EXHIBIT 10.2
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "AGREEMENT"), made and entered into this
31st day of January, 2003, is by and among MICHAEL MULLARKEY, an individual
("LENDER"), WORKSTREAM INC., a corporation formed under the laws of Canada
("WORKSTREAM" and as agent for the Companies (as defined below), the "COMPANY
AGENT"), and each company set forth on EXHIBIT A hereto (each a "COMPANY" and
collectively the "COMPANIES").
BACKGROUND
WHEREAS, simultaneously with the execution and delivery of this
Agreement, Workstream and the Companies have executed and delivered to Lender a
$1,287,901.04 Term Note dated January 31, 2003 (the "NOTE"); and
WHEREAS, in order to secure the payment of the Companies' obligations
under the Note, the Lender has requested, and the Companies have agreed to grant
to Lender, a security interest in certain assets of the Companies.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and the
mutual covenants, undertakings and agreements set forth herein, the parties
hereto, intending to be legally bound hereby, agree as follows:
1. GENERAL MATTERS.
(a) GENERAL DEFINITIONS; CURRENCY. Capitalized terms used in
this Agreement shall have the meanings assigned to them in EXHIBIT B. All other
terms used but not otherwise defined in this Agreement but which are defined in
the UCC, shall have the meaning given to such terms in the UCC unless the
context clearly requires otherwise. All units of currency used in this Agreement
shall be references to the lawful money of the United States of America.
(b) RULES OF CONSTRUCTION. All schedules, addenda, annexes
exhibits and Disclosure Letters expressly identified to this Agreement are
incorporated herein by reference and taken together with this Agreement
constitute but a single agreement. The words "herein", hereof" and "hereunder"
or other words of similar import refer to this Agreement as a whole, including
the exhibits, addenda, annexes, schedules and Disclosure Letters as the same may
be from time to time amended, modified, restated or supplemented, and not to any
particular section, subsection or clause contained in this Agreement. Wherever
from the context it appears appropriate, each term stated in either the singular
or plural shall include the singular and the plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, the feminine
and the neuter. The term "or" is not exclusive. The term "including" (or any
form thereof) shall not be limiting or exclusive. All references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations. All references in this Agreement or in the schedule,
addenda, annex, and exhibit and Disclosure Letters to this Agreement to
sections, schedules, Disclosure Letters, exhibits, and attachments shall refer
to the corresponding sections, schedules, Disclosure Letters, exhibits, and
attachments of or to this Agreement. Each matter set forth in any of the
schedules or Disclosure Letters shall be deemed to be disclosed for purposes of
every other schedule, addenda, annex, exhibit or Disclosure Letter. All
references to any instruments or agreements, including references to this
Agreement, shall include any and all modifications or amendments thereto and any
and all extensions or renewals thereof.
2. SECURITY INTEREST.
(a) To secure the payment of the amounts due to Lender under
the Note (collectively, the "OBLIGATIONS"), each Company hereby grants to Lender
a security interest in all now owned or hereinafter acquired (i) Inventory,
Equipment, and Books and Records owned by such Company and all products and
Proceeds thereof (the "FIXED COLLATERAL"), and (ii) Accounts of such Company
(the "ACCOUNT Collateral", and together with the Fixed Collateral, the
"COLLATERAL") and all products and Proceeds thereof.
(b) Upon the occurrence and during the continuation of an
Event of Default, each Company hereby assigns to Lender, as additional security
for the payment of the Obligations, all proceeds of insurance due or to become
due after the occurrence of the Event of Default under any and all policies of
insurance now or at any time hereafter covering the Collateral (the "INSURANCE
PROCEEDS"). Subject to the remaining terms of this Paragraph 2(b), each Company
hereby directs the issuer of any such policy to pay all Insurance Proceeds
directly to Lender. The foregoing notwithstanding, if prior to the payment of
any Insurance Proceeds, the Company Agent delivers written notice to Lender that
the Insurance Proceeds will be used to replace the Collateral which was lost,
stolen, destroyed or otherwise subject to a casualty, then the foregoing
assignment shall not be effective and the applicable insurer shall pay the
Insurance Proceeds directly to the Companies; PROVIDED that such Insurance
Proceeds shall only be used by the Companies to replace the lost, stolen or
destroyed Collateral and any Insurance Proceeds not used for such purposes shall
be paid to Lender in satisfaction of any Obligations then outstanding. Subject
to the terms of this Paragraph 2(b), upon the occurrence and during the
continuation of an event of an Event of Default, Lender may (but need not), in
Lender' name or in Companies' names, execute and deliver proof of claim, receive
all Insurance Proceeds, and endorse checks and other instruments representing
payment of Insurance Proceeds.
(c) Each Company hereby authorizes Lender to file any
financing statements, continuation statements or amendments thereto that (x)
describe the Collateral as set forth in Section 2(a) and (y) contain any other
information required by Part 5 of Article 9 of the UCC for the sufficiency or
filing office acceptance of any financing statement, continuation statement or
amendment. Each Company acknowledges that it is not authorized to file any
financing statement or amendment or termination statement with respect to any
financing statement covering any or all of the Collateral, without the prior
written consent of Lender (which consent shall not be unreasonably withheld or
delayed), subject to Companies' rights under Section 9-509(d)(2) of the UCC and
provided that the foregoing restriction shall be inapplicable following the
satisfaction in full of the Obligations.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES. Each Company,
severally and not jointly, hereby represents and warrants to Lender as follows:
(a) Each Company is an entity duly incorporated, in good
standing and having a legal corporate existence under the laws of the
jurisdiction of its incorporation, and is duly qualified and in good standing in
every jurisdiction in which the nature of such Company's business requires such
qualification except where the failure to be so qualified and in good standing
would not reasonably be likely to result in a Material Adverse Effect.
(b) The execution, delivery and performance of this Agreement
(i) has been duly authorized by all necessary corporate actions, (ii) is not in
contravention of such Company's certificate or articles of incorporation, bylaws
or any material indenture, agreement or undertaking to which such Company is a
party or by which such Company's assets are bound, and (iii) is within such
Company's corporate powers.
(c) This Agreement is the legal, valid and binding obligations
of each Company and, enforceable against each Company in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
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and similar laws affecting creditors' rights and remedies generally, and
subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
(D) SECTION 3(D)(I) OF THE DISCLOSURE LETTER sets forth each
Company's name as it appears in its certificate or articles of incorporation,
the type of entity of each Company, the organizational identification number
issued by each Company's jurisdiction of incorporation or a statement that no
such number has been issued, each Company's jurisdiction of formation, and the
location of Company's chief executive office, corporate offices, warehouses,
other locations of Collateral and locations where the Books and Records are
kept. During the five years immediately preceding the date of this Agreement, no
Company has, except as set forth in SECTION 3(D)(II) OF THE DISCLOSURE LETTER,
been known as or conducted business under any other name, including any trade
names.
(e) The operation of each Company's business is in compliance
in all material respects with all applicable Federal, State and local laws,
rules and ordinances, including to all laws, rules and ordinances relating to
taxes, payment and withholding of payroll taxes, employer and employee
contributions and similar items, securities, employee retirement and welfare
benefits, employee health safety and environmental matters.
(f) Based upon the Employee Retirement Income Security Act of
1974 ("ERISA"), and the regulations and published interpretations thereunder:
(i) no Company has engaged in any prohibited transactions as defined in Section
406 of ERISA and Section 4975 of the Internal Revenue Code, as amended; (ii)
each Company has met all applicable minimum funding requirements under Section
302 of ERISA in respect of its plans; (iii) no Company has any Knowledge of any
event or occurrence which would cause the Pension Benefit Guaranty Corporation
to institute proceedings under Title IV of ERISA to terminate any employee
benefit plan(s); (iv) no Company has any fiduciary responsibility for
investments with respect to any plan existing for the benefit of Persons other
than such Companies' employees; and (v) no Company has withdrawn, completely or
partially, from any multi-employer pension plan so as to incur liability under
the Multi-employer Pension Plan Amendments Act of 1980.
(g) Each Company is, as of the date of this Agreement, (i)
solvent, (ii) able to pay its debts as they mature in the ordinary course of
such Company's business, (iii) has capital sufficient to carry on its business,
and (iv) the fair market value of such Company's assets (calculated on a going
concern basis) is in excess of the amount of its liabilities.
(h) There is not pending or, to the Knowledge of the Companies
threatened, any litigation, action or proceeding which if decided adversely to
the Companies would reasonably be likely to result in a Material Adverse Effect.
(i) None of the proceeds of the Note will be used directly or
indirectly to "purchase" or "carry" "margin stock" or to repay indebtedness
incurred to "purchase" or "carry" "margin stock" within the respective meanings
of each of the quoted terms under Regulation U of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in effect.
(j) (i) the Companies have one or more common shareholders,
directors and officers, (ii) the businesses and corporate activities of the
other Companies are closely related to, and substantially benefit, the business
and corporate activities of such Company, (iii) the financial and other
operations of the Companies are performed on a combined basis as if the
Companies constituted a consolidated corporate group, and (iv) such Company will
receive a substantial economic benefit from entering into this Agreement and
will receive a substantial economic benefit from the application of the proceeds
of the Note in each case, whether or not such amount is used directly by such
Company.
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4. COVENANTS OF THE COMPANIES. Each Company hereby covenants and agrees
with Lender as follows:
(a) No Company will change (i) its name as it appears on its
certificate or articles of incorporation, (ii) its type of legal entity, (iii)
its organization identification number, if any, issued by its jurisdiction of
incorporation, or (iv) its jurisdiction of incorporation.
(b) Each Company will promptly inform Lender in writing of:
(i) the commencement of any proceedings and investigations by or before and/or
the receipt of any written notices from any Governmental Authority and all
actions and proceedings in any court or before any arbitrator against or in any
way concerning any event which would, singly or in the aggregate, be reasonably
likely to result in a Material Adverse Effect; (ii) any amendment of any
Company's certificate or articles of incorporation or bylaws; (iii) any change
in the Companies business which has had or would reasonably be likely to result
in a Material Adverse Effect; (iv) any Event of Default; (v) any event which
with the passage of time or giving of notice or both would constitute a default
under any agreement for the payment of borrowed money to which any Company is a
party or by which any Company or any of such Company's assets may be bound; and
(vii) any change in any Company's name or any other name used in its business.
(c) No Company will, without the written consent of Lender,
which consent shall not unreasonably withheld or delayed: (i) create, incur,
assume or suffer to exist any indebtedness for borrowed money (exclusive of
trade debt) whether secured or unsecured other than such Company's indebtedness
to Lender; (ii) cancel any debt owing to it except in the ordinary course of
such Company's business; (iii) assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any other
Person other than an Affiliate of a Company; (iv) directly or indirectly
declare, pay or make any dividend or distribution on any class of its stock or
apply any of its funds, property or assets to the purchase, redemption or other
retirement of any stock of a Company, other than in the ordinary course of
business; (v) purchase or hold beneficially any other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any other Person other than in
the ordinary course of business, including any partnership or joint venture,
except travel advances or loans to such Company's officers and employees not
exceeding at any one time an aggregate of $10,000 for all Companies and
investments in the existing or future subsidiaries of the Companies; (vi) enter
into any merger, consolidation or other reorganization with or into any other
Person or acquire all or a portion of the assets of stock of any Person or
permit any other Person to consolidate with or merge with it other than in any
internal reorganization of the Companies; (vii) materially change the nature of
the business in which it is presently engaged; or (viii) change its fiscal year
or make any changes in accounting treatment and reporting practices, except as
required by GAAP, or with respect to the tax reporting treatment, except as
required by law.
(d) No Company shall encumber, mortgage, pledge, assign or
grant any lien, security interest or other interest in or to any Collateral to
any Person other than (i) Lender, or (ii) Permitted Liens.
(e) No Company shall dispose of any of the Collateral whether
by sale, lease or otherwise except for the sale of Inventory in the ordinary
course of business and for the disposition or transfer in the ordinary course of
such Companies' business during any fiscal year of obsolete worn-out Equipment
having an aggregate fair market value in any such calendar year of not more than
$100,000 and only to the extent that (i) the proceeds of any such disposition
are used to acquire replacement Equipment which is subject to Lender's security
interest or (ii) the proceeds of which are remitted to Lender in reduction of
the Obligations.
(f) Each Company shall defend the security interest of Lender
in and to the Collateral against the claims and demands of all Persons
whomsoever, and take such reasonable actions, including notification of Lender's
interest in Collateral, as Lender may reasonably request.
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(g) Each Company shall place notations upon such Company's
Books and Records to disclose Lender's security interest in the Collateral.
(h) Each Company shall perform such other steps as are
reasonably requested by Lender to create and maintain in Lender's favor a valid
perfected security interest in the Collateral, subject only to the Permitted
Liens.
(i) Each Company shall promptly notify Lender of any material
loss, damage or destruction of any of the Fixed Collateral.
(j) Each Company shall keep and maintain the Equipment in good
operating condition, except for ordinary wear and tear, and shall make all
reasonably necessary repairs and replacements thereof.
(k) Each Company shall maintain and keep the Collateral at the
addresses listed in SECTION 3(D)(I) OF THE DISCLOSURE LETTER, PROVIDED, that any
Company may change such locations or open a new location, if (i) such Company
provides Lender 30 calendar days prior written notice of such changes or new
location and (ii) prior to such change or opening of a new location it executes
and delivers to Lender such agreements as Lender may reasonably request,
including landlord agreements, mortgagee agreements and warehouse agreements,
each in form and substance reasonably satisfactory to Lender.
(l) Each Company will pay or discharge when due all taxes,
assessments and governmental charges or levies imposed upon such Company or any
of the Collateral unless such Company shall have applied for and received any
available extensions therefor, or such amounts are being diligently contested in
good faith by appropriate proceedings and adequate reserves therefore are
maintained on the books of such Company in conformity with GAAP.
(m) Each Company will bear the full risk of loss from any loss
of any nature whatsoever with respect to the Collateral. At each Company's own
cost and expense, each Company shall (i) keep all its insurable properties and
properties in which it has an interest insured against the hazards of fire,
flood, sprinkler leakage, those hazards covered by extended coverage insurance
and such other hazards, and for such amounts, as is customary in the case of
companies engaged in businesses similar to such Company's including business
interruption insurance; (ii) maintain a bond in such amounts as is customary in
the case of companies engaged in businesses similar to such Company's insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any time
have access to the assets or funds of such Company (iii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such worker's compensation
or similar insurance as may be required under the laws of any jurisdiction in
which such Company is engaged in business; and (v) furnish Lender with (x)
copies of all policies and evidence of the maintenance of such policies at least
30 calendar days before any expiration date, (y) endorsements to such policies
naming Lender as an "additional insured", and (z) evidence that as to Lender the
insurance coverage shall not be impaired or invalidated by any act or neglect of
any Company and the insurer will provide Lender with at least 30 calendar days
notice prior to cancellation.
5. FURTHER ASSURANCES. At any time and from time to time, upon the
written request of Lender and at the sole expense of Companies, each Company
shall promptly execute and deliver any and all such instruments and documents
and take such further actions as Lender may reasonably request (a) to obtain the
full benefits of this Agreement (b) to protect, preserve and maintain Lender's
interests in the Collateral or (c) to enable Lender to exercise all or any of
the rights and powers herein granted.
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6. POWER OF ATTORNEY. The Companies hereby irrevocably make, constitute and
appoint the Lender as each Company's true and lawful attorney-in-fact (with full
power of substitution and re-substitution, in the name of each Company, the
Lender or otherwise) with the power to, following the occurrence and during the
continuation of an Event of Default, do any and every act that the Companies are
obligated by this Agreement to do, to do all things necessary to preserve and
protect the Collateral, and to preserve, protect, and keep perfected the
Lender's security interest in the Collateral. This power of attorney, being
coupled with an interest, is irrevocable so long as the Obligations have not
been fully satisfied.
7. TERMINATION OF LIEN. The liens, security interest and rights granted to
Lender hereunder shall continue in full force and effect until all of the
Obligations shall have been satisfied in full. Promptly upon satisfaction in
full of the Obligations, Lender shall deliver to the Companies such documents,
agreements or instruments as shall be reasonably requested by the Companies to
evidence the satisfaction of the Obligations and the release or other
termination of Lender's interest in the Collateral.
8. EVENTS OF DEFAULT. The occurrence of any of the following shall be an
Event of Default under this Agreement:
(a) the failure of Workstream or any Company to pay any
amounts due to the Lender under the Note, after expiration of any notice and
cure or grace periods;
(b) a written notice of default is received by any Company for
the failure to pay any amounts due under any other agreement or instrument for
borrowed money, and such failure continues after the expiration of any
applicable notice and cure or grace periods;
(c) any Company's failure to pay any taxes when due unless
such taxes are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been established on the applicable
Company's books;
(d) any Company's material breach of any representation or
warranty set forth in this Agreement, which breach is not cured within seven
Business Days following Lender's delivery of written notice of such breach to
Company Agent, or if such breach can not be cured within seven Business Days,
the applicable Company or Companies have not undertaken steps to commence cure
of such breach;
(e) any Company's failure to materially perform any covenant
set forth in this Agreement, which breach is not cured within seven Business
Days following Lender's delivery of written notice of such breach to Company
Agent, or if such breach can not be cured within seven Business Days, the
applicable Company or Companies have not undertaken steps to commence cure of
such breach;
(f) any Company shall make an assignment for the benefit of
its creditors, or file a voluntary petition under the bankruptcy code, any other
federal or state insolvency law, or apply for or consent to the appointment of a
receiver, trustee or custodian of all or part of its property.
(g) any Company shall file an answer admitting the
jurisdiction of a court and the material allegations of an involuntary petition
filed against it under the bankruptcy code, any other federal or state
insolvency law, or shall fail to have such petition dismissed within 60 calendar
days after its filing.
(h) an order for relief shall be entered against any Company
following the filing of an involuntary petition under the bankruptcy code, any
other federal or state insolvency law, or if an order shall be entered
appointing a receiver, trustee or custodian of all or parts of either of their
respective property; or
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(i) an attachment or levy is made upon the Collateral having a
value in excess of $100,000 or a judgment is rendered against any Company or any
Company's property involving a liability of more than $100,000, which
attachment, levy or judgement shall not have been vacated, discharged, stayed or
bonded pending appeal within 30 calendar days from the entry thereof.
9. REMEDIES. Upon the occurrence of an Event of Default, Lender shall have
the right to demand repayment in full of all Obligations, whether or not
otherwise due. Until all Obligations shall have been paid in full, Lender shall
retain its lien and security interest in and on the Collateral. Lender shall
have, in addition to all other rights provided herein, the rights and remedies
of a secured party under the UCC, and under other applicable law, all other
legal and equitable rights to which Lender may be entitled, including the right
to take immediate possession of the Collateral, to require a Company to assemble
the Collateral, at Companies' expense, and to make it available to Lender at a
place designated by Lender which is reasonably convenient to both parties and to
enter (without any breach of peace) any of the premises of a Company or wherever
the Collateral shall be located, and to keep and store the same on said premises
until sold (and if said premises be the property of such Company, such Company
agrees not to charge Lender for storage thereof), and the right to apply for the
appointment of a receiver for such Company's property. Further, Lender may, at
any time or times after the occurrence and during the continuation of an Event
of Default, sell and deliver all Collateral held by or for Lender at public or
private sale for cash, upon credit or otherwise in a commercially reasonable
manner and during the continuation. The requirement of reasonable notice shall
be met if such notice is given to Company Agent at Company Agent's address at
least 10 Business Days before the time of the event of which notice is being
given. Lender may be the purchaser at any sale, if it is public. The proceeds of
sale shall be applied first to all costs and expenses of sale, including
reasonable attorneys' fees, and second to the payment of all Obligations.
Promptly after the payment in full, Obligations, and after the payment by Lender
of any other amount required by any provision of law, including Section
9-608(a)(1) of the UCC (but only after Lender has received what Lender considers
reasonable proof of a subordinate party's security interest), the surplus, if
any, shall be paid to Company Agent or its representatives or to whosoever may
be lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct. Companies shall remain liable to Lender for any
deficiency.
10. NO WAIVER; CUMULATIVE REMEDIES. Failure by Lender to exercise any right
or remedy under this Agreement, or delay by Lender in exercising the same, will
not operate as a waiver; no waiver by Lender will be effective unless it is in
writing and then only to the extent specifically stated. Lender's rights and
remedies under this Agreement shall be cumulative and not exclusive of any other
right or remedy which Lender may have.
11. REVIVAL. Each Company further agrees that to the extent any Company
makes a payment or payments to Lender, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy act, state or federal law, common law or equitable cause,
then, to the extent of such payment or repayment, the obligation or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if said payment had not been made.
12. NOTICES. Any notice or request hereunder may be given to Company Agent
or Lender at the respective addresses set forth below or as may hereafter be
specified in a notice designated as a change of address under this Paragraph 12.
Any notice or request hereunder shall be given by registered or certified mail,
return receipt requested, hand delivery, overnight mail or telecopy (confirmed
by mail). Notices and requests shall be deemed to have been given and received,
in the case of those by hand delivery, when delivered to any officer of the
party to whom it is addressed, in the case of those by mail or overnight mail,
deemed to have been given and received on the fifth calendar day following
deposit in the mail, or the next Business Day following deposit with a reputable
overnight mail carrier, and, in the case of a telecopy, when sent if during
normal business hours for recipient or if after normal business hours for the
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recipient, the next Business Day. Notice to counsel for either party shall not
be deemed to be notice to such party.
Notices shall be provided as follows:
If to Lender: Michael Mullarkey
1050 W. Deerpath Road
Lake Forest, IL 60045
Telecopier: (613) 270-0774
If to Company Agent: Workstream Inc.
495 March Road, Suite 300
Ottawa, Ontario, Canada K2K-3G1
Attention: Chief Financial Officer
Telecopier: (613) 270-0774
With a copy to: Cozen O'Connor
1900 Market Street
Philadelphia, PA 19103
Attention: Larry Laubach, Esquire
Telecopier: (215) 665-2013
13. GOVERNING LAW, JURISDICTION AND WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE.
(b) EACH COMPANY AND LENDER HEREBY CONSENTS AND AGREES THAT
THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY
COMPANY AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF
OR RELATED TO THIS AGREEMENT. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN
ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF LENDER. EACH COMPANY AND LENDER EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND EACH COMPANY AND LENDER HEREBY WAIVES ANY OBJECTION WHICH IT MAY
HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN
LENDER AND EACH COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO
THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT.
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14. ATTORNEYS' FEES. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all reasonable fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all reasonable fees, costs and expenses of appeals.
15. ENTIRE UNDERSTANDING. This Agreement and the Note contains the entire
understanding between Companies and Lender and any promises, representations,
warranties or guarantees not herein contained shall have no force and effect
unless in writing, signed by each Companies' and Lender's respective officers.
Neither this Agreement nor any portion or provisions thereof may be changed,
modified, amended, waived, supplemented, discharged, cancelled or terminated
orally or by any course of dealing, or in any manner other than by an agreement
in writing, signed by the party to be charged.
16. SEVERABILITY. Wherever possible each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions thereof.
17. CAPTIONS. All captions are and shall be without substantive meaning or
content of any kind whatsoever.
18. COUNTERPARTS; TELECOPIER SIGNATURES. This Agreement may be executed in
one or more counterparts, each of which shall constitute an original and all of
which taken together shall constitute one and the same agreement. Any signature
delivered by a party via telecopier transmission shall be deemed to be any
original signature hereto.
19. CONSTRUCTION. The parties acknowledge that each party and its counsel
have reviewed this Agreement and that any rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any amendments, schedules or
exhibits thereto.
20. CONFIDENTIALITY. Lender shall hold and protect from disclosure all
confidential non-public information regarding Companies (whether financial or
otherwise) obtained pursuant to the requirements of this Agreement in the same
manner as Lender protects its own confidential non-public information from
disclosure, but in any event with no less than reasonable care; PROVIDED that
Lender may make disclosures of such information to those officers, directors,
employees, agents and representatives of Lender who have a need to know such
information for purposes of administering Lender's rights and obligations under
this Agreement, so long as such officers, directors, employees, agents and
representatives are subject to an obligation of confidentiality at least as
restrictive as the one set forth in this Section 38.
21. AGENCY PROVISIONS; WAIVER OF SUBROGATION.
(a) Each Company hereby irrevocably designates Company Agent
to be its attorney and agent hereunder, and in such capacity to execute, deliver
and receive all instruments, documents, writings, notices and further assurances
now or hereafter required hereunder, on behalf of such Company or Companies.
(b) Each Company expressly waives any and all rights of
subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which such Company may now or hereafter have against any other Company or
other person or entity directly or contingently liable for the amounts due under
the Note, or against or with respect to any other Company's property (including,
9
without limitation, any property which is Collateral for the amounts due under
the Note), arising from the existence or performance of this Agreement, until
all Obligations have been paid in full in cash and this Agreement has been
irrevocably terminated
22. ASSIGNABILITY. This Agreement shall be binding upon the Companies and
each of their respective successors and assigns, and shall inure to the benefit
of the Lender and his heirs, representatives, successors and permitted assigns.
The Lender may assign his rights under this Agreement to a third party; PROVIDED
that the Lender notifies the Company Agent in writing of the assignment of this
Agreement and the identity of such assignee, and the Company Agent consents in
writing prior to such assignment. Any assignment or attempted assignment in
violation of this Paragraph 22 shall be void ab initio.
[SIGNATURES APPEAR ON THE NEXT PAGE]
10
IN WITNESS WHEREOF, this Security Agreement has been duly executed as
of the day and year first above written.
WORKSTREAM INC., as Company Agent XYLO, INC.
By: /S/ PAUL HAGGARD By: /S/ MICHAEL MULLARKEY
-------------------------------------- ------------------------------
Name: Paul Haggard By: Michael Mullarkey
Title: Chief Financial Officer Title: President
WORKSTREAM USA, INC.
By: /S/ PAUL HAGGARD /S/ MICHAEL MULLARKEY
-------------------------------------- --------------------------------
Name: Paul Haggard MICHAEL MULLARKEY
Title: Chief Financial Officer
6FIGUREJOBS.COM, INC.
By: /S/ MICHAEL MULLARKEY
---------------------------------------
Name: Michael Mullarkey
Title: President
ICARIAN, INC.
By: /S/ MICHAEL MULLARKEY
---------------------------------------
Name: Michael Mullarkey
Title: President
REZLOGIC, INC.
By: /S/ MICHAEL MULLARKEY
---------------------------------------
Name: Michael Mullarkey
Title: President
THE OMNI PARTNERS, INC.
By: /S/ MICHAEL MULLARKEY
---------------------------------------
Name: Michael Mullarkey
Title: President
11
EXHIBITS
Exhibit A - Subsidiaries
Exhibit B - Definitions
EXHIBIT A
COMPANIES
Workstream USA, Inc., a Delaware corporation.
6FigureJobs.com, Inc., a Delaware corporation.
Icarian, Inc., a Delaware corporation.
RezLogic, Inc., a Colorado corporation.
The Omni Partners, Inc., a Florida corporation.
Xylo, Inc., a Delaware corporation.
A-1
EXHIBIT B
DEFINITIONS
"ACCOUNTS" means all "accounts", as such term is defined in
the UCC, now owned or hereafter acquired by any Company, including: (a) all
accounts receivable, other receivables, book debts and other forms of
obligations (other than forms of obligations evidenced by chattel paper of
instruments) (including any such obligations that may be characterized as an
account or contract right under the UCC); (b) all of such Company's rights to
any goods represented by any of the foregoing (including unpaid sellers' rights
of rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods); (d) all rights to payment due to such
Company for goods or other property sold, leased, licensed, assigned or
otherwise disposed of, for a policy of insurance issued or to be issued, for a
secondary obligation incurred or to be incurred, for energy provided or to be
provided, for the use or hire of a vessel under a charter or other contract,
arising out of the use of a credit card or charge card, or for services rendered
or to be rendered by such Company or in connection with any other transaction
(whether or not yet earned by performance on the part of such Company); (e) all
general intangibles relating to the foregoing; and (f) all collateral security
of any kind given by any Account Debtor or any other Person with respect to any
of the foregoing.
"AFFILIATE" of any Person means (a) any Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with such Person, or (b) any Person who is a director (i) of such Person, or
(ii) of any Person described in clause (a) above. For purposes of this
definition, control of a Person shall mean the power, direct or indirect, (i) to
vote fifty percent (50%) or more of the securities having ordinary voting power
for the election of directors of such Person, or (ii) to direct or cause the
direction of the management and policies of such Person whether by contract or
otherwise.
"BOOKS AND RECORDS" means all books, records, contracts,
licenses, insurance policies, environmental audits, files, computer files,
computer discs and other data and software storage and media devices, accounting
books and records, financial statements (actual and pro forma) and any and all
records and instruments maintained by the Companies and relating to the
Collateral.
"BUSINESS DAY" means a day that is not a Saturday, a Sunday or
other day on which commercial banks are required or permitted to be closed in
the State of New York.
"DISCLOSURE LETTER" means the letter dated January 31, 2003
from Company Agent to Lender disclosing those matters specifically required to
be set forth therein by this Agreement.
"EQUIPMENT" means all "equipment" as such term is defined in
the UCC, now owned or hereafter acquired, wherever located, including any and
all machinery, apparatus, equipment, fittings, furniture, fixtures, motor
vehicles and other tangible personal property (other than Inventory) of every
kind and description that may be used in such Company's operations or that are
owned by such Company, and all parts, accessories and accessions thereto and
substitutions and replacements therefor.
"GAAP" means generally accepted accounting principles,
practices and procedures in effect from time to time in the United States of
America.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"KNOWLEDGE"-"KNOWN" and all variations thereof means the
actual knowledge of the President or Chief Executive Officer or Chief Financial
Officer of Company Agent, without any duty of investigation or inquiry.
B-1
"INVENTORY" means all "inventory", as such term is defined in
the UCC, now owned or hereafter acquired, wherever located, including all
inventory, merchandise, goods and other personal property that are held by or on
behalf of such Companies for sale or lease or are furnished or are to be
furnished under a contract of service or that constitute raw materials, work in
process, finished goods, returned goods, or materials or supplies of any kind,
nature or description used or consumed or to be used or consumed in such
Companies' business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including all supplies and embedded software.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the condition, operations, assets, business or prospects of any Company
taken as a whole, (b) any Company's ability to pay or perform the Obligations in
accordance with the terms hereof, (c) the value of the Collateral, the Lender's
lien on the Collateral or the priority of the Lender's lien or (d) the practical
realization of the benefits of Lender's rights and remedies under this
Agreement.
"PERMITTED LIENS" means (a) liens of carriers, warehousemen,
artisans, bailees, mechanics and materialmen incurred in the ordinary course of
business securing sums not overdue; (b) liens incurred in the ordinary course of
business in connection with workmen's compensation, unemployment insurance or
other forms of governmental insurance or benefits, relating to employees,
securing sums (i) not overdue or (ii) being diligently contested in good faith
provided that adequate reserves with respect thereto are maintained on the books
of the applicable Company in conformity with GAAP; (c) liens in favor of Lender;
(d) liens for taxes (i) not yet due or (ii) being diligently contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the applicable Company in conformity with
GAAP; (e) liens securing Purchase Money Indebtedness, and (f) liens specified in
SECTION A OF THE DISCLOSURE LETTER.
"PERSON" means any individual, sole proprietorship,
partnership, limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether federal, state,
county, city, municipal or otherwise, including any instrumentality, division,
agency, body or department thereof), and shall include such Person's successors
and assigns.
"PROCEEDS" means "proceeds", as such term is defined in the
UCC and, in any event, shall include: (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to any Company from time to time with
respect to any Collateral; and (b) any and all payments (in any form whatsoever)
made or due and payable to any Company from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of any Collateral
by any Governmental Authority.
"PURCHASE MONEY INDEBTEDNESS" means (a) any indebtedness
incurred for the payment of all or any part of the purchase price of any fixed
asset, (b) any indebtedness incurred for the sole purpose of financing or
refinancing all or any part of the purchase price of any fixed asset, and (c)
any renewals, extensions or refinancings thereof (but not any increases in the
principal amounts thereof outstanding at that time).
"UCC" means the Uniform Commercial Code as the same may, from
time be in effect in the State of New York; PROVIDED, that in the event that, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of, or remedies with respect to, Lender' Lien on any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for purposes of definitions related to such provisions; PROVIDED FURTHER, that
to the extent that UCC is used to define any term herein or in any Ancillary
Agreement and such term is defined differently in different Articles or
B-2
Divisions of the UCC, the definition of such term contained in Article or
Division 9 shall govern.
B-3