8-K: Staffing 360 Solutions Finalizes Conversion Agreement with Jackson Investment Group Ahead of Merger

Staffing 360 Solutions enters into a conversion agreement with Jackson Investment Group, converting debt into preferred stock and waiving accrued interest in anticipation of its merger with Atlantic International Corp.

Summary

• Staffing 360 Solutions, Inc. has entered into a Conversion Agreement with Jackson Investment Group, LLC on January 22, 2025.
• The agreement involves the conversion of outstanding principal from two senior secured notes (the 2022 Jackson Note and the 2023 Jackson Note) into 5,600,000 shares of newly designated Series I Preferred Stock.
• Accrued and unpaid interest related to the Jackson Notes will be waived.
• If the average closing price of Atlantic International Corp.'s common stock is below $5.00 prior to the merger closing, Atlantic will issue additional shares to Jackson, calculated using a specific formula.
• The agreement is contingent upon the consummation of the merger between Staffing 360 Solutions, Atlantic International Corp., and A36 Merger Sub Inc.
• Jackson's security interest in the Security Instruments and the guarantee of the obligations of the Company to Jackson are hereby expressly and unconditionally released and terminated in all respects with no further consent or action required on the part of any person.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive as the agreement removes a potential obstacle to the merger and simplifies the company's capital structure. However, the potential dilution from additional share issuance and the dependence on the merger's success temper the overall sentiment.

Positives

• The conversion of debt into preferred stock simplifies the capital structure of Staffing 360 Solutions prior to the merger.
• Waiving the accrued interest reduces the company's liabilities.
• The agreement removes a potential obstacle to the merger with Atlantic International Corp.
• Jackson's security interest in the Security Instruments and the guarantee of the obligations of the Company to Jackson are hereby expressly and unconditionally released and terminated in all respects with no further consent or action required on the part of any person.

Risks

• The issuance of additional shares of Atlantic International Corp. to Jackson if the stock price is below $5.00 could dilute existing shareholders.
• The merger agreement could be terminated, rendering the conversion agreement ineffective.
• The value of the Series I Preferred Stock is dependent on the successful completion of the merger and the value of the merger consideration.

Future Outlook

The agreement is contingent upon the successful closing of the merger with Atlantic International Corp., and the value of the preferred stock will depend on the merger consideration.

Management Comments

• Brendan Flood, Chairman and Chief Executive Officer, signed the report on behalf of Staffing 360 Solutions, Inc.

Industry Context

Mergers and acquisitions are common in the staffing industry as companies seek to expand their service offerings and geographic reach. Debt restructuring and conversion agreements are often used to facilitate these transactions.

Comparison to Industry Standards

• Similar debt conversion agreements have been observed in other staffing and recruitment firms undergoing mergers or acquisitions.
• The specific terms, such as the stock price threshold for additional share issuance, are deal-specific and depend on the negotiation between the parties.
• Companies like Robert Half International and ManpowerGroup are benchmarks in the staffing industry, but their capital structures and merger activities may differ significantly from Staffing 360 Solutions.

Stakeholder Impact

• Shareholders of Atlantic International Corp. may experience dilution if additional shares are issued to Jackson.
• Creditors of Staffing 360 Solutions will see a reduction in the company's debt obligations.
• Employees of Staffing 360 Solutions may be affected by the merger, depending on integration plans.

Next Steps

• Closing of the merger transaction between Staffing 360 Solutions, Atlantic International Corp., and A36 Merger Sub Inc.
• Issuance of Series I Preferred Stock to Jackson Investment Group upon conversion of the Jackson Notes.
• Potential issuance of additional shares of Atlantic Common Stock to Jackson if the stock price is below $5.00.
• Filing of UCC-3 termination statements to release the security interest granted to Jackson.

Key Dates