Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
Jackson Omnibus Agreement
On the Closing Date, the Company, as borrower, Monroe Staffing, KRI and certain domestic subsidiaries of the Company, as guarantors, entered into a First Omnibus Amendment, Joinder and Reaffirmation Agreement with Jackson, as lender (the “Jackson Omnibus”), which among other things amended that certain Amendment and Restated Note Purchase Agreement, dated as of September 15, 2017 with Jackson, and pursuant to which Jackson made a new senior debt investment of approximately $8.4 million in the Company in exchange for a senior secured note in the principal amount of approximately $8.4 million (the “New Jackson Note”). A portion of the proceeds of the sale of the New Jackson Note were used to complete the KRI Transaction.
The maturity date for the amounts due under the New Jackson Note is September 15, 2020. The New Jackson Note will accrue interest at 12% per annum, due quarterly on January 1, April 1, July 1 and October 1 in each year, with
the first such payment due on October 1, 2018. Interest on any overdue payment of principal or interest due under the New Jackson Note will accrue at a rate per annum that is 5% in excess of the rate of interest otherwise payable thereunder.
From the proceed of the New Jackson Note, the Company paid a closing fee of $319,000 (the “Closing Fee”), and in connection with its entry into the Jackson Omnibus agreed to issue 192,000 shares of the Company’s common stock as a closing commitment fee to Jackson (the “Commitment Fee Shares”). The Closing Fee was comprised of a $280,000 cash commitment fee, with the remainder used to reimburse Jackson’s out-of-pocket fees and expenses (including attorneys’ fees). The Commitment Fee Shares are subject to registration rights in favor of Jackson and will be included in a new resale registration statement which must be filed by the Company not later than 45 days after the Closing Date.
The Jackson Omnibus contains representations, warranties and indemnification obligations of the parties customary for transactions similar to those contemplated by the Jackson Omnibus.
The obligations of the Company under the New Jackson Note are secured by liens on and security interests in substantially all of the personal property of the Company and the Borrowers, pursuant to the terms of the Intercreditor Agreement (as defined below).
The Jackson Omnibus also contains restrictions against incurrence of additional debt, payment of dividend or other distribution (whether in cash, securities or other property) on any equity interest of the Company or repayment of debt, consolidations, mergers, sales of assets or change in control and financial covenants.
Amendment to Credit Agreement
On the Closing Date, certain domestic subsidiaries (the “Borrowers”) of the Company entered into an amendment to the Credit and Security Agreement, dated as of April 8, 2015, as amended, and entered into Amendment No.10 (“Amendment No. 10”) to the Credit and Security Agreement (as amended, the “Credit Agreement”), with MidCap Funding X Trust, as successor-by-assignment to Midcap Financial Trust (“Midcap”) to join KRI as a borrower under the Credit Agreement.
The Borrowers and KRI also agreed that no portion of the Earnout Consideration may be paid from the proceeds of the loans issued pursuant to the Credit Agreement or from the Borrowers’ collateral under the Credit Agreement.
Intercreditor Agreement
In connection with the Company’s entry into the Jackson Omnibus and issuance of the New Jackson Note, on the Closing Date, Jackson, Midcap, the Company and certain subsidiaries of the Company entered into a the First Amendment to Intercreditor Agreement to reflect the issuance of the New Jackson Note.