UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): July 13, 2015 (July 8, 2015)

 

STAFFING 360 SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   000-54515   68-0680859
(State or other jurisdiction of
incorporation)
  (Commission File Number)   (IRS Employer Identification No.)

 

641 Lexington Ave

Suite 1526

New York, NY 10022

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: 212.634.6462

 

N/A

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

 

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

 

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

 

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

 

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

 

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

 

 
 

 

Item 1.01 Entry into a Material Definitive Agreement.

 

Hillair Financing

 

On July 8, 2015 (the “ Closing Date ”), Staffing 360 Solutions, Inc. (the “ Company ”) entered into a Securities Purchase Agreement (the “ Hillair Purchase Agreement ”), with Hillair Capital Investments L.P. (“ Hillair ” and together with its successors and assigns, the “ Purchaser ”), pursuant to which the Company issued to the Purchaser, for an aggregate subscription amount of $3,500,000 (the “ Subscription Amount ”) (i) 8% Senior Secured Convertible Debentures (the “ Debentures ”) in the aggregate principal amount of $3,920,000 (the “ Principal Amount ”), (ii) two warrants (an “ A Warrant ”, and a “ B Warrant ” and together, the “ Warrants ”) to purchase shares of the Company’s common stock (the “ Common Stock ”), par value $0.00001 per share and (iii) 1,250,000 shares of Common Stock (the “ Financing ”). The primary purpose of the Financing was to fund the Lighthouse Acquisition discussed in further detail under the subheading “Lighthouse Acquisition” below.

 

The Debentures accrue interest on the Principal Amount at a rate of eight percent (8%) per annum and have a maturity date of April 1, 2017. The Company shall make quarterly payments on any accrued interest beginning April 1, 2016 and shall make quarterly principal payments of $980,000 (together with payments on any accrued but unpaid interest and liquidated damages) to the Purchaser beginning July 1, 2016. At any time during the term of the Debenture, upon notice to the Purchaser, the Company may also, at its option, redeem all or some of the then outstanding principal amount of the Debenture by paying to the Purchaser an amount equal to one hundred twenty percent (120%) of the then outstanding principal amount of the Debenture, plus any accrued but unpaid interest and liquidated damages and other amounts due under the Debenture.

 

The Debentures are convertible into shares of Common Stock, at the election of the Purchaser, at any time prior to maturity, at a conversion price equal to $1.00 per share (subject to adjustment) (the “ Debenture Conversion Price ”).

 

The A Warrant and the B Warrant each entitle the Purchaser to purchase up to an aggregate number of shares of Common Stock equal to the Principal Amount divided by $1.00. The Warrants each have an initial exercise price equal to $1.00 per share (subject to adjustment). The A Warrant is exercisable for a term of five (5) years beginning on the Closing Date. The B Warrant is exercisable for a term beginning on the date that a Payment Breach (as defined below) occurs and ending on the five year anniversary of the Closing Date. If the Company makes all payments due and payable under the Debentures in a timely manner pursuant to the terms of the Debentures, then the Purchaser shall surrender the B Warrant to the Company for cancellation within three (3) Trading Days (as such term in defined in the Hillair Purchase Agreement) of the date on which the Debentures are repaid in full by the Company.

 

Pursuant to the Hillair Purchase Agreement, if the Company shall fail to timely make any payment due and payable under a Debenture and such breach is not cured by the Company within three (3) business days after the applicable payment due date (a “ Payment Breach ”), then (x) on the second (2 nd ) occurrence of any such Payment Breach, the exercise price of the B Warrant shall be reduced to $0.50 per share (subject to adjustment) and (y) on the third (3 rd ) occurrence of any such Payment Breach, the exercise price of the B Warrant shall be reduced to $0.30 per share (subject to adjustment).

 

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Additionally, from the Closing Date until such time that the Debentures are no longer outstanding, neither the Company nor any subsidiary of the Company shall make any issuance of Common Stock or Common Stock Equivalents (as such term is defined in the Hillair Purchase Agreement), at an effective price per share less than $1.00 (subject to adjustment). For so long as any Warrants remain outstanding, neither the Company nor any subsidiary of the Company shall make any issuance of Common Stock or Common Stock Equivalents involving a Variable Rate Transaction (as such term is defined in the Hillair Purchase Agreement). Also, for so long as the Debentures or any Warrants remain outstanding, if the Company desires to make any issuance of Common Stock or Common Stock Equivalents at an effective price per share less than $1.00 (subject to adjustment), the Company shall pay to the Purchaser, in cash, an amount equal to twenty percent (20%) of the Subscription Amount. Any issuance of Common Stock or Common Stock Equivalents pursuant to the foregoing sentence shall reduce the exercise price of each outstanding Warrant to the effective price per share of such new issuance.

 

Pursuant to the Hillair Purchase Agreement, the Company entered into a Security Agreement, by and among the Company, certain U.S. subsidiaries of the Company (such subsidiaries, the “ Guarantors ”) and the Purchaser, pursuant to which the Company’s obligations under the Hillair Purchase Agreement were secured by a second priority lien in favor of the Purchaser on all of the assets of the Company and the Guarantors and all equity interests held by the Company and the Guarantors. Also, the Company and the Guarantors entered into customary guaranty agreements to evidence the security interest in favor of the Purchaser.

 

Under the Hillair Purchase Agreement, the Company is subject to certain covenants, including the obligations of the Company to: (i) maintain registration of the Common Stock under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the " Exchange Act ") and timely file all reports under the Exchange Act until such time that the Purchaser no longer holds Debentures, Warrants, or shares of Common Stock issuable upon conversion or exercise (the “ Securities ”) thereof; (ii) allow the Purchaser to participate in certain issuances by the Company or its subsidiaries of its Common stock, Common Stock equivalents, or indebtedness, for a period of one (1) year following the Closing Date; (iii) maintain a reserve of Common Stock for issuance pursuant to the Hillair Purchase Agreement (iv) indemnify the Purchaser and their representatives for any breaches of the Company’s representations, warranties or covenants under the Hillair Purchase Agreement or ancillary documents; and (v) other customary covenants and obligations, for which the Company’s failure to comply may be subject to certain liquidated damages.

 

In connection with Hillair Purchase Agreement, the Company also entered into a Subordination Agreement (the “ Subordination Agreement ”), by and among the Company, the Purchaser, certain subsidiaries of the Company, and MidCap Funding X Trust, pursuant to which the parties thereto agree that the payment of any obligations of the Company to the Purchaser under the Debentures shall be subordinate to the payment of the Company’s obligations to MidCap Funding X Trust, as successor-by-assignment to Midcap Financial Trust, under those certain Credit and Security Agreements, entered into on April 8, 2015, which agreements the Company, certain subsidiaries of the Company, and MidCap Funding X Trust are a party to, previously filed with the Securities and Exchange Commission (the “ SEC”) as exhibits 10.1 and 10.2 to Form 8-K, filed with the SEC on April 9, 2015.

 

Lighthouse Acquisition

 

On July 8, 2015, the Company entered into an Equity Purchase Agreement (the “ Lighthouse Purchase Agreement ”) with Lighthouse Placement Services, LLC, a Massachusetts limited liability company (“ Lighthouse ”) and each of Alison Fogel (“ A. Fogel ”) and David Fogel (“ D. Fogel ”), owners of all of the issued and outstanding membership interests of Lighthouse (each a “ Seller ” and together, the “ Sellers ”), pursuant to which the Company purchased from the Sellers one hundred percent (100%) of the issued and outstanding membership interests of Lighthouse (the “ Acquisition ”).

 

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In connection with the Acquisition, the Company paid to the Sellers an aggregate purchase price (the “ Purchase Price ”) of approximately $6.25 million, subject to adjustment after the closing as described below.

 

The Purchase Price was paid by the Company at the closing of the Acquisition by delivery of:

 

(i) 624,595 shares of Common Stock valued at $1.00 per share;

  

(ii) an unsecured promissory note with a principal amount of $2,498,379, an interest rate of 6% per year and a term of three years (the “ Three Year Note ”);

 

(iii) an unsecured promissory note with a principal amount of $624,595, an interest rate of 6% per year and a term of two years (“ Two Year Note ” and together with the Three Year Note, the “ Promissory Notes ”); and

  

(iv) cash for the remaining amount (less amount used to pay for Transaction Expenses (as defined in the Lighthouse Purchase Agreement)).

 

In addition to the Purchase Price, the Sellers are entitled to receive from Lighthouse all of Lighthouse’s Net Working Capital and the Closing Accounts Receivable (each as defined in the Lighthouse Purchase Agreement) as of the Closing Date.

 

The Purchase Price is subject to a two-way adjustment after the closing to be trued up based on the actual audited trailing 12 month Adjusted EBTIDA (as defined in the Lighthouse Purchase Agreement) of Lighthouse as of June 30, 2015. The purchase price adjustment, whether an increase or decrease, will be paid in the same proportions as between Common Stock, Promissory Notes and cash as the Purchase Price that was paid by the Company at the closing (with a one-time payment by the appropriate party to catch-up on payments previously made under the Promissory Notes).

 

The shares of Common Stock issued to the Sellers pursuant to the Lighthouse Purchase Agreement are subject to lock-up restrictions for one year after the Closing (subject to early release upon the consummation of a liquidation, merger, share exchange or other similar transaction that results in all of the Company’s shareholders having the right to exchange their equity holdings in Company for cash, securities or other property and with certain permitted transfers to family members and trusts for their benefit) and piggy-back registration rights. In the event that at the end of the lock-up period, the trailing 90 day volume-weighted average price of the Company’s Common Stock is less than $1.00 per share (subject to equitable adjustment), the Company will pay to the Sellers the shortfall for each share of Common Stock issued under the Lighthouse Purchase Agreement that is held by them at that time.

 

In the Lighthouse Purchase Agreement, the Sellers made customary representations and warranties to the Company concerning, among other matters, Lighthouse and its business, operations, organization, authorization, capitalization, subsidiaries, properties, employees, assets, liabilities and financial condition and their ownership interests in Lighthouse. The Company also made certain limited representations to the Sellers regarding, among other matters, its organization, authority and financial capacity. The representations and warranties generally survive for a period of 18 months after the closing, with certain fundamental representations and warranties surviving until 60 days after the expiration of the applicable statute of limitations and certain other fundamental representations and warranties surviving indefinitely..

 

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The parties also agreed to certain customary post-closing covenants, including those relating to confidentiality, publicity, litigation support, intellectual property agreements, tax matters and security clearances. The Company also agreed that while the Promissory Notes are outstanding, the Company will not prevent Lighthouse from being operated in the ordinary course of business and the Company will not take certain actions with respect to Lighthouse or its subsidiaries or their respective employees. The Sellers also provided a general release to Lighthouse for pre-closing matters.

 

The Sellers agreed to indemnify the Company and its representatives for any breaches of their or Lighthouse’s representations, warranties or covenants in the Lighthouse Purchase Agreement or ancillary documents, underestimation of indebtedness, transaction expenses or transaction bonuses, pre-closing taxes, claims by other holders of equity or rights to obtain equity or rate or other adjustments under government contracts. The Company agreed to indemnify the Sellers and their representatives for any breaches of the Company’s representations, warranties or covenants under the Lighthouse Purchase Agreement or ancillary documents. Indemnification claims for breaches of representations and warranties are subject to a $75,000 aggregate tipping basket and an indemnification cap of $1.5 million (except that certain fundamental representations and warranties are subject to a cap equal to the purchase price). At the Company’s election, it may offset any unpaid indemnification obligations of the Sellers against obligations owed by the Company to the Sellers under the Lighthouse Purchase Agreement or the ancillary documents, including obligations to deliver additional shares for the purchase price adjustment and payment obligations under the Promissory Notes, and has the right to claw back the shares of Common Stock issued to the Sellers under the Lighthouse Purchase Agreement if they fail to satisfy their indemnification obligations.

 

The Promissory Notes issued to the Sellers each bear interest on their outstanding principal at a rate of 6% per annum. The outstanding obligations under the Promissory Notes are convertible into shares of Common Stock at a conversion price per share (the “ Conversion Price ”) equal to the greater of (i) 80% of the trailing 90 day volume-weighted average price of the Company’s Common Stock as of the date of Seller’s delivery of the conversion notice and (ii) $1.00 (subject to equitable adjustment). Unless payments are otherwise suspended, as further described below, payments under the Promissory Notes will be made in quarterly installments. The quarterly installments under the Three Year Note will be paid for the first 8 quarters based on a straight-line 5 year amortization of principal and interest, and with the remaining principal and interest amortized over the remaining periods. The quarterly installments under the Two Year Note will be paid based on an equal amortization of the interest and principal over during the term of the Two Year Note. Payments under the Promissory Notes may be suspended for a quarter (a “ Suspension Quarter ”) in the event the Gross Profit (as defined in Promissory Notes) of Lighthouse for any trailing 12 month period is less than 85% of the trailing 12 month Gross Profit as of June 30, 2015, with a suspension in either of the last two quarters of the Promissory Note extending the maturity date of the applicable Promissory Note for up to an additional two quarters. If the Gross Profit for each of the two fiscal quarters immediately following such Suspension Quarter is less than 85% of the trailing 12 month Gross Profit as of June 30, 2015, the Sellers shall forfeit any rights to the quarterly installments to be paid for such Suspension Quarter (otherwise the quarterly installment for the Suspension Quarter will be paid in the fiscal quarter when such target it met along with the regular quarterly installment that is due). In the event of default, the Sellers may declare to be due and payable immediately all of the outstanding obligations under the Promissory Notes, including any suspended (but not yet forfeited) quarterly installments.

 

Pursuant to the terms of the Lighthouse Purchase Agreement, each Seller entered into an employment agreement with Lighthouse (the “ Alison Fogel Employment Agreement ” and “ David Fogel Employment Agreement ” and together, the “ Employment Agreements ”). The Alison Fogel Employment Agreement provides that A. Fogel will serve as the President of Lighthouse and the David Fogel Employment Agreement provides that D. Fogel will serve as the Vice President of Lighthouse, and the terms of the Employment Agreements are otherwise substantially identical.

 

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Each Employment Agreement has a term of 2 years (subject to an additional 1 year extension at the option of either party, provided that if the Company elects to extend both Employment Agreements, unless otherwise agreed by the Sellers only one of the Employment Agreements, as determined by the Sellers, will be extended). Under the Employment Agreements, each Seller will receive a salary of $100,000 per year, be eligible to receive an annual bonus, be entitled to participate in the Company’s equity incentive plan and be entitled to receive the same benefits provided to Lighthouse senior employees, which will be at least equivalent to those provided prior to the closing. In the event that an Employment Agreement is terminated either by the Company without Cause (as defined in each Employment Agreement) or by the applicable Seller for Good Reason (as defined in each Employment Agreement), then (i) the applicable Seller will receive severance in a lump sum amount equal to the greater of 1 year’s salary or the salary due for the remaining term of the Employment Agreement, (ii) the applicable Seller will be relieved of the non-competition provisions (but not the non-solicitation or other provisions) of the Non-Competition Agreement (as defined below) if the Company defaults on a Promissory Note which is not cured within 90 days of notice and (iii) the Gross Profit requirements for future quarters under such Seller’s portion of the Promissory Notes will be deemed satisfied and the Gross Profit target for determined whether the other Seller is entitled to receive their portion of the Promissory Notes will be reduced by 20%.

 

In connection with the Acquisition, the Sellers also agreed to a Non-Competition and Non-Solicitation Agreement in favor of the Company and Lighthouse (the “ Non-Competition Agreement ”). Pursuant to the terms of the Non-Competition Agreement, the Sellers agreed that until the later of (a) the 3 rd anniversary of the Closing Date or (b) the 2 nd anniversary of the date on which the applicable Seller is no longer an employee of Lighthouse or its present or future affiliates in any capacity, such Seller will not compete with Lighthouse in the Commonwealth of Massachusetts or any other market in which Lighthouse provides Competing Services (as defined in the Non-Competition Agreement). The Non-Competition Agreement also provides for non-solicitation of and non-interference with employees, customers and suppliers, non-disparagement and confidentiality provisions.

 

The foregoing summaries of the Debentures, A Warrant, B Warrant, Three Year Note, Two Year Note, Hillair Purchase Agreement, Security Agreement, Lighthouse Purchase Agreement, Alison Fogel Employment Agreement, David Fogel Employment Agreement and Non-Competition Agreement are qualified in their entirety by reference to the complete text of such agreements which are attached hereto as Exhibits 4.1, 4.2, 4.3, 4.4, 4.5 10.1, 10.2, 10.3, 10.4, 10.5 and 10.6, respectively.

 

Item 2.01. Completion of Acquisition or Disposition of Assets.

 

The information set forth under Item 1.01 above with respect to the Acquisition is incorporated herein by reference.

 

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information set forth under Item 1.01 above with respect to the Financing is incorporated herein by reference.

 

Item 3.02. Unregistered Sales of Equity Securities.

 

The information set forth under Item 1.01 above with respect to the issuance of 1,250,000 shares of Common Stock, the sale of Debentures and Warrants to the Purchaser pursuant to the Hillair Purchase Agreement, and the issuance to the Sellers pursuant to the Lighthouse Purchase Agreement of (i) 624,595 shares of Common Stock and (ii) convertible promissory notes with an aggregate principal amount of $6,245,948, is incorporated herein by reference. Such issuances were undertaken in reliance upon the exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder.

 

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Item 8.01. Other Events.

  

On July 9, 2015, the Company issued a press release announcing the Financing, a copy of which is attached as Exhibit 99.1 to this Current Report on Form 8-K. Also, on July 13, 2015, the Company issued a separate press release announcing the Acquisition, a copy of which is attached as Exhibit 99.2 to this Current Report on Form 8-K.

 

Item 9.01. Financial Statements and Exhibits.

 

(a) Financial Statements of Businesses Acquired .

 

The financial statements of Lighthouse and the accompanying notes will be filed within 71 days after date on which this Form 8-K is required to be filed.

 

(b) Pro Forma Financial Information .

 

The unaudited Pro Forma Consolidation Financial Statements of the Company and the accompanying notes will be filed within 71 days after the date on which this Form 8-K is required to be filed.

 

(d) Exhibits .

 

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

 

Exhibit No. Description
4.1 Debenture issued pursuant to Securities Purchase Agreement
4.2 A Warrant issued pursuant to Securities Purchase Agreement
4.3 B Warrant issued pursuant to Securities Purchase Agreement
4.4 Three Year Note issued pursuant to Equity Purchase Agreement
4.5 Two Year Note issued pursuant to Equity Purchase Agreement
10.1 Securities Purchase Agreement, dated July 8, 2015, by and among the Company, Hillair Capital Investments L.P, and each purchaser identified on the signature pages thereto
10.2 Security Agreement, dated July 8, 2015, by and among the Company, certain U.S. subsidiaries of the Company, and each purchaser identified on the signature pages thereto
10.3 Equity Purchase Agreement, dated July 8, 2015, by and among the Company, Lighthouse Placement Services, LLC, and Alison Fogel and David Fogel
10.4 Employment Agreement, dated July 8, 2015, by and between Alison Fogel and Lighthouse Placement Services, LLC
10.5 Employment Agreement, dated July 8, 2015, by and between David Fogel and Lighthouse Placement Services, LLC
10.6 Non-Competition and Non-Solicitation Agreement, dated July 8, 2015, by Alison and David Fogel for the benefit of the Company and Lighthouse Placement Services, LLC
99.1 Press Release dated July 9, 2015
99.2 Press Release dated July 13, 2015

 

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SIGNATURES

 

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

 

Dated: July 13, 2015

 

  STAFFING 360 SOLUTIONS, INC.
     
  By: /s/ Brendan Flood
    Brendan Flood
Executive Chairman

 

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Exhibit 4.1

 

EXECUTION VERSION

 

THE INDEBTEDNESS EVIDENCED HEREBY IS SUBORDINATED IN ACCORDANCE WITH AND SUBJECT TO THE TERMS OF THAT CERTAIN  SUBORDINATION AGREEMENT (AS AMENDED, RESTATED, SUPPLEMENTED OR MODIFIED FROM TIME TO TIME, THE “ SUBORDINATION AGREEMENT ”), DATED AS OF JULY 8, 2015 BY AND AMONG THE PURCHASERS, JOINTLY AND SEVERALLY (COLLECTIVELY, “SUBORDINATED LENDER”), STAFFING 360 SOLUTIONS, INC., A NEVADA CORPORATION (“PARENT”), CERTAIN OF THE PARENT’S SUBSIDIARIES PARTY THERETO AND MIDCAP FUNDING X TRUST, IN ITS CAPACITY AS AGENT FOR THE SENIOR LENDERS (AS DEFINED IN THE SUBORDINATION AGREEMENT), AND EACH HOLDER AND TRANSFEREE OF THIS INSTRUMENT OR AGREEMENT, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE SUBORDINATION AGREEMENT.

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: July 8, 2015

Original Conversion Price (subject to adjustment herein): $1.00

 

$3,920,000

 

8% SENIOR SECURED CONVERTIBLE DEBENTURE

DUE APril 1, 2017

 

This 8% SENIOR SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 8% Senior Secured Convertible Debentures of STAFFING 360 SOLUTIONS, INC., a Nevada corporation (the “ Company ”), having its principal place of business at 641 Lexington Avenue, Suite 1526, New York, New York 10022, designated as its 8% Senior Secured Convertible Debenture due April 1, 2017 (this debenture, the “ Debenture ” and, collectively with the other debentures of such series, the “ Debentures ”).

 

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EXECUTION VERSION

 

FOR VALUE RECEIVED, the Company promises to pay to Hillair Capital Investments L.P. or its registered assigns (the “ Holder ”), or shall have paid pursuant to the terms hereunder, the principal sum of $3,920,000 on April 1, 2017 (the “ Maturity Date ”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

 

Section 1 .           Definitions . For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement (as defined below) and (b) the following terms shall have the following meanings:

 

Alternate Consideration ” shall have the meaning set forth in Section 5(e).

 

Bankruptcy Event ” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other Proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or Proceeding that is not dismissed within sixty (60) days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or Proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within sixty (60) calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts, (g) the Company or any Significant Subsidiary thereof admits in writing that it is generally unable to pay its debts as they become due, (h) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

Beneficial Ownership Limitation ” shall have the meaning set forth in Section 4(d).

 

Buy-In ” shall have the meaning set forth in Section 4(c)(v).

 

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Change of Control Transaction ” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of forty percent (40%) of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than sixty percent (60%) of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than sixty percent (60%) of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a two (2) year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (as defined below) (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

Conversion Date ” shall have the meaning set forth in Section 4(a).

 

Conversion Price ” shall have the meaning set forth in Section 4(b).

 

Conversion Schedule ” means the Conversion Schedule in the form of Schedule 1 attached hereto.

 

Conversion Shares ” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

 

Debenture Register ” shall have the meaning set forth in Section 2(c).

 

Event of Default ” shall have the meaning set forth in Section 8(a).

 

Fundamental Transaction ” shall have the meaning set forth in Section 5(e).

 

Interest Payment Date ” shall have the meaning set forth in Section 2(a).

 

Late Fees ” shall have the meaning set forth in Section 2(c).

 

Mandatory Default Amount ” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, plus all accrued and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) one hundred thirty percent (130%) of the outstanding principal amount of this Debenture, plus all accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

 

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New CSI Litigation ” means the litigation relating to NewCSI, Inc. described in Schedule 3.1(j) of the Purchase Agreement.

 

New York Courts ” shall have the meaning set forth in Section 9(d).

 

Notice of Conversion ” shall have the meaning set forth in Section 4(a).

 

Optional Redemption ” shall have the meaning set forth in Section 6(a).

 

Optional Redemption Amount ” means the sum of (a) one hundred twenty percent (120%) of the then outstanding principal amount of the Debenture, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the Debenture.

 

Optional Redemption Date ” shall have the meaning set forth in Section 6(a).

 

Optional Redemption Notice ” shall have the meaning set forth in Section 6(a).

 

Optional Redemption Notice Date ” shall have the meaning set forth in Section 6(a).

 

Optional Redemption Period shall have the meaning set forth in Section 6(a).

 

Original Issue Date ” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debentures.

 

Periodic Redemption ” means the redemption of this Debenture pursuant to Section 6(b) hereof.

 

Periodic Redemption Amount ” means the sum of (i) as to each Periodic Redemption Date, $980,000, and (ii) accrued but unpaid interest, liquidated damages and any other amounts then owing to the Holder in respect of this Debenture.

 

Periodic Redemption Date ” means July 1, 2016, October 1, 2016, January 1, 2017 and April 1, 2017.

 

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Permitted Indebtedness ” means (a) the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, lease obligations and purchase money indebtedness of up to $500,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets and (c) the Senior Loans.

 

Permitted Lien ” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under subclauses (a) and (c) thereunder, and (d) Liens incurred in connection with Permitted Indebtedness under subclause (b) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased, other than as set forth on Schedule 3.1(aa).

 

Purchase Agreement ” means the Securities Purchase Agreement, dated as of July 8, 2015 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

 

Senior Loans ” shall have the meaning set forth in Section 1 of the Subordination Agreement.

 

Share Delivery Date ” shall have the meaning set forth in Section 4(c)(ii).

 

Successor Entity ” shall have the meaning set forth in Section 5(e).

 

Trading Market ” manes any of the following markets or exchanges on which the Common Stock may be listed or quoted for trading: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

 

Trigger Date ” shall have the meaning set forth in Section 4(b).

 

Trigger Date Adjustment Notice ” shall have the meaning set forth in Section 4(b).

 

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Section 2 .           Interest .

 

a)         Payment of Interest in Cash . The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of 8% per annum, payable quarterly on January 1, April 1, July 1 and October 1, beginning on April 1, 2016, and on each Periodic Redemption Date (as to that principal amount then being redeemed), and on each Conversion Date (as to that principal amount then being converted), and on each Optional Redemption Date (as to that principal amount then being redeemed) and on the Maturity Date (each such date, an “ Interest Payment Date ”) (if any Interest Payment Date is not a Business Day, then the applicable payment shall be due on the next succeeding Business Day), in cash. For the avoidance of doubt, the interest payment due on April 1, 2016 shall consist of all interest accrued from the Original Issue Date of this Debenture through April 1, 2016.

 

b)         Interest Calculations . Interest shall be calculated on the basis of a 360-day year, consisting of twelve thirty (30) calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Interest shall cease to accrue with respect to any principal amount converted, provided that the Company actually delivers the Conversion Shares within the time period required by Section 4(c)(ii) herein. Interest hereunder will be paid to the Person in whose name this Debenture is registered on the records of the Company regarding registration and transfers of this Debenture (the “ Debenture Register ”).

 

c)         Late Fee . All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of eighteen percent (18%) per annum or the Maximum Rate (the “ Late Fees ”), which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.

 

d)         Prepayment . Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

 

Section 3.            Registration of Transfers and Exchanges .

 

a)         Different Denominations . This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

 

b)         Investment Representations . This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

 

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c)         Reliance on Debenture Register . Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

Section 4.            Conversion .

 

a)         Voluntary Conversion . At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “ Notice of Conversion ”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “ Conversion Date ”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted in which case the Holder shall surrender this Debenture as promptly as is reasonably practicable after such conversion without delaying the Company’s obligation to deliver the shares on the Share Delivery Date. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this Section 4(a), following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

 

b)         Conversion Price . The conversion price in effect on any Conversion Date shall be equal to $1.00, subject to adjustment herein (the “ Conversion Price ”).

 

c)         Mechanics of Conversion .

  

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i.           Conversion Shares Issuable Upon Conversion of Principal Amount . The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

 

ii.          Delivery of Certificate Upon Conversion . Not later than three (3) Trading Days after each Conversion Date (the “ Share Delivery Date ”), the Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates representing the Conversion Shares which, on or after the six (6) month anniversary of the Original Issue Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement), assuming all requirements under the Securities Act and rules and regulations promulgated thereunder are met, (B) assuming all requirements under the Securities Act and rules and regulations promulgated thereunder are met, a legal opinion of Company counsel as may be requested by the Holder to enable Holder to deposit the Conversion Share certificates in accounts with its prime broker (or other brokerage account), together with any additional supporting documentation requested by the Holder and required by the Company’s transfer agent to issue the Conversion Shares (including, without limitation, any instruction letter to the Company’s transfer agent), and (C) a bank check in the amount of accrued and unpaid interest. On or after the six (6) month anniversary of the Original Issue Date, the Company shall deliver any certificate or certificates required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

 

iii.          Failure to Deliver Certificates . If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.

 

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iv.          Obligation Absolute; Partial Liquidated Damages . The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided , however , that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of one hundred fifty percent (150%) of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5 th ) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

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v.            Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion . In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “ Buy-In ”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including brokerage commissions and other out-of-pocket expenses, if any) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including brokerage commissions and other out-of-pocket expenses, if any) giving rise to such purchase obligation was a total of $10,000, then under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

 

vi.          Reservation of Shares Issuable Upon Conversion . The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.

 

vii.          Fractional Shares . No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

 

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viii.          Transfer Taxes and Expenses . The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates; provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.

 

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d)          Holder’s Conversion Limitations . The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Debentures or the Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this Section 4(d) and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder . For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two (2) Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than sixty-one (61) days’ prior written notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d); provided , that the Beneficial Ownership Limitation in no event shall exceed 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture and the provisions of this Section 4(d) shall continue to apply with respect to such increased or decreased Beneficial Ownership Limitation, as the case may be. Any such increase or decrease will not be effective until the sixty-first (61 st ) day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this Section 4(d) shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this Section 4(d) shall apply to a successor holder of this Debenture .

 

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Section 5 .           Certain Adjustments .

 

a)          Stock Dividends and Stock Splits . If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 5(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

 

b)          [RESERVED]

 

c)          Subsequent Rights Offerings . In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without regard to any limitations on exercise hereof, including, without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights ( provided , however , to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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d)          Pro Rata Distributions . During such time as this Debenture is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “ Distribution ”), at any time after the issuance of this Debenture, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Debenture (without regard to any limitations on conversion hereof, including, without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution ( provided , however , to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e)          Fundamental Transaction . If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “ Fundamental Transaction ”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of the Company under this Debenture and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Debenture and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Debenture and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

f)          Calculations . All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

 

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g)           Notice to the Holder .

 

i.             Adjustment to Conversion Price . Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii.          Notice to Allow Conversion by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall within one (1) business day file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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Section 6 .           Optional Redemption and Periodic Redemption .

 

a)          Optional Redemption at Election of Company . Subject to the provisions of this Section 6(a), at any time after the Original Issue Date, the Company may deliver a notice to the Holder (an “ Optional Redemption Notice ” and the date such notice is deemed delivered hereunder, the “ Optional Redemption Notice Date ”) of its irrevocable election to redeem some or all of the then outstanding principal amount of this Debenture for cash in an amount equal to the Optional Redemption Amount on the tenth (10 th) Trading Day following the Optional Redemption Notice Date (such date, the “ Optional Redemption Date ”, such ten (10) Trading Day period, the “ Optional Redemption Period ” and such redemption, the “ Optional Redemption ”). The Optional Redemption Amount is payable in full on the Optional Redemption Date. The Company covenants and agrees that it will honor all Notices of Conversion tendered within five (5) Business Days of the date of delivery of the Optional Redemption Notice. The Company’s determination to pay an Optional Redemption in cash shall be applied ratably to all of the holders of the then outstanding Debentures based on their (or their predecessor’s) initial purchases of Debentures pursuant to the Purchase Agreement.

 

b)          Mandatory Periodic Redemption . On each Periodic Redemption Date, the Company shall redeem the Periodic Redemption Amount (the “ Periodic Redemption ”). The Periodic Redemption Amount payable on each Periodic Redemption Date shall be paid in cash. The Holder may convert, pursuant to Section 4(a), any principal amount of this Debenture subject to a Periodic Redemption at any time prior to the date that the Periodic Redemption Amount, plus accrued but unpaid interest, liquidated damages and any other amounts then owing to the Holder are due and paid in full. Unless otherwise indicated by the Holder in the applicable Notice of Conversion, any principal amount of this Debenture converted during the period beginning on the delivery date of the applicable Periodic Redemption Notice until the date on which the Periodic Redemption Amount is paid in full shall be first applied to the principal amount subject to the Periodic Redemption Amount. Any principal amount of this Debenture converted during the during the period beginning on the delivery date of the applicable Periodic Redemption Notice until the date on which the Periodic Redemption Amount is paid in full in excess of the Periodic Redemption Amount shall be applied against the last principal amount of this Debenture scheduled to be redeemed hereunder, in reverse time order from the Maturity Date. The Company covenants and agrees that it will honor all Notices of Conversion tendered up until such amounts are paid in full.

 

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c)          Redemption Procedure . The payment of cash pursuant to an Optional Redemption or a Periodic Redemption shall be payable on the Optional Redemption Date or the Periodic Redemption Date, respectively. If any portion of the payment pursuant to an Optional Redemption or Periodic Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of eighteen percent (18%) per annum or the Maximum Rate until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Optional Redemption Amount or Periodic Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Optional Redemption or Periodic Redemption, ab   initio , and, with respect to the Company’s failure to honor the Optional Redemption, the Company shall have no further right to exercise such Optional Redemption. The Holder may elect to convert the outstanding principal amount of the Debenture pursuant to Section 4 prior to actual payment in cash for any redemption under this Section 6 by the delivery of a Notice of Conversion to the Company.

 

Section 7 .           Negative Covenants . As long as any portion of this Debenture remains outstanding, unless the holders of at least fifty percent (50%) in principal amount of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a)         other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any Indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

b)         other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

c)         amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

 

d)         repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during the term of this Debenture;

 

e)         repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than (i) the Permitted Indebtedness and (ii) the Debentures, if on a pro rata basis;

 

f)         pay cash dividends or distributions on any equity securities of the Company other than as disclosed on Schedule 7(f);

 

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g)         enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

 

h)          enter into any agreement with respect to any of the foregoing .

 

Notwithstanding the foregoing, Sections 7(a), 7(b) and 7(e) shall not apply to any Indebtedness or Liens entered into, created, incurred, assumed, guaranteed or suffered to exist by Longbridge Recruitment 360 Limited in connection with any acquisition made by it, which such Indebtedness may be guaranteed by the Company.

 

Section 8 .           Events of Default .

 

a)         “ Event of Default ” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

i.          any default in the payment of (A) the principal amount of any Debenture, including, without limitation, in connection with a Periodic Redemption, or (B) interest, liquidated damages and other amounts owing to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date, Periodic Redemption Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within three (3) Business Days;

 

ii.         the Company shall fail to observe or perform any other covenant or agreement contained in the Debentures or the Purchase Agreement (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) five (5) Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) ten (10) Trading Days after the Company has become or should have become aware of such failure;

 

iii.         a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated other than the Senior Loan Documents (and not covered by clause (vi) below);

 

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iv.       any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v.        the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

 

vi.       the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $100,000, whether such Indebtedness now exists or shall hereafter be created, and (b) results in such Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

vii.      the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five (5) Trading Days;

 

viii.     the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of forty percent (40%) of its assets in one (1) transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

 

ix.        the Company does not meet the current public information requirements under Rule 144 with respect to the Securities;

 

x.         the Company shall fail for any reason to deliver certificates to a Holder prior to the fifth (5 th ) Trading Day after a Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof;

 

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xi.         the electronic transfer by the Company of shares of Common Stock through the Depository Trust Company or another established clearing corporation is no longer available or is subject to a “chill”;

 

xii.        any monetary judgment, writ or similar final process shall be entered or filed against the Company, any Subsidiary or any of their respective property or other assets for more than $100,000 (or, in the case of the NewCSI litigation, $250,000), and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of sixty (60) calendar days; or

 

xiii.       a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company as to whether any Event of Default has occurred.

 

b)          Remedies Upon Event of Default . If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing five (5) days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of eighteen percent (18%) per annum or the Maximum Rate. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

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Section 9 .           Miscellaneous .

 

a)          Notices . Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company at the address set forth above (or such other address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a)), its facsimile number or its email address, as applicable.  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at such Holder’s address appearing on the books of the Company (or such other address as the Holder may specify for such purposes by notice to the Company delivered in accordance with this Section 9(a)), such Holder’s facsimile number or email address, as applicable.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second (2 nd ) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

b)          Absolute Obligation . Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.         

 

c)          Lost or Mutilated Debenture . If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

 

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d)          Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all Actions or Proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “ New York Courts ”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the Action or Proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If any party shall commence an Action or Proceeding to enforce any provisions of this Debenture, then the prevailing party in such Action or Proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such Action or Proceeding.

 

e)          Waiver . Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one (1) or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by the Company or the Holder must be in writing.

 

f)          Severability . If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the Maximum Rate. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

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g)          Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief .  The remedies provided in this Debenture shall be cumulative and in addition to all other remedies available under this Debenture and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Debenture.  The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Debenture.

 

h)          Next Business Day . Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

i)          Headings . The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

 

j)          Secured Obligation . The obligations of the Company under this Debenture are secured by all assets of the Company and each Subsidiary pursuant to the Security Agreement.

 

k)          Disclosure . Upon receipt or delivery by the Company of any notice in accordance with the terms of this Debenture, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within two (2) Business Days after such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or its Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

 

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*********************

 

(Signature Pages Follow)

 

25
 

 

IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

  

  STAFFING 360 SOLUTIONS, inc.
   
  By: /s/ Jeff R. Mitchell
    Name: Jeff R. Mitchell
    Title: Chief Financial Officer

 

  Facsimile Number:  
     
  Email Address: jeffe@staffing360solutions.com

 

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ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the 8% Senior Secured Convertible Debenture due April 1, 2017 of Staffing 360 Solutions, Inc., a Nevada corporation (the “ Company ”), into shares of common stock (the “ Common Stock ”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

 

Conversion calculations:

  Date to Effect Conversion:
   
  Principal Amount of Debenture to be Converted:
   
  Number of shares of Common Stock to be issued:
   
  Signature:
   
  Name:
   
  Address for Delivery of Common Stock Certificates:
   
  Or
   
  DWAC Instructions:
   
  Broker No: ________________
  Account No: _____________

 

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Schedule 1

 

CONVERSION SCHEDULE

 

The 8% Senior Secured Convertible Debentures due on April 1, 2017 in the aggregate principal amount of $_________ are issued by Staffing 360 Solutions, Inc., a Nevada corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

 

Dated:

 

Date of Conversion
(or for first entry,
Original Issue Date)
 

Amount of

Conversion

 

Aggregate

Principal
Amount

Remaining

Subsequent to
Conversion
(or original

Principal
Amount)

  Company Attest
             
             
             
             
             
             
             
             
             

 

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Exhibit 4.2

 

EXECUTION VERSION

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

STAFFING 360 SOLUTIONS, inc.

 

Warrant Shares: 3,920,000 Initial Exercise Date: July 8, 2015

 

This COMMON STOCK PURCHASE WARRANT (the “ Warrant ”) certifies that, for value received, Hillair Capital Investments L.P. or its assigns (the “ Holder ”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “ Initial Exercise Date ”) and on or prior to the close of business on the five (5) year anniversary of the Initial Exercise Date (the “ Termination Date ”) but not thereafter, to subscribe for and purchase from Staffing 360 Solutions, Inc., a Nevada corporation (the “ Company ”), up to Three Million Nine Hundred Twenty Thousand (3,920,000) shares (as subject to adjustment hereunder, the “ Warrant Shares ”) of Common Stock. The purchase price of one (1) share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1 .           Definitions . Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “ Purchase Agreement ”), dated as of July 8, 2015, among the Company and the Purchasers signatory thereto.

 

 
 

 

Section 2 .             Exercise .

 

a)           Exercise of Warrant . Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form attached hereto as Exhibit A and within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank or, if available, pursuant to the cashless exercise procedure specified in Section 2(c) below. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this Section 2(a), following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

b)           Exercise Price . The exercise price per share of the Common Stock under this Warrant shall be $1.00 , subject to adjustment hereunder (the “ Exercise Price ”). In addition to the other adjustments provided herein, upon any adjustment to the Conversion Price of the Debentures as contemplated by Section 4(b) of the Debentures, the Exercise Price shall be reduced, and only reduced, to the lesser of (i) the then effective Exercise Price, as adjusted, or (ii) the Conversion Price, as adjusted under Section 4(b) of the Debentures, and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. The Company shall promptly notify each Holder of the applicable adjustment to the Exercise Price as of any Trigger Date (as defined in the Debentures) (an “ Adjustment Notice ”). For purposes of clarification, whether or not the Company provides an Adjustment Notice pursuant to this Section 2(b), each Holder shall receive Warrant Shares based upon the Exercise Price as adjusted pursuant to this Section 2(b), regardless of whether a Holder accurately refers to such price in any Notice of Exercise.

 

c)           Cashless Exercise . If at any time after the six (6) month anniversary of the Purchase Agreement, there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

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(A) = the VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise;

 

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrants being exercised may be tacked on to the holding period of the Warrant Shares.  The Company agrees not to take any position contrary to this Section 2(c).

 

VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

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d)           Mechanics of Exercise .

 

i.             Delivery of Warrant Shares Upon Exercise . Warrant Shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder pursuant to Rule 144, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is three (3) Trading Days after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder within two (2) Trading Days following the Warrant Share Delivery Date, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5 th ) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise, with such amount being paid to the Holder in Common Stock valued at a 50% discount to the average VWAP of the Common Stock for the twenty (20) Trading Days immediately preceding, but not including, the Warrant Share Delivery Date.

 

ii.          Delivery of New Warrants Upon Exercise . If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical to this Warrant.

 

iii.          Rescission Rights . If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

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iv.          Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise . In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares by the Warrant Share Delivery Date pursuant to an exercise in accordance with the provisions of Section 2(d)(i) above, and if after such Warrant Share Delivery Date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “ Buy-In ”), then the Company shall (A) pay to the Holder, in Common Stock valued at a 50% discount to the average VWAP of the Common Stock for the twenty (20) Trading Days immediately preceding, but not including, the Warrant Share Delivery Date, the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased exceeds (y) the product of (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue multiplied by (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, then under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000 in Common Stock valued at a 50% discount to the average VWAP of the Common Stock for the twenty (20) Trading Days immediately preceding, but not including, the Warrant Share Delivery Date. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

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v.            No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi.          Charges, Taxes and Expenses . Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided , however , that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form in the form attached hereto as Exhibit B (the “ Assignment Form ”) duly executed by the Holder, and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

vii.          Closing of Books . The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

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e)           Holder’s Exercise Limitations . The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company, or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two (2) Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e); provided , that the Beneficial Ownership Limitation in no event shall exceed 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant and the provisions of this Section 2(e) shall continue to apply with respect to such increased or decreased Beneficial Ownership Limitation, as the case may be. Any increase in the Beneficial Ownership Limitation will not be effective until the sixty-first (61 st ) day after such notice is delivered to the Company. The provisions of this Section 2(e) shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this Section 2(e) shall apply to a successor holder of this Warrant.

 

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Section 3 .             Certain Adjustments .

 

a)           Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for the avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

 

b)           [RESERVED]

 

c)           Subsequent Rights Offerings . In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including, without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights ( provided , however , to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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d)           Pro Rata Distributions . During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “ Distribution ”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including, without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution ( provided , however , to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e)           Fundamental Transaction . If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one (1) or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of fifty percent (50%) or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one (1) or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than fifty percent (50%) of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “ Fundamental Transaction ”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within thirty (30) days after, the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction. “ Black Scholes Value ” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“ Bloomberg ”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of one hundred percent (100%) and the one hundred (100) day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction, and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f)             Calculations . All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g)             Notice to Holder .

 

i.             Adjustment to Exercise Price . Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

ii.          Notice to Allow Exercise by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall within one (1) business day file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

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Section 4 .             Transfer of Warrant .

 

a)           Transferability . Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with an Assignment Form with respect to this Warrant duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an Assignment Form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

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b)           New Warrants . This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issue Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c)           Warrant Register . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d)           Transfer Restrictions . If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

 

e)           Representation by the Holder . The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered under or exempted from registration under the Securities Act.

 

Section 5 .             Miscellaneous .

 

a)           No Rights as Stockholder Until Exercise . This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.

 

b)           Loss, Theft, Destruction or Mutilation of Warrant . The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

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c)             Saturdays, Sundays, Holidays, etc . If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d)             Authorized Shares .

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

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Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e)            Jurisdiction . All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f)            Restrictions . The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g)            Nonwaiver and Expenses . No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

h)            Notices . Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i)            Limitation of Liability . No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j)            Remedies . The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k)            Successors and Assigns . Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

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l)            Amendment . This Warrant may be modified or amended or the provisions hereof waived with the prior written consent of the Company and the Holder.

 

m)          Severability . Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n)           Headings . The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  STAFFING 360 SOLUTIONS, inc.
     
  By: /s/ Jeff R. Mitchell
    Name: Jeff R. Mitchell
    Title: Chief Financial Officer

 

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EXHIBIT A

NOTICE OF EXERCISE

 

To:           STAFFING 360 SOLUTIONS, inc.

 

(1)   The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2)   Payment shall take the form of (check applicable box):

 

¨ in lawful money of the United States; or

 

¨ if permitted, the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in Section 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in Section 2(c).

 

(3)   Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

     

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

     
     
     
     
     

 

(4)    Accredited Investor . The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity: ___________________________________________________________________________

Signature of Authorized Signatory of Investing Entity : ____________________________________________________

Name of Authorized Signatory: ______________________________________________________________________

Title of Authorized Signatory: _______________________________________________________________________

Date: ___________________________________________________________________________________________

 

 
 

 

EXHIBIT B             

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:    
    (Please Print)
     
Address:    
    (Please Print)
Dated: _______________ __, ______    
     
Holder’s Signature: _____________________________    
     
Holder’s Address: ______________________________    

 

 

Exhibit 4.3

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

STAFFING 360 SOLUTIONS, inc.

 

Warrant Shares: 3,920,000 Initial Issuance Date: July 8, 2015       

 

This COMMON STOCK PURCHASE WARRANT (the “ Warrant ”) certifies that, for value received, Hillair Capital Investments L.P. or its assigns (the “ Holder ”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date a Payment Breach (as defined below) occurs (the “ Initial Exercise Date ”) and on or prior to the close of business on the five (5) year anniversary of the Initial Issuance Date (the “ Termination Date ”) but not thereafter, to subscribe for and purchase from Staffing 360 Solutions, Inc., a Nevada corporation (the “ Company ”), up to Three Million Nine Hundred Twenty Thousand (3,920,000) shares (as subject to adjustment hereunder, the “ Warrant Shares ”) of Common Stock. The purchase price of one (1) share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

 

Section 1 .           Definitions . Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “ Purchase Agreement ”), dated as of July 8, 2015, among the Company and the Purchasers signatory thereto.

 

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Section 2 .           Exercise .

 

a)         Exercise of Warrant . Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form attached hereto as Exhibit A and within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank or, if available, pursuant to the cashless exercise procedure specified in Section 2(c) below. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until (i) the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full or (ii) the Company has timely made all payments, including principal and interest thereon, due and payable under the Debentures, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company or of the date on which the Debentures are repaid in full by the Company (the “ Repayment Date ”), as the case may be; provided , that the Holder shall not be required to surrender this Warrant pursuant to the foregoing subclause (ii) in the event that a Payment Breach (as defined below) has occurred as of the Repayment Date. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this Section 2(a), following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

b)         Exercise Price . The exercise price per share of the Common Stock under this Warrant shall be $1.00 , subject to adjustment hereunder (the “ Exercise Price ”). If the Company shall fail to timely make any payment due and payable under a Debenture and such breach has not been cured by the Company within three (3) Business Days after the applicable payment due date (a “ Payment Breach ”), then (x) on the second (2 nd ) occurrence of any such Payment Breach, the Exercise Price shall be reduced to $0.50 per share, subject to adjustment hereunder and (y) on the third (3 rd ) occurrence of any such Payment Breach, the Exercise Price shall be reduced to $0.30 per share, subject to adjustment hereunder. In addition to the other adjustments provided herein, upon any adjustment to the Conversion Price of the Debentures as contemplated by Section 4(b) of the Debentures, the Exercise Price shall be reduced, and only reduced, to the lesser of (i) the then effective Exercise Price, as adjusted, or (ii) the Conversion Price, as adjusted under Section 4(b) of the Debentures, and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. The Company shall promptly notify each Holder of the applicable adjustment to the Exercise Price as of any Trigger Date (as defined in the Debentures) or as of the end of the 3 Business Day cure period in respect of a Payment Breach, as the case may be (an “ Adjustment Notice ”). For purposes of clarification, whether or not the Company provides an Adjustment Notice pursuant to this Section 2(b), each Holder shall receive Warrant Shares based upon the Exercise Price as adjusted pursuant to this Section 2(b), regardless of whether a Holder accurately refers to such price in any Notice of Exercise.

 

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c)         Cashless Exercise . If at any time after the six (6) month anniversary of the Purchase Agreement, there is no effective Registration Statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) = the VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise;

 

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrants being exercised may be tacked on to the holding period of the Warrant Shares.  The Company agrees not to take any position contrary to this Section 2(c).

 

VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

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Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

d) Mechanics of Exercise .

 

i.             Delivery of Warrant Shares Upon Exercise . Warrant Shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“ DWAC ”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder pursuant to Rule 144, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is three (3) Trading Days after the delivery to the Company of the Notice of Exercise (such date, the “ Warrant Share Delivery Date ”). The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder within two (2) Trading Days following the Warrant Share Delivery Date, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5 th ) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise, with such amount being paid to the Holder in Common Stock valued at a 50% discount to the average VWAP of the Common Stock for the twenty (20) Trading Days immediately preceding, but not including, the Warrant Share Delivery Date.

 

ii.          Delivery of New Warrants Upon Exercise . If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical to this Warrant.

 

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iii.          Rescission Rights . If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv.          Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise . In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares by the Warrant Share Delivery Date pursuant to an exercise in accordance with the provisions of Section 2(d)(i) above, and if after such Warrant Share Delivery Date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “ Buy-In ”), then the Company shall (A) pay to the Holder, in Common Stock valued at a 50% discount to the average VWAP of the Common Stock for the twenty (20) Trading Days immediately preceding, but not including, the Warrant Share Delivery Date, the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased exceeds (y) the product of (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue multiplied by (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, then under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000 in Common Stock valued at a 50% discount to the average VWAP of the Common Stock for the twenty (20) Trading Days immediately preceding, but not including, the Warrant Share Delivery Date. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

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v.            No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi.          Charges, Taxes and Expenses . Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided , however , that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form in the form attached hereto as Exhibit B (the “ Assignment Form ”) duly executed by the Holder, and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

vii.          Closing of Books . The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

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e)          Holder’s Exercise Limitations . The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company, or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two (2) Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e); provided , that the Beneficial Ownership Limitation in no event shall exceed 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant and the provisions of this Section 2(e) shall continue to apply with respect to such increased or decreased Beneficial Ownership Limitation, as the case may be. Any increase in the Beneficial Ownership Limitation will not be effective until the sixty-first (61 st ) day after such notice is delivered to the Company. The provisions of this Section 2(e) shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this Section 2(e) shall apply to a successor holder of this Warrant.

 

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Section 3 .           Certain Adjustments .

 

a)          Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for the avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

 

b)          [RESERVED]

 

c)          Subsequent Rights Offerings . In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including, without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights ( provided , however , to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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d)          Pro Rata Distributions . During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “ Distribution ”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including, without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution ( provided , however , to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

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e)          Fundamental Transaction . If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one (1) or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of fifty percent (50%) or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one (1) or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than fifty percent (50%) of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “ Fundamental Transaction ”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within thirty (30) days after, the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction. “ Black Scholes Value ” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“ Bloomberg ”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of one hundred percent (100%) and the one hundred (100) day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction, and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

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f)          Calculations . All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g)          Notice to Holder .

 

i.             Adjustment to Exercise Price . Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

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ii.          Notice to Allow Exercise by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall within one (1) business day file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

Section 4 .              Transfer of Warrant .

 

a)            Transferability . Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with an Assignment Form with respect to this Warrant duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an Assignment Form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

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b)          New Warrants . This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issue Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c)          Warrant Register . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d)          Transfer Restrictions . If , at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

 

e)          Representation by the Holder . The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered under or exempted from registration under the Securities Act.

 

Section 5 .           Miscellaneous .

 

a)          No Rights as Stockholder Until Exercise . This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.

 

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b)            Loss, Theft, Destruction or Mutilation of Warrant . The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c)            Saturdays, Sundays, Holidays, etc . If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d)            Authorized Shares .

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

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Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e)            Jurisdiction . All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f)            Restrictions . The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g)           Nonwaiver and Expenses . No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

h)           Notices . Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i)            Limitation of Liability . No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j)            Remedies . The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

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k)           Successors and Assigns . Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l)            Amendment . This Warrant may be modified or amended or the provisions hereof waived with the prior written consent of the Company and the Holder.

 

m)           Severability . Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n)           Headings . The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  STAFFING 360 SOLUTIONS, inc.
   
  By: /s/ Jeff R. Mitchell
    Name: Jeff R. Mitchell
    Title: Chief Financial Officer

 

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EXHIBIT A

 

NOTICE OF EXERCISE

 

To: STAFFING 360 SOLUTIONS, inc.

 

(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Payment shall take the form of (check applicable box):

 

☐ in lawful money of the United States; or

 

☐ if permitted, the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in Section 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in Section 2(c).

 

(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

   

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

   

 

   

 

   

 

(4)      Accredited Investor . The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:   

Signature of Authorized Signatory of Investing Entity  

Name of Authorized Signatory:    

Title of Authorized Signatory:   

Date:   

 

 
 

 

EXHIBIT B

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

  

Name:    
    (Please Print)
     
Address:    
    (Please Print)
     
Dated: _______________ __, ______    
     
Holder’s Signature:_____________________    
     
Holder’s Address: _____________________    

 

 

 

Exhibit 4.4

 

EXECUTION COPY

 

THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO MAKER THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.

 

This promissory note and the indebtedness and securities evidenced hereby are subordinated in accordance with and subject to the terms of that certain Subordination Agreement (as amended, restated, supplemented or modified from time to time, the “Subordination Agreement”), dated as of July 8, 2015 by and among Alison Fogel and David Fogel, a married couple residing in the State of Maine, jointly and severally, Staffing 360 Solutions, Inc., a Nevada corporation, and MidCap Funding X Trust, in its capacity as agent (together with its affiliates and their respective successors and assigns, “Senior Agent”) for the Senior Lenders (as defined in the Subordination Agreement), and each holder and transferee of this promissory note, by its acceptance hereof, irrevocably agrees to be bound by the provisions of the Subordination Agreement.

 

UNSECURED CONVERTIBLE PROMISSORY NOTE

 

Issuance Date: July 8, 2015

Aggregate Principal Amount: $2,498,379.00

 

For value received, Staffing 360 Solutions, Inc., a Nevada corporation (“ Maker ”), promises to pay to Alison Fogel and David Fogel, a married couple residing in the State of Maine (each, a “ Payee ” and together, “ Payees ”), an aggregate principal sum of Two Million Four Hundred Ninety-Eight Thousand Three Hundred Seventy-Nine U.S. Dollars ($2,498,379.00) (the “ Aggregate Principal Amount ”), with fifty-one percent (51%) of the Aggregate Principal Amount payable to Alison Fogel and forty-nine percent (49%) of the Aggregate Principal Amount payable to David Fogel, together with interest accrued but unpaid thereon, at the rate and on the terms set forth below in this promissory note (this “ Note ”). The date of this Note is the date first set forth above as the “Issuance Date” (the “ Issuance Date ”). This Note is being issued in connection with that certain Equity Purchase Agreement, dated as of the date hereof (the “ Purchase Agreement ”), by and among Payees, Lighthouse Placement Services, LLC, a Massachusetts limited liability company (the “ Company ”) and Maker, and is the Three Year Note referenced therein. All capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Purchase Agreement. The Aggregate Principal Amount of this Note (and each Payee’s portion thereof), and the dollar amount of each Quarterly Installment (as defined below) may be increased or decreased, as the case may be, in accordance with Section 1.5(d) of the Purchase Agreement, in which case this Note shall be amended to reflect the adjusted Aggregate Principal Amount and Maker shall promptly thereafter amend the Payment and Amortization Schedule (as defined below).

 

 
 

 

1.           Repayment . All payments of interest and principal under this Note shall be in lawful money of the United States of America in immediately available funds, at the address of each Payee on the books of Maker or at such other place, or by wire transfer of funds to an account of each Payee, as such Payee may designate in writing to Maker. Unless this Note is paid or otherwise satisfied in full as set forth herein, or the obligations hereunder are converted into Conversion Shares in accordance with Section 6 , and otherwise subject to Sections 3 and 7(b) , payments of principal and interest on this Note shall be made in installments each fiscal quarter, (a) for the first eight (8) fiscal quarters ending after the Issuance Date (including the fiscal quarter in which the Issuance Date occurs), on a straight-line basis amortizing the payments of principal and interest on this Note over a five (5) year period (with the amount for the partial fiscal quarter in which the Issuance Date occurs allocated on a fractional basis based on the number of remaining days in the fiscal quarter from and after the Issuance Date) (the “ Initial Quarterly Installments ”), each to be set forth in a Payment and Amortization Schedule to be delivered by Maker to Payees promptly (but in any event within ten (10) Business Days) after the Issuance Date and reasonably acceptable to Payees setting forth the payments under this Note and the allocation of each payment between interest and principal, assuming in each case that there is no suspension or forfeiture of such amounts in accordance with the terms of this Note (as it may be amended in connection with an adjustment to the Aggregate Principal Amount in accordance with Section 1.5(d) of the Purchase Agreement, the “ Payment and Amortization Schedule ”), and (b) for the next four (4) fiscal quarters thereafter and the additional partial quarter thereafter, on a straight-line basis amortizing the remaining payments of principal and interest on this Note (less any amounts forfeited pursuant to Section 3 ) over such period covering such four (4) fiscal quarters and additional partial quarter (with the amount for the partial quarter allocated on a fractional basis), each to be in the amount set forth in the Payment and Amortization Schedule (the “ Final Quarterly Installments ” and, together with the Initial Quarterly Installments, the “ Quarterly Installments ”), with any remaining principal amount of, and all unpaid accrued interest on, this Note (less any amounts forfeited or suspended pursuant to Section 3 ) due and payable on the three (3) year anniversary of the Issuance Date (the “ Maturity Date ”); provided , however , that in the event that a Suspension of Payment occurs pursuant to Section 3 below for (i) the second to last full fiscal quarter prior to the Maturity Date, the Maturity Date shall be extended after the three (3) year anniversary of the Issuance Date to be the date which is the fifteenth (15 th ) day after the last day of the fiscal quarter in which the Maturity Date otherwise would have occurred, or (ii) the last full fiscal quarter prior to the Maturity Date, the Maturity Date shall be extended after the three (3) year anniversary of the Issuance Date to be the date which is the fifteenth (15 th ) day after the last day of the first full fiscal quarter ending after the fiscal quarter in which the Maturity Date otherwise would have occurred. In the event of any extension of the Maturity Date pursuant to the preceding proviso, the amount that would have otherwise been due on the original Maturity Date for the partial fiscal quarter ending on the Maturity Date shall be added to the amount otherwise payable for the last full fiscal quarter ended prior to the original Maturity Date and paid or forfeited, as applicable, at the same time that the amount for the last full fiscal quarter ended prior to the original Maturity Date is, as applicable, paid or forfeited. All payments or deemed payments under this Note, including any offsets under Section 8 hereof, shall be applied first to any fees and expenses due to Payees under this Note, then any accrued and unpaid interest on principal amounts previously paid and then to accrued interest on unpaid principal, then to the unpaid principal under this Note, and finally to any other obligations under this Note (provided, that the Quarterly Installments shall be allocated between principal and interest as described above in this Section 1 and as set forth in the Payment and Amortization Schedule and incorporated herein by reference, with any partial payment first applied to accrued interest). Except to the extent otherwise provided in Section 3(f) , all payments or offsets, and all obligations of Maker, under this Note shall be allocated fifty-one percent (51%) to Alison Fogel and forty-nine percent (49%) to David Fogel.

 

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2.           Interest Rate and Payments; No Security Interest . Subject to this Section 2 and Section 7(c) , interest on the outstanding principal amount shall accrue daily at a rate equal to six percent (6%) per annum (the “ Interest Rate ”). Interest will be calculated on the basis of a 365-day year for the actual number of days elapsed. Except to the extent forfeited pursuant to Section 3 for any fiscal quarter in which a Suspension of Payment occurs (each fiscal quarter in which a Suspension of Payment occurs, a “ Suspension Quarter ”), interest will accrue from the date hereof until the outstanding principal amount is paid or otherwise satisfied in full. The Quarterly Installments shall be payable on a fiscal quarterly basis, no later than the fifteenth (15 th ) day after the end of such fiscal quarter, beginning with the fiscal quarter in which the Issuance Date occurs. On the Maturity Date (as it may be extended pursuant to Section 1 ), Maker will pay all remaining principal and accrued but unpaid interest that has not been forfeited pursuant to Section 3 below. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. This Note is subject to the express condition that at no time shall Maker be obligated or required to pay interest on the principal balance at a rate which could subject Maker or either Payee to either civil or criminal liability as a result of being in excess of the maximum rate which Maker is permitted by applicable law to contract or agree to pay. If by the terms of this Note, Maker is at any time required or obligated to pay interest on the principal balance at a rate in excess of such maximum rate, the Interest Rate under this Note shall be deemed to be immediately reduced to such maximum rate and interest payable hereunder shall be computed at such maximum rate. This Note is an unsecured promissory note.

 

3.           Suspension of Payments; Calculation of Gross Profit .

 

(a)          Notwithstanding any other provisions of this Note (but subject to Section 3(f) below), the obligation of Maker to pay any Quarterly Installment d ue hereunder shall immediately be suspended (a “ Suspension of Payment ”) if the Gross Profit for the trailing four (4) full fiscal quarter period ending as of the fiscal quarter for which such Quarterly Installment is due (the “ TFQ Gross Profit ”) is less than eighty-five percent (85%) of the Closing Gross Profit (the “ Target Gross Profit ”). With respect to each Suspension Quarter, (i) if the TFQ Gross Profit as of the end of either of the two (2) fiscal quarters immediately following such Suspension Quarter exceeds the Target Gross Profit, Maker shall pay the Quarterly Installment for such Suspension Quarter at the same time that it pays the Quarterly Installment for such subsequent fiscal quarter as of the end of which the TFQ Gross Profit exceeds the Target Gross Profit (or with respect to the last two fiscal quarters prior to the initial Maturity Date, by the fifteenth (15 th ) day after the end of such subsequent fiscal quarter), and (ii) if the TFQ Gross Profit for each of the two (2) fiscal quarters immediately following such Suspension Quarter does not exceed the Target Gross Profit, Payees shall forfeit any rights to, and Maker shall have no obligation under this Note with respect to, the Quarterly Installment for such Suspension Quarter (and any interest or other amounts payable on the principal or interest included in such forfeited Quarterly Installment). For the avoidance of doubt, on the Maturity Date (subject to extension in accordance with Section 1 of this Note) the outstanding principal balance of this Note together with all accrued interest (net of any Quarterly Installments which were forfeited pursuant to the terms of this Section 3 ) shall be due and payable and shall be paid in full by the Maker to the Payees on the Maturity Date (as extended in accordance with Section 1 of this Note).

 

(b)           For purposes hereof: (i) “ Gross Profit ” shall mean, with respect to any applicable period, the consolidated Revenues of the Lighthouse Companies less the consolidated direct Costs of Services of the Lighthouse Companies, calculated in accordance with GAAP as consistently applied by Maker and its Subsidiaries; (ii) “ Revenue ” shall mean, as determined in accordance with GAAP as consistently applied by Maker and its Subsidiaries: (A) revenue for temporary services (recognized at the time that the service is provided and revenue is recorded on a time and materials basis); (B) temporary contracting revenue (recognized as gross when a Lighthouse Company acts as principal in the transaction and is at risk for collection); (C) revenue that does not meet the criteria for gross revenue reporting (reported on a net basis); (D) revenue generated when a Lighthouse Company permanently places an individual with a client on a contingent basis (recorded at the time of acceptance of employment); and (E) revenue generated when a Lighthouse Company places an individual with a client on a retained basis (recorded ratably over the period the services are rendered); (iii) “ Cost of Services ” means the direct costs to generate the Revenues, including payroll expenses to independent contractors, payroll burdens, payroll taxes and insurance obligations and reimbursable expenses, as determined in accordance with GAAP as consistently applied by Maker and its Subsidiaries; and (iv) “ Closing Gross Profit ” means the Gross Profit for the trailing four (4) full fiscal quarter period as of the fiscal quarter ending June 30, 2015.

 

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(c)           For illustration purposes, the calculation of Gross Profit for the fiscal year ended December 31, 2014 is as set forth on Exhibit A hereto. Any ambiguities in the calculation of the Gross Profit shall be determined in a manner consistent with Exhibit A , or if there is a change in GAAP after the Issuance Date such that the manner contemplated by Exhibit A is no longer in compliance with GAAP, then in such manner that is as close as possible to that contemplated under Exhibit A that is in compliance with the new GAAP principles. In the event any such change in GAAP causes the manner of calculating Gross Profit going forward to differ significantly from the manner in which the Closing Gross Profit was previously calculated, Maker and the Seller Representative on behalf of the Payees shall adjust the Closing Gross Profit by re-calculating the Gross Profit for the trailing four (4) full fiscal quarter period ending December 31, 2014 as if such new GAAP requirements were in effect at the time.

 

(d)           If after the Issuance Date any Lighthouse Company acquires another business (including any portion or part of another business) or enters into a line of business other than the normal business activities of the Company conducted as of the Issuance Date with the prior written consent of Payees (such consent not to be unreasonably withheld, delayed or conditioned), then the TFQ Gross Profit shall be computed taking into consideration the financial results of such acquired or new line of business. If after the Issuance Date any Lighthouse Company acquires another business (including any portion or part of another business) or enters into a line of business other than the normal business activities of the Company conducted as of the Issuance Date without the prior written consent of Payees (such consent not to be unreasonably withheld, delayed or conditioned), then the TFQ Gross Profit for the applicable fiscal quarter in which such acquisition occurs or such new line of business commences and for all subsequent fiscal quarters shall be deemed to be greater than the Target Gross Profit for purposes of this Note, and any payments of principal and interest under this Note after such acquisition occurs or such new line of business commences shall be made when otherwise due in accordance with this Note. Maker hereby agrees that while any obligations are outstanding under this Note, subject to Section 3(e) below, Maker shall, and shall cause the Company to, use their commercially reasonable efforts to maintain a financial reporting system that enables the parties to calculate the Gross Profit for purposes of this Note.

 

(e)           If Maker consummates a Lighthouse Change of Control Transaction while any obligations are outstanding under this Note, Maker will provide in the sale documents for such transaction that the acquirer shall assume and agree to perform Maker’s obligations under this Note if the foregoing would not happen as a matter of law. In the event a Lighthouse Change of Control Transaction occurs (including if deemed to have occurred), then the TFQ Gross Profit for the applicable fiscal quarter in which the Lighthouse Change of Control Transaction occurs and for all subsequent fiscal quarters shall be deemed to be greater than the Target Gross Profit for purposes of this Note, and any payments of principal and interest under this Note after such Lighthouse Change of Control Transaction occurs shall be made when otherwise due in accordance with this Note (except for a Lighthouse Change of Control Transaction described in clause (ii) of the definition thereof, in which case the principal balance of this Note plus all accrued interest under this Note shall immediately accelerate and become due and payable upon the consummation of such Lighthouse Change of Control Transaction).

 

(f)           In the event that while any obligations are outstanding under this Note, a Payee’s employment under such Payee’s Employment Agreement, dated as of the date hereof (each, an “ Employment Agreement ”), between such Payee and the Company is terminated in accordance with the terms of such Employment Agreement either (x) by the Company without Cause (as defined in such Payee’s Employment Agreement) (other than due to death or Disability (as defined in such Payee’s Employment Agreement)) or (y) by such Payee for Good Reason (as defined in such Payee’s Employment Agreement) (a termination described in clauses (x) or (y), a “ Qualifying Termination ”), then, notwithstanding anything to the contrary contained in this Note:

 

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(i)           for purposes of determining Maker’s obligations under this Note to such Payee subject to the Qualifying Termination (but not the other Payee), the TFQ Gross Profit for any fiscal quarter ending after the Date of Termination (as defined in such Payee’s Employment Agreement) of such terminated Payee shall be deemed for purposes of this Note to be greater than the Target Gross Profit; and

 

(ii)          for purposes of determining Maker’s obligations under this Note to the other Payee that has not been subject to the Qualifying Termination, the Target Gross Profit for any period ending after the Date of Termination of the terminated Payee shall be reduced by twenty percent (20%) (with the percentage reduction in the Target Gross Profit for any trailing four (4) fiscal quarter period (the “ TFQ ”) in which the Date of Termination occurs being pro-rated so that such percentage reduction is equal to (A) twenty percent (20%), multiplied by (B) the number of days in the TFQ from and after the Date of Termination, and divided by (C) the total number of days in the TFQ).

 

4.           Procedures for Determining Gross Profit .

 

(a)          Together with each Quarterly Installment (or if no Quarterly Installment is to be paid for such fiscal quarter as a result of a Suspension of Payment as determined by Maker or with respect to a fiscal quarter after the end of the initial Maturity Date in which a Suspension of Payment continues, within fifteen (15) days after the end of such fiscal quarter), Maker will prepare and deliver to the Seller Representative on behalf of Payees a written statement (each, a “ Gross Profit Statement ”) that sets forth Maker’s determination in accordance with the terms of this Note of the Gross Profit for the fiscal quarter most recently ended (the “ Subject Quarter ”) and the TFQ Gross Profit for the TFQ ending as of the Subject Quarter (the “ Subject TFQ ”), whether or not a Suspension of Payment has occurred for the Subject Quarter and, if there was a Suspension Quarter in the either of the two (2) fiscal quarters prior to the Subject Quarter where the Suspension of Payment is continuing, whether the Subject TFQ exceeds the Target Gross Profit such that the Suspension of Payment shall no longer continue with respect to such prior Suspension Quarter. Payees and their Representatives will provide Maker and its Representatives with reasonable access to the books and records, personnel and properties of the Lighthouse Companies, and any other information of the Lighthouse Companies, that Maker reasonably requests in connection with Maker’s preparation of each Gross Profit Statement.

 

(b)          In the event that Maker notifies the Seller Representative on behalf of Payees that there is a Suspension of Payment for the Subject Quarter or that a Suspension of Payment for one or more Suspension Quarters occurring in the prior two (2) fiscal quarters is still continuing after calculating the Subject TFQ, the Seller Representative on behalf of Payees will have the right to have an independent certified public accountant (the “ CPA ”) review and inspect the records of the Lighthouse Companies (and any other records of Maker and its Subsidiaries to the extent relating to the Gross Profit determination) for the Subject Quarter and the Subject TFQ for the purpose of determining the accuracy of the Gross Profit Statement and the Gross Profit calculated therein by delivering written notice thereof within fifteen (15) days after the delivery of the Gross Profit Statement for the Subject Quarter. The CPA selected to conduct such review must be acceptable to both Maker and the Seller Representative (provided, that if the CPA does not accept its appointment or Maker and the Seller Representative cannot agree on the CPA, in either case within ten (10) days after Maker’s receipt of the notice from the Seller Representative requesting the CPA, either Maker or the Seller Representative may require, by written notice to the other, that the CPA be selected by the New York City Regional Office of the American Arbitration Association in accordance with the procedures of the American Arbitration Association). Each of Maker and the Seller Representative on behalf of the Payees will execute a reasonable and customary engagement letter with the CPA with respect to its review that is consistent with the terms of this Section 4 (including the responsibility of the parties for the CPA’s costs and expenses). In connection with the CPA’s review, Maker will permit the CPA, upon reasonable prior written notice, to have access during normal business hours to such records and finance personnel of the Lighthouse Companies (and any other records of Maker and its Subsidiaries to the extent relating to the Gross Profit determination), as may be reasonably necessary to verify Maker’s calculation of the Gross Profit hereunder for the Subject Quarter and the Subject TFQ, including their books, records and working papers. The CPA will promptly and diligently conduct its review and will provide in writing to the Seller Representative and Maker within thirty (30) days after its engagement its final determination with respect to the Gross Profit for the Subject Quarter and the Subject TFQ. Each Payee and Maker will use its commercially reasonable efforts to permit the CPA to timely complete its review.

 

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(c)          In the event that the CPA reasonably determines that the TFQ Gross Profit for the Subject TFQ was equal to or greater than the Target Gross Profit, (i) the parties will be bound by such determination, (ii) Maker shall be responsible for the reasonable fees and expenses charged by the CPA with respect to its review of the Subject Quarter and the Subject TFQ, (iii) if the Seller Representative requested the review by the CPA because Maker notified the Seller Representative that there was a Suspension of Payment for the Subject Quarter, Maker will pay to Payees the Quarterly Installment for the Subject Quarter within fifteen (15) days after Maker’s receipt of the CPA’s written report and (iv) if the Seller Representative requested the review by the CPA because there was a Suspension of Payment for one or more Suspension Quarters occurring in the prior two (2) fiscal quarters and Maker notified the Seller Representative that such Suspension of Payment is still continuing after calculating the Subject TFQ, Maker will pay to Payees the Quarterly Installment for any such Suspension Quarter(s). In the event that the CPA reasonably determines that the TFQ Gross Profit for the Subject TFQ was less than the Target Gross Profit, (i) the parties will be bound by such determination, (ii) Payees shall be responsible for the reasonable fees and expenses charge by the CPA with respect to its review of the Subject Quarter and the Subject TFQ, and (iii) the provisions of Section 3 will apply to such Subject Quarter. For the avoidance of doubt, in the event of a Qualifying Termination of a Payee under Section 3(f) , the provisions of this Section 4 (as modified by Section 3(f)(ii) ) will apply only to the Payee that has not been subject to the Qualifying Termination and payments will be adjusted for such Payee’s share of this Note. Any calculations of TFQ Gross Profit for any subsequent fiscal quarter that includes the Gross Profit for the Subject Quarter or any portion of the Subject TFQ will apply the determinations of the CPA with respect to the Gross Profit for the Subject Quarter and the portion of the Subject TFQ that is included in the TFQ Gross Profit for such subsequent fiscal quarter.

 

5.           Notice to Payees; Prepayment .

 

(a)          Maker shall provide Payees with written notice (i) promptly (but in any event within thirty (30) days) after Maker becomes aware that any order or decree described in Section 7(a)(iii) is entered, (ii) immediately upon the occurrence of any Event of Default listed in clause (iii), (iv), (v), or (vi) of Section 7(a) , or (iii) promptly (but in any event within thirty (30) days) after the consummation of any Lighthouse Change of Control Transaction.

 

(b)          Maker may, in its discretion, prepay this Note in whole or in part prior to the Maturity Date.

 

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6.           Conversion .

 

(a)          Subject to Section 6(d) below, Payees shall have the right (the “ Conversion Right ”), exercisable at any time prior to the Maturity Date by providing written notice thereof (a “ Conversion Notice ”) to Maker, to convert all of the outstanding principal and accrued but unpaid interest under this Note (for the avoidance of doubt, (i) taking into account any amounts forfeited prior to such time pursuant to Section 3 and (ii) less the amount of the Quarterly Installments for any Suspension Quarters where a Suspension of Payments is still occurring at such time ( and any interest or other amounts payable on the principal or interest included in such Quarterly Installments)) (such net amount, the “ Outstanding Obligations ”) into shares of Buyer Common Stock at a conversion price (the “ Conversion Price ”) equal to the greater of (i) eighty percent (80%) of the VWAP Price as of the date of Payee’s delivery of the Conversion Notice and (ii) the Buyer Common Stock Price. Upon the issuance of the shares of Buyer Common Stock after conversion of the obligations under this Note in accordance with this Section 6 (the “ Conversion Shares ”), all obligations of Maker under this Note, including any outstanding principal amounts and any accrued but unpaid interest, shall be deemed to be paid and satisfied in full.

 

(b)          Maker shall reasonably and in good faith make any equitable adjustments to the Conversion Price hereunder to account for any stock dividends, stock splits, reverse stock splits, special dividends and distributions, recapitalizations and other similar transactions occurring after the Issuance Date with respect to the Buyer Common Stock. In the event of any transaction occurring after the Issuance Date in which all outstanding Buyer Common Stock is exchanged for another form of equity of Maker or equity of another entity, the Conversion Right hereunder shall instead permit the outstanding obligations under this Note to be converted into such other form of equity of Maker or equity of such other entity, as applicable, with Maker making any equitable adjustments to the Conversion Price as it reasonably determines in good faith.

 

(c)          The parties hereby acknowledge and agree that the shares of Buyer Common Stock issuable upon conversion of the obligations under this Note in accordance with this Section 6 (the “ Conversion Shares ”) shall be subject to the terms and conditions of Sections 6.7, 6.8 and 7.7 of the Purchase Agreement as if they were “Shares” thereunder. In the event that the obligations under this Note are converted into Conversion Shares prior to the payment of any Adjustment Amount under Section 1.5(e) of the Purchase Agreement, any portion of the Adjustment Amount which would other be payable under Section 1.5(e) of the Purchase Agreement pursuant to an increase or a decrease in the principal amount of the Note shall instead be paid by delivery of Conversion Shares, with each Conversion Share valued at the Conversion Price for such purposes.

 

(d)          Notwithstanding anything to the contrary contained in this Note, at any time when a Suspension of Payment for any Suspension Quarter is in effect and still continuing (including if as a result of Section 3(f) , such Suspension of Payment only applies to one Payee and not the other), the Conversion Right shall not be available to Payees, and Maker shall have no obligation to deliver the Conversion Shares hereunder .

 

7.           Events of Default and Remedies .

 

(a)          Each of the following shall constitute an “ Event of Default ”.

 

(i)          the failure of Maker to pay or otherwise satisfy any amounts due under this Note when due (subject to the Suspension of Payment provided for in Section 3 and the procedure for resolving any disputes), which failure is not cured within three (3) Business Days after written notice of such failure is received by Maker from Payees;

 

(ii)         the default by Maker of any of its covenants or agreements under this Note (other than those described in clause (i) above) in any material respect, which default is not cured within thirty (30) days after written notice of such default is received by Maker from Payees;

 

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(iii)        a decree, judgment, or order by a court of competent jurisdiction shall have been entered adjudging Maker as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization of Maker under any bankruptcy or similar law, and such decree or order shall have continued undischarged and unstayed for a period of ninety (90) days; or a decree or order of a court of competent jurisdiction ordering the appointment of a receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of Maker, or for the winding up or liquidation of the affairs of Maker, shall have been entered, and such decree, judgment, or order shall have remained in force undischarged and unstayed for a period of sixty (60) days;

 

(iv)        Maker shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization under any bankruptcy or similar law or similar statute, or shall consent to the filing of any such petition, or shall consent to the appointment of a custodian, receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of it or any of its assets or property, or shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due;

 

(v)         the voluntary or involuntary dissolution, termination of existence or liquidation of Maker or the voluntary dissolution, termination of existence or liquidation of the Company (in each case, other than in connection with an internal corporate reorganization or a change of control of Maker, in either case, in which the successor to Maker assumes all of Maker’s obligations under this Note); or

 

(vi)        both (A) the occurrence of an “Event of Default” under, and as defined in, either (I) that certain Credit and Security Agreement dated as of April 8, 2015 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Monroe Credit Agreement ”), by and among MidCap Funding X Trust, as Agent thereunder (“ Agent ”), the lenders named therein, PeopleSERVE, Inc., Monroe Staffing Services, LLC, Maker and any additional borrowers thereunder or (II) that certain Credit and Security Agreement, dated as of April 8, 2015 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ PRS Credit Agreement ” and, together with the Monroe Credit Agreement, the “ Credit Agreements ”), by and among Agent, the lenders named therein and PeopleSERVE PRS, Inc., and (B) where Agent has delivered notice to Payees pursuant to the terms of the Subordination Agreement, dated as of the Issuance Date (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Subordination Agreement ”), by and among Payees (as subordinated lenders), Maker, Agent and the lenders named therein, that Permitted Subordinated Loan Payments (as defined in the Subordination Agreement) are not permitted pursuant to the terms of the Subordination Agreement as a result of such Event of Default under a Credit Agreement (a “ Suspension Notice ”); provided , that if such Event of Default under a Credit Agreement is cured or such Suspension Notice is rescinded, in either case, within ninety (90) days after the receipt of the Suspension Notice by Payees, any Event of Default under this clause (vi) as a result of such Event of Default under a Credit Agreement or such Suspension Notice shall be automatically deemed to have been cured, and Payees shall have no rights with respect thereto (other than to collect any payments under this Note which were not otherwise permitted to be paid by Maker as a result thereof).

 

(b)          If an Event of Default occurs and is continuing, then Payees, by providing written notice to Maker (an “ Acceleration Notice ”), may declare to be due and payable immediately all of the Outstanding Obligations, together with all Quarterly Installments which are then suspended pursuant to Section 3(a) ; provided , that upon the occurrence of any Event of Default listed in clause (iii), (iv) or (v) of Section 7(a) , the Outstanding Obligations shall immediately accelerate and become due and payable without the requirement of an Acceleration Notice or any other action on the part of Payees.

 

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(c)           Without in any way derogating Payees’ rights upon the occurrence of an Event of Default, if there is an Event of Default under clause (i) of Section 7(a) and either (x) any Quarterly Installment due under this Note or (y) the principal and interest due on the Maturity Date, in either case, is not paid or otherwise satisfied within ten (10) days after such Event of Default, then in addition to its other obligations under this Note, Maker shall pay to Payees a late fee equal to five percent (5%) of the amount of such late payment (for the avoidance of doubt, such late fee will not apply to any accelerated obligations under this Note). If there is an Event of Default which extends beyond any and all applicable notice and cure periods (and whether or not Payees exercise their rights on account thereof), then from the occurrence of such Event of Default and during the continuance of such Event of Default, the Interest Rate for purposes of this Note shall be equal to twelve percent (12%) per annum.

 

8.           Right to Set-Off . The obligations of Maker under this Note may be offset as set forth in and in accordance with Article VII of the Purchase Agreement, any such offset obligations shall be deemed paid for purposes of this Note.

 

9.           Attorneys’ Fees . Except with respect to the costs of the review by the CPA as set forth in Section 4 , the non-prevailing party to any claim that is finally determined under this Note will pay its own expenses and the reasonable documented out-of-pocket expenses, including reasonable attorneys’ fees and costs, reasonably incurred by the other party, including any claims by Payees to collect and/or to enforce any of the obligations of Maker hereunder and/or to enforce any of Payees’ rights, remedies or powers against or in respect of Maker. The parties will request in connection with any such claim that the applicable court determine and declare the prevailing party in such claim.

 

10.          No Transfer of Rights to Receive Payments . Without limiting anything contained in this Note, without the prior written consent of Maker (which may be withheld in its sole discretion), neither Payee may transfer, assign, convey or subject to any Lien any of Payee’s rights under this Note to receive any payments; provided , that this Section 10 and the first restrictive legend at the top of the first page of this Note shall not prevent transfers of such rights by a Payee to (i) such Payee’s estate or heirs (by will or intestate succession) upon such Payee’s death or (ii) one or more trusts for the benefit of the immediate family members of such Payee, provided that, in each case, the transferee acknowledges and agrees to the terms, conditions and obligations set forth in this Note.

 

11.          Incorporation of Purchase Agreement Provisions . The parties hereby agree that Sections 8.2 through 8.7 and Sections 8.9 through 8.14 of the Purchase Agreement are hereby incorporated herein as if set forth in this Agreement, with any reference to the Purchase Agreement therein referring to this Note instead. Without limiting the foregoing, Payees hereby acknowledge and agree that the Seller Representative shall be fully authorized, and shall represent each Payee with respect to the enforcement of, determinations made under, notices provided under, and any disputes in connection with, this Note.

 

12.          Subordination Agreement . Maker and Payees hereby acknowledge that this Note is subject to the terms and conditions of the Subordination Agreement, which is hereby incorporated herein by reference.

 

13.          Miscellaneous . This Note (and to the extent incorporated herein, the Purchase Agreement, the Employment Agreements and the Subordination Agreement) constitutes the entire agreement between the parties with respect to the subject matter hereof and referenced herein, and supersedes and terminates any prior agreements or understanding between the parties or their respective Affiliates (written or oral) with respect to the subject matter hereof. Unless otherwise specified, any reference in this Note to a quarter shall mean a fiscal quarter.

 

[Remainder of page intentionally left blank; signature page follows]

 

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IN WITNESS WHEREOF, Maker has caused this Unsecured Convertible Promissory Note to be duly executed and delivered as of the date first set forth above.

 

  STAFFING 360 SOLUTIONS, INC.
     
  By: /s/ Matthew Briand
  Name:  Matthew Briand
  Title:    Chief Executive Officer

 

Acknowledged and agreed as of the date first set forth above:

 

Payees:

 

/s/ Alison Fogel  
Alison Fogel  
   
/s/ David Fogel  
David Fogel  

 

[Signature Page to Three Year Note]

 

 
 

 

Exhibit A
Sample Gross Profit Calculation

 

See attachment.

 

 

 

Exhibit 4.5

   

EXECUTION COPY

 

THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO MAKER THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.

 

This promissory note and the indebtedness and securities evidenced hereby are subordinated in accordance with and subject to the terms of that certain Subordination Agreement (as amended, restated, supplemented or modified from time to time, the “Subordination Agreement”), dated as of July 8, 2015 by and among Alison Fogel and David Fogel, a married couple residing in the State of Maine, jointly and severally, Staffing 360 Solutions, Inc., a Nevada corporation, and MidCap Funding X Trust, in its capacity as agent (together with its affiliates and their respective successors and assigns, “Senior Agent”) for the Senior Lenders (as defined in the Subordination Agreement), and each holder and transferee of this promissory note, by its acceptance hereof, irrevocably agrees to be bound by the provisions of the Subordination Agreement.

 

UNSECURED CONVERTIBLE PROMISSORY NOTE

 

Issuance Date: July 8, 2015

Aggregate Principal Amount: $624,595.00

 

For value received, Staffing 360 Solutions, Inc., a Nevada corporation (“ Maker ”), promises to pay to Alison Fogel and David Fogel, a married couple residing in the State of Maine (each, a “ Payee ” and together, “ Payees ”), an aggregate principal sum of Six Hundred Twenty-Four Thousand Five Hundred Ninety-Five U.S. Dollars ($624,595.00) (the “ Aggregate Principal Amount ”), with fifty-one percent (51%) of the Aggregate Principal Amount payable to Alison Fogel and forty-nine percent (49%) of the Aggregate Principal Amount payable to David Fogel, together with interest accrued but unpaid thereon, at the rate and on the terms set forth below in this promissory note (this “ Note ”). The date of this Note is the date first set forth above as the “Issuance Date” (the “ Issuance Date ”). This Note is being issued in connection with that certain Equity Purchase Agreement, dated as of the date hereof (the “ Purchase Agreement ”), by and among Payees, Lighthouse Placement Services, LLC, a Massachusetts limited liability company (the “ Company ”) and Maker, and is the Two Year Note referenced therein. All capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Purchase Agreement. The Aggregate Principal Amount of this Note (and each Payee’s portion thereof), and the dollar amount of each Quarterly Installment (as defined below) may be increased or decreased, as the case may be, in accordance with Section 1.5(d) of the Purchase Agreement, in which case this Note shall be amended to reflect the adjusted Aggregate Principal Amount and Maker shall promptly thereafter amend the Payment and Amortization Schedule (as defined below).

 

 
 

  

1.           Repayment . All payments of interest and principal under this Note shall be in lawful money of the United States of America in immediately available funds, at the address of each Payee on the books of Maker or at such other place, or by wire transfer of funds to an account of each Payee, as such Payee may designate in writing to Maker. Unless this Note is paid or otherwise satisfied in full as set forth herein, or the obligations hereunder are converted into Conversion Shares in accordance with Section 6 , and otherwise subject to Sections 3 and 7(a)(vi) , payments of principal and interest on this Note shall be made in installments each fiscal quarter (including the partial fiscal quarter in which the Issuance Date occurs and the partial fiscal quarter in which the Maturity Date occurs), on a straight-line basis amortizing the payments of principal and interest on this Note over a two (2) year period (with the amount for the partial fiscal quarter in which (x) the Issuance Date occurs allocated on a fractional basis based on the number of remaining days in the fiscal quarter from and after the Issuance Date or (y) the Maturity Date occurs allocated on a fractional basis based on the number of days in the fiscal quarter prior to and including the Maturity Date) (the “ Quarterly Installments ”), each to be set forth in a Payment and Amortization Schedule to be delivered by Maker to Payees promptly (but in any event within ten (10) Business Days) after the Issuance Date and reasonably acceptable to Payees setting forth the payments under this Note and the allocation of each payment between interest and principal, assuming in each case that there is no suspension or forfeiture of such amounts in accordance with the terms of this Note (as it may be amended in connection with an adjustment to the Aggregate Principal Amount in accordance with Section 1.5(d) of the Purchase Agreement, the “ Payment and Amortization Schedule ”), with any remaining principal amount of, and all unpaid accrued interest on, this Note (less any amounts forfeited or suspended pursuant to Section 3 ) due and payable on the two (2) year anniversary of the Issuance Date (the “ Maturity Date ”); provided , however , that in the event that a Suspension of Payment occurs pursuant to Section 3 below for (i) the second to last full fiscal quarter prior to the Maturity Date, the Maturity Date shall be extended after the two (2) year anniversary of the Issuance Date to be the date which is the fifteenth (15th) day after the last day of the fiscal quarter in which the Maturity Date otherwise would have occurred or (ii) the last full fiscal quarter prior to the Maturity Date, the Maturity Date shall be extended after the two (2) year anniversary of the Issuance Date to be the date which is the fifteenth (15th) day after the last day of the first full fiscal quarter ending after the fiscal quarter in which the Maturity Date otherwise would have occurred. In the event of any extension of the Maturity Date pursuant to the preceding proviso, the amount that would have otherwise been due on the original Maturity Date for the partial fiscal quarter ending on the Maturity Date shall be added to the amount otherwise payable for the last full fiscal quarter ended prior to the original Maturity Date and paid or forfeited, as applicable, at the same time that the amount for the last full fiscal quarter ended prior to the original Maturity Date is, as applicable, paid or forfeited. All payments or deemed payments under this Note, including any offsets under Section 8 hereof, shall be applied first to any fees and expenses due to Payees under this Note, then any accrued and unpaid interest on principal amounts previously paid and then to accrued interest on unpaid principal, then to the unpaid principal under this Note, and finally to any other obligations under this Note (provided, that the Quarterly Installments shall be allocated between principal and interest as described above in this Section 1 and as set forth in the Payment and Amortization Schedule and incorporated herein by reference, with any partial payment first applied to accrued interest). Except to the extent otherwise provided in Section 3(f) , all payments or offsets, and all obligations of Maker, under this Note shall be allocated fifty-one percent (51%) to Alison Fogel and forty-nine percent (49%) to David Fogel.

 

2.           Interest Rate and Payments; No Security Interest . Subject to this Section 2 and Section 7(c) , interest on the outstanding principal amount shall accrue daily at a rate equal to six percent (6%) per annum (the “ Interest Rate ”). Interest will be calculated on the basis of a 365-day year for the actual number of days elapsed. Except to the extent forfeited pursuant to Section 3 for any fiscal quarter in which a Suspension of Payment occurs (each fiscal quarter in which a Suspension of Payment occurs, a “ Suspension Quarter ”), interest will accrue from the date hereof until the outstanding principal amount is paid or otherwise satisfied in full. The Quarterly Installments shall be payable on a fiscal quarterly basis, no later than the fifteenth (15 th ) day after the end of such fiscal quarter, beginning with the fiscal quarter in which the Issuance Date occurs. On the Maturity Date (as it may be extended pursuant to Section 1 ), Maker will pay all remaining principal and accrued but unpaid interest that has not been forfeited pursuant to Section 3 below. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. This Note is subject to the express condition that at no time shall Maker be obligated or required to pay interest on the principal balance at a rate which could subject Maker or either Payee to either civil or criminal liability as a result of being in excess of the maximum rate which Maker is permitted by applicable law to contract or agree to pay. If by the terms of this Note, Maker is at any time required or obligated to pay interest on the principal balance at a rate in excess of such maximum rate, the Interest Rate under this Note shall be deemed to be immediately reduced to such maximum rate and interest payable hereunder shall be computed at such maximum rate. This Note is an unsecured promissory note.

 

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3.           Suspension of Payments; Calculation of Gross Profit .

 

(a)          Notwithstanding any other provisions of this Note (but subject to Section 3(f) below), the obligation of Maker to pay any Quarterly Installment d ue hereunder shall immediately be suspended (a “ Suspension of Payment ”) if the Gross Profit for the trailing four (4) full fiscal quarter period ending as of the fiscal quarter for which such Quarterly Installment is due (the “ TFQ Gross Profit ”) is less than eighty-five percent (85%) of the Closing Gross Profit (the “ Target Gross Profit ”). With respect to each Suspension Quarter, (i) if the TFQ Gross Profit as of the end of either of the two (2) fiscal quarters immediately following such Suspension Quarter exceeds the Target Gross Profit, Maker shall pay the Quarterly Installment for such Suspension Quarter at the same time that it pays the Quarterly Installment for such subsequent fiscal quarter as of the end of which the TFQ Gross Profit exceeds the Target Gross Profit (or with respect to the last two fiscal quarters prior to the initial Maturity Date, by the fifteenth (15 th ) day after the end of such subsequent fiscal quarter), and (ii) if the TFQ Gross Profit for each of the two (2) fiscal quarters immediately following such Suspension Quarter does not exceed the Target Gross Profit, Payees shall forfeit any rights to, and Maker shall have no obligation under this Note with respect to, the Quarterly Installment for such Suspension Quarter (and any interest or other amounts payable on the principal or interest included in such forfeited Quarterly Installment). For the avoidance of doubt, on the Maturity Date (subject to extension in accordance with Section 1 of this Note) the outstanding principal balance of this Note together with all accrued interest (net of any Quarterly Installments which were forfeited pursuant to the terms of this Section 3 ) shall be due and payable and shall be paid in full by the Maker to the Payees on the Maturity Date (as extended in accordance with Section 1 of this Note).

 

(b)           For purposes hereof: (i) “ Gross Profit ” shall mean, with respect to any applicable period, the consolidated Revenues of the Lighthouse Companies less the consolidated direct Costs of Services of the Lighthouse Companies, calculated in accordance with GAAP as consistently applied by Maker and its Subsidiaries; (ii) “ Revenue ” shall mean, as determined in accordance with GAAP as consistently applied by Maker and its Subsidiaries: (A) revenue for temporary services (recognized at the time that the service is provided and revenue is recorded on a time and materials basis); (B) temporary contracting revenue (recognized as gross when a Lighthouse Company acts as principal in the transaction and is at risk for collection); (C) revenue that does not meet the criteria for gross revenue reporting (reported on a net basis); (D) revenue generated when a Lighthouse Company permanently places an individual with a client on a contingent basis (recorded at the time of acceptance of employment); and (E) revenue generated when a Lighthouse Company places an individual with a client on a retained basis (recorded ratably over the period the services are rendered); (iii) “ Cost of Services ” means the direct costs to generate the Revenues, including payroll expenses to independent contractors, payroll burdens, payroll taxes and insurance obligations and reimbursable expenses, as determined in accordance with GAAP as consistently applied by Maker and its Subsidiaries; and (iv) “ Closing Gross Profit ” means the Gross Profit for the trailing four (4) full fiscal quarter period as of the fiscal quarter ending June 30, 2015.

 

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(c)           For illustration purposes, the calculation of Gross Profit for the fiscal year ended December 31, 2014 is as set forth on Exhibit A hereto. Any ambiguities in the calculation of the Gross Profit shall be determined in a manner consistent with Exhibit A , or if there is a change in GAAP after the Issuance Date such that the manner contemplated by Exhibit A is no longer in compliance with GAAP, then in such manner that is as close as possible to that contemplated under Exhibit A that is in compliance with the new GAAP principles. In the event any such change in GAAP causes the manner of calculating Gross Profit going forward to differ significantly from the manner in which the Closing Gross Profit was previously calculated, Maker and the Seller Representative on behalf of the Payees shall adjust the Closing Gross Profit by re-calculating the Gross Profit for the trailing four (4) full fiscal quarter period ending December 31, 2014 as if such new GAAP requirements were in effect at the time.

 

(d)           If after the Issuance Date any Lighthouse Company acquires another business (including any portion or part of another business) or enters into a line of business other than the normal business activities of the Company conducted as of the Issuance Date with the prior written consent of Payees (such consent not to be unreasonably withheld, delayed or conditioned), then the TFQ Gross Profit shall be computed taking into consideration the financial results of such acquired or new line of business. If after the Issuance Date any Lighthouse Company acquires another business (including any portion or part of another business) or enters into a line of business other than the normal business activities of the Company conducted as of the Issuance Date without the prior written consent of Payees (such consent not to be unreasonably withheld, delayed or conditioned), then the TFQ Gross Profit for the applicable fiscal quarter in which such acquisition occurs or such new line of business commences and for all subsequent fiscal quarters shall be deemed to be greater than the Target Gross Profit for purposes of this Note, and any payments of principal and interest under this Note after such acquisition occurs or such new line of business commences shall be made when otherwise due in accordance with this Note. Maker hereby agrees that while any obligations are outstanding under this Note, subject to Section 3(e) below, Maker shall, and shall cause the Company to, use their commercially reasonable efforts to maintain a financial reporting system that enables the parties to calculate the Gross Profit for purposes of this Note.

 

(e)           If Maker consummates a Lighthouse Change of Control Transaction while any obligations are outstanding under this Note, Maker will provide in the sale documents for such transaction that the acquirer shall assume and agree to perform Maker’s obligations under this Note if the foregoing would not happen as a matter of law. In the event a Lighthouse Change of Control Transaction occurs (including if deemed to have occurred), then the TFQ Gross Profit for the applicable fiscal quarter in which the Lighthouse Change of Control Transaction occurs and for all subsequent fiscal quarters shall be deemed to be greater than the Target Gross Profit for purposes of this Note, and any payments of principal and interest under this Note after such Lighthouse Change of Control Transaction occurs shall be made when otherwise due in accordance with this Note (except for a Lighthouse Change of Control Transaction described in clause (ii) of the definition thereof, in which case the principal balance of this Note plus all accrued interest under this Note shall immediately accelerate and become due and payable upon the consummation of such Lighthouse Change of Control Transaction).

 

(f)           In the event that while any obligations are outstanding under this Note, a Payee’s employment under such Payee’s Employment Agreement, dated as of the date hereof (each, an “ Employment Agreement ”), between such Payee and the Company is terminated in accordance with the terms of such Employment Agreement either (x) by the Company without Cause (as defined in such Payee’s Employment Agreement) (other than due to death or Disability (as defined in such Payee’s Employment Agreement)) or (y) by such Payee for Good Reason (as defined in such Payee’s Employment Agreement) (a termination described in clauses (x) or (y), a “ Qualifying Termination ”), then, notwithstanding anything to the contrary contained in this Note:

 

(i)           for purposes of determining Maker’s obligations under this Note to such Payee subject to the Qualifying Termination (but not the other Payee), the TFQ Gross Profit for any fiscal quarter ending after the Date of Termination (as defined in such Payee’s Employment Agreement) of such terminated Payee shall be deemed for purposes of this Note to be greater than the Target Gross Profit; and

 

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(ii)          for purposes of determining Maker’s obligations under this Note to the other Payee that has not been subject to the Qualifying Termination, the Target Gross Profit for any period ending after the Date of Termination of the terminated Payee shall be reduced by twenty percent (20%) (with the percentage reduction in the Target Gross Profit for any trailing four (4) fiscal quarter period (the “ TFQ ”) in which the Date of Termination occurs being pro-rated so that such percentage reduction is equal to (A) twenty percent (20%), multiplied by (B) the number of days in the TFQ from and after the Date of Termination, and divided by (C) the total number of days in the TFQ).

 

4.           Procedures for Determining Gross Profit .

 

(a)          Together with each Quarterly Installment (or if no Quarterly Installment is to be paid for such fiscal quarter as a result of a Suspension of Payment as determined by Maker or with respect to a fiscal quarter after the end of the initial Maturity Date in which a Suspension of Payment continues, within fifteen (15) days after the end of such fiscal quarter), Maker will prepare and deliver to the Seller Representative on behalf of Payees a written statement (each, a “ Gross Profit Statement ”) that sets forth Maker’s determination in accordance with the terms of this Note of the Gross Profit for the fiscal quarter most recently ended (the “ Subject Quarter ”) and the TFQ Gross Profit for the TFQ ending as of the Subject Quarter (the “ Subject TFQ ”), whether or not a Suspension of Payment has occurred for the Subject Quarter and, if there was a Suspension Quarter in the either of the two (2) fiscal quarters prior to the Subject Quarter where the Suspension of Payment is continuing, whether the Subject TFQ exceeds the Target Gross Profit such that the Suspension of Payment shall no longer continue with respect to such prior Suspension Quarter. Payees and their Representatives will provide Maker and its Representatives with reasonable access to the books and records, personnel and properties of the Lighthouse Companies, and any other information of the Lighthouse Companies, that Maker reasonably requests in connection with Maker’s preparation of each Gross Profit Statement.

 

(b)          In the event that Maker notifies the Seller Representative on behalf of Payees that there is a Suspension of Payment for the Subject Quarter or that a Suspension of Payment for one or more Suspension Quarters occurring in the prior two (2) fiscal quarters is still continuing after calculating the Subject TFQ, the Seller Representative on behalf of Payees will have the right to have an independent certified public accountant (the “ CPA ”) review and inspect the records of the Lighthouse Companies (and any other records of Maker and its Subsidiaries to the extent relating to the Gross Profit determination) for the Subject Quarter and the Subject TFQ for the purpose of determining the accuracy of the Gross Profit Statement and the Gross Profit calculated therein by delivering written notice thereof within fifteen (15) days after the delivery of the Gross Profit Statement for the Subject Quarter. The CPA selected to conduct such review must be acceptable to both Maker and the Seller Representative (provided, that if the CPA does not accept its appointment or Maker and the Seller Representative cannot agree on the CPA, in either case within ten (10) days after Maker’s receipt of the notice from the Seller Representative requesting the CPA, either Maker or the Seller Representative may require, by written notice to the other, that the CPA be selected by the New York City Regional Office of the American Arbitration Association in accordance with the procedures of the American Arbitration Association). Each of Maker and the Seller Representative on behalf of the Payees will execute a reasonable and customary engagement letter with the CPA with respect to its review that is consistent with the terms of this Section 4 (including the responsibility of the parties for the CPA’s costs and expenses). In connection with the CPA’s review, Maker will permit the CPA, upon reasonable prior written notice, to have access during normal business hours to such records and finance personnel of the Lighthouse Companies (and any other records of Maker and its Subsidiaries to the extent relating to the Gross Profit determination), as may be reasonably necessary to verify Maker’s calculation of the Gross Profit hereunder for the Subject Quarter and the Subject TFQ, including their books, records and working papers. The CPA will promptly and diligently conduct its review and will provide in writing to the Seller Representative and Maker within thirty (30) days after its engagement its final determination with respect to the Gross Profit for the Subject Quarter and the Subject TFQ. Each Payee and Maker will use its commercially reasonable efforts to permit the CPA to timely complete its review.

 

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(c)          In the event that the CPA reasonably determines that the TFQ Gross Profit for the Subject TFQ was equal to or greater than the Target Gross Profit, (i) the parties will be bound by such determination, (ii) Maker shall be responsible for the reasonable fees and expenses charged by the CPA with respect to its review of the Subject Quarter and the Subject TFQ, (iii) if the Seller Representative requested the review by the CPA because Maker notified the Seller Representative that there was a Suspension of Payment for the Subject Quarter, Maker will pay to Payees the Quarterly Installment for the Subject Quarter within fifteen (15) days after Maker’s receipt of the CPA’s written report and (iv) if the Seller Representative requested the review by the CPA because there was a Suspension of Payment for one or more Suspension Quarters occurring in the prior two (2) fiscal quarters and Maker notified the Seller Representative that such Suspension of Payment is still continuing after calculating the Subject TFQ, Maker will pay to Payees the Quarterly Installment for any such Suspension Quarter(s). In the event that the CPA reasonably determines that the TFQ Gross Profit for the Subject TFQ was less than the Target Gross Profit, (i) the parties will be bound by such determination, (ii) Payees shall be responsible for the reasonable fees and expenses charge by the CPA with respect to its review of the Subject Quarter and the Subject TFQ, and (iii) the provisions of Section 3 will apply to such Subject Quarter. For the avoidance of doubt, in the event of a Qualifying Termination of a Payee under Section 3(f) , the provisions of this Section 4 (as modified by Section 3(f)(ii) ) will apply only to the Payee that has not been subject to the Qualifying Termination and payments will be adjusted for such Payee’s share of this Note. Any calculations of TFQ Gross Profit for any subsequent fiscal quarter that includes the Gross Profit for the Subject Quarter or any portion of the Subject TFQ will apply the determinations of the CPA with respect to the Gross Profit for the Subject Quarter and the portion of the Subject TFQ that is included in the TFQ Gross Profit for such subsequent fiscal quarter.

 

5.           Notice to Payees; Prepayment .

 

(a)          Maker shall provide Payees with written notice (i) promptly (but in any event within thirty (30) days) after Maker becomes aware that any order or decree described in Section 7(a)(iii) is entered, (ii) immediately upon the occurrence of any Event of Default listed in clause (iii), (iv), (v), or (vi) of Section 7(a) , or (iii) promptly (but in any event within thirty (30) days) after the consummation of any Lighthouse Change of Control Transaction.

 

(b)          Maker may, in its discretion, prepay this Note in whole or in part prior to the Maturity Date.

 

6.           Conversion .

 

(a)          Subject to Section 6(d) below, Payees shall have the right (the “ Conversion Right ”), exercisable at any time prior to the Maturity Date by providing written notice thereof (a “ Conversion Notice ”) to Maker, to convert all of the outstanding principal and accrued but unpaid interest under this Note (for the avoidance of doubt, (i) taking into account any amounts forfeited prior to such time pursuant to Section 3 and (ii) less the amount of the Quarterly Installments for any Suspension Quarters where a Suspension of Payments is still occurring at such time ( and any interest or other amounts payable on the principal or interest included in such Quarterly Installments)) (such net amount, the “ Outstanding Obligations ”) into shares of Buyer Common Stock at a conversion price (the “ Conversion Price ”) equal to the greater of (i) eighty percent (80%) of the VWAP Price as of the date of Payee’s delivery of the Conversion Notice and (ii) the Buyer Common Stock Price. Upon the issuance of the shares of Buyer Common Stock after conversion of the obligations under this Note in accordance with this Section 6 (the “ Conversion Shares ”), all obligations of Maker under this Note, including any outstanding principal amounts and any accrued but unpaid interest, shall be deemed to be paid and satisfied in full.

 

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(b)          Maker shall reasonably and in good faith make any equitable adjustments to the Conversion Price hereunder to account for any stock dividends, stock splits, reverse stock splits, special dividends and distributions, recapitalizations and other similar transactions occurring after the Issuance Date with respect to the Buyer Common Stock. In the event of any transaction occurring after the Issuance Date in which all outstanding Buyer Common Stock is exchanged for another form of equity of Maker or equity of another entity, the Conversion Right hereunder shall instead permit the outstanding obligations under this Note to be converted into such other form of equity of Maker or equity of such other entity, as applicable, with Maker making any equitable adjustments to the Conversion Price as it reasonably determines in good faith.

 

(c)          The parties hereby acknowledge and agree that the shares of Buyer Common Stock issuable upon conversion of the obligations under this Note in accordance with this Section 6 (the “ Conversion Shares ”) shall be subject to the terms and conditions of Sections 6.7, 6.8 and 7.7 of the Purchase Agreement as if they were “Shares” thereunder. In the event that the obligations under this Note are converted into Conversion Shares prior to the payment of any Adjustment Amount under Section 1.5(e) of the Purchase Agreement, any portion of the Adjustment Amount which would other be payable under Section 1.5(e) of the Purchase Agreement pursuant to an increase or a decrease in the principal amount of the Note shall instead be paid by delivery of Conversion Shares, with each Conversion Share valued at the Conversion Price for such purposes.

 

(d)          Notwithstanding anything to the contrary contained in this Note, at any time when a Suspension of Payment for any Suspension Quarter is in effect and still continuing (including if as a result of Section 3(f) , such Suspension of Payment only applies to one Payee and not the other), the Conversion Right shall not be available to Payees, and Maker shall have no obligation to deliver the Conversion Shares hereunder .

 

7.           Events of Default and Remedies .

 

(a)          Each of the following shall constitute an “ Event of Default ”.

 

(i)          the failure of Maker to pay or otherwise satisfy any amounts due under this Note when due (subject to the Suspension of Payment provided for in Section 3 and the procedure for resolving any disputes), which failure is not cured within three (3) Business Days after written notice of such failure is received by Maker from Payees;

 

(ii)         the default by Maker of any of its covenants or agreements under this Note (other than those described in clause (i) above) in any material respect, which default is not cured within thirty (30) days after written notice of such default is received by Maker from Payees;

 

(iii)        a decree, judgment, or order by a court of competent jurisdiction shall have been entered adjudging Maker as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization of Maker under any bankruptcy or similar law, and such decree or order shall have continued undischarged and unstayed for a period of ninety (90) days; or a decree or order of a court of competent jurisdiction ordering the appointment of a receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of Maker, or for the winding up or liquidation of the affairs of Maker, shall have been entered, and such decree, judgment, or order shall have remained in force undischarged and unstayed for a period of sixty (60) days;

 

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(iv)        Maker shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization under any bankruptcy or similar law or similar statute, or shall consent to the filing of any such petition, or shall consent to the appointment of a custodian, receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of it or any of its assets or property, or shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due;

 

(v)         the voluntary or involuntary dissolution, termination of existence or liquidation of Maker or the voluntary dissolution, termination of existence or liquidation of the Company (in each case, other than in connection with an internal corporate reorganization or a change of control of Maker, in either case, in which the successor to Maker assumes all of Maker’s obligations under this Note); or

 

(vi)        both (A) the occurrence of an “Event of Default” under, and as defined in, either (I) that certain Credit and Security Agreement dated as of April 8, 2015 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Monroe Credit Agreement ”), by and among MidCap Funding X Trust, as Agent thereunder (“ Agent ”), the lenders named therein, PeopleSERVE, Inc., Monroe Staffing Services, LLC, Maker and any additional borrowers thereunder or (II) that certain Credit and Security Agreement, dated as of April 8, 2015 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ PRS Credit Agreement ” and, together with the Monroe Credit Agreement, the “ Credit Agreements ”), by and among Agent, the lenders named therein and PeopleSERVE PRS, Inc., and (B) where Agent has delivered notice to Payees pursuant to the terms of the Subordination Agreement, dated as of the Issuance Date (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Subordination Agreement ”), by and among Payees (as subordinated lenders), Maker, Agent and the lenders named therein, that Permitted Subordinated Loan Payments (as defined in the Subordination Agreement) are not permitted pursuant to the terms of the Subordination Agreement as a result of such Event of Default under a Credit Agreement (a “ Suspension Notice ”); provided , that if such Event of Default under a Credit Agreement is cured or such Suspension Notice is rescinded, in either case, within ninety (90) days after the receipt of the Suspension Notice by Payees, any Event of Default under this clause (vi) as a result of such Event of Default under a Credit Agreement or such Suspension Notice shall be automatically deemed to have been cured, and Payees shall have no rights with respect thereto (other than to collect any payments under this Note which were not otherwise permitted to be paid by Maker as a result thereof).

 

(b)          If an Event of Default occurs and is continuing, then Payees, by providing written notice to Maker (an “ Acceleration Notice ”), may declare to be due and payable immediately all of the Outstanding Obligations, together with all Quarterly Installments which are then suspended pursuant to Section 3(a) ; provided , that upon the occurrence of any Event of Default listed in clause (iii), (iv) or (v) of Section 7(a) , the Outstanding Obligations shall immediately accelerate and become due and payable without the requirement of an Acceleration Notice or any other action on the part of Payees.

 

(c)           Without in any way derogating Payees’ rights upon the occurrence of an Event of Default, if there is an Event of Default under clause (i) of Section 7(a) and either (x) any Quarterly Installment due under this Note or (y) the principal and interest due on the Maturity Date, in either case, is not paid or otherwise satisfied within ten (10) days after such Event of Default, then in addition to its other obligations under this Note, Maker shall pay to Payees a late fee equal to five percent (5%) of the amount of such late payment (for the avoidance of doubt, such late fee will not apply to any accelerated obligations under this Note). If there is an Event of Default which extends beyond any and all applicable notice and cure periods (and whether or not Payees exercise their rights on account thereof), then from the occurrence of such Event of Default and during the continuance of such Event of Default, the Interest Rate for purposes of this Note shall be equal to twelve percent (12%) per annum.

 

8
 

  

8.           Right to Set-Off . The obligations of Maker under this Note may be offset as set forth in and in accordance with Article VII of the Purchase Agreement, any such offset obligations shall be deemed paid for purposes of this Note.

 

9.           Attorneys’ Fees . Except with respect to the costs of the review by the CPA as set forth in Section 4 , the non-prevailing party to any claim that is finally determined under this Note will pay its own expenses and the reasonable documented out-of-pocket expenses, including reasonable attorneys’ fees and costs, reasonably incurred by the other party, including any claims by Payees to collect and/or to enforce any of the obligations of Maker hereunder and/or to enforce any of Payees’ rights, remedies or powers against or in respect of Maker. The parties will request in connection with any such claim that the applicable court determine and declare the prevailing party in such claim.

 

10.          No Transfer of Rights to Receive Payments . Without limiting anything contained in this Note, without the prior written consent of Maker (which may be withheld in its sole discretion), neither Payee may transfer, assign, convey or subject to any Lien any of Payee’s rights under this Note to receive any payments; provided , that this Section 10 and the first restrictive legend at the top of the first page of this Note shall not prevent transfers of such rights by a Payee to (i) such Payee’s estate or heirs (by will or intestate succession) upon such Payee’s death or (ii) one or more trusts for the benefit of the immediate family members of such Payee, provided that, in each case, the transferee acknowledges and agrees to the terms, conditions and obligations set forth in this Note.

 

11.          Incorporation of Purchase Agreement Provisions . The parties hereby agree that Sections 8.2 through 8.7 and Sections 8.9 through 8.14 of the Purchase Agreement are hereby incorporated herein as if set forth in this Agreement, with any reference to the Purchase Agreement therein referring to this Note instead. Without limiting the foregoing, Payees hereby acknowledge and agree that the Seller Representative shall be fully authorized, and shall represent each Payee with respect to the enforcement of, determinations made under, notices provided under, and any disputes in connection with, this Note.

 

12.          Subordination Agreement . Maker and Payees hereby acknowledge that this Note is subject to the terms and conditions of the Subordination Agreement, which is hereby incorporated herein by reference.

 

13.          Miscellaneous . This Note (and to the extent incorporated herein, the Purchase Agreement, the Employment Agreements and the Subordination Agreement) constitutes the entire agreement between the parties with respect to the subject matter hereof and referenced herein, and supersedes and terminates any prior agreements or understanding between the parties or their respective Affiliates (written or oral) with respect to the subject matter hereof. Unless otherwise specified, any reference in this Note to a quarter shall mean a fiscal quarter.

 

[Remainder of page intentionally left blank; signature page follows]

 

9
 

 

IN WITNESS WHEREOF, Maker has caused this Unsecured Convertible Promissory Note to be duly executed and delivered as of the date first set forth above.

 

  STAFFING 360 SOLUTIONS, INC.
     
  By: /s/ Matthew Briand
  Name:  Matthew Briand
  Title:    Chief Executive Officer

 

Acknowledged and agreed as of the date first set forth above:

 

Payees:

 

/s/ Alison Fogel  
Alison Fogel  
   
/s/ David Fogel  
David Fogel  

 

[Signature Page to Two Year Note]

 

 
 

 

Exhibit A
Sample Gross Profit Calculation

 

See attachment.

 

 

 

Exhibit 10.1

 

THIS INSTRUMENT IS SUBORDINATED IN ACCORDANCE WITH AND SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT (AS AMENDED, RESTATED, SUPPLEMENTED OR MODIFIED FROM TIME TO TIME, THE “SUBORDINATION AGREEMENT”), DATED AS OF JULY 8, 2015 BY AND AMONG [PURCHASERS], JOINTLY AND SEVERALLY (COLLECTIVELY, “SUBORDINATED LENDER”), STAFFING 360 SOLUTIONS, INC., A NEVADA CORPORATION (“PARENT”), CERTAIN OF THE PARENT’S SUBSIDIARIES PARTY THERETO AND MIDCAP FUNDING X TRUST, IN ITS CAPACITY AS AGENT (TOGETHER WITH ITS AFFILIATES AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, “SENIOR AGENT”) FOR THE SENIOR LENDERS (AS DEFINED IN THE SUBORDINATION AGREEMENT), AND EACH HOLDER AND TRANSFEREE OF THIS INSTRUMENT OR AGREEMENT, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE SUBORDINATION AGREEMENT.

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “ Agreement ”) is dated as of July 8, 2015, between Staffing 360 Solutions, Inc., a Nevada corporation (the “ Company ”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “ Purchaser ” and collectively, the “ Purchasers ”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “ Securities Act ”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1            Definitions . In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

 

Acquisition Agreement ” means that certain Equity Purchase Agreement, among the Company, Lighthouse Placement Services, LLC, a Massachusetts limited liability company (“ Lighthouse ”), and Allison and David Fogel, dated as of July 8, 2015, pursuant to which, the Company has agreed to acquire all of the issued and outstanding membership interests of Lighthouse.

 

 
 

 

Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act. The term “ control ” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

BHCA ” shall have the meaning ascribed to such term in Section 3.1(oo).

 

Board of Directors ” means the board of directors of the Company.

 

Business Day ” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

Closing ” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

 

Closing Date ” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities, in each case, have been satisfied or waived.

 

Closing Statement ” means the Closing Statement in the form set forth on Annex A attached hereto.

 

Commission ” means the United States Securities and Exchange Commission.

 

Common Stock ” means the common stock of the Company, par value $0.00001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

Common Stock Equivalents ” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

Company Counsel ” means Ellenoff Grossman & Schole LLP, with offices located at 1345 Avenue of the Americas, New York, New York 10105-0302.

 

Conversion Price ” shall have the meaning ascribed to such term in the Debentures.

 

Conversion Shares ” shall have the meaning ascribed to such term in the Debentures.

 

 
 

 

Debentures ” means the 8% Senior Secured Convertible Debentures due, subject to the terms therein, April 1, 2017, issued by the Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.

 

Disclosure Schedules ” shall have the meaning ascribed to such term in Section 3.1.

 

Disqualification Event ” shall have the meaning ascribed to such term in Section 3.1(qq).

 

Evaluation Date ” shall have the meaning ascribed to such term in Section 3.1(s).

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

Exempt Issuance ” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, (d) shares of Common Stock pursuant to conversions of any of the Company’s trade accounts payable in the ordinary course of business, consistent with past practice, and (e) shares of Common Stock pursuant to the exercise of any warrant which was issued to a Senior Lender on or before the date hereof.

 

Exercise Price ” shall have the meaning ascribed to such term in the Warrants.

 

FCPA ” means the Foreign Corrupt Practices Act of 1977, as amended.

 

Federal Reserve ” shall have the meaning ascribed to such term in Section 3.1(oo).

 

GAAP ” shall have the meaning ascribed to such term in Section 3.1(h).

 

 
 

 

Indebtedness ” shall have the meaning ascribed to such term in Section 3.1(bb).

 

Intellectual Property Rights ” shall have the meaning ascribed to such term in Section 3.1(p).

 

Issuer Covered Person ” shall have the meaning ascribed to such term in Section 3.1(qq).

 

Knowledge ” means, with respect to a specific Person, the actual or constructive knowledge of such Person (or if such Person is an entity, any director, manager or other executive officer of such Person), after due inquiry.

 

Legend Removal Date ” shall have the meaning ascribed to such term in Section 4.1(c).

 

Liens ” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

Material Adverse Effect ” shall have the meaning assigned to such term in Section 3.1(b).

 

Material Permits ” shall have the meaning ascribed to such term in Section 3.1(n).

 

Maximum Rate ” shall have the meaning ascribed to such term in Section 5.17.

 

Money Laundering Laws ” shall have the meaning ascribed to such term in Section 3.1(pp).

 

OFAC ” shall have the meaning ascribed to such term in Section 3.1(mm).

 

Participation Maximum ” shall have the meaning ascribed to such term in Section 4.12(a).

 

PC ” means Pryor Cashman LLP, with offices located at 7 Times Square, New York, New York 10036.

 

Perfection Certificate ” means the Perfection Certificate executed by the Company and delivered to the Purchasers hereunder, in the form of Exhibit B attached hereto.

 

Permitted Indebtedness ” means (a) the indebtedness evidenced by the Debentures, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(aa) , lease obligations and purchase money indebtedness of up to $500,000, in the aggregate, incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets and (c) the Senior Loans.

 

 
 

 

Permitted Lien ” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under subclauses (a) and (c) thereunder, and (d) Liens incurred in connection with Permitted Indebtedness under subclause (b) thereunder, provided that such Liens are not secured by assets of the Company or its U.S. Subsidiaries other than the assets so acquired or leased, other than as set forth on Schedule 3.1(aa).

 

Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

Pledged Securities ” means any and all certificates and other instruments representing or evidencing all of the capital stock and other equity interests of the U.S. Subsidiaries.

 

Pre-Notice ” shall have the meaning ascribed to such term in Section 4.12(b).

 

Principal Amount ” means, as to each Purchaser, the amounts set forth below such Purchaser’s signature block on the signature pages hereto next to the heading “Principal Amount,” in United States Dollars, which shall equal such Purchaser’s Subscription Amount multiplied by 1.12.

 

Pro Rata Portion ” shall have the meaning ascribed to such term in Section 4.12(e).

 

Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

Public Information Failure ” shall have the meaning ascribed to such term in Section 4.3(b).

 

Public Information Failure Payments ” shall have the meaning ascribed to such term in Section 4.3(b).

 

Purchaser Party ” shall have the meaning ascribed to such term in Section 4.10.

 

 
 

 

Required Approvals ” shall have the meaning ascribed to such term in Section 3.1(e).

 

Required Minimum ” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise in full of all Warrants or conversion in full of all Debentures, ignoring any conversion or exercise limits set forth therein, and assuming that each of the Conversion Price and Exercise Price is at all times on and after the date of determination 75% of the then Conversion Price or Exercise Price, as applicable, on the Trading Day immediately prior to the date of determination.

 

Rule 144 ” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

Rule 424 ” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

SEC Reports ” shall have the meaning ascribed to such term in Section 3.1(h).

 

Securities ” means the Debentures, the Warrants, the Conversion Shares and the Warrant Shares.

 

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Security Agreement ” means the Security Agreement, dated as of the date hereof, among the Company and the Purchasers, in the form of Exhibit C attached hereto.

 

Security Documents ” shall mean the Security Agreement, the Subsidiary Guarantees, the original Pledged Securities, along with medallion guaranteed executed blank stock powers to the Pledged Securities, the Perfection Certificate, and any other documents and filing required thereunder in order to grant the Purchasers a second priority security interest in the assets of the Company and the Subsidiaries as provided in the Security Agreement, including all UCC-1 filing receipts.

 

Senior Loans ” shall have the meaning ascribed to such term in the Subordination Agreement.

 

Senior Lenders ” means MidCap Funding X Trust and those lenders parties to: (i) that certain Credit and Security Agreement dated April 8, 2015 with PeopleSERVE, Inc., Monroe Staffing Services, LLC and the Company, and (ii) that certain Credit and Security Agreement dated April 8, 2015 with PeopleSERVE PRS, Inc. and the Company.

 

 
 

 

Shares ” means an aggregate of 1,250,000 shares of Common Stock to be issued to the Purchasers.

 

Short Sales ” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). 

 

Subordination Agreement ” means the Subordination Agreement, dated July 8, 2015, by and among the Purchasers, the Company and Senior Lenders.

 

Subscription Amount ” means, as to each Purchaser, the aggregate amount to be paid for Debentures and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

 

Subsequent Financing ” shall have the meaning ascribed to such term in Section 4.12(a).

 

Subsequent Financing Notice ” shall have the meaning ascribed to such term in Section 4.12(b).

 

Subsidiary ” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

 

U.S. Subsidiary ” means any United States Subsidiary of the Company except PeopleSERVE PRS, Inc. and shall, where applicable, also include any direct or indirect United States Subsidiary of the Company formed or acquired after the date hereof.

 

Subsidiary Guarantee ” means the Subsidiary Guarantee, dated the date hereof, by each U.S. Subsidiary in favor of the Purchasers, in the form of Exhibit D attached hereto.

 

Trading Day ” means a day on which the principal Trading Market is open for trading.

 

Trading Market ” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).

 

Transaction Documents ” means this Agreement, the Debentures, the Warrants, the Subordination Agreement, the Security Documents, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

 
 

 

Transfer Agent ” means VStock Transfer, LLC, the current transfer agent of the Company, with a mailing address of 18 Lafayette Place, Woodmere, New York 11598 and a facsimile number of (646) 536-3179, and any successor transfer agent of the Company.

 

Underlying Shares ” means the Conversion Shares and Warrant Shares, in each case without respect to any limitation or restriction on the conversion of the Debentures or the exercise of the Warrants.

 

Variable Rate Transaction ” shall have the meaning ascribed to such term in Section 4.13(a).

 

VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

Warrants ” means, collectively, (i) the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to five years, in the form of Exhibit E attached hereto (the “ A Warrants ”), and (ii) the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable in accordance with the terms thereof and shall be surrendered by the Purchasers upon the full and timely payment by the Company of all amounts due, including principal and interest thereon, under the Debentures and have a term of exercise equal to five years, in the form of Exhibit F attached hereto (the “ B Warrants ”).

 

Warrant Shares ” means the shares of Common Stock issuable upon exercise of the Warrants.

 

 
 

 

ARTICLE II.

PURCHASE AND SALE

 

2.1            Closing . On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to an aggregate of $3,920,000 in Principal Amount of the Debentures (corresponding to an aggregate Subscription Amount of up to $3,500,000). Each Purchaser shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser, and the Company shall deliver to each Purchaser its respective Debenture, A Warrant and B Warrant, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of PC or such other location as the parties shall mutually agree.

 

2.2            Deliveries .

 

(a)          On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i)          this Agreement duly executed by the Company;

 

(ii)         a legal opinion of Company Counsel, substantially in the form of Exhibit G attached hereto;

 

(iii)        a Debenture with a principal amount equal to such Purchaser’s Subscription Amount multiplied by 1.12, registered in the name of such Purchaser;

 

(iv)        an A Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 100% of the initial Principal Amount of the Debenture to be issued to such Purchaser divided by $1.00, with an exercise price per share equal to $1.00 , subject to adjustment therein;

 

(v)         a B Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 100% of the initial Principal Amount of the Debenture to be issued to such Purchaser divided by $1.00, with an exercise price per share equal to $1.00 , subject to adjustment therein;

 

(vi)        a pro rata portion of the Shares based on the percentage of such Purchaser’s Subscription Amount respective to the aggregate Subscription Amount of $3,500,000; and

 

(vii)       the Security Agreement, duly executed by the Company and each U.S. Subsidiary, along with all of the Security Documents, including the Subsidiary Guarantees, duly executed by the parties thereto, any original Pledged Securities and corresponding stock powers that are not and will not be held in escrow by the Senior Lenders, and the Perfection Certificate.

 

(b)          On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:

 

 
 

 

(i)          this Agreement duly executed by such Purchaser;

 

(ii)         such Purchaser’s Subscription Amount by wire transfer to the account specified in writing by the Company; and

 

(iii)        the Security Agreement duly executed by such Purchaser.

 

2.3            Closing Conditions .

 

(a)          The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

 

(i)          the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

(ii)         all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

 

(iii)        the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

 

(b)          The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

 

(i)          the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

(ii)         all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

 

(iii)        the delivery of written evidence satisfactory to the Purchasers of the consummation of the transactions contemplated by the Acquisition Agreement, which solely for purposes of Article III hereof, shall be deemed to have occurred at the moment in time immediately following the Closing;

 

(iv)        the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

 

(v)         there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

 

 
 

 

(vi)        from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1            Representations and Warranties of the Company . Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser, as of the date hereof and as of Closing (unless as of a specific date therein in which case as of such date):

 

(a)           Subsidiaries . All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a) . Except as set forth on Schedule 3.1(a) , the Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

 

(b)           Organization and Qualification . The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization as set forth on Schedule 3.1(b)(i) , with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary as set forth on Schedule 3.1(b)(ii) , except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in, individually or in the aggregate: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries that results, in the aggregate, in the loss of over 1% of the Company’s revenue, on a consolidated basis, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document or to consummate the transactions contemplated hereby (any of (i), (ii) or (iii), a “ Material Adverse Effect ”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

 
 

 

(c)           Authorization; Enforcement .

 

(i)          The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(ii)         With respect to the Subsidiary Guarantee, each of the U.S. Subsidiaries has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by such agreement and otherwise to carry out its obligations thereunder. The execution and delivery of the Subsidiary Guarantees and the consummation by the Company of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company, and no further action is required by the respective U.S. Subsidiary, its managers or its members in connection therewith. The Subsidiary Guarantee has been (or upon delivery will have been) duly executed by the respective U.S. Subsidiaries and, when delivered in accordance with the terms thereof, will constitute the valid and binding obligation of the respective U.S. Subsidiary enforceable against such U.S. Subsidiary in accordance with its terms, except: (A) as limited by general equitable principals and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (B) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (C) insofar as indemnification and contribution provisions may be limited by applicable law.

 

 
 

 

(d)           No Conflicts . The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e)           Filings, Consents and Approvals . The Company and the Subsidiaries are not required to obtain any consent, waiver, approval, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company and the U.S. Subsidiaries of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.6 of this Agreement, (ii) consent of Senior Lenders and (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the “ Required Approvals ”).

 

(f)           Issuance of the Securities . The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to the Required Minimum on the date hereof.

 

 
 

 

(g)           Capitalization . The capitalization of the Company is as set forth on Schedule 3.1(g) , which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof and shall include a pro-forma capitalization giving effect to the transactions contemplated by the Acquisition Agreement. Except as set forth on Schedule 3.1(g) : (i) the Company has not issued any capital stock since its most recently filed periodic report or current report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report or current report under the Exchange Act; (ii) no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents; (iii) except as a result of the purchase and sale of the Securities hereunder, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock or the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents or capital stock of any Subsidiary; (iv) the issuance and sale of the Securities hereunder will not obligate the Company or any Subsidiary to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities; (v) there are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary and (vi) the Company does not have any stock appreciation rights or “phantom stock” plans or any similar plan or agreement. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the Knowledge of the Company, between or among any of the Company’s stockholders.

 

(h)           SEC Reports; Financial Statements . The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two (2) years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “ SEC Reports ”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“ GAAP ”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

 
 

 

(i)           Material Changes; Undisclosed Events, Liabilities or Developments . Since the date of the latest audited financial statements included within the SEC Reports, except as disclosed in a subsequent SEC Report filed prior to the date hereof or as set forth on Schedule 3.1(i) : (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company and the Subsidiaries have not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s or the Subsidiaries’ financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company and the Subsidiaries have not altered their method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement, the transactions contemplated by the Acquisition Agreement or as set forth on Schedule 3.1(i) , no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one (1) Trading Day prior to the date that this representation is made.

 

(j)           Litigation . Except as set forth on Schedule 3.1(j) , there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the Knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “ Action ”) which (i) adversely affects or challenges the legality, validity or enforceability of, or adversely affects the performance by the Company or the U.S. Subsidiaries of their respective obligations under, any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the Knowledge of the Company, there is no pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

 

 
 

 

(k)           Labor Relations . No labor dispute exists or, to the Knowledge of the Company, is imminent with respect to any of the employees of the Company or the Subsidiaries, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. To the Knowledge of the Company, no director, manager or executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such director, manager or executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(l)           Compliance . Neither the Company nor any Subsidiary: (i) is in default under, in conflict with, or in violation or breach of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel), nor has the Company or any Subsidiary received notice of a claim that it is in default under, in conflict with, or in violation or breach of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default, conflict, violation or breach has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) to the Knowledge of the Company, is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

 
 

 

(m)           Environmental Laws .           The Company and its Subsidiaries (i) are in compliance with all federal, state, local and foreign laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “ Hazardous Materials ”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder (“ Environmental Laws ”), (ii) have received all permits licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (iii) are in compliance with all terms and conditions of any such permit, license or approval where in each clause (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(n)           Regulatory Permits . The Company and the Subsidiaries possess all certificates, approvals, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not have or reasonably be expected to result in a Material Adverse Effect (“ Material Permits ”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

 

(o)           Title to Assets . The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Permitted Liens, (ii) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (iii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

 

(p)           Intellectual Property . The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports as necessary or required for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “ Intellectual Property Rights ”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise has any Knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to have a Material Adverse Effect. To the Knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights, except where failure to do so could not have or reasonably be expected to have a Material Adverse Effect, individually or in the aggregate.

 

 
 

 

(q)           Insurance . The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged that are sufficient for compliance with all applicable laws and contracts to which each of the Company and the Subsidiaries is a party or by which each of them is bound, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount. True and complete copies of such insurance policies have been made available to the Purchasers. Such insurance policies are in full force and effect and shall remain in full force and effect following the consummation of the transactions contemplated by this Agreement. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

 

(r)           Transactions With Affiliates and Employees . Except as set forth in the SEC Reports, none of the officers or directors of the Company or any Subsidiary and, to the Knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including, without limitation, any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from providing for the borrowing of money from or lending of money to, or otherwise requiring payments to or from any officer, director or such employee or, to the Knowledge of the Company, any entity in which any officer, director or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

 

 
 

 

(s)           Sarbanes-Oxley; Internal Accounting Controls . The Company and the Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “ Evaluation Date ”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) that could have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries.

 

(t)           Certain Fees . Except as set forth on Schedule 3.1(t) , no brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiaries to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section 3.1(t) that may be due in connection with the transactions contemplated by the Transaction Documents.

 

(u)           Private Placement . Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market on which any securities of the Company are listed or designated.

 

(v)          Investment Company . The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.

 

 
 

 

(w)           Registration Rights . Except as set forth on Schedule 3.1(w) , no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company or any Subsidiaries.

 

(x)           Listing and Maintenance Requirements . The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its Knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the twelve (12) months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. The Common Stock is currently eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer.

 

(y)           Disclosure . All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve (12) months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

 

(z)           No Integrated Offering . Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, and except as disclosed on Schedule 3.1(z) , neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

 

 
 

 

(aa)          Solvency . Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities, provided, however that contingent liabilities with respect to the NewCSI litigation shall be valued at zero except to the extent the same have been reduced to judgment) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive hereunder, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its existing debt). The Company has no Knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one (1) year from the Closing Date. Schedule 3.1(aa) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments, and shall include a pro-forma schedule giving effect to the transactions contemplated by the Acquisition Agreement. For the purposes of this Agreement, “ Indebtedness ” means (x) any liabilities for borrowed money or amounts owed in excess of $100,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $100,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

(bb)          Tax Status . Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.

 

 
 

 

(cc)          No General Solicitation . Neither the Company nor any Person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers pursuant to this Agreement and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

 

(dd)          Foreign Corrupt Practices . Neither the Company nor any Subsidiary, nor to the Knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any Person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of FCPA.

 

(ee)          Accountants . The Company’s and the Subsidiaries’ accounting firms are set forth on Schedule 3.1(ff) of the Disclosure Schedules. To the Knowledge and belief of the Company, each such accounting firm: (i) is a registered public accounting firm as required by the Exchange Act and (ii) with respect to the Company’s accounting firm, shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the fiscal year ended May 31, 2015.

 

(ff)          Seniority . Except as set forth on Schedule 3.1(gg) , as of the Closing Date, no Indebtedness or other claim against the Company or the Subsidiaries is senior to the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than Indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby).

 

(gg)          No Disagreements with Accountants and Lawyers . There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the Subsidiaries, on one hand, and their respective accountants and lawyers formerly or presently employed by the Company and the Subsidiaries, on the other hand, and the Company and the Subsidiaries are current with respect to any fees owed to their respective accountants and lawyers which could affect the Company’s or the Subsidiaries’ ability to perform any of their respective obligations under any of the Transaction Documents.

 

(hh)          Acknowledgment Regarding Purchasers’ Purchase of Securities . The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

 
 

 

(ii)          Acknowledgment Regarding Purchaser’s Trading Activity . Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) one (1) or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders’ equity interests in the Company at and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

 

(jj)          Regulation M Compliance .  The Company has not, and to its Knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.

 

(kk)          Stock Option Plans . Each stock option granted by the Company under the Company’s stock option plan was granted (i) in accordance with the terms of the Company’s stock option plan and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted under the Company’s stock option plan has been backdated. The Company has not knowingly granted, and there is no and has been no Company policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results or prospects.

 

 
 

 

(ll)           Office of Foreign Assets Control . Neither the Company nor any Subsidiary nor, to the Company’s Knowledge, any director, manager, officer, agent, employee or Affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“ OFAC ”).

 

(mm)          U.S. Real Property Holding Corporation . Neither the Company nor any of its Subsidiaries is or has been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s request.

 

(nn)          Bank Holding Company Act . Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “ BHCA ”) or to regulation by the Board of Governors of the Federal Reserve System (the “ Federal Reserve ”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA or to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA or to regulation by the Federal Reserve.

 

(oo)          Money Laundering . The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “ Money Laundering Laws ”), and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the Knowledge of the Company or any Subsidiary, threatened.

 

(pp)          No Disqualification Events . With respect to the Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, none of the Company, any of its predecessors, any Affiliated issuer, any director, executive officer or other officer of the Company participating in the offering hereunder, any beneficial owner of twenty percent (20%) or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “ Issuer Covered Person ”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “ Disqualification Event ”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Purchasers a copy of any disclosures provided thereunder.

 

 
 

 

(qq)          Other Covered Persons . The Company is not aware of any Person (other than any Issuer Covered Person) that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with the sale of any Regulation D Securities.

 

(rr)          Notice of Disqualification Events . The Company will notify the Purchasers in writing, prior to the Closing Date, of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person.

 

3.2            Representations and Warranties of the Purchasers . Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein in which case as of such date):

 

(a)           Organization; Authority . Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and the performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof or thereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(b)           Own Account . Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other Persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to a registration statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

 

 
 

 

(c)           Purchaser Status . At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it exercises any Warrants or converts any Debentures it will be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act.

 

(d)           Experience of Such Purchaser . Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

(e)           General Solicitation . Such Purchaser is not, to such Purchaser’s Knowledge, purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

 

(f)           Access to Information . Such Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules thereto) and the SEC Reports and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.

 

(g)           Certain Transactions and Confidentiality . Other than consummating the transactions contemplated under the Transaction Documents, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated under the Transaction Documents and ending immediately prior to the execution hereof. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement or to such Purchaser’s representatives, including, without limitation, its officers, directors, partners, legal and other advisors, employees, agents and Affiliates, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with the transactions contemplated under the Transaction Documents (including the existence and terms of the Transaction Documents). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect Short Sales or similar transactions in the future.

 

 
 

 

The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1            Transfer Restrictions .

 

(a)          The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights and obligations of a Purchaser under this Agreement.

 

(b)          The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

 

 
 

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the applicable Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, without limitation, if the Securities are subject to registration, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.

 

(c)          Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Underlying Shares pursuant to Rule 144, (iii) if such Underlying Shares are eligible for sale under Rule 144 or (iv) if such legend is not required under the applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent if required by the Transfer Agent to effect the removal of the legend hereunder and shall pay all fees and expenses associated therewith, provided all requirements are met. If all or any portion of a Debenture is converted or Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 or if such legend is not otherwise required under the applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. The Company agrees that at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three (3) Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such third (3 rd ) Trading Day, the “ Legend Removal Date ”), deliver or cause to be delivered to such Purchaser a certificate representing such Underlying Shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4.1. Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser.

 

 
 

 

(d)          In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, the greater of (i) as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal of the restrictive legend, and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend; and (ii) if the Company has not delivered such certificates by the Legend Removal Date and if, after the Legend Removal Date, such Purchaser purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Purchaser of all or any portion of the number of shares of Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock that such Purchaser anticipated receiving from the Company without any restrictive legend, then, the amount, if any, by which (x) the Purchaser’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased exceeds the product of (y) (A) such number of Underlying Shares that the Company was required to deliver to such Purchaser by the Legend Removal Date, multiplied by (B) the lowest closing sale price of the Common Stock on any Trading Day during the period commencing on the date of the delivery by such Purchaser to the Company of the applicable Underlying Shares and ending on the date of such delivery and payment under this clause (ii).

 

(e)          Each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

 

4.2            Acknowledgment of Dilution . The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

 

 
 

  

4.3           Furnishing of Information; Public Information .

 

(a)          Until such time that (i) no Purchaser owns Securities or (ii) the Warrants have expired, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act, if the Common Stock is so registered, and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act.

 

(b) At any time during the period commencing from the six (6) month anniversary of the date hereof and ending at such time that all of the Securities may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, if the Company (x) (i) shall fail for any reason to satisfy the current public information requirement under Rule 144(c) or (ii) has ever been an issuer described in Rule 144 (i)(1)(i) or hereafter becomes an issuer described in Rule 144 (i)(1)(i), and (y) the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (a “ Public Information Failure ”), then, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate Subscription Amount of such Purchaser’s Securities on the day of a Public Information Failure and on every thirtieth (30 th ) day (pro rated for periods totaling less than thirty (30) days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required  for the Purchasers to transfer the Underlying Shares pursuant to Rule 144.  The payments to which a Purchaser shall be entitled pursuant to this Section 4.3(b) are referred to herein as “ Public Information Failure Payments .”  Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3 rd ) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured.  In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of one and one-half percent (1.5%) per month (pro rated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for any Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

 
 

 

 

4.4            Integration . The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction, unless shareholder approval is obtained before the closing of such subsequent transaction.

 

4.5            Conversion and Exercise Procedures . Each of the form of Notice of Exercise included in the Warrants and the form of Notice of Conversion included in the Debentures set forth the totality of the procedures required of the Purchasers in order to exercise the Warrants or convert the Debentures. Without limiting the preceding sentences, no ink-original Notice of Exercise or Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise or Notice of Conversion form be required in order to exercise the Warrants or convert the Debentures. No additional legal opinion, other information or instructions shall be required of the Purchasers to exercise their Warrants or convert their Debentures. The Company shall honor exercises of the Warrants and conversions of the Debentures and shall deliver the applicable Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

 

4.6            Securities Laws Disclosure; Publicity . The Company shall (a) by 9:00 a.m. (New York City time) on the Trading Day immediately following the date hereof, (a) issue a press release disclosing the material terms of the transactions contemplated hereby, and (b) file with the Commission, within the time required by the Exchange Act, a Current Report on Form 8-K, including the Transaction Documents as exhibits thereto. From and after the filing of such press release and Form 8-K, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries or its Affiliates, or any of their respective officers, directors, managers, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon the filing of such press release and Form 8-K, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or its Affiliates, or any of their respective officers, directors, managers, employees or agents, on the one hand, and any of the Purchasers or any of their Affiliates, on the other hand, shall terminate. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated under the Transaction Documents, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not be unreasonably withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this Section 4.6.

 

 
 

  

4.7            Shareholder Rights Plan . No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.

 

4.8            Non-Public Information . To the extent that the Company delivers any material, non-public information to a Purchaser without such Purchaser’s consent, the Company hereby covenants and agrees that such Purchaser shall not have any duty of confidentiality to the Company, any of its Subsidiaries or its Affiliates, or any of their respective officers, directors, managers, employees or agents, nor a duty to the Company, any of its Subsidiaries or its Affiliates, or any of their respective officers, directors, managers, employees or agents, not to trade on the basis of such material, non-public information; provided , that the Purchasers shall remain subject to applicable law. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall within one (1) business day file such notice with the Commission pursuant to a Current Report on Form 8-K. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenants of this Section 4.8 in effecting transactions in securities of the Company.

 

4.9            Use of Proceeds . Except as set forth on Schedule 4.9 attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and shall not use such proceeds: (a) for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) for the redemption of any Common Stock or Common Stock Equivalents, (c) for the settlement of any outstanding litigation or (d) in violation of FCPA or OFAC regulations.

 

 
 

  

4.10          Indemnification of Purchasers . Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling Persons (each, a “ Purchaser Party ”), harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations or warranties, or any failure to perform or comply with any covenants or agreements, made by the Company in this Agreement or in any other Transaction Documents or (b) any Proceeding instituted against any Purchaser Party, in any capacity, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such Proceeding is based upon a breach of such Purchaser Party’s representations or warranties, or any failure of such Purchaser Party to perform or comply with any of its covenants or agreements, in this Agreement or in any other Transaction Documents, or any violations by such Purchaser Party of state or federal securities laws, or any conduct by such Purchaser Party which constitutes fraud, gross negligence or willful misconduct). If any Action or Proceeding shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such Action or Proceeding and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such Action or Proceeding there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one (1) such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (x) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (y) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations or warranties, or any failure to perform or comply with any of the covenants or agreements, made by such Purchaser Party in this Agreement or in any other Transaction Documents. The indemnification required by this Section 4.10 shall be made by periodic payments of the indemnity amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or other Persons and any liabilities the Company may be subject to pursuant to applicable law.

 

4.11         Reservation and Listing of Securities .

 

(a)          The Company shall maintain a reserve of the Required Minimum from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to timely fulfill its obligations in full under the Transaction Documents.

 

(b)          If, on any date of determination, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use its best efforts to promptly amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the seventy-fifth (75 th ) day after such date of determination.

 

 
 

 

(c)          The Company shall, if applicable: (i) in the time and manner required by the principal Trading Market on which any of the Company’s securities are listed or designated, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing or quotation on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing or quotation and (iv) maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market. The Company agrees to maintain the eligibility of the Common Stock for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.

 

4.12         Restriction on Future Financing; Participation in Future Financing .

 

(a)          From the date hereof until the date that is the twelve (12) month anniversary of the Closing Date, upon any issuance by the Company or any of its Subsidiaries of Common Stock, Common Stock Equivalents, Indebtedness or any combination thereof (a “ Subsequent Financing ”), each Purchaser shall have the right to participate in such Subsequent Financing in an amount of up to one hundred percent (100%) of the Subsequent Financing (the “ Participation Maximum ”) on the same terms, conditions and price provided for in the Subsequent Financing.

 

(b)          At least five (5) Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“ Pre-Notice ”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “ Subsequent Financing Notice ”). Upon the request of a Purchaser for a Subsequent Financing Notice, and only upon a request by such Purchaser, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.

 

(c)          Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company that such Purchaser is willing to participate (or to cause their designees to participate) in the Subsequent Financing by not later than 5:30 p.m. (New York City time) on the fifth (5 th ) Trading Day after all of the Purchasers have received the Pre-Notice, which written notice shall include the amount of such Purchaser’s participation and representations and warranties that such Purchaser has such funds ready, willing and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no such notice from a Purchaser as of such fifth (5 th ) Trading Day, such Purchaser shall be deemed to have notified the Company that it does not elect to participate.

 

 
 

 

(d)          If by 5:30 p.m. (New York City time) on the fifth (5 th ) Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to the Subsequent Financing Notice from Purchasers desiring to participate (or to cause their designees to participate) in the Subsequent Financing less than, in the aggregate, the total amount of the Participation Maximum, then the Company may effect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.

 

(e)          If by 5:30 p.m. (New York City time) on the fifth (5 th ) Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to the Subsequent Financing Notice from Purchasers desiring to participate (or to cause their designees to participate) in the Subsequent Financing more than, in the aggregate, the total amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum.  “ Pro Rata Portion ” means the ratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating under this Section 4.12 and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date by all Purchasers participating under this Section 4.12.

 

(f)          If a Subsequent Financing is not consummated for any reason on the terms set forth in the applicable Subsequent Financing Notice within thirty (30) Trading Days after the date of such Subsequent Financing Notice, then the Company shall provide the Purchasers with a second Subsequent Financing Notice and the Purchasers shall have the right to participate in such second Subsequent Financing in accordance with the terms of this Section 4.12.

 

(g)          The Company and each Purchaser agree that if any Purchaser elects to participate in the Subsequent Financing, the transaction documents related to the Subsequent Financing shall not include any term or provision whereby such Purchaser shall be required to agree to any restrictions on trading as to any of the Securities purchased hereunder or be required to consent to any amendment to or termination of, or grant any waiver, release or the like under or in connection with, this Agreement or any other Transaction Document, without the prior written consent of such Purchaser.

 

(h)           Notwithstanding anything to the contrary in this Section 4.12, and unless otherwise agreed to by such Purchaser, the Company shall either confirm in writing to such Purchaser that the transaction with respect to the Subsequent Financing has been abandoned or shall publicly disclose its intention to issue the securities in the Subsequent Financing in such a manner such that such Purchaser will not be in possession of any material, non-public information, in each case by no later than the tenth (10th) Business Day following receipt of the Subsequent Financing Notice by the Purchasers. If by such tenth (10th) Business Day, no notice regarding the abandonment of such transaction has been received by such Purchaser and no public disclosure regarding a transaction with respect to the Subsequent Financing has been made, such transaction shall be deemed to have been abandoned and such Purchaser shall not be deemed to be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries.

 

 
 

 

(i)          Notwithstanding the foregoing, the provisions of this Section 4.12 shall not apply in respect of any Exempt Issuance.

 

4.13         Subsequent Equity Sales .

 

(a)          From the date hereof until the earlier of (i) such time as no Purchaser holds any of the Warrants or (ii) the Warrants have expired, the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (or any combination of units thereof) involving a Variable Rate Transaction. “ Variable Rate Transaction ” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion price, exercise price or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

 

(b)          From the date hereof until such time that the Debentures are no longer outstanding, neither the Company nor any Subsidiary shall make any issuance whatsoever of Common Stock or Common Stock Equivalents at an effective price per share less than $1.00 (subject to adjustment for forward and reverse stock splits and the like that occur after the date hereof). From the time that the Debentures are no longer outstanding and for so long as any Warrants remain outstanding, the Company and each Purchaser (severally and not jointly with any other Purchaser) agree that, in each instance that the Company desires or intends to make any issuance whatsoever of Common Stock or Common Stock Equivalents at an effective price per share less than $1.00 (subject to adjustment for forward and reverse stock splits and the like that occur after the date hereof), the Company shall pay to each Purchaser, in cash, an amount equal to twenty percent (20%) of such Purchaser’s Subscription Amount hereunder. Any issuance of Common Stock or Common Stock Equivalents pursuant to the foregoing sentence shall reduce the exercise price of each outstanding Warrant to the effective price per share of such new issuance. In the event that the effective price per share of such new issuance is not set forth in the definitive agreements pursuant to which such issuance is contemplated, then for purposes of this Section 4.13(b), the effective price per share shall be calculated as the VWAP for the twenty (20) Trading Days immediately preceding, but not including, the date of such issuance (the “ 20-Day VWAP ”). For the avoidance of doubt, no Warrant exercise price shall be increased pursuant to this Section 4.13(b) in the event that the 20-Day VWAP is at or above $1.00. Additionally, for the avoidance of doubt, no issuance of Common Stock or Common Stock Equivalents by the Company pursuant to the second sentence of this Section 4.13(b) shall be effective unless and until such time that all Purchasers have received their respective cash payment. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any issuance in violation of this Section 4.13(b), which remedy shall be in addition to any right to collect damages.

 

 
 

 

(c)          Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of (A) an Exempt Issuance, except that (i) no Variable Rate Transaction shall be an Exempt Issuance and (ii) while the Debentures remain outstanding, any issuance of Common Stock or Common Stock Equivalents pursuant to subclause (c) of the definition of Exempt Issuance shall not be made at an effective price per share less than $0.80 (subject to adjustment for forward and reverse stock splits and the like that occur after the date hereof) and (B) an issuance as set forth on Schedule 4.13 .

 

4.14          Equal Treatment of Purchasers . No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents, unless the same consideration is also offered to all of the parties to such Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Debentures in amounts which are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time. For the avoidance of doubt, this Section 4.14 constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

 

4.15          Certain Transactions and Confidentiality . Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf, will execute any purchases or sales, including Short Sales, of any of the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by the Transaction Documents are first publicly announced pursuant to the initial press release as described in Section 4.6.  Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by the Transaction Documents are publicly disclosed by the Company pursuant to the initial press release as described in Section 4.6, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules. Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by the Transaction Documents are first publicly announced pursuant to the initial press release as described in Section 4.6, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by the Transaction Documents are first publicly announced pursuant to the initial press release as described in Section 4.6 and (iii) no Purchaser shall have any duty of confidentiality or duty not to trade in the securities of the Company to the Company or its Subsidiaries after the issuance of the initial press release as described in Section 4.6.  Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.

 

 
 

  

4.16          Form D; Blue Sky Filings . The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

 

ARTICLE V.

MISCELLANEOUS

 

5.1            Termination .  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before July 15, 2015; provided , however , that such termination will not affect the right of any party to sue for any breach by any other party (or parties).

 

5.2            Fees and Expenses . At the Closing, the Company has agreed to reimburse Hillair Capital Management LLC, a Delaware limited liability company (“ Hillair ”), (i) the non-accountable sum of $87,500 for its due diligence expenses (of which $20,000 has been paid prior to the date hereof); (ii) $50,000 for its legal fees and expenses (of which $20,000 has been paid prior to the date hereof) and (iii) reasonable travel expenses and expenses associated with background checks of management and directors (or director/management candidates) made by Hillair. The Company shall deliver to each Purchaser, prior to the Closing, a completed and executed copy of the Closing Statement, attached hereto as Annex A . Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement and the other Transaction Documents. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any conversion or exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

 

5.3            Entire Agreement . The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

 
 

  

5.4            Notices . Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile or email attachment at the facsimile number or email address, respectively, as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile or email attachment at the facsimile number or email address, respectively, as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2 nd ) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

 

5.5            Amendments; Waivers . No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least fifty percent (50%) in interest of the Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought; provided , that if any amendment, modification or waiver disproportionately and adversely impacts a Purchaser (or group of Purchasers) relative to the comparable rights and obligations of the other Purchasers, the consent of such disproportionately impacted Purchaser (or group of Purchasers) shall also be required. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. Any amendment effected in accordance with this Section 5.5 shall be binding upon each Purchase and holder of Securities and the Company.

 

5.6            Headings . The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

5.7            Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by acquisition by merger or consolidation with, or by sale of a substantial portion or all of the assets, stock or other equity of the Company to, any other Person). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities; provided , that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

 

5.8            No Third Party Beneficiaries . This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.

 

 
 

  

5.9            Governing Law . All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If any party hereto shall commence an Action or Proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.10, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Action or Proceeding.

 

5.10          Survival . The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.

 

5.11          Execution . This Agreement may be executed in two (2) or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

5.12          Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

 
 

  

5.13          Rescission and Withdrawal Right . Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided , however , that in the case of a rescission of a conversion of a Debenture or exercise of a Warrant, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion or exercise notice concurrently with the return to such Purchaser of the aggregate conversion or exercise price paid to the Company for such shares and the restoration of such Purchaser’s right to acquire such shares pursuant to such Purchaser’s Debenture or Warrant, as the case may be (including, issuance of a replacement debenture or warrant certificate evidencing such restored right).

 

5.14          Replacement of Securities . If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

 

5.15          Remedies . In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any Action or Proceeding for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

5.16          Payment Set Aside . To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

 
 

  

5.17          Usury . To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any Action or Proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “ Maximum Rate ”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

 

5.18          Independent Nature of Purchasers’ Obligations and Rights . The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any Action or Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents. For reasons of administrative convenience only, each Purchaser and its respective counsel have chosen to communicate with the Company through PC. PC does not represent all of the Purchasers and only represents Hillair. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers.

 

5.19          Liquidated Damages . The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

 

 
 

  

5.20          Saturdays, Sundays, Holidays, etc .    If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

5.21          Construction . The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

 

5.22          WAIVER OF JURY TRIAL . IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

(Signature Pages Follow)

 

 
 

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

STAFFING 360 SOLUTIONS, inc.   Address for Notice:
     
     
By: /s/ Jeff R. Mitchell   Facsimile Number:
  Name: Jeff R. Mitchell    
  Title: Chief Financial Officer  
   
With a copy to (which shall not constitute notice):   Email Address:

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

 
 

 

[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser: Hillair Capital Investments L.P.

 

Signature of Authorized Signatory of Purchaser /s/ Sean M. M. McAvoy

 

Name of Authorized Signatory:  /s/ Sean M. McAvoy

 

Title of Authorized Signatory:  Managing Member, Hillair Capital Advisors LLC

 

Email Address of Authorized Signatory:  seanm@Hillaircapital.com

 

Facsimile Number of Authorized Signatory:   

 

Address for Notice to Purchaser: Hillair Capital Management LLC
  345 Lorton Avenue, Suite 303
  Burlingame, CA 94010

 

Address for Delivery of Securities to Purchaser (if not same as address for notice):

 

Subscription Amount: $3,500,000  

 

Principal Amount (1.12 x Subscription Amount) : $3,920,000  

 

A Warrant Shares: 3,920,000  

 

B Warrant Shares: 3,920,000  

 

EIN Number: 90-0809696  

 

 

[SIGNATURE PAGES CONTINUE]

 

 
 

 

Annex A

 

CLOSING STATEMENT

 

Pursuant to the attached Securities Purchase Agreement, dated as of the date hereof, the purchasers shall purchase Debentures and Warrants from Staffing 360 Solutions, Inc., a Nevada corporation (the “ Company ”). All funds will be wired into an account maintained by the Company. All funds will be disbursed in accordance with this Closing Statement.

 

Disbursement Date: July ___, 2015 

 

 

 

I. PURCHASE PRICE

 

 
  Gross Proceeds to be Received $
   

II. DISBURSEMENTS

 

 
    $
    $
    $
    $
    $
   
Total Amount Disbursed: $
   

 

 

Executed this ___ day of July, 2015

 

STAFFING 360 SOLUTIONS, INC.

 

 

By:____________________

Name:

Title:

 
   

WIRE INSTRUCTIONS :

 

 

 

To: _____________________________________

 

 

 

 

 
To: _____________________________________  
     

 

 

 

 

Exhibit 10.2

 

THE INDEBTEDNESS EVIDENCED HEREBY IS SUBORDINATED IN ACCORDANCE WITH AND SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT (AS AMENDED, RESTATED, SUPPLEMENTED OR MODIFIED FROM TIME TO TIME, THE “SUBORDINATION AGREEMENT”), DATED AS OF JULY 8, 2015 BY AND AMONG [THE PURCHASERS] JOINTLY AND SEVERALLY (COLLECTIVELY, “SUBORDINATED LENDER”), STAFFING 360 SOLUTIONS, INC., A NEVADA CORPORATION (“PARENT”), CERTAIN OF THE PARENT’S SUBSIDIARIES PARTY THERETO AND MIDCAP FUNDING X TRUST, IN ITS CAPACITY AS AGENT FOR THE SENIOR LENDERS (AS DEFINED IN THE SUBORDINATION AGREEMENT), AND EACH HOLDER AND TRANSFEREE OF THIS INSTRUMENT OR AGREEMENT, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE PROVISIONS OF THE SUBORDINATION AGREEMENT.

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT, dated as of July 8, 2015 (this “ Agreement ”), is among STAFFING 360 SOLUTIONS, INC., a Nevada corporation (the “ Company ”), certain U.S. Subsidiaries of the Company (such subsidiaries, the “ Guarantors ” and together with the Company, the “ Debtors ”) and the holders of the Company’s 8% Senior Secured Convertible Debenture Due April 1, 2017, in the original aggregate principal amount of $3,920,000.00 (collectively and as they may be amended, restated, supplemented or otherwise modified from time to time, the “ Debentures ”) signatory hereto, their endorsees, transferees and assigns (collectively, the “ Secured Parties ”).

 

WITNESSETH:

 

WHEREAS, pursuant to the Purchase Agreement (as defined in the Debentures), the Secured Parties have severally agreed to extend the loans to the Company evidenced by the Debentures;

 

WHEREAS, pursuant to a certain Subsidiary Guarantee, dated as of the date hereof (the “ Guarantee ”), the Guarantors have jointly and severally agreed to guarantee and act as surety for payment of such Debentures; and

 

WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the Debentures, each Debtor has agreed to execute and deliver to the Secured Parties this Agreement and to grant the Secured Parties, pari passu with each other Secured Party and through the Agent (as defined in Section 18 hereof), a security interest in certain property of such Debtor to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Debentures and the Guarantors’ obligations under the Guarantee.

 

 
 

 

NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

1.           Certain Definitions . As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 9 of the UCC.

 

(a)          “ Collateral ” means the collateral in which the Secured Parties are granted a security interest by this Agreement and which shall include the following personal property of the Debtors, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith, and all dividends, interest, cash, notes, securities, equity interest or other property at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Securities (as defined below):

 

(i)          All goods, including, without limitation, (A) all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in connection with any Debtor’s businesses and all improvements thereto; and (B) all inventory;

 

(ii)         All contract rights and other general intangibles, including, without limitation, all partnership interests, membership interests, stock or other securities, rights under any of the Organizational Documents, agreements related to the Pledged Securities, licenses, distribution and other agreements, computer software (whether “off-the-shelf”, licensed from any third party or developed by any Debtor), computer software development rights, leases, franchises, customer lists, quality control procedures, grants and rights, goodwill, Intellectual Property and income tax refunds;

 

(iii)        All accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each account, including any right of stoppage in transit;

 

 
 

 

(iv)        All documents, letter-of-credit rights, instruments and chattel paper;

 

(v)         All commercial tort claims;

 

(vi)        All deposit accounts and all cash (whether or not deposited in such deposit accounts);

 

(vii)       All investment property;

 

(viii)      All supporting obligations; and

 

(ix)         All files, records, books of account, business papers, and computer programs; and

 

(x)          the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(ix) above.

 

Without limiting the generality of the foregoing, the “ Collateral ” shall include all investment property and general intangibles respecting ownership and/or other equity interests in each Guarantor, including, without limitation, the shares of capital stock and the other equity interests listed on Schedule H hereto (as the same may be modified from time to time pursuant to the terms hereof), and any other shares of capital stock and/or other equity interests of any other direct or indirect U.S. subsidiary of any Debtor obtained in the future, and, in each case, all certificates representing such shares and/or equity interests and, in each case, all rights, options, warrants, stock, other securities and/or equity interests that may hereafter be received, receivable or distributed in respect of, or exchanged for, any of the foregoing and all rights arising under or in connection with the Pledged Securities, including, but not limited to, all dividends, interest and cash.

 

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided , however , that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.

 

 
 

 

(b)          “ Intellectual Property ” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.

 

(c)          “ Majority in Interest ” means, at any time of determination, the majority in interest (based on then-outstanding principal amounts of Debentures at the time of such determination) of the Secured Parties.

 

(d)          “ Necessary Endorsement ” means undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents as the Agent (as that term is defined below) may reasonably request.

 

(e)          “ Obligations ” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured Parties, including, without limitation, all obligations under this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in connection with this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Debtor.

 

 
 

 

(f)          “ Organizational Documents ” means with respect to any Debtor, the documents by which such Debtor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).

 

(g)          “ Permitted Indebtedness ” shall have the meaning ascribed to such term in the Debenture.

 

(h)          “ Permitted Lien ” shall have the meaning ascribed to such term in the Debenture.

 

(i)          “ Pledged Interests ” shall have the meaning ascribed to such term in Section 4(j).

 

(j)          “ Pledged Securities ” shall have the meaning ascribed to such term in Section 4(i).

 

(k)          “ Senior Lenders ” shall have the meaning ascribed to such term in the Debenture.

 

(l)          “ Senior Loans ” shall have the meaning ascribed to such term in the Debenture.

 

(m)          “ Subsidiaries ” shall have the meaning ascribed to such term in the Purchase Agreement.

 

(n)          “ Transaction Documents ” shall have the meaning ascribed to such term in the Purchase Agreement.

 

 
 

 

(o)          “ U.S. Subsidiaries ” shall have the meaning ascribed to such term in the Purchase Agreement.

 

(o)          “ UCC ” means the Uniform Commercial Code of the State of New York and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

 

2.           Grant of Security Interest in Collateral . As an inducement for the Secured Parties to extend the loans as evidenced by the Debentures and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Agent for the benefit of the Secured Parties and the Agent, a security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a “ Security Interest ” and, collectively, the “ Security Interests ”).

 

3.           Delivery of Certain Collateral . Contemporaneously or prior to the execution of this Agreement, each Debtor shall deliver or cause to be delivered to the Agent (a) any and all certificates and other instruments representing or evidencing the Pledged Securities that are not being held in escrow by the Senior Lenders, and (b) any and all certificates and other instruments or documents representing any of the other Collateral, in each case, together with all Necessary Endorsements. The Debtors are, contemporaneously with the execution hereof, delivering to Agent, or have previously delivered to Agent, a true and correct copy of each Organizational Document governing any of the Pledged Securities.

 

4.           Representations, Warranties, Covenants and Agreements of the Debtors . Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Parties concurrently herewith (the “ Disclosure Schedules ”), which Disclosure Schedules shall be deemed a part hereof, each Debtor represents and warrants to, and covenants and agrees with, the Secured Parties as follows:

 

(a)          Each Debtor has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by each Debtor of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of such Debtor and no further action is required by such Debtor. This Agreement has been duly executed by each Debtor. This Agreement constitutes the legal, valid and binding obligation of each Debtor, enforceable against each Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity.

 

 
 

 

(b)          The Debtors have no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto. Except as specifically set forth on Schedule A , each Debtor is the record owner of the real property where such Collateral is located, and there exist no mortgages or other liens on any such real property except for Permitted Liens (as defined in the Debentures). Except as disclosed on Schedule A , none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.

 

(c)          Except for Permitted Liens (as defined in the Debentures) and except as set forth on Schedule B attached hereto, the Debtors are the sole owner of the Collateral (except for non-exclusive licenses granted by any Debtor in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and are fully authorized to grant the Security Interests. Except as set forth on Schedule C attached hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral. Except as set forth on Schedule C attached hereto and except pursuant to this Agreement, as long as this Agreement shall be in effect, the Debtors shall not execute and shall not knowingly permit to be on file in any such office or agency any other financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of this Agreement).

 

(d)          No written claim has been received that any Collateral or any Debtor’s use of any Collateral violates the rights of any third party. There has been no adverse decision to any Debtor’s claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to any Debtor’s right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of any Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

 

(e)          Each Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Parties at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of the Secured Parties a valid, perfected and continuing perfected lien in the Collateral.

 

 
 

 

(f)          This Agreement creates in favor of the Secured Parties a valid security interest in the Collateral, subject only to Permitted Liens (as defined in the Debentures) securing the payment and performance of the Obligations. Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected. Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, the execution and delivery of deposit account control agreements to the extent required by Section 9-104(a)(2) with respect to any deposit account of the Debtors, and the delivery of the certificates and other instruments provided in Section 3 , no action is necessary to create, perfect or protect the security interests created hereunder. Without limiting the generality of the foregoing, except for the filing of said financing statements, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral or (iii) the enforcement of the rights of the Agent and the Secured Parties hereunder.

 

(g)          Each Debtor hereby authorizes the Agent to file one or more financing statements under the UCC, with respect to the Security Interests, with the proper filing and recording agencies in any jurisdiction deemed proper by it; provided that Agent acknowledges and agrees that no financing statement shall be filed for Faro Recruitment America, Inc. or Lighthouse Placement Services, LLC until the Senior Lenders have first filed financing statements for such Security Interests.

 

(h)          The execution, delivery and performance of this Agreement by the Debtors does not (i) violate any of the provisions of any Organizational Documents of any Debtor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to any Debtor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing any Debtor’s debt or otherwise) or other understanding to which any Debtor is a party or by which any property or asset of any Debtor is bound or affected. If any, all required consents (including, without limitation, from stockholders or creditors of any Debtor) necessary for any Debtor to enter into and perform its obligations hereunder have been obtained.

 

 
 

 

(i)          The capital stock and other equity interests listed on Schedule H hereto (the “ Pledged Securities ”) represent all of the capital stock and other equity interests of the Guarantors, and represent all capital stock and other equity interests owned, directly or indirectly, by the Company. All of the Pledged Securities are validly issued, fully paid and nonassessable, and the Company is the legal and beneficial owner of the Pledged Securities, free and clear of any lien, security interest or other encumbrance except for the security interests created by this Agreement and other Permitted Liens (as defined in the Debentures).

 

(j)          The ownership and other equity interests in partnerships and limited liability companies (if any) included in the Collateral (the “ Pledged Interests ”) by their express terms do not provide that they are securities governed by Article 8 of the UCC and are not held in a securities account or by any financial intermediary.

 

(k)          Except for Permitted Liens (as defined in the Debentures), each Debtor shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected liens and security interests in the Collateral in favor of the Secured Parties until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 14 hereof. Each Debtor hereby agrees to defend the same against the claims of any and all persons and entities. Each Debtor shall safeguard and protect all Collateral for the account of the Secured Parties. At the request of the Agent, each Debtor will sign and deliver to the Agent on behalf of the Secured Parties at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, each Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interests hereunder, and each Debtor shall obtain and furnish to the Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interests hereunder.

 

(l)          No Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for (i) non-exclusive licenses granted by a Debtor in its ordinary course of business and sales of inventory by a Debtor in its ordinary course of business and (ii) Permitted Liens) without the prior written consent of a Majority in Interest.

 

(m)          Each Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.

 

 
 

 

(n)          Each Debtor shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof. Each Debtor shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to the Agent, that (a) the Agent will be named as lender loss payee and additional insured under each such insurance policy; (b) if such insurance be proposed to be cancelled or materially changed for any reason whatsoever, such insurer will promptly notify the Agent and such cancellation or change shall not be effective as to the Agent for at least thirty (30) days after receipt by the Agent of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (c) the Agent will have the right (but no obligation) at its election to remedy any default in the payment of premiums within thirty (30) days of notice from the insurer of such default. If no Event of Default (as defined in the Debentures) exists and if the proceeds arising out of any claim or series of related claims do not exceed $100,000, loss payments in each instance will be applied by the applicable Debtor to the repair and/or replacement of property with respect to which the loss was incurred to the extent reasonably feasible, and any loss payments or the balance thereof remaining, to the extent not so applied, shall be payable to the applicable Debtor; provided , however , that payments received by any Debtor after an Event of Default occurs and is continuing or in excess of $100,000 for any occurrence or series of related occurrences shall be paid to the Agent on behalf of the Secured Parties and, if received by such Debtor, shall be held in trust for the Secured Parties and immediately paid over to the Agent unless otherwise directed in writing by the Agent. Copies of such policies or the related certificates, in each case, naming the Agent as lender loss payee and additional insured shall be delivered to the Agent at least annually and at the time any new policy of insurance is issued.

 

(o)          Each Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Parties promptly, in sufficient detail, of any material adverse change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Parties’ security interest, through the Agent, therein.

 

(p)          Each Debtor shall promptly execute and deliver to the Agent such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Agent may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Parties’ security interest in the Collateral.

 

 
 

 

(q)          Each Debtor shall permit the Agent and its representatives and agents to inspect the Collateral during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the Agent from time to time.

 

(r)          Each Debtor shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.

 

(s)          Each Debtor shall promptly notify the Secured Parties in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by such Debtor that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Parties hereunder.

 

(t)          All information heretofore, herein or hereafter supplied to the Secured Parties by or on behalf of any Debtor with respect to the Collateral is accurate and complete in all material respects as of the date furnished.

 

(u)          The Debtors shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights and franchises material to its business.

 

(v)         No Debtor will change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least 30 days prior written notice to the Secured Parties of such change and, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

 

(w)          Except in the ordinary course of business, no Debtor may consign any of its inventory or sell any of its inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale without the consent of the Agent which shall not be unreasonably withheld.

 

(x)          No Debtor may relocate its chief executive office to a new location without providing 30 days prior written notification thereof to the Secured Parties and so long as, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

 

(y)          Each Debtor was organized and remains organized solely under the laws of the state (or other jurisdiction in the case of a Debtor not organized in the United States) set forth next to such Debtor’s name in Schedule D attached hereto, which Schedule D sets forth each Debtor’s organizational identification number or, if any Debtor does not have one, states that one does not exist.

 

 
 

 

(z)           (i) The actual name of each Debtor is the name set forth in Schedule D attached hereto; (ii) no Debtor has any trade names except as set forth on Schedule E attached hereto; (iii) no Debtor has used any name other than that stated in the preamble hereto or as set forth on Schedule E for the preceding five years; and (iv) no entity has merged into any Debtor or been acquired by any Debtor within the past five years except as set forth on Schedule E .

 

(aa)         At any time and from time to time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by the secured party to perfect the security interest created hereby, the applicable Debtor shall deliver such Collateral to the Agent.

 

(bb)         Each Debtor, in its capacity as issuer, hereby agrees to comply with any and all orders and instructions of Agent regarding the Pledged Interests consistent with the terms of this Agreement without the further consent of any Debtor as contemplated by Section 8-106 (or any successor section) of the UCC. Further, each Debtor agrees that it shall not enter into a similar agreement (or one that would confer “control” within the meaning of Article 8 of the UCC) with any other person or entity other than the Senior Lender.

 

(cc)         Each Debtor shall cause all tangible chattel paper constituting Collateral to be delivered to the Agent, or, if such delivery is not possible, then to cause such tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement. To the extent that any Collateral consists of electronic chattel paper, the applicable Debtor shall cause the underlying chattel paper to be “marked” within the meaning of Section 9-105 of the UCC (or successor section thereto).

 

(dd)         [Reserved.]

 

(ee)         To the extent that any Collateral consists of letter-of-credit rights, the applicable Debtor shall cause the issuer of each underlying letter of credit to consent to an assignment of the proceeds thereof to the Secured Parties.

 

(ff)         To the extent that any Collateral is in the possession of any third party, the applicable Debtor shall join with the Agent in notifying such third party of the Secured Parties’ security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.

 

(gg)         If any Debtor shall at any time hold or acquire a commercial tort claim, such Debtor shall promptly notify the Secured Parties in a writing signed by such Debtor of the particulars thereof and grant to the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Agent.

 

 
 

 

(hh)         Each Debtor shall immediately provide written notice to the Secured Parties of any and all accounts which arise out of contracts with any governmental authority and, to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall execute and deliver to the Agent an assignment of claims for such accounts and cooperate with the Agent in taking any other steps required, in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof.

 

(ii)         Each Debtor shall cause each U.S. Subsidiary of such Debtor to immediately become a party hereto (an “ Additional Debtor ”), by executing and delivering an Additional Debtor Joinder in substantially the form of Annex A attached hereto and comply with the provisions hereof applicable to the Debtors. Concurrent therewith, the Additional Debtor shall deliver replacement schedules for, or supplements to all other Schedules to (or referred to in) this Agreement, as applicable, which replacement schedules shall supersede, or supplements shall modify, the Schedules then in effect. The Additional Debtor shall also deliver such opinions of counsel, authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements and other information and documentation as the Agent may reasonably request. Upon delivery of the foregoing to the Agent, the Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtors, for all purposes hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations, warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder, and all references herein to the “Debtors” shall be deemed to include each Additional Debtor.

 

(jj)         Each Debtor shall vote the Pledged Securities to comply with the covenants and agreements set forth herein and in the Debentures.

 

(kk)         Each Debtor shall register the pledge of the applicable Pledged Securities on the books of such Debtor. Each Debtor shall notify each issuer of Pledged Securities to register the pledge of the applicable Pledged Securities in the name of the Secured Parties on the books of such issuer. Further, except with respect to certificated securities delivered to the Agent, the applicable Debtor shall deliver to Agent an acknowledgement of pledge (which, where appropriate, shall comply with the requirements of the relevant UCC with respect to perfection by registration) signed by the issuer of the applicable Pledged Securities, which acknowledgement shall confirm that: (a) it has registered the pledge on its books and records; and (b) at any time directed by Agent during the continuation of an Event of Default, such issuer will transfer the record ownership of such Pledged Securities into the name of any designee of Agent, will take such steps as may be necessary to effect the transfer, and will comply with all other instructions of Agent regarding such Pledged Securities without the further consent of the applicable Debtor.

 

 
 

 

(ll)         In the event that, upon an occurrence of an Event of Default, Agent shall sell all or any of the Pledged Securities to another party or parties (herein called the “ Transferee ”) or shall purchase or retain all or any of the Pledged Securities, each Debtor shall, to the extent applicable: (i) deliver to Agent or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock certificate books, corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of account, financial records and all other Organizational Documents and records of the Debtors and their direct and indirect U.S. Subsidiaries; (ii) use its best efforts to obtain resignations of the persons then serving as officers and directors of the Debtors and their direct and indirect U.S. Subsidiaries, if so requested; and (iii) use its best efforts to obtain any approvals that are required by any governmental or regulatory body in order to permit the sale of the Pledged Securities to the Transferee or the purchase or retention of the Pledged Securities by Agent and allow the Transferee or Agent to continue the business of the Debtors and their direct and indirect U.S. Subsidiaries.

 

(mm)         Without limiting the generality of the other obligations of the Debtors hereunder, each Debtor shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.

 

(nn)         Each Debtor will from time to time, at the joint and several expense of the Debtors, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Parties to exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

 

(oo)          Schedule F attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by any of the Debtors as of the date hereof. Schedule F lists all material licenses in favor of any Debtor for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks of the Debtors have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have been duly recorded at the United States Copyright Office.

 

 
 

 

(pp)         Except as set forth on Schedule G attached hereto, none of the account debtors or other persons or entities obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or any similar federal, state or local statute or rule in respect of such Collateral.

 

(qq)         Until the Obligations shall have been paid and performed in full, the Company covenants that it shall promptly direct any direct or indirect U.S. Subsidiary of the Company formed or acquired after the date hereof to enter into a Subsidiary Guarantee in favor of the Secured Party, in the form attached as an exhibit to the Purchase Agreement.

 

5.           Effect of Pledge on Certain Rights . If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Agent’s rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which any Debtor is subject or to which any Debtor is party.

 

6.           Defaults . The following events shall be “ Events of Default ”:

 

(a)     The occurrence of an Event of Default (as defined in the Debentures) under the Debentures;

 

(b)     Any representation or warranty of any Debtor in this Agreement shall prove to have been incorrect in any material respect when made;

 

(c)     The failure by any Debtor to observe or perform any of its obligations hereunder for five (5) days after delivery to such Debtor of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and such Debtor is using best efforts to cure same in a timely fashion; or

 

(d)     If any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental authority having jurisdiction over any Debtor, seeking to establish the invalidity or unenforceability thereof, or any Debtor shall deny that any Debtor has any liability or obligation purported to be created under this Agreement.

 

 
 

 

7.           Duty To Hold In Trust .

 

(a)          Upon the occurrence of any Event of Default and at any time thereafter, each Debtor shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interests, whether payable pursuant to the Debentures or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Parties, pro-rata in proportion to their respective then-currently outstanding principal amount of Debentures for application to the satisfaction of the Obligations (and if any Debenture is not outstanding, pro-rata in proportion to the initial purchases of the remaining Debentures).

 

(b)          If any Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of Pledged Securities or instruments representing Pledged Securities acquired after the date hereof, or any options, warrants, rights or other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect U.S. Subsidiaries) in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise), such Debtor agrees to (i) accept the same as the agent of the Secured Parties; (ii) hold the same in trust on behalf of and for the benefit of the Secured Parties; and (iii) to deliver any and all certificates or instruments evidencing the same to Agent on or before the close of business on the fifth business day following the receipt thereof by such Debtor, in the exact form received together with the Necessary Endorsements, to be held by Agent subject to the terms of this Agreement as Collateral.

 

8.           Rights and Remedies Upon Default .

 

(a)          Upon the occurrence of any Event of Default and at any time thereafter, the Secured Parties, acting through the Agent, shall have the right to exercise all of the remedies conferred hereunder and under the Debentures, and the Secured Parties shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Agent, for the benefit of the Secured Parties, shall have the following rights and powers:

 

(i)          The Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and each Debtor shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Debtor’s premises or elsewhere, and make available to the Agent, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Agent taking possession of, removing or putting the Collateral in saleable or disposable form.

 

 
 

 

(ii)         Upon notice to the Debtors by Agent, all rights of each Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of each Debtor to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease. Upon such notice, Agent shall have the right to receive, for the benefit of the Secured Parties, any interest, cash dividends or other payments on the Collateral and, at the option of Agent, to exercise in such Agent’s discretion all voting rights pertaining thereto. Without limiting the generality of the foregoing, Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as it were the sole and absolute owner thereof, including, without limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect U.S. Subsidiaries.

 

(iii)        The Agent shall have the right to operate the business of each Debtor using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Agent may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to any Debtor or right of redemption of a Debtor, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the Agent, for the benefit of the Secured Parties, may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of any Debtor, which are hereby waived and released.

 

(iv)        The Agent shall have the right (but not the obligation) to notify any account debtors and any obligors under instruments or accounts to make payments directly to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights against such account debtors and obligors.

 

(v)         The Agent, for the benefit of the Secured Parties, may (but is not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Agent, on behalf of the Secured Parties, or its designee.

 

 
 

 

(vi)        The Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Parties or any designee or any purchaser of any Collateral.

 

(b)          The Agent shall comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Debtors will only be credited with payments actually made by the purchaser. In addition, each Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.

 

(c)          For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Debtor) to use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.

 

9.           Applications of Proceeds . The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Agent in enforcing the Secured Parties’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Debentures at the time of any such determination), and to the payment of any other amounts required by applicable law, after which the Secured Parties shall pay to the applicable Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtors will be liable for the deficiency, together with interest thereon, at the rate of 18% per annum or the lesser amount permitted by applicable law (the “ Default Rate ”), and the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency. To the extent permitted by applicable law, each Debtor waives all claims, damages and demands against the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.

 

 
 

 

10.          Securities Law Provision . Each Debtor recognizes that Agent may be limited in its ability to effect a sale to the public of all or part of the Pledged Securities by reason of certain prohibitions in the Securities Act of 1933, as amended, or other federal or state securities laws (collectively, the “ Securities Laws ”), and may be compelled to resort to one or more sales to a restricted group of purchasers who may be required to agree to acquire the Pledged Securities for their own account, for investment and not with a view to the distribution or resale thereof. Each Debtor agrees that sales so made may be at prices and on terms less favorable than if the Pledged Securities were sold to the public, and that Agent has no obligation to delay the sale of any Pledged Securities for the period of time necessary to register the Pledged Securities for sale to the public under the Securities Laws. Each Debtor shall cooperate with Agent in its attempt to satisfy any requirements under the Securities Laws (including, without limitation, registration thereunder if requested by Agent) applicable to the sale of the Pledged Securities by Agent.

 

11.          Costs and Expenses . Each Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Agent. The Debtors shall also pay all other claims and charges which in the reasonable opinion of the Agent is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein. The Debtors will also, upon demand, pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, may incur in connection with the creation, perfection, protection, satisfaction, foreclosure, collection or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement and pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, and the Secured Parties may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Parties under the Debentures. Until so paid, any fees payable hereunder shall be added to the principal amount of the Debentures and shall bear interest at the Default Rate.

 

 
 

 

12.          Responsibility for Collateral . The Debtors assume all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by such Debtor thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.

 

13.          Security Interests Absolute . All rights of the Secured Parties and all obligations of the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Debentures or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Debentures or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to a Debtor, or a discharge of all or any part of the Security Interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Parties shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy. Each Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Parties, then, in any such event, each Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. Each Debtor waives all right to require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. Each Debtor waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.

 

 
 

 

14.          Term of Agreement . This Agreement and the Security Interests shall terminate on the date on which all payments under the Debentures have been indefeasibly paid in full and all other Obligations have been paid or discharged; provided , however , that all indemnities of the Debtors contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement.

 

15.          Power of Attorney; Further Assurances .

 

(a)          Each Debtor authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Agent or such Debtor, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Agent; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Agent, and at the expense of the Debtors, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Agent deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement and the Debentures all as fully and effectually as the Debtors might or could do; and each Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which any Debtor is subject or to which any Debtor is a party. Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, the Agent on behalf of the secured Parties and each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.

 

 
 

 

(b)          On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interests granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Agent the grant or perfection of a perfected security interest in all the Collateral under the UCC.

 

(c)          Each Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact, with full authority in the place and instead of such Debtor and in the name of such Debtor, from time to time in the Agent’s discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies all such actions taken by the Agent for the benefit of the Secured Parties. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.

 

16.          Notices . All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Purchase Agreement (as such term is defined in the Debentures).

 

17.          Other Security . To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Agent, on behalf of the Secured Parties, shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Parties’ rights and remedies hereunder.

 

18.          Appointment of Agent . The Secured Parties hereby appoint Hillair Capital Management LLC to act as their agent (“ Agent ”) for purposes of exercising any and all rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Agent, provided that the Agent may not be removed as Agent unless Agent shall then hold less than $[500,000] in principal amount of Debentures; provided , further , that such removal may occur only if each of the other Secured Parties shall then hold not less than an aggregate of $[3,500,000] in principal amount of Debentures. The Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto.

 

 
 

 

19.          Miscellaneous .

 

(a)          No course of dealing between the Debtors and the Secured Parties, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under the Debentures shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

 

(b)          All of the rights and remedies of the Secured Parties, and of the Agent on behalf of the Secured Parties, with respect to the Collateral, whether established hereby or by the Debentures or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

 

(c)          This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and by the Secured Parties holding 67% or more of the principal amount of Debentures then outstanding, or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.

 

(d)          If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

(e)          No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

 
 

 

(f)          This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Secured Party. Any Secured Party may assign any or all of its rights under this Agreement to any Person (as defined in the Purchase Agreement) to whom such Secured Party assigns or transfers any rights with respect to any Obligations, provided such transferee agrees in writing to be bound, with respect to such transferred rights, by the provisions of this Agreement that apply to the “Secured Parties.”

 

(g)          Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

 

(h)          Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, all questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, each Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Debentures (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, each Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

 

 
 

 

(i)          This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

 

(j)          All Debtors shall jointly and severally be liable for the obligations of each Debtor to the Secured Parties hereunder.

 

(k)          Each Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured Parties and their respective partners, members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar functions) (collectively, “ Indemnitees ”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from the transactions contemplated hereby or by the other Transaction Documents, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Debentures, the Purchase Agreement (as such term is defined in the Debentures) or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.

 

(l)          Nothing in this Agreement shall be construed to subject Agent or any Secured Party to liability as a partner in any Debtor or any of its direct or indirect U.S. Subsidiaries that is a partnership or as a member in any Debtor or any of its direct or indirect U.S. Subsidiaries that is a limited liability company, nor shall Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited liability company agreement, as applicable, of any such Debtor or any of its direct or indirect U.S. Subsidiaries or otherwise, unless and until any such Secured Party exercises its right to be substituted for such Debtor as a partner or member, as applicable, pursuant hereto.

 

(m)          To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of any Debtor or any direct or indirect U.S. Subsidiary of any Debtor or compliance with any provisions of any of the Organizational Documents, the Debtors hereby grant such consent and approval and waive any such noncompliance with the terms of said documents.

 

[SIGNATURE PAGES FOLLOW]

 

 
 

 

IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.

 

Staffing 360 Solutions, Inc.  
     
By: /s/ Jeff R. Mitchell  
  Name: Jeff R. Mitchell  
  Title: Chief Financial Officer  
   
FARO RECRUITMENT AMERICA, INC.  
     
By: /s/ Jeff R. Mitchell  
  Name: Jeff R. Mitchell  
  Title: Treasurer  
   
MONROE STAFFING SERVICES, LLC  
     
By: /s/ Jeff R. Mitchell  
  Name: Jeff R. Mitchell  
  Title: Treasurer  
   
PEOPLESERVE, INC.  
     
By: /s/ Jeff R. Mitchell  
  Name: Jeff R. Mitchell  
  Title: Secretary and Treasurer  
   
CONTROL SOLUTIONS INTERNATIONAL, INC.  
     
By: /s/ Jeff R. Mitchell  
  Name: Jeff R. Mitchell  
  Title: Secretary and Treasurer  

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 

 
 

 

[SIGNATURE PAGE OF HOLDERS]

 

Name of Investing Entity: /s/ Hillair Capital Investments L.P.      

 

Signature of Authorized Signatory of Investing entity : /s/ Sean M. McAvoy            

 

Name of Authorized Signatory: Sean M. McAvoy                        

 

Title of Authorized Signatory: Managing Member, Hillair Capital Advisors LLC

 

 
 

 

ANNEX A

to

SECURITY

AGREEMENT

 

FORM OF ADDITIONAL DEBTOR JOINDER

 

Security Agreement dated as of July __, 2015 made by

Staffing 360 Solutions, Inc. and certain of its subsidiaries party thereto

from time to time, as Debtors to and in favor of

the Secured Parties identified therein (the “ Security Agreement ”)

 

Reference is made to the Security Agreement as defined above; capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in, or by reference in, the Security Agreement.

 

The undersigned hereby agrees that upon delivery of this Additional Debtor Joinder to the Secured Parties referred to above, the undersigned shall (a) be an Additional Debtor under the Security Agreement, (b) have all the rights and obligations of the Debtors under the Security Agreement as fully and to the same extent as if the undersigned was an original signatory thereto and (c) be deemed to have made the representations and warranties set forth therein as of the date of execution and delivery of this Additional Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE AGENT ON BEHALF OF THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

 

Attached hereto are supplemental and/or replacement Schedules to the Security Agreement, as applicable.

 

An executed copy of this Joinder shall be delivered to the Secured Parties, and the Secured Parties may rely on the matters set forth herein on or after the date hereof. This Joinder shall not be modified, amended or terminated without the prior written consent of the Secured Parties.

 

 
 

 

 

IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the name and on behalf of the undersigned.

 

[Name of Additional Debtor
   
  By:
   
Name:
Title:
   
Address:

 

 

Dated:

 

 
 

 

ANNEX B

to

SECURITY

AGREEMENT

 

THE AGENT

 

1. Appointment . The Secured Parties (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Security Agreement to which this Annex B is attached (the “ Agreement ”)), by their acceptance of the benefits of the Agreement, hereby designate [_____] (“[ _____ ]” or “ Agent ”) as the Agent to act as specified herein and in the Agreement. Each Secured Party shall be deemed irrevocably to authorize the Agent to take such action on its behalf under the provisions of the Agreement and any other Transaction Document (as such term is defined in the Purchase Agreement) and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees.

 

2. Nature of Duties . The Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of any Debtor or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.

 

3. Lack of Reliance on the Agent . Independently and without reliance upon the Agent, each Secured Party, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Debtors, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time to time, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Agent shall not be responsible to the Debtors or any Secured Party for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectability, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Debtors or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Debtors, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Debentures or any of the other Transaction Documents.

 

 
 

 

4. Certain Rights of the Agent . The Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the Agent shall request instructions from the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of a Majority in Interest; if such instructions are not provided despite the Agent’s request therefor, the Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Parties in respect of actions to be taken by the Agent; and the Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Debtors shall have no right to question or challenge the authority of, or the instructions given to, the Agent pursuant to the foregoing and (b) the Agent shall not be required to take any action which the Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

 

5. Reliance . The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Agent shall have no obligation whatsoever to any Secured Party to assure that the Collateral exists or is owned by the Debtors or is cared for, protected or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

 

 
 

 

6. Indemnification . To the extent that the Agent is not reimbursed and indemnified by the Debtors, the Secured Parties will jointly and severally reimburse and indemnify the Agent, in proportion to their initially purchased respective principal amounts of Debentures, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Agent’s own gross negligence or willful misconduct. Prior to taking any action hereunder as Agent, the Agent may require each Secured Party to deposit with it sufficient sums as it determines in good faith is necessary to protect the Agent for costs and expenses associated with taking such action.

 

7. Resignation by the Agent .

 

(a) The Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving 30 days’ prior written notice (as provided in the Agreement) to the Debtors and the Secured Parties. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below.

 

(b) Upon any such notice of resignation, the Secured Parties, acting by a Majority in Interest, shall appoint a successor Agent hereunder.

 

(c) If a successor Agent shall not have been so appointed within said 30-day period, the Agent shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Secured Parties appoint a successor Agent as provided above. If a successor Agent has not been appointed within such 30-day period, the Agent may petition any court of competent jurisdiction or may interplead the Debtors and the Secured Parties in a proceeding for the appointment of a successor Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtors on demand.

 

8. Rights with respect to Collateral . Each Secured Party agrees with all other Secured Parties and the Agent (i) that such Secured Party shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (ii) that such Secured Party has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Transaction Documents. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations under the Agreement.  After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of the Agreement including this Annex B shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

  

 

 

Exhibit 10.3

 

EXECUTION COPY

CONFIDENTIAL

 

 

 

EQUITY PURCHASE AGREEMENT

 

by and among

 

ALISON FOGEL and DAVID FOGEL,

as Sellers,

 

LIGHTHOUSE PLACEMENT SERVICES, LLC,

as the Company

 

and

 

STAFFING 360 SOLUTIONS, INC.,

as Buyer

 

Dated as of July 8, 2015

 

 

 

 
 

 

TABLE OF CONTENTS:

 

I. PURCHASE OF MEMBERSHIP INTERESTS 1
   
1.1. Purchase of Membership Interests 1
1.2. Purchase Price 1
1.3. Payment of Closing Purchase Price 1
1.4. Estimated Closing Statement 2
1.5. Post-Closing Purchase Price Adjustment 2
1.6. Net Working Capital 4
1.7. Minimum Buyer Common Stock Price 5
   
II. [RESERVED] 5
   
III. CLOSING 5
   
3.1. Closing 5
3.2. Closing Deliveries by Sellers 5
3.3. Closing Deliveries by Buyer 6
   
IV. REPRESENTATIONS AND WARRANTIES OF SELLERS 7
   
4.1. Organization and Qualification 7
4.2. Authorization and Binding Effect; Corporate Documentation 8
4.3. Title to the Purchased Interests 8
4.4. Capitalization 8
4.5. Subsidiaries 8
4.6. Non-Contravention 9
4.7. Financial Statements 9
4.8. Absence of Liabilities 9
4.9. Absence of Certain Changes 10
4.10. Title to and Sufficiency of Assets 10
4.11. Personal Property 10
4.12. Real Property 10
4.13. Intellectual Property 11
4.14. Compliance with Laws 12
4.15. Permits 13
4.16. Litigation 13
4.17. Contracts 13
4.18. Tax Matters 15
4.19. Environmental Matters 15
4.20. Employee Benefit Plans 16
4.21. Employees and Labor Matters 17
4.22. Insurance 18
4.23. Transactions with Related Persons 19
4.24. Government Contracts 19
4.25. Bank Accounts 20
4.26. Suppliers and Customers; Products 20
4.27. Investment Intent 20
4.28. Disclosure 20
4.29. No Brokers 21
4.30. No Other Representations and Warranties 21
   
V. REPRESENTATIONS AND WARRANTIES OF BUYER 21
   
5.1. Organization and Qualification 21
5.2. Authorization 21
5.3. Non-Contravention 21
5.4. The Shares 21
5.5. No Brokers 21

 

- i -
 

 

5.6. Litigation 22
5.7. Investment Intent 22
5.8. Financial Capacity 22
5.9. Foreign Corrupt Practices Act 22
5.10. Solvency 22
5.11. No Other Representations and Warranties 22
   
VI. OTHER AGREEMENTS 22
   
6.1. Further Assurances 22
6.2. Confidentiality 23
6.3. Publicity 23
6.4. Litigation Support 23
6.5. Agreement Regarding Intellectual Property 23
6.6. Release and Covenant Not to Sue 24
6.7. Lock-Up 24
6.8. Piggy-Back Registration Rights 25
6.9. Tax Matters 27
6.10. Security Clearance 28
6.11. Future Operations 29
   
VII. INDEMNIFICATION 29
   
7.1. Survival 29
7.2. Indemnification by Sellers 30
7.3. Indemnification by Buyer 30
7.4. Indemnification Procedures 31
7.5. Limitations on Indemnification 32
7.6. General Indemnification Provisions 33
7.7 Timing of Payment; Right to Set-Off; Recovery of Shares 34
   
IX. GENERAL PROVISIONS 35
   
8.1. Expenses 35
8.2. Notices 35
8.3. Sellers Not Authorized to Act on Behalf of Buyer 35
8.4. Severability 36
8.5. Assignment 36
8.6. No Third-Party Beneficiaries 36
8.7. Amendment; Waiver 36
8.8. Entire Agreement 36
8.9. Remedies 37
8.10. Governing Law; Jurisdiction; Waiver of Jury Trial 37
8.11. Interpretation 37
8.12. Mutual Drafting 38
8.13. Counterparts 38
8.14. Seller Representative 38

 

EXHIBITS:

A Definitions
B-1 Form of Three Year Note
B-2 Form of Two Year Note
C Form of Non-Competition Agreement
D Form of Employment Agreements
E Form of Legal Opinion

 

- ii -
 

 

EQUITY PURCHASE AGREEMENT

 

This EQUITY PURCHASE AGREEMENT (this “ Agreement ”), is made and entered into as of July 8, 2015, by and among (i) Alison Fogel and David Fogel (together, “ Sellers ”), (ii) Lighthouse Placement Services, LLC, a Massachusetts limited liability company (the “ Company ” and together with the Sellers, the “ Seller Parties ”), and (iii) Staffing 360 Solutions, Inc., a Nevada corporation (“ Buyer ”).

 

RECITALS

 

WHEREAS, Sellers own all of the issued and outstanding membership interests of the Company;

 

WHEREAS, Sellers desire to sell and convey to Buyer, and Buyer desires to purchase from Sellers, all of the issued and outstanding membership interests of the Company, subject to the terms and conditions set forth herein; and

 

WHERAS, certain capitalized terms used herein are defined in Exhibit A .

 

NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

ARTICLE I
PURCHASE OF MEMBERSHIP INTERESTS

 

1.1.         Purchase of Membership Interests. At the Closing, and on the terms and subject to all of the conditions of this Agreement, Sellers will sell, transfer, assign and convey to Buyer, and Buyer will purchase and accept from Sellers, one hundred percent (100%) of the membership interests of the Company (the “ Purchased Interests ”), free and clear of any and all Liens. The parties hereto hereby acknowledge and agree that effective upon the Closing, Buyer shall be the sole member and Managing Member of the Company, and neither Seller shall be a member, manager or Managing Member of the Company.

 

1.2.         Purchase Price. In full payment for the Purchased Interests, Buyer shall pay to Sellers an aggregate purchase price (the “ Purchase Price ”) equal to (as each such amount is finally determined in accordance with this ARTICLE I ) the product of (a) four and three-tenths (4.3), multiplied by (b) the trailing twelve (12) full fiscal month Adjusted EBITDA as of the end of the last fiscal month immediately prior to the Closing.

 

1.3.         Payment of Closing Purchase Price. At the Closing, Buyer shall pay the portion of the Purchase Price payable at the Closing as follows:

 

(a)          Buyer shall pay to Sellers, by wire transfer in immediately available funds to such account or accounts as designated by Sellers in the Estimated Closing Statement or, if mutually agreed by Buyer and Sellers, by delivery of a certified or bank cashier’s check payable to, or upon the order of, Sellers, an amount in cash equal to (i) forty percent (40%) of the Estimated Purchase Price, less (ii) any amounts paid pursuant to Section 1.3(d) .

 

(b)          Buyer shall pay to Sellers by delivery of a number of shares of Buyer Common Stock equal in total value to ten percent (10%) of the Estimated Purchase Price, with each such share of Buyer Common Stock valued at the Buyer Common Stock Price (such shares of Buyer Common Stock, along with any additional shares of Buyer Common Stock issued after the Closing in connection with the Adjustment Amount in accordance with Section 1.5(d) , and/or the exercise of a Conversion Right (as respectively defined in the Notes), the “ Shares ”), with such Shares subject to Sections 6.7 and 6.8 hereof.

 

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(c)          Buyer shall deliver to the Sellers (i) an unsecured promissory note in the form of Exhibit B-1 hereto (the “ Three Year Note ”) with an initial principal amount equal to forty percent (40%) of the Estimated Purchase Price and (ii) an unsecured promissory note in the form of Exhibit B-2 hereto (the “ Two Year Note ” and together with the Three Year Note, the “ Notes ”) with an initial principal amount equal to ten percent (10%) of the Estimated Purchase Price.

 

(d)          Buyer shall make the following additional payments of the Purchase Price: (i) the amount of the outstanding Indebtedness, if any, will be paid by Buyer to the applicable creditor(s) as indicated on the Estimated Closing Statement; (ii) the amount of the unpaid Transaction Expenses, if any, will be paid by Buyer to the applicable service provider(s) as indicated on the Estimated Closing Statement; and (iii) the amount of unpaid Transaction Bonuses, if any, will be paid by Buyer to the Lighthouse Companies for distribution to the recipients thereof as indicated on the Estimated Closing Statement.

 

Each Seller shall receive such Seller’s pro rata share of the Purchase Price (and each form of consideration) based on the percentage of Purchased Interests owned by such Seller. The parties acknowledge that such amounts shall be subject to adjustment after the Closing based on the Adjustment Amount in accordance with Section 1.5 .

 

1.4.         Estimated Closing Statement. Prior to the Closing, Sellers will have delivered to Buyer a certificate signed by Sellers (the “ Estimated Closing Statement ”) and reasonably acceptable to Buyer, setting forth Sellers’ good faith estimate (including all calculations in reasonable detail) based on the financial statements and books and records of the Lighthouse Companies of (i) the Purchase Price (the “ Estimated Purchase Price ”), including the calculation of the trailing twelve full fiscal month Adjusted EBITDA as of the end of the last fiscal month immediately prior to the Closing, (ii) the Net Working Capital and Closing Accounts Receivable, and attaching an estimated consolidated balance sheet of the Lighthouse Companies as of the Closing, (iii) the amount that Indebtedness will be on the Closing Date, identifying the amount owed to each creditor thereof, together with payoff letters from the Lighthouse Company’s creditors in form and substance reasonably acceptable to Buyer, (iv) the amount that Transaction Expenses will be on the Closing Date, including the amount owed to each payee thereof, and (v) the amount of the Transaction Bonuses, including the amount owed to each payee thereof. The Estimated Closing Statement shall be prepared applying the definitions of Net Working Capital and Adjusted EBITDA contained herein. The Estimated Closing Statement shall also include the wire transfer instructions for any payments to be made under Section 1.3 .

 

1.5.         Post-Closing Purchase Price Adjustment.

 

(a)          As soon as practicable (but in any event, within ninety (90) days) after the Closing, Buyer will deliver to Sellers an audited consolidated income statement, balance sheet and statement of cash flows for the Lighthouse Companies for each of (i) the fiscal year ending December 31, 2014 and (ii) the twelve (12) fiscal month period ending on and as of the end of the last fiscal month immediately prior to the Closing, along with an unqualified audit opinion from an independent certified public accountant reasonably acceptable to Buyer and Sellers (the “ Auditor ”) (collectively, the “ Audited Statements ”). Each of Buyer and Sellers will, and will cause their respective Representatives to, provide the Auditor with reasonable access to the Lighthouse Companies’ books, records, personnel and property to the extent reasonably necessary to prepare the Audited Statements.

 

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(b)          As soon as practicable (but in any event within sixty (60) days) after Buyer’s delivery of the Audited Statements, Buyer will prepare and deliver to the Seller Representative a certificate (“ Buyer Closing Statement ”) that sets forth Buyer’s determination (along with Buyer’s detailed calculation thereof) of (i) the Purchase Price, including the calculation of the trailing twelve full fiscal month Adjusted EBITDA as of the end of the last fiscal month immediately prior to the Closing based on the Audited Statements and (ii) the calculation of the Net Working Capital.

 

(c)          The Seller Representative will have forty-five (45) days after its receipt of the Buyer Closing Statement to review it. To the extent reasonably required to complete their review of the Buyer Closing Statement, the Seller Representative and its Representatives will be provided with reasonable access to the books, records and working papers of Buyer and the Lighthouse Companies used to prepare the Buyer Closing Statement, Buyer’s and the Lighthouse Companies’ finance personnel and any other information of the Lighthouse Companies that the Seller Representative reasonably requests relating to the determination of Purchase Price, and Buyer and the Lighthouse Companies shall cooperate with the Seller Representative and its Representatives in connection therewith. The Seller Representative may deliver notice to Buyer on or prior to the forty-fifth (45 th ) day after receipt of the Buyer Closing Statement specifying in reasonable detail all disputed items and the basis therefor. If the Seller Representative fails to deliver such notice in such forty-five (45) day period, the Seller Representative (on behalf of Sellers) will have waived its right to contest the Buyer Closing Statement. If the Seller Representative notifies Buyer of any objections to the Buyer Closing Statement in such forty-five (45) day period, the Seller Representative and Buyer will, within thirty (30) days following the date of such notice, attempt to resolve their differences and any written resolution by them as to any disputed amount will be final and binding for all purposes under this Agreement. If at the conclusion of such thirty (30) day period Buyer and the Seller Representative have not reached an agreement on any objections with respect to the Buyer Closing Statement, then upon then upon request of either Buyer or the Seller Representative, the parties will resolve the dispute by way of the Dispute Resolution Procedure.

 

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(d)          The term “ Final Statement ” will mean the definitive statement agreed to by the Seller Representative and Buyer in accordance with Section 1.5(c) or the definitive statement resulting from the determination made by the Independent Expert in accordance with the Dispute Resolution Procedure, and the term “ Final Statement Date ” shall mean the date on which the Final Statement is determined in accordance with this Agreement. For purposes of this Agreement, the “ Adjustment Amount ” shall mean an amount equal to the finally determined Purchase Price as shown on the Final Statement minus the amount of the Estimated Purchase Price. If the Adjustment Amount is a positive amount, then Buyer shall pay to Sellers the Adjustment Amount as follows: (i) Buyer shall pay to Sellers within ten (10) Business Days after the Final Statement Date an amount in cash equal to forty percent (40%) of the Adjustment Amount by wire transfer in immediately available funds to such account as designated by Sellers in writing or, if mutually agreed by Buyer and Seller Representative, by delivery of a certified or bank cashier’s check payable to, or upon the order of, Sellers; (ii) Buyer shall pay to Sellers by delivering, promptly (but in any event within ten (10) Business Days) after the Final Statement Date, a number of Shares equal in total value to ten percent (10%) of the Adjustment Amount, with each such Share valued at the Buyer Common Stock Price, with such Shares subject to subject to Section 6.7 hereof; (iii) the principal amount of the Three Year Note shall increase by an amount equal to forty percent (40%) of the Adjustment Amount (increasing the Quarterly Installments (as defined in the Three Year Note) thereunder (the “ Three Year Note Quarterly Installments ”) as if the Three Year Note had originally been issued at such principal amount, and requiring Buyer to make a one-time adjustment to pay the difference between the Three Year Note Quarterly Installments paid prior to such date and the Three Year Note Quarterly Installments that would have been paid prior to such date using the adjusted Three Year Note Quarterly Installment after giving effect to the increase in principal amount); and (iv) the principal amount of the Two Year Note shall increase by an amount equal to ten percent (10%) of the Adjustment Amount (increasing the Quarterly Installments (as defined in the Two Year Note) thereunder (the “ Two Year Note Quarterly Installments ”) as if the Two Year Note had originally been issued at such principal amount, and requiring Buyer to make a one-time adjustment to pay the difference between the Two Year Note Quarterly Installments paid prior to such date and the Two Year Note Quarterly Installments that would have been paid prior to such date using the adjusted Two Year Note Quarterly Installment after giving effect to the increase in principal amount). Any payments required to be made to Sellers pursuant to the preceding clauses (iii) and (iv) shall be made at the same time and in the same manner as any payment required to be made to Sellers pursuant to the preceding clause (i). If the Adjustment Amount is a negative amount, then Sellers shall jointly and severally pay to Buyer the Adjustment Amount as follows: (i) Sellers shall pay to Buyer within ten (10) Business Days after the Final Statement Date an amount in cash equal to forty percent (40%) of the Adjustment Amount by wire transfer in immediately available funds to such account(s) as designated by Buyer in writing; (ii) Sellers shall pay by delivery to Buyer, promptly (but in any event within ten (10) Business Days) after the Final Statement Date, of a number of Shares equal in total value to ten percent (10%) of the Adjustment Amount, with each such Share valued at the Buyer Common Stock Price; (iii) the principal amount of the Three Year Note shall decrease by an amount equal to forty percent (40%) of the Adjustment Amount (decreasing the Three Year Note Quarterly Installments thereunder as if the Three Year Note had originally been issued at such principal amount, and requiring Sellers to make a one-time adjustment to pay the difference between the Three Year Note Quarterly Installments paid prior to such date and the Three Year Note Quarterly Installments that would have been paid prior to such date using the adjusted Three Year Note Quarterly Installment after giving effect to the decrease in principal amount); and (iv) the principal amount of the Two Year Note shall decrease by an amount equal to ten percent (10%) of the Adjustment Amount (decreasing the Two Year Note Quarterly Installments thereunder as if the Two Year Note had originally been issued at such principal amount, and requiring Sellers to make a one-time adjustment to pay the difference between the Two Year Note Quarterly Installments paid prior to such date and the Two Year Note Quarterly Installments that would have been paid prior to such date using the adjusted Two Year Note Quarterly Installment after giving effect to the decrease in principal amount). Any payments required to be made by Sellers pursuant to the preceding clauses (iii) and (iv) shall be made at the same time and in the same manner as any payment required to be made by Sellers pursuant to the preceding clause (i).

 

1.6.         Net Working Capital.

 

(a)          The parties agree that, in addition to the Purchase Price set forth herein, Sellers shall be entitled to receive from (or, if negative, be obligated to pay to) the Company the amount of any Net Working Capital as set forth on the Final Statement and the amount of any Closing Accounts Receivable, in each case in accordance with and subject to this Section 1.6 .

 

(b)          From and after the Closing, so long as any Closing Accounts Receivable remains outstanding, promptly (but in any event by the end of the second (2 nd ) Business Day) after the end of each week, an officer of Buyer on behalf of the Company shall send a statement (as such statement may be adjusted or modified by written agreement of Seller Representative, the Company and Buyer, a “ Receivables Statement ”) to the Seller Representative setting forth the Closing Accounts Receivable received by the Company for the week then ended. The Seller Representative shall promptly review such Receivables Statement and promptly notify the Company and Buyer in writing of any objections to such Receivables Statement. Upon the Company receiving written notice from the Seller Representative of the Seller Representative’s approval of a Receivables Statement, the Company will promptly (but in any event within two (2) Business Days thereafter) pay the amount of the Closing Accounts Receivable set forth in such Receivables Statement to Sellers. From and after the Closing, the Company will, and Buyer will cause the Company to, use its commercially reasonable efforts to collect Closing Accounts Receivable.

 

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(c)          Within ten (10) Business Days after the Final Statement Date, if the amount of the Net Working Capital set forth in the Final Statement is a positive amount, Buyer shall pay to Sellers the amount of Net Working Capital set forth in the Final Statement, or if the amount of the Net Working Capital set forth in the Final Statement is a negative amount, Sellers shall pay to Buyer the amount of Net Working Capital set forth in the Final Statement.

 

1.7.         Minimum Buyer Common Stock Price . Notwithstanding anything to the contrary contained in this Agreement to the contrary, but subject to Section 7.7 hereof, in the event that the VWAP Price on the Unrestricted Date is less than the Buyer Common Stock Price, then within thirty (30) days after the Unrestricted Date, Buyer shall pay to each Seller, by wire transfer in immediately available funds to such account as designated by Sellers in writing, for each Share (other than those issued upon exercise of a Conversion Right (as respectively defined in the Notes)) owned by such Seller immediately prior to the open of trading on the Principal Market on the Unrestricted Date an amount equal to (i) the Buyer Common Stock Price less (ii) the VWAP Price.

 

ARTICLE II
[RESERVED]

 

ARTICLE III
CLOSING

 

3.1.        Closing. The closing of the transactions contemplated by this Agreement (the “ Closing ”) will take place simultaneously with the execution and delivery of this Agreement at the offices of Ellenoff, Grossman & Schole LLP, 1345 Avenue of the Americas, New York, NY 10105, commencing at 10:00 am (New York City time). By mutual agreement of the parties the Closing may take place by conference call and facsimile (or other electronic transmission of signature pages) with exchange of original signatures by overnight mail. The date on which the Closing actually occurs will be referred to as the “ Closing Date ”. The parties agree that to the extent permitted by applicable Law and GAAP, the Closing will be deemed effective as of 11:59 p.m. (New York City time) on the Closing Date, except that for Tax purposes, to the extent permitted by applicable Law, the Closing will be deemed to have occurred and effective as of 12:01 a.m. (New York City time) on the day immediately after the Closing Date.

 

3.2.        Closing Deliveries by Sellers . At or prior to the Closing, Sellers will deliver or cause to be delivered to Buyer the following, each in form and substance reasonably acceptable to Buyer:

 

(a)          powers duly executed and in a form reasonably acceptable to Buyer necessary to transfer the Purchased Interests to Buyer on the books and records of the Company;

 

(b)          the books and records of the Lighthouse Companies;

 

(c)          the required notices, consents, Permits, waivers, authorizations, orders and other approvals listed in Schedule 3.2(c) , and all such notices, consents, Permits, waivers, authorizations, orders and other approvals will be in full force and effect and not be subject to the satisfaction of any condition that has not been satisfied or waived;

 

(d)          release and extinguishment of all (i) Indebtedness of the Lighthouse Companies and (ii) Liens on any of the assets of the Lighthouse Companies, and documentation evidencing the same;

 

(e)          each Note, duly executed by Sellers;

 

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(f)          the Non-Competition and Non-Solicitation Agreement by and between Buyer and Seller in the form attached as Exhibit C hereto (the “ Non-Competition Agreement ”), duly executed by Seller;

 

(g)          the Employment Agreements by and between each Seller and the Company, in the forms attached as Exhibit D hereto (the “ Employment Agreements ”), duly executed by each such Seller and the Company;

 

(h)          a written opinion of Sellers’ counsel, substantially in the form of Exhibit E hereto, duly executed by Sellers’ counsel;

 

(i)           a good standing certificate for each Lighthouse Company certified as of a date no later than thirty (30) days prior to the Closing Date from the proper state official in its jurisdiction of organization and each other jurisdiction in which such Lighthouse Company is qualified to do business as a foreign entity as of the Closing;

 

(j)           a certificate from a manager of the Company certifying to (A) copies of the Company’s Governing Documents as in effect as of the Closing, (B) the resolutions of the Company’s members and managers authorizing the execution, delivery and performance of this Agreement and each of the Ancillary Documents to which it is a party or by which it is bound, and the consummation of each of the transactions contemplated hereby and thereby, and (C) the incumbency of the managers and/or officers authorized to execute this Agreement or any Ancillary Document to which the Company is or is required to be a party or by which the Company is or is required to be bound;

 

(k)          an affidavit of non-foreign status of Seller dated as of the Closing Date in form and substance required under Section 1445 of the Code such that Buyer is exempt from withholding any portion of the Purchase Price that might otherwise be required by Section 1445 of the Code;

 

(l)           the Estimated Closing Statement in accordance with Section 1.4 ;

 

(m)         [RESERVED];

 

(n)          suitable documentation to add additional employees of Buyer or its Affiliates as signatories to the Bank Accounts of the Company set forth on Schedule 4.25 , as prescribed by Buyer;

 

(o)          one or more CD-ROMs or alternatively portable “thumb drives,” in PC-readable format, that contain readable, working Adobe or other (i.e., Microsoft Office) portable document format files that set forth all of the documents provided in the Data Site prior to the Closing; and

 

(p)          evidence of the termination of each contract or arrangement set forth on Schedule 3.2(p) in each case effective at or prior to the Closing.

 

3.3.        Closing Deliveries by Buyer. At or prior to the Closing, Buyer will deliver or cause to be delivered to Sellers the following, each in form and substance reasonably acceptable to Sellers:

 

(a)          evidence of the payment of the cash portion of the Purchase Price required by Section 1.3(a) to be paid at the Closing and the payment of the other amounts required to be paid at the Closing by Section 1.3(d) ;

 

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(b)          evidence reasonably satisfactory to the Seller Representative that with respect to the Shares required by Section 1.3(b) to be delivered at the Closing: (i) such Shares have been duly issued to Sellers; (ii) Sellers are reflected as the owner of such Shares on the books and record of Buyer; and (iii) such Shares are fully paid and non-assessable, and free of any liens and encumbrances except for restrictions provided for herein or under applicable federal and state securities Laws;

 

(c)          each Note duly executed by Buyer;

 

(d)          the Non-Competition Agreement duly executed by Buyer;

 

(e)          the Employment Agreements duly executed by the Company;

 

(f)          a certificate from Buyer’s secretary certifying to (A) copies of Buyer’s Governing Documents as in effect as of the Closing, (B) the resolutions of Buyer’s Board of Directors authorizing the execution, delivery and performance of this Agreement and each of the Ancillary Documents to which it is a party or by which it is bound, and the consummation of each of the transactions contemplated hereby and thereby, and (C) the incumbency of officers authorized to execute this Agreement or any Ancillary Document to which Buyer is or is required to be a party or by which the Buyer is or is required to be bound; and

 

(g)          Sellers shall each have been released from their personal guaranties granted to Santander Bank in connection with the Lighthouse Companies’ credit facility with Santander Bank.

 

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS

 

Except as set forth in the corresponding Sections or subsections of the Disclosure Schedules (which disclosure in the Disclosure Schedules shall qualify the identified Sections or subsections hereof to which such disclosure relates and any other Sections or subsections hereof to the extent that it is reasonably apparent on the face of such disclosure that such disclosure is applicable to such other Sections or subsections), Sellers jointly and severally represent and warrant to Buyer that the statements contained in this ARTICLE IV , and the information in the Disclosure Schedules referenced therein, are true and correct as of the Closing Date, except to the extent that a representation and warranty contained in this ARTICLE IV expressly states that such representation and warranty is current as of an earlier date and then such statements contained in this ARTICLE IV are true and correct as of such earlier date:

 

4.1.        Organization and Qualification. Each Lighthouse Company is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction in which it was organized and has full power and authority to own the assets owned by it and conduct its business as and where it is being conducted by it. Each Lighthouse Company is duly licensed or qualified to do business, and is in good standing as a foreign entity, in all jurisdictions in which its assets or the operation of its business makes such licensing or qualification necessary, all of which jurisdictions are listed on Schedule 4.1 . Each Lighthouse Company has all requisite power and authority to own, lease or use, as the case may be, its properties and business. During the past five (5) years, no Lighthouse Company has been known by or used any corporate, fictitious or other name in the conduct of such Lighthouse Company’s business or in connection with the use or operation of its assets. Schedule 4.1 lists all current managers and officers of each Lighthouse Company, showing each such Person’s name and positions.

 

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4.2.        Authorization and Binding Effect; Corporate Documentation.

 

(a)          Each Seller Party has full power and authority to enter into this Agreement and the Ancillary Documents to which it is or is required to be a party and to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. The execution and delivery of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of each Seller Party, including requisite manager and member approval of the Company. Each of this Agreement and each Ancillary Document to which a Seller Party is or is required to be a party has been duly executed and delivered by each such Seller Party and constitutes a legal, valid and binding obligation of such Seller Party, enforceable against such Seller Party in accordance with its terms, except as the enforceability thereof may be limited by the Permitted Exceptions.

 

(b)          The copies of the Governing Documents of each Lighthouse Company, as amended to date, copies of which have heretofore been delivered to Buyer, are true, complete and correct copies of the Governing Documents of each Lighthouse Company, as amended through and in effect on the date hereof. The minute books and records of the proceedings of each Lighthouse Company, copies of which have been delivered to Buyer, are true, correct and complete in all material respects.

 

4.3.         Title to the Purchased Interests. Sellers own good, valid and marketable title to the Purchased Interests, free and clear of any and all Liens, and upon delivery of the Purchased Interests to Buyer on the Closing Date in accordance with this Agreement, and upon Buyer’s payment of the Purchase Price payable at the Closing in accordance with Section 1.3 , the entire legal and beneficial interest in the Purchased Interests and good, valid and marketable title to the Purchased Interests, free and clear of all Liens (other than those imposed by applicable securities Laws or those incurred by Buyer), will pass to Buyer.

 

4.4.        Capitalization. Prior to giving effect to the transactions contemplated by this Agreement, Sellers are the beneficial and record owner of all of the issued and outstanding membership interests of the Company, with each Seller owning the membership interests in the Company set forth on Schedule 4.4 . The Purchased Interests to be delivered by Sellers to Buyer constitutes all of the issued and outstanding equity interests of the Company. All of the issued and outstanding equity interests of the Company (i) have been duly and validly issued, (ii) are fully paid and nonassessable (to the extent applicable) and (iii) were not issued in violation of any preemptive rights or rights of first refusal or first offer. There are no issued or outstanding options, warrants or other rights to subscribe for or purchase any equity interests of the Company or securities convertible into or exchangeable for, or that otherwise confer on the holder any right to acquire any equity securities of the Company, or preemptive rights or rights of first refusal or first offer with respect to the equity securities of the Company, nor are there any Contracts, commitments, understandings, arrangements or restrictions to which a Seller Party is a party or bound relating to any equity securities of the Company, whether or not outstanding. There are no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to the Company, nor are there any voting trusts, proxies, shareholder agreements or any other agreements or understandings with respect to the voting of the equity securities of the Company. All of the equity securities of the Company have been granted, offered, sold and issued in compliance in all material respects with all applicable foreign, state and federal securities Laws.

 

4.5.        Subsidiaries. The Company does not have, and has never had, any Subsidiaries or ownership, directly or indirectly, of any securities or other interests in any other Person. The Company is not a party to any agreement relating to the formation of any joint venture, association or other Person.

 

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4.6.         Non-Contravention. Except as set forth on Schedule 4.6 , neither the execution, delivery and performance of this Agreement or any Ancillary Documents by any Seller Party, nor the consummation of the transactions contemplated hereby or thereby, will (a) violate or conflict with, any provision of the Governing Documents of a Lighthouse Company, (b) violate or conflict with any Law or Order to which any Lighthouse Company or any Seller, their respective assets or the Purchased Interests are bound or subject, (c) with or without giving notice or the lapse of time or both, breach or conflict with, constitute or create a default under, or give rise to any right of termination, cancellation or acceleration of any obligation or result in a loss of a material benefit under, or give rise to any obligation of any Lighthouse Company or any Seller to make any payment under, or to the increased, additional, accelerated or guaranteed rights or entitlements of any Person under, any of the terms, conditions or provisions of any Contract, agreement, or other commitment to which a Seller or any Lighthouse Company is a party or by which a Seller or any Lighthouse Company Party, their respective assets or the Purchased Interests may be bound, (d) result in the imposition of a Lien (other than a Permitted Lien) on any Purchased Interests or any assets of any Lighthouse Company or (e) require any filing with, or Permit, consent or approval of, or the giving of any notice to, any Governmental Authority or other Person.

 

4.7.         Financial Statements.

 

(a)          Attached to Schedule 4.7(a) are true and correct copies of (i) the reviewed consolidated balance sheet, income statement, statement of stockholder’s equity and statement of cash flows for the Lighthouse Companies as of and for the fiscal years ended December 31, 2014 and December 31, 2013, and (ii) the unaudited consolidated balance sheet of the Lighthouse Companies as of May 31, 2015 and the related unaudited income statement and statement of cash flows for the five (5) fiscal month period then ended (such financial statements described in clauses (i) and (ii), collectively, the “ Financial Statements ”).

 

(b)          The Financial Statements were prepared in accordance with the books and records of the Lighthouse Companies, are true, correct and complete in all material respects, and present fairly and accurately in all material respects the financial condition and results of operations of the Lighthouse Companies as of the respective dates thereof and for the periods specified therein. Except as set forth on Schedule 4.7(b) , the Financial Statements have been prepared in accordance with GAAP, consistently applied throughout and among the periods indicated (except that the unaudited statements exclude the footnote disclosures and other presentation items required for GAAP and exclude year-end adjustments which will not be material in amount). Each Lighthouse Company maintains accurate books and records reflecting its assets and Liabilities and maintains proper and adequate internal accounting controls that provide reasonable assurance that (i) such Lighthouse Company does not maintain any off-the-book accounts and that such Lighthouse Company’s assets are used only in accordance with management directives, (ii) transactions are executed with management’s authorization, (iii) transactions are recorded as necessary to permit preparation of the financial statements of such Lighthouse Company and to maintain accountability for its assets, (iv) access to its assets is permitted only in accordance with management’s authorization, (v) the reporting of its assets is compared with existing assets at regular intervals and verified for actual amounts and (vi) accounts, notes and other receivables and inventory are recorded accurately, and proper and adequate procedures are implemented to effect the collection of accounts, notes and other receivables on a current and timely basis. All of the financial books and records of the Lighthouse Companies are complete and accurate in all material respects and have been maintained in the ordinary course consistent with past practice and in accordance with applicable Laws.

 

4.8.        Absence of Liabilities. The Lighthouse Companies do not have any Liabilities that would be required to be reflected on a balance sheet prepared in accordance with GAAP or in the footnotes thereto except (a) Liabilities that are accrued and reflected on the balance sheet of the Lighthouse Companies as of December 31, 2014, (b) Liabilities that are listed on Schedule 4.8 , (c) immaterial Liabilities that have arisen in the Ordinary Course of Business (other than liabilities for breach of any Contract or violation of any Law) since December 31, 2014 and (d) obligations to be performed after the date hereof under any Contracts which are disclosed in the Disclosure Schedules.

 

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4.9.        Absence of Certain Changes. Except as set forth on Schedule 4.9 , since December 31, 2014: (a) each Lighthouse Company has conducted its business only in the Ordinary Course of Business, and (b) there has not been any change in or development with respect to any Lighthouse Company’s business, operations, condition (financial or otherwise), results of operations, prospects, assets or Liabilities, except for changes and developments which have not had, and are not likely to have to have a Material Adverse Effect.

 

4.10.      Title to and Sufficiency of Assets. Except as set forth on Schedule 4.10 , each Lighthouse Company has good and marketable title to all of its assets, free and clear of all Liens other than Permitted Liens. The assets (including Contracts) of each Lighthouse Company constitute all of the assets, rights and properties that are used in the operation of such Lighthouse Company’s business as it is now conducted and presently proposed to be conducted by Sellers or that are used or held by such Lighthouse Company for use in the operation of such Lighthouse Company’s business, and taken together, are adequate and sufficient for the operation of such Lighthouse Company’s business as currently conducted and as presently proposed to be conducted by Sellers. Except as set forth on Schedule 4.10 , immediately following the Closing, all of the assets of each Lighthouse Company will be owned, leased or available for use by such Lighthouse Company on terms and conditions substantially identical to those under which, immediately prior to the Closing, such Lighthouse Company owns, leases, uses or holds available for use such assets.

 

4.11.      Personal Property. All items of Personal Property of each Lighthouse Company with a book value or fair market value of greater than Ten Thousand Dollars ($10,000) are set forth on Schedule 4.11 . All such items of Personal Property are in good operating condition and repair (reasonable wear and tear excepted consistent with the age of such items), and are suitable for their intended use in such Lighthouse Company’s business. Schedule 4.11 contains an accurate and complete list and description of leases in respect of the Personal Property (collectively, the “Personal Property Leases ”). The Personal Property Leases are valid, binding and enforceable in accordance with their terms and are in full force and effect. With respect to the Personal Property Leases, there are no existing defaults under the applicable lease by a Lighthouse Company or, to the Knowledge of the Company, any other party thereto, and no event of default on the part of a Lighthouse Company or, to the Knowledge of the Company, on the part of any other party thereto has occurred which (whether with or without notice, lapse of time or the happening or occurrence of any other event) would constitute a material default thereunder. Sellers have delivered to Buyer true and correct copies of the Personal Property Leases (along with any amendments thereto) .

 

4.12.      Real Property. Schedule 4.12 contains a complete and accurate list of all premises leased or subleased or otherwise used or occupied by any Lighthouse Company (the “ Leased Premises ”), and of all leases, lease guarantees, agreements and documents related thereto, including all amendments, terminations and modifications thereof (collectively, the “ Leases ”), as well as the current annual rent and term under each Lease. Sellers have provided to Buyer a true and complete copy of each of the Leases, and in the case of any oral Lease, a written summary of the material terms of such Lease. Subject to the Permitted Exceptions, the Leases are valid, binding and enforceable in accordance with their terms and are in full force and effect. No event has occurred which (whether with or without notice, lapse of time or both or the happening or occurrence of any other event) would constitute a default on the part of a Lighthouse Company under any Lease. To the Knowledge of the Company, no event has occurred which (whether with or without notice, lapse of time or both or the happening or occurrence of any other event) would constitute a default by any other party under any Lease, and no Lighthouse Company has received notice of any such condition. No Lighthouse Company has waived any rights under any Lease which would be in effect at or after the Closing. The Lighthouse Companies are in quiet possession of the Leased Premises. All leasehold improvements and fixtures located on the Leased Premises are (i) to the Knowledge of the Company, structurally sound with no material defects, (ii) in good operating condition and repair, subject to ordinary wear and tear, (iii) not in need of maintenance or repair except for ordinary routine maintenance and repair, (iv) in conformity in all material respects with all applicable Laws relating thereto currently in effect and (v) are located entirely on the Leased Premises. No Lighthouse Company has ever owned any real property or any interest in real property (other than the leasehold interests in the Leases).

 

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4.13.        Intellectual Property.

 

(a)           Schedule 4.13(a) sets forth: (i) all U.S. and foreign registrations of Intellectual Property (and applications therefor) owned or licensed by a Lighthouse Company or otherwise used or held for use by a Lighthouse Company in which a Lighthouse Company is the owner, applicant or assignee (“ Registered IP ”), specifying as to each item, as applicable: (A) the nature of the item, including the title, (B) the owner of the item, (C) the jurisdictions in which the item is issued or registered or in which an application for issuance or registration has been filed and (D) the issuance, registration or application numbers and dates; (ii) all material unregistered Intellectual Property owned or purported to be owned by a Lighthouse Company; and (iii) all licenses, sublicenses and other agreements or permissions (“ IP Licenses ”) (other than shrink wrap licenses or other similar licenses for commercial off-the-shelf software with an annual license fee of $2,000 or less (which are not required to be listed, but are “IP Licenses” as that term is used herein)), under which any Lighthouse Company is a licensee or otherwise is authorized to use or practice any Intellectual Property, and describes (A) the applicable Intellectual Property licensed, sublicensed or used and (B) any royalties, license fees or other compensation payable by such Lighthouse Company, if any. Each Lighthouse Company owns, free and clear of all Liens (other than Permitted Liens), has valid and enforceable rights in, and has the unrestricted right to use, sell, license, transfer or assign, all Intellectual Property currently used, licensed or held for use by such Lighthouse Company, and previously used or licensed by such Lighthouse Company, except for the Intellectual Property that is the subject of the IP Licenses. To the Knowledge of the Company, all Registered IP is valid, in force and in good standing, and not subject to any challenge of any kind, and owned exclusively by the applicable Lighthouse Company without obligation to pay royalties, licensing fees or other fees, or otherwise account to any other Person with respect to such Registered IP. No Lighthouse Company has licensed or sublicensed out any of its owned or licensed Intellectual Property (other than to another Lighthouse Company).

 

(b)          Each Lighthouse Company has a license to use all Intellectual Property that is the subject of the IP Licenses, which license, to the Knowledge of the Company, is valid and enforceable. Each Lighthouse Company has performed all obligations imposed on it in the IP Licenses, has made all payments required to date, and is not, nor, to the Knowledge of the Company, is any other party thereto, in breach or default thereunder, nor has any event occurred that with notice or lapse of time or both would constitute a default thereunder. The continued use by a Lighthouse Company of the Intellectual Property that is the subject of the IP Licenses in the same manner that it is currently being used is not restricted by any applicable license of a Lighthouse Company. No Lighthouse Company is party to any Contract that requires such Lighthouse Company to assign to any Person all of its rights in any Intellectual Property developed by a Lighthouse Company under such Contract.

 

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(c)          No Action is pending or, to the Knowledge of the Company, threatened that challenges the validity, enforceability, ownership, or right to use, sell, license or sublicense any Intellectual Property currently licensed, used or held for use by any Lighthouse Company. No Lighthouse Company has received any written or, to the Knowledge of the Company, oral notice or claim asserting that any infringement, misappropriation, violation, dilution or unauthorized use of the Intellectual Property of any other Person is or may be occurring or has or may have occurred, as a consequence of the business activities of any Lighthouse Company, nor to the Knowledge of the Company is there a reasonable basis therefor. There are no Orders to which any Lighthouse Company is a party or its otherwise bound that (i) restrict the rights of a Lighthouse Company to use, transfer, license or enforce any Intellectual Property owned by any Lighthouse Company, (ii) restrict the conduct of the business of any Lighthouse Company in order to accommodate a third person’s Intellectual Property, or (iii) grant any third person any right with respect to any Intellectual Property owned by any Lighthouse Company. No Lighthouse Company is currently infringing, misappropriating or violating, and has not in the past infringed, misappropriated or violated, any Intellectual Property of any other Person. To the Knowledge of the Company, no other Person is infringing upon, has misappropriated or is otherwise violating any Intellectual Property of any Lighthouse Company. No Person has obtained unauthorized access to third party information and data in any Lighthouse Company’s possession, nor has there been any other compromise of the security, confidentiality or integrity of such information or data. Each Lighthouse Company and its Representatives have complied with all applicable Laws relating to privacy, personal data protection, and the collection, processing and use of personal information, as well as the privacy policies and guidelines of the Lighthouse Companies.

 

(d)          Each employee and independent contractor (including consultants) of each Lighthouse Company has assigned to the Lighthouse Company engaging such Person all Intellectual Property arising from the services performed for such Lighthouse Company by such Person. No current or former officers, employees or independent contractors of any Lighthouse Company have claimed any ownership interest in any Intellectual Property owned by any Lighthouse Company. To the Knowledge of the Company, there has been no violation of the any Lighthouse Company’s policies or practices related to protection of such Lighthouse Company’s Intellectual Property or any confidentiality or nondisclosure Contract relating to the Intellectual Property owned by any Lighthouse Company. With respect to third party technical data, computer software and computer software documentation licensed by any Lighthouse Company for delivery to any Governmental Authority, prime contractor, or higher tier subcontractor under any Government Contract, such Lighthouse Company has entered into Contracts with the third party licensor(s) for all Intellectual Property necessary to comply with such Lighthouse Company’s obligations under such Government Contracts with respect to data rights and other related clauses. All technical data, computer software and computer software documentation (as those terms are defined under the FAR and its supplemental regulations) developed, delivered, or used by any Lighthouse Company under or in connection with Contracts with Governmental Authorities have been properly and sufficiently marked and protected by a Lighthouse Company so that no more than the minimum rights or licenses required under applicable regulations and contract terms, if any, have been provided. All disclosures, elections, and notices required by applicable regulations and contract terms to protect ownership of inventions developed, conceived or first actually reduced to practice under Contracts with Governmental Authorities have been made and provided.

 

4.14.       Compliance with Laws. Each Lighthouse Company is in compliance with, and has complied, in all material respects with all Laws and Orders applicable to such Lighthouse Company, its assets, employees or business or the Purchased Interests. None of the operation, activity, conduct and transactions of any Lighthouse Company or the ownership, operation, use or possession of its assets or the employment of its employees materially conflicts with the rights of any other Person or materially violates, or with or without the giving of notice or passage of time, or both, will materially violate, conflict with or result in a material default, right to accelerate or loss of rights under, any terms or provisions of any Lien, Contract or any Law or Order to which any Lighthouse Company is a party or by which any Lighthouse Company or its assets, business or employees or the Purchased Interests may be bound or affected. No Lighthouse Company has received any written or, to the Knowledge of the Company, oral notice of any actual or alleged violation or non-compliance with applicable Laws.

 

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4.15.       Permits. Each Lighthouse Company owns or possesses all right, title and interest in all Permits required to own its assets and conduct its business as now being conducted and as presently proposed to be conducted. All Permits of each Lighthouse Company are listed on Schedule 4.15 and are valid and in full force and effect, and the Lighthouse Companies are in compliance in all material respects with the terms and conditions of all Permits. No loss, revocation, cancellation, suspension, termination or expiration of any Permit is pending or, to the Knowledge of the Company, threatened other than expiration or termination in accordance with the terms thereof. No Lighthouse Company has received any written or, to the Knowledge of the Company, oral notice from any Governmental Authority of any actual or alleged violation or non-compliance regarding any such Permit.

 

4.16.       Litigation. Except as described on Schedule 4.16 , there is no (a) Action of any nature pending or, to the Knowledge of the Company, threatened, nor is there any reasonable basis for any Action to be made, or (b) Order pending now or rendered by a Governmental Authority in the past seven (7) years, in either case of clauses (a) or (b), by or against any Lighthouse Company, any of their respective current or former directors, officers or equity holders (provided, that any litigation involving the directors, officers or equity holders of a Lighthouse Company must be related to such Lighthouse Company’s business or assets or the Purchased Interests), such Lighthouse Company’s business or assets or the Purchased Interests. The items listed on Schedule 4.16 , (i) are fully covered (subject to deductibles) under the insurance policies of the Lighthouse Companies and (ii) if finally determined adverse to any Lighthouse Company, will not have, either individually or in the aggregate, a Material Adverse Effect. During the past five (5) years, no Lighthouse Company’s current or former officers, senior management or directors have been charged with, indicted for, arrested for, or convicted of any felony or any crime involving fraud.

 

4.17.       Contracts.

 

(a)           Schedule 4.17(a) contains a complete, current and correct list of all of the following types of Contracts to which a Lighthouse Company is a party, by which any of its properties or assets are bound, or under which a Lighthouse Company otherwise has material obligations, with each such responsive Contract identified by each corresponding category (i) – (xii) below: (i) any Contract with any Top Customer or Top Supplier; (ii) any Contract or group of related Contracts which involve expenditures or receipts by a Lighthouse Company that require payments or yield receipts of more than $50,000 in any twelve (12) month period or more than $100,000 in the aggregate; (iii) any Contract with any of its officers, directors, employees, consultants or Affiliates (other than at-will employment arrangements with employees entered into the Ordinary Course of Business), including all non-competition, severance, and indemnification agreements; (iv) any agreement presently in effect for the license of any Intellectual Property involving the payment by or to a Lighthouse Company in excess of $50,000 per year; (v) any power of attorney; (vi) any partnership, joint venture, profit-sharing or similar agreement entered into with any Person; (vii) all Contracts relating to any merger, consolidation or other business combination with any other Person or the acquisition or disposition of any other entity or its business, equity securities or material assets or the sale of a Lighthouse Company, its business, equity securities or material assets outside of the Ordinary Course of Business; (viii) any loan agreement, agreement of indebtedness, credit, note, security agreement, guarantee, mortgage, indenture or other document relating to Indebtedness, borrowing of money or extension of credit by or to a Lighthouse Company in excess of $50,000; (ix) any material settlement agreement entered into within three (3) years prior to the date of this Agreement or under which a Lighthouse Company has outstanding obligations (other than customary obligations of confidentiality); (x) any Contract granting, licensing, sublicensing or otherwise transferring any Intellectual Property of a Lighthouse Company other than licenses of a Lighthouse Company’s Intellectual Property included in such Lighthouse Company’s form customer agreements entered into in the Ordinary Course of Business; (xi) any agreement entered into outside the Ordinary Course of Business and presently in effect, involving payment to or obligations of in excess of $50,000, not otherwise described in this Section 4.17(a) ; and (xii) any other Contract that is material to a Lighthouse Company and outside of the Ordinary Course of Business. All oral Contracts that are responsible to the categories listed above are identified in the Disclosure Schedules. True and correct copies of all the Contracts required to be listed in Schedule 4.17(a) (including any amendments, modifications or supplements thereto) have been provided to Buyer.

 

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(b)          Except as set forth on Schedule 4.17(b) , no Lighthouse Company is a party to or bound by any Contract containing any covenant (i) limiting in any respect the right of any Lighthouse Company or its Affiliates to engage in any line of business, to make use of any of its Intellectual Property or compete with any Person in any line of business or in any geographic region, (ii) imposing non-solicitation restrictions on any Lighthouse Company or its Affiliates, (iii) granting to the other party any exclusivity or similar provisions or rights, including any covenant by a Lighthouse Company that includes an organizational conflict of interest prohibition, restriction, representation, warranty or notice provision or any other restriction on future contracting, (iv) providing “most favored customers” or other preferential pricing terms for the services of a Lighthouse Company or its Affiliates, or (v) otherwise limiting or restricting the right of a Lighthouse Company to sell or distribute any Intellectual Property of any Lighthouse Company or to purchase or otherwise obtain any software or Intellectual Property license.

 

(c)          All of the Contracts required to be listed in Schedule 4.17(a) or Schedule 4.17(b) , are in full force and effect, and are valid, binding, and enforceable in accordance with their terms, subject to performance by the other party or parties to such Contract, except as the enforceability thereof may be limited by the Permitted Exceptions. There exists no breach, default or violation on the part of a Lighthouse Company or, to the Knowledge of the Company, on the part of any other party to any such Contract nor has a Lighthouse Company received written or, to the Knowledge of the Company, oral notice of any breach, default or violation. No Lighthouse Company has received notice of an intention by any party to any such Contract that provides for a continuing obligation by any party thereto on the date hereof to terminate such Contract or amend the terms thereof, other than modifications in the Ordinary Course of Business that do not adversely affect any Lighthouse Company. No Lighthouse Company has waived any rights under any such Contract. To the Knowledge of the Company, no event has occurred which either entitles, or would, with notice or lapse of time or both, entitle any party to any such Contract to declare breach, default or violation under any such Contract or to accelerate, or which does accelerate, the maturity of any Indebtedness of a Lighthouse Company under any such Contract. Except as set forth on Schedule 4.17(c) , to the Knowledge of the Company, there is no reason to believe that any Contract with a customer of a Lighthouse Company will not remain in effect after the Closing through the remainder of its term or continue to generate substantially the same or more revenue after the Closing through the remainder of its term as it currently generates.

 

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4.18.       Tax Matters. Except as set forth on Schedule 4.18 : (i) each Lighthouse Company has timely filed all Tax Returns required to have been filed by it; (ii) all such Tax Returns are accurate and complete in all material respects; (iii) each Lighthouse Company has paid all Taxes owed by it which were due and payable (whether or not shown on any Tax Return); (iv) each Lighthouse Company has complied in all material respects with all applicable Laws relating to Tax; (v) no Lighthouse Company is currently the beneficiary of any extension of time within which to file any Tax Return; (vi) there is no current Action against a Lighthouse Company in writing by a Governmental Authority in a jurisdiction where such Lighthouse Company does not file Tax Returns that such Lighthouse Company is or may be subject to taxation by that jurisdiction; (vii) there are no pending or ongoing audits of a Lighthouse Company’s Tax Returns by a Governmental Authority; (viii) no Lighthouse Company has requested or received any ruling from, or signed any binding agreement with, any Governmental Authority, that would apply to any Tax periods ending after the Closing Date; (ix) there are no Liens on any of the assets of a Lighthouse Company that arose in connection with any failure (or alleged failure) to pay any Tax; (x) no unpaid Tax deficiency has been asserted in writing against or with respect to a Lighthouse Company by any Governmental Authority which Tax remains unpaid; (xi) each Lighthouse Company has collected or withheld all Taxes currently required to be collected or withheld by it, and all such Taxes have been paid to the appropriate Governmental Authorities or set aside in appropriate accounts for future payment when due; (xii) no Lighthouse Company has granted or is subject to, any waiver of the period of limitations for the assessment of Tax for any currently open taxable period; (xiii) no Lighthouse Company nor any of their respective former, current or future equity holders is required to include in income any amount for an adjustment pursuant to Section 481 of the Code or the Regulations thereunder; (xiv) no Lighthouse Company is a party to any Tax allocation or sharing agreement; (xv) there is no Contract or Benefit Plan covering any Person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by the Lighthouse Companies by reason of Section 280G or Section 162(m) of the Code, and no arrangement exists pursuant to which a Lighthouse Company or Buyer will be required to “gross up” or otherwise compensate any Person because of the imposition of any Tax on a payment to such Person; (xvi) no Lighthouse Company has been a beneficiary of or participated in any “reportable transaction” within the meaning of Regulations Section 1.6011-4(b)(1) that was, is, or to the Knowledge of the Company will ever be, required to be disclosed under Regulations Section 1.6011-4; (xvii) no Tax Return filed by or on behalf of a Lighthouse Company has contained a disclosure statement under Section 6662 of the Code (or any similar provision of Law), and no Tax Return has been filed by or on behalf of a Lighthouse Company with respect to which the preparer of such Tax Return advised consideration of inclusion of such a disclosure, which disclosure was not made; (xviii) no Lighthouse Company has taken any action not in accordance with past practice that would have the effect of deferring a measure of Tax from a period (or portion thereof) ending on or before the Closing Date to a period (or portion thereof) beginning after the Closing Date; (xix) no Lighthouse Company has a “permanent establishment” in any foreign country, as defined in any applicable Tax treaty or convention between the United States of America and such foreign country, or has otherwise taken steps or conducted business operations that have materially exposed, or will materially expose, it to the taxing jurisdiction of a foreign country; (xx) each Lighthouse Company is materially in compliance with the terms and conditions of any applicable Tax exemptions, Tax agreements or Tax orders of any Taxing Authority to which it may be subject or which it may have claimed, and the transactions contemplated by this Agreement will not have any material and adverse effect on such compliance; (xxi) no written power of attorney which is currently in force has been granted by or with respect to a Lighthouse Company with respect to any matter relating to Taxes; (xxii) no Seller is a “foreign person” for purposes of Section 1445 of the Code; and (xxiii) the Company has been classified as a subchapter S Corporation for U.S. federal and, where applicable, state and local income Tax purposes since January 1, 2005.

 

4.19.       Environmental Matters. To the Knowledge of the Company, each Lighthouse Company has complied in all respects with all applicable Environmental Laws, and no Lighthouse Company has received notice of any Actions pending or threatened against any Lighthouse Company or is assets (including the Leased Premises) relating to applicable Environmental Laws, Environmental Permits or Environmental Conditions. No Lighthouse Company has any environmental audits, environmental assessments, reports, sampling results, correspondence with Governmental Authorities or other environmental documents relating to a Lighthouse Company’s past or current properties, facilities or operation. Except for de minimis quantities of Hazardous Materials used, stored, disposed, or present in compliance with Environmental Laws on or about the Leased Premises, there are no Hazardous Materials that are being stored or are otherwise present on, under or about the Leased Premises, or, to the Knowledge of the Company, any real property formerly owned, leased or operated by a Lighthouse Company. No Lighthouse Company has disposed of, or arranged to dispose of, Hazardous Materials at a disposal facility in a manner or to a location that has resulted or will result in liability to any Lighthouse Company under or relating to Environmental Laws.

 

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4.20.       Employee Benefit Plans.

 

(a)          Set forth on Schedule 4.20(a) is a true and complete list of each Benefit Plan. With respect to each Benefit Plan: (i) such Benefit Plan has been operated, administered and enforced in accordance with its terms and in compliance with, and such Benefit Plan complies with, all applicable Laws, including ERISA and the Code (including Section 409A thereof), in all material respects; (ii) to the Knowledge of the Company, no breach of fiduciary duty has occurred; (iii) no Action is pending, or to the Knowledge of the Company, threatened (other than routine claims for benefits arising in the ordinary course of administration); (iv) no prohibited transaction, as defined in Section 406 of ERISA or Section 4975 of the Code, has occurred, excluding transactions effected pursuant to a statutory or administration exemption; and (v) all contributions and premiums due through the Closing Date have been made as required under ERISA or the term of such Benefit Plan or have been fully accrued on the Financial Statements. All Benefit Plans can be terminated at any time as of or after the Closing Date without resulting in any liability to any Lighthouse Company, Buyer or any of their respective Affiliates for any additional contributions, penalties, premiums, fees, fines, excise taxes or any other charges or liabilities.

 

(b)          Each Benefit Plan which is intended to be “qualified” within the meaning of Section 401(a) of the Code (i) has been determined by the IRS to be so qualified (or is based on a prototype plan which has received a favorable opinion letter) during the period from its adoption to the date of this Agreement and (ii) its related trust has been determined to be exempt from taxation under Section 501(a) of the Code or the applicable Lighthouse Company has requested a favorable IRS determination of qualification and/or exemption within the period permitted by applicable Law. To the Knowledge of the Company, no fact or set of circumstances exists which could adversely affect the qualified status of such Benefit Plans or the exempt status of such trusts.

 

(c)          With respect to each Benefit Plan which covers any current or former officer, director, consultant or employee (or beneficiary thereof) of a Lighthouse Company, Sellers have provided to Buyer accurate and complete copies, if applicable, of: (i) all Benefit Plan texts and agreements and related trust agreements or annuity contracts (including any amendments, modifications or supplements thereto); (ii) all employee communications (including all summary plan descriptions and material modifications thereto); (iii) the three (3) most recent Forms 5500, if applicable, and annual report, including all schedules thereto; (iv) the most recent annual and periodic accounting of plan assets; (v) the three (3) most recent nondiscrimination testing reports; (vi) the most recent determination letter received from the IRS; (vii) the most recent actuarial valuation; and (viii) all communications with any Governmental Authority.

 

(d)          No Benefit Plan is a “defined benefit plan” (as defined in Section 414(j) of the Code), a “multiemployer plan” (as defined in Section 3(37) or 4001(a)(3) of ERISA) or a “multiple employer plan” (as described in Section 413(c) of the Code) or is otherwise subject to Title IV of ERISA or Section 412 of the Code, and no Lighthouse Company has incurred any Liability or otherwise has any outstanding Liability under Title IV of ERISA and, to the Knowledge of the Company, no condition presently exists that is expected to cause such Liability to be incurred. No Lighthouse Company currently maintains or contributes to, or has ever maintained or contributed to or in any way directly or indirectly had any Liability (whether contingent or otherwise) with respect to any “multiemployer plan,” within the meaning of Section 3(37) or 4001(a)(3) of ERISA. No Lighthouse Company is or has in the past been a member of a “controlled group” for purposes of Section 414(b), (c), (m) or (o) of the Code, nor does any Lighthouse Company have any Liability with respect to any collectively-bargained for plans, whether or not subject to the provisions of ERISA. No Lighthouse Company currently maintains or has ever maintained, or is required currently or has ever been required to contribute to or otherwise participate in, a multiple employer welfare arrangement or voluntary employees’ beneficiary association as defined in Section 501(c)(9) of the Code.

 

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(e)          With respect to each Benefit Plan which is a “welfare plan” (as described in Section 3(1) of ERISA): (i) no such plan provides medical or death benefits with respect to any current or former employee of a Lighthouse Company beyond their termination of employment (other than coverage mandated by Law, which is paid solely by such employees); and (ii) there are no reserves, assets, surplus or prepaid premiums under any such plan. Except to the extent required by Section 4980B of the Code or similar state Law, no Lighthouse Company provides health or welfare benefits to any former or retired employee or is obligated to provide such benefits to any active employee following such employee’s retirement or other termination of employment or service.

 

(f)          Each Benefit Plan that is subject to Section 409A of the Code (each, a “ Section 409A Plan ”) as of the Closing Date is indicated as such on Schedule 4.20(f) . Each Section 409A Plan has been administered in compliance in all material respects, and is in documentary compliance in all material respects, with the applicable provisions of Section 409A of the Code, the regulations thereunder and other official guidance issued thereunder. No Lighthouse Company has any obligation to any employee or other service provider with respect to any Section 409A Plan that may be subject to any Tax under Section 409A of the Code.

 

4.21.       Employees and Labor Matters.

 

(a)           Schedule 4.21(a) sets forth a complete and accurate list of all Corporate Employees of any Lighthouse Company as of the Closing Date showing for each as of that date (i) the employee’s name, employer, job title or description, location, salary level (including any bonus, commission, deferred compensation or other remuneration payable (other than any such arrangements under which payments are at the discretion of the Lighthouse Companies)), (ii) any bonus, commission or other remuneration other than salary paid during such Lighthouse Company’s fiscal year ending December 31, 2014 and (iii) any wages, salary, bonus, commission or other compensation due and owing to each employee for the fiscal year ending December 31, 2015 as of the Closing Date. Except as set forth on Schedule 4.21(a) , no employee is a party to a written employment agreement or contract with a Lighthouse Company and each is employed “at will”. Each Lighthouse Company has paid in full to all Corporate Employees all wages, salaries, commission, bonuses and other compensation due, including overtime compensation, and there are no severance payments which are or could become payable by a Lighthouse Company to any Corporate Employees under the terms of any written or, to the Knowledge of the Company, oral agreement, or commitment or any Law, custom, trade or practice. Each such Corporate Employee has entered into the applicable Lighthouse Company’s standard form of employee non-disclosure, inventions and restrictive covenants agreement with the employing Lighthouse Company, true and correct copies of which have been provided to Buyer.

 

(b)           Schedule 4.21(b) contains a list of all independent contractors (including consultants) and Staffing Employees currently engaged by any Lighthouse Company, along with the position, date of retention and rate of remuneration for each such Person. All of such independent contractors and Staffing Employees are a party to a written agreement or contract with the engaging Lighthouse Company. Each such independent contractor and Staffing Employee has entered into customary covenants regarding confidentiality, non-competition and assignment of inventions and copyrights in such Person’s agreement with the engaging Lighthouse Company, true and correct copies of which have been provided to Buyer. For the purposes of applicable Law, including the Code, all independent contractors who are currently, or within the last six (6) years have been, engaged by a Lighthouse Company are bona fide independent contractors and not employees of such Lighthouse Company. Each independent contractor and Staffing Employee is terminable on fewer than thirty (30) days’ notice, without any obligation of a Lighthouse Company to pay severance or a termination fee.

 

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(c)          No Lighthouse Company is or has been a party to any collective bargaining agreement or other Contract with any group of employees or any labor organization or other Representative of any of employees of a Lighthouse Company, and to the Knowledge of the Company, there are and have been no activities or proceedings of any labor union or other party to organize or represent any employees of any Lighthouse Company. Except as set forth on Schedule 4.21(c) : (i) each Lighthouse Company is and has been in compliance in all material respects with all employment Contracts and all applicable Laws and Orders respecting employment and employment practices, terms and conditions of employment and wages and hours, including any respecting employment discrimination and occupational safety and health requirements, and is not and has not been engaged in any unfair labor practice; (ii) there is no labor strike, dispute, slowdown or stoppage actually pending or, to the Knowledge of the Company, threatened against or directly affecting any Lighthouse Company; (iii) no Lighthouse Company has experienced any work stoppage or other labor difficulty; (iv) no Lighthouse Company is delinquent in payments to any of their respective employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed by them or amounts required to be reimbursed to such employees; (v) there are no pending or, to the Knowledge of the Company, threatened unfair or discriminatory employment practice charges pending before the Equal Employment Opportunity Commission, or any comparable foreign, state or local Governmental Authority; (vi) there are no wrongful discharge claims nor any other type of Actions brought by or on behalf of any past or present employees of any Lighthouse Company pending or, to the Knowledge of the Company, threatened against a Lighthouse Company; and (vii) upon termination of the employment of any employee, no Lighthouse Company nor Buyer will by reason of anything done prior to the Closing be liable to any of said employees for vacation pay, severance pay, wrongful termination damages or any other payments (other than any applicable obligations of a Lighthouse Company to pay accrued vacation pay and accrued sick pay to its terminated employees). Each Lighthouse Company has complied in all material respects with all applicable Laws and Orders relating to the payment and withholding of Taxes and has timely withheld from employee wages and paid over to the proper Governmental Authorities all amounts required to be so withheld and paid over for all periods under all such Laws and Orders. No Lighthouse Company has incurred any Liability under the Worker Adjustment and Retraining Notification Act of 1988, as it may be amended from time to time, or any foreign, state or local plant closing and severance laws or regulations.

 

4.22.       Insurance. Schedule 4.22 lists all insurance policies (by policy number, insurer, location of property insured, annual premium, premium payment dates, expiration date, type (i.e., “claims made” or an “occurrences” policy), amount and scope of coverage) held by a Lighthouse Company relating to a Lighthouse Company or the business, assets, properties, directors, officers or employees of a Lighthouse Company, copies of which have been provided to Buyer. To the Knowledge of the Company, each such insurance policy (i) is legal, valid, binding, enforceable and in full force and effect as of the Closing and (ii) will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms immediately following the Closing. No Lighthouse Company is in default with respect to its obligations under any insurance policy, nor has any Lighthouse Company ever been denied insurance coverage for any reason. No Lighthouse Company has any self-insurance or co-insurance programs. In the three (3) year period ending on the date hereof, no Lighthouse Company has received any written or, to the Knowledge of the Company, oral notice from, or on behalf of, any insurance carrier relating to or involving any adverse change or any change other than in the Ordinary Course of Business, in the conditions of insurance, any refusal to issue an insurance policy or non-renewal of a policy, or requiring or suggesting material alteration of any Lighthouse Company’s assets, purchase of additional equipment or material modification of any Lighthouse Company’s methods of doing business. No Lighthouse Company has made any claim against an insurance policy as to which the insurer is denying coverage. Schedule 4.22 identifies each individual insurance claim made by a Lighthouse Company since January 1, 2010. Each Lighthouse Company has reported to its insurers all Actions and pending circumstances that would reasonably be expected to result in an Action, except where such failure to report such an Action would not be reasonably likely to be material to any Lighthouse Company. To the Knowledge of the Company, no event has occurred, and no condition or circumstance exists, that would reasonably be expected to (with or without notice or lapse of time) give rise to or serve as a basis for the denial of any such insurance claim.

 

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4.23.       Transactions with Related Persons. Except as set forth on Schedule 4.23 , no Seller nor any of its Affiliates, nor any officer, director, manager, employee, trustee or beneficiary of a Lighthouse Company or any Affiliate of a Seller, nor any immediate family member of any of the foregoing (whether directly or indirectly through an Affiliate of such Person) (each of the foregoing, a “ Related Person ”) is presently, or in the past three (3) years has been, a party to any transaction with a Lighthouse Company, including any Contract or other arrangement (a) providing for the furnishing of services by (other than as officers, directors or employees of such Lighthouse Company), (b) providing for the rental of real or personal property from or (c) otherwise requiring payments to (other than for services or expenses as directors, officers or employees of such Lighthouse Company in the Ordinary Course of Business) any Related Person or any Person in which any Related Person has an interest as an owner, officer, manager, director, trustee or partner or in which any Related Person has any direct or indirect interest. Except as set forth on Schedule 4.23 , no Lighthouse Company has any outstanding Contract or other arrangement or commitment with any Related Person, and no Related Person owns any real or personal property, or right, tangible or intangible (including Intellectual Property) which is used in a Lighthouse Company’s business. The Lighthouse Companies’ assets do not include any receivable or other obligation from a Related Person, and the Liabilities of the Lighthouse Companies do not include any payable or other obligation or commitment to any Related Person.

 

4.24.       Government Contracts.

 

(a)          No Lighthouse Company is a party to any Government Contract and no Lighthouse Company has any outstanding Government Bids.

 

(b)          Each Lighthouse Company has complied in all material respects with all statutory and regulatory requirements where and to the extent applicable, where and as applicable to each of the Government Contracts and Government Bids. The representations, certifications, and warranties made by each Lighthouse Company with respect to the Government Contracts or Government Bids were accurate in all respects as of their effective date, and each Lighthouse Company has complied in all material respects with all such representations, certifications and warranties. No Government Contract has been terminated for default, breach, cause or other failure to perform, and no Lighthouse Company has not received any adverse or negative past performance evaluations or ratings within the past three (3) years. Each Lighthouse Company has complied in all material respects with all terms and conditions of each Government Contract. No termination for default or convenience notice, cure notice, or show cause notice has been issued by any Governmental Authority, prime contractor or higher-tier subcontractor to a Lighthouse Company. No Lighthouse Company, nor any of its directors, officers or employees is, or for the last five (5) years has been, debarred, proposed for debarment, suspended from or otherwise declared non-responsible or ineligible for participation in the award of contracts with any Governmental Authority. Each Lighthouse Company possesses all facility and personnel security clearances and Permits necessary for the execution and performance of its obligations under the Government Contracts.

 

(c)          No Lighthouse Company, nor any of its directors or officers, nor, to the Knowledge of the Company, any other Representative acting on behalf of a Lighthouse Company, is currently identified on the specially designated nationals or other blocked person list or otherwise currently subject to any U.S. sanctions administered by OFAC, and in the last six (6) fiscal years no Lighthouse Company has, directly or indirectly, used any funds, or loaned, contributed or otherwise made available such funds to any Subsidiary, joint venture partner or other Person, in connection with any sales or operations in any country sanctioned by OFAC or for the purpose of financing the activities of any Person currently subject to, or otherwise in violation of, any U.S. sanctions administered by OFAC. No Lighthouse Company, and no Representative acting on its behalf, has (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to political activity, (ii) made any unlawful payment or offered anything of value to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns, (iii) made any other unlawful payment, or (iv) violated any applicable money laundering or anti-terrorism law or regulation, nor have any of them otherwise taken any action which would reasonably cause a Lighthouse Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable Law of similar effect.

 

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4.25.       Bank Accounts. Schedule 4.25 lists the names and locations of all banks and other financial institutions with which a Lighthouse Company maintains an account (or at which an account is maintained to which a Lighthouse Company has access as to which deposits are made on behalf of a Lighthouse Company) (each, a “ Bank Account ”), in each case listing the type of Bank Account, the Bank Account number therefor, and the names of all Persons authorized to draw thereupon or have access thereto and lists the locations of all safe deposit boxes used by a Lighthouse Company. All cash in such Bank Accounts is held on demand deposit and is not subject to any restriction or limitation as to withdrawal.

 

4.26.       Suppliers and Customers; Products. Schedule 4.26 lists, by dollar volume paid for each of (i) the fiscal year ended December 31, 2014 and (ii) the period from January 1, 2015 through June 30, 2015, the ten (10) largest suppliers of goods or services (the “ Top Suppliers ”) and the ten (10) largest customers of each Lighthouse Company (the “ Top Customers ”). Except as set forth on Schedule 4.26 , the relationships of each Lighthouse Company with such suppliers and customers are, to the Knowledge of the Company, good commercial working relationships and (i) no Top Supplier or Top Customer within the last twelve (12) months has threatened to cancel or otherwise terminate, or, to the Knowledge of the Company, intends to cancel or otherwise terminate, any relationships of such Person with a Lighthouse Company, (ii) no Top Supplier or Top Customer has during the last twelve (12) months decreased materially or, to the Knowledge of the Company, (A) threatened to stop, decrease or limit materially, (B) intends to modify materially its relationships with a Lighthouse Company or (C) intends to stop, decrease or limit materially its products or services to a Lighthouse Company or its usage or purchase of the products or services of a Lighthouse Company, (iii) to the Knowledge of the Company, no Top Supplier or Top Customer intends to refuse to pay any amount due to a Lighthouse Company or seek to exercise any remedy against a Lighthouse Company, (iv) no Lighthouse Company has within the past year been engaged in any material dispute with any Top Supplier or Top Customer, (v) no Top Customer has indicated that it desires or intends to effect a change in the Contract that would reduce the profit margin that a Lighthouse Company is expected to achieve in such Contract or otherwise change the material terms of such Contract or change the type of Contract by which such customer purchases good and/or services from a Lighthouse Company, and (vi) to the Knowledge of the Company, the acquisition by Buyer of the Purchased Interests and the consummation of the transactions contemplated by this Agreement and the Ancillary Documents will not affect the relationship of a Lighthouse Company with any Top Supplier or Top Customer. Each Lighthouse Company provides services and has never sold, licensed or distributed any product to any Person.

 

4.27.       Investment Intent. Each Seller is acquiring its portion of the Shares for its own account and not with a view to its distribution within the meaning of Section 2(11) of the Securities Act, and the rules and regulations issued pursuant thereto. Each Seller is an “accredited investor” within the meaning of Rule 501 under the Securities Act. Each Seller understands that the Shares have not been registered under the Securities Act and cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available.

 

4.28.       Disclosure. No representations or warranties by any Seller Party in this Agreement or any Ancillary Documents contains any untrue statement of material fact or omits to state, when read in conjunction with all of the information contained in this Agreement (including the Disclosure Schedules) and the Ancillary Documents, any fact necessary in order to make the statements herein or therein not materially misleading.

 

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4.29.       No Brokers. Except as set forth on Schedule 4.29 , no Seller or Lighthouse Company, nor any of their respective Representatives on their behalf, has employed any broker, finder or investment banker or incurred any liability for any brokerage fees, commissions, finders’ fees or similar fees in connection with the transactions contemplated by this Agreement.

 

4.30.       No Other Representations and Warranties. Except for the representations and warranties contained in this Agreement or the Ancillary Documents, the Seller Parties make no express or implied representations or warranties, and hereby disclaim any other representations and warranties, whether made orally or in writing, by or on behalf of any Seller Party by any Person.

 

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer represents and warrants to Sellers the following matters as of the Closing Date:

 

5.1.         Organization and Qualification. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. Buyer is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification or license is required, except where the failure to be so qualified or be so licensed would not have a material adverse effect on the ability of Buyer to consummate the transactions contemplated by, and discharge its obligations under, this Agreement and the Ancillary Documents to which Buyer is a party (a “ Buyer Material Adverse Effect ”).

 

5.2.         Authorization. Buyer has full corporate power and authority to enter into this Agreement and the Ancillary Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary Documents to which Buyer is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer. This Agreement and each Ancillary Document to which Buyer is a party constitutes a legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as the enforceability thereof may be limited by the Permitted Exceptions.

 

5.3.         Non-Contravention. Neither the execution and delivery of this Agreement or any Ancillary Document by Buyer, nor the consummation of the transactions contemplated hereby or thereby, will violate or conflict with or (with or without notice or the passage of time or both) constitute a breach or default under (a) any provision of the Governing Documents of Buyer, (b) any Law or Order to which Buyer or any of its business or assets are bound or subject or (c) any Contract or Permit to which Buyer is a party or by which Buyer or any of its properties may be bound or affected, other than, in the cases of clauses (a) through (c), such violations and conflicts which would not reasonably be expected to have a Buyer Material Adverse Effect.

 

5.4.         The Shares. When issued by Buyer to Sellers in accordance with the terms of this Agreement, assuming the accuracy of the representations and warranties of Sellers set forth in Section 4.27 hereof, the Shares will be (a) issued free and clear of all Liens except (i) those imposed by applicable securities Laws, (ii) the rights of the Buyer Indemnified Parties under this Agreement (including under ARTICLE VII and Section 1.5(d) ), (iii) those incurred by Sellers or their Affiliates and (iv) as set forth in Section 6.7 , and (b) validly and duly issued and fully paid and non-assessable.

 

5.5.         No Brokers. Neither Buyer, nor any Representative of Buyer on its behalf, has employed any broker, finder or investment banker or incurred any liability for any brokerage fees, commissions, finders’ fees or similar fees in connection with the transactions contemplated by this Agreement.

 

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5.6.         Litigation. There is no Action pending or, to the Knowledge of Buyer, threatened, nor any Order of any Governmental Authority is outstanding, against or involving Buyer or any of its officers, directors, stockholders, properties, assets or businesses, whether at law or in equity, before or by any Governmental Authority, which would reasonably be expected to have a Buyer Material Adverse Effect.

 

5.7.         Investment Intent. Buyer is acquiring the Purchased Interests for its own account and not with a view to its distribution within the meaning of Section 2(11) of the Securities Act, and the rules and regulations issued pursuant thereto. Buyer is an “accredited investor” within the meaning of Rule 501 under the Securities Act and was not organized for the specific purpose of acquiring the Purchased Interests. Buyer understands that the Purchased Interests has not been registered under the Securities Act and cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available.

 

5.8.         Financial Capacity . As of the Closing Date, Buyer has the financial capacity to perform its obligations under this Agreement and the Ancillary Documents to which it is a party or bound in accordance with their respective terms.

 

5.9.         Foreign Corrupt Practices Act . None of Buyer or its Subsidiaries, nor any of its or its Subsidiaries’ respective directors or officers, nor, to the Knowledge of Buyer, any other Representative acting on behalf of Buyer, has (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to political activity, (ii) made any unlawful payment or offered anything of value to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns, (iii) made any other unlawful payment, or (iv) violated any applicable money laundering or anti-terrorism law or regulation, nor have any of them otherwise taken any action which would reasonably cause Buyer or its Subsidiary to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable Law of similar effect.

 

5.10.       Solvency . Immediately after giving effect to the transactions contemplated by this Agreement and the Ancillary Documents, Buyer is Solvent.

 

5.11.       No Other Representations and Warranties. Except for the representations and warranties contained in this Agreement or the Ancillary Documents, Buyer make no express or implied representations or warranties, and hereby disclaim any other representations and warranties, whether made orally or in writing, by or on behalf of Buyer by any Person.

 

ARTICLE VI
OTHER AGREEMENTS

 

6.1.         Further Assurances. In the event that at any time after the Closing any further action is reasonably necessary to carry out the purposes of this Agreement, each of the parties will take such further action (including the execution and delivery of such further instruments and documents) as the other parties reasonably may request, at the sole cost and expense of the requesting party (unless otherwise specified herein or unless such requesting party is entitled to indemnification therefor under ARTICLE VII in which case, the costs and expense will be borne by the parties as set forth in ARTICLE VII ). Each Seller acknowledges and agrees that from and after the Closing, Buyer will be entitled to possession of, and Sellers will provide to Buyer, all documents, books, records (including Tax records), agreements, corporate minute books and financial data of any sort relating to the Lighthouse Companies.

 

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6.2.         Confidentiality. After the Closing, each Seller will, and will cause its Representatives to: (a) treat and hold in strict confidence any Confidential Information, and will not use for any purpose, nor directly or indirectly disclose, distribute, publish, disseminate or otherwise make available to any third party any of the Confidential Information without Buyer’s prior written consent; (b) in the event that a Seller becomes legally compelled to disclose any Confidential Information, to provide Buyer with prompt written notice of such requirement so that Buyer or Lighthouse Company may seek a protective order or other remedy or Buyer may waive compliance with this Section 6.2 ; (c) in the event that such protective order or other remedy is not obtained, or Buyer waives compliance with this Section 6.2 , to furnish only that portion of such Confidential Information which is legally required to be provided as advised in writing by outside counsel and to exercise their commercially reasonable efforts to obtain assurances that confidential treatment will be accorded such Confidential Information; and (d) to promptly furnish to Buyer any and all copies (in whatever form or medium) of all such Confidential Information and to destroy any and all additional copies of such Confidential Information and any analyses, compilations, studies or other documents prepared, in whole or in part, on the basis thereof; provided, however , that Confidential Information shall not include any information which, at the time of disclosure by Seller or its Representatives, is generally available publicly and was not disclosed in breach of this Agreement by a Seller or its Representatives.

 

6.3.         Publicity. No party hereto shall, and each shall cause their respective Representatives not to, disclose, make or issue, any statement or announcement concerning this Agreement or the Ancillary Documents or the transactions contemplated hereby or thereby (including the terms, conditions, status or other facts with respect thereto) to any third parties (other than its Representatives who need to know such information in connection with carrying out or facilitating the transactions contemplated hereby) without the prior written consent of the other parties (such consent not to be unreasonably withheld, delayed or conditioned), except (i) in the case of the Company or the Sellers, as required by applicable Law after conferring with the other parties concerning the timing and content of such required disclosure, and (ii) in the case of Buyer, as may be required of Buyer or its Affiliates by applicable Law (including any SEC position) or securities listing or trading requirement.

 

6.4.         Litigation Support. Following the Closing, in the event that and for so long as any party is actively contesting or defending against any third party or Governmental Authority Action in connection with any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act or transaction that existing on or prior to the Closing Date involving any Lighthouse Company, each of the other parties will (i) reasonably cooperate with the contesting or defending party and its counsel in the contest or defense, (ii) make available its personnel at reasonable times and upon reasonable notice and (iii) provide (A) such testimony and (B) access to its non-privileged books and records as may be reasonably requested in connection with the contest or defense, at the sole cost and expense of the contesting or defending party (unless such contesting or defending party is entitled to indemnification therefor under ARTICLE VII in which case, the costs and expense will be borne by the parties as set forth in ARTICLE VII ).

 

6.5.         Agreement Regarding Intellectual Property . Each Seller has already disclosed or will disclose to each Lighthouse Company as of the Closing any and all Intellectual Property developed by such Seller on behalf of such Lighthouse Company or relating to the business of such Lighthouse Company, including Intellectual Property used in such Lighthouse Company’s business, and Intellectual Property intended for future use in such Lighthouse Company’s business, and each does hereby assign to such Lighthouse Company any and all right, title and interest that such Seller may have in and to such Intellectual Property. Each Seller represents that it has not made any assignment of, or granted any rights in any such Intellectual Property to any Person other than the applicable Lighthouse Company, and has not disclosed such Intellectual Property to any third party. Upon Buyer’s or the applicable Lighthouse Company’s request at any time, including any time after the Closing, such Seller will execute and deliver to Buyer or the applicable Lighthouse Company such other documents as Buyer or such Lighthouse Company deems necessary or desirable to vest in such Lighthouse Company the sole ownership of and exclusive worldwide rights in and to, all of such Intellectual Property. Each Seller will deliver to the applicable Lighthouse Company all copies or embodiments of such Intellectual Property in any media in such Seller’s possession at or prior to the Closing.

 

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6.6.         Release and Covenant Not to Sue. Effective as of the Closing, each Seller hereby releases and discharges each Lighthouse Company from and against any and all Actions, obligations, agreements, debts and Liabilities whatsoever, whether known or unknown, both at law and in equity, which such Seller now has, has ever had or may hereafter have against such Lighthouse Company arising on or prior to the Closing Date or on account of or arising out of any matter occurring on or prior to the Closing Date, including any rights to indemnification or reimbursement from such Lighthouse Company, whether pursuant to its Governing Documents, Contract or otherwise, and whether or not relating to claims pending on, or asserted after, the Closing Date. From and after the Closing, each Seller hereby irrevocably covenants to refrain from, directly or indirectly, asserting any Action, or commencing or causing to be commenced, any Action of any kind against a Lighthouse Company or its Affiliates, based upon any matter purported to be released hereby. Notwithstanding anything herein to the contrary, the releases and restrictions set forth herein shall not apply to any claims a Seller may have against any party pursuant to the terms and conditions of this Agreement or any Ancillary Document.

 

6.7.         Lock-Up. Except as expressly contemplated by Sections 1.5(d) and 7.7 , each Seller hereby agrees not to, without the prior written consent of Buyer, during the period commencing from the Closing and ending on the earlier of (x) the one (1) year anniversary of the Closing and (y) the consummation of a liquidation, merger, share exchange or other similar transaction following the Closing that results in all of Buyer’s shareholders having the right to exchange their equity holdings in Buyer for cash, securities or other property (the first trading day immediately after such period, the “ Unrestricted Date ”): (i) lend, offer, pledge, hypothecate, encumber, donate, assign, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Shares; (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Shares; or (iii) publicly disclose the intention to do any of the foregoing; whether any such transaction described in clauses (i), (ii) or (iii) above is to be settled by delivery of the Shares or other securities, in cash or otherwise (any of the foregoing described in clauses (i), (ii), or (iii), a “ Prohibited Transfer ”). Each Seller further agrees to execute such agreements as may be reasonably requested by Buyer, in form and substance reasonably satisfactory to such Seller, that are consistent with the foregoing or that are necessary to give further effect thereto. If any Prohibited Transfer is made or attempted contrary to the provisions of this Section 6.7 , such purported Prohibited Transfer shall be null and void ab initio, and Buyer shall refuse to recognize any such purported transferee of the Shares as one of its equity holders for any purpose. In order to enforce this Section 6.7 , Buyer may impose stop-transfer instructions with respect to the Shares until the end of the restriction period described in the first sentence of this Section 6.7 . The foregoing restrictions set forth in this Section 6.7 shall not apply to any of the following transfers (each, a “ Permitted Transfer ”): (a) transfers or other dispositions of Shares by a Seller to the other Seller; or (b) transfers or other dispositions of Shares by a Seller to an immediate family member of such Seller (other than the other Seller) or to any trust for the direct or indirect benefit of such Seller or any of such Seller’s immediate family members, and any dispositions by will, other testamentary document or intestate succession to the legal representative, heir, beneficiary, or legatee of such Seller, provided that, (x) except upon the death or permanent incapacity of both Sellers, the transferring Seller or the other Seller continue to control the voting of any such Shares and (y) any such transferee agrees in writing with Buyer to be bound by the provisions of this Section 6.7 with respect to such Shares.

 

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6.8.         Piggy-Back Registration Rights.

 

(a)          If Buyer proposes to file a registration statement under the Securities Act with respect to an offering of Buyer Common Stock or other Buyer equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, Buyer equity securities, by Buyer for its own account and/or for security holders of Buyer for their account, other than a registration statement (i) filed solely in connection with an offering of securities to directors, employees or independent contractors of Buyer pursuant to any stock incentive or other benefit plan, (ii) filed on Form S-4 or S-8 or any successor to such forms, (iii) for an exchange offer or offering of securities solely to Buyer’s existing security holders, (iv) for a dividend reinvestment plan, or (v) solely in connection with a merger, share capital exchange, asset acquisition, share purchase, reorganization, amalgamation, subsequent liquidation, or other similar business transaction that results in all of Buyer’s shareholders, including Sellers, having the right to exchange their common stock for cash, securities or other property of a non-capital raising bona fide business transaction, then Buyer shall (x) give written notice of such proposed filing to Sellers as soon as practicable but in no event less than ten (10) days before the anticipated filing date, which notice shall describe the amount and type of securities to be included in such offering, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, of the offering, and (y) offer to each Seller in such notice the opportunity to register the sale of such number of the Shares as such Seller may request in writing within ten (10) days following receipt by such Seller of such notice (a “ Piggy-Back Registration ”). Buyer shall include in such registration statement such Shares that a Seller requests in writing within ten (10) days after the receipt by such Seller of any such notice to be included therein. If at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, Buyer shall determine for any reason not to register or to delay registration of such securities, Buyer may, at its election, give written notice of such determination to the Sellers, and (x) in the case of a determination not to register, shall be relieved of its obligation to register any of Shares of Sellers in connection with such registration, and (y) in the case of a determination to delay registering, shall be permitted to delay registering any of Shares of Sellers for the same period as the delay in registering such other securities. If the offering pursuant to a Piggy-Back Registration is to be an underwritten offering, then a Seller must permit the sale or other disposition of such Seller’s Shares in accordance with the intended method(s) of distribution thereof, and shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such Piggy-Back Registration and such Seller shall be responsible for any fees or commissions due to such underwriters in connection with the sale of such Seller’s Shares (“ Selling Expenses ”). If (x) the managing underwriter or underwriters for a Piggy-Back Registration that is to be an underwritten offering advises Buyer in writing that the dollar amount or number of securities which Buyer on behalf of itself and/or its security holders desires to sell exceeds the maximum dollar amount or maximum number of securities that can be sold in such offering without adversely affecting the proposed offering price, timing, distribution method or probability of success of such offering or (y) the SEC determines that the dollar amount or number of securities to be registered under the registration statement exceeds the maximum dollar amount or number that may be registered under such registration statement in accordance with applicable Law (including any SEC rules, regulations, policies or positions) (such maximum dollar amount or maximum number of securities, as applicable, in either of clauses (x) or (y) above, the “ Maximum Number of Securities ”), then Buyer shall include in any such offering only the Maximum Number of Securities allocated as follows: (A) first, the securities that Buyer desires to sell; (B) then, the number of securities required to be included in such offering, if any, by other security holders of Buyer exercising any demand registration rights that such Persons have pursuant to written contractual arrangements with Buyer; and (C) finally, the securities of Persons exercising piggy-back registration rights pursuant to written contractual arrangements with Buyer, including a Seller pursuant to this Section 6.8 , pro-rata among all such security holders exercising piggy-back registration rights. A Seller may elect to withdraw such Seller’s request for inclusion of such Seller’s Shares in any Piggy-Back Registration by giving written notice to Buyer of such request to withdraw prior to the effectiveness of the registration statement. Buyer, whether based on its own determination or as the result of a withdrawal by Persons making a demand pursuant to written contractual obligations, may withdraw a registration statement at any time prior to the effectiveness of the registration statement. All expenses other than Selling Expenses incurred in connection with registrations, filings or qualifications in any registration under this Section 6.8 , including all registration, filing, and qualification fees, printers’ and accounting fees and fees and disbursements of counsel for Buyer shall be borne and paid by Buyer.

 

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(b)          Each Seller’s right to request inclusion of any of its Shares in any registration pursuant this Section 6.8 shall terminate with respect to such Shares upon the earliest to occur of: (i) such time as when such Shares can be sold under Rule 144 promulgated under the Securities Act or another similar exemption under the Securities Act; and (ii) after such time as such Shares have been registered under an effective registration statement. Further, Buyer has the right to exclude any Shares of a Seller from any registration statement to the extent that Buyer is contractually obligated to exclude such securities. In the event that the registration statement covers securities being sold by Buyer on its own behalf, Buyer or the underwriter shall have a right to require each Seller to agree to a lock-up period of up to six (6) months from the date of effectiveness of the registration statement as a condition to registering such Seller’s Shares.

 

(c)          In connection with any registration statement for which a Seller has elected to exercise its Piggy-Back Registration rights pursuant to this Section 6.8 , such Seller agrees to (i) cooperate with Buyer in connection with the preparation of such registration statement as it pertains to such Seller or such Seller’s Shares, (ii) respond within three (3) Business Days to any written request by Buyer to provide or verify information regarding such Seller or the Shares being registered on behalf of such Seller (including the proposed manner of sale) that may be required to be included in such registration statement and related prospectus pursuant to the rules and regulations of the SEC, and (iii) provide in a timely manner information regarding the proposed distribution by such Seller of the Shares for which such Seller has exercised its Piggy-Back Registration rights and such other information as may be requested by Buyer from time to time in connection with the preparation of and for inclusion in such registration statement and related prospectus.

 

(d)          So long as at the time of the filing of such registration statement a Seller is not an executive officer or director of Buyer, if any Shares of such Seller are included a registration statement:

 

(i)          To the extent permitted by applicable Law, Buyer will indemnify and hold harmless such Seller from and against any and all loss, damage, claim or liability (joint or several) to which such Seller may become subject under the Securities Act, the Exchange Act, or other federal or state securities law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon: (A) any untrue statement of a material fact contained in such registration statement; (B) any omission to state in such registration statement a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (C) any violation by Buyer (or any of its Representatives) of the Securities Act, the Exchange Act, any state securities Law (collectively, “ Registration Damages ”); and Buyer will pay to such Seller any legal or other expenses reasonably incurred by such Seller in connection with investigating or defending any claim or proceeding from which Registration Damages may result; provided , however , that the foregoing indemnity shall not apply to the extent that any such Registration Damages arise out of, result from or are based upon information provided by such Seller in such registration statement or actions or omissions made by Buyer or its Representatives in reliance upon and in conformity with information furnished by or on behalf of such Seller for use in connection with such registration statement; provided , further , that Buyer shall not be responsible to indemnify for any amounts paid in settlement of any claim or proceeding if such settlement is effected without the consent of Buyer, which consent shall not be unreasonably withheld, delayed or conditioned.

 

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(ii)         To the extent permitted by applicable Law, such Seller will indemnify and hold harmless Buyer, its Representatives (including any underwriter under the Securities Act), any other security holder of Buyer selling securities in such registration statement and any controlling person (as defined in the Securities Act) of any such Persons from and against any and all Registration Damages, in each case only to the extent that such Registration Damages arise out of, result from or are based upon information provided by such Seller in such registration statement or actions or omissions made by Buyer or its Representatives in reliance upon and in conformity with information furnished by or on behalf of such Seller for use in connection with such registration statement; and such Seller will pay to Buyer and each other aforementioned indemnified Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Registration Damages may result, as such expenses are incurred; provided , that, except in the case of Fraud Claims or willful misconduct by such Seller, such Seller shall not be responsible to indemnify for any amounts paid in settlement of any claim or proceeding if such settlement is effected without the consent of such Seller, which consent shall not be unreasonably withheld, delayed or conditioned; provided , further , that, except in the case of Fraud Claims or willful misconduct, in no event shall any indemnification obligation of a Seller under this Section 6.8(d)(ii) exceed the net proceeds from the offering and sale of Shares actually received by such Seller.

 

(iii)        The indemnification procedures set forth in Section 7.4 shall apply to any indemnification claim under this Section 6.8 (with any reference in Section 7.4 referring to any provision of ARTICLE VII referring to this Section 6.8 instead).

 

(e)          Buyer covenants that so long as Sellers continue to own any Shares, it will at no expense to Sellers (i) make and keep public information regarding Buyer available as those terms are defined in Rule 144, (ii) file in a timely manner any reports and documents required to be filed by it under the Exchange Act, (iii) furnish to Sellers forthwith upon request (A) a written statement by Buyer as to its compliance with the reporting requirements of Rule 144 and the Exchange Act, and (B) a copy of the most recent annual or quarterly report of Buyer and such other reports and documents so filed under the Exchange Act by the Buyer, and (iv) take such further action as a Seller may reasonable request, all to the extent required from time to time to enable Sellers to sell the Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144; provided , that Buyer shall not be in violation of this Section 6.8(e) if the exemptions provided by Rule 144 are not available to Sellers at any given time because Buyer has filed an extension as permitted by the SEC and applicable securities Laws for any of its reports required to be filed under the Exchange Act, so long as it files such reports within any extended period permitted by the SEC and applicable securities Laws. For purposes hereof, “ Rule 144 ” means Rule 144 promulgated under the Securities Act, as amended from time to time, or any similar successor rule thereto that may be promulgated by the SEC.

 

6.9.         Tax Matters.

 

(a)          The Seller Representative will prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Lighthouse Company for all periods ending on or prior to the Closing Date which are required to be filed after the Closing Date. Any Tax Returns filed pursuant to this Section 6.9(a) must be consistent with the prior Tax Returns of the Lighthouse Companies unless otherwise required by applicable Laws. No later than twenty (20) days prior to filing, the Seller Representative will deliver to Buyer all such Tax Returns and any related work papers and will permit Buyer to review and comment on each such Tax Return and will make such revisions to such Tax Returns as are reasonably requested by Buyer. Sellers, jointly and severally, will timely pay to the appropriate Taxing Authority any Taxes of the Lighthouse Companies with respect to such periods to the extent such Taxes were not included as a liability in the calculation of Net Working Capital included in the Final Statement.

 

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(b)          To the extent that any Tax Returns of the Lighthouse Companies relate to any Tax periods which begin on or before the Closing Date and end after the Closing Date, Buyer will prepare or cause to be prepared in a manner consistent with the prior Tax Returns of the Lighthouse Companies unless otherwise required by applicable Laws and file or cause to be filed any such Tax Returns. Buyer will permit the Seller Representative to review and comment on each such Tax Return described in the preceding sentence at least twenty (20) days prior to filing such Tax Returns and will make such revisions to such Tax Returns as are reasonably requested by the Seller Representative unless otherwise required by applicable Law.

 

(c)          For purposes of this Agreement, in the case of any Taxes that are imposed on a periodic basis and are payable for a taxable period that includes but does not end on the Closing Date, the portion of such Tax which relates to the portion of such taxable period ending on the Closing Date will (i) in the case of any Taxes other than Taxes based upon or related to income or receipts, be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction (A) the numerator of which is the number of days in the taxable period ending on the Closing Date and (B) the denominator of which is the number of days in the entire taxable period, and (ii) in the case of any Tax based upon or related to income or receipts be deemed equal to the amount which would be payable if the relevant taxable period ended on the Closing Date. Any credits relating to a taxable period that begins before and ends after the Closing Date will be taken into account as though the relevant taxable period ended on the Closing Date. All determinations necessary to give effect to the foregoing allocations will be made in a manner consistent with GAAP and the prior practice of the applicable Lighthouse Company unless otherwise required by applicable Law.

 

(d)          All Tax sharing agreements or similar agreements with respect to or involving any Lighthouse Company and any Person other than another Lighthouse Company will be terminated as of the Closing Date and, after the Closing Date, no Lighthouse Company will be bound thereby or have any Liability thereunder.

 

(e)          All Taxes imposed in connection with the transfer of the Purchased Interests (“ Transfer Taxes ”), whether such Taxes are assessed initially against Buyer, any Seller Party or any of their respective Affiliates, shall be borne and paid equally by Sellers, on the one hand, and Buyer, on the other hand.

 

6.10.       Security Clearance. Within thirty (30) days after the Closing, Buyer and the Company shall take any and all necessary action to prepare, complete and file any and all applications with the U.S. Government needed to be filed and submitted in order for the Company to maintain its current Secret Facility Security Clearance, and Sellers will cooperate with and assist Buyer and the Company in such efforts. Buyer and the Company shall provide to the Seller Representative copies of all applications and submissions made pursuant to the requirements of this Section 6.10 , to be held by Sellers subject to the requirements of Section 6.2 . Failure to submit or file such applications in such thirty (30) day period in accordance with this Section 6.10 shall be a material breach of this Agreement and shall automatically be deemed to be a Lighthouse Change of Control Transaction for purposes of each Note; provided , that, for the avoidance of doubt, the parties acknowledge that if the U.S. Government does not permit the maintenance of the Company’s current Secret Facility Security Clearance despite such timely submissions and filings and Buyer’s commercially reasonable efforts to resolve any issues raised by and satisfy any reasonable conditions imposed by the U.S. Government in connection with such submissions and filings (which reasonable conditions shall not include the resignation or removal of any director or officer of Buyer or its Subsidiaries unless otherwise agreed by Buyer), it will not be a violation of this Section 6.10 or deemed a Lighthouse Change of Control Transaction.

 

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6.11.       Future Operations.

 

(a)          Subject to Section 6.11(b) , after the Closing and until the later of (x) the Maturity Date (as defined in the Three Year Note), as it may be extended pursuant to Section 1 of the Three Year Note, and (y) the Maturity Date (as defined in the Two Year Note), as it may be extended pursuant to Section 1 of the Two Year Note, except as otherwise consented to by Sellers in writing: (i) Buyer and its Affiliates (other than the Company) and the Company’s board of managers (excluding, to the extent applicable, Sellers), if any, shall not cause the Company not to be, or prevent the Company from being, operated in the ordinary course of business utilizing at the minimum its historic levels of staffing, employee compensation, assets and capitalization based on its past practices and operations, (ii) Buyer and its Affiliates (other than the Company) and the Company’s board of managers (excluding, to the extent applicable, Sellers), if any, shall not cause the Company to terminate the employment of any employee of the Company (excluding Sellers) other than for cause or change their compensation and benefits such that their compensation and benefits in the aggregate would be worse to such employee than their current compensation and benefits in the aggregate (for the avoidance of doubt, this Section 6.11 shall not be deemed to guaranty employment to any employee of the Company at any time after the Closing, change their employment from being “at-will”, or otherwise restrict Buyer or the Company as jointly agreed by them from changing the compensation or benefits provided to Company employees after the Closing), (iii) Buyer and its Affiliates (other than the Company) shall not, and the Company’s board of managers (excluding, to the extent applicable, Sellers), if any, shall not cause the Company to, transfer, move, hire, exchange, lease, loan, engage, or otherwise utilize or take employees of the Company from the Company to the Buyer or of its Affiliates (other than the Lighthouse Companies) or vice versa, and (iv) the Buyer and its Affiliates (other than the Company) shall not solicit, recruit, engage, or entice any employees of the Company to leave their employment with the Company. A material breach of this Section 6.11(a) shall automatically be deemed to be a Lighthouse Change of Control Transaction for purposes of the Notes and this Agreement.

 

(b)          Notwithstanding the provisions of Section 6.11(a) , in the event that the TFQ Gross Profit (as defined in the Three Year Note) is less than 85% of the Target Gross Profit (as defined in the Three Year Note) for each fiscal quarter of the Company during any period comprising of three (3) consecutive fiscal quarters of the Company, then upon the written election of Buyer the provisions of Section 6.11(a) shall be deemed waived by the parties for all periods from the date of such election forward.

 

ARTICLE VII
INDEMNIFICATION

 

7.1.         Survival. All representations and warranties of Sellers and Buyer contained in this Agreement (including all schedules and exhibits hereto and all certificates, documents, instruments and undertakings furnished pursuant to this Agreement) shall survive the Closing through and until the eighteen (18) month anniversary of the Closing Date; provided , however , that (i) the representations and warranties contained in Sections 4.1 (Organization and Qualification), 4.2(a) (Authorization and Binding Effect), 4.5 (Subsidiaries), 4.18 (Tax Matters), 4.20 (Employee Benefits Plans), 4.29 (No Brokers), 5.1 (Organization and Qualification), 5.2 (Authorization), 5.4 (The Shares) and 5.5 (No Brokers) shall survive until sixty (60) days after the expiration of the applicable statute of limitations, and (ii) the representations and warranties contained in Sections 4.3 (Title to the Purchased Interests) and 4.4 (Capitalization) will survive indefinitely. For purposes of this Agreement, the “ Survival Date ” with respect to any representation or warranty shall mean the date when such representation or warranty shall survive in accordance with this Section 7.1 . If written notice of a claim for breach of any representation or warranty has been given on or before the applicable Survival Date for such representation or warranty, then the relevant representations and warranties shall survive as to such claim, until the claim has been finally resolved. All covenants, obligations and agreements of the parties contained in this Agreement (including all schedules and exhibits hereto and all certificates, documents, instruments and undertakings furnished pursuant to this Agreement), including any indemnification obligations, shall survive the Closing and continue until fully performed in accordance with their terms. For the avoidance of doubt, a claim for indemnification under any subsection of Section 7.2 other than clauses (a) or (b) thereof may be made at any time.

 

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7.2.         Indemnification by Sellers. Except as otherwise limited by this ARTICLE VII , Sellers shall jointly and severally indemnify, defend and hold harmless Buyer and its Representatives and any assignee or successor thereof (collectively, the “ Buyer Indemnified Parties ”) from and against, and pay or reimburse the Buyer Indemnified Parties for, any and all losses, Actions, Orders, Liabilities, damages (including consequential damages), diminution in value, Taxes, interest, penalties, Liens, amounts paid in settlement, costs and expenses (including reasonable expenses of investigation and court costs and reasonable attorneys’ fees and expenses), (any of the foregoing, a “ Loss ”) suffered or incurred by, or imposed upon, any Buyer Indemnified Party arising in whole or in part out of or resulting directly or indirectly from: (a) any inaccuracy in or breach of any representation or warranty made by a Seller Party in this Agreement (including all schedules and exhibits hereto) or any Ancillary Document; (b) any non-fulfillment or breach of any unwaived covenant, obligation or agreement made by or on behalf of a Seller or, at or prior to the Closing, the Company contained in this Agreement (including all schedules and exhibits hereto) or any Ancillary Document; (c) any underestimation of the Transaction Expenses, the Transaction Bonuses or the amount of Indebtedness set forth in the Estimated Closing Statement; (d) any and all Liabilities for (i) Taxes in connection with or arising out of any Lighthouse Company’s assets, employees (including pursuant to Section 409A of the Code), securities, activities or business on or prior to the Closing Date (determined with respect to taxable periods that begin before and end after the Closing Date in accordance with the allocation provisions of Section 6.9(c) ) in excess of the amount of Taxes reflected as a current liability in the computation of the Net Working Capital in the Final Statement or (ii) fifty percent (50%) of any Transfer Taxes; (e) any Action by Person(s) who were holders of equity securities of the Company, including stock options, warrants, convertible debt or other convertible securities or other rights to acquire equity securities of the Company, prior to the Closing arising out of the sale, purchase, termination, cancellation, expiration, redemption or conversion of any such securities; or (f) any rate or other adjustments, including any cost disallowances, which result in a Loss to any Lighthouse Company (in excess of any reserves on the Final Audited Statements) with respect to any audits of the Government Contracts conducted by the government related to (i) any period ending on or before the Closing Date and (ii) any periods beginning before but ending after the Closing Date to the extent any adjustments relate to the portion of such period on or prior to the Closing Date; provided, that Buyer will not be required to wait until all such Government Contract audits have been completed to pursue indemnification claims against Seller for Losses resulting from any breach of the representations and warranties in Section 4.24 .

 

7.3.         Indemnification by Buyer. Except as otherwise limited by this ARTICLE VII , Buyer shall indemnify, defend and hold harmless each Seller and its Representatives and any assignee or successor thereof (collectively, the “ Seller Indemnified Parties ”) from and against, and pay or reimburse the Seller Indemnified Parties for, any and all Losses, suffered or incurred by, or imposed upon, any Seller Indemnified Party arising in whole or in part out of or resulting directly or indirectly from: (a) any inaccuracy in or breach of any representation or warranty made by Buyer in this Agreement (including all schedules and exhibits hereto) or any Ancillary Document; (b) any non-fulfillment or breach of any unwaived covenant, obligation or agreement made by or on behalf of Buyer or, after the Closing, the Company contained in this Agreement (including all schedules and exhibits hereto) or any Ancillary Document; or (c) any and all Liabilities for fifty percent (50%) of any Transfer Taxes.

 

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7.4.         Indemnification Procedures.

 

(a)          For the purposes of this Agreement, (i) the term “ Indemnitee ” shall refer to the Person or Persons indemnified, or entitled, or claiming to be entitled, to be indemnified, pursuant to the provisions of Section 7.2 or 7.3 , as the case may be, and (ii) the term “ Indemnitor ” shall refer to the Person having the actual or alleged obligation to indemnify pursuant to such provisions. Notwithstanding anything to the contrary contained in this Agreement, the Seller Representative will have the sole and exclusive right to act on behalf of the Seller Indemnified Parties with respect to any indemnification claims made pursuant to this ARTICLE VII , including bringing and settling any claims hereunder and receiving any notices on behalf of the Seller Indemnified Parties.

 

(b)          In the case of any claim for indemnification under this Agreement arising from a claim of a third party (including any Governmental Authority), an Indemnitee must give prompt written notice and, subject to the following sentence, in no case later than thirty (30) days after the Indemnitee’s receipt of notice of such claim, to the Indemnitor of any claim of which such Indemnitee has knowledge and as to which it may request indemnification hereunder. The failure to give such notice will not, however, relieve an Indemnitor of its indemnification obligations except to the extent that the Indemnitor is actually harmed thereby. The Indemnitor will have the right to defend and to direct the defense against any such claim in its name and at its expense, and with counsel selected by the Indemnitor unless: (i) the Indemnitor fails to acknowledge fully its obligations to the Indemnitee within fifteen (15) days after receiving notice of such third party claim or contests, in whole or in part, its indemnification obligations therefor; (ii) if the Indemnitee is a Buyer Indemnified Party, the applicable third party claimant is a Governmental Authority or a then-current customer of Buyer, any Lighthouse Company or any of their respective Affiliates; (iii) if the Indemnitee is a Buyer Indemnified Party, an adverse judgment with respect to the claim will establish a precedent materially adverse to the continuing business interests of Buyer, any Lighthouse Company or their respective Affiliates; (iv) there is a conflict of interest between the Indemnitee and the Indemnitor in the conduct of such defense; (v) the applicable third party alleges claims of fraud, willful misconduct or intentional misrepresentation; or (vi) such claim is criminal in nature, could reasonably be expected to lead to criminal proceedings, or seeks an injunction or other equitable relief against the Indemnitee. If the Indemnitor elects, and is entitled, to compromise or defend such claim, it will within fifteen (15) days (or sooner, if the nature of the claim so requires) notify the Indemnitee of its intent to do so, and the Indemnitee will, at the request and expense of the Indemnitor, cooperate in the defense of such claim. If the Indemnitor elects not to, or is not entitled under this Section 7.4(b) to, compromise or defend such claim, fails to notify the Indemnitee of its election as herein provided or refuses to acknowledge or contests its obligation to indemnify under this Agreement, the Indemnitee may pay, compromise or defend such claim. Notwithstanding anything to the contrary contained herein, the Indemnitor will have no indemnification obligations with respect to any such claim which has been or will be settled by the Indemnitee without the prior written consent of the Indemnitor (which consent will not be unreasonably withheld, delayed or conditioned); provided, however, that notwithstanding the foregoing, the Indemnitee will not be required to refrain from paying any claim which has matured by a court judgment or decree, unless an appeal is duly taken therefrom and exercise thereof has been stayed, nor will it be required to refrain from paying any claim where the delay in paying such claim would result in the foreclosure of a Lien upon any of the property or assets then held by the Indemnitee or where any delay in payment would cause the Indemnitee material economic loss. The Indemnitor’s right to direct the defense will include the right to compromise or enter into an agreement settling any claim by a third party; provided that no such compromise or settlement will obligate the Indemnitee to agree to any settlement that that requires the taking or restriction of any action (including the payment of money and competition restrictions) by the Indemnitee (other than the delivery of a release for such claim and customary confidentiality obligations), except with the prior written consent of the Indemnitee (such consent to be withheld, conditioned or delayed only for a good faith reason). Notwithstanding the Indemnitor’s right to compromise or settle in accordance with the immediately preceding sentence, the Indemnitor may not settle or compromise any claim over the objection of the Indemnitee; provided, however, that consent by the Indemnitee to settlement or compromise will not be unreasonably withheld, delayed or conditioned. The Indemnitee will have the right to participate in the defense of any claim with counsel selected by it subject to the Indemnitor’s right to direct the defense. The fees and disbursements of such counsel will be at the expense of the Indemnitee; provided, however, that, in the case of any claim which seeks injunctive or other equitable relief against the Indemnitee, the fees and disbursements of such counsel will be at the expense of the Indemnitor.

 

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(c)          Any indemnification claim that does not arise from a third party claim must be asserted by a written notice to the Indemnitor setting forth with reasonable specificity the amount claimed and the underlying facts supporting such claim to the extent then known by the Indemnitee. The Indemnitor will have a period of thirty (30) days after receipt of such notice within which to accept or dispute such claim by providing written notice to the Indemnitee; and any disputes with respect to such claims that the parties are not mutually able to resolve within thirty (30) days after the Indemnitor has provided written notice of its dispute of such claim, shall be immediately referred to and finally resolved by arbitration in New York, New York, in accordance with the Expedited Procedures of the Commercial Arbitration Rules (the “ Arbitration Rules ”) of the American Arbitration Association (“ AAA ”) in force at such time, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitration shall be conducted by one arbitrator nominated by the AAA promptly (but in any event within three (3) Business Days) after the submission of the dispute to the AAA and reasonably acceptable to each party. The arbitrator shall accept his or her appointment and begin the arbitration process promptly (but in any event within three (3) Business Days) after his or her nomination and acceptance by the parties. The arbitrator shall decide the Expedited Dispute in accordance with the substantive law of the State of New York and otherwise in accordance with the terms of this Agreement. To the extent that the Arbitration Rules and this Agreement are in conflict, the terms of this Agreement shall control. The arbitration proceedings shall be streamlined and efficient; time is of the essence. Each party shall submit a proposal for resolution of the dispute to the arbitrator within ten (10) Business Days after confirmation of the appointment of the arbitrator. The arbitrator shall have the power to order any party to do, or to refrain from doing, anything consistent with this Agreement and applicable Law, including to perform its contractual obligation(s); provided, that the arbitrator shall be limited to ordering pursuant to the foregoing power (and, for the avoidance of doubt, shall order) the relevant party to comply with only one or the other of the proposals. The arbitrator’s award shall be in writing and shall include a reasonable explanation of the arbitrator’s reason(s) for selecting one or the other proposal. This agreement to arbitrate shall be specifically enforceable and following the Closing shall be the sole and exclusive remedy of the Indemnitee for any indemnification claim that does not arise from a third party claim.

 

7.5.         Limitations on Indemnification. No Indemnitor shall be liable for an indemnification claim made under clause (a) of Section 7.2 or clause (a) of Section 7.3 , as the case may be, unless and until the Losses of the Buyer Indemnified Parties, collectively, or the Seller Indemnified Parties, collectively, as applicable, exceed an aggregate amount equal to Seventy-Five Thousand U.S. Dollars ($75,000) (the “ Basket ”), in which case the applicable Indemnitor(s) shall be obligated to the Indemnitee(s) for the amount of all Losses of the Indemnitee(s) (including the first dollar of Losses of the Buyer Indemnified Parties or the Seller Indemnified Parties, as applicable, required to reach the Basket); provided, however, that the Basket shall not apply to Fraud Claims. The Basket shall apply only to indemnification claims made under clause (a) of Section 7.2 or clause (a) of Section 7.3 and shall not affect or apply to any other indemnification claim made pursuant to this Agreement, including those asserted under any other clause of Section 7.2 or 7.3 . No Indemnitor shall be liable for an indemnification claim made under clause (a) of Section 7.2 or clause (a) of Section 7.3 , as the case may be: (x) for which a claim for indemnification is not asserted hereunder on or before the applicable Survival Date; or (y) to the extent Losses incurred by the Buyer Indemnified Parties in the aggregate under clause (a) of Section 7.2 or by the Seller Indemnified Parties in the aggregate under clause (a) of Section 7.3 , as applicable, exceed an amount equal to One Million Five Hundred Thousand U.S. Dollars ($1,500,000) (the “Indemnification Cap ”); provided , that with respect to any claims for breaches of the representations and warranties contained in Sections 4.1 (Organization and Qualification), 4.2(a) (Authorization and Binding Effect), Sections 4.3 (Title to the Purchased Interests), 4.4 (Capitalization), 4.29 (No Brokers), 5.1 (Organization and Qualification), 5.2 (Authorization), 5.4 (The Shares) and 5.10 (Solvency), the Indemnification Cap shall be equal to the amount of the Purchase Price actually paid (or deemed paid, including by offset pursuant to Section 7.7 ) to Sellers. Notwithstanding the foregoing, the Indemnification Cap shall not apply to Fraud Claims. The Indemnification Cap shall apply only to indemnification claims made under clause (a) of Section 7.2 or clause (a) of Section 7.3 and shall not affect or apply to any other indemnification claim made pursuant to this Agreement, including those asserted under any other clause of Section 7.2 or 7.3 .

 

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7.6.         General Indemnification Provisions.

 

(a)          The amount of any Losses payable by an Indemnitor to the Indemnitee shall be net of any (i) amounts actually recovered by the Indemnitee under applicable insurance policies, net of the costs of collection and any actual increase in insurance premiums for the two year period following the year in which the Loss occurs resulting from such Loss or insurance payment, (ii) Tax benefit actually realized by the Indemnitee during the Tax year in which such Losses occur arising from the incurrence or payment of any such Losses, determined on a “with and without” basis after taking into account all other items of income, gain, credit, deduction and loss, and (iii) indemnification or reimbursement payments actually recovered by the Indemnitee from unrelated third parties (for the avoidance of doubt, excluding any other Buyer Indemnified Party if the Indemnitee is a Buyer Indemnified Party or any other Seller Indemnified Party if the Indemnitee is a Seller Indemnified Party) with respect to such Losses, net of the costs of collection. In each case of clauses of (i), (ii) and (iii), the Indemnitee has a duty to use its commercially reasonable efforts to obtain any such insurance proceeds, Tax benefits and indemnification or reimbursement payments; provided , that in no event shall the Indemnitee be required to (A) make a claim against an insurer or other Person before bringing a claim for indemnification under this ARTICLE VII or (B) seek litigation or other Action in connection with any recovery of Losses from an insurer or other Person.

 

(b)          Any Losses under this Agreement and the Ancillary Documents shall be determined without duplication of recovery by reason of the state of facts giving rise to such Losses constituting a breach of more than one representation, warranty, covenant or agreement.

 

(c)          Each Indemnitee agrees to use its commercially reasonable efforts to mitigate any Losses it may incur for which it is entitled to indemnification from any Indemnitor pursuant to this Agreement.

 

(d)          No investigation by Buyer or its Representatives, on the one hand, or the Seller Parties or their Representatives, on the other hand, or knowledge by Buyer or its Representatives, on the one hand, or the Seller Parties or their Representatives, on the other hand, of a breach of a representation or warranty of the other set of parties shall affect such other set of parties’ representations and warranties or the recourse available to such first party or any other Indemnitee of such first party under any provision of this Agreement (including this ARTICLE VII ) with respect thereto.

 

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(e)          Except as expressly provided in this Agreement, and except for Fraud Claims, claims based on willful misconduct or any equitable remedies that a party may be entitled to, including claims seeking injunctions or specific performance, the provisions for indemnification set forth in this ARTICLE VII are the exclusive remedies of the parties hereto with respect to any claims arising out of or in connection with this Agreement, and shall be in lieu of any rights under contract, tort, equity or otherwise.

 

(f)          Notwithstanding anything in this Agreement to the contrary, for purposes of application of the indemnification provisions of this ARTICLE VII , the amount of any Loss arising from the breach of any representation, warranty, covenant, obligation or agreement contained in this Agreement shall be the entire amount of any Loss actually incurred by the respective Indemnitee as a result of such breach and not just that portion of the Loss that exceeds the relevant level of materiality, if any. No Seller will have any right to seek contribution from any Lighthouse Company or Buyer with respect to all or any part of such Seller’s indemnification obligations under this ARTICLE VII . The Buyer Indemnified Parties will not be required to make any claim against the Company in respect of any representation, warranty, covenant or any other obligation of the Company to Buyer hereunder or under any Ancillary Document to which the Company is a party, and may solely seek action against Sellers. Unless otherwise required by applicable Law, all indemnification payments will constitute adjustments to the Purchase Price for all Tax purposes, and no party may take any position inconsistent with such characterization.

 

(g)          Notwithstanding anything to the contrary contained in this Agreement, Losses shall not include, and no party shall not be liable for, (i) any exemplary or punitive damages, or (ii) any consequential damages that are not reasonably foreseeable as a result of or arising from a party’s breach of the representations, warranties or covenants set forth in this Agreement, except, in each case, to the extent paid to a third party.

 

7.7.         Timing of Payment; Right to Set-Off; Recovery of Shares. Any indemnification obligation of an Indemnitor under this ARTICLE VII will be paid within three (3) Business Days after the determination of such obligation in accordance with Section 7.4 . The provisions of this ARTICLE VII notwithstanding, at its sole discretion and without limiting any other rights of the Buyer Indemnified Parties under this Agreement or any Ancillary Document or at law or equity, to the extent that a Buyer Indemnified Party is determined in accordance with Section 7.4 to be entitled to indemnification hereunder, if a Seller fails or refuses to promptly indemnify such Buyer Indemnified Party as provided herein then the Buyer Indemnified Party may offset the full amount to which such Buyer Indemnified Party is entitled, in whole or in part, by reducing the amount of any payment or other obligation due to such Seller from any Buyer Indemnified Party pursuant to this Agreement or any Ancillary Document, including any amounts owed by Buyer pursuant to any outstanding indemnification claim, any Shares required to be delivered under Section 1.5(d) after the Closing (based on the value of the Shares as determined under such section), any amounts owed after the Unrestricted Date under Section 1.7 , any amounts due and payable under either Note. Without limiting any of the foregoing or any other rights of the Buyer Indemnified Parties under this Agreement or any Ancillary Document or at law or equity, in the event that a Seller fails or refuses to promptly indemnify a Buyer Indemnified Party as provided herein or otherwise fails or refuses to make any payments required under any Ancillary Document, in either case, where it is established that such Seller is obligated to provide such indemnification or to make such payment, the applicable Buyer Indemnified Party shall, in its sole discretion, be entitled to claim a portion of the Shares then owned by such Seller up to an amount equal in value (based on (a) the Buyer Common Stock Price, if occurring prior to the Unrestricted Date, and (b) the VWAP Price, if occurring on or after the Unrestricted Date) to the amount owed by such Seller. In the event that such Seller fails to promptly transfer any such Shares pursuant to this Section 7.7 or fails to transfer any Shares as required by Section 1.5(d) , Buyer shall be and hereby is authorized as the attorney-in-fact for such Seller to transfer such Shares to the proper recipient thereof as required by this Section 7.7 or Section 1.5(d) , as applicable, and may transfer such Shares and cancel the stock certificates for such Shares on its books and records and issue new stock certificates to such transferee and may instruct its agents and any exchanges on which shares of Buyer Common Stock are listed or traded to do the same.

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ARTICLE VIII
GENERAL PROVISIONS

 

8.1.         Expenses Except as otherwise expressly set forth elsewhere in this Agreement, Buyer will bear its own legal and other fees and expenses incurred in connection with its negotiating, executing and performing this Agreement, including any related broker’s or finder’s fees, and the Seller Parties will bear their respective legal and other fees and expenses incurred in connection with their negotiating, executing and performing this Agreement, including any related broker’s or finder’s fees, for periods on or before the Closing Date. Sellers agree that the fees and expenses of the Seller Parties for periods on or before the Closing Date will be paid by Sellers or on behalf of Sellers in accordance with Section 1.3(d) . Sellers will bear their own legal and other fees and expenses incurred in connection with this Agreement after the Closing, including any costs and expenses incurred by the Seller Representative on their behalf, subject to the provisions of this Agreement.

 

8.2.         Notices. Any notice, request, instruction or other document to be given hereunder by a party hereto shall be in writing and shall be deemed to have been given, (i) when received if given in person or by courier or a courier service, (ii) on the date of transmission if sent by email (with affirmative confirmation of receipt, and provided, that the party providing notice shall within two (2) Business Days provide notice by another method under this Section 8.2 ) or (iii) three (3) Business Days after being deposited in the U.S. mail, certified or registered mail, postage prepaid:

 

If to the Seller Representative, either Seller or,
prior to the Closing, the Company, to:

 

Alison Fogel
+++++++++
+++++++++
++++++++++++
++++++++++++

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

 

Riemer & Braunstein LLP

Seven Times Square, Suite 2506

New York, New York 10036

Attn: Ronald N. Braunstein, Esq.

Telephone No: (212) 789-3131

Email: rbraunstein@riemerlaw.com

If to Buyer or, after the Closing, the Company, to:

 

Staffing 360 Solutions, Inc.
641 Lexington Avenue, Suite 1526
New York, New York 10022
Attention: Matthew Briand
Telephone No.: (203) 268-8624 (ext. 5600)
Email: matt@staffing360solutions.com

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

 

Ellenoff Grossman & Schole LLP

1345 Avenue of the Americas, 11th Floor

New York, New York 10105

Attention: Barry Grossman, Esq.

Telephone No.: (212) 370-1300

Email: bigrossman@egsllp.com

 

or to such other individual or address as a party hereto may designate for itself by notice given as herein provided.

 

8.3.         Sellers Not Authorized to Act on Behalf of Buyer. In the event that a Seller becomes a director, officer, employee or other authorized agent of Buyer or its Affiliates (including, after the Closing, any Lighthouse Company), such Seller shall have no authority, express or implied, to act or make any determination on behalf of Buyer or its Affiliates in connection with this Agreement or any Ancillary Document or the consummation of the transactions contemplated hereby and thereby or any dispute or Action with respect thereto.

 

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8.4.         Severability. In case any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions will not in any way be affected or impaired. Any illegal or unenforceable term will be deemed to be void and of no force and effect only to the minimum extent necessary to bring such term within the provisions of applicable Law and such term, as so modified, and the balance of this Agreement will then be fully enforceable. The parties will substitute for any invalid, illegal or unenforceable provision a suitable and equitable provision that carries out, so far as may be valid, legal and enforceable, the intent and purpose of such invalid, illegal or unenforceable provision.

 

8.5.         Assignment. This Agreement may not be assigned by any party without the prior written consent of the other parties hereto, and any attempted assignment in violation of this Section 8.5 will be null and void ab initio; provided , however , that after the Closing, Buyer and the Company may assign its rights and benefits hereunder (i) to any Affiliate of Buyer or the Company, as applicable (provided, that Buyer or the Company, as applicable, shall remain primarily responsible for its obligations hereunder and the assignee expressly assumes the obligations of Buyer or the Company, as applicable, hereunder), (ii) to any Person acquiring all or substantially all of the assets of Buyer and its Subsidiaries taken as a whole or all or substantially all of the assets of the Company and its Subsidiaries taken as a whole or a majority of the outstanding equity securities of Buyer or the Company (whether by stock purchase, merger, consolidation or otherwise); provided, that the assignee expressly assumes the obligations of Buyer or the Company, as applicable, hereunder, or (iii) as security to any Person providing debt financing to Buyer for the transactions contemplated hereby. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon and inure to the benefit of the successors and permitted assigns of each party hereto. Notwithstanding the foregoing, the parties acknowledge that any replacement Seller Representative shall automatically become a party to this Agreement in place of the replaced Seller Representative upon his or her appointment and acceptance in accordance with Section 8.14 hereof.

 

8.6.         No Third-Party Beneficiaries. Except for the indemnification rights of the Buyer Indemnified Parties and the Seller Indemnified Parties set forth herein, this Agreement is for the sole benefit of the parties hereto and their successors and permitted assigns and nothing herein expressed or implied shall give or be construed to give to any Person, other than the parties hereto and such successors and permitted assigns, any legal or equitable rights hereunder.

 

8.7.         Amendment; Waiver. This Agreement may not be amended or modified except by an instrument in writing signed by each of the parties hereto. Notwithstanding anything to the contrary contained herein: (a) the failure of any party at any time to require performance by the other of any provision of this Agreement will not affect such party’s right thereafter to enforce the same; (b) no waiver by any party of any default by any other party will be valid unless in writing and acknowledged by an authorized representative of the non-defaulting party, and no such waiver will be taken or held to be a waiver by such party of any other preceding or subsequent default; and (c) no extension of time granted by any party for the performance of any obligation or act by any other party will be deemed to be an extension of time for the performance of any other obligation or act hereunder.

 

8.8.         Entire Agreement. This Agreement (including the Exhibits and Schedules hereto, which are hereby incorporated herein by reference and deemed part of this Agreement), together with the Ancillary Documents constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and undertakings, both written and oral, with respect to the subject matter hereof.

 

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8.9.         Remedies. Except as specifically set forth in this Agreement, any party having any rights under any provision of this Agreement will have all rights and remedies set forth in this Agreement and all rights and remedies which such party may have been granted at any time under any other contract or agreement and all of the rights which such party may have under any applicable Law. Except as specifically set forth in this Agreement, any such party will be entitled to (a) enforce such rights specifically, without posting a bond or other security or proving damages or that monetary damages would be inadequate, (b) to recover damages by reason of a breach of any provision of this Agreement and (c) to exercise all other rights granted by applicable Law. The exercise of any remedy by a party will not preclude the exercise of any other remedy by such party.

 

8.10.       Governing Law; Jurisdiction; Waiver of Jury Trial . This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York (without giving effect to its choice of law principles). Subject to Sections 1.5(c) and 7.4(c) , for purposes of any Action arising out of or in connection with this Agreement, the Ancillary Documents or any transaction contemplated hereby or thereby, each of the parties hereto (a) irrevocably submits to the exclusive jurisdiction and venue of any state or federal court located within New York County, State of New York (or any court in which appeal from such courts may be taken), (b) agrees that service of any process, summons, notice or document by U.S. registered mail to such party’s respective address set forth in Section 8.2 shall be effective service of process for any Action with respect to any matters to which it has submitted to jurisdiction in this Section 8.10 , and (c) waives and covenants not to assert or plead, by way of motion, as a defense or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of such court, that the Action is brought in an inconvenient forum, that the venue of the Action is improper or that this Agreement or the Ancillary Document, as applicable, or the subject matter hereof or thereof may not be enforced in or by such court, and hereby agrees not to challenge such jurisdiction or venue by reason of any offsets or counterclaims in any such Action. The parties hereto hereby knowingly, voluntarily and intentionally waive the right any may have to a trial by jury in respect to any litigation based hereon, or arising out of, under, or in connection with this Agreement and any agreement contemplated to be executed in connection herewith, or any course of conduct, course of dealing, statements (whether verbal or written) or actions of any party in connection with such agreements.

 

8.11.       Interpretation. The table of contents and the headings and subheadings of this Agreement are for reference and convenience purposes only and in no way modify, interpret or construe the meaning of specific provisions of the Agreement. In this Agreement, unless the context otherwise requires: (i) whenever required by the context, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa; (ii) reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity; (iii) any accounting term used and not otherwise defined in this Agreement or any Ancillary Document has the meaning assigned to such term in accordance with GAAP; (iv) “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding or succeeding such term and shall be deemed in each case to be followed by the words “without limitation”; (v) the words “herein,” “hereto,” and “hereby” and other words of similar import in this Agreement shall be deemed in each case to refer to this Agreement as a whole and not to any particular Section or other subdivision of this Agreement; (vi) the word “if” and other words of similar import when used herein shall be deemed in each case to be followed by the phrase “and only if”; (vii) the term “or” means “and/or”; (viii) reference to any statute includes any rules and regulations promulgated thereunder; (ix) any agreement, instrument, insurance policy, Law or Order defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument, insurance policy, Law or Order as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes, regulations, rules or orders) by succession of comparable successor statutes, regulations, rules or orders and references to all attachments thereto and instruments incorporated therein; and (x) except as otherwise indicated, all references in this Agreement to the words “Section,” “Schedule” and “Exhibit” are intended to refer to Sections, Schedules and Exhibits to this Agreement. To the extent that any Contract, document, certificate or instrument is represented or warranted to by a Seller Party to be given, delivered, provided or made available by any Seller Party, in order for such Contract, document, certificate or instrument to have been deemed to have been given, delivered, provided and made available to Buyer, such Contract, document, certificate or instrument shall have been posted to the Data Site, and Buyer and its Representatives shall have been given access to the electronic folders containing such information through the Closing.

 

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8.12.       Mutual Drafting. The parties acknowledge and agree that: (a) this Agreement and the Ancillary Documents are the result of negotiations between the parties and will not be deemed or construed as having been drafted by any one party, (b) each party and its counsel have reviewed and negotiated the terms and provisions of this Agreement (including any, Exhibits and Schedules attached hereto) and the Ancillary Documents and have contributed to their revision, (c) the rule of construction to the effect that any ambiguities are resolved against the drafting party will not be employed in the interpretation of this Agreement or the Ancillary Documents and (d) neither the drafting history nor the negotiating history of this Agreement or the Ancillary Documents may be used or referred to in connection with the construction or interpretation thereof.

 

8.13.       Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. A photocopy, faxed, scanned and/or emailed copy of this Agreement or any Ancillary Document or any signature page to this Agreement or any Ancillary Document, shall have the same validity and enforceability as an originally signed copy.

 

8.14.       Seller Representative.

 

(a)          By the execution and delivery of this Agreement, each Seller hereby irrevocably constitutes and appoints Alison Fogel (in such capacity, the “ Seller Representative ”) as the true and lawful agent and attorney-in-fact of such Seller with full powers of substitution to act in the name, place and stead of thereof with respect to the performance on behalf of such Seller under the terms and provisions of this Agreement and the Ancillary Documents, as the same may be from time to time amended, and to do or refrain from doing all such further acts and things, and to execute all such documents on behalf of such Seller, if any, as the Seller Representative will deem necessary or appropriate in connection with any of the transactions contemplated under this Agreement or any of the Ancillary Documents, including: (i) agree upon or compromise any matter related to the calculation of any adjustments to the purchase price under this Agreement; (ii) direct the distribution of the Purchase Price among Sellers, including any payments under either Note; (iii) act for Sellers with respect to all indemnification matters referred to in this Agreement, including the right to compromise on behalf of Sellers any indemnification claim made by or against Sellers, if any; (iv) act for Sellers with respect to all post-Closing matters; (v) terminate, amend or waive any provision of this Agreement; provided, that any such action, if material to the rights and obligations of Sellers in the reasonable judgment of the Seller Representative, will be taken in the same manner with respect to all Sellers unless otherwise agreed by each Seller who is subject to any disparate treatment of a potentially adverse nature; (vi) employ and obtain the advice of legal counsel, accountants and other professional advisors as the Seller Representative, in his or her sole discretion, deems necessary or advisable in the performance of his or her duties as the Seller Representative and to rely on their advice and counsel; (vii) incur and pay expenses, including fees of brokers, attorneys and accountants incurred pursuant to the transactions contemplated hereby, and any other fees and expenses allocable or in any way relating to such transaction or any indemnification claim, whether incurred prior or subsequent to Closing; (viii) receive all or any portion of the Purchase Price and to distribute the same to Sellers pro rata in proportion to their ownership interests; (ix) sign any releases or other documents with respect to and dispute or remedy arising under this Agreement or the Ancillary Documents; and (x) do or refrain from doing any further act or deed on behalf of Sellers which the Seller Representative deems necessary or appropriate in his or her sole discretion relating to the subject matter of this Agreement as fully and completely as any Seller could do if personally present and acting. The Seller Representative hereby accepts his or her appointment and authorization as the Seller Representative under this Agreement.

 

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(b)          The appointment of the Seller Representative will be deemed coupled with an interest and will be irrevocable, and any other Person, including Buyer, the Company and any other Buyer Indemnified Parties may conclusively and absolutely rely, without inquiry, upon any actions of the Seller Representative as the acts of Sellers hereunder or any Ancillary Document to which they are a party. Each Buyer Indemnified Party shall be entitled to rely conclusively on the instructions and decisions of the Seller Representative as to (i) the settlement of any claims for indemnification by a Buyer Indemnified Party pursuant to ARTICLE VII hereof, (ii) any payment instructions provided by the Seller Representative or (iii) any other actions required or permitted to be taken by the Seller Representative hereunder, and no Seller Indemnified Party shall have any cause of action against any Buyer Indemnified Party for any action taken by a Buyer Indemnified Party in reliance upon the instructions or decisions of the Seller Representative. No Buyer Indemnified Party shall have any liability to Sellers for any allocation or distribution among Sellers by the Seller Representative of payments made to or at the direction of the Seller Representative.

 

(c)          The Seller Representative will act for Sellers on all of the matters set forth in this Agreement in the manner the Seller Representative believes to be in the best interest of Sellers, but the Seller Representative will not be responsible to Sellers for any loss or damage that any Seller may suffer by reason of the performance by the Seller Representative of such Seller Representative’s duties under this Agreement, other than loss or damage arising from fraud, gross negligence or willful misconduct in the performance of the Seller Representative’s duties under this Agreement. Sellers do hereby jointly and severally agree to indemnify and hold the Seller Representative harmless from and against any and all Losses reasonably incurred or suffered as a result of the performance of the Seller Representative’s duties under this Agreement, except for any such liability arising out of the fraud, gross negligence or willful misconduct of the Seller Representative. The Seller Representative will not be entitled to any fee, commission or other compensation for the performance of his or her services hereunder, but will be entitled to the payment from Sellers of all his or her expenses incurred as the Seller Representative.

 

(d)          If the Seller Representative shall die, become disabled, resign or otherwise be unable to fulfill his or her responsibilities as agent of Sellers, then Sellers shall, within ten (10) days after such death or disability, appoint a successor agent and, promptly thereafter (but in any event within two (2) Business Days after such appointment), shall notify Buyer in writing of the identity of such successor. Any such successor shall be appointed by the written consent of Sellers, and any successor so appointed shall become the “Seller Representative” for purposes of this Agreement.

 

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( e )           All notices or other communications required to be made or delivered by Buyer to a Seller shall be made to the Seller Representative for the benefit of such Seller, and any notices so made shall discharge in full all notice requirements of Buyer to such Seller with respect thereto. All notices or other communications required to be made or delivered by a Seller shall be made by the Seller Representative (except for a notice under Section 8.14(d) of the replacement of the Seller Representative).

 

[Remainder of Page Intentionally Left Blank; Signatures Appear on Following Page]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first written above.

 

  Sellers:
   
  /s/ Alison Fogel
  Alison Fogel
   
  /s/ David Fogel
  David Fogel
   
  The Company:
   
  LIGHTHOUSE PLACEMENT SERVICES, LLC
   
  By: /s/ Alison Fogel
    Name:  Alison Fogel
    Title:  Managing Member
   
  Buyer:
   
  STAFFING 360 SOLUTIONS, INC.
   
  By: /s/ Matthew Briand
    Name:  Matthew Briand
    Title:  Chief Executive Officer

 

[Signature Page to Equity Purchase Agreement]

 

 
 

 

Exhibit A
Definitions

 

1.             Certain Defined Terms . As used in the Agreement, the following terms shall have the following meanings:

 

Action ” means any notice of noncompliance or violation, or any claim, demand, charge, action, suit, litigation, audit, settlement, complaint, stipulation, assessment or arbitration, or any request (including any request for information), inquiry, hearing, proceeding or investigation, by or before any Governmental Authority.

 

Adjusted EBITDA ” means with respect to any designated period of time, the earnings before interest, income Taxes, depreciation and amortization of the Lighthouse Companies, on a consolidated basis, for such period, as adjusted by and calculated in accordance with the methodology set forth on Schedule A-1 attached hereto.

 

Affiliate ” has the meaning set forth in Rule 12b-2 of the regulations under the Securities Exchange Act of 1934, as amended.

 

Ancillary Documents ” means each agreement, instrument or document attached hereto as an Exhibit, including the Notes, the Non-Competition Agreement, the Employment Agreements and the other agreements, certificates and instruments to be executed or delivered by any of the parties hereto in connection with or pursuant to this Agreement.

 

Benefit Plan ” means any deferred compensation, executive compensation, incentive compensation, equity purchase or other equity-based compensation plan, employment or consulting, severance or termination pay, holiday, vacation or other bonus plan or practice, hospitalization or other medical, life or other insurance, supplemental unemployment benefits, profit sharing, pension, or retirement plan, program, agreement, commitment or arrangement, and each other employee benefit plan, program, agreement or arrangement, including each “employee benefit plan” as such term is defined under Section 3(3) of ERISA, in any case, existing as of the Closing or at any time prior thereto, established, or to which contributions have been made at any time, by any Lighthouse Company, or any predecessor thereof, or under which any employee, former employee, director, agent or independent contractor of any Lighthouse Company, any Seller or any Affiliate thereof or any beneficiary thereof is covered, is eligible for coverage or has benefit rights.

 

Business Day ” means any day that is not a Saturday, Sunday or any other day on which banks are required or authorized by Law to be closed in New York City, New York.

 

Buyer Common Stock ” means shares of the common stock, par value $0.0001 per share, of Buyer (and, after the Closing, any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock).

 

Buyer Common Stock Price ” means an amount equal to One U.S. Dollar ($1.00) per share; provided , that in the event that after the Closing any equity securities are issued or issuable by Buyer (or its successor) or special dividends or distributions are made with respect to shares of Buyer Common Stock (whether by way of any equity dividend, equity split or reverse equity split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, recapitalization, merger, consolidation or other corporation reorganization), the Buyer Common Stock Price thereafter will be equitably adjusted for any such events are reasonably determined in good faith by Buyer.

 

A- 1
 

 

Closing Accounts Receivable ” means any trade accounts receivable of the Company as of the Closing, as determined in accordance with GAAP and immediately prior to the consummation of the transactions contemplated by this Agreement (but for the avoidance of doubt, excluding any unbilled time for Staffing Employees and independent contractors (including consultants)).

 

Closing Current Assets ” means the current assets of the Lighthouse Companies as of the Closing, as determined in accordance with GAAP and immediately prior to the consummation of the transactions contemplated by this Agreement; provided , however , that, notwithstanding the foregoing, “Closing Current Assets” will: (i) exclude any Closing Accounts Receivable and (ii) include unbilled time for Staffing Employees and independent contractors (including consultants).

 

Closing Current Liabilities ” means the current liabilities of the Lighthouse Companies as of the Closing, as determined in accordance with GAAP and immediately prior to the consummation of the transactions contemplated by this Agreement; provided , however , that, notwithstanding the foregoing, whether or not the following is consistent with GAAP, “Closing Current Liabilities” will: (i) exclude any Indebtedness, Transaction Expenses and the amount for Transaction Bonuses paid pursuant to Section 1.3(d) , and (ii) include (A) all liabilities for accrued or deferred Taxes, (B) all balance sheet reserves required under GAAP (applied in a manner consistent with prior practices of the Lighthouse Companies), including reserves for unearned revenue) and (C) all liabilities for expenses related to unbilled time for Staffing Employees and independent contractors (including consultants) to the extent such unbilled time is included in Closing Current Assets.

 

Code ” means the Internal Revenue Code of 1986 and any successor statute thereto, as amended. Reference to a specific section of the Code shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section.

 

Confidential Information ” means any information concerning the business and affairs of a Lighthouse Company that is not generally available to the public, including know-how, trade secrets, customer lists, details of customer or consultant contracts, pricing policies, operational methods and marketing plans or strategies, and any information disclosed to a Lighthouse Company by third parties to the extent that a Lighthouse Company has an obligation of confidentiality in connection therewith.

 

Contract ” means any contract, agreement, binding arrangement, commitment or understanding, bond, note, indenture, mortgage, debt instrument, license (or any other contract, agreement or binding arrangement concerning Intellectual Property), franchise, lease or other instrument or obligation of any kind, written or oral (including any amendments or other modifications thereto).

 

Contract Loss ” means the total direct and indirect costs incurred by the Lighthouse Companies under a Government Contract exceed the total amount of payments that have been and will be received by the Lighthouse Companies under such Government Contract.

 

Corporate Employee ” means any employee of a Lighthouse Company that performs services for a Lighthouse Company and is not staffed to customers of a Lighthouse Company to perform services for such customers.

 

A- 2
 

 

Copyrights ” means all works of authorship, mask works and all copyrights therein, including all renewals and extensions, copyright registrations and applications for registration and renewal, and non-registered copyrights.

 

Data Site ” means the on-line data site maintained by or on behalf of the Seller Parties to provide information for Buyer and its Representatives in contemplation of this Agreement and the transactions contemplated hereby.

 

Disclosure Schedules ” means the disclosure schedules to this Agreement dated as of the date hereof and forming a part of this Agreement.

 

Dispute Resolution Notice Date ” means the date that Buyer or the Seller Representative receives notice from the other party that such other party has elected to resolve a dispute under Section 1.5 using the Dispute Resolution Procedure.

 

Dispute Resolution Procedure ” means the procedure pursuant to which matters disputed under Section 1.5 may be referred by either Buyer or the Seller Representative to the Independent Expert for determination. Each of the Seller Representative and Buyer agrees to execute, if requested by the Independent Expert, a reasonable engagement letter with respect to the determination to be made by the Independent Expert. All fees and expenses of the Independent Expert will be borne by (i) Buyer in the proportion that the aggregate dollar amount of the disputed items submitted to the Independent Expert by Buyer that are unsuccessfully disputed by Buyer (as finally determined by the Independent Expert) bears to the aggregate dollar amount of disputed items submitted by Buyer and the Seller Representative, and (ii) Sellers in the proportion that the aggregate dollar amount of the disputed items submitted to the Independent Expert by the Seller Representative that are unsuccessfully disputed by the Seller Representative (as finally determined by the Independent Expert) bears to the aggregate dollar amount of disputed items submitted by Buyer and the Seller Representative. Except as provided in the preceding sentence, all other costs and expenses incurred by the parties in connection with resolving any dispute hereunder before the Independent Expert will be borne by the party incurring such cost and expense. The Independent Expert will determine only those issues still in dispute as of the Dispute Resolution Notice Date and the Independent Expert’s determination will be based solely upon and consistent with the terms and conditions of this Agreement. The determination by the Independent Expert will be based solely on presentations with respect to such disputed items by Buyer and the Seller Representative to the Independent Expert and not on the Independent Expert’s independent review; provided , that such presentations will be deemed to include any work papers, records, accounts or similar materials delivered to the Independent Expert by Buyer or the Seller Representative in connection with such presentations and any materials delivered to the Independent Expert in response to requests by the Independent Expert. Each of the Seller Representative and Buyer will use their reasonable efforts to make their respective presentations as promptly as practicable following submission to the Independent Expert of the disputed items, and each such party will be entitled, as part of its presentation, to respond to the presentation of the other party and any questions and requests of the Independent Expert. In deciding any matter, the Independent Expert will be bound by the provisions of this Agreement, including this Dispute Resolution Procedure, and may not assign a value to any item greater than the greatest value for such item claimed by Buyer or the Seller Representative or less than the smallest value for such item claimed by Buyer or the Seller Representative. It is the intent of the parties hereto that the process set forth in this definition of “Dispute Resolution Procedure” and the activities of the Independent Expert in connection herewith are not (and should not be considered to be or treated as) an arbitration proceeding or similar arbitral process and that no formal arbitration rules should be followed (including rules with respect to procedures and discovery). The Seller Representative and Buyer will request that the Independent Expert’s determination be made within forty-five (45) days after its engagement, or as soon thereafter as possible, will be set forth in a written statement delivered to Buyer and the Seller Representative and will be final, conclusive, non-appealable and binding for all purposes hereunder (other than for fraud or manifest error).

 

A- 3
 

 

Environmental Condition ” means any contamination or damage to the environment caused by or relating to the use, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaching, pumping, pouring, emptying, discharging, injection, escaping, disposal, dumping or threatened release of Hazardous Materials by any Person. With respect to claims by employees or other third parties, Environmental Condition also includes the exposure of Persons to amounts of Hazardous Materials.

 

Environmental Laws ” means all Laws relating to pollution or protection of the environment, natural resources and health, safety and fire prevention, including those relating to emissions, discharges, releases or threatened releases of Hazardous Material into the environment (including ambient air, surface water, groundwater or land), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Material.

 

Environmental Permits ” means all permits, approvals, agreements, identification numbers, licenses and other authorizations required under any applicable Environmental Law.

 

ERISA ” means the Employee Retirement Income Security Act of 1974 and any successor statute thereto, as amended. Reference to a specific section of ERISA shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section.

 

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

 

FAR ” means the Federal Acquisition Regulation and any agency supplement thereto.

 

Fraud Claims ” means claims based in whole or in part on actual fraud or intentional or willful misrepresentation of material facts which constitute common law fraud under applicable Laws

 

GAAP ” means United States generally accepted accounting principles applied on a consistent basis.

 

Governing Documents ” means, with respect to any entity, its certificate of incorporation , certificate of formation or similar charter document and its bylaws, operating agreement or similar governing document.

 

Government Bid ” means any bid, offer, proposal, or quotation made or submitted by a Lighthouse Company prior to the Closing which, if accepted or selected for award, would result in a Government Contract.

 

Government Contract ” means any prime contract, subcontract, teaming agreement or arrangement, joint venture agreement, basic ordering agreement, blanket purchase agreement, pricing agreement, letter contract or other similar arrangement of any kind, between a Lighthouse Company, on the one hand, and (a) any Governmental Authority or (b) any prime contractor of a Governmental Authority in its capacity as a prime contractor where the Lighthouse Company is recognized as an approved subcontractor by such Governmental Authority, on the other hand.

 

A- 4
 

 

Governmental Authority ” means any federal, state, local, foreign or other governmental, quasi-governmental or administrative body, instrumentality, department or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body. The term “Governmental Authority” includes any Person acting on behalf of a Governmental Authority.

 

Hazardous Material ” means (a) all substances, materials, chemicals, compounds, pollutants or wastes regulated by, under or pursuant to any Environmental Laws, including the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq ., the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601 et seq ., the Clean Water Act, 33 U.S.C. §§1251 et seq ., the Clean Air Act, 42 U.S.C. §§ 7401 et seq ., the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq ., the Emergency Planning and Community Right-to-Know Act of 1986, Title III of Public Law 99-499, the Safe Drinking Water Act, and any and all foreign (whether national, provincial or local), state or local counterparts thereto or other similar foreign (whether national, provincial or local), state or local laws and orders, including any and all rules and regulations promulgated thereunder, or any common law theory based on nuisance, negligence, product liability, trespass, ultrahazardous activity or strict liability; and (b) asbestos, petroleum, any fraction or product of crude oil or petroleum, radioactive materials and polychlorinated biphenyls.

 

Indebtedness ” means, without duplication, (a) the outstanding principal of, and accrued and unpaid interest on, all bank or other third party indebtedness for borrowed money of any Lighthouse Company, including indebtedness under any bank credit agreement and any other related agreements and all obligations of any Lighthouse Company evidenced by notes, debentures, bonds or other similar instruments for the payment of which any Lighthouse Company is responsible or liable, (b) all obligations of any Lighthouse Company for the reimbursement of any obligor on any line or letter of credit, banker’s acceptance, guarantee or similar credit transaction, in each case, that has been drawn or claimed against, (c) all obligations of any Lighthouse Company issued or assumed for deferred purchase price payments, (d) all obligations of any Lighthouse Company under leases required to be capitalized in accordance with GAAP, (e) all interest rate and currency swaps, caps, collars and similar agreements or hedging devices under which payments are obligated to be made by any Lighthouse Company, whether periodically or upon the happening of a contingency, (f) all obligations of any Lighthouse Company secured by a Lien (other than a Permitted Lien) on any asset of a Lighthouse Company, whether or not such obligation is assumed by a Lighthouse Company, (g) any premiums, prepayment fees or other penalties, fees, costs or expenses associated with payment of any Indebtedness and (h) all obligation described in clauses (a) through (g) above of any other Person which is directly or indirectly guaranteed by any Lighthouse Company or which any Lighthouse Company has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which it has otherwise assured a creditor against loss.

 

“Independent Expert ” means a mutually acceptable independent (i.e., no prior material business relationship with any party for the prior two (2) years) accounting firm recognized nationally or in the New York City tri-state region or the greater Boston region (which appointment will be made no later than ten (10) days after the Dispute Resolution Notice Date); provided , that if the Independent Expert does not accept its appointment or if Buyer and the Seller Representative cannot agree on the Independent Expert, in either case within twenty (20) days after the Dispute Resolution Notice Date, either Buyer or the Seller Representative may require, by written notice to the other, that the Independent Expert be selected by the New York City Regional Office of the American Arbitration Association in accordance with the procedures of the American Arbitration Association. The parties agree that the Independent Expert will be deemed to be independent even though a party or its Affiliates may, in the future, designate the Independent Expert to resolve disputes of the types described in Section 1.5 .

 

A- 5
 

 

Intellectual Property ” means all of the following as they exist in any jurisdiction throughout the world: (a) Patents; (b) Trademarks; (c) Copyrights; (d) Trade Secrets; (e) all domain name and domain name registrations, web sites and web pages and related rights, registrations, items and documentation related thereto; (f) Software; (g) rights of publicity and privacy, and moral rights, and (h) all licenses, sublicenses, permissions, and other agreements related to the preceding property.

 

IRS ” means the U.S. Internal Revenue Service or any successor entity.

 

Knowledge ” means: (i) with respect to the Company, the actual present knowledge of a particular matter by either Seller or any executive officer or director of the Company or any of its Subsidiaries, and the knowledge that any such Person would reasonably be expected to have if diligently performing their duties on behalf of the Lighthouse Companies; (ii) with respect to any Seller shall mean the actual present knowledge of a particular matter by such Seller; and (iii) with respect to Buyer, the actual present knowledge of a particular matter by any of the directors or executive officers of Buyer, without independent inquiry.

 

Law ” means any federal, state, local, municipal, foreign or other law, statute, legislation, principle of common law, ordinance, code, edict, decree, proclamation, treaty, convention, rule, regulation, directive, requirement, writ, injunction, settlement, Permit or Order that is or has been issued, enacted, adopted, passed, approved, promulgated, made, implemented or otherwise put into effect by or under the authority of any Governmental Authority.

 

Liabilities ” means any and all debts, liabilities and obligations of any nature whatsoever, whether accrued or fixed, absolute or contingent, mature or unmatured or determined or determinable, including those arising under any Law, Action, Order or Contract.

 

Lien ” means any interest (including any security interest), pledge, mortgage, lien, encumbrance, charge, claim or other right of third parties, including any spousal interests (community or otherwise), whether created by law or in equity, including any such restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership.

 

Lighthouse Change of Control Transaction ” means the consummation of any of the following: (i) a merger, consolidation, corporation reorganization or other business combination of the Company where upon consummation of the transaction, Buyer and its Affiliates will collectively hold less than a majority of the voting power of the Company’s outstanding equity interests; (ii) the sale or transfer (excluding a Lien) of all or substantially all of the assets of the Lighthouse Companies, taken as a whole, in one transaction or a series of related transactions (other than to Buyer or an Affiliate of Buyer); or (iii) the sale or transfer (excluding a Lien) of a majority of the voting power of the Company’s outstanding capital stock in one transaction or a series of related transactions (other than to an Affiliate of Buyer), notwithstanding that any of the transactions described in the preceding clauses (i), (ii) and (iii) may be permitted pursuant to Section 8.5 .

 

Lighthouse Company ” means any of the Company or its Subsidiaries.

 

A- 6
 

 

Material Adverse Effect ” means, with respect to any Seller Party, any event, fact, condition, change, circumstance, occurrence or effect, which, either individually or in the aggregate with all other events, facts, conditions, changes, circumstances, occurrences or effects, (a) has had, or would reasonably be expected to have, a material adverse effect on the business, properties, prospects, assets, Liabilities, condition (financial or otherwise), operations, licenses or other franchises or results of operations of any Lighthouse Company, or materially diminish the value of the Purchased Interests or (b) does or would reasonably be expected to materially impair or delay the ability of a Seller Party to perform their respective obligations under this Agreement and the Ancillary Documents or to consummate the transactions contemplated hereby and thereby; provided , however , that with respect to the Lighthouse Companies, a Material Adverse Effect will not include any adverse effect or change resulting from any change, circumstance or effect relating to (A) the economy in general, (B) securities markets, regulatory or political conditions in the United States (including terrorism or the escalation of any war, whether declared or undeclared or other hostilities), (C) changes in applicable Laws or GAAP or the application or interpretation thereof, (D) with respect to each Lighthouse Company, the industries in which such Lighthouse Company primarily operates and not specifically relating to such Lighthouse Company or (E) a natural disaster (provided, that in the cases of clauses (A) through (E), the applicable Lighthouse Company is not disproportionately affected by such event as compared to other similar companies and businesses in similar industries and geographic regions as such Lighthouse Company).

 

Net Working Capital ” means an amount equal to the difference (whether positive or negative) of the Closing Current Assets, minus the Closing Current Liabilities.

 

Order ” means any order, writ, rule, judgment, injunction, decree, stipulation, determination or award that is or has been made, entered, rendered or otherwise put into effect by, with or under the authority of any Governmental Authority.

 

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

 

Ordinary Course of Business ” means, with respect to a Person, an action taken by such Person if (a) such action is recurring in nature, is consistent with the past practices of the Person and is taken in the ordinary course of the normal day-to-day operations of the Person; (b) such action is not required to be authorized by the equity holders of such Person, the board of directors (or equivalent) of such Person or any committee of the board of directors (or equivalent) of such Person and does not require any other special authorization of any nature; and (c) such action is taken in accordance with sound and prudent business practice. Unless the context or language herein requires otherwise, each reference to Ordinary Course of Business will be deemed to be a reference to Ordinary Course of Business of a Lighthouse Company.

 

Patents ” means all patents, patent applications and the inventions, designs and improvements described and claimed therein, patentable inventions, and other patent rights (including any divisionals, continuations, continuations-in-part, substitutions, or reissues thereof, whether or not patents are issued on any such applications and whether or not any such applications are amended, modified, withdrawn, or refiled).

 

Permit ” means any federal, state, local, foreign or other third-party permit, grant, easement, consent, approval, authorization, exemption, license, franchise, concession, ratification, permission, clearance, confirmation, endorsement, waiver, certification, designation, rating, registration or qualification that is or has been issued, granted, given or otherwise made available by or under the authority of any Governmental Authority or other Person.

 

Permitted Exceptions ” means bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity).

 

Permitted Liens ” means any (a) statutory Liens of landlords, carriers, warehousemen, mechanics and materialmen and other similar Liens imposed by Law in the Ordinary Course of Business for sums not yet due and payable; and (b) Liens for current taxes not yet due and payable.

 

A- 7
 

 

Person ” shall include any individual, trust, firm, corporation, limited liability company, partnership, Governmental Authority or other entity or association, whether acting in an individual, fiduciary or any other capacity.

 

Personal Property ” means all of the machinery, equipment, tools, vehicles, furniture, leasehold improvements, office equipment, plant, spare parts, and other tangible personal property which are owned, used or leased by any Lighthouse Company and used or useful, or intended for use, in the conduct or operations of a Lighthouse Company’s business.

 

Principal Market ” means the principal securities exchange or securities market (including an over-the-counter bulletin board) on which Buyer Common Stock is listed or quoted for trading at the applicable time of determination.

 

Representative ” means, as to any Person, such Person’s Affiliates and its and their managers, directors, officers, employees, agents and advisors (including financial advisors, counsel and accountants).

 

SEC ” means the United States Securities and Exchange Commission.

 

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

 

Software ” means all computer software, including all source code, object code, and documentation related thereto and all software modules, assemblers, applets, compilers, flow charts or diagrams, tools and databases.

 

Solvent ” means, with respect to any Person, that such Person (a) owns and will own assets the fair saleable value of which are (i) greater than the total amount of its liabilities (including contingent obligations), and (ii) greater than the amount that will be required to pay the probable liabilities of its then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to it; (b) has capital that is not unreasonably small in relation to its business as presently conducted or after giving effect to any contemplated transaction; and (c) does not intend to incur and does not believe that it will incur debts beyond its ability to pay such debts as they become due.

 

Staffing Employee ” means any employee of a Lighthouse Company that is staffed by a Lighthouse Company to its customers to perform services for such customers.

 

Subsidiary ” means, with respect to any Person, any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, association or other business entity, a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons will be deemed to have a majority ownership interest in a partnership, association or other business entity if such Person or Persons will be allocated a majority of partnership, association or other business entity gains or losses or will be or control the managing director, managing member, general partner or other managing Person of such partnership, association or other business entity. Unless the context otherwise requires, any reference to a Subsidiary in this Agreement will mean a Subsidiary of the Company.

 

A- 8
 

 

Tax ” means any federal, state, local or foreign income, gross receipts, license, payroll, parking, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, natural resources, customs duties, capital stock, franchise, profits, withholding, social security (or similar), payroll, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated tax, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not, including such item for which Liability arises from the application of Treasury Regulation 1.1502-6, as a transferee or successor-in-interest, by contract or otherwise, and any Liability assumed or arising as a result of being, having been, or ceasing to be a member of any Affiliated Group (as defined in Section 1504(a) of the Code) (or being included or required to be included in any Tax Return relating thereto) or as a result of any Tax indemnity, Tax sharing, Tax allocation or similar Contract.

 

Tax Return ” means any return, report, information return, schedule, certificate, statement or other document (including any related or supporting information) filed or required to be filed with a Taxing Authority in connection with any Tax, or, where none is required to be filed with a Taxing Authority, the statement or other document issued by a Taxing Authority in connection with any Tax.

 

Taxing Authority ” means any Governmental Authority responsible for the imposition or collection of any Tax.

 

Trademarks ” means all trademarks, service marks, trade dress, trade names, brand names, Internet domain names, designs, logos, or corporate/company names (including, in each case, the goodwill associated therewith), whether registered or unregistered, and all registrations and applications for registration and renewal thereof.

 

Trade Secrets ” means any trade secrets, confidential business information, concepts, ideas, designs, research or development information, processes, procedures, techniques, technical information, specifications, operating and maintenance manuals, engineering drawings, methods, know-how, data, mask works, discoveries, inventions, modifications, extensions, improvements, and other proprietary rights (whether or not patentable or subject to copyright, trademark, or trade secret protection).

 

Transaction Bonuses ” means the aggregate of all amounts payable as a result of the change in control of the Company or as a result of the sale of the Purchased Interests or other similar provisions contained in any agreements binding upon a Lighthouse Company, including all bonuses and severance payments, retention obligations for retention agreements entered into in contemplation of a potential change of control of the Company or the sale of the Purchased Interests, termination payments to consultants or independent contractors and any settlement of any such bonus or severance payment obligations, obligations related to terminated equity options, or obligations related to terminated equity appreciation, phantom equity, profit participation and/or similar rights entered into by any Lighthouse Company at or prior to the Closing, and including any Lighthouse Company’s share of any withholding Taxes on such amounts.

 

Transaction Expenses ” means all fees, commissions, costs and expenses incurred by or on behalf of any Seller or the Company in connection with the negotiation, execution or performance of this Agreement or the Ancillary Documents or the consummation of the transactions contemplated hereby or thereby (or incurred in connection with the transactions hereunder or thereunder) including any of the foregoing payable to legal counsel, accountants, investment bankers, financial advisors, brokers, finders, or consultants.

 

A- 9
 

 

VWAP Price ” means, as of any date, the volume-weighted average price of Buyer Common Stock on the Principal Market for the ninety (90) day period ending on the last trading day prior to such date. The VWAP Price will be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period.

 

2.             Other Defined Terms . The following capitalized terms, as used in the Agreement, have the respective meanings given to them in the Section as set forth below adjacent to such terms:

 

Term   Section
AAA   7.4(c)
Adjustment Amount   1.5(d)
Agreement   Preamble
Arbitration Rules   7.4(c)
Audited Statements   1.5(a)
Auditor   1.5(a)
Bank Account   4.25
Basket   7.5
Buyer   Preamble
Buyer Closing Statement   1.5(b)
Buyer Indemnified Parties   7.2
Buyer Material Adverse Effect   5.1
Closing   3.1
Closing Date   3.1
Company   Preamble
Employment Agreements   3.2(g)
Estimated Closing Statement   1.4
Estimated Purchase Price   1.4
Final Statement   1.5(d)
Final Statement Date   1.5(d)
Financial Statements   4.7
Indemnification Cap   7.5
Indemnitee   7.4(a)
Indemnitor   7.4(a)
IP Licenses   4.13(a)
Leased Premises   4.12
Leases   4.12
Loss   7.2
Maximum Number of Securities   6.8(a)
Non-Competition Agreement   3.2(f)
Term   Section
Notes   1.3(c)
Permitted Transfer   6.7
Personal Property Leases   4.11
Piggy-Back Registration   6.8(a)
Prohibited Transfer   6.7
Purchase Price   1.2
Purchased Interests   1.1
Receivables Statement   1.6(b)
Registered IP   4.13(a)
Registration Damages   6.8(a)
Related Person   4.23
Rule 144   6.8(e)
Section 409A Plan   4.20(f)
Seller Indemnified Parties   7.3
Seller Parties   Preamble
Seller Representative   8.14(a)
Sellers   Preamble
Selling Expenses   6.8(a)
Shares   1.3(b)
Survival Date   7.1
Three Year Note   1.3(c)
Three Year Note Quarterly Installments   1.5(d)
Top Customers   4.26
Top Suppliers   4.26
Transfer Taxes   6.9(e)
Two Year Note   1.3(c)
Two Year Note Quarterly Installments   1.5(d)
Unrestricted Date   6.7

 

A- 10

 

 

Exhibit 10.4

 

EXECUTION COPY

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “ Agreement ”) is made and entered into as of July 8, 2015 (the “ Effective Date ”), by and between Lighthouse Placement Services, LLC , a Massachusetts limited liability company (the “ Company ”) and an indirect wholly-owned subsidiary of Staffing 360 Solutions, Inc., a Nevada corporation (“ Buyer ” and, collectively with Buyer’s successors and assigns and its direct and indirect subsidiaries, including the Company, the “ Covered Parties ”), and Alison Fogel (hereinafter, “ Executive ”), whose principal address is set forth underneath Executive’s name on the signature page hereto. The Company agrees to employ Executive and Executive hereby accepts employment with the Company as of the date hereof upon the terms and conditions set forth below. Capitalized terms used herein but not otherwise defined herein shall have the meanings assigned to such terms in the Equity Purchase Agreement, dated as of the date hereof (the “ Purchase Agreement ”), by and among Executive, David Fogel (the “ Other Seller ”), the Company and Buyer.

 

1.           Terms of Employment .

 

(a)           Title and Duties. Commencing on the Effective Date upon the Closing, Executive shall be employed by the Company in the position of President. Executive shall perform such duties as is customary for such position and such other duties as may, from time to time, be assigned by the Company’s Board of Managers or Managing Member (as applicable, the “ Board ”) or Executive’s direct report. Executive will report directly to the Vice President of Professional Entities for Monroe Staffing, or such other individual as designated by Buyer. Executive acknowledges that the Company does not have any legal officers, and as such, Executive is not an executive officer of the Company and Executive’s title of President is solely an employment title.

 

(b)           General Obligations of Executive. Executive hereby agrees that during the Term of this Agreement she will devote all of her working time and attention and give her best effort and skill to the business of the Company, and that she will perform in good faith to the best of her abilities such services as may from time to time be assigned to her by the Covered Parties, and shall use her best efforts to further enhance and develop the business of the Company. Executive agrees that she will give full attention to and comply with all lawful rules and procedures as may be from time to time promulgated by the Covered Parties as applicable to the Company.

 

(c)           Restrictions on Executive. Executive shall not, without the prior written consent of the Company or Buyer, at any time during the Term of this Agreement: (i) accept employment with, or render services of a business, professional or commercial nature to, any Person other than the Covered Parties; (ii) engage in, own or provide financial or other assistance to any Person, venture or activity which the Company may in good faith consider to be competitive with or adverse to the Covered Parties, whether directly or indirectly, alone or with any other Person as a principal, agent, shareholder, participant, partner, promoter, director, officer, manager, employee, consultant, sales representative or otherwise; or (iii) engage in any venture or activity which the Company may in good faith consider to interfere with Executive’s performance of her duties. Executive shall make full and prompt written disclosure to the Company of any business opportunity of which she becomes aware and which relates to the business of the Covered Parties; provided, however , that the provisions of this paragraph shall not apply to (x) ownership of up to three percent (3%) of the securities of a publicly owned entity or (y) the ability of Executive to sit on the board of a charitable or education non-profit organization, so long as such activities do not negatively impact Executive’s performance of her obligations on behalf of the Covered Parties.

 

 
 

 

2.             Duration of Employment .

 

(a)          Unless sooner terminated pursuant to Section 4 , the Company will employ Executive, and Executive will serve the Company, under the terms of this Agreement, for a term of two (2) years commencing on the Effective Date (as it may be extended in accordance with the terms hereof, the “ Term ”). Notwithstanding the foregoing, either the Company or Executive may elect in such party’s sole discretion by providing written notice (the “ Extension Notice ”) to the other party at least thirty (30) days prior to the second (2 nd ) anniversary of the Effective Date, to extend the Term of this Agreement for an additional one (1) year period; provided , that, if such Extension Notice is delivered by the Company, Executive and the Other Seller may together elect, by providing joint written notice to the Company within twenty (20) days after Executive’s receipt of the Extension Notice, to instead elect to extend the term of the Employment Agreement between the Other Seller and the Company (the “ Other Seller Employment Agreement ”) for an additional one (1) year period instead of extending the Term of this Agreement in accordance with the Extension Notice (for the avoidance of doubt, if the Company or the Other Seller exercises a similar right under the Other Seller Employment Agreement to extend to the term thereof for an additional one (1) year period, unless otherwise agreed by Executive, the Other Seller and the Company, only one of this Agreement or the Other Seller Employment Agreement will be extended pursuant to such notices, and not both).

 

(b)          For the avoidance of doubt, if Executive continues to be employed by the Company after the expiration of the Term (as it may be extended in accordance with Section 2(a) ), unless otherwise agreed in writing by the Company and Executive, such employment of Executive shall be “at will”.

 

3.             Compensation and Benefits .

 

(a)           Salary . The Company agrees to pay Executive an annual salary of One Hundred Thousand U.S. Dollars ($100,000) (the “ Salary ”). Any upward adjustments from time to time to the Salary shall be made at the sole and absolute discretion of the Board. The annual Salary is payable in installments in accordance with the Company’s regular payroll cycle, and in no event less frequently than bi-weekly (26 equal installments), less the usual customary and lawful deductions.

 

(b)           Annual Bonus . In addition to the Salary, for each calendar year of the Company during the Term, Executive shall be eligible to earn and to participate in annual bonus opportunities made available to Executive by the Company (in the sole and absolute discretion of the Company, as determined by the Board, and approved by Buyer) (an “ Annual Bonus ”). Any Annual Bonus earned by Executive hereunder and declared payable by the Company’s Board and approved by Buyer shall be paid no later than ninety (90) days of the commencement of the following calendar year. Except as set forth in Section 4 , in order to receive an Annual Bonus under this Section 3(b) for any calendar year, Executive must be employed on the date when bonuses for such year are payable to employees of the Company generally.

 

(c)           Benefits . Executive (and Executive’s immediate family) shall be entitled to participate in any health, welfare and other benefit programs adopted and/or made available from time to time by the Company for the benefit of its senior employees; provided , that the benefits provided to Executive shall not contain less coverage or be less favorable to Executive than those provided to Executive by the Company immediately prior to the Effective Date as disclosed to Buyer in writing in connection with the Purchase Agreement. These include the payment by the Company of 100% of the costs of health insurance premiums, the cost of maintaining Executive’s primary car used by Executive for business transportation and gas, tolls and other reasonable travel expenses incurred by Executive in connection with the business.

 

Page 2 of 11
 

 

(d)           Stock Incentives . Executive shall be entitled to participate in any and all stock incentive programs offered to senior executives of Buyer that are consistent with those provided to senior executives of Buyer.

 

(e)           Paid Time Off . Executive shall be entitled to vacation and other paid time off in accordance with the Company’s standard vacation and paid time off policies; provided , that notwithstanding the foregoing, Executive shall be entitled to no less than twenty-five (25) paid vacation days each calendar year, plus customary paid holidays consistent with Company policies. Vacation time shall accrue monthly on a pro-rata basis over the course of a calendar year.

 

(f)           Business Expenses . The Company shall promptly reimburse Executive, or directly pay, for any and all customary and usual expenses, properly documented with receipts in accordance with the Company’s policies and procedures, incurred by Executive on behalf of the Company, including expenses incurred by Executive in connection with (i) the use of a mobile phone by Executive, (ii) the entertainment of customers and potential customers and (iii) business travel by Executive; provided , that Executive shall have obtained Company’s prior approval with respect to any expenses that are not in the ordinary course of business. Executive, and not the Company, shall be entitled to keep her current mobile phone number.

 

(g)           Proration. Other than any Annual Bonus, any payments or benefits payable to Executive hereunder in respect of any calendar year during which Executive is employed by the Company for less than the entire year, unless otherwise provided in the applicable plan or arrangement (or is not payable upon termination under the relevant provision of Section 4 ), shall be prorated in accordance with the number of days in such calendar year during which she is so employed.

 

4.             Termination of Executive’s Employment; Compensation upon Termination . Executive’s employment hereunder may be terminated by the Company or Executive, as applicable, without any breach of this Agreement, as follows:

 

(a)           Death. Executive’s employment hereunder shall automatically terminate upon her death. In such event, the Company shall pay to such Person as shall have been designated in a notice filed with the Company prior to Executive’s death, or, if no such Person shall have been designated, to her estate, without duplication: (i) Executive’s earned and accrued but unpaid Salary through the Date of Termination (as defined below); (ii) all of Executive’s accrued and unused vacation days or other paid time off; (iii) all other fringe benefits (other than any benefit described in any other clause of this Section 4(a) ) payable to Executive under the terms of any Company benefit plan as of the Date of Termination (items (i) through (iii) collectively, “ Accrued Compensation and Benefits ”); (iv) any Annual Bonus for a completed calendar year which has been earned by Executive and declared payable by the Company’s Board and approved by Buyer, but not yet paid to Executive as of the Date of Termination (a “ Declared Bonus ”); and (v) any payments which Executive’s spouse, beneficiaries or estate may be entitled to receive pursuant to any insurance policy, benefit plan or other arrangement maintained by or on behalf of the Company as a death benefit for Executive’s behalf.

 

(b)           Disability. If, as a result of Executive’s physical or mental incapacity (as determined by a qualified independent physician selected by the Board that is reasonably acceptable to Executive (or Executive’s legal representative)), Executive shall have been unable, with reasonable accommodation, to perform the essential functions of her duties and responsibilities hereunder on a full-time basis for either (i) ninety (90) consecutive calendar days, or (ii) one hundred and thirty-five (135) calendar days within any three hundred and sixty (360) consecutive calendar days, and, at the end of such 90 or 135 day period, as the case may be, Executive shall not have returned to the performance of her duties and responsibilities hereunder on a full-time basis (“ Disability ”), the Company may terminate Executive’s employment under this Agreement. Executive agrees to cooperate with the independent physician in providing information and submitting to medical examinations and tests. During any period that Executive fails to perform her duties and responsibilities hereunder as a result of physical or mental incapacity, Executive shall continue to receive her Salary until Executive’s employment is terminated for Disability in accordance with this Section 4(b) . Upon such termination, Executive shall receive, without duplication: (i) the Accrued Compensation and Benefits; (ii) any Declared Bonus; (iii) any disability insurance benefits Executive is entitled to receive; and (iv) all other benefits required by any federal or state law requiring continuation of benefits, including COBRA insurance benefits.

 

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(c)           Termination by the Company. The Company may terminate Executive’s employment under this Agreement with or without Cause (as defined below). If Executive’s employment is terminated by the Company for Cause, the Company shall pay Executive her Accrued Compensation and Benefits. If the Company terminates Executive’s employment without Cause (other than due to death or Disability), Executive shall receive, without duplication: (i) the Accrued Compensation and Benefits and any Declared Bonus, to be paid in one lump sum amount within five (5) Business Days after the Date of Termination; (ii) severance in an amount equal to the greater of (A) Executive’s full annual Salary, or (B) Executive’s full annual Salary for the remainder of the Term (the “ Severance Payment ”), to be paid in one lump sum amount by the earlier of (x) thirty (30) days after the Date of Termination and (y) one (1) Business Day after the expiration of any applicable revocation period for the Release (defined below) (but no earlier than five (5) Business Days after the Date of Termination); and (iii) all other benefits required by any federal or state law requiring continuation of benefits, including COBRA insurance benefits. Further, the Company shall not contest any claim by Executive for unemployment benefits in the event the Company terminates the Executive without Cause or the Executive resigns for Good Reason.

 

(d)           Resignation by Executive. Executive may resign and terminate her employment under this Agreement for any or no reason. If Executive’s employment is terminated by Executive without Good Reason, the Company shall pay Executive her Accrued Compensation and Benefits. If Executive shall resign and terminate her employment hereunder for Good Reason, Executive shall be entitled to receive the same amounts as if the Company had terminated her employment without Cause under Section 4(c) above, subject to the terms and conditions of this Agreement.

 

(e)           Requirements for Severance Payment. Notwithstanding anything to the contrary herein, payment of all or any portion of the Severance Payment by the Company under Section 4(c) or 4(d) above is conditioned on (i) Executive executing and delivering to the Company a customary release of all employment related claims against the Company and its Affiliates in form and substance reasonably acceptable to the Company and Executive (the “ Release ”) and (ii) continued compliance by Executive with the terms of the Non-Competition and Non-Solicitation Agreement, dated as of the date hereof, by Executive and the Other Seller in favor of the Company and Buyer (the “ Non-Competition Agreement ”). In no event will any portion of the Severance Payment be paid before the Release becomes effective under applicable law upon expiration of any applicable revocation period.

 

(f)          Other Provisions Related to Termination.

 

(i)           Date of Termination . Any termination of Executive’s employment by the Company or by Executive (other than termination because of the death of Executive) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, (i) a “ Notice of Termination ” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and, if other than a termination by the Company without Cause or a termination by Executive without Good Reason shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated; and (ii) the “ Date of Termination ” shall mean: (A) if Executive’s employment is terminated by her death, the date of her death; (B) if Executive’s employment is terminated because of a Disability pursuant to Section ‎ 4(b) , when the Notice of Termination is given; (C) if Executive’s employment is terminated by the Company for Cause or by Executive for Good Reason or without Good Reason, then, subject to Section 4(g) , the date specified in the Notice of Termination; (D) the date on which the Term expires if the parties do not otherwise extend the Term of this Agreement; and (E) if Executive’s employment is terminated by the Company without Cause, then thirty (30) days after a Notice of Termination is given.

 

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(ii)          Cause . Upon the occurrence of an event or circumstance constituting Cause described in Section 4(g)(i) ‎ (including any applicable notice and cure periods set forth therein), the Company may terminate Executive’s employment hereunder for Cause at any time within thirty (30) days thereafter (provided, that with respect to clauses (A) and (C), the Company may terminate for Cause within thirty (30) days after it has received written notice of the occurrence of such event or circumstance) by giving a Notice of Termination to Executive to that effect. If the Company does not give such Notice of Termination to Executive within such 30-day period, then this Agreement will remain in effect and the Company shall not be entitled to terminate this Agreement for Cause for such event; provided , however , that the failure of the Company to terminate this Agreement for Cause shall not be deemed a waiver of the right of the Covered Parties to seek damages or any other remedy to which the Covered Parties are entitled on account of any breach by Executive of this Agreement or any other agreement between the Executive and any Covered Party or any right on the part of the Company to terminate Executive for Cause upon the occurrence of a subsequent or other event or circumstance constituting Cause described in Section 4(g)(i) (including any applicable notice and cure periods set forth therein) in accordance with the terms of this Agreement.

 

(iii)         Good Reason . Upon the occurrence of an event or circumstance constituting Good Reason described in Section 4(g)(ii) (including any applicable notice and cure periods set forth therein), Executive may terminate her employment hereunder for Good Reason at any time within thirty (30) days thereafter by giving a Notice of Termination to the Company to that effect. If Executive does not give such Notice of Termination to the Company within such 30-day period, then this Agreement will remain in effect and Executive shall not be entitled to terminate this Agreement for Good Reason for such event; provided , however , that the failure of Executive to terminate this Agreement for Good Reason shall not be deemed a waiver of Executive’s right to seek damages or any other remedy to which Executive is entitled on account of any breach by the Company of this Agreement or any other agreement between the Company or its Affiliates and Executive or any right on the part of Executive to terminate her employment for Good Reason upon the occurrence of a subsequent or other event or circumstance constituting Good Reason described in Section 4(g)(ii)‎ (including any applicable notice and cure periods set forth therein) in accordance with the terms of this Agreement.

 

(g)           Definitions. For the purposes of this Agreement, the term:

 

(i)          “ Cause ” shall mean (A) Executive being convicted of, or entering a guilty plea or plea of no contest with respect to, any felony or any other crime involving fraud or dishonesty, (B) any act of moral turpitude by Executive, (C) the refusal by Executive, after explicit written notice (including via email sent to Executive’s primary Company email address), to perform any reasonable instruction of the Company, (D) the commission by Executive of any fraud, embezzlement or misappropriation of any funds or property, (E) Executive’s material breach of her obligations under this Agreement or the Non-Competition Agreement or (F) Executive’s failure to adhere to any lawful written policy of the Covered Parties applicable to Executive or the Company in any material respect; provided, that with respect to clauses (C), (E) and (F) above, such failure to perform, material beach or failure to adhere, if capable of cure, shall not have been cured by Executive within thirty (30) days after Executive’s receipt of notice of such failure to perform, material beach or failure to adhere.

 

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(ii)         “ Good Reason ” shall mean the occurrence, without Executive’s written consent, of any of the circumstances or events set forth below in items (I) through (V) of this Section ‎ 4(g)(ii) where, in each case, (A) Executive has provided written notice to the Company describing such circumstances or events within thirty (30) days after Executive’s actual knowledge of the occurrence of any such circumstance or events and indicating that Executive deems such circumstances or events to constitute Good Reason unless cured in accordance with this subsection and (B) if curable, the Company fails to cure such circumstances or events constituting Good Reason within thirty (30) days after receipt of such notice from Executive: (I) a material and continuing diminution of Executive’s duties or responsibilities under this Agreement, (II) the relocation of the primary office in which Executive is based to a location that is more than thirty (30) miles away (in any direction) from Haverhill, Massachusetts, (III) a material breach of this Agreement by the Company, including a reduction in Executive’s Salary or material benefits which are fixed under the terms of this Agreement, or the failure to pay Executive any Salary, Annual Bonus or other material compensation when due (after being determined in accordance with this Agreement), (IV) the occurrence of an Event of Default (as defined in either Note) or (V) a breach of Buyer’s obligations or the Company’s post-Closing obligations set forth in the Purchase Agreement, in either case, in any material respect.

 

(h)           Effect of Termination on Other Agreements. In the event that either (x) the Company terminates Executive’s employment under this Agreement without Cause (other than due to death or Disability) or (y) Executive terminates her employment under this Agreement for Good Reason, then:

 

(i)          so long as there remain any unpaid obligations under either Note as of the Date of Termination:

 

(A)         for purposes of determining Buyer’s obligations to Executive (but not the Other Seller) under each Note, the TFQ Gross Profit (as defined in such Note) for any fiscal quarter ending after the Date of Termination shall be deemed for purposes of such Note to be greater than the Target Gross Profit (as defined in such Note); and

 

(B)         for purposes of determining Buyer’s obligations to the Other Seller under each Note, for periods from and after the Date of Termination, the Target Gross Profit shall be reduced by twenty percent (20%) (with the percentage reduction in the Target Gross Profit for any TFQ (as defined in such Note) in which the Date of Termination occurs being pro-rated so that such percentage reduction is equal to (I) twenty percent (20%), multiplied by (II) the number of days in the TFQ from and after the Date of Termination, and divided by (III) the total number of days in the TFQ);

 

(ii)          if (A) such termination was by Executive for Good Reason pursuant to clause (IV) of the definition thereof due to Buyer’s breach of its obligations under either Note to pay or otherwise satisfy any amounts due under such Note when due (after giving effect to Section 4(h)(i) above), or (B) after the Date of Termination, Buyer breaches its obligations under either Note to pay or otherwise satisfy any amounts due under such Note when due (after giving effect to Section 4(h)(i) above), which breach in the case of either of the preceding clauses (A) or (B), as applicable, is not cured within ninety (90) days after written notice of such breach is received by Buyer from Executive (in the case of clause (A), such notice being deemed to be the notice given by Executive pursuant to clause (A) of the definition of Good Reason), then Executive’s obligations under Section 1 of the Non-Competition Agreement (but, for the avoidance of doubt, not (x) Section 2 or any other Section of the Non-Competition Agreement or (y) any obligations of the Other Seller under the Non-Competition Agreement) shall cease and be of no further force and effect; provided , that the foregoing will not release Executive from liability for any breaches of Section 1 of the Non-Competition Agreement (or any other Section thereof) prior to the date of cessation of Section 1 of the Non-Competition Agreement pursuant to this Section 4(h)(ii) .

 

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5.             Intellectual Property and Common Code . As used herein, “ Intellectual Property ” means any invention, concept, design, work, plan, product, equipment, idea, improvement, patent, patent application, copyright, copyright application, work of authorship, mask work, any trademark, service mark, trade dress, brand name, business name or logo (including, in each case, appurtenant goodwill), trade secret, Proprietary Information, method, internet domain name, internet domain name registration, web site, web page, computer program, software (whether source code or object code), system design, hardware, manual, manuscript, or other documentation, or other thing, tangible or intangible, stored or saved in any medium now or heretofore known, or any improvements thereof which is, was or will be: (i) made, developed or conceived, wholly or partially, solely by Executive or jointly with others during the Term; (ii) made, developed, or conceived at any time, wholly or partially and/or along or with others, as the result of any task assigned to Executive or any work performed by Executive for or on behalf of the Company or its Affiliates; (iii) conceived, created or developed by Executive, wholly or partially and/or alone or with others, during working hours or on the premises of the Company or its Affiliates or using material or property provided by the Company or its Affiliates during the Term, even if having possibly been conceived, created or developed prior to the Term but completed during the Term; and/or (iv) made or developed with the use of the Company’s or its Affiliate’s facilities or equipment. The parties hereto expressly agree that any such Intellectual Property shall be considered a work made for hire. To the extent that any such Intellectual Property is deemed not to be a work made for hire, Executive hereby irrevocably grants, assigns, transfers, and conveys to the Company or its designee all rights, title, and interest in and to all Intellectual Property, and hereby irrevocably waives all moral rights in any Intellectual Property. Executive further agrees that, during and at any time after the Term, Executive shall execute any and all further documents necessary or advisable to effectuate such assignment solely to the Company or its nominees, and shall cooperate in every lawful fashion to effectuate such assignment.

 

6.             Return of the Company Property . In addition to Confidential Information, the Company or its Affiliates may provide Executive with equipment for Executive’s use in the course of Executive’s service. Executive acknowledges that any such Confidential Information or equipment, and all other property of the Company or its Affiliates that comes to be in Executive’s custody, will remain the exclusive property of the Company and/or its Affiliates. Upon the end of the Term (including upon any termination of this Agreement), Executive agrees to deliver to the Company: (i) any such equipment; (ii) all other property of the Company or its Affiliates in Executive’s control; (iii) any and all records, notebooks, software, disks, tapes and other storage media, documentation, and other items relating to any research, experiment, invention, or other thing, that could result in any Intellectual Property assigned to the Company or its Affiliates pursuant to Section ‎5.

 

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7.             Arbitration . Executive further agrees and acknowledges that the Company and Executive will utilize binding arbitration to resolve all disputes that may arise out of this Agreement, including any determination of whether Cause or Good Reason exists in connection with a termination of Executive’s employment hereunder. Both the Company and Executive agree that any claim, dispute, and/or controversy that either party may have arising from or related to this Agreement or the Company’s employment of Executive shall be submitted to and determined exclusively by binding arbitration in New York City, New York, before a single arbitrator from the Judicial Arbitration Mediation Service (“ JAMS ”) selected in accordance with the commercial arbitration rules of JAMS (the “ JAMS Rules ”) then in effect, which arbitration shall be conducted in accordance with such JAMS Rules, and judgment on the arbitration award may be entered in any court having jurisdiction over the subject matter of controversy. Each party shall pay for its own costs and attorneys’ fees, if any. However, if any party prevails on a statutory claim which affords the prevailing party attorneys’ fees, or if there is a written agreement providing for fees, the arbitrator may award reasonable fees to the prevailing party. Executive understands and agrees to this binding arbitration provision, and both Executive and the Company give up their right to trial by jury with respect to any claim that Executive or the Company may have against each other in connection with this Agreement. Executive hereby knowingly, voluntarily and intentionally irrevocably waives the right to a trial by jury in respect to any litigation based hereon, or arising out of, under, or in connection with this Agreement .

 

8.             Governing Law . This Agreement shall be governed by and construed under the laws of the State of New York without giving effect to any conflict of law provisions.

 

9.             Assignment; Third Party Beneficiaries . Neither this Agreement, nor any of the rights, duties or obligations of the Company or Executive hereunder shall be assignable by either party without the prior written consent of the other party hereto (such consent not to be unreasonably withheld, delayed or conditioned); provided , that the Company may, without the consent of Executive, assign this Agreement to any Covered Party and any and all successors-in-interest of the Company. Any actual or purported assignment in violation of this Section 9 shall be null and void ab initio. This Agreement inures to the benefit of the Covered Parties and the Company’s successors and assigns, who are express third-party beneficiaries of this Agreement.

 

10.           Indemnification . To the extent permitted by applicable Massachusetts law, the Company shall defend, indemnify and hold harmless Executive from and against any and all liability (including reasonable attorneys costs and expenses) asserted against or incurred by her in connection with the defense, settlement or any judgment awarded in any action, suit or proceeding in which she is made a party by reason of having been or being an officer or employee of the Company from and after the date of this Agreement, in accordance with and to the extent required by the terms of the Company’s Governing Documents in existence on the date hereof. Such right of indemnification is not deemed exclusive of any right to which she may be entitled under applicable law.

 

11.           Entire Agreement . This Agreement (together with the Purchase Agreement, the Notes and the Non-Competition Agreement, each to the extent incorporated herein) constitutes the entire understanding of the parties with respect to its subject matter and supersedes any prior oral or written communication or understanding with respect thereto; provided , that the foregoing will not affect any other definitive written agreement between Executive and the Company or any other Covered Party (or by Executive for the benefit of a Covered Party).

 

12.           Survival . Provisions of this Agreement which by their nature are intended to survive after the termination of Executive’s employment under this Agreement will survive the termination of Executive’s employment.

 

13.           Remedies . All remedies provided for in this Agreement are cumulative of all other remedies existing at law or in equity.

 

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14.           Severability . If any provision of this Agreement or the application of any such provision shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof or any subsequent application of such provision. In lieu of any such invalid, illegal or unenforceable provision, the parties hereto intend that there shall be added as part of this Agreement a provision as similar in terms to such invalid, illegal or unenforceable provision as may be possible and be valid, legal and enforceable.

 

15.           Interpretation . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. The use in this Agreement of a masculine, feminine or neither pronoun shall be deemed to include a reference to the others. In this Agreement, the singular includes the plural and the plural the singular. In this Agreement: (i) the words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation”; and (ii) the words “herein,” “hereto,” and “hereby” and other words of similar import shall be deemed in each case to refer to this Agreement as a whole and not to any particular Section or other subdivision of this Agreement

 

16.           Counterparts . This Agreement may be executed in any number of counterparts (including by facsimile or other electronic document transmission), each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one (1) instrument.

 

17.           Joint Negotiation . The parties hereto agree that each party has participated in the drafting and preparation of this Agreement, and, accordingly, in any construction or interpretation of this Agreement, the same shall not be construed against any party by reason of the source of drafting.

 

18.           Amendment; Waiver . Except as otherwise provided herein or by applicable law, this Agreement may not be amended or changed in any respect, except by a written agreement executed by both parties hereto. No waiver will be effective unless it is expressly set forth in a written instrument executed by the waiving party and any such waiver will have no effect except in the specific instance in which it is given. Any delay or omission by a party (including any third party beneficiary) in exercising its rights under this Agreement, or failure to insist upon strict compliance with any term, covenant, or condition of this Agreement will not be deemed a waiver of such term, covenant, condition or right, nor will any waiver or relinquishment of any right or power under this Agreement at any time or times be deemed a waiver or relinquishment of such right or power at any other time or times.

 

19.           Notices . All notices under this Agreement shall be in writing and will be sent and deemed duly given (a) when delivered personally to the recipient, (b) when sent by email to the intended recipient at the email address, if any, set forth below such party’s signature on the signature page to this Agreement (with affirmative confirmation of receipt), or (c) one (1) business day after deposit, postage prepaid, with a nationally recognized overnight delivery service (receipt requested), to the address set forth below such party’s signature on the signature page of this Agreement. A copy of all notices to Executive shall be sent to Riemer & Braunstein LLP, Seven Times Square, Suite 2506, New York, New York 10036, Attn: Ronald N. Braunstein, Esq., Telephone No: (212) 789-3131, Email: rbraunstein@riemerlaw.com; and a copy of all notices to the Company shall be sent to Ellenoff, Grossman & Schole, LLP, 1345 Avenue of the Americas, 11th Floor, New York, New York 10105, Attention: Barry Grossman, Esq., Telephone No.: (212) 370-1300, Email: bigrossman@egsllp.com. These addresses may be changed from time to time by written notice duly provided to the appropriate party as provided above.

 

20.           Company Action . Notwithstanding anything to the contrary contained in this Agreement, all actions, determinations and authorizations on the part of the Company under this Agreement shall be taken and authorized by the Board (excluding, to the extent applicable, Executive or Executive’s spouse), and the Company shall not be deemed to have taken any action, made any determination or provided any authorization under this Agreement that has not been authorized by the Board (excluding, to the extent applicable, Executive or Executive’s spouse).

 

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21.           Attorneys’ Fees . The non-prevailing party to any claim that is finally determined under this Agreement will pay its own expenses and the reasonable documented out-of-pocket expenses, including reasonable attorneys’ fees and costs, reasonably incurred by the other party. For purposes of this Section 21 , in any claim hereunder in which the requirement to make a payment or the amount thereof is at issue, in the event that the final determination of the arbitrator under Section ‎ 7 hereof does not specifically award costs and expenses based on this Section 21 , the party seeking such payment will be deemed to be the non-prevailing party unless the arbitrator awards such party more than one-half (1/2) of the amount in dispute, in which case, the party against whom payment is sought shall be deemed to be the non-prevailing party.

 

22.           Understanding of Agreement . Executive states that Executive has had a reasonable period sufficient to study, understand, and consider this Agreement, that Executive has had the opportunity to consult with counsel of Executive’s choice, that Executive has read this Agreement and understands all of its terms, that Executive is entering into and signing this Agreement knowingly and voluntarily, and that in doing so Executive is not relying upon any statement or representations by or on behalf of the Covered Parties or any of their Representatives.

 

[Remainder of Page Intentionally Blank; Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties have executed this Employment Agreement effective as of the Effective Date.

 

  The Company:
   
  LIGHTHOUSE PLACEMENT SERVICES, LLC
     
  By: Staffing 360 Solutions, Inc.,
    its Managing Member
       
    By: /s/ Matthew Briand
      Name:  Matthew Briand
      Title:  Chief Executive Officer
   
  Address :
   
  c/o Staffing 360 Solutions, Inc.
  641 Lexington Avenue, Suite 1526
  New York, New York 10022
  Attention:   Matthew Briand
  Telephone No.:  (203) 268-8624 (ext. 5600)
  Email:  matt@staffing360solutions.com
   
  Executive:
   
   
  /s/ Alison Fogel
  Alison Fogel
   
  Address :
   
  +++++++++
  +++++++++++
  +++++++++
   
  +++++++++++++++++

 

[Signature Page to Lighthouse Employment Agreement]

 

 

 

Exhibit 10.5

 

EXECUTION COPY

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “ Agreement ”) is made and entered into as of July 8, 2015 (the “ Effective Date ”), by and between Lighthouse Placement Services, LLC , a Massachusetts limited liability company (the “ Company ”) and an indirect wholly-owned subsidiary of Staffing 360 Solutions, Inc., a Nevada corporation (“ Buyer ” and, collectively with Buyer’s successors and assigns and its direct and indirect subsidiaries, including the Company, the “ Covered Parties ”), and David Fogel (hereinafter, “ Executive ”), whose principal address is set forth underneath Executive’s name on the signature page hereto. The Company agrees to employ Executive and Executive hereby accepts employment with the Company as of the date hereof upon the terms and conditions set forth below. Capitalized terms used herein but not otherwise defined herein shall have the meanings assigned to such terms in the Equity Purchase Agreement, dated as of the date hereof (the “ Purchase Agreement ”), by and among Executive, Alison Fogel (the “ Other Seller ”), the Company and Buyer.

 

1.             Terms of Employment .

 

(a)           Title and Duties. Commencing on the Effective Date upon the Closing, Executive shall be employed by the Company in the position of Vice President. Executive shall perform such duties as is customary for such position and such other duties as may, from time to time, be assigned by the Company’s Board of Managers or Managing Member (as applicable, the “ Board ”) or Executive’s direct report. Executive will report directly to the Vice President of Professional Entities for Monroe Staffing, or such other individual as designated by Buyer. Executive acknowledges that the Company does not have any legal officers, and as such, Executive is not an executive officer of the Company and Executive’s title of Vice President is solely an employment title.

 

(b)           General Obligations of Executive. Executive hereby agrees that during the Term of this Agreement he will devote all of his working time and attention and give his best effort and skill to the business of the Company, and that he will perform in good faith to the best of his abilities such services as may from time to time be assigned to him by the Covered Parties, and shall use his best efforts to further enhance and develop the business of the Company. Executive agrees that he will give full attention to and comply with all lawful rules and procedures as may be from time to time promulgated by the Covered Parties as applicable to the Company.

 

(c)           Restrictions on Executive. Executive shall not, without the prior written consent of the Company or Buyer, at any time during the Term of this Agreement: (i) accept employment with, or render services of a business, professional or commercial nature to, any Person other than the Covered Parties; (ii) engage in, own or provide financial or other assistance to any Person, venture or activity which the Company may in good faith consider to be competitive with or adverse to the Covered Parties, whether directly or indirectly, alone or with any other Person as a principal, agent, shareholder, participant, partner, promoter, director, officer, manager, employee, consultant, sales representative or otherwise; or (iii) engage in any venture or activity which the Company may in good faith consider to interfere with Executive’s performance of his duties. Executive shall make full and prompt written disclosure to the Company of any business opportunity of which he becomes aware and which relates to the business of the Covered Parties; provided, however , that the provisions of this paragraph shall not apply to (x) ownership of up to three percent (3%) of the securities of a publicly owned entity or (y) the ability of Executive to sit on the board of a charitable or education non-profit organization, so long as such activities do not negatively impact Executive’s performance of his obligations on behalf of the Covered Parties.

 

 
 

 

2.             Duration of Employment .

 

(a)          Unless sooner terminated pursuant to Section 4 , the Company will employ Executive, and Executive will serve the Company, under the terms of this Agreement, for a term of two (2) years commencing on the Effective Date (as it may be extended in accordance with the terms hereof, the “ Term ”). Notwithstanding the foregoing, either the Company or Executive may elect in such party’s sole discretion by providing written notice (the “ Extension Notice ”) to the other party at least thirty (30) days prior to the second (2 nd ) anniversary of the Effective Date, to extend the Term of this Agreement for an additional one (1) year period; provided , that, if such Extension Notice is delivered by the Company, Executive and the Other Seller may together elect, by providing joint written notice to the Company within twenty (20) days after Executive’s receipt of the Extension Notice, to instead elect to extend the term of the Employment Agreement between the Other Seller and the Company (the “ Other Seller Employment Agreement ”) for an additional one (1) year period instead of extending the Term of this Agreement in accordance with the Extension Notice (for the avoidance of doubt, if the Company or the Other Seller exercises a similar right under the Other Seller Employment Agreement to extend to the term thereof for an additional one (1) year period, unless otherwise agreed by Executive, the Other Seller and the Company, only one of this Agreement or the Other Seller Employment Agreement will be extended pursuant to such notices, and not both).

 

(b)          For the avoidance of doubt, if Executive continues to be employed by the Company after the expiration of the Term (as it may be extended in accordance with Section 2(a) ), unless otherwise agreed in writing by the Company and Executive, such employment of Executive shall be “at will”.

 

3.             Compensation and Benefits .

 

(a)           Salary . The Company agrees to pay Executive an annual salary of One Hundred Thousand U.S. Dollars ($100,000) (the “ Salary ”). Any upward adjustments from time to time to the Salary shall be made at the sole and absolute discretion of the Board. The annual Salary is payable in installments in accordance with the Company’s regular payroll cycle, and in no event less frequently than bi-weekly (26 equal installments), less the usual customary and lawful deductions.

 

(b)           Annual Bonus . In addition to the Salary, for each calendar year of the Company during the Term, Executive shall be eligible to earn and to participate in annual bonus opportunities made available to Executive by the Company (in the sole and absolute discretion of the Company, as determined by the Board, and approved by Buyer) (an “ Annual Bonus ”). Any Annual Bonus earned by Executive hereunder and declared payable by the Company’s Board and approved by Buyer shall be paid no later than ninety (90) days of the commencement of the following calendar year. Except as set forth in Section 4 , in order to receive an Annual Bonus under this Section 3(b) for any calendar year, Executive must be employed on the date when bonuses for such year are payable to employees of the Company generally.

 

(c)           Benefits . Executive (and Executive’s immediate family) shall be entitled to participate in any health, welfare and other benefit programs adopted and/or made available from time to time by the Company for the benefit of its senior employees; provided , that the benefits provided to Executive shall not contain less coverage or be less favorable to Executive than those provided to Executive by the Company immediately prior to the Effective Date as disclosed to Buyer in writing in connection with the Purchase Agreement. These include the payment by the Company of 100% of the costs of health insurance premiums, the cost of maintaining Executive’s primary car used by Executive for business transportation and gas, tolls and other reasonable travel expenses incurred by Executive in connection with the business.

 

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(d)           Stock Incentives . Executive shall be entitled to participate in any and all stock incentive programs offered to senior executives of Buyer that are consistent with those provided to senior executives of Buyer.

 

(e)           Paid Time Off . Executive shall be entitled to vacation and other paid time off in accordance with the Company’s standard vacation and paid time off policies; provided , that notwithstanding the foregoing, Executive shall be entitled to no less than twenty-five (25) paid vacation days each calendar year, plus customary paid holidays consistent with Company policies. Vacation time shall accrue monthly on a pro-rata basis over the course of a calendar year.

 

(f)           Business Expenses . The Company shall promptly reimburse Executive, or directly pay, for any and all customary and usual expenses, properly documented with receipts in accordance with the Company’s policies and procedures, incurred by Executive on behalf of the Company, including expenses incurred by Executive in connection with (i) the use of a mobile phone by Executive, (ii) the entertainment of customers and potential customers and (iii) business travel by Executive; provided , that Executive shall have obtained Company’s prior approval with respect to any expenses that are not in the ordinary course of business. Executive, and not the Company, shall be entitled to keep his current mobile phone number.

 

(g)           Proration. Other than any Annual Bonus, any payments or benefits payable to Executive hereunder in respect of any calendar year during which Executive is employed by the Company for less than the entire year, unless otherwise provided in the applicable plan or arrangement (or is not payable upon termination under the relevant provision of Section 4 ), shall be prorated in accordance with the number of days in such calendar year during which he is so employed.

 

4.             Termination of Executive’s Employment; Compensation upon Termination . Executive’s employment hereunder may be terminated by the Company or Executive, as applicable, without any breach of this Agreement, as follows:

 

(a)           Death. Executive’s employment hereunder shall automatically terminate upon his death. In such event, the Company shall pay to such Person as shall have been designated in a notice filed with the Company prior to Executive’s death, or, if no such Person shall have been designated, to his estate, without duplication: (i) Executive’s earned and accrued but unpaid Salary through the Date of Termination (as defined below); (ii) all of Executive’s accrued and unused vacation days or other paid time off; (iii) all other fringe benefits (other than any benefit described in any other clause of this Section 4(a) ) payable to Executive under the terms of any Company benefit plan as of the Date of Termination (items (i) through (iii) collectively, “ Accrued Compensation and Benefits ”); (iv) any Annual Bonus for a completed calendar year which has been earned by Executive and declared payable by the Company’s Board and approved by Buyer, but not yet paid to Executive as of the Date of Termination (a “ Declared Bonus ”); and (v) any payments which Executive’s spouse, beneficiaries or estate may be entitled to receive pursuant to any insurance policy, benefit plan or other arrangement maintained by or on behalf of the Company as a death benefit for Executive’s behalf.

 

(b)           Disability. If, as a result of Executive’s physical or mental incapacity (as determined by a qualified independent physician selected by the Board that is reasonably acceptable to Executive (or Executive’s legal representative)), Executive shall have been unable, with reasonable accommodation, to perform the essential functions of his duties and responsibilities hereunder on a full-time basis for either (i) ninety (90) consecutive calendar days, or (ii) one hundred and thirty-five (135) calendar days within any three hundred and sixty (360) consecutive calendar days, and, at the end of such 90 or 135 day period, as the case may be, Executive shall not have returned to the performance of his duties and responsibilities hereunder on a full-time basis (“ Disability ”), the Company may terminate Executive’s employment under this Agreement. Executive agrees to cooperate with the independent physician in providing information and submitting to medical examinations and tests. During any period that Executive fails to perform his duties and responsibilities hereunder as a result of physical or mental incapacity, Executive shall continue to receive his Salary until Executive’s employment is terminated for Disability in accordance with this Section 4(b) . Upon such termination, Executive shall receive, without duplication,: (i) the Accrued Compensation and Benefits; (ii) any Declared Bonus; (iii) any disability insurance benefits Executive is entitled to receive; and (iv) all other benefits required by any federal or state law requiring continuation of benefits, including COBRA insurance benefits.

 

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(c)           Termination by the Company. The Company may terminate Executive’s employment under this Agreement with or without Cause (as defined below). If Executive’s employment is terminated by the Company for Cause, the Company shall pay Executive his Accrued Compensation and Benefits. If the Company terminates Executive’s employment without Cause (other than due to death or Disability), Executive shall receive, without duplication: (i) the Accrued Compensation and Benefits and any Declared Bonus, to be paid in one lump sum amount within five (5) Business Days after the Date of Termination; (ii) severance in an amount equal to the greater of (A) Executive’s full annual Salary, or (B) Executive’s full annual Salary for the remainder of the Term (the “ Severance Payment ”), to be paid in one lump sum amount by the earlier of (x) thirty (30) days after the Date of Termination and (y) one (1) Business Day after the expiration of any applicable revocation period for the Release (defined below) (but no earlier than five (5) Business Days after the Date of Termination); and (iii) all other benefits required by any federal or state law requiring continuation of benefits, including COBRA insurance benefits. Further, the Company shall not contest any claim by Executive for unemployment benefits in the event the Company terminates the Executive without Cause or the Executive resigns for Good Reason.

 

(d)           Resignation by Executive. Executive may resign and terminate his employment under this Agreement for any or no reason. If Executive’s employment is terminated by Executive without Good Reason, the Company shall pay Executive his Accrued Compensation and Benefits. If Executive shall resign and terminate his employment hereunder for Good Reason, Executive shall be entitled to receive the same amounts as if the Company had terminated his employment without Cause under Section 4(c) above, subject to the terms and conditions of this Agreement.

 

(e)           Requirements for Severance Payment. Notwithstanding anything to the contrary herein, payment of all or any portion of the Severance Payment by the Company under Section 4(c) or 4(d) above is conditioned on (i) Executive executing and delivering to the Company a customary release of all employment related claims against the Company and its Affiliates in form and substance reasonably acceptable to the Company and Executive (the “ Release ”) and (ii) continued compliance by Executive with the terms of the Non-Competition and Non-Solicitation Agreement, dated as of the date hereof, by Executive and the Other Seller in favor of the Company and Buyer (the “ Non-Competition Agreement ”). In no event will any portion of the Severance Payment be paid before the Release becomes effective under applicable law upon expiration of any applicable revocation period.

 

(f)          Other Provisions Related to Termination.

 

(i)           Date of Termination . Any termination of Executive’s employment by the Company or by Executive (other than termination because of the death of Executive) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, (i) a “ Notice of Termination ” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and, if other than a termination by the Company without Cause or a termination by Executive without Good Reason shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated; and (ii) the “ Date of Termination ” shall mean: (A) if Executive’s employment is terminated by his death, the date of his death; (B) if Executive’s employment is terminated because of a Disability pursuant to Section ‎ 4(b) , when the Notice of Termination is given; (C) if Executive’s employment is terminated by the Company for Cause or by Executive for Good Reason or without Good Reason, then, subject to Section 4(g) , the date specified in the Notice of Termination; (D) the date on which the Term expires if the parties do not otherwise extend the Term of this Agreement; and (E) if Executive’s employment is terminated by the Company without Cause, then thirty (30) days after a Notice of Termination is given.

 

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(ii)          Cause . Upon the occurrence of an event or circumstance constituting Cause described in Section 4(g)(i) ‎ (including any applicable notice and cure periods set forth therein), the Company may terminate Executive’s employment hereunder for Cause at any time within thirty (30) days thereafter (provided, that with respect to clauses (A) and (C), the Company may terminate for Cause within thirty (30) days after it has received written notice of the occurrence of such event or circumstance) by giving a Notice of Termination to Executive to that effect. If the Company does not give such Notice of Termination to Executive within such 30-day period, then this Agreement will remain in effect and the Company shall not be entitled to terminate this Agreement for Cause for such event; provided , however , that the failure of the Company to terminate this Agreement for Cause shall not be deemed a waiver of the right of the Covered Parties to seek damages or any other remedy to which the Covered Parties are entitled on account of any breach by Executive of this Agreement or any other agreement between the Executive and any Covered Party or any right on the part of the Company to terminate Executive for Cause upon the occurrence of a subsequent or other event or circumstance constituting Cause described in Section 4(g)(i) (including any applicable notice and cure periods set forth therein) in accordance with the terms of this Agreement.

 

(iii)         Good Reason . Upon the occurrence of an event or circumstance constituting Good Reason described in Section ‎ 4(g)(ii) (including any applicable notice and cure periods set forth therein), Executive may terminate his employment hereunder for Good Reason at any time within thirty (30) days thereafter by giving a Notice of Termination to the Company to that effect. If Executive does not give such Notice of Termination to the Company within such 30-day period, then this Agreement will remain in effect and Executive shall not be entitled to terminate this Agreement for Good Reason for such event; provided , however , that the failure of Executive to terminate this Agreement for Good Reason shall not be deemed a waiver of Executive’s right to seek damages or any other remedy to which Executive is entitled on account of any breach by the Company of this Agreement or any other agreement between the Company or its Affiliates and Executive or any right on the part of Executive to terminate his employment for Good Reason upon the occurrence of a subsequent or other event or circumstance constituting Good Reason described in Section ‎ 4(g)(ii) (including any applicable notice and cure periods set forth therein) in accordance with the terms of this Agreement.

 

(g)           Definitions. For the purposes of this Agreement, the term:

 

(i)          “ Cause ” shall mean (A) Executive being convicted of, or entering a guilty plea or plea of no contest with respect to, any felony or any other crime involving fraud or dishonesty, (B) any act of moral turpitude by Executive, (C) the refusal by Executive, after explicit written notice (including via email sent to Executive’s primary Company email address), to perform any reasonable instruction of the Company, (D) the commission by Executive of any fraud, embezzlement or misappropriation of any funds or property, (E) Executive’s material breach of his obligations under this Agreement or the Non-Competition Agreement or (F) Executive’s failure to adhere to any lawful written policy of the Covered Parties applicable to Executive or the Company in any material respect; provided, that with respect to clauses (C), (E) and (F) above, such failure to perform, material beach or failure to adhere, if capable of cure, shall not have been cured by Executive within thirty (30) days after Executive’s receipt of notice of such failure to perform, material beach or failure to adhere.

 

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(ii)         “ Good Reason ” shall mean the occurrence, without Executive’s written consent, of any of the circumstances or events set forth below in items (I) through (V) of this Section ‎ 4(g)(ii) where, in each case, (A) Executive has provided written notice to the Company describing such circumstances or events within thirty (30) days after Executive’s actual knowledge of the occurrence of any such circumstance or events and indicating that Executive deems such circumstances or events to constitute Good Reason unless cured in accordance with this subsection and (B) if curable, the Company fails to cure such circumstances or events constituting Good Reason within thirty (30) days after receipt of such notice from Executive: (I) a material and continuing diminution of Executive’s duties or responsibilities under this Agreement, (II) the relocation of the primary office in which Executive is based to a location that is more than thirty (30) miles away (in any direction) from Haverhill, Massachusetts, (III) a material breach of this Agreement by the Company, including a reduction in Executive’s Salary or material benefits which are fixed under the terms of this Agreement, or the failure to pay Executive any Salary, Annual Bonus or other material compensation when due (after being determined in accordance with this Agreement), (IV) the occurrence of an Event of Default (as defined in either Note) or (V) a breach of Buyer’s obligations or the Company’s post-Closing obligations set forth in the Purchase Agreement, in either case, in any material respect.

 

(h)           Effect of Termination on Other Agreements. In the event that either (x) the Company terminates Executive’s employment under this Agreement without Cause (other than due to death or Disability) or (y) Executive terminates his employment under this Agreement for Good Reason, then:

 

(i)          so long as there remain any unpaid obligations under either Note as of the Date of Termination:

 

(A)         for purposes of determining Buyer’s obligations to Executive (but not the Other Seller) under each Note, the TFQ Gross Profit (as defined in such Note) for any fiscal quarter ending after the Date of Termination shall be deemed for purposes of such Note to be greater than the Target Gross Profit (as defined in such Note); and

 

(B)         for purposes of determining Buyer’s obligations to the Other Seller under each Note, for periods from and after the Date of Termination, the Target Gross Profit shall be reduced by twenty percent (20%) (with the percentage reduction in the Target Gross Profit for any TFQ (as defined in such Note) in which the Date of Termination occurs being pro-rated so that such percentage reduction is equal to (I) twenty percent (20%), multiplied by (II) the number of days in the TFQ from and after the Date of Termination, and divided by (III) the total number of days in the TFQ);

 

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(ii)         if (A) such termination was by Executive for Good Reason pursuant to clause (IV) of the definition thereof due to Buyer’s breach of its obligations under either Note to pay or otherwise satisfy any amounts due under such Note when due (after giving effect to Section 4(h)(i) above), or (B) after the Date of Termination, Buyer breaches its obligations under either Note to pay or otherwise satisfy any amounts due under such Note when due (after giving effect to Section 4(h)(i) above), which breach in the case of either of the preceding clauses (A) or (B), as applicable, is not cured within ninety (90) days after written notice of such breach is received by Buyer from Executive (in the case of clause (A), such notice being deemed to be the notice given by Executive pursuant to clause (A) of the definition of Good Reason), then Executive’s obligations under Section 1 of the Non-Competition Agreement (but, for the avoidance of doubt, not (x) Section 2 or any other Section of the Non-Competition Agreement or (y) any obligations of the Other Seller under the Non-Competition Agreement) shall cease and be of no further force and effect; provided , that the foregoing will not release Executive from liability for any breaches of Section 1 of the Non-Competition Agreement (or any other Section thereof) prior to the date of cessation of Section 1 of the Non-Competition Agreement pursuant to this Section 4(h)(ii) .

 

5.             Intellectual Property and Common Code . As used herein, “ Intellectual Property ” means any invention, concept, design, work, plan, product, equipment, idea, improvement, patent, patent application, copyright, copyright application, work of authorship, mask work, any trademark, service mark, trade dress, brand name, business name or logo (including, in each case, appurtenant goodwill), trade secret, Proprietary Information, method, internet domain name, internet domain name registration, web site, web page, computer program, software (whether source code or object code), system design, hardware, manual, manuscript, or other documentation, or other thing, tangible or intangible, stored or saved in any medium now or heretofore known, or any improvements thereof which is, was or will be: (i) made, developed or conceived, wholly or partially, solely by Executive or jointly with others during the Term; (ii) made, developed, or conceived at any time, wholly or partially and/or along or with others, as the result of any task assigned to Executive or any work performed by Executive for or on behalf of the Company or its Affiliates; (iii) conceived, created or developed by Executive, wholly or partially and/or alone or with others, during working hours or on the premises of the Company or its Affiliates or using material or property provided by the Company or its Affiliates during the Term, even if having possibly been conceived, created or developed prior to the Term but completed during the Term; and/or (iv) made or developed with the use of the Company’s or its Affiliate’s facilities or equipment. The parties hereto expressly agree that any such Intellectual Property shall be considered a work made for hire. To the extent that any such Intellectual Property is deemed not to be a work made for hire, Executive hereby irrevocably grants, assigns, transfers, and conveys to the Company or its designee all rights, title, and interest in and to all Intellectual Property, and hereby irrevocably waives all moral rights in any Intellectual Property. Executive further agrees that, during and at any time after the Term, Executive shall execute any and all further documents necessary or advisable to effectuate such assignment solely to the Company or its nominees, and shall cooperate in every lawful fashion to effectuate such assignment.

 

6.             Return of the Company Property . In addition to Confidential Information, the Company or its Affiliates may provide Executive with equipment for Executive’s use in the course of Executive’s service. Executive acknowledges that any such Confidential Information or equipment, and all other property of the Company or its Affiliates that comes to be in Executive’s custody, will remain the exclusive property of the Company and/or its Affiliates. Upon the end of the Term (including upon any termination of this Agreement), Executive agrees to deliver to the Company: (i) any such equipment; (ii) all other property of the Company or its Affiliates in Executive’s control; (iii) any and all records, notebooks, software, disks, tapes and other storage media, documentation, and other items relating to any research, experiment, invention, or other thing, that could result in any Intellectual Property assigned to the Company or its Affiliates pursuant to Section ‎5.

 

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7.             Arbitration . Executive further agrees and acknowledges that the Company and Executive will utilize binding arbitration to resolve all disputes that may arise out of this Agreement, including any determination of whether Cause or Good Reason exists in connection with a termination of Executive’s employment hereunder. Both the Company and Executive agree that any claim, dispute, and/or controversy that either party may have arising from or related to this Agreement or the Company’s employment of Executive shall be submitted to and determined exclusively by binding arbitration in New York City, New York, before a single arbitrator from the Judicial Arbitration Mediation Service (“ JAMS ”) selected in accordance with the commercial arbitration rules of JAMS (the “ JAMS Rules ”) then in effect, which arbitration shall be conducted in accordance with such JAMS Rules, and judgment on the arbitration award may be entered in any court having jurisdiction over the subject matter of controversy. Each party shall pay for its own costs and attorneys’ fees, if any. However, if any party prevails on a statutory claim which affords the prevailing party attorneys’ fees, or if there is a written agreement providing for fees, the arbitrator may award reasonable fees to the prevailing party. Executive understands and agrees to this binding arbitration provision, and both Executive and the Company give up their right to trial by jury with respect to any claim that Executive or the Company may have against each other in connection with this Agreement. Executive hereby knowingly, voluntarily and intentionally irrevocably waives the right to a trial by jury in respect to any litigation based hereon, or arising out of, under, or in connection with this Agreement .

 

8.             Governing Law . This Agreement shall be governed by and construed under the laws of the State of New York without giving effect to any conflict of law provisions.

 

9.             Assignment; Third Party Beneficiaries . Neither this Agreement, nor any of the rights, duties or obligations of the Company or Executive hereunder shall be assignable by either party without the prior written consent of the other party hereto (such consent not to be unreasonably withheld, delayed or conditioned); provided , that the Company may, without the consent of Executive, assign this Agreement to any Covered Party and any and all successors-in-interest of the Company. Any actual or purported assignment in violation of this Section 9 shall be null and void ab initio. This Agreement inures to the benefit of the Covered Parties and the Company’s successors and assigns, who are express third-party beneficiaries of this Agreement.

 

10.           Indemnification . To the extent permitted by applicable Massachusetts law, the Company shall defend, indemnify and hold harmless Executive from and against any and all liability (including reasonable attorneys costs and expenses) asserted against or incurred by his in connection with the defense, settlement or any judgment awarded in any action, suit or proceeding in which he is made a party by reason of having been or being an officer or employee of the Company from and after the date of this Agreement, in accordance with and to the extent required by the terms of the Company’s Governing Documents in existence on the date hereof. Such right of indemnification is not deemed exclusive of any right to which he may be entitled under applicable law.

 

11.           Entire Agreement . This Agreement (together with the Purchase Agreement, the Notes and the Non-Competition Agreement, each to the extent incorporated herein) constitutes the entire understanding of the parties with respect to its subject matter and supersedes any prior oral or written communication or understanding with respect thereto; provided , that the foregoing will not affect any other definitive written agreement between Executive and the Company or any other Covered Party (or by Executive for the benefit of a Covered Party).

 

12.           Survival . Provisions of this Agreement which by their nature are intended to survive after the termination of Executive’s employment under this Agreement will survive the termination of Executive’s employment.

 

13.           Remedies . All remedies provided for in this Agreement are cumulative of all other remedies existing at law or in equity.

 

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14.           Severability . If any provision of this Agreement or the application of any such provision shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof or any subsequent application of such provision. In lieu of any such invalid, illegal or unenforceable provision, the parties hereto intend that there shall be added as part of this Agreement a provision as similar in terms to such invalid, illegal or unenforceable provision as may be possible and be valid, legal and enforceable.

 

15.           Interpretation . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. The use in this Agreement of a masculine, feminine or neither pronoun shall be deemed to include a reference to the others. In this Agreement, the singular includes the plural and the plural the singular. In this Agreement: (i) the words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation”; and (ii) the words “herein,” “hereto,” and “hereby” and other words of similar import shall be deemed in each case to refer to this Agreement as a whole and not to any particular Section or other subdivision of this Agreement

 

16.           Counterparts . This Agreement may be executed in any number of counterparts (including by facsimile or other electronic document transmission), each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one (1) instrument.

 

17.           Joint Negotiation . The parties hereto agree that each party has participated in the drafting and preparation of this Agreement, and, accordingly, in any construction or interpretation of this Agreement, the same shall not be construed against any party by reason of the source of drafting.

 

18.           Amendment; Waiver . Except as otherwise provided herein or by applicable law, this Agreement may not be amended or changed in any respect, except by a written agreement executed by both parties hereto. No waiver will be effective unless it is expressly set forth in a written instrument executed by the waiving party and any such waiver will have no effect except in the specific instance in which it is given. Any delay or omission by a party (including any third party beneficiary) in exercising its rights under this Agreement, or failure to insist upon strict compliance with any term, covenant, or condition of this Agreement will not be deemed a waiver of such term, covenant, condition or right, nor will any waiver or relinquishment of any right or power under this Agreement at any time or times be deemed a waiver or relinquishment of such right or power at any other time or times.

 

19.           Notices . All notices under this Agreement shall be in writing and will be sent and deemed duly given (a) when delivered personally to the recipient, (b) when sent by email to the intended recipient at the email address, if any, set forth below such party’s signature on the signature page to this Agreement (with affirmative confirmation of receipt), or (c) one (1) business day after deposit, postage prepaid, with a nationally recognized overnight delivery service (receipt requested), to the address set forth below such party’s signature on the signature page of this Agreement. A copy of all notices to Executive shall be sent to Riemer & Braunstein LLP, Seven Times Square, Suite 2506, New York, New York 10036, Attn: Ronald N. Braunstein, Esq., Telephone No: (212) 789-3131, Email: rbraunstein@riemerlaw.com; and a copy of all notices to the Company shall be sent to Ellenoff, Grossman & Schole, LLP, 1345 Avenue of the Americas, 11th Floor, New York, New York 10105, Attention: Barry Grossman, Esq., Telephone No.: (212) 370-1300, Email: bigrossman@egsllp.com. These addresses may be changed from time to time by written notice duly provided to the appropriate party as provided above.

 

20.           Company Action . Notwithstanding anything to the contrary contained in this Agreement, all actions, determinations and authorizations on the part of the Company under this Agreement shall be taken and authorized by the Board (excluding, to the extent applicable, Executive or Executive’s spouse), and the Company shall not be deemed to have taken any action, made any determination or provided any authorization under this Agreement that has not been authorized by the Board (excluding, to the extent applicable, Executive or Executive’s spouse).

 

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21.           Attorneys’ Fees . The non-prevailing party to any claim that is finally determined under this Agreement will pay its own expenses and the reasonable documented out-of-pocket expenses, including reasonable attorneys’ fees and costs, reasonably incurred by the other party. For purposes of this Section 21 , in any claim hereunder in which the requirement to make a payment or the amount thereof is at issue, in the event that the final determination of the arbitrator under Section ‎ 7 hereof does not specifically award costs and expenses based on this Section 21 , the party seeking such payment will be deemed to be the non-prevailing party unless the arbitrator awards such party more than one-half (1/2) of the amount in dispute, in which case, the party against whom payment is sought shall be deemed to be the non-prevailing party.

 

22.           Understanding of Agreement . Executive states that Executive has had a reasonable period sufficient to study, understand, and consider this Agreement, that Executive has had the opportunity to consult with counsel of Executive’s choice, that Executive has read this Agreement and understands all of its terms, that Executive is entering into and signing this Agreement knowingly and voluntarily, and that in doing so Executive is not relying upon any statement or representations by or on behalf of the Covered Parties or any of their Representatives.

 

[Remainder of Page Intentionally Blank; Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties have executed this Employment Agreement effective as of the Effective Date.

 

  The Company:
   
  LIGHTHOUSE PLACEMENT SERVICES, LLC
     
  By: Staffing 360 Solutions, Inc.,
    its Managing Member
       
    By: /s/ Matthew Briand
      Name:  Matthew Briand
      Title:  Chief Executive Officer
   
  Address :
   
  c/o Staffing 360 Solutions, Inc.
  641 Lexington Avenue, Suite 1526
  New York, New York 10022
  Attention:   Matthew Briand
  Telephone No.:  (203) 268-8624 (ext. 5600)
  Email:  matt@staffing360solutions.com
   
  Executive:
   
  /s/ David Fogel
  David Fogel
   
  Address :
   
  +++++++++
  +++++++++++
  +++++++++
   
  +++++++++++++++++

 

[Signature Page to Lighthouse Employment Agreement]

 

 

 

Exhibit 10.6

 

EXECUTION COPY

 

NON-COMPETITION AND NON-SOLICITATION AGREEMENT

 

THIS NON-COMPETITION AND NON-SOLICITATION AGREEMENT (“ Agreement ”) is being executed and delivered as of July 8, 2015, by each of Alison Fogel and David Fogel, a married couple residing in the State of Maine (each, a “ Seller ” and together, the “ Sellers ”), in favor of and for the benefit of Staffing 360 Solutions, Inc., a Nevada corporation (“ Buyer ”), Lighthouse Placement Services, LLC, a Massachusetts limited liability company (the “ Company ”), and each of Buyer’s and the Company’s present and future Affiliates, successors and direct and indirect subsidiaries (collectively, the “ Covered Parties ”). Any capitalized term used, but not defined in this Agreement will have the meaning ascribed to such term in the Purchase Agreement (as defined below).

 

WHEREAS, pursuant to that certain Equity Purchase Agreement, dated as of the date hereof (the “ Purchase Agreement ”), by and among Sellers, the Company and Buyer, Sellers have agreed to sell to Buyer, and Buyer has agreed to purchase from Sellers all of the issued and outstanding equity interests of the Company in accordance with the terms and conditions set forth therein (the “ Acquisition ”), and after the consummation of Acquisition, the Company will be a wholly-owned subsidiary of Buyer;

 

WHEREAS, in connection with, and as a condition to the consummation of, the Acquisition, and to enable Buyer to secure more fully the benefits of such Acquisition, including the protection and maintenance of the Company’s goodwill and confidential information, Buyer has required that Sellers enter into this Agreement;

 

WHEREAS, Sellers are entering into this Agreement in order to induce Buyer to consummate the transactions contemplated by the Purchase Agreement, pursuant to which Sellers will receive a material benefit; and

 

WHEREAS, as a member, manager, officer and employee of the Company, each Seller has contributed to the value of the Company and has obtained extensive and valuable knowledge and confidential information concerning the business of the Company.

 

NOW, THEREFORE, in order to induce Buyer to consummate the Acquisition, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each Seller hereby agrees as follows:

 

1.            Restriction on Competition.

 

(a)           Restriction . Each Seller agrees that during the Restricted Period, such Seller will not, without the prior written consent of Buyer (which may be withheld in its sole discretion), anywhere within the Territory, directly or indirectly own, manage, finance or control, or participate in the ownership, management, financing or control of, or become engaged or serve as an officer, director, employee, agent, consultant, advisor or representative of, a business that provides Competing Services (as defined below) (a “ Competitor ”); provided , however , that (i) such Seller may own, as a passive investment, equity interests of any Competitor if (A) such equity interests are listed on a national securities exchange or traded on a national market system in the United States, (B) such Seller, together with any of such Seller’s Affiliates and immediate family members, owns beneficially (directly or indirectly) less than one percent (1%) of the total issued and outstanding equity interests of such entity, and (C) neither such Seller nor any of such Seller’s Affiliates or immediate family members is otherwise associated directly or indirectly with such Competitor or any of such Competitor’s Affiliates and (ii) the provisions of this Agreement shall not restrict such Seller from being employed directly by the United States federal government or any state government entity. For purposes of this Agreement: (i) the “ Restricted Period ” means the period from the Closing until the later of (A) the third (3 rd ) anniversary of the Closing Date or (B) the two (2) year anniversary of the date on which the applicable Seller is no longer an employee, consultant or independent contractor of the Covered Parties (a “ Seller Separation ”); (ii) “ Territory ” means the Commonwealth of Massachusetts and any other markets in which the Company (or its Subsidiaries) provides Competing Services as of the Closing Date or is providing Competing Services as of the date of the applicable Seller Separation or provided Competing Services during the twelve (12) month period prior thereto; and (iii) “ Competing Services ” means selling or providing any products or services that are competitive with the products or services that are sold or provided or are actively contemplated to be sold or provided (and for which the Company or its Subsidiaries have made substantial efforts or expended substantial resources prior to such date) by the Company or its Subsidiaries as of the Closing Date or between the Closing Date and the date of the applicable Seller Separation, including the provision of engineering and technology staffing services.

 

 
 

 

(b)           Acknowledgment . Each Seller acknowledges and agrees that (i) such Seller possesses knowledge of confidential information of the Company, (ii) because of such Seller’s education, experience and capabilities, the provisions of this Agreement will not prevent such Seller from earning a livelihood, (iii) such Seller’s execution of this Agreement is a material inducement to Buyer to enter into the Purchase Agreement and to realize the Company’s goodwill, and consummate the transactions contemplated thereby, for which such Seller will receive a substantial financial benefit, and that Buyer would not have entered into the Purchase Agreement or consummated the transactions contemplated thereby but for such Seller’s agreements set forth in this Agreement; (iv) it would impair the goodwill of the Company and reduce the value of the assets of the Company and cause serious and irreparable injury if any Seller were to use such Seller’s ability and knowledge in competition with a Covered Party, and/or to otherwise breach such Seller’s obligations contained herein and that the Covered Parties would not have an adequate remedy at law because of the unique nature of the Company’s products and services, (v) such Seller has no intention of providing Competing Services in the Territory with any Covered Party during the Restricted Period, (vi) the relevant public policy aspects of restrictive covenants, covenants not to compete and non-solicitation provisions have been discussed, and every effort has been made to limit the restrictions placed upon such Seller to those that are reasonable and necessary to protect the Covered Parties’ legitimate interests, (vii) the Company conducts business in the Territory and competes with other businesses that are or could be located in any part of the Territory, and prior to the closing of the transactions contemplated in the Purchase Agreement, the Company (and Sellers on behalf of the Company) did business in and marketed its products and services throughout the Territory, (viii) the foregoing restrictions on competition are fair and reasonable in type of prohibited activity, geographic area covered, scope and duration, (ix) the consideration provided by the Company under this Agreement and the Purchase Agreement is not illusory, and (x) such provisions do not impose a greater restraint than is necessary to protect the goodwill or other business interests of the Company.

 

(c)           Employment Agreement Provisions . The parties hereby acknowledge the terms and conditions of Section 4(h)(ii) of each Employment Agreement, dated as of the date of this Agreement (each, as they may be amended in accordance with the terms thereof, an “ Employment Agreement ”), by and between the Company and each Seller, pursuant to which the provisions of this Section 1 (but, for the avoidance of doubt, not Section 2 or any other Section of this Agreement) shall cease and be of no further force and effect with respect to a Seller (but not the other Seller) upon the circumstances set forth in such Section 4(h)(ii), and the terms and conditions of Section 4(h)(ii) (together with the lead-in language of Section 4(h) and related definitions) of each Employment Agreement are hereby incorporated herein by reference.

 

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2.            No Solicitation; No Disparagement.

 

(a)           No Solicitation of Employees and Consultants . Each Seller agrees that, during the Restricted Period, such Seller will not, either on his or her own behalf or on behalf of any other Person (other than a Covered Party in the performance of such Seller’s duties on behalf of the Covered Parties), directly or indirectly: (i) hire or engage as an employee, independent contractor, consultant or otherwise any Covered Party Personnel (as defined below); (ii) solicit, induce, encourage or otherwise cause (or attempt to do any of the foregoing) any Covered Party Personnel to leave the service (whether as an employee, consultant or independent contractor) of any Covered Party; or (iii) in any way interfere with or attempt to interfere with the relationship between any Covered Party Personnel and any Covered Party. For purposes of this Agreement, “ Covered Party Personnel ” means any Person who (A) was an employee, consultant or independent contractor of the Company or any of its Subsidiaries as of or within the one (1) year period preceding the Closing or (B) was within one (1) year preceding the applicable Seller Separation, an employee, consultant or independent contractor the Company or any of its Subsidiaries (or any other Covered Party if such Seller received confidential information regarding or had active contact with such employee, consultant or independent contractor); provided , however , no Seller will be deemed to have violated this Section 2(a) if any Covered Party Personnel voluntarily and independently solicits an offer of employment from such Seller (or other Person whom such Seller is acting on behalf of) by responding to a general advertisement or solicitation program conducted by or on behalf of such Seller (or such other Person whom such Seller is acting on behalf of) that is not targeted at such Covered Party Personnel or Covered Party Personnel generally, so long as such Covered Party Personnel is not hired.

 

(b)           Non-Solicitation of Customers and Suppliers . Each Seller agrees that, during the Restricted Period, such Seller will not, individually or on behalf of any other Person (other than a Covered Party in the performance of such Seller’s duties on behalf of the Covered Parties), directly or indirectly: (i) solicit, induce, encourage or otherwise cause (or attempt to do any of the foregoing) any Covered Customer (as defined below) to (A) cease being, or not become, a client or customer of any Covered Party or (B) reduce the amount of business of such Covered Customer with any Covered Party, or otherwise alter such business relationship in a manner adverse to any Covered Party; (ii) interfere with or disrupt (or attempt to interfere with or disrupt) the contractual relationship between any Covered Party and any Covered Customer; (iii) divert any business with any Covered Customer from a Covered Party; (iv) solicit for business, provide services to, engage in or do business with, any Covered Customer for products or services that are competitive with the products or services that are sold or provided by a Covered Party; or (v) interfere with or disrupt (or attempt to interfere with or disrupt), any Person that was a vendor, supplier, distributor, agent or other service provider of a Covered Party at the time of such interference or disruption, for a purpose competitive with the products and services of any Covered Party. For purposes of this Agreement, “ Covered Customer ” means any Person who (A) was an actual customer or client (or prospective customer or client with whom the Company actively marketed or made a proposal within the prior twelve (12) month period) of the Company as of or within the one (1) year period preceding the Closing or (B) within one (1) year preceding the applicable Seller Separation, was an actual customer or client (or prospective customer or client with whom a Covered Party actively marketed or made a proposal within the prior twelve (12) month period with respect to which such Seller was involved or received confidential information) of the Company or any of its Subsidiaries (or any other Covered Party if such Seller received confidential information regarding or had active contact with such customer or client). In the case of a government agency, “client or customer” includes the source selection officials or program office for any applicable contract or program and all offices and personnel that report to or support such source selection officials or program office, and each successor thereto (whether by reorganization or otherwise).

 

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(c)           Non-Disparagement .

 

(i)          Each Seller agrees that such Seller will not directly or indirectly make or publish (including through electronic mail distribution or online social media) any written or oral statements or remarks (including the repetition or distribution of derogatory rumors, allegations, negative reports or comments) that are disparaging, deleterious or damaging to the integrity, reputation or good will of one or more Covered Parties or their respective management, officers, employees, independent contractors or consultants. Notwithstanding the foregoing, subject to Section 3 below, the provisions of this Section 2(c)(i) shall not restrict any Seller or its Representative from providing truthful testimony or information in response to a subpoena or investigation by a Governmental Authority or in connection with any legal action by either Seller or any other Seller Indemnified Party against any Covered Party under the Purchase Agreement or any other Ancillary Document that is asserted in good faith.

 

(ii)         Each of Buyer and the Company agrees that it will not directly or indirectly make or publish (including through electronic mail distribution or online social media) any written or oral statements or remarks (including the repetition or distribution of derogatory rumors, allegations, negative reports or comments) that are disparaging, deleterious or damaging to the integrity, reputation or good will of either Seller. Notwithstanding the foregoing, the provisions of this Section 2(c)(ii) shall not restrict any of Buyer or the Company or their respective Representatives from providing truthful testimony or information in response to a subpoena or investigation by a Governmental Authority or in connection with any legal action by Buyer, the Company or any other Buyer Indemnified Party against a Seller under the Purchase Agreement or any other Ancillary Document that is asserted in good faith.

 

3.            Confidentiality. Each Seller will keep confidential and will not (except in the performance of such Sellers’ duties on behalf of the Covered Parties) directly or indirectly, use, disclose, reveal, publish, transfer or provide access to any and all Covered Party Information. As used in this Agreement, “ Covered Party Information ” means all material and information relating to the business, affairs and assets of any Covered Party, including material and information that concerns or relates to such Covered Party’s bidding and proposal, technical, computer hardware and software, administrative, management, operational, data processing, financial, marketing, sales, human resources, business development, strategic planning, and/or other business activities, regardless of whether such material and information is maintained in physical, electronic, or other form, that is: (i)(A) gathered, compiled, generated, produced or maintained by such Covered Party through its Representatives, or provided to such Covered Party by its suppliers, service providers or customers; and (B) intended and maintained by such Covered Party or its Representatives, suppliers, service providers or customers to be kept in confidence; or (ii) not generally known to the public by reason other than breach of this Agreement or any other confidentiality agreement or obligation or other misconduct. The obligations set forth in this Section 3 will not apply to any Covered Party Information where any Seller can prove that such material or information: (i) is known or available through other lawful sources not bound by a confidentiality agreement with, or other confidentiality obligation to, any Covered Party; (ii) is or becomes publicly known through no fault of, or other wrongdoing by, such Seller or any of its Representatives; (iii) is already in the possession of such Seller at the time of disclosure through lawful sources not bound by a confidentiality agreement or other confidentiality obligation, and through no fault of such Seller or any of its Representatives; (iv) the applicable Covered Party agrees in writing may be disclosed; or (v) is required to be disclosed pursuant to an order of any administrative body or court of competent jurisdiction (provided that (A) the applicable Covered Party is given reasonable prior written notice, (B) such Seller cooperates (and causes its Representatives to cooperate) with any reasonable request of any Covered Party to seek to prevent or narrow such disclosure and (C) if after compliance with clauses (A) and (B) such disclosure is still required, such Seller and its Representatives only disclose such portion of the Covered Party Information that is expressly required by such order, as it may be subsequently narrowed).

 

4.            Notification to Subsequent Employer. Each Seller agrees that, during the Restricted Period, any Covered Party may notify any Person employing or otherwise retaining the services of such Seller or evidencing an intention of employing or retaining the services of such Seller of the existence and provisions of this Agreement.

 

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5.            Representations and Warranties. Each Seller hereby represents and warrants, to and for the benefit of the Covered Parties, that: (a) such Seller has full power and capacity to execute and deliver, and to perform all of such Seller’s obligations under, this Agreement; and (b) neither the execution and delivery of this Agreement nor the performance of such Seller’s obligations hereunder will result directly or indirectly in a violation or breach of any agreement or obligation by which such Seller is bound. By entering into this Agreement, each Seller certifies and acknowledges that such Seller has carefully read all of the provisions of this Agreement, and that such Seller voluntarily and knowingly enters into this Agreement.

 

6.            Remedies. The covenants and undertakings of Sellers contained in this Agreement relate to matters which are of a special, unique and extraordinary character and a violation of any of the terms of this Agreement may cause irreparable injury to the Covered Parties, the amount of which may be impossible to estimate or determine and which cannot be adequately compensated. Each Seller agrees that, in the event of any breach or threatened breach by such Seller of any covenant or obligation contained in this Agreement, each applicable Covered Party will be entitled to obtain the following remedies (in addition to, and not in lieu of, any other remedy at law or in equity or pursuant to the Purchase Agreement or the other Ancillary Documents that may be available to the Covered Parties, including monetary damages), and a court of competent jurisdiction may award: (i) an injunction, restraining order or other equitable relief restraining or preventing such breach or threatened breach, without the necessity of proving actual damages or posting bond or security, which each Seller expressly waives; and (ii) recovery of the Covered Party’s attorneys’ fees and costs incurred in enforcing the Covered Party’s rights under this Agreement. Each Seller hereby consents to the award of any of the above remedies in connection with any such breach or threatened breach. Each Seller hereby acknowledges and agrees that in the event of any breach of this Agreement, the portion of the consideration delivered to such Seller under the Purchase Agreement which is allocated to this Agreement (or any other non-competition agreement with such Seller) shall not be considered a measure of, or a limit on, the damages of the Covered Parties.

 

7.            Survival of Obligations. The expiration of the Restricted Period will not relieve any Seller of any obligation or liability arising from any breach by such Seller of this Agreement during the Restricted Period. Each Seller further agrees that the time period during which the covenants contained in Section 1 and Section 2 of this Agreement will be effective will be computed by excluding from such computation any time during which such Seller is in violation of any provision of such Sections.

 

8.            Miscellaneous.

 

(a)           Notices . All notices, requests, demands and other communications pertaining to this Agreement or otherwise required or permitted hereunder (“ Notices ”) will be in writing addressed as follows:

 

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If to any Covered Party, to:

 

Staffing 360 Solutions, Inc.
641 Lexington Avenue, Suite 1526
New York, NY 10022
Attention: Matthew Briand
Telephone No.: (203) 268-8624 (ext. 5600)
Email: matt@staffing360solutions.com

with a copy (that will not constitute notice) to:

 

Ellenoff, Grossman & Schole, LLP
1345 Avenue of the Americas, 11 th Floor
New York, NY 10105
Attention: Barry Grossman, Esq.
Telephone No.: (212) 370-1300
Email: bigrossman@egsllp.com

If to either Seller, to:

 

Alison Fogel
+++++++++
+++++++++
+++++++++++++++
+++++++++++++++

with a copy (that will not constitute notice) to:

 

Riemer & Braunstein LLP
Seven Times Square, Suite 2506
New York, New York 10036
Attn: Ronald N. Braunstein, Esq.
Telephone No: (212) 789-3131
Email: rbraunstein@riemerlaw.com

 

Notices will be deemed given (i) on the first Business Day after being sent, prepaid, by nationally recognized overnight courier that issues a receipt or other confirmation of delivery, (ii) two (2) Business Days after being sent by registered or certified mail, return receipt requested, postage prepaid or (iii) when delivered in person or by electronic mail (with affirmative confirmation of receipt). Any party may change the address to which Notices under this Agreement are to be sent to it by giving written notice of a change of address in the manner provided in this Agreement for giving Notice.

 

(b)           Integration and Non-Exclusivity . This Agreement, the Purchase Agreement and the other Ancillary Documents contain the entire agreement between Sellers and the Covered Parties concerning the subject matter hereof. Notwithstanding the foregoing, the rights and remedies of the Covered Parties under this Agreement are not exclusive of or limited by any other rights or remedies which they may have, whether at law, in equity, by contract or otherwise, all of which will be cumulative (and not alternative). Without limiting the generality of the foregoing, the rights and remedies of the Covered Parties, and the obligations and liabilities of each Seller, under this Agreement, are in addition to their respective rights, remedies, obligations and liabilities (i) under the laws of unfair competition, misappropriation of trade secrets, or other requirements of statutory or common law, or any applicable rules and regulations and (ii) conferred by contract, including the Purchase Agreement and any other written agreement between Sellers and any of the Covered Parties. Nothing in the Purchase Agreement will limit any of the obligations, liabilities, rights or remedies of Sellers or the Covered Parties under this Agreement, nor will any breach of the Purchase Agreement or any other agreement between Sellers and any of the Covered Parties limit or otherwise affect any right or remedy of the Covered Parties under this Agreement. If any term or condition of any other agreement between Sellers and any of the Covered Parties conflicts or is inconsistent with the terms and conditions of this Agreement, the more restrictive terms will control.

 

(c)           Severability; Reformation . Each provision of this Agreement is separable from every other provision of this Agreement. If any provision of this Agreement is found or held to be invalid, illegal or unenforceable, in whole or in part, by a court of competent jurisdiction, then (i) such provision will be deemed amended to conform to applicable laws so as to be valid, legal and enforceable to the fullest possible extent, (ii) the invalidity, illegality or unenforceability of such provision will not affect the validity, legality or enforceability of such provision under any other circumstances or in any other jurisdiction, and (iii) the invalidity, illegality or unenforceability of such provision will not affect the validity, legality or enforceability of the remainder of such provision or the validity, legality or enforceability of any other provision of this Agreement. Sellers and the Covered Parties will substitute for any invalid, illegal or unenforceable provision a suitable and equitable provision that carries out, so far as may be valid, legal and enforceable, the intent and purpose of such invalid, illegal or unenforceable provision. Without limiting the foregoing, if any court of competent jurisdiction determines that any part hereof is unenforceable because of the duration, geographic area covered, scope of such provision, or otherwise, such court will have the power to reduce the duration, geographic area covered or scope of such provision, as the case may be, and, in its reduced form, such provision will then be enforceable. Each Seller will, at Buyer’s request, join Buyer in requesting that such court take such action.

 

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(d)           Amendment; Waiver . This Agreement may not be amended or changed in any respect, except by a written agreement executed by Sellers and Buyer (or Buyer’s successor or assign). No waiver will be effective unless it is expressly set forth in a written instrument executed by the waiving party and any such waiver will have no effect except in the specific instance in which it is given. Any delay or omission by a party in exercising its rights under this Agreement, or failure to insist upon strict compliance with any term, covenant, or condition of this Agreement will not be deemed a waiver of such term, covenant, condition or right, nor will any waiver or relinquishment of any right or power under this Agreement at any time or times be deemed a waiver or relinquishment of such right or power at any other time or times.

 

(e)           Governing Law; Jurisdiction; Venue . This Agreement will be construed, enforced and governed by the laws of the State of New York without regard to its conflicts of law provisions. Each Seller agrees that any legal action or other legal proceeding arising out of or relating to this Agreement may be brought in any state or federal located in New York, NY (or in any court in which appeal from such courts may be taken) (the “ Specified Courts ”). Each Seller: (a) irrevocably submits to the jurisdiction and venue of any Specified Court, (b) agrees that service of any process, summons, notice or document by U.S. registered mail to such Seller’s address set forth in Section 8(a) shall be effective service of process for any Action with respect to any matters to which such Seller has submitted to jurisdiction in this Section 8(e) , and (c) waives and covenants not to assert or plead, by way of motion, as a defense or otherwise, in any such Action, any claim that such Seller is not subject personally to the jurisdiction of any Specified Court, that the Action is brought in an inconvenient forum, that the venue of the Action is improper or that this Agreement or the subject matter hereof may not be enforced in or by any Specified Court, and hereby agrees not to challenge such jurisdiction or venue by reason of any offsets or counterclaims in any such Action.

 

(f)           WAIVER OF JURY TRIAL . EACH SELLER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY IRREVOCABLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT.

 

(g)           Successors and Assigns; Third Party Beneficiaries . This Agreement will be binding upon each Seller and each Seller’s estate, successors and assigns, and will inure to the benefit of the Covered Parties, and their respective successors and assigns. Each Covered Party may freely assign any or all of its rights under this Agreement, at any time, in whole or in part, to any Person which purchases a majority of or all of the equity securities (whether by equity sale, merger or otherwise) of such Covered Party or substantially all of the assets of such Covered Party and its Subsidiaries, taken as a whole, without obtaining the consent or approval of Sellers. Each Seller agrees that the obligations of such Seller under this Agreement are personal and will not be assigned by such Seller. Each of the Covered Parties are express third party beneficiaries of this Agreement and will be considered “parties” for purposes of this Section 8 .

 

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(h)           Attorneys’ Fees . In the event of any dispute between a Covered Party, on the one hand, and a Seller on the other hand, the non-prevailing party to any claim that is finally determined under this Agreement will pay its own expenses and the reasonable documented out-of-pocket expenses, including reasonable attorneys’ fees and costs, reasonably incurred by the other party. For purposes of this Section 8(h) , in any claim hereunder in which the requirement to make a payment or the amount thereof is primarily at issue (and not a claim for specific performance or other injunctive relief), in the event that the final determination of the court does not specifically award costs and expenses based on this Section 8(h) , the party seeking such payment will be deemed to be the non-prevailing party unless the applicable court of competent jurisdiction awards such party more than one-half (1/2) of the amount in dispute, in which case, the party against whom payment is sought shall be deemed to be the non-prevailing party.

 

(i)           Construction . Each Seller acknowledges that such Seller has been represented by counsel, or had the opportunity to be represented by counsel of such Seller’s choice. Any rule of construction to the effect that ambiguities are to be resolved against the drafting party will not be applied in the construction or interpretation of this Agreement. Neither the drafting history nor the negotiating history of this Agreement will be used or referred to in connection with the construction or interpretation of this Agreement. The headings and subheadings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. In this Agreement: (i) the words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation”; (ii) the definitions contained herein are applicable to the singular as well as the plural forms of such terms; (iii) whenever required by the context, any pronoun shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa; (iv) the words “herein,” “hereto,” and “hereby” and other words of similar import shall be deemed in each case to refer to this Agreement as a whole and not to any particular Section or other subdivision of this Agreement; (v) the word “if” and other words of similar import when used herein shall be deemed in each case to be followed by the phrase “and only if”; (vi) the term “or” means “and/or”; and (vii) any agreement or instrument defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement or instrument as from time to time amended, modified or supplemented, including by waiver or consent and references to all attachments thereto and instruments incorporated therein.

 

(j)           Counterparts; Electronic Signature . This Agreement may be executed in any number of counterparts, each of which will be deemed an original, with the same effect as if the signature on each such counterpart were on the same instrument. Further, this Agreement may be executed by transfer of an originally signed document by facsimile or e-mail in PDF format, each of which will be as fully binding as an original document.

 

{Remainder Of Page Intentionally Left Blank; Signature Page Follows}

 

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IN WITNESS WHEREOF, each undersigned Seller has duly executed and delivered this Non-Competition and Non-Solicitation Agreement as of the date first written above.

 

  SELLERS:
   
  /s/ Alison Fogel
  Alison Fogel
   
  /s/ David Fogel
  David Fogel

 

Acknowledged and accepted as of the date first written above:

 

STAFFING 360 SOLUTIONS, INC.  
     
By: /s/ Matthew Briand  
Name:  Matthew Briand  
Title:  Chief Executive Officer  
   
LIGHTHOUSE PLACEMENT SERVICES, LLC  
     
By: Staffing 360 Solutions, Inc.,  
  its Managing Member  
       
  By: /s/ Matthew Briand  
  Name:  Matthew Briand  
  Title:  Chief Executive Officer  

 

[Signature Page to Non-Competition Agreement]

 

 

 

Exhibit 99.1

 

 

 

Staffing 360 Solutions Completes $3.92 Million Transaction to Fund Latest Acquisition

 

Hillair Capital Provides Funding for the Next Stage in Staffing 360’s High Growth Acquisition Strategy

 

New York, NY – July 9, 2015 – Staffing 360 Solutions, Inc. (OTCQB: STAF), a public company executing a global buy-and-build strategy through the acquisition of staffing organizations with operations in the US and UK, today announced that the Company consummated a $3.92 million convertible debenture transaction with Hillair Capital Investments L.P. The transaction was managed by Alexander Capital L.P. as the financial advisor.

 

The $3.92 million convertible debenture has a 12% OID and a term of 21 months. The Hillair debenture is convertible into shares of common stock at a price of $1.00 per share at the investor’s election.

 

“We are pleased to announce this financing and vote of confidence from Hillair,” said Brendan Flood, Executive Chairman of Staffing 360 Solutions. “With this funding in place, we were able to close an acquisition, which will provide the momentum necessary to continue to execute on our goal of reaching $300 million in annualized revenue.”

 

Darren Minton, Executive Vice President of Staffing 360 Solutions, added, “The capital markets are a critical component to driving our accretive acquisition strategy, which we have outlined on recent investor conference calls. We look forward to sharing more details of our acquisition shortly as we continue to fuel our growth in 2015 and beyond.”

 

In connection with the financing, Staffing 360 Solutions issued to Hillair 1,250,000 shares of common stock and certain common stock purchase warrants. The transaction was in reliance upon exemptions from registration pursuant to the provisions of Section 4(a)(2) or Rule 506 of Regulation D under the Securities Act of 1933, as amended.

 

About Staffing 360 Solutions, Inc.

 

Staffing 360 Solutions, Inc. (OTCQB: STAF) is a public company in the staffing sector engaged in the execution of a global buy-and-build strategy through the acquisition of domestic and international staffing organizations with operations in the US and UK. The Company believes the staffing industry offers opportunities for accretive acquisitions that will drive its annual revenues to $300 million. As part of its targeted consolidation model, the Company is pursuing acquisition targets in the finance and accounting, administrative, engineering and IT industries. For more information, please visit: www.staffing360solutions.com .

 

Follow Staffing 360 Solutions on Facebook , LinkedIn and Twitter .

 

 
 

 

Forward-Looking Statements

 

Certain matters discussed within this press release are forward-looking statements including, but not limited to the timing and ability to enter into any additional acquisitions, as well as the size of future revenue. Although Staffing 360 Solutions, Inc. believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Specifically, in order for the Company to achieve annualized revenues of $300 million, the Company will need to successfully raise sufficient capital, to consummate additional target acquisitions, successfully integrate any newly acquired companies, organically grow its business, successfully defend current and any potential future litigation, as well as various additional contingencies, many of which are unknown at this time and generally out of the Company’s control. The Company can give no assurance that it will be able to achieve these objectives. Staffing 360 Solutions does not undertake any duty to update any statements contained herein (including any forward-looking statements), except as required by law. Factors that could cause actual results to differ materially from expectations include general industry considerations, regulatory changes, changes in local or national economic conditions and other risks detailed from time to time in Staffing 360 Solutions’ reports filed with the SEC, including quarterly reports on Form 10-Q, reports on Form 8-K and annual reports on Form 10-K.

 

Investor Contact:

 

Staffing 360 Solutions, Inc.

Darren Minton, Executive Vice President

212.634.6413

investors@staffing360solutions.com

 

Financial Contact:

 

Staffing 360 Solutions, Inc.

Jeff R. Mitchell, Chief Financial Officer

212.634.6411

info@staffing360solutions.com

 

 

 

 

Exhibit 99.2

 

 

 

 

Staffing 360 Solutions Completes Acquisition of Lighthouse Placement Services, LLC

 

Latest Acquisition Extends Reach of Engineering Offerings to a Diverse Client Base and Adds $15 Million in Revenues

 

New York, NY – July 13, 2015 – Staffing 360 Solutions, Inc. (OTCQB: STAF), a public company executing a global buy-and-build strategy through the acquisition of staffing organizations with operations in the US and UK, announced today that it has completed the acquisition of engineering staffing firm, Lighthouse Placement Services, LLC. The acquisition closed on July 8, 2015.

 

Lighthouse provides engineering workforce solutions to a diverse set of clients, ranging from local firms to international enterprises and defense contractors in Eastern Massachusetts and New Hampshire. Founded in 2001, Lighthouse has grown rapidly over the past 14 years and now boasts a run-rate of approximately $15 million in annualized revenue.

 

“The acquisition of Lighthouse is a significant addition to our organization and is a major development for our loyal shareholders,” stated Matt Briand, CEO and President of Staffing 360 Solutions. “Enhancing our engineering services and other high-margin offerings, is a key initiative for our company. Lighthouse strengthens the depth of our operations in the United States and complements our previous acquisitions.”

 

With over 50 years of combined experience placing highly qualified, well matched individuals into high technology positions, Lighthouse principals Alison and David Fogel take great pride in Lighthouse's ability to understand the needs of the constantly changing, high technology labor market.

 

“We are pleased to welcome Alison and David Fogel to our growing roster of highly skilled industry experts,” stated Jeff R. Mitchell, Chief Financial Officer of Staffing 360 Solutions. “They are a dynamic team that represents another important progression in our growth and development. Not only does Lighthouse demonstrate our ability to deliver accretive acquisitions, the transaction continues our momentum to achieving our stated revenue goal of $300 million. Lighthouse delivers new and exciting engineering verticals, generates attractive margins, and exemplifies a steadfast dedication to quality employees and organic growth.”

 

Starting with a focus in engineering, Lighthouse has expanded into the pharmaceutical, biotechnology and IT sectors. Lighthouse Placement Services has become recognized as an industry leader in the technical staffing arena, winning numerous awards and accolades, including a Top Diversity Business in 2014 and one of the Best Places to Work according to the Boston Business Journal.

 

 
 

 

“We are excited to join the team at Staffing 360 Solutions,” commented Alison Fogel, President of Lighthouse. “As part of a public company, our clients will have access to a wider range of resources and our dedicated workforce will have more opportunities for growth as part of an organization that is determined to reach $300 million in revenue.”

 

David Fogel, Vice President of Lighthouse added, “We believe our technical knowledge and practical expertise with engineering professionals represents a tremendous value proposition to clients. As the newest addition to the Staffing 360 Solutions family, we look forward to expanding our reach and continuing our collective pursuit of delivering quality services and growth.”

 

Staffing 360 Solutions believes that a consolidation strategy is ideally suited for the highly fragmented temporary staffing industry. The Company’s management team has been engaged in the development of a comprehensive program to create a robust pipeline of prospective acquisitions, with a longer term objective of driving annual revenue to $300 million. The Company’s latest acquisition of Lighthouse represents another key milestone in the implementation of this strategy.

 

About Lighthouse Placement Services, LLC

 

Lighthouse Placement Services, LLC specializes in placing engineering professionals in high caliber positions throughout Eastern Massachusetts and Southern New Hampshire. Founded in 2001, the firm grew quickly and has expanded into the pharmaceutical, biotechnology and IT sectors. Investments in hiring and training internal staff, corporate infrastructure, marketing and process improvement have allowed Lighthouse Placement Services to become recognized as an industry leader in the technical staffing arena, winning numerous awards and accolades, such as a Top Diversity Business in 2014 and one of the Best Places to Work from the Boston Business Journal. For more information, please visit: www.lighthouseplacement.com

 

About Staffing 360 Solutions, Inc.

 

Staffing 360 Solutions, Inc. (OTCQB: STAF) is a public company in the staffing sector engaged in the execution of a global buy-and-build strategy through the acquisition of domestic and international staffing organizations with operations in the US and UK. The Company believes the staffing industry offers opportunities for accretive acquisitions that will drive its annual revenues to $300 million. As part of its targeted consolidation model, the Company is pursuing acquisition targets in the finance and accounting, administrative, engineering and IT industries. For more information, please visit: www.staffing360solutions.com .

 

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Forward-Looking Statements

 

Certain matters discussed within this press release are forward-looking statements including, but not limited to the timing and ability to enter into any additional acquisitions, as well as the size of future revenue. Although Staffing 360 Solutions, Inc. believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Specifically, in order for the Company to achieve annualized revenues of $300 million, the Company will need to successfully raise sufficient capital, to consummate additional target acquisitions, successfully integrate any newly acquired companies, organically grow its business, successfully defend current and any potential future litigation, as well as various additional contingencies, many of which are unknown at this time and generally out of the Company’s control. The Company can give no assurance that it will be able to achieve these objectives. Staffing 360 Solutions does not undertake any duty to update any statements contained herein (including any forward-looking statements), except as required by law. Factors that could cause actual results to differ materially from expectations include general industry considerations, regulatory changes, changes in local or national economic conditions and other risks detailed from time to time in Staffing 360 Solutions’ reports filed with the SEC, including quarterly reports on Form 10-Q, reports on Form 8-K and annual reports on Form 10-K.

 

Investor Contact:

 

Staffing 360 Solutions, Inc.

Darren Minton, Executive Vice President

212.634.6413

investors@staffing360solutions.com

 

Financial Contact:

 

Staffing 360 Solutions, Inc.

Jeff R. Mitchell, Chief Financial Officer

212.634.6411

info@staffing360solutions.com