Document:

Unassociated Document

    EXHIBIT
      10.1

    

    [THE
      KNOT
      LOGO]

    

    August
      13, 2008

    

    Mr.
      John
      P. Mueller

    

    
      	Re:	
              Offer
                of Employment

            

    

    

    Dear
      John:

    

    It
      gives
      me great pleasure to confirm our offer for you to join The Knot, Inc. as
Chief
      Financial Officer,
      reporting to the Chief Executive Officer. We expect that your first day of
      employment will be September 2, 2008. You will perform those services that
      are
      reasonably associated with this title and position and those services reasonably
      assigned to you and that are commensurate with your position. In this regard,
      you
      shall
      be responsible for The Knot’s finance, accounting, treasury, tax and economic
      planning functions; financial reporting; and communicating with the investor
      and
      analyst community.

     

    Please
      understand that this offer is conditional upon our completion of customary
      background checks and your signing of a non-disclosure, non-competition and
      non-solicitation agreement, as well as your compliance with the U.S. Citizenship
      and Immigration Services regulations requiring the establishment of your
      identity and right to work in the United States.

     

    Compensation
      Terms

     

    If
      you
      commence employment with The Knot, your compensation package would consist
      of
      the following terms. These terms are subject to the approval of the Compensation
      Committee of the Board of Directors, upon the recommendation of The Knot’s
      management.

     

    Base
      Salary

     

    Your
      annualized salary rate is $300,000 (“Base Salary”), which will be paid
      semi-monthly, on the 15th and on the last workday of the month. The Compensation
      Committee shall review your performance and Base Salary annually for potential
      increases. Your Base Salary will be subject to withholding of income, social
      security and employment taxes in accordance with The Knot’s normal
      practices.

     

    Sign-On
      Bonus

     

    You
      will
      receive a grant of 6,000 vested shares of common stock of the Company, which
      will be made as soon as possible following the commencement of your employment,
      and subject to the standard terms and conditions of The Knot’s 1999 Stock
      Incentive Plan and a stock issuance agreement between you and The Knot. This
      stock grant will be subject to withholding of income, social security and
      employment taxes in accordance with the Company’s normal practices.

     

    Incentive
      Bonus

     

    You
      will
      be eligible to earn an annual cash incentive bonus expressed as a percentage
      of
      Base Salary. Each year, your target and maximum bonus opportunities will be
      set
      by the Compensation Committee. The amount of your actual bonus will be
      determined according to your achievement of certain performance criteria
      established by the Compensation Committee. The incentive bonus will be
      conditioned upon the other terms and conditions of the incentive compensation
      program for executive officers, as may be in effect from time to time, and
      is
      payable following the completion of The Knot’s annual audit and approval by the
      Compensation Committee. The incentive bonus is not guaranteed and is completely
      discretionary; you may receive an incentive bonus in one year but not the
      next.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
          Mr.
            John
            P. Mueller

          August
            13, 2008

          Page
            2

        

      

    

     

     

    Notwithstanding
      anything to the contrary contained herein, for the year ending December 31,
      2008, you will fully participate in the incentive compensation program, your
      target and maximum bonus opportunities therein will be based on your annualized
      Base Salary and not on your actual salary paid for 2008, and you are guaranteed
      to receive a bonus of no less than $33,333, payable at the same time as
      incentive bonuses are paid to other executive officers, but in no event later
      than March 15, 2009.

     

    Restricted
      Stock Grant

     

    You
      will
      receive a restricted stock grant of 50,000 shares, which will vest over a
      four-year term, with the first 25% of the grant vesting on the first anniversary
      of the grant, and the balance of the grant vesting in equal monthly installments
      thereafter. The restricted stock grant will be made as soon as possible
      following the commencement of your employment, and will be subject to the
      standard terms and conditions of The Knot’s 1999 Stock Incentive Plan and a
      restricted stock agreement between you and The Knot. Your restricted stock
      agreement will provide that
      if
The
      Knot
      is acquired by merger, asset sale or sale of more than 50% of its voting
      securities by the stockholders (in each case in accordance with the definition
      of “change in control” under the Stock Incentive Plan), in addition to those
      shares of restricted stock that have previously vested before such change in
      control in accordance with the regular vesting schedule, an amount of shares
      of
      restricted stock shall vest upon such event equal to the greater of (1) the
      shares of restricted stock that would otherwise have vested during the one
      year
      period following the change in control, and (2) 50% of the shares of restricted
      stock that are not vested on the date of the change in control.

     

    Other
      Compensation

     

    You
      will
      be eligible to participate in future incentive compensation programs for
      executive officers, if and when such programs are established by the
      Compensation Committee of the Board of Directors, at a level commensurate with
      your position at the time awards are granted and on the same general terms
      and
      conditions as apply to the other executive officers of The Knot. Without
      limiting the foregoing, your participation in future equity grant programs
      made
      available to executive officers will not be reduced as compared to other
      executive officers because of your stock grants made pursuant to this agreement.
      In addition, in no event will the terms of equity awards granted to you
      (including your stock grants made pursuant to this agreement) with respect
      to
      accelerated vesting upon a “change in control” be less favorable than the terms
      made available to any other executive officer, and The Knot will cause any
      award
      to be modified if and as necessary to carry out this provision.

     

    Severance

     

    If
      your
      employment is involuntarily terminated without cause by The Knot or a successor
      entity, or if you resign for “Good Reason,” you shall receive a lump-sum payment
      equal to your annualized Base Salary, at your rate of pay in effect immediately
      prior to such termination or resignation, and for 12 months after such
      termination or resignation receive all benefits (other than vesting of any
      equity award) that were associated with your employment immediately prior to
      such termination or resignation (to the extent and at such levels that these
      benefits remain available to employees of The Knot generally during such
      12-month period). The Knot shall pay the lump-sum payment in connection with
      an
      involuntary termination without cause upon such termination, and the lump-sum
      payment in connection with a Good Reason resignation within 10 business days
      of
      the end of the Cure Period, as defined below.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
          Mr.
            John
            P. Mueller

          August
            13, 2008

          
            Page
              3

          

        

      

    

     

     

    An
      involuntary termination “without cause” shall mean a termination of employment
      other than for death, disability, termination for Cause or any resignation
      by
      you other than a resignation for Good Reason. “Cause” shall mean (1) your
      willful failure to perform the principal elements of your duties to The Knot
      or
      any of its subsidiaries, which failure is not cured within 20 days following
      written notice to you specifying the conduct to be cured, (2) your conviction
      of, or plea of nolo contendere to, a felony (regardless of the nature of the
      felony) or any other crime involving dishonesty, fraud, or moral turpitude,
      (3)
      your gross negligence or willful misconduct (including but not limited to acts
      of fraud, criminal activity or professional misconduct) in connection with
      the
      performance of your duties and responsibilities to The Knot or any of its
      subsidiaries, (4) your failure to substantially comply with the rules and
      policies of The Knot or any of its subsidiaries governing employee conduct
      or
      with the lawful directives of the Board of Directors of The Knot, or (5) your
      breach of any non-disclosure, non-solicitation, non-competition or other
      restrictive covenant obligations to The Knot or any of its subsidiaries. “Good
      Reason” shall mean (1) any reduction of your Base Salary, (2) the relocation of
      your principal place of business outside of New York City, or (3) the material
      diminution of your responsibilities or authority, any reduction of your title
      or
      any change in the reporting structure set forth in the first paragraph hereof,
      provided, however, that no Good Reason shall exist if you have not given written
      notice to The Knot within ninety (90) days of the initial existence of the
      Good
      Reason condition(s) and until The Knot has had thirty (30) days to cure such
      event (the “Cure Period”) after the date on which you give The Knot written
      notice specifying such event in specific detail before such event permits you
      to
      terminate your employment for Good Reason.

     

    Benefits
      and Other Terms

     

    Benefits

     

    You
      will
      be eligible to participate in The Knot benefits program starting with the first
      of the month following 30 days of employment. You will be eligible to
      participate in our 401(k) plan after completion of one (1) year of service
      and
      our Employee Stock Purchase Plan after completion of five (5) months of service.
      A full description of your benefits is contained in official plan documents
      that
      will be available to you. Please be advised that this agreement describes
      policies and benefits currently available and that The Knot reserves the right
      to amend, change and terminate its policies, programs and employee benefit
      plans
      at any time during your employment.

     

    Indemnification

     

    The
      Knot
      will enter with you into an Indemnification Agreement for Directors and
      Officers. In addition, you shall be covered by The Knot’s insurance policy for
      directors and officers.

     

    Compliance
      With Section 409A of the Internal Revenue Code

     

    The
      intent of the parties is that payments and benefits under this agreement comply
      with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”),
      and the regulations and guidance promulgated thereunder (collectively, “Section
      409A”), and, accordingly, to the maximum extent permitted, this agreement shall
      be interpreted to be in compliance therewith. If you notify The Knot (with
      specificity as to the reason therefor) that you believe that any provision
      of
      this agreement (or of any award of compensation, including equity compensation
      or benefits) would cause you to incur any additional tax or interest under
      Section 409A and The Knot concurs with such belief or The Knot (without any
      obligation whatsoever to do so) independently makes such determination, The
      Knot
      shall, after consulting with you, reform such provision to try to comply with
      Section 409A through good faith modifications to the minimum extent reasonably
      appropriate to conform with Section 409A. To the extent that any provision
      hereof is modified in order to comply with Section 409A, such modification
      shall
      be made in good faith and shall, to the maximum extent reasonably possible,
      maintain the original intent and economic benefit to you and The Knot of the
      applicable provision without violating the provisions of Section
      409A.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
          Mr.
            John
            P. Mueller

          August
            13, 2008

          
            Page
              4

          

        

      

    

     

     

    A
      termination of employment shall not be deemed to have occurred for purposes
      of
      any provision of this agreement providing for the payment of any amounts or
      benefits upon or following a termination of employment unless such termination
      is also a “separation from service” within the meaning of Section 409A and, for
      purposes of any such provision of this agreement, references to a “termination,”
“termination of employment” or like terms shall mean “separation from service.”
If you are deemed on the date of termination to be a “specified employee” within
      the meaning of that term under Section 409A(a)(2)(B) of the Code, then with
      regard to any payment or the provision of any benefit that is specified as
      subject to this Section or that is otherwise considered deferred compensation
      under Section 409A payable on account of a “separation from service,” such
      payment or benefit shall be made or provided at the date which is the earlier
      of
      (A) the expiration of the six (6)-month period measured from the date of such
      “separation from service” and (B) the date of your death (the “Delay Period”).
      Upon the expiration of the Delay Period, all payments and benefits delayed
      pursuant to this Section (whether they would have otherwise been payable in
      a
      single sum or in installments in the absence of such delay) shall be paid or
      reimbursed to you in a lump sum, and any remaining payments and benefits due
      under this agreement shall be paid or provided in accordance with the normal
      payment dates specified for them herein. For purposes of this agreement, the
      term “Separation Pay Limit” shall mean two (2) times the lesser of (A) your
      annualized compensation based on your annual rate of pay for your taxable year
      preceding the taxable year in which you have a “separation from service,” and
      (B) the maximum amount that may be taken into account under a tax qualified
      plan
      pursuant to Section 401(a)(17) of the Code for the year in which you incur
      a
“separation from service.”

     

    All
      expenses or other reimbursements under this agreement shall be made on or prior
      to the last day of the taxable year following the taxable year in which such
      expenses were incurred by you (provided that if any such reimbursements
      constitute taxable income to you, such reimbursements shall be paid no later
      than March 15th of the calendar year following the calendar year in which the
      expenses to be reimbursed were incurred), and no such reimbursement or expenses
      eligible for reimbursement in any taxable year shall in any way affect the
      expenses eligible for reimbursement in any other taxable year.

     

    In
      the
      event that it is determined that any payment or distribution of any type to
      or
      for your benefit, whether paid or payable or distributed or distributable,
      pursuant to the terms of this agreement would be subject to the additional
      tax
      and interest imposed by Section 409A, or any interest or penalties with respect
      to such additional tax (such additional tax, together with any such interest
      or
      penalties, are collectively referred to as the “409A Tax”), then you shall be
      entitled to receive an additional payment (a “409A Tax Restoration Payment”) in
      an amount that shall fund the payment by you of any 409A Tax as well as all
      income taxes imposed on the 409A Tax Restoration Payment, any 409A Tax imposed
      on the 409A Tax Restoration Payment and any interest or penalties imposed with
      respect to taxes on the 409A Tax Restoration Payment or any 409A
      Tax.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
          Mr.
            John
            P. Mueller

          August
            13, 2008

          Page
            5

        

      

    

     

     

    At-Will
      Employment

     

    Please
      understand that, if employed by The Knot in this position, your employment
      will
      be “at will,” meaning that either you or The Knot may terminate the relationship
      at any time, with or without cause or notice. Please also note that The Knot
      reserves the right to revise, supplement, or rescind any of its policies,
      practices, and procedures (including those described in the Employee Handbook)
      as it deems appropriate in its sole and absolute discretion, provided that
      no
      such change shall be effective as to you unless such change affects all
      executive officers of The Knot.

     

    No
      Violation of Contract

     

    By
      accepting this offer of employment, you represent and warrant that you are
      honoring all of the provisions of any agreement between you and any current
      or
      former employer (including all provisions that remain in effect after your
      employment is terminated), and that your acceptance of employment with The
      Knot
      is not a violation of any agreement with any third party under which you incur
      any obligations that conflict with or will otherwise prevent you from performing
      your obligations with The Knot. Additionally, please be advised that it is
      The
      Knot’s corporate policy not to obtain or use any confidential information,
      proprietary information or trade secrets of its competitors or others, unless
      it
      is properly obtained from sources permitted to disclose such information. By
      signing this agreement below, you are acknowledging that you have been advised
      of this policy and that you accept and will abide by this policy. It is not
      our
      intention or desire to make use of any proprietary information to which you
      may
      have had access during your previous employment. You are being hired to apply
      for The Knot, and are expected to apply for The Knot, only the general,
      non-trade secret skills and knowledge that you have developed throughout your
      career and that you are free to use under all applicable federal and state
      laws.
      In the event that you are in possession of any confidential non-public
      information by virtue of your prior employment, you further agree that you
      will
      not engage and have not engaged in any activity that is inconsistent with the
      rights of such prior employer which could subject The Knot, its subsidiaries
      and
      affiliates or any of their respective employees to liability.

     

    *  *  *  *  *

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
          Mr.
            John
            P. Mueller

          August
            13, 2008

          Page
            6

        

      

    

     

    John,
      we
      look forward to your joining The Knot! Please indicate your acceptance of this
      offer by signing and dating below, and return the original signed document
      to my
      attention at The Knot, Inc., 462 Broadway, 6th Floor, New York, NY 10013. We
      hope we will have a mutually rewarding association. If you have any questions
      regarding this offer, please call me at (212) 219-8555.

     

    Sincerely,

     

    /s/
      DAVID
      LIU

    

    David
      Liu

    Chief
      Executive Officer

    

    

    By
      signing, dating and returning this agreement, you accept our offer of
      employment.

    
 

    
      	/s/
              JOHN P. MUELLER	 	8/15/2008
	John P. Mueller	 	DateExhibit
      4.1

     

    [FORM
      OF WARRANT]

     

    NEITHER
      THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
      THE
      SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
      LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
      (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL
      TO
      THE HOLDER (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, THE SECURITIES MAY BE PLEDGED IN CONNECTION
      WITH
      A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
      THE
      SECURITIES.

     

    WORKSTREAM
      INC.

     

    Warrant
      To Purchase Common Shares

     

    Warrant
      No.:    

    Date
      of
      Issuance: August 29, 2008 (“Issuance
      Date”)* 

     

    Workstream
      Inc., a
      corporation existing pursuant to the Canada Business Corporations Act
(the
      “Company”),
      hereby certifies that, for good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, _________________________, the
      registered holder hereof or its permitted assigns (the “Holder”),
      is
      entitled, subject to the terms set forth below, to purchase from the Company,
      at
      the Exercise Price (as defined below) then in effect, upon exercise of this
      Warrant to Purchase Common Shares (including any Warrants to Purchase Common
      Shares issued in exchange, transfer or replacement hereof, the “Warrant”),
      at
      any time or times on or after the Issuance Date, but not after 11:59 p.m.,
      Chicago time, on the Expiration Date (as defined below), _____________ (subject
      to adjustment as provided herein) fully paid and nonassessable Common Shares
      (as
      defined below) (the
      “Warrant
      Shares”).
      Except as otherwise defined herein, capitalized terms in this Warrant shall
      have
      the meanings set forth in Section 16.
      This
      Warrant is being issued pursuant to that certain Exchange Agreement, dated
      as of
      August ___, 2008, by and between the Company and Magnetar Capital Master Fund,
      Ltd (the “Exchange Agreement”).

     

    
      
        
*
        See
        Section 17
        below.

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      
        1.
          EXERCISE
          OF WARRANT.

      

    

     

    (a) Mechanics
      of Exercise.
      Subject
      to the terms and conditions hereof (including, without limitation, the
      limitations set forth in Section 1(f)),
      this
      Warrant may be exercised by the Holder on any day on or after the Issuance
      Date,
      in whole or in part, by (i) delivery of a written notice, in the form
      attached hereto as Exhibit
      A
      (the
“Exercise
      Notice”),
      of
      the Holder’s election to exercise this Warrant and (ii) (A) payment to the
      Company of an amount equal to the then-applicable Exercise Price multiplied
      by
      the number of Warrant Shares as to which this Warrant is being exercised (the
      “Aggregate
      Exercise Price”)
      in
      cash or wire transfer of immediately available funds or (B) by notifying the
      Company that this Warrant is being exercised pursuant to a Cashless Exercise
      (as
      defined in Section 1(d)).
      The
      Holder shall not be required to deliver the original of this Warrant in order
      to
      effect an exercise hereunder. Execution and delivery of the Exercise Notice
      with
      respect to less than all of the Warrant Shares shall have the same effect as
      cancellation of the original of this Warrant and issuance of a new Warrant
      evidencing the right to purchase the remaining number of Warrant Shares.
      Execution and delivery of the Exercise Notice for all of the Warrant Shares
      shall have the same effect as cancellation of the original of this Warrant
      after
      delivery of the Warrant Shares in accordance with the terms hereof. On or before
      the second (2nd)
      Business Day following the date on which the Company has received each of the
      Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
      Exercise) (the “Exercise
      Delivery Documents”),
      the
      Company shall transmit by facsimile an acknowledgment of confirmation of receipt
      of the Exercise Delivery Documents to the Holder and the Company’s transfer
      agent (the “Transfer
      Agent”).
      On or
      before the third (3rd)
      Business Day following the date on which the Company has received all of the
      Exercise Delivery Documents (the “Share
      Delivery Date”),
      the
      Company shall (X) provided that the Transfer Agent is participating in The
      Depository Trust Company (“DTC”)
      Fast
      Automated Securities Transfer Program, and, if the Common Shares are not
      then-eligible to be sold pursuant to Rule 144 (as defined in the Exchange
      Agreement), the Holder has indicated on its Exercise Notice that it intends
      to
      immediately sell all or any portion of the Warrant Shares to be received upon
      such exercise pursuant to the registration statement covering the resale of
      such
      Warrant Shares and, to the extent applicable, in compliance with the prospectus
      delivery requirements of the 1933 Act (as defined in the Exchange Agreement),
      upon the request of the Holder, credit such aggregate number of Common Shares
      to
      which the Holder immediately intends to sell and is entitled pursuant to such
      exercise to the Holder’s or its designee’s balance account with DTC through its
      Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is
      not
      participating in the DTC Fast Automated Securities Transfer Program, issue
      and
      deliver to the Holder or, at Holder’s instruction pursuant to the Exercise
      Notice, Holder’s agent or designee, in each case, sent by reputable overnight
      courier to the address as specified in the Exercise Notice, a certificate,
      registered in the Company’s share register in the name of the Holder or its
      designee (as indicated in the Exercise Notice), for the number of Common Shares
      to which the Holder is entitled pursuant to such exercise. Upon delivery of
      the
      Exercise Delivery Documents, the Holder shall be deemed for all corporate
      purposes to have become the holder of record of the Warrant Shares with respect
      to which this Warrant has been exercised, irrespective of the date such Warrant
      Shares are credited to the Holder’s DTC account or the date of delivery of the
      certificates evidencing such Warrant Shares, as the case may be. If this Warrant
      is submitted in connection with any exercise pursuant to this Section
1(a)
      and the
      number of Warrant Shares represented by this Warrant submitted for exercise
      is
      greater than the number of Warrant Shares being acquired upon an exercise,
      then
      the Company shall as soon as practicable and in no event later than three (3)
      Business Days after any exercise and at its own expense, issue and deliver
      to
      the Holder (or its designee) a new Warrant (in accordance with Section
7(d))
      representing the right to purchase the number of Warrant Shares purchasable
      immediately prior to such exercise under this Warrant, less the number of
      Warrant Shares with respect to which this Warrant is exercised. No fractional
      Common Shares are to be issued upon the exercise of this Warrant, but rather
      the
      number of Common Shares to be issued shall be rounded up to the nearest whole
      number. The Company shall pay any and all taxes which may be payable with
      respect to the issuance and delivery of Warrant Shares upon exercise of this
      Warrant. 

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    (b) Exercise
      Price.
      For
      purposes of this Warrant, “Exercise
      Price”
means
      $0.25, subject to adjustment as provided herein. 

     

    (c) Company’s
      Failure to Timely Deliver Securities.
      If the
      Company shall fail, for any reason or for no reason, to issue to the Holder
      within three (3) Business Days of receipt of the Exercise Delivery Documents,
      a
      certificate for the number of Common Shares to which the Holder is entitled
      and
      register such Common Shares on the Company’s share register or to credit the
      Holder’s balance account with DTC for such number of Common Shares to which the
      Holder is entitled upon the Holder’s exercise of this Warrant (as the case may
      be), 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 third
      (3rd)
      Business Day that the issuance of such Common Shares is not timely effected
      an
      amount equal to 1.5% of the product of (A) the sum of the number of Common
      Shares not issued to the Holder on a timely basis and to which the Holder is
      entitled and (B) the Closing Sale Price of the Common Shares on the Trading
      Day
      immediately preceding the last possible date which the Company could have issued
      such Common Shares to the Holder without violating Section 1(a).
      In
      addition to the foregoing, if within three (3) Trading Days after the Company’s
      receipt of the facsimile copy of an Exercise Notice, the Company shall fail
      to
      issue and deliver a certificate to the Holder and register such Common Shares
      on
      the Company’s share register or credit the Holder’s balance account with DTC for
      the number of Common Shares to which the Holder is entitled upon such Holder’s
      exercise hereunder (as the case may be), and if on or after such third
      (3rd)
      Trading
      Day 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
      issuable upon such exercise that the Holder anticipated receiving from the
      Company (a “Buy-In”),
      then
      the Company shall, within three (3) Business Days after the Holder’s request and
      in the Holder’s 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 (and to issue
      such Common Shares) shall terminate and the Holder shall have no further right
      to such Common Shares or the portion of this Warrant representing such Common
      Shares, or (ii) promptly honor its obligation to deliver to the Holder a
      certificate or certificates representing such Common Shares or credit the
      Holder’s balance account with DTC for the number of Common Shares to which the
      Holder is entitled upon such Holder’s exercise hereunder (as the case may be)
      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 times (B)
      the
      Closing Sale Price of the Common Shares on the Trading Day immediately preceding
      the date of the Exercise Notice.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    (d) Cashless
      Exercise.
      Notwithstanding anything contained herein to the contrary (other than Section
      1(f)
      below),
      the Holder may, in its sole discretion, exercise this Warrant in whole or in
      part and, in lieu of making the cash payment otherwise contemplated to be made
      to the Company upon such exercise in payment of the Aggregate Exercise Price,
      elect instead to receive upon such exercise the “Net Number” of Common Shares
      determined according to the following formula (a “Cashless
      Exercise”):

     

    Net
      Number = (A
      x
      B) - (A x C)

                                                        B

     

    For
      purposes of the foregoing formula:

     

    A=
      the
      total number of shares with respect to which this Warrant is then being
      exercised.

     

    B=
      the
      Closing Sale Price of the Common Shares on the Trading Day immediately preceding
      the date of the Exercise Notice.

     

    C=
      the
      Exercise Price then in effect for the applicable Warrant Shares at the time
      of
      such exercise.

     

    (e) Disputes.
      In the
      case of a dispute as to the determination of the Exercise Price or the
      arithmetic calculation of the number of Warrant Shares to be issued pursuant
      to
      the terms hereof, the Company shall promptly issue to the Holder the number
      of
      Warrant Shares that are not disputed and resolve such dispute in accordance
      with
      Section 13.

     

    (f) Limitations
      on Exercises. Notwithstanding
      anything to the contrary contained in this Warrant, this Warrant shall not
      be
      exercisable by the Holder hereof to the extent (but only to the extent) that,
      if
      exercisable by the Holder, the Holder or any of its affiliates would
      beneficially own in excess of  9.99% (the “Maximum
      Percentage”)
      of the
      outstanding Common Shares. To the extent the above limitation applies, the
      determination of whether this Warrant shall be exercisable (vis-à-vis other
      convertible, exercisable or exchangeable securities owned by the Holder) and
      of
      which warrants shall be exercisable (as among all warrants owned by the Holder)
      shall, subject to such Maximum Percentage limitation, be determined on the
      basis
      of the first submission to the Company for conversion, exercise or exchange
      (as
      the case may be). No prior inability to exercise this Warrant pursuant to this
      paragraph shall have any effect on the applicability of the provisions of this
      paragraph with respect to any subsequent determination of exercisability.
      For the purposes of this paragraph, beneficial ownership and all determinations
      and calculations (including, without limitation, with respect to calculations
      of
      percentage ownership) shall be determined by the Holder in accordance with
      Section 13(d) of the 1934 Act (as defined in the Exchange Agreement) and the
      rules and regulations promulgated thereunder. The provisions of this paragraph
      shall be implemented in a manner otherwise than in strict conformity with the
      terms of this paragraph to correct this paragraph (or any portion hereof) which
      may be defective or inconsistent with the intended Maximum Percentage beneficial
      ownership limitation herein contained or to make changes or supplements
      necessary or desirable to properly give effect to such Maximum Percentage
      limitation. The limitations contained in this paragraph shall apply to a
      successor Holder of this Warrant. The holders of Common Shares shall
      be third party beneficiaries of this paragraph and the Company may not waive
      this paragraph without the consent of holders of a majority of
      its Common Shares. For any reason at any time, upon the written or
      oral request of the Holder, the Company shall within one (1) Business Day
      confirm orally and in writing to the Holder the number of Common Shares then
      outstanding, including by virtue of any prior conversion or exercise of
      convertible or exercisable securities into Common Shares.

     

    
      
         

      

      
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    (g) Insufficient
      Authorized Shares.
      The
      Company shall at all times keep reserved for issuance under this Warrant a
      number of Common Shares as shall be necessary to satisfy the Company’s
      obligation to issue Common Shares hereunder (without regard to any limitation
      otherwise contained herein with respect to the number of Common Shares that
      may
      be acquirable upon exercise of this Warrant). If, notwithstanding the foregoing,
      and not in limitation thereof, at any time while any of the Warrants remain
      outstanding the Company does not have a sufficient number of authorized and
      unreserved Common Shares to satisfy its obligation to reserve for issuance
      upon
      exercise of the Warrants at least a number of Common Shares equal to the maximum
      number of Common Shares as shall from time to time be necessary to effect the
      exercise of all of the Warrants then outstanding (the “Required
      Reserve Amount”)
      (an
“Authorized
      Share Failure”),
      then
      the Company shall immediately take all action necessary to increase the
      Company’s authorized Common Shares to an amount sufficient to allow the Company
      to reserve the Required Reserve Amount for all the Warrants then outstanding.
      Without limiting the generality of the foregoing sentence, as soon as
      practicable after the date of the occurrence of an Authorized Share Failure,
      but
      in no event later than sixty (60) days after the occurrence of such Authorized
      Share Failure, the Company shall hold a meeting of its shareholders for the
      approval of an increase in the number of authorized Common Shares. In connection
      with such meeting, the Company shall provide each shareholder with a proxy
      statement and shall use its best efforts to solicit its shareholders’ approval
      of such increase in authorized Common Shares and to cause its board of directors
      to recommend to the shareholders that they approve such proposal.

     

    2. ADJUSTMENT
      OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
      The
      Exercise Price and number of Warrant Shares issuable upon exercise of this
      Warrant are subject to adjustment from time to time as set forth in this Section
      2.

     

    (a) Stock
      Dividends and Splits.
      If the
      Company, at any time on or after the date of the Exchange Agreement, (i) pays
      a
      stock dividend on one or more classes of its then outstanding Common Shares
      or
      otherwise makes a distribution on any class of capital stock that is payable
      in
      Common Shares, (ii) subdivides (by any stock split, stock dividend,
      recapitalization or otherwise) one or more classes of its then outstanding
      Common Shares into a larger number of shares or (iii) combines (by combination,
      reverse stock split or otherwise) one or more classes of its then outstanding
      Common Shares into a smaller number of shares, then in each such case the
      Exercise Price shall be multiplied by a fraction of which the numerator shall
      be
      the number of Common Shares outstanding immediately before such event and of
      which the denominator shall be the number of Common Shares outstanding
      immediately after such event. Any adjustment made pursuant to clause (i) of
      this
      paragraph shall become effective immediately after the record date for the
      determination of shareholders entitled to receive such dividend or distribution,
      and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
      become effective immediately after the effective date of such subdivision or
      combination. If any event requiring an adjustment under this paragraph occurs
      during the period that an Exercise Price is calculated hereunder, then the
      calculation of such Exercise Price shall be adjusted appropriately to reflect
      such event.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    (b) Adjustment
      Upon Issuance of Common Shares.
      If and
      whenever on or after the date of the Exchange Agreement, the Company issues
      or
      sells, or in accordance with this Section 2
      is
      deemed to have issued or sold, any Common Shares (including the issuance or
      sale
      of Common Shares owned or held by or for the account of the Company, but
      excluding any Excluded Securities (as defined in the Transaction Agreement)
      issued or sold or deemed to have been issued or sold) for a consideration per
      share (the “New
      Issuance Price”)
      less
      than a price equal to the Exercise Price in effect immediately prior to such
      issue or sale or deemed issuance or sale (such lesser price being referred
      to as
      the “Applicable
      Price”)
      (the
      foregoing a “Dilutive
      Issuance”),
      then
      immediately after such Dilutive Issuance, the Exercise Price then in effect
      shall be reduced to an amount equal to the New Issuance Price. For purposes
      of
      determining the adjusted Exercise Price under this Section 2(b),
      the
      following shall be applicable:

     

    (i) Issuance
      of Options.
      If the
      Company in any manner grants or sells any Options and the lowest price per
      share
      for which one Common Shares is issuable upon the exercise of any such Option
      or
      upon conversion, exercise or exchange of any Convertible Securities issuable
      upon exercise of any such Option is less than the Applicable Price, then such
      Common Share shall be deemed to be outstanding and to have been issued and
      sold
      by the Company at the time of the granting or sale of such Option for such
      price
      per share. For purposes of this Section 2(b)(i),
      the
“lowest price per share for which one Common Share is issuable upon the exercise
      of any such Options or upon conversion, exercise or exchange of any Convertible
      Securities issuable upon exercise of any such Option” shall be equal to the sum
      of the lowest amounts of consideration (if any) received or receivable by the
      Company with respect to any one Common Share upon the granting or sale of the
      Option, upon exercise of the Option and upon conversion, exercise or exchange
      of
      any Convertible Security issuable upon exercise of such Option. Except as
      contemplated below, no further adjustment of the Exercise Price shall be made
      upon the actual issuance of such Common Shares or of such Convertible Securities
      upon the exercise of such Options or upon the actual issuance of such Common
      Shares upon conversion, exercise or exchange of such Convertible
      Securities.

     

    (ii) Issuance
      of Convertible Securities.
      If the
      Company in any manner issues or sells any Convertible Securities and the lowest
      price per share for which one Common Share is issuable upon the conversion,
      exercise or exchange thereof is less than the Applicable Price, then such Common
      Share shall be deemed to be outstanding and to have been issued and sold by
      the
      Company at the time of the issuance or sale of such Convertible Securities
      for
      such price per share. For the purposes of this Section 2(b)(ii),
      the
“lowest price per share for which one Common Share is issuable upon the
      conversion, exercise or exchange thereof” shall be equal to the sum of the
      lowest amounts of consideration (if any) received or receivable by the Company
      with respect to one Common Share upon the issuance or sale of the Convertible
      Security and upon conversion, exercise or exchange of such Convertible Security.
      Except as contemplated below, no further adjustment of the Exercise Price shall
      be made upon the actual issuance of such Common Shares upon conversion, exercise
      or exchange of such Convertible Securities, and if any such issue or sale of
      such Convertible Securities is made upon exercise of any Options for which
      adjustment of this Warrant has been or is to be made pursuant to other
      provisions of this Section 2(b),
      except
      as contemplated below, no further adjustment of the Exercise Price shall be
      made
      by reason of such issue or sale. 

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    (iii) Change
      in Option Price or Rate of Conversion.
      If the
      purchase or exercise price provided for in any Options, the additional
      consideration, if any, payable upon the issue, conversion, exercise or exchange
      of any Convertible Securities, or the rate at which any Convertible Securities
      are convertible into or exercisable or exchangeable for Common Shares increases
      or decreases at any time, the Exercise Price in effect at the time of such
      increase or decrease shall be adjusted to the Exercise Price which would have
      been in effect at such time had such Options or Convertible Securities provided
      for such increased or decreased purchase price, additional consideration or
      increased or decreased conversion rate, as the case may be, at the time
      initially granted, issued or sold. For purposes of this Section 2(b)(iii),
      if the
      terms of any Option or Convertible Security that was outstanding as of the
      date
      of issuance of this Warrant are increased or decreased in the manner described
      in the immediately preceding sentence, then such Option or Convertible Security
      and the Common Shares deemed issuable upon exercise, conversion or exchange
      thereof shall be deemed to have been issued as of the date of such increase
      or
      decrease. No adjustment pursuant to this Section 2(b)
      shall be
      made if such adjustment would result in an increase of the Exercise Price then
      in effect.

     

    (iv) Calculation
      of Consideration Received.
      In case
      any Option is issued in connection with the issue or sale of other securities
      of
      the Company, together comprising one integrated transaction in which no specific
      consideration is allocated to such Options by the parties thereto, the Options
      will be deemed to have been issued for a consideration of $0.01. If any Common
      Shares, Options or Convertible Securities are issued or sold or deemed to have
      been issued or sold for cash, the consideration received therefor will be deemed
      to be the net amount received by the Company therefor. If any Common Shares,
      Options or Convertible Securities are issued or sold for a consideration other
      than cash, the amount of such consideration received by the Company will be
      the
      fair value of such consideration, except where such consideration consists
      of
      publicly-traded securities, in which case the amount of consideration received
      by the Company for each such security will be the average VWAP of such security
      for the five (5) Trading Day period immediately preceding the date of receipt.
      If any Common Shares, Options or Convertible Securities are issued to the owners
      of the non-surviving entity in connection with any merger in which the Company
      is the surviving entity, the amount of consideration therefor will be deemed
      to
      be the fair value of such portion of the net assets and business of the
      non-surviving entity as is attributable to such Common Shares, Options or
      Convertible Securities, as the case may be. The fair value of any consideration
      other than cash or publicly-traded securities will be determined jointly by
      the
      Company and the Holder. If such parties are unable to reach agreement within
      ten
      (10) days after the occurrence of an event requiring valuation (the
“Valuation
      Event”),
      the
      fair value of such consideration will be determined within five (5) Trading
      Days
      after the tenth (10th)
      day
      following such Valuation Event by an independent, reputable appraiser jointly
      selected by the Company and the Holder. The determination of such appraiser
      shall be final and binding upon all parties absent manifest error and the fees
      and expenses of such appraiser shall be borne by the Company.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    (v) Record
      Date.
      If the
      Company takes a record of the holders of Common Shares for the purpose of
      entitling them (A) to receive a dividend or other distribution payable in
      Common Shares, Options or in Convertible Securities or (B) to subscribe for
      or purchase Common Shares, Options or Convertible Securities, then such record
      date will be deemed to be the date of the issue or sale of the Common Shares
      deemed to have been issued or sold upon the declaration of such dividend or
      the
      making of such other distribution or the date of the granting of such right
      of
      subscription or purchase (as the case may be).

     

    (vi) Floor
      Price.
      No
      adjustment pursuant to Section 2(b)
      shall
      cause the Exercise Price to be less than $0.10 (the “Floor
      Price”),
      as
      adjusted for any stock dividend, stock split, stock combination,
      reclassification or similar transaction, provided that the foregoing shall
      not
      apply if Shareholder Approval (as defined in the Exchange Agreement) is
      obtained. Until Shareholder Approval is obtained, the Company shall not directly
      or indirectly issue or sell, or, in accordance with this Section 2,
      be
      deemed to have issued or sold, any Common Shares (other than Excluded
      Securities) for less than the Floor Price at any time while this Warrant is
      outstanding without the prior written consent of the Holder, which consent
      may
      be granted or withheld in the Holder’s sole discretion. In
      no
      event shall any Excluded Securities be issued, or be deemed to be issued as
      contemplated hereby, for less than the fair market value of the Common Shares
      at
      the time such Excluded Securities are so issued or are so deemed to be
      issued.

     

    (c) Number
      of Warrant Shares.
      Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs
      (a) or (b) of this Section 2,
      the
      number of Warrant Shares that may be purchased upon exercise of this Warrant
      shall be increased or decreased proportionately, so that after such adjustment
      the aggregate Exercise Price payable hereunder for the adjusted number of
      Warrant Shares shall be the same as the aggregate Exercise Price in effect
      immediately prior to such adjustment (without regard to any limitations on
      exercise contained herein).

     

    (d) Other
      Events.
      In the
      event that the Company (or any direct or indirect subsidiary thereof) shall
      take any action to which the provisions hereof are not strictly applicable,
      or,
      if applicable, would not operate to protect the Holder from dilution or if
      any
      event occurs of the type contemplated by the provisions of this Section
2
      but not
      expressly provided for by such provisions (including, without limitation, the
      granting of stock appreciation rights, phantom stock rights or other rights
      with
      equity features), then the Company’s Board of Directors shall in good faith
      determine and implement an appropriate adjustment in the Exercise Price and
      the
      number of Warrant Shares (if applicable) so as to protect the rights of the
      Holder; provided that no such adjustment pursuant to this Section 2(d)
      will
      increase the Exercise Price or decrease the number of Warrant Shares as
      otherwise determined pursuant to this Section 2,
      provided further that if the Holder does not accept such adjustments as
      appropriately protecting its interests hereunder against such dilution, then
      the
      Company’s Board of Directors and the Holder shall agree, in good faith, upon an
      independent investment bank of nationally recognized standing to make such
      appropriate adjustments, whose determination shall be final and binding and
      whose fees and expenses shall be borne by the Company.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    (e) Calculations.
      All
      calculations under this Section 2
      shall be
      made to the nearest cent or the nearest 1/100th
      of a
      share, as applicable. The number of Common Shares outstanding at any given
      time
      shall not include shares owned or held by or for the account of the Company,
      and
      the disposition of any such shares shall be considered an issue or sale of
      Common Shares.

     

    3. RIGHTS
      UPON DISTRIBUTION OF ASSETS.
      If the
      Company shall declare or make any dividend or other distribution of its assets
      (or rights to acquire its assets) to holders of Common Shares, by way of return
      of capital or otherwise (including, without limitation, any distribution of
      cash, stock or other securities, property or options by way of a dividend,
      spin
      off, reclassification, corporate rearrangement, scheme of arrangement or other
      similar transaction) (a “Distribution”),
      at
      any time after the issuance of this Warrant, then, in each such case, the Holder
      shall be entitled to participate in such Distribution to the same extent that
      the Holder would have participated therein if the Holder had held the number
      of
      Common Shares acquirable upon complete exercise of this Warrant (without regard
      to any limitations on exercise hereof, including without limitation, the Maximum
      Percentage) immediately before the date on which a record is taken for such
      Distribution, or, if no such record is taken, the date as of which the record
      holders of Common Shares are to be determined for the participation in such
      Distribution (provided, however, that to the extent that the Holder’s right to
      participate in any such Distributions would result in the Holder exceeding
      the
      Maximum Percentage, then the Holder shall not be entitled to participate in
      such
      Distribution to such extent (or the beneficial ownership of any such Common
      Shares as a result of such Distribution to such extent) and such Distribution
      to
      such extent shall be held in abeyance for the benefit of the Holder until such
      time, if ever, as its right thereto would not result in the Holder exceeding
      the
      Maximum Percentage).

     

    
      
        4.
          PURCHASE
          RIGHTS; FUNDAMENTAL TRANSACTIONS.

      

    

     

    (a) Purchase
      Rights.
      In
      addition to any adjustments pursuant to Section 2
      above,
      if at any time the Company grants, issues or sells any Options, Convertible
      Securities or rights to purchase stock, warrants, securities or other property
      pro rata to all of the record holders of any class of Common Shares (the
“Purchase
      Rights”),
      then
      the Holder will be entitled to acquire, upon the terms applicable to such
      Purchase Rights, the aggregate Purchase Rights which the Holder could have
      acquired if the Holder had held the number of Common Shares acquirable upon
      complete exercise of this Warrant (without regard to any limitations on exercise
      hereof, including without limitation, the Maximum Percentage) immediately before
      the date on which a record is taken for the grant, issuance or sale of such
      Purchase Rights, or, if no such record is taken, the date as of which the record
      holders of Common Shares are to be determined for the grant, issue or sale
      of
      such Purchase Rights (provided, however, that to the extent that the Holder’s
      right to participate in any such Purchase Right would result in the Holder
      exceeding the Maximum Percentage, then the Holder shall not be entitled to
      participate in such Purchase Right to such extent (or beneficial ownership
      of
      such Common Shares as a result of such Purchase Right to such extent) and such
      Purchase Right to such extent shall be held in abeyance for the Holder until
      such time, if ever, as its right thereto would not result in the Holder
      exceeding the Maximum Percentage).

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    (b) Fundamental
      Transactions.
      The
      Company shall not enter into or be party to a Fundamental Transaction unless
      the
      Successor Entity assumes in writing all of the obligations of the Company under
      this Warrant and the other Transaction Documents in accordance with the
      provisions of this Section 4(b)
      pursuant
      to written agreements in form and substance reasonably satisfactory to the
      Holder and approved by the Holder prior to such Fundamental Transaction,
      including agreements to deliver to the Holder in exchange for this Warrant
      a
      security of the Successor Entity evidenced by a written instrument substantially
      similar in form and substance to this Warrant, including, without limitation,
      which is exercisable for a corresponding number of shares of capital stock
      equivalent to the Common Shares acquirable and receivable upon exercise of
      this
      Warrant (without regard to any limitations on the exercise of this Warrant)
      prior to such Fundamental Transaction, and with an exercise price which applies
      the exercise price hereunder to such shares of capital stock (but taking into
      account the relative value of the Common Shares pursuant to such Fundamental
      Transaction and the value of such shares of capital stock, such adjustments
      to
      the number of shares of capital stock and such exercise price being for the
      purpose of protecting the economic value of this Warrant immediately prior
      to
      the consummation of such Fundamental Transaction), and which is reasonably
      satisfactory in form and substance to the Holder. Upon the occurrence of any
      Fundamental Transaction, the Successor Entity shall succeed to, and be
      substituted for (so that from and after the date of such Fundamental
      Transaction, the provisions of this Warrant and the other Transaction Documents
      referring to the “Company” shall refer instead to the Successor Entity), and may
      exercise every right and power of the Company and shall assume all of the
      obligations of the Company under this Warrant and the other Transaction
      Documents with the same effect as if such Successor Entity had been named as
      the
      Company herein. Upon consummation of the Fundamental Transaction, the Successor
      Entity shall deliver to the Holder confirmation that there shall be issued
      upon
      exercise of this Warrant at
      any
      time after the consummation of the Fundamental Transaction, in lieu of the
      Common Shares (or
      other
      securities, cash, assets or other property (except such items still issuable
      under Sections 3
      and
4(a)
      above,
      which shall continue to be receivable thereafter)) issuable
      upon the exercise of this Warrant
      prior
      to
      such Fundamental Transaction,
      such
      shares of the publicly traded Common Shares (or its equivalent) of the Successor
      Entity (including its Parent Entity) which the Holder would have been entitled
      to receive upon the happening of such Fundamental Transaction had this
Warrant
      been
      exercised immediately prior to such Fundamental Transaction (without
      regard to any limitations on the exercise of this Warrant),
      as
      adjusted in accordance with the provisions of this Warrant.
      In
      addition to and not in substitution for any other rights hereunder, prior to
      the
      consummation of any Fundamental Transaction pursuant to which holders of Common
      Shares are entitled to receive securities or other assets with respect to or
      in
      exchange for Common Shares (a “Corporate
      Event”),
      the
      Company shall make appropriate provision to insure that the Holder will
      thereafter have the right to receive upon an exercise of this Warrant
at
      any
      time after the consummation of
      the
      Fundamental Transaction but
      prior
      to the Expiration Date,
      in lieu
      of the Common Shares (or
      other
      securities, cash, assets or other property (except such items still issuable
      under Sections 3
      and
4(a)
      above,
      which shall continue to be receivable thereafter)) issuable
      upon the exercise of the Warrant prior to such Fundamental
      Transaction,
      such
      shares of stock, securities, cash, assets or any other property whatsoever
      (including warrants or other purchase or subscription rights) which the Holder
      would have been entitled to receive upon the happening of such Fundamental
      Transaction had the Warrant been exercised immediately prior to such Fundamental
      Transaction (without
      regard to any limitations on the exercise of this Warrant).
      Provision
      made pursuant to the preceding sentence shall be in a form and substance
      reasonably satisfactory to the Holder. The provisions of this Section
4
      shall
      apply similarly and equally to successive Fundamental Transactions and Corporate
      Events and shall be applied as if this Warrant (and any such subsequent
      warrants) were fully exercisable and without regard to any limitations on the
      exercise of this Warrant (provided that the Holder shall continue to be entitled
      to the benefit of the Maximum Percentage, applied however with respect to shares
      of capital stock registered under the 1934 Act and thereafter receivable upon
      exercise of this Warrant (or any such other warrant)).

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    5. NONCIRCUMVENTION.
      The
      Company hereby covenants and agrees that the Company will not, by amendment
      of
      its Articles of Incorporation (as defined in the Exchange Agreement), Bylaws
      (as
      defined in the Exchange Agreement) or through any reorganization, transfer
      of
      assets, consolidation, merger, scheme of arrangement, dissolution, issue or
      sale
      of securities, or any other voluntary action, avoid or seek to avoid the
      observance or performance of any of the terms of this Warrant, and will at
      all
      times in good faith carry out all the provisions of this Warrant and take all
      action as may be required to protect the rights of the Holder. Without limiting
      the generality of the foregoing, the Company (i) shall not increase the par
      value of any Common Shares receivable upon the exercise of this Warrant above
      the Exercise Price then in effect, (ii) shall take all such actions as may
      be necessary or appropriate in order that the Company may validly and legally
      issue fully paid and nonassessable Common Shares upon the exercise of this
      Warrant, and (iii) shall, so long as any of the Warrants are outstanding, take
      all action necessary to reserve and keep available out of its authorized and
      unissued Common Shares, solely for the purpose of effecting the exercise of
      the
      Warrants, the maximum number of Common Shares as shall from time to time be
      necessary to effect the exercise of the Warrants then outstanding (without
      regard to any limitations on exercise).

     

    6. WARRANT
      HOLDER NOT DEEMED A SHAREHOLDER.
      Except
      as otherwise specifically provided herein, the Holder, solely in such Person’s
      capacity as a holder of this Warrant, shall not be entitled to vote or receive
      dividends or be deemed the holder of share capital of the Company for any
      purpose, nor shall anything contained in this Warrant be construed to confer
      upon the Holder, solely in such Person’s capacity as the Holder of this Warrant,
      any of the rights of a shareholder of the Company or any right to vote, give
      or
      withhold consent to any corporate action (whether any reorganization, issue
      of
      stock, reclassification of stock, consolidation, merger, conveyance or
      otherwise), receive notice of meetings, receive dividends or subscription
      rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares
      which such Person is then entitled to receive upon the due exercise of this
      Warrant. In addition, nothing contained in this Warrant shall be construed
      as
      imposing any liabilities on the Holder to purchase any securities (upon exercise
      of this Warrant or otherwise) or as a shareholder of the Company, whether such
      liabilities are asserted by the Company or by creditors of the Company.
      Notwithstanding this Section 6,
      the
      Company shall provide the Holder with copies of the same notices and other
      information given to the shareholders of the Company generally,
      contemporaneously with the giving thereof to the shareholders.

     

    7. REISSUANCE
      OF WARRANTS.

     

    (a) Transfer
      of Warrant.
      If this
      Warrant is to be transferred, the Holder shall surrender this Warrant to the
      Company, whereupon the Company will forthwith issue and deliver upon the order
      of the Holder a new Warrant (in accordance with Section 7(d)),
      registered as the Holder may request, representing the right to purchase the
      number of Warrant Shares being transferred by the Holder and, if less than
      the
      total number of Warrant Shares then underlying this Warrant is being
      transferred, a new Warrant (in accordance with Section 7(d))
      to the
      Holder representing the right to purchase the number of Warrant Shares not
      being
      transferred.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    (b) Lost,
      Stolen or Mutilated Warrant.
      Upon
      receipt by the Company of evidence reasonably satisfactory to the Company of
      the
      loss, theft, destruction or mutilation of this Warrant (as to which a written
      certification and the indemnification contemplated below shall suffice as such
      evidence), and, in the case of loss, theft or destruction, of any
      indemnification undertaking by the Holder to the Company in customary and
      reasonable form and, in the case of mutilation, upon surrender and cancellation
      of this Warrant, the Company shall execute and deliver to the Holder a new
      Warrant (in accordance with Section 7(d))
      representing the right to purchase the Warrant Shares then underlying this
      Warrant.

     

    (c) Exchangeable
      for Multiple Warrants.
      This
      Warrant is exchangeable, upon the surrender hereof by the Holder at the
      principal office of the Company, for a new Warrant or Warrants (in accordance
      with Section 7(d))
      representing in the aggregate the right to purchase the number of Warrant Shares
      then underlying this Warrant, and each such new Warrant will represent the
      right
      to purchase such portion of such Warrant Shares as is designated by the Holder
      at the time of such surrender; provided, however, that no warrants for
      fractional Common Shares shall be given.

     

    (d) Issuance
      of New Warrants.
      Whenever the Company is required to issue a new Warrant pursuant to the terms
      of
      this Warrant, such new Warrant (i) shall be of like tenor with this Warrant,
      (ii) shall represent, as indicated on the face of such new Warrant, the right
      to
      purchase the Warrant Shares then underlying this Warrant (or in the case of
      a
      new Warrant being issued pursuant to Section 7(a)
      or
      Section 7(c),
      the
      Warrant Shares designated by the Holder which, when added to the number of
      Common Shares underlying the other new Warrants issued in connection with such
      issuance, does not exceed the number of Warrant Shares then underlying this
      Warrant), (iii) shall have an issuance date, as indicated on the face of such
      new Warrant which is the same as the Issuance Date, and (iv) shall have the
      same
      rights and conditions as this Warrant.

     

    8. NOTICES.
      Whenever notice is required to be given under this Warrant, unless otherwise
      provided herein, such notice shall be given in accordance with Section 9(f)
      of
      the Transaction Agreement. The Company shall provide the Holder with prompt
      written notice of all actions taken pursuant to this Warrant, including in
      reasonable detail a description of such action and the reason therefor. Without
      limiting the generality of the foregoing, the Company will give written notice
      to the Holder (i) immediately upon each adjustment of the Exercise Price and
      the
      number of Warrant Shares, setting forth in reasonable detail, and certifying,
      the calculation of such adjustment(s) and (ii) at least fifteen (15) days prior
      to the date on which the Company closes its books or takes a record (A) with
      respect to any dividend or distribution upon the Common Shares, (B) with respect
      to any grants, issuances or sales of any Options, Convertible Securities or
      rights to purchase stock, warrants, securities or other property pro rata to
      the
      holders of all of the Common Shares or (C) for determining rights to vote with
      respect to any Fundamental Transaction, dissolution or liquidation, provided
      in
      each case that such information shall be made known to the public prior to
      or in
      conjunction with such notice being provided to the Holder and (iii) at least
      ten
      (10) Trading Days prior to the consummation of any Fundamental Transaction
      (excluding any Fundamental Transaction for which the Company does not have
      prior
      knowledge or notice). To the extent that any notice provided hereunder
      constitutes, or contains, material, non-public information regarding the Company
      or any of its Subsidiaries (as defined in the Exchange Agreement), the Company
      shall simultaneously file such notice with the SEC (as defined in the Exchange
      Agreement) pursuant to a Current Report on Form 8-K.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    9. AMENDMENT
      AND WAIVER.
      Except
      as otherwise provided herein, the provisions of this Warrant (other than Section
      1(f))
      may be
      amended and the Company may take any action herein prohibited, or omit to
      perform any act herein required to be performed by it, only if the Company
      has
      obtained the written consent of the Holder. The Holder shall be entitled, at
      its
      option, to the benefit of any amendment of any other similar warrant issued
      pursuant to the Other Exchange Agreements. No waiver shall be effective unless
      it is in writing and signed by an authorized representative of the waiving
      party.

     

    10. SEVERABILITY.
      If any
      provision of this Warrant or the application thereof becomes or is declared
      by a
      court of competent jurisdiction to be illegal, void or unenforceable, the
      remainder of the terms of this Warrant will continue in full force and
      effect.

     

    11. GOVERNING
      LAW.
      This
      Warrant shall be governed by and construed and enforced in accordance with,
      and
      all questions concerning the construction, validity, interpretation and
      performance of this Warrant 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. 

     

    12. CONSTRUCTION;
      HEADINGS.
      This
      Warrant shall be deemed to be jointly drafted by the Company and the Holder
      and
      shall not be construed against any Person as the drafter hereof. The headings
      of
      this Warrant are for convenience of reference and shall not form part of, or
      affect the interpretation of, this Warrant. Terms used in this Warrant but
      defined in the other Transaction Documents shall have the meanings ascribed
      to
      such terms on the Closing Date (as defined in the Exchange Agreement) in such
      other Transaction Documents unless otherwise consented to in writing by the
      Holder.

     

    13. DISPUTE
      RESOLUTION.
      In the
      case of a dispute as to the determination of the Exercise Price, the Closing
      Sale Price or fair market value or the arithmetic calculation of the Warrant
      Shares, the Company or the Holder (as the case may be) shall submit the disputed
      determinations or arithmetic calculations (as the case may be) via facsimile
      within two (2) Business Days of receipt of the applicable notice giving rise
      to
      such dispute to the Company or the Holder (as the case may be). If the Holder
      and the Company are unable to agree upon such determination or calculation
      of
      the Exercise Price or fair market value or the number of Warrant Shares (as
      the
      case may be) within three (3) Business Days of such disputed determination
      or
      arithmetic calculation being submitted to the Company or the Holder (as the
      case
      may be), then the Company shall, within two (2) Business Days submit via
      facsimile (a) the disputed determination of the Exercise Price, Closing Sale
      Price or fair market value (as the case may be) to an independent, reputable
      investment bank selected by the Company and approved by the Holder or (b) the
      disputed arithmetic calculation of the Warrant Shares to the Company’s
      independent, outside accountant. The Company shall cause at its expense the
      investment bank or the accountant (as the case may be) to perform the
      determinations or calculations (as the case may be) and notify the Company
      and
      the Holder of the results no later than ten (10) Business Days from the time
      it
      receives such disputed determinations or calculations (as the case may be).
      Such
      investment bank’s or accountant’s determination or calculation (as the case may
      be) shall be binding upon all parties absent demonstrable error.

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    14. REMEDIES,
      OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
      The
      remedies provided in this Warrant shall be cumulative and in addition to all
      other remedies available under this Warrant and the other Transaction Documents,
      at law or in equity (including a decree of specific performance and/or other
      injunctive relief), and nothing herein shall limit the right of the Holder
      to
      pursue actual damages for any failure by the Company to comply with the terms
      of
      this Warrant. The Company acknowledges that a breach by it of its obligations
      hereunder will cause irreparable harm to the Holder and that the remedy at
      law
      for any such breach may be inadequate. The Company therefore agrees that, in
      the
      event of any such breach or threatened breach, the holder of this Warrant shall
      be entitled, in addition to all other available remedies, to an injunction
      restraining any breach, without the necessity of showing economic loss and
      without any bond or other security being required. The issuance of shares and
      certificates for shares as contemplated hereby upon the exercise of this Warrant
      shall be made without charge to the Holder or such shares for any issuance
      tax
      or other costs in respect thereof, provided that the Company shall not be
      required to pay any tax which may be payable in respect of any transfer involved
      in the issuance and delivery of any certificate in a name other than the Holder
      or its agent on its behalf.

     

    15. TRANSFER. This
      Warrant may be offered for sale, sold, transferred or assigned without the
      consent of the Company, except as may otherwise be required by Section 2(g)
      of
      the Exchange Agreement.
      In
      connection with any such transfer, the Holder shall be entitled to disclose
      to
      the transferee any information about the Company, its Subsidiaries, and its
      and
      their securities, in the Holder’s possession.

     

    16. CERTAIN
      DEFINITIONS.
      For
      purposes of this Warrant, the following terms shall have the following
      meanings:

     

    (a) “Bloomberg”
means
      Bloomberg Financial Markets.

     

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

     

    (c) “Closing
      Sale Price”
means,
      for any security as of any date, the last closing trade price for such security
      on the Principal Market, as reported by Bloomberg, or, if the Principal Market
      begins to operate on an extended hours basis and does not designate the closing
      trade price then, the last trade price of such security prior to 4:00:00 p.m.,
      New York time, as reported by Bloomberg, or, if the Principal Market is not
      the
      principal securities exchange or trading market for such security, the last
      trade price of such security on the principal securities exchange or trading
      market where such security is listed or traded as reported by Bloomberg, or
      if
      the foregoing does not apply, the last trade price of such security in the
      over-the-counter market on the electronic bulletin board for such security
      as
      reported by Bloomberg, or, if no last trade price is reported for such security
      by Bloomberg, the average of the ask prices of any market makers for such
      security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
      National Quotation Bureau, Inc.). If the Closing Sale Price cannot be calculated
      for a security on a particular date on any of the foregoing bases, the Closing
      Sale Price of such security on such date shall be the fair market value as
      mutually determined by the Company and the Holder. If the Company and the Holder
      are unable to agree upon the fair market value of such security, then such
      dispute shall be resolved in accordance with the procedures in Section
13.
      All
      such determinations shall be appropriately adjusted for any share dividend,
      share split, share combination or other similar transaction during such
      period.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    (d) “Common
      Shares”
means
      (i) the Company’s common shares, no par value, and (ii) any capital
      stock into which such common shares shall have been changed or any share capital
      resulting from a reclassification of such common shares.

     

    (e) “Convertible
      Securities”
means
      any stock or securities (other than Options) directly or indirectly convertible
      into or exercisable or exchangeable for Common Shares.

     

    (f) “Eligible
      Market”
means
      The New York Stock Exchange, Inc., the Nasdaq Global Market, the Nasdaq Global
      Select Market or the Principal Market.

     

    (g) “Exchange Agreements”
means,
      collectively, the Exchange Agreement and the Other Exchange Agreements (as
      defined below).

     

    (h) “Expiration
      Date”
means
      the date that is the five (5) year anniversary of August 3, 2007 or, if such
      date falls on a day other than a Business Day or on which trading does not
      take
      place on the Principal Market (a “Holiday”),
      the
      next date that is not a Holiday.

     

    (i) “Fundamental
      Transaction”
means
      that the Company shall, directly or indirectly, in one or more related
      transactions, (i) consolidate or merge with or into (whether or not the Company
      is the surviving corporation) another Person, or (ii) sell, lease, license,
      assign, transfer, convey or otherwise dispose of all or substantially all of
      the
      properties or assets of the Company to another Person, or (iii) allow another
      Person to make a purchase, tender or exchange offer that is accepted by the
      holders of more than 50% of the outstanding Common Shares (not including any
      Common Shares held by the Person or Persons making or party to, or associated
      or
      affiliated with the Persons making or party to, such purchase, tender or
      exchange offer), or (iv) consummate a stock or share purchase agreement or
      other
      business combination (including, without limitation, a reorganization,
      recapitalization, spin-off or scheme of arrangement) with another Person whereby
      such other Person acquires more than the 50% of the outstanding Common Shares
      (not including any Common Shares held by the other Person or other Persons
      making or party to, or associated or affiliated with the other Persons making
      or
      party to, such stock or share purchase agreement or other business combination),
      or (v) reorganize, recapitalize or reclassify its Common Shares, or (vi) any
      “person” or “group” (as these terms are used for purposes of Sections 13(d) and
      14(d) of the 1934 Act) is or shall become the “beneficial owner” (as defined in
      Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
      ordinary voting power represented by issued and outstanding Common
      Shares.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    (j) “Options”
means
      any rights, warrants or options to subscribe for or purchase Common Shares
      or
      Convertible Securities.

     

    (k) “Other Exchange Agreements”
means,
      collectively, those certain exchange agreements, dated as of August ___, 2008,
      (other than the Exchange Agreement) by and between the Company and the parties
      thereto.

     

    (l) “Parent
      Entity”
of
      a
      Person means an entity that, directly or indirectly, controls the applicable
      Person and whose common stock or equivalent equity security is quoted or listed
      on an Eligible Market, or, if there is more than one such Person or Parent
      Entity, the Person or Parent Entity with the largest public market
      capitalization as of the date of consummation of the Fundamental
      Transaction.

     

    (m) “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.

     

    (n) “Principal
      Market”
means
      The Nasdaq Capital Market.

     

    (o) “Successor
      Entity”
means
      the Person (or, if so elected by the Holder, the Parent Entity) formed by,
      resulting from or surviving any Fundamental Transaction or the Person (or,
      if so
      elected by the Holder, the Parent Entity) with which such Fundamental
      Transaction shall have been entered into.

     

    (p) “Trading
      Day”
means
      any day on which the Common Shares are traded on the Principal Market, or,
      if
      the Principal Market is not the principal trading market for the Common Shares,
      then on the principal securities exchange or securities market on which the
      Common Shares are then traded; provided that “Trading Day” shall not include any
      day on which the Common Shares are scheduled to trade on such exchange or market
      for less than 4.5 hours or any day that the Common Shares are suspended from
      trading during the final hour of trading on such exchange or market (or if
      such
      exchange or market does not designate in advance the closing time of trading
      on
      such exchange or market, then during the hour ending at 4:00:00 p.m., New York
      time).

     

    (q) “Transaction
      Agreement”
means
      that certain Transaction Agreement, dated as of July 25, 2007, by and among
      the
      Company and the investors listed on the Schedule of Buyers attached thereto,
      as
      amended and modified by the Exchange Agreements.

     

    (r) “Transaction
      Documents”
means,
      collectively, the Transaction Documents (as defined in the Transaction
      Agreement) and the Exchange Documents (as defined in the Exchange
      Agreement).

     

    (s) “VWAP”
means,
      for any security as of any date, the dollar volume-weighted average price for
      such security on the Principal Market (or, if the Principal Market is not the
      principal trading market for such security, then on the principal securities
      exchange or securities market on which such security is then traded) during
      the
      period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m.,
      New
      York time, as reported by Bloomberg through its “Volume at Price” function or,
      if the foregoing does not apply, the dollar volume-weighted average price of
      such security in the over-the-counter market on the electronic bulletin board
      for such security during the period beginning at 9:30:01 a.m., New York time,
      and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if
      no
      dollar volume-weighted average price is reported for such security by Bloomberg
      for such hours, the average of the highest closing bid price and the lowest
      closing ask price of any of the market makers for such security as reported
      in
      the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
      Inc.). If VWAP cannot be calculated for such security on such date on any of
      the
      foregoing bases, the VWAP of such security on such date shall be the fair market
      value as mutually determined by the Company and the Holder. If the Company
      and
      the Holder are unable to agree upon the fair market value of such security,
      then
      such dispute shall be resolved in accordance with the procedures in Section
      13.
      All
      such determinations shall be appropriately adjusted for any share dividend,
      share split or other similar transaction during such period.

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

    (t) “Warrants”
means,
      collectively, this Warrant and the other warrants issued on the Closing Date
      pursuant to the Other Exchange Agreements, and shall include all warrants issued
      in exchange therefor or replacement thereof.

     

    17. RULE
      144.
      The
      Company expressly acknowledges and agrees that for purposes of Rule 144(d)
      promulgated by the SEC under the 1933 Act the Holder shall be deemed to have
      acquired this Warrant on August 3, 2007 and that the holding period for this
      Warrant may be tacked onto the holding period of the Holder’s 2007 Warrant (as
      defined in the Exchange Agreement). 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 the Warrant Shares so that (subject to the Company being compliant
      with
      Section 144(c)(1) only if the Holder becomes an affiliate of the Company after
      the Issuance Date) they are immediately freely tradable on an Eligible Market
      without restriction and not containing any restrictive legend, all without
      the
      need for any action by the Holder.

     

    [signature
      page follows]

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    
      
         

      

    

    IN
      WITNESS WHEREOF,
      the
      Company has caused this Warrant to Purchase Common Shares to be duly executed
      as
      of the Issuance Date set out above.

     

    
      	
              WORKSTREAM
                INC.

            
	 
	
              By:

            	        

	Name:
	Title:

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      A

     

    EXERCISE
      NOTICE

    TO
      BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

    WARRANT
      TO PURCHASE COMMON SHARES

     

    WORKSTREAM
      INC.

     

    The
      undersigned holder hereby exercises the right to purchase _________________
      of
      the Common Shares (“Warrant
      Shares”)
      of
      Workstream Inc., a corporation existing pursuant to the Canada Business
      Corporations Act (the “Company”),
      evidenced by Warrant No.___ to Purchase Common Shares (the “Warrant”)
      issued
      to the undersigned holder. Capitalized terms used herein and not otherwise
      defined shall have the respective meanings set forth in the
      Warrant.

     

    1. Form
      of Exercise Price.
      The
      Holder intends that payment of the Exercise Price shall be made as:

     

    ____________ 
a
      “Cash
      Exercise”
with
      respect to _________________ Warrant Shares; and/or

     

    ____________ 
a
      “Cashless
      Exercise”
with
      respect to _______________ Warrant Shares.

     

    2. Payment
      of Exercise Price.
      In the
      event that the holder has elected a Cash Exercise with respect to some or all
      of
      the Warrant Shares to be issued pursuant hereto, the holder shall pay the
      Aggregate Exercise Price in the sum of $___________________ to the Company
      in
      accordance with the terms of the Warrant.

     

    3. Delivery
      of Warrant Shares.
      The
      Company shall deliver to holder, or its designee or agent as specified below,
      __________ Warrant Shares in accordance with the terms of the Warrant. Delivery
      shall be made to holder, or for its benefit, to the following
      address:

    _______________________

    _______________________

    _______________________

    _______________________

     

    [4. The
      holder intends to immediately sell ___________ Warrant Shares pursuant to the
      registration statement covering the resale of such Warrant Shares and, to the
      extent applicable, in compliance with the prospectus delivery requirements
      of
      the Securities Act of 1933, as amended.]][REMOVE IF NOT APPLICABLE OR SHARES
      ARE
      144 ELIGIBLE]

     

    Date:
      _______________ __, ______

     

    
      	  
   

	
              Name
                of Registered Holder

            
	 	 
	
              By:

            	       

	 	
              Name:

            
	 	
              Title:

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ACKNOWLEDGMENT

     

    The
      Company hereby acknowledges this Exercise Notice and hereby directs
      ______________ to issue the above indicated number of Common Shares in
      accordance with the Transfer Agent Instructions dated _____________, 2008 from
      the Company and acknowledged and agreed to by _______________.

     

    
      	
              WORKSTREAM
                INC.

            
	 
	
              By:

            	     

	 	
              Name:

            
	 	
              Title:

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