Document:

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

       

      NACEL
ENERGY CORPORATION

       

      Warrant
To Purchase Common Stock

       

      Series C
Warrant No.:                                             

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

      Date of
3(a)(9) Exchange: April 23, 2010

       

      NACEL
Energy Corporation, a Wyoming corporation (the “Company”), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, IROQUOIS MASTER FUND LTD., the registered holder hereof
or its permitted assigns (the “Holder”), is entitled, subject
to the terms set forth below, to purchase from the Company, at the Exercise
Price (as defined below) then in effect, upon exercise of this Warrant to
Purchase Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “Warrant”), at any time or
times on or after the Issuance Date, but not after 11:59 p.m., New York time, on
the Expiration Date (as defined below), 3,750,000 (subject to adjustment as
provided herein) fully paid and nonassessable shares of Common Stock (as defined
below) (the “Warrant Shares”). Except as
otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 16. This Warrant is one of the Warrants to
Purchase Common Stock (the “SPA
Warrants”) issued pursuant to Section 1 of that certain Securities
Purchase Agreement, dated as of November 23, 2009, by and among the Company and
the investors (the “Buyers”) referred to therein
(the “Securities Purchase
Agreement”).

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	
                1.

              	
                EXERCISE OF
      WARRANT.

              

      

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

       

      (b)           Exercise
Price. For
purposes of this Warrant, “Exercise Price” means $0.30,
subject to adjustment as provided herein.

      
        
           

        

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

       

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

       

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

       B

       

      
        
          
          

        

        
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      For purposes of the foregoing
formula:

       

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

       

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

       

      
        	
                 
      

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

              

      

       

      (e)           Disputes.  In
the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the number of Warrant Shares to be issued pursuant to
the terms hereof (including, without limitation, under Section 1(h)), the
Company shall promptly issue to the Holder the number of Warrant Shares that are
not disputed and resolve such dispute in accordance with Section
13.

       

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

      
        
           

        

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

       

      (h)           Issuance
Limit.
Notwithstanding anything to the contrary contained in this Warrant
(but subject to Section 1(f)), the maximum number of Warrant Shares for which
this Warrant may be exercised at any specific time by the Holder shall be equal
to the quotient of (i) the Current Available Amount as of such time over (ii)
the Exercise Price then in effect as of such time. The foregoing determination
shall be made upon each receipt of an Exercise Notice hereunder and no inability
to exercise as of any specific time as a result of this Section 1(h) shall
affect any future determination of exercisability as of any other time. In the
event that the Holder shall sell or otherwise transfer all or any portion of
this Warrant, the Company’s board of directors shall in good faith make
equitable adjustments with respect to the Current Available Amount (and the
components thereof) to properly give effect to such sale of transfer, provided
further that if the Holder does not accept such adjustments, 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.

       

      
        
          
          

        

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

       

      (a)           Stock Dividends and
Splits.  Without
limiting any provision of Section 4, if the Company, at any time on or after the
date of the Securities Purchase Agreement, (i) pays a stock dividend on one or
more classes of its then outstanding shares of Common Stock or otherwise makes a
distribution on any class of capital stock that is payable in shares of Common
Stock, (ii) subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its then outstanding shares of Common Stock
into a larger number of shares or (iii) combines (by combination, reverse stock
split or otherwise) one or more classes of its then outstanding shares of Common
Stock into a smaller number of shares, then in each such case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
immediately after such event.  Any adjustment made pursuant to clause
(i) of this paragraph shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clause (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination. If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated
hereunder, then the calculation of such Exercise Price shall be adjusted
appropriately to reflect such event.

       

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

      
        
           

        

        
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      (i)           Issuance of
Options.  If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 2(b)(i), the “lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option” shall be equal to (1) the lower of (x) 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 such Option, upon exercise of such Option and upon conversion, exercise or
exchange of any Convertible Security issuable upon exercise of such Option and
(y) the lowest exercise price set forth in such Option 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 minus (2) the sum of all amounts paid or payable to
the holder of such Option (or any other Person) upon the granting or sale of
such Option, upon exercise of such Option and upon conversion, exercise or
exchange of any Convertible Security issuable upon exercise of such Option plus
the value of any other consideration received or receivable by, or benefit
conferred on, the holder of such Option (or any other Person). Except as
contemplated below, no further adjustment of the Exercise Price shall be made
upon the actual issuance of such shares of Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of such
shares of Common Stock upon conversion, exercise or exchange of such Convertible
Securities.

       

      (ii)           Issuance of Convertible
Securities.  If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per
share.  For the purposes of this Section 2(b)(ii), the “lowest price
per share for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof” shall be equal to (1) the lower of (x) 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 and (y) the lowest conversion price set forth in such
Convertible Security for which one share of Common Stock is issuable upon
conversion, exercise or exchange thereof minus (2) the sum of all amounts paid
or payable to the holder of such Convertible Security (or any other Person) upon
the issuance or sale of such Convertible Security plus the value of any other
consideration received or receivable by, or benefit conferred on, the holder of
such Convertible Security (or any other Person). Except as contemplated below,
no further adjustment of the Exercise Price shall be made upon the actual
issuance of such shares of Common Stock upon conversion, exercise or exchange of
such Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of this
Warrant has been or is to be made pursuant to other provisions of this Section
2(b), except as contemplated below, no further adjustment of the Exercise Price
shall be made by reason of such issue or sale.

      
        
           

        

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

       

      (iv)           Calculation of Consideration
Received. If any Option or Convertible Security is issued in connection
with the issuance or sale or deemed issuance or sale of any other securities of
the Company, together comprising one integrated transaction, (x) such Option or
Convertible Security (as applicable) will be deemed to have been issued for
consideration equal to the Black Scholes Consideration Value thereof and (y) the
other securities issued or sold or deemed to have been issued or sold in such
integrated transaction shall be deemed to have been issued for consideration
equal to the difference of (I) the aggregate consideration received by the
Company minus (II) the Black Scholes Consideration Value of each such Option or
Convertible Security (as applicable).  If any shares of Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will be deemed to
be the net amount of consideration received by the Company therefor. If any
shares of Common Stock, Options or Convertible Securities are issued or sold for
a consideration other than cash, the amount of such consideration received by
the Company will be the fair value of such consideration, except where such
consideration consists of publicly traded securities, in which case the amount
of consideration received by the Company for such securities will be the
arithmetic average of the VWAPs of such security for each of the five (5)
Trading Days immediately preceding the date of receipt. If any shares of Common
Stock, Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such shares of Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or publicly traded securities will be determined jointly by the Company and
the Holder. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the “Valuation Event”), the fair
value of such consideration will be determined within five (5) Trading Days
after the tenth (10th) day
following such Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Holder. The determination of such appraiser
shall be final and binding upon all parties absent manifest error and the fees
and expenses of such appraiser shall be borne by the Company.

      
        
           

        

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

       

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

       

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

       

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

       

      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).

      
        
           

        

        
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                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 a form and substance reasonably satisfactory to the
Holder.

       

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

       

      (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)).

      
        
           

        

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

       

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

       

      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.

      
        
           

        

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

      
        
           

        

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

       

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

       

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

       

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

       

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

      
        
           

        

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

       

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

       

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

       

       
(a)           “Aggregate Face Exercise
Amount” is equal to $1,125,000.50.

       

       
(b)           “Aggregate Series B Face Exercise
Amount” is equal to $900,000.40.

      
        
           

        

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

       

      (d)           “Black Scholes Consideration
Value” means the value of the applicable Option or Convertible Security
(as the case may be) calculated using the Black Scholes Option Pricing Model
obtained from the “OV” function on Bloomberg as of the applicable date of
determination and for purposes of such calculation utilizing (i) an underlying
price per share equal to the Closing Sale Price of the Common Stock on the
Trading Day immediately preceding the public announcement of the execution of
definitive documents with respect to the issuance of such Option or Convertible
Security (as the case may be), (ii) a risk-free interest rate corresponding to
the U.S. Treasury rate for a period equal to the remaining term of such Option
or Convertible Security (as the case may be) as of the date of issuance of such
Option or Convertible Security (as the case may be) and (iii) an expected
volatility equal to the greater of 100% and the 100 day volatility obtained from
the HVT function on Bloomberg as of the Trading Day immediately following
the date of issuance of such Option or Convertible Security (as the case may
be).

       

      (e)           “Black Scholes Value” means the
value of the unexercised portion of this Warrant that remained on the date of
the Holder’s request pursuant to Section 4(c) calculated using the Black Scholes
Option Pricing Model obtained from the “OV” function on Bloomberg as of the
applicable date of determination and for purposes of such calculation utilizing
(i) an underlying price per share equal to the greater of (1) the highest
Closing Sale Price of the Common Stock during the period beginning on the
Trading Day immediately preceding the announcement of the applicable Fundamental
Transaction and ending on the Trading Day immediately following the consummation
of the applicable Fundamental Transaction and (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), (ii) a risk-free interest rate corresponding
to the U.S. Treasury rate for a period equal to the remaining term of this
Warrant as of the date of consummation of the applicable Fundamental Transaction
and (iii) an expected volatility equal to the greater of 100% and the 100 day
volatility obtained from the HVT function on Bloomberg as of the Trading Day
immediately following the public announcement of the applicable Fundamental
Transaction.

       

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

      
        
           

        

        
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      (g)           “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.

       

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

       

      (i)           “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.

       

      (j)           “Convertible Securities” means
any stock or other security (other than Options) that is 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.

       

      (k)           “Current Available Amount” is,
as of the applicable time of determination, equal to (i) the product of (1) the
Aggregate Face Exercise Amount times (2) the Series B Multiplier minus (ii) the
Prior Aggregate Exercise Amount.

       

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

       

      (m)           “Expiration Date” means the
date that is the fifth (5th)
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.

      
        
           

        

        
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      (n)           “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) 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 of its Subsidiaries 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 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 another 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 (5) reorganize, recapitalize or reclassify its Common
Stock, or (ii) any “person” or “group” (as these terms are used for purposes of
Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations
promulgated thereunder) is or shall become the “beneficial owner” (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Voting Stock of the
Company.

       

      (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 the
OTC Bulletin Board.

       

      (s)           “Prior Aggregate Exercise
Amount” is, as of the applicable time of determination, equal to the
total aggregate Exercise Price theretofore actually paid (whether in cash or by
delivery of notice of Cashless Exercise) with respect to the Series C Warrants
initially issued to Iroquois Master Fund Ltd. (and not including the exercise in
question).

       

      (t)           “Series B Multiplier” is equal
to the quotient of (i) the Series B Prior Aggregate Exercise Amount divided by
(ii) the Aggregate Series B Face Exercise Amount.

       

      (u)           “Series B Prior Aggregate Exercise
Amount” is, as of the applicable time of determination, equal to the
total aggregate Exercise Price (as defined in the Series B Warrants (as defined
in the Securities Purchase Agreement)) theretofore actually paid (whether in
cash or by delivery of notice of Cashless Exercise) for prior or concurrent
exercises with respect to the Series B Warrants initially issued to Iroquois
Master Fund Ltd.

      
        
           

        

        
          18

          
            

          

        

        
           

        

      

       

      (v)           “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.

       

      (w)           “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.

       

      (x)           “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).

       

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

       

      [signature page
follows]

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

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

       

      
        	
                NACEL
      ENERGY CORPORATION

              	 
      
	 
      	 
      
	
                By:

              	
                /s/
      Mark Schaftlein

              	 
      
	      
                Name:

              	
                Mark
      Schaftlein

              	 
	      
                Title:

              	
                Director

                President

              	 

      
 

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

      EXHIBIT
A

       

      EXERCISE
NOTICE

       

      TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

      WARRANT
TO PURCHASE COMMON STOCK

       

      NACEL
ENERGY CORPORATION

       

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

       

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

       

      
        	
                 
      

              	
                ____________

              	
                a
      “Cash
      Exercise” with respect to _________________ 

                Warrant
      Shares; and/or

              

      

       

      
        	
                 
      

              	
                ____________

              	
                a
      “Cashless
      Exercise” with respect to _______________ 

                Warrant
      Shares.

              

      

       

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

       

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

       

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

       

      _______________________

      _______________________

      _______________________

      _______________________

       

      Date:
_______________ __, ______

       

      
        
          
            	
                      

                  
	
                    Name
      of Registered
Holder

                  

          

        

      

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

       

      
        
          	
                  By:

                	
                    

                
	 
      	
                  Name:

                
	 
      	
                  Title:

                

        

      

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

      ACKNOWLEDGMENT

       

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

       

      
        
          
            	
                    NACEL
      ENERGY CORPORATION

                  
	 
      
	
                    By:

                  	
                      

                  
	
                    Name:

                  
	
                    Title:EXCHANGE
AGREEMENT

     

    This
EXCHANGE AGREEMENT (the
“Agreement”), dated as
of April 23, 2010, is by and among NACEL Energy Corporation, a Wyoming
corporation with offices located at 9375 E. Shea Blvd., Suite 100, Scottsdale,
Arizona 85260 (the “Company”), Iroquois Master
Fund Ltd. (the “Holder”)
and, solely for purposes of Sections 3(c), 3(f), 4 and 5 hereof, each of the
Subsidiaries (as defined in the Note).

    

    RECITALS

    

    A.          The
Company and the Holder entered into that certain Securities Purchase Agreement,
dated as of November 23, 2009 (as amended and modified by this Agreement, the
“Purchase
Agreement”).

     

    B.   
Simultaneously with the consummation of the transactions contemplated by the
Purchase Agreement, the Company issued and sold to the Holder (i) a Note (as
defined in the Purchase Agreement) in the original principal amount of $900,000
(the “2009 Note”), which
is convertible into shares of the Company’s common stock, $0.001 par value per
share (the “Common
Stock”) in accordance with the terms thereof, (ii) a Series A Warrant (as
defined in the Purchase Agreement) to acquire up to 1,250,000 shares of Common
Stock (the “2009 Series A
Warrant”) (as exercised, collectively, the “2009 Series A Warrant Shares”), (iii) a
Series B Warrant (as defined in the Purchase Agreement) to acquire up to
1,000,000 shares of Common Stock (the “2009 Series B Warrant”) (as
exercised, collectively, the “2009 Series B Warrant Shares”) and (iv) a
Series C Warrant (as defined in the Purchase Agreement) to acquire up to
1,250,000 shares of Common Stock (the “2009 Series C Warrant”) (as
exercised, collectively, the “2009 Series C Warrant
Shares”).  The 2009 Series A Warrant, the 2009 Series B Warrant
and the 2009 Series C Warrant are collectively referred to herein as the “2009 Warrants.”  The
2009 Series A Warrant Shares, the 2009 Series B Warrant Shares and the 2009
Series C Warrant Shares are collectively referred to herein as the “2009 Warrant
Shares.”

    

    C.           Since
the issuance of the 2009 Note, one or more Events of Default (as defined in the
2009 Note) have occurred thereunder.

    

    D.           In
exchange for the 2009 Note and the 2009 Warrants, the Company has authorized the
issuance to the Holder of (i) a senior secured convertible note, in the form
attached hereto as Exhibit
A (including all senior secured convertible notes issued in exchange
therefor or replacement thereof, the “Note”), which Note shall be
convertible into shares of Common Stock (as converted, the “Conversion Shares”), in accordance with
the terms thereof, (ii) a Series A Warrant, in the form attached hereto as Exhibit
B (including all warrants issued in exchange therefor or replacement
thereof, the “Series A
Warrant”) to acquire up to 3,750,000 shares of Common Stock (as
exercised, collectively, the “Series A Warrant Shares”), (iii) a
Series B Warrant, in the form attached hereto as Exhibit
C (including all warrants issued in exchange therefor or replacement
thereof, the “Series B
Warrant”) to acquire up to 3,000,000 shares of Common Stock (as
exercised, collectively, the “Series B Warrant Shares”) and (iv) a
Series C Warrant, in the form attached hereto as Exhibit
D (including all warrants issued in exchange therefor or replacement
thereof, the “Series C
Warrant”) to acquire up to 3,750,000 shares of Common Stock (as
exercised, collectively, the “Series C Warrant Shares”). The Series A
Warrant, the Series B Warrant and the Series C Warrant are collectively referred
to herein as the “Warrants.” The Series A
Warrant Shares, the Series B Warrant Shares and the Series C Warrant Shares are
collectively referred to herein as the “Warrant Shares.” The Note, the
Conversion Shares, the Warrants and the Warrant Shares are collectively referred
to herein as the “Securities.”
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    E.           The
exchange of the 2009 Note and 2009 Warrants for the Note and Warrants is being
made in reliance upon the exemption from registration provided by
Section 3(a)(9) of the 1933 Act, as amended (the “1933 Act”).

    

    AGREEMENT

     

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

     

    
      	
              1.

            	
              EXCHANGE
      OF 2009 NOTE AND 2009 WARRANTS.

            

    

     

    
      (a)      
   2009 Note and 2009
Warrants.
Simultaneously with the execution of this Agreement, the Holder shall, and the
Company shall, pursuant to Section 3(a)(9) of the 1933 Act, exchange the 2009
Note and 2009 Warrants for the Note and the Warrants.

    

     

    (b)          Closing. The
closing (the “Closing”)
of the exchange of the 2009 Note and 2009 Warrants shall occur at the offices of
Greenberg Traurig, LLP, 77 W. Wacker Drive, Suite 3100, Chicago, Illinois 60601.
The Closing shall occur on the date hereof simultaneously with the execution of
this Agreement (the “Closing
Date”). As used herein “Business Day” means any day
other than a Saturday, Sunday or other day on which commercial banks in New
York, New York are authorized or required by law to remain closed.

     

    (c)          Delivery. Within
three (3) Business Days following the Closing Date, the Holder shall deliver the
2009 Note and the 2009 Warrants to the address specified in writing by the
Company. Within one (1) Business Day following the Closing Date, the Company
shall deliver the Note and Warrants to the address specified in writing by the
Holder, in all cases duly executed on behalf of the Company and registered in
the name of the Holder or its designee.

     

    
      	
              2.

            	
              REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

            

    

     

    The
Company hereby makes, subject to the exceptions set forth in the Disclosure
Schedules attached to this Agreement, each and every representation and warranty
to the Holder that is contained in the Purchase Agreement as if each and every
such representation and warranty was originally made on the date hereof and made
with respect to the Securities and the transactions contemplated by this
Agreement, and each and every such representation and warranty is hereby
incorporated herein by reference. For purposes of this Agreement, “Exchange Documents” means this
Agreement, the Note, the Warrants and each of the other agreements and
instruments entered into by the parties hereto in connection with the
transactions contemplated hereby and thereby.
 

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    
      	
              3.

            	
              COVENANTS.

            

    

     

    (a)          Fees.  The
Company shall reimburse the Holder or its designee(s) for all costs and expenses
incurred by it or its affiliates in connection with the transactions
contemplated by the Exchange Documents (including, without limitation, all legal
fees and disbursements in connection therewith, documentation and implementation
of the transactions contemplated by the Exchange Documents and due diligence in
connection therewith) and in connection with its dealings with the Company and
the Subsidiaries with respect to the Transaction Documents (as defined in the
Purchase Agreement) up to $35,000, which amount shall be paid by the Company at
the Closing by adding such amount to the original principal amount of the Note
issued to the Holder at the Closing or paid by the Company by wire transfer of
immediately available funds on demand by the Holder upon termination of this
Agreement so long as such termination did not occur as a result of a material
breach by the Holder of any of its obligations hereunder (as the case may be).
The Company shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, or broker’s commissions (other than for Persons engaged
by the Holder) relating to or arising out of the transactions contemplated
hereby incurred by the Company. The Company shall pay, and hold the Holder
harmless against, any liability, loss or expense (including, without limitation,
attorneys’ fees and out-of-pocket expenses) arising in connection with any claim
relating to any such payment.

     

    (b)          Disclosure of Transactions
and Other Material Information. The
Company shall, on or before 8:30 a.m., New York time, on the first (1st)
Business Day after the date of this Agreement, file a Current Report on Form 8-K
describing all the material terms of the transactions contemplated by the
Exchange Documents in the form required by the 1934 Act (as defined in the
Purchase Agreement) and attaching all the material Exchange Documents
(including, without limitation, this Agreement and the forms of the Note and
Warrants) (including all attachments, the “8-K Filing”). From and after
the filing of the 8-K Filing, the Company shall have disclosed all material,
non-public information delivered to the Holder by the Company or any of the
Subsidiaries, or any of their respective officers, directors, employees or
agents (if any) in connection with the transactions contemplated by the Exchange
Documents. Neither the Company, its Subsidiaries nor the Holder shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, the Company shall be entitled, without
the prior approval of the Holder, to make any press release or other public
disclosure with respect to such transactions (i) in substantial conformity with
the 8-K Filing and contemporaneously therewith and (ii) as is required by
applicable law and regulations (provided that in the case of clause (i) the
Holder shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release). Without the prior
written consent of the Holder, the Company shall not (and shall cause each of
its Subsidiaries and affiliates to not) disclose the name of the Holder in any
filing (other than the 8-K Filing), announcement, release or otherwise, except
(a) as required by federal securities law in connection with the filing of final
Exchange Documents (including signature pages thereto) with the SEC (as defined
in the Purchase Agreement) and (b) to the extent such disclosure is required by
applicable law or market regulations, in which case the Company shall provide
the Holder with prior notice of such disclosure permitted
hereunder.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    (c)          Transaction
Documents. It is expressly understood and agreed that (i) this Agreement
and the other Exchange Documents shall be “Transaction Documents,” (ii) for all
purposes of all the Transaction Documents (including, without limitation, with
respect to all rights, powers, remedies and benefits provided to the Holder
thereunder), the Note, the Conversion Shares, the Warrants, the Warrant Shares
and the Securities shall be deemed to have been issued pursuant to the Purchase
Agreement and shall be treated as if they were the “Notes,” “Conversion Shares,”
“Warrants,” “Warrant Shares” and “Securities” under the Purchase Agreement and
the other Transaction Documents and (iii) that the Transaction Documents are
hereby amended to give full force and effect to the transactions contemplated by
this Agreement and the other Exchange Documents. Except as otherwise expressly
provided herein, (1) the Purchase Agreement and each other Transaction Document
is, and shall continue to be, in full force and effect and is hereby ratified
and confirmed in all respects, except that on and after the Closing Date (A) all
references in the Purchase Agreement to the “Purchase Agreement,” “hereto,”
“hereof,” “this Agreement,” “hereunder” or words of like import referring to the
Purchase Agreement shall mean the Purchase Agreement as amended by this
Agreement, (B) all references in the other Transaction Documents to the
“Purchase Agreement,” “thereto,” “thereof,” “thereunder” or words of like import
referring to the Purchase Agreement shall mean the Purchase Agreement as amended
by this Agreement, (C) all references in Transaction Documents to the
“Transaction Documents,” “thereto,” “thereof,” “thereunder” or words of like
import referring to the Transaction Documents shall mean the Transaction
Documents as amended by this Agreement and (D) the Note and Warrants shall
supersede and replace the 2009 Note and 2009 Warrants and (2) the
execution, delivery and effectiveness of this Agreement shall not operate as an
amendment of any right, power, benefit or remedy of the Holder under any
Transaction Document, nor constitute an amendment of any provision of any
Transaction Document and all of them shall continue in full force and effect
(including, without limitation, the Security Interests (as defined in the
Security Agreement (as defined in the Note)) created thereunder in favor of the
Holder), as amended or modified by this Agreement.

     

    (d)          Rule 144. The Company
expressly acknowledges and agrees that for purposes of Rule 144(d) the Holder
shall be deemed to have acquired the Note and each of the Warrants on November
24, 2009, and that the holding period for the Note and each of the Warrants may
be tacked onto the holding period of the 2009 Note and each of the 2009
Warrants, respectively. The Company shall not (and shall cause each of its
officers, directors, employees and agents to not) take any action or omit to
take any action inconsistent with the foregoing. The Company shall take all
actions necessary (including, without limitation, to cause the issuance by its
legal counsel of any necessary legal opinions) to issue to the Holder Conversion
Shares and Warrant Shares that are immediately freely tradable without
restriction and not containing any restrictive legend, all without the need for
any action by the Holder so long as the holding period for a non-affiliate under
Rule 144 is met.

     

    (e)          Anti-Dilution
Acknowledgment. It is expressly understood and agreed that no security
(as such term is defined in the 1933 Act) of the Company or any of the
Subsidiaries that has been issued, or is issued or issuable on or after the date
hereof, to JMJ Financial or any of its affiliated or related Persons (as defined
in the Purchase Agreement) shall be an Excluded Security (as defined in the
Purchase Agreement) and that Section 7 of the Note and Section 2 of the Warrants
shall apply to the issuance of all securities of the Company or any of the
Subsidiaries (including, without limitation, Common Stock issuable upon
conversion of any promissory note and disregarding any floor price set forth
therein) to JMJ Financial or any of its affiliated or related
Persons.
 

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    (f)          Acknowledgments. The
Company and each Subsidiary expressly acknowledge and agree that (i) the amount
to be added to the original principal amount of the Note as contemplated by
Section 3(a) is a Secured Obligation (as defined in the Security Agreement) and
(ii) the Note does not extinguish the indebtedness evidenced by the 2009 Note
and is not a novation, repayment or reborrowing thereof but rather is given in
replacement and substitution of the 2009 Note. Each of the Subsidiaries (1)
without implication that the contrary would otherwise be true or is required,
consent to the transactions contemplated hereby and the terms hereof and the
other Exchange Documents and (2) without limiting Section 3(c), ratifies and
confirms that all of its respective obligations and undertaking under its
respective Guaranty (as defined in the Security Agreement) and agrees that such
obligations and undertakings remain in full force and effect and acknowledges
and agrees that there is no defense, setoff or counterclaim of any kind or
nature to such obligations and undertakings.

     

    
      	
              4.

            	
              TERMINATION.

            

    

     

    In the
event that the Closing shall not have occurred on or before three (3) days from
the date hereof, any such non-breaching party at any time shall have the right
to terminate its obligations under this Agreement with respect to such breaching
party on or after the close of business on such date without liability of such
non-breaching party to any other party; provided, however, notwithstanding any
such termination the Company shall remain obligated to reimburse the Holder for
the expenses described in Section 3(a) above. Nothing contained in this Section
4 shall be deemed to release any party from any liability for any breach by such
party of the terms and provisions of this Agreement or the other Exchange
Documents or to impair the right of any party to compel specific performance by
any other party of its obligations under this Agreement or the other Exchange
Documents.

     

    
      	
              5.

            	
              MISCELLANEOUS.

            

    

     

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

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    (e)          Entire Agreement;
Amendments. This
Agreement, the other Exchange Documents and the schedules and exhibits attached
hereto and thereto and the instruments referenced herein and therein supersede
all other prior oral or written agreements between the Holder, the Company, the
Subsidiaries, their affiliates and Persons acting on their behalf solely with
respect to the matters contained herein and therein, and this Agreement, the
other Exchange Documents, the schedules and exhibits attached hereto and thereto
and the instruments referenced herein and therein contain the entire
understanding of the parties solely with respect to the matters covered herein
and therein; provided, however, nothing contained in this Agreement or any other
Transaction Document shall (or shall be deemed to) (i) except as expressly
contemplated by Section 3(c), have any effect on any agreements the Holder has
entered into with the Company or any of its Subsidiaries prior to the date
hereof with respect to any prior investment made by the Holder in the Company or
(ii) except as expressly contemplated by Section 3(c), waive, alter, modify or
amend in any respect any obligations of the Company or any of its Subsidiaries,
or any rights of or benefits to the Holder or any other Person, in any agreement
entered into prior to the date hereof between or among the Company and/or any of
its Subsidiaries and the Holder and all such agreements shall continue in full
force and effect. Except as specifically set forth herein, neither the Company
nor the Holder makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be amended other
than by an instrument in writing signed by the Company and the Holder. No
provision of this Agreement may be waived other than by an instrument in writing
signed by the waiving party. Without limiting the foregoing, the Company
confirms that the Holder has not made any commitment or promise or has any other
obligation to provide any financing to the Company, any Subsidiary or
otherwise.

     

    (f)           Notices. Any
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) Business Day after deposit with an overnight courier service
with next day delivery specified, in each case, properly addressed to the party
to receive the same. The addresses and facsimile numbers for such communications
shall be as set forth in Section 9(f) of the Purchase Agreement or such other
address and/or facsimile number and/or to the attention of such other Person as
the recipient party has specified by written notice given to each other party
five (5) days prior to the effectiveness of such change, provided that Greenberg
Traurig, LLP shall be provided copies of notices sent to the Holder. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender’s facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by an
overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from an overnight courier service in accordance
with clause (i), (ii) or (iii) above, respectively.
 

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

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

     

    (h)          No Third Party
Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, other than the Released
Parties (as defined below) referred to in Section 5.

     

    (i) 
         Survival. The
representations, warranties, agreements and covenants shall survive the
Closing.

     

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

     

    (k)          Construction. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party. For clarification purposes, the Recitals are part
of this Agreement and are hereby incorporated by reference.

     

    [signature pages
follow]
 

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

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

     

    
      
        
          
            
              	
                      COMPANY:

                    
	 
	
                      NACEL
      ENERGY CORPORATION

                    
	 
      
	
                      By: 

                    	/s/
      Mark Schaftlein
	 
      	
                      Name: Mark
      Schaftlein

                    
	 
      	
                      Title:  
      Director

                                 
      President 

                    

            

          

        

      

    

    
      
          

          
            
               

            

            
               

              
                

              

            

            
               

            

          

        

         

      

    

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

      

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

                                                              the
      British Columbia Business Corporations Act

                                                            
	 	 
      
	 	
                                                              By:

                                                            	/s/ Mark
      Schaftlein
	  	
                                                              Name:
      

                                                            	      
                                                              Mark
      Schaftlein

                                                            
	 	
                                                              Title:

                                                            	Manager 
	 	 
      
	 	
                                                              BLUE
      CREEK WIND ENERGY FACILITY LLC, a

                                                              Texas
      limited liability company

                                                            
	 	 
      
	 	
                                                              By:

                                                            	      
                                                              /s/
      Mark Schaftlein

                                                            
	 	
                                                              Name: 

                                                            	      
                                                              Mark
      Schaftlein

                                                            
	 	
                                                              Title:

                                                            	Manager
	 	 
      
	 	
                                                              CHANNING
      FLATS WIND ENERGY FACILITY

                                                              LLC,
      a Texas limited liability company

                                                            
	 	 
      
	 	
                                                              By:

                                                            	      
                                                              /s/
      Mark Schaftlein

                                                            
	 	
                                                              Name: 

                                                            	      
                                                              Mark
      Schaftlein

                                                            
	 	
                                                              Title:

                                                            	Manager
	 	 
      
	 	
                                                              HEDLEY
      POINTE WIND ENERGY FACILITY

                                                              LLC,
      a Texas limited liability company

                                                            
	 	 
      
	 	
                                                              By:

                                                            	      
                                                              /s/
      Mark Schaftlein

                                                            
	 	
                                                              Name: 

                                                            	      
                                                              Mark
      Schaftlein

                                                            
	 	
                                                              Title:

                                                            	Manager
	 	 
      
	 	
                                                              LEILA
      LAKE WIND ENERGY FACILITY LLC, a

                                                              Texas
      limited liability company

                                                            
	 	 
      
	 	
                                                              By:

                                                            	      
                                                              /s/
      Mark Schaftlein

                                                            
	 	
                                                              Name: 

                                                            	      
                                                              Mark
      Schaftlein

                                                            
	 	
                                                              Title:

                                                            	Manager

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

      

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                	SUBSIDIARIES:
	 	 
	 	
                                        SNOWFLAKE
      WIND ENERGY FACILITY LLC, an

                                        Arizona
      limited liability company

                                      
	 	 
      
	 	
                                        By:

                                      	      
                                        /s/
      Mark Schaftlein

                                      
	 	
                                        Name: 

                                      	      
                                        Mark
      Schaftlein

                                      
	 	
                                        Title:

                                      	Manager
	 	 
      
	 	
                                        SWISHER
      WIND ENERGY FACILITY LLC, a

                                        Texas
      limited liability company

                                      
	 	 
      
	 	
                                        By:

                                      	      
                                        /s/
      Mark Schaftlein

                                      
	 	
                                        Name: 

                                      	      
                                        Mark
      Schaftlein

                                      
	 	
                                        Title:

                                      	Manager

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

    

    
      
        
          
            	 
      	
                    HOLDER:

                  
	 
      	 
      
	 
      	
                    IROQUOIS
      MASTER FUND LTD.

                  
	 	 
	 
      	/s/
      Joshua Silverman
	 
      	
                    By:
      Joshua Silverman, Authorized
Signatory

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