Contract
Exhibit
10.2
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
14(a) HEREOF.
Senior
Secured Non-Convertible Note
|
Issuance
Date: December 11, 2009
|
Original
Principal Amount: U.S.
$
|
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 _______________________________ 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), on any Scheduled Payment 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, whether upon any Scheduled Payment Date (including, without
limitation, the Maturity Date) or acceleration, redemption or otherwise (in each
case in accordance with the terms hereof). This Senior Secured Non-Convertible
Note (including all Senior Secured Non-Convertible Notes issued in exchange,
transfer or replacement hereof, is referred to herein as the “Note”) is being issued
pursuant to the Exchange Agreement (as defined below) on the Closing Date (as
defined below). Certain capitalized terms used herein are defined in Section
24.
1. PAYMENTS OF
PRINCIPAL. On each date set forth on Schedule
1 attached hereto (each such date is referred to herein as a “Scheduled Payment Date”), the Company
shall pay to the Holder in cash, via wire transfer of immediately available
funds, the amount set forth on Schedule
1 that
is due on such
Scheduled Payment Date (each such amount is referred to herein as a “Scheduled Payment Amount”).
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 on Principal and Interest, if any. Each Scheduled
Payment Amount shall be applied as follows: (i) first, to the Principal amount
due on such Scheduled Payment Date, (ii) second, to all accrued and unpaid
Interest due on such Scheduled Payment Date and (iii) third, to all accrued and
unpaid Late Charges on such Principal amount and Interest due on such Scheduled
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 that occurs prior to the Scheduled Payment Date that is the
Maturity Date, 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 14.5% 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 (A) failure to deliver the required number of Common Shares within
seven (7) Trading Days after the applicable conversion or exercise date (as the
case may be) under any of the Holder’s Securities or its 2008 Warrant (as the
case may be) (including, without limitation, the Company’s failure to cure a
Conversion Failure (as defined in the Convertible Notes)) or (B) notice, written
or oral, to the Holder, including, without limitation, by way of public
announcement or through any of its agents, at any time, of its intention not to
comply, as required, with a request for any conversion or exercise (as the case
may be) of any portion of any of the Holder’s Securities or its 2008 Warrant
that is requested in accordance with the provisions thereof;
(ii) 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) or any
other Transaction Document, 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;
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(iii) the
Company fails to remove any restrictive legend on any certificate or any Common
Shares issued to the Holder upon any conversion or exercise (as the case may be)
of any Securities acquired by the Holder under the Exchange Agreement or its
2008 Warrant as and when required by such Securities or such 2008 Warrant (as
the case may be), the Transaction Agreement, the 2008 Exchange Agreement (as
defined below), the Exchange Agreement or the Amended Registration Rights
Agreement (as the case may be), and any such failure continues uncured for at
least ten (10) days;
(iv) any
Event of Default (as defined in the Other Notes) occurs with respect to any
Other Note;
(v) the
Company or any Subsidiary materially breaches any representation, warranty,
covenant or other term or condition of any Transaction Document (other than the
breaches expressly enumerated in this Section 3(a)), 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;
(vi) any
breach or failure in any respect by the Company or any Subsidiary to comply with
any provision of Section 10 of this Note;
(vii) the
occurrence of any default under, redemption of or acceleration prior to maturity
of any Indebtedness (as defined in the Exchange Agreement) of the Company or any
of its Subsidiaries, other than with respect to any Other Notes;
(viii) any
Material Adverse Effect (as defined in the Exchange Agreement)
occurs;
(ix) 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 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;
(x) 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;
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(xi) 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;
(xii) except
as set forth on Schedule
3(a)(xii),
a final judgment or judgments for the payment of money aggregating in excess of
$2,000,000 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 $2,000,000 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;
(xiii) except
as set forth on Schedule
3(a)(xiii),
the Company or any Subsidiary either (i) 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;
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(xiv) the
failure of the Company to effect the Delaware Reincorporation promptly following
the Shareholder Meeting (as defined in the Exchange Agreement) (but in no event
later than November 1, 2010) if the Shareholder Approval (as defined in the
Exchange Agreement) is obtained at the Shareholder Meeting unless effecting the
Delaware Reincorporation will directly result in (i) the Company incurring fees
and expenses in excess of $650,000 in connection with seeking the Shareholder
Approval and effecting the Delaware Reincorporation (including, without
limitation, fees for attorneys, accountants and other professional advisors,
proxy solicitation costs, taxes and share redemption costs) or (ii) the
Company’s failure of any of the Tests; or
(xv) the
Company consummates a Fundamental Transaction (other than the Delaware
Reincorporation) 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 or any Other 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 the Successor Entity assumes in writing all of
the obligations of the Company under this Note and the other Transaction
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, including
agreements to deliver to each holder of Non-Convertible Notes in exchange for
such Non-Convertible Notes a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to the
Non-Convertible Notes, including, without limitation, having a principal amount
and interest rate equal to the principal amounts then-outstanding and the
interest rates of the Non-Convertible Notes held by such holder and having
similar ranking to the Notes, and reasonably satisfactory to the Holder. 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 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
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).
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5. NONCIRCUMVENTION. The
Company hereby covenants and agrees that the Company will not, by amendment of
its Articles of Incorporation (as defined in the Exchange Agreement), Bylaws (as
defined in the Exchange Agreement) 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;
provided, however, the Holder acknowledges and agrees that the Delaware
Reincorporation shall not be deemed a violation of this Section 5 so long as the
Company does not, directly or indirectly, take any actions related thereto or in
connection therewith that adversely affect the Holder in any manner or are
inconsistent with any of the terms of this Note.
6. MANDATORY
REDEMPTIONS. Upon the occurrence of each Disposition or Liquidity Event
(as the case may be), the Company shall use 100% of 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 all, but not less than all, of the
holders of Notes (the “Mandatory Redemption Notice”
and the date such notice is delivered to all such holders 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 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 product of (i) the
Applicable Net Proceeds with respect to such Disposition or Liquidity Event (as
the case may be) multiplied by (ii) the quotient of (1) the sum of (A) the
Principal of this Note outstanding as of the date of redemption, (B) the
amount of any accrued and unpaid Interest on this Note through the date of
redemption and (C) the amount of any accrued and unpaid Late Charges on
such Principal and such Interest specified in clauses (A) and (B) through the
date of redemption divided by (2) the sum of (X) the principal amount of
all Non-Convertible Notes outstanding as of the date of redemption, (Y) the
amount of any accrued and unpaid Interest on all Non-Convertible Notes through
the date of redemption and (Z) the amount of any accrued and unpaid Late
Charges on such principal and such Interest specified in clauses (X) and (Y)
through the date of redemption. To the extent the Company effects a Mandatory
Redemption under this Note, then the Company must simultaneously take the same
action with respect to all the Other Non-Convertible Notes. It is expressly
understood and agreed that payments under this Section 6 and Section 6 of the
Other Non-Convertible Notes shall be made prior to, and have priority over, any
payments required to be made under Section 10 of the Convertible
Notes.
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7. REDEMPTIONS.
(a) Mechanics. 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 14(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
14(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.
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(b) Redemption by Other
Holders. Upon the Company’s receipt of the first notice from any of the
holders of the Other Notes for redemption or repayment as a result of an event
or occurrence substantially similar to the events or occurrences described in
Section 3(b) (the “Initial
Redemption Notice”), the Company shall immediately, but no later than one
(1) Business Day after its receipt thereof, forward to the Holder by facsimile a
copy of such notice. If the Company receives a Redemption Notice from the Holder
and one or more notices from any of the holders of the Other Notes for
redemption or repayment as a result of an event or occurrence substantially
similar to the events or occurrences described in Section 3(b) (each, an “Other Redemption Notice”),
during the seven (7) Business Day period following the Company’s receipt of the
Initial Redemption Notice and the Company is unable to redeem all principal,
interest and other amounts designated in such Redemption Notice, the Initial
Redemption Notice and the Other Redemption Notices received during such seven
(7) Business Day period, then the Company shall redeem a pro rata amount from
each holder of the Notes (including the Holder) based on the principal amount of
the Notes submitted for redemption pursuant to such Redemption Notice, the
Initial Redemption Notice and such Other Redemption Notices received by the
Company during such seven (7) Business Day period.
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 portion of the amount outstanding under this Note
subject to such Company Optional Redemption Right.
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(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 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 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(a) with the term “Optional Redemption
Price” being substituted for “Redemption Price” and “Notice of Company Optional
Redemption” being substituted for “Redemption Notice.”
(d) Pro Rata Redemption
Requirement. If the Company elects to cause a redemption of all or any
portion of this Note pursuant to this Section 8, then it must simultaneously
take the same action in the same proportion with respect to all of the Other
Non-Convertible Notes.
9.
VOTING RIGHTS. The
Holder shall have no voting rights as the holder of this Note.
10. COVENANTS.
(a) Rank. All payments
due under this Note (a) shall rank pari passu with all Other
Notes and (b) 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 and the
Other Notes, (ii) Permitted Indebtedness and (iii) Indebtedness solely between
or among the Company and any of its Subsidiaries.
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(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 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. The Company shall
not, and shall cause each Subsidiary to not, enter into any transaction with any
of its or their respective current or former officers, directors, employees or
affiliates or pay any amounts to any of them except to the extent provided on
Schedule
10(e)
attached hereto.
(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 if on
the Issuance Date the initial Holder, together with its affiliates, held less
than $3,500,000 of the aggregate amount of Indebtedness evidenced by this Note
and all the Other Notes.
10
(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 each holder of Notes, all Security Documents (as defined in the
Exchange Agreement) and Guaranties that are substantially similar to the
Security Documents and Guaranties that the Current Subsidiaries are required to
execute in connection with the transactions contemplated by the Exchange
Agreement.
(i) Tests.
(i) Minimum Cash Balance.
Commencing with the Fiscal Quarter beginning on December 1, 2009, the Company
shall maintain a Cash Balance (as defined below) which equals or exceeds the
applicable amount set forth on Schedule
2 attached hereto (the “Minimum Cash Balance
Test”).
(ii) EBITDA. Commencing
with the Fiscal Quarter beginning on March 1, 2010, the Company shall maintain
EBITDA (as defined below) which equals or exceeds the applicable amount set
forth on Schedule
3 attached hereto (the “EBITDA Test”).
11
(iii) Debt to EBITDA Ratio.
Commencing with the Fiscal Quarter beginning on June 1, 2010, the ratio of
Indebtedness (which for clarification purposes includes, without limitation, the
Notes) of the Company and its Subsidiaries, on a consolidated basis, to EBITDA
shall not exceed the applicable Debt to EBITDA Ratio set forth on Schedule
4 attached hereto (the “Debt to EBITDA Ratio
Test”).
(iv) Capital Expenditures.
Capital Expenditures (as defined below) shall not in the aggregate exceed
$550,000 in any of the Company’s 2010, 2011 or 2012 fiscal years, and Capital
Expenditures shall not in the aggregate exceed $137,500 in the first Fiscal
Quarter of the Company’s 2013 fiscal year (collectively, the “Capital Expenditure
Test”).
(v) Operating Results
Announcement; Measurement. The Company shall announce its operating
results (the “Operating
Results”) (the date of each such announcement is referred to herein as
the “Announcement Date”)
from which compliance with each of the applicable Tests can be determined for
each Fiscal Quarter or fiscal year (as applicable) no later than the fiftieth
(50th) day
after the end of each Fiscal Quarter or, with respect to the last Fiscal Quarter
or the end of the fiscal year (as applicable), the one hundred fifteenth
(115th) day
after the end of such Fiscal Quarter or such fiscal year (as applicable) (each
of such 50th and
115th days
are referred to herein as an “Announcement Date Deadline”).
In the event the Company shall have satisfied all applicable Tests required to
be satisfied with respect to such Fiscal Quarter or such fiscal year (as
applicable), such announcement shall include a statement to the effect that the
Company satisfied all applicable Tests required to be satisfied with respect to
such Fiscal Quarter or such fiscal year (as applicable) (such statement is
referred to herein as the “Statement”). If the Company
fails to make (i) any such announcement by any Announcement Date Deadline or
(ii) a Statement on any Announcement Date, then, in each case, the Company shall
be deemed to have failed to satisfy each of the applicable Tests with respect to
the relevant period. For clarification purposes, the date of determination for
(1) each of the Minimum Cash Balance Test, the EBITDA Test and the Debt to
EBITDA Ratio Test will be the last day of each Fiscal Quarter during which such
Tests are required to be satisfied and (2) the Capital Expenditure Test will be
the last day of each of the Company’s 2010, 2011 and 2012 fiscal years and the
last day of the first Fiscal Quarter of the Company’s 2013 fiscal year (as
applicable).
11. SECURITY. This Note
and the Other Notes are secured to the extent and in the manner set forth in the
Transaction Documents (including, without limitation, the Security Documents and
the Guaranties (each as defined in the Exchange Agreement)).
12. AMENDING THE TERMS OF THIS
NOTE. The prior written consent of the Holder shall be required for any
change or amendment to this Note. No consideration shall be offered or paid to
the Holder to amend or consent to a waiver or modification of any provision of
this Note unless the same consideration is also offered to all of the holders of
the Other Notes. The Holder shall be entitled, at its option, to the benefit of
any amendment to any of the Other Notes.
12
13. TRANSFER. This Note
may be offered, sold, assigned or transferred by the Holder without the consent
of the Company.
14. 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 14(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 14(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 14(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 14(d) and in principal amounts of at least
$100,000) 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 14(a) or Section 14(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.
13
15. 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.
16. 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.
17. 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.
18. 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 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.
19. 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 19 shall be
borne by the party whose position did not prevail in the investment bank’s or
accountant’s final determination.
14
20. NOTICES;
PAYMENTS.
(a) Notices. Whenever
notice is required to be given under this Note, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f) of the
Exchange Agreement. 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 in writing (which address, in the case of the Holder,
shall initially be as set forth in Section 9(f) of the Exchange Agreement),
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”).
21. 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.
15
22. 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.
23. 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.
24. CERTAIN
DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:
(a) “2008 Exchange Agreement” means that certain
Exchange Agreement, dated as of August 29, 2008, by and between the Company and
the Holder, as amended from time to time.
(b) “Amended Registration Rights
Agreement” means that certain registration rights agreement, dated as of
August 3, 2007, by and among the Company and the parties identified on the
signature pages thereto, as amended and restated in its entirety as of August
29, 2008, as further amended and restated in its entirety as of the Closing Date
and as further amended from time to time.
(c) “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.
16
(d) “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.
(e) “Capital Expenditures” means,
with respect to any Person for the particular period, the aggregate of all
liabilities incurred (including, without limitation, through the incurrence of
Indebtedness), expenditures made, commitments made and payments due (whether or
not made) by such Person and its Subsidiaries, on a consolidated basis, for the
purchase, leasing (including, without limitation, pursuant to any lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP) or other acquisition of any assets and equipment (including, without
limitation, all improvements, replacements, substitutions or additions to such
assets and equipment) with a useful life of more than one year that would be
classified as a fixed or capital asset on a consolidated balance sheet of such
Person and its Subsidiaries prepared in accordance with GAAP.
(f) “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.
(g) “Closing Date” shall have the
meaning set forth in the Exchange Agreement, which date is the date the Company
initially issued this Note pursuant to the terms of the Exchange
Agreement.
(h) “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.
(i) “Consolidated Net Income”
means, with respect to any Person, for any applicable period, the net income
(loss) of such Person and its Subsidiaries for such period, determined on a
consolidated basis and in accordance with GAAP, but excluding from the
determination thereof (without duplication) (a) any extraordinary or
non-recurring gains or losses or gains or losses from Dispositions, (b)
restructuring charges, (c) any tax refunds, net operating losses or other net
tax benefits, (d) effects of discontinued operations and (e) interest income
(including interest paid-in-kind).
(j) “Consolidated Net Interest
Expense” means, with respect to any Person, for any applicable period,
gross interest expense of such Person and its Subsidiaries for such period
determined on a consolidated basis and in accordance with GAAP, less interest
income for such period, in each case, determined on a consolidated basis and in
accordance with GAAP.
(k) “Convertible Notes” means, collectively,
all Holder Convertible Notes and all the Other Convertible Notes.
17
(l) “Current Subsidiaries” means,
collectively, Workstream USA, Inc., a Delaware corporation, Xxxxx Xxxxx
Holdings, Inc., a Florida corporation, The Omni Partners, Inc., a Florida
corporation, 0XxxxxxXxxx.xxx, Inc., a Delaware corporation, and Workstream
Merger Sub Inc., a Delaware corporation, and each of the foregoing,
individually, a “Current
Subsidiary.”
(m) “Delaware Reincorporation”
shall have the meaning set forth in the Exchange Agreement.
(n) “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.
(o) “EBITDA” means, with respect to
any Person, the Consolidated Net Income of such Person for the applicable Fiscal
Quarter and the immediately preceding three (3) Fiscal Quarters as set forth in
the financial statements of such Person contained in the applicable Form 10-Qs
or Form 10-K of such Person, plus
without duplication, the sum of the following amounts of such Person and its
Subsidiaries for such period to the extent deducted in determining Consolidated
Net Income of such Person for such period: (i) Consolidated Net Interest
Expense, (ii) income tax expense, (iii) depreciation expense, (iv) amortization
expense and (v) the expense (if any) related to the change in the fair value of
warrants and derivatives securities (including the Notes) outstanding as of the
Issuance Date.
(p) “Eligible Market” means the
Principal Market, The New York Stock Exchange, Inc., the Nasdaq Global Select
Market, the Nasdaq Global Market or the Nasdaq Capital Market.
(q) “Exchange Agreement” means that certain
Exchange Agreement, dated as of December 11, 2009, by and between the Company
and the Holder, as amended from time to time.
(r) “Exchange Agreements” means,
collectively, the Exchange Agreement and the Other Exchange Agreements (as
defined below), as amended from time to time.
(s) “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.
(t) “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 1934 Act (as defined in the Exchange
Agreement)) 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.
18
(u) “GAAP” means United States
generally accepted accounting principles, consistently applied.
(v) “Holder Convertible Notes” means, collectively,
all senior secured convertible notes issued on the Closing Date to the Holder by
the Company pursuant to the Exchange Agreement, and shall include all senior
convertible secured notes issued in exchange therefor or replacement
thereof.
(w) “Interest Rate” means 9.5% per
annum.
(x) “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.
(y) “Maturity Date” shall mean July 31,
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.
(z) “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 19 above, with the term “Net Proceeds” being substituted for the
term “fair market value.”
19
(aa) “New Subsidiaries” means, as of
any date of determination, any Person (i) in which the Company on or after the
date of the Exchange Agreement, 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 Exchange
Agreement, 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.”
(bb) “Non-Convertible Notes” means, collectively,
this Note and all Other Non-Convertible Notes.
(cc) “Notes” means, collectively,
this Note and all the Other Notes.
(dd) “Other Convertible Notes” means, collectively,
all senior secured convertible notes issued on the Closing Date by the Company
pursuant to the Other Exchange Agreements, and shall include all senior
convertible secured notes issued in exchange therefor or replacement
thereof.
(ee) “Other Exchange Agreements” means,
collectively, those certain separate exchange agreements, each dated as of
December 11, 2009, (other than the Exchange Agreement) by and between the
Company and each of the parties thereto, as amended from time to
time.
(ff) “Other Non-Convertible Notes” means, collectively,
all senior non-convertible secured notes issued on the Closing Date by the
Company pursuant to the Other Exchange Agreements, and shall include all senior
secured notes issued in exchange therefor or replacement thereof.
(gg) “Other Notes” means, collectively,
all Other Non-Convertible Notes and all Convertible Notes.
(hh) “Parent Entity” of a Person
means an entity that, directly or indirectly, controls 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.
(ii) “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
$2,000,000 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 $1,000,000 in the aggregate outstanding at any
time; and (iii) Indebtedness evidenced by this Note and the Other
Notes.
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(jj) “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.
(kk) “Permitted Senior Indebtedness”
means the Indebtedness specified in, and permitted by, clauses (ii) and (iii) of
the definition of “Permitted Indebtedness.”
(ll) “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.
(mm) “Principal Market” means the
OTC Bulletin Board.
(nn) “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 19 above,
with the term “Proceeds” being substituted for the term “fair market
value.”
(oo) “Redemption Notices” means,
collectively, the Event of Default Redemption Notice and each Mandatory
Redemption Notice, and each of the foregoing, individually, a “Redemption
Notice.”
(pp) “Redemption Prices” means,
collectively, the Event of Default Redemption Price and each applicable
Mandatory Redemption Price, and each of the foregoing, individually, a “Redemption
Price.”
(qq) “SEC” means the United States
Securities and Exchange Commission.
(rr) “Security Agreement” means that
certain security agreement, dated as of August 29, 2008, by and among the
Company, the Subsidiaries and the Holder and the other parties identified on the
signature pages thereto, as amended on the Closing Date and as further amended
from time to time.
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(ss) “Subsidiaries” means, as of any
date of determination, collectively, all Current Subsidiaries and all New
Subsidiaries, and each of the foregoing, individually, a “Subsidiary.”
(tt) “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.
(uu) “Tests” means, collectively,
the Minimum Cash Balance Test, the EBITDA Test, the Debt to EBITDA Ratio Test
and the Capital Expenditure Test.
(vv) “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.
(ww) “Transaction
Agreement” means that certain Transaction Agreement, dated as of July 25,
2007, by and among the Company and the investors listed on the Schedule of
Buyers attached thereto, as amended by the 2008 Exchange Agreements, the
Exchange Agreements and as further amended from time to time.
(xx) “Transaction Documents” means,
collectively, the Transaction Documents (as defined in the Transaction
Agreement), the 2008 Exchange Documents (as defined in the 2008 Exchange
Agreement) and the Exchange Documents (as defined in the Exchange Agreement), as
amended from time to time.
25. DISCLOSURE. Upon
receipt or delivery by the Company of any notice in accordance with the terms of
this Note, unless the Company has in good faith determined that the matters
relating to such notice do not constitute material, nonpublic information
relating to the Company or any of its Subsidiaries, the Company shall within two
(2) Business Day after any such receipt or delivery publicly disclose such
material, nonpublic information on a Current Report on Form 8-K or otherwise. In
the event that the Company believes that a notice contains material, nonpublic
information relating to the Company or any of its Subsidiaries, the Company so
shall indicate to such Holder contemporaneously with delivery of such notice,
and in the absence of any such indication, the Holder shall be allowed to
presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries. Nothing
contained in this Section 25 shall limit any obligations of the Company, or any
rights of the Holder, under Section 4(i) of the Transaction Agreement, Section
4(f) of the 2008 Exchange Agreement or Section 4(f) of the Exchange
Agreement.
[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.
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COMPANY:
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By:
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Name:
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Title:
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