortization totaling $16,115.

 

NOTE 8 - RELATED PARTY TRANSACTIONS

 

Director and Related Parties Consulting Fees

 

During the years ended May 31, 2014 and 2013, the Company incurred $60,000 and $90,895, respectively in consulting fees to Trilogy Capital Partners, Inc., which has been included in director and related parties consulting fees on the accompanying consolidated statements of operations. The Company’s Vice Chairman and President, Alfonso J. Cervantes, is the majority owner of Trilogy. At May 31, 2014, the Company has $7,500 recorded on the balance sheet in the Accounts Payable and Accrued Expenses – Related Parties account.

 

F- 21
 

  

During the years ended May 31, 2014 and 2013, the Company incurred $105,000 and $121,000, respectively in consulting fees to Robert Y. Lee, which has been included in director and related parties consulting fees on the accompanying consolidated statements of operations. This contract was mutually discontinued on December 31, 2013.

 

During the years ended May 31, 2014 and 2013, the Company incurred $155,000 and $113,750, respectively in consulting fees to Grandview Capital Partners, Inc., which has been included in director and related parties consulting fees on the accompanying consolidated statements of operations. At May 31, 2014, the Company has $50,000 recorded on the balance sheet in the Accounts Payable and Accrued Expenses – Related Parties account.

 

During the years ended May 31, 2014 and 2013, the Company incurred $0 and $38,750, respectively in accounting fees to Chord Advisors, Inc. David Horin, the former Chief Financial Officer of Staffing 360 Solutions, Inc., is the President of Chord Advisors, LLC. Additionally, on December 2, 2013, the Company converted an accounts payable balance of $27,500 balance into 27,500 shares of Common Stock, valued at $24,063, as full satisfaction of the outstanding fees. Mr. Horin resigned as Chief Financial Officer on April 15, 2013. 

 

During the years ended May 31, 2014 and 2013, the Company incurred $0 and $50,000, respectively in consulting fees to Richard M. Cohen. Mr. Cohen is the Chairman of Chord Advisors, LLC. Additionally, on November 14, 2013, the Company converted an existing $60,000 payable balance into 60,000 shares of Common Stock, valued at $52,500, as full satisfaction of the outstanding fees.

 

For the years ended May 31, 2014 and 2013, the Company incurred $30,000 and $22,500, respectively in Board of Director fees to Dimitri Villard. Additionally, the Company paid $10,000 in advisory fees to Mr. Villard from January 1, 2014 through April 30, 2014. In May 2014, Mr. Villard was named the Chairman of the Corporate Governance and Nominating Committee. Through May 31, 2014, the Company incurred $1,667 in fees associated with Mr. Villard’s role as Chairman of the Corporate Governance and Nominating Committee. All such fees have been included in director and related parties consulting fees on the accompanying consolidated statements of operations. At May 31, 2014, the Company has $14,167 recorded on the balance sheet in the Accounts Payable and Accrued Expenses – Related Parties account.

 

For the years ended May 31, 2014 and 2013, the Company incurred $30,000 and $0, respectively in Board of Director fees to Robert Mayer. Additionally, the Company paid $10,000 in advisory fees to Mr. Mayer from January 1, 2014 through April 30, 2014. All such fees have been included in director and related parties consulting fees on the accompanying consolidated statements of operations. At May 31, 2014, the Company has recorded an overpayment of $10,000 in accounts payable – related parties. The overpayment will be applied against future director fees.

  

For the years ended May 31, 2014 and 2013, the Company incurred $10,000 and $0, respectively in Board of Director fees to Jeff Grout. In February 2014, Mr. Grout was named the Chairman of the Compensation Committee. Through May 31, 2014, the Company incurred $6,667 in fees associated with Mr. Grout’s role as Chairman of the Compensation Committee. All such fees have been included in director and related parties consulting fees on the accompanying consolidated statements of operations.

 

For the years ended May 31, 2014 and 2013, the Company incurred $1,250 and $0, respectively in Board of Director fees to Nick Florio. In May 2014, Mr. Florio was named the Chairman of the Audit Committee. Through May 31, 2014, the Company incurred $833 in fees associated with Mr. Florio’s role as Chairman of the Audit Committee. All such fees have been included in director and related parties consulting fees on the accompanying consolidated statements of operations. At May 31, 2014, the Company has recorded $2,083 on the balance sheet in the Accounts Payable and Accrued Expenses – Related Parties account.

  

From time to time, TRIG Special Purpose 1, LLC, which is beneficially owned by the Company’s Vice Chairman and President Alfonso J. Cervantes, the Company’s former principal financial officer and director, Peter Goldstein, and Robert Y. Lee, a shareholder of the Company provided working capital advances to the Company. During the years ended May 31, 2014 and 2013, TRIG Special Purpose 1, LLC advanced the Company $12,000 and $33,000, respectively for working capital purposes. As of May 31, 2014, the Company recorded a current liability of $27,279 on the accompanying consolidated balance sheets. These advances are short-term in nature and non-interest bearing.

 

F- 22
 

 

NOTE 9 – ACCOUNTS RECEIVABLE FINANCING

 

In May 2013 and November 2013, respectively, Staffing 360 Group, Inc. d/b/a Cyber 360 Solutions and Control Solutions International, Inc., both wholly owned subsidiaries of the Company, entered into financing services agreements by which they assign accounts receivable to fund working capital with Sterling National Bank (“Sterling”). Pursuant to these agreements, Sterling may advance up to 90% of the face value of eligible accounts receivable.  The borrowings carry interest at a rate of .025% per day, or 9% per annum, from the date of the advance until the date of repayment.  There is no ending date to the agreement, only a closing fee of $500 upon termination.

 

In February 2014, Staffing 360 Solutions (UK) Limited, a wholly owned subsidiary of the Company, entered into an agreement with ABN AMRO Commercial Finance PLC under which it borrows money against open accounts receivable. Under this agreement, the Borrower receives advances of up to 90% on temporary placements and 75% on permanent placements of the face value of eligible receivables.  The borrowings carry interest at a rate of 2.50% above the Sterling Libor rate (3.90%).  The maximum loan amount is 200,000 Pounds Sterling with an Aggregate Limit of 1,250,000 Pounds Sterling. The agreement terminates on its second anniversary.

 

Effective November 1, 2012, the Company’s subsidiary, Monroe Staffing, a subsidiary of Staffing (UK), entered into a $14,000,000 line of credit (“Credit and Security Agreement”) with Wells Fargo Bank, NA. The Credit and Security Agreement is subject to accounts receivable limitations and bears interest at Libor plus 5% (5.15% as of May 31, 2014) on the greater of $5,000,000 or the actual loan balance outstanding, and expires on October 31, 2015. The Credit and Security Agreement is subject to an annual facility fee, certain covenants and is secured by all of the assets of Monroe Staffing. The covenants are as follows:

 

  · The Company’s Working Capital Ratio shall at all times be not less than 1:1 measured on a quarterly basis.
  · The Company’s Cash Flow shall at all times be positive, as measured on a quarterly cumulative basis.
  · The Company shall not make any loans, advances or transfers to any subsidiary or affiliate other than transactions in the ordinary course of business.

 

In March 2014, the Company obtained a one-time waiver relating to the above covenants, specifically as it relates to the failure to maintain a working capital ratio of 1:1 and positive cash flow for the quarterly period ended December 2013.

 

Effective July 25, 2014, the Company joined with its subsidiaries, Monroe Staffing Services, LLC, PeopleSERVE, Inc. and PeopleSERVE PRS, Inc., (collectively referred to as “Borrowers”) in an Amended and Restated Credit and Security Agreement and a new Credit and Security Agreement (“Credit Facility”) with Wells Fargo Bank, NA. This Credit Facility increased the line of credit amount from $14,000,000 to $15,000,000 and modified the covenant to permit, with certain limitations, the transfer of funds amongst the Borrowers. All of terms and conditions remain unchanged.

 

At May 31, 2014, $11,260,207 was recorded as a liability relating to the Accounts Receivable Financing account.

 

NOTE 10 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

On May 7, 2013, the Company increased the number of shares of Common Stock from 75,000,000 shares to 200,000,000 shares and authorized the creation of 20,000,000 shares of blank check preferred stock, par value $0.00001 per share with such designations, rights and preferences as may be determined from time to time by the Board.

 

As of May 31, 2014 and 2013, the Company has issued and outstanding 32,950,537 and 12,288,138 shares of Common Stock, respectively.

 

F- 23
 

  

The issuance of Common Stock during the year ended May 31, 2013 is summarized in the table below:

 

    Number of
Shares of
Common Stock
    Fair Value at
Issuance
    Fair Value at
Issuance
 (per share)
 
Shares issued pursuant to 2013 private placement offering     1,166,676     $ 1,050,000     $ 0.90  
Shares issued to consultants     175,734       140,587       0.80  
Shares issued for conversion of convertible notes payable     2,500,000       1,125,000       0.45  
Shares issued in connection with accrued interest related to convertible notes     160,759       72,342       0.45  
Shares issued to officer     152,400       140,587       0.80  
Shares issued pursuant to Acquisition     512,569       410,055       0.80  

 

The issuance of Common Stock during the year ended May 31, 2014 is summarized in the table below:

 

    Number of
Shares of
Common Stock
    Fair Value at
Issuance
    Fair Value at
Issuance
(per share)
 
Shares issued pursuant to 2013 private placement offering     627,783     $ 565,000     $ 0.90  
Shares issued pursuant to 2014 private placement offering     10,000,000       10,000,000       1.00  
Shares issued to consultants     831,055       1,025,379       0.875 – 2.06  
Shares issued for conversion of accounts payable     115,408       100,982       0.875  
Shares issued for conversion of convertible notes payable     111,111       50,000       0.45  
Shares issued in connection with convertible notes     413,750       297,047       0.72  
Shares issued in connection with accrued interest related to convertible notes     9,498       4,275       0.45  
Shares issued in connection with promissory notes     85,000       61,026       0.72  
Shares issued to board of directors     121,250       111,612       0.45 – 2.04  
Shares issued to audit committee     2,083       4,098       1.92 – 1.98  
Shares issued to compensation Committee     4,998       9,075       0.875 – 2.04  
Shares issued to corporate governance and nominating Committee     4,582       8,193       0.875 – 2.04  
Shares issued to employees     90,000       113,500       0.875 – 1.97  
Shares issued pursuant to Acquisitions     4,560,067       5,179,429       0.875 – 1.93  
Shares issued to private placement Agents     1,338,922       786,208       0.875 – 2.00  
Shares issued in connection with convertible bonds     299,850       488,177       1.63  
Shares issued in connection with bridge loans     320,000       442,034       1.38  
Shares issued for conversion of convertible promissory notes     1,655,000       1,655,000       1.00  
Shares issued for conversion of accrued interest related to convertible promissory notes     72,044       72,044       1.00  

 

F- 24
 

  

Warrants

 

The following table summarizes the changes in warrants outstanding and related prices for the shares of the Company’s Common Stock issued to shareholders at May 31, 2013:

 

Exercise 
Price
  Number 
Outstanding
    Warrants Outstanding 
Weighted Average 
Remaining Contractual
Life (years)
    Weighted 
Average 
Exercise price
    Number 
Exercisable
    Warrants Exercisable 
Weighted 
Average 
Exercise Price
 
$     1.80       583,338       2.91     $ 1.80       583,338     $ 1.80  

 

The following table summarizes the changes in warrants outstanding and related prices for the shares of the Company’s Common Stock issued to shareholders at May 31, 2014:

  

Exercise 
Price
    Number 
Outstanding
    Warrants Outstanding 
Weighted Average 
Remaining Contractual
Life (years)
    Weighted 
Average 
Exercise price
    Number 
Exercisable
    Warrants Exercisable 
Weighted 
Average 
Exercise Price
 
$ 1.80-2.00       6,760,765       2.56     $ 1.97       6,760,765     $ 1.97  

 

Transactions involving the Company’s warrant issuance are summarized as follows:

 

    Number of 
Shares
    Weighted 
Average 
Price Per Share
 
Outstanding at May 31, 2012     -     $ -  
Issued     583,338       1.80  
Exercised     -       -  
Expired     -       -  
Outstanding at May 31, 2013     583,338     $ 1.80  
Issued     6,177,427       1.82  
Exercised     -       -  
Expired     -       -  
Outstanding at May 31, 2014     6,760,765     $ 1.97  

 

Stock Options

 

2014 Equity Plan - On April 30, 2014, the Board adopted the 2014 Equity Plan (the “Plan”). Under the plan, the Company may grant options to employees, directors, senior management of the Company and, under certain circumstances, consultants. The purpose of the 2014 Equity Plan is to retain the services of the group of persons eligible to receive option awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its affiliates. Through May 31, 2014, a maximum of 1,500,000 shares of Common Stock has been reserved for issuance under this plan. In July 2014, the Company increased the number of options to be issued from 1,500,000 to 2,500,000. The Plan expires on January 28, 2024. The Board will administer the plan unless and until the Board delegates administration to a committee, consisting of one or more members, that has been appointed by the Board, except that once our Common Stock begins trading publicly, the committee will consist solely of two or more outside directors as defined in the Treasury Regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended. On April 30, 2014, the Board delegated the authority to administer the Plan to the Company’s compensation committee. The compensation committee will have the power to determine which persons eligible under the Plan will be granted option awards, when and how each option award will be granted, and the provisions and terms of each option award.

 

F- 25
 

  

During the year ended May 31, 2014, the Company recorded share-based payment expenses amounting to $198,974, in connection with all options outstanding. The amortization of share-based payment was recorded in general and administrative expenses during 2014.

 

The Company granted 1,900,000 options in 2014, as follows: (i) 1,150,000 options with an exercise price of $2.00 per share with 20% of the granted options vesting immediately; and (ii) 750,000 non-qualified options with an exercise price of $2.00 per share with 100% of the non-qualified granted options vesting immediately. Each of the options are exercisable for a term of 5 years.

 

The fair value of Stock options granted was estimated at the date of grant using the Black-Scholes options pricing model. The Company used the following assumptions for determining the fair value of options granted under the Black-Scholes option pricing model:

   

Exercise price: $2.00
Market price at date of grant: $0.875 - 1.50
Volatility: 48.49% - 51.12% 
Expected dividend rate: 0
Expected terms (years): 5
Risk-free interest rate: 1.58% - 1.73%

 

A summary of the activity during fiscal 2014 of the Company’s Stock Plan is presented below:

 

    Options     Weighted 
Average 
Exercise Price
    Aggregate 
Intrinsic 
Value
 
                   
Outstanding at June 1, 2013     -     $ -     $ -  
                         
Granted     1,900,000       2.00       -  
Exercised     -       -       -  
Expired or cancelled     -       -       -  
Outstanding at May 31, 2014     1,900,000     $ 2.00     $ -  

 

The total compensation cost related to options not yet recognized is approximately $233,263 at May 31, 2014. The Company will recognize this charge over the next 48 months.

 

F- 26
 

  

NOTE 11 – COMMITMENTS AND CONTINGENCIES

 

Employment Agreements

 

On December 15, 2011, TRIG Capital Group, LLC entered into an employment agreement (the “Hartley Employment Agreement”) with Allan Hartley to become its Chief Executive Officer and a Director. On February 21, 2013 (the “Grant Date”), TRIG assigned the Employment Agreement to the Company and Mr. Hartley became the Company’s chief executive officer (the “CEO”). Pursuant to the Employment Agreement, the CEO was paid $7,500 per month on part time basis. Upon completion of the initial acquisition of a target company, Mr. Hartley was to receive an annual salary of $180,000 on a full time basis. Additionally, the Company shall grant to CEO a number of shares (the “CEO Shares”) of the Company’s Common Stock that represents 5% of the outstanding as of the date of the share acquisition agreement dated February 19, 2013. The CEO Shares shall vest at the following milestones: of the five percent (5%) total shares transferred to the CEO, two percent (2%) will vest simultaneous with the completion of the Company’s first acquisition and one percent (1%) will vest as the completion of the Company’s second, third and fourth acquisitions, respectively. On April 26, 2013, the first milestone was triggered when the Company acquired TRG. Mr. Hartley was issued 152,400 shares, valued at $140,587, based on the terms of his agreement. In December 2013, the Company amended the Hartley Employment Agreement which went effective on January 1, 2014. Pursuant to the amended Hartley Employment Agreement, Mr. Hartley was to serve as Co-Chief Executive Officer of the Company. Mr. Hartley was to be paid a salary of $250,000 per annum, plus other benefits including reimbursement for reasonable expenses and paid vacation. Mr. Hartley was also entitled to certain performance bonuses based upon the Company achieving certain milestones. Mr. Hartley was paid $25,000 as a performance bonus related to the Staffing (UK) acquisition. The Hartley Employment Agreement had a term through December 31, 2016. On February 26, 2014, Allan Hartley submitted his resignation to the Company whereby he resigned from his positions as Co-Chief Executive Officer and as a director of the Company, effective immediately.

 

Effective January 1, 2014, the Company entered into an employment agreement with Alfonso J. Cervantes (the “Cervantes Employment Agreement”), to serve as the President of the Company.  In addition, the parties agreed that Mr. Cervantes shall not engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, or any business which the Company contemplates conducting or intends to conduct. Pursuant to the terms of the Cervantes Employment Agreement, the Company will pay Mr. Cervantes $120,000 annually. In addition, Mr. Cervantes will receive reimbursement for all reasonable expenses which Mr. Cervantes incurs during the course of performance under the Cervantes Employment Agreement. Mr. Cervantes can terminate the Employment Agreement after four months with 30-days’ notice. The Company can terminate the Cervantes Employment Agreement upon notice to Mr. Cervantes. On January 3, 2014, Amendment No. 1 to the Employment Agreement (the “Amended Employment Agreement”) of Alfonso J. Cervantes, the President and Director, became effective. The Amended Employment Agreement amends the original Cervantes Employment Agreement by (i) extending the term of employment through December 31, 2016, (ii) increasing the salary to $250,000 per annum, and (iii) providing for certain performance bonuses relating to certain milestones of the Company. Mr. Cervantes was paid a $100,000 as a performance bonus related to Staffing (UK) acquisition. In addition, Mr. Cervantes has been appointed Vice Chairman of the Board.

 

On February 24, 2013, the Company entered into an employment agreement with Darren Minton (the “Minton Employment Agreement”), to serve as a Senior Vice President of the Company.  In addition, the parties agreed that Mr. Minton shall not engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, or any business which the Company contemplates conducting or intends to conduct. Pursuant to the terms of the Minton Employment Agreement, the Company will pay Mr. Minton $48,000 annually. Mr. Minton is also entitled to receive as additional compensation 20,000 shares of the Company’s Common Stock. In addition, Mr. Minton will receive reimbursement for all reasonable expenses which Mr. Minton incurs during the course of performance under the Minton Employment Agreement. Mr. Minton can terminate the Employment Agreement after four (4) months with 30-days’ notice. The Company can terminate the Minton Employment Agreement upon notice to Mr. Minton. On February 24, 2014, the Company entered into a new employment agreement with Mr. Minton to serve as Executive Vice President of the Company. Pursuant to the terms of the Minton Employment Agreement, the Company agreed to pay Mr. Minton $180,000 annually. Mr. Minton is also entitled to receive as additional compensation 20,000 shares of the Company’s Common Stock. The employment agreement has a term of eighteen months. In addition, the Company can terminate the Employment Agreement after four (4) months with 30-days’ notice.

 

On March 21, 2013, the Company entered into a four (4) year employment agreement with Mark P. Aiello (the “Aiello Employment Agreement”), to serve as a Senior Vice President of the Company and as President of Cyber 360 Solutions, the Company’s cyber security division.  In addition, the parties agreed that Mr. Aiello shall not engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, or any business which the Company contemplates conducting or intends to conduct. Pursuant to the terms of the Aiello Employment Agreement, the Company will pay Mr. Aiello $150,000 annually. Mr. Aiello is also entitled to an annual base commission equal to 3% of the gross profit of Cyber 360 Solutions. In addition, Mr. Aiello will receive reimbursement for all reasonable expenses which Mr. Aiello incurs during the course of performance under the Aiello Employment Agreement. Mr. Aiello or the Company can terminate the Aiello Employment Agreement one hundred eighty (180) days prior to the end of the term of the agreement otherwise the agreement will automatically extend for one (1) additional year.

 

F- 27
 

  

On November 4, 2013, the Company entered into a four (4) year employment agreement with Charlie Cooper (the “Cooper Employment Agreement”), to serve as Vice President of the Company and as Chief Operating Officer of CSI, the Company’s professional services and consulting division.  Pursuant to the Cooper Employment Agreement, the parties agreed that Mr. Cooper will not engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, or any business which the Company contemplates conducting or intends to conduct. Mr. Cooper will receive a salary of $200,000 annually, plus reasonable expenses. Mr. Cooper is also entitled to an annual base commission equal to two percent (2%) of the gross profit of professional services and consulting division. In addition, Mr. Cooper will receive an additional monthly commission, not to exceed one and three quarters’ percent (1.75%), if the CSI gross profit exceeds $2,200,000. The Cooper Employment Agreement will automatically renew for successive one year terms following the completion of the initial four year term of the agreement unless terminated by the Company or Mr. Cooper ninety (90) days prior to the end of such term.

  

On November 4, 2013, the Company entered into a four (4) year employment agreement with Margaret Gesualdi (the “Gesualdi Employment Agreement”), to serve as Vice President of the Company and as Mid-Atlantic Region Managing Partner of CSI, the Company’s professional services and consulting division.  Pursuant to the Gesualdi Employment Agreement, the parties agreed that Ms. Gesualdi will not engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, or any business which the Company contemplates conducting or intends to conduct. Ms. Gesualdi will receive a salary of $190,000 annually, plus reasonable expenses. Ms. Gesualdi is also entitled to an annual base commission equal to two percent (2%) of the “employee attributable gross profit” of the professional services and consulting division. In addition, Ms. Gesualdi will receive an additional monthly commission, not to exceed one and three quarters’ percent (1.75%), if the employee attributable gross profit exceeds $750,000. The Gesualdi Employment Agreement will automatically renew for successive one (1) year terms following the completion of the initial four year term of the agreement unless terminated by the Company or Ms. Gesualdi ninety (90) days prior to the end of such term.

 

On November 4, 2013, the Company entered into a four (4) year employment agreement with Simon Dealy (the “Dealy Employment Agreement”), to serve as Sr. Vice President of the Company and as Chief Executive Officer of CSI, the Company’s professional services and consulting division.  Pursuant to the terms of the Dealy Employment Agreement, the parties agreed that Mr. Dealy will not engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, or any business which the Company contemplates conducting or intends to conduct. Mr. Dealy will receive a salary of $200,000 annually, plus reasonable expenses. Mr. Dealy is also entitled to an annual base commission equal to two percent (2%) of the gross profit of professional services and consulting division. In addition, Mr. Dealy will receive an additional monthly commission, not to exceed one and three quarters’ percent (1.75%), if the CSI gross profit exceeds $2,200,000. The Dealy Employment Agreement will automatically renew for successive one (1) year terms following the completion of the initial four year term of the agreement unless terminated by the Company or Mr. Dealy ninety (90) days prior to the end of such term.

 

On January 3, 2014, the Company entered into an employment agreement with Matt Briand (the “Briand Employment Agreement”). Pursuant to the Briand Employment Agreement, Mr. Briand will serve as Co-Chief Executive Officer of the Company, as well as, Chief Executive Officer of Monroe. Mr. Briand will be paid a salary of $300,000 per annum, plus other benefits including reimbursement for reasonable expenses, paid vacation and insurance coverage for his roles with both Staffing 360 Solutions, Inc. and Monroe Staffing LLC, a division of Staffing 360 Solutions (UK) Limited. Mr. Briand will also be entitled to an annual bonus of up to 50% of his annual base salary based on reaching certain financial milestones. The Briand Employment Agreement has a term of five (5) years and will automatically renew thereafter unless twelve (12) months written notice is provided by either party. This employment agreement includes customary non-compete/solicitation language for a period of twelve (12) months after termination of employment. On February 26, 2014, following the resignation of Mr. Hartley, Mr. Briand became the sole Chief Executive Officer.

 

F- 28
 

 

On January 3, 2014, the Company entered into an employment agreement with Brendan Flood (the “Flood Employment Agreement”). Pursuant to the Flood Employment Agreement, Mr. Flood will serve as Executive Chairman of the Board, as well as, Chief Executive Officer of Initio. Mr. Flood will be paid a salary of £192,000 (approximately $315,000) per annum, less statutory deductions, plus other benefits including reimbursement for reasonable expenses, paid vacation and insurance coverage for his roles with both Staffing 360 Solutions, Inc. and Staffing 360 Solutions (UK) Limited. Mr. Flood’s salary will be adjusted (but not decreased) annually based upon the Consumer Price Index in U.K. for All Urban Consumers. Mr. Flood will also be entitled to an annual bonus of up to 50% of his annual base salary based reaching certain financial milestones. The Flood Employment Agreement has a term of five (5) years and will automatically renew thereafter unless twelve (12) months written notice is provided by either party. This employment agreement includes customary non-compete/solicitation language for a period of twelve (12) months after termination of employment.

 

On February 11, 2014 a term sheet was agreed to for annual compensation of $120,000 with Nicholas Koutsivitis for his role as Controller and Vice President. In addition, Mr. Koutsivitis will be entitled to a 25% bonus at calendar year end based on certain performance milestones as mutually agreed. The Company will be required to provide a ninety (90) day notice in the event of termination.

 

On February 17, 2014 a term sheet was agreed to for annual compensation of $180,000 with Wade Pearson for his role as Senior Vice President of Finance. In addition, Mr. Pearson will be entitled to a 50% bonus at calendar year end based on certain performance milestones as mutually agreed. The Company will be required to provide a ninety (90) day notice in the event of termination.

 

On March 17, 2014, the Company entered into an employment agreement with Jeff R. Mitchell (the “Mitchell Employment Agreement”). Pursuant to the Mitchell Employment Agreement, Mr. Mitchell will serve as Executive Vice President and Chief Financial Officer. Mr. Mitchell will receive an annual base salary $250,000, plus other benefits including reimbursement for reasonable expenses, paid vacation and insurance coverage for his role with Staffing 360 Solutions, Inc. Mr. Mitchell will also be entitled to an annual bonus of up to 50% of his annual base salary based on reaching certain milestones. Mr. Mitchell will also receive a grant of 125,000 restricted shares of the Company’s Common Stock, issuable as follows: (i) 50,000 shares on March 17, 2014, and (ii) 25,000 shares on each one (1) year anniversary of his employment. In addition, Mr. Mitchell will be entitled to 150,000 stock options to purchase Common Stock to be issued under the Company’s Stock Option Plan, which such stock options shall vest as follows: (i) 30,000 on March 17, 2014, and (ii) 30,000 on each one year anniversary of his employment. The stock options have an exercise price of $2.00 per share, and are exercisable for a period of five years from the date of grant. The Mitchell Employment Agreement has a term of three (3) years. This employment agreement includes customary non-compete/solicitation language for a period of 12 months after termination of employment.  

 

On May 17, 2014, the Company entered into an employment agreement with Linda Moraski (the “Moraski PSI Employment Agreement”). Pursuant to the Moraski PSI Employment Agreement, Ms. Moraski will serve as President and Chief Executive Officer of PSI for a term of three (3) years, provided however such term shall automatically renew for one (1) year terms unless notice of non-renewal is provided at least one hundred eighty (180) days prior to such renewal. Ms. Moraski shall receive a base salary of $112,500 per year, which such base salary is subject to increase based on the Consumer Price Index (“CPI”). Further, Ms. Moraski will be entitled to receive an annual commission equal to the sum of (i) three percent (3%) of the Gross Profit of PSI for such fiscal year; plus (ii) two and one-half percent (2.5%) of the amount that Gross Profit of PSI for such fiscal year exceeds the Closing Gross Profit as defined in the Agreement. In addition, Ms. Moraski shall also be entitled to an annual bonus, certain benefits, and eligibility to participate in the Company’s stock incentive plan and certain expense reimbursements.

 

In addition, on May 17, 2014, the Company entered into an employment agreement with Linda Moraski (the “Moraski PRS Employment Agreement”). The terms of the Moraski PRS Employment Agreement are substantially similar to the Moraski PSI Employment Agreement, provided, however, under the Moraski PRS Employment Agreement, Ms. Moraski’s base salary is $37,500, subject to increase based on CPI. Ms. Moraski is not entitled to any commissions or bonuses pursuant to the Moraski PRS Employment Agreement.

 

F- 29
 

  

Consulting Agreements

 

On May 1, 2012, the Company entered into a one-year advisory agreement for business advisory services with Mr. Richard M. Cohen.  The Company shall pay M. Cohen $120,000 during the term of the contract in a combination of cash and stock on the following basis:

 

· Stock compensation of $60,000. The number of shares shall be based on a value equal to the per share price that shares sell in the private placement financing for the Company's initial acquisition;
· Cash compensation of $60,000. Mr. Cohen shall receive $5,000 per month commencing May 1, 2012. The monthly amount shall be accrued and will be paid in full from the proceeds of the financing at the closing of the Company's initial acquisition. Subsequent payments following the closing will be due on the first of each month.

 

This agreement expired on April 30, 2013 and was not renewed. The $60,000 owed to this advisor has been converted into 60,000 shares of Common Stock in November 2013 and is regarded as paid in full.

 

On July 19, 2012, the Company entered into a one (1) year consulting agreement for business development, business modeling and support services with River Star Professional Group (“RSPG”) which was amended to a two year agreement effective July 17, 2013.  The parties agreed that the consultant will be paid cash $5,000 monthly; plus $2,500 per month in the form of Common Stock of the Company based upon the closing share value as of the last day of each month, for up to forty (40) man hours of service time with additional hours above forty (40) hours billed at an agreed upon hourly rate plus pre-approved related expenses incurred in performing such services. In November 2013, the Company engaged RSPG to provide compliance support services for an initial $30,000 retainer fee. On January 30, 2014, the Company entered into a termination and settlement agreement with RSPG. As full and final settlement of the agreement, RSPG received a cash payment of $153,750 and 36,388 shares of common stock. On March 1, 2014, this agreement was amended to reflect a rate of $250 per hour and a term of twelve (12) months.

 

On February 15, 2013, the Company entered into an advisory agreement (the “Chord Agreement”) with Chord Advisors, LLC (“Chord”). Pursuant to the Chord Agreement, Chord will provide the Company with comprehensive outsourced accounting solutions. The Company will pay Chord $6,250 for CFO services per month and $5,000 for Controller/back office services per month for a period of twelve (12) months. The Company’s former Chief Financial Officer, David Horin, is the President of Chord. On April 15, 2013, David Horin resigned as Chief Financial Officer.

 

On February 15, 2013, the Company entered into an advisory agreement (the “Grandview Advisory Agreement”) with Grandview Capital Partners, Inc. (“Grandview”). Pursuant to the Grandview Advisory Agreement, Grandview will provide the Company with assistance and advice in seeking out a potential merger or acquisition partner/target. The Company will pay Grandview $10,000 per month for a period of eighteen (18) months and will increase to $15,000 per month on the completion of the first acquisition of a temporary staffing company by the Company and contemporaneous financing. The Company will further compensate Grandview as its exclusive buy side advisor to locate and facilitate qualified businesses or companies that may desire to have the Company provide financing, (debt or equity) or fund the acquisition of certain of the stock or assets of such business transactions. Grandview will receive a fee between one (1%) and ten (10%) percent of the total transaction, depending on the transaction value, as defined in the Grandview Advisory Agreement. The Company’s former Chairman of the Board, Principal Financial Officer, and Treasurer, Peter Goldstein, is the majority shareholder of Grandview Capital Partners, Inc. Mr. Goldstein resigned from the Board and all officer positions as of January 3, 2014. This agreement was amended in January 2014 and will continue until September 30, 2014 at a rate of $10,000 per month.

 

On February 15, 2013, the Company entered into an agreement (the “Trilogy Agreement”) with Trilogy Capital Partners, Inc. (“Trilogy”). Pursuant to the Trilogy Agreement, Trilogy will provide the Company with the development and implementation of an investor awareness program designed to create financial market and investor awareness for the Company. The Company will pay Trilogy $5,000 per month for a period of eighteen (18) months. The Company’s President, Alfonso J. Cervantes is the majority owner of Trilogy.

 

F- 30
 

  

On February 14, 2013, the Company entered into a corporate services agreement (the “Pylon Agreement”) with Pylon Management, Inc. (“Pylon”). Pursuant to the Pylon Agreement, Pylon will provide the Company with assistance and advice in identifying potential merger or acquisition targets and integrating such acquired business into the Company for a period of eighteen (18) months. Pursuant to the Pylon Agreement, for any merger and acquisition transaction, Pylon will receive a fee between three (3%) and five (5%) percent of the transaction value. Pylon shall also receive equity compensation in the amount of two percent (2%) of the outstanding shares of the Company’s Common Stock on the date of the first acquisition, and one percent (1%) of the outstanding shares of the Company’s Common Stock on the date of the second transaction. All shares of the Company Common Stock issued under the Pylon Agreement shall have “piggyback” registration rights at the Company’s election and shall be included in any registration statement filed by the Company with the Securities and Exchange Commission. Upon the closing of the first transaction, the Company will pay a monthly retainer of $5,000 per month. The Company will also pay Pylon 2% of the net sales of the Company for administrative services rendered, which may be reduced pursuant to the Pylon Agreement. The Pylon Agreement may be terminated by either party upon ninety (90) days written notice. On April 26, 2013, the Company acquired TRG. As such, Pylon was issued 175,734 shares based on the terms of the agreement. In February 2014, the Company issued Pylon 150,000 shares of Common Stock as full settlement and termination of the Pylon Agreement. On March 1, 2014, the Company entered into a new twelve (12) month advisory agreement with Pylon. The Company will pay Pylon $5,000 per month as well as performance-based fees.

 

On February 15, 2013, the Company entered into an advisory agreement (the “Joshua Capital Agreement”) with Joshua Capital, LLC (“Joshua Capital”). Pursuant to the Joshua Capital Agreement, Joshua Capital will provide the Company with advisory and consulting services in connection with the Company’s business operations. The Company will pay Joshua Capital $10,000 per month for a period of 18 months and will increase to $15,000 per month on the completion of the first acquisition of a temporary staffing company and contemporaneous financing. The agreement may be terminated by the Company for cause, as defined in the agreement. Robbie Lee, a shareholder of the Company is the majority shareholder of Joshua Capital, LLC. The Company and Joshua Capital terminated the agreement effective December 31, 2013.

 

On August 22, 2013, the Company entered into an agreement with Rempel Ventures, LLC. The term of the agreement is for twelve (12) months. Rempel Ventures will receive $3,000 and 5,000 Common Stock shares per month and will provide advisory services. Specifically, they will provide support for business activities related to the Company’s consolidation model in the staffing industry. In addition, Rempel Ventures will provide business and financial advice and services. On January 1, 2014, the Company and Rempel Ventures, LLC amended the agreement increasing the advisory fee to $13,000 per month. In addition, the agreement was transferred from Rempel Ventures, LLC to Alternative Advisory Group LLC. No other terms of the agreement were altered. On April 1, 2014, the Company further modified the Alternative Advisory Group agreement by extending the term of the agreement to April 1, 2015 and discontinued the monthly equity consideration of 5,000 shares which was replaced with a one-time issuance of 200,000 shares of Common Stock.

 

Directors Agreements

 

On July 15, 2012, the Company entered into an advisory agreement with Dimitri Villard. From July 1, 2012 to June 30, 2013, Mr. Villard s erved as a member of the board of directors and as an a dvisory for the Company. The Company agreed to pay Mr. Villard $45,000, consisting of: (i) $22,500 of Common Stock shares based on the value equal to 50% of the per share price of the Common Stock sold in the private placement financing, and (ii) $22,500 of cash to be paid in monthly payments of $1,875. This agreement expired on June 30, 2013, but was continued by the Company on a month to month basis. Effective July 1, 2013, Mr. Villard entered into a new agreement with the Company, to serve as a member of the board of directors for $30,000 annually, payable $2,500 per month. Additionally, Mr. Villard was awarded 2,500 shares of restricted Common Stock per month.  In addition, effective January 1, 2014, Mr. Villard entered into a separate advisory agreement (the “Villard Advisory Agreement”) for a term of one year for $30,000 per year, payable $2,500 per month, and 30,000 shares of restricted Common Stock, issued at 2,500 shares per month. In April 2014,  the Villard Advisory Agreement was terminated. For his services as an advisor, Mr. Villard was paid $10,000 and was awarded 10,000 shares of restricted Common Stock. In May, 2014, Mr. Villard was named the Chairman of the Corporate Governance and Nominating Committee. For his service as Chairman of the Corporate Governance and Nominating Committee, Mr. Villard will receive an annual payment of $20,000 , payable $1,667 per month. In addition, Mr. Villard will receive 833 shares of restricted Common Stock per month (10,000 shares annually), par value $.00001 per share. In May 2014, Mr. Villard was named as a member of the Audit Committee and the Compensation Committee. For his service as a member of the Audit Committee and Compensation Committee, Mr. Villard will receive 833 shares of restricted Common Stock per month (10,000 shares annually) for each committee.

 

F- 31
 

   

Effective July 1, 2013, the Company entered into an agreement with Robert Mayer , to serve as a member of the board of directors for an annual payment of $30,000, payable $2,500 per month. In addition, for his service as a member of the board of directors, Mr. Mayer will receive 2,500 shares of restricted Common Stock per month.  In addition, effective January 1, 2014, Mr. Mayer entered into a separate agreement to serve as an advisor to the Company (the “Mayer Advisory Agreement”) for a term of one (1) year for $30,000 per year, payable $2,500 per month and 30,000 shares of restricted Common Stock, issued at 2,500 shares per month. In April 2014,  the Mayer Advisory Agreement was terminated. For his services as an advisor, Mr. Mayer was paid $10,000 and was awarded 10,000 shares of restricted Common Stock. In May, 2014, Mr. Mayer was named as a member of the Audit Committee and the Compensation Committee. For his service as a member of the Audit Committee and Compensation Committee, Mr. Mayer will receive 833 shares of restricted Common Stock per month (10,000 shares annually) for each committee.

 

In February 2014, the Company entered into an agreement with Jeff Grout to serve as a member of the board of directors for an annual payment of $30,000, payable $2,500 per month. In addition, for his service as a member of the board of directors, Mr. Grout will receive 2,500 shares of restricted Common Stock per month.  In addition, in February, 2014, Mr. Grout was named the Chairman of the Compensation Committee. For his service as Chairman of the Compensation Committee, Mr. Grout will receive an annual payment of $20,000 , payable $1,667 per month. Mr. Grout will also receive 833 shares of restricted Common Stock per month (10,000 shares annually). Mr. Grout was also named as a member of the Corporate Governance and Nominating Committee. For his service as a member of the Corporate Governance and Nominating Committee, Mr. Grout will receive 833 shares of restricted Common Stock per month (10,000 shares annually).

 

In May 2014, the Company entered into an agreement with Nick Florio to serve as a member of the board of directors for an annual payment of $30,000, payable $2,500 per month. In addition, for his service as a member of the board of directors, Mr. Florio will receive 2,500 shares of restricted Common Stock per month.  In addition, in May, 2014, Mr. Florio was named the Chairman of the Audit Committee. For his service as Chairman of the Audit Committee, Mr. Florio will receive an annual payment of $20,000 , payable $1,667 per month. Mr. Florio will also receive 833 shares of restricted Common Stock per month (10,000 shares annually). Mr. Florio was also named as a member of the Corporate Governance and Nominating Committee. For his service as a member of the Corporate Governance and Nominating Committee, Mr. Florio will receive 833 shares of restricted Common Stock per month (10,000 shares annually).

 

Lease Obligations

 

The Company entered into multiple lease agreements for office space. The agreements require monthly rental payments through March 31, 2017. Total minimum lease obligation approximate $552,000, $466,220 and $132,339 for the years ended May 31, 2015, 2016 and 2017, respectively. For the year ended May 31, 2014, rent expense amounted to $599,000.

 

Legal Matters  

 

On May 22, 2014, NewCSI, Inc., (“NCSI”), the former sole shareholder of CSI, filed a claim in the U.S. District Court for the Western District of Texas, Austin Division, against the Company alleging a breach of the CSI Purchase Agreement. NCSI claims that the Company breached a provision of the CSI Purchase Agreement which required the Company to determine the value of CSI’s “Deferred Tax Assets” (as defined in the CSI Purchase Agreement) within 90 days after December 31, 2013. Per the claim, NCSI seeks acceleration of the earn out payment provided in the CSI Purchase Agreement in the amount of $1.4 million less the amount of any earn out previously paid to NCSI, together with 50% of the Deferred Tax Assets or $154,433 and legal fees.

 

While the Company vigorously opposes these claims and has asserted various affirmative defenses in its response, the Company is attempting to resolve the dispute amicably and has made an offer to settle the dispute. The Company is awaiting a response to its settlement offer. Nevertheless, there can be no assurance that the outcome of this litigation will be favorable to the Company.

 

From time to time, the Company and its subsidiaries enter into legal disputes in the ordinary course of business. However, other than as described above, the Company believes there are no material legal or administrative matter pending that are likely to have, individually or in the aggregate, a material adverse effect on its business or results of operations.

 

F- 32
 

  

NOTE 12 – GEOGRAPHICAL SEGMENTS

 

For the years ended May 31, 2014 and 2013, the Company generated revenues in the U.S., Canada and the U.K. as follows:

 

    Years ended May 31,  
    2014     2013  
             
Revenue generated in the U.S.   $ 43,723,329     $ 647,731  
Revenue generated in Canada     89,475       -  
Revenue generated in the U.K.     1,965,689       -  
Total revenue   $ 45,778,493     $ 647,731  

 

As of May 31, 2014 and 2013, the Company has assets in the U.S., Canada and the U.K.:

 

    May 31,  
    2014     2013  
             
Total assets in the U.S.   $ 40,685,600     $ 3,320,497  
Total Assets in Canada     102,351       -  
Total assets in the U.K.     2,897,231       -  
Total assets   $ 43,685,182     $ 3,320,497  

 

As of May 31, 2014 and 2013, the Company has liabilities in the U.S., Canada and the U.K.:

 

    May 31,  
    2014     2013  
             
Total liabilities in the U.S.   $ 30,419,809     $ 2,542,133  
Total liabilities in Canada     6,994       -  
Total liabilities in the U.K.     2,638,969       -  
Total liabilities   $ 33,065,772     $ 2,542,133  

 

NOTE 13 - ACQUISITIONS

 

On April 26, 2013, the Company purchased 100% of the issued and outstanding stock of The Revolution Group, Ltd. (“TRG”). The aggregate consideration paid by the Company to the TRG shareholders was $2,509,342 (the “TRG Purchase Price”), paid as follows: (i) at the closing the Company paid the TRG shareholders cash in the amount of $907,287; and (ii) the Company paid $410,055 by issuing to the TRG shareholders 512,569 restricted shares of the Company’s Common Stock valued at a price of $0.80 per share. In addition, the Company agreed to pay the TRG shareholders performance-based compensation in cash an amount equal to the following percentages of TRG’s gross profit from the date of closing through the end of the sixteenth (16th) quarter following the date of closing (the “TRG Earn Out Period”), not to exceed $1,500,000: (i) twenty percent (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) seven percent (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. At the time of the Acquisition, the Company estimated the performance-based compensation was $1,192,000. As of May 31, 2014, the Company’s calculated estimate of the performance-based compensation did not change. During the year ended May 31, 2014, the Company paid $262,856 towards the earn-out liability. At May 31, 2014 the balance of the earn-out liability was $929,145. This transaction was accounted for under the purchase method in accordance with ASC 805. As a result of the Acquisition, TRG became a wholly-owned subsidiary of the Company and now operates under the name “Cyber 360 Solutions” (“Cyber Solutions”).

 

In connection with the acquisition of TRG, the Company identified and recognized an intangible asset of $1,054,801 representing trade name, customer relationships and employment agreements/non-competes. The valuation provided for the trade name, customer relationships and employment agreements/non-competes is based on independent professional valuation services’ calculations. The assets are being amortized on the straight line basis over their estimated life of four (4) years, other than the trade name which is amortized over fifteen (15) years. During the years ended May 31, 2014 and 2013 the Company recognized amortization expense of $210,406 and $20,828, respectively. An impairment was necessary as of May 31, 2014. The Company impaired the trade name, customer relationships and employment agreements/non-competes valued at $823,566. The Intangible Asset balance at May 31, 2014 is $0.

 

F- 33
 

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

ASSETS:        
         
Current assets   $ 47,881  
Intangible assets     1,054,801  
Goodwill     1,412,646  
Total   $ 2,515,328  
         
LIABILITIES:        
         
Current liabilities   $ 5,986  
         
Net purchase price   $ 2,509,342  

 

On November 4, 2013, the Company acquired 100% of the issued and outstanding Common Stock (the “CSI Acquisition”) of Control Solutions International, Inc. (“CSI”), a Florida corporation and its wholly owned subsidiary, Canada Control Solutions International, Inc., an Ontario, Canada corporation (“CCSI”) pursuant to a Stock Purchase Agreement dated August 14, 2013 by and among the Company, NewCSI, Inc., a Delaware corporation (“NCSI”), and the shareholders of NCSI. The aggregate consideration paid by the Company for the CSI Acquisition was $3,530,454, payable as follows: (i) at closing the Company paid cash to the NCSI shareholders and their designee the amount of $1,311,454; and (ii) the Company paid $119,000 by issuing to the NCSI shareholders 136,000 restricted shares of the Company’s Common Stock valued at a price of $0.875 per share. In addition, the Company agreed to pay the NCSI shareholders performance-based compensation in cash an amount equal to 20% of CSI’s and CCSI’s consolidated gross profit from the date of closing through the end of the sixteenth (16th) quarter following the date of closing (the “CSI Earn Out Period”) not to exceed a total of $2,100,000. As of May 31, 2014, the Company’s calculated estimate of the performance-based compensation did not change. During the year ended May 31, 2014, the Company paid $262,716 towards the earn-out liability. At May 31, 2014 the balance of the earn-out liability was $1,837,284. The Company estimated the performance-based compensation was $2,100,000. As a result of the Acquisition, CSI became a wholly-owned subsidiary of the Company.

 

In connection with the acquisition of CSI, the Company identified and recognized an intangible asset of $912,000 representing trade name, customer relationships and employment agreements/non-competes. The assets are being amortized on the straight line basis over their estimated life of four (4) years, other than the trade name which is amortized over fifteen (15) years. This method results in the sum of the future net cash flows discounted to its present day value. The valuation provided for the trade name, customer relationships and employment agreements/non-competes is based on independent professional valuation services’ calculations. During the years ended May 31, 2014 and 2013 the Company recognized amortization expense of $107,654 and $0, respectively. The Company will recognize amortization expense of $182,198 in the fiscal year ended 2015, $182,198 in the fiscal year ended 2016, $182,198 in the fiscal year ended 2017, $85,027 in the fiscal year ended 2018, $15,619 each year in the fiscal years 2019 through 2028 and $6,508 in the fiscal year ended 2029. An impairment was necessary as of May 31, 2014. The Company impaired trade name, customer relationships and employment agreements/non-competes valued at $10,025. At May 31, 2014, the intangible asset balance, net of accumulated amortization and after impairment of $10,025, is $794,321. 

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

ASSETS:        
Current assets   $ 1,475,716  
Intangible assets     912,000  
Goodwill     1,287,609  
Total   $ 3,675,325  
         
LIABILITIES:        
Current liabilities   $ 144,871  
         
Net purchase price   $ 3,530,454  

 

 

F- 34
 

  

On January 3, 2014, the Company purchased 100% of the issued and outstanding Common Stock (the “Initio Acquisition”) of Initio International Holdings Limited (“Initio”), a company organized under the laws of England and Wales and its respective subsidiaries, including but not limited to Monroe Staffing Services, LLC, a Delaware limited liability company (“Monroe,” and together with all of Initio’s subsidiaries, the “Subsidiaries”).  The transaction contemplated by a Share Purchase Agreement, dated October 30, 2013, as amended by Amendment No. 1 to the Share Purchase Agreement, dated December 10, 2013 (the “SPA”), by and among the Company and the shareholders of Initio. The aggregate consideration paid by the Company for the Initio Acquisition was $13.29 million, payable as follows: (i) at closing the Company paid the Initio shareholders cash in the amount of $6,440,000; and (ii) the Company paid $2,884,614 by issuing to the Initio shareholders 3,296,702 restricted shares of the Company’s Common Stock valued at a price of $0.875 per share; and (iii) the Company issued three (3) year promissory notes (subject to adjustment if certain post-closing results are not achieved) to the Initio shareholders totaling $3,964,949, each promissory note bearing an interest rate of six percent (6%) per annum, amortized on a five (5) year straight line basis. Upon closing of the Initio Acquisition, certain of the Initio Shareholders were appointed to the Company’s Board of Directors and entered into employment agreements with the Company or one of its subsidiaries. As a result of the Acquisition, Initio and its Subsidiaries became wholly-owned subsidiaries of the Company. Initio was renamed Staffing 360 Solutions (UK) Limited (“Staffing UK”).

 

In connection with the acquisition of Staffing 360 Solutions (UK), the Company identified and recognized an intangible asset of $10,050,000 representing trade name, customer relationships and employment agreements/non-competes. The assets are being amortized on the straight line basis over their estimated life of four (4) years, other than the trade name which is amortized over fifteen (15) years. This method results in the sum of the future net cash flows discounted to its present day value. The valuation provided for the trade name, customer relationships and employment agreements/non-competes is based on independent professional valuation services’ calculations. During the years ended May 31, 2014 and 2013 the Company recognized amortization expense of $712,215 and $0, respectively. The Company will recognize amortization expense of $1,709,317 in the fiscal year ended 2015, $1,709,317 in the fiscal year ended 2016, $1,709,317 in the fiscal year ended 2017, $1,118,796 in the fiscal year ended 2018, $287,733 each year in the fiscal years 2019 through 2028 and $167,844 in the fiscal year ended 2029. The Intangible Asset balance, net of accumulated amortization, at May 31, 2014 is $9,337,784.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:  

 

ASSETS:        
Total assets   $ 15,550,449  
Intangible assets     10,050,000  
Goodwill     2,994,057  
Total   $ 28,544,506  
         
LIABILITIES:        
Total liabilities   $ 15,254,943  
         
Net purchase price   $ 13,289,563  

 

F- 35
 

  

On February 28, 2014, the Company, through its wholly owned subsidiary, Staffing UK, completed the purchase of substantially all of the business and certain assets, including but limited to contracts, business information, records, book debt and goodwill (the “Poolia Acquisition”) of Poolia UK Ltd. (“Poolia UK”). The Poolia Acquisition was completed pursuant to that certain Asset Purchase Agreement (the “Poolia Purchase Agreement”) by and among Staffing UK, and Poolia UK Ltd. Poolia UK operates its professional staffing services from its London office and focuses on providing temporary, contract and permanent qualified professionals to various banking, financial and commercial clients across the United Kingdom. The aggregate consideration paid by the Company was £500,000 (the “Fixed Consideration”), plus an amount equal to the net asset value at the completion date of the acquisition (the “NAV Consideration,” together with the Fixed Consideration, collectively, the “Poolia Purchase Price”). The Fixed Consideration and a sum of £250,000, being an advance payment of the NAV Consideration, was paid in full in cash at Closing. The balance of the NAV Consideration was to be paid by the Company to Poolia UK Ltd. by April 30, 2014 for total consideration of $1,626,266. As of May 31, 2014, the Company has paid $1,403,440, with the balance of $222,826 due on or before September 30, 2014.

 

In connection with the acquisition of Poolia UK, the Company identified and recognized an intangible asset of $465,321 representing customer relationships and employment agreements/non-competes. The assets are being amortized on the straight line basis over their estimated life of four (4) years. This method results in the sum of the future net cash flows discounted to its present day value. The valuation provided for the trade name, customer relationships and employment agreements/non-competes is based on independent professional valuation services’ calculations. During the years ended May 31, 2014 and 2013 the Company recognized amortization expense of $29,083 and $0, respectively. The Company will recognize amortization expense of $116,330 in the fiscal year ended 2015, $116,330 in the fiscal year ended 2016, $116,330 in the fiscal year ended 2017 and $87,248 in the fiscal year ended 2018. The Intangible Asset balance, net of accumulated amortization, at May 31, 2014 is $436,238.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

ASSETS:        
Current assets   $ 1,207,897  
Intangible assets     465,321  
Goodwill     584,701  
Total   $ 2,257,919  
         
LIABILITIES:        
Current liabilities   $ 631,653  
         
Net purchase price   $ 1,626,266  

 

On May 17, 2014, the Company purchased 100% of the issued and outstanding Common Stock of PeopleSERVE, Inc., a Massachusetts corporation (“PSI”), and 49% of the issued and outstanding Common Stock of PeopleSERVE PRS, Inc., a Massachusetts corporation (“PRS”, together with PSI, collectively the “Acquired Companies or PS”), pursuant to a Stock Purchase Agreement (the “PS Purchase Agreement”) dated May 17, 2014, by and among the Company, the Acquired Companies and Linda Moraski (“PS Seller”), sole owner of all of the issued and outstanding Common Stock of the Acquired Companies.

 

In connection with the purchase of the Acquired Companies, the Company agreed to pay to PS Seller an aggregate purchase price (the “PS Purchase Price”) of approximately $8.4 million based upon a formula in the PS Purchase Agreement. Immediately prior to the closing, the PS Seller provided the Company with a certificate setting forth the Seller’s good faith estimate of (i) the Purchase Price (the “Estimated Purchase Price”), including the calculation of the Adjusted EBITDA (as defined in the PS Purchase agreement filed in Form 8-K dated May 20, 2014) of each Acquired Company for the twelve (12) fiscal months period ending April 26, 2014, and (ii) the Net Working Capital (as defined in the PS Purchase agreement filed in Form 8-K dated May 20, 2014).

 

F- 36
 

  

At the PS Closing, the Company paid to the PS Seller the PS Purchase Price as follows: (i) cash in the amount of $2,705,675; (ii) restricted shares of the Company’s Common Stock, based on the closing price of $1.93 on the date of acquisition, May 17, 2014,or 1,127,365 shares of Common Stock for a total fair value of $2,175,814; (iii) an unsecured promissory note (“the Promissory Note”) with an initial principal amount equal to $2,367,466; (iv) pursuant to the terms of the PS Purchase Agreement, the PS Seller is entitled to receive from the Acquired Companies all of the Net Working Capital as of the Closing Date (as defined in the PS Purchase agreement filed in Form 8-K dated May 20, 2014) valued at $1,138,153, and the Company and the Acquired Companies shall have no right to, or obligations with respect to, such Net Working Capital, except as otherwise set forth in the PS Purchase Agreement.

 

The PS Purchase Price is subject to a Post-Closing Purchase Price Adjustment (as defined in the PS Purchase agreement filed in Form 8-K dated May 20, 2014) within sixty (60) days of the Closing Date, based on audited financial statements for each of the Acquired Companies. Upon receipt of such audited financial statements, the Company will prepare and deliver to Seller a certificate that sets forth the Company’s determination of (i) the PS Purchase Price, including the calculation of the Adjusted EBITDA of each Acquired Company for the audited period and (ii) the calculation of the Net Working Capital. Once the Company and the PS Seller have agreed on the final financial statements as disclosed above, the PS Purchase Price shall be adjusted based on the PS Purchase Price Adjustment Amount, which means an amount equal to the finally determined PS Purchase Price as shown in the final financial statements minus the amount of the Estimated Purchase Price. In the event the PS Purchase Price is adjusted, the difference will either be paid to the Sellers or returned to the Company, as the case may be, in the same percentages of cash, shares of Common Stock and Promissory Note as the PS Purchase Price paid on the Closing with a one-time payment by the appropriate party to catch-up on principal payments previously made under the Promissory Note.

 

In connection with the 49% acquisition of PRS, the Company recorded a non-controlling interest totaling $572,900. In addition, results of operations attributable to the non-controlling interests are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings. For the year ended May 31, 2014, the Company recorded net income attributable to non-controlling interest totaling $9,637.

 

In connection with the acquisition of PS, the Company identified and recognized an intangible asset of $2,999,100 representing trade name, customer relationships and employment agreements/non-competes. The assets are being amortized on the straight line basis over their estimated life of four (4) years, other than the trade name which is amortized over fifteen (15) years. This method results in the sum of the future net cash flows discounted to its present day value. The valuation provided for the trade name, customer relationships and employment agreements/non-competes is based on independent professional valuation services’ calculations. During the years ended May 31, 2014 and 2013 the Company recognized amortization expense of $25,603 and $0, respectively. The Company will recognize amortization expense of $614,475 in the fiscal year ended 2015, $614,475 in the fiscal year ended 2016, $614,475 in the fiscal year ended 2017, $403,688 in the fiscal year ended 2018, $40,000 each year in the fiscal years 2019 through 2028 and $38,333 in the fiscal year ended 2029. The Intangible Asset balance, net of accumulated amortization, at May 31, 2014 is $2,973,497.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

ASSETS:        
Current assets   $ 2,878,448  
Intangible assets     2,999,100  
Goodwill     4,789,880  
Total   $ 10,667,428  
         
LIABILITIES:        
Current liabilities   $ 1,707,420  
         
Non-controlling interest     572,900  
         
Net purchase price   $ 8,387,108  

 

F- 37
 

  

The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of TRG, CSI, Initio, Poolia UK and PS had occurred as of June 1, 2013 and 2012: 

 

    Years Ended May 31,  
    2014     2013  
             
Net Revenues   $ 124,474,136     $ 112,424,965  
                 
Net loss from continuing operations     (14,245,303 )     (9,371,322 )
                 
Net loss per share from continuing operations     (0.62 )     (0.73 )
                 
Weighted average number of shares – Basic and diluted     23,083,031       12,858,804  

 

NOTE 14 -  INCOME TAXES

 

The Company accounts for income taxes under ASC 740, “Expenses – Income Taxes”. ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Realization is dependent upon future taxable income during the periods in which those temporary differences become deductible or are utilized. All of the Company’s tax returns have been filed through the fiscal year ended May 31, 2013. These returns remain subject to examination by major tax jurisdictions as of May 31, 2014.

 

The Company has not recorded a deferred tax liability with respect to its investment in certain foreign corporate subsidiaries as an exception to ASC 740, since the underlying earnings of the foreign subsidiaries are indefinitely reinvested in accordance with ASC 740-10-25-3(a)(1).

 

During the current fiscal year, the Company acquired both CSI and Monroe which businesses had acquired net operating losses aggregating approximately $3,800,000. Pursuant to IRC section 382, the amount of taxable income that can be offset by these pre-acquisition net operating losses of both the Company and these subsidiaries is limited due to the change in ownership that occurred. The deferred tax asset derived from these tax loss carry-forwards have been included in the consolidated deferred tax asset from net operating losses shown below.

 

The table below summarizes the reconciliation of our income tax provision (benefit) computed at the statutory Federal rate and the actual tax provision:

 

    Years Ended May 31,  
    2014     2013  
Income tax (benefit) provision at Federal statutory rate   $ (4,762,000 )   $ (1,158,000 )
State income taxes, net of Federal Benefit     -       (242,000 )
Permanent differences     2,267,000       367,000  
Benefit of loss not realized     2,495,000       1,033,000  
Tax provision   $ -     $ -  

  

As of May 31, 2014 the Company has a net operating loss (“NOL”) carry forward for income tax purposes of approximately $12,510,000 expiring through the year 2033. The NOLs may be available to reduce future years’ taxable income.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Included in the deferred tax asset is the aforementioned NOL. The realization of the deferred tax assets is dependent on future taxable income. The Company is not able to predict if such future taxable income will be more likely than not sufficient to utilize the benefit. As such, The Company does not believe the benefit is more likely than not to be realized and they have recognized a full valuation allowance for those deferred tax assets. Management will review this valuation allowance periodically and make adjustments as necessary. The significant components of the deferred tax asset as of May 31, 2014 and 2013 are as follows:

 

F- 38
 

  

    As of May 31,  
    2014     2013  
Deferred tax assets from NOL carry forwards   $ 5,030,000     $ 1,134,000  
                 
Short-term assets:                
Accruals and reserves     535,000       -  
Amortization of debt discount and beneficial conversion feature     498,000       -  
Amortization of deferred financing     405,000       -  
Total short-term assets     1,438,000       -  
                 
Long-term assets:                
Goodwill and intangibles     3,397,000       -  
                 
Current liabilities:                
Depreciation     (23,000 )     -  
                 
Valuation allowance     (9,842,000 )     (1,134,000 )
Deferred tax asset, net of allowance   $ -     $ -  

    

NOTE 15 – SUBSEQUENT EVENTS

 

On July 25, 2014, the Company joined with its subsidiaries, Monroe Staffing Services, LLC, PeopleSERVE PSI, Inc. and PeopleSERVE PRS, Inc., in a Credit and Security Agreement with Wells Fargo Bank, NA, in the amount of $15,000,000. The facility is subject to accounts receivable limitations and bears interest at Libor plus 5.0% on the greater of $5,000,000 or the actual loan balance outstanding and expires on October 21, 2015. The facility has an annual facility fee, is subject to certain covenants and is secured by all of the assets of the companies. 

 

On July 29, 2014, the Board of Directors of the Company adopted the Amended and Restated Bylaws of the Company. The Amended and Restated Bylaws were adopted to incorporate the following changes: (i) to reflect the current name and offices of the Company in the Bylaws, (ii) to clarify and revise the notice, procedure and voting requirements for shareholder and director meetings, (iii) to clarify and revise the procedural requirements regarding director vacancies, appointing, removing and resignation of directors, (iv) to clarify certain officer positions and respective roles of certain officers, (v) to clarify and revise the procedural requirements regarding officer vacancies, appointing, removing and resignation of officers, (vi) to clarify certain indemnification provisions, (vii) to clarify certain powers of the Board of Directors, and (viii) to provide procedural requirements for issuing dividends.

 

Short-term Promissory Notes

 

In June, 2014, the Company issued a promissory note in the amount of $100,000 to Robert Mayer, a director and shareholder of the Company. The promissory note was non-interest bearing and due upon demand. The Company issued 5,000 shares to Mr. Mayer as additional consideration. This note was paid in full in June 2014.

 

On June 22, 2014, the Company conducted an additional note offering whereby the Company raised approximately $100,000 from one accredited investor through the issuance of a short-term 12% convertible promissory note (the “June Note”). The June Note is payable upon the earlier of (i) completion of the Series A Bond Offering, (ii) completion of the Company’s senior debt facility, or (iii) eight (8) weeks from the original issuance date of the June Note. The holder of the June Note received 20,000 shares of restricted Common Stock. The holder of the June Note may convert, at his sole election, the principal amount and any accrued but unpaid interest due under the June Note into restricted shares of Common Stock at a price of $1.50 per share. In August 2014 this note was paid in full.

 

On July 14, 2014, the Company amended and restated a $250,000, 12% promissory note dated April 22, 2014. The promissory note, which had a maturity date of July 14, 2014, is now due upon demand. In addition, the note holder will receive 5,000 Common Stock shares monthly for every $100,000 invested.

 

On July 14, 2014, the Company amended and restated a $200,000, 12% promissory note dated May 27, 2014. The promissory note, which had a maturity date of July 14, 2014, is now due upon demand. In addition, the note holder will receive 2,500 Common Stock shares monthly for every $100,000 invested.

 

On July 31, 2014, the Company amended and restated a $200,000, 12% promissory note dated April 21, 2014. The promissory note, which had a maturity date of July 31, 2014, is now due upon demand. In addition, the note holder will receive 5,000 Common Stock shares monthly for every $100,000 invested.

 

F- 39
 

  

On July 31, 2014, the Company amended and restated a $100,000, 12% promissory note dated April 22, 2014. The promissory note, which had a maturity date of July 31, 2014, is now due upon demand. In addition, the note holder will receive 5,000 Common Stock shares monthly for every $100,000 invested.

 

On July 31, 2014, the Company amended and restated a $200,000, 12% promissory note dated May 2, 2014. The promissory note, which had a maturity date of July 31, 2014, is now due upon demand. In addition, the note holder will receive 5,000 Common Stock shares monthly for every $100,000 invested.

 

In July 2014, the Company issued three non-interest bearing promissory notes in the aggregate amount of $280,000 to three related parties. The promissory notes were due upon demand. The first note was issued on July 16, 2014 to Trilogy Capital Partners, which is owned by the Company’s President, Alfonso J. Cervantes, in the amount of $30,000. This note was repaid in full on July 25, 2014. The second note was issued on July 17, 2014 to Jeff Mitchell, the Company’s CFO, in the amount of $150,000. The Company issued 10,000 Common Stock shares to Mr. Mitchell as additional consideration. This note was repaid in full on July 25, 2014. The third note was issued on July 8, 2014 to Robert Mayer, a director and shareholder of the Company, in the amount of $100,000. The Company issued 7,000 shares to Mr. Mayer as additional consideration. This note was paid in full on July 29, 2014.

 

In July, the Company issued 407,915 shares for the conversion of promissory notes totaling $600,000.

 

In August 2014, the Company issued a non-interest bearing promissory note in the amount of $125,000 to Robert Mayer, a director and shareholder of the Company. The promissory note is due upon demand. The Company issued 5,000 shares to Mr. Mayer as additional consideration. This note remains outstanding. 

 

In July and August 2014, the Company issued promissory notes to Sterling National bank for consideration totaling $625,000. The notes bear interest at 18% per annum and are due upon demand. As of the date of this filing, the Company has repaid $488,992 in principal and $5,271 in interest. The balance outstanding is $136,008.

 

In August 2014, the Company issued a non-interest bearing promissory note in the amount of $150,000 to Barry Cervantes, a brother of the Company’s President, Alfonso J. Cervantes. The promissory note is due upon demand. The Company issued 7,500 shares to Barry Cervantes as additional consideration. This note remains outstanding.

 

Series A 12% Convertible Bonds Offering

 

On July 29, 2014, the Company completed a private offering (the “Offering”) of 12% Convertible Bonds (the “Bonds”) from a total of 70 accredited investors for an aggregate of $4,058,500 in cash and 405,850 shares of Common Stock. These Bonds mature on October 15, 2014 (the “Maturity Date”), unless voluntarily converted. On or prior to the Maturity Date, the Purchaser must notify the Company whether the payment for the Bond will be made in cash or as payment-in-kind in comparably valued Common Stock of the Company. The Purchasers may elect to convert the Bonds, including all accrued but unpaid coupon payments at any time prior to the Maturity Date into restricted shares of Common Stock at a conversion price of $1.50 per share. In addition to the Bonds, each Purchaser of the Bonds received equity consideration at a rate of 5,000 shares (the “Equity Consideration”) of Common Stock for each $50,000 investment. In connection with the Offering, the Company retained Accelerated Capital Group, Inc. as the placement agent for the Offering. The Company agreed to pay Accelerated Capital Group: (i) a fee in cash up to an amount equal to ten percent (10%) of the aggregate gross proceeds raised by such broker in the Private Placement Offering, (ii) a non-accountable expense allowance of up to two percent (2%) of the aggregate gross proceeds raised by such broker in the Offering, and (iii) shares of Common Stock equal to an amount up to ten percent (10%) of the aggregate number of shares of Common Stock issued in connection with funds raised by the broker in the Offering. As of the final closing, the Company paid the placement agent an aggregate consideration of $487,020 and issued an aggregate of 12,100 shares of Common Stock.

 

Series B 12% Convertible Bonds Offering

 

On June 24, 2014, the Company’s Board approved an offering of up to $8 million of Series B, 12% Convertible Bonds.

 

F- 40
 

 

2014 Equity Compensation Plan

 

In July 2014, the Company increased the number of options to be issued under the 2014 Equity Compensation Plan from 1,500,000 to 2,500,000.

 

Advisory Agreement

 

In August 2014, the Company entered into an agreement with Brandhouse Ventures, Inc. The term of the agreement is six (6) months. Brandhouse Ventures will receive $10,000 and 5,000 common shares per month and will provide advisory services related to investor outreach and awareness activity for the Company.

 

F- 41
 

 

  

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.

 

Not applicable.

 

  ITEM 9A. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

We carried out an evaluation required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” and “internal control over financial reporting” as of the end of the period covered by this Annual Report.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures. Our principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures as of the end of the period covered by this Annual Report (the “Evaluation Date”), pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure, due to material weaknesses in our control environment and financial reporting process.

 

Notwithstanding the existence of these material weaknesses, management believes that the consolidated financial statements in this annual report on Form 10-K fairly present, in all material respects, the Company’s financial condition as of the Evaluation Date, and results of its operations and cash flows for the Evaluation Date, in conformity with United States generally accepted accounting principles (GAAP).  

 

Management's Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework Company to confirm what framework was used in connection with its evaluation of internal controls over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that

 

a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
b) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of the our management and directors; and
c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. 

 

Based on our evaluation under the framework described above, our management concluded that our internal controls over financial reporting are not effective in accordance with Item 308(a)(3) of Regulation S-K and we had “material weaknesses” (as such term is defined below) in our control environment and financial reporting process consisting of the following as of the Evaluation Date:

 

  1)   inadequate segregation of duties consistent with control objectives;
  2)   ineffective controls over period end financial disclosure and reporting processes; and
  3) lack of accounting personnel with adequate experience and training.

        

A “material weakness” is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.

 

25
 

 

As of the date of this Annual Report, the Company does not intend to remedy the foregoing and therefore such material weaknesses in our control environment and financial reporting process will continue. A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 

Attestation report of the registered public accounting firm

 

This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only management’s report on internal control in this Annual Report.

 

Changes in Internal Control over Financial Reporting

 

No change in our system of internal control over financial reporting occurred during the fourth quarter of the fiscal year ended May 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

  

  ITEM 9B. OTHER INFORMATION.

 

None.

 

PART III

 

  ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

The name, address, age and position of our officers and directors are set forth below.

 

Name and Address   Age   Positions
Brendan Flood    50   Executive Chairman and Director
Matthew Briand   41   Chief Executive Officer and Director
Alfonso J. Cervantes   64   Vice Chairman, President, Secretary and Director
Jeff R. Mitchell   48   Chief Financial Officer and Executive Vice President
Dimitri Villard   71   Director
Robert O. Mayer   49   Director
Jeff Grout   61   Director
Nicholas Florio   51   Director

   

Brendan Flood, Executive Chairman and Director . Mr. Flood has been the Executive Chairman and a director of the Company since January 7, 2014. Mr. Flood joined the company upon the sale of his business, Initio International Holdings Limited, to the company on January 3, 2014. He acquired Initio as part of a management buy-out, which he led, in January 2010. Prior to Initio Mr. Flood worked in several staffing companies including Hudson Global Resources Inc. which he brought to the Nasdaq National Market in 2006 as a spin-off from Monsterworldwide Inc. His experience while at Monsterworldwide included many M&A transactions, operational management in both London and New York, and various senior financial roles. Mr. Flood graduated from Dublin City University in Ireland with a Bachelor of Arts Degree in Accounting and Finance. Mr. Flood's strong financial background and years of experience at major staffing firms like Mosterworldwide and Hudson Global Resources qualifies him to be the Executive Chairman and a director given the Company’s core business in the staffing industry.

 

Matthew Briand, Chief Executive Officer and Director . Mr. Briand has been the Chief Executive Officer and a director of the Company since January 7, 2014. Mr. Briand joined the company as part of the sale of Initio International Holdings Limited to the company. Within Initio Mr. Briand was the CEO of Monroe Staffing Services LLC which was the material part of the Initio business. He has been in the staffing industry for 15 years and was appointed as the CEO of Monroe in January 2009. Between 2009 and 2013 he led an organic build of Monroe of approximately 200%. Mr. Briand is a graduate of Plymouth State University in Maine. Mr. Briand's 17 years of extensive staffing industry experience and leadership as CEO of Monroe Staffing Services, the Company’s largest subsidiary, qualifies him to be the Chief Executive Officer and a director given the Company’s staffing industry focus.

 

Alfonso J. Cervantes, Vice Chairman, President and Director . Mr. Cervantes has been President and director since February 2012. Mr. Cervantes became the Company’s Vice Chairman on January 1, 2014. Since 2002, Mr. Cervantes has been a principal and Chief Executive Officer of Trilogy Capital Partners, Inc., a New York-based financial services group engaged in merchant banking, strategic advisory services and financial communications. His experience includes mergers and acquisitions, Alternative Public Offerings, corporate communications and reorganization of middle-market companies. In 2011, Mr. Cervantes formed TRIG Capital Group, LLC, of which he is the Managing Member. TRIG Capital Group is a private equity firm with offices in New York focused on middle market companies. Mr. Cervantes was the founder and a Member of Regeneration Capital Group, LLC from 2008 to 2011. Regeneration Capital, based in New York, is engaged in merchant banking activities, principally for U.S. listed Chinese companies. Mr. Cervantes sold his interest in Regeneration in 2011. In 2011, Mr. Cervantes formed and is the Managing Member of China 360 Solutions, LLC, which was engaged in the provision of forensic due diligence and financial advisory services for publicly held Chinese companies and is no longer active. Throughout the 1990s, Mr. Cervantes was engaged in the reorganization and recapitalization of distressed middle market companies serving as interim CEO for a number of public and private entities facilitating Chapter 11’s, Chapter 7’s and out-of-court reorganizations. Mr. Cervantes graduated from Webster University in St. Louis with a Bachelor of Arts degree. Mr. Cervantes' extensive experience in the public markets through more than 30 years of M&A, advisory, financial and consulting for public companies, qualifies him to be the Vice Chairman, and a director.

 

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Jeff R. Mitchell, Chief Financial Officer . Mr. Mitchell has been serving as the Chief Financial Officer and Executive Vice President since March 2014. Mr. Mitchell has over 25 years of finance and accounting experience at both private and public companies, with a high degree of knowledge and M&A expertise in the staffing industry. Prior to joining our Company, Mr. Mitchell was CFO of two publicly traded companies, AWG International Water Corporation (OTC: AWGI) from 2012 to 2014, and Command Center, Inc. (OTC: CCNI) from 2010 to 2012. Mr. Mitchell also served as the CFO of Select Staffing from 2005 to 2010, during which time Select Staffing consummated over 40 acquisitions in the staffing industry as part of its M&A strategy, which contributed $1.3 billion in revenue. He also coordinated the business plan and credit agreements at Select Staffing to re-capitalize numerous times through traditional debt with various marquee investment banks including Goldman Sachs, BNP Paribas and Bank of the West. Mr. Mitchell had prior experience at Rio Tinto PLC & Kennecott Exploration Company, where he served as a Director of Financial Services (North America) and Controller (North & South America) from 1998 to 2003. In his earlier career, he gained substantive audit experience while servicing the clients of Price Waterhouse (now PricewaterhouseCoopers) in Salt Lake City. Mr. Mitchell holds a BS degree in Accounting from the University of Utah.

 

Robert O. Mayer, Director . Mr. Mayer has been a director of the Company since June 1, 2013. Mr. Mayer has spent the last five years as the Founder and Investment and Trading Manager of a privately held Equity/Options Fund. He manages and holds responsibility for all trading and administration of this fund. His investment career began as a full Trading Member of the Chicago Mercantile Exchange and a CFTC fully licensed trader in the 1980’s and he has had continued significant personal involvement in the Equity, Options and Futures markets for over 3 decades. Mr. Mayer, a direct 4 th generation descendant of Oscar F. Mayer, is a member of and a periodic Board Member of the Oscar G. and Elsa S. Mayer Family Foundation and supports numerous charitable organizations in the San Diego, California area. Mr. Mayer was an Economics major at Duke University. Mr. Mayer serves on the Company’s Audit Committee and Compensation Committee. Mr. Mayer’s extensive trading and capital market experience make him a valuable voice on the board given the Company’s high growth trajectory and aggressive acquisition model.

 

Dimitri Villard , Director .   Dimitri Villard has been a director of the Company since July 2012. Mr. Villard was Chairman and Chief Executive Officer of Peer Media Technologies, Inc., a public company Internet technology business, from February 2009 to December 2012. Peer Media Technologies, Inc. changed its name from ARTISTdirect, Inc. in May 2010. Prior to that, Mr. Villard served as Interim Chief Executive officer since March 6, 2008 and as a director since January 2005. Mr. Villard has also served as President and a director of Pivotal BioSciences, Inc., a biotechnology company, since September 1998. In addition, since January 1982 to present, he has served as President and director of Byzantine Productions, Inc. Previously, Mr. Villard was a director at the investment banking firm of SG Cowen and affiliated entities, a position he held from January 1997 to July 1999. From 2004 to 2008 Mr. Villard served as Chairman of the Board of Dax Solutions, Inc., an entertainment industry digital asset management venture, and from July 2012 until September 2013 was a member of the Board of Directors of The Grilled Cheese Truck Company, a public company. He is also a member of the Executive Committee of the Los Angeles chapter of the Tech Coast Angels, a private venture capital group. Mr. Villard received a B.A. from Harvard University and a Master of Science degree from China International Medical University. He is the Chairman of the Company’s Nominations and Corporate Governance Committee and also serves on the Compensation Committee and the Audit Committee. Mr. Villard's experience as an officer and/or director of several public companies, as well as an investment banker, qualifies him to be a director of the Company.

 

Jeff Grout, Director . Jeff Grout has been a director of the Company since February 2014. He is a successful business speaker, consultant and coach. His clients include Amazon, Deloitte, LinkedIn, British Airways, Barclays, Ernst & Young, Virgin, etc. Listed in the '100 Best Business Speakers in Britain', Jeff Grout is in considerable demand as a motivational business speaker, conference chairman and interviewer. Formerly U.K. Managing Director of Robert Half International, a leading international recruitment consultancy, and Business Manager to Sir Clive Woodward, Head Coach of the England Rugby Team. Mr. Grout is now an independent business consultant specializing in leadership, people management, team building, peak performance, recruitment and retention issues. He has spoken at Henley Business School, Ashridge Management College, Cardiff Business School and the Danish Centre for Leadership. He holds a number of corporate advisory and executive coaching appointments and is also a successful business author. Jeff has written books on leadership, recruitment, career success, the psychology of peak performance and his father's first murder case. His eighth book entitled 'What You Need to Know about Leadership' was published in May 2011. Mr. Grout holds a Bachelor of Science (Economics) Degree from the London School of Economics and Political Science. Mr. Grout brings valuable Operational experience within the Staffing industry having grown the UK business of Robert Half International from $1 million to $100 million in sales and from 12 to 365 employees. He also identified and integrated a number of acquisitions of staffing businesses in the UK and continental Europe. He is the Chairman of the Company’s Compensation Committee and also serves on the Nominating and Corporate Governance Committee. Mr. Grout's extensive staffing industry experience, including his role as former Managing Director of Robert Half International, qualifies him to be a director of the Company.

 

Nicholas Florio, Director . Nicholas Florio has been a director of the Company since May 2014. Mr. Florio provides business consulting and financial advice to a variety of closely held private businesses. He is an audit and accounting partner for Citrin Cooperman & Company, LLP and is located in the firm’s New York City office. Mr. Florio has been with Citrin Cooperman & Company, LLP for over 23 years. With over twenty five years of experience in the staffing and employment arena, Mr. Florio serves as the Practice Leader of the firm's Employment and Staffing area. Mr. Florio's experience in this area includes providing advice on corporate structuring; design of stock incentive and deferred compensation plans; merger and acquisition due diligence and consulting; among general business and tax advice. He is also a current Board member of both NYSA and NJSA and has been the President of the Industry Partner Group of NYSA for over 15 years. Mr. Florio is also a long-standing member of the Citrin Cooperman’s Executive Committee. A graduate of Pace University, Mr. Florio is a member of the New York State Society of Certified Public Accountants (NYSSCPA) as well as the AICPA. He is the Chairman of the Company’s Audit Committee and also serves on the Nominating and Corporate Governance Committee. Mr. Florio's acute knowledge of financial and accounting matters, with a particular emphasis in the staffing industry through his role as audit and accounting partner for Citrin Cooperman, qualifies him to be a director of the Company.

  

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Director Independence

 

Our board of directors has reviewed the materiality of any relationship that each of our directors has with us, either directly or indirectly. Based on this review, the board has determined that the following directors are “independent directors” as defined by The NASDAQ Stock Market, Inc. (“NASDAQ”) and SEC rules: Dimitri Villard, Robert Mayer, Jeff Grout and Nicholas Florio.

 

Meetings of the Board of Directors

 

For the fiscal year ended May 31, 2014, the board of directors met five times, twice in person. Each director attended at least 100% of the total number of meetings of the board of directors. Directors are encouraged, but are not required, to attend our annual meeting of stockholders.

 

Committees of the Board of Directors

 

Our board of directors currently has three standing committees: Audit Committee, Nominating and Corporate Governance Committee, and a Compensation Committee, each of which is described below. All standing committees operate under a charter that has been approved by the Board. Copies of the charters of the Audit Committee, Compensation Committee and the Nominating and Governance Committee can be found on our Internet site  www.staffing360solutions.com .

 

Audit Committee.  On April 30, 2014, the registrant designated an Audit Committee in accordance with section 3(a)(58)(A) of the Exchange Act. Our Audit Committee is composed of Messrs. Nicholas Florio (Chairman), Robert O. Mayer and Dimitri Villard. All members of our audit committee are independent as defined in the rules and regulations of the SEC and NASDAQ with Mr. Nicholas Florio serving as the appointed and qualified financial expert (see credentials listed above). The Audit Committee met one time during the fiscal year ended May 31, 2014. The purpose of the Audit Committee is to assist the Board in its oversight of: (1) the integrity of the Company’s financial reporting and systems of internal accounting control, (2) the independence, qualifications and performance of the Company’s independent registered public accounting firm, and (3) the Company’s compliance with legal and regulatory requirements.

 

Our Audit Committee’s primary responsibilities and obligations are to:

 

· Pre-approve all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditor and establish policies and procedures for the engagement of the independent auditor to provide auditing and permitted non-audit services.

 

· Review the annual audited financial statements with management and the independent auditor, including the Company’s disclosures under Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

· Appoint, compensate, retain and oversee the work of the independent auditor.

 

· Review and discuss with management and the independent auditor the Company’s quarterly financial statements prior to filing the Form 10-Q, including the results of the independent auditor’s review of them and the Company’s disclosures under Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

· Review and discuss with management the Company’s quarterly earnings announcements and other public announcements regarding the Company’s results of operations.

 

· Prepare any report required to be prepared by it for inclusion in the Company’s proxy statement under SEC rules and regulations.

 

· Review and approve all related party transactions.

 

· Review major changes to the Company’s accounting and auditing principles and practices as suggested by management or the independent auditor.

 

· Obtain and review, at least annually, a report by the independent auditor describing the independent auditor’s internal quality-control procedures.

 

Compensation Committee . On April 30, 2014, the Company designated a Compensation Committee. Our Compensation Committee is composed of Messrs. Jeff Grout (Chairman), Dimitri Villard and Robert O. Mayer. Pursuant to its charter, the Compensation Committee shall be comprised of at least two “independent” members of the board of directors who shall also satisfy such other criteria imposed on members of the Compensation Committee pursuant to the federal securities laws and the rules and regulations of the SEC and NASDAQ. With regards to the Compensation Committee, the term “independent” refers to a member of the Compensation Committee who (i) meets the definition of “independence” under the rules and regulations of the SEC and NASDAQ, (ii) is a “non-employee director” within the meaning of Rule 16b-3 of the Exchange Act and (iii) is an “outside director” under the regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended. The Compensation Committee met one time during fiscal year ended May 31, 2014.

 

28
 

  

Our Compensation Committee’s primary responsibilities and obligations are to:

 

· Determine, in executive session, the compensation for the Company’s Executive Chairman and Chief Executive Officer (“CEO”).

 

· Review and determine the compensation of the executive officers of the Company other than the Executive Chairman and CEO based upon the recommendation of the Executive Chairman and CEO and such other customary factors that the Committee deems necessary or appropriate.

 

· Recommend awards and/or bonuses to be granted to executive officers of the Company under the Company’s equity plans and other compensation or benefit plans or policies as approved by the Board or the committee.

 

· Approve the overall amount or percentage of plan and/or bonus awards to be granted to all Company employees and delegate to the Company’s executive management the right and power to specifically grant such awards to each Company employee within the aggregate limits and parameters set by the committee.

 

· Review and evaluate the performance of the Executive Chairman and CEO and the other executive officers of the Company.

 

· Review and approve the design of other benefit plans pertaining to executives and employees of the Company.

 

· Approve such reports on compensation as are necessary for filing with the SEC and other government bodies.

 

Nominating and Corporate Governance Committee.  The Nominating and Corporate Governance Committee was formed on April 30, 2014. The committee is composed of Messrs. Dimitri Villard (Chairman), Nicholas Florio and Jeff Grout. The committee shall be comprised of at least two “independent” members of the board of directors as defined by the rules and regulations of the SEC and NASDAQ. All current members of the Nominating and Corporate Governance Committee are independent within this definition. The Nominating and Corporate Governance Committee is charged with the responsibility of reviewing our corporate governance policies and with proposing potential director nominees to the board of directors for consideration. The Nominating and Corporate Governance Committee did not meet during fiscal year ended May 31, 2014. The Nominating and Corporate Governance Committee will consider director nominees recommended by security holders. To recommend a nominee please write to the Nominating and Corporate Governance Committee c/o Nicholas Florio, Staffing 360 Solutions, Inc., 641 Lexington Avenue, Suite 1526, New York, New York 10022.

 

Our Nominating and Governance Committee’s primary responsibilities and obligations are to:

 

· Recommend to the Board candidates for election or reelection to the Board at each annual meeting of stockholders of the Company or any other meeting of Company stockholders where the election of a class of directors is to be considered.

 

· Consider stockholders’ nominees in accordance with applicable rules and regulations and develop procedures regarding the nomination process as required by the federal securities laws and the rules and regulations of the SEC and NASDAQ.

 

· Make recommendations to the Board concerning the selection criteria to be used by the Committee in seeking nominees for election to the Board.

 

· Aid in attracting qualified candidates to serve on the Board and interview and otherwise assist in the screening of such candidates

 

· Evaluate and make recommendations to the Board concerning the structure, composition and functioning of the Board and all Board committees.

 

· Develop and recommend to the Board from time to time corporate governance guidelines applicable to the Company. The Committee shall, from time to time as it deems appropriate, review and reassess the adequacy of such guidelines and recommend and propose changes to the Board for approval.

 

· Review any issues relating to conflicts of interests and (in conjunction with the Audit Committee of the Board as necessary or appropriate) all related party transactions in accordance with SEC and NASDAQ requirements, and report the same to the Board.

 

· Review and recommend changes to Board meeting procedures.

 

· Monitor any requests made by the directors to engage outside advisors with respect to corporate governance issues, at the Company’s expense.

 

Compliance with Section 16 (a) of the Exchange Act

 

Based solely upon a review of the Forms 3, 4 and 5 and amendments thereto furnished to the Company during its most recent fiscal year, the following directors, officers and persons beneficially owning greater than 10% of the Company’s equity securities failed to file on a timely basis, as disclosed in the above Forms, reports required by section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years:

 

29
 

  

Allan Hartley, Alfonso J. Cervantes and Robert Mayer failed to file a Form 3 on a timely basis.  Additionally, Dimitri Villard, Robert Mayer, Jeff Grout and Nicholas Florio failed to file a Form 4 upon the issuance of shares relating to their positions as independent directors.  Lastly, Brendan Flood, Matthew Briand, Jeff Mitchell and Alfonso J. Cervantes failed to file a From 4 upon the issuance of stock options.

 

Code of Ethics

 

We adopted a code of ethics that applies to our executive officers, directors and employees and, our subsidiaries. We posted our code of ethics on our web site at www.staffing360solutions.com and will disclose any amendments to or any waivers from a provision of the code of ethics in a Current Report on Form 8-K.

 

  ITEM 11. EXECUTIVE COMPENSATION

 

Compensation of Executive Officers

 

The following table sets forth the compensation paid to our named executive officers at the end of the fiscal years ended May 31, 2013 and May 31, 2014. Individuals we refer to as our “named executive officers” include our Chief Executive Officer and our most highly compensated executive officers whose salary and bonus for services rendered in all capacities exceeded $100,000 during the fiscal year ended May 31, 2014. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any.

 

Summary Compensation Table

 

Name and
Principal
Position
  Year     Salary
($)
    Bonus
($)
    Stock
Awards
($)
    Option
Awards
($)
    Non-Equity 
Incentive
Plan
Compensation
($)
    Nonqualified 
Deferred
Compensation
Earnings
($)
    All 
Other 
Compensation
($)
    Total
($)
 
Brendan Flood     2013       0       0       0       0       0       0       0       0  
                                                                         
Executive Chairman (1)     2014       133,936       66,968       0       13,639       0       0       0       214,543  
                                                                         
Matthew Briand     2013       0       0       0       0       0       0       0       0  
                                                                         
Chief Executive Officer (2)     2014       141,923       36,500       0       13,639       0       0       7,551       199,613  
                                                                         
Jeff Mitchell     2013       0       0       0       0       0       0       0       0  
                                                                         
Chief Financial Officer (3)     2014       52,083       36,458       78,000       16,987       0       0       0       183,528  
                                                                         
Allan Hartley     2013       97,500       0       140,587       0       0       0       0       238,087  
                                                                         
Chief Executive Officer (4)     2014       151,250       25,000       0       40,188       0       0       25,000       241,438  
                                                                         
Alfonso J. Cervantes     2013       134,500       0       0       0       0       0       0       134,500  
                                                                         
President and Director (5)     2014       284,667       100,000       0       100,470       0       0       4,888       490,025  
                                                                         
Peter Goldstein     2013       110,750       0       0       0       0       0       0       110,750  
                                                                         
Treasurer, Principal Financial Officer and Chairman of the Board (6)     2014       165,000       0       0       0       0       0       0       165,000  

 

30
 

  

  1) Pursuant to the terms of the Flood Employment Agreement (described below) and beginning on January 3, 2014, the Company entered into an employment agreement with Brendan Flood. Mr. Flood will be paid a salary of £192,000 (approximately $315,000) per annum, less statutory deductions, plus other benefits including reimbursement for reasonable expenses, paid vacation and insurance coverage, for his roles with both Staffing Solutions and Staffing UK. Mr. Flood’s salary will be adjusted (but not decreased) annually based upon the Consumer Price Index in UK for All Urban Consumers. Pursuant to the Flood Employment agreement, Mr. Flood was paid $133,936. The Company also recorded a bonus totaling $66,698, which has not been paid to date. In addition to Mr. Flood’s salary and pursuant to the Company’s 2014 Equity Plan, the Company granted Mr. Flood 330,000 options. 20% of the options granted vest on an annual basis . T he options are exercisable for a term of 5 years. For the year ended May 31, 2014, 66,000 options vested for a total value of $13,639.

 

  2) Pursuant to the terms of the Briand Employment Agreement (described below) and beginning on January 3, 2014, the Company entered into an employment agreement with Matt Briand. Mr. Briand will be paid a salary of $300,000 per annum, less statutory deductions, plus other benefits including reimbursement for reasonable expenses, paid vacation and insurance coverage, for his roles with both Staffing Solutions and Monroe, a division of Staffing UK. Pursuant to the Briand Employment agreement, Mr. Briand was paid $141,923. The Company also paid Mr. Briand $7,551 as a car allowance. In addition to Mr. Briand’s salary and pursuant to the Company’s 2014 Equity Plan, the Company granted Mr. Briand 330,000 options. 20% of the options granted vest on an annual basis . T he options are exercisable for a term of 5 years. For the year ended May 31, 2014, 66,000 options vested for a total value of $13,639.

 

  3) Pursuant to the terms of the Mitchell Employment Agreement (described below) and beginning on March 17, 2014, the Company began paying Mr. Mitchell a salary of $250,000 annually. The Company also recorded a bonus totaling $36,458, which has not been paid to date. In addition, Mr. Mitchell received 50,000 shares of restricted common stock valued at $1.56 per share for a total value of $78,000. Pursuant to the Company’s 2014 Equity Plan, the Company granted Mr. Mitchell 150,000 options. 20% of the options granted vest on an annual basis . T he options are exercisable for a term of 5 years. For the year ended May 31, 2014, 30,000 options vested for a total value of $16,987.

  

  4) Pursuant to his Employment Agreement (described below), Mr. Hartley was paid $7,500 per month until the Company completed the TRG Acquisition at which time he began receiving an annual salary of $180,000. On April 26, 2013, following the TRG Acquisition, forty percent of the CEO Shares (as defined below) vested and Mr. Hartley was issued 152,400 shares, valued at $140,587. In December 2013, the Company amended the Hartley Employment Agreement which went effective on January 1, 2014. Pursuant to the amended Hartley Employment Agreement, Mr. Hartley was to serve as Co-Chief Executive Officer of the Company. Mr. Hartley was to be paid a salary of $250,000 per annum. Pursuant to the Amended Employment Agreement, and upon the closing of the Initio acquisition, Mr. Hartley received a one-time issuance of non-qualified stock options to purchase up to 250,000 shares of the Company’s common stock, with an exercise price of $2.00 per share, exercisable for a period of five (5) years. In addition Mr. Hartley received a one-time bonus of $25,000. On February 26, 2014, Allan Hartley submitted his resignation to the Company whereby he resigned from his positions as Co-Chief Executive Officer and as a director of the Company, effective immediately. Mr. Hartley received $25,000 as a settlement amount upon his resignation.

 

  5) Pursuant to the terms of the Cervantes Employment Agreement (described below) and beginning on February 15, 2013, the Company began paying Mr. Cervantes a salary of $120,000 annually. In addition, on February 15, 2013, the Company entered into an agreement with Trilogy. Pursuant to the agreement, the Company will pay Trilogy $5,000 per month for a period of 18 months. Mr. Cervantes is the majority owner of Trilogy. Mr. Cervantes was paid $15,000 pursuant to this agreement. Prior to February 15, 2013 but for the year ended May 31, 2013, Mr. Cervantes received additional compensation from the Company in the amount of $94,500 for services rendered as President. This compensation was not pursuant to any agreement between Mr. Cervantes and the Company. In December 2013, the Company amended the Cervantes Employment Agreement which went effective on January 1, 2014. Pursuant to the Amended Employment Agreement, and upon the closing of the Initio acquisition, Mr. Cervantes received a one-time issuance of non-qualified stock options to purchase up to 500,000 shares of the Company’s common stock, with an exercise price of $2.00 per share, exercisable for a period of five (5) years. In addition Mr. Cervantes received a one-time bonus of $100,000. Mr. Cervantes also received $4,888 for reimbursements related to out of pocket medical expenses.

 

  6) In fiscal 2013, Mr. Goldstein was paid $88,750 and is owed $25,000 in relation to that certain advisory agreement by and between the Company and Grandview Capital Partners, Inc. Mr. Goldstein is the majority shareholder of Grandview Capital Partners, Inc. Mr. Goldstein did not receive any compensation as Chairman, Secretary, Treasurer and Principal Financial Officer. In fiscal 2014, Mr. Goldstein was paid $115,000 and is owed $50,000 in relation to that certain advisory agreement by and between the Company and Grandview Capital Partners, Inc. Mr. Goldstein resigned from the Board and all officer positions as of January 3, 2014.

 

Employment Agreements

   

On February 15, 2013, the Company entered into an advisory agreement (the “Grandview Advisory Agreement”) with Grandview Capital Partners, Inc. (“Grandview”) pursuant to which Grandview will provide the Company primarily with assistance and advice in seeking out a potential merger or acquisition partner or target.

 

The Grandview Advisory Agreement requires that the Company pay Grandview $10,000 per month for a period of 18 months, increasing to $15,000 per month following the completion of the first acquisition of a temporary staffing company by the Company and contemporaneous financing. The Company will further compensate Grandview as its exclusive buy side advisor to locate and facilitate qualified businesses or companies that may desire to have the Company provide financing to, (debt or equity) or acquire the stock or assets of, such business. Grandview will receive a fee between one percent (1%) and ten percent (10%) of the total transaction, depending on the transaction value, as set forth more particularly in the Grandview Advisory Agreement.

 

31
 

  

Peter Goldstein, the former Chairman of the board of directors, principal financial officer, treasurer and director of the Company, is the founder, chairman, chief executive officer and registered principal of Grandview Capital Partners, Inc.

 

On January 3, 2014, the Company and Grandview entered into an amendment to the Grandview Advisory Agreement. Pursuant to the terms of the amendment, Grandview’s compensation was reduced back to $10,000 per month effective immediately. Additionally, as a result of the amendment, the Grandview Advisory Agreement will terminate on September 30, 2014.

 

On February 15, 2013, the Company approved an employment agreement with Alfonso J. Cervantes, the President, Treasurer, Secretary and Director of the Company (the “Cervantes Employment Agreement”). In addition, the parties agreed that Mr. Cervantes shall not engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, or any business which the Company contemplates conducting or intends to conducts. Pursuant to the terms of the Cervantes Employment Agreement, the Company will pay Mr. Cervantes $120,000 annually. In addition, Mr. Cervantes will receive reimbursement for all reasonable expenses which he incurs during the course of performance under the Cervantes Employment Agreement. Mr. Cervantes can terminate the Employment Agreement after four months with 30 days’ notice. The Company can terminate the Cervantes Employment Agreement upon notice to Mr. Cervantes. On January 3, 2014, the parties entered into an amendment to the Cervantes Employment Agreement (the “Amended Cervantes Employment Agreement”). The Amended Cervantes Employment Agreement, which was executed on December 31, 2013, amends the Cervantes Employment Agreement by (i) extending the term of Mr. Cervantes’ employment through December 31, 2016, (ii) increasing Mr. Cervantes’ salary to $250,000 per annum and (iii) providing for certain performance bonuses relating to certain milestones of the Company. In addition, Mr. Cervantes has been appointed Vice Chairman of the Board.

 

On February 24, 2013, the Company entered into an employment agreement with Darren Minton (the “Minton Employment Agreement”), to serve as a Senior Vice President of the Company.  In addition, the parties agreed that Mr. Minton shall not engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, or any business which the Company contemplates conducting or intends to conduct. Pursuant to the terms of the Minton Employment Agreement, the Company will pay Mr. Minton $48,000 annually. Mr. Minton is also entitled to receive as additional compensation 20,000 shares of the Company’s Common Stock. In addition, Mr. Minton will receive reimbursement for all reasonable expenses which Mr. Minton incurs during the course of performance under the Minton Employment Agreement. Mr. Minton can terminate the Employment Agreement after four (4) months with 30-days’ notice. The Company can terminate the Minton Employment Agreement upon notice to Mr. Minton. On February 24, 2014, the Company entered into a new employment agreement with Mr. Minton to serve as Executive Vice President of the Company. Pursuant to the terms of the Minton Employment Agreement, the Company agreed to pay Mr. Minton $180,000 annually. Mr. Minton is also entitled to receive as additional compensation 20,000 shares of the Company’s Common Stock. The employment agreement has a term of eighteen months. In addition, the Company can terminate the Employment Agreement after four (4) months with 30-days’ notice.

 

In connection with the TRG Purchase Agreement, dated March 21, 2013, the Company entered into an employment agreement which is conditional upon closing (the “Aiello Employment Agreement”) with Mark P. Aiello to serve as Senior Vice-President of the Company and as President of TRG and Cyber 360, the Company’s Cyber Security Division for a four year term. The parties agree that for the term of the Aiello Employment Agreement and for twelve months following the termination of Mr. Aiello’s employment with the company, Mr. Aiello shall not engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, or any business which the Company contemplates conducting or intends to conduct. On March 21, 2013, the Company entered into a four year employment agreement (the “Aiello Employment Agreement”) with Mark P. Aiello, to serve as a senior vice president of the Company and as president of Cyber 360 Solutions, the Company’s cyber security division.  In addition, the parties agreed that Mr. Aiello shall not engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, or any business which the Company contemplates conducting or intends to conduct. Pursuant to the terms of the Aiello Employment Agreement, the Company will pay Mr. Aiello $150,000 annually. Mr. Aiello is also entitled to an annual base commission equal to 3% of the gross profit of Cyber 360 Solutions. In addition, Mr. Aiello will receive reimbursement for all reasonable expenses which Mr. Aiello incurs during the course of performance under the Aiello Employment Agreement. Mr. Aiello or the Company can terminate the Aiello Employment Agreement one hundred eighty days prior to the end of the term of the agreement otherwise the agreement will automatically extend for one additional year.

 

32
 

  

On November 4, 2013, the Company entered into a four year employment agreement (the “Dealy Employment Agreement”) with Simon Dealy, to serve as Senior Vice President of the Company and as Chief Executive Officer of CSI, the Company’s professional services and consulting division.  Pursuant to the terms of the Dealy Employment Agreement, the parties agreed that Mr. Dealy will not engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, or any business which the Company contemplates conducting or intends to conduct. Mr. Dealy will receive a salary of $200,000 annually, plus reasonable expenses. Mr. Dealy is also entitled to an annual base commission equal to 2% of the gross profit of professional services and consulting division. In addition, Mr. Dealy will receive an additional monthly commission, not to exceed 1.75%, if the CSI gross profit exceeds $2,200,000. The Dealy Employment Agreement will automatically renew for successive one year terms following the completion of the initial four year term of the agreement unless terminated by the Company or Mr. Dealy ninety days prior to the end of such term.

 

On November 4, 2013, the Company entered into a four year employment agreement (the “Gesualdi Employment Agreement”) with Margaret Gesualdi to serve as Vice President of the Company and as Mid-Atlantic Region Managing Partner of CSI, the Company’s professional services and consulting division.  Pursuant to the Gesualdi Employment Agreement, the parties agreed that Ms. Gesualdi will not engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, or any business which the Company contemplates conducting or intends to conduct. Ms. Gesualdi will receive a salary of $190,000 annually, plus reasonable expenses. Ms. Gesualdi is also entitled to an annual base commission equal to 2% of the “employee attributable gross profit” of the professional services and consulting division. For purposes of the Gesualdi Employment Agreement, “employee attributable gross profit” means the total revenue recognized by CSI or attributable to any “employee managed” assets during the fiscal year less all direct expenses incurred or attributable to the “employee managed assets” during the fiscal year. “Employee managed assets” means any assets acquired by the Company after the effective date of the Gesualdi Employment Agreement that are managed by Ms. Gesualdi. In addition, Ms. Gesualdi will receive an additional monthly commission, not to exceed 1.75%, if the employee attributable gross profit exceeds $750,000. The Gesualdi Employment Agreement will automatically renew for successive one year terms following the completion of the initial four year term of the agreement unless terminated by the Company or Ms. Gesualdi ninety days prior to the end of such term.

 

On November 4, 2013, the Company entered into a four year employment agreement (the “Cooper Employment Agreement”) with Charlie Cooper, to serve as Vice President of the Company and as Chief Operating Officer of CSI, the Company’s professional services and consulting division.  Pursuant to the Cooper Employment Agreement, the parties agreed that Mr. Cooper will not engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, or any business which the Company contemplates conducting or intends to conduct. Mr. Cooper will receive a salary of $200,000 annually, plus reasonable expenses. Mr. Cooper is also entitled to an annual base commission equal to 2% of the gross profit of professional services and consulting division. In addition, Mr. Cooper will receive an additional monthly commission, not to exceed 1.75%, if the CSI gross profit exceeds $2,200,000. The Cooper Employment Agreement will automatically renew for successive one year terms following the completion of the initial four year term of the agreement unless terminated by the Company or Mr. Cooper ninety days prior to the end of such term.

 

On January 3, 2014, the Company entered into an employment agreement with Brendan Flood (the “Flood Employment Agreement”). Pursuant to the Flood Employment Agreement, Mr. Flood will serve as Executive Chairman of the board of directors of the Company (as well as Chief Executive Officer of Staffing 360 Solutions Limited). Mr. Flood will be paid a salary of £192,000 per annum, less statutory deductions, plus other benefits including reimbursement for reasonable expenses, paid vacation and insurance coverage, for his roles with both the Company and Staffing 360 Solutions Limited. Mr. Flood’s salary will be adjusted (but not decreased) annually based upon the Consumer Price Index in UK for All Urban Consumers. Mr. Flood will also be entitled to an annual bonus of up to 50% of his annual base salary based on the Company and the Subsidiaries reaching certain financial milestones. The Flood Employment Agreement has a term of five years and will automatically renew thereafter unless 12 months written notice is provided by either party. Mr. Flood’s salary and bonus will be paid by Initio.

 

On January 3, 2014, Mr. Briand entered into an employment agreement with the Company (the “Briand Employment Agreement”). Pursuant to the Briand Employment Agreement, Mr. Briand will serve as Chief Executive Officer of the Company (as well as Chief Executive Officer of Monroe). Mr. Briand will be paid a salary of $300,000 per annum, plus other benefits including reimbursement for reasonable expenses, paid vacation and insurance coverage, for his roles with both the Company and Monroe. Mr. Briand will also be entitled to an annual bonus of up to 50% of his annual base salary based on the Company and the Subsidiaries reaching certain financial milestones. The Briand Employment Agreement has a term of five years and will automatically renew thereafter unless 12 months written notice is provided by either party. Mr. Briand’s salary and bonus will be paid by Monroe.

 

33
 

 

On February 24, 2013, the Company entered into an employment agreement with Darren Minton (the “Minton Employment Agreement”), to serve as a Senior Vice President of the Company. In addition, the parties agreed that Mr. Minton shall not engage or participate in any business that is in competition in any manner whatsoever with the business of the Company, or any business which the Company contemplates conducting or intends to conduct. Pursuant to the terms of the Minton Employment Agreement, the Company will pay Mr. Minton $48,000 annually. Mr. Minton is also entitled to receive as additional compensation 20,000 shares of the Company’s Common Stock. In addition, Mr. Minton will receive reimbursement for all reasonable expenses which Mr. Minton incurs during the course of performance under the Minton Employment Agreement. Mr. Minton can terminate the Employment Agreement after four (4) months with 30-days’ notice. The Company can terminate the Minton Employment Agreement upon notice to Mr. Minton. On February 24, 2014, the Company entered into a new employment agreement with Mr. Minton to serve as Executive Vice President of the Company. Pursuant to the terms of the Minton Employment Agreement, the Company agreed to pay Mr. Minton $180,000 annually. Mr. Minton is also entitled to receive as additional compensation 20,000 shares of the Company’s Common Stock. The employment agreement has a term of eighteen months. In addition, the Company can terminate the Employment Agreement after four (4) months with 30-days’ notice.

 

On February 17, 2014, the Company and Wade Pearson entered into an employment agreement (the “Pearson Employment Agreement”). Pursuant to the Pearson Employment Agreement, Mr. Pearson will serve as the Senior Vice President of Finance of the Company. The Company shall pay Mr. Pearson an annual salary of $180,000. In addition, Mr. Pearson will be entitled to a 50% bonus at calendar year end based on certain performance milestones as mutually agreed. The Company will be required to provide a 90 day notice in the event of termination.

 

On February 11, 2014, the Company and Nicholas Koutsivitis entered into an employment agreement (the “Koutsivitis Employment Agreement”). Pursuant to the Koutsivitis Employment Agreement, Mr. Koutsivitis shall serve as Controller and Vice President. The Company shall pay Mr. Koutsivitis an annual salary of $120,000. In addition, Mr. Koutsivitis will be entitled to a 25% bonus at calendar year end based on certain performance milestones as mutually agreed. The Company will be required to provide a 90 day notice in the event of termination.

 

In connection with Jeff Mitchell’s appointment as Chief Financial Officer, the Company and Mr. Mitchell entered into a Letter of Employment, dated March 7, 2014, with a commencement date of March 17, 2014 and effective on March 17, 2014 upon Board approval (the “Letter of Employment”), which detailed the proposed terms of employment with the Company, including Mr. Mitchell’s roles with the Company, compensation, reimbursable expenses, benefits and termination provisions. Under the Letter of Employment, Mr. Mitchell will receive an annual base salary of $250,000. Mr. Mitchell will also receive a grant of 125,000 restricted shares of the Company’s common stock, par value $.00001, issuable as follows: (i) 50,000 shares on March 17, 2014, and (ii) 25,000 shares on each one year anniversary of Mr. Mitchell’s employment. In addition, Mr. Mitchell will be entitled to 150,000 stock options to be issued under the Company’s stock option plan, which such stock options shall vest as follows: (i) 30,000 stock options on March 17, 2014 and (ii) 30,000 stock options on each one year anniversary of Mr. Mitchell’s employment. The stock options have an exercise price of $2.00 per share, and exercisable for a period of five years. Annual adjustments to salary, as well as bonus and additional stock option awards will be granted at the discretion of the Board based on meeting personal and corporate objectives for the year, and the annual bonus target is 50% of annual base salary. The Board also agreed to reimburse Mr. Mitchell up to $25,000 for relocation expenses and reimbursement for the reasonable costs and expenses incurred by Mr. Mitchell in connection with performing his services for the Company.

 

On May 17, 2014, the Company entered into an employment agreement with Linda Moraski (the “Moraski PSI Employment Agreement”). Pursuant to the Moraski PSI Employment Agreement, Ms. Moraski will serve as President and Chief Executive Officer of PSI for a term of three (3) years, provided however such term shall automatically renew for one-year terms commencing on the three (3) year anniversary of the effective date of the PSI Employment Agreement unless notice of non-renewal is provided at least 180 days prior to such renewal. Ms. Moraski shall receive a base salary of $112,500 per year, which such base salary is subject to increase based on the Consumer Price Index. Further, Ms. Moraski will be entitled to receive an annual commission equal to the sum of (i) three percent (3%) of the Gross Profit (as defined in the Promissory Note) of PSI for such fiscal year plus (ii) two and one-half percent (2.5%) of the amount that Gross Profit of PSI for such fiscal year exceeds the Closing Gross Profit (as defined in the Promissory Note). In addition, Ms. Moraski shall also be entitled to an annual bonus (as provided in the PSI Employment Agreement), certain benefits, and eligibility to participate in the Company’s stock incentive plan and certain expense reimbursements. Ms. Moraski’s employment may be terminated in the event of death, disability, Cause or Voluntary Termination, Without Cause or For Good Reason (as each term in defined in the PSI Employment Agreement), which the severance compensation payable to Seller is contingent upon the reason for termination.

 

In addition, on May 17, 2014, the Company entered into an employment agreement with Linda Moraski (the “Moraski PRS Employment Agreement”). The terms of the PRS Employment Agreement are substantially similar to the PSI Employment Agreement, provided, however, under the PRS Employment Agreement, Ms. Moraski is only entitled to a base salary of $37,500, subject to increase based on CPI, paid time off, and reimbursement of certain business expenses. Ms. Moraski is not entitled to any commissions or bonuses pursuant to the PRS Employment Agreement.

 

34
 

 

Pursuant to the terms of the Noncompetition Agreement, Ms. Moraski agreed that for a period from the Closing through the later of (i) the first anniversary of the Closing Date or (ii) the twelve (12) month anniversary of the termination of Ms. Moraski’s service with PSI in all capacities, Ms. Moraski will not compete with PSI in the Commonwealth of Massachusetts or any other market in which the PSI provides substantial Competing Services (as defined in the Noncompetition Agreement). The Noncompetition Agreement also provides for non-solicitation of employees, customers and suppliers and non-disparagement provisions. The terms of the Noncompetition Agreement were also incorporated into the PRS employment Agreement so as to apply to PRS. The non-competition cease in the event that Ms. Moraski’s employment from PSI is terminated without Cause or for Good Reason (as each such term is defined in the PSI Employment Agreement).

 

Term of Office

 

Each director shall hold office until the next annual meeting of stockholders and until his successor shall have been elected and qualified.

 

Outstanding Equity Awards at May 31, 2014 Fiscal Year End

 

    Option awards     Stock awards  
Name   Number of
securities
underlying
unexercised
options (#)
exercisable
    Number of
securities
underlying
unexercised
options (#)
unexercisable
    Equity
incentive
plan
awards:
Number of
securities
underlying
unexercised
unearned
options (#)
    Option
exercise
price ($)
    Option
expiration
date
  Number
of
shares
or units
of stock
that
have not
vested
(#)
    Market
value of
shares
or units
of stock
that
have not
vested
($)
    Equity
incentive
plan
awards;
Number
of
unearned
shares,
units or
other
rights
that
have not
vested
(#)
    Equity
incentive
plan
awards:
Market
or
payout
value of
unearned
shares,
units or
other
rights
that
have not
vested
($)
 
Brendan Flood     66,000             264,000       2.00     01/27/2019                        
Matt Briand     66,000               264,000       2.00     01/27/2019                                
A.J. Cervantes     500,000               -       2.00     01/2/2019                                
Jeff Mitchell     30,000               120,000       2.00     03/16/2019     75,000       147,750                  
Allan Hartley     250,000               -       2.00     01/2/2019                                

 

Compensation of Directors

 

Name   Fees earned
or paid in cash ($)
    Stock awards     Bonus     Option
Awards ($)
    All Other
Compensation
    Total ($)  
                                     
Dimitri Villard   $ 31,667     $ 39,685     $ 0     $ 0     $ 24,475     $ 95,827  
Robert Mayer   $ 30,000     $ 38,036     $ 0     $ 0     $ 24,475     $ 92,511  
Jeff Grout   $ 16,668     $ 28,725     $ 0     $ 0     $ 0     $ 45,393  
Nicholas Florio   $ 2,084     $ 3,999     $ 0     $ 0     $ 0     $ 6,083  

 

Dimitri Villard. On July 15, 2012, the Company entered into an advisory agreement with Dimitri Villard. The parties agreed that from July 1, 2012 until June 30, 2013, that Mr. Villard would serve as a member of our board of directors as well as perform advisory services for the Company, as well as serving as member of our board of directors. Mr. Villard will devote, on a non-exclusive basis, the necessary time, energy and efforts to our business and to use his best efforts and abilities to faithfully and diligently promote our business interests. The Company will pay Mr. Villard $45,000, consisting of: (i) $22,500 of shares of our common stock to be issued equally on a monthly basis pursuant to the terms of the agreement (based on the value equal to 50% of the per share price of the common stock sold in the private placement financing), and (ii) $22,500 of cash to be paid in monthly payments of $1,875 pursuant to the terms of the agreement. This agreement expired on June 30, 2013 and Mr. Villard continued receiving compensation on a month to month basis. On September 26, 2013, Mr. Villard entered into a new agreement with the Company effective as of July 1, 2013, to serve as a member of our board of directors for an annual payment of $30,000, payable $2,500 per month. In addition, for his service as a member of the board of directors, Mr. Villard will receive 2,500 shares of restricted common stock per month. In addition, effective January 1, 2014, Mr. Villard entered into a separate agreement to serve as an advisor to the Company (the “Villard Advisory Agreement”) for a term of one year at substantially the same rate ($30,000 per year, payable $2,500 per month and 30,000 shares of restricted common stock, issued at 2,500 shares per month). In April 2014  the Villard Advisory Agreement was terminated. For his services as an advisor, Mr. Villard was paid $10,000 and issued 10,000 shares of restricted common stock. In May, 2014, Mr. Villard was named the Chairman of the Corporate Governance and Nominating Committee. For his service as Chairman of the Corporate Governance and Nominating Committee, Mr. Villard will receive an annual payment of $20,000 , payable $1,666.67 per month. In addition, Mr. Villard will receive 833 shares of restricted common stock per month (10,000 shares annually). In addition, in May 2014, Mr. Villard was named as a member of the Audit Committee and the Compensation Committee. For his service as a member of the Audit Committee and Compensation Committee, Mr. Villard will receive 833 shares of restricted common stock per month (10,000 shares annually) for each committee.

 

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Robert Mayer. On September 26, 2013, the Company entered into an agreement with Robert Mayer  effective as of July 1, 2013, to serve as a member of our board of directors for an annual payment of $30,000, payable $2,500 per month. In addition, for his service as a member of the board of directors, Mr. Mayer will receive 2,500 shares of restricted common stock per month. In addition, effective January 1, 2014, Mr. Mayer entered into a separate agreement to serve as an advisor to the Company (the “Mayer Advisory Agreement”) for a term of one year at substantially the same rate ($30,000 per year, payable $2,500 per month and 30,000 shares of restricted common stock, issued at 2,500 shares per month). In April 2014  the Mayer Advisory Agreement was terminated. For his services as an advisor, Mr. Mayer was paid $10,000 and issued 10,000 shares of restricted common stock. In May, 2014, Mr. Mayer was named as a member of the Audit Committee and the Compensation Committee. For his service as a member of the Audit Committee and Compensation Committee, Mr. Mayer will receive 833 shares of restricted common stock per month (10,000 shares annually) for each committee.

 

Jeff Grout. In February 2014, the Company entered into an agreement with Jeff Grout to serve as a member of our board of directors for an annual payment of $30,000, payable $2,500 per month. In addition, for his service as a member of the board of directors, Mr. Grout will receive 2,500 shares of restricted common stock per month.  In addition, in February, 2014, Mr. Grout was named the Chairman of the Compensation Committee. For his service as Chairman of the Compensation Committee, Mr. Grout will receive an annual payment of $20,000 , payable $1,666.67 per month. Mr. Grout will also receive 833 shares of restricted common stock per month (10,000 shares annually), par value $.00001 per share. Mr. Grout was also named as a member of the Corporate Governance and Nominating Committee. For his service as a member of the Corporate Governance and Nominating Committee, Mr. Grout will receive 833 shares of restricted common stock per month (10,000 shares annually).

 

Nicholas Florio. In May 2014, the Company entered into an agreement with Nicholas Florio to serve as a member of our board of directors for an annual payment of $30,000, payable $2,500 per month. In addition, for his service as a member of the board of directors, Mr. Florio will receive 2,500 shares of restricted common stock per month. In addition, in May, 2014, Mr. Florio was named the Chairman of the Audit Committee. For his service as Chairman of the Audit Committee, Mr. Florio will receive an annual payment of $20,000, payable $1,666.67 per month. Mr. Florio will also receive 833 shares of restricted common stock per month (10,000 shares annually), par value $.00001 per share. Mr. Florio was also named as a member of the Corporate Governance and Nominating Committee. For his service as a member of the Corporate Governance and Nominating Committee, Mr. Florio will receive 833 shares of restricted common stock per month (10,000 shares annually).

 

Indemnification

 

Under our Articles of Incorporation and Bylaws, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of their position, if they acted in good faith and in a manner reasonably believed to be in the Company’s best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which they are to be indemnified, we must indemnify them against all expenses incurred, including attorney’s fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Nevada.

 

Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to directors or officers under Nevada law, we are informed that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of September 10, 2014 for: (i) each of our directors; (ii) each of our executive officers: (iii) all of our directors and executive officers as a group; and (iv) all persons, to our knowledge, are the beneficial owners of more than five percent (5%) of the outstanding shares of common stock. Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power with respect to the securities.

 

Except as indicated in footnotes to this table, we believe each person named in this table has sole voting and investment power with respect to the shares of common stock set forth opposite such person’s name. Percentage ownership is based on 33,659,804 shares of common stock outstanding on September 10, 2014.

 

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Name of Beneficial Owner (1)   Common Stock
Beneficially Owned(2)
    Percent of
Class
 
Brendon Flood     1,716,866       5.10 %
Alfonso J. Cervantes (3)     1,710,000       5.08 %
Matthew Briand     927,199       2.75 %
Jeff Mitchell     60,000       0.18 %
Dimitri Villard (4)     82,495       0.25 %
Robert Mayer (5)     498,698       1.47 %
Jeff Grout     33,328       0.10 %
Nicholas Florio (6)     18,747       0.06 %
Sodak Offerings II LLC (7)     1,740,639       5.17 %
Allan Hartley     152,400       0.45 %
GTD Financial (8)     2,500,000       7.43 %
Peter Goldstein (9)     1,800,000       5.35 %
Directors and officers as a group (8 persons)     5,044,833       14.99 %

 

* represents less than 1.0%

 

(1) Unless otherwise indicated, the address of each person is Staffing 360 Solutions, Inc. 641 Lexington Avenue, Suite 1526, New York, New York 10022.

(2) Unless otherwise indicated, all ownership is direct beneficial ownership.

(3) Shares are held by Trilogy Capital Partners, Inc. Our President, Treasurer, Secretary and Director, Alfonso J. Cervantes, owns 100% equity interest in Trilogy Capital Partners, Inc.

(4) All shares are held through the Dimitri Villard Revocable Living Trust dated 6/4/1992.

(5) Mr. Mayer owns 195,316 shares individually and 292,550 shares through various other entities.

(6) Shares are held by Citrin Cooperman & Company LLP. Mr. Florio is a partner at Citrin Cooperman & Company LLP.

(7) Sodak Offerings II, LLC received shares through the conversion of a $750,000 bridge loan. Robert Mayer, a director of the Company, is a part owner of Sodak.

(8) GTD Financial is an Arizona-based limited liability company that invested $2 million in the Company’s March 2014 PIPE and $500,000 in the Company’s Series A Convertible Bonds

(9) Shares are held by Grandview Capital Partners, Inc. Our former Chairman of the Board, Principal Financial Officer and Treasurer, Peter Goldstein, is the founder, chairman, chief executive officer and registered principal of Grandview Capital Partners, Inc.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

Plan Category   Number of Securities to be issued
upon exercising outstanding
options, warrants, and rights
    Weighted-average exercise price
of outstanding options, warrants
and rights
    Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
column (a))
 
2014 Equity Plan     2,500,000     $ 2.00       1,250,000  

 

2014 Equity Plan

 

On January 28, 2014, our Board adopted the 2014 Equity Plan. This plan has not been approved by our stockholders. Under this plan, we may grant options to employees, directors, senior management of the company and, under certain circumstances, consultants. The purpose of the 2014 Equity Plan is to retain the services of the group of persons eligible to receive option awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the company and its affiliates . A maximum of 2,500,000 shares of common stock has been reserved for issuance under this plan. The plan expires on January 28, 2024. Our board of directors will administer the plan unless and until the board of directors delegates administration to a committee, consisting of one or more members, that has been appointed by the board of directors, except that once our common stock begins trading publicly, the committee will consist solely of two or more outside directors as defined in the Treasury Regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended. On January 28, 2014, the board delegated the authority to administer the 2014 Equity Plan to the Company’s Executive Chairman and Vice Chairman. They will have the power to determine which persons eligible under the plan will be granted option awards.

 

Transferability

 

Option awards are not transferable other than by will or by the laws of descent and distribution unless otherwise provided in the individual option agreement.

 

Change of Control Event

 

In the event of a change in control, then, without the consent or action required of any holder of an option award (in such holder’s capacity as such):

 

(i) Any surviving corporation or acquiring corporation or any parent or affiliate thereof, as determined by the board of directors in its discretion, will assume or continue any option awards outstanding under the plan in all or in part or shall substitute to similar stock awards in all or in part; or

 

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(ii) In the event any surviving corporation or acquiring corporation does not assume or continue any option awards or substitute to similar stock awards, for those outstanding under the plan, then: (a) all unvested option awards will expire (b) vested options will terminate if not exercised at or prior to such change in control; or

 

(iii) Upon change in control the board of directors may, in its sole discretion, accelerate the vesting, partially or in full, in the sole discretion of the board of directors and on a case-by-case basis of one or more option awards as the board of directors may determine to be appropriate prior to such events.

 

Notwithstanding the above, in case of change in control, in the event all or substantially all of the shares of common stock of the company are to be exchanged for securities of another company, then each holder of an option award shall be obliged to sell or exchange, as the case may be, any shares such holder hold or purchased under the plan, in accordance with the instructions issued by the board of directors, whose determination shall be final.

 

Termination of Employment/Relationship

 

In the event of termination of the option holders employment with the Company or any of its affiliates, or if applicable, the termination of services given to the Company or any of its affiliates by consultants of the Company or any of its affiliates for cause (as defined in the plan), all outstanding option awards granted to such option holder (whether vested or not) will immediately expire and terminate on the date of such termination and the holder of option awards will not have any right in connection to such outstanding option awards, unless otherwise determined by the board of directors. The shares of common stock covered by such option awards will revert to the plan.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The following is a description of the transactions we have engaged in during the year ended May 31, 2014, with our directors and officers and beneficial owners of more than five percent of our voting securities and their affiliates.

 

Trilogy Capital Partners Agreement

 

On February 15, 2013, the Company entered into an agreement (the “Trilogy Agreement”) with Trilogy Capital Partners, Inc. (“Trilogy”). Pursuant to the Trilogy Agreement, Trilogy will provide the Company primarily with the development and implementation of an investor awareness program designed to create financial market and investor awareness for the Company. The Company will pay Trilogy $5,000 per month for a period of 18 months. The Company’s President, Alfonso J. Cervantes is the majority owner of Trilogy.

 

Grandview Capital Partners, Inc.

 

The Grandview Advisory Agreement requires that the Company pay Grandview $10,000 per month for a period of 18 months, increasing to $15,000 per month following the completion of the first acquisition of a temporary staffing company by the Company and contemporaneous financing. On January 3, 2014, the Company and Grandview entered into an amendment to the Grandview Advisory Agreement. Pursuant to the terms of the amendment, Grandview’s compensation was reduced back to $10,000 per month effective immediately. Additionally, as a result of the amendment, the Grandview Advisory Agreement will terminate on September 30, 2014. Peter Goldstein, the former Chairman of the Board, principal financial officer, treasurer and director of the Company, is the founder, chairman, chief executive officer and registered principal of Grandview Capital Partners, Inc.

 

Staffing 360 Solutions (UK) Promissory Notes

 

Pursuant to the closing of the Staffing 360 Solutions (UK) acquisition, the Company executed and delivered to Brendan Flood, the Company’s Executive Chairman and a shareholder of Staffing 360 Solutions (UK), a three year promissory note in the aggregate principal amount of $2,064,880. Mr. Flood has been paid $172,073 in principal and $43,466 in interest through May 31, 2014.

 

In addition, the Company executed and delivered to Matt Briand, the Company’s Chief Executive Officer and a shareholder of Staffing 360 Solutions (UK), a three (3) year promissory note in the aggregate principal amount of $1,115,144. Mr. Briand has been paid $92,929 in principal and $23,474 in interest through May 31, 2014.

 

Short-term promissory notes

 

In June 2014, the Company issued a promissory note for consideration totaling $100,000 to Robert Mayer, a director and shareholder of the Company. The promissory note was non-interest bearing and due on demand. The Company issued 5,000 shares to Mr. Mayer as additional consideration. This note was paid in full in June, 2014.

 

In July 2014, the Company issued three promissory notes for an aggregate consideration of $280,000 to three related parties. The promissory notes were non-interest bearing and due on demand. The first note was issued to Trilogy Capital Partners for consideration totaling $30,000. The Company’s President, Alfonso J. Cervantes is the majority owner of Trilogy. This note was paid in full in July, 2014. The second note was issued to Jeff Mitchell, the Company’s CFO for consideration totaling $150,000. The Company issued 10,000 shares to Mr. Mitchell as additional consideration. This note was paid in full in July, 2014. The third note was issued to Robert Mayer, a director and shareholder of the Company for consideration totaling $100,000. The Company issued 7,000 shares to Mr. Mayer as additional consideration. This note was paid in full in July 2014.

 

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In August 2014, the Company issued a promissory note for consideration totaling $125,000 to Robert Mayer, a director and shareholder of the Company. The promissory note was non-interest bearing and due on demand. The Company issued 7,500 shares to Mr. Mayer as additional consideration. This note remains outstanding.

 

Advisory Agreements

 

In January 2014, Mr. Mayer, a director and shareholder of the Company, entered into an agreement to serve as an advisor to the Company (the “Meyer Advisory Agreement”) for a term of one year at $30,000 per year, payable $2,500 per month and 30,000 shares of restricted Common Stock, issued at 2,500 shares per month. In April 2014  the Meyer Advisory Agreement was terminated.

 

In January 2014, Mr. Villard, a director of the Company, entered into an agreement to serve as an advisor to the Company (the “Villard Advisory Agreement”) for a term of one year at $30,000 per year, payable $2,500 per month and 30,000 shares of restricted Common Stock, issued at 2,500 shares per month. In April 2014  the Villard Advisory Agreement was terminated.

  

  ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The aggregate fees billed for the fiscal years ended May 31, 2014 and 2013 for (i) professional services rendered by the principal accountant, RBSM, LLP, for the audit of its annual financial and review of financial statements included in Form 10-Q (“Audit Fees”), (ii) assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the financial statements and not reportable under Audit Fees (the “Audit Related Fees”) (iii) tax compliance, advice, and planning (“Tax Fees”), and (iv) other products or services provided (“Other Fees”):

 

    Year ended May 31,  
    2014     2013  
Audit Fees   $ 186,500     $ 76,500  
Audit Related Fees   $ -     $ -  
Tax Fees   $ -     $ -  
All Other Fees (1)   $ 165,000     $ -  
Total   $ 351,500     $ 76,500  

 

(1) Other Fees  – These fees are for financial statement audits of acquired and targeted companies.

 

Pre-Approval Policies and Procedure for Audit Services

 

The audit committee has developed policies and procedures regarding the approval of all services that are to be rendered by our independent registered public accounting firm, as permitted under applicable laws, and the corresponding fees for such services.

 

Consistent with these policies and procedures, all audit services and non-audit services and all fees associated with such services performed by our independent registered public accounting firm in fiscal 2014 were pre-approved by audit committee.

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

(a) The following documents are filed as part of this report:

 

(1) Financial Statements and Report of Independent Registered Public Accounting Firm, which are set forth in the index to Consolidated Financial Statements on pages F-1 through F-15 of this report.

 

Report of Independent Registered Public Accounting Firm   F-1  
Consolidated Balance Sheets   F-2  
Consolidated Statements of Income and Comprehensive Income   F-3  
Consolidated Statements of Shareholders' Equity   F-4  
Consolidated Statements of Cash Flows   F-5  
Notes to Consolidated Financial Statements   F-6 to F-22  

 

(2) Financial Statement Schedule: None.

 

(3) Exhibits

 

39
 

  

Exhibit
No.
  Description
3.1   Articles of Incorporation (1)
3.2   Bylaws (2)
3.3   Amendment to the Articles of Incorporation (3)
4.1   Form of Promissory Note (4)
4.2   Form of Warrant (5)
4.3   Form of Subscription Agreement (6)
4.4   Form of Warrant (7)
10.1   Employment Agreement between the Company and Allan Hartley, dated December 15, 2011 (8)
10.2   Assignment of Employment Agreement by and between TRIG Capital Partners, LLC and the Company, dated February 21, 2012 (9)
10.3   Form of Note Purchase Agreement (10)
10.4   Acquisition Agreement by and among IDC Technologies, Inc., Prateek Gattani and the Company, dated February 11, 2013 (11)
10.5   Employment Agreement with Darren Minton dated February 15, 2013 (12)
10.6   Employment Agreement with Alfonso J. Cervantes dated February 15, 2013 (13)
10.7   Letter Agreement by and among the Company and Chord Advisors, LLC dated February 15, 2013 (14)
10.8   Advisory Agreement by and among the Company and Grandview Capital Partners, Inc. dated February 16, 2013 (15)
10.9   Corporate Services Agreement by and between Pylon Management, Inc. and the Company dated February 14, 2013 (16)
10.10   Advisory Agreement by and between the Company and Joshua Capital, LLC dated February 15, 2013 (17)
10.11   Form of Subscription Agreement (18)
10.12   Stock Purchase Agreement by and among the Company, The Revolution Group, Ltd. and the shareholders of The Revolution Group, Ltd. dated March 21, 2013 (19)
10.13   Employment Agreement between the Company and Mark Aiello dated March 21, 2013 (20)
10.14   Stock Purchase Agreement by and among the Company, NewCSI, Inc. and the shareholders of NewCSI, Inc. dated August 14, 2013 (21)
10.15   Share Purchase Agreement, dated October 30, 2013, by and among Staffing 360 Solutions, Inc. and the shareholders of Initio International Holdings Limited (22)
10.16   Amendment No. 1 to the Share Purchase Agreement, dated December 10, 2013, by and among Staffing 360 Solutions, Inc. and the shareholders of Initio International Holdings Limited (23)
10.17   Form of Promissory Note (24)
10.18   Form of Deed of Warranties (25)
10.19   Disclosure Letter (26)
10.20   Form of Deed of Restrictive Covenant by and between Brendan Flood and the Company (27)
10.21   Form of Deed of Restrictive Covenant by and between Matthew Briand and the Company (28)
10.22   Amendment No. 1 to Employment Agreement, dated December 31, 2013, by and among Staffing 360 Solutions, Inc. and Alfonso J. Cervantes (29)
10.23   Employment Agreement, dated December 31, 2013, by and among Staffing 360 Solutions, Inc. and Allan Hartley (30)
10.24   Employment Agreement, dated January 3, 2014, by and among Monroe Staffing Services, LLC and Matthew Briand (31)
10.25   Employment Agreement, dated January 3, 2014, by and among Staffing 360 Solutions Limited (f/k/a Initio International Holdings Limited) and Brendan Flood (32)
10.26*   Asset Purchase Agreement, by and among Staffing 360 Solutions (UK) Limited, Poolia UK Ltd. and Poolia UK
10.27   Stock Purchase Agreement, by and among Linda Moraski, PeopleSERVE, Inc., PeopleSERVE PRS, Inc. and the Company, dated May 17, 2014 (33)
10.28   Form of Promissory Note (34)
10.29   Form of Employment Agreement with PS (35)
10.30   Form of Employment Agreement with PRS (36)
10.31   Form of Noncompetition Agreement (37)
10.32*   Amended and Restated Credit and Security Agreement, by and among Monroe Staffing Services, LLC, PeopleSERVE, Inc., and Wells Fargo Bank, National Association, dated July 25, 2014.
10.35*   2014 Equity Compensation Plan
10.33*   Employment Agreement, dated July 29, 2014, by and between the Jeff R. Mitchell and the Company
21.1*   Subsidiaries of Staffing 360 Solutions, Inc.
31.1*   Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*   Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.1*#   Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Schema

 

40
 

  

101.CAL XBRL Taxonomy Calculation Linkbase
101.DEF XBRL Taxonomy Definition Linkbase
101.LAB XBRL Taxonomy Label Linkbase
101.PRE XBRL Taxonomy Presentation Linkbase

 

* Filed herewith

# A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
   
(1) Previously filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-1, filed with the SEC on September 2, 2010.
(2) Previously filed as Exhibit 3.2 to the Company’s Registration Statement on Form S-1, filed with the SEC on September 2, 2010.
(3) Previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on March 20, 2012.
(4) Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on February 7, 2013.
(5) Previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 24, 2013.
(6) Previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on January 7, 2014.
(7) Previously filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the SEC on January 7, 2014.
(8) Previously filed as Exhibit 10.1 to the Company’s Annual Report on Form 10-K, filed with the SEC on September 13, 2012.
(9) Previously filed as Exhibit 10.2 to the Company’s Annual Report on Form 10-K, filed with the SEC on September 13, 2012.
(10) Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 7, 2013.
(11) Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 13, 2013.
(12) Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 20, 2013.
(13) Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on February 20, 2013.
(14) Previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on February 20, 2013.
(15) Previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the SEC on February 20, 2013.
(16) Previously filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed with the SEC on February 20, 2013.
(17) Previously filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed with the SEC on February 20, 2013.
(18) Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 24, 2013.
(19) Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on March 2, 2013.
(20) Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on May 2, 2013.
(21) Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 19, 2013.
(22) Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on January 7, 2014.
(23) Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on January 7, 2014.
(24) Previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on January 7, 2014.
(25) Previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the SEC on January 7, 2014.
(26) Previously filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed with the SEC on January 7, 2014.
(27) Previously filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed with the SEC on January 7, 2014.
(28) Previously filed as Exhibit 10.7 to the Company’s Current Report on Form 8-K, filed with the SEC on January 7, 2014.
(29) Previously filed as Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed with the SEC on January 7, 2014.
(30) Previously filed as Exhibit 10.9 to the Company’s Current Report on Form 8-K, filed with the SEC on January 7, 2014.
(31) Previously filed as Exhibit 10.10 to the Company’s Current Report on Form 8-K, filed with the SEC on January 7, 2014.
(32) Previously filed as Exhibit 10.11 to the Company’s Current Report on Form 8-K, filed with the SEC on January 7, 2014.
(33) Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on May 20, 2014.
(34) Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on May 20, 2014.
(35) Previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on May 20, 2014.
(36) Previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the SEC on May 20, 2014.

(37) Previously filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed with the SEC on May 20, 2014.

 

41
 

   

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  STAFFING 360 SOLUTIONS, INC.
     
Date: September 15, 2014 By:  /s/ Brendan Flood
    Brendan Flood
    Executive Chairman
    (Duly Authorized Officer and Principal
Executive Officer)
     
 Date: September 15, 2014 By: /s/ Jeff R. Mitchell
    Jeff R. Mitchell
    Chief Financial Officer
    (Duly Authorized Officer and Principal
Financial Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name   Title   Date
         
/s/ Brendon Flood   Executive Chairman and Director   September 15, 2014
Brendon Flood        
         
/s/ Matthew Briand   Chief Executive Officer and Director   September 15, 2014
Matthew Briand        
         
 /s/ Alfonso J. Cervantes   President, Vice Chairman, Secretary and Director   September 15, 2014
Alfonso J. Cervantes        
         
/s/Jeff R. Mitchell   Chief Financial Officer and Executive Vice President   September 15, 2014
Jeff R. Mitchell        
         
/s/Dimitri Villard   Director   September 15, 2014

Dimitri Villard

 

       
/s/ Nicholas Florio   Director   September 15, 2014
Nicholas Florio        
         
/s/Jeff Grout   Director   September 15, 2014

Jeff Grout

 

       
/s/Robert Mayer   Director   September 15, 2014
Robert Mayer        

 

42

  

 

Exhibit 10.26

 

Dated                                                                          2014

 

(1)      POOLIA UK LIMITED

 

(2)      STAFFING 360 SOLUTIONS (UK) LIMITED

 

(3)      POOLIA AB

 

 

AGREEMENT TO BUY THE business and CERTAIN assets of POOLIA UK LIMITED

 

 

Mishcon de Reya

Summit House

12 Red Lion Square

London WC1R 4QD

Tel: 020 7440 7000

Fax: 020 7404 5982

Ref: NMD/LC/32548.9

E-mail: nick.davis@mishcon.com

 

 
 

 

THIS AGREEMENT is dated                                                                               2014

 

PARTIES

 

(1) POOLIA UK LIMITED a company registered in England and Wales under number 02442269 whose registered office is at Providian House, 16-18 Monument Street, London, EC3R 8AJ (the Seller ).

 

(2) STAFFING 360 SOLUTIONS (UK) LIMITED a company registered in England and Wales under number 06745176 whose registered office is at Suite 002, 1-9 Hardwicks Square, Hardwicks Way, Wandsworth, London, SW18 4AW (the Buyer ).

 

(3) POOLIA AB a company registered in Sweden under number 5564479912 whose registered office is at Kungsgatan 57A, Box 207, SE101, 24 Stockholm, Sweden ( AB ).

 

BACKGROUND

 

(A) The Seller carries on the Business (as defined below).

 

(B) The Seller has agreed to sell to the Buyer on the terms and conditions of this agreement the Business and the Assets (each as defined below) as a going concern.

 

AGREED TERMS

 

1. DEFINITIONS AND INTERPRETATION

 

1.1 In this agreement the following definitions apply:

 

Accounts means the audited financial statements of the Seller as at and to the Accounts Date, comprising the individual accounts of the Seller, including the balance sheet, profit and loss account, the notes, the cash flow statement and the auditor's and directors' reports;

 

Accounts Date means 31 December 2012;

 

Agreed Form , in relation to any document, means in the form agreed by the parties to this agreement and signed for the purpose of identification by or on behalf of the parties;

 

Assets means the property, assets and rights of the Business to be purchased by the Buyer described in Schedule 1;

 

Associate means, in relation to any person, a person who is connected with that person determined in accordance with section 1122 of the Tax Act;

 

Assumed Liabilities the obligations of the Seller at the Completion Date in relation to the Creditors of the Business;

 

Bank means National Westminster Bank plc, Bloomsbury Parr's Branch, 214 High Holborn, London WC1V 7BF (being the Buyer's Solicitors' bank);

 

Book Debts means the trade and other debts and amounts owing to the Seller or any other member of the Seller's group at the Completion Date in respect of goods or services supplied by the Seller or any other member of the Seller's group in the course of carrying on the Business (whether or not invoiced) (being those debts and amounts set out in the schedule of book debts as at the Effective Time which is included in the Disclosure Bundle and as shall be updated by the Seller in a further schedule of book debts as at the Completion Date which shall be given to the Buyer by the Seller on Completion);

 

1
 

 

Business means the business of the provision and recruitment of finance and accounting professionals to the commercial, public and financial services sectors on both a temporary and permanent basis carried on by the Seller at the Completion Date in the United Kingdom;

 

Business Day means any day on which clearing banks generally are open for business in the City of London excluding Saturdays or Sundays;

 

Business Information means all know-how, trade secrets, techniques, information, expertise or proprietary knowledge used by the Seller or any other member of the Seller's group at the Completion Date in the course of, or in relation to, the Business;

 

Business Intellectual Property Rights means the Intellectual Property Rights owned by the Seller or owned by any other member of the Seller's group and used in, or in connection with, the Business (including the Domain Names);

 

Buyer's Bank Account means Lloyds Bank plc, sort code: 30-95-74 and account number: 00145815;

 

Buyer's Solicitors means Mishcon de Reya, Summit House, 12 Red Lion Square, London WC1R 4QD or their successors in business or any other firm of solicitors appointed by the Buyer for the purposes of this agreement;

 

Client Database means the database owned or used by the Seller or any other member of the Seller's group for the purpose of providing services to clients and/or customers of the Business;

 

Companies Act means the Companies Act 2006;

 

Completion means completion of the sale and purchase of the Business and the Assets in accordance with the terms of this agreement;

 

Completion Accounts means the accounts prepared in accordance with clause 13 and Schedule 8;

 

Completion Amount means the aggregate of the amounts to be paid by the Buyer to the Seller pursuant to clauses 4.2.1 and 4.2.2;

 

Completion Date means 11.59pm on 28 February 2014 ;

 

Contracts means the Customer Contracts and Supply Contracts entered into on or before, and which remain to be performed in whole or in part at, the Completion Date, which have been entered into in the ordinary course of the Business by or for the benefit of the Seller (or the benefit of which is held on trust for, or has been assigned or subcontracted to, the Seller), but excluding (for the avoidance of doubt) any employment contracts of any employees or officers, any agreements relating to the Property and any contracts which the Seller or any other member of the Seller's group has entered into with a bank or other third party in respect of overdraft, debt factoring, invoice discounting or other borrowings. References in this agreement to rights or obligations under or in connection with the Contracts exclude the Book Debts and Creditors respectively;

 

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Creditors means the amounts owed by the Seller in connection with the ordinary course of the Business to or in respect of trade creditors and other business related creditors of a trading nature and accrued charges at the Completion Date, being as at the Effective Time those (and only those ) which are set out in Schedule 7 and as shall be updated by the further schedule of Creditors as the Completion Date which shall be agreed by the Buyer and the Seller on Completion;

 

Customer Contracts means all contracts, agreements, orders, engagements and arrangements (written or oral) entered into on or before the Completion Date by or on behalf of the Seller with customers of the Business for the provision or supply of services by the Seller in connection with, and in the ordinary course of, the Business which, at the Completion Date, remain to be performed in whole or in part by the Seller or any other member of the Seller's group (including those set out in Schedule 5);

 

Customer Database means the database owned or used by the Seller or any other member of the Seller's group for the purpose of providing goods, products and/or services to customers of the Business;

 

Disclosure Letter means the letter dated today in the Agreed Form from the Seller to the Buyer and which is delivered to the Buyer's Solicitors immediately before the execution of this agreement (and which includes the Disclosure Bundle);

 

Disclosure Bundle means the bundle of documents annexed to, or forming the bundle of documents referred to in, the Disclosure Letter;

 

Domain Names means poolia.co.uk;

 

DPA means the Data Protection Act 1998;

 

Effective Time means the close of business on the date of this agreement;

 

Employee Database means the database owned or used by the Seller or any other member of the Seller's group in connection with the Employees;

 

Employees means the persons employed by the Seller for the purposes of or in connection with the Business at the Completion Date (being those persons named in the list of employees as at the Effective Time included in the Disclosure Bundle at document number 7.13 and as shall be updated by the Seller in a further schedule of persons employed by the Seller as at the Completion Date which shall be given to the Buyer by the Seller on Completion);

 

Encumbrance means and includes any right, claim, interest or equity of any person (including any right to acquire, option, right of pre-emption or right of conversion) or any mortgage, charge (whether fixed or floating), pledge, lien or assignment or any other encumbrance, priority or security interest or arrangement over or in the relevant property;

 

Equal Pay Legislation means the Equal Pay Act 1970, the Sex Discrimination Act 1975, the Equality Act 2010, the Equal Pay Directive, the Equal Treatment Directive, Article 141 of the Treaty of Rome and Article 157 of the Treaty on the Functioning of the European Union;

 

Expert has the meaning given in clause 14;

 

Fixed Consideration has the meaning ascribed to such expression in clause 4.1;

 

3
 

 

GAAP means all Statements of Standard Accounting Practice, Financial Reporting Standards and Urgent Issues Task Force Abstracts issued by the Accounting Standards Board of the United Kingdom;

 

Goodwill means the goodwill of the Seller in relation to the Business, together with the exclusive right for the Buyer and its successors and assigns to carry on the Business under all trade names used by or associated with the Business and respectively to represent themselves as carrying on the Business in succession to the Seller;

 

group in relation to an undertaking, means that undertaking, any subsidiary undertaking or parent undertaking of that undertaking and any subsidiary undertaking of any parent undertaking of that undertaking and member of the group includes any undertaking in the group;

 

HMRC means HM Revenue & Customs

 

Insolvency Proceedings means any formal insolvency proceedings whether in or out of court, including proceedings or steps leading to any form of bankruptcy, liquidation, administration, receivership (including administrative receivership, LPA receivership, the appointment of a receiver/manager and/or the appointment of a Court appointed receiver), arrangement (including a company voluntary arrangement or an individual voluntary arrangement) or scheme with creditors, moratorium, stay or limitation of creditors' rights, interim or provisional supervision by a court or court appointee, winding up or striking off, dissolution or any distress, execution;

 

Intellectual Property Rights means patents, rights to inventions, copyright and related rights, trade marks and service marks, trade names and domain names, , rights to goodwill or to sue for passing off or unfair competition, , rights in computer software, database rights, rights in confidential information (including know-how and trade secrets) and any other intellectual property rights, in each case whether registered or unregistered and including all applications (or rights to apply) for, and renewals or extensions of, those rights and the goodwill attaching to any of them and all similar or equivalent rights or forms of protection which subsist or will subsist now or in the future in any part of the world, other than the Parker Bridge name and brand;

 

Key Employees means the following individuals: Tim Hedger, Jonas Von Euler-Chelpin, Aaron Bowes, Margot Kynoch and Christina Roche;

 

Liabilities mean all indebtedness, obligations and liabilities of the Business or relating to the Assets outstanding at, or arising before, the Completion Date and whether accrued or contingent, known or unknown and includes (without limitation) any failure to perform any obligations falling due on or before the Completion Date under or in relation to any of the Contracts (apart from the Assumed Liabilities and any obligations and liabilities which are expressly assumed by the Buyer under this agreement);

 

Losses means in relation to any matter all direct losses whatsoever including without limitation the amount of all claims and costs and expenses (including those of professional advisers) reasonably incurred in defending or bringing any claim, action, proceeding or any other legal recourse, awards, expenses, damages, fines, penalties, liabilities;

 

Material Contracts means those Customers Contracts listed in Schedule 5;

 

4
 

 

Net Asset Value or NAV means the amount, by which the aggregate amount of the current assets of the Seller exceeds the aggregate amount of the liabilities of the Seller each as shown in the Completion Accounts but, for the avoidance of doubt, no account shall be taken in calculating the net asset value of any intra-group debt owed by the Seller to any member of the Seller's group as a liability of the Seller;

 

NAV Consideration has the meaning ascribed to such expression in clause 4.1;

 

Purchase Price has the meaning ascribed to such expression in clause 4.1;

 

Prescribed Rate means the base rate of National Westminster Bank plc from time to time plus three per cent;

 

Property means property licensed by the Seller at 16-18 Monument Street, London EC3R 8AJ;

 

Records means all the records, books of account and documents of the Seller or any other member of the Seller's group relating to the Business, Assets and Employees however stored and whether or not in electronic form including the Customer Database and the Employee Database, but excluding the Tax Records;

 

Seller's Solicitors means HowardkennedyFsi LLP of 179 Great Portland Street, London W1W 5LS, or their successors in business or any other firm of solicitors appointed by the Seller for the purposes of this agreement;

 

Seller's Solicitors' Bank Account means Barclays Bank plc, sort code: 20-00-00 and account number: 73003663;

 

Supply Contracts means all written contracts, agreements, orders, engagements and arrangements (including, without limitation, all leases and contracts between the Seller and any supplier relating to any Intellectual Property Rights) entered into on or before the Completion Date by or on behalf of the Seller with suppliers of the Business for the supply of services to the Seller in connection with, and in the ordinary course of, the Business which, at the Completion Date, remain to be performed in whole or in part (including those set out in Schedule 6);

 

Taxation or Tax means all forms of taxation and statutory, governmental, state, federal, provincial, local, government or municipal charges, duties, imposts, contributions, levies, withholdings or liabilities whether past, present or future and whether primary or secondary and wherever chargeable and whether of the United Kingdom or any other jurisdiction, including liability under the Pay As You Earn system, corporation tax, value added tax, repayment or claw-back of recovered value added tax input tax, inheritance tax, national insurance contributions, stamp duty, stamp duty reserve tax, stamp duty land tax, customs and other import and export duties and business rates and local authority rates; and any penalty, fine, surcharge, interest, charges or costs relating to any of the above;

 

Tax Act means the Corporation Tax Act 2010;

 

Tax Authority means, in the United Kingdom, HM Revenue & Customs, the Assets Recovery Agency, any officer or inspector of any of them , in and outside the United Kingdom, any federal, governmental, regulatory or statutory body and any local, district or municipal authority competent to impose and/or collect and/or administer any Tax;

 

Tax Records means all records of the Seller in respect of its Tax affairs so far as they relate to the Business or the Assets, including the VAT Records;

 

5
 

 

Tax Warranty means any warranty set out in paragraph 22 of Schedule 2;

 

Transitional Services Agreement means the agreement between the Buyer and the Seller and other members of the Seller's group relating to the provision of certain services between the parties and a licence to be granted by the Seller to the Buyer pursuant to which the Buyer licences the use of the trademark "Poolia" and any the Business Intellectual Property to the Buyer and the Domain Name;

 

TULRCA means the Trade Union and Labour Relations (Consolidation) Act 1992;

 

TUPE Regulations means the Transfer of Undertakings (Protection of Employment) Regulations 2006;

 

undertaking , subsidiary undertaking and parent undertaking have the meanings set out in sections 1161 and 1162 of the Companies Act;

 

VAT means value added tax as provided for by VATA and legislation amending and/or supplementing it;

 

VAT Records means such records of the Seller as the Seller or, if the Seller is registered for VAT as part of a group, such records of the representative member of that group registration as that representative member, is required by law to preserve and/or make available to the Buyer, or if the Buyer is registered for VAT as part of a group, the representative member of that group registration, in accordance with section 49 of the VATA;

 

VATA means the Value Added Tax Act 1994;

 

Warranties means the warranties contained or referred to in clause 5.1 and Schedule 2; and

 

Websites means the websites used for the purposes of or in connection with the Business and which can be accessed on the internet at, by means of or via the Domain Names.

 

1.2 References in this agreement to statutory provisions are references to those provisions as amended, extended, consolidated or re-enacted from time to time and include the corresponding provisions of any earlier legislation and any orders, regulations, instruments or other subordinate legislation made under the statute concerned except to the extent that any amendment enacted after the date of this agreement would increase or extend the liability of any party.

 

1.3 General words are not to be given a restrictive meaning because they are preceded or followed by words indicating a particular class of acts, matters or things.

 

1.4 Unless otherwise specified, words importing the singular include the plural, words importing any gender include every gender and words importing persons include bodies corporate and unincorporate; and (in each case) vice versa.

 

1.5 References to clauses, Schedules and other provisions are references to clauses and other provisions of and Schedules to this agreement. The Schedules are part of this agreement as if set out in the main body of it.

 

1.6 The headings are for ease of reference only and do not affect the interpretation of this agreement.

 

6
 

 

1.7 References to this agreement or any other document are, where the context admits, references to this agreement or that other document as varied, supplemented, novated and/or replaced in any manner from time to time.

 

1.8 References to any English legal or accounting term for any action, remedy, method of judicial proceeding, legal or accounting document, legal or accounting status, court, governmental or administrative authority or agency, accounting body, official or any legal or accounting concept practice or principle or thing in respect of any jurisdiction other than England are deemed to include what most approximates in that jurisdiction to the English legal or accounting term concerned.

 

1.9 References to time are to London time.

 

2. SALE AND PURCHASE

 

2.1 On and subject to the terms and conditions of this agreement, the Seller will sell and the Buyer will buy the Business as a going concern and the legal and beneficial interest in the Assets with effect from the Completion Date.

 

2.2 The Seller covenants that:

 

2.2.1 it has full power and authority and the right to sell and transfer the legal and beneficial interest in the Assets subject to and on the terms of this agreement; and

 

2.2.2 on Completion, the Assets will be free from any Encumbrance (whether or not known about by the Seller or the Buyer); and

 

2.2.3 the Seller will execute at its own cost and expense any documents that the Buyer may consider necessary to vest any of the Assets in the Buyer or as otherwise may be necessary to give full effect to this agreement. If any of the Assets are owned, held or used by another member of the Seller's group at the Completion Date, the Seller will procure that the relevant member of the Seller's group will, as the case may be, sell or transfer those Assets to the Buyer in order to give effect to clause 2.1 and 2.2.

 

2.3 The Buyer need not complete the purchase of the Business and any of the Assets unless the purchase of the Business and all the Assets is completed simultaneously, but completion of the purchase of some of the Assets will not affect the Buyer's rights to the others.

 

2.4 The Assets will be at the risk of the Buyer from the Completion Date.

 

3. excluded assets, liabilities and creditors

 

3.1 Nothing in this agreement will transfer to the Buyer any interest in assets of the Company other than the Assets.

 

3.2 The Seller will remain responsible for and will promptly discharge the Liabilities. Nothing in this agreement will make the Buyer liable in respect of or pass to the Buyer any Liabilities. The Seller will perform any obligation falling due for performance, or which should have been performed, before the Completion Date.

 

3.3 The Buyer will with effect from the Completion Date, assume responsibility for the payment and performance of the Assumed Liabilities. The Buyer will use all reasonable endeavours to procure the cancellation of those securities or guarantees given in respect of the Assumed Liabilities by a member of the Seller Group which have been expressly specified in the Disclosure Letter:

 

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3.4 Nothing in this agreement shall pass to the Buyer, or shall be construed as acceptance by the Buyer of, any liability, debt or other obligation of the Seller (whether accrued, absolute, contingent, known or unknown) for anything done or omitted to be done before Completion in the course of or in connection with the Business or the Assets (save to the extent that any such liability is included in the Assumed Liabilities) and the Seller shall perform any obligation falling due for performance or which should have been performed before Completion, including the Liabilities other than the Assumed Liabilities.

 

3.5 Notwithstanding the provisions of clause 3.2, if any of the Liabilities have not been discharged by their due date, the Seller agrees that the Buyer may, with the Seller's prior written consent (such consent not to be unreasonably withheld or delayed), discharge any or all of those Liabilities which have not been discharged. If it does so, the Buyer may, set off the amount discharged from any amount payable by the Buyer to the Seller under this agreement. The Buyer will notify the Seller of the identity and amount of the Liability discharged and of the amount, if any, remaining after set off. The Seller will as soon as possible and by no later than the date falling 3 Business Days after the date on which that notice is given, pay to the Buyer the amount discharged or that remaining amount, as the case may be.

 

3.6 The Buyer will be under no obligation to the Seller to investigate the claims of any of the Liabilities and the Buyer will be under no liability to the Seller by reason of having paid any Liabilities under clause 3.5 or by reason of having paid certain of the Liabilities and not others .

 

4. Purchase price

 

4.1 The purchase price for the Business and the Assets will be the sum of £500,000 (the Fixed Consideration ) plus an amount equal to the Net Asset Value at the Completion Date, (the NAV Consideration ) (together the Purchase Price ).

 

4.2 The Purchase Price will be paid or satisfied as follows:

 

4.2.1 the Fixed Consideration shall be paid by the Buyer to the Seller on Completion in accordance with clause 7.4;

 

4.2.2 £250,000 of the NAV Consideration shall be paid by the Buyer to the Seller on Completion in accordance with clause 7.4; and

 

4.2.3 the balance (if any) of the NAV Consideration (being an amount equal to the Net Asset Value minus the sum of £250,000 of the NAV Consideration already paid pursuant to clause 4.2.2), shall be paid by the Buyer to the Seller within five Business Days after the date on which the Net Asset Value becomes final and binding in accordance with clause 13.

 

5. WARRANTIES

 

5.1 The Seller warrants to the Buyer as set out in Schedule 2.

 

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5.2 Any Warranty or any statement or disclosure made or referred to in the Disclosure Letter or any reply to the property or other due diligence enquiries raised by the Buyer's Solicitors which is qualified by the expression to the best of the knowledge , information and belief of the Seller or so far as the Seller is aware, or any similar expression, is deemed to be given to the best of the knowledge, information and belief of the Seller after the Seller has made due and careful enquiries of Tim Hedger and Jonas von Euler-Chelpin.

 

5.3 The Warranties are given subject only to the matters disclosed in the Disclosure Letter. For these purposes disclosed means fairly disclosed in the Disclosure Letter in a manner and with sufficient detail to enable the Buyer to identify the nature and scope of the matter disclosed. Disclose , disclosure or any similar expression will be interpreted accordingly.

 

5.4 Except as disclosed in compliance with clause 5.3 and except as set out in clause 5.5:

 

5.4.1 no Warranty will be deemed in any way to be modified, qualified or discharged because of any investigation or inquiry made or to be made by or on behalf of the Buyer; and

 

5.4.2 no fact, matter, event or circumstance of which the Buyer has knowledge will prejudice any claim which the Buyer may bring or reduce any amount recoverable by the Buyer under the Warranties.

 

5.5 The Buyer may not bring a claim for breach of the Warranties if and to the extent that the Buyer is, at the date of this agreement, actually aware of any fact, matter, event or circumstance as a result of which it is, at the date of this agreement, reasonably apparent to the Buyer that the Buyer would be entitled to bring that claim after Completion. For the purposes of this clause, the knowledge of the Buyer will be deemed to be the actual knowledge of Brendan Flood.

 

5.6 Completion will not in any way constitute a waiver of any of the Buyer's rights in respect of the Warranties.

 

5.7 The Seller warrants to the Buyer that no warranty or undertaking has been made to it in connection with the Warranties or the Disclosure Letter in respect of which any of the Employees might be liable and the Seller irrevocably and unconditionally waives any rights they may have against (and undertake not to claim against or pursue any action to join as a third party or seek contribution or indemnity from) any of the Employees.

 

5.8 Any payment made in accordance with the provisions of this clause will include the amount necessary to ensure that, after any Taxation of the payment, the Buyer is left with the same amount it would have had if the payment was not subject to Taxation.

 

5.9 Each Warranty is separate and, unless specifically otherwise provided, is not limited or affected by any other Warranty.

 

5.10 The provisions of Schedule 3 will limit the liability of the Seller as provided in that Schedule.

 

6. CONDUCT BEFORE COMPLETION

 

6.1 From the date of this agreement to Completion (or this agreement ceasing to have effect) the Seller will:

 

6.1.1 comply with Schedule 9; and

 

6.1.2 not do anything (or omit to do anything) which would constitute a breach of any Warranty if that Warranty were to be repeated at any time before Completion.

 

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6.2 The Seller or AB will promptly disclose to the Buyer in writing any matter or thing which may arise or become known to the Seller or AB after the date of this agreement and before Completion which:

 

6.2.1 is or may be a breach or contravention of or non-compliance or inconsistency with any provision of this agreement including any of the Warranties (as given at the date of this agreement and/or immediately before Completion) and the provisions of clause 6;

 

6.2.2 would be a breach of the Warranties if they were repeated at any time before Completion;

 

6.2.3 has had, or may have, any material adverse effect on the financial position of the Business or which might reasonably be expected to affect the willingness of a buyer of the Business and the Assets on the terms of this agreement to complete that purchase;

 

6.2.4 relates to, or may give rise to, the commencement of any Insolvency Proceedings in relation to the Seller or the assets of the Seller; or

 

6.2.5 relates to, or may give rise to, the commencement or threat of any litigation against or relating to the Business and/or any of the Assets or against the Seller (including in relation to its carrying on of the Business and/or its ownership or use of any of the Assets).

 

Any disclosure under this clause must be in a manner and must contain sufficient detail to enable the Buyer to identify the nature and scope of the matter disclosed and to make an informed and accurate assessment of any losses, damages, claims, liabilities (including contingent liabilities) or consequences arising from it now or in the future. The Seller will (at its own cost) make any investigation concerning the matter disclosed which the Buyer reasonably requests.

 

6.3 The Buyer may at any time before Completion, by written notice to the Seller, rescind this agreement if:

 

6.3.1 any of the Key Employees or any more than four Employees (excluding the Key Employees and those Employees employed in a support or administrative capacity) serve notice on the Seller to terminate their employment, terminate their employment and/or object to the transfer of their employment to the Buyer, save where the Buyer has (directly or indirectly) solicited, endeavoured to entice away from the Seller and/or offered to employ or engage any such Employee or has otherwise encouraged or induced such Employee to give notice, terminate their employment with the Seller and/or object to the transfer, in each case outside of the TUPE consultation process; or

 

6.3.2 any Insolvency Proceedings are commenced in relation to the Seller or the assets of the Seller.

 

If the Buyer does not rescind this agreement under this clause 6.3 and Completion occurs, the Buyer will retain any rights it has under this agreement to claim for breach of the Warranties or claim for breach of or contravention of or non-compliance with any obligations of the Seller under this agreement.

 

10
 

 

6.4 If this agreement is rescinded no party will have any claim against any other in respect of it except for any existing breach and except that this clause 6.4 and clauses 1, 16 and 22 to 34 inclusive will continue to have effect.

 

7. COMPLETION

 

7.1 Completion will take place at the offices of the Buyer's Solicitors on the Completion Date.

 

7.2 On Completion, the Seller will comply with its obligations set out in Part A of Schedule 4 and deliver to the Buyer's Solicitors any other documents required to be delivered by it or any other member of the Seller's group under this agreement.

 

7.3 To the extent that any Goodwill is not assigned under any document delivered to the Buyer under Part A of Schedule 4, all the Seller's rights, title and interest in and to that Goodwill will be transferred to the Buyer with effect from the Completion Date by virtue of this clause 7.3 without further formality. Without limiting clause 209, the Seller will enter into a confirmatory assignment in respect of the Goodwill if required to do so by the Buyer.

 

7.4 Against compliance with clause 7.2, on Completion the Buyer will pay the Completion Amount to the Seller by way of remittance of that amount by telegraphic transfer to the Seller's Solicitors' Bank Account.

 

7.5 Against compliance with clause 7.2, on Completion the Buyer will deliver to the Seller's Solicitors the documents and evidence listed in Part B of Schedule 4 and any other documents required to be delivered by it under this agreement.

 

7.6 If all the events referred to in clause 7.2 relating to Completion do not take place within 24 hours after the Completion Date, then this agreement will be of no effect and no party will have any claim against or liability to any other under this agreement except for breach of its obligations under that clause 7.2 and except that this clause 7.6 and clauses 1, 16 and 22 to 34 inclusive will continue to have effect.

 

8. book debts

 

8.1 The Book Debts will be assigned to the Buyer at Completion by an assignment in the Agreed Form. Nevertheless, if the Seller receives any money after Completion in respect of any Book Debts, the Seller will immediately account to the Buyer for that money and in the meantime that money will be held on trust for the Buyer.

 

8.2 At the request of the Buyer, the Seller will sign and deliver to the Buyer any letter from it in the Agreed Form to each of the persons from whom the Book Debts are owed instructing them to pay their respective part of the Book Debts to the Buyer or as it may direct and the Seller irrevocably appoints the Buyer and any director of the Buyer after Completion to act as its attorney in the execution of any of those letters, that power of attorney being by way of security to secure to the Buyer the performance of the Seller's obligations under this agreement in connection with the Book Debts.

 

8.3 The Seller will:

 

8.3.1 not settle, compromise or release any of the Book Debts or assign any of the Book Debts to any third party (or attempt to settle, compromise, release or assign any of the Book Debts);

 

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8.3.2 after Completion, not take any step to collect or enforce the Book Debts or do anything to hinder their collection by the Buyer;

 

8.3.3 not (without the prior written consent of the Buyer) engage after Completion in any correspondence or discussion concerning the Book Debts with any person from whom the Book Debts are due (or any person acting on behalf of that person); and

 

8.3.4 forward to the Buyer promptly after receipt all correspondence or other communications received by the Seller in relation to any of the Book Debts.

 

9. contracts AND ASSUMED LIABILITIES

 

9.1 In this clause 9 and in clause 10:

 

9.1.1 Third Party Consent means a consent, licence, approval, authorisation or waiver required from a third party for the transfer, assignment or novation to the Buyer of any Contract or Assumed Liabilities; and

 

9.1.2 a Third Party Consent will be deemed to be required if:

 

(a) in relation to a Contract, the absence of any consent, licence, approval, authorisation or waiver, a transfer, assignment or novation would result, directly or indirectly, in the breach of any Contract, the acceleration of any obligation of the Seller (or the assumption by the Seller of a further obligation) under any Contract, a person becoming entitled to terminate any Contract or otherwise exercise any further right under any Contract; or

 

(b) in relation to an Assumed Liability, the absence of any consent, licence, approval, authorisation or waiver, a transfer, assignment or novation would result in the Assumed Liability not being assumed by the Buyer.

 

9.2 Subject to Completion taking place and to clause 10.4, the Seller assigns to the Buyer with effect from the Completion Date:

 

9.2.1 the benefit of all the Contracts; and

 

9.2.2 the Assumed Liabilities

 

which are capable of assignment without a Third Party Consent.

 

9.3 At the request of the Buyer, the Seller will sign and deliver to the Buyer any notice from it in the Agreed Form to each of (i) the other contracting parties to the Contracts and (ii) the Assumed Liabilities which are assigned under clause 9.2 giving notice of the assignment. The Seller irrevocably appoints the Buyer and any director of the Buyer after Completion to act as its attorney in the execution of any of those notices, that power of attorney being by way of security to secure to the Buyer the performance of the Seller's obligations under this agreement in connection with the Contracts and the Assumed Liabilities.

 

9.4 Subject to the other provisions of this clause 9 (including, without limitation, clause 9.5) and clause11, the Buyer will perform in place of the Seller all obligations required to be performed after the Completion Date under the Contracts and in respect of the Assumed Liabilities.

 

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9.5 Nothing in this agreement (including, without limitation clauses 9.4 and10.3.2) will require the Buyer to discharge, perform or be responsible for any obligation or liability:

 

9.5.1 relating to, arising by reason of, or which is attributable to, a breach by the Seller of any obligation required by any Contract or by any legal or regulatory requirement on or before the Completion Date;

 

9.5.2 relating to, arising by reason of, or which is attributable to, any services supplied by the Seller on or before the Completion Date; or

 

9.5.3 which the Buyer is unable to perform as a result of, or in connection with, any act or omission by the Seller on or before the Completion Date including any failure by the Seller to take any action on or before the Completion Date which would enable the Buyer to perform the relevant obligation on or before the due date in the ordinary course of business.

 

9.6 The Seller will at its own cost discharge and perform the obligations and liabilities referred to in clause 9.5 as they fall due. Without limitation, if any person liable to make payment after the Completion Date under a Contract exercises against the Buyer a right of set-off in respect of any act or omission on or before the Completion Date of the Seller, the Seller will promptly pay to the Buyer an amount equal to the difference between the payment which would have been received had no such right of set-off been exercised and the payment actually received.

 

9.7 At any time during the six months after Completion, the Buyer may at its sole discretion elect by service of written notice on the Seller to discharge and perform any of the obligations and liabilities referred to in clause 9.5 as agent for and at the cost of the Seller.

 

10. third party consent

 

10.1 If any of the Contracts or Assumed Liabilities cannot be assigned or novated without obtaining a Third Party Consent (as defined in clause9.1), then the Seller will use all reasonable endeavours to obtain those relevant consents as soon as is reasonably practicable after Completion. Any fee or charge levied by any relevant third party in connection with those consents, including any costs or expenses for which it requires reimbursement, will be borne by the Seller. For the avoidance of doubt, the Buyer will not be obliged to make any payment, lodge any money, give any security or provide any guarantee as the basis for, or in connection with, obtaining those relevant consents.

 

10.2 Promptly following the obtaining of any relevant consent under clause 10, the Seller will assign or novate, as relevant , the relevant Contract or Assumed Liability to the Buyer in a form reasonably requested by the Buyer and, where the Contract is assigned rather than novated, the Seller will, at the request of the Buyer, sign and deliver to the Buyer any notice from it in a form reasonably requested by the Buyer to each of the other contracting parties to the relevant Contract giving notice of the assignment. The Seller irrevocably appoints the Buyer and any director of the Buyer after Completion to act as its attorney in the execution of any assignment or novation of the relevant Contract or Assumed Liability and any relevant notice of assignment, that power of attorney being by way of security to secure to the Buyer the performance of the Seller's obligations under this agreement in connection with the Contracts and the Assumed Liabilities.

 

10.3 Insofar as any Contract cannot be assigned or novated to the Buyer without Third Party Consent, and such consent is refused or otherwise not yet obtained, or where any of the Contracts are incapable of transfer to the Buyer by any means:

 

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10.3.1 the Seller will continue its corporate existence and will hold that Contract and any money, goods or other benefits received under it on trust for the Buyer and its successors in title absolutely and:

 

(a) pay all money so received into a bank account separate from any account holding money of the Seller;

 

(b) require all goods to be delivered or services to be provided under that Contract to be delivered or provided as the Buyer may direct;

 

(c) account to the Buyer for that money and all those other goods or benefits on or before the date falling five Business Days after the date of receipt;

 

(d) permit the Buyer to have the use of any assets or rights whose use by the Seller is authorised by that Contract; and

 

(e) exercise its rights under or in respect of that Contract only as the Buyer may from time to time direct;

 

10.3.2 subject (for the avoidance of doubt) to the provisions clause 9.5, the Buyer will (if sub-contracting is permissible and lawful under the Contract in question), as the Seller's sub-contractor, perform all the obligations of the Seller under that Contract and, where sub-contracting is not permissible, the Buyer will perform those obligations as agent for the Seller; and

 

10.3.3 unless and until that Contract is assigned or novated, the Seller will (so far as it lawfully may) at the Buyer's cost give any assistance as the Buyer may reasonably require to enable the Buyer to enforce its rights under that Contract and (without limitation) will provide access to all relevant books, documents and other information in relation to that Contract as the Buyer may require from time to time.

 

10.4 Nothing in this agreement will be construed as an assignment or attempted assignment if that assignment or attempted assignment would constitute a breach of the relevant Contract.

 

10.5 Without affecting its rights under clause 10.5, if Third Party Consent to the assignment or novation of a Contract is refused, or otherwise not obtained on terms reasonably satisfactory to the Buyer within 60 Business Days of Completion, the Buyer may, in its sole discretion, require the Seller to serve proper notice to terminate that Contract. Following the service of that notice, the Seller will promptly take all necessary action and execute all necessary deeds or documents to terminate that Contract.

 

10.6 Nothing in this clause 10 will affect the Buyer's rights in respect of any right or obligation which the Seller has warranted to be assignable or capable of performance by the Buyer without Third Party Consent.

 

11. employees

 

11.1 The parties agree that the sale and purchase under this agreement will constitute a relevant transfer for the purposes of the TUPE Regulations and, accordingly, that it will not operate so as to terminate the contracts of employment of any of the Employees. Those contracts will be transferred to the Buyer under the TUPE Regulations with effect from the Completion Date.

 

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11.2 The Seller undertakes to the Buyer:

 

11.2.1 that it has complied with, and will up to and including the Completion Date, comply with all of its legal obligations to the Employees or any body representing them (notwithstanding that those obligations would transfer to the Buyer on Completion under the TUPE Regulations);

 

11.2.2 that it has paid and will pay all sums due to or in relation to the Employees in respect of the period up to and including the Completion Date (whether arising under common law, statute, equity or otherwise) including all salaries, wages, employee bonus or commission, expenses, National Insurance and pension contributions, liability to Taxation, and other sums payable in respect of any period up to the Completion Date;

 

11.2.3 that it has complied and will comply in all respects with its obligations under regulation 11 of the TUPE Regulations;

 

11.2.4 save as Disclosed, that there are no sums owing to or from any Employee other than reimbursement of expenses for the current quarter and commission and wages for the current salary period;

 

11.2.5 that it will prior to the Completion Date comply in all respects with regulation 13 of the TUPE Regulations (save insofar as any failure by the Buyer to comply with its obligations under Regulation 13(4) of the TUPE Regulations results in the Seller being unable to comply with its obligations under Regulation 13 of the TUPE Regulations) (and that it has provided and will provide to the Buyer such information as the Buyer may reasonably request in writing in order to verify that compliance);

 

11.2.6 that it has not (other than in the normal course of business, which shall include, without limitation, any salary increases made following the annual salary review) in the last 12 months altered and will not alter (whether to take effect before, on or after the Effective Time) any of the terms of employment or engagement of any of the Employees (without the prior written consent of the Buyer);

 

11.2.7 that it has not terminated and will not terminate or take any steps to terminate (constructively or otherwise) the employment of any of the Employees without the prior written consent of the Buyer (save that this undertaking shall not apply to any constructive dismissal which arises from any measures proposed by the Buyer or any deemed dismissal under Regulation 4(9) of the TUPE Regulations);

 

11.2.8 that it has not (other than in the normal course of business) in the last 6 months transferred and will not transfer any of the Employees from working within the Business, it has not induced and will not prior to the Completion Date induce any Employee to resign their employment in the Business, and it has not agreed and will not agree to transfer any Employee from the Business prior to the Completion Date (without the prior written consent of the Buyer);

 

11.2.9 that it has not within the last six months and will not, without the prior written consent of the Buyer, employ, engage or transfer any person who is not an Employee to work in the Business; and

 

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11.2.10 to indemnify the Buyer and keep the Buyer fully and effectively indemnified on demand from and against all Losses (including any liability to Taxation and, subject to clause 11.4, any liability arising from a settlement as well as a ruling or determination by an employment tribunal or court) which the Buyer may suffer, sustain, incur, pay or be put to arising from or in connection with:

 

(a) any failure by the Seller to comply with its obligations under this clause 11.2; or

 

(b) the termination of any of the Employees' employment by the Seller on or before the Effective Time; or

 

(c) any failure by the Seller, on or before the Effective Time, to comply with its legal obligations in respect of any of the Employees; or

 

(d) any failure by the Seller, on or before the Effective Time, to comply with its legal obligations in respect of any employee of the Seller other than the Employees whose employment transfers to the Buyer by virtue of the TUPE Regulations (and, for the avoidance of doubt, in these circumstances references to Employees in the other parts of this clause 11.2 which confer a benefit on the Buyer will (unless the context otherwise requires) be deemed to include those employees of the Seller); or

 

(e) any act or omission before the Effective Time which, by virtue of the TUPE Regulations, is deemed to be an act or omission of the Buyer; or

 

(f) the Seller's failure to comply with its obligations under regulation 13 of the TUPE Regulations (save to the extent that such failure arises out of the Buyer's failure to provide information to the Seller pursuant to Regulation 13(4) of the TUPE Regulations); or

 

(g) any liability for contravention of the Equal Pay Legislation resulting from a comparison of the terms and conditions of employment on or before the Effective Time of any Employee with the terms and conditions of employment on or before the Effective Time of any employee of the Seller who did not transfer to the Buyer or of any Employee, in respect of the period up to the Effective Time.

 

11.3 If any contract of employment or collective agreement not disclosed to the Buyer has effect or is alleged to have effect as if originally made between the Buyer and any person or body or their representatives as a result of the provisions of the TUPE Regulations or otherwise:

 

11.3.1 the Buyer may terminate that contract within 30 days of receiving notification of such an allegation or notification that a court or tribunal has determined such a contract to have such effect; and

 

11.3.2 the Seller will indemnify the Buyer and keep the Buyer fully and effectively indemnified on demand from and against all Losses (including any liability to Taxation and, subject to clause 11.4, any liability arising from a settlement as well as a ruling or determination by an employment tribunal or court) that the Buyer may suffer, sustain, incur, pay or be put to:

 

(a) by reason of, on account of or arising out of that termination; or

 

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(b) arising from that contract or collective agreement in respect of the period before the Effective Time and for the period after the Effective Time up to receipt of notification of such an allegation or notification that a court or tribunal has determined such a contract to have such effect, if the Buyer does not terminate that contract or collective agreement.

 

11.4 Pursuant to clauses 11.2 and 11.3 above, the Seller shall indemnify the Buyer on demand from and against any liability arising from a settlement entered into with any Employee (or any employee of the Seller other than the Employees whose employment transfers to the Buyer by virtue of the TUPE Regulations) subject at all times to the following conditions:

 

11.4.1 the Buyer shall notify the Seller of any allegation or claim which could result in the Seller becoming liable to indemnify the Buyer under clauses 11.2 or 11.3 within 14 days of being notified of such allegation or claim and shall promptly provide the Seller with such information as it may reasonably request concerning such claim or allegation;

 

11.4.2 the Buyer shall not make any settlement or compromise in respect of such allegation or claim whereby the total value of any ex-gratia payment and contribution to legal fees provided to the employee in such settlement exceeds the sum of £30,000 without the prior approval of the Seller, such approval not to be unreasonably withheld or delayed.

 

11.5 The Seller will, on request by the Buyer and at the Seller's expense, provide to the Buyer such information or documents as the Buyer may reasonably require relating to the terms of employment, pension and life assurance arrangements, health benefits, welfare or any other matter concerning any of the Employees or any trade union, employee representative or body of employees or their representatives or relating to collective agreements or collective or individual grievances.

 

11.6 The Buyer will indemnify the Seller and keep the Seller fully and effectively indemnified on demand from and against any Losses arising from:

 

11.6.1 any act of the Buyer in relation to any Employee (including the termination of such Employee's employment by the Buyer) after the Completion Date;

 

11.6.2 any claim by an Employee that they have been constructively dismissed arising from any measures proposed or implemented by the Buyer (including where such Employee resigns from their employment before the Completion Date);

 

11.6.3 any failure by the Buyer to comply with its obligations under Regulation 13(4) of the TUPE Regulations; and

 

11.6.4 any claim by an Employee under Regulation 4(9) of the TUPE Regulations.

 

12. apportionments

 

12.1 Except where liability for a periodical outgoing both in respect of the period before and after the Completion Date is expressly assumed or retained by the Buyer or the Seller under this agreement, the Seller will be liable for those periodical outgoings of the Business or related to the Assets which are attributable to the period ending at the Completion Date, and the Buyer will be liable for those periodical outgoings of the Business or related to the Assets which are attributable to the period starting immediately after the Completion Date, such periodical outgoings shall be included and the relevant adjustments made in the Completion Accounts. For the purposes of this clause, periodical outgoing includes rates and non-customer rebates, insurance, salaries, wages, entitlement to paid holiday employee bonus or commission, expenses, National Insurance and pension contributions and liability to Taxation. All rents, licence fees, royalties and other periodical receipts (other than the Book Debts) of the Business or related to the Assets will be apportioned between the Seller and the Buyer in the same way.

 

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12.2 As soon as possible and in any event on or before the date falling 20 Business Days after Completion (the Apportionment Statement Deadline ), the Seller and the Buyer will together prepare an agreed statement of any items which are required to be apportioned between them or paid in order to give effect to clauses 12.1 to 12.3. Each party will promptly supply the other with any information reasonably required by that other for the purposes of preparing or verifying that statement. For the purposes of clauses 12.2 and 12.3 the parties will agree a monetary value for any benefit paid or received otherwise than in cash. If that statement is not agreed and prepared by the Apportionment Statement Deadline, either party may require that any matter which is in dispute be determined, and a final statement adjusted only to take account of the matters determined by the Expert be prepared, by the Expert under clause 14.

 

12.3 Once the statement is agreed and prepared under clause 12.2 or (as the case may be) is prepared by the Expert and notified in writing to the Seller and the Buyer under clause 12.2, the parties shall ensure that any net liability for periodical outgoings owed by one party to the other will be included in the Completion Account adjustments.

 

12.4 Nothing in this clause 12 will make any party liable more than once in respect of any matter.

 

13. COMPLETION ACCOUNTS

 

13.1 As soon as possible after Completion and in any event on or before the date falling 20 Business Days after Completion (the Completion Accounts Deadline ), the Seller will procure that the Completion Accounts are prepared and sent to the Buyer.

 

13.2 The Completion Accounts must be prepared in accordance with Schedule 8 and include:

 

13.2.1 a balance sheet of the Company as at the close of business on the date of Completion and a profit and loss account of the Company for the period from and excluding the Accounts Date up to and including the date of Completion in the format set out in Part B of Schedule 8; and

 

13.2.2 a calculation and identification of the amount of Net Asset Value, a pro forma for which is included in Part B of Schedule 8. If there is any inconsistency or conflict between the definition of Net Assets and the pro-forma, the definition will prevail.

 

13.3 The Buyer may on or before the date falling 20 Business Days after submission to it of the Completion Accounts (the Response Deadline ), notify the Seller in writing (the Response Notice ) that it does not agree the Completion Accounts setting out in reasonable detail the items in dispute and the adjustments (with a suitable explanation) which, in the opinion of the Buyer is required to be made. The items not identified in the Response Notice as being in dispute will be deemed to be agreed. If no Response Notice is received by the Seller on or before the Response Deadline, the Buyer will be deemed to have accepted the Completion Accounts as being in accordance with this agreement and the Completion Accounts, and the amount of the Net Asset Value stated in them, will be final and binding on the parties.

 

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13.4 If a Response Notice is received by the Seller on or before the Response Deadline, the Seller and the Buyer will have until the date falling 10 Business Days after the date on which the Response Notice is received (the Resolution Date ) to agree the items in dispute and the amount of Net Asset Value. The amount of Net Asset Value so agreed will (in the absence of fraud or manifest error) be final and binding on the parties.

 

13.5 If a Response Notice is given and the Net Asset Value does not become final and binding under clause 13.4 by the Resolution Date, then the matters outstanding or in dispute must be referred to the Expert for final decision in accordance with clause 14of this agreement. The Expert will decide:

 

13.5.1 the matters outstanding or in dispute and therefore, what revisions (if any) are required to be made to the Completion Accounts in order for them to comply with this clause 13; and

 

13.5.2 the amount of the Net Asset Value.

 

13.6 Each party must procure (so far as they are able) that the Seller and the Buyer and their respective accountants are given any documents and information as are reasonably required by the other (and not including advice on the Completion Accounts given to a party by its own accountants) for the purpose of preparing or reviewing the Completion Accounts and access on reasonable notice and during normal working hours to relevant personnel, records and information in the control of the relevant party.

 

13.7 The Seller and the Buyer will each pay the costs of their own accountants.

 

13.8 No claim which the Buyer may have against the Seller in respect of any breach of any of the Warranties or any other provision of this agreement will be affected, waived or limited by the determination of Net Asset Value under this agreement.

 

14. REFERENCES TO EXPERT

 

14.1 Any matter or dispute which, under the terms of this agreement, is to be determined under this clause 14 will be determined by an independent firm of chartered accountants appointed under this clause (the Expert ).

 

14.2 The Seller and the Buyer will use reasonable endeavours to agree the identity of the Expert and terms of engagement complying with this agreement with that person by no later than the date 20 Business Days after either of the Buyer or the Seller first requests the other to approve a named firm for the purpose and provides draft terms of engagement of that firm. If terms of engagement have not been signed by or on behalf of that firm, the Seller and the Buyer by that date, either the Buyer or the Seller may apply to have the Expert chosen by the President of the Institute of Chartered Accountants in England and Wales. The Seller and the Buyer will cooperate in good faith to agree terms of engagement complying with this agreement with the firm chosen (the Terms ) by no later than 15 Business Days after the date on which the terms of engagement of the firm chosen by the President are received by both of them. Neither will unreasonably withhold consent to the terms of engagement of the firm chosen.

 

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14.3 If the Seller or the Buyer fails to sign Terms, the firm chosen will be deemed to have been appointed on the Terms (if any) signed by the other and all the parties to this agreement will be bound by the terms of the appointment and able to enforce them as if they had been signed by them. The party which signs the terms (absent its proven fraud or wilful default) will not be liable to any of the other parties or any other person by reason of or otherwise in relation to that appointment. Without limiting the signing party's ability to agree the terms, the parties agree that the terms may (if the party which signs them deems fit) contain an indemnity in favour of the Expert and cap on the Expert's liability in terms not materially more onerous than typical terms agreed by the firm in question for expert determination instructions on transactions of a similar nature.

 

14.4 The Expert will act on the following basis:

 

14.4.1 as an expert and not as an arbitrator and his written determination will be final and binding on the parties (save in the event of fraud or manifest error, in which case the error must be rectified as soon as practical) and the Expert will not be required to give reasons for his decision;

 

14.4.2 the Expert will only be required to decide the matters which this agreement provides should be decided by the Expert under this clause and not any additional or separate issues subsequently raised by the parties;

 

14.4.3 the Expert will provide his decision and any calculation, statement or accounts to be provided by the Expert in writing to the parties on or before the date falling 20 Business Days after the date of the Experts' engagement;

 

14.4.4 the Seller and the Buyer may make representations to the Expert in writing (and each will copy their representations to the other party); and

 

14.4.5 except as set out in this clause 14, the Expert may decide on the procedure to be followed in reaching his decision.

 

14.5 The parties will each use all reasonable endeavours to co-operate with the Expert to enable the decision to be reached in the time provided in this agreement. They will give the Expert all facilities, information and access to their respective premises and personnel, papers, books, accounts and records as the Expert may reasonably require for the purposes of the Expert's decision. If any party does not comply with any request within any time specified by the Expert, the Expert may make any assumption for the purposes of giving a decision under this agreement, including any decision to costs, as the Expert may decide.

 

14.6 The costs of the Expert (including the costs and fees of any advisers appointed by the Expert) will be shared equally by the Buyer on the one hand and the Seller on the other, unless the Expert decides otherwise.

 

15. Right of set-off

 

15.1 If the Buyer has any claim against the Seller under this agreement, the Buyer may apply all or any part of any amount payable to the Seller under this agreement against and in satisfaction of any amount due in respect of that claim. This does not limit any other right of the Buyer in respect of any claim(s).

 

15.2 If the Seller has any claim against the Buyer under this agreement, the Seller may apply all or any part of any amount payable to the Buyer under this agreement against and in satisfaction of any amount due in respect of that claim. This does not limit any other right of the Seller in respect of any claim(s).

 

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16. ANNOUNCEMENTS and CONFIDENTIALITY

 

16.1 Immediately after Completion the Seller and the Buyer will jointly send (at the Buyer's expense) a statement in the Agreed Form (the Announcement Statement ), signed on behalf of each of them, to each customer, supplier or contact of the Business as the Buyer requests.

 

16.2 Immediately after execution of this agreement the Seller and the Buyer will jointly announce the transaction in the Agreed Form.

 

16.3 No party will otherwise make any announcement relating to the existence, terms or subject matter of this agreement without prior written approval, in the case of the Seller , by the Buyer or, in the case of the Buyer, by the Seller.

 

16.4 The Seller will not and will procure that no other members of the Seller's group or AB’s group will disclose any Business Information to any person or enable any person to become aware of any Business Information or make use of any Business Information.

 

16.5 The Seller undertakes to the Buyer to keep confidential all information which they have acquired about the Buyer's group (and to use the information only for the purposes contemplated by this agreement).

 

16.6 The Buyer undertakes to the Seller and AB to keep confidential all information acquired by the Buyer about the Seller and AB or any other members of the Seller's group or AB’s group (and to use the information only for the purposes contemplated by this agreement).

 

16.7 The obligations of confidence set out in this clause do not apply to the extent that disclosure is required by law or to give effect to this agreement or where the information has become public otherwise than as a result of its wrongful disclosure to any person. The Seller undertakes to supply the Buyer with any information about itself or any other member of the Seller's group as the Buyer may reasonably require for the purposes of complying with any legal or regulatory requirement.

 

17. RESTRICTIve covenants

 

17.1 In this clause 17:

 

Capacity means as agent, consultant, director, employee, owner, shareholder or in any other capacity;

 

Customer means any Person who or which at any time during the Relevant Period (i) was provided with services by the Seller in relation to the Business; or (ii) was in the habit of dealing with Seller in relation to the Business;

 

Client means any person who or which at any time during the Relevant Period (i) was provided with the services by the Seller in relation to the Business; (ii) had been in communication with any Employee in relation to using the services of the Business; or (iii) any individual whose name and contact details were listed on the Client Database or any other record held by the Business;

 

Investment means any holding as a bona fide investment of not more than three per cent of the total issued share capital in any company whether or not its shares are listed or dealt in on any recognised investment exchange, as defined in section 285 of the Financial Services and Markets Act 2000 provided that company does not carry out a business similar to or competitive with the Business at the relevant time;

 

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Key Employee means any Employee who immediately before Completion was employed or any other Person employed or engaged in the Business during the Relevant Period who had access to Business Information (which is secret or confidential) or who could materially damage the interests of Business if they were involved in any Capacity in any business which competes with the Business;

 

Person means any person, firm, company or entity;

 

Prospective Customer means any Person to whom or which, during the period of six months before Completion, the Seller had in relation to the Business submitted a tender, made a pitch or presentation or with whom or which it was otherwise negotiating for the supply of goods or services or who was on the Customer Database; and

 

Relevant Period means the period of 12 months ending on Completion.

 

17.2 The Seller and AB covenant with the Buyer that the Seller will not and will use reasonable endeavours to procure that the other members of the Seller's or AB's group will not:

 

17.2.1 for 24 months following Completion be engaged, concerned or involved in any Capacity with any business which is (or intends to be) in competition with the Business in the United Kingdom;

 

17.2.2 for 12 months following Completion solicit or endeavour to entice away from the Buyer the business or custom of a Customer or Prospective Customer with a view to providing services to that Customer or Prospective Customer in connection with any business which is (or intends to be) in competition with the Business or otherwise induce, solicit or entice or endeavour to induce, solicit or entice any Customer to cease conducting, or reduce the amount of, business with the Buyer in relation to the Business or discourage or prevent any Prospective Customer from conducting business with the Buyer in relation to the Business in the United Kingdom;

 

17.2.3 for 12 months after Completion be involved with the provision of services to, or otherwise have any business dealings with, any Customer or Prospective Customer in the course of any business which is in competition with the Business in the United Kingdom;

 

17.2.4 for 12 months following Completion offer to employ or engage or otherwise endeavour to entice away from the Buyer any Key Employee (whether or not that person would breach their contract of employment or engagement); and/or

 

17.2.5 for 12 months following Completion employ or engage or facilitate the employment or engagement of any Key Employee (whether or not that person would breach their contract of employment or engagement) in any business which is in competition with the Business.

 

17.3 The covenants in clause 17.2 are intended for the benefit of the Buyer and apply to actions carried out by the Seller or any member of the Seller's group in any capacity and whether directly or indirectly, on the Seller's or any member of the Seller's group own behalf, on behalf of any other person or jointly with any other person.

 

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17.4 No restriction in clause 17.2 will prevent the Seller or any member of the Seller's group from:

 

17.4.1 holding an Investment; or

 

17.4.2 being engaged or concerned in any business carried on in geographical areas where that business is not in competition with the Business.

 

17.5 The restrictions in clause 17.2 are separate from any other agreement or arrangement with the Seller and termination of any of those agreements or arrangements will not affect the enforceability of the restrictions in clause.

 

18. TERMINATION OF CERTAIN ARRANGEMENTS WITH THE SELLER

 

Except as otherwise provided in this agreement or in the Transitional Services Agreement, with effect from the Completion Date all arrangements to which the Seller or any member of the Seller's group is a party relating to the provision of management, administration, computer, insurance, personnel, accounting, legal or similar services in relation to the Business and the Assets (insofar as they have been provided up to the Completion Date) will cease without any further liability or obligation on the Buyer.

 

19. data protection

 

Notwithstanding any other provision of this agreement, the Buyer agrees with the Seller that, on receipt of the Customer Database, Client Database and Employee Database on Completion, it will send a fair processing notice to each customer of the Business and each Employee identified in the Customer Database, Client Database and Employee Database respectively within 10 Business Days of Completion.

 

20. further assurance and other Obligations after COMPLETION

 

20.1 The Seller agrees (at its expense) to promptly execute and deliver any document or do anything which the Buyer may reasonably require at or after Completion to give full effect to the provisions of this agreement, including to:

 

20.1.1 vest in the Buyer (or as it directs) the legal and beneficial ownership of the Business and the Assets; and

 

20.1.2 enable the Buyer (or as it directs) to obtain any permits, consents, approvals, accreditations, licences, certificates, registrations or other authorisations required in connection with the Business after the Completion Date.

 

20.2 The Seller will (and will procure that any other member of the Seller’s group will) preserve in good order all information, records (including, without limitation, all Taxation records) and other documents relating to the Business and the Assets which have not been handed to the Buyer under this agreement for a period of at least six years following Completion and upon reasonable notice by the Buyer make that information and those records and documents available during normal business hours for inspection by the Buyer and/or its employees, agents and representatives and allow the Buyer and/or those employees, agents and representatives to take copies of them.

 

20.3 Subject always to the provisions of this agreement, all money or other items belonging to the Buyer, which are received by the Seller on or after the Completion Date in connection with the Business or any of the Assets, will be held on trust for the Buyer and will be paid or delivered promptly to the Buyer.

 

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20.4 Subject always to the provisions of this agreement, all money or other items belonging to the Seller, which are received by the Buyer on or after the Completion Date in connection with the Business or any of the Assets, will be held on trust for the Seller and will be paid or delivered promptly to the Seller.

 

20.5 If after Completion the Seller or any other member of the Seller's group receives any notices, enquiries, orders, complaints or claims relating to the Business, the Seller will ensure that full details are immediately given to the Buyer. The Seller will (and will procure that all other members of the Seller's group will) promptly advise the person, firm, company or entity making any order or enquiry that the Buyer is now carrying on the Business in succession to the Seller. The Seller will, at its own cost and expense, provide all reasonable assistance to the Buyer to assist the Buyer to resolve amicably any of those complaints or claims arising in respect of any act or omission occurring before the Completion Date, but will not itself attempt to resolve any of those complaints or claims if to do so might reasonably be expected to damage the business interests of the Buyer to the extent that it relates to any obligations which the Buyer has elected to perform under clause 9.7.

 

21. value added tax

 

21.1 The Purchase Price is exclusive of VAT. If the Purchase Price constitutes the whole or part of the consideration for a taxable supply by the Seller to the Buyer, the amount of that payment will be increased by an amount equal to the VAT chargeable in respect of that supply provided that the Seller issues the Buyer with a valid VAT invoice in respect of the supply.

 

21.2 The Seller and the Buyer consider that the sale of the Business and the Assets by the Seller to the Buyer is one to which the provisions of article 5 of the Value Added Tax (Special Provisions) Order 1995 ( article 5 ) applies and the Seller and the Buyer agree to use all reasonable endeavours to secure that the sale is treated as neither a supply of goods nor a supply of services under article 5.

 

21.3 The Seller warrants to the Buyer that:

 

21.3.1 the Business is a business activity for the purposes of VAT and is capable of separate operation;

 

21.3.2 the Assets are legally and beneficially owned by the Seller, are used for the purposes of the Business and are the Seller's business assets;

 

21.3.3 the Assets are capable of being used by the Buyer to carry on the same kind of business, whether or not as part of any existing business carried on by the Buyer, as carried on by the Seller immediately before Completion;

 

21.3.4 the Seller is a taxable person for the purposes of VAT;

 

21.3.5 there has been no break in the normal trading pattern of the Business at any time in the last six months;

 

21.4 The Buyer warrants to the Seller that:

 

21.4.1 the Buyer is, or immediately after Completion will become, a taxable person; and

 

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21.4.2 the Assets are to be used by the Buyer in carrying on the same kind of business as the Seller.

 

21.5 If, after Completion, HMRC issues a decision to the effect that the transaction provided for by this contract constitutes or includes a supply of goods and/or services for the purposes of VATA, or if the Seller is otherwise assessed to VAT in relation to the transaction, the Buyer will immediately, on being notified by the Seller of such decision or assessment and upon receipt of a valid VAT invoice, pay the Seller sums equal to the VAT which is attributable to the sale upon receipt of a valid VAT invoice together with any interest, penalty or surcharge which is imposed on the Seller (or the representative member of the Seller's VAT Group) by HMRC as a result of any breach of any obligation or warranty made by the Buyer in this contract.

 

21.6 If the Buyer makes any payment or any increased payment in respect of VAT under this clause and it subsequently transpires that the amount of the VAT chargeable is less than the amount paid or increased amount paid by the Buyer or that the transaction in respect of which the payment was made or increased payment was made and which was regarded to be a supply or deemed supply for VAT purposes is not such a supply, the Seller will pay the Buyer, on demand, unless the Seller has accounted to H M Revenue & Customs in respect of the payment or the increased payment as output tax, in which case, within five Business Days of the Seller obtaining a refund or the related credit for the overpayment of output tax, an amount equal to the difference between the payment or the increased payment made by the Buyer and the correct amount of VAT chargeable (if any) in respect of the supply, transaction or event in question.

 

22. notices and SERVICE of proceedings

 

22.1 Any notice or other communication given or made in connection with this agreement must be in writing and in English.

 

22.2 Any notice or other communication given or made in connection with this agreement must be served by delivering it personally or sending it by pre-paid first class post (pre-paid international recorded airmail if being sent to or from a place outside the United Kingdom ) or fax to the address and for the attention of the relevant party set out in clause 22.3. Provided that it has been correctly addressed as set out in clause 22.3, the notice or communication will (in the absence of earlier receipt) be deemed to have been received:

 

22.2.1 if delivered personally, at the time of delivery;

 

22.2.2 in the case of pre-paid first class post, two Business Days after the date of posting or in the case of airmail five Business Days after the date of posting;

 

22.2.3 in the case of fax, on completion of transmission.

 

Provided that if receipt would under this clause be deemed to occur outside 9.30 a.m. to 5.30 p.m. (London time) on a Business Day ( Working Hours ) the notice or communication will instead be deemed to have been received at the start of the next period of Working Hours.

 

22.3 The addresses for service of the parties are:

 

Buyer :

 

For the attention of: Brendan Flood

 

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Address: Suite 002 1 - 9 Hardwicks Square, Hardwicks Way, Wandsworth, London, SW18 4AW

 

Fax number: 020 3194 4255

 

Seller :

 

For the attention of: Tim Hedger

 

Address: Providian House , 16 - 18 Monument Street , London , EC3R 8AJ

 

AB :

 

For the attention of: Dag Sundstrom or the Managing Director

 

Address: Kungsgatan 57A, Box 207, SE101, 24 Stockholm, Sweden

 

or any other address or fax number in the United Kingdom as may be notified by at least five Business Days' notice in writing from time to time by the relevant party to the other parties in accordance with this clause 22.

 

22.4 For the avoidance of doubt, notice given under this agreement will not be validly given if sent by electronic means or in electronic form (each as defined in section 1120 of the Companies Act), except that it may be validly given if sent by fax.

 

22.5 AB irrevocably appoints the Seller's Solicitors as its agent to receive on its behalf in England and Wales service of any proceedings arising out of or in connection with this agreement. Service will be deemed completed on delivery to that agent (whether or not it is forwarded to and received by its principal). If for any reason that agent ceases to be able to act as agent or no longer has an address within England or Wales, AB will immediately appoint a substitute and give notice to the other parties of the new agent's name and address within England or Wales. Nothing in this agreement affects the right to serve process in any other manner permitted by law.

 

22.6 Service on the Seller's Solicitors by the Buyer of any notice required or permitted to be given under this agreement or any Service Document will be deemed to be sufficient and proper service on the Seller and/or AB, as appropriate.

 

23. Costs and stamp duty

 

23.1 Except as otherwise expressly provided in this agreement, each party will pay its own costs and expenses incurred in relation to the negotiation, preparation and implementation of this agreement and the documents referred to in it.

 

23.2 The Buyer will pay all stamp duty and stamp duty land tax payable on the transfers of the Assets.

 

24. Assignment and Successors

 

24.1 This agreement is binding on and will enure for the benefit of the parties' successors in title.

 

24.2 The Seller may not assign, transfer, charge or deal with this agreement or all or any part of the benefit of, or its rights and benefits under, this agreement, except with the prior written consent of the Buyer, such consent not to be unreasonably withheld or delayed, or sub-contract any or all of its obligations under this agreement. The Seller is entering into this agreement solely for its own benefit.

 

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24.3 The Buyer may disclose to a proposed assignee, information in its possession relating to this agreement (including negotiations relating to it) and the other parties to the extent that it is necessary to disclose that information for the purpose of the proposed assignment, notwithstanding the provisions of clause 16.

 

25. Continuing agreement

 

This agreement (other than obligations which have already been performed) will remain in effect after Completion.

 

26. Entire agreement

 

This agreement (together with the documents referred to in it) constitutes the entire agreement between the parties with respect to the matters dealt with in it and supersedes any previous agreement between the parties in relation to them. Each party acknowledges that in entering into this agreement he or it has not relied on any representation, warranty or undertaking except as expressly set out in the agreement or in any document referred to in it. Nothing in this agreement will, however, operate to limit or exclude any liability for fraud, fraudulent misrepresentation, wilful deception or deliberate concealment.

 

27. remedies

 

Except as expressly provided to the contrary in this agreement, the rights and remedies of any party under any provision of this agreement or in any document referred to in it are in addition to and will not affect any other right or remedy available to that party, whether under this agreement or any document referred to in it, by statute, common law or otherwise.

 

28. Variation and Waiver

 

28.1 No variation of any provision of this agreement or of any document in the Agreed Form will be valid unless it is in writing and signed by all the parties.

 

28.2 The failure to exercise or delay in exercising a right or remedy provided by this agreement or by law does not constitute a waiver of the right or remedy or a waiver of other rights or remedies. A waiver of a breach of any of the terms of this agreement or of a default under this agreement does not constitute a waiver of any other breach or default and will not affect the other terms of this agreement. A waiver of a breach of any of the terms of this agreement or of a default under this agreement will not prevent a party from subsequently requiring compliance with the waived obligation.

 

28.3 The Buyer may release or compromise the liability of the Seller or AB under this agreement or grant to the Seller or AB time or other indulgence without affecting the liability of the other under this agreement. The obligations of the Seller and AB under this agreement are several.

 

28.4 Except as expressly provided otherwise in this agreement, Completion will not constitute a waiver of any breach of this agreement whether or not known at the time of Completion.

 

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29. Severable provisions

 

29.1 If any provision of this agreement (including under clause 17) is void or unenforceable in any jurisdiction then it will be severed from this agreement insofar as it relates to that jurisdiction only and that invalidity or unenforceability will not affect the other provisions of this agreement or the relevant provision in any other jurisdiction which will remain in full effect.

 

29.2 If any provision of this agreement (including under clause 17) is so found to be invalid or unenforceable but would be valid or enforceable if some part of the provision were deleted or the period, area or scope of application of the provision were reduced, the provision in question will apply with any modification(s) that may be necessary to make it valid and enforceable in the relevant jurisdiction but will continue to apply without any modification in all other relevant jurisdictions.

 

29.3 The parties agree, in the circumstances referred to in clause 29.1 and if clause 29.2 does not apply to attempt to substitute for any invalid or unenforceable provision in respect of any jurisdiction in which it has been held to be invalid or unenforceable a valid and enforceable provision which achieves to the greatest extent possible the same effect as would have been achieved by the provision which is invalid or unenforceable in that jurisdiction. The obligations of the parties in the relevant jurisdiction under any invalid or unenforceable provision of this agreement will be suspended while the parties attempt to agree the substitution.

 

30. Payments

 

30.1 If any payment of any amount required to be made under any provision of this agreement is not paid on the due date, that amount will carry interest calculated on a daily basis, after as well as before any judgment for it or the liquidation of the paying party, at the Prescribed Rate from the due date until the date of actual payment (both dates inclusive). That interest will be paid by the payer on demand to the person entitled to payment.

 

30.2 Any payment made to the Seller's Solicitors under the terms of this agreement will be deemed to be made to the Seller (or other persons entitled to the payment) and will absolutely discharge the Buyer from the obligation to make the payment and the Buyer will not be liable to see to the application of it.

 

30.3 Any amount paid by the Seller in respect of a breach of the Warranties will to the extent permissible by law be deemed to reduce the Purchase Price payable for the Assets by, and be a repayment of, that amount, provided that such treatment does not cause the base cost or the acquisition cost of any Asset in the hands of the Buyer to be treated as being less than zero.

 

31. withholding and grossing up

 

31.1 All amounts payable by the Seller and/or AB under this agreement will be paid free and clear of any deduction or withholding except only as may be required by law. If any deduction or withholding is required by law, the Seller and/or AB (as the case may be) must pay an amount which will, after that deduction or withholding has been made, leave the Buyer with the same amount as it would have been entitled to receive in the absence of the requirement to make the deduction or withholding.

 

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31.2 If any amount payable by the Seller and/or AB to the Buyer under this agreement is subject to Tax in the hands of the Buyer, the same obligation to make an increased payment will apply in relation to that tax liability as if it were a deduction or withholding required by law but so that this clause will not apply to permit double recovery where the amount payable by the Seller and/or AB under this agreement has already been increased to take account of the fact that it will be subject to Tax in the hands of the Buyer.

 

32. THIRD PARTY RIGHTS

 

32.1 The provisions of clause 5.7 are intended to benefit the Employees. Those provisions will be enforceable by them to the fullest extent permitted by law except that those provisions may be enforced by them only with the prior written consent of the Buyer.

 

32.2 The provisions of this agreement may be enforced by the parties' permitted assigns, as set out in clause 24.

 

32.3 Except as expressly stated otherwise in this agreement, no person other than a party to this agreement has a right under the Contracts (Rights of Third Parties) Act 1999 to rely on or enforce any term of it.

 

32.4 Notwithstanding any provision of this agreement, this agreement (and any provision of it) may be rescinded, amended or varied without the consent of any third party and section 2(1) of the Contracts (Rights of Third Parties) Act 1999 will not apply.

 

33. Counterparts

 

This agreement may be executed in any number of counterparts, each of which will be an original and all of which together will constitute the same instrument. The agreement will not be effective until all the parties have executed at least one counterpart.

 

34. Law and jurisdiction

 

This agreement and any non-contractual obligations arising out of or in connection with it will be governed by and construed in accordance with English law. The parties irrevocably submit to the exclusive jurisdiction of the English Courts.

 

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Schedule 1 - Assets

 

1. The Goodwill

 

2. The Contracts

 

3. The Business Information

 

4. The Records

 

5. Cash in Bank

 

6. The Book Debts

 

For the avoidance of doubt, the Assets being transferred under this agreement shall not include any tax losses available to the Seller.

 

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Schedule 2- Warranties

 

1. CAPACITY OF THE SELLER

 

1.1 The Seller has taken all action necessary (including by obtaining all necessary consents, waivers and licences) to, and the Seller has full power and authority to, enter into and perform the obligations to be performed by the Seller under this agreement and any document to be entered into by the Seller under this agreement. Those documents, when executed, will constitute binding and enforceable obligations in accordance with their terms.

 

1.2 The execution and delivery of and the performance by the Seller of its obligations under this agreement will not:

 

1.2.1 result in a breach of, or constitute a default, under its constitution or any agreement, instrument or arrangement to which the Seller is a party (including the Contracts) or by which the Seller is bound; or

 

1.2.2 result in a breach of any applicable law, rule or regulation or order, judgement or decree of any court or governmental agency to which the Seller is a party or by which the Seller is bound.

 

1.3 The Business is not carried on by or for the benefit of any person other than the Seller.

 

2. INSOLVENCY

 

2.1 The Seller is not and no other member of the Seller's group which has an interest in the Business or the Assets is insolvent, unable to pay its debts as they fall due or has stopped or suspended payment of its debts.

 

2.2 No Insolvency Proceedings have been commenced against the Seller or any other member of the Seller's group which has an interest in the Business or the Assets or any part of the assets, chattels, property or undertaking of the Seller or any other member of the Seller's group which has an interest in the Business or the Assets.

 

2.3 There are no circumstances which would entitle any person to commence any Insolvency Proceedings in relation to the Seller or any other member of the Seller's group which has an interest in the Business or the Assets or any part of the assets, chattels, property or undertaking of the Seller or any other member of the Seller's group which has an interest in the Business or the Assets.

 

2.4 No other process has been initiated which could lead to the Seller or any other member of the Seller's group which has an interest in the Business or the Assets being dissolved and its assets being distributed among its creditors, shareholders or other contributors or being struck off.

 

2.5 No event has occurred causing, or which on intervention or notice by any third party may cause, any floating charge created by the Seller or any other member of the Seller's group which has an interest in the Business or the Assets to crystallise over the Business or the Assets or any of them, nor any charge created by the Seller or any other member of the Seller's group which has an interest in the Business or the Assets to become enforceable over the Business or the Assets or any of them, nor has any such crystallisation occurred and nor is such enforcement in process.

 

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3. MANAGEMENT ACCOUNTS

 

3.1 In this paragraph 3, unless the context otherwise requires:

 

Management Accounts means the management accounts of the Seller in relation to the Business for the period ended on the Management Accounts Date, a copy of which is contained in the Disclosure Bundle; and

 

Management Accounts Date means 31 December 2013.

 

3.2 The Management Accounts have been prepared with all due care and on a basis consistent with the management accounts of the Seller in relation to the Business prepared in the preceding year and (having regard to their format) are not materially misleading. The cumulative profits, assets and liabilities of the Business stated in the Management Accounts have not been materially misstated.

 

4. RECORDS

 

4.1 All the accounts, books, registers, ledgers and other financial records contained within the Records, whether or not held in written form:

 

4.1.1 are in the exclusive ownership and possession of the Seller;

 

4.1.2 have been fully, properly and accurately kept and completed;

 

4.1.3 do not contain any material inaccuracies or discrepancies; and

 

4.1.4 comply with the Companies Act 2006.

 

4.2 No notice has been received or allegation made that any of the Records are incorrect or should be rectified.

 

4.3 All statutory records, including accounting records, required to be kept or filed by the Seller in respect of the Business have been properly kept or filed and comply with the requirements of the Companies Act and all other applicable law.

 

4.4 None of the Records or the systems control data or other information of the Business are recorded, stored, maintained, operated or otherwise wholly or partly dependent on or held by any means (including any electronic, mechanical or photographic process whether computerised or not) which (including all means of access to and from them) are not under the exclusive ownership and direct control of the Seller in relation to the Business.

 

4.5 Where any of the Records or the systems control data or other information of the Business are kept on computer, the Seller is the owner of all hardware and all software licences necessary to enable it to use any of the Records and the systems control data and other information in the manner in which they have been used before the date of this agreement, and the Seller does not share any such hardware or software with any other person.

 

5. INTERESTS OF THE SELLER ETC

 

5.1 None of the Seller, any other member of the Seller's group, any director or shareholder of the Seller or any other member of the Seller's group or any Associate of any of them, has any interest, direct or indirect, in any business which has a close trading relationship with the Business, or which is or is likely to compete with the Business.

 

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5.2 None of the Seller, any other member of the Seller's group, any director or shareholder of the Seller or any other member of the Seller's group or any Associate of any of them, has any interest, direct or indirect, in any of the Contracts or in any Business Intellectual Property Rights (apart from the interest which the Seller has in the Contracts and the Business Intellectual Property Rights by reason of being the owner of the Business).

 

5.3 The Business does not depend upon, use, or derive any benefit from, any assets, facilities or services owned or supplied by the Seller and/or any other member of the Seller's group and/or any director or shareholder of the Seller or any other member of the Seller's group and/or any Associate of any of them which are not being acquired under this agreement.

 

6. BOOK DEBTS

 

6.1 No part of the amount shown in the Accounts in respect of debtors is represented by debts which were, at that time, more than three months overdue for payment. None of those debts has been deferred, subordinated or released on terms that the debtor has paid less than the full value of his debt (except for settlement discounts on the usual terms which have been disclosed to the Buyer and subject to any provision for bad or doubtful debts in the Accounts) or has proved to any extent irrecoverable or is now regarded as irrecoverable.

 

6.2 The Disclosure Bundle contains a complete and accurate list of the Book Debts as at the Effective Time.

 

6.3 The Seller is not entitled to the benefit of any Book Debt otherwise than as the original creditor and in the ordinary course of the Business. The Seller is not, and has not agreed to become, a party to any factoring or discounting arrangement in respect of the Book Debts.

 

6.4 None of the Book Debts have been outstanding for more than three months from the due date for payment. The Seller's revenue recognition policies in respect of the Book Debts are in accordance with GAAP applicable at the Accounts Date have been consistently applied by the Seller in identifying, listing and calculating the Stock and the Book Debts.

 

6.5 Since the Accounts Date, there has been no change in the manner or time of issue of invoices and no unusual acceleration of the collection of Book Debts having regard to the policies applied for such collection prevailing in the financial period ended on the Accounts Date.

 

7. CREDITORS

 

7.1 Since the Accounts Date the Seller has paid its creditors relating to the Business within the times agreed with those creditors and, without limitation, no debt owed by the Seller in connection with the Business has been outstanding for more than 30 days from the date of invoice.

 

7.2 The Seller is not obligated for any amount included in the Creditors otherwise than as the original debtor.

 

7.3 All amounts due from the Seller and included within the Creditors relate exclusively to the Business, were properly incurred in the ordinary and usual course of business, are not subject to dispute and are now due, owing and payable. None of those amounts have been outstanding for more than 60 days from the date of invoice.

 

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8. OWNERSHIP AND POSSESSION OF THE ASSETS AND ENCUMBRANCES

 

8.1 The Seller is the absolute legal and beneficial owner of the Assets and has full power and authority to sell and transfer to the Buyer the full legal and beneficial ownership of the Assets on the terms set out in this agreement.

 

8.2 The Seller has possession and control of the Assets and the Seller has a good title to the Assets. No distress, execution or other process has been levied on any of the Assets, nor do any circumstances exist whereby any person may claim entitlement to use and/or possession of any of the Assets in competition with or in priority to the Seller.

 

8.3 No Encumbrance (or agreement or commitment to grant any Encumbrance) is outstanding against any part of the Business or the Assets and no claim has been made by any person to be entitled to any Encumbrance mentioned above.

 

8.4 The Seller has not disposed of, or agreed to dispose of, any of the Assets.

 

8.5 None of the Assets are shared with another person (including any other member of the Seller's group).

 

8.6 The Seller has not, in relation to the Business or the Assets or any of them, been party to any transaction with any third party or parties (including any member of the Seller's group) which, in the event of a third party (including any member of the Seller's group) going into liquidation or an administration order or a bankruptcy order being made in relation to it or him, is likely to constitute (in whole or in part), so far as the Seller is aware, a transaction at an undervalue, a preference, an invalid floating charge or an extortionate credit transaction or part of a general assignment of debts under sections 238 to 245 and/or sections 339 to 344 of the Insolvency Act 1986.

 

9. TRADING - GENERAL

 

9.1 The Seller has carried on the Business in compliance with all applicable laws and regulations and all documents to which it is, or has been, a party and the Seller has the power.

 

9.2 The Seller is not in relation to the Business a party to, nor have its profits or financial position during the three years before the date of this agreement been affected by, any contract or arrangement which is not of an entirely arm's length nature.

 

9.3 Save as expressly mentioned in this agreement, the Seller is not in relation to the Business, nor has it agreed to become, the holder or beneficial owner of any share, debenture, mortgage or security (or interest in them) or a member of any joint venture, consortium, partnership or other unincorporated association or a party to any arrangement for sharing commission, income, profits, losses or expenses.

 

9.4 The Business does not have any branch office, agency, place of business or permanent establishment outside England nor does it have any significant assets outside the United Kingdom.

 

9.5 The Seller has not carried on the Business under or used any name other than its full corporate name.

 

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9.6 None of the activities, contracts or rights of the Seller in relation to the Business is invalid or unenforceable or in breach of any contract, covenant or third party (including any member of the Seller's group) right or requires any licence, authorisation or consent which has not been obtained on a permanent and unconditional basis and the Seller is not liable to pay any royalty or similar fee in connection with the Business.

 

9.7 The Seller has not given any guarantee or warranty or made any representation in respect any services supplied or contracted to be supplied, by it in the Business save for any guarantee or warranty implied by law.

 

9.8 All the standard terms and conditions on which the Seller supplies its services in the Business are contained in the Disclosure Bundle.

 

10. TRADING - CUSTOMERS AND SUPPLIERS

 

10.1 No single customer (a major customer ) to the Business has accounted for more than ten per cent of the invoiced amount of supplies to the Business of goods and/or services in the financial year of the Seller ended on the Accounts Date or during the period starting on the date after the Accounts Date and ending with the date of this agreement. No major customer is likely to account for more than ten per cent of the invoiced amount of supplies to the Business of services during the period starting on the date after the Accounts Date and ending 12 months after that date.

 

10.2 During the year before the date of this agreement the Business has not been materially and adversely affected by the loss of any customer by any abnormal factor not affecting similar businesses to a similar extent and the Seller is not aware of any or circumstances prior to Completion (including the sale of the Business and the Assets or any other matter contemplated under this agreement) likely to give rise to any of these.

 

11. CONTRACTS AND OTHER OBLIGATIONS

 

11.1 A copy of each Material Contract which is in writing is included in the Disclosure Bundle and an original of each Material Contract which is in writing is in the possession of the Seller.

 

11.2 The Customer Contracts and the Supply Contracts are the only contracts, agreements, engagements and arrangements of the Business (apart from any employment contracts of any employees or officers and any contracts which the Seller has entered into with a bank or other third party in respect of overdraft, debt factoring, invoice discounting or other borrowings).

 

11.3 The Material Contracts are the only material Customer Contracts.

 

11.4 The Supply Contracts, details of which are set out in Schedule 6, are the only material Supply Contracts .

 

11.5 A copy of each Supply Contract which is in writing is included in the Disclosure Bundle and an original of each Supply Contract which is in writing is in the possession of the Seller.

 

11.6 Apart from the Customer Contracts and the Supply Contracts, there are no other contracts, agreements, engagements or arrangements which the Buyer requires to enable it to carry on the Business in the same manner in which it has previously been carried on by the Seller.

 

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11.7 The Seller is not party to any agreement, arrangement or practice which restricts its freedom to carry on the whole or any part of the Business or to use or exploit any of the Assets in the United Kingdom by any means as it may from time to time think fit (including the manner in which the Business is now carried on or the manner in which the Assets are now used or exploited).

 

11.8 The Seller has not given or received any notice terminating any of the Material Contracts and no event has occurred which would entitle the Seller or any third party (including any member of the Seller's group) to terminate any Material Contract or any benefit enjoyed under any Material Contract.

 

11.9 The Seller has no knowledge of the invalidity of or grounds for termination, rescission, avoidance or repudiation of any agreement, arrangement, obligation or other transaction to which the Seller is or has been a party in connection with the Business and/or the Assets and the Seller has not received any notice of any intention to terminate, repudiate or disclaim any of those agreements, arrangements, obligations or transactions.

 

11.10 There is no subsisting dispute between the Seller and any other person in relation to any Material Contract, and so far as the Seller is aware, there are no circumstances which might give rise to any such dispute.

 

12. DISPUTES AND LITIGATION

 

12.1 There are no court orders or unsatisfied judgments outstanding against the Seller in relation to the Business and/or the Assets, no injunctions have been granted against the Seller in relation to the Business and/or the Assets and the Seller is not in relation to the Business and/or the Assets party to any undertaking or assurance given to a court, tribunal, regulatory authority, governmental agency or any other person in connection with the determination or settlement of any claim or proceedings.

 

12.2 Neither the Seller nor any of its officers nor any person for whose acts or defaults the Seller may be vicariously liable is involved in any civil, criminal, arbitration or mediation proceedings or dispute resolution process in relation to the Business and/or the Assets. None of those proceedings or processes, and no claims of any nature, are pending or threatened by or against the Seller or any of those persons in relation to the Business and/or the Assets or in respect of which the Seller is liable to indemnify any party concerned in relation to the Business and/or the Assets.

 

12.3 So far as the Seller is aware, there are no facts likely to give rise to any of the proceedings, process or claims described in paragraph 12.2.

 

12.4 The Seller is not in relation to the Business and/or the Assets the subject of or engaged in, and there are no facts or circumstances (including the sale of the Business and the Assets or any other matter contemplated under this agreement) likely to cause it to be the subject of or engaged in, any proceedings, investigations or enquiries by or before any governmental or municipal department, commission, board, tribunal or other administrative, regulatory, judicial or quasi-judicial agency (whether in the United Kingdom or elsewhere).

 

13. INSURANCE

 

13.1 All risks and liabilities which are normally or customarily insured against by companies carrying on business similar to the Business (or against which a prudent company carrying on business similar to the Business would insure) are adequately insured against by the Seller. The Seller has taken out all insurance policies which it is required by law to take out and all those policies are fully effective.

 

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13.2 Those policies are fully effective and all premiums have been paid on time.

 

13.3 No claim under any of those policies is outstanding and no event has occurred which might be the subject of a claim under any of those policies or which would or might be required under any of those policies to be notified to the insurers under the terms of the policy.

 

14. CONSENTS AND COMPLIANCE

 

14.1 The Seller has valid permits, authorities, licences and consents necessary for it to carry on the Business effectively in the manner and in the places in which it is now carried on, all of which are disclosed in the Disclosure Letter and contained in the Disclosure Bundle. The Seller is not in breach of, or default under, any of them and knows of no reason why any of them should be suspended, altered, cancelled or revoked or the benefit of them should not continue to be enjoyed by the Buyer or other owner for the time being of the Business and the Assets or any part of them.

 

14.2 So far as the Seller is aware, each of the Seller and its directors and officers (in respect of their duties in relation to the Business) has performed all obligations required to be performed by it or him with respect to the Business, Employees and Assets and is not in breach of any law, regulation, order, decree, judgment, contract, agreement, licence, obligation or restriction of any nature binding on it or him or which affects the Assets or Employees or the operation of the Business in any jurisdiction.

 

15. ANTI-CORRUPTION

 

15.1 The Seller has not in relation to the Business at any time engaged in any activity, practice or conduct which at the relevant time amounted to an offence under the Bribery Act 2010 or which constituted or constitutes an offence under any other bribery or anti-corruption law in any jurisdiction.

 

15.2 No employee, agent, subsidiary or other person who performs or has performed services for or on behalf of the Seller in relation to the Business has at any time bribed another person (within the meaning of section 7(3) of the Bribery Act 2010) intending to obtain or retain business or an advantage in the conduct of the Business. The Seller has in place adequate procedures full details of which are set out in the Disclosure Letter or contained in the Disclosure Bundle designed to prevent those persons from undertaking bribery as described.

 

15.3 None of the Seller or any employee, agent, subsidiary or so far as the Seller is aware other person who performs or has performed services for or on behalf of the Seller in relation to the Business is or has been the subject of any investigation, enquiry or enforcement proceedings in relation to any offence relating to corruption or bribery. No investigation, enquiry or proceeding mentioned above has been threatened and there are no circumstances (including the sale of the Business and the Assets or any other matter contemplated under this agreement) which mean any of those investigations, enquiries or proceedings are likely to arise.

 

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16. COMPETITION

 

16.1 In this paragraph 16, unless the context otherwise requires Competition Law means the national and directly effective legislation of any jurisdiction which governs the conduct of companies or individuals in relation to restrictive or other anti-competitive agreements or practices (including, but not limited to, cartels, pricing, resale pricing, market sharing, bid rigging, terms of trading, purchase or supply and joint ventures), dominant or monopoly market positions (whether held individually or collectively) and the control of acquisitions or mergers.

 

16.2 The Seller in relation to the Business is not engaged in any agreement, arrangement, practice or conduct which amounts to an infringement of the Competition Law of any jurisdiction in which the Seller conducts the Business and no director of the Seller or any person for whose acts or defaults the Seller may be vicariously liable in relation to the Business is engaged in any activity which would be an offence or infringement under that Competition Law.

 

16.3 The Seller in relation to the Business is not subject to any investigation, inquiry or proceeding by any relevant government body, agency or authority in connection with any actual or alleged infringement of the Competition Law of any jurisdiction in which the Seller conducts the Business. No investigation, inquiry or proceeding mentioned above has been threatened or are pending and there are no circumstances (including the sale of the Business and the Assets or any other matter contemplated under this agreement) likely to give rise to any of those investigations, inquiries or proceedings.

 

17. DATA PROTECTION

 

17.1 In this Schedule, the terms data controller , processing and personal data will have the meanings given in the DPA.

 

17.2 The Seller in relation to the Business has notified registerable particulars under the DPA of all personal data held or processed by Seller in relation to the Business and:

 

17.2.1 has renewed those notifications and has notified any changes occurring in between those notifications as required by the DPA;

 

17.2.2 has paid all fees payable in respect of those notifications;

 

17.2.3 the contents of those notifications are complete and accurate;

 

17.2.4 copies of those notifications are contained in the Disclosure Bundle; and

 

17.2.5 there has been no unauthorised disclosure of personal data outside the terms of those notifications.

 

17.3 No personal data has been transferred outside the European Economic Area.

 

17.4 The Seller in relation to the Business has:

 

17.4.1 complied in all respects with the Data Protection Act 1984 whilst it was in force and the DPA;

 

17.4.2 satisfied any requests for access to personal data;

 

17.4.3 established the procedures necessary to ensure continued compliance with the DPA; and

 

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17.4.4 complied with the requirements of the seventh principle of the DPA in respect of any processing of data carried out by a data processor on behalf of the Seller, including by entering into a written contract with the data processor confirming that the data processor will only act on the instructions of the Seller.

 

17.5 The Seller in relation to the Business has not received any:

 

17.5.1 notice or complaint under the DPA alleging non-compliance with the DPA (including, without limitation, any information or enforcement notice, monetary penalty notice or any transfer prohibition notice); or

 

17.5.2 claim for compensation for loss or unauthorised disclosure of data; or

 

17.5.3 notification of an application for rectification or erasure of personal data,

 

and the Seller is not aware of any circumstances which may give rise to the giving of any such notice or the making of any such notification.

 

17.6 The performance of the terms of this agreement will comply in all respects with the DPA.

 

17.7 The Seller in relation to the Business has complied with its obligations under the Privacy and Electronic Communications (EC Directive) Regulations 2003 in respect of the use of electronic communications (including e-mail, text messaging, fax machines, automated calling systems and non-automated telephone calls) for direct marketing purposes and the use of cookies.

 

18. EMPLOYEES AND CONSULTANTS

 

18.1 The Employees are all employed by the Seller and work wholly or mainly in the Business.

 

18.2 No person is employed or engaged in the Business (whether temporarily or permanently and whether under a contract of service or contract for services) other than the Employees.

 

18.3 The Seller has provided the Buyer with the information required under regulation 11 of TUPE in relation to each of the Employees and shall notify the Buyer of any changes in that information before the Completion Date.

 

18.4 In respect of each of the Employees, the Seller has fully complied with its obligations under regulation 13 of TUPE and section 188 of TULRCA to inform and consult with trade union or other employee representatives on any matter concerning or arising from this agreement or affecting the Employees (save insofar as any failure by the Buyer to comply with its obligations under Regulation 13(4) of the TUPE Regulations results in the Seller being unable to comply with its obligations under Regulation 13 of the TUPE Regulations).

 

18.5 No Employee has objected or indicated an objection to the transfer of the Business to the Buyer.

 

18.6 The Disclosure Bundle contains a list of Employees which fully and accurately sets out in tabular form anonymised details of the Employees together with full particulars of their terms and conditions of employment, including the following:

 

18.6.1 the entity employing or engaging them (if this is not the Seller);

 

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18.6.2 job description or job title (providing such title is sufficiently self-explanatory as to the type of work undertaken by the worker);

 

18.6.3 gender;

 

18.6.4 date of birth;

 

18.6.5 those particulars of employment that an employer is obliged to give to an employee pursuant to section 1 of the Employment Rights Act 1996, including the date on which continuous employment began, present remuneration (or, if the remuneration is variable, the method of calculating the remuneration and the average remuneration over the last 12 weeks) and the intervals at which remuneration is paid, hours of work, place of work, notice period for termination of employment or expiry date of fixed term contract (and if fixed term, details of any previous renewals), holiday entitlement and holiday pay and sick pay;

 

18.6.6 bonus, commission, incentive arrangements and all other benefits (whether contractual or discretionary);

 

18.6.7 type of contract (whether full or part-time or other);

 

18.6.8 retirement age, if any; and

 

18.6.9 pensions and pension schemes.

 

18.7 The Disclosure Letter includes anonymised details of all persons who are not employees and who are providing services to the Business and the particulars of the terms on which the individual provides services, including:

 

18.7.1 the company which engages them, if any (if it is not the Seller);

 

18.7.2 the remuneration of each individual and any benefits to which they are entitled;

 

18.7.3 the type of services provided by the individual;

 

18.7.4 the number of hours each week committed to the Business; and

 

18.7.5 the length of notice required to terminate each agreement or, if a fixed term, the expiry date of the fixed term and details of any previous renewals.

 

18.8 The Disclosure Bundle contains:

 

18.8.1 anonymised copies of all contracts which apply to the Employees and any other person engaged by the Seller in the Business;

 

18.8.2 handbooks and any other policies, procedures or rules (including, but not limited to, disciplinary and grievance procedures) and a summary of any unwritten policies or procedures, whether or not contractual, which apply to any Employee or any other person engaged by the Seller in the Business; and

 

18.8.3 copies of all agreements or arrangements with any trade union, employee representatives or body of employees or their representatives (whether binding or not) and details of any unwritten agreements or arrangements which may affect the Employees.

 

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18.9 The Disclosure Letter includes anonymised details of all Employees who are on secondment, maternity, paternity, adoption, parental or other leave or who are absent due to ill health or for any other reason.

 

18.10 There are no home-working, part-time, job share, flexitime or flexible working arrangements or early retirement schemes applicable to any of the Employees.

 

18.11 No offer of employment or engagement has been made by the Seller in relation to the Business that has not yet been accepted, or which has been accepted but where the employment or engagement has not yet started.

 

18.12 No former employee or worker is currently subject to post termination restrictions for the protection of the Business (save in relation to confidentiality).

 

18.13 There are no benefits provided by the Seller to any Employee or any other person engaged by the Seller in the Business which could not be transferred to or (without significant additional cost) replicated by the Buyer.

 

18.14 There is no existing or proposed bonus, commission, profit-sharing scheme, share option scheme, share incentive scheme or any other scheme or arrangement under which any Employee is or would be entitled to participate in the profits of the Business or any other business of the Seller or any other member of the Seller's group or acquire shares in the Seller or any other member of the Seller's group.

 

18.15 There are no employee benefit trusts, family benefit trusts or similar arrangements under which any Employee or any former officer, employee or worker or any of their nominees or Associates may benefit in any form.

 

18.16 There is no existing or proposed scheme (whether contractual or not) or any custom or practice to provide payments or benefits on redundancy (in addition to statutory redundancy pay) or other termination or on a change of control.

 

18.17 There is no existing or proposed scheme (whether contractual or not) or any custom or practice to provide payments or benefits in excess of the statutory minimum in relation to maternity, paternity or adoption leave.

 

18.18 There are no loans made to Employees or any other person engaged by the Seller in the Business or guarantees provided by the Seller for the benefit of an Employee or any other person engaged by the Seller in the Business.

 

18.19 No variation has been made in the last 12 months to any of the terms of employment of any Employee or to any of the terms of engagement of any other person engaged by the Seller in the Business and nor has any future variation been offered, promised, or agreed.

 

18.20 There are no current negotiations for an increase in the remuneration or benefits of any Employee or any other person engaged by the Seller in the Business.

 

18.21 No Employee or any other person engaged by the Seller in the Business has received or has given notice, or is likely to receive or has indicated to the Seller that they intend to give notice, to terminate their employment or engagement (whether as a result of the parties entering into this agreement or otherwise).

 

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18.22 All contracts of employment with any Employee (and all contracts for services with any individual or company providing the services of an individual or individuals) are terminable at any time on not more than three months' notice without giving rise to any claim for damages or compensation (other than a statutory redundancy payment or for unfair dismissal) or any liability on the part of the Seller other than wages or commission.

 

18.23 No Employee or any other person engaged by the Seller in the Business has been off sick for a period of 21 days or more in any six-month period within the last three years (whether or not consecutive) or is receiving or is due to receive payment under any sickness, disability or permanent health insurance scheme and there is no pending, threatened or likely claim for that such payment and any and all such claims are covered by insurance.

 

18.24 No Employee has any accrued but untaken or unsatisfied annual leave from previous holiday years whether due to sickness, other absence or otherwise.

 

18.25 There are no existing or likely disputes, claims or legal proceedings (whether arising under contract, common law, statute or in equity or otherwise) in which the Seller is engaged or involved or has been notified of in relation to any of the Employees or any workers, former employees, former workers or trade unions, staff associations, staff councils, works councils or other organisations formed for a similar purpose.

 

18.26 No disciplinary action (including dismissal, warnings, suspension, demotion and performance management or monitoring) has been taken by the Seller against any of the Employees within the previous two years.

 

18.27 No grievance has been raised by any Employee within the previous two years.

 

18.28 There are no amounts outstanding or promised to any Employees or any workers, consultants or contractors (other than reimbursement of expenses, commission and wages for the current salary period and holiday pay for the current holiday year) or any liability incurred by the Seller which remains un-discharged for breach of any employment (or other) contract, redundancy payment (statutory or otherwise, including protective awards), compensation under any employment legislation or regulations or for wrongful dismissal, unfair dismissal, equal pay, discrimination or otherwise or for failure to comply with any order for the re-instatement or re-engagement of any Employee or former employee.

 

18.29 The Seller has not incurred any liability for any failure to provide information or to consult with Employees or any representatives of Employees, staff associations, staff councils, works councils or any trade union.

 

18.30 The Seller has not made or agreed to make a payment or provided or agreed to provide a benefit to any Employee or any former director, officer, employee or worker or to their dependants in connection with the actual or proposed termination or suspension of employment or variation of employment contract.

 

18.31 No questionnaire has been served on the Seller in relation to the Business under any discrimination legislation.

 

18.32 There are no existingor threatened inquiries or investigations affecting the Seller or the Business or affecting any Employee or any other person engaged by the Seller in the Business by the Equality and Human Rights Commission

 

18.33 The Seller has, in relation to each of the Employees, complied with all its obligations and duties whether arising under contract, statute, statutory instrument, code of practice, collective agreement, at common law or in equity or under any European treaty or law, whether legally binding or not. In particular and without limitation, all contracts between the Seller and the Employees comply with any relevant requirements of section 188 of the Companies Act or section 319 of the Companies Act 1985.

 

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18.34 Save as disclosed there is no agreement or arrangement (including, but not limited to any collective agreements) in existence between the Seller and any trade union or any other body representing any Employees and the Seller does not recognise any trade union or any other body representing any Employees.

 

18.35 The Seller in relation to the Business has not received a request for recognition pursuant to the TULRCA or to negotiate an agreement pursuant to the Information and Consultation of Employees Regulations 2004 and the Seller is not aware of any facts or circumstances that might give rise to any of those requests.

 

18.36 The Seller in relation to the Business has not been the subject of any strike action or industrial action short of strike or other industrial dispute in the last five years.

 

18.37 In the period of one year preceding the date of this agreement, the Seller in relation to the Business has not given notice of any redundancies to the relevant Secretary of State or started consultations under Part IV of the TULRCA.

 

18.38 No subject access requests made to the Seller pursuant to the DPA by Employees or any other person engaged by the Seller in the Business are outstanding and the Seller has complied with the provisions of the DPA in respect of all personal data and sensitive personal data held or processed by it in relation to the Employees and any other person engaged by the Seller in the Business.

 

18.39 The Seller has maintained up-to-date, accurate and suitable records regarding the employment of each of the Employees (including, without limitation, details of terms of employment, remuneration, payments of statutory or other sick pay and statutory maternity, paternity and adoption pay, income tax, national insurance and social security contributions and any other levies due on account of employment of each of the Employees, working time, disciplinary, grievance and health and safety matters) and termination of employment.

 

18.40 The Seller has at all relevant times complied with all its obligations under statute and otherwise concerning the health and safety at work of the Employees or any other person engaged by the Seller in the Business and there are no claims capable of arising or pending or threatened by any Employee or any other person engaged by the Seller in the Business in respect of any accident or injury which are not fully covered by insurance and there are no enforcement proceedings or investigations notified or threatened by the Health and Safety Executive.

 

18.41 The Seller in relation to the Business has not been a party to a relevant transfer (as defined in the Transfer of Undertakings (Protection of Employment) Regulations 2006).

 

18.42 No right to an early retirement pension on redundancy or other dismissal existing before any relevant transfer to the Seller under the Transfer of Undertakings (Protection of Employment) Regulations 1981 or the Transfer of Undertakings (Protection of Employment) Regulations 2006 affects any Employee or any person previously employed by the Seller in relation to the Business.

 

18.43 The Seller has in relation to each of the Employees discharged fully its obligations to pay the minimum wage under the National Minimum Wage Regulations 1999.

 

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18.44 All Employees subject to immigration control are employed in accordance with the Immigration, Asylum and Nationality Act 2006 and where relevant the Asylum and Immigration Act 1996 and any amendments thereto; as well as the prevailing UK Immigration Rules and Policies.

 

18.45 There are no agreements or arrangements with third parties (including any member of the Seller's group) for the provision of staff to the Seller in relation to the Business.

 

18.46 No request for information has been served on the Seller in relation to the Business under the Agency Workers Regulations 2010.

 

18.47 None of the products or services supplied by the Seller in relation to the Business is produced or provided by outworkers.

 

19. PENSIONS

 

19.1 There are no pension or retirement benefit schemes operated by the Company.

 

20. PROPERTY

 

20.1 The Property comprises the only land and buildings owned, occupied, or used by the Seller in connection with the Business.

 

20.2 The Seller has the authority and capacity to enter into the Licence to Occupy and the Licence to Occupy shall, when executed, be binding on the Seller.

 

21. HEALTH AND SAFETY

 

21.1 In this paragraph 21, unless the context otherwise requires:

 

Health & Safety Laws means all applicable laws, statutes, regulations, subordinate legislation, bye-laws, common law and other national, international, federal, European Union, state and local laws, judgments, decisions and injunctions of any court or tribunal, codes of practice and guidance notes that are legally binding and in force as at the date of this agreement to the extent that they concern or apply to the health and safety of any person;

 

Health & Safety Matters means all matters relating to the health and safety of any person, including any accidents, injuries, illnesses and diseases; and

 

Health & Safety Permits means any permits, licences, consents, certificates, registrations, notifications or other authorisations required under any Health & Safety Laws for the operation of the Business or concerning the Property.

 

21.2 The Seller has obtained and complied at all times with all Health & Safety Permits. All Health & Safety Permits are in full force and effect and are freely transferable to the Buyer and there are no facts or circumstances (including the sale of the Business and the Assets or any other matter contemplated under this agreement) that may lead to the revocation, cancellation, suspension, variation or non-renewal of or the inability to transfer any Health & Safety Permits to the Buyer. The Seller knows of no reason (including the sale of the Business and the Assets or any other matter contemplated under this agreement) why the benefit of them should not continue to be enjoyed by the Buyer or other owner for the time being of the Business and the Assets or any part of them after Completion.

 

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21.3 The Business has at all times been operated in compliance with all Health & Safety Laws and there are no facts or circumstances that may lead to any breach of or liability under any Health & Safety Laws or any claim or liability in respect of Health & Safety Matters.

 

21.4 All information provided by or on behalf of the Seller to any relevant enforcement authority, and all records, assessments, policies and data required to be possessed and maintained by the Seller regarding the operation of the Business and the Property under the provisions of any Health & Safety Laws, are complete, accurate and not misleading.

 

21.5 There are, and have been, no claims, investigations, prosecutions or other proceedings against or threatened against the Seller or any of its directors, officers or employees concerning accidents, injuries, illness, disease or any other harm to the health and safety of employees, contractors or any other persons caused by the operation of the Business or occupation of any part of the Property or actual or alleged breaches of Health & Safety Laws or Health & Safety Permits or otherwise and there are no facts or circumstances that may lead to any of those claims, investigations, prosecutions or other proceedings.

 

21.6 The Seller has not received any notice, communication or information from any enforcement authority, including in the UK the Health and Safety Executive or the relevant local authority (and their equivalent in any other jurisdiction), any employees, any members of the public or any other individual or entity concerning any breach of, or liability under, Health & Safety Laws or Health & Safety Matters in respect of the Business or the Property.

 

22. TAXATION

 

22.1 None of the Assets or the Business are liable to restraint, sale, mortgage, confiscation or forfeiture (whether by virtue of non-payment or under payment of Tax or duty or by virtue of non-compliance with any legislation or regulation relating to any Tax or duty or otherwise howsoever).

 

22.2 No Tax Authority is conducting any audit or investigation concerning the Business or any Assets and the Seller has not received notice that any such audit or investigation is pending or threatened. No dispute or enquiry exists between the Seller and any Tax Authority whether in the UK or elsewhere and, so far as the Seller is aware, none is contemplated at the date of this agreement.

 

22.3 The Seller has complied in all material respects with all statutory provisions, rules, regulations, orders and directions in relation to the Business concerning VAT, PAYE and National Insurance including the making on time of accurate returns and payments and the proper maintenance and preservation of records, and the Seller has not been given any penalty, notice or warning regarding them.

 

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Schedule 3- Seller's limitations

 

1. In this Schedule, Claim means a claim for breach of any Warranty and Warranty Claim means a claim for breach of any Warranty (other than the Tax Warranties).

 

2. No liability will attach to the Seller in respect of any Claim unless each single Claim exceeds £1,000 and the aggregate amount of the liability of the Seller in respect of all Claims exceeds £30,000, in which event the Seller will be liable for the whole of that liability and not merely the excess.

 

3. The aggregate liability of the Seller in respect of all Claims (excluding any interest, costs, and/or expenses relating to any of those claims) will not exceed the sum of £375,000. In the event of a Claim being paid by the Seller and then repaid (in whole or in part) under the provisions of paragraph 5 of this Schedule then, to the extent repaid, the Claim will not constitute a Claim for the purpose of this paragraph 3 with effect from the date of repayment to the Seller.

 

4. A claim will be wholly barred and unenforceable and the Sellers will not be liable in respect of any Claim unless written notice of that Claim specifying (in reasonable detail) the matter giving rise to the Claim, the nature of the Claim and, if known, an estimate of the amount claimed (on a without prejudice basis) in respect of it is given to the Seller within:

 

4.1 seven years from the date of Completion in the case of any Claim relating to Tax or a claim under the Tax Warranties and the Seller may not plead the Limitation Act 1980 in respect of that claim; or

 

4.2 one year from the date of Completion in the case of any Warranty Claim.

 

5. If the Seller pays to the Buyer an amount in respect of a Claim and the Buyer subsequently recovers from a third party (other than any Tax Authority) a sum which is referable to that Claim, the Buyer must promptly repay to the Seller an amount as is equal to the lesser of the amount recovered from the third party and the amount the Seller paid to the Buyer minus all costs and expenses incurred by the Buyer in recovering that amount from the third party and minus any Tax payable by the Buyer on the amount recovered.

 

6. The Seller will, and will procure that all members of the Seller's group and all of the agents and advisers, if any, of the Seller and all other members of the Seller's group will, keep confidential all information which it receives about the Buyer or its affairs or business as a result of this paragraph 6.

 

7. Nothing contained in the Disclosure Letter will limit the liability of the Seller in respect of, and none of the limitations contained in this Schedule 3 will apply to, any breach of any of the Warranties contained in paragraphs 1, or 2 of Schedule 2.

 

8.

 

8.1 Any Claim notified in accordance with paragraph 4 shall (if not previously satisfied, settled or withdrawn) be deemed to have been withdrawn six months after the date on which notice of the relevant Claim was given unless, prior to that date, legal proceedings in respect of the Claim have been issued and duly served on the Seller.

 

8.2 The Seller will not be liable in respect of any Claim if and to the extent that the matter giving rise to the Claim is Disclosed in the Disclosure Letter.

 

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8.3 The Seller shall have no liability in respect of a Claim if and to the extent that such Claim is based on a contingent liability unless and until such Liability becomes an actual Liability.

 

8.4 The Seller shall have no liability in respect of any Claim if and to the extent that proper allowance, adjustment, provision or reserve was made in the Completion Accounts in respect of the matter or circumstances giving rise to the Claim.

 

8.5 If any sum is paid by or on behalf of the Seller in satisfaction of a Claim, and the Buyer has or subsequently acquires a right to make recovery or claim indemnity from any third party (including under any policy of insurance) in respect of any matter giving rise to that Claim, the Buyer must promptly notify the Seller of the right. The Buyer will, at the Seller’s cost and subject to the Seller indemnifying and securing the Buyer to its reasonable satisfaction:

 

8.5.1 take all reasonable steps to enforce against any relevant third party the rights of the Buyer in respect of the matter giving rise to that Claim, keeping the Seller fully informed of any action taken;

 

8.5.2 not compromise or settle any Claim without the Seller’s consent, which must not to be unreasonably withheld or delayed.

 

8.6 If any sum is paid by or on behalf of the Seller in satisfaction of a Claim, and the Buyer subsequently receives any benefit or makes any saving which is referable to the matter giving rise to that Claim and which is capable of being quantified in monetary terms to the satisfaction of the Buyer, including but not limited to a reduction in Tax, then within 20 Business Days of making that receipt or saving, the Buyer will pay the Amount Recovered to the Seller.

 

8.7 For the purposes of this paragraph 7, the Amount Recovered will be equal to so much of the benefit or saving made or received as does not exceed the amount of the payment by or on behalf of the Seller in satisfaction of the relevant Claim, together with so much of any interest or repayment supplement paid to the Buyer in respect of the benefit or saving as corresponds to the proportion of the benefit or saving accounted for under this paragraph, less any Tax payable by the Buyer on that benefit, saving or interest and less all reasonable costs and expenses of the Buyer in recovering that receipt or saving.

 

9.

 

9.1 The liability of the Seller in respect of the same Claim shall be reduced by the Amount Recovered, or extinguished if the Amount Recovered exceeds the amount of the relevant Claim.

 

9.2 On the Buyer becoming aware of any claim, action or demand against it which will or might give rise to a Claim, the Buyer will:

 

9.2.1 notify the Seller in writing of that claim, action or demand specifying in as much detail as is possible the nature and amount of it as soon as reasonably practicable provided that the Buyer will not incur any liability for its failure to do so;

 

9.2.2 have the conduct of the matter which is the subject of the Claim;

 

9.2.3 not admit liability in respect of or settle or compromise that claim, action or demand without the prior written consent of the Seller, which must not be unreasonably withheld or delayed;

 

47
 

 

9.2.4 take all reasonable steps, at the Sellers' cost, to mitigate or remedy the matters complained of or to dispute, defend, appeal, settle or compromise that claim, action or demand and any adjudication in respect of it, or to enforce the rights of the Buyer in respect of that claim, action or demand against any relevant third party, as the Seller may from time to time reasonably and properly request, keeping the Seller fully informed of any action taken (subject to the Buyer being fully indemnified and secured to the satisfaction of the Buyer against all losses, costs, damages and expenses, including those of its legal advisers incurred in connection with the claim).

 

9.3 References to any claim, action or demand against the Buyer include the assertion of any right to it, including a right of termination.

 

9.4 The Seller shall not be liable in respect of any Claim to the extent that the liability pursuant to such Claim arises or is increased as a result of any change in legislation which comes into force after the date of this agreement and which takes effect retrospectively.

 

9.5 The Seller shall not be liable in respect of any Claim to the extent that the liability pursuant to such Claim comprises penalties, charges or interest arising directly or indirectly from any act, omission, transaction or arrangement of the Buyer after Completion.

 

9.6 The Seller shall not be liable in respect of any Claim to the extent that the matter or circumstance giving rise to such Claim arises, occurs or is otherwise attributable to, or the Seller’s liability pursuant to such Claim is increased as a result of:

 

9.6.1 any voluntary act, omission, transaction or arrangement of the Buyer (or its directors, employees or agents) after Completion; or

 

9.6.2 to any voluntary act, omission, transaction or arrangement carried out at the request, or with the consent of the Buyer before Completion; or

 

9.6.3 any change after Completion in the accounting bases, policies, practices or methods applied in preparing any accounts or valuing any the Assets or Assumed Liabilities.

 

9.7 Neither the Buyer nor any member of the Buyer's group shall be entitled to recover damages, or obtain payment, reimbursement, restitution or indemnity more than once in respect of any shortfall, damage, deficiency, breach or other event or circumstances which gives rise to more than one Claim.

 

9.8 The Buyer shall (and shall procure that each member of the Buyer’s group shall) take all reasonable steps to avoid or mitigate any loss or liability which may give rise to a Claim.

 

48
 

 

Schedule 4 - Completion

 

Part A - Completion obligations of the Seller

 

1. The Seller will deliver, or procure the delivery, to the Buyer or (if so requested by the Buyer) make available to the Buyer:

 

1.1 physical possession of all of the Assets which are capable of being transferred by delivery (with the intent that title in those Assets will pass to the Buyer by and on that delivery);

 

1.2 assignments or novation agreements of those Contracts which the Buyer requests in the Agreed Form duly executed by the Seller (together with any relevant consents, licences and approvals necessary or required to assign or novate the benefit of the relevant Contract to the Buyer);

 

1.3 an assignment of the Book Debts in the Agreed Form duly executed by the Seller;

 

1.4 the Transitional Services Agreement in the Agreed Form duly executed by the Seller and AB;

 

1.5 a certified copy of any power of attorney under which any document delivered on Completion has been executed on behalf of AB and/or the Seller;

 

1.6 a certified copy of the board minutes of the Seller approving the sale of the Business and the Assets on the terms of this agreement and authorising the execution of this agreement and any other Agreed Form documents to which the Seller is a party;

 

1.7 a certified copy of the board minutes of the AB approving the terms of this agreement and authorising the execution of this agreement and any other Agreed Form documents to which the AB is a party;

 

1.8 the originals of those of the Contracts which are, or are evidenced, in writing together with a written summary of the terms of those of the Contracts which are not, or are not evidenced, in writing;

 

1.9 full details of, and all relevant documents, records and papers relating to, the Book Debts;

 

1.10 the Records duly completed and written up to the Completion Date;

 

1.11 all National Insurance and PAYE records relating to the Employees duly completed and written up to the Completion Date and showing that payments are up to date and all records required to be kept under the Working Time Regulations 1998; and

 

1.12 all other consents and documents as are required by the Buyer or the Buyer's Solicitors to complete the sale and purchase of the Business and the Assets and to vest in the Buyer the full benefit of the Business and the Assets.

 

2. If any of the Assets are owned, held or used by another member of the Seller's group or if any member of the Seller's group will be required to be a party to any documents to be entered into under this Part A in order for those documents to be effective and/or to complete the sale and purchase of the Business and the Assets and/or to vest in the Buyer the full benefit of the Business and the Assets, the Seller will procure that the relevant member of the Seller's group will enter into those documents.

 

49
 

 

Part B- Documents to be delivered by the Buyer

 

1. The assignment or novation agreements of those Contracts referred to in paragraph 1.2 of Part A of this Schedule duly executed (where relevant) by the Buyer.

 

2. The assignment of the Book Debts referred to in paragraph 1.3 of Part A of this Schedule duly executed (where relevant) by the Buyer.

 

3. The Transitional Services Agreement in the Agreed Form duly executed by the Buyer.

 

4. A certified copy of the board minutes of the Buyer approving the purchase of the Business and the Assets on the terms of this agreement and authorising the execution of this agreement and any other Agreed Form documents to which the Buyer is a party.

 

50
 

 

Schedule 5 – MATERIAL Contracts

 

The Seller contracts with the following entities:

 

1. Grosvenor Estate Management Limited;

 

2. IPC Media Group Limited;

 

3. ASOS;

 

4. Berkeley Group St George Plc;

 

5. British Film Institute;

 

6. Central School of Speech and Drama;

 

7. Euromoney Publications Plc;

 

8. Thomson Reuters Limited;

 

9. KBC Financial Products Limited;

 

10. BNP Paribas;

 

11. Fitch Group;

 

12. Aegis Media Limited;

 

13. University College London (UCL);

 

14. Lloyds TSB;

 

15. Wells Fargo Bank N.A.

 

51
 

 

Schedule 6 - Supply Contracts

 

MWB Office

 

MWB Server Room

 

Big Yellow

 

Data Shred

 

Ricoh

 

Pitney Bowes

 

GE Capital

 

Investec Asset Finance

 

Jelf

 

Qubic

 

Safe Tempest

 

52
 

 

Schedule 7 - CREDITORS

 

 

Creditor   Amount (£)  
ITYJOBS CITY JOBS     -2,010.00  
COOPER     -5,280.00  
DATAS     -114.04  
EFINAN     -2,250.00  
GAAPWEB Financial Jobs Online     -5,616.00  
MWB     -31,352.40  
QUBIC     -1,740.03  
RECORD     -36.96  
REEDON     -450.00  
RICOH     -5,453.68  
TOTAL     -54,753.10  

 

53
 

 

Schedule 8 - Completion Accounts

 

part a - Basis of preparation of the Completion Accounts

 

1. The Completion Accounts must be prepared:

 

1.1 in accordance with the specific instructions set out in paragraph 2;

 

1.2 subject to paragraph 1.1, using the same accounting principles, policies, practices, methods, categorisations and estimation techniques including in relation to the exercise of accounting discretion and judgement as were adopted in the preparation of the Accounts, but, only in so far as in doing so the Completion Accounts would comply with GAAP mandatory for adoption at Completion; and

 

1.3 subject to paragraph 1.2, in accordance with GAAP mandatory for adoption at Completion.

 

2. The specific instructions referred to in paragraph 1.1 are:

 

2.1 no value will be attributed to intangible assets (including, but not limited to, goodwill, tax losses and deferred tax debit balances);

 

2.2 no asset or liability will be included more than once;

 

2.3 all assets and all liabilities will be valued on a historical cost basis with full provision for accruals (including, but not limited to, interest payable and accrued, accrued utility charges, unpaid rates and costs associated or arising from obtaining vacant possession) and pre-payments and rent received in advance will be apportioned on a daily basis all in accordance with generally accepted accounting principles so far as those principles relate to the Seller;

 

2.4 account must be taken of all events occurring and information becoming available up until the date on which the draft Completion Accounts are submitted to the Buyer by the Seller to the extent that they provide additional information about the conditions which existed at Completion. No account will be taken of events occurring and information becoming available after that date;

 

2.5 any amount owed by the Seller to AB or any member of the Seller's or AB's group shall not be included as a liability of the Seller;

 

2.6 the value of any fixed assets of the Seller shall not be included as an asset of the Seller;

 

2.7 full provision will be made in respect of the cost of making good dilapidations or wants of repair on or to the Property;

 

2.8 all Tax accrued or owing in respect of all periods up to Completion in respect of all taxable income, profits and gains of the Company will be provided for as a liability.

 

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PART B - Format of the Completion Accounts

 

    Draft Dec Bal Sheet     Not Included     Tangible Net Assets  
Fixed Assets     4,307       (4,307 )     0  
                         
Current Assets                        
Bank and Cash     169,241               169,241  
Net Accounts Rec     445,900               445,900  
Prepayments     117,476               117,476  
Total Current Assets     732,617               732,617  
                         
Current Liabilities                        
Creditors     (46,512 )             (46,512 )
Accruals     (39,336 )             (39,336 )
Other Creditors     (46,089 )             (46,089 )
VAT     (33,106 )             (33,106 )
PAYE/NI     (26,299 )             (26,299 )
Payroll     (13,537 )             (13,537 )
Intercompany     (1,706,450 )     1,706,450       0  
Total Current Liabilities     (1,911,329 )     1,706,450       (204,879 )
                         
Total Net Assets     (1,174,405 )     1,702,143       527,738  

  

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Schedule 9 - Conduct before Completion

 

1. The Seller will (except with the prior written consent of the Buyer):

 

1.1 operate the Business in the ordinary and usual course and so as to maintain it as a going concern and not discontinue or cease to operate all or any part of the Business;

 

1.2 keep proper accounting records in which accurate entries are made of all dealings and transactions which should be recorded in them;

 

1.3 maintain and comply with the policies for revenue recognition in respect of trade debtors of the Business and the policies for the payment of creditors of the Business and the collection of trade debtors of the Business which have been applied during the financial period ended on the Accounts Date and ensure, in particular, that there is no unusual postponement of the payment of trade creditors of the Business or unusual acceleration of the collection of trade debtors of the Business in each case having regard to the policies applied for such payment and collection prevailing in the financial period ended on the Accounts Date;

 

1.4 procure that the Employees and any other officers or employees of the Seller who have regular dealings with the Seller's major clients will not do any act or thing or omit to do any act or thing with the intention of materially and adversely affecting the relationship of the Business with such clients; and

 

1.5 introduce the Buyer, its officers, employees, agents and representatives to the major clients and major suppliers of the Business and the Seller will procure that the Employees and any other officers or employees of the Seller who have regular dealings with such clients and suppliers will give all reasonable co-operation to the Buyer in relation to those introductions.

 

2. The Seller will not (except with the prior written consent of the Buyer, not to be unreasonably withheld or delayed):

 

2.1 acquire or dispose of any asset or stock (other than in the normal course of trading);

 

2.2 (other than in the normal course of trading) create any security over or encumber or agree to encumber the Business, any Assets (including any assets acquired by it after the date of this agreement) or redeem any existing security or give any guarantees or indemnities;

 

2.3 alter the terms of any existing borrowing facilities or arrange additional borrowing facilities outside the ordinary course of the Business;

 

2.4 begin or compromise or settle any litigation or arbitration proceedings;

 

2.5 acquire any shares in any other company, become a member of a LLP or participate in any partnership or joint venture;

 

2.6 permit any of its insurance policies to lapse or do or omit to do anything to make any policy of insurance void or voidable or cease to be effective or knowingly do anything (apart from making claims under the policies) which may adversely affect the renewal of any policy of insurance on the insurers standard (or, if different, the existing) terms;

 

56
 

 

2.7 enter into any unusual or abnormal contract, agreement, arrangement or commitment which is material to the Business or which may be likely to result in any material change in the operations or activities of the Business;

 

2.8 modify or agree to terminate any of the Contracts or enter into any new Contract involving expenditure or liabilities in excess of £5,000 in aggregate value;

 

2.9 enter into any leasing, lease purchase, hire, hire purchase, conditional sale, rental or other agreement or arrangement for payment on deferred terms;

 

2.10 enter into contract, agreement or arrangement on terms which do not permit assignment to the Buyer;

 

2.11 enter into any contract, agreement, arrangement or transaction with or for the benefit of the Seller or any other member of the Seller's group or any Associates of the Seller or any other member of the Seller's group;

 

2.12 employ, or offer employment to, any person;

 

2.13 dismiss any Employee (including any person who becomes an employee after the date of this agreement) or ask or require any Employee (including any person who becomes an employee after the date of this agreement) to work on terms which may result in his being entitled to claim that he has been constructively dismissed or make any alterations to the terms of employment (including benefits) of any Employee (including any person who becomes an employee after the date of this agreement);

 

2.14 induce (directly or indirectly), or attempt to induce, any Employee to terminate their employment:

 

2.15 provide any non-contractual benefit to any Employee (including any person who becomes an employee after the date of this agreement) or their dependents or to any consultant or their dependants or enter into any (or modify any subsisting) agreement with any trade union or any agreement that relates to any works council;

 

2.16 enter into, or offer, any form of consultancy to any person;

 

2.17 terminate the engagement of or alter the terms of engagement of any consultant or take any action which may result in that termination or alteration;

 

2.18 grant, modify, agree to terminate or permit to lapse any of the Business Intellectual Property Rights or enter into any agreement relating to any of those rights;

 

2.19 vary the terms on which it holds the Property;

 

2.20 make any material change to the accounting principles, policies, practices, methods, categorisations and estimation techniques including in relation to the exercise of accounting discretion and judgement by reference to which the accounts of the Business are drawn up;

 

2.21 commit or omit to do any act or thing in contravention of any applicable law and which would have a material adverse effect on the Business;

 

2.22 do, or allow to be done, any act or thing which may adversely affect the Goodwill or the relationship of the Business with its customers or suppliers;

 

57
 

 

2.23 make or allow any material change to the terms and conditions on which the Business does business with major clients;

 

2.24 do any act or thing or omit to do any act or thing with the intention of, or which is reasonably likely to result in, materially and adversely affecting the relationship of the Business with major clients;

 

2.25 take any action which (save in the ordinary course of trading) could have an adverse effect on the financial or trading position or prospects of the Business; and

 

2.26 agree, or enter into any form of agreement or commitment, to do any of the matters dealt with or mentioned in this paragraph 2.

 

3. The Buyer and any person authorised by it will be given access to all the books and records of the Business.

 

4. The Seller will, and will procure that any other member of the Seller's group, the officers and employees of any other member of the Seller's group, the Employees and any other officers and employees of the Seller will, give promptly all of the information and explanations about the business, assets, liabilities, affairs and records of, or relating to, the Business and/or the Assets as the Buyer or any person authorised by it may reasonably request.

 

5. The Seller will, and will procure that any other member of the Seller's group, the officers and employees of any other member of the Seller's group, the Employees and any other officers and employees of the Seller will, give all reasonable co-operation to the Buyer so as to ensure a smooth, orderly and efficient continuation of management of the Business after Completion and, if required by the Buyer, to prepare for the introduction of the normal working practices and procedures of the Buyer in readiness for Completion.

 

58
 

 

The parties have entered into this document on the date stated at the beginning of it and it has been executed by the Buyer and executed and delivered by the Seller and the AB as a deed on the date stated at the beginning of it.

 

 

EXECUTED as a deed by

POOLIA UK LIMITED

acting by a director, in the presence of:

Signature

 

 

Director

 

Print name

 

 

Witness signature

 
   

Name (in BLOCK CAPITALS)

 
   

Address

 
   

 

 

 

SIGNED on behalf of STAFFING 360 SOLUTIONS (UK) LIMITED

 

Signature

 

 

Director

 

Print name

 

 

 

EXECUTED as a deed by POOLIA AB , a company incorporated in Sweden, acting by Dag Sundström, being a person who, in accordance with the laws of that territory, has been authorized to sign this deed

Signature

 

 

Authorised Signatory

 

Print name

 

 

 

59

 

Exhibit 10.32

 

AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED CREDIT AND AGREEMENT (this " Agreement ") is by and among MONROE STAFFING SERVICES, LLC, a Delaware limited liability company (“ Monroe ”), PEOPLESERVE, INC., a Massachusetts corporation (“ PSI ” and together with Monroe, individually and collectively, jointly and severally, the “ Borrower ”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (" Lender "). Except as set forth in Section 7.1 , capitalized terms used and not otherwise defined in this Agreement shall have the meanings given to them in Schedule A annexed hereto.

 

The parties agree as follows:

 

ARTICLE I
CREDIT TERMS

 

Section 1.1            DISCRETIONARY LINE OF CREDIT .

 

(a)           Discretionary Advances . Subject to the terms and conditions of this Agreement, Lender may consider making Advances to Borrower under this Section 1.1 from time to time up to and including the Termination Date, in a total amount at any time outstanding not to exceed the lesser of (i) the Facility Sublimit and (ii) the Borrowing Base . The Line of Credit is a discretionary Line of Credit and Lender has no obligation to make an Advance even if no Event of Default has occurred under the terms of this Agreement. Lender may terminate the Line of Credit at any time in accordance with the terms hereof.

 

(b)           Determination of Borrowing Base . The Borrowing Base will be determined by Lender upon receipt and review of all collateral reports required under this Agreement and such other documents and collateral information as Lender may from time to time require. Lender may, in its discretion, calculate a separate Borrowing Base for each Borrower.

 

(c)           Borrowing and Repayment . Borrower may from time to time prior to the Termination Date request Advances, partially or wholly repay amounts outstanding under the Line of Credit, and request to re-borrow the same, subject to all of the limitations, terms and conditions contained in this Agreement. Any request for Advance must be received by Lender no later than 1:00 p.m. (Eastern time) on the Business Day immediately preceding the Business Day that funding is requested. No request for an Advance will be deemed received until Lender acknowledges the request. All Advances will be repaid by Borrower even if the Person requesting the Advance on behalf of Borrower lacks authorization.

 

(d)           Protective Advances: Advances to Pay Obligations Due . Lender may make Advances under the Line of Credit in its sole discretion for any reason at any time without request of Borrower and without Borrower’s compliance with any of the conditions of this Agreement, and (i) disburse the proceeds directly to third Persons in order to protect Lender’s interest in Collateral or to perform any of Borrower’s obligations under this Agreement, or (ii) apply the proceeds to any Obligations then due and payable.

 

(e)           Payments and Collections .

 

(i)          All payments by Borrower will be made as specified in the Loan Documents or as otherwise directed by Lender, without setoff, counterclaim or defense. Borrower shall cause all payments of Accounts to be remitted, and Borrower shall instruct and cause all Account Debtors obligated in respect of such Accounts to remit all payments, (A) with respect to payments by wire transfer or ACH, to Lender’s Account and (B) with respect to payments by check, to Lender at the address set forth below. If any Obligor receives payment or the proceeds of Collateral directly, Borrower shall cause such Obligor to remit such payment or proceeds, in the same form received, to the Lender’s Account or, as applicable, to the address set forth below. The address for payments by check is as follows:

 

Wells Fargo Bank, National Association

P.O. Box 60839

Charlotte, NC 28260-0839

 

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(ii)         All payments of and proceeds of Collateral received by Lender, in immediately available funds, will be applied to reduce outstanding Obligations in such manner as Lender determines in its sole discretion. So long as no Event of Default has occurred and is continuing, after payment in full in cash of all Obligations, any remaining balance shall be paid to Borrower or such other Person entitled thereto under applicable law. For purposes of calculating Availability, each payment will be applied to the Obligations as of the first Business Day following the Business Day of receipt by Lender of such payment in immediately available funds; provided such payment is received in accordance with Lender’s usual and customary practices as in effect from time to time. Any payment received by Lender that is not a transfer of immediately available funds will be considered provisional until the item or items representing such payment have been finally paid under applicable law. Should any payment item not be honored when presented for payment, then Borrower will be deemed not to have made such payment, and that portion of Borrower’s outstanding Obligations corresponding to the amount of such dishonored payment item will be deemed to bear interest as if the dishonored payment item had never been received by Lender. Each reduction in outstanding Obligations resulting from the application to such Obligations of payments of Accounts will be accompanied by an equal reduction in the amount of outstanding Accounts.

 

(f)           Charges to Loan Account; Clearance Charge . Lender will record in the Loan Account all Advances made by Lender and all other payment Obligations. Borrower authorizes Lender to collect all principal, interest and fees due under the Line of Credit by charging the Loan Account, or any other deposit account maintained by Borrower with Lender. Should there be insufficient funds in the Loan Account or any such other account to pay all such sums when due, the full amount of such deficiency will be immediately due and payable by Borrower. All Collections received by Lender will be applied as provided in Section 1.1(e) . Lender will make available to Borrower an internet accessible website which will permit Borrower to view all entries made by Lender to the Loan Account. All postings to the Loan Account shall be subject to subsequent adjustment by Lender but shall, absent manifest error, be conclusively presumed to be correct and accurate. All monthly statements relating to the Loan Account or such account will be conclusively presumed to be correct and accurate and constitute an account stated between Borrower and Lender unless Borrower delivers written objection to Lender within 30 days after receipt by Borrower. Obligations paid with Collections will continue to accrue interest at the rate then applicable to Advances for the number of Settlement Days following the Business Day that such Collections were applied to the Obligations. Any such clearance charge on Collections is acknowledged by the parties to constitute an integral aspect of the pricing of the financing of Borrower. The parties acknowledge and agree that the economic benefit of these provisions will accrue exclusively to Lender.

 

(g)           Mandatory Payment of Advances . If at any time an Overadvance Amount is outstanding, then Borrower shall immediately upon demand by Lender repay the Obligations in an aggregate amount equal to such Overadvance Amount.

 

(h)           Unbilled Accounts . Notwithstanding anything to the contrary set forth in this Agreement, an Account for which a Borrower has not issued an invoice but for which such Borrower has delivered the goods or rendered the services covered thereby and the applicable Account Debtor has accepted such goods or services without alleging a Commercial Dispute (an “ Unbilled Account ”) may nonetheless, in Lender’s sole discretion, be an Eligible Account, subject to the following terms and conditions: (i) such Borrower clearly identifies such Account as an Unbilled Account to Lender in all Borrowing Base certificates and other collateral reports provided to Lender hereunder, (ii) each Unbilled Account shall satisfy all representations, warranties and other requirements for an Eligible Account set forth in this Agreement other than such Borrower’s failure to issue an invoice for such Unbilled Account, and (iii) such Borrower shall issue an invoice to the Account Debtor obligated thereon within ten (10) days following the date the goods have been delivered or the services rendered by Borrower.

 

Section 1.2            INTEREST/FEES .

 

(a)           Interest . Except as provided in Section 1.2(b) or Section 1.2(c) , the outstanding principal balance of Advances will bear interest on the Daily Balance of such Advances at a variable per annum rate equal to the Contract Rate.

 

(b)           Default Rate . During a Default Period, and at any time following the Termination Date, the outstanding principal balance of Advances will, at the sole discretion of Lender, bear interest on the Daily Balance of such Obligations at the Default Rate. Lender may assess the Default Rate commencing as of the date of the occurrence of an Event of Default or as of any date after the occurrence of an Event of Default until such Event of Default is waived or cured in accordance with the terms hereof, regardless of the date of reporting or declaration of such Event of Default.

 

(c)           Deficit Rate . If at any time an Overadvance Amount is outstanding, the outstanding principal balance of Advances equal to such Overadvance Amount will, at the sole discretion of Lender, bear interest on the Daily Balance of such Obligations at the Deficit Rate. Lender may assess the Deficit Rate commencing as of the date an Overadvance Amount is first outstanding or as of any date thereafter that an Overadvance Amount remains outstanding regardless of the date of demand by Lender for repayment of any Overadvance Amount and regardless of whether Lender has declared an Event of Default.

 

- 2 -
 

 

(d)           Payment of Interest . Interest will be payable monthly in arrears on the first day of each month and on the Termination Date.

 

(e)           Payment of Fees . Borrower will pay to Lender the fees set forth on Schedule B-2 , all of which shall be fully earned and payable when due, may be charged by Lender to the Loan Account and shall not be subject to refund, rebate or proration for any reason whatsoever.

 

(f)           Computation of Interest and Fees . Interest and fees will be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.

 

Section 1.3            ADDITIONAL COSTS .

 

(a)           Capital Requirements . Borrower will pay Lender, on demand, for Lender's costs or losses arising from any Change in Law which are allocated to this Agreement or any credit outstanding under this Agreement. The allocation will be made as determined by Lender, using any reasonable method. The costs include, without limitation, (i) any reserve or deposit requirements (excluding any reserve requirement already reflected in the calculation of the interest rate in this Agreement); and (ii) any capital requirements relating to Lender's assets and commitments for credit.

 

(b)           Illegality; Impractibility; Increased Costs . In the event that (i) any change in market conditions or any Change in Law make it unlawful or impractical for Lender to fund or maintain extensions of credit with interest based upon Daily One Month LIBOR or to continue to so fund or maintain, or to determine or charge interest rates based upon Daily One Month LIBOR, (ii) Lender determines that by reasons affecting the London Interbank Eurodollar market, adequate and reasonable means do not exist for ascertaining Daily One Month LIBOR, or (iii) Lender determines that the interest rate based on the Daily One Month LIBOR will not adequately and fairly reflect the cost to Lender of maintaining or funding Advances at the interest rate based upon Daily One Month LIBOR, Lender will give notice of such changed circumstances to Borrower and interest on the principal amount of such extensions of credit will then accrue interest at a rate equal to the Prime Rate plus 1% until Lender determines that the conditions described in clauses (i) through (iii) no longer exist.

 

Section 1.4            TERM AND TERMINATION .

 

(a)           Termination Date . On the Termination Date, the Line of Credit will terminate, Borrower shall have no right to request further Advances or other extensions of credit under this Agreement, all of the Obligations including without limitation, the Termination Fee, if any, will immediately become due and payable without notice or demand, and Borrower will immediately repay all of the Obligations in full. No termination of this Agreement will relieve or discharge the Obligors of their duties, obligations, or covenants under this Agreement or under any other Loan Document. The relevant Bank Product Provider and Lender may require cash collateralization of Obligations with respect to any then existing Bank Product in an amount acceptable to such Bank Product Provider and Lender.

 

(b)           Termination of Liens. Provided that there are no suits, actions, proceedings or claims pending or threatened against any Person who Borrower has agreed to indemnify under this Agreement, Lender will, at Borrower’s expense, release or terminate any filings or other agreements that perfect the Liens granted to Lender under the Loan Documents in the Collateral upon satisfaction, as reasonably determined by Lender, of the Lien Release Conditions.

 

(c)           Termination by Borrower . Subject to payment of any termination fee provided hereunder, Borrower may terminate the Line of Credit at any time prior to any Maturity Date, if it (i) delivers a written notice to Lender of such intention at least sixty (60) days prior to such Maturity Date , (ii) pays to Lender the applicable termination and prepayment fees specified in this Agreement, and (iii) pays the Obligations in full. Any such termination will be irrevocable.

 

(d)           Termination by Lender. Lender may terminate the Line of Credit and this Agreement at any time, whether or not a Default Period then exists, by delivering to Borrower written notice of termination at least sixty (60) days prior to the proposed termination date if no Default Period then exists or without any advance notice if a Default Period then exists.

 

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(e)           Autorenewal . Unless Borrower shall have delivered to Lender written notice of its intention to terminate this Agreement at least 60 days prior to and effective as of the then applicable Maturity Date, or this Agreement shall be sooner terminated by Lender in accordance with the terms hereof, the then applicable Maturity Date shall be automatically extended by 36 months, subject to further automatic extension(s) in accordance with Section 1.4(e).

 

ARTICLE II
SECURITY INTERESTS

 

Section 2.1            Grant of Security Interest . As security for the Obligations, Borrower hereby grants to Lender, for itself and its Affiliates, a continuing security interest in and Lien upon all of the Collateral.

 

Section 2.2            Perfection . Borrower shall take, and shall cause each Obligor to take, all actions requested by Lender from time to time to cause the attachment, perfection and, subject to Permitted Liens, first priority of, and Lender’s ability to enforce, Lender’s security interest in and Lien upon any and all of the Collateral. Borrower irrevocably and unconditionally authorizes Lender (or Lender’s agent) to complete and file, and Borrower ratifies such filing, at any time and from time to time, without notice to Borrower, such financing statements with respect to the Collateral naming Lender as the secured party and such Borrower as debtor, as Lender may require, together with all amendments and continuations with respect thereto. Any such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Lender’s discretion.

 

Section 2.3            Subrogation . Until all Obligations shall have been paid in full and all commitments by Lender to extend credit under this Agreement have been terminated, no Borrower shall have any right of subrogation, contribution or similar right, and each Borrower waives any benefit of or right to participate in any of the Collateral or any other security now or subsequently held by Lender.

 

Section 2.4            Waivers . Borrower waives any right to require Lender to (a) proceed against any Obligor or any other Person, (b) marshal assets or proceed against or exhaust any security from any Obligor or any other Person, (c) perform any obligation of any Obligor with respect to any Collateral; and (d) make any presentment or demand, or give any notice of nonpayment or nonperformance, protest, notice of protest or notice of dishonor hereunder or in connection with any Collateral. Borrower further waives any right to direct the application of payments or security for any Obligations of any Obligor or indebtedness of customers of any Obligor.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES

 

     Borrower makes the following representations and warranties to Lender, which representations and warranties will survive the execution of this Agreement and will continue in full force and effect until the full and final payment, and satisfaction and discharge of all Obligations:

 

Section 3.1            LEGAL STATUS . Each Corporate Obligor is duly organized, validly existing and in good standing under the laws of the State of its organization and is qualified or licensed to do business and is in good standing in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could reasonably be expected to cause a Material Adverse Change. Each Obligor possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law.

 

Section 3.2            AUTHORIZATION AND VALIDITY . The Loan Documents have been duly authorized and constitute legal, valid and binding agreements and obligations of each Obligor party thereto, enforceable in accordance with their respective terms. The execution, delivery and performance by each Obligor of each of the Loan Documents to which it is a party do not (i) violate any provision of any law or regulation, (ii) contravene any provision of any Corporate Obligor’s organizational documents, (iii) result in any breach of or default under any contract, obligation, indenture or other instrument to which any Obligor is a party or by which any Obligor or its assets may be bound, (iv) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, or (v) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect).

 

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Section 3.3            LITIGATION . There are no pending, or to the best of Borrower’s knowledge threatened, actions, claims, investigations, suits or proceedings by or before any Governmental Authority, arbitrator, court or administrative agency which could reasonably be expected to cause a Material Adverse Change other than those disclosed on Schedule C .

 

Section 3.4            FINANCIAL STATEMENTS . The annual financial statements of Borrower dated for such Borrower’s most recent fiscal year ended, and all interim financial statements delivered to Lender since such date and prior to the date of this Agreement (a) are complete and correct and present fairly the financial condition of Borrower, (b) disclose all liabilities of Borrower that are required to be reflected or reserved against GAAP, whether liquidated or unliquidated, fixed or contingent, and (c) have been prepared in accordance with GAAP consistently applied. Since the dates of such financial statements there has been no Material Adverse Change.

 

Section 3.5            TAXES . Each Obligor has timely filed all tax returns and reports of such Obligor required to be filed by it, and paid when due all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon such Obligor and its assets, income, businesses and franchises that are due and payable. The Borrower is not aware of any unpaid tax or assessment or proposed tax or assessment against any Obligor except (i) as set forth on Schedule C and (ii) taxes owing for current or future periods that are not yet due and payable.

 

Section 3.6            SOLVENCY . Each Obligor is solvent, is able to pay its debts as they mature, has capital sufficient to carry on its business and all businesses in which it is about to engage and the fair saleable value of its assets (calculated on a going concern basis) is in excess of its liabilities.

 

Section 3.7            COMPLIANCE WITH LAWS, ETC . Each Obligor operates its business in material compliance with all applicable local, state and federal laws.

 

Section 3.8            ACCURACY OF INFORMATION . All of the information submitted by the Obligors to Lender and all disclosures, representations, and warranties made by the Obligors to Lender, including in any certification of officers, are true, complete, correct and accurate as of the date submitted or made by Obligors to Lender.

 

Section 3.9            NO EVENT OF DEFAULT . No Default or Event of Default has occurred or is continuing under this Agreement.

 

Section 3.10          TITLE; NO OTHER LIENS . Each Obligor has good title to the Collateral that is pledged by it pursuant to this Agreement or the Loan Documents and has exclusive right to grant a security interest in such Collateral. No Obligor has mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Lender and except for Permitted Liens.

 

Section 3.11          ACCOUNTS . Each Eligible Account of Borrower (a) evidences an absolute, bona fide sale and delivery of goods or rendition of services in the applicable Borrower’s ordinary course of business and such goods or services have been accepted by the Account Debtor obligated thereon; (b) is genuine, valid and enforceable against the Account Debtor obligated thereon in the full amount set forth on the invoice evidencing such Account, without offset, defense, counterclaim, deduction, recoupment or contra account; (c) is not subject to Commercial Dispute (real or alleged); (d) is owing by an Account Debtor located in the United States and is payable in United States dollars; (e) is owing by an Account Debtor that is not an Affiliate of any Obligor; (f) does not represent goods delivered upon “bill and hold”, “consignment”, “guaranteed sale”, “sale or return”, “payment on reorder” or similar terms; (g) is legally saleable and assignable by Borrower to Lender; (h) the invoice evidencing such Account and all other documents delivered to Lender in connection therewith are genuine and valid and are not mistaken, misleading, fraudulent, incorrect, incomplete or erroneous in any respect; (i) if arising from the sale of Inventory, such Inventory was owned by Borrower and was not subject to any consignment arrangement, encumbrance, security interest or Lien other than in favor of Lender; (j) shall not be altered or in any way modified without the prior written consent of Lender; and (k) has been issued in the name of Borrower or a trade style of Borrower specifically disclosed by Borrower in writing and acknowledged by Lender in writing.

 

Section 3.12          Intentionally omitted .

 

Section 3.13          ADDITIONAL REPRESENTATIONS AND WARRANTIES . The representations and warranties of the Obligors contained in this Agreement and in the other Loan Documents shall be true and correct on and as of the date of each request by Borrower for any Advance or the issuance of a letter of credit if contemplated hereunder. No Default or Event of Default shall exist on the date of any request by Borrower for an Advance or the issuance of any such letter of credit.

 

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Section 3.14       GOVERNMENT ACCOUNTS .

 

(a)            In addition to all other representations and warranties of the Borrower contained in this Agreement and the other Loan Documents, Borrower hereby represent and warrant to Lender that:

 

(i)          No event has occurred and, to the knowledge of Borrower, no condition exists that is reasonably likely to result in the debarment or suspension of Borrower from any contracting with a Governmental Authority, and Borrower has not been subject to any such debarment or suspension prior to the date of this Agreement;

 

(ii)         There is no investigation by a Governmental Authority or inquiry pending of which Borrower knows or should know, or to the knowledge of Borrower, threatened, against Borrower involving fraud, deception or willful misconduct in connection with any contract between a Governmental Authority and Borrower (a “ Government Contract ”) or any activities of Borrower that (A) are reasonably likely to result in debarment or suspension of Borrower from any contracting with a Governmental Authority or (B) has had, or could reasonably be expected to have, a Material Adverse Change;

 

(iii)        Borrower has not received written notification of cost, schedule, technical or quality problems that could result in one or more claims against Borrower (or a successor in interest) by any Governmental Authority in excess of Five Thousand Dollars ($5,000), individually or in the aggregate;

 

(iv)        all Government Contracts have been legally awarded, are binding on the Borrower party thereto, and to the best of Borrower's knowledge, are binding on the other parties thereto, and are in full force and effect;

 

(v)         no Government Contract is currently the subject of bid or award protest proceedings, and to the best of Borrower's knowledge, no Government Contract to which Borrower is a party is reasonably likely to become the subject of bid or award protest proceedings;

 

(vi)        (A) the Borrower has complied in all material respects with all statutory and regulatory requirements, including the Service Contract Act, the Contract Disputes Act, the Procurement Integrity Act, the Federal Procurement and Administrative Services Act, the Federal Acquisition Regulations (“ FAR ”) and related cost principles and the cost accounting standards, where and as relevant and applicable to each of the Government Contracts; (B) to the best of Borrower’s knowledge, no termination for default, cure notice or show cause notice has been issued and remains unresolved with respect to any Government Contract, and to the best of Borrower’s knowledge, no event, condition or omission has occurred or exists that would constitute grounds for such action; (C) to the best of Borrower’s knowledge, no past performance evaluation received by Borrower with respect to any such Government Contract has set forth a default or other failure to perform thereunder or termination or default thereof; and (D) no money due to Borrower pertaining to any Government Contract has been withheld or set-off as a result of any claim(s) made against Borrower involving amounts in excess of Five Thousand Dollars ($5,000), individually or in the aggregate.

 

(vii)       Borrower has not taken any action or is a party to any litigation that could reasonably be expected to give rise to (A) liability under the False Claims Act, (B) a claim for price adjustment under the Truth in Negotiations Act, or (C) any other request for a reduction in the price of any Government Contract in excess of Five Thousand Dollars ($5,000), individually or in the aggregate;

 

(viii)      No Government Contract to which Borrower has been a party has been terminated by a Governmental Authority for default in the past ten (10) years;

 

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(ix)         Neither Borrower nor any Affiliate of Borrower nor any of their respective directors, officers or employees has received any notice of, or information concerning, any proposed, contemplated or initiated suspension or debarment, be it temporary or permanent, due to an administrative or a statutory basis, of Borrower or any Affiliate of Borrower by any Governmental Authority.

 

(x)          Neither Borrower nor any Affiliate of Borrower has defaulted under any Government Contract which default would be a basis of terminating such Government Contract, and no cure notice or show cause notice has been issued to Borrower or any Affiliate of Borrower for which corrective action(s) have not been initiated or completed;

 

(xi)         (A) Borrower has not undergone, and Borrower is not undergoing, any audit, inspection, survey or examination of records by any Governmental Authority relating to any Government Contract involving fraud, deception, dishonesty, willful misconduct, criminal activity or any allegation thereof, (B) Borrower has not received written notice of, and Borrower has not undergone, any investigation or review relating to any Government Contract involving fraud, deception, dishonesty, willful misconduct, criminal activity or any allegation thereof, and (C) no such audit, review, inspection, investigation, survey or examination of records has been threatened in writing;

 

(xii)        Borrower has not received any official written notice that it is or was being specifically audited (other than a routine audit in the ordinary course of Borrower’s business) or investigated by the General Accounting Office, the Defense Contract Audit Agency of the United States Government (the “ DCAA ”), any state or federal agency Inspector General, the contracting officer with respect to any Government Contract, or the Department of Justice (including any United States Attorney);

 

(xiii)       The Borrower maintains systems of internal controls (including cost accounting systems, estimating systems, purchasing systems, proposal systems, billing systems and material management systems), where required, that are in compliance in all material respects with all requirements of all of the Government Contracts and of applicable government laws and regulations.

 

(xiv)      Neither Borrower, nor to the best of Borrower’s knowledge, any of its employees, officers or agents, has committed (or taken any action to promote or conceal) any violation of the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-1,-2;

 

(xv)       All reasonable documentation requested by Lender for compliance with the Assignment of Claims Act has been executed and delivered by Borrower to Lender in connection with each Government Contract required to be assigned pursuant to the terms of this Agreement;

 

(xvi)      Each Borrower signatory to a Government Contract is duly registered in the Central Contractor Registration/System for Award Management pursuant to applicable FAR provisions;

 

(xvii)     Borrower has applied for and/or obtained a SAFETY Act certification or designation with respect to any products or services provided by Borrower that could be reasonably expected to thwart or be used to carry out an act of terrorism;

 

(b)           Borrower shall, promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Lender in reasonable detail of any default under any Government Contract or any event which, if not corrected, could give rise to a default under any Government Contract. Borrower also shall promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Lender of a termination for convenience with respect to any Government Contract;

 

(c)           In addition to all other Events of Default set forth in this Agreement, each of the following shall also constitute an Event of Default: (a) if Borrower shall be debarred or suspended from any contracting with any Governmental Authority; or (b) if a notice of debarment or notice of suspension shall have been issued to Borrower; or (c) if a notice of termination for default or the actual termination for default of any Government Contract shall have been issued to or received by Borrower.

 

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ARTICLE IV

AFFIRMATIVE COVENANTS

 

Borrower covenants that prior to satisfaction, as determined by Lender, of the Lien Release Conditions, Borrower will:

 

Section 4.1            FINANCIAL STATEMENTS . Provide to Lender the financial information set forth on Schedule D , in form and detail satisfactory to Lender, within the time periods set forth in Schedule D .

 

Section 4.2            COLLATERAL REPORTING AND RECORDS . Maintain, and cause each Obligor to maintain, complete and accurate records regarding the Collateral. Provide to Lender all of the information set forth on Schedule E , in form and detail satisfactory to Lender, within the time periods set forth in Schedule E , and delivered electronically if Borrower has implemented electronic reporting.

 

Section 4.3            FINANCIAL COVENANTS . Comply with the Financial Covenants.

 

Section 4.4            ACCOUNTING RECORDS; INSPECTIONS . Maintain a system of accounting that enables Borrower to produce financial statements in accordance with GAAP. Borrower will, and Borrower will cause each Obligor to, permit any representative of Lender, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the Collateral and the other assets and properties of Borrower and Obligors, and to do inspections, exams and appraisals of the Collateral and any other assets of Borrower and Obligors.

 

Section 4.5            COMMUNICATIONS WITH CUSTOMERS; NOTICES OF ASSIGNMENT . Permit Lender (in Lender's name or in the name of a nominee of Lender) to, and Borrower hereby irrevocably authorizes Lender (in Lender’s name or in the name of a nominee of Lender) to, communicate with any Account Debtor obligated on an Account, by mail, telephone, facsimile transmission or otherwise, to verify the validity, amount or any other matter relating to any Account and to confirm Borrower’s sale of goods or rendition of services to such Account Debtor. Without limiting the foregoing, Borrower irrevocably authorizes Lender, at any time, to notify Account Debtors of the interest of Lender in Accounts, including pursuant to a Notice of Assignment of Accounts.

 

Section 4.6            COMPLIANCE . Preserve and maintain, and cause each Obligor to preserve and maintain, all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply with the provisions of all documents under which such Borrower or Obligor is organized and/or which govern such Borrower or Obligor’s continued existence, and with the requirements of all laws, rules, regulations and orders of any Governmental Authority applicable to each such Borrower or Obligor and/or its business, the failure to maintain or comply with which could reasonably be expected to cause a Material Adverse Change.

 

Section 4.7            USA PATRIOT ACT . (a) Ensure, and cause each Obligor and each subsidiary of Borrower and each Corporate Obligor to ensure, that none of its equity owners shall be listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by the Office of Foreign Assets Control, the Department of the Treasury or included in any Executive Orders of the President of the United States, (b) not use or permit the use of the proceeds of any Advance hereunder or any other financial accommodation from Lender to violate any of the foreign asset control regulations of the Office of Foreign Assets Control or other applicable law, rule or regulation, (c) comply, and cause each Obligor and each subsidiary of Borrower and each Corporate Obligor to comply, with all applicable Bank Secrecy Act laws and regulations, as amended from time to time, and (d) otherwise comply with the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) as required by federal law and Lender’s policies and practices.

 

Section 4.8            MAINTENANCE OF PROPERTIES . Keep all properties useful or necessary to each Obligor's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements so that such properties will be fully and efficiently preserved and maintained.

 

Section 4.9            TAXES AND OTHER LIABILITIES . Pay and discharge when due, and cause each Obligor to pay and discharge when due, any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments.

 

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Section 4.10          NOTICE TO LENDER . Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Lender in reasonable detail of: (a) the occurrence of any Default or Event of Default; (b) any material dispute (including, without limitation, any Commercial Dispute) between an Account Debtor and Borrower, or of the return by or repossession of Goods by Borrower from any Account Debtor; (c) the assertion, filing, recording or perfection by any means of any Lien against any of the Collateral other than Permitted Liens; (d) the commencement of an Insolvency Proceeding with respect to any Account Debtor of Borrower.

 

Section 4.11          INSURANCE . Maintain, and cause each Obligor to maintain, insurance customary for the business in which it is engaged and maintain all risk property insurance coverage covering the full replacement cost of the Collateral, together with general liability insurance, in each case, in form, substance, amounts, under agreements and with insurers acceptable to Lender. The insurance policies must be issued by an insurance company acceptable to Lender and contain a lender loss payable endorsement acceptable to Lender naming Lender as first and sole loss payee with regard to property coverage and as additional insured with regard to liability coverage.

 

Section 4.12          COOPERATION . Take, and cause each Obligor to take, such actions and execute and deliver to Lender such instruments and documents as Lender will request (including obtaining collateral access and other agreements from third parties as Lender deems necessary) to create, maintain, preserve and protect Lender’s first-priority security interest in the Collateral and Lender’s rights in the Collateral and to carry out the intent of this Agreement and the other Loan Documents. Without limiting the foregoing, Borrower shall, and shall cause each Obligor to, deliver to Lender, from time to time at the request of Lender, an Internal Revenue Service form 8821.

 

ARTICLE V

NEGATIVE COVENANTS

 

Borrower covenants that, prior to satisfaction, as determined by Lender, of the Lien Release Conditions:

 

Section 5.1            USE OF FUNDS . No Obligor will use any of the proceeds of any Advance or any other credit extended under this Agreement for purposes other than (i) to repay in full, the outstanding principal, accrued interest, and accrued fees and expenses owing by Borrower under any credit facility of Borrower existing immediately prior to the Closing Date, (ii) to pay Lender Expenses incurred in connection with this Agreement and the other Loan Documents, and (iii) thereafter, consistent with the terms of this Agreement, for working capital and other business purposes of Borrower. The Borrower will not use the proceeds of any extension of credit to purchase or carry margin stock or for any other purpose that violates the terms of Regulation T, U, or X of the Board of Governors of the Federal Reserve System.

 

Section 5.2            MERGER, CONSOLIDATION, TRANSFER OF ASSETS, TRANSACTIONS OUTSIDE THE ORDINARY COURSE OF BUSINESS . Except with the prior written consent of Lender, which consent shall not be unreasonably withheld, no Corporate Obligor will (a) merge with or consolidate with any other Person (except that a Corporate Obligor may merge with and into a Borrower provided such Borrower is the surviving entity); (b) make any substantial change in the nature of any of its business as conducted as of the Closing Date; (c) except as permitted in Section 5.7 below, make any material change in the existing executive management personnel of such Corporate Obligor; (d) become a member or partner in a joint venture, partnership or limited liability company; (e) acquire all or substantially all of the assets of any other Person (or any division, business unit or line of business of any other entity), or acquire any assets outside the ordinary course of such Corporate Obligor’s business; (f) sell, lease, transfer or otherwise dispose of any of any of its assets, except for the sale of Inventory in the ordinary course of its business, (g) create or acquire any Subsidiary; (h) enter into any other transaction outside the ordinary course of business (including any sale and leaseback transaction); provided that , executive compensation payable by Borrower to its executive employees shall be deemed an ordinary course of business transaction; or (i) liquidate, wind up, or dissolve itself or suspend or cease operation of a substantial portion of its business.

 

Section 5.3            LOANS, ADVANCES, INVESTMENTS . No Corporate Obligor will make any investment in any Person, whether in the form of loans, advances, guarantees, capital contributions or other investment, without the consent of Lender or as otherwise expressly permitted hereunder.

 

Section 5.4            DIVIDENDS, DISTRIBUTIONS . No Corporate Obligor will declare or pay any dividend or distribution either in cash or any other property in respect of any stock in any Corporate Obligor, or redeem, retire, repurchase or otherwise acquire any Stock of any Corporate Obligor, except Permitted Dividends.

 

Section 5.5            LIENS . No Corporate Obligor will mortgage, pledge, grant or permit to exist a security interest in, or Lien upon, all or any portion of any Corporate Obligor’s assets now owned or subsequently acquired, except Permitted Liens.

 

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Section 5.6            AFFILIATE TRANSACTIONS . No Obligor will, directly or indirectly, enter into, or permit to exist, any transaction with any Affiliate of such Obligor, except for (a) transactions that are in the ordinary course of such Obligor’s business, and are on fair and reasonable terms that are no less favorable to such Obligor than would be obtained in an arm’s length transaction with a non-affiliated Person, and (b) so long as it has been approved by such Corporate Obligor’s board of directors (or comparable governing body) in accordance with applicable law, the payment of reasonable compensation, severance, or employee benefit arrangements to employees, officers, and directors of such Corporate Obligor in the ordinary course of business and consistent with industry practice. Notwithstanding the foregoing or anything to the contrary herein, (1) executive compensation payable by Borrower to its executive employees shall be deemed permitted under this Section 5.6 and (2) Borrower shall be permitted to advance to Faro Recruiting America, Inc. (“Faro”), for the payment of tax related expenses, an amount not to exceed $50,000 in the aggregate at any time outstanding (which amount may be exceeded with the prior written consent of Lender, such consent not to be unreasonably withheld).

 

Section 5.7            ORGANIZATIONAL CHANGES . Without giving Lender at least 30 days prior written notice, (a) no Corporate Obligor will change its name, chief executive office, principal residence, organizational documents, organizational identification number, state of organization, organizational identity, “location” as defined in Section 9-307 of the Code and (b) no Obligor that is a natural Person will change its name as set forth on such Obligor’s driver’s license or other special identification card issued by any state. No Corporate Obligor shall change its chief executive officer, chief financial officer or chief operating officer, or any officer of similar title or authority, without giving Lender thirty (30) days advance notice of such change.

 

Section 5.8            CHANGE OF ACCOUNTING METHOD . No Obligor will modify or change its fiscal year or its method of accounting (other than as may be required to conform to GAAP).

 

ARTICLE VI

EVENTS OF DEFAULT

 

Section 6.1            EVENTS OF DEFAULT . Lender may terminate the Line of Credit and demand immediate payment of all Obligations at any time and for any reason. Without waiving or limiting these rights, the following is a non-exclusive list of critical events that, if they were to occur, would allow Lender to charge increased interest with respect to Advances under the Line of Credit, ask for additional Collateral or other support for its continued extension of credit to Borrower, terminate the Line of Credit, demand immediate payment of the Obligations and exercise its remedies under this Agreement. Each such critical event is an " Event of Default " under this Agreement and includes any of the following:

 

(a)           Borrower fails to pay when due any Obligation.

 

(b)           Any financial statement or certificate furnished by an Obligor to Lender in connection with, or any representation or warranty made or deemed made by an Obligor under, this Agreement or any other Loan Document proves to be incorrect, false or misleading in any material respect when furnished or made (or deemed made).

 

(c)           Any default by an Obligor in the performance of or compliance with any obligation, covenant, agreement or other provision contained in this Agreement or in any other Loan Document, or any default by an Obligor of any other obligation of such Obligor to Lender.

 

(d)           Any breach or default by an Obligor under any document, instrument or agreement to which it is a party or by which such Obligor or any of its properties are bound, relating to Indebtedness in excess of the Cross Default Indebtedness Amount, if the maturity of or any payment with respect to such Indebtedness may be accelerated or demanded due to such breach or default.

 

(e)           Any levies of attachment, executions, tax assessments, tax liens, judgments or similar process shall be issued against any Corporate Obligor or the Collateral and shall not be released within ten (10) days thereof; or the existence of any other lien, claim or encumbrance (other than Permitted Liens) against the Collateral.

 

(f)           Any Obligor is enjoined, restrained or in any way prevented by any Governmental Authority from conducting any material part of its business.

 

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(g)           Any Obligor becomes insolvent, or becomes the subject of a voluntary Insolvency Proceeding , or becomes the subject of an involuntary Insolvency Proceeding which is not dismissed within 30 days of the filing thereof, or suspends or ceases operation of all or a material portion or line of its business.

 

(h)           The dissolution or liquidation of any Corporate Obligor or the death or incapacity of any Obligor that is a natural Person ;

 

(i)           Without the prior written consent of Lender, which consent shall not be unreasonably withheld, the sale, transfer or exchange, either directly or indirectly, to any one Person of more than 15% in the aggregate of the Stock in Ultimate Parent or any other Corporate Obligor.

 

(j)           Any Obligor makes any payment on any Indebtedness which is subject to a subordination agreement in favor of Lender, in violation of such subordination agreement.

 

(k)           Any Obligor or any of its senior management is or at any time has been criminally indicted or convicted for a felony offense under any state or federal law.

 

(l)           The results of any background investigation or report conducted by Lender with respect to any of an Obligor’s senior management or financial personnel fail to be satisfactory to Lender, in Lender’s sole discretion.

 

(m)           Any Obligor repudiates or revokes or purports to repudiate or revoke any obligation under its Guaranty or under any other Loan Document to which it is a party.

 

(n)           Any default or event of default occurs under the Affiliate Credit Agreement.

 

Section 6.2            REMEDIES .

 

(a)           Upon the occurrence and during the continuation of an Event of Default, Lender may: (i) declare the Obligations to be immediately due and payable, at which time such Obligations shall be immediately due and payable and Borrower shall be obligated to immediately repay all of such Obligations in full, without presentment, demand, protest, notice of dishonor, or other notice of any kind or other requirement of any kind, all of which are hereby expressly waived by Borrower ; (ii) terminate the Line of Credit and decline to make further Advances or other extensions of credit under this Agreement and any of the Loan Documents; and (iii) exercise any or all rights, powers and remedies available hereunder and under each of the other Loan Documents, or accorded by law or equity. All rights, powers and remedies of Lender may be exercised at any time by Lender and from time to time after the occurrence and during the continuation of an Event of Default, and the same are cumulative and not exclusive, and will be in addition to any other rights, powers or remedies provided by law or equity. Notwithstanding the rights reserved to Lender in this Section 6.2, the Line of Credit is a discretionary Line of Credit and may be terminated by Lender at any time in its sole discretion regardless of whether an Event of Default has occurred and is continuing and Lender may demand immediate payment of all Obligations at any time.

 

(b)           Without limiting the generality of the foregoing, upon the occurrence of any Event of Default, Lender shall have all the rights and remedies of a secured party under the Code and other applicable laws with respect to all Collateral, such rights and remedies being in addition to all of Lender’s other rights and remedies provided for herein, and all of which rights and remedies may be exercised without notice to, or consent by, any Obligor except as such notice or consent is expressly provided for hereunder. Lender may for any reason apply for the appointment of a receiver, ex parte without notice (except where such notice is required by law), of the Collateral (to which appointment Borrower hereby consents) without the necessity of posting a bond or other form of security (which Borrower hereby waives). Lender may sell or cause to be sold any or all of such Collateral, in one or more sales or parcels, at such prices and upon such terms as Lender shall elect, for cash or on credit or for future delivery, without assumption of any credit risk, and at a public or private sale as Lender may deem appropriate. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give the applicable Obligor reasonable notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made. At any such sale, Lender may disclaim warranties of title, possession, quiet enjoyment, merchantability and the like and any such disclaimer shall not affect the commercial reasonableness of the sale. The requirements of reasonable notice shall be met if any such notice is mailed, postage prepaid, to the applicable Obligor’s address set forth on the signature page hereto (or, with respect to Obligors not party hereto, to such other address as such Obligor shall have given to Lender for notice purposes), at least seven (7) days before the time of the sale or disposition thereof. Lender may be the purchaser at any such public sale and thereafter hold the property so sold at public sale, absolutely, free from any claim or right of any kind, including any equity of redemption. The proceeds of sale shall be applied first to all costs and expenses of, and incident to, such sale, (including attorneys’ costs, fees and expenses), and then to the payment (in such order as Lender may elect in its sole discretion) of all other Obligations. After application of the proceeds of any Collateral to the Obligations, any remaining proceeds shall be paid to Borrower or such other Person entitled thereto under applicable law. Borrower shall remain liable for any deficiency.

 

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ARTICLE VII

MISCELLANEOUS

 

Section 7.1            UCC Terms . When used herein, unless otherwise indicated herein, the terms “Account”, “Account Debtor”, “Chattel Paper”, “Commercial Tort Claim”, “Deposit Account”, “Document”, “Electronic Chattel Paper”, “Equipment”, “General Intangible”, “Goods”, “Instrument”, “Inventory”, “Investment Property”, “Letter-of-Credit Right”, “Proceeds”, “Record” and “Supporting Obligation” shall have their respective meanings set forth in the Code.

 

Section 7.2            NO WAIVER . No delay, failure or discontinuance of Lender in exercising any right, power or remedy under any of the Loan Documents will affect or operate as a waiver of such right, power or remedy; nor will any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Lender of any breach of or default (including any Default or Event of Default) under any of the Loan Documents must be in writing and will be effective only to the extent set forth in such writing.

 

Section 7.3            NOTICES . All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the address for such party set forth below each party’s name on the signature pages of this Agreement or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand will be deemed given or made as follows: (a) if sent by hand delivery or overnight courier, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; (c) if sent by telecopy, upon receipt; and (d) if sent by electronic mail, upon sender’s receipt of an acknowledgment from the intended recipient (such as by “return receipt requested” function, as available, return email or other written acknowledgment).

 

Section 7.4            COSTS, EXPENSES AND ATTORNEYS' FEES . Borrower will pay to Lender immediately upon demand the full amount of all Lender Expenses. All such costs, fees and expenses shall be payable on demand and may be charged by Lender to the Loan Account. Borrower’s obligations set forth in this Section 7.4 will survive any termination of this Agreement or repayment of the Obligations and will for all purposes continue in full force and effect.

 

Section 7.5            TAXES .

 

(a)           All payments made by any Obligor hereunder or under any note or other Loan Document will be made without setoff, counterclaim, or other defense. In addition, all such payments will be made free and clear of, and without deduction or withholding for, any present or future Taxes, and in the event any deduction or withholding of such Taxes is required, Borrower agrees to pay the full amount of such Taxes.

 

(b)           Concurrently with the execution of this Agreement, (i) Lender shall execute an Affidavit of Out-Of-State Delivery, substantially in the form annexed hereto as Schedule G , if Borrower is organized or is located in the State of Florida and this Agreement is delivered to Lender outside of the State of Florida, and (ii) Borrower shall execute and deliver an Affidavit For Execution Of Credit and Security Agreement Without The State of Florida, substantially in the form annexed hereto as Schedule H , if Borrower is organized or is located in the State of Florida and this Agreement is executed outside of the State of Florida.

 

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Section 7.6            GENERAL . This Agreement will be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided that no Borrower may assign or transfer any of its interests, rights or obligations under this Agreement without Lender's prior written consent. Lender reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Lender’s rights and benefits under this Agreement and the other Loan Documents. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Lender with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter of this Agreement. This Agreement may be amended or modified only in writing signed by each party to this Agreement. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other Person will be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. If any provision of this Agreement or any other Loan Document will be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement or the other Loan Documents. This Agreement may be executed in any number of counterparts, each of which when executed and delivered will be deemed to be an original, and all of which when taken together will constitute one and the same Agreement. Delivery of an executed counterpart of this Agreement by facsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement and any party’s failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement.

 

Section 7.7            MULTIPLE BORROWERS

 

(a)           Joint and Several Liability . Each Borrower agrees that it is jointly and severally liable for, and absolutely and unconditionally guarantees to Lender the prompt payment and performance of, all Obligations under this Agreement and all agreements under the Loan Documents. Each Borrower agrees that its guaranty obligations hereunder constitute a continuing guaranty of payment and not of collection, that such obligations shall not be discharged until cash payment in full of the Obligations, and that such obligations are absolute and unconditional, irrespective of (i) the genuineness, validity, regularity, enforceability, subordination or any future modification of, or change in, any Obligations or Loan Document, or any other document, instrument or agreement to which any Borrower is or may become a party or be bound; (ii) the absence of any action to enforce this Agreement or any other Loan Document, or any waiver, consent or indulgence of any kind by Lender; (iii) the existence, value or condition of, or failure to perfect any of Lender’s Liens or to preserve rights against, any security or guaranty for the Obligations or any action, or the absence of any action, by Lender in respect thereof (including the release of any security or guaranty); (iv) the insolvency of any Borrower; (v) any election by Lender in an Insolvency Proceeding for the application of Section 1111(b)(2) of the Bankruptcy Code; (vi) any borrowing or grant of a Lien by any other Borrower, as debtor-in-possession under Section 364 of the Bankruptcy Code or otherwise; (vii) the disallowance of any claims of Lender against any Borrower for the repayment of any Obligations under Section 502 of the Bankruptcy Code or otherwise; or (viii) any other action or circumstances that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, except cash payment in full of all Obligations.

 

(b)           Contribution .        Each Borrower hereby agrees that it will not enforce any of its rights of contribution or subrogation against any other Borrower with respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to Lender with respect to any of the Obligations or any collateral security until such time as all of the Obligations have been paid in full in cash. Any claim which any Borrower may have against any other Borrower with respect to any payments to Lender or under any of the Bank Products are hereby expressly made subordinate and junior in right of payment, including, without limitation as to any increases in the Obligations arising under this Agreement or under the Bank Products, to the prior payment in full in cash of the Obligations and, in the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceeding under the laws of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or involuntary, all such Obligations shall be paid in full in cash before any payment or distribution of any character, whether in cash, securities or other property, shall be made to any other Borrower.

 

(c)           No Limitation on Liability .    Nothing contained in this Section 7.7 shall limit the liability of any Borrower to pay extensions of credit made directly or indirectly to that Borrower (including revolving loans advanced to any other Borrower and then re-loaned or otherwise transferred to, or for the benefit of, such Borrower), Obligations relating to any letters of credit issued to support such Borrower’s business, and all accrued interest, fees, expenses and other related Obligations with respect thereto, for which such Borrower shall be primarily liable for all purposes hereunder. Lender shall have the right, at any time in its sole discretion, to condition an extension of credit hereunder upon a separate calculation of borrowing availability for each Borrower and to restrict the disbursement and use of such extensions of credit to such Borrower.

 

(d)           Common Enterprise . The successful operation and condition of the Borrower, individually and collectively, is dependent on the continued successful performance of the functions of Borrower collectively as a whole and of each Borrower individually. Each Borrower expects to derive benefit (and its respective board of directors or other governing body have determined that such Borrower may reasonably be expected to derive benefit), directly and indirectly, from (a) successful operations of each other Borrower and (b) any financial accommodation extended by Lender to the Borrower, both in their separate individual capacities as a Borrower and in their collective capacity as the Borrower. Each Borrower has determined that execution, delivery, and performance of this Agreement and any other Loan Document to be executed by it is within its purpose, in furtherance of its direct and/or indirect business interests, will be of direct and indirect benefit to it, and is in its best interest.

 

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Section 7.8            INDEMNITY . Borrower indemnifies Lender and its Affiliates, Subsidiaries, directors, officers, employees, representatives, agents, and attorneys, and holds them harmless from and against any and all claims, debts, liabilities, demands, obligations, actions, causes of action, penalties, costs and expenses (including reasonable attorneys' fees), of every kind, which they may sustain or incur based upon or arising out of any of the Obligations, this Agreement, any of the Loan Documents, or the Collateral or any relationship or agreement between Lender and the Obligors, or any other matter, relating to any Obligor, the Obligations or the Collateral; provided that this indemnity will not extend to damages that a court of competent jurisdiction finally determines in a non-appealable judgment to have been caused by the indemnitee’s own gross negligence or willful misconduct. Regardless of any provision in this Agreement to the contrary, the indemnity agreement set forth in this Section will survive any termination of this Agreement or repayment of the Obligations and will for all purposes continue in full force and effect. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.

 

Section 7.9            GOVERNING LAW . The validity of this Agreement and the other Loan Documents (unless otherwise expressly provided in such Loan Document) and the construction, interpretation, and enforcement of this Agreement and the other Loan Documents, and the rights of the parties, as well as all claims, controversies or disputes arising under or related to this Agreement and the other Loan Documents will be determined under, governed by and construed in accordance with the laws of the Applicable State, without regard conflicts of laws principles.

 

Section 7.10          CONSEQUENTIAL DAMAGES . No claim may be made by any Obligor against Lender, or any Affiliate, Subsidiary, director, officer, employee, representative, agent, attorney or attorney-in-fact of any of them for any special, indirect, consequential, or punitive damages in respect of any claim for breach of contract or other theory of liability arising out of or related to the transactions contemplated by this Agreement or any other Loan Document or any related act, omission, or event, and Borrower waives, releases, and agrees not to sue upon any claim for such damages, whether or not accrued and whether or not known or suspected to exist in its favor.

 

Section 7.11          SAVINGS CLAUSE .

 

(a)           No provision of this Agreement or of any other Loan Document shall require the payment or the collection of interest in excess of the maximum amount permitted by applicable law. If any excess of interest in such respect is hereby provided for, or shall be adjudicated to be so provided, in this Agreement or any other Loan Document or otherwise in connection with this Agreement, the provisions of this Section shall govern and prevail and neither Borrower nor the sureties, guarantors, successors, or assigns of Borrower shall be obligated to pay the excess amount of such interest or any other excess sum paid for the use, forbearance, or detention of sums owed pursuant hereto. In the event Lender ever receives, collects, or applies as interest any such sum, such amount which would be in excess of the maximum amount permitted by applicable law shall be applied as a payment and reduction of the principal of the Obligations of Borrower hereunder; and, if the principal of such Obligations has been paid in full, any remaining excess shall forthwith be paid to Borrower . In determining whether or not the interest paid or payable exceeds the maximum rate permitted by applicable law, Borrower and Lender shall, to the extent permitted by applicable law, (i) characterize any non-principal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the entire contemplated term of this Agreement so that interest for the entire term does not exceed the maximum rate permitted by law.

 

(b)           If at any time the rate of interest applicable to the Obligations of Borrower hereunder , together with any other fees and other amounts payable pursuant to this Agreement and the other Loan Documents and deemed interest under applicable law, exceeds that amount that would have accrued at the maximum rate permitted by applicable law, then the amount of interest and any such fees and other amounts to accrue to Lender pursuant to this Agreement and the other Loan Documents shall be limited, notwithstanding anything to the contrary in this Agreement or any other Loan Document, to that amount that would have accrued at the maximum rate permitted by applicable law, but to the extent permitted by applicable law, any subsequent reductions, as applicable, shall not reduce the interest to accrue to Lender pursuant to this Agreement and the other Loan Documents below the maximum rate permitted by applicable law until the total amount of interest accrued pursuant to this Agreement and the other Loan Documents and such fees and other amounts deemed to be interest equals the amount of interest, fees and other amounts that would have accrued to Lender but for the effect of this Section 7.11 .

 

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(c)           For purposes of determining the maximum rate permitted under Texas law, the applicable rate ceiling shall be the weekly ceiling described in, and computed in accordance with, Chapter 303 of the Texas Finance Code, provided however, that to the extent permitted by applicable law, Lender reserves the right to change, from time to time by further notice and disclosure to Borrower by Lender the ceiling on which the maximum rate is based under the Texas Finance Code, and provided further that the maximum rate for purposes of this Agreement shall not be limited to the applicable weekly rate under the Texas Finance Code if federal laws or other state laws now or hereafter in effect and applicable to this Agreement (and the interest contracted for, charged and collected hereunder) shall permit a higher rate of interest.

 

Section 7.12          RIGHT OF SETOFF; DEPOSIT ACCOUNTS . Upon and after the occurrence of an Event of Default, (a) Borrower authorizes Lender, at any time and from time to time, without notice, which is hereby expressly waived by Borrower, and whether or not Lender will have declared any extension of credit under this Agreement to be due and payable in accordance with the terms of this Agreement, to set off against, and to appropriate and apply to the payment of, the Obligations (whether matured or unmatured, fixed or contingent, liquidated or unliquidated), any and all amounts owing by Lender to any Borrower (whether payable in U.S. dollars or any other currency, whether matured or unmatured, and in the case of deposits, whether general or special (except trust and escrow accounts), time or demand and however evidenced), and (b) pending any such action, to the extent necessary, to hold such amounts as collateral to secure such the Obligations and to return as unpaid for insufficient funds any and all checks and other items drawn against any deposits so held as Lender, in its sole discretion, may elect. Borrower grants to Lender a security interest in all deposits and accounts maintained with Lender to secure the payment of all Obligations.

 

Section 7.13          CONFIDENTIALITY . Lender agrees that material, non-public information regarding Borrower, its operations, assets, and existing and contemplated business plans will be treated by Lender in a confidential manner, and will not be disclosed by Lender to Persons who are not parties to this Agreement, except (i) to Lender’s Affiliates, attorneys, representatives, agents and other advisors and to officers, directors and employees of Lender, (ii) as required by law or by any court, governmental or regulatory authority, (iii) as agreed by Borrower, (iv) if such information becomes generally available to the public, (v) in connection with any litigation or adversary proceeding involving claims related to this Agreement or the assignment, participation or pledge of Lender’s interest in this Agreement, and (vi) in connection with the exercise by Lender of any right or remedy under this Agreement, any other Loan Document or at law. Lender may use the name, logos, and other insignia of the Borrower and the maximum amount of the credit facilities provided under this Agreement in any “tombstone” or comparable advertising, on its website or in other marketing materials of Lender.

 

Section 7.14          DATA TRANSMISSION . Lender assumes no responsibility for privacy or security risks as a result of the method of data transmission selected by Borrower or any other Obligor. Lender only assumes responsibility for data transmitted from Borrower once the data is received within Wells Fargo Bank, National Association’s internal network. Lender assumes no responsibility for privacy or security for data transmitted from Lender to any Obligor once the data is dispensed from Wells Fargo Bank, National Association’s internal network.

 

Section 7.15          PATRIOT ACT NOTICE . Lender hereby notifies each Obligor that pursuant to the requirements of the Patriot Act, Lender is required to obtain, verify and record information that identifies such Obligor, which information includes the name and address of such Obligor and other information that will allow Lender to identify each Obligor in accordance with the Patriot Act. In addition, if Lender is required by law or regulation or internal policies to do so, it shall have the right to periodically conduct (a) Patriot Act searches, OFAC/PEP searches, and customary individual background checks for each Obligor, and (b) OFAC/PEP searches and customary individual background checks of each Corporate Obligor’s senior management and key principals, and Borrower agrees to cooperate, and to cause each Obligor to cooperate, in respect of the conduct of such searches and further agree that the reasonable costs and charges for such searches shall constitute Lender Expenses.

 

Section 7.16          ARBITRATION .

 

(a)           ARBITRATION . THE PARTIES HERETO AGREE, UPON DEMAND BY ANY PARTY, WHETHER MADE BEFORE THE INSTITUTION OF A JUDICIAL PROCEEDING OR NOT MORE THAN 60 DAYS AFTER SERVICE OF A COMPLAINT, THIRD PARTY COMPLAINT, CROSS-CLAIM, COUNTERCLAIM OR ANY ANSWER THERETO OR ANY AMENDMENT TO ANY OF THE ABOVE TO SUBMIT TO BINDING ARBITRATION ALL CLAIMS, DISPUTES AND CONTROVERSIES BETWEEN OR AMONG THEM (AND THEIR RESPECTIVE EMPLOYEES, OFFICERS, DIRECTORS, ATTORNEYS, AND OTHER AGENTS), WHETHER IN TORT, CONTRACT OR OTHERWISE ARISING OUT OF OR RELATING TO IN ANY WAY (I) ANY CREDIT SUBJECT HERETO, OR ANY OF THE OTHER LOAN DOCUMENTS, AND THEIR NEGOTIATION, EXECUTION, COLLATERALIZATION, ADMINISTRATION, REPAYMENT, MODIFICATION, EXTENSION, SUBSTITUTION, FORMATION, INDUCEMENT, ENFORCEMENT, DEFAULT OR TERMINATION; OR (II) REQUESTS FOR ADDITIONAL CREDIT; PROVIDED HOWEVER THAT THE PARTIES AGREE THAT, NOTWITHSTANDING THE FOREGOING, EACH PARTY RETAINS THE RIGHT TO PURSUE IN SMALL CLAIMS COURT ANY DISPUTE WITHIN THAT COURT’S JURISDICTION. IN THE EVENT OF A COURT ORDERED ARBITRATION, THE PARTY REQUESTING ARBITRATION SHALL BE RESPONSIBLE FOR TIMELY FILING THE DEMAND FOR ARBITRATION AND PAYING THE APPROPRIATE FILING FEE WITHIN THE 30 DAYS OF THE ABATEMENT ORDER OR THE TIME SPECIFIED BY THE COURT. FAILURE TO TIMELY FILE THE DEMAND FOR ARBITRATION AS ORDERED BY THE COURT WILL RESULT IN THAT PARTY’S RIGHT TO DEMAND ARBITRATION BEING AUTOMATICALLY TERMINATED.

 

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(b)           GOVERNING RULES . ANY ARBITRATION PROCEEDING WILL (I) PROCEED IN A LOCATION IN THE APPLICABLE STATE (AS DEFINED IN THIS AGREEMENT) SELECTED BY THE AMERICAN ARBITRATION ASSOCIATION (“ AAA ”); (II) BE GOVERNED BY THE FEDERAL ARBITRATION ACT (TITLE 9 OF THE UNITED STATES CODE), NOTWITHSTANDING ANY CONFLICTING CHOICE OF LAW PROVISION IN ANY OF THE DOCUMENTS BETWEEN THE PARTIES; AND (III) BE CONDUCTED BY THE AAA, OR SUCH OTHER ADMINISTRATOR AS THE PARTIES SHALL MUTUALLY AGREE UPON, IN ACCORDANCE WITH THE AAA’S COMMERCIAL DISPUTE RESOLUTION PROCEDURES, UNLESS THE CLAIM OR COUNTERCLAIM IS AT LEAST $1,000,000.00 EXCLUSIVE OF CLAIMED INTEREST, ARBITRATION FEES AND COSTS IN WHICH CASE THE ARBITRATION SHALL BE CONDUCTED IN ACCORDANCE WITH THE AAA’S OPTIONAL PROCEDURES FOR LARGE, COMPLEX COMMERCIAL DISPUTES (THE COMMERCIAL DISPUTE RESOLUTION PROCEDURES OR THE OPTIONAL PROCEDURES FOR LARGE, COMPLEX COMMERCIAL DISPUTES TO BE REFERRED TO HEREIN, AS APPLICABLE, AS THE “ RULES ”). IF THERE IS ANY INCONSISTENCY BETWEEN THE TERMS HEREOF AND THE RULES, THE TERMS AND PROCEDURES SET FORTH HEREIN SHALL CONTROL. ANY PARTY WHO FAILS OR REFUSES TO SUBMIT TO ARBITRATION FOLLOWING A DEMAND BY ANY OTHER PARTY SHALL BEAR ALL COSTS AND EXPENSES INCURRED BY SUCH OTHER PARTY IN COMPELLING ARBITRATION OF ANY DISPUTE.

 

(c)           NO WAIVER OF PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE . THE ARBITRATION REQUIREMENT DOES NOT LIMIT THE RIGHT OF ANY PARTY BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING TO (I) FORECLOSE AGAINST REAL OR PERSONAL PROPERTY COLLATERAL; (II) EXERCISE SELF-HELP REMEDIES RELATING TO COLLATERAL OR PROCEEDS OF COLLATERAL SUCH AS SETOFF OR REPOSSESSION; OR (III) OBTAIN PROVISIONAL OR ANCILLARY REMEDIES SUCH AS REPLEVIN, WRIT OF POSSESSION, INJUNCTIVE RELIEF, ATTACHMENT, GARNISHMENT OR THE APPOINTMENT OF A RECEIVER. THIS EXCLUSION DOES NOT CONSTITUTE A WAIVER OF THE RIGHT OR OBLIGATION OF ANY PARTY TO SUBMIT ANY DISPUTE TO ARBITRATION OR REFERENCE HEREUNDER, INCLUDING THOSE ARISING FROM THE EXERCISE OF THE ACTIONS DETAILED IN SECTIONS (I), (II) AND (III) OF THIS PARAGRAPH.

 

(d)           ARBITRATOR QUALIFICATIONS AND POWERS . ANY ARBITRATION PROCEEDING IN WHICH THE AMOUNT IN CONTROVERSY IS $5,000,000.00 OR LESS WILL BE DECIDED BY A SINGLE ARBITRATOR SELECTED ACCORDING TO THE RULES, AND WHO SHALL NOT RENDER AN AWARD OF GREATER THAN $5,000,000.00. ANY DISPUTE IN WHICH THE AMOUNT IN CONTROVERSY EXCEEDS $5,000,000.00 SHALL BE DECIDED BY MAJORITY VOTE OF A PANEL OF THREE ARBITRATORS; PROVIDED HOWEVER, THAT ALL THREE ARBITRATORS MUST ACTIVELY PARTICIPATE IN ALL HEARINGS AND DELIBERATIONS, EXCEPT THAT A SINGLE ARBITRATOR MAY DECIDE PRE-HEARING DISCOVERY DISPUTES. THE ARBITRATOR(S) WILL BE A NEUTRAL ATTORNEY LICENSED IN THE APPLICABLE STATE (AS DEFINED IN THIS AGREEMENT) OR A NEUTRAL RETIRED JUDGE OF THE STATE OR FEDERAL JUDICIARY OF THE APPLICABLE STATE (AS DEFINED IN THIS AGREEMENT, IN EITHER CASE WITH A MINIMUM OF TEN YEARS EXPERIENCE IN THE SUBSTANTIVE LAW APPLICABLE TO THE SUBJECT MATTER OF THE DISPUTE TO BE ARBITRATED. THE ARBITRATOR(S) WILL DETERMINE WHETHER OR NOT AN ISSUE IS ARBITRATABLE AND WILL GIVE EFFECT TO THE STATUTES OF LIMITATION OR REPOSE IN DETERMINING ANY CLAIM. IN ANY ARBITRATION PROCEEDING THE ARBITRATOR(S) WILL DECIDE (BY DOCUMENTS ONLY OR WITH A HEARING AT THE ARBITRATOR'S DISCRETION) ANY PRE-HEARING MOTIONS WHICH ARE SIMILAR TO MOTIONS TO DISMISS FOR FAILURE TO STATE A CLAIM OR MOTIONS FOR SUMMARY ADJUDICATION. THE ARBITRATOR(S) SHALL RESOLVE ALL DISPUTES IN ACCORDANCE WITH THE SUBSTANTIVE LAW OF THE APPLICABLE STATE (AS DEFINED IN THIS AGREEMENT) AND MAY GRANT ANY REMEDY OR RELIEF THAT A COURT OF SUCH STATE COULD ORDER OR GRANT WITHIN THE SCOPE HEREOF AND SUCH ANCILLARY RELIEF AS IS NECESSARY TO MAKE EFFECTIVE ANY AWARD. THE ARBITRATOR(S) SHALL ALSO HAVE THE POWER TO AWARD RECOVERY OF ALL COSTS AND FEES, TO IMPOSE SANCTIONS AND TO TAKE SUCH OTHER ACTION AS THE ARBITRATOR(S) DEEMS NECESSARY TO THE SAME EXTENT A JUDGE COULD PURSUANT TO THE FEDERAL RULES OF CIVIL PROCEDURE, THE APPLICABLE STATE’S (AS DEFINED IN THIS AGREEMENT) RULES OF CIVIL PROCEDURE OR OTHER APPLICABLE LAW. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR(S) MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR JUDICIAL RELIEF OR PURSUIT OF A PROVISIONAL OR ANCILLARY REMEDY SHALL NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION IF ANY OTHER PARTY CONTESTS SUCH ACTION FOR JUDICIAL RELIEF.

 

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(e)           DISCOVERY . IN ANY ARBITRATION PROCEEDING, DISCOVERY WILL BE PERMITTED IN ACCORDANCE WITH THE RULES. ALL DISCOVERY SHALL BE EXPRESSLY LIMITED TO MATTERS DIRECTLY RELEVANT TO THE DISPUTE BEING ARBITRATED AND MUST BE COMPLETED NO LATER THAN 20 DAYS BEFORE THE HEARING DATE. ANY REQUESTS FOR AN EXTENSION OF THE DISCOVERY PERIODS, OR ANY DISCOVERY DISPUTES, WILL BE SUBJECT TO FINAL DETERMINATION BY THE ARBITRATOR(S) UPON A SHOWING THAT THE REQUEST FOR DISCOVERY IS ESSENTIAL FOR THE PARTY'S PRESENTATION AND THAT NO ALTERNATIVE MEANS FOR OBTAINING INFORMATION IS AVAILABLE.

 

(f)           CLASS PROCEEDINGS AND CONSOLIDATIONS . NO PARTY HERETO SHALL BE ENTITLED TO JOIN OR CONSOLIDATE DISPUTES BY OR AGAINST OTHERS IN ANY ARBITRATION, EXCEPT PARTIES WHO HAVE EXECUTED THIS AGREEMENT OR ANY OTHER CONTRACT, INSTRUMENT OR DOCUMENT RELATED TO THE OBLIGATIONS, OR TO INCLUDE IN ANY ARBITRATION ANY DISPUTE AS A REPRESENTATIVE OR MEMBER OF A CLASS, OR TO ACT IN ANY ARBITRATION IN THE INTEREST OF THE GENERAL PUBLIC OR IN A PRIVATE ATTORNEY GENERAL CAPACITY.

 

(g)           PAYMENT OF ARBITRATION COSTS AND FEES . THE ARBITRATOR(S) SHALL AWARD ALL COSTS AND EXPENSES OF THE ARBITRATION PROCEEDING.

 

(h)           MISCELLANEOUS . TO THE MAXIMUM EXTENT PRACTICABLE, THE AAA, THE ARBITRATOR(S) AND THE PARTIES SHALL TAKE ALL ACTION REQUIRED TO CONCLUDE ANY ARBITRATION PROCEEDING WITHIN 180 DAYS OF THE FILING OF THE DISPUTE WITH THE AAA. NO ARBITRATOR(S) OR OTHER PARTY TO AN ARBITRATION PROCEEDING MAY DISCLOSE THE EXISTENCE, CONTENT OR RESULTS THEREOF, EXCEPT FOR DISCLOSURES OF INFORMATION BY A PARTY REQUIRED IN THE CONNECTION WITH FINANCIAL REPORTING IN THE ORDINARY COURSE OF ITS BUSINESS OR BY APPLICABLE LAW OR REGULATION. IF MORE THAN ONE AGREEMENT FOR ARBITRATION BY OR BETWEEN THE PARTIES POTENTIALLY APPLIES TO A DISPUTE, THE ARBITRATION PROVISION MOST DIRECTLY RELATED TO THE SUBJECT MATTER OF THE DISPUTE SHALL CONTROL. THIS ARBITRATION PROVISION SHALL SURVIVE TERMINATION, AMENDMENT OR EXPIRATION OF ANY OF THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY RELATIONSHIP BETWEEN THE PARTIES.

 

(i)           WAIVER OF JURY TRIAL . THE PARTIES HERETO HEREBY ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT DELIVERED IN CONNECTION HEREWITH, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.

 

Section 7.17          AMENDMENT AND RESTATEMENT .

 

(a)           Borrower acknowledges, confirms and agrees that (i) the security interests and liens granted to Lender pursuant to the Existing Credit Agreement Existing Loan Documents shall remain in full force and effect and shall secure all Obligations hereunder, (ii) such security interests and liens shall be deemed to be continuously granted and perfected from the earliest date of the granting and perfection of such security interests and liens, whether under the existing Credit Agreement, the Existing Loan Documents or otherwise, (iii) the Obligations represent, among other things, the amendment, restatement, renewal, extension, consolidation and modification of the Existing Obligations arising in connection with the Existing Credit Agreement and the Existing Loan Documents and (iv) the Existing Credit Agreement and the Existing Loan Documents to which Borrower is a party have been duly executed and delivered by such Borrower and are in full force and effect as of the date hereof.

 

- 17 -
 

  

(b)           The terms, conditions, agreements, covenants, representations and warranties set forth in the Existing Credit Agreement are, effective as of the Closing Date, amended and restated in their entirety, and as so amended and restated, replaced and superseded, by the terms, conditions, agreements, covenants, representations and warranties set forth in this Agreement; provided that each of Borrower and Lender acknowledges, confirms and agrees that such amendment and restatement shall not, in any manner, (i) be construed to constitute payment of, or impair, limit, cancel or extinguish, or constitute a novation in respect of, the Existing Obligations of Borrower evidenced by or arising under the Existing Credit Agreement or the Existing Loan Documents, all such Existing Obligations being deemed Obligations under this Agreement or (ii) adversely affect or impair the priority of security interests and liens granted by the Existing Credit Agreement and Existing Loan Documents.

 

[SIGNATURE PAGES FOLLOW]

 

- 18 -
 

  

The parties have caused this Agreement to be executed effective as of the Closing Date.

 

LENDER   BORROWERS
     
WELLS FARGO BANK, NATIONAL ASSOCIATION   MONROE STAFFING SERVICES, LLC
     
By     By  
Name     Name  
Title     Title  
     
Address:   Address:
14241 Dallas Parkway, Suite 900   35 Corporate Drive
Dallas, Texas 75254   Trumbell, Connecticut 06611
Attention:     Attention:  
Fax No.:     Fax No.:  
Email:     Email:  
     
Closing Date ____________ ____, 2014.    

 

  PEOPLESERVE, INC.
   
  By  
  Name  
  Title  
   
  Address:
  643 VFW Parkway
  Chestnut Hill, MA 02467
  Attention:  
  Fax No.:  
  Email:  
  Email:  

 

- 19 -
 

 

Schedule A

to

Amended and Restated Credit and Security Agreement

 

DEFINITIONS

 

Advances ” means advances made or deemed made by Lender to Borrower pursuant to Section 1.1(a) or otherwise in accordance with this Agreement.

 

Affiliate ” means, as applied to any Person, any other Person who controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” means the possession, directly or indirectly through one or more intermediaries, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise; provided, however, that, for purposes of the definition of Eligible Accounts and Section 5.6 ; (a) any Person which owns directly or indirectly 10% or more of the Stock having ordinary voting power for the election of the board of directors or equivalent governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed an Affiliate of such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and (c) each partnership in which a Person is a general partners shall be deemed an Affiliate of such Person.

 

Affiliate Credit Agreement ” means that certain Credit and Security Agreement, dated on or about the date hereof, by and between Lender and PRS, as amended.

 

Affiliate Facility Usage ” means, as of any date of determination, the then outstanding Advances (as defined in the Affiliate Credit Agreement”).

 

Applicable State ” means the State or Commonwealth of Texas

 

Assignment of Claims Act ” means the Assignment of Claims Act, 31 USC §3727, as amended from time to time.

 

Availability ” means, as of any date of determination, the amount that may be borrowed as Advances under Section 1.1, subject to Lender’s discretion. Lender may, in its discretion, determine Availability for each Borrower separately.

 

Bank Product Provider ” means Lender or any of its Affiliates that provide Bank Products to any Obligor.

 

Bank Products ” means any one or more of the following financial products or accommodations extended to any Obligor by “a Bank Product Provider”: (a) commercial credit cards, (b) commercial credit card processing services, (c) debit cards, (d) stored value cards, (e) purchase cards (including so-called “procurement cards” or “P—cards”), or (f) cash management and related services (including treasury, depository, return items, overdraft, controlled disbursement, merchant stored value cards, e-payables services, electronic funds transfer, interstate depository network, automatic clearing house transfer and other cash management arrangements).

 

Bankruptcy Code ” means Title 11 of the United States Code as in effect from time to time.

 

Borrower ” has the meaning set forth in the preamble to this Agreement.

 

Borrowing Base ” has the meaning set forth in Schedule B-1 .

 

Business Day ” means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close under to the rules and regulations of the Federal Reserve System.

 

Change in Law means the occurrence, after the date of this Agreement, of the adoption or taking effect of any new or changed law, rule, regulation or treaty, or the issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives issued in connection with that Act, and (y) all requests, rules, guidelines or directives promulgated by Lender for International Settlements, the Basel Committee on Banking Supervision (or any successor authority) or the United States regulatory authorities, in each case pursuant to Basel III, will in each case be deemed to be a “Change in Law,” regardless of the date enacted, adopted or issued.

 

Closing Date means the date on which Lender executes this Agreement as set forth below Lender’s signature block on the signature page of this Agreement.

 

Code ” means the Uniform Commercial Code, as in effect from time to time in the Applicable State. To the extent that defined terms set forth in this Agreement have different meanings under different Articles under the Uniform Commercial Code, the meaning assigned to such defined term under Article 9 of the Uniform Commercial Code will control.

 

  - 1 - Schedule A
 

 

Collateral ” means, collectively, (a) all properties, assets and rights of Borrower, wherever located, whether now owned or hereafter acquired or arising, and all Proceeds and products thereof, including: all Accounts, Chattel Paper (including Electronic Chattel Paper), Commercial Tort Claims, Deposit Accounts, Documents, General Intangibles, Goods, Inventory (including all merchandise and other Goods, and all additions, substitutions and replacements thereof, together with all Goods and materials used or usable in manufacturing, processing, packaging or shipping such Inventory), Equipment, Instruments, Investment Property, Letter-of-Credit Rights, returned Goods, and Supporting Obligations; all reserves, matured funds, credit balances and other property of Borrower in Lender’s possession; all rights of stoppage in transit, replevin, repossession, reclamation and all other rights and remedies of an unpaid vendor; all of Borrower’s Records; and all insurance policies and Proceeds and rights relating thereto and (b) all other assets and properties of any Obligor in or upon which Lender is granted or holds a Lien pursuant to the Loan Documents.

 

Collections ” means cash, checks, notes, instruments, and other items of payment (including insurance proceeds, cash proceeds of asset sales, rental proceeds, and tax refunds) received by Lender in respect of Collateral.

 

Commercial Dispute ” means any dispute or claim in any respect, regardless of merit (including, without limitation, any alleged dispute as to price, invoice terms, quantity, quality or late delivery and claims of release from liability, counterclaim or any alleged claim of deduction, offset, or counterclaim or otherwise) arising out of or in connection with an Account or any other transaction related thereto.

 

Compliance Certificate ” means a certificate in the form of Schedule F delivered by the chief financial officer of Borrower to Lender.

 

Contract Rate ” has the meaning set forth in Schedule B-1 .

 

Corporate Obligor ” means an Obligor that is not a natural Person.

 

Cross Defaulted Indebtedness Amount ” means the Cross Defaulted Indebtedness Amount set forth on Schedule B-1 annexed hereto.

 

Daily Balance ” means, as of any date of determination and with respect to any Obligation, the amount of such Obligation owed at the end of such day.

 

Daily One Month LIBOR ” shall mean, for any date of determination, the rate per annum for United States dollar deposits with a maturity of one (1) month as reported on Reuters LIBOR01 Screen (or any successor page) at approximately 11:00 am London time on such date of determination or, if such day is not a London business day, then on the immediately preceding London business day. If such rate is not so reported, such rate shall be as determined by Lender from another recognized source or interbank quotation. When interest or any fee hereunder is determined in relation to Daily One Month LIBOR, each change in such interest rate or fee shall become effective each Business Day that Lender determines that Daily One Month LIBOR has changed.

 

DCAA ” has the meaning in Section 3.14(a)(xii)

 

Default ” means an event, condition or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.

 

Default Period ” means each period commencing upon the occurrence and during the continuation of an Event of Default.

 

Default Rate ” means the Default Rate set forth on Schedule B-1 annexed hereto.

 

Deficit Rate ” means the Deficit Rate set forth on Schedule B-1 annexed hereto.

 

Dilution ” means, with respect to any Person for any period of determination selected by Lender, a percentage that is the result of dividing the dollar amount of the aggregate of all bad debt write-downs, discounts, allowances, credits, deductions and other dilutive items for such period as determined by Lender with respect to such Person’s Accounts for such period, by such Person’s billings with respect to Accounts for such period.

 

Eligible Accounts ” mean of Accounts created and invoiced by a Borrower in the ordinary course of Borrower’s business that arise out of the sale of goods or the rendition of services, upon which Borrower’s right to receive payment is absolute and not contingent upon the fulfillment of any condition, and in which Lender has a perfected first-priority security interest, but will not include:

 

(i)           any Account which is unpaid more than 90 days from original invoice date (or 120 days for Accounts with respect to which the Account Debtor is an Extended Terms Customer);

 

  - 2 - Schedule A
 

   

(ii)          Accounts with selling terms of more than 60 days (or 90 days for Accounts with respect to which the Account Debtor is an Extended Terms Customer);

 

(iii)        any Account for which there exists any right of setoff, defense, dispute or discount (except regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim has been asserted;

 

(iv)         Accounts with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not solvent, has gone out of business, or as to which any Obligor has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition of such Account Debtor;

 

(v)          any Account with respect to which the Account Debtor is a Governmental Authority unless either (A) the aggregate Accounts due to Borrower from such Account Debtor do not exceed 5% of all Accounts due to Borrower or (B) (1) if such Governmental Authority is the United States of America or any department, agency or instrumentality of the United States of America, Borrower shall have complied in all respects, to the satisfaction of Lender, with the Assignment of Claims Act, (2) if such Governmental Authority is any state of the United States of America, or any municipality, political subdivision or other governmental entity of any such state, Borrower shall have complied in all respects, to the satisfaction of Lender, with any statute in effect in such state that is substantially similar to the Assignment of Claims Act, as determined by Lender and (3) if such Governmental Authority is a Person not described in the foregoing clauses (1) or (2), Borrower shall deliver or cause to be delivered to such Person, in form and content acceptable to Lender, a written notice of assignment of accounts in favor of Lender with respect to all Accounts owing by such Governmental Authority to Borrower;

 

(vi)        any Account which represents an obligation of an Account Debtor located in a foreign country;

 

(vii)       any Account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, Affiliate, partner, member, parent or Subsidiary of an Obligor;

 

(viii)      that portion of any Account, which represents interim or progress billings or title retention rights on the part of the Account Debtor;

 

(ix)         that portion of Accounts owing from an Account Debtor not previously approved by Lender which exceeds the lesser of (a) 5% of Borrower’s total Accounts or (B) $200,000;

 

(x)          Accounts representing credit card or “C.O.D.” sales;

 

(xi)         Accounts arising in a transaction where Goods are placed on consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale on approval, or any other terms by reason of which the payment by the Account Debtor may be conditional or contingent;

 

(xii)        that portion of Accounts which has been restructured, extended, amended or otherwise modified;

 

(xiii)       Accounts that are not payable in U.S. Dollars;

 

(xiv)      bill and hold invoices, except those with respect to which Lender shall have received an acceptable agreement in writing from the Account Debtor confirming the unconditional obligation of the Account Debtor to take the goods related to the Account and pay such invoice, so long as such Accounts satisfy all other criteria for Eligible Accounts;

 

(xv)       Accounts which have not been invoiced to the Account Debtor (except as provided in Section 1.1(h) of this Agreement);

 

(xvi)      Accounts that are subject to any Lien other than Liens in favor of Lender or Liens subordinate in priority to the Liens of Lender pursuant to a subordination, intercreditor or other similar agreement, in form and substance satisfactory to Lender, duly executed by the holder of such other Lien;

 

  - 3 - Schedule A
 

   

(xvii)      That portion of any Account which represents finance charges, service charges, sales taxes, or excise taxes; or

 

(xviii)    any other Account deemed ineligible by Lender in its sole discretion.

 

Event of Default ” has the meaning set forth in Section 6.1 .

 

Existing Credit Agreement ” means that certain Loan and Security Agreement, dated as of October 22, 2012, by and between Monroe and Lender, as amended.

 

Existing Loan Documents ” means, collectively, all agreements, documents and/or instruments at any time executed or delivered in connection with the Existing Credit Agreement, in each instance, as amended.

 

Existing Obligations ” shall mean all indebtedness, obligations and liabilities of Monroe to Lender under or pursuant to the Existing Credit Agreement and the Existing Loan Documents, including, without limitation, all “Obligations” as defined in the Existing Credit Agreement.

 

Extended Terms Customers ” mean, collectively, (a) Unilever United States, Inc., (b) ASML US, Inc. and (c) such other Account Debtors to which Lender may, in its sole discretion at the request of Borrower, agree to designate as Extended Terms Customers hereunder; provided , that , in each instance, the selling terms extended by Borrower to such Account Debtor are not less than 90 days from the date of invoice.

 

Facility Sublimit ” has the meaning set forth on Schedule B- 1 annexed hereto.

 

FAR ” has the meaning set forth in Section 3.14(a)(vi)

 

“Financial Covenants” mean the financial covenants set forth in Schedule B-3 hereto.

 

GAAP ” means generally accepted accounting principles as in effect from time to time in the United States of America, consistently applied.

 

Governmental Authority ” means any federal, state, local, or other governmental or administrative body, instrumentality, board, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body.

 

Government Contract ” has the meaning set forth in Section 3.14(a)(ii)

 

Guarantor ” means any Person that now or hereafter executes a Guaranty in favor of Lender including, without limitation, the Person or Persons set forth on the Schedule B-1 annexed hereto.

 

Guaranty ” means each guaranty of payment of the Obligations executed by a Guarantor for the benefit of Lender, as amended, restated, renewed, replaced, substituted, supplemented or otherwise modified.

 

Hedge Agreement ” means any “swap agreement” as that term is defined in Section 101(53B)(A) of the United States Bankruptcy Code.

 

Indebtedness ” means, with respect to any Person, the following, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several: (i) all obligations for borrowed money (including recourse and other obligations to repurchase accounts or chattel paper under factoring, receivables purchase or similar financing arrangement or for the deferred purchase price of property or services); (ii) all obligations in respect of surety bonds and letters of credit; (iii) all obligations evidenced by notes, bonds, debentures or other similar instruments, (iv) all capital lease obligations; (v) all obligations or liabilities of others secured by a Lien on any asset of any of such Person, whether or not such obligation or liability is assumed; (vi) all obligations to pay the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business and repayable in accordance with customary trade practices); (vii) all guaranties of the obligations of another Person; (viii) all obligations owing under Hedge Agreements (which amounts will be calculated based on the amount that would be payable by such Person if the Hedge Agreement were terminated on the date of determination) and (ix) all other indebtedness, liabilities or obligations of such Person.

 

Insolvency Proceeding ” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, receiverships, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

 

Lender ” has the meaning set forth in the preamble to this Agreement.

 

  - 4 - Schedule A
 

  

Lender Expenses ” means, collectively, all payments, advances, charges, costs and expenses, including without limitation reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Lender's in-house counsel), appraisal fees, consultant fees, audit fees, and exam fees expended or incurred by Lender in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, perfection of Lender’s Liens in the Collateral, Lender’s continued administration of this Agreement and the other Loan Documents, and the preparation of any amendments, waivers or other agreements, instruments or documents relating to this Agreement or the other Loan Documents, or in connection with any “workout” or restructuring, (b) the enforcement of Lender's rights and/or the collection of any amounts which become due to Lender under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Obligors or any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the above incurred in connection with any Insolvency Proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Lender or any other Person) relating to any of the Obligors or any other Person and (d) any of the Collateral and other examinations, appraisals, evaluations, audits and inspections.

 

" Lender’s Account " means such bank account owned and maintained by Lender, in its name and for its benefit, and designated from time to time by Lender as the Lender’s Account hereunder. The Lender’s Account shall initially be as follows:

 

Wells Fargo Bank, N.A.

San Francisco, California

ABA# 121000248

Beneficiary: Wells Fargo Business Credit

Acct # 2000045334629

Reference: Monroe Staffing Services, LLC, et. al.

 

Lien ” means, with respect to any property, any security interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such property or its income, including, without limitation, the interest of a vendor or lessor under a conditional sale agreement, capital lease or other title retention agreement, or any agreement to provide any of the above, and the filing of any financing statement or similar instrument under the Uniform Commercial Code or comparable law of any jurisdiction.

 

Lien Release Conditions ” means Lender’s receipt of each of the following, in form and content satisfactory to Lender: (i) cash payment in full of all Obligations and completed performance by Obligors with respect to their obligations under this Agreement and the other Loan Documents, (ii) evidence that the Line of Credit has been terminated, (iii) a general release by Obligors of all claims against Lender and its Affiliates relating to the Line of Credit and Lender’s performance and obligations under the Loan Documents, and (iv) an agreement by each Obligor and any new lender to Borrower to indemnify Lender and its Affiliates for any payments received by Lender or its Affiliates that are applied to the Obligations as a final payoff that may later be returned or otherwise not paid for any reason.

 

Line of Credit ” means the discretionary line of credit provided under this Agreement.

 

Loan Account ” means one or more account maintained by Lender on its books and records in the name of Borrower.

 

Loan Documents ” means this Agreement, the Affiliate Credit Agreement, each Guaranty, any and all letter of credit agreements and each contract, instrument, agreement and other document required by this Agreement or at any time entered into or delivered to Lender in connection with this Agreement and the Line of Credit.

 

Material Adverse Change ” means the existence or occurrence of any of the following (i) any event or condition that Lender in good faith believes impairs, or is likely to impair, the prospect of payment or performance by Obligors of any of the Obligations, or any Obligor of its obligations under the Loan Documents, or (ii) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of any Corporate Obligor, (iii) a material impairment of the ability of any Obligor to perform its obligations under the Loan Documents or of Lender’s ability to enforce the Obligations or realize upon any of the Collateral, (iv) a material impairment of the enforceability or priority of Lender’s Liens with respect to any of the Collateral, (v) any claim against any Obligor or threat of litigation which if determined adversely to such Obligor, would result in the occurrence of any of the above events ; (vi) any Obligor suffers the loss, revocation or termination of any material license, permit, lease or agreement necessary to run its business; or (vii) any material portion of Collateral or other property of an Obligor is taken or impaired through condemnation;

 

Maturity Date ” has the meaning set forth in Schedule B-1 .

 

Maximum Revolver Amount ” has the meaning set forth in Schedule B-1 .

 

Minimum Interest Charge ” has the meaning set forth on Schedule B-1 .

 

Notice of Assignment of Accounts ” means a Notice of Assignment of Accounts executed and delivered by Borrower to Lender in form and substance satisfactory to Lender in its sole discretion.

 

  - 5 - Schedule A
 

  

Obligations ” means (a) all loans (including the Advances), debts, principal, interest (including any interest that accrues after the beginning of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), reimbursement or indemnification obligations with respect to any letters of credit issued hereunder or in connection herewith (irrespective of whether contingent), premiums, liabilities (including all amounts charged to the Loan Account), obligations (including indemnification obligations), fees, Lender Expenses (including any fees or expenses that accrue after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), guaranties, and all covenants and duties of any other kind and description owing by Borrower under or evidenced by this Agreement or any of the other Loan Documents or otherwise owing to Lender under any other present or future document, instrument or agreement, and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, liquidated or unliquidated, determined or undetermined, voluntary or involuntary, due, not due or to become due, sole, joint, several or joint and several, incurred in the past or now existing or hereafter arising, however arising, and including all interest not paid when due, and all other expenses or other amounts that Borrower is required to pay or reimburse by the Loan Documents or by law or otherwise in connection with the Loan Documents, and (b) all obligations, indebtedness, liabilities, reimbursement obligations, fees, or expenses owing by any Obligor to a Bank Product Provider with respect to any Bank Product, whether direct or indirect, absolute or contingent, liquidated or unliquidated, determined or undetermined, voluntary or involuntary, due, not due or to become due, incurred in the past or now existing or hereafter arising, however arising. Any reference in this Agreement or in the Loan Documents to the Obligations will include all or any portion of the Obligations and any extensions, modifications, renewals, or alterations of the Obligations, both prior and subsequent to any Insolvency Proceeding.

 

Obligor ” means, individually and collectively, Borrower, Guarantors and all other Persons obligated in respect of the Obligations or whose assets are security for the Obligations.

 

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

 

Overadvance Amount ” means, as of any date of determination, the amount, if any, by which the sum of the outstanding Advances exceeds the lesser of (i) the Facility Sublimit or (ii) the Borrowing Base.

 

Pass-Through Tax Liabilities ” means, with respect to any Person, the amount of state and federal income tax paid or to be paid by the owner of any Stock in such Person on taxable income earned by such Person and attributable to such owner as a result of such Person’s “pass-through” tax status, assuming the highest marginal income tax rate for federal and state (for the state or states in which any equity owner is liable for income taxes with respect to such income) income tax purposes, after taking into account any deduction for state income taxes in calculating the federal income tax liability and all other deductions, credits, deferrals and other reductions available to such owners from or through such Person.

 

“Patriot Act ” means Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001).

 

Permitted Dividends ” mean:

 

(a) one-time dividend by Borrower to its immediate parent, made on or about the Closing Date, the amount of which dividend, together with the amount of all other dividends made by PRS on or about the Closing Date, shall not exceed $900,000; and

 

(b) other dividends and distributions provided that, as of the date of any such dividend or distribution and after giving effect thereto, no Default or Event of Default exists (including with respect to the Financial Covenants more the most recently ended period of determination).

 

Permitted Lien ” means (a) Liens in favor of Lender, (b) Liens for unpaid taxes, assessments, or other governmental charges or levies that are not yet delinquent; (c) Liens set forth on Schedule C ; (d) the interests of lessors under operating leases and non-exclusive licensors under license agreements; (e) and Liens subject to an intercreditor agreement, in form and substance satisfactory to Lender, duly executed by the holder(s) of such Liens; and (f) purchase-money Liens or the interests of lessors under capital leases to the extent that such Liens or interests secure purchase-money Indebtedness and so long as (i) such Lien attaches only to the asset purchased or acquired and the cash proceeds, and (ii) such Lien only secures the purchase-money Indebtedness that was incurred to acquire the asset purchased or acquired.

 

Person ” means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and their political subdivisions.

 

Prime Rate ” means at any time the rate of interest most recently announced by Lender at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Lender’s base rates, and serves as the basis upon which effective rates of interest are calculated for those loans making reference to it, and is evidenced by its recording in such internal publication or publications as Lender may designate. Each change in the rate of interest will become effective on the date each Prime Rate change is announced by Lender.

 

  - 6 - Schedule A
 

  

PRS ” means PeopleServe PRS, Inc., together with its successors and assigns.

 

Reserves ” means, as of any date of determination, an amount or percentage of a specific category or item that Lender establishes in its sole discretion from time to time to reduce availability under the Line of Credit to reflect events, conditions, contingencies, or risks which might affect the assets, business or prospects of any of the Obligors or any of the Collateral or its value or the enforceability, perfection or priority of Lender’s security interest in the Collateral. Reserves may, at the sole discretion of Lender, include, without limitation, reserves for Dilution in excess of 2%, Bank Products, Affiliate Facility Usage and the aggregate amount, if any, of all trade payables and other obligations of any Obligor aged in excess of 60 days beyond their terms as of the end of the immediately preceding month, and all book overdrafts and fees of Obligors, in each case as determined by Lender in its sole discretion.

 

Settlement Days ” means the number of settlement days set forth on Schedule B-1 hereto.

 

Stock ” means all shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other equity security.

 

Subsidiary ” of a Person means a corporation, partnership, limited liability company or other entity in which that Person directly or indirectly owns or controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company or other entity.

 

Taxes ” means taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or subsequently imposed by any jurisdiction or by any political subdivision or taxing authority and all related interest, penalties or similar liabilities.

 

Termination Date ” means the earliest of the following: (i) the Maturity Date, or (ii) the date the Line of Credit is terminated by Borrower in accordance with the terms hereof or (iii) the date this Agreement is terminated by Lender in accordance with the terms hereof, or (iv) any date that Lender demands payment in full of the Obligations payable hereunder in accordance with the terms hereof.

 

Unbilled Account ” has the meaning set forth in Section 1.1(h)

 

Ultimate Parent ” means Staffing 360 Solutions, Inc., together with its successors and assigns.

 

  - 7 - Schedule A
 

  

SCHEDULE B-1
to
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

 

SELECTED ECONOMIC AND OTHER TERMS

 

Borrowing Base:

(i)     ninety percent (90%) (or such lesser percentage as Lender in its sole discretion may deem appropriate) of Eligible Accounts, less

 

(ii)   all Reserves, less

 

(iii)  any other Obligations (other than Advances).

   
Contract Rate: An interest rate per annum equal to Daily One Month LIBOR in effect from time to time plus 5%
   
Default Rate: An interest rate per annum equal to 18%
   
Deficit Rate: An interest rate per annum equal to 18%
   
Cross Default Indebtedness Amount: $250,000
   
Maturity Date: October 21, 2015, as such date may be extended in accordance with Section 1.4(e) of this Agreement.
   
Maximum Revolver Amount: $15,000,000
   
Facility Sublimit As of any date of determination, an amount equal to the Maximum Revolver Amount minus any Affiliate Facility Usage
   
Settlement Days: 2 days
   
Guarantors Ultimate Parent
Matt Briand (limited support guaranty)
Brendan Flood (validity guaranty)
Alfonso J. Cervantes (validity guaranty)
Jeff Mitchell (validity guaranty)

 

  - 1 - Schedule B-1
 

  

SCHEDULE B-2
to
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

 

FEES

 

Monthly:

 

(a) Cash Management and Other Service Fees . Fees for cash management services and other Bank Products and services provided to Borrower by Lender, in accordance with the agreements entered into between any Borrower and Lender from time to time, including Lender’s customary fees and charges with respect to the disbursement of funds or the receipt of funds to or for the account of any Borrower (whether by wire transfer or otherwise).

 

(b) Minimum Interest Charge . If during any month the daily average of the outstanding Advances plus Affiliate Facility Usage is less$5,000,000, Borrower will pay to Lender, on the first day of the next month, a fee equal to (i) the aggregate interest at the Contract Rate that the Borrower and PRS would have paid to Lender hereunder and under the Affiliate Credit Agreement, as applicable, had such daily average been at least $5,000,000, minus (ii) the actual amount of interest at the Contract Rate paid or payable by Borrower and PRS hereunder and under the Affiliate Credit Agreement, as applicable, for such month; provided , that , each such minimum interest charge shall be reduced, in each instance, by any amount confirmed in writing by Lender to have been received by Lender, in cash or other immediately available funds, in respect of any analogous minimum interest charge due under the Affiliate Credit Agreement on the same date and for the same period as such minimum interest charge payable hereunder.

 

Annually:

 

(a) Facility Fee . Commencing October 22, 2014, and on each annual anniversary thereof prior to the Maturity Date, Borrower shall pay to Lender a facility fee of $60,000 (each, a “Facility Fee”); provided , that , (i) if at any time the aggregate outstanding Advances plus Affiliate Facility Usage exceeds $12,000,000 then (A) upon the initial occurrence of such event (the “Increase Date”), Borrower shall pay to Lender an additional fee of $15,000 (the “Additional Fee”) and (B) the amount of each Facility Fee payable after the Increase Date shall be equal to 0.5% of the Maximum Revolver Amount and (ii) each such Facility Fee and any such Additional Fee shall be reduced, in each instance, by any amount confirmed in writing by Lender to have been received by Lender, in cash or other immediately available funds, in respect of any analogous facility fee or additional fee due under the Affiliate Credit Agreement on the same date and for the same period as such minimum interest charge payable hereunder.

 

Upon demand by Lender or as otherwise specified in this Agreement:

 

(a) Commission . Borrower shall pay to Lender, with respect to each Account due from an Extended Terms Customer, a commission equal to 0.25% multiplied by the gross face amount of each such Account, which commission shall be due and payable upon the earlier of the date payment of such Account is credited by Lender to the Obligations and the date on which such Account ceases to constitute an Eligible Account hereunder.

 

(b) Collateral Exam Fees, Costs and Expenses . Lender’s fees, costs and expenses in connection with any collateral exams or inspections conducted by or on behalf of Lender at the current rates established from time to time by Lender as its fee for collateral exams, or inspections (which fees are currently $950 per day per collateral examiner), plus all actual out-of-pocket costs and expenses incurred in conducting any collateral exam or inspection. Borrower will reimburse Lender for all fees and expenses related to collateral examinations or inspections obtained prior to the Closing Date. Applicable fees related to electronic collateral reporting will also be charged.

 

(c) Appraisal Fees, Costs and Expenses . Lender’s fees, costs and expenses (including any fees, costs and expenses incurred by any appraiser) in connection with any appraisal of all or any part of the Collateral conducted at the request of Lender. In addition, Borrower will be obligated to reimburse Lender for all fees, costs and expenses related to appraisals obtained prior to the Closing Date.

 

  - 1 - Schedule B-2
 

  

(d) Line of Credit Termination Fees . If (i) Lender terminates the Line of Credit after an Event of Default, or (ii) Borrower terminates the Line of Credit on a date other than the Maturity Date, then Borrower will pay Lender a termination fee in an amount equal to a percentage of the Maximum Revolver Amount calculated as follows: (A) $200,000, if the termination occurs on or before October 22, 2014 and (B) $100,000, if the termination occurs after such date; provided , that , any such termination fee shall be reduced by any amount confirmed in writing by Lender to have been received by Lender, in cash or other immediately available funds, in respect of any analogous termination fee due under the Affiliate Credit Agreement on the same date and for the same period as such termination fee payable hereunder.

 

(e) Misdirection Fee . Lender may charge a misdirected payment fee in the amount of two and one-half (2.5%) of the amount of any check, remittance or other item of payment constituting a payment on account of an Account which is received by an Obligor and not delivered to Lender on the next Business Day following receipt by such Obligor.

 

(f) Other Fees and Charges . Lender may impose additional fees and charges during a Default Period for (i) waiving an Event of Default, or (ii) the administration of Collateral by Lender. All such fees and charges will be imposed at Lender’s sole discretion on either an hourly, periodic, or flat fee basis, and in lieu of or in addition to imposing interest at the Default Rate, and any Borrower's request for an Advance following such notice will constitute each Borrower's agreement to pay such fees and charges.

 

  - 2 - Schedule B-2
 

  

SCHEDULE B-3
to
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

 

FINANCIAL COVENANTS

 

1. CASH FLOW. Each Borrower will maintain positive Cash Flow, measured (a) with respect to Monroe, as of the last day of each calendar quarter for the twelve (12) month period then ended and (b) with respect to PSI, (i) as of September 30, 2014, for the three (3) month period then ended, (ii) as of December 31, 2014, for the six (6) month period then ended, (iii) as of March 31, 2015, for the nine (9) month period then ended and (iv) as of June 30, 2015 and as of the last day of each calendar quarter thereafter, for the twelve (12) month period then ended.

 

2. WORKING CAPITAL RATIO. Each Borrower will maintain a Working Capital Ratio of not less than 1.0 to 1.0, measured quarterly as of the last day of calendar quarter.

For purposes of this Schedule, and as used in the Agreement, the following terms shall have the meanings given to them below:

 

Cash Flow ” means, with respect to any Borrower for any period, (i) net income, plus (ii) depreciation and amortization, minus (iii) debt service, distributions and dividend, and non-financed capital expenditures, all as determined in accordance with GAAP. For the calculations for the first 3 quarters of 2014, Borrower may allow the add back of (A) the $900,000 workers compensation reserve and the $200,000 department of labor reserve taken in the 4 th quarter of 2013 (B) debt service incurred in 2013. In addition, Borrower may allow the add back of the Permitted Dividend made by Borrower of the type described in clause (a) of the definition thereof.

 

Working Capital Ratio ” means, with respect to any Borrower as of any date of determination, the ratio of (i) unrestricted cash of such Borrower plus Accounts of such Borrower (net of reserves for bad debts) to (ii) the sum of (a) unpaid and accrued payroll and payroll taxes, (b) accounts payable by such Borrower to Affiliates and to corp-to-corp subcontractors and (c) the aggregate outstanding Advances plus any Affiliate Facility Usage.

 

  - 1 - Schedule B-3
 

  

SCHEDULE C
to
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

 

DISCLOSURE SCHEDULE

 

Section 3.3 Pending Litigation
   
None.  
   
Section 3.5 Taxes
   
None.  
   
Sections 3.10 and 5.5 Existing Liens
   
None.  

 

  - 1 - Schedule C
 

  

SCHEDULE D

to

AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

 

FINANCIAL STATEMENTS

 

as soon as available, but within 30 days after the end of each month (or, with respect to the Compliance Certificate described in clause (b), quarter):

(a) internally prepared financial statements of each Borrower for such month then ended, which shall include a balance sheet, income statement, statement of cash flow, and statement of owner’s equity with respect to the Borrower during such month, prepared in accordance with GAAP; and

 

(b) a Compliance Certificate along with the underlying calculations, including the calculations to establish compliance with the financial and certain other covenants set forth in this Agreement, and a certificate of the president or chief financial officer of Borrower attesting that the financial statements are accurate and that there exists no Default or Event of Default.

   
as soon as available, but within 120 days after the end of each fiscal year (a) annual financial statements of each Borrower for such fiscal year then ended, audited by independent certified public accountants reasonably acceptable to Lender and prepared in accordance with GAAP (such audited financial statements to include a balance sheet, income statement, statement of cash flow, and statement of owner’s equity and, if prepared, such accountants’ letter to management);
   
as soon as available, but 30 days before the start of each of Borrower's fiscal years, (a) copies of each Borrower’s forecasted (i) balance sheets, (ii) profit and loss statements, (iii) availability projections, and (iv) cash flow statements, all prepared on a basis consistent with Borrower’s historical financial statements, together with appropriate supporting details and a statement of underlying assumptions, in form and substance satisfactory to Lender, in its sole discretion, for the next fiscal year, on a monthly basis, certified by the chief financial officer of Borrower as being such officer’s good faith estimate of the financial performance of the Borrower during the period covered.
   
on request of Lender such other information as Lender may request in its sole discretion

 

  - 1 - Schedule D
 

  

SCHEDULE E

to

AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

 

COLLATERAL REPORTING

 

Contemporaneously
with each request
for an Advance or more frequently as Lender requests.

(a)     a schedule of Accounts, in form and substance acceptable to Lender.

 

(b)     copies of invoices together with corresponding shipping and delivery documents and credit memos together with corresponding supporting documentation with respect to invoices and credit memos, in each instance, as requested by Lender in its discretion.

   
No later than the 5th day of each month.

(a)     a current detailed aging, by total and by Account Debtor, of each Borrower’s Accounts.

 

(b)     a current detailed aging, by total and by vendor, of each Borrower’s accounts payable.

   
Within 90 days after the end of each year. (a)     a detailed list of each Corporate Obligor’s customers, with address and contact information.
   
Upon request by Lender. (a)     such other reports and information as to the Collateral and as to the Obligors, as Lender may request.

 

  - 1 - Schedule E
 

  

SCHEDULE F

to

AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

 

FORM OF COMPLIANCE CERTIFICATE

 

[ on Borrower’s Letterhead ]

 

To: Wells Fargo Bank, National Association

14241 Dallas Parkway, Suite 900

Dallas, Texas 75254

Attn: ___________________________

 

Re: Compliance Certificate dated [_____________________]

 

Ladies and Gentlemen:

 

Reference is made to that certain Amended and Restated Credit and Security Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ” dated as of [__________], by and among WELLS FARGO BANK, NATIONAL ASSOCIATION (“ Lender ”), MONROE STAFFING SERVICES, LLC (“ Monroe ”) and PEOPLESERVE, INC. (“ PSI ” and together with Monroe, individually and collectively, jointly and severally, the “ Borrower ”). Capitalized terms used in this Compliance Certificate have the meanings set forth in the Credit Agreement unless specifically defined herein.

 

Pursuant to the Credit Agreement, the undersigned officer of Borrower hereby certifies that:

 

1.          Attached is the financial information of Obligors which is required to be furnished to Lender pursuant to Section 4.1 of the Credit Agreement for the period ended _________________ (the “ Reporting Date ”). Such financial information has been prepared in accordance with GAAP (except, with respect to internally prepared financial statements, for year-end adjustments and the lack of footnotes) and fairly presents in all material respects the financial condition of Obligors.

 

2.          Such officer has reviewed the terms of the Credit Agreement and has made, or caused to be made under his/her supervision, a review in reasonable detail of the transactions and condition of Obligors during the accounting period covered by the financial statements delivered pursuant to the Credit Agreement.

 

3.          Such review has not disclosed the existence on and as of the date of this Certificate, and the undersigned does not have knowledge of the existence as of the date of this Certificate, of any event or condition that constitutes a Default or Event of Default.

 

4.          The representations and warranties of each of the Obligors set forth in the Credit Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of this Certificate (except to the extent they relate to a specified date).

 

5.          As of the Reporting Date, each of the Obligors is in compliance with the applicable covenants contained in ARTICLE IV and ARTICLE V of the Credit Agreement as demonstrated on the schedule attached hereto.

 

IN WITNESS WHEREOF, this Compliance Certificate is executed by the undersigned this [____] day of [______________________].

 

  [INSERT NAME OF BORROWER]  
     
  By:    
  Name:    
  Title:    

 

  - 1 - Schedule F

 

Exhibit 10.33

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (this “ Agreement ”) is entered into on July 29, 2014, and is effective for all purposes as of the Effective Date (as defined below), by and between Staffing 360 Solutions, Inc., a Nevada corporation (the “ Company ”), and Jeff R. Mitchell (the “ Executive ”).

 

RECITALS:

 

WHEREAS , the Executive has heretofore been appointed as the Chief Financial Officer of the Company; and

 

WHEREAS , the Company and the Executive now desire to enter into this Agreement to memorialize the terms and conditions under which the Executive shall hereinafter serve as the Chief Financial Officer of the Company.

 

NOW, THEREFORE , in consideration of the foregoing and of the respective mutual covenants and agreements set forth below, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

 

1.                   Certain Definitions. The following capitalized terms shall have the following meanings. All other capitalized terms used herein shall have the meanings set forth in this Agreement.

 

(a)                 Board ” means the Company’s Board of Directors or any designated committee thereof.

 

(b)                Cause ”: For purposes of this Agreement, the Company shall have “Cause” to terminate the Executive’s employment hereunder for any of the following actions: (i) the Executive causing material harm to the Company through (A) a material breach by the Executive of the terms and provisions of this Agreement (including, without limitation, Section 4 hereof) or (B) the commission by Executive of an act or acts of gross negligence, dishonesty, fraud or willful malfeasance in the performance of his duties hereunder, (ii) Executive is indicted for, or convicted of, or pleads guilty or nolo contendere with respect to, theft, fraud, a crime involving moral turpitude or a felony under federal or applicable state law, or (iii) the Executive’s willful failure to perform his material duties under this Agreement (other than a failure due to Disability) after thirty (30) day written notice specifying the failure, during which period the Executive shall have the opportunity to cure such failure (it being understood that if his failure to perform is not of a type requiring a single action to cure fully, that he may commence the cure promptly after such written notice and thereafter diligently prosecute such cure to completion).

 

(c)                 Common Stock ” means the shares of common stock, par value $0.00001 per share, of the Company.

 

 
 

 

(d)                Contract Year ” shall be a calendar year.

 

(e)                 Disability ” shall mean the absence of the Executive from the Executive’s duties to the Company for a total of 30 consecutive days, or 60 days during any one six month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company and acceptable to the Executive or the Executive’s legal representative (such agreement as to acceptability not to be withheld unreasonably).

 

(f)                 Effective Date ” means March 17, 2014.

 

(g)                Good Reason ”: The Executive shall have Good Reason to resign from employment upon the occurrence of any of the following events:

 

(i)                  any material adverse change in the Executive’s job titles, duties, responsibilities, perquisites granted hereunder, or authority without his consent, including no longer reporting directly to the Chairman (whether Executive or Non-Executive) or the Chief Executive Officer of the Company;

 

(ii)                if the principal duties of the Executive are required to be performed at a location other than New York, New York without his consent; or

(iii)              a material breach of this Agreement by the Company, including without limitation, the failure to pay compensation or benefits when due hereunder.

 

The Executive must provide to the Company written notice of his resignation within ten (10) days following the occurrence of the event or events constituting Good Reason and the Company shall have a period of thirty (30) days following its receipt of such notice (the “ Cure Period ”) in which to cure such event or events. If the Company does not cure the event or events constituting the basis for Good Reason by the end of the Cure Period, the Executive may resign from employment within seven (7) days immediately following the last day of the Cure Period. A resignation or other voluntary termination of employment by the Executive that does not comply with the requirements of this Section 1(g) shall not constitute termination for Good Reason.

 

(h)                Section 409A ” shall mean, collectively, Section 409A of the Internal Revenue Code of 1986, as amended, and the Department of Treasury Regulations and other interpretive guidance promulgated thereunder, including without limitation any such regulations or other guidance that may be issued after the date of this Agreement.

 

2.                   Employment.

 

(a)                 The Company shall continue to employ the Executive and the Executive shall remain employed by the Company during the Contract Term (as defined below) in the positions set forth in Section 3 and upon the other terms and conditions herein provided unless the Executive’s employment is terminated earlier as provided in Section 7 hereof.

 

 
 

 

(b)                The term of this Agreement shall begin on the Effective Date and shall end on the third (3) year anniversary of the Effective Date (the “ Initial Term ”) and, after the expiration of the Initial Term, this Agreement shall automatically renew for successive one (1) year terms (each a “ Renewal Term ” and, collectively with all Renewal Terms and the Initial Term, the “ Contract Term ”), unless this Agreement is otherwise terminated pursuant to the terms hereof.

 

3.                   Position and Duties.

 

(a)                 During the Contract Term, the Executive shall serve as:

 

(i)                  the Chief Financial Officer of the Company and shall have such duties, functions, responsibilities and authority as are consistent with the Executive’s position as the senior financial officer of the Company and its properties.

 

(b)                The Executive shall be required to spend all of his business time on the business and affairs of the Company (unless approved in writing by his immediate supervisor). An agreed exception to this relates to Jeff Mitchell serving on the Board of AWGI which Board seat is approved but not expected to take a material amount of time from the duties owed to the Company.

 

4.                   Right of First Offer; Confidential Information; Non-Solicitation; Non-Disparagement; and Return of Company Property.

 

(a)                 Right of First Offer . Without in any manner limiting or modifying the fiduciary or similar duties of the Executive to the Company under applicable law, in consideration of the benefits to inure to the Executive hereunder, the Executive agrees that during the Contract Term, if the Executive or any affiliate of the Executive (each, an “ Executive Affiliate ”) obtains or otherwise becomes aware of an opportunity to acquire and/or invest in any staffing company (the “ Business Opportunity ”), the Executive and/or Executive Affiliate shall present such Business Opportunity to the Company and shall not pursue any such Business Opportunity. However, during the Post-Termination Restricted Period, in the event the Executive of any Executive Affiliate receives a Business Opportunity, then Executive will (and will cause each applicable Executive Affiliate to) first offer to the Company in writing (the “ Offer ”) the opportunity to acquire and/or invest in the Business Opportunity prior to directly and/or indirectly proceeding with such opportunity for the account of the Executive or any Executive Affiliate. The Offer shall be in writing and shall describe in reasonable detail the Business Opportunity and the proposed transaction involving such Business Opportunity (including the terms of any proposed acquisition of the Business Opportunity). The Company shall have a period of fifteen (15) days from the receipt of the Offer to elect whether it desires to accept the Offer and pursue the acquisition of the applicable Business Opportunity. If the Company does not deliver an affirmative written decision to accept the Offer to the Executive within fifteen (15) days of the receipt of the Offer, the Executive or any Executive Affiliate shall be permitted to pursue such opportunity for their own accounts.

 

 
 

 

As used herein, the term “ Restricted Period ” means: (i) any time during the Contract Term and (ii) for a period of six (6) months following the termination of this Agreement and the Executive’s association with the Company (the “ Post-Termination Restricted Period ”).

 

(b)                Confidential Information . The Executive acknowledges that he has had and will have access to confidential information (including, but not limited to, current and prospective confidential know-how, marketing plans, business plans, financial and pricing information, and information regarding acquisitions, mergers and/or joint ventures) concerning the business, customers, clients, contacts, prospects and assets of the Company and its subsidiaries (collectively, the “ Staffing 360 Entities ”) that is unique, valuable and not generally known outside the Staffing 360 Entities, and which was obtained from the Staffing 360 Entities or which was learned as a result of the performance of services by the Executive on behalf of the Staffing 360 Entities (“ Confidential Information ”). The Executive agrees that he will not, at any time, directly or indirectly, use, divulge, furnish or make accessible to any person any Confidential Information, but instead will keep all Confidential Information strictly and absolutely confidential and use such Confidential Information in the furtherance of the business of the Staffing 360 Entities; provided, however, that this provision shall not prevent the Executive from using his general business skill and knowledge in any future employment to the extent such skill and knowledge is not specifically related to the business of the Confidential Information. The Executive will deliver promptly to the Company, at the termination of his employment or at any other time at the Company’s request, without retaining any copies (other than Executive Records, as defined below), all documents and other materials in his possession relating, directly or indirectly, to any Confidential Information. For purposes of this Agreement, “ Executive Records ” shall mean any written or electronic records of the Executive’s personal contacts.

 

(c)                 Non-Solicitation of Employees . During the Restricted Period, the Executive shall not solicit the employment or services of (whether as an employee, officer, director, agent, consultant or independent contractor), any employee, officer, director, full-time consultant or independent contractor of the Staffing 360 Entities.

 

(d)                Non-Solicitation of Business Partners . During the Restricted Period, the Executive shall not directly or indirectly, solicit or encourage, or attempt to solicit or encourage, any customers, suppliers, licensees, agents, consultants or independent contractors or other business partners or business affiliates of the Staffing 360 Entities (collectively, “ Business Partners ”), to cease doing business with or modify their business relationship with the Staffing 360 Entities, or in any way intentionally interfere with the relationship between any such Business Partner and the Staffing 360 Entities (regardless of who initiates the contact).

 

(e)                 Non-Disparagement . The Executive shall not make, and shall not cause or direct any person or entity to make, any disparaging or untrue comments or statements, whether written or oral, about any Staffing 360 Entity (or any shareholder, member, director, manager or officer thereof). No Staffing 360 Entity shall make, and shall not cause or direct any person or entity to make, any disparaging or untrue comments or statements, whether written or oral, about Executive. “Disparaging” comments or statements include such comments or statements which discredit, ridicule, or defame any person or entity or place such person or entity in a negative light or impair the reputation, goodwill or commercial interest thereof.

 

 
 

 

(f)                 Return of Company Property/Passwords . The Executive hereby expressly covenants and agrees that following termination of the Executive’s employment with the Company for any reason or at any time upon the Company’s request, the Executive will promptly return to the Company all property of the Company in his possession or control (whether maintained at his office, home or elsewhere), including, without limitation, all Company passwords, credit cards, keys, laptop computers, cell phones and all copies of all management studies, business or strategic plans, budgets, notebooks and other printed, typed or written materials, documents, diaries, calendars and data of or relating to the Staffing 360 Entities or their personnel or affairs, in whatever media maintained; provided, that, the Executive shall be permitted to retain his Executive Records.

 

(g)                Remedies for Breach . The Executive acknowledges that a breach of this Section 4 would immediately and irreparably harm the Staffing 360 Entities and that a remedy at law would be inadequate to compensate the Staffing 360 Entities for their losses by reason of such breach and therefore that the Company and/or the Staffing 360 Entities shall, in addition to any other rights and remedies available under this Agreement, at law or otherwise, be entitled to an injunction to be issued by any court of competent jurisdiction enjoining and restraining the Executive from committing any violation of this Section 4, without the necessity of proving actual damages or posting bond, and the Executive hereby consents to the issuance of such injunction.

 

5.                   Place of Employment . During his employment hereunder, the Executive shall be based at the Company’s offices located in New York, New York, currently located at 641 Lexington Avenue; provided, that from the Effective Date until June 30, 2014 (or such earlier date that executive relocates to New York City on a permanent basis), Executive may work remotely from his personal residence for up to one-third (1/3) of the time.

 

6.                   Compensation and Related Matters . During the Executive’s employment hereunder, the Executive shall be paid the compensation and shall be provided with the benefits described below:

 

(a)                 Annual Base Salary . The Executive’s annual base compensation (“ Annual Base Salary ”) shall be: (i) from the Effective Date through May 31, 2014, $200,000 (on an annualized basis), provided that such amount shall be retroactively increased to $250,000 (on an annualized basis) subsequent to the Executive’s permanent relocation to New York City, and (ii) from June 1, 2014 through December 31, 2014, $250,000 (on an annualized basis), each payable in accordance with the Company’s prevailing payroll practices. The Annual Base Salary paid to the Executive for each Contract Year shall be increased, but shall not be decreased, at each anniversary of the Effective Date by the increase in the Consumer Price Index for All Urban Consumers (CPI-U) for the Northeast Region for all items over the prior year of the Term, as determined by the United States Department of Labor Bureau of Labor Statistics or an amount determined by the Board in its discretion, whichever is greater.

 

(b)                Bonus . The Executive shall also be eligible to receive a cash bonus for each fiscal year of the Company, in accordance with Schedule A .

 

 
 

 

(c)                 Equity Compensation . The Executive shall also be eligible to receive shares of restricted stock and stock options in accordance with Schedule B .

 

(d)                Relocation Expenses . The Company shall reimburse the cost of the Executive’s relocation expenses, up to a maximum reimbursement of $25,000 (unless the Company’s Executive Chairman approves a greater amount), based on actual expenses incurred in connection with the Executive’s relocation to New York City. Until July 1, 2014, the Executive may live in the Company’s corporate housing facility in New York City. The Company shall reimburse the Executive for the cost of up to two (2) trips to New York City by the Executive, his wife and daughter for the purpose of searching for a home.

 

(e)                 Benefits . The Company shall continue in force full family medical coverage and comprehensive major medical and hospitalization coverage, including dental and vision coverage, for Executive and his dependents, with terms reasonably satisfactory to Executive, which policy the Company shall keep in effect at its sole cost through the Term and any extension of renewal. Executive shall be entitled to participate in or receive all other benefits under any employee benefit plan or other arrangement made available by the Company to any of its employees (including, without limitation, the Company’s 401(k) and similar plans as may be approved by the Board, collectively, the “ Benefits ”), on terms at least as favorable as those on which other senior executives of the Company shall participate ; provided, however, that the Executive shall be entitled to 25 days of paid vacation during each Contract Year, exclusive of Company holidays.

 

(f)                 Expenses . The Company shall reimburse the Executive for all reasonable travel and other business expenses incurred by the Executive in the performance of his duties to the Company hereunder. Such expenses shall be reimbursable in accordance with prevailing policies of the Company upon submission of verifiable receipts.

 

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

 

(a)                 Death . This Agreement and the Executive’s employment hereunder shall terminate upon the Executive’s death.

 

(b)                Disability . If the Disability of the Executive has occurred during the Contract Term, the Company may give the Executive written notice of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company (including the rights to receive compensation and benefits, except as otherwise required by law) shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that within the 30 days after such receipt, the Executive shall not have returned to full-time performance of his duties.

 

(c)                 Cause . The Company may terminate the Executive’s employment hereunder for Cause immediately upon the Company providing notice of termination to Executive (subject to any applicable cure periods).

 

 
 

 

(d)                Without Cause . The Company may terminate the Executive’s employment hereunder without Cause upon 30 days notice.

 

(e)                 Good Reason . The Executive may resign from his employment for Good Reason (as provided in Section 1(g)).

 

(f)                 Resignation without Good Reason . The Executive may resign his employment without Good Reason upon 30 days written notice to the Company.

 

(g)                Notice of Termination . Any termination of the Executive’s employment hereunder by the Company or the Executive (other than by reason of the Executive’s death) shall be communicated by a notice of termination to the other party hereto. For purposes of this Agreement, a “ notice of termination ” shall mean a written notice which (i) indicates the specific termination provision in the Agreement relied upon, (ii) sets forth in reasonable detail any facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision indicated and (iii) specifies the effective date of the termination.

 

8.                   Severance Benefits.

 

(a)                 Termination without Cause or for Good Reason . Subject to Section 18, if prior to the expiration of the Contract Term the Executive’s employment is terminated: (i) by the Company other than for Cause, death or Disability, or (ii) by the Executive for Good Reason (as defined above), the Executive shall be entitled to receive a lump sum cash payment specified herein (the “ Severance Payment ”), provided that (A) the Executive has executed and delivered to the Company (no later than the thirtieth (30 th ) day following the date on which his employment terminated), and has not revoked, a general release of the Company and its affiliates in a form reasonably satisfactory to the Company and (B) the Executive is in compliance with the requirements of Section 4. The Severance Payment shall be paid, less applicable taxes, on the thirtieth (30 th ) day following the date on which the Executive’s employment terminated (or such later date as may be required by Section 18). The Severance Payment shall be equal to the amount of Executive’s Annual Base Salary that would have been due through the end of the Initial Term or Renewal Term (as the case may be), less applicable taxes. In addition, subject to Section 18, the Company shall continue to provide all Benefits to the Executive under this Agreement for each Contract Year through the end of the Initial Term or Renewal Term (as the case may be).

 

(b)                Termination by Death or Disability . Subject to Section 18, upon the termination of the Executive’s employment by reason of his death or Disability, the Company shall pay to the Executive or his estate within thirty (30) days after the termination, a lump-sum amount equal to the amount of Annual Base Salary that would have been due through the end of the then applicable Contract Year, less applicable taxes, and any vested and earned but unpaid awards under the Company’s stock incentive plans and other stock or incentive awards. This Section 8(b) shall not limit the entitlement of the Executive, his estate or beneficiaries to any disability or other Benefits then available to the Executive under any life, disability insurance or other benefit plan or policy which is maintained by the Company for the Executive’s benefit.

 

 
 

 

(c)                 Termination for Cause or Without Good Reason . If the Executive’s employment is terminated by the Company for Cause or by the Executive without Good Reason, the Executive shall be entitled to all Annual Base Salary and all Benefits accrued through the date of termination (less applicable taxes) and any vested and earned but unpaid awards under the Company’s stock incentive plans and other stock or incentive awards. Such accrued compensation shall be paid in accordance with the Company’s ordinary payment practices and, in any event, on or prior to the fifteenth (15 th ) day of the third (3 rd ) calendar month following the end of the calendar year in which the date of termination occurs.

 

(d)                Survival . Neither the termination of the Executive’s employment hereunder nor the expiration of the Contract Term shall impair the rights or obligations of any party hereto which shall have accrued hereunder prior to such termination or expiration. The obligations of Section 4 shall, to the extent provided in Section 4, survive the termination or expiration of the Executive’s employment with the Company and, as applicable, shall be fully enforceable thereafter in accordance with the terms of this Agreement.

 

9.                   Arbitration. In the event that the Company or the Executive, his spouse or any other person claiming benefits on behalf of or through Executive, has a dispute or claim based upon this Agreement, including the interpretation or application of the terms and provisions of this Agreement, the sole and exclusive remedy is for that party to submit the dispute to binding arbitration in accordance with the rules of arbitration of the American Arbitration Association (“ AAA ”) in New York, New York. Any arbitrator selected to arbitrate any such dispute shall be independent and neutral and will have the power to interpret this Agreement. Any determination or decision by the arbitrator shall be binding upon the parties and may be enforced in any court of law. The expenses of the arbitrator will be paid 50% by the Company and 50% by Executive, his spouse or other person, as the case may be, provided that the arbitrator shall be free to apportion such fees between the parties as he/she may determine in his/her discretion as permitted by the AAA rules of arbitration. The parties agree that this arbitration provision does not apply to the right of the Executive to file a charge, testify, assist or participate in any manner in an investigation, hearing or proceeding before the Equal Employment Opportunity Commission or any other agency pertaining to any matters covered by this Agreement and within the jurisdiction of the agency.

 

10.               Binding on Successors. This Agreement shall be binding upon and inure to the benefit of the Company, the Executive and their respective successors, assigns, personal and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable.

 

11.               Governing Law. This Agreement shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the State of New York, without reference to principles of conflicts or choice of law under which the law of any other jurisdiction would apply, provided, however, the laws regarding shareholder approval of the Company’s 2014 Equity Incentive Plan (the “ Plan ”) shall be governed in accordance with the laws of the State of Nevada.

 

 
 

 

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.               Notices. Any notice, request, claim, demand, document and other communication hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile transmission or certified or registered mail, postage prepaid, as follows:

 

If to the Company, to:

 

 

 

Staffing 360 Solutions, Inc.

  641 Lexington Avenue, Suite 1526

 

  New York, New York 10022

 

Tel: (212) 634-640

Attention: Brendan Flood

 

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

 

Ellenoff Grossman & Schole LLP

150 East 42 nd Street, 11 th Floor

New York, NY 10028

Tel: (212) 370-1300
Fax: (212) 370-7889

Attention: Barry I. Grossman, Esq.

 

If to the Executive, to:

 

Jeff R. Mitchell

30 Lincoln Plaza

30 West 63 rd Street, Apt. 5J

New York, NY 10023

Tel: (646) 895-0022

 

or at any other address as any party shall have specified by notice in writing to the other parties.

 

14.               Severability. In the event that any paragraph or provision of this Agreement shall be held to be illegal or unenforceable, the entire Agreement shall not fail on account thereof. It is further agreed that if any one or more of such paragraphs or provisions shall be judged to be void as going beyond what is reasonable in all of the circumstances for the protection of the interests of the Company, but would be valid if part of the wording thereof were deleted or the period thereof reduced or the range of activities covered thereby reduced in scope, the said reduction shall be deemed to apply with such modifications as may be necessary to make them valid and effective and any such modification shall not thereby affect the validity of any other paragraph or provisions contained in this Agreement.

 

 
 

 

15.               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. Such counterparts may be delivered by fax or e-mail/.pdf transmission, such shall not impair the validity thereof.

 

16.               Entire Agreement. The terms of this Agreement are intended by the parties to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement. This Agreement terminates and supersedes any and all prior agreements and understandings (whether written or oral) between the parties with respect to the subject matter of this Agreement.

 

17.               Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by the Executive and a disinterested officer or director of the Company. By an instrument in writing similarly executed, the Executive or the Company may waive compliance by the other party or parties with any provision of this Agreement that such other party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.

 

18.               Section 409A. The parties acknowledge and agree that, to the extent applicable, this Agreement shall be interpreted in accordance with, and the parties agree to use their best efforts to achieve timely compliance with, Section 409A. Notwithstanding any provision of this Agreement to the contrary, in the event that the Company determines that any compensation or benefits payable or provided under this Agreement (including the Severance Payment) may be subject to Section 409A, the Company may adopt (without any obligation to do so or to indemnify the Executive for failure to do so) such limited amendments to this Agreement and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Company reasonably determines are necessary or appropriate to: (i) exempt the compensation and benefits payable under this Agreement from Section 409A and/or preserve the intended tax treatment of the compensation and benefits provided with respect to this Agreement or (ii) comply with the requirements of Section 409A; provided, however, that before the Company adopts any such amendment to this Agreement or policy (excluding for this purpose a policy that applies generally to plans or arrangements in addition to this Agreement), the Company will provide notice to the Executive reasonably in advance of adopting the amendment or policy of the need and appropriateness of such amendment or policy. No provision of this Agreement shall be interpreted or construed to transfer any liability for failure to comply with the requirements of Section 409A from the Executive or any other individual to the Company or any of the Company’s affiliates, employees or agents.

 

[Remainder of page left blank intentionally; signature page follows]

 

 
 

 

IN WITNESS WHEREOF , the parties have executed this Agreement as of the date and year first above written.

 

 

  EXECUTIVE
     
     
     
   
  Jeff R. Mitchell
     
  COMPANY
     
  STAFFING 360 SOLUTIONS, INC.
     
     
     
  By:  
    Name: Brendan Flood
    Title: Executive Chairman

 

 
 

 

Schedule A

 

The Company agrees to pay the Executive an annual bonus (the “Bonus” ) up to fifty percent (50%) of Executive’s Annual Base Salary. The Bonus shall be calculated as based on criteria to be agreed by the Board within 30 days of signing this agreement. The bonus will be calculated on a calendar year basis, pro-rated in the first year, and paid within 60 days of the end of the calendar year. The bonus criteria can be amended by the Board of Directors at its discretion.

 

 
 

 

Schedule B

 

(a) The Executive shall be granted an aggregate of 125,000 restricted shares of Common Stock (the “ Restricted Shares “), as follows:

(i) 50,000 Restricted Shares on the date that Employee’s Annual Base Salary is increased to $250,000 pursuant to Section 6(a) (the “ Initial Grant ”);

 

(ii) 25,000 Restricted Shares on the one (1) year anniversary of the Initial Grant;

(iii) 25,000 Restricted Shares on the two (2) year anniversary of the Initial Grant; and

(iv) 25,000 Restricted Shares on the three (3) year anniversary of the Initial Grant.

 

Upon termination of employment, except in the case of ‘Cause’ or ‘Resignation Without Good Reason’, as outlined in Clause 7 above, all of the Restricted Shares will fully vest to the benefit of the Employee or his dependents.

 

(b) The Executive shall be granted stock options, pursuant to the Company’s 2014 Equity Incentive Plan (the “ Plan ”), to acquire an aggregate of 150,000 shares of Common Stock (the “ Stock Options ”) on the date of this Agreement. The Stock Options shall have an exercise price of $2.00 per share, shall otherwise be subject to the Plan (including the change of control provisions thereof), and shall vest as follows:

 

(i) 30,000 Stock Options shall become exercisable on the date of the Initial Grant;

(ii) 30,000 Stock Options shall become exercisable on the one (1) year anniversary of the Initial Grant;

 

(iii) 30,000 Stock Options shall become exercisable on the two (2) year anniversary of the Initial Grant;

 

(iv) 30,000 Stock Options shall become exercisable on the three (3) year anniversary of the Initial Grant; and

 

(v) 30,000 Stock Options shall become exercisable on the four (4) year anniversary of the Initial Grant.

 

 

 

Exhibit 10.35

 

STAFFING 360 SOLUTIONS, INC.

 

2014 Equity Incentive Plan

 

Adopted on January 28, 2014, as amended on July 30, 2014

 

1.             Purposes.

 

(a)          Eligible Recipients. The persons eligible to receive awards hereunder are the Employees, Directors and Consultants of the Company and its Affiliates.

 

(b)          Available Awards. The purpose of the Plan is to provide a means by which eligible recipients of Option Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of Options.

 

(c)          General Purpose. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Option Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.

 

2.             Definitions. The following capitalized terms have the following meanings. Other capitalized terms are defined elsewhere herein.

 

(a)           “Affiliate” means (i) any person or entity that directly or indirectly controls, is controlled by or is under common control with the Company and/or (ii) any person or entity in which the Company has a significant interest as determined by the Board in its discretion. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as applied to any person or entity, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person or entity, whether through the ownership of voting or other securities, by contract or otherwise.

 

(b)           “Board” means the Board of Directors of the Company. If a Committee has been appointed to administer this Plan, references herein to the term “Board” shall apply to such Committee to the extent such Committee has been delegated authority over the applicable subject matter.

 

(c)           Business Day means any day other than a Saturday, a Sunday or a day on which banking institutions in New York City, New York are authorized or obligated by federal law or executive order to be closed.

 

 
 

 

(d)           “Cause” shall mean, in the case of a particular Option Award, unless the applicable Option Agreement states otherwise: (i) if the Participant is a party to an employment or service agreement with the Company or its Affiliates and such agreement provides for a definition of “cause”, the definition contained therein; or (ii) if no such agreement exists, or if such agreement does not define “cause”: (a) conviction of, or plea of guilty or no contest to, any felony or any crime involving moral turpitude or dishonesty or the commission of any other act involving willful malfeasance or material fiduciary breach with respect to the Company or an Affiliate; (b) participation in a fraud, misappropriation, or embezzlement of Company and/or its Affiliate funds or property or act of dishonesty against the Company and/or its Affiliate; (c) material violation of any rule, regulation, policy or plan for the conduct of (as the case may be) any director, officer, employee, member, manager, consultant or service provider of or to the Company or its Affiliates or its or their business (which, if curable, is not cured within 5 Business Days after notice thereof is provided to the Participant); (d) conduct that results in or is reasonably likely to result in harm to the reputation or business of the Company or any of its Affiliates; (e) gross negligence or willful misconduct with respect to the Company or an Affiliate; or (f) material violation of U.S. state, federal or other applicable (including non-U.S.) securities laws.

 

(e)           “Change in Control ” shall, in the case of a particular Option Award, unless the applicable Option Agreement states otherwise or contains a different definition of “Change in Control,” be deemed to occur upon:

 

(i)           An acquisition (whether directly from the Company or otherwise) of any voting securities of the Company (the “ Voting Securities ”) by any “Person” (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities and Exchange Act of 1934, as amended (the “ Exchange Act ”)), immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than fifty percent (50%) of the combined voting power of the Company’s then outstanding Voting Securities.

 

(ii)          The individuals who constitute the members of the full Board of Directors of the Company cease, by reason of a merger, combination, acquisition, takeover or other non-ordinary course transaction affecting the Company, to constitute at least fifty-one percent (51%) of the members of the full Board of Directors of the Company; or

 

(iii)         Approval by the full Board of Directors of the Company and, if required, stockholders of the Company of, or execution by the Company of any definitive agreement with respect to, or the consummation of (it being understood that the mere execution of a term sheet, memorandum of understanding or other non-binding document shall not constitute a Change of Control):

 

(A)         A merger, consolidation or reorganization involving the Company, where either or both of the events described in clauses (i) or (ii) above would be the result; or

 

(B)         An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a subsidiary of the Company).

 

2
 

 

(f)           “Code” means the Internal Revenue Code of 1986, as amended, and any successor thereto. Any reference to a section of the Code shall be deemed to include any regulations promulgated thereunder.

 

(g)           “Committee” means a committee of one or more members of the Board appointed by the Board in accordance with subsection 3(c) to administer this Plan.

 

(h)           “Common Stock” means the common stock, par value $0.00001 per share, of the Company.

 

(i)           “Company” means Staffing 360 Solutions, Inc. a Nevada corporation, and any successor thereto.

 

(j)           “Consultant” means any person, including an advisor, engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services.

 

(k)           “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s Continuous Service; provided further that if any Award is subject to Section 409A of the Code, this sentence shall only be given effect to the extent consistent with Section 409A of the Code. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or a Director will not constitute an interruption of Continuous Service. The Board, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave, relocation or any other personal or family leave of absence.

 

(l)           “Covered Employee” means the chief executive officer and the other highest compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.

 

(m)           “Director” means a member of the Board.

 

(n)           “Disability” means that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment. The determination of whether an individual has a Disability shall be determined under procedures established by the Board. The Board may rely on any determination that a Participant is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any Affiliate in which a Participant participates.

 

(o)           “Employee” means any person, including an Officer or Director, employed by the Company or an Affiliate. Mere service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.

 

3
 

 

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

 

(q)          “ Fair Market Value” means, as of any date, the value of the Common Stock determined as follows: unless otherwise provided by the Board in accordance with all applicable laws, rules regulations and standards, means, on a given date, (i) if the Common Stock (A) is listed on a national securities exchange or (B) is not listed on a national securities exchange, but is quoted by the OTC Markets Group, Inc. (www.otcmarkets.com) or any successor or alternative recognized over-the-counter market or another inter-dealer quotation system, on a last sale basis, the average selling price of the Common Stock reported on such national securities exchange or other inter-dealer quotation system, determined as the arithmetic mean of such selling prices over the twenty (20)-Business Day period preceding the date of grant, weighted based on the volume of trading of such Common Stock on each trading day during such period; or (ii) if the Common Stock is not listed on a national securities exchange or quoted in an inter-dealer quotation system on a last sale basis, the amount determined by the Board in good faith to be the fair market value of the Common Stock.

 

(r)           “Non-Employee Director” means a Director who either (i) is not a current Employee or Officer of the Company or its Affiliates, does not receive compensation (directly or indirectly) from the Company or its Affiliates for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“ Regulation S-K ”)), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

 

(s)           “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

 

(t)           “Option” means an option granted pursuant to the Plan or any Sub Plan.

 

(u)           Option Award ” means an award of any Option granted under the Plan or any Sub Plan.

 

(v)          “Option Agreement” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option Award. Each Option Agreement shall be subject to the terms and conditions of the Plan.

 

(w)           “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.

 

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(x)           “Outside Director” means a Director who either (i) is not a current employee of the Company or an “affiliated corporation” (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an “affiliated corporation” receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an “affiliated corporation” at any time and is not currently receiving direct or indirect remuneration from the Company or an “affiliated corporation” for services in any capacity other than as a Director or (ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code.

 

(y)           “Parent ” means any corporation (other than the Company) in an unbroken chain of corporations or other entities ending with the Company, if each of the corporations or other entities (other than the Company) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation or other entity that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

 

(z)           “Participant” means a person to whom an Option Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option Award.

 

(aa)          “Plan” means this Staffing 360 Solutions, Inc. 2014 Equity Incentive Plan.

 

(bb)          “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

 

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

 

(dd)          “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations or other entities beginning with the Company, if each of the corporations or other entities other than the last corporation or entity in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations or entities in such chain. A corporation or other entity that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

 

(ee)         “ Sub Plan means any sub plan subject to the terms of the Plan.

 

3.             Administration.

 

(a)          Administration by Board. The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). Any interpretation of the Plan by the Board and any decision by the Board under the Plan shall be final and binding on all persons.

 

(b)          Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

 

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(i)           to determine from time to time which of the persons eligible under the Plan shall be granted Option Awards; when and how each Option Award shall be granted; what type or combination of types of Option Award shall be granted; the provisions and terms of each Option Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to an Option Award; the number of shares of Common Stock with respect to which an Option Award shall be granted to each such person; and to prescribe the terms and conditions of each Option Award, including, without limitation, the exercise price and medium of payment (including Options exercisable via “cashless exercise”) and vesting provisions, and to specify the provisions of the Option Award relating to such grant;

 

(ii)          to construe and interpret (i) the Plan and apply its provisions and (ii) Option Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Option Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective;

 

(iii)         to promulgate, amend and rescind rules and regulations relating to the administration of the Plan or an Option Award;

 

(iv)         to authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan;

 

(v)          to delegate its authority to one or more Officers of the Company with respect to Option Awards that do not involve covered employees or “insiders” within the meaning of Section 16 of the Exchange Act;

 

(vi)         to amend any outstanding Option Awards, including for the purpose of modifying the time or manner of vesting, or the term of any outstanding Option Award; provided, however , that if any such amendment impairs a Participant’s rights or increases a Participant’s obligations under his or her Option Award or creates or increases a Participant’s federal income tax liability with respect to an Option Award, such amendment shall also be subject to the Participant’s consent;

 

(vii)        to determine the duration and purpose of leaves of absences which may be granted to a Participant without constituting termination of their employment for purposes of the Plan, which periods shall be no shorter than the periods generally applicable to employees under the Company’s employment policies;

 

(viii)       to make decisions with respect to outstanding Option Awards that may become necessary upon a change in corporate control or an event that triggers anti-dilution adjustments;

 

(ix)          to exercise discretion to make any and all other determinations which it determines to be necessary or advisable for the administration of the Plan; and

 

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(x)           generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan.

 

(c)          Delegation to Committee.

 

(i)          General. The Board may delegate administration of the Plan to a Committee or Committees of one (1) or more members of the Board, and the term “ Committee ” shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. From time to time, the Board may increase or decrease the size of the Committee, add additional members to, remove members (with or without cause) from, appoint new members in substitution therefor, and fill vacancies, however caused, in, the Committee. The Committee shall act pursuant to a vote of the majority of its members or, in the case of a Committee comprised of only two members, the unanimous consent of its members, whether present or not, or by the written consent of the majority of its members and minutes shall be kept of all of its meetings and copies thereof shall be provided to the Board. Subject to the limitations prescribed by the Plan and the Board, the Committee may establish and follow such rules and regulations for the conduct of its business as it may determine to be advisable

 

(ii)         Committee Composition when Common Stock is Publicly Traded. Unless otherwise determined by the Board not to comply with the exemption requirements of rule 16b-3 and/or Section 162(m) of the Code, a Committee shall consist solely of two (2) or more directors that qualify as both, an Outside Director in accordance with Section 162(m) of the Code, and a Non-Employee Director in accordance with Rule 16b-3. Within the scope of such authority, the Board or the Committee may (1) delegate to a committee of one or more members of the Board who are not Outside Directors the authority to grant Option Awards to eligible persons who are either (a) not then covered employees and are not expected to be covered employees at the time of recognition of income resulting from such Option Award or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate to a committee of one or more members of the Board who are not Non-Employee Directors the authority to grant Option Awards to eligible persons who are not then subject to Section 16 of the Exchange Act. Nothing herein shall create an inference that an Option Award is not validly granted under the Plan in the event Option Awards are granted under the Plan by a Committee that does not at all times consist solely of two or more Non-Employee Directors who are also Outside Directors.

 

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4.             Shares Subject to the Plan.

 

(a)          Share Reserve. Subject to the provisions of Section 10 relating to adjustments upon changes in Common Stock, the Common Stock that may be issued pursuant to Option Awards shall not exceed in the aggregate of 2,500,000 shares of Common Stock. During the terms of the Option Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Awards.

 

(b)          Reversion of Shares to the Share Reserve . If any Option Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the shares of Common Stock not acquired under such Option Award shall revert to the Plan and again become available for issuance under the Plan. Notwithstanding anything to the contrary contained herein, shares subject to an Option Award under the Plan shall not again be made available for issuance or delivery under the Plan if such shares are (a) shares tendered in payment of an Option, (b) shares delivered or withheld by the Company to satisfy any tax withholding obligation, or (c) shares covered by any other Option Awards that were not issued upon the settlement of the Award.

 

(c)          Source of Shares. The shares of Common Stock subject to the Plan may be, in whole or in part, authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner.

 

(d)           Subject to adjustment in accordance with Section 10, no Participant shall exercise, during any one (1) calendar year period, incentive Options to purchase Common Stock with respect to more than $100,000, which such value shall be measured by the Options’ fair market value on the date of grant. Any portion of an incentive Option exercised during any one (1) calendar year that exceeds the $100,000 threshold shall be treated as non-qualified stock options.

 

(e)           Any shares of Common Stock subject to an Option Award that is canceled, forfeited or expires prior to exercise or realization, either in full or in part, shall again become available for issuance under the Plan.

 

5.             Eligibility.

 

(a)          Eligibility for Specific Option Awards . Options may be granted to Employees, Directors and senior management of the Company.

 

(b)          Consultants.

 

(i)           A Consultant shall not be eligible for the grant of an Option Award if, at the time of grant, either the offer or the sale of the Company’s securities to such Consultant is not exempt under Rule 701 of the Securities Act (“ Rule 701 ”) because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by Rule 701, unless the Company determines that such grant need not comply with the requirements of Rule 701 and will satisfy another exemption under the Securities Act as well as comply with the securities laws of all other relevant jurisdictions.

 

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(ii)          A Consultant shall not be eligible for the grant of an Option Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“ Form S-8 ”) is not available to register either the offer or the sale of the Company’s securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Board determines both (i) that such grant (A) shall be registered in another manner under the Securities Act ( e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions.

 

(iii)         Rule 701 and Form S-8 generally are available to consultants and advisors only if (i) they are natural persons; (ii) they provide bona fide services to the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer’s parent; and (iii) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuer’s securities.

 

6.             Option Provisions.

 

Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate and set forth in the Option Agreement approved by the Board. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:

 

(a)          Procedure for Exercise . An Option shall be deemed exercised when the Company receives (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the shares with respect to which the Option is exercised, together with any applicable withholding taxes. Full payment may consist of any consideration and method of payment authorized by the Board and permitted by the Option Agreement and the Plan. The exercise price shall be denominated in the currency of the primary economic environment of, either the Company or the participant (that is the functional currency of the Company or the currency in which the Participant is paid) as determined by the Company.

 

(b)          Term. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted, or the date set forth in the Option Agreement, if earlier.

 

(c)          Exercise Price. The exercise price of each Option granted shall be not less than the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted or such other amount as may be required pursuant to the Code. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 409A of the Code.

 

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(d)          Consideration. The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash and/ or check at the time the Option is exercised or; (ii) by such other method as the Board may permit in accordance with applicable law, in its sole discretion, including without limitation: (A) in other property having a fair market value (as determined by the Board in its discretion) on the date of exercise equal to the Exercise Price or (B) if there is a public market for the Common Stock at such time, by means of a broker-assisted “cashless exercise” pursuant to which the Company is delivered a copy of irrevocable instructions to a stockbroker to sell the Common Stock otherwise deliverable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the Exercise Price or (C) by a “net exercise” method whereby the Company withholds from the delivery of the Common Stock for which the Option was exercised that number of shares of Common Stock having a Closing Price equal to the aggregate Exercise Price for the Common Stock for which the Option was exercised. Any fractional shares of Common Stock shall be settled in cash. The Board shall have the authority to postpone the date of payment on such terms as it may determine.

 

(e)          Transferability. An Option shall not be transferable except by will or by the laws of descent and distribution unless otherwise provided in the Option Agreement, and shall be exercisable during the lifetime of the Optionholder only by the Optionholder.

 

(f)          Vesting Generally. The total number of shares of Common Stock subject to an Option shall vest, and therefore become exercisable as provided in the Option grant or Option Agreement.

 

(g)          Termination of Continuous Service. In the event an Optionholder’s Continuous Service terminates (other than upon the Optionholder’s death or Disability) or if the Optionholder is employed by a Subsidiary and such Subsidiary ceases to be a Subsidiary of the Company, and unless otherwise specified in the applicable Option Agreement, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination or the date a Subsidiary is no longer a Subsidiary of the Company), but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder’s Continuous Service (or such shorter period specified in the Option Agreement or such different period as the Board may prescribe, which period shall not be less than thirty (30) days, unless such termination is for Cause), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate.

 

(h)          Extension of Termination Date. An Optionholder’s Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service (other than upon the Optionholder’s death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in subsection 6(b) or (ii) the expiration of a period of three (3) months after the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of such registration requirements.

 

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(i)          Disability of Optionholder. Unless otherwise provided in its Option Agreement, in the event that an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such shorter period specified in the Option Agreement) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate.

 

(j)          Death of Optionholder. Unless otherwise provided in its Option Agreement, in the event (i) an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder’s Continuous Service, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only within the period ending on the earlier of (1) the date twelve (12) months following the date of death (or such shorter period specified in the Option Agreement) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate.

 

(k)          Termination of Continuous Service for Cause. Notwithstanding the provisions of this Section 6 , in the event of termination of Participant’s employment with the Company or any of its Affiliates, or if applicable, the termination of services given to the Company or any of its Affiliates by Consultants of the Company or any of its Affiliates, for Cause (as defined above), all outstanding Option Awards granted to such Participant (whether vested or not) will immediately expire and terminate on the date of such termination and the holder of Option Awards shall not have any right in connection to such outstanding Option Awards, unless otherwise determined by the Board. The shares of Common Stock covered by such Option Awards shall revert to the Plan.

 

(l)          Compliance With Laws, etc . Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise an Option in a manner that the Board determines would violate the Sarbanes-Oxley Act of 2002, if applicable, or any other applicable law or the applicable rules and regulations of the Securities and Exchange Commission or the applicable rules and regulations of any securities exchange, inter-dealer quotation system or other recognized securities quotation system on which the securities of the Company are listed, quoted or traded.

 

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7.             Covenants of the Company.

 

(a)          Availability of Shares. During the terms of the Option Awards, the Company shall keep available at all times the number of authorized shares of Common Stock required to satisfy such Option Awards.

 

(b)          Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Option Awards and to issue and sell shares of Common Stock upon exercise of the Option Awards; provided, however, that this undertaking shall not require the Company to register under the Plan, any Option Award or any Common Stock issued or issuable pursuant to any such Option Award under the Securities Act. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Option Awards unless and until such authority is obtained.

 

8.             Use of Proceeds from Stock.

 

Proceeds from the sale of Common Stock pursuant to Option Awards shall constitute general funds of the Company.

 

9.             Miscellaneous.

 

(a)          Acceleration of Exercisability and Vesting. Subject to applicable law, the Board in its sole discretion shall have the power to accelerate the time at which a certain Option Award may first be exercised or the time during which a Option Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Option Award stating the time at which it may first be exercised or the time during which it will vest.

 

(b)          Stockholder Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Option Award unless and until such Participant has satisfied all requirements for exercise of the Option Award pursuant to its terms.

 

(c)          No Employment or other Service Rights. Nothing in the Plan or any instrument executed or Option Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Option Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without Cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

 

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(d)          Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Option Award, (i) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Option Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Option Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.

 

(e)          Withholding Obligations. The Company or any Subsidiary or Affiliate may take such action as it may deem necessary or appropriate, in its discretion, for the purpose of, or in connection with, withholding of any taxes which the Company or any Subsidiary or Affiliate is required by any applicable law to withhold in connection with any Option Awards (collectively, “ Withholding Obligations ”). Such actions may include, without limitation, (i) requiring a Participant to remit to the Company in cash an amount sufficient to satisfy such Withholding Obligations; (ii) subject to applicable law, allowing the Participant to provide shares of Common Stock to the Company, in an amount that at such time, reflects a value that the Board determines to be sufficient to satisfy such Withholding Obligations; (iii) withholding shares of Common Stock otherwise issuable upon the exercise of an Option Award at a value which is determined by the Board to be sufficient to satisfy such Withholding Obligations; or (iv) any combination of the foregoing. The Company shall not be obligated to allow the exercise of any Option Award by or on behalf of a Participant until all tax consequences arising from the exercise of such Option Award are resolved in a manner acceptable to the Company.

 

10.          Adjustment upon Changes in Stock.

 

(a)          Capitalization Adjustments . If any change is made in the Common Stock generally or the Common Stock subject to the Plan, or the Common Stock subject to any Option Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person pursuant to subsection 4(d), and the outstanding Option Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Common Stock subject to such outstanding Option Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (For this purpose, the conversion of any convertible securities of the Company shall not be treated as a transaction “without receipt of consideration” by the Company.)

 

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(b)          Dissolution or Liquidation . In the event of a dissolution or liquidation of the Company, then the Company shall immediately notify Participants who hold outstanding Option Awards of such dissolution or liquidation, and such Participant shall have thirty (30) days to exercise any outstanding vested options held by him at that time. Upon the expiration of such thirty days period, all remaining outstanding options shall terminate immediately.

 

(c)          Change in Control. In the event of a Change in Control, then, without the consent or action required of any holder of an Option Award (in such holder’s capacity as such):

 

(i)           Any surviving corporation or acquiring corporation or any parent or affiliate thereof, as determined by the Board in its discretion, shall assume or continue any Option Awards outstanding under the Plan in all or in part or shall substitute to similar stock awards in all or in part; or

 

(ii)          In the event any surviving corporation or acquiring corporation does not assume or continue any Option Awards or substitute to similar stock awards, for those outstanding under the Plan, then: (a) all unvested Option Awards shall expire and (b) vested options shall terminate if not exercised at or prior to such Change in Control; or

 

(iii)         The Board may, in its sole discretion, accelerate the vesting, partially or in full, in the sole discretion of the Board and on a case-by-case basis of one or more Option Awards as the Board may determine to be appropriate prior to such events.

 

(d)           Notwithstanding the above, in the event all or substantially all of the shares of the Company are to be exchanged for securities of another Company and such exchange is a Change in Control, then each holder of an Option Award shall be obliged to sell or exchange, as the case may be, any shares such holder holds under the Plan, in accordance with the instructions issued by the Board, whose determination shall be final.

 

(e)           Each holder of an Option Award acknowledges that the rights of such holder to sell the Company’s shares may be subject to certain limitations (including a lock-up period), as may be requested by the Company or its underwriters, and the holder of such Option Award unconditionally agrees and accepts any such limitations.

 

( f )          Notwithstanding the above, the Board may, in its sole discretion, decide other terms regarding the treatment of the outstanding Option Awards in the event of a Change in Control .

 

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11.          Shares subject to right of first refusal.

 

(a)           Notwithstanding anything to the contrary in the Certificate of Incorporation and the By-Laws of the Company, none of the Optionholders shall have a right of first refusal or preemptive right in relation with any sale of shares in the Company.

 

(b)           Sale of shares of Common Stock by the Participant shall be subject to any right of first refusal of other shareholders as set forth in the Certificate of Incorporation and/or the By-Laws of the Company.

 

12.          Amendment of the Plan and Option Awards.

 

(a)          Amendment of Plan. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 10 relating to adjustments upon changes in Common Stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy any applicable laws, rules and regulations.

 

(b)          Stockholder Approval. The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers.

 

(c)          No Impairment of Rights. Rights under any Option Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.

 

(d)          Amendment of Option Awards. The Board at any time, and from time to time, may amend the terms of any one or more Option Awards; provided, however, that the rights under any Option Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing (such consent to not be unreasonably withheld or delayed).

 

13.          Termination or Suspension of the Plan.

 

(a)          Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the Plan is first adopted by the Board. No Option Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

 

(b)          No Impairment of Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Option Award granted while the Plan is in effect except with the written consent of the Participant.

 

15
 

 

14.          Tax Consequences

 

(a)          Any tax consequences arising from the grant or exercise of any Option, from the payment for Common Stock covered thereby or from any other event or act (of the Company and/or its Affiliates, or the Participant), hereunder, shall be borne solely by the Participant. The Company and/or its Affiliates shall withhold taxes according to the requirements under the applicable laws, rules, and regulations, including withholding taxes at source. Furthermore, the Participant shall agree to indemnify the Company and/or its Affiliates and hold them harmless against and from any and all liability for any such tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the Participant.

 

(b)          The Company shall not be required to release any share certificate to a Participant until all required payments have been fully made.

 

15.          Effective Date of Plan .

 

The Plan shall take effect upon its adoption by the Board (the “ Effective Date ”).

 

16.          Choice of Law.

 

(i)          Choice of Law . This Plan, all Option Awards and all documents evidencing awards and all other related documents will be governed by, and construed in accordance with, the laws of the State of Nevada, provided that the tax treatment and the tax rules and regulations applying to a grant in any specific jurisdiction shall be the local tax laws of such jurisdiction in addition to the Federal income tax laws of the United States.

 

(ii)         Severability . If it is determined that any provision of this Plan or an Option Agreement is invalid and unenforceable, the remaining provisions of this Plan and/or the Option Agreement, as applicable, will continue in effect.

 

# # #

 

16

 

Exhibit 21.1

 

Staffing 360 Solutions, Inc.

&

Subsidiaries

 

Those entities, which are indented, represent subsidiaries of the entity under which they are indented.

   

Name of Company   Jurisdiction
Staffing 360 Solutions, Inc.   Nevada
A.    Staffing 360 Solutions Limited   England and Wales
1.   Staffing 360 Solutions (UK) Limited   England and Wales
a.     BB Professional Solutions Ltd.   England and Wales
b.     Longbridge Recruitment (Sales and Marketing) Ltd.   England and Wales
c.     Longbridge Recruitment (Technical) Ltd.   England and Wales
d.     Longbridge Recruitment (Technology Solutions) Ltd.   England and Wales
e.     Longbridge Recruitment (Law) Ltd.   England and Wales
f.     Faro Recruitment America, Inc.   New York
i.      Monroe Staffing Services, LLC   Delaware
B.    Staffing 360 Alliance, Inc.   Nevada
C.    Staffing 360 Group, Inc.   Nevada
D.    Cyber 360 Solutions, Inc.   Massachusetts
E.    PeopleSERVE, Inc.   Massachusetts
F.    PeopleSERVE PRS, Inc.   Massachusetts
G.    Control Solutions International, Inc.   Florida
1.           Canada Control Solutions International, Inc.   British Columbia

 

 

 

Exhibit 31.1

 

 

CERTIFICATION

OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Brendan Flood, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Staffing 360 Solutions, Inc. (the “Registrant”);

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)    Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: September 15, 2014 /s/ Brendan Flood
  Brendan Flood
 

Executive Chairman

(Principal Executive Officer)

  

 

 

 

Exhibit 31.2

 

CERTIFICATION

OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Jeff R. Mitchell, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of Staffing 360 Solutions, Inc. (the “Registrant”);

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)     Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 

d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: September 15, 2014 /s/ Jeff R. Mitchell
  Jeff R. Mitchell
 

Chief Financial Officer

(Principal Financial Officer)

  

 

 

 

 

Exhibit 32.1

 

CERTIFICATION

OF PRINCIPAL EXECUTIVE OFFICER AND

PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U. S. C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Staffing 360 Solutions, Inc. (the “Company”) on Form 10-K for the period ended May 31, 2014 (the “Report”), I, Brendan Flood, Executive Chairman of the Company, and I, Jeff R. Mitchell, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.    The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

 

2.    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: September 15, 2014 /s/ Brendan Flood
  Brendan Flood
 

Executive Chairman

(Principal Executive Officer)

 

Date: September 15, 2014 /s/ Jeff R. Mitchell
  Jeff R. Mitchell
 

Chief Financial Officer

(Principal Financial Officer)

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed from within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.