SECURITY
AGREEMENT


       

      This
SECURITY AGREEMENT (this
“Agreement”), dated as of November 23rd, 2009, is made
by and among the grantors listed on the signature pages hereof (collectively,
jointly and severally, the “Grantors” and each, individually,
a “Grantor”), and the secured parties
listed on the signature pages hereof (collectively, the “Secured Parties” and each, individually,
a “Secured Party”).

       

      RECITALS

       

      WHEREAS, pursuant to that
certain Securities Purchase Agreement, dated as of November 23, 2009 (as
amended, restated, supplemented, or otherwise modified from time to time,
including all schedules thereto, collectively, the “Securities Purchase
Agreement”), by
and among NACEL Energy Corporation, a Wyoming corporation (“Parent”), and each of the Secured
Parties, Parent has agreed to sell, and each of the Secured Parties have agreed
to purchase, severally and not jointly, certain Notes and Warrants;
and

       

      WHEREAS, each Grantor other
than Parent is a direct or indirect wholly-owned Subsidiary (as defined below)
of Parent and will receive direct and substantial benefits from the purchase by
each of the Secured Parties of the Notes and Warrants; and


       

      WHEREAS, in order to induce
the Secured Parties to purchase, severally and not jointly, the Notes and
Warrants as provided for in the Securities Purchase Agreement, Grantors have
agreed to grant a continuing security interest in and to the Collateral in order
to secure the prompt and complete payment, observance and performance of the
Secured Obligations.

       

      AGREEMENTS

       

      NOW, THEREFORE, for and in
consideration of the recitals made above and other good and valuable
consideration, the receipt, sufficiency and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:

       

      1.     Defined Terms. All
capitalized terms used herein (including in the preamble and recitals hereof)
without definition shall have the meanings ascribed thereto in the Notes. Any
terms used in this Agreement that are defined in the Code shall be construed and
defined as set forth in the Code unless otherwise defined herein or in the
Notes; provided, however, if the Code
is used to define any term used herein and if such term is defined differently
in different Articles of the Code, the definition of such term contained in
Article 9 of the Code shall govern. In addition to those terms defined elsewhere
in this Agreement, as used in this Agreement, the following terms shall have the
following meanings:

       

      (a)         “Account” means an account (as
that term is defined in the Code).

       

      (b)         “Account Debtor” means an account debtor
(as that term is defined in the Code).


       

      (c)         “Bankruptcy Code” means title 11 of the
United States Code, as in effect from time to time.


      
        
           


        

        
          
          

          
            

          

        

        
           


        

      

       

      (d)         “Books” means books and records
(including, without limitation, each Grantor’s Records) indicating, summarizing,
or evidencing each Grantor’s assets (including the Collateral) or liabilities,
each Grantor’s Records relating to its business operations (including, without
limitation, stock ledgers) or financial condition, and each Grantor’s goods or
General Intangibles related to such information.

       

      (e)     
   “Chattel
Paper” means
chattel paper (as that term is defined in the Code) and includes tangible
chattel paper and electronic chattel paper.


       

      (f)          “Code” means the Illinois
Uniform Commercial Code, as in effect from time to time; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection, priority, or remedies with respect to any Secured Party’s Lien on
any Collateral is governed by the Uniform Commercial Code as enacted and in
effect in a jurisdiction other than the State of Illinois, the term “Code” shall
mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes of the provisions thereof relating to such
attachment, perfection, priority, or remedies.

       

      (g)        “Collateral” has the meaning
specified therefor in Section 2.

       

      (h)         “Commencement Notice” means a written notice,
given by any Secured Party to the other Secured Parties in accordance with the
notice provisions set forth in the Securities Purchase Agreement, pursuant to
which such Secured Party notifies the other Secured Parties of the existence of
one or more Events of Default and of such Secured Party’s intent to commence the
exercise of one or more of the remedies provided for under this Agreement with
respect to all or any portion of the Collateral as a consequence thereof, which
notice shall incorporate a reasonably detailed description of each Event of
Default then existing and of the remedial action proposed to be
taken.


       

      (i)          “Commercial Tort Claims” means commercial tort
claims (as that term is defined in the Code), and includes those commercial tort
claims listed on Schedule
1 attached hereto.

       

      (j)      
  “Control
Agreement” means a control
agreement, in form and substance satisfactory to Secured Parties, executed and
delivered by a Grantor, one or more Secured Parties, and the applicable
securities intermediary (with respect to a Securities Account) or bank (with
respect to a Deposit Account), as amended, restated, supplemented, or otherwise
modified from time to time.

       

      (k)      
  “Copyrights” means all copyrights and
copyright registrations, and also includes (i) the copyright registrations and
recordings thereof and all applications in connection therewith listed on Schedule
2 attached
hereto and made a part hereof, (ii) all reissues, continuations, extensions or
renewals thereof, (iii) all income, royalties, damages and payments now and
hereafter due or payable under and with respect thereto, including payments
under all licenses entered into in connection therewith and damages and payments
for past or future infringements or dilutions thereof, (iv) the right to sue for
past, present and future infringements and dilutions thereof, (v) the goodwill
of each Grantor’s business symbolized by the foregoing or connected therewith,
and (vi) all of each Grantor’s rights corresponding thereto throughout the
world.


      
        
           


        

        
          2

          
            

          

        

        
           


        

      

       

      (1)     
   “Copyright
Security Agreement” means each Copyright
Security Agreement among Grantors, or any of them, and Secured Parties, in
substantially the form of Exhibit
A attached
hereto, pursuant to which Grantors have granted to each Secured Party a security
interest in all their respective Copyrights, as amended, restated, supplemented,
or otherwise modified from time to time.

       

      (m)      
 “Deposit
Account” means a deposit account
(as that term is defined in the Code).

       

      (n)    
   “Equipment” means equipment (as that
term is defined in the Code).

       

      (o)     
   “Event of
Default” has
the meaning specified therefor in the Notes.


       

      (p)       
“General
Intangibles” means general
intangibles (as that term is defined in the Code) and, in any event, includes
payment intangibles, contract rights, rights to payment, rights arising under
common law, statutes, or regulations, choses or things in action, goodwill
(including the goodwill associated with any Trademark, Patent, or Copyright),
Patents, Trademarks, Copyrights, URLs and domain names, industrial designs,
other industrial or Intellectual Property or rights therein or applications
therefor, whether under license or otherwise, programs, programming materials,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, including Intellectual Property Licenses,
infringement claims, computer programs, information contained on computer disks
or tapes, software, literature, reports, catalogs, pension plan refunds, pension
plan refund claims, insurance premium rebates, tax refunds, and tax refund
claims, interests in a partnership or limited liability company which do not
constitute a security under Article 8 of the Code, and any other personal
property other than Commercial Tort Claims, money, Accounts, Chattel Paper,
Deposit Accounts, goods, Investment Related Property, Negotiable Collateral, and
oil, gas, or other minerals before extraction.


       

      (q)      
“Governmental
Authority” means any domestic or
foreign federal, state, local, or other governmental or administrative body,
instrumentality, board, department, or agency or any court, tribunal,
administrative hearing body, arbitration panel, commission, or other similar
dispute-resolving panel or body.

       

      (r)         “Guaranties” means each Guaranty
dated of even date herewith executed by Guarantors in favor of any or all of the
Secured Parties, together with any other guaranty or similar agreement now or
hereafter executed by a Guarantor in favor of any or all of the Secured Parties
in connection with the Notes or any of the other Transaction Documents, as
amended, restated, supplemented, or otherwise modified from time to
time.


      
        
           


        

        
          3

          
            

          

        

        
           


        

      

       

      (s)         “Guarantor” means each Grantor,
other than Parent, and each other Person that now or hereafter executes a
Guaranty.


       

      (t)         “Insolvency Proceeding” means any proceeding
commenced by or against any Person under any provision of the Bankruptcy Code or
under any other state or federal bankruptcy or insolvency law or any equivalent
laws in any other jurisdiction, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar
relief.

       

      (u)         “Intellectual Property” means Patents,
Copyrights, Trademarks, the goodwill associated with such Trademarks, trade
secrets and customer lists, and Intellectual Property Licenses.

       

      (v)         “Intellectual Property
Licenses” means rights under or
interests in any patent, trademark, copyright or other intellectual property,
including software license agreements with any other party, whether the
applicable Grantor is a licensee or licensor under any such license agreement,
including the license agreements listed on Schedule
3
attached hereto and made a part hereof, as amended, restated,
supplemented, or otherwise modified from time to time.

       

      (w)         “Inventory” means inventory (as that
term is defined in the Code).


       

      (x)         “Investment Related
Property” means (i) investment
property (as that term is defined in the Code), and (ii) all of the following
(regardless of whether classified as investment property under the Code): all
Pledged Interests, Pledged Operating Agreements, and Pledged Partnership
Agreements.

       

      (y)         “Lien” has the meaning
specified therefor in the Notes.

       

      (z)         “Negotiable Collateral” means letters of credit,
letter-of-credit rights, instruments, promissory notes, drafts, and
documents.


       

      (aa)       “New Subsidiary” has the meaning
specified therefor in the Notes.

       

      (bb)      “Notes” has the meaning
specified therefor in the Securities Purchase Agreement.

       

      (cc)     
“Patents” means all patents and
patent applications, and also includes (i) the patents and patent applications
listed on Schedule
4 attached
hereto and made a part hereof, (ii) all renewals thereof, (iii) all income,
royalties, damages and payments now and hereafter due or payable under and with
respect thereto, including payments under all licenses entered into in
connection therewith and damages and payments for past or future infringements
or dilutions thereof, (iv) the right to sue for past, present and future
infringements and dilutions thereof, and (v) all of each Grantor’s rights
corresponding thereto throughout the world.


      
        
           


        

        
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      (dd)     
“Patent Security
Agreement” means each Patent
Security Agreement among Grantors and Secured Parties in substantially the form
of Exhibit
B attached
hereto, pursuant to which Grantors have granted to each Secured Party a security
interest in all their respective Patents, as amended, restated, supplemented, or
otherwise modified from time to time.

       

      (ee)      
“Permitted Liens” has the meaning
specified therefor in the Notes.


       

      (ff)       
“Permitted Secured
Party” means, with respect to
the exercise of any remedy provided for under this Agreement, any Secured Party
that has delivered a Commencement Notice with respect to the exercise of such
remedy to the other Secured Parties and has not received a Veto Notice with
respect thereto within the Veto Period; provided, however, there shall
only be a single Permitted Secured Party that may exercise any specific remedy
at any one time (it being agreed that if a Commencement Notice is delivered by
more than one Secured Party with respect to any remedy provided for under this
Agreement, then the first Secured Party to deliver a Commencement Notice and not
receive a Veto Notice within the Veto Period shall be the only Secured Party
that may exercise such remedy).

       

      (gg)      “Person” has the meaning
specified therefor in the Securities Purchase Agreement.

       

      (hh)    
 “Pledged
Companies” means, each Person
listed on Schedule
5 hereto as
a “Pledged Company,” together with each other Person all or a portion of whose
Stock is acquired or otherwise owned by a Grantor after the date
hereof.

       

      (ii)       
“Pledged Interests” means all of each
Grantor’s right, title and interest in and to all of the Stock now or hereafter
owned by such Grantor, regardless of class or designation, including all
substitutions therefor and replacements thereof, all proceeds thereof and all
rights relating thereto, also including any certificates representing the Stock,
the right to receive any certificates representing any of the Stock, all
warrants, options, share appreciation rights and other rights, contractual or
otherwise, in respect thereof, and the right to receive dividends, distributions
of income, profits, surplus, or other compensation by way of income or
liquidating distributions, in cash or in kind, and cash, instruments, and other
property from time to time received, receivable, or otherwise distributed in
respect of or in addition to, in substitution of, on account of, or in exchange
for any or all of the foregoing.

       

      (jj)       
“Pledged Operating
Agreements” means all of each
Grantor’s rights, powers, and remedies under the limited liability company
operating agreements of each of the Pledged Companies that are limited liability
companies, as amended, restated, supplemented, or otherwise modified from time
to time.

       

      (kk)     
“Pledged Partnership
Agreements” means all of each
Grantor’s rights, powers, and remedies under the partnership agreements of each
of the Pledged Companies that are partnerships, as amended, restated,
supplemented, or otherwise modified from time to time.


      
        
           


        

        
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      (ll)        
“PPSA” means the Personal
Property Security Act (British Columbia), as in effect from time to
time.

       

      (mm)   
 “Proceeds” has the meaning
specified therefor in Section 2.

       

      (nn)     
“Real Property” means any estates or
interests in real property now owned or hereafter acquired by any Grantor and
the improvements thereto.

       

      (oo)     
“Records” means information that
is inscribed on a tangible medium or which is stored in an electronic or other
medium and is retrievable in perceivable form.

       

      (pp)     
“Secured
Obligations” mean all of the present
and future payment and performance obligations of Grantors arising under this
Agreement, the Notes, the Guaranties, and the other Transaction Documents,
including, without duplication, reasonable attorneys’ fees and expenses and any
interest, fees, or expenses that accrue after the filing of an Insolvency
Proceeding, regardless of whether allowed or allowable in whole or in part as a
claim in any Insolvency Proceeding.


       

      (qq)     
“Securities
Account” means a securities
account (as that term is defined in the Code).

       

      (rr)       
“Security
Documents” means, collectively,
this Agreement, each Copyright Security Agreement, each Patent Security
Agreement, each Trademark Security Agreement, each Control Agreement, and each
other security agreement, pledge agreement, assignment, mortgage, security deed,
deed of trust, and other agreement or document executed and delivered by a
Grantor as security for any of the Secured Obligations, as amended, restated,
supplemented, or otherwise modified from time to time.

       

      (ss)      
“Security Interest” and “Security Interests” have the meanings
specified therefor in Section 2.

       

      (tt)        “Significant Secured
Party” means, on any date of
determination, any Secured Party holding twenty percent (20%) or more of the
aggregate principal amount of Notes outstanding on such date.

       

      (uu)    
 “Stock” means all shares,
options, warrants, interests (including, without limitation, membership and
partnership interests), participations, or other equivalents (regardless of how
designated) of or in a Person, whether voting or nonvoting, including common
stock, preferred stock, or any other “equity security” (as such term is defined
in Rule 3al 1-1 of the General Rules and Regulations promulgated by the United
States Securities and Exchange Commission and any successor thereto under the
Securities Exchange Act of 1934, as in effect from time to time).

       

      (vv)    
 “Subsidiaries” and “Subsidiary” each have the meanings
specified therefor in the Notes.


      
        
           


        

        
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      (ww)    
“Supporting
Obligations” means supporting
obligations (as such term is defined in the Code).

       

      (xx)       “Trademarks” means all trademarks,
trade names, trademark applications, service marks, service mark applications,
and also includes (i) the trade names, trademarks, trademark applications,
service marks, and service mark applications listed on Schedule
6 attached
hereto and made a part hereof, and (ii) all renewals thereof, (iii) all
income, royalties, damages and payments now and hereafter due or payable under
and with respect thereto, including payments under all licenses entered into in
connection therewith and damages and payments for past or future infringements
or dilutions thereof, (iv) the
right to sue for past, present and future infringements and dilutions thereof,
(v) the goodwill of each Grantor’s business symbolized by the foregoing or
connected therewith, and (vi) all of each Grantor’s rights corresponding thereto
throughout the world.

       

      (yy)     
“Trademark Security
Agreement” means each Trademark
Security Agreement among Grantors and Secured Parties in substantially the form
of Exhibit C attached hereto,
pursuant to which Grantors have granted to each Secured Party a security
interest in all their respective Trademarks.

       

      (zz)      
 “Transaction
Documents” has the meaning
specified therefor in the Securities Purchase Agreement.

       

      (aaa)   
 “URL” means “uniform resource
locator,” an internet web address.

       

      (bbb)  
“Veto Notice” means, with respect to
any Commencement Notice, a written notice given by any Significant Secured Party
to the other Secured Parties in accordance with the notice provisions set forth
in the Securities Purchase Agreement pursuant to which such Significant Secured
Party notifies the other Secured Parties of its objection to the commencement of
the remedial action specified in such Commencement Notice and certifies that, to
the best of its knowledge, it is a Significant Secured Party.

       

      (ccc)    
“Veto Period” means, with respect to
any Commencement Notice, the period of ten (10) consecutive calendar days
following the delivery of such Commencement Notice to the Secured
Parties.

       

      (ddd)   
“Warrants” has the meaning
specified therefor in the Securities Purchase Agreement.

       

      2.            
Grant of
Security. Each Grantor hereby unconditionally grants, assigns, and
pledges to each Secured Party a separate, continuing security interest (each, a
“Security Interest” and, collectively, the
“Security
Interests”) in all assets of such
Grantor (other than Real Property) whether now owned or hereafter acquired or
arising and wherever located (collectively, the “Collateral”), including, without limitation, such
Grantor’s right, title, and interest in and to the following, whether now owned
or hereafter acquired or arising and wherever located:


      
        
           


        

        
          7

          
            

          

        

        
           


        

      

       

      (a)        all
of such Grantor’s Accounts;

       

      (b)        all
of such Grantor’s Books;

       

      (c)        all
of such Grantor’s Chattel Paper;

       

      (d)        all
of such Grantor’s Deposit Accounts;

       

      (e)        all
of such Grantor’s Equipment and fixtures;

       

      (f)         all
of such Grantor’s General Intangibles;

       

      (g)        all
of such Grantor’s Inventory;

       

      (h)        all
of such Grantor’s Investment Related Property;

       

      (i)         all
of such Grantor’s Negotiable Collateral;

       

      (j)         all
of such Grantor’s rights in respect of Supporting Obligations;

       

      (k)    
   all of such Grantor’s Commercial Tort Claims;

       

      (l)        
all of such Grantor’s money, cash, cash equivalents, or other assets of each
such Grantor that now or hereafter come into the possession, custody, or control
of any Secured Party;

       

      (m)      
all of the proceeds and products, whether tangible or intangible, of any of the
foregoing, including proceeds of insurance or Commercial Tort Claims covering or
relating to any or all of the foregoing, and any and all Accounts, Books,
Chattel Paper, Deposit Accounts, Equipment, General Intangibles, Inventory,
Investment Related Property, Negotiable Collateral, Supporting Obligations,
money, or other tangible or intangible property resulting from the sale, lease,
license, exchange, collection, or other disposition of any of the foregoing, the
proceeds of any award in condemnation with respect to any of the foregoing, any
rebates or refunds, whether for taxes or otherwise, and all proceeds of any such
proceeds, or any portion thereof or interest therein, and the proceeds thereof,
and all proceeds of any loss of, damage to, or destruction of the above, whether
insured or not insured, and, to the extent not otherwise included, any
indemnity, warranty, or guaranty payable by reason of loss or damage to, or
otherwise with respect to any of the foregoing (the “Proceeds”). Without limiting the
generality of the foregoing, the term “Proceeds” includes whatever is receivable
or received when Investment Related Property or proceeds are sold, exchanged,
collected, or otherwise disposed of, whether such disposition is voluntary or
involuntary, and includes proceeds of any indemnity or guaranty payable to any
Grantor or any Secured Party from time to time with respect to any of the
Investment Related Property.


      
        
           


        

        
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      3.       Security for
Obligations. This Agreement and the Security Interests created hereby
secure the payment and performance of the Secured Obligations, whether now
existing or arising hereafter. Without limiting the generality of the foregoing,
this Agreement secures the payment of all amounts which constitute part of the
Secured Obligations and would be owed by Grantors, or any of them, to Secured
Parties, or any of them, but for the fact that they are unenforceable or not
allowable due to the existence of an Insolvency Proceeding involving any
Grantor.

       

      4.           Grantors Remain
Liable. Anything herein to the contrary notwithstanding, (a) each of the
Grantors shall remain liable under the contracts and agreements included in the
Collateral, including the Pledged Operating Agreements and the Pledged
Partnership Agreements, to perform all of the duties and obligations thereunder
to the same extent as if this Agreement had not been executed, (b) the exercise
by Secured Parties, or any of them, of any of the rights hereunder shall not
release any Grantor from any of its duties or obligations under such contracts
and agreements included in the Collateral, and (c) no Secured Party shall have
any obligation or liability under such contracts and agreements included in the
Collateral by reason of this Agreement, nor shall any Secured Party be obligated
to perform any of the obligations or duties of any Grantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder. Until
an Event of Default shall occur and be continuing, except as otherwise provided
in this Agreement or any other Transaction Document, Grantors shall have the
right to possession and enjoyment of the Collateral for the purpose of
conducting the ordinary course of their respective businesses, subject to and
upon the terms hereof and the other Transaction Documents. Without limiting the
generality of the foregoing, it is the intention of the parties hereto that
record and beneficial ownership of the Pledged Interests, including all voting,
consensual, and dividend rights, shall remain in the applicable Grantor until
the occurrence of an Event of Default and until any Secured Party shall notify
the applicable Grantor of such Secured Party’s exercise of voting, consensual,
or dividend rights with respect to the Pledged Interests pursuant to Section 15
hereof.

       

      5.           Representations and
Warranties. Each Grantor hereby represents and warrants as
follows:

       

      (a)         The
exact legal name of each of the Grantors is set forth on the signature pages of
this Agreement.

       

      (b)        Schedule
7 attached
hereto sets forth (i) all Real Property owned or leased by Grantors, together
with all other locations of Collateral, as of the date hereof, and (ii) the
chief executive office of each Grantor as of the date hereof.

       

      (c)        As
of the date hereof, no Grantor has any interest in, or title to, any Copyrights,
Intellectual Property Licenses, Patents, or Trademarks except as set forth on
Schedules
2, 3, 4 and
6, respectively,
attached hereto. This Agreement is effective to create a valid and continuing
Lien on such Copyrights, Intellectual Property Licenses, Patents and Trademarks
and, upon filing of the Copyright Security Agreement with the United States
Copyright Office and filing of the Patent Security Agreement and the Trademark
Security Agreement with the United States Patent and Trademark Office, and the
filing of appropriate financing statements in the jurisdictions listed on Schedule
8 hereto, all action necessary or desirable to protect and perfect the
Security Interests in and to each Grantor’s Patents, Trademarks, or Copyrights
has been taken and such perfected Security Interests are enforceable as such as
against any and all creditors of and purchasers from any Grantor. No Grantor has
any interest in any Copyright that is necessary in connection with the operation
of such Grantor’s business, except for those Copyrights identified on Schedule
2 attached
hereto which have been registered with the United States Copyright
Office.


      
        
           


        

        
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      (d)        This
Agreement creates a valid security interest in all of the Collateral of each
Grantor, to the extent a security interest therein can be created under the Code
or the PPSA, as applicable, securing the payment of the Secured Obligations.
Except to the extent a security interest in the Collateral cannot be perfected
by the filing of a financing statement under the Code or the PPSA, all filings
and other actions necessary or desirable to perfect and protect such security
interest have been duly taken or will have been taken upon the filing of
financing statements listing each applicable Grantor, as a debtor, and Secured
Parties, as secured parties, in the jurisdictions listed next to such Grantor’s
name on Schedule
8 attached
hereto. Upon the making of such filings, Secured Parties shall each have a first
priority perfected security interest in all of the Collateral of each Grantor to
the extent such security interest can be perfected by the filing of a financing
statement. All action by any Grantor necessary to protect and perfect such
security interest on each item of Collateral has been duly taken.

       

      (e)       
 (i) Except for the Security Interests created hereby, such Grantor is and
will at all times be the sole holder of record and the legal and beneficial
owner, free and clear of all Liens other than Permitted Liens, of the Pledged
Interests indicated on Schedule
5 as being
owned by such Grantor and, when acquired by such Grantor, any Pledged Interests
acquired after the date hereof; (ii) all of the Pledged Interests are duly
authorized, validly issued, fully paid and nonassessable and the Pledged
Interests constitute or will constitute the percentage of the issued and
outstanding Stock of the Pledged Companies of such Grantor identified on Schedule
5 hereto;
(iii) such Grantor has the right and requisite authority to pledge all
Investment Related Property pledged by such Grantor to each Secured Party as
provided herein; (iv) all actions necessary or desirable to perfect, establish
the first priority of, or otherwise protect, Secured Parties’ respective Liens
in the Investment Related Property pledged hereunder, and the proceeds thereof,
have been duly taken, (A) upon the execution and delivery of this Agreement; (B)
upon the taking of possession by any Secured Party of any certificates
constituting the Pledged Interests, to the extent such Pledged Interests are
represented by certificates, together with undated powers endorsed in blank by
the applicable Grantor; (C) upon the filing of financing statements in the
applicable jurisdiction set forth on Schedule
8 attached hereto for such Grantor with respect to the Pledged Interests
of such Grantor that are not represented by certificates, and (D) with respect
to any Securities Accounts, upon the delivery of Control Agreements with respect
thereto; and (v) each Grantor has delivered to and deposited with any Secured
Party (or, with respect to any Pledged Interests created or obtained after the
date hereof, will deliver and deposit in accordance with Sections 6(a) and 8
hereof) all certificates representing the Pledged Interests now or hereafter
owned by such Grantor to the extent such Pledged Interests are represented by
certificates, and undated powers endorsed in blank with respect to such
certificates. None of the Pledged Interests owned or held by such Grantor has
been issued or transferred in violation of any securities registration,
securities disclosure, or similar laws of any jurisdiction to which such
issuance or transfer may be subject.


      
        
           


        

        
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      (f)        No
consent, approval, authorization, or other order or other action by, and no
notice to or filing with, any Governmental Authority or any other Person is
required (i) for the grant of a Security Interest by such Grantor in and to the
Collateral pursuant to this Agreement or for the execution, delivery, or
performance of this Agreement by such Grantor, or (ii) for the exercise by any
Secured Party of the voting or other rights provided in this Agreement with
respect to Investment Related Property pledged hereunder or the remedies in
respect of the Collateral pursuant to this Agreement, except (A) as may be
required in connection with such disposition of Investment Related Property by
laws affecting the offering and sale of securities generally and (B) for any
consent that may be required for the assignment of any Intellectual Property
License that expressly provides that such Intellectual Property License is not
assignable (or is not assignable without the consent of the other party to such
Intellectual Property License).

       

      6.           
Covenants. Each
Grantor, jointly and severally, covenants and agrees with each Secured Party
that from and after the date of this Agreement and until the date of termination
of this Agreement in accordance with Section 24 hereof (but only to the extent
the particular assets described in this Section 6 constitute Collateral
hereunder):

       

      (a)       Possession of
Collateral. In the event that any Collateral, including proceeds, is
evidenced by or consists of Negotiable Collateral, Investment Related Property,
or Chattel Paper, and if and to the extent that perfection or priority of
Secured Parties’ respective Security Interests is dependent on or enhanced by
possession, the applicable Grantor, immediately upon the request of any Secured
Party, shall execute such other documents and instruments as shall be requested
by such Secured Party or, if applicable, endorse and deliver physical possession
of such Negotiable Collateral, Investment Related Property, or Chattel Paper to
such Secured Party, together with such undated powers endorsed in blank as shall
be requested by such Secured Party.

       

      (b)       Chattel
Paper.

       

      (i)       Each
Grantor shall take all steps reasonably necessary to grant each Secured Party
control of all Chattel Paper in accordance with the Code and the PPSA and all
“transferable records” as that term is defined in Section 16 of the Uniform
Electronic Purchase Act and Section 201 of the federal Electronic Signatures in
Global and National Commerce Act as in effect in any relevant jurisdiction;
and

       

      (ii)      If
any Grantor retains possession of any Chattel Paper or instruments (which
retention of possession shall be subject to the extent permitted hereby and by
the Securities Purchase Agreement), promptly upon the request of any Secured
Party, such Chattel Paper and instruments shall be marked with the following
legend: “This writing and the obligations evidenced or secured hereby are
subject to the Security Interests of [names of Secured
Parties].”


      
        
           


        

        
          11

          
            

          

        

        
           


        

      

       

      (c)       Control
Agreements.

       

      (i)             Each
Grantor shall obtain an authenticated Control Agreement from each bank
maintaining a Deposit Account for such Grantor; and

       

      (ii)             Upon
request of any Secured Party, each Grantor shall obtain authenticated Control
Agreements from each issuer of uncertificated securities, securities
intermediary, or commodities intermediary issuing or holding any financial
assets or commodities to or for such Grantor.

       

      (d)       Letter-of-Credit
Rights. Each Grantor that is or becomes the beneficiary of a letter of
credit shall promptly (and in any event within 2 Business Days after becoming a
beneficiary) notify Secured Parties thereof and, upon the request by any Secured
Party, enter into a multi-party agreement with Secured Parties and the issuing
or confirming bank with respect to letter-of-credit rights assigning such
letter-of-credit rights to Secured Parties and directing all payments thereunder
to Secured Parties, all in form and substance satisfactory to Secured
Parties.

       

      (e)        Commercial Tort
Claims. Each Grantor shall promptly (and in any event within 2 Business
Days of receipt thereof) notify Secured Parties in writing upon incurring or
otherwise obtaining a Commercial Tort Claim after the date hereof and, upon
request of any Secured Party, promptly amend Schedule
1 to this
Agreement to describe such after-acquired Commercial Tort Claim in a manner that
reasonably identifies such Commercial Tort Claim, and hereby authorizes the
filing of additional financing statements or amendments to existing financing
statements describing such Commercial Tort Claims, and agrees to do such other
acts or things deemed necessary or desirable by any Secured Party to give
Secured Parties a first priority, perfected security interest in any such
Commercial Tort Claim.

       

      (f)        Government Contracts.
If any Account or Chattel Paper arises out of a contract or contracts with the
United States of America, the federal or any provincial government of Canada, or
any department, agency, or instrumentality thereof, Grantors shall promptly (and
in any event within 2 Business Days of the creation thereof) notify Secured
Parties thereof in writing and execute any instruments or take any steps
reasonably required by any Secured Party in order that all moneys due or to
become due under such contract or contracts shall be assigned to Secured
Parties, and shall provide written notice thereof and take all other appropriate
actions under the Assignment of Claims Act or other applicable law to provide
each Secured Party a first-priority perfected security interest in such
contract.

       

      (g)       Intellectual
Property.

       

      (i)            Upon request of any Secured Party, in
order to facilitate filings with the United States Patent and Trademark Office
and the United States Copyright Office or any other applicable Governmental
Authority, each Grantor shall execute and deliver to Secured Parties one or more
Copyright Security Agreements, Trademark Security Agreements, or Patent Security
Agreements to further
evidence Secured Parties’ respective Liens on such Grantor’s Copyrights,
Trademarks or Patents.


      
        
           


        

        
          12

          
            

          

        

        
           


        

      


       

      (ii)            Each
Grantor shall have the duty (A) to promptly sue for infringement,
misappropriation, or dilution with respect to its rights in Intellectual
Property and to recover any and all damages for such infringement,
misappropriation, or dilution, (B) to prosecute diligently any trademark
application or service mark application that is part of the Trademarks pending
as of the date hereof or hereafter until the termination of this Agreement, (C)
to prosecute diligently any patent application that is part of the Patents
pending as of the date hereof or hereafter until the termination of this
Agreement, and (D) to take all reasonable and necessary action to preserve and
maintain all of each Grantor’s Trademarks, Patents, Copyrights, Intellectual
Property Licenses, and its rights therein, including the filing of applications
for renewal, affidavits of use, affidavits of noncontestability and opposition
and interference and cancellation proceedings. Each Grantor shall promptly file
an application with the United States Copyright Office for any Copyright that
has not been registered with the United States Copyright Office. Each Grantor
shall promptly file an application with the United States Patent and Trademark
Office for any Patent or Trademark that has not been registered with the United
States Patent and Trademark Office. Any expenses incurred in connection with the
foregoing shall be borne by Grantors. Each Grantor further agrees not to abandon
any Trademark, Patent, Copyright, or Intellectual Property License.

       

      (iii)            Grantors
acknowledge and agree that Secured Parties shall have no duties with respect to
the Trademarks, Patents, Copyrights, or Intellectual Property Licenses. Without
limiting the generality of this Section 6(g), Grantors acknowledge and agree
that no Secured Party shall be under any obligation to take any steps necessary
to preserve rights in the Trademarks, Patents, Copyrights, or Intellectual
Property Licenses against any other Person, but any Secured Party may do so at
its option from and after the occurrence and during the continuance of an Event
of Default, and all expenses incurred in connection therewith (including fees
and expenses of attorneys and other professionals) shall be for the sole account
of the Grantors and shall be deemed to be Secured Obligations.


       

      (h)       Investment Related
Property.


       

      (i)        If
any Grantor shall receive or become entitled to receive any Pledged Interests
after the date hereof, it shall promptly (and in any event within 2 Business
Days of receipt thereof) identify such Pledged Interests in a written notice to
Secured Parties;

       

      (ii)        All
sums of money and property paid or distributed in respect of the Investment
Related Property pledged hereunder which are received by any Grantor shall be
held by the Grantors in trust for the benefit of Secured Parties segregated from
such Grantor’s other property, and such Grantor shall deliver it forthwith to
the Secured Parties in the exact form received;


      
        
           


        

        
          13

          
            

          

        

        
           


        

      

       

      (iii)       Each
Grantor shall promptly deliver to Secured Parties a copy of each notice or other
communication received by it in respect of any Pledged Interests;

       

      (iv)       No
Grantor shall make or consent to any material amendment or other modification or
waiver with respect to any Pledged Interests, Pledged Operating Agreement, or
Pledged Partnership Agreement, or enter into any agreement or permit to exist
any restriction with respect to any Pledged Interests;

       

      (v)        Each
Grantor agrees that it will cooperate with Secured Parties in obtaining all
necessary approvals and making all necessary filings under federal, state,
local, or foreign law in connection with the Security Interests on the
Investment Related Property pledged hereunder or any sale or transfer thereof;
and


       

      (vi)       As
to all limited liability company or partnership interests issued under any
Pledged Operating Agreement or Pledged Partnership Agreement, each Grantor
hereby represents, warrants and covenants that the Pledged Interests issued
pursuant to such agreement (A) are not and shall not be dealt in or traded on
securities exchanges or in securities markets, (B) do not and will not
constitute investment company securities, and (C) are not and will not be held
by such Grantor in a securities account. In addition, none of the Pledged
Operating Agreements, the Pledged Partnership Agreements, or any other
agreements governing any of the Pledged Interests issued under any Pledged
Operating Agreement or Pledged Partnership Agreement, provide or shall provide
that such Pledged Interests are securities governed by Article 8 of the Uniform
Commercial Code as in effect in any relevant jurisdiction.

       

      (i)       
Transfers and Other
Liens. Grantors shall not (i) sell, lease, license, assign (by operation
of law or otherwise), transfer or otherwise dispose of, or grant any option with
respect to, any of the Collateral, except as expressly permitted by this
Agreement and the other Transaction Documents, or (ii) create or permit to exist
any Lien upon or with respect to any of the Collateral of any of Grantors,
except for Permitted Liens. The inclusion of Proceeds in the Collateral shall
not be deemed to constitute consent by any Secured Party to any sale or other
disposition of any of the Collateral except as expressly permitted in this
Agreement or the other Transaction Documents. Notwithstanding anything contained
in this Agreement to the contrary, Permitted Liens shall not be permitted with
respect to any Pledged Interests.

       

      (j)       
Preservation of
Existence. Each Grantor shall maintain and preserve its existence, rights
and privileges, and become or remain duly qualified and in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification
necessary.


      
        
           


        

        
          14

          
            

          

        

        
           


        

      

       

      (k)      
 Maintenance of
Properties. Each Grantor shall maintain and preserve all of its
properties which are necessary or useful in the proper conduct of its business
in good working order and condition, ordinary wear and tear excepted, and comply
at all times with the provisions of all leases to which it is a party as lessee
or under which it occupies property, so as to prevent any loss or forfeiture
thereof or thereunder.

       

      (1)      
Maintenance of
Insurance. Each Grantor shall maintain insurance with responsible and
reputable insurance companies or associations (including, without limitation,
comprehensive general liability, hazard, rent and business interruption
insurance) with respect to its properties (including all real properties leased
or owned by it) and business, in such amounts and covering such risks as is
required by any governmental authority having jurisdiction with respect thereto
or as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated.

       

      (m)     
Other Actions as to
Any and All Collateral. Each Grantor shall promptly (and in any event
within 2 Business Days of acquiring or obtaining such Collateral) notify Secured
Parties in writing upon (i) acquiring or otherwise obtaining any Collateral
after the date hereof consisting of Trademarks, Patents, registered Copyrights,
Intellectual Property Licenses, Investment Related Property, Chattel Paper
(electronic, tangible or otherwise), documents (as defined in Article 9 of the
Code), promissory notes (as defined in the Code, or instruments (as defined in
the Code) or (ii) any amount payable under or in connection with any of the
Collateral being or becoming evidenced after the date hereof by any Chattel
Paper, documents, promissory notes, or instruments and, in each such case upon
the request of any Secured Party, promptly execute such other documents, or if
applicable, deliver such Chattel Paper, other documents or certificates
evidencing any Investment Related Property and do such other acts or things
deemed necessary or desirable by any Secured Party to protect Secured Parties’
respective Security Interests therein.

       

      7.            Relation to Other
Transaction Documents. The provisions of this Agreement shall be read and
construed with the Transaction Documents referred to below in the manner so
indicated.

       

      (a)       Securities Purchase
Agreement and Notes. In the event of any conflict between any provision
in this Agreement and any provision in the Securities Purchase Agreement or
Notes, such provision of the Securities Purchase Agreement or Notes shall
control, except to the extent the applicable provision in this Agreement is more
restrictive with respect to the rights of Grantors or imposes more burdensome or
additional obligations on Grantors, in which event the applicable provision in
this Agreement shall control.

       

      (b)       Patent, Trademark, Copyright
Security Agreements. The provisions of the Copyright Security Agreements,
Trademark Security Agreements, and Patent Security Agreements are supplemental
to the provisions of this Agreement, and nothing contained in the Copyright
Security Agreements, Trademark Security Agreements or the Patent Security
Agreements shall limit any of the rights or remedies of any Secured Party
hereunder.


      
        
           


        

        
          15

          
            

          

        

        
           


        

      

       

      8.        
   Further
Assurances.

       

      (a)       Each
Grantor agrees that from time to time, at its own expense, such Grantor will
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or that any Secured Party may reasonably
request, in order to perfect and protect the Security Interests granted or
purported to be granted hereby or to enable any Secured Party to exercise and
enforce its rights and remedies hereunder with respect to any of the
Collateral.

       

      (b)       Each
Grantor authorizes the filing by any Secured Party of financing or continuation
statements, or amendments thereto, and such Grantor will execute and deliver to
such Secured Party such other instruments or notices, as may be necessary or as
such Secured Party may reasonably request, in order to perfect and preserve the
Security Interests granted or purported to be granted hereby.

       

      (c)       Each
Grantor authorizes any Secured Party at any time and from time to time to file,
transmit, or communicate, as applicable, financing statements and amendments (i)
describing the Collateral as “all personal property of debtor” or “all assets of
debtor” or words of similar effect, (ii) describing the Collateral as being of
equal or lesser scope or with greater detail, or (iii) that contain any
information required by part 5 of Article 9 of the Code for the sufficiency or
filing office acceptance. Each Grantor also hereby ratifies any and all
financing statements or amendments previously filed by any Secured Party in any
jurisdiction.

       

      (d)       Each
Grantor acknowledges that it is not authorized to file any financing statement
or amendment or termination statement with respect to any financing statement
filed in connection with this Agreement without the prior written consent of
each Secured Party affected thereby, subject to such Grantor’s rights under
Section 9-509(d)(2) of the Code.

       

      (e)       Each
Grantor shall permit each Secured Party or its employees, accountants, attorneys
or agents, to examine and inspect any Collateral or any other property of such
Grantor at any time during ordinary business hours.


       

      9.       
    Secured Parties’ Right to
Perform Contracts, Exercise Rights, etc. Upon the occurrence and during
the continuance of an Event of Default, any Secured Party (a) may proceed to
perform any and all of the obligations of any Grantor contained in any contract,
lease, or other agreement and exercise any and all rights of any Grantor therein
contained as fully as such Grantor itself could, (b) shall have the right to use
any Grantor’s rights under Intellectual Property Licenses in connection with the
enforcement of the Secured Party’s rights hereunder, including the right to
prepare for sale and sell any and all Inventory and Equipment now or hereafter
owned by any Grantor and now or hereafter covered by such licenses, and (c)
shall have the right to request that any Stock that is pledged hereunder be
registered in the name of such Secured Party or any of its
nominees.

      
        

          
            
               


            

            
              16

              
                

              

            

            
               


            

          


          10.           Secured Parties Appointed
Attorney-in-Fact. Each Grantor, on behalf of itself and each New
Subsidiary of such Grantor, hereby irrevocably appoints each Secured Party as
the attorney-in-fact of such Grantor and each such New Subsidiary. In the event
any Grantor or any New Subsidiary fails to execute or deliver in a timely manner
any Transaction Document or other agreement, document, certificate or instrument
which such Grantor or New Subsidiary now or at any time hereafter is required to
execute or deliver pursuant to the terms of the Securities Purchase Agreement or
any other Transaction Document, each Secured Party shall have full authority in
the place and stead of such Grantor or New Subsidiary, and in the name of such
Grantor, such New Subsidiary or otherwise, to execute and deliver each of the
foregoing. Without limitation of the foregoing, each Secured Party shall have
full authority in the place and stead of each Grantor and each New Subsidiary,
and in the name of any such Grantor, any such New Subsidiary or otherwise, at
such time as an Event of Default has occurred and is continuing, to take any
action and to execute any instrument which such Secured Party may reasonably
deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation:

           

          (a)           to
ask, demand, collect, sue for, recover, compromise, receive and give acquittance
and receipts for moneys due and to become due under or in connection with any
Collateral of such Grantor or New Subsidiary;

           

          (b)           to
receive and open all mail addressed to such Grantor or New Subsidiary and to
notify postal authorities to change the address for the delivery of mail to such
Grantor or New Subsidiary to that of such Secured Party;

           

          (c)           to
receive, indorse, and collect any drafts or other instruments, documents,
Negotiable Collateral or Chattel Paper;

           

          (d)           to
file any claims or take any action or institute any proceedings which such
Secured Party may deem necessary or desirable for the collection of any of the
Collateral of such Grantor or New Subsidiary or otherwise to enforce the rights
of any Secured Party with respect to any of the Collateral;

           

          (e)           to
repair, alter, or supply goods, if any, necessary to fulfill in whole or in part
the purchase order of any Person obligated to such Grantor or New Subsidiary in
respect of any Account of such Grantor or New Subsidiary;

           

          (f)           to
use any labels, Patents, Trademarks, trade names, URLs, domain names, industrial
designs, Copyrights, customer lists, advertising matter or other industrial or
intellectual property rights, in advertising for sale and selling Inventory and
other Collateral and to collect any amounts due under Accounts, contracts or
Negotiable Collateral of such Grantor or New Subsidiary; and

           

          (g)           such
Secured Party shall have the right, but shall not be obligated, to bring suit in
its own name to enforce the Trademarks, Patents, Copyrights and Intellectual
Property Licenses and, if such Secured Party shall commence any such suit, the
appropriate Grantor or New Subsidiary shall, at the request of such Secured
Party, do any and all lawful acts and execute any and all proper documents
reasonably required by such Secured Party in aid of such
enforcement.


          
            
               


            

            
              17

              
                

              

            

            
               


            

          


           

          To the
extent permitted by law, each Grantor hereby ratifies, for itself and each of
its New Subsidiaries, all that such attorney-in-fact shall lawfully do or cause
to be done by virtue hereof. This power of attorney is coupled with an interest
and shall be irrevocable until this Agreement is terminated.

           

          11.            Secured Parties May
Perform. If any Grantor fails to perform any agreement contained herein,
any Secured Party may itself perform, or cause performance of, such agreement,
and the reasonable expenses of such Secured Party incurred in connection
therewith shall be payable, jointly and severally, by Grantors.

           

          12.            Secured Parties’ Duties;
Bailee for Perfection. The powers conferred on Secured Parties hereunder
are solely to protect the Secured Parties’ respective interests in the
Collateral and shall not impose any duty upon any Secured Party in favor of any
Grantor or any other Secured Party to exercise any such powers. Except for the
safe custody of any Collateral in its actual possession and the accounting for
moneys actually received by it hereunder, no Secured Party shall have any duty
to any Grantor or any other Secured Party as to any Collateral or as to the
taking of any necessary steps to preserve rights against prior parties or any
other rights pertaining to any Collateral. A Secured Party shall be deemed to
have exercised reasonable care in the custody and preservation of any Collateral
in its actual possession if such Collateral is accorded treatment substantially
equal to that which such Secured Party accords its own property. Each Secured
Party agrees that, with respect to any Collateral at any time or times in its
possession and in which any other Secured Party has a Lien, the Secured Party in
possession of any such Collateral shall be the bailee of each other Secured
Party solely for purposes of perfecting (to the extent not otherwise perfected)
each other Secured Party’s Lien in such Collateral, provided that no Secured
Party shall be obligated to obtain or retain possession of any such Collateral.
Without limiting the generality of the foregoing, Secured Parties and Grantors
hereby agree that any Secured Party that is in possession of any Collateral at
such time as the Secured Obligations owing to such Secured Party have been paid
in full may re-deliver such Collateral to the applicable Grantor or, if
requested by any Secured Party prior to such re-delivery, may deliver such
Collateral (unless otherwise restricted by applicable law or court order and
subject in all events to the receipt of an indemnification of all liabilities
arising from such delivery) to the requesting Secured Party, without recourse to
or representation or warranty by the Secured Party in such
possession.

           

          13.            Collection of Accounts,
General Intangibles and Negotiable Collateral. At any time upon the
occurrence and during the continuation of an Event of Default, any Secured Party
may (a) notify Account Debtors of any Grantor that the Accounts, General
Intangibles, Chattel Paper or Negotiable Collateral have been assigned to such
Secured Party or that such Secured Party has a security interest therein, and
(b) collect the Accounts, General Intangibles and Negotiable Collateral
directly, and any collection costs and expenses shall constitute part of the
Secured Obligations.


          
            
               


            

            
              18

              
                

              

            

            
               


            

          

           

          14.           Disposition of Pledged
Interests by Secured Party. None of the Pledged Interests existing as of
the date of this Agreement are, and none of the Pledged Interests hereafter
acquired on the date of acquisition thereof will be, registered or qualified
under the various federal, state or other securities laws of the United States
or any other jurisdiction, and disposition thereof after an Event of Default may
be restricted to one or more private (instead of public) sales in view of the
lack of such registration. Each Grantor understands that in connection with such
disposition, any Secured Party may approach only a restricted number of
potential purchasers and further understands that a sale under such
circumstances may yield a lower price for the Pledged Interests than if the
Pledged Interests were registered and qualified pursuant to federal, state and
other securities laws and sold on the open market. Each Grantor, therefore,
agrees that: (a) if a Secured Party shall, pursuant to the terms of this
Agreement, sell or cause the Pledged Interests or any portion thereof to be sold
at a private sale, such Secured Party shall have the right to rely upon the
advice and opinion of any nationally recognized brokerage or investment firm
(but shall not be obligated to seek such advice and the failure to do so shall
not be considered in determining the commercial reasonableness of such action)
as to the best manner in which to offer the Pledged Interest or any portion
thereof for sale and as to the best price reasonably obtainable at the private
sale thereof; and (b) such reliance shall be conclusive evidence that such
Secured Party has handled the disposition in a commercially reasonable
manner.

           

          15.           Voting
Rights.

           

          (a)           Upon
the occurrence and during the continuation of an Event of Default, (i) any
Secured Party may, at its option, and with 2 Business Days prior notice to any
Grantor, and in addition to all rights and remedies available to Secured Parties
under any other agreement, at law, in equity, or otherwise, exercise all voting
rights, and all other ownership or consensual rights in respect of the Pledged
Interests owned by such Grantor, but under no circumstances is any Secured Party
obligated by the terms of this Agreement to exercise such rights, and (ii) if
such Secured Party duly exercises its right to vote any of such Pledged
Interests, each Grantor hereby appoints such Secured Party as such Grantor’s
true and lawful attorney-in-fact and IRREVOCABLE PROXY to vote such Pledged
Interests in any manner that such Secured Party deems advisable for or against
all matters submitted or which may be submitted to a vote of shareholders,
partners or members, as the case may be. The power-of-attorney granted hereby is
coupled with an interest and shall be irrevocable.

           

          (b)           For
so long as any Grantor shall have the right to vote the Pledged Interests owned
by it, such Grantor covenants and agrees that it will not, without the prior
written consent of Secured Parties, vote or take any consensual action with
respect to such Pledged Interests which would materially or adversely affect the
rights of Secured Parties exercising the voting rights owned by such Grantor or
the value of the Pledged Interests.

           

          16.           Remedies. Upon the
occurrence and during the continuance of an Event of Default:


            
              
                 


              

              
                19

                
                  

                

              

              
                 


              

            

          

           

          (a)           Any
Secured Party may exercise in respect of the Collateral, in addition to other
rights and remedies provided for herein, in the other Transaction Documents, or
otherwise available to it, all the rights and remedies of a secured party on
default under the Code, the PPSA or any other applicable law. Without limiting
the generality of the foregoing, each Grantor expressly agrees that, in any such
event, any Secured Party without any demand, advertisement, or notice of any
kind (except a notice specified below of time and place of public or private
sale) to or upon any Grantor or any other Person (all and each of which demands,
advertisements and notices are hereby expressly waived to the maximum extent
permitted by the Code or by any other applicable law), may take immediate
possession of all or any portion of the Collateral and (i) require Grantors to,
and each Grantor hereby agrees that it will at its own expense and upon request
of such Secured Party forthwith, assemble all or part of the Collateral as
directed by such Secured Party and make it available to such Secured Party at
one or more locations where such Grantor regularly maintains Inventory, and (ii)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of such Secured
Party’s offices or elsewhere, for cash, on credit, and upon such other terms as
such Secured Party may deem commercially reasonable. Each Grantor agrees that,
to the extent notice of sale shall be required by law, at least 10 days notice
to any Grantor of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification and
specifically such notice shall constitute a reasonable “authenticated
notification of disposition” within the meaning of Section 9-611 of the Code. No
Secured Party shall be obligated to make any sale of Collateral regardless of
notice of sale having been given. Any Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.

           

          (b)           Any
Secured Party may seek the appointment of a receiver, receiver-manager or keeper
(a “Receiver”) under the laws of Canada
or any province thereof to take possession of all or any portion of the
Collateral or to operate same and, to the maximum extent permitted by law, may
seek the appointment of such a Receiver without the requirement of prior notice
or a hearing. Any such Receiver shall, so far as concerns responsibility for
his/her acts, be deemed agent of the applicable Grantor and not any Secured
Party, and no Secured Party shall be in any way responsible for any misconduct,
negligence or non-feasance on the part of any such Receiver, his/her servants or
employees. Subject to the provisions of the instrument appointing him/her, any
such Receiver shall have power to take possession of Collateral, to preserve
Collateral or its value, to carry on or concur in carrying on all or any part of
the business of the applicable Grantor, and to sell, lease, license or otherwise
dispose of or concur in selling, leasing, licensing or otherwise disposing of
Collateral. To facilitate the foregoing powers, any such Receiver may, to the
exclusion of all others, including Grantors, enter upon, use and occupy all
premises owned or occupied by Grantors wherein Collateral may be situated,
maintain Collateral upon such premises, borrow money on a secured or unsecured
basis, and use Collateral directly in carrying on Grantors’ business or as
security for loans or advances to enable the Receiver to carry on Grantors’
business or otherwise, as such Receiver shall, in its discretion, determine.
Except as may be otherwise directed by a Secured Party, all money received from
time to time by such Receiver in carrying out his/her appointment shall be
received in trust for and paid over to Secured Parties. Every such Receiver may,
in the discretion of any Secured Party, be vested with all or any of the rights
and powers of any Secured Party. Any Secured Party may, either directly or
through its nominees, exercise any or all powers and rights given to a Receiver
by virtue of the foregoing provisions of this paragraph.


          
            
               


            

            
              20

              
                

              

            

            
               


            

          

           

          (c)           Each
Secured Party is hereby granted a license or other right to use, without
liability for royalties or any other charge, each Grantor’s labels, Patents,
Copyrights, rights of use of any name, trade secrets, trade names, Trademarks,
service marks and advertising matter, URLs, domain names, industrial designs,
other industrial or intellectual property or any property of a similar nature,
whether owned by any Grantor or with respect to which any Grantor has rights
under license, sublicense, or other agreements (but only to the extent (i) such
license, sublicense or agreement does not prohibit such use by such Secured
Party and (ii) such Grantor will not be in default under such license,
sublicense, or other agreement as a result of such use by such Secured Party),
as it pertains to the Collateral, in preparing for sale, advertising for sale
and selling any Collateral, and each Grantor’s rights under all licenses and all
franchise agreements shall inure to the benefit of such Secured
Party.

           

          (d)           Any
cash held by any Secured Party as Collateral and all proceeds received by any
Secured Party in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral shall be applied against the Secured
Obligations in the order set forth in Section 17 hereof. In the event the
proceeds of Collateral are insufficient to indefeasibly satisfy and discharge
all of the Secured Obligations in full, each Grantor shall remain jointly and
severally liable for any such deficiency.

           

          (e)           Each
Grantor hereby acknowledges that the Secured Obligations arose out of a
commercial transaction, and agrees that if an Event of Default shall occur and
be continuing any Secured Party shall have the right to an immediate writ of
possession without notice of a hearing. Without limitation of Section 16(b)
hereof, each Secured Party shall have the right to the appointment of a receiver
for the properties and assets of each Grantor, and each Grantor hereby consents
to such rights and such appointment and hereby waives any objection such Grantor
may have thereto or the right to have a bond or other security posted by any
Secured Party.

           

          (f)           Notwithstanding
anything in this Agreement to the contrary, each Secured Party agrees that it
will not exercise any remedy provided for under this Agreement with respect to
all or any portion of the Collateral unless such Secured Party is a Permitted
Secured Party (provided that the foregoing shall not prevent any Secured Party
from commencing or participating in any Insolvency Proceeding or taking any
action (other than with respect to the Collateral) to enforce the payment or
performance of any Grantors’ obligations under any of the Notes, Guaranties or
other Transaction Documents). This Section 16(f) is not intended to confer any
rights or benefits upon Grantors, or any of them, or any other Person except
Secured Parties, and no Person (including any or all Grantors) other than
Secured Parties shall have any right to enforce any of the provisions of this
Section 16(f). As between Grantors, or any of them, and any Secured Party, any
action that such Secured Party may take under this Agreement shall be
conclusively presumed to have been authorized and approved by the other Secured
Parties.


          
            
               


            

            
              21

              
                

              

            

            
               


            

          

           

          17.           Priority of Liens;
Application of Proceeds of Collateral. Each Secured Party hereby
acknowledges and agrees that, notwithstanding the time or order of the filing of
any financing statement or other registration or document with respect to the
Collateral and the Security Interests, or any provision of this Agreement, any
other Security Document, the Code, the PPSA or other applicable law, solely as
amongst the Secured Parties, the separate Security Interests of the Secured
Parties shall have the same rank and priority; provided, that, the foregoing
shall not apply to any Security Interest of a Secured Party that is void or
voidable as a matter of law. In furtherance thereof, all proceeds of Collateral
received by any Secured Party shall be applied as follows:

           

          (a)           first, ratably to pay
any expenses due to any of the Secured Parties (including, without limitation,
the reasonable costs and expenses paid or incurred by any Secured Party to
correct any default under or enforce any provision of the Transaction Documents,
or after the occurrence of any Event of Default in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated) or indemnities then due to any of
the Secured Parties under the Transaction Documents, until paid in
full;

           

          (b)           second, ratably to
pay any fees or premiums then due to any of the Secured Parties under the
Transaction Documents, until paid in full;

           

          (c)           third, ratably to pay
interest due in respect of the Secured Obligations then due to any of the
Secured Parties, until paid in full;

           

          (d)           fourth, ratably to
pay the principal amount of all Secured Obligations then due to any of the
Secured Parties, until paid in full;

           

          (e)           fifth, ratably to pay
any other Secured Obligations then due to any of the Secured Parties;
and

           

          (f)           sixth, to Grantors or
such other Person entitled thereto under applicable law.

          


          18.           Remedies Cumulative.
Each right, power, and remedy of any Secured Party as provided for in this
Agreement or in any other Transaction Document or now or hereafter existing at
law or in equity or by statute or otherwise shall be cumulative and concurrent
and shall be in addition to every other right, power, or remedy provided for in
this Agreement or in the other Transaction Documents or now or hereafter
existing at law or in equity or by statute or otherwise, and the exercise or
beginning of the exercise by any Secured Party, of any one or more of such
rights, powers, or remedies shall not preclude the simultaneous or later
exercise by such Secured Party of any or all such other rights, powers, or
remedies.


          
            
               


            

            
              22

              
                

              

            

            
               


            

          


          19.           Marshaling. No
Secured Party shall be required to marshal any present or future collateral
security (including but not limited to the Collateral) for, or other assurances
of payment of, the Secured Obligations or any of them or to resort to such
collateral security or other assurances of payment in any particular order, and
all of its rights and remedies hereunder and in respect of such collateral
security and other assurances of payment shall be cumulative and in addition to
all other rights and remedies, however existing or arising. To the extent that
it lawfully may, each Grantor hereby agrees that it will not invoke any law
relating to the marshaling of collateral which might cause delay in or impede
the enforcement of any Secured Party’s rights and remedies under this Agreement
or under any other instrument creating or evidencing any of the Secured
Obligations or under which any of the Secured Obligations is outstanding or by
which any of the Secured Obligations is secured or payment thereof is otherwise
assured, and, to the extent that it lawfully may, each Grantor hereby
irrevocably waives the benefits of all such laws.

          


          20.           Acknowledgment.

          


          (a)    
 Each Secured Party hereby agrees and acknowledges that no other Secured
Party has agreed to act for it as an administrative or collateral agent, and
each Secured Party is and shall remain solely responsible for the attachment,
perfection and priority of all Liens created by this Agreement or any other
Security Document in favor of such Secured Party. No Secured Party shall have by
reason of this Agreement or any other Transaction Document an agency or
fiduciary relationship with any other Secured Party. No Secured Party (which
term, as used in this sentence, shall include reference to each Secured Party’s
officers, directors, employees, attorneys, agents and affiliates and to the
officers, directors, employees, attorneys and agents of such Secured Party’s
affiliates) shall: (i) have any duties or responsibilities except those
expressly set forth in this Agreement and the other Security Documents or (ii)
be required to take, initiate or conduct any enforcement action (including any
litigation, foreclosure or collection proceedings hereunder or under any of the
other Security Documents). Without limiting the foregoing, no Secured Party
shall have any right of action whatsoever against any other Secured Party as a
result of such Secured Party acting or refraining from acting hereunder or under
any of the Security Documents except as a result and to the extent of losses
caused by such Secured Party’s actual gross negligence or willful misconduct (it
being understood and agreed by each Secured Party that the delivery by any
Significant Secured Party of one or more Veto Notices shall not be deemed to be
or construed as gross negligence or willful misconduct on the part of the
Secured Party delivering any such Veto Notice). No Secured Party assumes any
responsibility for any failure or delay in performance or breach by any Grantor
or any Secured Party of its obligations under this Agreement or any other
Transaction Document. No Secured Party makes to any other Secured Party any
express or implied warranty, representation or guarantee with respect to any
Secured Obligations, Collateral, Transaction Document or Grantor. No Secured
Party nor any of its officers, directors, employees, attorneys or agents shall
be responsible to any other Secured Party or any of its officers, directors,
employees, attorneys or agents for: (i) any recitals, statements, information,
representations or warranties contained in any of the Transaction Documents or
in any certificate or other document furnished pursuant to the terms hereof;
(ii) the execution, validity, genuineness, effectiveness or enforceability of
any of the Transaction Documents; (iii) the validity, genuineness,
enforceability, collectability, value, sufficiency or existence of any
Collateral, or the attachment, perfection or priority of any Lien therein; or
(iv) the assets, liabilities, financial condition, results of operations,
business, creditworthiness or legal status of any Grantor or any Account Debtor.
No Secured Party nor any of its officers, directors, employees, attorneys or
agents shall have any obligation to any other Secured Party to ascertain or
inquire into the existence of any default or Event of Default, the observance or
performance by any Grantor of any of the duties or agreements of such Grantor
under any of the Transaction Documents or the satisfaction of any conditions
precedent contained in any of the Transaction Documents.


          
            
               


            

            
              23

              
                

              

            

            
               


            

          


          (b)     
Each Secured Party hereby acknowledges and represents that it has, independently
and without reliance upon any other Secured Party, and based upon such
documents, information and analyses as it has deemed appropriate, made its own
credit analysis of each Grantor and its own decision to enter into the
Transaction Documents and to purchase the Notes and Warrants, and each Secured
Party has made such inquiries concerning the Transaction Documents, the
Collateral and each Grantor as such Secured Party feels necessary and
appropriate, and has taken such care on its own behalf as would have been the
case had it entered into the Transaction Documents without any other Secured
Party. Each Secured Party hereby further acknowledges and represents that the
other Secured Parties have not made any representations or warranties to it
concerning any Grantor, any of the Collateral or the legality, validity,
sufficiency or enforceability of any of the Transaction Documents. Each Secured
Party also hereby acknowledges that it will, independently and without reliance
upon the other Secured Parties, and based upon such financial statements,
documents and information as it deems appropriate at the time, continue to make
and rely upon its own credit decisions in taking or refraining to take any other
action under this Agreement or the Transaction Documents. No Secured Party shall
have any duty or responsibility to provide any other Secured Party with any
notices, reports or certificates furnished to such Secured Party by any Grantor
or any credit or other information concerning the affairs, financial condition,
business or assets of any Grantor (or any of its affiliates) which may come into
possession of such Secured Party.


           

          21.        
 Indemnity and
Expenses.

           

          (a)     
Without limiting any obligations of Parent under the Securities Purchase
Agreement, each Grantor agrees to indemnify all Secured Parties from and against
all claims, lawsuits and liabilities (including attorneys’ fees) arising out of
or resulting from this Agreement (including enforcement of this Agreement) or
any other Transaction Document, except claims, losses or liabilities resulting
from the gross negligence or willful misconduct of the party seeking
indemnification as determined by a final non-appealable order of a court of
competent jurisdiction. This provision shall survive the termination of this
Agreement and the Transaction Documents and the indefeasible satisfaction and
discharge of all the Secured Obligations in full.


          
            
               


            

            
              24

              
                

              

            

            
               


            

          


          (b)    
 Grantors, jointly and severally, shall, upon demand, pay to each Secured
Party all of the costs and expenses which such Secured Party may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or, upon an Event of Default, the sale of,
collection from, or other realization upon, any of the Collateral in accordance
with this Agreement and the other Transaction Documents, (iii) the exercise or
enforcement of any of the rights of such Secured Party hereunder or (iv) the
failure by any Grantor to perform or observe any of the provisions
hereof.

          


          22.            Merger, Amendments;
Etc. THIS AGREEMENT, TOGETHER WITH THE OTHER TRANSACTION DOCUMENTS,
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES SOLELY WITH RESPECT TO THE
SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES. No waiver of any provision of this
Agreement, and no consent to any departure by any of Grantors herefrom, shall in
any event be effective unless the same shall be in writing and signed by each
Secured Party, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No amendment of
any provision of this Agreement shall be effective unless the same shall be in
writing and signed by each Secured Party and each Grantor to which such
amendment applies.

          


          23.            Addresses for
Notices. All notices and other communications provided for hereunder (a)
shall be given in the form and manner set forth in the Securities Purchase
Agreement and (b) shall be delivered, (i) in the case of notice to any Grantor,
by delivery of such notice to Parent at Parent’s address specified in the
Securities Purchase Agreement or at such other address as shall be designated by
Parent in a written notice to each of the Secured Parties in accordance with the
provisions thereof, and (ii) in the case of notice to any Secured Party, by
delivery of such notice to such Secured Party at its address specified in the
Securities Purchase Agreement or at such other address as shall be designated by
such Secured Party in a written notice to Parent and each other Secured Party in
accordance with the provisions thereof.

           

          24.            Separate, Continuing
Security Interests; Assignments under Transaction Documents. This
Agreement shall create a separate, continuing security interest in the
Collateral in favor of each Secured Party and shall (a) remain in full force and
effect until the Secured Obligations have been indefeasibly satisfied and
discharged in full in accordance with the provisions of the Transaction
Documents, (b) be binding upon each of Grantors, and their respective permitted
successors and permitted assigns, and (c) inure to the benefit of, and be
enforceable by, the Secured Parties and their respective successors, transferees
and assigns. Without limiting the generality of the foregoing clause (c), any
Secured Party may, in accordance with the provisions of the Transaction
Documents, assign or otherwise transfer all or any portion of its rights and
obligations under the Transaction Documents to any other Person, and such other
Person shall thereupon become vested with all the benefits in respect thereof
granted to such Secured Party herein or otherwise. Upon the indefeasible
satisfaction and discharge in full of the Secured Obligations in accordance with
the provisions of the Transaction Documents, the Security Interests granted
hereby shall terminate and all rights to the Collateral shall revert to Grantors
or any other Person entitled thereto. At such time, each Secured Party will
authorize the filing of appropriate termination statements to terminate such
Security Interests. No transfer or renewal, extension, assignment, or
termination of this Agreement or any other Transaction Document, or any other
instrument or document executed and delivered by any Grantor to any Secured
Party nor any additional loans made by any Secured Party to any Grantor, nor the
taking of further security, nor the retaking or re-delivery of the Collateral to
Grantors, or any of them, by any Secured Party, nor any other act of Secured
Parties, or any of them, shall release any of Grantors from any obligation,
except a release or discharge executed in writing by all Secured Parties. No
Secured Party shall by any act, delay, omission or otherwise, be deemed to have
waived any of its rights or remedies hereunder, unless such waiver is in writing
and signed by such Secured Party and then only to the extent therein set forth.
A waiver by any Secured Party of any right or remedy on any occasion shall not
be construed as a bar to the exercise of any such right or remedy which such
Secured Party would otherwise have had on any other occasion.


          
            
               


            

            
              25

              
                

              

            

            
               


            

          

           

          25.           Governing Law; Jurisdiction;
Service of Process; Jury Trial. The parties hereby agree that pursuant to
735 Illinois Compiled Statutes 105/5-5 they have chosen that all questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of Illinois,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Illinois or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of
Illinois. Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in Chicago, Illinois, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper; provided, however, any suit
seeking enforcement against any Collateral or other property may be brought, at
any Secured Party’s option, in the courts of any jurisdiction where such Secured
Party elects to bring such action or where such Collateral or other property may
be found. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Without limitation of the foregoing, each
Grantor other than Parent hereby irrevocably appoints Parent as such Grantor’s
agent for purposes of receiving and accepting any service of process hereunder
or under any of the other Security Documents. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any manner permitted by
law. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.


          
            
               


            

            
              26

              
                

              

            

            
               


            

          

           

          26.           Miscellaneous.

          


          (a)      This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party. In
the event that any signature is delivered by facsimile transmission or by an
e-mail which contains a portable document format (.pdf) file of an executed
signature page, such signature page shall create a valid and binding obligation
of the party executing (or on whose behalf such signature is executed) with the
same force and effect as if such signature page were an original thereof. Any
party delivering an executed counterpart of this Agreement by facsimile or other
electronic method of transmission also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Security Document mutatis
mutandis.

          


          (b)           Any
provision of this Agreement which is prohibited or unenforceable shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof in that jurisdiction or affecting
the validity or enforceability of such provision in any other
jurisdiction.

          


          (c)           Headings
used in this Agreement are for convenience only and shall not be used in
connection with the interpretation of any provision hereof.


           

          (d)           The
pronouns used herein shall include, when appropriate, either gender and both
singular and plural, and the grammatical construction of sentences shall conform
thereto.

          


          (e)           The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party. For clarification purposes, the Recitals are part
of this Agreement. Notwithstanding any references to “Secured Parties” herein,
Iroquois and the Parent acknowledge and agree that Iroquois is the only Secured
Party that is a party hereto as of the date hereof.

          


          (f)           Unless
the context of this Agreement or any other Transaction Document clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the terms “includes” and “including” are not
limiting, and the term “or” has, except where otherwise indicated, the inclusive
meaning represented by the phrase “and/or.” The words “hereof,” “herein,”
“hereby,” “hereunder,” and similar terms in this Agreement or any other
Transaction Document refer to this Agreement or such other Transaction Document,
as the case may be, as a whole and not to any particular provision of this
Agreement or such other Transaction Document, as the case may be. Section,
subsection, clause, schedule, and exhibit references herein are to this
Agreement unless otherwise specified. Any reference in this Agreement or in any
other Transaction Document to any agreement, instrument, or document shall
include all alterations, amendments, changes, extensions, modifications,
renewals, replacements, substitutions, joinders, and supplements, thereto and
thereof, as applicable (subject to any restrictions on such alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, joinders, and supplements set forth herein). Any reference herein
or in any other Transaction Document to the satisfaction in full of the Secured
Obligations shall mean the indefeasible payment in full in cash and discharge,
or other satisfaction in accordance with the terms of the Transaction Documents
and discharge, of all Secured Obligations in full. Any reference herein to any
Person shall be construed to include such Person’s permitted successors and
permitted assigns. Any requirement of a writing contained herein or in any other
Transaction Document shall be satisfied by the transmission of a Record and any
Record so transmitted shall constitute a representation and warranty as to the
accuracy and completeness of the information contained therein.


          
            
               


            

            
              27

              
                

              

            

            
               


            

          


          (g)    
All dollar amounts referred to in this Agreement and the other Transaction
Documents are in United States Dollars (“US Dollars”), and all amounts owing under
this Agreement and all other Transaction Documents shall be paid in US Dollars.
All amounts denominated in other currencies shall be converted in the US Dollar
equivalent amount in accordance with the Exchange Rate on the date of
calculation. “Exchange
Rate” means,
in relation to any amount of currency to be converted into US Dollars pursuant
to this Agreement, the US Dollar exchange rate as published in the Wall Street
Journal on the relevant date of calculation.

           

          27. Subordination. Solely
in connection with the incurrence of specific Permitted Project Indebtedness (as
defined in the Notes), each Secured Party shall execute and deliver a
subordination agreement (in form and substance acceptable to such Secured Party)
to the lender of such Permitted Project Indebtedness if such lender requires
that a security interest in the assets of the applicable Project Subsidiary (as
defined in the Notes) be granted with respect to such Permitted Project
Indebtedness that is senior to the Security Interest granted by such Project
Subsidiary to the Secured Parties hereunder; provided, however, no Secured Party
shall have any obligation to enter into any such subordination agreement with
respect to any Grantor that is not a Project Subsidiary or with respect to any
Indebtedness (as defined in the Securities Purchase Agreement) that is not
Permitted Project Indebtedness.

           

          [signature
pages follow]

          


          
            
              
              

            

            
              28

              
                

              

            

            
              
              

            

          

           

          IN
WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement by
and through their duly authorized officers, as of the day and year first above
written.

          


          
            
              
                	
                        GRANTORS:

                      	
                        NACEL
      ENERGY CORPORATION, a Wyoming

                        corporation

                      
	 
      	 
      	 
      
	 
      	
                        By:

                      	 
      
	 
      	
                        

                      
	 
      	
                        Name: 

                      	
                        Murray Fleming

                      
	 
      	
                        Title:

                      	
                        Director

                      
	 
      	 
      	 
      
	 
      	
                        0758817
      B.C. LTD., a corporation existing pursuant to

                        the
      British Columbia Business Corporations Act

                      
	 
      	 
      	 
      
	 
      	
                        By:

                      	 
      
	 
      	
                        
                          

                        

                      
	 
      	
                        Name:

                      	
                        Murray Fleming

                      
	 
      	
                        Title:

                      	
                        Secretary

                      
	 
      	 
      	 
      
	 
      	
                        BLUE
      CREEK WIND ENERGY FACILITY LLC, a

                        Texas
      limited liability company

                      
	 
      	 
      	 
      
	 
      	
                        By:

                      	 
      
	 
      	
                        
                          

                        

                      
	 
      	
                        Name:

                      	
                        Murray Fleming

                      
	 
      	
                        Title:

                      	
                        Officer of Sole
  Member

                      


              

            

          

          


          SECURITY
AGREEMENT


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

           

          
            
              	
                      CHANNING
      FLATS WIND ENERGY FACILITY

                      LLC,
      a Texas limited liability company

                    
	 
      	 
      
	
                      By:

                    	 
      
	
                      
                        

                      

                    
	
                      Name: 

                    	
                      Murray Fleming

                    
	
                      Title:

                    	
                      Officer of Sole
  Member

                    


            

          

          


          SECURITY
AGREEMENT


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

          


          
            
              
                
                  
                    	
                            HEDLEY
      POINTE WIND ENERGY FACILITY

                            LLC,
      a Texas limited liability company

                          
	 
      	 
      
	
                            By:

                          	 
      
	
                            
                              

                            

                          
	
                            Name: 

                          	
                            Murray Fleming

                          
	
                            Title:

                          	
                            Officer of Sole Member

                          
	 
      	 
      
	
                            LEILA
      LAKE WIND ENERGY FACILITY LLC, a

                            Texas
      limited liability company

                          
	 
      	 
      
	
                            By:

                          	 
      
	
                            
                              

                            

                          
	
                            Name:

                          	
                            Murray Fleming

                          
	
                            Title:

                          	
                            Officer of Sole Member

                          
	 
      	 
      
	
                            SNOWFLAKE
      WIND ENERGY FACILITY LLC, an

                            Arizona
      limited liability company

                          
	 
      	 
      
	
                            By:

                          	 
      
	
                            
                              

                            

                          
	
                            Name:

                          	
                            Murray Fleming

                          
	
                            Title:

                          	
                            Officer of Sole
  Member

                          


                  

                

              

            

          

          


          SECURITY
AGREEMENT


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

          


          
            
              	
                      SWISHER
      WIND ENERGY FACILITY LLC, a

                      Texas
      limited liability company

                    
	 
      	 
      
	
                      By:

                    	 
      
	
                      
                        

                      

                    
	
                      Name: 

                    	
                      Murray Fleming

                    
	
                      Title:

                    	
                      Officer of Sole
  Member

                    


            

          

          


          SECURITY
AGREEMENT


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

           

          
            
              	
                      SECURED
      PARTIES:

                    	
                      IROQUOIS
      MASTER FUND LTD.

                    
	 
      	 
      
	 
      	
                      
                        

                      

                    
	 
      	
                      By: 

                    	
                      Joshua
      Silverman, Authorized
Signatory

                    


            

          

           

          SECURITY
AGREEMENT


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

           

          SCHEDULE
1

           

          COMMERCIAL
TORT CLAIMS 

           

          NONE


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

           

          
            SCHEDULE
2

          

           

          
            COPYRIGHTS


             

            NONE

          


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

           

          SCHEDULE
3

           

          INTELLECTUAL
PROPERTY LICENSES

           

          NONE


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

           

          SCHEDULE
4

           

          PATENTS


           

          NONE


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

           

          SCHEDULE
5

           

          PLEDGED
COMPANIES

          


          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      	
                                              Name of Pledgor

                                            	 	
                                              Name of Pledged Company

                                            	 	
                                              Percentage of Class

                                              Owned

                                            	 
	 	 	 	 	 	 	 
	
                                              NACEL
      Energy Corporation

                                            	 	
                                              0758817
      B.C. Ltd.

                                            	 	 	100	%
	 	 	 	 	 	 	 
	
                                              NACEL
      Energy Corporation

                                            	 	
                                              Blue
      Creek Wind Energy Facility LLC

                                            	 	 	100	%
	 	 	 	 	 	 	 
	
                                              NACEL
      Energy Corporation

                                            	 	
                                              Charnning
      Flats Wind Energy Facility LLC

                                            	 	 	100	%
	 	 	 	 	 	 	 
	
                                              NACEL
      Energy Corporation

                                            	 	
                                              Hedley
      Pointe Wind Energy Facility LLC

                                            	 	 	100	%
	 	 	 	 	 	 	 
	
                                              NACEL
      Energy Corporation

                                            	 	
                                              Leila
      Lake Wind Energy Facility LLC

                                            	 	 	100	%
	 	 	 	 	 	 	 
	
                                              NACEL
      Energy Corporation

                                            	 	
                                              Snowflake
      Wind Energy Facility LLC

                                            	 	 	100	%
	 	 	 	 	 	 	 
	
                                              NACEL
      Energy Corporation

                                            	 	
                                              Swisher
      Wind Energy Facility LLC

                                            	 	 	100	%


                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

           

          SCHEDULE
6

           

          TRADEMARKS

           

          NONE


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

           

          SCHEDULE
7

           

          REAL
PROPERTY

          
            Owned Real
Property

          

           

          NONE

           

          Leased Real
Property

           

          Parent
has a month-to-month lease on its office located at 9375 E. Shea Blvd., Suite
100, Scottsdale, Arizona 85260.

           

          (Leases Applicable to
Swisher Project)

           

          On
November 12, 2008 (Effective Date), Parent entered into the following contracts
which pertain to the development of its Swisher wind energy
project:


           

          •     A
Wind Project Agreement with S&T Swisher Farm covering 773 acres of land
located in Swisher County, Texas, being in the Texas panhandle.


           

          •    A
Wind Project Agreement with Jeffrey Dalluge covering 800 acres of land located
in Swisher County, Texas, being in the Texas panhandle


           

          (Lease Applicable to Blue
Creek Project)

           

          On
October 13, 2008, Parent entered into a Wind Project Agreement with Oglesby
Farms covering 2,082 acres of land located in Moore County, Texas, being in the
Texas panhandle.


           

          (Leases Applicable to Hedley
Pointe Project)

           

          On
January 28, 2009, Parent executed and entered into the following contracts which
pertain to the development of its Hedley Pointe wind energy
project:

           

          •    A
Wind Project Agreement dated as of January 15, 2009 with Faye Naylor covering
316 acres of land located in Donley County, Texas, being in the Texas
panhandle.

           

          •    A
Wind Project Agreement dated as of January 14, 2009 with Linda Lewis covering
320 acres of land located in Donley County, Texas, being in the Texas
panhandle.


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

           

          (Leases Applicable to Leila
Lake Project)

           

          Parent
has entered into the following contracts which pertain to the development of its
Leila Lake wind energy project:


           

          •            
A Wind Project Agreement dated as of April 13, 2009 with Bob and Patricia White
covering 640 acres of land located in Donley County, Texas, being in the Texas
panhandle.

           

          •            
A Wind Project Agreement dated as of April 13, 2009 with Roger and Rachel Wade
covering 107.67 net acres of land located in Donley County, Texas, being in the
Texas panhandle. As of August 7, 2009, Parent and Roger and Rachel Wade entered
into an Addendum to the original Agreement.

           

          •            
A Wind Project Agreement dated as of July 31, 2009 with the Holland Family Trust
covering 320 acres of land located in Donley County, Texas, being in the Texas
panhandle. As of August 7, 2009, Parent and the Holland Family Trust entered
into an Addendum to the original Agreement.

           

          •            
A Wind Project Agreement dated as of July 1, 2009 with Johnny Leathers covering
353 acres of land located in Donley County, Texas, being in the Texas
panhandle.

           

          •            
A Wind Project Agreement dated as of July 1, 2009 with Thelma Sheilds covering
160 acres of land located in Donley County, Texas, being in the Texas
panhandle.


           

          •            
A Wind Project Agreement dated as of July 1, 2009 with Grace Cox covering 320
acres of land located in Donley County, Texas, being in the Texas
panhandle.

           

          •            
A Wind Project Agreement dated as of July 1, 2009 with Billy Michael Owens
covering 192 acres of land located in Donley County, Texas, being in the Texas
panhandle.


           

          (Lease Applicable to
Snowflake Project)

           

          On July
6, 2009, Parent executed and entered into a Wind Project Agreement with Langley
NZ Ranches, LLC covering 640 acres of land located in Navajo County,
Arizona.

          


          SECURITY
AGREEMENT


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

           

          SCHEDULE
8

           

          
            LIST OF
UNIFORM COMMERCIAL CODE FILING JURISDICTIONS



          
            
              
                
                  
                    
                      
                        
                          
                            	
                                    Grantor

                                  	 
      	
                                    Jurisdictions

                                  
	 	 	 
	
                                    NACEL
      Energy Corporation

                                  	 
      	
                                    Wyoming

                                  
	 	 	 
	
                                    Blue
      Creek Wind Energy Facility LLC

                                  	 
      	
                                    Texas

                                  
	 	 	 
	
                                    Charnning
      Flats Wind Energy Facility LLC

                                  	 
      	
                                    Texas

                                  
	 	 	 
	
                                    Hedley
      Pointe Wind Energy Facility LLC

                                  	 
      	
                                    Texas

                                  
	 	 	 
	
                                    Leila
      Lake Wind Energy Facility LLC

                                  	 
      	
                                    Texas

                                  
	 	 	 
	
                                    Snowflake
      Wind Energy Facility LLC

                                  	 
      	
                                    Arizona

                                  
	 	 	 
	
                                    Swisher
      Wind Energy Facility LLC

                                  	 
      	
                                    Texas

                                  
	 	 	 
	
                                    0758817
      B.C. Ltd.

                                  	 
      	
                                    District
      of
Columbia

                                  


                          

                        

                      

                    

                  

                

              

            

          

          


          LIST OF
PPSA FILINGS

          


          
            
              
                	
                        Grantor

                      
	 
	
                        0758817
      B.C. Ltd.

                      


              

            

          


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          


          EXHIBIT
A

           

          COPYRIGHT SECURITY
AGREEMENT

           

          This
COPYRIGHT SECURITY AGREEMENT (this “Copyright Security Agreement”)
is made
this __ day of November 2009, by the Grantors listed on the signature pages
hereof (collectively,
jointly and severally, “Grantors” and each
individually “Grantor”), in favor of the Secured
Parties under and as defined in the below-described Security
Agreement.

           

          RECITALS

           

          WHEREAS,
pursuant to that certain Securities Purchase Agreement, dated as of November 23,
2009 (as amended, restated, supplemented, or otherwise modified from time to
time, including all schedules thereto, collectively, the “Securities Purchase
Agreement”), by
and among NACEL Energy Corporation, a Wyoming corporation (“Parent”), and each of the Secured
Parties, Parent has agreed to sell, and each of the Secured Parties have agreed
to purchase, severally and not jointly, certain Notes and Warrants;
and

           

          WHEREAS,
in order to induce each of the Secured Parties to purchase, severally and not
jointly, the Notes and Warrants as provided for in the Securities Purchase
Agreement, Grantors have executed and delivered to each of the Secured Parties
that certain Security Agreement of even date herewith (including all annexes,
exhibits or schedules thereto, as from time to time amended, restated,
supplemented or otherwise modified, the “Security Agreement”); and

           

          WHEREAS,
pursuant to the Security Agreement, Grantors are required to execute and deliver
to each of the Secured Parties this Copyright Security
Agreement.


           

          AGREEMENTS

           

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

           

          1.           DEFINED TERMS. All
capitalized terms used but not otherwise defined herein have the meanings given
to them in the Security Agreement.

           

          2.           GRANT OF SECURITY INTEREST
IN COPYRIGHT COLLATERAL. Each Grantor hereby grants to each Secured Party
a continuing first priority security interest in all of such Grantor’s right,
title and interest in, to and under the following, whether presently existing or
hereafter created or acquired (collectively, the “Copyright Collateral”):

           

          (a)     all
of each Grantor’s Copyrights and Copyright Intellectual Property Licenses to
which it is a party including those referred to on Schedule
I hereto;

           

          (b)     all
reissues, continuations or extensions of the foregoing; and


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

           

          (c) all
products and proceeds of the foregoing, including any claim by such Grantor
against third parties for past, present or future infringement or dilution of
any Copyright or any Copyright licensed under any Intellectual Property
License.

           

          3.           SECURITY FOR
OBLIGATIONS. This Copyright Security Agreement and the Security Interests
created hereby secures the payment and performance of all the Secured
Obligations, whether now existing or arising hereafter. Without limiting the
generality of the foregoing, this Copyright Security Agreement secures the
payment of all amounts which constitute part of the Secured Obligations and
would be owed by Grantors, or any of them, to Secured Parties, or any of them,
whether or not they are unenforceable or not allowable due to the existence of
an Insolvency Proceeding involving any Grantor.

           

          4.           SECURITY AGREEMENT.
The security interests granted pursuant to this Copyright Security Agreement are
granted in conjunction with the security interests granted to Secured Parties
pursuant to the Security Agreement. Each Grantor hereby acknowledges and affirms
that the rights and remedies of Secured Parties with respect to their respective
security interests in the Copyright Collateral made and granted hereby are more
fully set forth in the Security Agreement, the terms and provisions of which are
incorporated by reference herein as if fully set forth herein.

           

          5.           AUTHORIZATION TO
SUPPLEMENT. To the extent required under the Security Agreement, Grantors
shall give Secured Parties prompt notice in writing of any additional copyright
registrations or applications therefor after the date hereof. Grantors hereby
authorize Secured Parties unilaterally to modify this Agreement by amending
Schedule
I to include
any future registered copyrights or applications therefor of Grantors.
Notwithstanding the foregoing, no failure to so modify this Copyright Security
Agreement or amend Schedule
I shall in any way affect, invalidate or detract from any Secured Party’s
continuing security interest in all Collateral, whether or not listed on Schedule
I.

           

          6.           COUNTERPARTS. This
Copyright Security Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event that any signature is delivered by
facsimile transmission or by an e-mail which contains a portable document format
(.pdf) file of an executed signature page, such signature page shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such signature page
were an original thereof. In proving this Copyright Security Agreement or any
other Transaction Document in any judicial proceedings, it shall not be
necessary to produce or account for more than one such counterpart signed by the
party against whom such enforcement is sought.


          
            
               


            

            
              2

              
                

              

            

            
               


            

          

           

          7.           CONSTRUCTION. Unless
the context of this Copyright Security Agreement or any other Transaction
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the terms “includes”
and “including” are not limiting, and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.” The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Copyright
Security Agreement or any other Transaction Document refer to this Copyright
Security Agreement or such other Transaction Document, as the case may be, as a
whole and not to any particular provision of this Copyright Security Agreement
or such other Transaction Document, as the case may be. Section, subsection,
clause, schedule, and exhibit references herein are to this Copyright Security
Agreement unless otherwise specified. Any reference in this Copyright Security
Agreement or in any other Transaction Document to any agreement, instrument, or
document shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements,
thereto and thereof, as applicable (subject to any restrictions on such
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements set forth herein). Any
reference herein or in any other Transaction Document to the satisfaction in
full of the Secured Obligations shall mean the indefeasible payment in full in
cash and discharge, or other satisfaction in accordance with the terms of the
Transaction Documents and discharge, of all Secured Obligations in full. Any
reference herein to any Person shall be construed to include such Person’s
permitted successors and permitted assigns. Any requirement of a writing
contained herein or in any other Transaction Document shall be satisfied by the
transmission of a Record and any Record so transmitted shall constitute a
representation and warranty as to the accuracy and completeness of the
information contained therein. The language used in this Copyright Security
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party. For clarification purposes, the Recitals are part of this Copyright
Security Agreement.

          


          [signature
page follows]

           

          
            
              
              

            

            
              3

              
                

              

            

            
              
              

            

          

           

          IN WITNESS WHEREOF, each Grantor has
caused this Copyright Security Agreement to be executed and delivered by its
duly authorized officer as of the date first set forth above.

          


          
            
              
                
                  
                    
                      
                        
                          	
                                  GRANTORS:

                                	
                                  NACEL
      ENERGY CORPORATION, a Wyoming

                                  corporation

                                
	 
      	 
      	 
      
	 
      	
                                  By:

                                	 
      
	 
      	
                                  
                                    

                                  

                                
	 
      	
                                  Name:

                                	
                                  Murray Fleming

                                
	 
      	
                                  Title:

                                	
                                  Director

                                
	 
      	 
      	 
      
	 
      	
                                  0758817
      B.C. LTD., a corporation existing pursuant to

                                  the
      British Columbia Business Corporations Act

                                
	 
      	 
      	 
      
	 
      	
                                  By:

                                	 
      
	 
      	
                                  
                                    

                                  

                                
	 
      	
                                  Name: 

                                	
                                  Murray Fleming

                                
	 
      	
                                  Title:

                                	
                                  Secretary

                                
	 
      	 
      	 
      
	 
      	
                                  BLUE
      CREEK WIND ENERGY FACILITY LLC, a

                                  Texas
      limited liability company

                                
	 
      	 
      	 
      
	 
      	
                                  By:

                                	 
      
	 
      	
                                  
                                    

                                  

                                
	 
      	
                                  Name:

                                	
                                  Murray Fleming

                                
	 
      	
                                  Title:

                                	
                                  Officer of Sole
  Member

                                


                        

                      

                    

                  

                

              

            

          

          


          COPYRIGHT
SECURITY AGREEMENT


          
            
               


            

            
              4

              
                

              

            

            
               


            

          

          


          
            
              
                
                  	
                          CHANNING
      FLATS WIND ENERGY FACILITY

                          LLC,
      a Texas limited liability company

                        
	 
      	 
      
	
                          By:

                        	 
      
	
                          
                            

                          

                        
	
                          Name: 

                        	
                          Murray Fleming

                        
	
                          Title:

                        	
                          Officer of Sole
  Member

                        


                

              

            

          


          
            
               


            

            
              5

              
                

              

            

            
               


            

          

          


          
            
              
                
                  
                    
                      
                        
                          	
                                  HEDLEY
      POINTE WIND ENERGY FACILITY

                                  LLC,
      a Texas limited liability company

                                
	 
      	 
      
	
                                  By:

                                	 
      
	
                                  
                                    

                                  

                                
	
                                  Name: 

                                	
                                  Murray Fleming

                                
	
                                  Title:

                                	
                                  Officer of Sole Member

                                
	 
      	 
      
	
                                  LEILA
      LAKE WIND ENERGY FACILITY LLC, a

                                  Texas
      limited liability company

                                
	 
      	 
      
	
                                  By:

                                	 
      
	
                                  
                                    

                                  

                                
	
                                  Name:

                                	
                                  Murray Fleming

                                
	
                                  Title:

                                	
                                  Officer of Sole Member

                                
	 
      	 
      
	
                                  SNOWFLAKE
      WIND ENERGY FACILITY LLC, an

                                  Arizona
      limited liability company

                                
	 
      	 
      
	
                                  By:

                                	 
      
	
                                  
                                    

                                  

                                
	
                                  Name:

                                	
                                  Murray Fleming

                                
	
                                  Title:

                                	
                                  Officer of Sole
  Member

                                


                        

                      

                    

                  

                

              

            

          


          
            
               


            

            
              6

              
                

              

            

            
               


            

          

          


          
            
              
                
                  	
                          SWISHER
      WIND ENERGY FACILITY LLC, a

                          Texas
      limited liability company

                        
	 
      	 
      
	
                          By:

                        	 
      
	
                          
                            

                          

                        
	
                          Name: 

                        	
                          Murray Fleming

                        
	
                          Title:

                        	
                          Officer of Sole
  Member

                        


                

              

            

          


          
            
               


            

            
              7

              
                

              

            

            
               


            

          


          SCHEDULE
I

          TO

          COPYRIGHT SECURITY
AGREEMENT

           

          Copyright Registrations


           

          
            
              
                
                  
                    
                      
                        	
                                Grantor

                              	 
      	
                                Country

                              	 
      	
                                Copyright

                              	 
      	
                                Registration No.

                              	 
      	
                                Registration

                                Date

                              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      


                      

                    

                  

                

              

            

          

          


          Copyright
Licenses

          


          COPYRIGHT
SECURITY AGREEMENT


          
            
               


            

            
              
              

              
                

              

            

            
               


            

          

           

        

      

    

     

    EXHIBIT
B


     

    PATENT SECURITY
AGREEMENT

     

    This
PATENT SECURITY AGREEMENT (this “Patent Security Agreement”) is made this ____ day of
November 2009, by the Grantors listed on the signature pages hereof
(collectively, jointly and severally, “Grantors” and each individually “Grantor”), in favor of the Secured Parties
under and as defined in the below-described Security Agreement.

     

    RECITALS

     

    WHEREAS,
pursuant to that certain Securities Purchase Agreement, dated as of November 23,
2009 (as amended, restated, supplemented, or otherwise modified from time to
time, including all schedules thereto, collectively, the “Securities Purchase Agreement”), by and among NACEL Energy
Corporation, a Wyoming corporation (“Parent”), and each of the Secured Parties,
Parent has agreed to sell, and each of the Secured Parties have agreed to
purchase, severally and not jointly, certain Notes and Warrants;
and

     

    WHEREAS,
in order to induce each of the Secured Parties to purchase, severally and not
jointly, the Notes and Warrants as provided for in the Securities Purchase
Agreement, Grantors have executed and delivered to each of the Secured Parties
that certain Security Agreement of even date herewith (including all annexes,
exhibits or schedules thereto, as from time to time amended, restated,
supplemented or otherwise modified, the “Security Agreement”); and

     

    WHEREAS,
pursuant to the Security Agreement, Grantors are required to execute and deliver
to each of the Secured Parties this Patent Security Agreement.

     

    AGREEMENTS

     

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

     

    1.    DEFINED TERMS. All
capitalized terms used but not otherwise defined herein have the meanings given
to them in the Security Agreement.

     

    2.    GRANT OF SECURITY INTEREST
IN PATENT COLLATERAL. Each Grantor hereby grants to each Secured Party a
continuing first priority security interest in all of such Grantor’s right,
title and interest in, to and under the following, whether presently existing or
hereafter created or acquired (collectively, the “Patent Collateral”):

     

    (a)   
  all of its Patents
and Patent Intellectual Property Licenses to which it is a party including
those referred to on Schedule
I hereto;

     

    (b)  
   all reissues,
continuations or extensions of the foregoing; and


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

     

    (c)  
   all products
and proceeds of the foregoing, including any claim by such Grantor against third
parties for past, present or future infringement or dilution of any Patent or
any Patent licensed under any Intellectual Property License.

     

    3.    SECURITY FOR
OBLIGATIONS. This Patent Security Agreement and the Security Interests
created hereby secures the payment and performance of all the Secured
Obligations, whether now existing or arising hereafter. Without limiting the
generality of the foregoing, this Patent Security Agreement secures the payment
of all amounts which constitute part of the Secured Obligations and would be
owed by Grantors, or any of them, to Secured Parties, or any of them, whether or
not they are unenforceable or not allowable due to the existence of an
Insolvency Proceeding involving any Grantor.

     

    4.    SECURITY AGREEMENT.
The security interests granted pursuant to this Patent Security Agreement are
granted in conjunction with the security interests granted to Secured Parties
pursuant to the Security Agreement. Each Grantor hereby acknowledges and affirms
that the rights and remedies of Secured Parties with respect to their respective
security interests in the Patent Collateral made and granted hereby are more
fully set forth in the Security Agreement, the terms and provisions of which are
incorporated by reference herein as if fully set forth herein.

     

    5.    AUTHORIZATION TO
SUPPLEMENT. If any Grantor shall obtain rights to any new patentable
inventions or become entitled to the benefit of any patent application or patent
for any reissue, division, or continuation, of any patent, the provisions of
this Patent Security Agreement shall automatically apply thereto. To the extent
required under the Security Agreement, Grantors shall give prompt notice in
writing to Secured Parties with respect to any such new patent rights. Without
limiting each Grantor’s obligations under this Section 5, Grantors hereby
authorize Secured Parties unilaterally to modify this Agreement by amending
Schedule
I to include
any such new patent rights of Grantors. Notwithstanding the foregoing, no
failure to so modify this Patent Security Agreement or amend Schedule
I shall in
any way affect, invalidate or detract from any Secured Party’s continuing
security interest in all Collateral, whether or not listed on Schedule
I.

     

    6.    COUNTERPARTS. This
Patent Security Agreement may be executed in two or more identical counterparts,
all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party. In the event that any signature is delivered by facsimile
transmission or by an e-mail which contains a portable document format (.pdf)
file of an executed signature page, such signature page shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such signature page were an
original thereof. In proving this Patent Security Agreement or any other
Transaction Document in any judicial proceedings, it shall not be necessary to
produce or account for more than one such counterpart signed by the party
against whom such enforcement is sought.


    
      
         


      

      
        2

        
          

        

      

      
         


      

    

     

    7.    CONSTRUCTION. Unless
the context of this Patent Security Agreement or any other Transaction Document
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the terms “includes” and
“including” are not limiting, and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.” The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Patent
Security Agreement or any other Transaction Document refer to this Patent
Security Agreement or such other Transaction Document, as the case may be, as a
whole and not to any particular provision of this Patent Security Agreement or
such other Transaction Document, as the case may be. Section, subsection,
clause, schedule, and exhibit references herein are to this Patent Security
Agreement unless otherwise specified. Any reference in this Patent Security
Agreement or in any other Transaction Document to any agreement, instrument, or
document shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements,
thereto and thereof, as applicable (subject to any restrictions on such
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements set forth herein). Any
reference herein or in any other Transaction Document to the satisfaction in
full of the Secured Obligations shall mean the indefeasible payment in full in
cash and discharge, or other satisfaction in accordance with the terms of the
Transaction Documents and discharge, of all Secured Obligations in full. Any
reference herein to any Person shall be construed to include such Person’s
permitted successors and permitted assigns. Any requirement of a writing
contained herein or in any other Transaction Document shall be satisfied by the
transmission of a Record and any Record so transmitted shall constitute a
representation and warranty as to the accuracy and completeness of the
information contained therein. The language used in this Patent Security
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party. For clarification purposes, the Recitals are part of this Patent
Security Agreement.

     

    [signature pages follow]


    
      
         


      

      
        3

        
          

        

      

      
         


      

    

    

      IN
WITNESS WHEREOF, each Grantor has caused this Patent Security Agreement to be
executed and delivered by its duly authorized officer as of the date first set
forth above.

       

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      	
                                                              GRANTORS:

                                                            	
                                                              NACEL
      ENERGY CORPORATION, a Wyoming

                                                              corporation

                                                            
	 
      	 
      
	 
      	
                                                              By:

                                                            
	 
      	
                                                              

                                                            
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Director
	 
      	 
      
	 
      	
                                                              0758817
      B.C. LTD., a corporation existing pursuant to

                                                              the
      British Columbia Business Corporations Act

                                                            
	 
      	 
      
	 
      	
                                                              By:

                                                            
	 
      	
                                                              

                                                            
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Secretary
	 
      	 
      
	 
      	
                                                              BLUE
      CREEK WIND ENERGY FACILITY LLC, a

                                                              Texas
      limited liability company

                                                            
	 
      	 
      
	 
      	
                                                              By:

                                                            
	 
      	
                                                              

                                                            
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Officer
      of Sole
Member


                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    


    
      
         


      

      
        4

        
          

        

      

      
         


      

    

    


    
      
        
          
            
              
                
                  
                    
                      
                        	 
      	
                                CHANNING
      FLATS WIND ENERGY FACILITY

                                LLC,
      a Texas limited liability company

                              
	 
      	 
      
	 
      	
                                By:

                              
	 
      	
                                

                              
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Officer
      of Sole
Member


                      

                    

                  

                

              

            

          

        

      

    


    
      
         


      

      
        5

        
          

        

      

      
         


      

    

    


    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    	 
      	
                                                            HEDLEY
      POINTE WIND ENERGY FACILITY

                                                            LLC,
      a Texas limited liability company

                                                          
	 
      	 
      
	 
      	
                                                            By:

                                                          
	 
      	
                                                            

                                                          
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Officer
      of Sole Member
	 
      	 
      
	 
      	
                                                            LEILA
      LAKE WIND ENERGY FACILITY LLC, a

                                                            Texas
      limited liability company

                                                          
	 
      	 
      
	 
      	
                                                            By:

                                                          
	 
      	
                                                            

                                                          
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Officer
      of Sole Member
	 
      	 
      
	 
      	
                                                            SNOWFLAKE
      WIND ENERGY FACILITY LLC, an

                                                            Arizona
      limited liability company

                                                          
	 
      	 
      
	 
      	
                                                            By:

                                                          
	 
      	
                                                            

                                                          
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Officer
      of Sole
Member


                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    


    
      
         


      

      
        6

        
          

        

      

      
         


      

    

     

    
      
        
          
            
              
                
                  	 	
                          SWISHER
      WIND ENERGY FACILITY LLC, a

                        
	 	
                          Texas
      limited liability company

                        
	 	 
	 
      	
                          By:

                        
	 
      	
                          
                            

                          

                        
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Officer
      of Sole
Member


                

              

            

          

        

      
 


    
      
         


      

      
        7

        
          

        

      

      
         


      

    

     

    EXHIBIT
C

     

    TRADEMARK SECURITY
AGREEMENT

     

    This
TRADEMARK SECURITY AGREEMENT (this “Trademark Security Agreement”) is made this _____ day of November
2009, by the Grantors listed on the signature pages hereof (collectively,
jointly and severally, “Grantors” and each individually “Grantor”), in favor of the Secured Parties
under and as defined in the below-described Security Agreement.

     

    RECITALS

     

    WHEREAS,
pursuant to that certain Securities Purchase Agreement, dated as of November 23,
2009 (as amended, restated, supplemented, or otherwise modified from time to
time, including all schedules thereto, collectively, the “Securities Purchase Agreement”), by and among NACEL Energy
Corporation, a Wyoming corporation (“Parent”), and each of the Secured Parties,
Parent has agreed to sell, and each of the Secured Parties have agreed to
purchase, severally and not jointly, certain Notes and Warrants;
and

     

    WHEREAS,
in order to induce each of the Secured Parties to purchase, severally and not
jointly, the Notes and Warrants as provided for in the Securities Purchase
Agreement, Grantors have executed and delivered to each of the Secured Parties
that certain Security Agreement of even date herewith (including all annexes,
exhibits or schedules thereto, as from time to time amended, restated,
supplemented or otherwise modified, the “Security Agreement”); and

     

    WHEREAS,
pursuant to the Security Agreement, Grantors are required to execute and deliver
to each of the Secured Parties this Trademark Security Agreement.

     

    AGREEMENTS

     

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

     

    1.    DEFINED TERMS. All
capitalized terms used but not otherwise defined herein have the meanings given
to them in the Security Agreement.

     

    2.    GRANT OF SECURITY INTEREST
IN TRADEMARK COLLATERAL. Each Grantor hereby grants to each Secured Party
a continuing first priority security interest in all of such Grantor’s right,
title and interest in, to and under the following, whether presently existing or
hereafter created or acquired (collectively, the “Trademark Collateral”):

     

    (a)    all of its
Trademarks and Trademark Intellectual Property Licenses to which it is a party
including those referred to on Schedule
I hereto;


    
      
         


      

      
        1

        
          

        

      

      
         


      

    

     

    (b)    all goodwill,
trade secrets, proprietary or confidential information, technical
information, procedures, formulae, quality control standards, designs, operating
and training
manuals, customer lists, and other General Intangibles with respect to the
foregoing;

     

    (c)    all reissues,
continuations or extensions of the foregoing;

     

    (d)    all goodwill
of the business connected with the use of, and symbolized by, each Trademark and
each Trademark Intellectual Property License; and

     

    (e)    all products
and proceeds of the foregoing, including any claim by such Grantor against third
parties for past, present or future (i) infringement or dilution of any
Trademark or any Trademark licensed under any Intellectual Property License or
(ii) injury to the goodwill associated with any Trademark or any Trademark
licensed under any Intellectual Property License.

     

    3.    SECURITY FOR
OBLIGATIONS. This Trademark Security Agreement and the Security Interests
created hereby secures the payment and performance of all the Secured
Obligations, whether now existing or arising hereafter. Without limiting the
generality of the foregoing, this Trademark Security Agreement secures the
payment of all amounts which constitute part of the Secured Obligations and
would be owed by Grantors, or any of them, to Secured Parties, or any of them,
whether or not they are unenforceable or not allowable due to the existence of
an Insolvency Proceeding involving any Grantor.

     

    4.    SECURITY AGREEMENT.
The security interests granted pursuant to this Trademark Security Agreement are
granted in conjunction with the security interests granted to Secured Parties
pursuant to the Security Agreement. Each Grantor hereby acknowledges and affirms
that the rights and remedies of Secured Parties with respect to their respective
security interests in the Trademark Collateral made and granted hereby are more
fully set forth in the Security Agreement, the terms and provisions of which are
incorporated by reference herein as if fully set forth herein.

     

    5.    AUTHORIZATION TO
SUPPLEMENT. If any Grantor shall obtain rights to any new trademarks, the
provisions of this Trademark Security Agreement shall automatically apply
thereto. To the extent required under the Security Agreement, Grantors shall
give prompt notice in writing to Secured Parties with respect to any such new
trademarks or renewal or extension of any trademark registration. Without
limiting each Grantor’s obligations under this Section 5, Grantors hereby
authorize Secured Parties unilaterally to modify this Agreement by amending
Schedule
I to include
any such new trademark rights of Grantors. Notwithstanding the foregoing, no
failure to so modify this Trademark Security Agreement or amend Schedule
I shall in any way affect, invalidate or detract from any Secured Party’s
continuing security interest in all Collateral, whether or not listed on Schedule
I.


    
      
         


      

      
        2

        
          

        

      

      
         


      

    

     

    6.    COUNTERPARTS. This
Trademark Security Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event that any signature is delivered by
facsimile transmission or by an e-mail which contains a portable document format
(.pdf) file of an executed signature page, such signature page shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such signature page
were an original thereof. In proving this Trademark Security Agreement or any
other Transaction Document in any judicial proceedings, it shall not be
necessary to produce or account for more than one such counterpart signed by the
party against whom such enforcement is sought.

     

    7.    CONSTRUCTION. Unless
the context of this Trademark Security Agreement or any other Transaction
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the terms “includes”
and “including” are not limiting, and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.” The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Trademark
Security Agreement or any other Transaction Document refer to this Trademark
Security Agreement or such other Transaction Document, as the case may be, as a
whole and not to any particular provision of this Trademark Security Agreement
or such other Transaction Document, as the case may be. Section, subsection,
clause, schedule, and exhibit references herein are to this Agreement unless
otherwise specified. Any reference in this Trademark Security Agreement or in
any other Transaction Document to any agreement, instrument, or document shall
include all alterations, amendments, changes, extensions, modifications,
renewals, replacements, substitutions, joinders, and supplements, thereto and
thereof, as applicable (subject to any restrictions on such alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, joinders, and supplements set forth herein). Any reference herein
or in any other Transaction Document to the satisfaction in full of the Secured
Obligations shall mean the indefeasible payment in full in cash and discharge,
or other satisfaction in accordance with the terms of the Transaction Documents
and discharge, of all Secured Obligations in full. Any reference herein to any
Person shall be construed to include such Person’s permitted successors and
permitted assigns. Any requirement of a writing contained herein or in any other
Transaction Document shall be satisfied by the transmission of a Record and any
Record so transmitted shall constitute a representation and warranty as to the
accuracy and completeness of the information contained therein. The language
used in this Trademark Security Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party. For clarification purposes, the
Recitals are part of this Trademark Security Agreement.

     

    [signature pages follow]


    
      
         


      

      
        3

        
          

        

      

      
         


      

    

     

    IN
WITNESS WHEREOF, each Grantor has caused this Trademark Security Agreement to be
executed and delivered by its duly authorized officer as of the date first set
forth above.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      	
                                              GRANTORS:

                                            	
                                              NACEL
      ENERGY CORPORATION, a Wyoming

                                              corporation

                                            
	 
      	 
      
	 
      	
                                              By:

                                            
	 
      	
                                              

                                            
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Director
	 
      	 
      
	 
      	
                                              0758817
      B.C. LTD., a corporation existing pursuant to

                                              the
      British Columbia Business Corporations Act

                                            
	 
      	 
      
	 
      	
                                              By:

                                            
	 
      	
                                              

                                            
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Secretary


                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    


    
      
         


      

      
        4

        
          

        

      

      
         


      

    

    


    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        	 
      	
                                                BLUE
      CREEK WIND ENERGY FACILITY LLC, a

                                                Texas
      limited liability company

                                              
	 
      	 
      
	 
      	
                                                By:

                                              
	 
      	
                                                

                                              
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Officer
      of Sole Member
	 
      	 
      
	 
      	
                                                CHANNING
      FLATS WIND ENERGY FACILITY

                                                LLC,
      a Texas limited liability company

                                              
	 
      	 
      
	 
      	
                                                By:

                                              
	 
      	
                                                

                                              
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Officer
      of Sole
Member


                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    


    
      
         


      

      
        5

        
          

        

      

      
         


      

    

    


    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        	 
      	
                                                                HEDLEY
      POINTE WIND ENERGY FACILITY

                                                                LLC,
      a Texas limited liability company

                                                              
	 
      	 
      
	 
      	
                                                                By:

                                                              
	 
      	
                                                                

                                                              
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Officer
      of Sole Member
	 
      	 
      
	 
      	
                                                                LEILA
      LAKE WIND ENERGY FACILITY LLC, a

                                                                Texas
      limited liability company

                                                              
	 
      	 
      
	 
      	
                                                                By:

                                                              
	 
      	
                                                                

                                                              
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Officer
      of Sole Member
	 
      	 
      
	 
      	
                                                                SNOWFLAKE
      WIND ENERGY FACILITY LLC, an

                                                                Arizona
      limited liability company

                                                              
	 
      	 
      
	 
      	
                                                                By:

                                                              
	 
      	
                                                                

                                                              
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Officer
      of Sole
Member


                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                	 	
                                        SWISHER
      WIND ENERGY FACILITY LLC, a

                                      
	 	
                                        Texas
      limited liability company

                                      
	 	 
	 
      	
                                        By:

                                      
	 
      	
                                        
                                          

                                        

                                      
	 
      	Name:
      Murray
      Fleming
	 
      	Title:
      Officer
      of Sole
Member


                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    


    
      
         


      

      
        7

        
          

        

      

      
         


      

    

     

    SCHEDULE
I

    to

    TRADEMARK SECURITY
AGREEMENT


     

    Trademark
Registrations/Applications


     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              	
                                                      Grantor

                                                    	 	
                                                      Country

                                                    	 	
                                                      Mark

                                                    	 	
                                                      Application/

                                                      Registration No.

                                                    	 	
                                                      App/Reg Date

                                                    	 
	 
      	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 	 


                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    Trade
Names


     

    Common Law
Trademarks


     

    Trademarks Not Currently In
Use


     

    Trademark
Licenses