8-K: Staffing 360 Solutions Amends Merger Agreement and Credit Facility

Staffing 360 Solutions amends its merger agreement with Atlantic International Corp. and its credit agreement with MidCap Funding to extend deadlines and modify terms.

Summary

• Staffing 360 Solutions, Inc. has entered into a First Amendment to its merger agreement with Atlantic International Corp.
• The amendment modifies the treatment of Series H and Series I Preferred Stock, converting them into Atlantic Common Stock upon completion of the merger.
• Interest accrued and payable to Jackson Investment Group, LLC will be waived, and the principal amount of the loan will be converted into 5,600,000 shares of Series I Preferred Stock.
• The merger consideration for Series I Preferred Stock will be subject to a one-year lock-up period, with 600,000 shares freely tradable after closing.
• Amounts owed in Earned Contingent Cash Payment will be converted into 5,000,000 shares of Series H Preferred Stock, and related interest/dividends will be waived.
• The merger consideration for Series H Preferred Stock will be subject to a tiered lock-up period, terminating 12 months after closing, with exceptions for tax payments.
• The Termination Date of the merger agreement is extended to March 31, 2025.
• The company also entered into Amendment No. 35 and Amendment No. 36 to its Credit and Security Agreement with MidCap Funding IV Trust.
• Amendment No. 35 extends the Commitment Expiry Date to January 3, 2025.
• Amendment No. 36 further extends the Commitment Expiry Date to January 10, 2025, and amends the Additional Reserve Amount to $490,000.
• Staffing 360 Solutions agreed to pay MidCap a $150,000 modification fee for Amendment No. 36.
• The company entered into Limited Consents to the Intercreditor Agreement with Jackson in connection with the credit agreement amendments.
• The company will file relevant materials with the SEC, including a registration statement on Form S-4, related to the merger.
• The document contains forward-looking statements regarding the merger, which are subject to risks and uncertainties.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While the company is making progress on its merger and credit facility, the need for multiple amendments and the payment of fees suggest underlying financial challenges. The forward-looking statements are tempered by risk disclosures.

Positives

• The extension of the merger termination date provides more time to finalize the transaction.
• The conversion of debt and contingent payments into preferred stock simplifies the capital structure.
• The lock-up agreements for the Atlantic Common Stock may provide stability post-merger.
• The extension of the Commitment Expiry Date provides continued access to credit facilities.

Negatives

• The company is paying a $150,000 modification fee to MidCap, indicating potential financial strain.
• The need for multiple amendments to the credit agreement suggests ongoing financial challenges.
• The lock-up agreements may restrict the ability of some shareholders to sell their shares.

Risks

• The merger may be terminated if certain events occur.
• Legal proceedings could be instituted against Atlantic or the Company related to the merger.
• The company and Atlantic may fail to realize the anticipated benefits of the merger.
• The combined company may not be able to maintain its listing on Nasdaq.
• Atlantic may be unable to raise additional capital on acceptable terms.
• Estimates of market demand may be inaccurate.

Future Outlook

The document contains forward-looking statements regarding the benefits and timing of the merger with Atlantic International Corp., but cautions that these statements are subject to risks and uncertainties that could cause actual results to differ materially.

Industry Context

The staffing industry is highly competitive, and changes in laws and regulations can impose additional costs and compliance burdens. Macro-economic and social environments can also affect the business.

Comparison to Industry Standards

• It is difficult to compare the results to industry standards without knowing the specific terms of the merger agreement and credit facility.
• Lock-up agreements are common in mergers to ensure stability and prevent significant stock price fluctuations immediately after the transaction.
• Extending credit facilities is a common practice for companies facing short-term liquidity challenges.
• Companies like Robert Half International and ManpowerGroup are major players in the staffing industry and serve as benchmarks for financial performance and operational efficiency.

Stakeholder Impact

• Shareholders will be impacted by the conversion of preferred stock and the lock-up agreements.
• Employees may be affected by the merger and any resulting changes in operations.
• Creditors are impacted by the amendments to the credit agreement.

Next Steps

• The company will file relevant materials with the SEC, including a registration statement on Form S-4, related to the merger.
• The company needs to enter into a signed settlement agreement with Jackson Investment Group, LLC.
• The applicable parties need to enter into signed agreements to convert Earned Contingent Cash Payment into Series H Preferred Shares and waive related payments.
• Borrower and Parent shall have delivered to Agent a duly executed copy of an amendment to the JIG Note Purchase Agreement which extends the scheduled maturity of the Term Debt (as defined in the Intercreditor Agreement) to a date acceptable to Agent, but in no event on or before the Commitment Expiry Date.

Key Dates