SECURITIES
PURCHASE AGREEMENT

     

    This
SECURITIES PURCHASE AGREEMENT
(the “Agreement”), dated as of November 23, 2009, is
by and among NACEL Energy Corporation, a Wyoming corporation with offices
located at 9375 E. Shea Blvd., Suite 100, Scottsdale, Arizona 85260 (the “Company”), and the investors listed on the
Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

     

    RECITALS

     

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

     

    B.          The
Company has authorized senior secured convertible notes, in the form attached
hereto as Exhibit
A (the “Notes”), which Notes shall be convertible
into shares of the Company’s common stock, $0.001 par value per share (the “Common Stock”) (as converted, collectively, the
“Conversion Shares”), in accordance with the terms of
the Notes.

     

    C.          Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) the aggregate original principal amount
of the Notes set forth opposite such Buyer’s name in column (3) on the Schedule
of Buyers, (ii) a warrant to acquire up to that number of additional shares of
Common Stock set forth opposite such Buyer’s name in column (4) on the Schedule
of Buyers, in the form attached hereto as Exhibit
B (the “Series A Warrants”) (as exercised, collectively, the
“Series A Warrant Shares”), (iii) a warrant to acquire up to
that number of additional shares of Common Stock set forth opposite such Buyer’s
name in column (5) on the Schedule of Buyers, in the form attached hereto as
Exhibit
C (the “Series B Warrants”) (as exercised, collectively, the
“Series B Warrant Shares”) and (iv) a warrant to acquire up to
that number of additional shares of Common Stock set forth opposite such Buyer’s
name in column (6) on the Schedule of Buyers, in the form attached hereto as
Exhibit
D (the “Series C Warrants”) (as exercised, collectively, the
“Series C Warrant Shares”). The Series A Warrants, the Series
B Warrants and the Series C Warrants are collectively referred to herein as the
“Warrants.” The Series A Warrant Shares, the
Series B Warrant Shares and the Series C Warrant Shares are collectively
referred to herein as the “Warrant Shares.”

     

    D.         At
the Closing, the parties hereto shall execute and deliver a Registration Rights
Agreement, in the form attached hereto as Exhibit
E (the “Registration Rights Agreement”), pursuant to which the Company has
agreed to provide certain registration rights with respect to the Registrable
Securities (as defined in the Registration Rights Agreement), under the 1933 Act
and the rules and regulations promulgated thereunder, and applicable state
securities laws.

     

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


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

     

    F.          The
Notes will be secured by a first priority perfected security interest in all of
the assets of the Company and its Subsidiaries (as defined below) as evidenced
by a security agreement as the Buyers shall require in form and substance
acceptable to each Buyer (such security agreement, together with the other
security documents and agreements entered into in connection with this Agreement
and each of such other documents and agreements, as each may be amended or
modified from time to time, collectively, the “Security Documents”), and each of its Subsidiaries (as
defined below) will execute a guaranty (collectively, the “Guaranties”) pursuant to which
each of them guarantees the obligations of the Company under the Transaction
Documents (as defined below).

     

    AGREEMENT

     

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

     

    
      	
              1.

            	
              PURCHASE
      AND SALE OF NOTES AND WARRANTS.

            


    

     

    (a)        Notes and Warrants.
Subject to the satisfaction (or waiver) of the conditions set forth in Sections
6 and 7 below, the Company shall issue and sell to each Buyer, and each Buyer
severally, but not jointly, shall purchase from the Company on the Closing Date
(as defined below), a Note in the principal amount as is set forth opposite such
Buyer’s name in column (3) on the Schedule of Buyers along with (i) Series A
Warrants to acquire up to that number of Series A Warrant Shares as is set forth
opposite such Buyer’s name in column (4) on the Schedule of Buyers, (ii) Series
B Warrants to acquire up to that number of Series B Warrant Shares as is set
forth opposite such Buyer’s name in column (5) on the Schedule of Buyers and
(iii) Series C Warrants to acquire up to that number of Series C Warrant Shares
as is set forth opposite such Buyer’s name in column (6) on the Schedule of
Buyers.

     

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

     

    (c)        Purchase Price. The
aggregate purchase price for the Notes and the Warrants to be purchased by each
Buyer (the “Purchase
Price”) shall be the amount set forth opposite such Buyer’s
name in column (7) on the Schedule of Buyers.


    
      
         


      

      
        2

        
          

        

      

      
         


      

    

     

    (d)        Form of Payment. On
the Closing Date, (i) each Buyer shall pay its respective Purchase Price to the
Company for the Note and the Warrants to be issued and sold to such Buyer at the
Closing, by wire transfer of immediately available funds in accordance with the
Company’s written wire instructions and (ii) the Company shall deliver to each
Buyer (A) a Note (in such amount as is set forth opposite such Buyer’s name in
column (3) of the Schedule of Buyers), (B) a Series A Warrant pursuant to which
such Buyer shall have the right to acquire up to such number of Series A Warrant
Shares as is set forth opposite such Buyer’s name in column (4) of the Schedule
of Buyers, (C) a Series B Warrant pursuant to which such Buyer shall have the
right to acquire up to such number of Series B Warrant Shares as is set forth
opposite such Buyer’s name in column (5) of the Schedule of Buyers and (D) a
Series C Warrant pursuant to which such Buyer shall have the right to acquire up
to such number of Series C Warrant Shares as is set forth opposite such Buyer’s
name in column (6) of the Schedule of Buyers, in all cases, duly executed on
behalf of the Company and registered in the name of such Buyer or its
designee.

     

    
      	
              2.

            	
              BUYER’S
      REPRESENTATIONS AND WARRANTIES.

            


    

     

    Each
Buyer, severally and not jointly, represents and warrants to the Company with
respect to only itself that:

     

    (a)        Organization;
Authority. Such Buyer is an entity duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization with the
requisite power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents to which it is a party and otherwise
to carry out its obligations hereunder and thereunder.

     

    (b)        No Public Sale or
Distribution. Such Buyer is (i) acquiring its Note and Warrants, (ii)
upon conversion of its Note will acquire the Conversion Shares issuable upon
conversion thereof, and (iii) upon exercise of its Warrants will acquire the
Warrant Shares issuable upon exercise thereof, in each case, for its own account
and not with a view towards, or for resale in connection with, the public sale
or distribution thereof in violation of applicable securities laws, except
pursuant to sales registered or exempted under the 1933 Act; provided, however,
by making the representations herein, such Buyer does not agree, or make any
representation or warranty, to hold any of the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
under the 1933 Act. Such Buyer is acquiring the Securities hereunder in the
ordinary course of its business. Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities in violation of applicable securities
laws.

     

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

     

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


    
      
         


      

      
        3

        
          

        

      

      
         


      

    

     

    (e)        Information. Such
Buyer and its advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities which have been requested by such Buyer.
Such Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer’s right to rely on the
Company’s representations and warranties contained herein or any representations
and warranties contained in any other Transaction Document or any other document
or instrument executed and/or delivered in connection with this Agreement or the
consummation of the transaction contemplated hereby. Such Buyer understands that
its investment in the Securities involves a high degree of risk. Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.

     

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

     

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

     

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


    
      
         


      

      
        4

        
          

        

      

      
         


      

    

     

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

     

    (j)        
Residency. Such
Buyer is a resident of that jurisdiction specified below its address on the
Schedule of Buyers.

     

    (k)        Certain Trading
Activities. Such Buyer has not directly or indirectly, nor has any Person
acting on behalf of or pursuant to any understanding with such Buyer, engaged in
any transactions in the securities of the Company (including, without
limitation, any Short Sales involving the Company’s securities) since the time
that such Buyer was first contacted by the Placement Agent (a defined below)
regarding the investment in the Company contemplated by this Agreement through
the date hereof. “Short
Sales” means all “short sales” as defined in Rule 200
promulgated under Regulation SHO under the 1934 Act (but shall not be deemed to
include the location and/or reservation of borrowable shares of Common Stock).
Such Buyer does not as of the date hereof, and will not immediately following
the Closing, own 10% or more of the Company’s issued and outstanding shares of
Common Stock (calculated based on the assumption that all Equivalents (as
defined below) owned by such Buyer, whether or not presently exercisable or
convertible, have been fully exercised or converted (as the case may be) but
taking into account any limitations on exercise or conversion (including
“blockers”) contained therein).

     

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

     

    
      	
              3.

            	
              REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

            


    

     

    The
Company represents and warrants to each of the Buyers that:

     

    (a)        Organization and
Qualification. Each of the Company and each of its Subsidiaries are
entities duly organized and validly existing and in good standing under the laws
of the jurisdiction in which they are formed, and have the requisite power and
authorization to own their properties and to carry on their business as now
being conducted and as presently proposed to be conducted. Each of the Company
and each of its Subsidiaries is duly qualified as a foreign entity to do
business and is in good standing in every jurisdiction in which its ownership of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect. As used in this
Agreement, “Material Adverse
Effect” means any material adverse effect on (i) the
business, properties, assets, liabilities, operations (including results
thereof), condition (financial or otherwise) or prospects of the Company or any
Subsidiary, individually or taken as a whole, (ii) the transactions contemplated
hereby or in any of the other Transaction Documents or (iii) the authority or
ability of the Company or any of its Subsidiaries to perform any of their
respective obligations under any of the Transaction Documents (as defined
below). Other than its Subsidiaries, there is no Person in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest. “Subsidiary” means any Person in
which the Company, directly or indirectly, (whether prior to, on or after the
date hereof) (I) owns any of the outstanding capital stock or holds any equity
or similar interest of such Person or (II) controls or operates all or any part
of the business, operations or administration of such Person, and all are
collectively referred to herein as “Subsidiaries.”


    
      
         


      

      
        5

        
          

        

      

      
         


      

    

     

    (b)        Authorization; Enforcement;
Validity. The Company has the requisite power and authority to enter into
and perform its obligations under this Agreement and the other Transaction
Documents and to issue the Securities in accordance with the terms hereof and
thereof. Each Subsidiary has the requisite power and authority to enter into and
perform its obligations under the Transaction Documents to which it is a party.
The execution and delivery of this Agreement and the other Transaction Documents
by the Company and its Subsidiaries, and the consummation by the Company and its
Subsidiaries of the transactions contemplated hereby and thereby (including,
without limitation, the issuance of the Notes and the reservation for issuance
and issuance of the Conversion Shares issuable upon conversion of the Notes and
the issuance of the Warrants and the reservation for issuance and issuance of
the Warrant Shares issuable upon exercise of the Warrants) have been duly
authorized by the Company’s board of directors and each of its Subsidiaries’
board of directors or other governing body, as applicable, and (other than the
filing with the SEC of one or more Registration Statements in accordance with
the requirements of the Registration Rights Agreement and any other filings as
may be required by any state securities agencies) no further filing, consent or
authorization is required by the Company, its Subsidiaries, their respective
boards of directors or their stockholders or other governing body. This
Agreement and the other Transaction Documents to which it is a party have been
duly executed and delivered by the Company and constitutes the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies and except as rights to indemnification and to contribution may be
limited by federal or state securities law. The Transaction Documents to which
each Subsidiary is a party have been duly executed and delivered by each such
Subsidiary, and constitutes the legal, valid and binding obligations of each
such Subsidiary, enforceable against each such Subsidiary in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies and except as rights to
indemnification and to contribution may be limited by federal or state
securities law. “Transaction
Documents” means, collectively, this Agreement, the Notes,
the Warrants, the Security Documents, the Guaranties, the Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions (as defined below) and
each of the other agreements and instruments entered into by the parties hereto
in connection with the transactions contemplated hereby and thereby, as may be
amended from time to time.


    
      
         


      

      
        6

        
          

        

      

      
         


      

    

     

    (c)        Issuance of
Securities. The issuance of the Notes and the Warrants are duly
authorized and upon issuance in accordance with the terms of the Transaction
Documents shall be validly issued, fully paid and non-assessable and free from
all taxes, liens, charges and other encumbrances with respect to the issue
thereof. As of the Closing, the Company shall have reserved from its duly
authorized capital stock not less than 133% of the sum of (i) the maximum number
of Conversion Shares issuable upon conversion of the Notes (assuming for
purposes hereof that the Notes are convertible at the initial Conversion Price
(as defined in the Notes) and without taking into account any limitations on the
conversion of the Notes set forth therein) and (ii) the maximum number of
Warrant Shares issuable upon exercise of the Warrants (without taking into
account any limitations on the exercise of the Warrants set forth therein). Upon
conversion in accordance with the Notes or exercise in accordance with the
Warrants (as the case may be), the Conversion Shares and the Warrant Shares,
respectively, when issued, will be validly issued, fully paid and nonassessable
and free from all preemptive or similar rights, taxes, liens, charges and other
encumbrances with respect to the issue thereof, with the holders being entitled
to all rights accorded to a holder of Common Stock. Subject to the accuracy of
the representations and warranties of the Buyers in this Agreement, the offer
and issuance by the Company of the Securities is exempt from registration under
the 1933 Act.

     

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

     

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


    
      
         


      

      
        7

        
          

        

      

      
         


      

    

     

    (f)        
Acknowledgment
Regarding Buyer’s Purchase of Securities. The Company acknowledges and
agrees that each Buyer is acting solely in the capacity of an arm’s length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and that no Buyer is (i) an officer or director
of the Company or any of its Subsidiaries, (ii) an “affiliate” (as defined in
Rule 144) of the Company or any of its Subsidiaries or (iii) to its knowledge, a
“beneficial owner” of more than 10% of the shares of Common Stock (as defined
for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended
(the “1934 Act”)). The Company further
acknowledges that no Buyer is acting as a financial advisor or fiduciary of the
Company or any of its Subsidiaries (or in any similar capacity) with respect to
the Transaction Documents and the transactions contemplated hereby and thereby,
and any advice given by a Buyer or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Buyer’s purchase of the
Securities. The Company further represents to each Buyer that the Company’s and
each Subsidiary’s decision to enter into the Transaction Documents to which it
is a party has been based solely on the independent evaluation by the Company,
each Subsidiary and their respective representatives.

     

    (g)        No General Solicitation;
Placement Agent’s Fees. Neither the Company, nor any of its Subsidiaries
or affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the Securities. The
Company shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, or brokers’ commissions (other than for persons engaged
by any Buyer or its investment advisor) relating to or arising out of the
transactions contemplated hereby. Other than TerraNova Capital Partners, Inc.
(the “Placement Agent”), neither the Company
nor any of its Subsidiaries has engaged any placement agent or other agent in
connection with the sale of the Securities.

     

    (h)        No Integrated
Offering. None of the Company, its Subsidiaries or any of their
affiliates, nor any Person acting on their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security, under circumstances that would require registration of the issuance of
any of the Securities under the 1933 Act, whether through integration with prior
offerings or otherwise, or cause this offering of the Securities to require
approval of stockholders of the Company under any applicable stockholder
approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the
securities of the Company are listed or designated. None of the Company, its
Subsidiaries, their affiliates nor any Person acting on their behalf will take
any action or steps referred to in the preceding sentence that would require
registration of the issuance of any of the Securities under the 1933 Act or
cause the offering of any of the Securities to be integrated with other
offerings.


    
      
         


      

      
        8

        
          

        

      

      
         


      

    

     

    (i)        
Dilutive
Effect. The Company understands and acknowledges that the number of
Conversion Shares and Warrant Shares will increase in certain circumstances. The
Company further acknowledges that its obligation to issue the Conversion Shares
upon conversion of the Notes and the Warrant Shares upon exercise of the
Warrants in accordance with this Agreement, the Notes and the Warrants is,
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the
Company.

     

    (j)        
Application of
Takeover Protections; Rights Agreement. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation, Bylaws or other
organizational documents or the laws of the jurisdiction of its incorporation or
otherwise which is or could become applicable to any Buyer as a result of the
transactions contemplated by this Agreement, including, without limitation, the
Company’s issuance of the Securities and any Buyer’s ownership of the
Securities. The Company and its board of directors have taken all necessary
action, if any, in order to render inapplicable any stockholder rights plan or
similar arrangement relating to accumulations of beneficial ownership of shares
of Common Stock or a change in control of the Company or any of its
Subsidiaries.

     

    (k)        SEC Documents; Financial
Statements. Except as disclosed in Schedule 3(k), during the two (2)
years prior to the date hereof, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the 1934 Act (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements, notes and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the “SEC Documents”). The Company has
delivered to the Buyers or their respective representatives true, correct and
complete copies of each of the SEC Documents not available on the EDGAR system.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto as in effect as of the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which will not be material, either individually or in the
aggregate). No other information provided by or on behalf of the Company to the
Buyers which is not included in the SEC Documents (including, without
limitation, information referred to in Section 2(e) of this Agreement) contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein not misleading, in the light
of the circumstance under which they are or were made.


    
      
         


      

      
        9

        
          

        

      

      
         


      

    

     

    (1)        Absence of Certain
Changes. Since the date of the Company’s most recent audited or reviewed
financial statements contained in a Form 10-K, there has been no material
adverse change and no material adverse development in the business, assets,
liabilities, properties, operations (including results thereof), condition
(financial or otherwise) or prospects of the Company or any of its Subsidiaries.
Since the date of the Company’s most recent audited financial statements
contained in a Form 10-K, neither the Company nor any of its Subsidiaries has
(i) declared or paid any dividends, (ii) sold any assets, individually or in the
aggregate, outside of the ordinary course of business or (iii) made any material
capital expenditures, individually or in the aggregate. Neither the Company nor
any of its Subsidiaries has taken any steps to seek protection pursuant to any
law or statute relating to bankruptcy, insolvency, reorganization, liquidation
or winding up, nor does the Company or any Subsidiary have any knowledge or
reason to believe that any of their respective creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any fact which
would reasonably lead a creditor to do so. The Company and its Subsidiaries,
individually and on a consolidated basis, are not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below). For purposes of this Section
3(1), “Insolvent” means, (I) with respect to
the Company and its Subsidiaries, on a consolidated basis, (i) the present fair
saleable value of the Company’s and its Subsidiaries’ assets is less than the
amount required to pay the Company’s and its Subsidiaries’ total Indebtedness
(as defined below), (ii) the Company and its Subsidiaries are unable to pay
their debts and liabilities, subordinated, contingent or otherwise, as such
debts and liabilities become absolute and matured or (iii) the Company and its
Subsidiaries intend to incur or believe that they will incur debts that would be
beyond their ability to pay as such debts mature; and (II) with respect to the
Company and each Subsidiary, individually, (i) the present fair saleable value
of the Company’s or such Subsidiary’s (as the case may be) assets is less than
the amount required to pay its respective total Indebtedness, (ii) the Company
or such Subsidiary (as the case may be) is unable to pay its respective debts
and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (iii) the Company or such Subsidiary
(as the case may be) intends to incur or believes that it will incur debts that
would be beyond its respective ability to pay as such debts mature. Neither the
Company nor any of its Subsidiaries has engaged in business or in any
transaction, and is not about to engage in business or in any transaction, for
which the Company’s or such Subsidiary’s remaining assets constitute
unreasonably small capital.

     

    (m)        No Undisclosed Events,
Liabilities, Developments or Circumstances. No event, liability,
development or circumstance has occurred or exists, or is reasonably expected to
exist or occur with respect to the Company, any of its Subsidiaries or their
respective business, properties, liabilities, prospects, operations (including
results thereof) or condition (financial or otherwise), that (i) would be
required to be disclosed by the Company under applicable securities laws on a
registration statement on Form S-l filed with the SEC relating to an issuance
and sale by the Company of its Common Stock and which has not been publicly
announced or (ii) could have a material adverse effect on any Buyer’s investment
hereunder or could have a Material Adverse Effect.


    
      
         


      

      
        10

        
          

        

      

      
         


      

    

     

    (n)        Conduct of Business;
Regulatory Permits. Neither the Company nor any of its Subsidiaries is in
violation of any term of or in default under its Articles of Incorporation, any
certificate of designation, preferences or rights of any other outstanding
series of preferred stock of the Company or any of its Subsidiaries or Bylaws or
their organizational charter, certificate of formation or certificate of
incorporation or bylaws, respectively. Neither the Company nor any of its
Subsidiaries is in violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except in all cases for
possible violations which could not, individually or in the aggregate, have a
Material Adverse Effect. Without limiting the generality of the foregoing, the
Company is not in violation of any of the rules, regulations or requirements of
the Principal Market and has no knowledge of any facts or circumstances that
could reasonably lead to delisting or suspension of the Common Stock by the
Principal Market in the foreseeable future. Since January 1, 2007, (i) the
Common Stock has been listed or designated for quotation on the Principal
Market, (ii) trading in the Common Stock has not been suspended by the SEC or
the Principal Market and (iii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension
or delisting of the Common Stock from the Principal Market. The Company and each
of its Subsidiaries possess all certificates, authorizations and permits issued
by the appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

     

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

     

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

     

    (q)        Transactions With
Affiliates. Other than the grant of stock options and other matters
disclosed on Schedule 3(q), none of the officers, directors or employees of the
Company or any of its Subsidiaries is presently a party to any transaction with
the Company or any of its Subsidiaries (other than for ordinary course services
as employees, officers or directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any such officer, director or employee or, to the knowledge of the
Company or any of its Subsidiaries, any corporation, partnership, trust or other
entity in which any such officer, director, or employee has a substantial
interest or is an officer, director, trustee or partner.


    
      
         


      

      
        11

        
          

        

      

      
         


      

    

     

    (r)        
Equity
Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of (i) 50,000,000 shares of Common Stock, of which,
22,111,000 are issued and outstanding and no shares are reserved for issuance
pursuant to securities (other than the Notes and the Warrants) exercisable or
exchangeable for, or convertible into, shares of Common Stock and (ii) no shares
of preferred stock. No shares of Common Stock are held in treasury. All of such
outstanding shares are duly authorized and have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. 8,912,500 shares of the
Company’s issued and outstanding Common Stock on the date hereof are as of the
date hereof owned by Persons who are “affiliates” (as defined in Rule 405 of the
1933 Act and calculated based on the assumption that only officers, directors
and holders of at least 10% of the Company’s issued and outstanding Common Stock
are “affiliates” without conceding that any such Persons are “affiliates” for
purposes of federal securities laws) of the Company or any of its Subsidiaries.
To the Company’s knowledge, no Person owns 10% or more of the Company’s issued
and outstanding shares of Common Stock (calculated based on the assumption that
all Equivalents, whether or not presently exercisable or convertible, have been
fully exercised or converted (as the case may be) taking account of any
limitations on exercise or conversion (including “blockers”) contained therein
without conceding that such identified Person is a 10% stockholder for purposes
of federal securities laws). Except as disclosed in Schedule 3(r): (i) none of
the Company’s or any Subsidiary’s capital stock is subject to preemptive rights
or any other similar rights or any liens or encumbrances suffered or permitted
by the Company or any Subsidiary; (ii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional capital stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock of the Company or any of its
Subsidiaries; (iii) there are no outstanding debt securities, notes, credit
agreements, credit facilities or other agreements, documents or instruments
evidencing Indebtedness of the Company or any of its Subsidiaries or by which
the Company or any of its Subsidiaries is or may become bound; (iv) there are no
financing statements securing obligations in any amounts filed in connection
with the Company or any of its Subsidiaries; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except pursuant
to the Registration Rights Agreement); (vi) there are no outstanding securities
or instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) neither the Company nor any Subsidiary has any stock
appreciation rights or “phantom stock” plans or agreements or any similar plan
or agreement; and (ix) neither the Company nor any of its Subsidiaries have any
liabilities or obligations required to be disclosed in the SEC Documents which
are not so disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company’s or its Subsidiaries’ respective businesses and
which, individually or in the aggregate, do not or could not have a Material
Adverse Effect. The Company has furnished to the Buyers true, correct and
complete copies of the Company’s Articles of Incorporation, as amended and as in
effect on the date hereof (the “Articles of Incorporation”), and the
Company’s bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect
thereto.


    
      
         


      

      
        12

        
          

        

      

      
         


      

    

     

    (s)        Indebtedness and Other
Contracts. Except as disclosed on Schedule 3(s), neither the Company nor
any of its Subsidiaries (i) has any outstanding Indebtedness (as defined below),
(ii) is a party to any contract, agreement or instrument, the violation of
which, or default under which, by the other party(ies) to such contract,
agreement or instrument could reasonably be expected to result in a Material
Adverse Effect, (iii) is in violation of any term of, or in default under, any
contract, agreement or instrument relating to any Indebtedness, except where
such violations and defaults would not result, individually or in the aggregate,
in a Material Adverse Effect, or (iv) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the
judgment of the Company’s officers, has or is expected to have a Material
Adverse Effect. For purposes of this Agreement: (x) “Indebtedness” of any Person
means, without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (including, without limitation, “capital leases” in
accordance with generally accepted accounting principles) (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) “Contingent Obligation” means, as to any
Person, any direct or indirect liability, contingent or otherwise, of that
Person with respect to any indebtedness, lease, dividend or other obligation of
another Person if the primary purpose or intent of the Person incurring such
liability, or the primary effect thereof, is to provide assurance to the obligee
of such liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto; and (z) “Person” means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.


    
      
         


      

      
        13

        
          

        

      

      
         


      

    

     

    (t)        
Absence of
Litigation. Except as set forth on Schedule 3(t), there is no action,
suit, proceeding, inquiry or investigation before or by the Principal Market,
any court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries, the Common Stock or any of the Company’s or
its Subsidiaries’ officers or directors which is outside of the ordinary course
of business or individually or in the aggregate material to the Company or any
of its Subsidiaries. There has not been, and to the knowledge of the Company,
there is not pending or contemplated, any investigation by the SEC involving the
Company, any of its Subsidiaries or any current of former director or officer of
the Company or any of its Subsidiaries. The SEC has not issued any stop order or
other order suspending the effectiveness of any registration statement filed by
the Company under the 1933 Act or the 1934 Act.

     

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

     

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

     

    (w)        Title. The Company
and its Subsidiaries have good and marketable title in fee simple to all real
property and good and marketable title to all personal property owned by them
which is material to the business of the Company and its Subsidiaries, in each
case, free and clear of all liens, encumbrances and defects except such as do
not materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company or any of its Subsidiaries.


    
      
         


      

      
        14

        
          

        

      

      
         


      

    

     

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

     

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

     

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

     

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

    
      
         


      

      
        15

        
          

        

      

      
         


      

    

     

    (bb)      Internal Accounting and
Disclosure Controls. The Company and each of its Subsidiaries maintains
internal control over financial reporting (as such term is defined in Rule
13a-15(f) under the 1934 Act) that is effective to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles, including that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management’s
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-15(e) under the 1934 Act) that are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
SEC, including, without limitation, controls and procedures designed to ensure
that information required to be disclosed by the Company in the reports that it
files or submits under the 1934 Act is accumulated and communicated to the
Company’s management, including its principal executive officer or officers and
its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure. Neither the Company nor any of its
Subsidiaries has received any notice or correspondence from any accountant or
other Person relating to any potential material weakness or significant
deficiency in any part of the internal controls over financial reporting of the
Company or any of its Subsidiaries.

     

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

     

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


    
      
         


      

      
        16

        
          

        

      

      
         


      

    

     

    (ee)      Acknowledgement Regarding
Buyers’ Trading Activity. It is understood and acknowledged by the
Company (i) that, other than as contemplated by Section 2(k), following the
public disclosure of the transactions contemplated by the Transaction Documents,
in accordance with the terms thereof, none of the Buyers have been asked by the
Company or any of its Subsidiaries to agree, nor has any Buyer agreed with the
Company or any of its Subsidiaries, to desist from purchasing or selling, long
and/or short, securities of the Company, or “derivative” securities based on
securities issued by the Company or to hold the Securities for any specified
term; (ii) that any Buyer, and counter parties in “derivative” transactions to
which any such Buyer is a party, directly or indirectly, presently may have a
“short” position in the Common Stock which were established prior to such
Buyer’s knowledge of the transactions contemplated by the Transaction Documents,
and (iii) that each Buyer shall not be deemed to have any affiliation with or
control over any arm’s length counter party in any “derivative” transaction. The
Company further understands and acknowledges that following the public
disclosure of the transactions contemplated by the Transaction Documents
pursuant to the Press Release one or more Buyers may engage in hedging and/or
trading activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Warrant Shares or Conversion Shares, as applicable, deliverable with respect
to the Securities are being determined and (b) such hedging and/or trading
activities, if any, can reduce the value of the existing stockholders’ equity
interest in the Company both at and after the time the hedging and/or trading
activities are being conducted. The Company acknowledges that such
aforementioned hedging and/or trading activities do not constitute a breach of
this Agreement or any other Transaction Document or any of the documents
executed in connection herewith or therewith.


     

    (ff)        Manipulation of
Price. Neither the Company nor any of its Subsidiaries has, and, to the
knowledge of the Company, no Person acting on their behalf has, (i) taken,
directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company or any
of its Subsidiaries to facilitate the sale or resale of any of the Securities,
(ii) sold, bid for, purchased, or paid any compensation for soliciting purchases
of, any of the Securities (other than the Placement Agent), or (iii) paid or
agreed to pay to any person any compensation for soliciting another to purchase
any other securities of the Company or any of its Subsidiaries.


     

    (gg)     
U.S. Real Property
Holding Corporation. Neither the Company nor any of its Subsidiaries is,
or has ever been, and so long as any of the Securities are held by any of the
Buyers, shall become, a U.S. real property holding corporation within the
meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the
Company and each Subsidiary shall so certify upon any Buyer’s request. The
Common Stock does not derive, and has not at any time during the previous five
years derived, directly or indirectly more than 50% of its fair market value
from one or any combination of: (i) real property situated in Canada, (ii)
Canadian resource property and (iii) timber resource properties (as such terms
are defined for purposes of the Income Tax Act
(Canada).


     

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


    
      
         


      

      
        17

        
          

        

      

      
         


      

    

     

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


     

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


     

    (kk)      Disclosure. The
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Buyers or their agents or counsel with any information that
constitutes or could reasonably be expected to constitute material, non-public
information concerning the Company or any of its Subsidiaries, other than the
existence of the transactions contemplated by this Agreement and the other
Transaction Documents. The Company understands and confirms that each of the
Buyers will rely on the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the Buyers regarding the
Company and its Subsidiaries, their businesses and the transactions contemplated
hereby, including the schedules to this Agreement, furnished by or on behalf of
the Company or any of its Subsidiaries is true and correct and does not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. Each press release
issued by the Company or any of its Subsidiaries during the twelve (12) months
preceding the date of this Agreement did not at the time of release contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. No event
or circumstance has occurred or information exists with respect to the Company
or any of its Subsidiaries or its or their business, properties, liabilities,
prospects, operations (including results thereof) or conditions (financial or
otherwise), which, under applicable law, rule or regulation, requires public
disclosure at or before the date hereof or announcement by the Company but which
has not been so publicly announced or disclosed. The Company acknowledges and
agrees that no Buyer makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in Section 2.


     

    (ll)      Ranking of Notes. No
Indebtedness of the Company, at the Closing, will be senior to, or pari passu with, the Notes in
right of payment, whether with respect to payment or redemptions, interest,
damages, upon liquidation or dissolution or otherwise.


     

    
      	
              4.

            	
              COVENANTS.

            


    

     

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


    
      
         


      

      
        18

        
          

        

      

      
         


      

    

     

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

     

    (c)        Reporting Status.
Until the date on which the Buyers shall have sold all of the Registrable
Securities (the “Reporting
Period”), the Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would no
longer require or otherwise permit such termination.

     

    (d)        Use of Proceeds. The
Company shall use the proceeds from the sale of the Securities solely for
general working capital purposes.

     

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

     

    (f)         Listing. The Company
shall promptly secure the listing or designation for quotation (as the case may
be) of all of the Registrable Securities upon each national securities exchange
and automated quotation system, if any, upon which the Common Stock is then
listed or designated for quotation (as the case may be) (subject to official
notice of issuance) and shall maintain such listing or designation for quotation
(as the case may be) of all Registrable Securities from time to time issuable
under the terms of the Transaction Documents on such national securities
exchange or automated quotation system. The Company shall maintain the Common
Stock’s listing or authorization for quotation (as the case may be) on the
Principal Market, the New York Stock Exchange, the Nasdaq Global Market, the
Nasdaq Global Select Market or the Nasdaq Capital Market (each, an “Eligible Market”). Neither the Company
nor any of its Subsidiaries shall take any action which could be reasonably
expected to result in the delisting or suspension of the Common Stock on an
Eligible Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(f).


    
      
         


      

      
        19

        
          

        

      

      
         


      

    

     

    (g)        Fees. The Company
shall reimburse Iroquois Master Fund Ltd. (“Iroquois”) or its designee(s) for all
costs and expenses incurred by it or its affiliates in connection with the
transactions contemplated by the Transaction Documents (including, without
limitation, all legal fees and disbursements in connection therewith,
documentation and implementation of the transactions contemplated by the
Transaction Documents and due diligence and regulatory filings in connection
therewith) in an amount not to exceed $45,000, which amount shall be withheld by
Iroquois from its Purchase Price at the Closing or paid by the Company upon
termination of this Agreement on demand by Iroquois so long as such termination
did not occur as a result of a material breach by Iroquois of any of its
obligations hereunder (as the case may be), less $25,000 which was previously
advanced to Iroquois by the Company. If the amount so withheld at Closing by
Iroquois was less than the aggregate amount of costs and expenses actually
incurred by it or its affiliates in connection with the transactions
contemplated by the Transaction Documents, the Company shall promptly reimburse
Iroquois on demand for all such costs and expenses not so reimbursed through
such withholding at the Closing. The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or broker’s
commissions (other than for Persons engaged by any Buyer) relating to or arising
out of the transactions contemplated hereby (including, without limitation, any
fees payable to the Placement Agent, who is the Company’s sole placement agent
in connection with the transactions contemplated by this Agreement). The Company
shall pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, reasonable attorneys’ fees and out-of-pocket
expenses) arising in connection with any claim relating to any such payment.
Except as otherwise set forth in the Transaction Documents, each party to this
Agreement shall bear its own expenses in connection with the sale of the
Securities to the Buyers.

     

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


    
      
         


      

      
        20

        
          

        

      

      
         


      

    

     

    (i)       
Disclosure of
Transactions and Other Material Information. The Company shall, on or
before 8:30 a.m., New York time, on the first (1st)
Business Day after the date of this Agreement, issue a press release (the “Press Release”) reasonably acceptable to the Buyers
disclosing all the material terms of the transactions contemplated by the
Transaction Documents. On or before 8:30 a.m., New York time, on the second
(2nd)
Business Day following the date of this Agreement, the Company shall file a
Current Report on Form 8-K describing all the material terms of the transactions
contemplated by the Transaction Documents in the form required by the 1934 Act
and attaching all the material Transaction Documents (including, without
limitation, this Agreement (and all schedules to this Agreement), the form of
the Security Documents, the form of Guaranties, the form of the Notes, the form
of the Warrants and the form of the Registration Rights Agreement) (including
all attachments, the “8-K Filing”).
From and after the issuance of the Press Release, the Company shall have
disclosed all material, non-public information (if any) delivered to any of the
Buyers by the Company or any of its Subsidiaries, or any of their respective
officers, directors, employees or agents in connection with the transactions
contemplated by the Transaction Documents. The Company shall not, and the
Company shall cause each of its Subsidiaries and each of its and their
respective officers, directors, employees and agents not to, provide any Buyer
with any material, non-public information regarding the Company or any of its
Subsidiaries from and after the issuance of the Press Release without the
express prior written consent of such Buyer. In the event of a breach of any of
the foregoing covenants or any of the covenants contained in Section 4(o) by the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents (as determined in the reasonable good faith
judgment of such Buyer), in addition to any other remedy provided herein or in
the Transaction Documents, such Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, non-public information without the prior approval by the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Buyer shall have any liability to the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents, for any such disclosure. Subject
to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall
issue any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, the Company shall be
entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release). Without the
prior written consent of the applicable Buyer, the Company shall not (and shall
cause each of its Subsidiaries and affiliates to not) disclose the name of such
Buyer in any filing, announcement, release or otherwise.

     

    (j)       
Additional
Registration Statements. Until the Applicable Date (as defined below) and
at any time thereafter while any Registration Statement is not effective or the
prospectus contained therein is not available for use, the Company shall not
file a registration statement under the 1933 Act relating to securities that are
not the Registrable Securities. “Applicable Date” means the first date on which the
resale by the Buyers of all Registrable Securities is covered by one or more
effective Registration Statements (as defined in the Registration Rights
Agreement) (and each prospectus contained therein is available for use on such
date).


    
      
         


      

      
        21

        
          

        

      

      
         


      

    


    (k)      
Additional Issuance of
Securities. The Company agrees that for the period commencing on the date
hereof and ending on the date immediately following the one hundred twenty (120)
Trading Day (as defined in the Warrants) anniversary of the Applicable Date (the
“Restricted Period”),
neither the Company nor any of its Subsidiaries shall directly or
indirectly issue, offer, sell, grant any option to purchase, or otherwise
dispose of (or announce any issuance, offer, sale, grant or any option to
purchase or other disposition of) any of their respective equity or equity
equivalent securities, including, without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time and under any
circumstances convertible into or exchangeable for, or otherwise entitles the
holder thereof to receive, capital stock and other securities of the Company
(including, without limitation, any securities of the Company or any Subsidiary
which entitle the holder thereof to acquire Common Stock at any time, including
without limitation, any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common
Stock) (collectively with such capital stock or other securities of the Company,
“Equivalents”) (any such issuance, offer, sale,
grant, disposition or announcement (whether occurring during the Restricted
Period or at any time thereafter) is referred to as a “Subsequent Placement”).
Notwithstanding the foregoing, this Section 4(k) shall not apply in
respect of the issuance of (A) shares of Common Stock (including upon exercise
of standard options to purchase Common Stock) to directors, officers or
employees of the Company in their capacity as such pursuant to an Approved Share
Plan (as defined below), provided that (1) all such issuances (taking into
account the shares of Common Stock issuable upon exercise of such options) after
the date hereof pursuant to this clause (A) do not, in the aggregate, exceed
more than 5% of the Common Stock issued and outstanding immediately prior to the
date hereof and (2) such options are not amended to increase the number of
shares issuable thereunder or to lower the exercise price thereof or to
otherwise materially change the terms or conditions thereof in any manner that
adversely affects any of the Buyers, (B) shares of Common Stock issued upon the
conversion or exercise of Equivalents issued prior to the date hereof, provided
that such Equivalents have not been amended since the date of this Agreement to
increase the number of shares issuable thereunder or to lower the exercise or
conversion price thereof or otherwise materially change the terms or conditions
thereof in any manner that adversely affects any of the Buyers, (C) the
Conversion Shares, (D) the Warrant Shares, (E) up to 855,000 restricted shares
of Common Stock issuable to Renergix Wind LLC under the terms of that certain
Joint Development Agreement dated effective as of January 1, 2009, provided that
such shares of Common Stock are issued solely in accordance with the terms of
such agreement, such agreement is not amended to increase the number of shares
issuable thereunder and the terms or conditions of such agreement are not
otherwise materially changed in any manner that adversely affects any of the
Buyers and (F) the Placement Agent Warrant Shares (each of the foregoing in
clauses (A) through (F), collectively the “Excluded Securities”).
“Approved Share Plan” means any employee benefit plan
which has been approved by the board of directors of the Company prior to or
subsequent to the date hereof pursuant to which shares of Common Stock and
standard options to purchase Common Stock may be issued to any employee, officer
or director for services provided to the Company in their capacity as such;
“Placement Agent Warrant” means the warrant to be issued by
the Company to the Placement Agent on the Closing Date to purchase up to 83,333
shares of Common Stock at an initial exercise price of $0.90 per share, in the
form provided to the Buyers on the date hereof; and “Placement Agent Warrant Shares” means the shares of Common Stock
issuable to the Placement Agent upon exercise of the Placement Agent Warrant. It
is expressly understood and agreed that the offer, issuance and sale by any
Project Subsidiary (as defined in the Notes) of Project LLC Securities (as
defined below) shall not constitute a Subsequent Placement only if (i) the
offer, issuance and sale of such Project LLC Securities does not include or
involve any security (as defined under the 1933 Act) or other equity interest or
equity-linked interest in the Company, any Subsidiary or any other Person
(except that the applicable Project LLC Securities themselves constitute a
security under the 1933 Act) and (ii) such Project LLC Securities are offered,
issued and sold by such Project Subsidiary only (1) in connection with the
incurrence of specific Permitted Project Indebtedness (as defined in the Notes)
by such Project Subsidiary and (2) to a Person that (I) is, itself or through
its subsidiaries, an operating company in a business synergistic with the
business of the Company and its Subsidiaries, (II) actually provides strategic
benefits to such Project Subsidiary issuing such Project LLC Securities and
(III) is the lender of such Permitted Project Indebtedness. “Project LLC Securities” means a limited liability company
membership interest of a Project Subsidiary that is not, directly or indirectly,
convertible into or exercisable or exchangeable for shares of Common Stock or
any other security (as defined in the 1933 Act) of, or other equity interest of
or equity-linked interest in, the Company, any Subsidiary or any other
Person.


    
      
         


      

      
        22

        
          

        

      

      
         


      

    

     

    (l)       
Reservation of
Shares. So long as any Notes or Warrants remain outstanding, the Company
shall take all action necessary to at all times have authorized, and reserved
for the purpose of issuance, no less than 133% of (i) the maximum number of
shares of Common Stock issuable upon conversion of all the Notes (assuming for
purposes hereof, that the Notes are convertible at the Conversion Price (as
defined in the Notes) and without regard to any limitations on the exercise of
the Notes set forth therein) and (ii) the maximum number of shares of Common
Stock issuable upon exercise of all the Warrants (without regard to any
limitations on the exercise of the Warrants set forth therein).

     

    (m)     
Conduct of
Business. The business of the Company and its Subsidiaries shall not be
conducted in violation of any law, ordinance or regulation of any governmental
entity, except where such violations would not result, either individually or in
the aggregate, in a Material Adverse Effect. The Company shall conduct its
business in such a manner as will ensure that the Common Stock does not derive
directly or indirectly more than 50% of its fair market value from one or any
combination of: (i) real property situated in Canada, (ii) Canadian resource
property and (iii) timber resource properties (as such terms are defined for
purposes of the Income Tax Act
(Canada). No portion of any interest paid on the Notes shall be
deductible by the Company in computing the Company’s taxable income earned in
Canada for purposes of the Income Tax Act
(Canada).

     

    (n)     
Variable Rate
Transaction. Until all of the Registrable Securities have been sold by
the Buyers, the Company and each Subsidiary shall be prohibited from effecting
or entering into an agreement to effect any Subsequent Placement involving a
Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the
Company or any Subsidiary (i) issues or sells any Equivalents either (A) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such Equivalents, or (B) with a
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such Equivalents or upon the
occurrence of specified or contingent events directly or indirectly related to
the business of the Company or the market for the Common Stock, other than
pursuant to a customary “weighted average” anti-dilution provision or (ii)
enters into any agreement (including, without limitation, an equity line of
credit) whereby the Company or any Subsidiary may sell securities at a future
determined price (other than standard and customary “preemptive” or
“participation” rights). Each Buyer shall be entitled to obtain injunctive
relief against the Company and its Subsidiaries to preclude any such issuance,
which remedy shall be in addition to any right to collect
damages.


     

    (o)     
Participation
Right. From the date hereof until the two (2) year anniversary of the
Closing Date, neither the Company nor any of its Subsidiaries shall, directly or
indirectly, effect any Subsequent Placement unless the Company shall have first
complied with this Section 4(o). The Company acknowledges and agrees that the
right set forth in this Section 4(o) is a right granted by the Company,
separately, to each Buyer.


    
      
         


      

      
        23

        
          

        

      

      
         


      

    

     

    (i)       
At least five (5) Trading Days prior to any proposed or intended Subsequent
Placement, the Company shall deliver to each Buyer a written notice of its
proposal or intention to effect a Subsequent Placement (each such notice, a
“Pre-Notice”),
which Pre-Notice shall not contain any information (including, without
limitation, material, non-public information) other than: (i) a statement that
the Company proposes or intends to effect a Subsequent Placement, (ii) a
statement that the statement in clause (i) above does not constitute material,
non-public information and (iii) a statement informing such Buyer that it is
entitled to receive an Offer Notice (as defined below) with respect to such
Subsequent Placement upon its written request. Upon the written request of a
Buyer within three (3) Trading Days after the Company’s delivery to such Buyer
of such Pre-Notice, and only upon a written request by such Buyer, the Company
shall promptly, but no later than one (1) Trading Day after such request,
deliver to such Buyer an irrevocable written notice (the “Offer Notice”) of any proposed or intended
issuance or sale or exchange (the “Offer”) of the securities being offered
(the “Offered Securities”) in a Subsequent Placement, which
Offer Notice shall (w) identify and describe the Offered Securities, (x)
describe the price and other terms upon which they are to be issued, sold or
exchanged, and the number or amount of the Offered Securities to be issued, sold
or exchanged, (y) identify the Persons (if known) to which or with which the
Offered Securities are to be offered, issued, sold or exchanged and (z) offer to
issue and sell to or exchange with such Buyer in accordance with the terms of
the Offer all of the Offered Securities, provided that the number of Offered
Securities which such Buyer shall have the right to subscribe for under this
Section 4(o) shall be (a) based on such Buyer’s pro rata portion of the
aggregate original principal amount of the Notes purchased hereunder by all
Buyers (the “Basic Amount”),
and (b) with respect to each Buyer that elects to purchase its Basic
Amount, any additional portion of the Offered Securities attributable to the
Basic Amounts of other Buyers as such Buyer shall indicate it will purchase or
acquire should the other Buyers subscribe for less than their Basic Amounts (the
“Undersubscription Amount”).


     

    (ii)      
To accept an Offer, in whole or in part, such Buyer must deliver a written
notice to the Company prior to the end of the fifth (5th)
Business Day after such Buyer’s receipt of the Offer Notice (the “Offer Period”),
setting forth the portion of such Buyer’s Basic Amount that such Buyer
elects to purchase and, if such Buyer shall elect to purchase all of its Basic
Amount, the Undersubscription Amount, if any, that such Buyer elects to purchase
(in either case, the “Notice of Acceptance”).
If the Basic Amounts subscribed for by all Buyers are less than the total
of all of the Basic Amounts, then such Buyer who has set forth an
Undersubscription Amount in its Notice of Acceptance shall be entitled to
purchase, in addition to the Basic Amounts subscribed for, the Undersubscription
Amount it has subscribed for; provided, however, if the Undersubscription
Amounts subscribed for exceed the difference between the total of all the Basic
Amounts and the Basic Amounts subscribed for (the “Available Undersubscription Amount”),
such Buyer who has subscribed for any Undersubscription Amount shall be
entitled to purchase only that portion of the Available Undersubscription Amount
as the Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers
that have subscribed for Undersubscription Amounts, subject to rounding by the
Company to the extent it deems reasonably necessary. Notwithstanding the
foregoing, if the Company desires to modify or amend the terms and conditions of
the Offer prior to the expiration of the Offer Period, the Company may deliver
to each Buyer a new Offer Notice and the Offer Period shall expire on the fifth
(5th)
Business Day after such Buyer’s receipt of such new Offer
Notice.


    
      
         


      

      
        24

        
          

        

      

      
         


      

    

     

    (iii)     
The Company shall have five (5) days from the expiration of the Offer Period
above (i) to offer, issue, sell or exchange all or any part of such Offered
Securities as to which a Notice of Acceptance has not been given by a Buyer (the
“Refused Securities”) pursuant to a definitive
agreement(s) (the “Subsequent Placement Agreement”),
but only to the offerees described in the Offer Notice (if so described
therein) and only upon terms and conditions (including, without limitation, unit
prices and interest rates) that are not more favorable to the acquiring Person
or Persons or less favorable to the Company than those set forth in the Offer
Notice and (ii) to publicly announce (a) the execution of such Subsequent
Placement Agreement, and (b) either (x) the consummation of the transactions
contemplated by such Subsequent Placement Agreement or (y) the termination of
such Subsequent Placement Agreement, which shall be filed with the SEC on a
Current Report on Form 8-K with such Subsequent Placement Agreement and any
documents contemplated therein filed as exhibits thereto.

     

    (iv)    
In the event the Company shall propose to sell less than all the Refused
Securities (any such sale to be in the manner and on the terms specified in
Section 4(o)(iii) above), then such Buyer may, at its sole option and in its
sole discretion, reduce the number or amount of the Offered Securities specified
in its Notice of Acceptance to an amount that shall be not less than the number
or amount of the Offered Securities that such Buyer elected to purchase pursuant
to Section 4(o)(ii) above multiplied by a fraction, (i) the numerator of which
shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Buyers pursuant to this Section 4(o) prior to such reduction) and
(ii) the denominator of which shall be the original amount of the Offered
Securities. In the event that any Buyer so elects to reduce the number or amount
of Offered Securities specified in its Notice of Acceptance, the Company may not
issue, sell or exchange more than the reduced number or amount of the Offered
Securities unless and until such securities have again been offered to the
Buyers in accordance with Section 4(o)(i) above.


     

    (v)     
Upon the closing of the issuance, sale or exchange of all or less than all of
the Refused Securities, such Buyer shall acquire from the Company, and the
Company shall issue to such Buyer, the number or amount of Offered Securities
specified in its Notice of Acceptance. The purchase by such Buyer of any Offered
Securities is subject in all cases to the preparation, execution and delivery by
the Company and such Buyer of a separate purchase agreement relating to such
Offered Securities reasonably satisfactory in form and substance to such Buyer
and its counsel.


     

    (vi)    
Any Offered Securities not acquired by a Buyer or other Persons in accordance
with this Section 4(o) may not be issued, sold or exchanged until they are again
offered to such Buyer under the procedures specified in this
Agreement.


    
      
         


      

      
        25

        
          

        

      

      
         


      

    

     

    (vii)     The
Company and each Buyer agree that if any Buyer elects to participate in the
Offer, neither the Subsequent Placement Agreement with respect to such Offer nor
any other transaction documents related thereto (collectively, the “Subsequent Placement Documents”) shall include any term or provision
whereby such Buyer shall be required to agree to any restrictions on trading as
to any securities of the Company or be required to consent to any amendment to
or termination of, or grant any waiver or release under or in connection with,
any agreement previously entered into with the Company or any instrument
received from the Company.

     

    (viii)    Notwithstanding
anything to the contrary in this Section 4(o) and unless otherwise agreed to by
such Buyer, the Company shall either confirm in writing to such Buyer that the
transaction with respect to the Subsequent Placement has been abandoned or shall
publicly disclose its intention to issue the Offered Securities, in either case,
in such a manner such that such Buyer will not be in possession of any material,
non-public information, by the fifth (5th)
Business Day following delivery of the Offer Notice. If by such fifth (5th)
Business Day, no public disclosure regarding a transaction with respect to the
Offered Securities has been made, and no notice regarding the abandonment of
such transaction has been received by such Buyer, such transaction shall be
deemed to have been abandoned and such Buyer shall not be deemed to be in
possession of any material, non-public information with respect to the Company
or any of its Subsidiaries. Should the Company decide to pursue such transaction
with respect to the Offered Securities, the Company shall provide such Buyer
with another Offer Notice and such Buyer will again have the right of
participation set forth in this Section 4(o). The Company shall not be permitted
to deliver more than one such Offer Notice to such Buyer in any sixty (60) day
period.

     

    (ix)      The
restrictions contained in this Section 4(o) shall not apply in connection with
the issuance of any Excluded Securities. The Company shall not circumvent the
provisions of this Section 4(o) by providing terms or conditions to one Buyer
that are not provided to all.

     

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

     

    (q)     
Restriction on
Redemption and Cash Dividends. So long as any Notes are outstanding, the
Company shall not, directly or indirectly, redeem, or declare or pay any cash
dividend or distribution on, the Common Stock without the prior express written
consent of the Buyers.


    
      
         


      

      
        26

        
          

        

      

      
         


      

    


    
      	
              5. 

            	
              REGISTER;
      TRANSFER AGENT INSTRUCTIONS;
LEGEND.

            


    

     

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

     

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

     

    (c)       Legends. Each Buyer
understands that the Securities have been issued (or will be issued in the case
of the Conversion Shares and the Warrant Shares) pursuant to an exemption from
registration or qualification under the 1933 Act and applicable state securities
laws, and except as set forth below, the Securities shall bear any legend as
required by the “blue sky” laws of any state and a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):


    
      
         


      

      
        27

        
          

        

      

      
         


      

    

     

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

     

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


    
      
         


      

      
        28

        
          

        

      

      
         


      

    

     

    (e)     
 Failure to
Timely Deliver; Buy-In. If the Company fails to (i) issue and deliver (or
cause to be delivered) to a Buyer within two (2) Trading Days following the
Required Delivery Date a certificate representing the Securities so delivered to
the Company by such Buyer that is free from all restrictive and other legends or
(ii) credit the balance account of such Buyer’s or such Buyer’s nominee with DTC
for such number of shares of Conversion Shares or Warrant Shares so delivered to
the Company, then, in addition to all other remedies available to such Buyer,
the Company shall pay in cash to such Buyer on each day after the second (2nd)
Trading Day following the Required Delivery Date that the issuance or credit of
such shares is not timely effected an amount equal to 2% of the original
principal amount of such Buyer’s Note. In addition to the foregoing, if the
Company fails to so properly deliver such unlegended certificates or so properly
credit the balance account of such Buyer’s or such Buyer’s nominee with DTC by
the Required Delivery Date, and if on or after the Required Delivery Date such
Buyer purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by such Buyer of shares of Common
Stock that such Buyer anticipated receiving from the Company without any
restrictive legend, then, in addition to all other remedies available to such
Buyer, the Company shall, within three (3) Trading Days after such Buyer’s
request and in such Buyer’s sole discretion, either (i) pay cash to such Buyer
in an amount equal to such Buyer’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”),
at which point the Company’s obligation to deliver such certificate or
credit such Buyer’s balance account shall terminate and such shares shall be
cancelled, or (ii) promptly honor its obligation to deliver to such Buyer a
certificate or certificates or credit such Buyer’s DTC account representing such
number of shares of Common Stock that would have been issued if the Company
timely complied with its obligations hereunder and pay cash to such Buyer in an
amount equal to the excess (if any) of the Buy-In Price over the product of
(A) such number of shares of
Conversion Shares or Warrant Shares (as the case may be) that the Company was
required to deliver to such Buyer by the Required Delivery Date times (B) the
Closing Sale Price (as defined in the Warrants) of the Common Stock on the
Trading Day immediately preceding the Required Delivery Date.


     

    
      	
              6. 

            	
              CONDITIONS
      TO THE COMPANY’S OBLIGATION TO
SELL.

            


    

     

    (a)    
 The obligation of the Company hereunder to issue and sell the Notes and
the related Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company’s sole benefit
and may be waived by the Company at any time in their sole discretion by
providing each Buyer with prior written notice thereof:

     

    (i)        Such
Buyer shall have executed each of the other Transaction Documents to which it is
a party and delivered the same to the Company.

     

    (ii)       Such
Buyer and each other Buyer shall have delivered to the Company the Purchase
Price (less, in the case of Iroquois, the amounts withheld pursuant to Section
4(g)) for the Note and the related Warrants being purchased by such Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.


    
      
         


      

      
        29

        
          

        

      

      
         


      

    

     

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


     

    
      	
              7. 

            	
              CONDITIONS
      TO EACH BUYER’S OBLIGATION TO
PURCHASE.

            


    

     

    (a)     
 The obligation of each Buyer hereunder to purchase its Note and its
related Warrants at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer’s sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:

     

    (i)      
The Company and each Subsidiary (as the case may be) shall have duly executed
and delivered to such Buyer each of the Transaction Documents to which it is a
party and the Company shall have duly executed and delivered to such Buyer a
Note (in such amount as is set forth across from such Buyer’s name in column (3)
of the Schedule of Buyers and the related Series A Warrants, Series B Warrants
and Series C Warrants (for such number of shares of Common Stock as is set forth
across from such Buyer’s name in columns (4), (5) and (6) of the Schedule of
Buyers, respectively) being purchased by such Buyer at the Closing pursuant to
this Agreement.

     

    (ii)       Such
Buyer shall have received the opinion of Allen & Vellone, P.C., the
Company’s counsel, dated as of the Closing Date, in the form acceptable to such
Buyer.

     

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


     

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

     

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

     

    (vi)      The
Company shall have delivered to such Buyer a certified copy of the Articles of
Incorporation as certified by the Wyoming Secretary of State within ten (10)
days of the Closing Date.


    
      
         


      

      
        30

        
          

        

      

      
         


      

    

     

    (vii)    Each
Subsidiary shall have delivered to such Buyer a certified copy of its
certificate of incorporation as certified by the Secretary of State (or
comparable office) of such Subsidiary’s jurisdiction of incorporation within ten
(10) days of the Closing Date.

     

    (viii) 
  The Company and each Subsidiary shall have delivered to such Buyer a
certificate, in the form acceptable to such Buyer, executed by the Secretary of
the Company and each Subsidiary and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company’s and each
Subsidiary’s board of directors in a form reasonably acceptable to such Buyer,
(ii) the Articles of Incorporation of the Company and the organizational
documents of each Subsidiary and (iii) the Bylaws of the Company and the bylaws
of each Subsidiary, each as in effect at the Closing.

     

    (ix)      Each
and every representation and warranty of the Company shall be true and correct
as of the date when made and as of the Closing Date as though originally made at
that time (except for representations and warranties that speak as of a specific
date, which shall be true and correct as of such date) and the Company shall
have performed, satisfied and complied in all respects with the covenants,
agreements and conditions required to be performed, satisfied or complied with
by the Company at or prior to the Closing Date. Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
the Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer in the form acceptable to such
Buyer.

     

    (x)       The
Company shall have delivered to such Buyer a letter from the Company’s transfer
agent certifying the number of shares of Common Stock outstanding on the Closing
Date immediately prior to the Closing.

     

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

     

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

     

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

     

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


    
      
         


      

      
        31

        
          

        

      

      
         


      

    

     

    (xv)     The
Company shall have obtained approval of the Principal Market to list or
designate for quotation (as the case may be) the Conversion Shares and the
Warrant Shares.

     

    (xvi)    Each
of Murray Fleming and Peribiol Management, Ltd shall have executed and delivered
subordination agreements to each of the Buyers, in form and substance acceptable
to each Buyer.

     

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


     

    
      	
              8. 

            	
              TERMINATION.

            


    

     

    In the
event that the Closing shall not have occurred with respect to a Buyer within
ten (10) days of the date hereof, then such Buyer shall have the right to
terminate its obligations under this Agreement with respect to itself at any
time on or after the close of business on such date without liability of such
Buyer to any other party; provided, however, (i) the right to terminate this
Agreement under this Section 8 shall not be available to such Buyer if the
failure of the transactions contemplated by this Agreement to have been
consummated by such date is the result of such Buyer’s breach of this Agreement
and (ii) the abandonment of the sale and purchase of the Notes and the Warrants
shall be applicable only to such Buyer providing such written notice, provided
further that no such termination shall affect any obligation of the Company
under this Agreement to reimburse such Buyer for the expenses described in
Section 4(g) above. Nothing contained in this Section 8 shall be deemed to
release any party from any liability for any breach by such party of the terms
and provisions of this Agreement or the other Transaction Documents or to impair
the right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction
Documents.


     

    
      	
              9. 

            	
              MISCELLANEOUS.

            


    

     

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


    
      
         


      

      
        32

        
          

        

      

      
         


      

    

     

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

     

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

     

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


    
      
         


      

      
        33

        
          

        

      

      
         


      

    

     

    (e)       Entire Agreement;
Amendments. This Agreement, the other Transaction Documents and the
schedules and exhibits attached hereto and thereto and the instruments
referenced herein and therein supersede all other prior oral or written
agreements between the Buyers, the Company, its Subsidiaries, their affiliates
and Persons acting on their behalf solely with respect to the matters contained
herein and therein, and this Agreement, the other Transaction Documents, the
schedules and exhibits attached hereto and thereto and the instruments
referenced herein and therein contain the entire understanding of the parties
solely with respect to the matters covered herein and therein; provided,
however, nothing contained in this Agreement or any other Transaction Document
shall (or shall be deemed to) (i) have any effect on any agreements any Buyer
has entered into with the Company or any of its Subsidiaries prior to the date
hereof with respect to any prior investment made by such Buyer in the Company or
(ii) waive, alter, modify or amend in any respect any obligations of the Company
or any of its Subsidiaries, or any rights of or benefits to any Buyer or any
other Person, in any agreement entered into prior to the date hereof between or
among the Company and/or any of its Subsidiaries and any Buyer and all such
agreements shall continue in full force and effect. Except as specifically set
forth herein or therein, neither the Company nor any Buyer makes any
representation, warranty, covenant or undertaking with respect to such matters.
For clarification purposes, the Recitals are part of this Agreement. No
provision of this Agreement may be amended or waived other than by an instrument
in writing signed by the Company and the holders of at least a majority of the
then-outstanding principal amount of the Notes issued hereunder, and any
amendment or to, or waiver of any provision of, this Agreement made in
conformity with the provisions of this Section 9(e) shall be binding on all
Buyers and holders of Securities, as applicable, provided that any party may
give a waiver in writing as to itself. No such amendment or waiver (unless given
pursuant to the foregoing proviso in the case of a waiver) shall be effective to
the extent that it applies to less than all of the holders of the Notes then
outstanding. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration also is offered to all of the parties to
the Transaction Documents, all holders of the Notes or all holders of the
Warrants (as the case may be). The Company has not, directly or indirectly, made
any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents. Without limiting the foregoing, the Company confirms
that, except as set forth in this Agreement, no Buyer has made any commitment or
promise or has any other obligation to provide any financing to the Company, any
Subsidiary or otherwise.

     

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


    
      
         


      

      
        34

        
          

        

      

      
         


      

    

     

    If to the
Company:

     

    NACEL
Energy Corporation

    9375 E.
Shea Blvd., Suite 100

    Scottsdale,
Arizona 85260

    Telephone:
(602) 235-0355

    Facsimile:
(602) 235-0355

    Attention:
Chief Executive Officer


     

    With a
copy (for informational purposes only) to:

     

    Allen
& Vellone, P.C.

    1600
Stout Street, Suite 1100

    Denver,
Colorado 80202

    Telephone:
(303) 534-4499

    Facsimile:
(303) 893-8332

    Attention:
Patrick J. Russell, Esq.


     

    If to the
Transfer Agent:


     

    Island
Stock Transfer

    100
Second Avenue South, Suite 705S

    St.
Petersburg, FL 33701

    Telephone:
(727) 289-0010

    Facsimile:
(727) 286-0069

    Attention:
Olessia Kurtskaia


     

    If to a
Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
with copies to such Buyer’s representatives as set forth on the Schedule of
Buyers,


     

    with a
copy (for informational purposes only) to:


     

    Greenberg
Traurig, LLP

    77 W.
Wacker Drive, Suite 3100

    Chicago,
Illinois 60601

    Telephone:
(312) 456-8400

    Facsimile:
(312) 456-8435

    Attention:
Peter H. Lieberman, Esq.

       Todd
A. Mazur, Esq.

     

    
    

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


    
      
         


      

      
        35

        
          

        

      

      
         


      

    

     

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

     

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


     

    (i)        Survival. The
representations, warranties, agreements and covenants shall survive the Closing.
Each Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.

     

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

     

    (k)     
 Indemnification. In
consideration of each Buyer’s execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless each Buyer and each holder of any
Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons’ agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys’ fees and disbursements
(the “Indemnified Liabilities”), incurred by any Indemnitee as a
result of, or arising out of, or relating to (a) any misrepresentation or breach
of any representation or warranty made by the Company or any Subsidiary in any
of the Transaction Documents, (b) any breach of any covenant, agreement or
obligation of the Company or any Subsidiary contained in any of the Transaction
Documents or (c) any cause of action, suit or claim brought or made against such
Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company or any Subsidiary) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of any of
the Transaction Documents, (ii) any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Securities, (iii) any disclosure properly made by such Buyer pursuant to
Section 4(i), or (iv) the status of such Buyer or holder of the Securities as an
investor in the Company pursuant to the transactions contemplated by the
Transaction Documents. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 9(k) shall be the same as those set forth in
Section 6 of the Registration Rights Agreement.


    
      
         


      

      
        36

        
          

        

      

      
         


      

    

     

    (1)    
 Construction. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party. Notwithstanding any references to “Buyers” herein,
Iroquois and the Company acknowledge and agree that Iroquois is the only Buyer
that is a party hereto.

     

    (m)     
Remedies. Each
Buyer and each holder of any Securities shall have all rights and remedies set
forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law. Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it or any Subsidiary fails to perform, observe, or
discharge any or all of its or such Subsidiary’s (as the case may be)
obligations under the Transaction Documents, any remedy at law may prove to be
inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek specific performance and/or temporary, preliminary and
permanent injunctive or other equitable relief from any court of competent
jurisdiction in any such case without the necessity of proving actual damages
and without posting a bond or other security.

     

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


     

    (o)     
Payment Set
Aside. To the extent that the Company or any Subsidiary makes a payment
or payments to any Buyer hereunder or pursuant to any of the other Transaction
Documents or any of the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company or any
Subsidiary, a trustee, receiver or any other Person under any law (including,
without limitation, any bankruptcy law, foreign, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred. Unless otherwise expressly
indicated, all dollar amounts referred to in this Agreement and the other
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.

     

    
      
         

      

      
        37

        
          

        

      

      
         

      

    

     

    (p)    
 Independent
Nature of Buyers’ Obligations and Rights. The obligations of each Buyer
under the Transaction Documents are several and not joint with the obligations
of any other Buyer, and no Buyer shall be responsible in any way for the
performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as, and the Company acknowledges that the Buyers do not so
constitute, a partnership, an association, a joint venture or any other kind of
group or entity, or create a presumption that the Buyers are in any way acting
in concert or as a group or entity with respect to such obligations or the
transactions contemplated by the Transaction Documents or any matters, and the
Company acknowledges that the Buyers are not acting in concert or as a group,
and the Company shall not assert any such claim, with respect to such
obligations or the transactions contemplated by the Transaction Documents. The
decision of each Buyer to purchase Securities pursuant to the Transaction
Documents has been made by such Buyer independently of any other Buyer. Each
Buyer acknowledges that no other Buyer has acted as agent for such Buyer in
connection with such Buyer making its investment hereunder and that no other
Buyer will be acting as agent of such Buyer in connection with monitoring such
Buyer’s investment in the Securities or enforcing its rights under the
Transaction Documents. The Company and each Buyer confirms that each Buyer has
independently participated with the Company and its Subsidiaries in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose. The use of a single agreement to effectuate the
purchase and sale of the Securities contemplated hereby was solely in the
control of the Company, not the action or decision of any Buyer, and was done
solely for the convenience of the Company and its Subsidiaries and not because
it was required or requested to do so by any Buyer. It is expressly understood
and agreed that each provision contained in this Agreement and in each other
Transaction Document is between the Company, each Subsidiary and a Buyer,
solely, and not between the Company, its Subsidiaries and the Buyers
collectively and not between and among the Buyers.


     

    [signature pages
follow]


    
      
         


      

      
        38

        
          

        

      

      
         


      

    

     

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

    
 

    
      
        
          
            
              
                	 	
                        COMPANY:

                      
	 	 
      
	 	
                        NACEL
      ENERGY CORPORATION

                      
	 	
                         

                      
	 	
                        By:

                      	
	 	 
      	
                        Name:
      Murray Fleming

                      
	 	 
      	
                        Title:
      Director

                      


              

            

          

        

      

    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


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

    


    
      
        
          
            
              	 
      	
                      BUYERS:

                    
	 
      	 
      
	 
      	
                      IROQUOIS
      MASTER FUND LTD.

                    
	 	 
	 
      	
	 
      	
                      By:        Joshua
      Silverman, Authorized
Signatory

                    


            

          

        

      

    


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    SCHEDULE
OF BUYERS

    
 

    
      
        
          
            
              
                
                  
                    
                      	
                               (1)

                            	 	
                              (2)

                            	 	 	
                              (3)

                            	 	 	
                              (4)

                            	 	 	
                              (5)

                            	 	 	
                              (6)

                            	 	 	
                              (7)

                            	 	 	
                              (8)

                            	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              Buyer

                            	 	
                              Address and Facsimile

                              Number

                            	 	 	
                              Principal Amount of

                              Note

                            	 	 	
                              Number of

                              Series A Warrant

                              Shares

                            	 	 	
                              Number of

                              Series B Warrant

                              Shares

                            	 	 	
                              Number of

                              Series C Warrant

                              Shares

                            	 	 	
                              Purchase Price

                            	 	 	
                              Legal Representative’s

                              Address and Facsimile Number

                            	 
	
                              Iroquois
      Master Fund Ltd.

                            	 	
                              Iroquois
      Master Fund Ltd.

                              641 Lexington Avenue,
      26th

                              Floor

                              New
      York, New York 10022

                              Facsimile:
      (212) 207-3452

                            	 	 	$	900,000	 	 	 	1,250,000	 	 	 	1,000,000	 	 	 	1,250,000	 	 	$	750,000	 	 	
                              Greenberg
      Traurig, LLP

                              77
      W. Wacker Drive, Suite 3100

                              Chicago,
      Illinois 60601

                              Attention:
      Peter H. Lieberman

                                               Todd
      A. Mazur

                              Facsimile:
      (312) 456-8435

                              Telephone:
      (312) 456-8400