Document:

TRANSACTION
      AGREEMENT 

     

    This
      TRANSACTION
      AGREEMENT
      (the
“Agreement”),
      dated
      as of September 28, 2006, by and among Workstream Inc., a corporation existing
      pursuant to the Canada Business Corporations Act, with offices located at 495
      March Road, Ottawa, Ontario, Canada K2K-3G1 (the “Company”),
      and
      Hilco Financial, LLC, a limited liability company with its principal offices
      located at 5 Revere Drive, Suite 206 Northbrook, Illinois 60062 (the
“Lender”).

    

    RECITALS

     

    A. The
      Company and the Lender are executing and delivering this Agreement in reliance
      upon the exemption from securities registration afforded by Section 4(2) of
      the
      Securities Act of 1933, as amended (the “1933
      Act”),
      and
      Rule 506 of Regulation D (“Regulation
      D”)
      as
      promulgated by the United States Securities and Exchange Commission (the
“SEC”)
      under
      the 1933 Act.

     

    B. The
      Company desires that one or more of its direct or indirect Subsidiaries (as
      defined below) (as designated by Lender, each a “Borrower”
and
      collectively, the “Borrowers”) enter
      into a Loan and Security Agreement with the Lender concurrently herewith (the
      “Loan
      Agreement”) (which
      shall be in the form of Exhibit
      A
      attached
      hereto) pursuant to which they will borrow, and pursuant to which they
      will issue senior secured notes (the “Senior
      Secured Notes”
or
      “Notes”)
      in the
      amount of, an aggregate of fifteen million dollars ($15,000,000) (among such
      Borrowers, with such amounts, as Lender shall designate); and in connection
      therewith, whereas the Company has determined that it is in its best interests
      to procure such financing for its Subsidiaries, at the Closing, the Company
      shall issue to Lender the Warrants as contemplated below, shall guaranty the
      Notes and other obligations under the Loan Agreement and grant a full first
      priority security interest in all of its assets, in each case pursuant to such
      documents as Lender may request, and shall cause any of its direct or indirect
      Subsidiaries that Lender may designate as guarantors and not borrowers to
      likewise guaranty the Notes and the other obligations under the Loan Agreement,
      all on a joint and several basis, and grant a full first priority security
      interest in all of their respective assets, in each case pursuant to such
      documents as Lender may request.

     

    C. The
      Lender wishes to make the loan contemplated by the Loan Agreement (the
“Loan”)
      and
      the transactions contemplated hereby and to thereby acquire the Senior Secured
      Notes in the form requested by the Lender in connection with the Loan Agreement.
      

     

    D. Contemporaneously
      with the Closing (as defined below), (i) the parties hereto shall execute and
      deliver a Registration Rights Agreement, in the form attached hereto as
Exhibit
      B
      (the
“Registration
      Rights Agreement”),
      pursuant to which the Company agrees to provide certain registration rights
      with
      respect to the Registrable Securities (as defined in the Registration Rights
      Agreement), under the 1933 Act and the rules and regulations promulgated
      thereunder, and applicable state securities laws and (ii) the Company shall
      issue warrants in the form attached hereto as Exhibit
      C
      (the
“Warrants”),
      to
      acquire up to 2,750,000 shares of the Company’s common shares, no par value per
      share (the “Common
      Shares”)
      (as
      exercised, collectively, the “Warrant
      Shares”).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    E. The
      Notes, the Warrants and the Warrant Shares are collectively referred to herein
      as the “Securities.”
      

     

    F. The
      Loan
      and Notes will be (i) secured by a first priority perfected security interest
      (the “Security
      Interests”)
      in all
      of the assets of
      the
      Borrowers, as evidenced by the Loan Agreement in favor of the Lender (and such
      other documents as Lender may request), which security interests shall be senior
      to all other security interests therein and (ii) guaranteed by the Guaranty
      of
      the Company and all of the Company’s current and future Subsidiaries, as
      designated by Lender, in the form contemplated by the Loan Agreement (each,
      a
“Guaranty”)
      (each
      of which Guaranty shall be secured by a first priority perfected security
      interest in all of the assets of each guarantor) (each such Guaranty, together
      with the Loan Agreement and the other documents and agreed entered into in
      connection therewith, as each may amended or modified from time to time,
      collectively, the “Security
      Documents”).

     

    AGREEMENT

     

    NOW,
      THEREFORE, in consideration of the premises and the mutual covenants contained
      herein and for other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, the Company and the Lender hereby
      agree as follows:

     

    
      	
              1.

            	
              ISSUANCE
                OF NOTES AND WARRANTS.

            

    

     

    (a) Basic
      Transaction

     

    .
      Subject
      to the satisfaction (or waiver) of the conditions set forth in Sections
6
      and
7
      below,
      the Borrowers will borrow the funds contemplated thereby, the Lender will make
      the Loan, the Borrowers will thereby issue and the Lender will thereby acquire
      the Notes, the Company will issue to Lender the Warrants, each Guaranty will
      be
      executed and the Security Interests will also be granted, all on the Closing
      Date (as defined below).

     

    (b) Closing.
      The
      closing (the “Closing”)
      of the
      transactions contemplated hereby, including the making of the Loan, the issuance
      of the Notes by the Borrowers and the Warrants by
      the
      Company,
      shall
      occur at the offices of Greenberg Traurig, LLP, 77 W. Wacker Driver, Suite
      2400,
      Chicago, Illinois, 60601. The date and time of the Closing (the “Closing
      Date”)
      shall
      be 10:00 a.m., Chicago Time, on the date that is two (2) Business Days after
      the
notification
      of satisfaction (or waiver) of the conditions set forth in Sections 6
      and
7 below
      (or
      such later date as is mutually agreed to by the Company and the Lender),
      provided such conditions continue to be so satisfied (or waived) on such date.
      As
      used
      herein “Business
      Day”
means
      any day other than a Saturday, Sunday or other day on which commercial banks
      in
      the city of Chicago are authorized or required by law to remain
      closed.

     

    
      	
              2.

            	
              LENDER’S
                REPRESENTATIONS AND
                WARRANTIES.

            

    

     

    The
      Lender represents and warrants that: 

     

    (a) Organization;
      Authority.
      The
      Lender is an entity duly organized, validly existing and in good standing under
      the laws of the jurisdiction of its organization with the requisite power and
      authority to enter into and to consummate the transactions contemplated by
      the
      Transaction Documents (as defined below) to which it is a party and otherwise
      to
      carry out its obligations hereunder and thereunder. For purposes of this
      Agreement, “Transaction
      Documents”
means
      this Agreement, the Loan Agreement, the Notes, the Warrants, the Security
      Documents, the
      Irrevocable Transfer Agent Instructions (as defined below) and
      each
      and every other document, agreement, instrument, certificate, and the like
      contemplated by this Agreement or the Loan Agreement.

     

    
      
         

      

      
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    (b) No
      Public
      Sale or Distribution.
      The
      Lender is acquiring the Securities, in each case, for its own account and not
      with a view towards, or for resale in connection with, the public sale or
      distribution thereof, except pursuant to sales registered or exempted under
      the
      1933 Act; provided, however, that by making the representations herein, the
      Lender does not agree, or make any representation or warranty, to hold any
      of
      the Securities for any minimum or other specific term and reserves the right
      to
      dispose of the Securities at any time in accordance with or pursuant to a
      registration statement or an exemption under the 1933 Act. The Lender is not
      a
      broker-dealer registered, or required to be registered, with the SEC under
      the
      1934 Act. The Lender is acquiring the Securities hereunder in the ordinary
      course of its business. The Lender does not presently have any agreement or
      understanding, directly or indirectly, with any Person to distribute any of
      the
      Securities.

     

    (c) Accredited
      Investor Status.
      The
      Lender is an “accredited investor” as that term is defined in Rule 501(a) of
      Regulation D.

     

    (d) Reliance
      on Exemptions.
      The
      Lender understands that the Securities are being offered and sold to it in
      reliance on specific exemptions from the registration requirements of United
      States federal and state securities laws and that the Company is relying in
      part
      upon the truth and accuracy of, and the Lender’s compliance with, the
      representations, warranties, agreements, acknowledgments and understandings
      of
      the Lender set forth herein in order to determine the availability of such
      exemptions and the eligibility of the Lender to acquire the
      Securities.

     

    (e) Information.
      The
      Lender and its advisors, if any, have been furnished with all materials relating
      to the business, finances and operations of the Company and materials relating
      to the offer and sale of the Securities which have been requested by the Lender
      (or, to the extent not so furnished by the date hereof, the Lender shall
      acknowledge receipt thereof prior to Closing). The Lender and its advisors,
      if
      any, have been afforded the opportunity to ask questions of the Company. Neither
      such inquiries nor any other due diligence investigations conducted by the
      Lender or its advisors, if any, or its representatives shall modify, amend
      or
      affect the Lender’s right to rely on the Company’s representations and
      warranties contained herein or any representations and warranties contained
      in
      any other Transaction Document or any other document or instrument executed
      and/or delivered in connection with this Agreement or the consummation of the
      transaction contemplated hereby. The Lender understands that its investment
      in
      the Securities involves a high degree of risk. The Lender has sought such
      accounting, legal and tax advice as it has considered necessary to make an
      informed investment decision with respect to its acquisition of the
      Securities.

     

    (f) No
      Governmental Review.
      The
      Lender understands that no United States federal or state agency or any other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Securities or the fairness or suitability of the investment
      in the Securities nor have such authorities passed upon or endorsed the merits
      of the offering of the Securities.

     

    
      
         

      

      
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    (g) Transfer
      or Resale.
      The
      Lender understands that except as provided in the Registration Rights Agreement
      and Section 4(g) hereof: (i) the Securities have not been and are not being
      registered under the 1933 Act or any state securities laws, and may not be
      offered for sale, sold, assigned or transferred unless (A) subsequently
      registered thereunder, (B) the Lender shall have delivered to the Company an
      opinion of counsel to the Lender, in a generally acceptable form, to the effect
      that such Securities to be sold, assigned or transferred may be sold, assigned
      or transferred pursuant to an exemption from such registration, or (C) the
      Lender provides the Company with reasonable assurance that such Securities
      can
      be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated
      under the 1933 Act (or a successor rule thereto) (collectively, “Rule
      144”);
      (ii)
      any sale of the Securities made in reliance on Rule 144 may be made only in
      accordance with the terms of Rule 144 and further, if Rule 144 is not
      applicable, any resale of the Securities under circumstances in which the seller
      (or the Person (as defined in Section 3(s)) through whom the sale is made)
      may
      be deemed to be an underwriter (as that term is defined in the 1933 Act) may
      require compliance with some other exemption under the 1933 Act or the rules
      and
      regulations of the SEC promulgated thereunder; and (iii) neither the Company
      nor
      any other Person is under any obligation to register the Securities under the
      1933 Act or any state securities laws or to comply with the terms and conditions
      of any exemption thereunder.

     

    (h) Validity;
      Enforcement.
      This
      Agreement has been, and the Registration Rights Agreement when entered into,
      will have been, duly and validly authorized, executed and delivered on behalf
      of
      the Lender and shall constitute the legal, valid and binding obligations of
      such
      Lender enforceable against the Lender in accordance with their respective terms,
      except as such enforceability may be limited by general principles of equity
      or
      to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
      and other similar laws relating to, or affecting generally, the enforcement
      of
      applicable creditors’ rights and remedies.

     

    (i) No
      Conflicts.
      The
      execution, delivery and performance by the Lender of this Agreement and, when
      executed and delivered, the Registration Rights Agreement and the consummation
      by the Lender of the transactions contemplated hereby and thereby will not
      (i)
      result in a violation of the organizational documents of the Lender or (ii)
      conflict with, or constitute a default (or an event which with notice or lapse
      of time or both would become a default) under, or give to others any rights
      of
      termination, amendment, acceleration or cancellation of, any agreement,
      indenture or instrument to which the Lender is a party, or (iii) result in
      a
      violation of any law, rule, regulation, order, judgment or decree (including
      federal and state securities laws) applicable to the Lender, except in the
      case
      of clauses (ii) and (iii) above, for such conflicts, defaults, rights or
      violations which would not, individually or in the aggregate, reasonably be
      expected to have a material adverse effect on the ability of the Lender to
      perform its obligations hereunder.

     

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

     

    
      
         

      

      
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              3.

            	
              REPRESENTATIONS
                AND WARRANTIES OF THE
                COMPANY.

            

    

     

    The
      Company represents and warrants to the Lender that,
      except
      as set forth in a disclosure letter to be delivered by the Company to the Lender
      two (2) Business Days prior to the Closing Date (which such letter shall make
      explicit reference to the particular representation or warranty as to which
      exception is taken):

     

    (a) Organization
      and Qualification.
      The
      Company and its “Subsidiaries”
(which
      for purposes of this Agreement means any Person in which the Company, directly
      or indirectly, owns capital stock or holds an equity or similar interest)
are
      entities duly organized and validly existing and in good standing under the
      laws
      of the jurisdiction in which they are formed, and have the requisite power
      and
      authorization to own their properties and to carry on their business as now
      being conducted and as presently proposed to be conducted. Each of the Company
      and its Subsidiaries is duly qualified as a foreign entity to do business and
      is
      in good standing in every jurisdiction in which its ownership of property or
      the
      nature of the business conducted by it makes such qualification necessary,
      except to the extent that the failure to be so qualified or be in good standing
      would not have a Material Adverse Effect. As used in this Agreement,
“Material
      Adverse Effect”
means
      any material adverse effect on (i) the business, properties, assets,
      liabilities, operations (including results thereof), condition (financial or
      otherwise) or prospects of the Company and its Subsidiaries, individually or
      taken as a whole, (ii) any of the transactions contemplated hereby or in the
      other Transaction Documents or by the agreements and instruments to be entered
      into in connection herewith or therewith or (iii) the authority or ability
      of
      the Company or any other Company Party (as herein defined) to perform its
      obligations under the Transaction Documents (as defined below) or the validity
      in any respect of any security interest or lien granted pursuant to the Security
      Document or the effectiveness of any Guaranty. The Company does not have any
      Subsidiaries.

     

    (b) Authorization;
      Enforcement; Validity.
      The
      Company and each direct or indirect Subsidiary thereof party thereto (each
      a
“Company
      Party”)
      has
      the requisite power and authority to enter into and perform its obligations
      under this Agreement, the Loan Agreement, the Security Documents, the
      Guarantees, the Notes, the Warrants, the Registration Rights Agreement, the
      Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), and each
      of the other Transaction Documents and to issue the Securities in accordance
      with the terms hereof and thereof. The execution and delivery of this Agreement
      and the other Transaction Documents by the Company and each other Company Party
      and the consummation by the Company and each Company Party of the transactions
      contemplated hereby and thereby, including, without limitation, the issuance
      of
      the Notes, the issuance of the Warrants and the reservation for issuance and
      issuance of the Warrant Shares issuable upon exercise of the Warrants, have
      been
      duly authorized by the applicable Company Party’s Board of Directors (or other
      applicable governing body) and (other than the filing with the SEC of one or
      more Registration Statements in accordance with the requirements of the
      Registration Rights Agreement and any other filings as may be required by any
      state securities agencies) no further filing, consent or authorization is
      required by the Company or any Company Party, their respective Board of
      Directors or their respective stockholders. This Agreement has been, and the
      other Transaction Documents when executed will be, duly executed and delivered
      by the Company and the other Company Parties, and do (and as applicable will)
      constitute the legal, valid and binding obligations of the Company and the
      other
      Company Parties, enforceable against the Company and such other Company Parties
      in accordance with their respective terms, except as such enforceability may
      be
      limited by general principles of equity or applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation or similar laws relating to, or
      affecting generally, the enforcement of applicable creditors’ rights and
      remedies and except as rights to indemnification and to contribution may be
      limited by federal or state securities law. 

     

    
      
         

      

      
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    (c) Issuance
      of Securities.
      The
      issuance of the Notes and the Warrants have all been duly authorized and upon
      issuance in accordance with the terms of the Transaction Documents shall be
      validly issued, fully paid and non-assessable and free from all taxes, liens,
      charges and other encumbrances with respect to the issue thereof. As of the
      Closing, the Company shall have reserved from its duly authorized capital stock
      not less than the maximum number of Common Shares issuable upon exercise of
      the
      Warrants (without taking into account any limitations on the exercise of the
      Warrants set forth in the Warrants). Upon exercise in accordance with the
      Warrants the Warrant Shares will be validly issued, fully paid and nonassessable
      and free from all preemptive or similar rights, taxes, liens, charges and other
      encumbrances with respect to the issue thereof, with the holders being entitled
      to all rights accorded to a holder of Common Shares. Subject to the accuracy
      of
      the representations and warranties of the Lender in this Agreement, the offer
      and issuance by the Company of the Securities is exempt from registration under
      the 1933 Act.

     

    (d) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the other Company Parties and the consummation by the Company and the other
      Company Parties of the transactions contemplated hereby and thereby (including,
      without limitation, the issuance of the Notes, the Warrants, and Warrant Shares
      and the reservation for issuance of the Warrant Shares) will not (i) result
      in a
      violation of the Certificate of Incorporation (as defined in Section 3(r))
      of
      the Company or any of its Subsidiaries, any capital stock of the Company or
      Bylaws (as defined in Section 3(r)), (ii) conflict with, or constitute a default
      (or an event which with notice or lapse of time or both would become a default)
      under, or give to others any rights of termination, amendment, acceleration
      or
      cancellation of, any agreement, indenture or instrument to which the Company
      or
      any of its Subsidiaries is a party, except to the extent such conflict, default
      or termination right would not reasonably be expected to have a Material Adverse
      Effect, or (iii) result in a violation of any law, rule, regulation, order,
      judgment or decree (including federal and state securities laws and regulations
      and the rules and regulations of The
      Nasdaq Capital Market
      and the
      Boston Stock Exchange (together, the “Principal
      Market”)
      and
      including all applicable Canadian laws, rules and regulations) applicable to
      the
      Company or any of its Subsidiaries or by which any property or asset of the
      Company or any of its Subsidiaries is bound or affected except, in the case
      of
      clause (ii) or (iii) above, to the extent such violations that could not
      reasonably be expected to have a Material Adverse Effect.  

     

    (e) Consents.
      Neither
      the Company nor any other Company Party is required to obtain any consent,
      authorization or order of, or make any filing or registration with, any court,
      governmental agency or any regulatory or self-regulatory agency or any other
      Person in order for it to execute, deliver or perform any of its obligations
      under or contemplated by the Transaction Documents, in each case, in accordance
      with the terms hereof or thereof. All consents, authorizations, orders, filings
      and registrations which the Company or any Company Party is required to obtain
      pursuant to the preceding sentence have been obtained or effected on or prior
      to
      the Closing Date, and the Company and its Subsidiaries are unaware of any facts
      or circumstances which might prevent the Company or any other Company Party
      from
      obtaining or effecting any of the registration, application or filings pursuant
      to the preceding sentence. The Company is not in violation of the requirements
      of the Principal Market and has no knowledge of any facts which could reasonably
      lead to delisting or suspension of the Common Shares in the foreseeable future.
      

     

    
      
         

      

      
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    (f) Acknowledgment
      Regarding Lender’s Purchase of Securities.
      The
      Company acknowledges and agrees that the Lender is acting solely on an arms’
length basis with respect to the Transaction Documents and the transactions
      contemplated hereby and thereby and that the Lender is not (and will not be
      as a
      result of the transactions contemplated hereby) (i) an officer or director
      of
      the Company or any other Company Party, (ii) an “affiliate” of the Company or
      any of its Subsidiaries (as defined in Rule 144) or (iii) to its knowledge,
      a
“beneficial owner” of more than 10% of the Common Shares (as defined for
      purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
      “1934
      Act”)).
      The
      Company further acknowledges that the Lender is not acting as a financial
      advisor or fiduciary of the Company or any of its Subsidiaries (or in any
      similar capacity) with respect to the Transaction Documents and the transactions
      contemplated hereby and thereby, and any advice given by the Lender or any
      of
      its representatives or agents in connection with the Transaction Documents
      and
      the transactions contemplated hereby and thereby is merely incidental to the
      Lender acting as a lender under the Loan Agreement. The Company further
      represents to the Lender that the Company’s and each Company Party’s decision to
      enter into the Transaction Documents has been based solely on the independent
      evaluation by the Company and each Company Party and each of their respective
      representatives.

     

    (g) No
      General Solicitation; Placement Agent’s Fees.
      Neither
      the Company, nor any of its Subsidiaries or affiliates, nor any Person acting
      on
      its or their behalf, has engaged in any form of general solicitation or general
      advertising (within the meaning of Regulation D) in connection with the offer
      or
      sale of the Securities. The Company shall be responsible for the payment of
      any
      placement agent’s fees, financial advisory fees, or brokers’ commissions
payable
      to any Person retained by the Company and
      relating
      to or arising out of the transactions contemplated hereby. The Company shall
      pay, and hold the Lender harmless against, any liability, loss or expense
      (including, without limitation, attorney’s fees and out-of-pocket expenses)
      arising in connection with any such claim
      by any
      such Person.
      

     

    (h) No
      Integrated Offering.
      None of
      the Company, its Subsidiaries, any of their affiliates, and any Person acting
      on
      their behalf has, directly or indirectly, made any offers or sales of any
      security or solicited any offers to buy any security, under circumstances that
      would require registration of any of the Securities under the 1933 Act or cause
      this offering of the Securities to be integrated with prior offerings by the
      Company for purposes of the 1933 Act or any applicable stockholder approval
      provisions, including, without limitation, under the rules and regulations
      of
      any exchange or automated quotation system on which any of the securities of
      the
      Company are listed or designated. None of the Company, its Subsidiaries, their
      affiliates and any Person acting on their behalf will take any action or steps
      referred to in the preceding sentence that would require registration of any
      of
      the Securities under the 1933 Act or cause the offering of any of the Securities
      to be integrated with other offerings.

     

    
      
         

      

      
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    (i) Dilutive
      Effect.
      The
      Company understands and acknowledges that the issuance of the Warrants are
      highly dilutive to existing shareholders and that the number of Warrant Shares
      will increase in certain circumstances. The Company further acknowledges that
      its obligation to issue the Warrant Shares upon exercise of the Warrants in
      accordance with this Agreement and the Warrants, in each case, is absolute
      and
      unconditional regardless of the dilutive effect that such issuance may have
      on
      the ownership interests of other stockholders of the Company. The Company’s
      Board of Directors has taken all action and made all determinations necessary
      to
      approve the Transaction Documents and the transactions contemplated thereby,
      including, without limitation, to effectuate the valid issuance of the Warrants
      and the Warrant Shares issuable upon exercise thereof and the granting of the
      guaranty and security interest by the Company.

     

    (j) Application
      of Takeover Protections; Rights Agreement.
      The
      Company and its board of directors have taken all necessary action, if any,
      in
      order to render inapplicable any control share acquisition, business
      combination, poison pill (including any distribution under a rights agreement)
      or other similar anti-takeover provision under the Certificate of Incorporation
      or the laws of the jurisdiction of its incorporation or otherwise which is
      or
      could become applicable to any Lender as a result of the transactions
      contemplated by this Agreement, including, without limitation, the Company’s
      issuance of the Securities and any Lender’s ownership of the Securities. The
      Company has not adopted a stockholder rights plan or similar arrangement
      relating to accumulations of beneficial ownership of Common Shares or a change
      in control of the Company.

     

    (k) SEC
      Documents; Financial Statements.
      During
      the two (2) years prior to the date hereof, the Company has timely filed all
      reports, schedules, forms, statements and other documents required to be filed
      by it with the SEC pursuant to the reporting requirements of the 1934 Act (all
      of the foregoing filed prior to the date hereof and all exhibits included
      therein and financial statements, notes and schedules thereto and documents
      incorporated by reference therein being hereinafter referred to as the
“SEC
      Documents”).
      The
      Company has delivered to the Lender or its representatives true, correct and
      complete copies of each of the SEC Documents not available on the EDGAR system.
      As of their respective dates, the SEC Documents complied in all material
      respects with the requirements of the 1934 Act and the rules and regulations
      of
      the SEC promulgated thereunder applicable to the SEC Documents, and none of
      the
      SEC Documents, at the time they were filed with the SEC, contained any untrue
      statement of a material fact or omitted to state a material fact required to
      be
      stated therein or necessary in order to make the statements therein, in the
      light of the circumstances under which they were made, not misleading. As of
      their respective dates, the financial statements of the Company included in
      the
      SEC Documents complied as to form in all material respects with applicable
      accounting requirements and the published rules and regulations of the SEC
      with
      respect thereto as in effect as of the time of filing. Such financial statements
      have been prepared in accordance with generally accepted accounting principles,
      consistently applied, during the periods involved (except (i) as may be
      otherwise indicated in such financial statements or the notes thereto, or (ii)
      in the case of unaudited interim statements, to the extent they may exclude
      footnotes or may be condensed or summary statements) and fairly present in
      all
      material respects the financial position of the Company as of the dates thereof
      and the results of its operations and cash flows for the periods then ended
      (subject, in the case of unaudited statements, to normal year-end audit
      adjustments which will not be material, either individually or in the
      aggregate). No other information provided by or on behalf of the Company to
      the
      Lender which is not included in the SEC Documents, including, without
      limitation, information referred to in Section 2(e) of this Agreement, contains
      any untrue statement of a material fact or omits to state any material fact
      necessary in order to make the statements therein not misleading, in the light
      of the circumstance under which they are or were made.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    (l) Absence
      of Certain Changes.
      Since
      May 31, 2006, there has been no material adverse change and no material adverse
      development in the business, assets, liabilities, properties, operations
      (including results thereof), condition (financial or otherwise) or prospects
      of
      the Company or any of its Subsidiaries. Since the date of the Company’s most
      recent audited financial statements contained in a Form 10-K, neither the
      Company nor any of its Subsidiaries has (i) declared or paid any dividends,
      (ii)
      sold any assets, individually or in the aggregate, in excess of $100,000 outside
      of the ordinary course of business or (iii) had capital expenditures,
      individually or in the aggregate, in excess of $100,000. Neither the Company
      nor
      any of its Subsidiaries has taken any steps to seek protection pursuant to
      any
      law or statute relating to bankruptcy, insolvency, reorganization, liquidation,
      winding up, all as may be more detailed in the Loan Documents, nor does the
      Company have any knowledge or reason to believe that its creditors intend to
      initiate involuntary bankruptcy proceedings or any actual knowledge of any
      fact
      which would reasonably lead a creditor to do so. The Company and its
      Subsidiaries, individually and on a consolidated basis, are not as of the date
      hereof, and after giving effect to the transactions contemplated hereby to
      occur
      at the Closing, will not be Insolvent (as defined below). For purposes of this
      Section 3(l), “Insolvent”
means,
      with respect to the Company, on a consolidated basis with its Subsidiaries,
      (i)
      the present fair saleable value of the Company’s and its Subsidiaries’ assets is
      less than the amount required to pay the Company’s and its Subsidiaries’ total
      Indebtedness (as defined in Section 3(s)), (ii) the Company and its Subsidiaries
      are unable to pay their debts and liabilities, subordinated, contingent or
      otherwise, as such debts and liabilities become absolute and matured or (iii)
      the Company and its Subsidiaries intend to incur or believe that they will
      incur
      debts that would be beyond their ability to pay as such debts mature. The
      Company has not engaged in business or in any transaction, and is not about
      to
      engage in business or in any transaction, for which the Company’s remaining
      assets constitute unreasonably small capital.

     

    (m) No
      Undisclosed Events, Liabilities, Developments or Circumstances.
      Except
      for
      the
      transactions contemplated hereby, no
      event,
      liability, development or circumstance has occurred or exists, or is
      contemplated to occur with respect to the Company, any of its Subsidiaries
      or
      their respective business, properties, liabilities, prospects, operations
      (including results thereof) or condition (financial or otherwise), that would
      be
      required to be disclosed by the Company under applicable securities laws on
      a
      registration statement on Form S-1 filed with the SEC relating to an issuance
      and sale by the Company of its Common Shares and which has not been publicly
      announced (assuming for these purposes that all material information regarding
      the Company and its securities must be disclosed in such a registration
      statement).

     

    (n) Conduct
      of Business; Regulatory Permits.
      Neither
      the Company nor any of its Subsidiaries is in violation of any term of or in
      default under its Certificate of Incorporation, any certificate of designation,
      preferences or rights of any outstanding series of preferred stock of the
      Company or Bylaws or their organizational charter or certificate of
      incorporation or bylaws, respectively. Neither the Company nor any of its
      Subsidiaries is in violation of any judgment, decree or order or any statute,
      ordinance, rule or regulation applicable to the Company or any of its
      Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
      its business in violation of any of the foregoing, except in all cases for
      possible violations which would not, individually or in the aggregate, have
      a
      Material Adverse Effect. Without limiting the generality of the foregoing,
      the
      Company is not in violation of any of the rules, regulations or requirements
      of
      the Principal Market and has no knowledge of any facts or circumstances that
      could reasonably lead to delisting or suspension of the Common Shares by the
      Principal Market in the foreseeable future. Since January 1, 2005, (i) the
      Common Shares has been designated for quotation on the Principal Market, (ii)
      trading in the Common Shares has not been suspended by the SEC or the Principal
      Market and (iii) the Company has received no communication, written or oral,
      from the SEC or the Principal Market regarding the suspension or delisting
      of
      the Common Shares from the Principal Market. The Company and each of its
      Subsidiaries possess all certificates, authorizations and permits issued by
      the
      appropriate regulatory authorities necessary to conduct their respective
      businesses, except where the failure to possess such certificates,
      authorizations or permits would not have, individually or in the aggregate,
      a
      Material Adverse Effect, and neither the Company nor any such Subsidiary has
      received any notice of proceedings relating to the revocation or modification
      of
      any such certificate, authorization or permit.

     

    
      
         

      

      
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    (o) Foreign
      Corrupt Practices.
      Neither
      the Company nor any of its Subsidiaries nor any director, officer, agent,
      employee or other Person acting on behalf of the Company or any of its
      Subsidiaries has, in the course of its actions for, or on behalf of, the Company
      or any of its Subsidiaries (i) used any corporate funds for any unlawful
      contribution, gift, entertainment or other unlawful expenses relating to
      political activity; (ii) made any direct or indirect unlawful payment to any
      foreign or domestic government official or employee from corporate funds; (iii)
      violated or is in violation of any provision of the U.S. Foreign Corrupt
      Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
      payoff, influence payment, kickback or other unlawful payment to any foreign
      or
      domestic government official or employee.

     

    (p) Sarbanes-Oxley
      Act.
      The
      Company is in compliance with all applicable requirements of the Sarbanes-Oxley
      Act of 2002 that are effective as of the date hereof, and all applicable rules
      and regulations promulgated by the SEC thereunder that are effective as of
      the
      date hereof.

     

    (q) Transactions
      With Affiliates.
      None of
      the officers, directors or employees of the Company or any of its Subsidiaries
      is presently a party to any transaction with the Company or any of its
      Subsidiaries (other than for ordinary course services as employees, officers
      or
      directors), including any contract, agreement or other arrangement providing
      for
      the furnishing of services to or by, providing for rental of real or personal
      property to or from, or otherwise requiring payments to or from any such
      officer, director or employee or, to the knowledge of the Company or any of
      its
      Subsidiaries, any corporation, partnership, trust or other entity in which
      any
      such officer, director, or employee has a substantial interest or is an officer,
      director, trustee or partner.

     

    (r) Equity
      Capitalization.
      The
      authorized capital stock of the Company will be set forth on Schedule
3(r)
      of the
      disclosure letter. All of such outstanding shares are duly authorized and have
      been, or upon issuance will be, validly issued and are fully paid and
      nonassessable. (i) None of the Company’s capital stock is subject to preemptive
      rights or any other similar rights or any liens or encumbrances suffered or
      permitted by the Company; (ii) there are no outstanding options, warrants,
      scrip, rights to subscribe to, calls or commitments of any character whatsoever
      relating to, or securities or rights convertible into, or exercisable or
      exchangeable for, any capital stock of the Company or any of its Subsidiaries,
      or contracts, commitments, understandings or arrangements by which the Company
      or any of its Subsidiaries is or may become bound to issue additional capital
      stock of the Company or any of its Subsidiaries or options, warrants, scrip,
      rights to subscribe to, calls or commitments of any character whatsoever
      relating to, or securities or rights convertible into, or exercisable or
      exchangeable for, any capital stock of the Company or any of its Subsidiaries;
      (iii) there are no outstanding debt securities, notes, loan agreements, credit
      facilities or other agreements, documents or instruments evidencing Indebtedness
      (as defined in Section 3(s)) of the Company or any of its Subsidiaries or by
      which the Company or any of its Subsidiaries is or may become bound; (iv) there
      are no financing statements securing obligations in any material amounts, either
      individually or in the aggregate, filed in connection with the Company or any
      of
      its Subsidiaries; (v) there are no agreements or arrangements under which the
      Company or any of its Subsidiaries is obligated to register the sale of any
      of
      their securities under the 1933 Act (except pursuant to the Registration Rights
      Agreement); (vi) there are no outstanding securities or instruments of the
      Company or any of its Subsidiaries which contain any redemption or similar
      provisions, and there are no contracts, commitments, understandings or
      arrangements by which the Company or any of its Subsidiaries is or may become
      bound to redeem a security of the Company or any of its Subsidiaries; (vii)
      there are no securities or instruments containing anti-dilution or similar
      provisions that will be triggered by the issuance of the Securities; (viii)
      the
      Company does not have any stock appreciation rights or “phantom stock” plans or
      agreements or any similar plan or agreement; and (ix) neither the Company nor
      any of its Subsidiaries have any material liabilities or obligations which
      are
      not disclosed in the SEC Documents, other than those incurred in the ordinary
      course of the Company’s or its Subsidiaries’ respective businesses and which,
      individually or in the aggregate, do not or could not have a Material Adverse
      Effect. The Company has furnished to the Lender true, correct and complete
      copies of the Company’s Articles, Articles of Amendment, Certificate of
      Incorporation, as amended and as in effect on the date hereof (the “Certificate of
      Incorporation”),
      and
      the Company’s bylaws, as amended and as in effect on the date hereof (the
“Bylaws”),
      and
      the terms of all securities convertible into, or exercisable or exchangeable
      for, Common Shares and the material rights of the holders thereof in respect
      thereto.

     

    
      
         

      

      
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    (s) Indebtedness
      and Other Contracts.
      Neither
      the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness
      (as
      defined below), (ii) is a party to any contract, agreement or instrument, the
      violation of which, or default under which, by the other party(ies) to such
      contract, agreement or instrument could reasonably be expected to result in
      a
      Material Adverse Effect, (iii) is in violation of any term of or in default
      under any contract, agreement or instrument relating to any Indebtedness, except
      where such violations and defaults would not result, individually or in the
      aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
      agreement or instrument relating to any Indebtedness, the performance of which,
      in the judgment of the Company’s officers, has or is expected to have a Material
      Adverse Effect. The disclosure letter will provide a detailed description of
      the
      material terms of any such outstanding Indebtedness. For purposes of this
      Agreement: (x) “Indebtedness”
of
      any
      Person means, without duplication (A) all indebtedness for borrowed money,
      (B)
      all obligations issued, undertaken or assumed as the deferred purchase price
      of
      property or services (including, without limitation, “capital leases” in
      accordance with generally accepted accounting principles) (other than trade
      payables entered into in the ordinary course of business), (C) all reimbursement
      or payment obligations with respect to letters of credit, surety bonds and
      other
      similar instruments, (D) all obligations evidenced by notes, bonds, debentures
      or similar instruments, including obligations so evidenced incurred in
      connection with the acquisition of property, assets or businesses, (E) all
      indebtedness created or arising under any conditional sale or other title
      retention agreement, or incurred as financing, in either case with respect
      to
      any property or assets acquired with the proceeds of such indebtedness (even
      though the rights and remedies of the seller or bank under such agreement in
      the
      event of default are limited to repossession or sale of such property), (F)
      all
      monetary obligations under any leasing or similar arrangement which, in
      connection with generally accepted accounting principles, consistently applied
      for the periods covered thereby, is classified as a capital lease, (G) all
      indebtedness referred to in clauses (A) through (F) above secured by (or for
      which the holder of such Indebtedness has an existing right, contingent or
      otherwise, to be secured by) any mortgage, lien, pledge, charge, security
      interest or other encumbrance upon or in any property or assets (including
      accounts and contract rights) owned by any Person, even though the Person which
      owns such assets or property has not assumed or become liable for the payment
      of
      such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
      or obligations of others of the kinds referred to in clauses (A) through (G)
      above; (y) “Contingent
      Obligation”
means,
      as to any Person, any direct or indirect liability, contingent or otherwise,
      of
      that Person with respect to any indebtedness, lease, dividend or other
      obligation of another Person if the primary purpose or intent of the Person
      incurring such liability, or the primary effect thereof, is to provide assurance
      to the obligee of such liability that such liability will be paid or discharged,
      or that any agreements relating thereto will be complied with, or that the
      holders of such liability will be protected (in whole or in part) against loss
      with respect thereto; and (z) “Person”
means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization and a government or any
      department or agency thereof.

     

    (t) Absence
      of Litigation.
      There
      is no action, suit, proceeding, inquiry or investigation before or by the
      Principal Market, any court, public board, government agency, self-regulatory
      organization or body pending or, to the knowledge of the Company, threatened
      against or affecting the Company or any of its Subsidiaries, the Common Shares
      or any of the Company’s Subsidiaries or any of the Company’s or its
      Subsidiaries’ officers or directors which is outside of the ordinary course of
      business or individually or in the aggregate material to the
      Company.

     

    (u) Insurance.
      The
      Company and each of its Subsidiaries are insured by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      management of the Company believes to be prudent and customary in the businesses
      in which the Company and its Subsidiaries are engaged. Neither the Company
      nor
      any such Subsidiary has been refused any insurance coverage sought or applied
      for, and neither the Company nor any such Subsidiary has any reason to believe
      that it will be unable to renew its existing insurance coverage as and when
      such
      coverage expires or to obtain similar coverage from similar insurers as may
      be
      necessary to continue its business at a cost that would not have a Material
      Adverse Effect.

     

    
      
         

      

      
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    (v) Employee
      Relations.
      (i)
      Neither the Company nor any of its Subsidiaries is a party to any collective
      bargaining agreement or employs any member of a union. The Company and its
      Subsidiaries believe that their relations with their employees are good. No
      executive officer (as defined in Rule 501(f) of the 1933 Act) of the Company
      or
      any of its Subsidiaries has notified the Company or any such Subsidiary that
      such officer intends to leave the Company or any such Subsidiary or otherwise
      terminate such officer’s employment with the Company or any such Subsidiary. No
      executive officer of the Company or any of its Subsidiaries is, or is now
      expected to be, in violation of any material term of any employment contract,
      confidentiality, disclosure or proprietary information agreement,
      non-competition agreement, or any other contract or agreement or any restrictive
      covenant, and the continued employment of each such executive officer does
      not
      subject the Company or any of its Subsidiaries to any liability with respect
      to
      any of the foregoing matters. (ii) The Company and its Subsidiaries are in
      compliance with all federal, state, local and foreign laws and regulations
      respecting labor, employment and employment practices and benefits, terms and
      conditions of employment and wages and hours, except where failure to be in
      compliance would not, either individually or in the aggregate, reasonably be
      expected to result in a Material Adverse Effect.

     

    (w) Title.
      The
      Company and its Subsidiaries have good and marketable title in fee simple to
      all
      real property and good and marketable title to all personal property owned
      by
      them which is material to the business of the Company and its Subsidiaries,
      in
      each case free and clear of all liens, encumbrances and defects except such
      as
      do not materially affect the value of such property and do not interfere with
      the use made and proposed to be made of such property by the Company and any
      of
      its Subsidiaries. Any real property and facilities held under lease by the
      Company or any of its Subsidiaries are held by them under valid, subsisting
      and
      enforceable leases with such exceptions as are not material and do not interfere
      with the use made and proposed to be made of such property and buildings by
      the
      Company and its Subsidiaries. Notwithstanding the foregoing, the Company
      represents and warrants that neither it nor any of its Subsidiaries owns any
      real property.

     

    (x) Intellectual
      Property Rights.
      The
      Company and its Subsidiaries own or possess adequate rights or licenses to
      use
      all trademarks, trade names, service marks, service mark registrations, service
      names, patents, patent rights, copyrights, inventions, licenses, approvals,
      governmental authorizations, trade secrets and other intellectual property
      rights (“Intellectual
      Property Rights”)
      necessary to conduct their respective businesses as now conducted and as
      presently proposed to be conducted. None of the Company’s or its Subsidiaries’
Intellectual Property Rights have expired, terminated or been abandoned, or
      are
      expected to expire, terminate or be abandoned, within three years from the
      date
      of this Agreement. The Company does not have any knowledge of any infringement
      by the Company or any of its Subsidiaries of Intellectual Property Rights of
      others. There is no claim, action or proceeding being made or brought, or to
      the
      knowledge of the Company, being threatened, against the Company or any of its
      Subsidiaries regarding their Intellectual Property Rights. The Company is
      unaware of any facts or circumstances which might give rise to any of the
      foregoing infringements or claims, actions or proceedings. The Company and
      each
      of its Subsidiaries have taken reasonable security measures to protect the
      secrecy, confidentiality and value of all of their Intellectual Property
      Rights.

     

    
      
         

      

      
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    (y) Environmental
      Laws.
      The
      Company and its Subsidiaries (i) are in compliance with all Environmental Laws
      (as hereinafter defined), (ii) have received all permits, licenses or other
      approvals required of them under applicable Environmental Laws to conduct their
      respective businesses and (iii) are in compliance with all terms and conditions
      of any such permit, license or approval where, in each of the foregoing clauses
      (i), (ii) and (iii), the failure to so comply could be reasonably expected
      to
      have, individually or in the aggregate, a Material Adverse Effect. The term
      “Environmental
      Laws”
means
      all federal, state, local or foreign laws relating to pollution or protection
      of
      human health or the environment (including, without limitation, ambient air,
      surface water, groundwater, land surface or subsurface strata), including,
      without limitation, laws relating to emissions, discharges, releases or
      threatened releases of chemicals, pollutants, contaminants, or toxic or
      hazardous substances or wastes (collectively, “Hazardous
      Materials”)
      into
      the environment, or otherwise relating to the manufacture, processing,
      distribution, use, treatment, storage, disposal, transport or handling of
      Hazardous Materials, as well as all authorizations, codes, decrees, demands
      or
      demand letters, injunctions, judgments, licenses, notices or notice letters,
      orders, permits, plans or regulations issued, entered, promulgated or approved
      thereunder.

     

    (z) Subsidiary
      Rights.
      The
      Company or one of its Subsidiaries has the unrestricted right to vote, and
      (subject to limitations imposed by applicable law) to receive dividends and
      distributions on, all capital securities of its Subsidiaries as owned by the
      Company or such Subsidiary.

     

    (aa) Tax
      Status.
      The
      Company and each of its Subsidiaries (i) has timely made or filed all foreign,
      federal and state income and all other tax returns, reports and declarations
      required by any jurisdiction to which it is subject, (ii) has timely paid all
      taxes and other governmental assessments and charges that are material in
      amount, shown or determined to be due on such returns, reports and declarations,
      except those being contested in good faith and (iii) has set aside on its books
      provision reasonably adequate for the payment of all taxes for periods
      subsequent to the periods to which such returns, reports or declarations apply.
      There are no unpaid taxes in any material amount claimed to be due by the taxing
      authority of any jurisdiction, and the officers of the Company know of no basis
      for any such claim. The Company is not operated in such a manner as to qualify
      as a passive foreign investment company, as defined in Section 1297 of the
      U.S.
      Internal Revenue Code of 1986, as amended.

     

    (bb) Internal
      Accounting and Disclosure Controls.
      The
      Company and each of its Subsidiaries maintains a system of internal accounting
      controls sufficient to provide reasonable assurance that (i) transactions are
      executed in accordance with management’s general or specific authorizations,
      (ii) transactions are recorded as necessary to permit preparation of financial
      statements in conformity with generally accepted accounting principles and
      to
      maintain asset and liability accountability, (iii) access to assets or
      incurrence of liabilities is permitted only in accordance with management’s
      general or specific authorization and (iv) the recorded accountability for
      assets and liabilities is compared with the existing assets and liabilities
      at
      reasonable intervals and appropriate action is taken with respect to any
      difference. The Company maintains disclosure controls and procedures (as such
      term is defined in Rule 13a-14 under the 1934 Act) that are effective in
      ensuring that information required to be disclosed by the Company in the reports
      that it files or submits under the 1934 Act is recorded, processed, summarized
      and reported, within the time periods specified in the rules and forms of the
      SEC, including, without limitation, controls and procedures designed in to
      ensure that information required to be disclosed by the Company in the reports
      that it files or submits under the 1934 Act is accumulated and communicated
      to
      the Company’s management, including its principal executive officer or officers
      and its principal financial officer or officers, as appropriate, to allow timely
      decisions regarding required disclosure. Neither the Company nor any of its
      Subsidiaries has received any notice or correspondence from any accountant
      relating to any potential material weakness in any part of the system of
      internal accounting controls of the Company or any of its
      Subsidiaries.

     

    
      
         

      

      
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    (cc) Off
      Balance Sheet Arrangements.
      There
      is no transaction, arrangement, or other relationship between the Company or
      any
      of its Subsidiaries and an unconsolidated or other off balance sheet entity
      that
      is required to be disclosed by the Company in its 1934 Act filings and is not
      so
      disclosed or that otherwise could be reasonably likely to have a Material
      Adverse Effect.

     

    (dd) Investment
      Company Status.
      The
      Company is not, and upon consummation of the sale of the Securities will not
      be,
      an “investment company,” an affiliate of an “investment company,” a company
      controlled by an “investment company” or an “affiliated person” of, or
“promoter” or “principal underwriter” for, an “investment company” as such terms
      are defined in the Investment Company Act of 1940, as amended. 

     

    (ee) Transfer
      Taxes.
      On the
      Closing Date, all stock transfer or other taxes (other than income or similar
      taxes) which are required to be paid in connection with the sale and transfer
      of
      the Securities to be sold to the Lender hereunder will be, or will have been,
      fully paid or provided for by the Company, and all laws imposing such taxes
      will
      be or will have been complied with.

     

    (ff) Acknowledgement
      Regarding Lender’s Trading Activity.
      It is
      understood and acknowledged by the Company (i) that following the public
      disclosure of the transactions contemplated by the Transaction Documents, in
      accordance with the terms thereof, the Lender has not been asked by the Company
      or any of its Subsidiaries to agree, nor has the Lender agreed with the Company
      or any of its Subsidiaries, to desist from purchasing or selling, long and/or
      short, securities of the Company, or “derivative” securities based on securities
      issued by the Company or to hold the Securities for any specified term; (ii)
      that any Lender, and counter parties in “derivative” transactions to which any
      such Lender is a party, directly or indirectly, presently may have a “short”
position in the Common Shares which were established prior to such Lender’s
      knowledge of the transactions contemplated by the Transaction Documents, and
      (iii) that the Lender shall not be deemed to have any affiliation with or
      control over any arm’s length counter party in any “derivative” transaction. The
      Company further understands and acknowledges that following the public
      disclosure of the transactions contemplated by the Transaction Documents
      pursuant to the Press Release the Lender may engage in hedging and/or trading
      activities at various times during the period that the Securities are
      outstanding and (b) such hedging and/or trading activities, if any, can reduce
      the value of the existing stockholders’ equity interest in the Company both at
      and after the time the hedging and/or trading activities are being conducted.
      The Company acknowledges that such aforementioned hedging and/or trading
      activities do not constitute a breach of this Agreement or any other Transaction
      Document or any of the documents executed in connection herewith or
      therewith.

     

    
      
         

      

      
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    (gg) Registration
      Eligibility.
      The
      Company is eligible to register the Registrable Securities for resale by the
      Lender using Form S-3 promulgated under the 1933 Act.

     

    (hh) Manipulation
      of Price.
      The
      Company has not, and to its knowledge no Person acting on its behalf has, (i)
      taken, directly or indirectly, any action designed to cause or to result in
      the
      stabilization or manipulation of the price of any security of the Company to
      facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
      purchased, or paid any compensation for soliciting purchases of, any of the
      Securities, or (iii) paid or agreed to pay to any person any compensation for
      soliciting another to purchase any other securities of the Company.

     

    (ii) U.S.
      Real
      Property Holding Corporation.
      The
      Company is not, and has never been, a U.S. real property holding corporation
      within the meaning of Section 897 of the Internal Revenue Code of 1986, as
      amended, and the Company shall so certify upon Lender’s request.

     

    (jj) Disclosure.
      All
      representations and warranties contained herein and in the Loan Agreement and
      all of material the written materials that will be set forth on Schedule 3(jj)
      on the disclosure letter that were previously provided to the Lender regarding
      the Company and its Subsidiaries, their businesses and the transactions
      contemplated hereby, including the schedules to this Agreement and the Loan
      Agreement and the disclosure letters to this Agreement and the Loan Agreement,
      furnished by or on behalf of the Company is true and correct and does not
      contain any untrue statement of a material fact or omit to state any material
      fact necessary in order to make the statements made therein, in the light of
      the
      circumstances under which they were made, not misleading (it being understood
      and agreed that the failure to disclose any materially adverse nonpublic
      information regarding the Company or any of its securities is expressly deemed
      such an omission hereunder). Each
      press release issued by the Company or any of its Subsidiaries during the twelve
      (12) months preceding the date of this Agreement did not at the time of release
      contain any untrue statement of a material fact or omit to state a material
      fact
      required to be stated therein or necessary in order to make the statements
      therein, in the light of the circumstances under which they are made, not
      misleading. No event or circumstance has occurred or information exists with
      respect to the Company or any of its Subsidiaries or its or their business,
      properties, liabilities, prospects, operations (including results thereof)
      or
      conditions (financial or otherwise), which, under applicable law, rule or
      regulation, requires public disclosure at or before the date hereof or
      announcement by the Company but which has not been so publicly announced or
      disclosed or which, if none by a third party or governmental official, could
      give rise to a claim or action which could have a Material Adverse Effect.
      The
      Company acknowledges and agrees that the Lender does not make or has not made
      any representations or warranties with respect to the transactions contemplated
      hereby other than those specifically set forth in Section 2.

     

    
      
        (kk) Ranking
          of Guaranty.
          No
          Indebtedness of the Company or any of its Subsidiaries, at the Closing,
          will be
          senior to or, except for Indebtedness permitted by Section 6.4(b) of the
          Loan
          Agreement, pari
          passu
          with
the
          Loan
          or any Guaranty in right of payment, whether with respect of payment or
          redemptions, interest, damages or upon liquidation or dissolution or
          otherwise.

      

    

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    
      	
              4.

            	
              COVENANTS.

            

    

     

    (a) Best
      Efforts.
      Each
      party shall use its best efforts timely to satisfy each of the conditions to
      be
      satisfied by it as provided in Sections 6 and 7 of this Agreement. The Company
      shall, and shall cause each of its direct and indirect Subsidiaries to, execute
      and deliver all documents, agreements, notes, securities, guarantees,
      instruments and the like contemplated by this Agreement or the Loan Agreement
      in
      order to consummate the transactions contemplated by this Agreement and/or
      the
      Loan Agreement, including, without limitation, as set forth in the Recitals
      to
      this Agreement. Between signing of this Agreement and Closing, the Company
      shall
      not (nor shall it permit any of its direct or indirect Subsidiaries to) take
      any
      action that would make any condition to closing not occur or that would
      adversely impact the consummation of the transactions contemplated hereby.
      Notwithstanding
      anything to the contrary contained in this Agreement or in the Loan Agreement
      or
      any other Transaction Document, from and after the date hereof and prior to
      the
      Closing, the Company shall, and shall cause each Subsidiary to, enter into,
      and
      use its best efforts to obtain prior to the Closing, from each financial
      institution at which they maintain Deposit Accounts (as defined in the Loan
      Agreement) a duly executed Deposit Account Control Agreement for each such
      Deposit Account in the form attached hereto as Exhibit
      D.

     

    (b) Form
      D
      and Blue Sky.
      The
      Company agrees to file a Form D with respect to the Securities as required
      under
      Regulation D and to provide a copy thereof to the Lender promptly after such
      filing. The Company shall, on or before the Closing Date, take such action
      as
      the Company shall reasonably determine is necessary in order to obtain an
      exemption for, or to, qualify the Securities for sale to the Lender at the
      Closing pursuant to this Agreement under applicable securities or “Blue Sky”
laws of the states of the United States (or to obtain an exemption from such
      qualification), and shall provide evidence of any such action so taken to the
      Lender on or prior to the Closing Date. The Company shall make all filings
      and
      reports relating to the offer and sale of the Securities required under
      applicable securities or “Blue Sky” laws of the states of the United States
      following the Closing Date. 

     

    (c) Reporting
      Status.
      Until
      the date on which the Lender shall have sold all the Warrant Shares, and none
      of
      the Warrants are outstanding (the “Reporting
      Period”),
      the
      Company shall timely file all reports required to be filed with the SEC pursuant
      to the 1934 Act, and the Company shall not terminate its status as an issuer
      required to file reports under the 1934 Act even if the 1934 Act or the rules
      and regulations thereunder would no longer require or otherwise permit such
      termination.

     

    (d) Financial
      Information.
      The
      Company agrees to send the following to each Investor (as defined in the
      Registration Rights Agreement) during the Reporting Period (i) unless the
      following are filed with the SEC through EDGAR and are available to the public
      through the EDGAR system, within one (1) Business Day after the filing thereof
      with the SEC, a copy of its Annual Reports on Form 10-K and Quarterly Reports
      on
      Form 10-Q, any interim reports or any consolidated balance sheets, income
      statements, stockholders’ equity statements and/or cash flow statements for any
      period other than annual, any Current Reports on Form 8-K and any registration
      statements (other than on Form S-8) or amendments filed pursuant to the 1933
      Act, (ii) on the same day as the release thereof, facsimile copies of all press
      releases issued by the Company or any of its Subsidiaries and (iii) copies
      of
      any notices and other information made available or given to the stockholders
      of
      the Company generally, contemporaneously with the making available or giving
      thereof to the stockholders.

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    (e) Listing.
      The
      Company shall promptly secure the listing of all of the Registrable Securities
      (as defined in the Registration Rights Agreement) upon each national securities
      exchange and automated quotation system, if any, upon which the Common Shares
      is
      then listed (subject to official notice of issuance) and shall maintain such
      listing of all Registrable Securities from time to time issuable under the
      terms
      of the Transaction Documents on such exchange or automated quotation system
      or
      the Principal Market, the Nasdaq Global Market, the Nasdaq Global Select Market
      or the NYSE (each being an “Eligible
      Market”).
      Neither the Company nor any of its Subsidiaries shall take any action which
      could be reasonably expected to result in the delisting or suspension of the
      Common Shares on any Eligible Market. The Company shall pay all fees and
      expenses in connection with satisfying its obligations under this Section
      4(e).

     

    (f) Fees.
      The
      Company shall (or shall cause the Borrowers to) reimburse Lender or its
      designee(s) (in addition to any other expense amounts paid to the Lender prior
      to the date of this Agreement) for all reasonable costs and expenses incurred
      by
      it or its affiliates in connection with the transactions contemplated by the
      Transaction Documents (including, without limitation, all reasonable legal
      fees
      and disbursements in connection therewith, documentation and implementation
      of
      the transactions contemplated by the Transaction Documents and due diligence
      in
      connection therewith), regardless of whether or not the transactions
      contemplated hereby and by the Loan Agreement close, which the parties hereto
      have agreed equal $350,000, payable on the date hereof. The Company shall be
      responsible for the payment of any placement agent’s fees, financial advisory
      fees, or broker’s commissions for
      Persons engaged by
      the
      Company
      relating
      to or arising out of the transactions contemplated hereby, including, without
      limitation, any fees payable to the Company’s placement agent. The Company shall
      pay, and hold the Lender harmless against, any liability, loss or expense
      (including, without limitation, reasonable attorney’s fees and out-of-pocket
      expenses) arising in connection with any claim relating to any such payment
      to any
      such Person.

     

    (g) Pledge
      of
      Securities.
      Notwithstanding anything to the contrary contained in Section 2(g), the Company
      acknowledges and agrees that the Securities may be pledged by an Investor in
      connection with a bona fide margin agreement or other loan or financing
      arrangement that is secured by the Securities. The pledge of Securities shall
      not be deemed to be a transfer, sale or assignment of the Securities hereunder,
      and no Investor effecting a pledge of Securities shall be required to provide
      the Company with any notice thereof or otherwise make any delivery to the
      Company pursuant to this Agreement or any other Transaction Document. The
      Company hereby agrees to execute and deliver such documentation as a pledgee
      of
      the Securities may reasonably request in connection with a pledge of the
      Securities to such pledgee by an Investor.

     

    (h) Disclosure
      of Transactions and Other Material Information.
      The
      Company shall, on or before 7:30 a.m., Chicago Time, on the first (1st)
      Business Day after the date of this Agreement, issue a press release (the
“Initial
      Press Release”)
      reasonably acceptable to the Lender disclosing all the material terms of the
      transactions contemplated by the Transaction Documents. On
      or
      before 7:30 a.m., Chicago Time, on the fourth (4th)
      Business Day following the date of this Agreement, the Company shall file a
      Current Report on Form 8-K describing all the material terms of the transactions
      contemplated by the Transaction Documents in the form required by the 1934
      Act
      and attaching all the material Transaction Documents (including, without
      limitation, this Agreement (and all schedules and exhibits to this Agreement),
      the Loan Agreement (and all schedules and exhibits to that agreement), the
      form
      of Warrants and the form of Registration Rights Agreement) (including all
      attachments, the “Initial
      8-K Filing”).
      The
      Company shall, on or before 7:30 a.m., Chicago Time, on the first
      (1st)
      Business Day after the Closing Date, issue a press release (the
      “Second
      Press Release” and
      together with the Initial Press Release, collectively being the “Press
      Releases”)
      reasonably
      acceptable to the Lender
      disclosing the consummation of the Closing. On
      or
      before 7:30 a.m., Chicago Time, on the fourth (4th
      )
      Business Day following the Closing Date, the Company shall file a Current Report
      on Form 8-K disclosing
      the consummation of the Closing and
      attaching all the executed material Transaction Documents (including, without
      limitation, this Agreement (and all schedules and exhibits to this Agreement),
      the Loan Agreement (and all schedules and exhibits thereto), the Warrants and
      the Registration Rights Agreement) (including
      all attachments, the “Second 8-K
      Filing”
and
      together with the Initial 8-K Filing, collectively being the “8-K
      Filings”).
      From
      and
      after the issuance of the Second Press Release, the Company shall have disclosed
      any material, nonpublic information delivered to the Lender by the Company
      or
      any of its Subsidiaries, or any of their respective officers, directors,
      employees or agents (if any) in connection with the transactions contemplated
      by
      the Transaction Documents. The Company shall not, and shall cause each of its
      Subsidiaries and its and each of their respective officers, directors, employees
      and agents, not to, provide the Lender with any material, nonpublic information
      regarding the Company or any of its Subsidiaries from and after the issuance
      of
      the Second Press Release without the express prior written consent of the
      Lender. In the event of a breach of the foregoing covenant by the Company,
      or
      any of its Subsidiaries, or any of its or their respective officers, directors,
      employees and agents, in addition to any other remedy provided herein or in
      the
      Transaction Documents, the Lender shall have the right to make a public
      disclosure, in the form of a press release, public advertisement or otherwise,
      of such material, nonpublic information without the prior approval by the
      Company, any of its Subsidiaries, or any of its or their respective officers,
      directors, employees or agents. The Lender shall not have any liability to
      the
      Company, any of its Subsidiaries, or any of its or their respective officers,
      directors, employees, stockholders or agents, for any such disclosure. Subject
      to the foregoing, neither the Company, its Subsidiaries nor the Lender shall
      issue any press releases or any other public statements with respect to the
      transactions contemplated hereby; provided, however, that the Company shall
      be
      entitled, without the prior approval of the Lender, to make any press release
      or
      other public disclosure with respect to such transactions (i) in substantial
      conformity with the 8-K Filings and contemporaneously therewith and (ii) as
      is
      required by applicable law and regulations (provided that in the case of clause
      (i) the Lender shall be consulted by the Company in connection with any such
      press release or other public disclosure prior to its release). 

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    (i) Additional
      Registration Statements. Until at least 120 days after the Effective Date (as
      defined in the Registration Rights Agreement), the Company shall not file a
      registration statement under the 1933 Act relating to securities that are not
      the Registrable Securities.

     

    (j) Reservation
      of Shares.
      The
      Company shall take all action necessary to at all times have authorized, and
      reserved for the purpose of issuance, no less than the maximum number of Common
      Shares issuable upon exercise of the Warrants (without taking into account
      any
      limitations on the exercise of the Warrants set forth in the
      Warrants).

     

    (k) Passive
      Foreign Investment Company.
      The
      Company shall conduct its business in such a manner as will ensure that the
      Company will not be deemed to constitute a passive foreign investment company
      within the meaning of Section 1297 of the U.S. Internal Revenue Code of 1986,
      as
      amended

     

    (l) Conduct
      of Business.
      The
      business of the Company and its Subsidiaries shall not be conducted in violation
      of any law, ordinance or regulation of any governmental entity, except where
      such violations would not result, either individually or in the aggregate,
      in a
      Material Adverse Effect. 

     

    
      	
              5.

            	
              REGISTER;
                TRANSFER AGENT INSTRUCTIONS;
                LEGEND.

            

    

     

    (a) Register.
      The
      Company shall maintain at its principal executive offices (or such other office
      or agency of the Company as it may designate by notice to each holder of
      Securities), a register for the Warrants in which the Company shall record
      the
      name and address of the Person in whose name the Warrants have been issued
      (including the name and address of each transferee) and the number of Warrant
      Shares issuable upon exercise of the Warrants held by such Person. The Company
      shall keep the register open and available at all times during business hours
      for inspection of the Lender or its legal representatives.

     

    (b) Transfer
      Agent Instructions.
      The
      Company shall issue irrevocable instructions to its transfer agent, and any
      subsequent transfer agent, in
      a form
      acceptable to the Lender (the “Irrevocable
      Transfer Agent Instructions”),
      to
      (i)
      issue certificates or (ii) credit shares to the applicable balance accounts
      at
      The Depository Trust Company (“DTC”)
      to the
      extent that the Lender
      intends to immediately sell Warrant Shares upon exercise of the Warrants while
      a
      registration statement covering such Warrant Shares is effective and available
      for use,
      in each
      case, registered in the name of the Lender or
      its
      respective nominee(s),
      for the
      Warrant Shares in such amounts as specified from time to time by the Lender
      to
      the Company upon exercise of the Warrants.
      The
      Company represents and warrants that no instruction other than the Irrevocable
      Transfer Agent Instructions referred to in this Section 5(b), and stop transfer
      instructions to give effect to Section 2(g) hereof, will be given by the Company
      to its transfer agent with respect to the Securities, and that the Securities
      shall otherwise be freely transferable on the books and records of the Company,
      as applicable, and to the extent provided in this Agreement and the other
      Transaction Documents. If the Lender effects a sale, assignment or transfer
      of
      the Securities in accordance with Section 2(g), the Company shall permit the
      transfer and shall promptly instruct its transfer agent to issue one or more
      certificates in such name and in such denominations as specified by the Lender
      to effect such sale, transfer or assignment. In the event that such sale,
      assignment or transfer involves Warrant Shares sold, assigned or transferred
      pursuant to an effective registration statement or in compliance with Rule
      144,
      the transfer agent shall issue such Securities to the Lender, assignee or
      transferee, as the case may be, without any restrictive legend in accordance
      with Section 5(d) below. The Company acknowledges that a breach by it of its
      obligations hereunder will cause irreparable harm to the Lender. Accordingly,
      the Company acknowledges that the remedy at law for a breach of its obligations
      under this Section 5(b) will be inadequate and agrees, in the event of a breach
      or threatened breach by the Company of the provisions of this Section 5(b),
      that
      the Lender shall be entitled, in addition to all other available remedies,
      to an
      order and/or injunction restraining any breach and requiring immediate issuance
      and transfer, without the necessity of showing economic loss and without any
      bond or other security being required. The Company shall cause its counsel
      to
      issue the legal opinion referred to in the Irrevocable Transfer Agent
      Instructions to the Company’s transfer agent on the Effective Date. Any fees
      (with respect to the transfer agent, counsel to the Company or otherwise)
      associated with the issuance of such opinion or the removal of any legends
      on
      any of the Securities shall be borne by the Company.

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    (c) Legends.
      The
      Lender understands that the certificates or other instruments representing
      the
      Warrants and, until such time as the Warrant Shares have been registered
      and
      sold
      under
      the 1933 Act as contemplated by the Registration Rights Agreement or
      the
      Lender
      intends to immediately sell Warrant Shares upon exercise of the Warrants while
      a
      registration statement covering such Warrant Shares is effective and available
      for use, the stock certificates representing the Warrant Shares, except as
      set
      forth below, shall bear any legend as required by the “blue sky” laws of any
      state and a restrictive legend in substantially the following form (and a
      stop-transfer order may be placed against transfer of such stock
      certificates):

     

    [NEITHER
      THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
      THE
      SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN][THE SECURITIES
      REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES
      ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
      MAY
      NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF
      (A)
      AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
      ACT
      OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER HEREOF, IN
      A
      GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
      OR
      (II) UNLESS SOLD PURSUANT TO RULE 144 OR 144A UNDER SAID ACT.  NOTWITHSTANDING
      THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
      MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
      SECURITIES.

     

    
      
        (d
          )
Removal
          of Legends.
          Certificates
          evidencing Securities shall not be required to contain the legend set forth
          in
          Section 5(c)
          above or
          any other legend (i) following any sale of such Securities pursuant to
          Rule 144
          or pursuant to the Registration Statement (assuming the transferor is not
          an
          affiliate of the Company) or, while the Registration Statement is effective
          and
          available for use, the Lender indicates in its exercise notice that the
          Lender
          intends to, immediately following such exercise, sell the number of Warrant
          Shares specified in such exercise notice under such Registration Statement
          upon
          exercise of such Warrants, (ii) if such Securities are eligible to be sold,
          assigned or transferred under Rule 144(k) (provided that the Lender provides
          the
          Company with reasonable assurances that such Securities are eligible for
          sale,
          assignment or transfer under Rule 144(k)), (iii) in connection with a sale,
          assignment or other transfer (other than under Rule 144) provided the Lender
          provides the Company with an opinion of counsel to the Lender, in a generally
          acceptable form, to the effect that such sale, assignment or transfer of
          the
          Securities may be made without registration under the applicable requirements
          of
          the 1933 Act or (iv) if such legend is not required under applicable
          requirements of the 1933 Act (including, without limitation, controlling
          judicial interpretations and pronouncements issued by the SEC). If a legend
          is
          not required pursuant to the foregoing, the Company shall no later than
          two (2)
          Trading Days following the delivery by the Lender to the Company or the
          transfer
          agent (with notice to the Company) of a legended certificate representing
          such
          Securities (endorsed or with stock powers attached, signatures guaranteed,
          and
          otherwise in form necessary to affect the re-issuance and/or transfer,
          if
          applicable), together with any other deliveries from the Lender as may
          be
          required above in this Section 5(d),
          as
          directed by the Lender, either: (A) deliver (or cause to be delivered to)
          the
          Lender a certificate representing such Securities that is free from all
          restrictive and other legends or (B) if the Securities so delivered by
          the
          Lender were Warrant Shares, credit the balance account of the Lender’s or the
          Lender’s nominee with DTC with a number of Common Shares equal to the number of
          Warrant Shares represented by the certificate so delivered by the Lender
          (the
          date by which such certificate is required to be delivered to the Lender
          pursuant to the foregoing is referred to herein as the “Required
          Delivery Date”).
          

      

    

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    (e) Failure
      to Timely Deliver; Buy-In.
      If the
      Company fails to use
      its
      best efforts to
      (i)
      issue and deliver (or cause to be delivered) to the Lender by the Required
      Delivery Date a certificate representing the Warrant Shares so delivered to
      the
      Company by the Lender that is free from all restrictive and other legends or
      (ii) credit the balance account of the Lender’s or the Lender’s nominee with DTC
      for such number of shares of Warrant Shares so delivered to the Company, then,
      in addition to all other remedies available to the Lender, but subject to the
      Limitation on Damages (as defined in the Warrant), the Company shall pay in
      cash
      to the Lender on each day after the Required Delivery Date that the issuance
      or
      credit of such shares is not timely effected an amount equal to 3% of the
      product of (A) the sum of the number of shares of Warrant Shares not issued
      to
      the Lender on a timely basis and to which the Lender is entitled and (B) the
      Closing Sale Price (as defined in the Warrant) of the Common Shares on the
      Required Delivery Date. In addition to the foregoing, if the Company
      fails
      to
so
      properly
      deliver
      such unlegended certificates or so properly credit the balance account of the
      Lender’s or the Lender’s nominee with DTC by the Required Delivery Date, and if
      on or after the Required Delivery Date the Lender purchases (in an open market
      transaction or otherwise) Common Shares to deliver in satisfaction of a sale
      by
      the Lender of Common Shares that the Lender anticipated receiving from the
      Company without any restrictive legend (a “Buy-In”),
      then
      the Company shall, within three (3) Trading Days after the Lender’s request and
      in the Lender’s sole discretion, either (i) pay cash to the Lender in an amount
      equal to the Lender’s total purchase price (including brokerage commissions, if
      any) for the Common Shares so purchased (the “Buy-In
      Price”),
      at
      which point the Company’s obligation to deliver such certificate shall terminate
      and such shares shall be cancelled, or (ii) promptly honor its obligation to
      deliver to the Lender a certificate or certificates representing such number
      of
      Common Shares that would have been issued if the Company timely complied with
      its obligations hereunder and pay cash to the Lender in an amount equal to
      the
      excess (if any) of the Buy-In Price over the product of (A) such number of
      shares of Warrant Shares (as the case may be) that the Company was required
      to
      deliver to the Lender by the Required Delivery Date times (B) the Closing Sale
      Price of the Common Shares on the Required Delivery Date.

     

    
      	
              6.

            	
              CONDITIONS
                TO THE COMPANY’S OBLIGATION TO
                ISSUE.

            

    

     

    The
      obligation of the Company hereunder to issue the Warrants to the Lender at
      the
      Closing and to otherwise consummate the transactions contemplated by this
      Agreement is subject to the satisfaction, at or before the Closing Date, of
      each
      of the following conditions, provided that these conditions are for the
      Company’s sole benefit and may be waived by the Company at any time in its sole
      discretion by providing the Lender with prior written notice
      thereof:

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    (a) The
      Lender shall have executed each of the Transaction Documents to which it is
      a
      party and delivered the same to the Company or the other Company Party with
      respect thereto;

     

    (b) The
      Lender shall, simultaneously with the Closing, make the Loan under the Loan
      Agreement (provided that the Company and the other Company Parties are not
      in
      breach in relation thereto or any of the other Transaction
      Documents);

     

    (c) The
      representations and warranties of the Lender shall be true and correct in all
      material respects as of the date when made and as of the Closing Date as though
      made at that time (except for representations and warranties that speak as
      of a
      specific date), and the Lender shall have performed, satisfied and complied
      in
      all material respects with the covenants, agreements and conditions required
      by
      this Agreement to be performed, satisfied or complied with by the Lender at
      or
      prior to the Closing Date; and

     

    (d) No
      suit,
      proceeding or investigation shall have been commenced, or threatened in writing,
      by any governmental authority or private Person on any grounds to restrain,
      enjoin or hinder, or to seek material damages on account of, the consummation
      of
      the transaction contemplated by any of the Transaction Documents.

     

    
      	
              7.

            	
              CONDITIONS
                TO THE LENDER’S OBLIGATION TO
                LEND.

            

    

     

    The
      obligation of the Lender hereunder to consummate the transaction contemplated
      hereby (including, without limitation, entering into the Loan Agreement and
      making the Loan as contemplated thereby) at the Closing is subject to the
      satisfaction, at or before the Closing Date, of each of the following
      conditions, provided that these conditions are for the Lender’s sole benefit and
      may be waived by the Lender at any time in its sole discretion by providing
      the
      Company with prior written notice thereof:

     

    (a) The
      Company shall have duly executed and delivered to such Lender each of the
      Transaction Documents to which the Company is to be a party, (B) each of its
      Subsidiaries shall have executed and delivered the applicable Transaction
      Documents to which it is to be a party as contemplated hereby and by the Loan
      Agreement and (C) the Company and each Subsidiary shall have delivered the
      executed Deposit Account Control Agreements to Lender (in such form and from
      such entities as contemplated by Section 4(a));

     

    (b) The
      Lender shall have received the opinion of Cozen O’Connor, the Company’s outside
      U.S. counsel, Perley-Robertson, Hill & McDougall LLP, the Company’s Canadian
      counsel, in each case dated as of the Closing Date, in form acceptable to
      Lender;

     

    (c) The
      Company shall have delivered to the Lender a copy of the Irrevocable Transfer
      Agent Instructions, in a form acceptable to the Lender, which instructions
      shall
      have been delivered to and acknowledged in writing by the Company’s transfer
      agent;

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    (d) The
      Company shall have delivered to the Lender a certificate evidencing the
      formation and good standing of the Company and each of its Subsidiaries in
      each
      such entity’s jurisdiction of formation issued by the Secretary of State (or
      equivalent) of such jurisdiction of formation as of a date within ten (10)
      days
      of the Closing Date;

     

    (e) The
      Company shall have delivered to the Lender a certificate evidencing the
      Company’s qualification as a foreign corporation and good standing issued by the
      Secretary of State (or comparable office) of each jurisdiction in which the
      Company conducts business and is required to so qualify, as of a date within
      ten
      (10) days of the Closing Date;

     

    (f) The
      Company shall have delivered to the Lender a certificate, executed by the
      Secretary of the Company and dated as of the Closing Date, as to (i) the
      resolutions consistent with Section 3(b) as adopted by the Company’s board of
      directors in a form reasonably acceptable to the Lender, (ii) the Certificate
      of
      Incorporation and (iii) the Bylaws, each as in effect at the Closing, in a
      form
      reasonably acceptable to the Lender;

     

    (g) Each
      and
      every representation and warranty of the Company herein and of the Company
      and
      each Subsidiary, as applicable, in the other Transaction Documents shall be
      true
      and correct as of the date when made and as of the Closing Date as though made
      at that time (except for representations and warranties that speak as of a
      specific date) (disregarding the disclosure letter contemplated above) and
      the
      Company and each Subsidiary, as applicable, shall have performed, satisfied
      and
      complied in all respects with the covenants, agreements and conditions herein
      or
      in any other Transaction Document required to be performed, satisfied or
      complied with or by the Company or such Subsidiary at or prior to the Closing
      Date. The Lender shall have received a certificate, executed by the Chief
      Executive Officer of the Company, dated as of the Closing Date, to the foregoing
      effect and as to such other matters as may be reasonably requested by such
      Lender in a form reasonably acceptable to the Lender;

     

    (h) The
      Company shall have delivered to the Lender a letter from the Company’s transfer
      agent certifying the number of Common Shares outstanding on the Closing Date
      immediately prior to the Closing;

     

    (i) The
      Common Shares (I) shall be designated for quotation or listed on the Principal
      Market and (II) shall not have been suspended, as of the Closing Date, by the
      SEC or the Principal Market from trading on the Principal Market nor shall
      suspension by the SEC or the Principal Market have been threatened, as of the
      Closing Date, either (A) in writing by the SEC or the Principal Market or (B)
      by
      falling below the minimum maintenance requirements of the Principal
      Market;

     

    (j) The
      Company shall have obtained all governmental, regulatory or third party consents
      and approvals, if any, necessary for consummation of the transaction
      contemplated by the Transaction Documents, including, without limitation, those
      required for the sale of the Securities and those required by the Principal
      Market;

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

    (k) The
      Company shall have repaid all of the Company’s existing Indebtedness, except for
      Indebtedness permitted by Section 6.4(b) of the Loan Agreement;

     

    (l) All
      of
      the closing conditions to Lender’s obligation to close set forth in the Loan
      Agreement shall have been satisfied or waived by the Lender;

     

    (m) The
      Company shall have obtained approval of the Principal Market to list the Warrant
      Shares;

     

    (n) No
      suit,
      proceeding or investigation shall have been commenced, or threatened in writing,
      by any governmental authority or private Person on any grounds to restrain,
      enjoin or hinder, or to seek material damages on account of, the consummation
      of
      the transaction contemplated by any of the Transaction Documents;
      and

     

    (o) The
      Company shall have delivered to the Lender such other documents relating to
      the
      transactions contemplated by this Agreement as the Lender or its counsel may
      reasonably request.

     

    
      	
              8.

            	
              TERMINATION.

            

    

     

    In
      the
      event that the Closing shall not have occurred on or before ten (10) Business
      Days from the date hereof due to the failure of a condition set forth in Section
      6
      or
7
      above
      (and a non-breaching party’s failure to waive such unsatisfied condition(s)),
      any non-breaching party shall have the right to terminate its obligations under
      this Agreement without liability of such non-breaching party or any other
      non-breaching party to any other party; provided, however, notwithstanding
      any
      such termination the Company shall remain obligated to reimburse the
      non-breaching Lender for the expenses described in Section 4(f)
      above.
      Nothing contained in this Section 8
      shall be
      deemed to release any party from any liability for any breach by such party
      of
      the terms and provisions of this Agreement or the other Transaction Documents
      or
      to impair the right of any party to compel specific performance by any other
      party of its obligations under this Agreement or the other Transaction
      Documents.
      In
      addition to the foregoing and without
      limiting any other termination right of the Lender, the Lender shall have the
      right to terminate this Agreement pursuant to this Section 8
      in the
      event that any disclosure or disclosures contained in the disclosure letter
      contemplated above, individually or in the aggregate, could (in Lender’s good
      faith judgment) reasonably be expected to result in a Material Adverse Effect
      (as defined in this Agreement or the Loan Agreement) or a material adverse
      effect on the Loan (including, without limitation, any of the Borrowers’ ability
      to repay the Loan), any of the collateral securing the Loan or any of the
      Securities to be issued to the Lender. In the event of a termination pursuant
      to
      the immediately preceding sentence, no party hereto shall have any further
      liability or obligation to the other hereunder (it being understood and agreed
      that in the event of such a termination any representation or warranty modified
      by such disclosure letter shall be deemed to have been so modified as of the
      time such representation or warranty was originally made on the date
      hereof).

     

    
      	
              9.

            	
              MISCELLANEOUS.

            

    

     

    (a) Triggering
      Events. A “Triggering
      Event”
shall
      be deemed to have occurred at such time as any of the following events
      occurs:

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    (i) the
      failure of the applicable Registration Statement to be declared effective by
      the
      SEC on or prior to the date that is ninety (90) days (or 120 days if reviewed
      by
      the SEC) after the applicable Effectiveness Deadline (as defined in the
      Registration Rights Agreement), other than, in each case, as a result of an
      act
      of God, war or an act of terrorism; or

     

    (ii) while
      the
      Registration Statement is required to be maintained effective pursuant to the
      terms of the Registration Rights Agreement, the effectiveness of the
      Registration Statement lapses for any reason (including, without limitation,
      the
      issuance of a stop order) or is unavailable to the Lender for sale of all of
      the
      Registrable Securities in accordance with the terms of the Registration Rights
      Agreement, and such lapse or unavailability continues for a period of thirty
      (30) consecutive days or for more than an aggregate of sixty (60) days in any
      365-day period (excluding days during an Allowable Grace Period (as defined
      in
      the Registration Rights Agreement));

     

    (b) Governing
      Law; Jurisdiction; Jury Trial. The parties hereby agree that pursuant to
735
      Illinois Compiled Statutes 105/5-5 they have chosen that all
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement 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. Each party hereby irrevocably submits to the exclusive
      jurisdiction of the state and federal courts sitting in Cook County, 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. Each party hereby
      irrevocably waives personal service of process and consents to process being
      served in any such suit, action or proceeding by mailing a copy thereof to
      such
      party at the address for such notices to it under this Agreement and agrees
      that
      such service shall constitute good and sufficient service of process and notice
      thereof. Nothing contained herein shall be deemed to limit in any way any right
      to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
      WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
      ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT
      OF
      THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. 

     

    (c) Counterparts.
      This
      Agreement may be executed in two or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other party.
      In
      the event that any signature is delivered by facsimile transmission or by an
      e-mail which contains an electronic file of an executed signature page, such
      signature page shall create a valid and binding obligation of the party
      executing (or on whose behalf such signature is executed) with the same force
      and effect as if such facsimile or electronic file signature page (as the case
      may be) were an original thereof.

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    (d) Headings;
      Gender.
      The
      headings of this Agreement are for convenience of reference and shall not form
      part of, or affect the interpretation of, this Agreement. Unless the context
      clearly indicates otherwise, each pronoun herein shall be deemed to include
      the
      masculine, feminine, neuter, singular and plural forms thereof. The terms
“including,”
      “includes,”
      “include”
and
      words of like import shall be construed broadly as if followed by the words
      “without limitation.” The terms “herein,”
      “hereunder,”
      “hereof”
and
      words of like import refer to this entire Agreement instead of just the
      provision in which they are found. For purposes of this Agreement for Lender’s
      benefit, the word “state” or “states” includes any “province” or “provinces” in
      Canada and the concept of “law, rules or regulations” includes laws, rules and
      regulations under applicable law, rules and regulations in Canada.

     

    (e) Severability.
      If any
      provision of this Agreement shall be invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Agreement in that jurisdiction or
      the
      validity or enforceability of any provision of this Agreement in any other
      jurisdiction. Notwithstanding
      anything to the contrary contained in this Agreement or any other Transaction
      Document (and without implication that the following is required or applicable),
      it is the intention of the parties that in no event shall amounts and
      value paid by the Company and/or its Subsidiaries, or payable to
      or received by the Lender, under the Transaction Documents, including
      without limitation any amounts that would be characterized as “interest”
under applicable law (including, without limitation, any applicable Canadian
      law), exceed amounts permitted under any such applicable
      law. Accordingly, if any obligation to pay, payment made to the
      Lender, or collection by the Lender pursuant the
      Transaction Documents is finally judicially determined to be
      contrary to any such applicable law, such obligation to pay, payment or
      collection shall be deemed to have been made by mutual mistake of the
      Lender, the Company and its Subsidiaries and such amount shall be
      deemed to have been adjusted with retroactive effect to the maximum amount
      or
      rate of interest, as the case may be, as would not be so prohibited by
      the applicable law. Such adjustment shall be effected, to the extent
      necessary, by reducing or refunding, at the option of the Lender, the
      amount of interest or any other amounts which would constitute unlawful
      amounts required to be paid or actually paid to the Lender under the Transaction
      Documents. For greater certainty, to the extent that any interest, charges,
      fees, expenses or other amounts required to be paid to or received by the Lender
      under any of the Transaction Documents or related thereto are held to be
      within the meaning of “interest” or another applicable term to otherwise be
      violative of applicable law, such amounts shall be pro-rated over (A) the period
      of time to which they relate or (B) otherwise over the period from the initial
      advance date under the Loan Agreement to the applicable maturity date
      (or repayment date as applicable).

    

    (f) Entire
      Agreement; Amendments.
      Except
      for the exclusivity and expense reimbursement agreement dated as of September
      15, 2006 (which is hereby extended by the parties so that the Exclusivity Period
      thereunder shall continue in full force and effect until the close of business
      (Chicago time) Friday, October 13, 2006), this Agreement, the other Transaction
      Documents and the schedules and exhibits attached hereto and thereto and the
      instruments referenced herein and therein supersede all other prior oral or
      written agreements between the Lender, the Company, their affiliates and Persons
      acting on their behalf with respect to the matters contained herein, and this
      Agreement, the recitals (which are expressly incorporated herein by reference),
      the other Transaction Documents, the schedules and exhibits attached hereto
      and
      thereto and the instruments referenced herein and therein contain the entire
      understanding of the parties with respect to the matters covered herein and
      therein and, except as specifically set forth herein or therein, neither the
      Company nor the Lender makes any representation, warranty, covenant or
      undertaking with respect to such matters. No provision of this Agreement may
      be
      amended or waived other than by an instrument in writing signed by the Company
      and the Lender. No consideration shall be offered or paid to any Person to
      amend
      or consent to a waiver or modification of any provision of any of the
      Transaction Documents unless the same consideration also is offered to all
      of
      the parties to the Transaction Documents, holders of the Notes or holders of
      the
      Warrants, as the case may be. 

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

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

     

    If
      to the
      Company:

     

    Workstream,
      Inc.

    495
      March
      Road

    Ottawa,
      Ontario, Canada K2K-3G1

    Telephone:
      613-270-0619

    Facsimile:
      613-236-9819

    Attention:
      CEO

     

    With
      a
      copy (for informational purposes only) to:

     

    Cozen
      O’Connor

    1900
      Market Street

    Philadelphia,
      Pennsylvania 19103

    Telephone:
      (215) 665-4634

    Facsimile:
      (215) 665-2013

    Attention:
      David S. Petkun, Esq.

     

    If
      to the
      Lender:

     

    Hilco
      Trading Co., Inc.

    5
      Revere
      Drive, Suite 206

    Northbrook,
      Illinois 60062

    Telephone:
      847-509-1100

    Facsimile:
      847-509-1150

    Attention:
      CEO  

    

    If
      to
      Legal Counsel:

     

    Greenberg
      Traurig, LLP 

    77
      W.
      Wacker Drive

    Suite
      2400

    Chicago,
      Illinois 60601

    Telephone:
      312-456-8400

    Facsimile:
      312-456-8435

    Attention:
      Peter H. Lieberman, Esq.

    Jonathan
      A. Ain, Esq.

     

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

    or
      to
      such other address and/or facsimile number and/or to the attention of such
      other
      Person as the recipient party has specified by written notice given to each
      other party five (5) days prior to the effectiveness of such. Written
      confirmation of receipt (A) given by the recipient of such notice, consent,
      waiver or other communication, (B) mechanically or electronically generated
      by
      the sender’s facsimile machine containing the time, date, recipient facsimile
      number and an image of the first page of such transmission or (C) provided
      by an
      overnight courier service shall be rebuttable evidence of personal service,
      receipt by facsimile or receipt from an overnight courier service in accordance
      with clause (i), (ii) or (iii) above, respectively.

     

    (h) Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and assigns, including any purchasers of the Notes
      or the Warrants. The Company shall not assign this Agreement or any rights
      or
      obligations hereunder without the prior written consent of the Lender,
      including, without limitation, by way of a Fundamental Change, as defined in
      the
      Warrants (unless the Company and any successor entity is in compliance with
      the
      applicable provisions governing Fundamental Change set forth in the Warrants).
      The Lender may assign some or all of its rights hereunder in connection with
      transfer of any of its Notes or Warrants without the consent of the Company,
      in
      which event such assignee shall be deemed to be a Lender hereunder with respect
      to such assigned rights.

     

    (i) No
      Third
      Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, other than the Indemnitees
      referred to in Section 9(l).

     

    (j) Survival.
      Unless
      this Agreement is terminated under Section 8 in accordance with the terms
      thereof, the representations, warranties, agreements and covenants shall survive
      the Closing. 

     

    (k) Further
      Assurances.
      Each
      party shall do and perform, or cause to be done and performed, all such further
      acts and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as any other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

     

    (l) Indemnification.
      In
      consideration of the Lender’s execution and delivery of this Agreement and in
      addition to all of the Company’s other obligations under the Transaction
      Documents, the Company shall defend, protect, indemnify and hold harmless the
      Lender and each affiliate of the Lender that holds Notes or Warrants and all
      of
      their stockholders, partners, members, officers, directors, employees and direct
      or indirect investors and any of the foregoing Persons’ agents or other
      representatives (including, without limitation, those retained in connection
      with the transactions contemplated by this Agreement) (collectively, the
“Indemnitees”)
      from
      and against any and all actions, causes of action, suits, claims, losses, costs,
      penalties, fees, liabilities and damages, and expenses in connection therewith
      (irrespective of whether any such Indemnitee is a party to the action for which
      indemnification hereunder is sought), and including reasonable attorneys’ fees
      and disbursements (the “Indemnified
      Liabilities”),
      incurred by any Indemnitee as a result of, or arising out of, or relating to
      (a)
      any misrepresentation or breach of any representation or warranty made by the
      Company or
      any of
      the Subsidiaries
      in any
      of the Transaction Documents or any other certificate, instrument or document
      contemplated hereby or thereby, (b) any breach of any covenant, agreement or
      obligation of the Company or any of the Subsidiaries contained in any of the
      Transaction Documents or any other certificate, instrument or document
      contemplated hereby or thereby or (c) any cause of action, suit or claim brought
      or made against such Indemnitee by a third party (including for these purposes
      a
      derivative action brought on behalf of the Company) and arising out of or
      resulting from (i) the execution, delivery, performance or enforcement of the
      Transaction Documents or any other certificate, instrument or document
      contemplated hereby or thereby, (ii) any transaction financed or to be financed
      in whole or in part, directly or indirectly, with the proceeds of the issuance
      of the Securities, (iii) any disclosure made by the Lender pursuant to Section
      4(h), or (iv) the status of the Lender or holder of the Securities as an
      investor in the Company or a lender to any of the Subsidiaries pursuant to
      the
      transactions contemplated by the Transaction Documents; provided, that an
Indemnitee
      shall
      not be entitled to indemnification to the extent any of the foregoing is caused
      by such
      Indemnitee’s
      gross
      negligence or willful misconduct. To the extent that the foregoing undertaking
      by the Company may be unenforceable for any reason, the Company shall make
      the
      maximum contribution to the payment and satisfaction of each of the Indemnified
      Liabilities which is permissible under applicable law. Except as otherwise
      set
      forth herein, the mechanics and procedures with respect to the rights and
      obligations under this Section 9(l) shall be the same as those set forth in
      Section 6 of the Registration Rights Agreement.

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

    (m) No
      Strict
      Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

     

    (n) Remedies.
      In
      addition to all rights at law and equity, any Person having any rights under
      any
      provision of this Agreement shall be entitled to enforce such rights
      specifically (without posting a bond or other security), to recover damages
      by
      reason of any breach of any provision of this Agreement and to exercise all
      other rights granted by law. Furthermore, the Company recognizes that in the
      event that it fails to perform, observe, or discharge any or all of its
      obligations under the Transaction Documents, any remedy at law may prove to
      be
      inadequate relief to the Lender. The Company therefore agrees that the Lender
      shall be entitled to seek temporary and permanent injunctive relief in any
      such
      case without the necessity of proving actual damages and without posting a
      bond
      or other security.

     

    (o) Rescission
      and Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) the Transaction Documents, whenever any Lender exercises
      a right, election, demand or option under a Transaction Document and the Company
      does not timely perform its related obligations within the periods therein
      provided, then the Lender may rescind or withdraw, in its sole discretion from
      time to time upon written notice to the Company, any relevant notice, demand
      or
      election in whole or in part without prejudice to its future actions and
      rights.

     

    (p) Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to the Lender hereunder
      or
      pursuant to the Warrants or the Lender enforces or exercises its rights
      hereunder or thereunder, and such payment or payments or the proceeds of such
      enforcement or exercise or any part thereof are subsequently invalidated,
      declared to be fraudulent or preferential, set aside, recovered from, disgorged
      by or are required to be refunded, repaid or otherwise restored to the Company,
      a trustee, receiver or any other Person under any law (including, without
      limitation, any bankruptcy or similar law, foreign, state or federal law, common
      law or equitable cause of action), then to the extent of any such restoration
      the obligation or part thereof originally intended to be satisfied shall be
      revived and continued in full force and effect as if such payment had not been
      made or such enforcement or setoff had not occurred.

     

    (q) Original
      Issue Discount. The original issue discount relating to the Warrants shall
      be
      valued and allocated by the Lender in its reasonable judgment and the Company
      shall not (and shall cause each of its Subsidiaries and each of the Borrowers
      to
      not) unreasonably withhold its consent to such valuation and
      allocation.

     

    [signature
      pages follow]

     

     

     

     

    

 

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF,
      the
      Lender and the Company have caused their respective signature page to this
      Transaction Agreement to be duly executed as of the date first written
      above.

     

    
      	 	 	 
	 	
              COMPANY:

            
	 	 
	 	WORKSTREAM INC.
	 
 	 
 	 
 
	 	By:  	/s/ Michael
              Mullarkey
	 	
              
Name:
              Michael Mullarkey
	 	
              Title:
                Chief Executive Officer

            

    

    

     

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF,
      the
      Lender and the Company have caused their respective signature page to this
      Transaction Agreement to be duly executed as of the date first written
      above.

     

    
      	 	 	 
	 	
              LENDER:

            
	 	 
	 	HILCO FINANCIAL,
              LLC
	 
 	 
 	 
 
	 	By:  	/s/ David
              B.
              Chisholm
	 	
              
Name:
              David B. Chisholm
	 	
              Title:
                Chief Executive Officer

            

    

     

    

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBITS

     

    
      	Exhibit
              A	
              Form
                of Loan and Security Agreement

            

    

    
      	Exhibit
              B	
              Form
                of Registration Rights Agreement

            

      	Exhibit C	Form of Warrant

      	Exhibit D	Form of Deposit
              Account Control AgreementUnassociated Document

    InforMedix,
      Inc.

    Georgetowne
      Office Park

    5880
      Hubbard Drive

    Rockville,
      MD 20852-4821

    Tel:
      301-984-1566 Fax: 301-984-9096

    

    

    

    September
      28, 2006         

    

    

    

    Harry
      M.
      Stokes

    3326
      Governor Carroll Court

    Ellicott
      City, MD 21043

    

    

    

     Employment
      Agreement

    

    Dear
      Harry:

    

    We
      are
      delighted to extend to you this offer of employment as Senior Vice President
      and
      Chief Financial Officer for InforMedix, Inc. You will be a highly valued member
      of our management team and we look forward to a long and prosperous employment
      relationship. 

    

    Under
      this new relationship, you will assume the roles and responsibilities of Senior
      Vice President and Chief Financial Officer. You will be entitled to participate
      in all benefit plans that the company makes available to its employees subject
      to the terms of those plans. The terms of your employment are summarized
      below.

    

    Please
      review the following terms of our employment offer and acknowledge your
      acceptance by signing a copy of this letter and returning it to me. We are
      looking forward to your official starting date on October 1, 2006.

    

    
      	
              Base
                Salary:

            	
              $180,000
                Base for first year, then reviewed by Compensation Committee, paid
                twice a
                month with standard payroll deductions 

               

            
	
              Bonuses:

            	
              Beginning
                with calendar year 2007, eligible for a $20,000 cash bonus as determined
                by the Compensation Committee of the Board such that a piece shall
                be
                based upon Company financial performance, and a second piece shall
                be a
                discretionary component based upon personal performance. (Or supplemental
                stock options during periods of tight cash flow). This $20,000 shall
                represent the total of both parts of the bonus.

               

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

       

    

    
      	 	
              If
                Company has a successful year beyond the goals set by the Board,
                as
                determined by the Board of Directors, the bonus may be increased
                consistent with the relative level of responsibility of this position
                as
                compared to the other members of the company’s senior management.
                

            
	 	 
	
              Equity
                (Stock Options):

            	
              Assuming
                you remain employed upon the date the Board approves an expansion
                of the
                InforMedix Stock Option Plan as soon as is practicable, the Board
                will
                grant you an option under the Stock Option Plan to purchase shares
                representing 1.2% of the issued and outstanding shares on a fully
                diluted
                basis post current PIPE offering with Basic Investors. These may
                be
                qualified or non-qualified options as determined by the Board. The
                exercise price shall be determined by the Board of Directors and
                shall be
                sensitive to the stock value of the Company’s common stock as of October
                3rd
                consistent with SEC regulations and prudent business judgment. Of
                those
                option shares, 50% shall vest in three equal installments at the
                end of
                the first, second and third years of your employment; and 50% will
                vest
                based upon the Company achieving financial targets established by
                the
                Compensation Committee of the Board. This option grant may be increased
                at
                a later date to a total number of shares equal to a total of 1.5%
                of the
                issued and outstanding shares referenced above, based upon exceptional
                performance as determined by the CEO and the Compensation Committee
                of the
                Board.

               

              In
                the event the company is acquired by another company by virtue of
                merger
                or asset sale, 25% of the unvested granted options would immediately
                vest.
                The remaining 75% of the unvested granted options will be substitute
                options provided by the acquiring company, or terminated subject
                to other
                compensation, based upon a reasonable decision of the Board of Directors.
                

               

              The
                terms and conditions of the Company’s Stock Option Plan shall govern these
                option awards.

               

            
	
              Term
                and Termination

            	
              Employment
                shall commence on October 1, 2006. Employee hereby agrees and understands
                that no compensation shall be paid him until the Company closes on
                the
                Minimum Financing of $500,000. Following that closing, the Company
                will
                remit the salary that otherwise would have been paid as of October
                1, 2006
                through the closing and shall pay base salary in due course following
                that
                close. Term of the Agreement shall be three years, subject to termination
                without cause, by either party, on ten days notice. The following
                severance package will be available if the Company terminates the
                Agreement without cause:

               

              Employed
                less than one year - one month severance

               

              Between
                one year and two years - two months severance 

               

              Termination
                after two years - three months severance 

               

              The
                above termination packages shall be conditioned upon the Company
                raising
                $2,000,000 or such lesser amount as approved by the Board.

               

              For
                termination for cause, or Employee’s termination without cause, there
                shall be no severance paid. “Cause” shall be determined by the Board of
                Directors

               

            
	
              Title:

            	
              Senior
                Vice President & Chief Financial Officer. Reports to CEO and Board of
                Directors 

            
	
               

               

              Additional
                Benefits:

            	 
	
              Medical
                & Dental Coverage:

            	
              Company
                shall pay for individual medical coverage with a PPO program with
                a well
                recognized carrier such as Aetna, Blue Cross, etc. (or similar coverage
                as
                provided for other members of senior management team) once this is
                established for the Company. In the interim Employee will receive
                monthly
                payments of $415 toward self-purchase of health insurance. Once the
                Company has a Plan, employee may purchase family coverage using pre-tax
                dollars. 

               

            
	
              Vacation:

            	
              3
                weeks per year for the first year commencing October 1, 2006, then
                4 weeks
                per year thereafter. In addition the Company recognizes New Years
                Day,
                Memorial Day, July Fourth, Labor Day, Thanksgiving and Christmas
                Day
                holidays.

               

              Due
                to hours required Employee will have the ability to carry-over unused
                time
                up to one week per year from the prior year (or receive equivalent
                compensation).

               

              Payment
                of accrued vacation shall be based upon the Company’s policy at the time
                of termination.

               

            
	
              Expense
                Reimbursements:

            	
              Normal
                and reasonable business related expenses, including travel (away
                from the
                company’s offices), entertainment, cell-phone, and other incidental
                business related expenses would be fully
                reimbursed.

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              Other/Future
                Benefits: 

            	
              Eligible
                to receive other employment benefits that are generally made available
                to
                senior management, subject to approval by the Board of
                Directors.

               

            
	
              Confidentiality:

            	
              Employee
                agrees to enter into the Agreement on Confidentiality, Ownership
                of Works,
                Non Solicitation and Non Competition, etc., attached as Appendix
                A.

            

    

    

    

    

    This
      Letter Agreement constitutes the Legal Contract between you and the Company
      governing the terms of your Employment. Please acknowledge your agreement to
      these terms by executing the Agreement below.

    
      	 	 
	 	
              Sincerely,

            
	 	 
	 	 
	 	
              /s/
                Bruce A Kehr, MD

            
	 	
              Bruce
                A Kehr, MD

            
	 	
              Chairman
                and CEO

            

    

    

    

    

    So
      Agreed:  /s/ Harry
      Stokes                                                         

                    Harry
      Stokes     Date

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Appendix
      A

    

    EMPLOYEE
      CONFIDENTIALITY AGREEMENT

     

    In
      consideration for the agreement of InforMedix Holdings, Inc. ("InforMedix")
      to
      employ me and as a condition to my continued employment by InforMedix, I hereby
      agree as follows:

     

    Nondisclosure
      of Proprietary Information

     

    Both
      during and after the term of this Agreement, I agree to preserve and protect
      the
      confidentiality of Proprietary Information. In addition, I will not (i) disclose
      or disseminate Proprietary Information to any third party, including employees
      of InforMedix without a need to know, or (ii) use Proprietary Information for
      my
      own benefit or for the benefit of any third Party. If I receive information
      with
      uncertain confidentiality, I agree to treat the information as Proprietary
      Information until management has verified to me that such information is neither
      confidential nor proprietary.

     

    Definition
      of Proprietary Information

     

    Proprietary
      Information is defined as information regarding the InforMedix's current and
      planned business activities, including (i) information which relates to
      InforMedix's actual or anticipated products, software, research, inventions,
      processes, techniques, designs or other technical data, (ii) information
      regarding administrative, financial or marketing activities of InforMedix,
      (iii)
      information received from or concerning InforMedix clients and other third
      parties, including but not limited to any client or other third party
      information disclosed to InforMedix under an agreement of confidentiality and
      (iv) any materials or documents containing any of the above information.
      Proprietary Information does not include information which is or becomes
      publicly available without a breach of this Agreement by me.

     

    Return
      of Proprietary Information

     

    Upon
      termination of
      my
      employment with InforMedix, I agree to deliver to InforMedix all documents
      and
      other tangibles (including diskettes and other storage media) containing
      Proprietary Information.

     

    Ownership
      of Works

     

    During
      the time I am employed by InforMedix, InforMedix shall own all rights, including
      all trade secrets and copyrights, in and to the following works created by
      me
      whether created on InforMedix premises or at some other location: (i) works
      which relate to or are derived from the actual or anticipated business of
      InforMedix and (ii) works which result from or are derived from any task
      assigned to me or work performed by me for InforMedix (collectively, the
      "Works"). InforMedix shall own such Works even if created outside normal working
      hours and regardless of whether my own equipment or InforMedix equipment was
      used to create the Works. Such Works shall include program codes and
      documentation. To the extent that any such Works do not qualify as works made
      for hire under U.S. copyright law, this Agreement will constitute an irrevocable
      assignment by me to InforMedix of the ownership of, and all rights of copyright
      in, such Works. I agree to give InforMedix or its designees all assistance
      reasonably required to perfect such rights.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    Inventions

     

    If
      I
      individually or jointly make
      or
      conceive of any invention, technique, process, or other know-how, whether
      patentable or not, in the course of performing services for InforMedix, which
      relates in any manner to the actual or anticipated business of InforMedix or
      results from any task assigned to me or work performed by me for InforMedix
      (collectively, "Inventions"), I will and hereby do assign to InforMedix my
      entire right, title and interest in such Inventions. I will disclose any such
      Inventions to an officer of InforMedix and will, upon request, promptly sign
      a
      specific assignment of title to InforMedix, and do anything else reasonably
      necessary to enable InforMedix to secure patent, trade secret or any other
      proprietary rights in the United States or foreign countries. Any Inventions
      I
      have made or conceived before my employment with InforMedix are listed and
      described below. These items are excluded from this Agreement.

     

    Other
      Individual Projects

     

    I
      understand that I may continue to work on, and retain rights to, projects of
      my
      own interest outside of InforMedix which do not in any way compete or conflict
      with the current or planned business of InforMedix provided that (i) they do
      not
      fall under the paragraphs titled "Ownership of Works" or "Inventions" above;
      and
      (ii) they do not interfere in any way with my time at work or duties for
      InforMedix. I understand that I am not permitted to engage in any outside
      business activities while employed by InforMedix which compete with or conflict
      with the current or planned business of InforMedix.

     

    Representations
      and Warranties

     

    I represent
      and warrant that (i) I am able to enter into this Agreement and that such
      ability is not limited or restricted by any agreements between me and any third
      party; (ii) I will not disclose to InforMedix or its clients, or induce
      InforMedix to use or disclose, any proprietary information belonging to others,
      except with the written permission of the owner of such information; and (iii)
      any information, materials or products I develop for, or any advice I provide
      to, InforMedix will not rely or in any way be based upon confidential or
      proprietary information obtained by me from sources other than
      InforMedix.

     

    Non Solicitation
      of Employees

     

    While
      performing services for InforMedix and for a period of one year after any
      termination of my employment with InforMedix, I will not hire or attempt, either
      directly or indirectly, to induce or attempt to influence any employee of
      InforMedix to leave InforMedix’s employ.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    Non
      Solicitation of Clients

     

    While
      performing services for InforMedix and for a period of one year after any
      termination of my employment with InforMedix, I will not solicit business or
      perform work for any of InforMedix’s clients, either directly or indirectly, for
      the benefit of anyone other than InforMedix or participate or assist in any
      way
      in the solicitation of business from or performance of work for any such clients
      as an independent contractor or consultant to any other entity unless the
      business being solicited or the work being performed is not competitive with
      the
      services and products provided by InforMedix to such clients. 

     

    Non-Competition

     

    Except
      with the prior written consent of InforMedix, during my employment with
      InforMedix and for a period of three years after that employment ends, I will
      not directly or indirectly run, operate, control, be employed by, hold an
      interest in or participate in the management, operation, ownership or control
      of
      any business if:(a) such business is in competition with InforMedix; and (b)
      if
      such business is conducted, or if its products are licensed, sold or used within
      any geographic area served by InforMedix or its distributors, licensees, or
      value-added resellers. As used in this section, “business” includes any
      corporation, company, association, partnership, limited partnership, or other
      entity.

     

    Adjustment
      of Restraints by a Court of Law

     

    If
      the
      period of time or the geographic scope of any non-competition or
      non-solicitation restraint area specified in this Agreement is judged by a
      court
      to be unreasonable, I agree that the time and/or geographic scope for such
      restraint will be reduced so that the restraint can be enforced in such area
      and
      for such time as the court decides is reasonable. 

     

    Need
      for This Agreement and Remedies

     

    I
      agree
      that because of the nature of InforMedix’s business, the restrictions contained
      in this Agreement are reasonable and necessary in order to protect the
      legitimate interests of InforMedix. I further agree that if I violate any
      provision of this Agreement relating to Proprietary Information, Works,
      non-competition, non-solicitation, or my duty to cooperate in matters relating
      to protection of intellectual property, InforMedix will suffer immediate and
      irreparable injury. If I violate any of such provisions, I agree that, in
      addition to any other remedies that may apply, my strict compliance with this
      Agreement should be ordered by a court of competent jurisdiction, and InforMedix
      is therefore entitled to preliminary and final injunctive relief to enforce
      this
      Agreement.

     

    Governing
      Law

     

    This
      Agreement will be governed by the laws of Maryland, as such laws are applied
      to
      contracts executed by Maryland residents and without reference to conflict
      of
      law principles.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    Entire
      Agreement

     

    This
      document constitutes my entire Agreement with InforMedix with respect to its
      subject matter, superseding any prior negotiations and agreement. This Agreement
      may not be changed in any respect except by a written agreement signed by both
      myself and an officer of InforMedix.

     

    
      	 	 	/s/
              Harry Stokes
	
              Witness

            	 	
              Signature

            
	 	 	 
	 	 	 
	
              Date

            	 	
              Print
                Name

            
	
               

            	 	 
	 	 	 
	 	 	
              Date

            
	 	 	 
	InforMedix
              Holdings,
              Inc.	 	 
	 	 	 
	/s/
              Bruce Kehr	 	 
	Employee	 	 
	 	 	 
	Date:	 	 

    

     

     

    Prior
      inventions to be excluded from this Agreement are listed and briefly described
      below:

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