Document:

fp0001992_ex10-2.htm

 

Exhibit 10.2

 

STOCK PURCHASE AGREEMENT

 

This STOCK PURCHASE AGREEMENT (this “Agreement”) is entered into as of the 13th day of August, 2010, by and between WORKSTREAM INC., a Canadian corporation (the “Company”), and JWL INVESTMENTS LLC, a Delaware limited liability company, DAVID KENNEDY and EZRA SCHNEIER  (each, an “Investor” and collectively, the “Investors”).

 

Background

 

WHEREAS, the Investors desires to purchase from the Company, and the Company desires to sell to the Investors, common shares, no par value, of the Company (the “Common Stock”).

 

NOW, THEREFORE, in consideration of the mutual agreements, undertakings and covenants herein contained, the parties, intending to be legally bound hereby, agree as follows:

 

1.           Purchase and Sale.  Subject to the terms and conditions of this Agreement and in reliance upon the representations of the Company and the Investors contained herein, each Investor hereby subscribes for and purchases from the Company, and the Company hereby sells to each Investor, such number of shares of Common Stock set forth opposite such Investor’s name on Schedule I hereto (all such shares, collectively, the “Shares”). The aggregate purchase price for the Shares shall be Five Hundred Thousand Dollars ($500,000) (the “Purchase Price”) and each Investor shall be responsible for paying the Company, by wire transfer of immediately available funds, such portion of the Purchase Price as is set forth opposite such Investor’s name on Schedule I hereto.

 

2.           Payment and Delivery.  Upon receipt of the aggregate Purchase Price and, subject to the terms and conditions hereof, the Company will deliver to each Investor, promptly following the date hereof, a stock certificate duly executed by the Company, registered in the name of such Investor and dated the date hereof representing the Shares purchased by such Investor from the Company.

 

3.           Representations and Warranties of the Company.  The Company hereby represents and warrants to each Investor as follows:

 

(a)           Subsidiaries.  All of the majority owned direct and indirect subsidiaries of the Company are set forth on Schedule 3(a) (the “Subsidiaries”).  The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary.

 

(b)           Organization and Qualification.  Each of the Company and the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation or 

 

  

  

  

 

default of any of the provisions of its respective articles or certificate of incorporation, by-laws or other organizational or charter documents.  Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of this Agreement, (ii) a material adverse effect on the results of operations, assets, business or financial condition of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under this Agreement (any of (i), (ii) or (iii), a “Material Adverse Effect”).

 

(c)           Authorization; Enforcement.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement.  The execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company.  This Agreement has been duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies, and (iii) insofar as indemnification and contribution may be limited by applicable law.

 

(d)           No Conflicts.  The execution, delivery and performance of this Agreement by the Company and the issuance and sale of the Shares do not and will not (i) conflict with or violate any provision of the Company’s certificate of incorporation or by-laws, or (ii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected, except in the case of clause (ii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e)           Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other party in connection with the execution, delivery and performance by the Company of this Agreement, other than the filing of Form D with the Securities and Exchange Commission and such filings as are required to be made under applicable state securities laws.

 

(f)           Issuance of Shares.  The Shares issued pursuant to this Agreement are duly authorized and when issued and paid for in accordance with this Agreement will be duly and validly issued, fully paid and nonassessable, free and clear of all liens imposed by the Company other than restrictions on transfer provided for herein or by law.

 

  

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(g)           Capitalization.  The capitalization of the Company is as described on Schedule 3(g).  No person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement.  The issue and sale of the Shares will not obligate the Company to issue shares of Common Stock or other securities to any person (other than the Investor).  All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.  No further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale of the Shares.

 

(h)           SEC Reports; Financial Statements.  The Company has filed all reports required to be filed by it under the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”), including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials, including the exhibits thereto, being collectively referred to herein as the “SEC Reports”).  As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act.  As of their respective dates, the financial statements of the Company included in the SEC Reports complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as in effect as of the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, 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 Company 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 which will not be material, either individually or in the aggregate).

 

(i)           Litigation.  Except as set forth in the SEC Reports and on Schedule 3(i), there is no action, suit or proceeding pending or, to the knowledge of the Company, threatened against the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect.

 

(j)           Labor Relations.  No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect.

 

(k)           Patents and Trademarks.  The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”).  Neither the Company nor any Subsidiary has received a written notice that the 

 

  

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Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any third party.  To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another third party of any of the Intellectual Property Rights of others.

 

(l)           Transactions With Affiliates and Employees.  Except as set forth in the SEC Reports, to the knowledge of the Company, none of the officers or directors of the Company are presently a party to any material transaction with the Company or any Subsidiary (other than for services as employees, officers and directors).

 

(m)           Certain Fees.  No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other person with respect to the transactions contemplated by this Agreement.  The Purchasers shall have no obligation (other than with respect to their own actions) with respect to any fees or with respect to any claims made by or on behalf of other persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement.

 

(n)           Registration of Common Stock.  The Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration.

 

(o)           Title to Property.  Except as set forth on Schedule 3(o), the Company has good and marketable title to, or a valid leasehold interest in, its material property and assets, free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens that arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets.

 

(p)           Compliance with Laws.  The Company is in compliance with all laws and ordinances and all governmental rules and regulations to which it is subject, except where the failure so to comply would not have a Material Adverse Effect.

 

(q)           Taxes.  As of the date hereof, except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary have filed all necessary federal, state and foreign income, and franchise tax returns and have paid or accrued all taxes shown as due thereon, except for filings that are subject to extensions and amounts that are otherwise in dispute.

 

(r)           Employment Arrangements.  Except as set forth on Schedule 3(r), as of the date of this Agreement the Company is not a party to any employment agreement with any of its employees.  The Company has provided the Investors with a true and correct copy of each employment agreement listed on Schedule 3(r).  All of the employees of the Company other than employees covered by employment agreements are employed on an at-will basis.  The Company is not a party to any union agreement or collective bargaining agreement, and each Company is in compliance in all material respects with all laws respecting employment and employment 

 

  

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practices, terms and conditions of employment and wages and hours.  The Company has no knowledge of any union organizing activity involving the Company’s employees.  The Company and its subsidiaries believe that their relations with their employees are good.  To the Company’s knowledge, all of the Company’s employees have lawful status to work in the United States.

 

(s)           Insurance.  The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against risk, including directors’ and officers’ liability risk, in such amounts as management of the Company believes to be prudent and customary.

 

4.           Representations and Warranties of the Investors.  Each Investor, severally as to itself and not jointly, hereby represents and warrants to the Company as follows:

 

(a)           Authorization and Power.  JWL Investments LLC is a limited liability company duly organized and existing under the laws of the State of Delaware.  Such Investor has the requisite limited liability power, and is authorized, and each other Investor has the power and is authorized, to enter into this Agreement, to purchase the Shares hereunder and to carry out and perform its obligations under the terms of this Agreement.  This Agreement has been duly and validly executed and delivered by such Investor and constitutes the legal, valid and binding obligation of such Investor, enforceable against it in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors’ rights and to general equitable principles.

 

(b)           Investment Purposes.  Such Investor is acquiring the Shares for investment purposes only, for such Investor’s own account and with such Investor’s own funds and not for the account or with the funds of any other person and not with a view to the resale, assignment, fractionalization or distribution thereof, either in whole or in part and not with a view to resale or distribution to others.  Such Investor has no present plans to enter into any contract, undertaking, agreement or arrangement for the transfer, assignment, resale or distribution of the Shares.  Such Investor is not participating, either directly or indirectly, in an underwriting of the Shares and will not take, or cause to be taken, any action that would cause the Investor to be deemed to be an underwriter of the Shares as defined in Section 2(11) of the Securities Act of 1933, as amended (the “Act”).

 

(c)           Restrictions on Transfer.  Such Investor understands that the Shares have not been registered under the Act or under any state securities or blue sky laws and, as a result thereof, are subject to substantial restrictions on transfer.  Such Investor acknowledges that the Shares must be held indefinitely and that the Shares may not be sold or otherwise transferred unless the Shares (i) have been registered for resale under the Act and any applicable state securities laws or (ii) are transferred in reliance upon applicable exemption from registration.

 

(d)           Approvals.  Such Investor understands that no federal or state agency or regulatory body, including, without limitation, any federal or state securities commission, has approved or disapproved the Shares or passed upon or endorsed the merits of the offer and sale of the Shares pursuant to this Agreement.

 

  

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(e)           Risks.  Such Investor understands that an investment in the Shares involves a high degree of risk, including loss of the total investment, lack of liquidity and restrictions on transfer of the Shares.  In this regard, such Investor has read, understands and is familiar with the Risk Factors set forth in the SEC Reports (the “Risk Factors”), is familiar with the nature of the risks associated with acquiring securities of a company similarly situated with the Company, and has determined that the purchase of the Shares is consistent with the Investor’s investment objectives.  Such Investor has consulted with its own legal, accounting, tax, investment and other advisors with respect to the merits and risks of an investment in the Shares.

 

(f)           Company Condition.  Such Investor has carefully reviewed the SEC Reports and has relied solely upon the SEC Reports and investigations made by or on behalf of the Investor in making the decision to purchase the Shares.  Such Investor acknowledges that it is familiar with the condition of the Company, financial and otherwise, and with its business operations and prospects, including the information contained in the Risk Factors, and further acknowledges that such Investor and the Investor’s advisors have been provided with or have been given access to all of the financial and any other information requested by them or deemed by them to be necessary or material for the Investor to make the investment decision to acquire the Shares.  Such Investor acknowledges that it has been granted the opportunity to ask questions of and has received answers satisfactory to it from representatives of the Company concerning the business and operations of the Company and the Company warrants that the information provided to the investors is true and correct.

 

(g)           Accredited Investor.  Such Investor is an “accredited investor” as such term is defined in Rule 501 of the Act.

 

(h)           Use of Proceeds.  Such Investor understands and acknowledges that the proceeds from the sale of the Shares will be used by the Company for working capital and general corporate purposes, including payment of the costs incurred by the Company in connection with the preparation of the original Term Sheet, this Agreement, the Employment Agreements (as hereinafter defined), the exchange agreements between the Company and its secured note holders and all documents contemplated in connection with the transactions thereunder.

 

(i)           Exemption from Registration.  Such Investor understands that the Shares are being offered and sold in reliance upon specific exemptions from the registration requirements of the Act and state securities laws, and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings set forth herein in order to determine the applicability of such exemptions and the suitability of the Investor to acquire the Shares.  The representations and warranties made by such Investor hereunder shall survive the delivery of this Agreement and the purchase by the Investor of the Shares subscribed for hereunder.

 

(j)           Experience of Investor.  Such Investor, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Shares, and has so evaluated the merits and risks of such investment.  Such Investor is able to 

 

  

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bear the economic risk of an investment in the Shares and, at the present time, is able to afford a complete loss of such investment.

 

(k)           General Solicitation.  Such Investor is not purchasing the Shares as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

 

5.           Legend.  Each Investor understands that certificates evidencing the Shares shall bear a legend in substantially the following form:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE.  THE SECURITIES MAY NOT BE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT AND SUCH STATE SECURITIES LAWS.

 

6.           Covenants.

 

(a)           Employment Agreements.  Simultaneous with the execution and delivery of this Agreement, the Company agrees that it will, and the Investor agrees that it will cause each of John Long, David Kennedy and Ezra Schneier to, execute the relevant employment agreements in the forms set forth as Exhibit A, Exhibit B and Exhibit C hereto (collectively, the “Employment Agreements”).  Each of the Company and the Investor agrees that this Agreement shall become effective and binding on the parties only upon the execution and delivery each of the Employment Agreements.

 

7.           Miscellaneous.

 

(a)           Confidentiality.  The Investor agrees to maintain the confidentiality of any non-public information relating to the Company or the business conducted by the Company that is received from the Company (“Confidential Information”) for a period of five years after its disclosure.  Except as otherwise agreed to by the parties, the Investor shall use such Confidential Information solely for purposes related to its investment in the Company and it may not use any such Confidential Information for the purpose of or in connection with the trading of any of the Company’s securities, including the Common Stock.  Confidential Information shall not be deemed to include any of the following: (a)  information that now or later becomes generally known or available through no act or omission on the part of the Investor; (b)  information which the Investor can document was already known to the receiving party at the time it is disclosed to the Investor, other than as a result of a breach of confidentiality obligation by another party; (c)  information which the Investor can document was independently developed by the Investor without reference to the Confidential Information provided; or (d)  information properly disclosed to the Investor by a third party without breach of any obligation to the party who owns the Confidential Information.  The Investor may disclose Confidential Information of the 

 

  

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Company pursuant to legally compelled disclosure or in the course of a legal proceeding or action involving the Company.

 

(b)           Notices.  All notices, requests and other communications to any party under this Agreement shall be in writing and shall be given to such party at its address or facsimile number set forth below or such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other parties.  Each such notice, request or other communication shall be effective: (a) if given by facsimile, when such facsimile is transmitted to the facsimile number with confirmation of receipt, (b) if given by registered or certified mail, return receipt requested, three business days after such communication is deposited in the mail with postage prepaid, addressed as aforesaid or (c) if given by any other means, when delivered at the address specified hereunder.

 

	 	
If to the Investors:

 

 

 

	
_____________________________

_____________________________

_____________________________

Facsimile: _____________________

 

	 	
With a copy to:

 

 

 

 

	
_____________________________

_____________________________

_____________________________

Attention: ___________________     

Facsimile: ____________________   

 

	 	
If to the Company:

	
Workstream Inc.

485 N. Keller Road, Suite 500

Maitland, FL 32751

Attention: Chairman of the Board

Facsimile: (407) 475-5517

 

	 	
With a copy to:

 

 

	
Cozen O’Connor

1900 Market Street

Philadelphia, PA 19103

Attention: Scott Brucker, Esq.

Facsimile: (215) 665-2013

 

(c)           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and neither party may assign or transfer any of its rights or obligations hereunder without the consent of the other party.

 

(d)           Governing Law.  The rights of the parties hereto shall be determined under, governed by, and construed in accordance with the internal laws of the State of Delaware, without regard to principles of conflicts of law.  THE PARTIES HERETO HEREBY IRREVOCABLY CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF DELAWARE IN CONNECTION WITH ANY 

 

  

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ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT.  THE PARTIES HERETO HEREBY WAIVE ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 7(d) AND STIPULATE THAT SUCH COURTS SHALL HAVE IN PERSONAL JURISDICTION AND VENUE OVER EACH SUCH PARTY FOR THE PURPOSE OF LITIGATING ANY SUCH DISPUTE, CONTROVERSY OR PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT.

 

(e)           Cooperation.  From time to time hereafter, at the request of the Company, each Investor shall execute and deliver such other instruments or documents as may be reasonably requested by the Company to more fully vest and perfect title to the Shares and all rights thereunder.

 

(f)           Entire Agreement.  This Agreement and the documents executed and delivered pursuant hereto and in connection herewith constitute the entire agreement between the parties with respect to the subject matter contained herein and supersedes all prior and contemporaneous oral and written communications and agreements with respect thereto.

 

(g)           Severability.  In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall to the extent practicable be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent of the parties, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

(h)           Amendments and Waivers.  Any provision of this Agreement and the obligations of the Company or rights of the Investor hereunder may be amended or waived if, but only if, such amendment or waiver is in writing and is approved in writing by the Company and each of the Investors, whereupon such amendment or waiver shall be binding on the Company and the Investors.

 

(i)           Survival of Representations.  The representations and warranties made herein shall survive the execution and delivery hereof and the consummation of the transactions contemplated hereby until the twelve-month anniversary from the date hereof.

 

(j)           Fees and Expenses.  Each party shall pay the fees and expenses of its own advisers, counsel, accountants and other experts, if any, incident to the negotiation, preparation, execution, delivery and performance of this Agreement; provided, however, that promptly following the consummation of the transactions contemplated by this Agreement, the Company shall reimburse the legal fees and travel expenses incurred collectively by the Investors in connection with the negotiation, execution, delivery and performance of this Agreement, not to exceed $10,000 in the aggregate.

 

(k)           Construction.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.  The language used in this Agreement will be deemed to be the language 

 

  

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chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

(l)           Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall constitute an original but all of which shall constitute but one and the same instrument.  One or more counterparts of this Agreement may be delivered via facsimile or PDF or similar electronic delivery, with the intention that they shall have the same effect as an original counterpart hereof.

 

[Signature page follows]

 

  

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

WORKSTREAM INC.

By: ___________________________________

      Name:

      Title:

 

 

JWL INVESTMENTS LLC

 

By: ___________________________________

      Name:

      Title:

 

 

_______________________________________

 DAVID KENNEDY

 

 

_______________________________________

 EZRA SCHNEIER

 

  

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SCHEDULE I

       

	
Investor

	
Purchase Price

	
Shares

	
JWL Investments LLC

	
$250,000

	
12,645,414

	
David Kennedy

	
$125,000

	
6,322,707

	
Ezra Schneier

	
$125,000

	
6,322,707fp0001992_ex10-3.htm

 

Exhibit 10.3

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THIS NOTE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING ANYTHING CONTAINED IN THIS NOTE TO THE CONTRARY, THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTION 13(a) HEREOF.

 

Workstream Inc.

 

Senior Secured Note

 

	
Issuance Date:  August 13, 2010

	
Original Principal Amount: U.S. $750,000

FOR VALUE RECEIVED, Workstream Inc., a corporation existing pursuant to the Canada Business Corporations Act (the “Company”), hereby promises to pay to the order of CCM MASTER QUALIFIED FUND, LTD. or its registered assigns (“Holder”) the amount set out above as the Original Principal Amount (as increased or reduced pursuant to the terms hereof, the “Principal”) when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest Rate from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable (including, without limitation, on the Maturity Date) or acceleration, redemption or otherwise (in each case in accordance with the terms hereof). Certain capitalized terms used herein are defined in Section 25.

 

1.           PAYMENTS OF PRINCIPAL. The Company shall pay to the Holder in cash, via wire transfer of immediately available funds, the outstanding Principal, all accrued and unpaid Interest and all accrued and unpaid Late Charges (each such amount is referred to herein as a “Payment Amount”) on the Maturity Date or on such earlier date as any such amount becomes due and payable pursuant to the terms of this Note. Other than as specifically permitted by this Note, the Company may not prepay any portion of the outstanding Principal, accrued and unpaid Interest or accrued and unpaid Late Charges (as defined below) on Principal and Interest, if any. Each Payment Amount shall be applied as follows: (i) first, to the Principal amount due on such Payment Date, (ii) second, to all accrued and unpaid Interest due on such Payment Date and (iii) third, to all accrued and unpaid Late Charges on such Principal amount and Interest due on such Payment Date. The Holder and the Company shall maintain records showing the Principal, 

 

  

  

  

 

Interest and Late Charges redeemed and/or paid (as the case may be) and the dates of such redemption and/or payments (as the case may be) or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon partial redemption or payment.

 

2.           INTEREST; INTEREST RATE. Interest on this Note shall commence accruing on the Issuance Date, shall accrue daily at the Interest Rate on the outstanding Principal amount from time to time, shall be computed on the basis of a 360-day year, shall compound each Fiscal Quarter and shall be paid by adding such accrued interest to the Principal amount outstanding under this Note on the first calendar day of each Fiscal Quarter, provided that all accrued and unpaid Interest outstanding on the Maturity Date shall be paid to the Holder in cash via wire transfer of immediately available funds. From and after the occurrence and during the continuance of any Event of Default, the Interest Rate then in effect shall be automatically increased to 15% per annum. In the event that such Event of Default is subsequently cured, the increase referred to in the preceding sentence shall cease to be effective as of the date of such cure, provided that the Interest as calculated and unpaid at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of such cure of such Event of Default.

 

3.           RIGHTS UPON EVENT OF DEFAULT.

 

(a)           Event of Default. Each of the following events that occurs after the Issuance Date shall constitute an “Event of Default”:

 

(i)      the Company’s or any Subsidiary’s (as defined below) failure to pay to the Holder any amount of Principal, Interest, Late Charges or other amounts when and as due under this Note (including, without limitation, the Company’s or any Subsidiary’s failure to pay any redemption payments or amounts hereunder), except in the case of a failure to pay Interest and Late Charges when and as due, in which case only if such failure remains uncured for a period of at least seven (7) days;

 

(ii)     the Company or any Subsidiary materially breaches any representation, warranty, covenant or other term or condition of any Transaction Document, except, in the case of a breach of a covenant which is curable, only if such breach remains uncured for a period of at least ten (10) days;

 

(iii)    any breach or failure in any respect by the Company or any Subsidiary to comply with any provision of Section 9 of this Note;

 

(iv)    the occurrence of any default under, redemption of or acceleration prior to maturity of any Indebtedness of the Company or its Subsidiaries in excess of $400,000;

 

(v)     any Material Adverse Effect;

 

(vi)    the entry by a court of (i) a decree, order, judgment or other similar document in respect of the Company or any Subsidiary of a voluntary or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar 

 

  

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law or (ii) a decree, order, judgment or other similar document adjudging the Company or any Subsidiary as bankrupt or insolvent, or approving as properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition of or in respect of the Company or any Subsidiary under any applicable federal, state or foreign law or (iii) a decree, order, judgment or other similar document appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree, order, judgment or other similar document or any such other decree, order, judgment or other similar document unstayed and in effect for a period of thirty (30) consecutive days;

 

(vii)   bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or against the Company or any Subsidiary and, if instituted against the Company or any Subsidiary by a third party, shall not be dismissed within thirty (30) days of their initiation;

 

(viii)  the commencement by the Company or any Subsidiary of a voluntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in respect of the Company or any Subsidiary in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts, or the occurrence of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts generally as they become due, the taking of corporate action by the Company or any Subsidiary in furtherance of any such action or the taking of any action by any Person to commence a UCC foreclosure sale or any other similar action under federal, state or foreign law;

 

(ix)    except as set forth on Schedule 3(a)(ix), a final judgment or judgments for the payment of money aggregating in excess of $1,000,000 are rendered against the Company or any of its Subsidiaries, which judgments are not, within thirty (30) days after the entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within thirty (30) days after the expiration of such stay; provided, however, that any judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $1,000,000 amount set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered by insurance or an indemnity and the Company or such Subsidiary (as the case may be) will receive the proceeds of such insurance or indemnity within 30 days of the issuance of such judgment;

 

(x)    except as set forth on Schedule 3(a)(x), the Company or any Subsidiary either (i) 

 

  

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fails to pay, when due, or within any applicable grace period, any payment with respect to any Indebtedness in excess of $250,000 due to any third party, other than, with respect to unsecured Indebtedness only, payments contested by the Company or such Subsidiary (as the case may be) in good faith by proper proceedings and with respect to which adequate reserves have been set aside for the payment thereof in accordance with GAAP (as defined below), or otherwise be in breach or violation of any agreement for monies owed or owing in an amount in excess of $250,000, which breach or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist any other circumstance or event that would, with or without the passage of time or the giving of notice, result in a default or event of default under any agreement binding the Company or any Subsidiary, which default or event of default would or is likely to have a material adverse effect on the business, assets, operations (including results thereof), liabilities, properties, condition (including financial condition) or prospects of the Company or any of its Subsidiaries, individually or in the aggregate; and

 

(xi)          the Company consummates a Fundamental Transaction without the prior written consent of the Holder, which consent may be granted or withheld in the Holder’s sole discretion.

 

(b)           Redemption Right. Upon the Company becoming aware of the occurrence of an Event of Default under this Note, the Company shall within one (1) Business Day deliver written notice thereof via facsimile and overnight courier (with next day delivery specified) (an “Event of Default Notice”) to the Holder. At any time after the earlier of the Holder’s receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company (regardless of whether such Event of Default has been cured) to redeem all or any portion of this Note by delivering written notice thereof (the “Event of Default Redemption Notice”) to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem. Each portion of this Note subject to redemption by the Company pursuant to this Section 3(b) shall be redeemed by the Company at a price equal to the sum of the portion of the Principal amount of this Note so elected by the Holder to be redeemed together with accrued and unpaid Interest with respect to such portion and accrued and unpaid Late Charges with respect to such portion and Interest as of such time as the Holder delivers an Event of Default Redemption Notice (the “Event of Default Redemption Price”). Redemptions required by this Section 3(b) shall be made in accordance with, and be subject to, the provisions of Section 7. To the extent redemptions required by this Section 3(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this Note by the Company, such redemptions shall be deemed to be voluntary prepayments.

 

4.           RIGHTS UPON FUNDAMENTAL TRANSACTION. The Company shall not enter into or be party to a Fundamental Transaction unless (i) the Holder gives its prior consent to such Fundamental Transaction, and (ii) the Successor Entity assumes in writing all of the obligations of the Company under this Note and the other Security Documents  in accordance with the provisions of this Section 4 pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction.  Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power 

 

  

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of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. The provisions of this Section shall apply similarly and equally to successive Fundamental Transactions. No sooner than twenty (20) Trading Days nor later than ten (10) Trading Days prior to the consummation of a Fundamental Transaction, but in no event prior to the public announcement of such Fundamental Transaction, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a “Fundamental Transaction Notice”). Notwithstanding the foregoing, if a Disposition or Liquidity Event constitutes a Fundamental Transaction and such a Disposition or Liquidity Event (as the case may be) will result in payment in full of all amounts then-outstanding under this Note pursuant to Section 6, then the Company shall not be required to comply with Section 3(a)(xi) and this Section 4 in connection with such a Fundamental Transaction so long as all amounts then-outstanding under this Note are paid in full to the Holder pursuant to Section 6 simultaneously with the consummation of such Disposition or Liquidity Event (as the case may be).

 

5.           NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note.

 

6.           MANDATORY REDEMPTIONS. Upon the occurrence of each Disposition or Liquidity Event (as the case may be), the Company shall use the Net Proceeds (as defined below) with respect to such Disposition or Liquidity Event (as the case may be) (the “Applicable Net Proceeds”) to redeem this Note in the manner and in such amounts as are set forth herein (each being a “Mandatory Redemption”). With respect to each Disposition and each Liquidity Event (as the case may be), the Company shall deliver a written notice by confirmed facsimile and overnight courier (with next day delivery specified) to the Holder of this Note (the “Mandatory Redemption Notice” and the date such notice is delivered to the Holder is referred to as the “Mandatory Redemption Notice Date”) stating (a) the date on which the applicable Mandatory Redemption shall occur (the “Mandatory Redemption Date”), which date shall be the date such Disposition or Liquidity Event (as the case may be) is consummated, (b) the amount of Applicable Net Proceeds with respect to such Disposition or Liquidity Event (as the case may be) and (c) the Mandatory Redemption Price (as defined below) with respect to such Disposition or Liquidity Event (as the case may be).  The applicable Mandatory Redemption Notice shall be delivered as soon as practicable prior to the consummation of the applicable Disposition or Liquidity Event (as the case may be), and the Company shall make a public announcement containing the information set forth in such Mandatory Redemption Notice on or before the applicable Mandatory Redemption Notice Date to the extent that the notice contains any, or constitutes, material, non-public information. Redemptions required by this Section 6 shall be made in accordance with, and be subject to, the provisions of Section 7. To the extent redemptions required by this Section 6 are deemed or determined by a court of competent jurisdiction to be prepayments of this Note by the Company, such redemptions shall be deemed to be voluntary prepayments. The Company agrees that in the event of the Company’s redemption of any portion of this Note under this Section 6, the Holder’s damages would be 

 

  

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uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder. “Mandatory Redemption Price” means, with respect to a particular Disposition or Liquidity Event (as the case may be), an amount in cash equal to the Applicable Net Proceeds with respect to such Disposition or Liquidity Event (as the case may be) up to the maximum aggregate amount owed under this Note, including all outstanding Principal, all accrued and unpaid Interest and all accrued and unpaid Late Charges.

 

7.           REDEMPTIONS.  The Company shall deliver the Event of Default Redemption Price to the Holder in cash within seven (7) Business Days after the Company’s receipt of the Holder’s Event of Default Redemption Notice. The Company shall deliver the applicable Mandatory Redemption Price to the Holder in cash on the applicable Mandatory Redemption Date. In the event of a redemption of less than all of the then-outstanding Principal of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 13(d)) representing the outstanding Principal which has not been redeemed. In the event that the Company does not pay the applicable Redemption Price to the Holder within the time period, or on the date, required (as the case may be), at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to require the Company to promptly return to the Holder all or any portion of this Note representing the Principal amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid by delivering written notice by confirmed facsimile and overnight courier (with next day delivery specified) stating such.  Upon the Company’s receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Principal amount and (y) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 13(d)) to the Holder representing the sum of such Principal amount to be redeemed which has not been redeemed. The Holder’s delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Company’s obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Principal amount subject to such notice.

 

8.           REDEMPTION AT OPTION OF THE COMPANY.

 

(a)          Right to Cause Redemption. The Company shall have the right, from time to time, to redeem all or any portion of the amount outstanding under this Note in accordance with, and subject to, the provisions of this Section 8 (the “Company Optional Redemption Right”).

 

(b)          Mechanics of Redemption at Option of the Company. With respect to each exercise of the Company Optional Redemption Right, the Company shall give written notice to the Holder that it has elected to redeem all or a portion of the amount outstanding under this Note pursuant to the exercise of the Company Optional Redemption Right (each being a “Notice of Company Optional Redemption”). Each Notice of Company Optional Redemption shall state (i) the date on which the applicable redemption shall occur (which date shall be a Business Day that is no less than five (5) Business Days after the date of such notice (the “Optional Redemption Date”)), and (ii) either that all or less than all of the amount outstanding under this Note is subject to such Company Optional Redemption Right, and if less than all of the amount outstanding under this Note will be subject to such Company Optional Redemption Right, the 

 

  

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portion of the amount outstanding under this Note subject to such Company Optional Redemption Right.

 

(c)          Payment of Optional Redemption Price. The redemption price with respect to each exercise of the Company Optional Redemption Right (each being an “Optional Redemption Price”) shall be determined as set forth in this Section 8(c). If the applicable Notice of Company Optional Redemption specifies that all amounts outstanding under this Note are subject to such redemption, then such Optional Redemption Price shall be an amount equal to 103% of the sum of the then-outstanding Principal amount of this Note plus all accrued and unpaid Interest with respect to such Principal amount and Interest as of the applicable Optional Redemption Date and all accrued and unpaid Late Charges with respect to such Principal amount as of the applicable Optional Redemption Date. If the applicable Notice of Company Optional Redemption specifies that less than all amounts outstanding under this Note are subject to such redemption, then such Optional Redemption Price shall be an amount equal to 103% of the amount subject to redemption that is specified in the applicable Notice of Company Optional Redemption. Each Optional Redemption Price shall be paid in cash to the Holder, via wire transfer of immediately available funds, on the applicable Optional Redemption Date. Each Optional Redemption Price that is less than all amounts then-outstanding under this Note shall be applied as follows: (1) first, to the Principal then outstanding, (2) second, to all accrued and unpaid Interest then-outstanding and (3) third, to all accrued and unpaid Late Charges then-outstanding on such Principal and Interest. To the extent redemptions required by this Section 8 are deemed or determined by a court of competent jurisdiction to be prepayments of this Note by the Company, such redemptions shall be deemed to be voluntary prepayments. In the event that the Company does not pay to the Holder the applicable Optional Redemption Price on the applicable Optional Redemption Date, then, in addition to all other rights and remedies available to the Holder, the Holder shall have the right to void the redemption pursuant to Section 7 with the term “Optional Redemption Price” being substituted for “Redemption Price” and “Notice of Company Optional Redemption” being substituted for “Redemption Notice.”

 

9.            COVENANTS.

 

(a)          Rank. All payments due under this Note shall be senior to all other Indebtedness of the Company and its Subsidiaries.

 

(b)          Incurrence of Indebtedness. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, without the prior express written consent of the Holder, incur or guarantee, assume or suffer to exist any Indebtedness, other than (i) the Indebtedness evidenced by this Note, (ii) Permitted Indebtedness and (iii) Indebtedness solely between or among the Company and any of its Subsidiaries.

 

(c)          Existence of Liens. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, without the prior express written consent of the Holder allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by the Company or any of its Subsidiaries (collectively, “Liens”) other than Permitted Liens.

 

(d)          Restricted Payments. The Company shall not, and the Company shall cause each 

 

  

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of its Subsidiaries to not, directly or indirectly, without the prior express written consent of the Holder, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness (other than Permitted Senior Indebtedness or Indebtedness solely between or among the Company and any of its Subsidiaries), whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness if at the time such payment is due or is otherwise made or, after giving effect to such payment, (i) an event constituting an Event of Default has occurred and is continuing or (ii) an event that with the passage of time and without being cured would constitute an Event of Default has occurred and is continuing. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, take any action or omit to take any action to cause, or that would result in, any amounts which would constitute Proceeds or Net Proceeds hereunder, if received directly or indirectly by the Company or any of its Subsidiaries, to either not (1) be received directly or indirectly by the Company or any of its Subsidiaries or (2) constitute Proceeds or Net Proceeds.

 

(e)          Restriction on Redemption and Dividends; Affiliate Transactions. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or indirectly, redeem, repurchase or declare or pay or make any dividend or distribution (including, without limitation, a cash dividend or distribution) on its capital shares without the prior express written consent of the Holder, provided that the foregoing shall not prohibit any cash dividends or distributions by any Subsidiary solely to the Company or any other Subsidiary that is directly or indirectly wholly-owned by the Company.

 

(f)           Restriction on Transfer of Assets. The Company shall not, and the Company shall cause each of its Subsidiaries to not, without the prior express written consent of the Holder (which consent shall not be unreasonably withheld (it shall be deemed reasonable for the Holder to withhold consent if Proceeds (directly or indirectly) received or to be received in connection with any Disposition include or constitute any consideration other than cash, cash equivalents or publicly-traded securities)), sell, lease, license, assign, transfer, convey or otherwise dispose of any assets or rights of the Company or any Subsidiary owned or hereafter acquired whether in a single transaction or a series of related transactions, other than (i) sales, leases, licenses, assignments, transfers, conveyances and other dispositions of such assets or rights by the Company and its Subsidiaries that, in the aggregate, do not have a fair market value in excess of $250,000 in any twelve (12) month period, (ii) sales of inventory in the ordinary course of business (such sales, leases, licenses, assignments, transfers, conveyances and other dispositions permitted by clauses (i) and (ii) are each referred to herein as a “Permitted Sale”) and (iii) leases and licenses of intellectual property of the Company and its Subsidiaries to unaffiliated third parties that are in the ordinary course of business and do not require approval of the board of directors or similar governing body of the Company or any of its Subsidiaries, provided that no such lease or license shall (1) provide for any exclusive use or right or other type of exclusivity, (2) transfer any ownership rights in any such intellectual property to any such third party, (3) exceed a term of three (3) years (including renewals thereof) or (4) result in a lease or license of all or substantially all of the assets of the Company or any of its Subsidiaries.  Notwithstanding the foregoing, this Section 10(f) shall not be applicable at any time after the Issuance Date the Holder holds less than $250,000 of the aggregate Principal amount of Indebtedness evidenced by this Note.

 

  

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(g)          Maturity of Indebtedness. The Company shall not, and the Company shall cause each of its Subsidiaries to not, directly or  indirectly, without the prior express written consent of the Holder, permit any Indebtedness of the Company or any of the Subsidiaries (other than Permitted Senior Indebtedness) to mature or accelerate prior to the Maturity Date.

 

(h)          New Subsidiaries. Simultaneously with the acquisition or formation of each New Subsidiary (as defined below), the Company shall cause such New Subsidiary to execute, and deliver to the Holder of the Note, the Security Documents (and any documents and agreements relating thereto) that are substantially similar to the Security Documents (and other agreements, if applicable) that the Current Subsidiaries are required to execute in connection with this Note.

 

(i)           Tests.

 

  (A)           Minimum Cash Balance.  The Company shall at all times maintain a Cash Balance which equals or exceeds $250,000 (the “Minimum Cash Balance Test”).

 

  (B)           Primary Collateral Value.  As of the end of each calendar month, (i) the Company’s Cash Balance plus (ii) the Company’s consolidated accounts receivables that are less than 90 days old (collectively, the “Primary Collateral Value”) must be greater than or equal to two hundred percent (200%) of the aggregate amount of the outstanding Principal, Interest and Late Charges under this Note; provided, however, that at no time will the Primary Collateral Value be less than one hundred fifty percent (150%) of the aggregate amount  of the outstanding Principal, Interest and Late Charges under this Note (the “Primary Collateral Value Test”).

 

  (C)           Test Default.  Upon the Company becoming aware of the occurrence of any default under the Minimum Cash Balance Test or the Primary Collateral Value Test (each, a “Test Default”) under this Section 10(i), the Company shall within one (1) Business Day deliver written notice thereof via facsimile and overnight courier (with next day delivery specified) (a “Test Default Notice”) to the Holder.  If such Test Default remains uncured for a period of at least three (3) days after the earlier of the Holder’s receipt of a Test Default Notice or the Holder becoming aware of a Test Default, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (the “Test Default Redemption Notice”) to the Company, which Test Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem.  Each such portion of this Note shall be redeemed by the Company at a price equal to the sum of the portion of the Principal amount of this Note so elected by the Holder to be redeemed together with accrued and unpaid Interest with respect to such portion and accrued and unpaid Late Charges with respect to such portion and Interest as of such time as the Holder delivers a Test Default Redemption Notice (the “Test Default Redemption Price”). Redemptions required by this Section 10(i) shall be made in accordance with, and be subject to, the provisions of Section 7.  To the extent redemptions required by this Section 10(i) are deemed or determined by a court of competent jurisdiction to be prepayments of this Note by the Company, such redemptions shall be deemed to be voluntary prepayments.

 

(j)           No Material Weakness.  The Company and its Subsidiaries shall not have any material weakness in their control environments as reported by the Company’s auditors to the Company’s audit committee.

 

  

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10.          SECURITY. This Note is secured to the extent and in the manner set forth in the Security Documents.

 

11.          AMENDING THE TERMS OF THIS NOTE. The prior written consent of the Holder shall be required for any change or amendment to this Note.

 

12.          TRANSFER. This Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company.

 

13.          REISSUANCE OF THIS NOTE.

 

(a)          Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 13(d)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred, a new Note (in accordance with Section 13(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 1 following payment or redemption (as the case may be) of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note.

 

(b)          Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 13(d)) representing the outstanding Principal.

 

(c)          Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 13(d) and in principal amounts of at least $50,000) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender.

 

(d)          Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 13(a) or Section 13(c), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest and Late Charges on the Principal and Interest of this Note, from the Issuance Date.

 

  

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14.          REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note.  The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

 

15.          PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS.  If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees and disbursements.

 

16.          FEES. The Company shall reimburse the Holder or its designee(s) for all costs and expenses incurred by it or its affiliates in connection with the transactions contemplated by this Note and the other Transaction Documents (including, without limitation, all legal fees and disbursements in connection therewith, documentation and implementation of the transactions contemplated by this Note and the other Transaction Documents and due diligence and regulatory filings in connection therewith), which amount shall be paid to the Holder by the Company by reducing the amount to be funded by the Holder to the Company under this Note.  The Company shall pay, and hold the Holder harmless against, any liability, loss or expense (including, without limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any claim relating to any such payment.  In the event that this Note is collected by law or through attorneys at law, or under advice therefrom, the Company agrees to pay all costs of collection, including reasonable attorneys’ fees, whether or not suit is brought, and whether incurred in connection with collection, trial, appeal, bankruptcy or other creditors’ proceedings or otherwise.

 

17.          BOOKS AND RECORDS; REPORTS.

 

  

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(a)          Books and Records.  The Company shall keep, or arrange to have kept, full, accurate, complete, and proper books and records of all of the operations of the Company.  The books and records of the Company shall, at the cost and expense of the Company, be kept and cause to be kept by the Company at the principal office of the Company.  The Holder shall have the right, upon one (1) Business Day notice, to inspect the books and records of the Company. The Holder may either request to inspect the books and records during normal business hours at the principal place of business of the Company or demand that certain information be sent to the Holder, which in both instances the Company will produce the information in no less than two (2) Business Days.

 

(b)          Reports.   Upon the Holder’s request, the Company shall provide:

 

  (i)             within one (1) Business Day the following reports:

 

(A)  a summary of the Company’s consolidated Cash Balance with a detailed cash account ledgers and reconciliation to bank and/or custody accounts; and

 

(B)  a summary of the Company’s consolidated accounts receivable with detailed aging schedules; and

 

  (ii)            within five (5) Business Days of each calendar month-end, a detailed

balance sheet and income statement in accordance with GAAP with all supporting ledgers.

 

(c)          The Holder shall keep any information received under Section 17(b) confidential and will not trade in the Common Shares of the Company based on its knowledge of any such information in violation of federal and state securities laws, provided that the Holder may disclose such information to its directors, managers, officers, employees, consultants, and advisors.  The obligation to keep such information confidential shall not apply to any information that (i) was in the public domain prior to the time of its disclosure to the Holder, (ii) entered the public domain after the time of its disclosure to the Holder through means other than an unauthorized disclosure resulting from an act or omission by the Holder, (iii) was independently developed or discovered by the Holder prior to the time of its disclosure to the Holder, (iv) is or was disclosed to the Holder at any time by a third party having no fiduciary relationship with the Company and having no obligation of confidentiality with respect to such information, or (v) is required to be disclosed to comply with applicable laws or regulations, or with a court or administrative order.

 

18.          CONSTRUCTION; HEADINGS.  This Note shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note. Terms used in this Note but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Closing Date in such other Transaction Documents unless otherwise consented to in writing by the Holder.

 

19.          FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude 

 

  

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other or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.

 

20.          DISPUTE RESOLUTION. In the case of a dispute as to the determination of the fair market value or the arithmetic calculation of any Redemption Price, the Company or the Holder (as the case may be) shall submit the disputed determinations or arithmetic calculations (as the case may be) via facsimile (i) within two (2) Business Days after receipt, or deemed receipt, of the applicable notice giving rise to such dispute to the Company or the Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after the Holder learned of the circumstances giving rise to such dispute. If the Holder and the Company are unable to agree upon such determination or calculation within two (2) Business Days of such disputed determination or arithmetic calculation (as the case may be) being submitted to the Company or the Holder (as the case may be), then the Company shall, within two (2) Business Days, submit via facsimile (a) the disputed determination of the fair market value (as the case may be) to an independent, reputable investment bank selected by the Company and approved by the Holder (which approval shall not be unreasonably withheld) or (b) the disputed arithmetic calculation of the applicable Redemption Price (as the case may be) to the Company’s independent, outside accountant. The Company shall cause the investment bank or the accountant (as the case may be) to perform the determinations or calculations (as the case may be) and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives such disputed determinations or calculations (as the case may be). Such investment bank’s or accountant’s determination or calculation (as the case may be) shall be binding upon all parties absent demonstrable error. All fees, costs and expenses incurred in connection with the services provided by the applicable investment bank or the applicable accountant under this Section 20 shall be borne by the party whose position did not prevail in the investment bank’s or accountant’s final determination.

 

21.          NOTICES; PAYMENTS.

 

(a)          Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Note must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

 

If to the Company:

 

Workstream Inc.

485 N. Keller Road, Suite 50

Maitland, Florida 32751

Telephone:(407)475-5500

Facsimile:(407)475-5517

Attention:  CEO

 

  

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With a copy (for informational purposes only) to:

 

Cozen O’Connor

1900 Market Street

Philadelphia, Pennsylvania 19103

Telephone:  (215) 665-4141

Facsimile:  (215) 665-2013

Attention:  Michael J. Heller, Esquire

 

If to the Holder:

 

CCM Master Qualified Fund, Ltd.

c/o Coghill Capital Management, L.L.C.

One North Wacker Drive, Suite 4350

Chicago, IL 60606Telephone: (312) 324-2017

Facsimile: (312) 324-2001

Attention: Gunnar Olsen

 

With a copy (for informational purposes only) to:

 

Seward & Kissel LLP

One Battery Park Plaza

New York, NY

Telephone:  (212) 574-1200

Facsimile:  (212)-480-8421

Attention:  Craig A. Sklar, Esq

or to such other address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.  The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

(b)          Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, unless otherwise expressly provided herein such payment shall be made in lawful money of the United States of America by a certified check drawn on the account of the Company and sent to such Person at such address as previously provided to the Company 

 

  

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in writing (which address, in the case of the Holder, shall initially be as set forth in Section 21(a), provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder’s wire transfer instructions. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day. Any amount of Principal or other amounts due under this Note which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of eighteen percent (18%) per annum from the date such amount was due until the same is paid in full (“Late Charge”).

 

22.          CANCELLATION.  After all Principal, accrued Interest, Late Charges and other amounts at any time owed on this Note have been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.

 

23.          WAIVER OF NOTICE.  To the extent permitted by law, the Company hereby irrevocably waives demand, notice, presentment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the other Transaction Documents.

 

24.          GOVERNING LAW. Pursuant to 735 Illinois Compiled Statutes 105/5-5, all questions concerning the construction, validity, enforcement, performance and interpretation of this Note shall be governed by the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in Chicago, Illinois, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

25.          CERTAIN DEFINITIONS.  For purposes of this Note, the following terms shall have the following meanings:

 

  

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(a)           “Approved Share Plan” means any employee benefit plan which has been approved by the board of directors of the Company prior to or subsequent to the date hereof pursuant to which Common Shares, restricted stock units and standard options to purchase Common Shares may be issued to any employee, officer or director for services provided to the Company in their capacity as such.

 

(b)           “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in Chicago, Illinois are authorized or required by law to remain closed.

 

(c)           “Cash Balance” means, at any date, an amount equal to the aggregate amount of cash and cash equivalents (but not including any restricted cash), as shown or reflected in the Company’s consolidated balance sheet as at such date.

 

(d)           “Closing Date” shall be the Issuance Date.

 

(e)           “Common Shares” means (i) the Company’s common shares, no par value per share, and (ii) any capital shares into which such common shares shall have been changed or any share capital resulting from a reclassification of such common shares.

 

(f)           “Contingent Obligation” means, as to any Person, any direct or indirect liability or guaranty, 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 a guaranty or 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.

 

(g)           “Current Subsidiaries” means, collectively, Workstream USA, Inc., a Delaware corporation, Paula Allen Holdings, Inc., a Florida corporation, The Omni Partners, Inc., a Florida corporation, 6FigureJobs.com, Inc., a Delaware corporation, and Workstream Merger Sub Inc., a Delaware corporation, and each of the foregoing, individually, a “Current Subsidiary.”

 

(h)           “Disposition” means the sale, lease, license, assignment, transfer, conveyance or other disposition of any assets or rights of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, other than a Permitted Sale.

 

(i)           “Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market or the Pink Sheets.

 

(j)           “Exchange Agreement” means that certain 2010 Exchange and Share Purchase Agreement, dated as of the Issuance Date, between the Holder and the Company.

 

(k)           “Fiscal Quarter” means each of the fiscal quarters adopted by the Company for financial reporting purposes that correspond to the Company’s fiscal year that ends on May 31, or such other fiscal quarter adopted by the Company for financial reporting purposes in accordance with GAAP.

 

  

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(l)           “Fundamental Transaction” means that (i) the Company shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company or any material Subsidiary to another Person, or (3) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding Common Shares (not including any Common Shares held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of the outstanding Common Shares (not including any Common Shares held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (5) reorganize, recapitalize or reclassify its Common Shares, or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”)) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Shares.

 

(m)          “GAAP” means United States generally accepted accounting principles, consistently applied.

 

(n)           “Guaranty” mean that certain Guaranty of each Subsidiary issued as of the Issuance Date in favor of the Holder.

 

(o)           “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 generally accepted accounting principles) (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 generally accepted accounting principles, 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 

 

  

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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.

 

(p)           “Interest Rate” means 12% per annum.

 

(q)           “Liquidity Event” means any event giving rise to Proceeds (including, without limitation, by virtue of any equity issuance (except for issuances of Common Shares, restricted stock units and standard options to purchase Common Shares pursuant to an Approved Share Plan), incurrence of Indebtedness, refinancing of any Indebtedness, Fundamental Transaction or otherwise), other than (i) a Disposition, (ii) the direct or indirect receipt by the Company or any of its Subsidiaries of accounts receivable in the ordinary course of business or (iii) the incurrence of the Indebtedness specified in, and permitted by, clause (i) of Permitted Indebtedness.

 

(r)           “Material Adverse Effect” means any material adverse effect on (i) the business, properties, assets, liabilities, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any Subsidiary, individually or taken as a whole, (ii) the transactions contemplated hereby or in any of the Transaction Documents or (iii) the authority or ability of the Company or any of the Subsidiaries to perform their respective obligations contemplated hereby or under any of the Transaction Documents.

 

(s)           “Maturity Date” shall mean October 13, 2012; provided, however, the Maturity Date may be extended at the option of the Holder (i) in the event that, and for so long as, an Event of Default shall have occurred and be continuing or any event shall have occurred and be continuing that with the passage of time and the failure to cure would result in an Event of Default or (ii) through the date that is twenty (20) Business Days after the consummation of a Fundamental Transaction in the event that a Fundamental Transaction is publicly announced or a Fundamental Transaction Notice is delivered prior to the Maturity Date.

 

(t)           “Net Proceeds” means all Proceeds in respect of the applicable Disposition (including, without limitation, all installment obligations and earn-out and other contingent payments) or Liquidity Event (as the case may be) net of (i) in the case of a Disposition, any income taxes required to be paid by the Company or any Subsidiary (as the case may be) solely in connection with or solely arising out of such Disposition and (ii) all reasonable legal, accounting, investment banking, broker and other professionals’ fees incurred by the Company by virtue of the applicable Disposition or Liquidity Event (as the case may be), provided that the foregoing Proceeds shall not be reduced by any other amount. Any dispute as to the arithmetic calculation of Net Proceeds shall be resolved pursuant to Section 20 above, with the term “Net Proceeds” being substituted for the term “fair market value.”

 

(u)           “New Subsidiaries” means, as of any date of determination, any Person (i) in which the Company on or after the Issuance Date, directly or indirectly, owns or acquires any of the outstanding capital stock or holds any equity or similar interest of such Person or (ii) in which the Company on or after the date of the Issuance Date, directly or indirectly, controls or operates all or any part of the business, operations or administration of such Person, and each of the foregoing, individually, a “New Subsidiary.”

 

(v)           “Parent Entity” of a Person means an entity that, directly or indirectly, controls 

 

  

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the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

(w)          “Permitted Indebtedness” means (i) total Indebtedness (other than Indebtedness described in subsections (ii) and (iii) hereunder) of the Company and the Subsidiaries not to exceed $500,000 in the aggregate outstanding at any time; provided, however, such Indebtedness shall be made expressly subordinate in right of payment to the Indebtedness evidenced by the Notes, as reflected in a written agreement acceptable to the Holder and approved by the Holder in writing, and which Indebtedness does not provide at any time for the payment, prepayment, repayment, repurchase or defeasance, directly or indirectly, of any principal or premium, if any, thereon until ninety-one (91) days after the Maturity Date or later; (ii) equipment leases and purchase money obligations of the Company and the Subsidiaries not to exceed $500,000 in the aggregate outstanding at any time; and (iii) Indebtedness evidenced by this Note.

 

(x)          “Permitted Liens” means (i) any Lien for taxes, assessments and governmental charges not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings and (iv) Liens securing Permitted Senior Indebtedness.

 

(y)           “Permitted Senior Indebtedness” means the Indebtedness specified in, and permitted by, clauses (ii) and (iii) of the definition of “Permitted Indebtedness.”

 

(z)           “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.

 

(aa)         “Principal Market” means the OTC Bulletin Board.

 

(bb)         “Proceeds” means all consideration (including, without limitation, cash, cash equivalents and publicly-traded securities) received or to be received directly or indirectly by the Company and/or any of its Subsidiaries. Any dispute as to the arithmetic calculation of Proceeds shall be resolved pursuant to Section 20 above, with the term “Proceeds” being substituted for the term “fair market value.”

 

(cc)         “Redemption Notices” means, collectively, the Event of Default Redemption Notice, the Test Default Redemption Notice and each Mandatory Redemption Notice, and each of the foregoing, individually, a “Redemption Notice.”

 

(dd)         “Redemption Prices” means, collectively, the Event of Default Redemption Price, the Test Default Redemption Price and each applicable Mandatory Redemption Price, and each of the foregoing, individually, a “Redemption Price.”

 

  

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(ee)         “Security Agreement” means that certain security agreement, dated as of the Issuance Date, by and among the Company, the Subsidiaries and the Holder.

 

(ff)          “Security Documents” means the Security Agreement, the Copyright Security Agreement, Patent Security Agreement and Trademark Security Agreement (each as defined in the Security Agreement) and the Guaranty.

 

(gg)         “Subsidiaries” means, as of any date of determination, collectively, all Current Subsidiaries and all New Subsidiaries, and each of the foregoing, individually, a “Subsidiary.”

 

(hh)         “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

 

(ii)           “Trading Day” means any day on which the Common Shares are traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Shares, then on the principal securities exchange or securities market on which the Common Shares are then traded, provided that “Trading Day” shall not include any day on which the Common Shares are scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Shares are suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder.

 

(jj)           “Transaction Documents” means Exchange Agreement, this Note and each of the Security Documents.

 

[signature page follows]

 

  

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance Date set out above.

 

	 	
COMPANY:

 

	 	
WORKSTREAM INC.

 

By:                                              

      Name: _________________

        Title:  __________________

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