Document:

exv10w26

 

Exhibit 10.26

SECURITY AGREEMENT

     This Agreement, dated as of March 31, 2006, is made by and between Global Employment
Holdings, Inc., a Delaware corporation (the “Debtor”), and Wells Fargo Bank, National Association
(the “Secured Party”), acting through its Wells Fargo Business Credit operating division.

     Pursuant to a Credit and Security Agreement dated as of March 7, 2002 (as the same has been
and may be amended, supplemented or restated from time to time, the “Credit Agreement”), the
Secured Party has extended and may continue to extend credit accommodations to GLOBAL EMPLOYMENT
SOLUTIONS, INC., a Colorado corporation (“Global”), EXCELL PERSONNEL SERVICES CORPORATION, an
Illinois corporation (“Excell”), FRIENDLY ADVANCED SOFTWARE TECHNOLOGY, INC., a New York
corporation (“Friendly”), TEMPORARY PLACEMENT SERVICE, INC., f/k/a Michael & Associates, Inc. and
successor by merger to Temporary Placement Service, Inc., a Georgia corporation (“TPS”),
SOUTHEASTERN STAFFING, INC., a Florida corporation (“Southeastern”), SOUTHEASTERN PERSONNEL
MANAGEMENT, INC., a Florida corporation (“SPM”), MAIN LINE PERSONNEL SERVICES, INC., a Pennsylvania
corporation (“Main Line”), BAY HR, Inc., a Florida corporation (“BHR”) and SOUTHEASTERN GEORGIA HR,
INC., a Georgia corporation (“SGHR”) (Global, Excell, Friendly, TPS, Southeastern, SPM, Main Line,
BHR and SGHR are each referred to herein as a “Borrower” and collectively as the “Borrowers”).

     As a condition to continuing to extend credit to the Borrowers, the Secured Party has required
the execution and delivery of the Debtor’s Guaranty of even date herewith, guaranteeing the payment
and performance of all obligations of each Borrower arising under or pursuant to the Credit
Agreement (the “Guaranty”).

     As a further condition to continuing to extend credit to each Borrower under the Credit
Agreement, the Secured Party has required the execution and delivery of this Agreement by the
Debtor.

     ACCORDINGLY, in consideration of the mutual covenants contained in the Credit Agreement, the
Guaranty and herein, the parties hereby agree as follows:

1. Definitions. All terms defined in the recitals hereto and the Credit Agreement that are
not otherwise defined herein shall have the meanings given them in the recitals and the Credit
Agreement. All terms defined in the UCC and not otherwise defined herein have the meanings
assigned to them in the UCC. In addition, the following terms have the meanings set forth below or
in the referenced Section of this Agreement:

     “Accounts” means all of the Debtor’s accounts, as such term is defined in the UCC.

     “Collateral” means, whether now owned or existing or hereafter acquired or arising or in which
the Debtor now has or hereafter acquires any rights, all of the Debtor’s Accounts, chattel paper,
deposit accounts, documents, Equipment, General Intangibles, goods, instruments,
Inventory, Investment Property, letter-of-credit rights, letters of credit, all sums on
deposit in any

 

 

Collateral Account, and any items in any Lockbox; together with (i) all
substitutions and replacements for and products of any of the foregoing; (ii) in the case of all
goods, all accessions; (iii) all accessories, attachments, parts, equipment and repairs now or
hereafter attached or affixed to or used in connection with any goods; (iv) all warehouse receipts,
bills of lading and other documents of title now or hereafter covering such goods; (v) all
collateral subject to the Lien of Secured Party; (vi) any money, or other assets of the Debtor that
now or hereafter come into the possession, custody, or control of the Secured Party; and (vii)
proceeds of any and all of the foregoing.

     “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent
or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation
of another Person if the primary purpose or intent of the Person incurring such liability, or the
primary effect thereof, is to provide assurance to the obligee of such liability that such
liability will be paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in part) against loss
with respect thereto.

     “Equipment” means all of the Debtor’s equipment, as such term is defined in the UCC.

     “Event of Default” has the meaning given in Section 6.

     “General Intangibles” means all of the Debtor’s general intangibles, as such term is defined
in the UCC.

     “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property
or services including, without limitation, “capital leases” in accordance with U.S. GAAP (other
than trade payables entered into in the ordinary course of business), (C) all reimbursement or
payment obligations with respect to letters of credit, surety bonds and other similar instruments,
(D) all obligations evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to any property or
assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar arrangement which, in
connection with U.S. GAAP, consistently applied for the periods covered thereby, is classified as a
capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for the payment of such
indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (A) through (G) above.

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     “Insolvent” means (i) the present fair saleable value of the Debtor’s assets is less than the
amount required to pay the Debtor’s total Indebtedness, (ii) the Debtor is unable to pay its debts
and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured, (iii) the Debtor intends to incur or believes that it will incur debts that
would be beyond its ability to pay as such debts mature or (iv) the Debtor has unreasonably small
capital with which to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.

     “Intellectual Property Rights” means all actual or prospective rights arising in connection
with any intellectual property or other proprietary rights, including all rights arising in
connection with copyrights, patents, service marks, trade dress, trade secrets, trademarks, trade
names or mask works.

     “Inventory” means all of the Debtor’s inventory, as such term is defined in the UCC.

     “Investment Property” means all of the Debtor’s investment property, as such term is defined
in the UCC.

     “Lien” means any security interest, mortgage, deed of trust, pledge, lien, charge,
encumbrance, title retention agreement or analogous instrument or device, including the interest of
each lessor under any capitalized lease and the interest of any bondsman under any payment or
performance bond, in, of or on any assets or properties of a Person, whether now owned or hereafter
acquired and whether arising by agreement or operation of law.

     “Material Adverse Effect” means any material adverse effect on the business, properties,
assets, operations, results of operations, condition (financial or otherwise) or prospects of the
Debtor and its Subsidiaries, taken as a whole, or on the transactions contemplated by the Guaranty,
the Credit Agreement or the Merger and Share Exchange or by the agreements and instruments to be
entered into in connection therewith, or on the authority or ability of the Debtor to perform its
obligations under the Guaranty, the Credit Agreement or the agreements related to the Merger and
Share Exchange.

     “Merger and Share Exchange” means the merger of a wholly-owned Subsidiary of the Debtor with
and into Global, pursuant to which each share of the remaining equity securities of Global not
acquired by the Debtor in the Share Purchase will be converted into the same number of shares of
Common Stock as in the Share Purchase, and after giving effect to such merger the shareholders of
Global immediately prior to the Share Purchase and such merger will own, on a fully-diluted basis
following completion of the Share Purchase and such merger, not less than 97% of the Debtor’s
common equity.

     “Obligations” means each and every debt, liability and obligation of every type and
description which the Debtor may now or at any time hereafter owe to the Secured Party, whether
such debt, liability or obligation now exists or is hereafter created or incurred and whether it is
or may be direct or indirect, due or to become due, or absolute or contingent, including without
limitation all obligations under the Guaranty.

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     “Permitted Liens” means (i) the Security Interest, (ii) covenants, restrictions, rights,
easements and minor irregularities in title which do not materially interfere with the Debtor’s
business or operations as presently conducted, (iii) Liens in existence on the date hereof and
described on Exhibit C hereto, or (iv) Liens securing repayment of the Secured Subordinated Debt.

     “Registration Rights Agreements” means the Registration Rights Agreement, dated as of March
___, 2006, by and among the Debtor and the purchasers of the Secured Subordinated Debt, the
Registration Rights Agreement, dated as of March ___, 2006, by and among the Debtor and the
purchasers of the Debtor’s Series A Preferred Stock and the Registration Rights Agreement, dated as
of March ___, 2006, by and among the Debtor and the purchasers of the Debtor’s common stock.

     “Security Interest” has the meaning given in Section 2.

     “Share Purchase” means the acquisition of not less than 90% of Global’s equity by the Debtor,
which entity shall be incorporated and in good standing in the State of Delaware.

     “UCC” means the Uniform Commercial Code as in effect from time to time in the State of
Colorado.

2. Security Interest. The Debtor hereby grants the Secured Party a security interest (the
“Security Interest”) in the Collateral to secure payment of the Obligations. The Debtor hereby
represents and warrants to the Secured Party that neither the Debtor nor any of its Directors,
Officers or agents has authorized the filing of any financing statement naming the Debtor as debtor
and having any other party, other than the Secured Party or Amatis Limited, as secured party.

3. Representations, Warranties and Agreements. The Debtor hereby represents, warrants and
agrees as follows:

     (a) Title. The Debtor (i) has absolute title to each item of Collateral in existence on the
date hereof, free and clear of all Liens except the Permitted Liens, (ii) will have, at the time
the Debtor acquires any rights in Collateral hereafter arising, absolute title to each such item of
Collateral free and clear of all Liens except Permitted Liens, (iii) will keep all Collateral free
and clear of all Liens except Permitted Liens, and (iv) will defend the Collateral against all
claims or demands of all Persons other than the Secured Party and the holders of Permitted Liens.
The Debtor will not sell or otherwise dispose of the Collateral or any interest therein, outside
the ordinary course of business, without the prior written consent of the Secured Party.

     (b) Chief Executive Office; Identification Number. The Debtor’s chief executive office and
principal place of business is located at the address set forth under its signature below. The
Debtor’s federal employer identification number and organization identification number is correctly
set forth under its signature below.

     (c) Location of Collateral. As of the date hereof, the tangible Collateral is located only in
the states and at the address, as identified on Exhibit A attached hereto. The Debtor will

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not permit any tangible Collateral to be located in any state (and, if county filing is
required, in any county) in which a financing statement covering such Collateral is required to be,
but has not in fact been, filed in order to perfect the Security Interest.

     (d) Changes in Name, Constituent Documents, Location. The Debtor will not change its name,
Constituent Documents, or jurisdiction of organization without the prior written consent of the
Secured Party. The Debtor will not change its business address, without prior written notice to
the Secured Party.

     (e) Fixtures. The Debtor will not permit any tangible Collateral to become part of or to be
affixed to any real property without first assuring to the reasonable satisfaction of the Secured
Party that the Security Interest will be prior and senior to any Lien then held or thereafter
acquired by any mortgagee of such real property or the owner or purchaser of any interest therein.
If any part or all of the tangible Collateral is now or will become so related to particular real
estate as to be a fixture, the real estate concerned and the name of the record owner are
accurately set forth in Exhibit B hereto.

     (f) Rights to Payment. Each right to payment and each instrument, document, chattel paper and
other agreement constituting or evidencing Collateral is (or will be when arising, issued or
assigned to the Secured Party) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim (other than those arising in the ordinary course of business), of
the account debtor or other obligor named therein or in the Debtor’s records pertaining thereto as
being obligated to pay such obligation. The Debtor will neither agree to any material modification
or amendment nor agree to any forbearance, release or cancellation of any such obligation, and will
not subordinate any such right to payment to claims of other creditors of such account debtor or
other obligor.

     (g) Commercial Tort Claims. Promptly upon knowledge thereof, the Debtor will deliver to the
Secured Party notice of any commercial tort claims it may bring against any Person, including the
name and address of each defendant, a summary of the facts, an estimate of the Debtor’s damages,
copies of any complaint or demand letter submitted by the Debtor, and such other information as the
Secured Party may request. Upon request by the Secured Party, the Debtor will grant the Secured
Party a security interest in all commercial tort claims it may have against any Person.

     (h) SEC Filings. As of their respective dates, all reports, schedules, forms, statements and
other documents that the Debtor is required to file with the Securities and Exchange Commission
comply in all material respects with the requirements of the Securities Act of 1933 or the
Securities and Exchange Act of 1934, as the case may be, applicable to such documents and none of
such documents contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.

     (i) Investment Company Act. The Debtor is not, nor are any of its subsidiaries, required to
register under the provisions of the Investment Company Act of 1940, as amended. Neither the
entering into or performance by the Debtor of this Agreement, nor the execution,
delivery and performance of the obligations by the Debtor under the Guaranty, this Agreement or

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any other agreement between the Debtor and the Secured Party or by the Debtor in favor of the
Secured Party, violates any provision of the Investment Company Act of 1940, as amended or requires
any consent, approval, or authorization of, or registration with, the Securities and Exchange
Commission or any other governmental or public body of authority.

     (j) Financial Statements. The financial statements of the Debtor have been prepared in
accordance with GAAP, during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Debtor as of the dates thereof and the
results of its operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).

     (k) Absence of Certain Changes. Except as disclosed in Exhibit D, since January 2, 2005,
there has been no change or development in the business, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Debtor that has had or could
reasonably be expected to have a Material Adverse Effect. Except as set forth on Exhibit D, since
January 2, 2005, the Debtor has not (i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, in excess of $100,000 outside of the ordinary course of business,
(iii) had capital expenditures, individually or in the aggregate, in excess of $500,000 or (iv)
waived any material rights with respect to any indebtedness or other rights in excess of $100,000
owed to it. The Debtor has not taken any steps to seek protection pursuant to any bankruptcy law
nor does the Debtor have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead
a creditor to do so. The Debtor is not as of the date hereof Insolvent.

     (l) Indebtedness and Other Contracts. Except as disclosed in Exhibit D, neither the Debtor
nor any of its Subsidiaries (i) has any outstanding Indebtedness, (ii) is a party to any contract,
agreement or instrument, the violation of which, or default under which, by the other party(ies) to
such contract, agreement or instrument would result in a Material Adverse Effect, (iii) is in
violation of any term of or in default under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the judgment of the Debtor’s
Officers, has or is expected to have a Material Adverse Effect. Immediately after giving effect to
the Merger and Share Exchange, the Debtor shall have no outstanding Indebtedness, other than the
Guaranty, the notes evidencing the Secured Subordinated Debt, the obligations of the Debtor under
any lease of real or personal property as lessee which is required under GAAP to be capitalized on
its balance sheet and indebtedness relating to Permitted Liens.

     (m) Miscellaneous Covenants. The Debtor will:

     (i) keep all tangible Collateral in good repair, working order and condition, normal
depreciation excepted, and will, from time to time, replace any worn, broken or defective
parts thereof;

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     (ii) comply with (A) all laws applicable to the Debtor and to the operation of its
business (including, without limitation, any statute, rule or regulation relating to
employment practices and employee benefits and to environmental, occupational and health
standards and controls) and (B) all applicable laws, ordinances, rules, regulations, and
requirements of governmental authorities (including, without limitation, Environmental Laws,
securities laws and ERISA and the rules and regulations thereunder) except where failure to
comply would not have a material adverse effect on the Debtor;

     (iii) file, on a timely basis, all reports, schedules, forms, statements and other
documents that are required to be filed with the Securities and Exchange Commission;

     (iv) deliver to the Secured Party, promptly after the same are available, copies of
each annual report, proxy or financial statement or other report or communication sent to
the stockholders of the Debtor, and copies of all annual, regular, periodic and special
reports and registration statements which the Debtor may file or be required to file with
the Securities and Exchange Commission (or any governmental body or agency succeeding to the
functions of the Securities and Exchange Commission), including, but not limited to, Form
10-Q, Form 10-K, Form 8-K and any registration statements or amendments;

     (v) deliver to the Secured Party on the same day as the release thereof, facsimile
copies of all press releases issued by the Debtor;

     (vi) promptly pay all taxes and other governmental charges levied or assessed upon or
against any Collateral or upon or against the creation, perfection or continuance of the
Security Interest;

     (vii) at all reasonable times, permit the Secured Party or its representatives to
examine or inspect any Collateral, wherever located, and to examine, inspect and copy the
Debtor’s books and records pertaining to the Collateral and its business and financial
condition and to send and discuss with account debtors and other obligors requests for
verifications of amounts owed to the Debtor;

     (viii) keep accurate and complete records pertaining to the Collateral and pertaining
to the Debtor’s business and financial condition and submit to the Secured Party such
periodic reports concerning the Collateral and the Debtor’s business and financial condition
as the Secured Party may from time to time reasonably request;

     (ix) promptly notify the Secured Party of any loss of or material damage to any
Collateral or of any adverse change, known to the Debtor, in the prospect of payment of any
sums due on or under any instrument, chattel paper, or account constituting Collateral;

     (x) if the Secured Party at any time so requests (after the occurrence of an Event of
Default), promptly deliver to the Secured Party any instrument, document or chattel paper
constituting Collateral, duly endorsed or assigned by the Debtor;

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     (xi) at all times keep all tangible Collateral insured against risks of fire (including
so-called extended coverage), theft, collision (in case of Collateral consisting of motor
vehicles) and such other risks and in such amounts as the Secured Party may reasonably
request, with any such policies containing a lender loss payable endorsement acceptable to
the Secured Party;

     (xii) from time to time authorize or execute such financing statements as the Secured
Party may reasonably require in order to perfect the Security Interest and, if any
Collateral consists of a motor vehicle, execute such documents as may be required to have
the Security Interest properly noted on a certificate of title;

     (xiii) pay when due or reimburse the Secured Party on demand for all costs of
collection of any of the Obligations and all other out-of-pocket expenses (including in each
case all reasonable attorneys’ fees) incurred by the Secured Party in connection with the
creation, perfection, satisfaction, protection, defense or enforcement of the Security
Interest or the creation, continuance, protection, defense or enforcement of this Agreement
or any or all of the Obligations, including expenses incurred in any litigation or
bankruptcy or insolvency proceedings;

     (xiv) authorize, execute, deliver or endorse any and all instruments, documents,
assignments, security agreements and other agreements and writings which the Secured Party
may at any time reasonably request in order to secure, protect, perfect or enforce the
Security Interest and the Secured Party’s rights under this Agreement;

     (xv) not, without the prior written consent of the Secured Party, declare or pay any
dividends (other than dividends payable solely in stock of Debtor) on any class of its stock
or make any payment on account of the purchase, redemption or other retirement of any shares
of such stock or other securities issued by the Debtor or any indebtedness or liability of
the Debtor evidenced by or related to notes, bonds, debentures or similar obligations,
including the agreements, instruments and documents evidencing the Secured Subordinated
Debt, or make any distribution in respect thereof, either directly or indirectly;
provided, however, that so long as no Event of Default (as defined in the
Credit Agreement) has occurred and is continuing or will occur as a result of or immediately
following any such payment, the Debtor may pay (a) each scheduled payment (but not
prepayment) of interest under the Secured Subordinated Debt in an amount equal to such
scheduled payment and (b) up to $1,300,000 in the aggregate in fees and penalties (but in no
event for the payment of any amounts related to redemption) due and payable to the holders
of the Secured Subordinated Debt, the holders of the Debtor’s Series A Preferred Stock and
the holders of the Debtor’s common stock pursuant to the Registration Rights Agreements, the
Debtor’s Senior Secured Convertible Notes, each dated as of March ___, 2006, payable to the
order of the holders of the Secured Subordinated Debt, in the original aggregate principal
amount of $30,000,000 and the Note Securities Purchase Agreement by and among Global and the
holders of the Secured Subordinated Debt, so long as Global has delivered to the Secured
Party prior written notice at least five Business Days prior to the date on which such
payment is due that such fees or penalties will be due and payable; and

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     (xvi) not use or keep any Collateral, or permit it to be used or kept, for any unlawful
purpose or in violation of any federal, state or local law, statute or ordinance.

     (n) Secured Party’s Right to Take Action. The Debtor authorizes the Secured Party to file
from time to time where permitted by law, such financing statements against collateral described as
“all personal property” as the Secured Party deems necessary or useful to perfect the Security
Interest. The Debtor will not amend any financing statements in favor of the Secured Party except
as permitted by law. Further, if the Debtor at any time fails to perform or observe any agreement
contained in Section 3(m), and if such failure continues for a period of ten (10) days after the
Secured Party gives the Debtor written notice thereof (or, in the case of the agreements contained
in clauses (vi) and (xi) of Section 3(m), immediately upon the occurrence of such failure, without
notice or lapse of time), the Secured Party may (but need not) perform or observe such agreement on
behalf and in the name, place and stead of the Debtor (or, at the Secured Party’s option, in the
Secured Party’s own name) and may (but need not) take any and all other actions which the Secured
Party may reasonably deem necessary to cure or correct such failure (including, without limitation
the payment of taxes, the satisfaction of security interests, liens, or encumbrances, the
performance of obligations under contracts or agreements with account debtors or other obligors,
the procurement and maintenance of insurance, the execution of financing statements, the
endorsement of instruments, the qualification and licensing of the Debtor to do business in any
jurisdiction, and the procurement of repairs or transportation); and, except to the extent that the
effect of such payment would be to render any loan or forbearance of money usurious or otherwise
illegal under any applicable law, the Debtor shall thereupon pay the Secured Party on demand the
amount of all moneys expended and all costs and expenses (including reasonable attorneys’ fees)
incurred by the Secured Party in connection with or as a result of the Secured Party’s performing
or observing such agreements or taking such actions, together with interest thereon from the date
expended or incurred by the Secured Party at the highest rate then applicable to any of the
Obligations. To facilitate the performance or observance by the Secured Party of such agreements
of the Debtor, the Debtor hereby irrevocably appoints (which appointment is coupled with an
interest) the Secured Party, or its delegate, as the attorney-in-fact of the Debtor with the right
(but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or
file, in the name and on behalf of the Debtor, any and all instruments, documents, financing
statements, applications for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Debtor under this Section 3 and Section 4.

4. Rights of Secured Party. At any time and from time to time, whether before or after an
Event of Default, the Secured Party may take any or all of the following actions:

     (a) Account Verification. The Secured Party may at any time and from time to time send or
require the Debtor to send requests for verification of accounts or notices of assignment to
account debtors and other obligors. The Secured Party may also at any time and from time to time
telephone account debtors and other obligors to verify accounts.

     (b) Collateral Account. The Secured Party may establish a collateral account for the deposit
of checks, drafts and cash payments made by the Debtor’s account debtors. If a collateral account
is so established, the Debtor shall promptly deliver to the Secured Party, for

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deposit into said collateral account, all payments on Accounts and chattel paper received by it. All such
payments shall be delivered to the Secured Party in the form received (except for the Debtor’s
endorsement where necessary). Until so deposited, all payments on Accounts and chattel paper
received by the Debtor shall be held in trust by the Debtor for and as the property of the Secured
Party and shall not be commingled with any funds or property of the Debtor. All deposits in said
collateral account shall constitute proceeds of Collateral and shall not constitute payment of any
Obligation. Unless otherwise agreed in writing, the Debtor shall have no right to withdraw amounts
on deposit in any collateral account.

     (c) Lockbox. The Secured Party may, by notice to the Debtor, require the Debtor to direct
each of its account debtors to make payment directly to a special lockbox to be under the control
of the Secured Party. The Debtor hereby authorizes and directs the Secured Party to deposit all
checks, drafts and cash payments received in said lockbox into the collateral account established
as set forth above.

     (d) Direct Collection. After an Event of Default, the Secured Party may notify any account
debtor, or any other Person obligated to pay any amount due, that such chattel paper, Account, or
other right to payment has been assigned or transferred to the Secured Party for security and shall
be paid directly to the Secured Party. At any time after the Secured Party or the Debtor gives
such notice to an account debtor or other obligor, the Secured Party may (but need not), in its own
name or in the Debtor’s name, demand, sue for, collect or receive any money or property at any time
payable or receivable on account of, or securing, any such chattel paper, Account, or other right
to payment, or grant any extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral obligations) of any such
account debtor or other obligor.

5. Assignment of Insurance. The Debtor hereby assigns to the Secured Party, as additional
security for the payment of the Obligations, any and all moneys (including but not limited to
proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other
rights of the Debtor under or with respect to, any and all policies of insurance covering the
Collateral, and the Debtor hereby directs the issuer of any such policy to pay any such moneys
directly to the Secured Party. After the occurrence of an Event of Default, the Secured Party may
(but need not), in its own name or in the Debtor’s name, execute and deliver proofs of claim,
receive all such moneys, endorse checks and other instruments representing payment of such moneys,
and adjust, litigate, compromise or release any claim against the issuer of any such policy.

6. Events of Default. Each of the following occurrences shall constitute an event of
default under this Agreement (herein called “Event of Default”): (i) an Event of Default shall
occur under the Credit Agreement; or (ii) the Debtor shall fail to pay any or all of the
Obligations when due or (if payable on demand) on demand; (iii) the Debtor shall fail to observe or
perform any covenant or agreement binding on it herein, in the Guaranty or in any other agreement
between the Debtor and the Secured Party or by the Debtor in favor of the Secured Party; or (iv)
Debtor shall take or participate in any action which would be prohibited under the provisions of
any Subordination Agreement or make any payment on the Subordinated Indebtedness (as such term

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or any similar term is defined in any Subordination Agreement) that any Person was not entitled to
receive under the provisions of such Subordination Agreement.

7. Remedies upon Event of Default. Upon the occurrence of an Event of Default and at any
time thereafter, the Secured Party may exercise any one or more of the following rights and
remedies: (i) declare all unmatured Obligations to be immediately due and payable, and the same
shall thereupon be immediately due and payable, without presentment or other notice or demand; (ii)
exercise and enforce any or all rights and remedies available upon default to a secured party under
the UCC, including but not limited to the right to take possession of any Collateral, proceeding
without judicial process or by judicial process (without a prior hearing or notice thereof, which
the Debtor hereby expressly waives), and the right to sell, lease or otherwise dispose of any or
all of the Collateral, and in connection therewith, the Secured Party may require the Debtor to
make the Collateral available to the Secured Party at a place to be designated by the Secured Party
which is reasonably convenient to both parties, and if notice to the Debtor of any intended
disposition of Collateral or any other intended action is required by law in a particular instance,
such notice shall be deemed commercially reasonable if given (in the manner specified in Section 9)
at least ten (10) days prior to the date of intended disposition or other action; (iii) exercise or
enforce any or all other rights or remedies available to the Secured Party by law or agreement
against the Collateral, against the Debtor or against any other Person or property. The Secured
Party is hereby granted a nonexclusive, worldwide and royalty-free license to use or otherwise
exploit all Intellectual Property Rights owned by or licensed to the Debtor that the Secured Party
deems necessary or appropriate to the disposition of any Collateral.

8. Other Personal Property. Unless at the time the Secured Party takes possession of any
tangible Collateral, or within seven days thereafter, the Debtor gives written notice to the
Secured Party of the existence of any goods, papers or other property of the Debtor, not affixed to
or constituting a part of such Collateral, but which are located or found upon or within such
Collateral, describing such property, the Secured Party shall not be responsible or liable to the
Debtor for any action taken or omitted by or on behalf of the Secured Party with respect to such
property.

9. Notices; Requests for Accounting. All notices and other communications hereunder shall
be in writing and shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by telecopy, in each case
addressed or telecopied to the party to whom notice is being given at its address or telecopier
number as set forth below its signature or, as to each party, at such other address or telecopier
number as may hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices, requests, demands and
other communications shall be deemed to have been given on (i) the date received if personally
delivered, (ii) when deposited in the mail if delivered by mail, (iii) the date sent if sent by
overnight courier, or (iv) the date of transmission if delivered by telecopy. All requests under
Section 9-210 of the UCC (i) shall be made in a writing signed by an authorized Person, (ii) shall
be personally delivered, sent by registered or certified mail, return receipt requested, or by
overnight courier of national reputation (iii) shall be deemed to be sent when received by the
Secured Party and (iv) shall otherwise comply with the requirements of Section 9-210. The

-11-

 

Debtor requests that the Secured Party respond to all such requests which on their face appear to
come from an authorized individual and releases the Secured Party from any liability for so
responding. The Debtor shall pay Secured Party the maximum amount allowed by law for responding to
such requests.

10. Miscellaneous. This Agreement has been duly and validly authorized by all necessary
corporate action. This Agreement does not contemplate a sale of accounts, or chattel paper. This
Agreement can be waived, modified, amended, terminated or discharged, and the Security Interest can
be released, only explicitly in a writing signed by the Secured Party, and, in the case of
amendment or modification, in a writing signed by the Debtor. A waiver signed by the Secured Party
shall be effective only in the specific instance and for the specific purpose given. Mere delay or
failure to act shall not preclude the exercise or enforcement of any of the Secured Party’s rights
or remedies. All rights and remedies of the Secured Party shall be cumulative and may be exercised
singularly or concurrently, at the Secured Party’s option, and the exercise or enforcement of any
one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any
other. The Secured Party’s duty of care with respect to Collateral in its possession (as imposed
by law) shall be deemed fulfilled if the Secured Party exercises reasonable care in physically
safekeeping such Collateral or, in the case of Collateral in the custody or possession of a bailee
or other third person, exercises reasonable care in the selection of the bailee or other third
person, and the Secured Party need not otherwise preserve, protect, insure or care for any
Collateral. The Secured Party shall not be obligated to preserve any rights the Debtor may have
against prior parties, to realize on the Collateral at all or in any particular manner or order, or
to apply any cash proceeds of Collateral in any particular order of application. This Agreement
shall be binding upon and inure to the benefit of the Debtor and the Secured Party and their
respective successors and assigns and shall take effect when signed by the Debtor and delivered to
the Secured Party, and the Debtor waives notice of the Secured Party’s acceptance hereof. The
Secured Party may execute this Agreement if appropriate for the purpose of filing, but the failure
of the Secured Party to execute this Agreement shall not affect or impair the validity or
effectiveness of this Agreement. A carbon, photographic or other reproduction of this Agreement or
of any financing statement signed by the Debtor shall have the same force and effect as the
original for all purposes of a financing statement. This Agreement shall be governed by and
construed in accordance with the substantive laws (other than conflict laws) of the State of
Colorado. If any provision or application of this Agreement is held unlawful or unenforceable in
any respect, such illegality or unenforceability shall not affect other provisions or applications
which can be given effect and this Agreement shall be construed as if the unlawful or unenforceable
provision or application had never been contained herein or prescribed hereby. All representations
and warranties contained in this Agreement shall survive the execution, delivery and performance of
this Agreement and the creation and payment of the Obligations. The parties hereto hereby (i)
consent to the personal jurisdiction of the state and federal courts located in the State of
Colorado in connection with any controversy related to this Agreement; (ii) waive any argument that
venue in any such forum is not convenient; (iii) agree that any litigation initiated by the Secured
Party or the Debtor in connection with this Agreement or the other Loan Documents may be venued in
either the state or federal courts located in the City and County of Denver, Colorado; and (iv)
agree that a final judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

-12-

 

11. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING
TO THIS AGREEMENT.

[The remainder of this page intentionally left blank.]

-13-

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year
first above written.

	 	 	 	 	 	 	 	 	 
	WELLS FARGO BANK, NATIONAL

ASSOCIATION, acting through its Wells

Fargo Business Credit operating

division	 	 	 	GLOBAL EMPLOYMENT HOLDINGS, INC.
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ PAMELA R. CATES	 		 	By:	 	/s/ HOWARD BRILL
	 

	 	 
	 	 	 	 	 	 
	Name:

	 	Pamela R. Cates
	 	 	 	Name:
	 	Howard Brill
	Its:

	 	Vice President
	 	 	 	Its:
	 	Chief Executive Officer and President
	 
	 	 	 	 	 	 	 	 
	Address:	 	 	 	Address:
	Wells Fargo Business Credit	 	 	 	9090 Ridgeline Blvd., Suite 205
	MAC-C7300-210	 	 	 	Littleton, Colorado 80129
	1740 Broadway	 	 	 	Attention: Chief Financial Officer
	Denver, Colorado 80274	 	 	 	Employer identification number: 43-2069359
	Telecopier: (303) 863-4904	 	 	 	Organizational identification number:
	Attention: Martin Tracy	 	 	 	DE 3805232
	e-mail: martin.e.tracy@wellsfargo.com	 	 	 	 	 	 

-14-

 

EXHIBIT A

LOCATION OF COLLATERAL

9090 Ridgeline Blvd., Suite 205

Littleton, Colorado 80129

A-1

 

EXHIBIT B

LEGAL DESCRIPTION

NONE/NO FIXTURES

B-1

 

EXHIBIT C

PERMITTED LIENS

NONE

C-1

 

EXHIBIT D

ABSENCE OF CERTAIN CHANGES; INDEBTEDNESS

NONE

D-1exv10w1

 

Exhibit 10.1

ANNUAL INCENTIVE PLAN

Fiscal Year 2007

Effective April 1, 2006 — March 30, 2007

	 	 	 	 	 
	

	 	
	 	

 

 

Contents

	I.	 	Purpose of the Plan
	 
	II.	 	Eligibility
	 
	III.	 	Payout Formula
	 
	IV.	 	Incentive Payments
	 
	V.	 	Goals
	 
	VI.	 	Communication
	 
	VII.	 	Plan Modifications

	 	 	 
	Exhibit I:

	 	Incentive Plan Components
	 
	 	 
	Exhibit II:

	 	Annual Incentive Plan Payout Schedule
	 
	 	 
	Exhibit III:

	 	Incentive Payout Calculation Example

 

 

Purpose of the Plan

The purpose of the Annual Incentive Plan is to align all participants with the goals of
the company by motivating, rewarding and recognizing participants for their achievement.

Eligibility

All management-level employees of Navarre are normally eligible to participate in the
Plan. New hires must be employed prior to January 1st to be eligible for a pro-rata
incentive payment for that fiscal year (example: you must be employed by December
31st, 2006 in order to be eligible for the FY07 incentive plan year which pays
out in the first quarter of FY08). Participants who terminate from the company, for any
reason, prior to the date of the incentive payment, will lose their eligibility to
receive an incentive payment.

Payout Formula

Circuit Breaker

In order to receive any portion of the incentive payment, Navarre must achieve at least
80% of the budgeted Consolidated Operating Income target for the fiscal year.

Incentive Factors

Once the budgeted Consolidated Operating Income target is achieved, participants are eligible
for an incentive payout based on the factors associated with their position level in the
organization as listed in Exhibit I. The performance threshold for each factor is 80% of the
budgeted target.

Incentive Payout Schedule

Incentive Payouts for the financial measurement factors will be made as indicated in the Annual
Incentive Plan Payout Schedule (Exhibit II). Payout for the Individual Objective factor will be
made as a direct percentage of results achieved. Once the budgeted Consolidated Operating
Income target is achieved, payout for each factor of the incentive plan is calculated
independent of results on other factors and will range from 0% to 100% of the incentive target.
Incentive payment above 100% will occur if the Consolidated Operating Income budget is exceeded
through the Multiplier component (see following section).

Multiplier

Once the incentive is calculated for each financial measurement and the individual objectives
factor, a multiplier is applied to the total incentive payment equal to the results variance of
the Consolidated Operating Income factor. This provides for an incentive payout in direct
relation to our Consolidated Operating Income which is what funds the Annual Incentive Plan.

Payout Formula Example

For example, let’s say that the Company achieves 90% of the budgeted Consolidated Operating
Income target. That, along with the other financial factors plus the employee’s individual
objectives achievement results in an incentive total of $10,000 based on the Incentive Payout
Schedule. A multiplier is then applied to the bonus payment in an amount equal to the
Consolidated Operating Income variance to budget. In this case it was -10% (90% of budget) so
the incentive payment would be reduced by 10% for a total of $9,000. More detailed examples are
included in Exhibit III.

 

 

     Incentive Payments

Incentive payments will normally be paid within 45 days of the annual audit.
Payment will be made for the number of full months that the participant held a qualifying
position during the plan year. Incentive checks will be taxed in compliance with
Internal Revenue Service guidelines for bonuses. Checks will normally be hand delivered
in one-on-one meetings by the participant’s manager.

Goals

Goal Setting

Plan participants and their managers will share accountability for establishing
annual specific goals for the Individual Objectives factor of the incentive plan.
Generally participants will have three to five specific and measurable goals
which may be weighted or prioritized. Joint agreement on goals will be confirmed with
signatures of the participant, their manager and their functional Vice President.
Operating Income and Sales goals are finalized each year prior to the beginning of the
fiscal year (April 1st).

Goal Monitoring

Participants will normally meet with their managers at least quarterly to review progress
on specific goals. This review may include specific discussion of the participant’s
year-to-date performance rating on goals. Progress on specific goals of all participants will
then be reviewed and discussed at quarterly off-site meetings of the Senior Management Team.

Goal Modification

Goals may be modified during the plan year if the business or the individual’s
position requires the change. The Senior Management Team will normally be consulted for
input before any changes are made.

Goal Measurement

Incentive payments for Company and Division financial goal attainment will be
calculated within 45 days of the annual audit. Plan participants and their manager will
discuss the participant’s performance level on their specific goals and managers’ rating
will be submitted to the Board for approval.

Communication

After year-end closing, managers should meet individually with each participant to
finalize rating on specific goals and communicate the final incentive payment amount.
Human Resources will prepare a communication document to assist managers to effectively
communicate this information. To ensure consistent communication throughout the
organization, this document will include an outline of all information that should be
included in the meeting.

 

 

Plan Modifications

The Annual Incentive Plan may be amended from time-to-time following review and
recommendation by the Senior Management Team and approval by the Chief Executive Officer.

Furthermore, the Board of Directors reserves the right to change, suspend, or discontinue the
Plan at any time without prior notice. Nothing in the Plan shall be construed as a contractual
payment obligation or guarantee of employment for any participant.

 

 

EXHIBIT I

Annual Incentive Plan Components:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Consolidated	 	Division	 	 	 	 	 	 
	 	 	Operating	 	Operating	 	Consolidated	 	Division	 	Individual
	Job Level	 	Income	 	Income	 	Sales	 	Sales	 	Objectives
	CFO and COO
	 	 	60	%	 	 	 	 	 	 	20	%	 	 	 	 	 	 	20	%
	Division Presidents
	 	 	20	%	 	 	40	%	 	 	 	 	 	 	20	%	 	 	20	%
	Division GM’s
	 	 	20	%	 	 	40	%	 	 	 	 	 	 	20	%	 	 	20	%
	Corporate VP’s
	 	 	60	%	 	 	 	 	 	 	20	%	 	 	 	 	 	 	20	%
	Division VP’s
	 	 	20	%	 	 	40	%	 	 	 	 	 	 	20	%	 	 	20	%
	Corporate Directors
	 	 	40	%	 	 	 	 	 	 	20	%	 	 	 	 	 	 	40	%
	Division Directors
	 	 	20	%	 	 	20	%	 	 	 	 	 	 	20	%	 	 	40	%
	Corporate Managers
	 	 	40	%	 	 	 	 	 	 	20	%	 	 	 	 	 	 	40	%
	Division Managers
	 	 	20	%	 	 	20	%	 	 	 	 	 	 	20	%	 	 	40	%

 

 

EXHIBIT II

Annual Incentive Plan

FY07 Payout Schedule for Financial Measurements

	 	 	 	 	 	 	 	 	 
	 	 	Percent of	 	Payout
	 	 	Target / Budget	 	%
	Target
	 	 	100	%	 	 	100	%
	 
	 	 	99	%	 	 	97.5	%
	 
	 	 	98	%	 	 	95.0	%
	 
	 	 	97	%	 	 	92.5	%
	 
	 	 	96	%	 	 	90.0	%
	 
	 	 	95	%	 	 	87.5	%
	 
	 	 	94	%	 	 	85.0	%
	 
	 	 	93	%	 	 	82.5	%
	 
	 	 	92	%	 	 	80.0	%
	 
	 	 	91	%	 	 	77.5	%
	 
	 	 	90	%	 	 	75.0	%
	 
	 	 	89	%	 	 	72.5	%
	 
	 	 	88	%	 	 	70.0	%
	 
	 	 	87	%	 	 	67.5	%
	 
	 	 	86	%	 	 	65.0	%
	 
	 	 	85	%	 	 	62.5	%
	 
	 	 	84	%	 	 	60.0	%
	 
	 	 	83	%	 	 	57.5	%
	 
	 	 	82	%	 	 	55.0	%
	 
	 	 	81	%	 	 	52.5	%
	Minimum
	 	 	80	%	 	 	50	%
	 
	 	Below 80%	 	0% Payout

Incentive Plan Upside Potential: Incentive Payments may exceed 100% of the targeted amount if
Consolidated Operating Income exceeds budget. This is accomplished through the use of an Incentive
Plan Multiplier which adjusts the final incentive payment by the same percentage that Consolidated
Operating Income exceeds the stated budget. Please see the examples in Exhibit III for details.

 

 

EXHIBIT III

Incentive Payout Calculation Examples

Example One: Company achieves 80% of Operating Income budget and 105% of Sales. In this
scenario, the bonus would be calculated as follows per the Payout Schedule and then adjusted for
the Consolidated Operating Income performance (-20%).

Division VP ($100,000 with a Bonus opportunity of 40%)

	 	 	 	 	 	 	 	 	 
	Consolidated	 	Division	 	Consolidated	 	 	 	Individual
	Operating Income	 	Operating Income	 	 Sales	 	Division Sales	 	 Objectives
	8% (20% of total)
	 	16% (40% of total)	 	0%	 	8% (20% of total)	 	8% (20% of total)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Incentive Component	 	% Attained	 	 	Payout %	 	 	Calculation	 	 	Payout	 
	Consolidated Op Income
	 	 	80	%	 	 	50	%	 	 	.50 x .08 x  $100,000	 	 	$	4,000	 
	Division Op Income
	 	 	80	%	 	 	50	%	 	 	.50 x .16 x  $100,000	 	 	$	8,000	 
	Consolidated Sales
	 	 	105	%	 	 	100	%	 	 	1.0 x .0 x  $100,000	 	 	$	0	 
	Division Sales
	 	 	105	%	 	 	100	%	 	 	1.0 x .08 x $100,000	 	 	$	8,000	 
	Individual Objectives
	 	 	80	%	 	 	80	%	 	 	.80 x .08 x $100,000	 	 	$	6,400	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	26,400	 
	 
	 	 	 	 	 	 	 	 	 	Multiplier of -20%	 	–	$5,280	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	21,120	 

Example Two: Company achieves 105% of Operating Income budget and 80% of Sales. In this
scenario, the bonus would be calculated as follows per the Payout Schedule and then adjusted for
the Consolidated Operating Income performance (+5%).

Division VP ($100,000 with a Bonus opportunity of 40%)

	 	 	 	 	 	 	 	 	 
	Consolidated	 	Division	 	Consolidated	 	 	 	Individual
	Operating Income	 	Operating Income	 	Sales	 	Division Sales	 	Objectives
	8% (20% of total)
	 	16% (40% of total)	 	0%	 	8% (20% of total)	 	8% (20% of total)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Incentive Component	 	% Attained	 	 	Payout %	 	 	Calculation	 	 	Payout	 
	Consolidated Op Income
	 	 	105	%	 	 	100	%	 	 	1.0 x .08 x  $100,000	 	 	$	8,000	 
	Division Op Income
	 	 	105	%	 	 	100	%	 	 	1.0 x .16 x  $100,000	 	 	$	16,000	 
	Consolidated Sales
	 	 	80	%	 	 	50	%	 	 	.50 x .0 x  $100,000	 	 	$	0	 
	Division Sales
	 	 	80	%	 	 	50	%	 	 	.50 x .08 x $100,000	 	 	$	4,000	 
	Individual Objectives
	 	 	80	%	 	 	80	%	 	 	.80 x .08 x $100,000	 	 	$	4,800	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	32,800	 
	 
	 	 	 	 	 	 	 	 	 	Multiplier of + 5%	 	+	$1,640	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	34,440

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