[FORM
OF SENIOR SECURED CONVERTIBLE NOTE]

     

    NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE 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. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF
THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

     

    NACEL
Energy Corporation

     

    Senior
Secured Convertible Note

    


    
      	
              Issuance
      Date: November 24, 2009

            	
              Original
      Principal Amount: U.S. $900,000        

            


    

     

    FOR VALUE RECEIVED, NACEL Energy Corporation, a Wyoming
corporation (the “Company”), hereby promises to pay to the
order of IROQUOIS MASTER FUND LTD. or its registered assigns (“Holder”) the amount set out above as the
Original Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the “Principal”) when due, whether upon the Maturity
Date, on any Installment Date with respect to the Installment Amount due on such
Installment Date (each as defined below), acceleration, redemption or otherwise
(in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal (as
defined below) at the applicable Interest Rate (as defined below) from the date
set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and
payable, whether upon any Installment Date or the Maturity Date or acceleration,
conversion, redemption or otherwise (in each case in accordance with the terms
hereof). This Senior Secured Convertible Note (including all Senior Secured
Convertible Notes issued in exchange, transfer or replacement hereof, this “Note”) is one of an issue of Senior
Secured Convertible Notes issued pursuant to the Securities Purchase Agreement
(as defined below) on the Closing Date (as defined below) (collectively, the
“Notes” and such other Senior Secured
Convertible Notes, the “Other Notes”). Certain capitalized terms used
herein are defined in Section 28.


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

     

    1.     PAYMENTS OF
PRINCIPAL. On each Installment Date (which includes the Maturity Date),
the Company shall pay to the Holder an amount equal to the Installment Amount
due on such Installment Date in accordance with Section 8. Other than as
specifically permitted by this Note, the Company may not prepay any portion of
the outstanding Principal, accrued and unpaid Interest or accrued and unpaid
Late Charges on Principal and Interest, if any.

     

    2.     INTEREST; INTEREST
RATE. No Interest shall accrue on this Note prior to the occurrence of an
Event of Default, in which case Interest on this Note shall commence accruing on
the occurrence of such Event of Default, shall accrue daily at the Interest Rate
on the outstanding Principal amount from time to time, shall be computed on the
basis of a 360-day year comprised of twelve (12) thirty (30) day months, shall
compound each Quarter and shall be payable in accordance with the terms of this
Note. From and after the occurrence and during the continuance of any Event of
Default, the Interest Rate shall automatically be increased to eighteen percent
(18%). In the event that such Event of Default is subsequently cured, the
adjustment referred to in the preceding sentence shall cease to be effective as
of the date of such cure, provided that the Interest as calculated and unpaid at
such increased rate during the continuance of such Event of Default shall
continue to apply to the extent relating to the days after the occurrence of
such Event of Default through and including the date of such cure of such Event
of Default.

     

    3.     CONVERSION OF NOTES.
This Note shall be convertible into shares of Common Stock (as defined below),
on the terms and conditions set forth in this Section 3.

     

    (a)       Conversion Right.
Subject to the provisions of Section 3(d), at any time or times on or after the
Issuance Date, the Holder shall be entitled to convert any portion of the
outstanding and unpaid Conversion Amount (as defined below) into fully paid and
nonassessable shares of Common Stock in accordance with Section 3(c), at the
Conversion Rate (as defined below). The Company shall not issue any fraction of
a share of Common Stock upon any conversion. If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up to the nearest whole share. The Company
shall pay any and all transfer, stamp, issuance and similar taxes that may be
payable with respect to the issuance and delivery of Common Stock upon
conversion of any Conversion Amount.

     

    (b)       Conversion Rate. The
number of shares of Common Stock issuable upon conversion of any Conversion
Amount pursuant to Section 3(a) shall be determined by dividing (x) such
Conversion Amount by (y) the Conversion Price (the “Conversion Rate”)

     

    (i)           “Conversion Amount” means the portion of the Principal
to be converted, redeemed or otherwise with respect to which this determination
is being made, plus all accrued and unpaid Interest with respect to such portion
of the Principal amount and accrued and unpaid Late Charges with respect to such
portion of such Principal and such Interest.

     

    (ii)          “Conversion Price” means, as of any Conversion Date or
other date of determination, $0.90, subject to adjustment as provided
herein.


    
      
         


      

      
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    (c)      
Mechanics of
Conversion.

     

    (i) 
      Optional Conversion.
To convert any Conversion Amount into shares of Common Stock on any date (a
“Conversion Date”), the Holder shall (A) deliver
(whether via facsimile or otherwise), for receipt on or prior to 11:59 p.m., New
York time, on such date, a copy of an executed notice of conversion in the form
attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B) if required
by Section 3(c)(iii), surrender this Note to a nationally recognized overnight
delivery service for delivery to the Company (or an indemnification undertaking
with respect to this Note in the case of its loss, theft or destruction as
contemplated by Section 18(b)). On or before the second (2nd)
Trading Day following the date of receipt of a Conversion Notice, the Company
shall transmit by facsimile an acknowledgment of confirmation of receipt of such
Conversion Notice to the Holder and the Company’s transfer agent (the “Transfer Agent”). On or before the third (3rd)
Trading Day following the date of receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall (1) provided
that the Transfer Agent is participating in The Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer
Program, credit such aggregate number of shares of Common Stock to which the
Holder shall be entitled to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal at Custodian system or (2) if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer
Program, issue and deliver (via reputable overnight courier) to the address as
specified in the Conversion Notice, a certificate, registered in the name of the
Holder or its designee, for the number of shares of Common Stock to which the
Holder shall be entitled. If this Note is physically surrendered for conversion
as required by Section 3(c)(iii) and the outstanding Principal of this Note is
greater than the Principal portion of the Conversion Amount being converted,
then the Company shall as soon as practicable and in no event later than five
(5) Business Days after receipt of this Note and at its own expense, issue and
deliver to the Holder (or its designee) a new Note (in accordance with Section
18(d)) representing the outstanding Principal not converted. The Person or
Persons entitled to receive the shares of Common Stock issuable upon a
conversion of this Note shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date. In the event
of a partial conversion of this Note pursuant hereto, the Principal amount
converted shall be deducted from the Installment Amount(s) relating to the
Installment Date(s) as set forth in the applicable Conversion
Notice.


    
      
         


      

      
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    (ii)   
   Company’s Failure to Timely
Convert. If the Company shall fail, for any reason or for no reason, to
issue to the Holder within five (5) Trading Days after the Company’s receipt of
a Conversion Notice (whether via facsimile or otherwise), 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 or its designee’s balance account with DTC for such number of shares of
Common Stock to which the Holder is entitled upon the Holder’s conversion of any
Conversion Amount (as the case may be) (a “Conversion Failure”), then, in addition to all other
remedies available to the Holder, (1) 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 sum of the number of
shares of Common Stock not issued to the Holder on a timely basis and to which
the Holder is entitled multiplied by (B) the Closing Sale Price of the Common
Stock on the Trading Day immediately preceding the last possible date which the
Company could have issued such shares of Common Stock to the Holder without
violating Section 3(c)(i) and (2) the Holder, upon written notice to the
Company, may void its Conversion Notice with respect to, and retain or have
returned (as the case may be) any portion of this Note that has not been
converted pursuant to such Conversion Notice, provided that the voiding of a
Conversion Notice shall not affect the Company’s obligations to make any
payments which have accrued prior to the date of such notice pursuant to this
Section 3(c)(ii) or otherwise. In addition to the foregoing, if within three (3)
Trading Days after the Company’s receipt of a Conversion Notice (whether via
facsimile or otherwise), 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 or its designee’s balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder’s conversion 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 conversion 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 and other out-of-pocket expenses, 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 (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 conversion 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 multiplied by (B) the Closing Sale Price of the Common Stock on the
Trading Day immediately preceding the Conversion Date.

     

    (iii)  
   Book-Entry.
Notwithstanding anything to the contrary set forth herein, upon conversion of
any portion of this Note in accordance with the terms hereof, the Holder shall
not be required to physically surrender this Note to the Company unless (A) the
full Conversion Amount represented by this Note is being converted or (B) the
Holder has provided the Company with prior written notice (which notice may be
included in a Conversion Notice) requesting reissuance of this Note upon
physical surrender of this Note. The Holder and the Company shall maintain
records showing the Principal, Interest and Late Charges converted and/or paid
(as the case may be) and the dates of such conversions and/or payments (as the
case may be) or shall use such other method, reasonably satisfactory to the
Holder and the Company, so as not to require physical surrender of this Note
upon conversion.


    
      
         


      

      
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    (iv)           Pro Rata Conversion;
Disputes. In the event that the Company receives a Conversion Notice from
more than one holder of Notes for the same Conversion Date and the Company can
convert some, but not all, of such portions of the Notes submitted for
conversion, the Company, subject to Section 3(d), shall convert from each holder
of Notes electing to have Notes converted on such date a pro rata amount of such
holder’s portion of its Notes submitted for conversion based on the principal
amount of Notes submitted for conversion on such date by such holder relative to
the aggregate principal amount of all Notes submitted for conversion on such
date. In the event of a dispute as to the number of shares of Common Stock
issuable to the Holder in connection with a conversion of this Note, the Company
shall issue to the Holder the number of shares of Common Stock not in dispute
and resolve such dispute in accordance with Section 23.

     

    (d)           Limitations on
Conversions. Notwithstanding anything to the contrary contained in this
Note, this Note shall not be convertible by the Holder hereof, and the Company
shall not effect any conversion of this Note or otherwise issue any shares of
Common Stock pursuant to Section 8 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 Note shall be
convertible (vis-a-vis other convertible, exercisable or exchangeable 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 convert this
Note, or to issue shares of Common Stock, pursuant to this paragraph shall have
any effect on the applicability of the provisions of this paragraph with respect
to any subsequent determination of convertibility. For 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 Note. 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 Note or securities issued pursuant to the
Securities Purchase Agreement.


    
      
         


      

      
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    4.  
      RIGHTS UPON EVENT OF
DEFAULT.

     

    (a)   Event of Default.
Each of the following events shall constitute an “Event of Default”:

     

    (i)           the
failure of the applicable Registration Statement (as defined in the Registration
Rights Agreement) to be filed with the SEC on or prior to the date that is ten
(10) days after the applicable Filing Deadline (as defined in the Registration
Rights Agreement) or the failure of the applicable Registration Statement to be
declared effective by the SEC on or prior to the date that is ten (10) days
after the applicable Effectiveness Deadline (as defined in the Registration
Rights Agreement);

     

    (ii)  
       while the applicable Registration
Statement is required to be maintained effective pursuant to the terms of the
Registration Rights Agreement, the effectiveness of the applicable Registration
Statement lapses for any reason (including, without limitation, the issuance of
a stop order) or such Registration Statement (or the prospectus contained
therein) is unavailable to any holder of Registrable Securities (as defined in
the Registration Rights Agreement) for sale of all of such holder’s Registrable
Securities in accordance with the terms of the Registration Rights Agreement,
and such lapse or unavailability continues for a period of five (5) consecutive
days or for more than an aggregate of ten (10) days in any 365-day period
(excluding days during an Allowable Grace Period (as defined in the Registration
Rights Agreement));

     

    (iii)         the
suspension (or threatened suspension) from trading or the failure (or threatened
failure) of the Common Stock to be trading or listed (as applicable) on an
Eligible Market for a period of five (5) consecutive days or for more than an
aggregate of ten (10) days in any 365-day period;

     

    (iv)        the
Company’s (A) failure to cure a Conversion Failure or a Delivery Failure (as
defined in the Warrants) by delivery of the required number of shares of Common
Stock within five (5) Trading Days after the applicable Conversion Date or
exercise date (as the case may be) or (B) notice, written or oral, to any holder
of the Notes or Warrants, including, without limitation, by way of public
announcement or through any of its agents, at any time, of its intention not to
comply, as required, with a request for conversion of any Notes into shares of
Common Stock that is requested in accordance with the provisions of the Notes,
other than pursuant to Section 3(d), or a request for exercise of any Warrants
for Warrant Shares in accordance with the provisions of the
Warrants;

     

    (v)         at
any time following the tenth (10th)
consecutive day that the Holder’s Authorized Share Allocation is less than the
number of shares of Common Stock that the Holder would be entitled to receive
upon a conversion of the full Conversion Amount of this Note (without regard to
any limitations on conversion set forth in Section 3(d) or
otherwise);


    
      
         


      

      
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    (vi)       
the Company’s or any Subsidiary’s failure to pay to the Holder any amount of
Principal, Interest, Late Charges or other amounts when and as due under this
Note (including, without limitation, the Company’s or any Subsidiary’s failure
to pay any redemption payments or amounts hereunder) or any other Transaction
Document (as defined in the Securities Purchase Agreement) or any other
agreement, document, certificate or other instrument delivered in connection
with the transactions contemplated hereby and thereby, except, in the case of a
failure to pay Interest and Late Charges when and as due, in which case only if
such failure remains uncured for a period of at least five (5)
days;

     

    (vii)  
     the Company fails to remove any restrictive legend
on any certificate or any shares of Common Stock issued to the Holder upon
conversion or exercise (as the case may be) of any Securities acquired by the
Holder under the Securities Purchase Agreement (including this Note) as and when
required by such Securities or the Securities Purchase Agreement, unless
otherwise then prohibited by applicable federal securities laws, and any such
failure remains uncured for at least five (5) days;

     

    (viii)   
   the occurrence of any default under, redemption of or
acceleration prior to maturity of any Indebtedness (as defined in the Securities
Purchase Agreement) of the Company or any of its Subsidiaries, other than with
respect to (A) Permitted Senior Indebtedness and (B) any Other
Notes;

     

    (ix)         bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings for
the relief of debtors shall be instituted by or against the Company or any
Subsidiary and, if instituted against the Company or any Subsidiary by a third
party, shall not be dismissed within thirty (30) days of their
initiation;

     

    (x)          the
commencement by the Company or any Subsidiary of a voluntary case or proceeding
under any applicable federal, state or foreign bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by it to the entry of a
decree, order, judgment or other similar document in respect of the Company or
any Subsidiary in an involuntary case or proceeding under any applicable
federal, state or foreign bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or the
occurrence of any other similar federal, state or foreign proceeding, or the
admission by it in writing of its inability to pay its debts generally as they
become due, the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action or the taking of any action by any Person to
commence a UCC foreclosure sale or any other similar action under federal, state
or foreign law;


    
      
         


      

      
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    (xi)         the
entry by a court of (i) a decree, order, judgment or other similar document in
respect of the Company or any Subsidiary of a voluntary or involuntary case or
proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or (ii) a decree, order,
judgment or other similar document adjudging the Company or any Subsidiary as
bankrupt or insolvent, or approving as properly filed a petition seeking
liquidation, reorganization, arrangement, adjustment or composition of or in
respect of the Company or any Subsidiary under any applicable federal, state or
foreign law or (iii) a decree, order, judgment or other similar document
appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or any Subsidiary or of any substantial
part of its property, or ordering the winding up or liquidation of its affairs,
and the continuance of any such decree, order, judgment or other similar
document or any such other decree, order, judgment or other similar document
unstayed and in effect for a period of thirty (30) consecutive
days;

     

    (xii)        a
final judgment or judgments for the payment of money aggregating in excess of
$250,000 are rendered against the Company and/or any of its Subsidiaries and
which judgments are not, within thirty (30) days after the entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged within thirty
(30) days after the expiration of such stay; provided, however, any judgment
which is covered by insurance or an indemnity from a credit worthy party shall
not be included in calculating the $250,000 amount set forth above so long as
the Company provides the Holder a written statement from such insurer or
indemnity provider (which written statement shall be reasonably satisfactory to
the Holder) to the effect that such judgment is covered by insurance or an
indemnity and the Company or such Subsidiary (as the case may be) will receive
the proceeds of such insurance or indemnity within thirty (30) days of the
issuance of such judgment;

     

    (xiii)       the
Company and/or any Subsidiary, individually or in the aggregate, either (i)
fails to pay, when due, or within any applicable grace period, any payment with
respect to any Indebtedness in excess of $100,000 due to any third party (other
than, with respect to unsecured Indebtedness only, payments contested by the
Company and/or such Subsidiary (as the case may be) in good faith by proper
proceedings and with respect to which adequate reserves have been set aside for
the payment thereof in accordance with GAAP) or is otherwise in breach or
violation of any agreement for monies owed or owing in an amount in excess of
$200,000, which breach or violation permits the other party thereto to declare a
default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist
any other circumstance or event that would, with or without the passage of time
or the giving of notice, result in a default or event of default under any
agreement binding the Company or any Subsidiary, which default or event of
default would or is likely to have a material adverse effect on the business,
assets, operations (including results thereof), liabilities, properties,
condition (including financial condition) or prospects of the Company or any of
its Subsidiaries, individually or in the aggregate;

     

    (xiv)       other
than as specifically set forth in another clause of this Section 4(a), the
Company or any Subsidiary breaches any representation, warranty, covenant or
other term or condition of any Transaction Document (including, without
limitation, the Security Documents and the Guaranties), except, in the case of a
breach of a covenant or other term or condition that is curable, only if such
breach remains uncured for a period of three (3) days following notice from the
Holder;


    
      
         


      

      
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    (xv)       any
breach or failure in any respect by the Company or any Subsidiary to comply with
any provision of either of Sections 8 or 13 of this Note;

     

    (xvi)       a
false or inaccurate certification (including a false or inaccurate deemed
certification) by the Company that the Equity Conditions are satisfied, that
there has been no Equity Conditions Failure, Dollar Failure, Volume Failure or
Price Failure or as to whether any Event of Default has occurred;

     

    (xvii)      any
Material Adverse Effect (as defined in the Securities Purchase Agreement)
occurs;

     

    (xviii)     any
provision of any Transaction Document (including, without limitation, the
Security Documents and the Guaranties) shall at any time for any reason (other
than pursuant to the express terms thereof) cease to be valid and binding on or
enforceable against the parties thereto, or the validity or enforceability
thereof shall be contested by any party thereto, or a proceeding shall be
commenced by the Company or any Subsidiary or any governmental authority having
jurisdiction over any of them, seeking to establish the invalidity or
unenforceability thereof, or the Company or any Subsidiary shall deny in writing
that it has any liability or obligation purported to be created under any
Transaction Document (including, without limitation, the Security Documents and
the Guaranties);

     

    (xix)       the
Security Documents shall for any reason fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien on the Collateral (as defined in the Security Agreement) in
favor of each of the Secured Parties (as defined in the Security Agreement);
or

     

    (xx)        any
Event of Default (as defined in the Other Notes) occurs with respect to any
Other Notes.

     

    (b)   Redemption Right.
Upon the occurrence of an Event of Default with respect to this Note or any
Other Note, the Company shall within one (1) Business Day deliver written notice
thereof via facsimile and overnight courier (with next day delivery specified)
(an “Event of Default Notice”) to the Holder. At any time after
the earlier of the Holder’s receipt of an Event of Default Notice and the Holder
becoming aware of an Event of Default, the Holder may require the Company to
redeem (regardless of whether such Event of Default has been cured) all or any
portion of this Note by delivering written notice thereof (the “Event of Default Redemption Notice”) to the Company, which Event of
Default Redemption Notice shall indicate the portion of this Note the Holder is
electing to redeem. Each portion of this Note subject to redemption by the
Company pursuant to this Section 4(b) shall be redeemed by the Company at a
price equal to the greater of (i) the product of (A) the Conversion Amount to be
redeemed multiplied by (B) the Redemption Premium and (ii) the product of (X)
the Conversion Rate with respect to the Conversion Amount in effect at such time
as the Holder delivers an Event of Default Redemption Notice multiplied by (Y)
the product of (1) the Equity Value Redemption Premium multiplied by (2) the
greatest of (I) the Closing Sale Price of the Common Stock on the date
immediately preceding such Event of Default, (II) the Closing Sale Price of the
Common Stock on the date immediately after such Event of Default and (III) the
Closing Sale Price of the Common Stock on the date the Holder delivers an Event
of Default Redemption Notice with respect to such Event of Default (the “Event of Default Redemption Price”). Redemptions required by this
Section 4(b) shall be made in accordance with the provisions of Section 11. To
the extent redemptions required by this Section 4(b) are deemed or determined by
a court of competent jurisdiction to be prepayments of this Note by the Company,
such redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 4, but subject to Section 3(d), until
the Event of Default Redemption Price (together with any Late Charges thereon)
is paid in full, the Conversion Amount submitted for redemption under this
Section 4(b) (together with any Late Charges thereon) may be converted, in whole
or in part, by the Holder into Common Stock pursuant to Section 3. In the event
of a partial redemption of this Note pursuant hereto, the Principal amount
redeemed shall be deducted from the Installment Amount(s) relating to the
applicable Installment Date(s) as set forth in the Event of Default Redemption
Notice. In the event of the Company’s redemption of any portion of this Note
under this Section 4(b), the Holder’s damages would be uncertain and difficult
to estimate because of the parties’ inability to predict future interest rates
and the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any redemption premium due under this
Section 4(b) is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder’s actual loss of its investment opportunity and not as a
penalty.


    
      
         


      

      
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    5.        
RIGHTS UPON
FUNDAMENTAL TRANSACTION.

     

    (a)    Assumption. 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 Note and the other Transaction Documents in accordance with the
provisions of this Section 5(a) 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 each holder of Notes
in exchange for such Notes a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to the Notes,
including, without limitation, having a principal amount and interest rate equal
to the principal amounts then outstanding and the interest rates of the Notes
held by such holder, having similar conversion rights as the Notes and having
similar ranking to the Notes, and satisfactory to the Holder 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 occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Note 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 Note and the other Transaction
Documents with the same effect as if such Successor Entity had been named as the
Company herein. Upon consummation of a Fundamental Transaction, the Successor
Entity shall deliver to the Holder confirmation that there shall be issued upon
conversion or redemption of this Note at any time after the consummation of such
Fundamental Transaction, in lieu of the shares of the Company’s Common Stock (or
other securities, cash, assets or other property (except such items still
issuable under Sections 6 and 15, which shall continue to be receivable
thereafter) issuable upon the conversion or redemption of the Notes prior to
such Fundamental Transaction, such shares of the publicly traded common stock
(or their equivalent) of the Successor Entity (including its Parent Entity)
which the Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had this Note been converted immediately prior to such
Fundamental Transaction (without regard to any limitations on the conversion of
this Note), as adjusted in accordance with the provisions of this Note. The
provisions of this Section 5 shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
on the conversion of this Note.


    
      
         


      

      
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    (b)    Redemption Right. No
sooner than twenty (20) Trading Days nor later than ten (10) Trading Days prior
to the consummation of a Fundamental Transaction, but not prior to the public
announcement of such Fundamental Transaction, the Company shall deliver written
notice thereof via facsimile and overnight courier to the Holder (a “Fundamental Transaction Notice”). At any time during the period
beginning after the Holder’s receipt of a Fundamental Transaction Notice and
ending on the later of twenty (20) Trading Days after (A) consummation of such
Fundamental Transaction or (B) the date of receipt of such Fundamental
Transaction Notice, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof (“Fundamental Transaction Redemption
Notice”) to the Company, which
Fundamental Transaction Redemption Notice shall indicate the Conversion Amount
the Holder is electing to redeem. The portion of this Note subject to redemption
pursuant to this Section 5 shall be redeemed by the Company in cash at a price
equal to the greater of (i) the product of (w) the Fundamental Transaction
Redemption Premium multiplied by (x) the Conversion Amount being redeemed and
(ii) the product of (y) the Equity Value Redemption Premium multiplied by (z)
the product of (1) the Conversion Amount being redeemed multiplied by (2) the
quotient of (A) the aggregate cash consideration and the aggregate cash value of
any non-cash consideration per share of Common Stock to be paid to the holders
of the shares of Common Stock upon consummation of such Fundamental Transaction
(any such non-cash consideration constituting publicly-traded securities shall
be valued at the highest of the Closing Sale Price of such securities as of the
Trading Day immediately prior to the consummation of such Fundamental
Transaction, the Closing Sale Price of such securities on the Trading Day
immediately following the public announcement of such proposed Fundamental
Transaction and the Closing Sale Price of such securities on the Trading Day
immediately prior to the public announcement of such proposed Fundamental
Transaction) divided by (B) the Conversion Price then in effect (the “Fundamental Transaction Redemption
Price”). Redemptions required by
this Section 5 shall be made in accordance with the provisions of Section 11 and
shall have priority to payments to stockholders in connection with such
Fundamental Transaction. To the extent redemptions required by this Section 5(b)
are deemed or determined by a court of competent jurisdiction to be prepayments
of this Note by the Company, such redemptions shall be deemed to be voluntary
prepayments. Notwithstanding anything to the contrary in this Section 5, but
subject to Section 3(d), until the Fundamental Transaction Redemption Price
(together with any Late Charges thereon) is paid in full, the Conversion Amount
submitted for redemption under this Section 5(b) (together with any Late Charges
thereon) may be converted, in whole or in part, by the Holder into Common Stock
pursuant to Section 3. In the event of a partial redemption of this Note
pursuant hereto, the Principal amount redeemed shall be deducted from the
Installment Amount(s) relating to the applicable Installment Date(s) as set
forth in the Fundamental Transaction Redemption Notice. In the event of the
Company’s redemption of any portion of this Note under this Section 5(b), the
Holder’s damages would be uncertain and difficult to estimate because of the
parties’ inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any redemption premium due under this Section 5(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of the Holder’s
actual loss of its investment opportunity and not as a penalty.


    
      
         


      

      
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    6.        
RIGHTS  UPON  ISSUANCE  OF  PURCHASE  RIGHTS  AND  OTHER
CORPORATE EVENTS.

     

    (a)           Purchase Rights. In
addition to any adjustments pursuant to Section 7 below, 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 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 conversion of this
Note (without taking into account any limitations or restrictions on the
convertibility of this Note) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common 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).

     

    (b)           Other Corporate
Events. In addition to and not in substitution for any other rights
hereunder, prior to the consummation of any Fundamental Transaction pursuant to
which holders of 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 a conversion of this Note (i) in addition to the shares of Common Stock
receivable upon such conversion, such securities or other assets to which the
Holder would have been entitled with respect to such shares of Common Stock had
such shares of Common Stock been held by the Holder upon the consummation of
such Corporate Event (without taking into account any limitations or
restrictions on the convertibility of this Note) or (ii) in lieu of the shares
of Common Stock otherwise receivable upon such conversion, such securities or
other assets received by the holders of shares of Common Stock in connection
with the consummation of such Corporate Event in such amounts as the Holder
would have been entitled to receive had this Note initially been issued with
conversion rights for the form of such consideration (as opposed to shares of
Common Stock) at a conversion rate for such consideration commensurate with the
Conversion Rate. The provisions of this Section 6 shall apply similarly and
equally to successive Corporate Events and shall be applied without regard to
any limitations on the conversion or redemption of this Note.


    
      
         


      

      
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    7.        
RIGHTS UPON ISSUANCE
OF OTHER SECURITIES.

     

    (a)   Adjustment of Conversion
Price upon Issuance of Common Stock. If and whenever on or after the
Subscription Date the Company issues or sells, or in accordance with this
Section 7(a) 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
Conversion Price in effect immediately prior to such issue or sale or deemed
issuance or sale (such Conversion Price then in effect is referred to herein as
the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then, immediately after such
Dilutive Issuance, the Conversion Price then in effect shall be reduced to an
amount equal to the New Issuance Price. For purposes of determining the adjusted
Conversion Price under this Section 7(a), 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 7(a)(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 Conversion
Price shall be made upon the actual issuance of such share of Common Stock or of
such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such share 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 7(a)(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 Conversion Price shall be made upon the actual
issuance of such share 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 the
Conversion Price has been or is to be made pursuant to other provisions of this
Section 7(a), except as contemplated below, no further adjustment of the
Conversion 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
Conversion Price in effect at the time of such increase or decrease shall be
adjusted to the Conversion 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 7(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the Subscription Date 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 7(a) shall be made if such adjustment would
result in an increase of the Conversion 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 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 average VWAP of such security for the five (5)
Trading Day period 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
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).

     

    (b)        Adjustment of Conversion
Price upon Subdivision or Combination of Common Stock. If the Company at
any time on or after the Subscription Date subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its outstanding
shares of Common Stock into a greater number of shares, the Conversion Price in
effect immediately prior to such subdivision will be proportionately reduced. If
the Company at any time on or after the Subscription Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased. Any adjustment pursuant to this Section 7(b) shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this Section 7(b) occurs
during the period that a Conversion Price is calculated hereunder, then the
calculation of such Conversion Price shall be adjusted appropriately to reflect
such event.


    
      
         


      

      
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      (c)           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 7 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 Conversion Price so as
to protect the rights of the Holder, provided that no such adjustment pursuant
to this Section 7(c) will increase the Conversion Price as otherwise determined
pursuant to this Section 7, provided further that if the Holder does not accept
such adjustments as appropriately protecting its interests hereunder against
such dilution, then the Company’s board of directors and the Holder shall agree,
in good faith, upon an independent investment bank of nationally recognized
standing to make such appropriate adjustments, whose determination shall be
final and binding and whose fees and expenses shall be borne by the
Company.

       

      
        	
              	
                8. 

              	
                COMPANY INSTALLMENT
      CONVERSION OR REDEMPTION.

              


      

       

      (a)    
General. On
each applicable Installment Date, the Company shall pay to the Holder of this
Note the applicable Installment Amount due on such date by converting such
Installment Amount in accordance with this Section 8 (a “Company Conversion”); provided, however, the Company
may, at its option as described below, pay all or any part of such Installment
Amount by redeeming such Installment Amount in cash (a “Company Redemption”) or by any combination of a Company
Conversion and a Company Redemption so long as the entire amount of such
Installment Amount due shall be converted and/or redeemed by the Company on the
applicable Installment Date, subject to the provisions of this Section 8,
provided further that the Company shall not be entitled to elect a Company
Conversion with respect to any portion of such Installment Amount and shall be
required to elect and to pay the entire amount of such Installment Amount in
cash pursuant to a Company Redemption if on the applicable Installment Notice
Due Date or on the applicable Installment Date (as the case may be) there is an
Equity Conditions Failure, a Dollar Failure, a Volume Failure or a Price
Failure, except that a Company Conversion may still occur on the applicable
Installment Date in accordance with Section 8(b) with the written consent of the
Holder if the Company properly elected a Company Conversion with respect to such
Installment Date and a Price Failure occurs after such proper election. On or
prior to the date which is the twenty-first (21st)
Trading Day prior to each Installment Date (each, an “Installment Notice Due Date”), the Company shall deliver written
notice (each, a “Company Installment Notice” and the date all of the holders
receive such notice is referred to as to the “Company Installment Notice Date”), to each holder of Notes and such
Company Installment Notice shall (i) either (A) confirm that the applicable
Installment Amount of such holder’s Note shall be converted in whole pursuant to
a Company Conversion or (B) (1) state that the Company elects to redeem, or is
required to elect and redeem in accordance with the provisions of the Notes, in
whole or in part, the applicable Installment Amount pursuant to a Company
Redemption and (2) specify the portion of the applicable Installment Amount
which the Company elects, or is required to elect and redeem, pursuant to a
Company Redemption (such amount to be redeemed in cash, the “Company Redemption Amount”) and the portion of the applicable
Installment Amount, if any, that the Company elects, and is permitted, to
convert pursuant to a Company Conversion (such amount of the applicable
Installment Amount so elected to be so converted pursuant to this Section 8 is
referred to herein as the “Company Conversion Amount”), which amounts when added together,
must equal the entire applicable Installment Amount and (ii) if the applicable
Installment Amount is to be paid, in whole or in part, pursuant to a Company
Conversion, certify that there is not then an Equity Conditions Failure, a
Dollar Failure, a Volume Failure or a Price Failure, in each case, as of the
date of the Company Installment Notice. Each Company Installment Notice shall be
irrevocable and may not be revoked by the Company. If the Company does not
timely deliver a Company Installment Notice in accordance with this Section 8,
then the Company shall be deemed to have delivered an irrevocable Company
Installment Notice confirming a Company Conversion and shall be deemed to have
certified that there is not then an Equity Conditions Failure, a Dollar Failure,
a Volume Failure or a Price Failure, in each case, in connection with such
Company Conversion. No later than two (2) Trading Days after delivery of the
applicable Company Installment Notice setting forth a Company Conversion Amount,
the Company shall deliver to the Holder’s account with DTC such number of shares
of Common Stock (the “Pre-Installment Conversion Shares”) equal to the quotient of (x) such
Company Conversion Amount divided by (y) the Pre-Installment Conversion Price,
and as to which the Holder shall be the owner thereof as of such time of
delivery or deemed delivery (as the case may be) of such Company Installment
Notice. Except as expressly provided in this Section 8(a), the Company shall
convert and/or redeem the applicable Installment Amount of this Note pursuant to
this Section 8 and the corresponding Installment Amounts of the Other Notes
pursuant to the corresponding provisions of the Other Notes in the same ratio of
the applicable Installment Amount being converted and/or redeemed hereunder. The
applicable Company Conversion Amount (whether set forth in the applicable
Company Installment Notice or by operation of this Section 8) shall be converted
in accordance with Section 8(b) and the applicable Company Redemption Amount
shall be redeemed in accordance with Section 8(c). Notwithstanding anything to
the contrary contained in this Section 8, the provisions solely relating to a
Price Failure in this Section 8 shall no longer apply from and after the time
that the Conversion Price is less than $0.75 (as adjusted for stock splits,
stock dividends, stock combinations or other similar transactions) and this
Section 8 shall be applied as if the terms “Price Failure” and “Special Company
Conversion Price” were stricken.


      
        
           


        

        
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      (b)   
 Mechanics of
Company Conversion. Subject to Section 3(d), if the Company delivers a
Company Installment Notice and elects, or is deemed to have delivered a Company
Installment Notice and deemed to have elected, in whole or in part, a Company
Conversion in accordance with Section 8(a), then the remainder of this Section
8(b) shall apply. The applicable Company Conversion Amount, if any, which
remains outstanding as of the applicable Installment Date shall be converted as
of the applicable Installment Date by converting on such Installment Date such
Company Conversion Amount at the (i) Company Conversion Price or (ii) with the
written consent of the Holder if a Price Failure occurs after the Company
properly elected a Company Conversion with respect to such Installment Date,
Special Company Conversion Price (as applicable), and the Company shall, on the
applicable Installment Date, deliver to the Holder’s account with DTC such
shares of Common Stock issued upon such conversion (subject to the reduction
contemplated by the immediately following sentence and, if applicable, the last
sentence of this Section 8(b)), provided that the Equity Conditions are then
satisfied (or waived in writing by the Holder) on such Installment Date and a
Company Conversion is not otherwise prohibited under any other provision of this
Note (including, without limitation, as a result of the occurrence of a Dollar
Failure or a Volume Failure (each determined as of the applicable Installment
Date)). The number of shares of Common Stock to be delivered upon such Company
Conversion shall be reduced by the number of any Pre-Installment Conversion
Shares delivered in connection with such Installment Date. If an Event of
Default occurs during any applicable Company Conversion Measuring Period, then
either (i) the Holder shall return any Pre-Installment Conversion Shares
delivered in connection with the applicable Installment Date or (ii) the
Conversion Amount used to calculate the Event of Default Redemption Price shall
be reduced by the product of (x) the Company Conversion Amount applicable to
such Installment Date multiplied by (y) the Conversion Share Ratio (as defined
below). If any of the Equity Conditions are not satisfied (or waived in writing
by the Holder) on such Installment Date or a Company Conversion is not otherwise
permitted under any other provision of this Note (including, without limitation,
as a result of the occurrence of a Dollar Failure or a Volume Failure (each
determined as of the applicable Installment Date)), then, at the option of the
Holder designated in writing to the Company, the Holder may require the Company
to do any one or more of the following: (i) the Company shall redeem all or any
part designated by the Holder of the unconverted Company Conversion Amount (such
designated amount is referred to as the “Designated Redemption Amount”) and the Company shall pay to the
Holder within three (3) days of such Installment Date, by wire transfer of
immediately available funds, an amount in cash equal to 135% of such Designated
Redemption Amount, and/or (ii) the Company Conversion shall be null and void
with respect to all or any part designated by the Holder of the unconverted
Company Conversion Amount and the Holder shall be entitled to all the rights of
a holder of this Note with respect to such designated part of the Company
Conversion Amount; provided, however, the Conversion Price for such designated
part of such unconverted Company Conversion Amount shall thereafter be adjusted
to equal the lesser of (A) the Company Conversion Price as in effect on the date
on which the Holder voided the Company Conversion and (B) the Company Conversion
Price that would be in effect on the date on which the Holder delivers a
Conversion Notice relating thereto as if such date was an Installment Date. In
addition, if any of the Equity Conditions are not satisfied (or waived in
writing by the Holder) on such Installment Date or a Company Conversion is not
otherwise permitted under any other provision of this Note (including, without
limitation, as a result of the occurrence of a Dollar Failure or a Volume
Failure (each determined as of the applicable Installment Date)), then, at the
Holder’s option, either (I) the Holder shall return any Pre-Installment
Conversion Shares delivered in connection with the applicable Installment Date
or (II) the applicable Designated Redemption Amount shall be reduced by the
product of (X) the Company Conversion Amount applicable to such Installment Date
multiplied by (Y) the Conversion Share Ratio. If the Company fails to redeem any
Designated Redemption Amount by the third (3rd) day
following the applicable Installment Date by payment of such amount on the
applicable Installment Date, then the Holder shall have the rights set forth in
Section 11(a) as if the Company failed to pay the applicable Company Installment
Redemption Price (as defined below) and all other rights under this Note
(including, without limitation, such failure constituting an Event of Default
described in Section 4(a)(xv)). Notwithstanding anything to the contrary in this
Section 8(b), but subject to 3(d), until the Company delivers Common Stock
representing the Company Conversion Amount to the Holder, the Company Conversion
Amount may be converted by the Holder into Common Stock pursuant to Section 3.
In the event that the Holder elects to convert the Company Conversion Amount
prior to the applicable Installment Date as set forth in the immediately
preceding sentence, the Company Conversion Amount so converted shall be deducted
from the Installment Amount(s) relating to the applicable Installment Date(s) as
set forth in the applicable Conversion Notice. If, with respect to an
Installment Date, the number of Pre-Installment Conversion Shares delivered to
the Holder exceeds the number of Post-Installment Conversion Shares with respect
to such Installment Date, then the number of shares of Common Stock equal to
such excess shall constitute a credit against the number of shares of Common
Stock to be issued to such Holder pursuant to Sections 3 and 8(a) hereof and
shall reduce the number of shares of Common Stock required to be actually issued
by the Company to the Holder under such sections on a share-for-share basis
until such time as the number of shares that would have been issued by the
Company to such Holder (not taking account of such credit) equals the amount of
such excess.


      
        
           


        

        
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      (c)   
Mechanics of Company
Redemption. If the Company elects, or is required to elect, a Company
Redemption, in whole or in part, in accordance with Section 8(a), then the
Company Redemption Amount, if any, which is to be paid to the Holder on the
applicable Installment Date shall be redeemed by the Company on such Installment
Date, and the Company shall pay to the Holder on such Installment Date, by wire
transfer of immediately available funds, in an amount in cash (the “Company Installment Redemption Price”) equal to the applicable Company
Redemption Amount. If the Company fails to redeem the applicable Company
Redemption Amount on the applicable Installment Date by payment of the Company
Installment Redemption Price on such date, then, at the option of the Holder
designated in writing to the Company (any such designation shall be a
“Conversion Notice” for purposes of this Note), the Holder may require the
Company to convert all or any part of the Company Redemption Amount at the
Company Conversion Price (determined as of the date of such designation).
Conversions required by this Section 8(c) shall be made in accordance with the
provisions of Section 3(c). Notwithstanding anything to the contrary in this
Section 8(c), but subject to Section 3(d), until the Company Installment
Redemption Price (together with any Late Charges thereon) is paid in full, the
Company Redemption Amount (together with any Late Charges thereon) may be
converted, in whole or in part, by the Holder into Common Stock pursuant to
Section 3. In the event the Holder elects to convert all or any portion of the
Company Redemption Amount prior to the applicable Installment Date as set forth
in the immediately preceding sentence, the Company Redemption Amount so
converted shall be deducted from the Installment Amounts relating to the
applicable Installment Date(s) as set forth in the applicable Conversion
Notice.


      
        
           


        

        
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      9.        
 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 Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon conversion of this Note above the Conversion 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 conversion of this Note, and
(iii) shall, so long as any of the Notes 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 conversion of
the Notes, the maximum number of shares of Common Stock as shall from time to
time be necessary to effect the conversion of the Notes then outstanding
(without regard to any limitations on conversion).

       

      10.   
    RESERVATION OF AUTHORIZED
SHARES.

       

      (a)      Reservation. The
Company shall initially reserve out of its authorized and unissued Common Stock
a number of shares of Common Stock for each of the Notes equal to 133% of the
entire Conversion Rate with respect to the entire Conversion Amount of each such
Note as of the Issuance Date. So long as any of the Notes are outstanding, the
Company shall take all action necessary to reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Notes, 133% of the number of shares of Common Stock as shall
from time to time be necessary to effect the conversion of all of the Notes then
outstanding, provided that at no time shall the number of shares of Common Stock
so reserved be less than the number of shares required to be reserved by the
previous sentence (without regard to any limitations on conversions) (the “Required Reserve Amount”). The initial number of shares of
Common Stock reserved for conversions of the Notes and each increase in the
number of shares so reserved shall be allocated pro rata among the holders of
the Notes based on the original principal amount of the Notes held by each
holder on the Closing Date or increase in the number of reserved shares (as the
case may be) (the “Authorized Share Allocation”). In the event that a holder shall
sell or otherwise transfer any of such holder’s Notes, each transferee shall be
allocated a pro rata portion of such holder’s Authorized Share Allocation. Any
shares of Common Stock reserved and allocated to any Person which ceases to hold
any Notes shall be allocated to the remaining holders of Notes, pro rata based
on the principal amount of the Notes then held by such holders.

       

      (b)      Insufficient Authorized
Shares. If, notwithstanding Section 10(a), and not in limitation thereof,
at any time while any of the Notes 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 conversion of the Notes at
least a number of shares of Common Stock equal to 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 the Notes 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.


      
        
           


        

        
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      11.           HOLDER’S
REDEMPTIONS.


       

      (a)    
 Mechanics. The
Company shall deliver the applicable Event of Default Redemption Price to the
Holder in cash within five (5) Business Days after the Company’s receipt of the
Holder’s Event of Default Redemption Notice. If the Holder has submitted a
Fundamental Transaction Redemption Notice in accordance with Section 5(b), the
Company shall deliver the applicable Fundamental Transaction Redemption Price to
the Holder in cash concurrently with the consummation of such Fundamental
Transaction if such notice is received prior to the consummation of such
Fundamental Transaction and within five (5) Business Days after the Company’s
receipt of such notice otherwise. The Company shall deliver the applicable
Company Installment Redemption Price to the Holder in cash on the applicable
Installment Date. In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued
and delivered to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the applicable Redemption Price to the Holder
within the time period required, at any time thereafter and until the Company
pays such unpaid Redemption Price in full, the Holder shall have the option, in
lieu of redemption, to require the Company to promptly return to the Holder all
or any portion of this Note representing the Conversion Amount that was
submitted for redemption and for which the applicable Redemption Price (together
with any Late Charges thereon) has not been paid. Upon the Company’s receipt of
such notice, (x) the applicable Redemption Notice shall be null and void with
respect to such Conversion Amount, (y) the Company shall immediately return this
Note, or issue a new Note (in accordance with Section 18(d)), to the Holder, and
in each case the principal amount of this Note or such new Note (as the case may
be) shall be increased by an amount equal to the difference between (1) the
applicable Event of Default Redemption Price or Fundamental Transaction
Redemption Price (as the case may be) minus (2) the Conversion Amount submitted
for redemption and (z) the Conversion Price of this Note or such new Notes (as
the case may be) shall be adjusted to the lesser of (A) the Conversion Price as
in effect on the date on which the applicable Redemption Notice is voided and
(B) the lowest Closing Bid Price of the Common Stock during the period beginning
on and including the date on which the applicable Redemption Notice is delivered
to the Company and ending on and including the date on which the applicable
Redemption Notice is voided. The Holder’s delivery of a notice voiding a
Redemption Notice and exercise of its rights following such notice shall not
affect the Company’s obligations to make any payments of Late Charges which have
accrued prior to the date of such notice with respect to the Conversion Amount
subject to such notice.


      
        
           


        

        
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      (b)     
Redemption by Other
Holders. Upon the Company’s receipt of notice from any of the holders of
the Other Notes for redemption or repayment as a result of an event or
occurrence substantially similar to the events or occurrences described in
Section 4(b) or Section 5(b) (each, an “Other Redemption Notice”), the Company shall immediately, but
no later than one (1) Business Day of its receipt thereof, forward to the Holder
by facsimile a copy of such notice. If the Company receives a Redemption Notice
and one or more Other Redemption Notices, during the seven (7) Business Day
period beginning on and including the date which is three (3) Business Days
prior to the Company’s receipt of the Holder’s applicable Redemption Notice and
ending on and including the date which is three (3) Business Days after the
Company’s receipt of the Holder’s applicable Redemption Notice and the Company
is unable to redeem all principal, interest and other amounts designated in such
Redemption Notice and such Other Redemption Notices received during such seven
(7) Business Day period, then the Company shall redeem a pro rata amount from
each holder of the Notes (including the Holder) based on the principal amount of
the Notes submitted for redemption pursuant to such Redemption Notice and such
Other Redemption Notices received by the Company during such seven (7) Business
Day period.

       

      12.          VOTING RIGHTS. The
Holder shall have no voting rights as the holder of this Note, except as
required by law (including, without limitation, the Wyoming Business Corporation
Act) and as expressly provided in this Note.

       

      13.          COVENANTS. Until all
of the Notes have been converted, redeemed or otherwise satisfied in accordance
with their terms:


       

      (a)      Rank. All payments
due under this Note (a) shall rank pari passu with all Other
Notes and (b) shall be senior to all other Indebtedness of the Company and its
Subsidiaries other than Permitted Senior Indebtedness and Permitted Project
Indebtedness.

       

      (b)      Incurrence of
Indebtedness. The Company shall not, and the Company shall cause each of
its Subsidiaries to not, directly or indirectly, incur or guarantee, assume or
suffer to exist any Indebtedness (other than (i) the Indebtedness evidenced by
this Note and the Other Notes and (ii) Permitted Indebtedness).

       

      (c)       Existence of Liens.
The Company shall not, and the Company shall cause each of its Subsidiaries to
not, directly or indirectly, allow or suffer to exist any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in any property
or assets (including accounts and contract rights) owned by the Company or any
of its Subsidiaries (collectively, “Liens”)
other than Permitted Liens.

       

      (d)       Restricted Payments.
The Company shall not, and the Company shall cause each of its Subsidiaries to
not, directly or indirectly, redeem, defease, repurchase, repay or make any
payments in respect of, by the payment of cash or cash equivalents (in whole or
in part, whether by way of open market purchases, tender offers, private
transactions or otherwise), all or any portion of any Indebtedness (other than
Permitted Senior Indebtedness), whether by way of payment in respect of
principal of (or premium, if any) or interest on, such Indebtedness if at the
time such payment is due or is otherwise made or, after giving effect to such
payment, (i) an event constituting an Event of Default has occurred and is
continuing or (ii) an event that with the passage of time and without being
cured would constitute an Event of Default has occurred and is
continuing.


      
        
           


        

        
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      (e)        Restriction on Redemption
and Cash Dividends. The Company shall not, and the Company shall cause
each of its Subsidiaries to not, directly or indirectly, redeem, repurchase or
declare or pay any cash dividend or distribution on any of its capital stock
without the prior express written consent of the Holder.

       

      (f)         Restriction on Transfer of
Assets. The Company shall not, and the Company shall cause each of its
Subsidiaries to not, directly or indirectly, sell, lease, license, assign,
transfer, convey or otherwise dispose of any assets or rights of the Company or
any Subsidiary owned or hereafter acquired whether in a single transaction or a
series of related transactions, other than (i) sales, leases, licenses,
assignments, transfers, conveyances and other dispositions of such assets or
rights by the Company and its Subsidiaries that, in the aggregate, do not have a
fair market value in excess of $250,000 in any twelve (12) month period and (ii)
sales of inventory in the ordinary course of business.

       

      (g)        Maturity of
Indebtedness. The Company shall not, and the Company shall cause each of
its Subsidiaries to not, directly or indirectly, permit any Indebtedness of the
Company or any of the Subsidiaries to mature or accelerate prior to the Maturity
Date, other than Permitted Senior Indebtedness.

       

      (h)        New Subsidiaries.
Simultaneously with the acquisition or formation of each New Subsidiary, the
Company shall cause such New Subsidiary to execute, and deliver to each holder
of Notes, all Security Documents (as defined in the Securities Purchase
Agreement) and Guaranties (as defined in the Securities Purchase Agreement) that
the Current Subsidiaries are required to execute in connection with the
transactions contemplated by the Securities Purchase Agreement.

       

      (i)         Change in Nature of
Business. The Company shall not, and the Company shall cause each of its
Subsidiaries to not, directly or indirectly, engage in any material line of
business substantially different from those lines of business conducted by the
Company and each of its Subsidiaries on the Issuance Date or any business
substantially related or incidental thereto. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
modify its or their corporate structure or purpose.

       

      14.           SECURITY. This Note
and the Other Notes are secured to the extent and in the manner set forth in the
Transaction Documents (including, without limitation, the Security Agreement,
the other Security Documents and the Guaranties).


      
        
           


        

        
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      15.           PARTICIPATION. In
addition to any adjustments pursuant to Section 7, the Holder, as the holder of
this Note, shall be entitled to receive such dividends paid and distributions
made to the holders of Common Stock to the same extent as if the Holder had
converted this Note into Common Stock (without regard to any limitations on
conversion herein or elsewhere) and had held such shares of Common Stock on the
record date for such dividends and distributions. Payments under the preceding
sentence shall be made concurrently with the dividend or distribution to the
holders of Common Stock (provided, however, to the extent that the Holder’s
right to participate in any such dividend or distribution would result in the
Holder exceeding the Maximum Percentage, then the Holder shall not be entitled
to participate in such dividend or distribution to such extent (or the
beneficial ownership of any such shares of Common Stock as a result of such
dividend or distribution to such extent) and such dividend or 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).

       

      16.           AMENDING THE TERMS OF THIS
NOTE. The prior written consent of the Holder shall be required for any
change or amendment to this Note. No consideration shall be offered or paid to
the Holder to amend or consent to a waiver or modification of any provision of
this Note unless the same consideration is also offered to all of the holders of
the Other Notes. The Holder shall be entitled, at its option, to the benefit of
any amendment to any of the Other Notes.

       

      17.           TRANSFER. This Note
and any shares of Common Stock issued upon conversion of this Note may be
offered, sold, assigned or transferred by the Holder without the consent of the
Company, subject only to the provisions of Section 2(g) of the Securities
Purchase Agreement.

       

      18.           REISSUANCE OF THIS
NOTE.

       

      (a)       Transfer. If this
Note is to be transferred, the Holder shall surrender this Note to the Company,
whereupon the Company will forthwith issue and deliver upon the order of the
Holder a new Note (in accordance with Section 18(d)), registered as the Holder
may request, representing the outstanding Principal being transferred by the
Holder and, if less than the entire outstanding Principal is being transferred,
a new Note (in accordance with Section 18(d)) to the Holder representing the
outstanding Principal not being transferred. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the provisions
of Section 3(c)(iii) following conversion or redemption of any portion of this
Note, the outstanding Principal represented by this Note may be less than the
Principal stated on the face of this Note.

       

      (b)       Lost, Stolen or Mutilated
Note. Upon receipt by the Company of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Note (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 Note, the Company shall execute and deliver to the Holder a new Note (in
accordance with Section 18(d)) representing the outstanding
Principal.


      
        
           


        

        
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      (c)  
   Note
Exchangeable for Different Denominations. This Note is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Note or Notes (in accordance with Section 18(d) and in principal amounts of
at least $100,000) representing in the aggregate the outstanding Principal of
this Note, and each such new Note will represent such portion of such
outstanding Principal as is designated by the Holder at the time of such
surrender.

       

      (d)     
 Issuance of New
Notes. Whenever the Company is required to issue a new Note pursuant to
the terms of this Note, such new Note (i) shall be of like tenor with this Note,
(ii) shall represent, as indicated on the face of such new Note, the Principal
remaining outstanding (or in the case of a new Note being issued pursuant to
Section 18(a) or Section 18(c), the Principal designated by the Holder which,
when added to the principal represented by the other new Notes issued in
connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges on the Principal and Interest of this Note, from the
Issuance Date.

       

      19.           REMEDIES, CHARACTERIZATIONS,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided
in this Note shall be cumulative and in addition to all other remedies available
under this Note and any of 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 Holder’s right to pursue actual and consequential
damages for any failure by the Company to comply with the terms of this Note.
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, conversion 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 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 Note (including, without limitation,
compliance with Section 7).

       

      20.           PAYMENT OF COLLECTION,
ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of
an attorney for collection or enforcement or is collected or enforced through
any legal proceeding or the Holder otherwise takes action to collect amounts due
under this Note or to enforce the provisions of this Note or (b) there occurs
any bankruptcy, reorganization, receivership of the Company or other proceedings
affecting Company creditors’ rights and involving a claim under this Note, then
the Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, without limitation, attorneys’ fees
and disbursements. The Company expressly acknowledges and agrees that no amounts
due under this Note shall be affected, or limited, by the fact that the Purchase
Price paid for this Note was less than the original Principal amount
hereof.


      
        
           


        

        
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      21.           CONSTRUCTION;
HEADINGS. This Note 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 Note are for convenience of reference and shall not
form part of, or affect the interpretation of, this Note. Terms used in this
Note but defined in the other Transaction Documents shall have the meanings
ascribed to such terms on the Closing Date in such other Transaction Documents
unless otherwise consented to in writing by the Holder.

       

      22.           FAILURE OR INDULGENCE NOT
WAIVER. No failure or delay on the part of the Holder in the exercise of
any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege. No waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party.

       

      23.           DISPUTE RESOLUTION.
In the case of a dispute as to the determination of the Conversion Price, the
Closing Bid Price, the Closing Sale Price or fair market value (as the case may
be) or the arithmetic calculation of the Conversion Rate or the applicable
Redemption Price (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 within two (2) Business Days of such disputed
determination or arithmetic calculation (as the case may be) 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 Conversion Price, the Closing Bid Price, the Closing Sale Price or fair
market value (as the case may be) to an independent, reputable investment bank
selected by the Company and approved by the Holder or (b) the disputed
arithmetic calculation of the Conversion Rate or any Redemption Price (as the
case may be) 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.


      
        
           


        

        
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      24.           NOTICES;
PAYMENTS.


       

      (a)    Notices. Whenever
notice is required to be given under this Note, 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 Note, including in
reasonable detail a description of such action and the reason therefore. Without
limiting the generality of the foregoing, the Company will give written notice
to the Holder (i) immediately upon any adjustment of the Conversion Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen (15) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any grant, 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.

       

      (b)    Payments. Whenever
any payment of cash is to be made by the Company to any Person pursuant to this
Note, unless otherwise expressly set forth herein, such payment shall be made in
lawful money of the United States of America by a certified check drawn on the
account of the Company and sent via overnight courier service to such Person at
such address as previously provided to the Company in writing (which address, in
the case of each of the Buyers, shall initially be as set forth on the Schedule
of Buyers attached to the Securities Purchase Agreement), provided that the
Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder’s wire transfer instructions. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding day which is
a Business Day. Any amount of Principal or other amounts due under the
Transaction Documents which is not paid when due shall result in a late charge
being incurred and payable by the Company in an amount equal to interest on such
amount at the rate of eighteen percent (18%) per annum from the date such amount
was due until the same is paid in full (“Late Charge”).

       

      25.           CANCELLATION. After
all Principal, accrued Interest, Late Charges and other amounts at any time owed
on this Note have been paid in full, this Note shall automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued.

       

      26.           WAIVER OF NOTICE. To
the extent permitted by law, the Company hereby irrevocably waives demand,
notice, presentment, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreement.


      
        
           


        

        
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      27.           GOVERNING LAW. This
Note shall be construed and enforced in accordance with, and all questions
concerning the construction, validity, interpretation and performance of this
Note shall be governed by, the internal laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New York.
The Company hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in The City of New York, Borough of Manhattan,
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. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Note.
Nothing contained herein shall be deemed or operate to preclude the Holder from
bringing suit or taking other legal action against the Company in any other
jurisdiction to collect on the Company’s obligations to the Holder, to realize
on any collateral or any other security for such obligations, or to enforce a
judgment or other court ruling in favor of the Holder. THE COMPANY 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 NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

       

      28.           CERTAIN DEFINITIONS.
For purposes of this Note, the following terms shall have the following
meanings:

       

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

       

      (b)         “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.

       

      (c)          “Closing Bid Price” and “Closing Sale Price” means, for any security as of any
date, the last closing bid price and last closing trade price, respectively, 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 bid price or the closing trade price (as the case may be)
then the last bid price or last trade price, respectively, 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 closing bid price or last trade price, respectively, 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 do
not apply, the last closing bid price or last trade price, respectively, of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, 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 Bid Price or the Closing
Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the
case may be) 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 23. All
such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during such
period.


      
        
           


        

        
          27

          
            

          

        

        
           


        

      


      (d)           “Closing Date” shall have the meaning set forth in
the Securities Purchase Agreement, which date is the date the Company initially
issued Notes pursuant to the terms of the Securities Purchase
Agreement.

       

      (e)           “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.

       

      (f)           “Company Conversion Price” means, with respect to a particular
date of determination, the lower of (i) the Conversion Price then in effect and
(ii) the price which shall be computed as 90% of the quotient of (I) the sum of
each of the VWAPs of the Common Stock for each of the twenty (20) consecutive
Trading Days immediately preceding the applicable Installment Date (each such
period, a “Company Conversion Measuring Period”) divided by (II) twenty (20). All
such determinations to be appropriately adjusted for any stock split, stock
dividend, stock combination or other similar transaction during any such Company
Conversion Measuring Period.

       

      (g)           “Conversion Share Ratio” means as to any applicable
Installment Date, the quotient of (i) the number of Pre-Installment Conversion
Shares delivered in connection with such Installment Date divided by (ii) the
number of Post-Installment Conversion Shares applicable to such Installment
Date.

       

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

       

      (i)           “Current Subsidiaries” means any Person in which the
Company on the Subscription
Date, directly or indirectly, (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 each of the
foregoing,
individually, a “Current Subsidiary.”

       

      (j)            “Dollar Failure” means, with respect to a particular
date of determination, that the aggregate dollar trading volume (as reported on
Bloomberg) of the Common Stock on the Eligible Market on which the Common Stock
is listed or designated for quotation as of such date of determination over the
twenty (20) consecutive Trading Day period ending on the Trading Day immediately
preceding such date of determination is less than $637,500.

       

      (k)           “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.



      
        
           


        

        
          28

          
            

          

        

        
           


        

      

       

      (1)      
   “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
(which, solely for clarification purposes, includes all shares of Common Stock
issuable upon conversion of this Note, including, without limitation, under
Sections 3 and 8) 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 conversion of this Note on a
timely basis as set forth in Section 3 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 3(d) 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) on each day
during the Equity Conditions Measuring Period, there shall not have occurred an
Event of Default or an event that with the passage of time or giving of notice
would constitute an Event of Default.

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

    

     

    (m)     
“Equity
Conditions Failure” means that
on any day during the period commencing twenty (20) Trading Days prior to the
applicable Company Installment Notice Date through the later of the applicable
Installment Date and the date on which the applicable shares of Common Stock are
actually delivered to the Holder, the Equity Conditions have not been satisfied
(or waived in writing by the Holder).

     

    (n)      
“Equity Value Redemption Premium” means 135%.

     

    (o)      
“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 or any material Subsidiary 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)
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.

     

    (p)      
“Fundamental Transaction Redemption
Premium” means
135%.

     

    (q)      
“GAAP” means United States generally
accepted accounting principles, consistently applied.

     

    (r)       
“Holder Pro Rata Amount” means a fraction (i) the numerator
of which is the original Principal amount of this Note on the Closing Date and
(ii) the denominator of which is the aggregate original principal amount of all
Notes issued to the initial purchasers pursuant to the Securities Purchase
Agreement on the Closing Date.


    
      
         


      

      
        30

        
          

        

      

      
         


      

    

     

    (s)      
“Installment Amount” means (i) with respect to any
Installment Date other than the Maturity Date, the lesser of (A) the product of
(I) $100,000, multiplied by (II) Holder Pro Rata Amount and (B) the Principal
amount under this Note as of such Installment Date, and (ii) with respect to the
Installment Date that is the Maturity Date, the Principal amount under this Note
as of such Installment Date, in each case, as any such Installment Amount may be
reduced pursuant to the terms of this Note, whether upon conversion, redemption
or otherwise, together with, in each case of clauses (i) and (ii), the sum of
any accrued and unpaid Interest as of such Installment Date under this Note and
accrued and unpaid Late Charges, if any, under this Note as of such Installment
Date. In the event the Holder shall sell or otherwise transfer any portion of
this Note, the transferee shall be allocated a pro rata portion of the each
unpaid Installment Amount hereunder.

     

    (t)       
“Installment Date” means each of the following dates:
(i) March 1, 2010, (ii) April 1, 2010, (iii) May 1, 2010, (iv) June 1, 2010, (v)
July 1, 2010, (vi) August 1, 2010, (vii) September 1, 2010, (viii) October 1,
2010, (ix) November 1, 2010 and (x) the Maturity Date.

     

    (u)       “Interest Rate” means zero percent (0%) per
annum.

     

    (v)     
“Maturity Date” shall mean December 1, 2010;
provided, however, the Maturity Date may be extended at the option of the Holder
(i) in the event that, and for so long as, an Event of Default shall have
occurred and be continuing or any event shall have occurred and be continuing
that with the passage of time and the failure to cure would result in an Event
of Default or (ii) through the date that is twenty (20) Business Days after the
consummation of a Fundamental Transaction in the event that a Fundamental
Transaction is publicly announced or a Fundamental Transaction Notice is
delivered prior to the Maturity Date, provided further that if a Holder elects
to convert some or all of this Note pursuant to Section 3 hereof, and the
Conversion Amount would be limited pursuant to Section 3(d) hereunder, the
Maturity Date shall automatically be extended until such time as such provision
shall not limit the conversion of this Note.

     

    (w)     
“New Subsidiaries” means, as of any date of
determination, any Person in which the Company after the Subscription Date,
directly or indirectly, (i) owns or acquires 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 each of the foregoing, individually, a “New Subsidiary.”

     

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

     

    (y)       “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.


    
      
         


      

      
        31

        
          

        

      

      
         


      

    

     

    (z)       
“Permitted Indebtedness” means (i) total Indebtedness of the
Company and the Subsidiaries (other than as expressly specified in, and
permitted by, clauses (ii) through (v) below) not to exceed $250,000 in the
aggregate outstanding at any time; provided, however, such Indebtedness shall be
made expressly subordinate in right of payment to the Indebtedness evidenced by
the Notes, as reflected in a written agreement acceptable to the Required
Holders and approved by the Required Holders in writing, and which Indebtedness
does not provide at any time for (A) the payment, prepayment, repayment,
repurchase or defeasance, directly or indirectly, of any principal or premium,
if any, thereon until ninety-one (91) days after the Maturity Date or later and
(B) total interest and fees at a rate in excess of the Interest Rate; (ii)
equipment leases and purchase money obligations of the Company not to exceed
$150,000 in the aggregate outstanding at any time; (iii) Indebtedness evidenced
by this Note and the Other Notes; (iv) the unsecured Indebtedness expressly set
forth on Schedule 3(s) to the Securities Purchase Agreement; provided, however,
such Indebtedness shall be made expressly subordinate in right of payment to the
Indebtedness evidenced by the Notes, as reflected in a written agreement
acceptable to the Required Holders and approved by the Required Holders in
writing, and which Indebtedness does not provide at any time for (A) the
payment, prepayment, repayment, repurchase or defeasance, directly or
indirectly, of any principal or premium, if any, thereon until ninety-one (91)
days after the Maturity Date or later and (B) total interest and fees at a rate
in excess of 10%; and (v) Permitted Project Indebtedness.

     

    (aa)     
“Permitted Liens” means (i) any Lien for taxes not yet
due or delinquent or being contested in good faith by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP, (ii)
any statutory Lien arising in the ordinary course of business by operation of
law with respect to a liability that is not yet due or delinquent, (iii) any
Lien created by operation of law, such as materialmen’s liens, mechanics’ liens
and other similar liens, arising in the ordinary course of business with respect
to a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) Liens securing the Company’s
obligations under the Notes; (v) any Lien securing Permitted Senior Indebtedness
and (vi) any Permitted Project Indebtedness Lien.

     

    (bb)     “Permitted Project Indebtedness” means Project Indebtedness consented
to, and approved, in advance by the Holder, which consent and approval shall not
be unreasonably withheld by the Holder.

     

    (cc)     “Permitted Project Indebtedness Lien” means any Lien granted by a Project
Subsidiary to secure specific Permitted Project Indebtedness of such Project
Subsidiary, provided that such Lien is consented to, and approved, in advance by
the Holder, which consent and approval shall not be unreasonably withheld by the
Holder.

     

    (dd)    
“Permitted Senior Indebtedness” means the Indebtedness described in,
and permitted by, clause (ii) of Permitted Indebtedness.


    
      
         


      

      
        32

        
          

        

      

      
         


      

    

     

    (ee)     
“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.

     

    (ff)     
“Pre-Installment Conversion Price” means, with respect to a particular
date of determination, the lower of (i) the Conversion Price then in effect and
(ii) the price which shall be computed as 90% of the quotient of (I) the sum of
each of the VWAPs of the Common Stock for each of the twenty (20) consecutive
Trading Days immediately preceding the delivery or deemed delivery of the
applicable Company Installment Notice divided by (II) twenty (20). All such
determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination or other similar transaction during any such measuring
period.

     

    (gg)    
“Price Failure” means, with respect to a particular
date of determination, that the Pre-Installment Conversion Price (determined
under clause (ii) of the definition thereof and not clause (i) of the definition
thereof) or the Company Conversion Price (determined under clause (ii) of the
definition thereof and not clause (i) of the definition thereof) (as applicable)
is less than $0.75 (as adjusted for stock splits, stock dividends, stock
combinations or other similar transactions).

     

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

     

    (ii)      
“Project Indebtedness” means secured Indebtedness incurred
solely by a Project Subsidiary for the specific purpose of development,
construction and/or commission of the specific wind energy power project of such
Project Subsidiary, which secured Indebtedness is secured solely by, and lent
solely against, such specific project and as to which neither the Company nor
any other Subsidiary is a guarantor or is otherwise responsible or
obligated.

     

    (jj)       
“Project Subsidiary” means a Subsidiary whose sole
purpose is to develop, construct and commission a specific wind energy power
project.

     

    (kk)      “Post-Installment Conversion Shares” means that number of shares of
Common Stock that would be required to be delivered pursuant to Section 8 on an
applicable Installment Date without taking into account the delivery of any
Pre-Installment Conversion Shares.

     

    (11)     “Quarter” means each of: (i) the period
beginning on and including January 1 and ending on and including March 31; (ii)
the period beginning on and including April 1 and ending on and including June
30; (iii) the period beginning on and including July 1 and ending on and
including September 30; and (iv) the period beginning on and including October 1
and ending on and including December 31.

     

    (mm)    “Redemption Notices” means, collectively, the Event of
Default Redemption Notice and the Fundamental Transaction Redemption Notice, and
each of the foregoing, individually, a “Redemption Notice.”


    
      
         


      

      
        33

        
          

        

      

      
         


      

    

     

    (nn)     “Redemption Premium” means (i) in the case of the Events
of Default described in Section 4(a) (other than Sections 4(a)(ix) through
4(a)(xi)), 135% or (ii) in the case of the Events of Default described in
Sections 4(a)(ix) through 4(a)(xi), 100%.

     

    (oo)     “Redemption Prices” means, collectively, the Event of
Default Redemption Price, the Fundamental Transaction Redemption Price and the
Company Installment Redemption Price, and each of the foregoing, individually, a
“Redemption Price.”

     

    (pp)    
“Registration Rights Agreement” means that certain registration
rights agreement, dated as of the Closing Date, by and among the Company and the
initial holders of the Notes relating to, among other things, the registration
of the resale of the Common Stock issuable upon conversion of the Notes and
exercise of the Warrants, as may be amended from time to time.

     

    (qq)    
“Required Holders” means the holders of Notes
representing at least a majority of the aggregate principal amount of the Notes
then outstanding.

    


    (it)      “SEC” means the United States Securities
and Exchange Commission or the successor thereto.

    


    (ss)     
“Securities Purchase Agreement” means that certain securities
purchase agreement, dated as of the Subscription Date, by and among the Company
and the initial holders of the Notes pursuant to which the Company issued the
Notes and Warrants, as may be amended from time to time.

     

    (tt)     
“Security Agreement” means that certain security
agreement, dated as of the Closing Date, by and among the Company, the
Subsidiaries and the initial holders of the Notes, as may be amended from time
to time.

     

    (uu)     “Special Company Conversion Price” means $0.75 (as adjusted for stock
splits, stock dividends, stock combinations or other similar
transactions).

     

    (vv)    
“Subscription Date” means November 23,
2009.

     

    (ww)    “Subsidiaries” means, as of any date of
determination, collectively, all Current Subsidiaries and all New Subsidiaries,
and each of the foregoing, individually, a “Subsidiary.”

     

    (xx)    
 “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.


    
      
         


      

      
        34

        
          

        

      

      
         


      

    

     

    (yy)    
“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.

     

    (zz)     
“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 the 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 23. All such determinations shall be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during such period.

     

    (aaa)    “Volume Failure” means, with respect to a particular
date of determination, the average daily volume (as reported on Bloomberg) of
the Common Stock on the Eligible Market on which the Common Stock is listed or
designated for quotation as of such date of determination over the twenty (20)
consecutive Trading Day period ending on the Trading Day immediately preceding
such date of determination is less than 40,500 shares per day (adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during such period).

     

    (bbb)  
“Warrants” has the meaning ascribed to such
term in the Securities Purchase Agreement, and shall include all warrants issued
in exchange therefor or replacement thereof.


    
      
         


      

      
        35

        
          

        

      

      
         


      

    

     

    29.         DISCLOSURE. Upon
receipt or delivery by the Company of any notice in accordance with the terms of
this Note, unless the Company has in good faith determined that the matters
relating to such notice do not constitute material, non-public information
relating to the Company or any of its Subsidiaries, the Company shall within one
(1) Business Day after any such receipt or delivery publicly disclose such
material, non-public information on a Current Report on Form 8-K or otherwise.
In the event that the Company believes that a notice contains material,
non-public information relating to the Company or any of its Subsidiaries, the
Company so shall indicate to such Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
non-public information relating to the Company or its Subsidiaries. Nothing
contained in this Section 29 shall limit any obligations of the Company, or any
rights of the Holder, under Section 4(i) of the Securities Purchase
Agreement.

     

    [signature page follows]


    
      
         


      

      
        36

        
          

        

      

      
         


      

    

     

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

     

    
      
        
          
            	
                    NACEL
      Energy Corporation

                  
	 
      	 
      
	
                    By: 

                  	
                     

                  
	 
      	
                    Name:
      Murray Fleming

                  
	 
      	
                    Title:
      Director

                  


          

        

      

    


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

     

    EXHIBIT
I

     

    NACEL
ENERGY CORPORATION

    CONVERSION
NOTICE

     

    Reference
is made to the Senior Secured Convertible Note (the “Note”) issued to the undersigned by NACEL
Energy Corporation (the “Company”). In accordance with and pursuant to
the Note, the undersigned hereby elects to convert the Conversion Amount (as
defined in the Note) of the Note indicated below into shares of Common Stock,
$0,001 par value per share (the “Common Stock”),
of the Company, as of the date specified below.

    


    
      
        
          
            
              
                
                  
                    
                      	
                              Date of Conversion:

                            	 
      


                    

                  

                

              

            

          

        

      

    

    
       

      
        
          	
                  Aggregate Conversion Amount to be converted:  

                	  


        

      

       

      Please
confirm the following information: 

       

      
        	
                Conversion
      Price:

              	 
      


      

       

    

    
      
        
          
            
              	
                      Number of shares of Common Stock to be issued:  

                    	 
      


            

          

        

      

    

     

    Please
issue the Common Stock into which the Note is being converted in the following
name and to the following address:

     

    
      
        
          
            
              	
                      Issue to: 

                    	 
      
	 	 
	 	 
	 	 
	 	 


            

          

        

      

    

    


    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  	
                                                          Facsimile Number:

                                                        	 
      


                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                           

                          
                            
                              
                                	
                                        Authorization:

                                      	 


                              

                            

                          

                           

                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          	
                                                  By:

                                                	 
      


                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      	
              Title:

            	 


    

     

    
      
        
          	
                  Dated:

                	 
      


        

      

    

    


    
      
        
          	
                  Account Number: 

                	 
      
	
                  (if
      electronic book entry
transfer)

                


        

      

    

    


    
      
        
          
            	
                    Transaction Code Number: 

                  	 
      
	
                    (if
      electronic book entry
transfer)

                  


          

        

      

    

    
      
        
          
            
              	
                      Installment Amount(s) to be reduced (and 

                    	  
	
                      corresponding Installment Date(s)) and amount

                      of reduction:

                    	 


            

          

        

      

    


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

     

    ACKNOWLEDGMENT

     

    The
Company hereby acknowledges this Conversion 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: