Exhibit 10.7
SECURITY AGREEMENT
          SECURITY AGREEMENT, dated as of March 31, 2006 (this “Agreement”) made
by Global Employment Holdings, Inc. a Delaware corporation (the “Company”),
Global Employment Solutions, Inc., a Colorado corporation (“GES”), and each of
its subsidiaries (each a “Guarantor” and together with the Company and each of
its subsidiaries, each a “Grantor” and together the “Grantors”), in favor of
Amatis Limited a company organized under the laws of the Cayman Islands, in its
capacity as collateral agent (in such capacity, the “Collateral Agent”) for the
“Buyers” (as defined below) party to the Securities Purchase Agreement, dated as
of even date herewith (as amended, restated or otherwise modified from time to
time, the “Securities Purchase Agreement”).
W I T N E S S E T H:
          WHEREAS, GES and each party listed as a “Buyer” on the Schedule of
Buyers attached thereto (collectively, the “Buyers”) are parties to the
Securities Purchase Agreement, pursuant to GES is required to cause the Company
to sell the “Notes” (as defined therein);
          WHEREAS, each of the Guarantors has executed and delivered a Guaranty
dated the date hereof (the “Guaranty”) in favor of the Collateral Agent for the
benefit of itself and the Buyers, with respect to the Company’s obligations
under the Securities Purchase Agreement, the Notes and the Transaction Documents
(as defined below);
          WHEREAS, it is a condition precedent to the Buyers entering into the
Securities Purchase Agreement that the Grantors shall have executed and
delivered to the Collateral Agent this Agreement providing for the grant to the
Collateral Agent for the benefit of the Buyers of a security interest in all
personal property of each Grantor to secure all of the Company’s obligations
under the Securities Purchase Agreement, the “Notes”(as defined therein) issued
pursuant thereto (as such Notes may be amended, restated, replaced or otherwise
modified from time to time in accordance with the terms thereof, collectively,
the “Notes”), and the “Transaction Documents” (as defined in the Securities
Purchase Agreement, the “Transaction Documents”) and the Guarantors obligations
under the Guaranty; and
          WHEREAS. Global Employment Solutions, Inc. and certain affiliates have
obtained senior financing as described in the Notes (the “Senior Loan”) from
Wells Fargo Bank N.A. (the “Senior Lender”), acting through Wells Fargo Business
Credit operating division. The Obligations (as defined below) and the security
interests granted by the Grantors herein are subordinated to all of the
obligations to, and the security interests of the Senior Lender in respect of
the Senior Loan pursuant to the terms of a Subordination Agreement, dated as of
the date hereof, by and among the Collateral Agent, the Buyers, the Senior
Lender and the Grantors (the “Subordination Agreement”).
          NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Collateral Agent and the Buyers to perform
under the Securities Purchase Agreement, each Grantor agrees with the Collateral
Agent, for the benefit of the Buyers, as follows:

 

--------------------------------------------------------------------------------

 

          SECTION 1. Definitions.
          (a) Reference is hereby made to the Securities Purchase Agreement and
the Notes for a statement of the terms thereof. All terms used in this Agreement
and the recitals hereto which are defined in the Securities Purchase Agreement,
the Notes, or in Articles 8 or 9 of the Uniform Commercial Code (the “Code”) as
in effect from time to time in the State of New York, and which are not
otherwise defined herein shall have the same meanings herein as set forth
therein; provided that terms used herein which are defined in the Code as in
effect in the State of New York on the date hereof shall continue to have the
same meaning notwithstanding any replacement or amendment of such statute except
as the Collateral Agent may otherwise determine. In the event that any such term
is defined in both the Securities Purchase Agreement and the Code or the Notes
and the Code, the definition of such term in the Securities Purchase Agreement
or the notes, as the case may be, shall control.
          (b) The following terms shall have the respective meanings provided
for in the Code: “Accounts”, “Cash Proceeds”, “Chattel Paper”, “Commercial Tort
Claim”, “Commodity Account”, “Commodity Contracts”, “Deposit Account”,
“Documents”, “Equipment”, “Fixtures”, “General Intangibles”, “Goods”,
“Instruments”, “Inventory”, “Investment Property”, “Letter-of-Credit Rights”,
“Noncash Proceeds”, “Payment Intangibles”, “Proceeds”, “Promissory Notes”,
“Security”, “Record”, “Security Account”, “Software”, and “Supporting
Obligations”.
          (c) As used in this Agreement, the following terms shall have the
respective meanings indicated below, such meanings to be applicable equally to
both the singular and plural forms of such terms:
          “Copyright Licenses” means all licenses, contracts or other
agreements, whether written or oral, naming any Grantor as licensee or licensor
and providing for the grant of any right to use or sell any works covered by any
copyright (including, without limitation, all Copyright Licenses set forth in
Schedule II hereto).
          “Copyrights” means all domestic and foreign copyrights, whether
registered or not, including, without limitation, all copyright rights
throughout the universe (whether now or hereafter arising) in any and all media
(whether now or hereafter developed), in and to all original works of authorship
fixed in any tangible medium of expression, acquired or used by any Grantor
(including, without limitation, all copyrights described in Schedule II hereto),
all applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Copyright Office or in any similar office or agency of the United States or any
other country or any political subdivision thereof), and all reissues,
divisions, continuations, continuations in part and extensions or renewals
thereof.
          “Event of Default” shall have the meaning set forth in the Notes.
          “Insolvency Proceeding” means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code (Chapter 11 of Title 11 of
the United States Code) or under any other bankruptcy or insolvency law,
assignments for the benefit of creditors, formal or informal moratoria,
compositions, or extensions generally with creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.

-2-

--------------------------------------------------------------------------------

 

          “Intellectual Property” means the Copyrights, Trademarks and Patents.
          “Licenses” means the Copyright Licenses, the Trademark Licenses and
the Patent Licenses.
          “Lien” means any mortgage, deed of trust, pledge, lien (statutory or
otherwise), security interest, charge or other encumbrance or security or
preferential arrangement of any nature, including, without limitation, any
conditional sale or title retention arrangement, any capitalized lease and any
assignment, deposit arrangement or financing lease intended as, or having the
effect of, security.
          “Patent Licenses” means all licenses, contracts or other agreements,
whether written or oral, naming any Grantor as licensee or licensor and
providing for the grant of any right to manufacture, use or sell any invention
covered by any Patent (including, without limitation, all Patent Licenses set
forth in Schedule II hereto).
          “Patents” means all domestic and foreign letters patent, design
patents, utility patents, industrial designs, inventions, trade secrets, ideas,
concepts, methods, techniques, processes, proprietary information, technology,
know-how, formulae, rights of publicity and other general intangibles of like
nature, now existing or hereafter acquired (including, without limitation, all
domestic and foreign letters patent, design patents, utility patents, industrial
designs, inventions, trade secrets, ideas, concepts, methods, techniques,
processes, proprietary information, technology, know-how and formulae described
in Schedule II hereto), all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in
the United States Patent and Trademark Office, or in any similar office or
agency of the United States or any other country or any political subdivision
thereof), and all reissues, divisions, continuations, continuations in part and
extensions or renewals thereof.
          “Trademark Licenses” means all licenses, contracts or other
agreements, whether written or oral, naming any Grantor as licensor or licensee
and providing for the grant of any right concerning any Trademark, together with
any goodwill connected with and symbolized by any such trademark licenses,
contracts or agreements and the right to prepare for sale or lease and sell or
lease any and all Inventory now or hereafter owned by any Grantor and now or
hereafter covered by such licenses (including, without limitation, all Trademark
Licenses described in Schedule II hereto).
          “Trademarks” means all domestic and foreign trademarks, service marks,
collective marks, certification marks, trade names, business names, d/b/a’s,
Internet domain names, trade styles, designs, logos and other source or business
identifiers and all general intangibles of like nature, now or hereafter owned,
adopted, acquired or used by any Grantor (including, without limitation, all
domestic and foreign trademarks, service marks, collective marks, certification
marks, trade names, business names, d/b/a’s, Internet domain names, trade
styles, designs, logos and other source or business identifiers described in
Schedule II hereto), all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in
the United States Patent and Trademark Office or in any similar office or agency
of the United States, any state thereof or any other country or any political

-3-

--------------------------------------------------------------------------------

 

subdivision thereof), and all reissues, extensions or renewals thereof, together
with all goodwill of the business symbolized by such marks and all customer
lists, formulae and other Records of any Grantor relating to the distribution of
products and services in connection with which any of such marks are used.
          SECTION 2. Grant of Security Interest. As collateral security for all
of the “Obligations” (as defined in Section 3 hereof), each Grantor hereby
pledges and assigns to the Collateral Agent for the benefit of the Buyers, and
grants to the Collateral Agent for the benefit of the Buyers a continuing
security interest in, all personal property of each Grantor, wherever located
and whether now or hereafter existing and whether now owned or hereafter
acquired, of every kind and description, tangible or intangible (collectively,
the “Collateral”), including, without limitation, the following:
          (a) all Accounts;
          (b) all Chattel Paper (whether tangible or electronic);
          (c) the Commercial Tort Claims specified on Schedule VI hereto;
          (d) all Deposit Accounts, all cash, and all other property from time
to time deposited therein and the monies and property in the possession or under
the control of the Collateral Agent or Buyer or any affiliate, representative,
agent or correspondent of the Collateral Agent or Buyer;
          (e) all Documents;
          (f) all Equipment;
          (g) all Fixtures;
          (h) all General Intangibles (including, without limitation, all
Payment Intangibles);
          (i) all Goods;
          (j) all Instruments (including, without limitation, Promissory Notes
and each certificated Security);
          (k) all Inventory;
          (l) all Investment Property;
          (m) all Copyrights, Patents and Trademarks, and all Licenses;
          (n) all Letter-of-Credit Rights;
          (o) all Supporting Obligations;

-4-

--------------------------------------------------------------------------------

 

          (p) all other tangible and intangible personal property of each
Grantor (whether or not subject to the Code), including, without limitation, all
bank and other accounts and all cash and all investments therein, all proceeds,
products, offspring, accessions, rents, profits, income, benefits, substitutions
and replacements of and to any of the property of any Grantor described in the
preceding clauses of this Section 2 (including, without limitation, any proceeds
of insurance thereon and all causes of action, claims and warranties now or
hereafter held by each Grantor in respect of any of the items listed above), and
all books, correspondence, files and other Records, including, without
limitation, all tapes, desks, cards, Software, data and computer programs in the
possession or under the control of any Grantor or any other Person from time to
time acting for any Grantor that at any time evidence or contain information
relating to any of the property described in the preceding clauses of this
Section 2 or are otherwise necessary or helpful in the collection or realization
thereof; and
          (q) all Proceeds, including all Cash Proceeds and Noncash Proceeds,
and products of any and all of the foregoing Collateral;
in each case howsoever any Grantor’s interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise).
     The Obligations (as defined below) and the security interests granted by
the grantors herein are subordinated to all of the obligations to, and the
security interests of, the Senior Lender in respect of the Senior Loan pursuant
to the terms of the Subordination Agreement.
          SECTION 3. Security for Obligations. The security interest created
hereby in the Collateral constitutes continuing collateral security for all of
the following obligations, whether now existing or hereafter incurred
(collectively, the “Obligations”):
          (a) (i) the payment by the Company, as and when due and payable (by
scheduled maturity, required prepayment, acceleration, demand or otherwise), of
all amounts from time to time owing by it in respect of the Securities Purchase
Agreement, the Notes, and the other “Transaction Documents” (as defined in the
Securities Purchase Agreement), including, without limitation, (A) all principal
of and interest on the Notes (including, without limitation, all interest that
accrues after the commencement of any Insolvency Proceeding of any Grantor,
whether or not the payment of such interest is unenforceable or is not allowable
due to the existence of such Insolvency Proceeding), and (B) all fees,
commissions, expense reimbursements, indemnifications and all other amounts due
or to become due under any of the Transaction Documents; and
          (b) the due performance and observance by each Grantor of all of its
other obligations from time to time existing in respect of any of the
Transaction Documents, including without limitation, with respect to any
conversion or redemption rights of the Buyers under the Notes, for so long as
they are outstanding.

-5-

--------------------------------------------------------------------------------

 

          SECTION 4. Representations and Warranties. Each Grantor represents and
warrants as follows:
          (a) Schedule I hereto sets forth (i) the exact legal name of each of
the Grantors, and (ii) the organizational identification number of each Grantor
or states that no such organizational identification number exists.
          (b) There is no pending or written notice threatening any action,
suit, proceeding or claim affecting any Grantor before any governmental
authority or any arbitrator, or any order, judgment or award by any governmental
authority or arbitrator, that may adversely affect the grant by any Grantor, or
the perfection, of the security interest purported to be created hereby in the
Collateral, or the exercise by the Collateral Agent of any of its rights or
remedies hereunder.
          (c) Intentionally Omitted
          (d) All Equipment, Fixtures, Goods and Inventory of each Grantor now
existing are, and all Equipment, Fixtures, Goods and Inventory of each Grantor
hereafter existing will be, located and/or based at the addresses specified
therefor in Schedule III hereto, or, at such other locations in the United
States, provided that within 10 days following the relocation of Equipment or
Inventory to such other location, Grantor shall deliver to the Collateral Agent
a new Schedule III indicating each such new location.. Each Grantor’s chief
place of business and chief executive office, the place where each Grantor keeps
its Records concerning Accounts and all originals of all Chattel Paper are
located at the addresses specified therefor in Schedule III hereto. None of the
Accounts is evidenced by Promissory Notes or other Instruments. Set forth in
Schedule IV hereto is a complete and accurate list, as of the date of this
Agreement, of (i) each Promissory Note, Security and other Instrument owned by
each Grantor and (ii) each Deposit Account, Securities Account and Commodities
Account of each Grantor, together with the name and address of each institution
at which each such Account is maintained, the account number for each such
Account and a description of the purpose of each such Account. Set forth in
Schedule I hereto is a complete and correct list of each trade name used by each
Grantor and the name of, and each trade name used by, each person from which
each Grantor has acquired any substantial part of the Collateral.
          (e) Each Grantor has delivered to the Collateral Agent complete and
correct copies of each License described in Schedule II hereto, including all
schedules and exhibits thereto, which represents all of the Licenses existing on
the date of this Agreement. Each such License sets forth the entire agreement
and understanding of the parties thereto relating to the subject matter thereof,
and there are no other agreements, arrangements or understandings, written or
oral, relating to the matters covered thereby or the rights of each Grantor or
any of its affiliates in respect thereof. Each material License now existing is,
and any material License entered into in the future will be, the legal, valid
and binding obligation of the parties thereto, enforceable against such parties
in accordance with its terms. No default under any material License by any such
party has occurred, nor does any defense, offset, deduction or counterclaim
exist thereunder in favor of any such party.
          (f) Each Grantor owns and controls, or otherwise possesses adequate
rights to use, all Trademarks, Patents and Copyrights, which are the only
trademarks, patents, copyrights,

-6-

--------------------------------------------------------------------------------

 

inventions, trade secrets, proprietary information and technology, know-how,
formulae, rights of publicity necessary to conduct its business in substantially
the same manner as conducted as of the date hereof. Schedule II hereto sets
forth a true and complete list of all registered copyrights, issued Patents,
Trademarks, and Licenses annually owned or used by each Grantor as of the date
hereof. To the best knowledge of the Grantors, all such Intellectual Property of
each Grantor is subsisting and in full force and effect, has not been adjudged
invalid or unenforceable, is valid and enforceable and has not been abandoned in
whole or in part. Except as set forth in Schedule II, no such Intellectual
Property is the subject of any licensing or franchising agreement. Each Grantor
has no knowledge of any conflict with the rights of others to any Intellectual
Property and, to the best knowledge of the Grantors, each Grantor is not now
infringing or in conflict with any such rights of others in any material
respect, and to the best knowledge of the Grantors, no other Person is now
infringing or in conflict in any material respect with any such properties,
assets and rights owned or used by each Grantor. No Grantor has received any
notice that it is violating or has violated the trademarks, patents, copyrights,
inventions, trade secrets, proprietary information and technology, know-how,
formulae, rights of publicity or other intellectual property rights of any third
party.
          (g) Each Grantor is and will be at all times the sole and exclusive
owner of, or otherwise has and will have adequate rights in, the Collateral free
and clear of any Liens, except for Permitted Liens on any Collateral. Except
with respect to Permitted Liens, no effective financing statement or other
instrument similar in effect covering all or any part of the Collateral is on
file in any recording or filing office except such as may have been filed in
favor of the Collateral Agent relating to this Agreement.
          (h) The exercise by the Collateral Agent of any of its rights and
remedies hereunder will not contravene any law or any contractual restriction
binding on or otherwise affecting each Grantor or any of its properties and will
not result in or require the creation of any Lien, upon or with respect to any
of its properties.
          (i) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or other regulatory body, or any
other Person, is required for (i) the grant by each Grantor, or the perfection,
of the security interest purported to be created hereby in the Collateral, or
(ii) the exercise by the Collateral Agent of any of its rights and remedies
hereunder, except (A) for the filing under the Uniform Commercial Code as in
effect in the applicable jurisdiction of the financing statements, all of which
financing statements, have been duly filed and are in full force and effect,
(B) with respect to the perfection of the security interest created hereby in
the Intellectual Property, for the recording of the appropriate Assignment for
Security, substantially in the form of Exhibit A hereto, as applicable, in the
United States Patent and Trademark Office or the United States Copyright Office,
as applicable, and (C) with respect to the perfection of the security interest
created hereby in foreign Intellectual Property and Licenses, for registrations
and filings in jurisdictions located outside of the United States and covering
rights in such jurisdictions relating to the Intellectual Property and Licenses.
          (j) This Agreement creates in favor of the Collateral Agent a legal,
valid and enforceable security interest in the Collateral, as security for the
Obligations. The Collateral Agent’s having possession of all Instruments and
cash constituting Collateral from time to time,

-7-

--------------------------------------------------------------------------------

 

(or with respect to deposit accounts, entry into appropriate control agreements)
the recording of the appropriate Assignment for Security executed pursuant
hereto in the United States Patent and Trademark Office and the United States
Copyright Office, the execution of appropriate assignments of Letter of Credit
Rights, as applicable, and the filing of the financing statements and the other
filings and recordings, as applicable, described in Schedule V hereto and, with
respect to the Intellectual Property hereafter existing and not covered by an
appropriate Assignment for Security, the recording in the United States Patent
and Trademark Office or the United States Copyright Office, as applicable, of
appropriate instruments of assignment, result in the perfection of such security
interests. Such security interests are, or in the case of Collateral in which
each Grantor obtains rights after the date hereof, will be, perfected security
interests, subject to the recording of such instruments of assignment, and
subject in priority only to (i) the lien of the Senior Lender pursuant to the
Subordination Agreement and (ii) Permitted Liens and. Such recordings and
filings and all other action necessary or desirable to perfect and protect such
security interest have been duly taken, except for the Collateral Agent’s having
possession of Instruments and cash constituting Collateral after the date hereof
and the other filings and recordations described in Section 4(l) hereof.
          (k) As of the date hereof, no Grantor holds any Commercial Tort Claims
nor is aware of any such pending claims, except for such claims described in
Schedule VI.
          SECTION 5. Covenants as to the Collateral. So long as any of the
Obligations shall remain outstanding, unless the Collateral Agent shall
otherwise consent in writing and subject to the prior rights of the Senior
Lender pursuant to the terms of the Subordination Agreement:
          (a) Further Assurances. Each Grantor will at its expense, at any time
and from time to time, promptly execute and deliver all further instruments and
documents and take all further action that the Collateral Agent may reasonably
request in order to: (i) perfect and protect the security interest purported to
be created hereby; (ii) enable the Collateral Agent to exercise and enforce its
rights and remedies hereunder in respect of the Collateral; or (iii) otherwise
effect the purposes of this Agreement, including, without limitation:
(A) marking conspicuously all Chattel Paper and each License and, at the request
of the Collateral Agent, each of its Records pertaining to the Collateral with a
legend, in form and substance satisfactory to the Collateral Agent, indicating
that such Chattel Paper, License or Collateral is subject to the security
interest created hereby pursuant to the terms of the Subordination Agreement,
(B) delivering and pledging to the Collateral Agent hereunder each Promissory
Note, Security, Chattel Paper or other Instrument, now or hereafter owned by any
Grantor, duly endorsed and accompanied by executed instruments of transfer or
assignment, all in form and substance satisfactory to the Collateral Agent,
(C) executing and filing (to the extent, if any, that any Grantor’s signature is
required thereon) or authenticating the filing of, such financing or
continuation statements, or amendments thereto, as may be necessary or desirable
or that the Collateral Agent may request in order to perfect and preserve the
security interest purported to be created hereby, (D) furnishing to the
Collateral Agent from time to time statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral in each case as the Collateral Agent may reasonably request, all in
reasonable detail, (E) if any Collateral shall be in the possession of a third
party, notifying such Person of the Collateral Agent’s security interest created
hereby and obtaining a written acknowledgment

-8-

--------------------------------------------------------------------------------

 

from such Person that such Person holds possession of the Collateral for the
benefit of the Collateral Agent, which such written acknowledgement shall be in
form and substance satisfactory to the Collateral Agent, (F) if at any time
after the date hereof, any Grantor acquires or holds any Commercial Tort Claim,
promptly notifying the Collateral Agent in a writing signed by such Grantor
setting forth a brief description of such Commercial Tort Claim and granting to
the Collateral Agent a security interest therein and in the proceeds thereof,
which writing shall incorporate the provisions hereof and shall be in form and
substance satisfactory to the Collateral Agent, (G) upon the acquisition after
the date hereof by any Grantor of any motor vehicle or other Equipment subject
to a certificate of title or ownership (other than a Motor Vehicle or Equipment
that is subject to a purchase money security interest), causing the Collateral
Agent to be listed as the lienholder on such certificate of title or ownership
and delivering evidence of the same to the Collateral Agent in accordance with
the Securities Purchase Agreement; and (H) taking all actions required by any
earlier versions of the Uniform Commercial Code or by other law, as applicable,
in any relevant Uniform Commercial Code jurisdiction, or by other law as
applicable in any foreign jurisdiction.
          (b) Location of Equipment and Inventory. Each Grantor will keep the
Equipment and Inventory at the locations specified therefor on Schedule III
hereto or, at such other locations in the United States, provided that within
10 days following the relocation of Equipment or Inventory to such other
location, Grantor shall deliver to the Collateral Agent a new Schedule III
indicating each such new location.
          (c) Condition of Equipment. Each Grantor will maintain or cause the
Equipment (necessary or useful to its business) to be maintained and preserved
in good condition, repair and working order, ordinary wear and tear excepted,
and will forthwith, or in the case of any loss or damage to any Equipment of any
Grantor within a commercially reasonable time after the occurrence thereof, make
or cause to be made all repairs, replacements and other improvements in
connection therewith which are necessary or desirable, consistent with past
practice, or which the Collateral Agent may request to such end. Any Grantor
will promptly furnish to the Collateral Agent a statement describing in
reasonable detail any such loss or damage in excess of $250,000 per occurrence
to any Equipment.
          (d) Taxes, Etc. Each Grantor agrees to pay promptly when due all
property and other taxes, assessments and governmental charges or levies imposed
upon, and all claims (including claims for labor, materials and supplies)
against, the Equipment and Inventory, except to the extent the validity thereof
is being contested in good faith by proper proceedings which stay the imposition
of any penalty, fine or Lien resulting from the non-payment thereof and with
respect to which adequate reserves in accordance with GAAP have been set aside
for the payment thereof.
          (e) Insurance.
               (i) Each Grantor will, at its own expense, maintain insurance
(including, without limitation, commercial general liability and property
insurance) with respect to the Equipment and Inventory in such amounts, against
such risks, in such form and with responsible and reputable insurance companies
or associations as is required by any governmental authority having jurisdiction
with respect thereto or as is carried generally in

-9-

--------------------------------------------------------------------------------

 

accordance with sound business practice by companies in similar businesses
similarly situated and in any event, in amount, adequacy and scope reasonably
satisfactory to the Collateral Agent. Each such policy for liability insurance
shall provide for all losses to be paid on behalf of the Collateral Agent and
any Grantor as their respective interests may appear, and each policy for
property damage insurance shall provide for all losses to be adjusted with, and
paid directly to, the Collateral Agent. Each such policy shall in addition
(A) name the Collateral Agent as an additional insured party thereunder, subject
to the prior rights of the Senior Lender pursuant to the Subordination Agreement
(without any representation or warranty by or obligation upon the Collateral
Agent) as their interests may appear, (B) contain an agreement by the insurer
that any loss thereunder shall be payable to the Collateral Agent subject to the
prior rights of the Senior Lender pursuant to the Subordination Agreement, on
its own account notwithstanding any action, inaction or breach of representation
or warranty by any Grantor, (C) provide that there shall be no recourse against
the Collateral Agent for payment of premiums or other amounts with respect
thereto, and (D) provide that at least 30 days’ prior written notice of
cancellation, lapse, expiration or other adverse change shall be given to the
Collateral Agent by the insurer. Any Grantor will, if so requested by the
Collateral Agent, deliver to the Collateral Agent original or duplicate policies
of such insurance and, as often as the Collateral Agent may reasonably request,
a report of a reputable insurance broker with respect to such insurance. Any
Grantor will also, at the request of the Collateral Agent, execute and deliver
instruments of assignment of such insurance policies and cause the respective
insurers to acknowledge notice of such assignment.
               (ii) Reimbursement under any liability insurance maintained by
any Grantor pursuant to this Section 5(e) may be paid directly to the Person who
shall have incurred liability covered by such insurance. In the case of any loss
involving damage to Equipment or Inventory, any proceeds of insurance maintained
by any Grantor pursuant to this Section 5(e) shall be paid to the Collateral
Agent subject to the prior rights of the Senior Lender pursuant to the
Subordination Agreement (except as to which paragraph (iii) of this Section 5(e)
is not applicable), any Grantor will make or cause to be made the necessary
repairs to or replacements of such Equipment or Inventory, and any proceeds of
insurance maintained by any Grantor pursuant to this Section 5(e) shall be paid
by the Collateral Agent to any Grantor as reimbursement for the costs of such
repairs or replacements.
               (iii) All insurance payments in respect of such Equipment or
Inventory shall be paid to the Collateral Agent and applied as specified in
Section 7(b) hereof, subject to the rights of the Senior Lender pursuant to the
Subordination Agreement.
          (f) Provisions Concerning the Accounts and the Licenses.
               (i) Any Grantor will (A) give the Collateral Agent at least
30 days’ prior written notice of any change in such Grantor’s name, identity or
organizational structure, (B) maintain its jurisdiction of incorporation as set
forth in Section 4(b) hereto, (C) immediately notify the Collateral Agent upon
obtaining an organizational identification number, if on the date hereof such
Grantor did not have such identification number, and (D) keep adequate records
concerning the Accounts and Chattel Paper and permit representatives of the
Collateral Agent during normal business hours on reasonable notice to such
Grantor, to inspect and make abstracts from such Records and Chattel Paper.

-10-

--------------------------------------------------------------------------------

 

               (ii) Each Grantor will, except as otherwise provided in this
subsection (f), continue to collect, at its own expense, all amounts due or to
become due under the Accounts. The Collateral Agent shall have the right at any
time, upon the occurrence and during the continuance of an Event of Default, to
notify the account debtors or obligors under any Accounts of the assignment of
such Accounts to the Collateral Agent and to direct such account debtors or
obligors to make payment of all amounts due or to become due to any Grantor
thereunder directly to the Collateral Agent or its designated agent and, upon
such notification and at the expense of any Grantor and to the extent permitted
by law, to enforce collection of any such Accounts and to adjust, settle or
compromise the amount or payment thereof, in the same manner and to the same
extent as may Grantor might have done. After receipt by any Grantor of a notice
from the Collateral Agent that the Collateral Agent has notified, intends to
notify, or has enforced or intends to enforce any Grantor’s rights against the
account debtors or obligors under any Accounts as referred to in the proviso to
the immediately preceding sentence, (A) subject to the prior rights of the
Senior Lender pursuant to the Subordination Agreement, all amounts and proceeds
(including Instruments) received by any Grantor in respect of the Accounts shall
be received in trust for the benefit of the Collateral Agent hereunder, shall be
segregated from other funds of any Grantor and shall be forthwith paid over to
the Collateral Agent in the same form as so received (with any necessary
endorsement) to be held as cash collateral and either (i) credited to the
outstanding obligations so long as no Event of Default shall have occurred and
be continuing or (ii) if an Event of Default shall have occurred and be
continuing, applied as specified in Section 7(b) hereof, and (B) no Grantor will
adjust, settle or compromise the amount or payment of any Account or release
wholly or partly any account debtor or obligor thereof or allow any credit or
discount thereon. In addition, upon the occurrence and during the continuance of
an Event of Default, the Collateral Agent may (in its sole and absolute
discretion) subject to the prior rights of the Senior Lender pursuant to the
Subordination Agreement, direct any or all of the banks and financial
institutions with which any Grantor either maintains a Deposit Account or a
lockbox or deposits the proceeds of any Accounts to send immediately to the
Collateral Agent by wire transfer (to such account as the Collateral Agent shall
specify, or in such other manner as the Collateral Agent shall direct) all or a
portion of such securities, cash, investments and other items held by such
institution. Any such securities, cash, investments and other items so received
by the Collateral Agent shall (in the sole and absolute discretion of the
Collateral Agent) be held as additional Collateral for the Obligations or
distributed in accordance with Section 7 hereof.
               (iii) Upon the occurrence and during the continuance of any
breach or default under any material License referred to in Schedule II hereto
by any party thereto other than any Grantor, each Grantor party thereto will,
promptly after obtaining knowledge thereof, give the Collateral Agent written
notice of the nature and duration thereof, specifying what action, if any, it
has taken and proposes to take with respect thereto and thereafter will take
reasonable steps to protect and preserve its rights and remedies in respect of
such breach or default, or will obtain or acquire an appropriate substitute
License.
               (iv) Each Grantor will, at its expense, promptly deliver to the
Collateral Agent a copy of each notice or other communication received by it by
which any other party to any material License referred to in Schedule II hereto
purports to exercise any of its rights or affect any of its obligations
thereunder, together with a copy of any reply by such Grantor thereto.

-11-

--------------------------------------------------------------------------------

 

               (v) Each Grantor will exercise promptly and diligently each and
every right which it may have under each material License (other than any right
of termination) and will duly perform and observe in all respects all of its
obligations under each material License and will take all action reasonably
necessary to maintain such Licenses in full force and effect. No Grantor will,
without the prior written consent of the Collateral Agent, cancel, terminate,
amend or otherwise modify in any respect, or waive any provision of, any
material License referred to in Schedule II hereto.
          (g) Transfers and Other Liens.
               (i) No Grantor will sell, assign (by operation of law or
otherwise), lease, license, exchange or otherwise transfer or dispose of any of
the Collateral, except (A) Inventory in the ordinary course of business, and
(B) worn-out or obsolete assets not necessary to the business.
               (ii) No Grantor will create, suffer to exist or grant any Lien
upon or with respect to any Collateral other than a Permitted Lien.
          (h) Intellectual Property.
               (i) If applicable, any Grantor shall, upon the Collateral Agent’s
written request, duly execute and deliver the applicable Assignment for Security
in the form attached hereto as Exhibit A. Each Grantor (either itself or through
licensees) will, and will cause each licensee thereof to, take all action
necessary to maintain all of the Intellectual Property in full force and effect,
including, without limitation, using the proper statutory notices and markings
and using the Trademarks on each applicable trademark class of goods in order to
so maintain the Trademarks in full force and free from any claim of abandonment
for non-use, and each Grantor will not (nor permit any licensee thereof to) do
any act or knowingly omit to do any act whereby any Intellectual Property may
become invalidated; provided, however, that so long as no Event of Default has
occurred and is continuing, no Grantor shall have an obligation to use or to
maintain any Intellectual Property (A) that relates solely to any product or
work, that has been, or is in the process of being, discontinued, abandoned or
terminated, (B) that is being replaced with Intellectual Property substantially
similar to the Intellectual Property that may be abandoned or otherwise become
invalid, so long as the failure to use or maintain such Intellectual Property
does not materially adversely affect the validity of such replacement
Intellectual Property and so long as such replacement Intellectual Property is
subject to the Lien created by this Agreement or (C) that is substantially the
same as another Intellectual Property that is in full force, so long the failure
to use or maintain such Intellectual Property does not materially adversely
affect the validity of such replacement Intellectual Property and so long as
such other Intellectual Property is subject to the Lien and security interest
created by this Agreement. Each Grantor will cause to be taken all necessary
steps in any proceeding before the United States Patent and Trademark Office and
the United States Copyright Office or any similar office or agency in any other
country or political subdivision thereof to maintain each registration of the
Intellectual Property (other than the Intellectual Property described in the
proviso to the immediately preceding sentence), including, without limitation,
filing of renewals, affidavits of use, affidavits of incontestability and
opposition, interference and cancellation proceedings and payment of maintenance
fees, filing fees, taxes or other governmental fees. If any Intellectual
Property (other than Intellectual Property

-12-

--------------------------------------------------------------------------------

 

described in the proviso to the first sentence of subsection (i) of this clause
(h)) is infringed, misappropriated, diluted or otherwise violated in any
material respect by a third party, each Grantor shall (x) upon learning of such
infringement, misappropriation, dilution or other violation, promptly notify the
Collateral Agent and (y) to the extent any Grantor shall deem appropriate under
the circumstances, promptly sue for infringement, misappropriation, dilution or
other violation, seek injunctive relief where appropriate and recover any and
all damages for such infringement, misappropriation, dilution or other
violation, or take such other actions as such Grantor shall deem appropriate
under the circumstances to protect such Intellectual Property. Each Grantor
shall furnish to the Collateral Agent from time to time upon its request
statements and schedules further identifying and describing the Intellectual
Property and Licenses and such other reports in connection with the Intellectual
Property and Licenses as the Collateral Agent may reasonably request, all in
reasonable detail and promptly upon request of the Collateral Agent, following
receipt by the Collateral Agent of any such statements, schedules or reports,
each Grantor shall modify this Agreement by amending Schedule II hereto, as the
case may be, to include any Intellectual Property and License, as the case may
be, which becomes part of the Collateral under this Agreement and shall execute
and authenticate such documents and do such acts as shall be necessary or, in
the judgment of the Collateral Agent, desirable to subject such Intellectual
Property and Licenses to the Lien and security interest created by this
Agreement. Notwithstanding anything herein to the contrary, upon the occurrence
and during the continuance of an Event of Default, no Grantor may abandon or
otherwise permit any Intellectual Property to become invalid without the prior
written consent of the Collateral Agent, and if any Intellectual Property is
infringed, misappropriated, diluted or otherwise violated in any material
respect by a third party, each Grantor will take such action as the Collateral
Agent shall deem appropriate under the circumstances to protect such
Intellectual Property.
               (ii) Each Grantor shall, within 5 days following the filing of
any application for the registration of any Trademark or Copyright or the
issuance of any Patent with the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, or in any similar office or
agency of the United States or any country or any political subdivision thereof,
provide the Collateral Agent written notice thereof. Upon request of the
Collateral Agent, any Grantor shall execute, authenticate and deliver any and
all assignments, agreements, instruments, documents and papers as the Collateral
Agent may reasonably request to evidence the Collateral Agent’s security
interest hereunder in such Intellectual Property and the General Intangibles of
any Grantor relating thereto or represented thereby, and each Grantor hereby
appoints the Collateral Agent its attorney-in-fact to execute and/or
authenticate and file all such writings for the foregoing purposes, all acts of
such attorney being hereby ratified and confirmed, and such power (being coupled
with an interest) shall be irrevocable until the indefeasible payment in full in
cash of all of the Obligations in full and the termination of each of the
Transaction Documents.
          (i) Deposit, Commodities and Securities Accounts. Upon the Collateral
Agent’s written request, subject to the prior rights of the Senior Lender
pursuant to the Subordination Agreement, each Grantor shall cause each bank and
other financial institution with an account referred to in Schedule IV hereto to
execute and deliver to the Collateral Agent a control agreement, in form and
substance reasonably satisfactory to the Collateral Agent, duly executed by each
Grantor and such bank or financial institution, or enter into other arrangements
in form and substance satisfactory to the Collateral Agent, pursuant to which
such institution shall

-13-

--------------------------------------------------------------------------------

 

irrevocably agree, inter alia, that (i) it will comply at any time with the
instructions originated by the Collateral Agent to such bank or financial
institution directing the disposition of cash, Commodity Contracts, securities,
Investment Property and other items from time to time credited to such account,
without further consent of each Grantor, which instructions the Collateral Agent
will not give to such bank or other financial institution in the absence of a
continuing Event of Default, (ii) all cash, Commodity Contracts, securities,
Investment Property and other items of each Grantor deposited with such
institution shall be subject to a perfected security interest in favor of the
Collateral Agent, subject in priority to only (A) the lien of the Senior Lender
pursuant to the Subordination Agreement and (B) Permitted Liens, (iii) any right
of set off (other than recoupment of standard fees), banker’s Lien or other
similar Lien, security interest or encumbrance shall be fully waived as against
the Collateral Agent, and (iv) upon receipt of written notice from the
Collateral Agent during the continuance of an Event of Default, such bank or
financial institution shall immediately send to the Collateral Agent by wire
transfer (to such account as the Collateral Agent shall specify, or in such
other manner as the Collateral Agent shall direct) all such cash, the value of
any Commodity Contracts, securities, Investment Property and other items held by
it. Without the prior written consent of the Collateral Agent, each Grantor
shall not make or maintain any Deposit Account, Commodity Account or Securities
Account except for the accounts set forth in Schedule IV hereto. The provisions
of this paragraph 5(i) shall not apply to (i) Deposit Accounts for which the
Collateral Agent is the depositary and (ii) Deposit Accounts specially and
exclusively used for payroll, payroll taxes and other employee wage and benefit
payments to or for the benefit of each Grantor’s salaried employees.
          (j) Motor Vehicles.
               (i) Upon the Collateral Agent’s written request, subject to the
prior rights of the Senior Lender pursuant to the Subordination Agreement,each
Grantor shall deliver to the Collateral Agent originals of the certificates of
title or ownership for all motor vehicles with a value in excess of $50,000,
owned by it with the Collateral Agent listed as lienholder, for the benefit of
the Buyers.
               (ii) Each Grantor hereby appoints the Collateral Agent as its
attorney-in-fact, effective the date hereof and terminating upon the termination
of this Agreement, for the purpose of (A) executing on behalf of each Grantor
title or ownership applications for filing with appropriate state agencies to
enable motor vehicles now owned or hereafter acquired by each Grantor to be
retitled and the Collateral Agent listed as lienholder thereof, (B) filing such
applications with such state agencies, and (C) executing such other documents
and instruments on behalf of, and taking such other action in the name of, each
Grantor as the Collateral Agent may deem necessary or advisable to accomplish
the purposes hereof (including, without limitation, for the purpose of creating
in favor of the Collateral Agent a perfected Lien on the motor vehicles and
exercising the rights and remedies of the Collateral Agent hereunder). This
appointment as attorney-in-fact is coupled with an interest and is irrevocable
until all of the Obligations are indefeasibly paid in full in cash and after all
Transaction Documents have been terminated.

-14-

--------------------------------------------------------------------------------

 

               (iii) Any certificates of title or ownership delivered pursuant
to the terms hereof shall be accompanied by odometer statements for each motor
vehicle covered thereby.
               (iv) So long as no Event of Default shall have occurred and be
continuing, upon the request of any Grantor, the Collateral Agent shall execute
and deliver to any Grantor such instruments as any Grantor shall reasonably
request to remove the notation of the Collateral Agent as lienholder on any
certificate of title for any motor vehicle; provided, however, that any such
instruments shall be delivered, and the release effective, only upon receipt by
the Collateral Agent of a certificate from any Grantor stating that such motor
vehicle is to be sold or has suffered a casualty loss (with title thereto
passing to the casualty insurance company therefor in settlement of the claim
for such loss) and the amount that any Grantor will receive as sale proceeds or
insurance proceeds. Subject to the prior rights of the Senior Lender pursuant to
the Subordination Agreement, any proceeds of such sale or casualty loss shall be
paid to the Collateral Agent hereunder immediately upon receipt, to be applied
to the Obligations then outstanding.
          (k) Control. Subject to the prior rights of the Senior Lender pursuant
to the Subordination Agreement, each Grantor hereby agrees to take any or all
action that may be necessary or desirable or that the Collateral Agent may
request in order for the Collateral Agent to obtain control in accordance with
Sections 9-105 – 9-107 of the Code with respect to the following Collateral:
(i) Electronic Chattel Paper, (ii) Investment Property, and
(iii) Letter-of-Credit Rights.
          (l) Inspection and Reporting. Each Grantor shall permit the Collateral
Agent, or any agent or representatives thereof or such professionals or other
Persons as the Collateral Agent may designate, not more than once a year in the
absence of an Event of Default, (i) to examine and make copies of and abstracts
from any Grantor’s records and books of account, (ii) to visit and inspect its
properties, (iii) to verify materials, leases, Instruments, Accounts, Inventory
and other assets of any Grantor from time to time, (iii) to conduct audits,
physical counts, appraisals and/or valuations, examinations at the locations of
any Grantor. Each Grantor shall also permit the Collateral Agent, or any agent
or representatives thereof or such professionals or other Persons as the
Collateral Agent may designate to discuss any Grantor’s affairs, finances and
accounts with any of its directors, officers, managerial employees, independent
accountants or any of its other representatives.
          (m) Future Subsidiaries. If any Grantor shall hereafter create or
acquire any Subsidiary, simultaneously with the creation of acquisition of such
Subsidiary, such Grantor shall cause such Subsidiary to become a party to this
Agreement as an additional “Grantor” hereunder, and to duly execute and deliver
a guaranty of the Obligations in favor of the Collateral Agent in form and
substance reasonably acceptable to the Collateral Agent, and to duly execute
and/or deliver such opinions of counsel and other documents, in form and
substance reasonably acceptable to the Collateral Agent, as the Collateral Agent
shall reasonably request with respect thereto.

-15-

--------------------------------------------------------------------------------

 

          SECTION 6. Additional Provisions Concerning the Collateral.
          (a) Each Grantor hereby (i) authorizes the Collateral Agent to file
one or more Uniform Commercial Code financing or continuation statements, and
amendments thereto, relating to the Collateral and (ii) ratifies such
authorization to the extent that the Collateral Agent has filed any such
financing or continuation statements, or amendments thereto, prior to the date
hereof.
          (b) Each Grantor hereby irrevocably appoints the Collateral Agent as
its attorney-in-fact and proxy, with full authority in the place and stead of
each Grantor and in the name of each Grantor or otherwise, from time to time in
the Collateral Agent’s discretion, so long as an Event of Default shall have
occurred and is continuing, to take any action and to execute any instrument
which the Collateral Agent may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of each Grantor under
Section 5 hereof), including, without limitation, (i) to obtain and adjust
insurance required to be paid to the Collateral Agent pursuant to Section 5(e)
hereof, (ii) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any Collateral, (iii) to receive, endorse, and collect any drafts or
other instruments, documents and chattel paper in connection with clause (i) or
(ii) above, (iv) to file any claims or take any action or institute any
proceedings which the Collateral Agent may deem necessary or desirable for the
collection of any Collateral or otherwise to enforce the rights of the
Collateral Agent and the Buyers with respect to any Collateral, and (v) to
execute assignments, licenses and other documents to enforce the rights of the
Collateral Agent and the Buyers with respect to any Collateral. This power is
coupled with an interest and is irrevocable until all of the Obligations are
indefeasibly paid in full in cash.
          (c) For the purpose of enabling the Collateral Agent to exercise
rights and remedies hereunder, at such time as the Collateral Agent shall be
lawfully entitled to exercise such rights and remedies, and for no other
purpose, each Grantor hereby grants to the Collateral Agent, to the extent
assignable, an irrevocable, non-exclusive license (exercisable without payment
of royalty or other compensation to any Grantor) to use, assign, license or
sublicense any Intellectual Property now owned or hereafter acquired by any
Grantor, wherever the same may be located, including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer programs used for the compilation or printout thereof.
Notwithstanding anything contained herein to the contrary, but subject to the
provisions of the Securities Purchase Agreement that limit the right of any
Grantor to dispose of its property and Section 5(h) hereof, so long as no Event
of Default shall have occurred and be continuing, any Grantor may exploit, use,
enjoy, protect, license, sublicense, assign, sell, dispose of or take other
actions with respect to the Intellectual Property in the ordinary course of its
business. In furtherance of the foregoing, unless an Event of Default shall have
occurred and be continuing, the Collateral Agent shall from time to time, upon
the request of any Grantor, execute and deliver any instruments, certificates or
other documents, in the form so requested, which such Grantor shall have
certified are appropriate (in any Grantor’s judgment) to allow it to take any
action permitted above (including relinquishment of the license provided
pursuant to this clause (c) as to any Intellectual Property). Further, upon the
indefeasible payment in full in cash of all of the Obligations, the Collateral
Agent (subject to Section 10(e) hereof) shall release and reassign to any
Grantor all of the Collateral Agent’s right, title and interest in and to the

-16-

--------------------------------------------------------------------------------

 

Intellectual Property, and the Licenses, all without recourse, representation or
warranty whatsoever. The exercise of rights and remedies hereunder by the
Collateral Agent shall not terminate the rights of the holders of any licenses
or sublicenses theretofore granted by each Grantor in accordance with the second
sentence of this clause (c). Each Grantor hereby releases the Collateral Agent
from any claims, causes of action and demands at any time arising out of or with
respect to any actions taken or omitted to be taken by the Collateral Agent
under the powers of attorney granted herein other than actions taken or omitted
to be taken through the Collateral Agent’s gross negligence or willful
misconduct, as determined by a final determination of a court of competent
jurisdiction.
          (d) If any Grantor fails to perform any agreement contained herein,
the Collateral Agent may itself perform, or cause performance of, such agreement
or obligation, in the name of any Grantor or the Collateral Agent, and the
expenses of the Collateral Agent incurred in connection therewith shall be
payable by any Grantor pursuant to Section 8 hereof and shall be secured by the
Collateral.
          (e) The powers conferred on the Collateral Agent hereunder are solely
to protect its interest in the Collateral and shall not impose any duty upon it
to exercise any such powers. Except for the safe custody of any Collateral in
its possession and the accounting for moneys actually received by it hereunder,
the Collateral Agent shall have no duty as to any Collateral or as to the taking
of any necessary steps to preserve rights against prior parties or any other
rights pertaining to any Collateral.
          (f) Anything herein to the contrary notwithstanding (i) each Grantor
shall remain liable under the Licenses and otherwise with respect to any of the
Collateral to the extent set forth therein to perform all of its obligations
thereunder to the same extent as if this Agreement had not been executed,
(ii) the exercise by the Collateral Agent of any of its rights hereunder shall
not release any Grantor from any of its obligations under the Licenses or
otherwise in respect of the Collateral, and (iii) the Collateral Agent shall not
have any obligation or liability by reason of this Agreement under the Licenses
or with respect to any of the other Collateral, nor shall the Collateral Agent
be obligated to perform any of the obligations or duties of any Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
          SECTION 7. Remedies Upon Event of Default. If any Event of Default
shall have occurred and be continuing, in each case subject to the prior rights
of the Senior Lender pursuant to the Subordination Agreement:
          (a) The Collateral Agent may exercise in respect of the Collateral, in
addition to any other rights and remedies provided for herein or otherwise
available to it, all of the rights and remedies of a secured party upon default
under the Code (whether or not the Code applies to the affected Collateral), and
also may (i) take absolute control of the Collateral, including, without
limitation, transfer into the Collateral Agent’s name or into the name of its
nominee or nominees (to the extent the Collateral Agent has not theretofore done
so) and thereafter receive, for the benefit of the Collateral Agent, all
payments made thereon, give all consents, waivers and ratifications in respect
thereof and otherwise act with respect thereto as though it were the outright
owner thereof, (ii) require each Grantor to, and each Grantor hereby agrees that
it will at its expense and upon request of the Collateral Agent forthwith,
assemble all or part of its

-17-

--------------------------------------------------------------------------------

 

respective Collateral as directed by the Collateral Agent and make it available
to the Collateral Agent at a place or places to be designated by the Collateral
Agent that is reasonably convenient to both parties, and the Collateral Agent
may enter into and occupy any premises owned or leased by any Grantor where the
Collateral or any part thereof is located or assembled for a reasonable period
in order to effectuate the Collateral Agent’s rights and remedies hereunder or
under law, without obligation to any Grantor in respect of such occupation, and
(iii) without notice except as specified below and without any obligation to
prepare or process the Collateral for sale, (A) sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the
Collateral Agent’s offices or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the
Collateral Agent may deem commercially reasonable and/or (B) lease, license or
dispose of the Collateral or any part thereof upon such terms as the Collateral
Agent may deem commercially reasonable. Each Grantor agrees that, to the extent
notice of sale or any other disposition of its respective Collateral shall be
required by law, at least ten (10) days’ notice to any Grantor of the time and
place of any public sale or the time after which any private sale or other
disposition of its respective Collateral is to be made shall constitute
reasonable notification. The Collateral Agent shall not be obligated to make any
sale or other disposition of any Collateral regardless of notice of sale having
been given. The Collateral Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. Each Grantor hereby waives any claims against the Collateral Agent
and the Buyers arising by reason of the fact that the price at which its
respective Collateral may have been sold at a private sale was less than the
price which might have been obtained at a public sale or was less than the
aggregate amount of the Obligations, even if the Collateral Agent accepts the
first offer received and does not offer such Collateral to more than one
offeree, and waives all rights that any Grantor may have to require that all or
any part of such Collateral be marshalled upon any sale (public or private)
thereof. Each Grantor hereby acknowledges that (i) any such sale of its
respective Collateral by the Collateral Agent shall be made without warranty,
(ii) the Collateral Agent may specifically disclaim any warranties of title,
possession, quiet enjoyment or the like, and (iii) such actions set forth in
clauses (i) and (ii) above shall not adversely effect the commercial
reasonableness of any such sale of Collateral. In addition to the foregoing,
(1) upon written notice to any Grantor from the Collateral Agent, such Grantor
shall cease any use of the Intellectual Property or any trademark, patent or
copyright similar thereto for any purpose described in such notice; (2) the
Collateral Agent may, at any time and from time to time, upon 10 days’ prior
notice to such Grantor, license, whether general, special or otherwise, and
whether on an exclusive or non-exclusive basis, any of the Intellectual
Property, throughout the universe for such term or terms, on such conditions,
and in such manner, as the Collateral Agent shall in its sole discretion
determine; and (3) the Collateral Agent may, at any time, pursuant to the
authority granted in Section 6 hereof (such authority being effective upon the
occurrence and during the continuance of an Event of Default), execute and
deliver on behalf of such Grantor, one or more instruments of assignment of the
Intellectual Property (or any application or registration thereof), in form
suitable for filing, recording or registration in any country.
          (b) Any cash held by the Collateral Agent as Collateral and all Cash
Proceeds received by the Collateral Agent in respect of any sale of or
collection from, or other realization upon, all or any part of the Collateral
may, in the discretion of the Collateral Agent, be held by the Collateral Agent
as collateral for, and/or then or at any time thereafter applied (after payment

-18-

--------------------------------------------------------------------------------

 

of any amounts payable to the Collateral Agent pursuant to Section 8 hereof) in
whole or in part by the Collateral Agent against, all or any part of the
Obligations in such order as the Collateral Agent shall elect, consistent with
the provisions of the Securities Purchase Agreement. Any surplus of such cash or
Cash Proceeds held by the Collateral Agent and remaining after the indefeasible
payment in full in cash of all of the Obligations shall be paid over to
whomsoever shall be lawfully entitled to receive the same or as a court of
competent jurisdiction shall direct.
          (c) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Collateral Agent
and the Buyers are legally entitled, each Grantor shall be liable for the
deficiency, together with interest thereon at the highest rate specified in any
of the applicable Transaction Documents for interest on overdue principal
thereof or such other rate as shall be fixed by applicable law, together with
the costs of collection and the reasonable fees, costs, expenses and other
client charges of any attorneys employed by the Collateral Agent to collect such
deficiency.
          (d) Each Grantor hereby acknowledges that if the Collateral Agent
complies with any applicable state, provincial, or federal law requirements in
connection with a disposition of the Collateral, such compliance will not
adversely affect the commercial reasonableness of any sale or other disposition
of the Collateral.
          (e) The Collateral Agent shall not be required to marshal any present
or future collateral security (including, but not limited to, this Agreement and
the Collateral) for, or other assurances of payment of, the Obligations or any
of them or to resort to such collateral security or other assurances of payment
in any particular order, and all of the Collateral Agent’s rights hereunder and
in respect of such collateral security and other assurances of payment shall be
cumulative and in addition to all other rights, however existing or arising. To
the extent that any Grantor lawfully may, each Grantor hereby agrees that it
will not invoke any law relating to the marshalling of collateral which might
cause delay in or impede the enforcement of the Collateral Agent’s rights under
this Agreement or under any other instrument creating or evidencing any of the
Obligations or under which any of the Obligations is outstanding or by which any
of the Obligations is secured or payment thereof is otherwise assured, and, to
the extent that it lawfully may, each Grantor hereby irrevocably waives the
benefits of all such laws.
          SECTION 8. Indemnity and Expenses.
          (a) Each Grantor agrees, jointly and severally, to defend, protect,
indemnify and hold the Collateral Agent and each of the Buyers, jointly and
severally, harmless from and against any and all claims, damages, losses,
liabilities, obligations, penalties, fees, costs and expenses (including,
without limitation, reasonable legal fees, costs, expenses, and disbursements of
such Person’s counsel) to the extent that they arise out of or otherwise result
from this Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting solely and directly
from such Person’s gross negligence or willful misconduct, as determined by a
final judgment of a court of competent jurisdiction.
          (b) Each Grantor agrees, jointly and severally, to upon demand pay to
the Collateral Agent the amount of any and all costs and expenses, including the
reasonable fees, costs, expenses and disbursements of counsel for the Collateral
Agent and of any experts and

-19-

--------------------------------------------------------------------------------

 

agents (including, without limitation, any collateral trustee which may act as
agent of the Collateral Agent), which the Collateral Agent may incur in
connection with (i) the preparation, negotiation, execution, delivery,
recordation, administration, amendment, waiver or other modification or
termination of this Agreement, (ii) the custody, preservation, use or operation
of, or the sale of, collection from, or other realization upon, any Collateral,
(iii) the exercise or enforcement of any of the rights of the Collateral Agent
hereunder, or (iv) the failure by any Grantor to perform or observe any of the
provisions hereof.
          SECTION 9. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing and shall be mailed (by certified mail,
postage prepaid and return receipt requested), telecopied, e-mailed or
delivered, if to any Grantor at its address specified below and if to the
Collateral Agent to it, at its address specified below; or as to any such
Person, at such other address as shall be designated by such Person in a written
notice to such other Person complying as to delivery with the terms of this
Section 9. All such notices and other communications shall be effective (a) if
sent by certified mail, return receipt requested, when received or three days
after deposited in the mails, whichever occurs first, (b) if telecopied or
e-mailed, when transmitted (during normal business hours) and confirmation is
received, otherwise, the day after the notice was transmitted if confirmation is
received, or (c) if delivered, upon delivery.
          SECTION 10. Miscellaneous.
          (a) No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by each Grantor and the Collateral Agent, and
no waiver of any provision of this Agreement, and no consent to any departure by
each Grantor therefrom, shall be effective unless it is in writing and signed by
the Collateral Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
          (b) No failure on the part of the Collateral Agent to exercise, and no
delay in exercising, any right hereunder or under any of the other Transaction
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The rights and remedies of the Collateral Agent or
any Buyer provided herein and in the other Transaction Documents are cumulative
and are in addition to, and not exclusive of, any rights or remedies provided by
law. The rights of the Collateral Agent or any Buyer under any of the other
Transaction Documents against any party thereto are not conditional or
contingent on any attempt by such Person to exercise any of its rights under any
of the other Transaction Documents against such party or against any other
Person, including but not limited to, any Grantor.
          (c) Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
          (d) This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the indefeasible
payment in full in cash of the

-20-

--------------------------------------------------------------------------------

 

Obligations, and (ii) be binding on each Grantor and all other Persons who
become bound as debtor to this Agreement in accordance with Section 9-203(d) of
the Code and shall inure, together with all rights and remedies of the
Collateral Agent and the Buyers hereunder, to the benefit of the Collateral
Agent and the Buyers and their respective permitted successors, transferees and
assigns. Without limiting the generality of clause (ii) of the immediately
preceding sentence, without notice to any Grantor, the Collateral Agent and the
Buyers may assign or otherwise transfer their rights and obligations under this
Agreement and any of the other Transaction Documents, to any other Person and
such other Person shall thereupon become vested with all of the benefits in
respect thereof granted to the Collateral Agent and the Buyers herein or
otherwise. Upon any such assignment or transfer, all references in this
Agreement to the Collateral Agent or any such Buyer shall mean the assignee of
the Collateral Agent or such Buyer. None of the rights or obligations of any
Grantor hereunder may be assigned or otherwise transferred without the prior
written consent of the Collateral Agent, and any such assignment or transfer
without the consent of the Collateral Agent shall be null and void.
          (e) Upon the indefeasible payment in full in cash of the Obligations,
(i) this Agreement and the security interests created hereby shall terminate and
all rights to the Collateral shall revert to the respective Grantor that granted
such security interests hereunder, and (ii) the Collateral Agent will promptly,
upon any Grantor’s request and at such Grantor’s expense, (A) return to such
Grantor such of the Collateral as shall not have been sold or otherwise disposed
of or applied pursuant to the terms hereof, and (B) execute and deliver to such
Grantor such documents as such Grantor shall reasonably request to evidence such
termination, all without any representation, warranty or recourse whatsoever.
          (f) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND
PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF
THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
          (g) ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY DOCUMENT RELATED THERETO MAY BE BROUGHT IN THE COURTS OF THE
STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS THEREOF, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH GRANTOR HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS. EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS

-21-

--------------------------------------------------------------------------------

 

AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT.
          (h) EACH GRANTOR AND (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS
AGREEMENT) THE COLLATERAL AGENT WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE
PARTIES HERETO.
          (i) Each Grantor irrevocably consents to the service of process of any
of the aforesaid courts in any such action, suit or proceeding by the mailing of
copies thereof by registered or certified mail (or any substantially similar
form of mail), postage prepaid, to any Grantor at its address provided herein,
such service to become effective 10 days after such mailing.
          (j) Nothing contained herein shall affect the right of the Collateral
Agent to serve process in any other manner permitted by law or commence legal
proceedings or otherwise proceed against any Grantor or any property of any
Grantor in any other jurisdiction.
          (k) Each Grantor irrevocably and unconditionally waives any right it
may have to claim or recover in any legal action, suit or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.
          (l) Section headings herein are included for convenience of reference
only and shall not constitute a part of this Agreement for any other purpose.
          (m) This Agreement may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which shall be
deemed to be an original, but all of which taken together constitute one in the
same Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

-22-

--------------------------------------------------------------------------------

 

          IN WITNESS WHEREOF, each Grantor has caused this Agreement to be
executed and delivered by its officer thereunto duly authorized, as of the date
first above written.

                      GLOBAL EMPLOYMENT HOLDINGS, INC    
 
               
 
  By:   /s/ HOWARD BRILL                      
 
      Name:   Howard Brill    
 
      Title:   Chief Executive Officer and President         Address:   9090
Ridgeline Boulevard, Suite 205    
 
          Littleton, Colorado 80129    
 
                    GLOBAL EMPLOYMENT SOLUTIONS, INC    
 
               
 
  By:   /s/ HOWARD BRILL                      
 
      Name:   Howard Brill    
 
      Title:   Chief Executive Officer and President         Address:   9090
Ridgeline Boulevard, Suite 205    
 
          Littleton, Colorado 80129    
 
                    EXCELL PERSONNEL SERVICES, INC.    
 
               
 
  By:   /s/ HOWARD BRILL                      
 
      Name:   Howard Brill    
 
      Title:   Executive Vice President         Address:   9090 Ridgeline
Boulevard, Suite 205
Littleton, Colorado 80129    
 
                   
FRIENDLY ADVANCED SOFTWARE TECHNOLOGY, INC.
   
 
               
 
  By:   /s/ HOWARD BRILL                      
 
      Name:   Howard Brill    
 
      Title:   Executive Vice President         Address:   9090 Ridgeline
Boulevard, Suite 205
Littleton, Colorado 80129    

[Security Agreement]

 

--------------------------------------------------------------------------------

 

                      MAIN LINE PERSONAL SERVICE, INC.    
 
               
 
  By:   /s/ HOWARD BRILL                      
 
      Name:   Howard Brill    
 
      Title:   Executive Vice President         Address:   9090 Ridgeline
Boulevard, Suite 205    
 
          Littleton, Colorado 80129        
SOUTHEASTERN PERSONNEL MANAGEMENT, INC.
   
 
               
 
  By:   /s/ HOWARD BRILL                      
 
      Name:   Howard Brill    
 
      Title:   Executive Vice President         Address:   9090 Ridgeline
Boulevard, Suite 205    
 
          Littleton, Colorado 80129    
 
                    SOUTHEASTERN STAFFING, INC.    
 
               
 
  By:   /s/ HOWARD BRILL                      
 
      Name:   Howard Brill    
 
      Title:   Executive Vice President         Address:   9090 Ridgeline
Boulevard, Suite 205    
 
          Littleton, Colorado 80129    
 
                    BAY HR, INC.    
 
               
 
  By:   /s/ HOWARD BRILL                      
 
      Name:   Howard Brill    
 
      Title:   Executive Vice President         Address:   9090 Ridgeline
Boulevard, Suite 205    
 
          Littleton, Colorado 80129    
 
                    SOUTHEASTERN GEORGIA HR, INC.    
 
               
 
  By:   /s/ HOWARD BRILL                      
 
      Name:   Howard Brill    
 
      Title:   Executive Vice President         Address:   9090 Ridgeline
Boulevard, Suite 205    
 
          Littleton, Colorado 80129    

[Security Agreement]

 

--------------------------------------------------------------------------------

 

                      TEMPORARY PLACEMENT SERVICE, INC.    
 
               
 
  By:   /s/ HOWARD BRILL                      
 
      Name:   Howard Brill    
 
      Title:   Executive Vice President         Address:   9090 Ridgeline
Boulevard, Suite 205    
 
          Littleton, Colorado 80129    

ACCEPTED BY:
AMATIS LIMITED,
as Collateral Agent

             
By:
  /s/ KARL J. WACHTER                   Name:   Karl J. Wachter     Title:  
Authorized Signatory    
Address:
    One American Lane    
 
     Greenwich , CT 06831    

[Security Agreement]

 

--------------------------------------------------------------------------------

 

SCHEDULE I
LEGAL NAMES; ORGANIZATIONAL IDENTIFICATION NUMBERS; STATES OR
JURISDICTION OF ORGANIZATION

Sched. I-1

--------------------------------------------------------------------------------

 

SCHEDULE II
INTELLECTUAL PROPERTY AND LICENSES

Sched. II-1

--------------------------------------------------------------------------------

 

SCHEDULE III
LOCATIONS

     
LOCATION
  Description of Location (State if Location
 
  (i) contains Rolling Stock, other Equipment, Fixtures,
 
  Goods or Inventory,
 
  (ii) is chief place of business and chief executive office, or
 
  (iii) contains Records concerning Accounts and originals of Chattel Paper)

Sched. III-1

--------------------------------------------------------------------------------

 

SCHEDULE IV
PROMISSORY NOTES, SECURITIES, DEPOSIT ACCOUNTS, SECURITIES ACCOUNTS
AND COMMODITIES ACCOUNTS
Promissory Notes:
Securities and Other Instruments:

      Name and Address           of Institution           Maintaining Account  
Account Number     Type of Account

Sched. IV-1

--------------------------------------------------------------------------------

 

Sched. IV-1

--------------------------------------------------------------------------------

 

SCHEDULE V
UCC-1 FINANCING STATEMENTS

Sched. V-1

--------------------------------------------------------------------------------

 

SCHEDULE VI
COMMERCIAL TORT CLAIMS

Sched. VI-1

--------------------------------------------------------------------------------

 

EXHIBIT A
ASSIGNMENT FOR SECURITY
[TRADEMARKS] [PATENTS] [COPYRIGHTS]
          WHEREAS,                                          (the “Assignor”)
[has adopted, used and is using, and holds all right, title and interest in and
to, the trademarks and service marks listed on the annexed Schedule 1A, which
trademarks and service marks are registered or applied for in the United States
Patent and Trademark Office (the “Trademarks”)] [holds all right, title and
interest in the letter patents, design patents and utility patents listed on the
annexed Schedule 1A, which patents are issued or applied for in the United
States Patent and Trademark Office (the “Patents”)] [holds all right, title and
interest in the copyrights listed on the annexed Schedule 1A, which copyrights
are registered in the United States Copyright Office (the “Copyrights”)];
          WHEREAS, the Assignor has entered into a Security Agreement, dated as
of                     , 2006 (as amended, restated or otherwise modified from
time to time the “Security Agreement”), in favor of [Amphora] Limited, as
collateral agent for certain purchasers (the “Assignee”);
          WHEREAS, pursuant to the Security Agreement, the Assignor has assigned
to the Assignee and granted to the Assignee for the benefit of the Buyers (as
defined in the Security Agreement) a continuing security interest in all right,
title and interest of the Assignor in, to and under the [Trademarks, together
with, among other things, the good-will of the business symbolized by the
Trademarks] [Patents] [Copyrights] and the applications and registrations
thereof, and all proceeds thereof, including, without limitation, any and all
causes of action which may exist by reason of infringement thereof and any and
all damages arising from past, present and future violations thereof (the
“Collateral”), to secure the payment, performance and observance of the
“Obligations” (as defined in the Security Agreement);
          NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Assignor does hereby pledge,
convey, sell, assign, transfer and set over unto the Assignee and grants to the
Assignee for the benefit of the Buyers a continuing security interest in the
Collateral to secure the prompt payment, performance and for the benefit of the
Buyers observance of the Obligations.
          The Assignor does hereby further acknowledge and affirm that the
rights and remedies of the Assignee with respect to the Collateral are more
fully set forth in the Security Agreement, the terms and provisions of which are
hereby incorporated herein by reference as if fully set forth herein.

Exh. A-1

--------------------------------------------------------------------------------

 

          IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly
executed by its officer thereunto duly authorized as of ___, 20___

                  [GRANTORS]    
 
           
 
  By:        
 
           
 
      Name:    
 
      Title:    

[Security Agreement]

 

--------------------------------------------------------------------------------

 

         
STATE OF
       
 
       
 
      ss.:
COUNTY OF
       
 
       

          On this            day of                     , 20     , before me
personally came                     , to me known to be the person who executed
the foregoing instrument, and who, being duly sworn by me, did depose and say
that s/he is the                      of
                                        , a                     , and that s/he
executed the foregoing instrument in the firm name of
                                        , and that s/he had authority to sign
the same, and s/he acknowledged to me that he executed the same as the act and
deed of said firm for the uses and purposes therein mentioned.
                                        

Exh. A-3

--------------------------------------------------------------------------------

 

SCHEDULE 1A TO ASSIGNMENT FOR SECURITY

          [Trademarks and Trademark Applications]     [Patent and Patent
Applications]     [Copyright and Copyright Applications]    
Owned by