Exhibit 4.5
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"). THE SECURITIES REPRESENTED HEREBY
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THEY ARE
REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH
OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
8% SENIOR SUBORDINATED CONVERTIBLE NOTE
_________, 2002 $________
Workstream Inc., a Canadian corporation (the "Company" or the "Maker")
hereby promises to pay to _________________ or registered assigns (the "Holder"
or the "Payee"), the sum of _________________ ($________________) (the
"Principal") on the first to occur (the "Due Date") of the following: (a) April
18, 2004 (the "Maturity Date"); and (b) the date on which there is an
acceleration pursuant to the terms of this convertible note (the "Note") prior
to the Maturity Date (the "Acceleration Date"), and to pay interest (computed on
the basis of a 360-day year of twelve 30-day months) on the unpaid portion of
the Principal from the date hereof at the rate of 8% per annum (the "Interest").
The Principal and Interest are payable at such place as the Holder hereof may
from time to time designate in writing to the Company, in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for the payment of public and private debts.
ARTICLE I
PURCHASE AGREEMENT; PREPAYMENT; PAYMENT OF INTEREST
1.1. Purchase Agreement. This Note is one of a duly authorized issue of
8% Senior Subordinated Convertible Notes, sold or to be sold, by the Company,
with Common Stock Purchase Warrants (the "Note Warrants"), in original
authorized principal amount, similar in terms except for dates, principal
amounts and named payees and is issued in connection with a certain Amended and
Restated Purchase Agreement, dated May 14, 2002, between the Maker and the
Holder and other signatories thereto (the "Purchase Agreement"), all terms of
which are incorporated herein by this reference and hereby made a part of this
Note. By its acceptance of this Note, each Holder agrees to be bound by the
terms of the Purchase Agreement. All capitalized terms not otherwise defined
herein shall have the meanings ascribed to such terms in the Purchase Agreement.
1.2 Acceleration of Maturity Date. The Principal and accrued and unpaid
Interest shall become immediately due and payable upon the following, each of
which shall be an Acceleration Date:
(a) Upon an Event of Default; or
(b) The Consummation of a Corporate Transaction.
A Corporate Transaction shall mean (i) a sale of all or
substantially all of the Company's assets, (ii) a transaction (or series of
transactions, including a merger, consolidation or other reorganization of the
Company, or issuance of additional shares of capital stock of the Company other
than in connection with capital raising transactions) which results in the
holders of the Company's capital stock prior to the transaction owning less than
50% of the voting power, on a combined, fully diluted, as-converted basis for
all outstanding classes thereof, of the Company's capital stock after the
transaction or (iii) a liquidation, dissolution or winding up of the Company.
1.3. Prepayment Provisions.
(a) For the twelve (12) month period following the date of execution of
this Note, no prepayment of all or any portion of any principal or interest
hereunder shall be made to the Holder without the prior written consent of the
Majority Holders; provided that the Holder shall be given ten (10) business days
prior written notice of any such prepayment; provided further that any
prepayment of any portion of any principal or interest on the Notes shall be
made ratably on all Notes then issued and outstanding.
(b) From and after the date one (1) year plus one (1) day after the
date of execution of this Note, up to the Maturity Date, the Corporation may, at
its entire discretion, repay all, but not less than all of the Principal and
Interest (the "Amount Owed") plus a premium equal to twenty-five percent (25%)
of the Amount Owed to the Holder (the "Aggregate Repayment Amount"). Such
election shall be made by delivering to the Holder a written notice signed by an
authorized officer of the Corporation (the "Redemption Notice"). Within five (5)
business days following the full payment of the Aggregate Repayment Amount, the
Holder shall deliver to the Corporation all Notes so redeemed.
(c) Holder shall do all further acts and things and execute all further
documents reasonably required in the circumstances to effect the provisions of
this Section 1.3.
1.4. Payment of Interest. Payment of accrued interest on the Principal
shall be paid quarterly commencing three months from the first sale of the Notes
by the Company and shall be paid in full on the Due Date or such earlier date on
which the Principal is paid to the Holder or on which the Note is converted or
exchanged pursuant to the terms of Article II or Article III.
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(a) The Holder shall be entitled to receive interest in cash at the
annual rate of 8% per annum in quarter-annual payments in arrears commencing on
the first day of the month following the first three-month anniversary of the
first sale of the Notes and on each three-month anniversary thereof (each of
such dates being a "Interest Payment Date"). Such interest shall be paid to the
Holders of record at the close of business on the date ten business days prior
to the Interest Payment Date. Each of such quarter-annual interest payments
shall accrue, without interest, from the first day of the three month period in
which such interest may be payable as herein provided, except that with respect
to the first quarter-annual interest payment, such interest with respect to any
outstanding Note shall accrue from the date of issuance of such Note.
(b) All payments made by the Maker on this Note shall be applied first
to the payment of accrued unpaid interest on this Note and then to the reduction
of the unpaid principal balance of this Note. Payments of principal and interest
shall be deemed made on the date such payment is deposited or, if mailed, on the
date deposited in the mail with proper postage and addressed to the Holder and
the address as shown on the records of the Company, or such other address as
provided to the Maker in writing by the Holder.
(c) In the event that the date for the payment of any amount payable
under this Note falls due on a Saturday, Sunday or public holiday under the laws
of the State of New York, the time for payment of such amount shall be extended
to the next succeeding business day and interest shall continue to accrue on any
principal amount so effected until the payment thereof on such extended due
date.
ARTICLE II
CONVERSION RIGHTS; CONVERSION PRICE; RESTRICTED SECURITIES
2.1. Conversion Rights. This Note may be converted into shares of the
Company's Series A Preferred Stock ("Preferred Stock") at the Conversion Price
(as hereinafter defined), in whole or in part, at the election of Payee at any
time from and after such date that the Preferred Stock is duly authorized to be
issued by the Company (the "Authorization Date") upon delivery to Company by
Payee of a notice of conversion, which notice shall set forth the amount hereof
being converted and the date of such conversion (the "Voluntary Conversion
Date"). The entire principal of and interest on this Note may be so converted
(or, at Payee's election, all or a portion of accrued interest shall be paid to
Payee in cash on the Conversion Date).
In addition, if at anytime following the Authorization Date and prior
to the Maturity Date, the Company maintains on a consolidated basis, as of the
end of any fiscal quarter, a minimum EBITDA ("EBITDA" means, for any applicable
fiscal period, consolidated net income (or loss) after taxes for such period of
the Company and its Subsidiaries as determined in accordance with GAAP, plus the
following to the extent deducted in computing the foregoing: (i) interest
expenses, required to be paid in cash during such period on indebtedness of the
Company and its Subsidiaries (on a consolidated basis); (ii) taxes; (iii)
depreciation; and (iv) amortization of goodwill and other intangibles) of not
less than $200,000, as reflected in financial statements contained in its SEC
Filings (which have been reviewed by their independent certified accountants),
the entire principal of and interest on this Note shall automatically convert to
Preferred Stock effective as of the first business day following the filing of
the relevant SEC report containing said financial statements, without any
further action of the Holder (the "Mandatory Conversion Date;" a Voluntary
Conversion Date or a Mandatory Conversion Date are sometimes hereinafter
referred to as a "Conversion Date").
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For purposes hereof, "Conversion Price" shall mean the Original Series
A Issue Price (as defined in the Articles of Amendment of the Company per share
of Preferred Stock)(subject to adjustment as hereinafter set forth). Upon
conversion, Payee shall be entitled to receive the number of shares of Preferred
Stock calculated by dividing the principal hereof by the Conversion Price or if
the Holder elects to convert the interest due hereunder to Preferred Stock the
sum of the principal hereof and such converted interest by the Conversion Price.
No fractional shares of Preferred Stock shall be issued upon conversion. In lieu
of any fractional shares to which Payee would otherwise be entitled, Company
shall pay cash in an amount equal to such fraction multiplied by the Conversion
Price.
Within a reasonable time, not exceeding ten (10) days after the
Conversion Date, the Company shall deliver or cause to be delivered to Payee, in
Payee's name, certificates representing the number of fully paid and
nonassessable shares of Preferred Stock into which this Notice has been
converted in accordance with the provisions hereof. Within a reasonable time,
not exceeding ten (10) days after receipt by Payee of such certificates, Payee
shall surrender this Note to Company for cancellation. Subject to the following
provisions hereof, such conversion shall be deemed to have occurred on the
Conversion Date so that Payee shall be treated for all purposes as having become
the record holder of such shares of Preferred Stock at such time.
The issuance of certificates of shares of Preferred Stock upon the
conversion of this Note shall be made without charge of any kind by Company to
Payee for any costs in respect of the issuance of such certificates.
The Conversion Price shall be subject to adjustment as follows:
(i) If the Company declares or pays a dividend on the
Preferred Shares payable in Preferred Shares or other
securities of the Company or subdivides the Preferred Shares
in a transaction that increases the amount of capital stock
(or such other securities of the Company) into which this Note
may be converted, or if the Company combines the Preferred
Shares in a transaction that decreases the amount of Preferred
Shares into which this Note may be converted, then upon
conversion of this Note, Payee shall receive, without cost to
Payee, the total number and kind of securities to which ▇▇▇▇▇
would have been entitled had Payee owned the Preferred Shares
of record as of the date the dividend, subdivision or
combination occurred.
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(ii) Upon any reclassification, exchange, substitution, or
other event that results in a change of the number and/or
class of the securities issuable upon conversion of this Note
(other than a merger, consolidation or recapitalization
described in Subsection (iii) below or a stock dividend,
split, etc. described in Subsection (i) above), Payee shall be
entitled to receive, upon exercise or conversion of this Note,
the number and kind of securities and property that Payee
would have received for the Preferred Shares if this Note had
been converted immediately before such reclassification,
exchange, substitution or other event. The Company or its
successor shall promptly issue to Payee a new Note for such
new securities or other property. The new Note shall provide
for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 2
including, without limitation, appropriate adjustments to the
Conversion Price and to the number of securities or property
issuable upon conversion of the new Note.
(iii) In the event of any consolidation or merger of Company
with or into another corporation or the conveyance of all or
substantially all of the assets of Company to another
corporation or entity, this Note shall thereafter be
convertible into the number of shares of capital stock or
other securities or property to which a holder of the number
of Preferred Shares deliverable upon conversion hereof would
have been entitled upon such consolidation, merger or
conveyance; and, in any such case, appropriate adjustment
shall be made in the application of the provisions herein set
forth with respect to the rights and interest of ▇▇▇▇▇
thereafter, to the end that the provisions set forth herein
(including provisions with respect to adjustments in the
Conversion Price) shall thereafter be applicable, as nearly as
may be practicable, in relation to any shares of stock or
other property thereafter deliverable upon the conversion
hereof. At the request of ▇▇▇▇▇, the resulting or surviving
entity in any such consolidation or merger, if other than
Company, shall acknowledge in writing ▇▇▇▇▇'s rights
hereunder.
(iv) If the outstanding Preferred Shares are combined or
consolidated, by reclassification or otherwise, into a lesser
number of Preferred Shares, the Conversion Price shall be
proportionately increased. If the outstanding Preferred Shares
are divided by reclassification or otherwise, into a greater
number of Preferred Shares, the Conversion Price shall be
proportionately decreased.
(v) The provisions of this Section 2 shall similarly apply to
successive, stock dividends, stock spits or combinations,
reclassifications, exchanges, substitutions, or other events.
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(vi) Notwithstanding anything contained herein to the
contrary, in the event the Authorization Date does not occur
on or before July 31, 2002 , the Holder shall have the option,
which is exercisable at its sole discretion, to convert the
entire principal of and interest on this Note into Common
Stock of the Company at a conversion price ("Common Conversion
Price") equal to a 20% discount to the average closing price
of the Company's common stock for the five consecutive trading
days ending one day prior to the date of conversion (or, at
Payee's election, all or a portion of accrued interest shall
be paid to Payee in cash on the Conversion Date); provided,
however, that this conversion may not be exercised until a
registration statement with respect to the Common Stock has
been effected by the Securities Exchange Commission.
Provisions contained herein related to mechanics of conversion
and adjustments to the Conversion Price shall similarly apply
to adjustment to the Common Conversion Price.
Notwithstanding anything contained herein to the contrary, the
aggregate number of shares of Common Stock issued upon conversion and exercise
of the Future Priced Securities (as defined below) cannot equal or exceed 20% of
the Common Stock outstanding immediately before the issuance of a Future Priced
Security, unless the Company has obtained prior shareholder approval for such
issuance. In the event the aggregate number of shares of Common Stock that would
be issued upon conversion and exercise of the Future Priced Securities equals or
exceeds 20% of the Common Stock so outstanding, and the Company has failed to
obtain prior shareholder approval for such issuance, then the number of shares
of Common Stock which the holders of the Future Priced Securities would be
entitled to acquire through the conversion and exercise of the Future Priced
Securities shall be reduced on a pro rata basis (in proportion to a fraction,
the numerator of which shall be the total number of shares of Common Stock
issuable to the holder of a Future Priced Security upon exercise and conversion
of such holder's Future Priced Security, and the denominator of which shall be
the aggregate number of shares of Common Stock issuable upon exercise and
conversion of all of the Future Priced Securities) so that the aggregate number
of shares of Common Stock issuable upon exercise and conversion of the Future
Priced Securities does not equal or exceed 20% of the Common Stock outstanding
immediately before the first issuance of a Future Priced Security. For purposes
of this Note, "Future Priced Securities" shall mean the Warrants and Notes
issued in connection with the transactions contemplated by the Purchase
Agreement and the Company's Preferred Stock issuable upon conversion of the
Notes.
2.2. Restrictions on Shares. This Note has been issued by the Maker
pursuant to the exemption from registration under the Securities Act of 1933
(the "Act"). The shares of Preferred Stock issuable upon conversion of this Note
may not be offered, sold or otherwise transferred unless (i) they first shall
have been registered under the Act and applicable state securities laws or (ii)
the Maker shall have been furnished with an opinion of legal counsel (in form,
substance and scope reasonably acceptable to Maker) to the effect that such sale
or transfer is exempt from the registration requirements of the Act. Each
certificate for shares of Preferred Stock issuable upon conversion of this Note
that have not been so registered and that have not been sold pursuant to an
exemption that permits removal of the applicable legend, shall bear a legend
substantially in the following form, as appropriate:
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"). THE SECURITIES REPRESENTED HEREBY
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THEY ARE
REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH
OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
Upon the request of a holder of a certificate representing any shares of
Preferred Stock issuable upon conversion of this Note, the Maker shall remove
the foregoing legend from the certificate or issue to such Holder a new
certificate therefor free of any transfer legend, if (i) with such request, the
Maker shall have received an opinion of counsel, reasonably satisfactory to the
Maker in form, substance and scope, to the effect that any such legend may be
removed from such certificate or (ii) a registration statement under the Act
covering such securities is in effect.
2.3. Reservation of Shares. Once the Preferred Stock is authorized by
all appropriate corporate action, the Company shall at all times have authorized
and reserved, for the purpose of issuance, a sufficient number of shares of
Preferred Stock and Common Stock to provide for the issuance of shares of
Preferred Stock underlying the then outstanding aggregate Principal amount of
the Notes.
ARTICLE III
INTENTIONALLY OMITTED
ARTICLE IV
SENIORITY OF NOTE
4.1 Seniority of Note. Except for Excluded Indebtedness, as defined
below, the Notes shall rank senior to any and all Indebtedness, as defined
below, of the Company, unless the Company receives the prior written consent of
the holders of not less than 51% of principal amount of the Notes outstanding at
the time (the "Majority Holders"), to incur additional Excluded Indebtedness.
This Note is issued subject to the provisions of this Article IV and each person
taking or holding this Note, accepts and agrees to be bound by these provisions.
4.2 Indebtedness. Indebtedness of the Company shall mean, for the
purposes of this Note, means all obligations for borrowed money, including,
without limitation, liabilities secured by any mortgage on property owned or
acquired subject to such mortgage, whether or not the liability secured thereby
shall have been assumed, and also including, without limitation, (i) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be so reflected in
said balance sheet, except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business, and (ii) the present value of any lease payments due under leases
required to be capitalized in accordance with applicable Statements of Financial
Accounting Standards, determined in accordance with applicable Statements of
Financial Accounting Standards.
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4.3 Excluded Indebtedness. Excluded Indebtedness shall mean (a)
indebtedness in favor of Royal Bank of Canada and Bank of Montreal; and (b) and
any deferrals, renewals or extensions of any such indebtedness and notes or
other instruments or evidences of indebtedness issued in respect of or in
exchange for any such indebtedness or any funding to pay or replace any such
indebtedness or credit unless in the instrument creating or evidencing the same,
or pursuant to which it is outstanding, it is provided that such indebtedness or
such deferral, renewal or extension thereof is not senior in right of payment to
this Note.
4.4 Security Interest. As security for the full, prompt and complete
payment and performance of the Company's obligations hereunder, the Company
hereby grants to the Holder of this Note, equally and ratably with the security
interests granted to the other Holders, a security interest in and to the
Collateral (as collectively defined in the Security Agreement and the
Intellectual Property Security Agreement and Assignment) pursuant to the
Security Agreement and the Intellectual Property Security Agreement and
Assignment.
ARTICLE V
COVENANTS
5.1 Covenants of Maker. Maker covenants and agrees that except with the
prior written consent of the Majority Holders, so long as this Note remains
outstanding and unpaid, in whole or in part:
(a) Maker will not, and will not permit any of its
subsidiaries to, sell, transfer or in any other manner alienate or dispose of
all or substantially all of its assets; provided, however, that Maker or any of
its subsidiaries may effect such a transaction if the payment of this Note is
duly provided for from such sale proceeds;
(b) Maker will, and will cause each of its subsidiaries to,
promptly pay and discharge all lawful taxes, assessments and governmental
charges or levies imposed upon it, its income and profits, or any of its
property, before the same shall become in default, as well as all lawful claims
for labor, materials and supplies which, if unpaid, might become a lien or
charge upon such properties or any part thereof. However, Maker or such
subsidiary shall not be required to pay and discharge any such tax, assessment,
charge, levy or claim so long as the validity thereof shall be contested in good
faith by appropriate proceedings and Maker or such subsidiary, as the case may
be, shall set aside on its books adequate reserves with respect to any such tax,
assessment, charge, levy or claim so contested;
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(c) Maker will, and will cause each of its subsidiaries to, do
or cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence, rights and franchises and comply with all laws
applicable to Maker as its counsel may advise;
(d) Maker will, and will cause each of its Subsidiaries to, at
all times maintain, preserve, protect and keep its property used or useful in
the conduct of its business in good repair, working order and condition and
will, from time to time, make all necessary and proper repairs, renewals,
replacements, betterments and improvements thereto;
(e) Maker will, and will cause each of its Subsidiaries to,
keep adequately insured, by financially sound reputable insurers, all property
of a character usually insured similar corporations and carry such other
insurance as is usually carried by similar corporations;
(f) Maker will, promptly following the occurrence of an Event
of Default or of any condition or event which, with the giving of notice or the
lapse of time or both, would constitute an Event of Default, furnish a statement
of Maker's President or Chief Financial Officer to Payee setting forth the
details of such Event of Default or condition or event and the action which
Maker intends to take with respect thereto;
(g) Maker will, and will cause each of its Subsidiaries to, at
all times maintain books of account in which all of its financial transactions
are duly recorded in conformance with generally accepted accounting principles;
(h) Maker, until payment in full of all principal and interest
due on the Notes, will not pay or declare any cash or in kind dividends or other
distributions with respect to its capital stock, except for dividends consisting
solely of additional shares of stock;
(i) Intentionally Omitted;
(j) Maker will not, and will not permit any of its
Subsidiaries to, make any loan to any executive officer, director or any person
who is or becomes a holder of 5% of the capital stock of Maker, other than for
reasonable advances for expenses in the ordinary course of business;
(k) Maker will not, and will not permit any of its
Subsidiaries to, purchase or otherwise redeem any Common Stock, except in
connection with the termination of services of an employee-shareholder;
(l) Maker will not, and will not permit any of its
Subsidiaries to, create, incur, assume, permit, guarantee or suffer to exist any
indebtedness or any other obligations for money borrowed except for (i)
indebtedness existing on the date hereof; (ii) indebtedness under the Notes; and
(iii) indebtedness or other obligations for money borrowed which are
subordinated in all respects, including, but not limited to, priority upon
liquidation, to the Notes.
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(m) After an Event of Default, Maker will not, and will not
permit any of its Subsidiaries to, pay or prepay any amounts under any
outstanding indebtedness or other obligations for money borrowed or any
indebtedness or other obligation for money borrowed incurred subsequent to the
date hereof, whether or not such indebtedness becomes due, past due or
accelerated, except for (i) all of the Notes on a pro rata basis; and (ii)
Excluded Indebtedness.
(n) The Company shall cause any Subsidiary organized after the
date of this Note to be bound by the terms hereof to the same extent as the
Company.
"Subsidiary" or "Subsidiaries" shall mean any corporation or
other organization, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership interest and in
which such ownership interest entitles the Company to elect a majority of the
Board of Directors or similar governing body.
(o) The proceeds received by the Company from the sale of the
Notes shall be used by the Company only for working capital purposes.
(p) To forward to the Holder within thirty (30 days of the end
of each month, unaudited balance sheets of the Company (consolidated with its
subsidiaries, if any) as of the end of such month and unaudited statements of
income and retained earnings and of changes in financial position of the
Company, consolidated with any such subsidiaries for such month, setting forth
in each case in comparative form the corresponding figures for the corresponding
period of the preceding fiscal year and a comparison to the budget.
(q) If requested by the Majority Holders prior to February 1st
in each year, to forward to the Holder a summary of business plans and/or
financial operating projections for the fiscal year of the Company for such year
in form and detail satisfactory to the Majority Holders.
(r) To forward to the Holder promptly after the commencement
thereof, written notice of all actions, suits, claims, proceedings,
arbitrations, investigations and inquiries that could, if successful, materially
and adversely affect the Company or where the amount involved exceeds $100,000.
(s) To forward to the Holder promptly, from time to time, such
other information regarding the business, prospects, financial condition,
operations, property or affairs of the Company as the Majority Holders
reasonably may request in writing.
(t) None of the following actions will take place without the
prior written consent of the Majority Holders, and the Company shall provide the
Majority Holders with detailed background and supporting documentation and
information relating to any consent requested under this Section 5.1(t):
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(i) The prepayment of any indebtedness for money borrowed
other than the Notes or in the ordinary course of business; or
(ii) The increase in the size of the Board of Directors of the
Company to a total greater than nine persons.
ARTICLE VI
EVENTS OF DEFAULT
6.1 Default. If one or more of the following events shall occur for any
reason whatsoever (and whether such occurrence shall be voluntary or involuntary
or come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body), and the Holder shall have given
fifteen (15) days prior written notice to the Company (except no notice is
required for events in subsection 6.1(d) through 6.1(h) by certified or
registered mail, return receipt requested, and the Company shall not have cured
the default within such period (herein called, after such notice, if applicable,
"Events of Default"):
(a) default in the due and punctual payment of the principal
of, or interest on this Note or any other Note when and as the same shall become
due and payable, whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise;
(b) breach by the Company of any covenant contained in this
Note or any other Note and/or any provision of the Purchase Agreement executed
in connection with the sale and purchase of the Notes;
(c) default by the Company in the conversion of any of the
Notes, which default continues for a period of 30 days
(d) the Company makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts generally as they
become due;
(e) an order, judgment or decree is entered adjudicating the
Company or any subsidiary bankrupt or insolvent;
(f) the Company or any subsidiary, petitions or applies to any
tribunal for the appointment of a trustee or receiver of the Company or any
subsidiary, or of any substantial part of the assets of the Company or any
subsidiary, or commences any proceedings (other than proceedings for the
voluntary liquidation and dissolution of a subsidiary) relating to the Company
or a subsidiary under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction whether
now or hereafter in effect;
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(g) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any subsidiary, and the
Company or any subsidiary by any act indicates its approval thereof, consent or
acquiescence therein, or an order, judgment or decree is entered appointing any
such trustee or receiver, or approving the petition in any such proceedings, and
such order, judgment or decree remains unstayed and in effect for more than 60
days;
(h) any order, judgment or decree is entered in any
proceedings against the Company or any Subsidiary decreeing the dissolution of
the Company and such order, judgment or decree remains unstayed and in effect
for more than 60 days;
(i) any order, judgment or decree is entered in any
proceedings against the Company or any Subsidiary decreeing a split-up of the
Company which requires the divestiture of a substantial part of the consolidated
assets of the Company and its subsidiaries, or the divestiture of the stock of a
Subsidiary and such order, judgment or decree remains unstayed and in effect for
more than 60 days,
(j) final judgment for the payment of money shall be rendered
by a court of competent jurisdiction against Maker or any Subsidiary of Maker
and Maker or such Subsidiary, as the case may be, shall not discharge the same
or provide for its discharge in accordance with its terms, or procure a stay of
execution thereof within 30 days from the date of entry thereof and within such
30 day period or such longer period during which execution of such judgment
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal, and such judgment, together with all other such
judgments, shall exceed in the aggregate $50,000;
(k) The dissolution of Maker or any material Subsidiary of
Maker or any vote in favor thereof by the board of directors and shareholders of
Maker or any material Subsidiary of Maker;
(l) An attachment or garnishment is levied against the assets
or properties of Maker or any Subsidiary of Maker involving an amount in excess
of $50,000 and such levy is not vacated, bonded or otherwise terminated within
thirty (30) days after the date of its effectiveness;
(m) Maker or any material Subsidiary defaults in the payment
(regardless of amount) when due of the principal of, interest on, or any other
liability on account of, any indebtedness of Maker or any of its subsidiaries
(other than the Notes) having a face or principal amount in excess of $50,000,
or a default occurs in the performance or observance by Maker or any such
subsidiary of any covenant or condition (other than for the payment of money)
contained in any note or agreement evidencing or pertaining to any such
indebtedness, which causes the maturity of such indebtedness to be accelerated
or permits the holder or holders of such indebtedness to declare the same to be
due prior to the stated maturity thereof;
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(n) Maker or any material Subsidiary defaults on any material
covenant contained in its bank, which default has or with the passage of time,
will have a material adverse effect on the Company or its business;
(o) The violation by the Company or any of its Subsidiaries of
any law or regulation, whether with respect to the conduct of its business or
otherwise, which has a material adverse effect;
(p) If the Company or any Subsidiary shall suspend its
operations and such suspension would reasonably be expected to have a material
adverse effect on the Company and its Subsidiaries, taken as whole; or
(q) Any representation or warranty made by the Company or any
of its Subsidiaries to the Holders under any of the Purchase Agreements and any
documents delivered, in connection therewith was, when made, untrue or
misleading and such breach has a material adverse effect on the Company and its
Subsidiaries, taken as whole.
6.2 Upon the occurrence of any Event of Default described in
subsections 6.1(d) through (i), the unpaid principal amount of all this Note,
together with the interest accrued thereon (which interest shall be deemed
matured) shall become immediately due and payable, without declaration by the
Holder, demand or notice to Maker or other requirements of any kind, all of
which are hereby expressly waived by Maker, or (ii) upon the occurrence of, any
Event of Default, other than those described in subsections 6.1(d) through
6.1(i), the Holder by notice in writing to the Company, may declare the unpaid
principal amount of this Note and such accrued interest to be, and the same
shall forthwith become, due and payable, without presentment, demand, protest or
other notice or other requirements of any kind all of which are hereby expressly
waived by Maker.
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Upon such declaration, the rate of interest on the unpaid
principal shall be increased to eighteen (18%) percent or such lower rate that
is the maximum rate allowed by law (the "Default Rate") from the date of such
declaration until such unpaid principal is repaid in full. The provisions herein
for a Default Rate shall not be deemed to extend the time for any payment
hereunder or to constitute a "grace period" giving the Company a right to cure
any default. In case an Event of Default described in paragraphs 6.1(d) through
6.1(i) occurs, such amounts will become due and payable without any declaration
or any act on the part of the holders of the Notes. Additionally, the Holder
shall have all rights and remedies available under each of the Loan Documents,
as well as all rights and remedies available at law or in equity. Upon an Event
of Default, the Holder is hereby authorized at any time to set off and charge
against any money, instruments, securities, documents, chattel paper, credits,
claims, demands, income and any other property, rights and interests of the
Company which at any time shall come into the possession or custody or under the
control of the Holder or any of its agents, affiliates or correspondents,
without notice or demand, any and all obligations due hereunder in accordance
with the Security Agreement.
ARTICLE VII
MISCELLANEOUS
7.1. Failure or Indulgency 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. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
7.2. Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier or sent by
United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Maker; and the address of the Maker shall be ▇▇▇ ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇-▇▇▇; facsimile number: 613.236.9819. Both
the Holder and the Maker may change the address for service by service of
written notice to the other as herein provided.
7.3. Waiver of Demand. Maker hereby expressly waives demand and
presentment for payment notice of nonpayment, notice of dishonor, protest,
notice of protest, bringing of suit, and diligence in taking any legal action or
remedy to collect amounts called for hereunder.
7.4. Amendment and Waiver. This Note and any provision hereof may be
amended only by an instrument in writing signed by the Maker and the Holder. Any
and all covenants or Events of Default under the Notes, except for the due and
punctual payment of principal and interest, may be waived by the Majority
Holders.
7.5. Assignability. This Note shall be binding upon the Maker and its
successors and assigns and shall inure to be the benefit of the Holder and its
successors and assigns; provided, however, that so long as no Event of Default
has occurred, this Note shall only be transferable in whole or in increments of
$20,000 subject to the restrictions contained in the restrictive legend on the
first page of this Note.
7.6. Cost of Collection. If default is made in the payment of this
Note, the Maker shall pay the Holder hereof costs of collection, including
reasonable attorneys' fees.
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7.7. Governing Law. This Note shall be governed by the internal laws of
the State of New York, without regard to conflicts of law principles.
7.8. Denominations. At the request of the Holder, upon surrender of
this Note, the Maker shall promptly issue new Notes in the aggregate outstanding
principal amount hereof, in the form hereof, in such denominations of at least
$20,000 as the Holder shall request.
7.9. Replacement of Note. Upon receipt of evidence reasonably
satisfactory to the Maker of the loss, theft, destruction or mutilation of this
Note and, in the case of any such loss, theft or destruction, upon delivery of
an indemnity agreement reasonably satisfactory in form and amount to the Maker,
or, in the case of any such mutilation, upon surrender and cancellation of this
Note, the Maker, at its expense, will execute and deliver, in lieu thereof, a
new Note of like tenor.
7.10. Withholding Tax. The Holder of this Note agrees to bear the cost
of any U.S. withholding tax on interest payable under this Note.
7.11. Investment Purpose. The Holder of this Note, by acceptance
hereof, agrees that this Note is being acquired for investment and that such
Holder will not offer, sell or otherwise dispose of this Note or the Conversion
Securities and/or Common Stock issuable upon conversion hereof except under
circumstances that will not result in a violation of the Act or any applicable
state securities laws or similar laws relating to the sale of securities.
7.12. Severability. In case any provision of this Note is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby.
7.13. Suits for Enforcement and Remedies.
(a) Subject to the rights of the Holders of Excluded
Indebtedness, if any, if any one or more Events of Default shall occur, the
Holder may proceed to (i) protect and enforce Holder's rights either by suit in
equity or by action at law, or both, whether for the specific performance of any
covenant, condition or agreement contained in this Note or in any agreement or
document referred to herein or in aid of the exercise of any power granted in
this Note or in any agreement or document referred to herein, (ii) enforce the
payment of this Note, or (iii) enforce any other legal or equitable right of the
Holder. No right or remedy herein or in any other agreement or instrument
conferred upon the Holder of this Note is intended to be exclusive of any other
right or remedy, and each and every such right or remedy shall be cumulative and
shall be in addition to every right and remedy given hereunder or now or
hereafter existing at law or in equity or by statute or otherwise.
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(b) Maker and Payee (i) agree that any legal suit, action or
proceeding arising out of or relating to this Note shall be instituted
exclusively in the New York State Supreme Court, County of New York or in the
United States District Court for the Southern District of New York, (ii) waive
any objection which Maker and Payee may have now or hereafter based upon forum
non conveniens or to the venue of any such suit, action or proceeding, and (iii)
irrevocably consent to the jurisdiction of the New York State Supreme Court,
County of New York and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. Maker further
agrees to accept and acknowledge service of any and all process which may be
served in any such suit, action or proceeding in the New York State Supreme
Court County of New York or in the United States District Court for the Southern
District of New York and agrees that service of process upon the Maker, mailed
by certified mail to the Maker's address, will be deemed in every respect
effective service of process upon Maker, in any suit, action or proceeding.
FURTHER, BOTH MAKER AND ▇▇▇▇▇ ▇▇▇▇▇▇ WAIVE TRIAL BY JURY IN ANY ACTION TO
ENFORCE THIS NOTE AND IN CONNECTION WITH ANY DEFENSE, COUNTERCLAIM OR CROSS
CLAIM ASSERTED IN ANY SUCH ACTION.
7.14. Interest Rate. If any interest rate specified herein is held to
be impermissible, then the rate charged on the indebtedness represented hereby
shall be reduced to the highest rate then permitted by law.
7.15. Headings. The headings of the sections of this Note are inserted
for convenience only and do not affect the meaning of such section.
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IN WITNESS WHEREOF, the Maker has caused this Note to be executed this
day of May, 2002.
[SEAL] Workstream Inc.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Chairman and CEO
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Exhibit 1
NOTICE OF CONVERSION
OF CONVERTIBLE NOTE
TO: [______________________]
1. Pursuant to the terms of the attached Convertible Note (the "Note"),
the undersigned hereby elects to convert $__________ principal amount of the
Note into Preferred Stock of Workstream Inc. (the "Maker"). Capitalized terms
used herein and not otherwise defined herein have the respective meanings
provided in the Note.
2. Please issue a certificate or certificates for the number of shares
of Common Stock into which such principal amount of the Note is convertible in
the name(s) specified immediately below or, if additional space is necessary, on
an attachment hereto:
_________________________ ____________________________
Name Name
_________________________ ____________________________
Address Address
_________________________ ____________________________
SS or Tax ID Number SS or Tax ID Number
3. In the event of partial exercise, please reissue an appropriate
Note(s) for the balance that shall not have been converted.
4. The undersigned represents and warrants that (i) all of the
requirements of the Securities Act of 1933, as amended (the "Act"), applicable
to the undersigned have been complied with by the undersigned and (ii) the
undersigned has not engaged in any transaction or series of transactions that is
a part of or a plan or scheme to evade the registration requirements of the Act.
Date ______________________________ __________________________________
Signature of Registered Holder
(Must be signed exactly as name
appears in the Note
(The signature must be notarized.)
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Schedule A
NOTE HOLDERS OF WORKSTREAM INC.
---------------------------------------------------------------------------------------------
NAME DATE PRINCIPAL OF NOTE
---------------------------------------------------------------------------------------------
Sands Brothers Venture Capital III LLC April 18, 2002 $1,000,000
---------------------------------------------------------------------------------------------
Sands Brothers Venture Capital IV LLC April 18, 2002 $500,000
---------------------------------------------------------------------------------------------
Crestview Capital Fund, L.P. May 14, 2002 $860,000
---------------------------------------------------------------------------------------------
Crestview Capital Fund II, L.P. May 14, 2002 $520,000
---------------------------------------------------------------------------------------------
Crestview Capital Offshore Fund, Inc. May 14, 2002 $20,000
---------------------------------------------------------------------------------------------
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