UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
o TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2015
For the Transition period from ________ to ____________
Commission File Number: 001-33937
Live Ventures Incorporated
(Exact Name of Registrant as Specified in Its Charter)
Nevada
(State or Other Jurisdiction of Incorporation or Organization)
85-0206668
(IRS Employer Identification No.)
325 E Warm Springs Road, Suite 102, Las Vegas, Nevada
(Address of principal executive offices)
89119
(Zip Code)
Registrant’s telephone number, including area code: (702) 939-0231
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 Par Value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The aggregate market value of the registrant’s common stock held by non-affiliates computed based on the closing sales price of such stock
on March 31, 2015 was $11,217,554.
The number of shares outstanding of the registrant’s common stock, as of December 31, 2015, was 16,909,933 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None
LIVE VENTURES INCORPORATED
FORM 10-K
For the year ended September 30, 2015
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets at September 30, 2015 and 2014
Consolidated Statements of Operations for the Years Ended September 30, 2015 and 2014
Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 2015 and 2014
Consolidated Statements of Cash Flows for the Years Ended September 30, 2015 and 2014
Notes to Consolidated Financial Statements
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Exhibits, Financial Statement Schedules
Signatures
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Forward-Looking Statements
This Annual Report on Form 10-K may include certain “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. We may also make forward-looking statements in other reports filed with the Securities and Exchange
Commission (“the SEC”), in materials delivered to our stockholders, in press releases, or in oral or written statements made by our
management. These forward-looking statements, which are often characterized by the terms “may,” “believes,” “projects,” “expects,”
“plans”, or “anticipates,” do not reflect historical facts but instead are based on our current assumptions and predictions regarding future
events, such as business and financial performance. Specific forward-looking statements contained in this Annual Report include, but are
not limited to, our (i) belief in the continued growth of internet usage, particularly via mobile devices, and demand for web-based
marketing; (ii) belief in the continued growth in the demand for local search and information, (iii) belief that small and medium businesses
will continue to outsource their online marketing efforts to third parties; (iv) belief that we can cost-effectively expand into other cities due
to the scalability of the LiveDeal.com platform; (v) belief that the cash on hand and additional cash generated from operations together with
potential sources of cash through issuance of debt or equity will provide the company with sufficient liquidity for the next 12 months; and
(vi) belief that the outcome of pending legal proceedings will not have a material adverse effect on business, financial position and results
of operations, cash flow or liquidity.
Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or
achievements to be materially different from those expressed or implied by such forward-looking statements. Some factors and risks that
could so affect our results and achievements include the risk factors set forth below under the heading Item 1A. “Risk Factors.” Readers
should carefully review such risk factors as they identify certain important factors that could cause actual results to differ materially from
those in the forward-looking statements and from historical trends. Those risk factors are not exclusive and are in addition to other factors
and risks (i) that are discussed elsewhere in this Annual Report, in our filings with the SEC, and in materials incorporated therein by
reference, (ii) that apply to companies generally, or (iii) that we are currently unable to identify or quantify or that we currently deem
immaterial. In addition, the foregoing factors and risks may affect generally our business, results of operations and financial position.
Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation
to update any forward-looking statements.
Any information contained on our website (www.live-ventures.com) or any other websites referenced in this Annual Report are not a part
of this Annual Report.
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ITEM 1. Business
Our Company
PART I
Live Ventures Incorporated is a holding company for diversified businesses. Commencing in fiscal year 2015, we began a
strategic shift in our business plan away from providing online marketing solutions for small and medium business to acquiring profitable
companies in various industries that have demonstrated a strong history of earnings power. Prior to that shift, we primarily promoted online
marketing solutions to small and medium businesses to help them boost customer awareness, gain visibility and manage their online
presence under our Velocity Local™ brand. In 2013 we launched LiveDeal.com, real-time “deal engine” that connects restaurants across
the United States and consumers via an platform. The LiveDeal.com platform targets restaurants in cities across the United States to help
them use the platform to attract new customers. In addition, through our subsidiary, ModernEveryday, we maintain an online consumer
products retailer.
We continue to actively develop, revise and evaluate our products, services and our marketing strategies in our businesses. As a
result of the shift in our strategy, as of the fiscal year ended September 30, 2015, we decided to cease operating Live Goods, DealTicker
and we discontinued our suite of online presence marketing products and solutions under the Velocity Local™ brand. Due to the shift in our
business to diversifying our operations by acquiring businesses in several industries, we expect that revenues from our online marketplace
business segment and our legacy products will be continue to be diluted in the coming months and years.
Under the Live Ventures brand we seek opportunities to acquire profitable and well-managed companies. We will work closely
with consultants who will help us identify target companies that fit within the criteria we have established for opportunities that will
provide synergies with our businesses.
Products and Services
Manufacturing and Industrial Products Segment
Marquis Industries, Inc.
In July 2015, we acquired a majority interest in Marquis Industries, Inc., a Georgia corporation, through our partially-owned
subsidiary, Marquis Affiliated Holdings LLC. Marquis Industries is a leading carpet manufacturer and a manufacturer of innovative yarn
products, as well as a reseller of hard surface flooring products. Over the last decade, Marquis has been an innovator and leader in the
value-oriented polyester carpet sector, which is currently the market’s fastest-growing fiber category. We focus on the residential, niche
commercial, and hospitality end-markets and serve over 2,000 customers.
Since its founding in 1990, Marquis has built a strong reputation for outstanding value, styling, and customer service. Its
innovation has yielded products and technologies that differentiate its brands in the flooring marketplace. Marquis’s state-of-the-art
operations enable high quality products, unique customization, and exceptionally short lead-times. Furthermore, the Company has recently
invested in additional capacity to grow several attractive lines of business, including printed carpet and yarn extrusion. Through its A-O
Division, utilizes its state-of-the-art yarn extrusion capacity to market monofilament textured yarn products to the artificial turf industry.
We operate our business through 14 divisions, each specializing in a distinct area of the business. Best Buy Flooring Source is the
largest of all of the operating divisions with sales to over 2,000 carpet dealers. The following is a breakdown of each division and the
specialized products sold:
Division
Products and/or Services
Best Buy flooring Source
Marquis Carpet
Best Buy Hard surface
A-O Industries
Omega Pattern Works
Astro Carpet Mills
Artisans Hospitality
Artisans Carpet
Trendsetters Rug
Dalton Carpet Depot
M&M Fibers
Quantum Textiles
B&H Tufters
All forms of carpets to dealers
Carpet products to home centers
Hard surface products manufactured by third parties to dealers
Monofilament nylon, polypropylene and polyethylene
yarns for the outdoor turf industry
Specialty printed carped to the entertainment industry (bowling alleys, fund
centers, movie theaters, casinos)
Specialty printed carped to the entertainment industry and artificial turf
Carpets to commercial and hospitality markets
Carpets to carpet distributors
Development stage – printed carpets for educational markets
Sells specials and off grade carpet products to dealers
Extrusion carpet fiver division supplying raw material to Marquis
Internal twisting and heat set yarn plant – some commission work for local mills
Internal tufting operations
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Products
Carpets & Rugs
Marquis is a top 10 residential carpet manufacturer in the US and also produces innovative commercial products. Marquis has 21
running line styles offering outstanding quality and value. It also offers special value in polyester styles and residential nylon roll buy.
Beginning in 2014, Marquis offered eight new carpet styles with 6.8 twists or better, six styles in ¼ gauge construction and to with a 1/8
gauge construction. These styles have some of the best performance ratings in the industry.
Hard Surfaces
In the past 10 years, Marquis has developed one of the strongest and most competitive, high styled hard surface lines on the
market. The Best Buy Hard Surface running line is a mainstream line up of high styled luxury vinyl tile, several unique laminates and hand
scraped engineered wood along with six individual series of vinyl. Best Buy Hard Surface also features hundreds of rolls of vinyl specials
at promotional prices.
Yarns
Through it’s A-O Division, Marquis uses state-of-the-art yarn extrusion capacity to market monofilament textured yarn products to
the artificial turf industry.
Industry and Market
Marquis is a significant flooring manufacturer within a fragmented industry composed of a wide variety of companies from small
privately held firms to large multinationals. In 2013, the US floor covering industry had an estimated $20.0 billion in sales, up 6.6 % over
2012’s sales of $18.8 billion, which was an increase of 4.8% over 2011 sales of $17.9 billion. The US market represents only about 9% of
world floor covering sales, which were estimated to be $208 billion in 2012.
Flooring covering sales are influenced by the homeowner remodeling and residential builder markets, existing home sales and
housing starts, average house size and home ownership. In addition, the level of sales in the floor covering industry is influenced by
consumer confidence, spending for durable goods, the condition of residential and commercial construction, and overall strength of the
economy.
Our Market
Carpet and Rugs
The carpet and rug industry had shipments of $10.4 billion in 2013 in the U.S., up 6.5% from 2012. The industry has two primary
markets, residential and commercial, with the residential market making up the largest portion of the industry. The industry has two
primary-sub-markets, replacement and new construction, with replacement being the significant industry factor. Approximately 60% of
industry shipments are made in response to residential replacement demand.
Residential products consist of broadloom carpets and rugs in a broad range of styles, colors and textures. Commercial products
consist primarily of broadloom carpet and modular carpet tile for a variety of institution al applications such as office buildings, restaurant
chains, schools and other commercial establishments. The carpet industry also manufactures carpet for the automotive, recreational vehicle,
small boat and other industries.
The Carpet and Rug Institute (the "CRI") is the national trade association representing carpet and rug manufacturers. Information
compiled by the CRI suggests that the domestic carpet and rug industry is comprised of fewer than 100 manufacturers, with a meaningful
percentage of the industry's production concentrated in a limited number of manufacturers focused on the lower end of the price curve.
Hard Surfaces
Hard flooring surfaces such as ceramic, vinyl, hardwood, stone, and laminate have shipments of $9.6 billion in 2013 in the U.S.,
up 6.8% from 2012. As with carpet and rugs, the market is split between residential / commercial and replacement / new construction with
residential replacement being the largest segment of the market.
Synthetic Turf
Northwest Georgia has become host to a relative of the carpet industry -a thriving synthetic turf industry. Early versions of fake
grass, in domed and open-air sports stadiums, used to be referred to as "carpet" by the athletes who played upon it. Today it's more like a
manmade organism, with advanced underlay, cushioning and drainage systems. AstroTurf, the granddaddy of artificial turf, is
headquartered in Dalton, GA. Other major turf players in Georgia include Challenger Industries, Controlled Products, Synthetic Turf
Resources, and Grass-Tex. Marquis, through its A-O Industries division, has developed significant yarn extrusion expertise and services the
synthetic turf industry through the sale of highest quality yarns. Marquis is the only company in the industry able to efficiently perform
certain texturizing processes that are valued by turf manufacturers.
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Competition
Marquis is a fully integrated carpet mill, and as a result it is able to produce carpet at the lowest cost possible for its target price
point. Marquis offers a one stop shop for soft and hard surface products, allowing its customers to save time and receive exceptional
service. The company offers innovative products and has quick turnaround times turning a new product in two weeks from conception to
delivery. The principal methods of competition are service, quality, price, product innovation and technology. Marquis’ lean operating
structure plus investments in manufacturing equipment, computer systems and marketing strategy contribute to its ability to provide
exceptional value on the basis of performance, quality, style and service, rather than just competing on price.
Raw Materials and Suppliers
Our suppliers include Honeywell, DAK, Global Backing and Mattex. We believe that we will have access to an adequate supply
of raw material on satisfactory commercial terms for the foreseeable future. We are not dependent on any one supplier.
Customers
Marquis sells products to flooring dealers, home centers, other flooring manufacturers and directly to the end user. Approximately
70% of sales are to a network of over 2,000 flooring dealers across several different end markets, geographies, and product lines.
Management believes that the dealer market is the most profitable market for its products because it’s a diversified customer base that
values innovation, style and service. Dealer networks typically allow the Company to achieve higher margin, lower volume accounts. We
have only one customer whose sales represent more than 10% of Marquis’ total revenues. As a result we are not dependent on any one
customer to sustain our revenue. Although we also sell our products to a limited number of retailers, sales to those retailers make up a very
small percentage of Marquis’ revenue.
Manufacturing
Marquis has a manufacturing facility with state-of-the-art equipment in all phases of its vertically integrated production, from
extrusion of yarn to yarn processing to tufting carpet. Marquis manufactures high quality products and offer unique customization with
exceptionally short lead-times. Marquis has recently invested in new, efficient equipment to expand it yarn extrusion capacity to enter new
markets. The new equipment allows Marquis to reduce production costs and increase margins. Marquis has existing capacity to grow sales
by 25% without additional investment.
Marketing
The Company has a team of 23 full-time salespeople who constantly deepen customer relationships throughout its markets.
Online Marketplace Platform Segment
LiveDeal.com
In September 2013, we launched LiveDeal.com. LiveDeal.com is a real-time “deal engine” connecting restaurants with consumers.
LiveDeal.com provides marketing solutions to restaurants to boost customer awareness and merchant visibility on the Internet. Restaurants
can sign up to use the LiveDeal platform at our website.
Highlights of LiveDeal.com include:
— an intuitive interface enabling restaurants to create limited-time offers and publish them immediately, or on a preset schedule
that is fully customizable;
— state-of-the-art scheduling technology giving restaurants the freedom to choose the days, times and duration of the offers,
enabling them to create offers that entice consumers to visit their establishment during their slower periods;
We were best known for migrating print yellow pages to the Internet in 1994 and began to develop the model for LiveDeal.com
after having worked closely with well-known publishers in the daily deal market. In mid-2013, we tested the beta platform in a number of
cities, and the model has been well received by restaurants, consumers, and various restaurant associations.
During fiscal 2014 we acquired three business that offer consumer products. We incorporated the sale of consumer products into
our livedeal.com platform to increase our product offering. Below is a brief description of the businesses purchased in fiscal 2014:
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Modern Everyday, Inc.,
Modern Everyday, Inc. (“MEI”), acquired in August 2014, has both a retail location and a web presence providing consumers with
products that range from kitchen and dining products, apparel and sporting goods to children's toys and beauty products. Modern Everyday
also has proprietary software that will give us the capability to track products and predict consumer behavior and spending habits.
DA Stores Asset Acquisition
On March 7, 2014, Live Goods acquired substantially all of the assets of DA Stores, LLC, a furniture retailer, which included
inventory and equipment, furniture, software, hardware, and domain names. As of the fiscal year ended September 30, 2015, we decided to
cease operating Live Goods.
DealTicker™
On May 6, 2014, Live Goods acquired DealTicker, an online platform company in the retail industry offering discounted products
and services in the US and Canada This acquisition increased our ability to sell consumer goods online. For strategic reasons, we closed the
operations of DealTicker.
Promotional Marketing
In November 2012, we commenced the sale of marketing tools that help local businesses manage their online presence under what
was previously our Velocity Local™ brand, which we refer to as online presence marketing. In September 2015, we sold all of the assets of
Velocity Local,and discontinued the business.
Our target customers were SMB owners who work long hours to deliver real value to their customers in their own communities
that do not have the time or expertise to develop the powerful, multi-faceted, online marketing and advertising programs necessary for
successful online marketing. We sourced local special deals and activities for SMBs. We offered our clients a solution that utilizes our
business channels to market our clients’ products and services to potential customers.
Prior to our launch of LiveDeal.com, our business strategy included partnering established strategic publishing partners to publish
and sell our client’s deals in exchange for a share of the revenue. We had entered into sourcing agreements with several reputable
publishers who have large user bases, including Travelzoo, Google Local, and Amazon, and act as an intermediary to connect SMBs to our
publishing partners. Our business relied in part on the ability of our partners to display our clients’ deals to a large, relevant audience and to
sell the offers. However, with the launch of LiveDeal.com, we focused our promotional marketing efforts and offer a substantial portion of
those products and services through our own proprietary platform.
Marketing
General. We rely on telemarketing and online lead generation to drive customer acquisition. We have created our own
telemarketing sales team which works with highly automated technology and specializes in creating, deploying and managing telemarketing
campaigns quickly and efficiently. We believe that our telemarketing structure enables us to build and scale sales programs quickly.
We have long-standing relationships with data and lead providers, which enable us to source high quality leads and to focus our
telemarketing efforts toward the demographics we believe most likely to result in long-term customers. We primarily market our products
and services to SMBs in lists we acquire from third party data companies.
LiveDeal.com National Advertising Campaign. In 2014, we launched a 35 city advertising campaign to support the restaurant
owners who have created more than 10,000 deals in over 8,000 restaurants in those 35 cities. The campaign, which includes TV, Radio and
web-based ad delivery, is designed to expand awareness, increase user registrations and drive traffic into the restaurant locations that are
utilizing the LiveDeal real-time “deal engine”.
Our Market
More than 27 million SMBs operate in the United States today. While a majority of SMBs have a website, most of them are not
optimized for mobile devices and therefore do not effectively generate business for the SMB. SMB owners frequently lack the time,
expertise or resources necessary to make their website a relevant, effective part of their marketing efforts, or to exploit the additional
internet marketing channels needed for successful online marketing. Our target customers are SMBs which normally do not market their
products and services nationally, but wish to utilize local marketing opportunities, including local search, to promote their products and
services.
Effective online marketing requires the dedication of time, the marshaling of resources, and the development of technological,
language, presentation and other skills and expertise that few SMB owners have, or have the intention or realistic ability to acquire. We
recognize that, to succeed, many SMB owners must remain intensely focused on the fundamentals of their business.
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At the same time, we believe that many SMB owners realize that an effective internet presence – including engaging with online
and social tools – is essential to their marketing efforts, and SMBs are shifting their marketing budgets from traditional media to online
channels. According to BIA/Kelsey forecasts, traditional media business segments such as print advertising, Yellow Pages and newspapers
are experiencing large declines in advertising revenues, whereas social media advertising revenues will grow from $5.1 billion in 2010 to
$8.2 billion in 2015, representing a compound annual growth rate of 10%. According to internet research firm ComScore, online ad
spending increased to just over $30 billion in the U.S. in 2011, a 20.2% increase over 2010.
According to PricewaterhouseCoopers and the Interactive Advertising Bureau, or PWC and IAB, local online/digital advertising
revenues in the United States rose 14% in the first half of 2012 and continued to rise steeply through the end of 2012. Searches for
products, services or businesses constrained by geographical search parameters, such as municipality or zip code, which we refer to as local
searches, are an increasingly significant segment of the online marketing industry. According to a May 2011 study, The Kelsey Group
estimates that the local search market in the United States will grow from $5.7 billion in 2011 to $10.2 billion in 2016. PWC and IAB also
report that revenue from search is 47% of the total internet advertising revenue.
Accordingly, many SMBs need a partner with the necessary expertise and understanding to manage evolving internet audience
acquisition services. We believe that this creates a large market opportunity for nimble, reliable and reputable service providers that help
companies leverage these new channels efficiently and at affordable prices.
The continued rise in smart phones, which now outsell traditional mobile phones, has changed the ground rules for online
marketing, with the consumption of online advertising rapidly moving to mobile devices. As of mid-2012, eMarketer anticipated that
overall spending on mobile advertising in the United States, including display, search and messaging-based ads served to mobile phones
and tablets, would rise to $4 billion in 2012 (a 180% increase over 2011), $7.19 billion in 2013, and nearly $21 billion by 2016. Borrell
Associates’ August 2011 Mobile Report projected that the amount spent on mobile advertising will double every year for the next five
years. If borne out, in 2016, mobile advertising would exceed the amount spent on local search advertising in 2011.
We see SMBs quickly adapting to the local and mobile marketing opportunities because of the great potential to retain existing and
draw in new customers at affordable prices. We anticipate that soon most online searches will be conducted using a mobile phone, which
greatly increases the effectiveness of mobile marketing.
Competition
General. Many of our competitors have access to greater capital resources than we do. These resources could enable our
competitors to engage in advertising and other promotional activities that will enhance their brand name recognition and market share. We
believe, however, that our products provide a simple and affordable way for our clients to create a web presence to market their products
and services to local audiences. We further believe that we can compete effectively by continuing to provide quality services at competitive
prices and by actively developing new products and services for potential clients that enable us to become a single vendor for the online
marketing needs of SMBs.
Promotional Marketing. Our promotional marketing business (including our new LiveDeal.com platform) competes for local deals
with several large competitors, such as Groupon and LivingSocial, and many smaller competitors. This business is part of a new market
which has operated at a substantial scale for only a limited period of time. We expect competition in this market to continue to increase
because no significant barriers to entry exist. Contracts with deal publishers typically contain exclusivity provisions which restrict SMBs
from offering deals through other outlets.
We seek desirable local products and services which we can provide to our publishing partners. We believe that we are in a
position to compete in this market successfully due to the unique features of our LiveDeal.com platform (as described above), our
experienced sales managers, our experience at sourcing, selling and servicing large numbers of small business accounts, the
comprehensiveness of our database, the effectiveness of our marketing programs, and the diversity of our publisher distribution network.
Our distribution partnerships allow our clients to reach large audiences and promote their products and services in innovative ways.
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The principal competitive factors in this market include personalization of service, ease of use, quality of services, availability of
quality content, value-added products and services, access to consumers, effectiveness at driving business to our clients, and price.
Many boutique firms offer services similar to our online presence marketing products. Generally these small firms cannot provide
all the comprehensive services we do. However, these small firms provide many options for web design, social media marketing, internet
marketing, and search engine optimization.
Because of efficiencies stemming from our proprietary software and business structure, we are generally able to provide these
services at a lower recurring cost and with lower upfront charges to commence a complete marketing campaign and build a client’s mobile-
optimized website.
We also compete against larger companies which offer a similar or more expanded set of products. Our principal competitive
advantages over these companies are our lower prices and the better quality and service of our website design, particularly our web app
platform. We believe our combination of outstanding service and low cost will enable us to provide a suite of attractive packages to our
clients.
Intellectual Property
Our success will depend significantly on our ability to develop and maintain the proprietary aspects of our technology and operate
without infringing upon the intellectual property rights of third parties. We currently rely primarily on a combination of copyright, trade
secret and trademark laws, confidentiality procedures, contractual provisions, and similar measures to protect our intellectual property.
We estimate that reliance upon trade secrets and unpatented proprietary know-how will continue to be our principal method of
protecting our trade secrets and other proprietary technologies. While we have hired third-party contractors to help develop our proprietary
software and to provide various fulfillment services, we generally own (or have permissive licenses for) the intellectual property provided
by these contractors. Our proprietary software is not substantially dependent on any third-party software, although our software does utilize
open source code. Notwithstanding the use of this open source code, we do not believe our usage requires public disclosure of our own
source code nor do we believe the use of open source code will have a material impact on our business.
We register some of our product names, slogans and logos in the United States. In addition, we generally require our employees,
contractors and many of those with whom we have business relationships to sign non-disclosure and confidentiality agreements. Neither
intellectual property laws, contractual arrangements, nor any of the other steps we have taken to protect our intellectual property, can
ensure that third parties will not exploit our technologies or develop similar technologies.
Our proprietary publishing system provides an advanced set of integrated tools for design, service, and modifications to support
our mobile web app services. Our mobile web app builder software enables easy and efficient design, end user modification and
administration, and includes a variety of other tools accessible by our team members.
Corporate Offices
Our principal offices are located at 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119, our telephone number is
(702) 939-0231, and our corporate website (which does not form part of this report) is located at www.livedeal.com.
Employees
As of September 30, 2015, we had 300 full-time employees and two part-time employees in the United States, none of whom is
covered by a collective bargaining agreement.
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ITEM 1A. Risk Factors
An investment in our common stock involves a substantial degree of risk. Before making an investment decision, you should give
careful consideration to the following risk factors in addition to the other risks and information described in this report. The following risk
factors, however, may not reflect all of the risks associated with our business or an investment in our common stock. The trading price of
our common stock could decline significantly due to any of these risks and investors may lose all or part of their investments. In assessing
these risks, investors should also refer to the other information contained or incorporated by reference in this Annual Report on Form 10-K,
including our consolidated financial statements for the fiscal year that ended on September 30, 2015 and related notes.
RISKS RELATION TO OUR RESULTS OF OPERATIONS AND BUSINESS GENERALLY
Our results of operations could fluctuate due to factors outside of our control.
Our operating results have historically fluctuated significantly, and we could continue to experience fluctuations or revert to
declining operating results due to factors that may or may not be within our control. Such factors include the following:
·
fluctuating demand for our services, which may depend on a number of factors including:
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changes in economic conditions and our customers’ profitability,
changes in technologies favored by consumers,
customer refunds or cancellations, and
our ability to continue to bill through existing means;
· market acceptance of new or enhanced versions of our services or products;
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price competition or pricing changes by us or our competitors;
new product offerings or other actions by our competitors;
the ability of our check processing service providers to continue to process and provide billing information;
the amount and timing of expenditures for expansion of our operations, including the hiring of new employees, capital expenditures,
and related costs;
technical difficulties or failures affecting our systems or the internet in general;
a decline in internet traffic at our website; and
the fixed nature of a significant amount of our operating expenses.
We expect that our anticipated future growth, including through potential acquisitions, may strain our management, administrative,
operational and financial infrastructure, which could adversely affect our business.
We anticipate that significant expansion of our present operations will be required to capitalize on potential growth in market
opportunities, and that this expansion will place a significant strain on our management, operational and financial resources. In order to
manage our growth, we will be required to continue to implement and improve our operational, marketing and financial systems, to expand
existing operations, to attract and retain superior management and personnel, and to train, manage and expand our employee base. We may
not be able to expand our operations effectively, our systems, procedures and controls may be inadequate to support our expanded
operations, and our management may fail to implement our business plan successfully.
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We may not be able to secure additional capital to expand our operations.
Although we currently have no material long-term needs for capital expenditures, we will likely be required to make increased
capital expenditures to fund our anticipated growth of operations, infrastructure, and personnel. In the future, we may need to seek
additional capital through the issuance of debt or equity, depending upon our results of operations, market conditions or unforeseen needs
or opportunities. Our future liquidity and capital requirements will depend on numerous factors, including:
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the pace of expansion of our operations;
our need to respond to competitive pressures; and
future acquisitions of complementary products, technologies or businesses.
The sale of additional equity or convertible debt securities could result in additional dilution to existing stockholders. We cannot
provide assurance that any financing arrangements will be available in amounts or on terms acceptable to us, if at all.
We may be exposed to litigation, claims and other legal proceedings in the relating to its products, which could have a material adverse
effect on the Company’s business.
In the ordinary course of business, we may be subject to a variety of product-related claims, lawsuits and legal proceedings,
including those relating to product liability, product warranty, product recall, personal injury, intellectual property infringement and other
matters. A very large claim or several similar claims asserted by a large class of plaintiffs could have a material adverse effect on our
business, if we are unable to successfully defend against or resolve these matters or if its insurance coverage is insufficient to satisfy any
judgments against us or settlements relating to these matters. Although we have product liability insurance, the policies may not provide
coverage for certain claims against us or may not be sufficient to cover all possible liabilities. Further, we may not be able to maintain
insurance at commercially acceptable premium levels. Moreover, adverse publicity arising from claims made against us, even if the claims
are not successful, could adversely affect our reputation or the reputation and sales of our products.
If we are not able to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial
results, which could cause our stock price to fall or result in our stock being delisted.
Effective internal controls are necessary for us to provide reliable and accurate financial reports. We will need to devote
significant resources and time to comply with the requirements of Sarbanes-Oxley with respect to internal control over financial reporting.
In addition, Section 404 under Sarbanes-Oxley requires that we assess the design and operating effectiveness of our controls over financial
reporting. Our ability to comply with the annual internal control report requirement will depend on the effectiveness of our financial
reporting and data systems and controls across our company and our operating subsidiaries. We expect these systems and controls to
become increasingly complex to the extent that we integrate acquisitions and as our business grows. To effectively manage this complexity,
we will need to continue to improve our operational, financial, and management controls and our reporting systems and procedures. Any
failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls,
could harm our operating results or cause us to fail to meet our financial reporting obligations, which could adversely affect our business
and jeopardize our listing on the NASDAQ Capital Market, either of which would harm our stock price.
Risks Related to Our New Business Strategy
We may experience certain risks associated with acquisitions, joint ventures and strategic investments.
We intend to grow our business through a combination of organic growth and acquisitions. Growth through acquisitions involves
risks, many of which may continue to affect us after the acquisition. We cannot give assurance that an acquired company will achieve the
levels of revenue, profitability and production that we expect. Acquisitions may require the issuance of additional securities or the
incurrence of additional indebtedness, which may dilute the ownership interests of existing security holders or impose higher interest costs
on us.
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A failure to identify suitable acquisition candidates or partners for strategic investments and to complete acquisitions could have a
material adverse effect on the Company’s business.
As part of our new business strategy, we intend to pursue a wide array of potential strategic transactions, including acquisitions of
complementary businesses, as well as strategic investments and joint ventures. Although we regularly evaluates such opportunities, we may
not be able to successfully identify suitable acquisition candidates or investment opportunities, to obtain sufficient financing on acceptable
terms to fund such strategic transactions, to complete acquisitions and integrate acquired businesses with the our existing businesses, or to
manage profitably acquired businesses or strategic investments.
Acquisitions may result in dilutive issuances of equity securities, use of our cash resources, incurrence of debt and amortization of
expenses related to intangible assets acquired. In addition, the process of integrating an acquired company, business or technology, which
requires a substantial commitment of resources and management’s attention, may create unforeseen operating difficulties and expenditures.
The acquisition of a company or business is accompanied by a number of risks, including:
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exposure to unanticipated liabilities of an acquired company (or acquired assets);
difficulties integrating or developing acquired technology into our services or acquired products or services into our operations, and
unanticipated expenses or disruptions related to such integration;
the potential loss of key partners or key personnel in connection with, or as the result of, a transaction;
the impairment of relationships with clients of the acquired business, or our own clients, partners or employees, as a result of any
integration of operations or the expansion of our offerings;
the recording of goodwill and intangible assets that will be subject to impairment testing on a regular basis and potential periodic
impairment charges;
the diversion of the attention of our management team from other business concerns, including the day-to-day management of our
businesses or the internal growth strategies that we are currently implementing;
the risk of entering into markets or producing products where we have limited or no experience, including the integration or removal
of the acquired or disposed technologies and products with or from our existing technologies and products; and
the inability properly to implement or remediate internal controls, procedures and policies appropriate for a public company at
businesses that prior to our acquisition were not subject to federal securities laws and may have lacked appropriate controls,
procedures and policies.
The acquisition of new businesses is costly and such acquisitions may not enhance our financial condition.
Our growth strategy is to acquire companies and identify and acquire assets and technologies from companies in various industries
that have a demonstrated history of strong earnings potential. The process to undertake a potential acquisition is time-consuming and
costly. We expend significant resources to undertake business, financial and legal due diligence on our potential acquisition target and there
is no guarantee that we will acquire the company after completing due diligence. Any future acquisitions will be subject to a number of
challenges, including:
· Diversion of management time and resources and the potential disruption of our ongoing business;
· Difficulties in maintaining uniform standards, controls, procedures and policies;
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· Difficulty of retaining key alliances on attractive terms with partners and suppliers;
· Difficulty of retaining and recruiting key personnel and maintaining employee morale
Potential unknown liabilities associated with acquired businesses;
Our acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities,
significant amortization expenses related to goodwill and other intangible assets and exposure to undisclosed or potential liabilities of
acquired companies. To the extent that the goodwill arising from the acquisitions carried on the financial statements do not pass the annual
goodwill impairment test, excess goodwill will be charged to future earnings.
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Because we do not intend to use our own employees or members of management to run the daily operations at our acquired companies,
business operations might be interrupted if they were to resign.
As part of our acquisition strategy, we do not use our own employees or members of our management team to operate the acquired
companies. Key management at these companies has been in place for several years and has established solid relationships with their
customers. Competition for executive-level personnel is strong and we can make no assurance that we will be able to retain the highly
effective executive employees. Although we have entered into employment agreements with executive management and provide incentives
to stay with the business after its been acquired, if such key persons were to resign we might face impairment of relationships with
remaining employees or customers, and might cause long-term customers to terminate their relationships with the acquired companies.
Risks Related to the Flooring Manufacturing Business
The floor covering industry is sensitive to changes in general economic conditions, such as consumer confidence and income, corporate
and government spending, interest rate levels, availability of credit and demand for housing. Significant or prolonged declines in the
U.S. or global economies could have a material adverse effect on the Company’s business.
Downturns in the U.S. and global economies, along with the residential and commercial markets in such economies, negatively
impact the floor covering industry and our flooring manufacturing business. Although the difficult economic conditions have improved in
the U.S., there may be additional downturns that could cause the industry to deteriorate in the foreseeable future. A significant or
prolonged decline in residential or commercial remodeling or new construction activity could have a material adverse effect on our
business and results of operations.
We may be unable to predict customer preferences or demand accurately, or to respond to technological developments.
We operate in a market sector where demand is strongly influenced by rapidly changing customer preferences as to product design
and technical features. Failure to quickly and effectively respond to changing customer demand or technological developments could have a
material adverse effect on our business.
We face intense competition in the flooring industry that could decrease demand for our products or force us to lower prices, which
could have a material adverse effect on our business.
The floor covering industry is highly competitive. We face competition from a number of manufacturers and independent
distributors. Maintaining our competitive position may require substantial investments in the out product development efforts,
manufacturing facilities, distribution network and sales and marketing activities. Competitive pressures may also result in decreased
demand for our products or force us to lower prices. Moreover, a strong U.S. dollar combined with lower fuel costs may contribute to more
attractive pricing for imports that compete with our products, which may put pressure on our pricing. Any of these factors could have a
material adverse effect on our business.
In periods of rising costs, we may be unable to pass raw materials, energy and fuel-related cost increases on to its customers, which
could have a material adverse effect on our business.
The prices of raw materials and fuel-related costs vary significantly with market conditions. Although we generally attempt to pass
on increases in raw material, energy and fuel-related costs to our customers, our ability to do so is dependent upon the rate and magnitude
of any increase, competitive pressures and market conditions for our products. There have been in the past, and may be in the future,
periods of time during which increases in these costs cannot be recovered. During such periods of time, our business may be materially
adversely affected.
Risks Related to Our Online Marketing Business
If we do not introduce new or enhanced offerings to our customers, we may be unable to attract and retain those customers, which
would significantly impede our ability to generate revenue.
Our management team actively evaluates and improves our marketing efforts and our product and service offerings, as well as
contracts with new partners and hires and trains personnel for management, sales and fulfillment. Any new product offering is subject to
certain risks, including customer acceptance, competition, product differentiation, challenges relating to economies of scale and the ability
to attract and retain qualified personnel, including management and designers. Many of our contracts with third party vendors, including our
strategic partnerships, permit our partners to terminate the contract, with short or no prior notice, for convenience, as well as in the event
we default under the terms of the contract for failing to meet our contractual obligations.
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The development of new products involves considerable costs and any new product may not generate sufficient consumer interest
and sales to become a profitable brand or to cover the costs of its development and subsequent promotions. There can be no assurance that
we will be able to develop and grow our current offerings, or any other new offerings, to a point where they will become profitable, or
generate positive cash flow. We may modify or terminate our current product and services offerings if our management determines that
they are not yielding or will not yield desired results.
Our product introductions and improvements, along with our other marketplace initiatives, are designed to capitalize on customer
demands and trends. In order to be successful, we must anticipate and react to changes in these demands and trends, and to modify existing
products or develop new products or processes to address them. Potential customers may not subscribe to our current offerings or other
online marketing products and services that we may offer in the future, or may discontinue use . if they find these products and services to
be too costly, or ineffective for meeting their business needs than other methods of advertising and marketing. Our business, prospects,
financial condition or results of operations will be materially and adversely affected if we do not execute our strategy or our products and
services are not adopted by a sufficient number of customers.
Our success depends upon our ability to establish and maintain relationships with our customers.
Our ability to generate revenue depends upon our ability to maintain relationships with our existing customers, to attract new
customers to sign up for revenue-generating products and services, and to generate traffic to our customers’ websites. We primarily use
telemarketing efforts to attract new customers. These telemarketing efforts may not produce satisfactory results in the future. We attempt to
maintain relationships with our customers through customer service and delivery of traffic to their businesses. An inability to either attract
additional customers to use our service or to maintain relationships with our customers could have a material adverse effect on our
business, prospects, financial condition, and results of operations.
We face intense competition from companies that provide online marketing services with greater resources, which could adversely affect
our growth and could lead to decreased revenues.
Content marketing and other online marketing services are emerging fields with a considerable amount of competitors in each
field. Major internet companies, including Google, Microsoft, Verizon, AT&T and Yahoo!, currently market internet Yellow Pages, local
search services and other products that directly compete with our legacy business as well as our new product offerings and major deal
companies, like Groupon and Living Social, currently market daily deals that directly compete with our promotional marketing business.
Other existing and potential competitors include website design and development service and software companies; internet service
providers and application service providers; internet search engine providers; domain registrars; website hosting providers; local business
directory providers; and ecommerce platform and service providers.
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We may not compete effectively with existing and potential competitors for several reasons, including the following:
some competitors have longer operating histories, larger and more established subscriber bases, and greater financial and other
resources than we have and are in better financial condition than we are, enabling them to engage in more extensive research and
development, more aggressive pricing policies, and more advertising and other promotional activities that will enhance their brand
name recognition and increase their market share;
some competitors may release free tools, including open source tools, which perform some or many of the services we offer to our
customers;
some competitors have better name recognition or reputations, as well as larger, more established, and more extensive marketing,
customer service, and customer support capabilities than we have;
some competitors may be able to better adapt to changing market conditions and customer demand; and
barriers to entry are not significant, and new competitors may enter our markets or develop technologies that reduces the need for
our services.
Increased competitive pressure could lead to reduced market share, as well as lower prices and reduced margins, for our services.
As a result of an anticipated increase in competition in our markets, and the likelihood that some of this competition will come
from companies with more established brands and resources than us, we believe brand name recognition and reputation will become
increasingly important. If we are not successful in quickly building brand awareness, we could be placed at a competitive disadvantage to
companies whose brands are more recognizable than ours.
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We depend upon third parties to provide certain services and software, and our business may suffer if the relationships upon which we
depend fail to produce the expected benefits or are terminated.
We depend upon third-party software to operate certain of our services. The failure of this software to perform as expected could
have a material adverse effect on our business. Additionally, although we believe that several alternative sources for this software are
available, any failure to obtain and maintain the rights to use such software could have a material adverse effect on our business, prospects,
financial condition, and results of operations. We also depend upon third parties who provide the cloud computing services which host our
customers’ websites, including the mobile web apps, to be sufficiently reliable and provide sufficient capacity and bandwidth so that our
business can function properly and our customers’ websites are responsive to current and anticipated traffic. Any restrictions or interruption
in those providers’ services or connection to the internet could have a material adverse effect on our business, prospects, financial
condition, and results of operations. If we are forced to switch hosting facilities, we may not be successful in finding an alternative service
provider on acceptable terms or in hosting the required computer servers and implementing the required technology ourselves. We may
also be limited in our remedies against these providers in the event of a failure of service.
We may not be able to adequately protect our intellectual property rights.
Our success depends both on our internally developed technology and licensed third party technology. We rely on a variety of
trademarks, service marks, and designs to promote our brand names and identity. We also rely on a combination of contractual provisions,
confidentiality procedures, and trademark, copyright, trade secrecy, unfair competition, and other intellectual property laws to protect the
proprietary aspects of our products and services. Legal standards relating to the validity, enforceability, and scope of the protection of
certain intellectual property rights in internet-related industries are uncertain and still evolving. The steps we take to protect our intellectual
property rights may not be adequate to protect our intellectual property and may not prevent our competitors from gaining access to our
intellectual property and proprietary information. In addition, we cannot provide assurance that courts will always uphold our intellectual
property rights or enforce the contractual arrangements that we have entered into to obtain and protect our proprietary technology.
Third parties, including our partners, contractors or employees, may infringe or misappropriate our copyrights, trademarks, service
marks, trade dress, and other proprietary rights. Any such infringement or misappropriation could have a material adverse effect on our
business, prospects, financial condition, and results of operations. In addition, the relationship between regulations governing domain
names and laws protecting trademarks and similar proprietary rights is unclear. We may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights, which may
result in the dilution of the brand identity of our services.
We may decide to initiate litigation in order to enforce our intellectual property rights or to determine the validity and scope of our
proprietary rights. Any such litigation could result in substantial expense, and may not adequately protect our intellectual property rights. In
addition, we may be exposed to future litigation by third parties based on claims that our products or services infringe or misappropriate
their intellectual property rights. Any such claim or litigation against us, whether or not successful, could result in substantial costs and
harm our reputation. In addition, such claims or litigation could force us to do one or more of the following:
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cease selling or using any of our products and services that incorporate the subject intellectual property, which would adversely
affect our revenue;
attempt to obtain a license from the holder of the intellectual property right alleged to have been infringed or misappropriated,
which license may not be available on reasonable terms; and
attempt to redesign or, in the case of trademark claims, rename our products or services to avoid infringing or misappropriating the
intellectual property rights of third parties, which may be costly and time-consuming.
Even if we were to prevail, such claims or litigation could be time-consuming and expensive to prosecute or defend, and could
result in the diversion of our management’s time and attention. These expenses and diversion of managerial resources could have a material
adverse effect on our business, prospects, financial condition, and results of operations.
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We may be subject to intellectual property claims that create uncertainty about ownership or use of technology essential to our business
and divert our managerial and other resources.
Our success depends, in part, on our ability to operate without infringing the intellectual property rights of others. Third parties
may, in the future, claim our current or future services, products, trademarks, technologies, business methods or processes infringe their
intellectual property rights, or challenge the validity of our intellectual property rights. We may be subject to patent infringement claims or
other intellectual property infringement claims that would be costly to defend and could limit our ability to use certain critical technologies
or business methods. We may also become subject to interference proceedings conducted in the patent and trademark offices of various
countries to determine the priority of inventions.
The defense and prosecution, if necessary, of intellectual property suits, interference proceedings and related legal and
administrative proceedings can become very costly and may divert our technical and management personnel from their normal
responsibilities. We may not prevail in any of these suits or proceedings. An adverse determination of any litigation or defense proceedings
could require us to pay substantial compensatory and exemplary damages, could restrain us from using critical technologies, business
methods or processes, and could result in us losing, or not gaining, valuable intellectual property rights.
Furthermore, due to the voluminous amount of discovery frequently conducted in connection with intellectual property litigation,
some of our confidential information could be disclosed to competitors during this type of litigation. In addition, public announcements of
the results of hearings, motions or other interim proceedings or developments in the litigation could be perceived negatively by investors,
and thus have an adverse effect on the trading price of our common stock.
We may be required to expand or upgrade our infrastructure.
Our ability to provide high-quality services largely depends upon the efficient and uninterrupted operation of our computer and
communications systems. We (or our third party service providers) may be required to expand or upgrade our (or their) technology,
infrastructure, fulfillment capabilities, or customer support capabilities in order to accommodate any significant growth in customers or to
replace aging or faulty equipment or technologies. We (or they) may not be able to project accurately the rate or timing of increases, if any,
in the use of our services or expand and upgrade our (or their) systems and infrastructure to accommodate these increases in a timely
manner.
Any expansion of our (or our third party service providers’) infrastructure may require us (or them) to make significant upfront
expenditures for servers, routers, computer equipment, and additional internet and intranet equipment, as well as to increase bandwidth for
internet connectivity. Any such expansion or enhancement may cause system disruptions.
Our (or our third party service providers’) inability to expand or upgrade our technology, infrastructure, fulfillment capabilities,
customer support capabilities or equipment as required or without disruptions could impair the reputation of our brand and our services and
diminish the attractiveness of our service offerings to our clients.
We may fail to retain existing merchants, or add new merchants, in our promotional marketing business.
Our promotional marketing business depends in part on our strategic partners to publish discounted products and services we
source from our SMB clients. We depend on our ability to attract and retain SMBs that are prepared to offer products or services on
compelling terms through our strategic partners. We are a recent entrant to this market and we do not have long-term arrangements to
guarantee the availability of deals that offer attractive quality, value and variety to consumers or favorable payment terms to us. We must
continue to attract and retain merchants in various geographical areas to our promotional marketing business in order to increase revenue
and achieve profitability. If new merchants do not find our marketing and promotional services effective, or if existing merchants do not
believe that utilizing our products provides them with a long-term increase in customers, revenues or profits, they may stop making offers
through us. In addition, we may experience attrition in our merchants in the ordinary course of business resulting from several factors,
including losses to competitors and merchant closures or bankruptcies. If we are unable to attract new merchants in numbers sufficient to
grow our promotional marketing business, or if too many merchants are unwilling to offer products or services with compelling terms
through our strategic partners, or to offer favorable payment terms to us, we may sell fewer daily deals and our operating results will be
adversely affected.
Our promotional marketing business depends heavily on our strategic partners.
Our promotional marketing business is highly dependent upon our ability to sell discounted products and services offered by our
SMB clients through our strategic partners. Unlike many of our established competitors, we currently lack a significant subscriber base for
selling these offers to potential customers of these SMB clients. Instead, we rely on our strategic partners, some of whom have extremely
large user bases, to publish these offers to reach these potential customers. We do not have long-term relationships with these strategic
partners. Our agreements with these strategic partners generally permit our partners to terminate the agreement with short or no prior
notice, for convenience, and/or do not require our partners to publish the offers we source from our SMB clients.
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We may not be able to adapt as the internet, mobile technologies and customer demands continue to evolve.
The internet, e-commerce, the online marketing industry and mobile devices are characterized by:
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rapid technological change;
changes in customer and user requirements and preferences;
frequent new product and service introductions embodying new technologies and business logic; and
the emergence of new industry standards and practices that could render our existing service offerings, technology, and hardware
and software infrastructure obsolete.
In order to compete successfully in the future, we must:
enhance our existing services and develop new services and technology that address the increasingly sophisticated and varied needs
of our prospective or current customers;
license, develop or acquire technologies useful in our business on a timely basis; and
respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.
Our failure to respond in a timely manner to changing market conditions or client requirements could have a material adverse
effect on our business, prospects, financial condition, and results of operations.
Our business could be negatively impacted if the security of our or our partners’ equipment becomes compromised.
To the extent that our activities involve the storage and transmission of proprietary information about our customers or users,
security breaches could damage our reputation and expose us to a risk of loss or litigation and possible liability. We may be required to
expend significant capital and other resources to protect against security breaches or to minimize problems caused by security breaches.
Our (or our third party service providers’) security measures may not prevent security breaches. The failure to prevent these security
breaches or a misappropriation of proprietary information may have a material adverse effect on our business, prospects, financial
condition, and results of operations.
We are subject to a number of risks related to credit card payments.
We bill a large portion of our clients using credit and debit cards. For credit and debit card payments, we pay interchange and other
fees, which may increase over time and raise our operating expenses and adversely affect our net income. We are also subject to payment
card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be
reinterpreted to make it difficult or impossible for us to comply. We believe we are compliant with the Payment Card Industry Data
Security Standard, which incorporates Visa’s Cardholder Information Security Program and MasterCard’s Site Data Protection standard.
However, there is no guarantee that we will maintain such compliance or that compliance will prevent illegal or improper use of our
payment system. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our
ability to accept credit and debit card payments from our clients. A failure to adequately control fraudulent credit card transactions would
result in significantly higher credit card-related costs and could have a material adverse effect on our business, financial condition or results
of operations.
Risks Related to the Internet
We may be unable to keep pace with rapid technological change in the internet industry.
In order to remain competitive, we will be required continually to enhance and improve the functionality and features of our
existing products and services, which could require us to invest significant capital or make substantial changes to our personnel,
technologies or equipment. If our competitors introduce new products and services embodying new technologies or if new industry
standards and practices emerge, our existing services, technologies, and systems may become obsolete or uncompetitive. We may not have
the funds or technical knowledge to upgrade our services, technologies, or systems. If we face material delays in introducing new or
enhanced products and services, our customers and users may select those of our competitors, in which event our business, prospects,
financial condition, and results of operations could be materially and adversely affected.
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Regulation of the internet may adversely affect our business.
The laws governing the internet remain largely unsettled, even in areas where legislation has been enacted. It may take years to
determine whether and how existing laws, such as those governing intellectual property, privacy, defamation, product liability, and taxation
apply to the internet and internet services. Unfavorable resolution of these issues may substantially harm our business and operating
results.
Due to the increasing popularity and use of the internet and online services such as online Yellow Pages, federal, state, local, and
foreign governments may adopt laws and regulations, or amend existing laws and regulations, with respect to the internet and other online
services. These laws and regulations may affect issues such as user privacy, pricing, content, taxation, copyrights, distribution, product
liability and quality of products and services. In addition, the growth and development of the market for electronic commerce may prompt
calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies
conducting business over the internet, including those covering user privacy, data protection, spyware, “do not email” lists, “do not call”
lists, access to high speed and broadband service. Other laws and regulations that have been adopted, or may be adopted in the future, that
may affect our business include pricing, taxation (including sales, value-added and other transactional taxes), tariffs, patents, copyrights,
trademarks, trade secrets, export of encryption technology, electronic contracting, click-fraud, acceptable content, search terms, lead
generation, behavioral targeting, consumer protection, and quality of products and services. Any new legislation could hinder the growth in
use of the internet generally or in our industry and could impose additional burdens on companies conducting business online, which could,
in turn, decrease the demand for our products and services, increase our cost of doing business, or otherwise have a material adverse effect
on our business, prospects, financial condition, and results of operations.
Our internet business is subject to an uncertain and developing regulatory environment.
While relatively few laws and regulations apply specifically to internet businesses, the application of other laws and regulations to
internet businesses, including ours, is unclear in many instances. There remains significant legal uncertainty in a variety of areas, including
intellectual property, user privacy, the positioning of sponsored listings on search results pages, defamation, taxation, product liability, and
the regulation of content in various jurisdictions.
Compliance with federal laws relating to the internet and internet businesses may impose upon us significant costs and risks, or
may subject us to liability if we do not successfully comply with their requirements, whether intentionally or unintentionally. Specific
federal laws that impact our business include The Digital Millennium Copyright Act of 1998, The Communications Decency Act of 1996,
The Children’s Online Privacy Protection Act of 1998 (including related Federal Trade Commission regulations), The Protect Our Children
Act of 2008, and The Electronic Communications Privacy Act of 1986, among others. For example, the Digital Millennium Copyright Act,
which is in part intended to reduce the liability of online service providers for listing or linking to third-party websites that include materials
that infringe the rights of others, was adopted by Congress in 1998. If we violate the Digital Millennium Copyright Act we could be
exposed to costly and time-consuming copyright litigation.
Our utilization of ACH billing exposes us to review by the National Automated Clearing House Association. Future actions from
these and other regulatory agencies could expose us to substantial liability in the future, including fines and criminal penalties, preclusion
from offering certain products or services, and the prevention or limitation of certain marketing practices.
Existing laws and regulations and any future regulation may have a material adverse effect on our business. For example, we
believe that our direct marketing programs meet existing requirements of the Federal Trade Commission, or FTC. Any changes to FTC
requirements or changes in our direct or other marketing practices, however, could result in our marketing practices failing to comply with
FTC regulations, or could require us to change our marketing strategies or practices, which could adversely impact our ability to acquire
new clients.
The application of certain laws and regulations to our promotional marketing business, as a new product category, is uncertain.
These include federal and state laws governing considered gift cards, gift certificates, stored value cards or prepaid cards, such as the
federal Credit Card Accountability Responsibility and Disclosure Act of 2009, or the CARD Act, and unclaimed and abandoned property
laws. Numerous class action lawsuits that have been filed in federal and state court claiming that vouchers used in promotional marketing
are subject to the CARD Act and various state laws governing gift cards and that the defendants have violated these laws by issuing
vouchers with expiration dates and other restrictions. If we are required to alter our promotional marketing business practices as a result of
any laws and regulations, our revenue could decrease, our costs could increase and our business could otherwise be harmed. In addition, the
costs and expenses associated with defending any actions related to such additional laws and regulations and any payments of related
penalties, judgments or settlements could adversely impact our financial condition and results of operations.
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We may not be able to obtain internet domain names that we would like to have.
We believe that our existing internet domain names are an extremely important part of our business. We may desire, or it may be
necessary in the future, to use these or other domain names in the United States and internationally. Various internet regulatory bodies
regulate the acquisition and maintenance of domain names in the United States and other countries. These regulations are subject to
change. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we may be unable to acquire or maintain relevant domain names in all countries in
which we plan to conduct business in the future.
The extent to which laws protecting trademarks and similar proprietary rights will be extended to protect domain names currently
is not clear. We therefore may be unable to prevent competitors from acquiring domain names that are similar to, infringe upon or
otherwise decrease the value of our domain names, trademarks, trade names, and other proprietary rights. We cannot provide assurance that
potential users and customers will not confuse our domain names, trademarks, and trade names with other similar names and marks. If that
confusion occurs, we may lose business to a competitor and some customers and users may have negative experiences with other
companies that those customers and users erroneously associate with us.
Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events and to interruption by man-made
problems such as computer viruses or terrorism.
Our service systems and operations are vulnerable to damage or interruption from earthquakes, fires, floods, power losses,
telecommunications failures, terrorist attacks, acts of war, human errors, break-ins and similar events. For example, a significant natural
disaster, such as an earthquake, fire or flood, could have a material adverse impact on our business, operating results and financial
condition, and our insurance coverage will likely be insufficient to compensate us for losses that may occur. Our servers may also be
vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems, which could
lead to interruptions, delays, loss of critical data or the unauthorized disclosure of confidential intellectual property or client data. We may
not have sufficient protection or recovery plans in certain circumstances, such as natural disasters affecting the Las Vegas or San Diego
area, and our business interruption insurance may be insufficient to compensate us for losses that may occur. As we rely heavily on our
servers, computer and communications systems and the internet to conduct our business and provide high quality customer service, such
disruptions could negatively impact our ability to operate our business, which could have a material and adverse effect on our operating
results and financial condition.
If we are sued for content distributed through, or linked to by, our website or those of our customers, we may be required to spend
substantial resources to defend ourselves and could be required to pay monetary damages.
We aggregate and distribute third-party data and other content over the internet. In addition, third-party websites are accessible
through our website or those of our customers. As a result, we could be subject to legal claims for defamation, negligence, intellectual
property infringement, product or service liability or other torts. Other claims may be based on errors or false or misleading information
provided on or through our website or websites of our customers, or on links to sexually explicit or gambling websites and sexually explicit
advertisements. We may need to expend substantial resources to investigate and defend these claims, regardless of whether we successfully
defend against them. While we carry general business insurance, the amount of coverage we maintain may not be adequate. In addition,
implementing measures to reduce our exposure to this liability may require us to spend substantial resources and limit the attractiveness of
our products or services to users.
If our security measures are breached and unauthorized access is obtained to a client’s data, our service may be perceived as not being
secure and clients may curtail or stop using our service.
Our service may involve the storage and transmission of clients’ proprietary information, such as credit card and bank account
numbers, and security breaches could expose us to a risk of loss of this information, litigation and possible liability. Our payment services
may be susceptible to credit card and other payment fraud schemes, including unauthorized use of credit cards, debit cards or bank account
information, identity theft or merchant fraud.
If our security measures are breached in the future as a result of third-party action, employee error, malfeasance or otherwise, and
as a result, someone obtains unauthorized access to our clients’ data, our reputation could be damaged, our business may suffer and we
could incur significant liabilities. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and
frequently are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate
preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security
measures could be harmed and we could lose sales and clients.
17
Our revenue may be negatively affected if we are required to charge sales tax or other transaction taxes on all or a portion of our past
and future sales to customers located in jurisdictions where we are currently not collecting and reporting tax.
We generally do not charge, collect or have imposed upon us sales, value added (VAT) or other transaction taxes related to the
products and services we sell, except for certain corporate level taxes and transaction level taxes outside of the United States. However, the
federal, state, and local governments or one or more foreign countries may seek to impose sales or other transaction tax obligations on us in
the future. A successful assertion by any tax jurisdiction in which we do business that we should be collecting sales or other transaction
taxes on the sale of our products or services, or the adoption of new laws to require us to collect such taxes, could result in substantial tax
liabilities related to past sales, create increased administrative burdens or costs, discourage customers from purchasing or continuing to
purchase products or services from us, decrease our ability to compete or otherwise substantially harm our business and results of
operations.
Risks Related to Our Securities
Stock prices of technology companies have declined precipitously at times in the past and the trading price of our common stock is likely
to be volatile, which could result in substantial losses to investors.
The trading price of our common stock has been highly volatile over the past few years and investors could experience losses in
response to factors including the following, many of which are beyond our control:
·
·
·
·
·
·
·
·
·
decreased demand in the internet services sector;
variations in our operating results;
announcements of technological innovations or new products or services by us or our competitors;
changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;
our failure to meet analysts’ expectations;
changes in operating and stock price performance of other technology companies similar to us;
conditions or trends in the technology industry, the online marketing industry or the mobile device industry;
additions or departures of key personnel or strategic partners; and
future sales of our debt or equity securities, including common stock.
Domestic and international stock markets often experience significant price and volume fluctuations that are unrelated or
disproportionate to the operating performance of companies with securities trading in those markets. These fluctuations, as well as political
events, terrorist attacks, threatened or actual war, and general economic conditions unrelated to our performance, may adversely affect the
price of our common stock. In the past, securities holders of other companies often have initiated securities class action litigation against
those companies following periods of volatility in the market price of those companies’ securities. If the market price of our stock fluctuates
and our stockholders initiate this type of litigation, we could incur substantial costs and experience a diversion of our management’s
attention and resources, regardless of the outcome. This could materially and adversely affect our business, prospects, financial condition,
and results of operations.
Due to our concentrated stock ownership, public stockholders may have no effective voice in our management and the trading price of
our common stock may be adversely affected.
Isaac Capital Group LLC (ICG) is the beneficial owner of approximately 43.3% of our outstanding shares of common stock. Jon
Isaac, our Chairman, CEO and President, is the President and sole member of ICG and accordingly has the sole power to vote the shares of
our common stock owned by ICG, and as a result, is able to exercise significant influence over all matters that require us to obtain
shareholder approval, including the election of directors to our board and approval of significant corporate transactions that we may
consider, such as a merger or other sale of our company or its assets. Moreover, such a concentration of voting power could have the effect
of delaying or preventing a third party from acquiring us at a premium. This significant concentration of share ownership may also
adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in companies with
concentrated stock ownership.
18
We do not anticipate paying dividends on our common stock in the foreseeable future.
With the exception of dividends payable to our series E preferred stockholders, we do not intend to pay cash dividends in the
foreseeable future due to our limited funds for operations. Therefore, any return on your investment would likely come only from an
increase in the market value of our common stock.
Certain provisions of Nevada law, in our organizational documents and in contracts to which we are party may prevent or delay a
change of control of our company.
We are subject to the Nevada anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent Nevada
corporations from engaging in a merger, consolidation, sales of its stock or assets, and certain other transactions with any stockholder,
including all affiliates and associates of the stockholder, who owns 10% or more of the corporation’s outstanding voting stock, for three
years following the date that the stockholder acquired 10% or more of the corporation’s voting stock, except in certain situations. In
addition, our amended and restated articles of incorporation and bylaws include a number of provisions that may deter or impede hostile
takeovers or changes of control or management. These provisions include the following:
·
·
·
·
·
·
·
·
the authority of our Board of Directors to issue up to 5,000,000 shares of preferred stock and to determine the price, rights,
preferences, and privileges of these shares, without stockholder approval;
stockholders must comply with advance notice requirements to transact any business at the annual meeting;
all stockholder actions must be effected at a duly called meeting of stockholders and not by written consent, unless such action or
proposal is first approved by our Board of Directors;
special meetings of the stockholders may be called only by the Chairman of the Board, the Chief Executive Officer, or the President
of our company;
a director may be removed from office only for cause by the holders of at least two-thirds of the voting power entitled to vote at an
election of directors;
our Board of Directors is expressly authorized to alter, amend or repeal our bylaws;
newly-created directorships and vacancies on our Board of Directors may only be filled by a majority of remaining directors, and
not by our stockholders; and
cumulative voting is not allowed in the election of our directors.
These provisions of Nevada law and our articles and bylaws could prohibit or delay mergers or other takeover or change of control
of our company and may discourage attempts by other companies to acquire us, even if such a transaction would be beneficial to our
stockholders.
Our common stock may be subject to the “penny stock” rules as promulgated under the Securities Exchange Act of 1934.
In the event that no exclusion from the definition of “penny stock” under the Securities Exchange Act of 1934, as amended, is
available, then any broker engaging in a transaction in our common stock will be required to provide its customers with a risk disclosure
document, disclosure of market quotations, if any, disclosure of the compensation of the broker-dealer and its sales person in the
transaction, and monthly account statements showing the market values of our securities held in the customer’s accounts. The bid and offer
quotation and compensation information must be provided prior to effecting the transaction and must be contained on the customer’s
confirmation of sale. Certain brokers are less willing to engage in transactions involving “penny stocks” as a result of the additional
disclosure requirements described above, which may make it more difficult for holders of our common stock to dispose of their shares.
19
ITEM 1B. Unresolved Staff Comments
Not applicable.
ITEM 2. Properties
We lease approximately 11,000 square feet of space located at 325 East Warm Springs Road, Suite 100, Las Vegas Nevada, which
we utilize as principal executive and administrative officers and our call center. We currently pay approximately $13,000 in monthly rent
for the call center, which is subject to annual increases. Our lease for this space ends on approximately February 29, 2016; however, we
have the option to extend the lease for two additional lease terms of three years each. We also lease space in San Diego, California, where
we utilize approximately 1,600 square feet. This office is currently being provided to us by a company that is a related party to the Isaac
Capital Group LLC, one of our largest stockholders which is owned by Jon Isaac, our President and CEO and a director.
Marquis operates out of eight buildings. Of the eight, only one property is leased. We are in the process of selling all of the owned
properties with the intent to secure long-term leases for each of those properties from the new owners. We have listed the properties for
sale for a total of $13 million.
Location
2743 Highway 76
Chatsworth, GA
325 Smyrna Church Rd.
Chatsworth, GA
242 Treadwell Rd.
Chatsworth, GA
1978 HW 52 Alt.
Chatsworth, GA
1642 Duvall Rd.
Chatsworth, GA
1805 South Hamilton
Dalton, GA
2669 Lakeland Rd.
Dalton, GA
716 River Street
Calhoun, GA
ITEM 3. Legal Proceedings
Purpose
Corporate offices and warehouse
25,930 sq ft on 2.9 acres
Warehouse
31,682 sq ft. on 2 acres
Office and storage
37,000 on 3.1 acres
Tufting Department
68,000 sq. ft. on 4.3 acres
Machine Storage and Forklift
30,716 sq. ft. on 1.5 acres
Storage and Extrusion
51,000 sq. ft. on 10.8 acres
Yarn Processing Facility
74,546 sq. ft. on 5.85 acres
Offices
100,000 sq. ft. on 9.1 acres
Payment
Owned in fee
Owned in fee
Owned in fee
Owned in fee
Owned in fee
Owned in fee
Owned in fee
5 year lease with 2 options to renew, current
monthly lease $18,562
Except as described below, we are not a party to, and none of our property was the subject of, any material pending legal
proceedings, other than ordinary routine litigation incidental to our business. While we currently believe that the ultimate outcome of these
routine proceedings will not have a material adverse effect on our consolidated financial condition or results of operations, litigation is
subject to inherent uncertainties. An unfavorable ruling could result in a material adverse impact on our net income and financial condition
in the period in which a ruling occurs. Moreover, routine litigation, even if not meritorious, could result in the expenditure of significant
financial and managerial resources and could adversely affect our net income and financial condition.
J3 Harmon LLC v. LiveDeal, Inc.
On February 9, 2012, J3 Harmon LLC, which we refer to as J3, filed a lawsuit against us in the Superior Court for Maricopa
County in the State of Arizona, alleging breach of a commercial lease agreement. J3 sought damages for alleged unpaid rents during the
lease term as well as alleged damages for storage costs after the expiration of the lease term. We denied the allegations and asserted
various affirmative defenses. In September 2012, the Maricopa County Superior Court entered a judgment in favor of J3 in the sum of
$62,886.13. We appealed this judgment.
On October 1, 2013, the Arizona Court of Appeals affirmed in part and reversed in part on the principal damages and remanded
the matter for judgment. Subsequently, the Maricopa County Superior Court entered Judgment on Mandate against the Company in the
principal sum of $46,636.31 and attorneys’ fees of $5,624.40, with post-judgment interest from October 3, 2012. There is no further basis
for appeal by the Company. Therefore the matter is concluded. We are not aware of any post-judgment collection activity, which has been
undertaken. As of September 30, 2015, the payment of this judgment has not been paid and the Company recorded an accrual of $52,261
related to this matter.
ITEM 4. Mine Safety Disclosures
Not applicable.
20
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Common Stock
Our common stock is traded on the NASDAQ Capital Market under the symbol “LIVE”.
The following table sets forth the quarterly high and low sale prices per share of our common stock during the last two fiscal years.
All prices commencing on February 12, 2014, reflect a 3:1 forward stock split.
2015
2014
Quarter Ended
October 1 – December 31, 2014
January 1 – March 31
April 1 – June 30
July 1 – September 30
December 31, 2013
January 1, 2014 – February 11, 2014
February 12, 2014 - March 31, 2014
June 30, 2014
September 30, 2014
High
Low
$
$
$
$
$
$
$
$
3.92 $
3.78 $
3.36 $
2.58 $
4.29 $
22.19
9.48 $
7.89 $
4.90 $
2.09
2.83
2.48
1.43
2.77
4.21
6.75
2.38
2.90
Holders of Record
On December 31, 2015, there were approximately 134 holders of record of our common stock according to our transfer agent. We
have no record of the number of stockholders who hold their stock in “street name” with various brokers.
Dividend Policy
We have one class of authorized preferred stock (Series E Preferred Stock), of which there are currently 127,840 shares issued and
outstanding. Each share of Series E Preferred Stock is entitled to and receives a dividend of $0.015 per year. At September 30, 2015, we had
accrued but unpaid dividends totaling approximately $958.80. These dividends were paid in November 2015.
Presently, we do not pay dividends on our common stock. The timing and amount of future dividend payments on our common
stock, if any, will be determined by our Board of Directors based upon our earnings, capital requirements and financial position, general
economic conditions, alternative uses of capital, and other pertinent factors.
Issuer Purchases of Equity Securities
During our fiscal quarter ended September 30, 2015, neither we nor any “affiliated purchaser”, as defined in Exchange Act Rule
10b-18(a)(3)), repurchased any shares of our common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
Reference is made to Note 11 of the notes to our consolidated financial statements for certain disclosures about our equity
compensation plans.
Recent Sales of Unregistered Securities
None.
ITEM 6. Selected Financial Data
Not applicable.
21
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
For a description of our significant accounting policies and an understanding of the significant factors that influenced our
performance during the year ended September 30, 2015, this “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the consolidated financial statements, including the
related notes, appearing in Part I, Item 8 of this Annual Report on Form 10-K for the fiscal year ended September 30, 2015.
Note About Forward-Looking Statements
This Annual Report on Form 10-K includes statements that constitute “forward-looking statements.” These forward-looking
statements are often characterized by the terms “may,” “believes,” “projects,” “intends,” “plans,” “expects,” or “anticipates,” and do not
reflect historical facts. Specific forward-looking statements contained in this portion of the Annual Report include, but are not limited to
our (i) belief in the continued growth of internet usage, particularly via mobile devices, and demand for web-based marketing; (ii) belief in
the continued growth in the demand for local search and information, (iii) belief that small and medium businesses will continue to
outsource their online marketing efforts to third parties; (iv) belief that we can cost-effectively expand into other cities due to the scalability
of the LiveDeal.com platform; (v) belief that the cash on hand and additional cash generated from operations together with potential sources
of cash through issuance of debt or equity will provide the company with sufficient liquidity for the next 12 months; and (vi) belief that the
outcome of pending legal proceedings will not have a material adverse effect on business, financial position and results of operations, cash
flow or liquidity.
Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or
achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could
affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include
those identified in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015 under Item 1A “Risk Factors”, as well as
other factors that we are currently unable to identify or quantify, but that may exist in the future.
In addition, the foregoing factors may generally affect our business, results of operations and financial position. Forward-looking
statements speak only as of the date the statements were made. We do not undertake and specifically decline any obligation to update any
forward-looking statements. Any information contained on our website www.livedeal.com or any other websites referenced in this Annual
Report are not part of this Annual Report.
Our Company
Live Ventures Incorporated is a holding company for diversified businesses, which, together with our subsidiaries, we refer to as
the “Company”, “Live Ventures”, “we”, “us” or “our.” Commencing in fiscal year 2015, we began a strategic shift in our business plan
away from providing online marketing solutions for small and medium business to acquiring profitable companies in various industries that
have demonstrated a strong history of earnings power. Prior to that shift, we primarily promoted online marketing solutions to small and
medium businesses to help them boost customer awareness, gain visibility and manage their online presence under our Velocity Local™
brand. In 2013 we launched LiveDeal.com, real-time “deal engine” that connects restaurants across the United States and consumers via an
platform. The LiveDeal.com platform targets restaurants in cities across the United States to help them use the platform to attract new
customers. In addition, through our subsidiary, Modern Everyday, we maintain an online consumer products retailer.
We continue to actively develop, revise and evaluate our products, services and our marketing strategies in our businesses. As a
result of the shift in our strategy, as of the fiscal year ended September 30, 2015, we decided to cease operating Live Goods, DealTicker
and we discontinued our suite of online presence marketing products and solutions under the Velocity Local™ brand. Due to the shift in our
business to diversifying our operations by acquiring businesses in several industries, we expect that revenues from our online marketplace
business segment and our legacy products will continue to be diluted in the coming months and years.
22
Under the Live Ventures brand we seek opportunities to acquire profitable and well-managed companies. We will work closely
with consultants who will help us identify target companies that fit within the criteria we have established for opportunities that will
provide synergies with our businesses.
Our principal offices are located at 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119, our telephone number is
(702) 939-0231, and our corporate website (which does not form part of this report) is located at www.livedeal.com. Our common stock
trades on the NASDAQ Capital Market under the symbol “LIVE”.
Manufacturing Segment
In July 2015, we acquired a majority interest in Marquis Industries, Inc., a Georgia corporation, through our partially-owned
subsidiary, Marquis Affiliated Holdings LLC, Marquis Industries is a leading carpet manufacturer and a manufacturer of innovative yarn
products, as well as a reseller of hard surface flooring products. Over the last decade, Marquis has been an innovator and leader in the
value-oriented polyester carpet sector, which is currently the market’s fastest-growing fiber category. We focus on the residential, niche
commercial, and hospitality end-markets and serve over 2,000 customers.
Since its founding in 1990, Marquis has built a strong reputation for outstanding value, styling, and customer service. Its
innovation has yielded products and technologies that differentiate its brands in the flooring marketplace. Marquis’s state-of-the-art
operations enable high quality products, unique customization, and exceptionally short lead-times. Furthermore, the Company has recently
invested in additional capacity to grow several attractive lines of business, including printed carpet and yarn extrusion. Through its A-O
Division, utilizes its state-of-the-art yarn extrusion capacity to market monofilament textured yarn products to the artificial turf industry.
Online Marketplace Platform Segment
In September 2013, we launched LiveDeal.com. LiveDeal.com is a unique, real-time “deal engine” connecting merchants with
consumers. Currently, we provide marketing solutions to a growing base of restaurants to boost customer awareness and merchant visibility
on the Internet. We believe that we have developed the first-of-its-kind web/mobile platform providing restaurants with full control and
flexibility to instantly publish customized offers whenever they wish to attract customers. Restaurants can sign up to use the LiveDeal
platform at our website.
Highlights of LiveDeal.com include:
—
—
—
—
—
—
an intuitive interface enabling restaurants to create limited-time offers and publish them immediately, or on a preset
schedule that is fully customizable;
state-of-the-art scheduling technology giving restaurants the freedom to choose the days, times and duration of the offers,
enabling them to create offers that entice consumers to visit their establishment during their slower periods;
advanced publishing options allowing restaurants to manage traffic by limiting the number of available vouchers to
consumers;
superior geo-location technology allowing multi-location restaurants to segment offers by location, attracting customers to
slower locations while eliminating potential over-crowding at busier sites;
innovating proprietary restaurant indexing methodology; and
a user-friendly mobile and desktop web interface allowing consumers to easily browse, download, and instantly redeem
“live” offers found on LiveDeal.com based on their location.
In 2014, the Livedeal.com iOS mobile App was approved by Apple for inclusion in Apple’s App Store, and the Android App
became available to the public in the Google Play Store.
We believe one of the primary challenges facing the dining industry is the inefficient and limited number of ways restaurants are
able to market offers and promotions to their potential customers. Daily deal companies typically dictate offer terms, such as the discount
amount and redemption details. This not only erodes potential profits for restaurant owners but could also drive traffic during already-busy
periods for the restaurants. LiveDeal’s model benefits both the restaurant and the consumer because it provides the restaurant the
opportunity to create any offer they choose, limit the number of potential claimants of their promotion, publish the offer on days and at
times of their choosing, and provides customers with relevant offers they can easily and quickly redeem while creating a cost-effective
model for LiveDeal to grow and easily scale its operations. We expect to initially derive revenues through premium placement on the site,
and we are also exploring various options for monetizing the website.
23
The Company, best known for migrating print yellow pages to the Internet in 1994, began to develop the model for LiveDeal.com
after having worked closely with well-known publishers in the daily deal market. In mid-2013, we tested the beta platform in a number of
cities, and the model has been well received by restaurants, consumers, and various restaurant associations. We launched LiveDeal.com in
the San Diego and Los Angeles, California markets in September 2013 and December 2013, respectively. This year we launched a massive
advertising campaign directed at over 35 cities to support the restaurant owners who have created more than 10,000 deals in over 8,000
restaurants in those cities. The Company believes it can cost-effectively expand into other cities due to the scalability of the LiveDeal.com
platform, as restaurants can curate deals through our account managers or create specials on their own. In addition, individual customers
transact directly with the restaurant, eliminating the need for the Company to act as an intermediary in the sale.
In order to leverage our consumer base, during fiscal 2014 we acquired three business that offer consumer products. We plan to
incorporate the sale of consumer products into our livedeal.com website to make it a vertically integrated one-stop shop for all the needs of
the everyday consumer. Below is a brief description of the businesses purchased in fiscal 2014.
Modern Everyday, Inc.,
Modern Everyday, Inc. (“MEI”), acquired in August 2014, has both a retail location and a web presence providing consumers with
products that range from kitchen and dining products, apparel and sporting goods to children's toys and beauty products. Modern Everyday
also has proprietary software that will give us the capability to track products and predict consumer behavior and spending habits.
Legacy and Merchants’ Services Segment
We developed and market a suite of products and services designed to meet the online marketing needs of SMBs at affordable
prices. In August 2012, we commenced sourcing local deal and activities to strategic publishing partners under our LiveDeal ® brand,
which we refer to as promotional marketing. In November 2012, we commenced the sale of marketing tools that help local businesses
manage their online presence under our Velocity Local ™ brand, which we refer to as online presence marketing. Our target customers for
our Velocity Local ™ and our LiveDeal ® brands are SMB owners who work long hours to deliver real value to their customers in their
own communities that do not have the time or expertise to develop the powerful, multi-faceted, online marketing and advertising programs
necessary for successful online marketing. Our offerings draw on a decade of experience servicing SMBs in the internet technology
environment.
We continue to generate a significant portion of our revenue from servicing our existing customers under our legacy product
offerings, primarily our InstantProfile ® line of products and services. Because of the change in our business strategy and product lines, we
no longer accept new customers under our legacy product offerings.
Business Acquisition
On July 6 and July 7, 2015, we, through our newly formed, wholly-owned subsidiary, Live Ventures, Inc. (“Live Ventures”),
entered into a series of agreements in connection with our indirect purchase of Marquis Industries, Inc., a Georgia corporation (“Marquis
Industries”), and its subsidiaries. Marquis Industries is a specialty, high-performance carpet yarn manufacturer, hard-surfaces re-seller, and
top 10 high-end residential carpet manufacturer in the United States. The purchase and financing transactions were, in the aggregate, valued
at approximately $30 million. The purchase was effectuated between Marquis Affiliated Holdings LLC, a Delaware limited liability
company (“Marquis Holdings”) that is 80% owned by Live Ventures. The remaining 20% of Marquis Holdings is owned by the former
owners of Marquis Industries. In connection with the purchase and finance transaction, various persons and entities entered into a series of
agreements (each of which is dated on or about July 6, 2015, with funding occurring on July 6 and July 7, 2015).
24
The purchase price was paid through a combination of debt financing that was provided by (i) the Bank of America Term and
Revolving Loan in the aggregate amount of (x) approximately $7.8 million for the term component and (y) approximately $15 million for
the revolving component and (ii) a mezzanine loan in an amount of up to $7,000,000 provided by Isaac Capital Fund, a private lender
whose managing member is Jon Isaac, our chief executive officer. In connection with operations of Marquis Industries after the closing of
the purchase transaction, and as part of the Bank of America Term and Revolving Loan, Marquis Industries may borrow up to $15 million
(based on eligibility).
The Bank of America term loan bears interest at a variable rate based on a base rate plus a margin. The current base rate is the
greatest of (a) Bank of America prime rate, (b) the current federal funds rate plus 0.50%, or (c) 30-day LIBOR plus 1.00% plus the margin,
which varies, depending on circumstances and as of closing was for the term component: 1.00% in excess of the base rate or 2.00% in
excess of LIBOR, and for the revolving component: 0.75% in excess of the base rate or 1.75% in excess of LIBOR. Monthly payments to
Bank of America are approximately $79,000 plus accrued interest. The term component is due and payable in July 2020, which is when the
revolving component terminates.
The Isaac Capital Fund mezzanine loan bears interest at 12.5% with payment obligations of interest each month and all principal
due in January 2021 (six months after the final payments are due under the Bank of America Term and Revolving Loan).
Critical Accounting Estimates and Assumptions
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America requires our management to make many estimates and assumptions that may materially affect both our consolidated
financial statements and related disclosures, such as reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses during the reporting period, and the comparability of the information
presented over different reporting periods. Estimates and assumptions are based on management's experience and other information
available prior to the issuance of our financial statements. Our actual realized results may differ materially from management’s initial
estimates as reported. Summaries of our significant accounting policies are detailed in the notes to the consolidated financial statements,
which are an integral component of this filing.
The discussion in this section of "critical" accounting estimates and assumptions is according to the disclosure guidelines of the
SEC, wherein:
·
·
the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly
uncertain matters or the susceptibility of such matters to change; and
the impact of the estimates and assumptions on our financial condition or operating performance is material.
Besides those meeting these "critical" criteria, we make many other accounting estimates and assumptions in preparing our
financial statements and related disclosures. Although not associated with “highly uncertain matters,” these estimates and assumptions are
also subject to revision as circumstances warrant, and materially different results may sometimes occur.
The following summarizes “critical” estimates and assumptions made by management in the preparation of the consolidated
financial statements and related disclosures.
Revenue Recognition
Directory Services
Revenue is billed and recognized monthly for services subscribed in that specific month. We have historically utilized outside
billing companies to perform billing services through two primary channels:
·
·
direct ACH withdrawals; and
inclusion on the customer’s local telephone bill provided by their Local Exchange Carriers, or LECs.
25
For billings via ACH withdrawals, revenue is recognized when such billings are accepted. For billings via LECs, we recognize
revenue based on net billings accepted by the LECs. Due to the periods of time for which adjustments may be reported by the LECs and the
billing companies, we estimate and accrue for dilution and fees reported subsequent to year-end for initial billings related to services
provided for periods within the fiscal year. Such dilution and fees are reported in cost of services in the accompanying consolidated
statements of operations. Customer refunds are recorded as an offset to gross revenue.
Revenue for billings to certain customers that are billed directly by us and not through the outside billing companies is recognized
based on estimated future collections. We continuously reviews this estimate for reasonableness based on its collection experience.
Deals Revenue
We recognize revenue from sales through our strategic publishing partners of discounted goods and services offered by our
merchant clients (“Deals”) when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the
selling price is fixed or determinable; and collectability is reasonably assured. These criteria are met when the number of customers who
purchase the daily deal exceeds the predetermined threshold, where, if applicable, the Deal has been electronically delivered to the
purchaser and a listing of Deals sold has been made available to the merchant. At that time, our obligations to the merchant, for which we
are serving as an agent, are substantially complete. Our remaining obligations, which are limited to remitting payment to the merchant, are
inconsequential or perfunctory. We record as revenue an amount equal to the net amount it retains from the sale of Deals after paying an
agreed upon percentage of the purchase price to the featured merchant excluding any applicable taxes. Revenue is recorded on a net basis
because we are acting as an agent of the merchant in the transaction.
Product Revenue
We derive product revenue primarily from direct revenue and fulfillment partner revenue from product sales. Product revenue is
recognized when the following revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or the service has been provided; (3) the selling price or fee revenue earned is fixed or determinable; and (4) collection of the
resulting receivable is reasonably assured. Revenue related to product sales is recognized when the above four criteria are met.
We evaluate the criteria outlined in ASC Topic 605-45, Principal Agent Considerations, in determining whether it is appropriate
to record the gross amount of product sales and related costs or the net amount earned as commissions. When we are the primary obligor in
a transaction, are subject to inventory risk, have latitude in establishing prices and selecting suppliers, or have several but not all of these
indicators, revenue is recorded gross. If we are not the primary obligor in the transaction and amounts earned are determined using a fixed
percentage, revenue is recorded on a net basis. Currently, all direct revenue and fulfillment partner revenue is recorded on a gross basis, as
we are the primary obligor. We present revenue net of sales taxes.
Manufacturing Revenue
Revenues, including shipping and handling amounts, are recognized when the following criteria are met: there is persuasive
evidence that a sales agreement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed or determinable,
and collectability is reasonably assured. Delivery is not considered to have occurred until the customer takes title to the goods and assumes
the risks and rewards of ownership, which is generally on the date of shipment. At the time revenue is recognized, the Company records a
provision for the estimated amount of future returns based primarily on historical experience and any known trends or conditions that exist
at the time revenue is recognized. Revenues are recorded net of taxes collected from customers.
26
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts, which includes allowances for customer refunds, dilution and fees from LEC
billing aggregators and other uncollectible accounts. The determination of the allowance for doubtful accounts is dependent on many
factors, including regulatory activity, changes in fee schedules by LEC service providers and recent historical trends.
Carrying Value of Intangible Assets
Our intangible assets consist of licenses for the use of internet domain names or universal resource locators, or URLs, capitalized
website development costs and software, other information technology licenses, customer lists, non-compete agreements and marketing and
technology-related intangibles acquired through acquisitions. All these assets are capitalized at their original cost (or at fair value for assets
acquired through business combinations) and amortized over their estimated useful lives. We capitalize internally generated software and
website development costs in accordance with the provisions of the FASB Accounting Standards Codification (“ASC”) ASC 350,
“Intangibles – Goodwill and Other”.
We evaluate the recoverability of the carrying amount of intangible assets whenever events or changes in circumstances indicate
that the carrying amount of these assets may not be fully recoverable. In the event of such changes, impairment would be assessed if the
expected undiscounted net cash flows derived for the asset are less than its carrying amount.
Stock-Based Compensation
From time to time we grant restricted stock awards and options to employees, non-employees and our executives and directors.
Such awards are valued based on the grant date fair-value of the instruments, net of estimated forfeitures. The value of each award is
amortized on a straight-line basis over the vesting period.
Income Taxes
Income taxes are accounted for using the asset and liability method as prescribed by ASC 740 “Income Taxes”. Under this
method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. A valuation allowance would be provided for those deferred tax assets for which if it is more
likely than not that the related benefit will not be realized.
We have estimated net deferred income tax assets (net of valuation allowances) of $0 at September 30, 2015 and September 30,
2014. A full valuation allowance has been established against all net deferred tax assets as of September 30, 2015 and September 30, 2014
based on estimates of recoverability. While we have optimistic plans for our new business strategy, we determined that such a valuation
allowance was necessary given the current and expected near term losses and the uncertainty with respect to our ability to generate
sufficient profits from our new business lines. Therefore, we established a valuation allowance for all deferred tax assets in excess of those
expected to be realizable through the application of operating loss carrybacks.
For the year ended September 30, 2015, Marquis Industries, Inc. and subsidiaries is required to file a separate income return, and
therefore, the income generated by these subsidiaries cannot be offset against the Company’s net operating losses.
27
Results of Operations
The following sets forth a discussion of our financial results for the year ended September 30, 2015 as compared to the year ended
September 30, 2014. In evaluating our business, management reviews several key performance indicators including new customers, total
customers in each line of business, revenues per customer, and customer retention rates. However, given the changing nature of our
business strategy, we do not believe that presentation of these metrics would reveal any meaningful trends in our operations that are not
otherwise apparent from the discussion of our financial results below. Generally, the significant changes in the results of operations when
compared to the prior periods as noted below is a result of the acquisition of Marquis Industries we made in July 2015.
Revenues
2015
2014
Change
Percent
Revenues
Year Ended September 30
$33,369,866
$7,265,276
$26,104,590
359%
Revenues for the year ended September 30, 2015 increased by $26,104,590, as compared to the year ended September 30, 2014,
primarily due to the acquisition we made of Marquis Industries in July 2015. Revenue from our manufacturing segment increased from $0
for the year ended September 30, 2014 to $16,006,683 for the year ended September 30, 2015. We expect to generate approximately $60-
65 million in annual revenues from this segment. Revenue from our online marketplace platform segment increased by $10,597,940 or
201% from $5,270,508 for the year ended September 30, 2014 to $15,868,448 for the year ended September 30, 2015. The significant
increase is due to only 1.5 months of revenue from our acquisition of Modern Everyday in August 2014 were included in 2014 results
versus a full 12 months in 2015. Revenue from our legacy and merchants’ services segment decreased by $500,033 or 25% from
$1,994,768 for the year ended September 30, 2014 to $1,494,735 for the year ended September 30, 2015. We expect revenue from this
segment to continue to decrease in the future.
Cost of Revenues
2015
2014
Change
Percent
Cost of Revenues
Year Ended September 30
$22,115,472
$5,226,637
$16,888,835
323%
Cost of revenues increased for the year ended September 30, 2015 as compared to the year ended September 30, 2014, by
$16,888,835. The increase in cost of revenue for the year ended September 30, 2015 is primarily due to increase in revenue as a result of
our acquisition of Marquis Industries in July 2015. Cost of revenue were 66.3% and 71.9% of net revenues for the years ended September
30, 2015 and 2014, respectively, a decrease of 5.6%. The decrease is due to us selling higher margin products in fiscal 2015.
Gross Profit
2015
2014
Change
Percent
Gross Profit
Year Ended September 30
$11,254,394
2,038,639
9,215,755
452%
Gross profit increased for the year ended September 30, 2015 by $9,215,755, as compared to the year ended September 30, 2014,
primarily due to the increase in revenues from our acquisition of Marquis Industries in July 2015. The gross profit percentage for year
ended September 30, 2015 was 33.7% compared to 28.1% for the year ended September 30, 2014. Our gross profit percentage from our
legacy and merchants’ services segment was 89.9% and 80.4% for the years ended September 30, 2015 and 2014, respectively, and our
gross profit percentage for our online marketplace platform segment was 36.1% and 8.3% for the years ended September 30, 2015 and
2014, respectively. Our gross profit percentage from our newly acquired manufacturing segment was 26.2%. We were able to significantly
improve our gross margin for our online marketplace platform segment by reducing our product costs and focusing on selling higher
margin products.
28
General and Administrative Expenses
General and Administrative Expenses
2015
2014
Change
Percent
Year Ended September 30
$10,992,356
$5,644,218
$5,348,138
95%
General and administrative expenses increased for the year ended September 30, 2015 as compared to year ended September 30,
2014 by $5,348,138. The increase for the year ended September 30, 2015 compared to the same period in 2014 is principally a result of the
acquisition of Marquis Industries in July 2015 that incurred $2,234,855 in general and administrative expenses. In addition, during the year
ended September 30, 2015 we issued 600,000 shares of our common stock to two of our executives valued at $1,518,000 as a bonus for
services rendered during fiscal years 2012, 2013 and 2014. We also issued 191,136 shares of our common stock to employees and
consultants for services rendered valued at $498,059. In addition we issued 450,000 options to one of our executives that resulted in a
charge to earnings of $636,142 during the year ended September 30, 2015.
Sales and Marketing Expenses
Sales and Marketing Expenses
2015
2014
Change
Percent
Year Ended September 30
$6,684,833
$893,705
$5,791,128
648%
Sales and marketing expense increased for the year ended September 30, 2015 as compared to year ended September 30, 2014
primarily due to expenses associated with marketing activities of our acquisition of Marquis Industries and a full 12 months of sales and
marketing expense for Modern Everyday for the year ended September 30, 2015 compared to only 1.5 months for the year ended
September 30, 2014.
Impairment of Intangible Assets
Impairment of Intangible Assets
2015
2014
Change
Percent
Year Ended September 30
$3,713,472
$0
$3,713,472
n/a
During the year ended September 30, 2015, we determined that certain of our intangible assets and goodwill were impaired and
took a charge to earnings of $3,713,472. There were no such charges during 2014.
Operating Loss
2015
2014
Change
Percent
Operating Loss
Year Ended September 30
$(10,136,267)
$(4,499,284)
$(5,636,983)
37%
The increase in operating loss for the year ended September 30, 2015 as compared to year ended September 30, 2014 resulted
from a variety of factors, including the impairment of intangible assets, the increases in general and administrative expenses due to stock
and stock options granted to executives and the sales and marketing expenses as described above.
29
Total Other Income (Expense)
Total Other Income (Expense)
2015
2014
Change
Percent
Year Ended September 30
$(4,200,018)
$(162,097)
$(4,037,921)
2491%
The large increase in other expense in the year ended September 30, 2015 as compared to year ended September 30, 2014 was
primarily due to interest expense incurred during the year ended September 30, 2015, relating to the amortization of debt discounts, the
issuance of warrants upon the conversion of debt and the issuance of common stock for the original issue discount on a $10 million credit
facility.
Net Loss Attributable to Live Venture, Inc.
2015
2014
Change
Percent
Net Loss
Year Ended September 30
$(14,666,129)
$(4,661,381)
$(10,004,748)
215%
The increase in the net loss for the year ended September 30, 2015, as compared to the net loss for the year ended September 30,
2014 was primarily attributable to the impairment of intangible assets the increase in general and administrative expenses and other
expense, as described above.
Liquidity and Capital Resources
The Company’s cash and cash equivalents at September 30, 2015 was $2,727,818 compared to $8,114,682 at September 30, 2014,
a decrease of $5,386,864. The principal reason for this decrease was the cash used to purchase Marquis Industries, Inc. in July 2015.
Cash Flows from Operating Activities
Net cash used in operating activities was $1,019,318 for the year ended September 30, 2015 as compared to $5,194,654 for the
same period in 2014. This change was due to an increase of $10,050,904 in our net loss, partially offset by an increase of non-cash expenses
of $10,468,007 which during the year ended September 30, 2015 included $2,198,003 of interest expense associated with convertible debt
and warrants, $2,004,202 of interest expense associated with loan fees, $2,016,059 of common stock issued for services, $3,713,472 of
impairment of intangible assets and goodwill. Cash flows from operations were also impacted by a decrease of approximately $3,382,233 in
changes in working capital and other assets in the year ended September 30, 2015 as compared to the same period in 2014. This working
capital variance resulted primarily from the changes in inventory and accounts payable. Our primary source of cash inflows has historically
been net remittances from directory services customers processed in the form of ACH billings and LEC billings. Our most significant cash
outflows include payments for general operating expenses, including payroll costs, and general and administrative expenses that typically
occur within close proximity of expense recognition.
Cash Flows from Investing Activities
Our cash flows used in investing activities during the year ended September 30, 2015 consisted of $5,503,056 for the acquisition
of a new subsidiary, net of $496,944 cash acquired; $64,820 of expenditures for intangible assets and $151,937 of purchases of equipment,
offset by proceeds of $153,500 from the sale of assets. Our cash flows used in investing activities during the year ended September 30,
2014 consisted of $1,259,483 for the acquisition of a business, $19,265 of expenditures for intangible assets and $79,808 of purchases of
equipment.
Cash Flows from Financing Activities
Our cash flows from financing activities during the year ended September 30, 2015 consisted of $538,441 from the sale of shares
of our common stock, $1,247,185 from the issuance of notes payable, $1,200,000 contribution from noncontrolling interest, $100,000 from
issuances of convertible debt offset by repayment of a note payable of $1,886,859. Our cash flows from financing activities during the year
ended September 30, 2014 consisted of $13,681,054 from the sale of shares of our common stock and $823,595 from issuances of
convertible debt offset by repayment of a note payable of $582,348.
30
Working Capital
We had working capital of $14,812,654 as of September 30, 2015 compared to working capital of $9,497,200 as of September 30,
2014 with current assets increasing by $11,999,378 and current liabilities increasing by $6,683,924 from September 30, 2014 to September
30, 2015. Such changes in working capital are primarily attributable to the increase in our operating net loss, the results of our financing
activities and the acquisition of Marquis Industries in July 2015.
At-The-Market Offerings of Common Stock (Chardan Capital Markets LLC)
During the year ended September 30, 2014, we sold 3,115,147 shares of our common stock, resulting in gross proceeds of
$14,093,582, in an at-the-market offering, in which Chardan Capital Markets LLC (“Chardan”) was our agent. We received net proceeds of
$13,681,054. We paid Chardan a total commission of $412,528 in connection with such sales. During the year ended September 30, 2015,
we sold 155,000 shares of our common stock resulting in gross proceeds of $546,652, in an at-the-market offering, in which Chardan was
our agent. The Company received net proceeds of $538,441. The Company paid Chardan a total commission of $8,211 in connection with
such sales.
Revolver Loan and Term Loan
In connection with the purchase of Marquis Industries Inc., we entered into an agreement with Bank of America for a Term and
Revolving Loan for approximately $7.8 million for the term component and approximately $15 million for the revolving component. As
part of the Bank of America Revolving Loan, Marquis Industries may borrow up to $15 million (based on eligibility). At September 30,
2015 we had $7,225,745 and $7,628,438 outstanding on the Revolver Loan and Term Loan, respectively.
Future Sources of Cash; New Products and Services
We will require additional capital to finance our planned business operations as we continue to build and market our
LiveDeal.com, fund our growing operations including the recent acquisition of Marquis Industries, and develop other new products. In
addition, we may require additional capital to finance acquisitions or other strategic investments in our business. Other sources of financing
may include stock issuances; additional loans (for example, through our sale and issuance of convertible notes pursuant to the $10 million
line of credit that we entered into in January 2014, as amended); or other forms of financing. Any financing obtained may further dilute or
otherwise impair the ownership interest of our existing stockholders. If we are unable to generate positive cash flows or raise additional
capital in a timely manner or on acceptable terms, we may (i) not be able to make acquisitions or other strategic investments in our
business, (ii) modify, delay or abandon some or all of our business plans, and/or (iii) be forced to cease operations.
While we believe that our existing cash on hand is sufficient to finance our operations for the next twelve months, there can be no
assurance that we will generate profitability or positive operating cash flows in the near future. To the extent that we cannot achieve
profitability or positive operating cash flows, our business will be materially and adversely affected. Further, our business is likely to
experience significant volatility in our revenues, operating losses, personnel involved, products or services for sale, and other business
parameters, as management implements our new strategies and responds to operating results.
Contractual Obligations
The following table summarizes our contractual obligations consisting of operating lease agreements and debt obligations and the
effect such obligations are expected to have on our future liquidity and cash flows:
Notes payable
Notes payable - related party
Lease commitments
Software license obligation
Total
Less than
One Year
One to
Three Years
Payments due by Period
Three to
Five Years
More Than
Five Years
$
1,443,036 $
1,910,688 $
11,988,151 $
669,351 $
6,495,825
420,704
1,500,000
3,363,740 $
$
499,434
408,364
2,410,122 $
12,396,515 $
7,165,176 $
Total
16,011,226
6,495,825
1,328,502
1,500,000
25,335,553
Off-Balance Sheet Arrangements
At September 30, 2015, we had no off-balance sheet arrangements, commitments or guarantees that require additional disclosure
or measurement.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
As of September 30, 2014, we did not participate in any market risk-sensitive commodity instruments for which fair value
disclosure would be required. We believe that we are not subject in any material way to other forms of market risk, such as foreign
currency exchange risk or foreign customer purchases (of which there were none in fiscal 2013 or 2012) or commodity price risk.
32
ITEM 8. Financial Statements and Supplementary Data
LIVE VENTURES INCORPORATED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2015 AND 2014
Contents
Report of Independent Registered Public Accounting Firms
Report of Anton & Chia, LLP
Financial Statements:
Consolidated Balance Sheets as of September 30, 2015 and 2014
Consolidated Statements of Operations for the years ended September 30, 2015 and 2014
Consolidated Statement of Changes in Equity for the years ended September 30, 2015 and 2014
Consolidated Statements of Cash Flows for the years ended September 30, 2015 and 2014
Notes to Consolidated Financial Statements
33
Page
F-1
F-2
F-3
F-4
F-5
F-6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders’ of
Live Ventures, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Live Ventures, Inc. and Subsidiaries (the “Company”) as of
September 30, 2015 and 2014, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for
the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of
America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that we considered appropriate under the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Live Ventures, Inc. and Subsidiaries as of September 30, 2015 and 2014, and the results of their operations and their
cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Anton & Chia, LLP
Newport Beach, California
January 13, 2016
F-1
LIVE VENTURES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
2015
September 30,
2014
$
$
$
Assets
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Deposits and other assets
Intangible assets, net
Goodwill
Total assets
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable
Accrued liabilities
Income tax payable
Derivative liability
Note payable, net of debt discount
Total current liabilities
Notes payable, net of current portion
Note payable, related party
Contingent consideration from business combination
Total Liabilities
Commitment and contingencies
Stockholders' equity:
Series E convertible preferred stock, $0.001 par value, 200,000 shares authorized, 127,840
shares issued and outstanding at September 30, 2015 and September 30, 2014,
liquidation preference $38,203
Common stock, $0.001 par value, 30,000,000 shares authorized, 16,903,014 and
14,525,248 shares issued and outstanding at September 30, 2015 and 2014, respectively
Paid in capital
Accumulated deficit
Total Live Ventures stockholders' equity
Noncontrolling interest
Total equity
Total liabilities and equity
$
2,727,818 $
8,243,992
13,335,598
1,522,027
25,829,435
12,481,901
36,090
1,516,930
800,000
40,664,356 $
5,536,796 $
3,660,949
376,000
–
1,443,036
11,016,781
14,568,190
6,495,825
316,000
32,396,796
8,114,682
854,583
4,277,145
583,647
13,830,057
153,114
65,161
3,071,210
1,169,904
18,289,446
2,282,887
1,046,030
–
83,580
920,360
4,332,857
638,969
–
251,000
5,222,826
–
–
10,866
10,866
16,908
52,950,945
(46,665,003)
6,313,716
1,953,844
8,267,560
40,664,356 $
14,531
45,038,176
(31,996,953)
13,066,620
–
13,066,620
18,289,446
The accompanying notes are an integral part of these audited consolidated financial statements.
F-2
LIVE VENTURES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues
Cost of revenues
Gross profit
Operating expenses:
General and administrative expenses
Sales and marketing expenses
Impairment of intangible assets
Total operating expenses
Operating loss
Other expense:
Interest expense, net
Other income
Gain on derivative liability
Total other expense, net
Loss before provision for income taxes
Provision for income taxes
Net loss
Net income attributed to noncontrolling interest
Net loss attributed to Live Ventures, Inc.
Loss per share - basic and diluted:
Weighted average common shares outstanding:
Basic and diluted
Years Ended September 30,
2014
2015
$
33,369,866 $
22,115,472
11,254,394
7,265,276
5,226,637
2,038,639
10,992,356
6,684,833
3,713,472
21,390,661
(10,136,267)
(4,485,661)
202,063
83,580
(4,200,018)
(14,336,285)
376,000
(14,712,285)
(46,156)
(14,666,129) $
5,644,218
893,705
–
6,537,923
(4,499,284)
(458,934)
240,565
56,272
(162,097)
(4,661,381)
–
(4,661,381)
–
(4,661,381)
(0.93) $
(0.35)
15,765,818
13,144,248
$
$
The accompanying notes are an integral part of these audited consolidated financial statements.
F-3
LIVE VENTURES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
Common Stock
Preferred Stock
Shares
11,335,674 $
Amount Shares Amount
11,335
127,840 $
10,866 $ 30,481,179 $
(27,333,647) $ 3,169,733 $
Paid-In
Capital
Accumulated
Deficit
Total
Noncontrolling
Interest
Total
Equity
– $ 3,169,733
Balance, September 30, 2013
Series E preferred stock
dividends
Stock based compensation
Beneficial conversion feature on
convertible debt
Issuance of common stock for
services
24,427
31
Issuance of common stock for
167,985
500,000
9,623
(1,925)
(1,925)
167,985
500,000
9,654
(1,925)
167,985
500,000
9,654
cash
3,115,147
3,115
13,677,939
13,681,054
13,681,054
Issuance of common stock for
MEI purchase
50,000
50
201,450
14,525,248
14,531
127,840
10,866 45,038,176
201,500
(4,661,381)
(4,661,381)
(31,996,953) 13,066,620
201,500
(4,661,381)
– 13,066,620
Net loss
Balance, September 30, 2014
Series E preferred stock
dividends
Stock based compensation
Repricing of stock option
exercise price
Value of warrants issued with
debt conversion
Beneficial conversion feature on
convertible debt
Issuance of common stock for
services
Issuance of common stock for
cash
Issuance of common stock for
conversion of debt
Issuance of common stock for
loan fees
Fair value of noncontrolling
interest
Net loss
Balance, September 30, 2015
712,538
54,677
1,853,473
100,000
2,015,268
538,286
634,955
(1,921)
(1,921)
712,538
54,677
1,853,473
100,000
2,016,059
538,441
635,756
2,003,572
2,004,202
(1,921)
712,538
54,677
1,853,473
100,000
2,016,059
538,441
635,756
2,004,202
791,136
155,000
801,378
630,252
791
155
801
630
16,903,014 $
16,908
127,840 $
10,866 $ 52,950,945 $
(14,666,129) (14,666,129)
(46,665,003) $ 6,313,716 $
2,000,000
2,000,000
(46,156) (14,712,285)
1,953,844 $ 8,267,560
The accompanying notes are an integral part of these consolidated financial statements.
F-4
LIVE VENTURES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Non-cash interest expense associated with convertible debt and warrants
Non-cash interest expense associated with loan fees
Non-cash change in fair value of derivative liability
Stock based compensation expense
Repricing of stock option exercise price
Writedown of assets
Non-cash issuance of common stock for services
Provision for uncollectible accounts
Reserve for obsolete inventory
(Gain) loss on disposal of assets
Impairment of intangible assets
Changes in assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Inventories
Deposits and other assets
Accounts payable
Accrued liabilities
Income tax payable
Years Ended September 30,
2014
2015
$
(14,712,285) $
(4,661,381)
1,047,752
2,198,003
2,004,202
(83,580)
712,538
54,677
2,016,059
24,819
255,110
(104,966)
3,713,472
(152,040)
(124,550)
1,913,796
29,071
(885,921)
698,525
376,000
490,256
423,968
–
(56,272)
167,985
–
315,306
9,654
11,972
–
7,210
–
(296,520)
(400,301)
(2,984,031)
1,204
1,444,820
331,476
–
Net cash used in operating activities
(1,019,318)
(5,194,654)
INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired
Expenditures for intangible assets
Proceeds from the sale of assets
Purchases of property and equipment
Net cash used in investing activities
FINANCING ACTIVITIES:
Issuance of common stock for cash, net of issuance costs
Proceeds from notes payable
Payments on notes payable
Payments on preferred stock dividends
Contribution by noncontrolling interest
Proceeds from issuance of convertible debt
(5,503,056)
(64,820)
153,500
(151,937)
(1,259,483)
(19,265)
1,400
(79,808)
(5,566,313)
(1,357,156)
538,441
1,247,185
(1,886,859)
–
1,200,000
100,000
13,681,054
–
(582,348)
(17,267)
–
823,595
Net cash provided by financing activities
1,198,767
13,905,034
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(5,386,864)
7,353,224
CASH AND CASH EQUIVALENTS, beginning of period
CASH AND CASH EQUIVALENTS, end of period
Supplemental cash flow disclosures:
Interest paid
Income taxes paid
Noncash financing and investing activities:
Recognition of contingent beneficial conversion feature
Conversion of notes payable and accrued interest into common stock
Accrued and unpaid dividends
8,114,682
761,458
2,727,818 $
8,114,682
24,312 $
– $
100,000 $
635,756 $
1,921 $
754
–
500,000
–
1,925
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
LIVE VENTURES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2015 AND 2014
Note 1: Organization and Basis of Presentation
The accompanying consolidated financial statements include the accounts of Live Ventures, Incorporated, a Nevada corporation, and its
subsidiaries (collectively the “Company”). Commencing in fiscal year 2015, the Company began a strategic shift in its business plan away
from providing online marketing solutions for small and medium business to acquiring profitable companies in various industries that have
demonstrated a strong history of earnings power. The Company continues to actively develop, revise and evaluate its products, services and
its marketing strategies in its businesses. Under the Live Ventures brand the Company seeks opportunities to acquire profitable and well-
managed companies. The Company believes that with the proper positioning and its investment capital these companies can become very
profitable. Although the Company will continue to operate LiveDeal.com and our other subsidiaries that are online consumer products
retailers, the Company will no longer limit its operations to the online marketplace. With its recent acquisition of Marquis Industries, Inc.,
the Company became engaged in the manufacture and sale of carpet and the sale of vinyl and wood floorcoverings.
Effective October 7, 2015, the Company changed its corporate name from LiveDeal, Inc. to Live Ventures Incorporated.
Liquidity
The Company had a net loss of $14.7 million and $4.7 million for the years ended September 30, 2015 and 2014, respectively. The
Company had approximately an operating cash outflow of approximately $(1.0) million and $(5.2) million for the years ended September
30, 2015 and 2014. The Company sold shares of its common stock during the years ended September 30, 2015 and 2014 for $0.5 million
and $13.7 million, respectively. The Company had cash of $2.7 million as of September 30, 2015. Management believes the Company’s
cash on hand and additional cash generated from operations, including the operations of Marquis, together with potential sources of cash
through the issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months.
While the Company believes that its existing cash on hand plus cash generated from operations are sufficient to finance our operations for
the next twelve months, there can be no assurance that the Company will generate profitability or positive operating cash flows in the near
future. To the extent that the Company cannot achieve profitability or positive operating cash flows, the Company’s business will be
materially and adversely affected. Further, the Company’s business is likely to experience significant volatility in its revenues, operating
losses, personnel involved, products or services for sale, and other business parameters, as management implements and revises our
strategies and responds to operating results and market conditions.
All data for common stock, options and warrants have been retroactively reflected the 3-for-1 forward stock split (which took effect on
February 11, 2014) for all periods presented. In addition, all common stock prices, and per share data for all periods presented have been
adjusted to reflect the 3-for-1 forward stock split. See Note 8 for details.
F-6
Note 2: Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements represent the consolidated financial position and results of operations of the Company
and its subsidiaries as follows:
Company
Percentage
Owned
Parent
Live Ventures, Inc.
Telco Billing, Inc.
Telco of Canada, Inc.*
LiveDeal, Inc. - Santa Clara*
Local Marketing Experts, Inc.*
Velocity Marketing Concepts, Inc.
247 Marketing, Inc.*
Velocity Local, Inc.
Modern Everyday, Inc.
Modern Everyday, LLC
Super Nova, LLC
Live Goods, LLC
DealTicker, Inc.*
Marquis Affiliated Holdings, LLC
Marquis Industries, Inc.
A-O Industries, LLC
Astro Carpet Mills, LLC
Constellation Industries, LLC
S F Commercial Properties, LLC
100% Live Ventures, Incorporated
100% Live Ventures, Incorporated
100% Telco Billing, Inc.
100% Live Ventures, Incorporated
100% Live Ventures, Incorporated
100% Live Ventures, Incorporated
100% Live Ventures, Incorporated
100% Live Ventures, Incorporated
100% Live Ventures, Incorporated
100% Modern Everyday, Inc.
100% Modern Everyday, Inc.
100% Live Ventures, Incorporated
100% Live Goods, LLC
80% Live Ventures, Inc.
100% Marquis Affiliated Holdings, LLC
100% Marquis Industries, Inc.
100% Marquis Industries, Inc.
100% Marquis Industries, Inc.
100% Marquis Industries, Inc.
* these entities were inactive for more than a year and subsequently closed in October 2015 as approved by the Board of Directors on
September 30, 2015.
The results of operations for Live Goods, LLC, DealTicker, Inc., Modern Everyday, Inc. and Marquis Industries, Inc. have only been
included since the date of acquisition of March 7, 2014, May 5, 2014, August 24, 2014 and July 6, 2015, respectively. All intercompany
transactions and balances have been eliminated in consolidation.
Noncontrolling Interest
On July 6, 2015, the Company, through MAH, acquired 80% interest in Marquis. The transaction was accounted for under the acquisition
method of accounting, with the purchase price allocated based on the fair value of the individual assets acquired and liabilities assumed.
The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810,
“Consolidation,” which governs the accounting for and reporting of non-controlling interests (“NCIs”) in partially owned consolidated
subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs be treated as
a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be
treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated
subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also required changes to
certain presentation and disclosure requirements.
The net income attributed to the NCI is separately designated in the accompanying consolidated statements of operations. Losses
attributable to the NCI in a subsidiary may exceed the NCI’s interests in the subsidiary’s equity. The excess attributable to the NCI is
attributed to those interests. The NCI shall continue to attribute its share of losses even if that attribution results in a deficit NCI balance.
F-7
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Significant estimates made in connection with the accompanying consolidated financial statements include the estimate of dilution and fees
associated with LEC billings, the estimated reserve for doubtful accounts receivable, estimated forfeiture rates for stock-based
compensation, fair values in connection with the analysis of goodwill and long-lived assets for impairment, fair value of derivative liability,
current portion of note payable, valuation allowances against net deferred tax assets and estimated useful lives for intangible assets and
property and equipment.
Financial Instruments
Financial instruments consist primarily of cash, cash equivalents, accounts receivable, advances to affiliates and obligations under accounts
payable, accrued expenses and notes payable. The carrying amounts of cash, cash equivalents, accounts receivable, accounts payable,
accrued expenses, long term loans, and notes payable approximate fair value because of the short maturity of those instruments.
Cash and Cash Equivalents
This includes all short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of
three months or less. At times, cash deposits may exceed FDIC-insured limits. At September 30, 2015 and 2014, the amount the Company
had on deposit that exceeded the FDIC-insured limits was $2,471,259 and $7,508,924, respectively. The Company has not experienced any
losses related to a concentration of cash or cash equivalents in an FDIC insured financial institution.
Accounts Receivable
The Company grants credit to customers under credit terms that it believes are customary in the industry and does not require collateral to
support customer receivables. This allowance is maintained at a level which the Company believes is sufficient to cover potential credit
losses and receivables are only written off to bad debt expense as uncollectible after all reasonable collection efforts have been made.
Pursuant to the terms of the arrangement, the Company, from time to time, shall sell to the Factor certain of its accounts receivable
balances on a non-recourse basis for credit approved accounts. The Factor shall purchase the account receivable for the gross amount of the
respective invoices, less factoring commissions, trade and cash discounts. The factor shall be entitled to charge the Company with a
factoring commission for each account which equal to 0.75%-1% of the gross amount of the account as of the date of purchase, plus interest
to be calculated at 3.25%-6% per annum. The minimum annual commission of $75,000 per contract year. The total amount of accounts
receivable factored was $4,772,004 and $0 as of September 30, 2015 and 2014, respectively.
Factored receivables are sold without recourse with substantially all of the balance receivable from two factors. The Company performs
ongoing credit evaluations of its customers' financial conditions and does not require collateral to support customer receivables. The
Company establishes an allowance for claims and doubtful accounts based upon factors surrounding the credit risk of specific customers,
historical trends and other information.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts, which includes allowances for accounts and factored receivables, customer
refunds, dilution and fees from LEC billing aggregators and other uncollectible accounts. The allowance for doubtful accounts is based
upon historical bad debt experience and periodic evaluations of the aging and collectability of the accounts receivable. This allowance is
maintained at a level which the Company believes is sufficient to cover potential credit losses and receivables are only written off to bad
debt expense as uncollectible after all reasonable collection efforts have been made. The Company has also purchased accounts receivable
credit insurance to cover non-factored receivables which helps reduce potential losses due to doubtful accounts. At September 30, 2015 and
2014, the allowance for doubtful accounts was $1,107,707 and $1,101,258, respectively.
F-8
Inventories
Inventories are valued at the lower of the inventory’s cost (first in, first out basis) or the current market price of the inventory. Management
compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower. At
September 30, 2015 and 2014, the allowance for obsolete inventory was $402,278 and $252,569, respectively.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Expenditures for repairs and maintenance are charged to expense
as incurred and additions and improvements that significantly extend the lives of assets are capitalized. Upon sale or other retirement of
depreciable property, the cost and accumulated depreciation are removed from the related accounts and any gain or loss is reflected in
operations. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from three to forty
years. Depreciation expense was $472,220 and $48,278 for the years ended September 30, 2015 and 2014, respectively.
Revenue Recognition
Directory Services
Revenue is billed and recognized monthly for services subscribed in that specific month. The Company has historically utilized outside
billing companies to perform billing services through two primary channels:
·
·
direct ACH withdrawals; and
inclusion on the customer’s local telephone bill provided by their Local Exchange Carriers, or LECs.
For billings via ACH withdrawals, revenue is recognized when such billings are accepted. For billings via LECs, the Company recognizes
revenue based on net billings accepted by the LECs. Due to the periods of time for which adjustments may be reported by the LECs and the
billing companies, the Company estimates and accrues for dilution and fees reported subsequent to year-end for initial billings related to
services provided for periods within the fiscal year. Such dilution and fees are reported in cost of services in the accompanying
consolidated statements of operations. Customer refunds are recorded as an offset to gross revenue.
Revenue for billings to certain customers that are billed directly by the Company and not through the outside billing companies is
recognized based on estimated future collections which is reasonably assured. The Company continuously reviews this estimate for
reasonableness based on its collection experience.
Deals Revenue
The Company recognizes revenue from its sales through its strategic publishing partners of discounted goods and services offered by its
merchant clients (“Deals”) when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the
selling price is fixed or determinable; and collectability is reasonably assured. These criteria are met when the number of customers who
purchase the daily deal exceeds the predetermined threshold, where, if applicable, the Deal has been electronically delivered to the
purchaser and a listing of Deals sold has been made available to the merchant. At that time, the Company's obligations to the merchant, for
which it is serving as an agent, are substantially complete. The Company's remaining obligations, which are limited to remitting payment to
the merchant, are inconsequential or perfunctory. The Company records as revenue an amount equal to the net amount it retains from the
sale of Deals after paying an agreed upon percentage of the purchase price to the featured merchant excluding any applicable taxes.
Revenue is recorded on a net basis because the Company is acting as an agent of the merchant in the transaction.
Deferred Revenue
In some instances, the Company receives payments in advance of rendering services, whereupon such revenues are deferred until the
related services are rendered. There is no deferred revenue as of September 30, 2015 and 2014.
F-9
Product Revenue
The Company derives product revenue primarily from direct revenue and fulfillment partner revenue from product sales. Product revenue is
recognized when the following revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or the service has been provided; (3) the selling price or fee revenue earned is fixed or determinable; and (4) collection of the
resulting receivable is reasonably assured.
The Company evaluates the criteria outlined in ASC Topic 605-45, Principal Agent Considerations, in determining whether it is
appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. When the Company is
the primary obligor in a transaction, is subject to inventory risk, has latitude in establishing prices and selecting suppliers, or has several but
not all of these indicators, revenue is recorded gross. If we are not the primary obligor in the transaction and amounts earned are
determined using a fixed percentage, revenue is recorded on a net basis. Currently, all direct revenue and fulfillment partner revenue is
recorded on a gross basis, as the Company is the primary obligor. The Company presents revenue net of sales taxes.
Manufacturing Revenue
Revenues from the sale of carpet products, including shipping and handling amounts, are recognized when the following criteria are met:
there is persuasive evidence that a sales agreement exists, delivery has occurred or services have been rendered, the price to the buyer is
fixed or determinable, and collectability is reasonably assured. Delivery is not considered to have occurred until the customer takes title to
the goods and assumes the risks and rewards of ownership, which is generally on the date of shipment. At the time revenue is recognized,
the Company records a provision for the estimated amount of future returns based primarily on historical experience and any known trends
or conditions that exist at the time revenue is recognized. Revenues are recorded net of taxes collected from customers.
Shipping and Handling
The Company classifies shipping and handling billed to customers as sales and classifies costs relating to shipping and handling as cost of
revenues.
Advertising Costs
Advertising costs are charged to operations when incurred. Advertising expense totaled $177,249 and $12,974 for the years ended
September 30, 2015 and 2014, respectively.
Legal Costs
The Company expenses legal costs associated with loss contingencies as they are incurred.
Income Taxes
Income taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation
allowance would be provided for those deferred tax assets for which if it is more likely than not that the related benefit will not be realized.
The Company classifies tax-related penalties and interest as a component of income tax expense for financial statement presentation. For
the period from July 7, 2015 to September 30, 2015, Marquis Industries, Inc. and subsidiaries is required to file a separate income tax
return, and therefore, the income generated by these subsidiaries cannot be offset against the Company’s net operating losses.
F-10
Stock-Based Compensation
The Company from time to time grants restricted stock awards and options to employees, non-employees and Company executives and
directors. Such awards are valued based on the grant date fair-value of the instruments, net of estimated forfeitures. The value of each
award is amortized on a straight-line basis over the vesting period.
Net Loss Per Share
Net loss per share is calculated in accordance with FASB ASC 260, “Earnings Per Share”. Under ASC 260 basic net loss per share is
computed using the weighted average number of common shares outstanding during the period except that it does not include unvested
restricted stock subject to cancellation. Diluted net loss per share is computed using the weighted average number of common shares and, if
dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares
issuable upon the exercise of warrants, restricted shares and convertible preferred stock. The dilutive effect of outstanding restricted shares
and warrants is reflected in diluted earnings per share by application of the treasury stock method. Convertible preferred stock is reflected
on an if-converted basis.
Long-lived Assets
The Company assesses long-lived assets, including intangible assets, for impairment in accordance with the provisions of FASB ASC 360
“Property, Plant and Equipment”. A long-lived asset (or group of assets) shall be tested for recoverability whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. The carrying amount of a long lived asset is not recoverable if it
exceeds the sum of the undiscounted net cash flows expected to result from the use and eventual disposition of the asset. The amount of
impairment loss, if any, is measured as the difference between the net book value of the asset and its estimated fair value. For purposes of
these tests, long-lived assets must be grouped with other assets and liabilities for which identifiable cash flows are largely independent of
the cash flows of other assets and liabilities. The Company follows ASC Topic 350 in accounting for intangible assets, which requires
impairment losses to be recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by
the assets are less than the assets’ carrying amounts. During the year ended September 30, 2015, the Company determined that based on
future cash flows generated that certain of its intangible assets were impaired and took a charge to earnings of $2,543,568. There were no
impairment losses recorded on intangible assets for the year ended September 30, 2014.
Goodwill
Goodwill represents the excess of purchase price over the underlying net assets of businesses acquired. Under accounting requirements,
goodwill is not amortized but is subject to annual impairment tests. The Company recorded goodwill of $1,169,904 related to its acquisition
of Modern Everyday, Inc. in fiscal 2014 and $800,000 related to its acquisition of Marquis Industries, Inc. in fiscal 2015. As of September
30, 2015 and 2014, the Company performed the required impairment review. During the impairment review at September 30, 2015, the
Company determined that based on future cash flows generated that its goodwill was impaired and took a charge to earnings of $1,169,904.
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management
approach model is based on the way a company’s management organizes segments within the company for making operating decisions and
assessing performance. The Company determined it has three reportable segments (See Note 17).
Derivative Financial Instruments
The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair
value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For
stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option pricing model to value
the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument
liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative
instrument could be required within 12 months of the balance sheet date. As of September 30, 2014, the Company’s only derivative
financial instrument was a convertible note due to the “reset” and “dilutive issuance” clause in the note relating to the conversion price
from dilutive share issuance. See Note 5. There were no derivative instruments as of September 30, 2015.
F-11
Fair Value Measurements
ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the
Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of
fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined
as follows:
·
·
·
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and
inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the
financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company’s derivative instruments were reported at fair value using Level 2 inputs as discussed in Note 5. Also, the Company has a
purchase price contingency that is discussed in Note 13.
The Company uses Level 2 inputs for its valuation methodology for the warrant derivative liabilities as their fair values were determined
by using a probability weighted average Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative
liability is adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of
operations as adjustments to fair value of derivatives.
At September 30, 2015 and 2014, the Company identified the following liabilities that are required to be presented on the balance sheet at
fair value:
Description
Fair Value
As of
December 31,
2015
Fair Value Measurements at
December 31, 2015
Using Fair Value Hierarchy
Level 2
Level 3
Level 1
Derivative liability
Contingent consideration for business combination
Total
$
$
– $
316,000
316,000 $
–
316,000
316,000
–
–
–
Description
Fair Value
As of
December 31,
2014
Fair Value Measurements at
December 31, 2014
Using Fair Value Hierarchy
Level 2
Level 1
Level 3
Derivative liability
Contingent consideration for business combination
Total
$
$
83,580 $
251,000
334,580 $
–
251,000
251,000
83,580
–
83,580
–
–
–
–
–
–
F-12
Reclassifications
Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. These
reclassifications had no effect on the previously reported net income or stockholders’ equity.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09) ,
which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize
revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity
expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so,
more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The
standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following
transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option
to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09
recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is not permitted. The Company is
currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet
determined the method by which it will adopt the standard beginning January 1, 2017.
In August, 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.
The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-
for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning
December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual
reporting periods beginning after December 31, 2016, including interim reporting periods with that reporting period.
In January 2015, the FASB issued Accounting Standards Update No. 2015-01, Income Statement – Extraordinary and Unusual items
(Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (ASU 2015-01). The
amendment eliminates from U.S. GAAP the concept of extraordinary items. This guidance is effective for the Company in the first quarter
of fiscal 2017. Early adoption is permitted and allows the Company to apply the amendment prospectively or retrospectively. The adoption
of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In February, 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-
02 provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should
consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt
obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning
December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material effect on the Company’s consolidated financial
statements. Early adoption is permitted.
In September, 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805). Topic 805 requires that an acquirer
retrospectively adjust provisional amounts recognized in a business combination, during the measurement period. To simplify the
accounting for adjustments made to provisional amounts, the amendments in the Update require that the acquirer recognize adjustments to
provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is
determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in
depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the
accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income
statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that
would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the
acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is not expected
to have a material effect on the Company’s consolidated financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on
the Company's present or future financial statements.
F-13
Note 3: Balance Sheet Information
Balance sheet information is as follows:
Receivables, current, net:
Accounts receivable, current
Less: Allowance for doubtful accounts
Receivables, long term, net:
Accounts receivable, long term
Less: Allowance for doubtful accounts
Total receivables, net:
Gross receivables
Less: Allowance for doubtful accounts
Components of allowance for doubtful accounts are as follows:
Allowance for dilution and fees on amounts due from billing aggregators
Allowance for customer refunds
Allowance for other trade receivables
Inventory
Raw materials
Work in progress
Finished goods
Less: Obsolescence reserve
Property and equipment, net:
Land and improvements
Building and improvements
Transportation equipment
Machinery and equipment
Furnishings and fixtures
Office, computer equipment and other
Less: Accumulated depreciation
Intangible assets, net:
Domain name and marketing related intangibles
Website and technology related intangibles
Purchased software
Covenant not to compete
Less: Accumulated amortization
Accrued liabilities:
Accrued payroll and bonuses
Deferred revenue
Accrued software costs
Accrued expenses - other
F-14
September 30,
2015
September 30,
2014
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
9,007,127 $
(763,135)
8,243,992 $
344,572 $
(344,572)
– $
9,351,699 $
(1,107,707)
8,243,992 $
1,063,617 $
1,715
42,375
1,107,707 $
6,715,298 $
836,837
6,185,741
13,737,876
(402,278)
13,335,598 $
687,999 $
4,202,000
77,419
7,676,561
211,701
244,674
13,100,354
(618,453)
12,481,901 $
18,957 $
25,300
1,500,000
–
1,544,257
(27,327)
1,516,930 $
731,782 $
243,082
1,500,000
1,186,085
3,660,949 $
1,611,269
(756,686)
854,583
344,572
(344,572)
–
1,955,841
(1,101,258)
854,583
1,063,633
2,107
35,518
1,101,258
–
–
4,529,714
4,529,714
(252,569)
4,277,145
–
–
–
–
162,642
192,063
354,705
(201,591)
153,114
1,521,015
2,863,509
–
120,000
4,504,524
(1,433,314)
3,071,210
107,224
548,004
–
390,802
1,046,030
Note 4: Intangible Assets
The Company’s intangible assets consist of licenses for the use of Internet domain names, Universal Resource Locators, or URLs,
capitalized website development costs, other information technology licenses, software, a covenant not to compete, and marketing and
technology related intangibles acquired through the acquisition of LiveDeal, Inc. As a result of the acquisition of Modern Everyday Inc.,
the Company recorded goodwill of $1,169,904. In addition as a result of the acquisition of Marquis Industries, Inc., the Company recorded
goodwill of $800,000. All such assets are capitalized at their original cost and amortized over their estimated useful lives as follows:
domain name and marketing - 3 to 20 years; website and technology - 3 to 5 years; software - 5 years, and covenant not to compete – 4
years. Goodwill is not amortized, but evaluated for impairment on at least an annual basis.
During the year ended September 30, 2015, the Company purchased software for $1,500,000. The Company has the option to pay for the
software in cash or in 800,000 shares of the Company’s common stock. The Company has until June 30, 2016 to pay for the software either
in cash or common stock. At September 30, 2015, the Company had not made any payments towards the purchase of this software and has
reflected the $1,500,000 purchase price for the software in accrued liabilities in the accompanying condensed consolidated balance sheet.
During the year ended September 30, 2015, the Company determined that certain its long-lived intangible assets and goodwill were
impaired and took a charge to earnings of $2,543,568 and $1,169,904, respectively.
The following summarizes estimated future amortization expense related to intangible assets that have net balances as of September 30,
2015:
2016
2017
2018
2019
2020
Thereafter
$
$
230,471
216,721
214,286
214,286
214,286
426,880
1,516,930
Total amortization expense related to intangible assets was $575,532 and $441,978 for the years ended September 30, 2015 and 2014,
respectively.
Note 5: Derivative Liability
The convertible note discussed in Note 6 had a reset provision and a dilutive issuance clause that gave rise to a derivative liability. The reset
provision provided for the conversion price to be adjusted downward in the event that the Company issued any securities at a price per
share lower than the then-current conversion price; provided, however, that in no event shall the conversion price per share be less than
$1.00.
The fair value of the derivative liability was recorded and shown separately under current liabilities. Changes in the fair value of the
derivative liability were recorded in the consolidated statement of operations under other income (expense).
The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair
value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For
stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option pricing model to value
the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument
liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative
instrument could be required within 12 months of the balance sheet date.
F-15
The range of significant assumptions which the Company used to measure the fair value of the derivative liability at September 30, 2014
was as follows:
Stock price
Risk free rate
Volatility
Exercise prices
Term (years)
$
$
Inception
7.14 $
.11%
142%
September 30, 2014
2.98
.13%
94%
2.93
.42
8.12 $
1.00
The convertible note was repaid during the year ended September 30, 2015; therefore there was not a related derivative liability at
September 30, 2015.
The following table represents the Company’s derivative liability activity for the embedded conversion features for the years ended
September 30, 2015 and 2014:
Derivative liability balance, September 30, 2013
Issuance of derivative liability during the year ended September 30, 2014
Change in derivative liability during the year ended September 30, 2014
Derivative liability balance, September 30, 2014
Change in derivative liability during the year ended September 30, 2015
Derivative liability balance, September 30, 2015
Note 6: Notes Payable
Revolver Loan and Term Loan
$
$
–
139,852
(56,272)
83,580
(83,580)
–
In connection with the purchase of Marquis Industries Inc., the Company entered into an agreement with Bank of America for a Term and
Revolving Loan for approximately $7.8 million for the term component and approximately $15 million for the revolving component. As
part of the Bank of America Revolving Loan, Marquis Industries may borrow up to $15 million (based on eligibility).
The Bank of America term loan bears interest at a variable rate based on a base rate plus a margin. The current base rate is the greater of (a)
Bank of America prime rate, (b) the current federal funds rate plus 0.50%, or (c) 30-day LIBOR plus 1.00% plus the margin, which varies,
depending on the fixed coverage ratio table below. Levels I – IV which determine the interest rate to be charge is based on the fixed charge
coverage ratio.
Fixed Coverage Ratio Table
Level
Fixed Charge Coverage Ratio
I
II
III
IV
>2.00 to 1.00
<2.00 to 1.00 but >1.50 to 1.00
<1.50 to 1.00 but >1.20 to 1.00
<1.2 to 1.00
Base Rate Revolver
Loan
0.50%
0.75%
1.00%
1.25%
LIBOR Revolver
Loans
1.50%
1.75%
2.00%
2.25%
Base Rate Term
Loans
0.75%
1.00%
1.25%
1.50%
LIBOR Term Loans
1.75%
2.00%
2.25%
2.5%
The loans are cross-collateralized with substantially all real and personal property of Marquis Industries, Inc. As of September 30, 2015,
the Company was at Level II with the fixed coverage ratio.
Monthly payments to Bank of America are approximately $79,000 plus accrued interest. The term component is due and payable in July
2020, which is when the revolving component terminates.
The loans contain certain covenants that require, among other things, for the Company to maintain a fixed charge coverage ratio of at least
1.05 to 1, tested as of the last day of each month for the twelve consecutive months ending on such day. Since the loan was obtained on
July 6, 2015, the Company still has until July 5, 2016 to be in compliance with this ratio.
F-16
February 2014 Convertible Note Transaction
On February 27, 2014, the Company issued a one year convertible note to an otherwise unaffiliated, non-institutional third party in the
principal amount of $323,595. The note (i) is unsecured, (ii) bears interest at the rate of six percent per annum, and (iii) was issued without
any original issue discount.
The principal is convertible into shares of the Company’s common stock at any time and from time-to-time at the instance of either the
Company or the holder. The per-share conversion price is an amount equal to ninety percent (90%) of the 10-day volume weighted average
closing bid price for the Company’s common stock, as reported by The NASDAQ Stock Market, Inc. for the ten (10) trading days
immediately preceding the date of the notice of conversion, subject to downward adjustment in the event that the Company issues any
securities at a price per share lower than the then-current conversion price; provided, however, that in no event shall the conversion price
per share be less than $1.00. The Company provided the holder with certain negative covenants and events of default, each standard for
transactions of this nature.
Due to the “reset” and “dilutive issuance” clause in this note relating to the conversion price from dilutive share issuance, the Company has
determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 5.
The Company determined an initial derivative liability value of $139,852, which is recorded as a derivative liability as of the date of
issuance while also recording an $139,852 debt discount on its balance sheet in relation to the bifurcation of the embedded conversion
options of the note. The debt discount is being amortized over the one year term. The note was repaid during the year ended September 30,
2015, therefore the remaining unamortized debt discount of $57,665 was written off to interest expense. Also, as a result of the note being
repaid, the derivative liability associated with this convertible note was reduced to $0. The Company recorded $83,580 of non-cash “change
in fair value of derivative” income during the year ended September 30, 2015.
ICG Convertible Note Transaction
On January 23, 2014, the Company issued a note to Isaac Capital Group (“ICG”), a related party, in the principal amount of $500,000.
Because the conversion price of $2.29 was less than the stock price, this gave rise to a beneficial conversion feature valued at $500,000.
The Company recognized this beneficial conversion feature as a debt discount and additional paid in capital. The debt discount is being
amortized over the one year term. On December 3, 2014, ICG converted the note into 674,370 shares of common stock, therefore the
remaining debt discount of $158,219 was written off and recognized as interest expense. In addition, upon the conversion of note, the
Company issued to ICG a warrant to acquire 674,370 additional shares of the Company’s common stock at an exercise price of $0.95 per
share. The fair value of the warrants issued in connection with the conversion of note was $1,853,473 and was immediately recognized as
interest expense.
Kingston Convertible Note Transaction ($10 Million Line of Credit)
On January 7, 2014, the Company entered into a Note Purchase Agreement (the “Kingston Purchase Agreement”) with Kingston
Diversified Holdings LLC (“Kingston”), pursuant to which the Investor agreed to purchase for cash up to $5,000,000 in aggregate principal
amount of the Company’s Convertible Notes (“Notes”). The Kingston Purchase Agreement and the Notes, which are unsecured, provide
that all amounts payable by the Company to Kingston under the Notes will be due and payable on the second (2nd) anniversary of the date
of the Kingston Purchase Agreement (the “Maturity Date”). The Kingston Purchase Agreement provides for a 5% discount to the note
amount, interest at 8% per annum and convertible into shares of the Company’s common stock equal to 70% of the lesser of: (i) the closing
bid price of the common stock on the date of the Kingston Purchase Agreement (i.e., $3.12 per share); or (ii) the 10-day volume weighted
average closing bid price for the common stock, as listed on NASDAQ for the 10 business days immediately preceding the date of
conversion (the “Average Price”); provided, however, that in no event will the Average Price per share be less than $0.33.
On October 29, 2014, the Company entered into an amended convertible note purchase agreement with Kingston whereby the Company
and Kingston agreed to (i) increase the maximum principal amount of the notes from $5 million to $10 million in principal amount, (ii)
eliminate the original issue discount provision of the agreement and replaces it with an execution payment equal to 5% of the maximum
loan amount, and (iii) provides certain additional adjustments to the note conversion price.
On October 16, 2014, the Company issued a Note to Kingston in the principal amount of $100,000. Because the conversion price of $0.79
was less than the stock price on the date of issuance, this gave rise to a beneficial conversion feature valued at $100,000. The Company
recognized this beneficial conversion feature as a debt discount and additional paid in capital. The debt discount is being amortized over
the one year term. On November 17, 2014, Kingston converted the note into 127,008 shares of common stock, therefore the debt discount
of $100,000 was written off and recognized as interest expense.
In addition, as a result of the October 29, 2014 amendment, the Company was required to issue to Kingston, the original issue discount
payment equal to 5% of the maximum loan in shares of the Company’s common stock based upon the conversion price of the first
conversion which was $0.79 per shares. The Company issued 630,252 shares of common stock that had a fair value of $2,004,202 which
was immediately recognized as interest expense.
F-17
Credit line
In connection with the purchase of Modern Everyday, Inc., the Company assumed a credit line from a bank. The credit line is collateralized
by all the assets of Modern Everyday, Inc., accrues interest at prime plus 2% and is due on January 1, 2024.
Notes payable as of September 30, 2015 and 2014 consisted of the following:
Base Rate Revolver Loan- interest rate based on prime rate adjusted for fixed coverage ratio
(table above), maturity date July 6, 2020.
$
7,225,745 $
–
September 30,
2015
September 30,
2014
Base Rate Term Loan- interest rate based on prime rate adjusted for fixed coverage ratio
(table above), maturity date July 6, 2020.
Note payable to individual, payable on demand, interest at 10.0% per annum, unsecured
Convertible note payable to individual, due February 27, 2015, interest at 6.0% per annum,
unsecured
Convertible note payable to ICG, due January 23, 2015, interest at 8.0% per annum,
unsecured
Acquisition note payable, $200,000 due February 28, 2015 and $400,000 due February 28,
2016, non-interest bearing with interest imputed at 2.87% per annum
Credit line due January 1, 2024, with interest rate of 2.75%
Less Debt Discount
Total Debt
Current portion
Long-term portion
Future maturities of debt at September 30, 2015 are as follows:
7,628,438
92,441
–
–
395,251
669,351
–
16,011,226
1,443,036
14,568,190 $
–
90,168
335,245
527,889
581,707
240,204
(215,884)
1,559,329
920,360
638,969
$
Years ending September 30,
2016
2017
2018
2019
2020
Thereafter
$
$
1,443,036
955,344
955,344
955,344
11,032,807
669,351
16,011,226
F-18
Note 7: Note Payable, Related Party
In connection with the purchase of Marquis Industries Inc., the Company entered into a mezzanine loan in an amount of up to $7,000,000
provided by Isaac Capital Fund, a private lender whose managing member is Jon Isaac, the chief executive officer of the Company.
The Isaac Capital Fund mezzanine loan bears interest at 12.5% with payment obligations of interest each month and all principal due in
January 2021 (six months after the final payments are due under the Bank of America Term and Revolving Loan). As of September 30,
2015, there was $6,495,825 outstanding on this mezzanine loan.
Note 8: Equity
During the year ended September 30, 2015, the Company issued:
·
·
·
·
·
191,136 shares of common stock for services rendered valued at $498,059. The value was based on the market value of the
Company’s common stock on the date of issuance;
600,000 shares of common stock issued to officers of the Company as bonuses for services rendered in fiscal years 2012, 2013 and
2014 valued at $1,518,000. The value was based on the market value of the Company’s common stock on the date of issuance;
155,000 shares of common stock for net cash proceeds of $538,441;
801,378 share of common stock for the conversion of convertible notes and accrued interest of $635,756; and
630,252 shares of common stock as payment for the original issue discount fees associated with the Kingston agreement. The value
of the shares was $2,004,202 based on the market value of the Company’s common stock at the date of issuance.
During the year ended September 30, 2014, the Company issued:
·
·
·
24,427 shares of common stock for services rendered valued at $9,654. The value was based on the market value of the Company’s
common stock on the date of issuance;
3,115,147 shares of common stock for net cash proceeds of $13,681,054; and
50,000 share of common stock valued at $201,500 in connection with the acquisition of Modern Everyday, Inc.
At-The-Market Offerings of Common Stock (Chardan Capital Markets LLC)
On January 7, 2014, the Company entered into an Engagement Agreement (the “January 2014 Engagement Agreement”) with Chardan
Capital Markets LLC (“Chardan”) pursuant to which the Company agreed to issue and sell up to a maximum aggregate amount of
1,980,000 shares of its common stock from time to time through Chardan as its sales agent, under its shelf Registration Statement on Form
S-3. On May 16, 2014, the Company entered into another Engagement Agreement (the “May 2014 Engagement Agreement”) with
Chardan pursuant to which the Company may issue and sell up to a maximum aggregate amount of 10,000,000 shares of its common stock
from time to time through Chardan as its sales agent, under its shelf Registration Statement on Form S-3.
The Company will pay Chardan a commission equal to up to 3% of the gross proceeds from the sale of the common stock. Such
commissions were $8,211 and $412,528 for the years ended September 30, 2015 and 2014, respectively. During the years ended September
30, 2015 and 2014, the Company sold 155,000 and 3,115,147 shares, respectively, of its common stock for net proceeds of $538,441 and
$13,681,054, respectively.
F-19
2014 Omnibus Equity Incentive Plan
On January 7, 2014, our Board of Directors adopted the 2014 Omnibus Equity Incentive Plan (the “2014 Plan”), which authorizes the
issuance of distribution equivalent rights, incentive stock options, non-qualified stock options, performance stock, performance units,
restricted ordinary shares, restricted stock units, stock appreciation rights, tandem stock appreciation rights and unrestricted ordinary shares
to our officers, employees, directors, consultants and advisors. The Company has reserved up to 1,800,000 shares of common stock for
issuance under the 2014 Plan. As required under Nasdaq Listing Rule 5635(c), the Company included a proposal at its 2014 Annual
Meeting of Stockholders, which was held on July 11, 2014, to obtain approval of the 2014 Plan. The 2014 Plan was approved.
3-for-1 Forward Stock Split
On January 16, 2014, our Board of Directors approved a 3-for-1 forward stock split with respect to the Company’s common stock.
Stockholders received three shares of common stock for every one share of common stock owned on the record date of February 3, 2014.
The forward stock split was effective as of the close of trading on February 11, 2014. The additional shares were distributed as of the close
of business on February 11, 2014. In connection with the forward stock split, the Company’s authorized shares of common stock also
increased from 10,000,000 shares to 30,000,000 shares. All data for common stock, options and warrants have been adjusted to reflect the
3-for-1 forward stock split for all periods presented. In addition, all common stock prices, and per share data for all periods presented have
been adjusted to reflect the 3-for-1 forward stock split.
Series E Convertible Preferred Stock
Pursuant to an existing tender offer, holders of 13,184 shares of the Company’s common stock exchanged said shares for 127,840 shares of
Series E Convertible Preferred Stock, at the then $0.85 market value of the common stock. The shares carry a $0.30 per share liquidation
preference and accrue dividends at the rate of 5% per annum on the liquidation preference per share, payable quarterly from legally
available funds. If such funds are not available, dividends shall continue to accumulate until they can be paid from legally available funds.
Holders of the preferred shares are entitled, after two years from issuance, to convert them into common shares on a hundred-to-one basis
together with payment of $0.45 per converted share.
Dividends
During the years ended September 30, 2015 and 2014, the Company accrued dividends of $1,921 and $1,925, respectively, payable to
holders of Series E preferred stock. At September 30, 2015 unpaid dividends were $959.
Note 9: Warrants
As discussed in Note 7, the Company issued several Notes in prior periods and converted them resulting in the issuance of warrants. The
following table summarizes information about the Company’s warrants at September 30, 2015:
Outstanding at September 30, 2013
Granted
Exercised
Outstanding at September 30, 2014
Granted
Exercised
Outstanding at September 30, 2015
Exercisable at September 30, 2015
Number of Units
Weighted Average
Exercise Price
Weighted
Average
Remaining
Contractual Term
(in years)
Intrinsic Value
2,866,506 $
0.63
4.39 $
1,471,998
–
–
2,866,506
674,370
–
3,540,876 $
3,540,876 $
F-20
0.63
0.95
0.69
0.69
3.39
6,732,700
2.73 $
2.73 $
3,498,531
3,498,531
Most of the above warrants were issued in connection with conversion of convertible notes from ICG (See Note 6). When the debt is
converted and warrants are issued, the Company determines the fair value of the warrants using the Black-Scholes model and takes a
charge to interest expense at the date of issuance.
The exercise price for warrants outstanding and exercisable at September 30, 2015 is as follows:
Outstanding
Exercisable
Number of
Warrants
Exercise
Price
Number of
Warrants
Exercise
Price
$
1,631,886
535,716
371,487
1,001,787
3,540,876
0.55
0.56
0.81
0.95
$
1,631,886
535,716
371,487
1,001,787
3,540,876
0.55
0.56
0.81
0.95
Note 10: Stock-based Compensation
From time to time, the Company grants stock options and restricted stock awards to officers, directors and employees. These awards are
valued based on the grant date fair value of the instruments, net of estimated forfeitures. The value of each award is amortized on a
straight-line basis over the requisite service period.
Stock Options
The following table summarizes stock option activity for the years ended September 30, 2015 and 2014:
Outstanding at September 30, 2013
Granted
Exercised
Forfeited
Outstanding at September 30, 2014
Granted
Exercised
Forfeited
Outstanding at September 30, 2015
Exercisable at September 30, 2015
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Intrinsic
Value
2.82
2.76
2.53
1.87
1.73
4.90 $
318,250
4.76 $
4.26 $
225,750
223,750
Number of
Shares
675,000 $
–
–
(75,000)
600,000 $
450,000 $
–
–
1,050,000 $
675,000 $
The Company recognized compensation expense of $712,538 and $167,985 during the years ended September 30, 2015 and 2014,
respectively, related to stock option awards granted to certain employees and executives based on the grant date fair value of the awards,
net of estimated forfeitures.
At September 30, 2015, the Company had $259,798 of unrecognized compensation expense (net of estimated forfeitures) associated with
stock option awards which the Company expects will be recognized through June 2017.
F-21
During the year ended September 30, 2015, the Company reduced the exercise price by 50% for the 600,000 options then outstanding. The
Company recognized compensation expense of $54,677 related to the re-pricing of the exercise for these options.
The exercise price for options outstanding and exercisable at September 30, 2015 is as follows:
Outstanding
Number of
Options
Exercise
Price
Exercisable
Number of
Options
Exercise
Price
$
187,500
150,000
187,500
37,500
37,500
450,000
1,050,000
0.83
1.25
1.67
2.08
2.50
2.53
$
187,500
150,000
37,500
0
0
300,000
675,000
0.83
1.25
1.67
2.08
2.50
2.53
The following table summarizes information about the Company’s non-vested shares as of September 30, 2015:
Non-vested Shares
Nonvested at September 30, 2013
Granted
Vested
Nonvested at September 30, 2014
Granted
Vested
Nonvested at September 30, 2015
Number of
Shares
Grant-Date
Fair Value
600,000 $
–
(150,000)
450,000 $
450,000 $
(525,000)
375,000 $
0.73
0.73
1.92
1.44
For options granted during 2015 where the exercise price equaled the stock price at the date of the grant, the weighted-average fair value of
such options was $1.92 and the weighted-average exercise price of such options was $2.53. No options were granted during 2015, where
the exercise price was less than the stock price at the date of grant or where the exercise price was greater than the stock price at the date of
grant.
The assumptions used in calculating the fair value of options granted using the Black-Scholes option- pricing model for options granted in
2015 are as follows:
Risk-free interest rate
Expected life of the options
Expected volatility
Expected dividend yield
1.01%
2.5 to 3.5 years
140%
0%
Note 11: Net Loss Per Share
Net loss per share is calculated using the weighted average number of shares of common stock outstanding during the applicable period.
Basic weighted average common shares outstanding do not include shares of restricted stock that have not yet vested, although such shares
are included as outstanding shares in the Company’s Consolidated Balance Sheet. Diluted net loss per share is computed using the
weighted average number of common shares outstanding and if dilutive, potential common shares outstanding during the period. Potential
common shares consist of the additional common shares issuable in respect of restricted share awards, stock options and convertible
preferred stock. Preferred stock dividends are subtracted from net loss to determine the amount available to common stockholders.
F-22
The following table presents the computation of basic and diluted net loss per share:
Net loss attributable to Live Ventures, Inc.
Less: preferred stock dividends
Net loss applicable to common stock
Years Ended September 30,
2014
2015
$
$
(14,666,129) $
(1,921)
(14,668,050) $
(4,661,381)
(1,438)
(4,662,819)
Weighted average common shares outstanding - basic and diluted
15,765,818
13,144,248
Loss per share - basic and diluted:
$
(0.93) $
(0.35)
The following potentially dilutive securities were excluded from the calculation of diluted net loss per share because the effects were anti-
dilutive based on the application of the treasury stock method and because the Company incurred net losses during the period:
Options to purchase shares of common stock
Warrants to purchase shares of common stock
Series E convertible preferred stock
Shares of non-vested restricted stock
Total potentially dilutive shares
Note 12: Related Party Transactions
Years Ended September 30,
2014
2015
1,050,000
3,540,876
127,840
–
4,718,716
600,000
2,866,506
127,840
739,601
4,333,947
The Company entered into a Note Purchase Agreement with ICG, an entity owned by Jon Isaac, the Company’s President and Chief
Executive Officer and a director of the Company, and subsequently issued a series of Subordinated Convertible Notes thereunder to ICG. In
connection with these transactions, the Company received gross proceeds of $500,000 during the year ended September 30, 2014.
Because the conversion price under ICG’s notes was less than the fair market value of the stock on the date of issuance, the Company
recognized a beneficial conversion feature which was treated as a debt discount and amortized on a straight line basis as interest expense
until the date of conversion, at which time all remaining debt discount was recognized as interest expense. Additionally, the fair value of
the warrants that were contingently issuable to ICG upon conversion were recognized as additional interest expense.
During the years ended September 30, 2015 and 2014, the Company recognized total interest expense of $2,018,803 and $369,670,
respectively, associated with the ICG notes.
Also see Note 6, 7 and 13.
F-23
Note 13: Commitments and Contingencies
Purchase price contingency
In connection with acquisition of Modern Everyday, Inc., the Company issued 50,000 shares of the Company’s common stock as part of
the consideration for the acquisition. The Company has guaranteed the holder of the 50,000 shares that the value of those shares will be at
least $8.00 per shares 30 months after the acquisition date. The Company has agreed to compensate the holder, if the share price is less
than $8.00 at the 30 months anniversary of the acquisition, the difference between $8.00 and the share price at the 30 month anniversary
times the number of shares still owned by the holder. As of September 30, 2015, the Company as recorded a liability of $316,000 related to
this guarantee. The value of these shares was included as part of the purchase price consideration. The Company will adjust this guarantee
at the end of each balance sheet date based on the current price of the Company’s common stock.
Litigation
The Company is party to certain legal proceedings from time to time incidental to the conduct of its business. These proceedings could
result in fines, penalties, compensatory or treble damages or non-monetary relief. The nature of legal proceedings is such that the Company
cannot assure the outcome of any particular matter, and an unfavorable ruling or development could have a materially adverse effect on our
consolidated financial position, results of operations and cash flows in the period in which a ruling or settlement occurs. However, based on
information available to the Company’s management to date and other than as noted below, the Company’s management does not expect
that the outcome of any matter pending against us is likely to have a materially adverse effect on the Company’s consolidated financial
position as of September 30, 2015, results of operations, cash flows or liquidity of the Company.
Operating Leases and Service Contracts
The Company leases its office space, certain equipment and a building (from a related party) under long-term operating leases expiring
through fiscal year 2016. Rent expense under these leases was $581,750 and $446,780 for the years ended September 30, 2015 and 2014,
respectively. The Company has also entered into several non-cancelable service contracts. The building lease from a related party is
$18,562 per month and expires in July 2020.
As of September 30, 2015, future minimum annual payments under operating lease agreements for fiscal years ending September 30 are as
follows:
2016
2017
2018
2019
2020
$
$
420,704
276,690
222,744
222,744
185,620
1,328,502
Note 14: Provision for Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. A full valuation allowance is established against all net
deferred tax assets as of September 30, 2015 and 2014 based on estimates of recoverability. While the Company has optimistic plans for its
business strategy, it determined that such a valuation allowance was necessary given the current and expected near term losses and the
uncertainty with respect to its ability to generate sufficient profits from its new business model.
F-24
For the period from July 7, 2015 to September 30, 2015, Marquis Industries, Inc. and subsidiaries is required to file a separate income
return, and therefore, the income generated by these subsidiaries cannot be offset against the Company’s net operating losses. Income tax
expense for the years ended September 30, 2015 and 2014 is as follows:
Current expense:
Federal
State
Deferred expense:
Federal
State
2015
2014
$
320,000 $
56,000
376,000
–
–
–
Total income tax expense
$
376,000 $
A reconciliation of the differences between the effective and statutory income tax rates for years ended September 30:
2015
2014
Amount
Percent
Amount
Percent
Federal statutory rates
State income taxes
Permanent differences
Income not offset by net operating losses
Valuation allowance against net deferred tax
assets
Effective rate
$
$
(4,874,337)
(123,292)
2,794,987
327,477
2,251,165
376,000
34% $
1%
-19%
-2%
-16%
-3% $
(1,584,870)
(40,088)
200,518
–
1,424,439
–
At September 30, deferred income tax assets and liabilities were comprised of:
–
–
–
–
–
–
–
34%
1%
-4%
0%
-31%
0%
Deferred income tax asset, current:
Book to tax differences in accounts receivable
Book to tax differences in prepaid assets and accrued expenses
Total deferred income tax asset, current
Less: valuation allowance
Deferred income tax asset, current, net
Deferred income tax asset, long-term:
Net operation loss carryforwards
Book to tax differences in intangible assets
Book to tax differences in organizational costs
Book to tax differences in depreciation
Total deferred income tax asset, long-term
Less: valuation allowance
Deferred income tax asset, net
2015
2014
$
374,621 $
210,428
585,049
(585,049)
–
10,801,243
632,557
272,239
(6,810)
11,669,229
(11,669,229)
–
259,448
(21,450)
237,998
(237,998)
–
8,668,250
928,222
–
5,710
9,602,182
(9,602,182)
–
Total deferred income tax asset
$
– $
–
F-25
The Company has recorded as of September 30, 2015 and 2014 a valuation allowance of $12,284,278 and $9,840,180, respectively, as it
believes that it is more likely than not that the deferred tax assets will not be realize in future years. Management has based its assessment
on available historical and projected operating results.
The Company annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of September 30,
2015.
The Company has net operating loss carry-forwards of approximately $40.0 million. Such amounts are subject to IRS code section 382
limitations and expire in 2027. The 2010 to 2013 tax years are still subject to audit.
Note 15: Concentration of Credit Risk
The Company maintains cash balances at banks in California and Nevada. Accounts are insured by the Federal Deposit Insurance
Corporation up to $250,000 per institution as of September 30, 2015. At September 30, 2015 and 2014, the amount the Company had on
deposit that exceeded the FDIC-insured limits was $2,471,259 and $7,508,924, respectively.
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily trade accounts receivable. The
trade accounts receivable are due primarily from business customers over widespread geographical locations within the Local Exchange
Carrier (“LEC”) billing areas across the United States. The Company historically has experienced significant dilution and customer credits
due to billing difficulties and uncollectible trade accounts receivable. The Company estimates and provides an allowance for uncollectible
accounts receivable. The handling and processing of cash receipts pertaining to trade accounts receivable is maintained primarily by three
third-party billing companies. The Company is dependent upon these billing companies for collection of its accounts receivable. The billing
companies and LEC’s charge fees for their services, which are netted against the gross accounts receivable balance. The billing companies
also apply holdbacks to the remittances for potentially uncollectible accounts. These amounts will vary due to numerous factors and the
Company may not be certain as to the actual amounts on any specific billing submittal until several months after that submittal. The
Company estimates the amount of these charges and holdbacks based on historical experience and subsequent information received from
the billing companies. The Company also estimates uncollectible account balances and provides an allowance for such estimates. The
billing companies retain certain holdbacks that may not be collected by the Company for a period extending beyond one year. Additionally,
certain other billings’ channels consisting of billings submitted to LEC Processors through third parties were discontinued. As such, a
significant portion of the receivables at September 30, 2015 and September 30, 2014 pertaining to LEC service providers represent the
holdbacks described above.
Note 16: Business Combinations
On July 6 and July 7, 2015, the Company, through its newly formed, wholly-owned subsidiary, Live Ventures, Inc., entered into a series of
agreements in connection with its indirect purchase of Marquis Industries, Inc., a Georgia corporation, and its subsidiaries. The purchase
was effectuated between Marquis Affiliated Holdings LLC, a Delaware limited liability company that is 80% owned by Live Ventures, and
the shareholders of Marquis Industries. The remaining 20% of Marquis Holdings is owned by the former owners of Marquis Industries. In
connection with the purchase and finance transaction, various persons and entities entered into a series of agreements (each of which is
dated on or about July 6, 2015, with funding occurring on July 6 and July 7, 2015).
The purchase price was paid through a combination of debt financing that was provided by (i) the Bank of America Term and Revolving
Loan in the aggregate amount of (x) approximately $7.8 million for the term component and (y) approximately $15 million for the
revolving component and (ii) a mezzanine loan in an amount of up to $7,000,000 provided by Isaac Capital Fund, a private lender whose
managing member is Jon Isaac, the chief executive officer of the Company. In connection with operations of Marquis Industries after the
closing of the purchase transaction, and as part of the Bank of America Term and Revolving Loan, Marquis Industries may borrow up to
$15 million (based on eligibility).
The Bank of America term loan bears interest at a variable rate based on a base rate plus a margin. The current base rate is the greatest of
(a) Bank of America prime rate, (b) the current federal funds rate plus 0.50%, or (c) 30-day LIBOR plus 1.00% plus the margin, which
varies, depending on circumstances and as of closing was for the term component: 1.00% in excess of the base rate or 2.00% in excess of
LIBOR, and for the revolving component: 0.75% in excess of the base rate or 1.75% in excess of LIBOR. Monthly payments to Bank of
America are approximately $79,000 plus accrued interest. The term component is due and payable in July 2020, which is when the
revolving component terminates.
F-26
The Isaac Capital Fund mezzanine loan bears interest at 12.5% with payment obligations of interest each month and all principal due in
January 2021 (six months after the final payments are due under the Bank of America Term and Revolving Loan).
The Company acquired Marquis Industries as part of its acquisition strategy to acquire profitable and well-managed companies and finance
those acquisitions using traditional, non-dilutive debt financing rather than using the Company’s equity.
A summary of the purchase price allocations at fair value is below. The purchase price allocation is a preliminary and subject to change.
The Company has not yet completed its analysis to determine the fair value of inventory, property and equipment and a mezzanine loan on
the acquisition date. Once this analysis is complete, the Company will adjust, if necessary, the provisional amounts assigned to inventory,
property and equipment and a mezzanine loan in the accounting period in which the analysis is completed.
Cash
Accounts receivable
Inventory
Other current assets
Property and equipment
Goodwill
Accounts payable
Accrued expenses
Noncontrolling interest
Purchase price (1)
$
$
Total
496,944
7,262,188
11,227,359
813,830
12,697,604
800,000
(4,139,830)
(479,473)
(2,000,000)
26,678,622
(1) - includes $4,800,000 of cash, $6,495,825 from a mezzanine loan from Isaac Capital Fund, and $15,382,797 from bank financing.
The noncontrolling interest was valued at the price paid by the Company when it subsequently purchased the remaining 20% of Marquis
Industries. See Note 18.
The revenue from the acquisition of Marquis Industries included in the results of operations from the date of acquisition on July 7, 2015 to
September 30, 2015 was $16,006,683.
The unaudited pro forma information below present statement of operations data as if the acquisition of Marquis Industries took place on
October 1, 2013.
Net revenue
Gross profit
Operating income (loss)
Net loss
Loss per share
$
Years Ended September 30,
2014
2015
(unaudited)
(unaudited)
81,322,724 $
23,805,842
(4,505,060)
(10,997,970)
(0.70)
63,686,515
16,789,944
1,140,348
(1,533,148)
(0.12)
F-27
Note 17: Segment Reporting
The Company operates in three segments which are characterized as: (1) legacy merchant’s services, (2) online marketplace platform and
(3) manufacturing. The legacy merchants’ services consists of LEC business and Velocity Local, the online marketplace platform consists
of livedeal.com and the fiscal 2014 acquisitions of consumer products entities and the manufacturing segment consists of the recent
acquisition of Marquis Industries.
The following tables summarize segment information for the years ended September 30, 2015 and 2014:
Revenues
Marketplace platform
Manufacturing
Services
Gross profit
Marketplace platform
Manufacturing
Services
Operating income (loss)
Marketplace platform
Manufacturing
Services
Depreciation and amortization
Marketplace platform
Manufacturing
Services
Interest Expenses
Marketplace platform
Manufacturing
Services
Provision for income taxes
Marketplace platform
Manufacturing
Services
Net income (loss) applicable to Live Ventures, Inc.
Marketplace platform
Manufacturing
Services
F-28
Years Ended September 30,
2014
2015
15,868,448 $
16,006,683
1,494,735
33,369,866 $
5,724,186 $
4,187,026
1,343,182
11,254,394 $
5,270,508
–
1,994,768
7,265,276
435,830
–
1,602,809
2,038,639
(11,507,737) $
563,503
807,967
(10,136,267) $
(5,535,360)
–
1,036,076
(4,499,284)
633,732 $
402,250
11,770
1,047,752 $
4,214,097 $
271,564
–
4,485,661 $
– $
376,000
–
376,000 $
473,292
–
16,964
490,256
458,934
–
–
458,934
–
–
–
–
(15,435,765) $
(184,841)
954,477
(14,666,129) $
(5,822,732)
–
1,161,351
(4,661,381)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Total Assets
Marketplace platform
Manufacturing
Services
Intangible assets (including goodwill)
Marketplace platform
Manufacturing
Services
Note 18: Subsequent Events
As of
September 30,
2015
As of
September 30,
2014
6,811,977 $
33,714,344
138,035
40,664,356 $
18,118,425
–
171,021
18,289,446
1,516,930 $
800,000
–
2,316,930 $
4,234,692
–
6,422
4,241,114
$
$
$
$
On November 30, 2015, the Company purchased the remaining 20% ownership of Marquis Affiliated Holdings, LLC. With the completion
of this transaction, Marquis Affiliated Holdings, LLC became a wholly-owned subsidiary of the Company. The purchase price for the
remaining 20% was $2 million of which $1.5 million was paid in December 2015 and the remaining $0.5 million in promissory note with
fixed rate of 2% per annum will be paid on or before February 1, 2016.
On December 3, 2015, the Bank of America consented to Marquis Affiliated Holdings LLC to repay a principal amount of $846,247 on the
Issac Capital Fund I, LLC loan.
On December 11, 2015, the Company entered into a reinstatement and first amendment with Chardan Capital Markets LLC (“Chardan”).
The reinstatement agreement (i) re-engages Chardan as the Company’s sales agent, and (ii) amends the expenses to be paid by the
Company to Chardan whereby the Company will reimburse Chardan for up to $30,000 in legal expenses.
F-29
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We carried out an evaluation, under the supervision and with the participation
of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and
principal financial offer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not
effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including
our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. We
concluded they were not effective because of certain deficiencies in our internal controls over financial reporting as disclosed below.
Changes in Internal Control Over Financial Reporting. There was no change in our internal control over financial reporting during
our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Management’s Report on Internal Control Over Financial Reporting . Our management is responsible for establishing and
maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2015. In making
this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in
Internal Control — Integrated Framework. Based on our assessment using those criteria, our management concluded that our internal
control over financial reporting was not effective as of September 30, 2015 due to our analysis of the valuation of certain inventory and the
purchase price allocation in connection with the acquisition of Marquis.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm
pursuant to a permanent exemption of the Securities and Exchange Commission that permit the Company to provide only management's
report in this annual report. Accordingly, our management's assessment of the effectiveness of our internal control over financial reporting
as of September 30, 2015 has not been audited by our auditors, Anton & Chia, LLP, or any other independent registered accounting firm.
ITEM 9B. Other Information
None.
34
ITEM 10. Directors, Executive Officers and Corporate Governance
PART III
The directors and executive officers of the Company and their ages as of December 31, 2015, are as follows:
Jon Isaac
Tony Isaac
Richard D. Butler, Jr.
Dennis (De) Gao
Tyler Sickmeyer
Age
33
61
66
35
29
Position
Chief Executive Officer, President, Chief Financial Officer and Director
Financial Planning and Strategist/Economist and Director
Director
Director
Director
Set forth below are the respective principal occupations or brief employment histories of each of our directors and the periods
during which each has served as a director of the Company, as well as for our named executive officers and certain significant employees.
Jon Isaac. Mr. Isaac has served as a director of our Company since December 2011 and became our President and Chief
Executive Officer in January 2012. He is the founder of Isaac Organization, a privately held investment company. At Isaac Organization,
Mr. Isaac has closed a variety of multi-faceted real estate deals and has experience in aiding public companies to implement turnarounds
and in raising capital. Mr. Isaac studied Economics and Finance at the University of Ottawa, Canada.
Specific Qualifications:
·
·
Relevant educational background and business experience.
Experience in aiding public companies to implement turnarounds and in raising capital.
Tony Isaac. Mr. Isaac has served as a director of our Company since December 2011 and began serving as the Company’s
Financial Planning and Strategist/Economist in July 2012. Mr. Isaac’s specialty is negotiation and problem-solving of complex real estate
and business transactions. Mr. Isaac graduated from Ottawa University in 1981, where he majored in Commerce and Business
Administration and Economics.
Specific Qualifications:
Relevant educational background and business experience.
·
·· Experience in negotiation and problem-solving of complex real estate and business transactions
Richard D. Butler, Jr. Mr. Butler is Chairman of the Corporate Governance and Nominating Committee and has served as a
director and member of the Audit Committee of our Company since August 2006 (including YP.com from 2006-2007). He is a veteran
savings and loan and mortgage banking executive, co-founder and major shareholder of Aspen Healthcare, Inc. and Ref-Razzer
Corporation, former Chief Executive Officer of Mt. Whitney Savings Bank, Chief Executive Officer of First Federal Mortgage Bank, Chief
Executive Officer of Trafalgar Mortgage, and Executive Officer & Member of the President’s Advisory Committee at State Savings &
Loan Association (peak assets $14 billion) and American Savings & Loan Association (NYSE: FCA; peak assets $34 billion). Mr. Butler
attended Bowling Green University in Ohio, San Joaquin Delta College in California and Southern Oregon State College.
Specific Qualifications:
·
·
·
·
·
Relevant educational background and business experience.
Extensive experience as Chief Executive Officer for several companies in the banking and finance industries.
Experience as a public company director.
Experience in workouts and restructurings, mergers, acquisitions, business development, and sales and marketing.
Background and experience in finance required for service on Audit Committee.
35
Dennis (De) Gao. Mr. Gao has served as a director of our Company and as a member of the Audit Committee since January 2012.
In July 2010, Mr. Gao co-founded and became the CFO at Oxstones Capital Management, a privately held company and a social and
philanthropic enterprise, serving as an idea exchange for the global community. Prior to establishing Oxstones Capital Management, from
June 2008 until July 2010, Mr. Gao was a product owner at Procter and Gamble for its consolidation system and was responsible for the
Procter and Gamble’s financial report consolidation process. From May 2007 to May 2008, Mr. Gao was a financial analyst at the Internal
Revenue Service's CFO division. Mr. Gao has a dual major Bachelor of Science degree in Computer Science and Economics from
University of Maryland, and an M.B.A. specializing in finance and accounting from Georgetown University’s McDonough School of
Business.
Specific Qualifications:
·
·
·
·
Relevant educational background and business experience.
Background and experience in finance required for service on Audit Committee.
Experience having ultimate responsibility for the preparation and presentation of financial statements (“financial literacy” required
by applicable NASDAQ rules for service as Audit Committee chairman).
“Audit Committee Financial Expert” for purposes of SEC rules and regulations (required for service as Audit Committee chairman).
Tyler Sickmeyer. In August 2008, Mr. Sickmeyer founded and since that time has served as the CEO of Fidelitas Development, a
full-service marketing firm that focuses on producing an improved return on investment rate for its clients. Mr. Sickmeyer has provided
consulting services to a variety of companies, large and small alike, and specializes in creating efficiencies for developing brands. Mr.
Sickmeyer studied business at Robert Morris University and Lincoln Christian University.
Specific Qualifications:
· Over a decade of experience in marketing, including promotion and brand development through the use of social media marketing
Executive Officers of our subsidiary, Marquis
The executive officers of our subsidiary, Marquis and their ages as of December 31, 2015, are as follows:
Tim Bailey
Larry Heckman
David Stokes
Mark Rowland
Age
68
64
59
44
Position
Chairman and CEO
President
VP of Manufacturing
VP of Extrusion Operations
Tim Bailey. Mr. Bailey is Chairman and CEO of Marquis. Mr. Bailey has 44 years of leadership experience in the floorcovering
industry, including 21 years with Marquis Industries. Mr. Bailey holds a CPA license and spent the first 17 years of his career in a carpet
industry-focused public accounting firm. In 1988, he left public accounting to become a shareholder and Executive VP / CFO of Grassmore,
Inc., which manufactured grass carpet. Mr. Bailey installed the internal financial controls and helped Grassmore grow and oversaw its
successful sale to Beaulieu of America in 1992. Mr. Bailey consulted with Beaulieu for two years before acquiring Marquis Industries in
1994. Marquis was small and struggling at the time of Mr. Bailey’s acquisition. He was able to build a strong leadership team and turn the
company into a top 10 residential carpet manufacturer in the US with a diversified product line of soft and hard surfaces for the residential
and commercial markets.
Larry Heckman. Mr. Heckman is President of Best Buy Flooring Source, a division of Marquis, that operates Marquis’ carpet
mill. Mr. Heckman has 43 years of experience leading sales in the floorcovering industry, including 20 years with Marquis. He began his
career in 1972 with Armstrong Cork Company, a leading flooring manufacturer, where he trained its distributor sales force. In 1974 he
moved to Mountain State Distributors, a distributor of Armstrong products, and was promoted through its sales organization to VP of Sales.
In 1985, Mr. Heckman co-founded the Columbine Carpet Corporation to sell carpet and vinyl specials to carpet dealers. Columbine grew to
over $18 million in sales by 1994 when he sold his interest to his partner. In 1994, Mr. Heckman joined D&W Carpet, which was acquired
by Beaulieu of America. Mr. Heckman handled National Accounts and all Promotional Goods for Beaulieu before joining his friend Tim
Bailey at Marquis Industries in 1996. Mr. Heckman leads sales for all core Marquis products and has contributed greatly to its growth over
the years.
36
David Stokes. Mr. Stokes is VP of Manufacturing . Mr. Stokes has 41 years of manufacturing experience in the floorcovering
industry, including 15 with Marquis. Mr. Stokes is an equipment guru who has been trained in some of the finest manufacturers in the
industry. At Marquis, he designed the layout and installed machinery for carpet yarn twisting, heat-setting, air entangling, air twisting and
space dying. He is responsible for production, safety and personnel. Also responsible for product cost, scheduling and working with utility
company for power, gas, water and waste water disposal. He has been a consistent innovator, developing unique methods to twist and heat-
set PET yarns on existing nylon machinery, as well as designing a space dye machine to dye PET yarns. He works closely with all
suppliers, including raw material and machinery suppliers, to continue to develop materials and process machinery modifications and
improvements.
Mark Rowland. Mr. Rowland is VP of Extrusion Operations . Mr. Rowland has 21 years of yarn extrusion experience, including
eight with Marquis. He graduated with Most High Honors from The Georgia Institute of Technology with a degree in Polymer and Textile
Chemistry and received a BS in Mathematics from Georgia College through the Dual Degree Program. Upon graduation, he moved to
Dalton and began work in the carpet industry for Queen Carpet in the extrusion division as a Plant Chemist and later as Assistant to the
Plant Manager. In 1998, Mr. Rowland co-founded an extrusion plant called Ideal Fibers. Ideal was acquired by The Dixie Group in early
1999. He was on a 5 year contract with The Dixie Group when the extrusion division was sold to Collins and Aikman Floorcoverings in
2002. He remained at C&A as the Plant Manager until 2006 when he helped Marquis build the current M&M Fibers extrusion plant.
Family Relationships
Jon Isaac, who is a director and serves as our President and Chief Executive Officer, is the son of Tony Isaac, who is also a
director and serves as our Financial Planning and Strategist/Economist.
Involvement in Certain Legal Proceedings
To the best of our knowledge, there have been no events under any bankruptcy act, no criminal proceedings and no judgments,
injunctions, orders or decrees material to the evaluation of the ability and integrity of any director, executive officer, promoter or control
person of our Company during the past ten years.
Board Independence
Each year, the Board of Directors reviews the relationships that each director has with the Company and with other parties. Only
those directors who do not have any of the categorical relationships that preclude them from being independent within the meaning of
applicable NASDAQ Listing Rules and who the Board of Directors affirmatively determines have no relationships that would interfere
with the exercise of independent judgment in carrying out the responsibilities of a director, are considered to be independent directors. The
Board of Directors has reviewed a number of factors to evaluate the independence of each of its members. These factors include its
members’ current and historic relationships with the Company and its competitors, suppliers and customers; their relationships with
management and other directors; the relationships their current and former employers have with the Company; and the relationships
between the Company and other companies of which a member of the Company’s Board of Directors is a director or executive officer.
After evaluating these factors, the Board of Directors has determined that a majority of the members of the Board of Directors,
namely, Messrs. Butler, Gao and Sickmeyer do not have any relationships that would interfere with the exercise of independent judgment in
carrying out their responsibilities as directors and that each such director is an independent director of the Company within the meaning of
NASDAQ Listing Rule 5605(a)(2) and the related rules of the SEC.
37
Audit Committee
The Board has a separately-designated standing audit committee established in accordance with section 3(a)(58)(A) of the
Exchange Act. Messrs. Gao (Chairman), Butler and Sickmeyer currently serve on our Audit Committee. Each member of the committee
satisfies the independence standards specified in Rule 5605(a)(2) of the NASDAQ Listing Rules and the related rules of the SEC and has
been determined by the Board to be “financially literate” with accounting or related financial management experience. The Board has also
determined that Mr. Gao is an “audit committee financial expert” as defined under SEC rules and regulations, and qualifies as a financially
sophisticated audit committee member as required under Rule 5605(c)(2)(A) of the NASDAQ Listing Rules.
Changes in Procedures for Director Nominations by Stockholders
There have been no changes to the procedures by which stockholders may recommend nominees to the Board.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all directors, officers and employees of our Company,
including the Chief Executive Officer and other principal financial and operating officers of the Company. The Code of Business Conduct
and Ethics is posted on our website at ir.livedeal.com/governance-documents. If we make any amendment to, or grant any waivers of, a
provision of the Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal
accounting officer or controller where such amendment or waiver is required to be disclosed under applicable SEC rules, we intend to
disclose such amendment or waiver and the reasons therefor on Form 8-K or on our website.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, certain of our officers and persons who own at least 10% of a registered
class of our equity securities to file reports of ownership and changes in ownership with the SEC. Based solely on our review of the copies
of such forms filed with the SEC and on written representations provided to us by our directors and officers, all Section 16(a) filing
requirements applicable to our directors, officers and 10% or greater stockholders were complied with during the fiscal year that ended
September 30, 2015, with the exception of the following:
Name
Richard D. Butler, Jr.
Tony Isaac
No. Late
Reports (Form
4s)
No. Transactions Covered
1
1
Two transactions in which he was issued 1,525 shares of common stock in lieu of a cash
payment of director compensation for the month of September 2015, and 1,583 shares of
common stock in lieu of a cash payment of director compensation for the month of October
2015
One transaction in which 300,000 shares of restricted stock were issued and options to
purchase 450,000 shares of common stock were granted under the 2014 Omnibus Equity
Incentive Plan
38
ITEM 11. Executive Compensation
Overview
COMPENSATION DISCUSSION AND ANALYSIS
The purpose of this Compensation Discussion and Analysis (“CD&A”) is to provide material information about the Company’s
compensation philosophy, objectives and other relevant policies and to explain and put into context the material elements of the disclosure
that follows in this Annual Report on Form 10-K with respect to the compensation of our named executive officers (in this CD&A, referred
to as the “NEOs”). For fiscal 2015, our NEOs were:
Jon Isaac, President and Chief Executive Officer
Tony Isaac, Financial Planning and Strategist/Economist
Byron Hsu, Chief Executive Officer, President and Chief Technical Officer of Modern Everyday, Inc.
Tim Bailey, Chairman and CEO of Marquis
Larry Heckman, President of Marquis
David Stokes, VP of Manufacturing of Marquis
Mark Rowland, VP of Extrusion Operations of Marquis
The Compensation Committee
The Compensation Committee annually reviews the performance and compensation of the Chief Executive Officer or other
principal executive officer (currently, our President and Chief Executive Officer) and the Company’s other executive officers.
Additionally, the Compensation Committee reviews compensation of outside directors for service on the Board and for service on
committees of the Board, and administers the Company’s stock plans.
Role of Executives in Determining Executive Compensation
The Chief Executive Officer or other principal executive officer (currently, our President and Chief Executive Officer) provides
input to the Compensation Committee regarding the performance of the other NEOs and offers recommendations regarding their
compensation packages in light of such performance. The Compensation Committee is ultimately responsible, however, for determining
the compensation of the NEOs, including the Chief Executive Officer or other principal executive officer.
Compensation Philosophy and Objectives
The Compensation Committee and the Board believe that the Company’s compensation programs for its executive officers should
reflect the Company’s performance and the value created for its stockholders. In addition, we believe the compensation programs should
support the goals and values of the Company and should reward individual contributions to the Company’s success. Specifically, the
Company’s executive compensation program is intended to:
·
·
attract and retain the highest caliber executive officers;
drive achievement of business strategies and goals;
· motivate performance in an entrepreneurial, incentive-driven culture;
·
·
·
closely align the interests of executive officers with the interests of the Company’s stockholders;
promote and maintain high ethical standards and business practices; and
reward results and the creation of stockholder value.
39
Factors Considered in Determining Compensation; Components of Compensation
The Compensation Committee makes executive compensation decisions on the basis of total compensation, rather than on
individual components of compensation. We attempt to create an integrated total compensation program structured to balance both short
and long-term financial and strategic goals. Our compensation should be competitive enough to attract and retain highly skilled individuals.
In this regard, we utilize a combination of between two to four of the following types of compensation to compensate our executive
officers:
·
·
·
·
base salary;
performance bonuses, which may be earned annually depending on the Company’s achievement of pre-established goals;
cash bonuses given at the discretion of the Board; and
equity compensation, consisting of restricted stock and/or stock options.
The Compensation Committee periodically reviews each executive officer’s base salary and makes appropriate recommendations
to the Board. Salaries are based on the following factors:
·
·
·
the Company’s performance for the prior fiscal years and subjective evaluation of each executive’s contribution to that
performance;
the performance of the particular executive in relation to established goals or strategic plans; and
competitive levels of compensation for executive positions based on information drawn from compensation surveys and other
relevant information.
Performance bonuses and equity compensation are awarded based upon the recommendation of the Compensation Committee.
Restricted stock is granted under the Company’s stockholder-approved equity incentive plan(s) and is priced at 100% of the closing price
of the Company’s common stock on the date of grant. Incentive and/or non-qualified stock options are generally granted under the
Company’s stockholder-approved equity incentive plan(s), as well, with the exercise price of such options set at 100% of the closing price
of the Company’s common stock on the date of grant. These grants are made with a view to linking executives’ compensation to the long-
term financial success of the Company.
Use of Benchmarking and Compensation Peer Groups
The Compensation Committee did not utilize any benchmarking measure in fiscal 2013 and traditionally has not tied compensation
directly to a specific profitability measurement, market value of the Company’s common stock or benchmark related to any established peer
or industry group. Salary increases are based on the terms of the NEOs’ employment agreements, if applicable, and correlated with the
Board’s and the Compensation Committee’s assessment of each NEO’s performance. The Company also generally seeks to increase or
decrease compensation, as appropriate, based upon changes in an executive officer’s functional responsibilities within the Company.
Historically, the Compensation Committee has not used outside consultants in determining the compensation of the NEOs, and no such
consultants were engaged during fiscal 2015.
Other Compensation Policies and Considerations; Tax Issues and Risk Management
The intention of the Company has been to compensate the NEOs in a manner that maximizes the Company’s ability to deduct
such compensation expenses for federal income tax purposes. However, the Compensation Committee has the discretion to provide
compensation that is not “performance-based” under Section 162(m) of the Code it determines that such compensation is in the best
interests of the Company and its stockholders. For fiscal 2015, the Company expects to deduct all compensation expenses paid to the
NEOs.
On an annual basis, the Compensation Committee evaluates the Company’s compensation policies and practices for its employees,
including the NEOs, to assess whether such policies and practices create risks that are reasonably likely to have a material adverse effect on
the Company. Based on its evaluation, the Compensation Committee has determined that the Company’s compensation policies and
practices do not create such risks.
40
Name and principal
Position
Jon Isaac
President and CEO
Tony Isaac
Financial Planning and
Strategist/Economist
Byron Hsu (3)
CEO, President and CTO
of Modern Everyday, Inc.
Tim Bailey
Chairman and CEO
of Marquis Industries, Inc.
Larry Heckman
President
of Marquis Industries, Inc.
David Stokes
VP Manufacturing
of Marquis Industries, Inc.
SUMMARY COMPENSATION TABLE
Year
Salary
Bonus
Awards (2) Awards (1) Compensation
Total
2015 $
2014 $
200,000 $
200,000 $
0 $
0 $
759,000 $
0 $
62,041 $
128,033 $
0 $ 1,021,041
328,033
0 $
Stock
Option
All Other
2015 $
2014 $
123,692 $
144,000 $
0 $
0 $
759,000 $
0 $
636,142 $
0 $
0 $ 1,518,834
144,000
0 $
2015 $
2014 $
145,831 $
9,744 $
2015 $
2014 $
41,250 $
0 $
2015 $
2014 $
41,250 $
0 $
2015 $
2014 $
41,250 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
145,831
9,744
0 $
0 $
0 $
0 $
0 $
0 $
41,250
0
41,250
0
41,250
0
Mark Rowland
VP of Extrusions Operations
____________
(1) The amounts reflect the dollar amount recognized for financial statement reporting purposes in accordance with ASC 718. These
amounts reflect Live Venture’s accounting expense for these awards, and do not correspond to the actual value that may be recognized
by the NEOs.
41,250 $
0 $
2015 $
2014 $
41,250
0
0 $
0 $
0 $
0 $
0 $
0 $
0 $
0 $
(2) Mr. Jon Isaac’s and Mr. Tony Isaac were each awarded a stock bonus of 300,000 shares of the Company’s common stock valued at
$759,000.
(3) Mr. Hsu is the Chief Executive Officer, President and Chief Technical Officer of our subsidiary, Modern Everyday, Inc. Mr. Hsu
receives $160,000 in annual base salary. Mr. Hsu commenced employment in August 2014 and he was terminated in September 2015.
41
EMPLOYMENT AGREEMENTS
On January 13, 2012, our Board of Directors appointed Jon Isaac to serve as our President and Chief Executive Officer. At the
time, the Company did not enter into a written Employment Agreement with Mr. Isaac, but he was paid an annual salary of $1 for his
services and was eligible to receive bonuses in such forms and amounts as determined by our Compensation Committee.
On February 14, 2013, the Company entered into a written Employment Agreement with Jon Isaac, pursuant to which he will
continue serving as our President and Chief Executive Officer for the period from January 1, 2013 to January 1, 2016. The material terms
of the Employment Agreement are as follows (all share amounts reflect the impact of the 3-for-1 forward stock split that was completed on
February 11, 2014):
· $200,000 annual base salary throughout the term of the Employment Agreement.
·
·
Eligibility to receive performance-based bonuses in the sole discretion of the Company’s Compensation Committee.
Reimbursement for reasonable housing expenses.
· Grant of options to purchase 450,000 shares of the Company’s common stock, subject to continued employment on the applicable
vesting dates and the other terms and conditions summarized below:
·
·
·
150,000 shares will vest on the first anniversary of the date of grant and be exercisable for five years after vesting at an exercise
price of $1.67 per share, which was reduced to $0.83 per share in June 2015;
150,000 shares will vest in 12 equal monthly installments, beginning on the date that is 13 months after the date of grant and
ending on the second anniversary of the date of grant, and be exercisable for five years after vesting at an exercise price of
$2.50 per share which was reduced to $1.25 per share in June 2015;
150,000 shares will vest in 12 equal monthly installments, beginning on the date that is 25 months after the date of grant and
ending on the third anniversary of the date of grant, and be exercisable for five years after vesting at an exercise price of $3.33
per share, which was reduced to $0.83 per share in June 2015
We do not have a written Employment Agreement with Tony Isaac.
On August 25, 2014, the Company entered into a written Employment Agreement with Byron Hsu, pursuant to which he will serve
as President, Chief Executive Officer, and Chief Technical Officer of our newly acquired subsidiary, Modern Everyday, Inc. The material
terms of the Employment Agreement are as follows:
·
The initial term of the agreement is until February 28, 2016.
· We agreed to pay Mr. Hsu a salary of $160,000 annually. If Mr. Hsu is requested to perform and does perform duties that result in
substantial increases in responsibility beyond the scope of employment, we and Mr. Hsu will negotiate in good faith for an increased
base salary.
·
From time to time, the Company may, in its discretion, pay a bonus to Mr. Hsu.
· We have agreed that by June 30, 2015 we shall implement a bonus incentive plan for Mr. Hsu which shall be paid on or before
February 28, 2016.
· Mr. Hsu will be eligible for all customary and usual fringe benefits generally available to executives of Company subject to the
terms and conditions of Company’s benefit plan documents and shall receive a company car, health and dental insurance.
In September 2015, Mr. Hsu was terminated.
42
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table summarizes all stock options held by the NEOs as of the end of fiscal 2015.
Name
Jon Isaac
Tony Isaac
Tim Bailey
Larry Heckman
David Stokes
Number of
Securities
Underlying
Unexercised
Options (#)
150,000 (1)
150,000 (1)
150,000 (1)
300,000 (2)
150,000 (2)
-0-
-0-
-0-
Option Exercise
Price ($)
$0.83
$1.25
$1.67
Option
Expiration Date
1/1/2019
1/1/2020
1/1/2021
$2.53
$2.53
$ –
$ –
$ –
6/30/2020
6/30/2021
–
–
–
Mark Rowland
_______________
(1) 150,000 shares ($0.83 per share exercise price) vested on January 1, 2014. 150,000 shares ($1.25 per share exercise price) will vest
in 12 equal monthly installments between February 1, 2014 and January 1, 2015. 150,000 shares ($1.67 per share exercise price) will vest in
12 equal monthly installments between February 1, 2015 and January 1, 2016.
$ –
-0-
–
(2) 300,000 shares ($2.53 per share exercise price) vested on June 30, 2015 and 150,000 shares ($2.53 per share exercise price) will vest
on June 30, 2016.
DIRECTOR COMPENSATION
The table on the following page summarizes compensation paid to each of our non-employee directors who served in such
capacity during fiscal 2015.
Fees Earned or
Paid in Cash
($)
Stock Awards
($)(1)
Total
($)
Name
Richard D. Butler, Jr.
Dennis Gao
Tyler Sickmeyer
_______________
(1) Amounts represent value of shares granted to directors in lieu of paying monthly cash director fees earned in fiscal 2015 in cash. The
number of shares granted was determined by dividing the cash director fee payable to the applicable director for the immediately
preceding month by the price of the Company’s common stock, as reported by the NASDAQ Capital Market, on the date of grant.
–
30,000
18,000
30,000
–
–
30,000
30,000
18,000
Director Compensation Arrangements
Mr. Butler receives $2,500 monthly, or $30,000 annually in cash compensation for his services as a director. With the consent of
the Company, Mr. Butler received stock in lieu of monthly cash compensation earned in August and September.
Prior to May 2014, Mr. Gao received $2,083 monthly, or $25,000 annually in cash compensation for his services as a director.
Currently, Mr. Gao receives $2,500 monthly, or $30,000 annually in cash compensation for his services as a director.
Mr. Sickmeyer receives $1,500 monthly, or $18,000 annually in cash compensation for his services as a director.
43
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes securities available for issuance under Live Venture’s equity compensation plans as of September
30, 2015:
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
Weighted-average
exercise price of
outstanding
options,
warrants and rights
(b)
Number of
securities
remaining
available for future
issuance under
equity
compensation plans
(excluding
securities reflected
in column (a))
(c)
Plan Category
Equity compensation plans approved by security holders (1)
1,050,000
$1.87
Equity compensation plans approved by security holders (2)
Equity compensation plans not approved by security holders
Total
_______________
(1) Comprised of the LiveDeal, Inc. Amended and Restated 2003 Stock Plan
(2) Comprised of the 2014 Omnibus Equity Incentive Plan
Live Ventures Incorporated Amended and Restated 2003 Stock Plan
–
–
–
–
1,050,000
$1.87
–
–
–
–
During the fiscal year ended September 30, 2002, our stockholders approved the 2002 Employees, Officers & Directors Stock
Option Plan (the “2002 Plan”), which was intended to replace our 1998 Stock Option Plan (the “1998 Plan”). The 2002 Plan was never
implemented, however, and no options, shares or any other securities were issued or granted under the 2002 Plan. There were 90,000 shares
of our common stock authorized for issuance under the 2002 Plan. On June 30, 2003 and July 21, 2003, respectively, the Board and a
majority of our stockholders terminated both the 1998 Plan and the 2002 Plan and approved our 2003 Stock Plan. The 90,000 shares of
common stock previously allocated to the 2002 Plan were re-allocated to the 2003 Stock Plan.
In April 2004, our stockholders and the Board approved an amendment to the 2003 Stock Plan to increase the aggregate number of
shares available thereunder by 60,000 shares in order to have an adequate number of shares available for future grants. At our 2007 Annual
Meeting, our stockholders approved an amendment that increased the aggregate number of shares available for issuance under the 2003
Stock Plan to 240,000 shares. At our 2008 Annual Meeting, our stockholders rejected an amendment that would have increased the number
of shares available for issuance from 240,000 shares to 330,000 shares. At our 2009 Annual Meeting, our stockholders approved an
amendment that increased the aggregate number of shares available for issuance under the 2003 Stock Plan by 180,000 shares, to 420,000
shares in the aggregate. At our 2012 Annual Meeting, our stockholders approved an amendment that increased the aggregate number of
shares available for issuance under the 2003 Stock Plan by 600,000 shares, to 1,020,000 shares in the aggregate.
2014 Omnibus Equity Incentive Plan
On January 7, 2014, our Board of Directors adopted the 2014 Omnibus Equity Incentive Plan (the “2014 Plan”), which authorizes
the issuance of distribution equivalent rights, incentive stock options, non-qualified stock options, performance stock, performance units,
restricted ordinary shares, restricted stock units, stock appreciation rights, tandem stock appreciation rights and unrestricted ordinary shares
to our officers, employees, directors, consultants and advisors. The Company has reserved up to 1,800,000 shares of common stock for
issuance under the 2014 Plan.
44
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information regarding the beneficial ownership of our common stock as of December 31, 2015 of (i)
each executive officer and each director of our Company; (ii) all executive officers and directors of our Company as a group; and (iii) each
person known to the Company to be the beneficial owner of more than 5% of our common stock. We deem shares of our common stock
that may be acquired by an individual or group within 60 days of December 31, 2015, pursuant to the exercise of options or warrants or
conversion of convertible securities, to be outstanding for the purpose of computing the percentage ownership of such individual or group,
but these shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person or group
shown in the table. Percentage of ownership is based on 16,903,014 shares of common stock outstanding on December 31, 2015. The
information as to beneficial ownership was either (i) furnished to us by or on behalf of the persons named or (ii) determined based on a
review of the beneficial owners’ Schedules 13D and Section 16 filings with respect to our common stock. Unless otherwise indicated, the
business address of each person listed is 325 East Warm Springs Road, Suite 102, Las Vegas, Nevada 89119..
Name of Beneficial Owner
Executive Officers and Directors:
Jon Isaac (1)
Tony Isaac
Richard D. Butler, Jr.
Dennis Gao
Tyler Sickmeyer
All Executive Officers and Directors as a group (5 persons)
Other 5% Stockholders:
Isaac Capital Group, LLC (2)
3525 Del Mar Heights Rd. Suite 765
San Diego, California 92130
_________________________
*Represents less than 1% of our issued and outstanding common stock.
Amount and
Nature of
Beneficial
Ownership
Percentage of
Class
8,991,427
600,000
79,923
–
–
9,671,350
43.3%
3.5%
*
–
–
46.0%
8,291,427
40.6%
(1)
Includes 4,750,551 shares of common stock owned by Isaac Capital Group, LLC (“ICG”), of which Jon Isaac is the President and
sole member and according has sole voting and dispositive power with respect to such shares. Also includes warrants to purchase
3,540,876 additional shares of common stock at exercise prices ranging from $0.55 to $0.952 per share held by ICG. Jon Isaac owns
100,000 shares of common stock. Finally, Mr. Isaac holds options to purchase up to 450,000 shares of common stock at exercise
prices ranging from $0.83 to $1.67 per share, all of which are exercisable as of (or within 60 days after) December 31, 2015.
(2)
Includes 4,750,551 shares of common stock owned by ICG. Also includes warrants to purchase 3,540,876 additional shares of
common stock at exercise prices ranging from $0.55 to $0.952 per share held by ICG.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
Executive Office Space
Our San Diego executive office is located at 3525 Del Mar Heights Rd. This office is currently being provided to us by a company
that is a related party to Isaac Capital Group LLC, one of our largest stockholders, which is owned by Jon Isaac, our President and Chief
Executive Officer and one of our directors.
Mezzaine Loan from Isaac Capital Fund
In connection with the purchase of Marquis Industries Inc., the Company entered into a mezzanine loan in an amount of up to
$7,000,000 provided by Isaac Capital Fund, a private lender whose managing member is Jon Isaac, the chief executive officer of the
Company.
The Isaac Capital Fund mezzanine loan bears interest at 12.5% with payment obligations of interest each month and all principal
due in January 2021 (six months after the final payments are due under the Bank of America Term and Revolving Loan). As of September
30, 2015, there was $6,495,825 outstanding on this mezzanine loan.
ICG Note
On January 23, 2014, the Company issued a note to Isaac Capital Group (“ICG”), a related party, in the principal amount of
$500,000. Because the conversion price of $2.29 was less than the stock price, this gave rise to a beneficial conversion feature valued at
$500,000. The Company recognized this beneficial conversion feature as a debt discount and additional paid in capital. The debt discount
is being amortized over the one year term. On December 3, 2014, ICG converted the note into 674,370 shares of common stock, therefore
the remaining debt discount of $158,219 was written off and recognized as interest expense. In addition, upon the conversion of note, the
Company issued to ICG a warrant to acquire 674,370 additional shares of the Company’s common stock at an exercise price of $0.95 per
share. The fair value of the warrants issued in connection with the conversion of note was $1,853,473 and was immediately recognized as
interest expense.
Procedures for Approval of Related Party Transactions
In accordance with its charter, the Audit Committee reviews and recommends for approval all related party transactions (as such
term is defined for purposes of Item 404 of Regulation S-K). The Audit Committee participated in the approval of the transactions
described above.
45
ITEM 14. Principal Accounting Fees and Services
Each year, the Audit Committee approves the annual audit engagement in advance. The Audit Committee also has established
procedures to pre-approve all non-audit services provided by the Company’s independent registered public accounting firm. All 2015 and
2014 non-audit services listed below were pre-approved.
Audit Fees: This category includes the audit of our annual financial statements and review of financial statements included in our
annual and periodic reports that are filed with the SEC. This category also includes advice on audit and accounting matters that arose
during, or as a result of, the audit or the review of interim financial statements, and the preparation of an annual “management letter” on
internal control and other matters.
Audit-Related Fees: This category consists of travel expenses for the auditors.
Tax Fees: This category consists of professional services rendered by our independent auditors for tax compliance and tax advice.
The services for the fees disclosed under this category include technical tax advice.
All Other Fees: This category includes services performed for the preparation of responses to SEC and NASDAQ correspondence,
as well as reviews of Registration Statements that we file from time to time with the SEC.
We paid the following fees to our independent registered public accounting firm, Anton & Chia for work performed in in fiscal
2014 and 2015:
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
$
2014
2015
50,000 $
– $
–
2,002
52,002
97,613
96,532
–
–
194,145
We paid the following fees to our prior independent registered public accounting firm Kabani & Company, Inc. for work
performed through May 6, 2014:
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
46
2014
$
55,000
838
–
13,500
69,338
ITEM 15. Exhibits and Financial Statement Schedules
The following exhibits are filed with or incorporated by reference into this Annual Report.
PART IV
Exhibit
Number
Description
Previously Filed as Exhibit
Date
Previously
Filed
1.1
Engagement Agreement, dated as of January 7,
Exhibit 1.1 to the Registrant’s Annual Report on
1/10/14
2014, by and between the Registrant and
Chardan Capital Markets LLC
Form 10-K filed on January 10, 2014
3.1
Amended and Restated Articles of Incorporation Exhibit 3.1 to the Registrant’s Current Report on
8/15/07
Form 8-K filed on August 15, 2007
3.1.1
Certificate of Change
Exhibit 3.1 to the Registrant’s Current Report on
9/7/10
Form 8-K filed on September 7, 2010
3.1.2
Certificate of Correction
Exhibit 3.1 to the Registrant’s Current Report on
3/11/13
Form 8-K filed on March 11, 2013
3.1.3
Certificate of Change
Exhibit 3.1 to the Registrant’s Quarterly Report on
2/14/14
Form 10-Q filed on February 14, 2014
3.1.4
Articles of Merger
Exhibit 3.1.4 to the Registrant’s Current Report on
10/8/15
Form 8-K filed on October 8, 2015
3.2
Amended and Restated Bylaws
Exhibit 3.1 to the Registrant’s Current Report on
12/15/11
Form 8-K filed on December 15, 2011
10.1*
LiveDeal, Inc. Amended and Restated 2003
Stock Plan*
Exhibit 10.1 to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended September 30,
2007
12/20/07
10.1.1*
First Amendment to Amended and Restated 2003
Appendix A to 2009 Proxy Statement
1/29/09
Stock Plan*
10.1.2*
Second Amendment to the LiveDeal, Inc.
Amended and Restated 2003 Stock Plan*
Appendix A to 2012 Proxy Statement
1/27/12
10.2*
Form of 2003 Stock Plan Restricted Stock
Exhibit 10 to the Registrant’s Quarterly Report on
5/16/05
Agreement*
Form 10-QSB for the quarterly period ended March
31, 2005
10.3*
Form of 2003 Stock Plan Stock Option
Agreement*
Exhibit 10.3 to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended September 30,
2008
12/29/08
10.5
Note and Warrant Purchase Agreement, dated
Exhibit 10.1 to the Registrant’s Quarterly Report on
5/15/12
April 3, 2012, by and between the Registrant and
Isaac Capital Group LLC
Form 10-Q filed on May 15, 2012
10.5.1
First Amendment to Note Purchase Agreement,
Exhibit 10.12.1 to the Registrant’s Annual Report on
1/15/13
made and entered into as of April 3, 2012, by and
between the Registrant and Isaac Capital Group
LLC
Form 10-K filed on January 15, 2013
47
10.5.2
Senior Subordinated Convertible Note (under
Exhibit 10.2 to the Registrant’s Quarterly Report on
5/15/12
Note Purchase Agreement)
Form 10-Q filed on May 15, 2012
10.5.3
Subordinated Guaranty (under Note Purchase
Exhibit 10.3 to the Registrant’s Quarterly Report on
5/15/12
Agreement)
Form 10-Q filed on May 15, 2012
10.5.4
Form of Warrant (under Note Purchase
Exhibit 10.4 to the Registrant’s Quarterly Report on
5/15/12
Agreement)
Form 10-Q filed on May 15, 2012
10.6*
Employment Agreement, dated January 1, 2013,
Exhibit 10.1 to the Registrant’s Quarterly Report on
5/14/13
by and between the Registrant and Jon Isaac
Form 10-Q filed on May 14, 2013
10.7
Asset Purchase Agreement, dated September 9,
Exhibit 10.9 to the Registrant’s Annual Report on
1/10/14
2013, by and between the Registrant and Novalk
Apps S.A.S.
Form 10-K filed on January 10, 2014
10.8
Note Purchase Agreement, dated as of January 7,
Exhibit 10.10 to the Registrant’s Annual Report on
1/10/14
2014, by and between the Registrant and
Kingston Diversified Holdings LLC
Form 10-K filed on January 10, 2014
10.9
Convertible Note (under 2014 Note Purchase
Exhibit 10.11 to the Registrant’s Annual Report on
1/10/14
Agreement)
Form 10-K filed on January 10, 2014
10.10
Form of Warrant (under 2014 Note Purchase
Exhibit 10.12 to the Registrant’s Annual Report on
1/10/14
Agreement)
Form 10-K filed on January 10, 2014
10.11*
2014 Omnibus Equity Incentive Plan
Appendix A to 2014 Proxy Statement
6/23/14
10.12
Share Purchase Agreement, by and among Live
Exhibit 10.12 to the Registrant’s Annual Report on
12/29/14
Goods, LLC, DealTicker Inc., from Julian
Gleizer and Daniel Abramov
Form 10-K filed on December 29, 2014
10.13
Stock Purchase Agreement, by and among the
Exhibit 99.1 to the Current Report on Form 8-K filed
8/24/14
Registrant, Modern Everyday Inc., & Byron Hsu,
dated August 24, 2014
on August 24, 2014
10.14
Engagement Agreement, dated as of May 16,
Exhibit 10.1 to the Registrant’s Annual Report on
5/20/14
2014, by and between the Registrant and
Chardan Capital Markets LLC
Form 10-Q filed on May 20, 2014
10.15
10.16
Purchase Agreement, dated as of July 6, 2015 by
and among the Registrant, Marquis Affiliated
Holdings LLC, Marquis Industries, Inc. and the
stockholders of Marquis Industries, Inc.
Filed herewith
Filed herewith
Loan and Security Agreement, dated as of July 6,
2015 by and among Marquis Affiliated Holdings
LLC, Marquis Industries, Inc., A-O Industries,
LLC, Astro Carpet Mills, LLC, Constellation
Industries, LLC and S F Commercial Properties,
LLC , as Borrowers, and Bank of America, N.A.
as Lender.
10.17
Subordinated Loan and Security Agreement,
Filed herewith
dated as of July 6, 2015 by and among Marquis
Affiliated Holdings, LLC, Marquis Industries,
Inc., A-O Industries, LLC, Astro Carpet Mills,
LLC, Constellation Industries, LLC and SF
Commerical Properties, LLC as Borrowers and
Isaac Capital Fund I, LLC as Lender
10.18
Lease Agreement, effective July 6, 2015, by and
between 716 River Street Partners LLC, as lessor
and Constellation Industries, LLC as lessee
Filed herewith
14
Code of Business Conduct and Ethics, Adopted
Exhibit 14 to the Registrant’s Quarterly Report on
5/13/04
December 31, 2003
Form 10-QSB for the period ended March 31, 2004
23.1
Consent of Anton & Chia, LLP
Exhibit 23.1 to the Registrant’s Annual Report on
1/13/16
Form 10-K filed on January 13, 2016
48
31.1
Certification of the Chief Executive Officer
Filed herewith
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
31.2
Certification of the Chief Financial Officer
Filed herewith
pursuant to Section 302 of the Sarbanes-Oxley
Act of 200
32
101
Certification pursuant to 18 U.S.C. Section 1350 Filed herewith
Exhibits 101 to the Registrant’s Annual Report on
01/13/16
Form 10-K filed on January 13, 2016
The following materials from the Company’s
Annual Report on Form 10-K, formatted in
XBRL (eXtensible Business Reporting
Language): (i) the Consolidated Balance Sheets
as of September 30, 2015 and 2014, (ii) the
Consolidated Statements of Operations for the
Years Ended September 30, 2015 and 2014,
(iii) Consolidated Statements of Stockholders'
Equity for the Years Ended September 30, 2015
and 2014, (iv) the Consolidated Statements of
Cash Flows for the Years Ended September 30,
2015 and 2014, and (iv) the Notes to
Consolidated Financial Statements
* Management contract or compensatory plan or arrangement
49
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: January 13, 2016
Live Ventures, Incorporated
SIGNATURES
/s/ Jon Isaac
Jon Isaac
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Jon Isaac
Jon Isaac
/s/ Tony Isaac
Tony Isaac
Title
Chief Executive Officer, President and Chief Financial and Accounting Officer
(Principal Executive Officer and Principal Financial and Accounting Officer) and
Director
Date
January 13, 2016
Financial Planning and Strategist/Economist and Director
January 13, 2016
/s/ Richard D. Butler, Jr.
Richard D. Butler, Jr.
/s/ Dennis Gao
Dennis Gao
/s/ Tyler Sickmeyer
Tyler Sickmeyer
Director
Director
Director
50
January 13, 2016
January 13, 2016
January 13, 2016
Exhibit 10.15
Purchase Agreement
This Purchase Agreement, “Agreement”, is entered into as of July 6, 2015, by and among Live Ventures Inc., a Nevada corporation,
“Live”, Marquis Affiliated Holdings LLC, a Delaware limited liability company, “Purchaser”, Marquis Industries, Inc., a Georgia corporation,
the “Company”, all of the Company’s stockholders, Timothy A. Bailey, a Georgia resident, “Bailey”, Larry Heckman, a Georgia resident,
“Heckman”, David Stokes, a Georgia resident, “Stokes”, and Mark Rowland, a Georgia resident, “Rowland”, with Bailey, Heckman, Stokes, and
Rowland, individually and interchangeably, a “Stockholder”, and, in the aggregate, the “Stockholders”, and the Company and the Stockholders,
individually and interchangeably, a “Seller”, and, in the aggregate, “Sellers”, and Timothy A. Bailey, in his capacity as the representative of the
Stockholders for certain purposes of this Agreement, “Stockholders’ Representative”, and their respective heirs, successors, and permitted
assigns.
Witnesseth:
Whereas, Purchaser desires to purchase all of the issued and outstanding shares of capital stock of the Company and the Stockholders
desire to sell all of the issued and outstanding shares of capital stock of the Company to Purchaser pursuant to the terms and subject to the
conditions of this Agreement;
Whereas, on the Closing Date, Live shall contribute Four Million Eight Hundred Thousand Dollars ($4,800,000) in cash (the “Live
Contribution Amount”) to Purchaser as a contribution of capital to Purchaser in exchange for eighty percent (80%) of the equity interests in
Purchaser and the Stockholders shall contribute One Million Two Hundred Thousand Dollars ($1,200,000) in cash (the “Stockholders’
Contribution Amount”) to Purchaser as a contribution of capital to Purchaser in exchange for twenty percent (20%) of the equity interests in
Purchaser; and
Whereas, Purchaser desires that the Stockholders be employed as certain of the initial operating officers of the Company and the
Stockholders desire to be so employed;
Now, therefore, in consideration of the aforementioned premises and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound hereby, agree as follows:
1.
Definitions.
1.01
Definitions.
The following terms have the meanings specified in this Section 1.01:
“Accounts Receivable” means all trade and other accounts receivable and other indebtedness owing to Marquis, including the benefit of
all collateral, security, guaranties, and similar undertakings received or held in connection therewith and any claim, remedy, or other
right related to the foregoing, but excluding the related-party receivables and employee receivables that constitute Other Non-Operating
Assets.
“Affiliate” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such Person. 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. For the sake of clarity and notwithstanding the
foregoing, none of the Stockholders shall constitute an Affiliate of Purchaser.
“Antitrust Law” means the national and directly effective legislation of any jurisdiction that governs the conduct of companies or
individuals in relation to restrictive or other anti-competitive agreements or practices (including cartels, pricing, resale pricing, market
sharing, bid rigging, terms of trading, purchase or supply, and joint ventures), dominant or monopoly market positions (whether held
individually or collectively), and the control of acquisitions or mergers.
“AOI” means A-O Industries, LLC, a Georgia limited liability company and wholly owned subsidiary of the Company.
“Artisans Lease” means the Lease Agreement between Artisans Lessor, as lessor thereunder, and Constellation, as lessee thereunder, in
respect of the Artisans Property, to be executed and delivered at the Closing substantially in the form attached hereto as Exhibit A.
“Artisans Lessor” means 716 River Street Partners, LLC, a Georgia limited liability company formed for the purposes of consummating
the transactions contemplated by Section 3.02 and entering into the Artisans Lease.
1
“Artisans Property” means the real property located at 716 River Street, Calhoun, Georgia 30701, together with all buildings, structures,
and other improvements thereon (including all easements, rights-of-way, tenements, hereditaments, appurtenances, fixtures, and other
real property rights appertaining thereto) and described more particularly in Exhibit A to the Artisans Lease.
“Astro” means Astro Carpet Mills, LLC, a Georgia limited liability company and wholly owned subsidiary of the Company.
“Books and Records” means al l business, employee and financial records, books, ledgers, files, correspondence, documents, lists,
studies, and reports, including customer lists, supplier lists and equipment repair, maintenance, service, personnel, payroll, employee
benefit, quality control, and insurance records, whether written, electronically stored, or otherwise recorded.
“Business” means the business conducted or planned to be conducted by Marquis, including the extrusion and sale of specialty yarns and
the manufacture and sale of carpet, rugs, and hard surfaces through multiple distribution channels, the financial results of which are
included in the Books and Records.
“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 Atlanta, Georgia.
“Cash” means cash on deposit in Marquis’ Deposit Accounts and Marquis’ Factor Accounts and customer remittances postmarked before
the Closing Date.
“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.
“Closing Date Balance Sheet” means the consolidated balance sheet of Marquis as of the Closing Date (without giving effect to the
Transactions), prepared according to GAAP and on a basis consistent with the historical accounting policies, methodologies, practices,
and assumptions applied by Marquis, provided such historical policies, methodologies, practices, and assumptions are in accordance with
GAAP.
“Closing Date Net Asset Value” means all assets (excluding goodwill) less current and long-term liabilities of Marquis (but shall only
include the Closing Debt Amount to the extent such amount is not paid from the Purchase Price at Closing pursuant to Section
2.06.02(d)), each as shown on the Closing Date Balance Sheet; provided, however, that the determination of Closing Date Net Asset
Value shall exclude the following as of the Closing Date: (i) Cash, (ii) Other Non-Operating Assets, and (iii) the book value of the
Artisans Property. Subject to the proviso in the immediately preceding sentence, the Closing Date Net Asset Value shall be prepared in
accordance with GAAP, and on a basis consistent with the historical accounting policies, methodologies, practices, and assumptions
applied by Marquis, provided such historical policies, methodologies, practices, and assumptions are in accordance with GAAP. An
example of the methodology to be used to calculate the Closing Date Net Asset Value is set forth on Schedule 1A.
“Closing Debt Amount” means the amount of Debt as of the Closing.
“Code” means the Internal Revenue Code of 1986, as from time to time amended.
“Confidential Information” means information concerning the Business or Marquis, including information relating to customers, clients,
suppliers, distributors, investors, lenders, consultants, independent contractors or employees, customer and supplier lists, price lists and
pricing policies, cost information, financial statements and information, budgets and projections, business plans, production costs, market
research, marketing plans and proposals, sales and distribution strategies, manufacturing and production processes and techniques,
processes and business methods, technical information, pending projects and proposals, new business plans and initiatives, research and
development projects, inventions, discoveries, ideas, technologies, trade secrets, know-how, formulae, technical data, designs, patterns,
marks, names, improvements, industrial designs, compositions, works of authorship and other Intellectual Property, devices, samples,
plans, drawings and specifications, photographs and digital images, computer software and programming, all other confidential
information and materials relating to the Business or Marquis, and all notes, analyses, compilations, studies, summaries, reports,
manuals, documents, and other materials prepared by or for any Seller containing or based in whole or in part on any of the foregoing,
whether in verbal, written, graphic, electronic, or any other form and whether or not conceived, developed, or prepared in whole or in part
by any Seller for the Business or Marquis. Confidential Information shall not include information that is already in the public domain
through no wrongful act of any Seller.
2
“Consent” means any consent, approval, authorization, permission, or waiver of any Person.
“Constellation” means Constellation Industries, LLC, a Georgia limited liability company and wholly owned subsidiary of the Company.
“Contract” means any contract, obligation, understanding, commitment, lease, license, purchase order, bid, or other agreement, whether
written or oral or whether express or implied, together with all amendments and other modifications thereto.
“Debt” means, as to Marquis: (a) obligations for borrowed money; (b) obligations evidenced by bonds, notes, debentures, or other similar
instruments; (c) obligations to pay the deferred purchase price of capital assets; (d) capitalized lease obligations; (e) guaranteed
indebtedness or other obligations of others; (f) obligations secured by an Encumbrance existing on any property or asset owned by such
Person; (g) reimbursement obligations relating to letters of credit, bankers’ acceptances, surety or other bonds, or similar instruments; and
(h) net payment obligations pursuant to any credit derivative agreement.
“Employment Agreements” means the Employment Agreements between the Company and the Stockholders, substantially in the form
attached to this Agreement as Exhibits B-E.
“Encumbrance” means any lien, mortgage, deed to secure debt, pledge, encumbrance, charge, claim, community property interest,
condition, equitable interest, option, security interest, easement, encroachment, right of way, right of first refusal, or restriction of any
kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership.
“Environmental Claim” means any Proceeding, Order, lien, fine, penalty, or, as to each, any settlement or judgment arising therefrom, by
or from any Person alleging liability of whatever kind or nature (including liability or responsibility for the costs of enforcement
proceedings, investigations, cleanup, governmental response, removal or remediation, natural resources damages, property damages,
personal injuries, medical monitoring, penalties, contribution, indemnification, and injunctive relief) arising out of, based on or resulting
from: (a) the presence, Release of, or exposure to, any Hazardous Substances; or (b) any actual or alleged non-compliance with any
Environmental Law or term or condition of any Environmental Permit.
“Environmental Laws” means all Laws relating to the environment (including ambient air, soil, surface water or groundwater, or
subsurface strata), public health or safety, pollution, damage to or protection of the environment, endangered or threatened species,
environmental conditions, Releases or threatened Releases of Hazardous Substances into the environment, or the use, manufacture,
processing, distribution, treatment, storage, generation, disposal, remediation, transport, or handling of Hazardous Substances, whether
existing in the past or present. Environmental Laws shall include, but are not limited to, the following Laws, and the regulations
promulgated thereunder, as the same have been amended from time to time: the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§
9601 et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the
Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as
amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C.
§§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of
1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; and the Occupational Safety and Health Act of
1970, as amended, 29 U.S.C. §§ 651 et seq.
“Environmental Permits” shall mean all Permits required under or issued pursuant to Environmental Laws.
“Environmental Reports” means any Phase I Environmental Assessments and Asbestos and Mold Survey and subsequent recommended
investigations and findings conducted on the Real Property by any Representatives of Purchaser or Purchaser’s financing sources (or their
Representatives) for the Financing and any historical Phase I and Phase II reports commissioned by Marquis and delivered to Purchaser.
“ERISA” means the Employee Retirement Income Security Act of 1974 as from time to time amended, and the regulations promulgated
thereunder.
3
“ERISA Affiliate” means all employers (whether or not incorporated) that would be treated together with Marquis or any of its Affiliates
as a “single employer” within the meaning of Section 414 of the Code.
“Exchange Act” means the United States Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules
and regulations thereunder, which shall be in effect at the time.
“Financial Statements” means the consolidated financial statements of Marquis referred to in Section 4.05.
“GAAP” means generally accepted accounting principles in the United States as set forth in pronouncements of the Financial Accounting
Standards Board (and its predecessors) and the American Institute of Certified Public Accountants and, unless otherwise specified, as in
effect on the date hereof or, with respect to any Financial Statements, the date such financial statements were prepared.
“Governmental Body” means any federal, state, local, foreign, or other government or quasi-governmental authority or any department,
agency, subdivision, court, or other tribunal of any of the foregoing.
“Hazardous Substance” means: (a) any substance, material, chemical, waste product, derivative, compound, mixture, solid, liquid,
mineral or gas, in each case, whether naturally occurring or manmade, that is hazardous, acutely hazardous, toxic, or words of similar
import or regulatory effect under Environmental Laws and (b) any petroleum or petroleum-derived products, radon, radioactive materials
or wastes, asbestos in any form, lead or lead-containing materials, polychlorinated biphenyls and urea formaldehyde.
“Insurance Policies” means those insurance policies insuring the Business and identified in Schedule 4.23, but excluding any life
insurance owned by Marquis on the life of any Stockholder.
“Intellectual Property” means all intellectual property and industrial property rights and assets, and all rights, interests, and protections
that are associated with, similar to, or required for the exercise of, any of the foregoing, however arising, pursuant to the Laws of any
jurisdiction throughout the world, whether registered or unregistered, including any and all: (a) inventions (whether patentable or
unpatentable and whether or not reduced to practice), improvements thereto, and patents, patent applications, and patent disclosures,
together with reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof; (b) trademarks, service
marks, trade dress, logos, trade names, and corporate names, together with translations, adaptations, derivations, and combinations
thereof and including goodwill associated therewith, and applications, registrations, and renewals in connection therewith; (c) works of
authorship, expressions, designs, and design registrations, whether or not copyrightable, copyrightable works, copyrights, and
applications, registrations, and renewals in connection therewith; (d) mask works and applications, registrations, and renewals in
connection therewith; (e) trade secrets and Confidential Information; (f) computer software, in object and source code format (including
data and related documentation); (g) internet domain names, whether or not trademarks, registered in any top-level domain by any
authorized private registrar or Governmental Body, web addresses, web pages, websites and related content, accounts with Twitter,
Facebook, and other social media companies and the content found thereon and related thereto, and URLs; (h) software and firmware,
including data files, source code, object code, application programming interfaces, architecture, files, records, schematics, computerized
databases, and other related specifications and documentation; (i) other proprietary rights; and (j) copies and tangible embodiments and
expressions thereof (in whatever form or medium), all improvements and modifications thereto, and derivative works thereof.
“Inventory” means all inventory wherever located, including raw materials, greige goods, greige goods delivered to third party for toll
processing, work-in-process, finished goods, spare parts, goods-in-transit, products under research and development, demonstration
equipment, and inventory on consignment.
“IRS” means the Internal Revenue Service.
“Knowledge of Sellers” or “Sellers’ Knowledge” means (a) actual knowledge of a Stockholder after due inquiry or (b) knowledge that
would be expected to be obtained by a Stockholder after a reasonably comprehensive investigation of the matter at issue, which
investigation shall include, but not be limited to, (i) review of the relevant Sections of this Agreement and, if applicable, corresponding
Schedule, (ii) review of the files and other documents and information in the possession or control of Marquis, (iii) making reasonable
inquiry of the managers, officers, and employees of Marquis who would reasonably be expected to have knowledge of the particular
subject matter, (iv) making due and appropriate inquiry of counsel to Marquis with respect to matters involving questions of law, and (v)
otherwise conducting a reasonable investigation regarding the matter in question.
4
“Law” means any federal, state, local, foreign, or other law, statute, ordinance, regulation, rule, regulatory or administrative guidance,
Order, constitution, treaty, principle of common law, or other restriction of any Governmental Body.
“Liability” means any liability, obligation, or commitment of any kind or nature, whether liquidated or unliquidated, due or to become
due, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured, or otherwise.
“License” means a Contract under which Marquis is authorized to use the Intellectual Property of any Person.
“Losses” means losses, damages, liabilities, deficiencies, Proceedings, judgments, interest, awards, penalties, fines, costs, or expenses of
whatever kind, including reasonable attorneys’ fees and the cost of enforcing any right to indemnification hereunder and the cost of
pursuing any insurance providers.
“Marquis” means the Company, AOI, Astro, Constellation, and SF Commercial, individually, interchangeably, and in the aggregate.
“Marquis’ Deposit Accounts” means those deposit accounts identified in Schedule 4.13.06.
“Marquis’ Factor Accounts” means those matured funds accounts available at the factors pursuant to the factoring contracts between
Marquis and its factors and identified in Schedule 4.13.07.
“Material Adverse Effect” means any event, occurrence, fact, condition, or change that is, or could reasonably be expected to become,
individually or in the aggregate, materially adverse to (a) the Business, results of operations, properties, prospects, assets, liabilities, or
condition (financial or otherwise) of Marquis or (b) the ability of Sellers to consummate the Transactions on a timely basis.
“May 30 Balance Sheet” means the consolidated balance sheet of Marquis as of May 30, 2015 (without giving effect to the
Transactions), prepared according to GAAP and on a basis consistent with the historical accounting policies, methodologies, practices,
and assumptions applied by Marquis, provided such historical policies, methodologies, practices, and assumptions are in accordance with
GAAP.
“May 30 Net Asset Value” means all assets (excluding goodwill) less current and long-term liabilities of Marquis (but shall only include
the Closing Debt Amount to the extent such amount is not paid from the Purchase Price at Closing pursuant to Section 2.06.02(d)), each
as shown on the May 30 Balance Sheet; provided, however, that the determination of the May 30 Net Asset Value shall exclude the
following as of May 30, 2015: (i) Cash, (ii) Other Non-Operating Assets, and (iii) the book value of the Artisans Property. Subject to the
proviso in the immediately preceding sentence, the May 30 Net Asset Value shall be prepared in accordance with GAAP, and on a basis
consistent with the historical accounting policies, methodologies, practices, and assumptions applied by Marquis, provided such
historical policies, methodologies, practices, and assumptions are in accordance with GAAP. An example of the methodology to be used
to calculate the May 30 Net Asset Value is set forth on Schedule 1A.
“Member Interests” means the initial Member Interests to be issued to the Stockholders pursuant to the Operating Agreement.
“Operating Agreement” means the Operating Agreement of Purchaser, substantially in the form attached as Exhibit F.
“Order” means any order, award, decision, injunction, judgment, ruling, decree, charge, writ, subpoena or verdict entered, issued, made,
or rendered by any Governmental Body or arbitrator.
“Organizational Documents” means (a) the certificate or articles of incorporation, formation, or organization, (b) the bylaws, operating
agreement, or limited liability company agreement, (c) any documents comparable to those described in clauses (a) and (b) as may be
applicable pursuant to any Law, and (d) any amendment or modification to any of the foregoing.
“Other Non-Operating Assets” means the life insurance policies owned by Marquis on the Stockholders, the 2013 Lexus 460 driven by
Bailey and 2014 Yukon driven by Stokes, related party receivables, and employee receivables, in each case in the amounts shown on
Schedule 1B hereto, which Schedule shall be updated as of the Closing Date.
“Parties” means Live, Purchaser, and the Sellers.
“Permit” means any permit, license or Consent issued by, or required to be obtained from, any Governmental Body or pursuant to any
Law.
5
“Permitted Encumbrance” means (a) any mechanic’s, materialmen’s, or similar statutory lien incurred in the ordinary course of business
consistent with past practice for monies not yet due and that is not, individually or in the aggregate, material to the Business, (b) any lien
securing the Closing Debt Amount that will be released prior to or as of the Closing; (c) any lien against Marquis’ Factor Accounts
incurred in the ordinary course of business; (d) restrictions on use of the Intellectual Property under the Licenses; (e) any lien for Taxes
not yet due: and (f) any recorded easement, covenant, or other restriction on the Real Property described in any Title Commitment that
does not materially interfere with the present use of any Real Property or with the operation of the Business.
“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Body, unincorporated
organization, trust, association, or other entity.
“Post-Closing Tax Period” means any taxable period beginning at or after the Effective Time and, with respect to any taxable period
beginning before and ending after the Effective Time, the portion of such taxable period beginning at the Effective Time.
“Pre-Closing Taxes” means Taxes of Marquis for any Pre-Closing Tax Period.
“Pre-Closing Tax Period” means any taxable period ending before the Effective Time and, with respect to any taxable period beginning
before and ending after the Effective Time, the portion of such taxable period ending before the Effective Time.
“Proceeding” means any proceeding, charge, complaint, claim, demand, notice, action, suit, litigation, hearing, audit, summons,
subpoena, investigation, inquiry, arbitration, or mediation of any nature (in each case, whether civil, criminal, administrative,
investigative, or informal).
“Real Property” means the real property owned or leased by the Company or any of its Subsidiaries, together with all buildings,
structures, and other improvements thereon (including all easements, rights-of-way, tenements, hereditaments, appurtenances, fixtures,
and other real property rights appertaining thereto).
“Release” means any intentional or unintentional release, discharge, spill, leaking, pumping, pouring, emitting, emptying, discharge,
injection, leaching, abandonment, disposal, escape, dumping or migration into or through the environment (including ambient air,
surface water, groundwater, land surface, or subsurface strata or within any building, structure, facility, or fixture) of a Hazardous
Substance.
“Representative” means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel,
accountants, and other agents of such Person.
“SF Commercial” means SF Commercial Properties, LLC, a Georgia limited liability company and majority-owned subsidiary of the
Company as of the date hereof.
“Stock” and “Stock Ownership” means all the issued and outstanding common no par value capital stock of the Company owned by the
Stockholders and identified in Schedule 4.02.
“Subsidiaries” means, in the aggregate, AOI, Astro, Constellation, and SF Commercial Properties, LLC.
“Tax” means any federal, state, local, foreign or other income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code § 59A), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer,
registration, value added, general service, alternative, or add-on minimum, estimated, or other tax of any kind whatsoever, however
denominated, and will include any interest, penalty, or addition thereto, whether disputed or not.
“Tax Benefit” means, with respect to a taxable period, the excess, if any, of (a) the Purchaser Indemnitees’ cumulative liability for Taxes
through the end of such taxable period, calculated by excluding any Tax items attributable to a Loss from all taxable periods, less (b) the
Purchaser Indemnitees’ actual cumulative liability for Taxes through the end of such taxable period, calculated by taking into account
any Tax items attributable to the Loss for all taxable periods, taking into account an appropriate measure of the time value of money.
“Tax Returns” means any return, declaration, report, claim for refund, information return, or statement or other document relating to
Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“Transaction Documents” means this Agreement, the Operating Agreement, the Artisans Lease, the Employment Agreements, and all
other written agreements, documents, and certificates required to be executed and delivered by any of the Parties at Closing.
“Transactions” means the transactions contemplated by the Transaction Documents.
6
1.02
Cross-References.
The following terms have the respective meanings set forth in the Sections referenced below:
Defined Term
“AAA”
“Accounting Firm”
“Acquisition Proposal”
“Agreement”
“Appellate Rules”
“Arbitration Rules”
“Audited Financials”
“Bailey”
“Base Purchase Price”
“Benefit Plan”
“Closing”
“Closing Date”
“Company”
“Compete”
“Competitor”
“Customer”
“Demand”
“Dispute”
“Dispute Notice”
“Disputing Party”
“Effective Time”
“FHL Amount”
“Final Closing Date Net Asset Value”
“Financing”
“FS Provisions”
“Heckman”
“Indemnified Party.”
“Interim Balance Sheet”
“Interim Balance Sheet Date”
“Live”
“Live Contribution Amount”
“Material Contracts”
“Material Customers”
“Material Suppliers”
“Multiemployer Plan”
“Preliminary Report”
“Purchase Price”
“Purchaser”
“Purchaser Indemnitees”
“Purchaser’s Certificate”
“Purchaser’s Report”
“Qualified Benefit Plan”
“Restricted Area”
“Restricted Business”
“Restriction Period”
“Rowland”
“Seller” and “Sellers”
“Stockholder” and “Stockholders”
“Stockholders’ Certificate”
“Stockholders’ Contribution Amount”
“Stockholder Releases”
“Stockholders’ Representative”
“Stokes”
“Straddle Period”
“Surveys”
“Tax Claim”
“Third-Party Claim”
“Title Commitments”
“Union”
Location of Definition
§ 14.08
§ 2.05(a)
§ 6.07
Preamble
§ 14.08
§ 14.08
§ 8.11
Preamble
§ 2.02
§ 4.21.01
§ 2.06.01
§ 2.06.01
Preamble
§ 8.10.01
§ 8.10.01
§ 8.10.01
§ 14.08
§ 14.08
§ 2.05(a)
§ 14.08
§ 2.06.01
§ 2.06.02(a)
§ 2.05(b)
§ 7.01
§ 14.03
Preamble
§ 10.05
§ 4.05(a)
§ 4.05(a)
Preamble
Recitals
§ 4.13.08
§ 4.26.01
§ 4.26.02
§ 4.21.03
§ 2.03(a)
§ 2.02
Preamble
§ 10
§ 12.02.01(c)
§ 2.05(a)
§ 4.21.03
§ 8.10.01
§ 8.10.01
§ 8.10.01
Preamble
Preamble
Preamble
§ 12.01.02(c)
Recitals
12.01.06
Preamble
Preamble
§ 8.05.06
§ 8.06
§ 8.05.05
§ 10.05.01
§ 8.06
§ 4.20.04
7
2.
Purchase and Sale.
2.01
Purchase and Sale.
Subject to the terms and conditions set forth herein, at the Closing, the Stockholders shall sell to Purchaser, and Purchaser shall purchase
from the Stockholders, the Stock, free and clear of all Encumbrances, for the Purchase Price specified in Section 2.02.
2.02
Purchase Price.
In consideration for the sale of Stock in accordance with Section 2.01, at the Closing, Purchaser shall pay to the Stockholders,
proportionately in accordance with their Stock Ownership, an aggregate purchase price equal to the sum of (i) the May 30 Net Asset
Value plus (ii) $213,000 (together, the “Base Purchase Price”), as adjusted pursuant to Section 2.05 (the Base Purchase Price as so
adjusted, the “Purchase Price”).
2.03 May 30 Net Asset Value.
(a)
(b)
At least five (5) Business Days prior to the Closing Date, the Sellers shall deliver to Purchaser statements (collectively, the
“Preliminary Report”), together with reasonable supporting documentation, showing in reasonable detail Sellers’ good faith
calculation of: (i) the May 30 Balance Sheet and (ii) the May 30 Net Asset Value.
Sellers shall provide Purchaser, Live, and their respective Affiliates and Representatives with reasonable access to the books and
records, and appropriate personnel and Representatives, of Marquis in connection with the review of the Preliminary Report by
Purchaser, Live, and their respective Affiliates and Representatives. The Parties shall negotiate in good faith to resolve any
dispute related to the calculation of the May 30 Net Asset Value within five (5) Business Days of Purchaser’s receipt of the
Preliminary Report and, to the extent applicable, the May 30 Net Asset Value shall be adjusted to reflect any changes mutually
agreed to by the Parties; provided, however, that if the Parties are unable to reach agreement within such five (5) Business Day
period with respect to any such dispute, the Parties shall nevertheless proceed to the Closing and the Base Purchase Price shall
be based upon the Preliminary Report as delivered by Sellers (or as adjusted with respect to any items resolved in accordance
with this sentence), in each case subject to Section 2.05 without prejudice and to the other terms and conditions set forth herein.
2.04
[Omitted].
2.05
Post-Closing Purchase Price Adjustment.
8
(a)
Within 60 days after the Closing Date, Purchaser shall deliver to the Stockholders’ Representative statements (collectively, the
“Purchaser’s Report”), together with reasonable supporting documentation, showing in reasonable detail Purchaser’s good faith
calculation of: (i) the Closing Date Balance Sheet and (ii) the Closing Date Net Asset Value. To the extent that the Closing Date
Balance Sheet reflects that there is Cash on the Closing Date Balance Sheet, that Cash shall be added to the Closing Date Net
Asset Value. To the extent that the Closing Date Balance Sheet reflects a Cash deficit, that Cash deficit shall be subtracted from
the Closing Date Net Asset Value. Purchaser shall engage an independent accounting firm with experience in the carpet
production or manufacturing industry that is mutually acceptable to Purchaser and the Stockholders’ Representative (or if the
parties are unable to agree upon a firm, each party shall select a firm and the two firms together shall select a third firm) to
prepare the Closing Date Balance Sheet and calculate the Closing Net Asset Value for the Purchaser’s Report. Purchaser shall
provide the Stockholders’ Representative and his Representatives with reasonable access to the books and records, and
appropriate personnel and Representatives, of Marquis in connection with the Stockholders’ Representative’s review of the
Purchaser’s Report. If the Stockholders’ Representative disputes any item set forth in the Purchaser’s Report, then the
Stockholders’ Representative may, within thirty (30) days after receipt of the Purchaser’s Report, provide to Purchaser a written
statement of such disputes specifying those items or amounts as to which the Stockholders’ Representative disagrees (such
written statement, a “Dispute Notice”). If the Stockholders’ Representative fails to deliver a Dispute Notice within such thirty
(30)-day period, then the Purchaser’s Report shall be final and binding for purposes of this Section 2.05. If the Stockholders’
Representative delivers a Dispute Notice within such thirty (30)-day period, Purchaser and the Stockholders’ Representative
shall use good faith efforts jointly to resolve such disputes within thirty (30) days after Purchaser’s receipt of the Dispute
Notice, which resolution, if achieved with respect to any or all such disputed items, shall be deemed final, conclusive, and
binding upon the Parties and not subject to further dispute or judicial review. To the extent Purchaser and the Stockholders’
Representative cannot resolve such disputes to their mutual satisfaction within such thirty (30)-day period, Purchaser and the
Stockholders’ Representative shall, within five (5) business days thereafter, jointly engage Gilbert Crump & Associates or, if
such firm is unable to serve in such capacity, an independent public accounting firm selected by Purchaser and the
Stockholders’ Representative (the “Accounting Firm”) to review the Purchaser’s Report, together with the Dispute Notice and
any other relevant documents. The scope of disputes to be resolved by the Accounting Firm shall be limited to whether the items
in dispute that were included in the Dispute Notice were prepared in accordance with this Agreement and Schedule 1A, and the
Accounting Firm shall determine, on such basis, to what extent the Closing Date Net Asset Value set forth in the Purchaser’s
Report require(s) adjustment. The Accounting Firm’s decisions shall be based solely on presentations by Purchaser and the
Stockholders’ Representative and their respective Representatives, and not by independent review, and the Accounting Firm
shall only address those issues set forth in the Dispute Notice. In resolving any disputed item, in no event shall the Accounting
Firm’s determination be higher or lower than the respective amounts therefor proposed by Purchaser and the Stockholders’
Representative. The determination of the Accounting Firm shall be accompanied by a certificate of the Accounting Firm that its
determination was prepared in accordance with this Agreement with respect to such dispute. Purchaser and the Stockholders’
Representative shall request that the Accounting Firm report its conclusions as to such disputes and its determination of the
Closing Date Net Asset Value based thereon pursuant to this Section 2.05 no later than thirty (30) days after it is engaged, which
determination shall be final, conclusive, and binding on all Parties and not subject to further dispute or judicial review. The
costs, fees, and expenses of the Accounting Firm (including any indemnity obligations to the Accounting Firm) shall be
allocated between Purchaser and the Stockholders based on their relative success with respect to the disputed items (as finally
determined by the Accounting Firm). For example, if the Stockholders’ Representative challenges the calculation of the Closing
Date Net Asset Value by an amount of $100,000, but the Accounting Firm determines that the Stockholders’ Representative has
a valid claim for only $40,000, Purchaser shall bear forty percent (40%) of the fees and expenses of the Accounting Firm and the
Stockholders shall bear the other sixty percent (60%) of such fees and expenses.
(b)
As used herein, the “Final Closing Date Net Asset Value” means the Closing Date Net Asset Value as finally determined in
accordance with Section 2.05(a). If the Final Closing Date Net Asset Value is less than the May 30 Net Asset Value, then the
Stockholders, jointly and severally, shall pay to Purchaser the amount of such shortfall. If the Final Closing Date Net Asset
Value is greater than the May 30 Net Asset Value, then Purchaser shall pay to Stockholders, proportionately based on their
Stock Ownership, the amount of such excess. Any payment pursuant to this Section 2.05(b) shall be made by wire transfer of
immediately available funds to an account designated by the Party receiving payment within five (5) Business Days after the
final determination the Final Closing Date Net Asset Value.
9
2.06
Closing.
2.06.01 Closing.
Subject to the terms and conditions of this Agreement, the purchase and sale of the Stock contemplated hereby shall take place
at a closing (the “Closing”) to be effective at 12:01 a.m., Eastern Daylight Time, on the Closing Date (the “Effective Time”),
which shall take place on the date hereof, at the offices of Edward Hine, Jr., P.C., Suite 300, 111 Bridgepoint Plaza, Rome, GA
30161 or on such other date as the Stockholders’ Representative and Purchaser may mutually agree upon in writing (the day on
which the Closing takes place being the “Closing Date”). The Parties may participate in the Closing remotely by use of
telephone, e-mail, and facsimile transmission.
2.06.02 Purchaser’s Closing Deliveries.
Subject to satisfaction or waiver of the conditions set forth in Section 12.01, at the Closing, Purchaser shall:
(a)
(b)
(c)
(d)
(e)
pay to the Stockholders, proportionately based on their Stock Ownership, the Base Purchase Price, as determined
pursuant to Section 2.03, in immediately available funds, less the sum of (i) the Closing Debt Amount, (ii) the
Stockholders’ Contribution Amount, and (iii) the aggregate amount of the investment banking or broker fees and
expenses payable by Marquis or the Stockholders to FHL Capital Corporation in connection with the Transactions (the
“FHL Amount”);
[Omitted];
[Omitted];
pay to the applicable third parties, on behalf of Marquis, in immediately available funds, by wire transfer to the
accounts designated in writing by such third parties, the Closing Debt Amount and the FHL Amount; and
deliver to the Stockholders’ Representative the Purchaser’s Certificate and the documents contemplated by Section
12.02.03 and Section 12.02.04.
2.06.03 Sellers’ Closing Deliveries.
Subject to satisfaction or waiver of the conditions set forth in Section 12.02, at the Closing, Sellers shall deliver to Purchaser the
following:
(a)
(b)
the Stockholders’ Certificate and the documents contemplated by Section 12.01.05, Section 12.01.06, Section
12.01.08, and Section 12.01.11; and
a certificate of a duly authorized officer of the Company certifying the Closing Debt Amount and the FHL Amount and
specifying to which third parties such Closing Debt Amount and FHL Amount are payable (accompanied by payoff
letters or similar documentation from the creditors to whom all or a portion of such Closing Debt Amount is owed that
include payment instructions and include the full and final release of any and all Encumbrances relating to such Closing
Debt Amount on the assets of Marquis following receipt of the amount set forth in such payoff letters). The Company
shall deliver to Purchaser in writing at least five (5) Business Days prior to the expected Closing Date the Company’s
estimate of each of the Closing Debt Amount and the FHL Amount.
10
2.06.04 Capital Contributions.
Subject to satisfaction or waiver of the conditions set forth in Section 12.01, at the Closing, Live shall pay in immediately
available funds to Purchaser (i) the Live Contribution Amount, which shall be credited as a contribution of capital by Live to
Purchaser in exchange for eighty percent (80%) of the equity interests in Purchaser, and (ii) the Stockholders’ Contribution
Amount, which shall be credited as contributions of capital by the Stockholders to Purchaser in exchange for twenty percent
(20%) of the equity interests in Purchaser in the allocated percentages set forth in the Operating Agreement.
3.
Distributions and Artisan Property Transactions.
3.01
Distributions by Marquis and SF Commercial to Stockholders on or as of the Closing Date.
On or before the Closing Date, Marquis may distribute all Cash and shall distribute the Other Non-Operating Assets to the Stockholders
proportionate to their Stock Ownership. After the Closing Date, Purchaser and the Company shall allow Stockholders to review all
remittances received by the Company or posted to the Marquis Factor Accounts after Closing that were postmarked before Closing and
the Company shall pay those post-Closing remittances that were that were postmarked before Closing to Stockholders in proportion to
their Stock Ownership within five (5) Business Days of receipt.
3.02
Artisans Transactions.
Prior to or at the Closing, the Company shall have caused the following transactions to be effected, on terms reasonably acceptable to
Purchaser: (a) the Company shall have caused the formation of Artisans Lessor, initially a wholly owned subsidiary of Constellation, (b)
Constellation shall have contributed to Artisans Lessor all of Constellation’s right, title, and interest in and to the Artisans Property, and
(c) following such contribution, successively, (i) Constellation shall have distributed to the Company all of the equity interests in
Artisans Lessor held by Constellation and (ii) the Company shall have distributed all of such equity interests to the Stockholders. The
Parties acknowledge and agree that, upon consummation of the foregoing transactions, none of the Company, any of its Subsidiaries, or
the Purchaser shall (A) own or hold any equity interest or investment, directly or indirectly, in Artisans Lessor, (B) own or hold any
right, title, or interest in the Artisans Property other than the rights and interests of Constellation under the Artisans Lease, or (C) have
any Liabilities associated with Artisans Lessor or the Artisans Property other than those of Constellation expressly set forth in the
Artisans Lease. The Parties agree that, solely for purposes of the representations set forth in Section 4.19.02, the second sentence of
Section 4.19.03, and 4.19.07, the “Real Property” referenced therein shall not include the Artisans Property.
4.
Representations and Warranties of Sellers.
Sellers, jointly and severally, represent and warrant to Live and Purchaser as follows (with the references to “Marquis” in this Section 4
deemed to refer to the Company and its Subsidiaries, individually, interchangeably, and in the aggregate, as the context requires and
irrespective of verb tense):
4.01
Organization and Qualification.
Schedule 4.01 sets forth the jurisdiction of organization of Marquis and the other jurisdictions in which Marquis is qualified to do
business, along with the officers and directors of Marquis. Marquis is duly licensed or qualified to do business and is in good standing in
each jurisdiction in which the properties owned or leased by it or the operation of its business as currently conducted makes such
licensing or qualification necessary. The Company and its Subsidiaries are, respectively, a corporation and limited liability companies
duly organized, validly existing, and in good standing under the laws of their respective jurisdictions of organization, with full corporate
or limited liability company power and authority to conduct the Business, as it has been and is now being conducted, to own or use the
properties and assets that they respectively purport to own or use and to perform all their respective obligations necessary to the operation
of the Business. Marquis has delivered or made available to Purchaser correct and complete copies of its Organizational Documents. The
minute books and ownership records of the Marquis, as delivered or made available to Purchaser, are correct and complete.
11
4.02
Capitalization.
Schedule 4.02 sets forth the authorized capital of the Company, the number of shares of Stock that are issued and outstanding, and the
number of shares of Stock held by each Stockholder. There are no outstanding shares of capital stock of the Company other than the
shares of Stock. All of the shares of Stock have been duly authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the Stockholders, free and clear of all Encumbrances, and were issued in compliance with all applicable
federal and state securities laws. The Company has no treasury stock. There are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal or similar rights), or agreements, arrangements, or understandings, orally or in
writing, to purchase or acquire any shares of the capital stock of the Company or any equity interest in any of its Subsidiaries or any
securities convertible into, exercisable for, or exchangeable for shares of capital stock of the Company or any equity interest in any of its
Subsidiaries or other rights, agreements, arrangements, or commitments of any character relating to the capital stock of the Company or
any equity interest in any of its Subsidiaries or obligating any Stockholder, the Company, or any Subsidiary thereof to issue or sell any
shares of capital stock of, or any other equity interest in, the Company or any of its Subsidiaries. None of the shares of Stock was issued
in violation of any Contract, arrangement, or commitment to which the Company or any Stockholder then was a party or then was
subject to or in violation of any preemptive or similar rights of any Person. Except for the Stockholders’ Agreement disclosed on
Schedule 4.02, there are no voting trusts, stockholder agreements, proxies, or other Contracts or understandings in effect with respect to
the voting or transfer of any of shares of Stock. The Company owns all of the equity interests in AOI, Astro, and Constellation, in each
case free and clear of all Encumbrances. The Company currently owns ninety percent (90%) of the equity interests in SF Commercial,
free and clear of all Encumbrances. As of the Closing Date, the Company shall own all the equity interests in SF Commercial, free and
clear of all Encumbrances. Upon consummation of the transactions contemplated by this Agreement, Purchaser shall own all of the Stock
and the Company shall own all of the equity interests in each Subsidiary, in each case free and clear of all Encumbrances.
4.03
Authority.
Each Seller has full power, capacity, and authority to execute and deliver this Agreement and the other Transaction Documents to which
it or he is a party, to perform its or his obligations hereunder and thereunder and to consummate the transactions contemplated hereby and
thereby. Each Seller’s execution and delivery of this Agreement and the other Transaction Documents to which it or he is a party, such
Seller’s performance of its or his obligations hereunder and thereunder, and such Seller’s consummation of the transactions contemplated
hereby and thereby have been duly authorized by all requisite action of such Seller. This Agreement has been duly executed and
delivered by each Seller, and constitutes a legal, valid, and binding obligation of each Seller enforceable against such Seller in
accordance with its terms. When each other Transaction Document to any Seller is or will be a party has been duly executed and
delivered by such Seller, such Transaction Document will constitute the valid and legally binding obligations of such Seller, enforceable
against such Seller in accordance with the terms of such Transaction Document.
4.04
No Conflicts.
The execution, delivery and performance by each Seller of this Agreement and other the Transaction Documents to which such Seller is a
party, and the consummation of the Transactions, do not and will not, directly or indirectly, with or without notice or lapse of time: (a)
violate any Law to which any Seller is subject; (b) violate any Permit held by Marquis or give any Governmental Body the right to
terminate, revoke, suspend or modify any Permit held by Marquis; (c) violate any Organizational Document of Marquis or any resolution
adopted by its board of directors or the Stockholders; (d) violate, conflict with, result in a breach of, constitute a default under, result in
the acceleration of or give any Person the right to accelerate the maturity or performance of, or to cancel, terminate, modify or exercise
any remedy under, any Contract to which any Seller is a party or by which any Seller is bound; (e) cause Purchaser to have any Liability
for any Tax; (f) result in the creation or imposition of any Encumbrance upon any of Marquis’ properties or assets; or (g) result in any
Stockholder having the right to exercise dissenters’ appraisal rights. Except as set forth on Schedule 4.04, Sellers are not required to
notify, make any filing with, or obtain any Consent of any Person in connection with the execution and delivery of this Agreement and
the other Transaction Documents or in order to consummate the Transactions.
4.05
Financial Statements.
(a) Marquis has delivered complete copies of the (i) annual consolidated balance sheets of Marquis for each of the years ending
January 2, 2010, January 1, 2011, December 29, 2012, December 28, 2013, and January 3, 2015, and statements of income, shareholders’
equity and cash flow for each of the years then ended and (ii) unaudited consolidated interim balance sheet of Marquis as of May 30,
2015 (the “Interim Balance Sheet,” and the date thereof, the “Interim Balance Sheet Date”), and statements of income for the five (5)
month-period then ended, which Financial Statements are included in Schedule 4.05. The Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods covered thereby and present fairly the assets and liabilities
of Marquis as of their respective dates and the results of operations for the respective periods covered thereby. The Books and Records
are sufficient such that the Financial Statements can be audited without a scope limitation, by an independent certified public accounting
firm that is registered under the Public Company Accounting Oversight Board, which audited Financial Statements can be included in the
Current Report on Form 8-K of an Affiliate of Purchaser to be filed after the Closing that describes the Transactions and thereafter can be
consolidated into such Affiliate’s periodic reports to be filed under the Exchange Act. Marquis maintains a standard system of accounting
established and administered in accordance with GAAP.
12
(b) The Books and Records of Marquis, all of which have been made available to Purchaser, (i) are complete and correct in all
material respects and all transactions to which it is or has been a party are accurately reflected therein in all material respects on an
accrual basis, (ii) reflect all discounts, returns and allowances granted by Marquis with respect to the periods covered thereby, (iii) have
been maintained in accordance with customary and sound business practices in Marquis’ industry, (iv) form the basis for the Financial
Statements, and (v) reflect in all material respects the assets, liabilities, financial position, results of operations, and cash flows of
Marquis on an accrual basis. All computer-generated reports and other computer output included in the Books and Records are complete
and correct in all material respects and were prepared in accordance with sound business practices based upon authentic data. Marquis’
management information systems are adequate for the preservation of relevant information and the preparation of accurate reports.
4.06
Absence of Certain Changes.
Except as set forth in Schedule 4.06, since January 3, 2015:
(a) Marquis has not (i) sold, leased, transferred or assigned any asset, other than for fair consideration and in the ordinary
course of business consistent with past practice; provided, however, that no asset shown on the consolidated balance sheet of Marquis for
the year ending January 3, 2015 included in the Financial Statements has been sold, leased, transferred, or assigned other than (A) sales
of Inventory in the ordinary course of business consistent with past practice and (B) the transfer of the Artisans Property to Artisans
Lessor as contemplated in Section 3.02, (ii) purchased, leased, or acquired the right to own, use, or lease any property or assets, except
for purchases of inventory or supplies in the ordinary course of business consistent with past practice, or (iii) except for the redemption or
purchase of the minority interest in SF Commercial before the Closing, acquired by merger or consolidation with, or by purchase of a
substantial portion of the assets or stock of, or by any other manner, any business or any Person or any division thereof;
(b) Marquis has not experienced any damage, destruction, or loss (whether or not covered by insurance) to its property or
assets, individually or in the aggregate, in excess of One Hundred Thousand ($100,000) Dollars;
(c) No Encumbrance (other than any Permitted Encumbrance) has been imposed upon any asset, property, or securities of
Marquis (including the shares of Stock);
(d) Marquis has not made any loan to, guaranteed the debt of, or invested in, any other Person or joint venture;
(e) Marquis has not borrowed any money or incurred any Debt except for advances under its asset based lending facility
with Synovus Bank in the ordinary course of business consistent with past practice. Marquis has not delayed or postponed the payment of
accounts payable or any periodic payment due under any Debt instrument;
(f) Except for trade claims settled in the ordinary course of business consistent with past practice, Marquis has not has
canceled, compromised, waived, or released any right or claim (or series of related rights or claims) owed to it;
(g) Marquis has not (i) issued, sold, or otherwise disposed of any of its securities other than the disposal of equity interests
in Artisans Lessor contemplated by Section 3.02, (ii) granted any options, warrants, or other rights to acquire (including upon conversion,
exchange, or exercise) any of its securities, (iii) split, combined, or reclassified of any its securities, (iv) declared or paid any dividends or
distributions on or in respect of any of its securities, except for (A) distributions to Stockholders to allow the Stockholders to pay their
Taxes and other distributions, all of which are reflected in the Financial Statements and (B) the distributions of the equity interests in
Artisans Lessor contemplated by Section 3.02, or (v) except for the redemption of the minority interest in SF Commercial before the
Closing, redeemed, purchased, or acquired any of its securities;
(h) Marquis has not (i) conducted the Business outside the ordinary course of business consistent with past practices, (ii)
made any loan to (or forgiven any loan to), or entered into any other transaction with, any of the Stockholders or current or former
directors, officers, or employees except as reflected in the Other Non-Operating Assets, (iii) entered into any employment contract or
modified the terms of any existing employment contract, except for employment agreements for sales personnel entered into in the
ordinary course of business consistent with past practice and, if in effect, attached to Schedule 4.20.01, (iv) granted any severance,
pension, bonus, whether monetary or otherwise, or increase in the base compensation, in respect of any of its current or former directors
or officers, except as disclosed in Schedule 4.20.01, (v) adopted, amended, modified, or terminated any Benefit Plan or other Contract for
the benefit of any of its current or former directors, officers, employees, independent contractors, or consultants, (vi) entered into any
Contract that would constitute a Material Contract, (vii) accelerated, terminated, materially modified, or cancelled any material Contract
to which Marquis is a party or by which it is bound, (viii) made any capital expenditures other than those made in the ordinary course of
business consistent with past practice, (ix) entered into a new line of business or abandoned or discontinued any existing lines of
business, (x) adopted any plan of merger, consolidation, reorganization, liquidation, or dissolution or filed a petition in bankruptcy under
any provisions of federal or state bankruptcy law or consented to the filing of any bankruptcy petition against it under any similar law;
13
(i) Marquis has not (i) made a material change in its accounting methods or practices or departed from GAAP, (ii) made
a material change in its cash management practices and its policies, practices, and procedures with respect to collection of accounts
receivable, establishment of reserves for uncollectible accounts, accrual of accounts receivable, inventory control, prepayment of
expenses, payment of trade accounts payable, accrual of other expenses, deferral of revenue, and acceptance of customer deposits, or
(iii) taken any action to make, change, or rescind any Tax election, amended any Tax Return, or taken any position on any Tax Return, or
taken any action, omitted to take any action, or entered into any other transaction that would have the effect of increasing the Tax liability
or reducing any Tax asset of Purchaser or any of its Affiliates in respect of any Post-Closing Tax Period;
(j) Except for worker’s compensation claims that are covered by insurance and garnishments of employee wages and the
Proceedings disclosed in Schedule 4.17, there have not been any Proceedings commenced nor, to the Knowledge of Sellers, threatened or
anticipated relating to or affecting the Business or any property or asset owned or used by Marquis;
(k) There has not been (i) any material loss of any distribution channel, sales location, other customer, or other supplier, or
source of supply of Inventory, utilities, or contract services or the receipt of any oral or written notice that such a loss may be pending or
that there may be a material change in the relationship between Marquis and any of the foregoing, (ii) any occurrence, event, or incident
related to Marquis outside of the ordinary course of business consistent with past practice, (iii) any Material Adverse Effect, or (iv) any
amendment of the Organizational Documents of Marquis; and
(l) Marquis has not agreed or committed to any of the foregoing, except for the purchase of the minority interest in SF
Commercial not owned by Marquis.
4.07
No Undisclosed Liabilities.
Except as set forth in the Interim Balance Sheet included in the Financial Statements, Marquis has no Liabilities (and no basis exists for
any Liability), except for current liabilities incurred in the ordinary course of business consistent with past practice since the Interim
Balance Sheet Date (none of which results from, arises out of, relates to, is in the nature of, or was caused by any tort, infringement, or
violation of Law) and which are not, individually or in the aggregate, material in amount.
4.08
Title to and Sufficiency of Tangible and Intangible Assets.
Marquis has good and marketable title to, or a valid leasehold interest in, the tangible and intangible assets used or held for use in the
operation of the Business, free and clear of any Encumbrances except Permitted Encumbrances. The tangible and intangible assets used
or held for use in the operation of the Business (excluding the Other Non-Operating Assets) are adequate for the continued conduct of
the Business after the Closing Date in the same manner as conducted prior to the Closing Date and constitute all of the rights, property,
and assets necessary to conduct the Business of the Company as currently conducted.
4.09
Tangible Personal Property; Condition of Purchased Assets.
The buildings, plants, structures, vehicles, and other tangible assets that are owned or leased by Marquis are structurally sound, free from
material defects, in good operating condition and repair, and adequate for the uses to which they are being put. None of such buildings,
plants, structures, vehicles, or other tangible assets is in need of maintenance or repairs, except for ordinary, routine maintenance and
repairs that are not material in nature or cost to such building, plant, structure, vehicle, or other tangible asset. All of the tangible assets
owned or leased by Marquis are located on the Real Property except for greige and finished goods Inventory located at toll processors
for finishing and dyeing services, yarn Inventory located at toll processors for twisting and heat setting, and rug Inventory located at toll
processors for printing.
4.10
Accounts Receivable.
All Accounts Receivable that are reflected on the Interim Balance Sheet or the accounting records of Marquis represent valid obligations
arising from products actually sold or services actually performed by Marquis in the ordinary course of business consistent with past
practice. The Accounts Receivable are current and collectible in full within the 90-day period immediately following the Closing Date in
accordance with their terms. There is no contest, claim, or right to set-off, other than returns, claims, and price and quantities
discrepancies arising in the ordinary course of business consistent with past practice and that are not, individually or in the aggregate,
material under any Contract with any obligor of an Account Receivable relating to the amount or validity of such Account Receivable.
Schedule 4.10 contains a list of all Accounts Receivable as of May 30, 2015 and the aging of each Account Receivable.
14
4.11
Inventory.
The Inventory consists of a quality and quantity usable for its intended purpose and saleable in the ordinary course of business consistent
with past practice, except for slow-moving and obsolete items and items of below-standard quality, all of which have been written off or
written down to net realizable value with appropriate reserves on the accounting records and the Financial Statements. All Inventory not
written off has been valued at the lower of cost or market value. The quantities of each type of Inventory are reasonable in the present
circumstances of Marquis and are not materially more or less than normal Inventory levels necessary to conduct the Business in the
ordinary course of business consistent with past practice. Except for greige and finished goods Inventory located at toll processors for
finishing and dyeing services, yarn Inventory located at toll processors for twisting and heat setting, and rug Inventory located at toll
processors for printing, all of the Inventory is located on the Real Property. Marquis is not in possession of any Inventory not owned by
that entity, including goods already sold. All such Inventory is owned by Marquis, free and clear of all Encumbrances, except Permitted
Encumbrances.
4.12
Real Property.
4.12.01 Title and Ownership.
The Company and SF Commercial have good and marketable fee simple title to the Real Property other than the Artisans
Property, free and clear of any Encumbrances, except Permitted Encumbrances. Prior to the contribution contemplated by
Section 3.02, Constellation has good and marketable fee simple title to the Artisans Property, free and clear of any
Encumbrances, except Permitted Encumbrances. After consummation of the transactions contemplated by Section 3.02 and
entry into the Artisans Lease, Constellation shall have a good and valid leasehold interest in the Artisans Property, free and clear
of any Encumbrances, except Permitted Encumbrances. Marquis does not own any real property other than the Real Property.
Except for the lease of the Real Property owned by SF Commercial to the Company, a true and complete copy of which lease
has been delivered to Purchaser, neither the Company nor SF Commercial lease any of the Real Property to any Person, except
as set forth in Schedule 4.12.01. Marquis is not a sublessor or grantor under any sublease or other instrument granting to any
other Person any right to the possession, lease, occupancy, or enjoyment of any of the Real Property.
4.12.02 Suitability of Real Property and Compliance with Laws.
The Real Property constitutes all interests in real property currently used or held for use in connection with the Business. The
Real Property is not subject to any rights of way, building use restrictions, title exceptions, variances, reservations, or limitations
of any kind or nature, except those that individually or in the aggregate do not impair the current use, occupancy, value, or
marketability of title to the Real Property. All buildings, plants, structures, and other improvements owned or used by Sellers lie
wholly within the boundaries of the Real Property and do not encroach upon the property, or otherwise conflict with the
property rights, of any other Person, except as disclosed in the Surveys. The use and operation of the Real Property comply with
all Laws, including zoning requirements, covenants, conditions, restrictions, easements, licenses, permits, and Contracts, and no
Seller has received any notifications from any Governmental Body or insurance company recommending improvements to the
Real Property or any other actions relative to the Real Property. Marquis is not a party to or bound by any Contract (including
any option) for the purchase, sale, or lease of any real estate interest not currently in possession of Marquis. No material
improvements constituting a part of the Real Property encroach on real property owned or leased by a Person other than the
Company or SF Commercial, except as disclosed in the Surveys. There are no Proceedings pending nor, to the Sellers’
Knowledge, threatened against or affecting the Real Property or any portion thereof or interest therein.
4.12.03 Real Property Information.
Schedule 4.12.03 lists (i) the street address of each parcel of Real Property and (ii) the current use of such Real Property. With
respect to the Real Property, Seller has delivered to Purchaser copies of all title insurance policies, opinions, abstracts, and
surveys in the possession of Seller and relating to the Real Property.
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4.13
Contracts.
4.13.01 Purchases of Raw Materials, Toll Processing Services, and Sales of Inventory.
Marquis purchases all raw materials by purchase order and without a supply agreement, except for supply agreements for
finishing and dyeing services with Global Textile Solutions, LLC, Chem-Tech Industries, Inc., and Textile Coating, Ltd., with
true and complete copies of those agreements attached to Schedule 4.13.01. With the exception of sales of Inventory to Menards
pursuant to a Vendor Compliance Program Letter, a true and complete copy of which is attached to Schedule 4.13.01, Marquis
and its Subsidiaries sell Inventory to customers by purchase order and without a supply agreement.
4.13.02 Leases of Tangible Personal Property.
Marquis leases the tangible personal property identified in Schedule 4.13.02.
4.13.03 Licenses for Intellectual Property.
Attached as Schedule 4.13.03 is a list of all Licenses, with a true and complete copy of each License attached thereto. Marquis
has performed all of its obligations under each License, and there are no grounds for termination of any License by virtue of a
default on the part of Marquis.
4.13.04 Guaranties.
The Company has guaranteed the obligations of AOI and Constellation, which obligations are part of the Debt and shall be
terminated upon payment of the Closing Debt Amount pursuant to Section 2.06.02. Marquis has not guaranteed the obligations
of any other Person.
4.13.05 Indemnification Agreements.
Marquis does not have any Contracts that obligate it to indemnify another Person for any Loss or expense for any reason, except
for the indemnification provisions contained in its Articles of Incorporation and By-Laws for its officers and directors and the
indemnification provisions in favor of Menards pursuant to the Vendor Compliance Program Letter and identified in Schedule
4.13.01.
4.13.06 Marquis’ Deposit Accounts.
Marquis has the deposit accounts set forth in Schedule 4.13.06.
4.13.07 Marquis’ Factor Contracts.
Marquis is a party to the factoring agreements identified in Schedule 4.13.07. True and complete copies of those factoring
agreements have been delivered to Purchaser.
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4.13.08 Other Material Contracts.
Schedule 4.13.08 lists each of the following Contracts of Marquis (such Contracts, collectively with all Contracts of Marquis
described in the above subsections of this Section 4.13 and the employment agreements attached to Schedule 4.20.01, the
“Material Contracts”):
(i)
(ii)
(iii)
(iv)
(v)
all Contracts with Material Customers and all Contracts with Material Suppliers;
all Contracts that require Marquis to purchase its total requirements of any product or service from a third party or that
contain “take or pay” provisions;
all Contracts that provide for the assumption of any Tax, environmental, or other Liability of any Person;
all Contracts that relate to the acquisition or disposition of any business, a material amount of stock or assets of any
other Person, or any real property (whether by merger, sale of stock, sale of assets, or otherwise);
all broker, distributor, dealer, manufacturer’s representative, franchise, agency, sales promotion, market research,
marketing consulting, and advertising Contracts to which Marquis is a party;
(vi)
all Contracts with independent contractors or consultants (or similar arrangements) to which Marquis is a party;
(vii)
all Contracts relating to Debt or related to any Encumbrance (except for Permitted Encumbrances) on any of the assets
of Marquis;
(viii)
all Contracts with any Governmental Body to which Marquis is a party;
(ix)
(x)
(xi)
all Contracts that limit or purport to limit the ability of Marquis to compete in any line of business or with any Person
or in any geographic area or during any period of time;
all Contracts to which Marquis is a party that provide for any joint venture, partnership, or similar arrangement by
Marquis;
all Contracts between or among Marquis, on the one hand, and any Stockholder or any Affiliate of any Stockholder, on
the other hand; and
(xiii)
any other Contract that is material to Marquis or the Business and not previously disclosed pursuant to this Section
4.13.
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4.13.09 Enforceability of Material Contracts; No Breach.
Each Material Contract is valid and binding on the Company and/or the Subsidiary thereof that is a party thereto in accordance
with its terms and is in full force and effect. Neither Marquis nor, to Sellers’ Knowledge, any other party thereto is in breach of
or default under (or is alleged to be in breach of or default under), or has provided or received any notice of any intention to
terminate, any Material Contract. No event or circumstance has occurred that, with notice or lapse of time or both, would
constitute an event of default under any Material Contract or result in a termination thereof or would cause or permit the
acceleration or other changes of any right or obligation or the loss of any benefit thereunder. Complete and correct copies of
each Material Contract (including all modifications, amendments, and supplements thereto and waivers thereunder) have been
delivered or made available to Purchaser.
4.14
Intellectual Property.
Schedule 4.14 contains a list of all Intellectual Property that is owned by Marquis. With the licensed Intellectual property described in
Schedule 4.13.03, Marquis has valid rights to all the Intellectual Property used in, held for use in connection with, necessary for the
conduct of, or otherwise material to, the Business. Marquis exclusively owns or has the right to use, pursuant to a license listed in
Schedule 4.13.03, all of the Intellectual Property, free from any Encumbrances and free from any requirement of any past, present, or
future royalty payments, license fees, charges or other payments, or conditions or restrictions whatsoever. Marquis has not licensed any
owned Intellectual Property to a third party. To the Knowledge of Sellers, Marquis has not violated or infringed upon, or otherwise come
into conflict with, any Intellectual Property of third parties, and Marquis has not received any notice alleging any such violation,
infringement, or other conflict. To the Knowledge of Sellers, no Person has violated, infringed upon, or otherwise come into conflict
with any Intellectual Property of Marquis. All registrations for owned Intellectual Property are in good standing, except for common law
copyrights for original printed carpet designs, which are not registered. The consummation of the Transactions will not result in the loss
or impairment of or payment of any additional amounts with respect to, nor require the consent of any other Person in respect of,
Marquis’ right to own, use, or hold for use any Intellectual Property as owned, used, or held for use in the conduct of the Business as
currently conducted. Marquis has taken all reasonable steps to maintain its owned Intellectual Property and to protect and preserve the
confidentiality of all trade secrets included therein. With respect to each website included in the Intellectual Property of Marquis,
Marquis has taken commercially reasonable steps to: (i) maintain what it believes are adequate computer resources to help ensure that no
service outages will occur due to insufficient data-storage, memory, server response levels, or other related reasons (except outages that
are at industry acceptable levels); (ii) protect the confidentiality, integrity, and security of such websites against any unauthorized use,
access, interruption, modification, or corruption, as the case may be; and (iii) obtain consent for its acquisition, storage, transfer, and use
of personal information as required by applicable Law.
4.15
Taxes.
4.15.01 Tax Returns.
At all times since its organization and through the date preceding the Closing Date, the Company has been a validly electing S
corporation within the meaning of Section 1361 of the Code and not subject to federal, state, or local income Tax. Marquis has
delivered to Purchaser true, correct, and complete copies of all federal and state income Tax Returns filed by Marquis for all
taxable periods ending on or after December 31, 2009. Marquis has made available to Purchaser for inspection all other Tax
Returns for all taxable periods ending on or after December 31, 2009. All Tax Returns with respect to Taxes required to be filed
by Marquis have been timely filed (giving effect to extensions granted with respect thereto), and all such Tax Returns are true,
correct, and complete in all material respects. Marquis has timely paid all Taxes due or claimed to be due from it by any
Governmental Body and no deficiency for any Taxes has been proposed, asserted, or assessed against Marquis that has not been
resolved and paid in full. Except for Permitted Encumbrances, there are no Encumbrances for Taxes upon any of the assets of
Marquis or otherwise relating to the Business. No claim has been made by any taxing authority in any jurisdiction where
Marquis does not file Tax Returns that it is, or may be, subject to Tax by that jurisdiction. No extensions or waivers of statutes
of limitations have been given or requested with respect to any Taxes of Marquis.
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4.15.02 Reserve for Taxes.
Marquis has established adequate reserves in accordance with GAAP for all Taxes not yet due and payable. The amount of
Marquis’ Liability for unpaid Taxes for all periods ending on or before the Interim Balance Sheet Date does not, in the
aggregate, exceed the amount of accruals for Taxes (excluding reserves for deferred Taxes established to reflect the timing
differences between book and tax income) reflected on the Interim Balance Sheet. The amount of Marquis’ Liability for unpaid
Taxes for all periods following May 30, 2015 shall not, in the aggregate, exceed the amount of accruals for Taxes (excluding
reserves for deferred Taxes established to reflect the timing differences between book and tax income) as adjusted for the
passage of time in accordance with the past custom and practice of Marquis (and which accruals shall not exceed comparable
amounts incurred in similar periods in prior years).
4.15.03 Audit.
No audit or other Proceeding by any Governmental Body is presently pending or, to the Knowledge of Sellers, threatened or
contemplated with respect to any Taxes or Tax Return of Marquis and Seller has not received written notice of any pending,
threatened, or contemplated audits or Proceedings. Marquis’ federal and state income Tax Returns have never been audited.
4.15.04 Withholding Taxes.
Marquis has complied with all applicable Laws relating to the payment and withholding of Taxes and has, within the time and
the manner prescribed by Law, withheld from employee wages and paid over to the proper Governmental Bodies all amounts
required to be so withheld and paid over under applicable Laws. Marquis has withheld and paid each Tax required to have been
withheld and paid in connection with amounts paid or owing to any independent contractor, creditor, customer, shareholder, or
other party, and complied with all information reporting and backup withholding provisions of applicable Law.
4.15.05 FIRPTA.
No Seller is a “foreign person” as that term is used in Treasury Regulations Section 1.1445-2. Marquis is not, nor has it been, a
United States real property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period
specified in Section 897(c)(1)(a) of the Code.
4.15.06 Other Tax Matters.
Marquis is not a party to, or bound by, any Tax indemnity, Tax sharing, or Tax allocation agreement. No private letter rulings,
technical advice memoranda, or similar agreement or rulings have been requested, entered into, or issued by any taxing authority
with respect to Marquis. Marquis has not been a member of an affiliated, combined, consolidated, or unitary Tax group for Tax
purposes. Marquis has no Liability for Taxes of any Person (other than Marquis) under Treasury Regulations Section 1.1502-6
(or any corresponding provision of state, local, or foreign Law), as transferee or successor, by Contract or otherwise. Marquis
will not be required to include any item of income in, or exclude any item or deduction from, taxable income for any taxable
period or portion thereof ending after the Closing Date as a result of: (i) any change in a method of accounting under Section
481 of the Code (or any comparable provision of state, local, or foreign Tax Laws), or use of an improper method of accounting,
for a taxable period ending on or prior to the Closing Date; (ii) an installment sale or open transaction occurring on or prior to
the Closing Date; (iii) a prepaid amount received on or before the Closing Date; (iv) any closing agreement under Section 7121
of the Code, or similar provision of state, local, or foreign Law; or (v) any election under Section 108(i) of the Code. Marquis
has not been a “distributing corporation” or a “controlled corporation” in connection with a distribution described in Section 355
of the Code. Marquis is not, and has not been, a party to, or a promoter of, a “reportable transaction” within the meaning of
Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011 4(b).
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4.15.07 Limitation on Tax Representations and Warranties .
Except for (a) the representation and warranty set forth in clause (e) of Section 4.04, (b) the representations and warranties
related to Taxes in Section 4.06(i), (c) the representations and warranties related to Taxes in Section 4.20.03, and (d) the
representations and warranties related to Taxes in Section 4.21, this Section 4.15 contains the sole representations and
warranties of the Sellers with respect to any Tax matters. Other than (i) the representations and warranties set forth in the fifth
(5th) sentence set forth in Section 4.15.06 immediately above, (ii) the representation and warranty set forth in clause (e) of
Section 4.04, and (iii) the representations and warranties related to Taxes in Section 4.06(i), the representations and warranties
in this Section 4.15 may be relied upon only with respect to any Pre-Closing Taxes, and not with respect to any Taxes for any
Post-Closing Tax Period. For the avoidance of doubt, nothing in this Section 4.15.07 shall be deemed to limit or modify the
Parties’ respective covenants and agreements in Section 8.05 with respect to Tax matters.
4.16
Legal Compliance; Permits.
Marquis is, and since such entity’s inception, has been, in compliance in all material respects with all applicable Laws and Permits
relating to the operation of the Business. No Proceeding is pending, has been filed or commenced, against Marquis alleging any failure to
comply with any applicable Law or Permit. No event has occurred or circumstance exists that (with or without notice or lapse of time)
may constitute or result in a violation by any Seller of any Law or Permit relating to the Business. No Seller has received any notice or
other communication from any Person regarding any actual, alleged, or potential violation by any Marquis of any Law or Permit or any
cancellation, termination, or failure to renew any Permit held by Marquis relating to the Business. Marquis has not engaged in any
agreement, arrangement, practice, or conduct that amounts to an infringement of Antitrust Law of any jurisdiction in which Marquis
conducts business and no director of Marquis is engaged in any activity that would be an offense or infringement under any such
Antitrust Law. Marquis is not affected by any existing or pending Orders of any relevant Governmental Body responsible for enforcing
the Antitrust Law of any jurisdiction and Marquis has not given any undertakings or commitments to such bodies that affect, or could
affect, the conduct of the Business. All Permits required for Marquis to conduct the Business have been obtained by it and are valid and
in full force and effect. All fees and charges with respect to such Permits have been paid in full. Marquis holds the Permits identified in
Schedule 4.16 that are utilized in the Business, which Schedule includes the respective dates of issuance and expiration. Marquis is in
material compliance with the terms of each Permit.
4.17
Litigation; Orders.
Except as set forth on Schedule 4.17, there is no Proceeding pending or, to the Knowledge of Sellers, threatened or anticipated relating to
or affecting (a) Marquis, any Stockholder, the Business, or any asset owned or used by it or (b) the Transactions. To the Knowledge of
Sellers, no event has occurred or circumstance exists that would reasonably be expected to give rise to or serve as a basis for the
commencement of any such Proceeding. There are no outstanding Orders and no unsatisfied judgments, penalties, or awards against or
affecting Marquis or any of its properties or assets.
4.18
Product and Service Warranties.
Each product manufactured and/or sold by Marquis has been in conformity with all applicable contractual commitments and all express
and implied warranties. While there are warranty claims in the ordinary course of business consistent with past practice for off-quality
claims, short rolls, and pricing disputes, those claims, in the aggregate, have not exceeded Seven Hundred Fifty Thousand Dollars
($750,000) annually. No product manufactured and/or sold by Marquis is subject to any guaranty, warranty, or indemnity beyond the
applicable standard terms and conditions of sale, a true and complete copy of the form of which has been made available to Purchaser.
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4.19
Environmental Matters.
4.19.01 Compliance with the Environmental Laws.
Sellers have operated and are currently operating the Business in compliance in all material respects with all Environmental
Laws and the Environmental Permits and no Seller has received from any Person any Environmental Claim.
4.19.02 No Release.
There have been no Releases of Hazardous Substances on the Real Property (or any real property formerly owned, operated, or
leased by Marquis) or in connection with the operation of the Business.
4.19.03 Notices.
No Seller has received any written notice, or, to Knowledge of Sellers, any oral notice, from any Person that any Seller, the Real
Property, or the operation of the Business: (i) is in violation of the requirements of any Environmental Laws; (ii) is the subject
of Proceeding or Order arising under any Environmental Laws; (iii) has actual or potential Liability under any Environmental
Laws; or (iv) in respect of any Environmental Claim. No Seller has received any written notice, or to Knowledge of Sellers, any
oral notice, from any Person that any Real Property (or real property formerly owned, operated, or leased in connection with the
Business), including soils, groundwater, surface water, buildings, and other structures located on any such real property, has
been contaminated with any Hazardous Substances that could reasonably be expected to result in a Proceeding or Environmental
Claim under any Environmental Law against, or a violation of any Environmental Law by, Marquis.
4.19.04 No Reporting or Remediation Obligations.
There are no environmental conditions arising out of or relating to Marquis, the Business, or the use, operation, or occupancy of
the Real Property that result or reasonably could be expected to result in (i) any obligation of Marquis to file any report or
notice, to conduct any investigation, sampling, or monitoring or to effect any environmental cleanup or remediation, whether on-
site or offsite or (ii) Liability, either to Governmental Bodies or third parties, for damages (whether to person, property, or
natural resources), cleanup costs, or remedial costs of any kind or nature whatsoever. None of the Real Property or any real
property formerly owned, operated, or leased by Marquis is listed on, or has been proposed for listing on, the National Priorities
List (or CERCLIS) under CERCLA, or any similar state list.
4.19.05 Storage Tanks.
Except as disclosed in Schedule 4.19.05, Marquis does not own or operate any active or abandoned aboveground or
underground storage tanks.
4.19.06 Facilities.
Schedule 4.19.06 contains a complete and accurate list of all off-site Hazardous Substances treatment, storage, or disposal
facilities or locations used by Marquis, and none of these facilities or locations has been placed or proposed for placement on the
National Priorities List (or CERCLIS) under CERCLA, or any similar state list, and no Seller has received any environmental
notice regarding potential Liabilities with respect to such off-site Hazardous Substances treatment, storage, or disposal facilities
or locations used by Marquis.
4.19.07 Other Environmental Matters.
Marquis has not retained or assumed, by Contract or operation of Law, any Liabilities of third parties under Environmental Law.
Seller has provided or otherwise made available to Purchaser and listed in Schedule 4.19.07: (i) any and all environmental
reports, studies, audits, records, sampling data, site assessments, risk assessments, economic models, and other similar
documents with respect to the business or assets of Marquis or any currently or formerly owned, operated, or leased real
property that are in the possession or control of any Seller related to compliance with Environmental Laws, Environmental
Claims, or an environmental notice or the release of Hazardous Substances and (ii) any and all material documents concerning
planned or anticipated capital expenditures required to reduce, offset, limit, or otherwise control pollution and/or emissions,
manage waste, or otherwise ensure compliance with current or future Environmental Laws (including, without limitation, costs
of remediation, pollution control equipment, and operational changes). No Seller is aware of or reasonably anticipates, as of the
Closing Date, any condition, event, or circumstance concerning the release or regulation of Hazardous Substances that might,
after the Closing Date, prevent, impede, or materially increase the costs associated with the ownership, lease, operation,
performance, or use of the Business, properties, or assets of Marquis as currently carried out.
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4.20
Employee Matters.
4.20.01 Employees.
Marquis employs all employees utilized by it. Attached as Schedule 4.20.01 is a schedule that reflects the following information
for each current employee, independent contractor, and consultant of Marquis: name, the last four digits of his or her social
security number, hire date, job description, full- or part-time status, current rate of base compensation, bonus or other incentive-
based compensation, and whether the employee has an employment agreement. Copies of all employment agreements between
Marquis and its employees are attached to Schedule 4.20.01. As of the date hereof, all compensation, including wages,
commissions, and bonuses, payable to all employees, independent contractors, or consultants of Marquis for services performed
on or prior to the date hereof have been paid in full, and, as of the Closing Date, all such compensation for services performed
on or prior to the Closing Date will have been paid in full (or accrued in full on the Closing Date Balance Sheet). Except for the
employment agreements attached to Schedule 4.20.01, there are no outstanding Contracts of Marquis with respect to any
compensation, commissions, or bonuses. Marquis does not have employees outside of the United States.
4.20.02 Employee Fringe Benefits.
Attached as Schedule 4.20.02 are the fringe benefits available to each employee of Marquis.
4.20.03 Compliance with Employment Laws.
Marquis is and has been in compliance in all material respects with all Laws relating to employment practices, including terms
and conditions of employment, equal employment opportunity, nondiscrimination, harassment, retaliation, reasonable
accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, child labor, hiring, promotion
and termination of employees, working conditions, meal and break periods, privacy, benefits, collective bargaining, the payment
of social security and similar Taxes, occupational safety and health, workers’ compensation, leaves of absence, and
unemployment insurance. Marquis is not liable for the payment of any Taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing legal requirements. Marquis has not been the subject of any
inspection or investigation relating to its compliance with or violation of Laws relating to employment practices. All individuals
characterized and treated by Marquis as independent contractors or consultants are properly treated as independent contractors
under all applicable Laws. All employees of Marquis classified as exempt under the Fair Labor Standards Act and state and local
wage and hour laws are properly classified. There are no Proceedings against Marquis pending or, to the Sellers’ Knowledge,
threatened to be brought or filed, by or with any Governmental Body in connection with the employment of any current or
former applicant, employee, consultant, or independent contractor of Marquis.
4.20.04 No Collective Bargaining Agreement.
Marquis is not, and has not been, a party to, bound by, or negotiating any collective bargaining agreement or other Contract with
a union, works council, or labor organization (collectively, “Union”), and there is not, and has not been, any Union representing
or purporting to represent any employee of Marquis, and no Union or group of employees is seeking or has sought to organize
employees for the purpose of collective bargaining. Marquis has not experienced, nor received any threat of, any strike,
slowdown, picketing, work stoppage, employee grievance process, claim of unfair labor practice, or other collective bargaining
dispute. There is no lockout of any employees by Marquis, and no such action is contemplated by Marquis. Marquis has not
committed any unfair labor practice. To the Knowledge of Sellers, (a) no event has occurred or circumstance exists that could
provide the basis for any work stoppage or other labor dispute and (b) there is no organizational effort presently being made or
threatened by or on behalf of any Union with respect to employees of any Seller.
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4.21
Employee Benefit Matters.
4.21.01 Employee Benefit Plans.
Schedule 4.21.01 contains a true and complete list of each pension, benefit, retirement, compensation, employment, consulting,
profit-sharing, deferred compensation, incentive, bonus, performance award, phantom equity, stock or stock-based, change in
control, retention, severance, vacation, paid time off, welfare, fringe-benefit, and other similar agreement, plan, policy, program,
or arrangement (and any amendments thereto), in each case whether or not reduced to writing and whether funded or unfunded,
including each “employee benefit plan” within the meaning of Section 3(3) of ERISA, whether or not tax-qualified and whether
or not subject to ERISA, which is or has been maintained, sponsored, contributed to, or required to be contributed to by Marquis
for the benefit of any current or former employee, officer, director, retiree, independent contractor, or consultant of Marquis or
any spouse or dependent of such individual, or under which Marquis or any of its ERISA Affiliates has or may have any
Liability, or with respect to which Purchaser or any of its Affiliates would reasonably be expected to have any Liability,
contingent or otherwise (as listed on Schedule 4.21.01, each, a “Benefit Plan”). Marquis has separately identified in Schedule
4.21.01 each Benefit Plan that contains a change in control provision.
4.21.02 Access to Plan Documents.
With respect to each Benefit Plan, Seller has made available to Purchaser accurate, current, and complete copies of each of the
following: (i) where the Benefit Plan has been reduced to writing, the plan document together with all amendments; (ii) where
the Benefit Plan has not been reduced to writing, a written summary of all material plan terms; (iii) where applicable, copies of
any trust agreements or other funding arrangements, custodial agreements, insurance policies and contracts, administration
agreements and similar agreements, and investment management or investment advisory agreements, now in effect or required
in the future as a result of the transactions contemplated by this Agreement or otherwise; (iv) copies of any summary plan
descriptions, summaries of material modifications, employee handbooks, and any other written communications (or a
description of any oral communications) relating to any Benefit Plan; (v) in the case of any Benefit Plan that is intended to be
qualified under Section 401(a) of the Code, a copy of the most recent determination, opinion, or advisory letter from the Internal
Revenue Service; (vi) in the case of any Benefit Plan for which a Form 5500 is required to be filed, a copy of the two most
recently filed Form 5500, with schedules and financial statements attached; (vii) actuarial valuations and reports related to any
Benefit Plans with respect to the two most recently completed plan years; (viii) the most recent nondiscrimination tests
performed under the Code; and (ix) copies of material notices, letters, or other correspondence from the Internal Revenue
Service, Department of Labor, Pension Benefit Guaranty Corporation, or other Governmental Body relating to the Benefit Plan.
4.21.03 Compliance with Law.
Each Benefit Plan and related trust (other than any multiemployer plan within the meaning of Section 3(37) of ERISA (each a
“Multiemployer Plan”)) has been established, administered, and maintained in accordance with its terms and in compliance with
all applicable Laws. Each Benefit Plan that is intended to be qualified under Section 401(a) of the Code (a “Qualified Benefit
Plan”) is so qualified and has received a favorable and current determination letter from the Internal Revenue Service, or with
respect to a prototype plan, can rely on an opinion letter from the Internal Revenue Service to the prototype plan sponsor, to the
effect that such Qualified Benefit Plan is so qualified and that the plan and the trust related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, and nothing has occurred that could reasonably be
expected to adversely affect the qualified status of any Qualified Benefit Plan. Nothing has occurred with respect to any Benefit
Plan that has subjected or could reasonably be expected to subject Marquis or any of its ERISA Affiliates or, with respect to any
period on or after the Closing Date, Purchaser or any of its Affiliates, to a penalty under Section 502 of ERISA or to Tax or
penalty under Section 4975 of the Code. All benefits, contributions, and premiums relating to each Benefit Plan have been
timely paid in accordance with the terms of such Benefit Plan and all applicable Laws and accounting principles, and all benefits
accrued under any unfunded Benefit Plan have been paid, accrued, or otherwise adequately reserved to the extent required by,
and in accordance with, GAAP.
4.21.04 Plan Liabilities.
Neither Marquis nor any of its ERISA Affiliates has (i) incurred or reasonably expects to incur, either directly or indirectly, any
material Liability under Title I or Title IV of ERISA or related provisions of the Code or applicable local Law relating to
employee benefit plans; (ii) failed to timely pay premiums to the Pension Benefit Guaranty Corporation; (iii) withdrawn from
any Benefit Plan; or (iv) engaged in any transaction that would give rise to liability under Section 4069 or Section 4212(c) of
ERISA.
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4.21.05 No Multiemployer Plan, Etc.
With respect to each Benefit Plan, (i) no such plan is a Multiemployer Plan; (ii) no such plan is a “multiple employer plan”
within the meaning of Section 413(c) of the Code or a “multiple employer welfare arrangement” (as defined in Section 3(40) of
ERISA); (iii) no Proceeding has been initiated by the Pension Benefit Guaranty Corporation to terminate any such plan or to
appoint a trustee for any such plan; and (iv) no such plan is subject to the minimum funding standards of Section 412 of the
Code or Title IV of ERISA, and none of the assets of Marquis or any ERISA Affiliate is, or may reasonably be expected to
become, the subject of any lien arising under Section 302 of ERISA or Section 412(a) of the Code.
4.21.05 Modification.
Each Benefit Plan can be amended, terminated, or otherwise discontinued after the Closing in accordance with its terms, without
material liabilities to Purchaser, Marquis, or any of their Affiliates other than ordinary administrative expenses typically
incurred in a termination event. Marquis has no commitment or obligation and has not made any representations to any
employee, officer, director, independent contractor, or consultant, whether or not legally binding, to adopt, amend, modify, or
terminate any Benefit Plan or any collective bargaining agreement, in connection with the consummation of the Transactions.
4.21.06 Post-employment Obligations.
Other than as required under Section 601, et seq. of ERISA or other applicable Law, no Benefit Plan provides post-termination
or retiree welfare benefits to any individual for any reason, and neither Marquis nor any of its ERISA Affiliates has any Liability
to provide post-termination or retiree welfare benefits to any individual or ever represented, promised, or contracted to any
individual that such individual would be provided with post-termination or retiree welfare benefits.
4.21.07 Proceedings.
There is no pending or, to Sellers’ Knowledge, threatened Proceeding relating to a Benefit Plan (other than routine claims for
benefits) and no Benefit Plan has been the subject of an examination or audit by a Governmental Body or the subject of an
application or filing under or is a participant in, an amnesty, voluntary compliance, self-correction, or similar program sponsored
by any Governmental Body.
4.21.08 No Amendment.
There has been no amendment to, announcement by Seller or any of its Affiliates relating to, or change in employee
participation or coverage under, any Benefit Plan that would increase the annual expense of maintaining such plan above the
level of the expense incurred for the most recently completed fiscal year with respect to any director, officer, employee,
independent contractor, or consultant, as applicable.
4.21.09 409A Compliance.
Each Benefit Plan that is subject to Section 409A of the Code has been administered in compliance with its terms and the
operational and documentary requirements of Section 409A of the Code and all applicable regulatory guidance (including
notices, rulings, and proposed and final regulations) thereunder. Marquis does not have any obligation to gross up, indemnify, or
otherwise reimburse any individual for any excise taxes, interest, or penalties incurred pursuant to Section 409A of the Code.
4.21.10 Independent Contractor Classification.
Each individual who is classified by Marquis as an independent contractor has been properly classified for purposes of
participation and benefit accrual under each Benefit Plan.
4.21.11 Effect of Transactions.
Neither the execution of this Agreement nor any of the Transactions will (either alone or upon the occurrence of any additional
or subsequent events): (i) entitle any current or former director, officer, employee, independent contractor, or consultant of
Marquis to severance pay or any other payment; (ii) accelerate the time of payment, funding, or vesting, or increase the amount
of compensation due to any such individual; (iii) limit or restrict the right of Marquis to merge, amend, or terminate any Benefit
Plan; (iv) increase the amount payable under or result in any other material obligation pursuant to any Benefit Plan; (v) result in
“excess parachute payments” within the meaning of Section 280G(b) of the Code; or (vi) require a “gross-up” or other payment
to any “disqualified individual” within the meaning of Section 280G(c) of the Code.
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4.22
Transactions with Related Persons.
No Stockholder (or Affiliate thereof), officer, director, or employee of Marquis (a) owns or has owned any interest in any asset used or
held for use in the Business, (b) is or has been involved in any business transaction with Marquis except as an employee, (c) engages or
has engaged in competition with Marquis, (d) has borrowed any monies from or has outstanding any indebtedness or other similar
obligation to Marquis except for the liabilities included in the Other Non-Operating Assets, or (e) is currently a party to any Contract with
Marquis.
4.23
Insurance.
Schedule 4.23 sets forth the following information with respect to each Insurance Policy: the name of the insurer, the policy number, the
name of the policyholder, the period of coverage, and the amount of coverage. True and complete copies of such Insurance Policies have
been made available to Purchaser. All premiums relating to the Insurance Policies have been timely paid or, if due and payable prior to
Closing, will be paid prior to Closing in accordance with the payment terms of each Insurance Policy. Marquis does not have any self-
insurance programs. Marquis has been covered during the past ten years by insurance in scope and amount customary and reasonable for
the businesses in which it has engaged during such period and sufficient for compliance with all applicable Laws and Contracts to which
Marquis is a party or by which it is bound. The Insurance Policies are in full force and effect and shall remain in full force and effect
following the consummation of the Transactions. No Seller has received any written notice of cancellation of, premium increase with
respect to, or alteration of coverage under, any of such Insurance Policies. The Insurance Policies do not provide for any retrospective
premium adjustment or other experience-based liability on the part of Marquis. All such Insurance Policies (a) are valid and binding in
accordance with their terms; (b) are provided by carriers who are financially solvent; and (c) have not been subject to any lapse in
coverage. There are no claims pending under any such Insurance Policies as to which coverage has been questioned, denied, or disputed
or in respect of which there is an outstanding reservation of rights. Marquis is not in default under, and has not otherwise failed to comply
with, in any material respect, any provision contained in any such Insurance Policy.
4.24
No Brokers’ Fees.
Except as set forth on Schedule 4.24, Sellers have no liability for any fee, commission, or payment to any broker, finder, or agent with
respect to the Transactions.
4.25
Debt.
Schedule 4.25 sets forth a true and complete list as of the date of this Agreement of all Debt of Marquis and provides (a) the names of the
original lender and current holder (to the extent that Marquis has received a written notice of the assignment thereof) and (b) outstanding
principal balances and all accrued and unpaid interest as of the date hereof. The information contained in Schedule 4.25 is complete and
accurate in all respects and Marquis does not have any Debt other than the Debt set forth in Schedule 4.25. True, correct, and complete
copies of all Contracts and other instruments (including all amendments, supplements, waivers, and consents) evidencing, providing
security for, and relating to such Debt have been made available to Purchaser. Following payment of the Closing Debt Amount at Closing
pursuant to Section 2.06.02, there will be no outstanding Debt (including any pre-payment fees, exit fees, rescheduling fees, or penalties)
of Marquis arising from obligations created by Marquis prior to the Closing.
4.26 Material Customers and Suppliers.
4.26.01 Material Customers.
Schedule 4.26.01 sets forth (i) the twenty-five (25) largest customers of Marquis based upon the aggregate consideration paid to
Marquis for goods or services rendered during each of the two most recent fiscal years (collectively, the “Material Customers”)
and (ii) the amount of consideration paid by each Material Customer during such periods. Marquis has not received any notice,
and has no reason to believe, that any of its Material Customers has ceased, or intends to cease, to use its goods or services or to
otherwise terminate or materially reduce its relationship with Marquis.
4.26.02 Material Suppliers.
Schedule 4.26.02 sets forth (i) the ten (10) largest suppliers of Marquis based upon the consideration paid by Marquis for goods
or services rendered for each of the two most recent fiscal years (collectively, the “Material Suppliers”) and (ii) the amount of
purchases from each Material Supplier during such periods. Marquis has not received any notice, and has no reason to believe,
that any of its Material Suppliers has ceased, or intends to cease, to supply goods or services to Marquis or to otherwise
terminate or materially reduce its relationship with Marquis.
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4.27
Full Disclosure.
No representation or warranty by Seller in this Agreement and no statement contained in the Schedules to this Agreement or any
certificate or other document furnished or to be furnished to Purchaser pursuant to this Agreement contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which
they are made, not misleading.
5.
Representations and Warranties of Live and Purchaser.
Live and Purchaser, jointly and severally, represent and warrant to Sellers as follows:
5.01
Organization and Authority.
Purchaser is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware.
Purchaser has full limited liability company power and authority to execute and deliver this Agreement and the other Transaction
Documents to which it is a party and to perform its obligations hereunder and thereunder. The execution and delivery by Purchaser of this
Agreement and each other Transaction Document to which Purchaser is a party and the performance by Purchaser of its obligations
hereunder and thereunder have been duly authorized by all requisite action of Purchaser. This Agreement has been duly executed and
delivered by Purchaser, and constitutes a legal, valid, and binding obligation of Purchaser enforceable against Purchaser in accordance
with its terms. When each other Transaction Document to which Purchaser is or will be a party has been duly executed and delivered by
Purchaser, such Transaction Document will constitute the valid and legally binding obligations of Purchaser, enforceable against
Purchaser in accordance with its terms.
5.02
No Conflicts.
Neither the execution and delivery of this Agreement nor any other Transaction Document to which Purchaser is a party nor the
performance of Purchaser’s obligations hereunder and thereunder will, directly or indirectly, with or without notice or lapse of time: (a)
violate any Law to which Purchaser is subject; (b) violate any Organizational Document of Purchaser; or (c) violate, conflict with, result
in a breach of, constitute a default under, result in the acceleration of, or give any Person the right to accelerate the maturity or
performance of, or to cancel, terminate, modify, or exercise any remedy under, any contract to which Purchaser is a party or by which
Purchaser is bound or the performance of which is guaranteed by Purchaser. Purchaser is not required to notify, make any filing with, or
obtain any Consent of any Person in order to perform the Transactions.
5.03
Litigation.
There is no Proceeding pending or, to the knowledge of Purchaser, threatened or anticipated against Purchaser relating to or affecting the
Transactions.
5.04
No Brokers’ Fees.
Purchaser has no liability for any fee, commission, or payment to any broker, finder, or agent with respect to the Transactions.
6.
Covenants of Sellers.
From and after the date of this Agreement and until the Closing, Sellers covenant and agree that (with the references in this Section 6 to
“Marquis” deemed to refer to the Company and its Subsidiaries, individually, interchangeably, and in the aggregate, as the context
requires and irrespective of verb tense):
6.01
Ordinary Course of Business.
The Business shall be operated in the ordinary course of business consistent with past practice and in accord and in compliance with the
representations and warranties set forth in Section 4. Sellers shall use reasonable best efforts to maintain and preserve intact the current
organization and business of Marquis and to preserve the rights, goodwill, and relationships of its employees, customers, lenders,
suppliers, regulators, and others having business relationships with Marquis. Without limiting the foregoing provisions of this Section
6.01, Sellers shall: (a) cause Marquis to preserve and maintain all of its Permits; (b) cause Marquis to pay its debts, Taxes, and other
obligations when due; (c) cause Marquis to maintain the properties and assets owned, operated, or used by Marquis in the same condition
as they were on the date of this Agreement, subject to reasonable wear and tear; (d) cause Marquis to continue in full force and effect
without modification all Insurance Policies, except as required by applicable Law; (e) cause Marquis to defend and protect its properties
and assets from infringement or usurpation; (f) cause Marquis to perform all of its obligations under all Contracts relating to or affecting
its properties, assets, or business; (g) cause Marquis to maintain its books and records in accordance with past practice; (h) cause Marquis
to comply with all applicable Laws; and (i) cause Marquis not to take or permit any action that would cause any of the changes, events, or
conditions described in Section 4.06 to occur.
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6.02
Books and Records, Financial Statements, and Access.
The Books and Records and Financial Statements of Marquis and its Subsidiaries shall be maintained according to GAAP and consistent
with prior reporting periods. As interim monthly Financial Statements are published, those statements shall be delivered to Purchaser.
Sellers shall (a) allow Purchaser and its Affiliates, Representatives, and prospective sources of the Financing reasonable access to its
financial managers who maintain the Books and Records and Financial Statements, (b) afford Purchaser and its Affiliates,
Representatives, and prospective sources of the Financing full and free access to and the right to inspect all of the Real Property,
properties, assets, premises, Books and Records, Contracts, and other documents and data related to Marquis; (c) furnish Purchaser and
its Affiliates, Representatives, and prospective sources of the Financing with such financial, operating, and other data and information
related to Marquis as Purchaser or its Affiliates, Representatives, or prospective sources of the Financing may reasonably request; and (d)
instruct the Representatives of Seller to cooperate with Purchaser and its Affiliates, Representatives, and prospective sources of the
Financing in their investigation of Marquis and the Business. Without limiting the foregoing, Sellers shall permit Purchaser and its
Affiliates, Representatives, and prospective sources of the Financing to conduct environmental due diligence of Marquis, the Business,
and the Real Property. Any investigation pursuant to this Section 6.02 shall be conducted in such manner as not to interfere unreasonably
with the conduct of the Business.
6.03
Capital Expenditures.
Marquis shall not make any capital expenditures outside of the ordinary course of business consistent with past practice without
obtaining Purchaser’s prior written consent (not to be unreasonably withheld, delayed, denied, or conditioned).
6.04
Consultation with Purchaser.
Sellers shall consult with Purchaser about current trends in sales, distribution, and manufacturing to identify opportunities to expand the
Business. Sellers shall allow Purchaser reasonable access to its sales and manufacturing managers.
6.05
Purchase of Minority Interest in SF Commercial and Distribution of Non-Operating Assets.
Prior to the Closing, the Company shall acquire the minority interest in SF Commercial that it does not currently own, and distribute the
Non-Operating Assets to its Stockholders.
6.06
Notice of Material Adverse Effect and Certain Other Events.
Sellers shall promptly notify Purchaser in writing of (i) any fact, circumstance, event, or action the existence, occurrence, or taking of
which (A) has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or impact any
representation or warranty set forth in Section 4; (ii) any notice or other communication from any Person alleging that the consent of
such Person is or may be required in connection with the Transactions; (iii) any notice or other communication from any Governmental
Body in connection with the Transactions; and (iv) any Proceedings commenced or, to Sellers’ Knowledge, threatened against, relating
to, or involving or otherwise affecting any Seller or the Business that, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 4.17.
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6.07
No Solicitation of Other Bids.
Sellers shall not, and shall not authorize or permit any of their respective Affiliates or any of their Representatives to, directly or
indirectly, (i) encourage, solicit, initiate, facilitate, or continue inquiries regarding an Acquisition Proposal; (ii) enter into discussions or
negotiations with, or provide any information to, any Person concerning a possible Acquisition Proposal; or (iii) enter into any
agreements or other instruments (whether or not binding) regarding an Acquisition Proposal. Sellers shall immediately cease and cause
to be terminated, and shall cause their respective Affiliates and all of their Representatives to immediately cease and cause to be
terminated, all existing discussions or negotiations with any Persons conducted heretofore with respect to, or that could lead to, an
Acquisition Proposal. For purposes hereof, “Acquisition Proposal” shall mean any inquiry, proposal, or offer from any Person (other than
Purchaser or any of its Affiliates) concerning (i) a merger, consolidation, liquidation, recapitalization, share exchange, or other business
combination transaction involving Marquis; (ii) the issuance or acquisition of shares of capital stock or other equity securities of
Marquis; or (iii) the sale, lease, exchange, or other disposition of any significant portion of the properties or assets Marquis. In addition
to the other obligations under this Section 6.07, Sellers shall promptly (and in any event within three (3) Business Days after receipt
thereof by any Seller or its Representatives) advise Purchaser orally and in writing of any Acquisition Proposal, any request for
information with respect to any Acquisition Proposal, or any inquiry with respect to or which could reasonably be expected to result in an
Acquisition Proposal, the material terms and conditions of such request, Acquisition Proposal or inquiry, and the identity of the Person
making the same. Sellers agree that the rights and remedies for noncompliance with this Section 6.07 shall include having such provision
specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened
breach shall cause irreparable injury to Purchaser and its Affiliates and that money damages would not provide an adequate remedy to
Purchaser or Live.
6.08
Financing.
Sellers shall cooperate and take all actions reasonably requested by Purchaser in connection with Purchaser obtaining the Financing.
7.
Covenants of Live and Purchaser.
Live and Purchaser covenant and agree that:
7.01
Financing.
Live and Purchaser shall use their reasonable best efforts, at their cost and expense, to obtain the financing needed in order to
consummate the transactions contemplated by this Agreement (the “Financing”), on terms agreed upon by Live and the Stockholders
with respect to the junior loan and on terms substantially similar to, or that are substantially no less favorable to Purchaser than, those set
forth in the term sheet provided by Live to the Company with respect to the senior loan.
7.02
Due Diligence.
In the course of their due diligence conducted prior to Closing, should Live or Purchaser discover facts that implicate in a negative and
material way any of the representations and warranties of Sellers set forth in Section 4, Purchaser shall promptly give notice of those
facts to the Company, so that Sellers may investigate and determine whether or not the underlying situation needs remediation.
8.
Other Covenants of the Parties.
The Parties agree as follows (with the references to “Marquis” deemed to refer to the Company and its Subsidiaries, individually,
interchangeably, and in the aggregate, as the context requires and irrespective of verb tense):
8.01
Employment of Stockholders.
Subject to and effective as of the Closing, the Company shall enter into the Employment Agreements with each Stockholder.
8.02
Closing Conditions.
From the date hereof until the Closing, each Party shall use reasonable best efforts to take such actions as are necessary to expeditiously
satisfy the closing conditions set forth in Article 12 hereof.
8.03
Public Announcements.
Unless otherwise required by applicable Law or stock exchange requirements, no Party shall make any public announcements in respect
of this Agreement or the Transactions or otherwise communicate with any news media without the prior written consent of, in the case of
any such public announcement or communication by Purchaser or any of its Affiliates, the Stockholders’ Representative, and, in the case
of any such public announcement or communication by any Seller (excluding the Company after the Closing), Purchaser, and in each
case which consent shall not be unreasonably withheld, delayed, denied, or conditioned, and the Parties shall cooperate as to the timing
and contents of any such announcement.
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8.04
Further Assurances.
Following the Closing, each of the Parties shall, and shall cause their respective Affiliates to, execute and deliver such additional
documents, instruments, conveyances, and assurances and take such further actions as may be reasonably required to carry out the
provisions hereof and give effect to the Transactions.
8.05
Tax Matters.
8.05.01 Changes in Tax Elections or Tax Returns.
Without the prior written consent of Live, Sellers and their respective Representatives shall not, to the extent it may affect, or
relate to, Marquis, make, change, or rescind any Tax election, amend any Tax Return, or take any position on any Tax Return,
take any action, omit to take any action, or enter into any other transaction that would have the effect of increasing the Tax
liability or reducing any Tax asset of Purchaser or Marquis in respect of any Post-Closing Tax Period. Notwithstanding the
forgoing, Purchaser and Live acknowledge that Purchaser is not a qualified Subchapter S stockholder and that the Company’s
Subchapter S status shall terminate at the Effective Time and, thereafter, the Company shall be taxed as a C corporation. The
Stockholders agree that neither Purchaser nor Live is to have any Liability for any Tax resulting from any such action referenced
in this Section 8.05.01 of any Seller or any of its Representatives, and agree to indemnify and hold harmless Purchaser, Live,
and, after the Closing Date, Marquis against any such Tax or reduction of any Tax asset, but not from the conversion of the
Company’s tax status as a S corporation to a C corporation.
8.05.02 Transfer Taxes.
Any transfer, documentary, sales, use, stamp, registration, value added, and other such Taxes and fees (including any penalties
and interest) incurred in connection with this Agreement and the other Transaction Documents (including any real property
transfer Tax and any other similar Tax) shall be borne and paid by the Stockholders when due. The Stockholders shall, at their
own expense, timely file any Tax Return or other document with respect to any such Taxes or fees (and Purchaser and Live shall
cooperate with respect thereto as necessary).
8.05.03 Tax Returns Filed After the Closing Date.
The Stockholders’ Representative shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for Marquis
for all periods ending prior to the Effective Time that are filed after the Effective Time. Any such Tax Returns shall be prepared
in a manner consistent with past practice (unless otherwise required by Law) and without a change of any election or accounting
method and the Stockholders shall include any income, gain, loss, deduction or other tax items for such periods on their Tax
Returns in a manner consistent with the Schedule K-1s prepared by Stockholders for such periods. Purchaser shall prepare, or
cause to be prepared, all Tax Returns required to be filed by Marquis after the Effective Time with respect to any Straddle
Period. Any such Tax Returns shall be prepared in a manner consistent with past practice (unless otherwise required by Law)
and without a change of any election or accounting method. Purchaser shall permit the Stockholders’ Representative reasonable
opportunity to review and comment on each such Tax Return prior to filing, which such comments Purchaser shall consider in
good faith. Purchaser shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for Marquis for all
periods beginning at or after the Effective Time.
8.05.04 Termination of Existing Tax Sharing Agreements.
Any and all existing Tax sharing agreements (whether written or not) binding upon Marquis shall be terminated as of the
Closing Date.
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8.05.05 Tax Indemnification.
The Stockholders shall, jointly and severally, indemnify Purchaser Indemnitees and hold them harmless from and against (a) any
Loss attributable to any breach of or inaccuracy in any representation or warranty made in Section 4.15; (b) any Loss
attributable to any breach or violation of, or failure to fully perform, any covenant, agreement, undertaking, or obligation in this
Section 8.05; (c) all Taxes of Marquis, the Stockholders or relating to the Business for all Pre-Closing Tax Periods; (d) all Taxes
of any member of an affiliated, consolidated, combined, or unitary group of which Marquis (or any predecessor of Marquis) is or
was a member on or prior to the Closing Date by reason of a liability under Treasury Regulation Section 1.1502-6 or any
comparable provisions of foreign, state, or local Law; and (e) any and all Taxes of any Person imposed on Marquis arising under
the principles of transferee or successor liability or by Contract, relating to an event or transaction occurring before the Closing
Date; in each of the above cases, together with any out-of-pocket fees and expenses (including reasonable attorneys’ and
accountants’ fees) incurred in connection therewith. The Stockholders shall reimburse Purchaser for any Taxes of Marquis that
are the responsibility of any Stockholder pursuant to this Section 8.05 within five (5) Business Days after payment of such
Taxes by any Purchaser Indemnitee. Purchaser agrees to give written notice to the Stockholders’ Representative promptly upon
the receipt of any written notice by Marquis, Purchaser, or any of Purchaser’s Affiliates that involves the assertion of any claim,
or the commencement of any Proceeding, in respect of which an indemnity may be sought by Purchaser pursuant to this Section
8.05 (a “Tax Claim”); provided, that failure to comply with this provision shall not relieve the Stockholders of their
indemnification obligations, except and only to the extent that the Stockholders forfeit rights or defenses by reason of such
failure. Purchaser shall control the contest or resolution of any Tax Claim; provided, however, that Purchaser shall obtain the
prior written consent of the Stockholders’ Representative (which consent shall not be unreasonably withheld, delayed, denied, or
conditioned) before entering into any settlement of a Tax Claim or ceasing to defend such Tax Claim; and, provided, further,
that the Stockholders’ Representative shall be entitled to participate in the defense of such Tax Claim and to employ counsel of
his choice for such purpose, the fees and expenses of which separate counsel shall be borne solely by the Stockholders.
8.05.06 Straddle Period.
In the case of Taxes that are payable with respect to a taxable period that begins before and ends after the Effective Time (each
such period, a “Straddle Period”), the portion of any such Taxes that are treated as Pre-Closing Taxes for purposes of this
Agreement shall be: (a) in the case of Taxes (i) based upon, or related to, income, receipts, profits, wages, capital, or net worth,
(ii) imposed in connection with the sale, transfer, or assignment of property, or (iii) required to be withheld, deemed equal to the
amount which would be payable if the taxable year ended as of the Effective Time and (b) in the case of other Taxes, deemed to
be the amount of such Taxes for the entire period multiplied by a fraction, the numerator of which is the number of days in the
period ending on the date immediately preceding the Closing Date and the denominator of which is the number of days in the
entire period.
8.05.07 Cooperation and Exchange of Information.
The Stockholders’ Representative and Purchaser shall provide each other with such cooperation and information as either of
them reasonably may request of the other in filing any Tax Return pursuant to this Section 8.05 or in connection with any audit
or other proceeding in respect of Taxes of Marquis. Such cooperation and information shall include providing copies of relevant
Tax Returns or portions thereof, together with accompanying schedules, related work papers, and documents relating to rulings
or other determinations by tax authorities. Each of the Stockholders and Purchaser shall retain all Tax Returns, schedules, work
papers, records, and other documents in its possession relating to Tax matters of Marquis (but excluding individual Tax Returns,
schedules to individual Tax returns, K-1’s, and similar documents) for any taxable period beginning before the Closing Date
until the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate,
without regard to extensions except to the extent notified by the other Party in writing of such extensions for the respective Tax
periods. Prior to transferring, destroying, or discarding any Tax Returns, schedules, work papers, records, and other documents
in its possession relating to Tax matters of Marquis for any taxable period beginning before the Closing Date that are required to
be retained pursuant to the immediately preceding sentence, the Stockholders or Purchaser (as the case may be) shall provide
the other Party (which, in the case of Purchaser providing the notice, shall be the Stockholders’ Representative) with reasonable
written notice and offer such other Party the opportunity to take custody of such materials.
8.05.07 Tax Refunds; Amended Returns.
Purchaser shall promptly pay or cause to be paid to the Stockholders’ Representative any Tax refunds or credits for the
overpayment of Taxes for any Pre-Closing Tax Period that are received by, or credited to, Purchaser or the Company (or any
successor thereof). At the Stockholders’ Representative’s reasonable request, Purchaser shall cooperate with the Stockholders’
Representative in all commercially reasonable respects in obtaining any such refunds, including through the filing of amended
Tax Returns or refund claims as prepared by the Stockholders’ Representative, at his own expense on behalf of the
Stockholders. Purchaser shall not amend any Tax Return of, or file any refund claim on behalf of, the Company with respect to a
Pre-Closing Tax Period (or portion thereof) ending prior to the Closing Date without the prior written consent of the
Stockholders’ Representative (not to be unreasonably withheld, delayed, denied, or conditioned).
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8.05.08 Tax Treatment of Indemnification Payments.
Any indemnification payments pursuant to this Section 8.05 shall be treated as an adjustment to the Purchase Price by the
Parties for Tax purposes, unless otherwise required by Law.
8.05.09 Survival.
Notwithstanding anything in this Agreement to the contrary, the provisions of Section 4.15 and this Section 8.05 shall survive
for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation, or extension thereof) plus 60
days.
8.05.10 Overlap.
To the extent that any obligation or responsibility pursuant to this Section 8.05 may overlap with an obligation or responsibility
pursuant to Section 10, the provisions of this Section 8.05 shall govern.
8.06
Title Insurance; Surveys.
Purchaser may obtain, at its sole option and expense, and Sellers shall grant Purchaser and its financing sources for the Financing access
to obtain (a) commitments for owner’s and/or lender’s title insurance policies (ALTA Form 2006) on the Real Property other than the
Artisans Property (collectively, the “Title Commitments”), and (b) an ALTA survey on each parcel of Real Property other than the
Artisans Property (the “Surveys”); provided, however, that Sellers shall provide Purchaser with any existing title commitments, title
policies, and surveys relating to the Real Property in a Seller’s possession or control. The Title Commitments will evidence a
commitment to issue an ALTA title insurance policy insuring good, marketable, and indefeasible fee simple title to each parcel of the
Real Property other than the Artisans Property for such amount as Purchaser or its financing sources for the Financing directs and will
contain no exceptions except for Permitted Encumbrances, with each of the title company’s standard printed exceptions in Schedule B
thereto deleted at Sellers’ expense. Sellers shall reasonably cooperate with Purchaser and its financing sources for the Financing in
obtaining such Title Commitments and Surveys (including by providing customary representations and affidavits to the title company). If
the Title Commitments or Surveys reveal any Encumbrance on the title, other than Permitted Encumbrances, Purchaser may notify the
Stockholder’s Representative in writing of such objectionable matter as promptly as practicable after Purchaser determines that such
matter is not a Permitted Encumbrance, and Sellers shall use their commercially reasonable efforts to remove such objectionable matter
as required pursuant to the terms of this Agreement.
8.07
Confidential Information.
From and after the Closing, the Stockholders agree to, and shall cause their respective Representatives to: (i) treat and hold as
confidential (and not disclose or provide access to any Person to) all information, whether written or oral, relating to the Business,
Marquis, Purchaser, or its Affiliates, (ii) in the event that any Stockholder or any Representative thereof becomes legally compelled to
disclose any such information, provide Purchaser with prompt written notice of such requirement so that Purchaser or Marquis may seek
a protective order or other remedy or waive compliance with this Section 8.07, and (iii) in the event that such protective order or other
remedy is not obtained, or Purchaser waives compliance with this Section 8.07, furnish only that portion of such confidential information
that is legally required to be provided and exercise his reasonable best efforts to obtain assurances that confidential treatment will be
accorded such information; provided, however, that this sentence shall not apply to any information that, at the time of disclosure, is
available publicly and was not disclosed in breach of this Agreement by any Stockholder or his Representatives.
8.08
Joint Privilege.
The Stockholders and Purchaser acknowledge and agree that the attorney-client privilege, attorney work product doctrine, and
expectation of client confidence involving the Business or Marquis and arising prior to the Closing for the benefit of both Stockholders
and Marquis shall be subject to a joint privilege between Stockholders, on the one hand, and Marquis, on the other hand, and
Stockholders and Marquis shall have equal right to assert all such joint privilege and protection and no such joint privilege may be
waived by (a) any Stockholder without the prior written consent of Marquis or (b) Marquis without the prior written consent of the
Stockholders’ Representative.
8.09
Consents.
Sellers shall use reasonable best efforts to give all notices to, and obtain all Consents from, all Persons that are set forth in Schedule 4.04.
If any Consent necessary to preserve any right or benefit under any Contract to which Marquis is a party is not obtained prior to the
Closing, the Stockholders shall, subsequent to the Closing, cooperate with Purchaser and Marquis in attempting to obtain such Consent as
promptly thereafter as practicable. If such Consent cannot be obtained, the Stockholders shall use their reasonable best efforts to provide
Marquis with the rights and benefits of the affected Contract for the term thereof, and, if the Stockholders provide such rights and
benefits, Marquis shall assume all obligations and burdens thereunder.
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8.10
Non-Compete and Non-Solicit Covenants.
8.10.01 Definitions.
For purposes of this Section 8.10:
“Compete” means to, directly or indirectly, own, manage, control, or participate in the ownership, management, or control of, or
be employed or engaged by or otherwise affiliated or associated as a consultant, independent contractor, or otherwise with, any
Competitor, or otherwise directly or indirectly engage in any Restricted Business targeted to the Restricted Area.
“Competitor” means any person or entity (other than Purchaser or its Affiliates) who undertakes any Restricted Business in the
Restricted Area, regardless of whether or not the Competitor is physically located inside or outside the Restricted Area.
“Customer” means any current, former, or prospective customer of Marquis.
“Restricted Area” means each area of each state and territory of the United States of America.
“Restricted Business” means any business that is competitive with the Business in the Restricted Area.
“Restriction Period” means the period commencing on the Closing Date and ending on the later of (i) the date that is the fifth
(5th) anniversary of the Closing Date and (ii) the date of termination of the applicable Stockholder’s Employment Agreement.
8.10.02 Non-Compete.
During the Restriction Period, none of the Stockholders shall, nor shall he permit any of his Affiliates to, Compete.
Notwithstanding the foregoing, a Stockholder is permitted to own up to five percent (5%) of the outstanding capital stock or
other equity interests of any publicly-traded entity that is a Competitor.
8.10.03 Non-Solicit.
During the Restriction Period, none of the Stockholders shall, nor shall he permit any of his Affiliates to, directly or indirectly,
for himself or another, (i) solicit Customers for any purpose related to a Restricted Business or (ii) solicit the employment of,
assist in the soliciting of the employment of, or otherwise solicit the association in business with, any employee or officer of
Purchaser or any Affiliate thereof, or induce any person who is an employee, officer, agent, or contractor of Purchaser or any
Affiliate thereof, to terminate such relationship, or to join with such Stockholder or any other Person for the purpose of leaving
the employ or such other relationship with Purchaser or any Affiliate thereof, and undertaking any form of business.
8.10.03 Acknowledgments.
The Stockholders acknowledge that a breach or threatened breach of this Section 8.10 would give rise to irreparable harm to
Purchaser, for which monetary damages would not be an adequate remedy, and hereby agrees that in the event of a breach or a
threatened breach by any Stockholder of his of its obligations under this Section 8.10, Purchaser shall, in addition to any and all
other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a
temporary restraining order, an injunction, specific performance, and any other relief that may be available from a court of
competent jurisdiction (without any requirement to post bond). The Stockholders acknowledge that the restrictions contained in
this Section 8.10 are (i) directly related to the amount that Purchaser is willing to pay for the Stock, (ii) reasonable and necessary
to protect the legitimate interests of Purchaser, and (iii) constitute a material inducement to Purchaser to enter into this
Agreement and consummate the transactions contemplated by this Agreement.
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8.11
Audited Financial Statements.
Sellers acknowledge that Purchaser or its Affiliate may be required under applicable Law to provide certain audited financial statements
covering the Business in accordance with its periodic reporting obligations under the Exchange Act (collectively the “Audited
Financials”). With respect to the foregoing, Sellers and Purchaser agree that Sellers shall afford to Purchaser, its Affiliates, and their
respective Representatives, at Purchaser’s expense, during normal business hours, reasonable access to the books, records, and other data
of Sellers, and use reasonable best efforts to cause Marquis’ accountants to make available all of their work papers, that in each case
include or relate to the Business or Marquis, and, to the extent permitted by such accountants, Purchaser and its independent registered
public accounting firm shall have the right to make copies and extracts therefrom, to the extent that such access may be reasonably
required by Purchaser or any of its Affiliates to prepare, complete, and file such Audited Financials at the expense of Purchaser.
8.12
Release of Bailey’s Guaranty of the Marquis’ Factor Accounts.
From the date hereof until the Closing, each Party shall use reasonable best efforts to take such actions as are necessary to cause Bailey’s
guaranty of the Marquis’ Factor Accounts to be released and marked satisfied at Closing.
9.
Certain Post-Closing Covenants.
The Parties agree as follows (with the references to “Marquis” in this Section 9 deemed to refer to the Company and its Subsidiaries,
individually, interchangeably, and in the aggregate, as the context requires and irrespective of verb tense).
9.01
Preparation of Closing Payment Calculations.
The Parties shall cooperate with each other with respect to the calculations contemplated under Section 2.03 and Section 2.05.
9.02
Access to Books and Records and Financial Statements.
For a period of five (5) years following the Closing, Purchaser shall allow Stockholders, during regular business hours, reasonable access
to the Books and Records and Financial Statements of Marquis with respect to periods prior to the Closing, to the extent that such access
may be reasonably required by Stockholders (i) to facilitate the investigation, litigation, and final disposition of any claims that may have
been or may be made in writing against any Stockholder by any third-party (including any Purchaser Indemnitee pursuant to Section 10)
or (ii) for any other reasonable purpose.
9.03
Life Insurance on Stockholders.
If Purchaser elects to purchase a key man insurance policy on any of the Stockholders to be owned by Purchaser, the applicable
Stockholders shall cooperate with Purchaser in the life insurance application process.
9.04
Cash Bonus Incentive Program.
Purchaser shall cause the Company to adopt a cash bonus incentive program, on terms substantially consistent with past practices, for the
benefit of the Stockholders and Marquis’ other key managers as from time to time identified by Purchaser, as may be modified or
amended from time to time by the Board of Directors of Purchaser.
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10.
Indemnification by Stockholders.
The Stockholders, jointly and severally, shall indemnify and defend Purchaser and its Affiliates (including Marquis and Live) and their
respective Representatives (collectively, the “Purchaser Indemnitees”) from and against, and shall hold each of them harmless from and
against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Purchaser
Indemnitees based upon, arising out of, with respect to, or by reason of (a) any inaccuracy in or breach of the representations and
warranties set forth in Section 4 or in any certificate delivered by Stockholders pursuant to this Agreement (other than in respect of
Section 4.15, it being understood that the sole remedy for any such inaccuracy in or breach thereof shall be pursuant to Section 8.05); (b)
any breach or non-fulfillment of any covenant, agreement, or obligation to be performed by Sellers pursuant to this Agreement (excluding
(i) covenants, agreements, and obligations to be performed by Marquis after the Closing and (ii) any covenant, agreement, or obligation
in Section 8.05, it being understood that the sole remedy for any such breach, violation, or failure shall be pursuant to Section 8.05); or
(c) any Liability not reflected on the Closing Date Balance Sheet; subject to the following terms and conditions, as applicable. Any such
Losses shall be limited to the amount thereof that remains after deducting therefrom (i) any Tax Benefits actually realized and to the
extent utilized by Purchaser Indemnitees in the computation of their taxable income in the year of the Loss and the first two (2)
subsequent years following the year of the Loss and (ii) any insurance proceeds actually received by the Purchaser Indemnitee in respect
of any such claim, less any related costs and expenses, including the aggregate cost of pursuing any related insurance claims and any
related increases in insurance premiums or other chargebacks.
10.01 No Claim for Indemnification until Loss exceeds $100,000.
There shall be no claim for indemnification under clause (a) of the opening paragraph above of this Section 10 until the Loss,
individually or in the aggregate, in respect of indemnification under such clause (a) exceeds One Hundred Thousand Dollars ($100,000),
but once that Loss threshold is achieved, all Losses shall be subject to Indemnification from the first dollar. Notwithstanding the
foregoing, the limitation set forth in this Section 10.01 shall not apply to Losses based upon, arising out of, with respect to, or by reason
of any inaccuracy in or breach of any representation or warranty in Section 4.01, Section 4.02, Section 4.03, Section 4.19, Section 4.21,
and Section 4.24. For purposes of this Section 10, any inaccuracy in or breach of any representation or warranty shall be determined
without regard to any materiality or other similar qualification contained in or otherwise applicable to such representation or warranty.
10.02
Survival.
The representations and warranties contained in Section 4 (other than any representations or warranties contained in Section 4.15, which
are subject to Section 8.05) shall survive the Closing and shall remain in full force and effect until the date that is two years from the
Closing Date; provided, that the representations and warranties in (a) Section 4.01, Section 4.02, Section 4.03, and Section 4.24, shall
survive indefinitely and (b) Section 4.19 and Section 4.21 shall survive for the full period of all applicable statutes of limitations (giving
effect to any waiver, mitigation, or extension thereof) plus 60 days. All covenants and agreements of the Sellers contained herein (other
than any covenants or agreements contained in Section 8.05, which are subject to Section 8.05) shall survive the Closing indefinitely or
for the period explicitly specified therein; and provided, further, that a claim based upon intentional fraud on the part of the Sellers shall
survive indefinitely. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at
such time) and in writing by notice from any Purchaser Indemnitee to the Stockholders’ Representative prior to the expiration date of the
applicable survival period set forth in this Section 10.02 shall not thereafter be barred by the expiration of the relevant representation or
warranty and such claims shall survive until finally resolved.
10.03
Environmental Indemnification.
There shall be no claim for indemnification for any environmental condition reflected on any Environmental Reports delivered to
Purchaser prior to the Closing Date. Notwithstanding the above, the Artisans Property and all Environmental Reports delivered to
Purchaser relating to the Artisans Property are excluded from this Section 10.03. The Parties acknowledge that their agreements
regarding indemnification for environmental matters in respect of the Artisans Property are set forth in the Artisans Lease.
10.04
Title Commitments.
Without limiting any claim against the Stockholders by any Purchaser Indemnitee that Sellers failed to perform their obligations under
Section 8.06, there shall be no claim for indemnification for any exception to the title of the Real Property set forth in the Title
Commitments or any Survey of the Real Property commissioned by Purchaser or in connection with the Financing.
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10.05
Indemnification Procedures.
The Purchaser Indemnitee making a claim under this Section 10 is referred to as the “Indemnified Party.”
10.05.01 Third-Party Claims.
If any Indemnified Party receives notice of the assertion or commencement of any Proceeding made or brought by any Person
who is not a Party or an Affiliate of a Party or a Representative of the foregoing (a “Third-Party Claim”) against such
Indemnified Party with respect to which the Stockholders are obligated to provide indemnification under this Section 10, the
Indemnified Party shall give the Stockholders’ Representative reasonably prompt written notice thereof, but in any event not later
than thirty (30) days after receipt of such notice of such Third-Party Claim. The failure to give such prompt written notice shall
not, however, relieve the Stockholders of their indemnification obligations, except and only to the extent that the Stockholders
forfeit rights or defenses by reason of such failure. Such notice by the Indemnified Party shall describe the Third-Party Claim in
reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if
reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party. The Stockholders’
Representative, on behalf of the Stockholders, shall have the right to assume the defense of any Third-Party Claim at the
Stockholders’ expense and by the Stockholders’ own counsel so long as (i) the Stockholders’ Representative gives written notice
to the Indemnified Party within fifteen (15) days after it has been notified of the Third-Party Claim that he will defend the
Indemnified Party against the Third-Party Claim and the Stockholders’ Representative, on behalf of the Stockholders,
acknowledges the obligation of the Stockholders to indemnify the Indemnified Party for Losses related to such Third-Party
Claim, (ii) the Third-Party Claim involves only money damages and does not seek an injunction or other equitable relief against
the Indemnified Party, (iii) the Indemnified Party has not been advised by counsel that a conflict exists between the Indemnified
Party and the Stockholders in connection with conducting the defense of the Third-Party Claim, (iv) the Third-Party Claim does
not relate to or otherwise arise in connection with any criminal or regulatory enforcement action, and (v) the Stockholders’
Representative conducts the defense of the Third Party Claim diligently; provided, that the Stockholders’ Representative shall
not, without the Indemnified Party’s written consent (which consent shall not be unreasonably withheld, delayed, denied, or
conditioned), settle or compromise any Third-Party Claim or consent to entry of any judgment, which settlement, compromise, or
judgment (x) by its terms does not obligate the Stockholders to pay the full amount of any Losses in connection with such Third-
Party Claim, (y) requires any payment or other action by, or limitation on, any Indemnified Party, or (z) does not include the
giving by the claimant to the Indemnified Party a full release from all liability in respect of such Third-Party Claim. In the event
that the Stockholders’ Representative does not, within fifteen (15) days of its receipt of notice of a Third-Party Claim pursuant to
clause (i) above of this Section 10.05.01, elect to undertake such defense or opposition, the Indemnified Party may undertake the
defense, opposition, compromise, or settlement of such Third-Party Claim with counsel selected by it at the Stockholders’ cost. If
the Indemnified Party defends any Third-Party Claim pursuant to the preceding sentence or pursuant to subclauses (ii) – (v) above
of this Section 10.05.01, then the Stockholders shall promptly reimburse the Indemnified Party for the reasonable costs and
expenses of defending such Third-Party Claim upon submission of periodic bills. Notwithstanding anything herein to the
contrary, in the event that the Stockholders’ Representative undertakes the defense of or opposition to any Third-Party Claim
pursuant to this Section 10.05.01, the Indemnified Party, by counsel of its own choosing and, at its sole cost and expense, shall
have the right to participate in the defense, opposition, compromise, or settlement of, and consult with the Stockholders’
Representative and his counsel concerning, such Third-Party Claim and the Stockholders’ Representative and the Indemnified
Party and their respective counsel shall cooperate in good faith with respect to such Third-Party Claim.
10.05.02 Authority of Stockholders’ Representative .
The Stockholders’ Representative shall administer any Losses claimed against the Stockholders pursuant to this Section 10. For
all purposes under this Section 10, the Stockholders’ Representative shall be the exclusive agent and shall act on behalf of all
Stockholders and all such actions of Stockholders’ Representative hereunder shall bind all Stockholders.
10.06
[Omitted].
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10.07
Payments.
Once a Loss is finally determined to be payable by the Stockholders pursuant to this Agreement, the Stockholders shall satisfy their
indemnification obligations within five (5) Business Days after such determination. All indemnification payments made under this
Section 10 shall be treated by the Parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.
10.08 Offset.
The Purchaser Indemnitee seeking indemnification for a claim finally determined pursuant to this Section 10 (or Purchaser in the case of
any payment owed to Purchaser by the Stockholders pursuant to Section 2.05) may, in the following priority: (i) offset it against any
payments due the Artisan’s Lessor under the Artisans Lease; (ii) offset it against any payments due Stockholders under the Operating
Agreement; (iii) offset it against any payments due Stockholders under the Employment Agreements; and then (iv) cause such
indemnification claim to be satisfied by causing the Stockholders to transfer Member Interests to the Purchaser Indemnitee with a book
value equal to the amount of such indemnification claim (with such book value being determined in the manner other book value
determinations are made in accordance with the Operating Agreement).
10.09 No Circular Recovery.
Each Stockholder hereby agrees that he will not make any claim for indemnification against any Purchaser Indemnitee by reason of the
fact that any Stockholder or any of his Affiliates was a controlling person, director, employee, or representative of Marquis or was
serving as such for another Person at the request of Marquis (whether such claim is for Losses of any kind or otherwise) with respect to
any claim brought by a Purchaser Indemnitee against Stockholders under this Agreement or otherwise relating to this Agreement. With
respect to any claim brought by a Purchaser Indemnitee against the Stockholders under this Agreement or otherwise relating to this
Agreement, each Stockholder expressly waives any right of subrogation, contribution, advancement, indemnification, or other claim
against Marquis with respect to any amounts owed by the Stockholders pursuant to this Section 10 or otherwise.
11.
Indemnification by Live and Purchaser.
Live and Purchaser, jointly and severally, shall indemnify Stockholders from any Loss arising from any breach of Purchaser’s
representations and warranties set forth in Section 5 and Live’s and Purchaser’s covenants set forth in Section 7.
12.
Conditions to Close.
12.01
Purchaser’s Conditions to Close.
Purchaser shall have no obligation to close the transactions contemplated by this Agreement unless and until the following conditions
precedents are satisfied or waived in writing by Purchaser or Live:
12.01.01 Financing.
Purchaser shall have consummated the Financing on terms acceptable to Purchaser, in its sole and absolute discretion.
12.01.02 Bring-down of Representations and Warranties; Compliance with Agreement; Stockholders’ Closing
Certificate.
(a)
Other than the representations and warranties of the Sellers contained in Section 4.01, Section 4.02, Section 4.03,
Section 4.05, and Section 4.24, the representations and warranties of Sellers contained in this Agreement and any
certificate or other writing delivered pursuant hereto shall be true and correct in all respects (in the case of any
representation or warranty qualified by materiality or Material Adverse Effect) or in all material respects (in the case of
any representation or warranty not qualified by materiality or Material Adverse Effect) on and as of the date hereof and
on and as of the Closing Date with the same effect as though made on and as of such date (except those representations
and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that
specified date in all respects). The representations and warranties of Sellers contained in Section 4.01, Section 4.02,
Section 4.03, Section 4.05, and Section 4.24 shall be true and correct in all respects on and as of the date hereof and on
and as of the Closing Date with the same effect as though made on and as of such date (except those representations
and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that
specified date in all respects).
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(b)
(c)
Sellers shall have duly performed and complied in all material respects with all agreements, covenants, and conditions
required by this Agreement to be performed or complied with by them prior to or on the Closing Date.
The Stockholders shall have executed and delivered to Purchaser a certificate, dated the Closing Date (the
“Stockholders’ Certificate”), certifying that each of the conditions set forth in Section 12.01.02(a) and 12.01.02(b) have
been satisfied.
12.01.03 Environmental Reports.
Purchaser is satisfied, in its sole and absolute discretion, with the Environmental Reports.
12.01.04 Title Commitments.
Purchaser is satisfied, in its sole and absolute discretion, with the Title Commitments and Surveys.
12.01.05 Execution and Delivery of the Other Transaction Documents.
Purchaser shall have received true and complete copies of the following: (i) the Employment Agreements executed by the
Stockholders; (ii) the Operating Agreement executed by the Stockholders; and (iii) the Artisans Lease duly executed by Artisans
Lessor and Constellation.
12.01.06 Other Deliveries.
The Stockholders shall have delivered the following to Purchaser: (i) share certificates representing the Stock, free and clear of
Encumbrances, endorsed in blank or accompanied by stock powers or other instruments of transfer duly executed in blank;
(ii) current “good standing” certificates for Marquis; (iii) a Secretary’s Certificate from Marquis certifying (A) that attached
thereto are true and complete copies of all resolutions adopted by the board of directors and Stockholders authorizing the
execution, delivery, and performance of this Agreement and the other Transaction Documents and the consummation of the
Transactions, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the
Transactions and (B) as to the names and signatures of the officers of the Company authorized to sign this Agreement, the
Transaction Documents, and the other documents to be delivered hereunder and thereunder; (iv) resignations of the directors of
Marquis and the directors of Constellation; (v) a certificate from each Stockholder pursuant to Treasury Regulations Section
1.1445-2(b) that such Stockholder is not a foreign person within the meaning of Section 1445 of the Code; (vi) the certificate
contemplated under Section 2.06.03(b); (vii) a Stockholder Release from each Stockholder, dated the Closing Date, in the form
of Exhibit H (collectively, the “Stockholder Releases”); and (viii) such other documents or instruments as Purchaser or Live
reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.
12.01.07 No Proceedings.
No Proceeding shall have been commenced or threatened against Purchaser, Live, any of their respective Affiliates, or any
Seller (i) involving any challenge to, or seeking damages or other relief in connection with, any of the Transactions or (ii) that
may have the likely effect of preventing, delaying, making illegal, or otherwise interfering with any of the Transactions. No
Order shall have been issued by any Governmental Body, and be in effect, which restrains or prohibits any of the Transactions.
There shall not have been made or threatened by any Person any claim asserting that such Person (i) is the holder or the
beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, any capital stock of, or any other voting,
equity, or ownership interest in, the Company or any Subsidiary thereof, or (ii) is entitled to all or any portion of the Purchase
Price.
12.01.08 Third-party Consents.
All Consents that are listed on Schedule 4.04 shall have been received, and executed counterparts thereof shall have been
delivered to Purchaser at or prior to the Closing.
12.01.09 Acquisition of Minority Interest in SF Commercial.
The Company shall have acquired all of the minority interest in SF Commercial that it does not currently own.
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12.01.10 Due Diligence.
Purchaser shall be satisfied, in its sole and absolute discretion, with the results of its due diligence investigation of Marquis and
the Business.
12.01.11 Termination of Stockholders’ Agreement.
The Stockholders shall have effected a termination and waiver of the Stockholders’ Agreement disclosed on Schedule 4.02, in
form and substance acceptable to Purchaser.
12.02
Sellers’ Conditions to Close.
The Stockholders shall have no obligation to close the transactions contemplated by this Agreement unless and until the following
conditions precedents are satisfied or waived in writing by the Stockholders:
12.02.01 Bring-down of Representations and Warranties; Compliance with Agreement; Purchaser’s Closing
Certificate.
(a)
(b)
(c)
Other than the representations and warranties of Buyer contained in Section 5.01 and Section 5.04, the representations
and warranties of Purchaser and Live contained in this Agreement and any certificate or other writing delivered
pursuant hereto shall be true and correct in all respects (in the case of any representation or warranty qualified by
materiality) or in all material respects (in the case of any representation or warranty not qualified by materiality) on and
as of the date hereof and on and as of the Closing Date with the same effect as though made on and as of such date
(except those representations and warranties that address matters only as of a specified date, the accuracy of which shall
be determined as of that specified date in all respects). The representations and warranties of Purchaser and Live
contained in Section 5.01 and Section 5.04 shall be true and correct in all respects on and as of the date hereof and on
and as of the Closing Date with the same effect as though made at and as of such date.
Each of Purchaser and Live shall have duly performed and complied in all material respects with all agreements,
covenants, and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing
Date.
Purchaser shall have executed and delivered to the Stockholders’ Representative a certificate, dated the Closing Date
(the “Purchaser’s Certificate”), certifying that (i) each of the conditions set forth in Section 12.02.01(a) and 12.02.02(b)
have been satisfied and (ii) that Purchaser has received the Live Contribution Amount and the Stockholders’
Contribution Amount from Live pursuant to Section 2.06.04.
12.02.02 Purchaser’s Financing. Purchaser shall have consummated its financing for the following credit facilities: (a) a
$22,787,662 senior credit facility consisting of (i) a $15,000,000 revolving credit facility and (ii) a term loan of up $7,787,662;
and (b) up to $7,000,000 of senior subordinated term debt.
12.02.03 Execution and Delivery of the Other Transaction Documents.
The Stockholders’ Representative shall have received true and complete copies of the following: (i) the Employment
Agreements executed by the Company and (ii) the Operating Agreement executed by Purchaser and Live.
12.02.04 Other Deliveries.
Purchaser shall have (a) made the payments of the Base Purchase Price pursuant to Section 2.06.03, (b) issued the Member
Interests to the Stockholders, and (c) delivered the following to the Stockholders’ Representative: (i) a current good standing
certificate for Purchaser and (ii) a Secretary’s Certificate from Purchaser certifying (A) that attached thereto are true and
complete copies of all resolutions adopted by the sole member or board of directors of Purchaser authorizing the execution,
delivery, and performance of this Agreement and the other Transaction Documents and the consummation of the Transactions,
and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the Transactions
and (B) as to the names and signatures of the officers of Purchaser authorized to sign this Agreement, the Transaction
Documents and the other documents to be delivered hereunder and thereunder.
12.02.05 No Order.
No Order shall have been issued by any Governmental Body, and be in effect, that restrains or prohibits any material transaction
contemplated hereby.
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13.
Termination.
13.01
Termination.
This Agreement may be terminated at any time prior to the Closing:
(a)
(b)
(c)
by the mutual written consent of Purchaser and the Stockholders’ Representative;
by Purchaser or Live by written notice to the Stockholders’ Representative if: (i) neither Purchaser nor Live is then in material
breach of any provision of this Agreement and there has been a breach, inaccuracy in, or failure to perform any representation,
warranty, covenant, or agreement made by any Seller pursuant to this Agreement that would give rise to the failure of any of the
conditions specified in Section 12.01 and such breach, inaccuracy, or failure has not been cured by Sellers within ten (10) days
of the Stockholders’ Representative receipt of written notice of such breach from Purchaser or Live or (ii) any of the conditions
set forth in Section 12.01 shall not have been, or if it becomes apparent that any of such conditions will not be, fulfilled by July
31, 2015, unless such failure shall be due to the failure of Purchaser or Live to perform or comply with any of the covenants,
agreements, or conditions hereof to be performed or complied with by it prior to the Closing;
by the Stockholders’ Representative by written notice to Purchaser if: (i) no Seller is then in material breach of any provision of
this Agreement and there has been a breach, inaccuracy in, or failure to perform any representation, warranty, covenant, or
agreement made by Purchaser or Live pursuant to this Agreement that would give rise to the failure of any of the conditions
specified in Section 12.02 and such breach, inaccuracy, or failure has not been cured by Purchaser or Live within ten (10) days
of its receipt of written notice of such breach from Sellers or (ii) any of the conditions set forth in Section 12.02 shall not have
been, or if it becomes apparent that any of such conditions will not be, fulfilled by July 31, 2015, unless such failure shall be due
to the failure of any Seller to perform or comply with any of the covenants, agreements, or conditions hereof to be performed or
complied with by it prior to the Closing; or
(d)
by Purchaser or Live, on the one hand, or the Stockholders’ Representative, on the other hand, in the event that (i) there shall be
any Law that makes consummation of the Transactions illegal or otherwise prohibited or (ii) any Governmental Body shall have
issued an Order restraining or enjoining the Transactions and such Order shall have become final and non-appealable.
13.02
Effect of Termination.
In the event of the termination of this Agreement in accordance with this Section 13.01, this Agreement shall forthwith become void and
there shall be no liability on the part of any Party except: (a) as set forth in this Section 13 or in Section 14 hereof and (b) that nothing
herein shall relieve any Party from liability for any breach of any provision hereof or fraud or intentional misrepresentation.
14.
Miscellaneous.
14.01
Titles Descriptive; Interpretation.
Titles and headings are descriptive and not substantive parts of this Agreement. Where the context so requires or permits, the use of the
singular form includes the plural, and the use of the plural form includes the singular. For purposes of this Agreement, (a) the words
“include,” “includes,” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not
exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto,” and “hereunder” refer to this Agreement as a whole. Unless the
context otherwise requires, references herein: (i) to Sections, Schedules, and Exhibits mean the Sections of, and Schedules and Exhibits
attached to, this Agreement; (ii) to an agreement, instrument, or other document means such agreement, instrument, or other document as
amended, supplemented, and modified from time to time to the extent permitted by the provisions thereof; and (iii) to a statute means
such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder.
The Schedules and Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if
they were set forth verbatim herein. Any matter or item disclosed on one Schedule shall not be deemed to have been disclosed on any
other Schedule unless an explicit cross-reference is set forth thereon. Any capitalized term used but not defined in any Schedule shall
have the meaning given to such term in this Agreement.
39
14.02 Negotiated Agreement.
The Parties have each been represented by counsel of their choice and this Agreement has been negotiated and shall not be construed
against one Party or the other.
14.03 No Third-Party Beneficiaries; No Recourse to Financing Sources.
Except for the Purchaser Indemnities, this Agreement does not confer any rights or remedies upon any Person (including any employee
of Marquis) other than the Parties and their respective successors and permitted assigns. Notwithstanding the foregoing, each financing
source for the Financing shall be an express third-party beneficiary with respect to the second paragraph of this Section 14.03 and the
second paragraph of Section 14.08 (the “FS Provisions”).
Subject to the rights of the parties to any Contract entered into in connection with the Financing, none of the Parties, nor any of their
respective Affiliates, solely in their respective capacities as parties to this Agreement, shall have any rights or claims against any
financing source for the Financing or any Affiliate thereof, solely in their respective capacities as lenders or arrangers in connection with
the Financing, and such financing sources, solely in their respective capacities as lenders or arrangers, shall not have any rights or claims
against any Party or any Affiliate thereof, in connection with this Agreement or the Financing, whether at law or equity, in contract, in
tort, or otherwise.
14.04 Governing Law.
This Agreement shall be governed by Georgia law without regard to its choice of law provisions.
14.05
Severability.
If any portion of this Agreement is held illegal or unenforceable, such portion or portions shall be absolutely and completely severable
from all other provisions of this Agreement, and such other provisions shall constitute the agreement of the Parties with respect to the
subject matter hereof. On such determination that a portion of this Agreement is illegal or unenforceable, the Parties shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
14.06 Notice.
Any notices, requests, consents, claims, demands, waivers, and other communications under this Agreement shall be in writing and shall
be deemed to have been duly given if (i) delivered in person, (ii) mailed, postage prepaid, by certified or registered mail with return
receipt requested, (iii) transmitted by facsimile or e-mail (with confirmation of transmission) during regular business hours during a
business day, or (iv) sent by FedEx Express or other nationally recognized overnight courier service, or overnight Priority Mail Express
of the U.S. Postal Service, postage prepaid, to the Party at the physical or e-mail address or facsimile number shown below. Notices
personally delivered in accordance with clause (i) above shall be deemed to have been given on the date so delivered; notices mailed in
accordance with clause (ii) above shall be deemed to have been given on the date three (3) Business Days after the date posted; notices
transmitted in accordance with clause (iii) above shall be deemed delivered on the same Business Day, if sent during regular business
hours, and, if not, on the next Business Day; and notices sent in accordance with clause (iv) above shall be deemed to have been given on
the next Business Day after delivery to the courier or U.S. Postal Service (in time for next day delivery).
40
If to Purchaser or Live:
Live Ventures Inc.
325 East Warm Springs Road
Suite 102
Las Vegas, Nevada 89119
Attention: Jon Isaac
Email: j.isaac@isaac.com
With a copy (which shall not constitute notice) to:
If to Marquis:
Baker & Hostetler LLP
600 Anton Boulevard
Suite 900
Costa Mesa, California 92626
Attention: Randolf W. Katz
Email: rwkatz@bakerlaw.com
Marquis Industries, Inc.
P.O. Box 1308
Chatsworth, GA 30705
Attention: Timothy A. Bailey
Email: tbailey@marquisind.com
With a copy (which shall not constitute notice) to:
Edward Hine, Jr.
Edward Hine, Jr., P.C.
P. O. Box 5128
Rome, GA 30162-5128
Email: ed@edwardhinelaw.com
If to the Stockholders’ Representative:
Timothy A. Bailey
P.O. Box 1308
Chatsworth, GA 30705
Email: tbailey@marquisind.com
With a copy (which shall not constitute notice) to:
Edward Hine, Jr.
Edward Hine, Jr., P.C.
P. O. Box 5128
Rome, GA 30162-5128
Email: ed@edwardhinelaw.com
41
14.07 Counterparts and Signatures.
This Agreement may be executed in counterparts, each of which shall for all purposes be deemed an original, and all of such counterparts
shall together constitute one and the same agreement. The Agreement may be executed via signature exchanged by facsimile or pdf,
which signature shall be as valid as an original.
14.08 Arbitration.
The Parties have agreed that any dispute arising out of or relating to this Agreement (a “Dispute”) shall be resolved in accordance with
the procedures set forth in this Section 14.08. Until completion of such procedures, no Party may take any action not contemplated herein
to force a resolution of the Dispute by any judicial, arbitral, or similar process, except to the limited extent necessary to (i) avoid
expiration of a claim that might eventually be permitted hereby or (ii) obtain interim relief, including injunctive relief, to preserve the
status quo or prevent irreparable harm. All communications between the Parties or their Representatives in connection with the attempted
resolution of any Dispute shall be confidential and deemed to have been delivered in furtherance of Dispute settlement and shall be
exempt from discovery and production, and shall not be admissible in evidence (whether as an admission or otherwise) in any arbitral or
other proceeding for the resolution of the Dispute or otherwise. Disputes shall be finally settled by arbitration before a single arbitrator
using the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) as then in effect (the “Arbitration Rules”), as
modified by and subject to the provisions of this Section 14.08. The arbitration shall take place in Atlanta, Georgia. Any court of
competent jurisdiction shall have authority to enter its order enforcing the award of the arbitrator, which shall be final and binding on the
Disputing Parties, subject to the following sentence. Notwithstanding anything to the contrary in this Section 14.10, the parties hereto
agree: that the Underlying Award may be appealed pursuant to the AAA’s Optional Appellate Arbitration Rules (the “Appellate Rules”);
that the Underlying Award rendered by the arbitrator shall, at a minimum, be a reasoned award; and that the Underlying Award shall not
be considered final until after the time for filing the notice of appeal pursuant to the Appellate Rules has expired. Any such appeal must
be initiated within thirty (30) days of receipt of an Underlying Award by filing a notice of appeal pursuant to the Appellate Rules with
any AAA office. Following the appeal process, the decision rendered by the appeal tribunal may be entered in any court having
jurisdiction thereof.
On receipt of a notice of a Dispute, the Parties involved in the Dispute (each, a “Disputing Party”) shall initially participate in a
mandatory mediation period. In the event that such mediation does not resolve the Dispute within ten (10) days (or any mutually agreed
extension thereof), the arbitration process shall be commenced by the initiating Disputing Party giving written notice to the other
Disputing Party of its intention to arbitrate (a “Demand”). The Dispute shall be decided by one arbitrator designated by the Disputing
Parties as follows. If the Disputing Parties are able to agree upon such arbitrator within twenty-one (21) days after the Demand has been
received by one Disputing Party from the initiating Disputing Party, the Dispute shall be submitted to such arbitrator. If the Disputing
Parties are unable so to agree upon such arbitrator within such period for any reason, AAA is authorized hereby to select an arbitrator
within ten (10) days after the expiration of such twenty-one (21)-day period, which selection shall be made in accordance with the
Arbitration Rules. The administrative fee of AAA and the compensation and all other costs and expenses of the arbitrator shall be paid
by the Disputing Party that is not the substantially prevailing Disputing Party in the Dispute and the substantially prevailing Disputing
Party in the Dispute shall be entitled to recover from the other Disputing Party (and the arbitrator may so award the substantially
prevailing Disputing Party) any or all fees, costs, and expenses incurred by the substantially prevailing Disputing Party in connection
with the Dispute, including reasonable attorneys’ fees.
Notwithstanding anything in this Section 14.08 to the contrary, each of the Parties agrees that it will not bring or support any Proceeding
(whether at law, in equity, in contract, in tort, or otherwise) against the financing sources for the Financing or any other Persons that have
committed to provide or otherwise entered into agreements in connection with the Financing or other financings in connection with the
transactions contemplated hereby in any way relating to this Agreement or any of the transactions contemplated by this Agreement, in
any forum other than the federal and state courts located in Atlanta, Georgia (and appellate courts thereof). The provisions of this
paragraph shall be enforceable by each financing source, its Affiliates, and their respective successors and permitted assigns.
42
14.09
Expenses.
Except as otherwise expressly provided herein, all costs and expenses, including fees and disbursements of legal counsel and other
Representatives, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses; provided, however, that the Purchaser shall be responsible for the reasonable out-of-pocket and
documented expenses (including reasonable attorneys’ fees and expenses) incurred by the Sellers or Live in connection with the
preparation, negotiation, execution, and delivery of this Agreement (excluding any and all investment banking or broker fees,
commissions, and expenses payable by any Seller or any Affiliate thereof in connection with the transactions contemplated by this
Agreement).
14.10 Representations, Warranties, and Covenants to Survive.
Subject to Section 10.02, all representations, warranties, and covenants of any Party shall survive the Closing.
14.11 No Waiver; Amendment.
No waiver shall be effective against any Party unless signed by the Party against whom the waiver is asserted. No amendment to this
Agreement shall be effective unless signed by all Parties. No waiver by any party shall operate or be construed as a waiver in respect of
any failure, breach, or default not expressly identified by such written waiver, whether of a similar or different character, and whether
occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power, or privilege arising from
this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power, or
privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege.
Notwithstanding anything to the contrary in this Section, no FS Provision may be amended or waived without the consent of the
financing sources for the Financing.
14.12
Time is of the Essence.
Time is of the essence in the performance of this Agreement.
14.13
Specific Performance.
Each Party acknowledges that the other Parties would be damaged irreparably and would have no adequate remedy of law if any
provision of this Agreement is not performed in accordance with its specific terms or otherwise is breached. Accordingly, each Party
agrees that the other Parties will be entitled to an injunction to prevent any breach of any provision of this Agreement and to enforce
specifically any provision of this Agreement, in addition to any other remedy to which they may be entitled and without having to prove
the inadequacy of any other remedy they may have at law or in equity and without being required to post bond or other security.
14.14
Entire Agreement.
This Agreement and the other Transaction Documents are the sole and entire agreement among the Parties as to the matters addressed
herein and therein and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to
such subject matter. In the event of any inconsistency between the statements in the body of this Agreement and those in the other
Transaction Documents, the Exhibits, and Schedules (other than an exception expressly set forth as such in the Schedules), the
provisions of this Agreement will control.
14.15
Successors and Assigns.
This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assigns.
No Party may assign his or its rights or obligations hereunder without the prior written consent of the other Parties, which consent shall
not be unreasonably withheld, delayed, denied, or conditioned; provided, however, that Purchaser may collaterally assign any or all of its
rights and obligations hereunder to any provider of debt financing to it or any of its Affiliates. No assignment shall relieve the assigning
party of any of its obligations hereunder.
14.16 Authority and Rights of Stockholders’ Representative.
By executing this Agreement, each Stockholder appoints Bailey as the Stockholders’ Representative for all purposes under this
Agreement and authorizes the Stockholders’ Representative to act as his attorney in fact on behalf of such Stockholder and in such
Stockholder’s name to carry out the functions assigned to the Stockholders’ Representative in this Agreement and any other agreements,
certificates, or notices to be delivered pursuant to this Agreement. Any Contract, notice, waiver, or other arrangement signed by
Stockholders’ Representative shall be binding and enforceable against each Stockholder as if such Stockholder were a signatory thereto.
43
14.17 Certain Legal Matters.
The Sellers (i) acknowledge that Baker & Hostetler LLP has represented Purchaser and Live and their respective Affiliates in connection
with the transactions contemplated by this Agreement and the other Transaction Documents and (ii) consent to the representation by
Baker & Hostetler LLP of Purchaser and Live and their respective Affiliates in any future matter, including post-closing Disputes
concerning this Agreement and all Transactions.
Purchaser and Live (i) acknowledge that Edward Hine, Jr., P.C. has represented Sellers and their respective Affiliates in connection with
the transactions contemplated by this Agreement and the other Transaction Documents and (ii) consent to the representation by Edward
Hine, Jr., P.C. of the Sellers and their respective Affiliates in any future matter, including post-closing Disputes concerning this
Agreement and all Transactions.
[Signature pages follow.]
44
IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement as of the date first written above.
Live:
Live Ventures Inc.
By:
/s/ Jon Isaac
Jon Isaac, President and Chief Executive Officer
[Corporate Seal]
Purchaser:
Marquis Affiliated Holdings LLC
By:
/s/ Jon Isaac
Jon Isaac, President and Chief Executive Officer
[Company Seal]
Company:
Marquis Industries, Inc.
By:
/s/ Timothy A. Bailey
Timothy A. Bailey, CEO, C.O.B
[Corporate Seal]
Stockholders:
/s/ Timothy A. Bailey
(L.S.)
Timothy A. Bailey
/s/ Larry Heckman
(L.S.)
Larry Heckman
/s/ David Stokes
(L.S.)
David Stokes
/s/ Mark Rowland
(L.S.)
Mark Rowland
Stockholders’ Representative:
/s/ Timothy A. Bailey
(L.S.)
Timothy A. Bailey
45
Exhibit A
Form of Artisans Lease
(attached)
46
Exhibits B-E
Forms of Employment Agreements
(attached)
47
Exhibit F
Form of Operating Agreement
(attached)
48
Exhibit H
Form of Stockholder Release
(attached)
49
Exhibit 10.16
LOAN AND SECURITY AGREEMENT
Dated as of July 6, 2015
MARQUIS AFFILIATED HOLDINGS LLC,
MARQUIS INDUSTRIES, INC.,
A-O INDUSTRIES, LLC,
ASTRO CARPET MILLS, LLC,
CONSTELLATION INDUSTRIES, LLC,
S F COMMERCIAL PROPERTIES, LLC,
and
as Borrowers
BANK OF AMERICA, N.A.,
as Lender
TABLE OF CONTENTS
DEFINITIONS; RULES OF CONSTRUCTION
Definitions
Accounting Terms
Uniform Commercial Code
Certain Matters of Construction
CREDIT FACILITIES
Revolver Commitment
Term Loan Commitment
Letter of Credit Facility
INTEREST, FEES AND CHARGES
Interest
Fees
Computation of Interest, Fees, Yield Protection
Reimbursement Obligations
Illegality
Inability to Determine Rates
Increased Costs; Capital Adequacy
Mitigation
Funding Losses
Maximum Interest
LOAN ADMINISTRATION
Manner of Borrowing and Funding Revolver Loans
Number and Amount of LIBOR Loans; Determination of Rate
Borrower Agent
One Obligation
Effect of Termination
PAYMENTS
General Payment Provisions
Repayment of Revolver Loans
Repayment of Term Loan
Payment of Other Obligations
Marshaling; Payments Set Aside
Applications of Payments; Dominion Account
Account Stated
Taxes
Nature and Extent of Each Borrower’s Liability
CONDITIONS PRECEDENT
Conditions Precedent to Initial Loans
Conditions Precedent to All Credit Extensions
COLLATERAL
Grant of Security Interest
Lien on Deposit Accounts; Cash Collateral
Real Estate Collateral
Other Collateral
Limitations
Further Assurances; Extent of Liens
Foreign Subsidiary Stock
COLLATERAL ADMINISTRATION
Borrowing Base Certificates
Section 1.
1.1.
1.2.
1.3.
1.4.
Section 2.
2.1.
2.2.
2.3.
Section 3.
3.1.
3.2.
3.3.
3.4.
3.5.
3.6.
3.7.
3.8.
3.9.
3.10.
Section 4.
4.1.
4.2.
4.3.
4.4.
4.5.
Section 5.
5.1.
5.2.
5.3.
5.4.
5.5.
5.6.
5.7.
5.8.
5.9.
Section 6.
6.1.
6.2.
Section 7.
7.1.
7.2.
7.3.
7.4.
7.5.
7.6.
7.7.
Section 8.
8.1.
i
Page
1
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23
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24
24
25
25
27
27
27
28
28
28
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29
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30
31
31
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31
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31
32
32
32
32
32
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34
36
36
38
39
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40
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41
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49
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53
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59
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59
59
59
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61
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61
61
61
61
61
62
62
62
63
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8.2.
8.3.
8.4.
8.5.
8.6.
8.7.
Section 9.
9.1.
9.2.
Section 10.
10.1.
10.2.
10.3.
Section 11.
11.1.
11.2.
11.3.
11.4.
11.5.
Section 12.
12.1.
12.2.
12.3.
12.4.
12.5.
12.6.
12.7.
12.8.
12.9.
12.10.
12.11.
12.12.
12.13.
12.14.
12.15.
12.16.
Accounts
Inventory
Equipment
Deposit Accounts
General Provisions
Power of Attorney
REPRESENTATIONS AND WARRANTIES
General Representations and Warranties
Complete Disclosure
COVENANTS AND CONTINUING AGREEMENTS
Affirmative Covenants
Negative Covenants
Financial Covenants
EVENTS OF DEFAULT; REMEDIES ON DEFAULT
Events of Default
Remedies upon Default
License
Setoff
Remedies Cumulative; No Waiver
MISCELLANEOUS
Amendments and Waivers
Indemnity
Notices and Communications
Performance of Borrowers' Obligations
Credit Inquiries
Severability
Cumulative Effect; Conflict of Terms
Counterparts
Entire Agreement
No Control; No Advisory or Fiduciary Responsibility
Confidentiality
GOVERNING LAW
Consent to Forum
Waivers by Borrowers
Patriot Act Notice
NO ORAL AGREEMENT
LIST OF SCHEDULES
Schedule 8.5
Schedule 8.6.1
Schedule 9.1.4
Schedule 9.1.10
Schedule 9.1.11
Schedule 9.1.14
Schedule 9.1.15
Schedule 9.1.16
Schedule 9.1.18
Schedule 9.1.120
Schedule 10.2.2
Schedule 10.2.17
Deposit Accounts
Business Locations
Names and Capital Structure
Brokers
Patents, Trademarks, Copyrights and Licenses
Environmental Matters
Restrictive Agreements
Litigation
Pension Plans
Labor Relations
Existing Liens
Existing Affiliate Transactions
ii
Exhibit A
Historical EBITDA
Calculations
/ Fixed Charge Coverage Ratio
LIST OF EXHIBITS
iii
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is dated as of July 6, 2015, among MARQUIS AFFILIATED HOLDINGS
LLC, a Delaware limited liability company ("Holdings"), MARQUIS INDUSTRIES, INC., a Georgia corporation ("Marquis"), A-O
INDUSTRIES, LLC, a Georgia limited liability company ("A-O"), ASTRO CARPET MILLS, LLC, a Georgia limited liability
company ("Astro" ) , CONSTELLATION INDUSTRIES, LLC , a Georgia limited liability company ("Constellation"), and S F
COMMERCIAL PROPERTIES, LLC , a Georgia limited liability company ("SF Commercial"; and together with Holdings, Marquis,
A-O, Astro and Constellation, collectively, " Borrowers" and each individually, a "Borrower"), and BANK OF AMERICA, N.A. , a
national banking association ("Lender").
R E C I T A L S :
On the date of this Agreement, Holdings acquired all of the capital stock of Marquis (the " Marquis Acquisition") pursuant to that
certain Purchase Agreement, dated July 6, 2015, by and among Live Ventures Inc., a Nevada corporation (" Live Ventures"), Marquis, all
of its stockholders, Timothy A. Bailey, a Georgia resident, (" Bailey"), Larry Heckman, a Georgia resident ("Heckman"), David Stokes, a
Georgia resident ("Stokes"), and Mark Rowland, a Georgia resident ("Rowland", with Bailey, Heckman, Stokes, and Rowland,
individually and interchangeably, a "Seller", and, in the aggregate, the "Sellers"), and Holdings (such agreement, as amended, restated,
supplemented or otherwise modified from time to time, the "Marquis SPA" and, together with each other material agreement, instrument,
certificates, schedule, exhibit, annex and rider executed in connection therewith or contemplated thereby, collectively, the " Marquis SPA
Documents").
The Marquis Acquisition was funded solely with proceeds from (a) the Loans (as defined below), (b) term loan indebtedness
from Isaac Capital Fund I, LLC, a Georgia limited liability company ("Mezzanine Lender"), in an amount equal to $7,000,000 (the
"Mezzanine Debt") pursuant to that certain Loan Agreement dated as of the date hereof by and among Mezzanine Lender and Borrowers
(the "Mezzanine Loan Agreement " and, together with all of the documents, agreements, instruments, certificates, schedules, exhibits,
annexes and riders executed in connection therewith or contemplated thereby, in each case as amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms of the Debt and Lien Subordination Agreement (as defined below),
collectively, the "Mezzanine Debt Documents") and (c) an equity contribution from, among others, Live Ventures, Bailey, Heckman,
Stokes, and Rowland, in an aggregate amount not less than $6,000,000.00 (the "Equity Contribution" and, all of the documents,
agreements, instruments, certificates, schedules, exhibits, annexes and riders executed in connection therewith or contemplated thereby,
collectively, the "Equity Contribution Documents").
Borrowers have requested that Lender provide a credit facility to Borrowers to finance their mutual and collective business
enterprise. Lender is willing to provide the credit facility on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS; RULES OF CONSTRUCTION
1.1. Definitions. As used herein, the following terms have the meanings set forth below:
Account: as defined in the UCC, including all rights to payment for goods sold or leased, or for services rendered.
1
Account Debtor: a Person obligated under an Account, Chattel Paper or General Intangible.
Accounts Formula Amount: 85% of the Value of Eligible Accounts.
Acquisition: a transaction or series of transactions resulting in (a) acquisition of a business, division or substantially all assets of
a Person; (b) record or beneficial ownership of 50% or more of the Equity Interests of a Person; or (c) merger, consolidation or
combination of a Borrower or Subsidiary with another Person.
Affiliate: with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person specified. "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise
voting power, by contract or otherwise. "Controlling" and "Controlled" have correlative meanings.
Allocable Amount: as defined in Section 5.9.3.
Anti-Terrorism Law: any law relating to terrorism or money laundering, including the Patriot Act.
Applicable Law: all laws, rules, regulations and governmental guidelines applicable to the Person, conduct, transaction,
agreement or matter in question, including all applicable statutory law, common law and equitable principles, and all provisions of
constitutions, treaties, statutes, rules, regulations, orders and decrees of Governmental Authorities.
Applicable Margin: the margin set forth below, as determined by the Fixed Charge Coverage
Ratio:
Level
I
II
III
IV
Fixed Charge
Coverage Ratio
>2.00 to 1.00
<2.00 to 1.00
but
>1.50 to 1.00
<1.50 to 1.00
but
>1.20 to 1.00
<1.2x
Base Rate
Revolver
Loans
0.50%
0.75%
LIBOR
Revolver
Loans
1.50%
1.75%
1.00%
2.00%
1.25%
2.25%
Base Rate Term
Loans
LIBOR Term
Loans
0.75%
1.00%
1.25%
1.50%
1.75%
2.00%
2.25%
2.50%
Until November 3, 2015, margins shall be determined as if Level II were applicable. Thereafter, the margins shall be subject to increase
or decrease by Lender on the third Business Day of the second calendar month following each Fiscal Quarter end. If Lender is unable to
calculate the Fixed Charge Coverage Ratio due to Borrowers' failure to deliver any financial statements when required hereunder, then,
at the option of Lender, margins shall be determined as if Level IV were applicable until the third Business Day of the second calendar
month following its receipt.
Asset Disposition: a sale, lease, license, consignment, transfer or other disposition of Property of an Obligor, including a
disposition of Property in connection with a sale-leaseback transaction or synthetic lease.
2
Availability: the Borrowing Base minus Revolver Usage.
Availability Reserve: the sum (without duplication) of (a) the Inventory Reserve; (b) the Rent and Charges Reserve; (c) the Bank
Product Reserve; (d) the aggregate amount of liabilities secured by Liens upon Collateral that are senior to Lender's Liens (but imposition
of any such reserve shall not waive an Event of Default arising therefrom); (e) the Dilution Reserve; and (f) such additional reserves, in
such amounts and with respect to such matters, as Lender in its Permitted Discretion may elect to impose from time to time.
Bank Product: any of the following products, services or facilities extended to an Obligor or any Subsidiary of an Obligor by
Lender or any of its Affiliates: (a) Cash Management Services; (b) products under Hedging Agreements; (c) commercial credit card and
merchant card services; and (d) leases and other banking products or services provided to any Obligor or any Subsidiary, other than
Letters of Credit.
Bank Product Debt: Debt, obligations and other liabilities of an Obligor or any Subsidiary of an Obligor with respect to Bank
Products.
Bank Product Reserve: the aggregate amount of reserves established by Lender from time to time in its Permitted Discretion in
respect of Bank Product Debt.
Bankruptcy Code: Title 11 of the United States Code.
Base Rate: for any day, a per annum rate equal to the greater of (a) the Prime Rate for such day; (b) the Federal Funds Rate for
such day, plus 0.50%; or (c) LIBOR for a 30 day interest period as of such day, plus 1.00%.
Base Rate Loan: any Loan that bears interest based on the Base Rate.
Base Rate Revolver Loan: a Revolver Loan that bears interest based on the Base Rate.
Board of Governors: the Board of Governors of the Federal Reserve System.
Borrowed Money: with respect to any Obligor, without duplication, its (a) Debt that (i) arises from the lending of money by any
Person to such Obligor, (ii) is evidenced by notes, drafts, bonds, debentures, credit documents or similar instruments, (iii) accrues interest
or is a type upon which interest charges are customarily paid (excluding trade payables owing in the Ordinary Course of Business), or (iv)
was issued or assumed as full or partial payment for Property; (b) Capital Leases; (c) reimbursement obligations with respect to letters of
credit; and (d) guaranties of any Debt of the foregoing types owing by another Person.
Borrower Agent: as defined in Section 4.3.
Borrowing: a group of Loans that are made or converted together on the same day and have the same interest option and, if
applicable, Interest Period.
Borrowing Base: on any date of determination, an amount equal to the lesser of (a) the Revolver Commitment; or (b) the sum of
the Accounts Formula Amount, plus the Factored Accounts Formula Amount, plus the Inventory Formula Amount, minus the Availability
Reserve.
Borrowing Base Certificate: a certificate, in form reasonably satisfactory to Lender and substance satisfactory to Lender, by which
Borrowers certify the Borrowing Base and certain other matters set forth therein.
3
Business Day: any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the
laws of, or are in fact closed in, North Carolina and Georgia, and if such day relates to a LIBOR Loan, any such day on which dealings in
Dollar deposits are conducted between banks in the London interbank Eurodollar market.
Capital Expenditures: all liabilities incurred or expenditures made by a Borrower or Subsidiary for the acquisition of fixed assets,
or any improvements, replacements, substitutions or additions thereto with a useful life of more than one year.
Capital Lease: any lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.
Cash Collateral: cash, and any interest or other income earned thereon, that is delivered to Lender to Cash Collateralize any
Obligations.
Cash Collateral Account : a demand deposit, money market or other account maintained with Lender and subject to Lender's
Liens.
Cash Collateralize: the delivery of cash to Lender, as security for the payment of Obligations, in an amount equal to (a) with
respect to LC Obligations, 105% of the aggregate LC Obligations, and (b) with respect to any inchoate, contingent or other Obligations
(including Obligations arising under Bank Products but excluding unasserted inchoate or contingent indemnification obligations), Lender's
good faith estimate of the amount due or to become due, including fees, expenses and indemnification hereunder. "Cash Collateralization"
has a correlative meaning.
Cash Equivalents: (a) marketable obligations issued or unconditionally guaranteed by, and backed by the full faith and credit of,
the United States government, maturing within 12 months of the date of acquisition; (b) certificates of deposit, time deposits and bankers'
acceptances maturing within 12 months of the date of acquisition, and overnight bank deposits, in each case which are issued by a
commercial bank (including Lender) organized under the laws of the United States or any state or district thereof, rated A-1 (or better) by
S&P or P-1 (or better) by Moody's at the time of acquisition, and (unless issued by Lender) not subject to offset rights; (c) repurchase
obligations with a term of not more than 30 days for underlying investments of the types described in clauses (a) and (b) entered into with
any bank meeting the qualifications specified in clause (b); (d) commercial paper issued by Lender or rated A-1 (or better) by S&P or P-1
(or better) by Moody's, and maturing within nine months of the date of acquisition; and (e) shares of any money market fund that has
substantially all of its assets invested continuously in the types of investments referred to above, has net assets of at least $500,000,000
and has the highest rating obtainable from either Moody's or S&P.
Cash Management Services: services provided from time to time by Lender or any of its Affiliates to Obligors or any Subsidiary
relating to operating, collections, payroll, trust, or other depository or disbursement accounts, including automated clearinghouse, e-
payable, electronic funds transfer, wire transfer, controlled disbursement, overdraft, depository, information reporting, lockbox and stop
payment services.
CERCLA: the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. § 9601 et seq.).
Change in Law: the occurrence, after the date hereof, of (a) the adoption, taking effect or phasing in of any law, rule, regulation
or treaty; (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof; or (c) the
making, issuance or application of any request, guideline, requirement or directive (whether or not having the force of law) by any
Governmental Authority; provided, however, that "Change in Law" shall include, regardless of the date enacted, adopted or issued, all
requests, rules, guidelines, requirements or directives (i) under or relating to the Dodd-Frank Wall Street Reform and Consumer Protection
Act, or (ii) promulgated pursuant to Basel III by the Bank for International Settlements, the Basel Committee on Banking Supervision (or
any similar authority) or any other Governmental Authority.
4
Change of Control: (a) Jon Isaac ceases to (i) own and control, beneficially and of record, directly or indirectly, at least 25% of
the Equity Interests of Live (or Live Ventures after the Live Restructuring Transaction), and (ii) be the Chief Executive Officer of Live (or
Live Ventures after the Live Restructuring Transaction) or the Chairman of the Board of Directors of Live (or Live Ventures after the Live
Restructuring Transaction); (b) Live (or Live Ventures after the Live Restructuring Transaction) ceases to own and control, beneficially
and of record, directly or indirectly, at least 80% of Holdings; (c) Holdings ceases to own and control, beneficially and of record, at least
100% of the Equity Interests of Marquis; (d) Marquis ceases to own and control, beneficially and of record, directly or indirectly, all
Equity Interests in all other Borrowers (other than Holdings) except as a result of a transaction specifically permitted by this Agreement;
(e) a change in the majority of directors of Holdings during any 24 month period, unless approved by the majority of directors serving at
the beginning of such period; or (f) the sale or transfer of all or substantially all assets of a Borrower, except to another Borrower.
Claims: all claims, liabilities, obligations, losses, damages, penalties, judgments, proceedings, interest, costs and expenses of any
kind (including remedial response costs, reasonable attorneys' fees and Extraordinary Expenses) at any time (including after Full Payment
of the Obligations) incurred by any Indemnitee or asserted against any Indemnitee by any Obligor or other Person, in any way relating to
(a) any Loans, Letters of Credit, Loan Documents, or the use thereof or transactions relating thereto, (b) any action taken or omitted to be
taken by any Indemnitee in connection with any Loan Documents, (c) the existence or perfection of any Liens, or realization upon any
Collateral, (d) exercise of any rights or remedies under any Loan Documents or Applicable Law, or (e) failure by any Obligor to perform
or observe any terms of any Loan Document, in each case including all costs and expenses relating to any investigation, litigation,
arbitration or other proceeding (including an Insolvency Proceeding or appellate proceedings), whether or not the applicable Indemnitee is
a party thereto.
Closing Date: as defined in Section 6.1.
Code: the Internal Revenue Code of 1986.
Collateral: all Property described in Section 7.1, all Property described in any Security Documents as security for any
Obligations, and all other Property that now or hereafter secures (or is intended to secure) any Obligations.
Commitment Termination Date: the earliest to occur of (a) the Revolver Termination Date; (b) the date on which Borrowers
terminate the Revolver Commitment pursuant to Section 2.1.3; or (c) the date on which the Revolver Commitment is terminated pursuant
to Section 11.2.
Commitments: the Revolver Commitment and Term Loan Commitment.
Commodity Exchange Act: the Commodity Exchange Act (7 U.S.C. § 1 et seq.).
Compliance Certificate: a certificate, in form reasonably satisfactory to Lender and substance satisfactory to Lender, by which
Borrowers certify compliance with Section 10.3 and certain other matters set forth therein.
Connection Income Taxes: Other Connection Taxes that are imposed on or measured by net income (however denominated), or
are franchise or branch profits Taxes.
Contingent Obligation: any obligation of a Person arising from a guaranty, indemnity or other assurance of payment or
performance of any Debt, lease, dividend or other obligation ("primary obligations") of another obligor ("primary obligor") in any
manner, whether directly or indirectly, including any obligation of such Person under any (a) guaranty, endorsement, co-making
or sale with recourse of an obligation of a primary obligor; (b) obligation to make take-or-pay or similar payments regardless of
nonperformance by any other party to an agreement; and (c) arrangement (i) to purchase any primary obligation or security
therefor, (ii) to supply funds for the purchase or payment of any primary obligation, (iii) to maintain or assure working capital,
equity capital, net worth or solvency of the primary obligor, (iv) to purchase Property or services for the purpose of assuring the
ability of the primary obligor to perform a primary obligation, or (v) otherwise to assure or hold harmless the holder of any
primary obligation against loss in respect thereof. The amount of any Contingent Obligation shall be deemed to be the stated or
determinable amount of the primary obligation (or, if less, the maximum amount for which such Person may be liable under the
instrument evidencing the Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability
with respect thereto.
5
Copyright Security Agreement: that certain Copyright Security Agreement dated as of the Closing Date by and among Borrowers
and Lender.
Credit Insurance Loss Payable Endorsement: a loss payable endorsement in favor of Lender from the issuer of any credit
insurance with respect to Accounts of any Borrower that is reasonably acceptable to Lender.
CWA: the Clean Water Act (33 U.S.C. §§ 1251 et seq.).
Debt: as applied to any Person, without duplication, (a) all items that would be included as liabilities on a balance sheet in
accordance with GAAP, including Capital Leases, but excluding trade payables incurred and being paid in the Ordinary Course of
Business; (b) all Contingent Obligations; (c) all reimbursement obligations in connection with letters of credit issued for the account of
such Person; and (d) in the case of a Borrower, the Obligations. The Debt of a Person shall include any recourse Debt of any partnership in
which such Person is a general partner or joint venturer.
Debt and Lien Subordination Agreement: the Debt and Lien Subordination Agreement of even date herewith, between Mezzanine
Lender and Lender, relating to the Mezzanine Debt.
Default: an event or condition that, with the lapse of time or giving of notice, would constitute an Event of Default.
Default Rate: for any Obligation (including, to the extent permitted by law, interest not paid when due), 2.00% plus the interest
rate otherwise applicable thereto.
Deposit Account Control Agreement : a control agreement reasonably satisfactory to Lender executed by an institution
maintaining a Deposit Account for an Obligor, to perfect Lender's Lien on such account.
Dilution Percent: the percent, determined for Borrowers' most recent Fiscal Quarter, equal to (a) bad debt write-downs or write-
offs, discounts, returns, promotions, credits, credit memos and other dilutive items with respect to Accounts, divided by (b) gross sales.
Dilution Reserve: a reserve against Availability equal to the sum by which the Dilution Percent exceeds 5.0% multiplied by the
Dollar amount of Eligible Accounts or Eligible Factoring Credit Balances, as applicable.
Distribution: any declaration or payment of a distribution, interest or dividend on any Equity Interest (other than payment-in-
kind); any distribution, advance or repayment of Debt to a holder of Equity Interests; or any purchase, redemption, or other acquisition or
retirement for value of any Equity Interest.
6
Dollars: lawful money of the United States.
Dominion Account: a special account established by Borrowers at Lender or a bank acceptable to Lender, over which Lender has
exclusive control for withdrawal purposes.
EBITDA: determined on a consolidated basis for Borrowers and Subsidiaries, net income, calculated before interest expense,
transaction costs associated with the Transactions not to exceed $1,000,000, provision for income taxes, depreciation and amortization
expense, gains or losses arising from the sale of capital assets, gains arising from the write-up of assets, and any extraordinary gains,
losses on impairment of long-lived assets and goodwill, unrealized gains and losses resulting in changes from fair values of derivatives
and financial instruments (including changes in fair value of contingent consideration related to business combinations), directly related
charges related to the consummation of business combinations, non-cash severance and restructuring charges, gains arising from the
write-up of assets, extraordinary gains and losses (including losses and gains from extinguishment of debt) and non- recurring expenses
and income which do not represent cash items in such period (in each case, to the extent included in determining net income). For purposes
of this Agreement, EBITDA and its components for the 12 months prior to the Closing Date is as shown on Exhibit A.
Eligible Account : an Account owing to a Borrower that arises in the Ordinary Course of Business from the sale of goods, is
payable in Dollars and is deemed by Lender, in its Permitted Discretion, to be an Eligible Account. Without limiting the foregoing, no
Account shall be an Eligible Account if (a) it is unpaid for more than 60 days after the original due date, or more than 90 days after the
original invoice date; (b) 50% or more of the Accounts owing by the Account Debtor are not Eligible Accounts under the foregoing
clause; (c) it is owing by (i) any Account Debtor (other than Menard, Inc. ("Menards") whose otherwise Eligible Accounts, in face
amount, exceed 10% of the aggregate Eligible Accounts plus Eligible Factoring Credit Balances of Borrowers (or such higher percentage
as Lender may establish for the Account Debtor from time to time), but only to the extent of such excess, (ii) Menards, if the otherwise
Eligible Accounts of Menards, in face amount, exceed 20% of the aggregate Eligible Accounts plus Eligible Factoring Credit Balances of
Borrowers (or such higher percentage as Lender may establish for Menards from time to time), but only to the extent of such excess; (d) it
does not conform with a covenant or representation herein; (e) it is owing by a creditor or supplier, or is otherwise subject to a potential
offset, counterclaim, dispute, deduction, discount, recoupment, reserve, defense, chargeback, credit or allowance (but ineligibility shall be
limited to the amount thereof); (f) an Insolvency Proceeding has been commenced by or against the Account Debtor; or the Account
Debtor has failed, has suspended or ceased doing business, is liquidating, dissolving or winding up its affairs, is not Solvent, unless (i)
such Account Debtor (A) is a debtor-in-possession in a case then pending under chapter 11 of the Bankruptcy Code, (B) has established
debtor-in-possession financing satisfactory to Lender in its sole discretion and (C) otherwise satisfied each of the requirements set forth in
this definition of Eligible Account, or is subject to Sanctions or any specially designated nationals list maintained by OFAC; or the
Borrower is not able to bring suit or enforce remedies against the Account Debtor through judicial process; (g) the Account Debtor is
organized or has its principal offices or assets outside the United States or Canada, unless the Account is supported by a letter of credit
(delivered to and directly drawable by Lender) or credit insurance satisfactory in all respects to Lender in its Permitted Discretion; (h) it is
owing by a Governmental Authority, unless the Account Debtor is the United States or any department, agency or instrumentality thereof
and the Account has been assigned to Lender in compliance with the federal Assignment of Claims Act; (i) it is not subject to a duly
perfected, first priority Lien in favor of Lender, or is subject to any other Lien (other than, subject to the Debt and Lien Subordination
Agreement or any subordination agreement for any other Subordinated Debt, Mezzanine Lender’s Lien and any Lien of a lender of other
Subordinated Debt); (j) the goods giving rise to it have not been delivered to the Account Debtor or it otherwise does not represent a final
sale; (k) it is evidenced by Chattel Paper or an Instrument of any kind, or has been reduced to judgment; (l) its payment has been extended
or the Account Debtor has made a partial payment; (m) it arises from a sale to an Affiliate, from a sale on a cash-on-delivery, bill-and-
hold, sale-or-return, sale-on-approval, consignment, or other repurchase or return basis, or from a sale for personal, family or household
purposes; (n) it represents a progress billing or retainage, or relates to services for which a performance, surety or completion bond or
similar assurance has been issued on behalf of a Borrower; (o) it includes a billing for interest, fees or late charges, but ineligibility shall be
limited to the extent thereof; or (p) it is a Factored Account, it has been charged back to a Borrower by a Factor under a Factoring
Agreement, it is subject to reserves by a Factor or the Factor has advanced on it. In calculating delinquent portions of Accounts under
clauses (a) and (b), credit balances more than 90 days old will be excluded.
7
Eligible Factoring Credit Balances: such Factoring Credit Balances that Lender, in its Permitted Discretion, determines to meet all
of the following requirements: (i) such Factoring Credit Balances have been assigned to Lender pursuant to a Factor Intercreditor
Agreement and are subject to Lender's duly perfected, first priority security interest and no other Lien except a Permitted Lien, (ii) such
Factoring Credit Balances are not subject to any present or contingent offset, deduction or counterclaim including any such offset,
deduction or counterclaim arising out of any Borrower's breach of any representation, warranty, agreement or covenant under the
applicable Factoring Agreement, and (iii) such Factoring Credit Balances are not determined by Lender, in its Permitted Discretion, to be
ineligible for any other reason.
Eligible Inventory: Inventory owned by a Borrower that Lender, in its Permitted Discretion, deems to be Eligible Inventory.
Without limiting the foregoing, no Inventory shall be Eligible Inventory unless it (a) is finished goods or raw materials, and not work-in-
process, packaging or shipping materials, labels, samples, display items, bags, replacement parts or manufacturing supplies; (b) is not held
on consignment, nor subject to any deposit or down payment; (c) is in new and saleable condition and is not damaged, defective, shopworn
or otherwise unfit for sale; (d) is not perishable, obsolete or unmerchantable, and does not constitute returned or repossessed goods; (e)
meets all standards imposed by any Governmental Authority, has not been acquired from an entity subject to Sanctions or any specially
designated nationals list maintained by OFAC, and does not constitute hazardous materials under any Environmental Law; (f) conforms
with the covenants and representations herein; (g) is subject to Lender's duly perfected, first priority Lien, and no other Lien (other than,
subject to the Debt and Lien Subordination Agreement or any subordination agreement for any other Subordinated Debt, Mezzanine
Lender’s Lien and any Lien of a lender of other Subordinated Debt); (h) is within the continental United States, is not in transit except
between locations of Borrowers or between locations of a Borrower and any outside processor if such processor has delivered an
appropriate Lien Waiver to Lender, and is not consigned to any Person; (i) is not subject to any warehouse receipt or negotiable Document;
(j) is not subject to any License or other arrangement that restricts such Borrower's or Lender's right to dispose of such Inventory, unless
Lender has received an appropriate Lien Waiver; (k) is not located on leased premises or in the possession of a warehouseman, processor,
repairman, mechanic, shipper, freight forwarder or other Person, unless the lessor or such Person has delivered a Lien Waiver or an
appropriate Rent and Charges Reserve has been established; and (l) is reflected in the details of a current perpetual inventory report
(except for Inventory located at any outside processor).
Enforcement Action : any action to enforce any Obligations or Loan Documents or to realize upon any Collateral (whether by
judicial action, self-help, notification of Account Debtors, exercise of setoff or recoupment, credit bid, action in an Obligor's Insolvency
Proceeding or otherwise).
Environmental Agreement: an agreement of an Obligor to indemnify Lender from liability under Environmental Laws with
respect to Real Estate subject to a Mortgage.
Environmental Laws: Applicable Laws (including programs, permits and guidance promulgated by regulators) relating to public
health (other than occupational safety and health regulated by OSHA) or the protection or pollution of the environment, including
CERCLA, RCRA and CWA.
8
Environmental Notice: a notice (whether written or oral) from any Governmental Authority or other Person of any possible
noncompliance with, investigation of a possible violation of, litigation relating to, or potential fine or liability under any Environmental
Law, or with respect to any Environmental Release, environmental pollution or hazardous materials, including any complaint, summons,
citation, order, claim, demand or request for correction, remediation or otherwise.
Environmental Release: a release as defined in CERCLA or under any other Environmental Law.
Equity Contribution: shall have the meaning ascribed to it in the recitals hereto.
Equity Interest: the interest of any (a) shareholder in a corporation; (b) partner in a partnership (whether general, limited, limited
liability or joint venture); (c) member in a limited liability company; or (d) other Person having any other form of equity security or
ownership interest.
Equity Interest Pledge Agreement: that certain Pledge Agreement dated as of the Closing Date by and among Holdings, Marquis
and Lender.
ERISA: the Employee Retirement Income Security Act of 1974.
ERISA Affiliate: any trade or business (whether or not incorporated) under common control with an Obligor within the meaning
of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the
Code).
ERISA Event: (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Obligor or ERISA Affiliate from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2)
of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial
withdrawal by any Obligor or ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization;
(d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) the determination that
any Pension Plan or Multiemployer Plan is considered an at risk plan or a plan in critical or endangered status under the Code, ERISA or
the Pension Protection Act of 2006; (f) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (g) the imposition of any liability under Title
IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Obligor or ERISA Affiliate.
Event of Default: as defined in Section 11.
Excluded Assets:
(a) any rights of an Obligor in any contract, license, right or other agreement if under the terms thereof, or any Applicable Law
with respect thereto, the valid grant of a security interest therein to Lender is prohibited and such prohibition has not been waived or the
consent of the other party to such contract or license has not been obtained or, under Applicable Law, such prohibition cannot be waived;
provided however that (i) the "Excluded Assets" shall not be interpreted (A) to apply to any contract, license, right or other agreement to
the extent the applicable prohibition is ineffective or unenforceable under the UCC (including Sections 9-406 through 9-409 or any other
Applicable Law), or (B) so as to limit, impair or otherwise affect Lender's unconditional continuing security interest in and Lien upon any
rights or interests of such Obligor in or to moneys due or to become due under any such contract, license, right or other agreement
(including any Accounts), and (ii) notwithstanding the foregoing, Lender's security interest in any such contract, license, right or other
agreement shall attach immediately (and thus become Collateral hereunder) at such time as the condition causing such prohibition or
default is remedied or removed, and
9
(b) any intent-to-use trademark application to the extent that, and solely during the period in which, the grant of a security
interest therein to Lender would impair the validity or enforceability of such intent-to-use trademark application or the trademark that is
the subject of such application under federal law;
provided that "Excluded Assets" shall not include any right to receive proceeds from the sale or other disposition of any Excluded
Asset or any proceeds, products, substitutions or replacements of Excluded Assets.
Excluded Swap Obligation: with respect to an Obligor, each Swap Obligation as to which, and only to the extent that, such
Obligor's guaranty of or grant of a Lien as security for such Swap Obligation is or becomes illegal under the Commodity Exchange Act
because the Obligor does not constitute an "eligible contract participant" as defined in the act (determined after giving effect to any
keepwell, support or other agreement for the benefit of such Obligor and all guarantees of Swap Obligations by other Obligors) when such
guaranty or grant of Lien becomes effective with respect to the Swap Obligation. If a Hedging Agreement governs more than one Swap
Obligation, only the Swap Obligation(s) or portions thereof described in the foregoing sentence shall be Excluded Swap Obligation(s) for
the applicable Obligor.
Excluded Taxes: (a) Taxes imposed on or measured by a Recipient's net income (however denominated), franchise Taxes and
branch profits Taxes (i) as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of
Lender, its lending office located in, the jurisdiction imposing such Tax, or (ii) constituting Other Connection Taxes; and (b) U.S. federal
withholding Taxes imposed pursuant to FATCA.
Extraordinary Expenses: all costs, expenses or advances that Lender may incur during a Default or Event of Default, or during the
pendency of an Insolvency Proceeding of an Obligor, including those relating to (a) any audit, inspection, repossession, storage, repair,
appraisal, insurance, manufacture, preparation or advertising for sale, sale, collection, or other preservation of or realization upon any
Collateral; (b) any action, arbitration or other proceeding (whether instituted by or against Lender, any Obligor, any representative of
creditors of an Obligor or any other Person) in any way relating to any Collateral (including the validity, perfection, priority or avoidability
of Lender's Liens with respect to any Collateral), Loan Documents, Letters of Credit or Obligations, including any lender liability or other
Claims; (c) the exercise of any rights or remedies of Lender in, or the monitoring of, any Insolvency Proceeding; (d) settlement or
satisfaction of taxes, charges or Liens with respect to any Collateral; (e) any Enforcement Action; and (f) negotiation and documentation
of any modification, waiver, workout, restructuring or forbearance with respect to any Loan Documents or Obligations. Such costs,
expenses and advances include transfer fees, Other Taxes, storage fees, insurance costs, permit fees, utility reservation and standby fees,
legal fees, appraisal fees, brokers' and auctioneers' fees and commissions, accountants' fees, environmental study fees, wages and salaries
paid to employees of any Obligor or independent contractors in liquidating any Collateral, and travel expenses.
Factor: The CIT Group/Commercial Services, Inc., Branch Banking and Trust Company or any other factor reasonably
acceptable to, and agreed to in writing by, Lender, and "Factors" means all of such entities collectively.
Factor Intercreditor Agreement : an assignment of factoring credit balances and intercreditor agreement (or document of similar
name) among a Borrower, Lender and a Factor, in form and substance acceptable to Lender, pursuant to which such Borrower assigns to
Lender the right to receive monies due under the applicable Factoring Agreement and the Factor agrees not to (a) advance or loan funds to
such Borrower or guarantee obligations of such Borrower (except to the extent the Factor agrees not to offset amounts payable to it with
respect thereto against amounts due under the Factoring Agreement), or (b) offset ledger debt against amounts due under the applicable
Factoring Agreement, and "Factor Intercreditor Agreements" means all such agreements collectively.
10
Factored Account: shall mean an account of a Borrower which is factored by a Factor under a Factoring Agreement.
Factored Accounts Formula Amount: on any date of determination thereof, an amount equal to 85% (or such lesser percentage as
Lender may in its Permitted Discretion determine from time to time) of the net amount of Eligible Factoring Credit Balances on such date.
Factoring Agreement: a factoring agreement by and between a Factor and a Borrower, in form and substance reasonably
acceptable to Lender, with respect to the factoring of Accounts arising from sales by such Borrower to Account Debtors located in the
United States of America, and "Factoring Agreements" means all such agreements collectively.
Factoring Credit Balances: the aggregate of the outstanding net amount payable by the Factors to Borrowers at any time for
Accounts factored under the Factoring Agreements by Borrowers with the Factors so long as such Accounts would satisfy all of the
criteria for Eligible Accounts, as determined by Lender, in its Permitted Discretion, except that such Account is a Factored Account.
FATCA: Sections 1471 through 1474 of the Code (including any amended or successor version if substantively comparable and
not materially more onerous to comply with), and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
Federal Funds Rate: (a) the weighted average of interest rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers on the applicable Business Day (or on the preceding Business Day, if the
applicable day is not a Business Day), as published by the Federal Reserve Bank of New York on the next Business Day; or (b) if no such
rate is published on the next Business Day, the average rate (rounded up, if necessary, to the nearest 1/8 of 1%) charged to Lender on the
applicable day on such transactions, as determined by Lender.
Fiscal Quarter: each period of three months, commencing on the first day of a Fiscal Year.
Fiscal Year: the fiscal year of Borrowers and Subsidiaries for accounting and tax purposes, ending on September 30 of each year.
Fixed Charge Coverage Ratio: the ratio, determined on a consolidated basis for Borrowers and Subsidiaries for the most recent 12
months, of (a) EBITDA minus Capital Expenditures (except those financed with Borrowed Money other than Revolver Loans), to (b)
Fixed Charges. For purposes of this Agreement, Fixed Charge Coverage Ratio and its components for the 12 months prior to the Closing
Date is as shown on Exhibit A.
Fixed Charges: the sum of interest expense (other than payment-in-kind) and principal payments made on Borrowed Money,
income taxes paid in cash and Distributions made (excluding (a) Upstream Payments and (b) Distributions made on or about the Closing
Date that relate to transactions contemplated by the Marquis SPA Documents, as in effect on the Closing Date).
FLSA: the Fair Labor Standards Act of 1938.
Foreign Plan: any employee benefit plan or arrangement (a) maintained or contributed to by any Obligor or Subsidiary that is not
subject to the laws of the United States; or (b) mandated by a government other than the United States for employees of any Obligor or
Subsidiary.
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Foreign Subsidiary: a Subsidiary that is a "controlled foreign corporation" under Section 957 of the Code, such that a guaranty by
such Subsidiary of the Obligations or a Lien on the assets of such Subsidiary to secure the Obligations would result in material tax liability
to Borrowers.
Full Payment: with respect to any Obligations, (a) the full and indefeasible cash payment thereof, including any interest, fees and
other charges accruing during an Insolvency Proceeding (whether or not allowed in the proceeding); (b) if such Obligations are LC
Obligations or inchoate or contingent in nature, Cash Collateralization thereof (or delivery of a standby letter of credit acceptable to
Lender in its discretion, in the amount of required Cash Collateral); and (c) a release of any Claims of Obligors against Lender arising on
or before the payment date. The Revolver Loans shall not be deemed to have been paid in full unless the Revolver Commitment has
terminated.
GAAP: generally accepted accounting principles in effect in the United States from time to time.
Governmental Approvals: all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and
required reports to, all Governmental Authorities.
Governmental Authority : any federal, state, county, municipal, foreign or other governmental agency, authority, body,
commission, court, instrumentality, political subdivision, central bank, or other entity or officer exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions for any governmental, judicial, investigative, regulatory or self-regulatory
authority (including any supra-national bodies such as the European Union or European Central Bank).
Guarantor Payment: as defined in Section 5.9.3.
Guarantors: each Person that guarantees payment or performance of Obligations.
Guaranty: each guaranty agreement executed by a Guarantor in favor of Lender.
Hedging Agreement: any "swap agreement" as defined in Section 101(53B)(A) of the Bankruptcy Code.
Indemnified Taxes: (a) Taxes, other than Excluded Taxes, imposed on or relating to any payment of an Obligation; and (b) to the
extent not otherwise described in clause (a), Other Taxes.
Indemnitees: Lender, other Secured Parties, and their officers, directors, employees, Affiliates, agents and attorneys.
Insolvency Proceeding: any case or proceeding commenced by or against a Person under any state, federal or foreign law for, or
any agreement of such Person to, (a) the entry of an order for relief under the Bankruptcy Code, or any other applicable insolvency, debtor
relief or debt adjustment law; (b) the appointment of a receiver, trustee, liquidator, administrator, conservator or other custodian for such
Person or any part of its Property; or (c) an assignment or trust mortgage for the benefit of creditors.
Intellectual Property: all intellectual and similar Property of a Person, including inventions, designs, patents, copyrights,
trademarks, service marks, trade names, trade secrets, confidential or proprietary information, customer lists, know-how, software and
databases; all embodiments or fixations thereof and all related documentation, applications, registrations and franchises; all licenses or
other rights to use any of the foregoing; and all books and records relating to the foregoing.
Intellectual Property Claim: any claim or assertion (whether in writing, by suit or otherwise) that a Borrower's or Subsidiary's
ownership, use, marketing, sale or distribution of any Inventory, Equipment, Intellectual Property or other Property violates another
Person's Intellectual Property.
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Interest Period: as defined in Section 3.1.3.
Inventory: as defined in the UCC, including all goods intended for sale, lease, display or demonstration; all work in process; and
all raw materials, and other materials and supplies of any kind that are or could be used in connection with the manufacture, printing,
packing, shipping, advertising, sale, lease or furnishing of such goods, or otherwise used or consumed in a Borrower's business (but
excluding Equipment).
Inventory Formula Amount : the lesser of (i) $7,500,000; (ii) 65% of the Value of Eligible Inventory; or (iii) 85% of the NOLV
Percentage of the Value of Eligible Inventory. As used in this definition of Inventory Formula Amount, advance rates shall be determined
by an appraisal firm satisfactory to Lender, in its Permitted Discretion, with the advance rate for purposes of clause (ii) of this definition of
Inventory Formula Amount for each individual category of raw materials, work-in-process and finished goods not to exceed 70% and with
the overall advance rate for all three of such categories (i.e., raw materials, work-in-process and finished goods) not to exceed 65%. For
the avoidance of doubt, on the Closing Date, the individual advance rate for purposes of clause (ii) of this definition of Inventory Formula
Amount shall be 55.3% for raw materials, 0% for work-in-process and 70.0% for finished goods.
Inventory Reserve: reserves established by Lender in its Permitted Discretion to reflect factors that may negatively impact the
Value of Inventory, including change in salability, obsolescence, seasonality, theft, shrinkage, imbalance, change in composition or mix,
markdowns and vendor chargebacks.
Investment: an Acquisition, an acquisition of record or beneficial ownership of any Equity Interests of a Person, or an advance or
capital contribution to or other investment in a Person; provided, that, Capital Expenditures shall not in and of themselves constitute
"Investments".
IRS: the United States Internal Revenue Service.
LC Application: an application by Borrower Agent to Lender for issuance of a Letter of Credit, in form and substance satisfactory
to Lender.
LC Conditions: the following conditions necessary for issuance of a Letter of Credit: (a) each of the conditions set forth in
Section 6; (b) after giving effect to such issuance, total LC Obligations do not exceed the Letter of Credit Subline, no Overadvance exists
and Revolver Usage does not exceed the Borrowing Base; (c) the Letter of Credit and payments thereunder are denominated in Dollars or
other currency satisfactory to Lender; and (d) the purpose and form of the proposed Letter of Credit are satisfactory to Lender in its
discretion.
LC Documents: all documents, instruments and agreements (including LC Requests and LC Applications) delivered by
Borrowers or any other Person to Lender in connection with issuance, amendment, renewal of, or payment under, any Letter of Credit.
LC Obligations: the sum of (a) all amounts owing by Borrowers for drawings under Letters of Credit; and (b) the Stated Amount
of all outstanding Letters of Credit.
LC Request: a request for issuance of a Letter of Credit, to be provided by Borrower Agent, in form satisfactory to Lender.
Lender Professionals: attorneys, accountants, appraisers, auditors, business valuation experts, environmental engineers or
consultants, turnaround consultants, and other professionals and experts retained by Lender.
Letter of Credit: any standby or documentary letter of credit, foreign guaranty, documentary bankers acceptance or similar
instrument issued by Lender for the account or benefit of an Obligor or a Subsidiary of an Obligor.
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Letter of Credit Subline: $1,500,000.
LIBOR: for any Interest Period, the per annum rate of interest (rounded up, if necessary, to the nearest 1/8th of 1%) determined
by Lender at approximately 11:00 a.m. (London time) two Business Days prior to commencement of such Interest Period, for a term
comparable to such Interest Period, equal to (a) the British Bankers Association LIBOR Rate or successor thereto if such association is no
longer making such rate available, as published by Reuters (or other commercially available source designated by Lender); or (b) if the
rate described in clause (a) is unavailable for any reason, the interest rate at which Dollar deposits in the approximate amount of the Loan
would be offered by Lender's London branch to major banks in the London interbank Eurodollar market.
LIBOR Loan: each set of LIBOR Revolver Loans or LIBOR Term Loans having a common length and commencement of
Interest Period.
LIBOR Revolver Loan: a Revolver Loan that bears interest based on LIBOR.
LIBOR Term Loan: a Term Loan that bears interest based on LIBOR.
License: any license or agreement under which an Obligor is authorized to use Intellectual Property (other than off-the-shelf
software) in connection with any manufacture, marketing, distribution or disposition of Collateral, any use of Property or any other
conduct of its business.
Licensor: any Person from whom an Obligor obtains the right to use any Intellectual Property.
Lien: a Person's interest in Property securing an obligation owed to, or a claim by, such Person, including any lien, security
interest, pledge, hypothecation, assignment, trust, reservation, encroachment, easement, right-of-way, covenant, condition, restriction,
lease, or other title exception or encumbrance.
Lien Waiver: an agreement, in form and substance reasonably satisfactory to Lender, by which
(a) for any material Collateral located on leased premises, the lessor waives or subordinates any Lien it may have on the Collateral, and
agrees to permit Lender to enter upon the premises and remove the Collateral or to use the premises to store or dispose of the Collateral;
(b) for any Collateral held by a warehouseman, processor, shipper, customs broker or freight forwarder, such Person waives or
subordinates any Lien it may have on the Collateral, agrees to hold any Documents in its possession relating to the Collateral as agent for
Lender, and agrees to deliver the Collateral to Lender upon request; (c) for any Collateral held by a repairman, mechanic or bailee, such
Person acknowledges Lender's Lien, waives or subordinates any Lien it may have on the Collateral, and agrees to deliver the Collateral to
Lender upon request; and (d) for any Collateral subject to a Licensor's Intellectual Property rights, the Licensor grants to Lender the right,
vis-à-vis such Licensor, to enforce Lender's Liens with respect to the Collateral, including the right to dispose of it with the benefit of the
Intellectual Property, whether or not a default exists under any applicable License.
Live: LiveDeal, Inc., a Nevada corporation.
Live Restructuring Transaction: a transaction anticipated to be consummated after the Closing Date pursuant to which Live
becomes a wholly-owned subsidiary of Live Ventures, Live ceases to be publicly traded and Live Ventures becomes publicly traded.
Loan: a Revolver Loan or Term Loan.
Loan Documents: this Agreement, Other Agreements and Security Documents.
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Loan Year: each 12 month period commencing on the Closing Date and on each anniversary of the Closing Date.
Margin Stock: as defined in Regulation U of the Board of Governors.
Marquis Acquisition: shall have the meaning ascribed to it in the recitals hereto.
Marquis SPA: shall have the meaning ascribed to it in the recitals hereto.
Marquis SPA Documents: shall have the meaning ascribed to it in the recitals hereto.
Material Adverse Effect : the effect of any event or circumstance that, taken alone or in conjunction with other events or
circumstances, (a) has or could be reasonably expected to have a material adverse effect on the business, operations, Properties or
condition (financial or otherwise) of Obligors, taken as a whole, on the value of any material Collateral, on the enforceability of any Loan
Documents, or on the validity or priority of Lender's Liens on any Collateral; (b) impairs the ability of an Obligor to perform its
obligations under the Loan Documents, including repayment of any Obligations; or (c) otherwise impairs the ability of Lender to enforce
or collect any Obligations or to realize upon any material Collateral.
Material Contract: any agreement or arrangement to which a Borrower or Subsidiary is party (other than the Loan Documents) (a)
that is deemed to be a material contract under any securities law applicable to such Person, including the Securities Act of 1933; (b) for
which breach, termination, nonperformance or failure to renew could reasonably be expected to have a Material Adverse Effect; or (c) that
relates to Subordinated Debt, or to Debt in an aggregate amount of $1,000,000 or more.
Mezzanine Debt: shall have the meaning ascribed to it in the recitals hereto.
Mezzanine Debt Documents: shall have the meaning ascribed to it in the recitals hereto.
Mezzanine Lender: shall have the meaning ascribed to it in the recitals hereto.
Mezzanine Loan Agreement: shall have the meaning ascribed to it in the recitals hereto.
Moody's: Moody's Investors Service, Inc., and its successors.
Mortgage: a mortgage or deed of trust in which an Obligor grants a Lien on its Real Estate to Lender, as security for its
Obligations.
Multiemployer Plan: any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Obligor or
ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make
contributions.
Net Proceeds: with respect to an Asset Disposition, proceeds (including, when received, any deferred or escrowed payments)
received by a Borrower or Subsidiary in cash from such disposition, net of bona fide direct costs incurred in connection therewith,
including (a) reasonable and customary costs and expenses actually incurred in connection therewith, including legal fees and sales
commissions and fees of accountants, investment bankers and consultants; (b) amounts applied to repayment of Debt secured by a
Permitted Lien senior to Lender's Liens on Collateral sold; (c) transfer or similar taxes; and (d) reserves for indemnities, until such reserves
are no longer needed.
NOLV Percentage: the net orderly liquidation value of Inventory, expressed as a percentage, expected to be realized at an
orderly, negotiated sale held within a reasonable period of time, net of all liquidation expenses, as determined from the most recent
appraisal of Borrowers' Inventory performed by an appraiser and on terms satisfactory to Lender.
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Notice of Borrowing: a Notice of Borrowing to be provided by Borrower Agent to request a Borrowing of Revolver Loans, in
form reasonably satisfactory to Lender.
Notice of Conversion/Continuation: a Notice of Conversion/Continuation to be provided by Borrower Agent to request a
conversion or continuation of any Loans as LIBOR Loans, in form reasonably satisfactory to Lender.
Obligations: all (a) principal of and premium, if any, on the Loans, (b) LC Obligations and other obligations of Obligors with
respect to Letters of Credit, (c) interest, expenses, fees, indemnification obligations, Extraordinary Expenses and other amounts payable by
Obligors under Loan Documents, (d) Bank Product Debt, and (e) other Debts, obligations and liabilities of any kind owing by any Obligor
to Lender, whether now existing or hereafter arising, whether evidenced by a note or other writing, whether allowed in any Insolvency
Proceeding, whether arising from an extension of credit, issuance of a letter of credit, acceptance, loan, guaranty, indemnification or
otherwise, and whether direct or indirect, absolute or contingent, due or to become due, primary or secondary, or joint or several;
provided, that Obligations of an Obligor shall not include its Excluded Swap Obligations.
Obligor: each Borrower, Guarantor, or other Person that is liable for payment of any Obligations or that has granted a Lien in
favor of Lender on its assets to secure any Obligations.
OFAC: Office of Foreign Assets Control of the U.S. Treasury Department.
Ordinary Course of Business: the ordinary course of business of any Borrower or Subsidiary, undertaken in good faith and
consistent with Applicable Law and past practices.
Organic Documents: with respect to any Person, its charter, certificate or articles of incorporation, bylaws, articles of
organization, limited liability agreement, operating agreement, members agreement, shareholders agreement, partnership agreement,
certificate of partnership, certificate of formation, voting trust agreement, or similar agreement or instrument governing the formation or
operation of such Person.
OSHA: the Occupational Safety and Hazard Act of 1970.
Other Agreement: the Debt and Lien Subordination Agreement and each LC Document, Lien Waiver, Release Agreement, Real
Estate Related Document, Borrowing Base Certificate, Credit Insurance Loss Payable Endorsement, Compliance Certificate, financial
statement or report delivered hereunder, each Factor Intercreditor Agreement, or any other document, instrument or agreement (other than
this Agreement or a Security Document) now or hereafter delivered by an Obligor or other Person to Lender in connection with any
transactions relating hereto.
Other Connection Taxes: Taxes imposed on a Recipient due to a present or former connection between it and the taxing
jurisdiction (other than connections arising from the Recipient having executed, delivered, become party to, performed obligations or
received payments under, received or perfected a Lien or engaged in any other transaction pursuant to, enforced, or sold or assigned an
interest in, any Loan or Loan Document).
Other Taxes: all present or future stamp, court, documentary, intangible, recording, filing or similar Taxes that arise from any
payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a Lien
under, or otherwise with respect to, any Loan Document, except Other Connection Taxes imposed with respect to an assignment.
Overadvance: as defined in Section 2.1.4.
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Patriot Act: the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Act of 2001, Pub. L. No. 107-56, 115 Stat. 272 (2001).
Payment Item: each check, draft or other item of payment payable to a Borrower, including those constituting proceeds of any
Collateral.
PBGC: the Pension Benefit Guaranty Corporation.
Pension Plan: any employee pension benefit plan (as defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by any Obligor or ERISA Affiliate or to which the Obligor or ERISA
Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of
ERISA, has made contributions at any time during the preceding five plan years.
Permitted Acquisition : any Acquisition as long as (a) no Default or Event of Default exists or is caused thereby; (b) the
Acquisition is consensual; (c) the assets, business or Person being acquired is useful or engaged in the business of Borrowers and
Subsidiaries, is located or organized within the United States, and had positive unadjusted EBITDA for the 12 month period most recently
ended; (d) no Debt or Liens are incurred, assumed or result from the Acquisition, except Debt permitted under Section 10.2.1(g) or (i); (e)
Lender has received the financial statements required under Section 10.1.2(a)(ii); (f) the total consideration (including deferred payment
obligations and Debt assumed or incurred), when aggregated with the total consideration for all other Acquisitions made during the
preceding 12 months, is less than $5,000,000; (g) Availability on each day during the 90 day period immediately preceding such
Acquisition calculated on a pro forma basis assuming such Acquisition occurred on the first day of such period (including any Loans made
hereunder to finance such Acquisition) shall be greater than or equal to $4,000,000; (h) Availability, on the date of such Acquisition,
immediately after giving pro forma effect to the consummation of such Acquisition (including any Loans made hereunder to finance such
Acquisition) shall be greater than or equal to $4,000,000; (i) Lender has received evidence that after giving effect to the consummation of
such Acquisition, Borrowers shall maintain a Fixed Charge Coverage Ratio of at least 1.25 to 1.0 on a pro forma basis, measured as of the
most recently ended month for which Obligors have delivered the financial statements required under Section 10.1.2(a) or (b), as the case
may be, for the twelve month period then ended; (j) at the time of any such proposed Acquisition, the outstanding balance of the Term
Loan is less than or equal to $4,500,000; and (k) Borrowers deliver to Lender, at least 10 Business Days prior to the Acquisition, copies of
all material agreements relating thereto and a certificate, in form and substance satisfactory to Lender, stating that the Acquisition is a
"Permitted Acquisition" and demonstrating compliance with the foregoing requirements.
Permitted Asset Disposition : as long as no Default or Event of Default exists and all Net Proceeds are remitted to Lender, an
Asset Disposition that is (a) a sale of Inventory in the Ordinary Course of Business; (b) a disposition of Equipment that, in the aggregate
during any 12 month period, has a fair market or book value (whichever is more) of $500,000 or less; (c) a disposition of Inventory that is
obsolete, unmerchantable or otherwise unsalable or replaced in the Ordinary Course of Business; (d) termination of a lease of real or
personal Property that is not necessary for the Ordinary Course of Business, where such termination could not reasonably be expected to
have a Material Adverse Effect and does not result from an Obligor's default; (e) sales of Factored Accounts to a Factor pursuant to a
Factoring Agreement; (f) a discount or other compromise for less than face value of notes or Accounts in the Ordinary Course of Business;
(g) a sale or disposition to a Borrower to the extent permitted herein; (h) transfers of Property subject to condemnation or casualty events;
(i) as long as no Default or Event of Default is continuing or would result therefrom, any other disposition of Property other than Accounts
or Inventory for fair market value so long as (i) at least 75% of the consideration received for such sale shall be cash and (ii) the Value of
the Property so disposed shall not exceed $1,000,000 per Fiscal Year; or (j) approved in writing by Lender.
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Permitted Contingent Obligations: Contingent Obligations (a) arising from endorsements of Payment Items for collection or
deposit in the Ordinary Course of Business; (b) arising from Hedging Agreements permitted hereunder; (c) existing on the Closing Date,
and any extension or renewal thereof that does not increase the amount of such Contingent Obligation when extended or renewed; (d)
incurred in the Ordinary Course of Business with respect to workers' compensation claims, self-insurance obligations, surety, appeal or
performance bonds, or other similar obligations; (e) arising from customary indemnification obligations in favor of purchasers in
connection with dispositions of Equipment permitted hereunder; (f) arising under the Loan Documents; or (g) in an aggregate amount of
$500,000 or less at any time.
Permitted Discretion: a determination made in the exercise, in good faith, of reasonable business judgment (from the perspective
of a secured, asset-based lender).
Permitted Lien: as defined in Section 10.2.2.
Permitted Non-Tax Distributions : Distributions by Holdings to holders of its Equity Interests so long as the following conditions
are satisfied: (a) no Default or Event of Default has occurred or would result from such Distribution, (b) Lender has received the financial
statements required under Section 10.1.2(a)(ii), (c) Lender has received evidence that after giving effect to the consummation of such
Distribution, Borrowers shall maintain a Fixed Charge Coverage Ratio of at least 1.25 to 1.0 on a pro forma basis, measured as of the most
recently ended month for which Obligors have delivered the financial statements required under Section 10.1.2(a) or (b), as the case may
be, for the twelve month period then ended, (d) Availability on each day during the 90 day period immediately preceding such
Distribution calculated on a pro forma basis assuming such Distribution occurred on the first day of such period (including any Loans
made hereunder to finance such Distribution) shall be greater than or equal to $4,000,000, (e) Availability, on the date of such
Distribution, immediately after giving pro forma effect to the consummation of such Distribution (including any Loans made hereunder to
finance such Distribution) shall be greater than or equal to $4,000,000 and (f) at the time of any such proposed Distribution, the
outstanding balance of the Term Loan is less than or equal to $4,500,000.
Permitted Purchase Money Debt: Purchase Money Debt of Borrowers and Subsidiaries that is unsecured or secured only by a
Purchase Money Lien, as long as the aggregate amount does not exceed
$5,000,000 at any time.
Permitted Tax Distributions: for so long as Holdings is taxed as a partnership for federal income tax purposes in accordance with
the Code, a cash Distribution by Holdings to holders of its Equity Interests no more frequently than once each Fiscal Quarter (each a "Tax
Distribution") based upon the consolidated taxable income of Borrowers under Section 703 of the Code in an amount that is not in excess
of the amount necessary to pay federal, state and local income taxes (including quarterly estimated tax payments) solely attributable to the
holders’ distributive shares of the consolidated taxable income of Borrowers determined assuming each holder is subject to taxation at a
rate that is equal to the highest federal, state and local income tax rate payable by any holder of Equity Interests in Borrowers for the
applicable tax year. If any Tax Distribution is made as set forth in Section 10.2.4, Borrowers shall deliver to Lender, as soon as practicable
following the last day of the taxable year of Borrowers for which any such Tax Distribution is made, a true and correct copy of each
Schedule K-1 delivered by Borrowers to the holders of its Equity Interests for such taxable year.
Person: any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated
organization, Governmental Authority or other entity.
Plan: any employee benefit plan (as such term is defined in Section 3(3) of ERISA) established by an Obligor or, with respect to
any such plan that is subject to Section 412 of the Code or Title IV of ERISA, an ERISA Affiliate.
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Platform: as defined in Section 12.3.3.
Prime Rate: the rate of interest announced by Lender from time to time as its prime rate. Such rate is set by Lender on the basis of
various factors, including its costs and desired return, general economic conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above or below such rate. Any change in such rate publicly announced by Lender shall take
effect at the opening of business on the day specified in the announcement.
Properly Contested: with respect to any obligation of an Obligor, (a) the obligation is subject to a bona fide dispute regarding
amount or the Obligor's liability to pay; (b) the obligation is being properly contested in good faith by appropriate proceedings promptly
instituted and diligently pursued; (c) appropriate reserves have been established in accordance with GAAP; (d) non-payment could not
have a Material Adverse Effect, nor result in forfeiture or sale of any assets of the Obligor; (e) no Lien is imposed on assets of the Obligor,
unless bonded and stayed to the satisfaction of Lender; and (f) if the obligation results from entry of a judgment or other order, such
judgment or order is stayed pending appeal or other judicial review.
Property: any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.
Purchase Money Debt: (a) Debt (other than the Obligations) for payment of any of the purchase price of fixed assets (including
equipment and vehicles); (b) Debt (other than the Obligations) incurred within 10 days before or after acquisition of any fixed assets
(including equipment and vehicles), for the purpose of financing any of the purchase price thereof; and (c) any renewals, extensions or
refinancings (but not increases) thereof.
Purchase Money Lien: a Lien that secures Purchase Money Debt, encumbering only the fixed assets acquired with such Debt and
constituting a Capital Lease or a purchase money security interest under the UCC.
Qualified ECP: an Obligor with total assets exceeding $10,000,000, or that constitutes an "eligible contract participant" under the
Commodity Exchange Act and can cause another Person to qualify as an "eligible contract participant" under Section 1a(18)(A)(v)(II) of
such act.
RCRA: the Resource Conservation and Recovery Act (42 U.S.C. §§ 6991-6991i).
Real Estate: all right, title and interest (whether as owner, lessor or lessee) in any real Property or any buildings, structures,
parking areas or other improvements thereon.
Recipient: Lender or any other recipient of a payment to be made by an Obligor under a Loan Document or on account of an
Obligation.
Refinancing Conditions: the following conditions for Refinancing Debt: (a) it is in an aggregate principal amount that does not
exceed the principal amount of the Debt being extended, renewed or refinanced; (b) it has a final maturity no sooner than, and a weighted
average life no less than the Debt being extended, renewed or refinanced and an interest rate at a rate that does not exceed a rate that is
4.00% higher than the interest rate of the Debt being extended, renewed or refinanced; (c) if such Refinancing Debt is in relation to
Subordinated Debt, (i) such Refinancing Debt satisfies all of the requirements under this Agreement to constitute Subordinated Debt, (ii)
the subordination agreement with respect thereto is not materially less favorable to Lender than the subordination agreement with respect
to the Subordinated Debt being extended, renewed or refinanced, and (iii) it is subordinated to the Obligations at least to the same extent
as the Debt being extended, renewed or refinanced; (d) the representations, covenants and defaults applicable to it taken as a whole are not
materially less favorable to Borrowers than those applicable to the Debt being extended, renewed or refinanced; (e) no additional Lien is
granted to secure it; (f) no additional Person is obligated on such Debt; and (g) upon giving effect to it, no Default or Event of Default
exists.
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Refinancing Debt: Borrowed Money that is the result of an extension, renewal or refinancing of Debt permitted under Section
10.2.1(b), (c) or (e).
Reimbursement Date: as defined in Section 2.3.2.
Related Real Estate Documents: with respect to any Real Estate subject to a Mortgage, the following, in form and substance
reasonably satisfactory to Lender and received by Lender for review at least 5 days prior to the effective date of the Mortgage: (a) a
mortgagee title policy (or binder therefor) covering Lender's interest under the Mortgage and all endorsements thereto and affirmative
coverages thereunder required by Lender, by an insurer reasonably acceptable to Lender, which must be fully paid on such effective date;
(b) such assignments of leases, estoppel letters, attornment agreements, consents, waivers and releases as Lender may require with respect
to other Persons having an interest in the Real Estate; (c) a current, as-built survey of the Real Estate, containing a metes-and-bounds
property description and certified by a licensed surveyor acceptable to Lender or, if acceptable to title insurer to remove the general survey
exception from and to provide the endorsements to and affirmative coverages under the mortgagee title policy described in clause (a)
above, a non-current, as-built survey of the Real Estate and a "no change affidavit" from the applicable Borrower; (d) a life-of-loan flood
hazard determination and, if the Real Estate is located in a special flood hazard area, an acknowledged notice to borrower and flood
insurance by an insurer reasonably acceptable to Lender; (e) a current appraisal of the Real Estate, prepared by an appraiser, and in form
and substance reasonably satisfactory to Lender; (f) an environmental assessment, prepared by environmental engineers acceptable to
Lender, and such other reports, certificates, studies or data as Lender may reasonably require; and (g) an Environmental Agreement and
such other documents, instruments or agreements as Lender may reasonably require with respect to any environmental risks regarding the
Real Estate.
Release Agreement: the Release Agreement dated on or about the Closing Date from FHL Capital Corporation in favor of
Lender.
Rent and Charges Reserve: the aggregate of (a) all past due rent and other amounts owing by an Obligor to any landlord,
warehouseman, processor, repairman, mechanic, shipper, freight forwarder, broker or other Person who possesses any Collateral or could
assert a Lien on any Collateral (and in the case of a processor in possession of Inventory that constitutes Eligible Inventory, all amounts
owing to such processor, whether or not such amounts are past due); and (b) a reserve equal to three months' rent and other charges that
could be payable to any such Person, unless it has executed a Lien Waiver.
Reportable Event: any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period
has been waived.
Restricted Investment: any Investment by a Borrower or Subsidiary, other than (a) Investments in Subsidiaries to the extent
existing on the Closing Date; (b) Cash Equivalents that are subject to Lender's Lien and control, pursuant to documentation in form and
substance reasonably satisfactory to Lender; (c) loans and advances permitted under Section 10.2.7; (d) Permitted Acquisitions; and (e)
any Investment (other than a loan or advance, which is addressed in clause (c) of this definition) so long as (i) no Default or Event of
Default has occurred or would result from such Investment, (b) Lender has received the financial statements required under Section
10.1.2(a)(ii), (c) Lender has received evidence that after giving effect to the consummation of such Investment, Borrowers shall maintain
a Fixed Charge Coverage Ratio of at least 1.25 to 1.0 on a pro forma basis, measured as of the most recently ended month for which
Obligors have delivered the financial statements required under Section 10.1.2(a) or (b), as the case may be, for the twelve month period
then ended, (d) Availability on each day during the 90 day period immediately preceding such Investment calculated on a pro forma basis
assuming such Investment occurred on the first day of such period (including any Loans made hereunder to finance such Investment) shall
be greater than or equal to $4,000,000, (e) Availability, on the date of such Investment, immediately after giving pro forma effect to the
consummation of such Investment (including any Loans made hereunder to finance such Investment) shall be greater than or equal to
$4,000,000 and (f) at the time of any such proposed Investment, the outstanding balance of the Term Loan is less than or equal to
$4,500,000.
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Restrictive Agreement: an agreement (other than a Loan Document, a Mezzanine Debt Document or a document relating to
Subordinated Debt) that conditions or restricts the right of any Borrower, Subsidiary or other Obligor to incur or repay Borrowed Money,
to grant Liens on any assets, to declare or make Distributions, to modify, extend or renew any agreement evidencing Borrowed Money, or
to repay any intercompany Debt.
Revolver Commitment: Lender's obligation to make Revolver Loans and to issue Letters of Credit in an amount up to
$15,000,000 in the aggregate.
Revolver Loan: a loan made pursuant to Section 2.1.
Revolver Termination Date: July 6, 2020.
Revolver Usage: the aggregate amount of outstanding Revolver Loans, plus the aggregate Stated Amount of outstanding Letters
of Credit.
Royalties: all royalties, fees, expense reimbursement and other amounts payable by a Borrower under a License.
S&P: Standard & Poor's Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc., and any successor thereto.
Sanction: any international economic sanction administered or enforced by the United States Government (including OFAC), the
United Nations Security Council, the European Union, Her Majesty’s Treasury or other relevant sanctions authority.
Secured Parties: Lender and providers of Bank Products.
Security Documents: the Equity Interest Pledge Agreement, Guaranties, Mortgages, Trademark Security Agreement, Copyright
Security Agreement, Deposit Account Control Agreements, and all other documents, instruments and agreements now or hereafter
securing (or given with the intent to secure) any Obligations.
Senior Officer: the chairman of the board, president, chief executive officer or chief financial officer of a Borrower or, if the
context requires, an Obligor.
Solvent: as to any Person, such Person (a) owns Property whose fair salable value (as defined below) is greater than the amount
required to pay all of its debts (including contingent, subordinated, unmatured and unliquidated liabilities); (b) owns Property whose
present fair salable value is greater than the probable total liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities) of such Person as they become absolute and matured; (c) is able to pay all of its debts as they mature; (d) has capital that is not
unreasonably small for its business and is sufficient to carry on its business and transactions and all business and transactions in which it is
about to engage; (e) is not "insolvent" within the meaning of Section 101(32) of the Bankruptcy Code; and (f) has not incurred (by way of
assumption or otherwise) any obligations or liabilities (contingent or otherwise) under any Loan Documents, or made any conveyance in
connection therewith, with actual intent to hinder, delay or defraud either present or future creditors of such Person or any of its Affiliates.
"Fair salable value" means the amount that could be obtained for assets within a reasonable time, either through collection or through sale
under ordinary selling conditions by a capable and diligent seller to an interested buyer who is willing (but under no compulsion) to
purchase.
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Specified Obligor: an Obligor that is not then an "eligible contract participant" under the Commodity Exchange Act (determined
prior to giving effect to Section 5.9.3).
Stated Amount: the stated amount of a Letter of Credit, including any automatic increase provided by the terms of the Letter of
Credit or related LC Documents, whether or not then effective.
Subordinated Debt: Debt incurred by a Borrower that is expressly subordinate and junior in right of payment to Full Payment of
all Obligations, and is on terms (including maturity, interest, fees, repayment, covenants and subordination) reasonably satisfactory to
Lender, including the Mezzanine Debt.
Subsidiary: any entity at least 50% of whose voting securities or Equity Interests is owned by a Borrower or combination of
Borrowers (including indirect ownership through other entities in which a Borrower directly or indirectly owns 50% of the voting
securities or Equity Interests).
Swap Obligations: with respect to an Obligor, its obligations under a Hedging Agreement that constitutes a "swap" within the
meaning of Section 1a(47) of the Commodity Exchange Act.
Taxes: all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed
by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Term Loan: a loan made pursuant to Section 2.2.
Term Loan Commitment: Lender's obligation to make a Term Loan in an amount up to $7,787,662.
Term Loan Maturity Date: July 6, 2020.
Trademark Security Agreement: that certain Trademark Security Agreement dated as of the Closing Date by and among Marquis
and Lender.
Transactions: collectively, the transactions contemplated in connection with the consummation of the initial Loans made under
this Agreement on the Closing Date, the consummation of the transactions contemplated by the Mezzanine Debt Documents and the
Equity Contribution and the consummation of the Marquis Acquisition.
UCC: the Uniform Commercial Code as in effect in the State of Georgia or, when the laws of any other jurisdiction govern the
perfection or enforcement of any Lien, the Uniform Commercial Code of such jurisdiction.
Unfunded Pension Liability: the excess of a Pension Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the
current value of that Pension Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to
the Code, ERISA or the Pension Protection Act of 2006 for the applicable plan year.
Unused Line Fee Rate: a per annum rate equal to 0.25 %.
Upstream Payment: a Distribution by a Subsidiary of a Borrower to such Borrower.
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Value: (a) for Inventory, its value determined on the basis of the lower of cost or market, calculated on a first-in, first-out basis,
and excluding any portion of cost attributable to intercompany profit among Borrowers and their Affiliates; and (b) for an Account, its
face amount, net of any returns, rebates, discounts (calculated on the shortest terms), credits, allowances or Taxes (including sales, excise
or other taxes) that have been or could be claimed by the Account Debtor or any other Person.
1.2. Accounting Terms. Under the Loan Documents (except as otherwise specified therein), all accounting terms shall be
interpreted, all accounting determinations shall be made, and all financial statements shall be prepared, in accordance with GAAP applied
on a basis consistent with the most recent audited financial statements of Borrowers delivered to Lender before the Closing Date and using
the same inventory valuation method as used in such financial statements, except for any change required or permitted by GAAP if
Borrowers' certified public accountants concur in such change, the change is disclosed to Lender, and all relevant provisions of the Loan
Documents are amended in a manner satisfactory to Lender to take into account the effects of the change.
1.3. Uniform Commercial Code. As used herein, the following terms are defined in accordance with the UCC in effect in
the State of Georgia from time to time: "Chattel Paper," "Commercial Tort Claim," "Deposit Account," "Document," "Equipment,"
"General Intangibles," "Goods," "Instrument," "Investment Property," "Letter-of-Credit Right" and "Supporting Obligation."
1.4. Certain Matters of Construction. The terms "herein," "hereof," "hereunder" and other words of similar import refer
to this Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all
genders. In the computation of periods of time from a specified date to a later specified date, "from" means "from and including," and "to"
and "until" each mean "to but excluding." The terms "including" and "include" shall mean "including, without limitation" and, for
purposes of each Loan Document, the parties agree that the rule of ejusdem generis shall not be applicable to limit any provision. Section
titles appear as a matter of convenience only and shall not affect the interpretation of any Loan Document. All references to (a) laws
include all related regulations, interpretations, supplements, amendments and successor provisions; (b) any document, instrument or
agreement include any amendments, waivers and other modifications, extensions or renewals (to the extent permitted by the Loan
Documents); (c) any section mean, unless the context otherwise requires, a section of this Agreement; (d) any exhibits or schedules mean,
unless the context otherwise requires, exhibits and schedules attached hereto, which are hereby incorporated by reference; (e) any Person
include successors and assigns; (f) time of day mean time of day at Lender's notice address under Section 12.3.1; or (g) except where
otherwise qualified herein, discretion of Lender mean its sole and absolute discretion. All references to Value, Borrowing Base
components, Loans, Letters of Credit, Obligations and other amounts herein shall be denominated in Dollars, unless expressly provided
otherwise, and all determinations (including calculations of Borrowing Base and financial covenants) made from time to time under the
Loan Documents shall be made in light of the circumstances existing at such time. Borrowing Base calculations shall be consistent with
historical methods of valuation and calculation, and otherwise satisfactory to Lender (and not necessarily calculated in accordance with
GAAP). Borrowers shall have the burden of establishing any alleged negligence, misconduct or lack of good faith by Lender under any
Loan Documents. No provision of any Loan Documents shall be construed against any party by reason of such party having, or being
deemed to have, drafted the provision. Reference to a Borrower's "knowledge" or similar concept means actual knowledge of a Senior
Officer, or knowledge that a Senior Officer would have obtained if he or she had engaged in good faith and diligent performance of his or
her duties, including reasonably specific inquiries of employees or agents and a good faith attempt to ascertain the matter.
SECTION 2. CREDIT FACILITIES
2.1. Revolver Commitment.
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2.1.1. Revolver Loans. Lender agrees, on the terms set forth herein, to make Revolver Loans to Borrowers in an
aggregate amount up to the Revolver Commitment, from time to time through the Commitment Termination Date. The Revolver Loans
may be repaid and reborrowed as provided herein. In no event shall Lender have any obligation to honor a request for a Revolver Loan if
Revolver Usage at such time plus the requested Revolver Loan would exceed the Borrowing Base.
2.1.2. Use of Proceeds. The proceeds of Revolver Loans shall be used by Borrowers solely (a) to satisfy existing
Debt; (b) to pay fees and transaction expenses associated with the closing of the Transactions; (c) to pay a portion of the purchase price for
the Marquis Acquisition; (d) to pay Obligations in accordance with this Agreement; and (e) for other lawful corporate purposes of
Borrowers, including working capital.
2.1.3. Voluntary Reduction or Termination of Revolver Commitment.
(a) The Revolver Commitment shall terminate on the Revolver Termination Date, unless sooner terminated in
accordance with this Agreement. Upon at least 15 days prior written notice to Lender at any time, Borrowers may, at their option,
terminate the Revolver Commitment and this credit facility. Any notice of termination given by Borrowers shall be irrevocable but, subject
to Lender's discretion, may be conditioned upon the closing of a refinancing transaction. On the Revolver Termination Date, Borrowers
shall make Full Payment of all Obligations.
(b) Borrowers may permanently reduce the Revolver Commitment upon at least 15 days prior written notice to
Lender, which notice shall specify the amount of the reduction and shall be irrevocable once given; provided, however, that the Revolver
Commitment may not be reduced below $10,000,000 except in connection with a termination of the Revolver Commitment under Section
2.1.3(a). Each reduction shall be in a minimum amount of $1,000,000, or an increment of $1,000,000 in excess thereof.
2.1.4. Overadvances. If Revolver Usage exceeds the Borrowing Base ("Overadvance") at any time, the excess
amount shall be payable by Borrowers on demand by Lender, but all such Revolver Loans shall nevertheless constitute Obligations
secured by the Collateral and entitled to all benefits of the Loan Documents. Any funding or sufferance of an Overadvance by Lender
shall not constitute a waiver of the Event of Default caused thereby.
2.2. Term Loan Commitment . Lender agrees, on the terms set forth herein, to make a Term Loan to Borrowers in an
amount up to the Term Loan Commitment. The Term Loan shall be funded by Lender on the Closing Date and the Term Loan
Commitment shall expire upon funding.
2.3. Letter of Credit Facility.
2.3.1. Issuance of Letters of Credit. Lender agrees to issue Letters of Credit from time to time until 30 days prior to
the Revolver Termination Date (or until the Commitment Termination Date, if earlier), on the terms set forth herein, including the
following:
(a) Each Borrower acknowledges that Lender's willingness to issue any Letter of Credit is conditioned upon its
receipt of a LC Application with respect to the requested Letter of Credit, as well as such other instruments and agreements as Lender
may customarily require for issuance of a letter of credit of similar type and amount. Lender shall have no obligation to issue any Letter of
Credit unless (i) it receives a LC Request and LC Application at least three Business Days prior to the requested date of issuance; and (ii)
each LC Condition is satisfied.
(b) Letters of Credit may be requested by a Borrower to support obligations incurred in the Ordinary Course of
Business, or as otherwise approved by Lender. Increase, renewal or extension of a Letter of Credit shall be treated as issuance of a new
Letter of Credit, except that Lender may require a new LC Application in its discretion.
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(c) Borrowers assume all risks of the acts, omissions or misuses of any Letter of Credit by the beneficiary. In
connection with issuance of any Letter of Credit, Lender shall not be responsible for the existence, character, quality, quantity, condition,
packing, value or delivery of any goods purported to be represented by any Documents; any differences or variation in the character,
quality, quantity, condition, packing, value or delivery of any goods from that expressed in any Documents; the form, validity, sufficiency,
accuracy, genuineness or legal effect of any Documents or of any endorsements thereon; the time, place, manner or order in which
shipment of goods is made; partial or incomplete shipment of, or failure to ship, any goods referred to in a Letter of Credit or Documents;
any deviation from instructions, delay, default or fraud by any shipper or other Person in connection with any goods, shipment or delivery;
any breach of contract between a shipper or vendor and a Borrower; errors, omissions, interruptions or delays in transmission or delivery
of any messages, by mail, cable, telegraph, telex, telecopy, e-mail, telephone or otherwise; errors in interpretation of technical terms; the
misapplication by a beneficiary of any Letter of Credit or the proceeds thereof; or any consequences arising from causes beyond the
control of Lender, including any act or omission of a Governmental Authority. No Indemnitee shall be liable to any Obligor or other
Person for any action taken or omitted to be taken in connection with any Letter of Credit or LC Documents except as a result of its gross
negligence or willful misconduct. Lender shall be fully subrogated to the rights and remedies of each beneficiary whose claims against
Borrowers are discharged with proceeds of any Letter of Credit.
(d) In connection with its administration of and enforcement of rights or remedies under any Letters of Credit or
LC Documents, Lender shall be entitled to act, and shall be fully protected in acting, upon any certification, documentation or
communication in whatever form believed by Lender, in good faith, to be genuine and correct and to have been signed, sent or made by a
proper Person. Lender may consult with and employ legal counsel, accountants and other experts to advise it concerning its obligations,
rights and remedies, and shall be entitled to act upon, and shall be fully protected in any action taken in good faith reliance upon, any
advice given by such experts. Lender may employ agents and attorneys-in-fact in connection with any matter relating to Letters of Credit
or LC Documents, and shall not be liable for the negligence or misconduct of agents and attorneys-in-fact selected with reasonable care.
2.3.2. Reimbursement. If Lender honors any request for payment under a Letter of Credit, Borrowers shall pay to
Lender, on the same day ("Reimbursement Date"), the amount paid under such Letter of Credit, together with interest at the interest rate
for Base Rate Revolver Loans from the Reimbursement Date until payment by Borrowers. The obligation of Borrowers to reimburse
Lender for any payment made under a Letter of Credit shall be absolute, unconditional, irrevocable, and joint and several, and shall be paid
without regard to any lack of validity or enforceability of any Letter of Credit or the existence of any claim, setoff, defense or other right
that Borrowers may have at any time against the beneficiary. Whether or not Borrower Agent submits a Notice of Borrowing, Borrowers
shall be deemed to have requested a Borrowing of Base Rate Revolver Loans in an amount necessary to pay all amounts due on any
Reimbursement Date.
2.3.3. Cash Collateral. If at any time (a) an Event of Default exists, (b) the Commitment Termination Date has
occurred, or (c) the Revolver Termination Date is scheduled to occur within 20 Business Days, then Borrowers shall, at Lender's request,
Cash Collateralize all outstanding Letters of Credit. If Borrowers fail to provide any Cash Collateral as required hereunder, Lender may
advance, as Revolver Loans, the amount of Cash Collateral required.
SECTION 3. INTEREST, FEES AND CHARGES
3.1. Interest.
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3.1.1. Rates and Payment of Interest.
(a) The Obligations shall bear interest (i) if a Base Rate Loan, at the Base Rate in effect from time to time, plus
the Applicable Margin; (ii) if a LIBOR Loan, at LIBOR for the applicable Interest Period, plus the Applicable Margin; and (iii) if any
other Obligation (including, to the extent permitted by law, interest not paid when due), at the Base Rate in effect from time to time, plus
the Applicable Margin for Base Rate Revolver Loans. The Base Rate on the date hereof is % per annum and, therefore, the rate of interest
in effect on the date hereof, expressed in simple interest terms, is % per annum for Base Rate Revolver Loans and % per annum for Term
Loans constituting Base Rate Loans.
(b) During an Insolvency Proceeding with respect to any Borrower, or during the existence of any other Event of
Default if Lender in its discretion so elects, Obligations shall bear interest at the Default Rate (whether before or after any judgment). Each
Borrower acknowledges that the cost and expense to Lender due to an Event of Default are difficult to ascertain and that the Default Rate
is fair and reasonable compensation for this.
(c) Interest shall accrue from the date a Loan is advanced or Obligation is incurred or payable, until paid in full
by Borrowers. If a Loan is repaid on the same day made, one day's interest shall accrue. Interest accrued on the Loans shall be due and
payable in arrears, (i) (A) on the first day of each month, if a Base Rate Loan, and (B) at the end of the applicable Interest Period, if a
LIBOR Loan; (ii) on any date of prepayment, with respect to the principal amount of Loans being prepaid; and (iii) on the Commitment
Termination Date. Interest accrued on any other Obligations shall be due and payable as provided in the Loan Documents and, if no
payment date is specified, shall be due and payable on demand. Notwithstanding the foregoing, interest accrued at the Default Rate shall
be due and payable on demand.
3.1.2. Application of LIBOR to Outstanding Loans.
(a) Borrowers may on any Business Day, subject to delivery of a Notice of Conversion/Continuation, elect to
convert any portion of the Base Rate Loans to, or to continue any LIBOR Loan at the end of its Interest Period as, a LIBOR Loan. During
any Default or Event of Default, Lender may declare that no Loan may be made, converted or continued as a LIBOR Loan.
(b) Whenever Borrowers desire to convert or continue Loans as LIBOR Loans, Borrower Agent shall give
Lender a Notice of Conversion/Continuation, no later than 11:00 a.m. at least two Business Days before the requested conversion or
continuation date. Each Notice of Conversion/Continuation shall be irrevocable, and shall specify the amount of Loans to be converted or
continued, the conversion or continuation date (which shall be a Business Day), and the duration of the Interest Period (which shall be
deemed to be 30 days if not specified). If, upon the expiration of any Interest Period in respect of any LIBOR Loans, Borrowers shall have
failed to deliver a Notice of Conversion/Continuation, they shall be deemed to have elected to convert such Loans into Base Rate Loans.
3.1.3. Interest Periods. In connection with the making, conversion or continuation of any LIBOR Loans, Borrowers
shall select an interest period ("Interest Period") to apply, which interest period shall be 30, 60, or 90 days (if available from Lender);
provided, however, that:
Loan, and shall expire on the numerically corresponding day in the calendar month at its end;
(a)
the Interest Period shall begin on the date the Loan is made or continued as, or converted into, a LIBOR
(b) if any Interest Period begins on a day for which there is no corresponding day in the calendar month at its
end or if such corresponding day falls after the last Business Day of such month, then the Interest Period shall expire on the last Business
Day of such month; and if any Interest Period would otherwise expire on a day that is not a Business Day, the period shall expire on the
next Business Day; and
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(c) no Interest Period shall extend beyond the Revolver Termination Date; and no Interest Period for a LIBOR
Term Loan may be established that would require repayment before the end of an Interest Period in order to make any scheduled principal
payment on the Term Loan.
3.1.4. Interest Rate Not Ascertainable . If, due to any circumstance affecting the London interbank market, Lender
determines that adequate and fair means do not exist for ascertaining LIBOR on any applicable date or that any Interest Period is not
available on the basis provided herein, then Lender shall immediately notify Borrowers of such determination. Until Lender notifies
Borrowers that such circumstance no longer exists, the obligation of Lender to make affected LIBOR Loans shall be suspended and no
further Loans may be converted into or continued as such LIBOR Loans.
3.2.
Fees.
3.2.1. Unused Line Fee. Borrowers shall pay to Lender a fee equal to the Unused Line Fee Rate times the amount by
which the Revolver Commitment exceeds the average daily Revolver Usage during the immediately preceding month (or, in the case of
such payment made on the Commitment Termination Date, during the period commencing on the date the immediately preceding unused
line fee was due and ending on the Commitment Termination Date). Such fee shall be payable in arrears, commencing on August 1, 2015,
on the first day of each month thereafter and on the Commitment Termination Date.
3.2.2. LC Facility Fees. Borrowers shall pay to Lender (a) a fee equal to the Applicable Margin in effect for LIBOR
Revolver Loans times the average daily Stated Amount of Letters of Credit, which fee shall be payable monthly in arrears, on the first day
of each month; (b) a fronting fee equal to 0.125% per annum on the Stated Amount of each Letter of Credit, which fee shall be payable
monthly in arrears, on the first day of each month; and (c) all customary charges associated with the issuance, amending, negotiating,
payment, processing, transfer and administration of Letters of Credit, which charges shall be paid as and when incurred. During an Event
of Default, the fee payable under clause (a) shall be increased by 2% per annum.
3.2.3.
Closing Fee. On the Closing Date, Borrowers shall pay to Lender a closing fee of $45,575.00.
3.3. Computation of Interest, Fees, Yield Protection. All interest, as well as fees and other charges calculated on a per
annum basis, shall be computed for the actual days elapsed, based on a year of 360 days. Each determination by Lender of any interest,
fees or interest rate hereunder shall be final, conclusive and binding for all purposes, absent manifest error. All fees shall be fully earned
when due and shall not be subject to rebate, refund or proration. All fees payable under Section 3.2 are compensation for services and are
not, and shall not be deemed to be, interest or any other charge for the use, forbearance or detention of money. A certificate as to amounts
payable by Borrowers under Section 3.4, 3.6, 3.7, 3.9 or 5.8, submitted to Borrower Agent by Lender shall be final, conclusive and
binding for all purposes, absent manifest error, and Borrowers shall pay such amounts to the appropriate party within 10 days following
receipt of the certificate.
3.4. Reimbursement Obligations. Borrowers shall pay all Extraordinary Expenses promptly upon request. Borrowers
shall also reimburse Lender for all reasonable and documented legal, accounting, appraisal, consulting, and other fees, costs and expenses
incurred by it in connection with (a) negotiation and preparation of any Loan Documents, including any amendment or other modification
thereof; (b) administration of and actions relating to any Collateral, Loan Documents and transactions contemplated thereby, including any
actions taken to perfect or maintain priority of Lender's Liens on any Collateral, to maintain any insurance required hereunder or to verify
Collateral; and (c) subject to the limits of Section 10.1.1(b), each inspection, audit or appraisal with respect to any Obligor or Collateral,
whether prepared by Lender's personnel or a third party. All legal, accounting and consulting fees shall be charged to Borrowers by
Lender's professionals at their full hourly rates, regardless of any alternative fee arrangements that Lender or any of its Affiliates may
have with such professionals that otherwise might apply to this or any other transaction. Borrowers acknowledge that counsel may provide
Lender with a benefit (such as a discount, credit or accommodation for other matters) based on counsel's overall relationship with Lender,
including fees paid hereunder. If, for any reason (including inaccurate reporting by any Borrower), it is reasonably determined that a
higher Applicable Margin should have applied to a period than was actually applied, then, following Lender's consultation with Borrower
Agent, the proper margin shall be applied retroactively and Borrowers shall immediately pay to Lender an amount equal to the difference
between the amount of interest and fees that would have accrued using the proper margin and the amount actually paid. All amounts
payable by Borrowers under this Section shall be due on demand.
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3.5. Illegality. If Lender determines that any Applicable Law has made it unlawful, or that any Governmental Authority
has asserted that it is unlawful, for Lender to make, maintain or fund LIBOR Loans, or to determine or charge interest rates based upon
LIBOR, or any Governmental Authority has imposed material restrictions on the authority of Lender to purchase or sell, or to take
deposits of, Dollars in the London interbank market, then, on notice thereof by Lender to Borrower Agent, any obligation of Lender to
make or continue LIBOR Loans or to convert Base Rate Loans to LIBOR Loans shall be suspended until Lender notifies Borrower Agent
that the circumstances giving rise to such determination no longer exist. Upon delivery of such notice, Borrowers shall prepay or, if
applicable, convert all LIBOR Loans to Base Rate Loans, either on the last day of the Interest Period therefor, if Lender may lawfully
continue to maintain LIBOR Loans to such day, or immediately, if Lender may not lawfully continue to maintain LIBOR Loans. Upon any
such prepayment or conversion, Borrowers shall also pay accrued interest on the amount so prepaid or converted.
3.6.
Inability to Determine Rates. If Lender notifies Borrower Agent in connection with a Borrowing, conversion or
continuation of a LIBOR Loan that for any reason (a) Dollar deposits are not being offered to banks in the London interbank Eurodollar
market for the applicable Loan amount or Interest Period, (b) adequate and reasonable means do not exist for determining LIBOR for the
applicable Interest Period, or (c) LIBOR for the applicable Interest Period does not adequately and fairly reflect the cost to Lender of
funding the Loan, then Lender's obligation to make or maintain LIBOR Loans shall be suspended to the extent of the affected LIBOR
Loan or Interest Period until Lender revokes the notice. Upon receipt of the notice, Borrower Agent may revoke any pending request for a
Borrowing, conversion or continuation of a LIBOR Loan or, failing that, will be deemed to have submitted a request for a Base Rate Loan.
3.7.
Increased Costs; Capital Adequacy.
3.7.1. Increased Costs Generally. If any Change in Law shall:
(a) impose, modify or deem applicable any reserve, liquidity, special deposit, compulsory loan, insurance charge
or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, Lender (except any
reserve requirement reflected in LIBOR);
subject any Recipient to Taxes (other than (i) Indemnified Taxes, (ii) Taxes described in clause (b) of the
definition of Excluded Taxes, or (iii) Connection Income Taxes) with respect to any Loan, Letter of Credit, Commitment or other
obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or
(b)
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Credit, Commitment or Loan Document;
(c) impose on Lender or any interbank market any other condition, cost or expense affecting any Loan, Letter of
and the result thereof shall be to increase the cost to Lender of making or maintaining any Loan or Commitment, or converting to or
continuing any interest option for a Loan, or to increase the cost to Lender of issuing or maintaining any Letter of Credit (or of maintaining
its obligation to issue a Letter of Credit), or to reduce the amount of any sum received or receivable by Lender hereunder (whether of
principal, interest or any other amount) then, upon request by Lender, Borrowers will pay to Lender such additional amount or amounts as
will compensate Lender for such additional costs incurred or reduction suffered.
3.7.2. Capital Requirements. If Lender determines that a Change in Law affecting Lender or its holding company
regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on Lender's or such holding
company's capital as a consequence of this Agreement, Commitments, Loans or Letters of Credit to a level below that which Lender or
such holding company could have achieved but for such Change in Law (taking into consideration its policies with respect to capital
adequacy), then from time to time Borrowers will pay to Lender such additional amounts as will compensate it or its holding company for
the reduction suffered.
3.7.3. LIBOR Loan Reserves. If Lender is required to maintain reserves with respect to liabilities or assets consisting
of or including Eurocurrency funds or deposits, Borrowers shall pay additional interest to Lender on each LIBOR Loan equal to the costs
of such reserves allocated to the Loan by Lender (as determined by it in good faith, which determination shall be conclusive). The
additional interest shall be due and payable on each interest payment date for the Loan; provided, however, that if Lender notifies
Borrowers of the additional interest less than 10 days prior to the interest payment date, then the additional interest shall be payable 10
days after Borrowers' receipt of the notice.
3.7.4. Compensation. Failure or delay on the part of Lender to demand compensation pursuant to this Section shall
not constitute a waiver of its right to demand such compensation, but Borrowers shall not be required to compensate Lender for any
increased costs or reductions suffered more than nine months (plus any period of retroactivity of the Change in Law giving rise to the
demand) prior to the date that Lender notifies Borrower Agent of the applicable Change in Law and of Lender's intention to claim
compensation therefor.
3.8. Mitigation. If Lender gives a notice under Section 3.5 or requests compensation under Section 3.7, or if Borrowers are
required to pay any Indemnified Taxes or additional amounts under Section 5.8, then at the request of Borrower Agent, Lender shall use
reasonable efforts to designate a different lending office or to assign its rights and obligations hereunder to another of its offices, branches
or Affiliates, if, in the judgment of Lender, such designation or assignment (a) would eliminate the need for such notice or reduce amounts
payable or to be withheld in the future, as applicable; and (b) would not subject Lender to any unreimbursed cost or expense and would not
otherwise be disadvantageous to it or unlawful. Borrowers shall pay all reasonable costs and expenses incurred by Lender in connection
with any such designation or assignment.
3.9. Funding Losses. If for any reason (a) any Borrowing, conversion or continuation of a LIBOR Loan does not occur on
the date specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation (whether or not withdrawn), (b) any repayment
or conversion of a LIBOR Loan occurs on a day other than the end of its Interest Period, or (c) Borrowers fail to repay a LIBOR Loan
when required hereunder, then Borrowers shall pay to Lender all resulting losses and expenses, including loss of anticipated profits and
any loss, expense or fee arising from redeployment of funds or termination of match fundings. For purposes of calculating amounts
payable under this Section, Lender shall be
deemed to have funded a LIBOR Loan by a matching deposit or other borrowing in the London interbank market for a comparable amount
and period, whether or not the Loan was in fact so funded.
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3.10. Maximum Interest. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or
agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by Applicable Law
("maximum rate"). If Lender shall receive interest in an amount that exceeds the maximum rate, the excess interest shall be applied to the
principal of the Obligations or, if it exceeds such unpaid principal, refunded to Borrowers. In determining whether the interest contracted
for, charged or received by Lender exceeds the maximum rate, Lender may, to the extent permitted by Applicable Law, (a) characterize
any payment that is not principal as an expense, fee or premium rather than interest; (b) exclude voluntary prepayments and the effects
thereof; and (c) amortize, prorate, allocate and spread in equal or unequal parts the total amount of interest throughout the contemplated
term of the Obligations hereunder.
SECTION 4. LOAN ADMINISTRATION
4.1. Manner of Borrowing and Funding Revolver Loans.
4.1.1. Notice of Borrowing.
(a) Whenever Borrowers desire funding of a Revolver Loan, Borrower Agent shall give Lender a Notice of
Borrowing. Such notice must be received by Lender by 11:00 a.m. (i) on the requested funding date for a Base Rate Loan, and (ii) at least
two Business Days prior to the requested funding date for a LIBOR Loan. Notices received after such time shall be deemed received on
the next Business Day. Each Notice of Borrowing shall be irrevocable and shall specify (A) the amount of the Borrowing, (B) the
requested funding date (which must be a Business Day), (C) whether the Borrowing is to be made as a Base Rate Loan or LIBOR Loan,
and (D) in the case of a LIBOR Loan, the applicable Interest Period (which shall be deemed to be 30 days if not specified).
(b) Unless payment is otherwise made by Borrowers, the becoming due of any Obligation (whether principal,
interest, fees or other charges, including Extraordinary Expenses, LC Obligations, Cash Collateral and Bank Product Debt) shall be
deemed to be a request for a Base Rate Revolver Loan on the due date in the amount due and the Loan proceeds shall be disbursed as
direct payment of such Obligation. In addition, Lender may, at its option, charge such amount against any operating, investment or other
account of a Borrower maintained with Lender or any of its Affiliates.
(c)
If a Borrower maintains a disbursement account with Lender or any of its Affiliates, then presentation for
payment in the account of a Payment Item when there are insufficient funds to cover it shall be deemed to be a request for a Base Rate
Revolver Loan on the presentation date, in the amount of the Payment Item. Proceeds of the Loan may be disbursed directly to the
account.
4.1.2. Notices. Borrowers may request, convert or continue Loans, select interest rates, and transfer funds based on
telephonic or e-mailed instructions to Lender. Borrowers shall confirm each such request by prompt delivery to Lender of a Notice of
Borrowing or Notice of Conversion/Continuation, if applicable, but if it differs materially from the action taken by Lender, the records of
Lender shall govern. Lender shall not have any liability for any loss suffered by a Borrower as a result of Lender acting upon its
understanding of telephonic or e-mailed instructions from a person believed in good faith to be a person authorized to give such
instructions on a Borrower's behalf.
4.2. Number and Amount of LIBOR Loans; Determination of Rate . Each Borrowing of LIBOR Loans when made
shall be in a minimum amount of $500,000, plus any increment of $100,000 in excess thereof. No more than 5 Borrowings of LIBOR
Loans may be outstanding at any time, and all LIBOR Loans having the same length and beginning date of their Interest Periods shall be
aggregated together and considered one Borrowing for this purpose. Upon determining LIBOR for any Interest Period requested by
Borrowers, Lender shall promptly notify Borrowers thereof by telephone or electronically and, if requested by Borrowers, shall confirm
any telephonic notice in writing.
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4.3. Borrower Agent. Each Borrower hereby designates Marquis ("Borrower Agent") as its representative and agent for all
purposes under the Loan Documents, including requests for and receipt of Loans and Letters of Credit, designation of interest rates,
delivery or receipt of communications, delivery of Borrowing Base and financial information and reports, payment of Obligations, requests
for waivers, amendments or other accommodations, actions under the Loan Documents (including in respect of compliance with
covenants), and all other dealings with Lender. Borrower Agent hereby accepts such appointment. Lender shall be entitled to rely upon,
and shall be fully protected in relying upon, any notice or communication (including any Notice of Borrowing) delivered by Borrower
Agent on behalf of any Borrower. Lender may give any notice or communication with a Borrower hereunder to Borrower Agent on behalf
of such Borrower. Lender shall have the right, in its discretion, to deal exclusively with Borrower Agent for all purposes under the Loan
Documents. Each Borrower agrees that any notice, election, communication, delivery, representation, agreement, action or undertaking on
its behalf by Borrower Agent shall be binding upon and enforceable against it.
4.4.
One Obligation. The Loans, LC Obligations and other Obligations shall constitute one general obligation of
Borrowers and are secured by Lender's Lien on all Collateral; provided, however, that Lender shall be deemed to be a creditor of, and the
holder of a separate claim against, each Borrower to the extent of any Obligations jointly or severally owed by such Borrower.
4.5. Effect of Termination. On the effective date of the termination of the Revolver Commitment, the Obligations shall be
immediately due and payable, and each Secured Party may terminate its Bank Products. Until Full Payment of the Obligations, all
undertakings of Borrowers contained in the Loan Documents shall continue, and Lender shall retain its Liens in the Collateral and all of its
rights and remedies under the Loan Documents. Lender shall not be required to terminate its Liens unless it receives Cash Collateral or a
written agreement, in each case reasonably satisfactory to it, protecting it from dishonor or return of any Payment Item previously applied
to the Obligations. Sections 2.3, 3.4, 3.6, 3.7, 3.9, 5.5, 5.8, 12.2, this Section, and each indemnity or waiver given by an Obligor in any
Loan Document, shall survive Full Payment of the Obligations.
SECTION 5. PAYMENTS
5.1. General Payment Provisions. All payments of Obligations shall be made in Dollars, without offset, counterclaim or
defense of any kind, free and clear of (and without deduction for) any Taxes, and in immediately available funds, not later than 12:00 noon
on the due date. Any payment after such time shall be deemed made on the next Business Day. Any payment of a LIBOR Loan prior to
the end of its Interest Period shall be accompanied by all amounts due under Section 3.9. Borrowers agree that Lender shall have the
continuing, exclusive right to apply and reapply payments and proceeds of Collateral against Obligations, in such manner as Lender deems
advisable, but whenever possible, any prepayment of Loans shall be applied first to Base Rate Loans and then to LIBOR Loans.
5.2. Repayment of Revolver Loans. Revolver Loans shall be due and payable in full on the Revolver Termination Date,
unless payment is sooner required hereunder. Revolver Loans may be prepaid from time to time, without penalty or premium. If an
Overadvance exists at any time, Borrowers shall, on the sooner of Lender's demand or the first Business Day after any Borrower has
knowledge thereof, repay Revolver Loans in an amount sufficient to reduce Revolver Usage to the Borrowing Base. If any Asset
Disposition includes the disposition of Accounts or Inventory, Borrowers shall apply Net Proceeds to repay Revolver Loans equal to the
greater of (a) the net book value of such Accounts and Inventory, or (b) the reduction in Borrowing Base resulting from the disposition.
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5.3.
Repayment of Term Loan.
5.3.1. Payment of Principal. The Term Loan shall be repaid on the first day of each month in consecutive monthly
installments of $79,612, commencing on August 1, 2015 and continuing through the Term Loan Maturity Date, on which date all
principal, interest and other amounts owing with respect to the Term Loan shall be due and payable in full. Once repaid, whether such
repayment is voluntary or required, no portion of the Term Loan may be reborrowed.
5.3.2. Mandatory Prepayments.
Term Loan in an amount equal to the Net Proceeds of such disposition;
(a) Concurrently with any Permitted Asset Disposition of Equipment or Real Estate, Borrowers shall prepay the
Equipment or Real Estate, Borrowers shall prepay the Term Loan in an amount equal to such proceeds, subject to Section 8.6.2;
(b) Concurrently with the receipt of any proceeds of insurance or condemnation awards paid in respect of any
an amount equal to the net proceeds of such issuance; and
(c) Concurrently with any issuance of Equity Interests by a Borrower, Borrowers shall prepay the Term Loan in
hereunder).
(d) On the Commitment Termination Date, Borrowers shall prepay the entire Term Loan (unless sooner repaid
5.3.3. Optional Prepayments. Borrowers may, at their option from time to time, prepay the Term Loan, which
prepayment must be at least $100,000, plus any increment of $100,000 in excess thereof. Borrowers shall give written notice to Lender of
an intended prepayment of the Term Loan, which notice shall specify the amount of the prepayment, shall be irrevocable once given,
shall be given at least 5 Business Days prior to the end of a month and shall be effective as of the first day of the next month.
accrued thereon and any amounts payable under Section 3.9, and shall be applied to principal in inverse order of maturity.
5.3.4. Interest; Application of Prepayments. Each prepayment of the Term Loan shall be accompanied by all interest
5.4. Payment of Other Obligations. Obligations other than Loans, including LC Obligations and Extraordinary Expenses,
shall be paid by Borrowers as provided in the Loan Documents or, if no payment date is specified, on demand.
5.5. Marshaling; Payments Set Aside . Lender shall have no obligation to marshal any assets in favor of any Obligor or
against any Obligations. If any payment by or on behalf of Borrowers is made to Lender or if Lender exercises a right of setoff, and any of
such payment or setoff is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to
any settlement entered into by Lender in its discretion) to be repaid to a trustee, receiver or any other Person, then the Obligation originally
intended to be satisfied, and all Liens, rights and remedies relating thereto, shall be revived and continued in full force and effect as if such
payment or setoff had not occurred.
5.6. Application of Payments; Dominion Account . The ledger balance in the main Dominion Account as of the end of a
Business Day shall be applied to the Obligations at the beginning of the next Business Day. If a credit balance results from such
application, it shall not accrue interest in favor of Borrowers and shall be made available to Borrowers as long as no Default or Event of
Default exists. Notwithstanding anything herein to the contrary, monies and collateral proceeds obtained from an Obligor shall not be
applied to repayment of its Excluded Swap Obligations.
5.7. Account Stated. Lender shall maintain, in accordance with its customary practices, loanaccount(s) evidencing the Debt of
Borrowers hereunder. Any failure of Lender to record anything in a loan account, or any error in doing so, shall not limit or otherwise
affect the obligation of Borrowers to pay any amount owing hereunder. Entries made in a loan account shall constitute presumptive
evidence of the information contained therein. If any information contained in a loan account is provided to or inspected by any Person,
the information shall be conclusive and binding on such Person for all purposes absent manifest error, except to the extent such Person
notifies Lender in writing within 30 days after receipt or inspection that specific information is subject to dispute.
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5.8.
Taxes.
5.8.1. Payments Free of Taxes; Obligation to Withhold; Tax Payment.
(a) All payments of Obligations by Obligors shall be made without deduction or withholding for any Taxes,
except as required by Applicable Law. If Applicable Law (as determined by Lender in its discretion) requires the deduction or withholding
of any Tax from any such payment by a Recipient or Obligor, then the Recipient or Obligor shall be entitled to make such deduction or
withholding based on information and documentation provided pursuant to this Section.
(b) If a Recipient or Obligor is required by the Code to withhold or deduct Taxes, including backup withholding
and withholding taxes, from any payment, then the Recipient shall pay the full amount that it determines is to be withheld or deducted to
the relevant Governmental Authority pursuant to the Code. If a Recipient or Obligor is required by any Applicable Law other than the
Code to withhold or deduct Taxes from any payment, then the Recipient or Obligor, to the extent required by Applicable Law, shall timely
pay the full amount to be withheld or deducted to the relevant Governmental Authority. In each case, to the extent the withholding or
deduction is made on account of Indemnified Taxes, the sum payable by the applicable Obligor shall be increased as necessary so that the
Recipient receives an amount equal to the sum it would have received had no such withholding or deduction been made.
Authority in accordance with Applicable Law or, at Lender's option, timely reimburse Lender for payment thereof.
(c) Without limiting the foregoing, Borrowers shall timely pay all Other Taxes to the relevant Governmental
5.8.2. Tax Indemnification . Borrowers shall indemnify and hold harmless, on a joint and several basis, each
Recipient against any Indemnified Taxes (including those imposed or asserted on or attributable to amounts payable under this Section)
payable or paid by a Recipient or required to be withheld or deducted from a payment to a Recipient, and any penalties, interest and
reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. Borrowers shall make payment within 10 days after demand for any amount or liability
payable under this Section. A certificate delivered to Borrowers by Lender (for itself or on behalf of a Recipient) as to the amount of such
payment or liability, shall be conclusive absent manifest error.
5.8.3. Evidence of Payments. If Lender or an Obligor pays any Taxes pursuant to this Section, then upon request,
Lender or Borrower Agent, as applicable, shall deliver to the other a copy of a receipt issued by the appropriate Governmental Authority
evidencing the payment, a copy of any return required by Applicable Law to report the payment, or other evidence of payment reasonably
satisfactory to the requesting party.
5.8.4. Treatment of Certain Refunds. If Lender determines in its discretion that it or another Recipient has received a
refund of any Taxes that were indemnified by Borrowers or with respect to which a Borrower paid additional amounts pursuant to this
Section, Lender shall pay or shall cause the other Recipient to pay to Borrowers the amount of such refund (but only to the extent of
indemnity payments made, or additional amounts paid, by Borrowers with respect to the Taxes giving rise to the refund), net of all out-of-
pocket expenses (including Taxes) incurred by the Recipient and without interest (other than any interest paid by the relevant
Governmental Authority with respect to such refund). Borrowers shall, upon request by Lender, repay to the Recipient any refund amount
so paid over to Borrowers (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) if the Recipient
is required to repay such refund to the Governmental Authority. Notwithstanding anything herein to the contrary, no Recipient shall be
required to pay any amount to Borrowers if such payment would place the Recipient in a less favorable net after-Tax position than it
would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise
imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. In no event shall any
Recipient be required to make its tax returns (or any other information relating to its taxes that it deems confidential) available to any
Obligor or other Person.
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5.8.5. Status of Lender. If Lender is entitled to an exemption from or reduction of withholding Tax with respect to
payments of Obligations, it shall deliver to Borrowers properly completed and executed documentation reasonably requested by
Borrowers as will permit such payments to be made without or at a reduced rate of withholding. In addition, Lender, if reasonably
requested by Borrowers, shall deliver such other documentation prescribed by Applicable Law as is necessary to enable Borrowers to
determine whether Lender is subject to backup withholding or information reporting requirements. Notwithstanding the foregoing, such
documentation shall not be required if Lender believes delivery of the documentation would subject it to any material unreimbursed cost or
expense or would materially prejudice its legal or commercial position.
5.8.6. Documentation. Without limiting the foregoing, Lender shall deliver to Borrowers, from time to time upon
reasonable request, executed originals of IRS Form W-9 or W-8BEN, certifying that Lender is exempt from U.S. federal backup
withholding Tax. If payment of any Obligation to Lender would be subject to U.S. federal withholding Tax imposed by FATCA if Lender
were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of
the Code), Lender shall deliver to Borrowers at the time(s) prescribed by law and otherwise as reasonably requested by Borrowers such
documentation prescribed by Applicable Law (including Section 1471(b)(3)(C)(i) of the Code) and such additional documentation
reasonably requested by Borrowers as may be necessary for them to comply with their obligations under FATCA and to determine that
Lender has complied with its obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for
purposes of the preceding sentence, "FATCA" shall include any amendments made to FATCA after the date hereof. If any form or
certification delivered by Lender pursuant to this Section expires or becomes obsolete or inaccurate in any respect, Lender shall update the
form or certification or notify Borrowers in writing of its inability to do so.
obligations hereunder, termination of the Commitments, and any repayment, satisfaction, discharge or Full Payment of any Obligations.
5.8.7. Survival. Each party's obligations under this Section 5.8 shall survive any assignment by Lender of rights or
5.9.
Nature and Extent of Each Borrower's Liability.
5.9.1. Joint and Several Liability. Each Borrower agrees that it is jointly and severally liable for, and absolutely and
unconditionally guarantees to Lender the prompt payment and performance of, all Obligations, except its Excluded Swap Obligations.
Each Borrower agrees that its guaranty obligations hereunder constitute a continuing guaranty of payment and performance and not of
collection, that such obligations shall not be discharged until Full Payment of the Obligations, and that such obligations are absolute and
unconditional, irrespective of (a) the genuineness, validity, regularity, enforceability, subordination or any future modification of, or
change in, any Obligations or Loan Document, or any other document, instrument or agreement to which any Obligor is or may become a
party or be bound; (b) the absence of any action to enforce this Agreement (including this Section) or any other Loan Document, or any
waiver, consent or indulgence of any kind by Lender with respect thereto; (c) the existence, value or condition of, or failure to perfect a
Lien or to preserve rights against, any security or guaranty for any Obligations or any action, or the absence of any action, by Lender in
respect thereof (including the release of any security or guaranty); (d) the insolvency of any Obligor; (e) any election by Lender in an
Insolvency Proceeding for the application of Section 1111(b)(2) of the Bankruptcy Code; (f) any borrowing or grant of a Lien by any
other Borrower, as debtor-in-possession under Section 364 of the Bankruptcy Code or otherwise; (g) the disallowance of any claims of
Lender against any Obligor for the repayment of any Obligations under Section 502 of the Bankruptcy Code or otherwise; or (h) any other
action or circumstances that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, except Full
Payment of the Obligations.
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5.9.2. Waivers.
(a) Each Borrower expressly waives all rights that it may have now or in the future under any statute, at common
law, in equity or otherwise, to compel Lender to marshal assets or to proceed against any Obligor, other Person or security for the payment
or performance of any Obligations before, or as a condition to, proceeding against such Borrower. Each Borrower waives all defenses
available to a surety, guarantor or accommodation co-obligor other than Full Payment of Obligations and waives, to the maximum extent
permitted by law, any right to revoke any guaranty of Obligations as long as it is a Borrower. It is agreed among each Borrower and
Lender that the provisions of this Section 5.9 are of the essence of the transaction contemplated by the Loan Documents and that, but for
such provisions, Lender would decline to make Loans and issue Letters of Credit. Each Borrower acknowledges that its guaranty pursuant
to this Section is necessary to the conduct and promotion of its business, and can be expected to benefit such business.
(b) Lender may, in its discretion, pursue such rights and remedies as it deems appropriate, including realization
upon Collateral or any Real Estate by judicial foreclosure or nonjudicial sale or enforcement, without affecting any rights and remedies
under this Section 5.9. If, in taking any action in connection with the exercise of any rights or remedies, Lender shall forfeit any other
rights or remedies, including the right to enter a deficiency judgment against any Borrower or other Person, whether because of any
Applicable Laws pertaining to "election of remedies" or otherwise, each Borrower consents to such action and waives any claim based
upon it, even if the action may result in loss of any rights of subrogation that any Borrower might otherwise have had. Any election of
remedies that results in denial or impairment of the right of Lender to seek a deficiency judgment against any Borrower shall not impair
any other Borrower's obligation to pay the full amount of the Obligations. Each Borrower waives all rights and defenses arising out of an
election of remedies, such as nonjudicial foreclosure with respect to any security for Obligations, even though that election of remedies
destroys such Borrower's rights of subrogation against any other Person. Lender may bid Obligations, in whole or part, at any foreclosure,
trustee or other sale, including any private sale, and the amount of such bid need not be paid by Lender but shall be credited against the
Obligations. The amount of the successful bid at any such sale, whether Lender or any other Person is the successful bidder, shall be
conclusively deemed to be the fair market value of the Collateral, and the difference between such bid amount and the remaining balance
of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Section 5.9, notwithstanding
that any present or future law or court decision may have the effect of reducing the amount of any deficiency claim to which Lender might
otherwise be entitled but for such bidding at any such sale.
5.9.3.
Extent of Liability; Contribution.
(a) Notwithstanding anything herein to the contrary, each Borrower's liability under this Section 5.9 shall not
exceed the greater of (i) all amounts for which such Borrower is primarily liable, as described in clause (c) below, and (ii) such Borrower's
Allocable Amount.
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(b) If any Borrower makes a payment under this Section 5.9 of any Obligations (other than amounts for which
such Borrower is primarily liable) (a "Guarantor Payment") that, taking into account all other Guarantor Payments previously or
concurrently made by any other Borrower, exceeds the amount that such Borrower would otherwise have paid if each Borrower had paid
the aggregate Obligations satisfied by such Guarantor Payments in the same proportion that such Borrower's Allocable Amount bore to
the total Allocable Amounts of all Borrowers, then such Borrower shall be entitled to receive contribution and indemnification payments
from, and to be reimbursed by, each other Borrower for the amount of such excess, ratably based on their respective Allocable Amounts in
effect immediately prior to such Guarantor Payment. The "Allocable Amount" for any Borrower shall be the maximum amount that could
then be recovered from such Borrower under this Section 5.9 without rendering such payment voidable under Section 548 of the
Bankruptcy Code or under any applicable state fraudulent transfer or conveyance act, or similar statute or common law.
(c) Section 5.9.3(a) shall not limit the liability of any Borrower to pay or guarantee Loans made directly or
indirectly to it (including Loans advanced hereunder to any other Person and then re-loaned or otherwise transferred to, or for the benefit
of, such Borrower), LC Obligations relating to Letters of Credit issued to support its business, Bank Products incurred to support its
business, and all accrued interest, fees, expenses and other related Obligations with respect thereto, for which such Borrower shall be
primarily liable for all purposes hereunder. Lender shall have the right, at any time in its discretion, to condition Loans and Letters of
Credit upon a separate calculation of borrowing availability for each Borrower and to restrict the disbursement and use of Loans and
Letters of Credit to a Borrower based on that calculation.
(d) Each Obligor that is a Qualified ECP when its guaranty of or grant of Lien as security for a Swap Obligation
becomes effective hereby jointly and severally, absolutely, unconditionally and irrevocably undertakes to provide such funds or other
support to each Specified Obligor with respect to such Swap Obligation as may be needed by such Specified Obligor from time to time to
honor all of its obligations under the Loan Documents in respect of such Swap Obligation (but, in each case, only up to the maximum
amount of such liability that can be hereby incurred without rendering such Qualified ECP's obligations and undertakings under this
Section 5.9 voidable under any applicable fraudulent transfer or conveyance act). The obligations and undertakings of each Qualified ECP
under this Section shall remain in full force and effect until Full Payment of all Obligations. Each Obligor intends this Section to
constitute, and this Section shall be deemed to constitute, a guarantee of the obligations of, and a "keepwell, support or other agreement"
for the benefit of, each Obligor for all purposes of the Commodity Exchange Act.
5.9.4. Joint Enterprise. Each Borrower has requested that Lender make this credit facility available to Borrowers on a
combined basis, in order to finance Borrowers' business most efficiently and economically. Borrowers' business is a mutual and collective
enterprise, and the successful operation of each Borrower is dependent upon the successful performance of the integrated group.
Borrowers believe that consolidation of their credit facility will enhance the borrowing power of each Borrower and ease administration of
the facility, all to their mutual advantage. Borrowers acknowledge that Lender's willingness to extend credit and to administer the
Collateral on a combined basis hereunder is done solely as an accommodation to Borrowers and at Borrowers' request.
5.9.5. Subordination. Each Borrower hereby subordinates any claims, including any rights at law or in equity to
payment, subrogation, reimbursement, exoneration, contribution, indemnification or set off, that it may have at any time against any other
Obligor, howsoever arising, to the Full Payment of its Obligations.
SECTION 6. CONDITIONS PRECEDENT
6.1. Conditions Precedent to Initial Loans. In addition to the conditions set forth in Section 6.2, Lender shall not be
required to fund any requested Loan, issue any Letter of Credit or otherwise extend credit to Borrowers hereunder, until the date ("Closing
Date") that each of the following conditions has been satisfied:
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thereto, and each Obligor shall be in compliance with all terms thereof.
(a) Each Loan Document shall have been duly executed and delivered to Lender by each of the signatories
(b) Lender shall have received acknowledgments of all filings or recordations necessary to perfect its Liens in
the Collateral, as well as UCC and Lien searches and other evidence satisfactory to Lender that such Liens are the only Liens upon the
Collateral, except Permitted Liens.
(c) Lender shall have received the Related Real Estate Documents for all Real Estate subject to a Mortgage.
lockbox, in form and substance, and with financial institutions, satisfactory to Lender.
(d)
Lender shall have received duly executed agreements establishing each Dominion Account and related
(e) Lender shall have received certificates, in form and substance satisfactory to it, from a knowledgeable Senior
Officer of Borrower Agent certifying that, after giving effect to the initial Loans and transactions hereunder as well as all of the
transactions contemplated under the Marquis SPA Documents and the Mezzanine Debt Documents, (i) such Borrower is Solvent; (ii) no
Default or Event of Default exists; (iii) the representations and warranties set forth in Section 9 are true and correct; and (iv) such
Borrower has complied with all agreements and conditions to be satisfied by it under the Loan Documents.
(f)
Lender shall have received a certificate of a duly authorized officer of each Obligor, certifying (i) that
attached copies of such Obligor's Organic Documents are true and complete, and in full force and effect, without amendment except as
shown; (ii) that an attached copy of resolutions authorizing execution and delivery of the Loan Documents is true and complete, and that
such resolutions are in full force and effect, were duly adopted, have not been amended, modified or revoked, and constitute all
resolutions adopted with respect to this credit facility; and (iii) to the title, name and signature of each Person authorized to sign the Loan
Documents. Lender may conclusively rely on this certificate until it is otherwise notified by the applicable Obligor in writing.
Lender, in form and substance satisfactory to Lender.
(g) Lender shall have received a written opinion of Baker Hostetler, as well as any local counsel to Borrowers or
(h) Lender shall have received copies of the charter documents of each Obligor, certified by the Secretary of
State or other appropriate official of such Obligor's jurisdiction of organization. Lender shall have received good standing certificates for
each Obligor, issued by the Secretary of State or other appropriate official of such Obligor's jurisdiction of organization and each
jurisdiction where such Obligor's conduct of business or ownership of Property necessitates qualification.
Borrowers, all in compliance with the Loan Documents.
(i) Lender shall have received copies of policies or certificates of insurance for the insurance policies carried by
(j) Lender shall have completed its business, financial and legal due diligence of Obligors, including (i) a field
examination, (ii) Inventory, Equipment and Real Estate appraisals, and (iii) a review of all material pending or threatened litigation or
administrative proceedings and all environmental aspects of Borrowers' business, in each case with results satisfactory to Lender. No
material adverse change in the financial condition of any Obligor or in the quality, quantity or value of any Collateral shall have occurred
since January 3, 2015.
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(k) Borrowers shall have paid all fees and expenses to be paid to Lender on the Closing Date.
(l) Lender shall have received a Borrowing Base Certificate prepared as of June 29, 2015. Upon giving effect to
the initial funding of Loans and issuance of Letters of Credit, and the payment by Borrowers of all fees and expenses incurred in
connection herewith as well as any payables stretched beyond their customary payment practices, Availability shall be at least $3,000,000.
parties that are required by the Marquis SPA.
(m) Borrowers shall have obtained consents and approvals from all Governmental Authorities and other third
(n) All conditions precedent to the effectiveness of the Marquis SPA shall have been satisfied (and not waived
unless Lender shall have approved such waiver in its discretion) and the Marquis Acquisition shall have been consummated on terms and
subject to legal documentation acceptable to Lender in its discretion.
certified by an officer of Borrower Agent to be true, correct and complete.
(o) Lender shall have received copies of the fully-executed Marquis SPA and the Marquis SPA Documents,
(p) All conditions precedent to the effectiveness of the Equity Contribution Documents shall have been satisfied
(and not waived unless Lender shall have approved such waiver in its discretion) and the Equity Contribution shall have been
consummated on terms and subject to legal documentation acceptable to Lender in its discretion.
and subject to legal documentation acceptable to Lender in its discretion.
(q) The transactions contemplated by the Mezzanine Debt Documents shall have been consummated on terms
(r) Agent shall have received copies of the fully-executed Equity Contribution Documents and the Mezzanine
Debt Documents, certified by an officer of Borrower Agent to be true, correct and complete, each of which shall be in form and substance
acceptable to Lender.
(s) Lender shall have received (i) interim financial statements for Borrowers as of May 30, 2015, (ii) projections
of Borrower's consolidated balance sheets, results of operations, cash flow and Availability for Fiscal Year 2015, month by month and (iii)
all other financial and business information reasonably requested by Lender.
indebtedness.
(t) Lender shall be satisfied with all aspects of Obligors' corporate, capital and ownership structure and
Applicable Law and all background checks.
(u) Lender shall have completed all due diligence required for compliance with the PATRIOT Act and other
6.2. Conditions Precedent to All Credit Extensions. Lender shall not be required to fund any Loans, issue any Letters of
Credit, or grant any other accommodation to or for the benefit of Borrowers, unless the following conditions are satisfied:
(a) No Default or Event of Default shall exist at the time of, or result from, such funding, issuance or grant;
(b) The representations and warranties of each Obligor in the Loan Documents shall be true and correct on the
date of, and upon giving effect to, such funding, issuance or grant (except for representations and warranties that expressly relate to an
earlier date);
(c)
All conditions precedent in any other Loan Document shall be satisfied;
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Material Adverse Effect; and
(d) No event shall have occurred or circumstance exist that has or could reasonably be expected to have a
(e) With respect to issuance of a Letter of Credit, the LC Conditions shall be satisfied.
Each request (or deemed request) by Borrowers for funding of a Loan, issuance of a Letter of Credit or grant of an accommodation shall
constitute a representation by Borrowers that the foregoing conditions are satisfied on the date of such request and on the date of such
funding, issuance or grant. As an additional condition to any funding, issuance or grant, Lender shall have received such other
information, documents, instruments and agreements as it deems appropriate in connection therewith.
SECTION 7. COLLATERAL
7.1. Grant of Security Interest. To secure the prompt payment and performance of its Obligations, each Borrower hereby
grants to Lender a continuing security interest in and Lien upon all Property of such Borrower, including all of the following Property,
whether now owned or hereafter acquired, and wherever located:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
all Accounts;
all Chattel Paper, including electronic chattel paper;
all Commercial Tort Claims, including those shown on Schedule 9.1.16;
all Deposit Accounts;
all Documents;
all General Intangibles, including Intellectual Property;
all Goods, including Inventory, Equipment and fixtures;
all Instruments;
all Investment Property;
all Letter-of-Credit Rights;
all Supporting Obligations;
including any Cash Collateral;
(l) all monies, whether or not in the possession or under the control of Lender, or a bailee or Affiliate of Lender,
(m) all accessions to, substitutions for, and all replacements, products, and cash and non-cash proceeds of the
foregoing, including proceeds of and unearned premiums with respect to insurance policies, and claims against any Person for loss,
damage or destruction of any Collateral; and
and computer records) pertaining to the foregoing.
(n) all books and records (including customer lists, files, correspondence, tapes, computer programs, print-outs
Notwithstanding anything to the contrary contained herein, in no event shall Excluded Assets constitute Collateral under this Agreement
or any other Loan Document.
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7.2.
Lien on Deposit Accounts; Cash Collateral.
7.2.1. Deposit Accounts. To further secure the prompt payment and performance of its Obligations, each Borrower
hereby grants to Lender a continuing security interest in and Lien upon all amounts credited to any Deposit Account of such Borrower,
including sums in any blocked, lockbox, sweep or collection account. Each Borrower hereby authorizes and directs each bank or other
depository to deliver to Lender, upon request, all balances in any Deposit Account maintained for such Borrower, without inquiry into the
authority or right of Lender to make such request.
7.2.2. Cash Collateral. Cash Collateral may be invested, at Lender's discretion (and with the consent of Borrowers, as
long as no Event of Default exists), but Lender shall have no duty to do so, regardless of any agreement or course of dealing with any
Borrower, and shall have no responsibility for any investment or loss. As security for its Obligations, each Borrower hereby grants to
Lender a security interest in and Lien upon all Cash Collateral held from time to time and all proceeds thereof, whether held in a Cash
Collateral Account or otherwise. Lender may apply Cash Collateral to the payment of Obligations as they become due, in such order as
Lender may elect. Each Cash Collateral Account and all Cash Collateral shall be under the sole dominion and control of Lender, and no
Borrower or other Person shall have any right to any Cash Collateral, until Full Payment of the Obligations.
7.3.
Real Estate Collateral.
7.3.1. Lien on Real Estate. The Obligations shall also be secured by Mortgages upon all Real Estate owned by
Borrowers, including the Real Estate located at (a) 2743 Highway 76, Chatsworth, Georgia 30705, (b) 325 Smyrna Church Road,
Chatsworth, Georgia 30705, (c) 242 Treadwell Road, Chatsworth, Georgia 30705, (d) 1978 Highway 52 Alt., Chatsworth, Georgia 30705,
(e) 1642 Duval Road, Chatsworth, Georgia 30705, (f) 1805 South Hamilton, Dalton, Georgia 30720, and (g) 2669 Lakeland Road, Dalton,
Georgia 30720. The Mortgages shall be duly recorded, at Borrowers' expense, in each office where such recording is required to constitute
a fully perfected Lien on the Real Estate covered thereby. If any Borrower acquires Real Estate hereafter, Borrowers shall, within 30 days,
execute, deliver and record a Mortgage sufficient to create a first priority Lien in favor of Lender on such Real Estate, and shall deliver all
Related Real Estate Documents.
7.3.2. Collateral Assignment of Leases. To further secure the prompt payment and performance of its Obligations,
each Borrower hereby transfers and assigns to Lender all of such Borrower's right, title and interest in, to and under all now or hereafter
existing leases of real Property to which such Borrower is a party, whether as lessor or lessee, and all extensions, renewals, modifications
and proceeds thereof.
7.4.
Other Collateral.
7.4.1. Commercial Tort Claims. Borrowers shall promptly notify Lender in writing if any Borrower has a
Commercial Tort Claim (other than, as long as no Default or Event of Default exists, a Commercial Tort Claim for less than $100,000),
shall promptly amend Schedule 9.1.16 to include such claim, and shall take such actions as Lender deems appropriate to subject such
claim to a duly perfected, first priority Lien in favor of Lender.
7.4.2. Certain After-Acquired Collateral. Borrowers shall promptly notify Lender in writing if, after the Closing
Date, any Borrower obtains any interest in any Collateral consisting of Deposit Accounts, Chattel Paper, Documents, Instruments,
Intellectual Property, Investment Property or Letter-of-Credit Rights with a face amount or representing Property having a value in excess
of $100,000 and, upon Lender's request, shall promptly take such actions as Lender deems appropriate to effect Lender's duly perfected,
first priority Lien upon such Collateral, including obtaining any appropriate possession, control agreement or Lien Waiver. If any
Collateral is in the possession of a third party, at Lender's request, Borrowers shall use commercially reasonable efforts to obtain an
acknowledgment that such third party holds the Collateral for the benefit of Lender.
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7.5. Limitations. The Lien on Collateral granted hereunder is given as security only and shall not subject Lender to, or in
any way modify, any obligation or liability of Borrowers relating to any Collateral. In no event shall the grant of any Lien under any Loan
Document secure an Excluded Swap Obligation of the granting Obligor.
7.6. Further Assurances; Extent of Liens . All Liens granted to Lender under the Loan Documents are for the benefit of
Secured Parties. Promptly upon request, Borrowers shall deliver such instruments and agreements, and shall take such actions, as Lender
deems appropriate under Applicable Law to evidence or perfect its Lien on any Collateral, or otherwise to give effect to the intent of this
Agreement. Each Borrower authorizes Lender to file any financing statement that describes the Collateral as "all assets" or "all personal
property" of such Borrower, or words to similar effect, and ratifies any action taken by Lender before the Closing Date to effect or perfect
its Lien on any Collateral.
7.7. Foreign Subsidiary Stock. Notwithstanding Section 7.1, the Collateral shall include only 65% of the voting stock of
any Foreign Subsidiary.
SECTION 8. COLLATERAL ADMINISTRATION
8.1. Borrowing Base Certificates. By Wednesday of each week, Borrowers shall deliver to Lender a Borrowing Base
Certificate prepared as of the close of business of the previous Friday, by the 15th day of each month, Borrowers shall deliver to Lender a
Borrowing Base Certificate prepared as of the close of business of the previous month and at such other times as Lender may request,
Borrowers shall deliver to Lender a Borrowing Base Certificate. All calculations of Availability in any Borrowing Base Certificate shall
originally be made by Borrowers and certified by a Senior Officer or the Treasurer, provided that Lender may from time to time review
and adjust any such calculation (a) to reflect its reasonable estimate of declines in value of any Collateral, due to collections received in the
Dominion Account or otherwise; (b) to adjust advance rates to reflect changes in dilution, quality, mix and other factors affecting
Collateral; and (c) to the extent the calculation is not made in accordance with this Agreement or does not accurately reflect the
Availability Reserve.
8.2.
Accounts.
8.2.1. Records and Schedules of Accounts. Each Borrower shall keep accurate and complete records of its Accounts,
including all payments and collections thereon, and shall submit to Lender sales, collection, reconciliation and other reports in form
satisfactory to Lender, on such periodic basis as Lender may request. Each Borrower shall also provide to Lender, on or before the 15th
day of each month, a detailed aged trial balance of all Accounts as of the end of the preceding month, specifying each Account's Account
Debtor name and address, amount, invoice date and due date, showing any discount, allowance, credit, authorized return or dispute, and
including such proof of delivery, copies of invoices and invoice registers, copies of related documents, repayment histories, status reports
and other information as Lender may reasonably request. If Accounts in an aggregate face amount of $250,000 or more cease to be
Eligible Accounts or Eligible Factoring Credit Balances, as applicable, Borrowers shall notify Lender of such occurrence promptly (and in
any event within two Business Days) after any Borrower has knowledge thereof.
8.2.2. Taxes. If an Account of any Borrower includes a charge for any Taxes, Lender is authorized, in its discretion,
to pay the amount thereof to the proper taxing authority for the account of such Borrower and to charge Borrowers therefor; provided,
however, that Lender shall not be liable for any Taxes that may be due from Borrowers or with respect to any Collateral.
8.2.3. Account Verification. Whether or not a Default or Event of Default exists, Lender shall have the right at any
time, in the name of Lender, any designee of Lender or any Borrower, to verify the validity, amount or any other matter relating to any
Accounts of Borrowers by mail, telephone or otherwise. Borrowers shall cooperate fully with Lender in an effort to facilitate and promptly
conclude any such verification process.
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8.2.4. Maintenance of Dominion Account . Borrowers shall maintain Dominion Accounts pursuant to lockbox or
other arrangements reasonably acceptable to Lender. Borrowers shall obtain an agreement (in form and substance reasonably satisfactory
to Lender) from each lockbox servicer and Dominion Account bank, establishing Lender's control over and Lien in the lockbox or
Dominion Account, requiring immediate deposit of all remittances received in the lockbox to a Dominion Account, and waiving offset
rights of such servicer or bank against any funds in the lockbox or Dominion Account, except offset rights for customary administrative
charges. If a Dominion Account is not maintained with Lender, Lender may require immediate transfer of all funds in such account to a
Dominion Account maintained with Lender. Lender assumes no responsibility to Borrowers for any lockbox arrangement or Dominion
Account, including any claim of accord and satisfaction or release with respect to any Payment Items accepted by any bank.
8.2.5. Proceeds of Collateral. Borrowers shall request in writing and otherwise take all necessary steps to ensure that
all payments on Accounts or otherwise relating to Collateral are made directly to a Dominion Account (or a lockbox relating to a
Dominion Account). If any Borrower or Subsidiary receives cash or Payment Items with respect to any Collateral, it shall hold same in
trust for Lender and promptly (not later than the next Business Day) deposit same into a Dominion Account.
8.3.
Inventory.
8.3.1. Records and Reports of Inventory. Each Borrower shall keep accurate and complete records of its Inventory,
including costs and daily withdrawals and additions. Each Borrower shall also provide to Lender, on or before the 15th day of each month,
inventory and reconciliation reports in form satisfactory to Lender, on such periodic basis as Lender may request. Each Borrower shall
conduct a physical inventory at least once per calendar year (and on a more frequent basis if requested by Lender when an Event of
Default exists) and periodic cycle counts consistent with historical practices, and shall provide to Lender a report based on each such
inventory and count promptly upon completion thereof, together with such supporting information as Lender may request. Lender may
participate in and observe each physical count.
8.3.2. Returns of Inventory. No Borrower shall return any Inventory to a supplier, vendor or other Person, whether
for cash, credit or otherwise, unless (a) such return is in the Ordinary Course of Business; (b) no Default, Event of Default or Overadvance
exists or would result therefrom; (c) Lender is promptly notified if the aggregate Value of all Inventory returned in any month exceeds
$250,000; and (d) any payment received by a Borrower for a return is promptly remitted to Lender for application to the Obligations.
8.3.3. Acquisition, Sale and Maintenance. No Borrower shall acquire or accept any Inventory on consignment or
approval, and shall take all steps to assure that all Inventory is produced in accordance with Applicable Law, including the FLSA. No
Borrower shall sell any Inventory on consignment or approval or any other basis under which the customer may return or require a
Borrower to repurchase such Inventory. Borrowers shall use, store and maintain all Inventory with reasonable care and caution, in
accordance with applicable standards of any insurance and in conformity in all material respects with Applicable Law, and shall make
current rent payments (within applicable grace periods provided for in leases and except in the case of a bona fide dispute or exercise of
set-off rights) at all locations where any Collateral is located.
8.4.
Equipment.
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8.4.1. Records and Schedules of Equipment. Each Borrower shall keep accurate and complete records of its
Equipment, including kind, quality, quantity, cost, acquisitions and dispositions thereof, and shall submit to Lender, on such periodic basis
as Lender may request, a current schedule thereof, in form satisfactory to Lender. Promptly upon request, Borrowers shall deliver to
Lender evidence of their ownership or interests in any Equipment.
8.4.2. Dispositions of Equipment. No Borrower shall sell, lease or otherwise dispose of any Equipment, without the
prior written consent of Lender, other than (a) a Permitted Asset Disposition; and (b) replacement of Equipment that is worn, damaged or
obsolete with Equipment of like function and value, if the replacement Equipment is acquired substantially contemporaneously with such
disposition and is free of Liens.
8.4.3. Condition of Equipment. The Equipment is in good operating condition and repair, and all necessary
replacements and repairs have been made so that the value and operating efficiency of the Equipment is preserved at all times, normal
wear and tear and obsolescence excepted. Except for normal wear and tear and obsolescence, each Borrower shall ensure that the
Equipment is mechanically and structurally sound, and capable of performing the functions for which it was designed, in accordance with
manufacturer specifications. No Borrower shall permit any Equipment to become affixed to real Property unless any landlord or
mortgagee delivers a Lien Waiver.
8.5. Deposit Accounts. Schedule 8.5 sets forth all Deposit Accounts maintained by Borrowers, including all Dominion
Accounts as of the Closing Date. Each Borrower shall take all actions necessary to establish Lender's control of each such Deposit
Account (other than an account exclusively used for payroll, payroll taxes or employee benefits, or an account containing not more than
$10,000 at any time). Each Borrower shall be the sole account holder of each Deposit Account and shall not allow any other Person (other
than Lender and, subject to the Debt and Lien Subordination Agreement, Mezzanine Lender) to have control over a Deposit Account or
any Property deposited therein. Each Borrower shall promptly notify Lender of any opening or closing of a Deposit Account and, with the
consent of Lender, will amend Schedule 8.5 to reflect same.
8.6.
General Provisions.
8.6.1. Location of Collateral. All tangible items of Collateral, other than Inventory in transit, shall at all times be
kept by Borrowers at the business locations set forth in Schedule 8.6.1, except that Borrowers may (a) make sales or other dispositions of
Collateral in accordance with Section 10.2.6; and (b) move Collateral to another location in the United States, upon 30 Business Days
prior written notice to Lender.
8.6.2.
Insurance of Collateral; Condemnation Proceeds.
(a)
Each Borrower shall maintain insurance with respect to the Collateral, covering casualty, hazard, theft,
malicious mischief, flood and other risks, in amounts, with endorsements and with insurers (with a Best Rating of at least A, unless
otherwise approved by Lender in its discretion) satisfactory to Lender. All proceeds under each policy shall be payable to Lender. From
time to time upon request, Borrowers shall deliver to Lender the originals or certified copies of its insurance policies and updated flood
plain searches. Unless Lender shall agree otherwise, each policy shall include satisfactory endorsements (i) showing Lender as lender's
loss payee; (ii) requiring 30 days prior written notice to Lender in the event of cancellation of the policy for any reason whatsoever; and
(iii) specifying that the interest of Lender shall not be impaired or invalidated by any act or neglect of any Borrower or the owner of the
Property, nor by the occupation of the premises for purposes more hazardous than are permitted by the policy. If any Borrower fails to
provide and pay for any insurance, Lender may, at its option, but shall not be required to, procure the insurance and charge Borrowers
therefor. Each Borrower agrees to deliver to Lender, promptly as rendered, copies of all reports made to insurance companies. While no
Event of Default exists, Borrowers may settle, adjust or compromise any insurance claim, as long as the proceeds are delivered to Lender.
If an Event of Default exists, only Lender shall be authorized to settle, adjust and compromise such claims.
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(b) Any proceeds of insurance (other than proceeds from workers' compensation or D&O insurance) and any
awards arising from condemnation of any Collateral shall be paid to Lender. Any such proceeds or awards that relate to Inventory shall be
applied to payment of the Revolver Loans, and then to other Obligations, other than the Term Loan. Subject to clause (c) below, any
proceeds or awards that relate to Equipment or Real Estate shall be applied first to the Term Loan, then to Revolver Loans and then to
other Obligations.
(c)
If requested by Borrowers in writing within 30 days after Lender's receipt of any insurance proceeds or
condemnation awards relating to any loss or destruction of Equipment or Real Estate, Borrowers may use such proceeds or awards to
repair or replace such Equipment or Real Estate (and until so used, the proceeds shall be held by Lender as Cash Collateral) as long as (i)
no Default or Event of Default exists; (ii) such repair or replacement is promptly undertaken and concluded, in accordance with plans
reasonably satisfactory to Lender; (iii) replacement buildings are constructed on the sites of the original casualties and are materially
comparable in size, quality and utility to the destroyed buildings; (iv) the repaired or replaced Property is free of Liens, other than
Permitted Liens that are not Purchase Money Liens; (v) Borrowers comply with disbursement procedures for such repair or replacement
as Lender may reasonably require; and (vi) the aggregate amount of such proceeds or awards requested to be used by Borrowers from any
single casualty or condemnation does not exceed $750,000.
8.6.3. Protection of Collateral. All expenses of protecting, storing, warehousing, insuring, handling, maintaining and
shipping any Collateral, all Taxes payable with respect to any Collateral (including any sale thereof), and all other payments required to be
made by Lender to any Person to realize upon any Collateral, shall be borne and paid by Borrowers. Lender shall not be liable or
responsible in any way for the safekeeping of any Collateral, for any loss or damage thereto (except for reasonable care in its custody while
Collateral is in Lender's actual possession), for any diminution in the value thereof, or for any act or default of any warehouseman, carrier,
forwarding agency or other Person whatsoever, but the same shall be at Borrowers' sole risk.
Liens therein against all Persons, claims and demands, except Permitted Liens.
8.6.4. Defense of Title. Each Borrower shall take all reasonable actions to defend its title to Collateral and Lender's
8.7. Power of Attorney. Each Borrower hereby irrevocably constitutes and appoints Lender (and all Persons designated by
Lender) as such Borrower's true and lawful attorney (and agent-in-fact) for the purposes provided in this Section. Lender, or Lender's
designee, may, without notice and in either its or a Borrower's name, but at the cost and expense of Borrowers:
insurance) that come into Lender's possession or control; and
(a) Endorse a Borrower's name on any Payment Item or other proceeds of Collateral (including proceeds of
(b) During an Event of Default, (i) notify any Account Debtors of the assignment of their Accounts, demand and
enforce payment of Accounts, by legal proceedings or otherwise, and generally exercise any rights and remedies with respect to Accounts;
(ii) settle, adjust, modify, compromise, discharge or release any Accounts or other Collateral, or any legal proceedings brought to collect
Accounts or Collateral; (iii) sell or assign any Accounts and other Collateral upon such terms, for such amounts and at such times as
Lender deems advisable; (iv) collect, liquidate and receive balances in Deposit Accounts or investment accounts, and take control, in any
manner, of proceeds of Collateral; (v) prepare, file and sign a Borrower's name to a proof of claim or other document in a bankruptcy of an
Account Debtor, or to any notice, assignment or satisfaction of Lien or similar document; (vi) receive, open and dispose of mail addressed
to a Borrower, and notify postal authorities to deliver any such mail to an address designated by Lender; (vii) endorse any Chattel Paper,
Document, Instrument, bill of lading, or other document or agreement relating to any Accounts, Inventory or other Collateral; (viii) use a
Borrower's stationery and sign its name to verifications of Accounts and notices to Account Debtors; (ix) use information contained in any
data processing, electronic or information systems relating to Collateral; (x) make and adjust claims under insurance policies; (xi) take
any action as may be necessary or appropriate to obtain payment under any letter of credit, banker's acceptance or other instrument for
which a Borrower is a beneficiary; and (xii) take all other actions as Lender deems appropriate to fulfill any Borrower's obligations under
the Loan Documents.
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SECTION 9. REPRESENTATIONS AND WARRANTIES
9.1. General Representations and Warranties. To induce Lender to enter into this Agreement and to make available the
Commitments, Loans and Letters of Credit, each Borrower represents and warrants that:
9.1.1. Organization and Qualification. Each Borrower and Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization. Each Borrower and Subsidiary is duly qualified, authorized to do business
and in good standing as a foreign corporation in each jurisdiction where failure to be so qualified could reasonably be expected to have a
Material Adverse Effect.
9.1.2. Power and Authority. Each Obligor is duly authorized to execute, deliver and perform the Loan Documents to
which it is a party. The execution, delivery and performance of the Loan Documents have been duly authorized by all necessary action,
and do not (a) require any consent or approval of any holders of Equity Interests of any Obligor, except those already obtained; (b)
contravene the Organic Documents of any Obligor; (c) violate or cause a default under any Applicable Law or Material Contract; or (d)
result in or require the imposition of a Lien (other than Permitted Liens) on any Obligor's Property.
9.1.3. Enforceability. Each Loan Document is a legal, valid and binding obligation of each Obligor party thereto,
enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally.
9.1.4. Capital Structure. Schedule 9.1.4 shows, for each Borrower and Subsidiary, its name, jurisdiction of
organization, authorized and issued Equity Interests, holders of its Equity Interests, and agreements binding on such holders with respect
to such Equity Interests. Except as disclosed on Schedule 9.1.4, in the five years preceding the Closing Date, no Borrower or Subsidiary
has acquired any substantial assets from any other Person nor been the surviving entity in a merger or combination. Each Borrower has
good title to its Equity Interests in its Subsidiaries, subject only to (a) Lender's Lien and (b) to the extent subject to the Debt and Lien
Subordination Agreement, the Permitted Lien in favor of the Mezzanine Lender, and all such Equity Interests are duly issued, fully paid
and non-assessable. Except as set forth on Schedule 9.1.4, there are no outstanding purchase options, warrants, subscription rights,
agreements to issue or sell, convertible interests, phantom rights or powers of attorney relating to Equity Interests of any Borrower or
Subsidiary.
9.1.5. Title to Properties; Priority of Liens. Each Borrower and Subsidiary has good and marketable title to (or valid
leasehold interests in) all of its Real Estate, and good title to all of its personal Property, including all Property reflected in any financial
statements delivered to Lender, in each case free of Liens except Permitted Liens. Each Borrower and Subsidiary has paid and discharged
all lawful claims that, if unpaid, could become a Lien on its Properties, other than Permitted Liens. All Liens of Lender in the Collateral
are duly perfected, first priority Liens, subject only to Permitted Liens that are expressly allowed to have priority over Lender's Liens.
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9.1.6. Accounts. Lender may rely, in determining which Accounts are Eligible Accounts, on all statements and
representations made by Borrowers with respect thereto. Borrowers warrant, with respect to each Account at the time it is shown as an
Eligible Account in a Borrowing Base Certificate, that:
(a) it is genuine and enforceable in accordance with its terms and is not evidenced by a judgment;
substantially in accordance with any purchase order, contract or other document relating thereto;
(b)
it arises out of a completed, bona fide sale and delivery of goods in the Ordinary Course of Business, and
(c)
furnished or is available to Lender on request;
it is for a sum certain, maturing as stated in the invoice covering such sale, a copy of which has been
(d)
it is not subject to any offset, Lien (other than Lender's Lien, subject to the Debt and Lien Subordination
Agreement or any subordination agreement for any other Subordinated Debt, Mezzanine Lender’s Lien and any Lien of a lender of other
Subordinated Debt), deduction, defense, dispute, counterclaim or other adverse condition except as arising in the Ordinary Course of
Business and disclosed to Lender; and it is absolutely owing by the Account Debtor, without contingency in any respect;
(e) no purchase order, agreement, document or Applicable Law restricts assignment of the Account to Lender
(regardless of whether, under the UCC, the restriction is ineffective), and the applicable Borrower is the sole payee or remittance party
shown on the invoice;
no extension, compromise, settlement, modification, credit, deduction or return has been authorized with
respect to the Account, except discounts or allowances granted in the Ordinary Course of Business for prompt payment that are reflected
on the face of the invoice related thereto and in the reports submitted to Lender hereunder; and
(f)
(g)
to the best of Borrowers' knowledge, (i) there are no facts or circumstances that are reasonably likely to
impair the enforceability or collectability of such Account; (ii) the Account Debtor had the capacity to contract when the Account arose,
continues to meet the applicable Borrower's customary credit standards, is Solvent (except to the extent clauses (f)(i) and (ii) of the
definition of "Eligible Account" apply), is not contemplating or subject to an Insolvency Proceeding (except to the extent clauses (f)(i) and
(ii) of the definition of "Eligible Account" apply), and has not failed, or suspended or ceased doing business; and (iii) there are no
proceedings or actions threatened or pending against any Account Debtor that could reasonably be expected to have a material adverse
effect on the Account Debtor's financial condition.
9.1.7. Financial Statements. The consolidated and consolidating balance sheets, and related statements of income,
cash flow and shareholders equity, of Borrowers and Subsidiaries that have been and are hereafter delivered to Lender, are prepared in
accordance with GAAP, and fairly present in all material respects the financial positions and results of operations of Borrowers and
Subsidiaries at the dates and for the periods indicated. All projections delivered from time to time to Lender have been prepared in good
faith, based on reasonable assumptions in light of the circumstances at such time. Since January 3, 2015, there has been no change in the
condition, financial or otherwise, of any Borrower or Subsidiary that could reasonably be expected to have a Material Adverse Effect. No
financial statement delivered to Lender at any time contains any untrue statement of a material fact, nor fails to disclose any material fact
necessary to make such statement not materially misleading. Each Borrower and Subsidiary is Solvent.
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contract that assures payment or performance of any obligation of any Person, except as permitted hereunder.
9.1.8. Surety Obligations. No Borrower or Subsidiary is obligated as surety or indemnitor under any bond or other
9.1.9. Taxes. Each Borrower and Subsidiary has filed all federal, state and local tax returns and other reports that it is
required by law to file (except where on extension authorized by Applicable Law), and has paid, or made provision for the payment of, all
Taxes upon it, its income and its Properties that are due and payable, except to the extent being Properly Contested. The provision for
Taxes on the books of each Borrower and Subsidiary is adequate for all years not closed by applicable statutes, and for its current Fiscal
Year.
investment banking fees payable in connection with any transactions contemplated by the Loan Documents.
9.1.10. Brokers. Except as set forth on Schedule 9.1.10, there are no brokerage commissions, finder's fees or
9.1.11. Intellectual Property. Each Borrower and Subsidiary owns or has the lawful right to use all material Intellectual
Property necessary for the conduct of its business, without conflict with any rights of others. There is no pending or, to any Borrower's
knowledge, threatened Intellectual Property Claim with respect to any Borrower, any Subsidiary or any of their Property (including any
Intellectual Property). Except as disclosed on Schedule 9.1.11, no Borrower or Subsidiary pays or owes any Royalty or other
compensation to any Person with respect to any Intellectual Property. All Intellectual Property (other than off-the-shelf software) owned,
used or licensed by, or otherwise subject to any interests of, any Borrower or Subsidiary, as of the Closing Date, is shown on Schedule
9.1.11.
9.1.12. Governmental Approvals. Each Borrower and Subsidiary has, is in compliance in all material respects with, and
is in good standing with respect to, all Governmental Approvals necessary to conduct its business and to own, lease and operate its
Properties. All necessary import, export or other licenses, permits or certificates for the import or handling of any goods or other
Collateral have been procured and are in effect, and Borrowers and Subsidiaries have complied with all foreign and domestic laws with
respect to the shipment and importation of any goods or Collateral, except where noncompliance could not reasonably be expected to have
a Material Adverse Effect.
9.1.13. Compliance with Laws. Each Borrower and Subsidiary has duly complied, and its Properties and business
operations are in compliance, in all material respects with all Applicable Law, except where noncompliance could not reasonably be
expected to have a Material Adverse Effect. There have been no citations, notices or orders of material noncompliance issued to any
Borrower or Subsidiary under any Applicable Law. No Inventory has been produced in violation of the FLSA.
9.1.14. Compliance with Environmental Laws. Except as disclosed on Schedule 9.1.14, no Borrower's or Subsidiary's
past or present operations, Real Estate or other Properties are subject to any federal, state or local investigation to determine whether any
remedial action is needed to address any environmental pollution, hazardous material or environmental clean-up. No Borrower or
Subsidiary has received any Environmental Notice. No Borrower or Subsidiary has any contingent liability with respect to any
Environmental Release, environmental pollution or hazardous material on any Real Estate now or previously owned, leased or operated by
it. The representations and warranties contained in the Environmental Agreement are true and correct on the Closing Date.
9.1.15. Burdensome Contracts. No Borrower or Subsidiary is a party or subject to any contract, agreement or charter
restriction that could reasonably be expected to have a Material Adverse Effect. No Borrower or Subsidiary is party or subject to any
Restrictive Agreement, except as shown on Schedule 9.1.15. No such Restrictive Agreement prohibits the execution, delivery or
performance of any Loan Document by an Obligor.
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9.1.16. Litigation. Except as shown on Schedule 9.1.16, there are no proceedings or investigations pending or, to any
Borrower's knowledge, threatened against any Borrower or Subsidiary, or any of their businesses, operations, Properties, prospects or
conditions, that (a) relate to any Loan Documents or transactions contemplated thereby; or (b) could reasonably be expected to have a
Material Adverse Effect if determined adversely to any Borrower or Subsidiary. Except as shown on such Schedule, no Obligor has a
Commercial Tort Claim (other than, as long as no Default or Event of Default exists, a Commercial Tort Claim for less than $100,000).
No Borrower or Subsidiary is in default with respect to any order, injunction or judgment of any Governmental Authority.
9.1.17. No Defaults. No event or circumstance has occurred or exists that constitutes a Default or Event of Default. No
Borrower or Subsidiary is in default, and no event or circumstance has occurred or exists that with the passage of time or giving of notice
would constitute a default, under any Material Contract or in the payment of any Borrowed Money or allow termination of any Material
Contract.
9.1.18. ERISA. Except as disclosed on Schedule 9.1.18:
(a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code, and
other federal and state laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination
letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the knowledge of
Borrowers, nothing has occurred which would prevent, or cause the loss of, such qualification. Each Obligor and ERISA Affiliate has met
all applicable requirements under the Code, ERISA and the Pension Protection Act of 2006, and no application for a waiver of the
minimum funding standards or an extension of any amortization period has been made with respect to any Plan.
(b) There are no pending or, to the knowledge of Borrowers, threatened claims, actions or lawsuits, or action by
any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has
been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted in or could
reasonably be expected to have a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded
Pension Liability; (iii) no Obligor or ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA
with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) no Obligor or ERISA
Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; (v) no
Obligor or ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA; and (vi) as of the most
recent valuation date for any Pension Plan or Multiemployer Plan, the funding target attainment percentage (as defined in Section 430(d)
(2) of the Code) is at least 60%, and no Obligor or ERISA Affiliate knows of any fact or circumstance that could reasonably be expected
to cause the funding target attainment percentage for any such plan to drop below 60% as of such date.
(d) With respect to any Foreign Plan, (i) all employer and employee contributions required by law or by the terms
of the Foreign Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices; (ii) the fair market value
of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance, or the book reserve
established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit
obligations with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations
most recently used to account for such obligations in accordance with applicable generally accepted accounting principles; and (iii) it has
been registered as required and has been maintained in good standing with applicable regulatory authorities.
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9.1.19. Trade Relations. There exists no actual or threatened termination, limitation or modification of any business
relationship between any Borrower or Subsidiary and any customer or supplier, or any group of customers or suppliers, who individually
or in the aggregate are material to the business of such Borrower or Subsidiary. There exists no condition or circumstance that could
reasonably be expected to impair the ability of any Borrower or Subsidiary to conduct its business at any time hereafter in substantially the
same manner as conducted on the Closing Date.
9.1.20. Labor Relations. No Borrower or Subsidiary is party to or bound by any collective bargaining agreement.
Except as set forth on Schedule 9.1.20, no Borrower or Subsidiary is party to any management agreement or consulting agreement. There
are no material grievances, disputes or controversies with any union or other organization of any Borrower's or Subsidiary's employees, or,
to any Borrower's knowledge, any asserted or threatened strikes, work stoppages or demands for collective bargaining.
practices from those in effect on the Closing Date.
9.1.21. Payable Practices. No Borrower or Subsidiary has made any material change in its historical accounts payable
9.1.22. Not a Regulated Entity. No Obligor is (a) an "investment company" or a "person directly or indirectly
controlled by or acting on behalf of an investment company" within the meaning of the Investment Company Act of 1940; or (b) subject to
regulation under the Federal Power Act, the Interstate Commerce Act, any public utilities code or any other Applicable Law regarding its
authority to incur Debt.
9.1.23. Margin Stock. No Borrower or Subsidiary is engaged, principally or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying any Margin Stock. No Loan proceeds or Letters of Credit will be
used by Borrowers to purchase or carry, or to reduce or refinance any Debt incurred to purchase or carry, any Margin Stock or for any
related purpose governed by Regulations T, U or X of the Board of Governors.
9.1.24. OFAC. No Borrower, Subsidiary or, to the knowledge of any Borrower or Subsidiary, any director, officer,
employee, agent, affiliate or representative thereof, is an individual or entity currently the subject of any Sanctions. No Borrower or
Subsidiary is located, organized or resident in a Designated Jurisdiction.
9.2. Complete Disclosure. No Loan Document contains any untrue statement of a material fact, nor fails to disclose any
material fact necessary to make the statements contained therein not materially misleading in light of the circumstances in which such
statements were made. There is no fact or circumstance that any Obligor has failed to disclose to Lender in writing that could reasonably
be expected to have a Material Adverse Effect.
SECTION 10. COVENANTS AND CONTINUING AGREEMENTS
10.1. Affirmative Covenants. Until Full Payment of the Obligations, each Borrower shall, and shall cause each Subsidiary
to:
10.1.1. Inspections; Appraisals.
(a) Permit Lender from time to time, subject (except when a Default or Event of Default exists) to reasonable
notice and normal business hours, to visit and inspect the Properties of any Borrower or Subsidiary, inspect, audit and make extracts from
any Borrower's or Subsidiary's books and records, and discuss with its officers, employees, agents, advisors and independent accountants
such Borrower's or Subsidiary's business, financial condition, assets, prospects and results of operations. Lender shall not have any duty to
any Borrower to make any inspection, nor to share any results of any inspection, appraisal or report with any Borrower. Borrowers
acknowledge that all inspections, appraisals and reports are prepared by Lender for its purposes, and Borrowers shall not be entitled to rely
upon them.
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(b) Reimburse Lender for all its reasonable and documented charges, costs and expenses in connection with (i)
examinations of any Obligor's books and records or any other financial or Collateral matters as Lender deems appropriate, up to two times
per Loan Year; and (ii) appraisals of Inventory up to one time per Loan Year; provided, however, that if an examination or appraisal is
initiated during a Default or Event of Default, all charges, costs and expenses therefor shall be reimbursed by Borrowers without regard to
such limits. Subject to and without limiting the foregoing, Borrowers agree to pay Lender's then standard charges for examination
activities, including the standard charges of Lender's internal examination and appraisal groups, as well as the charges of any third party
used for such purposes.
activities, in which proper entries are made in accordance with GAAP reflecting all financial transactions; and furnish to Lender:
10.1.2. Financial and Other Information. Keep adequate records and books of account with respect to its business
(a) (i) as soon as available, and in any event within 120 days after the Closing Date,
(A) an opening balance sheet as of a date not later than July 17, 2015, on a consolidated basis for Holdings, which balance sheet shall be
audited and certified (without qualification) by a firm of independent certified public accountants of recognized standing selected by
Borrowers and reasonably acceptable to Lender, and (B) an opening balance sheet as of a date not later than July 17, 2015, unaudited and
on a consolidating basis for each of the other Borrowers and Subsidiaries, (ii) as soon as available, and in any event within 120 days after
the close of Fiscal Year 2015, (A) a balance sheet as of the end of such Fiscal Year and the related statements of income, cash flow and
shareholders' equity for the period from the Closing Date through the end of such Fiscal Year, on a consolidated basis for Holdings, which
consolidated statements shall be audited and certified (without qualification) by a firm of independent certified public accountants of
recognized standing selected by Borrowers and reasonably acceptable to Lender, and shall set forth in comparative form corresponding
figures for the preceding Fiscal Year and other information reasonably acceptable to Lender, and (B) a balance sheet as of the end of such
Fiscal Year and the related statements of income, cash flow and shareholders' equity for the period from the Closing Date through the end
of such Fiscal Year, unaudited and on a consolidating basis for the other Borrowers and Subsidiaries, and (iii) as soon as available, and in
any event within 120 days after the close of each Fiscal Year thereafter, (A) a balance sheet as of the end of such Fiscal Year and the
related statements of income, cash flow and shareholders' equity for such Fiscal Year, on a consolidated basis for Holdings, which
consolidated statements shall be audited and certified (without qualification) by a firm of independent certified public accountants of
recognized standing selected by Borrowers and reasonably acceptable to Lender, and shall set forth in comparative form corresponding
figures for the preceding Fiscal Year and other information reasonably acceptable to Lender, and (B) a balance sheet as of the end of such
Fiscal Year and the related statements of income, cash flow and shareholders' equity for such Fiscal Year, unaudited and on a
consolidating basis for the other Borrowers and Subsidiaries;
(b) as soon as available, and in any event within 30 days after the end of each month, unaudited balance sheets as
of the end of such month and the related statements of income and cash flow for such month and for the portion of the Fiscal Year then
elapsed, on consolidated and consolidating bases for Borrowers and Subsidiaries, setting forth in comparative form corresponding figures
for the preceding Fiscal Year and certified by the chief financial officer or Treasurer of Borrower Agent as prepared in accordance with
GAAP and fairly presenting in all material respects the financial position and results of operations for such month and period, subject to
normal year-end adjustments and the absence of footnotes;
(c) concurrently with delivery of financial statements under clauses (a) and (b) above, or more frequently if requested by
Lender while a Default or Event of Default exists, a Compliance Certificate executed by the chief financial officer or Treasurer of
Borrower Agent;
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and other material reports submitted to Borrowers by their accountants in connection with such financial statements;
(d) concurrently with delivery of financial statements under clause (a) above, copies of all management letters
results of operations, cash flow and Availability for the next Fiscal Year, month by month;
(e) no later than 60 days after the end of each Fiscal Year, projections of Borrowers' consolidated balance sheets,
and a detailed trade payable aging, all in form reasonably satisfactory to Lender;
(f) at Lender's request, a listing of each Borrower's trade payables, specifying the trade creditor and balance due,
(g) promptly after the sending or filing thereof, copies of any proxy statements, financial statements or reports
that any Borrower has made generally available to its shareholders; copies of any regular, periodic and special reports or registration
statements or prospectuses that any Borrower files with the Securities and Exchange Commission or any other Governmental Authority,
or any securities exchange; and copies of any press releases or other statements made available by a Borrower to the public concerning
material changes to or developments in the business of such Borrower;
Plan or Foreign Plan;
(h) promptly after the sending or filing thereof, copies of any annual report to be filed in connection with each
time in connection with any Collateral or any Borrower's, Subsidiary's or other Obligor's financial condition or business;
(i) such other reports and information (financial or otherwise) as Lender may reasonably request from time to
statements for each Guarantor, in form and substance satisfactory to Lender;
(j) as soon as available, and in any event within 120 days after the close of each Fiscal Year, financial
(k)
upon receipt or delivery thereof by or to any Obligor or Subsidiary, any notice of "Default" or "Event of
Default" (under and as defined in the Mezzanine Debt Documents) and, without duplication of any report required to be provided
hereunder, each material report required to be provided pursuant to the Mezzanine Loan Agreement and, upon execution thereof, any
waiver, amendment or other modification to the Mezzanine Debt Documents;
(l) upon receipt or delivery thereof by or to any Borrower, any notice of "Default" or "Event of Default" (under
and as defined in the Factoring Agreements) and, without duplication of any report required to be provided hereunder, each material report
required to be provided pursuant to the Factoring Agreements and, upon execution thereof, any waiver, amendment or other modification
to the Factoring Agreements; and
(m) at Lender's request at any time after any Borrower files or consents to the filing of a consolidated income tax
return with any Person other than Borrowers and Subsidiaries under the limited circumstances set forth in Section 10.2.12, provide Lender
with true, correct and complete copies of all filed consolidated income tax returns for the Person with which such Borrower files or
consents to the filing of such consolidated income tax returns and evidence that such Person has timely and fully paid all Taxes owing to
Governmental Authorities under such returns.
10.1.3. Notices. Notify Lender in writing, promptly after a Borrower's obtaining knowledge thereof, of any of the
following that affects an Obligor: (a) the threat or commencement of any proceeding or investigation, whether or not covered by
insurance, if an adverse determination could reasonably be expected to have a Material Adverse Effect; (b) any pending or threatened
labor dispute, strike or walkout, or the expiration of any material labor contract; (c) any default under or termination of a Material
Contract; (d) the existence of any Default or Event of Default; (e) any judgment in an amount exceeding $250,000 not covered by
insurance; (f) the assertion of any Intellectual Property Claim, if an adverse resolution could reasonably be expected to have a Material
Adverse Effect; (g) any violation or asserted violation of any Applicable Law (including ERISA, OSHA, FLSA, or any Environmental
Laws), if an adverse resolution could reasonably be expected to have a Material Adverse Effect; (h) any Environmental Release by an
Obligor or on any Property owned, leased or occupied by an Obligor; or receipt of any Environmental Notice; (i) the occurrence of any
ERISA Event; (j) the discharge of or any withdrawal or resignation by Borrowers' independent accountants; (k) any opening of a new
office or place of business, at least 30 days prior to such opening; (l) without duplication of any notice required to be provided hereunder,
each material notice required to be provided pursuant to the Mezzanine Loan Agreement; or (m) without duplication of any notice required
to be provided hereunder, each material notice required to be provided pursuant to any Factoring Agreement.
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10.1.4. Landlord and Storage Agreements . Upon reasonable request, provide Lender with copies of all existing
agreements, and promptly after execution thereof provide Lender with copies of all future agreements, between an Obligor and any
landlord, warehouseman, processor, shipper, bailee or other Person that owns any premises at which any Collateral may be kept or that
otherwise may possess or handle any Collateral.
10.1.5. Compliance with Laws. Comply with all Applicable Laws, including ERISA, Environmental Laws, FLSA,
OSHA, Anti-Terrorism Laws, and laws regarding collection and payment of Taxes, and maintain all Governmental Approvals necessary to
the ownership of its Properties or conduct of its business, unless failure to comply (other than failure to comply with Anti-Terrorism Laws)
or maintain could not reasonably be expected to have a Material Adverse Effect. Without limiting the generality of the foregoing, if any
material Environmental Release occurs at or on any Properties of any Borrower or Subsidiary, it shall act promptly and diligently to
investigate and report to Lender and all appropriate Governmental Authorities the extent of, and to make appropriate remedial action to
eliminate, such Environmental Release, whether or not directed to do so by any Governmental Authority.
unless such Taxes are being Properly Contested.
10.1.6. Taxes. Pay and discharge all Taxes prior to the date on which they become delinquent or penalties attach,
10.1.7. Insurance. In addition to the insurance required hereunder with respect to Collateral, maintain insurance with
insurers (with a Best Rating of at least A, unless otherwise approved by Lender in its discretion) satisfactory to Lender, (a) with respect to
the Properties and business of Borrowers and Subsidiaries of such type (including product liability, workers' compensation, larceny,
embezzlement, or other criminal misappropriation insurance), in such amounts, and with such coverages and deductibles as are customary
for companies similarly situated; and (b) business interruption insurance in an amount not less than $10,000,000, with deductibles and
subject to an Insurance Assignment satisfactory to Lender.
10.1.8. Licenses. Keep each material License affecting any Collateral (including the manufacture, distribution or
disposition of Inventory) or any other material Property of Borrowers and Subsidiaries in full force and effect; promptly notify Lender of
any proposed modification to any such License, or entry into any new material License, in each case at least 10 days prior to its effective
date; pay all Royalties when due; and notify Lender of any default or breach asserted by any Person to have occurred under any such
License.
10.1.9. Future Subsidiaries. Promptly notify Lender upon any Person becoming a Subsidiary and, if such Person is not
a Foreign Subsidiary, cause it to guaranty the Obligations (or, if requested by Borrowers and agreed to by Lender in its discretion, become
a Borrower hereunder) in a manner reasonably satisfactory to Lender, and to execute and deliver such documents, instruments and
agreements and to take such other actions as Lender shall reasonably require to evidence and perfect a Lien in favor of Lender on all assets
of such Person (other than Excluded Assets), including delivery of such legal opinions, in form and substance reasonably satisfactory to
Lender, as it shall deem appropriate.
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operating, collection, disbursement and other deposit accounts and for all Cash Management Services.
10.1.10. Depository Bank. Maintain Lender as its principal depository bank, including for the maintenance of all
reasonable satisfaction, matters of concern for Lender with respect to that portion of the Collateral consisting of Real Estate.
10.1.11. Post-Closing Obligations. Use commercially reasonable efforts to address and ameliorate, to Lender's
10.2. Negative Covenants. Until Full Payment of the Obligations, each Borrower shall not, and shall cause each Subsidiary
not to:
date hereof;
10.2.1. Permitted Debt. Create, incur, guarantee or suffer to exist any Debt, except:
(a) the Obligations;
(b) the Mezzanine Debt subject to the terms of the Debt and Lien Subordination Agreement as in effect on the
(c) Subordinated Debt;
(d) Permitted Purchase Money Debt;
only to the extent outstanding on the Closing Date and not satisfied with proceeds of the initial Loans;
(e) Borrowed Money (other than the Obligations, Subordinated Debt and Permitted Purchase Money Debt), but
(f) Bank Product Debt incurred in the Ordinary Course of Business;
(g) Debt that is in existence when a Person becomes a Subsidiary or that is secured by an asset when acquired by
a Borrower or Subsidiary, as long as such Debt was not incurred in contemplation of such Person becoming a Subsidiary or such
acquisition, and does not exceed $2,000,000 in the aggregate at any time
(h) Permitted Contingent Obligations;
(i) Refinancing Debt as long as each Refinancing Condition is satisfied;
(j) Debt incurred pursuant to any intercompany loan permitted under Section 10.2.7;
each case, to Debt otherwise permitted to be incurred under this Section 10.2.1; and
(k) guaranties by any Borrower of Debt or other obligations or another Borrower or Subsidiary with respect, in
exceed $2,500,000 in the aggregate at any time.
(l) Debt that is not included in any of the preceding clauses of this Section, is not secured by a Lien and does not
"Permitted Liens"):
10.2.2. Permitted Liens. Create or suffer to exist any Lien upon any of its Property, except the following (collectively,
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(a) Liens in favor of Lender;
Debt and Lien Subordination Agreement remains in full force and effect with respect thereto;
(b) Liens in favor of the Mezzanine Lender securing the Mezzanine Debt permitted hereunder so long as the
(c) Purchase Money Liens securing Permitted Purchase Money Debt;
(d) Liens for Taxes not yet due or being Properly Contested;
statutory Liens (other than Liens for Taxes or imposed under ERISA) arising in the Ordinary Course of
Business, but only if (i) payment of the obligations secured thereby is not yet due or is being Properly Contested, and (ii) such Liens do
not materially impair the value or use of the Property or materially impair operation of the business of any Borrower or Subsidiary;
(e)
Liens incurred or deposits made in the Ordinary Course of Business to secure the performance of
government tenders, bids, contracts, statutory obligations and other similar obligations, as long as such Liens are at all times junior to
Lender's Liens and are required or provided by law;
(f)
(g) Liens arising in the Ordinary Course of Business that are subject to Lien Waivers;
(h) Liens arising by virtue of a judgment or judicial order against any Borrower or Subsidiary, or any Property of
a Borrower or Subsidiary, as long as such Liens are (i) in existence for less than 20 consecutive days or being Properly Contested, and (ii)
at all times junior to Lender's Liens;
encumbrances on Real Estate, that do not secure any monetary obligation and do not interfere with the Ordinary Course of Business;
(i) easements, rights-of-way, restrictions, covenants or other agreements of record, and other similar charges or
(j) normal and customary rights of setoff upon deposits in favor of depository institutions, and Liens of a
collecting bank on Payment Items in the course of collection;
(k) existing Liens shown on Schedule 10.2.2;
(l) Liens on the factored Accounts created for the purpose of evidencing the transfer and sale of Accounts sold
to the Factors pursuant to the terms of the Factoring Agreements, provided that a Factor Intercreditor Agreement has been received by
Lender and remains in effect with respect to each such Factoring Agreement;
(m) any interest or title of a lessor or sublessor under any lease permitted hereunder;
the use of any real Property not materially detracting from the value of such real Property; and
(n) any zoning or similar law or right reserved to or vested in any Governmental Authority to control or regulate
compensation, unemployment insurance and other types of social security that are junior to Lender's Liens.
(o)
Liens incurred in the Ordinary Course of Business on deposits made in connection with workers'
10.2.3. Reserved.
Permitted Tax Distributions, and (iii) Permitted Non-Tax Distributions.
10.2.4. Distributions; Upstream Payments. (a) Declare or make any Distributions, except: (i) Upstream Payments, (ii)
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(b) Create or suffer to exist any encumbrance or restriction on the ability of a Subsidiary to make any Upstream
Payment, except for restrictions under the Loan Documents, under Applicable Law or in effect on the Closing Date as shown on Schedule
9.1.15.
10.2.5. Restricted Investments. Make any Restricted Investment.
Equipment under Section 8.4.2, or a transfer of Property by a Subsidiary or Obligor to a Borrower.
10.2.6. Disposition of Assets. Make any Asset Disposition, except a Permitted Asset Disposition, a disposition of
10.2.7. Loans. Make any loans or other advances of money to any Person, except (a) advances to an officer or
employee for salary, travel expenses, commissions and similar items in the Ordinary Course of Business; (b) prepaid expenses and
extensions of trade credit made in the Ordinary Course of Business; (c) deposits with financial institutions permitted hereunder; and (d) as
long as no Default or Event of Default exists, intercompany loans by a Borrower to another Borrower.
prepayment, redemption, retirement, defeasance or acquisition) with respect to any:
10.2.8. Restrictions on Payment of Certain Debt. Make any payments (whether voluntary or mandatory, or a
(a) Subordinated Debt (other than Subordinated Debt of the type described in the following clause (b)), except
regularly scheduled payments of principal, interest and fees, but only to the extent permitted under any subordination agreement relating to
such Debt (and a Senior Officer of Borrower Agent shall certify to Lender, not less than five Business Days prior to the date of payment,
that all conditions under such agreement have been satisfied); or
Agreement; or
(b) The Mezzanine Debt, except to the extent expressly permitted under the terms of the Debt and Lien Subordination
under the agreements evidencing such Debt as in effect on the Closing Date (or as amended thereafter with the consent of Lender).
(c) Borrowed Money (other than the Obligations, the Mezzanine Debt and Subordinated Debt) prior to its due date
10.2.9. Fundamental Changes. (a) Without giving 30 days prior written notice to Lender, change its name or conduct
business under any fictitious name; change its tax, charter or other organizational identification number; change its form or state of
organization; (b) liquidate, wind up its affairs or dissolve itself; or merge, combine or consolidate with any Person, whether in a single
transaction or in a series of related transactions, except for (i) mergers or consolidations of a wholly- owned Subsidiary with another
wholly-owned Subsidiary or into a Borrower; or (ii) Permitted Acquisitions.
10.1.9, 10.2.5 or 10.2.9; or permit any existing Subsidiary to issue any additional Equity Interests except directors' qualifying shares.
10.2.10. Subsidiaries. Form or acquire any Subsidiary after the Closing Date, except in accordance with Sections
connection with a transaction permitted under Section 10.2.9.
10.2.11. Organic Documents. Amend, modify or otherwise change any of its Organic Documents, except in
than Borrowers and Subsidiaries or any corporation that owns all of the Equity Interests of any Obligor.
10.2.12. Tax Consolidation. File or consent to the filing of any consolidated income tax return with any Person other
55
required by GAAP and in accordance with Section 1.2; or change its Fiscal Year.
10.2.13. Accounting Changes. Make any material change in accounting treatment or reporting practices, except as
10.2.14. Restrictive Agreements. Become a party to any Restrictive Agreement, except a Restrictive Agreement (a) in
effect on the Closing Date; (b) relating to secured Debt permitted hereunder, as long as the restrictions apply only to collateral for such
Debt; or (c) constituting customary restrictions on assignment in leases and other contracts.
Course of Business and not for speculative purposes.
10.2.15. Hedging Agreements. Enter into any Hedging Agreement, except to hedge risks arising in the Ordinary
similar related business) and any activities incidental thereto.
10.2.16. Conduct of Business. Engage in any business, other than its business as conducted on the Closing Date (or
10.2.17. Affiliate Transactions. Enter into or be party to any transaction with an Affiliate, except (a) transactions
contemplated by the Loan Documents or the Marquis SPA Documents; (b) payment of reasonable compensation to officers and
employees for services actually rendered, and loans and advances permitted by Section 10.2.7; (c) payment of customary directors' fees
and indemnities; (d) transactions solely among Borrowers; (e) transactions with Affiliates consummated prior to the Closing Date, as
shown on Schedule 10.2.17; and (f) transactions with Affiliates in the Ordinary Course of Business, upon fair and reasonable terms fully
disclosed to Lender and no less favorable than would be obtained in a comparable arm's-length transaction with a non-Affiliate.
Date.
10.2.18. Plans. Become party to any Multiemployer Plan or Foreign Plan, other than any in existence on the Closing
10.2.19. Amendments to Mezzanine Debt, Factoring Agreements and Other Subordinated Debt.
Debt, except to the extent expressly permitted under the terms of the Debt and Lien Subordination Agreement.
(a) Amend, supplement or otherwise modify any document, instrument or agreement relating to the Mezzanine
under the terms of the applicable Factor Intercreditor Agreement.
(b) Amend, supplement or otherwise modify any Factoring Agreement, except to the extent expressly permitted
(c)
Amend, supplement or otherwise modify any document, instrument or agreement relating to any
Subordinated Debt (other than Subordinated Debt of the type described in the foregoing clause (a)), if such modification (i) increases the
principal balance of such Debt, or increases any required payment of principal or interest; (ii) accelerates the date on which any
installment of principal or any interest is due, or adds any additional redemption, put or prepayment provisions; (iii) shortens the final
maturity date or otherwise accelerates amortization; (iv) increases the interest rate; (v) increases or adds any fees or charges; (vi) modifies
any covenant in a manner or adds any representation, covenant or default that is more onerous or restrictive in any material respect for any
Borrower or Subsidiary, or that is otherwise materially adverse to any Borrower, any Subsidiary or Lender; or (vii) results in the
Obligations not being fully benefited by the subordination provisions thereof.
10.3. Financial Covenants. As long as any Commitment or Obligations are outstanding, Borrowers shall:
last day of each month for the twelve consecutive months ending on such day.
10.3.1. Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio of at least 1.05 to 1.0, tested as of the
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SECTION 11. EVENTS OF DEFAULT; REMEDIES ON DEFAULT
11.1. Events of Default. Each of the following shall be an "Event of Default" if it occurs for any reason whatsoever, whether
voluntary or involuntary, by operation of law or otherwise:
acceleration or otherwise);
(a)
Any Borrower fails to pay its Obligations when due (whether at stated maturity, on demand, upon
Documents or transactions contemplated thereby is incorrect or misleading in any material respect when given;
(b) Any representation, warranty or other written statement of an Obligor made in connection with any Loan
8.6.2, 10.1.1, 10.1.2, 10.2 or 10.3;
(c) A Borrower breaches or fail to perform any covenant contained in Section 7.2, 7.3, 7.4, 7.6, 8.1, 8.2.4, 8.2.5,
(d) An Obligor breaches or fails to perform any other covenant contained in any Loan Documents, and such
breach or failure is not cured within 15 days after a Senior Officer of such Obligor has knowledge thereof or receives notice thereof from
Lender, whichever is sooner; provided, however, that such notice and opportunity to cure shall not apply if the breach or failure to perform
is not capable of being cured within such period or is a willful breach by an Obligor;
(e) A Guarantor repudiates, revokes or attempts to revoke its Guaranty; an Obligor or third party denies or
contests the validity or enforceability of any Loan Documents or Obligations, or the perfection or priority of any Lien granted to Lender;
or any Loan Document ceases to be in full force or effect for any reason (other than a waiver or release by Lender);
(f) Any breach or default of an Obligor occurs (after giving effect to any applicable grace period thereunder)
under (i) any Hedging Agreement; (ii) any Mezzanine Debt Document; (iii) any Factoring Agreement; or (iv) any instrument or agreement
to which it is a party or by which it or any of its Properties is bound, relating to any Debt (other than the Obligations) in excess of
$1,000,000, if the maturity of or any payment with respect to such Debt may be accelerated or demanded due to such breach;
(g) Any judgment or order for the payment of money is entered against an Obligor in an amount that exceeds,
individually or cumulatively with all unsatisfied judgments or orders against all Obligors, $750,000 (net of insurance coverage therefor
that has not been denied by the insurer), unless a stay of enforcement of such judgment or order is in effect, by reason of a pending appeal
or otherwise;
insurance exceeds $500,000;
(h) A loss, theft, damage or destruction occurs with respect to any Collateral if the amount not covered by
(i) An Obligor is enjoined, restrained or in any way prevented by any Governmental Authority from conducting
any material part of its business; an Obligor suffers the loss, revocation or termination of any material license, permit, lease or agreement
necessary to its business; there is a cessation of any material part of an Obligor's business for a material period of time; any material
Collateral or Property of an Obligor is taken or impaired through condemnation; an Obligor agrees to or commences any liquidation,
dissolution or winding up of its affairs except in connection with a merger or consolidation with another Obligor that is permitted under
this Agreement; or an Obligor is not Solvent;
(j) An Insolvency Proceeding is commenced by an Obligor; an Obligor makes an offer of settlement, extension
or composition to its unsecured creditors generally; a trustee is appointed to take possession of any substantial Property of or to operate any
of the business of an Obligor; or an Insolvency Proceeding is commenced against an Obligor and: the Obligor consents to institution of the
proceeding, the petition commencing the proceeding is not timely contested by the Obligor, the petition is not dismissed within 30 days
after filing, or an order for relief is entered in the proceeding;
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(k) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan that has resulted or could
reasonably be expected to result in liability of an Obligor to a Pension Plan, Multiemployer Plan or PBGC, or that constitutes grounds for
appointment of a trustee for or termination by the PBGC of any Pension Plan or Multiemployer Plan; an Obligor or ERISA Affiliate fails
to pay when due any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer
Plan; or any event similar to the foregoing occurs or exists with respect to a Foreign Plan;
(l) An Obligor or any of its Senior Officers is criminally indicted or convicted for (i) a felony committed in the
conduct of the Obligor's business, or (ii) violating any state or federal law (including the Controlled Substances Act, Money Laundering
Control Act of 1986 and Illegal Exportation of War Materials Act) that could lead to forfeiture of any material Property or any Collateral;
or
(m) A Change of Control occurs; or any event occurs or condition exists that has a Material Adverse Effect.
11.2. Remedies upon Default. If an Event of Default described in Section 11.1(j) occurs with respect to any Borrower, then
to the extent permitted by Applicable Law, all Obligations shall become automatically due and payable and all Commitments shall
terminate, without any action by Lender or notice of any kind. In addition, or if any other Event of Default exists, Lender may in its
discretion do any one or more of the following from time to time:
declare any Obligations immediately due and payable, whereupon they shall be due and payable without
diligence, presentment, demand, protest or notice of any kind, all of which are hereby waived by Borrowers to the fullest extent permitted
by law;
(a)
(b) terminate, reduce or condition any Commitment, or make any adjustment to the Borrowing Base;
(c) require Obligors to Cash Collateralize their LC Obligations, Bank Product Debt and other Obligations that
are contingent or not yet due and payable, and if Obligors fail to deposit such Cash Collateral, Lender may advance the required Cash
Collateral as Revolver Loans; and
(d) exercise any other rights or remedies afforded under any agreement, by law, at equity or otherwise, including
the rights and remedies of a secured party under the UCC. Such rights and remedies include the rights to (i) take possession of any
Collateral; (ii) require Borrowers to assemble Collateral, at Borrowers' expense, and make it available to Lender at a place designated by
Lender; (iii) enter any premises where Collateral is located and store Collateral on such premises until sold (and if the premises are owned
or leased by a Borrower, Borrowers agree not to charge for such storage); and (iv) sell or otherwise dispose of any Collateral in its then
condition, or after any further manufacturing or processing thereof, at public or private sale, with such notice as may be required by
Applicable Law, in lots or in bulk, at such locations, all as Lender, in its discretion, deems advisable. Each Borrower agrees that 10 days
notice of any proposed sale or other disposition of Collateral by Lender shall be reasonable, and that any sale conducted on the internet or
to a licensor of Intellectual Property shall be commercially reasonable. Lender may conduct sales on any Obligor's premises, without
charge, and any sales may be adjourned from time to time in accordance with Applicable Law. Lender shall have the right to sell, lease or
otherwise dispose of any Collateral for cash, credit or any combination thereof, and Lender may purchase any Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of the purchase price, may set off the amount of such price against the
Obligations.
11.3. License. To the extent permitted under the terms of any underlying license or sublicense agreements (if applicable),
Lender is hereby granted an irrevocable, non-exclusive license or other right to use, license or sub-license during the existence of an Event
of Default (without payment of royalty or other compensation to any Person) any or all Intellectual Property of Borrowers, computer
hardware and software, trade secrets, brochures, customer lists, promotional and advertising materials, labels, packaging materials and
other Property, in advertising for sale, marketing, selling, collecting, completing manufacture of, or otherwise exercising any rights or
remedies with respect to, any Collateral. Each Borrower's rights and interests under Intellectual Property shall inure to Lender's benefit.
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11.4. Setoff. At any time during an Event of Default, Lender and its Affiliates are authorized, to the fullest extent permitted
by Applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever
currency) at any time held and other obligations (in whatever currency) at any time owing by Lender or such Affiliate to or for the credit
or the account of an Obligor against its Obligations, whether or not Lender or such Affiliate shall have made any demand under this
Agreement or any other Loan Document and although such Obligations may be contingent or unmatured or are owed to a branch or office
of Lender or such Affiliate different from the branch or office holding such deposit or obligated on such indebtedness. The rights of
Lender and each such Affiliate under this Section are in addition to other rights and remedies (including other rights of setoff) that such
Person may have.
11.5.
Remedies Cumulative; No Waiver.
11.5.1. Cumulative Rights. All agreements, warranties, guaranties, indemnities and other undertakings of Obligors
under the Loan Documents are cumulative and not in derogation of each other. The rights and remedies of Lender under the Loan
Documents are cumulative, may be exercised at any time and from time to time, concurrently or in any order, and are not exclusive of any
other rights or remedies available by agreement, by law, at equity or otherwise. All such rights and remedies shall continue in full force
and effect until Full Payment of all Obligations.
11.5.2. Waivers. No waiver or course of dealing shall be established by (a) the failure or delay of Lender to require
strict performance by any Obligor under any Loan Document, or to exercise any rights or remedies with respect to Collateral or otherwise;
(b) the making of any Loan or issuance of any Letter of Credit during a Default, Event of Default or other failure to satisfy any conditions
precedent; or (c) acceptance by Lender of any payment or performance by an Obligor under any Loan Documents in a manner other than
that specified therein. Any failure to satisfy a financial covenant on a measurement date shall not be cured or remedied by satisfaction of
such covenant on a subsequent date.
SECTION 12. MISCELLANEOUS
12.1. Amendments and Waivers.
12.1.1. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Borrowers, Lender,
and their respective successors and assigns, except that no Borrower shall have the right to assign its rights or delegate its obligations
under any Loan Documents.
12.1.2. Amendments and Other Modifications. No modification of any Loan Document, including any extension or
amendment of a Loan Document or any waiver of a Default or Event of Default, shall be effective without the prior written agreement of
Lender and each Obligor party to such Loan Document; provided, however, that only the consent of the parties to a Bank Product
agreement shall be required for any modification of such agreement. Any waiver or consent granted by Lender shall be effective only if in
writing, and only for the matter specified.
12.2. Indemnity. EACH BORROWER SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES
AGAINST ANY CLAIMS THAT MAY BE INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE, INCLUDING
CLAIMS ASSERTED BY ANY OBLIGOR OR OTHER PERSON OR ARISING FROM THE NEGLIGENCE OF AN
INDEMNITEE. In no event shall any party to a Loan Document have any obligation thereunder to indemnify or hold harmless an
Indemnitee with respect to a Claim that is determined in a final, non- appealable judgment by a court of competent jurisdiction to result
from the gross negligence or willful misconduct of such Indemnitee.
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12.3.
Notices and Communications.
12.3.1. Notice Address. Subject to Section 4.1.2, all notices and other communications by or to a party hereto shall be
in writing and shall be given to any Borrower, at Borrower Agent's address shown on the signature pages hereof, and to any other Person
at its address shown on the signature pages hereof, or at such other address as a party may hereafter specify by notice in accordance with
this Section 12.3. Each such notice or other communication shall be effective only (a) if given by facsimile transmission, when transmitted
to the applicable facsimile number, if confirmation of receipt is received; (b) if given by mail, three Business Days after deposit in the
U.S. mail, with first-class postage pre-paid, addressed to the applicable address; or (c) if given by personal delivery, when duly delivered to
the notice address with receipt acknowledged. Notwithstanding the foregoing, no notice to Lender pursuant to Section 2.1.3, 2.3, 3.1.2,
4.1.1 or 5.3.3 shall be effective until actually received by the individual to whose attention at Lender such notice is required to be sent.
Any written notice or other communication that is not sent in conformity with the foregoing provisions shall nevertheless be effective on
the date actually received by the noticed party. Any notice received by Borrower Agent shall be deemed received by all Borrowers.
12.3.2. Electronic Communications; Voice Mail . Electronic mail and internet websites may be used only for routine
communications, such as delivery of financial statements, Borrowing Base Certificates and other information required by Section 10.1.2,
administrative matters, distribution of Loan Documents, and matters permitted under Section 4.1.2. Lender make no assurances as to the
privacy and security of electronic communications. Electronic and voice mail may not be used as effective notice under the Loan
Documents.
12.3.3. Platform. Borrowing Base information, reports, financial statements and other materials shall be delivered by
Borrowers pursuant to procedures approved by Lender, including electronic delivery (if possible) upon request by Lender to an electronic
system maintained by it ("Platform"). Borrowers shall notify Lender of each posting of reports or other information on the Platform. All
information shall be deemed received by Lender only upon its receipt of such notice. The Platform is provided "as is" and "as available."
NO WARRANTY OF ANY KIND, EXPRESS,
INCLUDING ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS, OR
FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY LENDER WITH RESPECT TO THE PLATFORM. Lender
does not warrant the adequacy or functioning of the Platform, and expressly disclaims liability for any issues involving the Platform. No
Indemnitee shall have any liability to Borrowers or any other Person for losses, claims, damages, liabilities or expenses of any kind
(whether in tort, contract or otherwise) relating to use by any Person of the Platform or delivery of any information over the internet.
IMPLIED OR STATUTORY,
12.3.4. Non-Conforming Communications. Lender may rely upon any communications purportedly given by or on
behalf of any Borrower even if they were not made in a manner specified herein, were incomplete or were not confirmed, or if the terms
thereof, as understood by the recipient, varied from a later confirmation. Each Borrower shall indemnify and hold harmless each
Indemnitee from any liabilities, losses, costs and expenses arising from any electronic or telephonic communication purportedly given by
or on behalf of a Borrower.
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12.4.
Performance of Borrowers' Obligations. Lender may, in its discretion at any time and from time to time, at
Borrowers' expense, pay any amount or do any act required of a Borrower under any Loan Documents or otherwise lawfully requested by
Lender to (a) enforce any Loan Documents or collect any Obligations; (b) protect, insure, maintain or realize upon any Collateral; or (c)
defend or maintain the validity or priority of Lender's Liens in any Collateral, including any payment of a judgment, insurance premium,
warehouse charge, finishing or processing charge, or landlord claim, or any discharge of a Lien. All payments, costs and expenses
(including Extraordinary Expenses) of Lender under this Section shall be reimbursed by Borrowers, on demand, with interest from the
date incurred until paid in full, at the Default Rate applicable to Base Rate Revolver Loans. Any payment made or action taken by Lender
under this Section shall be without prejudice to any right to assert an Event of Default or to exercise any other rights or remedies under the
Loan Documents.
12.5. Credit Inquiries. Lender may (but shall have no obligation) to respond to usual and customary credit inquiries from
third parties concerning any Obligor or Subsidiary.
12.6. Severability. Wherever possible, each provision of the Loan Documents shall be interpreted in such manner as to be
valid under Applicable Law. If any provision is found to be invalid under Applicable Law, it shall be ineffective only to the extent of such
invalidity and the remaining provisions of the Loan Documents shall remain in full force and effect.
12.7.
Cumulative Effect; Conflict of Terms. The provisions of the Loan Documents are cumulative. The parties
acknowledge that the Loan Documents may use several limitations or measurements to regulate similar matters, and they agree that these
are cumulative and that each must be performed as provided. Except as otherwise provided in another Loan Document (by specific
reference to the applicable provision of this Agreement), if any provision contained herein is in direct conflict with any provision in
another Loan Document, the provision herein shall govern and control.
12.8. Counterparts; Execution. Any Loan Document may be executed in counterparts, each of which shall constitute an
original, but all of which when taken together shall constitute a single contract. This Agreement shall become effective when Lender has
received counterparts bearing the signatures of all parties hereto. Delivery of a signature page of any Loan Document by telecopy or other
electronic means shall be effective as delivery of a manually executed counterpart of such agreement. Any electronic signature, contract
formation on an electronic platform and electronic record-keeping shall have the same legal validity and enforceability as a manually
executed signature or use of a paper-based recordkeeping system to the fullest extent permitted by Applicable Law, including the Federal
Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any similar
state law based on the Uniform Electronic Transactions Act.
12.9. Entire Agreement. Time is of the essence with respect to all Loan Documents and Obligations. The Loan Documents
constitute the entire agreement, and supersede all prior understandings and agreements, among the parties relating to the subject matter
thereof.
12.10. No Control; No Advisory or Fiduciary Responsibility . Nothing in any Loan Document and no action of Lender
pursuant to any Loan Document shall be deemed to constitute control of any Obligor by Lender. In connection with all aspects of each
transaction contemplated by any Loan Document, Borrowers acknowledge and agree that (a)(i) this credit facility and all related services
by Lender or its Affiliates are arm's-length commercial transactions between Borrowers and such Person; (ii) Borrowers have consulted
their own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate; and (iii) Borrowers are capable of
evaluating, and understand and accept, the terms, risks and conditions of the transactions contemplated by the Loan Documents; (b) each
of Lender and its Affiliates is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties,
has not been, is not, and will not be acting as an advisor, agent or fiduciary for Borrowers, their Affiliates or any other Person, and has no
obligation with respect to the transactions contemplated by the Loan Documents except as expressly set forth therein; and (c) Lender and
its Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of Borrowers and their Affiliates,
and have no obligation to disclose any of such interests to Borrowers or their Affiliates. To the fullest extent permitted by Applicable Law,
each Borrower hereby waives and releases any claims that it may have against Lender and its Affiliates with respect to any breach of
agency or fiduciary duty in connection with any transaction contemplated by a Loan Document.
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12.11. Confidentiality. Lender agrees to maintain the confidentiality of all Information (as defined below), except that
Information may be disclosed (a) to its Affiliates, and its and their partners, directors, officers, employees, agents, advisors and
representatives (provided they are informed of the confidential nature of the Information and instructed to keep it confidential); (b) to the
extent requested by any governmental, regulatory or self-regulatory authority purporting to have jurisdiction over it or its Affiliates (in
which case Lender shall notify Borrower Agent to the extent Lender is lawfully permitted to do so); (c) to the extent required by
Applicable Law or by any subpoena or other legal process (in which case Lender shall notify Borrower Agent to the extent Lender is
lawfully permitted to do so); (d) to any other party hereto; (e) in connection with any action or proceeding relating to any Loan Documents
or Obligations; (f) subject to an agreement containing provisions substantially the same as this Section, to any potential or actual transferee
of any interest in a Loan Document or any actual or prospective party (or its advisors) to any Bank Product or to any swap, derivative or
other transaction under which payments are to be made by reference to an Obligor or Obligor's obligations; (g) with the consent of
Borrower Agent; or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or
(ii) is available to Lender or its Affiliates on a nonconfidential basis from a source other than Borrowers. Notwithstanding the foregoing,
subject to Borrower Agent's prior written consent, Lender may publish or disseminate general information concerning this credit facility,
and may use Borrowers' logos, trademarks or product photographs in advertising materials. As used herein, "Information" means
information received from an Obligor or Subsidiary relating to it or its business, other than any information that is available to Lender on a
nonconfidential basis prior to disclosure by an Obligor or Subsidiary, provided, that in the case of information received from an Obligor or
Subsidiary after the Closing Date, such information is identified as confidential when delivered. A Person required to maintain the
confidentiality of Information pursuant to this Section shall be deemed to have complied if it exercises a degree of care similar to that
accorded its own confidential information. Lender acknowledges that (i) Information may include material non-public information; (ii) it
has developed compliance procedures regarding the use of such information; and (iii) it will handle the material non- public information in
accordance with Applicable Law.
12.12. GOVERNING LAW. UNLESS EXPRESSLY PROVIDED IN ANY LOAN DOCUMENT, THIS AGREEMENT,
THE OTHER LOAN DOCUMENTS AND ALL CLAIMS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
GEORGIA, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES EXCEPT FEDERAL LAWS
RELATING TO NATIONAL BANKS.
12.13. Consent to Forum.
12.13.1. Forum. EACH BORROWER HEREBY CONSENTS TO THE NON- EXCLUSIVE JURISDICTION
OF ANY FEDERAL OR STATE COURT SITTING IN OR WITH JURISDICTION OVER THE NORTHERN DISTRICT OF
GEORGIA OR COBB COUNTY, GEORGIA, IN ANY DISPUTE, ACTION, LITIGATION OR OTHER PROCEEDING
RELATING IN ANY WAY TO ANY LOAN DOCUMENTS, AND AGREES THAT ANY DISPUTE, ACTION, LITIGATION
OR OTHER PROCEEDING SHALL BE BROUGHT BY IT SOLELY IN ANY SUCH COURT. EACH BORROWER
IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL CLAIMS, OBJECTIONS AND DEFENSES THAT IT MAY
HAVE REGARDING ANY SUCH COURT'S PERSONAL OR SUBJECT MATTER JURISDICTION, VENUE OR
INCONVENIENT FORUM. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE
JURISDICTION OF SUCH COURTS AND CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR
NOTICES IN SECTION 12.3.1. A final judgment in any proceeding of any such court shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or any other manner provided by Applicable Law.
62
12.13.2. Other Jurisdictions. Nothing herein shall limit the right of Lender to bring proceedings against any Obligor in
any other court, nor limit the right of any party to serve process in any other manner permitted by Applicable Law. Nothing in this
Agreement shall be deemed to preclude enforcement by Lender of any judgment or order obtained in any forum or jurisdiction.
12.14. Waivers by Borrowers. To the fullest extent permitted by Applicable Law, each Borrower waives (a) the right to
trial by jury (which Lender hereby also waives) in any proceeding or dispute of any kind relating in any way to any Loan
Documents, Obligations or Collateral; (b) presentment, demand, protest, notice of presentment, default, non-payment, maturity,
release, compromise, settlement, extension or renewal of any commercial paper, accounts, documents, instruments, chattel paper
and guaranties at any time held by Lender on which a Borrower may in any way be liable, and hereby ratifies anything Lender
may do in this regard; (c) notice prior to taking possession or control of any Collateral; (d) any bond or security that might be
required by a court prior to allowing Lender to exercise any rights or remedies; (e) the benefit of all valuation, appraisement and
exemption laws; (f) any claim against Lender, on any theory of liability, for special, indirect, consequential, exemplary or punitive
damages (as opposed to direct or actual damages) in any way relating to any Enforcement Action, Obligations, Loan Documents
or transactions relating thereto; and (g) notice of acceptance hereof. Each Borrower acknowledges that the foregoing waivers are a
material inducement to Lender entering into this Agreement and that Lender is relying upon the foregoing in its dealings with Borrowers.
Each Borrower has reviewed the foregoing waivers with its legal counsel and has knowingly and voluntarily waived its jury trial and other
rights following consultation with legal counsel. In the event of litigation, this Agreement may be filed as a written consent to a trial by the
court.
12.15. Patriot Act Notice . Lender hereby notifies Borrowers that pursuant to the Patriot Act, Lender is required to obtain,
verify and record information that identifies each Borrower, including its legal name, address, tax ID number and other information that
will allow Lender to identify it in accordance with the Patriot Act. Lender will also require information regarding each personal guarantor,
if any, and may require information regarding Borrowers' management and owners, such as legal name, address, social security number
and date of birth. Borrowers shall, promptly upon request, provide all documentation and other information as Lender may request from
time to time in order to comply with any obligations under "know your customer," anti-money laundering or other requirements of
Applicable Law.
12.16. NO ORAL AGREEMENT . THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
[Remainder of page intentionally left blank; signatures begin on following page]
63
Exhibit 10.17
LOAN AND SECURITY AGREEMENT
Dated as of July 6, 2015
MARQUIS AFFILIATED HOLDINGS LLC,
MARQUIS INDUSTRIES, INC.,
A-O INDUSTRIES, LLC,
ASTRO CARPET MILLS, LLC,
CONSTELLATION INDUSTRIES, LLC,
and
S F COMMERCIAL PROPERTIES, LLC,
as Borrowers
ISAAC CAPITAL FUND I, LLC,
as Lender
TABLE OF CONTENTS
Section 1. DEFINITIONS; RULES OF CONSTRUCTION
1.1. Definitions
1.2. Accounting Terms
1.3. Uniform Commercial Code
1.4. Certain Matters of Construction
Section 2. Loan
2.1. Loan
Section 3. INTEREST AND reimbursement obligations
3.1. Interest
3.2. Reimbursement Obligations
3.3. Maximum Interest
Section 4. LOAN ADMINISTRATION
4.1. Borrower Agent
4.2. One Obligation
4.3. Effect of Termination
Section 5. PAYMENTS
5.1. General Payment Provisions
5.2. Repayment of Loan
5.3. Payment of Other Obligations
5.4. Marshaling; Payments Set Aside
5.5. Account Stated
5.6. Taxes
5.7. Nature and Extent of Each Borrower's Liability
Section 6. CONDITIONS PRECEDENT
6.1. Conditions Precedent to the Initial Advance
6.2. Conditions Precedent to Subsequent Advance
Section 7. COLLATERAL
7.1. Grant of Security Interest
7.2. Lien on Deposit Accounts; Cash Collateral
7.3. Real Estate Collateral
7.4. Other Collateral
7.5. Limitations
7.6. Further Assurances; Extent of Liens
7.7. Foreign Subsidiary Stock
Section 8. COLLATERAL ADMINISTRATION
8.1. General Provisions
8.2. Power of Attorney
Section 9. REPRESENTATIONS AND WARRANTIES
9.1. General Representations and Warranties
9.2. Complete Disclosure
Section 10. COVENANTS AND CONTINUING AGREEMENTS
10.1. Affirmative Covenants
10.2. Negative Covenants
10.3. Financial Covenants
i
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Section 11. EVENTS OF DEFAULT; REMEDIES ON DEFAULT
11.1. Events of Default
11.2. Remedies upon Default
11.3. License
11.4. Setoff
11.5. Remedies Cumulative; No Waiver
Section 12. MISCELLANEOUS
12.1. Amendments and Waivers
12.2. Indemnity
12.3. Notices and Communications
12.4. Performance of Borrowers' Obligations
12.5. Credit Inquiries
12.6. Severability
12.7. Cumulative Effect; Conflict of Terms
12.8. Counterparts
12.9. Entire Agreement
12.10. No Control; No Advisory or Fiduciary Responsibility
12.11. Confidentiality
12.12. GOVERNING LAW
12.13. Consent to Forum
12.14. Waivers by Borrowers
12.15. NO ORAL AGREEMENT
LIST OF SCHEDULES
Schedule 8.1.1
Schedule 9.1.4
Schedule 9.1.9
Schedule 9.1.10
Schedule 9.1.13
Schedule 9.1.14
Schedule 9.1.15
Schedule 9.1.17
Schedule 9.1.119
Schedule 10.2.2
Schedule 10.2.17
Business Locations
Names and Capital Structure
Brokers
Patents, Trademarks, Copyrights and Licenses
Environmental Matters
Restrictive Agreements
Litigation
Pension Plans
Labor Relations
Existing Liens
Existing Affiliate Transactions
LIST OF EXHIBITS
Exhibit A
Historical EBITDA
Calculations
/ Fixed Charge Coverage Ratio
ii
PURSUANT TO THE DEBT AND LIEN SUBORDINATION AGREEMENT (AS DEFINED BELOW), THIS LOAN AND
SECURITY AGREEMENT, THE SUBORDINATED PROMISSORY NOTE ISSUED PURSUANT TO THIS LOAN AND
SECURITY AGREEMENT AND THE PAYMENT OF ALL AMOUNTS HEREUNDER AND THEREUNDER ARE
EXPRESSLY SUBORDINATED TO THE PAYMENT OF THE SENIOR DEBT (AS DEFINED BELOW) ON THE TERMS AND
CONDITIONS SET FORTH IN THE DEBT AND LIEN SUBORDINATION AGREEMENT.
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is dated as of July 6, 2015, among MARQUIS AFFILIATED HOLDINGS
LLC, a Delaware limited liability company ("Holdings"), MARQUIS INDUSTRIES, INC., a Georgia corporation ("Marquis"), A-O
INDUSTRIES, LLC, a Georgia limited liability company ("A-O" ) , ASTRO CARPET MILLS, LLC, a Georgia limited liability
company ("Astro" ) , CONSTELLATION INDUSTRIES, LLC , a Georgia limited liability company ("Constellation"), and S F
COMMERCIAL PROPERTIES, LLC, a Georgia limited liability company ("SF Commercial"; and together with Holdings, Marquis, A-
O, Astro and Constellation, collectively, " Borrowers" and each individually, a "Borrower"), and ISAAC CAPITAL FUND I, LLC , a
Georgia limited liability company ("Lender").
R E C I T A L S :
On the date of this Agreement, Holdings acquired all of the capital stock of Marquis (the " Marquis Acquisition") pursuant to that
certain Purchase Agreement, dated July 6, 2015, by and among Live Ventures Inc., a Nevada corporation ("Live Ventures"), Marquis, all of
its stockholders, Timothy A. Bailey, a Georgia resident, (" Bailey"), Larry Heckman, a Georgia resident ("Heckman"), David Stokes, a
Georgia resident ("Stokes"), and Mark Rowland, a Georgia resident ("Rowland", with Bailey, Heckman, Stokes, and Rowland, individually
and interchangeably, a "Seller", and, in the aggregate, the "Sellers"), and Holdings (such agreement, as amended, restated, supplemented or
otherwise modified from time to time, the "Marquis SPA" and, together with each other material agreement, instrument, certificates,
schedule, exhibit, annex and rider executed in connection therewith or contemplated thereby, collectively, the "Marquis SPA Documents").
The Marquis Acquisition was funded solely with proceeds from (a) the Loan (as defined below), (b) a portion of the Senior Debt
(as defined below) pursuant to the Senior Loan Agreement (as defined below), together with all of the documents, agreements, instruments,
certificates, schedules, exhibits, annexes and riders executed in connection therewith or contemplated thereby, in each case as amended,
restated, supplemented or otherwise modified from time to time in accordance with the terms of the Debt and Lien Subordination
Agreement (as defined below) (collectively, the "Senior Debt Documents") and (c) an equity contribution from, among others, Live, Bailey,
Heckman, Stokes, and Rowland, in an aggregate amount not less than $6,000,000.00 (the "Equity Contribution" and, all of the documents,
agreements, instruments, certificates, schedules, exhibits, annexes and riders executed in connection therewith or contemplated thereby,
collectively, the "Equity Contribution Documents").
Borrowers have requested that Lender provide a credit facility to Borrowers to finance their mutual and collective business
enterprise. Lender is willing to provide the credit facility on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS; RULES OF CONSTRUCTION
1
1.1. Definitions. As used herein, the following terms have the meanings set forth below:
Account: as defined in the UCC, including all rights to payment for goods sold or leased, or for services rendered.
Account Debtor: a Person obligated under an Account, Chattel Paper or General Intangible.
Acquisition: a transaction or series of transactions resulting in (a) acquisition of a business, division or substantially all assets of a
Person; (b) record or beneficial ownership of 50% or more of the Equity Interests of a Person; or (c) merger, consolidation or combination
of a Borrower or Subsidiary with another Person.
Affiliate: with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person specified. "Control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting
power, by contract or otherwise. "Controlling" and "Controlled" have correlative meanings.
Allocable Amount: as defined in Section 5.7.3.
Anti-Terrorism Law: any law relating to terrorism or money laundering, including the Patriot Act.
Applicable Law: all laws, rules, regulations and governmental guidelines applicable to the Person, conduct, transaction, agreement
or matter in question, including all applicable statutory law, common law and equitable principles, and all provisions of constitutions,
treaties, statutes, rules, regulations, orders and decrees of Governmental Authorities.
Asset Disposition: a sale, lease, license, consignment, transfer or other disposition of Property of an Obligor, including a
disposition of Property in connection with a sale-leaseback transaction or synthetic lease.
Availability: as defined in the Senior Loan Agreement.
Bank Product Debt: as defined in the Senior Loan Agreement.
Bankruptcy Code: Title 11 of the United States Code.
Board of Governors: the Board of Governors of the Federal Reserve System.
Borrowed Money: with respect to any Obligor, without duplication, its (a) Debt that (i) arises from the lending of money by any
Person to such Obligor, (ii) is evidenced by notes, drafts, bonds, debentures, credit documents or similar instruments, (iii) accrues interest
or is a type upon which interest charges are customarily paid (excluding trade payables owing in the Ordinary Course of Business), or (iv)
was issued or assumed as full or partial payment for Property; (b) Capital Leases; (c) reimbursement obligations with respect to letters of
credit; and (d) guaranties of any Debt of the foregoing types owing by another Person.
Borrower Agent: as defined in Section 4.1.
Business Day: any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the
laws of, or are in fact closed in, North Carolina and Georgia.
Capital Expenditures: all liabilities incurred or expenditures made by a Borrower or Subsidiary for the acquisition of fixed assets,
or any improvements, replacements, substitutions or additions thereto with a useful life of more than one year.
2
Capital Lease: any lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.
Cash Collateral: cash, and any interest or other income earned thereon, that is delivered to Lender to Cash Collateralize any
Obligations.
Cash Collateralize: the delivery of cash to Lender, as security for the payment of Obligations, in an amount equal to, with respect
to any inchoate, contingent or other Obligations (but excluding unasserted inchoate or contingent indemnification obligations), Lender's
good faith estimate of the amount due or to become due, including fees, expenses and indemnification hereunder. "Cash Collateralization"
has a correlative meaning.
Cash Equivalents: (a) marketable obligations issued or unconditionally guaranteed by, and backed by the full faith and credit of,
the United States government, maturing within 12 months of the date of acquisition; (b) certificates of deposit, time deposits and bankers'
acceptances maturing within 12 months of the date of acquisition, and overnight bank deposits, in each case which are issued by a
commercial bank (including Lender) organized under the laws of the United States or any state or district thereof, rated A-1 (or better) by
S&P or P-1 (or better) by Moody's at the time of acquisition, and (unless issued by Lender) not subject to offset rights; (c) repurchase
obligations with a term of not more than 30 days for underlying investments of the types described in clauses (a) and (b) entered into with
any bank meeting the qualifications specified in clause (b); (d) commercial paper issued by Lender or rated A-1 (or better) by S&P or P-1
(or better) by Moody's, and maturing within nine months of the date of acquisition; and (e) shares of any money market fund that has
substantially all of its assets invested continuously in the types of investments referred to above, has net assets of at least $500,000,000 and
has the highest rating obtainable from either Moody's or S&P.
CERCLA: the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. § 9601 et seq.).
Change of Control: (a) Jon Isaac ceases to (i) own and control, beneficially and of record, directly or indirectly, at least 25% of the
Equity Interests of Live (or Live Ventures after the Live Restructuring Transaction), and (ii) be the Chief Executive Officer of Live (or
Live Ventures after the Live Restructuring Transaction) or the Chairman of the Board of Directors of Live (or Live Ventures after the Live
Restructuring Transaction); (b) Live (or Live Ventures after the Live Restructuring Transaction) ceases to own and control, beneficially and
of record, directly or indirectly, at least 80% of Holdings; (c) Holdings ceases to own and control, beneficially and of record, at least 100%
of the Equity Interests of Marquis; (d) Marquis ceases to own and control, beneficially and of record, directly or indirectly, all Equity
Interests in all other Borrowers (other than Holdings) except as a result of a transaction specifically permitted by this Agreement; (e) a
change in the majority of directors of Holdings during any 24 month period, unless approved by the majority of directors serving at the
beginning of such period; or (f) the sale or transfer of all or substantially all assets of a Borrower, except to another Borrower.
Claims: all claims, liabilities, obligations, losses, damages, penalties, judgments, proceedings, interest, costs and expenses of any
kind (including remedial response costs, reasonable attorneys' fees and Extraordinary Expenses) at any time (including after Full Payment
of the Obligations) incurred by any Indemnitee or asserted against any Indemnitee by any Obligor or other Person, in any way relating to
(a) the Loan, Loan Documents, or the use thereof or transactions relating thereto, (b) any action taken or omitted to be taken by any
Indemnitee in connection with any Loan Documents, (c) the existence or perfection of any Liens, or realization upon any Collateral, (d)
exercise of any rights or remedies under any Loan Documents or Applicable Law, or (e) failure by any Obligor to perform or observe any
terms of any Loan Document, in each case including all costs and expenses relating to any investigation, litigation, arbitration or other
proceeding (including an Insolvency Proceeding or appellate proceedings), whether or not the applicable Indemnitee is a party thereto.
3
Closing Date: as defined in Section 6.1.
Code: the Internal Revenue Code of 1986.
Collateral: all Property described in Section 7.1, all Property described in any Security Documents as security for any Obligations,
and all other Property that now or hereafter secures (or is intended to secure) any Obligations.
Commodity Exchange Act: the Commodity Exchange Act (7 U.S.C. § 1 et seq.).
Compliance Certificate: a certificate, in form reasonably satisfactory to Lender and substance satisfactory to Lender, by which
Borrowers certify compliance with Section 10.3 and certain other matters set forth therein.
Contingent Obligation: any obligation of a Person arising from a guaranty, indemnity or other assurance of payment or
performance of any Debt, lease, dividend or other obligation ("primary obligations") of another obligor ("primary obligor") in any manner,
whether directly or indirectly, including any obligation of such Person under any (a) guaranty, endorsement, co-making or sale with
recourse of an obligation of a primary obligor; (b) obligation to make take-or-pay or similar payments regardless of nonperformance by any
other party to an agreement; and (c) arrangement (i) to purchase any primary obligation or security therefor, (ii) to supply funds for the
purchase or payment of any primary obligation, (iii) to maintain or assure working capital, equity capital, net worth or solvency of the
primary obligor, (iv) to purchase Property or services for the purpose of assuring the ability of the primary obligor to perform a primary
obligation, or (v) otherwise to assure or hold harmless the holder of any primary obligation against loss in respect thereof. The amount of
any Contingent Obligation shall be deemed to be the stated or determinable amount of the primary obligation (or, if less, the maximum
amount for which such Person may be liable under the instrument evidencing the Contingent Obligation) or, if not stated or determinable,
the maximum reasonably anticipated liability with respect thereto.
Copyright Security Agreement: that certain Copyright Security Agreement dated as of the Closing Date by and among Borrowers
and Lender.
CWA: the Clean Water Act (33 U.S.C. §§ 1251 et seq.).
Debt: as applied to any Person, without duplication, (a) all items that would be included as liabilities on a balance sheet in
accordance with GAAP, including Capital Leases, but excluding trade payables incurred and being paid in the Ordinary Course of
Business; (b) all Contingent Obligations; (c) all reimbursement obligations in connection with letters of credit issued for the account of such
Person; and (d) in the case of a Borrower, the Obligations. The Debt of a Person shall include any recourse Debt of any partnership in
which such Person is a general partner or joint venturer.
Debt and Lien Subordination Agreement: the Debt and Lien Subordination Agreement of even date herewith, between Senior
Lender and Lender, relating to the Senior Debt.
Default: an event or condition that, with the lapse of time or giving of notice, would constitute an Event of Default.
Default Rate: for any Obligation (including, to the extent permitted by law, interest not paid when due), 2.00% plus the interest rate
otherwise applicable thereto.
Distribution: any declaration or payment of a distribution, interest or dividend on any Equity Interest (other than payment-in-kind);
any distribution, advance or repayment of Debt to a holder of Equity Interests; or any purchase, redemption, or other acquisition or
retirement for value of any Equity Interest.
4
Dollars: lawful money of the United States.
EBITDA: determined on a consolidated basis for Borrowers and Subsidiaries, net income, calculated before interest expense,
transaction costs associated with the Transactions not to exceed $1,000,000, provision for income taxes, depreciation and amortization
expense, gains or losses arising from the sale of capital assets, gains arising from the write-up of assets, and any extraordinary gains, losses
on impairment of long-lived assets and goodwill, unrealized gains and losses resulting in changes from fair values of derivatives and
financial instruments (including changes in fair value of contingent consideration related to business combinations), directly related
charges related to the consummation of business combinations, non-cash severance and restructuring charges, gains arising from the write-
up of assets, extraordinary gains and losses (including losses and gains from extinguishment of debt) and non-recurring expenses and
income which do not represent cash items in such period (in each case, to the extent included in determining net income). For purposes of
this Agreement, EBITDA and its components for the 12 months prior to the Closing Date is as shown on Exhibit A.
Enforcement Action : any action to enforce any Obligations or Loan Documents or to realize upon any Collateral (whether by
judicial action, self-help, notification of Account Debtors, exercise of setoff or recoupment, credit bid, action in an Obligor's Insolvency
Proceeding or otherwise).
Environmental Agreement: an agreement of an Obligor to indemnify Lender from liability under Environmental Laws with respect
to Real Estate subject to a Mortgage.
Environmental Laws: Applicable Laws (including programs, permits and guidance promulgated by regulators) relating to public
health (other than occupational safety and health regulated by OSHA) or the protection or pollution of the environment, including
CERCLA, RCRA and CWA.
Environmental Notice: a notice (whether written or oral) from any Governmental Authority or other Person of any possible
noncompliance with, investigation of a possible violation of, litigation relating to, or potential fine or liability under any Environmental
Law, or with respect to any Environmental Release, environmental pollution or hazardous materials, including any complaint, summons,
citation, order, claim, demand or request for correction, remediation or otherwise.
Environmental Release: a release as defined in CERCLA or under any other Environmental Law.
Equity Contribution: shall have the meaning ascribed to it in the recitals hereto.
Equity Interest: the interest of any (a) shareholder in a corporation; (b) partner in a partnership (whether general, limited, limited
liability or joint venture); (c) member in a limited liability company; or (d) other Person having any other form of equity security or
ownership interest.
Equity Interest Pledge Agreement : that certain Pledge Agreement dated as of the Closing Date by and among Holdings, Marquis
and Lender.
ERISA: the Employee Retirement Income Security Act of 1974.
ERISA Affiliate: any trade or business (whether or not incorporated) under common control with an Obligor within the meaning
of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the
Code).
ERISA Event: (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Obligor or ERISA Affiliate from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2)
of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial
withdrawal by any Obligor or ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d)
the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or
the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) the determination that any Pension
Plan or Multiemployer Plan is considered an at risk plan or a plan in critical or endangered status under the Code, ERISA or the Pension
Protection Act of 2006; (f) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (g) the imposition of any liability under Title IV of
ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Obligor or ERISA Affiliate.
5
Event of Default: as defined in Section 11.
Excluded Assets:
(a) any rights of an Obligor in any contract, license, right or other agreement if under the terms thereof, or any Applicable Law
with respect thereto, the valid grant of a security interest therein to Lender is prohibited and such prohibition has not been waived or the
consent of the other party to such contract or license has not been obtained or, under Applicable Law, such prohibition cannot be waived;
provided however that (i) the "Excluded Assets" shall not be interpreted (A) to apply to any contract, license, right or other agreement to
the extent the applicable prohibition is ineffective or unenforceable under the UCC (including Sections 9-406 through 9-409 or any other
Applicable Law), or (B) so as to limit, impair or otherwise affect Lender's unconditional continuing security interest in and Lien upon any
rights or interests of such Obligor in or to moneys due or to become due under any such contract, license, right or other agreement
(including any Accounts) and (ii) notwithstanding the foregoing, Lender's security interest in any such contract, license, right or other
agreement shall attach immediately (and thus become Collateral hereunder) at such time as the condition causing such prohibition or
default is remedied or removed, and
(b) any intent-to-use trademark application to the extent that, and solely during the period in which, the grant of a security interest
therein to Lender would impair the validity or enforceability of such intent-to-use trademark application or the trademark that is the subject
of such application under federal law;
provided that "Excluded Assets" shall not include any right to receive proceeds from the sale or other disposition of any Excluded
Asset or any proceeds, products, substitutions or replacements of Excluded Assets.
Excluded Swap Obligation: with respect to an Obligor, each Swap Obligation as to which, and only to the extent that, such
Obligor's guaranty of or grant of a Lien as security for such Swap Obligation is or becomes illegal under the Commodity Exchange Act
because the Obligor does not constitute an "eligible contract participant" as defined in the act (determined after giving effect to any
keepwell, support or other agreement for the benefit of such Obligor and all guarantees of Swap Obligations by other Obligors) when such
guaranty or grant of Lien becomes effective with respect to the Swap Obligation. If a Hedging Agreement governs more than one Swap
Obligation, only the Swap Obligation(s) or portions thereof described in the foregoing sentence shall be Excluded Swap Obligation(s) for
the applicable Obligor.
Excluded Taxes: (a) Taxes imposed on or measured by a Recipient's net income (however denominated), franchise Taxes and
branch profits Taxes (i) as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of
Lender, its lending office located in, the jurisdiction imposing such Tax, or (ii) constituting Other Connection Taxes; and (b) U.S. federal
withholding Taxes imposed pursuant to FATCA.
Extraordinary Expenses: all costs, expenses or advances that Lender may incur during a Default or Event of Default, or during the
pendency of an Insolvency Proceeding of an Obligor, including those relating to (a) any audit, inspection, repossession, storage, repair,
appraisal, insurance, manufacture, preparation or advertising for sale, sale, collection, or other preservation of or realization upon any
Collateral; (b) any action, arbitration or other proceeding (whether instituted by or against Lender, any Obligor, any representative of
creditors of an Obligor or any other Person) in any way relating to any Collateral (including the validity, perfection, priority or avoidability
of Lender's Liens with respect to any Collateral), Loan Documents, or Obligations, including any lender liability or other Claims; (c) the
exercise of any rights or remedies of Lender in, or the monitoring of, any Insolvency Proceeding; (d) settlement or satisfaction of taxes,
charges or Liens with respect to any Collateral; (e) any Enforcement Action; and (f) negotiation and documentation of any modification,
waiver, workout, restructuring or forbearance with respect to any Loan Documents or Obligations. Such costs, expenses and advances
include transfer fees, Other Taxes, storage fees, insurance costs, permit fees, utility reservation and standby fees, legal fees, appraisal fees,
brokers' and auctioneers' fees and commissions, accountants' fees, environmental study fees, wages and salaries paid to employees of any
Obligor or independent contractors in liquidating any Collateral, and travel expenses.
6
Factor: The CIT Group/Commercial Services, Inc., Branch Banking and Trust Company or any other factor reasonably acceptable
to, and agreed to in writing by, Lender, and "Factors" means all of such entities collectively.
Factored Account: shall mean an account of a Borrower which is factored by a Factor under a Factoring Agreement.
Factoring Agreement: a factoring agreement by and between a Factor and a Borrower, in form and substance reasonably acceptable
to Lender, with respect to the factoring of Accounts arising from sales by such Borrower to Account Debtors located in the United States of
America, and "Factoring Agreements" means all such agreements collectively.
Factor Intercreditor Agreement: as defined in the Senior Loan Agreement.
FATCA: Sections 1471 through 1474 of the Code (including any amended or successor version if substantively comparable and
not materially more onerous to comply with), and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
Fiscal Quarter: each period of three months, commencing on the first day of a Fiscal Year.
Fiscal Year: the fiscal year of Borrowers and Subsidiaries for accounting and tax purposes, ending on September 30 of each year.
Fixed Charge Coverage Ratio: the ratio, determined on a consolidated basis for Borrowers and Subsidiaries for the most recent 12
months, of (a) EBITDA minus Capital Expenditures (except those financed with Borrowed Money other than Revolver Loans), to (b) Fixed
Charges. For purposes of this Agreement, Fixed Charge Coverage Ratio and its components for the 12 months prior to the Closing Date is
as shown on Exhibit A.
Fixed Charges: the sum of interest expense (other than payment-in-kind) and principal payments made on Borrowed Money,
income taxes paid in cash and Distributions made (excluding Upstream Payments).
FLSA: the Fair Labor Standards Act of 1938.
Foreign Plan: any employee benefit plan or arrangement (a) maintained or contributed to by any Obligor or Subsidiary that is not
subject to the laws of the United States; or (b) mandated by a government other than the United States for employees of any Obligor or
Subsidiary.
Foreign Subsidiary: a Subsidiary that is a "controlled foreign corporation" under Section 957 of the Code, such that a guaranty by
such Subsidiary of the Obligations or a Lien on the assets of such Subsidiary to secure the Obligations would result in material tax liability
to Borrowers.
7
Full Payment: with respect to any Obligations, (a) the full and indefeasible cash payment thereof, including any interest, fees and
other charges accruing during an Insolvency Proceeding (whether or not allowed in the proceeding); (b) if such Obligations are inchoate or
contingent in nature, Cash Collateralization thereof (or delivery of a standby letter of credit acceptable to Lender in its discretion, in the
amount of required Cash Collateral); and (c) a release of any Claims of Obligors against Lender arising on or before the payment date.
GAAP: generally accepted accounting principles in effect in the United States from time to time.
Governmental Approvals : all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and
required reports to, all Governmental Authorities.
Governmental Authority : any federal, state, county, municipal, foreign or other governmental agency, authority, body,
commission, court, instrumentality, political subdivision, central bank, or other entity or officer exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions for any governmental, judicial, investigative, regulatory or self-regulatory authority
(including any supra-national bodies such as the European Union or European Central Bank).
Guarantor Payment: as defined in Section 5.7.3.
Guarantors: each Person that guarantees payment or performance of Obligations.
Guaranty: each guaranty agreement executed by a Guarantor in favor of Lender.
Hedging Agreement: any "swap agreement" as defined in Section 101(53B)(A) of the Bankruptcy Code.
Indemnified Taxes: (a) Taxes, other than Excluded Taxes, imposed on or relating to any payment of an Obligation; and (b) to the
extent not otherwise described in clause (a), Other Taxes.
Indemnitees: Lender and its managers, members, officers, directors, employees, Affiliates, agents and attorneys.
Initial Advance: as defined in Section 2.1.
Insolvency Proceeding: any case or proceeding commenced by or against a Person under any state, federal or foreign law for, or
any agreement of such Person to, (a) the entry of an order for relief under the Bankruptcy Code, or any other applicable insolvency, debtor
relief or debt adjustment law; (b) the appointment of a receiver, trustee, liquidator, administrator, conservator or other custodian for such
Person or any part of its Property; or (c) an assignment or trust mortgage for the benefit of creditors.
Intellectual Property: all intellectual and similar Property of a Person, including inventions, designs, patents, copyrights,
trademarks, service marks, trade names, trade secrets, confidential or proprietary information, customer lists, know-how, software and
databases; all embodiments or fixations thereof and all related documentation, applications, registrations and franchises; all licenses or
other rights to use any of the foregoing; and all books and records relating to the foregoing.
Intellectual Property Claim: any claim or assertion (whether in writing, by suit or otherwise) that a Borrower's or Subsidiary's
ownership, use, marketing, sale or distribution of any Inventory, Equipment, Intellectual Property or other Property violates another
Person's Intellectual Property.
8
Inventory: as defined in the UCC, including all goods intended for sale, lease, display or demonstration; all work in process; and
all raw materials, and other materials and supplies of any kind that are or could be used in connection with the manufacture, printing,
packing, shipping, advertising, sale, lease or furnishing of such goods, or otherwise used or consumed in a Borrower's business (but
excluding Equipment).
Investment: an Acquisition, an acquisition of record or beneficial ownership of any Equity Interests of a Person, or an advance or
capital contribution to or other investment in a Person; provided, that, Capital Expenditures shall not in and of themselves constitute
"Investments".
IRS: the United States Internal Revenue Service.
License: any license or agreement under which an Obligor is authorized to use Intellectual Property (other than off-the-shelf
software) in connection with any manufacture, marketing, distribution or disposition of Collateral, any use of Property or any other conduct
of its business.
Licensor: any Person from whom an Obligor obtains the right to use any Intellectual Property.
Lien: a Person's interest in Property securing an obligation owed to, or a claim by, such Person, including any lien, security
interest, pledge, hypothecation, assignment, trust, reservation, encroachment, easement, right-of-way, covenant, condition, restriction, lease,
or other title exception or encumbrance.
Lien Waiver: an agreement, in form and substance reasonably satisfactory to Lender, by which (a) for any material Collateral
located on leased premises, the lessor waives or subordinates any Lien it may have on the Collateral, and agrees to permit Lender to enter
upon the premises and remove the Collateral or to use the premises to store or dispose of the Collateral; (b) for any Collateral held by a
warehouseman, processor, shipper, customs broker or freight forwarder, such Person waives or subordinates any Lien it may have on the
Collateral, agrees to hold any Documents in its possession relating to the Collateral as agent for Lender, and agrees to deliver the Collateral
to Lender upon request; (c) for any Collateral held by a repairman, mechanic or bailee, such Person acknowledges Lender's Lien, waives or
subordinates any Lien it may have on the Collateral, and agrees to deliver the Collateral to Lender upon request; and (d) for any Collateral
subject to a Licensor's Intellectual Property rights, the Licensor grants to Lender the right, vis-à-vis such Licensor, to enforce Lender's
Liens with respect to the Collateral, including the right to dispose of it with the benefit of the Intellectual Property, whether or not a default
exists under any applicable License.
Live: LiveDeal, Inc., a Nevada corporation.
Live Restructuring Transaction: a transaction anticipated to be consummated after the Closing Date pursuant to which Live
becomes a wholly-owned subsidiary of Live Ventures, Live ceases to be publicly traded and Live Ventures becomes publicly traded.
Loan: a term loan in the original principal amount of up to $7,000,000.
Loan Documents: this Agreement, the Note, Other Agreements and Security Documents.
Loan Year: each 12 month period commencing on the Closing Date and on each anniversary of the Closing Date.
Margin Stock: as defined in Regulation U of the Board of Governors.
Marquis Acquisition: shall have the meaning ascribed to it in the recitals hereto.
Marquis SPA: shall have the meaning ascribed to it in the recitals hereto.
9
Marquis SPA Documents: shall have the meaning ascribed to it in the recitals hereto.
Material Adverse Effect : the effect of any event or circumstance that, taken alone or in conjunction with other events or
circumstances, (a) has or could be reasonably expected to have a material adverse effect on the business, operations, Properties or condition
(financial or otherwise) of Obligors, taken as a whole, on the value of any material Collateral, on the enforceability of any Loan
Documents, or on the validity or priority of Lender's Liens on any Collateral; (b) impairs the ability of an Obligor to perform its obligations
under the Loan Documents, including repayment of any Obligations; or (c) otherwise impairs the ability of Lender to enforce or collect any
Obligations or to realize upon any material Collateral.
Material Contract: any agreement or arrangement to which a Borrower or Subsidiary is party (other than the Loan Documents) (a)
that is deemed to be a material contract under any securities law applicable to such Person, including the Securities Act of 1933; (b) for
which breach, termination, nonperformance or failure to renew could reasonably be expected to have a Material Adverse Effect; or (c) that
relates to Senior Debt, or to Debt in an aggregate amount of $1,250,000 or more.
Maturity Date: January 6, 2021.
Moody's: Moody's Investors Service, Inc., and its successors.
Mortgage: a mortgage or deed of trust in which an Obligor grants a Lien on its Real Estate to Lender, as security for its
Obligations.
Multiemployer Plan: any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Obligor or
ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make
contributions.
Net Proceeds: with respect to an Asset Disposition, proceeds (including, when received, any deferred or escrowed payments)
received by a Borrower or Subsidiary in cash from such disposition, net of bona fide direct costs incurred in connection therewith, including
(a) reasonable and customary costs and expenses actually incurred in connection therewith, including legal fees and sales commissions and
fees of accountants, investment bankers and consultants; (b) amounts applied to repayment of Debt (including Senior Debt) secured by a
Permitted Lien senior to Lender's Liens on Collateral sold; (c) transfer or similar taxes; and (d) reserves for indemnities, until such reserves
are no longer needed.
Note: as defined in Section 2.1.
Obligations: all (a) principal of the Loan, (b) interest, expenses, fees, indemnification obligations, Extraordinary Expenses and
other amounts payable by Obligors under Loan Documents, and (c) other Debts, obligations and liabilities of any kind owing by any
Obligor to Lender, whether now existing or hereafter arising, whether evidenced by a note or other writing, whether allowed in any
Insolvency Proceeding, whether arising from an extension of credit, issuance of a letter of credit, acceptance, loan, guaranty,
indemnification or otherwise, and whether direct or indirect, absolute or contingent, due or to become due, primary or secondary, or joint or
several; provided, that Obligations of an Obligor shall not include its Excluded Swap Obligations.
Obligor: each Borrower, Guarantor, or other Person that is liable for payment of any Obligations or that has granted a Lien in favor
of Lender on its assets to secure any Obligations.
OFAC: Office of Foreign Assets Control of the U.S. Treasury Department.
Ordinary Course of Business: the ordinary course of business of any Borrower or Subsidiary, undertaken in good faith and
consistent with Applicable Law and past practices.
10
Organic Documents: with respect to any Person, its charter, certificate or articles of incorporation, bylaws, articles of organization,
limited liability agreement, operating agreement, members agreement, shareholders agreement, partnership agreement, certificate of
partnership, certificate of formation, voting trust agreement, or similar agreement or instrument governing the formation or operation of
such Person.
OSHA: the Occupational Safety and Hazard Act of 1970.
Other Agreement: the Debt and Lien Subordination Agreement and each Lien Waiver, Real Estate Related Document, Compliance
Certificate, financial statement or report delivered hereunder, or any other document, instrument or agreement (other than this Agreement
or a Security Document) now or hereafter delivered by an Obligor or other Person to Lender in connection with any transactions relating
hereto.
Other Connection Taxes: Taxes imposed on a Recipient due to a present or former connection between it and the taxing
jurisdiction (other than connections arising from the Recipient having executed, delivered, become party to, performed obligations or
received payments under, received or perfected a Lien or engaged in any other transaction pursuant to, enforced, or sold or assigned an
interest in, any Loan or Loan Document).
Other Taxes: all present or future stamp, court, documentary, intangible, recording, filing or similar Taxes that arise from any
payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a Lien
under, or otherwise with respect to, any Loan Document, except Other Connection Taxes imposed with respect to an assignment.
Patriot Act: the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Act of 2001, Pub. L. No. 107-56, 115 Stat. 272 (2001).
Payment Item: each check, draft or other item of payment payable to a Borrower, including those constituting proceeds of any
Collateral.
PBGC: the Pension Benefit Guaranty Corporation.
Pension Plan: any employee pension benefit plan (as defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by any Obligor or ERISA Affiliate or to which the Obligor or ERISA Affiliate
contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA,
has made contributions at any time during the preceding five plan years.
Permitted Acquisition : any Acquisition as long as (a) no Default or Event of Default exists or is caused thereby; (b) the
Acquisition is consensual; (c) the assets, business or Person being acquired is useful or engaged in the business of Borrowers and
Subsidiaries, is located or organized within the United States, and had positive unadjusted EBITDA for the 12 month period most recently
ended; (d) no Debt or Liens are incurred, assumed or result from the Acquisition, except Debt permitted under Section 10.2.1(g) or (i); (e)
Lender has received the financial statements required under Section 10.1.2(a)(ii); (f) the total consideration (including deferred payment
obligations and Debt assumed or incurred), when aggregated with the total consideration for all other Acquisitions made during the
preceding 12 months, is less than $6,250,000; (g) Availability on each day during the 90 day period immediately preceding such
Acquisition calculated on a pro forma basis assuming such Acquisition occurred on the first day of such period shall be greater than or
equal to $3,200,000; (h) Availability, on the date of such Acquisition, immediately after giving pro forma effect to the consummation of
such Acquisition shall be greater than or equal to $3,200,000; (i) Lender has received evidence that after giving effect to the consummation
of such Acquisition, Borrowers shall maintain a Fixed Charge Coverage Ratio of at least 1.0 to 1.0 on a pro forma basis, measured as of the
most recently ended month for which Obligors have delivered the financial statements required under Section 10.1.2(a) or (b), as the case
may be, for the twelve month period then ended; (j) at the time of any such proposed Acquisition, the outstanding balance of the Term
Loan is less than or equal to $5,625,000; and (k) Borrowers deliver to Lender, at least 10 Business Days prior to the Acquisition, copies of
all material agreements relating thereto and a certificate, in form and substance satisfactory to Lender, stating that the Acquisition is a
"Permitted Acquisition" and demonstrating compliance with the foregoing requirements.
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Permitted Asset Disposition: as long as no Default or Event of Default exists and all Net Proceeds are remitted to Lender, an Asset
Disposition that is (a) a sale of Inventory in the Ordinary Course of Business; (b) a disposition of Equipment that, in the aggregate during
any 12 month period, has a fair market or book value (whichever is more) of $625,000 or less; (c) a disposition of Inventory that is
obsolete, unmerchantable or otherwise unsalable or replaced in the Ordinary Course of Business; (d) termination of a lease of real or
personal Property that is not necessary for the Ordinary Course of Business, where such termination could not reasonably be expected to
have a Material Adverse Effect and does not result from an Obligor's default; (e) sales of Factored Accounts to a Factor pursuant to a
Factoring Agreement; (f) a discount or other compromise for less than face value of notes or Accounts in the Ordinary Course of Business;
(g) a sale or disposition to a Borrower to the extent permitted herein; (h) transfers of Property subject to condemnation or casualty events;
(i) as long as no Default or Event of Default is continuing or would result therefrom, any other disposition of Property other than Accounts
or Inventory for fair market value so long as (i) at least 60% of the consideration received for such sale shall be cash and (ii) the Value of
the Property so disposed shall not exceed $1,250,000 per Fiscal Year; or (j) approved in writing by Lender.
Permitted Contingent Obligations: Contingent Obligations (a) arising from endorsements of Payment Items for collection or
deposit in the Ordinary Course of Business; (b) arising from Hedging Agreements permitted hereunder; (c) existing on the Closing Date,
and any extension or renewal thereof that does not increase the amount of such Contingent Obligation when extended or renewed; (d)
incurred in the Ordinary Course of Business with respect to workers' compensation claims, self-insurance obligations, surety, appeal or
performance bonds, or other similar obligations; (e) arising from customary indemnification obligations in favor of purchasers in
connection with dispositions of Equipment permitted hereunder; (f) arising under the Loan Documents; or (g) in an aggregate amount of
$625,000 or less at any time.
Permitted Lien: as defined in Section 10.2.2.
Permitted Non-Tax Distributions : Distributions by Holdings to holders of its Equity Interests so long as the following conditions
are satisfied: (a) no Default or Event of Default has occurred or would result from such Distribution, (b) Lender has received the financial
statements required under Section 10.1.2(a)(ii), (c) Lender has received evidence that after giving effect to the consummation of such
Distribution, Borrowers shall maintain a Fixed Charge Coverage Ratio of at least 1.0 to 1.0 on a pro forma basis, measured as of the most
recently ended month for which Obligors have delivered the financial statements required under Section 10.1.2(a) or (b), as the case may
be, for the twelve month period then ended, (d) Availability on each day during the 90 day period immediately preceding such Distribution
calculated on a pro forma basis assuming such Distribution occurred on the first day of such period shall be greater than or equal to
$3,200,000, (e) Availability, on the date of such Distribution, immediately after giving pro forma effect to the consummation of such
Distribution shall be greater than or equal to $3,200,000 and (f) at the time of any such proposed Distribution, the outstanding balance of
the Loan is less than or equal to $5,625,000.
Permitted Purchase Money Debt: Purchase Money Debt of Borrowers and Subsidiaries that is unsecured or secured only by a
Purchase Money Lien, as long as the aggregate amount does not exceed $6,250,000 at any time.
Permitted Tax Distributions: for so long as Holdings is taxed as a partnership for federal income tax purposes in accordance with
the Code, a cash Distribution by Holdings to holders of its Equity Interests no more frequently than once each Fiscal Quarter (each a "Tax
Distribution") based upon the consolidated taxable income of Borrowers under Section 703(c) of the Code in an amount that is not in excess
of the amount necessary to pay federal, state and local income taxes (including quarterly estimated tax payments) solely attributable to the
holders’ distributive shares of the consolidated taxable income of Borrowers determined assuming each holder is subject to taxation at a
rate that is equal to the highest federal, state and local income tax rate payable by any holder of Equity Interests in Borrowers for the
applicable tax year. If any Tax Distribution is made as set forth in Section 10.2.4, Borrowers shall deliver to Lender, as soon as practicable
following the last day of the taxable year of Borrowers for which any such Tax Distribution is made, a true and correct copy of each
Schedule K-1 delivered by Borrowers to the holders of its Equity Interests for such taxable year.
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Person: any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated
organization, Governmental Authority or other entity.
Plan: any employee benefit plan (as such term is defined in Section 3(3) of ERISA) established by an Obligor or, with respect to
any such plan that is subject to Section 412 of the Code or Title IV of ERISA, an ERISA Affiliate.
Properly Contested: with respect to any obligation of an Obligor, (a) the obligation is subject to a bona fide dispute regarding
amount or the Obligor's liability to pay; (b) the obligation is being properly contested in good faith by appropriate proceedings promptly
instituted and diligently pursued; (c) appropriate reserves have been established in accordance with GAAP; (d) non-payment could not have
a Material Adverse Effect, nor result in forfeiture or sale of any assets of the Obligor; (e) no Lien is imposed on assets of the Obligor,
unless bonded and stayed to the satisfaction of Lender; and (f) if the obligation results from entry of a judgment or other order, such
judgment or order is stayed pending appeal or other judicial review.
Property: any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.
Purchase Money Debt: (a) Debt (other than the Obligations) for payment of any of the purchase price of fixed assets (including
equipment and vehicles); (b) Debt (other than the Obligations) incurred within 10 days before or after acquisition of any fixed assets
(including equipment and vehicles), for the purpose of financing any of the purchase price thereof; and (c) any renewals, extensions or
refinancings (but not increases) thereof.
Purchase Money Lien: a Lien that secures Purchase Money Debt, encumbering only the fixed assets acquired with such Debt and
constituting a Capital Lease or a purchase money security interest under the UCC.
Qualified ECP: an Obligor with total assets exceeding $10,000,000, or that constitutes an "eligible contract participant" under the
Commodity Exchange Act and can cause another Person to qualify as an "eligible contract participant" under Section 1a(18)(A)(v)(II) of
such act.
RCRA: the Resource Conservation and Recovery Act (42 U.S.C. §§ 6991-6991i).
Real Estate: all right, title and interest (whether as owner, lessor or lessee) in any real Property or any buildings, structures,
parking areas or other improvements thereon.
Recipient: Lender or any other recipient of a payment to be made by an Obligor under a Loan Document or on account of an
Obligation.
Refinancing Conditions: the following conditions for Refinancing Debt: (a) it is in an aggregate principal amount that does not
exceed the principal amount of the Debt being extended, renewed or refinanced; (b) it has a final maturity no sooner than, and a weighted
average life no less than the Debt being extended, renewed or refinanced and an interest rate at a rate that does not exceed a rate that is
4.00% higher than the interest rate of the Debt being extended, renewed or refinanced; (c) if such Refinancing Debt is in relation to
Subordinated Debt, (i) such Refinancing Debt satisfies all of the requirements under this Agreement to constitute Subordinated Debt, (ii)
the subordination agreement with respect thereto is not materially less favorable to Lender than the subordination agreement with respect to
the Subordinated Debt being extended, renewed or refinanced, and (iii) it is subordinated to the Obligations at least to the same extent as
the Debt being extended, renewed or refinanced; (d) the representations, covenants and defaults applicable to it taken as a whole are not
materially less favorable to Borrowers than those applicable to the Debt being extended, renewed or refinanced; (e) no additional Lien is
granted to secure it; (f) no additional Person is obligated on such Debt; and (g) upon giving effect to it, no Default or Event of Default
exists.
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Refinancing Debt: Borrowed Money that is the result of an extension, renewal or refinancing of Debt permitted under Section
10.2.1(b), (c) or (e).
Related Real Estate Documents: with respect to any Real Estate subject to a Mortgage, the following, in form and substance
reasonably satisfactory to Lender and received by Lender for review at least 5 days prior to the effective date of the Mortgage: (a) a
mortgagee title policy (or binder therefor) covering Lender's interest under the Mortgage and all endorsements thereto and affirmative
coverages thereunder required by Lender, by an insurer reasonably acceptable to Lender, which must be fully paid on such effective date;
(b) such assignments of leases, estoppel letters, attornment agreements, consents, waivers and releases as Lender may require with respect
to other Persons having an interest in the Real Estate; (c) a current, as-built survey of the Real Estate, containing a metes-and-bounds
property description and certified by a licensed surveyor acceptable to Lender or, if acceptable to title insurer to remove the general survey
exception from and to provide the endorsements to and affirmative coverages under the mortgagee title policy described in clause (a)
above, a non-current, as-built survey of the Real Estate and a "no change affidavit" from the applicable Borrower; (d) a life-of-loan flood
hazard determination and, if the Real Estate is located in a special flood hazard area, an acknowledged notice to borrower and flood
insurance by an insurer reasonably acceptable to Lender; (e) a current appraisal of the Real Estate, prepared by an appraiser, and in form and
substance reasonably satisfactory to Lender; (f) an environmental assessment, prepared by environmental engineers acceptable to Lender,
and such other reports, certificates, studies or data as Lender may reasonably require; and (g) an Environmental Agreement and such other
documents, instruments or agreements as Lender may reasonably require with respect to any environmental risks regarding the Real Estate.
Reportable Event: any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period
has been waived.
Restricted Investment: any Investment by a Borrower or Subsidiary, other than (a) Investments in Subsidiaries to the extent
existing on the Closing Date; (b) Cash Equivalents that are subject to Lender's Lien and control, pursuant to documentation in form and
substance reasonably satisfactory to Lender; (c) loans and advances permitted under Section 10.2.7; (d) Permitted Acquisitions; and (e) any
Investment (other than a loan or advance, which is addressed in clause (c) of this definition) so long as (i) no Default or Event of Default
has occurred or would result from such Investment, (b) Lender has received the financial statements required under Section 10.1.2(a)(ii),
(c) Lender has received evidence that after giving effect to the consummation of such Investment, Borrowers shall maintain a Fixed Charge
Coverage Ratio of at least 1.0 to 1.0 on a pro forma basis, measured as of the most recently ended month for which Obligors have delivered
the financial statements required under Section 10.1.2(a) or (b), as the case may be, for the twelve month period then ended, (d)
Availability on each day during the 90 day period immediately preceding such Investment calculated on a pro forma basis assuming such
Investment occurred on the first day of such period shall be greater than or equal to $3,200,000, (e) Availability, on the date of such
Investment, immediately after giving pro forma effect to the consummation of such Investment shall be greater than or equal to $3,200,000
and (f) at the time of any such proposed Investment, the outstanding balance of the Loan is less than or equal to $5,625,000.
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Restrictive Agreement: an agreement (other than a Loan Document, a Senior Debt Document or a document relating to
Subordinated Debt) that conditions or restricts the right of any Borrower, Subsidiary or other Obligor to incur or repay Borrowed Money, to
grant Liens on any assets, to declare or make Distributions, to modify, extend or renew any agreement evidencing Borrowed Money, or to
repay any intercompany Debt.
Revolver Loans: as defined in the Senior Loan Agreement.
Royalties: all royalties, fees, expense reimbursement and other amounts payable by a Borrower under a License.
S&P: Standard & Poor's Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc., and any successor thereto.
Sanction: any international economic sanction administered or enforced by the United States Government (including OFAC), the
United Nations Security Council, the European Union, Her Majesty’s Treasury or other relevant sanctions authority.
Security Documents: the Equity Interest Pledge Agreement, Guaranties, Mortgages, Trademark Security Agreement, Copyright
Security Agreement and all other documents, instruments and agreements now or hereafter securing (or given with the intent to secure) any
Obligations.
Senior Debt: as defined in the Debt and Lien Subordination Agreement.
Senior Debt Documents: shall have the meaning ascribed to it in the recitals hereto.
Senior Lender: Bank of America, N.A., a national banking association.
Senior Loan Agreement: that certain Loan and Security Agreement dated as of the date hereof by and among Senior Lender and
Borrowers.
Senior Officer: the chairman of the board, president, chief executive officer or chief financial officer of a Borrower or, if the
context requires, an Obligor.
Solvent: as to any Person, such Person (a) owns Property whose fair salable value (as defined below) is greater than the amount
required to pay all of its debts (including contingent, subordinated, unmatured and unliquidated liabilities); (b) owns Property whose present
fair salable value is greater than the probable total liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of
such Person as they become absolute and matured; (c) is able to pay all of its debts as they mature; (d) has capital that is not unreasonably
small for its business and is sufficient to carry on its business and transactions and all business and transactions in which it is about to
engage; (e) is not "insolvent" within the meaning of Section 101(32) of the Bankruptcy Code; and (f) has not incurred (by way of
assumption or otherwise) any obligations or liabilities (contingent or otherwise) under any Loan Documents, or made any conveyance in
connection therewith, with actual intent to hinder, delay or defraud either present or future creditors of such Person or any of its Affiliates.
"Fair salable value" means the amount that could be obtained for assets within a reasonable time, either through collection or through sale
under ordinary selling conditions by a capable and diligent seller to an interested buyer who is willing (but under no compulsion) to
purchase.
Specified Obligor: an Obligor that is not then an "eligible contract participant" under the Commodity Exchange Act (determined
prior to giving effect to Section 5.7.3).
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Subordinated Debt: Debt incurred by a Borrower that is expressly subordinate and junior in right of payment to Full Payment of all
Obligations, and is on terms (including maturity, interest, fees, repayment, covenants and subordination) reasonably satisfactory to Lender.
Subsequent Advance: as defined in Section 2.1.
Subsidiary: any entity at least 50% of whose voting securities or Equity Interests is owned by a Borrower or combination of
Borrowers (including indirect ownership through other entities in which a Borrower directly or indirectly owns 50% of the voting securities
or Equity Interests).
Swap Obligations: with respect to an Obligor, its obligations under a Hedging Agreement that constitutes a "swap" within the
meaning of Section 1a(47) of the Commodity Exchange Act.
Taxes: all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by
any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Term Loan: as defined in the Senior Loan Agreement.
Trademark Security Agreement: that certain Trademark Security Agreement dated as of the Closing Date by and between Marquis
and Lender.
Transactions: collectively, the transactions contemplated in connection with the consummation of the Loan made under this
Agreement on the Closing Date, the consummation of the transactions contemplated by the Senior Debt Documents and the Equity
Contribution and the consummation of the Marquis Acquisition.
UCC: the Uniform Commercial Code as in effect in the State of Georgia or, when the laws of any other jurisdiction govern the
perfection or enforcement of any Lien, the Uniform Commercial Code of such jurisdiction.
Unfunded Pension Liability: the excess of a Pension Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current
value of that Pension Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to the Code,
ERISA or the Pension Protection Act of 2006 for the applicable plan year.
Upstream Payment: a Distribution by a Subsidiary of a Borrower to such Borrower.
Value: (a) for Inventory, its value determined on the basis of the lower of cost or market, calculated on a first-in, first-out basis,
and excluding any portion of cost attributable to intercompany profit among Borrowers and their Affiliates; and (b) for an Account, its face
amount, net of any returns, rebates, discounts (calculated on the shortest terms), credits, allowances or Taxes (including sales, excise or
other taxes) that have been or could be claimed by the Account Debtor or any other Person.
1.2. Accounting Terms. Under the Loan Documents (except as otherwise specified therein), all accounting terms
shall be interpreted, all accounting determinations shall be made, and all financial statements shall be prepared, in accordance with GAAP
applied on a basis consistent with the most recent audited financial statements of Borrowers delivered to Lender before the Closing Date
and using the same inventory valuation method as used in such financial statements, except for any change required or permitted by GAAP
if Borrowers' certified public accountants concur in such change, the change is disclosed to Lender, and all relevant provisions of the Loan
Documents are amended in a manner satisfactory to Lender to take into account the effects of the change.
1.3. Uniform Commercial Code. As used herein, the following terms are defined in accordance with the UCC in
effect in the State of Georgia from time to time: "Chattel Paper," "Commercial Tort Claim," "Deposit Account," "Document," "Equipment,"
"General Intangibles," "Goods," "Instrument," "Investment Property," "Letter-of-Credit Right" and "Supporting Obligation."
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1.4. Certain Matters of Construction. The terms "herein," "hereof," "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to
cover all genders. In the computation of periods of time from a specified date to a later specified date, "from" means "from and including,"
and "to" and "until" each mean "to but excluding." The terms "including" and "include" shall mean "including, without limitation" and, for
purposes of each Loan Document, the parties agree that the rule of ejusdem generis shall not be applicable to limit any provision. Section
titles appear as a matter of convenience only and shall not affect the interpretation of any Loan Document. All references to (a) laws include
all related regulations, interpretations, supplements, amendments and successor provisions; (b) any document, instrument or agreement
include any amendments, waivers and other modifications, extensions or renewals (to the extent permitted by the Loan Documents); (c) any
section mean, unless the context otherwise requires, a section of this Agreement; (d) any exhibits or schedules mean, unless the context
otherwise requires, exhibits and schedules attached hereto, which are hereby incorporated by reference; (e) any Person include successors
and assigns; (f) time of day mean time of day at Lender's notice address under Section 12.3.1; or (g) except where otherwise qualified
herein, discretion of Lender mean its sole and absolute discretion. All references to Value, Loan, Obligations and other amounts herein shall
be denominated in Dollars, unless expressly provided otherwise, and all determinations (including calculations of financial covenants) made
from time to time under the Loan Documents shall be made in light of the circumstances existing at such time. Borrowers shall have the
burden of establishing any alleged negligence, misconduct or lack of good faith by Lender under any Loan Documents. No provision of any
Loan Documents shall be construed against any party by reason of such party having, or being deemed to have, drafted the provision.
Reference to a Borrower's "knowledge" or similar concept means actual knowledge of a Senior Officer, or knowledge that a Senior Officer
would have obtained if he or she had engaged in good faith and diligent performance of his or her duties, including reasonably specific
inquiries of employees or agents and a good faith attempt to ascertain the matter.
SECTION 2. LOAN
2.1.
Loan. Subject to the terms and conditions contained herein, Lender shall make an initial advance of
$6,185,162 of the Loan (the "Initial Advance ") to Borrowers by wire transfer in immediately available funds on the Closing Date.
Subsequent advances of the Loan in an aggregate amount of up to $814,838 shall be available to Borrowers after the date hereof
("Subsequent Advances") on the terms and conditions contained in Section 6.2. The Loan shall be evidenced by one (1) Secured
Promissory Note in the original principal amount of $7,000,000 dated the Closing Date, executed by Borrowers in favor of Lender (the
"Note"). The Loan (including the Initial Advance and any Subsequent Advances) shall be payable in accordance with the terms of the Note
and this Agreement.
SECTION 3. INTEREST AND REIMBURSEMENT OBLIGATIONS
highest applicable rate then accruing on the outstanding balance of the Loan.
3.1. Interest. The Loan shall bear interest as set forth in the Note. Any other Obligations shall bear interest at the
3.2.
Reimbursement Obligations. Borrowers shall pay all Extraordinary Expenses promptly upon request.
Borrowers shall also reimburse Lender for all reasonable and documented legal, accounting, appraisal, consulting, and other fees, costs and
expenses incurred by it in connection with (a) negotiation and preparation of any Loan Documents, including any amendment or other
modification thereof; (b) administration of and actions relating to any Collateral, Loan Documents and transactions contemplated thereby,
including any actions taken to perfect or maintain priority of Lender's Liens on any Collateral, to maintain any insurance required hereunder
or to verify Collateral; and (c) subject to the limits of Section 10.1.1(b), each inspection, audit or appraisal with respect to any Obligor or
Collateral, whether prepared by Lender's personnel or a third party. All legal, accounting and consulting fees shall be charged to Borrowers
by Lender's professionals at their full hourly rates, regardless of any alternative fee arrangements that Lender or any of its Affiliates may
have with such professionals that otherwise might apply to this or any other transaction. Borrowers acknowledge that counsel may provide
Lender with a benefit (such as a discount, credit or accommodation for other matters) based on counsel's overall relationship with Lender,
including fees paid hereunder. All amounts payable by Borrowers under this Section shall be due on demand.
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3.3. Maximum Interest. Notwithstanding anything to the contrary contained in any Loan Document, the interest
paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by Applicable
Law ("maximum rate"). If Lender shall receive interest in an amount that exceeds the maximum rate, the excess interest shall be applied to
the principal of the Obligations or, if it exceeds such unpaid principal, refunded to Borrowers. In determining whether the interest
contracted for, charged or received by Lender exceeds the maximum rate, Lender may, to the extent permitted by Applicable Law, (a)
characterize any payment that is not principal as an expense, fee or premium rather than interest; (b) exclude voluntary prepayments and the
effects thereof; and (c) amortize, prorate, allocate and spread in equal or unequal parts the total amount of interest throughout the
contemplated term of the Obligations hereunder.
SECTION 4. LOAN ADMINISTRATION
4.1. Borrower Agent . Each Borrower hereby designates Marquis ("Borrower Agent") as its representative and
agent for all purposes under the Loan Documents, including delivery or receipt of communications, delivery of financial information and
reports, payment of Obligations, requests for waivers, amendments or other accommodations, actions under the Loan Documents (including
in respect of compliance with covenants), and all other dealings with Lender. Borrower Agent hereby accepts such appointment. Lender
shall be entitled to rely upon, and shall be fully protected in relying upon, any notice or communication delivered by Borrower Agent on
behalf of any Borrower. Lender may give any notice or communication with a Borrower hereunder to Borrower Agent on behalf of such
Borrower. Lender shall have the right, in its discretion, to deal exclusively with Borrower Agent for all purposes under the Loan
Documents. Each Borrower agrees that any notice, election, communication, delivery, representation, agreement, action or undertaking on
its behalf by Borrower Agent shall be binding upon and enforceable against it.
4.2. One Obligation. The Loan and other Obligations shall constitute one general obligation of Borrowers and are
secured by Lender's Lien on all Collateral; provided, however, that Lender shall be deemed to be a creditor of, and the holder of a separate
claim against, each Borrower to the extent of any Obligations jointly or severally owed by such Borrower.
4.3. Effect of Termination . On the Maturity Date, the Obligations shall be immediately due and payable. Until
Full Payment of the Obligations, all undertakings of Borrowers contained in the Loan Documents shall continue, and Lender shall retain its
Liens in the Collateral and all of its rights and remedies under the Loan Documents. Lender shall not be required to terminate its Liens
unless it receives Cash Collateral or a written agreement, in each case reasonably satisfactory to it, protecting it from dishonor or return of
any Payment Item previously applied to the Obligations. Sections 3.2, 5.4, 5.6, 12.2, this Section, and each indemnity or waiver given by
an Obligor in any Loan Document, shall survive Full Payment of the Obligations.
SECTION 5. PAYMENTS
5.1.
General Payment Provisions. All payments of Obligations shall be made in Dollars, without offset,
counterclaim or defense of any kind, free and clear of (and without deduction for) any Taxes, and in immediately available funds, on the
due date. Borrowers agree that Lender shall have the continuing, exclusive right to apply and reapply payments and proceeds of Collateral
against Obligations, in such manner as Lender deems advisable, subject to the Debt and Lien Subordination Agreement.
5.2. Repayment of Loan.
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such repayment is voluntary or required, no portion of the Loan may be reborrowed.
5.2.1. Payment of Principal. The Loan shall be repaid on the terms set forth in the Note. Once repaid, whether
5.2.2. Mandatory Prepayments. Subject to the Debt and Lien Subordination Agreement:
Loan in an amount equal to the Net Proceeds of such disposition;
(a) Concurrently with any Permitted Asset Disposition of Equipment or Real Estate, Borrowers shall prepay the
Equipment or Real Estate, Borrowers shall prepay the Loan in an amount equal to such proceeds, subject to Section 8.1.2;
(b) Concurrently with the receipt of any proceeds of insurance or condemnation awards paid in respect of any
amount equal to the net proceeds of such issuance; and
(c) Concurrently with any issuance of Equity Interests by a Borrower, Borrowers shall prepay the Loan in an
(d) On the Maturity Date, Borrowers shall prepay the entire Loan (unless sooner repaid hereunder).
5.2.3. Optional Prepayments. Subject to the Debt and Lien Subordination Agreement, Borrowers may, at their
option from time to time, prepay the Loan. Borrowers shall give written notice to Lender of an intended prepayment of the Loan, which
notice shall specify the amount of the prepayment, shall be irrevocable once given, shall be given at least two Business Days in advance of
the prepayment.
accrued thereon, and shall be applied to principal in inverse order of maturity.
5.2.4. Interest; Application of Prepayments . Each prepayment of the Loan shall be accompanied by all interest
5.3. Payment of Other Obligations. Subject to the Debt and Lien Subordination Agreement, Obligations other
than the Loan, including Extraordinary Expenses, shall be paid by Borrowers as provided in the Loan Documents or, if no payment date is
specified, on demand.
5.4. Marshaling; Payments Set Aside . Lender shall have no obligation to marshal any assets in favor of any
Obligor or against any Obligations. If any payment by or on behalf of Borrowers is made to Lender or if Lender exercises a right of setoff,
and any of such payment or setoff is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including
pursuant to any settlement entered into by Lender in its discretion) to be repaid to a trustee, receiver or any other Person, then the Obligation
originally intended to be satisfied, and all Liens, rights and remedies relating thereto, shall be revived and continued in full force and effect
as if such payment or setoff had not occurred.
5.5. Account Stated. Lender shall maintain a loan accounts evidencing the Debt of Borrowers hereunder. Any
failure of Lender to record anything in the loan account, or any error in doing so, shall not limit or otherwise affect the obligation of
Borrowers to pay any amount owing hereunder. Entries made in the loan account shall constitute presumptive evidence of the information
contained therein. If any information contained in the loan account is provided to or inspected by any Person, the information shall be
conclusive and binding on such Person for all purposes absent manifest error, except to the extent such Person notifies Lender in writing
within 30 days after receipt or inspection that specific information is subject to dispute.
5.6. Taxes
5.6.1. Payments Free of Taxes; Obligation to Withhold; Tax Payment.
(a) All payments of Obligations by Obligors shall be made without deduction or withholding for any Taxes, except
as required by Applicable Law. If Applicable Law (as determined by Lender in its discretion) requires the deduction or withholding of any
Tax from any such payment by a Recipient or Obligor, then the Recipient or Obligor shall be entitled to make such deduction or
withholding based on information and documentation provided pursuant to this Section.
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(b) If a Recipient or Obligor is required by the Code to withhold or deduct Taxes, including backup withholding
and withholding taxes, from any payment, then the Recipient shall pay the full amount that it determines is to be withheld or deducted to
the relevant Governmental Authority pursuant to the Code. If a Recipient or Obligor is required by any Applicable Law other than the Code
to withhold or deduct Taxes from any payment, then the Recipient or Obligor, to the extent required by Applicable Law, shall timely pay
the full amount to be withheld or deducted to the relevant Governmental Authority. In each case, to the extent the withholding or deduction
is made on account of Indemnified Taxes, the sum payable by the applicable Obligor shall be increased as necessary so that the Recipient
receives an amount equal to the sum it would have received had no such withholding or deduction been made.
Authority in accordance with Applicable Law or, at Lender's option, timely reimburse Lender for payment thereof.
(c) Without limiting the foregoing, Borrowers shall timely pay all Other Taxes to the relevant Governmental
5.6.2. Tax Indemnification . Borrowers shall indemnify and hold harmless, on a joint and several basis, each
Recipient against any Indemnified Taxes (including those imposed or asserted on or attributable to amounts payable under this Section)
payable or paid by a Recipient or required to be withheld or deducted from a payment to a Recipient, and any penalties, interest and
reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. Borrowers shall make payment within 10 days after demand for any amount or liability
payable under this Section. A certificate delivered to Borrowers by Lender (for itself or on behalf of a Recipient) as to the amount of such
payment or liability, shall be conclusive absent manifest error.
5.6.3. Evidence of Payments. If Lender or an Obligor pays any Taxes pursuant to this Section, then upon request,
Lender or Borrower Agent, as applicable, shall deliver to the other a copy of a receipt issued by the appropriate Governmental Authority
evidencing the payment, a copy of any return required by Applicable Law to report the payment, or other evidence of payment reasonably
satisfactory to the requesting party.
5.6.4. Treatment of Certain Refunds. If Lender determines in its discretion that it or another Recipient has
received a refund of any Taxes that were indemnified by Borrowers or with respect to which a Borrower paid additional amounts pursuant
to this Section, Lender shall pay or shall cause the other Recipient to pay to Borrowers the amount of such refund (but only to the extent of
indemnity payments made, or additional amounts paid, by Borrowers with respect to the Taxes giving rise to the refund), net of all out-of-
pocket expenses (including Taxes) incurred by the Recipient and without interest (other than any interest paid by the relevant
Governmental Authority with respect to such refund). Borrowers shall, upon request by Lender, repay to the Recipient any refund amount
so paid over to Borrowers (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) if the Recipient
is required to repay such refund to the Governmental Authority. Notwithstanding anything herein to the contrary, no Recipient shall be
required to pay any amount to Borrowers if such payment would place the Recipient in a less favorable net after-Tax position than it would
have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and
the indemnification payments or additional amounts with respect to such Tax had never been paid. In no event shall any Recipient be
required to make its tax returns (or any other information relating to its taxes that it deems confidential) available to any Obligor or other
Person.
5.6.5. Status of Lender. If Lender is entitled to an exemption from or reduction of withholding Tax with respect to
payments of Obligations, it shall deliver to Borrowers properly completed and executed documentation reasonably requested by Borrowers
as will permit such payments to be made without or at a reduced rate of withholding. In addition, Lender, if reasonably requested by
Borrowers, shall deliver such other documentation prescribed by Applicable Law as is necessary to enable Borrowers to determine whether
Lender is subject to backup withholding or information reporting requirements. Notwithstanding the foregoing, such documentation shall
not be required if Lender believes delivery of the documentation would subject it to any material unreimbursed cost or expense or would
materially prejudice its legal or commercial position.
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5.6.6. Documentation. Without limiting the foregoing, Lender shall deliver to Borrowers, from time to time upon
reasonable request, executed originals of IRS Form W-9 or W-8BEN, certifying that Lender is exempt from U.S. federal backup
withholding Tax. If payment of any Obligation to Lender would be subject to U.S. federal withholding Tax imposed by FATCA if Lender
were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of
the Code), Lender shall deliver to Borrowers at the time(s) prescribed by law and otherwise as reasonably requested by Borrowers such
documentation prescribed by Applicable Law (including Section 1471(b)(3)(C)(i) of the Code) and such additional documentation
reasonably requested by Borrowers as may be necessary for them to comply with their obligations under FATCA and to determine that
Lender has complied with its obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for
purposes of the preceding sentence, "FATCA" shall include any amendments made to FATCA after the date hereof. If any form or
certification delivered by Lender pursuant to this Section expires or becomes obsolete or inaccurate in any respect, Lender shall update the
form or certification or notify Borrowers in writing of its inability to do so.
obligations hereunder, the Maturity Date, and any repayment, satisfaction, discharge or Full Payment of any Obligations.
5.6.7. Survival. Each party's obligations under this Section 5.6 shall survive any assignment by Lender of rights or
5.7. Nature and Extent of Each Borrower's Liability.
5.7.1. Joint and Several Liability. Each Borrower agrees that it is jointly and severally liable for, and absolutely
and unconditionally guarantees to Lender the prompt payment and performance of, all Obligations, except its Excluded Swap Obligations.
Each Borrower agrees that its guaranty obligations hereunder constitute a continuing guaranty of payment and performance and not of
collection, that such obligations shall not be discharged until Full Payment of the Obligations, and that such obligations are absolute and
unconditional, irrespective of (a) the genuineness, validity, regularity, enforceability, subordination or any future modification of, or
change in, any Obligations or Loan Document, or any other document, instrument or agreement to which any Obligor is or may become a
party or be bound; (b) the absence of any action to enforce this Agreement (including this Section) or any other Loan Document, or any
waiver, consent or indulgence of any kind by Lender with respect thereto; (c) the existence, value or condition of, or failure to perfect a
Lien or to preserve rights against, any security or guaranty for any Obligations or any action, or the absence of any action, by Lender in
respect thereof (including the release of any security or guaranty); (d) the insolvency of any Obligor; (e) any election by Lender in an
Insolvency Proceeding for the application of Section 1111(b)(2) of the Bankruptcy Code; (f) any borrowing or grant of a Lien by any other
Borrower, as debtor-in-possession under Section 364 of the Bankruptcy Code or otherwise; (g) the disallowance of any claims of Lender
against any Obligor for the repayment of any Obligations under Section 502 of the Bankruptcy Code or otherwise; or (h) any other action or
circumstances that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, except Full Payment of the
Obligations.
5.7.2. Waivers.
(a) Each Borrower expressly waives all rights that it may have now or in the future under any statute, at common
law, in equity or otherwise, to compel Lender to marshal assets or to proceed against any Obligor, other Person or security for the payment
or performance of any Obligations before, or as a condition to, proceeding against such Borrower. Each Borrower waives all defenses
available to a surety, guarantor or accommodation co-obligor other than Full Payment of Obligations and waives, to the maximum extent
permitted by law, any right to revoke any guaranty of Obligations as long as it is a Borrower. It is agreed among each Borrower and Lender
that the provisions of this Section 5.7 are of the essence of the transaction contemplated by the Loan Documents and that, but for such
provisions, Lender would decline to make the Loan. Each Borrower acknowledges that its guaranty pursuant to this Section is necessary to
the conduct and promotion of its business, and can be expected to benefit such business.
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(b) Lender may, in its discretion, pursue such rights and remedies as it deems appropriate, including realization
upon Collateral or any Real Estate by judicial foreclosure or nonjudicial sale or enforcement, without affecting any rights and remedies
under this Section 5.7. If, in taking any action in connection with the exercise of any rights or remedies, Lender shall forfeit any other rights
or remedies, including the right to enter a deficiency judgment against any Borrower or other Person, whether because of any Applicable
Laws pertaining to "election of remedies" or otherwise, each Borrower consents to such action and waives any claim based upon it, even if
the action may result in loss of any rights of subrogation that any Borrower might otherwise have had. Any election of remedies that results
in denial or impairment of the right of Lender to seek a deficiency judgment against any Borrower shall not impair any other Borrower's
obligation to pay the full amount of the Obligations. Each Borrower waives all rights and defenses arising out of an election of remedies,
such as nonjudicial foreclosure with respect to any security for Obligations, even though that election of remedies destroys such Borrower's
rights of subrogation against any other Person. Lender may bid Obligations, in whole or part, at any foreclosure, trustee or other sale,
including any private sale, and the amount of such bid need not be paid by Lender but shall be credited against the Obligations. The amount
of the successful bid at any such sale, whether Lender or any other Person is the successful bidder, shall be conclusively deemed to be the
fair market value of the Collateral, and the difference between such bid amount and the remaining balance of the Obligations shall be
conclusively deemed to be the amount of the Obligations guaranteed under this Section 5.7, notwithstanding that any present or future law
or court decision may have the effect of reducing the amount of any deficiency claim to which Lender might otherwise be entitled but for
such bidding at any such sale.
5.7.3. Extent of Liability; Contribution.
(a) Notwithstanding anything herein to the contrary, each Borrower's liability under this Section 5.7 shall not
exceed the greater of (i) all amounts for which such Borrower is primarily liable, as described in clause (c) below, and (ii) such Borrower's
Allocable Amount.
(b) If any Borrower makes a payment under this Section 5.7 of any Obligations (other than amounts for which such
Borrower is primarily liable) (a "Guarantor Payment") that, taking into account all other Guarantor Payments previously or concurrently
made by any other Borrower, exceeds the amount that such Borrower would otherwise have paid if each Borrower had paid the aggregate
Obligations satisfied by such Guarantor Payments in the same proportion that such Borrower's Allocable Amount bore to the total
Allocable Amounts of all Borrowers, then such Borrower shall be entitled to receive contribution and indemnification payments from, and
to be reimbursed by, each other Borrower for the amount of such excess, ratably based on their respective Allocable Amounts in effect
immediately prior to such Guarantor Payment. The "Allocable Amount" for any Borrower shall be the maximum amount that could then be
recovered from such Borrower under this Section 5.7 without rendering such payment voidable under Section 548 of the Bankruptcy Code
or under any applicable state fraudulent transfer or conveyance act, or similar statute or common law.
( c ) Section 5.7.3(a) shall not limit the liability of any Borrower to pay or guarantee the Loan made directly or
indirectly to it (including any portion of the Loan advanced hereunder to any other Person and then re-loaned or otherwise transferred to, or
for the benefit of, such Borrower) and all accrued interest, fees, expenses and other related Obligations with respect thereto, for which such
Borrower shall be primarily liable for all purposes hereunder.
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(d) Each Obligor that is a Qualified ECP when its guaranty of or grant of Lien as security for a Swap Obligation
becomes effective hereby jointly and severally, absolutely, unconditionally and irrevocably undertakes to provide such funds or other
support to each Specified Obligor with respect to such Swap Obligation as may be needed by such Specified Obligor from time to time to
honor all of its obligations under the Loan Documents in respect of such Swap Obligation (but, in each case, only up to the maximum
amount of such liability that can be hereby incurred without rendering such Qualified ECP's obligations and undertakings under this
Section 5.7 voidable under any applicable fraudulent transfer or conveyance act). The obligations and undertakings of each Qualified ECP
under this Section shall remain in full force and effect until Full Payment of all Obligations. Each Obligor intends this Section to constitute,
and this Section shall be deemed to constitute, a guarantee of the obligations of, and a "keepwell, support or other agreement" for the
benefit of, each Obligor for all purposes of the Commodity Exchange Act.
5.7.4. Joint Enterprise. Each Borrower has requested that Lender make the Loan available to Borrowers on a
combined basis, in order to finance Borrowers' business most efficiently and economically. Borrowers' business is a mutual and collective
enterprise, and the successful operation of each Borrower is dependent upon the successful performance of the integrated group. Borrowers
believe that consolidation of the Loan will enhance the borrowing power of each Borrower and ease administration of the Loan, all to their
mutual advantage. Borrowers acknowledge that Lender's willingness to extend credit and to administer the Collateral on a combined basis
hereunder is done solely as an accommodation to Borrowers and at Borrowers' request.
5.7.5. Subordination. Each Borrower hereby subordinates any claims, including any rights at law or in equity to
payment, subrogation, reimbursement, exoneration, contribution, indemnification or set off, that it may have at any time against any other
Obligor, howsoever arising, to the Full Payment of its Obligations.
SECTION 6. CONDITIONS PRECEDENT
the date ("Closing Date") that each of the following conditions has been satisfied:
6.1. Conditions Precedent to the Initial Advance. Lender shall not be required to fund the Initial Advance until
and each Obligor shall be in compliance with all terms thereof.
(a) Each Loan Document shall have been duly executed and delivered to Lender by each of the signatories thereto,
(b) Lender shall have received acknowledgments of all filings or recordations necessary to perfect its Liens in the
Collateral, as well as UCC and Lien searches and other evidence satisfactory to Lender that such Liens are the only Liens upon the
Collateral, except Permitted Liens.
(c) Lender shall have received the Related Real Estate Documents for all Real Estate subject to a Mortgage.
(d) Lender shall have received certificates, in form and substance satisfactory to it, from a knowledgeable Senior
Officer of Borrower Agent certifying that, after giving effect to the Loan and transactions hereunder as well as all of the transactions
contemplated under the Marquis SPA Documents and the Senior Debt Documents, (i) such Borrower is Solvent; (ii) no Default or Event of
Default exists; (iii) the representations and warranties set forth in Section 9 are true and correct; and (iv) such Borrower has complied with
all agreements and conditions to be satisfied by it under the Loan Documents.
(f) Lender shall have received a certificate of a duly authorized officer of each Obligor, certifying (i) that attached
copies of such Obligor's Organic Documents are true and complete, and in full force and effect, without amendment except as shown; (ii)
that an attached copy of resolutions authorizing execution and delivery of the Loan Documents is true and complete, and that such
resolutions are in full force and effect, were duly adopted, have not been amended, modified or revoked, and constitute all resolutions
adopted with respect to this credit facility; and (iii) to the title, name and signature of each Person authorized to sign the Loan Documents.
Lender may conclusively rely on this certificate until it is otherwise notified by the applicable Obligor in writing.
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(g) Lender shall have received copies of the charter documents of each Obligor, certified by the Secretary of State
or other appropriate official of such Obligor's jurisdiction of organization. Lender shall have received good standing certificates for each
Obligor, issued by the Secretary of State or other appropriate official of such Obligor's jurisdiction of organization and each jurisdiction
where such Obligor's conduct of business or ownership of Property necessitates qualification.
Borrowers, all in compliance with the Loan Documents.
(h) Lender shall have received copies of policies or certificates of insurance for the insurance policies carried by
(i) Lender shall have completed its business, financial and legal due diligence of Obligors, in each case with results
satisfactory to Lender. No material adverse change in the financial condition of any Obligor or in the quality, quantity or value of any
Collateral shall have occurred since January 3, 2015.
(j) Borrowers shall have paid all fees and expenses to be paid to Lender on the Closing Date.
parties that are required by the Marquis SPA.
(k) Borrowers shall have obtained consents and approvals from all Governmental Authorities and other third
(l) All conditions precedent to the effectiveness of the Marquis SPA shall have been satisfied (and not waived
unless Lender shall have approved such waiver in its discretion) and the Marquis Acquisition shall have been consummated on terms and
subject to legal documentation acceptable to Lender in its discretion.
(n) Lender shall have received copies of the fully-executed Marquis SPA and the Marquis SPA Documents.
(m) All conditions precedent to the effectiveness of the Equity Contribution Documents shall have been satisfied
(and not waived unless Lender shall have approved such waiver in its discretion) and the Equity Contribution shall have been
consummated on terms and subject to legal documentation acceptable to Lender in its discretion.
subject to legal documentation acceptable to Lender in its discretion.
(o) The transactions contemplated by the Senior Debt Documents shall have been consummated on terms and
Documents.
(p) Lender shall have received copies of the fully-executed Equity Contribution Documents and the Senior Debt
(q) Lender shall have received (i) interim financial statements for Borrowers as of May 30, 2015, (ii) projections of
Borrower's consolidated balance sheets, results of operations, and cash flow for Fiscal Year 2015, month by month and (iii) all other
financial and business information reasonably requested by Lender.
indebtedness.
(r) Lender shall be satisfied with all aspects of Obligors' corporate, capital and ownership structure and
(s) Lender shall have completed all due diligence required for compliance with Applicable Law.
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unless the following conditions are satisfied:
6.2. Conditions Precedent to Subsequent Advance. Lender shall not be required to fund any Subsequent Advance
(a) No Default or Event of Default shall exist at the time of, or result from, such funding;
of, and upon giving effect to, such funding (except for representations and warranties that expressly relate to an earlier date);
(b) The representations and warranties of each Obligor in the Loan Documents shall be true and correct on the date
(c) All conditions precedent in any other Loan Document shall be satisfied; and
(d) No event shall have occurred or circumstance exist that has or could reasonably be expected to have a Material
Adverse Effect.
SECTION 7. COLLATERAL
7.1. Grant of Security Interest. To secure the prompt payment and performance of its Obligations, each Borrower
hereby grants to Lender a continuing security interest in and Lien upon all Property of such Borrower, including all of the following
Property, whether now owned or hereafter acquired, and wherever located:
(a) all Accounts;
(b) all Chattel Paper, including electronic chattel paper;
(c) all Commercial Tort Claims, including those shown on Schedule 9.1.15;
(d) all Deposit Accounts;
(e) all Documents;
(f) all General Intangibles, including Intellectual Property;
(g) all Goods, including Inventory, Equipment and fixtures;
(h) all Instruments;
(i) all Investment Property;
(j) all Letter-of-Credit Rights;
(k) all Supporting Obligations;
including any Cash Collateral;
(l) all monies, whether or not in the possession or under the control of Lender, or a bailee or Affiliate of Lender,
(m) all accessions to, substitutions for, and all replacements, products, and cash and non-cash proceeds of the
foregoing, including proceeds of and unearned premiums with respect to insurance policies, and claims against any Person for loss, damage
or destruction of any Collateral; and
computer records) pertaining to the foregoing.
(n) all books and records (including customer lists, files, correspondence, tapes, computer programs, print-outs and
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Notwithstanding anything to the contrary contained herein, in no event shall Excluded Assets constitute Collateral under this Agreement or
any other Loan Document.
7.2. Lien on Deposit Accounts; Cash Collateral.
7.2.1. Deposit Accounts. To further secure the prompt payment and performance of its Obligations, each
Borrower hereby grants to Lender a continuing security interest in and Lien upon all amounts credited to any Deposit Account of such
Borrower.
7.2.2. Cash Collateral. Cash Collateral may be invested, at Lender's discretion (and with the consent of
Borrowers, as long as no Event of Default exists), but Lender shall have no duty to do so, regardless of any agreement or course of dealing
with any Borrower, and shall have no responsibility for any investment or loss. As security for its Obligations, each Borrower hereby grants
to Lender a security interest in and Lien upon all Cash Collateral held from time to time and all proceeds thereof. Lender may apply Cash
Collateral to the payment of Obligations as they become due, in such order as Lender may elect. All Cash Collateral shall be under the sole
dominion and control of Lender, and no Borrower or other Person shall have any right to any Cash Collateral, until Full Payment of the
Obligations.
7.3. Real Estate Collateral.
7.3.1. Lien on Real Estate. The Obligations shall also be secured by Mortgages upon all Real Estate owned by
Borrowers, including the Real Estate located at (a) 2743 Highway 76, Chatsworth, Georgia 30705, (b) 325 Smyrna Church Road,
Chatsworth, Georgia 30705, (c) 242 Treadwell Road, Chatsworth, Georgia 30705, (d) 1978 Highway 52 Alt., Chatsworth, Georgia 30705,
(e) 1642 Duval Road, Chatsworth, Georgia 30705, (f) 1805 South Hamilton, Dalton, Georgia 30720, and (g) 2669 Lakeland Road, Dalton,
Georgia 30720. The Mortgages shall be duly recorded, at Borrowers' expense, in each office where such recording is required to constitute
a fully perfected Lien on the Real Estate covered thereby. If any Borrower acquires Real Estate hereafter, Borrowers shall, within 30 days,
execute, deliver and record a Mortgage sufficient to create a first priority Lien in favor of Lender on such Real Estate, and shall deliver all
Related Real Estate Documents.
7.3.2. Collateral Assignment of Leases. To further secure the prompt payment and performance of its Obligations,
each Borrower hereby transfers and assigns to Lender all of such Borrower's right, title and interest in, to and under all now or hereafter
existing leases of real Property to which such Borrower is a party, whether as lessor or lessee, and all extensions, renewals, modifications
and proceeds thereof.
7.4. Other Collateral.
7.4.1. Commercial Tort Claims. Borrowers shall promptly notify Lender in writing if any Borrower has a
Commercial Tort Claim (other than, as long as no Default or Event of Default exists, a Commercial Tort Claim for less than $125,000),
shall promptly amend Schedule 9.1.15 to include such claim, and shall take such actions as Lender deems appropriate to subject such claim
to a duly perfected, first priority Lien in favor of Lender.
7.4.2. Certain After-Acquired Collateral. Borrowers shall promptly notify Lender in writing if, after the Closing
Date, any Borrower obtains any interest in any Collateral consisting of Deposit Accounts, Chattel Paper, Documents, Instruments,
Intellectual Property, Investment Property or Letter-of-Credit Rights with a face amount or representing Property having a value in excess
of $125,000 and, upon Lender's request, shall promptly take such actions as Lender deems appropriate to effect Lender's duly perfected,
second priority Lien upon such Collateral, including obtaining any appropriate possession, control agreement or Lien Waiver. If any
Collateral is in the possession of a third party, at Lender's request, Borrowers shall use commercially reasonable efforts to obtain an
acknowledgment that such third party holds the Collateral for the benefit of Lender.
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7.5. Limitations. The Lien on Collateral granted hereunder is given as security only and shall not subject Lender
to, or in any way modify, any obligation or liability of Borrowers relating to any Collateral. In no event shall the grant of any Lien under
any Loan Document secure an Excluded Swap Obligation of the granting Obligor.
7.6. Further Assurances; Extent of Liens . All Liens granted to Lender under the Loan Documents are for the
benefit of Lender. Promptly upon request, Borrowers shall deliver such instruments and agreements, and shall take such actions, as Lender
deems appropriate under Applicable Law to evidence or perfect its Lien on any Collateral, or otherwise to give effect to the intent of this
Agreement. Each Borrower authorizes Lender to file any financing statement that describes the Collateral as "all assets" or "all personal
property" of such Borrower, or words to similar effect, and ratifies any action taken by Lender before the Closing Date to effect or perfect
its Lien on any Collateral.
7.7. Foreign Subsidiary Stock. Notwithstanding Section 7.1, the Collateral shall include only 65% of the voting
stock of any Foreign Subsidiary.
SECTION 8. COLLATERAL ADMINISTRATION
8.1. General Provisions.
8.1.1. Location of Collateral. All tangible items of Collateral, other than Inventory in transit, shall at all times be
kept by Borrowers at the business locations set forth in Schedule 8.1.1, except that Borrowers may (a) make sales or other dispositions of
Collateral in accordance with Section 10.2.6; and (b) move Collateral to another location in the United States, upon 30 Business Days prior
written notice to Lender.
8.1.2. Insurance of Collateral; Condemnation Proceeds. Subject to the Debt and Lien Subordination Agreement:
(a) Each Borrower shall maintain insurance with respect to the Collateral, covering casualty, hazard, theft,
malicious mischief, flood and other risks, in amounts, with endorsements and with insurers (with a Best Rating of at least A, unless
otherwise approved by Lender in its discretion) satisfactory to Lender. All proceeds under each policy shall be payable to Lender. From
time to time upon request, Borrowers shall deliver to Lender the originals or certified copies of its insurance policies and updated flood
plain searches. Unless Lender shall agree otherwise, each policy shall include satisfactory endorsements (i) showing Lender as lender's loss
payee; (ii) requiring 30 days prior written notice to Lender in the event of cancellation of the policy for any reason whatsoever; and (iii)
specifying that the interest of Lender shall not be impaired or invalidated by any act or neglect of any Borrower or the owner of the
Property, nor by the occupation of the premises for purposes more hazardous than are permitted by the policy. If any Borrower fails to
provide and pay for any insurance, Lender may, at its option, but shall not be required to, procure the insurance and charge Borrowers
therefor. Each Borrower agrees to deliver to Lender, promptly as rendered, copies of all reports made to insurance companies. While no
Event of Default exists, Borrowers may settle, adjust or compromise any insurance claim, as long as the proceeds are delivered to Lender.
If an Event of Default exists, only Lender shall be authorized to settle, adjust and compromise such claims.
(b) Any proceeds of insurance (other than proceeds from workers' compensation or D&O insurance) and any
awards arising from condemnation of any Collateral shall be paid to Lender and applied first to payment of the Loan and then to other
Obligations.
(c) If requested by Borrowers in writing within 30 days after Lender's receipt of any insurance proceeds or
condemnation awards relating to any loss or destruction of Equipment or Real Estate, Borrowers may use such proceeds or awards to repair
or replace such Equipment or Real Estate (and until so used, the proceeds shall be held by Lender as Cash Collateral) as long as (i) no
Default or Event of Default exists; (ii) such repair or replacement is promptly undertaken and concluded, in accordance with plans
reasonably satisfactory to Lender; (iii) replacement buildings are constructed on the sites of the original casualties and are materially
comparable in size, quality and utility to the destroyed buildings; (iv) the repaired or replaced Property is free of Liens, other than
Permitted Liens that are not Purchase Money Liens; (v) Borrowers comply with disbursement procedures for such repair or replacement as
Lender may reasonably require; and (vi) the aggregate amount of such proceeds or awards requested to be used by Borrowers from any
single casualty or condemnation does not exceed $937,500.
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8.1.3. Protection of Collateral. All expenses of protecting, storing, warehousing, insuring, handling, maintaining
and shipping any Collateral, all Taxes payable with respect to any Collateral (including any sale thereof), and all other payments required to
be made by Lender to any Person to realize upon any Collateral, shall be borne and paid by Borrowers. Lender shall not be liable or
responsible in any way for the safekeeping of any Collateral, for any loss or damage thereto (except for reasonable care in its custody while
Collateral is in Lender's actual possession), for any diminution in the value thereof, or for any act or default of any warehouseman, carrier,
forwarding agency or other Person whatsoever, but the same shall be at Borrowers' sole risk.
Lender's Liens therein against all Persons, claims and demands, except Permitted Liens.
8.1.4. Defense of Title. Each Borrower shall take all reasonable actions to defend its title to Collateral and
8.2.
Power of Attorney . Each Borrower hereby irrevocably constitutes and appoints Lender (and all Persons
designated by Lender) as such Borrower's true and lawful attorney (and agent-in-fact) for the purposes provided in this Section. Lender, or
Lender's designee, may, without notice and in either its or a Borrower's name, but at the cost and expense of Borrowers and subject to the
Debt and Lien Subordination Agreement:
insurance) that come into Lender's possession or control; and
(a) Endorse a Borrower's name on any Payment Item or other proceeds of Collateral (including proceeds of
(b) During an Event of Default, (i) notify any Account Debtors of the assignment of their Accounts, demand and
enforce payment of Accounts, by legal proceedings or otherwise, and generally exercise any rights and remedies with respect to Accounts;
(ii) settle, adjust, modify, compromise, discharge or release any Accounts or other Collateral, or any legal proceedings brought to collect
Accounts or Collateral; (iii) sell or assign any Accounts and other Collateral upon such terms, for such amounts and at such times as Lender
deems advisable; (iv) collect, liquidate and receive balances in Deposit Accounts or investment accounts, and take control, in any manner,
of proceeds of Collateral; (v) prepare, file and sign a Borrower's name to a proof of claim or other document in a bankruptcy of an Account
Debtor, or to any notice, assignment or satisfaction of Lien or similar document; (vi) receive, open and dispose of mail addressed to a
Borrower, and notify postal authorities to deliver any such mail to an address designated by Lender; (vii) endorse any Chattel Paper,
Document, Instrument, bill of lading, or other document or agreement relating to any Accounts, Inventory or other Collateral; (viii) use a
Borrower's stationery and sign its name to verifications of Accounts and notices to Account Debtors; (ix) use information contained in any
data processing, electronic or information systems relating to Collateral; (x) make and adjust claims under insurance policies; (xi) take any
action as may be necessary or appropriate to obtain payment under any letter of credit, banker's acceptance or other instrument for which a
Borrower is a beneficiary; and (xii) take all other actions as Lender deems appropriate to fulfill any Borrower's obligations under the Loan
Documents.
SECTION 9. REPRESENTATIONS AND WARRANTIES
Loan, each Borrower represents and warrants that:
9.1. General Representations and Warranties . To induce Lender to enter into this Agreement and to make the
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9.1.1. Organization and Qualification. Each Borrower and Subsidiary is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization. Each Borrower and Subsidiary is duly qualified, authorized to do
business and in good standing as a foreign corporation in each jurisdiction where failure to be so qualified could reasonably be expected to
have a Material Adverse Effect.
9.1.2. Power and Authority. Each Obligor is duly authorized to execute, deliver and perform the Loan Documents
to which it is a party. The execution, delivery and performance of the Loan Documents have been duly authorized by all necessary action,
and do not (a) require any consent or approval of any holders of Equity Interests of any Obligor, except those already obtained; (b)
contravene the Organic Documents of any Obligor; (c) violate or cause a default under any Applicable Law or Material Contract; or (d)
result in or require the imposition of a Lien (other than Permitted Liens) on any Obligor's Property.
9.1.3. Enforceability. Each Loan Document is a legal, valid and binding obligation of each Obligor party thereto,
enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally.
9.1.4. Capital Structure. Schedule 9.1.4 shows, for each Borrower and Subsidiary, its name, jurisdiction of
organization, authorized and issued Equity Interests, holders of its Equity Interests, and agreements binding on such holders with respect to
such Equity Interests. Except as disclosed on Schedule 9.1.4, in the five years preceding the Closing Date, no Borrower or Subsidiary has
acquired any substantial assets from any other Person nor been the surviving entity in a merger or combination. Each Borrower has good
title to its Equity Interests in its Subsidiaries, subject only to (a) Lender's Lien and (b) to the extent subject to the Debt and Lien
Subordination Agreement, the Permitted Lien in favor of the Senior Lender, and all such Equity Interests are duly issued, fully paid and
non-assessable. Except as set forth on Schedule 9.1.4, there are no outstanding purchase options, warrants, subscription rights, agreements
to issue or sell, convertible interests, phantom rights or powers of attorney relating to Equity Interests of any Borrower or Subsidiary.
9.1.5. Title to Properties; Priority of Liens. Each Borrower and Subsidiary has good and marketable title to (or
valid leasehold interests in) all of its Real Estate, and good title to all of its personal Property, including all Property reflected in any
financial statements delivered to Lender, in each case free of Liens except Permitted Liens. Each Borrower and Subsidiary has paid and
discharged all lawful claims that, if unpaid, could become a Lien on its Properties, other than Permitted Liens. All Liens of Lender in the
Collateral are duly perfected, second priority Liens, subject only to Permitted Liens that are expressly allowed to have priority over
Lender's Liens.
9.1.6. Financial Statements. The consolidated and consolidating balance sheets, and related statements of income,
cash flow and shareholders equity, of Borrowers and Subsidiaries that have been and are hereafter delivered to Lender, are prepared in
accordance with GAAP, and fairly present in all material respects the financial positions and results of operations of Borrowers and
Subsidiaries at the dates and for the periods indicated. All projections delivered from time to time to Lender have been prepared in good
faith, based on reasonable assumptions in light of the circumstances at such time. Since January 3, 2015, there has been no change in the
condition, financial or otherwise, of any Borrower or Subsidiary that could reasonably be expected to have a Material Adverse Effect. No
financial statement delivered to Lender at any time contains any untrue statement of a material fact, nor fails to disclose any material fact
necessary to make such statement not materially misleading. Each Borrower and Subsidiary is Solvent.
contract that assures payment or performance of any obligation of any Person, except as permitted hereunder.
9.1.7. Surety Obligations. No Borrower or Subsidiary is obligated as surety or indemnitor under any bond or other
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9.1.8. Taxes. Each Borrower and Subsidiary has filed all federal, state and local tax returns and other reports that
it is required by law to file (except where on extension authorized by Applicable Law), and has paid, or made provision for the payment of,
all Taxes upon it, its income and its Properties that are due and payable, except to the extent being Properly Contested. The provision for
Taxes on the books of each Borrower and Subsidiary is adequate for all years not closed by applicable statutes, and for its current Fiscal
Year.
investment banking fees payable in connection with any transactions contemplated by the Loan Documents.
9.1.9. Brokers. Except as set forth on Schedule 9.1.9, there are no brokerage commissions, finder's fees or
9.1.10.
Intellectual Property. Each Borrower and Subsidiary owns or has the lawful right to use all material
Intellectual Property necessary for the conduct of its business, without conflict with any rights of others. There is no pending or, to any
Borrower's knowledge, threatened Intellectual Property Claim with respect to any Borrower, any Subsidiary or any of their Property
(including any Intellectual Property). Except as disclosed on Schedule 9.1.10, no Borrower or Subsidiary pays or owes any Royalty or
other compensation to any Person with respect to any Intellectual Property. All Intellectual Property (other than off-the-shelf software)
owned, used or licensed by, or otherwise subject to any interests of, any Borrower or Subsidiary, as of the Closing Date, is shown on
Schedule 9.1.10.
9.1.11. Governmental Approvals. Each Borrower and Subsidiary has, is in compliance in all material respects with,
and is in good standing with respect to, all Governmental Approvals necessary to conduct its business and to own, lease and operate its
Properties. All necessary import, export or other licenses, permits or certificates for the import or handling of any goods or other Collateral
have been procured and are in effect, and Borrowers and Subsidiaries have complied with all foreign and domestic laws with respect to the
shipment and importation of any goods or Collateral, except where noncompliance could not reasonably be expected to have a Material
Adverse Effect.
9.1.12. Compliance with Laws. Each Borrower and Subsidiary has duly complied, and its Properties and business
operations are in compliance, in all material respects with all Applicable Law, except where noncompliance could not reasonably be
expected to have a Material Adverse Effect. There have been no citations, notices or orders of material noncompliance issued to any
Borrower or Subsidiary under any Applicable Law. No Inventory has been produced in violation of the FLSA.
9.1.13. Compliance with Environmental Laws. Except as disclosed on Schedule 9.1.13, no Borrower's or
Subsidiary's past or present operations, Real Estate or other Properties are subject to any federal, state or local investigation to determine
whether any remedial action is needed to address any environmental pollution, hazardous material or environmental clean-up. No Borrower
or Subsidiary has received any Environmental Notice. No Borrower or Subsidiary has any contingent liability with respect to any
Environmental Release, environmental pollution or hazardous material on any Real Estate now or previously owned, leased or operated by
it. The representations and warranties contained in the Environmental Agreement are true and correct on the Closing Date.
9.1.14. Burdensome Contracts. No Borrower or Subsidiary is a party or subject to any contract, agreement or
charter restriction that could reasonably be expected to have a Material Adverse Effect. No Borrower or Subsidiary is party or subject to
any Restrictive Agreement, except as shown on Schedule 9.1.14. No such Restrictive Agreement prohibits the execution, delivery or
performance of any Loan Document by an Obligor.
9.1.15. Litigation. Except as shown on Schedule 9.1.15, there are no proceedings or investigations pending or, to
any Borrower's knowledge, threatened against any Borrower or Subsidiary, or any of their businesses, operations, Properties, prospects or
conditions, that (a) relate to any Loan Documents or transactions contemplated thereby; or (b) could reasonably be expected to have a
Material Adverse Effect if determined adversely to any Borrower or Subsidiary. Except as shown on such Schedule, no Obligor has a
Commercial Tort Claim (other than, as long as no Default or Event of Default exists, a Commercial Tort Claim for less than $125,000). No
Borrower or Subsidiary is in default with respect to any order, injunction or judgment of any Governmental Authority.
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9.1.16. No Defaults. No event or circumstance has occurred or exists that constitutes a Default or Event of Default.
No Borrower or Subsidiary is in default, and no event or circumstance has occurred or exists that with the passage of time or giving of
notice would constitute a default, under any Material Contract or in the payment of any Borrowed Money or allow termination of any
Material Contract.
9.1.17. ERISA. Except as disclosed on Schedule 9.1.17:
(a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code, and other
federal and state laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter
from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the knowledge of
Borrowers, nothing has occurred which would prevent, or cause the loss of, such qualification. Each Obligor and ERISA Affiliate has met
all applicable requirements under the Code, ERISA and the Pension Protection Act of 2006, and no application for a waiver of the
minimum funding standards or an extension of any amortization period has been made with respect to any Plan.
(b) There are no pending or, to the knowledge of Borrowers, threatened claims, actions or lawsuits, or action by
any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been
no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted in or could reasonably be
expected to have a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded
Pension Liability; (iii) no Obligor or ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA
with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) no Obligor or ERISA
Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; (v) no
Obligor or ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA; and (vi) as of the most
recent valuation date for any Pension Plan or Multiemployer Plan, the funding target attainment percentage (as defined in Section 430(d)(2)
of the Code) is at least 60%, and no Obligor or ERISA Affiliate knows of any fact or circumstance that could reasonably be expected to
cause the funding target attainment percentage for any such plan to drop below 60% as of such date.
(d) With respect to any Foreign Plan, (i) all employer and employee contributions required by law or by the terms
of the Foreign Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices; (ii) the fair market value of
the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance, or the book reserve
established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit
obligations with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations
most recently used to account for such obligations in accordance with applicable generally accepted accounting principles; and (iii) it has
been registered as required and has been maintained in good standing with applicable regulatory authorities.
9.1.18. Trade Relations. There exists no actual or threatened termination, limitation or modification of any business
relationship between any Borrower or Subsidiary and any customer or supplier, or any group of customers or suppliers, who individually or
in the aggregate are material to the business of such Borrower or Subsidiary. There exists no condition or circumstance that could
reasonably be expected to impair the ability of any Borrower or Subsidiary to conduct its business at any time hereafter in substantially the
same manner as conducted on the Closing Date.
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9.1.19. Labor Relations. No Borrower or Subsidiary is party to or bound by any collective bargaining agreement.
Except as set forth on Schedule 9.1.19, no Borrower or Subsidiary is party to any management agreement or consulting agreement. There
are no material grievances, disputes or controversies with any union or other organization of any Borrower's or Subsidiary's employees, or,
to any Borrower's knowledge, any asserted or threatened strikes, work stoppages or demands for collective bargaining.
payable practices from those in effect on the Closing Date.
9.1.20. Payable Practices. No Borrower or Subsidiary has made any material change in its historical accounts
9.1.21. Not a Regulated Entity. No Obligor is (a) an "investment company" or a "person directly or indirectly
controlled by or acting on behalf of an investment company" within the meaning of the Investment Company Act of 1940; or (b) subject to
regulation under the Federal Power Act, the Interstate Commerce Act, any public utilities code or any other Applicable Law regarding its
authority to incur Debt.
9.1.22. Margin Stock. No Borrower or Subsidiary is engaged, principally or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying any Margin Stock. No Loan proceeds will be used by Borrowers to
purchase or carry, or to reduce or refinance any Debt incurred to purchase or carry, any Margin Stock or for any related purpose governed
by Regulations T, U or X of the Board of Governors.
9.1.23. OFAC. No Borrower, Subsidiary or, to the knowledge of any Borrower or Subsidiary, any director, officer,
employee, agent, affiliate or representative thereof, is an individual or entity currently the subject of any Sanctions. No Borrower or
Subsidiary is located, organized or resident in a Designated Jurisdiction.
9.2. Complete Disclosure. No Loan Document contains any untrue statement of a material fact, nor fails to
disclose any material fact necessary to make the statements contained therein not materially misleading in light of the circumstances in
which such statements were made. There is no fact or circumstance that any Obligor has failed to disclose to Lender in writing that could
reasonably be expected to have a Material Adverse Effect.
SECTION 10. COVENANTS AND CONTINUING AGREEMENTS
10.1. Affirmative Covenants. Until Full Payment of the Obligations, each Borrower shall, and shall cause each
Subsidiary to:
10.1.1. Inspections; Appraisals.
(a) Permit Lender from time to time, subject (except when a Default or Event of Default exists) to reasonable notice
and normal business hours, to visit and inspect the Properties of any Borrower or Subsidiary, inspect, audit and make extracts from any
Borrower's or Subsidiary's books and records, and discuss with its officers, employees, agents, advisors and independent accountants such
Borrower's or Subsidiary's business, financial condition, assets, prospects and results of operations. Lender shall not have any duty to any
Borrower to make any inspection, nor to share any results of any inspection, appraisal or report with any Borrower. Borrowers acknowledge
that all inspections, appraisals and reports are prepared by Lender for its purposes, and Borrowers shall not be entitled to rely upon them.
(b) Reimburse Lender for all its reasonable and documented charges, costs and expenses in connection with (i)
examinations of any Obligor's books and records or any other financial or Collateral matters as Lender deems appropriate, up to two times
per Loan Year; and (ii) appraisals of Inventory up to one time per Loan Year; provided, however, that if an examination or appraisal is
initiated during a Default or Event of Default, all charges, costs and expenses therefor shall be reimbursed by Borrowers without regard to
such limits. Subject to and without limiting the foregoing, Borrowers agree to pay Lender's then standard charges for examination
activities, including the standard charges of Lender's internal examination and appraisal groups, as well as the charges of any third party
used for such purposes.
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activities, in which proper entries are made in accordance with GAAP reflecting all financial transactions; and furnish to Lender:
10.1.2. Financial and Other Information. Keep adequate records and books of account with respect to its business
(a) (i) as soon as available, and in any event within 120 days after the Closing Date, (A) an opening balance sheet
as of a date not later than July 17, 2015, on a consolidated basis for Holdings, which balance sheet shall be audited and certified (without
qualification) by a firm of independent certified public accountants of recognized standing selected by Borrowers and reasonably
acceptable to Lender, and (B) an opening balance sheet as of a date not later than July 17, 2015, unaudited and on a consolidating basis for
each of the other Borrowers and Subsidiaries, (ii) as soon as available, and in any event within 120 days after the close of Fiscal Year 2015,
(A) a balance sheet as of the end of such Fiscal Year and the related statements of income, cash flow and shareholders' equity for the period
from the Closing Date through the end of such Fiscal Year, on a consolidated basis for Holdings, which consolidated statements shall be
audited and certified (without qualification) by a firm of independent certified public accountants of recognized standing selected by
Borrowers and reasonably acceptable to Lender, and shall set forth in comparative form corresponding figures for the preceding Fiscal Year
and other information reasonably acceptable to Lender, and (B) a balance sheet as of the end of such Fiscal Year and the related statements
of income, cash flow and shareholders' equity for the period from the Closing Date through the end of such Fiscal Year, unaudited and on a
consolidating basis for the other Borrowers and Subsidiaries, and (iii) as soon as available, and in any event within 120 days after the close
of each Fiscal Year thereafter, (A) a balance sheet as of the end of such Fiscal Year and the related statements of income, cash flow and
shareholders' equity for such Fiscal Year, on a consolidated basis for Holdings, which consolidated statements shall be audited and certified
(without qualification) by a firm of independent certified public accountants of recognized standing selected by Borrowers and reasonably
acceptable to Lender, and shall set forth in comparative form corresponding figures for the preceding Fiscal Year and other information
reasonably acceptable to Lender, and (B) a balance sheet as of the end of such Fiscal Year and the related statements of income, cash flow
and shareholders' equity for such Fiscal Year, unaudited and on a consolidating basis for the other Borrowers and Subsidiaries;
(b) as soon as available, and in any event within 30 days after the end of each month, unaudited balance sheets as
of the end of such month and the related statements of income and cash flow for such month and for the portion of the Fiscal Year then
elapsed, on consolidated and consolidating bases for Borrowers and Subsidiaries, setting forth in comparative form corresponding figures
for the preceding Fiscal Year and certified by the chief financial officer or Treasurer of Borrower Agent as prepared in accordance with
GAAP and fairly presenting in all material respects the financial position and results of operations for such month and period, subject to
normal year-end adjustments and the absence of footnotes;
(c) concurrently with delivery of financial statements under clauses (a) and (b) above, or more frequently if
requested by Lender while a Default or Event of Default exists, a Compliance Certificate executed by the chief financial officer or
Treasurer of Borrower Agent;
other material reports submitted to Borrowers by their accountants in connection with such financial statements;
(d) concurrently with delivery of financial statements under clause (a) above, copies of all management letters and
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results of operations, and cash flow for the next Fiscal Year, month by month;
(e) no later than 60 days after the end of each Fiscal Year, projections of Borrowers' consolidated balance sheets,
and a detailed trade payable aging, all in form reasonably satisfactory to Lender;
(f) at Lender's request, a listing of each Borrower's trade payables, specifying the trade creditor and balance due,
(g) promptly after the sending or filing thereof, copies of any proxy statements, financial statements or reports that
any Borrower has made generally available to its shareholders; copies of any regular, periodic and special reports or registration statements
or prospectuses that any Borrower files with the Securities and Exchange Commission or any other Governmental Authority, or any
securities exchange; and copies of any press releases or other statements made available by a Borrower to the public concerning material
changes to or developments in the business of such Borrower;
or Foreign Plan;
(h) promptly after the sending or filing thereof, copies of any annual report to be filed in connection with each Plan
in connection with any Collateral or any Borrower's, Subsidiary's or other Obligor's financial condition or business;
(i) such other reports and information (financial or otherwise) as Lender may reasonably request from time to time
for each Guarantor, in form and substance satisfactory to Lender;
(j) as soon as available, and in any event within 120 days after the close of each Fiscal Year, financial statements
(k) upon receipt or delivery thereof by or to any Obligor or Subsidiary, any notice of "Default" or "Event of
Default" (under and as defined in the Senior Debt Documents) and, without duplication of any report required to be provided hereunder,
each material report required to be provided pursuant to the Senior Loan Agreement and, upon execution thereof, any waiver, amendment
or other modification to the Senior Debt Documents;
(l) upon receipt or delivery thereof by or to any Borrower, any notice of "Default" or "Event of Default" (under and
as defined in the Factoring Agreements) and, without duplication of any report required to be provided hereunder, each material report
required to be provided pursuant to the Factoring Agreements and, upon execution thereof, any waiver, amendment or other modification to
the Factoring Agreements; and
(m) at Lender's request at any time after any Borrower files or consents to the filing of a consolidated income tax
return with any Person other than Borrowers and Subsidiaries under the limited circumstances set forth in Section 10.2.12, provide Lender
with true, correct and complete copies of all filed consolidated income tax returns for the Person with which such Borrower files or
consents to the filing of such consolidated income tax returns and evidence that such Person has timely and fully paid all Taxes owing to
Governmental Authorities under such returns.
10.1.3. Notices. Notify Lender in writing, promptly after a Borrower's obtaining knowledge thereof, of any of the
following that affects an Obligor: (a) the threat or commencement of any proceeding or investigation, whether or not covered by insurance,
if an adverse determination could reasonably be expected to have a Material Adverse Effect; (b) any pending or threatened labor dispute,
strike or walkout, or the expiration of any material labor contract; (c) any default under or termination of a Material Contract; (d) the
existence of any Default or Event of Default; (e) any judgment in an amount exceeding $312,500 not covered by insurance; (f) the assertion
of any Intellectual Property Claim, if an adverse resolution could reasonably be expected to have a Material Adverse Effect; (g) any
violation or asserted violation of any Applicable Law (including ERISA, OSHA, FLSA, or any Environmental Laws), if an adverse
resolution could reasonably be expected to have a Material Adverse Effect; (h) any Environmental Release by an Obligor or on any
Property owned, leased or occupied by an Obligor; or receipt of any Environmental Notice; (i) the occurrence of any ERISA Event; (j) the
discharge of or any withdrawal or resignation by Borrowers' independent accountants; (k) any opening of a new office or place of business,
at least 30 days prior to such opening; (l) without duplication of any notice required to be provided hereunder, each material notice required
to be provided pursuant to the Senior Loan Agreement; or (m) without duplication of any notice required to be provided hereunder, each
material notice required to be provided pursuant to any Factoring Agreement.
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10.1.4. Landlord and Storage Agreements . Upon reasonable request, provide Lender with copies of all existing
agreements, and promptly after execution thereof provide Lender with copies of all future agreements, between an Obligor and any
landlord, warehouseman, processor, shipper, bailee or other Person that owns any premises at which any Collateral may be kept or that
otherwise may possess or handle any Collateral.
10.1.5. Compliance with Laws. Comply with all Applicable Laws, including ERISA, Environmental Laws, FLSA,
OSHA, Anti-Terrorism Laws, and laws regarding collection and payment of Taxes, and maintain all Governmental Approvals necessary to
the ownership of its Properties or conduct of its business, unless failure to comply (other than failure to comply with Anti-Terrorism Laws)
or maintain could not reasonably be expected to have a Material Adverse Effect. Without limiting the generality of the foregoing, if any
material Environmental Release occurs at or on any Properties of any Borrower or Subsidiary, it shall act promptly and diligently to
investigate and report to Lender and all appropriate Governmental Authorities the extent of, and to make appropriate remedial action to
eliminate, such Environmental Release, whether or not directed to do so by any Governmental Authority.
unless such Taxes are being Properly Contested.
10.1.6. Taxes. Pay and discharge all Taxes prior to the date on which they become delinquent or penalties attach,
10.1.7. Insurance. In addition to the insurance required hereunder with respect to Collateral, maintain insurance with
insurers (with a Best Rating of at least A, unless otherwise approved by Lender in its discretion) satisfactory to Lender, (a) with respect to
the Properties and business of Borrowers and Subsidiaries of such type (including product liability, workers' compensation, larceny,
embezzlement, or other criminal misappropriation insurance), in such amounts, and with such coverages and deductibles as are customary
for companies similarly situated; and (b) business interruption insurance in an amount not less than $8,000,000, with deductibles and
subject to an Insurance Assignment satisfactory to Lender.
10.1.8. Licenses. Keep each material License affecting any Collateral (including the manufacture, distribution or
disposition of Inventory) or any other material Property of Borrowers and Subsidiaries in full force and effect; promptly notify Lender of
any proposed modification to any such License, or entry into any new material License, in each case at least 10 days prior to its effective
date; pay all Royalties when due; and notify Lender of any default or breach asserted by any Person to have occurred under any such
License.
10.1.9. Future Subsidiaries. Promptly notify Lender upon any Person becoming a Subsidiary and, if such Person is
not a Foreign Subsidiary, cause it to guaranty the Obligations (or, if requested by Borrowers and agreed to by Lender in its discretion,
become a Borrower hereunder) in a manner reasonably satisfactory to Lender, and to execute and deliver such documents, instruments and
agreements and to take such other actions as Lender shall reasonably require to evidence and perfect a Lien in favor of Lender on all assets
of such Person (other than Excluded Assets), including delivery of such legal opinions, in form and substance reasonably satisfactory to
Lender, as it shall deem appropriate.
Subsidiary not to:
10.2. Negative Covenants. Until Full Payment of the Obligations, each Borrower shall not, and shall cause each
10.2.1. Permitted Debt. Create, incur, guarantee or suffer to exist any Debt, except:
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(a) the Obligations;
hereof;
(b) the Senior Debt, subject to the terms of the Debt and Lien Subordination Agreement as in effect on the date
(c) Subordinated Debt;
(d) Permitted Purchase Money Debt;
Debt), but only to the extent outstanding on the Closing Date and not satisfied with proceeds of the Loan;
(e) Borrowed Money (other than the Obligations, Senior Debt, Subordinated Debt and Permitted Purchase Money
(f) Bank Product Debt incurred in the Ordinary Course of Business;
(g) Debt that is in existence when a Person becomes a Subsidiary or that is secured by an asset when acquired by a
Borrower or Subsidiary, as long as such Debt was not incurred in contemplation of such Person becoming a Subsidiary or such acquisition,
and does not exceed $2,500,000 in the aggregate at any time
(h) Permitted Contingent Obligations;
(i) Refinancing Debt as long as each Refinancing Condition is satisfied;
(j) Debt incurred pursuant to any intercompany loan permitted under Section 10.2.7;
case, to Debt otherwise permitted to be incurred under this Section 10.2.1; and
(k) guaranties by any Borrower of Debt or other obligations or another Borrower or Subsidiary with respect, in each
exceed $3,125,000 in the aggregate at any time.
(i) Debt that is not included in any of the preceding clauses of this Section, is not secured by a Lien and does not
10.2.2. Permitted Liens. Create or suffer to exist any Lien upon any of its Property, except the following
(collectively, "Permitted Liens"):
(a) Liens in favor of Lender;
Subordination Agreement remains in full force and effect with respect thereto;
(b) Liens in favor of the Senior Lender securing the Senior Debt permitted hereunder so long as the Debt and Lien
(c) Purchase Money Liens securing Permitted Purchase Money Debt;
(d) Liens for Taxes not yet due or being Properly Contested;
(e) statutory Liens (other than Liens for Taxes or imposed under ERISA) arising in the Ordinary Course of
Business, but only if (i) payment of the obligations secured thereby is not yet due or is being Properly Contested, and (ii) such Liens do not
materially impair the value or use of the Property or materially impair operation of the business of any Borrower or Subsidiary;
(f) Liens incurred or deposits made in the Ordinary Course of Business to secure the performance of government
tenders, bids, contracts, statutory obligations and other similar obligations, as long as such Liens are at all times junior to Lender's Liens
and are required or provided by law;
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(g) Liens arising in the Ordinary Course of Business that are subject to Lien Waivers;
(h) Liens arising by virtue of a judgment or judicial order against any Borrower or Subsidiary, or any Property of a
Borrower or Subsidiary, as long as such Liens are (i) in existence for less than 20 consecutive days or being Properly Contested, and (ii) at
all times junior to Lender's Liens;
encumbrances on Real Estate, that do not secure any monetary obligation and do not interfere with the Ordinary Course of Business;
(i) easements, rights-of-way, restrictions, covenants or other agreements of record, and other similar charges or
bank on Payment Items in the course of collection;
(j) normal and customary rights of setoff upon deposits in favor of depository institutions, and Liens of a collecting
(k) existing Liens shown on Schedule 10.2.2;
(l) Liens on the Factored Accounts created for the purpose of evidencing the transfer and sale of Accounts sold to
the Factors pursuant to the terms of the Factoring Agreements, provided that a Factor Intercreditor Agreement has been received by Lender
and remains in effect with respect to each such Factoring Agreement;
(m) any interest or title of a lessor or sublessor under any lease permitted hereunder;
the use of any real Property not materially detracting from the value of such real Property; and
(n) any zoning or similar law or right reserved to or vested in any Governmental Authority to control or regulate
unemployment insurance and other types of social security that are junior to Lender's Liens.
(o) Liens incurred in the Ordinary Course of Business on deposits made in connection with workers' compensation,
10.2.3. Reserved.
(ii) Permitted Tax Distributions, and (iii) Permitted Non-Tax Distributions.
10.2.4. Distributions; Upstream Payments. (a) Declare or make any Distributions, except: (i) Upstream Payments,
(b) Create or suffer to exist any encumbrance or restriction on the ability of a Subsidiary to make any Upstream
Payment, except for restrictions under the Loan Documents, under Applicable Law or in effect on the Closing Date as shown on Schedule
9.1.14.
10.2.5. Restricted Investments. Make any Restricted Investment.
Property by a Subsidiary or Obligor to a Borrower.
10.2.6. Disposition of Assets. Make any Asset Disposition, except a Permitted Asset Disposition or a transfer of
10.2.7. Loans. Make any loans or other advances of money to any Person, except (a) advances to an officer or
employee for salary, travel expenses, commissions and similar items in the Ordinary Course of Business; (b) prepaid expenses and
extensions of trade credit made in the Ordinary Course of Business; (c) deposits with financial institutions permitted hereunder; and (d) as
long as no Default or Event of Default exists, intercompany loans by a Borrower to another Borrower.
prepayment, redemption, retirement, defeasance or acquisition) with respect to any:
10.2.8. Restrictions on Payment of Certain Debt. Make any payments (whether voluntary or mandatory, or a
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(a) Subordinated Debt, except regularly scheduled payments of principal, interest and fees, but only to the extent
permitted under any subordination agreement relating to such Debt (and a Senior Officer of Borrower Agent shall certify to Lender, not less
than five Business Days prior to the date of payment, that all conditions under such agreement have been satisfied); or
or
(b) Senior Debt as and to the extent provided under the Senior Loan Agreement and other Senior Debt Documents;
under the agreements evidencing such Debt as in effect on the Closing Date (or as amended thereafter with the consent of Lender).
(c) Borrowed Money (other than the Obligations, the Senior Debt and Subordinated Debt) prior to its due date
10.2.9. Fundamental Changes. (a) Without giving 30 days prior written notice to Lender, change its name or
conduct business under any fictitious name; change its tax, charter or other organizational identification number; change its form or state of
organization; (b) liquidate, wind up its affairs or dissolve itself; or merge, combine or consolidate with any Person, whether in a single
transaction or in a series of related transactions, except for (i) mergers or consolidations of a wholly-owned Subsidiary with another wholly-
owned Subsidiary or into a Borrower; or (ii) Permitted Acquisitions.
10.1.9, 10.2.5 or 10.2.9; or permit any existing Subsidiary to issue any additional Equity Interests except directors' qualifying shares.
10.2.10. Subsidiaries. Form or acquire any Subsidiary after the Closing Date, except in accordance with Sections
connection with a transaction permitted under Section 10.2.9.
10.2.11.
Organic Documents. Amend, modify or otherwise change any of its Organic Documents, except in
other than Borrowers and Subsidiaries or any corporation that owns all of the Equity Interests of any Obligor.
10.2.12. Tax Consolidation. File or consent to the filing of any consolidated income tax return with any Person
required by GAAP and in accordance with Section 1.2; or change its Fiscal Year.
10.2.13. Accounting Changes. Make any material change in accounting treatment or reporting practices, except as
10.2.14. Restrictive Agreements. Become a party to any Restrictive Agreement, except a Restrictive Agreement (a)
in effect on the Closing Date; (b) relating to secured Debt permitted hereunder, as long as the restrictions apply only to collateral for such
Debt; or (c) constituting customary restrictions on assignment in leases and other contracts.
Course of Business and not for speculative purposes.
10.2.15. Hedging Agreements. Enter into any Hedging Agreement, except to hedge risks arising in the Ordinary
similar related business) and any activities incidental thereto.
10.2.16. Conduct of Business. Engage in any business, other than its business as conducted on the Closing Date (or
10.2.17. Affiliate Transactions . Enter into or be party to any transaction with an Affiliate, except (a) transactions
contemplated by the Loan Documents or the Marquis SPA Documents; (b) payment of reasonable compensation to officers and employees
for services actually rendered, and loans and advances permitted by Section 10.2.7; (c) payment of customary directors' fees and
indemnities; (d) transactions solely among Borrowers; (e) transactions with Affiliates consummated prior to the Closing Date, as shown on
Schedule 10.2.17; and (f) transactions with Affiliates in the Ordinary Course of Business, upon fair and reasonable terms fully disclosed to
Lender and no less favorable than would be obtained in a comparable arm's-length transaction with a non-Affiliate.
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Date.
10.2.18. Plans. Become party to any Multiemployer Plan or Foreign Plan, other than any in existence on the Closing
10.2.19. Amendments to Senior Debt, Factoring Agreements and Other Subordinated Debt.
except to the extent expressly permitted under the terms of the Debt and Lien Subordination Agreement.
(a) Amend, supplement or otherwise modify any document, instrument or agreement relating to the Senior Debt,
under the terms of the applicable Factor Intercreditor Agreement.
(b) Amend, supplement or otherwise modify any Factoring Agreement, except to the extent expressly permitted
(c) Amend, supplement or otherwise modify any document, instrument or agreement relating to any Subordinated
Debt if such modification (i) increases the principal balance of such Debt, or increases any required payment of principal or interest; (ii)
accelerates the date on which any installment of principal or any interest is due, or adds any additional redemption, put or prepayment
provisions; (iii) shortens the final maturity date or otherwise accelerates amortization; (iv) increases the interest rate; (v) increases or adds
any fees or charges; (vi) modifies any covenant in a manner or adds any representation, covenant or default that is more onerous or
restrictive in any material respect for any Borrower or Subsidiary, or that is otherwise materially adverse to any Borrower, any Subsidiary
or Lender; or (vii) results in the Obligations not being fully benefited by the subordination provisions thereof.
10.3. Financial Covenants. As long as any Obligations are outstanding, Borrowers shall:
10.3.1. Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio of at least 1.0 to 1.0, tested as of the
last day of each month for the twelve consecutive months ending on such day.
SECTION 11. EVENTS OF DEFAULT; REMEDIES ON DEFAULT
whether voluntary or involuntary, by operation of law or otherwise:
11.1. Events of Default. Each of the following shall be an "Event of Default" if it occurs for any reason whatsoever,
or otherwise);
(a) Any Borrower fails to pay its Obligations when due (whether at stated maturity, on demand, upon acceleration
Documents or transactions contemplated thereby is incorrect or misleading in any material respect when given;
(b) Any representation, warranty or other written statement of an Obligor made in connection with any Loan
10.1.2, 10.2 or 10.3;
(c) A Borrower breaches or fail to perform any covenant contained in Section 7.2, 7.3, 7.4, 7.6, 8.1.2, 10.1.1,
(d) An Obligor breaches or fails to perform any other covenant contained in any Loan Documents, and such breach
or failure is not cured within 15 days after a Senior Officer of such Obligor has knowledge thereof or receives notice thereof from Lender,
whichever is sooner; provided, however, that such notice and opportunity to cure shall not apply if the breach or failure to perform is not
capable of being cured within such period or is a willful breach by an Obligor;
(e) A Guarantor repudiates, revokes or attempts to revoke its Guaranty; an Obligor or third party denies or contests
the validity or enforceability of any Loan Documents or Obligations, or the perfection or priority of any Lien granted to Lender; or any
Loan Document ceases to be in full force or effect for any reason (other than a waiver or release by Lender);
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(f) Any breach or default of an Obligor occurs (after giving effect to any applicable grace period thereunder) under
(i) any Hedging Agreement; (ii) any Senior Debt Document; (iii) any Factoring Agreement; or (iv) any instrument or agreement to which it
is a party or by which it or any of its Properties is bound, relating to any Debt (other than the Obligations) in excess of $1,250,000, if the
maturity of or any payment with respect to such Debt may be accelerated or demanded due to such breach;
(g) Any judgment or order for the payment of money is entered against an Obligor in an amount that exceeds,
individually or cumulatively with all unsatisfied judgments or orders against all Obligors, $937,500 (net of insurance coverage therefor that
has not been denied by the insurer), unless a stay of enforcement of such judgment or order is in effect, by reason of a pending appeal or
otherwise;
exceeds $625,000;
(h) A loss, theft, damage or destruction occurs with respect to any Collateral if the amount not covered by insurance
(i) An Obligor is enjoined, restrained or in any way prevented by any Governmental Authority from conducting any
material part of its business; an Obligor suffers the loss, revocation or termination of any material license, permit, lease or agreement
necessary to its business; there is a cessation of any material part of an Obligor's business for a material period of time; any material
Collateral or Property of an Obligor is taken or impaired through condemnation; an Obligor agrees to or commences any liquidation,
dissolution or winding up of its affairs except in connection with a merger or consolidation with another Obligor that is permitted under this
Agreement; or an Obligor is not Solvent;
(j) An Insolvency Proceeding is commenced by an Obligor; an Obligor makes an offer of settlement, extension or
composition to its unsecured creditors generally; a trustee is appointed to take possession of any substantial Property of or to operate any of
the business of an Obligor; or an Insolvency Proceeding is commenced against an Obligor and: the Obligor consents to institution of the
proceeding, the petition commencing the proceeding is not timely contested by the Obligor, the petition is not dismissed within 30 days
after filing, or an order for relief is entered in the proceedin;
(k) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan that has resulted or could
reasonably be expected to result in liability of an Obligor to a Pension Plan, Multiemployer Plan or PBGC, or that constitutes grounds for
appointment of a trustee for or termination by the PBGC of any Pension Plan or Multiemployer Plan; an Obligor or ERISA Affiliate fails to
pay when due any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan; or
any event similar to the foregoing occurs or exists with respect to a Foreign Plan;
(l) An Obligor or any of its Senior Officers is criminally indicted or convicted for (i) a felony committed in the
conduct of the Obligor's business, or (ii) violating any state or federal law (including the Controlled Substances Act, Money Laundering
Control Act of 1986 and Illegal Exportation of War Materials Act) that could lead to forfeiture of any material Property or any Collateral;
or
(m) A Change of Control occurs; or any event occurs or condition exists that has a Material Adverse Effect.
11.2. Remedies upon Default. If an Event of Default described in Section 11.1(j) occurs with respect to any
Borrower, then to the extent permitted by Applicable Law and subject to the Debt and Lien Subordination Agreement, all Obligations shall
become automatically due and payable, without any action by Lender or notice of any kind. In addition, or if any other Event of Default
exists, Lender may in its discretion do any one or more of the following from time to time, subject to the Debt and Lien Subordination
Agreement:
(a) declare any Obligations immediately due and payable, whereupon they shall be due and payable without
diligence, presentment, demand, protest or notice of any kind, all of which are hereby waived by Borrowers to the fullest extent permitted
by law;
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(b) require Obligors to Cash Collateralize Obligations that are contingent or not yet due and payable; and
(c) exercise any other rights or remedies afforded under any agreement, by law, at equity or otherwise, including
the rights and remedies of a secured party under the UCC. Such rights and remedies include the rights to (i) take possession of any
Collateral; (ii) require Borrowers to assemble Collateral, at Borrowers' expense, and make it available to Lender at a place designated by
Lender; (iii) enter any premises where Collateral is located and store Collateral on such premises until sold (and if the premises are owned
or leased by a Borrower, Borrowers agree not to charge for such storage); and (iv) sell or otherwise dispose of any Collateral in its then
condition, or after any further manufacturing or processing thereof, at public or private sale, with such notice as may be required by
Applicable Law, in lots or in bulk, at such locations, all as Lender, in its discretion, deems advisable. Each Borrower agrees that 10 days
notice of any proposed sale or other disposition of Collateral by Lender shall be reasonable, and that any sale conducted on the internet or
to a licensor of Intellectual Property shall be commercially reasonable. Lender may conduct sales on any Obligor's premises, without
charge, and any sales may be adjourned from time to time in accordance with Applicable Law. Lender shall have the right to sell, lease or
otherwise dispose of any Collateral for cash, credit or any combination thereof, and Lender may purchase any Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of the purchase price, may set off the amount of such price against the
Obligations.
11.3. License. To the extent permitted under the terms of any underlying license or sublicense agreements (if
applicable) and subject to the Debt and Lien Subordination Agreement, Lender is hereby granted an irrevocable, non-exclusive license or
other right to use, license or sub-license during the existence of an Event of Default (without payment of royalty or other compensation to
any Person) any or all Intellectual Property of Borrowers, computer hardware and software, trade secrets, brochures, customer lists,
promotional and advertising materials, labels, packaging materials and other Property, in advertising for sale, marketing, selling, collecting,
completing manufacture of, or otherwise exercising any rights or remedies with respect to, any Collateral. Each Borrower's rights and
interests under Intellectual Property shall inure to Lender's benefit.
11.4. Setoff. At any time during an Event of Default and subject to the Debt and Lien Subordination Agreement,
Lender and its Affiliates are authorized, to the fullest extent permitted by Applicable Law, to set off and apply any and all deposits (general
or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any
time owing by Lender or such Affiliate to or for the credit or the account of an Obligor against its Obligations, whether or not Lender or
such Affiliate shall have made any demand under this Agreement or any other Loan Document and although such Obligations may be
contingent or unmatured. The rights of Lender and each such Affiliate under this Section are in addition to other rights and remedies
(including other rights of setoff) that such Person may have.
11.5. Remedies Cumulative; No Waiver.
11.5.1. Cumulative Rights. All agreements, warranties, guaranties, indemnities and other undertakings of Obligors
under the Loan Documents are cumulative and not in derogation of each other. The rights and remedies of Lender under the Loan
Documents are cumulative, may be exercised at any time and from time to time, concurrently or in any order, and are not exclusive of any
other rights or remedies available by agreement, by law, at equity or otherwise. All such rights and remedies shall continue in full force and
effect until Full Payment of all Obligations.
11.5.2. Waivers. No waiver or course of dealing shall be established by (a) the failure or delay of Lender to require
strict performance by any Obligor under any Loan Document, or to exercise any rights or remedies with respect to Collateral or otherwise;
(b) the making of the Loan during a Default, Event of Default or other failure to satisfy any conditions precedent; or (c) acceptance by
Lender of any payment or performance by an Obligor under any Loan Documents in a manner other than that specified therein. Any failure
to satisfy a financial covenant on a measurement date shall not be cured or remedied by satisfaction of such covenant on a subsequent date.
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SECTION 12. MISCELLANEOUS
12.1. Amendments and Waivers.
12.1.1. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Borrowers,
Lender, and their respective successors and assigns, except that no Borrower shall have the right to assign its rights or delegate its
obligations under any Loan Documents.
12.1.2. Amendments and Other Modifications. No modification of any Loan Document, including any extension or
amendment of a Loan Document or any waiver of a Default or Event of Default, shall be effective without the prior written agreement of
Lender and each Obligor party to such Loan Document. Any waiver or consent granted by Lender shall be effective only if in writing, and
only for the matter specified.
12.2.
Indemnity. EACH BORROWER SHALL INDEMNIFY AND HOLD HARMLESS THE
INDEMNITEES AGAINST ANY CLAIMS THAT MAY BE INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE,
INCLUDING CLAIMS ASSERTED BY ANY OBLIGOR OR OTHER PERSON OR ARISING FROM THE NEGLIGENCE OF
AN INDEMNITEE. In no event shall any party to a Loan Document have any obligation thereunder to indemnify or hold harmless an
Indemnitee with respect to a Claim that is determined in a final, non-appealable judgment by a court of competent jurisdiction to result from
the gross negligence or willful misconduct of such Indemnitee.
12.3. Notices and Communications.
12.3.1. Notice Address. All notices and other communications by or to a party hereto shall be in writing and shall be
given to any Borrower, at Borrower Agent's address shown on the signature pages hereof, and to any other Person at its address shown on
the signature pages hereof, or at such other address as a party may hereafter specify by notice in accordance with this Section 12.3. Each
such notice or other communication shall be effective only (a) if given by facsimile transmission, when transmitted to the applicable
facsimile number, if confirmation of receipt is received; (b) if given by mail, three Business Days after deposit in the U.S. mail, with first-
class postage pre-paid, addressed to the applicable address; or (c) if given by personal delivery, when duly delivered to the notice address
with receipt acknowledged. Notwithstanding the foregoing, no notice to Lender pursuant to Section 5.2.3 shall be effective until actually
received by the individual to whose attention at Lender such notice is required to be sent. Any written notice or other communication that is
not sent in conformity with the foregoing provisions shall nevertheless be effective on the date actually received by the noticed party. Any
notice received by Borrower Agent shall be deemed received by all Borrowers.
12.3.2. Electronic Communications; Voice Mail. Electronic mail and internet websites may be used only for routine
communications, such as delivery of financial statements and other information required by Section 10.1.2, administrative matters, and
distribution of Loan Documents. Lender make no assurances as to the privacy and security of electronic communications. Electronic and
voice mail may not be used as effective notice under the Loan Documents.
12.3.3. [Omitted.]
12.3.4. Non-Conforming Communications. Lender may rely upon any communications purportedly given by or on
behalf of any Borrower even if they were not made in a manner specified herein, were incomplete or were not confirmed, or if the terms
thereof, as understood by the recipient, varied from a later confirmation. Each Borrower shall indemnify and hold harmless each Indemnitee
from any liabilities, losses, costs and expenses arising from any electronic or telephonic communication purportedly given by or on behalf
of a Borrower.
42
12.4. Performance of Borrowers' Obligations. Lender may, in its discretion at any time and from time to time, at
Borrowers' expense, pay any amount or do any act required of a Borrower under any Loan Documents or otherwise lawfully requested by
Lender to (a) enforce any Loan Documents or collect any Obligations; (b) protect, insure, maintain or realize upon any Collateral; or (c)
defend or maintain the validity or priority of Lender's Liens in any Collateral, including any payment of a judgment, insurance premium,
warehouse charge, finishing or processing charge, or landlord claim, or any discharge of a Lien. All payments, costs and expenses
(including Extraordinary Expenses) of Lender under this Section shall be reimbursed by Borrowers, on demand, with interest from the date
incurred until paid in full, at the Default Rate. Any payment made or action taken by Lender under this Section shall be without prejudice
to any right to assert an Event of Default or to exercise any other rights or remedies under the Loan Documents.
from third parties concerning any Obligor or Subsidiary.
12.5. Credit Inquiries. Lender may (but shall have no obligation) to respond to usual and customary credit inquiries
12.6. Severability. Wherever possible, each provision of the Loan Documents shall be interpreted in such manner as
to be valid under Applicable Law. If any provision is found to be invalid under Applicable Law, it shall be ineffective only to the extent of
such invalidity and the remaining provisions of the Loan Documents shall remain in full force and effect.
12.7. Cumulative Effect; Conflict of Terms. The provisions of the Loan Documents are cumulative. The parties
acknowledge that the Loan Documents may use several limitations or measurements to regulate similar matters, and they agree that these
are cumulative and that each must be performed as provided. Except as otherwise provided in another Loan Document (by specific
reference to the applicable provision of this Agreement), if any provision contained herein is in direct conflict with any provision in another
Loan Document, the provision herein shall govern and control.
12.8. Counterparts; Execution. Any Loan Document may be executed in counterparts, each of which shall
constitute an original, but all of which when taken together shall constitute a single contract. This Agreement shall become effective when
Lender has received counterparts bearing the signatures of all parties hereto. Delivery of a signature page of any Loan Document by
telecopy or other electronic means shall be effective as delivery of a manually executed counterpart of such agreement. Any electronic
signature, contract formation on an electronic platform and electronic record-keeping shall have the same legal validity and enforceability
as a manually executed signature or use of a paper-based recordkeeping system to the fullest extent permitted by Applicable Law, including
the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or
any similar state law based on the Uniform Electronic Transactions Act.
12.9. Entire Agreement . Time is of the essence with respect to all Loan Documents and Obligations. The Loan
Documents constitute the entire agreement, and supersede all prior understandings and agreements, among the parties relating to the
subject matter thereof.
12.10. No Control; No Advisory or Fiduciary Responsibility . Nothing in any Loan Document and no action of
Lender pursuant to any Loan Document shall be deemed to constitute control of any Obligor by Lender. In connection with all aspects of
each transaction contemplated by any Loan Document, Borrowers acknowledge and agree that (a)(i) this loan facility and all related
services by Lender or its Affiliates are arm's-length commercial transactions between Borrowers and such Person; (ii) Borrowers have
consulted their own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate; and (iii) Borrowers are
capable of evaluating, and understand and accept, the terms, risks and conditions of the transactions contemplated by the Loan Documents;
(b) each of Lender and its Affiliates is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant
parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for Borrowers, their Affiliates or any other Person, and
has no obligation with respect to the transactions contemplated by the Loan Documents except as expressly set forth therein; and (c) Lender
and its Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of Borrowers and their
Affiliates, and have no obligation to disclose any of such interests to Borrowers or their Affiliates. To the fullest extent permitted by
Applicable Law, each Borrower hereby waives and releases any claims that it may have against Lender and its Affiliates with respect to any
breach of agency or fiduciary duty in connection with any transaction contemplated by a Loan Document.
43
12.11. Confidentiality. Lender agrees to maintain the confidentiality of all Information (as defined below), except that
Information may be disclosed (a) to its Affiliates, and its and their partners, directors, officers, employees, agents, advisors and
representatives (provided they are informed of the confidential nature of the Information and instructed to keep it confidential); (b) to the
extent requested by any governmental, regulatory or self-regulatory authority purporting to have jurisdiction over it or its Affiliates (in
which case Lender shall notify Borrower Agent to the extent Lender is lawfully permitted to do so); (c) to the extent required by Applicable
Law or by any subpoena or other legal process (in which case Lender shall notify Borrower Agent to the extent Lender is lawfully
permitted to do so); (d) to any other party hereto; (e) in connection with any action or proceeding relating to any Loan Documents or
Obligations; (f) subject to an agreement containing provisions substantially the same as this Section, to any potential or actual transferee of
any interest in a Loan Document or any actual or prospective party (or its advisors) to any swap, derivative or other transaction under which
payments are to be made by reference to an Obligor or Obligor's obligations; (g) with the consent of Borrower Agent; or (h) to the extent
such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) is available to Lender or its Affiliates
on a nonconfidential basis from a source other than Borrowers. Notwithstanding the foregoing, subject to Borrower Agent's prior written
consent, Lender may publish or disseminate general information concerning this loan facility, and may use Borrowers' logos, trademarks or
product photographs in advertising materials. As used herein, "Information" means information received from an Obligor or Subsidiary
relating to it or its business, other than any information that is available to Lender on a nonconfidential basis prior to disclosure by an
Obligor or Subsidiary, provided, that in the case of information received from an Obligor or Subsidiary after the Closing Date, such
information is identified as confidential when delivered. A Person required to maintain the confidentiality of Information pursuant to this
Section shall be deemed to have complied if it exercises a degree of care similar to that accorded its own confidential information. Lender
acknowledges that (i) Information may include material non-public information; (ii) it has developed compliance procedures regarding the
use of such information; and (iii) it will handle the material non-public information in accordance with Applicable Law.
12.12. GOVERNING LAW. UNLESS EXPRESSLY PROVIDED IN ANY LOAN DOCUMENT, THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL CLAIMS SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF GEORGIA, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES EXCEPT FEDERAL
LAWS RELATING TO NATIONAL BANKS.
12.13. Consent to Forum.
12.13.1. Forum. EACH BORROWER HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION
OF ANY FEDERAL OR STATE COURT SITTING IN OR WITH JURISDICTION OVER THE NORTHERN DISTRICT OF
GEORGIA OR MURRAY COUNTY, GEORGIA, IN ANY DISPUTE, ACTION, LITIGATION OR OTHER PROCEEDING
RELATING IN ANY WAY TO ANY LOAN DOCUMENTS, AND AGREES THAT ANY DISPUTE, ACTION, LITIGATION OR
OTHER PROCEEDING SHALL BE BROUGHT BY IT SOLELY IN ANY SUCH COURT. EACH BORROWER
IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL CLAIMS, OBJECTIONS AND DEFENSES THAT IT MAY
HAVE REGARDING ANY SUCH COURT'S PERSONAL OR SUBJECT MATTER JURISDICTION, VENUE OR
INCONVENIENT FORUM. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE
JURISDICTION OF SUCH COURTS AND CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR
NOTICES IN SECTION 12.3.1. A final judgment in any proceeding of any such court shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or any other manner provided by Applicable Law.
12.13.2. Other Jurisdictions. Nothing herein shall limit the right of Lender to bring proceedings against any Obligor in
any other court, nor limit the right of any party to serve process in any other manner permitted by Applicable Law. Nothing in this
Agreement shall be deemed to preclude enforcement by Lender of any judgment or order obtained in any forum or jurisdiction.
44
12.14. Waivers by Borrowers. To the fullest extent permitted by Applicable Law, each Borrower waives (a) the
right to trial by jury (which Lender hereby also waives) in any proceeding or dispute of any kind relating in any way to any Loan
Documents, Obligations or Collateral; (b) presentment, demand, protest, notice of presentment, default, non-payment, maturity,
release, compromise, settlement, extension or renewal of any commercial paper, accounts, documents, instruments, chattel paper
and guaranties at any time held by Lender on which a Borrower may in any way be liable, and hereby ratifies anything Lender
may do in this regard; (c) notice prior to taking possession or control of any Collateral; (d) any bond or security that might be
required by a court prior to allowing Lender to exercise any rights or remedies; (e) the benefit of all valuation, appraisement and
exemption laws; (f) any claim against Lender, on any theory of liability, for special, indirect, consequential, exemplary or punitive
damages (as opposed to direct or actual damages) in any way relating to any Enforcement Action, Obligations, Loan Documents or
transactions relating thereto; and (g) notice of acceptance hereof. Each Borrower acknowledges that the foregoing waivers are a
material inducement to Lender entering into this Agreement and that Lender is relying upon the foregoing in its dealings with Borrowers.
Each Borrower has reviewed the foregoing waivers with its legal counsel and has knowingly and voluntarily waived its jury trial and other
rights following consultation with legal counsel. In the event of litigation, this Agreement may be filed as a written consent to a trial by the
court.
12.15.
NO ORAL AGREEMENT . THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
[Remainder of page intentionally left blank; signatures begin on following page]
45
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date set forth above.
LENDER:
ISAAC CAPITAL FUND I, LLC
By: /s/ Timothy A. Bailey
Timothy A. Bailey, Manager
Address:
2743 G. I. Maddox Parkway
Chatsworth, Georgia 30705
Attn: Timothy A. Bailey
Telecopy:
[Signatures continue on the following pages]
46
ATTEST:
BORROWERS:
/s/ Tony Isaac
Tony Isaac, Secretary
MARQUIS AFFILIATED HOLDINGS LLC
By: /s/ Jon Isaac
Jon Isaac, President and Chief Executive Officer
[SEAL]
Address:
325 East Warm Springs Road, Suite 102
Las Vegas, Nevada 89119
Attn: Jon Isaac
Telecopy:
ATTEST:
MARQUIS INDUSTRIES, INC.
/s/ Edward Hine, Jr.
Edward Hine, Jr., Assistant Secretary
[CORPORATE SEAL]
By: /s/ Timothy A. Bailey
Timothy A. Bailey, Chief Executive Officer
Address:
2743 Highway 76
Chatsworth, Georgia 30705
Attn: Timothy A. Bailey
Telecopy:
ATTEST:
A-O INDUSTRIES, LLC
/s/ Edward Hine, Jr.
Edward Hine, Jr., Manager-Secretary
[SEAL]
ATTEST:
/s/ Edward Hine, Jr.
Edward Hine, Jr., Manager-Secretary
[SEAL]
By: /s/ Timothy A. Bailey
Timothy A. Bailey, Manager
Address:
2743 Highway 76
Chatsworth, Georgia 30705
Attn: Timothy A. Bailey
Telecopy:
ASTRO CARPET MILLS, LLC
By: /s/ Timothy A. Bailey
Timothy A. Bailey, Manager
Address:
2743 Highway 76
Chatsworth, Georgia 30705
Attn: Timothy A. Bailey
Telecopy:
[Signatures continue on the following page]
47
ATTEST:
CONSTELLATION INDUSTRIES, LLC
/s/ Edward Hine, Jr.
Edward Hine, Jr., Manager-Secretary
[SEAL]
ATTEST:
/s/ Edward Hine, Jr.
Edward Hine, Jr., Manager-Secretary
[SEAL]
By: /s/ Timothy A. Bailey
Timothy A. Bailey, Manager
Address:
2743 Highway 76
Chatsworth, Georgia 30705
Attn: Timothy A. Bailey
Telecopy:
S F COMMERCIAL PROPERTIES, LLC
By: /s/ Timothy A. Bailey
Timothy A. Bailey, Manager
Address:
2743 Highway 76
Chatsworth, Georgia 30705
Attn: Timothy A. Bailey
Telecopy:
48
SCHEDULE 8.1.1
to
Loan and Security Agreement
BUSINESS LOCATIONS
49
SCHEDULE 9.1.4
to
Loan and Security Agreement
NAMES AND CAPITAL STRUCTURE
50
SCHEDULE 9.1.9
to
Loan and Security Agreement
BROKERS
51
SCHEDULE 9.1.10
to
Loan and Security Agreement
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
52
SCHEDULE 9.1.13
to
Loan and Security Agreement
ENVIRONMENTAL MATTERS
53
SCHEDULE 9.1.14
to
Loan and Security Agreement
RESTRICTIVE AGREEMENTS
54
SCHEDULE 9.1.15
to
Loan and Security Agreement
LITIGATION
55
SCHEDULE 9.1.17
to
Loan and Security Agreement
PENSION PLAN DISCLOSURES
56
SCHEDULE 9.1.19
to
Loan and Security Agreement
LABOR RELATIONS
57
SCHEDULE 10.2.2
to
Loan and Security Agreement
EXISTING LIENS
58
SCHEDULE 10.2.17
to
Loan and Security Agreement
EXISTING AFFILIATE TRANSACTIONS
59
EXHIBIT A
to
Loan and Security Agreement
HISTORICAL EBITDA / FIXED CHARGE COVERAGE RATIO CALCULATIONS
(See attached.)
60
Exhibit 10.18
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease"), effective on July 6, 2015, by and between 716 River Street Partners, LLC, ("Lessor") and
Constellation Industries, LLC, ("Lessee");
W I T N E S S E T H:
1. Premises. Lessor, for and in consideration of the rents to be paid hereunder by Lessee, and the covenants, agreements, and
stipulations to be kept and performed by Lessee, has leased and rented, and by these presents does lease and rent unto Lessee, and Lessee
hereby agrees to lease and take upon the terms and conditions which hereinafter appear, the following described property, to-wit:
SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF
Together with a building and other improvements located on the above described property (hereinafter referred to as the "Improvements")
(said land and Improvements being hereinafter referred to as the "Premises").
2. Term. The initial term of this Lease shall begin on July 6, 2015, (the "Commencement Date") and shall end at midnight on July 31,
2020, unless sooner terminated pursuant to the terms herein set forth or renewed as provided herein.
3. Option to Renew. Lessee shall have the option to renew the lease for three (3) additional terms of five (5) years any time prior to
the termination of the lease upon written notification to the Lessor not less than six (6) months prior to the expiration of the term then in
effect; provided, however, that Lessee's option to renew the Lease is expressly conditioned on the absence of the existence of any default
by Lessee or other ground for termination of this lease specified in Paragraph 14 hereof at the time of the exercise of such option and at the
time when such renewal goes into effect.
4. Rental.
(a) Monthly rental for the Premises shall be payable in advance on the first (1st) day of each month during the term hereof, with a
prorated rent for the short month following the Commencement Date. The base rental shall be $18,562.50 per month. In the event that the
Lessee elects to exercise any renewal option, the base rent shall be changed by the same percentage change by the change in the Consumer
Price Index published by the federal government for the Atlanta metropolitan region between June 30, 2015, and at June 30th at the end of
the term being renewed.
(b) The rent shall be absolutely net to Lessor. Lessor shall not be required to make any repairs or improvements to the Premises,
nor to maintain the Premises nor to incur any expense in connection therewith. Lessee shall pay as additional rent hereunder all charges
against the Premises, including all charges for water, gas, electricity, fuel, light, power and sewer relating to the Premises or used by Lessee
or parties claiming under Lessee.
(c) If Lessee does not promptly pay on or within five (5) days after the due date thereof the monthly rental referred to in
Paragraph 4(a), Lessee shall pay, in addition to such monthly rental, a late payment premium of five percent (5%) of the monthly rental
owing.
(d) If Lessee does not promptly pay on or before the due date thereof any of the charges referred to in Paragraph 4(b), or if
Lessee does not promptly pay on or before the date specified in Paragraph 5(a) any Imposition to be paid by Lessee as provided in
Paragraph 5(a), or if Lessee does not within the time provided pay any other amount required to be paid by Lessee under the provisions of
this Lease, then, ten (10) days after giving written notice to Lessee, if Lessee fails to pay such amounts within the same ten (10) day period,
Lessor may, at Lessor's option, pay the same, together with any interest or penalty, and Lessee shall immediately upon demand, pay all
such amounts to Lessor, including reasonable attorney's fees, which shall not exceed fifteen percent (15%) of the amount so paid as
additional rent, together with interest thereon at the rate of nine percent (9%) per annum, or such higher rate as may from time to time be
charged by Lessor and allowable under the laws of Georgia.
1
(e) If the Commencement Date does not fall on the first day of a calendar month, the rent for the first calendar month of the term
of this Lease shall be pro-rated between Lessor and Lessee.
5. Real Estate Taxes and Assessments.
(a) Lessee shall pay or cause to be paid on or before the last day on which they may be paid without penalty or interest all real
estate and personal property taxes and assessments and other governmental levies which may be levied or assessed upon the Premises
during the term of this Lease, including any tax imposed in lieu of existing ad valorem taxes, all of which are herein collectively called
"Impositions"; provided that if any Imposition may be paid in installments, Lessee may pay or cause to be paid each such installment on or
before the last day upon which it may be paid without penalty. Lessee shall, promptly following request therefor by Lessor, exhibit to
Lessor for examination receipts of payment for all Impositions.
6. Use of Premises. The Premises shall be used only for the businesses of Lessee and for related purposes. The Premises shall not be
used for any illegal purpose, nor in any manner to create any nuisance or trespass.
7. Repairs.
(a) Lessee shall, at its own expense, repair and maintain the roof and the structural integrity of the walls to the Premises. Lessee
also shall at its own expense, keep and maintain the Premises in good order and repair all damages and Lessee further agrees to return the
Premises to Lessor at the expiration or prior termination of this Lease in as good condition and repair as when first received, natural wear
and tear alone excepted.
8. Insurance.
(a) So long as this Lease remains in effect, Lessee, at its expense, will maintain, or cause to be maintained with insurers
approved by Lessor, which approval shall not be unreasonably withheld, such insurance on the Improvements and in such amounts as may
from time to time be reasonably required by Lessor against such insurable hazards as at the time are commonly insured against in the case
of premises similarly situated.
(b) All insurance required to be maintained pursuant to Paragraph 8(a) shall: (1) name Lessor and Lessee as their respective
interests may appear; (2) provide that all insurance proceeds shall be payable jointly to Lessor and Lessee; and (3) provide that no
cancellation thereof shall be effective until at least thirty (30) days after receipt by Lessor and Lessee.
(c) Lessee hereby releases Lessor from any and all liability or responsibility to Lessee or anyone claiming through or under
Lessee by way of subrogation or otherwise for any loss or damage to property caused by fire or other casualty against which insurance is to
be provided hereunder, unless such fire or other casualty shall have been caused by the fault or negligence of Lessor, or anyone for whom
Lessor may be responsible. Lessee agrees that any policy carried which relates to the Premises shall include a clause or endorsement to the
effect that such release shall not adversely affect or impair the coverage thereunder or prejudice the right of Lessee to recover thereunder.
(d) Lessee shall upon request deliver proof reasonably satisfactory to Lessor of all insurance policies with respect to the Premises
which Lessee is required to maintain pursuant to this Paragraph 8.
2
9. Destruction or Damage of Premises.
(a) If, any time during the term hereof, the Improvements or any part thereof, shall be damaged or destroyed by fire or other
casualty (including any casualty for which insurance coverage was not obtained or obtainable) of any kind or nature, ordinary or
extraordinary, foreseen or unforeseen, Lessee, at Lessee's sole cost and expense, and whether or not the insurance proceeds hereinafter
referred to, if any, shall be sufficient for the purpose, shall proceed with reasonable diligence (subject to unavoidable delays and a
reasonable time for the purpose of adjusting such loss) to repair, alter, restore, replace or rebuild the same as nearly as possible to its value,
condition and character immediately prior to such damage or destruction, subject to such changes or alterations as Lessee may elect to
make, if such changes or alterations be approved by Lessor, such approval not to be unreasonably withheld. Such repairs, alterations,
restoration, replacement or rebuilding, including such changes and alterations as aforementioned and including temporary repairs or the
protection of other property pending the completion of any thereof, are sometimes referred to in this Paragraph as the "Work".
(b) All insurance proceeds received by Lessor on account of any damage to or destruction of the Improvements or any part
thereof (less the costs, fees, and expenses incurred by the Lessor in the collection thereof, including, without limitation, adjusters' fees and
expenses and attorneys' fees and expenses) shall be applied as follows: Unless Lessee is in default hereunder or if any ground for
termination specified in Paragraph 14 shall have occurred and be continuing (regardless of any right which Lessee may have, if any, to
notice or an opportunity to cure same), such proceeds shall be paid to Lessee or as Lessee may direct, from time to time as the Work
progresses, to pay (or reimburse Lessee for) the cost of the Work, upon written request of Lessee accompanied by evidence satisfactory to
Lessor that the amount requested has been paid or is then due and payable and is properly a part of such cost, that there are no mechanics'
or similar liens, whether inchoate or otherwise, for labor, services or materials theretofore supplied in connection with the Work and that
all other bills have been paid and that the balance of said proceeds after making the payment requested will be sufficient to pay the balance
of the cost of the Work. Notwithstanding the above, Lessor may disburse such proceeds directly to the persons entitled to same. Upon
receipt by Lessor of evidence satisfactory to Lessor that the Work has been completed and the cost thereof paid in full, and that there are no
mechanics' or other similar liens, whether inchoate or otherwise, for labor, services or materials supplied in connection therewith, then,
unless Lessee is in default hereunder or if any ground for termination specified in Paragraph 14 shall have occurred and be continuing
(regardless of any right which Lessee may have, if any, to notice or an opportunity to cure same), the balance, if any, of such proceeds shall
be paid to Lessee or as Lessee may direct; otherwise, the net insurance proceeds may be first used to cure such default or such ground for
termination if susceptible to being so used, and the balance applied to any future rentals in the order determined by Lessor with any balance
thereafter remaining paid to Lessee. If the net insurance proceeds shall be insufficient to pay the entire cost of the Work, Lessee shall
supply the amount of such deficiency and shall first apply the same to the payment of the cost of the Work before calling upon Lessor for
disbursement of the insurance proceeds as herein provided.
(c) Under no circumstances shall Lessor be obligated to make any payment, disbursement or contribution toward the cost of the
Work other than making available such proceeds. If Lessee shall fail to comply with any of the provisions of subsections (a) or (b) above,
Lessor shall notify Lessee of such default and thereafter, in addition to any other remedies Lessor may have, may refuse to make any
payment hereunder and may apply such proceeds in any order Lessor may in his sole discretion elect, toward the payment of all or any part
of the cost of the Work or the discharge of any obligation of Lessee under this Lease.
10. Indemnity. Lessee agrees to indemnify and save harmless the Lessor against all claims relating to damage to persons or property
by reason of Lessee's use or occupancy of the Premises, and all expenses incurred by Lessor with respect thereto, including but not limited
to attorney's fees and court costs.
11. Governmental Orders. Lessee agrees, at its own expense, promptly to comply with all requirements of any legally constituted
public authority.
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12. Condemnation. If the whole of Premises, or such portion thereof as will make Premises unusable for the purposes herein leased,
be condemned or taken by any legally constituted authority for any public use or purpose, then in either of such events this Lease shall
terminate from the time when possession thereof is taken by public authorities, and rent and other charges hereunder shall be accounted for
as between Lessor and Lessee as of that date. Such termination, however, shall be without prejudice to the rights of both Lessor and Lessee
to recover compensation and damage caused by condemnation from the condemnor.
13. Removal of Fixtures. Lessee may (if not in default hereunder) prior to, and within ten (10) days after the expiration of the term
hereof, remove all fixtures and equipment which Lessee has placed in the Premises, provided Lessee repairs all damage to the Premises
caused by such removal.
14. Cancellation of Lease. In the event the Lessee shall default in the payment of any rent or any additional rent, when due, and fails
to cure said default within ten (10) days after receipt of written notice thereof from Lessor; or if Lessee shall default in any other obligation
under this Lease, and shall fail to cure said default within thirty (30) days after receipt of written notice thereof from Lessor, or if Lessee is
adjudicated bankrupt; or if a permanent receiver is appointed for Lessee's property and such receiver is not removed within sixty (60) days
after written notice from Lessor to Lessee to obtain such removal; or if, whether voluntarily or involuntarily, Lessee takes advantage of any
debtor relief proceedings under any present or future law, whereby the rent or any part thereof is, or is proposed to be, or may be, reduced
or payment thereof deferred, and such proceeding is not dismissed within sixty (60) days after written notice from Lessor to Lessee to
obtain such dismissal; or if Lessee makes an assignment for benefit of creditors; or if Lessee's effects should be levied upon or attached
under process against Lessee, which is not satisfied or dissolved within thirty (30) days after written notice from Lessor to Lessee to obtain
satisfaction thereof; then and in any of said events, Lessor at its option may at once, or at any time during the continuance of such default or
condition, terminate this Lease by written notice to Lessee and this Lease shall end. If Lessee shall be in default in performing any of the
terms or provisions of this Lease, other than the provisions requiring the payment of rent or additional rent, and shall fail to cure any such
default within thirty (30) days (or such longer period as may be reasonably necessary) after receipt of written notice of default from the
other party, Lessor may perform or procure the performance of the obligation of Lessee and all costs incurred in curing such default,
including reasonable attorney's fees, shall be payable on demand. After an assignment of this entire Lease, the occurring of any of the
foregoing defaults or events shall affect this Lease only if caused by, or happening to, the assignee. Upon such termination by Lessor,
Lessee will at once surrender possession of the Premises to Lessor and upon demand of Lessor, will remove all of Lessee's effects
therefrom; and Lessor may forthwith re-enter the Premises and repossess Lessor thereof, and remove all persons and effects therefrom,
using such force as may be necessary without being guilty to trespass, forcible entry, detainer or other tort.
15. Survival of Lessee's Obligations; Damages.
(a) No expiration or termination of this Lease pursuant to Paragraph 14 or by operation of law or otherwise shall relieve Lessee
of its liabilities and obligations hereunder, all of which shall survive such expiration or termination.
(b) In the event of any such expiration or termination, or reletting pursuant to Paragraph 16, Lessee will pay to Lessor all rent,
additional rent and other sums required to be paid by Lessee for the entire term of the Lease then in effect and all such payments shall be
immediately due and payable. Upon payment of those rents for the entire term of the Lease then in effect, Lessor shall remit to Lessee the
net proceeds, if any, of any reletting effected for the account of Lessee pursuant to Paragraph 16 after deducting from such proceeds all
Lessor's expenses in connection with such reletting (including, without limitation, all repossession costs, brokerage commissions, legal and
accounting expenses, attorney's fees and expenses, employees' expenses, promotional expenses, reasonable alteration costs, and expenses of
preparation for such reletting).
16. Reletting by Lessor. If at any time Lessor is entitled to terminate this Lease pursuant to Paragraph 14, Lessor may, at Lessor's
option, without prejudice to Lessor's right thereafter to terminate this Lease, enter upon and rent the Premises without advertising and by
private negotiations and for any term and upon such rentals and other conditions as Lessor may determine.
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17. Entry for Carding, Etc.. Lessor may card the Premises "For Rent" or "For Sale" thirty (30) days before the expiration or
termination of this Lease. Lessor may enter the Premises at reasonable hours to exhibit same to prospective purchasers or tenants.
18. Quiet Enjoyment. Lessor covenants that so long as Lessee pays the rent and any additional rent hereunder and performs and
observes all of the other covenants and provisions hereof, Lessee shall quietly enjoy the Premises for the term of this Lease.
19. Holding over. If Lessee remains in possession of Premises after expiration or termination of the term hereof, with Lessor's
acquiescence and without any express agreement of the parties, Lessee shall be a tenant at will at the rent in effect at the end of this Lease,
and there shall be no renewal of this Lease by operation of law.
20. Rights Cumulative. All rights, powers and privileges conferred hereunder upon parties hereto shall be cumulative but not
restrictive of those given by law or otherwise provided in this Lease.
21. Subordination. Lessee shall, upon the request of Lessor, subordinate its interest in the Premises to any indebtedness now existing
or hereafter incurred by Lessor for which the Premises are conveyed as collateral by Lessor and to any renewal, extension, modification,
consolidation, or replacement thereof and shall execute such documents as are necessary to effectuate the intent of this paragraph;
provided, however, that Lessee's subordination obligation shall be conditioned upon the holder of such indebtedness agreeing to execute a
commercially reasonable non-disturbance agreement.
22. Notices. Any notice given pursuant to this Lease shall be in writing and sent by registered mail to:
LESSOR:
LESSEE:
716 River Street, LLC
2743 G.I. Maddox Parkway
Chatsworth, GA 30705
Constellation Industries, LLC
2743 G.I. Maddox Parkway
Chatsworth, GA 30705
Either Lessee or Lessor may change their address for notice hereunder by giving the other party hereto written notice of such change in the
manner provided herein.
23. Waiver of Rights. No failure of Lessor to exercise any power given Lessor hereunder, or to insist upon strict compliance by Lessee
with Lessee's obligations hereunder, and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of
Lessor's right to demand exact compliance with the terms hereof.
24. Time of Essence. Time is of the essence of this Lease.
25. Definitions. "Lessor" as used in this Lease shall include the herein named Lessor and said Lessor's heirs, representatives, assigns
and successors in title to Premises. "Lessee" shall include the herein named Lessee and said Lessee's heirs, representatives, successors and
assigns. "Lessor" and "Lessee" include male and female, singular and plural, corporation, partnership or individual, as may fit the particular
parties.
26. Assignment and Subletting. Lessee may not sublease the Premises, or any part thereof, to others, or assign this Lease or any
interest hereunder, without the prior written consent of Lessor. Any assignee of Lessee approved by Lessor shall, at the sole option of
Lessor, become directly liable to Lessor for all obligations of Lessee hereunder, but no assignment shall relieve Lessee of any liability
hereunder unless otherwise agreed at the time of such assignment. Lessor shall have the option to assign this Lease without prior notice and
consent of the Lessee. Notwithstanding the foregoing, Lessee shall have the right, without Lessor's consent, to sublet any portion of the
Premises, or to assign this Lease, to any affiliate of Marquis Industries, Inc.
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27. Improvements; Alterations. Lessee acknowledges that the improvements are accepted As Is with all faults. Lessee shall be
permitted to make alterations to the Premises that do not impact the structural components of the Premises without Lessor's consent.
28. Entire Agreement. This Lease contains the entire agreement of the parties hereto and no representation, inducement, promise or
agreement, oral or otherwise, between the parties, not embodied herein, shall be of any force or effect.
29. Captions. The captions provided in this Lease are for reference purposes only and shall not in any way affect the meaning, content
or interpretation hereof.
30. Severability. If any provision of this Lease or any paragraph, sentence, clause, phrase or word, or the application thereof in any
circumstance, is held invalid or unenforceable, the validity and enforceability of the remainder of this Lease, and of the application of any
such circumstances, shall not be affected thereby, it being intended that all rights, powers and privileges of Lessor hereunder shall be
enforceable to the fullest extent permitted by law.
31. Purchase Option. Lessee or its assignee shall have an option to purchase the Premises during the first term of the lease. No less
than thirty (30) days prior to the date on which Lessee desires to close such purchase, Lessee shall deliver to Lessor written notice of
Lessee's election to exercise such purchase option, together with a commercial purchase contract common for the purchase of properties
similar to the Premises in the geographic vicinity of the Premises (the "PSA"). The terms of the PSA shall include at a minimum the
following: (i) the purchase price shall equal Lessor's book value for the Premises (approximately $1,550,000) on the Effective Date of this
Lease, (ii) all actual or potential claims for indemnification for environmental matters as set forth in this Lease (including those set forth in
Section 32) are waived by Lessee and the Lessee Indemnitees (as defined below) and Lessee agrees to hold Lessor harmless from
environmental claims from any source; and (iii) all closing costs shall be paid by the parties as is custom for the geographic vicinity of the
Premises.
32. Environmental.
(a) As used in this Section 32, the following terms have the following meanings: (i) "Environmental Law" means any present
and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, relating to protection of
human health or the environment, relating to Hazardous Materials, relating to liability for or costs of other actual or threatened danger to
human health or the environment, including without limitation, the following statutes, as amended, any successor thereto, and any
regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar
issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-
Know Act; the Hazardous Substances Transportation Act; the Resource Conservation and Recovery Act (including but not limited to
Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic
Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act;
the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River
and Harbors Appropriation Act; (ii) "Hazardous Materials" means petroleum and petroleum products and compounds containing them,
including gasoline, diesel fuel and oil, flammable explosives and other materials, radioactive materials (excluding radioactive materials in
smoke detectors), polychlorinated biphenyls, lead, asbestos or asbestos containing materials in any form that is or could become friable,
hazardous waste, toxic or hazardous substances or other related materials whether in the form of a chemical, element, compound, solution,
mixture or otherwise including, but not limited to, those materials defined as "hazardous substances," "extremely hazardous substances,"
"hazardous chemicals," "hazardous materials," "toxic substances " "solid waste " "toxic chemicals " "air pollutants" "toxic" "pollutants,"
"hazardous wastes," "extremely hazardous waste," or "restricted hazardous waste" by any Environmental Law or regulated by any
Environmental Law in any manner whatsoever, but excluding substances of kinds and in amounts ordinarily and customarily used or stored
in properties similar to the Premises for the purposes of cleaning or other maintenance or operations and otherwise in compliance with all
Environmental Laws; (iii) "Legal Action" means any claim, suit or proceeding, whether administrative or judicial in nature; (iv) "Losses"
shall mean any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts,
damages, losses, costs, expenses, fines, penalties, charges, fees, judgments, awards, amounts paid in settlement of whatever kind or nature
(including but not limited to legal fees and other costs of defense); and (v) "Release" with respect to any Hazardous Materials includes but is
not limited to any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying,
escaping, dumping, disposing or other movement of Hazardous Materials.
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(b) Lessor covenants and agrees, at the Lessor's sole cost and expense, to protect, defend, indemnify, release and hold Lessee and
its officers, directors, shareholders, partners, members, employees, agents, servants, representatives, contractors, subcontractors, affiliates
or subsidiaries (collectively, the "Lessee Indemnitees") harmless from and against any and all Losses imposed upon or incurred by or
asserted against any Lessee Indemnitees and directly or indirectly arising out of or in any way relating to any one or more of the following:
(i) any presence of any Hazardous Materials in, on, above, or under the Premises as of the Commencement Date; (ii) any Release of any
Hazardous Materials in, on, above, under or from the Premises prior to the Commencement Date; (iii) any remediation of any Hazardous
Materials located in, under, on or above the Premises prior to the Commencement Date, including but not limited to any removal, remedial
or corrective action; and (iv) any non-compliance or violations of any Environmental Law (or permits issued pursuant to any Environmental
Law) in connection with the Premises or operations thereon prior to the Commencement Date, including but not limited to any failure by
Lessor, any person or entity affiliated with the Lessor, and prior owner or occupant of the Premises to comply with any order of any
governmental authority in connection with any Environmental Law.
(c) Notwithstanding anything in this Section 32 to the contrary, there shall be no claim for indemnification under Section 32(b)
until the Loss, individually or in the aggregate with other Losses and/or any SPA Losses (as defined below), exceeds One Hundred
Thousand Dollars ($100,000), but once that Loss threshold is achieved, all Losses shall be subject to Indemnification from the first dollar.
"SPA Losses" means those indemnifiable Losses in respect of indemnification under clause (a) of the opening paragraph of Section 10 of
the Purchase Agreement dated the date hereof by and among LiveDeal, Inc., Marquis Affiliated Holdings LLC, Marquis Industries, Inc.,
Timothy A. Bailey, Larry Heckman, David Stokes, and Mark Rowland (the "SPA").
(d) Lessee shall not make, store, use (except for storage or use incidental to use in its own business, which storage shall not have
a cost of removal or clean up in excess of Five Thousand Dollars ($5,000.00)), treat, release or dispose of any hazardous substances,
pollutants or other contaminants on or under the Premises. "Hazardous substances," "pollutants" and other "contaminants," are defined in
the federal Comprehensive Environmental Response, Compensation and Liability Act. Lessee shall indemnify and hold Lessor harmless
from and against all loss, damages, fines, penalties, liability and expenses (including but not limited to reasonable attorneys' fees and costs
of investigation and litigation) caused by or in any manner arising from such substances placed on or under the Premises by Lessee.
(e) The indemnity provisions of this Section 32 shall survive the termination of the Lease.
33. Authority. Lessor and Lessee each represent and warrant to the other that they have legal authority and all necessary consents to
enter into, be bound by and perform under this Lease. Lessor represents and warrants that it has good and marketable title to the Premises,
and that there are no third parties with any rights or interests in or to use of the Premises.
34. Governing Law and Binding Effect. The interpretation and enforcement of this Lease shall be governed by and construed in
accordance with the laws of the State of Georgia and shall bind, and the benefits and advantages shall inure to and be enforceable by the
Lessor and Lessee as well as their respective personal representatives, heirs, successors and assigns.
35. Disputes. All disputes between the parties shall be governed by Section 14.08 of the SPA.
36. Counterparts. This Lease may be executed in one or more duplicate counterparts, each of which shall when taken together be
deemed to be a fully executed original.
[Rest of this page left intentionally blank.]
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Each of the equity holders of Lessor hereby executes this Lease for the sole purpose of hereby unconditionally and irrevocably
guaranteeing the indemnification and payment obligations of Lessor hereunder.
/s/ Timothy A. Bailey
Timothy A. Bailey
/s/ Larry Heckman
Larry Heckman
/s/ David Stokes
David Stokes
/s/ Mark Rowland
Mark Rowland
The undersigned indirect parent entity of Lessee hereby executes this Lease for the sole purpose of acknowledging and agreeing to the
provisions set forth in Sections 31 and 32 of this Lease.
Marquis Affiliated Hold ings LLC
By: /s/ Jon Isaac
Jon Isaac, President and
Chief Executive Officer
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EXHIBIT "A"
ALL THAT TRACT OR PARCEL of land lying and being in Land Lot No. 242 in the 14th District and 3rd Section of Gordon County,
Georgia, and being more particularly described as follows:
To find the TRUE POINT OF BEGINNING; Commence at the intersection of the centerline of River Street with the centerline of Oak
Street; running thence South 01 degree 28 minutes 12 seconds West a distance of 1089.55 feet to an iron pin and the TRUE POINT OF
BEGINNING; thence South 02 degrees 53 minutes 05 seconds East a distance of 341.57 feet to an iron pin; thence South 28 degrees 42
minutes 09 seconds East a distance of 34.44 feet to an iron pin; thence South 02 degrees 45 minutes 09 seconds East a distance of 84.14 feet
to an iron pin; thence North 86 degrees 55 minutes 51 seconds East a distance of 20.19 feet to an iron pin; thence North 02 degrees 49
minutes 07 seconds West a distance of 42.25 feet to an iron pin located on the western right of way of River Street (having a 100-foot right
of way); thence following said right of way of River Street following the arc of a curve to the left an arc distance of 68.71 feet (said arc
having a radius of 1959.86 feet and being subtended by a chord bearing South 12 degrees 11 minutes 13 seconds East a chord distance of
68.71 feet to an iron pin; thence leaving said right of way of River Street, running South 86 degrees 03 minutes 17 seconds West a distance
of 630.92 feet to an iron pin; thence North 00 degrees 17 minutes 16 seconds West a distance of 489.54 feet to an iron pin; thence North 86
degrees 37 minutes 17 seconds East a distance of 562.50 feet to an iron pin and the POINT OF BEGINNING.
SAID TRACT OR PARCEL containing 6.46 Acres.
9
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
As an independent registered public accounting firm, we consent to the inclusion in the Registration Statement on Form S-3 and Form S-8
of our report dated January 13, 2016, relating to the consolidated balance sheets of Live Ventures, Inc. and its subsidiaries (the “Company”)
as of September 30, 2015 and 2014, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years
then ended, included in the Annual Report on Form 10-K of Live Ventures, Inc. for the year ended September 30, 2015.
/s/ Anton & Chia, LLP
Anton & Chia, LLP
Newport Beach, California
January 13, 2016
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jon Isaac, certify that:
1. I have reviewed this Annual Report on Form 10-K of LiveDeal, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
registrant’s internal control over financial reporting.
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
Date: January 13, 2016
/s/ Jon Isaac
Jon Isaac
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jon Isaac, certify that:
1. I have reviewed this Annual Report on Form 10-K of LiveDeal, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
registrant’s internal control over financial reporting.
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
Date: January 13, 2016
/s/ Jon Isaac
Jon Isaac
(Principal Financial Officer)
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
I, Jon Isaac, the President and Chief Executive Officer of LiveDeal, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of LiveDeal, Inc. on Form 10-K for the fiscal year ended
September 30, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that
information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of
operations of LiveDeal, Inc.
Date: January 13, 2016
/s/ Jon Isaac
Jon Isaac
President and Chief Executive Officer
(Principal Executive and Financial Officer)
A signed original of this written statement required by Section 906 has been provided to LiveDeal, Inc. and will be retained by LiveDeal,
Inc. and furnished to the Securities and Exchange Commission or its staff upon request.