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

     

    NACEL
ENERGY CORPORATION

    
       

      Warrant
To Purchase
Common
Stock

    

     

    Series B
Warrant No.: 01

    Date of
Issuance: November 24, 2009 (“Issuance Date”)

     

    NACEL
Energy Corporation, a Wyoming corporation (the “Company”), hereby certifies that, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, IROQUOIS MASTER FUND LTD., the registered holder hereof or its
permitted assigns (the “Holder”), is entitled, subject to the terms
set forth below, to purchase from the Company, at the Exercise Price (as defined
below) then in effect, upon exercise of this Warrant to Purchase Common Stock
(including any Warrants to Purchase Common Stock issued in exchange, transfer or
replacement hereof, the “Warrant”), at any time or times on or after the
Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date
(as defined below), 1,000,000 (subject to adjustment as provided herein) fully
paid and nonassessable shares of Common Stock (as defined below) (the “Warrant Shares”). Except as otherwise defined herein,
capitalized terms in this Warrant shall have the meanings set forth in Section
16. This Warrant is one of the Warrants to purchase Common Stock (the “SPA Warrants”) issued pursuant to
Section 1 of that certain Securities Purchase Agreement, dated as of November
23, 2009, by and among the Company and the investors (the “Buyers”) referred to therein (the
“Securities Purchase
Agreement”).


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    1.    EXERCISE OF
WARRANT.

     

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

     

    (b)           Exercise Price. For
purposes of this Warrant, “Exercise Price” means $0.90, subject to adjustment
as provided herein.


    
      
         


      

      
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    (c)           Company’s Failure to Timely
Deliver Securities. If the Company shall fail, for any reason or for no
reason, to issue to the Holder within five (5) Trading Days after receipt of the
applicable Exercise Notice, a certificate for the number of shares of Common
Stock to which the Holder is entitled and register such shares of Common Stock
on the Company’s share register or to credit the Holder’s balance account with
DTC for such number of shares of Common Stock to which the Holder is entitled
upon the Holder’s exercise of this Warrant (as the case may be) (a “Delivery Failure”), then, in addition to all other
remedies available to the Holder, the Company shall pay in cash to the Holder on
each day after such fifth (5th)
Trading Day that the issuance of such shares of Common Stock is not timely
effected an amount equal to 2% of the product of (A) the aggregate number of
shares of Common Stock not issued to the Holder on a timely basis and to which
the Holder is entitled and (B) the Closing Sale Price of the Common Stock on the
Trading Day immediately preceding the last possible date on which the Company
could have issued such shares of Common Stock to the Holder without violating
Section 1(a). In addition to the foregoing, if within three (3) Trading Days
after the Company’s receipt of the applicable Exercise Notice, the Company shall
fail to issue and deliver a certificate to the Holder and register such shares
of Common Stock on the Company’s share register or credit the Holder’s balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder’s exercise hereunder (as the case may be), and if on or
after such third (3rd)
Trading Day the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
shares of Common Stock issuable upon such exercise that the Holder anticipated
receiving from the Company, then, in addition to all other remedies available to
the Holder, the Company shall, within three (3) Business Days after the Holder’s
request and in the Holder’s discretion, either (i) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s
obligation to deliver such certificate or credit the Holder’s balance account
with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder’s exercise hereunder (as the case may be) (and to issue
such shares of Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing
such shares of Common Stock or credit the Holder’s balance account with DTC for
the number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise hereunder (as the case may be) and pay cash to the Holder in
an amount equal to the excess (if any) of the Buy-In Price over the product of
(A) such number of shares of Common Stock times (B) the Closing Sale Price of
the Common Stock on the Trading Day immediately preceding the date of the
applicable Exercise Notice.

     

    (d)           Cashless Exercise.
Notwithstanding anything contained herein to the contrary (other than Section
1(f) below), if at the time of exercise hereof a Registration Statement (as
defined in the Registration Rights Agreement (as defined in the Securities
Purchase Agreement)) is not effective (or the prospectus contained therein is
not available for use) for the resale by the Holder of all of the Warrant
Shares, then the Holder may, in its sole discretion, exercise this Warrant in
whole or in part and, in lieu of making the cash payment otherwise contemplated
to be made to the Company upon such exercise in payment of the Aggregate
Exercise Price, elect instead to receive upon such exercise the “Net Number” of
shares of Common Stock determined according to the following formula (a “Cashless Exercise”):


    
      
         


      

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

     B

     

    For
purposes of the foregoing formula:

     

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

     

    B= as
applicable: (i) the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding the date of the applicable Exercise Notice if such
Exercise Notice is (1) both executed and delivered pursuant to Section 1(a)
hereof on a day that is not a Trading Day or (2) both executed and delivered
pursuant to Section 1 (a) hereof on a Trading Day prior to the opening of
regular trading hours (as defined in Rule 600(b)(64) of Regulation NMS
promulgated under the federal securities laws) on such Trading Day, (ii) the Bid
Price of the Common Stock as of the time of the Holder’s execution of the
applicable Exercise Notice if such Exercise Notice is executed during regular
trading hours on a Trading Day and is delivered within two (2) hours thereafter
pursuant to Section 1(a) hereof and (iii) the Closing Sale Price of the Common
Stock on the date of the applicable Exercise Notice if the date of such Exercise
Notice is a Trading Day and such Exercise Notice is both executed and delivered
pursuant to Section 1(a) hereof after the close of regular trading hours on such
Trading Day.

     

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

     

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

     

    (f)           Limitations on
Exercises. Notwithstanding anything to the contrary contained in this
Warrant, this Warrant shall not be exercisable by the Holder hereof to the
extent (but only to the extent) that the Holder or any of its affiliates would
beneficially own in excess of 4.9% (the “Maximum Percentage”) of the Common Stock. To
the extent the above limitation applies, the determination of whether this
Warrant shall be exercisable (vis-a-vis other convertible, exercisable or
exchangeable securities owned by the Holder) and of which such securities shall
be exercisable (as among all such securities owned by the Holder) shall, subject
to such Maximum Percentage limitation, be determined on the basis of the first
submission to the Company for conversion, exercise or exchange (as the case may
be). No prior inability to exercise this Warrant pursuant to this paragraph
shall have any effect on the applicability of the provisions of this paragraph
with respect to any subsequent determination of exercisability. For the purposes
of this paragraph, beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(d) of the 1934 Act
(as defined in the Securities Purchase Agreement) and the rules and regulations
promulgated thereunder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this paragraph to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Maximum Percentage limitation. The
limitations contained in this paragraph shall apply to a successor Holder of
this Warrant. The holders of Common Stock shall be third party beneficiaries of
this paragraph and the Company may not waive this paragraph without the consent
of holders of a majority of its Common Stock. For any reason at any time, upon
the written or oral request of the Holder, the Company shall within one (1)
Business Day confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding, including by virtue of any prior conversion or
exercise of convertible or exercisable securities into Common Stock, including,
without limitation, pursuant to this Warrant or securities issued pursuant to
the Securities Purchase Agreement.


    
      
         


      

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

     

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

     

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


    
      
         


      

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

     

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


    
      
         


      

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

     

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

     

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


    
      
         


      

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

     

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

     

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

     

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


    
      
         


      

      
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    3.    RIGHTS UPON DISTRIBUTION OF
ASSETS. In addition to any adjustments pursuant to Section 2 above, if
the Company shall declare or make any dividend or other distribution of its
assets (or rights to acquire its assets) to holders of shares of Common Stock,
by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of
this Warrant, then, in each such case, the Holder shall be entitled to
participate in such Distribution to the same extent that the Holder would have
participated therein if the Holder had held the number of shares of Common Stock
acquirable upon complete exercise of this Warrant (without regard to any
limitations on exercise hereof, including without limitation, the Maximum
Percentage) immediately before the date on which a record is taken for such
Distribution, or, if no such record is taken, the date as of which the record
holders of shares of Common Stock are to be determined for the participation in
such Distribution (provided, however, to the extent that the Holder’s right to
participate in any such Distributions would result in the Holder exceeding the
Maximum Percentage, then the Holder shall not be entitled to participate in such
Distribution to such extent (or the beneficial ownership of any such shares of
Common Stock as a result of such Distribution to such extent) and such
Distribution to such extent shall be held in abeyance for the benefit of the
Holder until such time, if ever, as its right thereto would not result in the
Holder exceeding the Maximum Percentage).

     

    4.    PURCHASE RIGHTS; FUNDAMENTAL
TRANSACTIONS.

     

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


    
      
         


      

      
        9

        
          

        

      

      
         


      

    

     

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


    
      
         


      

      
        10

        
          

        

      

      
         


      

    

     

    (c)           Black Scholes Value.
Notwithstanding the foregoing and the provisions of Section 4(b) above, in the
event of a Fundamental Transaction, if the Holder has not exercised this Warrant
in full prior to the consummation of such Fundamental Transaction, at the
request of the Holder delivered before the ninetieth (90th) day
after the consummation of such Fundamental Transaction, the Company or the
Successor Entity (as the case may be) shall purchase this Warrant from the
Holder on the date of such request by paying to the Holder cash in an amount
equal to the Black Scholes Value of the unexercised portion of this Warrant that
remained on the date of the consummation of such Fundamental
Transaction.

     

    (d)           Application. The
provisions of this Section 4 shall apply similarly and equally to successive
Fundamental Transactions and Corporate Events and shall be applied as if this
Warrant (and any such subsequent warrants) were fully exercisable and without
regard to any limitations on the exercise of this Warrant (provided that the
Holder shall continue to be entitled to the benefit of the Maximum Percentage,
applied however with respect to shares of capital stock registered under the
1934 Act and thereafter receivable upon exercise of this Warrant (or any such
other warrant)).

     

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

     

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


    
      
         


      

      
        11

        
          

        

      

      
         


      

    

     

    7.    REISSUANCE OF
WARRANTS.

     

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

     

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

     

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

     

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


    
      
         


      

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

     

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

     

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

     

    11.      
   GOVERNING LAW. This
Warrant shall be governed by and construed and enforced in accordance with, and
all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State
of Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois.

     

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


    
      
         


      

      
        13

        
          

        

      

      
         


      

    

     

    13.    
     DISPUTE RESOLUTION.
In the case of a dispute as to the determination of the Exercise Price, the
Closing Sale Price, the Bid Price or fair market value or the arithmetic
calculation of the Warrant Shares (as the case may be), the Company or the
Holder (as the case may be) shall submit the disputed determinations or
arithmetic calculations (as the case may be) via facsimile (i) within two (2)
Business Days after receipt of the applicable notice giving rise to such dispute
to the Company or the Holder (as the case may be) or (ii) if no notice gave rise
to such dispute, at any time after the Holder learned of the circumstances
giving rise to such dispute (including, without limitation, as to whether any
issuance or sale or deemed issuance or sale was an issuance or sale or deemed
issuance or sale of Excluded Securities). If the Holder and the Company are
unable to agree upon such determination or calculation (as the case may be) of
the Exercise Price, the Closing Sale Price, the Bid Price or fair market value
or the number of Warrant Shares (as the case may be) within three (3) Business
Days of such disputed determination or arithmetic calculation being submitted to
the Company or the Holder (as the case may be), then the Company shall, within
two (2) Business Days submit via facsimile (a) the disputed determination of the
Exercise Price, the Closing Sale Price, the Bid Price or fair market value (as
the case may be) to an independent, reputable investment bank selected by the
Company and approved by the Holder or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside accountant. The Company
shall cause at its expense the investment bank or the accountant (as the case
may be) to perform the determinations or calculations (as the case may be) and
notify the Company and the Holder of the results no later than ten (10) Business
Days from the time it receives such disputed determinations or calculations (as
the case may be). Such investment bank’s or accountant’s determination or
calculation (as the case may be) shall be binding upon all parties absent
demonstrable error.


     

    14.   
     REMEDIES, CHARACTERIZATION,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided
in this Warrant shall be cumulative and in addition to all other remedies
available under this Warrant and the other Transaction Documents, at law or in
equity (including a decree of specific performance and/or other injunctive
relief), and nothing herein shall limit the right of the Holder to pursue actual
damages for any failure by the Company to comply with the terms of this Warrant.
The Company covenants to the Holder that there shall be no characterization
concerning this instrument other than as expressly provided herein. Amounts set
forth or provided for herein with respect to payments, exercises and the like
(and the computation thereof) shall be the amounts to be received by the Holder
and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Holder and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the holder of this Warrant shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required. The Company shall provide all information and documentation to the
Holder that is requested by the Holder to enable the Holder to confirm the
Company’s compliance with the terms and conditions of this Warrant (including,
without limitation, compliance with Section 2 hereof). The issuance of shares
and certificates for shares as contemplated hereby upon the exercise of this
Warrant shall be made without charge to the Holder or such shares for any
issuance tax or other costs in respect thereof, provided that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
the Holder or its agent on its behalf.


    
      
         


      

      
        14

        
          

        

      

      
         


      

    

     

    15.     
    TRANSFER. This
Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company, except as may otherwise be required by Section 2(g) of
the Securities Purchase Agreement.

     

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

     

    (a)           “Bid Price” means, for any security as of the
particular time of determination, the bid price for such security on the
Principal Market as reported by Bloomberg as of such time of determination, or,
if the Principal Market is not the principal securities exchange or trading
market for such security, the bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg as of such time of determination, or if the foregoing does
not apply, the bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg as of such
time of determination, or, if no bid price is reported for such security by
Bloomberg as of such time of determination, the average of the bid prices of any
market makers for such security as reported in the “pink sheets” by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.) as of such time of
determination. If the Bid Price cannot be calculated for a security as of the
particular time of determination on any of the foregoing bases, the Bid Price of
such security as of such time of determination shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved in accordance with the procedures in Section 13. All
such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during such
period.

     

    (b)           “Black Scholes Value” means the value of this Warrant
based on the Black and Scholes Option Pricing Model obtained from the “OV”
function on Bloomberg determined as of the day of consummation of the applicable
Fundamental Transaction for pricing purposes and reflecting (i) a risk-free
interest rate corresponding to the U.S. Treasury rate for a period equal to the
remaining term of this Warrant as of the date of the Holder’s request pursuant
to Section 4(c), (ii) an expected volatility equal to the greater of 100% and
the 100 day volatility obtained from the HVT function on Bloomberg as of the
Trading Day immediately following the public announcement of the applicable
Fundamental Transaction and, if applicable, (iii) the underlying price per share
used in such calculation shall be the sum of the price per share being offered
in cash, if any, plus the value of any non-cash consideration, if any, being
offered in the applicable Fundamental Transaction.

     

    (c)           “Bloomberg” means Bloomberg, L.P.

     

    (d)           “Business Day” means any day other than Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.


    
      
         


      

      
        15

        
          

        

      

      
         


      

    

     

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

     

    (f)      
     “Common Stock” means (i) the Company’s shares of
common stock, $0.001 par value per share, and (ii) any capital stock into which
such common stock shall have been changed or any share capital resulting from a
reclassification of such common stock.

     

    (g)           “Convertible Securities” means any stock or securities (other
than Options) directly or indirectly convertible into or exercisable or
exchangeable for shares of Common Stock.

     

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


    
      
         


      

      
        16

        
          

        

      

      
         


      

    

     

    (i)        
   “Equity
Conditions” means: (i) on each
day during the period beginning one month prior to the applicable date of
determination and ending on and including the applicable date of determination
either (x) the applicable Registration Statement filed pursuant to the
Registration Rights Agreement shall be effective and the prospectus contained
therein shall be available for the resale by the Holder of all of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement and there shall not have been during such period any Grace Periods (as
defined in the Registration Rights Agreement) or (y) all Registrable Securities
shall be eligible for sale without restriction under Rule 144 (as defined in the
Securities Purchase Agreement) (including, without limitation, volume
restrictions) and without the need for current public information required by
Rule 144(c)(1) (or Rule 144(i)(2), if applicable) and without the need for
registration under any applicable federal or state securities laws (in each
case, disregarding any limitation on conversion of the Notes and exercise of the
Warrants); (ii) on each day during the period beginning three months prior to
the applicable date of determination and ending on and including the applicable
date of determination (the “Equity Conditions Measuring
Period”), the Common Stock (including all
Registrable Securities) is listed or designated for quotation (as applicable) on
an Eligible Market and shall not have been suspended from trading on an Eligible
Market (other than suspensions of not more than two (2) days and occurring prior
to the applicable date of determination due to business announcements by the
Company) nor shall delisting or suspension by an Eligible Market have been
threatened (with a reasonable prospect of delisting occurring) or pending either
(A) in writing by such Eligible Market or (B) by falling below the minimum
listing maintenance requirements of the Eligible Market on which the Common
Stock is then listed or designated for quotation (as applicable); (iii) on each
day during the Equity Conditions Measuring Period, the Company shall have
delivered all shares of Common Stock issuable upon exercise of this Warrant on a
timely basis as set forth in Section 1(a) hereof and all other shares of capital
stock required to be delivered by the Company on a timely basis as set forth in
the other Transaction Documents; (iv) any shares of Common Stock to be issued in
connection with the event requiring determination may be issued in full without
violating Section 1(f) hereof; (v) any shares of Common Stock to be issued in
connection with the event requiring determination may be issued in full without
violating the rules or regulations of the Eligible Market on which the Common
Stock is then listed or designated for quotation (as applicable); (vi) on each
day during the Equity Conditions Measuring Period, no public announcement of a
pending, proposed or intended Fundamental Transaction shall have occurred which
has not been abandoned, terminated or consummated; (vii) the Company shall have
no knowledge of any fact that would reasonably be expected to cause (1) the
applicable Registration Statement required to be filed pursuant to the
Registration Rights Agreement to not be effective or the prospectus contained
therein to not be available for the resale of all of the Registrable Securities
in accordance with the terms of the Registration Rights Agreement or (2) any
Registrable Securities to not be eligible for sale without restriction pursuant
to Rule 144 (including, without limitation, volume restrictions) and without the
need for current public information required by Rule 144(c)(1) (or Rule
144(i)(2), if applicable) or any applicable state securities laws (in each case,
disregarding any limitation on conversion of the Notes and exercise of the
Warrants); (viii) the Holder shall not be in (and no other Buyer shall be in)
possession of any material, non-public information provided to any of them by
the Company, any of its affiliates or any of their respective employees,
officers, representatives, agents or the like; (ix) on each day during the
Equity Conditions Measuring Period, the Company otherwise shall have been in
compliance with and shall not have breached any provision, covenant,
representation or warranty of any Transaction Document; and (x) no shares of
Common Stock trade for a price less than the Trigger Price (as defined
below).

     

    (j)          
“Equity Conditions Failure” means that on any day during the
period commencing twenty (20) Trading Days prior to the Mandatory Exercise
Notice Date through the Mandatory Exercise Date, the Equity Conditions have not
been satisfied (or waived in writing by the Holder).

     

    (k)         
 “Expiration Date” means the date that is the earlier
to occur of (i) the first (1st)
anniversary of the Applicable Date (as defined in the Securities Purchase
Agreement) and (ii) the second (2nd)
anniversary of the Closing Date, or, if such date falls on a day other than a
Business Day or on which trading does not take place on the Principal Market (a
“Holiday”), the next date that is not a
Holiday.


    
      
         


      

      
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    (1)         
“Fundamental Transaction” means that (i) the Company shall,
directly or indirectly, in one or more related transactions, (1) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (2) sell, lease, license, assign, transfer, convey or
otherwise dispose of all or substantially all of the properties or assets of the
Company to another Person, or (3) allow another Person to make a purchase,
tender or exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (4) consummate a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than 50% of the outstanding shares of Common Stock (not including
any shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party to,
such stock or share purchase agreement or other business combination), or (5)
reorganize, recapitalize or reclassify its Common Stock, or (ii) any “person” or
“group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the
1934 Act and the rules and regulations promulgated thereunder) is or shall
become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock.

     

    (m)         
“Options” means any rights, warrants or
options to subscribe for or purchase shares of Common Stock or Convertible
Securities.

     

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

     

    (o)         
 “Person” means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity or a government or any department
or agency thereof.


     

    (p)       
   “Principal
Market” means the OTC Bulletin
Board.

     

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

     

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


    
      
         


      

      
        18

        
          

        

      

      
         


      

    

     

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

     

    17.         
MANDATORY
EXERCISE. If at any time after the Effective Date (as defined in the
Registration Rights Agreement) of the initial Registration Statement required to
be filed by the Company pursuant to Section 2(a) of the Registration Rights
Agreement (the “Mandatory
Exercise Eligibility Date”), (i) the Common Stock trades at a
price equal to or greater than $1.35 per share (as adjusted for stock splits,
stock combinations and the like) (the “Trigger Price”) for a period of twenty
(20) consecutive Trading Days following the Mandatory Exercise Eligibility Date,
(ii) the average daily dollar trading volume (as reported on Bloomberg) of the
Common Stock on the applicable Eligible Market for each of the twenty (20)
consecutive Trading Days immediately preceding the Mandatory Exercise Notice
Date (as defined below) exceeds $200,000 and (iii) no Equity Conditions Failure
shall have occurred, then the Company shall have the right to require the Holder
to exercise this Warrant for all of the then-remaining Warrant Shares in
accordance with Section 1 hereof (a “Mandatory Exercise”). The Company may exercise its right
to require exercise under this Section 17 on one occasion by delivering, within
not more than ten (10) days following the date of the satisfaction of all of the
conditions set forth above, a written notice thereof by facsimile and overnight
courier to the Holder (the “Mandatory Exercise Notice” and the date the Holder receives
such notice by facsimile is referred to as the “Mandatory Exercise Notice
Date”). The Mandatory Exercise Notice shall
be irrevocable. The Mandatory Exercise Notice shall (1) state the Trading Day
selected for the Mandatory Exercise in accordance with this Section 17, which
Trading Day shall be at least twenty (20) Trading Days but not more than sixty
(60) Trading Days following the Mandatory Exercise Notice Date (the “Mandatory Exercise Date”), (2) state the number of shares of
Common Stock to be issued to the Holder on the Mandatory Exercise Date and (3)
contain a certification from the Chief Executive Officer of the Company that
there has been no Equity Conditions Failure. Any portion of this Warrant
exercised by the Holder after the Mandatory Exercise Notice Date shall reduce
the number of Warrant Shares for which this Warrant is required to be exercised
on the Mandatory Exercise Date. If the Company has elected a Mandatory Exercise,
the mechanics of exercise set forth in Section 1(a) shall apply, to the extent
applicable, as if the Company had received from the Holder on the Mandatory
Exercise Date an Exercise Notice with respect to all of the then-remaining
Warrant Shares subject to the Mandatory Exercise. Notwithstanding anything
contained in this Section 17 to the contrary, if (I) the average daily dollar
trading volume (as reported on Bloomberg) of the Common Stock on the applicable
Eligible Market on any Trading Day during the period commencing on the Mandatory
Exercise Notice Date and ending on the Trading Day immediately preceding the
Mandatory Exercise Date is less than $200,000; or (II) an Equity Conditions
Failure occurs on any day during the period commencing on the Mandatory Exercise
Notice Date and ending on the Mandatory Exercise Date which has not been waived
by the Holder, then, in either case, the Mandatory Exercise Notice delivered to
the Holder shall be null and void ab initio and the Mandatory Exercise shall not
occur. If the Company exercises its right to require a Mandatory Exercise under
this Section 17, then the Company shall, on the Mandatory Exercise Date, (A)
issue to the Holder a warrant representing the right to purchase up to an amount
of shares Common Stock equal to $900,000 (such number of shares to be determined
by dividing $900,000 by the initial exercise price thereof) on the same terms
and conditions as set forth in this Warrant, except that the initial exercise
price thereof shall be equal to 150% of the Exercise Price then in effect on the
Mandatory Exercise Date and such warrant shall not contain this Section 17 or
any defined terms used only in this Section 17, (B) issue to the Holder a
warrant representing the right to purchase up to an amount of shares Common
Stock equal to $1,250,000 (such number of shares to be determined by dividing
$1,250,000 by the initial exercise price thereof) on the same terms and
conditions as set forth in the Series C Warrants, except that the initial
exercise price thereof shall be equal to 150% of the Exercise Price (as defined
in the Series C Warrant) of the Series C Warrants then in effect on the
Mandatory Exercise Date and (C) enter into a registration rights agreement with
the Holder on the same terms and conditions set forth in the Registration Rights
Agreement with respect to the shares of common stock issuable upon exercise of
the warrants described in clauses (A) and (B) above.


     

    [signature page follows]


    
      
         


      

      
        19

        
          

        

      

      
         


      

    

     

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


     

    
      
        	
                NACEL
      ENERGY CORPORATION

              
	 
      
	
                By:

              
	 
      
	
                

              
	 
      
	
                Name:
      Murray Fleming

              
	
                Title:
      Director:

              


      

    


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    EXHIBIT
A

     

    EXERCISE
NOTICE


     

    TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

    WARRANT
TO PURCHASE COMMON STOCK

     

    NACEL
ENERGY CORPORATION


     

    The
undersigned holder hereby exercises the right to purchase _________________ of
the shares of Common Stock (“Warrant Shares”) of NACEL Energy
Corporation, a Wyoming corporation (the “Company”), evidenced by Series B Warrant No.
______ (the “Warrant”). Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Warrant.

     

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

    


    
      
        
          	
                  __________________

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

                
	 
      	 
      
	
                  __________________

                	
                  a
      “Cashless
      Exercise” with respect to ______________Warrant
    Shares.

                


        

      

    

     

    In the
event that the Holder has elected a Cashless Exercise with respect to some or
all of the Warrant Shares to be issued pursuant hereto, the Holder hereby
represents and warrants that (i) this Exercise Notice was executed by the Holder
at ____________ [a.m.] [p.m.] on the date set forth below and (ii) if
applicable, the Bid Price as of such time of execution of this Exercise Notice
was $____.

     

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

     

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

     

    
      

      
        

        
          

          
            

          

           

        

      

    

    
      
        
          	
                  Date:
      ______________ __, ___

                
	 
      
	 
      
	
                  Name
      of Registered Holder

                


        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

      

    

    
      
        
          	
                  By:

                	 
      
	 
      	
                  Name:

                
	 
      	
                  Title:

                


        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ACKNOWLEDGMENT


     

    The Company
hereby acknowledges this Exercise Notice and hereby directs ________________ to
issue the above indicated number of shares of Common Stock in accordance with
the Transfer Agent Instructions dated __________, 2009, from the Company and
acknowledged and agreed to by _____________.

    


    
      
        	
                NACEL
      ENERGY CORPORATION

              
	 
      
	
                By: