Document:

fp0001198_ex4-1.htm

     

    Exhibit
4.1

     

    SECOND
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

     

    This SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of
December 11, 2009, is by and among Workstream Inc., a corporation existing
pursuant to the Canada Business Corporations Act with headquarters located at
495 March Road, Suite 300, Ottawa, Ontario K2K 3G1, Canada (the “Company”), and the undersigned
buyers (each, a “Buyer”,
and collectively, the “Buyers”).

     

    RECITALS

     

    A.           The
Company and the Buyers entered into that certain Transaction Agreement, dated as
of July 25, 2007 (the “Existing Transaction
Agreement”).

     

    B.           Simultaneously
with the consummation of the transactions contemplated by the Existing
Transaction Agreement, the Company issued and sold to each Buyer (i) a Special
Warrant (as defined in the Existing Transaction Agreement) which is convertible
into Conversion Shares (as defined in the Existing Transaction Agreement) in
accordance with the terms thereof and (ii) a Warrant (as defined in the Existing
Transaction Agreement) which is exercisable to purchase Warrant Shares (as
defined in the Existing Transaction Agreement) in accordance with the terms
thereof.

     

    C.           Simultaneously
with the consummation of the transactions contemplated by the Existing
Transaction Agreement, the Company and the Buyers executed and delivered the
Registration Rights Agreement, dated as of August 3, 2007, and as amended and
restated in its entirety on August 29, 2008 (the “Existing Registration Rights
Agreement”), pursuant to which the Company agreed to provide certain
registration rights under the Securities Act of 1933, as amended (the “1933 Act”), and the rules and
regulations promulgated thereunder, and applicable state securities
laws.

     

    D.           In
connection with the consummation of the transactions contemplated under the
Exchange Agreements (as defined below), the Company agreed to provide amended
registration rights under the 1933 Act and applicable state securities laws with
respect to the Registrable Securities (as defined below).

     

    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 each of the Buyers hereby agree to amend
and restate the Existing Registration Rights Agreement in its entirety as
follows:

     

    
      	
              1.  

            	
              Definitions.

            

    

     

    Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Transaction Agreement (as defined below). As used in
this Agreement, the following terms shall have the following
meanings:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (a)  “2008 Exchange Agreements” means,
collectively, the separate exchange agreements, each dated as of August 29,
2008, entered into between the Company and each of the Buyers.

     

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

     

    (c)  “Conversion Shares” means,
collectively, the Common Shares issuable upon conversion of the Convertible
Notes.

     

    (d)  “Convertible Notes” means,
collectively, the senior secured convertible notes issued pursuant to the
Exchange Agreements.

     

    (e)  “Effective Date” means the date
that the applicable Registration Statement has been declared effective by the
SEC.

     

    (f)  “Effectiveness Deadline” means
(i) with respect to the initial Registration Statement required to be filed to
cover the resale by the Investors of the Registrable Securities the 100th
calendar day after the Trigger Date (or the 130th
calendar day after the Trigger Date in the event that such Registration
Statement is subject to review by the SEC) and (b) with respect to any
additional Registration Statements that may be required to be filed by the
Company pursuant to this Agreement, the 100th
calendar day following the date on which the Company was required to file such
additional Registration Statement (or the 130th
calendar day after such date in the event that such Registration Statement is
subject to review by the SEC).

     

    (g)  “Exchange Agreements” means,
collectively, the separate Exchange Agreements, each dated as of December 11,
2009, entered into between the Company and each of the Buyers.

     

    (h)  “Filing Deadline” means (i)
with respect to the initial Registration Statement required to be filed to cover
the resale by the Investors of the Registrable Securities, the 40th
calendar day after the Trigger Date and (ii) with respect to any additional
Registration Statements that may be required to be filed by the Company pursuant
to this Agreement, the date on which the Company was required to file such
additional Registration Statement pursuant to the terms of this
Agreement.

     

    (i)  “Investor” means a Buyer or any
transferee or assignee of any Registrable Securities,
Convertible Notes or 2008 Warrants (as defined in the Exchange Agreements), as
applicable, to whom a Buyer assigns its rights under this Agreement and who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9 and any transferee or
assignee thereof to whom a transferee or assignee of any Registrable Securities,
Convertible Notes or 2008 Warrants, as applicable, assigns its rights under this
Agreement and who agrees to become bound by the provisions of this Agreement in
accordance with Section 9.

     

    (j)  “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.

     

    
      
        
        

      

      
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    (k)  “register,” “registered,” and “registration” refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 and the declaration of effectiveness of such Registration Statement(s)
by the SEC.

     

    (l)  “Registrable Securities” means
(i) the Conversion Shares issued or issuable upon conversion of the
Convertible Notes, (ii) the 2008 Warrant Shares (as defined in the 2008
Exchange Agreements) issued or issuable upon exercise of the 2008 Warrants (as
defined in the Exchange Agreements) and (iii) any capital stock of the Company
issued or issuable with respect to the Conversion Shares, the 2008 Warrant
Shares, the Convertible Notes or the 2008 Warrants, including, without
limitation, (1) as a result of any share split, share dividend,
recapitalization, exchange or similar event or otherwise and (2) shares of
capital stock of the Company into which the Common Shares (as defined in the
Exchange Agreements) are converted or exchanged and shares of capital stock of a
Successor Entity (as defined in the Convertible Notes and 2008 Warrants) into
which the Common Shares are converted or exchanged, in each case, without regard
to any limitations on conversion of the Convertible Notes or exercise of the
2008 Warrants.

     

    (m)  “Registration Statement” means
a registration statement or registration statements of the Company filed under
the 1933 Act covering the Registrable Securities.

     

    (n)  “Required Holders” means the
holders of at least a majority of the Registrable Securities.

     

    (o)  “Required Registration Amount”
means the sum of (i) the maximum number of Conversion Shares issued and issuable
pursuant to the Convertible Notes and (ii) the maximum number of 2008 Warrant
Shares issued and issuable pursuant to the 2008 Warrants, in each case, as of
the Trading Day (as defined in the 2008 Warrants) immediately preceding the
applicable date of determination (without taking into account any limitations on
conversion of the Convertible Notes set forth therein or exercise of the 2008
Warrants set forth therein), all subject to adjustment as provided in Section
2(d).

     

    (p)  “Rule 144” means Rule 144
promulgated by the SEC under the 1933 Act or any other similar or successor rule
or regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration.

     

    (q)  “Rule 415” means Rule 415
promulgated by the SEC under the 1933 Act or any successor rule providing for
offering securities on a continuous or delayed basis.

     

    (r)  “SEC” means the United States
Securities and Exchange Commission.

     

    (s)  “Transaction Agreement” means
the Existing Transaction Agreement, as amended and modified by the 2008 Exchange
Agreements and the Exchange Agreements.

     

    (t)  “Trigger Date” means the first date on
which any of the Investors are unable to sell any Registrable Securities without
restriction under Rule 144 (including, without limitation, volume restrictions),
except as a result of any Investor becoming an “affiliate” (as such term is
defined under Rule 144(a)(1)) of the Company.

     

    
      
        
        

      

      
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              2.  

            	
              Registration.

            

    

     

    (a)  Mandatory
Registration. Commencing on the Trigger Date, the Company shall prepare,
and, as soon as practicable, but in no event later than the Filing Deadline,
file with the SEC a Registration Statement on Form S-3 covering the resale of
all of the Registrable Securities. In the event that Form S-3 is unavailable for
such a registration, the Company shall use such other form as is available for
such a registration and reasonably acceptable to the Required Holders, subject
to the provisions of Section 2(c). The Registration Statement prepared pursuant
hereto shall register for resale at least the number of Common Shares equal to
the Required Registration Amount as of the date such Registration Statement is
initially filed with the SEC. The Registration Statement shall contain (except
if otherwise directed by the Required Holders) the “Selling Shareholders”
and “Plan of
Distribution” sections in substantially the form attached hereto as Exhibit
B; provided that the Company may make any changes to such sections as
requested by the SEC so long as none of such changes are materially inconsistent
with the form attached hereto as Exhibit
B or
adversely affect any Investor (including, without limitation, any restrictions
on the manner of disposition). The Company shall use its commercially reasonable
efforts to have such Registration Statement declared effective by the SEC as
soon as practicable, but in no event later than the applicable Effectiveness
Deadline.  By 9:30 a.m. (New York City time) on the Business Day
immediately following the Effective Date of the applicable Registration
Statement, the Company shall file with the SEC in accordance with Rule 424 under
the 1933 Act the final prospectus to be used in connection with sales pursuant
to such Registration Statement. Notwithstanding anything to the contrary
contained in this Agreement, other than during an Allowable Grace Period, the
Company shall ensure that, when filed and at all times while effective, each
Registration Statement and the prospectus used in connection with such
Registration Statement will disclose (whether directly or through incorporation
by reference to other SEC filings to the extent permitted) all material
information regarding the Company and its securities. In no event shall the
Company include any securities other than Registrable Securities on any
Registration Statement without the prior written consent of the Required
Holders. The Company shall not after the date hereof until the Effective Date of
the Registration Statement required to be filed pursuant to this Section 2(a)
enter into any agreement providing any such right to any of its security
holders.

     

    (b)  Legal Counsel.
Magnetar Capital Master Fund, Ltd shall have the right to select its own legal
counsel to review and oversee, solely on its behalf, any registration pursuant
to this Section 2 (“Legal
Counsel”), which shall be Greenberg Traurig, LLP or such other counsel as
thereafter designated by Magnetar Capital Master Fund, Ltd.

     

    (c)  Ineligibility for Form
S-3. In the event that Form S-3 is not available for the registration of
the resale of Registrable Securities hereunder, the Company shall (i) register
the resale of the Registrable Securities on another appropriate form reasonably
acceptable to the Required Holders and (ii) undertake to register the
Registrable Securities on Form S-3 as soon as such form is available, provided that the
Company shall maintain the effectiveness of the Registration Statement then in
effect until such time as a Registration Statement on Form S-3 covering the
Registrable Securities has been declared effective by the SEC.

     

    
      
        
        

      

      
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    (d)  Sufficient Number of Shares
Registered. In the event the number of shares available under a
Registration Statement filed pursuant to Section 2(a) is insufficient to cover
the resale of all of the Registrable Securities required to be covered by such
Registration Statement, the Company shall amend the applicable Registration
Statement, or file a new Registration Statement (on the short form available
therefor, if applicable), or both, so as to cover at least the Required
Registration Amount as of the Trading Day immediately preceding the date of the
filing of such amendment or new Registration Statement, in each case, as soon as
practicable, but in any event not later than fifteen (15) days after the
necessity therefor arises. The Company shall use its commercially reasonable
efforts to cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof.  For
purposes of the foregoing provision, the number of shares available under a
Registration Statement shall be deemed “insufficient to cover all of the
Registrable Securities” if at any time the number of Common Shares available for
resale under the Registration Statement is less than the product determined by
multiplying (i) the Required Registration Amount as of such time by (ii) 0.90.
The calculation set forth in the foregoing sentence shall be made without regard
to any limitations on (i) conversion of the Convertible Notes (and such
calculation shall assume that the Convertible Notes are then fully convertible
at the then prevailing applicable Conversion Prices (as defined in the
Convertible Notes) and (ii) exercise of the 2008 Warrants (and such calculation
shall assume that the 2008 Warrants are then fully exercisable at the then
prevailing applicable Exercise Price (as defined in the 2008
Warrants).

     

    (e)  Effect of Failure to File
and Obtain and Maintain Effectiveness of Registration
Statement.  If (i) a Registration Statement covering the resale
of all of the Registrable Securities required to be covered thereby and required
to be filed by the Company pursuant to this Agreement is (A) not filed with the
SEC on or before the Filing Deadline (a “Filing Failure”) (it being
understood that if the Company files a Registration Statement without affording
each Investor the opportunity to review and comment on the same as required by
Section 3(c) hereof, the Company shall not be deemed to have satisfied this
clause (i)(A) and such event shall be deemed to be a Filing Failure); or (B) not
declared effective by the SEC on or before the applicable Effectiveness Deadline
(an “Effectiveness
Failure”) (it being understood that if on the Business Day immediately
following the Effective Date the Company shall not have filed a “final”
prospectus for such Registration Statement with the SEC under Rule 424(b) in
accordance with Section 2(a) above (whether or not such a prospectus is
technically required by such rule), the Company shall not be deemed to have
satisfied this clause (i)(B) and such event shall be deemed to be an
Effectiveness Failure); (ii) on any day after the Effective Date of such
Registration Statement sales of all of the Registrable Securities required to be
included on such Registration Statement cannot be made (other than during an
Allowable Grace Period (as defined in Section 3(r)) pursuant to such
Registration Statement (including, without limitation, because of a failure to
keep such Registration Statement effective, to disclose such information as is
necessary for sales to be made pursuant to such Registration Statement, a
suspension or delisting of (or a failure to timely list) the Common Shares on
its principal trading market or exchange, or to register a sufficient number of
Common Shares) (a “Maintenance
Failure”) (provided that if an Investor transfers its rights hereunder
pursuant to Section 9 and the transferee requests inclusion in such Registration
Statement which requires the Company under applicable law to file a
post-effective amendment to such Registration Statement, then a Maintenance
Failure shall not be deemed to have occurred solely with respect to the filing
of such post-effective amendment only if the Company is using its commercially
reasonable efforts to file such amendment and have such amendment declared
effective as soon as practicable); or (iii) the Company fails to file with the
SEC any required reports under Section 13 or 15(d) of the 1934 Act such that it
is not in compliance with Rule 144(c)(1) (or Rule 144(i)(2), if applicable) (a
“Current Public Information
Failure”) as a result of which any of the Investors are unable to sell
any Registrable Securities without restriction under Rule 144 (including,
without limitation, volume restrictions), then, as partial relief for the
damages to any holder by reason of any such delay in or reduction of its ability
to sell the underlying Common Shares (which remedy shall not be exclusive of any
other remedies available at law or in equity), the Company shall pay to each
holder of Registrable Securities relating to such Registration Statement an
amount in cash equal to one percent (1%) of the then-outstanding aggregate
principal amounts of such Investor’s Convertible Notes (as defined in the
applicable Exchange Agreement) (1) on the date of such Filing Failure,
Effectiveness Failure, Maintenance Failure or Current Public Information
Failure, as applicable, and (2) on every thirty (30) day anniversary of (I) a
Filing Failure until such Filing Failure is cured; (II) an Effectiveness Failure
until such Effectiveness Failure is cured; (III) a Maintenance Failure until
such Maintenance Failure is cured; and (IV) a Current Public Information Failure
until the earlier of (i) the date such Current Public Information Failure is
cured and (ii) such time that such public information is no longer required
pursuant to Rule 144 (in each case, pro rated for periods totaling less than
thirty (30) days). The payments to which a holder shall be entitled pursuant to
this Section 2(e) are referred to herein as “Registration Delay Payments.”
Following the initial Registration Delay Payment for any particular event or
failure (which shall be paid on the date of such event or failure, as set forth
above), without limiting the foregoing, if an event or failure giving rise to
the Registration Delay Payments is cured prior to any thirtieth (30th) day
anniversary of such event or failure, then such Registration Delay Payment shall
be made on the third (3rd)
Business Day after such cure. Notwithstanding anything contained in this Section
2(e) to the contrary, in no event shall the Registration Delay Payments exceed
$5,000,000 in the aggregate.

     

    
      
        
        

      

      
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    (f)  Offering.
Notwithstanding anything to the contrary contained in this Agreement, but
subject to the payment of the Registration Delay Payments pursuant to Section
2(e), in the event the staff of the SEC (the “Staff”) or the SEC seeks to
characterize any offering pursuant to a Registration Statement filed
pursuant to this Agreement as constituting an offering of securities by or
on behalf of the Company, or in any other manner, such that the Staff
or the SEC do not permit such Registration Statement to become
effective and used for resales in a manner that does not constitute such an
offering and that permits the continuous resale at the market by the Investors
participating therein (or as otherwise may be acceptable to each
Investor) without being named therein as an “underwriter,” then the Company
shall reduce the number of shares to be included in such Registration Statement
by all Investors until such time as the Staff and the SEC shall so permit
such Registration Statement to become effective as aforesaid.  In making
such reduction, the Company shall reduce the number of shares to be included by
all Investors on a pro rata basis (based upon the number of Registrable
Securities otherwise required to be included for each Investor) unless the
inclusion of shares by a particular Investor or a particular set of Investors
are resulting in the Staff or the SEC’s “by or on behalf of the Company”
offering position, in which event the shares held by such Investor or set of
Investors shall be the only shares subject to reduction (and if by a set of
Investors on a pro rata basis by such Investors or on such other basis as would
result in the exclusion of the least number of shares by all such
Investors).  In addition, in the event that the Staff or the SEC requires
any Investor seeking to sell securities under a Registration Statement
filed pursuant to this Agreement to be specifically identified as
an “underwriter” in order to permit such Registration Statement to
become effective, and such Investor does not consent to being so named as an
underwriter in such Registration Statement, then, in each such case, the
Company shall reduce the total number of Registrable Securities to be
registered on behalf of such Investor, until such time as the
Staff or the SEC does not require such identification or until such Investor
accepts such identification and the manner thereof. Any reduction pursuant
to this paragraph will first reduce all Registrable Securities other than
those issued pursuant to the Exchange Agreements and the 2008 Exchange
Agreements. In the event of any reduction in Registrable Securities
pursuant to this paragraph, an affected Investor shall have the right to
require, upon delivery of a written request to the Company signed by such
Investor, the Company to file a registration statement within 30 days of such
request (subject to any restrictions imposed by Rule 415 or required by
the Staff or the SEC) for resale by such Investor in a manner reasonably
acceptable to such Investor, and the Company shall following such
request cause to be and keep effective such registration statement in the
same manner as otherwise contemplated in this Agreement
for registration statements hereunder, in each case until such time as: (i)
all Registrable Securities held by such Investor have been registered and
sold pursuant to an effective Registration Statement in a manner acceptable to
such Investor or (ii) all Registrable Securities may be resold by such
Investor without restriction (including volume limitations) pursuant to
Rule 144 without the need for current public information required by Rule
144(c)(1) (or Rule 144(i)(2), if applicable) or (iii) such Investor agrees to be
named as an underwriter in any such Registration Statement in a manner
acceptable to such Investor as to all Registrable Securities held by such
Investor and that have not theretofore been included in a Registration Statement
under this Agreement (it being understood that the special demand right under
this sentence may be exercised by an Investor multiple times and with respect to
limited amounts of Registrable Securities in order to permit the resale thereof
by such Investor as contemplated above).

     

    
      
        
        

      

      
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    (g)  Piggyback
Registrations. If, at any time during the period in which a Registration
Statement is required to be kept effective, there is not an effective
Registration Statement covering all of the Registrable Securities and the
Company shall determine to prepare and file with the SEC a registration
statement relating to an offering for its own account or the account of others
under the 1933 Act of any of its equity securities (other than on Form S-4 or
Form S-8 (each as promulgated under the 1933 Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with the Company’s stock option or other employee benefit plans),
then the Company shall deliver to each Investor a written notice of such
determination and, if within fifteen (15) days after the date of the delivery of
such notice, any such Investor shall so request in writing, the Company shall
include in such registration statement all or any part of such Registrable
Securities such Investor requests to be registered; provided, however, that the
Company shall not be required to register any Registrable Securities pursuant to
this Section 2(g) that are eligible for resale pursuant to Rule 144 (without
volume restrictions) and without the requirement to be in compliance with Rule
144(c)(1) (or Rule 144(i)(2), if applicable) or that are the subject of a then
effective Registration Statement. Any Registrable Securities of an Investor that
are to be included in a registered public offering pursuant to this Section 2(g)
shall be offered and sold upon such terms as the managing underwriters thereof
determine. The managing underwriters may condition an Investor’s participation
in such a registered public offering upon such Investor’s execution of an
underwriting agreement containing customary terms and conditions which would
customarily be applicable to selling shareholders.  If the managing
underwriters for a registered public offering determine that the number of
Common Shares proposed to be sold in such offering would adversely affect the
marketing of the Common Shares to be sold by the Company therein or by the
Person or Persons who exercised their right to require the Company to register
such offering under the 1933 Act, then the number of Common Shares to be
included in such offering shall be reduced until the number of such shares does
not exceed the number that the managing underwriters believe can be sold without
any such adverse effects; provided that any shares to be excluded shall be so
excluded in the following order of priority: (i) securities held by any Person
or Persons other than (A) the Investors or (B) any Person or Persons who
exercised their demand right to require the Company to register such offering
under the 1933 Act; (ii) securities to be registered on behalf of the Company,
if any, if such registered offering was initiated by any Person or Persons
exercising their demand right to require the Company to register such offering
under the 1933 Act and (iii) the Registrable Securities sought to be included by
the Investors as determined on a pro-rata basis (based upon the aggregate number
of Registrable Securities sought to be included in such registered
offering).

     

    
      
        
        

      

      
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              3.  

            	
              Related
      Obligations.

            

    

     

    The
Company will use its commercially reasonable efforts to effect the registration
of the Registrable Securities in accordance with the intended method of
disposition thereof and, pursuant thereto, the Company shall have the following
obligations:

     

    (a)  Commencing
on the Trigger Date, the Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (but in no
event later than the Filing Deadline) and use its commercially reasonable
efforts to cause such Registration Statement relating to the Registrable
Securities to become effective as soon as practicable after such filing (but in
no event later than the Effectiveness Deadline). Subject to allowable Grace
Periods (as defined below), the Company shall keep each Registration Statement
effective pursuant to Rule 415 for sale on a continuous basis in an
at-the-market offering at all times until the earlier of (i) the date as of
which all of the Investors may sell all of the Registrable Securities required
to be covered by such Registration Statement without restriction pursuant to
Rule 144 without the need for current public information required by Rule
144(c)(1) (or Rule 144(i)(2), if applicable) or (ii) the date on which the
Investors shall have sold all of the Registrable Securities covered by such
Registration Statement (the “Registration Period”). The
Company shall ensure that each Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein (in the case of
prospectuses, in the light of the circumstances in which they were made) not
misleading.  The Company shall submit to the SEC, within two (2)
Business Days after the later of the date that (i) the Company learns that no
review of a particular Registration Statement will be made by the Staff or that
the Staff has no further comments on a particular Registration Statement (as the
case may be) and (ii) the approval of Legal Counsel is obtained pursuant to
Section 3(c) (which approval shall be immediately sought), a request for
acceleration of effectiveness of such Registration Statement to a time and date
not later than 48 hours after the submission of such request.

     

    (b)  Subject
to Section 3(r) of this Agreement, the Company shall prepare and file with the
SEC such amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company required to be covered
by such Registration Statement until such time as all of such Registrable
Securities shall have been disposed of.  In the case of amendments and
supplements to a Registration Statement which are required to be filed pursuant
to this Agreement (including pursuant to this Section 3(b)) by reason of the
Company filing a report on Form 10-Q or Form 10-K or any analogous report under
the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company shall
have incorporated such report by reference into such Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the 1934 Act report is filed which created the requirement for
the Company to amend or supplement such Registration Statement.

     

    
      
        
        

      

      
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    (c)  The
Company shall (A) permit Legal Counsel and legal counsel for each other Investor
to review and comment upon (i) each Registration Statement at least five (5)
Business Days prior to its filing with the SEC and (ii) all amendments and
supplements to all Registration Statements (except for Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any
similar or successor reports) within a reasonable number of days prior to their
filing with the SEC, and (B) not file any Registration Statement or amendment or
supplement thereto in a form to which Legal Counsel or any legal counsel for any
other Investor reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which
approval shall not be unreasonably withheld.  The Company shall
furnish to Legal Counsel and legal counsel for each other Investor, without
charge, (i) copies of any correspondence from the SEC or the Staff to the
Company or its representatives relating to any Registration Statement, provided that such
correspondence shall not contain any material, non-public information regarding
the Company or any of its Subsidiaries (as defined in the Exchange Agreements),
(ii) promptly after the same is prepared and filed with the SEC, one (1)
copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, if requested by an Investor, and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one (1) copy of the prospectus
included in such Registration Statement and all amendments and supplements
thereto. The Company shall reasonably cooperate with Legal Counsel and legal
counsel for each other Investor in performing the Company’s obligations pursuant
to this Section 3.

     

    (d)  The
Company shall furnish to each Investor whose Registrable Securities are included
in any Registration Statement, without charge, (i) promptly after the same is
prepared and filed with the SEC, at least one (1) copy of any Registration
Statement and any amendment(s) thereto, including financial statements and
schedules, all documents incorporated therein by reference, if requested by an
Investor, all exhibits and each preliminary prospectus, (ii) upon the
effectiveness of any Registration Statement, ten (10) copies of the prospectus
included in such Registration Statement and all amendments and supplements
thereto (or such other number of copies as such Investor may reasonably request
from time to time) and (iii) such other documents, including copies of any
preliminary or final prospectus, as such Investor may reasonably request from
time to time in order to facilitate the disposition of the Registrable
Securities owned by such Investor.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (e)  The
Company shall use its commercially reasonable efforts to (i) register and
qualify, unless an exemption from registration and qualification applies, the
resale by Investors of the Registrable Securities covered by a Registration
Statement under such other securities or “blue sky” laws of all applicable
jurisdictions in the United States, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to (x) qualify to do business in any jurisdiction where it would not otherwise
be required to qualify but for this Section 3(e), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of
process in any such jurisdiction.  The Company shall promptly notify
Legal Counsel, legal counsel for each other Investor and each Investor who holds
Registrable Securities of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities or “blue sky” laws of any
jurisdiction in the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.

     

    (f)  The
Company shall notify Legal Counsel, legal counsel for each other Investor and
each Investor in writing of the happening of any event, as promptly as
practicable after becoming aware of such event, as a result of which the
prospectus included in a Registration Statement, as then in effect, includes an
untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading (provided that in no
event shall such notice contain any material, non-public information regarding
the Company or any of its Subsidiaries), and, subject to Section 3(r), promptly
prepare a supplement or amendment to such Registration Statement to correct such
untrue statement or omission and deliver ten (10) copies of such supplement or
amendment to Legal Counsel, legal counsel for each other Investor and each
Investor (or such other number of copies as Legal Counsel, legal counsel for
each other Investor or such Investor may reasonably request). The Company shall
also promptly notify Legal Counsel, legal counsel for each other Investor and
each Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, when a Registration Statement or any
post-effective amendment has become effective (notification of such
effectiveness shall be delivered to Legal Counsel, legal counsel for each other
Investor and each Investor by facsimile or e-mail on the same day of such
effectiveness and by overnight mail), and when the Company receives written
notice from the SEC that a Registration Statement or any post-effective
amendment will be reviewed by the SEC, (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company’s reasonable determination that a
post-effective amendment to a Registration Statement would be
appropriate.

     

    (g)  The
Company shall use its commercially reasonable efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify Legal Counsel, legal counsel for each other Investor and
each Investor who holds Registrable Securities being sold of the issuance of
such order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (h)  If any
Investor may be required under applicable securities law to be described in a
Registration Statement as an underwriter and such Investor consents to so being
named an underwriter, at the request of any Investor, the Company shall furnish
to such Investor, on the date of the effectiveness of such Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) a letter, dated such date, from the Company’s independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the Investors, and (ii) an opinion, dated as of
such date, of counsel representing the Company for purposes of such Registration
Statement, in form, scope and substance as is customarily given in an
underwritten public offering, addressed to the Investors.

     

    (i)  If any
Investor may be required under applicable securities law to be described in a
Registration Statement as an underwriter and such Investor consents to so being
named an underwriter, upon the written request of such Investor, the Company
shall make available for inspection by (i) such Investor, (ii) legal counsel for
such Investor and (iii) one (1) firm of accountants or other agents retained by
such Investor (collectively, the “Inspectors”), all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the “Records”), as shall be
reasonably deemed necessary by each Inspector, and cause the Company’s officers,
directors and employees to supply all information which any Inspector may
reasonably request; provided, however, that each Inspector shall agree in
writing to hold in strict confidence and not to make any disclosure (except to
such Investor) or use of any Record or other information which the Company’s
Board of Directors determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this Agreement or any other Transaction
Document (as defined in the Convertible Notes). Such Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and such Investor, if any) shall
be deemed to limit any Investor’s ability to sell Registrable Securities in a
manner which is otherwise consistent with applicable laws and
regulations.

     

    (j)  The
Company shall hold in confidence and not make any disclosure of information
concerning an Investor provided to the Company unless (i) disclosure of such
information is necessary to comply with federal or state securities laws, (ii)
the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
to be disclosed in the Registration Statement pursuant to the 1933 Act, (iii)
the release of such information is ordered pursuant to a subpoena or other
final, non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
Transaction Document. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt written notice to such Investor and allow such Investor, at the
Investor’s expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (k)  Without
limiting any obligation of the Company under each of the Exchange Agreements,
the Company shall use its commercially reasonable efforts either to (i) cause
all of the Registrable Securities covered by a Registration Statement to be
listed or quoted on each securities exchange or quotation system on which
securities of the same class or series issued by the Company are then listed or
quoted, if any, if the listing of such Registrable Securities is then permitted
under the rules of such exchange or quotation system, or (ii) secure designation
and quotation of all of the Registrable Securities covered by a Registration
Statement on the OTC Bulletin Board, or (iii) if, despite the Company’s best
efforts to satisfy the preceding clauses (i) or (ii) the Company is unsuccessful
in satisfying the preceding clauses (i) or (ii), without limiting the generality
of the foregoing, to use its commercially reasonable efforts to arrange for at
least two market makers to register with the Financial Industry Regulatory
Authority (f/k/a the National Association of Securities Dealers, Inc.) as such
with respect to such Registrable Securities. The Company shall pay all fees and
expenses in connection with satisfying its obligation under this Section
3(k).

     

    (l)  The
Company shall cooperate with the Investors who hold Registrable Securities being
offered and, to the extent applicable, facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts (as the case may
be) as the Investors may reasonably request from time to time and registered in
such names as the Investors may request.

     

    (m)  If
requested by an Investor, the Company shall as soon as practicable after receipt
of notice from such Investor and subject to Section 3(r) hereof, (i) incorporate
in a prospectus supplement or post-effective amendment such information as an
Investor reasonably requests to be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being offered
or sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities to be sold in such offering; (ii) make
all required filings of such prospectus supplement or post-effective amendment
after being notified of the matters to be incorporated in such prospectus
supplement or post-effective amendment; and (iii) supplement or make amendments
to any Registration Statement if reasonably requested by an Investor holding any
Registrable Securities.

     

    (n)  The
Company shall use its commercially reasonable efforts to cause the Registrable
Securities covered by a Registration Statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary to
consummate the disposition of such Registrable Securities.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (o)  The
Company shall make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with, and in the
manner provided by, the provisions of Rule 158 under the 1933 Act) covering a
twelve-month period beginning not later than the first day of the Company’s
fiscal quarter next following the effective date of the Registration
Statement.

     

    (p)  The
Company shall otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC in connection with any registration
hereunder.

     

    (q)  Within
one (1) Business Day after a Registration Statement which covers Registrable
Securities is declared effective by the SEC, the Company shall deliver, and
shall cause legal counsel for the Company to deliver, to the transfer agent for
such Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) confirmation that such
Registration Statement has been declared effective by the SEC in the form
attached hereto as Exhibit
A.

     

    (r)  Notwithstanding
anything to the contrary herein (but subject to the last sentence of this
Section 3(r)), at any time after the Effective Date of the applicable
Registration Statement, the Company may delay the disclosure of material,
non-public information concerning the Company or any of its Subsidiaries the
disclosure of which at the time is not, in the good faith opinion of the Board
of Directors of the Company, in the best interest of the Company and, in the
opinion of counsel to the Company, otherwise required (a “Grace Period”); provided, that the
Company shall promptly (i) notify the Investors in writing of the existence of
material, non-public information giving rise to a Grace Period (provided that in each
notice the Company will not disclose the content of such material, non-public
information to the Investors) and the date on which the Grace Period will begin,
and (ii) notify the Investors in writing of the date on which the Grace
Period ends; and, provided further,
that no Grace Period shall exceed ten (10) consecutive days and during any three
hundred sixty five (365) day period such Grace Periods shall not exceed an
aggregate of thirty (30) days and the first day of any Grace Period must be at
least five (5) Trading Days after the last day of any prior Grace Period (each,
an “Allowable Grace
Period”); provided, that no
Allowable Grace Period may exist during the first sixty (60) Business Days after
the Effective Date of the applicable Registration Statement.  For
purposes of determining the length of a Grace Period above, the Grace Period
shall begin on and include the date the Investors receive the notice referred to
in clause (i) and shall end on and include the later of the date the Investors
receive the notice referred to in clause (ii) and the date referred to in such
notice. The provisions of Section 3(g) hereof shall not be applicable during the
period of any Allowable Grace Period. Upon expiration of each Grace Period, the
Company shall again be bound by the first sentence of Section 3(f) with respect
to the information giving rise thereto unless such material, nonpublic
information is no longer applicable.

     

    (s)  The
Company shall use its commercially reasonable efforts to maintain eligibility
for use of Form S-3 (or any successor form thereto) for the registration of the
resale of the Registrable Securities.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    
      	
              4.  

            	
              Obligations of the
      Investors.

            

    

     

    (a)  At least
five (5) Business Days prior to the first anticipated filing date of a
Registration Statement, the Company shall notify each Investor in writing of the
information the Company requires from each such Investor. It shall be a
condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it,
as shall be reasonably required to effect and maintain the effectiveness of the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably
request.

     

    (b)  Each
Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
cooperate with the Company as reasonably requested by the Company in connection
with the preparation and filing of any Registration Statement hereunder, unless
such Investor has notified the Company in writing of such Investor’s election to
exclude all of such Investor’s Registrable Securities from such Registration
Statement.

     

    (c)  Each
Investor agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(g) or the first
sentence of 3(f), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until such Investor’s receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(g) or the first
sentence of Section 3(f) or receipt of notice that no supplement or amendment is
required.

     

    (d)  Each
Investor covenants and agrees that it will comply with the prospectus delivery
requirements of the 1933 Act as applicable to it in connection with sales of
Registrable Securities pursuant to the Registration Statement.

     

    (e)  Each
Investor covenants and agrees to deliver a Registration Statement Questionnaire,
in the form attached hereto as Exhibit
C, no later than 15 calendar days after the Trigger Date (such later
date, the “Outside Delivery
Date”); provided that if such Investor fails to deliver such
questionnaire by the close of business on the Outside Delivery Date, then such
Investor’s Registrable Securities may be excluded from the Registration
Statement by the Company.

     

    
      	
              5.  

            	
              Expenses of
      Registration.

            

    

     

    All
reasonable expenses, other than underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Sections
2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements of
counsel for the Company shall be paid by the Company. Each Buyer shall be
responsible for the fees and disbursements of its own legal counsel in
connection with registration, filing or qualification pursuant to Sections 2 and
3 of this Agreement.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    
      	
              6.  

            	
              Indemnification.

            

    

     

    In the
event any Registrable Securities are included in a Registration Statement under
this Agreement:

     

    (a)  To the
fullest extent permitted by law, the Company will, and hereby does, indemnify,
hold harmless and defend each Investor, the directors, officers, members,
partners, employees, agents, representatives of, and each Person, if any, who
controls any Investor within the meaning of the 1933 Act or the 1934 Act (each,
an “Indemnified
Person”), against any losses, claims, damages, liabilities, judgments,
fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in
settlement or expenses, joint or several, (collectively, “Claims”) incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto (“Indemnified Damages”), to
which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other “blue sky” laws of any jurisdiction in
which Registrable Securities are offered (“Blue Sky Filing”), or the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, “Violations”). Subject to
Section 6(b), the Company shall reimburse the Indemnified Persons, promptly as
such expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person for such
Indemnified Person expressly for use in connection with the preparation of such
Registration Statement or any such amendment thereof or supplement thereto and
(ii) shall not be available to the extent such Claim is based on a failure of
the Investor to deliver or to cause to be delivered the prospectus made
available by the Company (to the extent applicable), including a corrected
prospectus, if such prospectus or corrected prospectus was timely made available
by the Company pursuant to Section 3(d) and then only if, and to the extent
that, following the receipt of the corrected prospectus no grounds for such
Claim would have existed; and (iii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld or
delayed. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of any of the Registrable Securities by any of the Investors
pursuant to Section 9.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

       

    

    (b)  In
connection with any Registration Statement in which an Investor is
participating, such Investor agrees to severally and not jointly indemnify, hold
harmless and defend, to the same extent and in the same manner as is set forth
in Section 6(a), the Company, each of its directors, each of its officers who
signs the Registration Statement and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Party”), against
any Claim or Indemnified Damages to which any of them may become subject, under
the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified
Damages arise out of or are based upon any Violation, in each case, to the
extent, and only to the extent, that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and, subject
to Section 6(b), such Investor will reimburse any legal or other expenses
reasonably incurred by an Indemnified Party in connection with investigating or
defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld or delayed; provided, further, however, that such
Investor shall be liable under this Section 6(b) for only that amount of a Claim
or Indemnified Damages as does not exceed the net proceeds to such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of any of the Registrable Securities by any of the
Investors pursuant to Section 9.

     

    (c)  Promptly
after receipt by an Indemnified Person or Indemnified Party (as the case may be)
under this Section 6 of notice of the commencement of any action or proceeding
(including any governmental action or proceeding) involving a Claim, such
Indemnified Person or Indemnified Party (as the case may be) shall, if a Claim
in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party (as the case may be); provided, however, that an
Indemnified Person or Indemnified Party (as the case may be) shall have the
right to retain its own counsel with the fees and expenses of such counsel to be
paid by the indemnifying party if: (i) the indemnifying party has agreed in
writing to pay such fees and expenses; (ii) the indemnifying party shall have
failed promptly to assume the defense of such Claim and to employ counsel
reasonably satisfactory to such Indemnified Person or Indemnified Party (as the
case may be) in any such Claim; or (iii) the named parties to any such Claim
(including any impleaded parties) include both such Indemnified Person or
Indemnified Party (as the case may be) and the indemnifying party, and such
Indemnified Person or such Indemnified Party (as the case may be) shall have
been advised by counsel that a conflict of interest is likely to exist if the
same counsel were to represent such Indemnified Person or such Indemnified Party
and the indemnifying party (in which case, if such Indemnified Person or such
Indemnified Party (as the case may be) notifies the indemnifying party in
writing that it elects to employ separate counsel at the expense of the
indemnifying party, then the indemnifying party shall not have the right to
assume the defense thereof and such counsel shall be at the expense of the
Indemnifying Party, provided further,
that in the case of clause (iii) above the indemnifying party shall not be
responsible for the reasonable fees and expenses of more than one (1) separate
legal counsel for such Indemnified Person or Indemnified Party (as the case may
be). The Indemnified Party or Indemnified Person (as the case may be) shall
reasonably cooperate with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the Indemnified Party or Indemnified Person (as the case may be) which relates
to such action or Claim. The indemnifying party shall keep the Indemnified Party
or Indemnified Person (as the case may be) reasonably apprised at all times as
to the status of the defense or any settlement negotiations with respect
thereto. No indemnifying party shall be liable for any settlement of any action,
claim or proceeding effected without its prior written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnified Party or Indemnified Person (as the case may be), consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person (as the case may be) of a
release from all liability in respect to such Claim or litigation, and such
settlement shall not include any admission as to fault on the part of the
Indemnified Party. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person (as the case may be) with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party (as the case may be) under this Section 6, except to the extent that the
indemnifying party is materially and adversely prejudiced in its ability to
defend such action.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    (d)  No Person
involved in the sale of Registrable Securities who is guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in
connection with such sale shall be entitled to indemnification from any Person
involved in such sale of Registrable Securities who is not guilty of fraudulent
misrepresentation.

     

    (e)  The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or Indemnified Damages are incurred.

     

    (f)  The
indemnity agreements contained herein shall be in addition to (i) any cause of
action or similar right of the Indemnified Party or Indemnified Person against
the indemnifying party or others, and (ii) any liabilities the indemnifying
party may be subject to pursuant to the law.

     

    
      	
              7.  

            	
              Contribution.

            

    

     

    To the
extent any indemnification by an indemnifying party is prohibited or limited by
law, the indemnifying party agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable under Section 6 to the
fullest extent permitted by law; provided, however, that: (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section 6
of this Agreement, (ii) no Person involved in the sale of Registrable Securities
which Person is guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) in connection with such sale shall be entitled to
contribution from any Person involved in such sale of Registrable Securities who
was not guilty of fraudulent misrepresentation; and (iii) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities
pursuant to such Registration Statement. Notwithstanding the provisions of this
Section 7, no Investor shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the net proceeds actually received by
such Investor from the sale of the Registrable Securities subject to the Claim
exceeds the amount of any damages that such Investor has otherwise been required
to pay, or would otherwise be required to pay under Section 6(b), by reason of
such untrue or alleged untrue statement or omission or alleged
omission.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    
      	
              8.  

            	
              Reports Under the 1934
      Act.

            

    

     

    With a
view to making available to the Investors the benefits of Rule 144, in the event
any of the below are required for any Investor to sell any Registrable
Securities the Company shall:

     

    (a)  make and
keep public information available, as those terms are understood and defined in
Rule 144;

     

    (b)  file with
the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains
subject to such requirements (it being understood that nothing herein shall
limit the Company’s obligations under Section 4(c) of the Exchange Agreements)
and the filing of such reports and other documents is required for the
applicable provisions of Rule 144; and

     

    (c)  furnish
to each Investor so long as such Investor owns Registrable Securities, promptly
upon request, (i) a written statement by the Company, if true, that it has
complied with the reporting requirements of Rule 144 and the 1934 Act, (ii) a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company with the SEC if such reports are
not publicly available via EDGAR, and (iii) such other information as may be
reasonably requested to permit the Investors to sell such securities pursuant to
Rule 144 without registration.

     

    
      	
              9.  

            	
              Assignment of
      Registration Rights.

            

    

     

    The
rights under this Agreement shall be automatically assignable by the Investors
to any transferee of all or any portion of such Investor’s Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act or applicable state securities laws if so
required; (iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this sentence the transferee or assignee agrees
in writing with the Company to be bound by all of the provisions contained
herein; (v) such transfer shall have been made in accordance with the applicable
requirements of the applicable Exchange Agreement; and (vi) such transfer shall
have been conducted in accordance with all applicable federal and state
securities laws.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    
      	
              10.  

            	
              Amendment of
      Registration Rights.

            

    

     

    Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Required
Holders, provided that any
Investor may give a waiver in writing as to itself. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each Investor
and the Company. No such amendment or waiver (unless given pursuant to the
foregoing proviso) shall be effective to the extent that it applies to less than
all of the holders of the Registrable Securities. No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification of
any provision of this Agreement unless the same consideration also is offered to
all of the parties to this Agreement.

     

    
      	
              11.  

            	
              Miscellaneous.

            

    

     

    (a)  Solely
for purposes of this Agreement, a Person is deemed to be a holder of Registrable
Securities whenever such Person owns or is deemed to own of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more Persons with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from such record owner of such Registrable
Securities.

     

    (b)  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);
(iii) with respect to Section 3(c), by electronic mail (provided confirmation of
transmission is electronically generated and kept on file by the sending party);
or (iv) one (1) Business Day after deposit with a nationally recognized
overnight delivery service with next day delivery specified, in each case,
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:

     

    If to the
Company:

     

    Workstream
Inc.

    485 N.
Keller Rd., Suite 500

    Maitland,
Florida 32571

    Telephone:  (407)
475-5500

    Facsimile:  (407)
475-5517

    Attention:  CEO

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    

    With a
copy (for informational purposes only) to:

     

    Cozen
O’Connor

    1900
Market Street

    Philadelphia,
Pennsylvania  19103

    Telephone:
(215) 665-4141

    Facsimile:
(215) 665-2013

    Attention:
Michael J. Heller, Esq.

     

    If to the
Transfer Agent:

     

    American
Stock Transfer and Trust Company 

    59 Maiden
Lane

    New York,
NY 10038 

    Telephone:
(718)  921-8124 

    Facsimile:
(718) 921-8327

    Attention:
Joseph Comito 

     

    If to Legal Counsel:

     

    Greenberg
Traurig, LLP

    77 W.
Wacker Drive, Suite 3100

    Chicago,
Illinois 60601

    Telephone:
(312) 456-8400

    Facsimile:
(312) 456-8435

    Attention:  Peter
H. Lieberman, Esq.

        Todd A. Mazur,
Esq.

     

    If to a
Buyer, to its address and facsimile number set forth on the Schedule of Buyers
attached to the Transaction Agreement, with copies to such Buyer’s
representatives as set forth on the Schedule of Buyers, or to such other address
and/or facsimile number and/or to the attention of such other Person as the
recipient party has specified by written notice given to each other party five
(5) days prior to the effectiveness of such change, provided that
Greenberg Traurig, LLP shall only be provided notices sent to Magnetar Capital
Master Fund, Ltd. 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 or electronic mail
transmission containing the time, date, recipient facsimile number or electronic
mail address and an image of the first page of such transmission or (C) provided
by a courier or overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from a nationally recognized
overnight delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.

     

    (c)  Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as a
waiver thereof.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (d)  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
The City of Chicago, 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.
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. 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 HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

     

    (e)  This
Agreement and the schedules and exhibits attached hereto and the instruments
referenced herein and therein constitute the entire agreement among the parties
hereto solely with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the schedules and
exhibits attached hereto and the instruments referenced herein and therein
supersede all prior agreements and understandings among the parties hereto
solely with respect to the subject matter hereof and thereof.

     

    (f)  Subject
to the requirements of Section 9, this Agreement shall inure to the benefit of
and be binding upon the permitted successors and assigns of each of the parties
hereto.

     

    (g)  The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof. 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.

     

    (h)  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.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (i)  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.

     

    (j)  All
consents and other determinations required to be made by the Investors pursuant
to this Agreement shall be made, unless otherwise specified in this Agreement,
by the Required Holders.

     

    (k)  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. Terms used in this Agreement but defined in the
other Transaction Documents shall have the meanings ascribed to such terms on
the Closing Date (as defined in the Exchange Agreements) in such other
Transaction Documents unless otherwise consented to in writing by each
Buyer.

     

    (l)  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 Persons
referred to in Section 6 and 7 hereof.

     

    (m)  The
obligations of each Investor under this Agreement and the other Transaction
Documents are several and not joint with the obligations of any other Investor,
and no Investor shall be responsible in any way for the performance of the
obligations of any other Investor under this Agreement or any other Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Investor pursuant hereto or thereto, shall be deemed to
constitute the Investors as, and the Company acknowledges that the Investors do
not so constitute, a partnership, an association, a joint venture or any other
kind of group or entity, or create a presumption that the Investors are in any
way acting in concert or as a group or entity with respect to such obligations
or the transactions contemplated by the Transaction Documents or any matters,
and the Company acknowledges that the Investors are not acting in concert or as
a group, and the Company shall not assert any such claim, with respect to such
obligations or the transactions contemplated by this Agreement or any of the
other the Transaction Documents. Each Investor shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of any other Transaction Documents,
and it shall not be necessary for any other Investor to be joined as an
additional party in any proceeding for such purpose. The use of a single
agreement with respect to the obligations of the Company contained was solely in
the control of the Company, not the action or decision of any Investor, and was
done solely for the convenience of the Company and not because it was required
or requested to do so by any Investor. It is expressly understood and agreed
that each provision contained in this Agreement and in each other Transaction
Document is between the Company and an Investor, solely, and not between the
Company and the Investors collectively and not between and among
Investors.

     

    [signature pages
follow]

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    IN WITNESS WHEREOF, each Buyer
and the Company have caused their respective signature page to this Second
Amended and Restated Registration Rights Agreement to be duly executed as of the
date first written above.

     

    
      	 
      	
              COMPANY:

               

            
	 
      	
              WORKSTREAM
      INC.

               

               

              By: /s/Michael
      Mullarkey             

                   
      Name: Michael
      Mullarkey   

                   
      Title:   CEO                        

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    IN WITNESS WHEREOF, each Buyer
and the Company have caused their respective signature page to this Second
Amended and Restated Registration Rights Agreement to be duly executed as of the
date first written above.

     

    

    
      	 
      	
              BUYERS:

               

            
	 
      	 
      
	 
      	
               

              /s/____________________________

              By:

              Its:

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
A

     

    FORM OF NOTICE OF
EFFECTIVENESS

    OF REGISTRATION
STATEMENT

     

    _____________________

    _____________________

    _____________________

    Attention:  _____________

     

    Re:           Workstream
Inc.

     

    Ladies
and Gentlemen:

     

     

    [We
are][I am] counsel to Workstream Inc., a corporation existing pursuant to the
Canada Business Corporations Act (the “Company”), and have
represented the Company and its subsidiaries in connection with those certain
separate Exchange Agreements (the “Exchange Agreements”) entered
into by and among the Company and the parties named therein (collectively, the
“Holders”) pursuant to
each of which the Company issued to each of the Holders senior secured
convertible notes (the “Convertible Notes”)
convertible into the Company’s common shares, no par value per share
(the “Common
Shares”). Pursuant to the Exchange Agreements, the Company also has
entered into a Second Amended and Restated Registration Rights Agreement with
the Holders (the “Amended Registration Rights
Agreement”) pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Amended Registration
Rights Agreement), including the Common Shares issuable upon conversion of the
Convertible Notes and Common Shares issuable upon exercise of the 2008 Warrants
(as defined in the Amended Registration Rights Agreement), under the Securities
Act of 1933, as amended (the “1933 Act”). In connection with
the Company’s obligations under the Amended Registration Rights Agreement, on
____________ ___, 20__, the Company filed a Registration Statement on Form S-3
(File No. 333-_____________) (the “Registration Statement”) with
the Securities and Exchange Commission (the “SEC”) relating to the
Registrable Securities which names each of the Holders as a selling shareholder
thereunder.

     

    In
connection with the foregoing, [we][I] advise you that a member of the SEC’s
staff has advised [us][me] by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF
EFFECTIVENESS] and
[we][I] have no knowledge, after telephonic inquiry of a member of the SEC’s
staff, that any stop order suspending its effectiveness has been issued or that
any proceedings for that purpose are pending before, or threatened by, the SEC
and the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    This
letter shall serve as our standing opinion to you that the Common Shares
underlying the Convertible Notes and the 2008 Warrants are freely transferable
by the Holders pursuant to the Registration Statement, subject to the prospectus
delivery requirements of the 1933 Act, which the selling shareholders have
agreed to comply with to the extent applicable and which we have assumed
compliance with in issuing this letter. You need not require further letters
from us to effect any future legend-free issuance or reissuance of such Common
Shares to the Holders as contemplated by the Company’s Irrevocable Transfer
Agent Instructions dated _________ __, 20__.

     

     

           Very truly
yours,

     

           [ISSUER’S
COUNSEL]

     

           By:_____________________

    CC:           [LIST NAMES OF
HOLDERS]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
B

     

    SELLING
SHAREHOLDERS

     

    The
common shares being offered by the selling shareholders are those issuable to
the selling shareholders upon exercise of convertible notes and warrants. For
additional information regarding the issuance of the convertible notes and
warrants, see “Convertible Notes and Warrants” above. We are registering the
common shares in order to permit the selling shareholders to offer the shares
for resale from time to time. Except for the ownership of the convertible notes
and warrants, the selling shareholders have not had any material relationship
with us within the past three years.

     

    The table
below lists the selling shareholders and other information regarding the
beneficial ownership (as determined under Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder) of the common shares by each of the selling shareholders. The second
column lists the number of common shares beneficially owned by each selling
shareholder, based on its ownership of common shares, the convertible notes and
the warrants, as of ________, 20__, assuming conversion of the convertible notes
and exercise of the warrants held by the selling shareholders on that date,
taking account of any limitations on conversion or exercise set forth
therein.

     

    The third
column lists the common shares being offered by this prospectus by the selling
shareholders.

     

    In
accordance with the terms of a registration rights agreement with the holders of
the convertible notes and warrants, this prospectus generally covers the resale
of the number of common shares issuable upon conversion of the convertible note
and exercise of the warrants, determined as if the outstanding convertible notes
were converted in full (without regard to any limitations on conversion
contained therein) and the outstanding warrants were exercised in full (without
regard to any limitations on exercise contained therein), in each case, as of
the trading day immediately preceding the date this registration statement was
initially filed with the SEC.  Because the conversion price of the
convertible notes may be adjusted, the number of shares that will actually be
issued may be more or less than the number of shares being offered by this
prospectus. Because the exercise price of the warrants may be adjusted, the
number of shares that will actually be issued may be more or less than the
number of shares being offered by this prospectus. The fourth column assumes the
sale of all of the common shares offered by the selling shareholders pursuant to
this prospectus.

     

    Under the
terms of the convertible notes, a selling shareholder may not convert the
convertible notes to the extent such conversion would cause such selling
shareholder or any of its affiliates to beneficially own a number of common
shares which would exceed 4.99% or 9.99% (as applicable) of our common shares.
Under the terms of the warrants, a selling shareholder may not exercise the
warrants to the extent such exercise would cause such selling shareholder or any
of its affiliates to beneficially own a number of common shares which would
exceed 4.99% or 9.99% (as applicable) of our common shares. The number of shares
in the second column reflects these limitations. The selling shareholders may
sell all, some or none of their shares in this offering.  See “Plan of
Distribution.”

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
               

               

              Name of Selling Shareholder

            	
              Number of Common Shares of Owned Prior to
      Offering

            	
              Maximum Number of 
Common Shares to be Sold
      Pursuant to this Prospectus

            	
              Number of Common 
Shares of Owned 
After
      Offering

            
	
              Magnetar
      Capital Master Fund, Ltd (1)

            	 
      	 
      	 
      
	
              [Other
      Buyers]

            	 
      	 
      	 
      

    

    

    (1)  Magnetar
Financial LLC is the investment advisor of Magnetar Capital Master Fund, Ltd.
(“Magnetar Master Fund”) and consequently has voting control and investment
discretion over securities held by Magnetar Master Fund. Alec Litowitz has
voting control over Supernova Management LLC, the general partner of Magnetar
Capital Partners LP, the sole managing member of Magnetar Financial LLC. As a
result, Mr. Litowitz may be deemed to have beneficial ownership (as determined
under Section 13(d) of the Securities Exchange Act of 1934, as amended) of any
shares deemed to be beneficially owned by Magnetar Financial LLC.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    PLAN
OF DISTRIBUTION

     

    We are
registering the common shares issuable upon (i) conversion of the convertible
notes and (ii) exercise of the warrants, in each case, to permit the resale of
these common shares by the holders thereof from time to time after the date of
this prospectus. We will not receive any of the proceeds from the sale by the
selling shareholders of the common shares. We will bear all fees and expenses
incident to our obligation to register the common shares.

     

    The
selling shareholders may sell all or a portion of the common shares beneficially
owned by them and offered hereby from time to time directly or through one or
more underwriters, broker-dealers or agents. If the common shares are sold
through underwriters or broker-dealers, the selling shareholders will be
responsible for underwriting discounts or commissions or agent’s commissions.
The common shares may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of the sale, at varying prices determined
at the time of sale, or at negotiated prices. These sales may be effected in
transactions, which may involve crosses or block transactions,

     

    
      	
              ·  

            	
              on
      any national securities exchange or quotation service on which the
      securities may be listed or quoted at the time of
  sale;

            

    

     

    
      	
              ·  

            	
              in
      the over-the-counter market;

            

    

     

    
      	
              ·  

            	
              in
      transactions otherwise than on these exchanges or systems or in the
      over-the-counter market;

            

    

     

    
      	
              ·  

            	
              through
      the writing of options, whether such options are listed on an options
      exchange or otherwise;

            

    

     

    
      	
              ·  

            	
              ordinary
      brokerage transactions and transactions in which the broker-dealer
      solicits purchasers;

            

    

     

    
      	
              ·  

            	
              block
      trades in which the broker-dealer will attempt to sell the shares as agent
      but may position and resell a portion of the block as principal to
      facilitate the transaction;

            

    

     

    
      	
              ·  

            	
              purchases
      by a broker-dealer as principal and resale by the broker-dealer for its
      account;

            

    

     

    
      	
              ·  

            	
              an
      exchange distribution in accordance with the rules of the applicable
      exchange;

            

    

     

    
      	
              ·  

            	
              privately
      negotiated transactions;

            

    

     

    
      	
              ·  

            	
              short
      sales made after the date the Registration Statement is declared effective
      by the SEC;

            

    

     

    
      	
              ·  

            	
              sales
      pursuant to Rule 144;

            

    

     

    
      	
              ·  

            	
              broker-dealers
      may agree with the selling securityholders to sell a specified number of
      such shares at a stipulated price per
share;

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              ·  

            	
              a
      combination of any such methods of sale;
and

            

    

     

    
      	
              ·  

            	
              any
      other method permitted pursuant to applicable
  law.

            

    

     

    If the
selling shareholders effect such transactions by selling common shares to or
through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling shareholders or commissions from
purchasers of the common shares for whom they may act as agent or to whom they
may sell as principal (which discounts, concessions or commissions as to
particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved).  In connection with
sales of the common shares or otherwise, the selling shareholders may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the common shares in the course of hedging in positions they
assume.  The selling shareholders may also sell common shares short
and deliver common shares covered by this prospectus to close out short
positions and to return borrowed shares in connection with such short sales. The
selling shareholders may also loan or pledge common shares to broker-dealers
that in turn may sell such shares.

     

    The
selling shareholders may pledge or grant a security interest in some or all of
the convertible notes, warrants or common shares owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the common shares from time to time pursuant to this
prospectus or any amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933, as amended, amending, if
necessary, the list of selling shareholders to include the pledgee, transferee
or other successors in interest as selling shareholders under this prospectus.
The selling shareholders also may transfer and donate the common shares in other
circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.

     

    The
selling shareholders and any broker-dealer participating in the distribution of
the common shares may be deemed to be “underwriters” within the meaning of the
Securities Act, and any commission paid, or any discounts or concessions allowed
to, any such broker-dealer may be deemed to be underwriting commissions or
discounts under the Securities Act. At the time a particular offering of the
common shares is made, a prospectus supplement, if required, will be distributed
which will set forth the aggregate amount of common shares being offered and the
terms of the offering, including the name or names of any broker-dealers or
agents, any discounts, commissions and other terms constituting compensation
from the selling shareholders and any discounts, commissions or concessions
allowed or re-allowed or paid to broker-dealers.

     

    Under the
securities laws of some states, the common shares may be sold in such states
only through registered or licensed brokers or dealers. In addition, in some
states the common shares may not be sold unless such shares have been registered
or qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.

     

    There can
be no assurance that any selling shareholder will sell any or all of the common
shares registered pursuant to the shelf registration statement, of which this
prospectus forms a part.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    The
selling shareholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, including, without
limitation, to the extent applicable, Regulation M of the Exchange Act, which
may limit the timing of purchases and sales of any of the common shares by the
selling shareholders and any other participating person. To the extent
applicable, Regulation M may also restrict the ability of any person engaged in
the distribution of the common shares to engage in market-making activities with
respect to the common shares.  All of the foregoing may affect the
marketability of the common shares and the ability of any person or entity to
engage in market-making activities with respect to the common
shares.

     

    We will
pay all expenses of the registration of the common shares pursuant to the
registration rights agreement, estimated to be $[     ]
in total, including, without limitation, Securities and Exchange Commission
filing fees and expenses of compliance with state securities or “blue sky” laws;
provided, however, a selling shareholder will pay all underwriting discounts and
selling commissions, if any. We will indemnify the selling shareholders against
liabilities, including some liabilities under the Securities Act, in accordance
with the registration rights agreements, or the selling shareholders will be
entitled to contribution. We may be indemnified by the selling shareholders
against civil liabilities, including liabilities under the Securities Act, that
may arise from any written information furnished to us by the selling
shareholder specifically for use in this prospectus, in accordance with the
related registration rights agreements, or we may be entitled to
contribution.

     

    Once sold
under the registration statement, of which this prospectus forms a part, the
common shares will be freely tradable in the hands of persons other than our
affiliates.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
C

     

    WORKSTREAM
INC.

    (the
“Company”)

     

    QUESTIONNAIRE
TO THE SELLING SHAREHOLDERS

     

    This
Questionnaire is to be completed, signed and faxed to Scott Brucker, Esquire at
(215) 701-2410 by no later than fifteen (15) calendar days after the Trigger
Date, by the person or entity indicated on the cover of this Questionnaire (the
“Selling Shareholder”) whose common shares of the Company are being registered
pursuant to a Registration Statement on Form S-3. Retain a duplicate copy for
your files.  If you do not return the Questionnaire by the foregoing
deadline, your shares may not be included in the Registration
Statement.

     

    If you
are uncertain about any of the following questions as they apply to your
situation, please supply all relevant facts.  Include separate sheets
with details if necessary.  If you have any questions, please call
Workstream’s counsel, Scott Brucker, Esquire, at
(215) 665-3710.

     

    Please
notify me immediately if any of the information disclosed in your answers
changes.  Please answer all questions. Indicate “none” or “not
applicable” when appropriate.  Information should be given as of the
date of this Questionnaire, even if previously reported to the
Company.

     

    IN
ANSWERING THESE QUESTIONS, PLEASE REFER TO THE INSTRUCTIONS AT THE BEGINNING OF
THIS QUESTIONNAIRE.

     

    

     

    Name of
Selling Shareholder: _________________________________

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Instructions and
Definitions

     

     
The following instructions and definitions are furnished to aid you in preparing
your answers to this Questionnaire.

     

    
      	
               
      

            	
              1.

            	
              For
      purposes of this Questionnaire the term “Company” means Workstream
      Inc.

            

    

     

    
      	
               
      

            	
              2.

            	
              “Beneficial”
      ownership.  Beneficial ownership shall have the meaning
      ascribed to it in Section 13(d) of the Securities Exchange Act of 1934, as
      amended.  The SEC has taken the position that if you have sole
      or shared voting power or dispositive power or the ability to acquire
      either sole or shared voting or dispositive power of a security within 60
      days, you are the beneficial owner of that security, even though that
      security is not registered in your name.  Thus, for example, you
      could be the beneficial owner of securities in a trust or estate of which
      you are a trustee or executor, or of which you are one of the trustees or
      executors, or you could be the beneficial owner of securities which you
      have a right to purchase.

            

    

     

    
      	
               
      

            	
              3.

            	
              The
      term “affiliate” for purposes of this Questionnaire means any person
      directly or indirectly controlling, controlled by, or under common control
      with the Selling Shareholder.

            

    

     

    
      	
               
      

            	
              4.

            	
              An
      example response has been provided to assist you in preparing your
      response.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    1.            Broker-Dealer
Status.

    

    (a)           Are
you, or are you an affiliate of, a broker-dealer registered under the Securities
Exchange Act of 1934?

    

    Yes   ____                                                      No   ____

     

    If “yes,”
please give details below.

    

    

    

    

    (b)           Please
confirm the following statement:  The Company’s equity securities that
are being issued to you were acquired in the ordinary course of your business,
and at the time the securities were issued to you, you did not have any
agreement or understanding, directly or indirectly, with any person to
distribute the securities.

    

     
Confirmed   ____                                    Cannot
Confirm   ____

     

    If “cannot confirm,” please give
details below.

    

    

    

    

    2.          
 Relationships
with the Company.

    

    (a)           Have
you held any position or office with the Company, its predecessors or affiliates
within the last three years?

    

    

    Yes   ____                                                      No   ____

     

    If “yes,”
please give details below.

    

    

    

    (b)           Have
you had any other material relationship with the Company, its predecessors or
affiliates within the last three years?

    

    Yes   ____                                                      No   ____

     

    If “yes,”
please give details below.

    

     

    
 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    3.          Equity Securities Owned By
You.

     

    (a)           Please
state the number and type of equity securities of the Company  owned
(please see instructions and definitions on page 2) by you as of the date
of this Questionnaire, including securities which are exercisable or convertible
into equity securities within 60 days of the date of this
Questionnaire.

    

    Class                                                                                             Number
of Shares

    of
Security                                                                                     Owned

    

    

    

    

    

    (b)           If
any natural person or entity other than you holds or shares voting power or
dispositive power with respect to the Company’s equity securities listed in
response to Question 3(a), please provide the names of the natural persons
(including titles) or entities that hold or share such voting power or
dispositive power and indicate the number of the Company’s equity securities
covered thereby.

    

    

    (c)           With
respect to the Company’s equity securities listed in response to
Questions 3(a) and 3(b) for which an entity holds or shares voting power or
dispositive power, please provide the names of the natural persons (including
titles) or entities that control the entity or entities listed in response to
Questions 3(a) and 3(b).

    

    

    

    

    

    

    (d)           Please
continue to list the natural persons or entities that control the entities
listed in response to Question 3(c) and the entities listed in response to
this Question 3(d) until you have listed only natural persons (including
titles) that control the applicable entity or entities.

    

    

    
 

    

    

    (e)           If
any person or entity disclaims beneficial ownership of any of the equity
securities you have listed in response to Question 3, please so
indicate:

    

    

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    EXAMPLE
RESPONSE

    

    The
following is an example of a response to items 1 through 3.  Please
assume ABC Corporation is the Selling Shareholder for purposes of this
example.

    

    1.           Broker-Dealer
Status.

    

     ABC Corporation is an affiliate
of a broker-dealer because its sole shareholder, DEF Corporation, is a
broker-dealer.

    

    

    2.           Relationships with the
Company.

    

     (a)           ABC
Corporation has not held any position or office with the Company, its
predecessors or affiliates within the last three years.

    

     (b)           ABC
Corporation provided consulting services to the Company in March
2002.

    

    

    3.           
Equity Securities
Owned By You.

    

    Question
3(a).

    

    Class                           Number of
Shares

    of
Security                                                                                       
Owned

    Common
Shares                                                                               
100,000

    

    Warrants
to purchase Common
Shares                                               200,000

    

    Question
3(b).

    

    Not applicable

    

    Question
3(c).

    

    ABC
Corporation is controlled by DEF Corporation, ABC Corporation’s sole
shareholder.

    

    Question
3(d).

    

    DEF
Corporation is controlled by XYZ Corporation, DEF Corporation’s sole
shareholder. XYZ Corporation is controlled by John Doe, XYZ Corporation’s sole
shareholder and its President and Chief Executive Officer.

    
       

    

    Question
3(e).

    

    John Doe disclaims beneficial ownership
of the 100,000 Common Shares and the Warrants to purchase 200,000 Common
Shares.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    The
undersigned hereby acknowledges that the information contained herein is true to
the best of his knowledge and will notify the Company immediately of any changes
in such information.

     

    

     

    

     

    DATED:
__________,
2007                                         FOR INDIVIDUALS:

    

    

    

    __________________________________

    Name of
Selling Shareholder [please print]

    

    __________________________________

    Signature

    

    

    FOR
CORPORATIONS, PARTNERSHIPS OR TRUSTS:

    

    

    

    __________________________________

    Name of
Selling Shareholder [please print]

    

    

    By:
_______________________________

         
Signature

    
 

    Name:
_________________________

                          
 [please print]

    

    Title:
__________________________

                  [please
print]fp0001198_ex10-1.htm

     

    
      Exhibit
10.1

      EXCHANGE
AGREEMENT

      

      This
EXCHANGE AGREEMENT (the “Agreement”), dated as of
December 11, 2009, is being entered into by and between 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
___________________________ (the “Holder”).

      

      RECITALS

      

      A.        The
Company, the Holder and various others entered into that certain Transaction
Agreement, dated as July 25, 2007 (as amended and modified by the 2008 Exchange
Agreement and the Other 2008 Exchange Agreements (as defined below), the “Transaction
Agreement”).

       

      B.        Simultaneously
with the consummation of the transactions contemplated by the Transaction
Agreement, (i) the Company, the Holder and various others entered into that
certain Registration Rights Agreement dated as of August 3, 2007, as amended and
restated in its entirety on August 29, 2008 (the “Registration Rights
Agreement”) and (ii) the Company issued and sold to the Holder for
$__________ a special warrant initially convertible into __________ of the
Company’s common shares, no par value (the “Common Shares”) (the “Special Warrant”) and a
warrant initially exercisable for __________ Common Shares (the “2007 Warrant”).

      

      C.        Various
Triggering Events (as defined in the Special Warrant) occurred under the Special
Warrant after its issuance, and the Company and the Holder entered into that
certain Exchange Agreement, dated as August 29, 2008 (as amended and modified by
this Agreement and the Other Exchange Agreements (as defined below), the “2008 Exchange Agreement”), pursuant to which
the Holder exchanged its Special Warrant and 2007 Warrant in reliance upon the
exemption from registration provided by Section 3(a)(9) of the Securities
Act of 1933, as amended (the “1933 Act”) for (i) a senior
secured note in the original principal amount of $__________ (the “2008 Note”) and (ii) a warrant
initially exercisable for up to __________ Common Shares (the “2008 Warrant”).

      

      D.        In
connection with the transactions contemplated by the 2008 Exchange Agreement,
(i) each of the Subsidiaries (as defined below) executed a guaranty in favor of
the Holder (each a “Guaranty” and collectively the
“Guaranties”) pursuant
to which it guaranteed the obligations of the Company under the 2008 Note and
(ii) the 2008 Note was
secured by a first priority perfected security interest in all of the assets of
the Company and the Subsidiaries as evidenced by that certain Security
Agreement, dated as of August 29, 2008, by and among the Company, each of the
Subsidiaries, the Holder and the other parties thereto (the “Security Agreement” and,
together with the other security documents and agreements entered into in
connection with the 2008 Exchange Agreement, as each may be amended or modified
from time to time, collectively, the “Security
Documents”).

      

      E.        Since
the issuance of the 2008 Note, various Events of Default (as defined in the 2008
Note) have occurred thereunder.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      F.         In
exchange for the 2008 Note, the Company has authorized the issuance to the
Holder of (i) a senior secured non-convertible note, in the form attached hereto
as Exhibit
A (including all senior secured non-convertible notes issued in exchange
therefor or replacement thereof, the “Non-Convertible Note”), (ii) a
senior secured convertible note, in the form attached hereto as Exhibit
B (including all senior secured convertible notes issued in exchange
therefor or replacement thereof, the “First Convertible Note”), which
First Convertible Note shall be convertible into Common Shares (as converted,
the “First Convertible Note
Conversion Shares”), in accordance with
the terms thereof and (iii) a senior secured convertible note, in the form
attached hereto as Exhibit
C (including all senior secured convertible notes issued in exchange
therefor or replacement thereof, the “Second Convertible Note”), which
Second Convertible Note shall be convertible into Common Shares (as converted,
the “Second Convertible Note
Conversion Shares”), in accordance with
the terms thereof.

      

      G.        The
First Convertible Note and the Second Convertible Note are collectively referred
to herein as the “Convertible
Notes.” The Convertible Notes and the Non-Convertible Note are
collectively referred to herein as the “Notes.” The First Convertible
Note Conversion Shares and the Second Convertible Note Conversion Shares are
collectively referred to herein as the “Conversion Shares.” The Notes
and the Conversion Shares are collectively referred to herein as the “Securities.”

       

      H.        The
exchange of the 2008 Note for the Notes is being made in reliance upon the
exemption from registration provided by Section 3(a)(9) of the 1933
Act.

      

      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 Holder hereby
agree as follows:

       

      
        	
                1.

              	
                EXCHANGE
      OF 2008 NOTE.

              

      

       

      
             
(a)   2008 Note. Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, the Holder shall, and the Company shall, pursuant to Section 3(a)(9) of
the 1933 Act, exchange the 2008 Note for the Notes.

      

       

      (b)         Closing. The
closing (the “Closing”)
of the exchange of the 2008 Note shall occur at the offices of Greenberg
Traurig, LLP, 77 W. Wacker Drive, Suite 3100, Chicago, Illinois 60601. The date
and time of the Closing (the “Closing Date”) shall be 10:00
a.m., Chicago Time, on the first (1st)
Business Day on which the conditions to the Closing set forth in Sections 6 and
7 below are satisfied or waived (or such later date as is mutually agreed to by
the Company and the Holder). As used herein “Business Day” means any day
other than a Saturday, Sunday or other day on which commercial banks in Chicago,
Illinois are authorized or required by law to remain closed.

       

      (c)         Delivery. On the
Closing Date, (i) the Holder shall deliver the 2008 Note to the Company and
(ii) the Company shall exchange and deliver to the Holder the Notes for the
2008 Note, in all cases duly executed on behalf of the Company and registered in
the name of the Holder or its designee.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      
        	
                2.

              	
                HOLDER’S
      REPRESENTATIONS AND WARRANTIES.

              

      

       

      The
Holder represents and warrants to the Company:

       

      (a)         Organization;
Authority. The
Holder 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
Exchange Documents (as defined below) to which it is a party and otherwise to
carry out its obligations thereunder. For purposes of this Agreement, “Exchange Documents” means this
Agreement, the Notes, the Security Documents, the Reaffirmations (as defined
below), the Amended and Restated Registration Rights Agreement (as defined
below), the Irrevocable Transfer Agent Instructions (as defined below), and each
of the other agreements and instruments entered into by the parties hereto in
connection with the transactions contemplated hereby and thereby.

       

      (b)         No Public Sale or
Distribution. The
Holder is (i) acquiring the Notes and (ii) upon conversion of the
Convertible Notes will acquire the Conversion Shares issuable upon conversion
thereof, 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, by making
the representations herein, the Holder 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 Holder is not a broker-dealer registered, or required to
be registered, with the United States Securities and Exchange Commission (the
“SEC”) under the 1934
Act (as defined below). The Holder is acquiring the Securities hereunder in the
ordinary course of its business. The Holder does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities in violation of any applicable securities
laws.

       

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

       

      (d)         Reliance on
Exemptions. The
Holder understands that the Securities are being offered and issued 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 Holder’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Holder set forth herein in order to determine the availability of such
exemptions and the eligibility of the Holder to acquire the
Securities.

       

      (e)         Information. The
Holder 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 issuance of the Securities which have been requested by the
Holder.  The Holder 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 Holder or its advisors, if
any, or its representatives shall modify, amend or affect the Holder’s right to
rely on the Company’s representations and warranties contained herein or any
representations and warranties contained in any other Exchange 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 Holder
understands that its acquisition of the Securities involves a high degree of
risk. The Holder 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.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      (f)         No Governmental
Review. The
Holder 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 acquisition
of the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.

       

      (g)         Transfer or
Resale. The
Holder understands that except as provided in the Amended and Restated
Registration Rights Agreement: (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 Holder shall have delivered to the Company an
opinion of counsel to the Holder (if requested by the Company), in a form
reasonably acceptable to the Company, 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 Holder provides the Company with
reasonable assurance (which shall not include an opinion of counsel) 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 below) 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.

       

      (i)          Validity;
Enforcement. This
Agreement has been duly and validly authorized, executed and delivered on behalf
of the Holder and shall constitute the legal, valid and binding obligations of
the Holder enforceable against the Holder in accordance with its 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.

       

      (j)          No
Conflicts. The
execution, delivery and performance by the Holder of this Agreement and the
consummation by the Holder of the transactions contemplated hereby will not (i)
result in a violation of the organizational documents of the Holder 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 Holder 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 Holder, 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 Holder to
perform its obligations hereunder.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      (k)         General
Solicitation. The
Holder is not acquiring 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.

       

      
        	
                3.

              	
                REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

              

      

       

      The
Company represents and warrants to the Holder that:

       

      (a)         Organization and
Qualification. The
Company and each Subsidiary 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 each of the 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 or any Subsidiary, individually or taken
as a whole, (ii) the transactions contemplated hereby or in the other Exchange
Documents or (iii) the authority or ability of the Company or any of the
Subsidiaries to perform their respective obligations under any of the
Transaction Documents (as defined in the Transaction Agreement), any of the 2008
Exchange Documents (as defined below) or any of the Exchange Documents. Other
than the Subsidiaries, there is no Person in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest. For
purposes of this Agreement, Workstream USA, Inc., a Delaware corporation, Paula
Allen Holdings, Inc., a Florida corporation, The Omni Partners, Inc., a Florida
corporation, 6FigureJobs.com, Inc., a Delaware corporation, and Workstream
Merger Sub Inc., a Delaware corporation, are collectively referred to herein as
the “Subsidiaries” and
each individually as a “Subsidiary.”

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      (b)         Authorization; Enforcement;
Validity. The
Company has the requisite power and authority to enter into and perform its
obligations under the Exchange Documents to which it is a party and to issue the
Securities in accordance with the terms thereof. Each Subsidiary has the
requisite power and authority to enter into and perform its obligations under
the Exchange Documents to which it is a party. The execution and delivery by the
Company of this Agreement and the other Exchange Documents to which it is a
party, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Notes and
the reservation for issuance and issuance of the Conversion Shares issuable upon
conversion of the Convertible Notes) have been duly authorized by the Company’s
board of directors, and (other than the filing with the SEC of one or more
Registration Statements (as defined in the Amended and Restated Registration
Rights Agreement) in accordance with the requirements of the Amended and
Restated 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, its board of directors or its shareholders. The
execution and delivery by each Subsidiary of the Exchange Documents to which it
is a party, and the consummation by such Subsidiary of the transactions
contemplated thereby have been duly authorized by the board of directors of such
Subsidiary, and no further filing, consent or authorization is required by such
Subsidiary, its board of directors or its stockholders. This Agreement and the
other Exchange Documents to which it is a party have been duly executed and
delivered by the Company, and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company 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. The Exchange Documents to which it is a party have been duly
executed and delivered by each Subsidiary, and constitute the legal, valid and
binding obligations of such Subsidiary, enforceable against such Subsidiary 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.

       

      (c)         Issuance of
Securities. The
issuance of the Notes has been duly authorized and, upon issuance in accordance
with the terms of the Exchange Documents, the Notes 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 Conversion Shares issuable upon conversion of the Convertible
Notes (without regard to any limitations on conversion of the Convertible Notes
set forth therein). Upon conversion in accordance with the Convertible Notes,
the Conversion Shares, when issued, 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 Holder in
this Agreement, the offer and issuance by the Company of the Securities is
exempt from registration under the 1933 Act. The offer and issuance of the Notes
is exempt from registration under the 1933 Act pursuant to the exemption
provided by Section 3(a)(9) thereof.

       

      
        
          
          

        

        
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      (d)         No
Conflicts. The
execution, delivery and performance by the Company of the Exchange Documents to
which it is party and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Notes, the Conversion Shares and the reservation for issuance of the
Conversion Shares) will not (i) result in a violation of the Articles of
Incorporation (as defined below) or other organizational documents of the
Company or any of the Subsidiaries, any capital stock of the Company or any of
the Subsidiaries or Bylaws (as defined below) of the Company or bylaws of any of
the Subsidiaries, (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 the
Subsidiaries is a party or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including foreign, federal and state
securities laws and regulations and the rules and regulations of the OTC
Bulletin Board (the “Principal
Market”) and including all applicable Canadian and Ontario laws, rules
and regulations) applicable to the Company or any of the Subsidiaries or by
which any property or asset of the Company or any of the Subsidiaries is bound
or affected except, in the case of clause (ii) or (iii) above, to the extent
such conflict, default, termination rights or violations, as the case may be,
could not reasonably be expected to have a Material Adverse Effect. The
execution, delivery and performance by each Subsidiary of the Exchange Documents
to which it is party and the consummation by such Subsidiary of the transactions
contemplated thereby will not (i) result in a violation of the Articles of
Incorporation or other organizational documents of the Company or any of the
Subsidiaries, any capital stock of the Company or any of the Subsidiaries or
Bylaws of the Company or bylaws of any of the Subsidiaries, (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 the Subsidiaries is a party 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 Principal Market and including all applicable Canadian laws,
rules and regulations) applicable to the Company or any of the Subsidiaries or
by which any property or asset of the Company or any of the Subsidiaries is
bound or affected except, in the case of clause (ii) or (iii) above, to the
extent such conflict, default, termination rights or violations, as the case may
be, could not reasonably be expected to have a Material Adverse
Effect.

       

      (e)         Consents. Neither
the Company nor any Subsidiary 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 respective obligations under or
contemplated by the Exchange Documents to which it is a party, in each case, in
accordance with the terms hereof and thereof. All consents, authorizations,
orders, filings and registrations which the Company or any Subsidiary is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the Closing Date, and neither the Company nor any
Subsidiary is aware of any facts or circumstances which might prevent the
Company or any Subsidiary 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 or circumstances which could reasonably lead to delisting or
suspension of the Common Shares in the foreseeable future.

       

      (f)         Acknowledgment Regarding the
Holder’s Acquisition of Securities. The
Company acknowledges and agrees that the Holder is acting solely in the capacity
of an arm’s length party with respect to the Exchange Documents and the
transactions contemplated hereby and thereby and that the Holder is not (i) an
officer or director of the Company or any of the Subsidiaries, (ii) an
“affiliate” (as defined in Rule 144) of the Company or any of the Subsidiaries
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 Holder is not acting as
a financial advisor or fiduciary of the Company or any of the Subsidiaries (or
in any similar capacity) with respect to the Exchange Documents and the
transactions contemplated hereby and thereby, and any advice given by the Holder
or any of its representatives or agents in connection with the Exchange
Documents and the transactions contemplated hereby and thereby is merely
incidental to the Holder’s acquisition of the Securities. The Company further
represents to the Holder that the Company’s and each Subsidiary’s decision to
enter into the Exchange Documents has been based solely on the independent
evaluation by the Company, each Subsidiary and their respective
representatives.

       

      
        
          
          

        

        
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        (g)   No General Solicitation;
Placement Agent’s Fees. Neither
the Company, nor any of the 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 promulgated by the SEC under the
1933 Act) in connection with the offer or issuance of the Securities. The
Company shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, or brokers’ commissions (other than for Persons engaged
by the Holder or its investment advisor) relating to or arising out of the
transactions contemplated hereby.  Neither the Company nor any of the
Subsidiaries has engaged any placement agent or other agent in connection with
the offer or issuance of the Securities.

      

       

      (h)         No Integrated
Offering. None of
the Company, the Subsidiaries or any of their affiliates, nor any Person acting
on its or 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,
whether through integration with prior offerings or otherwise, or cause this
offering of Securities (together with any other offering under the Other
Exchange Agreements) to require approval of shareholders of the Company under
any applicable shareholder 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, the Subsidiaries, their affiliates
nor 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.

       

      (i)          Dilutive
Effect. The
Company understands and acknowledges that the number of Conversion Shares will
increase in certain circumstances. The Company further acknowledges that its
obligation to issue the Conversion Shares upon conversion of the Convertible
Notes in accordance with this Agreement and the Convertible Notes is absolute
and unconditional regardless of the dilutive effect that such issuance may have
on the ownership interests of other shareholders of 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 Articles of Incorporation,
Bylaws or other organizational document or the laws of the jurisdiction of its
incorporation or otherwise which is or could become applicable to the Holder as
a result of the transactions contemplated by this Agreement, including, without
limitation, the Company’s issuance of the Securities and the Holder’s ownership
of the Securities. The Company and its board of directors have taken all
necessary action, if any, in order to render inapplicable any stockholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Shares or a change in control of the Company or any of the
Subsidiaries.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      (k)         SEC Documents; Financial
Statements. During
the two (2) years prior to the date hereof, the Company has 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 Holder 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
Holder 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.

       

      (l)          Absence of Certain
Changes. Since
the date of the Company’s most recent audited financial statements contained in
a Form 10-K, 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 the 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 the Subsidiaries has (i) declared or paid any dividends, (ii)
sold any material assets outside of the ordinary course of business,
individually or in the aggregate, or (iii) made any material capital
expenditures, individually or in the aggregate. Neither the Company nor any of
the Subsidiaries has taken any steps to seek protection pursuant to any law or
statute relating to bankruptcy, insolvency, reorganization, liquidation or
winding up, nor does the Company or any Subsidiary have any knowledge or reason
to believe that any of their respective 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 the 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,
(I) with respect to the Company and the Subsidiaries, on a consolidated basis,
(i) the present fair saleable value of the Company’s and the Subsidiaries’
assets is less than the amount required to pay the Company’s and the
Subsidiaries’ total Indebtedness (as defined below), (ii) the Company and the
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 the Subsidiaries intend to incur or believe
that they will incur debts that would be beyond their ability to pay as such
debts mature; and (II) with respect to the Company and each Subsidiary,
individually, (i) the present fair saleable value of the Company’s or such
Subsidiary’s (as the case may be) assets is less than the amount required to pay
its respective total Indebtedness, (ii) the Company or such Subsidiary (as the
case may be) is unable to pay its respective debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured or (iii) the Company or such Subsidiary (as the case may
be) intends to incur or believes that it will incur debts that would be beyond
its respective ability to pay as such debts mature. Neither the Company nor any
of the Subsidiaries has engaged in business or in any transaction, and is not
about to engage in business or in any transaction, for which the Company’s or
such Subsidiary’s remaining assets constitute unreasonably small
capital.

       

      
        
          
          

        

        
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      (m)        No Undisclosed Events,
Liabilities, Developments or Circumstances. No
event, liability, development or circumstance has occurred or exists, or is
reasonably expected to exist or occur with respect to the Company, any of the
Subsidiaries or their respective business, properties, liabilities, prospects,
operations (including results thereof) or condition (financial or otherwise),
that (i) 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 or (ii) could have a Material Adverse
Effect.

       

      (n)         Conduct of Business;
Regulatory Permits. Neither
the Company nor any of the Subsidiaries is in violation of any term of or in
default under its Articles of Incorporation, any certificate of designation,
preferences or rights of any other outstanding series of preferred stock of the
Company or any of the Subsidiaries or Bylaws or their organizational charter,
certificate of formation or certificate of incorporation or bylaws,
respectively. Neither the Company nor any of the Subsidiaries is in violation of
any judgment, decree or order or any statute, ordinance, rule or regulation
applicable to the Company or any of the Subsidiaries, and neither the Company
nor any of the Subsidiaries will conduct its business in violation of any of the
foregoing, except in all cases for possible violations which could 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 would reasonably lead to delisting
or suspension of the Common Shares by the Principal Market in the foreseeable
future. Since January 1, 2006, (i) the Common Shares have been listed or
designated for quotation on (as applicable) the Principal Market, the Boston
Stock Exchange or the Nasdaq Capital 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 the 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 the Subsidiaries nor any director, officer, agent,
employee or other Person acting on behalf of the Company or any of the
Subsidiaries has, in the course of its actions for, or on behalf of, the Company
or any of the 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 and each Subsidiary is in compliance in all material respects 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. Other
than as set forth on Schedule 3(q), none of the officers, directors or employees
of the Company or any of the Subsidiaries is presently a party to any
transaction with the Company or any of the 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 the 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.

       

      
        
          
          

        

        
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      (r)         Equity
Capitalization. As of
the date hereof, the authorized capital stock of the Company consists of (i)
unlimited Common Shares, of which 57,101,616 shares are issued and outstanding,
no shares are held in treasury, and 2,132,465 shares are reserved for issuance
pursuant to securities (other than the Convertible Notes) exercisable or
exchangeable for, or convertible into, Common Shares, and (ii) unlimited shares
of preferred stock, none of which, as of the date hereof, are issued and
outstanding. All of such outstanding shares are duly authorized and have been,
or upon issuance will be, validly issued and are fully paid and nonassessable.
12,573,653 shares of the Company’s issued and outstanding Common Shares on the
date hereof are owned by Persons who are “affiliates” (as defined in Rule 405 of
the 1933 Act and calculated based on the assumption that only officers,
directors and holders of at least 10% of the Company’s issued and outstanding
Common Shares are “affiliates” without conceding that any such Persons are
“affiliates” for purposes of federal securities laws) of the Company or any of
the Subsidiaries. Except as set forth on Schedule 3(r), to the Company’s
knowledge no Person owns 10% or more of the Company’s issued and outstanding
Common Shares (calculated based on the assumption that all Equivalents (as
defined in the Transaction Agreement), whether or not presently exercisable or
convertible, have been fully exercised or converted (as the case may
be) but taking account of any limitations on exercise or conversion (including
“blockers”) contained therein without conceding that such identified Person is a
10% stockholder for purposes of federal securities laws). Except as disclosed in
Schedule 3(r): (i) none of the Company’s or any Subsidiary’s capital stock is
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company or any Subsidiary; (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 the Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of the Subsidiaries is or may become
bound to issue additional capital stock of the Company or any of the
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 the Subsidiaries; (iii) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness of the Company or any of the
Subsidiaries or by which the Company or any of the Subsidiaries is or may become
bound; (iv) there are no financing statements securing obligations in any
amounts filed in connection with the Company or any of the Subsidiaries; (v)
there are no agreements or arrangements under which the Company or any of the
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except pursuant to the Amended and Restated Registration Rights
Agreement); (vi) there are no outstanding securities or instruments of the
Company or any of the Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of the Subsidiaries is or may become
bound to redeem a security of the Company or any of the 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)
neither the Company nor any Subsidiary has any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan or agreement; and (ix)
neither the Company nor any of the Subsidiaries have any liabilities or
obligations required to be disclosed in the SEC Documents which are not so
disclosed in the SEC Documents, other than those incurred in the ordinary course
of the Company’s or the 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 Holder true, correct and
complete copies of the Company’s Articles of Amendment, Articles of
Incorporation, as amended and as in effect on the date hereof (the “Articles 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. Except
as disclosed on Schedule 3(s), neither the Company nor any of the Subsidiaries
(i) has any outstanding Indebtedness, (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. 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, any other entity and a government or any
department or agency thereof.

       

      (t)          Absence of
Litigation. Except
as set forth on Schedule 3(t), 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
the Subsidiaries, the Common Shares or any of the Company’s or the Subsidiaries’
officers or directors which is outside of the ordinary course of business or
individually or in the aggregate material to the Company or any of the
Subsidiaries.

       

      (u)         Insurance. The
Company and each of the 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 the 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.  Neither
the Company nor any of the Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. The Company and the Subsidiaries
believe that their relations with their employees are good.  No
executive officer (as defined in Rule 501(f) promulgated under the 1933 Act) or
other key employee of the Company or any of the 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 or other key employee of
the Company or any of the 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 or other key employee (as the case may
be) does not subject the Company or any of the Subsidiaries to any liability
with respect to any of the foregoing matters. The Company and the 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. Except
as set forth on Schedule 3(w), the Company and the 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, 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 the Subsidiaries. Any real
property and facilities held under lease by the Company or any of the
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 or any of
the Subsidiaries.

       

      (x)         Intellectual Property
Rights. The
Company and the 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, original works, inventions, licenses,
approvals, governmental authorizations, trade secrets and other intellectual
property rights and all applications and registrations therefor (“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 the 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 the 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 or any of the Subsidiaries, being threatened,
against the Company or any of the 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 the Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their Intellectual Property Rights.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      (y)         Environmental
Laws. The
Company and the Subsidiaries (i) are in compliance with all Environmental Laws
(as defined below), (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 the 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 the Subsidiaries as owned by the
Company or such Subsidiary.

       

      (aa)       Tax
Status. Except
as set forth on Schedule 3(aa), the Company and each of the 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 and the Subsidiaries 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 maintains internal control over financial reporting (as such term is
defined in Rule 13a-15(f) under the 1934 Act) that is effective to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles, including 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-15(e) under the 1934 Act) that are reasonably
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 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 the Subsidiaries has received any
notice or correspondence from any accountant or other Person relating to any
potential material weakness or significant deficiency in any part of the
Company’s internal control over financial reporting.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      (cc)       Off Balance Sheet
Arrangements. There
is no transaction, arrangement, or other relationship between the Company or any
of the 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 exchange and issuance 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)       Acknowledgement Regarding
the Holder’s Trading Activity. It is
understood and acknowledged by the Company (i) that the Holder has not been
asked by the Company or any of the Subsidiaries to agree, nor has the Holder
agreed with the Company or any of the 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 the Holder, and counter parties in
“derivative” transactions to which the Holder is a party, directly or
indirectly, presently may have a “short” position in the Common Shares which
were established prior to the Holder’s knowledge of the transactions
contemplated by the Exchange Documents, and (iii) that the Holder 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 the Holder may engage in hedging and/or trading activities at
various times during the period that the Securities are outstanding, including,
without limitation, during the periods that the value of the Conversion Shares
deliverable with respect to the Convertible Notes are being determined 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 Exchange Document or any of
the documents executed in connection herewith or therewith.

       

      (ff)       
Manipulation of
Price. Neither
the Company nor any of the Subsidiaries has, and to their knowledge no Person
acting on their 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 or any of the Subsidiaries 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 or any of the
Subsidiaries.

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      (gg)       U.S. Real Property Holding
Corporation.  Neither
the Company nor any of the Subsidiaries is or has ever 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 and each Subsidiary shall so certify
upon the Holder’s request. The Common Shares do not derive, and have not at
any time during the previous five years derived, directly or indirectly
more than 50% of its fair market value from one or any combination of: (i) real
property situated in Canada, (ii) Canadian resource property and (iii) timber
resource properties (as such terms are defined for purposes of the Income Tax Act
(Canada)).

       

      (ii)         Shell Company
Status. The
Company is not, and has never been, an issuer identified in, or subject to, Rule
144(i).

       

      
        (jj)   Transfer
Taxes. On the
Closing Date, any stock transfer or other taxes (other than income or similar
taxes) which are required to be paid in connection with the issuance of the
Securities to be acquired by the Holder 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.

      

       

      (kk)       Bank Holding Company
Act.  Neither
the Company nor any of its Subsidiaries is subject to the Bank Holding Company
Act of 1956, as amended (the “BHCA”) and to regulation by
the Board of Governors of the Federal Reserve System (the “Federal
Reserve”).  Neither the Company nor any of its Subsidiaries or
affiliates owns or controls, directly or indirectly, five percent (5%) or more
of the outstanding shares of any class of voting securities or twenty-five
percent (25%) or more of the total equity of a bank or any equity that is
subject to the BHCA and to regulation by the Federal Reserve. Neither the
Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.

       

      (ll)         Disclosure. The
Company confirms that neither it nor any other Person acting on its behalf has
provided the Holder or any of its agents or counsel with any information that
constitutes or could reasonably be expected to constitute material, nonpublic
information. The Company understands and confirms that the Holder will rely on
the foregoing representations in effecting transactions in securities of the
Company. All disclosure provided to the Holder regarding the Company and the
Subsidiaries, their businesses and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of the
Company or any of the Subsidiaries 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. Each press release issued by the
Company or any of the 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 the 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. The Company acknowledges and agrees that the Holder is not making and
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section
2.

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      (mm)     Ranking of Notes. No
Indebtedness of the Company or any of the Subsidiaries, at the Closing, will be
senior to, or pari
passu with, the Notes (other than the Other Notes, which will be pari passu with the Notes,
and all of the Other Notes are set forth on Schedule 3(mm)) in right of payment,
whether with respect to payment or redemptions, interest, damages, upon
liquidation or dissolution or otherwise. The Notes do not extinguish the
indebtedness evidenced by the 2008 Note and are not a novation thereof but
rather are given in replacement, and substitution of, the 2008
Note.

       

      
        	
                4.

              	
                COVENANTS.

              

      

       

      (a)         Best
Efforts. The
Holder shall use its best efforts timely to satisfy each of the conditions to be
satisfied by it as provided in Section 6 of this Agreement. The Company shall
use its best efforts timely to satisfy each of the conditions to be satisfied by
it as provided in Section 7 of this Agreement.

       

      (b)         Blue Sky.  If
required by applicable law, 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 issuance to the
Holder 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 Holder on or prior to the Closing Date. The Company shall make all
filings and reports relating to the offer and issuance of the Securities
required under applicable securities or “Blue Sky” laws of the states of the
United States following the Closing Date.

       

      (c)         Listing.  The
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Amended and Restated Registration Rights Agreement) upon each
national securities exchange and automated quotation system, if any, upon or
through which the Common Shares are then listed or quoted (subject to official
notice of issuance) and shall use its commercially reasonable efforts to
maintain such listing of all Registrable Securities from time to time issuable
under the terms of the Exchange Documents on such national securities exchange
or automated quotation system. The Company shall maintain the Common Shares’
authorization for quotation on the Principal Market, the New York Stock
Exchange, the Nasdaq Global Market, the Nasdaq Global Select Market, the Nasdaq
Capital Market or the “pink sheets” (each, an “Eligible Market”). The Company
shall not take any action which could be reasonably expected to result in the
delisting or suspension of the Common Shares on an Eligible Market. The Company
shall pay all fees and expenses in connection with satisfying its obligations
under this Section 4(c).

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      (d)         Fees. The
Company shall reimburse the Holder or its designee(s) for all costs and expenses
incurred by it or its affiliates in connection with the transactions
contemplated by the Exchange Documents (including, without limitation, all legal
fees and disbursements in connection therewith, documentation and implementation
of the transactions contemplated by the Exchange Documents and due diligence and
regulatory filings in connection therewith) up to $100,000, which amount shall
be paid by the Company by wire transfer of immediately available funds at the
Closing or upon termination of this Agreement so long as such termination did
not occur as a result of a material breach by the Holder of any of its
obligations hereunder (as the case may be). The Company shall be responsible for
the payment of any placement agent’s fees, financial advisory fees, or broker’s
commissions (other than for Persons engaged by the Holder) relating to or
arising out of the transactions contemplated hereby. The Company shall pay, and
hold the Holder harmless against, any liability, loss or expense (including,
without limitation, reasonable attorneys’ fees and out-of-pocket expenses)
arising in connection with any claim relating to any such payment.

       

      (e)         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 the Holder 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 if the Holder effects a pledge of Securities it shall not 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 Exchange 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 the Holder.

       

      (f)         Disclosure of Transactions
and Other Material Information. The
Company shall, on or before 8:30 a.m., New York time, on the first (1st)
Business Day after the date of this Agreement, issue a press release (the “Press Release”) reasonably
acceptable to the Holder disclosing all the material terms of the transactions
contemplated by the Exchange Documents. On or before 8:30 a.m., New York 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 Exchange Documents in the form required by the 1934 Act and
attaching all the material Exchange Documents (including, without limitation,
this Agreement (and all schedules to this Agreement), the forms of the Notes and
the form of the Amended and Restated Registration Rights Agreement) (including
all attachments, the “8-K
Filing”). From and after the issuance of the Press Release, the Company
shall have disclosed all material, nonpublic information delivered to the Holder
by the Company or any of the Subsidiaries, or any of their respective officers,
directors, employees or agents (if any) in connection with the transactions
contemplated by the Exchange Documents. The Company shall not, and the Company
shall cause each of the Subsidiaries and each of its and their respective
officers, directors, employees and agents not to, provide the Holder with any
material, nonpublic information regarding the Company or any of the Subsidiaries
from and after the issuance of the Press Release without the express prior
written consent of the Holder. If the Holder has, or believes it has, received
any material, nonpublic information regarding the Company or any of its
Subsidiaries in breach of the immediately preceding sentence, the Holder shall
provide the Company with written notice thereof in which case the Company shall,
within two (2) Trading Days (as defined in the Notes) of the receipt of such
notice, if so requested by the Holder, make a public disclosure of all such
material, nonpublic information so provided. In the event of a breach of any of
the foregoing covenants by the Company, any of the Subsidiaries, or any of its
or their respective officers, directors, employees and agents (as determined in
the reasonable good faith judgment of the Holder), in addition to any other
remedy provided herein or in the other Exchange Documents, the Holder 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 the Subsidiaries, or any of its or their
respective officers, directors, employees or agents. The Holder shall not have
any liability to the Company, any of the 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, the Subsidiaries nor
the Holder 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 Holder, to make any
press release or other public disclosure with respect to such transactions (i)
in substantial conformity with the 8-K Filing and contemporaneously therewith
and (ii) as is required by applicable law and regulations (provided that in the
case of clause (i) the Holder shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release).
Without the prior written consent of the Holder, the Company shall not (and
shall cause each of the Subsidiaries to not) disclose the name of the Holder in
any filing, announcement, release or otherwise unless required by applicable law
or regulations.

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

      (g)         Amendment and Interpretation
of Transaction Agreement and 2008 Exchange Agreement. From and after the
Closing:

       

      (i)       
The term “Amended Registration Rights Agreement” in the Transaction Agreement
and the 2008 Exchange Agreement is hereby replaced with the term “Amended and
Restated Registration Rights Agreement.”

       

      (ii)        The
following term is added to the Transaction Agreement and the 2008 Exchange
Agreement: “Amended and
Restated Registration Rights Agreement” means that certain Second Amended
and Restated Registration Rights Agreement, dated as of December 11, 2009, by
and among the Company and the other parties thereto, as amended from time to
time.”

       

      (iii)       The
defined term “Securities” in the Transaction Agreement and the 2008 Exchange
Agreement is hereby amended to include the Conversion Shares.

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

      (iv)       Except
as otherwise expressly provided herein, (i) the Transaction Agreement, each
other Transaction Document, the 2008 Exchange Agreement and each other 2008
Exchange Document is, and shall continue to be, in full force and effect and is
hereby ratified and confirmed in all respects, except that on and after the
Closing Date (A) all references in the Transaction Agreement to the
“Transaction Agreement,” “hereto,” “hereof,” “this Agreement,” “hereunder” or
words of like import referring to the Transaction Agreement shall mean the
Transaction Agreement as amended by this Agreement and the Other Exchange
Agreements, (B) all references in the other Transaction Documents to the
“Transaction Agreement,” “thereto,” “thereof,” “thereunder” or words of like
import referring to the Transaction Agreement shall mean the Transaction
Agreement as amended by this Agreement and the Other Exchange Agreements, (C)
all references in the 2008 Exchange Agreement to the “Exchange Agreement,”
“hereto,” “hereof,” “this Agreement,” “hereunder” or words of like import
referring to the 2008 Exchange Agreement shall mean the 2008 Exchange Agreement
as amended by this Agreement and the Other Exchange Agreements, and (D) all
references in the other 2008 Exchange Documents to the “2008 Exchange
Agreement,” “thereto,” “thereof,” “thereunder” or words of like import referring
to the 2008 Exchange Agreement shall mean the 2008 Exchange Agreement as amended
by this Agreement and the Other Exchange Agreements, and (ii) the
execution, delivery and effectiveness of this Agreement shall not operate as an
amendment of any right, power or remedy of the Holder under any Transaction
Document or any 2008 Exchange Document, nor constitute an amendment of any
provision of any Transaction Document or any 2008 Exchange Document and all of
them shall continue in full force and effect, as amended or modified by this
Agreement and the Other Exchange Agreements. For purposes of this Agreement, (1)
“Other 2008 Note
Holders” means, collectively, the holders (other than the Holder) of
Other 2008 Notes; (2) “Other
2008 Notes” means, collectively, the senior secured notes issued pursuant
to the Other 2008 Exchange Agreements; (3) “Other 2008 Exchange
Agreements” means, collectively, the separate exchange agreements, each
dated as of August 29, 2008, entered into between the Company and each of the
Other 2008 Note Holders, as may be amended from time to time; (4) “Other Note Holders” means,
collectively, the holders (other than the Holder) of Other Notes; (5) “Other Notes” means,
collectively, the (A) senior secured non-convertible notes and (B) senior
secured convertible notes, in each case, issued pursuant to the Other Exchange
Agreements, and shall include all senior secured notes issued in exchange
therefor or replacement thereof; (6) “Other Exchange Agreements”
means, collectively, the separate exchange agreements, each dated as of December
11, 2009, entered into between the Company and each of the Other 2008 Note
Holders, as may be amended from time to time; (7) “2008 Exchange Documents”
means, collectively, the 2008 Exchange Agreement, the 2008 Note, the Guaranties,
the Security Agreement, the Security Documents and all other agreements,
documents and instruments executed and delivered in connection with the
transactions contemplated thereby, all as may be amended from time to time; (8)
“Other 2008 Exchange
Documents” means, collectively, the Other 2008 Exchange Agreements, the
Other 2008 Notes and all other agreements, documents and instruments executed
and delivered in connection with the transactions contemplated thereby, all as
may be amended from time to time; (9) “Other Exchange Documents”
means, collectively, the Other Exchange Agreements, the Other Notes and all
other agreements, documents and instruments executed and delivered in connection
with the transactions contemplated thereby, as may be amended from time to time;
(10) “2008 Notes” means,
collectively, the 2008 Note and the Other 2008 Notes; (11) “2009 Notes” means,
collectively, the Notes and the Other Notes, and shall include all senior
secured notes issued in exchange therefor or replacement thereof; and (12)
“2008 Exchange
Agreements” means, collectively, the 2008 Exchange Agreement and the
Other 2008 Exchange Agreements.

       

      (h)         Rule 144. The
Company expressly acknowledges and agrees that for purposes of Rule 144(d) the
Holder shall be deemed to have acquired each of the Notes on August 3, 2007 and
that the holding period for it may be tacked onto the holding period of the 2008
Note and the Special Warrant. The Company agrees that it shall not (and shall
cause each of its officers, directors, employees and agents to not) take any
action or omit to take any action inconsistent with the foregoing. The Company
further agrees to take all actions necessary (including, without limitation, the
issuance by its legal counsel of any necessary legal opinions) to issue to the
Holder Conversion Shares that (subject to the Company being compliant with
Section 144(c)(1) only if the Holder becomes an affiliate of the Company after
the date hereof) are immediately freely tradable without restriction and not
containing any restrictive legend, all without the need for any action by the
Holder.

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      (i)           Delaware
Reincorporation. The Company shall provide each shareholder entitled to
vote at a special or annual meeting of shareholders of the Company (the “Shareholder Meeting”), which
meeting shall be held no later than the first annual meeting of shareholders of
the Company that occurs after the date hereof, a proxy statement soliciting each
such shareholder’s affirmative vote at the Shareholder Meeting for approval of
resolutions (the “Resolutions”) providing for
the Company’s reincorporation as, conversion into, or similar transaction
pursuant to which the Company becomes a Delaware corporation (the “Delaware Reincorporation”)
(such affirmative shareholder approval being referred to herein as the “Shareholder Approval”), and
the Company shall use its commercially reasonable efforts to solicit its
shareholders’ approval of the Resolutions (which efforts shall include, without
limitation, the requirement to hire a reputable proxy solicitor) and to cause
the board of directors of the Company to recommend to the shareholders that they
approve the Resolutions. If the Shareholder Approval is obtained at the
Shareholder Meeting, then the Company shall effect the Delaware Reincorporation
promptly following the Shareholder Meeting (but in no event later than November
1, 2010) so long as effecting the Delaware Reincorporation will not directly
result in (i) the Company incurring fees and expenses in excess of $650,000 in
connection with seeking the Shareholder Approval and effecting the Delaware
Reincorporation (including, without limitation, fees for attorneys, accountants
and other professional advisors, proxy solicitation costs, taxes and share
redemption costs) or (ii) the Company’s failure of any of the Tests (as defined
in the Notes). If the Shareholder Approval is not so obtained at the Shareholder
Meeting and the Company has complied with all of the foregoing covenants in this
Section 4(i), then the Company shall have no further obligation to seek
shareholder approval for the Delaware Reincorporation or to effect the Delaware
Reincorporation.

       

      (j)           2008 Warrant. Without
implication that the contrary would otherwise be true, the Company agrees that
the Holder, in its sole discretion, may surrender its 2008 Warrant to the
Company for cancellation for no consideration by delivering written notice to
the Company, together with its 2008 Warrant, requesting that its 2008 Warrant be
cancelled.

       

      
        	
                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 Notes in which the Company shall record the name
and address of the Person in whose name each of the Notes have been issued
(including the name and address of each transferee), the principal amount of
each of the Notes held by such Person and the number of Conversion Shares
issuable upon conversion thereof. The Company shall keep the register open and
available at all times during business hours for inspection of the Holder or its
legal representatives.

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      (b)         Transfer Agent
Instructions. The
Company shall issue irrevocable instructions to its transfer agent and any
subsequent transfer agent in the form reasonably acceptable to the Holder (the
“Irrevocable Transfer Agent
Instructions”) to issue certificates or credit shares to the applicable
balance accounts at The Depository Trust Company (“DTC”), registered in the name
of the Holder or its respective nominee(s), for the Conversion Shares in such
amounts as specified from time to time by the Holder to the Company upon
conversion of the Convertible Notes. 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, to the extent provided in this
Agreement and the other Exchange Documents. If the Holder effects a sale,
assignment or transfer of the Securities in accordance with Section 2(g) hereof,
the Company shall permit the transfer and shall promptly instruct its transfer
agent to issue one or more certificates or credit shares to the applicable
balance accounts at DTC in such name and in such denominations as specified by
the Holder to effect such sale, transfer or assignment. In the event that such
sale, assignment or transfer involves Conversion Shares sold, assigned or
transferred pursuant to an effective registration statement or in compliance
with Rule 144, the transfer agent shall issue such shares to the Holder,
assignee or transferee (as the case may be) without any restrictive legend in
accordance with Section 5(c) below. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Holder.
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 Holder 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
earlier of each Effective Date (as defined in the Amended and Restated
Registration Rights Agreement) or the date on which the Securities are eligible
to be sold pursuant to Rule 144. 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.

       

      (c)         Legends. The
Holder understands that the certificates or other instruments representing the
Convertible Notes 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 THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS
CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. NEITHER THIS NOTE NOR THE SECURITIES INTO
WHICH THIS NOTE IS CONVERTIBLE MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THIS
NOTE OR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE (AS APPLICABLE) UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE
HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR
ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SECURITIES INTO WHICH THIS NOTE
IS CONVERTIBLE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE OR THE SECURITIES INTO
WHICH THIS NOTE IS CONVERTIBLE.

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

       

      The
Holder understands that the certificates or other instruments representing the
Non-Convertible Note 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):

       

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

       

      Notwithstanding
the foregoing, certificates evidencing the Conversion Shares shall not bear any
restrictive or other legends unless the Holder is an “affiliate” (as defined in
Rule 144) of the Company.

       

      
        (d)   Removal of
Legends.
Certificates evidencing the Notes and certificates evidencing the Conversion
Shares (if such certificates evidencing Conversion Shares are required to bear a
legend pursuant to Section 5(c) above) shall not be required to contain the
legend set forth in Section 5(c) above or any restrictive or other legend (i)
while a registration statement (including a Registration Statement) covering the
resale of such Notes or Conversion Shares (as the case may be) is effective
under the 1933 Act, (ii) following any sale of such Notes or Conversion Shares
(as the case may be) pursuant to Rule 144 (assuming that the transferor is not
an affiliate of the Company), (iii) if such Notes or Conversion Shares (as the
case may be) are eligible to be sold, assigned or transferred under Rule
144(b)(1) (provided that the Holder provides the Company with reasonable
assurances that such Notes or Conversion Shares (as the case may be) are
eligible for sale, assignment or transfer under Rule 144(b)(1), which shall not
include an opinion of counsel), (iv) in connection with a sale, assignment or
other transfer (other than under Rule 144) provided the Holder provides the
Company with an opinion of counsel to the Holder, in a generally acceptable
form, to the effect that such sale, assignment or transfer of such Notes or
Conversion Shares (as the case may be) may be made without registration under
the applicable requirements of the 1933 Act or (v) 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 three (3) Trading Days following the delivery by the Holder
to the Company or the transfer agent (with notice to the Company) of a legended
certificate representing such Notes or Conversion Shares (as the case may be)
(endorsed or with stock powers attached, signatures guaranteed, and otherwise in
form necessary to affect the reissuance and/or transfer, if applicable),
together with any other deliveries from the Holder as may be required above in
this Section 5(d), as directed by the Holder, either: (A) deliver (or cause to
be delivered to) the Holder a certificate representing such Notes or Conversion
Shares (as the case may be) that is free from all restrictive and other legends
or (B) in the case of Conversion Shares, credit the balance account of the
Holder’s or the Holder’s nominee with DTC with a number of Common Shares equal
to the number of Conversion Shares represented by the certificate or conversion
notice (as the case may be) so delivered by the Holder (the date by which such
certificate is required to be delivered to the Holder pursuant to the foregoing
is referred to herein as the “Required Delivery
Date”).

      

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

       

      (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 Holder within two (2) Trading Days following the Required
Delivery Date a certificate representing the Notes or Conversion Shares (as the
case may be) required to be so delivered by the Company to the Holder that is
free from all restrictive and other legends or (ii) in the case of Conversion
Shares, credit the balance account of the Holder’s or the Holder’s nominee with
DTC within two (2) Trading Days following the Required Delivery Date with such
number of Conversion Shares required to be so delivered by the Company, then, in
addition to all other remedies available to the Holder, the Company shall pay in
cash to the Holder on each day after such second (2nd)
Trading Day following the Required Delivery Date that such issuance or credit is
not timely effected an amount equal to 1% of the aggregate then-outstanding
principal amounts of the Notes. 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 Holder’s or the Holder’s nominee with DTC by the
Required Delivery Date, and if on or after the Required Delivery Date the Holder
purchases (in an open market transaction or otherwise) Common Shares to deliver
in satisfaction of a sale by the Holder of Common Shares that the Holder
anticipated receiving from the Company without any restrictive legend, then, in
addition to all other remedies available to the Holder, the Company shall,
within three (3) Trading Days after the Holder’s request and in the Holder’s
sole discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’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 or credit the Holder’s
balance account shall terminate and such shares shall be cancelled, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or
certificates or credit the Holder’s DTC account 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 Holder in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such number of
Common Shares that the Company was required to deliver to the Holder by the
Required Delivery Date times (B) the Closing Sale Price (as defined in the
Convertible Notes) of the Common Shares on the Trading Day (as defined in the
Convertible Notes) immediately preceding the Required Delivery
Date.

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

       

      
        	
                6.

              	
                CONDITIONS
      TO THE COMPANY’S OBLIGATION TO EXCHANGE AND
  ISSUE.

              

      

       

      (a)         The
obligation of the Company hereunder to exchange and issue the Notes to the
Holder 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 Company’s sole benefit and may be waived by the Company at any time in
its sole discretion by providing the Holder with prior written notice
thereof:

       

      (i)         The
Holder shall have executed each of the Exchange Documents to which it is a party
and delivered the same to the Company.

       

      (ii)        The
Holder shall have delivered to the Company its 2008 Note.

       

      (iii)       The
representations and warranties of the Holder shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
originally made at that time (except for representations and warranties that
speak as of a specific date, which shall be true and correct as of such date),
and the Holder 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 Holder at or prior
to the Closing Date.

       

      
        	
                7.

              	
                CONDITIONS
      TO HOLDER’S OBLIGATION TO EXCHANGE.

              

      

       

      (a)         The
obligation of the Holder hereunder to exchange its 2008 Note 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 Holder’s sole
benefit and may be waived by the Holder at any time in its sole discretion by
providing the Company with prior written notice thereof:

       

      (i)         The
Company shall have duly executed and delivered to the Holder each of the
Exchange Documents to which it is a party, including the Notes.

       

      (ii)        Each
Subsidiary shall have duly executed and delivered to the Holder each of the
Exchange Documents to which it is a party.

       

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

       

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

       

      (v)        The
Company shall have delivered to the Holder a certificate evidencing the
formation and good standing of the Company and each Subsidiary in 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.

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

       

      (vi)       The
Company shall have delivered to the Holder a certified copy of the Articles of
Incorporation within ten (10) days of the Closing Date.

       

      (vii)      The
Company shall have delivered to the Holder a certificate, in form reasonably
acceptable to the Holder, executed by the Secretary of the Company and each
Subsidiary and dated as of the Closing Date, as to (i) the resolutions
consistent with Section 3(b) as adopted by the Company’s or such Subsidiary’s
(as the case may be) board of directors and the Resolutions, each in a form
reasonably acceptable to the Holder, (ii) the Articles of Incorporation or its
other constituent documents (as the case may be) and (iii) the Bylaws or its
bylaws (as the case may be), each as in effect at the Closing.

       

      (viii)      Each
and every representation and warranty of the Company 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,
which shall be true and correct as of such date) and the Company shall have (and
the Company shall have caused each Subsidiary to have) performed, satisfied and
complied in all respects with the covenants, agreements and conditions required
to be performed, satisfied or complied with by the Company or such Subsidiary
(as the case may be) at or prior to the Closing Date. The Holder 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 the Holder in form reasonably
acceptable to the Holder.

       

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

       

      (x)        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.

       

      (xi)       The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the issuance of the Securities, including
without limitation, those required by the Principal Market.

       

      (xii)      No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of
the transactions contemplated by the Exchange Documents.

       

      (xiii)      Since
the date of execution of this Agreement, no event or series of events shall have
occurred that reasonably would have or result in a Material Adverse
Effect.

       

      (xiv)     If
required, the Company shall have obtained approval of the Principal Market to
list or designate for quotation (as applicable) the Conversion
Shares.

       

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

       

      (xv)      The
Company shall have delivered to the Holder appropriate financing statements on
Form UCC-1 or PPSA filings (as the case may be) to be duly filed in such office
or offices as may be necessary or, in the opinion of the Holder, desirable to
perfect the security interests purported to be created by each Security
Document.

       

      (xvi)     The
results of UCC searches, and searches for any tax or judgment lien filed against
the Company or any of the Subsidiaries or any of its or their respective
property, shall not show any Liens (as defined in the Notes) on any of the
Collateral (as defined in the Amended Security Agreement).

       

      (xvii)     Each
of the Other 2008 Note Holders shall have (i) executed the Other Exchange
Agreements, (ii) satisfied or waived all conditions to the closings
contemplated by such agreements and (iii) surrendered their Other 2008
Notes being exchanged at their respective closings.

       

      (xviii)   The
Company shall have amended the Amended and Restated Registration Rights
Agreement in the form attached hereto as Exhibit
D (the “Amended and
Restated Registration Rights Agreement”).

       

      (xix)     Each
of the Subsidiaries shall have executed and delivered to the Holder a
reaffirmation of its Guaranty in the form attached hereto as Exhibit
E (each a “Reaffirmation” and
collectively, the “Reaffirmations”).

       

      (xx)      The
Company and each of the Subsidiaries shall have amended the Security Agreement
in the form attached hereto as Exhibit
F (the “Amended Security
Agreement”).

       

      (xxi)     The
Company and each of the Subsidiaries shall have amended each of the other
Security Documents as reasonably requested by the Holder.

       

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

       

      
        	
                8.

              	
                TERMINATION.

              

      

       

      In the
event that the Closing shall not have occurred on or before twenty (20) days
from the date hereof, then the Holder shall have the right to terminate its
obligations under this Agreement at any time on or after the close of business
on such date without liability of the Holder to any other party; provided,
however, the right to terminate this Agreement under this Section 8 shall not be
available to the Holder if the failure of the transactions contemplated by this
Agreement to have been consummated by such date is the result of the Holder’s
breach of this Agreement, provided further that no such termination shall affect
any obligation of the Company under Section 4(d) of this Agreement. 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 Exchange 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 Exchange Documents.

       

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

       

      
        	
                9.

              	
                MISCELLANEOUS.

              

      

       

      (a)         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
Chicago, Illinois, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. 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 TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

       

      (b)         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 a portable document format (.pdf) 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 signature page were an original
thereof.

       

      (c)         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 the Holder’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.

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

       

      (d)         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 Exchange 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 the Subsidiaries (as
the case may be), or payable to or received by the Holder, under the Exchange
Documents, including without limitation, any amounts that would be characterized
as “interest” under applicable law (including, without limitation, any
applicable Canadian or Ontario law), exceed amounts permitted under any such
applicable law. Accordingly, if any obligation to pay, payment made to the
Holder, or collection by the Holder pursuant the Exchange 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 Holder, the Company and the 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 Holder, the amount of interest or
any other amounts which would constitute unlawful amounts required to be paid or
actually paid to the Holder under the Exchange 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 Holder under any of the Exchange
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 the period of time to which they
relate.

       

      (e)         Entire Agreement;
Amendments. This
Agreement, the other Exchange 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 Holder, the Company,
their affiliates and Persons acting on their behalf solely with respect to the
matters contained herein and therein (provided that (i) except as expressly
contemplated elsewhere in this Agreement, the foregoing shall not have any
effect on any agreements the Holder has entered into with the Company or any of
its Subsidiaries prior to the date hereof and (ii) Section 4(c) hereof
supersedes Section 4(c) of the 2008 Exchange Agreement in its entirety), and
this Agreement, the other Exchange Documents, the schedules and exhibits
attached hereto and thereto and the instruments referenced herein and therein
contain the entire understanding of the parties solely with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Holder 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 Holder, provided that any party may give a waiver
in writing as to itself. 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
Other Exchange Documents unless the same consideration also is offered to the
Holder. The Company has not, directly or indirectly, made any agreements with
any other Person relating to the terms or conditions of the transactions
contemplated by the Other Exchange Documents which differs in any respect from
the terms and conditions set forth in the Exchange Documents. Without limiting
the foregoing, the Company confirms that the Holder has made not any commitment
or promise or has any other obligation to provide any financing to the Company,
any Subsidiary or otherwise.

       

      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

      

       

      (f)         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.

      485 N.
Keller Rd., Suite 500

      Maitland,
Florida 32571

      Telephone:  (407)
475-5500

      Facsimile:  (407)
475-5517

      Attention:  CEO

      

      With a
copy (for informational purposes only) to:

       

      Cozen
O’Connor

      1900
Market Street

      Philadelphia,
Pennsylvania 19103

      Telephone:  (215)
665-4141

      Facsimile:  (215)
665-2013

      Attention:  Michael
J. Heller, Esquire

       

      If to the
Holder:

       

      ___________________________

      ___________________________

      ___________________________

      ___________________________

      Telephone:
_______________

      Facsimile:
_______________

      Attention:
_______________

       

      With a
copy (for informational purposes only) to:

       

      ___________________________

      ___________________________

      ___________________________

      ___________________________

      Telephone:
_______________

      Facsimile:
_______________

      Attention:
_______________

       

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

       

      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

      

       

      (g)         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 any of the
Securities. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Holder,
including, without limitation, by way of a Fundamental Transaction (as defined
in the Notes) (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
2008 Warrant). The Holder may assign some or all of its rights hereunder in
connection with transfer of any of its Securities without the consent of the
Company, in which event such assignee shall be deemed to be a Holder hereunder
with respect to such assigned rights.

       

      (h)         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(k).

       

      (i)         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.

       

      (j)         Further
Assurances. Each
party shall (and the Company shall cause each Subsidiary to) 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.

       

      (k)         Indemnification. In
consideration of the Holder’s execution and delivery of the Exchange Documents
to which it is a party and acquiring the Securities thereunder and in addition
to all of the Company’s and the Subsidiaries’ other obligations under the
Exchange Documents, the Company shall defend, protect, indemnify and hold
harmless the Holder and each affiliate of the Holder that holds any Securities
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 Subsidiary in any of the Exchange Documents, (b) any breach of
any covenant, agreement or obligation of the Company or any Subsidiary contained
in any of the Exchange Documents 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 or any Subsidiary)
and arising out of or resulting from (i) the execution, delivery, performance or
enforcement of any of the Exchange Documents, (ii) any disclosure properly made
by the Holder pursuant to Section 4(f) or (iii) the status of the Holder or
holder of the Securities as an investor in the Company pursuant to the
transactions contemplated by the Exchange Documents, except, with respect to
clause (c) above, to the extent (but only to the extent) such Indemnified
Liability arises from the Holder’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(k)
shall be the same as those set forth in Section 6 of the Amended and Restated
Registration Rights Agreement.

       

      
        
          
          

        

        
          32

          
            

          

        

        
          
          

        

      

       

      (l)         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.

       

      (m)        Remedies.  The
Holder and each affiliate of the Holder that holds any Securities shall have all
rights and remedies set forth in the Exchange Documents and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. 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 or any Subsidiary fails to perform,
observe, or discharge any or all of its or their obligations under any of the
Exchange Documents, any remedy at law may prove to be inadequate relief to the
Holder. The Company therefore agrees, on behalf of itself and each Subsidiary,
that the Holder shall be entitled to seek specific performance and/or temporary,
preliminary and permanent injunctive or other equitable relief from any court of
competent jurisdiction in any such case without the necessity of proving damages
and without posting a bond or other security.

       

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

       

      (o)         Payment Set
Aside. To the
extent that the Company or any Subsidiary makes a payment or payments to the
Holder hereunder or pursuant to any of the other Exchange Documents or the
Holder 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 or any Subsidiary, a trustee, receiver or
any other Person under any law (including, without limitation, any bankruptcy
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. Unless otherwise expressly indicated, all dollar amounts
referred to in this Agreement and the other Exchange Documents are in United
States Dollars (“US
Dollars”), and all amounts owing under this Agreement and all other
Transaction Documents shall be paid in US Dollars. All amounts denominated in
other currencies shall be converted in the US Dollar equivalent amount in
accordance with the Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to
any amount of currency to be converted into US Dollars pursuant to this
Agreement, the US Dollar exchange rate as published in the Wall Street Journal
on the relevant date of calculation.

       

      
        
          
          

        

        
          33

          
            

          

        

        
          
          

        

      

       

      (p)         Independent Nature of the
Holder’s Obligations and Rights.  The
obligations of the Holder under the Exchange Documents are several and not joint
with the obligations of any Other Note Holder under the Other Exchange
Documents, and the Holder shall not be responsible in any way for the
performance of the obligations of any Other Note Holders under any Other
Exchange Documents. Nothing contained herein or in any other Exchange Document,
and no action taken by the Holder pursuant hereto or any Other Note Holder
pursuant to any Other Exchange Documents, shall be deemed to constitute the
Holder or any Other Note Holder as, and the Company acknowledges that the Holder
and the Other Note Holders do not so constitute, a partnership, an association,
a joint venture or any other kind of group or entity, or create a presumption
that the Holder and any Other Note Holder are in any way acting in concert or as
a group or entity with respect to such obligations or the transactions
contemplated by the Exchange Documents, the Other Exchange Documents or any
matters, and the Company acknowledges that the Holder and the Other Note Holders
are not acting in concert or as a group or entity, and the Company shall not
assert any such claim, with respect to such obligations or the transactions
contemplated by the Exchange Documents and the Other Exchange Documents. The
decision of the Holder to acquire the Securities pursuant to the Exchange
Documents has been made by the Holder independently of any Other Note Holder.
The Holder acknowledges that no Other Note Holder has acted as agent for the
Holder in connection with the Holder making its acquisition hereunder and that
no Other Note Holder will be acting as agent of the Holder in connection with
monitoring the Holder’s Securities or enforcing its rights under the Exchange
Documents. The Company and the Holder confirm that the Holder has independently
participated with the Company and the Subsidiaries in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors.
The Holder shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out
of any of the other Exchange Documents, and it shall not be necessary for any
Other Note Holder to be joined as an additional party in any proceeding for such
purpose. To the extent that any of the Other Note Holders and the Company enter
into the same or similar documents, all such matters are solely in the control
of the Company and the Subsidiaries, not the action or decision of the Holder,
and would be solely for the convenience of the Company and the Subsidiaries and
not because it was required or requested to do so by the Holder or any Other
Note Holder. For clarification purposes only and without implication that the
contrary would otherwise be true, the transactions contemplated by the Exchange
Documents include only the transaction between the Company and the Holder and do
not include any other transaction between the Company and any Other Note
Holder.

       

      
        
          
          

        

        
          34

          
            

          

        

        
          
          

        

      

       

      
        (q)   Delivery of
Securities.
Notwithstanding anything contained in this Agreement or any other Exchange
Document to the contrary, unless otherwise directed in writing by the Holder or
if being credited to the applicable balance accounts at DTC, the Company shall,
and shall cause its agents and representatives to, deliver all of the Holder’s
securities acquired pursuant to this Agreement (and all securities which are
issuable to the Holder pursuant to the terms of this Agreement or any other
Exchange Document) to the address for delivery of securities set forth on the
Holder’s signature page to this Agreement, and copies of the certificates
representing such securities shall be sent to the Holder to the address of the
Holder as set forth on the Holder’s signature page to this
Agreement.

      

       

      (r)         Most Favored
Nation. The
Company hereby represents and warrants as of the date hereof and covenants and
agrees from and after the date hereof that none of the terms offered to any
Person with respect to any amendment or waiver (each an “Amendment”) relating to the
terms, conditions and transactions contemplated by any Exchange Document or any
Other Exchange Document is or will be more favorable to such Person than those
of the Holder, and, if they are or become more favorable to any other Person,
this Agreement and the other Exchange Documents shall be, without any further
action by the Holder or the Company, deemed amended and modified in an
economically and legally equivalent manner such that the Holder shall receive
the benefit of the more favorable terms contained in such
Amendment.  Notwithstanding the foregoing, the Company agrees, at its
expense, to take such other actions (such as entering into amendments to the
Exchange Documents and the Transaction Documents) as the Holder may reasonably
request to further effectuate the foregoing. Notwithstanding the foregoing, the
foregoing provisions shall not apply to any settlement with any Person that
arises from or is entered into in connection with the settlement or disposition
of a dispute with or claim by such Person.

       

      [signature pages
follow]

       

      
        
          
          

        

        
          35

          
            

          

        

        
          
          

        

      

       

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

       

      

      
        	 	
                COMPANY:

                 

              
	 	
                WORKSTREAM
      INC.

                 

                By:
      _____________________

                Name:
      ___________________

                Title:  ____________________

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

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

       

      

      
        	 
      	
                HOLDER:

                 

              
	 
      	
                [Name]

                 

                 

                ______________________________

                By:

                Its:

                 

              
	 
      	 
      

      

      

       

      ADDRESS
FOR DELIVERY OF SECURITIES:

       

      _________________________

      _________________________

      _________________________

      Attention:__________________

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