XcelMobility, Inc.: Exhibit 4.2 - Filed by newsfilecorp.com





Execution Version 

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

XCELMOBILITY,
INC. 

WARRANT TO PURCHASE
COMMON STOCK 

Warrant No.: 01 
Date of Issuance: May 30, 2014
(“Issuance Date”) 


      
     XcelMobility, Inc., a Nevada corporation (the
“Company”), hereby certifies that, for good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, HANOVER HOLDINGS
I, LLC, the registered holder hereof or its permitted assigns (the
“Holder”), is entitled, subject to the terms set forth below, to purchase
from the Company, at the Exercise Price (as defined below) then in effect, upon
exercise of this Warrant to Purchase Common Stock (including any Warrants to
Purchase Common Stock issued in exchange, transfer or replacement hereof, the
“Warrant”), at any time or times on or after the Issuance Date, but not
after 11:59 p.m., New York time, on the Expiration Date (as defined below),
3,716,091 (subject to adjustment as provided herein) fully paid and
non-assessable shares of Common Stock (as defined below) (the “Warrant
Shares”). Except as otherwise defined herein, capitalized terms in this
Warrant shall have the meanings set forth in Section 16. This Warrant is issued
pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of
May 30, 2014, by and among the Company and the investor referred to therein (the
“Securities Purchase Agreement”). 




1.        EXERCISE OF
WARRANT. 

            (a)        Mechanics of Exercise. Subject to the terms and conditions hereof
  (including, without limitation, the limitations set forth in Section 1(f)), this
  Warrant may be exercised by the Holder on any day after the Issuance Date (each,
  an “Exercise Date”), in whole or in part, by delivery (whether via e-mail, facsimile or otherwise) of a
  written notice, in the form attached hereto as Exhibit A (the
  “Exercise Notice”), of the Holder’s election to exercise this Warrant.
  Within five (5) Trading Days of the receipt of the Exercise Notice, the Company
  shall notify the Holder by delivery (whether via e-mail, facsimile or otherwise)
  of a written notice of whether the Company, in its sole discretion, elects to
  accept or decline any specific Exercise Notice. If the Company elects to decline
  the Exercise Notice pursuant to this Section 1(a) and so elects to decline the
  Exercise Notice, such Exercise Notice shall be deemed null and void and have no
  further effect. If the Company elects to accept the Exercise Notice, then within
  one (1) Trading Day following written acceptance as aforesaid, the Holder shall
  deliver payment to the Company of an amount equal to the Exercise Price in
  effect on the date of such exercise multiplied by the number of Warrant Shares
  as to which this Warrant was so exercised (the “Aggregate Exercise
    Price”) in cash or via wire transfer of immediately available funds;
  provided, however, in no event can the Aggregate Exercise Price with
  respect to a specific Exercise Notice result in less than $50,000 in gross
  proceeds to the Company. The Holder shall not be required to deliver the
  original of this Warrant in order to effect an exercise hereunder. Execution and
  delivery of an Exercise Notice with respect to less than all of the Warrant
  Shares shall have the same effect as cancellation of the original of this
  Warrant and issuance of a new Warrant evidencing the right to purchase the
  remaining number of Warrant Shares. Execution and delivery of an Exercise Notice
  for all of the then-remaining Warrant Shares shall have the same effect as
  cancellation of the original of this Warrant after delivery of the Warrant
  Shares in accordance with the terms hereof. On or before the first
  (1st) Trading Day following the date on which the Company has
  received an Exercise Notice, the Company shall transmit by e-mail or facsimile
  an acknowledgment of confirmation of receipt of such Exercise Notice, in the
  form attached hereto as Exhibit B, the Company’s transfer agent (the
  “Transfer Agent”). On or before the third (3rd) Trading Day
  following the date on which the Company has received such Exercise Notice, the
  Company shall (X) provided that the Transfer Agent is participating in The
  Depository Trust Company (“DTC”) Fast Automated Securities Transfer
  Program, upon the request of the Holder, credit such aggregate number of shares
  of Common Stock to which the Holder is entitled pursuant to such exercise to the
  Holder’s or its designee’s balance account with DTC through its Deposit/
  Withdrawal at Custodian system, or (Y) if the Transfer Agent is not
  participating in the DTC Fast Automated Securities Transfer Program, issue and
  deliver to the Holder or, at the Holder’s instruction pursuant to the Exercise
  Notice, the Holder’s agent or designee, in each case, sent by reputable
  overnight courier to the address as specified in the applicable Exercise Notice,
  a certificate, registered in the Company’s share register in the name of the
  Holder or its designee (as indicated in the applicable Exercise Notice), for the
  number of shares of Common Stock to which the Holder is entitled pursuant to
  such exercise. Upon delivery of an Exercise Notice, the Holder shall be deemed
  for all corporate purposes to have become the holder of record of the Warrant
  Shares with respect to which this Warrant has been exercised, irrespective of
  the date such Warrant Shares are credited to the Holder’s DTC account or the
  date of delivery of the certificates evidencing such Warrant Shares (as the case
  may be). If this Warrant is submitted in connection with any exercise pursuant
  to this Section 1(a) and the number of Warrant Shares represented by this
  Warrant submitted for exercise is greater than the number of Warrant Shares
  being acquired upon an exercise, then, at the request of the Holder, the Company
  shall as soon as practicable and in no event later than three (3) Business Days
  after any exercise and at its own expense, issue and deliver to the Holder (or
  its designee) a new Warrant (in accordance with Section 7(d)) representing the
  right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the
number of Warrant Shares with respect to which this Warrant is exercised. No
fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall be
rounded up to the nearest whole number. The Company shall pay any and all taxes
and fees which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.

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            (b)       
  Exercise Price. For purposes of this Warrant, “Exercise Price”
means, for any date of determination, the lesser of (A) the product of (x) the
arithmetic average of the lowest three (3) VWAPs of the Common Stock during the
ten (10) consecutive Trading Days ending and including the Trading Day
immediately preceding the applicable Exercise Date and (y) sixty-five percent
(65%), and (B) $0.12 (as adjusted for any stock split, stock dividend, stock
combination or other similar transaction). All such determinations to be
appropriately adjusted for any stock split, stock dividend, stock combination or
other similar transaction during any such measuring period. 

            (c)       
Company’s Failure to Timely Deliver Securities. If the Company shall
fail, for any reason or for no reason, to issue to the Holder within three (3)
Trading Days after receipt of the applicable Exercise Notice (provided that if
the Company has the right to elect to decline the Exercise Notice pursuant to
Section 1(a), the Company has elected to accept the Exercise Notice), a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company’s share
register or to credit the Holder’s balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise of this Warrant (as the case may be), then, in addition to all other
remedies available to the Holder, the Company shall pay in cash to the Holder on
each day after such third (3rd) Trading Day that the issuance of such
shares of Common Stock is not timely effected an amount equal to 2% of the
product of (A) the aggregate number of shares of Common Stock not issued to the
Holder on a timely basis and to which the Holder is entitled and (B) the Closing
Sale Price of the Common Stock on the Trading Day immediately preceding the last
possible date on which the Company could have issued such shares of Common Stock
to the Holder without violating Section 1(a). In addition to the foregoing, if
within three (3) Trading Days after the Company’s receipt of the applicable
Exercise Notice, the Company shall fail to issue and deliver a certificate to
the Holder and register such shares of Common Stock on the Company’s share
register or credit the Holder’s balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise hereunder (as the case may be), and if on or after such third
(3rd) Trading Day the Holder (or any other Person in respect, or on
behalf, of 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 all
or any portion of the number of shares of Common Stock, or a sale of a number of
shares of Common Stock equal to all or any portion of the number of shares of
Common Stock, issuable upon such exercise that the Holder so 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 (including, without limitation, by any other Person in
respect, or on behalf, of the Holder) (the “Buy-In Price”), at which
point the Company’s obligation to so issue and deliver such certificate or credit the Holder’s
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder’s exercise hereunder (as the case may be)
(and to issue such shares of Common Stock) shall terminate, or (ii) promptly
honor its obligation to so issue and deliver to the Holder a certificate or
certificates representing such shares of Common Stock or credit the Holder’s
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder’s exercise hereunder (as the case may be) and
pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock multiplied
by (B) the lowest Closing Sale Price of the Common Stock on any Trading Day
during the period commencing on the date of the applicable Exercise Notice and
ending on the date of such issuance and payment under this clause (ii). 

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(d)        Reserved.

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

            (f)       
Limitations on Exercises. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant shall not be exercisable by the Holder
hereof to the extent (but only to the extent) that the Holder or any of its
affiliates would beneficially own in excess of 4.99% (the “Maximum
Percentage”) of the Common Stock. To the extent the above limitation
applies, the determination of whether this Warrant shall be exercisable
(vis-à-vis other convertible, exercisable or exchangeable securities owned by
the Holder or any of its affiliates) and of which such securities shall be
exercisable (as among all such securities owned by the Holder) shall, subject to
such Maximum Percentage limitation, be determined on the basis of the first
submission to the Company for conversion, exercise or exchange (as the case may
be). No prior inability to exercise this Warrant pursuant to this paragraph
shall have any effect on the applicability of the provisions of this paragraph
with respect to any subsequent determination of exercisability. For the purposes
of this paragraph, beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(d) of the 1934 Act
(as defined in the Securities Purchase Agreement) and the rules and regulations
promulgated thereunder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this paragraph to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Maximum Percentage limitation. The
limitations contained in this paragraph shall apply to a successor Holder of
this Warrant. The holders of Common Stock shall be third party beneficiaries of
this paragraph and the Company may not amend or waive this paragraph without the
consent of holders of a majority of its Common Stock. For any reason at any
time, upon the written or oral request of the Holder, the Company shall within
one (1) Business Day confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding, including by virtue of any prior
conversion or exercise of convertible or exercisable securities into Common
Stock, including, without limitation, pursuant to this Warrant or securities
issued pursuant to the Securities Purchase Agreement. At any time the Holder may
increase or decrease the Maximum Percentage to any other
percentage not in excess of 9.99% as specified in a written notice by the Holder
to the Company (subject to the Company’s consent to any such increase, not to be
unreasonably withheld); provided that (i) any such increase will not be
effective until the 61st day after such notice is delivered to the Company, and
(ii) any such increase or decrease will apply only to the Holder sending such
notice. 

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            (g)       
Insufficient Authorized Shares. The Company shall at all times keep
reserved for issuance under this Warrant a number of shares of Common Stock as
shall be necessary to satisfy the Company’s obligation to issue shares of Common
Stock hereunder (without regard to any limitation otherwise contained herein
with respect to the number of shares of Common Stock that may be acquirable upon
exercise of this Warrant). If, notwithstanding the foregoing, and not in
limitation thereof, at any time while this Warrant remains outstanding the
Company does not have a sufficient number of authorized and unreserved shares of
Common Stock to satisfy its obligation to reserve for issuance upon exercise of
this Warrant at least a number of shares of Common Stock equal to the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of this Warrant in full (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 this Warrant. 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. In the event that the Company is prohibited from issuing
shares of Common Stock upon any exercise due to the failure by the Company to
have sufficient shares of Common Stock available out of the authorized but
unissued shares of Common Stock (such unavailable number of shares of Common
Stock, the “Authorization Failure Shares”), in lieu of delivering
such Authorization Failure Shares to the Holder, the Company shall pay cash in
exchange for the redemption of such portion of this Warrant exercisable into
such Authorized Failure Shares at a price equal to the sum of (i) the product of
(x) such number of Authorization Failure Shares and (y) the greatest Closing
Sale Price of the Common Stock on any Trading Day during the period commencing
on the date the Holder delivers the applicable Exercise Notice with respect to
such Authorization Failure Shares to the Company and ending on the date of such
issuance and payment under this Section 1(g) and (ii) to the extent 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 Authorization Failure Shares,
any brokerage commissions and other out-of-pocket expenses, if any, of the
Holder incurred in connection therewith. Nothing contained in this Section 1(g)
shall limit any obligations of the Company under any provision of the Securities
Purchase Agreement 

2.        ADJUSTMENT OF
NUMBER OF WARRANT SHARES. If at any time the Share Amount of this Warrant is
less than the Required Share Amount of this Warrant, the number of Warrant
Shares issuable upon exercise of this Warrant (without regards to any
limitations on exercise contained herein) shall automatically be increased by
such number of Warrant Shares equal to the difference of (x) the Required Share Amount, less (y) the
Share Amount (provided, that no adjustment shall be made if such adjustment
would result in a decrease in the number of Warrant Shares issuable upon
exercise of this Warrant). 

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

4.        PURCHASE
RIGHTS; FUNDAMENTAL TRANSACTIONS. 

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

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

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            (c)       
Black Scholes Value. Notwithstanding the foregoing and the provisions of
Section 4(b) above, at the request of the Holder delivered at any time
commencing on the earliest to occur of (x) the public disclosure of any
Fundamental Transaction, (y) the consummation of any Fundamental Transaction and
(z) the Holder first becoming aware of any Fundamental Transaction through the
date that is ninety (90) days after the public disclosure of the consummation of
such Fundamental Transaction by the Company pursuant to a Current Report on Form
8-K filed with the SEC, the Company or the Successor Entity (as the case may be)
shall purchase this Warrant from the Holder on the date of such request by
paying to the Holder cash in an amount equal to the Black Scholes Value. 

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

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

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

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7.        REISSUANCE OF
WARRANTS. 

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

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

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

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

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

9




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

10.      SEVERABILITY. If
any provision of this Warrant is prohibited by law or otherwise determined to be
invalid or unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable,
and the invalidity or unenforceability of such provision shall not affect the
validity of the remaining provisions of this Warrant so long as this Warrant as
so modified continues to express, without material change, the original
intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties. The parties will endeavor in good faith negotiations
to replace the prohibited, invalid or unenforceable provision(s) with a valid
provision(s), the effect of which comes as close as possible to that of the
prohibited, invalid or unenforceable provision(s). 

11.       GOVERNING LAW.
This Warrant shall be governed by and construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State
of Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the State of Illinois. The Company
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in Chicago, Illinois, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. Nothing contained
herein shall (i) 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 or to enforce a judgment or
other court ruling in favor of the Holder or (ii) limit, or be deemed to limit,
any provision of Section 13. 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 WARRANT OR
ANY TRANSACTION CONTEMPLATED HEREBY. 

10




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

13.      DISPUTE
RESOLUTION.

            (a)       
Disputes Over the Exercise Price, Closing Sale Price, Bid Price, Black
Scholes Value or Fair Market Value.

            (i)       
In the case of a dispute relating to the Exercise Price, the Closing Sale Price,
the Bid Price, Black Scholes Value or fair market value (as the case may be)
(including, without limitation, a dispute relating to the determination of any
of the foregoing), the Company or the Holder (as the case may be) shall submit
the dispute via e-mail or facsimile (I) within twenty (20) Business Days after
delivery 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. If the Holder and the Company are unable to resolve such dispute
relating to the Exercise Price, the Closing Sale Price, the Bid Price, Black
Scholes Value or fair market value (as the case may be) by 5:00 p.m. (New York
time) on the third (3rd) Business Day following such delivery by the
Company or the Holder (as the case may be) of such dispute to the Company or the
Holder (as the case may be), then the Holder shall select an independent,
reputable investment bank to resolve such dispute. 

11




            (ii)       
The Holder and the Company shall each deliver to such investment bank (x) a copy
of the initial dispute submission so delivered in accordance with the first sentence of this Section 13(a) and (y)
written documentation supporting its position with respect to such dispute, in
each case, no later than 5:00 p.m. (New York time) by the fifth (5th)
Business Day immediately following the date on which the Holder selected such
investment bank (the “Dispute Submission Deadline”) (the documents
referred to in the immediately preceding clauses (x) and (y) are collectively
referred to herein as the “Required Dispute Documentation”) (it
being understood and agreed that if either the Holder or the Company fails to so
deliver all of the Required Dispute Documentation by the Dispute Submission
Deadline, then the party who fails to so submit all of the Required Dispute
Documentation shall no longer be entitled to (and hereby waives its right to)
deliver or submit any written documentation or other support to such investment
bank with respect to such dispute and such investment bank shall resolve such
dispute based solely on the Required Dispute Documentation that was delivered to
such investment bank prior to the Dispute Submission Deadline). Unless otherwise
agreed to in writing by both the Company and the Holder or otherwise requested
by such investment bank, neither the Company nor the Holder shall be entitled to
deliver or submit any written documentation or other support to such investment
bank in connection with such dispute (other than the Required Dispute
Documentation). 

            (iii)       
The Company and the Holder shall cause such investment bank to determine the
resolution of such dispute and notify the Company and the Holder of such
resolution no later than ten (10) Business Days immediately following the
Dispute Submission Deadline. The fees and expenses of such investment bank shall
be borne solely by the Company, and such investment bank’s resolution of such
dispute shall be final and binding upon all parties absent manifest error.

           
(b)        Disputes Over Arithmetic
Calculation of Warrant Shares.

            (i)       
In the case of a dispute as to the arithmetic calculation of the number of
Warrant Shares, the Company or the Holder (as the case may be) shall submit the
disputed arithmetic calculation via e-mail or facsimile (i) within twenty (20)
Business Days after delivery 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. If the Holder and the Company are
unable to resolve such disputed arithmetic calculation of the number of Warrant
Shares by 5:00 p.m. (New York time) on the third (3rd) Business Day
following such delivery by the Company or the Holder (as the case may be) of
such disputed arithmetic calculation of the number of Warrant Shares to the
Company or the Holder (as the case may be), then the Holder shall select an
independent, reputable accountant or accounting firm to perform such disputed
arithmetic calculation of the number of Warrant Shares. 

            (ii)       
The Holder and the Company shall each deliver to such accountant or accounting
firm (as the case may be) (x) a copy of the initial dispute submission so
delivered in accordance with the first sentence of this Section 13(b) and (y)
written documentation supporting its position with respect to such disputed
arithmetic calculation of the number of Warrant Shares, in each case, no later
than 5:00 p.m. (New York time) by the fifth (5th) Business Day
immediately following the date on which the Holder selected such accountant or accounting
firm (as the case may be) (the “Submission Deadline”) (the documents
referred to in the immediately preceding clauses (x) and (y) are collectively
referred to herein as the “Required Documentation”) (it being
understood and agreed that if either the Holder or the Company fails to so
deliver all of the Required Documentation by the Submission Deadline, then the
party who fails to so submit all of the Required Documentation shall no longer
be entitled to (and hereby waives its right to) deliver or submit any written
documentation or other support to such accountant or accounting firm (as the
case may be) with respect to such disputed arithmetic calculation of the number
of Warrant Shares and such accountant or accounting firm (as the case may be)
shall perform such disputed arithmetic calculation of the number of Warrant
Shares based solely on the Required Documentation that was delivered to such
accountant or accounting firm (as the case may be) prior to the Submission
Deadline). Unless otherwise agreed to in writing by both the Company and the
Holder or otherwise requested by such accountant or accounting firm (as the case
may be), neither the Company nor the Holder shall be entitled to deliver or
submit any written documentation or other support to such accountant or
accounting firm (as the case may be) in connection with such disputed arithmetic
calculation of the number of Warrant Shares (other than the Required
Documentation). 

12




            (iii)     
The Company and the Holder shall cause such accountant or accounting firm (as
the case may be) to perform such disputed arithmetic calculation and notify the
Company and the Holder of the results no later than ten (10) Business Days
immediately following the Submission Deadline. The fees and expenses of such
accountant or accounting firm (as the case may be) shall be borne solely by the
Company, and such accountant’s or accounting firm’s (as the case may be)
arithmetic calculation shall be final and binding upon all parties absent
manifest error. 

            (c)       
Miscellaneous. The Company expressly acknowledges and agrees that (i)
this Section 13 constitutes an agreement to arbitrate between the Company and
the Holder (and constitutes an arbitration agreement) under the Illinois Uniform
Arbitration Act, as amended, (ii) the terms of this Warrant and each other
applicable Transaction Document shall serve as the basis for the selected
investment bank’s resolution of the applicable dispute, such investment bank
shall be entitled (and is hereby expressly authorized) to make all findings,
determinations and the like that such investment bank determines are required to
be made by such investment bank in connection with its resolution of such
dispute and in resolving such dispute such investment bank shall apply such
findings, determinations and the like to the terms of this Warrant and any other
applicable Transaction Documents, (iii) the terms of this Warrant and each other
applicable Transaction Document shall serve as the basis for the selected
accountant’s or accounting firm’s performance of the applicable arithmetic
calculation of the number of Warrant Shares, (iv) for clarification purposes and
without implication that the contrary would otherwise be true, disputes relating
to matters described in Section 13(a) shall be governed by Section 13(a) and not
by Section 13(b), (v) the Holder (and only the Holder), in its sole discretion,
shall have the right to submit any dispute described in this Section 13 to any
state or federal court sitting in Chicago, Illinois in lieu of utilizing the
procedures set forth in this Section 13 and (vi) nothing in this Section 13
shall limit the Holder from obtaining any injunctive relief or other equitable
remedies (including, without limitation, with respect to any matters described
in Section 13(a) or Section 13(b)). 

13




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

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

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

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

14




            (b)       
“Black Scholes Value” means the value of the unexercised portion of this
Warrant remaining on the date of the Holder’s request pursuant to Section 4(c),
which value is calculated using the Black Scholes Option Pricing Model obtained
from the “OV” function on Bloomberg utilizing (i) an underlying price per share
equal to the greatest of (1) the highest Closing Sale Price of the Common Stock
during the period beginning on the Trading Day immediately preceding the
earliest to occur of (x) the public disclosure of the applicable Fundamental
Transaction, (y) the consummation of the applicable Fundamental Transaction and
(z) the date on which the Holder first became aware of the applicable
Fundamental Transaction and ending on the later to occur of (A) the Trading Day
of the Holder’s request pursuant to Section 4(c) and (B) the Trading Day on
which the Company makes payment in full to the Holder pursuant to Section 4(c),
(2) the sum of the price per share being offered in cash in the applicable
Fundamental Transaction (if any) plus the value of the non-cash consideration
being offered in the applicable Fundamental Transaction (if any) and (3) without
limiting clauses (1) and (2) above, if the applicable Fundamental Transaction
results from a sale of all or substantially all of the assets of the Company or
any of its Subsidiaries, a price per share equal to the quotient of (A) the sum
of (X) the total consideration (including, without limitation, cash and non-cash
consideration, the assumption of indebtedness and other amounts, earn-outs and
contingent consideration) offered in the applicable Fundament Transaction plus
(Y) the aggregate amount of cash then held by the Company and its Subsidiaries
divided by (B) the total number of shares of Common Stock outstanding on the
earlier to occur of the Trading Day of the Holder’s request pursuant to Section
4(c) and the date of consummation of the applicable Fundamental Transaction,
(ii) a strike price equal to the Exercise Price in effect on the date of the
Holder’s request pursuant to Section 4(c), (iii) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the greater of (1)
the remaining term of this Warrant as of the date of the Holder’s request
pursuant to Section 4(c) and (2) the remaining term of this Warrant as of the
date of consummation of the applicable Fundamental Transaction or as of the date
of the Holder’s request pursuant to Section 4(c) if such request is prior to the
date of the consummation of the applicable Fundamental Transaction and (iv) an
expected volatility equal to the greater of 100% and the 100 day volatility
obtained from the HVT function on Bloomberg (determined utilizing a 365 day
annualization factor) as of the Trading Day immediately following the earliest
to occur of (x) the public disclosure of the applicable Fundamental Transaction,
(y) the consummation of the applicable Fundamental Transaction and (z) the date
on which the Holder first became aware of the applicable Fundamental
Transaction. 

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

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

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

15




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

            (g)       
“Convertible Securities” means any stock, note, debenture or other
security (other than Options) that is, or may become, at any time and under any
circumstances, directly or indirectly, convertible into, exercisable or
exchangeable for, or which otherwise entitles the holder thereof to acquire, any
shares of Common Stock. 

            (h)       
“Eligible Market” means the OTC Bulletin Board, The NASDAQ Global Market,
The NASDAQ Global Select Market, The NASDAQ Capital Market, the New York Stock
Exchange, NYSE Arca, the NYSE MKT, the OTCQX Marketplace or the OTCQB
Marketplace operated by OTC Markets Group Inc. (or any successor to any of the
foregoing) 

           
(i)        “Equity Conditions” means:
(i) on each day during the period beginning one month prior to the applicable
date of determination and ending on and including the applicable date of
determination either (x) one or more Registration Statements filed pursuant to
the Registration Rights Agreement shall be effective and the prospectus
contained therein shall be available for the resale by the Holder of all of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement and there shall not have been during such period any Grace Periods (as
defined in the Registration Rights Agreement) or (y) all Registrable Securities
shall be eligible for sale without restriction under Rule 144 (as defined in the
Securities Purchase Agreement) (including, without limitation, volume
restrictions) and without the need for current public information required by
Rule 144(c)(1) (or Rule 144(i)(2), if applicable) and without the need for
registration under any applicable federal or state securities laws (in each
case, disregarding any limitation on conversion of the Notes 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 be pending or have been threatened either (A) in writing by such Eligible
Market or (B) by falling below the minimum listing maintenance requirements of
the Eligible Market on which the Common Stock is then listed or designated for
quotation (as applicable); (iii) on each day during the Equity Conditions
Measuring Period, the Company shall have delivered all shares of Common Stock
issuable upon exercise of this Warrant on a timely basis as set forth in Section
1(a) hereof and all other shares of capital stock required to be delivered by
the Company on a timely basis as set forth in the other Transaction Documents;
(iv) any shares of Common Stock to be issued in connection with the event
requiring determination may be issued in full without violating Section 1(f)
hereof; (v) any shares of Common Stock to be issued in connection with the event
requiring determination may be issued in full without violating the rules or
regulations of the Eligible Market on which the Common Stock is then listed or
designated for quotation (as applicable); (vi) on each day during the Equity
Conditions Measuring Period, no public announcement of a pending, proposed or
intended Fundamental Transaction shall have occurred which has not been
abandoned, terminated or consummated; (vii) the Company shall have no knowledge
of any fact that would reasonably be expected to cause (1) any Registration
Statement 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 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; and (ix) on each day during the
Equity Conditions Measuring Period, the Company otherwise shall have been in
compliance with each, and shall not have breached any, provision, covenant,
representation or warranty of any Transaction Document. 

16




            (j)       
“Equity Conditions Failure” means, with respect to a particular date of
determination, that on any day during the period commencing twenty (20) Trading
Days immediately prior to such date of determination, the Equity Conditions have
not been satisfied (or waived in writing by the Holder). 

            (k)       
“Expiration Date” means the date that is the first (1st)
anniversary of the Issuance Date or, if such date falls on a day other than a
Business Day or on which trading does not take place on the Principal Market (a
“Holiday”), the next date that is not a Holiday. 

            (l)       
“Fundamental Transaction” means that (i) the Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
(1) consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of its respective properties or assets to any other Person, or (3) allow any
other Person to make a purchase, tender or exchange offer that is accepted by
the holders of more than 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company 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 any
other Person whereby such other Person acquires more than 50% of the outstanding
shares of Voting Stock of the Company (not including any shares of Voting Stock
of the Company 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 (ii) any “person”
or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of
the 1934 Act and the rules and regulations promulgated thereunder) is or shall
become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding Voting Stock of the Company. 

17




            (m)       
“Maximum Forced Exercise Amount” means, as of any given date, the lesser
of (x) subject to Section 1(f), the number of Warrant Shares issuable upon
exercise of this Warrant as of such given date and (y) 500% of the average
trading volume (as reported on Bloomberg) of the Common Stock on the Principal
Market on each of the ten (10) consecutive Trading Days ending and including the
Trading Day immediately prior to such given date. 

            (n)       
“Notes” shall have the meaning as set forth in the Securities Purchase
Agreement. 

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

            (p)       
“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. 

            (q)       
“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. 

            (r)       
“Principal Market” means, as of any date of determination, the principal
securities exchange or securities market on which the Common Stock is then
traded.

            (s)       
“Required Share Amount” means, as of any given time, the quotient
of (x) $150,000 and (y) the Exercise Price in effect as of such given time. 

            (t)       
“Share Amount” means, as of any given time, the sum of (x) the number of
Warrant Shares issuable upon exercise of this Warrant as of such given time
(without regard to any limitations on exercise set forth herein) and (y) the
number of Warrant Shares upon exercise of this Warrant prior to such given time.


            (u)       
“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. 

18




            (v)       
“Trading Day” means, as applicable, (x) with respect to all price
determinations relating to the Common Stock, 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 or (y) with respect to all
determinations other than price determinations relating to the Common Stock, any
day on which The New York Stock Exchange (or any successor thereto) is open for
trading of securities. 

            (w)       
“Voting Stock” of a Person means capital stock of such Person of the
class or classes pursuant to which the holders thereof have the general voting
power to elect, or the general power to appoint, at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not at the time capital stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency). 

17.      FORCED EXERCISE.

            (a)       
General. If at any time after the date hereof (i) the Closing Bid Price
of the Common Stock is equal to or greater than 140% of the Exercise Price (as
adjusted for stock splits, stock combinations or other similar transaction) for
a period of thirty (30) consecutive Trading Days (each thirty (30) consecutive
Trading Days on which the condition in this clause (i) is satisfied being
referred to herein as a “Measuring Period”), (ii) no Equity Conditions
Failure shall have occurred or be continuing, and (iii) the aggregate dollar
trading volume (as reported on Bloomberg) of the Common Stock on the applicable
Eligible Market for each Trading Day during such Measuring Period exceeds
$3,000 per day (collectively, the “Forced Exercise Conditions”, and each
date in which all the Forced Exercise Conditions are met, a “Forced Exercise
Eligibility Date”), then the Company shall have the right, exercisable on a
Forced Exercise Eligibility Date, to require the Holder to exercise all, or any
part, of this Warrant (up to the Maximum Forced Exercise Amount of Warrant
Shares as of the applicable Forced Exercise Notice Date (as defined below)) in
accordance with Section 1 hereof (the “Forced Exercise”) at the Exercise
Price in effect as of the applicable Forced Exercise Date (as defined below).
Notwithstanding anything herein to the contrary, the Company shall not be
permitted to effect a Forced Exercise if, after giving effect to such Forced
Exercise, the Company shall have received more than $150,000 in cash, in the
aggregate, from one or more exercises of this Warrant. 

19




            (b)        Mechanics. On any Forced Exercise Eligibility Date, the Company may
exercise its right to require a Forced Exercise by delivering a written notice
thereof by facsimile and e-mail to the Holder (each, a “Forced Exercise
Notice” and the date the Holder receives any such notice by facsimile is
referred to as a “Forced Exercise Notice Date”). Except as set forth
below, each Forced Exercise Notice shall be irrevocable. Each Forced Exercise
Notice shall (i) state that the Company is electing to effect a Forced Exercise,
(ii) state the proposed date of such Forced Exercise (the “Forced Exercise
Date”), which shall be no less than three (3) Trading Days after such Forced Exercise Notice Date, no more than ten
(10) Trading Days after such Forced Exercise Notice Date and no less than ten
(10) Trading Days after any prior Forced Exercise Date, (ii) state the number of
Warrant Shares to be exercised by the Holder on such Forced Exercise Date
(subject to any adjustments thereto pursuant to Section 2 that may occur prior
to such Forced Exercise Date); provided, that such number of Warrant Shares
shall not exceed the Maximum Forced Exercise Amount as of such Forced Exercise
Notice Date, and (iv) contain a certification from an officer or director of the
Company that the Forced Exercise Conditions shall have been satisfied as of the
Forced Exercise Notice Date. On the Forced Exercise Date, the mechanics of
exercise set forth in Section 1 shall apply, to the extent applicable, as if the
Company had received from the Holder on the Forced Exercise Date an Exercise
Notice with respect to the number of Warrant Shares subject to the Forced
Exercise as set forth in such Forced Exercise Notice. If the Company fails to
meet any of the Forced Exercise Conditions during the period commencing on the
applicable Forced Exercise Notice Date through and including the applicable
Forced Exercise Date, the Company shall deliver a written notice to the Holder
of such failure and, unless such failure is waived by the Holder, such Forced
Exercise Notice shall be null and void and the Company shall not be permitted to
effect such Forced Exercise hereunder. 

[signature page follows]

20




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

XCELMOBILITY, INC. 

 

By: _________________________________
      
Name:
       Title: 





     EXHIBIT A 

EXERCISE NOTICE 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK 


XCELMOBILITY,
INC. 

            The
undersigned holder hereby exercises the right to purchase _________________of
the shares of Common Stock (“Warrant Shares”) of XcelMobility, Inc., a
Nevada corporation (the “Company”), evidenced by Warrant No. 01 (the
“Warrant”). Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Warrant. 

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

	 	__________	a “Cash Exercise” with respect to
      _______________Warrant Shares; and/or 
	 	 	  
	 	__________	a “Cashless Exercise” with respect to
      ______________Warrant Shares. 


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

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


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

[  
]                   Check here if requesting
delivery as a certificate to the following name and to the following address:


	 	Issue to: 	 
	 	 	 
	 	 	 




	 	[   ]	Check here if requesting delivery by
      Deposit/Withdrawal at Custodian as follows: 







	 	DTC Participant: 	 
	 	 	 
	 	DTC Number: 	 
	 	 	 
	 	Account Number: 	 


Date: _______________ __, ______

 

_____________________________________
Name of Registered
Holder 


 

By:     
________________________________
           
Name: 
           
Title: 





     EXHIBIT B 

ACKNOWLEDGMENT 

         
  The Company hereby acknowledges this Exercise Notice and hereby
directs ______________ to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated _________, 20__,
from the Company and acknowledged and agreed to by _______________. 

XCELMOBILITY, INC. 

 

By: 
_________________________________
        
Name:
         Title: